<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:59984.wais]
HUD LOSING $1 MILLION PER DAY--PROMISED ``REFORMS'' SLOW IN COMING
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HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MARCH 23, 1999
__________
Serial No. 106-34
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
59-984 WASHINGTON : 2001
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on March 23, 1999................................... 1
Statement of:
Apgar, William, Assistant Secretary for Housing, Federal
Housing Commissioner, U.S. Department of Housing and Urban
Development................................................ 107
Cincotta, Gale, executive director, National Training and
Information Center, Chicago; Grace Jackson, volunteer,
Roseland Neighborhood Housing Services, Chicago; Carl
Edwards, president, Organization for a New Eastside,
Indianapolis; Brian Davis, director, Northeast Ohio
Coalition for the Homeless; and Stanley Czerwinski,
Associate Director, Resources, Community, and Economic
Development Division, U.S. General Accounting Office....... 152
Cooper, Nancy H., District Inspector General, Southeast/
Caribbean District, U.S. Department of Housing and Urban
Development................................................ 17
Letters, statements, etc., submitted for the record by:
Apgar, William, Assistant Secretary for Housing, Federal
Housing Commissioner, U.S. Department of Housing and Urban
Development:
Information concerning factual errors.................... 134
Letter dated September 9, 1999........................... 132
Prepared statement of.................................... 110
Biggert, Hon. Judy, a Representative in Congress from the
State of Illinois, prepared statement of................... 11
Burton, Hon. Dan, a Representative in Congress from the State
of Indiana, letter dated March 9, 1999..................... 2
Chenoweth, Hon. Helen, a Representative in Congress from the
State of Idaho:
Additional questions for the record...................... 147
Prepared statement of.................................... 13
Cincotta, Gale, executive director, National Training and
Information Center, Chicago, prepared statement of......... 155
Cooper, Nancy H., District Inspector General, Southeast/
Caribbean District, U.S. Department of Housing and Urban
Development, prepared statement of......................... 19
Czerwinski, Stanley, Associate Director, Resources,
Community, and Economic Development Division, U.S. General
Accounting Office, prepared statement of................... 181
Davis, Brian, director, Northeast Ohio Coalition for the
Homeless, prepared statement of............................ 171
Edwards, Carl, president, Organization for a New Eastside,
Indianapolis, prepared statement of........................ 161
Gilman, Hon. Benjamin A., a Representative in Congress from
the State of New York, HUD Single Family Property
Disposition Program report................................. 33
Jackson, Grace, volunteer, Roseland Neighborhood Housing
Services, Chicago, prepared statement of................... 166
Sanders, Hon. Bernard, a Representative in Congress from the
State of Vermont, prepared statement of.................... 14
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, chart concerning mutual mortgage
insurance fund............................................. 105
HUD LOSING $1 MILLION PER DAY--PROMISED ``REFORMS'' SLOW IN COMING
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TUESDAY, MARCH 23, 1999
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 12:15 p.m., in
room 2154, Rayburn House Office Building, Hon. Dan Burton
(chairman of the committee) presiding.
Present: Representatives Burton, Gilman, Morella, Mica,
Terry, Biggert, Ose, Chenoweth, Waxman, Kanjorski, Mink,
Norton, Cummings, Kucinich, Tierney, Allen, and Schakowsky.
Staff present: Kevin Binger, staff director; Daniel R.
Moll, deputy staff director; Barbara Comstock, chief counsel;
David A. Kass, deputy counsel and parliamentarian; Jane Cobb,
professional staff member; Mark Corallo, director of
communications; John Williams, deputy communications director;
Carla J. Martin, chief clerk; Lisa Smith-Arafune, deputy chief
clerk; Corinne Zaccagnini, systems administrator; Jacqueline
Moran, legislative aide; Maria Tamburri, staff assistant; Phil
Schiliro, minority staff director; Phil Barnett, minority chief
counsel; Cherri Branson and Michael Yeager, minority counsels;
Ellen Rayner, minority chief clerk; Jean Gosa, minority staff
assistant; and Barbara Wentworth, minority research assistant.
Mr. Burton. The committee will come to order.
A quorum being present, we will proceed.
Several weeks ago, this committee held a hearing about
Federal programs that are wasting billions of taxpayer dollars
every year. These programs are on GAO's high risk list, because
mismanagement and internal weaknesses make them very vulnerable
to waste, fraud and abuse. Today's hearing is the second in a
series of full committee hearings that will examine these high
risk areas.
During the February 10th hearing, I promised to try to work
with our appropriators to hold agencies accountable for
addressing the high risk areas. Since then, I co-signed a
letter with Chairman Bill Young of the Appropriations Committee
to every major agency. It puts them on alert that we want to
see serious efforts to resolve these problems, starting with
specific, measurable performance goals and their annual Results
Act plans.
Without objection, I would like to enter this letter into
the record at this time. This is the letter we sent to all the
agencies from Chairman Young and myself. Without objection, so
ordered.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T9984.001
[GRAPHIC] [TIFF OMITTED] T9984.002
Mr. Burton. I plan to share what we learn here today with
the Appropriations Committee, and I'm going to work with them
to do whatever is necessary to get the agencies to turn these
problems around. What Chairman Young and I wanted to stress to
all of the agencies about the Results Act is that there has
been an attitude of, well, maybe we'll comply and maybe we
won't.
A number of the agencies that are supposed to comply with
the Results Act have done almost nothing. Some have done
minimal things. And some have tried a little bit harder. But
the fact is, the Results Act is the law and it needs to be
complied with.
One of the things I said to Chairman Young that I think is
very important is that the Results Act did not appear to have
any teeth in it. The way to make sure there were teeth in it
was to have the Appropriations Committee, as well as myself,
let them know that there were penalties to be imposed if each
agency did not comply with the Results Act, which means very
simply that there will be a very hard look taken at their
budgets and their expenditures. If they don't comply with the
Results Act, then we find ways that they should have complied.
There may be some substantial cuts. We think that's something
they ought to understand.
Our hearing today will focus on the Department of Housing
and Urban Development. It would have been helpful if we had
HUD's performance plan by now. Every other major agency has
submitted a performance plan at this point. But HUD has not. If
we had it, we would have been able to see how specifically HUD
plans to address some of the problems that we will look at
today.
I sincerely hope we're going to see that plan soon. In the
meantime, I expect FHA Commissioner Apgar to tell the committee
his specific goals and measures for resolving the high risk
problems as I requested in the invitation letter to him. I've
talked to Secretary Cuomo a number of times. He's a very nice
fellow and I think he has the best interests of the Department
of HUD at heart, and I think he wants to do the right thing.
But evidently, he needs more help from his assistants to make
sure they have a plan and they get on with it.
Today the high risk program we will examine is HUD's
Federal Housing Administration [FHA]. FHA is the home mortgage
insurer for many people who wouldn't ordinarily qualify for a
home loan in the private marketplace. For example, first time
home buyers and people with not so perfect credit histories.
Every year, thousands of these mortgages go into default, and
the FHA is responsible for reselling these homes.
This is where the problems start. HUD is sitting on a huge
backlog of repossessed properties, and the list is growing
every year. A lot of these properties sit in HUD's inventory
for months, some even for years. Some abandoned properties have
been in HUD's inventory for more than 8 years.
HUD's contractors are so poorly managed that the properties
have become run-down and vandalized. The value of the
properties is plummeting and hurting the whole neighborhood.
The management of this process is such a fiasco that HUD is
losing over $1 million every single day.
This is not a new problem. It's been going on for years.
They've been on GAO's high risk list since 1994.
Just as significant as the cost to the taxpayer is the cost
to individuals and neighborhoods. Management failures and
staffing shortages have resulted in lax oversight of the
contractors responsible for maintaining these properties. One
HUD office in Florida was so shortstaffed that they did not
visit their contractor handling these properties in 3 years. In
another case, the contractor performed the work, inspected the
work and approved the payment to himself with no oversight.
As you can see from the pictures on these easels that we
have over here to the left, some taken as recently as this
month, the lack of proper attention to these properties exposes
them to vandalism, maintenance problems and safety hazards. How
would you like to live in that one on the left?
The longer they sit in these conditions, the more the value
deteriorates and the more money HUD loses and the more the
neighborhood suffers, and the more everybody that lives in the
neighborhood complains.
One of HUD's primary missions is expanding home ownership.
But evidence and testimony you will hear today indicates this
program is not achieving this mission. Home ownership is
clearly a problem when the rate of FHA foreclosures is rising.
Look at the recent trends. In fiscal year 1996, there were
just under 61,000 foreclosures. In fiscal year 1997, the number
was 71,000 foreclosures. For fiscal year 1998, it was 76,000
foreclosures. Why is the number of FHA insured families
defaulting on their loans increasing in an economy that's
growing like ours is? How long can neighbors living next to
blighted HUD properties expect to wait for HUD reforms while
their property values continue to go into the tank?
HUD's mission is not to drive down communities, its mission
is to make communities better. Communities do not deserve this
from their Government, and the tax dollars that support it.
Three of our witnesses testified before Congress 1 year ago
almost to the day. At that time, they talked about the
condition of many of the HUD homes in their neighborhoods, and
what these poor conditions do to them and to the surrounding
community and the property values. One witness even had the
personal experience of foreclosure on his FHA mortgage.
I've asked these witnesses to return today to give us a
status report. I want to ask them if the situation over the
past year has improved at all.
In fairness to HUD, this agency has been troubled for many
years. I'm sure this administration inherited more than its
share of problems when it took the helm 6\1/2\ years ago. HUD
will testify today that FHA's property disposition program is
in transition. We'll hear about the enormous undertaking to
contract out all the responsibilities for reselling these
homes.
How long do HUD officials expect the transition to these
new contracts to take? And what will HUD's oversight of the new
contracts look like?
Poor contractor oversight has been a serious problem for
this program in the past. If the FHA couldn't manage these
contractors in the past, and now they're going to give them
even more responsibility. Is it going to work any better?
I'd also like to know when HUD expects the trends I
mentioned earlier to take a positive turn. Even though the
population that FHA serves is considered more risky than that
of the private sector mortgage industry, it seems to go against
all reason to see foreclosure rates going up and up during this
good economy. It's not what is happening in the private
mortgage industry.
Our witnesses today will help us understand the present
state of affairs with this program. I hope we'll get some
answers from HUD on what their reforms are and when we can
expect them to be realized.
As part of my opening statement, I want to show a segment
of the NBC Nightly News called Fleecing of America that aired
several weeks ago about HUD's FHA properties. But first, I want
to say something to HUD. My understanding is that in the days
prior to NBC's original piece, HUD led an all-out offensive
against NBC not to show it. It has also come to my attention
that HUD has gone on an offensive against the General
Accounting Office.
I know there was heavy lobbying going on leading up to the
release of the high risk list. I also have a copy of a letter
dated March 12, 1999 that HUD Deputy Secretary Saul Ramirez
sent to Comptroller General David Walker that personally
attacks him because HUD is on GAO's high risk list.
Also, the battles HUD has engaged in with its Inspector
General are no secret, and we had a manifestation of that when
the IG spoke here just a couple of weeks ago.
I know that HUD has taken its share of knocks over the
years, but not without reason. The management problems at HUD
exist now. They are affecting communities and families today.
HUD officials need to understand that shooting the messenger is
not going to solve their problems. More than ever, HUD needs to
focus its resources on solving problems and not fighting the
messenger, such as the IG or the GAO. So let's move forward,
recognize the problems where they exist, try to find solutions
and give the American public the accountability that they
deserve.
Now I'd like to have this piece shown from ``Fleecing of
America.''
[Video shown.]
Mr. Burton. Let me just say before I turn to my colleague
from California, Mr. Waxman, that evidently one house, not all
of them, but one house in that piece was characterized as one
of the homes that was controlled by HUD, and evidently there
was some question about that. So NBC made a mistake, but that
was only one of them. All the rest of the homes shown in that
piece were actually HUD controlled properties.
With that, Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
While we have an obligation to scrutinize HUD, we also have
an obligation to bring balance and fairness to our scrutiny.
Unfortunately, that's not always the case, as is clear, I
think, by the video you just showed us. Paul Harvey used to
say, and now here's the rest of the case.
What bothers me about this broadcast we just saw is that
the filthy, run-down house NBC featured as exhibit A against
HUD isn't even a HUD property. HUD had no responsibility for
maintaining that house, and they shouldn't be blamed for its
condition.
The chairman just acknowledged the fact that NBC doesn't
dispute this. They even ran a retraction on March 19th, making
it clear that this dilapidated property is not in HUD's
inventory. You say, well, that was only one of the houses in
that video. That was the house that this story was all about.
And it wasn't even a HUD building.
I'm also bothered by the story's emphasis on a 1998 GAO
report that ignores a more comprehensive evaluation by Arthur
Andersen Consulting that reaches a markedly different
conclusion. I'm bothered by the misleading and inaccurate
allegation that HUD is losing $1 million a day. I noticed that
the chairman is even using that statistic as fact.
But as we'll see by the end of this hearing, HUD isn't
losing $365 million a year on the FHA program. Instead, the FHA
program is actually responsible for a net gain of $1.5 billion
in 1998, and is projecting a net gain of over $2 billion in
1999. There's no evidence of any demonstrable waste, fraud or
abuse in the program.
Indignation must never be a substitute for fact. I'm sure
if NBC were a bit more careful, it could have found an actual
HUD property in abysmal condition. They do exist. But I suspect
they are exceptions.
While it's probably inevitable that some problems will
arise in a small number of HUD's 40,000 properties, our goal
must be to continue to have every property in the best
condition possible.
The chairman said HUD was trying to intimidate NBC before
they ran this broadcast. I don't know anything about that.
Maybe HUD was trying to tell NBC that they were featuring a
house that wasn't even under HUD's control.
Mr. Chairman, ensuring that all Americans have access to
safe housing is one of our Nation's highest priorities. So I
welcome this opportunity today to evaluate HUD's performance.
The scandals and mismanagement that has plagued HUD in the
1980's has recently given way to a new approach and a strong
commitment to improve Government service.
GAO, which has been critical of HUD in the past, has
recognized these reforms, and recently noted that ``HUD
continues to make credible progress in overhauling its
operations to correct its management deficiencies.'' While
further improvements are still needed, I want to commend
Secretary Cuomo for the significant accomplishments he and the
Department have already achieved.
I think he's a nice guy, too, as the chairman pointed out.
But that has nothing to do with anything. If he's doing the job
he's supposed to do, he should be commended. If he's doing
things he shouldn't be doing, he should be corrected. But
simply to use a hearing to beat up on HUD, without substantial
evidence to back it up, is not a responsible oversight.
We have to scrutinize HUD. We also have an obligation to
bring balance and fairness to our scrutiny. The FHA program is
a lifeline for home ownership to thousands of families across
our country. Over 75 percent of first-time homeowners have FHA
approved mortgages. FHA insures more mortgages for African-
Americans and Hispanics than any other insurer. And 93 percent
of FHA mortgages have no problems, and do not result in
default.
Now, that's a significant figure, because 93 percent of the
loans are fine, but 7 percent do end up in default. That's
higher than other lenders who have a lower rate of default. But
the loans of FHA are to people who wouldn't be able to
otherwise get these loans to buy a home. That's why the Federal
Government established the FHA program.
I look forward to today's testimony and our testimony that
we're going to receive. But I was taken by surprise when the
chairman talked about, why are we having more homes foreclosed
when our economy is doing so well.
Well, in 1993, there were 918,700 bankruptcy cases in the
United States. In 1997, we had 1,317,000 bankruptcies in the
United States. Our economy is doing very well for most people,
we're all grateful for that fact. But we are seeing many of our
people not holding up well under these circumstances, and we
see more and more people going into bankruptcy as a result. Not
all of the bankruptcy cases involve HUD, but they are an
illustration of the fact that some people cannot sustain
themselves, some people do go into default on their loans. And
some of those loans are HUD loans, some are not. And when they
are HUD loans, the properties are to be maintained properly,
and we want to make sure HUD is doing their job.
I thank you, Mr. Chairman, for this opportunity to make
this opening statement, and I yield back the balance of my
time.
Mr. Burton. Mr. Gilman.
Mr. Gilman. Thank you, Mr. Chairman.
I want to commend Chairman Burton for moving forward with
today's hearing. I think it's important for this committee to
examine any waste, fraud or abuse, wherever it may be. It's
important that we in the Congress, and more specifically, those
of us on the Government Reform Committee, hold our Federal
agencies accountable for the funds we provide to them.
As the chairman mentioned, HUD has been on GAO's high risk
list of Federal programs that are vulnerable to waste, fraud
and abuse since 1994, which has cost our budget millions of
dollars a day. I find that more appalling when we consider that
today, I'll be meeting later on with housing authority
directors from my own congressional district who undoubtedly
will be asking for increased funding for Section 8 funding in
the appropriation process.
While I have and will continue to insist on adequate
availability of Federal housing vouchers and subsidies to those
who are in need for such housing, I want to make certain HUD is
not wasting these funds that we in the Congress have
appropriated.
So again, Mr. Chairman, I want to thank you for bringing
this issue to the attention of the Congress. I'd be pleased to
yield to the gentleman.
Mr. Burton. Let me just say that although the piece that we
just saw did have a piece of property that was not technically
under the control of HUD, I have been in HUD projects myself,
personally. I have walked through some of them. The stench was
terrible. And it wasn't that long ago that I was going through
those.
As a matter of fact, I want to cite one multi-housing
project in Indianapolis that was built, this was several years
ago, called Rivers Point. There were two high rise buildings.
They were so poorly managed by HUD and so poorly watched that
they were completely destroyed. The elevators didn't work, this
was within 4 or 5 years after their construction.
People had defecated in the bathtubs, there were rats, it
was just an absolute disaster.
They sold those for about a nickel on the dollar, or 10
cents on the dollar to a private contractor. He went in and
cleaned them up, fixed them up, and now they are high rise
apartments, some are even luxury apartments.
That's just tragic, the billions of dollars that are
wasted, the millions of dollars that were wasted on that one
project.
Now people can say, well, this isn't the case, this one
piece of property is not really, it's the exception rather than
the rule. I want to tell you, I've been through these houses. I
was in the real estate business. That was my business, I was a
realtor before I came to Congress. My brother still is a
realtor.
We have been through these houses, a lot of them, in
Indianapolis, one of the cities that was mentioned. And I want
to tell you, there's a lot of improvement that can be made and
HUD needs to do it.
I thank the gentleman for yielding.
Do any other Members wish to be heard? The gentlelady from
Hawaii.
Mrs. Mink. Thank you, Mr. Chairman.
I yield to the ranking minority member.
Mr. Waxman. Thank you for yielding. I'm sort of taken aback
by the chairman's statement of his own personal experience. I
don't doubt that he experienced what he claimed. But public
housing is different than houses that were under discussion
where there's a loan to a purchaser for a single family
dwelling. A lot of these multi-family residences are public
housing, sometimes run by the local people with some Federal
dollars, sometimes they are run by private owners who have
received help from tenants that have Section 8 vouchers.
So I think we ought to be indignant whenever we see any
abuse or fraud. But because we see some abuse or fraud doesn't
mean that everything is abused and fraud is the norm rather
than the exception.
I point out the high number of bankruptcies, I just want to
say that I pulled off the Web this statistic, more Americans
filed for bankruptcy in 1998 than ever before. That's pretty
startling, when we recognize we've had such a good economy for
most people. But for a lot of people, it wasn't a very good
economy and they weren't able to hold onto their homes, weren't
able to pay their bills, had to go into bankruptcy as a
consequence.
I thank you for yielding, and I just raise this doubt in my
own mind whether we're not comparing apples and oranges, and
whether HUD had the responsibility for the public housing the
chairman walked into or whether they didn't. Let's hear from
the witnesses and maybe we'll be able to sort through these
different claims as we go through a scrutiny, which is
appropriate for our committee, and I commend the chairman for
calling an oversight hearing, so that we can look into the HUD
activities.
Mr. Burton. Our first panel will be Ms. Nancy Cooper.
Excuse me, did you wish to speak? The gentlelady is recognized
for 5 minutes.
Mrs. Biggert. Mr. Chairman, I would like to enter a
statement into the record.
[The prepared statement of Hon. Judy Biggert follows:]
[GRAPHIC] [TIFF OMITTED] T9984.003
Mr. Burton. Would you yield to me for just one moment?
Let me just say in response to my colleague, before we have
our first panel, real estate was my business. Single family
dwellings were part of my business. I know of what I am
speaking. I know who was financing them and who was controlling
the properties that I went into. There's no question about it.
So I just want to make sure the gentleman from California
understands that I know these were properties managed by HUD
that were FHA financed that weren't properly taken care of.
There's just no question about it.
Mr. Waxman. When was that, Mr. Chairman?
Mr. Burton. I went out with my brother in Indianapolis
probably 6 months ago. My brother is still a realtor, and vice
president of a company in Indianapolis.
[The prepared statements of Hon. Helen Chenoweth and Hon.
Bernard Sanders follow:]
[GRAPHIC] [TIFF OMITTED] T9984.004
[GRAPHIC] [TIFF OMITTED] T9984.005
[GRAPHIC] [TIFF OMITTED] T9984.006
[GRAPHIC] [TIFF OMITTED] T9984.007
Mr. Burton. We will now bring forward Ms. Nancy Cooper.
[Witness sworn.]
Mr. Burton. Ms. Cooper is the District Inspector General
for Audit in HUD's Office of Inspector General. Her office is
responsible for ongoing work in the field regarding FHA's
single family program. She will testify regarding the current
status of the single family property disposition program.
She is up here today from Atlanta and we welcome her and
thank her for her responsiveness under the heavy time
constraints the committee has put her team under.
Ms. Cooper.
STATEMENT OF NANCY H. COOPER, DISTRICT INSPECTOR GENERAL,
SOUTHEAST/CARIBBEAN DISTRICT, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Ms. Cooper. Good afternoon. Mr. Chairman and members of the
committee, my name is Nancy Cooper. I'm District Inspector
General for the Southeast/Caribbean District in the Department
of Housing and Urban Development. With me are members of my
district team, Mike Gill and Jerry Kirkland. I thank you for
inviting us.
I'm speaking today about our ongoing audit of HUD's single
family property management and disposition program, known as
the real estate owned, or REO operation.
When we began our work late last year, HUD was well into
its HUD 2020 reform and had reduced its single family staff by
over 50 percent. Plans to pipeline or privatize management and
marketing of properties had not materialized.
Our objective was to see what impact this was having on
HUD's performance. We were concerned that poor property
conditions and management inefficiencies reported by GAO in
March 1998 might still exist and if there existed an increased
risk of fraud.
Our results show that conditions overall have not improved
since GAO's report. Our findings mirror those of KPMG in its
audit report issued just this month on FHA's financial
statements. Simply put, HUD has not fulfilled its core mission.
Here's why.
HUD's ability to turn over its acquired properties
declined. Inventory increased 70 percent over the last 2\1/2\
years to over 42,000 properties, and homes held in inventory
over 6 months increased 76 percent.
Sales to homeowners went down, while sales to investors
rose. HUD's ability to maximize returns to the mortgage
insurance fund also declined. Average loss per property
increased from $28,000 in fiscal year 1996 to over $31,000 in
fiscal year 1998.
The care of HUD properties is essential to protect the
neighborhoods around them. Yet our own property inspection
confirms what contract inspectors have been reporting to HUD,
that the rate of non-compliance by the companies hired to
manage our properties is unacceptable. At the committee's
request, we brought a few pictures of our current inventory.
This is a property in Rockford, IL, acquired in May 1998.
It lists for $17,001, or $900 less than it was appraised. HUD's
cost to date is $28,600, including $2,300 paid to maintain it.
The inspector who took this picture last December also reported
the kitchen and bathroom were filthy. Records show the asset
manager visited regularly.
Next is a photo of the front of a property in Miami,
acquired in November 1997. We took this picture a week ago. The
back of the property is overgrown and littered with debris
inside and out. In January, HUD inspectors reported significant
vandalism. The asset manager did not visit regularly.
HUD's cost is $79,690, a loss already over $45,000 based on
list price.
Next is the condition of a property in Los Angeles in
September 1998. Our inspection showed debris outside and
neglect by the asset manager. Here's the same property in mid-
March 1999. The property continues to be neglected, with the
lawn obviously not mowed for some time.
These final photos are of another property in Los Angeles
taken in September 1998. The roof is leaking and the asset
manager was under contract to fix it. We took a picture of the
ceiling again just a week ago. The roof wasn't repaired, and
the ceiling has fallen in. Now it will be much more expensive
or more likely the list price will have to be lowered.
It would be unfair to criticize HUD's field staff for these
conditions. Last October, we observed the Santa Ana staff
barely keeping its head above water. The staff of 18 was
expected to manage a portfolio of 16,000 properties.
Around the country, workloads were shifted among offices
when suddenly, no REO staff remained. Problems were so severe
in Chicago, Birmingham, Jacksonville and Coral Gables that
emergency contracts were let to handle many of the duties.
These circumstances nearly paralyzed the monitoring efforts.
Next month, HUD faces still more new challenges. Current
operations will be replaced by 16 management and marketing
contracts nationwide. These companies will handle nearly every
aspect of HUD's multi-billion dollar real estate portfolio at a
5-year estimated cost of $900 million.
I'd like to make one last point, important to the
Department's future plans. Our preliminary data indicates HUD
has not been effective or swift in dealing with non-performing
contractors. We've seen no monetary sanctions, few contracts
terminated, and no contingency plans when contractors fail. It
is essential that HUD have a strong contract enforcement
strategy if it expects to be successful in these future
endeavors.
That concludes my opening remarks. Thank you.
[The prepared statement of Ms. Cooper follows:]
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Mr. Burton. Thank you, Ms. Cooper.
Right now, what kinds of penalties are imposed on these
contractors if they don't comply with their contractual
obligation?
Ms. Cooper. We see none.
Mr. Burton. Are there any regulations over at HUD that
would impose any kind of financial penalties on them if they
don't do their job properly? Do you know?
Ms. Cooper. I do not know. I do know there are provisions
within the contract that allows HUD to go against them to
terminate the contract, for example. We've not seen them doing
much of that, either.
What normally happens is that HUD will send a warning
letter to an asset manager saying, we've inspected your
property, three of your properties, you're not keeping them up.
Please tell us what you'll do to correct these problems.
Generally, the asset manager will write back, show evidence of
having corrected those conditions in those properties, and that
will be the last of it.
Mr. Burton. The employees of HUD that oversee the
contractors, do they go out and spot check to make sure the
contractors are doing their job?
Ms. Cooper. They do, yes. They're doing less and less of
it, but they do.
Mr. Burton. If they're doing less and less of it, how do
they know if the contractor is performing properly?
Ms. Cooper. They have contracts right now for inspectors to
oversee the asset managers.
Mr. Burton. So they have separate contractors for
inspectors, private inspectors to go out and spot check
properties to see that they're being taken care of properly by
the contractors?
Ms. Cooper. That's correct. This is what HUD used to do.
HUD no longer has the staff to do it, so they've hired
companies to do it.
Mr. Burton. They're contracting.
Ms. Cooper. Right.
Mr. Burton. In some of the statements I've seen, you had a
contractor that not only did the inspection but also did the
billing, the oversight and the collection, and was never even
reviewed by anybody, independent contractor or staff member at
HUD. Is this an unusual situation?
Ms. Cooper. I believe it is unusual. I believe this was a
situation involving one of the emergency contracts. I can check
if you'll allow me.
Mr. Burton. I wish you would check and let me know.
Ms. Cooper. One of the individual asset management
companies was allowed to do this, but this was an unusual
situation, and we're not sure why in this case.
Mr. Burton. The new contractual agreements, the new
contracts that are going to be let by HUD, I guess there are
going to be six contractors nationwide, is that correct?
Ms. Cooper. I'm not sure of the number. There are 16
contracts, but something less.
Mr. Burton. My staff says there are going to be six
contracts. The policing is going to be done, I guess, by
independent contractors as well who are going to go out and
double check and make sure the contractors are doing their job,
is that correct?
Ms. Cooper. That's our understanding, yes.
Mr. Burton. Do the new contractual agreements impose any
kind of financial penalties on the contractors if they do not
do the job properly?
Ms. Cooper. I can't answer that. As you know, we're in the
middle of our audit. That's one of the areas we intend to look
at, is how well those contracts are written. Right now, we've
not done that field work and I can't talk about it.
Mr. Burton. What I wish you'd do for me, and we'll leave
the record open, if you could send to me and my staff
information about those contractual agreements and what they
contain, it would be helpful. It seems to me there not only
should be a severability clause in there, if they're not doing
their job, they lose the contract, No. 1, but No. 2, if they're
not doing the job and it's pretty prevalent among the work that
they're performing, there ought to be substantial financial
penalties imposed against them for not doing the job.
In other words, financial penalties for not doing the job,
No. 1, because they're taking the taxpayers' money and they're
not doing the job, and they know they're not doing the job, so
there ought to be financial penalties, No. 1. Then No. 2, if
that doesn't get the job done, the cancellation of the contract
in addition to the financial penalties that are imposed against
them.
Ms. Cooper. I couldn't agree with you more. We'll check for
that information.
Mr. Burton. See if their contractual agreements do have
those stipulations in them.
Ms. Cooper. Certainly.
Mr. Burton. I yield back the balance of my time to Mr.
Waxman.
Mr. Waxman. Ms. Cooper, you just said you're in the middle
of your audit?
Ms. Cooper. Yes, sir.
Mr. Waxman. Why are you testifying now if you haven't
completed your audit?
Ms. Cooper. The committee asked me to.
Mr. Waxman. It just strikes me it would be more sensible to
talk to us about an audit that's completed rather than one
that's incomplete.
I want to ask you a couple of questions. Last year in
December, the Washington Times reported that the Inspector
General warned that HUD was losing $1 million every day by
failing to dispose of the vacant properties in its inventory.
Chairman Burton evidently agrees with that statement, because
he was so alarmed that he named this hearing ``HUD Losing $1
Million Per Day, Promised Reforms Slow in Coming.'' That's a
title for a fact-finding hearing. Sounds like a conclusion was
reached before we ever heard from any witnesses.
I'm sure you're familiar with that figure. My understanding
is that HUD spends $1 million a day in managing its inventory
of single family homes. Do you believe it's appropriate for HUD
to spend money to manage its inventory?
Ms. Cooper. Sure.
Mr. Waxman. And I've read how this $1 million a day figure
has been attributed to the Office of Inspector General. How did
you arrive at that estimate?
Ms. Cooper. I'll explain it to you. That estimate is based
on the cost per day for HUD to manage its portfolio. The cost
per day is $29 a day. That number is based on an inventory at
the time that that statement was written of 41,000 properties.
The point that we were attempting to make with the
statement is that when HUD fails to turn over the properties,
if they have 41,000 properties in their inventory, it costs $1
million a day.
Mr. Waxman. My understanding was that figure was not just
for the 41,000 properties that came through foreclosure, but it
represents holding costs for more properties than that. Am I
incorrect?
Ms. Cooper. I'm not sure of your question. My understanding
is that $29 is the cost to HUD.
Mr. Waxman. For each of the 41,000 foreclosed properties?
Ms. Cooper. To manage any piece of property.
Mr. Waxman. Any piece of property?
Ms. Cooper. Any piece of property.
Mr. Waxman. So it's not a net loss for these properties,
it's the cost of maintaining the properties until they are
sold. And when the properties are sold, HUD recoups these
costs, doesn't it?
Ms. Cooper. Not always, no, sir.
Mr. Waxman. Well, not always, but sometimes?
Ms. Cooper. Sure, sometimes it does, yes.
Mr. Waxman. It's like saying Coca-Cola loses $1 million a
day because they spend $1 million a day for sugar. But you
forget about the fact that they turn around and sell Coca-Cola
and make a profit on the sale of their product. We all know
that we have costs of doing business. If Coca-Cola spends $1
million a day on sugar, it doesn't mean it loses it. We know
they make a lot of money.
I have here the yearly financial results of a mutual
mortgage insurance fund. That's the pool of money funded by
premiums paid by borrowers used to finance the operation and
cost of the FHA single family insurance program. We can see
from the chart that, it's right over there, to your right, we
can see from that chart that all expenses, including the cost
of maintaining property, totaled $2.87 billion in 1998.
But we also see that their total receipts including sales
of acquired properties, fees and premiums, totaled almost $4.43
billion. That's a net profit. In 1998, this fund actually
netted $1.55 billion. I'm sure there are management challenges,
but it seems to me we should really be thanking HUD, not only
for keeping the opportunity available for middle class people
in under-served communities to buy homes, but for writing us a
check last year for $1.55 billion. And the net receipts
estimate for fiscal year 1999 are even higher, $2.138 billion.
Do you disagree with my statement, when you look at it in
that context?
Ms. Cooper. Sir, I don't have any information about that
chart that you're looking at, and I didn't do any computation,
and my staff didn't do any computation on the fund.
We are looking solely at the cost or profit of the property
disposition portion of the HUD portfolio.
Mr. Waxman. Well, you're only looking at one part of the
equation. You're only looking at the cost, but you're not
looking at the rest of the picture. And it's not very helpful
for us for you to come up with a figure that's then used to
criticize HUD for losing us $1 million a day, when in fact,
that figure is an inaccurate figure if you look at the total
amount of money that HUD not only spends but generates from
their properties.
Ms. Cooper. It's an important figure when HUD no longer is
able to turn properties over according to their goal. Their
goal is to get properties out of inventory in 6 months.
When that number declines, then it starts costing the
taxpayer, it starts costing the fund unnecessarily. That's
merely the point we were trying to make.
Mr. Waxman. Can you give us the breakdown of the 41,000
foreclosed homes, how many stayed off the market 6 months, how
many were sold earlier? Wouldn't that be a more meaningful
figure if we're being critical of HUD for not selling its
property faster? Not how much it spends during the period of
time it has to maintain that property and pay for costs.
Ms. Cooper. Yes, sir, I would agree it would. And in my
full testimony, we talk about the inventory of properties over
6 months old increasing 76 percent from 7,100 properties to
12,500 properties. That 12,500 properties is in inventory
longer than they should be. That's costing. That's the point we
were trying to make.
An efficient operation turns properties over within 6
months. An inefficient one doesn't.
Mr. Waxman. I want to concede to you, as you've conceded to
us on that million dollar figure, that that is an issue that is
of concern. We want to look at that carefully. But obviously in
the short time I have, maybe I'll have more opportunity, but
others will want to ask questions, we can explore some of these
inflammatory statements that seem to be coming out of an audit
that isn't even complete, and for which a hearing has already
been titled--this is the notice that went to all the press and
the Members--HUD Losing $1 Million Per Day, Promised Reforms
Slow in Coming.
Mr. Burton. The gentleman's time has expired.
Mr. Waxman. Some fact-finding, some disinterested fact-
finding oversight.
Mr. Burton. Mr. Gilman.
Mr. Gilman. Thank you, Mr. Chairman.
Just a couple of questions. How many HUD field staff will
be in charge of contractor oversight, and how did HUD arrive at
the number you have?
Ms. Cooper. The number we've seen is 70. And I'm not
certain how HUD arrived at that number.
Mr. Gilman. Is 70 going to be enough to do the kind of work
you need to do?
Ms. Cooper. I can't answer that question. Once we take a
look at HUD's new monitoring procedures, we may be in a
position to try to predict whether or not that number of staff
can do what needs to be done.
We hope to try to do some of that assessment between now
and the end of our field work.
Mr. Gilman. Have you increased the number this year, or is
that decreased? What's the situation with regard to the
oversight?
Ms. Cooper. With regard to the number of staff?
Mr. Gilman. Yes.
Ms. Cooper. Let me see, I'll answer and if this isn't the
answer to your question, you can ask me again. There are
currently about 300 REO staff. The predictions are that with--
--
Mr. Gilman. 300 what kind of staff?
Ms. Cooper. Pardon me; 300 HUD staff working on the real
estate owned operations.
Mr. Gilman. OK.
Ms. Cooper. Under these 16 new management marketing
contracts, they will pare down that 300 staff to around 70.
Those 70 staff will merely be contract monitors. They will
monitor those 16 nationwide contracts to ensure they're
complying with the terms.
Mr. Gilman. How did you arrive at the reduction from 300 to
70?
Ms. Cooper. Sir, I didn't arrive at it, you'll have to ask
HUD.
Mr. Gilman. From your oversight perspective, do you think
this is a practical reduction? Is this going to affect the
ability of the agency to do the oversight?
Ms. Cooper. I wish I could tell you. And maybe I can tell
you when we're finished.
It depends on what exactly HUD has in mind for these 70
people to do. HUD may be sure of that. We're not real sure of
it yet. We haven't read their documentation.
Keep in mind also that HUD has plans, we understand, to let
other contracts, besides just these 16 management and marketing
contracts. We understand they still intend to have hired
contractors to oversee those contractors. They'll have other
contracts besides those 16, to help supplement the staff.
Mr. Gilman. Has anyone made an analysis if these numbers
are sufficient to do the kind of work that should be done?
Ms. Cooper. HUD made the statement that they have made that
analysis.
Mr. Gilman. Have you examined that?
Ms. Cooper. We have not yet.
Mr. Gilman. Are you planning to do that?
Ms. Cooper. We're going to look at it from the perspective
of the real estate owned operation, yes, sir.
Mr. Gilman. When will you know that?
Ms. Cooper. We're hoping to know that by July. We're hoping
to complete our audit and issue the report by July.
Mr. Gilman. Would you notify this committee of your final
audit, as to whether or not these people can provide the kind
of oversight that's needed?
Ms. Cooper. Yes, sir, we'll do that.
Mr. Gilman. Mr. Chairman, I'd like to request that a copy
of that report when received be made part of this hearing.
Mr. Burton. Without objection.
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Mr. Gilman. Thank you, Mr. Chairman.
Do you have requirements or guidelines for how much time
HUD employees should spend actually looking at HUD-held
properties, and how many site visits they should conduct? Do
you understand my question?
Ms. Cooper. I do understand your question, but it's not an
easy answer, so I'm trying to decide how to answer it.
HUD staff right now are contract monitors. They're not
going to be property inspectors any more. The guidelines for
the time that we've been looking at the REO operations----
Mr. Gilman. You keep saying REO. What is REO?
Ms. Cooper. Real estate owned. The property disposition
program.
Mr. Gilman. What does REO stand for?
Ms. Cooper. Real estate owned. It's my southern accent. I'm
saying real estate owned [REO]. I'm sorry, I was told not to
use acronyms here.
I'll try to say property disposition program. Now I've lost
track of what it was you asked me.
Mr. Gilman. Let me repeat what I'm asking. Do you have any
requirements or guidelines for how much time HUD employees
should spend in actually looking at HUD-held properties and how
many site visits they should conduct? I think that's a basic
question to see whether or not they are able to do the job.
Ms. Cooper. For the last 1\1/2\ years, the contract
monitors, the contractors who have been doing the property
inspection, have had a requirement to do an initial inspection
of every property that comes in under their responsibility.
After that, they are required to do 10 percent of their
portfolio every month.
I'm assuming that was probably the same criteria that HUD
used when HUD did property inspection and had the staff to do
it. They imposed that same requirement on the contractors.
Mr. Gilman. Have you reviewed this to see if that's an
adequate performance by HUD employees?
Ms. Cooper. Actually, the problems that we are going to be
addressing are not with the number of inspections, necessarily.
It would be more with the action that's taken once that
inspection is done. They can inspect all day long, all week
long, all year long. But if nothing is done with the results of
the inspection, then it doesn't do much good, which is why I
was hoping to get across the point that there needs to be some
enforcement, if a contractor is operating properly.
Mr. Gilman. I think we would agree on enforcement, but we
also want to know, are there sufficient number of inspections
before you get to enforcement? Do you feel there are a
sufficient number of inspections by these number of employees
who will be doing the inspection to make a proper determination
as to whether or not HUD is performing properly?
Ms. Cooper. No. The answer is no.
Mr. Burton. Thank you, Mr. Gilman.
The gentlelady from Hawaii.
Mrs. Mink. Thank you, Mr. Chairman.
I want to continue in the discussion that was started by
our ranking minority member. I'm very much confused with the
title of the hearing today, HUD losing $1 million per day.
I think that from your testimony and the chairman's opening
remarks, one of the important responsibilities that HUD has or
indeed any homeowner has is to maintain the property, to
preserve the value of the asset. That has to be a major
requirement.
So on the sad occasion of a foreclosure, where the Federal
Government resumes ownership of the property because of failure
of the previous owner to make payments, then it is a very
important responsibility that the Federal Government assume the
cost of maintenance and repair and general upkeep. Would you
not concur that that's a major obligation that HUD assumes when
it takes over a foreclosure?
Ms. Cooper. I agree.
Mrs. Mink. If that is a responsibility of the new owner, in
this case HUD, then it would seem to me that the expenditures
to maintain the value of the property is a legitimate
expenditure, wouldn't you say that?
Ms. Cooper. I would agree.
Mrs. Mink. Then really, in line with the videos that we
saw, perhaps the Department can be accused for not spending
enough rather than spending too little. Because indeed, what we
saw, and I have no idea what the rest of the properties are,
but if they're typical, then what needs to happen is that HUD
should have authority to hire more employees, and have greater
sums of money accessible to it for maintenance and upkeep.
Isn't that a fairly logical conclusion?
Ms. Cooper. That could certainly be a valid point.
Mrs. Mink. Well, then, let me go to the point of the very
large, substantial increase in properties in the HUD inventory,
from 24,000 in October 1996 to almost double, 42,000, as you
testified, the last of February of this year. Given their own
goal of 6 months disposition, and their efforts to dispose
resulted in 12,000 plus properties remaining in their inventory
in excess of 6 months, I believe that's what you said?
Ms. Cooper. Yes, ma'am.
Mrs. Mink. Then if we're going to criticize that HUD has
not energized itself to dispose of properties within a short
period of time, its own target of 6 months, then isn't it more
appropriate to say that the $29 you assess as being ``wasted''
because they fail to dispose of the property to be legitimately
charged to the 12,000 properties and not the 42,000? In which
case then, it could be said that HUD unwisely spent $300,000
per day because of its failure to dispose of properties in a
timely fashion?
Ms. Cooper. At the time the IG made that statement, HUD had
also promised that it would pipeline all the properties that
were in its, that came into its portfolio. In effect, HUD was
already behind in removing all properties from the inventory,
as it has promised it would do.
Mrs. Mink. But you see, the whole discussion is absolutely
faulty. Because on the one hand you admit that it is a
legitimate expense on the part of the Government to maintain
the value of these assets, and therefore, moneys have to be
expended. Second, you talk about the disposal of the properties
on the market, and making sure that the Government gets value
for the properties that it has now obtained ownership for.
If it is true that only 12,000 properties remained after 6
months, and if we're going to talk about excess expenditures,
it seems to me it's absurd to talk about $1 million a day. We
ought to talk about 12,000 properties costing the Government
$29 a day, when those properties could have been sold.
One final comment I want to say, that in my jurisdiction,
which is having a terrible time in its economy, thousands of
properties are being foreclosed, not necessarily to HUD, but to
the banks and so forth. These properties were acquired at a
time when the values of the properties were extremely high.
Their failure to pay up their mortgages resulted in a
foreclosure.
So there is a huge windfall for the institutions as well as
the Federal Government for assets they are now acquiring that
are extremely valuable. Those are asset values. But the other
side of that coin is that our economy is so bad out there,
there are very few people who can afford to buy these
properties. So they are held extraordinarily long.
I was just talking to someone in my office a moment ago who
had to leave for a new job opportunity. His house has remained
unsold on the market for 18 months. Now, that private owner, I
am sure, has been doing everything he can do, standing on the
sidewalks trying to dispose of his property and not being able
to do so.
So in some cases, I'm sure that HUD has found the community
and State circumstances such that it is impossible to move
these properties. So I think it's unfair to load upon HUD all
of these situations without critical evidence to point
specifically to the areas and properties and concerns that
might generate legitimate oversight responsibilities on their
part.
Otherwise, I think this is an enormous waste of time. I
yield back the balance of my time.
Mr. Waxman. Will you yield to me?
Mrs. Mink. I yield to my ranking member.
Mr. Waxman. It just strikes me, your point was so well
taken, that we're talking about 12,000, which is out of 41,000,
less than a third of the properties under foreclosure. That's
because they haven't met a self-imposed 6 month deadline.
But isn't it accurate that at least 2 of those 6 months are
by statute time when HUD can't dispose of the properties,
because they have to give the owner a chance to come back and
cure it or have some public interest group come in? Isn't that
accurate, Ms. Cooper? Isn't that the policy they have at HUD?
Ms. Cooper. I need to consult with my staff, please.
Mr. Waxman. I understand that's their current policy, but
they're talking about changing that policy.
Ms. Cooper. My staff is telling me that when HUD
forecloses, or when the lender forecloses, that the owner of
that property does not have an opportunity to buy back.
Mr. Waxman. As I understood it, they have a policy where
they give them time, they hold off for a couple of months. So
they have this built-in restraint that they've built in. But
also, these are hard to sell properties in inner city
neighborhoods. I would think anybody would have a hard time
selling some of those properties.
That's not to justify it, it's just to give some balance to
the fact that we're talking about less than a third of their
inventory and the difficulty in selling it.
I thank the gentlelady for yielding.
Mr. Burton. The gentlelady's time has expired.
Mrs. Morella.
Mrs. Morella. Thanks, Mr. Chairman. I think this is a very
interesting hearing.
I note that one of the witnesses coming up, I think in the
third panel, is going to state that HUD has become less and not
more responsive to HUD related neighborhood issues. I just
wonder if you would walk me through the process. I am a
homeowner. Next door to me is a neglected HUD property. What do
I do? Do I report it? How do I go through this process in order
to get some resolution?
Ms. Cooper. You'd have to be able to identify the asset
manager who is overseeing that property. All of these
properties are doled out to local real estate companies to
maintain them and to secure them and to preserve them and to
ready them for market. Then to market those products as well.
You would have to know who that real estate company was.
Mrs. Morella. Could I find that out easily?
Ms. Cooper. You should be able to find out if there is a
HUD sign posted.
Mrs. Morella. And if there isn't?
Ms. Cooper. You call HUD, I suppose.
Mrs. Morella. So I can find this out, I call HUD and get
that information. Then do I call that entity, that real estate
firm?
Ms. Cooper. I'm assuming you're asking, if there was a
problem at the house, or if you wanted to inquire about buying
it?
Mrs. Morella. No, I just want to eradicate the problem.
Ms. Cooper. You would find out who that asset manager was,
and you would complain to them, or you would complain to HUD.
If you complained to HUD, it would be HUD staff responsibility
to contact that asset manager to tell them they've had a
complaint and to have them go out and correct whatever the
problem is.
They're getting paid good money to maintain those
properties.
Mrs. Morella. That's what I was also going to ask, is how
long does it take, too, for this process?
Ms. Cooper. That's why we look at the average. There are
extremes, there are some properties that get out of inventory
in 30 days. There are some properties that do stay in inventory
for a year or a year and a half.
So the measure of how efficient things are operating is the
average. The average is 6 months. It takes 6 months to get them
out of inventory.
Mrs. Morella. Have you heard of problems, of the fact that
HUD is not responsive to neighborhood issues, or is becoming
less responsive to neighborhood issues?
Ms. Cooper. We didn't look at that.
Mrs. Morella. It might be something to look at, too, as one
of the criteria that you evaluate. And how they are rectified
or resolved.
Let me ask you a very parochial question. Do you have any
kind of a listing of properties that HUD owns that have not yet
been sold in my area, or in any congressional district? Do you
have an inventory of that?
Ms. Cooper. HUD maintains a computer system that lists all
properties in its inventory. I can't imagine that couldn't sort
that by neighborhood. I would say yes.
Mrs. Morella. By congressional district?
Ms. Cooper. Right. In fact, I know they do, because we did
it to select our samples.
Mrs. Morella. What information would it give me?
Ms. Cooper. I haven't personally looked at the list. I can
ask.
Mrs. Morella. I would be interested whether it tells me how
long it's been on the market, whether there are inspections
made.
Ms. Cooper. Apparently there are several reports that can
be generated through this system. It will not tell you
information about inspections. HUD doesn't record that.
But it will tell you when the property came into inventory,
how much it currently lists, how much HUD has, how much it has
cost HUD in payments to the asset manager or perhaps payoff of
the lender's claim. It will tell you information like that.
Mrs. Morella. The reason I ask that is, I feel as a good
legislator this would be an important thing for me to find out
more about if I want to make sure that HUD is making money,
that the neighborhoods are looking good, that we have things in
order so there is personal oversight. Wouldn't you agree that
is a good idea for a Member of Congress? It helps you out as
Inspector General.
Ms. Cooper. I would agree.
Mrs. Morella. Thank you, Mr. Chairman. I yield back.
Mr. Burton. The gentlelady yields back the balance of her
time. Is there further discussion?
Mr. Kucinich.
Mr. Kucinich. Thank you, Mr. Chairman. I want to thank you
for calling this hearing.
My questions and remarks will be more germane to the next
panel, so I'm going to yield my time to Mr. Waxman.
Mr. Waxman. I thank you very much for yielding.
It just strikes me as perplexing why we're holding this
hearing today. You're in the middle of an audit, you haven't
completed it. HUD has proposed some changes, isn't that
correct?
Ms. Cooper. Yes.
Mr. Waxman. That's supposed to go into effect on March
29th.
I just don't know how constructive this is. The chairman
says we want to show how they're not doing their job, losing $1
million a day of taxpayers' money so he can go to the
Appropriations Committee and cut their budget. Do you think
that would be helpful, if we had smaller appropriations for
HUD?
Ms. Cooper. That's a decision for all of you, not me.
Mr. Waxman. Well, it seems to me some of the problems you
were indicating were that there is not enough personnel to
supervise some of these buildings.
Ms. Cooper. At the moment, there are not. That's correct.
Mr. Waxman. Well, your office in September 1997 made
several recommendations concerning real estate management
contracts. I want to go through some of them so we can see
whether HUD has taken measures to implement those
recommendations.
The IG recommended that HUD establish specialized positions
for personnel responsible for contract oversight and monitoring
to make them full time jobs with performance standards and
training requirements. Has this been done?
Ms. Cooper. That I don't know. That will be a part of what
we have left to do, to see what positions HUD has for contract
oversight.
Mr. Waxman. Well, the IG previously testified that it has
been done. So they haven't let you know in the office that your
boss told us that it has been done.
Ms. Cooper. Perhaps I should have asked my staff.
Mr. Waxman. Well, the IG also recommended, your agency,
that HUD integrate data systems and payment systems so that
contract performance and contract payments will relate and be
systemically monitored. Has this been done?
Ms. Cooper. One moment.
Mr. Waxman. Well, let me just tell you, the IG has already
told us it has been done.
Ms. Cooper. My staff is telling me that they don't
recognize those recommendations, it wasn't part of the scope of
the work we're doing. If it's something we should----
Mr. Waxman. Let's see if they recognize this one. The IG
recommended that HUD establish a threshold dollar amount for
review of contract proposals by the Chief Financial Officer
prior to contract awards.
Ms. Cooper. You're reading from----
Mr. Waxman. This is September 1997.
Ms. Cooper [continuing]. Our audit of contracting, is that
correct?
Mr. Waxman. That's right.
Ms. Cooper. OK. This is work we have yet to do. This is
what I was trying to explain. We have not yet looked at what
HUD has proposed to do. We've been looking at what HUD's been
doing over the last year and a half.
Mr. Waxman. Well, shouldn't you look to see whether they're
improving?
Ms. Cooper. Yes, sir. That's exactly where we're headed
next. We're looking at how those contracts read and how those
contracts will be monitored to see whether or not there are
strategies in the Department to properly oversee those
contracts.
So if you ask me that question again in 3 months, I should
be able to answer it.
Mr. Waxman. Let me point out that these are
recommendations, your staff doesn't even remember it, but these
are recommendations made in September 1997 by the Office of
Inspector General. And as I understand it, these
recommendations have been followed by HUD, including the next
recommendation that HUD take steps to integrate and update its
information technology systems. And there are others I want to
go through.
But you and your staff don't even seem to be familiar with
your own recommendations. Second, you haven't completed your
audit to see whether the recommendations have been followed, if
you could remember what they were. And third, you're here to be
critical of HUD for not doing things in the past and you don't
know whether they've changed.
So I just don't know how helpful this hearing is for us as
policymakers to evaluate whether things are getting better.
For example, I'll just tell you, GAO was very critical of
HUD's management problems in its high risk series major
management challenges and program risks. But GAO also gave
credit where credit was due, concluding that ``HUD continues to
make credible progress in overhauling its operations to correct
its management deficiencies.''
Do you agree with that HUD statement? If you do, how could
you when you don't even know what they're doing, whether they
made changes or not? Do you agree with GAO?
Ms. Cooper. The report you're referring to was an audit,
nationwide audit overall of HUD's----
Mr. Waxman. Which report is that?
Ms. Cooper. The report with the recommendations you're
referring to.
Mr. Waxman. But I'm asking about GAO's statement, which I
just quoted. GAO did a written, what they call high risk
series, they looked at HUD. They said, HUD continues to make
credible progress in overhauling its operations to correct its
management deficiencies. Do you agree with GAO?
Ms. Cooper. We have looked at the property disposition
activities since January 1997 to today. My answer in that
perspective would be no, they have not.
Mr. Waxman. Let me point out for the record and for your
information, I read to you recommendations that were made by
the IG office in September 1997. The IG testified in a
subcommittee of this committee in a hearing in June 1998. So in
June 1998, the IG testified that some of these reforms had in
fact been accomplished, because she had made the
recommendations and they were being followed.
You don't seem to know about that.
Ms. Cooper. With respect to the property disposition
activity?
Mr. Waxman. With respect to the way they're contracted.
Ms. Cooper. The contracting issue has been outside of the
scope of this audit. The contracting issue is HUD's ability to,
as an organization, nationwide, to implement contract
activities. It didn't simply apply to the property disposition
activities, it applied to everything. It applied to automation
of the Department, it applied to contracts for closing agents,
it applied to numerous things.
Mr. Waxman. Did it apply to contracting people to manage
the properties?
Ms. Cooper. It would, yes.
Mr. Burton. The gentleman's time has expired.
Mr. Waxman. Isn't that what we're talking about here?
Mr. Burton. The gentleman's time has expired.
Mr. Waxman. You might want to let her finish.
Mr. Burton. Did you have something you want to add?
Ms. Cooper. I simply wanted to say once again, this is an
area that we intend to look at, but we have not yet looked at
it. It is a part of the scope of our audit. So we will address
that contracting oversight ability by the time we finish the
work and issue our audit report.
Mr. Burton. Mrs. Biggert.
Mrs. Biggert. Thank you, Mr. Chairman.
Ms. Cooper, I don't have the institutional memory that a
lot of our members have, since I haven't been here until this
year. But just so I can have the information, right now, HUD is
in the transition, is that correct?
Ms. Cooper. That's correct.
Mrs. Biggert. Was this at the recommendation of the GAO, or
was this something that they just decided to cut down on the
numbers, and go to fewer offices, or to have the four major
offices, rather than smaller offices across the country?
Ms. Cooper. I believe it actually started with
recommendations from the NPR. HUD hired consultants to help
them design a system that would work more like private industry
works. The conclusion of the study was that they would go to
these four centralized home ownership centers to process their
property disposition and all other aspects of FHA.
Mrs. Biggert. So in the middle of this, then, you're doing
an audit. Were they to be finished with that transition prior
to this time, or is this just the time that it takes?
Ms. Cooper. They were to have been finished with this. One
of the reasons that we're doing, that we've undertaken the
review we have is that GAO reported problems. We didn't want to
wait. And after GAO reported those problems, we didn't see the
transition coming, we didn't see HUD making much progress
toward what it was ultimately going for, which was the private
contracts.
We were afraid we would get caught, as the IG, when
Congress called and said, HUD hasn't accomplished what it
intended to accomplish, where have you been. We wanted to be in
a position when you asked to be able to tell you the state of
HUD's activities.
Mrs. Biggert. Was there any definite date, then, for when
this was to be accomplished, or not?
Ms. Cooper. There was. Let me see if my staff remembers the
date.
Originally, it was August or September 1998.
Mrs. Biggert. So do you expect that you'll complete your
audit by July of this year?
Ms. Cooper. Yes.
Mrs. Biggert. Do you expect that they will be then having
finished the transition and be privatized, so to speak, or
having the private contractors take over?
Ms. Cooper. They will. Those contracts have already been
signed. As of March 29th, all properties will be turned over to
those new contractors. So they are now transitioning, as we
speak.
Mrs. Biggert. So you would expect that your audit will also
include the results from March 29th to July and how that's
operating? Or will you end just as of March 29th?
Ms. Cooper. What we'll try to do, it's going to be a little
difficult for us to assess new contracts that have started up
over that short a period of time. So what we will do is study
the monitoring procedures by HUD, and we will review very
carefully those contract terms.
We will try to make some recommendations to HUD where we
see risks. If for example, the contracts don't have any
provision for monetary penalties or HUD does not have
contingency plans, we will make recommendations such as those.
If HUD's monitoring has holes in it from our reading and our
perspective, based on our historical knowledge, we'll make
recommendations about that.
We will probably wait for about 6 months to a year to look
at, and we'll go back and look at those contracts.
Mrs. Biggert. So will your specific recommendations include
reducing the holding times, or the costs, as well as specifics
for the contract, such as penalties?
Ms. Cooper. I expect our recommendations will address that.
One of the things we think would be important for HUD to do is
to be able to measure the cost of the new contracts and compare
it, compare that with alterative ways of handling the property
disposition.
Mrs. Biggert. Thank you very much. Thank you, Mr. Chairman.
Mr. Burton. The gentleman from Massachusetts.
Mr. Tierney. Thank you, Mr. Chairman.
Ms. Cooper, is it your practice, or do you generally
testify prior to completion of an audit, or before you've
issued your recommendations?
Ms. Cooper. Not mine. No, sir.
Mr. Tierney. So you're telling me it wasn't your initiative
to come here and testify prematurely today?
Ms. Cooper. Part of the mission of the Inspector General is
to keep Congress fully informed. When Congress asks for
information, far be it from me to deny them that information.
Normally, we like to finish an audit before we make the
results of the audit public. It's not so much to Members of
Congress, but it is to the press. We don't do that.
The reason we don't do that is because as an organization,
we're held to well recognized standards which means that when
we come forward with an audit report, by gosh, everything in
it, all the T's have been crossed and the I's have been dotted.
So we like to go through that full process before we issue an
audit report.
We also like to give the auditee, in this case, HUD, an
opportunity to respond to the results of our work, in all
fairness. So we get those comments, we allow those comments to
be in our report, and then the report gets issued.
So generally we do.
Mr. Tierney. So you didn't initiate this visit here today,
I take it?
Ms. Cooper. No, sir, I did not.
Mr. Tierney. I think your visit is premature, for all the
reasons you've stated. I can't for the life of me imagine,
other than for the press or some other motive what we're doing
here today.
I'll give Mr. Waxman the balance of my time.
Mr. Waxman. Thank you for yielding.
I appreciate that it's the policy of your office to give
Members of Congress information, so that we'll have it
available to us. I wrote to Ms. Gaffney, who's the Inspector
General, and asked her to respond to a report that was prepared
by Mr. Donald Bucklin, who used to be the staff for Senator
Thompson on campaign finance investigation. He was very
critical of the Inspector General, he said things like that
tensions exist between Ms. Gaffney and other HUD officials, and
she has not provided credible evidence supporting many of her
challenges to HUD actions.
In fact, he went on and said many of Ms. Gaffney's
statements ``[reveal] petty, nitpicking arguments based upon
misrepresentations, distortion of events, remarks taken out of
context and arguments that defy logic and reason.''
Now, that's pretty troubling, when someone makes that
statement who was hired by HUD to do an independent evaluation
of the IG. But I didn't get a response from Ms. Gaffney. I'm
not critical of you. But if it's your policy to give Members of
Congress information, which I thought would have been helpful
for me to have prior to this hearing, I just want to put on the
record, I never got a response from her prior to this hearing.
I was informed a few minutes ago that she's been out of the
country, that she'll try and get me an answer by March 26th.
But that's after this hearing.
Ms. Cooper. May I respond?
Mr. Waxman. Sure.
Ms. Cooper. It's not the office policy to give information
to Congress, it's the law.
Mr. Waxman. Well, tell Ms. Gaffney she may be breaking the
law if she doesn't get this information to me, although I doubt
she'll be prosecuted.
Ms. Cooper. That's why we're here.
Mr. Waxman. She's your boss, isn't she?
Ms. Cooper. Yes, she is.
Mr. Waxman. I hope she'll give me the answers to my
questions, because those charges are pretty damning.
Now, I want to examine this HUD issue in comparison to the
private sector. You would think that based on the criticisms
that HUD was performing leagues below private firms that
dispose of foreclosed property. But I don't know that that's
the case at all.
Are you familiar with an industry benchmarking and best
practices report by Andersen Consulting in March 1997?
Ms. Cooper. I'm not. No, we are not.
Mr. Waxman. Well, one critical success factor considered by
the Andersen firm was HUD's ability to maximize return on
sales. I don't know if you're aware that sales revenue for
private industry averaged 96 to 105 percent or more of value.
HUD's single family property disposition performance was
comparable at 98 percent.
Another critical success factor recognized by Andersen
Consulting was minimizing the cost of sale. Chairman Burton
apparently believes that HUD is losing $1 million a day. But
Andersen thinks HUD is doing as well as the private sector.
Are you aware that the industry standard for cost of sale
was 12 to 18 percent of market value and that HUD's costs
averaged 17 percent?
Ms. Cooper. I was aware that HUD's costs--no, that HUD's
loss per property based on its acquisition costs, had increased
from $28,202 in fiscal year 1996 to $31,728 in fiscal year
1998. I was aware of that. I'm not sure I was aware of the
statistics that you----
Mr. Waxman. You weren't aware of the Andersen Consulting
report?
Ms. Cooper. No.
Mr. Waxman. What is your job at the Inspector General's
office?
Ms. Cooper. Pardon me?
Mr. Waxman. What do you do at the IG office?
Ms. Cooper. I'm the District Inspector General for the
Southeast/Caribbean District. I am the audit manager in charge
of the eight southeastern States and Puerto Rico. Overseeing
internal and external audits of the Department.
Mr. Waxman. In that region?
Ms. Cooper. Or nationwide, which is what this is. But yes,
sir, in that region, too, the external audits in that region.
Mr. Waxman. Thank you, Mr. Chairman.
Mr. Burton. Mr. Ose.
Mr. Ose. Thank you, Mr. Chairman.
I share the chairman's background in real estate, and I
have some personal direct experience in acquiring HUD
properties that have been foreclosed upon. I want to make sure
that my memory is accurate in terms of what I recall from the
transactions I've done.
The point of your visit here is to brief us on your
progress, if you will, an interim report. And you've referenced
the KPMG report of March 12, 1999, and suggested that your
preliminary results mirror those conclusions.
I think the point I'd like to make, and I want to hear
feedback from you very briefly, is in terms of property, REO
property that HUD ends up owning, in terms of the REO stuff
that HUD has, typically HUD takes possession after a number of
months. In California, for instance, I think it's 3 months, 92
days or something, in terms of filing the notice of default and
getting to a foreclosure and taking possession.
Oftentimes in that period of time, the person in whom title
is vested will vacate the property. You end up with a property
that has disconnected utilities, no maintenance, no occupant,
no insurance. In some areas you'll get people who move into the
property, then you have a squatters problem, et cetera.
I appreciate how you have pointed out here the cost of that
delay that is incumbent to HUD when that delay takes place. You
have talked about an average disposition time of around 6
months, suggesting there are some that go 12 months. But that
ignores that first 45 days before you ever even have
possession, if I understand correctly.
Ms. Cooper. That's correct.
Mr. Ose. In California, with the temperature variations we
get, and the condensation we get, if we have an unoccupied
property without heating or air conditioning, we'll get
significant deterioration, as you showed in these pictures. For
instance, in drywall, paint, what have you, flooring. We'll
have people come in and steal the equipment, microwaves,
utility, garbage disposal and the like.
Is it your point that we are failing in disposing of these
properties in a timely manner?
Ms. Cooper. HUD's statistics support that we are failing in
disposing of them in a timely manner, yes.
Mr. Ose. Is it your purpose in coming here today to suggest
that your interim audit confirms that?
Ms. Cooper. That's correct.
Mr. Ose. As does the KPMG audit of last week?
Ms. Cooper. Yes.
Mr. Ose. I want to shift to this chart over here. Mr.
Chairman, has that been entered into the official record?
Mr. Burton. I think Mr. Waxman asked that it be entered
into the record. I presume it was.
We'll put it in the record, without objection.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] T9984.077
Mr. Ose. Thank you, sir.
I have a question on the fees and premiums, the $2.4
billion, I sat on the board of an insurance company. It's my
recollection from our operations that we tried to cover
operating costs off fees and premiums and generated our profit
on the basis of our portfolio growth. If I look at those
numbers over there, these premiums of $2.4 billion are less
than total expenditures or $2.87 billion, generating about a
$450 million deficit, which is close to the million dollars a
day costs that we're otherwise concerned about.
I would appreciate having some further explanation as to
what falls into that category that's described as total
expenditures over there. I don't understand what's within the
$2.87 billion. As a practitioner, and someone who has purchased
HUD property, a year after HUD has taken possession under the
REO, can you tell me or quantify for me roughly on a time line
the loss in value that HUD suffers as you go from 6 to 9 to 12
months? Is it 10 to 20 to 30 percent?
Ms. Cooper. I wouldn't have information to give it to you
like that. I certainly can't tell you. What will go up, the
lender's claim will be the same. What will go up is the cost to
maintain the property by the asset manager, the repairs that
are needed based on vandalism, weather, those kinds of things.
The longer it sits without utilities, the more it
deteriorates.
Mr. Ose. My point in bringing these things up is that the
money we spend on that kind of activity, of correcting those
deficiencies, we cannot spend to take care of new housing
demand.
Mr. Chairman, I yield my time to you.
Mr. Burton. I think I'll let the gentleman keep his time,
if he likes. I'll bring up my comments and questions at the
next panel.
Mr. Waxman. Would the gentleman yield so I can ask a
factual question?
Mr. Ose. I would yield to my distinguished colleague.
Mr. Waxman. Thank you. I misunderstood, I thought you made
a statement to her and she didn't dispute it. You said the
average time for disposition is 6 to 8 months. Is that your
testimony? Because I understood your testimony was that you
were focusing on and criticizing that property which turned out
to be a third, less than a third of the 41,000 that took more
than 6 months.
But is it on average 6 months? Or are you critical or
singling out for us those that took longer than 6 months?
Ms. Cooper. We're actually trying to show the trends in the
whole portfolio. We're doing several things. We have taken
statistics from HUD's own data base to try to compare to what
HUD's property disposition mission is. We're looking at whether
or not----
Mr. Waxman. Just specifically the 6 month figure. Is it
inaccurate to say you're talking about an average, that it
takes an average of 6 months or longer to sell property? Or did
you single out that part of their portfolio that took longer
than 6 months for which you were critical of the amount of
money HUD had to spend?
Ms. Cooper. We didn't single out. HUD's goal is 6 months.
We looked to see whether properties were being turned over to
the market within 6 months. We saw that in fact HUD was not
maintaining that 6 months.
Mr. Ose. May I reclaim, please?
Mr. Waxman. Yes.
Mr. Ose. I think the gentleman's point is well made about
the houses that we hold in portfolio past 6 months. That is the
area I'm concerned with, because that is the area we suffer the
greatest declination in value. So I would like to reinforce
your point, whether that 6 months is an average or not, my
concern is focused on those houses that exceed that 6 months.
Mr. Waxman. I share your concern.
Mr. Ose. It's a legitimate area for concern.
Mr. Burton. I thank Ms. Cooper very much. Unless we have
further members wanting to speak, we'll have the next panel
come up.
Mr. Apgar.
[Witness sworn.]
Mr. Burton. Mr. Apgar is the Assistant Secretary for
Housing and also the Federal Housing Commissioner at the
Department of Housing and Urban Development. He's in charge of
the Federal Housing Authority. Mr. Apgar, you are recognized
for 5 minutes.
STATEMENT OF WILLIAM APGAR, ASSISTANT SECRETARY FOR HOUSING,
FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Mr. Apgar. Good afternoon. On behalf of HUD Secretary
Andrew Cuomo, I want to thank you for this opportunity to
testify on behalf of the FHA.
FHA is a real success story. By insuring low down payment
loans for people with less than perfect credit, FHA has helped
more than 27 million American families to become homeowners.
Last year, FHA assisted over a million families.
Perhaps more importantly, FHA does this at no cost to the
taxpayers as the charts illustrate. Last year, we contributed
$1.5 billion to the national deficit reduction effort.
Building on this record of achievement, Secretary Cuomo has
created new and effective ways for FHA to conduct business.
Today's hearing focuses on just one area of that reform, our
FHA property disposition efforts.
As a mortgage insurer, FHA does take ownership of some
properties. Last year, FHA took 70,000 properties, or
approximately 1 percent of the more than 7 million loans
outstanding. We are constantly looking for new ways of doing
business. Over the last 2 years, we have developed, tested and
now are implementing a new property disposition method,
predicated on the belief that private sector real estate
professionals can more efficiently manage and sell REO
properties than HUD staff.
Before I go farther, to describe this new approach, I'd
like to make a brief comment on the testimony provided by the
HUD Office of Inspector General.
As the NBC situation pointed out, it's really important to
get the facts straight in this review. And I will submit a
detailed accounting of the factual errors contained in the
testimony you just heard from the IG.
I'd like to briefly comment, though, on one prominent
example of IG misstatement. This is the million dollar issue.
The statement is provocative as you've heard here. In many ways
it's misleading. What the Inspector General fails to recognize
is that a vast majority of the costs discussed here today are
not incremental costs associated with delay, but rather the
basic costs of a sales operation.
Contrary to the statement by the IG, there has been no
slowdown in recent years in the time it takes to sell FHA
property. Moreover, as we noted from the Andersen Consulting
study, FHA's average property holding and sales costs are
squarely in line with industry standards.
Finally, it's noteworthy to reiterate that FHA does not
cost taxpayers 1 penny, since the overall operation actually
generates more than $1\1/2\ billion of net revenues.
Unfortunately, many HUD critics continue to focus on the
past, rather than work with us to forge the new initiatives
that are coming on line at HUD. By any objective standard, the
new management and marketing approach is praiseworthy. First,
we know this new contracting approach works. During more than 2
years of pilot testing at three sites, private contractors have
proved able to sell properties faster and at a higher rate of
return than HUD's own efforts.
Next, we are well on the way to deploying this successful
model nationwide. Last fall, we received more than 170
proposals in response to a national RFP. This was one of the
most competitive HUD procurements in history.
And finally, the contract is incentive based, with the
entire fee set as a percentage of the net return to FHA. And at
the suggestion of HUD's Inspector General, the contract
minimizes pass-through expenses to HUD, creating a strong
incentive for the contractor to sell HUD properties fast.
Our confidence in this report was bolstered by the recent
assessment of the Office of the Comptroller General at the
General Accounting Office. They concluded that the new approach
would likely yield substantial benefits of cost savings and
quality improvements. Over the last 8 months, we have worked
with the management consulting company of Booz, Allen and
Hamilton to develop a comprehensive set of management and
financial systems controls. In combination with the new
incentive based contract, this monitoring system will ensure
the national program works as well as the pilots.
Finally, I'd like to take a brief moment to comment on the
testimony you'll hear from Gale Cincotta. While I disagree with
many of Ms. Cincotta's solutions, I agree with her focus on
foreclosure avoidance. That's why I urge Gale Cincotta and
others to take a careful look at the steps that FHA has taken
over the past year to reduce foreclosures.
These strategies include our initiatives to foster greater
use of FHA home buyer retention tools, to enhance FHA lender
monitoring enforcement, and to create new appraisal monitoring
systems that will provide consumers with the information they
need to help them make good home buying decisions, and will
enable FHA to better identify and sanction those lenders and
appraisers who would abuse the system.
Before concluding my remarks, I'd like to thank Congressman
Kucinich for alerting the Department to his concerns about the
impact of the HUD Reform Act on grant application review
process. The HUD Reform Act is designed ``to preclude giving an
unfair advantage to applicants who would receive information
not available to other applicants.''
However, as the Congressman has pointed out, applications
sometimes are rejected for narrow technical errors, such as
checking the wrong box on the form, which may seem to defy
common sense. Mr. Kucinich has proposed an amendment to the
Federal grants process, which would clarify the ability of
applicants to correct these kinds of ministerial omissions or
errors.
The Department will also take administrative action to
provide clear guidance to applicants and HUD staff regarding
notification of technical errors and applications for HUD
grants. We believe these actions will address the concerns
raised by Congressman Kucinich and others, and we are pledged
to continue to work with the committee on this issue.
So in conclusion, Mr. Chairman, I'd like to thank you for
this opportunity to testify. I believe an honest and objective
assessment of these and other HUD reform initiatives will
demonstrate that under the leadership of Secretary Andrew
Cuomo, HUD is moving in the right direction. And I'd be happy
to take any questions you may have.
[The prepared statement of Mr. Apgar follows:]
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Mr. Burton. When a person buys a house on FHA, they buy the
FHA mortgage insurance?
Mr. Apgar. That's correct.
Mr. Burton. And the premiums that they pay go into the
mortgage insurance fund?
Mr. Apgar. That's correct.
Mr. Burton. If they default on their mortgage, the money
comes out of that fund to pay for any loss that the mortgage
fund incurs, it comes out of that fund?
Mr. Apgar. That's correct.
Mr. Burton. And when the property is then sold, the money
that's received from the sale of that property then goes back
into the fund?
Mr. Apgar. That's correct.
Mr. Burton. According to the previous panel, based upon the
acquisition costs, they increased from $28,000 in fiscal year
1996 to $31,728 in fiscal year 1998. They say as a result, the
loss to the mortgage insurance fund increased from about $1.5
billion in fiscal year 1996 to slightly over $2 billion in
fiscal year 1998.
That money is not a direct loss to the taxpayer, but it is
a direct loss to the fund. Now, when the fund loses money, that
means that the people who are paying into the fund, the people
who are buying that mortgage insurance, do not benefit from a
profit in the fund, they lose because there's a loss in the
fund.
So the premiums that could go down to the millions of
people who have FHA loans do not go down because of the loss in
the fund, is that not correct?
Mr. Apgar. First of all, the data you just cited are some
of the factual errors that are contained in this report. We
have no idea where they got the 7 percent increase in cost per
sale. Our own estimates suggest that it hasn't increased, just
as our own estimates suggest that there's no increase in the
length of holding time.
But you are correct to the extent to which we incur costs
in selling homes, that results in a loss in money to the fund.
Mr. Burton. If a property, let's say a person moves out,
and they have a mortgage of $50,000 on a property, and the
property is worth $70,000, you've got a $20,000 profit there
that's going to go back into the fund. But if the house sits
there and deteriorates, as we've seen these other houses
deteriorate, for 6 or 7 months, and then it's only sold for
$55,000, instead of the $70,000 it would have gotten, that's a
loss of $15,000 that could have gone into that fund, because it
had to be held for that extra period of time, isn't that
correct?
Mr. Apgar. Typically, sir, if a property is worth more than
the value of the outstanding mortgage insurance----
Mr. Burton. No, you're missing the point. My point is----
Mr. Apgar. That property will never come to us, sir. If the
market value of the property is more than the outstanding
mortgage balance, the lender would repossess the home and sell
it through their own mechanisms.
Mr. Burton. Let's just say it's $45,000 and the property is
worth $50,000. The lender is going to lose money. And it sits
there. There's a $5,000 loss. If it sits there for 6 months and
it deteriorates, it goes down to $25,000.
So now you have, instead of a $5,000 loss, a $20,000 loss,
and that is absorbed by the fund, right?
Mr. Apgar. While the properties aren't being sold, the fund
incurs costs, correct.
Mr. Burton. So the fund loses money. Now, who pays into
that fund?
Mr. Apgar. Who pays into the fund?
Mr. Burton. Yes.
Mr. Apgar. The receipts come from the mortgage insurance
premiums.
Mr. Burton. Which is paid by?
Mr. Apgar. By the home buyers in the FHA system.
Mr. Burton. That's right. So if the people who are in the
fund, who are buying a home, I want to buy an FHA home, and I
have to pay a certain percentage into the mortgage fund for
mortgage insurance in case I default on a loan.
If the fund continues to go down by $1 billion or $1\1/2\
billion or $1 million a day or whatever we're talking about,
then what that means is the costs are going to be passed on to
the consumer in the form of an increase in the premiums, or at
the very least, not a decrease in the premiums that they could
realize if the fund was making money.
Mr. Apgar. Well, if that were the case, that would be true.
But of course, the fund is strong, it's the most financially
secure position we've been in over a decade. As a result of
that, in the last several years, we've cut premiums in several
significant ways. We've had a special first time buyer program
cut, which for counseled buyers, we give them a discount off
their property insurance as well as an inner city discount.
So in fact, we have been able to cut insurance premiums,
because the scenario you described just isn't true.
Mr. Burton. If the IG is correct, and you're saying that it
isn't correct, but if the IG is correct and it's losing $1
million a day, or $365 million a year, then that money is
coming out of the fund, if they're correct. You're disputing
that. But if they're correct, that money is coming out of the
fund.
And if there has been a reduction in premiums, as you've
said, to the consumer when they get a loan, it could be greater
if that figure is correct, the $365 million a year. I know
that's a hypothetical figure to you and you don't agree with
it. The fact is if money's coming in, I was an insurance man,
too, as well as a real estate man.
There is what's called the law of profit and loss in the
law of large numbers. If you're losing money, what the
insurance carrier does is they either increase the premium or
they eliminate the risk by reducing that class of business so
they don't have to insure it any more. But in any event,
they're going to operate at a profit.
Now, you don't have to operate at a profit, but you have to
at least maintain some funds in that insurance fund. So the
bottom line is, if you're losing money each year, because of
excess properties being on the market, because maintenance of
those properties is high, then that money comes out of the
fund, and that money cannot be passed back onto the persons
buying the insurance in the form of lower rates.
That is correct, isn't it?
Mr. Apgar. Right. If all the scenarios you say are true,
then your final conclusion is true.
Mr. Burton. So the big difference we have, then, is whether
or not you're correct or whether or not the IG is correct. If
you're correct, there's no problem. If the IG is correct, we're
losing $1 million a day out of the fund.
Granted, according to Mr. Waxman, this is not taxpayers'
money. But it is the money of millions of people who have loans
through the FHA mortgage loan program. So it might not be
taxpayers' money, but it's the money of millions of people who
have homes through the FHA plan that could realize a lower
premium, therefore more money in their pockets, if there wasn't
a problem. That's the premise that we're talking about.
Mr. Waxman.
Mr. Waxman. Before I begin my questions, I want to yield to
Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Waxman, Mr.
Chairman.
I want to thank the Chair for holding this hearing, because
one of the outcomes that we've seen, as demonstrated by the
testimony of Mr. Apgar, is that HUD did recognize problems and
demonstrated a willingness to take action and reevaluate their
policies. I want to tell the Chair how much I appreciate your
support, and I appreciate Mr. Waxman's support.
All I'm saying is that the response that Mr. Apgar gave is
in response to a recognition by HUD that there are problems.
And they demonstrated a willingness to take action. That came
about, I might add, because of the support of the Chair and
also Mr. Waxman. So these hearings can be productive in some
way. Thank you.
I yield back to Mr. Waxman.
Mr. Waxman. I thank you for pointing that out, because it
does show that there is a responsiveness at HUD to a genuine
criticism that all of us have. I thank you for being
responsive.
Let me go to the points that are before us today, that the
chairman seemed to try to argue that when money is paid out of
this fund that it raises premiums for others. So it's not
taxpayers' money, but other people are going to pay more for
their premiums.
Are your premiums based exclusively on the loss, meaning
money that was spent to maintain the property?
Mr. Apgar. No, they're based on the overall financial
health of the fund. Which as I said is the strongest it's been
in over a decade.
In the 1980's, of course, the fund was very much
mismanaged. We had a serious situation where the fund was net
underwater. Since that time, we've rebuilt the capital base of
the fund through prudent management to its highest level in
over a decade.
We just had the new audit by our Price Waterhouse. This
audit again makes this point.
Mr. Waxman. So it's not like if you have insurance and you
pay off a loss--that's what insurance is all about--it doesn't
mean your insurance companies have to immediately turn around
and ask everybody to pay more for that loss.
Mr. Apgar. We expect to take certain loss. That's part of
our whole risk management strategy.
Mr. Waxman. That's why you have the insurance.
Mr. Apgar. That's right. We lend to people who, quite
frankly, could not get a loan other ways. They are riskier
borrowers. We anticipate a certain amount of losses as part of
the calculation that goes into making those mortgages.
And as was mentioned earlier, 93 out of every 100 of our
borrowers go on to be homeowners, successful homeowners for
life. When there are issues, and the property is foreclosed
upon, that's what we're talking about today, the small number
of cases, not the large number of successful cases.
Mr. Waxman. I want to question you about how HUD is
performing with these foreclosed properties compared to the
private sector, because I think that's really the issue that's
before us. But I want to just take a moment to point out to
everybody what FHA means to people. FHA insured 585,000 people,
or one-fourth of all first-time home buyers' in 1997. FHA is
the primary insurer in urban areas and insures more mortgages
of African-Americans and Latinos than any other insurer.
In fact, the 1996 Federal Reserve report concluded FHA
bears approximately 66 percent of the aggregate credit risk for
minority and low income borrowers and their neighborhoods,
while private mortgage insurers bear only 6 to 8 percent. Of
FHA insured home purchase loans, 15.4 percent were to Latinos,
compared to 6.8 percent for home loans insured by private
insurers in 1996.
Of FHA insured loans, 13.2 percent went to African-
Americans, compared to 5.3 percent of home loans in the private
insurance market. Of FHA insured home purchase loans, 31
percent were to low income borrowers, compared to 14 percent
for home loans insured by private insurers in 1996. In fact,
almost 85 percent of FHA's loans to low income borrowers in
1995 would not have qualified within private insurance market
guidelines to loan to value ratios. Which means these poor
people wouldn't have been able to buy homes.
Even serving all these needs, FHA performs generally on par
with private mortgage insurers, isn't that right?
Mr. Apgar. Yes. We did the Andersen benchmarking study
because we wanted to know how we compared, where our areas of
weakness might be as we began this new process of changing our
property disposition activity.
Mr. Waxman. Let me just ask you, regarding the Andersen
benchmark study, are there a lot of different studies out about
how well you and the private sector would be doing in this area
of dealing with foreclosures and homes?
Mr. Apgar. We wanted one that focused on our details. So
this is the one we have. There are other studies that compare
FHA activities. For example, in terms of our sales price
information, there's a national study that says that our sales
price relative to an estimate of market value is on a par with
other private entities.
Mr. Waxman. Can you imagine anybody in your field not
having heard of the Andersen study?
Mr. Apgar. It was pretty widely discussed, it was a very
important study for us, and it was a key to our restructuring
our FHA operations.
Mr. Waxman. I was shocked that the representative of the
Inspector General seemed to never have heard of this, even
though she was here commenting on this very area.
Mr. Apgar. In our testimony before another committee last
year, of course, we provided information on the Andersen study.
This is no secret on our part. We've been using this
information to try to refute these claims that FHA is a poor
performer.
Mr. Waxman. My time is up, and I'm hopeful I'll get more
time, because Mr. Kucinich said he'd come back and yield me
more time. I want to go into precisely how the private sector
matches up to HUD in this very area for which HUD is being
criticized.
Thank you, Mr. Chairman.
Mr. Burton. Mr. Kanjorski is next.
Mr. Kanjorski. Thank you, Mr. Chairman.
Mr. Chairman, I come a little bit armed, because I not only
have the opportunity to sit on this committee, but I have spent
the last 14 years of my career on the Banking Committee. We're
well aware of the history of HUD and the housing problems that
have existed in the United States.
I think the records show that in the second term of the
Reagan administration and in the first and only term of the
Bush administration, there was always great consternation in
the Banking Committee about FHA. We thought there was some
hidden vault down there in the Department building where all
these records and all these properties were located, and no one
really had a handle on it.
Over the last 6 years, the Department has undertaken a
massive approach to handling inventory, studying these problems
and getting a handle on these problems. Consistent with any
criticism of HUD or any other Federal agency, for that matter,
there is always room for criticism and always room for
tightening. It's evident that there are things here that we
would like to have operate in a more effective manner.
To the Commissioner, I'd like to say that every report I'm
getting back is that you have taken on a Herculean task and
have significantly changed the processes and procedures. I'm
wondering whether you could tell the committee for the record
some of the things you've done on Internet with the
advertisement of properties to make them readily available to
average people, and also to the brokers, and private sales
community.
Mr. Apgar. Yes. Mrs. Morella asked the question about
whether you can find out about HUD-held properties. Of course,
all our properties are listed on the Internet. In fact, many of
our home buyers come to us via that new technology. Certainly a
lot of our broker partners use the Internet to learn about HUD
properties for sale.
As part of the new management and marketing contract, we're
going to move more aggressively into the multiple listing
services around the country. This should both widen our market
and hopefully further shorten our sales time. But we've been
aggressive users of new technology, both in terms of the
operations of the program and also our outreach to consumers.
Mr. Kanjorski. Have you found that as a result of the use
of the Internet and these new methodologies, the process of
turnover of properties has increased and has decreased in cost
of holding and handling?
Mr. Apgar. Right. Unlike the IG, we see no degradation in
our time of holding properties. It has remained constant at
about 180 days. The reality here is, most of our properties
sell quite quickly. It's difficult to sell properties that are
a problem. And the example discussed earlier where a private
homeowner couldn't sell their home in 18 months, we see that
all the time.
In Syracuse, for example, the estimate is it takes anywhere
from 16 months to 20 months to sell a privately owned home. So
in those instances, some of our homes quite frankly don't sell
as quickly. We aggressively cut the price, we work with
community based non-profits to sell the homes. So we do have
efforts. But that's where our issues are.
Mr. Kanjorski. If I could characterize your testimony, as I
understand it, the premise of the hearing today was, HUD is
wasting $1 million a day. But in reality, so that the taxpayers
understand, the program that you administer and as administered
by this administration under HUD is not only not costing $1
million a day, but something significantly less than that, and
overall, FHA is returning to the Treasury $1.5 billion.
So, this is one department or one branch of HUD and the
Federal Government that's making a profit for the U.S.
Government, is that correct?
Mr. Apgar. Yes, we are a profit center with respect to
deficit reduction efforts and overall health of the general
funds.
Mr. Burton. Would the gentleman yield?
Mr. Kanjorski. Yes.
Mr. Burton. You're returning $1.5 billion to the general
fund?
Mr. Apgar. Actually, we have net returns of $1.5 billion.
The funds actually stay in the FHA accounts.
Mr. Burton. They stay in the mortgage----
Mr. Apgar. The mortgage insurance company, that's correct.
Mr. Burton. But it's not going back into the general
Treasury.
Mr. Apgar. But for purposes of calculating the deficit and
expenditure estimates, they are listed that way, yes, sir.
Mr. Burton. Because of the unified budget?
Mr. Apgar. That's correct, because of the unified budget.
Mr. Burton. But it's not going back into the general fund,
in actuality.
Mr. Kanjorski. Reclaiming my time, so that the chairman
understands, if he's not involved in accounting, it's a reserve
fund that is showing a surplus of $1.5 billion. Any time we
were to finalize the accounts and dissolve the U.S. Government,
in fact, the Treasury would receive the surplus funds which
amount to $1.5 billion a year.
Mr. Apgar. Right.
Mr. Kanjorski. So to attempt to mislead and say it's not
going back to the Government would be a mistake. It's accounted
for in the overall deficit as a plus. It is in fact a plus and
the funds exist there presently to be re-used and to support
the fund. Nevertheless, it operates at a profit to the U.S.
Government, is that correct?
Mr. Apgar. That's my understanding, sir.
Mr. Kanjorski. Thank you, Mr. Chairman.
Mr. Burton. Thank you. The gentleman's time has expired.
The gentlelady from Washington.
Ms. Norton. Mr. Chairman, I regret I was not able to be
here for most of this hearing. I do want to say that the
subject matter of this witness is of enormous interest to me.
The District had a $5,000 home buyer credit that has had an
enormously positive effect on home buying in the city.
While our concern was particularly with middle income
taxpayers who have bought in great numbers, what has been
wonderful to see is the coming alive of home owning in the
poorer sections of the District of Columbia, in wards 7 and 8.
None of that could have occurred without HUD's help with these
particular home buyers.
I'd like to yield the balance of my time to the ranking
member, who has been here.
Mr. Waxman. Thank you very much for yielding.
We, through technology, have seen pictures today of really
dilapidated houses in what appear to be very bad shape. I could
imagine, when we hear from people who live near these houses,
they must be horrified at what it's doing to their
neighborhoods.
I want to know what HUD's responsibility is. First of all,
was HUD responsible for the deterioration of the house
immediately, or do they sometimes pick up these houses when the
borrower has walked away from it?
Mr. Apgar. As was suggested earlier, the foreclosure
process in many States can be lengthy, ranging from a couple of
months up to 18 months or more. In many instances, by the time
we get control of the properties, they are in very serious
disrepair.
That's why we requested and got authority from Congress
just this last October to extend our reach in those difficult
situations. So where there is a property languishing on the
market during a foreclosure process, we can take control of
that property through taking the note prior to foreclosure.
This was the approach that we had proposed using in our
April testimony. We awaited confirmation of Congress through
the 1999 Appropriation Act that we had the legal authority to
do that. So that will give us an additional capacity to attack
that portion of the problem that we don't have control over
now, which is what happens to the property after the homebuyer
moves out and before HUD gets legal possession of the property
through a foreclosure action.
Mr. Waxman. So you have a buyer. The buyer is an
irresponsible person who doesn't pay his or her debts and
abuses the property, maybe just in the most horrible way. There
are properties like that, aren't there?
Mr. Apgar. Yes, occasionally there are borrowers like that.
Even if the borrower is a responsible party, an unoccupied home
in many of the neighborhoods that are in serious decline will
depreciate quite rapidly.
Mr. Waxman. So you get a property that's deteriorated in
value, it's peeling, it falls apart, it smells, if a
Congressman walked in with his brother, he would notice it,
that it smelled. It could happen. It could also happen to
private foreclosures, couldn't it?
Mr. Apgar. Oh, for sure.
Mr. Waxman. Now the question is, what do you do? Now you've
foreclosed, you're trying to figure out how to get these
properties foreclosed faster. Now you foreclose on them and the
question is, what do you do to get rid of these properties?
Resell them. Tell us about your activities there.
Mr. Apgar. We have a number of initiatives. In the
District, for example, the Officer Next Door program is quite
popular, where we give HUD homes at a discount to police
officers to encourage them to live within the District. In
fact, the 2,000th beneficiary of this program was a District
police officer.
We also work with community based non-profits. Under the
new legislation that was passed in 1999, we have a program
which will target hard to sell areas, working in cooperation
with neighborhood groups and cities, again to put a focus on
our efforts to secure, maintain and dispose of those properties
in the difficult to sell areas.
Mr. Waxman. Is it true that HUD takes a longer time, holds
onto those properties longer than the private sector before
they turn around and sell them?
Mr. Apgar. According to the Andersen benchmarking study,
the industry ranges between 120 and 180 days. HUD is now at 182
days, right within that bound. Under our new management and
marketing contracts, we think the incentives that we've given
the new contractors will bring our average down to 150 days or
less.
Mr. Waxman. Is it a fair statement that you have an average
of 6 months before you dispose of these properties?
Mr. Apgar. That's our overall average right now.
Mr. Waxman. So it is 6 months on average?
Mr. Apgar. The range is between 4 months and 6 months.
We're at the high end of the range now.
Mr. Waxman. You're at the high end of the range? Part of
the reason for that is that you have a policy to promote owner
occupants and other public policy interests?
Mr. Apgar. That's correct. Early on, we have a period in
which from 30 days to 45 days in which community based non-
profits have right of first refusal to purchase our properties,
as do governments.
Mr. Waxman. Is that by statute or by policy?
Mr. Apgar. That's been our policy. Our new approach is
going to continue to have that policy in effect, but streamline
it so we're able to move quickly to make sure that if folks
want to buy it through those special options, they can. But
then we move it more quickly to the general market if they
choose not to.
Mr. Waxman. Could it be that the Inspector General for HUD
doesn't know about this policy?
Mr. Apgar. I don't know. It's in all our documents, it's in
all our contracts. A key element of the new approach is to work
out the handling of those setaside periods, to make sure it
operates effectively.
Mr. Burton. The gentleman's time has expired. Mr. Ose.
Mr. Ose. Thank you, Mr. Chairman.
Mr. Apgar, on your testimony there is a comment in here
about the industry norm for sales revenue between 96 and 105
percent of appraised value. And FHA sells properties at an
average of 95 percent of market value. Is appraised value the
same as market value in this lexicon?
Mr. Apgar. No, the appraised value should be a best faith
estimate of market value.
Mr. Ose. How do you reconcile the 96 and 105 percent of
appraised value with 95 percent of market value? It's apples
and oranges.
Mr. Apgar. It's the same thing. The estimate that is the
105 percent figure, many private sector companies do cosmetic
repairs to boost the sales price a bit. So they're able to sell
higher than the initial appraised value.
We sell our properties generally as-is. So that's why we're
on the low end of that spectrum.
Mr. Ose. Mr. Chairman, I need to jump shift here for a
minute. I'm under the impression that the Chief Financial
Officer for HUD resigned 2 weeks ago, is that correct?
Mr. Apgar. Mr. Keevey did leave HUD, maybe a week ago, 2
weeks probably.
Mr. Ose. What is the status of having a replacement named?
Mr. Apgar. They have an active search underway for a new
Chief Financial Officer. I don't know the details of that, but
I know they're looking.
Mr. Ose. Any idea on the timeframe for completion of the
search?
Mr. Apgar. My expectation is, given the importance of the
job that's going to be moved forward quickly.
Mr. Ose. I have a related concern. Deputy Assistant
Secretary Smith fills a slot----
Mr. Apgar. He's actually the Acting Assistant Secretary for
Administration. Joseph Smith, that's correct.
Mr. Ose. He has served in that capacity for more than a
year without an appointment, consistent with current Federal
statute?
Mr. Apgar. Joseph Smith is a career HUD employee. He's been
with the Department for close to 25 years. He's in the process
of being nominated, a very unusual move, to nominate a long-
time career staff person to such a critical political position.
But Joe Smith has more than earned the respect of the
leadership at HUD, and he's in the process of being nominated.
Mr. Ose. I'm not questioning his degree of respect, I'm
questioning whether or not he has served a year in a spot that
is otherwise subject to the Federal Vacancies Act, that says
you cannot serve in a temporary capacity for more than a year.
Mr. Apgar. You're going to have ask others about these
matters in more detail. I know Mr. Smith's general role in the
Department, I work with him every day. But in terms of the
details of his appointment status, you'll have to get other
information. I'd be happy to provide that for the record or get
someone who could provide that for the record for you.
Mr. Ose. Mr. Chairman, I'd appreciate an opportunity to
enter that question into the record for further response. I
yield my time to the chairman.
Mr. Burton. Thank you. Without objection, it will be so
ordered.
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Mr. Burton. First of all, 40 percent of the foreclosures or
repossessions, where they leave the house, exceeds 6 months, 40
percent is what the IG said. Is that correct?
Mr. Apgar. Forty percent? I'm sorry?
Mr. Burton. The vacancies, 40 percent exceed 6 months, is
that correct?
Mr. Apgar. No, I believe it's closer to 19, 20 percent.
Mr. Burton. Well, we need to once again check the IG.
Mr. Apgar. Yes, and even their calculation was 7,000 over.
Mr. Burton. We'll check that. We did some calculating, and
if the $1.5 billion per year is accurate--and the IG says $1.5
billion to $2 billion is accurate--if that money was returned
in reduced premiums to the 7 million homeowners who pay
mortgage insurance, it would amount to a $215 a year reduction
in their insurance premiums. If you cut that in half, it would
still be over $100.
So if those moneys were returned because the $1.5 billion
to $2 billion wasn't wasted as the IG says, you would have a
reduction in insurance premiums for those people of about $215
a year. Whether it's a tax reduction or a reduction in the
insurance premiums, it's still quite a bit of money.
Now, the Inspector General told us that contractors are not
being overseen or watched correctly, is that correct?
Mr. Apgar. No, I don't believe that's a correct statement.
They identified some instances where they found that to be
true, but that's not the general practice.
Mr. Burton. They said that one contractor was not visited
by a HUD employee in over 3 years. Are you familiar with that
case?
Mr. Apgar. No. As we suggested, we only got their testimony
yesterday. In a typical IG audit, we'd have a chance to read
the testimony and review it.
Mr. Burton. Would you correct that for me and let me know?
Mr. Apgar. I certainly will.
Mr. Burton. And we've been told that another contractor was
auditing his own work and approving his own payments. Are you
familiar with that?
Mr. Apgar. That would be very unusual, and I'm not familiar
with that particular case, other than having read it yesterday
in the IG's testimony.
Mr. Burton. But you will check that for me as well?
Mr. Apgar. I sure will.
Mr. Burton. And do you dispute that supervision of
contractors was poor and the condition of HUD properties was
deteriorating because the contractors were not being supervised
properly?
Mr. Apgar. I do not believe it's a fair statement that
contractors weren't being supervised correctly. Again, there's
no evidence that we're suffering any delay in sales of our
homes. Our data suggests the opposite.
Mr. Burton. If you would, after you review the report, give
us a comment in writing, I'd really appreciate it.
Mr. Apgar. And we wish to submit for the record a list of
what we've identified already as being factual errors, clearly
misstatements of fact that just spring right out at you when
you read that testimony.
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Mr. Burton. One other thing. I believe Mr. Kanjorski, I
believe he was still here, said that you were returning $1.5
billion or thereabouts to the Treasury. The fact of the matter
is, that money does not go back to the Treasury. Under the
unified budget, as far as paper is concerned, just like the
Social Security Trust Fund, Highway Trust Fund and so forth,
that's included as an asset. But the fact is, you don't put any
money out of the insurance fund back into the Treasury, do you?
Mr. Apgar. I asked our budget people to explain this to me.
They said the practical effect was that this was contributing
to the overall balanced budget, and it was effectively the same
as putting money in the Treasury. Technically, the money stays
in the FHA fund, as was noted by Mr. Kanjorski.
Mr. Burton. The reason I bring that up is because if in
fact the IG is correct, that there's a $1.5 billion to $2
billion shortfall in the fund because of these issues, and I
know you disagree with that, but if that's the case, rather
than saying that that money is in effect going back to the
Treasury, when it isn't, because it really isn't, it's staying
in the fund, wouldn't it be better to reduce the insurance
rates to these 7 million policy holders who are mortgage
holders, who have mortgages with the FHA, and save them $215 a
year?
Mr. Apgar. Now that the fund is as strong as it's ever
been, I think it's fair to look at the rate structure and
decide whether or not we can prudently have a reduction.
Mr. Burton. Mr. Cuomo I've talked to a number of times. He
seems to want to be cooperative. I've been very impressed with
him. All I would say is I wish you would suggest that to him
when you talk to him about these other issues.
Mr. Apgar. Fair enough.
Mr. Burton. Thank you. Mr. Kucinich.
Mr. Kucinich. Thank you, Mr. Chairman.
I yield my 5 minutes to Mr. Waxman.
Mr. Waxman. Thank you very much, Mr. Kucinich, for yielding
to me.
The Arthur Andersen Consulting firm is not a fly by night
operation, it's a very highly regarded organization, isn't that
accurate?
Mr. Apgar. Yes, they do very good work for us and many
other Government agencies.
Mr. Waxman. In fact, the new head of the General Accounting
Office was a partner at Arthur Andersen. That was, I think, one
of the reasons that many people thought he would do a good job.
He had the credentials for assuming the GAO position.
Mr. Apgar. That's true. They have good knowledge of
Government practice, it makes an ideal person to move into
Government service.
Mr. Waxman. I'm concerned, and Mr. Ose expressed a concern,
if properties stay too long before they're sold, that that's
costing us money. It's costing HUD money, whatever this fund
is.
Mr. Apgar. Yes.
Mr. Waxman. Yet the Arthur Andersen Consulting firm said
that the industry average standard, in terms of return on the
appraised value, is 96 percent to 105 percent of the appraisal
when they do sell property, whatever period of time it takes.
Mr. Apgar. Yes.
Mr. Waxman. And the performance, according to this study,
is that HUD has achieved a 98 percent return on the appraised
values. Sounds to me like that would indicate you're doing a
reasonable job making sure we get the money back from these
properties no matter how long it might take you to foreclose it
and then turn around and sell it.
Mr. Apgar. I think that's fair. The Government Performance
Act, of course, focuses on results. That's why we look to these
benchmarking studies. We think that measured in terms of
results, our work stands up in terms of best practices, a
comparison with industry benchmark standards.
Mr. Waxman. That's the information we're getting from
Andersen Consulting. I want to get more information about this
issue to be sure it's true. I know that everybody would have a
concern, especially people in the neighborhood, if there's a
house that's not being cared for, and not being foreclosed on,
not being turned around and sold, so that it can be maintained.
So we don't want properties sitting out there for any length of
time.
Mr. Apgar. Fair statement. Nor do we.
Mr. Waxman. In order to deal with these properties,
however, you contract with people to maintain them, in the
interim before you sell them, isn't that right?
Mr. Apgar. That's correct.
Mr. Waxman. Now, what I want to know is, are you taking all
the appropriate actions to be sure that the contractors are
doing their job? Do we have non-performing contractors? I
understand you have contractors who are hired so to speak on an
incentive based contract. Do you have any penalties against
them if they're not doing their job?
Mr. Apgar. Well, of course the biggest penalty is that
under the management and marketing contract, people only get
paid for results. They get paid a fee relative to the sale
price of the home. So there's a powerful incentive for them to
perform, maintain the properties, and sell them for the best
price.
Mr. Waxman. I want to be sure that we're getting these
people who have this responsibility under contract with HUD, to
be sure they're doing their job.
Mr. Apgar. So do we.
Mr. Waxman. We ought to explore that even further. But I
don't think the case has been made credibly, charges have been
leveled, but I don't think the case has been made in any
credible way, that you have failed miserably to get the money
back for these properties when people default, or that you have
large numbers of properties that are substandard and eyesore
and often constitute hazards.
The statement by the representative from the Inspector
General was that they found 12,000 properties, I think she said
that took too long to sell. Was that the testimony?
Mr. Apgar. I believe that's correct, that was the number
they used.
Mr. Waxman. Is that an accurate statement?
Mr. Apgar. We were checking that number, because it led her
to make an inaccurate conclusion, which the time on the market
of our properties has grown over the last 2 years. Our
statistics suggest that's not true. So we're trying to figure
out ourselves how she could make that statement, given her own
data to suggest that the conclusion she came to was correct.
Mr. Waxman. If it were true, what do 12,000 properties
represent of your total portfolio?
Mr. Apgar. We have 40,000 properties in inventory. So it's
about 30 percent. We sold about 65,000 properties last year,
that was the number of properties we sold.
Mr. Waxman. I appreciate the testimony you've given. I have
somewhat defended HUD, because I think you've been unfairly
criticized. But I do want to point out to you that I want to be
sure you're doing the job that the American people expect of
you.
I thought it was ironic that you were criticized for not
taking the money that you make and not giving it back to the
taxpayers. But you would think from the title of the hearing
today, ``HUD Losing $1 Million Per Day,'' it sounds like the
Government is losing $1 million a day. They're funds that
shouldn't be lost, whether they're Government funds or the
premium payers.
Mr. Chairman, let me ask unanimous consent for all Members'
statements to be entered into the record. We didn't get to that
earlier.
Mr. Ose [presiding]. Without objection.
Mr. Waxman. And I thank you for your forbearance.
Mr. Ose. Our distinguished colleague from Illinois.
Ms. Schakowsky. Thank you, Mr. Chairman.
As a new Member of Congress, I come here with having been
involved with community organizations in my district for many,
many years. In particular, I want to ask you a process
question. I want to be sure that you will make a commitment to
me now, because Chicago has been particularly hard hit by FHA
foreclosures, because we have many abandoned HUD buildings in
Chicago, that you will meet with me when I ask, but also with
me and representatives of organizations who have lots of
experience and lots of data, to try and reconcile some of those
differences on a regular basis, if I ask for those meetings.
Mr. Apgar. We'd be happy to do that.
Ms. Schakowsky. We're about to hear some testimony from
these community organizations, who true to form are always sort
of at the tail end of hearings. I know that there is the issue
of inspections of FHA properties. I recently purchased a home,
and the notion of purchasing a home without having an
inspection first is absolutely unthinkable. Just unthinkable to
me, and to my lender as well.
So I'd like you to comment on that. Let me get my other
question in, too, and you can answer. The other issue is going
to be on a particular piece of legislation, H.R. 595, which, if
we really are seeking to decrease the number of foreclosures,
it seems to me that we ought to be looking at ways to provide
emergency assistance to people who, for no fault of their own,
are finding it hard to meet payments.
It seems like it may also be economically a wise thing to
do, in the long run, to keep people who have an investment in
those homes in those homes over a hump. So if you could comment
on both those things, on the inspections and on the
legislation, I would appreciate it.
Mr. Apgar. Fair enough. You're exactly right, a home
inspection is a very important element in the home buying
process. The overwhelming large share of buyers get a home
inspection.
FHA prominently encourages, through its housing counseling
system, people getting inspections. The issue where we differ
with various proposed legislation is whether we should make
that step mandatory. We're worried about whether or not a
mandatory inspection at this time, given the fact that the home
inspection industry is largely unregulated by the Federal and
State governments, would in fact provide less benefit than
meets the eye.
What we are doing though, is that we're expanding our
efforts to try to encourage folks to get a home inspection and
to take note of the fact that that's a very important part of
the home buying process.
Relative to the legislation that you referenced, we agree,
foreclosure avoidance is the most effective way of addressing
this set of issues. We wouldn't be here today if we weren't
moving ahead in our foreclosure efforts. My concern is that the
particular form of legislation will make the same mistake that
got us into part of this problem in the beginning. We had this
activity in the past called the assignment program. That
program has led to a mass of foreclosures and building up of
debt that led to many of the problems with the FHA earlier in
the decade.
We have foreclosure tools that were legislated and guided
through legislation enacted in 1996. Those foreclosure
avoidance tools are hitting their stride. We're doing more
foreclosure avoidance work now than we ever did under the
previous regime, and we think we're making significant progress
in that arena. I think it's something like 1,500 foreclosures a
month are being avoided, and over 1,200 of those are homeowners
who are getting exactly the kind of benefit you're suggesting,
of being able to have forgiveness on their loans or some extra
benefit to keep them in their home and avoid the costly
foreclosure process.
Mr. Ose. Would the gentlelady yield for a moment?
With respect to Ms. Schakowsky's question about home
inspection, are there not States in the United States that
actually already require that? For instance, in California. Do
we have any evidence as to the differential default rate that
might follow on accordingly? I'd be happy to take it in
writing.
Mr. Apgar. We could look at the State law as to whether
they require inspections. Again, most States are silent on that
matter. As a matter of fact, most States do almost no
regulation of the home inspection industry. Our concern is
whether you should mandate this, not whether it's a highly
desirable activity.
Again, the Banking Committee took this matter up last time.
This proposal appeared in the Lazio Home Ownership bill, and it
was removed, because again, the conclusion, at least of that
committee at that time, was this was not an effective way to
address the problem.
Mr. Ose. The Chair would provide the distinguished
gentlelady from Illinois a couple more minutes, having taken
your time. I yield back.
Ms. Schakowsky. I just have one comment, thank you, Mr.
Chairman. It seems to me that the data does not bear out that
there have been effective foreclosure avoidance measures. If we
look at the foreclosure rate increase in 1997, for example, 15
percent, and in 1998, an additional 7 percent increase in FHA
foreclosures. So it seems to me we certainly have some distance
to go.
Mr. Apgar. Fair enough.
Mr. Ose. The Chair recognizes the distinguished Member from
Florida, Mr. Mica.
Mr. Mica. Thank you, Mr. Chairman.
I have a couple of questions. First of all, we're in a very
good economy, I believe, last I checked. Dispute as to who gets
credit for it. I think that as part of those that help come and
balance the budget, make people work instead of being on the
public dole.
But in any event, I think most of us agree we're in a
pretty good economy, right, sir?
Mr. Apgar. Overall, the economy is doing very well, yes.
Mr. Mica. In 1996, there were just under 61,000
foreclosures of your properties. In 1997, that grew by 10,000
to 71,000. In 1998, it was up another 5,000. It's gone up
15,000 in 2 years.
To what do you attribute the dramatic rise in foreclosures
in 2 years of basic prosperity?
Mr. Apgar. As was suggested earlier, the foreclosures that
are occurring today are often among properties that, despite
the good economy, their current value isn't what the prices
were when they were originally purchased. The largest increase
in our foreclosures is coming out of California, which even
though the California economy is beginning to improve, it
hasn't improved enough to move houses out of this foreclosure
problem.
In addition, most of those foreclosures are coming out a
particular HUD program, the adjustable rate mortgage program.
There we have made significant changes to improve the overall
quality of our underwriting of the adjustable rate mortgage
program.
Mr. Mica. Even with adjustable rate mortgages, the payments
actually would have been going down in this economy, because
the interest rates have been dropping. They've dropped to
historic lows in that pattern, so people's payments, I know it
takes a while for it to kick in.
Mr. Apgar. Yes. The point I was making there is, there was
a significant increase in foreclosures in California, mostly
linked to this ARMS program. We've made adjustments to improve
the overall underwriting in that program. Again, the California
economy was slow to recover.
I'd just like to say one thing about the overall economy,
because of course, in other budget discussions we've talked
about this. This is really a two-tiered economy, in which many
are doing very well, but the inner cities and our core areas
are not all benefiting. We have the highest worst case needs
housing situation in the Nation's history. We have significant
under-utilized resources in terms of high unemployment in our
inner cities.
So while the economy is working for most, in the
neighborhoods that we serve, the economic recovery is not
nearly as strong as your question suggests.
Mr. Mica. If you're having a fairly dramatic increase in
the number of people who are being foreclosed upon, and you
said you had pinpointed it to some of these California
properties, is there anything, have you done anything, any kind
of review or profile of the individuals who are defaulting?
Mr. Apgar. We have statistics on the characteristics of our
defaults, the characteristics of default rates by program type,
by characteristics of the borrower and the like, yes.
Mr. Mica. Is anything done to implement changes in lending
practices? Have you instituted things to try to mitigate the
number of folks who get into that situation?
Mr. Apgar. Actually, in respect to the ARMS program, we did
significantly change the underwriting of that program in
February of last year. We're already seeing a substantial
reduction in our ARMS business. We think that's good, we think
some lenders may have been abusing that program. That's why we
took that action.
Mr. Mica. Is that your loss mitigation program?
Mr. Apgar. No, in terms of the loss mitigation program----
Mr. Mica. Could you explain what loss mitigation is?
Mr. Apgar. Essentially, loss mitigation is a term that says
that trying to avoid the losses to a mortgage lender, it's a
little cold and impersonal term. What we're really talking
about is how we keep homeowners in their homes. That's the key.
In many instances, it costs more money to everybody, certainly
the homeowner and often the FDA, to foreclose.
We had a series of legislation guided policies that we put
in the books in 1996. In 1997, we did 5,000 cases of loss
mitigation under that guidance. We did 10,000 last year. We're
projecting we're doing 20,000 this year. Again, the vast
majority of those cases are places where we're able to
intercede with the property owner and the mortgage lender,
restructure the mortgage, extend the term, write down the note
rate, do any one of those things to make it so that that
homeowner can stay put.
Even though that costs the fund money, it saves us money by
avoiding these costly foreclosure efforts.
Mr. Mica. You said in California that there was a change in
property values or you attributed some of the problems to the
changes in property values. Is that also something that you've
allowed for under any of these problems for adjustment, so
that, again, the goal I think is to keep people in their
property, avoid the cost of foreclosure, which is tremendous.
Mr. Apgar. For sure.
Mr. Mica. Plus the dislocation of the individuals.
Mr. Apgar. There are many mortgages that are underwater in
this sense, meaning that the value of the home is less than the
outstanding mortgage balance. In those situations precisely is
when you want to keep the homeowner there, because they can
continue to use that home and benefit from it. As the economy
and the prices improve in that area, they work their way out of
this deficit situation.
Mr. Mica. I can't understand exactly how you get into a
situation when the property is worth a little bit less, the
payments are less and the people are being foreclosed upon.
Mr. Apgar. Because they can't meet the payments. And they
can't sell the home.
Mr. Mica. Then the problem is they can't sell the home, and
recover any of the equity, or, well, there's no equity. But
actually a net loss.
Mr. Apgar. That's what I'm saying. It's underwater. The
outstanding mortgage balance is higher than what they can sell
the home for.
Mr. Mica. And do you have any way to again, specifically,
to deal with that problem?
Mr. Apgar. Yes, we can write the mortgage balance down.
That's called a partial payment of claim, in which we pay off
the lender for a share of the mortgage balance.
Mr. Mica. Do you take a hit?
Mr. Apgar. We take a hit on the fund to do that. We can
restructure the mortgage by extending the term, changing the
interest rate, or if there is mortgage debt owed, I mean,
payments owed, we can forbear, i.e., we can forgive those
payments and let the owner pick up fresh with where they are.
Mr. Mica. Do you have any recourse if the property is sold
later at an additional profit?
Mr. Apgar. No. It's a transaction that benefits the home
buyer, so we don't have any recovery mechanisms against the
lender.
Mr. Mica. Thank you.
Mr. Apgar. We do? I'm sorry. We do place a second lien for
that amount to secure our interests there. But it's not with
the original lender, not related to the original lender, but an
obligation of the homeowner to pay.
Mr. Ose. The Chair will entertain a second round of
questions if the Members wish.
Mr. Kucinich. Again, Mr. Chairman, as I indicated earlier
to Mr. Burton, HUD is demonstrating willingness to try to work
to solve problems when they're given a definitive challenge.
And I'm hopeful that the other areas that have been identified
here, you'll also be given the opportunity to rise to the
occasion, as you did on the homeless program.
Mr. Apgar. Thank you. Our new management and marketing
contract approach goes on line next week. We perceive that it
will in fact improve on the record substantially.
Again, we have evidence from the pilots that we ran that we
can substantially reduce our time of holding the inventory and
raise our yield. So we're very optimistic that this new
approach will yield great benefits.
Mr. Ose. The gentlelady is recognized.
Ms. Schakowsky. Thank you. I have just one more quick
question, Mr. Chairman.
That is, I have been told that Secretary Cuomo has said to
housing advocates that there are no inspectors, housing
inspectors, in the United States. What could he possibly have
meant by that?
Mr. Apgar. I'm not sure, since he's so knowledgeable about
the housing industry, that must be a misstatement. Because we
meet with various groups, including various associations that
represent home inspectors, all the time. So we understand that
there are home inspectors working in our properties and
elsewhere.
Ms. Schakowsky. So your assumption is that was a
misstatement?
Mr. Apgar. Yes. It certainly is not factually correct. It
would be hard to imagine that he would make that error.
Mr. Mica [presiding]. Mr. Apgar, just a quick question.
Maybe you can refresh me, and you may have already given this
information to the committee.
You have 76,000 foreclosures. What percentage of
foreclosures is that out of your total?
Mr. Apgar. We have close to 7 million loans outstanding. So
that's approximately 1 percent of all the loans that are
outstanding in the FHA insured portfolio.
Mr. Mica. How does that compare to conventional lenders?
Mr. Apgar. In terms of our outstanding foreclosures?
Mr. Mica. Yes.
Mr. Apgar. We anticipate that our foreclosures are going to
be a higher share. That's how the program was designed. We take
risks on borrowers that the private sector wouldn't touch. If
they are the kind of safe, less risky borrower, then they would
in fact go to the private sector, they wouldn't foreclose as
often and they're well served by the private sector.
Mr. Mica. One of the problems that has arisen in the past
is that you've had some serious difficulties with contractors.
I'm interested in how HUD will ensure that contractors who
performed poorly in the past, have poor performance records,
will not be working as subcontractors under the M&M contracts.
Mr. Apgar. First of all, the competitive bidding process
that we had for the national contract had over 170 bidders.
People that had poor records with us in the past, that was
taken into account. And the largest share of the work will be
done by these firms themselves. They already have opened 56
offices around the country, hired over 600 people. So the
direct contractor will do much of the work. Subcontractor
relationships will exist in some of the outlying areas. We will
monitor those closely.
With respect to contractor monitoring, again, this contract
is a new vehicle that was created out of the pilots. The
contracting mechanism of the pilot was carefully reviewed by
the Inspector General. They gave us a list of recommended
changes to the contract, and we embedded many of them in the
new structure.
For example, the issue of pass-through costs, which is a
very difficult monitoring area, where we had to decide whether
costs coming through from the contractor was a legitimate cost.
Under the new contracting mechanism, these costs are paid for
out of the contractor's pocket. They only get paid, not for
incurring costs of maintaining the properties, but only get
paid to the extent to which they are able to sell the
properties and return funds to the FHA.
We think this will encourage them to sell the homes quickly
and to maintain them to preserve the market value.
Mr. Mica. Do you have contractors that are monitoring
contractors?
Mr. Apgar. Under the new setup, we will monitor through a
variety of ways. Of all the records that the contractor
retains, 10 percent will be reviewed, 10 percent of all the
properties they have under inventory will be inspected. Those
functions will be handled by a contractor.
Again, these are not highly judgmental functions. We're
asking people to go out and, relative to a standard checklist,
identify whether the property meets certain standards or
whether the files are in place.
It's our job as HUD to review those monitoring reports and
then take the action. So all the action steps will be taken by
our HUD staff.
Mr. Mica. And your HUD staff and your professional staff is
monitoring monitors, so to speak, they're conducting the top
level of oversight?
Mr. Apgar. We do quality assurance on all levels of our
contracting. There was a question made earlier about whether or
not our HUD staff is adequate for the task, and where our
staffing numbers came from. Again, this was the place where the
IG's testimony was misleading. We estimate we will have in
effect 143 people, full time equivalents, doing our monitoring
work.
The estimate of how many we needed was the result of a
careful workload assessment done by Booz, Allen and Hamilton.
If anything, their early report suggests that we have too many
people doing this job now. But because we want to be cautious,
we've kept the fuller level of oversight.
Recognize that the numbers that we have in the field today
are doing a lot of functions which will be shifted to
contractors under the new system.
Mr. Mica. Your system to monitor the work of the
contractors is important. And you've discussed how that would
be in place. What's the progress for having those monitors in
place as far as contracts? Are all of those positions filled,
or those slots filled?
Mr. Apgar. Yes, they are. That work will be done out of the
home ownership centers.
Mr. Mica. All the monitors and contractors?
Mr. Apgar. They'll be supported by field staff which are
located in field offices around the country, and again, those
people are working today for us, but they'll be working in a
new role starting Monday.
Mr. Mica. It's my understanding that you testified to Mr.
Burton or told him that in your previous testimony here that
you weren't lax in overseeing contractors and contractor
problems were very limited. However, you just told me that poor
performing contractors were being precluded from new bids.
Mr. Apgar. That's correct. There are some. We've taken
sanctions against them in the past and will continue to take
actions against them in the future.
Mr. Mica. What percentage are we looking at of those that
fall into that poor performing category?
Mr. Apgar. I think last year we took action against 8 or 10
contracts, terminated their contracts. A larger number of them,
we put them on notice for poor performance. I think last year
we may have had as many as 150 contractors. The essence of the
new approach is to have fewer folks to monitor. Again, we have
a higher quality, I believe, of contracting agent now, because
we're able to be more selective.
Mr. Mica. I have no additional questions at this time. Do
any of the other Members?
We want to thank you for your testimony and for working
with our committee today. We have no further questions and
excuse you at this time.
[Additional questions for the record follow:]
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Mr. Mica. I'd like to call now the third and final panel.
If I may, I'd like to introduce witnesses as they come froward.
On our third panel, we have Ms. Gale Cincotta, co-founder
and executive director of the National Training and Information
Center, also known as NTIC, in Chicago. The NTIC is a national
resource center on urban issues. Over the past 20 years, Ms.
Cincotta has received numerous achievement awards for
outstanding work on such issues as human rights, poverty and
community revitalization.
Accompanying her on the panel is Grace Jackson, who is from
the Chicago area. She is a board member and past president of
the Roseland Home Ownership Center of Roseland Neighborhood
Housing Services. Throughout the 1970's and 1980's, Ms. Jackson
was a neighborhood leader for the Greater Roseland
organization, and played an important role in the fight against
insurance redlining and FHA lending abuses. We welcome you to
the panel and look forward to your testimony.
We also are pleased to have Mr. Carl Edwards, a fellow
Hoosier of the chairman's, with us today. Mr. Edwards was born
in Indianapolis, where he's lived for the past 26 years. He
volunteers his time as president of the Fletcher-Lipincott
Neighborhood organization. He's also a member of the Brookside
Park advisory committee and serves on the board of the Near
Eastside community organization. I'd like to thank you, Mr.
Edwards, for coming, and our other panelists for being with us
today. We look forward to your testimony.
These particular witnesses testified 1 year ago on April
1st, 1998, before the Banking Subcommittee on Housing chaired
by Mr. Lazio. It's my understanding that you came before this
panel a year ago. In essence, this group testified that FHA
property disposition problems were contributing to, rather than
alleviating, urban blight and deterioration. They have been
asked to provide our committee with an update today on the
status of issues that they raised at that time, almost 1 year
ago.
We also have Mr. Stanley Czerwinski from the General
Accounting Office who is going to join us for the panel in
testimony. He is the Associate Director of the Division on
Resources, Community and Economic Development at the General
Accounting Office. I'd like to welcome him and thank him for
his participation.
It's part of the responsibility of this committee of
Congress to swear in our witnesses, which I'll do in a moment.
I understand we have one additional witness, who has been
involved in homeless area programs. We have Mr. Brian Davis,
director of the Northeast Ohio Coalition for the Homeless. He's
going to testify about problems that he's experienced in
dealing with that problem.
I think that completes this third and final panel. I'd like
to welcome each of you. This is an investigative committee of
Congress, and it is our custom and practice and also
requirement that we swear in our witnesses.
[Witnesses sworn.]
Mr. Mica. Welcome to our panel today. I'm pleased to
recognize Ms. Gale Cincotta, co-founder and executive director
of the National Training and Information Center from Chicago
for your testimony and opening statement.
Also I might tell all of the panelists, if you have a
lengthy statement that is written or prepared, and you'd like
it submitted as part of the record, we will do so at request by
unanimous consent of the committee.
Ms. Cincotta, you are recognized now, and you will see the
little light go on here for 5 minutes. You'll get a little
warning there in red.
Thank you.
STATEMENTS OF GALE CINCOTTA, EXECUTIVE DIRECTOR, NATIONAL
TRAINING AND INFORMATION CENTER, CHICAGO; GRACE JACKSON,
VOLUNTEER, ROSELAND NEIGHBORHOOD HOUSING SERVICES, CHICAGO;
CARL EDWARDS, PRESIDENT, ORGANIZATION FOR A NEW EASTSIDE,
INDIANAPOLIS; BRIAN DAVIS, DIRECTOR, NORTHEAST OHIO COALITION
FOR THE HOMELESS; AND STANLEY CZERWINSKI, ASSOCIATE DIRECTOR,
RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, U.S.
GENERAL ACCOUNTING OFFICE
Ms. Cincotta. I have testimony I've submitted, and I'm also
submitting other material for the record.
Mr. Mica. Without objection, your full testimony will be
made part of the record.
Ms. Cincotta. While Mr. Apgar is still in the room, he
should remember September 9th, I had Ira Peppercorn from his
office and Charles Gardner from the regional office in our
office at NTIC in Chicago, where they said, and he has said in
his office, there are no inspectors in the United States. We
have to then therefore maybe get appraisers to do the
inspections.
They came with a thick thing like this of paper saying,
now, this is what the appraisers would have to do. I know that
after they left their office, and there were NHS people,
myself, our staff, et cetera, that they took it to some
lenders. The lenders called me the next day and told me, and
even showed me exactly what they had left in our office.
So he is lying to you under oath that they have not tried
to get appraisers to do inspections. And he is either lying to
me or lying to you when he says there are enough inspectors in
the country.
What bothered me today was how much time they spent trying
to trash a story that was on television, on one building out of
the thousands of vacant buildings----
Mr. Kucinich. Excuse me, Mr. Chairman.
Mr. Mica. Yes?
Mr. Kucinich. I'm a little bit concerned about a statement
the witness made. I know her, I respect her, I worked with her
years ago when she was working with Monsignor Boroni. But when
somebody makes a charge in front of a committee like that, I'm
kind of uneasy about hearing those charges made.
Mr. Mica. Well, the witness is free to express herself.
Ms. Cincotta. I'm under oath and he's here. Bill, didn't
you tell us that, or are you going to sit there and lie?
Mr. Mica. Ma'am, we don't want to get into an exchange, but
you're welcome to testify and comment as best you can in your
own words. And we do appreciate that.
Ms. Cincotta. But it's hard to sit that long, having been
involved with this, and again, to go after something that was
on television on one building out of 76,000. And on that
building, again, the loan was insured by FHA, the tax bill was
billed to them. The home was foreclosed on, and now it's part
of an FHA program. Nobody's been in that building since
September.
But they take any criticism and try and find something to
get you, rather than, that is a problem. This is a list, and I
want to submit this, of over 800 foreclosed buildings, FHA
buildings in Chicago that we got recently. They found out we
had this when another city, I think it was Carl's city, asked
for the same thing. They didn't give it to them, and they have
shut it down for us getting it in Chicago. There are over 800
homes in Chicago that they have on this thing, addresses, et
cetera.
So what I'm trying to say, the frustration of your own
Government, that you expect to do good for you and do better,
lies through their teeth, hides the facts, and instead of
working to solve the problem, wants to pretend there is no
problem, wants to ignore this. And what we've been facing for
years upon years, of fighting once to get FHA in, we didn't get
FHA originally in any of the cities, because it was started as
a new construction program.
Then ever since then, fighting to clean it up so it would
function well. It led us to try and get the Community
Reinvestment Act passed, that our older neighborhoods, they
need mortgages, they need the Government to protect them, they
need the Community Reinvestment Act. They don't need hundreds
upon hundreds of people being put out, promised the American
dream and being put out of their home over and over and over
again.
Seventy-six thousand foreclosures, if you look up on it,
it's the history of my life, it starts around 1972 when NPA was
formed. There were 63,000 foreclosures in 1973. One of the
things that worked, and when the numbers went down was when
Senator Proxmire was head of the Banking Committee. There was
something that was put in called 518 (b) and (d), that any
home, older existing home, sold on an FHA mortgage, if within
the first year anything went wrong with the systems or roofs or
porches, there could be reimbursement.
That worked excellent, because you needed something like
that. They needed the inspections before that. But you can see
I'm looking at this, at that time in history, that worked.
It's not a new home with a warranty. There have to be
different things, a new home has a warranty, I guess with the
new construction, 10 years. An older, existing home should have
a full inspection and a warranty. I know you don't like to
spend money, but I think you spend money in the long run after
the fact.
The other thing, there's something pending called H.R. 595,
Mortgage Assistance Program, where if people have a chance,
within 1 year and get some assistance, the majority of them
will be able to keep their homes.
If you want to house American citizens in existing
construction and older buildings, you have to figure out a way
to protect them. You can't do like Mr. Apgar and Mr. Cuomo,
shuck and jive, lie through their teeth, change the story, do
this, do that. Why don't they bite the bullet and do what's
right? It won't cost that much, in the long run, it will be
cheaper.
But they're really happy when they tweak you and try and
make you look bad. But I think we're talking about families
that we see every day in our neighborhoods that shouldn't be
offended by their own Government. They trust their Government.
I did bring a list, I thought we were going to be able to
put it up, of all the foreclosures in Chicago, so that maybe by
seeing the addresses, address by address by address, it could
give some urgency to what's happening. And if you get those
folks back here to testify, why don't they come up with
solutions rather than trying to hide the problem over and over
and over again?
If you don't do anything, they smirk at you behind your
back, at me, et cetera. Nothing happens good for the citizens.
[The prepared statement of Ms. Cincotta follows:]
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Mr. Mica. Thank you for your testimony.
I'd like to recognize Mr. Edwards, who's president of the
New Eastside, Indianapolis.
Mr. Edwards. Thank you.
First of all, I'd like to thank you, Mr. Chairman, and the
other members of this committee, for holding this hearing
today, because it gives me the opportunity to let you know my
perspective on how things are going.
I've heard a lot of talk today about statistics and
numbers, and they're very shallow and very cold. This is a face
that's been affected directly by how FHA and HUD is affecting
our communities.
Nine years ago, I was a very young man. I purchased a home.
It was an FHA insured loan. I dealt with a realtor that
obviously didn't have my best interests in mind. I was under
the impression the home that I had purchased had an inspection
done on it. It was actually termed an appraisal.
FHA appraisals are fairly thorough. It was done by an
inspection service. I didn't know any better, like many people
in this country who buy their first home, didn't know any
better.
I bought this house, and it turned up to have several
mechanical problems, such as heating and cooling and plumbing
and hot water heater and a leaky roof. I heard a lot of talk
today about the economy is good and the bankruptcy rates are
high, and the segment that FHA is serving, which is me, they're
high risk people.
Well, I'm one of those people who was 18 years old and had
his own business and had his life together, but had his life
destroyed by a faulty program. Had there been a mandatory
inspection in place, had there been this inspection in place, I
may not have bought this home, or I would have gone into this
purchase knowing full well what was ahead of me.
But that wasn't given to me. I bought a house that I
thought had a Federal stamp of approval on it, and lo and
behold, 2 years later, I was homeless. Has anyone been homeless
in this room? Does anyone know what it feels like to actually
lose your home? It's not a very pleasant feeling, is it.
We had the opportunity to bring Charles Gardner from HUD in
last year. He's the Regional Director for HUD in our area. We
had a large public meeting with over 100 in attendance. We told
some stories about properties and nightmares that were in our
community, one of them being a house that had been vacant for
several years that had eventually, after several things
happening to it, caught on fire.
Mrs. Debbie Thompson of Indianapolis got up and gave a very
emotional testimony, with tears in her eyes, spoke of how she
woke up at 4 a.m., to the smell of smoke, not knowing if it was
her house, wondering if her children were OK, and talking about
the lasting emotional effects that this has had on her family.
Charles Gardner and the other officials from HUD listened
to her testimony. Toward the end of her testimony, she held a
picture up and showed the audience and Mr. Gardner and the
others a picture that her 8 year old daughter had drawn of a
house, a two story house with flames coming out of it, teeth
and arms. She made the comment that, my daughter drew this for
me before I came here today and said, Mommy, I want you to show
these people what this house has done to our lives.
Consequently, their house was damaged by smoke and water, not
to mention the emotional effects to their family.
One of the things we asked Mr. Gardner and the other people
from HUD that day was, will they process the claim to have this
house, to have this claim expedited. Mr. Gardner agreed to do
that. It's 9 months later, and they've not seen 1 penny toward
this claim.
You know, people in the community are on the front line day
in and day out. We have to deal with what is going on in our
own backyard. I've seen the effects of abandoned houses in my
community. You see it, it's classic, I don't care what city
you're in, you see one abandoned house, in my example, one
abandoned HUD house. Three people that live in that community
for over 20 years got fed up with dealing with this particular
house that I spoke of that caught on fire. As I said earlier,
it sat vacant for almost, I would say almost 3 years before it
caught on fire, attracted children, attracted vandalism,
attracted drugs.
Several homeowners got fed up with dealing with that, got
fed up with dealing with fighting the system, and moved, as so
many people do. I've been in my community for almost 26 years,
I've lived in Indianapolis all of my life. I like where I live,
but I too am getting tired and fed up. I traveled to Washington
last year and testified, hoping that my experience would have a
positive effect on HUD, and here I am again today.
That really about sums up my testimony. I just have one
other comment I'd like to make. I'd like to know, is it going
to take an act of Congress to get this check processed for the
Thompson family? That would be a good thing to know.
Thank you.
[The prepared statement of Mr. Edwards follows:]
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Mr. Mica. Thank you, Mr. Edwards. That's why we're here, to
pass acts of Congress, to try to get things done. Sometimes
it's very frustrating.
I'd like to recognize now Grace Jackson, who's a volunteer
with the Roseland Neighborhood Housing Services in Chicago.
You're recognized, ma'am, and welcome.
Ms. Jackson. Thank you for having us here. My name is Grace
Jackson, and I've lived in the Roseland area of Chicago almost
30 years.
But there's something that I'd like to say before I do my
testimony, if it's all right. I heard some gobbledy-gook about
HUD keeping the houses 60 days and 6 months and 30 days and 45
days before they're sold. There's a house by me that has been
vacant and people have been put out of it nine times. It's
still sitting by me.
But in the meantime, it has been rehabbed now and will be
sold. But for 3 years, HUD had it under this real estate
company who was supposed to take care of it, cut the grass,
shovel the snow, make sure that the windows and doors were
boarded up. Nobody, in all this time that I took care of this
house, for the whole 3 years, I think that's about 36 months,
came out and did not one mumbling thing. So let nobody tell you
that they take care of vacant property, unless they started it
yesterday. Because it has not been done.
On my block now there are five vacant houses. In a two
block radius, they do nothing. We, as the block club members,
get out and make sure it stays boarded, make sure the grass
stays cut, because who wants all these weeds. So if your
insurance man happens to come by, and you happen to get a
letter, and he tells you your insurance has been canceled, we
can't have that. Most of us who are getting to be senior
adults, we can't afford it. So we need our insurance that we
have.
They don't take care of the property.
I also heard something, please give me enough time, he lost
some of his, I'll take his, about this foreclosure. I've heard
a lot of excuses on that, why this and why that and why some
people are foreclosed. We do have some people probably that do
not take care, because they still have that mentality that
``I'm a renter.'' You might have that.
I'm not going there. I'm going here. When people buy that
home, and there's not a mandatory inspection, and they try as
hard as they can, when you've got a furnace to replace and
you've got a roof to replace, and you've got electrical to
replace, you cannot, on what you make, and I've heard this
said, I didn't like it, but I listened, because it's true,
African-Americans and Hispanics, some of them make pretty good,
but some of them don't.
I got an FHA loan, so I'm not fighting this, it's needed
for a whole bunch of homeowners, if you ever want to have that
American dream. But don't tell me that you can have the
American dream and pay for all the rotten things that are in
the house, when you're trying to pay a house note, you're
trying to pay a gas bill, you're trying to pay for the furnace,
trying to get the windows fixed, trying to pay for the roof.
That's another reason why we have a lot of foreclosure.
When I was here last year, I told you all that at one time,
we had the distinction of being on the list that we had more
foreclosures than anybody. And I said, well, I'm not bragging,
I said, take that back, we're back on the road to having the
distinction of having more foreclosures again. I know this is
the reason why this is about.
I'd like to share two stories with you how FHA has failed
families in Roseland. Mrs. P, she's a working mother of four,
she bought a home with an FHA insured mortgage in Roseland. A
few weeks after moving, she was told by a Chicago policeman
that the building she had just bought was supposed to be
demolished. The building had previously been foreclosed in June
1995, and HUD paid the lender $85,000. HUD then sold the house
3 years later for $26,000, which means the property was vacated
for 3 years and represented a loss of a good deal of money to
the Government.
The realtor then sold the house to Mrs. P. for $122,000.
Mrs. P. and her four children were living in the home when the
water actually came pouring through the roof, a leak when it
rains. Only 30 percent of the electric is working, and all the
major systems are not working. Mrs. P. and her children are
ill, and she will likely lose this home. I would have given it
back to them in the first place.
Once again, the neighbors will be looking at an open and
abandoned HUD home.
Then we had another one. Mr. S. purchased a home with an
FHA loan from a realtor. The family moved in but the house was
falling down. He could not afford all the repairs, so he used
an extension cord to go get him some heat from next door.
Everybody on the block is dismayed that the Federal
Government would insure a loan on such a house. Houses such as
these are a bad investment for the Government and put the
health and finances of the family and children in danger.
I understand that March 29th, HUD will begin having a
private company taking care of that abandoned property. While
we appreciate this effort on the part of HUD, I have two
questions for Secretary Andrew Cuomo. How does privatizing the
management of abandoned property keep the building from
becoming abandoned in the first place? The best way to address
the issue of abandoned HUD homes is to prevent FHA foreclosure
in the first place.
We need to make inspection mandatory on all homes sold on
FHA loans and reform the way in which FHA appraisals are done.
They'll come by and look at your house up and down the street
and say, oh, this house is fine. I've seen this done. And they
go around the back and come back around and get in their car
and tell somebody, and you know what happens, they go right
ahead. These are unscrupulous, it's not HUD, now, and it's not
FHA, I didn't say that. This is the unscrupulous realtors and
mortgage companies. They'll take you around the corner, around
the house and say, this is fine. Then you move in and you turn
the heat on in September, your furnace is out.
I thank you all for having us, and I hope and pray this is
the last time we have to be fussing with HUD. We're tired of
the problems, and you all as Congressmen and we as grass roots
citizens ought to be able somewhere to sit down in a room and
come up with a solution.
Thank you.
[The prepared statement of Ms. Jackson follows:]
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Mr. Burton [presiding]. Thank you, Ms. Jackson, for your
very informative testimony.
Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman.
I would like to thank the House Government Reform Committee
chairman, Dan Burton, for convening this hearing today that
includes a panel on the effectiveness of HUD's programs,
especially as its relates in my case to homeless persons.
It is a pleasure for me to testify in front of the
committee that includes Congressman Dennis Kucinich, who has
been a tireless advocate on behalf of homeless persons, and the
organizations that provide services to them in my community.
Today I would like to discuss the status of the local
continuum of care system for homeless persons in Cleveland, OH,
and the surrounding Cuyahoga County. In this context, I will
cite a particular problem we have had with the way the
Department of Housing and Urban Development has handled a
program operated by the Salvation Army, and give a number of
recommendations on how this process can be improved.
The Salvation Army PASS program is one of the most
effective programs in Cleveland, and is ranked as the highest
priority for renewal funding in the 1998 community supportive
housing grant. But because someone checked the wrong box on
their application, they were denied funding.
As you know, the supportive housing grant is intended to
help homeless people move into some degree of stability. It is
not an emergency service, it is longer term stability. We have
recently learned that HUD is reviewing the Cleveland appeal,
and there should be some resolution of this decision in the
next few weeks.
HUD is a valuable caretaker of the appropriations from
Congress. But we're just asking that they be more sensitive to
the priorities in our community. The Federal dollars extended
to PASS and other organizations allowed 200 people over the
last 2 years to move into some degree of stability. We
recommend a few changes to the HUD funding process which would
maintain community oversight of the funding and allow HUD to
act as an independent adjudicator to keep some of the local
community from over-politicizing the process, or strain from
the goal of moving homeless people into stable living
arrangements.
In Cuyahoga County, we currently see about 22,000 homeless
people on the streets every year. That's about 3,000 to 5,000
every night. In 1998, according to the U.S. Conference of
Mayors report, we saw a 15 percent increase in requests for
shelter attributed to the changes in the welfare system and the
lack of a livable wage job in the city.
My agency, which does not receive HUD funding, but
represents the interests of homeless people in the funding
process, has seen a number of problems with the current
process. One of our biggest problems is that the funding for
projects that are seeking a renewal of their HUD grant require
a greater amount of local community allocation every year,
which is stifling our ability to fill some of the gaps in
services. In this last year, we have, if we just renewed all
the projects that have been funded in the past, it would total
about $11.1 million, and we have a pro rata share of the
allocation of about $9.3 million.
There are minor administrative problems with an application
that has caused HUD to skip some projects. Many high priority,
worthy projects in Cleveland have had to wait 1 or 2 years
because of an error in their application. The local community
cannot receive technical assistance from HUD on a direct basis.
If HUD is a partner in the continuum, then this blackout period
is a hardship to the local community.
There need to be modest changes in the HUD homeless
assistance grant, but we do not believe that H.R. 1073, the HUD
block grant proposal, is the answer. We do recommend that
renewal funding for programs that support people in permanent
housing such as shelter plus care be funded for mainstream
housing programs for low income individuals, and not the
Stewart B. McKinney funds.
We also urge you to create a separate NOFA, or urge HUD to
create a separate NOFA for renewal applications and a separate
one for new and expanding programs. And we urge some
modification of Section 103 of the HUD Reform Act to allow
better communication between HUD and the municipality in order
to improve the application.
We have a daunting task ahead of us, to assist those
families who cannot successfully make the transition from
welfare to work, and those who are trying to find housing for
low income individuals in an environment of fewer affordable
housing opportunities in our cities. HUD must be a partner in
this undertaking by creating housing opportunities for homeless
people, and should not be relegated to checking to see if boxes
were correctly checked on a form.
Because I probably won't get another chance, I'd like to
thank the Members of Congress for the AmeriCorps VISTA program,
which we take advantage of. That has had a tremendous impact on
our agency and our community.
Thank you.
[The prepared statement of Mr. Davis follows:]
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Mr. Burton. Thank you, Mr. Davis. We appreciate your being
here with us.
Mr. Czerwinski. Before you speak, the gentleman who spoke
earlier from FHA, at the conclusion of our hearing, Mr. Apgar,
I wonder if we might be able to have you either come back and
say a few words in response to what they've said, or else meet
with us back in the lounge. I'd like to have some of these
questions answered that they raised. Would you do that?
Mr. Apgar. Yes.
Mr. Burton. Thank you.
Mr. Czerwinski.
Mr. Czerwinski. Thank you, Mr. Chairman.
It's been a long hearing, so I promise to keep my comments
very brief.
Mr. Chairman and members of the committee, we are here
today to provide information on GAO's work on homelessness. Up
to 600,000 people may be homeless on any given night. The
homeless population, once primarily transient males, now
includes women, families with children, the mentally ill, and
those dependent on drugs and alcohol.
As a result, addressing the needs of the homeless has grown
to a challenge that far exceeds the ability of State, local and
private organizations. Recently, several Members of Congress,
including you, Mr. Chairman, and you, Mr. Kucinich, have asked
GAO to look into how well the Federal Government is helping
these State, local and private entities address this need.
At your request, we've initiated a body of work that I'd
like to briefly summarize today. Last month, we completed a
study that identified key Federal programs that can potentially
serve homeless people. Our findings were 50 programs
administered by 8 Federal agencies can serve the homeless.
These include programs that are specifically targeted at the
homeless, and those that are generally available to low income
populations which include the homeless.
Over $1.2 billion was spent in 1997 on programs that serve
the homeless. About $215 billion went to general programs that
include the homeless in the types of services they provide. The
types of services they provide include housing, but it's much
more than housing, it's health care, training, et cetera.
We concluded that coordination is needed if these 50
programs are to work effectively to achieve what they're
supposed to. We also found there's a need for better program
evaluation, especially common outcome measures among the eight
Federal agencies.
Finally, we believe that Federal agencies can make better
use of the framework the Government Performance and Results Act
provides for cross-cutting coordination and evaluation.
Before I conclude my statement, Mr. Chairman, I'd like to
spend a couple of minutes summarizing reviews we have planned
or ongoing. First, this summer we plan to issue a report that
complements the study I've just described of Federal programs.
This report will provide case studies on some of the more
successful efforts of States and localities. Specifically,
we'll focus on how they coordinate their programs with one
another and the Federal Government, and the use of outcome
measures to improve their management of programs.
Also this summer we plan to issue a report on HUD's
Supportive Housing Program. This program recognizes that in
addition to housing, many homeless people need services such as
mental health, substance abuse, and employment assistance. Our
review of over 1,200 providers will, among other things, show
the types of housing and other services provided, the types of
sources of funding--Federal and non-Federal--and the importance
that the providers at the grass roots level place on Supportive
Housing Programs from HUD.
I'd like to close by talking about a study that I know has
a special interest to you, Mr. Chairman, and Mr. Kucinich. As
I've just described, there's a myriad of Federal programs that
are supposed to partner with the State, local and private
providers.
Many of the grass roots providers are very dependent on
Federal funds. At your request, later this year we plan to
study how well the Federal, State, local and private priorities
mesh, and how closely the Federal funding matches the
priorities that are set at the grass roots level.
This concludes my statement. We'll be pleased to answer any
questions you may have.
[The prepared statement of Mr. Czerwinski follows:]
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Mr. Burton. Thank you, Mr. Czerwinski.
Mr. Edwards, I missed part of your testimony. You're from
Indianapolis?
Mr. Edwards. Yes, correct.
Mr. Burton. You said that a home that FHA had taken
possession of sat vacant for a long time, then it caught fire
and burned down?
Mr. Edwards. Yes.
Mr. Burton. How long did it sit vacant?
Mr. Edwards. It sat vacant, even after the fire, almost 3
years. It was a real mystery for almost the first year as to
who owned the house. Several letters were written to the city
of Indianapolis. I was very uneducated on how to go about
finding it, there was no marking on the house, there was no
information on the house. I had no clue who to contact.
Mr. Burton. Did you ever see anybody from HUD out there, or
anybody from FHA?
Mr. Edwards. No. I mean, I didn't watch the house
continuously, but no, I didn't.
Mr. Burton. Did you ever see any contractor come by and do
any work on the house?
Mr. Edwards. Yes, after we sent several letters to the
mayor of Indianapolis.
Mr. Burton. How long was that?
Mr. Edwards. It took about 9 weeks, after a battery of
letters went to Mayor Goldsmith.
Mr. Burton. From all over the neighborhood?
Mr. Edwards. Yes, and phone calls.
Mr. Burton. Mayor Goldsmith apparently got hold of FHA?
Mr. Edwards. The city of Indianapolis claimed the property
the first time.
Mr. Burton. So it wasn't FHA? It was the city of
Indianapolis?
Mr. Edwards. Correct.
Mr. Burton. But it was an FHA house?
Mr. Edwards. Correct.
Mr. Burton. Where is this located?
Mr. Edwards. On 16th Street, on the east side of
Indianapolis.
Mr. Burton. How far east?
Mr. Edwards. It's in the 2800 block.
Mr. Burton. That's not a bad area out there. I know where
that is.
Mr. Edwards. It's right behind me.
Mr. Burton. And it sat there for 9 weeks, you got the city
of Indianapolis to help you do something, but FHA didn't do
anything?
Mr. Edwards. Correct. The neighbors pitched in together and
mowed the yard after they cleaned the property up, for a whole
year, because once again, had we not done that, we would have
had grass that was waist high.
Mr. Burton. But it did sit vacant, even after the mayor got
somebody out there?
Mr. Edwards. Correct.
Mr. Burton. For how long?
Mr. Edwards. About a year and a half.
Mr. Burton. A year and a half?
Mr. Edwards. Yes.
Mr. Burton. Did FHA ever come out, that you know?
Mr. Edwards. They came out. We held a press conference last
year, and shortly after we held that press conference, they
paid some attention to the house at that point.
Mr. Burton. What did they do?
Mr. Edwards. Boarded it up and secured it.
Mr. Burton. After a year and a half, they boarded it up?
Mr. Edwards. Correct. The house had been boarded up prior,
too, right after it became vacant, it had been boarded up.
Mr. Burton. By whom?
Mr. Edwards. I'm not sure exactly whom. All I know is that
there were boards in place. They had been removed, however. An
abandoned property tends to draw the worst of our children and
vandals, however.
Mr. Burton. But it sat a year and a half before it was re-
boarded up by FHA?
Mr. Edwards. Yes, longer than that, actually.
Mr. Burton. Did any other neighbors see FHA or that they
had people out there?
Mr. Edwards. To my knowledge, no.
Mr. Burton. Did the property improve in quality or did it
deteriorate?
Mr. Edwards. No, the house caught on fire. Actually, it was
being used, we had made several complaints to our local police
department about it being used in the middle of the night for
people, we're not quite sure what they were doing. We were told
that it was actually being used for squatters, I guess
squatters, people that would go in in the middle of the night.
It was cold, and they would start a fire in the middle of the
room and do their drugs, because there was paraphernalia
inside.
Mr. Burton. After the property burned down, the claim has
not yet been settled?
Mr. Edwards. The claim of the damage of the property owners
to each side of the house, particularly the house to the east
side of the house, the houses are in very close proximity to
the abandoned HUD house that caught on fire.
Mr. Burton. They were damaged by the fire, too?
Mr. Edwards. Right. There was smoke damage and water damage
to that property, as well as some exterior siding and water
damage, that has to this day not been paid.
Mr. Burton. Has anybody made a claim against FHA or asked
FHA about that?
Mr. Edwards. I'm sorry, sir?
Mr. Burton. Has FHA been contacted?
Mr. Edwards. Oh, yes, they have.
Mr. Burton. Have they responded?
Mr. Edwards. To my knowledge they have responded on many
occasions. They want, from my understanding, they want the
homeowners to do the out of pocket expenses up front and
they'll be reimbursed. That was one understanding of it.
Another one was they should file on their own homeowners, which
to me is ludicrous. That's a mark against your homeowners. Why
should they have to take that? Why should their homeowners be
responsible for something that HUD should be responsible for?
Mr. Burton. They would reimburse the insurance company, is
what they're saying.
Mr. Edwards. Right.
Mr. Burton. And how long has it gone unpaid?
Mr. Edwards. The fire happened November 1997.
Mr. Burton. In 1997?
Mr. Edwards. Yes, 1997.
Mr. Burton. So it's been almost a year and a half.
Mr. Edwards. Correct. We had Charles Gardner, the regional
director of HUD, in Indianapolis in July, and got a commitment
from him that he would personally process the claim. Still to
this day we have not seen a penny.
Mr. Burton. Ms. Jackson, we're paying $29 a day to maintain
these homes, and you and your neighbors have been doing the
work?
Ms. Jackson. Right.
Mr. Burton. Who else has been helping maintain them? Has
FHA helped?
Ms. Jackson. Please, sir, no, sir.
Mr. Burton. Have they been paying you $29 a day?
Ms. Jackson. Not a penny. We had a meeting at NTIC about 4
or 5 years ago and talked to the real estate. I said, you don't
want to do it, you're not sending anybody out. My and my
girlfriend, she uses the gas mower, I pick up the trash and
sweep, I'm kind of senior, and I can't do that. She has the
snowblower, and I do all that.
We keep it clean. But I did all the nailing. So I told the
real estate person who was taking care of it. That's when he
told me he was getting $43 a day. I said, well, you can give me
$15 a week and I'll still cut the grass and so on. So my
girlfriend said, no, you give me the $15.
Mr. Burton. Was the real estate man that you're talking
about, was he being paid by HUD?
Ms. Jackson. By HUD. You said $29, he said $43.
Mr. Burton. And he didn't do anything?
Ms. Jackson. You weren't there, were you, sir?
Mr. Burton. No, I wasn't there. And how long was this,
about 3 years?
Ms. Jackson. Three years.
Mr. Burton. You took care of it for nothing and he was
getting $43 per day?
Mr. Burton. Per day. Sounds like a heck of a deal for him.
Ms. Jackson. Isn't that a kick in the foot.
Mr. Burton. That's a kick someplace else. Did anybody else
ever come out there besides this fellow?
Ms. Jackson. No. You know when they finally came, we had a,
HUD came in the neighborhood, one of the ladies, she came out
and was looking at property. She came by and saw it, and I
said, I need to buy this house, because it's nice, I keep it up
for you. When you're getting ready to sell it, sell it to me.
She said, well, see the real estate man. So I called him, he
said, you don't qualify, so I said, OK. That took care of that.
Mr. Burton. Let me just ask you a couple more questions,
then I'll yield to my friend Mr. Kucinich. I appreciate you
inviting some of your constituents up here to talk about their
problems.
When Mayor Guiliani of New York came and testified, he
talked about what he called the broken window theory. He said
if one window is broken in a neighborhood and nobody fixes it,
then other windows get broken out and eventually the entire
neighborhood starts to run down. Did you folks find that to be
the case?
Ms. Jackson. Sure. That's the reason, if you don't get up,
I can say this, it's my problem, I don't have nothing to do
with it. But, sir, I would be lying. Because it has something
to do with me. It affects me.
Mr. Burton. It affects everybody in the neighborhood.
Ms. Jackson. And if it affects me, it affects her and him
and what have you. So we all have to go together.
Mr. Burton. Let me just say, Mr. Waxman, in one of his
comments, disputed the initial findings of HUD's Inspectors
General that the contractors are not doing the job. He was
evidently saying that the contractors were doing the job.
Everything you guys are telling us backs up what the IG said,
that they weren't doing their job.
Ms. Jackson. I was almost to have a fit or something in
this chair while he was talking. Because I was waiting on him.
All of you up there so very nice, I was waiting on him. He's
gone, but I had something for him, I'm sorry.
Mr. Burton. He's still here, I think.
Ms. Jackson. Well, bring him on. Bring him on.
Mr. Burton. Excuse me for laughing, Ms. Jackson. You
inspire great humor in me.
Anybody else have a comment? Ms. Cincotta.
Ms. Cincotta. The difference, like when Grace was talking
to you about the house next door to her in 20 years has had 9
FHA mortgages, all the people evicted, when she tried to buy
it, they said, oh you can't, you own one, we only help
homeowners. The only reason that building even existed enough
that finally NHS of Chicago could get it and rehab it is
because she took care of it.
If you can imagine, nine FHA homeowners, we have helped
home ownership. The frustration of the selling pitch that we're
helping people, well, people, their lives, the community, are
destroyed. We had a press conference about a year ago to
dramatize what was happening. This one was one that HUD said
they knew, at that time they had about an inch or so only. It
was locked, the rest of the street was taken care of. We go to
have the press conference.
An older woman poked me on the shoulder and said, I live
across the alley, and I've got to tell you what happened last
night. The back is wide open, as you know. Three guys grabbed a
12 year old there and raped her.
You hear this every minute. Now, that was one they said
they owned. They're paying somebody for it. And not only are
they losing a great building, but the other things that happen
in that building, like the rape of this young woman, like other
things that happen over and over again. They want to pretend
it's not their problem.
The sad part is they represent us and we're paying their
salaries. And they're still messing us over.
Mr. Burton. We're going to ask the gentleman from HUD to
respond, Mr. Apgar, in just a minute.
Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman, and I
again want to thank the Chair for calling this hearing. I think
it would be important for the panelists to know that I served
four terms in the Cleveland City Council, working at a
neighborhood level. I'm very familiar with the problems people
have to deal with on a day to day basis.
Whether the problems are in connection with HUD or some
other agency, I know how difficult it can be. I would sit there
as a member of city council and take anywhere from 50 to 70
calls a day about concerns that people would have in a
community. My purpose in this Congress is to try to keep the
Congress focused on community based things.
Ms. Cincotta, as I mentioned earlier, years ago when the
Community Reinvestment Act first came out, I know your effort
in that. You also remember Monsignor Boroni and the effort that
was done then to try to improve housing for people. We worked
together successfully on a project in Cleveland, which I'm
proud to say stands today as one of the most successful senior
citizen projects that's been built in our community.
I'm very sympathetic to the concerns that have been
expressed here. I think some of the things that have been said,
I'd like to point out, I think when Mr. Edwards testifies that
HUD should be proactive and that HUD should listen to what
people in the community have to say, I think it's very
valuable. I just mention this to the representatives of HUD who
are here.
I think it's very valuable to open up lines of
communication even better than they have been, not from a
defensive posture. Because certainly, you're on the defensive,
but it doesn't need to be that way. There needs to be
cooperative communication here. I think that's what will make
the system work better.
I've seen the same problems that you speak of for many
years. Ms. Jackson, you probably remember the Model Cities
program back years ago that ended up being a disaster, despite
the best intentions of the program.
So I would like to point out that that testimony I felt was
very important, as well as the citation of the concerns of Gale
Cincotta about just what will the privatization function of
management and maintenance of the single family inventory do or
mean. Will it mean anything any better? That's something that
remains to be seen, for sure.
I know that as you say, it might be hard to imagine anyone
doing a worse job. But we want to make sure that we don't
promote structures that basically take it out of public access
and control. I think we have to be impressed, Mr. Chairman, at
this testimony, because it's the testimony of people who don't
just live in the communities, they're the builders of the
communities, they're the protectors of communities.
But I also think that we need to shift the debate in the
sense of this process here, admittedly here, is one which sets
up kind of a contest between the people and HUD. We need to
find a way to close that, we really do. HUD obviously has much
work to do in improving its communication.
When you look at the size of any bureaucracy, any
bureaucracy can have failings in that regard, any one of them.
I've seen it here for the time I've been in Congress, I've seen
it when I was at City Hall. But it's not adequate when you come
here with these stories and talk about the difficulties you're
having. That's not acceptable.
Now, Mr. Davis, I had the good fortune of working with him
on some homeless problems. Frankly, we were told for a while
that we couldn't do anything about it. I'm a Member of Congress
and I was told that. We worked very hard and kept pressing our
case. Finally, we got the attention of HUD.
The other thing that I'd like to point out to you is that I
remember, as a member of city council, some of the other areas
that we pursued to get help while we were trying to shake up
the Federal Government. One was trying to make sure the City
Hall itself kept an active list of the properties and kept
inspecting them and issuing reports. I found that could be
helpful at times.
But I salute your efforts to try to keep neighborhoods
clean, to try to keep them livable, to try to make sure that
Government is responsive. Because if we can't assure that
Government is responsive, we're not doing the right thing by
the people in being here.
So I take your participation here with the utmost gravity
and seriousness, because this is the reason why I'm in the
Congress, and I'm sure it's the same for the Chair. That's why
I appreciated his effort in moving forward to get some answers.
And going back to HUD, let's find some ways to improve this
and talk to the people and look at the systemic things that are
revealed by what they're saying. Because I really believe, one
final comment, Ms. Cincotta, I really believe that no matter
how bad things may appear here that we can make them better,
that we can change them. But it's only with our efforts.
So I thank you for being here, because your testimony is
part of our necessary efforts to improve it.
Mr. Burton. If the gentleman will yield, he's on the
Democrat side, I'm on the Republican side. Let me just say that
I think if we talk to Mr. Cuomo about the contracts that are
going to be let to the contractors who will be overseeing these
properties, if we could jointly talk to him about imposing not
only stringent requirements on them, making sure they do their
job, but also penalties if they don't do their job, in addition
to losing their contracts, I think that might have a real
positive impact.
The communication you're talking about should be not just
from the bureaucracy and the people that work over there, but
it should be those contractors and those people that are
supposed to be out there on the firing line taking care of
these properties.
Mr. Kucinich. The chairman makes a good point. I think what
we've heard here today, Mr. Chairman, in conclusion, is we have
contractors who are not doing their job. We have plenty of
testimony on that. And we have the Department attempting to
defend itself saying, well, some contractors are doing their
job.
It's the job of this committee to try to make Government
work better. That's our charge, that's our challenge as well. I
look forward to continuing to work with the chairman so that we
can make Government work better for you.
Mr. Burton. We'll see if we can draft a joint letter to Mr.
Cuomo.
Mr. Kucinich. I'd be glad to work with you, and also it
would be good to have our ranking member involved, Mr. Waxman.
Mr. Burton. If I can ever talk to him.
Mr. Ose.
Ms. Cincotta. Send him to some of our neighborhoods and
we'll show him around.
Ms. Jackson. That's it.
Ms. Cincotta. And maybe put him in the basement of one of
these vacant buildings for a week and see how he comes out.
Mr. Kucinich. Wait, if the gentleman would yield, and the
gentlelady would yield, just let me state something. I happen
to believe there's not a finer Member of the U.S. Congress than
Mr. Waxman. I'm not worthy to hold his briefing books, but I
will tell you this. It's experience that you have shared that
all of us are going to take back and talk about what we need to
do. I think it's always good as we approach these things, and
the Chair knows I really believe in this, never to personalize
our observations. Because when we do that, we really fall short
in the mark of trying to get things done.
Ms. Jackson. Please? May I say just one thing? I didn't
mean to say that we wouldn't have gotten along. What we need to
do is this, and I've had this work before, when we had one of
the worst things in the world, when we were fighting everybody,
because everybody was doing the neighborhoods and the
communities bad. You've got to sit down with a clear head. You
can't be mad all the time, and we can't always be ready to get
one up on the other one.
We've got to sit down and reason together. We don't need to
always bring Congress in. We can have some of you all, and have
some of us. We sit down and clear it up and have a good
solution. Because we have to have a solution about this, this
is 30 years old. Thank you.
Mr. Ose. Thank you, Mr. Chairman. As with Mr. Kucinich, I
too am privileged to serve on this committee. And as compared
with Mr. Kucinich, I have the privilege on my side of working
with the distinguished chairman from Indiana, Mr. Burton, whose
briefing books I daresay I am probably not qualified to carry,
either. But we do learn day by day and I appreciate the
opportunity to be here.
I'm especially interested in any of your experiences with
respect to the base re-use and the homeless communities'
involvement in that process. Have any of you been involved in
that? Military bases that have been closed and subject for re-
use, have any of you been involved in the process of utilizing
all or a portion of those bases for homeless or neighborhood
services or things of that nature?
Mr. Davis. We've been offered a base in northeast Ohio, but
it was so distant from the community that it would have been
impossible to transport individuals and get them to services.
It was too remote.
Mr. Ose. Absent the geographic distance, what feedback can
you provide us in terms of the process by which bases scheduled
for closing are being offered for use by organizations such as
the four of you represent?
Mr. Davis. Our only experience is the one official
extending an invitation to buy a property, but it was so
remote. We've had no other experience besides that.
Mr. Ose. Mr. Czerwinski, how about you?
Mr. Czerwinski. Mr. Ose, we haven't looked at that program.
Mr. Ose. Ms. Cincotta.
Ms. Cincotta. What we found, we work with a group,
Coalition for the Homeless, in Chicago. A lot of the homeless
are Vietnam vets. There had been a lot of veterans hospitals
closed in the area, closed off even to be able to take care of
them before they became homeless. It seems like that one area
of folks, like Vietnam vets, nobody wanted to pretend we had a
war in Vietnam. My husband and I had two kids over there.
They closed hospitals that should be servicing them even
before they get homeless. They could be servicing them close
in, right now, and rehabilitate them. It's just, nobody cares.
Mr. Ose. That's not a housing issue, that's a job training
or medical services issue.
Ms. Cincotta. But with the hospital, there's rooms, there's
beds, there's meeting areas. There are ways to do a lot of
things. It's just not--nobody cares.
Mr. Ose. This is one of those unique circumstances where a
Congressman doesn't have anything to say. Mr. Chairman, I yield
back.
Mr. Burton. That is rare.
Mr. Allen, you are recognized.
Mr. Allen. Thank you, Mr. Chairman, and I want to thank you
for holding these hearings. This is a very important topic to
millions of people across this country, and I am pleased to be
part of this discussion.
Most of my questions are probably for Mr. Czerwinski. But
if others want to join in after he's had a chance to speak,
that will be fine.
Just a little bit of background--in Maine, we had
applications in for the renewal of several homeless programs.
At the end of the day, after an initial denial, some of those
programs were renewed. But the Shelter Plus Care program for
both the State and the city of Portland were not renewed.
What's interesting is that there were different
perspectives on this. My understanding is when you look back at
the entire way this was done, HUD's scoring resulted in five of
the six New England States receiving less funds in 1999 than
1998, while the eight western States each received more funds.
Three of the largest funding decreases occurred in New England.
It also showed that the 20 poorest States, with 27 percent
of the population, received only 14 percent of the funds. If
you look not in terms of poverty but in terms of how heavily
populated a State is, the Nation's 20 least populated States--
of which Maine is of course one--home to 10 percent of the
country's population received only 5 percent of the homeless
funding.
In Maine, the applications for both the city of Portland
and the State of Maine were done by the same person who had
done them year after year. What was interesting is that
suddenly, instead of being praised, we didn't even qualify for
funding. So the question arises, is there a problem with
consistency in scoring? As this program has become more
competitive, are we evaluating the paper and not the program?
I understand the pressures on HUD, I understand--as the
number of applications grows, and the funding doesn't keep
pace--how applications that have been approved in the past
might not be considered in the future.
Here are some issues. First, three questions. Is there a
way to assure more consistency in scoring year to year? Second,
is there some way to recognize geographic need in this process,
so that we don't have a purely competitive system, which can,
as happened in Maine, suddenly leave a State without any funds
at all? And third, I understand that a suggestion was made to
perhaps consider separating renewal applications for homeless
funding from new applications for homeless funding. Is this
reasonable?
Mr. Czerwinski, I'd be interested in your reaction to those
three questions.
Mr. Czerwinski. They're very good questions. Unfortunately,
the answer to the homeless situation is not a simple one.
What we are trying to do is first of all, just get a handle
on the Federal programs that are out there, and then look at
the interaction between the Federal Government and the State
and locals. The kinds of issues you raise are some of those
that are coming up quite a bit as anecdotes in our filed work.
The local governments have their priorities, private
organizations have theirs, but then there's a mismatch between
what we're hearing from them and the Federal Government.
What we're planning to do, at the request of Mr. Kucinich
and Chairman Burton, is to actually go out and pull a sample of
applications from the local areas. We will then match the
priorities they have set with those set by the Federal
Government. In that way we will try to come up with the answers
to the very questions you asked. If Mr. Burton and Kucinich are
willing, we would be quite glad to add you to that request and
do that work for you.
Mr. Allen. We would like to be added to that request list
because Federal homeless funding has been critical for people.
The State and city just fell off a cliff this year, suddenly
there was no money where there had been money before.
I think whether it's a matter of regulations, whether it's
a matter of legislation, it's an impact that we probably don't
want to see. We want to maintain some competition, but we don't
want people to fall off a cliff when they've been running a
highly recommended program for years.
Mr. Czerwinski. When you talk about competitive funding,
you've touched on the paradox of the issue. That is, people
want to have competitive funding for their projects, but then
again, they want some consistency. They know they can get
funding consistently from year to year with the formula grant
programs.
But the concern of the homeless advocates is that with
formula grants, housing and other kinds of services to the
homeless sometimes may fall right off the table. It's an all or
none type of situation under two different scenarios. So what
you're talking about is probably the most critical issue.
Mr. Allen. Thank you, Mr. Chairman.
Mr. Burton. Thank you very much.
Let me thank the panel very much for being here. You've
been very informative. I wish I could have heard everything you
had to say, unfortunately I had to go to another meeting
temporarily. You've not only been informative and helpful, but
you've been entertaining, Ms. Jackson. You could make it big as
a standup comedienne. [Laughter.]
I thank you very much, we're going to take everything that
you say to heart, and I'd like to have Mr. Apgar come back to
the table so I and my colleagues can briefly ask him some
questions.
Then we'll adjourn and let everybody go get a sandwich or
something.
Mr. Apgar, you're still under oath, as you know.
Mr. Apgar. Yes.
Mr. Burton. First of all, Ms. Jackson said that she has
taken care of an FHA house in Chicago for 3 years, and has
never seen anyone from FHA go near the house. She's been out
there taking care of the house. I think she said she saw a
fellow come by that said he was getting $43 a day instead of
the $29 a day.
Have you terminated the contracts of any contractors in
Chicago?
Mr. Apgar. Yes, we have.
Mr. Burton. You did?
Mr. Apgar. Yes.
Mr. Burton. When did you do that?
Mr. Apgar. Last year we terminated some. I'd have to get
the exact time. But we have terminated some contracts,
including in Chicago.
Mr. Burton. Do you know if one that you terminated was the
gentleman that was in the neighborhood where she is?
Mr. Apgar. I'm not sure of that. If he said to her that he
was getting paid $43 a day, that has to be a misstatement on
his part. Contractors under the current system are paid on a
reimbursable basis. So he wouldn't have anything to reimburse
against.
In the new system, contractors are only paid for selling
the properties, so that's what gives them the incentives to
maintain and process the mortgages.
Mr. Burton. Could you do me a big favor and check and see
if that gentleman is still a contractor for you in her
neighborhood? I'd like to know.
Mr. Apgar. OK.
Mr. Burton. Are you aware of any other problems with
contractors in Chicago? You said you've fired a couple of them.
Are there any others you have problems with?
Mr. Apgar. Reviewing our contractors, I don't know of any
other problems at this stage. We routinely tell contractors if
they're not doing their job, if we get a citizen complaint,
we'll notify the contractor and get them to go out and fix the
problem.
Mr. Burton. If you could give me an update on the Chicago
area and maybe Indianapolis as well, I'd really appreciate it.
That would give us a chance to take those two as examples and
spot check them.
Mr. Edwards said that an FHA house in Indianapolis sat
vacant for a year and a half and then burned to the ground. He
said they wrote letters, a lot of letters to the FHA, but the
only ones who came out to look at the house was the city of
Indianapolis. Do you know if the contractor in Indianapolis is
still there and doing his job?
Mr. Apgar. I don't know about that situation. I know that
Mr. Edwards talked with our HUD staff about this matter last
summer. And based on that, our HUD staff took action, including
the items that Mr. Edwards mentioned, boarding up the property,
securing it as best they could.
Mr. Burton. And it burned to the ground?
Mr. Apgar. I don't believe they said it caught fire, they
said they had to board it back up. So I believe from his
testimony, I'm not familiar with the case, the property must be
still standing.
Mr. Burton. It burned down, didn't it?
Mr. Edwards. It did catch on fire, and it was deemed
unsafe. I was told it was salvaged to some poor guy who
couldn't fix it up, another nightmare.
Mr. Burton. So it's just a shell.
Mr. Edwards. Yes.
Mr. Apgar. Just a shell, yes.
Mr. Burton. What about the people next door there, and
their compensation for the damages to their houses?
Mr. Apgar. There was a discussion about that. It's my
understanding we are processing that claim.
Mr. Burton. Would you check on that and let me know as
well?
Mr. Apgar. Sure.
Mr. Burton. And along with that last question I asked, I'd
like to know why this claim since 1997 has not been paid. It's
almost a year and a half later. So if you could give me an
answer on that, too.
Ms. Cincotta said that a young girl was raped on a property
that was vacant in her neighborhood. Have you yourself gone to
any of these neighborhoods to see for yourself how bad the
problem is?
Mr. Apgar. I've been in HUD foreclosed properties, yes.
Mr. Burton. Well, I'd like to have a report on Ms.
Cincotta's neighborhood and that house as well, where that girl
was raped. I think that's important, if you could take a look
at that.
Let me ask you one final question, then I'll let you go and
I'll go vote, because I've got a bunch of votes coming up.
Suppose I'm a homeowner like Ms. Jackson, and I'm living next
door to one of the neglected HUD properties. Can you walk me
through the specific steps that I need to go through to get HUD
to take action? These people who testified said they've called,
they've written letters and everything else, and they had
problems. Just tell me, what's the quickest way to get action
from HUD when you have that kind of a problem?
Mr. Apgar. They should call the HUD office in their area
and get the name of the contractor. That's one approach. We
have established in many neighborhoods neighborhood watch
systems, in which cooperation between us and the police
department, they're able to get immediate attention.
In most instances, there are HUD signs up. I think the IG
testified there were well over 90 percent of the properties
have signs which identify who to call. And in this select group
of communities where we're working cooperatively with the
police officers, we have a hotline to the local police
department where they can call.
Mr. Burton. I want to thank you very much, Mr. Apgar, for
being with us. We'll be in touch with you and I appreciate the
answers to the questions. Give my regards to Mr. Cuomo and tell
him that we would like to work with you to make sure these
problems are solved as quickly as possible. Toward that end,
Mr. Kucinich and I will probably write a couple of notes over
to you.
Mr. Apgar. Right. Well, obviously I stayed to hear the
testimony because I think it is important to work with the
community groups, as we have in the past. Quite frankly, here
we have a significant disagreement with methods of addressing
this problem, with the group from Chicago. They have repeatedly
asked us to do things, which among other things, we've not been
able to get congressional authority for.
But in terms of the diagnosis of the problem, we appreciate
the fact that quickly disposing of these properties is in
everybody's interest.
Mr. Burton. I think one of the biggest problems, and if you
could convey this back again to Mr. Cuomo, is it's extremely
important that you have good contractors. If they're not doing
the job when you spot check, fire them or fine them, whatever
it takes, to make sure you get competent people on a job. I
think if you did that, that would go a long way toward solving
the problem.
Mr. Apgar. Thank you.
Mr. Burton. Thank you, sir.
We stand adjourned.
[Whereupon, at 4:13 p.m., the committee was adjourned, to
reconvene at the call of the Chair.]