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[House Report 109-572]
[From the U.S. Government Publishing Office]

109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-572

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

 
                  MARK-TO-MARKET EXTENSION ACT OF 2006

                                _______
                                

 July 17, 2006.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 5527]

      [Including cost estimate of the Congressional Budget Office]

      The Committee on Financial Services, to whom was referred 
the bill (H.R. 5527) to extend the authority of the Secretary 
of Housing and Urban Development to restructure mortgages and 
rental assistance for certain assisted multifamily housing, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     1
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     3
Hearings.........................................................     4
Committee Consideration..........................................     4
Committee Votes..................................................     4
Committee Oversight Findings.....................................     4
Performance Goals and Objectives.................................     4
New Budget Authority, Entitlement Authority, and Tax Expenditures     4
Committee Cost Estimate..........................................     5
Congressional Budget Office Estimate.............................     5
Federal Mandates Statement.......................................    10
Advisory Committee Statement.....................................    10
Constitutional Authority Statement...............................    10
Applicability to Legislative Branch..............................    10
Section-by-Section Analysis of the Legislation...................    10
Changes in Existing Law Made by the Bill, as Reported............    10

                               Amendment

      The amendment is as follows:
      Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Mark-to-Market Extension Act of 
2006''.

SEC. 2. REAUTHORIZATION.

    Section 579 of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997 (42 U.S.C. 1437f note) is amended--
          (1) in subsection (a)(1), by striking ``October 1, 2006'' and 
        inserting ``October 1, 2011''; and
          (2) in subsection (b), by striking ``October 1, 2006'' and 
        inserting ``October 1, 2011''.

SEC. 3. EXCEPTION RENTS.

    Section 514(g)(2)(A) of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997 (42 U.S.C. 1437f note) is amended by striking 
``five percent'' and inserting ``nine percent''.

SEC. 4. PERIOD OF ELIGIBILITY FOR NONPROFIT DEBT RELIEF.

    Section 517(a)(5) of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997 (42 U.S.C. 1437f note) is amended by 
inserting before the period at the end the following: ``: Provided, 
That if such purchaser acquires such project subsequent to the date of 
recordation of the affordability agreement described in section 
514(e)(6), (A) such purchaser must acquire such project on or before 
the later of (i) five years after the date of recordation of the 
affordability agreement and (ii) two years after the date of enactment 
of this title; and (B) the Secretary must have received, and determined 
acceptable, such purchaser's application for modification, assignment 
or forgiveness prior to such purchaser's acquisition of the project''.

SEC. 5. DEFINITIONS.

    Section 512 of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997 (42 U.S.C. 1437f note) is amended by adding 
at the end the following new paragraph:
          ``(20) Disaster-damaged eligible project.--The term 
        `disaster-damaged eligible project' means an eligible 
        multifamily housing project--
                  ``(A) that is located in a county that was declared a 
                major disaster area on or after January 1, 2005, by the 
                President pursuant to the Robert T. Stafford Disaster 
                Relief and Emergency Assistance Act (42 U.S.C. 5121 et 
                seq.);
                  ``(B) whose owner carried casualty and liability 
                insurance covering such project in amounts required by 
                the Secretary;
                  ``(C) that suffered damages not covered by such 
                insurance that the Secretary determines are likely to 
                exceed $5,000 per unit in connection with the natural 
                disaster that was the subject of such designation; and
                  ``(D) whose owner requests restructuring within two 
                years following the date that such damages were 
                incurred.
          Disaster-damaged eligible projects shall be eligible without 
        regard to the relationship between rent level for the assisted 
        units and comparable market rents.''.

SEC. 6. DISASTER-DAMAGED ELIGIBLE PROJECTS.

    (a) Market Rent Determinations.--Subparagraph (B) of section 
514(g)(1) of the Multifamily Assisted Housing Reform and Affordability 
Act of 1997 (42 U.S.C. 1437f note) is amended to read as follows:
                  ``(B) if those rents cannot be determined--
                          ``(i) with respect to a disaster-damaged 
                        eligible project, are equal to 100 percent of 
                        the fair market rents for the relevant market 
                        area (in effect at the time of such disaster); 
                        and
                          ``(ii) with respect to other eligible 
                        multifamily housing projects, are equal to 90 
                        percent of the fair market rents for the 
                        relevant market area.''.
    (b) Owner Investment.--Section 517(c) of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997 (42 U.S.C. 1437f note) is 
amended by adding at the end the following new paragraph:
          ``(3) Properties damaged by natural disasters.--With respect 
        to a disaster-damaged eligible project, the owner contribution 
        toward rehabilitation needs shall be determined in accordance 
        with paragraph (2)(C).''.

                          Purpose and Summary

    H.R. 5527, the Mark-to-Market Extension Act of 2006, 
reauthorizes the Mark-to-Market program, which allows for 
mortgage and rent restructuring for certain section 8 projects. 
This legislation would reauthorize the Mark-to-Market program, 
currently set to sunset at the end of FY 2006, through the end 
of FY 2011.

                  Background and Need for Legislation

    Legislation creating the Mark-to-Market program was enacted 
in 1997 to reduce the cost to the Federal Government of 
renewing section 8 contracts. By restructuring mortgages and 
lowering rents, the program reduces the Federal costs of over-
subsidized section 8 properties. The section 8 assisted housing 
program, administered by the Department of Housing and Urban 
Development (HUD), provided project-based rental subsidies to 
encourage developers to build affordable housing for low-income 
residents. Under the program, tenants paid a fixed percentage 
of their income towards rent, with the balance made up by the 
Federal Government in the form of subsidies to the project 
owner. The subsidy was attached to the unit, not to the tenant, 
and many of the projects' rents were set higher than market 
rents of comparable unassisted units in the area. When property 
costs increased, so did rent, resulting in an increase of the 
section 8 subsidy.
    An examination of the Federal Housing Administration (FHA) 
portfolio found that nearly 10,000 of these properties were 
also receiving section 8 project-based rental assistance, and 
that a substantial number of these had rents higher than the 
rents of comparable, unassisted rental units in the same rental 
housing market. Also, many section 8 projects were discovered 
to be financially or physically distressed. In an effort to 
address the economic, physical, and management problems of 
these projects, while retaining the low-income affordability 
and availability of the housing stock, Congress authorized the 
Mark-to-Market restructuring program. Administered out of the 
Office of Multifamily Housing Assistance Restructuring (OMHAR), 
the program was designed to reduce Federal subsidies to owners 
of FHA-insured section 8 properties, lower the above-market 
rents payable to these owners, and restructure the mortgages of 
these properties so that owners can operate effectively on less 
income.
    Under the Mark-to-Market program, interested section 8 
owners are screened to see if their properties are economically 
viable and in good physical condition. If selected, the owners 
work with participating administrative entities to develop a 
rental assistance plan for the development. Originally, 
eligible owners were just those of section 8 project-based 
properties with FHA-insured mortgages and rents exceeding 
market levels. Now, also included, are owners of properties 
other than section 8 project-based projects. All eligible 
owners will have the opportunity to participate in the mortgage 
restructuring plan. In exchange for debt restructuring, owners 
must agree to maintain affordability and use restrictions in 
order to keep the property affordable as housing for low-income 
tenants for at least 30 years. This debt restructuring is 
designed to reduce the outstanding mortgages of section 8 
property owners so that they can charge lower rents with 
reduced section 8 assistance.
    Eligible owners may also engage in rent restructuring; 
unlike the mortgage restructuring described above, the Mark-to-
Market rent restructuring programs contains no affordability or 
use restriction requirements. In a rent restructuring, 
participating administrative entities work with project owners 
to bring rents to market or near market levels, so that rents 
will be sufficient to cover budget-based cost increases and 
owners will recover a reasonable rate of return after 
accounting for operating costs. HUD is then required to renew 
all budget-based contracts for 5 years, with adjustments after 
that period if necessary.
    The Committee believes that this authorization will 
continue the efforts made by the Federal Housing Administration 
(FHA) to restructure developments that, when completed, save 
the Federal Government money while extending affordable housing 
units for future generations.

                                Hearings

    No hearings were held on H.R. 5527 in the 109th Congress.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 14, 2006, and ordered reported H.R. 5527, the Mark-to-
Market Extension Act of 2006, as amended, to the House by a 
voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken with in conjunction with the 
consideration of this legislation. A motion by Mr. Oxley to 
report the bill, as amended, to the House with a favorable 
recommendation was agreed to by a voice vote. During the 
consideration of the bill, the following amendment was 
considered:
    An amendment by Mr. Ney, offered on behalf of Ms. Pryce, 
increasing the exemption rent authority, was agreed to by a 
voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 5527, the Mark-to-Market Extension Act of 2006, 
reauthorizes the Mark-to-Market program, which allows for 
mortgage and rent restructuring for certain section 8 projects. 
This will reduce the cost to the Federal Government of renewing 
section 8 contracts.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 22, 2006.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5527, the Mark-to-
Market Extension Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Chad Chirico.
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

H.R. 5527--Mark-to-Market Extension Act of 2006

    Summary: H.R. 5527 would extend the Multifamily Assisted 
Housing Restructuring and Affordability Act of 1997 (MAHRA) for 
five years beyond its current expiration date of September 30, 
2006. That law authorizes the so-called mark-to-market approach 
for renewing Section 8 Housing Assistance Payment (HAP) 
contracts and for the restructuring of certain mortgages 
insured by the Federal Housing Administration (FHA). Under the 
mark-to-market approach, HAP contracts are renewed at market 
rents for FHA-insured projects that currently receive above-
market results and, if necessary, the mortgages for those 
projects are written down to levels that could be supported by 
the lower rents. In addition, the bill would extend debt 
restructuring eligibility to properties damaged by disasters 
and expand the program's authority to set rents above 120 
percent of the fair market rent.
    CBO estimates that enacting H.R. 5527 would prevent some 
projects from defaulting on FHA-insured mortgages and thus 
reduce direct spending by $188 million over the 2006-2011 
period. We also estimate that implementing H.R. 5527 would 
allow for savings of $25 million in discretionary spending over 
the 2007-2011 period, assuming that future appropriations are 
reduced to reflect the lower costs of Section 8 contracts.
    H.R. 5527 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA); 
any costs to state, local, or tribal governments would be 
incurred voluntarily.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 5527 is shown in the following table. 
The costs of this legislation would fall within budget 
functions 370 (mortgage and housing credit) and 600 (income 
security).
    Basis of estimate: CBO estimates that enacting H.R. 5527 
would reduce direct spending by a total of $188 million over 
the 2006-2011 period. Most of the estimated savings would be 
recorded in the year of the bill's enactment. For this 
estimate, CBO assumes that H.R. 5527 will be enacted by the end 
of fiscal year 2006.
    Savings would result principally from avoiding defaults on 
FHA-insured mortgages that are anticipated under current law. 
Those estimated FHA savings would be reflected in the budget on 
a present value basis as ``loan modifications'' under the 
provisions of the Federal Credit Reform Act.
    Subject to the availability of appropriations, CBO 
estimates that implementing H.R. 5527 would result in savings 
of $33 million over the next five years from the reduction of 
HAP contract rents, assuming that appropriations are reduced 
accordingly. CBO also estimates that expanding exception rent 
authority from 5 percent of the portfolio to 9 percent would 
cost $8 million, assuming appropriation of the necessary 
amounts. Thus, CBO estimates that implementing this bill would 
yield net discretionary savings of $25 million over the 2007-
2011 period.

Background

    In 1997, MAHRA was enacted to address financial problems in 
the Section 8 program for affordable housing assistance. At 
that time, over 4,000 multifamily projects with FHA-insured 
mortgages were receiving project-based rent subsidies under 
Section 8 of the United States Housing Act of 1937. The 
original HAP contracts attached to these projects were written 
for periods typically ranging from 15 to 40 years. The majority 
of these projects had units with rents that exceeded those for 
comparable unassisted units; however, the Department of Housing 
and Urban Development (HUD) did not have the authority to renew 
the contracts at above-market rents. Consequently, few of these 
projects would have remained financially viable when their 
rental income was reduced to market rates as owners would have 
been able to cover their costs. With reduced rents, such 
projects would have been expected to default on their 
mortgages, generating large losses to the FHA insurance fund 
and possibly displacing many tenants in these projects.

                                    ESTIMATED BUDGETARY EFFECTS OF H.R. 5527
----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2006     2007     2008     2009     2010     2011
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Extend Restructuring authority Through 2011:
    Estimated Budget Authority............................     -173        0        0        0        0        0
    Estimated Outlays.....................................     -173        0        0        0        0        0
Expand Eligibility to properties damaged in Disasters:
    Estimated Budget Authority............................      -11       -1       -1       -1       -1       -1
    Estimated Outlays.....................................      -11       -1       -1       -1       -1       -1

                                        SPENDING SUBJECT TO APPROPRIATION

Spending Under Current Law for Project-based Rental
 Assistance:
    Estimated Authorization Level a.......................    5,037    5,404    5,605    5,935    6,321    6,657
    Estimated Outlays.....................................    5,883    5,738    5,523    5,801    6,164    6,520
Proposed Changes:
    Section 8 Rental Assistance:
        Estimated Authorization Level.....................        0       -3       -4       -8      -11      -12
        Estimated Outlays.................................        0       -2       -4       -6      -10      -12
    Exception Rents:
        Estimated Authorization Level.....................        0        1        1        2        3        3
        Estimated Outlays.................................        0        *        1        2        2        3
Proposed Spending Under H.R. 5527 for Project-based Rental
 Assistance:
        Estimated Authorization Level.....................    5,037    5,402    5,602    5,929    6,313    6,648
    Estimated Outlays.....................................    5,883    5,737    5,520    5,796    6,157    6,511
----------------------------------------------------------------------------------------------------------------
a The amount shown for 2006 is the amount appropriated for project-based rental assistance in that year. The
  2007-2011 levels are CBO baseline projections, assuming adjustments for anticipated inflation and the renewal
  of all units.

Notes: Components may not sum to totals because of rounding. * = Less than $500,000.

    The mark-to-market process usually involves reducing a 
project's rents to market levels and then either modifying or 
refinancing the existing mortgage at an amount that could be 
supported by the new market rents (this process is often 
referred to as a ``full'' restructuring). Specifically, FHA 
prepays all or a portion of the owner's existing mortgage debt 
through a partial payment of claims (PPC) and then takes back a 
second mortgage, and in some cases a third mortgage, to recover 
some of the PPC. In some instances, though, only a property's 
rent is reduced to market levels; this type of restructuring 
(referred to as a ``lite'' restructuring) usually occurs when 
the project is physically and financially sound enough to 
operate at market-level rents with its existing mortgage.
    Under current law, when MAHRA expires, HUD will still be 
required to renew HAP contracts at market levels, but the 
authority to restructure mortgage debt will no longer be 
available for projects that have yet to enter the mark-to-
market program. Without that authority, many projects would not 
generate sufficient cash flow to support their mortgage after 
rents are reduced to market levels.

Direct spending

    CBO estimates that enacting H.R. 5527 will result in 
savings principally by avoiding defaults on FHA-insured 
multifamily mortgages that otherwise would occur under current 
law.
    Avoiding FHA Multifamily Defaults through Mark-to-Market. 
Information provided by HUD demonstrate that at the end of 
fiscal year 2005, about 1,400 projects have undergone full 
restructuring since MAHRA was enacted in 1997. By extending the 
mark-to-market authority through 2011, CBO estimates that an 
additional 600 properties with FHA-insured mortgages would have 
their mortgage debt restructured.
    Based on a review of financial information on nearly 1,100 
projects that were restructured since the program was 
reauthorized in 2001, CBO estimates that the cost of 
restructuring mortgages dedt is less expensive than the cost of 
default by about $500,000 per project, on average. Our analysis 
indicates that, on a present value basis, defaulted projects 
would have cost the FHA insurance fund an average of $2.2 
million per project, while restructured projects have cost the 
FHA insurance fund an average of $1.6 million each since the 
program was reauthorized in 2001. The costs of defaults 
represent payments covering the remaining balance on the 
mortgage. Based on information provided by HUD, CBO does not 
expect any significant net recoveries on defaulted assisted 
properties. HUD expects to sell assisted properties that 
default to buyers interested in maintaining the property as 
affordable housing for a nominal value.
    The cost of restructuring mortgage debt includes the 
payment covering the remaining balance on the mortgage plus 
amounts used for rehabilitation (an estimated 81 percent of the 
loan's unpaid balance or about $1.7 million per project, on 
average), the fees paid to the public or private organization 
that assists the Office of Affordable Housing Preservation with 
mark-to-market activities (about $55,000 per project), and the 
FHA subsidy cost associated with guaranteeing the new first 
mortgage ($32,000 per project), less the present value of 
expected receipts from repayments on the second mortgage 
($129,000 per project). HUD expects to sell the second 
mortgages after holding them for about five years.
    The additional restructurings that could occur under H.R. 
5527 would reduce the cost to the FHA insurance fund over the 
remaining life of the affected loan guarantees. If the mark-to-
market program ends, CBO assumes, based on data provided by HUD 
and discussions with industry experts, that about 90 percent of 
the 600 projects whose mortgages have not yet been restructured 
would default. The remaining 10 percent of projects are assumed 
to either be sustainable at market rents or would not have 
their rents reduced to levels that would result in a default 
absent the debt restructuring tools authorized by the mark-to-
market program. For these projects that are not expected to 
default, enacting this bill would result in restructuring costs 
only.
    Because enacting H.R. 5527 would change the expected cash 
flows associated with the FHA multifamily loan guarantee 
program, that loan restructuring is considered to be a 
modification of existing federal loan guarantees. Under credit 
reform procedures, the costs of a loan modification are 
estimated on a net-present-value basis in the year in which the 
legislation is enacted. Assuming that the bill is enacted late 
in fiscal year 2006, CBO estimates savings of $173 million this 
year. (Such estimated savings would be recorded in 2007 if the 
bill is enacted after September 30, 2006.)
    Expand Eligibility to Properties Damaged by Disasters. 
Section 4 of the bill would extend restructuring authorities to 
projects that suffered substantial damage in a county that was 
declared a Major Disaster Area on or after January 1, 2005. To 
be eligible, properties must have sustained damage that is 
likely to exceed $5,000 per unit beyond what is covered by 
casualty and liability insurance. Based on information provided 
by HUD, CBO estimates that approximately 130 properties were 
moderately to severely damaged by storms in 2005. The mortgages 
on these properties have an estimated unpaid balance of about 
$1.4 million per project. CBO assumes that full claims will be 
paid on these properties as part of the restructuring process 
to cover the cost of repair. Because the restructurings would 
change the expected cash flows for these properties, such 
restructurings would constitute modifications of existing 
federal loan guarantees. CBO estimates that allowing these 
properties to have their debts restructured would generate 
savings that on a net-present-value basis would amount to $11 
million this year.
    In addition to the projects damaged last year, any projects 
damaged by future disasters would also be eligible for 
restructuring assistance. Based on an analysis of past 
disasters, CBO estimates that an average of 10 projects will be 
damaged each year. Assuming that restructuring the debt on 
these properties saves about $70,000 compared to the cost of 
default, CBO estimates that this provision would save an 
additional $500,000 to $1 million a year over the 2007-2011 
period. (The authority provided in section 4 would end in 
2011.)

Spending subject to appropriation

    Section 8 Rental Assistance. CBO estimates that by 
extending MAHRA through 2011, the rents for properties that 
have their debt restructuring would be reduced more than is 
expected under current law. Based on discussions with industry 
experts, CBO anticipates that the debt restructuring tools 
authorized by MAHRA allow HUD to move more quickly in reducing 
rents than would otherwise be the case, particularly in areas 
where comparable rents are difficult to find. Since the program 
was reauthorized in 2001, rents for projects that have had 
their debt restructured have been reduced by 21 percent, on 
average. Assuming that rent reduction for the 64,000 units in 
the 600 restructured properties would be about 10 percent less 
(or about 19 percent) absent the debt-restructuring tools, CBO 
estimates that implementing the bill would result in 
discretionary savings of $2 million in 2007 and $33 million 
over the 2007-2011 period, assuming the appropriations are 
reduced to reflect the lower cost of the HAP contracts.
    Exception Rents. Section 3 of the bill would increase HUD's 
authority to set exceptions rents above 120 percent of the fair 
market rent (FMR) from 5 percent to 9 percent of all units 
subject to restructuring. Based on data provided by HUD, CBO 
estimates that such exception rents are, on average, about 14 
percent higher (or $850 per year) than they would be if limited 
to 120 percent of the FMR. The expansion of the exception 
authority would allow an additional 3,200 units to establish 
exception rents, CBO estimates. Expanding the exception rent 
authority would require the appropriation of $9 million over 
the 2007-2011 period, which would result in estimated outlays 
of $8 million over that period.
    Intergovernmental and private-sector impact: H.R. 5527 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. Reauthorization of the mark-to-market program 
would extend cooperative agreements between HUD and 
participating state and local agencies. Any costs incurred by 
those agencies as part of the agreements would be incurred 
voluntarily.
    Estimate prepared by: Federal Costs, Chad Chirico and 
Susanne S. Mehlman. Impact on State, Local, and Tribal 
Governments: Sarah Puro. Impact on the Private Sector: Peter 
Richmond.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation

Section 1. Short title

    This section establishes the short title of the bill, the 
``Mark-to-Market Extension Act of 2006.''

Section 2. Reauthorization

    This section will reauthorize the Mark-to-Market program 
through FY 2011. Without this reauthorization, termination 
would be at the conclusion of FY 2006.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

   MULTIFAMILY ASSISTED HOUSING REFORM AND AFFORDABILITY ACT OF 1997

TITLE V--HUD MULTIFAMILY HOUSING REFORM

           *       *       *       *       *       *       *

SEC. 510. SHORT TITLE.

  This title may be cited as the ``Multifamily Assisted Housing 
Reform and Affordability Act of 1997''.

   Subtitle A--FHA-Insured Multifamily Housing Mortgage and Housing 
Assistance Restructuring

           *       *       *       *       *       *       *

SEC. 512. DEFINITIONS.

  In this subtitle:
          (1) * * *

           *       *       *       *       *       *       *

          (20) Disaster-damaged eligible project.--The term 
        ``disaster-damaged eligible project'' means an eligible 
        multifamily housing project--
                  (A) that is located in a county that was 
                declared a major disaster area on or after 
                January 1, 2005, by the President pursuant to 
                the Robert T. Stafford Disaster Relief and 
                Emergency Assistance Act (42 U.S.C. 5121 et 
                seq);
                  (B) whose owner carried casualty and 
                liability insurance covering such project in 
                amounts required by the Secretary;
                  (C) that suffered damages not covered by such 
                insurance that the Secretary determines are 
                likely to exceed $5,000 per unit in connection 
                with the natural disaster that was the subject 
                of such designation; and
                  (D) whose owner requests restructuring within 
                two years following the date that such damages 
                were incurred.
        Disaster-damaged eligible projects shall be eligible 
        without regard to the relationship between rent level 
        for the assisted units and comparable market rents.

           *       *       *       *       *       *       *

SEC. 514. MORTGAGE RESTRUCTURING AND RENTAL ASSISTANCE SUFFICIENCY 
                    PLAN.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Rent Levels.--
          (1) In general.--Except as provided in paragraph (2), 
        each mortgage restructuring and rental assistance 
        sufficiency plan pursuant to the terms, conditions, and 
        requirements of this subtitle shall establish for units 
        assisted with project-based assistance in eligible 
        multifamily housing projects adjusted rent levels 
        that--
                  (A) * * *
                  [(B) if those rents cannot be determined, are 
                equal to 90 percent of the fair market rents 
                for the relevant market area.]
                  (B) if those rents cannot be determined--
                          (i) with respect to a disaster-
                        damaged eligible project, are equal to 
                        100 percent of the fair market rents 
                        for the relevant market area (in effect 
                        at the time of such disaster); and
                          (ii) with respect to other eligible 
                        multifamily housing projects, are equal 
                        to 90 percent of the fair market rents 
                        for the relevant market area.
          (2) Exceptions.--
                  (A) In general.--A contract under this 
                section may include rent levels that exceed the 
                rent level described in paragraph (1) at rent 
                levels that do not exceed 120 percent of the 
                fair market rent for the market area (except 
                that the Secretary may waive this limit for not 
                more than [five] nine percent of all units 
                subject to portfolio restructuring agreements, 
                based on a finding of special need), if the 
                participating administrative entity--
                          (i) * * *

           *       *       *       *       *       *       *

SEC. 517. RESTRUCTURING TOOLS.

  (a) Mortgage Restructuring.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) The Secretary may modify the terms of the second 
        mortgage, assign the second mortgage to the acquiring 
        organization or agency, or forgive all or part of the 
        second mortgage if the Secretary holds the second 
        mortgage and if the project is acquired by a tenant 
        organization or tenant-endorsed community-based 
        nonprofit or public agency, pursuant to guidelines 
        established by the Secretary: Provided, That if such 
        purchaser acquires such project subsequent to the date 
        of recordation of the affordability agreement described 
        in section 514(e)(6), (A) such purchaser must acquire 
        such project on or before the later of (i) five years 
        after the date of recordation of the affordability 
        agreement and (ii) two years after the date of 
        enactment of this title; and (B) the Secretary must 
        have received, and determined acceptable, such 
        purchaser's application for modification, assignment or 
        forgiveness prior to such purchaser's acquisition of 
        the project.

           *       *       *       *       *       *       *

  (c) Rehabilitation Needs and Addition of Significant 
Features.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Properties damaged by natural disasters.--With 
        respect to a disaster-damaged eligible project, the 
        owner contribution toward rehabilitation needs shall be 
        determined in accordance with paragraph (2)(C).

           *       *       *       *       *       *       *

SEC. 579. TERMINATION.

  (a) Repeals.--
          (1) Mark-to-market program.--Subtitle A (except for 
        section 524) is repealed effective October 1, [2006] 
        2011.

           *       *       *       *       *       *       *

  (b) Exception.--Notwithstanding the repeal under subsection 
(a), the provisions of subtitle A (as in effect immediately 
before such repeal) shall apply with respect to projects and 
programs for which binding commitments have been entered into 
under this Act before October 1, [2006] 2011.

           *       *       *       *       *       *       *

                                  
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