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OVERSIGHT OF THE DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT (HUD) 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 1, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–10 

( 

(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 

KENNY MARCHANT, Texas 

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 

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 

LARRY C. LAVENDER, Chief of Staff 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

March 1, 2011 ................................................................................................... 1 

Appendix: 

March 1, 2011 ................................................................................................... 37 

WITNESSES 

TUESDAY, MARCH 1, 2011 

Donovan, Hon. Shaun, Secretary, U.S. Department of Housing and Urban 

Development (HUD) ............................................................................................. 7 

APPENDIX 

Prepared statements: 

Capito, Hon. Shelley Moore ............................................................................. 38 

Donovan, Hon. Shaun ...................................................................................... 40 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

Written statement of HUD Housing Counseling Intermediaries ................. 58 

Frank, Hon. Barney: 

Written statement of Hon. Cheryl A. Causley, Chairwoman, National 

American Indian Housing Council .............................................................. 62 

Donovan, Hon. Shaun: 

Written responses to questions submitted by Chairman Bachus ................. 67 

Written responses to questions submitted by Representative Neugebauer 79 

(1) 

OVERSIGHT OF THE DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT (HUD) 

Tuesday, March 1, 2011 

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

The committee met, pursuant to notice, at 2:20 p.m., in room 

2128, Rayburn House Office Building, Hon. Spencer Bachus [chairman of the committee] presiding. 

Members present: Representatives Bachus, Hensarling, Manzullo, Biggert, Miller of California, Garrett, Neugebauer, McHenry, 

Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hayworth, Hurt, Dold, 

Schweikert, Grimm, Stivers; Frank, Waters, Maloney, Velazquez, 

Sherman, Baca, Lynch, Scott, Green, Cleaver, Moore, Ellison, Donnelly, Carson, and Carney. 

Chairman BACHUS. Good afternoon. The committee will come to 

order. 

Secretary Donovan, we are pleased to have you here. I think that 

the committee has had a very constructive dialogue with you on 

issues for which we have jurisdiction within your Department. I 

commend you for your professionalism and welcome you back to 

the committee. In fact, I will tell members on both sides, there are 

issues that I think there is bipartisan agreement on, and I hope to 

build on that. 

I will say to the committee members, Secretary Donovan will be 

very involved in the crafting of a Fannie Mae-Freddie Mac solution 

with the Administration because FHA is obviously an integral part 

of that, and HUD. 

With that, Ms. Biggert is recognized for 2 minutes. 

Mrs. BIGGERT. Thank you, Mr. Chairman, and welcome, Secretary Donovan. Thank you for joining us this afternoon. 

I appreciate that the Administration has submitted a budget request for next year. Perhaps unfortunately, rather than cut costs, 

it builds on new spending authorized during previous Congresses. 

For example, the largest component of HUD’s request is the Sec- tion 8 Program, over $19 billion, and an over $1 billion increase 

over Fiscal Year 2010. However, the Administration offers no plan 

to empower individuals to gain independence from the program. Instead of growing the Federal budget, the Federal Government must 

prioritize its resources so that programs such as Section 8 don’t 

continue to grow exponentially. 

Too much borrowing, taxing, and spending has been a drag on 

our economy. Before embarking on new spending, agencies like 

HUD first must get their fiscal house in order. 

2 

Instead, we are presented with a budget that asks Congress to 

fund new Federal programs such as the trust fund to build more 

housing. Where is the proposal to boost private sector investment 

in single and multifamily housing? 

Throwing good money after bad is not the answer to our Nation’s 

fiscal woes. We must make the tough choices and focus our limited 

resources on our most vulnerable populations: the homeless; children and youth; seniors; the disabled; and our veterans. But most 

importantly, the Federal Government must be laser-focused on creating an environment that supports private sector job creation. 

With good jobs, families can afford housing. 

So I look forward to working with the Administration to achieve 

these goals and I look forward to your testimony. 

I yield back. 

Chairman BACHUS. Thank you. 

Mr. Sherman is recognized for 2 minutes. 

Mr. SHERMAN. Thank you. I am going to be focusing on the 

GSEs, which are so important to housing. I hope that we have a 

situation where access to the securitization market is not limited 

to the four largest banks in the country. We need someone who 

packages the loans of the smaller institutions, credit unions, and 

community banks and taps into the capital markets. 

I hope that your people have advised you just what a crushing 

effect it would have on the economy in Los Angeles and roughly 10 

other cities if the conforming loan limit is allowed to drop at the 

end of this fiscal year. It is almost impossible to get a loan just 

above the conforming loan limit. Of course, if you need $20 million 

to buy a home in Malibu, that can be arranged, but those people 

tend to own the bank themselves. 

The theorists and the ideologues say that we should just abolish 

Fannie and Freddie and not have any Federal involvement in financing mortgages. I have yet to hear very many of the industry 

stakeholders or practitioners, let alone homeowners’ groups, call for 

that kind of theoretical purity. I hope that what we see at least for 

the next few years is a Federal effort to support things at the current conforming loan limit and avoid the crashing economic doubledip effect it could have if we see another decline in housing prices. 

Thank you. 

Chairman BACHUS. Mr. Hensarling is recognized for 2 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman, and welcome, Mr. 

Secretary. I have been impressed with a number of things I have 

seen you do in your Department. I am looking forward to hearing 

more about some of your plans for efficiencies and consolidations 

within the Department. 

I must admit though, as I look at the budget request and put it 

into the context of the Nation’s fiscal challenges, I wonder when we 

are going to stop spending money that we do not have? It is still 

a budget request for $47.8 billion and over the last 15 years, according to OMB, all Federal housing programs—and admittedly 

that is somewhat out of your jurisdiction—have grown from $15.4 

billion to $53.8 billion, representing a 249 percent increase, when 

GDP over the same time period increased 96 percent. In other 

words, the cost of Federal housing programs is growing at a rate 

that is 21⁄2 times greater than the economy. 

3 

The family budget can’t afford the Federal budget. As we are 

looking at not just our Nation’s first trillion dollar deficit, our Nation’s second trillion dollar deficit, and now our Nation’s third and 

largest trillion dollar-plus deficit, I am reminded again if we want 

to help foster job creation today, if we want to save our children 

from bankruptcy tomorrow, we have to quit spending money we 

don’t have. And unfortunately, what we see from this Administration is red ink as far as the eye can see. 

So, I hope that through the Secretary’s testimony, we will hear 

more ideas about what can be done to make this more efficient, to 

consolidate, and to help us again create jobs and save the next generation from bankruptcy. 

I yield back the balance of my time. 

Chairman BACHUS. Thank you, Mr. Hensarling. 

I recognize Mr. Green for 1 minute, and immediately after that, 

Mr. Baca for 1 minute. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank the Secretary for being here today. 

Mr. Secretary, among the questions that I will ask will be one 

that will focus on housing for persons with disabilities. I see that 

there is a cut in that, a proposed cut in that, and I am very concerned about it, because many of the persons with disabilities are 

persons who are returning from Iraq and Afghanistan, and I am 

hopeful that we will be able to accommodate persons who have 

served our country well and who will now need some service from 

our country. 

This is a very serious concern with me, and I will eagerly anticipate your response to my concerns about these veterans and other 

persons with disabilities as well. 

I yield back. 

Chairman BACHUS. Mr. Baca? 

Mr. BACA. Thank you. First of all, I want to thank you, Mr. 

Chairman, and Ranking Member Frank for calling this hearing. I 

also want to thank Secretary Donovan for being here and offering 

his perspectives on HUD’s budget. 

Only 2 months ago in Congress, we already had reached a critical point. One of the greatest challenges that our country faces is 

the need to rein in our national debt and get our fiscal house in 

order. However, in a rush to do so, some of my colleagues seem to 

have tunnel vision, blindly cutting critical government programs 

without any regard to what they do or who they help and the overall impact on our country. 

I state this because many of these same individuals, Republicans, 

who don’t want government to intervene in housing, yet live right 

here in the Capitol and don’t pay rent and don’t invest in the private sector, and they come out and say let’s invest in the private 

sector, and they are living right here in the Capitol. In fact, just 

after this Chamber passed a short-sighted budget measure a couple 

of weeks ago, many Republicans released details on the harm those 

cuts would cost. 

Today, we are here to discuss the budget for the Department of 

Housing and Urban Development. I say as we do that, let’s do it 

in line of what we want them to do, and not of ourselves, as many 

4 

individuals who live right here in the Capitol aren’t paying a cent, 

aren’t investing, yet government is paying for their housing. 

With that, I yield back the balance of my time. 

Chairman BACHUS. Thank you, Mr. Baca. 

At this time, I recognize Mr. Miller for 2 minutes. 

Mr. MILLER OF CALIFORNIA. For the record, I live in Virginia. I 

rent an apartment over there. So I don’t live free at the Capitol. 

Mr. BACA. You are one of the good guys. 

Mr. MILLER OF CALIFORNIA. I am one of the good guys. But we 

have a tough budget year out there. There are a lot of difficult decisions that need to be made, and I am really concerned that we be 

cautious not to make things worse than they already are. There is 

no doubt that the housing industry in this country is suffering, the 

housing market globally is suffering, and I think we need to look 

at what went wrong, what we could have done to have prevented 

it, and what we need to do in the future to make sure we have the 

most robust housing market you can have in this country without 

putting taxpayers at risk. 

My concern is with FHA. Your default rates are higher than I 

think they should be, yet they are still lower than the private sector’s. I am not saying you did everything right, because a lot of 

things were done wrong. But your default rates are close to 5 percent, as I put it, correct? Fannie Mae is about 4.2 percent, Freddie 

Mac is about 3.1 percent. The best prime market default rate out 

there is 5.4 percent. Subprime ARMs, 38.7 percent, subprime loans 

in general, 26.5 percent. 

So when you look at those numbers, you have to say something 

is structurally wrong with the mortgage industry at large in this 

country, and we should be looking at that, rather than just saying 

we need to deal with Freddie, Fannie, and FHA. Yes, we need to 

deal with their problems, without a doubt. There is not a doubt 

there are serious problems and we need to address those problems. 

But at the same time, when we are pulling out of a marketplace 

on the FHA high-cost areas, as we are pulling back, increasing 

rates, you are talking about doing the same thing with Freddie and 

Fannie, there is not a private sector entity out there to immediately pull in during this distressed marketplace. 

If we are going to protect taxpayers, 65.1 percent of the homeowners in this country are taxpayers, so we need to protect everybody. We need to make sure we do the best we can for the entire 

sector. And I think we need to ask what went wrong, how do we 

fix it and correct it, and how do we not put taxpayers at risk in 

the future? I am afraid we have not done that, gone back and 

asked, what did we do wrong in Freddie and Fannie and FHA, 

what could we have done better, and how do we move forward in 

the future? I hope you can address that. 

I yield back the balance of my time. 

Chairman BACHUS. Mr. Frank is recognized for 3 minutes. 

Mr. FRANK. I thank the chairman. 

First, if I could, before my time, I want to give encouragement 

to people who felt they were conscience-bound to read the financial 

reform bill, which is, as I recognize, a large bill. You don’t have to 

do that. You can hold off now and wait for the movie version, because I have just been told that Senator Dodd has been named 

5 

head of the Motion Picture Association of America. So ‘‘DoddFrank, the Movie’’ is probably on the horizon and you can skip 

reading it. The sequel will be, ‘‘The Financial Inquiry Report’’ so 

people can keep that going. I thank you for the time. I thought I 

would give my former colleague a mention. 

I welcome the Secretary, whom I think has done an excellent job 

of trying to manage his resources. Let me say I understand the 

concerns about spending in the cities, and I am inclined to agree 

that in these past few years in particular, we have greatly overspent in a number of cities—Baghdad, Fallujah, Kandahar, Kabul. 

We have been spending a great deal of money I think to no great 

purpose elsewhere. 

Having thought that the war in Iraq was a great mistake and it having cost us over $1 trillion, with more to come, I am not 

shamed by those who tell me I am spending too much if I want to 

have decent housing for poor elderly people or if I believe that the 

notion of a homeless veteran is really a shameful thing in this 

country and to the extent possible, it is not possible in every case, 

there are personal factors, we ought to try to diminish it. 

I in particular hope that we can work, as I said earlier today, on 

a better set of policies for affordable rental housing. And in particular, as you know, Mr. Secretary, over the years, in the beginning of the 1960s, with a Federal subsidy on interest, the private 

sector, both the profit and nonprofit private sector built hundreds 

and hundreds of thousands of units for people not at the very bottom of the spectrum generally, but in the lower- to moderate-income range, and it was built under a program that I think while 

it had good results in some ways, it was flawed because it allowed 

for these units to no longer be protected after a while. I think preserving those units is a very important thing. 

Now, people talk about the costs of housing, but one of the problems we have is that we have taken this policy that says if you 

moved into one of those units and it no longer is under the protection it was under when the subsidized loan was given, we will give 

you a Section 8, a voucher far beyond what you would ordinarily 

get to meet with those rents. So while we allow the units to go out 

of the inventory, that has the impact of raising the rental payments. I think by far the most efficient and inexpensive thing we 

could do would be to preserve those units. 

It is something we had been working on, and obviously things 

have changed here, but I would hope that it is something that we 

could continue to work on. Similarly, with regard to Fannie Mae 

and Freddie Mac, I asked Secretary Geithner about this and he acknowledged what I think is clearly the case, and I have asked him 

to document it, that the losses on multifamily housing were far 

smaller as a percentage of outcome because they were clearly 

smaller in general than single family. And I would hope as we go 

forward with a new set of housing finance rules, which we very 

much need, that we would be making sure that we preserved, in 

fact improved, our ability to finance multifamily rental housing, it 

doesn’t have to be obviously one building, multifamily developments, and that we would provide some revenue so that the private 

sector could continue what we have done successfully in the past, 

take a Federal subsidy, private sector activity, build some rental 

6 

housing, and not just build it for a short, limited period of time, 

but indefinitely. 

So as we go forward on the GSE issue, one of the things I would 

hope we could work together to do is to find some stream of revenue that would not only be small enough to have no negative impact on housing finance in general, but would help us preserve that 

rental housing. 

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you, Mr. Frank. 

Mr. Huizenga, for 1 minute. 

Mr. HUIZENGA. Thank you, Mr. Chairman, I appreciate that, and 

that actually leads in perfectly to my question. 

Earlier today, we had Secretary Geithner here talking about a 

myriad of issues, but one of the issues brought up was exactly what 

you heard about now, there was not enough of an emphasis on 

rental housing and assistance in this time. But as I understand, in 

your Fiscal Year 2012 budget summary, 72 percent of your budget 

is going into 3 rental assistance programs, 72 percent. 

So I am curious, and I have 1 minute as we are going into the 

question period time, do you really need more emphasis on rental 

housing programs, 72 percent of your budget, which is an increase 

over what has been happening in previous years, or do you need 

to spend that money on some other programs? I will appreciate 

your addressing that a little later on. 

Thank you. 

Chairman BACHUS. Mr. Scott, for 1 minute. 

Mr. SCOTT. Thank you very much. 

Over here, Secretary Donovan. Let me commend you on the work 

that you are doing. It was certainly a joy to have you in Atlanta, 

where we did some great work there and we are going to do more, 

and I want to thank you for working with me and Treasury in our 

upcoming home foreclosure event program that we have. 

Just a point: I would like to see some voices coming from HUD, 

from the Administration, to point out the dire consequences if some 

of these very drastic cuts are taking place, because it is not right. 

It is not fair as we want to deal with the real challenges of the 

debts and the deficit to disproportionately do it on the backs of the 

very people who can least afford it. 

And for many of our local municipalities and governments who 

are thrust into these programs, one of the most drastic areas has 

been a recent CR that we passed, I think last week or so, that 

would drastically cut the funding for the CBDGs down by 62 percent from $3.9 billion to $1.5 billion. The consequences of that is 

very dear to some of these communities, particularly in districts 

like mine and some other areas. 

So I am thinking I would want to see HUD fight a little bit and 

bring to the fore what these consequences are so the American people will know that if these cuts go through, this is what is going 

to happen. Then, we can make a rational judgment on it with the 

spirit of the American people with us. 

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you, Mr. Scott. 

There is 1 minute remaining on our side. Are there any members 

who wish to speak? Let me just use the time that we still have. 

7 

Mr. Secretary, I think we do realize that our low-income Americans, a great percentage of them cannot afford homeownership. For 

them, renting is really the best option, and many of them, I think 

as many as 25 percent of them, spend over half of their income on 

shelter or rental income. I do believe there is some agreement by 

this committee that multifamily housing for low-income Americans 

is a concern if we prioritize our budget. So I would associate myself 

with that. 

Rental assistance is a large percentage of the budget, and I think 

most of that is Section 8. I am not sure if improvements couldn’t 

be made to address where that money goes, as Mr. Frank said, 

multihousing family and many others. 

With that, Mr. Secretary, we welcome you before the committee 

and look forward to your testimony. Your written statement will 

be, with unanimous consent, entered into the record. We will hear 

your oral statement at this time. 

STATEMENT OF THE HONORABLE SHAUN DONOVAN, SECRETARY, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) 

Secretary DONOVAN. Thank you, Chairman Bachus, and also 

Ranking Member Frank, as well as all the members of the committee, for this opportunity to testify about HUD’s Fiscal Year 2012 

budget proposal. 

This afternoon, I would like to discuss the investments it calls 

for to help America win the future by out-educating, out-innovating, and out-building our competitors. I will also highlight the 

steps our proposal takes to improve how we operate HUD’s programs and the tough choices it makes to ensure we take responsibility for our deficits. 

Mr. Chairman, in developing this proposal, we followed three 

principles. The first is to continue our support for the housing market while bringing private capital back. Two years ago, with the 

housing market collapsing and private capital in retreat, the Administration had no choice but to take action. The critical support 

FHA provided has helped over 2 million families buy a home since 

that time and nearly 1.5 million homeowners refinance into stable, 

affordable products with monthly savings exceeding $100. 

And while the Federal Housing Administration and Ginnie Mae 

will continue supporting the housing recovery in the year ahead, 

we must also help private capital return to the market. This is a 

process that HUD began many months ago, and I want to thank 

this committee for passing legislation in the last Congress to reform FHA’s mortgage insurance premium structure. With this authority, FHA announced a premium increase of 25 basis points last 

month. Because of these reforms and others, FHA is projected to 

generate approximately $9.8 billion in receipts for the taxpayer in 

Fiscal Year 2011. Indeed, the reforms that are generating these receipts today have set the stage for more private capital to return 

in the years to come while strengthening FHA’s reserves and ensuring that it remains a vital source of financing for underserved 

borrowers and communities. 

Just as importantly, Mr. Chairman, while HUD’s Fiscal Year 

2012 request is $47.8 billion in gross budget authority, because of 

8 

FHA and Ginnie Mae receipts, the cost to the taxpayer for this 

budget is only $41.7 billion, fully 2.8 percent below our Fiscal Year 

2010 budget and more than meeting the President’s commitment to 

a 5-year domestic discretionary spending freeze. 

The second principle we used to develop our budget was to protect current residents and improve the programs that serve them. 

While the median income of American families today is over 

$60,000, for families who live in HUD-assisted housing, it is 

$10,200 per year, and more than half are elderly or disabled. 

At the same time, having seen from 2007 to 2009 the largest increase in the history of HUD’s worst-case housing needs survey, it 

is clear that the recession hit these families hard. That is why 80 

percent of our proposed budget keeps these residents in their 

homes and provides basic upkeep to public housing while also continuing to serve our most vulnerable populations through our 

homeless programs. 

Because the cost of serving the same families grows each year, 

protecting existing families in our programs required us to make 

tough choices with the remaining 20 percent of the budget, including the decision to reduce funding for the Community Development 

Block Grants, HOME Investment Partnerships, and new construction for HUD-supported housing programs for the elderly and the 

disabled, all between 5 and 10 percent. 

These are difficult cuts. I saw for myself as a local housing official the difference these funds can make, supporting senior housing, boys and girls clubs, YMCAs, and other providers of critical 

community services. But American families are tightening their 

belts and we need to do the same. 

At the same time, this budget makes a strong commitment to 

doing more of what works and to stop doing what doesn’t. By including the Section 8 Voucher Reform Act in the budget, we will 

simplify and streamline the voucher program and save $1 billion 

for the taxpayer over the next 5 years while supporting the ability 

of public housing authorities in small towns and rural areas to better serve the working poor. Indeed, thanks to this committee’s work 

on the Homeless Emergency Assistance and Rapid Transition to 

Housing Act (HEARTH), the budget funds a new Rural Housing 

Stability Program that reflects the unique and growing needs in 

those communities. 

This budget also holds our partners accountable for the funding 

they receive from HUD. To fully fund the Public Housing Operating Fund, we require public housing authorities (PHAs) with excess reserves to contribute $1 billion. These resources were set 

aside so that our PHAs could continue operating during a rainy 

day, and I think would all agree that rainy day is here. 

These efforts point to a broader commitment expressed through 

our Transformation Initiative (TI) to improving HUD’s programs. 

TI funds are replacing data systems in our largest program, housing choice vouchers, that date from the early 1990s, so we can hold 

PHAs accountable for managing their budgets, just like families 

and businesses are doing across the country. 

The flexibility TI provides has also allowed us for the first time 

to offer technical assistance across all our community planning and 

development programs and launch a new initiative to improve the 

9 

financial management and accountability of troubled housing authorities. And by supporting research, evaluation, and program 

demonstrations, TI improves HUD’s own accountability by identifying what we do well and what we need to do better. 

These needed reforms allow us to propose increased investments 

in programs we know work, like the HUD–VASH program for 

homeless veterans. This effort is built on the solid body of evidence 

that permanent supportive housing both ends homelessness and 

saves money for the taxpayer by putting an end to the revolving 

door of emergency rooms, shelters, and jails. 

As such, this budget would increase funding for homeless programs by more than 29 percent over 2010 to keep the President’s 

commitment to opening doors, the first Federal strategic plan to 

end homelessness which the Administration unveiled last June to 

end chronic and veterans’ homelessness by 2015 and homelessness 

among families and children by 2020. 

All told, this combination of tough choices and needed reforms 

would allow us to serve over 4.5 million families in our core rental 

assistance programs, 86,000 more than in 2010. 

Our third principle for developing this budget is to continue critical initiatives that have been part of our budget for the last 2 

years, but in this fiscal climate to propose no new initiatives. The 

President has made clear that winning the future depends on 

America winning the race to educate our children. But that is not 

possible if we are leaving a whole generation of children behind in 

our poorest neighborhoods. 

That is why we worked with this committee last year to pass 

Choice Neighborhoods legislation that was implemented in our 

budget and have again proposed $250 million for Fiscal Year 2012. 

This funding will allow communities to use the mixed-use and 

mixed-finance tools pioneered by Secretaries Jack Kemp and Henry 

Cisneros with the HOPE VI Program to transform all of the federally-assisted housing in the neighborhood. 

Similarly, ensuring that America out-builds our competitors requires us to protect and preserve public housing for the future. 

Right now, we are losing 10,000 units from our public housing 

stock every year. At the same time, there is billions of dollars of 

private capital sitting on the sidelines that could put tens of thousands of construction workers to work rebuilding this housing. 

That is why, Mr. Chairman, we have proposed a $200 million 

demonstration in our budget to preserve up to 255,000 public housing units using long-term, project-based rental assistance contracts. 

As we have seen in the Section 8 Program and the low-income 

housing tax credit, opening these properties to total private capital 

not only brings new funding to affordable housing, but also a new 

sense of discipline that extends from the way these properties are 

financed to the way they are managed. 

Lastly, Mr. Chairman, American businesses, large and small, 

cannot out-innovate their competitors when their workers spend 52 

cents of every dollar they earn on housing and transportation combined, and moving products on our roads costs 5 times as much 

wasted fuel and time as it did 25 years ago. That is why we request another $150 million for our sustainable communities initiatives which helps regions and communities develop comprehensive 

10 

housing and transportation plans that create jobs and economic 

growth. 

In a community like Austin, Texas, which is linking its long-term 

regional transportation plan to 37 mixed-income communities near 

transit and job centers, you can see how the grants it provides 

aren’t about one-size-fits-all rules that tell communities what to do, 

but saving the taxpayer money by coordinating investments more 

effectively and efficiently. The demand for these kinds of innovations explains the extraordinary demand for this program. And it 

wasn’t just coming from our largest metro areas. Indeed, over half 

of our regional grants were awarded to small regions and towns. 

So, Mr. Chairman, HUD’s Fiscal Year 2012 budget proposal isn’t 

just about spending less, it is also about investing smarter and 

more effectively. It is about out-educating, out-building, and out-innovating our competitors. It is about making hard choices to reduce 

the deficit and putting in place much needed reforms to hold ourselves to a high standard of performance. But, most of all, it is 

about the results we deliver for the people and places who depend 

on us most. 

For HUD, winning the future starts at home, and with this budget, I respectfully submit, of targeted investments and tough choices, 

we aim to prove it. 

Thank you. 

[The prepared statement of Secretary Donovan can be found on 

page 40 of the appendix.] 

Chairman BACHUS. Thank you, Mr. Secretary. 

At this time, I recognize Ms. Biggert, who is the Housing Subcommittee Chair, and after that we will recognize Ms. Hayworth 

and Mr. Schweikert, in that order, on the Republican side. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

Mr. Secretary, this goes back a little bit to what I said in my 

opening statement: I am wondering about the long-term costs associated with the existing vouchers and what will be the impact of 

Section 8 funding costs, what impact they will have on the overall 

HUD budget and the other programs within the HUD budget. 

Do you have a plan or are you going to have a plan to empower 

individuals to gain independence from the program? The program 

seems to work, but nobody ever leaves it, and we certainly have 

long waiting lists for Section 8. 

Secretary DONOVAN. Madam Chairwoman, thank you for the 

question. I think it is very important that we focus in on the Section 8 Program. 

As I mentioned in my testimony, over half of the residents of 

public housing are either seniors or people living with disabilities. 

But beyond that, for those who are able to work, we estimate that 

around 90 percent of those living in public housing in Section 8 

who are able to work, do work, and it is critical that we take additional steps to encourage them to take up work. 

Mrs. BIGGERT. Do you have data on how long the average stay 

in Section 8 housing is? 

Secretary DONOVAN. Typically, what we see for non-elderly or 

disabled is an average stay of 4 to 5 years in public housing. I 

think one of the programs that you have focused on historically, 

which is absolutely critical, is the Family Self-Sufficiency Program. 

11 

I know this from my own experience at the local level where we 

were expanding with our own funds family self-sufficiency. We are 

in the process, using our Transformation Initiative dollars, of doing 

the first ever full national study of the Family Self-Sufficiency Program because we believe that it provides the kind of incentives that 

are necessary to help people gain work and succeed, as well as to 

open up spaces within the programs for those who are on the waiting lists. 

So, with your support, certainly we would look to do more with 

the Family Self-Sufficiency Program. 

Mrs. BIGGERT. Thank you. Then this morning, there was an article published by the American Bankers Association stating a deal 

had been made among the regulators writing the QRM rule, and 

among the components reported was the 20 percent downpayment 

requirement, loan servicing standards, and loan modification standards. 

Particularly with the 20 percent down standard, I am concerned 

that there will be few first-time buyers who will be qualifying for 

the QRM. So won’t that result make most first-time buyers fall into 

the FHA program, which you are already trying to dampen down, 

too? 

Secretary DONOVAN. First of all, let me assure you that no agreement among all the regulators has been reached at this point. 

There are numerous parties, including HUD, that are part of those 

discussions, and there is no final agreement or proposal at this 

point. 

On your specific point about the effect on FHA, as you know, 

there is an exemption for Fannie Mae—for FHA and for Ginnie 

Mae from the QRM standards, and there is some risk that we 

would see additional demand for FHA that would come out of a 

standard. 

On the other hand, it is important that we ensure that capital 

is driven toward safe, stable products. And the proposal we will put 

out will be a proposed rule. There will be plenty of time for this 

committee and the public to weigh in on any proposal. It is possible 

we might even propose some alternatives within that rule. And this 

is one of the issues that we will be talking about, balancing safety 

and soundness with the risk of potentially driving more business 

to FHA under the rule. 

Mrs. BIGGERT. This morning, Secretary Geithner talked about 

the Administration recommending a joint FHA and FHFA working 

group to tighten the standards. Is this the same one, or is this another group? 

Secretary DONOVAN. I don’t know exactly the question he was responding to, but there are a number of places where we are working jointly with FHFA. He may have been talking about servicing 

standards, and in particular the standards for compensating 

servicers for the servicing work that they do. We have undertaken 

with FHFA a broad look at those standards. 

It is clear that the current compensation model for servicing is 

broken: it is not working for consumers, homeowners; it is not 

working as well as it should for FHA; and it is not working well 

enough for the servicers because of the accounting and other comVerDate Nov 24 2008 17:27 Jul 12, 2011 Jkt 065668 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\65668.TXT TERRIE
12 

plexities of the current standards. So we are working together on 

that initiative. 

Chairman BACHUS. Thank you, Chairwoman Biggert. 

Ranking Member Frank. 

Mr. FRANK. I want to pick up—I am struck by my colleague from 

Illinois worrying now that we are going to be too tough on mortgages for low-income people. I would hope we wouldn’t go from 

complaining totally that they were too loose to now complaining 

they are too tough without ever passing go. And I disagree with 

her. I don’t think the 20 percent is out of line. There are a couple 

of things that need to be said here. 

First of all, I would hope we would not buy into the argument 

that no mortgage loans will be made if they don’t meet the qualified residential mortgage definition. Remember, the qualified residential mortgage definition gives you an exemption. It doesn’t say 

you can’t give or make the mortgage. It gives you an exemption 

from having to retain 5 percent of the loans you make in a 

securitization. And the notion that no one will make loans unless 

they can 100 percent securitize is clearly false. 

In the first place, many of the smaller institutions never 

securitized in the first place. Many of the community banks don’t 

securitize. They will be unaffected by this, whatever the qualified 

residential mortgage number is that gets them out from under the 

requirement that they retain some of their capital. 

Now, there are some who do securitize everything. One group of 

mortgage lenders came to us during the debate and said, ‘‘If you 

make us keep 5 percent of the loans when we securitize it, we 

won’t make any loans.’’ We asked, ‘‘Why?’’ We didn’t think 5 percent was excessive. They said, ‘‘We don’t have any capital.’’ In other 

words, they don’t have any money and they were resentful that we 

were telling them not to lend money they don’t own. When people 

lend money they don’t own, it doesn’t end so well. 

So this notion that you have to weaken the qualified residential 

mortgage so people can buy homes, remember again, it is not a ban 

on mortgages. It is an exemption from having to keep 5 percent. 

Secondly, while you have the smaller ones, Wells Fargo has announced that they believe they can make loans under this amount 

or that they could keep 5 percent. 

So I think that was one of the key causes of the crisis, people 

lending money that they had no stake in when it came to repayment. 

And I notice, by the way, now that we have seen a concern about 

the securitization of commercial real estate. As I recall the bill, 

there is no exemption—the securitization risk retention does not 

apply only to residential mortgages, it applies to anybody who is 

lending money and securitizing it. And I hope the regulators, not 

you, because it is not housing, will insist on that for everybody. 

So I want to disagree with my colleague. Weakening the qualified 

residential mortgage, remembering again, it is not an absolute bar, 

it says simply that you can make these loans, but if you make 

those loans, if you made a loan with very little downpayment, then 

you ought to have to keep 5 percent of it. All that means is—and 

I know you said you are going to try the get the FHA to have better standards. I am all for that, and the FHA has done a very good 

13 

job under yourself and Commissioner Stevens. It began at the end 

of the Bush Administration. But the best way to do that outside 

the FHA is to tell the private sector, ‘‘Here is a good incentive for 

you not to lend money to people who won’t pay it back. If they don’t 

pay it back, you are going to take a loss.’’ 

So as I said, I would be very disappointed to see a substantial 

weakening of the qualified residential mortgage exemption to the 

risk retention, and the notion that if you don’t give people the exemption, and, of course, the exemption goes to everybody, then 

there will be people, community banks will continue to make loans 

and not securitize, as they told us. They didn’t get too concerned 

about this. Other institutions will make the loans at the 20 percent, and others will presumably make the loans and securitize 

them. 

Are we really being told there are so few institutions out there 

with confidence in their own judgment that they won’t make residential mortgage loans which could be highly profitable unless they 

were able to pass off the whole loss? 

I have used up almost all my time. We have the Secretary here, 

we have other members who want to ask questions. So I am going 

to yield back and I will give my minute into the general fund here. 

But I would be very disappointed if we had a dilution of the 

qualified residential mortgage. Again, it is being talked about as if 

it was the absolute limit, and if you couldn’t meet that, you 

couldn’t make a mortgage loan. No. All it says is if you want to 

make mortgage loans that don’t meet that test, then either you 

can’t securitize it, people can hold the mortgages in their portfolios, 

or if you securitize it, you have to retain 5 percent, showing a fairly 

small confidence in your own judgment. 

I yield back. 

Chairman BACHUS. Thank you. 

Ms. Hayworth? 

Dr. HAYWORTH. Thank you, Mr. Chairman. 

Mr. Secretary, I greatly appreciate your comments regarding the 

value of the push to make HUD more efficient and more effective. 

It is absolutely crucial at a time when we are spending 42 cents 

of every taxpayer dollar on debt service alone, and in which we 

have an over 9 percent unemployment rate that we are finding difficult to overcome. 

You also extol the value of private funding as instilling discipline 

in these market placing, and I think that is so important to recognize, that we should, I would submit to you, minimize Federal involvement in the housing and mortgage marketplace to the extent 

we can and keep it to the neediest. 

I have an example of why that is so important from my own 

home county, which is Westchester County, New York. We are 

struggling under the burden of a Community Development Block 

Grant agreement that was made under a previous county executive’s administration from HUD, and it has been very, very difficult 

to try to comply with the terms of that grant because they simply 

don’t make sense in our county. It was not this county executive’s 

error, but we are now living with the consequences, which points 

up again the exceedingly difficult challenge of having the Federal 

Government involved in local marketplaces. 

14 

But they had to hire a consultant to help, at HUD’s discretion, 

if you will, to help sort out this mess. And I wonder if you might 

hazard a guess as to how much that consultant is charging per 

hour, apparently a fee, a figure set by HUD, what you might consider a reasonable fee. I am not trying to put you on the spot, but 

what you might consider a reasonable sum per hour to consult and 

help our county get out of this predicament. 

Secretary DONOVAN. Congresswoman, let me make sure I am 

clear. This was a court case brought against the county. There was 

a court-appointed master essentially who was put in place to implement the decision of the court. 

Dr. HAYWORTH. It is very difficult, yes. 

Secretary DONOVAN. I would have to say I am not sure what the 

court-appointed monitor was charging. 

Dr. HAYWORTH. It is over $900 an hour that the taxpayers of 

Westchester County, New York, are now paying, the sorely pressed 

taxpayers. We are losing businesses, unfortunately, to neighboring 

States and other States because the tax structure in Westchester 

County, although it is a wonderful county in so many ways, is so 

difficult to cope with. 

So I wonder if you might as our Secretary see if you could possibly help mitigate some of that burden, if that sounds at all like 

that might be a rather exorbitant amount for the county to be disbursing merely to have some sort of regulator, if you will, in place. 

I would be most grateful on behalf of Westchester County, New 

York. 

Secretary DONOVAN. Congresswoman, this is an issue that I 

know has been a lot of focus in the county. Under the prior county 

executive, there was this court case brought independently against 

the county for not complying with their required fair housing obligations. The court did make a determination. 

I will say that we have been somewhat concerned that under the 

new county executive, for example, he vetoed a piece of legislation 

that the county legislature passed and was required by the settlement. There are a number of other steps that have been taken that 

I think have caused this to go on longer than anyone would have 

liked. Certainly, we are very interested in trying to resolve it. 

We have offered technical assistance from the agency so that we 

could minimize any costs to the taxpayer there, to the local taxpayers in terms of working this through, but, unfortunately, we 

haven’t been able to get compliance with the ruling at this point. 

Again, this is not HUD’s decision. It was the court that imposed 

this decision, and we would like nothing more than to get to a resolution, which is, frankly, to build a certain number of units in the 

county on sites that I think we have been able to work with the 

county effectively to try to identify. We will do everything we can 

to accelerate it and make sure it gets resolved as soon as possible. 

Dr. HAYWORTH. That would be much appreciated. There has been 

a tremendous amount of difficulty finding appropriate sites within 

the county and sites that would make sense actually for those who 

would indeed inhabit these new homes. It is very difficult to connect them with job opportunities. This is almost part of a spiral in 

which we have a heavy tax structure. Federal taxes certainly play 

into that. HUD is part of our Federal tax burden, and because of 

15 

that, we don’t have the jobs climate that we should. And, of course, 

the best way to afford a home and to afford a private rental or 

mortgage is to have a job. 

So, again, I laud your emphasis on streamlining what HUD does 

so that we can relieve these burdens from places like Westchester 

County, where it is starkly in evidence that a Federal mechanism 

can be very difficult to layer on top of a local community. 

I yield back my time. 

Chairman BACHUS. Thank you. 

By prior agreement of Mr. Green and Mr. Carney on this side, 

Mr. Green on this side, and Mr. Schweikert on our side, will be the 

next two speakers. Mr. Green? 

Mr. GREEN. Thank you very much, Mr. Chairman, and I thank 

the persons who agreed. 

Mr. Secretary, at first glance it does appear that there is a $104 

million decrease. However, there was a transfer, and as a result of 

the transfer, there is actually a $10 million increase when compared to the 2010 budget, and we are talking about now for the 811 

program, persons with disabilities. So I compliment you for looking 

out for persons with disabilities, many of whom are veterans. It is 

very important to me and people in my district. I happen to have 

a VA hospital in my district. 

However, the CR that was passed by my friends on the other 

side would cut approximately $210 million, and that would be a 70 

percent cut, which could lead to approximately 14,000 households, 

and these are persons with disabilities either losing their assistance or being displaced. 

Now, my assumption is that this was a gross oversight and my 

friends on the other side would not cut 70 percent from a program 

that will have some significant impact on persons with disabilities, 

many of whom are veterans. There is no question that veterans are 

returning from these wars and they are disabled. So I am going to 

assume that this is an oversight and give my friends the benefit 

of the doubt. 

But I would like you to comment briefly on what this cut of $210 

million, which is 70 percent from the 811 program, what would the 

impact be, if you would, on persons with disabilities? And when the 

yellow light comes on, if you could wrap it up, I have one more 

question. Thank you. 

Secretary DONOVAN. Congressman, the 202 and 811 programs, 

the programs for the elderly and people with disabilities, are our 

primary tool for construction of new units at HUD for seniors and 

people with disabilities. And as I said in my testimony, we did have 

to make difficult decisions in our budget this year to cut by between 5 and 10 percent those programs so that we would have 

fewer new units. 

Obviously, a much deeper cut in those programs would have a 

far more serious effect on limiting the number of seniors and people with disabilities who would be able to get access. We see typically many year-long waiting lists for these properties around the 

country, and that is why we made difficult decisions but felt we 

needed to maintain a significant level of funding for new units in 

those programs. 

16 

Mr. GREEN. And do you find that a good many of the persons 

with disabilities are veterans? 

Secretary DONOVAN. We do. Also, one of the reasons why we con- tinued to propose an investment of $75 million in 10,000 new 

HUD–VASH vouchers in the budget is because we have seen great 

success in housing veterans who are at risk of homelessness or are 

already homeless through that effort as well. 

Chairman Biggert asked about the rising costs of Section 8. A 

significant part of that has been the renewal of these HUD–VASH 

vouchers as they have come into the Section 8 budget for the first 

time. When we came into office, the President did, there were only 

about 1,200 veterans around the country who were being housed by 

VASH. We are now up to over 20,000 veterans who are housed 

under VASH, and it has put us a good way down the road toward 

keeping the President’s commitment to end veterans’ homelessness 

by 2015. 

Mr. GREEN. Thank you. I compliment you and the President for 

that commitment. It means a lot to many people in my district and 

probably people around the country. 

One additional question. There is a contemplation of terminating 

HAP, FHA, NSP, which, of course, is the Neighborhood Stabilization Program, the Emergency Mortgage Relief Program. If these 

programs are terminated, my suspicion is there will be an impact 

on housing of persons. Many persons who might benefit from these 

programs and stay in their current housing circumstance will now 

be pushed into other circumstances. 

Can you give a comment, please, on the impact of terminating 

these programs in terms of how it will impact your budget and 

what you are trying to accomplish? Again, I thank the President 

for what he has done. 

Secretary DONOVAN. I know you have a hearing on that tomorrow morning. Commissioner Stevens will be testifying along with 

Assistant Secretary Marquez on the programs. But let me just 

quickly frame some of the issues there. 

There would be a substantial risk not only to the families who 

benefit from those programs and the neighborhoods that benefit 

from those programs, but also to the broader housing market. 

When the housing recovery is still fragile, we need to continue to 

do more. 

Every month, we have tens of thousands of new homeowners who 

are at risk who benefit from modifications under the HAMP Program. Our data shows that the redefault rates have been dramatically lower than in other programs, so they are successful. We have 

seen average reductions in payment of over $500 a month under 

that. 

The FHA refinance program, which is an effort to get banks and 

owners of loans to write down principal on their own nickel, so 

these are not taxpayer costs for writing down those mortgages, 

these are private costs to those who hold the mortgages. We have 

had three major servicers sign up just within the last few weeks 

for that effort. And just as it is beginning to expand, to cut it off 

now and stop the reduction in negative equity, which we think is 

one of the most significant barriers to housing recovery now, would 

be a real problem. 

17 

In addition, the Emergency Homeowner Loan Program targets 

borrowers who are unemployed through no fault of their own. The 

primary reason we see new foreclosures and new defaults today is 

because of unemployment. Yet the tens of thousands of borrowers 

who would benefit from the Emergency Homeowner Loan Program 

would be—we would not be able to help them without that funding. 

So, all of those are important. 

The last thing I would say is the Neighborhood Stabilization Program is one that has invested in communities that have been devastated by foreclosures. What we have seen already, where the program has been invested, we see reductions of as much as 50 or 75 

percent in the vacancy rates in those neighborhoods. That means 

not only do we help families get into those homes, but their neighbors who have paid their mortgages, have done everything right, 

when they saw their property values declining precipitously because they had 5 or 10 foreclosures on their block, those families 

would not be helped as well to help those neighborhoods recover. 

We have seen lots of private capital come in. When we start to 

fix up homes through the Neighborhood Stabilization Program, it 

sends ripple effects into the surrounding community with homes 

that get renovated with private capital as well. So all of those are 

effects that would be significant from the termination of these programs. 

Mr. GREEN. Thank you, Mr. Chairman. 

I owe you some time, and, of course, I am grateful. 

Chairman BACHUS. Thank you. I did want the Secretary to give 

you a comprehensive answer to that, because I know that there is 

a concern about that issue. I probably wouldn’t allow that much 

time again, but now the Secretary has answered, and I didn’t want 

to chop it up. I have to applaud that answer. It was the most comprehensive answer that we have heard in a long time. 

Secretary DONOVAN. I apologize. 

Chairman BACHUS. No. I don’t know whether you had that written and you read it, but it was, very, very comprehensive. 

Mr. Schweikert? 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Mr. Secretary, you don’t have to be that comprehensive on these. 

What do you think the total liabilities, if we look at the FHA 

loan portfolio right now, where are we at? 

Secretary DONOVAN. On a net balance sheet basis, the FHA fund, 

if we were to value it in a traditional way we would value a company or insurance fund, the latest estimates are that the value is 

just north of $30 billion. So that would mean our assets outweigh 

our liabilities by in the range of $32 billion. 

Mr. SCHWEIKERT. Mr. Chairman, Mr. Secretary, internally when 

your team sets up the actuarial standards of what you should have 

set aside, what range should you be in? 

Secretary DONOVAN. By Congress’ standards, we are required to 

have a standard where we should be above 2 percent of our outstanding portfolio in the fund. So that is the standard that is set. 

And that is significantly higher than you would see in the private 

sector typically for what the standards are for capital with similar 

kinds of loans. 

Mr. SCHWEIKERT. Mr. Secretary, is that 2 percent, or 2.5 percent? 

18 

Secretary DONOVAN. Two percent. 

Mr. SCHWEIKERT. Two percent would be how much? 

Secretary DONOVAN. I don’t have it in front of me, the total assets. 

Mr. SCHWEIKERT. But it would be dramatically greater? 

Secretary DONOVAN. It would be higher than we currently hold 

in what we call our excess reserves. The $32 billion that I referred 

to is our total reserves. The portion that is so-called excess reserves 

above and beyond what we need to meet our predicted liabilities is 

in the range of about $7 billion today, and that is below the 2 percent standard at this point. 

Mr. SCHWEIKERT. Mr. Chairman, Mr. Secretary, in that, let’s call 

it the $32 billion in reserves, is that also encumbered by the number of units that have been foreclosed on that HUD is holding title 

to? 

Secretary DONOVAN. That includes all the potential liabilities, 

not just current liabilities, but also expected projected losses on 

every loan that we have made to date. 

Mr. SCHWEIKERT. You beat me to where we are going. You take 

all the fun out of it. How many units do you think you hold right 

now, Mr. Secretary? 

Secretary DONOVAN. How many units of foreclosed? 

Mr. SCHWEIKERT. Yes. 

Secretary DONOVAN. It is in the tens of thousands. I bet if the 

smart folks behind me—give me 2 minutes, and I could get you the 

exact figure. 

Mr. SCHWEIKERT. If anyone has a guess, just yell it out. 

Secretary DONOVAN. I think it is in the 70,000 to 80,000 range. 

Mr. SCHWEIKERT. Okay. As we keep talking about housing policy 

and some of the mechanics, let’s just say it is 70,000 single-family 

or condo units that you are holding right now that you are marketing, that you are selling. How does that fit into some of your 

other housing policies? Is it just you are going to sell them and refund, put the capital back in? What are you doing with those? 

Secretary DONOVAN. Typically, what we do is market those and 

sell them at market price. There are targeted neighborhoods that 

are particularly distressed where the prices that we would get typically don’t support rehabilitating and keeping those properties in 

decent condition. So there are targeted examples where we would 

discount those prices in order to get a commitment from, whether 

it is a private sector group or a public sector group, a nonprofit 

group to fix up that house and to sell it say maybe to a first-time 

home buyer or in a way that contributes to a revitalization of that 

neighborhood. 

Mr. SCHWEIKERT. Mr. Secretary, in that context, I would also encourage you to consider even just a speculator or a family who gets 

together and is willing to spend money and fix it up because it provides cash at the local Home Depot and jobs and those things but 

also fix up that vacant house that sits next door to you for sometimes months and months, sometimes a year. If you are holding 

70,000 housing units, one of my great concerns, being from the 

Phoenix area—and I know that is one of the areas you hold a lot 

of product in—is as long as those houses are on the market, my 

19 

market never comes back. We have to consume a big portion of this 

inventory. 

Does that at least fit into your policy of pushing this dead inventory through? 

Secretary DONOVAN. Yes, it does. And particularly in targeted 

neighborhoods, as I talked about, where there have been a significant number of foreclosures. I will say that we actually don’t hold 

a great deal of property through FHA in Arizona because frankly 

we continued to lend 30-year fixed-rate safe mortgage products 

during the housing bubble and our market share shrank to almost 

zero in States like Arizona, California, Nevada, and Florida. But 

this is where I think the Neighborhood Stabilization Program that 

we talked about before is so important. 

The discussion tomorrow is about the third round of Neighborhood Stabilization funding. We have already obligated 100 percent 

of the first $6 billion that we had. We have the additional $1 billion 

which should be fully obligated by the end of the month, this 

month. That funding can go to help buy up and renovate vacant 

properties, foreclosed properties. And we particularly targeted it in 

the third round to communities like Arizona where they have been 

particularly hard hit by the crisis. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. Sorry to go over the 

time. 

Chairman BACHUS. Thank you, Mr. Schweikert. Mr. Secretary, 

we have several very talented members in the freshman class on 

both sides of the aisle. Mr. Schweikert, Ms. Hayworth, you have 

heard from them; they are very thoughtful. And Mr. Carney on the 

other side is now recognized, another one of our thoughtful distinguished freshmen. 

Mr. CARNEY. Thank you, Mr. Chairman. And thank you for your 

agreement to yield me some time. Mr. Secretary, thanks for coming 

up today. Thanks for your leadership there at HUD. I have been 

very impressed by your work, great work, trying to do a very difficult job in meeting the President’s budget cuts. 

I have two questions. First, you gave a very comprehensive answer to Mr. Green on foreclosure mitigation efforts. Is there anything that you left out? And second, can you characterize that, the 

homeowners you are able to touch in terms of the total universe 

of people affected and at risk? 

Secretary DONOVAN. Let me be honest, Congressman. I think it 

is fair to say that we have not reached as many people as we would 

have liked to with those efforts. We have reached more than I 

think we get credit for, to be frank, but not as many as we would 

have liked. We have about almost 600,000 permanent modifications 

in the HAMP program at this point. One thing that is often missed 

is that is only one piece of the overall efforts. And in addition to 

that, we have about 700,000 homeowners who have been able to 

stay in their homes thanks to loss mitigation work we do at FHA, 

which is separate from the HAMP program. 

Mr. CARNEY. Is there something you would do differently? 

Secretary DONOVAN. One more thing I would add. One of the 

things that I think HAMP did effectively was we targeted a fairly 

narrow group of homeowners in the sense that we said, you have 

to have a mortgage payment that is more than you can afford on 

20 

your current budget. And we only limit it to those who live in their 

homes, other steps like that. But we did encourage private modifications with no tax cost to the taxpayer that now total over 2 million modifications. Before the HAMP program, on average, those 

were actually increasing payments to homeowners, not decreasing 

them. Increasing them on average. And now that has changed dramatically where we have really standardized the process through 

HAMP where we see a significant reduction in payments to the average private modification. 

We have made a lot of the changes that I think have begun to 

help this. We now see 75 percent of those who come into trial modifications under HAMP actually get a permanent modification because of the changes we have made. So there are significant improvements. I think we are still concerned with the servicers, the 

level of service they are providing, the number of people they have 

doing this. Is it enough? There have been improvements, but we 

have to go farther on that and demand more from them. 

Mr. CARNEY. This may be an unfair question. We had your colleague, the Treasury Secretary, in this morning talking about 

Fannie Mae and Freddie Mac. Were you part of the discussions to 

develop that? 

Secretary DONOVAN. Very much so. It was a joint HUD-Treasury 

effort. 

Mr. CARNEY. What is your view? We had a lot of angst about the 

effect on low- and moderate-income homeowners; what is your view 

of the various options? Full privatization is Option No. 3, which I 

guess creates an explicit guarantee with a limited government role. 

Any of them have a more limited government role, but HUD is 

going to have a big role. What is your view of that and does your 

budget anticipate that role? 

Secretary DONOVAN. Certainly, there are two critical things I 

would say there. One is, we need to have reform. I think we can 

all agree that the prior system was fundamentally broken and that 

it needs to be fixed. The second thing I would say that is important—more directly to your question—is that under all of the three 

options that we propose, we believe FHA should continue to be an 

important part of the market, and that in that sense, an explicit 

targeted guarantee from the Federal Government must be part of 

the new system through FHA. 

Mr. CARNEY. So that would be Option 3? 

Secretary DONOVAN. Actually even under Option 1, we are saying 

FHA should continue. So HUD should continue to have a role in 

the market. And then the question really is in the three options beyond FHA, what additional guarantee should we have? 

But we also believe that FHA’s role needs to step back. Traditionally, we have been in the range of 10 to 15 percent of the market. We are now over 20 percent. And if you add in VA and USDA, 

we are close to 30 percent of the market. So one of the things that 

we have done in the budget that is critical is to increase the mortgage insurance premium by 25 basis points for FHA. Not only will 

that bring in an additional $2 billion of revenue next year that 

helps to strengthen our reserves, to go to the Congressman’s question before, to build up our reserves again to the level they need 

to be, but it also will help to allow us to start to step back as priVerDate Nov 24 2008 17:27 Jul 12, 2011 Jkt 065668 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\65668.TXT TERRIE
21 

vate capital comes back in with mortgage insurers and others that 

can provide the kind of protection that FHA does currently. 

Mr. CARNEY. Thank you, Mr. Secretary. Keep up the good work. 

Thank you, Madam Chairwoman. 

Mrs. BIGGERT. [presiding] The gentleman from Ohio, Mr. Stivers, 

is recognized for 5 minutes. 

Mr. STIVERS. Thank you very much. I would like to follow up on 

the HAMP program a little bit if we could. I have read some statistics from the Federal Reserve, some research that said 30 percent 

of seriously delinquent loans were eligible for the HAMP program. 

And of those, only 24 percent went on trial or permanent. So that 

is about call it 7, 7.5 percent of the eligible loans ultimately went 

through the HAMP program. And then of those, about 10 percent 

were on a serious delinquency within about 6 months. 

What is wrong here? Why isn’t the program working? And what 

did you do to fix it? You said earlier that you have done some 

things to fix it. Can you help me understand? Walk me through 

that. 

Secretary DONOVAN. As I said before, I think there is no question 

that we haven’t been satisfied that we have reached as many people as we would have liked. And so that is part of the equation 

here. I would point out that it is a different thing to say we haven’t 

reached as many people as we would have liked to, as opposed to, 

we should end the program. Because there still are tens of thousands of homeowners who get modifications each month under the 

program. The primary reasons why people have not qualified for 

HAMP have been, first of all, that we don’t allow investor owners. 

You have to have an unaffordable mortgage payment. In other 

words, your current payment has to be more than 31 percent of 

your income. Those are two key things that have— 

Mr. STIVERS. Yes. I guess I am concerned about the ones that 

have gone through. A lot of them are continuing to become delinquent afterwards. So is the program really working? 

Secretary DONOVAN. On that point, just to be clear, over 50 percent of those who didn’t qualify in the first place for a trial modification get private modifications or become current on their mortgages. Only 10 or 15 percent actually end up in foreclosure. 

Mr. STIVERS. That is where I was going to go next. 

Secretary DONOVAN. I don’t think it is accurate to assume that 

those folks aren’t getting help. And then again, over 50 percent of 

those who get a trial modification but don’t qualify for a permanent 

modification get some other form of modification or become current. 

And those who do qualify for a permanent modification, our numbers right now are that 85 percent of them are successful after a 

year. And so we would like to reach more people. We are trying to 

do that. But those who do get help are quite successful and we 

have set a standard that means, even if you don’t qualify for a 

HAMP mod, you often can get help—on average, people do get help 

with other kinds of modifications. 

Mr. STIVERS. Sure. And I guess that gets to my next question. 

Because if 2 million homeowners got help without the HAMP program and 600,000 got help with the HAMP program, how many of 

those 600,000 would have gotten help without the HAMP program 

in addition to the 2 million who received the help but didn’t qualify 

22 

for the HAMP program? I guess I am trying to understand the difference between what would happen with or without the program. 

Secretary DONOVAN. Each time we have a modification, we run 

a net present value kind of model for them. And so what we have 

seen is that the servicers are clearly willing with the incentives 

that we have provided in HAMP to reach a set of borrowers that 

they wouldn’t reach otherwise. I don’t think there is any data that 

we could provide that would show that every single one of those 

would not have been helped, but it is clear that there are a significant number of those who would not have gotten assistance otherwise. And I think most importantly, that they got a modification 

that makes it much more likely that they succeed in the long run 

because of the standards that would be set. 

Mr. STIVERS. That is where I want to go next, and I am running 

out of time, so I want to try to run through this. 

So of the 2 million modifications that have happened in the private market without the HAMP program, what is the success rate 

there versus—you say you have an 85 percent success rate after a 

year? 

Secretary DONOVAN. We see a typically 20 percent or higher increase in the failure rate in those modifications. So the data is 

changing over time. Success rates are getting better as the private 

sector is modeling more on HAMP. But typically what we see is 

lifetime default rates now of 50 to 60 percent. The default rate I 

talk about is a 12-month default rate. So we are presuming that 

continues to go up somewhat over the lifetime of those loans but 

we still expect it to be 20, 30 percent higher over time. 

Mrs. BIGGERT. The gentleman’s time has expired. The gentlelady 

from California, Ms. Waters. 

Ms. WATERS. Thank you very much. Mr. Secretary, I would like 

to thank you for coming. I really had intended to talk about the 

Community Development Block Grants and the public housing capital fund that is going to be cut by my friends on the opposite side 

of the aisle, and I wanted to talk about how it is going to impact 

communities all over this country. But once you start talking about 

servicers, I have a lot of thoughts about that and the HAMP program. Let me just say that I really respect the work that you do. 

Secretary DONOVAN. Thank you. 

Ms. WATERS. And the experience that you brought to the job. I 

know that left on your own, you probably could do a lot more 

things. But I know a lot of things come into play as you try and 

solve these difficult problems. And this whole role of servicers is 

one of those areas that we should all continue to be concerned 

about. Now I understand that some of you—meaning some people 

in the Administration and perhaps you—have been involved in 

some negotiations with the servicers. Is that still going on? 

Secretary DONOVAN. That is correct. And that is still going on. 

Ms. WATERS. And I guess if it is still going on, it is not like you 

can tell me while you are in negotiations, is that right? 

Secretary DONOVAN. These are enforcement actions that we are 

undertaking, 11 different Federal agencies along with the 50 State 

attorneys general. So I am not at liberty to discuss the details. 

That is correct. 

23 

Ms. WATERS. Let me just mention that the movie, ‘‘Inside Job’’ 

that received an Academy Award on Sunday, one of the things that 

the director said was that nobody has gone to jail after all of the 

fraud that has been uncovered. I am really worried about the 

servicers. And I believe that if there are weaknesses in the HAMP 

program—and there are, really, it is a voluntary program, and they 

don’t have to comply. They do what they want to do. And it seems 

to me that there has been no way to enforce what the Administration would like to enforce in the HAMP program. That is why the 

weaknesses are now being identified as reasons to get rid of 

HAMP. 

Now, I don’t agree with my colleagues on the opposite side of the 

aisle that we should get rid of HAMP and NSP and the Unemployed Homeowners Assistance Program. We worked very hard for 

these programs and they service people all over America in our 

small towns, our cities, our suburban areas, all of that. And one 

reason I disagree with them on these cuts is that they don’t have 

anything better. They don’t have anything to replace it. And I 

know they are not saying they don’t give a darn, that they don’t 

care about these homeowners who are losing their homes, they 

don’t care about these communities where people are losing value 

because you have boarded-up properties that are not getting renovated except for what we are doing with NSP. 

So I guess what I really want to know is this, leaving aside whatever you are negotiating with the servicers, when are we going to 

set some standards? When are we going to talk about principal 

write-down? We are not going to get loan modifications really working in the way that we want until we start to talk about principal 

write-down and some other kinds of things. So I guess without 

going into the negotiations, tell me where you think we could be 

tougher, where we would be more effective. 

Secretary DONOVAN. Given that I don’t have criminal authority, 

I won’t go into a part of your question. Let me say this just on the 

settlement, on the discussions that we are having around the enforcement that I talked about. What I can say is this, it is clear 

that servicers expect homeowners to live up to their responsibilities 

in paying their mortgages. 

Ms. WATERS. Excuse me. 

Secretary DONOVAN. We should demand exactly the same thing 

from the servicers, that they live up to their responsibilities in providing homeowners alternatives to keep them in their homes and 

to meeting the requirements they have under servicing those— 

Ms. WATERS. Mr. Secretary, I hate to interrupt you. But when 

you say the servicers expect the homeowners to live up to their responsibilities, I have to remind everybody that these millions of 

homeowners who are faced with foreclosures didn’t all of a sudden 

just become bad people in America who don’t pay their bills. Something happened. And the something that happened was, the products that were put on the market that we, in our oversight responsibility, failed to do anything about. These no-doc loans, these 

resets of people who were lured into loans that they could not afford and did not understand, on and on and on. So many people 

cannot live up to the responsibilities of the mortgage that they 

24 

signed on to because it was fraudulent to begin with. And so I get 

really upset when I hear that. 

Secretary DONOVAN. Congresswoman, I thought I was agreeing 

with you that the servicers need to live up to their responsibilities. 

And that was my fundamental point. I completely agree that we 

had mortgage products in this country that nobody should ever 

have been able to provide. 

Mrs. BIGGERT. The gentlelady’s time has expired. The gentleman 

from North Carolina, Mr. McHenry. 

Mr. MCHENRY. I thank the Chair. Thank you, Mr. Secretary, for 

your testimony. 

I am reading numerous press reports and getting word from various folks around town about the ongoing settlement discussions 

that my colleague referenced in her questions. In light of the robosigning and the servicers issues, can you shed any light on these 

discussions? 

Secretary DONOVAN. What I can say at this point, given the nature of the discussions, is that our aim in these discussions is to 

hold servicers accountable for mistakes that they have made and 

to ensure that they live up to their responsibilities under Federal 

requirements, whether it is in the FHA lending program or the regulatory responsibilities that they have. 

Mr. MCHENRY. When you say ‘‘our,’’ is that HUD or is that FHA? 

Secretary DONOVAN. There are 11 different Federal agencies involved. Because FHA is a part of HUD, HUD is directly involved. 

But there are 10 other Federal agencies along with 50 State attorneys general who have authority. 

Mr. MCHENRY. Who is taking the lead within the Administration? 

Secretary DONOVAN. We are working very closely with the Department of Justice and with Treasury to jointly lead the Administration’s efforts. We are coordinating with the banking regulators 

that are independent. 

Mr. MCHENRY. Okay. Is there a lead institution here? 

Secretary DONOVAN. In the direct discussions with the servicers, 

I would say the Department of Justice has that lead authority, and 

in coordinating with the State attorneys general. 

Mr. MCHENRY. Okay. There are also reports that Elizabeth Warren, who is apparently, whatever her title is, now with the Consumer Financial Protection Bureau (CFPB), I guess advisor—that 

she is taking a lead. That is not your understanding? 

Secretary DONOVAN. That is not correct. 

Mr. MCHENRY. That is not correct. Okay. But the CFPB is engaged in these discussions as well? As one of the 11 regulatory bodies? 

Secretary DONOVAN. At this point, CFPB is part of Treasury. As 

I said, Treasury is involved in the discussions. 

Mr. MCHENRY. So is that CFPB or is it others in Treasury? 

Secretary DONOVAN. There are a number of people from Treasury 

who are involved in the discussions. 

Mr. MCHENRY. Okay. We are just trying to get an understanding 

of it. There are 435 of us in the House and 100 in the Senate who 

are elected to represent the people and we have ongoing settleVerDate Nov 24 2008 17:27 Jul 12, 2011 Jkt 065668 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\65668.TXT TERRIE
25 

ments. Some have talked in the $30 billion range. And so we want 

to have some understanding of what the ramifications are. 

Have there been discussions about what that settlement money 

would be put towards? 

Secretary DONOVAN. There have been discussions. As I said earlier, given the nature of the discussions, enforcement actions that 

are pending, I am not at liberty to discuss the details of it. 

Mr. MCHENRY. No, no, no. All the press reports we have seen 

and the reports that I have gotten, what you use the money towards, this isn’t something secret. We have heard that it is principal reduction. Is that not true? 

Secretary DONOVAN. Congressman, given the nature of the enforcement actions that are at issue here, I am not prepared to discuss the details of it today. 

Mr. MCHENRY. Two weeks ago before this very committee, Mr. 

Stevens, who heads the FHA, I asked him exactly this same set of 

questions about this, and he was far more forthcoming with this 

committee about that, those settlements and even the discussion 

about the range of options about what they would use the money 

for. Could you at least discuss the range of options that this settlement money would be used for? 

Secretary DONOVAN. Commissioner Stevens has been involved in 

those discussions. There have been a number of possible options 

discussed. I don’t want to give you the impression somehow that 

we have settled on a particular course at this point, particularly 

given that the State attorneys general are involved as well and we 

have not settled on or decided any of those direct— 

Mr. MCHENRY. Do you foresee coming back to Congress for authorization to spend these funds? Yes or no? 

Secretary DONOVAN. These are enforcement actions that are done 

under existing statutory authority. 

Mr. MCHENRY. So that would be ‘‘no?’’ 

Secretary DONOVAN. There is no requirement that I know of that 

we get approval for these discussions. 

Mr. MCHENRY. Even if you created a $20 billion to $30 billion 

fund, which is multiple times larger than the HAMP program, you 

don’t foresee coming back to Congress in order to have for mortgage write-downs? Interesting. 

Secretary DONOVAN. A large part of the authority here is State 

authority that the State attorneys general have. I think that is an 

important component of this, that the Federal authorities are only 

a piece of this and there is a significant share that is held by the 

State attorneys general. 

Mr. MCHENRY. Okay. I appreciate your testimony. I know it is 

difficult to answer these questions. But my final question is, do you 

think the HAMP program has been a success or failure? 

Mrs. BIGGERT. The gentleman’s time has expired. 

Mr. MCHENRY. If he can just answer, success or failure. 

Mrs. BIGGERT. We are facing a vote, so we are really trying to 

limit the time. 

The gentlewoman from New York, Ms. Velazquez. 

Ms. VELAZQUEZ. Thank you, Madam Chairwoman. Thank you, 

Mr. Secretary, for being here and thank you for your leadership 

and your service. 

26 

This morning, Secretary Geithner spoke about the role of the 

GSEs in promoting affordable multifamily housing. The multifamily portfolio has been profitable compared to the single family 

portfolio. So what are some of the lessons learned from the GSEs 

on this matter that you can tell us? And what features of their 

multifamily model could we apply to any housing system? 

Secretary DONOVAN. Congresswoman, it is a very important 

question because I think one of the things we often miss in the discussion about the GSEs is that there is a significant difference between single family finance and multifamily finance. And in fact 

not only, as Congressman Frank said earlier, has the multifamily 

been profitable, and as you said as well, but there is also oftentimes more need for involvement in multifamily because the types 

of transactions are so much more varied, there is less standardization. So if we are going to access securitization as a way of improving interest rates and increasing the affordability of housing, oftentimes a guarantee is more necessary there. 

I think one of the things that has been particularly important in 

the model that the GSEs have developed that could be applied 

going forward is a risk-sharing model. One of the things that I 

think is important in this debate is that FHA’s model has traditionally been a 100 percent insurance model. So in some ways, taxpayers can be put at risk in ways that they are not under the 

model that the GSEs pursued on the multifamily side. And I think 

it is worth—and certainly in the White Paper, we lay this out— 

that we look at risk sharing as a potential alternative, whether for 

FHA or for some other guarantee in the future. 

Ms. VELAZQUEZ. Very good. Thank you. Secretary, your agency’s Fiscal Year 2012 budget proposes taking $1 billion of public housing authority’s reserve fund from the housing operating account. 

Will our housing authorities have sufficient funds for any contingency with the reserves reduced so much? And would you tell us 

what will be an appropriate level? 

Secretary DONOVAN. Thank you for asking the question. This was 

one of the difficult choices that we had to make in putting the 

budget together this year. We have seen reserves at housing authorities for their operating funds increase substantially over the 

last couple of years by over $1 billion. And the proposal would be 

to draw down on excess reserves in a targeted way—not at every 

housing authority but at housing authorities that have excess reserves, but to leave them with an adequate level of reserves to be 

able to continue operating. We obviously would need to work with 

them to understand whether there are commitments that they 

have made in those reserves to ensure that we are doing this in 

the right way. And we realize this is a new proposal. But given the 

fiscal realities, we felt that this was a better, more targeted way 

to fully fund the needs of operating public housing this year. And 

it is similar to what we have done in the past with the voucher program where we have drawn excess reserves to fund new vouchers. 

Ms. VELAZQUEZ. So are you telling us that this does not represent a shift in public policy? 

Secretary DONOVAN. It is a shift. It is something that we are proposing for the first time this year. We do have a model from the 

voucher side where we have used excess reserves before to fund the 

27 

needs of the program. And it is something obviously, given that it 

is new, we would need to have a significant discussion with the 

committee about along with the Appropriations Committee and to 

make decisions as we formulate the 2012 budget. 

Ms. VELAZQUEZ. Is it expected that the foreclosure rates will rise 

in the coming months as foreclosure moratoriums come to an end? 

Secretary DONOVAN. I think it is likely that we will see the number of completed foreclosures rise again. Just to be clear, the number of people entering foreclosure was down about 20 to 30 percent 

year over year before the robo-signing problem emerged and there 

was an even further reduction, another 20 percent reduction in the 

number of foreclosures that were being completed at that point and 

the number of people entering foreclosure. So I think while we may 

see it rise somewhat in the coming months, the overall trend has 

been down. And I think that is a significant part because of the 

more than 4 million modifications we have seen relative to just 1.7 

million completed foreclosures. 

Mrs. BIGGERT. The gentlelady’s time has expired. 

We have time for one more question before we go vote. We have 

three votes. How many people would like to come back? 

Mr. SCOTT. I would like to, but I don’t want to be the only one. 

Mrs. BIGGERT. The gentleman from Pennsylvania. 

Mr. FITZPATRICK. Thank you, Madam Chairwoman. Mr. Secretary, are the administrators of the Section 8 vouchers held accountable through annual performance evaluations, performance 

measures? And if so, and I hope so, what happens when an administrator fails to meet the objectives? I have a a quick follow-up 

question that has to do with the City of Philadelphia Housing Authority. 

Secretary DONOVAN. We do have performance standards that 

housing authorities are required to meet under the voucher program as well as the public housing program. More than 95 percent 

of all housing authorities meet those standards. We do have a subset—Philadelphia as an example—where we designate them as 

what we call troubled housing authorities. But absolutely, there 

are performance standards. In addition to that, we have implemented a new set of standards and data that we collect. I run 

every month HUD stat meetings at HUD where we look at 

realtime data on the performance of housing authorities. We are 

also, through this budget proposal, increasing investment in technology through our Transformation Initiative which will allow us 

to hold housing authorities better accountable in realtime because 

of enhanced data. 

So we do have those in place, but I think we can agree that we 

should strengthen them and that we are strengthening them. 

Mr. FITZPATRICK. In connection with the Philadelphia Housing 

Authority, since the former executive director Carl Green was fired 

in September, a lot of questionable spending has come to light, including Karaoke, yodelers, belly dancers, thousands in outside lobbying and outside legal fees. Now just this past weekend, I realize 

that you have called on the PHA board to resign. The problems 

with the Philadelphia Housing Authority seem to have been systemic for some time. The city controller of Philadelphia said on Saturday that HUD failed to catch the spending in its audits. Senator 

28 

Grassley is also following this issue closely and also said this weekend that he hopes that HUD is finally paying attention to the situation in Philadelphia. Even your agency admitted this weekend 

that everyone could have done a better job. 

So my question is, why were these problems at the Philadelphia 

Housing Authority not caught sooner by HUD? And what measures 

are you putting in place to make sure that doesn’t happen again? 

Secretary DONOVAN. Clearly, there are things that we can do to 

step up our focus on troubled housing authorities and to make sure 

not just that we are taking substantial actions when these issues 

come to light, which we have done here. We have cut off their excessive spending on outside legal counsel. We brought in a very experienced executive director to take over the housing authority and, 

as you rightly point out, did call for the board to step down. We 

will be working with the inspector general and a forensic auditor 

that we brought in who came to Philadelphia on Friday to make 

sure we get to the bottom of this. But we also have to catch these 

problems more before they happen, and that is why enhancing our 

data systems is important. 

The other thing that we are doing is setting up a dedicated team 

using Transformation Initiative funding that we got in our budget 

last year and that we are proposing to continue next year that 

would allow us to target people to these problems, look at the financial data more systematically from the systems that we are 

building, and to send in those teams earlier on the ground where 

we have early signs of financial or other management problems on 

the ground. 

So those are issues I would be happy to detail more to you in 

specifics, but that is an outline of a number of things we are doing 

to step up our oversight. 

Mr. FITZPATRICK. Thank you. 

Mrs. BIGGERT. Thank you. The gentleman yields back. We will 

recess for a time to go vote. We have three votes, so if members 

would come back as soon as possible to respect the Secretary’s 

time. He has graciously said he will stay. 

Secretary DONOVAN. Thank you. 

Mrs. BIGGERT. We stand in recess. 

[recess] 

Mrs. BIGGERT. The committee will be in order. We will resume. 

And the gentleman from Georgia, Mr. Scott, is recognized for 5 

minutes. 

Mr. SCOTT. Thank you very much. Mr. Secretary, thank you so 

much for coming again. I just want to take a moment to thank you 

for your participation with our upcoming event in Atlanta to deal 

with these home foreclosures—as you know, it is just huge in the 

Georgia area—and the work that you have done in working with 

us. As I spoke with to the Secretary of the Treasury, Mr. Geithner, 

this morning, I am very worried in this rush for what we truly 

need to do in a more deliberative manner in cutting the Federal 

budget and moving, where we have to do it. I have no problem with 

that. But I think that we are creating some unintended consequences in many of the programs that I think are disproportionately being examined. 

29 

Last week, we passed a CR. And in that CR, there was a 62 percent cut in the Community Development Block Grants. I think that 

one of the things, as I said in my opening remarks, is that I think 

there needs to be more of a cry, more of an outpouring of what 

these programs are doing. And many people who feel they have 

come up here just to cut out government. There are people who 

don’t want any government. But there is a reason for government. 

Just saying, get it out of the way and let the private sector come 

in, is not going to solve this. The private sector is not out there 

finding homes and housing for the elderly, for those who are disabled, for those on fixed incomes, for those with low incomes, for 

those who are unemployed, for the very people that the Department of Housing and Urban Development was created for. There 

is a reason for all of this. And unless we are going to find something that can help to fill in this gap, I think we are doing the 

American people a disservice. 

I am reminded of the evolving appreciation now for the labor 

unions and collective bargaining in terms of what is happening in 

Wisconsin, for example. Once the American people are educated 

and understand that there is some hurt here, unintended consequences, we become aware. 

So now that I made that point, my State of Georgia is number 

five in home foreclosures. It is number four in homelessness. It is 

number three in unemployment at 10.2 percent. And when you look 

particularly into the African-American male community, it is hovering at 22 percent. Many of these programs that you are working 

with, the Affordable Rental Program, the HOME Program, the 

CDBGs, all of these that are being cut are basically designed to 

kind of serve these. Now we have veterans coming in, many of 

whom fought in Iraq and in Afghanistan, and they are homeless. 

So my point is, there is a need for government here, and there 

is a need for us to, as we are examining the Federal budget and 

looking at it, let’s not be so hasty to rush to cut some very vital 

programs that could put the very vulnerable out there. And I believe that HUD has a great responsibility here to help sound the 

alarm and maybe say, whoa, do you know what you are doing here? 

Do you know what a 62 percent reduction in the Community Development Block Grants will do? And I wanted to ask you to react to 

that. Just that one fact alone. 

You all have offered a 7.5 percent reduction. That is a big drop 

from what was passed by this Congress last year. What would that 

do? How devastating would that be to your programs? 

Secretary DONOVAN. Congressman, first of all, let me make a 

point broadly about this budget. I said in my testimony that we 

had difficult decisions that we had to make, cuts that, as the President himself has said, that he would not have made if we were in 

different fiscal times. But what we have proposed in the 2012 

budget is the lowest level of non-security discretionary spending 

since President Eisenhower. When you look at it as a percentage 

of the overall economy, the lowest level since President Eisenhower. So we think we have proposed a responsible budget and to 

do that had to propose cuts that were painful. Going beyond that, 

as the President said in the State of the Union trying to balance 

the budget on the backs of the most vulnerable is not something 

30 

that we could support. And that is something that I think we do 

risk if we go too far with some of these cuts. 

One of the things that many people don’t recognize, they think 

we have had a lot of foreclosures in the country. They have seen 

vacancy rates increase in rental housing, rents go down at the top 

of the rental market. But in fact, we just released the worst-case 

housing needs study for 2007 through 2009. It showed the single 

largest increase in worst-case housing needs in the history of the 

study, a 20 percent increase in worst-case housing needs among the 

low income. So the need for these programs has only increased during the recession. And that is why we focused on ensuring we continue to provide assistance to the most needy in the budget. 

Mr. SCOTT. And that is why, if I may just now conclude, Madam 

Chairwoman, that is why I think that there needs to be a clarion 

call to help educate the American people on the consequences. 

There are some unintended consequences. Do we mean to put the 

elderly out? Those on fixed incomes. Those that we are to serve? 

Veterans who have come back from the war and have no home and 

they are homeless? These programs, particularly your HOME Program, have you made an assessment on just how many people will 

be eliminated from this program? Will we be exacerbating the 

homeless rate by some of these drastic matters? 

Secretary DONOVAN. We do have information. I see that the time 

is up. I would be happy to follow up with you directly on those specific impacts. 

Mr. SCOTT. Thank you, sir. 

Chairman BACHUS. The gentleman from California, Mr. Miller, is 

recognized for 5 minutes. 

Mr. MILLER OF CALIFORNIA. Welcome, Secretary Donovan. There 

has been talk about basically rolling the GSEs and FHA back out 

of the marketplace, specifically in high-cost areas, which in California and other States is going to have a huge, huge negative hit. 

I guess my question is, from all the studies I have seen, it seems 

like those loans are performing very well, the new loans we are 

making out there today. Yet, I don’t see a private sector capable 

or ready to move in and backfill the place of the GSEs or FHA if 

you do pull back out of the market. And based on everything I have 

seen, they are filling the gap that they were intended to fill, and 

you are too. Do you think now is the appropriate time to start rolling back when there is no evidence that the loans you are making 

are not high-quality loans? 

Secretary DONOVAN. Congressman, as you know, unless Congress 

takes other action, on October 1st, the loan limits would step back 

from a high—at least in the highest-cost communities of about 

$729,000 down to $625,000. So in our housing finance reform proposal, we did say that we think Congress ought to let that expire 

as it would under current law. 

Mr. MILLER OF CALIFORNIA. Why would you say that? If they are 

performing well, why would you say that? 

Secretary DONOVAN. We do believe that it is important—and specifically speaking about FHA here—that we start to step back to 

our more traditional role of serving a smaller segment of the market. And from what we have seen—and I agree with you that the 

market is fragile, it is why we need to take all these steps careVerDate Nov 24 2008 17:27 Jul 12, 2011 Jkt 065668 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\65668.TXT TERRIE
31 

fully. We do see capital increasingly returning to the jumbo market. We have seen particularly, for example, as we have announced 

the premium increase that we did for FHA, increasing interest 

from the private mortgage insurers. So we do believe that we can 

do this carefully and responsibly in a way that private capital will 

step back up. We have seen indications of that in the securitization 

market and elsewhere in the jumbo market. 

But I agree with you, we have to watch this very carefully to ensure that we are not taking steps that could hurt what is a very 

fragile market at this point. So we believe that the step down of 

the loan limits is something that the market can absorb, and particularly in FHA, where those loans, the loans above the $625,000 

and below the $729,000, make up a very small share of our overall 

business that we are doing today. 

Mr. MILLER OF CALIFORNIA. But you are going to take your portion out and the recommendations to get the GSEs out of the highcost areas also. You are talking about the capital marketplace. I 

am not finding anybody else seeing it. The REALTORS® aren’t seeing it. Builders aren’t seeing it. Homeowners we are talking to 

aren’t seeing it. The only loans that are available out there, based 

on everything we are seeing between the GSEs and FHA, you are 

92 percent of the marketplace. So if there is a private sector backfill, you wouldn’t be 92 percent of the marketplace. It would be significantly less than that. You would see a decreasing number as 

the private sector rolled into the marketplace. We don’t see that 

number decreasing, I guess is the problem. And you are sending a 

message to Congress from FHA and the comments of Freddie and 

Fannie that they can be rolled back. 

But the problem I have always had with a system, for example 

is, let’s take the GSE for example. You might have a limit of 

$429,000, yet in an area where the median home price is $150,000, 

they can borrow $429,000. Yet nobody in our districts can borrow 

a dime because that is so far below the median. From 2000 to 2005, 

FHA loans went from 99 to 1. So in 2005, one in our area. And you 

go back to the old traditional marketplace you are in, there will be 

no FHA loans in the marketplace. My concern is—I am not borrowing from FHA so it doesn’t matter—but you are looking at a 

marketplace that is very stressed at this point in time. I don’t 

think it would take a lot to have it start going in the other direction. And I am afraid that we are moving too proactively in the 

vein of pulling back and not considering the consequences that 

might occur if the private sector marketplace is not back there to 

fill the backfill of it. And if we let you move back, we don’t authorize the dollar amount, you are out of it. There is nothing you can 

do. What will you do then? 

Secretary DONOVAN. Again, Congressman, the step that we are 

talking about is not to go back to the old FHA limits October 1st. 

It is simply to go to the HERA limits down to the $625,000. And 

within FHA, the portion of our lending that is between $625,000 

and $729,000, even in California, it makes up a very small share 

of the lending that we are doing. But again, we are very cognizant, 

and I know Secretary Geithner was this morning when he testified, 

that we have to take these steps carefully. We need to see how the 

32 

market develops, and we need to ensure that we are not taking 

steps that hurt them more or less. 

Mr. MILLER OF CALIFORNIA. And I want to encourage you to send 

that message to Congress because it is not getting through, that 

you are not talking about pulling out, you are talking about phasing down slowly from $729,000 to $625,000, test the market and 

then go from there. I don’t have a problem with that. But the debate is occurring around pulling out completely, getting GSEs out 

completely, completely getting out of high-cost areas, and that 

would devastate some of the States that need it. 

Mrs. BIGGERT. The gentleman’s time has expired. The gentleman 

from California, Mr. Sherman, is recognized for 5 minutes. 

Mr. SHERMAN. Thank you. I will pick up where the wise gentleman from California left off. 

When you say your position is to let it drop to $625,000, is that 

a position with regard only to FHA or Fannie and Freddie as well? 

Secretary DONOVAN. Under current law— 

Mr. SHERMAN. I know what current law does. 

Secretary DONOVAN. —step back for the GSEs as well as FHA, 

and we support allowing that to step down across-the-board. 

Mr. SHERMAN. That would have an absolutely devastating effect not only on the $900,000 and $800,000 homes in the Los Angeles 

area, but the $400,000 and $500,000 homes that are more in parts 

of my district than Gary’s because if you see a $100,000 drop, as 

you would in home sale prices south of Ventura Boulevard, then 

those north of Ventura Boulevard are going to drop commensurately and those a little further north are going to drop as well. 

It is perhaps a good thing that the Administration doesn’t have 

a vote in the decision that Congress needs to make between now 

and September 30th. As you point out, there is no real savings for 

the Federal Government that you can quantify in response to the 

gentleman from California’s question. You seem to agree with him 

that these were low-risk, high-quality mortgages that FHA was 

guaranteeing or Fannie and Freddie were making and that it was 

a very small percentage of your overall portfolio. Do you have any 

proof that the Federal Government—do you have a score that says 

by letting this drop we decrease the Federal deficit? 

Secretary DONOVAN. The primary reason we are focused on 

bringing FHA back to a more normal market share for FHA is the 

risk that we take on in the next potential recession. 

Mr. SHERMAN. You can calculate that, but CBO is the referee on 

not only costs but risks; whether we are guaranteeing loans to 

Zimbabwe or to residents of Gary’s district or we have a flood insurance program, we have CBO determining that. Is there any 

CBO score that says that dropping this and seeing a double-dip recession in Los Angeles and New York, if not the country as a 

whole, reduces the Federal deficit? 

Secretary DONOVAN. If anything, for next year, it would likely 

shrink our market share somewhat and therefore result in fewer 

receipts in the short run. 

Mr. SHERMAN. Again, the CBO scores things long term and short 

term. They are not the best referee, but they are the only referee 

we have here. 

Mr. MILLER OF CALIFORNIA. Will the gentleman yield? 

33 

Mr. SHERMAN. Yes, I will. 

Mr. MILLER OF CALIFORNIA. I want to clarify, my comments were 

specifically to a distressed market today. When the market starts 

to recover, none of us have a problem with the system modifying. 

Mr. SHERMAN. I don’t want to see a double-dip recession in the 

community we both represent. 

Mr. MILLER OF CALIFORNIA. I don’t either. 

Mr. SHERMAN. But let me go on to the issue of private mortgage 

insurance. I don’t want to see a world in which if you don’t have 

20 percent down, you can’t buy a house. That means a third of 

Americans will never buy a house, and it also has the effect that 

I am concerned about, a depressing effect on home prices in the 

middle of a recession. And don’t let the economists tell you that we 

are not in the middle of a recession. 

So I think that private mortgage insurance has a role to play. 

When FHA insures the loan, then the taxpayers are 100 percent 

at risk. It is my understanding, typically with private mortgage insurance, I would say a 5 percent down or 10 percent down, you 

have the downpayment and then you have another 25 or 30 percent 

of private risk. 

You are going to be defining the qualified residential mortgage, 

and the statute says that you need to look at data that indicates 

there is a lower risk of default if there is mortgage guarantee, and 

I hope in the next few minutes to give you some ideas as to how 

you and your fellow regulators would deal with that. 

First, lower risk of default should mean lower risk of foreclosure, 

not lower risk of being 1 month behind on your payments. We have 

all been 1 month behind on our payments. And if you catch up, neither the lender nor the community is adversely affected in any 

way. In fact, the lender makes an extra couple hundred bucks. 

What we are trying to deal with here, the risks that we are trying 

to deal with, the risk retention idea is focused on default. 

Mrs. BIGGERT. The gentleman’s time has expired. 

Mr. SHERMAN. I ask for another 30 seconds. 

Mrs. BIGGERT. Thirty seconds. 

Mr. SHERMAN. So I hope that you would do that. 

And second, the overall purpose of this section is to make sure 

that the private sector has skin in the game because we really 

think the private sector is smarter, especially when they have skin 

in the game. When you have private mortgage insurance, the lender may not retain 5 percent of the risk but the private mortgage 

insurer, also a private sector entity with expertise, has 30 percent 

risk. So I hope you would help us make sure that we have private 

sector eyes with skin in the game but don’t have to see 20 percent 

downpayments. 

I yield back. 

Secretary DONOVAN. Thanks for your comments. 

Mrs. BIGGERT. Thank you. The vice chairman of the Insurance 

and Housing Subcommittee, Mr. Hurt, is recognized. 

Mr. HURT. Thank you, Madam Chairwoman. Thank you, Mr. Secretary, for being here. I have some comments. And I hope you 

didn’t cover these already in your statement. I apologize for not 

being here earlier. But I was just wondering about the total spending that is going to be spent on your program. It looks like to me 

34 

from your remarks that the actual spending will be $47.8 billion 

but there is a credit of $6 billion that is deducted from that. So the 

total claim is $41.7 billion. And I am wondering, I think it is important to us who have to make the funding decisions, how much 

are we talking about actually spending? How much will your Department spend, not how much does it have coming in, in terms of 

the offsets and credits and that sort of thing? I would like to know 

how much you are actually going to spend. 

Secretary DONOVAN. The $41.7 billion figure is the actual appropriated funds that would be from the taxpayer. And that is a 2.8 

percent reduction from the appropriated amount that we used in 

2010. So from a taxpayer point of view, that is the number to focus 

on and it is a 2.8 percent reduction. 

Mr. HURT. Is that comparing apples to apples? Is that the same 

analysis or framework within which we would look at the 2010 

spending levels? 

Secretary DONOVAN. That is right. 

Mr. HURT. All right. And my other question, and I just have one 

more related to the Housing Choice Voucher Program. Is it my understanding that the President has proposed a $1 billion increase 

in that program? 

Secretary DONOVAN. That is correct. The reasons for that increase are primarily, we have a set of vouchers that were appropriated in earlier budgets, for example, VASH vouchers that serve 

veterans who are at risk or have fallen into homelessness. There 

were 10,000 new vouchers in 2010. Those then, to be renewed, 

come into the Section 8 account for the first time. So there is a set 

of new vouchers that have never been renewed before. There are 

also some vouchers that are new because we lose public housing 

units, we lose project-based Section 8 units and they are replaced 

by vouchers. So some of them, when there is an increase in a Section 8 account, there is an offsetting decrease in other accounts. 

And then the third reason is that costs go up to serve the same 

number of people each year because of inflation but also in the recession, as families’ incomes have either stayed level or even declined, that causes the cost per person to increase over time. 

So those are the three primary factors that lead to the increase. 

And again, our priority in this budget was to continue to serve the 

most vulnerable 54 percent of the residents of Section 8 who are 

either elderly or disabled. And so we made cuts in other parts of 

the budget to accommodate that billion dollar increase. 

Mr. HURT. Are you able to report as to the net? Is it ultimately 

going to be more that is going to be spent? 

Secretary DONOVAN. It is an increase. 

Mr. HURT. Across the secretariat, as a consequence? 

Secretary DONOVAN. It is an increase because we are proposing, 

for example, another 10,000 vouchers in VASH. There are other 

vouchers that we believe we should prioritize to continue to spend 

but have taken cuts in other areas to offset that. 

Mr. HURT. Okay. So there will be expanded programs as a consequence and an expanded number of people who will be served? 

Secretary DONOVAN. For example, 10,000 additional veterans 

that we would serve, yes. 

35 

Mr. HURT. That is all the questions I have. I yield back. Thank 

you. 

Mrs. BIGGERT. I thank the gentleman. Without objection, I would 

ask unanimous consent to place the statements of the following organizations in the record: the National American Indian Housing 

Council; and HUD Housing Counseling Intermediaries. 

I would like to thank the Secretary for being here and spending 

time with us so that everybody who was here got to ask their questions. 

The Chair notes that some members may have additional questions for this witness 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 this witness and to 

place his responses in the record. 

Again, thank you so much for your testimony, and we look forward to hearing from you again. 

Secretary DONOVAN. I thank you, Chairwoman Biggert. I appreciate your hospitality here today. Thank you. 

Mrs. BIGGERT. This hearing is adjourned. 

[Whereupon, at 4:50 p.m., the hearing was adjourned.] 

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