John Meyers, 515 Housing Consultant

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Back to > CARH June 2005

 

1.   CAPITOL HILL PERSPECTIVES

Fitzhugh Elder, IV
Deputy Clerk
Senate Appropriations Committee
Washington, D.C.
 

As I said last year, there’s nothing like talking about rural housing at the Ritz-Carlton.

Bill Simpson left the subcommittee and went to the HUD subcommittee. Thankfully he’s going to do rural housing. But now you have probably the only person on the Senate side who understands both RHS and HUD issues. While the HUD subcommittee is lucky to have Bill, we miss his able interactions we had when he was solely on the Agriculture subcommittee.

Two issues we have been dealing with on Rural Housing have been the CPA report that came out last Fall and the Budget that came out this Spring.

We welcome that report. For a lot of us, or at least for me, it is the first comprehensive overview of what is going on in the 515 program. It gave us some good things to ponder and decide how we’ll go forward and what’s the role of multifamily housing in the future.

Increase in Budget Direction

I was concerned when we got the report because the trend in our budget over the least couple of years has been downward. This report called for increased infusion of funding in the 515 portfolio. I was concerned. Here’s a report that has some ideas but I would be surprised if there’s any funding to go along with it; in February, the Budget came out and I was surprised with a proposed $200 million Voucher program. There were some others too: a sizable increase in Rental Assistance and in 538. That being said, we were surprised. I think that was a major testament to the need of the program.

The fact that we’re in our third year of declining budgets for USDA, and in a Budget that’s $100 million below last year’s, to have a new initiative of $200 million is actually quite an accomplishment. It demonstrates that there is an acceptance within OMB and the Administration that there is a series of structural issues in the multifamily housing portfolio. So I’d like to give RHS credit for pushing that, for being successful with OMB because I’ll tell you there are very few new initiatives this year in the Budget. As I said, HUD was $100 million below last year. As an Appropriator, that’s a pretty significant achievement.

The President’s Budget also canceled $100s of millions, probably about $300 to $400 million worth, of projects that are important to Members of Congress. These things compete obviously with the Rural Development title, RHS funding. It also included about $250 million of user fees that they assume would be enacted and count toward meeting the Budget. Historically, most user fees have never happened, so those will not. So we’ve got to come up with the difference — that $200 million.

So, actually we’re a little bit in the hole, probably $500 to $600 million in the hole just to get back to what we did last year. Which would be the second year of an increase in the Budget.

I guess I have a couple of concerns about what is in the Budget. The CPA called for a number of initiatives. Obviously there were Vouchers; there were incentives to maintain the portfolio. The proposal only called for Vouchers. Unfortunately, we don’t know exactly how this Voucher program is going to work. We’ve asked a number of times; hopefully they’re going to some news for us in the next couple of days. But it is hard for us, and I think the House is in this position, it is hard for people to appropriate dollars, especially hundreds of millions, when they don’t have any idea of how it is going to be spent.

That being said, the Senate recognizes it as an issue. Bill Simpson and I are working closely together to develop some demonstration projects that will meet the needs of Rural Housing. There could be some prepayments this year; we assume there could be some people who need a Voucher. They are also in desperate need for incentives for the portfolio. So we’re trying to develop those.

I’m concerned that there are probably about 35-40 legislative days left in the year. The Senate Banking Committee has not dealt with Rural Housing issues in seven, eight, ten years. There’s not a staff understanding of how RHS programs work and there’s certainly not a member understanding of how RHS programs work. When the legislation does come up, there’s a lot of work that has to be done to catch up staff and members on the issues on the 515 portfolio. And that’s going to take some time; these are complicated issues. There’s not been attention focussed on it in the past.

On top of that, the Banking Committee in the Senate has spent a lot of time on Fannie Mae and Freddie Mac. For them to switch gears late in the session and start focussing on Rural Housing is going to be a challenge. I hope they’re successful because the portfolio needs it. But you’ve got to understand there is a serious time crunch we’re facing just to get things accomplished this year, the 109th Congress.

I think we’re going to try to do some new construction in 515. I’d like to see some more money in 538 for this year — more than we did last year. We hopefully will be able to reach some agreements on how to proceed on incentives, Vouchers and such for the 515 portfolio.

Thank you.

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2.   CAPITOL HILL PERSPECTIVES
 

William Simpson
Democratic Staff Member
Senate Appropriations Committee
Washington, D.C.
 

I want to thank CARH. CARH has been important to me for over a decade now, to help from a practitioner’s point of view to see that the things we do make any sense at all.

There are three things I want to talk about today. I’m going to outline Rural Housing Service’s proposal; I want to outline Senator Kohl’s proposal (D-WI); and then I want to outline your role in this process and how you can help as practitioners and experts to see if what we’re doing makes any sense and if it’ll truly have an impact.

I, too, want to commend RHS for getting in the $214 million due to the CPA report; I thought it was excellent. As you heard from Jack Gleason, authorizing language has not been transmitted, so the House provided zero. We need to address that. Even if the legislation were submitted today, the Banking Committee and Financial Services in the House are tied up with the GSE legislation. I think we need to move ahead and do something. As my father would say, we don’t need to be loitering in a public place, we need to get something done.

For Senator Kohl’s proposal for 2006, we drafted a very, very rough draft and had been working with CARH on a modest Voucher program. It is different from HUD’s entirely; it is not an enhanced Voucher. It is subject to annual appropriations, it is not going to be a five year term. We even tried to be somewhat creative so it could be shifted back to unit-based as an extra incentive, but it was pretty complicated and we dropped that provision. We had something in place with the Voucher that we will try to put forward with your help.

Demonstration

We want to do a Demonstration, kind of like a mini-OMHAR, similar I believe (we haven’t seen the legislation) to what the Administration wants to do, which will allow the Secretary to restructure existing 515 loans as the Secretary deems appropriate, including reduction or elimination of interest, deferral of loan payments, subordination, reduction and reamortization of loan debt, and other financial assistance including advances, required by the Secretary for the purposes of ensuring the project has sufficient resources to provide safe and affordable housing.

Hire Experts

That’s something we would like to do in the Demonstration because I think the time is right to move ahead. When the Administration’s legislation does come forward and get acted on, at least we can get it started in representative spots around the country to see how this is working. This is similar to what HUD did; it’s different of course. But a lot of this stuff is not new. We also have a provision in there where a project prepays, the Rental Assistance associated with the project is deobligated, but put back in for preservation purposes. So you can actually keep track of it and to limit the costs. Our proposal does have a minimum rent of $50, which I admit will not be popular with some folks.

We also want to give the Rural Housing Service the authority to go outside and hire experts, similar to what HUD did. With people with expertise in market analysis, management, mortgage restructuring, housing and finance, taxation — a lot of expertise that all of you have, the Rural Housing Service can go outside and really get the talent that’s needed for complicated deals, not the simple restructuring, but the really complicated deals that all of you have to do when you piece together these long, complicated multi-family projects, especially with limited Federal resources; where you have to borrow and beg Tax Credits and every other source.

We want to go forward with that. We hope we can have your support. The Banking Committee and Financial Services are wrapped up in the GSEs; I don’t think they’ll have time to review this.

On the HUD front, one of our major concerns is the hole in the Bill — you have this brand-new subcommittee: now HUD is with Transportation. That’s pretty tough; you’re competing with a house and a bridge. Before it was a NASA competition. Bridges and highways are pretty hard to compete with, too. The Senators on both sides of the aisle have gone around saying don’t worry about AMTRAK, we’ll take care of it; the Administration says let it go into bankruptcy, it’ll cost from $1.2 to $1.8 Billion to fix it. You have contracting issues with the airports. The House has a rule that they can’t accept the savings — there’s a Billion plus hole there. CDBG has a little hole in it — $1.7 Billion.

So when reality hits this fall, actually this summer when we actually have to write the Bills, it’s going to be extremely difficult. I don’t have much experience with HUD; I used to deal with it years ago. Just the $2.5 Billion recission that the Administration has in their Bill, it’s common for HUD recissions, going back to the HUD Secretary Cuomo days and even before that. However, as you know, HUD went to a budget-based way of appropriating money for Section 8. All the low-hanging fruit in the other extra money legally is gone. Is the $2.5 Billion there? Chairman Bond (D?-MO) asked HUD Secretary Jackson point-blank to show us where the money comes from; they sent up a letter that said, historically the money has always been there, and we think it will be there this year — the language says under the Section 8 certificate or any other heading, so that means anything within HUD. That is a serious concern.

You have competing interests. The good people, overwhelmingly the Members of Congress are very good people, come up here for a purpose: public service. They have to balance this in a common good.

Thank you.

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3.   CAPITOL HILL PERSPECTIVES
 

Jeff Riley, Esq.
Democratic Staff Member
House Financial Services Committee
Washington, D.C.
 

Our committee has been very busy this Spring with the GSE legislation. I was involved with it regarding the rural aspect of it, making sure that the legislation included manufactured housing, Native American Trust Lands, and of course the Section 515 program. All three of these are very important to Congressman Frank (D-MA). Mr. Frank doesn’t have Native American Housing or any Rural Housing period in his District.

He is very concerned about this Affordable Housing and would like me to pass on to all of you that he would like to hear from everybody regarding what their concerns are about rural affordable housing. On that note, we were kind of disappointed that our phone didn’t ring more during the GSE legislation; we would have liked to hear more regarding rural housing and especially Native American and Section 515 programs and Manufactured Housing.

We did however manage to get that into the Bill. We worked closely with Congressman Ney’s office (R-OH); he was very good about listening to us. We have several specific references to rural in the GSE legislation. We have specific reference to the 515 program. The GSE is to serve the under- served markets. The GSE shall lead the industry in developing loan products with flexible underwriting guidelines to facilitate preservation of Affordable Housing, including housing projects subsidized by the Section 515 program. That’s very important language. Especially the developing loan products and flexible underwriting guidelines.

Linda Goldstein would probably say they need to develop creative products, and we are working with them, pushing Fannie and Freddie to come up with some more creative products for the 515 program.

We feel pretty good about what we did get into the GSE Bill. It has a long way to go — it still has to pass the full House, then it goes over to the Senate, and who knows what they’ll do with it.

The other important part of the GSE legislation, of course, is the funding. I’m sure you’ve heard about this 5% funding we got through. That was pretty interesting. I was surprised with the majority’s reaction to that — a big part of this GSE legislation. We’ve heard a lot from Fannie and Freddie’s competitors, and they’re very concerned about creating a level playing field and not letting Fannie and Freddie do any primary mortgage activities: well of course their charters already prevent that. But they still insist on using this legislation to create a brighter line between primary and secondary market activities.

The majority went to reduce them from 5% to 2.5% and we found that very interesting because these are the loans that their competitors don’t want to make anyway. These are the loans that their competitors you’d think would want Fannie and Freddie to be financing because they’re not loans their competitors would ever want to buy. Moreover, 5% is more punitive than 2.5% when it comes to Fannie and Freddie. In the end we did get a 5% fund. It is very general right now; I’m sure it will go through several changes as it goes through the system. We hope maybe as we get through, especially once we get to Conference with the Senate on the Bill, we’ll have more specific references in that fund. Hopefully, maybe, we can carve out for Section 515 and other rural programs.

Vouchers

On the Budget, we were happy to see the $214 million for Vouchers. We’re a little concerned about how that Voucher program works. Of course, Mr. Frank doesn’t want to see any unit lost. Those Vouchers, once the tenant dies or once the tenant moves, are gone. So we were a little concerned about that. The Appropriations subcommittee killed that $214 million, took that out and did fund the 515 program fully at $100 million. So we were happy for that.

I don’t know if you remember that Mr. Frank introduced the Displacement and Prevention Act last year. That was an Act dealing with the preservation of Affordable Housing to save the units from being lost; last year it had an urban section. This year we’re working to add a rural section.

Let Us Hear From You

We’d love to hear from you and what you think should be going into that. We’re going to follow Bill Simpson’s model in what we did last year when he created a 1% loan program for the preservation of 515 units. We’re going to start with that as a model. I’m going to work closely with Bill and try to come up with something. Who knows if it’ll go anywhere; the Majority in the House unfortunately don’t like to see Housing legislation, but we’re going to work closely with our colleagues on the other side of the aisle.

We have a great working relationship them, with Mr. Ney’s staff and other folks. We get along great. Unfortunately, when we get into the bigger House there are more problems. That’s where we stand; we’d love to hear from you. I’m looking at my phone waiting for it to ring to hear from you on rural issues. I’m happy to learn more and happy to get your input.

Thank you.

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4.   CAPITOL HILL PERSPECTIVES
 

Clinton Jones
Senior Counsel
House Committee on Financial Services
Washington, D.C.
 

Let me take a few minutes to talk about some of the priorities that we’re working on and some of the legislation.

We have three things we are working on at the moment. One is the GSE legislation. There’s been a lot of publicity, a lot of reports on issues related to Fannie Mae or Freddie Mac. We’re currently in the process of moving a Bill that creates new regulators for Fannie Mae and Freddie Mac. We had a mark-up on the Bill this week that, in the Committee, we actually reported a Bill out after amendments and deliberation; that was the Wednesday before the Memorial Day recess. We created this new regulator; one aspect that you probably have a particular interest in is that we had an Affordable Housing section with goals so it would be very clear on the type of goals they would have to meet.

We have single-family goals with a delineator on that to consider 80% of area median income, they have to focus on low income families or neighborhoods that are considered low income defined by census tract.

GSE Multi-Family Goal

We also have a multi-family goal. Within that goal, we are giving the Director the authority to establish further requirements to assure that Fannie Mae and Freddie Mac meet certain goals that address smaller multi-family developments. The concern that we have in putting the goals together is that Fannie Mae and Freddie Mac would be given the same multi-family goal, they would go to the urban centers — California, New York — and never really address smaller multi-family developments in some of the smaller areas, particularly rural areas.

We also inserted language that said they had to do certain underserved markets, that included manufactured housing and preservation of Affordable Housing developments as well as a special category: rural and other underserved areas.

We are not sure what the new products will be in the next 10 or 15 years. The assumption is that once we pass this Bill, we won’t have the opportunity to go back and amend it, so we wanted to be as flexible as possible to the regulator to push Fannie and Freddie into markets they should be serving without tying their hand now with the product they have. So we think that if the Bill is enacted into law, that you would see definitely more emphasis, I think, on low income and very low income areas — rural areas and non-urban areas. We’re very happy about that.

FHLB Model

My question always is: what are the prospects for that? Obviously, it is a controversial Bill. However, it passed out of the Committee 65 to 5: 65 affirmative, 5 no. It is going to the Floor.

We had a provision in there to create an Affordable Housing Fund using 5% of the after tax profit of Fannie Mae and Freddie Mac, to develop Affordable Housing on the multi-family side as well as on the single-family homeownership side. When I left we had a bunch of folks having problems with that particular provision; when I came back on Monday, some of that had dissipated using the model of the Federal Home Loan Bank System where it has a very effective and non-controversial Affordable Housing program.

I’m not sure where the Senate is.

So that’s obviously taking a lot of resources. I think it’s a very significant, hallmark piece of legislation. It will have some measurable impact on those that are interested in rural housing and development.

Predatory Lending

The second piece of legislation is a Predatory Lending Bill. Congressman Ney, the subcommittee Chair, wants to address some of the issues involving abusive lending practices. He has introduced the Bill; I don’t know as much about it to give you the details. I assume the Bill will be referred to our Financial Institutions subcommittee. Somehow along the line, the Housing subcommittee had the referral also, and they are now looking to us to be the lead subcommittee in helping to move the Bill and develop new amendments. I think you’ll see a lot of energy on that particular Bill in the next few months. This will have, I think, a significant impact particularly on the sub-prime lending area dealing with those communities and those borrowers who have maybe not perfect credit scores or perfect credit scenarios, but there is a market for homeownership.

The third piece of legislation, which I’m actually excited about because I think I see some momentum for this, I think we will have a Section 8 voucher bill at least on the House side. We’ve been work with our Democratic counterparts. I think the consensus is that Mr. Ney and Mr. Oxley (R-OH) said they want something done; I think that what we’ll do is look at all the possibilities. Mr. Oxley always says that politics is the art of possibilities. I think whatever we can get a consensus on, whether that is rent simplification (as far as I’m concerned, if we don’t do anything with rent simplification, I’d be happy) or to put procedures in place to make the Section 8 voucher program work better, we’re working on that. We have ongoing discussions; of course, the Administration has their Bill and changed its mind. What I anticipate is that the Bill that comes out of the Committee will probably not reflect the Administration’s priorities, but I think it will be something they can live with.

The Rural Housing Service Budget proposal had some legislative ideas. Obviously, we would have really liked to be further in that process, so I’ll just tell you what happened and where we are now.

Last year, Tom Dorr who was a consultant in USDA, initiated some studies that I think culminate in that recommendation to rejuvenate the Section 515 program, to do some preservation, create a Voucher program, to try to address some of the issues — particularly understanding and realizing the developments that owners will be able to sell their projects. That is something I know you have been pushing for a while.

So we saw the information in the Budget. We know that in the bureaucracy it just takes a long time for the language to finally get delivered to the Hill. So what we did is we had the technical drafting service, which is kind of a slick way to bypass the bureaucracy — tell them, this is our idea, can you put the legislation together. So they gave us the language.

Language from Administration?

There is a Congressman, Mr. Davis (R-KY), who is very interested in moving this, but as we perceived the language, it just didn’t seem adequate. In fact, we asked CARH to look at it and there were a lot of suggestions. The Administration said there was a lot more that could go in. I don’t think we felt like we need to proceed until we see the complete legislative language from the Administration. Well, it’s June and we’re still waiting for that legislation.

I think we have a great new Rural Housing Service Administrator, Mr. Russell Davis. Tom Dorr has been very hands-on as far as management, interested in what’s going on; but I think they are victims of bureaucracy at OMB, probably as well as at USDA. While I see that there’s this eagerness and desire, it seems like the paper flow is moving very slowly. We would have liked to have had it by next Tuesday, in fact it was on our calendar (we never announce way in advance when we are going to have hearings just because of incidents like this), but I didn’t think it was necessary to have a hearing if we don’t have language yet. I think we’ll have to wait and see when the legislation comes. I think it is our intent to be very helpful to the legislation; I think that in the Budget proposal there is $214 million for this particular initiative.

Plan Now for the Future

If you have not already talked to the Rural Housing Service, I think you should talk to them more about this; I think this start is probably not a complete answer to some of the issues that are addressed in this particular program, but I think every year if you continue to make progress I think that you receive significant developments in the future. We would like to be partners with the Administration on this. Obviously, as we did when we received the technical drafting, we will reach out to CARH and others for input.

That’s a mouthful of initiatives right there. I think it is Mr. Ney’s and Mr. Oxley’s intent that when that language comes up that we will expedite it as much as we can. Of course we will be working with the Democrats; we have a good relationship. We don’t want this to be an adversarial process; we want it to be something that everyone can partner in.

The top three are just a handful; it is all we can do to keep standing up every day. I think the Affordable Housing Fund that you will see in the GSE legislation will be significant, with a significant impact on rural development. I think the housing goals as we write them will have a significant impact on Affordable Housing.

There’s a rush to move this legislation now because I figure when we get to 2006 (I felt it in 2004, but I really believe even more in 2006), I think because of the politics and the dynamics that you’ll see on the Hill, it will be very difficult to move any piece of legislation unless you have to. So you have Appropriations Bills, but I think because of the elections there is a sense of urgency on both sides that there will be a lot of things going on. I just can’t see, in that environment next year, getting a lot of legislation done. What we have, we need to move through the process now and at least have out of the door. I’m just not sure there will be the dynamics there next year.

That’s a mouthful. Thanks for having me.
 

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