Chairman Reed, Ranking Member Allard, distinguished Members of
the Subcommittee, thank you for inviting me to testify on the impending
expiration of the Office of Multifamily Housing Assistance Restructuring.
As you know, the restructuring authority and the authorization for
OMHAR expires on September 30, as part of "The Multifamily Assisted
Housing Reform and Affordability Act." I am here this morning to
discuss the Administration's position concerning the future of OMHAR
and its legislative authorities.
Before I begin, let me express my appreciation to this Committee
for its support of my confirmation as Assistant Secretary for Housing-FHA
Commissioner. It is an honor to appear before you today.
I am reminded that the first question from Senator Sarbanes at
my confirmation hearing concerned the "mark-to-market" program.
Chairman Reed also raised the issue of mark-to-market during the
hearing. So it is fitting that my first hearing before this Subcommittee
should be on the same subject.
Mr. Chairman, the challenges of HUD's multifamily assisted inventory
involve some of the most complex issues that the Department has
had to address. I first became involved in this subject 15 years
ago as a member of the Hills-Reuss task force. Congress passed legislation
in 1987 and again in 1990, but the problems remained unresolved.
During the mid-1990s, Congress wrestled for three years with the
mark-to-market concept before finally passing "The Multifamily Assisted
Housing Reform and Affordability Act" in 1997. The process for dealing
with these properties has taken longer than originally anticipated,
for a variety of reasons, so we now need to revisit this issue yet
Since assuming the position of Commissioner, I have discussed with
Secretary Martinez the future of these authorities and the implications
for public policy, particularly with regard to the residents of
these properties. Discussions within the Administration are still
ongoing, and will necessarily involve the Office of Management and
Budget, among others, before a final recommendation is made. However,
HUD's FY2002 budget proposal submitted to Congress in April acknowledged
the Administration's intention to seek an extension of the debt
restructuring authority. In his testimony before the Senate Appropriations
Subcommittee last week, Secretary Martinez stated that there continues
to be a need for this program, and that HUD would be seeking an
extension of the restructuring tools.
There appears to be general support for an extension of the restructuring
authority beyond the current scheduled expiration date. The Administration
will be submitting legislative recommendations on how best to proceed
with that extension.
OMHAR estimates that over 2,500 Section 8 properties have contracts
that expire after this fiscal year; approximately 1,300 are estimated
by OMHAR to be above market. There is a continuing statutory requirement
to mark down rents to market levels. Without the mortgage restructuring
tools, it seems likely that many of these properties would default
on the mortgages. This would expose FHA to significant claims and
place the housing of thousands of families in jeopardy.
The future of the OMHAR office itself has generated a greater level
of discussion than the extension of the restructuring authorities.
The first few years of OMHAR were less productive than had been
hoped for a variety of reasons. In large part, the first two years
were spent establishing program infrastructure and assigning the
properties to the participating administrative entities (PAEs) for
OMHAR did not complete any restructurings until the fourth quarter
of 1999, some two years after it was created. These first completions
were rent restructurings, without any changes in the mortgage amount.
The first full mortgage restructuring did not occur until the second
quarter of 2000.
Since then, however, there has been significant progress. OMHAR
completed 423 rent restructurings by the end of 2000 and has completed
another 63 through May of this year. More importantly, the pace
of full mortgage restructurings has picked up sharply this year.
There were 30 full mortgage restructurings in 2000, and another
77 so far in 2001. Further, I understand that an additional 75 full
restructurings are scheduled for closing in the next 60 days. Since
full mortgage restructurings are more complicated, this is encouraging.
But clearly more needs to be done, and we want to ensure that this
important work is allowed to continue.
In his Appropriations Subcommittee testimony last week, Secretary
Martinez also discussed the future organizational structure of OMHAR.
He stated that the Department expects to request a three-year extension
for OMHAR with two changes: 1) that the office would no longer be
headed by a Presidential appointee, 2) and that OMHAR would fall
under the authority of the Office of Housing.
Accordingly, we may recommend to Congress the continuation of a
separate OMHAR office dedicated to this work, but under the authority
of the FHA Commissioner, rather than maintaining its current position
as an independent office. This move would simplify issues of jurisdiction
and coordination. At present, the Office of Housing is responsible
for subsidy payments and the management of insurance contracts,
while at the same time OMHAR is responsible for restructuring them
for the future. The same projects are under the jurisdiction of
two separate, equal offices, each reporting to the Secretary simultaneously.
With OMHAR under the authority of the Commissioner, this anomalous
situation would no longer exist. In addition, this proposed structure
would facilitate coordination between OMHAR and the 18 Multifamily
Hubs, which are located throughout the country and have detailed
information and knowledge on any particular property in the field.
We believe the completion of OMHAR's work would be expedited by
a simpler administrative structure.
At the same time, we certainly recognize the critical nature of
the work under OMHAR, and would have every expectation that the
Office would be fully dedicated to that work and only that work.
Having come halfway through the mark-to-market process, we intend
to see it through to completion.
In addition, since OMHAR would be an entity reporting to the Commissioner,
we do not expect to recommend reauthorization of the position of
OMHAR Director as one requiring appointment by the President and
confirmation by the Senate. This would avoid a circumstance where
one Presidential appointee reports to another Presidential appointee
of equivalent rank.
We understand that the bulk - almost two thirds - of the 1,300
anticipated properties subject to debt restructuring have contracts
that expire in the next two fiscal years. With an average processing
time of approximately 13 months following contract expiration, we
believe an extension of three years beyond FY2001 is appropriate.
By 2004, we should all be able to judge whether any further extension
is needed, or whether the small remaining workload can be handled
Mr. Chairman, OMHAR and the authority it exercises were enacted
to strike a balance between the preservation of affordable rental
housing and the rising costs of renewing expiring Section 8 contracts.
If Congress had not intervened, project-based Section 8 renewal
needs would have reached $7 billion annually by 2007. Recently,
encouraging progress had been made in preserving the viability of
many of these properties. But much work remains to be done. For
Secretary Martinez, and for me, the continuation of this work is
one of our highest priorities. We look forward to working with Congress
and this Committee in the coming weeks on this important issue.
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