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OVERSIGHT OF THE FEDERAL HOUSING 

ADMINISTRATION’S MULTIFAMILY 

INSURANCE PROGRAMS 

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 

JUNE 7, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–134 

( 

(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: 

June 7, 2012 ...................................................................................................... 1 

Appendix: 

June 7, 2012 ...................................................................................................... 41 

WITNESSES 

THURSDAY, JUNE 7, 2012 

Bodaken, Michael, President, National Housing Trust ........................................ 5 

Crowley, Sheila, Ph.D., President, National Low Income Housing Coalition ..... 7 

Head, Marie D., Deputy Assistant Secretary, Multifamily Housing Programs, 

Office of Housing, U.S. Department of Housing and Urban Development ..... 3 

Kenney, Mary, Executive Director, Illinois Housing Development Authority, 

on behalf of the National Council of State Housing Agencies .......................... 9 

Lopez, Rodrigo, President and Chief Executive Officer, AmeriSphere, on behalf of the Mortgage Bankers Association ......................................................... 10 

Mostyn, Richard, Vice Chairman and Chief Operating Officer, The Bozzuto 

Group, on behalf of the National Multi Housing Council and the National 

Apartment Association ........................................................................................ 12 

Nielsen, Robert F., Immediate Past Chairman of the Board, National Association of Home Builders .......................................................................................... 14 

Pagliari, Joseph L., Jr., Clinical Professor of Real Estate, the University 

of Chicago Booth School of Business .................................................................. 15 

Schiff, Peter D., Chief Executive Officer and Chief Global Strategist, Euro 

Pacific Capital ...................................................................................................... 17 

APPENDIX 

Prepared statements: 

Hurt, Hon. Robert ............................................................................................. 42 

Bodaken, Michael ............................................................................................. 43 

Crowley, Sheila ................................................................................................. 172 

Head, Marie D. ................................................................................................. 183 

Kenney, Mary ................................................................................................... 193 

Lopez, Rodrigo .................................................................................................. 199 

Mostyn, Richard ................................................................................................ 208 

Nielsen, Robert F. ............................................................................................. 223 

Pagliari, Joseph L., Jr. ..................................................................................... 235 

Schiff, Peter D. .................................................................................................. 247 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

Written statement of Highland Commercial Mortgage ................................. 254 

Letter from the National Association of Affordable Housing Lenders 

(NAAHL) ........................................................................................................ 258 

(1) 

OVERSIGHT OF THE FEDERAL HOUSING 

ADMINISTRATION’S MULTIFAMILY 

INSURANCE PROGRAMS 

Thursday, June 7, 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 10:04 a.m., in room 

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

Members present: Representatives Biggert, Hurt, McHenry, 

Dold, Stivers; Gutierrez, Waters, Cleaver, and Sherman. 

Also present: Representatives Grimm and Green. 

Chairwoman BIGGERT. Good morning. I would like to welcome 

everyone to today’s hearing entitled, ‘‘Oversight of the FHA’s Multifamily Insurance Programs.’’ During the 112th Congress, the subcommittee has reviewed the role of the Federal Housing Administration, or FHA, in today’s mortgage finance market, particularly 

with regard to single family housing. 

We have also examined ways to reduce the government’s role and 

increase private sector participation in mortgage finance. Today, 

we will continue our work, but with a closer examination of the 

FHA’s multifamily housing programs. 

Multifamily mortgage insurance can reduce the cost of capital 

available to fund the construction, rehabilitation, and purchase of 

multifamily buildings, thereby increasing the supply and, at times, 

the affordability of rental housing. 

Since the 2008 crisis, FHA’s annual insurance commitments have 

nearly quadrupled. Today’s hearing will examine reasons for the increased volume of FHA multifamily programs, the solvency of these 

programs, and finally, a few FHA and Ginnie Mae multifamily 

housing related proposals. 

In the midst of continued real estate market challenges, it is important that we continue to explore ways to reform Federal housing 

programs, protect taxpayers, encourage private sector financing 

without a government guarantee, and ensure that sufficient financing is available to meet market demand. 

So, I look forward to an informative discussion, and I welcome 

our witnesses. 

At this time, I recognize the gentleman from Illinois for 2 minutes, after he takes my place here. 

2 

Unfortunately, I have several things going on, but I will be back. 

Mr. DOLD [presiding]. I want to thank the chairwoman for yielding. 

I certainly want to thank all of you for taking the time to be 

here. It is certainly a unique opportunity. I think I can take even 

more than my 2 minutes if I need to. I don’t think I am going to 

have any objection. 

So I do want to thank all of you for taking the time to be with 

us here today. And certainly, we will have other Members come in 

and join us, as my good friend from New York has just arrived. 

I am certainly happy to see that Illinois is so well-represented on 

this distinguished panel. Certainly, Professor Pagliari, thank you 

so much for being here, from the University of Chicago. Although 

I attended Northwestern at Kellogg, please don’t hold that against 

me. 

We also have Mary Kenney, the executive director of the Illinois 

Housing Development Authority. And she and her entire staff do 

a fantastic job for the people of Illinois. 

Under Director Kenney’s leadership, we have a very well-operated and self-supporting State housing and finance agency that 

should serve as a model for other State housing financing agencies. 

So I thank both of you and all of our witnesses for sharing your 

time and testimony and experience with us here today. 

I think all of us here today share a common objective: to create 

conditions for a stronger, more sustainable, and more effective 

mortgage finance system. This means protecting taxpayers from future bailouts and seemingly unlimited liability exposure, encouraging the private sector to become the primary vehicle for mortgage 

financing, and otherwise effectively restoring long-term stability to 

the real estate sector. 

Certainly, the FHA multifamily portfolio raises some concerns 

that we should all examine carefully. But as we consider the FHA’s 

role in the multifamily market, we should also examine the successful programs that have been supported by both Republicans 

and Democrats alike. 

For example, the Low Income Housing Tax Credit Program has 

been called the most successful affordable housing program since 

its inception in 1986, and has a default rate below 1 percent. Credits are distributed by State housing agencies to competing private 

sector developers and investors, so we have market-driven incentives and enforcement mechanisms that help ensure continued 

housing affordability at a much lower cost than that of the direct 

government participation. 

So with multifamily housing demand continuing to grow, I hope 

that we can move forward with proposals that ensure affordable 

housing units, incorporate free market principles, lay the foundation, increase private sector participation, and significantly diminish taxpayer risk. 

I look forward to hearing from each and every one of you. And 

thank you again. 

And at this time, I would like to yield 2 minutes to the gentleman from New York, Mr. Grimm. 

Mr. GRIMM. Thank you, Mr. Chairman. That sounds pretty good, 

‘‘Chairman Dold.’’ 

3 

In all sincerity, I want to thank this distinguished panel for 

being here today. We had to add a table, because there are quite 

a few people here. 

Don’t be discouraged by the lack of Members. This is an extremely important issue, because anything right now dealing with 

housing is going to be of the utmost importance. 

I have said many, many times that if we don’t get housing moving again, the overall economy is not going to get moving again. 

And this is an integral part and a big piece of that puzzle. But 

more importantly, I think that some of the issues before us on multifamily housing are a great place to find true bipartisan efforts. 

I think that there is a lot of commonality on both sides where 

we can come together to find common ground. And that is greatly 

needed right now. I think that segues into the need for multifamily 

housing that is growing and is going to continue to grow. 

So it is something that we have had to focus on. It is something 

that we should be focusing on together, not using it as a political 

wedge, but rather as a common ground to bring the parties together. And that is why I am here today. 

I look forward to hearing your testimony. I know that some of 

the issues we are going to discuss today are extremely important 

to my constituents in Staten Island and Brooklyn. And I am very 

eager to hear the testimony. 

So with that, I will yield back. Thank you again. 

Mr. DOLD. At this time, we will introduce the panel. With us 

today, we have: Ms. Marie Head, Deputy Assistant Secretary, Multifamily Housing Programs, in the Office of Housing at HUD; Mr. 

Michael Bodaken, president of the National Housing Trust; Ms. 

Sheila Crowley, president of the National Low Income Housing Coalition; Ms. Mary Kenney, executive director of the Illinois Housing 

Development Authority, on behalf of the National Council of State 

Housing Agencies; Mr. Rodrigo Lopez, president and chief executive 

officer of AmeriSphere, on behalf of the Mortgage Bankers Association; Mr. Richard Mostyn, vice chairman and chief operating officer 

of the Bozzuto Group, on behalf of the National Multi Housing 

Council and the National Apartment Association; Mr. Robert 

Nielsen, immediate past chairman of the board of the National Association of Home Builders; Mr. Joseph Pagliari, clinical professor 

of real estate at the University of Chicago Booth School of Business; and Mr. Peter Schiff, chief executive officer and chief global 

strategist of Euro Pacific Capital. 

Welcome to you all. Without objection, your written statements 

will be made a part of the record, and you will each be recognized 

for 5 minutes for a summary of your testimony. 

We will begin with Ms. Head. 

STATEMENT OF MARIE D. HEAD, DEPUTY ASSISTANT SECRETARY, MULTIFAMILY HOUSING PROGRAMS, OFFICE OF 

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

Ms. HEAD. Good morning. Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee, thank you for the 

opportunity to testify today regarding the FHA’s multifamily housing programs. When this Administration took office, the economy 

4 

was on the brink. The Nation was losing over 750,000 jobs a 

month. Our economy had shed jobs for 22 straight months. And 

consumer confidence had fallen to a 40-year low. 

In the face of this turmoil, this Administration took dramatic 

steps to prevent a complete financial meltdown in the housing market. And as a result of those steps, today an economy that was 

shrinking is growing again, and we continue our efforts to speed 

that growth, as we fight back from the worst economic crisis since 

the Great Depression. 

The housing market in particular has suffered through this crisis, requiring swift and aggressive response. And while Secretary 

Donovan and others have testified many times concerning steps 

taken in the single family market, no less important is the role 

that this Administration, and particularly the FHA, has played in 

providing critical liquidity in the multifamily mortgage market. 

For example, responding to the collapse of the Low Income Housing Tax Credit Program, this Administration implemented the Tax 

Credit Assistance Program and the Tax Credit Exchange Program. 

Together, these two programs jump-started construction on 

126,000 homes, adding needed supply as low-income renters, including many foreclosed homeowners, were struggling to access affordable housing. 

The Treasury Department’s New Issue Bond Program is another 

example of decisive action by the Administration. The liquidity this 

program provided to State housing finance agencies allowed them 

to issue new housing bonds to fund affordable housing construction. 

And of course, FHA has been critically important in ensuring the 

continued availability of mortgage credit for the multifamily properties. Over the last 3 years, FHA has seen a substantial increase 

in demand. Endorsements for FHA multifamily insurance rose 

from $2.3 billion in Fiscal Year 2008 to $12.4 billion in Fiscal Year 

2011. 

FHA’s multifamily programs have helped fill the gaps left with 

the shrinkage of the conventional financing forces. And while the 

market continues to improve, we expect high volume for FHA insurance activity for the remainder of Fiscal Year 2012, into Fiscal 

Year 2013. 

While FHA has stepped up to the plate during this time of market constriction, we have also focused on improving our risk management capabilities and processes. The steps we have taken to 

date include: strengthening FHA’s lender approval and capital requirements; strengthening underwriting and credit evaluation requirements; implementing a loan committee approval structure to 

better analyze credit risk; and creating a more efficient loan review 

process through our Breaking Ground Initiative. 

In just 7 months, through Breaking Ground, we have reduced the 

number of applications in our processing pipeline. The number of 

applications that sat for more than 90 days decreased from 191 to 

50. In addition, the Department will shortly embark on a similar 

initiative called Sustaining Our Investment, to make our asset 

management processes and policies more efficient and effective, as 

we focus on a portfolio that is increasingly market rate, as opposed 

to traditional assistance. 

5 

Given the unprecedented increase in the number and dollar volume of loans insured through FHA programs, the Department has 

proposed premium increases for FHA’s general insurance and special risk insurance funds. This is the first multifamily mortgage insurance premium increase in 10 years. 

This increase reflects new realities within the portfolio, and will 

ensure that FHA products are priced appropriately to compensate 

for FHA’s risk. And yet, even with this proposed MIP increase, 

FHA multifamily loans are still priced substantially below other 

capital sources, by estimate per program type of 75 to 200 basis 

points. 

The proposed change in MIP is a step towards not only managing 

our risk, but encouraging the return of private capital. It is important to note that premiums for affordable housing loans, such as 

those with rental subsidies and low income housing tax credits, will 

not be increased. 

Also, to further the Department’s mission to preserve affordable 

housing, HUD has launched a tax credit pilot program to make it 

easier to use these credits. We are also seeking legislation to lend 

to small multifamily properties, with two legislative changes. 

In conclusion, Chairwoman Biggert, while FHA must remain a 

key source of safe mortgage financing, we recognize the risk and 

mission must be balanced. We continue to work hard to ensure the 

availability of financing for safe, decent, and affordable housing, 

contributing to creating an America built to last. 

Thank you for the opportunity to testify. I would be pleased to 

answer any questions the members of the subcommittee may have. 

[The prepared statement of Deputy Assistant Secretary Head can 

be found on page 183 of the appendix.] 

Mr. DOLD. Thank you, Ms. Head. 

Mr. Bodaken? 

STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL 

HOUSING TRUST 

Mr. BODAKEN. Good morning, Chairman Dold, Ranking Member 

Gutierrez, members of the subcommittee, and Representative 

Grimm. I am Michael Bodaken, head of the National Housing 

Trust. 

Through our work in real estate development and affordable 

housing, we help save and improve 21,000 affordable apartments 

throughout the United States, in 41 States, helping to leverage 

over $1 billion in private investment. 

The majority of these apartments are HUD-subsidized or have 

uninsured mortgages. We regularly engage with HUD, FHA, the 

GSEs, and the Federal Home Loan Banks through our work. 

Time does not permit me to detail all of my written testimony. 

The focus of my statement today relates to the following four 

issues. 

Number one, the role of FHA in preserving project-based Section 

8 housing. Historically, FHA has been pivotal in the development 

of HUD-insured Section 8 housing. Fully 40 percent of the Section 

8 portfolio is FHA-insured, constituting almost $14 billion in FHA 

loans. 

6 

Therefore, we find it totally short-sighted and a risk to the American taxpayer that the Administration has proposed short-funding 

Section 8 contracts. Underfunding or short-funding these contracts 

would expose FHA to significant exposure. As the HUD Inspector 

General himself has said, owners must be assured a reliable, predictable funding from the Government in the Section 8 Program. 

Short-funding puts FHA at risk. It should not be a mystery to 

this committee as to what impact it has on your particular districts: in Mrs. Biggert’s district, there are $25 million of FHA-insured contracts; in Ms. Waters’ district, there are $17 million of 

FHA-insured contracts; in Mr. Dold’s district, there are $34 million 

of FHA-insured contracts; in Mr. Stiver’s district, there are $50 

million of FHA-insured contracts; and in Mr. Hurt’s district, there 

are $5 million of FHA-insured contracts. 

So the connection between the short-funding of Section 8 and 

FHA cannot be ignored by the committee. 

Number two, FHA market share. The committee is interested in 

knowing whether the private sector could assume some of the risk 

that FHA is now taking in multifamily lending. 

And the answer is yes, so long as the market is healthy. As 

shown in a chart on page six of my testimony, when the housing 

market was healthy, approximately $100 billion of FHA lending occurred in 2006. Of this, almost 60 percent was done by the private 

market, meaning commercial banks, mortgage-backed securities, 

banks, lenders, depository institutions, and so on. In 2007, that increased to 63 percent of all multifamily originations. 

But what occurred in 2008 and 2009 is instructive for this committee. By 2008 and 2009, the CMBS market had virtually gone 

away, and the insurance and depository institutions only constituted 3 percent of the total market. So there is no question that 

there needs to be a strong, functioning FHA for both good times 

and bad. There is no question that the private market will be here 

while the market is healthy. 

But if and when a downturn occurs, you need a strong FHA to 

be there to provide liquidity to the market, as it did, and Ms. Head 

explained, in 2008 and 2009. That explains the increase in FHA insurance. Without it, we would not have been able to do the kind 

of work that we did in those years. 

Time does not permit me to talk about the reforms of FHA programs, but let me first say, in both Democrat and Republican Administrations, there has been an issue with respect to the timing 

of FHA loans, and trying to do that work with low income housing 

tax credits. 

There is a lot of bureaucracy, cumbersome, with FHA loans, 

sometimes duplication. And I applaud the Administration for trying to address with their Super F Program. That program is targeted to tax credit properties, targeted to those same Section 8 

properties I just mentioned, and has a lot of potential. 

Right now, the pilot does not have any use or deployment in the 

south or midwest. And we would encourage the Administration to 

expand that pilot. 

Finally, you have asked us to talk about H.R. 4253, which was 

sponsored by Representative Paulsen and Representative Grimm. 

It was introduced to enable owners of rental properties, Low InVerDate Nov 24 2008 18:47 Oct 25, 2012 Jkt 076105 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\76105.TXT TERRIE
7 

come Housing Preservation and Resident Homeownership Act 

(LIHPRHA) properties to access the excess project funds and refinance their properties. 

We strongly support this goal. However, we are concerned that 

the legislation, as filed, may enable owners to strip a property of 

its equity, improve refinancing, and not act to ensure long-term 

feasibility. We know that is not the authors’ intent. We intend to 

work with the committee and the sponsors of this legislation to 

make changes to the bill so that we can achieve our common goals. 

We are confident we can get there. Thank you for your time. 

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

43 of the appendix.] 

Mr. DOLD. Thank you, Mr. Bodaken. 

Ms. Crowley, you are recognized for 5 minutes. 

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

NATIONAL LOW INCOME HOUSING COALITION 

Ms. CROWLEY. Good morning, Chairman Dold, and members of 

the subcommittee. I am pleased to have the opportunity to testify 

today about the Federal Government’s role in rental housing. 

I am Sheila Crowley, the president of the National Low Income 

Housing Coalition. And because we focus on housing for the lowestincome households in our country, we have a key interest in the 

health of the rental housing market. 

Nationwide, 35 percent of all households are renters, but renters 

comprise 53 percent of low-income households, 60 percent of very 

low-income households, and 67 percent of extremely low-income 

households. 

Almost everybody will be renters at some point in their lives. 

Young people, single people, and people with disabilities are more 

likely to rent than own. Renters have more flexibility to move to 

new job opportunities. 

And while renters may face annual rent increases, their costs are 

predictable and they do not incur sudden large home repairs, which 

makes rental housing more suitable for many seniors on fixed incomes. 

But the rental housing market is most important for the low-income families and individuals who make up 41 percent of all the 

households in the United States. Federal housing policy, however, 

has long favored single family homeownership over rental housing, 

with most of the Federal housing programs and the subsidies going 

towards homeownership. 

The FHA mortgage insurance programs are just one case in 

point. FHA’s current portfolio consists of 4.8 single family homes 

and just 13,000 multifamily properties. 

The number of renters in the United States is on the rise in the 

aftermath of the 2007/2008 housing crisis. Vacancy rates are falling 

and rents are rising. Rents were up in 63 of 64 metro areas recently examined, with west coast markets increasing by as much 

as 12 percent. 

The United States has had a shortage of affordable housing for 

the lowest-income households since the 1970s. And the ‘‘Great Recession’’ has only made it worse. In the United States, there are 9.8 

million extremely low-income renter households, up from 9.6 milVerDate Nov 24 2008 18:47 Oct 25, 2012 Jkt 076105 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\76105.TXT TERRIE
8 

lion in 2009, while the number of rental housing units they can afford fell from 5.9 million in 2009 to 5.5 million in 2010. 

Thus, for every 100 extremely low-income renter households, 

there are only 30 rental units that they can afford and that are 

available to them. So consequently, over two-thirds of these households have to spend over half of their income on rental housing. 

And while the shortage is less in the very low-income category, 

the shortage literally disappears for households with incomes between 50 and 80 percent of—income. 

For every 100 low-income households, there are 98 affordable 

and available units. And in 42 States, there is indeed a surplus of 

rental housing at that level. 

So where the most need is at the lowest level. The shortage of 

rental housing for very low- and extremely low-income households 

is both a housing problem and an income problem. The growth of 

income inequality in the United States means that there are simply more lower-income people in the market for low-cost rental 

housing. 

Income supports such as housing vouchers increase access to existing housing for low-income people lucky enough to get a voucher. 

But in many households, families are not able to find single housing that they can afford, or landlords do not accept vouchers. 

Increasing the supply of rental housing that is affordable to extremely low-income households must be part of a solution. But 

there is no evidence that the private market is willing to invest in 

this housing on its own, despite the huge demand. 

The main engine of affordable rental housing production and 

preservation today is the loan from housing tax credits, but affordability for the lowest-income households can only be achieved by 

coupling tax credits with vouchers or other subsidies. 

The other Federal program that supports Federal low housing 

production is HOME, but only 38 percent of HOME dollars have 

been used for rental housing. Filling this gap is why Congress enacted the National Housing Trust Fund in 2008. At least 90 percent of the funds must be used for rental housing, and at least 75 

percent of the funds must benefit extremely low-income households. 

With sufficient funding, the National Housing Trust Fund would 

achieve our national goal of ending homelessness in the United 

States. In an era of severe housing restraint, the conventional wisdom is that we can’t afford the National Housing Trust Fund. We 

disagree. 

Funding for the Housing Trust Fund will not only be good for the 

millions of families who need affordable rental homes; it will create 

many jobs in hard-hit construction trades. 

There are several proposals for funding the National Housing 

Trust Fund. I want to close by telling you that we believe that the 

Housing Trust Fund can and should be funded in a manner that 

is both budget-neutral, and would rebalance Federal housing policy 

to place more emphasis on rental housing. 

The campaign supports a modest reform to the mortgage interest 

deduction that would provide tax benefits to a much greater number of low- and moderate-income homeowners and would produce 

enough savings to fund the National Housing Trust Fund. 

9 

The mortgage interest deduction is under scrutiny today due to 

its large size, $100 billion, and its role in over-subsidizing homeownership by the Federal Government. We don’t support eliminating it, but modest, carefully phased-in reform would make Federal housing policy much fairer and more efficient. 

The challenge would be to ensure that savings achieved from reform, that is sure to happen, will be used in recalibrating the Nation’s longstanding housing need. 

Thank you. 

[The prepared statement of Dr. Crowley can be found on page 

172 of the appendix.] 

Mr. DOLD. Thank you, Ms. Crowley. 

Ms. Kenney, you are recognized for 5 minutes. 

STATEMENT OF MARY KENNEY, EXECUTIVE DIRECTOR, ILLINOIS HOUSING DEVELOPMENT AUTHORITY, ON BEHALF OF 

THE NATIONAL COUNCIL OF STATE HOUSING AGENCIES 

Ms. KENNEY. Good morning, Chairman Dold, and members of the 

subcommittee. I appreciate the opportunity to testify today in support of simple, sensible steps that would have a big impact by helping FHA and State housing finance agencies, or HFAs, address our 

Nation’s growing affordable rental housing need. 

As set forth in my written statement, the need for affordable 

rental housing in our country has never been greater. The Administration’s Fiscal Year 2013 budget contains a proposal that would 

allow Ginnie Mae to securitize FHA-insured multifamily loans 

under the FHA/HFA risk-sharing programs. 

This proposal would allow States to better address this need 

within their communities at no cost to the Federal Government. 

And I highly recommend that the Congress allow Ginnie Mae to 

securitize FHA-insured multifamily loans under this program. 

As you may recall, the full Financial Services Committee included this authority in the Housing Preservation and Tenant Protection Act, which it reported in 2010. In addition, HUD, FHA, 

Ginnie Mae, and various affordable housing industry groups all 

support this proposal. 

I am testifying on behalf of the National Council of State Housing Agencies (NCSHA). NCSHA is a national, nonprofit, nonpartisan association that represents States’ HFA interests before 

Congress and the Administration. 

State HFAs are widely known for their safe and sound first-time 

home buyer lending programs, and have provided a reliable source 

of affordable mortgage money for working families over many decades in both strong and weak economies. 

We also provide low-cost multifamily financing to facilitate the 

development of affordable rental homes. Established in 1992, the 

risk-sharing program has been very successful, with 26 State HFAs 

financing nearly 1,000 loans, totaling more than $5 billion in principal, and supporting more than 100,000 affordable rental homes. 

This activity has generated jobs, increased tax revenue, and promoted economic growth. In Illinois, IHDA has financed 56 such 

properties, providing more than 5,800 affordable homes, and creating an estimated 8,500 jobs Statewide. IHDA’s investment in 

10 

these projects totals $411 million and has leveraged an additional—I am sorry, $370 million. 

And significantly, the loan default rate in this portfolio has been 

very low; only 1 of the 56 loans has defaulted. 

By allowing Ginnie Mae to securitize loans under this program, 

Congress would increase the supply of affordable multifamily rental opportunities while reducing FHA’s workload and risk; achieve 

greater affordability within FHA-insured rental housing; and better 

utilize the well-established State-based HFA delivery system, allowing States to better address local needs, all while generating 

revenue for the Federal Government. 

The FHA/HFA risk-sharing program increases efficiency by delegating processing, underwriting, and servicing to State HFAs. This 

reduces the workload on HUD staff and speeds up loan processing. 

Moreover, unlike other FHA products, HFAs share in the risk of 

default, lowering the exposure of FHA. In addition, it is estimated 

that permitting Ginnie Mae to securitize risk-sharing loans could 

reduce the cost of financing rental housing developments by as 

much as 200 basis points, or 2 percent. 

This rate reduction would lower debt service payments by the 

owner and reduce the need for and cost of other Federal housing 

subsidies. 

Finally, unlike virtually all other FHA multi-loan insurance programs, developments financed under the risk-sharing program 

must meet the same income targeting and rent restrictions as the 

housing credit and housing bond programs, providing real affordable housing to the communities they serve. 

Best of all, all of these benefits can be achieved at no cost to the 

Federal Government. Because the loan default rates in this program are very low, insurance premium revenue has exceeded total 

claims, generating net revenue for the Federal Government over 

the 20 years that this program has been in existence. 

In fact, the Congressional Budget Office estimates that imple- menting this proposal would result in $20 million in mandatory 

savings over 10 years to the Federal Government. 

In conclusion, the FHA/HFA risk-sharing program has been very 

successful. Given the program’s proven track record, allowing 

Ginnie Mae to securitize risk-sharing loans is a sensible step that 

would help the States meet our Nation’s affordable housing challenges with minimal risk and no additional cost to the Federal Government. 

Thank you for the opportunity to testify today. 

[The prepared statement of Ms. Kenney can be found on page 

193 of the appendix.] 

Mr. DOLD. Thank you, Ms. Kenney. 

Mr. Lopez, you are recognized for 5 minutes. 

STATEMENT OF RODRIGO LOPEZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERISPHERE, ON BEHALF OF THE 

MORTGAGE BANKERS ASSOCIATION 

Mr. LOPEZ. Good morning. My name is Rodrigo Lopez and I am 

president and CEO of AmeriSphere Family Finance, headquartered 

in Omaha, Nebraska. We are a top 25 FHA multifamily and health 

care lender, with more than $200 million in FHA production last 

11 

year. I am here this morning representing the Mortgage Bankers 

Association (MBA). 

The recent crisis put a spotlight on the importance of rental 

housing and FHA’s critical countercyclical role. One in every three 

American households lives in rental housing. And over the course 

of a lifetime, most Americans will rent at one time or another. 

During the recession, FHA significantly increased its presence in 

the multifamily rental market as other market participants pulled 

back. We are seeing that private capital is steadily reentering the 

markets, which is a very positive sign for our economy. 

FHA, however, remains critical in many markets and for many 

types of properties, particularly older ones, affordable properties 

that investors are less willing to finance. 

I want to acknowledge the strong leadership at HUD under Secretary Donovan, acting FHA Commissioner Galante, and newly appointed Deputy Assistant Secretary Marie Head, who is with us 

today. These three individuals bring extensive knowledge and experience in multifamily finance to FHA that is refreshing and welcome. 

While the multifamily programs have been providing critical liquidity to the market, they also continue to have low delinquency 

rates and show a positive cash flow. In fact, MBA commissioned its 

own study last year that FHA multifamily and health care loans 

originated between 1992 and 2010 have generated positive net cash 

flows of $927 million. 

This period covers years with strong economic growth, and the 

more recent recession. And HUD’s new tighter underwriting standards should further improve loan performance going forward. 

MBA commissioned this study because good data on the financial 

viability of the multifamily programs is not readily available at 

HUD. While there is extensive data available on the income and 

expenses of the GI/SRI Fund, it is difficult to create an accurate 

picture of the overall health of multifamily programs because the 

fund contains a substantial number of single family loans. 

Congress should require HUD to separate the multifamily loans 

from the single family loans in the GI/SRI Fund, in order to provide policymakers with a better understanding of the financial performance of multifamily programs. 

Another critical component for achieving and sustaining the 

housing market’s long-term vigor is ensuring that FHA has the resources it needs to operate effectively. Since 2008, HUD’s multifamily staffing levels have dropped significantly. At the same time, 

loan volume has increased more than threefold. 

Technology planning has also suffered. And the multifamily programs still operate without the ability to submit applications electronically. 

HUD has tried to improve its processes, but there is still a lot 

of room for improvement. MBA has recommended a more streamlined approach to HUD’s review of applications. And FHA is moving in that direction with a pilot program for properties with low 

income housing tax credits. 

We would recommend nationwide expansion of the pilot program 

as quickly as possible. 

12 

Finally, I want to touch on the proposed increase of mortgage insurance premiums for multifamily programs. The strong performance of these programs and recent tightening of underwriting 

standards all seem to run counter to the proposed increase. 

MBA believes any MIP increase has to be supported by careful 

actuarial analysis. Unfortunately, as I noted earlier, appealing 

this—because the Administration’s budget does not account for 

multifamily programs separately. 

MBA also believes that mortgage insurance premiums should be 

used only to manage risk associated with these programs, and not 

for any unrelated budgetary reason. Currently, the excess income 

generated by these programs is returned to the Treasury, rather 

than used to improve the programs or set aside in a reserve fund. 

Mr. Chairman, thank you for your focus on this vital segment of 

our Nation’s real estate market. The Mortgage Bankers Association 

stands ready to work with you on strengthening FHA and its multifamily programs. 

Thank you. 

[The prepared statement of Mr. Lopez can be found on page 199 

of the appendix.] 

Mr. DOLD. Thank you, Mr. Lopez, for your testimony. 

Mr. Mostyn for 5 minutes? 

STATEMENT OF RICHARD MOSTYN, VICE CHAIRMAN AND 

CHIEF OPERATING OFFICER, THE BOZZUTO GROUP, ON BEHALF OF THE NATIONAL MULTI HOUSING COUNCIL AND 

THE NATIONAL APARTMENT ASSOCIATION 

Mr. MOSTYN. Good morning, Chairman Dold. 

On behalf of this Nation’s 17 million households who call an 

apartment their home, the National Multi Housing Council 

(NMHC) and the National Apartment Association (NAA) would like 

to thank you for the opportunity to testify today on the Federal 

Housing Administration’s role in multifamily mortgage markets. 

NMHC and NAA represent the Nation’s leading multifamily 

renting housing firms, including owners, developers, property managers, and financiers. 

My name is Rick Mostyn, and I serve as the vice chairman and 

chief operating officer of the Bozzuto Group, a firm actively engaged in the development, instruction, management, and ownership of the apartment community. 

Our firm is familiar with and a borrower of construction and 

mortgage capital through the FHA multifamily loan guarantee program. 

As detailed in my written testimony, the Nation is experiencing 

a fundamental shift in its housing dynamics. In this decade alone, 

renters could make up half of all new households, for a total of 

more than seven million new renter households. 

Although an estimated 300,000 units must be built annually to 

meet expected demand, ground was broken on just 167,000 apartments last year. FHA has been a cornerstone for construction and 

permanent financing and refinancing for apartments for over 50 

years, and needs to remain a viable market participant to meet future housing needs. 

13 

FHA has provided a predictable and quantifiable source of 

project debt for developers and owners of rental housing, and provided a renewable source of liquidity for multifamily housing 

through Ginnie Mae securitization. 

This is particularly important as developers must invest as much as $2 million or more in development costs for a project prior to 

the closing of an FHA loan. In normal economic times, FHA plays 

a limited role, due to the availability of alternative financing, offering construction financing to developers as well as loans to borrowers who lack access to bank and other private construction capital sources. 

During the economic crisis, however, the demand for FHA financ- ing surged from $2 billion to $10 billion annually. HUD anticipates 

that this demand will remain high for the next several years. 

This escalation in demand, coupled with new processing procedures, has subjected FHA borrowers to processing times that can 

exceed 18 months, a dramatic departure from industry standards 

and prior FHA performance. 

NMHC and NAA strongly support FHA’s efforts to introduce 

sound credit and underwriting policies. But there are areas in 

which processing improvements can be achieved. 

We would like to commend HUD for its demonstrated willingness 

to work with stakeholders in this regard. We remain committed to 

working with FHA on outstanding issues associated with maximizing the industry’s access to FHA credit, improving the application process, and addressing credit risk, which is in the mutual interest of the industry and the taxpayer. 

Additionally, we view HUD’s December 2011 announcement that 

it will impose more stringent requirements on those seeking socalled large loans of over $40 million is counter to HUD’s stated 

goal of improving housing in our cities, where the cost of development is substantially higher than in the suburbs. 

Furthermore, FHA has not presented evidence that the credit 

issues specific to larger loans exist that would justify the proposed 

program changes. 

Finally, some have suggested that FHA could replace the role 

GSEs currently play in the multifamily market. NMHC and NAA 

strongly oppose such efforts. Because FHA serves a fundamentally 

different market segment than the GSEs, such a move would exacerbate liquidity issues facing the multifamily industry and could 

reduce the availability of workforce housing. 

The fact is that fully 90 percent of the apartment units financed 

by Fannie Mae and Freddie Mac—over the past 15 years, more 

than 10 million units were affordable to families at or below the 

median income for their community. 

NMHC and NAA are working on a framework for spinning out 

Fannie and Freddie’s multifamily businesses, which have generated $7 billion in net revenues to the taxpayer during the conservatorship, as rechartered, stand-alone entities. The plan also 

calls for the retention of a Federal credit guarantee that would be 

tied to the security, not the entity, a necessary provision to attract 

global investors. 

In addition, the proposal would fully compensate and protect the 

government for its guarantee and empower a strong regulator to 

14 

oversee the new entities, and would address the multifamily sector’s capital concerns by ensuring that liquidity remains available 

in all markets. 

Thank you again for the opportunity to testify this morning. 

[The prepared statement of Mr. Mostyn can be found on page 208 

of the appendix.] 

Mr. DOLD. Mr. Mostyn, thank you so much. 

Mr. Nielsen is recognized for 5 minutes. 

STATEMENT OF ROBERT F. NIELSEN, IMMEDIATE PAST 

CHAIRMAN OF THE BOARD, NATIONAL ASSOCIATION OF 

HOME BUILDERS 

Mr. NIELSEN. Chairman Dold, Representative Waters, and members of the subcommittee, I am pleased to appear before you today 

on behalf of the National Association of Home Builders (NAHB). 

My name is Bob Nielsen. I am a multifamily builder from Reno, 

Nevada. And I am the immediate past chairman of the board of the 

National Association of Home Builders. 

Of importance to NAHB’s multifamily members are the Section 

221(d)(4) and 223(f) programs. In addition to providing mortgage 

insurance for market rate apartments, the programs are often used 

in tandem with the low income housing tax credit program to provide affordable rental housing. 

FHA historically has played an important part in the financing 

of multifamily rental housing. As the current economic conditions 

worsened, the traditional sources of funding withdrew from the 

market, leaving FHA and the GSEs as the largest source of financing. 

FHA stepped up to the plate. Its issuance of firm commitments, including health care, grew from just over $2 billion in Fiscal Year 

2008 to $13 billion in Fiscal Year 2011. To ensure that the multifamily portfolio remains safe and sound, HUD turned its attention 

to implementing new risk management protocols. 

We commend HUD for working with NHB and the other multifamily stakeholders as these new policies were implemented. Although much has been accomplished, we remain concerned that 

loan processing times continue to lag, and staffing levels are not 

adequate for the volume of work. 

We fear that this could further hinder the flow of needed credit. 

Of key importance to NAHB is the Administration’s Fiscal Year 

2013 budget proposal to increase the multifamily mortgage insurance premium (MIP). 

NAHB is opposed to the increase. We do not believe that HUD 

has provided compelling justification for them. The purpose of the 

MIP is not to increase receipts to the Treasury, nor is it to adjust 

pricing of credit risk relative to current private marketplaces. Historically, HUD has not raised the MIP to generate revenue beyond 

that needed to cover expected credit losses and associated program 

costs. 

Currently, the MIP is set at a level where the programs will 

break even, providing only a minimal amount of excess income. The 

proposed increases will not provide a buffer against future FHA 

losses, because there is no segregated fund and excess income is 

simply returned to the Treasury each year. 

15 

Increases will only add to a property owner’s costs, thus raising 

rents and discouraging the production of rental housing. Further, 

these increases will hurt market rate rental properties in the secondary market where credit is limited, because private capital currently is focusing lending activities in the strongest markets and 

for well-capitalized, large developers. 

HUD does not differentiate among markets in setting MIPs. 

Thus, the increases will penalize the borrowers who need HUD financing the most. Related to this, health of the GI and the SRI 

fund and whether minimum capital standards are needed; NAHB 

does not believe it is appropriate to apply the concept of capital ratios, as used in the MMIF to the GI or the SRI fund. 

The nature of the multifamily portfolio is significantly different 

from the single family portfolio, insured under the MMIF. 

Also of concern is the Administration’s proposal to short-fund 

Section 8 project-based rental assistance contracts. NAHB does not 

believe this is a true cost-saving measure, and will only exacerbate 

the problem for the next fiscal year, causing uncertainty among 

those who have contracts with HUD. 

On the legislative front, NAHB is supportive of HUD’s proposals 

for small multifamily financing, as they would expand the availability of financing for small multifamily rental properties and provide a secondary market outlet for loans on properties between 5 

and 50 units. 

Further, NAHB would like to express its support for H.R. 4253. 

In essence, the bill simply accelerates the owners’ access to their 

own funds, without threatening the fiscal or financial well-being of 

the property. 

In conclusion, as the future of the Nation’s housing finance system remains in flux, the future of FHA multifamily mortgage insurance programs must be a part of the discussion. NAHB believes 

that the needs of the moderate- and middle-income renters must 

not be neglected. 

FHA has an important role to play in serving a range of rental 

housing needs. Its mission must remain broad to ensure that access to credit is available in all geographic areas of the country, 

and that both affordable and market rate rental housing is produced. 

Thank you again for the opportunity to speak. 

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

223 of the appendix.] 

Mr. DOLD. Thank you, Mr. Nielsen. 

Mr. Pagliari for 5 minutes? 

STATEMENT OF JOSEPH L. PAGLIARI, JR., CLINICAL PROFESSOR OF REAL ESTATE, THE UNIVERSITY OF CHICAGO 

BOOTH SCHOOL OF BUSINESS 

Mr. PAGLIARI. Thank you for inviting me to testify today. My 

name is Joe Pagliari and I am a clinical professor of real estate at 

the University of Chicago. However, the viewpoints expressed in 

this testimony are my own. 

In this regard, my testimony will focus on three major areas. 

One, pricing structure. As a starting point, consider that private 

market commercial mortgage lenders charge increasingly higher inVerDate Nov 24 2008 18:47 Oct 25, 2012 Jkt 076105 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\76105.TXT TERRIE
16 

terest rates as the project’s loan ratio increases, representing the 

lender’s compensation for the increasing probability and severity of 

a borrower default. 

Now it is also the case that the lender’s estimates of default additionally vary with the lender’s perception of assets and borrower 

quality. A simple comparison is illustrated in exhibit one of my 

written testimony, where the lender charges the lower-quality 

asset/borrower a higher interest rate across all loan-to-value ratios. 

In contrast, the FHA lending programs do not vary the interest 

rate either by the leverage ratio or by borrower asset quality. The 

result of these two very different set of practices create two main 

effects: adverse selection; and excessive leverage. 

To appreciate these effects, consider exhibit two. Consider the 

rate setting possibilities shown in exhibit two at the maximum 

FHA leverage ratio of approximately 85 percent. In all instances in 

which FHA is originating loan volume, FHA underprices the likelihood and severity of borrower defaults, and in so doing disproportionately attracts lower-quality assets/borrowers. 

Exhibit two also suggests that—borrowers may be persuaded to 

utilize more leverage in their capital structure. In turn, the increased leverage increases the probability and severity of borrowers’ potential defaults. 

Two, costs; forgoing notions of adverse selection and excessive leverage beg the question as to whether or not the private sector 

does a better job of pricing default risk and of underwriting the 

asset/borrower than is found with the FHA experience. 

This is an empirical question, but I have not been privy to such 

data with regard to the FHA experience. If such an analysis were 

to take place, it should cover a sufficient length of time. It should 

incorporate the incremental costs of FHA to originate and monitor 

the loans, and should be careful to control for various effects, for 

example the vintage year, that may help explain differential performance. 

Additionally, risk may be changing. Over the last 30 years, the 

multifamily market has been the commercial property type that 

has generally displayed the best risk/return characteristics. Consider exhibit three. 

However, there are two potential reasons to be concerned that 

the past may not be perfect prologue for the future. Declining capitalization rates; over much of the last decade, capitalization rates 

have been lower and declining more steeply for multifamily properties. See exhibit four. 

The implication for declining capitalization rates is that future 

returns may be lower. NIMBY versus YIMBY; for some time I have 

contended that apartment investors and lenders had benefited from 

the reluctance of many suburban municipalities to encourage multifamily development. 

The euphemism for this type of behavior, ‘‘NIMBY, or not in my 

backyard.’’ However, in many urban markets, municipal authorities 

are increasingly in favor of multifamily development. NIMBY in reverse, ‘‘YIMBY, or yes in my backyard.’’ 

While these attributes may be laudable goals from the municipality’s perspective, these increasingly pro-development attitudes of 

17 

urban officials may pave the way for lower apartment returns as 

well as greater volatility in these returns. 

Three, the benefits; of course the cost of the FHA multifamily 

lending program ought to be weighed against the benefits. As illustrated in exhibit six, an increase in the marginal supply of apartments produces lower rents and expands the number of rental 

choices. 

However, this analysis ignores other effects which may mitigate 

the benefits identified above. Among those effects is that the surplus illustrated in exhibit six may be shared with sellers. 

In the case of apartment development, the developer is able to 

pay more for the land or the to-be-demolished building because the 

credit subsidies implicit in the FHA lending programs permit the 

developer to pay more for the to-be-developed property than would 

otherwise be the case. 

Another potential effect is the adverse impact on home prices attributable to the increased supply of multifamily properties. Because the homeownership and rental markets are interconnected, 

there is a substitution effect. For example, a decrease in the rental 

rates of apartment properties leads to a fall in the value of owneroccupied homes. 

The effect ought to be considered in light of other governmental 

efforts currently designed to stabilize and enhance home values. 

Thank you. 

[The prepared statement of Professor Pagliari can be found on 

page 235 of the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

I now recognize Mr. Schiff for 5 minutes. 

STATEMENT OF PETER D. SCHIFF, CHIEF EXECUTIVE OFFICER AND CHIEF GLOBAL STRATEGIST, EURO PACIFIC CAPITAL 

Mr. SCHIFF. My name is Peter Schiff and I am the CEO of Euro 

Pacific Capital, although I am better known as having been one of 

the few voices who very publicly and accurately forecast the financial crisis of 2008, the housing bubble that preceded it, and the 

‘‘Great Recession’’ that followed. 

Among my many forecasts was that Fannie Mae and Freddie 

Mac, the two Government-Sponsored Enterprises at the heart of 

the housing bubble, would in fact go bankrupt. And I also forecast 

that Congress would make the mistake of bailing them out. 

I bring this up now in the hopes that what I have to say, these 

warnings will not fall on deaf ears. Although judging by how few 

Congressmen have shown, unfortunately, not too many are listening. In fact, this very hearing proves that Congress still doesn’t understand the problem or its culpability in creating it. 

I am not saying the Congress acted alone in inflating a housing 

bubble. It had a lot of help from the Federal Reserve. They supplied most of the air. And that is probably the subject of another 

hearing. 

But we cannot underestimate the role that this body played in 

enabling millions of Americans to buy houses they could not afford 

based on government-guaranteed mortgages. These are loans that 

never would have been made but for those guarantees. 

18 

And ironically, it was not even the home buyers who benefited 

from the subsidies. It was the housing industry. It was the sellers 

and the home builders. They got to sell the overpriced homes. REALTORS® earned commissions on them. Bankers received fees on 

them. 

And it is no coincidence that the same lobbyists who benefit at 

the taxpayers’ and the economy’s expense are back again looking 

for more. And while I am here, I don’t represent any industry. 

See, I represent the American taxpayer who is on the hook for 

all this. Right, I don’t want to pay for this. Contrary to what has 

been said, these loan guarantees do not come without costs. 

Look at how much the defaults cost the taxpayers already on 

Fannie Mae and Freddie Mac. And we haven’t even seen the final 

price tag. If you guys want to guarantee mortgages, do it with your 

money. Don’t do it with mine. 

But the actual price is just the tip of the iceberg on costs. When 

Congress diverts our resources to the housing market, it diverts 

them away from other sectors of the economy, sectors where the 

free market would have otherwise put those resources. 

And so, the economy suffers. Americans have to live and work in 

an economy that is far less productive as a result of congressional 

meddling. Rather than figuring out ways to expand government’s 

involvement and compound the damage, let us actually undo it. 

How about talking about ways of getting the government out of 

the housing market, out of the mortgage finance market? We are 

broke. Maybe you haven’t noticed this as you are paying taxpayer 

money. 

How about just shutting down the Department of Housing? It is 

a waste of money. Why don’t we get rid of the FHA, get rid of 

Fannie and Freddie? They have done enough damage already. We 

can’t afford to perpetuate these problems. 

We need to get the government out so that we can bring the free 

market in. Unfortunately, the financial crisis, the economic collapse, has only just started, right? We have seen the overture. The 

opera is about to play out. 

Rather than sitting around and trying to figure out how we can 

pour more gasoline on this fire, I am here to talk to you about ways 

of putting it out. If we really want to talk economics and not politics, and not try to find ways to make all these lobbyists happy, 

right, and try to get reelected, let us actually do something for the 

American public, for the taxpayers of this country who pay all your 

salaries. 

I am happy to sit here as long as you want and answer all the 

questions you have on exactly what we need to do to turn this 

economy around, to turn the housing market around. 

And you might not like what I have to say. But what I have to 

say is correct and it is going to work. 

Thank you for inviting me here to speak to you. 

[The prepared statement of Mr. Schiff can be found on page 247 

of the appendix.] 

Chairwoman BIGGERT. We are now going to recognize each of the 

Members for 5 minutes to ask questions in the order of the opening 

statements. And I will start with myself. 

19 

I will begin with Mr. Pagliari. On page two of your testimony, 

you note that the private market multifamily mortgages attempt to 

price the probability of default by varying the interest rates depending on several loan quality measures that the FHA does not 

measure. What are those measures? And how do they lead to adverse selection and excessive leverage? 

Mr. PAGLIARI. In the private market, lenders are concerned about 

things like loan-to-value ratios, debt coverage ratios, the quality of 

the assets, and the quality of the borrowers. And that is not to say 

that FHA and HUD don’t consider those things. 

It is to say, on the other hand, that in the private market, those 

factors are priced, which means, as one example, as you increase 

the leverage ratio, the interest rate charged by the lender increases 

as a form of compensation for taking on additional potential defaults. 

In the FHA/HUD lending practices, essentially the interest rate 

is fixed or constant irrespective of the leverage ratio and/or asset/ 

borrower quality. Around the edges, there are some changes made 

with regard to reserves and escrow requirements. But in my view, 

they are not terribly substantive. 

Chairwoman BIGGERT. Does this make any difference as far as 

single family? Is it different than what you would do with single 

family mortgages? 

Mr. PAGLIARI. Before the government guarantee programs that 

others have mentioned in the single family market, it used to be 

the case that private—excuse me, that single family home borrowers who had less than a 20 percent downpayment had to look 

for private mortgage insurance. 

And that was a way to make more costly putting down less 

money. That has largely gone away with regard to governmental 

lending programs designed for the single family market. 

The only other point I would like to make is that what happens 

in the rental market does affect the single family home market. So 

to the extent that we increase supply of rental properties, we probably decrease the value of homes. 

Chairwoman BIGGERT. Thank you. 

Ms. Head, for single family programs, the FHA publishes a quarterly report to Congress that shows serious delinquency rate by 

quarter for years in the past. Multifamily delinquency rates for all 

major investor groups, including banks and commercial mortgagebacked securities, like insurance companies and the GSEs, are publicly available. Does FHA multifamily publish or publicly release 

historical delinquency rates and claim rates? 

Ms. HEAD. Thank you for that question, Chairwoman Biggert. 

Let me assure you that we are committed to transparency in publishing our data. 

We post information regarding the FHA insurance program, including our multifamily program, in the FHA Reading Room on our 

Web site. With respect to multifamily specifically, we have been refining our internal processes in all aspects of the portfolio for the 

last 2 years. 

And we are happy to discuss if there are any other ways that we 

can provide data or information to you that you might need about 

our program. 

20 

Chairwoman BIGGERT. So the answer is no, you don’t publish 

those? 

Ms. HEAD. We do publish some information on our Web site. 

Chairwoman BIGGERT. But not the delinquency rates and the 

claim rates? 

Ms. HEAD. No, ma’am, we have not published those. 

Chairwoman BIGGERT. Could you provide those to us? 

Ms. HEAD. Yes, we could provide them. 

Chairwoman BIGGERT. Would you please—because it seems like 

it kind of suggests a lack of transparency and ability for the public 

and the Congress to assess whether the multifamily programs are 

being operated in a safe and prudent manner. 

Ms. HEAD. Chairwoman Biggert, may I also state that we have 

had some IT challenges with our reporting system. We thank you 

for the Transformation Initiative to allow us to do a better job of 

that. That has been one of our challenges. 

Chairwoman BIGGERT. Okay. Thank you. 

I don’t know whether to go to Mr. Schiff or not. But I guess I 

will go. 

You believe that FHA should leave the multifamily mortgage 

market all together? 

Mr. SCHIFF. It should leave the single family market as well. 

Chairwoman BIGGERT. We are focusing on the multifamily. 

Mr. SCHIFF. You have to learn from your mistakes, so that you 

don’t repeat them. But I think it is ironic. 

One of the reasons why maybe the multifamily market might be 

devoid of credit is because too much of it has been diverted by government to single family. In fact, I mentioned in my statement that 

the subsidies didn’t help the home buyers. They helped the home 

sellers. 

Because what happened was, once Americans could get cheap 

money based on Federal loan guarantees, they simply used that 

cheap money to bid up home prices. And so, they just paid more 

for houses that, absent those subsidies, they might have bought for 

a lot less money. And we wouldn’t have that bubble. 

The government needs to recognize that the market knows more 

than Congress. Let the free market allocate— 

Chairwoman BIGGERT. All right, so let me ask you this: Do you 

believe that private funders would come into the market without 

FHA support? 

Mr. SCHIFF. Absolutely. But if you get the government out of 

housing completely, not just FHA but Fannie and Freddie, and let 

interest rates rise to an appropriate level, let people buy houses 

they can actually afford, based on their creditworthiness—don’t put 

taxpayers on the hook. Don’t try to get people to buy houses when 

they would be better off renting. Look at all the renters that Congress put into homes they couldn’t afford. 

Chairwoman BIGGERT. Let me ask another question. Do private 

funders engage in affordable housing? 

Mr. SCHIFF. Sure they do, if there is a market for affordable 

housing. 

Chairwoman BIGGERT. Give me an example. 

21 

Mr. SCHIFF. You have to get the government out to have a free 

market. But capitalists are always looking to sell things to lowerincome people. You can make a lot of money. 

There are a lot more low-income people than rich people. And 

you can make a lot of volume. One of the richest men in the country was Sam Walton. He made money selling things to low-income 

people. 

If there is a demand for low-income housing, and if Congress 

stays out of the way, profit-seeking private entrepreneurs will satisfy that demand. The problem is you have all these private businesses looking to government, because they don’t want to deal with 

a competitive marketplace. 

Chairwoman BIGGERT. All right, my time has expired. 

The gentleman from Missouri, Mr. Cleaver, is recognized for 5 

minutes. 

Mr. CLEAVER. I am going to resist my temptation. 

Mr. SCHIFF. Oh, don’t do that on my account. 

Mr. CLEAVER. I wasn’t talking to you. 

Mr. SCHIFF. Forgive my presumptuousness. 

Mr. CLEAVER. Ms. Crowley, are you familiar with the new term 

that seems to be used more and more—maybe it is a new term altogether—‘‘rentership?’’ Since the economic crisis, it seems that we 

have moved from homeownership to rentership. 

And I mention that because we are now reaching a period where 

many people cannot find affordable rental housing. How could capitalization of the Affordable Housing Trust Fund help households 

affected by the housing crisis? And what would you recommend to 

us? 

Ms. CROWLEY. Thank you for your question, Mr. Cleaver. On the 

issue about rentership versus homeownership, I think that in any 

healthy housing market, there has to be a range of housing choices 

for the people who live in that community or that society, and that 

renting is an important and appropriate choice for many people. 

The notion that we are moving from being a homeownership society to a renter society doesn’t really ring true, because we edged 

up in homeownership, up to 67, 68 percent, but the ratio of homeowners to renters has remained pretty much steady for a very long 

time. 

On the question of the Housing Trust Fund, as I said in my testimony, there is ample evidence from lots of different places, including our analysis, that where we have the most serious housing 

shortage—and it is a shortage; it is not just a lack of choice—is for 

households at the lowest income levels. 

And that is, in HUD terms, the 30 percent—income or extremely 

low income. That is where there is the most need. And that is 

where the serious resources are going at this point. 

And we think it is perfectly reasonable to say that there are lots 

of resources going into subsidizing housing for higher-income homeowners that could be better spent if we were to figure out how to 

fund the Housing Trust Fund and get more housing built for the 

lowest-income people. 

The benefits would be across-the-board. The number of people 

who would be able to afford rental housing and not pay excessive 

percentages of their income for rent would grow considerably. 

22 

They would have more money to be able to spend in the economy. 

They would have money, God forbid, to save for retirement or for 

the potential of buying a house. It is just really foolhardy for us 

not to pay close attention to this problem. 

Mr. CLEAVER. Thank you. 

Ms. Kenney, would the securitization of FHA and HFA risk-sharing loans actually cost taxpayers? 

Ms. KENNEY. Thank you, Representative, for your question. Actually no, it would come at no cost. And this is a program that has 

existed for 20 years. So it has a proven track record of working, in 

addition to having no cost to the Federal Government. 

It would reduce the workload at FHA, which has had some backlogs in applications in terms of processing. And also, States would 

actually share in the risk of insurance that is provided for FHA. 

Currently, all FHA loan products can be wrapped with this 

Ginnie Mae wrap and take advantage of that lower interest rate. 

And this program is excluded from that possibility. 

So I just think it would be a very prudent way that the Congress 

could help States like mine that participate in that program to provide more affordable rental housing at a time when the country 

truly needs it. 

Mr. CLEAVER. Without putting the taxpayers at risk. 

Ms. KENNEY. Correct. 

Mr. SCHIFF. That is not true. 

Mr. CLEAVER. I yield back the balance of my time. 

Mr. SCHIFF. There is tremendous cost here. Can I address this? 

There is tremendous cost to the taxpayer. That is why everybody 

is here. It is not because there is no benefit. 

Mr. CLEAVER. Sir? 

Chairwoman BIGGERT. Time has expired. 

Mr. SCHIFF. Can I address that? 

Chairwoman BIGGERT. The gentleman from Virginia, Mr. Hurt, 

is recognized for 5 minutes. 

Mr. HURT. Thank you, Madam Chairwoman. I wanted to talk a 

little bit about the proposed increase in mortgage insurance premiums. There has been some criticism that really the purpose of 

this is to just cover FHA shortfalls, and it is not rationally related 

to any purpose or any long-term sustainability of what you all are 

trying to do. 

Could you talk a little bit about that? 

Ms. HEAD. Yes, sir. I am happy to talk about that. 

Since the start of this Administration, we have taken a number 

of steps to improve the risk management profile and the capabilities of the FHA multifamily programs. Those actions reflect our 

need to balance our mission along with providing this broader role 

in the marketplace. 

We provided liquidity to the marketplace during the recession. 

And during the time from 2011, the FHA volume increased by fivefold. Because of this, our risk profile has changed. And the MIP increase will ensure that the fund is compensated for the increased 

risk. 

We are trying to make very prudent, business-like decisions to 

ensure that we are managing that risk appropriately, while at the 

23 

same time trying to bring the private market capital back into the 

marketplace. 

So we really, really want to encourage this private capital back 

into the marketplace. 

Mr. HURT. What other things are you doing to encourage that, 

bringing the private capital back into the marketplace? 

Ms. HEAD. Over these last several years, we have strengthened 

our underwriting risk, which changes the loan-to-value ratios of 

many of our programs. We have also pushed back on some of the 

larger loans, as you heard mentioned earlier here today, so that we 

can encourage the market to come back into that place for those 

types of loans. 

I want to be sure that everyone understands that we are not 

raising the MIP on any of our affordable housing programs, because we feel that we need to still be very, very active in that marketplace. 

Mr. HURT. Okay, thank you. 

Mr. Schiff, I am intrigued by some of the things that you said. 

Despite all the sound and fury, there are not a lot of details and 

proposals in terms of how you get to what you are talking about. 

Obviously, what FHA does is promote liquidity. And as a consequence of that, I think that if you are talking about dismantling 

that, it is going to be very complicated and could have unbelievable 

consequences in the process. 

What would you propose would be a process for doing it in a way 

that would not wreck the economy and needlessly harm individuals? 

Mr. SCHIFF. It would liberate the economy. Remember, it is not 

providing— 

Mr. HURT. But I am talking about specific— 

Mr. SCHIFF. Yes. 

Mr. HURT. —specific steps, not more sound and fury. 

Mr. SCHIFF. Because where does the liquidity come from? See, it 

is being redirected. There are plenty of businessmen who can’t borrow for capital investment because somebody else got a government 

guaranteed loan. 

The ladies spoke about the fact that these loan guarantees don’t 

cost anything. They cost a tremendous amount of money. The obvious cost being that, well, what if the loan ends up in default? The 

taxpayer is on the hook. 

So the government is adding contingency liabilities to its balance 

sheet. And again, we are already hopelessly in debt. We don’t want 

to take on more liabilities. 

But I think the greater cost to the economy is that the other sectors are deprived of that money that went towards housing, because the government guaranteed that loan and didn’t guarantee 

something else. 

Mr. HURT. But you would agree—I assume you would agree that 

there is a need for a secondary mortgage market in multifamily 

housing? 

Mr. SCHIFF. If there is a need for it, the free market will provide 

it. 

Mr. HURT. All right, how do you get there? 

Mr. SCHIFF. That is how markets function. 

24 

Mr. HURT. I am asking how you get there? 

Mr. SCHIFF. The government has to get out of the way, right? Because as long as the government is there distorting it—look, 90 

percent of the mortgages now are now guaranteed by the government. 

Nobody is going to step in. Who can compete with the Treasury, 

because the Treasury has the taxpayers behind them? So there is 

no private market when the government comes in. It chases everybody else out. 

But you have people here looking for the government to come in, 

to provide a guarantee so that loans can be made that the free 

market would deny. If the free market wants to deny a loan, there 

is a reason for that. 

And somebody who is more deserving—we don’t need more 

houses. We need more factories. We have this huge trade deficit because too much of our resources are going to the things that the 

government wants to promote and not enough things that we actually need, and that the free market would provide if the government simply got out of the way. 

Because the government doesn’t have money. There is no money 

for housing. The government has to take money from someplace 

else and direct it to housing. 

Mr. HURT. I would suggest, Mr. Schiff—I think what you say is 

interesting. There may be some truth to it. But I would suggest 

that if you have a proposal— 

Mr. SCHIFF. I have a proposal. 

Mr. HURT. You have talked for 21⁄2 minutes and we haven’t 

heard anything. 

Mr. SCHIFF. No. The proposals— 

Mr. HURT. I yield back. 

Mr. SCHIFF. The proposal is free market capitalism. Why is the 

government involved? What difference does it make— 

Chairwoman BIGGERT. The gentleman yields back. 

Mr. SCHIFF. —whether somebody rents a house or buys a house? 

Chairwoman BIGGERT. Mr. Schiff? 

Mr. SCHIFF. Yes. 

Chairwoman BIGGERT. The time has expired. 

Mr. SCHIFF. Unfortunately, you are right. 

Chairwoman BIGGERT. The gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Madam Chairwoman. I thank all of the 

witnesses for appearing today. And I would like to, if I may, engage 

in a process that will help me to better understand where you are 

on some of these issues. 

In court, we call this voir dire, or voir dire, depending on where 

you are from. It is a French term. And it means to speak the truth. 

So please permit me to just ask you to raise your hand if you agree. 

If you agree that there is a need for FHA, would you kindly extend a hand into the air? 

Mr. SCHIFF. Let the audience— 

Mr. GREEN. Excuse me, Mr. Schiff, if you don’t mind, I will conduct this voir dire. And I will ask that you be kind. We will get 

to you in just a moment. 

So let the record reflect that all but two hands were raised. 

25 

And I would like to, if I may, ask my builder to have some comment. Would you give some indication as to why you are of the 

opinion that FHA is necessary, please, sir? 

Mr. NIELSEN. Sure. 

Mr. GREEN. And thank you for appearing. 

Mr. NIELSEN. Thank you. The home builders believe that there 

should be an entire range of housing available to all citizens of this 

country at all income levels. The problem with taking the government out of housing is that you create a ‘‘have and have not’’ society. 

And we believe that everyone should have the right to the American dream, which is owning their own home. We believe that along 

the way, we are going to have renters. And we need to have rental 

housing available to those folks who need to rent. 

So it is a stepped process. And we think the full range needs to 

be available. 

Mr. GREEN. Permit me to ask Ms. Crowley to respond as well, 

if you would? 

Ms. CROWLEY. To the value of the FHA? 

Mr. GREEN. Yes, please. 

Ms. CROWLEY. I think that the important thing about the FHA 

is that when there is a crisis, like we had in the Great Depression, 

where the FHA was created, and a crisis like we had more recently, what has happened is that those programs have been able 

to come in and keep everything from falling apart. 

And I think that is the role of government, is to be there to make 

sure that the economy is stabilized when it goes into these serious 

fluctuations. So I think the FHA is critical from that perspective. 

I think the FHA programs are also extremely critical in the preservation and the production of housing, the multifamily programs’ 

production of housing that is affordable to low-income people. 

Mr. GREEN. Thank you. Let me intercede, because I do have a 

couple of additional people that I have to go to. 

Let us go to Mr. Lopez, please. Mr. Lopez, you are here on behalf 

of the mortgage bankers. Is that correct? 

Mr. LOPEZ. That is correct. 

Mr. GREEN. Could you kindly give us your rationale for why we 

need FHA? And if you can be as terse as possible, I would greatly 

appreciate it. 

Mr. LOPEZ. Yes. First of all, the most important role that FHA 

plays is the countercyclical. We saw the private sector exit the market in 2009/2010. If it wasn’t for the GSEs and FHA, we would not 

have been able to finance multifamily housing. 

Second, you would not have private investors going into secondary tertiary markets to finance needed workforce housing. So 

those two elements make it important for FHA, over the long term, 

to be active and be part of the availability of funds for multifamily 

rental housing. 

Mr. GREEN. The president of the National Housing Trust Fund, 

I hope I am pronouncing your name correctly, Mr. Bodaken. Thank 

you. Would you please respond? 

Mr. BODAKEN. FHA has been critical, in particular in the financ- ing and preservation of project-based Section 8. They have $14 billion of financing for project-based Section 8. 

26 

Ms. Crowley has made the point that extremely low-income renters are not served by the private market. Project-based Section 8— 

50 percent of the people who live there are elderly or disabled. 

They make less than $12,000 annually. The private markets cannot 

possibly serve them. FHA insures $14 billion. Everyone on this committee has over $10 million or more of FHA-insured commitments on multifamily 

housing for Section 8 in their district. And so, FHA plays a critical 

role in ensuring their extremely low-income population can be 

housed. 

Mr. GREEN. Thank you. 

And Madam Chairwoman, if I may just say, those who have perused history are very much aware of what housing was like prior 

to FHA and the GSEs—large downpayments, huge balloons, only 

those who had some degree of wealth could afford housing, in the 

main. 

We did not have the American dream that we have now. And I 

would hope that we would not retrogress to the point that we now 

have to defend whether or not there should be an FHA. I think our 

goal is to improve it and make it a better FHA. 

And I yield back. 

Chairwoman BIGGERT. All right, thank you, Mr. Green, for that. 

And we are working on a bill, as you know. 

The gentleman from Illinois, Mr. Dold, is recognized for 5 minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. 

Professor Pagliari, let me start with you, if I may. Besides the 

Low Income Housing Tax Credit, what other policies should the 

Federal Government pursue to incentivize greater private sector 

development of affordable housing? 

Mr. PAGLIARI. I guess, just to back up one step, there seems to 

be a difference of opinion with regard to whether the marketplace 

works, whether the market can fill a vacuum. So I would say in 

the main, if there is a need that is unmet, the marketplace will figure out a way to meet that need. 

What we haven’t talked about much today in terms of the answer 

to your question is the voucher program. So rather than providing 

financing directly to apartment owners, developers, another way to 

think about solving the problem or mitigating the problem is to 

provide income assistance to low-income families. 

Thank you. 

Mr. DOLD. Okay. Director Kenney, let me just turn over to you, 

if I may. 

Is there a multifamily liquidity or capital problem for State housing finance agencies? In essence, are State housing finance agencies able to access capital easily? Or are they finding themselves 

locked out of the market? 

Ms. KENNEY. That is a very good question. HFAs have had to 

adapt a great deal. And we have changed our financing mechanisms largely. We used to really access the bond markets and avail 

ourselves of the tax exempt bonds. 

I think the liquidity problem on the multifamily side is the 

crunch on soft resources that need to be provided to developers in 

order to make a project work. And by that, I mean the Federal 

27 

HOME Program. In Illinois, we are very blessed to have a State 

Affordable Housing Trust Fund. 

And because of the economic crisis, those funds have become 

stressed. There was a 40 percent reduction in the HOME funds 

this year on the Federal level, and the State trust funds continue 

to be pressured with the States’ budget problems. 

So I think the proposal that we have set forth is one good reason 

for advancing it is just that. If we lower the interest rate to the 

developer and allow him to provide more private debt onto the 

project, it will lower the pressure on those soft resources and allow 

us to provide more multifamily rental housing. 

So, this is a very cost-effective way to really give State HFAs a 

tool to go out there and take some pressure off of those funds. 

Mr. DOLD. From your perspective, what do you think the role of 

the Federal Government should be in multifamily housing development? 

Ms. KENNEY. At the risk of disagreeing with the prior speaker, 

I just don’t think that this is a role that the private sector has 

served traditionally. And they don’t serve it well. We don’t have to 

hearken back too far in our Nation’s history to the tenement housing and things that existed. 

So, I don’t feel that this is a need that the private sector has traditionally filled. And I also disagree that the private sector wasn’t 

the larger part of the problem that was created in the housing market. 

Mr. DOLD. Would you also agree, though, if I may, that if in a 

situation of default, government would be on the hook? 

Ms. KENNEY. True. And in this particular program, the State 

HFAs actually participate in the risk. So it is an insurance policy. 

The premium revenues have exceeded any of the losses in this program. And there is a— 

Mr. DOLD. And the default rate, I think, is fairly low. 

Ms. KENNEY. It is. In Illinois, it is 1.7 percent. 

Mr. DOLD. Okay. Mr. Lopez, if I can turn to you just for a second 

in the minute and 13 seconds that I have left, your company is 

among the top 25 FHA lenders and does business, in essence, all 

over the country. How has your experience with HFA been in recent years? And what do you think FHA should be doing differently? 

Mr. LOPEZ. First of all, FHA has been the source of capital during times, as I indicated earlier, where other private sources of capital were not available, along with GSEs. I believe that they have 

added a whole array of proven changes to the underwriting requirements. That, over the long term, is going to make the portfolio 

stronger. 

This is probably the best time in history to be making the loans 

that we are making. The fundamentals for the multifamily rental 

market are very strong. I think the changes to the loan documents 

that were also implemented, all of those—although there have been 

a lot of changes, and perhaps more than we can adopt over a short 

period of time, I think what FHA has been doing is in the right 

direction. 

28 

I do think that we need to streamline the process, so we can provide the funds to those who need it quicker than what it is right 

now. 

Mr. DOLD. Thank you, Madam Chairwoman. My time has expired. I yield back. 

Chairwoman BIGGERT. The gentleman’s time has expired. 

The other gentleman from Illinois, Ranking Member Gutierrez, is 

recognized for 5 minutes. 

Mr. GUTIERREZ. Thank you so much. And my apologies. I was in 

an Intelligence Committee meeting, and came over here as quickly 

as possible. I am very happy. And I thank the chairwoman for calling this. 

As I know we have heard from a number of witnesses, I also believe that Ginnie Mae’s securitization of FHA-endorsed risk-shared 

loans would generate revenues and increase liquidity, reduce financing costs, and make more loans possible. Implementing the 

proposal would extend and enhance, in my opinion, the use of a 

sound, proven housing program, and the delivery system to support 

the development of more affordable housing rental units. 

I have been working on a bill to develop this proposal, which I 

think will save the taxpayers money. And I look forward to working with colleagues on both sides of the aisle in order to accomplish 

and introduce such a bill. 

I would like to ask Ms. Mary Kenney, what would it mean for 

the people of Illinois who are in pretty dire need of affordable housing if Congress authorizes Ginnie Mae to securitize FHA/HFA risksharing loans, in your opinion? 

Ms. KENNEY. In my opinion, it would greatly increase my agency’s ability to increase the production of multifamily rental housing. To date, my agency has been underwriting these loans since 

1994. We have done approximately 5,800 units. 

I estimate that it could increase our production by up to 25 percent, having that more attractive interest rate available in the first 

position loan. 

Mr. GUTIERREZ. And would it cost taxpayers any more money in 

order to do that? 

Ms. KENNEY. No. That is the wonderful thing about this program, is it has a proven track record of 20 years. And there has 

been revenues to—and the CBO estimates that it would actually 

save the Federal Government $20 million over the next 10 years. 

So it is a net neutral or slight positive. 

Mr. GUTIERREZ. Maybe even positive fiscal—right? 

Ms. KENNEY. Yes. 

Mr. GUTIERREZ. How about the rents? Would it do anything for 

rents? 

Ms. KENNEY. Actually, unlike a lot of FHA insurance products, 

this actually requires the tax credit and tax exempt bond requirements on rent restrictions and affordability restrictions. It actually 

provides more affordable housing than the standard FHA insurance 

as well, so it would help us to reach lower-income people. 

Mr. GUTIERREZ. I look forward to continuing to work with you on 

this. I am going to be sharing with Members on both sides of the 

aisle, doing exactly that. That is without spending any money and 

probably getting a CBO that saves it saves money, enhancing and 

29 

expanding affordable housing opportunities for people without putting any risk, any monetary risk. 

Ms. KENNEY. You have been a wonderful advocate for us. And we 

appreciate your support. 

Mr. GUTIERREZ. We are going to work on that. And again, I 

apologize to all the panelists for being tardy to this hearing. 

Chairwoman BIGGERT. The gentleman yields back. 

The gentleman from Ohio, Mr. Stivers, is recognized for 5 minutes. 

Mr. STIVERS. Thank you, Madam Chairwoman. 

I wanted to ask a question. Both Ms. Crowley and Ms. Head said 

earlier that the insurance program that FHA’s multifamily housing 

has does not cost the taxpayers any money. But unlike the single 

family housing program, there is no capital requirement. Single 

family housing is supposed to keep a 2 percent surplus. The multifamily program does not have a similar surplus that I know of. 

Maybe you can inform me and help me if I am misinformed. 

But because of that, isn’t it true that if the program didn’t make 

money, the taxpayers would have to step in and bail them out? 

I will let Ms. Head go first, and then Ms. Crowley. 

Ms. HEAD. Thank you for that question. All of FHA’s programs 

have a high level of accountability of financial performance, first to 

OMB as part of the annual budget review. 

Mr. STIVERS. No, I understand that. Could you please focus your 

comments on capital reserves? 

Ms. HEAD. On the capital— 

Mr. STIVERS. Thank you, yes. 

Ms. HEAD. Yes. So— 

Mr. STIVERS. Because I don’t have much time. I want to use it 

wisely. 

Ms. HEAD. Sure. FHA agrees with a physically conservative approach to financing its loan guarantee programs. We know that 

there have been several discussions and a history about the capital 

reserves for multifamily. 

Our principal problem with that proposal is that for the GI/SRI 

Fund, almost 45 percent of the outstanding insurance for existing 

single family loans no longer being underwritten under the fund, 

but the new insurance for single family programs are now under 

the MMI Fund. 

So to comply with the GI/SRI Fund capital requirement, as it exists, that would mean that FHA would have to further increase 

premiums on the currently active multifamily and health care programs. 

Mr. STIVERS. Okay, you can stop there. 

Ms. Crowley, do you have any comments on that? 

Ms. CROWLEY. I didn’t say anything about reserves in my— 

Mr. STIVERS. You did say that it didn’t cost the taxpayers any 

money. It is directly related to reserves. And if there are no reserves— 

Ms. CROWLEY. Ms. Kenney said that. 

Mr. STIVERS. I’m sorry. I apologize. 

Ms. KENNEY. So yes, I was referring to the CBO estimate. 

Mr. STIVERS. I am sorry. I didn’t realize it was Ms. Kenney. I 

apologize. 

30 

Ms. KENNEY. Yes—in the FHA risk-share program, and the historical operation of that program. And it has run at a surplus. 

Mr. STIVERS. But if they didn’t have a surplus on any given year, 

wouldn’t it cost taxpayers money, because there is no capital reserve? 

Ms. KENNEY. Yes, potentially it could. I think the benefit of this 

program that can’t be underscored enough is that the States actually share in the risk with the Federal Government. 

Mr. STIVERS. And the problem I have is that the government 

typically misprices risk. That is what happened in Fannie and 

Freddie. That is what happened in FHA’s single family program. 

That is why the reserves have gone from 2 percent now. They were 

1 percent last year and then—well, the year before last. And then 

they lost 0.6 percent last year. 

So they are a little over 0.5 percent of reserves now. And they 

lost more than that last year. If they continue to lose, it will be 

below zero this year. I guess I just think we need to manage every 

program as close to the free market as we can. 

And so, I just wanted to bring up that issue. 

I want to shift a little bit and ask Mr. Lopez, because I do think 

the other point here is—and Mr. Schiff brought it up as well—we 

need to encourage the private marketplace to do as much as it can. 

And in my home of Columbus, Ohio, my multifamily housing 

builders are—people who are building multifamily housing are 

finding the only people they can get a loan from right now is FHA. 

Mr. Lopez, are there things we could do to encourage private lenders to put money back in multifamily housing? 

Why is it? I know that the crisis caused a lot of people to pull 

back from some multifamily commercial lending. Are there things 

that we could do that could allow private capital to compete with 

FHA? And then I think that would help drive the government to 

know what a fair market rate price is. 

Mr. LOPEZ. You are correct. And we are already seeing the shift. 

What we saw in 2009 and 2010, when your constituents in Ohio 

saw that the only source of loans were the GSEs and FHA, 2009, 

2010. Today, that has shifted. And you begin to see life insurance 

company, banks, thrifts that have come back into the market. 

Historically, that has been the role that FHA and the GSEs play. 

They are countercyclical to the market. So we are seeing the private market. I think the FHA has done a good job in increasing the 

underwriting requirements. 

Mr. STIVERS. I just have 16 seconds left. And so, I would like you 

to comment on the capital piece, because obviously all of your lenders have to have capital behind them. What do you think about the 

fact that FHA’s multifamily housing doesn’t have a capital surplus 

requirement? 

Mr. LOPEZ. There has been a negative credit subsidy. And you 

look at the history of delinquencies for the GSEs. And although we 

don’t have numbers for FHA, we can tell that money is going to 

the Treasury. So money is not being lost. 

And overall, those portfolios are performing quite well. 

Mr. STIVERS. My time has expired. I would like to follow up on 

that if there is a second round, Madam Chairwoman. 

Chairwoman BIGGERT. Thank you, Mr. Stivers. 

31 

I am going to ask a couple more questions, if I may. 

Mr. Mostyn, according to your testimony, you support HUD’s proposal to expand taxpayer-backed Ginnie Mae securitization of loans 

on buildings to 49 units. 

Would this proposal require taxpayers to take more risk on— 

Mr. MOSTYN. I don’t believe so. I think that the housing needs 

in smaller communities are just as important as they are in the 

larger communities. And I think that if the underwriting is solid 

and is done in a format that we have seen the improvement 

through the FHA here recently, I think it should be a good investment, a good guarantee, if you will, for the FHA and the government. 

Chairwoman BIGGERT. I guess that is not quite the question I 

was trying to get to. If you expand taxpayer-backed Ginnie Mae 

securitization of loans, will there be more taxpayer risk? 

Mr. MOSTYN. Again, I don’t believe so. I think that the asset, if 

underwritten correctly, which Ginnie Mae’s process would do— 

Chairwoman BIGGERT. All right, then, Ms. Head, currently the 

Rural Housing Service, under the U.S. Department of Agriculture, 

administers multifamily housing programs to rural communities 

nationwide. Are these rural communities also eligible for multifamily housing programs under FHA? 

Ms. HEAD. The multifamily programs that already exist in the 

rural housing, are they eligible for FHA? 

Chairwoman BIGGERT. Yes. 

Ms. HEAD. They are insured by the rural housing programs. 

Chairwoman BIGGERT. Are the communities eligible for FHA? 

The Department of Agriculture has the rural housing— 

Ms. HEAD. The USDA 515 Program, is that what you are referring to for the rural housing? 

Chairwoman BIGGERT. Yes. 

Ms. HEAD. Yes, so the FHA small multifamily risk program will 

provide new opportunities for those that are financing loans in 

rural communities. So they have their own government, and outside of the FHA-insured guarantee. 

Chairwoman BIGGERT. But can FHA do it in rural communities 

too? There has been this thing about moving the rural housing 

around. 

Ms. HEAD. We also are part of a rental policy working group between agencies that enables us to be consistent between our programs. So the main objective that we have right now is being able 

to provide more financing in the rural communities. 

But in answer to your question, yes, we could. 

Chairwoman BIGGERT. Okay, thank you. 

Thank you. Mr. Cleaver is recognized. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

Mr. Schiff, I just have one question. Do you oppose governmentbacked flood insurance? 

Mr. SCHIFF. Yes, I do. 

Mr. CLEAVER. Thank you. 

Mr. SCHIFF. I think it encourages people to build in flood zones. 

And therefore, we end up using more money. Your colleague there, 

Mr. Green, wanted to know who is in favor of HUD. And just about 

32 

everybody here raised their hand because they directly benefit from 

HUD. 

Sure, a home builder can sell a home at an inflated price because 

of the FHA. But there are people on the other side of these transactions who are losing money. There are plenty of people who are 

not at this table who suffer because Congress decides to subsidize 

the industries that are representing here. 

I was asked, where is my solution. My solution is the free market. 

Mr. CLEAVER. What— 

Mr. SCHIFF. That doesn’t require government. It requires abolishing government. 

Mr. CLEAVER. You are answering your question. I want you to 

answer mine. 

So with regard to flood insurance, with which this committee 

deals— 

Mr. SCHIFF. Yes. 

Mr. CLEAVER. —should we then use the Federal Government to 

force the people out of New Orleans? 

Mr. SCHIFF. The Federal Government shouldn’t be forcing people 

to do anything. First of all, there is nothing in the Constitution— 

Mr. CLEAVER. So they should— 

Mr. SCHIFF. —and you guys all swear an oath to uphold it, that 

says that you are supposed to get involved in flood insurance. But 

a lot of the flood insurance goes to millionaires who have beach 

homes. Let the private sector— 

Mr. CLEAVER. But I didn’t ask you about the millionaires. 

Mr. SCHIFF. But you asked me about flood insurance. 

Mr. CLEAVER. I asked you about New Orleans. 

Mr. SCHIFF. Yes. I think that New Orleans and the people down 

there can take care of New Orleans. It is not up to the Federal 

Government to tax people in Maine or New Hampshire or California to deal with the problems in New Orleans. 

Mr. CLEAVER. So— 

Mr. SCHIFF. There are State governments. There are city governments. And there is a free market. If you guys would let it function, it would work. 

Mr. CLEAVER. So Louisiana should back State-backed flood insurance? 

Mr. SCHIFF. No, I think there should be private insurance. 

Mr. CLEAVER. You just said it was the State’s responsibility. 

Mr. SCHIFF. I don’t believe that the States should be doing that 

either. 

Mr. CLEAVER. No, but that is what you said. 

Mr. SCHIFF. Well, I said that there are States. But let the State 

make the mistake, and not the Federal Government, because at 

least it is just the local taxpayers who will suffer. 

But the private sector can supply flood insurance. The problem 

is when the government subsidizes it and it is too cheap, it encourages people to build in flood zones. Absent the government backing, 

the insurance would be more expensive, so fewer people would 

build in those areas and so we wouldn’t be damaged. 

33 

It is called moral hazard. It is unfortunate that politicians very 

often overlook the unintended consequences of their actions. Because what you do alters behavior. 

Mr. CLEAVER. Okay, so— 

Mr. SCHIFF. And it often makes the very problem worse that you 

are trying to solve. 

Mr. CLEAVER. Okay. So those individuals who lived on the Gulf 

Coast, whose homes were not on the beach, but who lost their properties, including a Member of the United States Senate and a 

Member of the House, what did they do wrong? 

Mr. SCHIFF. Remember, people were encouraged to build there by 

these subsidies. 

Mr. CLEAVER. No, no. 

Mr. SCHIFF. And it is not that the free market wouldn’t offer insurance. They would just offer it at a higher price. 

Mr. CLEAVER. Can you tell me who encouraged Charlie—who lost 

his house. We went by. So who encouraged Congressman Gene 

Taylor to build— 

Mr. SCHIFF. No, I am saying by offering insurance where the free 

market might offer it at a higher rate, you get more building. Or 

people might not take adequate precautions. 

Mr. CLEAVER. I know, but you are answering a question that I 

didn’t ask. 

Mr. SCHIFF. Well, yes, you did. You asked me about flood insurance. I am answering your questions. 

Mr. CLEAVER. Yes, but— 

Mr. SCHIFF. Meanwhile, if I live in Connecticut, why should I 

have to pay for somebody’s flood insurance down in New Orleans? 

Why is it you are just trying to redistribute everything? 

I might have a storm up in Connecticut, but I am not going to 

go asking somebody in Louisiana to pay for my damage. 

Mr. CLEAVER. So the private insurance companies are lining up 

to provide insurance to people who live on the Gulf Coast? 

Mr. SCHIFF. Well, no. Why would they? Because they can’t compete with the Federal Government doing it, when the Federal Government doesn’t operate— 

Chairwoman BIGGERT. Mr. Schiff, please. We are here to get answers to questions. And you are just throwing out more and more 

questions. If you have a response and you want to answer the question— 

Mr. SCHIFF. I am answering your question. 

Chairwoman BIGGERT. And as a matter of fact, it was just signed 

into law that beach houses and secondary homes are no longer receiving a subsidy for flood. 

Mr. SCHIFF. That is a step in the right direction. 

Chairwoman BIGGERT. And we also have a bill that hopefully will 

come out this year, that will move the risk to the private sector. 

And they will take over this insurance. 

But please, the decorum here is not just yelling. And I like a rant 

sometimes, but I think we have had enough of them. 

Mr. SCHIFF. Remember, I represent the taxpayers here. And we 

are pretty upset at what is going on. So you can hear that. 

Chairwoman BIGGERT. There are a lot of people here who are 

upset. We are trying to find the answers, not just hear the rant. 

34 

Mr. SCHIFF. I have the answers. All you have to do is listen to 

them. 

[laughter] 

Chairwoman BIGGERT. The time has expired. 

Mr. Hurt, do you have a question? No? Okay. 

Mr. Sherman has joined us. Mr. Sherman, you are recognized for 

5 minutes. 

Mr. SHERMAN. Yes. Mr. Schiff, we tried your philosophy until 

about 100 years ago. Then, there was a huge disaster at the Mississippi, and the American people thought it was simply outrageous 

that the Federal Government didn’t help everybody. 

For you to think that we should allow people to go uninsured, not 

subsidize the insurance, and then the United States Congress is 

not going to help people who are uninsured and hit by a disaster— 

maybe that happens in an Ayn Rand novel, but it doesn’t happen 

in the United States Congress. 

Mr. SCHIFF. We did try my view for a long time in this country. 

We became the wealthiest country the world had ever known. 

Mr. SHERMAN. Excuse me. We tried your view until about the 19 

teens. The country has done, you can say, rather poorly over the 

last few years. But we did pretty well in the latter 80 percent of 

the 20th Century. 

Mr. SCHIFF. Don’t take credit for that. 

Mr. SHERMAN. Excuse me, Mr. Schiff. 

I will go on to Mr. Lopez. You mentioned that private capital is 

starting to come into the multifamily markets. Do you think, given 

that, that it is a good time for FHA to be adding new market rate 

loans to its portfolio? 

Mr. LOPEZ. Absolutely. This is probably the best time to make a 

multifamily loan. First of all, there is no bad time. If you brilliantly 

underwrite a loan, there is no bad time to make a loan. 

But the changes that have been implemented, the initiatives that 

have been put in place looking at the underwriting and credit for 

FHA loans make the loans that are being insured today the best 

ever, not only because of the new constraints, but also because of 

the fundamentals of the market. 

And if you look at the demographics over the next 5 to 10 years, 

they bode very well for multifamily rental housing. So I am confident that any loan that we are doing, not only FHA, but with 

other sources of capital, will be the best transactions we put in our 

portfolios in our lifetime. 

Mr. SHERMAN. Mr. Mostyn, do you have a comment on that? 

Mr. MOSTYN. I agree with that. A good loan is a good loan. And 

if you have good credit policies and underwriting procedures, I 

think this is an excellent time in the multifamily business to be 

making loans. 

Mr. SHERMAN. Mr. Lopez, you mentioned that the GI/SRI Fund 

contains a number of single family loans. I thought we resolved 

that problem several years ago when we moved reverse mortgages 

and condominium loans over to the MMI Fund. Can you explain 

why there would still be a single family loans in the GI/SRI Fund? 

Couldn’t we make that fund exclusively multifamily mortgages 

now? 

35 

Mr. LOPEZ. You are correct. Congress made significant strides in 

moving single family loans out of the fund. However, that was prospective going forward. Loans that were made from 1992 to 2009 

remain in the fund. 

And those are the ones that give—you cannot get a clear picture 

of the performance of multifamily programs because those loans, 

those single family loans remain in the fund. If those were separated, then you can be able—policymakers will be able to make better decisions based on the performance of those loans. 

But you are correct. The issue was resolved going forward from 

2009. But now, we have to go back and ask HUD to remove those 

from 1992 to 2009. 

Mr. SHERMAN. I thank you for your answers. 

In reference to Mr. Schiff’s philosophy, the fact is if you go uninsured, you have still insurance, but it is paid for by the taxpayer. 

Because as a practical matter—sir, I know you imagine a world 

that is different. 

I have served here for over 15 years. And if there is an enormous 

front-page natural disaster and a homeowner is uninsured, there 

will be a special appropriations bill. 

And the size of that bill will be less if people are insured. The 

Federal Government, in this real world, has a financial interest in 

minimizing the uninsured damage of front-page natural disasters. 

With that I yield back. 

Mr. SCHIFF. You realize, though, there are hundreds of billions 

of dollars in losses that are waiting for the FHA. The bailout is 

going to be enormous. You understand this already, based on the 

loans they have already guaranteed. 

Mr. SHERMAN. I will simply say that natural disasters cannot be 

prohibited by law. The natural human response to natural disasters cannot be prohibited by philosophy. 

And anything that reduces the uninsured losses of ordinary 

homeowners will reduce the cost of the next special appropriations 

bill far more effectively than a philosophical attack on doing a special appropriations bill after a natural disaster. 

I yield back. 

Chairwoman BIGGERT. The gentleman’s time has expired. 

The gentleman from Ohio? 

Mr. STIVERS. Thank you, Madam Chairwoman. I would like to 

follow up on where I was with Mr. Lopez as we wrapped up and 

my time expired. 

Obviously, all of the members of the group you represent, the 

mortgage bankers, have to capitalize their business. Do you think 

it would be a best practice for FHA to have to capitalize and have 

some capital requirement, whether it is 2 percent, 1 percent, 0.5 

percent, on their multifamily housing portfolio, just like they do on 

their single family housing portfolio? 

Mr. LOPEZ. I believe that the mortgage insurance premium is already taking care of that. As I indicated earlier, we see that there 

is a negative subsidy, that revenues are moving from the insurance 

fund to the Treasury. 

And so clearly, the risk is such that the government is not losing 

capital. So there probably would not be a need for that. 

36 

Mr. STIVERS. Instead of moving to Treasury, wouldn’t it make 

sense to keep it in FHA as a surplus against losses, so that you 

have— 

Mr. LOPEZ. Absolutely. We would— 

Mr. STIVERS. That is what I am trying to get at. 

Mr. LOPEZ. We would not only support that, but we would support that surplus going into trying to address the technology needs 

of FHA, into training the HUD staff. 

That is where those excess funds should go to. 

Mr. STIVERS. Mr. Pagliari had his hand up. Go ahead, sir. 

Mr. PAGLIARI. If I may? 

Mr. STIVERS. Yes, sir. 

Mr. PAGLIARI. I think an interesting idea to explore is the possibility of considering private market reinsurance of FHA’s liability. 

Mr. STIVERS. And actually, that is my next question. Is there a 

PMI, a private mortgage insurance market, in multifamily? Can 

anybody speak to that? And if you can, Mr. Pagliari, that would be 

great. 

Mr. PAGLIARI. Not that I know of. But what I am asking is for 

some thought to be given to the idea of probably increasing transparency by letting the private market assess these contingent liabilities that some people believe have a zero expected value. Others don’t. 

Let the market decide whether or not the expected value is correctly set at zero. 

Mr. STIVERS. And I think that is part of what I am trying to get 

at, that the private marketplace prices risk much more efficiently. 

That is why it would be great if we could figure out how to create 

a PMI market that operates alongside FHA for multifamily, so you 

could see where the private market values the risk and how the 

government values the risk. 

I will go to Mr. Pagliari and Mr. Lopez, and then Mr. Schiff. 

Mr. PAGLIARI. And if I may, I would just say that this notion of 

reinsurance already exists in the private insurance world, where 

insurance companies lay off their risk to other insurers. The idea, 

in my mind, has a direct analogy to what we are talking about 

here. 

Thank you. 

Mr. LOPEZ. Although I don’t recommend that the FHA do risk 

sharing, there are successful risk-sharing programs in the GSEs, 

typically Fannie and Freddie. So you can go in that area. 

And Ms. Kenney talked about some of that risk-sharing program. 

Mr. STIVERS. I will let her go at it. I do want to let Mr. Schiff 

talk. 

Mr. SCHIFF. Yes, we can’t lose sight of the fact that the reserves 

that you are talking about right now for the FHA for single family 

are wholly inadequate for the losses that are going to come. 

Remember, right now, we have mortgage rates— 

Mr. STIVERS. Did you say they are wholly adequate? 

Mr. SCHIFF. Wholly inadequate. 

Mr. STIVERS. Inadequate. 

Mr. SCHIFF. The losses will be at least 20 or 30 percent, if not 

more. Because what is ultimately going to happen, when interest 

37 

rates rise, and the housing market has another leg down and more 

people lose their jobs, the defaults are going to go through the roof. 

Mr. STIVERS. But Mr. Schiff— 

Mr. SCHIFF. These contingency liabilities will be realized. And 

they are enormous. 

Mr. STIVERS. And I am running out of time. So if you could just— 

let us philosophically agree that if the government is going to do 

this, they should have some type of surplus or some type— 

Mr. SCHIFF. To the extent that you make the mistake of doing 

it, yes, require as big a reserve as possible. 

Mr. STIVERS. Yes. 

Mr. SCHIFF. But I am sure whatever you require is not going to 

be enough. Because as I said, the losses are going to be enormous. 

Mr. STIVERS. I understand your philosophy on that. But I am trying to get at if we are going to do it, how we do it the best we can. 

Ms. Kenney? 

Ms. KENNEY. I just wanted to note for Members that my agency 

actually had a privately insured program that was similar to the 

risk-share programs through AMBAC insurance. The problem they 

have today is that you have no AAA rated insurance companies. 

And so, to kind of underscore a lot of what a lot of speakers have 

been saying is the role of FHA right now is so critical because there 

is no private market. 

Mr. STIVERS. And I recognize that. I am trying to figure out how 

we can transition to bring back some private market, both in lending as well as in the private mortgage insurance. And I think that 

is really important, so that the government has a check and balance to know how to price their product. Because historically, the 

government has done not a very good job at that. 

Yes, sir? 

Mr. BODAKEN. Michael Bodaken. I would just point out that 

chart three in my testimony talks about how the role of private 

lending has been increasing in a variety of ways. And I think that 

one thing to think about is what happens in a crisis and how would 

the PMIs deal with that crisis. 

I don’t disagree that the private market will efficiently price, at 

a point in time, as long as the market is healthy. But remember, 

the market is not a stasis product. It moves. And the PMIs— 

Mr. STIVERS. Dynamic, yes. 

Mr. BODAKEN. That is my only point, is that I think right now 

you won’t get that efficient pricing necessarily, until the market is 

totally healed. 

Mr. STIVERS. Thank you. I am out of time. 

Thank you for allowing me to ask those follow-up questions, 

Madam Chairwoman. 

Chairwoman BIGGERT. Maybe we could consider some sort of 

hearing on that, Mr. Stivers. 

Ms. Waters, the gentlelady from California, is recognized for 5 

minutes. 

Ms. WATERS. Thank you very much, Madam Chairwoman. 

Ms. Head, as I understand it, FHA’s multifamily programs are 

designed to promote development of multifamily housing for both 

low-income and moderate-income households. Could you elaborate 

on this distinction? 

38 

Are there any differences in terms of the premiums that FHA 

charges lenders between low-income and non-low-income development? 

Ms. HEAD. Yes, ma’am, there are. We are not proposing an increase in our premiums for the affordable housing programs. We 

are making a clear distinction so that we can separate ourselves in 

the market from the affordable standpoint, versus the market rate 

standpoint. 

Ms. WATERS. The financial crisis created a greater demand for 

rental housing. Could you talk about how FHA’s multifamily programs have helped to address the housing crisis? 

Ms. HEAD. Yes, ma’am. I am happy to do that. 

As we have talked about a lot today, FHA during the crisis 

stepped up to the plate. Our volumes increase by 5 times. So it put 

a strain on our system. 

But in the end, FHA was the agency providing liquidity to the 

market. Without us, as others have stated today too, the affordable 

housing in the multifamily market, as a total, would have been in 

dire risk. 

Ms. WATERS. Thank you very much. 

Ms. Crowley, despite the fact that FHA stepped up to the plate, 

and they have done an awful lot to address the need for rental 

housing, we still hear from constituents about the lack of affordable 

rental housing. 

How could capitalization of the Affordable Housing Trust Fund 

help households affected by the housing crisis? And what steps do 

you recommend that Congress take to capitalize the trust fund? 

Ms. CROWLEY. Thank you, Ms. Waters. The National Housing 

Trust Fund is specifically designed to reach that segment of the 

housing market that is not served by programs, and those are the 

people who have the worst housing cost burdens and who have the 

fewest choices. 

As I said in my testimony, there is an acute shortage of housing 

for people at the lower income levels, under 30 percent AMI. The 

National Housing Trust Fund is intended to fill that gap. We have 

three possible vehicles for funding that are under consideration. 

The President has asked for $1 billion in his budget this year. 

We urge Congress to figure out how to pay for that, and get that 

done in whatever vehicle is appropriate this year, as a way to get 

it started. 

We also are watching carefully what is happening with GSE reform. As you know, Fannie and Freddie were to make contributions 

to the trust fund until they were taken into conservatorship. We 

hope that there will be affordability requirements in whatever 

emerges in the decisions about the future of Federal housing finance. 

And then, we have taken the big leap to say it is really important that we start looking at where all the Federal housing subsidies go and who is getting them and how do you make it fairer. 

And so, we proposed a very small, very modest reform to the 

mortgage interest deduction, where we would lower the cap on the 

amount of mortgage that you could get a deduction on, from on, at 

this point, $1.1 million, down to $500,000. Only 4 percent of the 

39 

mortgages in the last 10 years were over $500,000. So it would 

have very little effect on the vast majority of home buyers. 

And then we would turn it from a deduction, which is only available to people who itemize, to a credit, which is available to all 

homeowners who have interest. And that would dramatically expand the number of homeowners with incomes under $100,000 who 

would then get a tax benefit. 

In the process of doing that, you save a considerable amount of 

money that could be redirected into solving unmet housing needs, 

specifically those of the poorest people. 

Ms. WATERS. Thank you very much. One of the things that I 

have noted about this panel and this issues is that we have advocates, we have the business community all coming together to talk 

about the need for rental housing. And certainly, the home builders 

and the mortgage bankers are business people who understand 

process, who understand how to pencil out these projects and to 

take the steps necessary to get this rental housing on the market. 

So may I ask the home builders, how important is it for you that 

we have FHA, and even a Housing Trust Fund, and other efforts 

to create multifamily housing? 

Mr. NIELSEN. As I said before, I think it is extremely important 

that we have FHA, because it is there when private companies cannot or will not be there, whether it is because of their corporate 

mission or because of a recession like we have gone through today. 

So, it is absolutely critical that FHA play the role that it does. 

Ms. WATERS. Thank you very much. 

Chairwoman BIGGERT. Thank you. The gentlelady yields back. 

I would ask unanimous consent to insert the following materials 

into the record: a June 7, 2012, statement from Highland Commercial Mortgage, Birmingham, Alabama; and a June 5, 2012, statement from the National Association of Affordable Housing Lenders. 

The Chair notes that some Members may have additional questions for this 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. 

And with that, I would like to thank all of you for being on this 

panel. It has been a very interesting and helpful panel. It has given 

us a lot to think about. And we really appreciate that you all have 

taken the time to be here. 

Thank you very much. And with that, this hearing is adjourned. 

[Whereupon, at 12:03 p.m., the hearing was adjourned.] 

(41) 

A P P E N D I X 

June 7, 2012 

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