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HUD Testimony

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Prepared Testimony of John C. Weicher, Assistant Secretary for Housing-Federal Housing Commissioner-Designate, U.S. Department of Housing and Urban Development before the Senate Committee on Banking, Housing and Urban Affairs

May 15, 2001

Thank you, Mr. Chairman. It is a great honor to appear before this distinguished Committee today as the nominee for Assistant Secretary for Housing/FHA Commissioner. I am extremely grateful to President Bush and to Secretary Martinez for offering me the opportunity to be part of this Administration, in this important position.

FHA has been central to the American Dream of homeownership since the 1930s. It is widely and rightfully regarded as a social policy experiment that worked. FHA revolutionized the housing finance system and the mortgage instrument. Working with GNMA, it pioneered the Mortgage-Backed Security. It has helped to establish the viability of new mortgage instruments such as Graduated Payment Mortgages and Home Equity Conversion Mortgages. It has provided mortgage insurance for purchasers of manufactured homes. FHA has a proud legacy.

Promoting homeownership remains important today. As Secretary Martinez has pointed out, the homeownership rates among African-Americans and Hispanic Americans remain below 50 percent, even though the overall homeownership rate is at a record high. That is a challenge to HUD and FHA in particular. During his campaign, President Bush proposed the "New Prosperity Initiative," to expand homeownership opportunities to lower-income families. The New Prosperity Initiative includes $1.7 billion for an investor-based tax credit to encourage the construction and rehabilitation of single-family homes in distressed communities, parallel to the Low Income Housing Tax Credit. It also includes the "American Dream Down Payment Fund," to provide $1 billion in matching grants to lenders to help low-income families become homeowners; and the downpayment voucher, enacted by Congress in December, allowing low-income families and individuals with disabilities to use Section 8 rental vouchers toward the down payment on a home. The primary responsibility for developing and implementing these important initiatives will lie with other program offices in HUD, and with other agencies in the Administration, but FHA will be working with them, drawing on its long experience, to help more Americans realize the American dream of owning their own home.

In addition to promoting homeownership, FHA provides mortgage insurance for multifamily housing, supporting the construction of new apartment projects and the refinancing of older ones. FHA multifamily insurance serves an important public purpose - most of the projects that FHA insures are affordable to families in the lower half of the income distribution, and almost half are in underserved areas. These families, and these communities, need FHA.

FHA also insures a large portfolio of assisted rental housing projects for lower-income families. It insures hospitals and nursing homes. It insures home improvement loans. These are important programs also.

During his confirmation hearing, Secretary Martinez stated that his first priority will be for HUD to continue to put its own house in order, building on the work of Secretaries Kemp, Cisneros, and Cuomo, and addressing the institutional weaknesses identified by GAO and the HUD Inspector General. He mentioned specifically some of FHA’s programs. If confirmed, I plan to work with these experts and with the senior management at HUD to remedy these problems. It is my intention to make all of FHA’s programs work as well as possible, serving the public purposes for which they were created.

Mr. Chairman, I know the issues and the problems of HUD from experience. I have served at HUD in three previous administrations. From 1989 to 1993 I was Assistant Secretary for Policy Development and Research for Secretary Jack Kemp in the administration of President George Bush. I was Deputy Assistant Secretary for Economic Affairs (Chief Economist) from 1975 to 1977 with Secretary Carla Hills in the administration of President Gerald Ford. Before that, I spent one year (1973-1974) as a division director. I have also served as Associate Director for Economic Policy (Chief Economist) at the U.S. Office of Management and Budget, from 1987 to 1989.

As Assistant Secretary for Policy Development and Research, I was active in addressing several major policy issues that concerned FHA. These included reform of FHA home mortgage insurance, regulation of real estate settlement practices, and environmental issues in housing. In addition, I directed the Secretary's Advisory Commission on Regulatory Barriers to Affordable Housing. I also worked on some of HUD’s major management challenges of that time.

Since 1993, I have been Director of Urban Policy Studies at the Hudson Institute. I was the project director for Hudson’s Michigan Urban Policy Initiative, designing a state urban homeownership strategy and developing a reform of the state’s property tax reversion process. After two years of work, all our proposals were passed with overwhelming bipartisan support in the state legislature and signed into law by the Governor in July 1999. I have also held the F.K. Weyerhaeuser Chair at the American Enterprise Institute, and I was Director of the Housing Markets Program at the Urban Institute. Before coming to Washington, I was a professor of economics at The Ohio State University for ten years.

Last September I was very pleased to be appointed by the Congress to the Millennial Housing Commission. I have also served on the Committee on Urban Policy of the National Academy of Sciences, and the Advisory Committee on Population Statistics of the U.S. Census Bureau, and I have worked on three other national housing commissions. All of this experience will be helpful at FHA.

Mr. Chairman, as I have talked with members of this Committee in the last few days, several have asked me about my views on FHA programs. They have referred to testimony that I’ve given and some of my publications during 1995 and 1996. I would like to take this opportunity to make my views clear, and place my testimony in the context of the policy discussions of the time.

In 1995, the Clinton Administration published a "Reinvention Blueprint" calling for drastic change in nearly all of HUD’s programs. (For example, it proposed to voucher out public housing.) At the same time, there were numerous proposals from Republican members of Congress to abolish HUD, among them: a group of freshmen Congressmen; Sen. Faircloth, who was chairman of the HUD Oversight subcommittee of this Committee; and Sen. Dole, the majority leader and leading Presidential candidate. Rep. Lazio, chairman of the Housing Subcommittee in the House of Representatives, developed legislation to repeal the National Housing Act and he carried it through the House and into conference. In 1996, the Republican platform included a plank to abolish HUD.

I was asked to testify and speak on these proposals, and I kept telling my fellow Republicans that they should not abolish HUD. HUD served - and serves - important public purposes, public purposes that are supported by both Republicans and Democrats, and it serves those purposes reasonably well. Rather than abolish HUD, I pointed out the parts of HUD that did not work very well, and suggested that Congress should fix them, or make sure they were better managed, or abolish them if they chose. But they should not abolish HUD.

At a hearing before two subcommittees of this Committee in March 1995, Sen. Faircloth asked me, "Do you think we should abolish HUD?" and I responded, "No, Senator, I don’t." I said further, "I would leave the things that HUD does now with HUD doing them."

I was almost the only Republican interested in housing policy who didn’t want to abolish HUD.

At the same time, President Clinton’s Reinvention Blueprint proposed drastic changes in FHA’s single-family mortgage insurance program, while leaving multifamily insurance unchanged. I thought that was the wrong approach. Home mortgage insurance worked well; it served a market that was not being served in the private sector; and it did so while covering its cost and building reserves. The multifamily programs presented the most serious management challenges in HUD. Both Commissioner Retsinas and the IG were talking about the problems in strong terms, and HUD was estimating that FHA would lose about 20 cents on the dollar for its entire multifamily portfolio. The Reinvention Blueprint had things backwards.

Now, five and six years later, nobody in either party is proposing to abolish HUD or terminate any of its major programs. Certainly neither President Bush or Secretary Martinez has offered such proposals. The Republican Party is much closer to the position I took in 1995 than it was back then. But of course what I wrote at that time is still in print, or available through the internet, without the policy context in which I was writing.

Mr. Chairman, I have been concerned with housing and urban policy all my professional life, since my years as a graduate student in economics at the University of Chicago. Most of my fellow students chose to specialize in public finance, or money and banking, or labor economics; quite a few became agricultural economists. I thought about some of those fields. But I felt that the cities presented the most urgent economic policy problems in America, and indeed the University and the city threatened to be overwhelmed by them. Starting with my doctoral dissertation, I have devoted my career to housing and urban issues, and I’ve never regretted it. The Federal Government has had two major housing policy objectives for many years: helping families become homeowners, and making sure that everyone lives in decent housing. Those are very important public purposes; they are FHA’s basic missions; and I support them wholeheartedly, as I have throughout my career.

Mr. Chairman and members of this Committee, the office of Assistant Secretary for Housing is a high honor, a great responsibility, and a tremendous challenge. Both President Bush and Secretary Martinez have stated a strong commitment to working on a bipartisan basis to address our urban problems. If I am confirmed, I pledge to work with Congress, with both houses and both parties. Working together, we can achieve the goals of housing policy, and I will certainly do my part.

Thank you for the opportunity to appear before you this morning.

 

 
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