Subcommittee on Housing and Transportation
Hearing to Examine Proposals to Promote Affordable Housing
TESTIMONY OF ASSISTANT SECRETARY FOR HOUSING
FEDERAL HOUSING COMMISSIONER WILLIAM APGAR
June 20, 2000
Good Morning Chairman Allard and members of the Subcommittee. My name is William Apgar, and I am the Federal Housing Commissioner at the United States Department of Housing and Urban Development (HUD). On behalf of HUD Secretary Andrew Cuomo, I want to thank you for the opportunity to testify on the Administration's record of promoting homeownership and new proposals to promote affordable housing.
I think it is fair to say that the Clinton-Gore Administration has an unparalleled record of promoting homeownership in this country. Since 1993, when President Clinton and Vice President Gore made lowering interest rates, investing in an expanding economy and promoting homeownership top priorities of their Administration, the national homeownership rate has increased from 64 percent to a record 67.1 percent as of the first quarter of this year. This growth translates into 8.7 million additional families who have achieved the dream of owning a home over the last seven years. A total of 70.7 million American families owned their homes in the first quarter of this year - more than at any time in American history.
Perhaps as impressive is the tremendous growth in minority homeownership over this same period. Minorities have accounted for 40 percent of the net new homeowners since 1994, even though minorities account for just 23 percent of the population. The number of African American and Hispanic homeowners has increased by nearly 3.5 million families over the last seven years. As of the first quarter of 2000 the African American homeownership rate stood at a record 47.8 percent and the Hispanic rate stood at 45.7 percent. Moreover, just last week, Secretary Cuomo issued a new challenge to the country - the goal of surpassing a 50 percent homeownership rate for all African American and Hispanic families within the next three years. But, as ambitious as this goal is, and despite the tremendous progress we have made, we will not be satisfied until we completely close the gap in homeownership between minority and white families.
Mr. Chairman, I am pleased to report that HUD and the Federal Housing Administration (FHA) have played a big part in driving this unprecedented growth in homeownership. Since 1993 FHA has insured more than 4.87 million purchase mortgages, including more than 1.5 million loans to minorities. Through Secretary Cuomo's Management Reform plan we've brought to HUD new ways of doing business, new technology, and new capacity to address the housing and community development needs of the nation's low and moderate income families and communities. In addition, working with members of Congress from both sides of the aisle we were able to increase the FHA loan limits bolstering the effectiveness of the program in a wide range of market areas. As a result of these reforms and the efficiencies they've produced, we have nearly doubled the volume of loans FHA insures annually, from approximately 790,000 loans with combined value of approximately $66 billion in 1996 to 1.3 million loans with an all time record value of $125 billion in 1999.
At the same time, FHA today is serving its mission better than ever by providing mortgage capital to more minorities, first-time homebuyers and others not well-served by the private conventional market. A few key statistics tell the story:
New Ways to Promote Homeownership
Over the last three years the Clinton-Gore Administration also has pursued several new ways to promote homeownership through use of FHA's real estate owned (REO) inventory, Section 8 rental vouchers, and CDBG funds. Mr. Chairman, it has been said many times that imitation is the highest form of flattery - and I couldn't agree more. It is in this spirit, that Secretary Cuomo and I are pleased to see that the House recently passed a bill - HR 1776 - that would specifically codify into statute many of this Administration's most innovative programs and reforms designed to promote homeownership, including:
I also am pleased to see that the potentially devastating aspects of HR 1776 that could have bankrupted the FHA Fund by requiring deep discounts on HUD homes sales to local governments have been eliminated. As you may recall from my previous testimony on this topic, the initial version of the bill could have cost the FHA Fund $3.5 billion annually. Thankfully, wiser heads have prevailed, and the final version of HR 1776 that passed the House contains language that virtually mirrors HUD's very successful discount sales programs.
- Section 8 Homeownership Vouchers: In 1997 the Administration put forward the first practical, operational proposal to permit hard working low-income families to use Section 8 assistance as Empowerment vouchers to become first-time homebuyers. Under HUD's innovative proposal families with income from employment and the ability to make a contribution toward their own downpayment, could use their Section 8 rental subsidy to make regular monthly payments toward a home mortgage. This program was premised on the belief that many of the approximately 1.4 million families currently receiving Section 8 assistance are poised to accept the responsibilities of homeownership. After initially launching this program in 14 pilot cities, we now are working with communities around the country to use Section 8 Empowerment vouchers to help low-income families move into homeownership.
- Homeownership Zones: In 1996 then Assistant Secretary for Community Planning and Development Andrew Cuomo funded the first round of six Homeownership Zones. This program uses CDBG funds to create new concentrated homeownership developments that can serve as a catalyst for transforming blighted and troubled urban areas.
- Discounted HUD Home Sales to Teachers and Law Enforcement Officers: Under Secretary Cuomo's leadership, HUD has pursued several new, innovative ways to use the sale of FHA REO properties to promote homeownership. Among the most successful of these programs is HUD's Teacher Next Door (TND) and Officer Next Door (OND) programs. In 1997, Vice President Gore helped Secretary Cuomo launch the OND program, which offers law enforcement officers a 50 percent discount on HUD homes located in revitalization areas. Since that time, more than 3,000 officers have bought a home through the program. Building on this success, Secretary Cuomo launched the TND program in the Fall of 1999. It too has enjoyed tremendous success, with nearly 400 teachers across the country under contract to purchase a new home from HUD.
- Discounted HUD Home Sales to Local Governments and Nonprofit Organizations: The Administration has built on HUD's long-standing policy of offering HUD Homes at a discount to local governments and nonprofit organizations by instituting the new $1 Home Program. Under this new initiative, launched by Secretary Cuomo and Congressman John Kasich in March, 2000, HUD offers any property that has been listed on the open market for six months or more and is not under a sales contract, to local governments for one dollar. In just a few months of operation, local governments around the country have signed up to purchase more than 400 homes to date. Moreover, HUD has maintained the tradition of selling HUD Homes located in revitalization areas directly to local government and nonprofit organizations. In fact, last year HUD sold more than 6,000 single family homes to local governments and nonprofit organizations.
- Hybrid ARMs: The Administration's FY 2001 Budget submitted to Congress in February, 2000 included an innovative proposal requesting statutory authority for FHA to create a line of Hybrid ARM products. I believe developing the hybrid ARMs product will substantially enhance FHA's product line by offering a sound mortgage product to borrowers who would not qualify for a fixed-rate mortgage, or cannot afford the fixed-rate mortgage pricing, but who are leery of the volatility associated with traditional ARMs. Unfortunately HR 1776 failed to also raise the cap on FHA ARMs, an omission that threatens to severely undermine the new ARMs product line. If we receive approval to raise the existing ARMs cap to 40 percent, FHA anticipates that this new product will increase loan endorsement activity by approximately 55,000 loans, resulting in an additional $114 million in funds that may offset the costs of other pressing homeownership and affordable housing needs.
- Down Payment Simplification: Though it received little notice at the time, Congress passed a seemingly minor Administration proposal to simplify the calculation of FHA's down payment requirements in 1998. Today, nearly two years after Congress approved this provision, mortgage bankers around the country are convinced that this new calculation method has had a substantial impact in promoting homeownership by making FHA mortgage insurance programs much easier to use. In this year's budget submission to Congress in February, 2000, the Administration proposes to make down payment simplification permanent.
- Enhancements to FHA's 203(k) Acquisition/Rehabilitation Loan Program: In January, 2000 I announced a package of reforms designed to enhance FHA's 203(k) acquisition/rehabilitation loan program and encourage greater investment in rehabilitation of the nation's urban housing stock. Nearly all of these reforms, which FHA currently is implementing through a series of administrative actions, are included in HR 1776.
- Reform of FHA's Nonprofit Partner Programs: In March, 2000 FHA issued a new set of qualification requirements for nonprofit organizations wishing to participate in HUD's Home sales and financing programs. At that time, I also ordered a national re-certification of all 2,000 plus nonprofit partners to ensure that FHA is working with the best nonprofit partners to revitalize America's communities. Again, I am pleased to see that HR 1776 mirrors the reforms we already are implementing.
- Home Equity Conversion Mortgage (HECM) Program Enhancements: Finally, the Administration is well on the way to implementing a comprehensive set of enhancements to the highly successful HECM program. In March, 2000 I issued new guidance increasing the origination fee lenders could charge on HECM loans, eliminating one of the most significant barriers to wider availability of this important product - the perception among lenders that they could not earn a fair return on these loans. Moreover, FHA is in the midst of a comprehensive actuarial study designed to determine how best to streamline the refinance process.
Each of these new Administration initiatives and reforms are included in HR 1776 and have been approved by a wide majority in the House. Although most of these programs already are underway and in fact do not require new statutory authority, I am pleased to see such a broad endorsement of the Administration's reform plan.
Removal of Regulatory Barriers
Mr. Chairman, I would again like to express Secretary Cuomo's strong support for removal of regulatory barriers to developing affordable housing. Furthermore, Secretary Cuomo and I support efforts to create grants to support barrier removal strategies, establish an information clearinghouse, and require local jurisdictions participating in HUD's CDBG program to make a good faith effort to remove barriers identified in their Comprehensive Housing Affordability Strategy (CHAS).
Congressman LaFalce's Proposals to Promote Homeownership
Finally, I would like to congratulate Congressman La Falce on his good and hard work in crafting two new, innovative homeownership proposals. The first would permit low, or no down payment on FHA -insured loans going to teachers and public safety officers. We believe this program is a good idea, and would serve as an appropriate complement to HUD's existing efforts to promote homeownership, although it may slightly increase the risk of default. The second proposal by Congressman LaFalce would eliminate the up-front premium for HECM loans to seniors who plan to use the loan proceeds solely for health care related expenses. We also support this highly innovative program idea, subject to the results of our HECM program actuarial review.
The Administration is concerned by recent efforts to weaken income targeting in the CDBG, HOME and disabled homeownership programs. In the face of a growing housing affordability crises among low- and moderate-income Americans, we believe that the current income targets are appropriate and should not be altered.
I appreciate this opportunity to testify before the Subcommittee, and look forward to answering any Member questions.
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