Opening Statements of Committee Members

Opening Statement of Senator Wayne Allard (R-CO)

Oversight Hearing on the Department of Housing & Urban Development's
Management and Marketing Contracts
9:30 a.m., Tuesday, May 16, 2000

Welcome to today's Housing and Transportation Subcommittee hearing. This oversight hearing will focus on the state of HUD's single family FHA property disposition program.

This program continues to have serious weaknesses.

When FHA borrowers default on their homes, HUD becomes the owner.

HUD must then maintain the home, and resell it in order to recoup losses.

It is important that the home is well maintained and sold quickly in order to prevent neighborhood decay and loss to taxpayers.

HUD has made the decision to contract out the maintenance and sale of these properties. Yet HUD's oversight of these contracts raises many questions.

This is no small matter -- last year HUD acquired over 70,000 properties through FHA foreclosures.

At the end of 1999, HUD held 49,000 properties in its portfolio, and 19,000 of these had been in the portfolio for more than 6 months.

HUD's Inspector General estimates that these properties alone may be worth as much as $1.6 billion.

Last year, this Subcommittee held an oversight hearing on the health of the FHA insurance fund. There was much discussion at that hearing about HUD's decision to contract out the disposition of FHA properties.

Following last year's hearing, I concluded that regular oversight of the property disposition program was warranted. I intend to deliver that oversight until I am satisfied that the program is being handled properly.

Last year, I requested that the General Accounting Office report to the Subcommittee on HUD's experience with the contractors who manage and market FHA properties, and report on HUD's progress in reducing its property inventory.

The GAO report confirms my view that HUD has failed to adequately monitor this program.

In one major case, InTown Management Group, the contract was terminated, and it was then determined that a top official at the firm was a convicted felon.

While this may initially seem like good work on the part of HUD, termination occurred only after six months of nonperformance and following the loss of millions of taxpayer dollars.

While the GAO report concludes that HUD is beginning to make some progress, there are serious questions about HUD's selection and oversight of contractors, as well as the apparent inability to deal with properties that have been in HUD's possession for more than six months.

As the GAO notes in their report "If HUD's acquired properties are not properly secured, maintained, and resold, they can become eyesores and may contribute to a neighborhood's decay."

I would add to that the potential loss of billions in taxpayer dollars.

HUD regularly claims that their management reforms have turned the agency around. HUD leadership claims that the GAO designation of the agency as "high risk" is outdated.

However, with the FHA property disposition program we have a specific example of failure. HUD's inventory of single family FHA properties at the end of fiscal year 1999 was 32 percent higher than it was the year before, and over 100 percent higher than it was at the end of fiscal year 1996.

This is not an encouraging trend.

Let me conclude by saying that I support contracting. It certainly has the potential to improve efficiency and benefit taxpayers. But the program must have strong oversight from HUD.

Today's witnesses are:

The Honorable William Apgar, Assistant Secretary for Housing and FHA Commissioner. Mr. Apgar will present the Administration's testimony.

Mr. Stanley Czerwinski, Director, Housing and Community Development Issues at GAO. Mr. Czerwinski will summarize the GAO report for the Subcommittee.

I should also announce that Mr. Czerwinski was recently promoted to head the Housing Division at GAO, we congratulate him and look forward to the strong relationship we have with GAO.

Finally, we welcome back Ms. Irene Facha, HUD Employee and President, American Federation of Government Employees, Local 2032. Ms. Facha will provide the union perspective on HUD contracting in general, with particular focus on the FHA property disposition contracts.