Patrick Sheridan
Acting Deputy Administrator,
Multi-Family Housing
Rural Housing Service, USDA
Washington, D.C.
Addressing CARH:
This has certainly been a challenging year and I don’t expect that next
year will be any different. With all the things that we have going on, we’ve
had a number of successes, I feel, in the case of the Regulation Reinvention
process and the development of the 538 program. As you know, we’re not
finished with either yet, they do seem to be going quite well.
We’ve had to deal with a number of real challenges over the last few
years. Certainly as far as challenges — reductions in funding, staff
reductions and reorganizations of field offices — it has been an experience
to go through to determine who is doing what in which office, and to be able
to tell what training needs are for those staff.
Natural Disaster in South Dakota
As far as disasters go, I just want to bring to your attention that if
you’ve been following the news about all the tornadoes in the past few
weeks,
in Spencer, South Dakota which is certainly a small town, if you hear of
affordable rental housing in a small town in Rural America, there is a very
good chance it is an Agency financed complex. In Spencer, we had 3
twelve-plexes that were totally demolished, and two elderly tenants were
killed in the tornadoes. Pennsylvania just had a 515 project take a direct
hit. We do want to commend our South Dakota staff for working quickly and
locating vacancies in adjoining towns in 515 complexes and doing what they
could to find places for people to live in the interim.
Rotating duties
As far as changes in staffing and such, you’ll notice I’m here as Acting
Deputy Administrator. Obie Baker and I are doing 90-day rotations in the
position, so the chances are the next time we have a meeting, you’ll see
Obie
in this position. Carl Grate is the Acting Division Director for Portfolio
Management.
We’ve had a lot of changes in field staff as people have been reassigned
and such. We are doing what we can to determine what the training needs are
for our field staff. We have several new employee training classes coming
up.
I want to ask you that if you see certain areas where you think we need
attention paid to field staff training or any suggestions you might have,
please let us know.
2.1% delinquency
Of the 455,000 units we have in our 18,000 projects, the actual
performance of the portfolio has been very good. We have 2.1% delinquency
right now — that is for all projects delinquent any time at all, not just
30
days or more. We’ve had a 22% drop in our 180 day delinquent projects over
the last 12 months; we have only 11 projects in inventory. Last year’s
writeoff was only $21.8 million, which is 0.18% of the portfolio. As far as
the performance of it, we feel quite comfortable that we can match our
program with any Affordable Housing lender out there.
Working with OIG
As Jan also mentioned, we are continuing to work with OIG as far as
making sure that our portfolio is well managed and run. We have had a couple
of specific successes we’d like to point out — one was a developer in
Washington State that we’d been working on the case for quite some time. As
you’ve probably heard before, we had a Receivership set up of the 60
complexes within the portfolio. Recently, we obtained guilty pleas on six
felony counts; I believe the sentencing was to take place last week. And, we
are currently trying to work on getting ourselves out of the Receivership at
this point, as we feel that it is time to move on and get us out of the
ownership role.
Equity Skimming Case
Recently, West Virginia had a case last month where there were
indictments handed down — the first one under the Equity Skimming Act,
which
is the provision that was written into the 1996 Appropriations Bill. The
second indictment is a little bit unusual — it was under the Clean Water
Act
because it was a private septic system. Apparently it was polluting the
local
water supply.
This is going to be the first test of whether the Equity Skimming
provision works or not.
3560 Process
Regulation Reinvention is going well. It is an extremely intensive
process. In fact, a large number of field staff came in, we’ve has
Stakeholder sessions; as Jan mentioned, last week we had a session with CARH
and the Homebuilders to talk about key points of the regulations that have
been drafted.
I’d like to say that probably 60% of the comments that we’ve received
from people commenting on the draft regulations were things that when we
looked at them, we said they were right and we need to change that and
clarify that something along those lines.
Probably we don’t need to suggest this to you, but don’t be shy in
bringing things like that up to us. I don’t think anybody in the Rural
Housing Service thinks we caught everything that there could possibly be in
the Draft. So the more things you point out to us that we can either clarify
at this point or remember to put in if we forgot to put in, please let us
know.
There’s probably another 20% that we need to take another look at to see
if, maybe there is a good point there or if it is customer-friendly and
handles both sides. I think there’s probably another 20% that it may be a
situation where someone has one point of view and we have a different point
of view, or maybe the OIG has a different point of view — whether we ever
reconcile every one of them or not, I kind of doubt it.
I think the majority of the comments that were brought up were very
valid
and we will be able to clarify and improve the regulations as we go through
this process.
I would like to thank John Pentecost in particular for spearheading the
Regulation Reinvention process. He is our expediter and task boss, if you
will. With all the other things we have going on at any point, we need
someone to crack the whip over us. And, that is what John’s primary function
is right now, I think. Along with making sure it gets through the clearance
process quickly.
One thing that we did do recently with the regulation process was to,
and
I’m talking about the 3560 series which is for 515 and 514, split the NOFA
process for the Labor Housing program out from the overall 3560. We found
that to be necessary because, for FY 1999, Labor Housing funds will be
dependent on the NOFA process being in existence at the beginning of FY 1999
(beginning October 1, 1998). With the current schedule for the 3560
regulation not being a Final Rule until the Fall of 1999, it would not allow
us to use our FY 1999 Labor Housing funds. So we did make that adjustment to
the process and I believe we’ll have the Proposed Rule for Labor Housing out
this Fall with a Final shortly after that.
As far as loan production programs, 515 and 514, I’m not going to go
into
too much detail on that, but the one thing I would like to mention is the
change in the Appropriations Act from the 50 year term down to the 30 year
term is in place as of FY 1998. We are looking at some other possibilities
there, too. The purpose of the change in term was to try to reduce the
subsidy rate of the 515 program so we’d have more program dollars available.
We are looking at possibly changing the term for subsequent loans also to a
shorter term. Anything we might be able to do there to make sense as far as
the remaining useful life of projects and the term so that we can find
whether there are any additional savings we might be able to get in the
subsidy rate and thereby increase our Appropriations level by reducing the
subsidy. So, any comments you might have or ideas about subsequent loans in
relation to term we’d like to hear about those also.
Rental Assistance
Jan mentioned the Section 521 Rental Assistance program. The
Appropriations for that for this year, FY 98, is $545 million. most of that
is going to be used for renewals, in fact about 85-90%, although there is
some for new construction and for Preservation purposes. The FY 99 budget is
$583 million. That is a big number; it is the single biggest subsidy cost
for
the Rural Development mission area of USDA.
It draws a lot of attention; we’re looking at a lot of different ways to
see whether there is any possibility of reducing the cost of Rental
Assistance. We actually saw a little bit of a reduction this year in the
cost
of a 5 year contract. It is sort of hard to pin down what the real reason
for
that is — it could be the economy performing better, it could be Welfare
Reform, a number of different things. While the number of units that needed
to be renewed or needed to be increased, because we got a little bit of a
break in the cost of the actual unit itself, we didn’t need quite as much
money for renewals as we thought we might. If that trend continues, it might
lessen our need for big increases anyway.
538 Program
As for the Section 538 program, it is a new program — this is its third
year. It has operated the last two years as a Demonstration program, For
those of you that aren’t acquainted with it at all, it is a guaranteed loan
made by private lenders (banks, mortgage companies or Housing Finance
Agencies). It has done very well as far as the first two years go.
I had the opportunity to see one of the first ones that is up and
running
and occupied. I was happy to see that it already has a waiting list in the three
or four months it has been in operation. From what they tell me, the biggest
waiting list is for three-bedroom units, so you might want to think about that
as
far as future designs go.
We are looking at a number of legislative proposals, also to fine tune
the 538 program, and make it both more user-friendly and to work better from
a security standpoint, but also increase the subsidy rate.
It certainly is going to be a challenging year as we go through the
regulation process. As far as your continued input, certainly with the 538
program, the Interim Final Rule is expected out the first part of July, and
we expect that will be sitting down with CARH and others on your comments
about the Interim Final Rule. As it is an Interim Final, we will be able to
take those comments and make the modifications necessary to the regulation
before it comes out in Final. Certainly, as you see that come out, as you
look through the 515/3560 process, make sure you let us know. We want to you
to have opportunities for input so you can let us know how to make the
process better and smoother.