Restructuring HUD's assisted/insured multifamily housing portfolio : hearing before the Subcommittee on Housing Opportunity and Community Development of the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Fourth Congress, first session on ..., June 15, 1995

United States. Congress. Senate. Committee On Banking Housing And Urban Affairs. Subcommittee On Housing Opportunity And Community Development

Description

104-264S. Hrg.V\V\^ ^\ ^ ASSISTED/INSUREDRESTRUCTURING HUD'S\\j H FORTFOUOMULTIFAMILY OUSING 104-26422/3: S, HRG.Y 4. B Assisted/Insure...Restructuring HUD's JilNG . BEFORE THE^ ^g^'^u^UBCOMMITTEE ON HOUSING OPPORTUNITY AND COMMUNITY DEVELOPMENT\ao.^ OF THE COMMITTEE ON ANDBANKING, HOUSING, URBANAFFAIRS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS FIRST SESSION ON 8"THE ADMINISTRATION'S PROPOSAL RESTORETO "SECTION RENTS TO MARKET RATES ON MULTIFAMILY PROPERTIES INSURED BY FHA JUNE 15, 1995 Printed for the use of the Committee on Banking, Housing, and Urban Affairs JAN 2 9 1996 U.S. GOVERNMENT PRINTING OFFICE ^-^ * '21-294 CC WASHINGTON 1995 Ovi} : QIH ,"" '"J:-For sale by the U.S. Government Printing Office .l.i?rogram are also included. 65 maricet interest rate program or the section 236 program that also receive Section 8 loan management set-aside assistance. HUD's aata indicate that there are about of these properties, with over 400,000 units. The newer assisted properties are4,200 insured under any mortgage insurance program that also receives rental assistance under the Section 8 New Construction or Substantial Rehabilitation programs. these properties, withHUD's data indicate that there are 4,100 of about 400,000 units. Both the older and newer assisted properties primarily serve very low-income households.

Sujets

• Capital market
• United States
• Public housing

Informations

• Publié par: les_archives_du_savoir
• Nombre de lectures: 11
• Langue: English
• Poids de l'ouvrage: 10 Mo

Extrait

104-264S. Hrg.V\V\^ ^\
^ ASSISTED/INSUREDRESTRUCTURING HUD'S\\j
H FORTFOUOMULTIFAMILY OUSING
104-26422/3: S, HRG.Y 4. B
Assisted/Insure...Restructuring HUD's JilNG
. BEFORE THE^
^g^'^u^UBCOMMITTEE ON HOUSING OPPORTUNITY AND
COMMUNITY DEVELOPMENT\ao.^
OF THE
COMMITTEE ON
ANDBANKING, HOUSING, URBANAFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
ON
8"THE ADMINISTRATION'S PROPOSAL RESTORETO "SECTION RENTS TO
MARKET RATES ON MULTIFAMILY PROPERTIES INSURED BY FHA
JUNE 15, 1995
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
JAN 2 9 1996
U.S. GOVERNMENT PRINTING OFFICE
^-^
* '21-294 CC WASHINGTON 1995 Ovi}
: QIH
,"" '"J:-For sale by the U.S. Government Printing Office .l.i?<
2()402~"Superintendent ofDocuments, Congressional Sales Office, Washington,DC
ISBN 0-16-052100-9S. Hrg. 104-264
RESTOUCTURING HUD'S ASSISTED/INSURED\(^
MULTIFAMILY HOUSING FORTFOUO
104-26422/3: S. HRG.Y 4. B
Assisted/Insure...Restructuring HUD's JJINQ
BEFORE THE^ f
^^^^g^UBCOMMITTEE ON HOUSING OPPORTUNITY AND
COMMUNITY DEVELOPMENT\(xo.^
OF THE
COMMITTEE ON
ANDURBANBANKING, HOUSING, AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
ON
8"THE ADMINISTRATION'S PROPOSAL RESTORETO "SECTION RENTS TO
MARKET RATES ON MULTIFAMILY PROPERTIES INSURED BY FHA
JUNE 15, 1995
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
Ut^c/SITORy
JAN 2 9 1996
U.S. GOVERNMENT PRINTING OFFICE
"
'21-294 CC WASHINGTON : 1995
I
?1!C/'^
':".''For sale by the U.S. Government Printing Office C'
Superintendent ofDocuments, Congressional Sales Office, Washington,DC 20402
ISBN 0-16-052100-9COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
ALFONSE M. D'AMATO, New York, Chairman
PHIL GRAMM, Texas PAUL S. SARBANES, Maryland
RICHARD C. SHELBY, Alabama CHRISTOPHER J. DODD, Connecticut
CHRISTOPHER S. BOND, Missouri JOHN F. KERRY, Massachusetts
Florida RICHARD H. BRYAN, NevadaCONNIE MACK,
LAUCH FAIRCLOTH, North Carolina BARBARA BOXER, California
ROBERT BENNETT, Utah CAROL MOSELEY-BRAUN, BlinoisF.
WashingtonROD GRAMS, Minnesota PATTY MURRAY,
BILL FRIST, Tennessee
DirectorHoward A. Menell, Staff
CounselRobert J. Giuffra, Jr., Chief
Philip E. Bechtel, Deputy Staff Director
Steven B. Harris, Democratic Staff Director and Chief Counsel
Edward M. Malan, Editor
Opportunity and Community DevelopmentSubcommittee on Housing
MACK, Florida, ChairmanCONNIE
JOHN F. KERRY, MassachusettsCHRISTOPHER S. BOND, Missouri
CHRISTOPHER J. DODD, ConnecticutBILL FRIST, Tennessee
NevadaRICHARD C. SHELBY, Alabama RICHARD H. BRYAN,
Christopher D. Lord, Staff Director
Paul Weech, Democratic Professional StaffMember
(11)CONTENTS
THURSDAY, JUNE 199515,
Page
Opening statement ofSenator Mack 1 statements, comments, or prepared statements of:
D'AmatoSenator 3
Prepared statement 54
Senator Bryan 4 54
Senator Bond 11
Prepared statement 55
Senator Sarbanes 19
WITNESSES
Susan Gaffney, Inspector General, U.S. Department of Housing and Urban
Development; accompanied by: Chris Greer, Assistant Inspector General
for Audit, Washington, DC 4
Prepared statement 56
Programs included in mark-to-market proposals 56
Mark-to-market proposal 57
OIG views on mark-to-market ; 59
Response to written questions ofSenator Mack 136
Jim Wells, Associate Director, Housing and Community Development Issues,
U.S. General Accounting Office; accompanied by: Richard A. Hale, Assistant
Director, Washington, DC 8
Prepared statement 61
HUD's Section 8 assisted and insured multifamily portfolio 63
Problems affecting the multifamily housing portfolio 63
Rationale for and conceptual framework ofmarking-to-market 64
Properties affected by marking-to-market 64
Costs of marking-to-market 65
Mark-to-market issues and observations 66
Appendices 68
Response to written questions ofSenator Mack 140
Nicolas P. Retsinas, Assistant Secretary for Housing; Federal Housing Com-
missioner, U.S. Department of Housing and Urban Development; accom-
panied by: Helen Dunlap, Deputy Assistant Secretary for Multifamily Hous-
ing, Washington, DC 23
Prepared statement 71
It's not onlyHUD facing these challenges 73
The need for reform 73
What is mark-to-market? 75
The risk of delay 75
The financial and real estate markets have already begun to initiate
mark-to-market 76
Mark-to-market principles 77
Conclusion 81
Appendix A 82 B 85 C 86
Appendix D 87
Response to written questions ofSenator Mack 143
(in)IV
Page
Larry H. Dale, Executive Director, National Housing Impact Division, Fannie
Mae, Washington, DC 27
Prepared statement 88
Response to written questions ofSenatorMack 148
David A. Smith, President, Recapitalization Advisors, Inc., Boston, 30MA
Prepared statement 90
Executive summary 91
HUD's legislative proposals and operating framework 92
Why mark-to-market now? 93
imperatives 94Public-policy
What properties are involved? 98
Portfolio segmentation is essential 100
Fundamental questions and recommended policies 103
Comments on HUD's approach to mark-to-market 108
Conclusion Ill
Exhibit and appendices 112
Response to written questions ofSenator Mack 150
William Hayns Financial Group,E. worth, Senior Vice F*resident, The Boston
Boston,MA 34
Prepared statement 128
Avoid unintended tax consequences 129
Special consideration for difficult properties/flexibility 132
Summary 133
Response to written questions ofSenator Mack 190
Additional Material Supplied for the Record
Recapitalization Advisors, Inc., "Section 8 Mark-to-Market" net costs and
benefits under different restructuring assumptions 193RESTRUCTURING HUD'S ASSISTED/INSURED
MULTIFAMILY HOUSE^G PORTFOLIO
THURSDAY, JUNE 199515,
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Housing Opportunity and
Community Development,
Washington, DC.
The Subcommittee met at 9:30 a.m., in room SD-538 of the Dirk-
sen Senate Office Building, Senator Connie Mack (Chairman of the
Subcommittee) presiding.
OPENING STATEMENT OFSENATOR CONNIE MACK
Senator Mack. First of all, good morning and thank you to all
ofyou for coming this morning and participating in this discussion
of HUD's mark-to-market proposal to restructure the FHA-insured
multifamily housing portfolio that receives HUD project-based Sec-
tion 8 assistance.
I realize now after personally trying to submerge myself in this
issue for the last several weeks, it is incredibly complicated and
has potential major ramifications. So I think this is an important
hearing this morning. I want to try to conduct it in such a way that
there is good dialog, because I think frankly we all can learn ifwe
open up the and I will attempt to do that. It is not nec-
essarily an easy thing to do, but again I welcome all of you and
I appreciate your participation.
I am going to take a few moments to make an opening statement
which I think will outline and express my feelings and concerns
with respect to this issue, so ifyou will bear with me and then we
will get to our first panel.
Restructuring this portfolio is critical because the huge financial
costs required to provide Section 8 assistance, and because Section
8 assistance contracts on about 700,000 units are expiring between
1996 and the year 2002, because these properties are also insured
by FHA, any changes to the rental subsidy could result in costs to
the FHA Insurance Fund.
HUD and CBO estimate that on a 25-year present-value basis
the cost of maintaining current policy on renewals would be about
$80 billion.
We are facing the need to restructure this portfolio today because
flaws in the HUD multifamily insurance and subsidy programs
have allowed owners to receive more Federal dollars in rental sub-
sidy than is necessary to maintain properties as decent and afford-
able rental housing.
(1)About 75 percent of the so-called "newer assisted properties"
have Section 8 rents that are above, often well above, market val-
ues. Also in some of the newer assisted cases properties have phys-
ically deteriorated to substandard conditions. HUD's strategy to
date has been to limit losses to FHA's Insurance Funds by provid-
ing additional rental subsidies to properties at the expense of im-
proving the housing quality for tenants in managing its future
risks better.
Beginning in 1996 and moving into the next Century, the Section
8 contracts on many of these properties will expire. The current
policy has been automatically renew these contracts and con-to to
tinue over-subsidizing some of these properties. The expi-upcoming
ration of Section 8 contracts provides us an opportunity—an impor-
tant opportunity—to end excessive subsidies.
The Administration has taken on this challenge by introducing
a strategy called mark-to-market. This strategy would end exces-
sive payments of direct rental subsidies to projects, force projects
to compete in the marketplace, and promote tenant choice in ob-
taining housing. At the same