Jan Shadburn
Administrator
Rural Housing Service, USDA
Washington, D.C.
Addressing CARH:
It is indeed a pleasure for us to be here.
I would like to extend our appreciation, on behalf of the staff at
Rural
Housing Service, for
the opportunity to be here.
Let me make some comments about the past year. I think it is
significant
to look at the challenges the Rural Housing Service has been through
over the last three or four years — name changes, challenges in our budget
program level, and challenges in our Salaries and Expenses.
Impact of S & E
As we go through today, I want to impress upon you how important the
Salaries and Expenses part of our budget is. Salaries and Expenses drive
several things. One is the FTE’s, that is, the people we have out in the
field
to service you: If we don’t have the people, we can’t give you service. If
they are not trained, then we have a problem — whether it is 515 or 502. If
we don’t have the Automation money we need, in which we’re behind right now
— we’ll talk about that. And then program loan costs — that’s simply the
money that we have in the kitty to do many things in terms of contracts,
audits and that kind of thing.
When I look at FY 1998, which seemingly was only yesterday, Rural
Housing Service—with your help, the State Offices’ help, and the National
Office’s help—did almost 72,000 loans in home ownership and home repair;
we did some 3,800 new construction and repair/rehab loans in the 515
program,
and over 750 community facility projects including hospitals, jails, nursing
homes, assisted living, and that kind of facility. The year before, we did
some 450 community facility loans. You can see the increase from FY 1997
when
we did some 52,000 home loans across the board. So, we did have a good year
in 1998.
In FY 98
In 1998, we looked at staffing: Obie Baker came on board as Deputy
Administrator for Multi-Family Housing. Looking at Reforms, as all of you
know, in 1998 we came out with Reforms that Congress mandated; you were part
of putting that together. On Reinvention, the Stakeholder Meetings went very
well and they are continuing. We developed new products and handbooks. We
established the Office of Prepayment and Preservation. We are looking at
Industry Interface, where we can transfer our Tenant Certifications
electronically. We expanded our focus on leveraging and partnerships —
that’s been our focus for the last two or three years, not only in the 515
and 538 programs, but also the 502 program; it has proved to be very
beneficial.
OIG/RHS Partnership
Last year we also had the OIG/RHS Partnership, which turned out to be
very beneficial. It was the first time that RHS staff had been asked to
participate in identifying what we felt were the most troubling projects.
Out
of that Partnership and that Audit have proved to be some things that we are
sitting down with the IG right now. In those highly challenged projects, we
found 33 that still had Health and Safety violations, Identity of Interest,
and Fraud, Waste and Abuse. So we’ll be working with the IG very closely —
not only in the 515 program, but also they have done an Audit on our 502
Guarantee program.
I think the OIG/RHS Partnership in 1998 proved to set a new tone. How
we
work with the IG, and their response to the Hill, I have found since I’ve
been here since 1995, is one key to the future of this Agency. One key to
our
relationship with the IG is where we move forward with their information to
the Hill.
Portfolio Management
The other thing in 1998 was Portfolio Management. We focused on our
delinquency. I’m very proud of our staff, the Field staff, and you to help
us
in looking at our delinquency: 18,200 projects, $11.5 Billion portfolio —
the delinquency is 1.9%. Obviously, as we move into 1999, we will talk about
where we’re going in Portfolio Management. Whether it is Portfolio
Management
in the 515 or 502 program, that is a balance between the loan making and
loan
servicing. If we don’t service our loans and protect the portfolio that we
have, it will come back to haunt us.
Single Family 502
In the 502 program, in looking at what we did in 1998, we expanded the
partnerships and leveraging opportunities with private lenders (we have over
two thousand lenders) — we are looking at other agencies, including State housing
finance agencies and other Federal agencies such as the Federal Home Loan Bank
and others. In terms of other challenges that we had in 1998 and successes
with the implementation of our Centralized Servicing and Loan Origination
System in our 502 program — the largest project ever undertaken. Taking
650,000 loans and moving them to one place; starting from scratch with
buying
equipment; bringing in 650 employees (many from the private sector, some
from
the Agency), training them and then turning around and doing loan
origination
and escrow, which was brand new to the field staff. This was mandated by
Congress back in 1987. We were able to start in October 1996; we were
mandated to have it up and running by October 1997. We did that.
502 in FY 98
Also in 1998, we started the Reinvention of the Guaranteed Single
Family
Housing program —. We have a lot to work on with management and oversight.
The success of 1998 was a blessing because we didn’t run out of money. I
shifted money around and started moving money around in June. The curse was
that nobody ran out of money, so there was not an outcry to Congress because
everybody felt like we had plenty of money. The only time anybody ever has a
problem is when we don’t have money. Some people say we should have run out
of money so we would know the impact — that’s hindsight.
Where are we in FY 1999? Obie will talk about the NOFA for the 515
program and the number of applications that appear to be out there. As all
of
you know, we had about $114 million, down from $150 million in FY 1997. We
decided that we would have a national NOFA, and to cut out part of the 114
for new construction, hoping that somehow (with our working with the IG,
working with you, and working with others in the industry) that we can focus
the attention for one more year on the need for new construction in 515. I
realize that the focus right now is on the new 538 program, but we do have
to
have a balance between the Guarantee and the 515 program. We’ve got 18,200
projects out there, and you’ve got to have some new construction. At the
same
time, you have to have enough money for repair/rehab.
FY 99 Repair/Rehab
I just signed and gave back to Obie the selections on repair/rehab
projects. We focused on Health and Safety, and then the State’s priority
Ones
and Twos in conjunction with the OIG deferred maintenance piece that they
had
in their Audit Report. So we’ll have about $31.5 million — I’ll have to put
in $1.5 million out of my reserve — to make up the repair/rehab. The
problem
is that $31.5 million will not keep up a portfolio of 18,200 projects.
Aging 515 Portfolio
I needn’t fool you nor myself; we’ve got an aging portfolio. Probably
50% of our projects are reaching over 20 years old. It is very difficult
when
you have those kinds of numbers that you’re not going to have increasing
repair/rehab needs. So I’m saying that with $114 million and what we’re
going
to do with it.
In terms of the 538 program, we have been very successful with that for
the past three years. I appreciate very much the interest in the 538
program,
as well as the interest in our Management and Servicing Regulations. Some
$74
million over the last three years in 538 projects; last year we had a very
short three-week window and got a tremendous response. Obviously, the 538
program is certainly a balance to and addition to our 515 program.
Automation at RHS
I can’t say enough about Automation and the future of
Automation, not only for the 515 program, but also the 502 program. We are
right now meeting and trying to look at ways in which we can set up and
automate the 538 program so that we can transfer data and we can keep up
with
where our projects are. And so the lenders and servicers can transmit these
data electronically. If you can imagine in the 502 program that we have some
104,000 loans, about a $6 Billion portfolio, some two thousand lenders — we are
transferring that information by paper every month in terms of our
delinquency. It is imperative on our automation that we develop a good
Automation program. Also with the Industry Interface, which is being headed
up by Larry Anderson — we’d set a goal at 75%. Right now, in terms of what
is working right now, we have 35% to 36% of those units that qualify on the
Industry Interface.
515 Prepayment and Preservation
On prepayment and preservation — a real challenge for us. We are going
to set up a group to be chaired by someone outside the Agency — to include CARH
and others — to look at prepayment and
preservation issues. Right now, according to
the
last figures I saw, we have about $20 million in projects that were on the
waiting list, some 67 projects, and I think they date back to 1991. We have
staffed the Office of Preservation with Larry Anderson and Cynthia
Reese-Foxworth. The consistency in terms of dealing with prepayment and
preservation is certainly important in terms of the field and National
Offices, as well as giving you good service in terms of how we handle
prepayment and preservation.
Funding for Preservation
The challenge simply is this: I don’t have any money! I can’t do
incentives or equity loans if I don’t have any money. I know that many of
you
have been looking at going to third parties — but there’s no Rental
Assistance! Most every time when you look at a prepayment and preservation
issue, it has to do with adding Rental Assistance.
On the legislative side, we’re working on several things. One thing
that
is important is looking at the Interest Credit on 538 — to drop that and
put
that back into the Budget Authority (BA) to drive a higher funding level in
the 538 program.
We’ve talked about the OIG Audits — I can’t say enough about how
important that is as we move forward, not only in 1998, but certainly as we
move forward in 1999.
We’re open to sit down with you on the utility issue (deregulation of
electricity) and look at things we might support.
Y2K is certainly an issue wherever computer chips are involved,
not only in your projects, but also in the support projects that we have
such
as daycare and other areas in support of the Rural Rental Housing program.
It
is important. We will be getting some information out and working with CARH
to make sure we focus on the Y2K issue.
Aging 515 Portfolio — Two
What’s ahead? Obviously, an aging portfolio in the 515 program, and how
to deal with an aging portfolio. And the only way to deal with an aging
portfolio is for us to do a good job out in the field in working with the
industry to make sure that we’re taking care of the issues and looking at
taking care of issues while they’re small when it takes a small amount of
money to do it. Prepayment/preservation is another issue. So far I’ve
said the aging portfolio and prepayment/preservation — both of them
require
money, both Rental Assistance and dollars.
99.5% Good Portfolio
Working with the IG on facing these Audits and the things that they’ve
found in these projects, and working with them on satisfying them and the
Hill
— that I think someone said earlier that one half of one percent (0.5%) of
the portfolio of the projects out there get most of the attention. The other
99.5% don’t ever get any attention. That’s something that over time we have
worked, and the IG, I think, is feeling like we have addressed the issues
and are working hand in hand with them.
We’ve got to look at the budget — both from the staffing, training and
Automation. And then, certainly, looking at the budget from the standpoint
of
program levels.
In summary, let me just say I think we had a excellent year in 1998.
With the help of your group we have solidified not only the partnership, but
have improved the products that we are trying to deliver to be customer- and
user-friendly. The 2000 budget is very important. The things that you would
like to see both in the Rural Rental Housing program as well as the 502
program, not only from the standpoint of the program levels, but also from
an
understanding of the Salaries and Expenses and the training and the
Automation side — it requires money.
With Your Help
I think that with your help, at Rural Housing Service USDA Rural
Development, both with the downsizing and restructuring that we have done
out
in the field by shutting down 400 offices and reducing field staff by over
600, by centralizing our servicing, by doing the Reinvention and the
Reforms,
by taking action, and by partnership in leveraging, and looking at our
Automation, I don’t know how I can ask any more out of the State Directors,
State staff, and others. I certainly don’t know how I can ask any more of
Obie Baker and his staff, and your participation in the Reinvention of our
regulations and development of new products.
I came from the private sector in 1993. I’ve been at the State level,
and I’ve been the Administrator. I do not know of anything else that we can
do. We need your help. We look forward to your partnership.
Thank you very much.