universal service fund should not be an excuse to grow the fund it is our obligation to make sure money is spent wisely without breaking a the bank. and we will begin the process by believe the broadband plan to focus on public safety is long overdue. the need for interoperability was highlighted in the ninth taste and 11 report and devastated after hurricane it three negative and hurricane katrina and but it can help us to move forward in a timely and comprehensive manner which the first responders deserving and public safety should be a top priority for this commission and i look forward to helping us achieve that threat by know that much of the plan is dedicated to ensuring broadband connectivity to me statutory the enumerated

national purposes from education and health care to energy policy. in each of these critical areas broadband can be an enabling technology and i hope the efforts will prove seeking to work with the fcc to harness the power of broadband for the nation and consumers brass we consider the plan's recommendations our broadband policies to refocus on its efforts directly tied to promoting adoption to climate and facilities based competition and build upon the strong regulatory foundation we have before us punishing private investment and encouraging inventors to drive broadband to more people whoever they are and wherever they live. . . hud,

shawn donovan, this is just getting under way. live coverage here on c-span 3. >> and the number of homeless americans is growing. hud programs respond to challenges across the spectrum of this crisis from stabilizing the housing market to providing assistance to the nation's most vulnerable. this subcommittee's job is to

provide the oversight and resources to make sure that hud can effectively fulfill its response ilts. at the same time, we must also continue to make investments that will strengthen our economy, create jobs and support our communities, both large and small. just over a year ago, we passed the american recovery and reinvestment act, making key investments in public housing, community development and affordable housing to help those in need weather the crisis. i commend hud for getting this funding out the door quickly. and today we can see it making a difference in our communities. improving housing, creating new housing and putting people to work. i've seen these dollars at work in my own state. for example, the vancouver, washington housing authority is using $2.5 million in public housing, capital funds, to support construction and rehabilitation of housing. the jobs created from these projects are critical to clark county, where unemployment has now topped 14%.

in yakima, washington, where for years we've struggled to provide affordable and adequate housing to local workers, recovery funds have gone to renovation efforts, that have improved the lives of families, many with children, who live well below the poverty line. but as this funding goes to work and as our economy moves towards recovery. we must focus on stabilizing the housing market. as we all know, for most americans, the family home is their largest investment. and an asset that provides them with a roof over their heads, and financial security. this security gives americans the confidence to spend and invest. and plan for the future. stabilizing and improving the housing market is critical to the nation's economic recovery. and the federal housing administration has played a vital role in this effort. when the private sector became skittish about mortgage lending and credit froze, fha stepped in to make sure that americans could still get a mortgage and this has helped stabilize the

market. that's exactly what fha was created to do. but taking on this increased role comes with risks of its own. fha has gone from insuring only 2% of the market in 2006, to nearly 30% today. this dramatic increase in business requires sufficient staff and the technical capacity to protect fha from risk and fraud. even as fha's new business grows, it must also continue to manage loans that were made during the height of the housing boom. unfortunately, fha is not immune from the wave of foreclosures devastating the housing market. these losses have taken their toll on fha's finances. this fall, fha's capital reserve fund fell below the mandatory 2% required by congress. while this does not mean that fha requires federal relief, it is a cause for concern. for each of these last three years, senator bond and i have held hearings on fha to focus attention on the solvency of its

mutual mortgage insurance fund. the recent losses to the capital reserve fund have now brought this issue into focus for others for the first time. fha must continue to seek ways to strengthen the position of its capital reserve fund to insure taxpayers will not be left on the hook to pay for risky or fraudulent mortgages. mr. secretary, i commend you and fha commissioner stevens for moving swiftly to assess fha's risks and to implement reforms to reduce its exposure and recapitalize the reserve fund. these changes both protect the american taxpayer and insure fha can continue to provide needed liquidity in the market. some of the reforms proposed require a legislative change. one of these would allow hud to increase annual premiums on fha mortgage insurance and is included as part of the budget. i will have questions today on this change and specifically how it would protect fha from future losses. now, despite some positive signs in the housing market, the

crisis we face is not over. and for the more than 2.8 million americans facing foreclosure, positive national trends offer little comfort. so while i am encouraged today by reports that foreclosure filings appear to be slowing and washington state fell 13% from this time last year, there are still many people at risk of foreclosure. areas in washington state continue to experience severe declines in home values and nearly a quarter of a million washington state home owners are under water today. so for families living in clark and pierce county, washington, who want to know how the federal government can help hold on to their homes and regain economic security. providing help isn't easy and we don't want to reward borrowers that took on mortgages that they couldn't afford. by while so many of the early foreclosures resulted from subprime and other exotic mortgages, many of the home owners today are in trouble are those that are impacted by the recession. these are unemployed home owners

and those who owe more on their mortgage than the home is worth because of the plummeting home values. several efforts have been launched to help struggling home owners, including the home affordable modification program. but servicers have been slow to provide permanent modifications. to date, only 116,000 home owners have received permanent modifications, which is far short of the administration's goal of three million to four million. the president recently announced a new program to help five states that have been particularly hit hard by this crisis. while this initiative does attempt to address the problems of unemployed and underwater borrowers, its geographic restrictions will limit the impact on the overall market, including other parts of the country, like washington state's clark and pierce counties. your testimony today mentions other ways that we might assist struggling home owners. so today i want to discuss how we can improve current programs and what other steps may be taken to protect families from foreclosu

foreclosure. hud has a broad and important mission, the president's budgets requests more than $48 billion in fist cam year 2011 in recognition of the role the department plays in supporting housing, especially for some of the most vulnerable in our society. this funding would maintain critical rental assistance to help millions of low-income americans who rely on section eight vouchers or who live in public-based on private housing. the president budgets funding initiatives started in 2010 rks such as sustainable communities in choice neighborhoods. and the budget proposes new initiatives, cats littic grants and vouchers for homeless individuals and families. the largest proposal is the $350 million, transforming rental assistance initiative. this proposal seeks to address the capital needs of public and hud-assisted housing by fundamentally changing the way the housing is funded, the administration hopes to leverage significant private-sector

resources to preserve this irreplaceable stock of affordable housing. however, the budget offers few details on the changes hud would make or in the long-term costs. while the concept may have merit, this subcommittee does not take its responsibilities lightly. we require more information if we're to give the proposal serious consideration. so i want to have a discussion about the long-term plan for this and the cost of this initiative. now mr. secretary, among the promising reforms included in the budget, there are several drastic cuts to important programs. you and i have talked about, including the housing for the elderly and disabled. hud justifies these cuts by citing program deficiencies. if these programs aren't working effectively, let's fix them. but the president's budget doesn't propose any changes. instead it brings the programs to a halt with the promise to just fix them later. i'm also concerned by other cuts proposed in this budget to programs like the native american housing block grants and the highly successful home

program. while the president's budget made some difficult choices in order to freeze discretionary spending, this subcommittee may well be forced to consider even further reductions. the president's budget assumed receipts from fha totaling $5.8 billion. these receipts would offset some of the spending included in the hud's budget for next year. last friday congress received the congressional budget office's reestimate of the president's budget. as a result of continued uncertainty about the housing market, cbo concluded the budget would only generate $1.8 billion in offsetting fha receipts. that means there could be potentially a shortfall of $4 billion just to pay for the program increases proposed in the president's budget. that is a staggering amount giving the housing needs of this country. the subcommittee is going to face a very difficult task to provide resources to this department so that it can continue the programs that serve

so many american ace cross the country. from homeless veterans, to first-time home owners, to families that need help accessing affordable housing. secretary donovan, you have worked very hard to improve hud's programs and i hope you can offer us suggestions on how to tackle the complex housing and community development needs that are facing this nation with limited resources. so thank you so much for being at this hearing today. i look forward to your testimony in just a few minutes. but before we have that, i want to turn it over to my partner and ranking member, senator bond. >> thank you very much, madam chair and thank you for holding the important hearing. we are always pleased to welcome our distinguished secretary of housing and urban development, secretary donovan, who is passionate about housing and community development. he's been working hard and we make the department a task that is herculean, to say the least. we wish him well on his efforts.

but we do have some questions. as the chair has outlined. now it's no surprise to anyone here that there are significant deficit issues facing the entire federal government, making an already-bad situation worse. the congressional budget office reestimatesed that the president's budgets would add $8.5 trillion to the national debt by 2020, with a dwef sit of $1.5 billion in this fiscal year, and another $1.3 billion in 2011. cbo projects the national debt will balloon to some 90% of the economy by 2020, while interest payments on the debt will soar by $8 00 billion over the same period. but that's only if the interest rates stay the same. and no one i know who is versed in finance or economics generally will, will propose that interest rates will not rise significantly when lenders see the deficit spending and the

tremendous debt we've built up. in other words, we are facing a drowning in debt with interest rates skyrocketing and adding to an increasingly high debt spiral. i do not believe as some in the administration do, that making the federal government larger is the swlugs to fixing our economic woes. nevertheless, we're in an unprecedented budget crisis, which is domestic and global in nature, something we've never faced in my career in government service. and as you know, many of the decisions make on the budget and appropriations will be critical to the future economic health of the nation that includes finding the right balance of spending in hud with regard to both hud's current programs, as well as a dramatic new proposals contained in the hud 2011 budget request. i believe a number of your hud policy and reform initiatives are bold and thoughtful, but i'm very concerned about the cost of these initiatives in both the

2011 budget, as well as the potential huge cost in the out years. for the hud budget, this is a particular concern, since we recently received word, as the chair has noted, that there will be a loss of some $4 billion in fha receipts, the $4 billion hit will make fundingle of the hud initiatives even more difficult in 2011 and possibly limit the funding for this subcommittee's other priorities like transportation and frumt project proimt projects. i've long warned about the fha and the potential consequences to the budget of the department, the appropriations available for this committee. and the impocket on our national economy. we need to be asking tough questions. like where's the money for new programs going to come from? the president is serious about promising fiscal restraint. he has to quit treating taxpayer dollars like monopoly monday any. our children and grandchildren are going to have to pay in the

future for every extra dollar we borrow and spend. and that's not something i want to be able to tell them. while hud is proposing to create or expand new and existing programs at great cost to the taxpayer, the department is also proposing to eliminate and cut funding for a number of important and proven programs that serve our most vulnerable populations like seniors, the disabled, as has been mentioned by the chair. and homeless veterans, something which she and i have led the battle to fund. and we're, to say that we're not pleased by the budget recommendations, i would say at least from my part, is a huge understatement. cuts to these programs, like section 202, elderly housing, the 811 housing program for persons with disabilities, and the capacity building funding for lisk and enterprise, will make more difficult for low-income seniors or disabled

americans to find safe and affordable housing. of all the capacity-building enterprises i've seen lisk enterprise seems to be working and i think they should be the model. and i think they should continue to have the resources they need and not be, not have the funds distributed over a wider area where they do not have the same skills and abilities. the hud staff has claimed these programs, all of these programs will receive funding once needed reforms are made. it seems much more likely that the nonprofits will begin to lose their experts during a zero-funding year. a brain drain that will only get worse if there's not a significant infusion of new funds. and the very near future. funding in future years will likely be marginal at best, with hud and the administration arguing that 202 and 811 will be unneeded once transforming rental assistance or the tra

program is fully funded. including provisions targeted to the elderly or disabled. also i was disappointed to see the administration wants to eliminate a $25 million rural housing fund. something i fought with senator harkin for many years. the small program offers a unique opportunity for hud's housing and community development programs to partner with rural development at usda. it's a mistake for the administration to ignore the housing needs in our rural communities. everybody knows the housing programs city, because people see them all the time. i live in the rural areas, i see them, i travel to rural areas and i know the need is great. and this budget does not recognize it. and in addition to the dollars and cents, rural versus urban questions, i have overall concerns about the proposal we've received from hud. not to keep using a tired old analogy, but the proposal i received from the department of

transportation and the budget group blue brint has left me feeling a little bit like bill murray in "groundhog day." in other words the budget blueprint asks for congress to write a big check, fails to provide details in the programs we're supposed to fund. i've been there, i've seen that before. i've done that. and at least bill murray got smarter in "groundhog day" and i don't see any of us getting ' delines in

place. you ma i have good, you may have good ideas, we may even like those good ideas, we may propose them and they may not come out on the other end of the sausage factory. so i for one have real concerns about potential intended consequence of the tra that could impact low income families, assisted public housing, or other low income housing programs. broader language will not do the trick since there is widespread risk of abuse and a great danger of the lack of transparency. and a program where i need to see some details and congress and our constituents, the taxpayers deserve answers on choice neighborhoods. we have discussed choice neighborhoods many times. and you know that i like to claim some credit for hope 6.

and this $250 million program is replacing hope 6 as the next evolution of affordable housing and revitalizing distressed communities. and if we can make it better, that's always good. i'm willing to do that. but in particular, choice neighborhoods propose toss transfer and merge into its account for 11 all remaining hope 6 funding despite having account language that is very broad, which has no metrics for measuring success or for understanding the grant-making and implementation process. while choice neighborhoods appears to be a much more ambitious program than hope 6, we need more information to understand the evolution from hope 6 to choice neighborhoods. i was there at the beginning when hope 6 was a mere idea. until it became a major program, ultimately going beyond housing and transforming entire communities. and personally know how

important hope 6 has been to communities across the nation. some of our great successes have been in hope 6. and that's why i don't want to waste the successes of hope 6 on choice neighborhoods unless and until we see it is truly viable successor to hope 6. i want to ensure this new program is designed and implemented in a manner that will grow our low income communities beyond the greatest potential of hope 6. you have assured me that will happen. i believe you said that in good faith. but it's time that we got to work on the details. in addition to specific program concerns, i remain very concerned, as the chair has indicated, about the future of fha mortgage insurance. mr. secretary, you inherited the fha problems. to your credit, you have acknowledged them. you have taken a number of important steps to address them. there are a number of new reforms to put insurance on a

solid footing.. proposed forums include an increase to annual premiums, credit related fix, which would allow creditors with a fico store of 580 and above to make a 3.5% down payment with borrowers between 500 and 580 would be required to make a minimum down payment of 10%. borrowers with fico scores below 500 would be ineligible for fha insurance. but before we put somebody in housing, try to get them into owning housing, we need to make sure that they can afford to pay it. when they can't afford to pay it, they don't have the means to make the payments, then the american dreams becomes the american nightmare. their communities suffer and we have seen the tremendous hardship and harm that a whole raft of those mortgages gone bad have caused our entire economy

and the world's economy. on the forums are important, fha still faces many challenges. i remained fha is a powder that could explode leaving taxpayers on the hook for yet another bailout. when we look at the numbers, just as recently as '07, fha accounted for less than 4% of housing and now as the chair indicates, dominates the market with a share between 30% and 60%, including refinances. this puts fha smack in the middle of the housing crisis, and i want to be sure that fha is dealing with it despite the obvious staffing and expertise shortfall. i want to know how hud is dealing with mortgage default mitigation problems, especially in the light of proposed new fha reforms. how these reforms impact homeowners with a mortgage default crisis seeking help from fha. mortgage defaults become primarily of fannie mae and

freddie mac program, or is hud imposing alternative relief. while i expect to raise many fha issues in a budgeting hearing later this month, understanding the foundation of current fha requirements now would be useful. the last point i make is most important. that's transparency for taxpayers, as we have discussed briefly. i discussed at the hearing fort department of transportation on its budget for the coming year last week. i'm still waiting for real transparency in the current administration grant-making process. congress has a role and a responsibility, not only in authorizing and appropriating federal funds but also in insuring the funds are awarded according to objective and understandable criteria, including clear benchmarks to measure success. this was a particular problem for me and others when hud awarded some $2 billion in competitive neighborhood stabilization programs under the stimulus bill. i have yet to receive, and i

look forward to getting an understanding, how hud cherry picked the winners. we saw a lot of -- found out later about a lot of good projects which failed, and we want to know how the winners were chosen. where is the promise of transparency in the hud grant process? it's critical that the process be transparent, both congress and constituents and those seeking the dollars know how the taxpayer dollars are being allocated. in fact, i think the process should be no less transparent than the current requirements for congressional decision-making. been a lot of criticism in congress. we've cleaned up our act. we make it transparent. the process by which grant making decisions are made in the administration should be posted on the internet for every taxpayer, every potential applicant to see, to understand so the community leaders and local people won't be coming to us saying, what happened, where is it going, why is it going

there. cost shares and leveraging of funds also should be made available. information should be on the internet so they and we have access to information about other sources of federal, state or private funds that may be used to augment grant awards. in particular, we in congress expect to be notified of award decisions three days prior to hud announce.s with backup materials and information on the methodology of the award selections, including how these awards meet our housing and community development goals. it's critical that the nation, congress and the administration fully understand the process and decision-making of how the billions of federal housing and community dollars are spent. mr. secretary, i thank you very much. and i look forward to our testimony. >> thank you very much, senator bond. i will turn it over to the secretary for his testimony. and just to forewarn you, both senator bond and i also have to go to an energy and water hearing for a short amount of

time. we may be changing the gavel back and forth and in and out. we will both be very attentive to both your written statement and we both have a number of questions. so with that, i will turn it over to you, mr. secretary. >> madam chair woman, ranking member bond and members of the subcommittee, thank you for the opportunity to testify regarding fiscal year 2011 budget for the department of housing and urban development, investing in people and places. i appear before you to discuss this budget in a far different environment than that of a year ago when our economy was hemorrhaging over 700,000 jobs each month, housing prices were in freefall, and economic warned that a second-grade depression was a real possibility. today, though there are still a long way to go, it is clear that our housing market has made significant progress towards stability. what that's meant to middle-class families is clear. first, security. as a result of stabilizing home prices and lower financing costs, by the end of september,

home equity had increased by over $900 billion, $12,000 on average for the nation's 78 million homeowners. second, confidence. though it's still fragile, home owner equity is key to consumer confidence into bringing new borrowers back into the market, helping the economy grow at the fastest rate in six years and creating jobs. third, money in family's pockets. mortgage rates which have been near historic lows in the past ten months, have spurred a refinancing boom that has helped nearly 4 million borrowers save an average of $1,500 per year, pumping $7 billion annually into local economies and businesses, generating additional revenues for our nation's communities, and benefiting our economy more broadly. the federal housing administration has been essential to this improved outlook. in the past year, helping more than 800,000 homeowners refinance into stable, affordable fixed-rate mortgages projecting an additional half

million families from foreclosure. and that, senator bond, i would note is through our loss mitigation programs that you asked about. a half a million families in 2009. guaranteeing approximately 30% of loan purchase volume and half of all loans for first-time home buyers. with fha's temporarily increased role comes increased responsibility and risk. that is why fiscal year 2011 budget presents a careful, calibrated balancing of fha's three key responsibilities. first, providing responsible home ownership opportunities. second, supporting the housing market during difficult economic times, and third, ininsuring the health of the mmi fund. fha ruled out a series of measures over the last year to mitigate risk and augment the mmi's cap cal reference. to raise the combination of fico

scores and down payments, reduce seller concessions to industry norms and, fourth, to increase measures aimed at lending responsibility and enforcement. fha implemented a plan to ensure its technology, infrastructure and personnel needs meet this responsibility. last friday, as you mentioned, the congressional budget office released its estimate of the president's 2011 budget, including their view on fha's proposed changes. although the cbo re-estimate includes a more conservative assessment of how new loans made through the mmi fund will perform in coming years, both cbo and the administration forecast that with our proposed fha changes, such credit activity will result in significant net receipts to the government. we differ, however, on the amount. while the president's budget

forecast, as you said madam chair woman, $5.8 billion in receipts resulting primarily from insurance premium and other fees, cbo re-estimated the net savings at 1$1.9 billion. jenny may and our gi/sri fund will produce another roughly $1 billion in receipts. while recognizing that such a difference with cbo complicates budget resolution development, it is important to note that the forecast used in the president's budget will determine the receipts transferred to fha's capital reserve account. this will help that fund get back on track to be capitalized with a statutorily mandated 2% of insurance in force. i would note that based on extensive modelling and analysis, we remain confident in our forecast for fha. even with increased fha receipts, however, because of broader need for fiscal

responsibility, we have had to make very difficult choices in this budget. we have chosen to prioritize existing rental assistance in section 8, public housing operating fund and other areas, which has required to us propose difficult cuts in a number of our capital programs, as you mentioned. and to target our funding to the most catalytic uses. on that note, allow me to highlight some key initiatives. the first is hud's multiyear effort called transforming rental assistance or tra. hud's rental assistance programs desperately need simplification. hud currently provides deep rental assistance to more than 4.6 million households through 13 different programs, each with its own rules administered by three different operating divisions. in my career in both the private and public sectors it was a constant struggle for capital

funding resources into the local, state, and private sector financing that was necessary to get the job done. but i dealt with hud programs for a simple reason. because the engine that drives capital investment at the scale needed is a reliable long-term market-based stream of federal rental assistance. no other mechanism has ever proven as possible of unlocking private and public resource toss meet the capitale%@@@rr$r

public and assisted housing lies in shifting from the federal, capital and operating subsidy funding structure we have today to a federal operating subsidy for private and other public sources. third, that bringing market investment to all our programs will also bring market discipline that drives fundamental reforms. only when our programs are built, financed and managed like other housing will we be able to attract stakeholders that we need. fourth, that we must combine the best features of our tenant-based and project-based programs for resident choice and mobility. tra reflects hud's commitment with the benefits that are reliable, property-based, long-term rental assistance subsidy can have for neighborhood revitalization efforts and as a platform for delivering social services. to be clear, this commitment to tenant mobility is not to

restart old ideological debates about place-based versus people-based strategies. to revitalize neighborhoods of segregation, we need the best of both approaches. we look forward to continue to go work with the subcommittee and authorizers on our choice neighborhoods initiative to make the redevelopment of public and distressed public and assisted housing the anchor of broader community development efforts. choice neighborhoods buildses and expands on the lessons of hope 6. not only the investment at scale can effect dramatic change at the community level but also that for an investment to be game changing it must take into account more than housing alone. for too long hud's community developed programs have lacked such a targeted tool for creating jobs. that's why our budget proposes $150 million for a catalytic fund designed to help distressed communities reorient their economies for the 21st century. hud can't afford to make housing investments in isolation from community development investments.

particularly when so many communities are ahead of us in terms of combining housing, economic development and transport tagz. that's why it was important to launch our sustainable communities in 2010 to support these efforts. i want to thank the subcommittee for making this possible. i recognize that i've asked you to help hud make these investments in a difficult fiscal climate. nowhere is this clearer than the area of homelessness. we have seen a 30% reduction in chronic homelessness the last four years. our budget request to its own programs with a $200 million increase. but as chair of the agency as well charged with producing a federal strategy to end homelessness later this spring, it reflects a commitment to working across silos to end homelessness, embodied by our joint services for demonstration with the department of health

and human service and the department of education. lastly, let me say a few words about hud is transforming the way it does business at the agency. with your help, hud's 2010 transformation initiative is allowing us to take long overdue steps to upgrade and modernize our department, helping us replace computer programs written in the 1980s, senator bond, you mentioned this, and we have been growing our resources for technical assistance, and demonstrate what works and what doesn't. it has begun to provide us with creating cost-cutting initiatives. a critical next step for 2011 is to take this further. in part is a matter of additional fund to go move forward with large multiuse projects and just as important as the flexibility to use up to 1% of hud's budget as unexpected needs arise during the year. to revamp fha in the mortgage market or technical assistance trying to use neighborhood

stabilization funds in the most impactful ways. these are the most flexible investments other cutting-edge organizations have the ability to make and they're essential to building the nimble resorts-oriented agency we need and our subcommittee deserves to oversee. with the housing market showing signs of stabilization, our economy beginning to recover and the need for fiscal discipline crystal clear, now is the moment to reorient hud for the challenges of the 21st century. with your help, i believe we can and that we will. thank you. >> thank you very much for your statement, mr. secretary. let me start, because i talked a little bit about in your opening statement, and i did as well, that omb and cbo differ considerably on the amount of receipts that the estimate f hh mrts will generate in 2011. how would a reduction of that

magnitude impact hud programs? >> obviously that kind of reduction would be substantial. again, let me point to the fact that cbo does agree that the changes we are proposing in legislation would have a positive impact on the fund. my fha commissioner is testifying today on the house side in front of the authorizing committee on those changes. i believe it's critical that we do get the authority to increase our annual premium. and that we continue to do the kind of risk management changes and others that we need. cbo fundamentally agrees that those changes will add to the receipts. we have begun to work closely with cbo to look at the reasons for the discrepancy. we would be happy to work closely with this committee, as well as the budget committee, to look at the reasons for that

discrepancy. obviously, as you know, while the cbo view is important, it is ultimately advisory and the budget committee can make a determination on its own about which of the forecasts make the most sense and what it's going to choose as the path for the budget. and i would further add that, as i mentioned in my testimony, we have substantially increased our capacity at fha to model the health of the fund, made numerous changes and improvements in the way we project it. and, in fact, thus far this year, we are running ahead of our projections in terms of losses and receipts to the fha fund. i would also add to ensure we were being conservative in the president's budget, we did use a relatively conservative house price forecast that has been below what has actually happened in the housing market since then.

so for all of those reasons i continue to be confident in our projections, and we would be happy to provide whatever information you and the budget committees might need to make a final determination about the path of the budget. >> and are you working with the budget committee on that? >> we have been working closely with omb on it, and they have been leading discussions with the budget committee. >> okay. one of the paths that you just talked about was having to do with the increasing the premiums on the fha mortgages. you know, those premiums that are used to cover any claims on mortgages. but the recent -- losses in recent years have caused the capital reserve for fha to fall below that mandatory 2%. in order to recapitalize that, you're planning on increasing the premiums? under existing authority, fha will increase up front by i think 2.25% in april. but you also are saying you need authorizing language to do that. how is your progress going with

the authorizing language -- with the authorizing committees on that? >> so, we have proposed, and we do have the current authority, to raise the up front premium to 2.25%. we believe, and i think there's broad agreement, however, that it is a better approach both safer for homeowners and ultimately better for the health of the fha fund, to have a combination of an increased upfront premium, as well as an increase in the annual premium, and we currently do not have the authority to raise the annual premium. that is the authority we are seeking through legislation. we have had numerous meetings with both sides of the aisle on the authorizing committees, have heard a lot of support. in fact, ranking member capito introduced her own bill yesterday that included a broad range of the proposals that we have. and so i am encouraged by the progress that we're making with

the authorizing committees on that. i would make two other notes. one is that not only is increasing the premiums something that's important for the heating of the fund, but in addition to that, increasing the premiums i think is the single most important thing fha can do to encourage the private market to return. we are already hearing, once we announced the increase in our upfront premium, a number of private mortgage insurers and others beginning to move back into the market. >> the 2.25%. >> the 2.25%. so i believe it is important, given that we believe fha's current role is a temporary role, that raising the premiums sends the right signals to the market, the broader market and will help others return to the market. the last thing i would note is that we do have the current authority to raise the upfront premium even further.

so increased receipts along the lines proposed to the budget are not completely dependent on the legislation. >> increase above the 2.25. >> above the 2.25. >> do you have the ability to do that? >> we have the ability to go up to 3%. however, there is wide agreement on this, it is a better path not to raise the upfront premium that far or even to keep it at the 2.25 that we have already proposed to raise it to, but to increase the annual premium further in order to provide more security for homeowners and a better deal for homeowners and to build the fund more quickly. >> and are you making any progress in the senate banking committee? >> we have had very good discussions with them on it as well. the house has taken the lead with their own bill. but we've heard bipartisan support around many of the changes we've proposed. >> if we were to get that kind of legislation passed, when would you anticipate the capital

reserve funds will be at or above the required 2%? how long will it take? >> based on our numbers, we believe the 2% is achievable by 2012 or 2013 based on conservative assumptions in house prices. >> would it have to be enacted to have that date? >> one of the keys about getting the legislation enacted as quickly as possible is that our estimates are that -- every month the sooner we get the legislation is another $300 million in net receipts to the fha fund. so every month that we get that, either later or earlier, has a $300 million impact on those funds. >> okay. all right. well, we move on. it seems every day there is a new report out there on the state of the housing market. but the reality is that economists often arrive at completely different conclusions from the same housing market data. you've testified that housing

prices have held steady or risen since last april, which provides reason for optimism. in january, new home sales plummeted to the lowest level in 50 years and many regions in my state continue to experience severe home value losses. do the reductions in home sales that we saw in january make you concerned about the stability of the market and when do you expect that we may see home prices stabilize? >> what i would say about that data, there were widely expected with the original expiration of the home buyer tax credit that there would be a decline in sales during december and january. i would say the decline in january was somewhat worst than expected. part of that was weather driven, frankly. even beyond that, there were, i think, notes of concern that we took from those numbers. i think what it highlights, most

of all, is that the levels of prices in home sales continue to be fragile. they are still above where they were a year earlier, which is i think an important benchmark. but one of the reasons we supported the extension of the home buyers tax credit, as well as we continue to support the importance of fha, gses and other interventions keeping interest rates low is we are concerned about the fragility of the housing market. overall, again, and this goes to your point earlier, when we came into office, widely predicted economists on both sides of the aisle and more broadly across the spectrum expected on average another decline of 5% in home prices last year. that did not happen with the support of the administration. home prices were basically level during last year. so i think we have had the impact of stabilizing the

market, but it is fragile and we need to continue to focus and do more to ensure we're on the right path with home prices. >> one of the programs the federal program is going to end is the purchase of mortgage-backed securities has helped quite a bit and the home buyer tax credit is going to expire here shortly. are you concerned that if we don't extend those important initiatives we're going to add to that @@@@rg$#r')k#

our risk management, increasing underwriting requirements, down payments, raising premiums, that we must take a balanced approach and not go too far to exclude buyers that can be successful in the market. and so that balanced approach i think is critical, as well as watching the numbers over the next few months in the spring buying season very, very closely. >> okay. senator bond? mr. secretary, we have reached a gentlemen's agreement. i'm going to finish the questions i need to ask you right now and then turn the gavel over to senator bond, who is going to ask his questions and then come to the energy committee, if that is okay with you.

so i want to ask you about the -- making home affordable program. one of the programs in that -- the home affordable modification program, hamp, produces a home owner's monthly payments by lowering the rates or spreading on the mortgage out over a period of time. that was supposed to help 3 to 4 million families by 2012. but as of january, only 116,000 homeowners have received permanent modifications under that. we're hearing servicers have been struggling with burdensome changing rules and borrowers are confus confused. i wondered what changes you were looking at on that program? >> so, first of all, i would say that there is no question that there were early implementation problems with servicers who did not have the capacity to be able to reach borrowers and that there has needed to be and there

has begun to be a significant increase in focus as well as resources at the servicers. we have also taken a number of steps to streamline the process, streamline documentation, simplify the process. one of the most important changes is that we have announced we will be requiring all documentation to be gathered up front rather than at two different points at the beginning of the trial modification and before permanent. that should greatly simplify the process. and we have also done an enormous amount of outreach in locations around the country to bring homeowners and servicers together with fares and a whos . they are literally going door to

door to try to get homeowners qualified. what i would point out is based on all of those efforts, we were able to reach just one year after the creation of the program, just one year after the creation of the program, more than a million homeowners with trial modifications. and i think it's very important to point out that those trial modifications are having a significant positive impact for those families. average savings per month of over $500. and significant benefits to them. so based on that, we are on track to reach the 3 to 4 million homeowners that we originally committed to. we are concerned that the permanent modifications have not been moving quickly enough. we have significantly increased the pace of that. and today we are seeing 50,000 new permanent modifications a month based on our recent experience. and so i do believe, while we

still have some improvements to go, that we are making significant progress in terms of affordable modification. i would finally just say that -- and by the way, we have almost 20,000 of those in the state of washington and would be happy to share more detailed information with you on that. finally, i would say that is only part of the broader strategy. with the announcement the president made that you referenced in nevada just two weeks ago, as well as a number of other steps that we're taking, i believe we are -- >> let me ask you about that. you announced this program to help these five states that in nevada a few weeks ago. what is the specific timetable for implementing that program and when would we start seeing results on that? >> so, on that program, what we determined is that we have a number of national efforts.

we continue to examine new national efforts. but that the challenges facing those places are quite different depending on the state. for example, michigan's challenges are very different from nevada's orca qaa's. and so what we did was to ask the five states -- statehousing finance agencies, to come in and propose tailorred programs for those states that would most effectively target the problems that we're seeing. we have seen very effective state programs in a number of places, pennsylvania and others along these lines, particularly targeted at unemployed homeowners and underwater homeowners. we have asked the states to come in and propose to us within the next few weeks plans. we will then review those plans, and we hope to be able to approve them within the next month to six weeks, and then to be able to start implementing those programs immediately at that point. again, many of the state

agencies have programs up and operational that we could enhance or change that could get going very quickly. >> okay. and are you looking at expanding that in my home state? we have about a quarter million washington state homeowners today underwater, representing about 16% of our homes. especially in two of our counties, pierce and clark counties. are you looking at expanding this to any of the other states? >> what we are looking at, madam chair, is broader national efforts around negative equity and unemployment that could target the issues that you're talking about in your state. one of the reasons we wanted to take the approach on the program that the president announced in nevada is to test models that then potentially could be used in other states. so we don't have any immediate plans to expand. until we have begun to see the

results. but we are working on other efforts, which i'd be happy to follow up with you on and talk more about that would nationally target the negative equity issue and unemployment that could have real benefits in washington. >> okay. we would like to hear more about that. i wanted to ask you about the backlog in capital improvements needs and public housing now estimated at over $20 billion. the president's budget proposes the first phase of an ambitious plan to leverage significant private sector resources to tackle that backlog and preserve those assets. i agree. we've got to find a long-term solution on this. but i'm concerned about the absence of detail in the proposal so far and its cost. for 2011, the administration is looking for $290 million in additional subsidies in order to leverage those private sector dollars. when fully implemented i understand the program will cost $1.4 billion each year. how would you accommodate this major new requirement given the

president's commitment to freeze discretionary spending the next three years? >> i think one of the important points to make about this initiative is that the fundamental change that we're talking about is shifting from a operating and capital approach to one which has only an operating stream. so while there are increasing that we're proposing in operating subsidies in the budget, we will have particularly over the longer term, significant savings and ultimately not require any capital funding for public housing in a separate account. and so that is one way that we have offsetting savings that comes from the way that we are proposing this. a number of other points, though. that does not account for efficiencies that this will achieve. i talked in my testimony about

the enormous complexity of the current range of programs. &h and how difficult it is to achieve mixed financing and other things. part of that is operational costs at the department which we have the potential to do a significant savings on. we have begun to estimate those. those are not simple to estimate. >> so are you going to prefer proposals to cut the operating stream side of it, the expenses? >> the capital? >> yes. >> yes. there will be offsetting reductions possible in the public housing capital stream as a result. because we will be moving to a system where there would only be operating subsidy going to those developments. they would use, just as is currently done in almost every other program that we have, funding could be raised privately or from tax credits or other sources to pay for the capital needs. so we would go from this more

complex two subsidy system we have with public housing to a one subsidy stream. it would require the operating subsidy to be higher but allows us to offset that increased cost to the operating subsidy with reductions and ultimately elimination of the capital stream. there will also be significant savings in terms of reduced complexity for the developments themselves, the management, oversight, the soft costs of hiring lawyers and all kinds of other things around -- >> it sounds really good. i just want to see how it works on paper so we have accountability in the system and we know it works. >> and i know we have been working with your staff to try to get more details about the long-term costs and savings around the proposal. >> we'll need to see those. okay, good. one of your proposals is to make sure tenants have mobility options even though from what i see the funding is going to be

tied to a particular unit. now, i understand that you are modeling this proposal on one of the provisions of the section 8 tenant-based rental assistance program. under the existing program, fha's are allowed to commit for voucher to a particular unit. >> that's right. >> this enables the pha's to leverage private resources, to finance the rehabilitation of those units. but with pha's are able to make sure they have mobility by providing them with another tenant-based voucher if a person decides to move. your proposal would allow participation by entities that don't have voucher programs, whether public housing authorities or owners of other hud-assisted housing. the lack of vouchers would appear to be a barrier to mobility in these systems. in these cases, how do you recognize residents living in this type of housing with mobility options? >> it's an excellent question.

and it is a mechanically, working out the operations of linking those housing developments with vouchters is a very important part of the proposal. and i would say broadly we have spent a lot of time working with stakeholders, talking with omb within the administration and also reaching out to the authorizers as well as your staff to discuss a lot of these issues. and we expect not only to have authorizing language but also far more details based on the input that we're getting from stakeholder meetings and others that we're doing. on this mobility point specifically, first of all, what we are looking to do is to make sure that if a housing authority or another entity does not have control of a voucher program themselves, that we link them with a voucher program in the

area where the project is located to ensure that there are vouchers available for those families that would move. what we are looking at is sizing exactly how big that pool would be and to ensure that we're not creating too much of a need for additional vouchers to be able to do that. because as you rightly said, the cost of that and the potential pressure on the voucher program overall is important. we believe, based on our latest modeli modeling, that we can achieve significant mobility. if not complete mobility, with the existing resources that we have but we want to come back to you with a number of options on that that would say if we want to do this amount of mobility here's what we could do if we wanted to do further mobility among a broader population, here's what the cost would be and here's how we might be able to work. so we're working on a lot of detail with that. >> we want to be continually

updated on where you are. >> as always, you have hit on a very important piece of this, an important point about how we achieve mobility. >> and lastly, i wanted to ask you about the hud voucher program. you know this is important to both senator bond and i. we have worked very hard to include it in our budgets and appropriations over the last several years. i've heard wonderful stories from veterans in my home state from veterans in my home state in walla h v

because we know when it gets out there and people are using it, it makes a huge difference for our veterans. but having administrative challenges at any level, here or on the ground, is a disservice to the veterans. if you can talk to me about what hud and va are doing. >> absolutely. let me just start by saying your support and championing of this program has been absolutely critical, and we believe it is having a tremendous impact on veterans despite some of the challenges that you talked about. i also would put it in the context of the commitment that the president and the secretary have made to end veterans's homelessness. va has included a $265 million increase in funding for veterans homelessness in its proposal for 2011. so this is in the context of broad support for the intent of the program and more broadly

ending veterans's homelessness. the way i would characterize the challenges largely are that va is an expert in health care. what has been required in order to make the program effective and to fully utilize the vouchers has been building the capacity beyond health care that includes community-based outreach and the ability to connect the health care and other services available at va hospitals with the housing and other support services that may be necessary. where we've seen great success is where va hospitals have built that capacity. and we've begun to connect them with our continuums of care, community-based providers where they can form links to ensure they're finding veterans whether on the streets or in shelters, as well as helping to build their capacity and understanding about the late 6st techniques,

whether housing fist, supported housing and others. whether it's in washington, d.c. or in many other places, we're seeing significant increases in utilization of those vouchers with those targeted strategies. and we've now developed with va a plan to try to more broadly spread those. we have spoken about this. and you had a number of good points the last time we spoke, that we're incorporating into that thinking. >> we really want to work with both you and the va to get this out. i was disappointed the president's budget didn't include any funding for 2011. we can't let administrative lack of dialogue or lack of working out problems keep these vouchers going to our vets. we want to keep working with you on that imputation. clearly that remains a high priority for this committee and i thank you for being committed to that and working with the va on that. >> thank you. >> senator hehey has joined us.

i have to run to the energy and water committee really quickly. senator bond is on his way back. i will turn the gavel over to you and allow you to go ahead and question the secretary. senator bond will be back shortly. and if you finish before he gets back, if you could just put it in temporary recess, he will be here. >> of course. i'm going back to a markup in judiciary. i was able to get permission to leave the judiciary meeting. funny how that works. thank you, madam chair. and thank you for the tremendous job you do on this and other appropriation matters. secretary, it's good to see you. and i appreciate having you here to discuss the administration's budget request. so many of your programs in your

department have served my state very well. you have one heck of a portfolio. and there are probably days you probably wish it wasn't quite as much. i welcome you up to vermont sometime to see the good things hud has done to provide affordable housing, especially in our rural communities. we always say housing in urban settings, but my whole state has only 660,000 people. and a lot of it is very rural. but it's something that works in rural vermont could work in rural california or texas or elsewhere. now, i know others have asked you about the president's proposal to cut the budget so the 101 and 202 programs and the home program. i worry about this, because as i

look at the budget i'm afraid there's this shift of priorities from rural areas, rural america, to urban areas. and i remind everybody that rural america still is a third or more of america's population. of course it's back in the time of franklin roosevelt, they were concerned about rural america. they had a number of programs that made an enormous difference in society. my grandparents in vermont and others. but vermont and other rural states have relied on these programs to build affordable housing for low income, elderly and disabled residents. so if congress agrees with your budget proposals, how are you going to deal with the problems of rural america? >> senator, thank you for the

question. i look forward to visiting you in vermont. i probably shouldn't say this in a senate hearing, but it's one of my favorite states. i spent a lot of time growing up there. >> mine too. >> it's just a beautiful, beautiful place. let me say a couple things about this. first of all, we had to make some very difficult choices in the budget this year given the broader outlines of the federal budget deficit. we made a fundamental choice to focus on existing households that we serve and ensuring that we were fully funding our major rental assistance programs. that required capital cuts in a number of different areas. just to be clear, those rental assistance programs are critical in rural areas of the country as well and we'd be happy to get you more detail on how they support rural areas. i would also say that today the single most important way that we fund housing for the elderly

and disabled in rural areas and other areas is through the tax credit programs. eight times more senior housing is developed through tax credits than through 202 and over ten times more for people with disabilities. >> but i still come back to my basic point, i worry about the way this is set up, that we're seeing a shift from rural to urban. and that's what i'm going to be most concerned about. because there's no way i could support the appropriation that did that. >> and i believe that that is, in fact, not the case. 202 and 811 is equally available in a range of areas. but let me point to a few things that i think are particularly targeted to rural areas in the 2011 budget proposal. first of all, we will, for the

first time ever, be establishing a program specifically targeted to rural homelessness in 2011. that has never been done before. we have, because of the work of this committee in our 2010 budget, we will be making sustainable communities funding for the first time with a specific 25% set aside for smaller communities. and that is a critical effort. we are also building on our experience in investing in rural economic development through a proposed catalytic investment fund which will be an important resource available in rural areas as well. so not only do i believe that we have housing resources specifically for constructing senior housing and disabilities in rural areas but we are increasing our focus on rural areas with a number of different

proposals in the budget. >> thank you. and also i look at some of the different things you've done over the administration has done, congress has supported to promote home ownership. in hud's previous budget request, they expressed interest in a model known as shared equity typically run by nonprofits. they promote home ownership among low and middle income families by providing down payment assistance. the home is retained when the buyer eventually sells the home. the nonprofit recoups what they put for the down payment and also a part of the appreciation. they also usually have the right of first refusal to buy the property. if congress included funding for a pilot program to increase shared equity programs, is that

something your department would support? >> we certainly not only believe in shared equity models, but there are a number of ways that we have begun to support those. what i had suggest is that we would love to sit down with your staff and explain what we're already doing around shared equity and see if there's a way to get to a pilot of the kind that you're talking about even under existing authority and then describe -- be able to figure out what additional authority might be needed to achieve what you're -- >> thank you. and we will. whatever you would like, we will make sure we have our folks ready. and in your prepared remarks read earlier, you spoke about the housing market. you noted that a lot has been done by the administration to right the ship. and i'm pleased many americans have been helped by the make it home affordable program. i think we all know the societal

value of home ownership and community value and everything else. say nothing about the economic well-being of the country. i'm concerned about something that will slip through the cracks, what i hear most often when i'm home in vermont that some of the lenders of the program aren't abiding by the rules. homeowners have been having a hard time getting straight answers. and it's frustrating because i'll hear questions, whether walking down the street or at the grocery store or whatever. they say, we can't get a straight answer. is your department and treasury looking at this issue, whether this is happening in states? because it's to all our benefit that people can be homeowners but they're going to have to be able to get the answers they need. >> there's no question that

particularly in the early months of the program servicers, there were significant problems with servicers. there continue to be significant problems in some cases. we have both pushed servicers to create better communication, more resources, more people in their call centers, going door to door to do that. but we have also created very specific standards for exactly what the timelines need to be for servicers to get back to homeowners with a clear response on whether they're eligible or not. we did that just a month or so ago. and in addition to that, we have begun to impose penalties on servicers not following those guidelines. so, yes, we are hearing those issues, and we are taking action on them. >> good. and i must mention, as senator bond knows, when somebody corners you in the grocery store

and they have a concern, they've got a concern. and i sometimes find those -- actually, i like that. in a small state like ours, everybody knows everybody. nobody has a problem coming up and ask you a question, saying this is occurring too often to make we think it's just a random issue. senator bond is here, who knows these issues as well as anybody. and i'm going to turn the gavel over to him. >> well, i appreciate getting the gavel back from my good friend, senator leahy has outlined the concerns we have in rural america. i had raised those earlier, pat, before you came. and we had one little $25 million rural housing program for hud to work with usda, and that was gone. so i was interested to know that the secretary has said while they have zero budgeted that,

something new is going to spring full-blown out of somewhere. and i can assure you that those of us who live in places where we don't have a rush hour, we have a rush minute, there are -- radio stations can't even sell drive time advertising because nobody is in the car that long, unless they're driving to another@@@@@@@ @ arrb%

you do, too. so thank you. >> thank you, pat. mr. secretary, maybe you want to comment on that. you have a new rural housing initiative? >> well i mentioned as you were coming in, a range of efforts in the budget, an issue i know you care a lot about. we will be implementing the first-ever rural homelessness effort, specifically in the budget and that's something that particularly given that we've seen a 56% increase in rural and suburban family homelessness over the last year, absolutely critical. we are expanding efforts for economic development, the $25 million that you talked about was targeted to economic development. and we are proposing $150 million fund in the budget,

which would have a portion of it will specifically targeted for rural areas so i don't believe that we're not going to have the kind of effort. >> i just asked the question, are you going to work with the usda rural development? >> absolutely. >> which is -- that's one of the secrets because you need the housing. you need what usda can bring and i think it is important that you maintain that collaboration if you're talking about moving 25 to 150, i'm happy with that. but i just -- i want to work with you to make sure that it continues to work because as senator leahy said and i know, there are problems there. let me go to the issue of transparency and i mentioned to you before we sat down, i'm concerned that h.u.d. addition making is open and objective. is there -- are there political decisions which enter into that

as the -- is there any -- do you get directives from either the top of the administration or congress on how you make those? are those transparent and -- absolutely. >> yeah. and to what extent are those involved in the decision making? >> let me be very clear. my absolutely was to the transparency. we make our decisions particularly on competitive grants in a highly transparent way. we publish the criteria for those as we did with nsp 2. we have with every single recovery act grant, we have made those available on recovery.gov, our website, with detailed information about where the money is going, how it's being

used. we have every applicant who wants to sit down with us and go through the details of how their application was reviewed and scored. we respond to those requests. we'd be happy to sit down with you about any specifics around that. as you know, whether it's hope 6 or a range of others, we run competitions and we follow very, very strict guidelines in terms of how they're evaluated and. >> is there any notification or transparency as to those who apply? we hear about some. we don't even know if we know all the ones that are coming from our states or we can follow them. is there a posting of the applications? >> we will notify members in advance of making those announcements. >> yeah, but when you get the -- when you get the applications, do you notify, is there any

public notice of the application, who's in there? do you advise the representatives in congress of those in advance of the process? >> i will say i am not sure if we have a standard process for notifying members about applications in advance. we can certainly get back to you with more detail on the process we do follow. >> we have -- staff has some questions about that, and we are -- we are a little concerned. we'll look forward to working with you on that. >> okay. >> because i think most members certainly over on the senate side and i would assume on the house side would like to know if, you know, if they're three, ten, 15, 20, coming in from our state because we want to work with them and we may be able to shed some light on community support because we're out there.

we're listening to the people. we know some of the challenges they face, what the state and local priorities are, as well. and we want to see those taken into account. if the state is putting money into it and the locality has some skin in the game, to me, that is a -- that is a very good indicator that this is something the feds should look at carefully. let me ask some questions about question, major question about sustainability. your d.o.t. friends call it liveability. and that debate's been going on for a long time, but i want to make sure that once again, that the federal government is not forcing conclusions on local communities. how -- how do you make these

sustainability decisions? do you do it with d.o.t. and e.p.a.? how much involvement does the -- do the state and the local governments have in working with you to make those sustainability determinations? >> let me say two things about that. first of all, we here -- the fundamental issue here is that more and more american families are spending a huge portion of their budgets, the average family today spends 52% of their budget on housing and transportation combined. and not only that, they're sick of sitting in traffic rather than seeing their family or having long commutes in rural areas in some cases to get to jobs. there's a whole range of challenges that we see.

and so we feel we're responding to local needs and choices on that front. but the problem has always been that housing and transportation investments haven't been coordinated at the federal level because there wasn't the kind of partnership that we're talking about. so we have begun to coordinate very closely with the department of transportation with d.o.e., department of energy and environmental protection administration just to give au example. on the recent tiger grants that were awarded as part of the recovery act, we had hud staff and epa staff actively involved in the process, first time it's ever happened of evaluating tiger grants to look at the connection of those to housing. so that's an example of that. on the state and local piece of this, we believe very strongly that this is not a one-size-fits-all and so the very first initiative we're undertaking in our sustainable communities initiative is to

provide, thanks to the committee's leadership, planning grants for local communities to be able to decide how they want to coordinate housing and transportation. this is not about us telling them. this is us providing help to them so that they can do the kind of planning and coordination, provide technical assistance, what are the best practices and in fact, we -- i don't know if you were here. 25% of that planning money is specifically directed to smaller places to ensure that this isn't just an urban or even suburban investment but that we're doing planning. tom vilsack is very eloquent about this. we've worked a lot with him and his department is how do we ensure in rural areas, whether it's a main street where stores are leaving that main street, whether it's figuring out what to do with the upper floors of buildings along those main streets in small towns, whether it's connecting seniors to the services that they need with kinds of transit that you

wouldn't see in larger urban areas, a whole range of ways that we can work together and those planning grants are the key first step funded by our 2010 budget to be able to help local communities decide how they want to meet these challenges. >> i think that's very important that you have a right to ask of the local communities or regional areas what their plans are. and you know, that's something i've worked on for about 40 years. and making sure they have -- they have it all together and know what they're doing is important. and we would hope that the -- that the federal agencies would make sure they're good plans and support the plans. now, how many ftes at h.u.d. are working on this? are you adding people? are you reallocating people from other areas? how many folks do you have working on that?

>> just ask my folks to get me the precise details. we have establish add office of sustainability housing in communities. it's a small office and the idea of that office is to coordinate, as i just talked about, with other departments that are working on this, as well as within the agency so for example, where we are retrofitting public housing, what we want to make sure of is we don't have three different standards or different approaches to our multifamily programs, our public housing programs. so we're creating unified best practice standards that we would apply across the department. and so that is the nature of that office. for 2010, and this was a discussion i believe we had in some significant detail with your staff on the committee, we have 20 ftes in total for 2010, and we expect for 2011 to have

23 ftes. so it's a relatively small office, again, just coordinating just policy and programs across -- between the departments, as well as across different silos within hud. you know the coordination is good. you ought to decide with dot whether it's sustainability if you at least agree on a title, that would be a good -- a good start. the fde are big deals. are you dealing with the overall staff problems, making sure have you enough in fha while you're moving people around? that is we know you need help. do you have the ftes you need? >> thanks to both the investments you made in the 2009 budget as well as the

investments in 2010 and some flexibility that you gave news 2010, one of the concerns that i had when i came in and we've worked very collaboratively with you is that we had created very specific restrictions across nine different pieces of h.u.d. in terms of ftes and the flexibility that you've given us has allowed to us increase hiring substantially in fha. we have literally hundreds of additional staff an pennsylvania that we're bringing on to do that while trying to make sure that we're not overall increasing the size of the staff or the department beyond what's necessary. >> now, i have, as i indicated, i have some concerns about the -- if there's a cutback in the 2012 budget based on problems with the deficit. i'd like to know how hud plans

to deal with it and you know, when have you -- when you've put punding on hold for 202 and 8 1r, are you going to make sure that those programs we will not overlook the people who are served by 202 and 811 while you push the current priorities? how are we going to make sure that those people are covered? . so first of all, i think one of the most important things to recognize is that the vast majority of housing for seniors and people with disabilities today gets produced not by 202 and 811, but by the tax credit and other funding sources. the issue, and i will tell you very honestly i dealt with this very directly in my prior work both in the private and public

sector. it is very, very difficult, close. >> tim: possible in some communities, to develop new 202 and 811s because the program is really designed, frankly, for the 20th century, not the 21st century. and because of the amount of funding that's available, the way that it's distributed, the rules that apply, there is almost no case where a communit@ g discussed on the house

side where we agree with a large number of those changes. in addition, we believe there are other steps that could be taken, for example, to link up with the health funding streams at hhs that are often necessary like p.a.c.e. for seniors as they age in 202s. and we need to make sure that we get the program right. we believe before we continue to build new united states under 202. >> what i'm worried about, i guess we're letting loose of the trapeze bar and i want to see a trapeze bar there to hang into. and the other thing is to manage, to continue the services and providing services in many of these target populations is critical. that's why senator murray and i

promoted the v.a.s.h. program to bring the vh.u.d. together because the homeless veterans are a very, very near and dear to my heart and they have some very serious problems that cannot be fixed with housing alone. i want to make sure that we continue those services. and you certainly you'll have no argument from me on a need to clarify, consolidate and simplify the h.u.d. programs. that has been -- that has been the thicket that every hud secretary i've known has found to be unmanageable. at the same time, as senator murray referred to it, i personally have a minimum amount of high confidence in the authorizing committee's ability to deal successfully with these legislative changes in timetom

assure there is not a gap. and we're going to have to work with you on that because this -- anybody who looks at the legislative calendar in the united states congress knows that even getting our appropriations bills done is going to be a challenge. and we're going to have to have some discussions because i -- the banking committees are trying to bite off financial regulation, and that one is not, that, one's not going to be a simple markup and two days on the floor, at least in the senate, and man, there's not enough time to do it. so we need to work with you on that. the tra program is -- it's very -- very optimistic. i can -- i would ask you what do

you see as the key elements and the advantages of the tra program over current programs? >> so today, given the way particularly let's take public housing as an example operates, because it functions with both an operating subsidy and a capital subsidy, it is essentially 100% government funded. and because of that, it is almost impossible short of hope 6, to create with public housing the kind of mixed income, mixed use, 21st century housing that i believe our residents deserve and that our communities deserve. and so fundamentally what, t.r.a. is trying to achieve

beyond the simplify indication andhe benefits that come with that is to bring public housing and our other programs into the mainstream to stop having them be in some ways a parallel universe, if you will, from the way the rest of our housing market operates. and if you look at whether it's tax credits or the new ways that we develop affordable housing, they have all of those benefits. public housing has not been able to. at the same time, public housing has been under invested because it hasn't been able to be access whether it's tax credits or more broadly private capital, other forms of public capital. the fundamental reason for that is because we have this dual system of operating and subsidy and capital subsidy. so what may seem deseptembertively simple at one level but i think has very, very powerful benefits is not just consolidating all these programs but shifting to a system where

we have one operating stream that allows public housing to leverage private debt, mix uses, mix incomes all of the things we do in the best affordable housing today, we can achieve by shifting and the last thing i would say is the fact that a low income family has to make a choice between keeping their subsidy or moving, whether it's to get a job in a different community or a different neighborhood, to follow family or for whatever reason they may choose to move that, fundamental choice that they have to make today i believe isn't fair. and so one of the key areas of the program that would try to change that is to say let's give families more choices for mobility as we do in certain of our programs today, but at the same time, ensure that we keep

the project based long-term stream of funding available for that property that i know you believe and i agree is so important to our efforts to keep communities strong. >> i think when tra was promised was proposed, the legislation was promised this month, it is clearly a big and controversial effort. lots of questions with it. and i think we need to have discussions with you about it and debate. i hope sometime, i don't know when we can ever get floor debate but have it brought up for thorough congressional debate. so when are we going to see it, and what -- and how much legislation is needed? my staff is saying that perhaps 90% of it can be done by regulation. what will do you see is the

process? when will we see the product? when will we get to start on process. >> first of all let me say i completely agree with you this is a ambitious large scale effort and i want to be clear, this will not be achieved in one year or one budget cycle. so what we've proposed is to begin it in 2011, focused on 300,000 units out of a much broader stock that's probably ten times that size. so, we don't believe that it's achievable, i think you know, aligns with what you just said that all of this can be done in one year. it's going to take some time. having said that, we have been working very closely within the department with stakeholders begun discussions with the authorizing committees as well about legislation. we will -- we are committeed to meeting the timeline that we laid out to get draft legislation put forward. and i would suggest that we

would be happy to sit down as soon as possible with you and your staff to begin to answer any questions that you have and go through. >> we want to see what needs to be done. if you're focusing on 300,000 units, that goes back to my initial concern. all the other programs that are being zeroed out what's going to happen to those needs and areas that are not covered by the 300,000 units. so i mean, there are a lot of questions and i think we'll have to -- we'll know the scope of the questions when we see your proposal. so we need to have that soon. and at least in the appropriations process, we need to -- we need to have that and to deal with it where we can and see what regulations you can come -- need to be done, what has to be fixed legislatively or by appropriations or by regulation. >> yep. >> and the other thing i appreciate your mentioning my

old friend hope 6 again. how is choice neighborhoods better, bigger, longer, stronger, and improvement and what's going to be different about choice neighborhoods? >> so let me try and be as specific as possible in terms. >> capsulize it if you can. >> in terms of changes. i go to places all the time and hear, how great hope 6 is and i want to be very clear this program is building on hope 6, not doing away with it in any means. one of the constant issues i hear is, we've done this wonderful hope 6 redevelopment. but across the street is a project that is assisted with a different hud program that we have no tool to redevelop. specifically what i mean is our multifamily programs don't have that same option or there are

ten or 20 foreclosed homes on the next block that are the real problem in that neighborhood. they're creating crime. they're bringing down values. and yet, we don't have the flexibility in hope 6 today to be able to include that kind of housing, as well. so what we want to do with choice neighborhoods is to say, it's been so effective on public housing, let's allow it to be used for our privately owned assisted housing or for other housing in a community and that could be combined with public housing, in other words, a housing authority could come in and say we're going to do this, public housing development but we're also going to do the assisted housing across the veet. we've got many examples where they're in the very same neighborhood or even across the street or if the most challenging thing that you have in st. louis or any other community is not a public housing development and i know a number of them in st. louis, for example, or kansas city, but it's in fact a privately owned housing development that's the

real problem, this would be a tool available to redevelop that housing. so i think that's in some ways the most fundamental change is that it takes what's been so successful in hope 6 and expands it to our broader programs. it doesn't make sense to me, frankly, senator that if simply because we fund something with a different program at hud and this is a little bit the theory behind tra that we ought to have totally different rules available to them. this is trying to spread the lessons to other forms of housing. is that something, what you're talking about, needing to reach out and deal with other -- is this something that should be fixed, can it be fixed by the home funds that are given to the localities? >> i don't believe fundamentally that it can be fixed by the home

funds because traditional lit way home funds are used is either in moderate rehabilitation or new construction. these are much more complex really neighborhood revitalization schemes. and redevelopments. and so. >> we want to know how -- i mean, are we wasting money on home? i thought that home was going to do that. so we have a limited pot of money available and i want to work with you and make sure we use those dollars the best way we can. >> so i think you know, you've, you know hope 6 as well as anybody and i think you know that what has been the secret of it is that it goes beyond just the bricks and mortar. >> yeah. >> home is a bricks and mortar program so i think the fundamental difference is that whether it's hope 6 or choice neighborhoods allows you to build in whether it's a community room that has computer services available, whether it's

the services that are available for literacy or other things for families, educational programs, all of those pieces that have really made hope 6 so successful because it's about more than the bricks and mortar is something that choice neighborhoods would allow us to do. home is a bricks and more star program. >> as you know, i've worked long and hard to get child care centers and education centers and community centers but when you're talking about a bunch of foreclosed houses, you've got a bricks and mortar problem in the community. well, anyway, there's a lot more discussion to be had later. let me ask a final question on fha mortgage insurance reform. how are you dealing with the mortgage default problems and especially in light of the proposed fha reforms? how will the reforms impact the homeowners who are seeking help

with mortgage defaults? is fha -- are these defaults primarily a gse problem or is fh fha going to get in and start and put more taxpayer credit cards on the line explicitly rather than the implicit situation we have now? >> so going @@@@hrrj")rrk

need to do more strongly. what i would say though is if you look at what's happened over the last year, defalls in fha have certainly risen, but they have risen much more slowly than subprime and even prime mortgages at the gses to the point where today, subprime defalls are triple what we see in fha. so there is definitely more than we can do, but i think our full underwriting fixed rates you know no liar loan, all of the things that we've done traditionally and that we're strengthening to ensure we don't make the same mistakes that were made in the subprime boom have helped us not have the same level of defaults. the the only other thing i would say is we have the most

aggressive extensive loss mitigation set of tools that exist. they allowed to us help about a half a million homeowners last year stay in their homes, despite the fact that they were struggling to make their payments. and so that along with the home affordable modification program and other new options that we've introduced i believe allow us not to avoid future defaults but also to ensure that existing families struggling with unemployment remain in their homes where possible. we're not going to stop every foreclosure nor should we but i think we've taken aggressive actions to do that. >> in missouri we've had an aggressive u.s. attorney who files a number of criminal indictments and some of these are not just people who should be disbarred but i hope that where you find the requisite potential criminal intent, you refer them for criminal

prosecution because some of this is shoddy but in some instances, it's criminal. i obviously there is much more to discuss, but the good news is i'm being advised that i am running late for a whole bunch of things that are stacked up. so we will have to let you go with thanks. we look forward to continuing to work on many of these things we've just -- discussed. the hearing record will remain open for additional questions. this hearing is adjourned. the subcommittee will hold the next hearing on thursday march 25 at 9:30 on the federal housing administration. thank you very much, mr. secretary. >> thank you, senator. let me just recognize the great work and partnership that we have with ken donahue who's our inspector general around a lot of these fraud issues. i don't want to let the record close without recognizing his partnership. >> very important additional tool that you and we have and we appreciate his good work.

thank you. >> thank you. host: and joining us now is

paul basken from the chronicle of higher education to talk about student loan reform. tell us about the bill that was passed this week and that was overshadowed by health care? guest: in the world of higher ed, this is just as an important day. this is a fine that has been going on for really a generation. it is basically how college

loans are delivered to students. you can do it through the department of education lending system or you can get it through a private banks which pays a subsidy from the government. what this bill does it is get rid of the bag-based way to get that aid. host: some of the other highlights of the student loan bill, in addition to the pell grant, $36 billion to tell grant program. $2.5 billion for historically black and minority colleges. the $2 billion for community colleges and career training programs.

where is this money going to come from? guest: these are subsidies the government has been paying since 1965, more than a generation. the numbers have gone up, but the estimates are that roughly $8 million a year is being paid to subsidies to pay these loans. it is a complicated system and democrats have been trying to get rid of it for awhile. the question now is whether or not they should get rid of the bank system altogether. that is what they are considering doing now. host: our guest is a staff reporter for the "chronicle of higher education." if you want to get involved, democrats, 202-737-0002. republicans, 202-737-0001. independents, 202-628-0205.

we would especially like to hear from folks who are trying to put a young person from college, or a young person trying to pay their way through higher education. what was it necessary to pass this bill to the healthcare bill? guest: a lot of people have wondered where this came from. this bill has been pending for one year, actually. the reason it has taken so long to get through it is because the democrats in the senate did not think they could get the 60 votes to get cloture, so they had to run the reconciliation process. once a year, you can pass a bill with only 51 votes, as long as it reduces federal spending.

host: first phone call from st. paul, minnesota. caller: good morning. i am currently studying for my daughters of business administration -- doctors of business administration. i have noticed there are aggregate limits on what students can get. i was curious if this new bill had addressed that issue? host: it does not -- guest: it does not, however, i believe congress passed a bill last year that did increase those limits. loan limits have not been keeping up. certainly, there is a concern about students who have to go beyond and have to go into the

private market. host: brian, on the line for independence. -- the independentsindependents. caller: you had a lot of people with student loans out there and they have to keep on deferring because they do not have worked. there has been a lot of talk on the hill about that problem. guest: one of the issues the administration is trying to push through separate from this is a train for students who graduate from college and have a lower income jumped. the amount you would have to repay to the government would be indexed to the amount of money you make in your job.

it would cut back any land of time and percentage you would have to pay. host: at chronie.com, you write -- tell us exactly how this changes the current system and one the administration felt it was necessary to do that? guest: mainly to save money. the congressional budget office was talking about $9 billion a year the government was spending as a subsidy to the banks just to give to money -- just to give money to the students. now the college and their student will need to go to the

education department. that said, there is still a role for all loan companies. they will be handling the paperwork. but you will not really see them, perce. host: next is newport news, virginia. caller: good morning. i was hoping to get on the earlier. i have a comment to make about student loans. that is a fantastic idea. make money available for students to go to college. i would hope that one thing happens. every student who get that loan pays every penny back into the pot so that other students can

get a chance to go to college. if the students put that back once again in john -- once they get a job, the frequency that they pay will be based on how much money they are making, but they will be held responsible so that other students can get a loan and college education. host: is this with the repayment of programs is for? guest: if you grant with from college and you take a lower income job -- the number of years in which you have to pay ben will be reduced.

the interest rate will also be reduced. people have this concern that you borrow money from the government, is in free money, do you have to give it back? obviously, you do it. p -- the obviously, you do. in general, the government makes money off of these loans. the net income to the government from the loan program is @@h7v2m2 let's move on.

caller: good morning. students who go to on monday universities, i notice a pattern where they enroll, push them to start the program, and when they do, they only need to be enrolled for two semesters, and then if they drop out, and the university keeps the rest of the loan. what about all the people that live in the country and maybe have family outside of the country? and they get their education and

a sign that they want to move back and they do not pay their loan back. what happens to them? guest: that does happen, not a huge percentage. i think i have heard about it happening in the medical school area. there is not a high percentage of that going on. as far as the for-profits and institutions, that has happened to some degree. that happened a few years ago where there were more start up- type of colleges doing this. not to say that it does not still happen, but the department of education has cracked down on that. it can still happen. host: next is sunny.

do we have you now? caller: yes, how are you? host: just fine. what is on your mind? guest: first of all, i am a physician. this is a great nation in terms of providing loans for students. there are many students who start the underground program, then go to another program, finish it halfway, then go to graduate school, only halfway, and then they have found of dollars in loans that they will not able to pay back in logical terms. is there any limit where we have to force students to do a -- three strikes and you are uout

--so that when they are more serious about finishing their programs? host: how much money in loans did you have to take out? caller: $220,000. host: how much have you paid but so far? caller: $75,000. host: thank you. guest: this does happen. with this repayment plan, there will be income limited rules. part of what president obama wanted to do was set up a country as a world leader for college graduates. part of what this will be will be to get more students into college. yes, they're above the some who will decide that it is not the right thing to do, but with the

job market the way is, it is worth doing. host: lee on the republican line. twain harte, california. caller: good morning. i am a disabled marine. i hear all this talk about students that have never served in the military, rotc programs -- they do not want us on campus, that sort of thing. what about the trends? what about money going to the gi bill? that has never been addressed. they tried to push this through with health care. it is criminal. it is a criminal because we are the ones keeping you free, keeping this nation going.

and i do not see any of these young students stepping up to the plate and putting it on the line the rotc programs. what will be happening to us coming back from iraq and that halve no limbs trying to make it in america? guest: there is a set aside for military veterans, as well as things for the gi bill. for the rotc, my understanding is the environment is more welcoming than it has been in past years. host: the program that has been approved, is this strictly for a four-year colleges?

can you use them for two-year or practical? cast, absolutely. -- or technical? guest: absolutely. a lot of this is realizing that people can go to college in different ways today than we used to. there are some limits on how much you can do online, but generally, yes, there is a program. host: next phone call from new jersey. caller: you had some figures about the grant to go into the bill. if someone failed in their courses, where they have to pay that money back?

guest: they would not have to pay it back, no. host: our guest is paul basken with the "chronicle of higher education." he has also been working with bloomberg news covering the state department. he has also worked as a reporter covering the white house, congress, and 1994 health care debate next phone. next phone call from tim. caller: i am in medical school right now.

if i am in residency or if i work in the nonprofit hospital for 10 years, the government will forgive a certain percentage of my loan, something like that. is there any promise that these public service-type of programs will be in place 15, 20 years out, which is when these people would read those benefits? host: before you go, what are your plans after medical school? what kind of medicine do you want to practice? he is gone. guest: obviously, you cannot predict the future. we have seen bill level of this -- we have seen the support for these types of programs be there. we suspect that these programs

will contain to be there. host: can you tell us the difference between the program that was passed last year and a one that was passed over the weekend? guest: there are similar. the house passed a version in september that did a similar thing. the key point was that it ended the bank-based system of distributing student loans, took the proceeds from that and this to be did it among higher education programs. some of that must cut back because the congressional budget office have to issue an estimate on how much the bill will save. that change because of the land to the senate took to get the bill out. in the meantime, individuals were turning to the department of education on their own, so many to be adjustments made.

there was some money for early to of had that was cut out. the other thing to mention is there is some deficit reduction money. $10 million goes back to the treasury. about $9 billion helped the healthcare bill, helped to balance that. host: you write that company officials will force worker layoffs while costing taxpayers more in the long run through the effects that include lower quality debt collection efforts. explain that. guest: loan companies have lobbied hard on this, making the point that the bank-based system may look it is more expensive because the government has to pay subsidies, but they argue they're giving students and colleges better service.

in the long run, it helps out because they do a more aggressive job of collecting on the student loan debt. that is a complicated argument and get into questions about how you account for payback. some students switch from one to another. there are demographic issues in terms of who uses one system. as well, loan companies have this extra subsidy from the government they can use to pursue students. again, it is a question of resources and wayne there are spent. host: next phone call from martinsburg, west virginia. caller: any time the government takes over -- a part of the government, especially education, liberals will indoctrinate the kids. they can teach the progressive-

type of government. also, the number of irs agents the government will need to police healthcare and the student loan the thing -- it is just mind-boggling. the country is going broke. i cannot imagine the amount of money and will cost to enlarge the irs to take care of this. host: are you saying that the government is going to force students to take certain courses? caller: absolutely. they will set the agenda on what will be taught. and they will have quotas -- so many blacks, so many whites, so many asians. liberals will use this to indoctrinate the kids. even among conservatives get in there --

host: thank you. paul basken? guest: we have not heard any mention of that. political indoctrination as a result of taking a loan. the other thing to talk about is, this talk about the government taking over -- it is a government program to begin with. they have been paying private companies extra money on the side to handle this. again, these are guaranteed loans. if the student does not pay back the loan, even in the back-based system, they give the loan back to the government, and it is their job to go after the loan anyway. what this does it is taking away the top today that was given to the banks to issue the loan.

host: is there anything in the legislation that spells out any guidelines courses that the government will not pay for, not loans will not be provided for? guest: in the student loan program tha d an%7:z@ g"::zz''bz

line. potomac, maryland. caller: i was glad to hear you mention sally mae because that was part of my question. my husband is an eye to professional. it requires a great deal of training and staying up on his job. he has attended local here versus base and they have worked directly with sun in may. we were forced to work with the lender that they used, so you do not really have much of a choice in terms of who you deal with. when he completed his program, we had no ability to negotiate. there was no opportunity to make our payments lower. in terms of this program, i am pleased to hear in that it is

coming available. we pay back harlow and religiously, but at the same time, in terms of being a good a lender to us, i would not consider that to be the case. i would hope, if there is any provision for people like us, for people who are in constant continuing education situations, that there could be some opportunity with this bill. guest: this is an issue that some have raised. loan companies say that being forced to use the government's system is like being forced to go to the dmv. it conjures up images of waiting in her long lines. sallie mae has people who like it, they have people who

complain about it. obviously, the question is whether or not you have a choice. under the bank-based system, you do have more towards, however, it was easier to get through this year because there was attention to the fact that the number of choices that you had as a student were fairly limited because or college loan officer often had a relationship going on with a particular bank. so the real world choices did not turn out to be as wide as you thought. that was important to the loan companies because it gave them an in to the stricken when they offer them private loans as well. host: ken from rocky mountain, north carolina. democrat line. caller: there is a lot good with

the college program, but we also have a lot of people going into these programs who cannot get jobs and is being used as a welfare-type of system. what concerns me from the education standpoint, public schools, we have so many people going into teacher education programs and taking college loans to do it. local school systems are not following through. when they get close to tenure, they are bumped out. it seems when there is not enough oversight on the school system doing that. host: thank you for the call. guest: that has been raised as an issue. also, teaching in certain schools to get a certain forgiveness, teaching in low-

income schools. that could change what he or teaching there. there are some changes along that area. as i recall, you have within 10 years -- i do not remember the exact numbers - -- but there is some