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Hearing Of The Transportation, Housing And Urban Development, And Related Agencies Subcommittee Of The House Appropriations Committee - FY 2010 Budget For The Department Of Housing And Urban Development

Chaired By: Rep. John Olver

Witness; Shaun Donovan, Secretary Of Housing And Urban Development

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REP. OLVER: The subcommittee will come to order.

We are going to start off here even though we're still waiting for members to come in, because today's schedule could be a weird and wondrous process.

I want to welcome the secretary of the Department of Housing and Urban Development, Shaun Donovan, to the subcommittee.

Mr. Secretary, thank you for appearing before us for the second time this year. We're pleased to have you with us this morning to discuss the fiscal 2010 budget request for your department.

HUD's requesting a $46 billion budget, recognizing the key role affordable housing plays in our communities. This fact is especially poignant as we enter the second year of an economic recession in which foreclosures continue to increase and unemployment approaches 10 percent.

I'm particularly pleased that, for the first time since I became chairman of this subcommittee, HUD has presented the subcommittee with an honest budget that better reflects the public housing community development needs that face the nation.

The $3 billion increase in -- (inaudible) -- tenant-based Section 8 arguably fully funds the core housing programs for the first time in many years. In addition, the $550 million increase in the community development block grant program acknowledges the important role that CDBG plays in the economic development of cities and towns across the nation.

The fiscal year 2010 budget also includes a number of new initiatives. I'm not sure that I could enumerate them all, but there are -- (inaudible) -- number of them. I'm particularly pleased to see the Sustainable Communities Initiative you announced at the subcommittee's livable communities hearing a few months ago is proposed to receive $150 million within this budget.

As you know, I have long advocated for the better coordination of transportation, housing and energy policy, and I look forward to hearing more about how HUD is coordinating with DOT, EPA, DOE to ensure that we're creating not only affordable housing, but also affordable communities.

I also look forward to discussing the Choice Neighborhoods Initiative and how this initiative will replace HOPE VI. The goal of integrating schools into our neighborhood revitalization efforts is commendable. However, there are many cities that still have a significant stock of severely stressed public housing that we must ensure don't get left behind as a result.

In addition, I'm interested in learning more about the Energy Innovation Fund and what role you expect this program will play in advancing energy efficiency in public housing.

There are areas in your budget proposal that I believe lack sufficient details and need additional clarification. Particularly, the budget proposes using up to $434 million for the transportation initiative. As I understand it, this program will focus on modernizing HUD systems and providing a new Office for Strategic Planning.

While I support these broad concepts and intended goal of creating a new, efficient HUD, I have a number of questions about how the (selectability ?) will be used and what impact it will have on existing programs. Additionally, I hope to discuss the administration's forecast that FHA will provide $1.7 billion in receipts in fiscal year 2010. As you are probably aware, the Congressional Budget Office has contested whether FHA will, in fact, earn a receipt balance. As we move forward, the difference between the two estimates will have important impact on the subcommittee's budget resources.

Last, I want to commend the department's implementation of the Recovery Act. As of June 5th, your department reports that over $10 billion has been allocated to state and local agencies for immediate investment in local communities. These funds are crucial to creating thousands of new jobs and providing assistance during the current economic and housing crisis. I appreciate your cooperation on the implementation of these programs and hope we can continue the discussion about how best to expend these important funds.

In the (NSB 2 ?) program in particular, I'm greatly concerned that the congressional intent on this program may have been disregarded and that HUD's grant eligibility requirements may jeopardize the department's ability to leverage these funds to help thousands of other families.

Mr. Secretary, while there are areas within the budget request that I have concerns about, as I've indicated, I'm committed to working with you towards our shared goal of strengthening HUD's ability to provide affordable housing. Frankly, it's a breath of fresh air to have leadership in place that believes passionately in the department's mission.

Before we hear from you, I will recognize our ranking member, Tom Latham, for any opening remarks that he would like to make.

REP. TOM LATHAM (R-IA): Thank you very much, Mr. Chairman.

Welcome, Secretary Donovan. And I thank you for taking on this department. It's a real challenge. If there's ever an agency in need of some reform of its programs or even some of its partners and stakeholders, it's probably HUD. And it seems like we're always asking what (can ?) HUD do with the money, and it's usually the case that HUD gave the money to the next agency or group or entity and that it was supposed to receive the money, and then we in Congress really don't get a chance to hold that group, whether it be a mortgage bank, public housing authority (project base ?), a building and loan or a community developer accountable for their performance. I hope you can make some progress on that.

And in the interest of time, Mr. Chairman, I know we're going to be voting here pretty shortly. Mr. Secretary, I look forward to your testimony and I hope everyone on the committee gets a chance to ask their questions.

And I yield back.

REP. OLVER: Thank you, Mr. Latham.

Mr. Secretary, your complete written statement will be included in the record. If you can keep your oral remarks to somewhere close to five minutes, then we will get on to questions in what looks like a challenging day.

SEC. DONOVAN: Understood.

Mr. Chairman, Ranking Member Latham, members of the subcommittee, thank you for the opportunity to appear before you today to discuss HUD's 2010 budget proposal. I want to thank the committee in particular for securing nearly $14 billion for HUD programs as part of the Recovery Act and assure you HUD is working quickly to get these funds to nearly 12,000 grantees across the country.

I'm equally proud of the large number of competitive funds we've made available, including the $2 billion in the neighborhood stabilization program that the chairman discussed and the $1 billion for -- (inaudible) -- our public housing stock. In fact, we have the largest amount of competitive funds available today than at any other time during the department's history.

As you know, we have already begun to address the housing and economic crises. Given our expectation that FHA loan volumes will continue to be high until the credit crisis passes, we have requested expanded loan commitment authority for both FHA and Ginnie Mae.

We are asking Congress for the authority to endorse up to $400 million in FHA insurance. And in 2010, HUD is projecting that FHA will generate nearly a billion dollars more income than will be paid out in losses over the life of those loans. In other words, we project our 2010 business to be in the black.

We must also be better -- we also must have better-informed housing consumers, and this budget requests $100 million for HUD's housing counseling program, a $35 million increase over 2009. HUD is also requesting $37 million to better protect consumers and taxpayers against those who commit mortgage fraud.

The second objective of the 2010 budget is to restore a balanced, comprehensive housing policy, one that supports home ownership but also provides affordable rental opportunities and ensures nobody falls through the cracks.

The president is proposing several key initiatives, including $1 billion to capitalize the National Housing Trust Fund, full funding of the Public Housing Operating Fund, 12 months of funding for -- (inaudible) -- rental assistance, a $117 million increase in funding for homeless programs, and a $1.8 billion increase in calendar year funding for the voucher program, and will preserve affordable housing for more than 2 million households and give HUD and housing authorities new tools to more efficiently allocate budget authority in order to serve the maximum number of households within the funding provided.

The third objective of the 2010 budget is to invest in urban and rural communities. That includes full funding for the community development block grant program at $4.45 billion, a $550 million increase over 2009; creation of the University Community Fund and the Rural Innovation Fund; a $250 million Choice Neighborhoods program.

And let me be clear. Choice Neighborhoods is, in fact, a celebration of the successes of HOPE VI in that it takes the best practices of HOPE VI and expands them to encompass not just public housing, but also privately owned assisted housing and the surrounding numbers of extreme poverty.

Choice Neighborhoods is based on a simple principle: When you choose a home, you also choose the schools your child attends. You choose transportation to work. You choose a community. We look forward to working closely with the authorizing committees to make Choice Neighborhoods a powerful tool for creating viable neighborhoods with decent, affordable housing, improved access to jobs, better schools, and increased public transportation options.

The fourth objective of the budget is to drive energy-efficient housing and sustainable, inclusive growth. In March, when I testified before this committee, I spoke generally about our budget proposals to address the twin challenges of coordinating housing and transportation investments and improving energy efficiency.

Today families spend nearly 60 percent of their budgets on housing and transportation costs. That's not only unacceptable during an economic slowdown; it's unsustainable.

Building off the work of Chairman Olver compelled HUD and FTA to work together on program and policy integration. We are proposing a $150 million Sustainable Communities Initiative to integrate housing and transportation planning and support development of new land use in zoning (plans ?).

The proposed $100 million Energy Innovation Fund would support several pilot efforts within FHA and in a few innovative communities in order to identify strategies that can foster new approaches for financing energy improvements in new and existing housing.

The fifth objective of this budget is to transform the way HUD does business. We need better data and research about our existing programs and the housing market in general.

Mr. Chairman, as I told you before, I'm a numbers guy. We need to be forward-thinking and use demonstrations to test ideas on how to transform our existing programs so that they serve more people with the same or less money. For example, HUD spends about $5 billion on energy for our public housing and Section 8 operations alone. Saving just 5 percent annually could generate a savings of $1 billion over the next several years that we could invest in affordable housing.

We need the flexibility to target technical assistance where it is most needed, such as planning assistance for communities dealing with the economic fallout from the troubles in our auto industry. And we must transform HUD's procurement, hiring practices and data systems; for example, modernizing our FHA and voucher management system to meet 21st century housing and community development challenges.

We are requesting that the Congress permit HUD to set aside up to 1 percent of its total funding to be used for four specific activities: Next-generation technology, demonstrations, research, and technical assistance.

And so, Mr. Chairman and members of the subcommittee, with this $44 billion request, I believe we are poised to meet our current economic challenges and lay the foundation for building the strong, sustainable communities America needs to prosper in the decades ahead.

I thank you for the opportunity to be here today and look forward to your questions.

REP. OLVER: Well, thank you, Mr. Secretary, for your statement. We usually go directly to questions here and follow five-minute sessions by myself and the ranking member, and then the other members will come in in their order. But I would like to recognize our big ranking member here, Mr. Lewis of California, and allow Mr. Lewis time to make what comments he might like to make.

REP. JERRY LEWIS (R-CA): Thank you very much, Mr. Chairman.

Secretary Donovan, I apologize -- (inaudible).

In the meantime, Chairman Olver, I want to raise with the secretary a very, very important item in my mind, and (raise ?), by way of that -- (inaudible).

Mr. Secretary, I had the privilege of chairing this committee in the mid '90s, and during that time took note of the fact that for the many years I'd been on the committee, we had been spending virtually billions and billions of dollars around various -- (inaudible) -- Section 8 funding. That housing program was designed to provide opportunities for housing, and maybe even an opportunity to climb up the ladder for middle-income (to ?) really low-income and poor Americans.

Secretary Cisneros and I became very good friends during that time because we had similar concerns. And the secretary spent time with me on weekends going out and looking at Section 8 housing.

Now, while he didn't attend this trip, he certainly -- (inaudible) -- trip to New Orleans, I will never forget. We had been spending $10 (million ?) to $15 (million ?) every year for all the years, the 10 to 15 years I had been on the subcommittee, for New Orleans.

The visit there was startling, to visit Desire Homes. And I would urge you to spend some time at Desire Homes. As the New York housing commissioner, you know -- (inaudible). The place was a shambles -- huge facilities that were built during -- (inaudible) -- years -- (inaudible) -- shipyards. The two major buildings in the center were controlled by the gangs, and they ran drug -- (inaudible) -- and other kinds of activities out of there.

I met with the inspector general. I met with the inspector general in the -- (inaudible) -- because we could find almost no other significant public housing, in spite of the (million ?) into New Orleans. And as we were discussing these challenges with the inspector general, the guy from the FBI who had been sitting there interrupted and said, "Congressman, if I could just say something, it seems to me that the least that we can do -- (inaudible) -- provide a real use of housing dollars to New Orleans, just bring a full-time inspector general here, because this guy flew in from Houston today to talk with you."

Well, that led to a significant -- $9 million, I remember, after -- (inaudible) -- increase for the inspector general's funding for the housing shortage. And that led to work that looked at largely urban centers around the country. As a result of the work of that investigation, a number of people went to jail. And that particularly impacted the communities -- (inaudible) -- California.

The then-secretary is now attorney general of New York. He was very unhappy with my involving myself with the inspector general, because the inspector general is somewhat of an independent authority there. And, my gosh, can you imagine -- (inaudible).

Well, in turn, that led to the Housing Fraud Initiative, which we were trying to broaden that base. Leadership changed after the next election. I went to another subcommittee. The following (staff ?) was not particularly interested in having the inspector general have this kind of expanded funding. But nonetheless, the problem continued.

There's not any doubt that you and I are committing, if at all possible, to provide an opportunity for especially the poorest of the poor to climb these ladders. But if the money that we spend is not going to get to those people, and maybe by way of local authorities and used in different ways, then, to say the least, we've done a disservice, perhaps not just to the poor, but to ourselves.

I would urge you, Mr. Secretary, to look at that background. Consider what we can do to expand our ability to measure what's really happening in those -- (inaudible).

(Inaudible.) And between you and Mr. Latham, if you take this on, and do this with Secretary Donovan, you perhaps could make the greatest contribution -- (inaudible).

Thank you, Mr. Chairman.

REP. OLVER: Mr. Lewis, thank you for your comments. I'm sorry I had not heard this from you at some point earlier. Perhaps I should have.

REP. LEWIS: I've said it so many times -- (inaudible).

REP. OLVER: Well, not before me; not when I've been present, at least. So thank you for that.

Mr. Secretary, would you like to comment, make any comment? Or would you rather have time to explore this before you comment?

SEC. DONOVAN: I very much look forward to following up on those.

A couple of things I would say on that. First of all, I couldn't agree more that the inspector general has an incredibly important role to play. I meet almost weekly with Ken Donohue. In just the first few months, our teams have begun working. They meet weekly on Recovery Act funding.

And we've asked Inspector General Donohue not just to tell us mistakes after we've made them, but to be there right up front as we were designing the processes and distributing close to $14 million in Recovery Act funds, the largest share of which is going to public housing, to make sure, particularly on the troubled housing authorities, that we are pre-approving literally every line item that they are going to be spending in the Recovery Act funding.

So I think the Recovery Act in particular has been a very good start in a collaborative relationship, knowing that there have been, in prior times, as you discussed, not been those kind of collaborative relationships. I think that's very, very important.

The last thing I would say is that an area that I'm particularly concerned about is mortgage fraud more generally in the market, as well as within FHA. The president recently signed a bill that expanded funding for the inspector general at HUD, as well as the Department of Justice, Federal Trade Commission, and gave us greater authority to go after bad actors in the FHA program.

So I couldn't agree with you more that we need to be doing everything that we can to ensure that funds are spent for the right people in the right way.

REP. OLVER: We will then go on to questioning -- (inaudible) -- on the clock first. No, not you're on the clock; I'm the first questioner.

Mr. Secretary, I'd like to just get a little further thought from you about the Sustainable Communities program. You announced earlier this year, with the secretary of DOT, the sponsorship of the Sustainable Communities Initiative to incentivize regional planning efforts combining housing transportation. And I think you then included energy along the way, which I applaud that effort, because I've always considered energy and housing and transportation are part of a three-legged stool. And you added a fourth to it that I think -- (inaudible) -- some conditional stability to it with EPA.

Can you tell us a little bit about the structure of the program? Are there local efforts that you're trying to emulate that guide what you have in mind that you think we ought to be replicating around the country? What are your hopes for the communities, how communities will react to this initiative?

SEC. DONOVAN: Well, already, just to take that last question first, we've seen enormous interest and excitement about this. I think the fact is that there has been -- and I've seen it myself at the local level, at the metropolitan level -- a great interest and already a great deal of work that has happened, frankly, without much support from the federal level to try to bring together housing, transportation and other types of planning, particularly around energy. And really what we're trying to do through the Sustainable Communities Initiative is to support those efforts and expand those efforts that are underway.

There are three key components: $100 million that would support regional planning efforts that would better link transportation funding with housing funding. Transit-oriented development is a perfect example of the kind of planning that funding would support. Forty million dollars would go to support planning at the municipal or local level rather than at the regional level.

And in particular, what we're aiming for there, in order for transit-oriented development and other types of sustainable development to be successful, it depends on, first of all, getting many barriers out of the way, whether those be zoning or other barriers that stop the development often of multifamily and -- (inaudible) -- development in those areas, whether those be barriers in terms of impact fees or other things that have traditionally stood in the way of that kind of development, as well as to look at strategies like inclusionary zoning or others that would ensure that where you have transit-oriented development or other kinds of development for walkable communities, that you have a significant amount of mix in there, that you don't just have luxury housing development, but you have a mix of workforce development available for a broad range to create truly sustainable communities from an income level as well. So that would be the second part.

The third part is $10 million dedicated to research. In particular, what we have begun to pursue with the Department of Transportation is to get to a relatively simple transportation efficiency measure that looks at, if you have a house or home in one community, some simple measure of what the expected transportation costs would be there versus in other places.

And I think this could be enormously powerful, because, quite frankly, if I'm a lender providing a mortgage to a home where I would expect that family to spend 30 percent of their income on transportation costs, that's a lot less -- (inaudible) -- a mortgage than one where the family would spend 10 percent of their funds on transportation costs.

So I think we can do a lot to unleash the power of the market, the financial market and others, if we can get good information about transportation costs that are easily available to consumers and to the market more broadly. So those are the three components of the initiative.

I'm also happy that we made real progress since we testified here in developing six livability principles, and also beginning to really analyze the barriers to this kind of development. There are many ways that HUD programs stand in the way of (in-fill ?) development and other kinds of development that contribute to sustainable communities. So we've begun a full analysis of that across the department. And I look forward to coming back to you with the results of that, talk about what legislative changes we might need to really support those.

REP. OLVER: Have you done regional meetings with people from states and so forth to describe this out in the broader community? I suspect, from the way you've described this, that there's going to be some sort of notices of funding availability for the three categories that you mentioned, or two of the three, because the research may well be something that you're going to do internally. But the other two look like they lead to NOFAs.

SEC. DONOVAN: Absolutely. Should the Sustainable Communities Initiative be part of the budget, we would run competitions through NOFAs to support the planning efforts at regional levels and local levels.

REP. OLVER: And have you reached out to -- because if you just send out a NOFA, people then -- it comes as a surprise to everybody. I don't know what you'll get except more from several communities that maybe have been the ones that have already learned how to do this sort of thing.

SEC. DONOVAN: I couldn't agree more. We have had some initial discussions, but we hope to be able to announce a director of our new Office of Sustainable Housing and Communities within the next few weeks. And once that person is on board, that person would lead exactly those kind of discussions that you're talking about. And we are planning to do that over the summer in a range of different communities.

REP. OLVER: Well, I could continue this. I'm particularly interested in what dollars Transportation may be bringing to this and other organizational things. But I'm well on red.

Mr. Latham.

REP. LATHAM: I was enjoying every second of it.

REP. OLVER: (Laughs.)

REP. LATHAM: Mr. Secretary, normally in the Federal Housing Administration, the administration and the Congressional Budget Office agree somewhat about how well the portfolio in FHA is going to perform. And this agreement is normally about volume built, not about -- (inaudible).

But this year the CBO estimate was basically complete rejection of the administration's estimate -- (inaudible). The estimate rejects the notion that the fund will operate profitably. Absent the underlying credit reform -- (inaudible) -- there would be a demand that we treat the program as if they were losing money.

This has real-life consequences for the committee since we have to make up the shortfall. The CBO estimates -- (inaudible) -- total budget. And quite frankly, it seems, just from appearances only, that the administration overstated the performance of the funds so that -- (inaudible) -- have to reduce programs or -- (inaudible).

Has your staff met with the Congressional Budget Office to determine what specific elements of the administration's estimates were rejected? And can you tell us what those differences were?

SEC. DONOVAN: We have requested a meeting with CBO to discuss this. We've also had some discussions with the Budget Committee and with OMB about this, and we've provided some information to them about it.

I think, fundamentally, what we have seen -- I spent an enormous amount of time personally with the Office of Management & Budget analyzing these numbers, and I feel quite confident in the numbers that we've provided to the committee. I think, in particular, there have been two major changes in FHA that may not be reflected in CBO's numbers, and I think it's important that we do get to the bottom of this with them.

First of all, given the change in credit markets, the average credit scores for FHA have gone up over 50 points during the last year, so that for loans to be originated in 2010, we expect a significantly higher credit score on average than we've had historically; and second -- and I thank Congress for working with HUD on this -- the elimination of the seller-funded down payment loans in the portfolio. That change alone, our estimate is, contributes a two- and-a-half-billion-dollar swing to the performance of loans that will be originated in 2010.

So I do feel quite confident in our estimates, and we are pursuing a resolution with that of CBO. And any support that the committee could provide in doing that, we would greatly appreciate it.

REP. LATHAM: So you intend to revisit -- I mean, our problem is we have to go through CBO, but you talked about OIB or whatever, but -- about the -- (off mike). But you are going to work with them to try and revisit your methodology and the target of this?

SEC. DONOVAN: As I said, we've approached them, requested a meeting. We've supplied information to them about how we got to our estimates. And I certainly hope that we will be -- get into the details with them to be able to resolve the difference.

REP. LATHAM: Okay. Just another item that's kind of popped up -- I think it's -- you're proposing to continue the reverse mortgage program for seniors, even after it's been shown to be a huge drain as far as on -- on the taxpayer. And the program is not part of the basic mission of FHA, has never been implemented by the private sector. Moreover, many warned since the conception that the program was doomed to fail; now a lot of people believe it has failed and the department wants to continue it anyway. Why would you ask the taxpayer to incur $800 million -- to incur such a huge long-term liability on top of all the other long-term liabilities, assuming -- by programs that work?

SEC. DONOVAN: Well, first of all, I would say that particularly during this time in the economic crisis that the country is facing, which has been particularly difficult for our seniors, that the reverse mortgage continues to be an important opportunity for seniors to face these difficult economic times and to do longer range planning to support their health care and other needs. And we looked carefully at this and felt that it made sense to continue to support seniors during these difficult times.

Having said that, I would also note that the proposal that we've put forward was dependent on not changing the underwriting terms for the HECM program. There are some relatively simple changes that we could make which would limit participation in the program but that could offset that request for credit subsidy.

I would be very happy -- I always look forward to our staffs discussing those options and making decisions together with the committee about whether we ought to make changes to the program. Again, we're not advocating those, but there are options, whether it's around the premiums or around effectively the loan values that seniors could take, which would enable the program to be credit-subsidy neutral in 2010.

REP. LATHAM: I just would note the concerns -- (off mike) -- result of foreclosures -- (off mike). I'm already out of time, but thank you, Mr. Chairman.

SEC. DONOVAN: I would -- just to be clear, the FHA program -- the reserves continue to be above the congressionally mandated 2 percent, overall. So I just want to be very clear that the program is not in a negative position overall. And we do continue to monitor that very closely. We expect to have a reestimate this summer. And I think based on our latest estimate, the likelihood is it does remain above that 2 percent, but depending on the way the market goes over the summer, that could change. So we'll keep the committee very closely apprised.

REP. LATHAM: Thank you.

REP. OLVER: We will now go down the line in order of seniority for those who were here when the gavel came down, and then those who arrived after the gavel came down. That procedure leads me to Mr. Pastor.

REP. ED PASTOR (D-AZ): Good morning.

SEC. DONOVAN: Good morning.

REP. PASTOR: Congratulations and --

SEC. DONOVAN: Thank you.

REP. PASTOR: -- best of luck.

The questions I'm going to ask deal basically with CDBG. I'm from the city of Phoenix, and its population has doubled. It was 600,000 in 1970, and now it's over 1.4 million. And so for the past thirty years, there has been a lot of change.

(Off mike) -- 18 percent poverty level in the city's population. Phoenix has experienced -- (off mike) -- low-income, single-parent households, housing overcrowding, 18 housing (stops in ?) moderate and low-income senior citizen housing. CDBG program was developed in 1974, about 30 years ago, and has not been revised since the program's conception, as you well know. This year you request 4.18 billion (dollars) for CDBG. And as I understand, you're requesting the FY '10 funding to be distributed in a revised format. But is that --

SEC. DONOVAN: Well, first of all, the 4.18 billion (dollars) that you talked about, we are also proposing -- now, that would just be for formula funding. And we're proposing beyond that new initiatives like the Sustainable Communities Initiative; that brings the total up to over $4.5 billion. But even just the 4.18 (billion dollars) of formula funding represents a significant increase over last year for filling the president's commitment to fully fund CDBG.

And I think there is broad agreement, as you discussed, that the formula created more than three decades ago has not kept pace with changes in metropolitan areas and in rural areas across the country, for example, in Phoenix, other parts of the Southwest and the West. And so we do believe that there needs to be an updating of the formula. We also understand that that's a difficult discussion because there are different interests in different parts of the country.

That's why it's so important that we've proposed a significantly increased level of funding, which would allow us to implement a hold- harmless provision for jurisdictions across the country, so that no jurisdiction, even with a formula change, would lose funding for the 2010 budget year. So we believe that with this increase of funding, now is the time to re-look at the formula and to develop a formula that's more closely targeted at needs, while, at the same time, looking at ways that we can continue to provide the flexibility that CDBG provides but to have greater accountability in terms of measuring progress and impact for the CDBG program, which has been difficult, given the broad flexibility the program has.

REP. PASTOR: Well, I would agree with you that it's going to be very difficult politically, because over the last 30 years you've had population changes and there have been major shifts, as you've seen also in the make-up of Congress. And so, yeah, it would be very difficult, because there's regions today that probably would be very much opposed to this, and there's regions that would be very supportive, especially in the West and Southwest.

So hold harmless, it would be for 2010.

SEC. DONOVAN: I think there a number of ways to implement that. That's --

REP. PASTOR: But you said hold harmless, 2010. That's what I heard.

SEC. DONOVAN: Certainly, at the very least, for 2010. There are a number of ways to implement this that would have budget consequences in future years that --

REP. PASTOR: Well, that's what I'm getting to. What do you expect to do in 2011? I'm assuming you're going to be here, so -- and you're still going to have the political pressure of the redistribution of the formula.

SEC. DONOVAN: We have -- we believe, at the very least, that the budget proposal for 2010 needs to hold harmless across the country.

REP. PASTOR: Okay. All right.

SEC. DONOVAN: We have not made a proposal in the budget for 2011, given that that's not part of the budget proposal.

REP. PASTOR: No, I -- it's too early. So we have -- it's --

SEC. DONOVAN: So I --

REP. PASTOR: I'll take your answer. I'll take your answer.

SEC. DONOVAN: Yeah.

REP. PASTOR: FY '10 budget proposal mentions that economic needs will be used to target CDBG money. Can you tell me what factors will be used to determine economic needs?

SEC. DONOVAN: There is a proposal that we'd be happy to discuss in more detail and provide you. There are a range of factors that we have looked at, in terms of income levels, condition of housing and a range of others. And I think the best might be for me to be able to provide to you and to the committee more detail about what possible formulas would be.

Again, this is -- I think we believe strongly that this is an important discussion to have with the Congress. We are not locked in, I would say at this point, on a specific formula. And we have a number of options that we've developed that have different weighting of different factors.

And I would -- I believe it's very important that we have a discussion about the merits of various formulas and come to a joint conclusion about that. rather than to -- for us to simply say there's this single formula (we could work ?)

REP. PASTOR: -- (inaudible) -- just take 30 seconds.

That's why I bring up the issue, because when you talk about formulas, especially those formulas that have not been changed for 30 years, and there's the likelihood they haven't been changed for 30 years because the people who benefitted 30 years ago don't want to give it up.

And so I would highly recommend to you that your attitude of working with Congress, and looking at the various formulas, the various factors, it was very important that you consider that and work with the Congress, because if it's something that you spring on Congress, or do not have much conversation with, you're going to -- you're going to get caught in the crossfire.

And so I highly suggest to you that you continue the dialogue just so that your future initiatives will progress forward, be able to -- (inaudible) --

SEC. DONOVAN: And I would --

REP. PASTOR: Just to add to that, finally, the formula is authorized -- (inaudible) -- (once ?) in the middle '70s. It's been the same for all those years. We're going to have a census that will be out before the 2011 budget gets -- is completed. And seeing the history of it -- (inaudible) -- to deal with whatever this new census data are around the factors that you're talking about. But, the communication has to be with the authorizing committee.

So, start that communication.

SEC. DONOVAN: Yeah. And I would also just add, I want to be very clear, there has been discussion about the formula for a number of years, but it's taken place in the context of attempts by the last administration to dramatically cut the CDBG program.

And the president made a pledge during the campaign -- which we are living up to in this budget, to fully fund CDBG. And I believe it shows a commitment to the importance of this program to local communities. And, in addition to that, it gives us the ability to implement changes, as difficult as they might be, in a context where nobody will lose funding under those -- under a hold-harmless.

So, I believe we have an opportunity to have a discussion about it in a different kind of way than we've had it for the last few years, and I look forward to that conversation with this committee and with the authorizing committee.

REP. OLVER: Thank you, Mr. -- thank you, Mr. -- (inaudible) --

REP. CIRO RODRIGUEZ (D-TX): Thank you very much, and welcome to the committee --

SEC. DONOVAN: Thank you.

REP. RODRIGUEZ: -- and congratulations, Mr. Secretary.

Let me follow up on a comment that was made by the minority leader, and that is in terms of making sure that we've looked at past abuses. And I was just wondering -- and is an open-ended question, in terms of, if you have done anything to do an assessment, through either GAO, or others, to look at cost overruns in the past, you know, four to eight years, or whatever, in some of those programs, and would ask you to comment on that; and (see if you're ?) doing anything to make sure that -- you know, like anyone who comes new to a program you want to know that it's up and running appropriately.

I know we have found some $300 billion overruns on costs just in four years in the DOD facility from 2004 to 2008. Have you done anything in that aspect, or asked for anything to be done?

SEC. DONOVAN: Two things I would mention on that front.

I talked earlier about the close working relationship that we've established with our inspector general, but that also goes beyond HUD to other agencies -- Department of Justice, and others, around mortgage fraud, which, given the growth of FHA's programs, and many of the new lenders that we've had come into the program, we've begun to step up significantly our efforts, whether it's through SWAT teams, whether it's enhanced legal authority that we just got from Congress and signed by the president just a few weeks ago, to go after -- one of the problems that we've had, historically, has been that we had powers to go after companies, but not the individuals that made up those companies so that we could debar or suspend a lender.

They could then reconstitute themselves --

REP. RODRIGUEZ: Yeah, please let us know if we need to do anything legislatively that might help you in cleaning that up, because we can't allow to -- or tolerate that to occur and that to happen.

Let me quickly also, based on the numbers that we're seeing, there's a big disparity between the need that's out there and versus the resources (that we're ?) providing, and it seems that that gap is even bigger now than ever before. Have you made any plans, in terms of looking at some alternatives that you might come up with, or looking at any specific goals that you want to accomplish to try to meet those gaps?

SEC. DONOVAN: A couple things on that.

I couldn't agree more that, particularly given the economic crisis that we're facing, the needs are substantial. That's why I think it's so important that you passed a recovery act that had almost $14 billion to try to meet some of those needs.

One thing I would mention, in particular, is a billion-and-a-half dollars for homeless prevention and rapid rehousing. That's been a very important effort that we've been working, with over 500 jurisdictions around the country, to make sure that we help those families that are on the edge of homelessness to be able to stay in their homes.

It's also why we proposed a significant increase in funding for Section 8 vouchers, which are a particularly important tool in these economic times in the budget proposal; as well as, for the very first time, funding for a National Housing Trust Fund for extremely low (income ?) --

REP. RODRIGUEZ: And as you looked at the -- let me get a little more specific on one item. You mentioned national -- there's a lot of national organizations and groups that want to participate, and have been participating, yet your guidelines also, kind of -- well, actually, discriminate and put them at a disadvantage.

I would ask you to look at those guidelines that you have for national organizations, because of what you request on some of those specific targets and areas put those national organizations at a disadvantage. And I would hope that you kind of look at that and go back -- just like you should go back, in terms of those formulas, for areas that have continued to grow.

I represent probably more rural areas than anybody else on the committee here. You know, I have 20-something counties in West Texas. And so housing is essential and it's important. And I know that there's a big waiting period there, and there's a waiting list of, you know, people waiting to get access and the resources on there. So, please look at, you know, us, and the specific -- the national organizations.

You know, there's specific guidance that your application asks for that places them at a disadvantage, so that when the scoring comes up -- (inaudible) -- they're not going to be able to compete, especially as it deals with the Neighborhood Stabilization Program, and those kind of things.

I don't know if you have any comments on that, or if you're looking at that now, or not?

SEC. DONOVAN: In fact, based on this feedback we got from the committee, and others, we did make changes to our Neighborhood Stabilization Program "NOFA" that we've published, to try to provide as much flexibility as possible so that national organizations could be -- could compete effectively, as well as giving points in that NOFA for things like leveraging, working across jurisdictional areas -- which, obviously, national organizations are particularly well suited to do.

So, I think -- we think we've constructed a NOFA for Neighborhood Stabilization, and made -- in fact, made changes to it that will be particularly useful in getting more national and region organizations involved.

REP. RODRIGUEZ: And, just closing, because I know I ran out of time, the comments that Congressman Pastor talked about -- in terms of looking at changes in the last decade, and growth patterns, and those kind of things, I would ask that, on the recovery resources, that you look at those and prioritize those in terms of where the greatest needs are. Thank you.

SEC. DONOVAN: Thank you.

REP. OLVER: Ms. Kilpatrick.

REP. CAROLYN KILPATRICK (D-MI): Thank you, Mr. Chairman.

Good morning, Mr. Secretary.

SEC. DONOVAN: Good morning.

REP. KILPATRICK: I'm loving the HUD budget for the first time in my 13 years here. (It's the right direction ?) -- (inaudible) -- accomplish in Michigan (in which it was started ?), and I appreciate that.

I also appreciate the creativity and the future vision that you have for HUD -- (inaudible) -- I don't think we can express enough how important it is that you -- (inaudible) --

Chairman Frank on our side, and Senator Mikulski on the other side have worked hard on our issues (in base proposal we're doing. ?) Our Chairman Obey always says we're appropriators, we're not authorizers -- (inaudible) --. I think that's real important. As much as I like it, I see a (roadblock coming ?), if not now on the floor, and if not today, soon. So, you know, I can't express enough how important that is.

I want to talk a bit about this Choice Neighborhood Initiative, because I really like how it sounds. And you also talked about a couple of categories that you all put together that you're looking at. The Harlem Children's Zone sounds like, as I read a bit about it, like fit in some of these categories. Can you talk about it?

I know it -- (inaudible) --, which has been zero funded for several cycles, and this committee and the Senate always puts it back in. We're not sure (it's ?) going to do that this time because of the new initiative that you have. I'm sure it needs to be authorized first. But, setting that aside, can you talk a bit about it, and how it parallels the Harlem Children's Zone?

SEC. DONOVAN: Absolutely.

Let me say, first of all, I completely agree that -- on the importance of working, not just with this committee but with the authorizing committee, that, in fact, on -- Choice Neighborhoods is the perfect example.

My staff is meeting today with Senator Mikulski's staff and we are setting up meetings. We have many on the calendar. And others we're setting up with the various authorizing committees on both sides to make sure that we have a full discussion about what is appropriately done as part of the budget and what's appropriately done in authorizing language. So, thank you for that comment.

Specifically, on Choice Neighborhoods, I think the importance here -- and I want to go back to something you said, Mr. Chairman, in your remarks, we believe very strongly that public housing, and the work that's been done in HOPE VI, not only has worked and been effective, but needs to be expanded. And that's why we're proposing an increase from the current funding level of $120 million to $250 million for Choice Neighborhood.

And, based on our analysis, there are roughly three times as many distressed public housing units as there are distressed assisted housing units in the neighborhoods of concentrated poverty. So, we would expect that public housing will get an increase of resources under the proposal in Choice Neighborhood. So, I want to be very clear about that.

But, we also know that assisted housing and privately-owned housing can be a big part of the problem. I've often hear directly from housing authorities wanting to be able to include -- whether it's foreclosed homes, or other types of housing surrounding public housing if we're going to really truly remake neighborhoods. So, that's just one point I would make.

To the question about the Harlem Children's --

REP. KILPATRICK: -- (inaudible) --

SEC. DONOVAN: Yeah. It's exactly the same issue, that if we don't fundamentally remake the schools and create schools of opportunity in these neighborhoods, we're not going to be successful long-term in creating sustainable communities there.

And that's why I've begun work with Secretary Duncan around integrating early childhood education, secondary education into the HOPE VI efforts -- not even just in Choice Neighborhoods, but this year we are looking at making more explicit connections with school reform in those communities.

And then, specifically, on Harlem Children's Zone, the president talked about during the campaign a "Promise Neighborhoods" initiative modeled on what the Harlem Children's Zone has done, which is really -- almost from birth, through finishing high school, an effort that follow children, to give them, not just at school, but a full day of supports where they may need it -- with tutoring, and other things.

And it's been extremely successful in raising the academic performance in college attendance of kids in that neighborhood in Harlem. And we are looking to model it and link it. One of the reasons we called this initiative "Choice Neighborhoods" is to explicitly make that link with the "Promise Neighborhoods" initiative that the Department of Education will be implementing as promised by the president during the campaign.

So, we are working closely to bring together, not just different types of housing, but also school reform efforts, and early childhood education efforts with the efforts around housing in the Choice Neighborhood Initiative.

REP. KILPATRICK: I like it, and I hope you keep all the members of Congress, and certainly this committee -- subcommittee involved. It's very important -- (inaudible) -- that we become- (inaudible) -- Thank you.

SEC. DONOVAN: Thank you.

REP. OLVER: Thank you.

Ms. Roybal-Allard.

Oh, excuse me -- excuse me, I promised that we would come over to Mr. Carter. Having come in a little bit late, I left you a little bit of time to get your breath -- to catch your breath.

Mr. Carter.

REP. JOHN CARTER (R-TX): Thank you, Mr. Chairman.

I want to start off with -- when we had Hurricane Ike -- (inaudible) -- the communities were told that they could not use CDBG money to fulfill the federal match required for other grant programs that would have aided -- (inaudible) -- disaster relief. And this was a reversal of the previous disasters.

Is there a reason CDBG money cannot be used in local matches? And was it just particular to some regions of Hurricane Ike, or do you know? And is there a chance that we could reduce the 75 (percent) to 20 percent -- 25 percent federal-local match that many communities face to receive grants that would help them when they're in the middle of a big disaster?

SEC. DONOVAN: This is actually an issue I've had discussions with Governor Perry, Senator Cornyn, and others about. And there is a specific provision in the legislation that established the CDBG funding for Hurricane Ike that required that match to be in place.

And that was, as you say accurately, different from prior to statutory authorizations for CDBG disaster funding. So, it was a statutory restriction that we had implemented, as directed by Congress.

REP. CARTER: You don't have any concept of why, all of a sudden, one particular hurricane is different from the one just before it?

SEC. DONOVAN: To be honest --

REP. CARTER: (That's as Congress was -- ?)

SEC. DONOVAN: -- Congressman, this was passed well before my time, and I don't know well enough the history of why that was added. But, it has been an issue, particularly in Texas, that I've heard about a number of times.

I would just add as well, that one of the issues in effective disaster recovery has been exactly this, that each time there's a disaster there's a different CDBG authorization that's created. They've been different in different circumstances, and it's almost like we've had to reinvent the wheel each time.

And I think it's very important. We've begun work with a number of the committees, and at the White House, to think about a way to create a, sort of, model CDBG program that would be specifically tailored to disasters -- to remove some of the barriers like the one that you're talking about, and others; to make it more flexible and more effective in recovery, and speed up a recovery effort.

So, I think it's important that we think about this issue in a broader context to make sure that we have an effective program to be able to respond quickly.

REP. CARTER: That's a satisfactory answer, and thank you for that answer.

And, by the way, I apologize for being late.

The other question I have, this is kind of off the wall, because I don't know the names of the programs, but I did a lot of -- a lot of work with Section 8 housing over, (back in my youth?). And now, I did a ribbon-cutting on a program where HUD was actually assisting people with purchasing homes. I don't know if you're -- are you familiar with that?

But, it was a fantastic concept because these people were actually buying a house. And one of the things that I've always been concerned about for 30 years is, as we subsidize houses for people we never give them -- give the opportunity, give them the opportunities (that caused ?) you and I, and our families, who have risen out of wherever we started, and that is the ability to accumulate wealth, because you never accumulate wealth if you're renting (in) a subsidized housing project. And let's face it, even though our real estate market is in the tanks right now, historically, Americans accumulate their -- they begin to accumulate wealth in their home.

Are you familiar with that -- (inaudible) -- ? It was a very small program -- (inaudible) -- experimented with. But, it was hugely successful where we did it, because all of a sudden people who had never owned anything owned something.

SEC. DONOVAN: And this would be specifically the Section 8 voucher homeownership -- (inaudible) --

REP. CARTER: It was a homeownership, not rental.

SEC. DONOVAN: Yeah. It has been -- in fact, in my prior work I ran the fourth largest voucher program in the country and we did have a voucher homeownership effort as well. It is a program that, frankly, has remained small, and it's one that I think we could look at ways to try to create more flexibility and to expand.

But, more broadly, I would -- I agree with you that we need to continue to provide opportunities for low- and moderate-income people to become homeowners. I do not take the lesson, from the recent crisis that we've seen, that low- and moderate-income people can't become homeowners.

In my own work we created or preserved 17,000 units of homeownership at the local level with only five foreclosures. So, I think it's really a question of doing it right -- getting back to basics on underwriting; providing the right kind of counseling and assistance; and also benefits like the $8,000 first-time home buyer tax credit that Congress provided in the Recovery bill, which has been an important benefit to get families into homeownership for the first time, and to help to begin to stabilize housing -- (inaudible) --

REP. CARTER: I believe my time has expired.

REP. OLVER: Thank you, Mr. Carter.

Ms. Roybal-Allard. -- (inaudible) --

REP. LUCILLE ROYBAL-ALLARD: In recent years, HUD has given funding incentives to agencies that offer permanent housing for the chronically homeless. The unintended results have been that providers have shifted away from offering support -- (inaudible) -- in favor of creating housing.

In the absence of support (service dollars ?), the homeless population loses access to critical services, such as those addressing mental health, substance abuse and medical services. It seems to me that (a coordinated ?) effort between the responsible federal agencies would help to make the availability of housing, with complementary support services, more sustainable and efficient.

Since most of the support services are provided by the Department of Health and Human Services, would you consider developing some kind of a partnership or coordinating effort between HHS and HUD that would allow for a more dedicated stream of funding for these very, very important (services ?)?

SEC. DONOVAN: I could not agree more with everything that you've said.

And this is both based on my own experience in developing supportive housing in the non-profit sector and private sector, as well as in the public sector, that that linkage between services and housing is absolutely critical; and, in fact, has led to real progress on this issue -- a 30 percent decline in chronic homelessness between 2005 and 2007, based on -- (inaudible) -- And, oftentimes, frankly, local areas have had to do it in spite of a lack of help, and even barriers between federal agencies.

So, I think what you're talking about is absolutely critical. In fact, yesterday we had our first Interagency Council on Homelessness meeting of the administration, and I became the new chair of it. And one of the things we discussed at the meeting -- I was sitting next to Secretary Sebelius, and we have begun discussions already, but are very committed to expanding them, around linking up, whether it's Medicaid or other forms of funding, because, ultimately, not only do we serve people better, but we can actually reduce costs by serving people effectively in supportive housing.

There have been good studies now showing that we reduce costs of emergency room care, shelters, even prison time for the chronically homeless by bringing services that can be funded through HHS's budget directly into supportive housing. So, I couldn't agree with you more. And I'd be happy to share more information as that partnership develops.

REP. ROYBAL-ALLARD: I hear quite a bit Asian and Pacific Islander community, which has not been immune to the foreclosure crisis, but yet, as you know, has a very specific -- linguistic and cultural needs, in terms of (how to determine ?) service.

And, although they've been highly impacted, less that 1 percent of HUD-approved housing counseling agencies throughout the country have the capacity to meet these needs of the API community.

Can you please tell the committee, what is being done to ensure that the API community is adequately served in home foreclosure prevention and mitigation?

SEC. DONOVAN: Two things I would say on that.

One is, in this budget proposal we have proposed a significant expansion in housing counseling funding -- from $65 million to $100 million. We feel, given the current crisis that we're facing, that that's absolutely critical investment in resources. So, that should open up the opportunity for more groups to be funded.

But, second of all, we need to go beyond that and make sure, just as you said, that we are targeting linguistically isolated groups, and that's why we've begun an effort under our fair housing programs as well as our counseling programs to publish information in many more languages. We're moving to 12 different languages from fewer than that in all of our materials.

And, also, we need to work effectively -- I was meeting earlier this week with a group called Esperanza, which works with Latino communities around the country, and it has the same issues, that they are trying to get into significant mortgage foreclosure issues in their communities and are trying to expand counseling, and we are working with them closely.

I'd be happy to follow up with particular groups that you're hearing from, see how we could get training and information to them, and connect them to groups like NeighborWorks that do effective training for housing counseling work.

REP. ROYBAL-ALLARD: Thanks.

REP. OLVER: (Off mike) -- Price?

REP. DAVID E. PRICE (D-NC): Thank you, Mr. Chairman.

Welcome, Mr. Secretary. Glad to have you with us, and I appreciate your testimony.

I was listening very carefully to your answer to Ms. Kilpatrick, and I want to follow up on the question of Choice Neighborhoods and the link with the considerable HOPE VI backlog that I know the department's facing due to the drastic cuts in recent years in that program.

I want to know a little more about that -- about that transition and what it portends for communities that are still waiting and have been waiting for the particular kind of comprehensive support that HOPE VI provides. I know you're familiar with -- with that and with the -- the way this program had a -- had a kind of checkered history, but got -- got refined and improved, and I can show you in my district, in Raleigh and Durham both, the difference that the HOPE VI program has made, and there's more to do. There's more to do.

In the last eight years, public housing advocates, including our chairman and myself, have had to struggle to push back against the Bush administration's attempts actually to zero out HOPE VI. Now the new administration is advertising Choice Neighborhoods as, on the one hand a celebration of HOPE VI, but it's a way presumably of incorporating and going beyond HOPE VI's key goals. And it's that that I want to explore with you because, as you can tell, my assessment is that the work of this program is far from complete, and I want to make certain that we don't celebrate HOPE VI prematurely in a way that leaves behind unfinished business.

And let me give you an example and a couple of questions that'll let you know what I'm getting at. We have a major need in Raleigh, North Carolina. It's a great candidate for HOPE VI. We do have a good track record there. I wonder how well we'd fare under Choice Neighborhood.

Walnut Terrace houses 700 residents in an outdated, inadequately equipped, poorly designed facility. Now, the first question has to do with the link with neighborhood schools, which I think all of us would agree is a -- is a very positive linkage, but I want to be wary here of unintended consequences. Because -- because of a progressive diversity policy in the countywide school system, the children who live in this particular development attend a variety of schools.

Under Choice Neighborhoods, as I understand it, funding preference would be given to projects that link housing redevelopment to school reform, which sounds like a good idea, in many places would be a good idea, but could it inadvertently disadvantage public housing communities that aren't served by communitywide schools? It's just not the case for Walnut Terrace, for this example I'm citing, and I'm not sure their application would make the cut under the kind of scoring system you've described.

Right -- let - second question, and then I'll stop, but -- but, right now, HOPE VI is funding four to five projects per year. I know you're going to double that funding. You've offered assurances about that here this morning. But you're also expanding eligibility to projects of privately owned stock. And here, too, there's a lot good about that idea, but combined with these new preferences, I'm not sure whether you're going to maybe dilute the funding available to publicly owned housing.

So, beyond this celebration aspect, I'd like to know how you envision Choice Neighborhoods vis-a-vis HOPE VI. And how do you assess this HOPE VI backlog? This work is not done. And -- and the supply-demand imbalance under the current funding level, how do you assess that? And what can we expect as we make this transition in terms of the needs that have piled up, frankly, all over this country due to the drastic reductions that we experienced in HOPE VI?

SEC. DONOVAN: Very important questions.

I, first of all, would say that one of -- we believe strongly in the administration that public housing needs investment, that it has been underfunded for years, and it's one of the reasons why there was $4 billion in the recovery bill that we moved to get out very quickly. And in fact, the type of development that you're talking about would be a good candidate for a competition we have available right now with a billion dollars in competitive funding for public housing transformation and other efforts.

So we have more resources available right now than we have had in any time in HUD's history to do this kind of work. So I think it's important to recognize that we are trying to attack that backlog in many different ways, not just through HOPE VI and Choice Neighborhoods.

The second thing I would say is, on the dilution question that you've asked, we've looked very carefully at the stock of dilapidated public housing around the country as well as the stock of dilapidated assisted housing, privately owned, and there's roughly a three-to-one ratio of public housing to assisted housing. So with the more than doubling of funding that we're talking about and the demand in the eligible housing, we expect and are targeting a significant expansion of the number of public housing projects that could be eligible.

So I do believe this will not in any way dilute the funding available to public housing redevelopment. It will significantly expand it even with the broader eligibility.

The last thing I would say is we are not looking to be prescriptive about exactly what local communities should be doing to create successful schools. If you -- if you got a development in a neighborhood where that school reform has been effective and there is quality -- there are quality educational options available to those children, my sense is that -- we haven't written the NOFA yet because, obviously, we're in discussions with you all about the development of the program, but my expectation is that if there are quality educational opportunities available in that community, that that would score well on a NOFA looking to ensure quality education rather than poor.

We're not looking to knock down schools if they're already functioning effectively or if there is -- there are opportunities available in that community. So this sounds to me like a question of making sure that if the program gets enacted that we'd work closely with you and the committee to ensure that it's written in a way that's flexible that meets local needs in the way that we attack it.

REP. PRICE: Thank you. I know my time's expired.

As to your first point, just very quickly, I understand the need to look to various sources to get the support we need. And, believe me, our housing advocates are very good at that. But I'm very wary of assuming that there's a ready substitute for the kind of comprehensive assistance that HOPE VI has offered. My experience has been that this is a unique program, and it's unique in many ways, and that we've really suffered from its decline. And so we want to deal with this backlog and address the needs that have been built up.

Thank you.

Thank you, Mr. Chairman.

REP. OLVER: Ms. Kaptur.

REP. MARCY KAPTUR (D-OH): Thank you, Mr. Chairman.

Welcome, Mr. Secretary.

SEC. DONOVAN: Thank you.

REP. KAPTUR: Great to have you here. I want to focus on a few areas in my questioning.

First is areas of our country enduring very high foreclosure rates that are not going down, but are rising, and I would ask your particular attention to meeting with members of Congress who represent these areas. Our foreclosure rate is now over 12 percent and rising in the Greater Toledo area, and I dare say I would I would guess Congresswoman Kilpatrick and perhaps others in the panel have the same problem.

Here are some of my recommendations: You use your considerable power in the administration to ascertain whether unemployment benefits that have been passed by this Congress can be used as income in calculating the mortgage agreement where we're trying to work out and help people save their homes at the local level. There is some problem, some would say, with the mortgage companies. The federal government sends them a stream of income every month. I would think that you might be able to do something about it. If we don't, we're going to get more foreclosures in areas that don't need any more foreclosures. That's number one.

Number two, I want to make you aware of a situation in the district that I represent where auction houses are now coming in, and they are buying off these properties at fire-sale prices before the local communities can even get in there and bid on their own behalf. There's a dysfunction between the arrival of HUD money and auctions that are ongoing.

I would ask you to draw your staff's attention to this problem. I can tell you in my community nearly 90 percent of the homes that have been sold were sold to outside investors. It's appalling. They don't take care of their property. And for what they're being sold for, we could have put the original owners back in those homes. There's something really wrong with Citigroup and JPMorgan and all these same characters who come in and end up owning property and the local communities can't even -- (inaudible).

So again, I ask for your perhaps meeting with Members of Congress. I'm sure Congressman Cardoza would be one of these people. There are many of us in this situation, and we cannot get a handle on what is happening at the local level. Our real estate communities are outraged, and none of what has passed up here is making all that much difference.

So I wanted to communicate that message to you.

Number three, in terms of the stimulus, I would urge you to look at the possibility of working with the director of FEMA. In communities like my own, we have had flash flooding and lots of difficulties with flooded houses and so forth, and there's a real possibility in places like Toledo and Fort Wayne to use this moment to look at FEMA's pre-hazard mitigation fund or of some of the HUD funds to begin acquiring properties that are in these areas, some of which are vacant, some of which are occupied.

We could rip them down, we could relocate people, we'd put money into the local economy, and we could take up some of the other extra housing stock that's around the community. It's a real opportunity right now, and -- but it would need some type of strike force on your part to go to those communities that have this type of profile. It would help us ease some money flow into our region using both your funds and the funds of FEMA.

The other point I would like to -- it's sort of a different subject -- relate to the proposal for university development in your -- I don't totally understand what that is, but it sounds pretty good. But I've -- I've noted in my community where we have dilapidating areas, we have people with no building skills. And the programs of the federal government in localities don't work very well to try to speed building skills in areas where we have significant housing needs.

The need for building skills is as great as the need for housing, and I would urge your attention to legislation that existed back in the '70s and '80s called Neighborhood Self-Help Development that HUD has authority to work with community development corporations, and they became the mechanism to access labor money, HUD money, local money, building -- (inaudible) -- really incredible things in those cases. Somebody -- (inaudible) -- die, and as a result, neighborhoods die.

Finally, I wanted to just mention something. Every year in a community like mine, a community of about 320,000 people in the biggest city, we get about four to six, $7 million of HUD money through CDBG. Meanwhile, every year, we get over $100 million in food stamps, and I really believe that food stamps are the largest source of economic development dollars for the community -- (inaudible).

It has been really hard to get public housing authorities to look at extra land that they own and properties adjacent to them and become part of really the city. I think (the president ?) has a real commitment to this, and I think what we could do there is unbelievable with new modern agriculture. Tom Vilsack really cares about this, and if you mention my name, he'll say urban agriculture. It can happen, and it's certainly happened in the Midwest where land is arable.

I know my time is up, but I just wanted to urge you to look at demonstration programs in places where HUD and USDA could cooperate to grow products that are desperately needed through local efforts and then to turn those efforts into food stamps redemption sites to begin to capture the dollars that people could earn through the sale of food, and some of your housing authorities could actually create -- (inaudible) -- capture those dollars on site. None of that is happening in regions like mine, and I think it's really needed to support the -- (inaudible).

I thank you very much for listening. I don't think I have any questions. If you want to respond, go right ahead.

SEC. DONOVAN: Well, let me respond to all those points. I think they're excellent points, and we will follow up on a number of them to get you more information on a few of them.

Just one thing that I -- two things I would say: first of all, that this issue of unemployment benefits where families are at risk of foreclosure is very important. One of the important pieces of our Making Home Affordable plan, which has really now been stood up and implemented -- and we're starting to see significant take-up. We've had now about 200,000 modification offers under the plan, including 40,000 alone last week. So we're really starting to see the scale ramp up.

And one of the critical things about that is it was intended to establish a standard modification process on many different issues, including on what can be considered income. And actually, in the plan, we have explicit guidance about using unemployment benefits as income for the plan.

So I would be happy to get you more information about that, but that is -- as the program takes hold, hopefully many of the less than satisfactory modifications that were happening before get replaced with modifications that use the standardized guidance and process that we established.

The other thing I would mention, in addition to the idea about FEMA is that we do right now have the Neighborhood Stabilization Program competition available, $2 billion to buy up foreclosed homes that can be used in a number of different ways, land banks and other things, and I would just encourage -- particularly communities like yours that have been hit by the foreclosure crisis to be looking carefully at that and hopefully coming in and applying for those funds in addition to discussion that we can have about FEMA.

REP. KAPTUR: Good answer.

Mr. Secretary, what can you do about these auction houses coming in and sort of ripping the local market apart as --

SEC. DONOVAN: Well, one of -- it's difficult for us at the federal level obviously to stop them from coming in and bidding --

REP. KAPTUR: It's the same boys. It's the same boys. JPMorgan, Citigroup, Wells Fargo. The same ones.

SEC. DONOVAN: Yeah.

REP. KAPTUR: They use Hudson and Marshall out of Texas and they're going right through our areas.

SEC. DONOVAN: Well, what we are -- one of the things that we're doing on that front is -- a real problem for many of the neighborhood groups, localities that want to be at those auctions and want to be able to compete for those properties, particularly using the Neighborhood Stabilization funds is a lack of information about what's happening with those properties.

So one of the things that we're doing through the Making Home Affordable Plan is all of those servicers that you talked about participate in the plan. We are now -- as of next month we will be able to access very detailed data about loans where modifications haven't been successful and are likely to be foreclosures, and what we're looking at doing is creating a centralized database where we can provide information very early on before it ever gets to foreclosure to localities, to community groups so that they can be prepared to come in and negotiate even a head of a foreclosure sale or to be prepared to go and bid earlier than they are.

That's at least one aspect that we've been working on. There are others that we can do to go after some of the speculators who have not been -- whether it's committing fraud or doing other things, that are really problematic in some of the communities.

REP. KAPTUR: Okay.

REP. OLVER: We're going to try do some more here. I'm not sure exactly when the votes will be, but I'm told within a half an hour or so, so we'll try to get through another round.

I'm going to cover some things rather quickly. I just want to comment to Ms. Kaptur, because she may not be able to have a second round. She has pointed out that the big boys that were a part of the creation of the problem in the first place are in there at the base of those auctions and they have all the information, but the people who might be at the communities to know when -- or to create the auctions in the first place, they are not in as good a position to get the information.

So they're really at a competitive disadvantage, plus the fact that the Neighborhood Stabilization monies came rather late in the process in getting out. So, yeah, they have a problem.

I notice -- this is -- it's quite a different thing. In -- one sentence in your testimony you mention the University Community Fund and then the Rural Innovation Fund and leaving a few words out, "for addressing the problems in distressed neighborhoods and rural communities."

Well, the Rural Innovation Fund for rural communities. The University Community Fund sounds like distressed neighborhoods. My guess is the graduate students at those universities would agree that they were probably being housed in distressed communities.

To go back to the Choice Neighborhoods and the relationship to HOPE VI, I had commented at the beginning, where two others have now reiterated, that one can't move on to a new concept without realizing that there's a lot of the old concept that still hasn't gotten where -- where it ought to be. And there are several things that come to mind in that.

I think there is a great need for technical assistance when you're working with any of those communities and we have -- on HOPE VI we have a number of projects which have barely gotten -- either not or barely gotten off the ground within a five year period. There has to be some -- either reason for some lack of technical assistance, or there is some disconnect in the choice -- in the original competition process as to who has the capacity and who has the will to get things like that done.

We have a number of projects, unlike what Mr. Price had mentioned, where they've had such good experience. Some communities have had exceptionally good experience with it and some others just can't seem to get off the ground after they've been awarded. That's number one.

And then on the question of Choice Neighborhoods, it is a difficult question, because we have had authorized HOPE VI Program which has been under funded deeply for quite a number of years and there are lots of large communities, but also a lot of medium sized communities.

Ms. Kaptur's communities -- community of 300,000 was -- that census is down, but it is a perfect community to be having a HOPE VI Program. They've never had one. There are a lot of communities in the 500,000 down to even those in the 50 to 100,000 range that have never been in such a thing and they need to be considered and allowed to come into it.

So there is all of those going on, and in final comment I guess here because I must be -- yes, I'm going to be on red in just a moment. Final comment on this one is that we had an authorization that passed the House of Representatives for an extension of HOPE VI last year with about 750 or $800 million allowed for it as the authorizing number per year -- intended per year. It never was taken up by the Senate.

Our side is thinking about doing another authorization for HOPE VI. They are -- they have particular angst about -- because they had done an authorization and might be inclined to do essentially the same thing again, and you better get talking with your authorizers because there is angst about this Choice Program -- Choice Neighborhoods Program there.

Though you -- your comment about recognizing that there's three- quarters of the need remains in communities where there is public housing and maybe a quarter it's -- I'm not sure that you're specifically saying that there may be distressed housing in the HUD assisted group that's at the proportion of one to three in the public housing remainder. That's a reason for having demonstrations.

Do you want to comment?

SEC. DONOVAN: Sure. I want reiterate very, very clearly that I believe strongly HOPE VI is an outstanding program and one of the things we're trying to do with Choice Neighborhoods is expand the funding available to exactly those types of developments, and I have heard consistently from housing authorities that the ability to include privately owned housing other forms of housing as part of HOPE VI developments would be -- would really help to transform those neighborhoods even further than the existing programs do, because there are times where you can rebuild the public housing, but if they're foreclosed homes or other abandoned housing nearby, you simply don't have the same kind of impact.

So this would give public housing authorities doing HOPE VI type developments or wanting to do HOPE VI developments broader opportunity to expand what they're doing. You may be arguing that $250 million isn't enough. That's something if you believe there ought to be more funding for a program like this to expand the opportunity, I'd be happy to talk about that, but fundamentally, I am concerned that we not -- I've heard from many, many mayors that HOPE VI has been terrific.

They have an assisted housing program that is as bad a blight on communities as HOPE VI. It's not as many but where there is one, it has been devastating and I have seen them very personally myself. So I believe that we need to take the opportunity to learn from the success of HOPE VI and to be able to take on new efforts. I don't think it's an either or. And I'm concerned that the committee seems to be seeing this as an either or choice.

I don't think it's an either or choice. We need to expand the funding available to HOPE VI type redevelopments, and we need to expand those lessons to other types of housing that have the same kind of negative impacts on communities, and I believe strongly that we can find a way to do that to assure that we expand the amount of public housing that gets redeveloped as well as to expand those lessons to other kinds of housing.

REP. OLVER: Well, I thought I was giving you a chance to knock the Transformation Initiative out of the ballpark.

But Mr. Latham.

Thank you. Thank you very much.

REP. TOM LATHAM (R-IA): Thank you, Mr. Chairman.

I saw recently there's an announcement about livability grants and which I think is interesting. Just for the record would you define what livability is and tell me where these grants are going and what's supposed to be done with these grants, and I think for the committee's sake, what funds are you using for these grants? There's no line for livability grants.

SEC. DONOVAN: These grants are actually not HUD grants, if I understand correctly the announcements that you're -- you are talking about. They are not HUD funded grants. We are proposing in the budget Sustainable Communities Initiative that would --

REP. LATHAM: Well, where is this coming from?

SEC. DONOVAN: I believe that the ones you are talking about come from the Department of Agriculture, but I'm not sure. I would have to -- if you could get me more information --

REP. LATHAM: Okay.

SEC. DONOVAN: -- specifically about the ones that you're thinking about. I believe they're Department of Agriculture, but I'm not 100 percent --

REP. LATHAM: Yeah.

SEC. DONOVAN: -- sure about that.

REP. LATHAM: And sometimes it gives the appearance that the administration is kind of working in cross-purposes. We're promoting the notion of livability -- of people living close together and near proximity. Being from Iowa and coming from a big town of 168 people, I wouldn't consider that to be livability. I like the open spaces. I live in the suburbs a mile outside of town there, but --

And on the other hand we have -- in the stimulus package there's a huge investment as far as extending Internet out and technology, you know, broadband, out into the most rural areas all over the country, which obviously I am supportive of that, but it would seem somewhat in cross purposes where we're talking about having these clusters and then we're also talking about having more people live out farther away or be able to live out farther away.

I don't know. Who wins the battle here? Are we just throwing money at both and seeing which one can come out on top?

SEC. DONOVAN: I guess, Congressman, I would -- I see it differently.

REP. LATHAM: Okay.

SEC. DONOVAN: What Livable Communities is about is providing more choices for people in terms of how they get to work, how they get to shopping, how they live their lives. Right now, you know, I think folks are voting with their feet frankly in saying, "we don't want to be spending hours and hours in traffic in cars. We want to be home with our kids. We want to have a better quality of life."

And so we are both in urban areas, suburban areas, rural areas, the livability partnership that we've established including -- I was talking to Secretary Vilsack about this yesterday -- is creating more options for people in all those different areas. We're not looking to tell people where they should live. The opposite. We're trying to make sure that whether it's in rural areas through access to broadband or other things that they have more choices.

Just to give you an example of that, as you know Secretary Vilsack is from Iowa as well, and one of the big issues facing many towns of 1000 people or 5000 people is vacant stores in those towns with vacant units up above, and we were talking about the opportunity to provide more retail and maybe even to provide senior housing in places where without getting in a car because often seniors can't drive, being able to get access to the pharmacy, to a grocery store right there within the town.

So there -- I think there are lots of things we can do through this agenda to provide more choices, and frankly, the federal government has often been in the way, and I think a big part of this is getting out of the way of allowing people to make those choices and local communities to develop in the way that they want.

REP. LATHAM: Well, I'm keenly aware. I've got a 92 year old mother that lives in this town of 168 people, and she has got to drive 10 miles to get a gallon of milk or a gallon of gasoline. There's, you know, virtually no stores. You don't want to be on the road when she's going to the grocery store. God bless her. I love her.

But do you think sometimes -- you know, what -- in a town like that, what's HUD's role? We just passed a bill yesterday in the Ag Appropriations where $3 billion through USDA for grants, 18 billion lending through rural development yesterday.

Does HUD need to be in Alexander, Iowa along with USDA?

SEC. DONOVAN: Well, not only do we need to be, we already are. We fund through our range of programs tens of thousands of rural housing units and others. Let me just give you --

REP. LATHAM: (Inaudible) -- go through USDA?

SEC. DONOVAN: Excuse me?

REP. LATHAM: As far as handling those, often goes through USDA?

SEC. DONOVAN: We often provide subsidies to be available to them.

REP. LATHAM: Right.

SEC. DONOVAN: But let me just give you an example. We have a Senior Housing Program, which because of a number of restrictions in that program tends to support new construction in un-green field sites (sic), whether it's environmental restrictions and other things. Exactly the examples I just used.

For a senior living where they have to drive 10 miles to get to something, maybe the answer is the Department of Transportation providing more options for vans or other kinds of transit that would support those seniors being able to have a better quality of life. That might be a transportation answer.

On the housing side, the answer might be to change our Senior Housing Program so that we could redevelop the second floors of those buildings in the town that can walk to those services or have them, you know, readily accessible with a service coordinator or other folks.

So really this is about providing options that will improve the quality of life, not just through transit options like I talked about, but as well as making sure our programs don't stand in the way of towns like the ones we are talking about being able to develop in ways that support the residents with a good quality of life.

That -- it's a simple example, but that's the kind of thing we are looking at to try to get all the barriers in our programs out of the way of this Sustainable Community Agenda.

REP. LATHAM: Thank you, Mr. Chairman.

REP. OLVER: (Off mike.) Thank you.

We have not had votes called, but if we could do three minutes with the remaining five people can -- can have their time before --

Mr. Pastor.

REP. ED PASTOR (D-AZ): Mr. Secretary, I will make the offer at your convenience, I'd like to sit with you and just give you a history of HOPE VI at this side so that maybe you might understand. It's not either or, but it's some of the encounters you're going to have both in Congress and what is causing probably some of doubt.

You're starting another program initiative, which I hope you have a great success, but in this committee we have -- we don't legislate on an appropriation bill, and many of your initiatives are going to have to be authorized and that's our relentness (sic), but let me ask the question.

How do you justify taking funding in the coming fiscal year from programs that are solely needed in this economy to fund longer-term priorities? Why do you decide on this particular structure to transfer authority rather than putting more money into the Working Capital Fund or into the Policy Development and Research Offices, and this deals with your Transformation Initiative?

SEC. DONOVAN: Two things I would say about that. The Working Capital Fund, I think it's clear based on the systems that we had -- and Working Capital Fund funds are information technology development and maintenance, that there has not been the kind of investment that would be necessary to make HUD an effective, efficient agency, whether it's not having effective systems to count and provide to this committee what we're spending on Section 8 and what will be needed in the following years and in a range of other areas. We simply haven't invested in technology.

And that technology, frankly, can ultimately lead to more people being served in our programs, because today without the kind of information technology, without the research to know what's working, it's been very difficult for us to make sure that our programs are effective and efficient as possible.

So I believe that the Transformation Initiative, which would give us the ability to expand funding for technology for research is intimately linked to the department being more effective and ultimately being able to serve more people with the same amount of money. Right now, because we haven't been able to invest in that technology, whether it's on Section 8, whether it's in the FHA programs, I think frankly we waste money that should go directly to people with real needs on the ground.

So I see it particularly as a time of great economic need in this country than an effective, efficient HUD will only go to greater support for the fundamental mission of the agency, and that's why this Transformation Initiative, which would increase the amount of money we have in addition to Working Capital Fund for systems is so important.

The Working Capital Fund in our proposal would fund the maintenance of existing systems and then we could use the Transformation Initiative to fund new development of technology at the agency.

REP. PASTOR: Thank you.

REP. OLVER: Mr. Carter, three minutes.

REP JOHN R. CARTER (R-TX): Thank you, Mr. Chairman.

This subcommittee recently spoke with Secretary of HUD regarding the Livable Communities Initiative between DOT and HUD. I will direct the same question to you that I asked him. Currently the EPA gets $50 million for Smart Growth Programs.

Is this federal money duplicative of your efforts? If not, where are the lines drawn regarding responsibility for these efforts? Which agency, DOT or HUD, is leading the effort?

SEC. DONOVAN: We have formed a working group with the Department of Transportation and EPA to work jointly on these issues, because the fact is that ultimately we can't be successful in this initiative if we don't have EPA programs, transportation programs, and housing programs all working together rather than across purposes.

EPA specifically has responsibility for issues like water quality, brown fields, a range of issues that are critical to the Sustainable Communities Initiative. HUD has responsibility -- lead responsibility for housing, and Transportation obviously has lead responsibility for Transportation, so I don't think these efforts are duplicative in any way.

This is about getting out of the old way of operating just in silos where we don't communicate, where we don't -- where we work at cross purposes to each other to make sure that we're coordinating the transportation investments that they are making - that Transportation is making; the housing investments that HUD is making, with the kind of brown fields and water quality investments that EPA is making.

So we're not taking each other's responsibility. I think it's clear who has lead responsibility in each of these areas. What we're doing with this initiative is trying make those --make sure those are coordinated in ways that they don't work against each other in the future.

REP. CARTER: So if you -- you're working tandem is what you are saying?

SEC. DONOVAN: Absolutely.

REP. OLVER: (Off mike.) Thank you.

Mr. Rodriguez, three minutes.

REP. CIRO RODRIGUEZ (D-TX): Yeah, real quickly on -- following up on Congressman Pastor's comment regarding Transformation. In terms of your plans, how are you going to prioritize that? Is it going to be a pilot program or what in specific areas, and have you figured that one out?

SEC. DONOVAN: Yeah.

REP. RODRIGUEZ: Are you going to be looking at that?

SEC. DONOVAN: We have begun to develop detailed information about the efforts that we would pursue under the Transformation Initiative under systems, very specifically improving FAA systems will be a very high priority, as well as improving our Section 8 systems. Again, HUD has not been able to provide to this committee in the past adequate transparency and information about the voucher programs and that would be a very high priority.

We'd be happy to share greater detail with the committee about what we have proposed. We would also propose that there be a very strong accountability that we have on these funds for posing plans for your approval and feedback and any changes reported to the committee during the year in terms of how those funds will be used.

REP. RODRIGUEZ: Are you still flexible in some of those areas. I know that -- you know, they've asked me to ask you specifically on the -- if there's any compromise between the complete flexibility that one percent transfer authority or no flexibility without the initiatives? Is there a middle ground that can be reached, or you know?

SEC. DONOVAN: Absolutely, and we've already begun some of those discussions with the staff, and I think we're very happy to meet your needs in terms of specificity and reporting around it.

Let me just give you an example of the kind of thing we're trying to get. FHA -- given the economic crisis that we're facing and the mortgage crisis, FHA's volume expanded dramatically quite quickly, and yet FHA didn't have the flexibility to be able to go out and buy fraud systems that would have help us effectively limit the fraud in the FHA program. So there are examples, and I'd be happy to share others, where not having this kind of flexibility I believe has stood in the way of us using taxpayer resources as wisely and effectively as we possibly can, but I do think there are ways that we can give you the kind of assurance that you need to ensure that this funding is being spent well and the kind of specificity in advance that you're looking for.

REP. RODRIGUEZ: Thank you.

Let me quickly before -- I know Congressman Carter talked about the importance of home ownership and there are some programs there where people participate and provide for example the lot and provide the -- some of the work that's done to it to build those homes.

I would ask that you kind of look at that, especially some of the rural communities and urban areas that have empty lots and where people own their -- the lot but might not have the property, because that is a key point of --

REP. OLVER: Thank you, Mr. Rodriguez.

REP. RODRIGUEZ: Thank you.

REP. OLVER: Ms. Roybal-Allard, we have -- there's still 364 people who have not yet voted, so I think we can get two more threes in here.

Go ahead.

REP. LUCILLE ROYBAL-ALLARD (D-CA): Okay.

Mr. Secretary, the housing opportunities for persons with AIDS, known as the HOPWA (sic) Program, as successfully allowed about 91 percent of clients to achieve housing stability and has to a large extent has been instrumental to end homelessness among persons with HIV/AIDS.

In light of the success of this program, it was disappointing to see that the administration has proposed flat funding for HOPWA and since this flat funding, as I understand it, is expected not only to serve the 131 existing city and state programs but also to serve any new jurisdictions that become eligible this year. This level funding is essentially a cut to the program, and I'd like to know what the rationale is for essentially cutting this very important and very successful program.

SEC. DONOVAN: First of all, I would say that, you know, given the set of choices that we had and overall the growing deficit that we have, we felt that -- and HOPWA was not alone. There were many programs -- in fact most programs in the budget that we've proposed flat funding for. So HOPWA was not singled out in any way relative to other programs that also have significant needs, but we had to make choices in the budget and we did that given the overall budget environment.

I would also say with HOPWA, having worked closely with the program in my prior job, I know the effectiveness that it can have. I also believe that we've made significant progress under HOPWA and have not seen the kind of enormous growth caused by the economic crisis, for example, around family homelessness and other types of funding that were particularly needed during the economic crisis. We didn't see the same kind of growth and needs around the HOPWA program that we saw in other programs, and that's really what led to our decision.

REP. ROYBAL-ALLARD: But the problem is that it's going to undue much of the progress that has already be made, and we can provide you with information showing that. In fact, there is a growing need for this program and the fact that it is not only flat funded but expected to deal with any additional new jurisdictions, that it is going to have a very negative impact on this population.

SEC. DONOVAN: I'd be happy to look at that information.

REP. OLVER: (Off mike.) Thank you --

REP. ROYBAL-ALLARD: Thank you, Mr. Chairman, and thank you for your interest on many levels.

Thank you.

Mr. Secretary, very quickly would you be willing to serve as a convener among a meeting that would involve J.P. Morgan, Chase, Bank of America, HSBC, Wachovia, Wells Fargo, major foreclosers and servicers and members of congress who come from districts where these firms are still reeking havoc?

SEC. DONOVAN: I'd be happy to do that.

REP. ROYBAL-ALLARD: I would hope that we could bring our mayors to bat. I would urge you to look at districts that have over 10 percent foreclosure rates as a start. I know Congressman Cardoza and I are very, very of like mind on this, though we represent very different districts.

FHA is very important to these companies. So is Freddie and Fannie. And I think you have a unique position where we can have a direct dialog. There are serious questions to be addressed at such a convening.

Thank you.

If I were to ask for information -- and this will be my last request very quickly.

If I were to ask HUD in historical order to provide a list of the first financial companies to invent and to promote the sub prime mortgage instrument and then to securitize it, could your staff do it?

SEC. DONOVAN: Let me find out for you.

REP. ROYBAL-ALLARD: All right. And also does your staff have the ability to take a look at Freddie Mac and Fannie Mae between the years of 1995 and 2005 and address the issue of what happened to the risk standards and the risk evaluations of the mortgage instrument that allowed the crisis to occur?

Do you have the ability to look at what was done as they changed their risk standards, particularly between 1999 and 2002?

SEC. DONOVAN: We recently did put together a report on the history and the causes of the sub prime crisis that included some information there. We'd be happy to provide that to you. If that's not sufficient, we can certainly try to get you more information than that on this issue.

REP. ROYBAL-ALLARD: I thank you very, very much.

Thanks, Mr. Chairman.

REP. OLVER: (Off mike.) Thank you very much.

Thank you very much for your testimony. It was very helpful to us and I think very informative for all the members who were here.

SEC. DONOVAN: Thank you.

REP. OLVER: Thank you, Mr. Secretary, and the hearing will be closed.


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