Remarks by:
Obediah Baker, Sr.
Deputy Administrator, Multifamily Housing,
Rural Housing Service, USDA
Washington, D.C.
Addressing CARH:
As most of you may know, the new Rural Housing Service Administrator,
James C. Kearney, comes originally from North Carolina, where he served as
State Director. Prior to that, he served in various capacities with Rural
Development and FmHA: District Director, County Supervisor, and Assistant
Supervisor. So, Rural Housing Service is boasting of the fact that he is the
first career employee who actually worked his way up the ranks to become the
Administrator. We look forward to working with Mr. Kearney, and he looks
forward to working with the industry. He sends his regrets that he could not
attend this meeting.
He did want to say that he has an open door policy. He’s very easy to
communicate with; he’s very easy to reach; he’s very accessible. He is,
in
fact, cognizant of most of the issues that we’re confronted with in our
programs. He has had very intensive briefings from me and members of my
staff. When you do meet with Mr. Kearney, don’t be surprised at his
knowledge
of the issues.
3560 — Rewrite of 1930-C
I want to touch on Regulation Reinvention. I have been asked if the 3560
(rewrite of 1930-C, 1965-B, etc.) will be out any time this year. The answer
is yes. Right now, we are actually having dialogue with our attorneys;
we’ve
had one round of discussions; we did touch base with the attorneys the other
day, and they said it looks good. We expect to have it released back to us
either this week or next. The reason I emphasize the dialogue with the
attorneys is that, other than OMB, that is the toughest hurdle that we have
to overcome during the regulation clearing process.
Some of you may be wondering that since we have been talking 3560 the
past few years, and it has been about three years since the Stakeholder
meetings, and you have spent time and money assisting the Agency in putting
the policy together, and you hear that we are still making promises about
when we will have it out the door. This is a mammoth task. You look at the
Multi-Family regulations as they exist today; first of all, the government
is
trying to reduce the amount of paperwork. Well, we’re trying to reduce
that
regulation. Secondly, the Multi-Family regulations (1930-C alone took on a
life of its own); however, we are collapsing all of our Multi-Family
regulations into one, and that is 3560 with certain parts. We’ve reduced
the
number of pages as they exist today by more than one third; I would say by
half. However, a lot of information that is going to be in the regulation is
primarily based on existing law. Administrative policy will be in a
handbook.
That’s what most of you have been asking for.
We indicated to you last year that when the regulation went out for
Proposed Rule, we would release that handbook. We still intend to do that.
Of
course, the handbook would be tentative; it would be subject to any changes
that would come out as the result of the 60-day comment period on the
Proposed Rule. We do expect the regulation to be out by the end of this
Fiscal Year on September 30.
Limited 515 Funds
On 515, we issued a NOFA on the 21st of December. The total 515 Budget
for this year, as reflected in the NOFA, is $114.3 million. This dollar
amount
obviously is problematic in terms of what we can accomplish. Out of this
$114
million, we are committing $55 million for rehabilitation and equity loans;
the balance is for new construction in EZ/EC areas, in under-served
counties
and colonias and non-profit set-asides; some funding is available for new
construction proposals not requiring Rental Assistance.
This year we were allocated $640 million for Rental Assistance. The
lion’s share of that will be for Renewals. And then for repair/rehab, Farm
Labor Housing. Very few units are available for new construction. We project
that about $11 million of the 515 new construction will be without Rental
Assistance.
How does that impact the regulations we have out now? The 515 Reforms
from 1996 required us to go to Designated Places. What we asked the States
to
do is to go back and take a look at their Designated Places list, and
because
of the possibility of having to reach communities with proposals that will
not have Rental Assistance, we asked the States to go down the list and take
a look at communities that would give a higher median income where there is
a
much better chance for non-RA proposals being feasible. We will be doing
Rental Assistance with our non-profit set asides, the under-served counties,
the EZ/EC. We have $1.5 million in 515 funds for states that have state-funded RA; then we have $9.5 million in a general reserve. The quandary we
have is the dollars we have — the $22 million for general 515 construction
— without sufficient RA.
On Leveraging. Rental Assistance and the 1% loan basically drive the 515
transaction. In 1999, 40% of the total development that we did in 515 came
from non-Agency sources. We actually leveraged about $51 million in addition
to the dollars that we actually put out last year. The $51 million in
leverage amounts to about 67¢ on the dollar; for every dollar of 515 we put
out, we actually attracted 67¢ from other sources — from commercial banks,
developer contributions, Low Income Housing Tax Credits, HOME funds, state
development funds, state housing finance agency funds, just to name a few.
I want to thank you for your diligence and resourcefulness in, first of
all, finding dollars. In many instances, I’m told, they came out of your
pocket in order to apply those dollars to a 515 transaction to make it work.
If that had not happened, or if that does not happen, there are very few
projects that we can get off the ground with the few dollars that we have.
As
a matter of fact, the leveraging that you threw into the transaction (the
extra dollars, the extra resources that you did put into the transaction)
caused us to be able to finance an additional 820 multi-family units. I
think
that’s phenomenal. As our resources have dwindled in terms of loan dollars
—
you’ve kicked in, you’ve stepped up to the plate, and you’ve put in
your
resources to make it work.
Rental Assistance: Limited
Essentially what has held us together — the key — is Rental Assistance.
We’re going to do all we can in Washington to continue to submit the
message
to the Congress that the Rental Assistance as well as the Section 515 direct
dollars are, in fact, a much needed resource.
Section 515 Servicing RA — just a word on that. I don’t know if most
of
you are aware of this or not, but when you ask for just five or ten RA units
to make a property work — RA is the largest budget line item in Rural
Development. This year is $640 million; next year we’re looking at well in
excess of $700 million; this is what we’re asking for. It is a phenomenal
budget line item; it is the pulse of the program right now. But we have
problems.
When we don’t get enough dollars to go around — right now, as I
indicated earlier, out of the $640 million allocation we did receive for
Rental Assistance, the lion’s share of that will have to go for Renewals.
If
we don’t renew the contracts that we have now, as you well know, the
housing
will no longer be affordable for those who are occupying the units. We’re
not
the only Agency with this problem; HUD has a similar problem. But HUD’s
problem is of a much greater magnitude. We’re working closely with HUD to
leverage our resources with HUD in terms of their Section 8. We attended a
telecast about a month ago where HUD was announcing how they’re going to
handle the Section 8’s. I can say that HUD is working diligently and that we’re
working closely together to make this thing work — to make Rental Assistance
as well as Section 8 units work.
Continued Need for RA
Most of you may not be aware of this, but there are about 5.3 million
families that actually are paying 50% of their incomes in rents. This is
basically what we say to the legislators, what we say to the appropriators,
when we prepare testimony for the Administrator to go on the Hill. What
that’s saying is that you have that many families out there (and a lot of
them are within properties that you own) who are in fact in rent overburden
situations. As project operating costs sharply rise, necessitating higher
rents, we continue to see a dire need for Rental Assistance out there.
That’s
the only way we’re going to continue to be able to reach very low, low,
and
moderate income families in rural America with Affordable Housing.
Farm Labor Housing
Farm Labor Housing. This may be a different program for you. The reasons
I’m mentioning the Sections 514 and 516 Farm Labor Housing program to you
are
that it is a rental program with a 1%, 33-year loan term. Non-profit
organizations may receive up to a 90% grant. We now have authority to use
Tax
Credits with 514 loans; we are authorized to use Rental Assistance as an
operating subsidy for migrant, seasonal farm labor versus direct tenant
subsidies. Legislation enacted last year basically says that if you have a
for-profit entity co-venturing with a non-profit entity, that entity becomes
eligible to apply for a Farm Labor Housing loan. That transaction could, in
fact, attract Tax Credits. Last Fiscal Year, 1999, was the first year we put
a NOFA out on Farm Labor Housing. Most of the NOFA responses we received
last
year were from joint-venture entities; we do have a lot of non-profit
entities who are interested in the program. Essentially, the non-profit
entities are eligible for both loans and grants. The joint venture
non-profit
type entity would be eligible for Tax Credits, would be eligible for a 1%
loan, would be eligible for a 33-year term, would be eligible for Rental
Assistance. I view this as a business opportunity for most of you. It might
be something you want to consider. We’re looking at the states adjoining
Florida where there is a dire need for this type of housing. Farm
Labor Housing, off-farm facilities, take on a close similarity to Section
515. Under the rule, we’re not limited to the 20,000 population; there is
no
population limit in terms of location of the facility.
Section 538
Section 538 Rural Rental Housing Guarantee Program was introduced to us
as a Demonstration back in 1996. For about two to three years it was
implemented and managed without established regulations. It now has
regulations which were issued last year. You were instrumental in shaping
the
policy, shaping the provisions of that regulation. We had Stakeholder
meetings; you flew in to Washington; we flew out to you. We gave
presentations. The regulations and the handbook are now in your hands.
One way we measure the success of a program is the increased trend in
funding appropriations by the Congress. In 1996, the program started out as
$16 million; if you look in the statute it will say $1 million of the 515
dollars, but when you apply the subsidy rate to it, it translates into about
$16 million in transactions we were able to put out on the street to you. In
1997, $25 million. In 1998, $38 million. 1999, we did $74 million in
transactions. In Fiscal Year 2000, we expect to do $100 million in
transactions.
For those of you who haven’t tried the program — no, it’s not 515;
it’s
not a direct program; the subsidies are not as deep; you can’t reach as
low
on the income in terms of market. But it’s a program out there. It’s
working. We’re proud of it. It’s not intended to replace the 515
program,
but it is intended to supplement it. Basically, it affords us the
opportunity
to serve a market that we haven’t been able to reach in the past with the
515
program because of incomes being too high.
Just to give you a little background on what happened last year on the
538, right now we have about eight on line; the eight have been built. The process
is
that we invite applications in a NOFA. Typically, from the time we invite
the
application, it might take a year or more to put the package together.
Responding to the NOFA is a preliminary step. What we’re saying to you is
we’ve earmarked dollars for this transaction; here are the steps — you
put
the package together. When the property is up and running for 90 days (I
believe), we issue a guarantee on it. The eight that we closed are the ones that
are on line and in operation. We have some 30-40 transactions out there that
are being developed today. On 538 Leveraging, for each Guarantee dollar that
we put out there, we attracted $2.50 in other sources.
Portfolio Performance
On our Portfolio performance, you deserve the credit. We in the National
Office (yes, we’re program managers, and the States are program managers)
take credit; but most of the credit we want to give you. We couldn’t have
accomplished the following statistics without your patience, your diligence,
and your cooperation with us. As you know, we have over 453,000 units out
there in the portfolio consisting of 17,800 properties. We have $11.9
billion
dollars in outstanding loans. Right now we have a 1.7% delinquency rate; our
delinquency rate over a 30-year period stands at 1.3%. Just think about that
— you have 453,000 units, you translate that into the number of people that
you’re providing housing for, close to 18,000 properties, you have less
than
a 2% delinquency rate. We have only eleven properties (and this says something,
too, in terms of location, soundness of construction) in Inventory, meaning
properties that we have repossessed. $14.9 million out of $11.9 billion in
the history of the program have we had to write off — that’s less than one
percent. So apparently we (when I say we, I’m speaking of you as program
operators, managers) are doing something right. So, again, I’d like to
extend
my gratitude to you for a job well done.
Enforcement
You’ve probably heard us mention the enforcement arm. I
just
want to make a few comments along those lines. What has happened is we had a
Presidential Initiative a couple of years ago with the OIG. In other
words, we basically surveyed twelve states, which expanded to seventeen states. I’m
just
giving a little background for those that may not have heard this before.
What came of that was very positive: The Undersecretary wanted to know where
do we go from here; things really aren’t as bad as we thought they were.
Enforcement Arm
Well, we set up an enforcement arm — nothing close to what HUD
has. However, we want to work very closely with the Department of Justice,
the OIG, and our OGC in identifying cases that are in fact not working out
well: “bad borrowers; bad situations.” Patrick Sheridan, on my staff, is
heading that up.
What we’re setting out to do is to train a cadre of individuals from
various
states to be on call, on a volunteer basis, to work with us to work through
complicated situations. Right now, we’re trying to get help from our OGC
to
designate an individual to work with us either on a full-time basis or on
call to help us walk through the more complicated cases that we encounter.
That’s all it is.
We want to send the message to Congress, first of all, that when the
Rural Housing Service is out there dealing with enforcement actions,
servicing actions, we know what we’re doing; we have a solid program.
We’re
looking not only at loan development, we’re looking at solving our
problems,
correcting the mistakes that we make. We are not after any borrower; we are
not playing detective; we are not coming after borrowers like gangbusters.
That’s not the idea at all. We feel that a strong enforcement arm is
critical
to the longevity of the program; there’s no way you can have an $11.9
billion
portfolio without having problems. All we’re doing is gearing ourselves
up
to address those problems professionally.
If we continue to ignore them, we have serious problems.
The Aging Portfolio comes into the picture. As our portfolio ages,
we’re
going to encounter problems. We want to be able to work with you. The key to
avoiding a lot of this is early warning signs. You may hear us talk about
early warning signs.
That is it in a nutshell. We want to continue to work with you. We want
to develop a much stronger partnership; we’re going to hit some rough
spots
along the way. But, I think we’ll survive. We’re trying to make what
resources we have go further.
Thank you for your time and attention.
Next: What To Do When The Government Comes Knocking