CUOMO ANNOUNCES PROGRESS BY HUD IN FHA PERFORMANCE, MANAGEMENT REFORM, AND NATIVE AMERICAN HOUSING

WASHINGTON - Housing and Urban Development Secretary Andrew Cuomo told a Senate committee today of progress by HUD in improving the performance of the Federal Housing Administration, implementing management reform, and consolidating housing assistance for Native Americans. Appearing before the Senate Appropriations Subcommittee on Veterans Affairs, HUD and Independent Agencies, Cuomo:

• Released an independent audit by KPMG, Peat Marwick LLP and an actuarial report by Price Waterhouse that show the once-troubled FHA Insurance Fund is considerably stronger than it was before President Clinton took office. The audit says: "FHA is changing for the better. We applaud management for its consistency in its efforts to make FHA relevant in, and responsive to, the marketplace." Cuomo said the independent evaluations "show that our reinvention of FHA is paying dividends for American taxpayers, communities, and homeowners."

• Said HUD is making good progress in implementing management reform, and submitted legislation to Congress to repeal and streamline 81 HUD programs as part of the HUD 2020 Management Reform Plan that the Department launched last year. The legislation is called the HUD 2020 Program Repeal Act. Some programs being repealed have not received funding from Congress for several years and some have functions that can be absorbed by other programs. "This legislation is not essential to our effort, but it will help us move forward to reinvent and improve the Department through our management reforms," Cuomo said.

• Announced publication of the final rule that consolidates Native American housing assistance programs into a single, formula block grant. Cuomo also announced interim funding to meet current operational needs while tribes finalize plans for how they will spend their block grant funds. "This new approach is designed to make our Native American housing programs more effective, efficient, and accountable," Cuomo said. "We're going to work closely with the Native American community to ensure that, through the new Indian Housing Block Grant program, we can do a better job of meeting their housing needs in ways that protect the taxpayers' investment."

FHA AUDIT AND ACTUARIAL REPORT

Cuomo said the favorable audit and actuarial report on FHA "are a vote of confidence in the FHA that strengthens our commitment to building strong, viable communities through increased homeownership. A healthy FHA Insurance Fund saves taxpayer dollars and ensures that HUD will continue to play a vital role in helping more hardworking families achieve the American Dream."

By approving the audit, KPMG, Peat Marwick LLP has for the fifth consecutive year provided a "clean opinion" of FHA's financial statements, attesting to its confidence that the statements reflect accurately the FHA's cash flows, financial position, and results of operation.

In addition, FHA continued to contribute to the rise in homeownership among first-time homebuyers, with 76 percent of new loans insured in 1997 going to new homeowners. Cuomo said that FHA's success and strong Fund are clear indications that the Department's proposal to raise the FHA loan limit to $227,150 would provide an even greater boost to homeownership.

The audit noted that HUD has made significant progress toward developing processes to effectively manage its current insured portfolio and inventory of notes and properties while continuing to serve the needs of the housing market; implemented an oversight tool that will help identify troubled and potentially troubled housing projects; and reached an agreement with the Department of Health and Human Services that will help increase FHA's ability to manage individual facilities in its $5 billion hospital portfolio. These additional indicators were cited in the audit attest to FHA's improved financial health:

• FHA's Mutual Mortgage Insurance Fund, which backs single family mortgages, exceeded Congressional goals for the year 2000 for the third consecutive year. The MMI Fund's capital ratio, a measure of the Fund's cushion against unexpected insurance losses, increased to 2.81 percent, exceeding the Congressional target of 2 percent by the year 2000. At the beginning of the decade, the ratio was -0.88 percent. The Actuarial Study says the projected economic value of the Fund increased from $2.7 billion at the end of fiscal year 1990 to $11.3 billion at the end of fiscal year 1997.

• Multifamily loss reserves continue to decline, illustrating lower risk to taxpayers of future insurance losses. FHA adjusted its loss reserves for multifamily insurance, including the estimated potential impact of expiring Section 8 contracts, resulting in total multifamily loss reserves of $9.9 billion, down approximately $300 million from FY 1996.

• FHA's successful loan sales program continued to reduce inventories of single family and multifamily notes and increase recovery rates. In fiscal 1996 and 1997, FHA completed five single-family note sales that resulted in the reduction of 82,800 notes that had an unpaid principle balance of $4.3 million. The multifamily notes inventory declined 55 percent from a high of 2,409 at the end of 1993. Since the end of 1993, FHA has reduced the inventory on notes by 74 percent, from $11 billion to $3.3 billion .

• Single family and multifamily loan sales have resulted in higher weighted average recoveries when compared to 1994, the year before the note sales program began. For single family, recoveries were 89 percent of unpaid principle balance in fiscal year 1997 compared to 70 percent recovered in fiscal 1994. Multifamily recoveries were 69 percent of unpaid principle balance percent in fiscal 1997, compared with 23 percent recovered in fiscal r 1994.

REPEAL LEGISLATION

Cuomo said the legislation repealing and streamlining 81 HUD programs will help move the HUD 2020 Management Reform Plan forward. The Management Reform Plan states it aims to transform HUD from "the poster child for inept government" that "has been plagued for years by scandal and mismanagement" into "a new HUD, a HUD that works."

"HUD 2020 is a historic effort to modernize and streamline our operations, improve performance, increase efficiency and fight waste, fraud and abuse," Cuomo said. "Our management reform plan is helping to transform HUD to better serve America's people and communities with improved business practices."

HUD has been criticized by Congress and its Inspector General since 1980 for failing to modernize operations and fight waste, fraud and abuse. The General Accounting Office designates HUD as the only "high risk" agency in the federal government.

NEW ERA IN INDIAN HOUSING

Cuomo also announced the publication of the final rule that implements the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA). NAHASDA reorganizes the system of federal housing assistance provided to Native Americans by consolidating housing assistance programs into a single, formula block grant.

The new program, called the Indian Housing Block Grant (IHBG), was designed specifically for the unique circumstances and housing challenges of Native American communities. To be eligible for IHBG funds, a tribe must develop both short-term and long-term plans that describe the communities' housing needs, financial resources, affordable housing activities and the manner in which IHBG funds will be used. By engaging in both short-term and long-term planning, and relying on community input, tribes can now be proactive in developing a vision for housing in their own communities.

The Department is also making interim funding available to the Tribes, where necessary, to meet current operational needs. The interim funding will enable Indian Housing Authorities to meet their program needs while finalizing their initial applications for block grant funds.

Tribes will receive assistance based on the need for housing within the tribal communities and on the cost to operate and maintain existing federally subsidized housing. Grants are provided directly to Indian tribes or their tribally designated housing entities.

Under NAHASDA, Indian Nations are encouraged to expand housing opportunities by leveraging IHBG funds with an array of private and public funding sources.

The final rule for NAHASDA is the result of a cooperative negotiated rulemaking process where HUD and the Tribes resolved a broad range of issues including: Indian preferences, environmental review procedures, conflict of interest concerns, use of interest income, enforcement and compliance, formula determinations and the method by which funds are distributed.