Caroline Cooksie
Director,
Multi-Family Housing Portfolio
Management Division
Rural Housing Service, USDA
Washington, D.C.Addressing the National Association of Home Builders:
Several months ago, I realized that there had not been one meeting I’d gone to where I or anyone else had talked about the good things about this program. I decided then that we owe more to the program than to just talk about the problems. I decided then that I would talk about the good things we’re doing in the program before I talk about reforms or problems. If we don’t talk about it, no one else will. When we did the Health and Safety survey in 1994, we had over 18,000 projects; a very small percentage, less than 2 or 3%, actually had problems. That’s all we hear about. I know we have problems and that we’re working on them. I think there are a lot of people we’re putting into decent, safe and sanitary housing that would not be there were it not for the 515 program. I don’t think we’re finished. We have a lot more units to put out there. We have a lot of units we need to service better. You, as an interest group, and we, as the Agency, have an obligation to get out and tell people the good news about this program — we are doing good things and it is working. We lose sight of that on a daily basis.
Health and Safety
How are we coming on Health and Safety? I think we’re doing a pretty good job. We’re trying to make the rehab deals work, and these take longer and are more intense in their negotiations than a new loan. If you talk to anybody in our field offices, they say it takes longer to do a rehab loan sometimes than a new loan because we have to do a unit-by-unit inspection and we get involved in negotiations, especially if a transfer is involved. So it’s taken a little while this year for us to get started on Health and Safety, but I think we’re making real strides. About three weeks ago, the Administrator heard from you and the field that there are problems making the rehab deals work without Servicing RA. The Administrator made a decision to release a little over $12.5 million of Servicing RA from her Reserve just for rehab loans. We’ve done that. We surveyed the States and asked them what deals they have that just can’t work for rehab without Servicing RA. We tried to accommodate as many as we could. Of course, $12.5 million does not cover a lot of units; it translated into about 950 units of RA. This will help; it’s more than we had. Of course, we had requests from the field for about 2.5 times the money. For those 950 units, the field has to make those rehab loans in order to get the Servicing RA by July 3rd. If they don’t use this RA by then, it’ll come back to us. We’ve got more work to do; it’ll be a moving target. My goal is by next year, that we can stop talking about Health and Safety so we can talk about deferred maintenance; deferred maintenance is part of the aging portfolio issue.
Servicing RA Needs
Johanna Shreve and we have had discussions about Rental Assistance. I think we’ve both come to realize there is no answer unless we have unlimited RA for servicing. We all know that is not a reality. I believe that in the next year, the Administrator and program staff will have to get together to make some hard and fast decisions about where we’re putting Servicing RA. I think we’re going to have to think outside the traditional box. There are some projects out there that we cannot prop up forever with Servicing RA. We’re going to have to make some hard and fast decisions about which projects those are. There are some projects out there that even with RA are not viable because there’s no one in the town to live in them. I think we’re going to have to really start thinking about those kinds of projects. We’ll have to put the Servicing RA where we have the people and where it’s needed. It’s not going to be an easy decision for anybody; but, I think in this next year, we’re going to have to start thinking in those terms. We’ll have to really start looking at the need because we don’t have a lot, and there’s nothing to lead me to believe that we’ll have any more Servicing RA next year than we have this year. The renewal numbers are going up so quickly; some of that is because we’re in the sixth year of the Occupancy Surcharge, and that is really draining RA. I don’t think we can afford that drain. When we get to year 10, can you imagine $20 per month per unit? So, we’ve got a lot of things that we need to look at as far as RA is concerned. I don’t believe that the answer for the salvation of this program is attacked through Servicing RA at all. I am not prepared to say I know what all the answers are, but I’ve pretty much determined that to save this program, Servicing RA will never be available in the numbers we will need. We’re looking at that.
Section 8
With regard to the status of the Section 8 contracts, after next year, HUD is proposing not to renew the contracts. When we first started working with HUD, we found out we had a huge discrepancy in the numbers that we had for project-based Section 8 and the numbers HUD had on their books. We had to do a survey; we went out to the field offices, and they spent considerable time going to the files and pulling the actual HAP contract out and recording the project number and units so we could get a good count. We feel we know what those numbers are. We came up with about 48,381 units of project-based Section 8 which, if it is not renewed after next year, will not have any subsidy at all because, of course, we won’t have enough RA. We are working with HUD and have been doing so the last few months in trying to come up with some appropriation language that we can put forward that will give us the ability to have that line item for renewal of Section 8 contracts under the RA section. It’ll be a separate section so that everyone clearly know it’s two separate appropriations codes. Our figures on rents and HUD’s didn’t match, and even if we met in the middle, we would still be saving money by converting the Section 8 contracts to RA. HUD seems very amenable to this; we took all the contract numbers to them about a month ago and they’re supposed to reconcile their records; it’s going to take them a while because their records are not as well developed as ours are in the field office. They’ll try to get agreement from their legal people that this is what we can do. I’m hopeful we can do this and get a separate appropriations code for the money.
1930-C and Stakeholder’s Meetings
I happen to think 1930-C is the most poorly written regulation in the history of mankind. I think it is a micro-manager; it leaves a lot to the imagination and doesn’t give a lot of direction. We just need to start going in a new direction. The thrust for the rest of 1996 and 1997 is for us to redo 1930-C and 1965-B. The biggest thing is that 1930-C can be boiled down to fewer pages if we revise it. We’re looking at some alternatives. We’ve had the field offices give us all their concerns on the parts that just don’t work. There will be a point we come out and ask you to do that, too. I don’t think any of us is objective enough to rewrite 1930-C, so we plan to try to get a contractor so we can get some objectivity, get the fluff out and give it some common sense to make it easier to read and easier to understand.
We just concluded three Stakeholder meetings. The sessions were made up of field staff, Borrowers, Management Agents, tenant representative groups, and a representative from OIG. They looked at the program in general; I believe we’re going to have to reinvent what we’re doing. The first session concentrated on examining and defining the roles of the Agency, Borrowers and management. In that session, we identified areas of the regulation that work and those that don’t. A basic principle was established that Borrowers will assume all responsibility for project management and the Agency will reduce the level of micro-management of project operations. Simply, this means that we need to bring this back to a business — that when we go to a management company, Agent, or Borrower, they have a business obligation to run their projects; it is not our obligation to tell them how to do it. Actually, we’re paying for a service, and we should be getting that with a management company. But, we shouldn’t be telling you how to do it step by step. We’re going to try to simplify that process and turn it into more of a business relationship and put the responsibility back where it needs to be, which is with the Borrower and Management Agent. We’ll tell you what we want the end result to be, and let you figure out how you need to get there.
The second session focused on the issue of measuring management performance. We identified how performance is measured and what can be proper enforcement actions. We concluded that for evaluation to be fair and enforceable, we must use objective criteria and enforce standards consistently. Many of you work across State and district lines, and the complaint I always here is that you go to one State and they have this set of rules and you go to another State, and they have another set of rules; and, it is different even between districts in the same State. What came out of that particular session is we need to have to have some objective criteria set for everyone to use across the nation. We need to figure out how to make that consistent across the country so that you’re hearing the same story. 1930-C is now kind of like the Bible —: Everyone gets a different interpretation when they read it. A lot of that is the way it is written.
The third session focused on how to establish fair and equitable management fees. We hope to find a way to provide a fee that will attract good management, capable of achieving outstanding program delivery. The task force reached a consensus that management fees should be established by the National Office. That is very surprising to me because I thought that they would say the fees need to be established on a State by State basis. But this group said, without a question, that the National Office needed to come up with a fair, objective way to establish the fee. Fees would consist of a base fee per occupied unit plus add-ons for the job you do, for project characteristics such as size and bedroom density, and for incentives for good performance. I think that we’ll be able to come up with a way to do that. We’re working right now and coming up with some base fees.
Aging Portfolio
We’re working on the real dilemma of what we’re going to do with our aging portfolio and how we’re going to help you survive the market and what’s going on out there. We’re working on the lack of Rental Assistance and what we’re going to do in lieu of RA. I think we’ve got to come up with a plan that does not center on RA bailing us out. I don’t think it’s going to be there. We’ve got to do something else.
Ten, fifteen years ago, this program worked better than it works today. The times have changed. We need to change with them, so we’re looking at new and inventive ways.
Industry Interface
Now, you have to send the Tenant Certifications to the District Office or the payment contact point. They have to key all of them in when they get them. If there’s something wrong, they have to send them back. There’s this back and forth which is a cost for the Management Agent and the Borrower, and a cost for us. If you’re late, you get penalized for it. We have five sites that are in the Industry Interface — that’s where management companies are actually downloading Tenant Certifications to those offices. I went out to two of the sites, one in Michigan and one in Arizona, a couple of weeks ago. I talked to the Management Agents and Borrowers about how the pilot is working for them. They are so enchanted with this process that it makes me know that we’ve got to get this up and running. But we have an impediment because this is the government and our automated equipment was outdated when it was purchased ten years ago. So we have got to find the funds to finish the Industry Interface project. I think that we can do that. You don’t have the resources and we don’t have the resources to keep sending these Tenant Certifications back and forth. We’ve got to make some decisions at some point if we are going to make it mandatory for everyone. We have some of the bigger management companies and some of the bigger Borrowers, but we have some Mom and Pop operations we have some concerns about. It is only my opinion, that at some point we will have to grandfather everyone in to make the system work. I think we can do that. There are several things we can do. It is a very important project — it is important for us and it is important for you. So, we’re going to be really focusing in the next year on trying to get that up and running nationwide. We’ve got about ten software vendors that are just waiting for us to get this done. We’re working with them while we’re working on this project. We did not want to get this done and then try to convince software vendors if it wouldn’t work for them. It makes good business sense for us to do something to try to bring ourselves into the 90’s.