Today's hearing is about affordable housing and how to keep it affordable. In particular, we will explore the success of the 'Multifamily Assisted Housing Reform and Affordability Act'- the so-called Mark-to-Market legislation. This law is scheduled to expire on September 30th and we will be attempting to determine how well it has worked and whether it needs to be reauthorized.
Congress passed the Mark-to-Market legislation in 1997 in order to update and restructure section 8 project-based developments insured by Federal Housing Authority. About 8500 such projects with over 800,000 units of affordable housing were built in the late 1970s and the early 1980s.
The Federal Government guaranteed that these projects would be built by insuring the mortgages and using section 8 contracts to guarantee that the rents would be high enough to pay off the mortgages. In most markets, these rents were above market levels. Typically the mortgages for these multifamily dwellings had terms of 40 years and the section 8 contracts had terms of 20 years.
By the late 1990s, the 20-year section 8 contracts started to expire and Congress had begun to renew all section 8 contracts at market rents for a period of only one year. In markets in which the fair market rent was higher that the contract rent, a simple renewal of the contract was sufficient to continue supporting the property.
However, in many cases, contract rents remained far above local rents. In these cases, Congress's decision to renew section 8 contracts at lower market rents was likely to result in rents too low to support the remaining mortgage payments on such properties. As a result, it looked likely that these FHA-insured properties would default, costing federal taxpayers tens of billions of dollars.
The Mark-to-Market legislation was passed in an attempt to address this problem. It had two objectives: first and foremost, the legislation was meant to preserve affordable housing by putting it on a stronger footing, both financially and physically. Second, the law was designed to reduce the cost to the federal government of rental assistance payments.
The Office of Multifamily Housing Assistance Restructuring (OMHAR) was created to accomplish both of these objectives, with the help of 'Participating Administrative Entities (PAEs).'
Our panel of witnesses, both government witness and stakeholders involved in the restructuring process, will tell us what progress has been made in restructuring the rents and debts of the FHA-insured Section 8 portfolio; the savings such restructurings have generated for the federal government; the physical condition of the housing stock that is being preserved; and the effectiveness of the Office of Multifamily Housing Restructuring Assistance or OMHAR.
We look forward to their testimony.