[Senate Hearing 113-470]
[From the U.S. Government Publishing Office]
S. Hrg. 113-470
NOMINATIONS OF: JULIAN CASTRO AND LAURA S. WERTHEIMER
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
Julian Castro, to be Secretary, Department of Housing and Urban
Development
__________
Laura S. Wertheimer, to be Inspector General, Federal Housing Finance
Agency
__________
JUNE 17, 2014
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.fdsys.gov /
______
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon MARK KIRK, Illinois
KAY HAGAN, North Carolina JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota
Charles Yi, Staff Director
Gregg Richard, Republican Staff Director
Laura Swanson, Deputy Staff Director
Brian Filipowich, Professional Staff Member
Erin Barry Fuher, Professional Staff Member
Beth Cooper, Professional Staff Member
Greg Dean, Republican Chief Counsel
Chad Davis, Republican Professional Staff Member
Dawn Ratliff, Chief Clerk
Taylor Reed, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, JUNE 17, 2014
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Crapo................................................ 2
WITNESSES
John Cornyn, a United States Senator from the State of Texas..... 3
NOMINEES
Julian Castro, of Texas, to be Secretary, Department of Housing
and Urban Development.......................................... 4
Prepared statement........................................... 22
Biographical sketch of nominee............................... 24
Responses to written questions of:
Senator Crapo............................................ 45
Senator Hagan............................................ 49
Senator Warren........................................... 50
Senator Coburn........................................... 51
Laura S. Wertheimer, of the District of Columbia, to be
Inspector General, Federal Housing Finance Agency.............. 6
Prepared statement........................................... 34
Biographical sketch of nominee............................... 35
Response to written questions of:
Senator Crapo............................................ 54
NOMINATIONS OF:
JULIAN CASTRO, OF TEXAS,
TO BE SECRETARY,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;
LAURA S. WERTHEIMER, OF THE DISTRICT OF COLUMBIA,
TO BE INSPECTOR GENERAL,
FEDERAL HOUSING FINANCE AGENCY
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TUESDAY, JUNE 17, 2014
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:05 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. I call this hearing to order.
Today, we consider the nominations of Mayor Julian Castro,
to be Secretary of the Department of Housing and Urban
Development, and Ms. Laura Wertheimer, to be Inspector General
of the Federal Housing Finance Agency.
As Mayor of San Antonio, Mayor Castro has been on the front
lines of helping his community reach its housing and economic
development goals. In his tenure as Mayor, he has focused on
attracting well-paying jobs and 21st century industries,
raising the educational attainment, and revitalizing the city's
urban core. The Department of Housing and Urban Development is
a critical partner in these efforts nationwide. Mayor Castro
will bring both direct experience with and appreciation of the
important role that HUD programs play for families,
communities, and taxpayers to the role of HUD Secretary.
Ms. Wertheimer is a partner in the Securities Department of
Wilmer, Cutler, Pickering, Hale and Dorr. To the position of
Inspector General, she brings her experience serving on audit
committees and evaluating procedures and compliance standards
for financial institutions. It is essential that FHFA have an
IG providing strong oversight of the FHFA's work relating to
conservatorship of Fannie Mae and Freddie Mac. The IG also has
an important role monitoring the FHFA's oversight of the
Federal Home Loan Banks. Ms. Wertheimer will bring extensive
experience to the position of Inspector General to ensure that
FHFA is fulfilling its mandates set forth by Congress.
I now turn to Ranking Member Crapo for his opening
statement.
STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. Thank you, Mr. Chairman.
Before us today are two nominees to two very important
positions, Mayor Julian Castro to be Secretary of Housing and
Urban Development and Ms. Laura Wertheimer to be the Inspector
General of the Federal Housing Finance Agency. Both positions
will have strong impact on housing and housing finance in this
country and I look forward to learning what the nominees will
bring to each of these issues.
Mayor Castro, two of the critical issues that this
Committee has spent extensive time addressing in this Congress
are among those I want to bring to your attention today, the
future of housing finance reform and the fiscal solvency of the
Federal Housing Administration. We need to know what your
approach will be on both of these issues and whether you will
be advocating on behalf of them.
Within the debate of housing finance reform, current HUD
Secretary Shaun Donovan has worked very actively with this
Committee to develop and advocate for S. 1217, which recently
passed this Committee with a bipartisan majority. We must
continue to move forward on housing finance reform, especially
as we approach the sixth anniversary of Fannie Mae and Freddie
Mac being put into conservatorship.
The Committee has also passed bipartisan legislation to
address the current capital deficiencies in the FHA's Insurance
Fund. In this matter, it would be important to hear from Mayor
Castro that he is 100 percent committed to getting the capital
levels to their required levels and as soon as possible.
Ms. Wertheimer faces a different, but equally challenging
task if she is confirmed to be the Inspector General of the
FHFA. Fannie Mae and Freddie Mac represent $5 trillion in
taxpayer exposure. The FHFA not only oversees those companies,
but is also responsible for regulating the Federal Home Loan
Banks and the very different business models that they
represent.
Further, due to the conservatorship of Fannie Mae and
Freddie Mac, the Director of FHFA simultaneously acts as
regulator, executive, and shareholder of those companies. All
of this means that the FHFA Inspector General has a very unique
oversight responsibility as compared to an IG who is not
operating under those circumstances. Ms. Wertheimer has the
opportunity today to inform us as to how she will handle these
exceptional challenges.
I look forward to hearing from each of our nominees on
these important issues and more.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Crapo.
There is an 11 o'clock floor vote scheduled, so to allow
sufficient time for questions, Senator Crapo and I have agreed
to limit opening statements to the Chair and the Ranking
Member. All Senators are welcome to submit an opening statement
for the record.
Senator Cornyn will now introduce Mayor Castro. Senator
Cornyn.
STATEMENT OF JOHN CORNYN, A UNITED STATES SENATOR FROM THE
STATE OF TEXAS
Senator Cornyn. Thank you, Mr. Chairman and Ranking Member
Senator Crapo and Members of the Committee.
I do not often darken the door of the Banking Committee,
but it is my pleasure to be here with you today to introduce a
fellow San Antonian and Texan, Mayor Julian Castro. He has told
me that he is glad to be here and looks forward to your
questions, but he especially looks forward to being back in San
Antonio to help celebrate the victory of the San Antonio Spurs,
which that celebration is still going on and will for a long
time.
[Laughter.]
Senator Cornyn. And, I know he will take the opportunity to
introduce his wife, Erica, and I understand his brother,
Joaquin Castro, a member of the U.S. Congress, is en route, and
I hope he will have an opportunity to do that.
But, my comments are that Mayor Castro has taken quite a
road to get to where he is today, one that is uniquely Texan
and, I would say, uniquely American. I know you will hear more
about his biography, which is compelling. But, I will point out
that Julian and his brother were raised by a single mom in San
Antonio's West Side. Both graduated from Thomas Jefferson High
School. Then, he went to Stanford and to Harvard Law School,
quite an impressive accomplishment.
When he returned to his hometown at age 26, he became the
youngest member ever to be elected to serve on the San Antonio
City Council, and then one of the youngest mayors in the
country. I know many Texans are reassured by Mayor Castro's
example that the American dream is still very much alive.
I know, if confirmed, he will have a lot of tough things to
do. Senator Crapo mentioned some of those. As Members of the
Committee know, HUD faces a number of challenges. Last year,
for the first time, the Federal Housing Administration received
a $1.7 billion infusion of taxpayer cash to cover a shortfall
in its insurance fund brought about by many of the loans that
it backed that went South. HUD also continues to struggle with
its performance and oversight challenges, as identified by the
Inspector General. And, as we have seen with the recent scandal
at the Veterans Administration, the American people need
leaders who will hold folks accountable and restore
transparency to Government.
And, while the issue does not fall squarely within HUD's
jurisdiction, I also look forward to learning more about the
Mayor's views on the future role of Freddie and Fannie, which I
believe Senator Crapo alluded to, because we know that Federal
housing policy is not sustainable.
Mr. Chairman, after meeting with Mayor Castro, I am
encouraged that he would employ the same energetic vision that
has characterized his tenure leading Texas' second largest
city, and I look forward to hearing how he would approach some
of the specific challenges I have identified and those that
will be identified by the Committee.
And, I want to thank you and the Members of the Committee
for the opportunity to introduce the Mayor and to address you
today. Thank you.
Chairman Johnson. Thank you, Senator Cornyn. Please feel
free to excuse yourself at your convenience.
I will now introduce Ms. Wertheimer. In addition to being a
partner in the Securities Department of Wilmer, Cutler,
Pickering, Hale and Dorr, Ms. Wertheimer is a member of the
firm's Securities Litigation and Enforcement Practice Group.
She has advised clients in securities law enforcement
investigations, regulatory and criminal nonpublic inquiries,
and cross-border regulatory proceedings. From 1981 to 1983, she
was a law clerk for Chief Judge Spottswood Robinson of the U.S.
Court of Appeals for the D.C. Circuit. She received her B.A.
from Yale College and a J.D. from Columbia University School of
Law.
We will now swear in the nominees. Please rise and raise
your right hand.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Castro. I do.
Ms. Wertheimer. I do.
Chairman Johnson. Do you agree to appear and testify before
any duly constituted Committee of the Senate?
Mr. Castro. I do.
Ms. Wertheimer. I will.
Chairman Johnson. Please be seated.
Each of your written statements will be made part of the
record. Before you begin your statement, I invite each of you
to introduce your family and friends in attendance.
Mayor Castro, please proceed.
STATEMENT OF JULIAN CASTRO, OF TEXAS, TO BE SECRETARY,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Castro. Thank you very much, Chairman Johnson and
Ranking Member Crapo and Members of the Committee for welcoming
me today. I am very fortunate to be here today with my wife,
Erica, and I know that my brother, Joaquin, is, I think, on his
way. You will have to forgive him. He was the second-born twin,
so sometimes he is late.
[Laughter.]
Mr. Castro. I am also very fortunate to be here with some
of the HUD staff that has helped with briefings and so forth,
very appreciative of their work. Thank you very much for having
me, and I look forward to the hearing.
Chairman Johnson. Please proceed, Mayor Castro.
Mr. Castro. OK. Thank you, Chairman Johnson, Ranking Member
Crapo, and Members of the Committee for welcoming me here
today. I am deeply honored to appear before you as President
Obama's nominee for Secretary of Housing and Urban Development.
I want to thank President Obama for his confidence in me.
Allow me also to thank Senator Cornyn. He is a dedicated
public servant, a distinguished Senator from Texas who also
happens to hail from the great city of San Antonio, and I am
incredibly grateful for his support and his generous
introduction.
And, as I mentioned, I want to express my gratitude to my
family and friends, and especially to my wife, Erica, and to my
brother, Joaquin, both of whom join me today. Without their
support, I simply would not be here in front of you.
Finally, I want to commend this Committee, which has a
well-earned reputation for working in a bipartisan fashion on
behalf of the American people. It has been a pleasure to meet
with you and your staff throughout this process. If confirmed,
I look forward to our continued engagement to advance issues
critical to our Nation's future.
Mr. Chairman, I appear before you today with more than just
professional experience in dealing with housing and urban
development. I also bring my own personal experience. I grew up
on the West Side of San Antonio in a neighborhood of hard-
working families of very modest means. My father at two
different times in his life lived in public housing. My mother
worked for the San Antonio Housing Authority. And, I have seen
with my own eyes how talented and driven Americans who just
want a fair shot are weighed down by the conditions in which
they live, and this simply is not right. All Americans deserve
the same opportunities that I had, and I have dedicated my
career to giving back to the country that has given so much to
me.
As Mayor, I made it my mission to help create a vibrant,
economically prosperous urban core that expands housing
opportunities for all San Antonians. In 2010, we launched the
Decade of Downtown, an initiative to spark investment in our
center city and older neighborhoods. This effort has attracted
$350 million in private sector investment, which will produce
more than 2,400 housing units by the end of 2014.
Looking ahead, during my recent visits with Committee
Members, many of you asked about my priorities, if I am
confirmed. Allow me to share two of them with you.
First, I am a strong believer in cross-agency
collaboration. San Antonio's East Side is the only neighborhood
in America to receive a Promise Neighborhoods Grant, a Choice
Neighborhoods Grant, a Byrne Criminal Justice Program Grant,
and a Promise Zone designation. We accomplished this by getting
beyond the silos and working across agencies to improve
housing, educational achievement, and overall quality of life.
This is the kind of collaborative approach I would like to
enhance at HUD.
Second, as a local elected official, I am also keenly aware
of the value of measuring results. In San Antonio, we initiated
a process of unprecedented public engagement and accountability
called SA 2020. Through a series of community meetings,
residents spoke clearly about what kind of city they want it to
be in 2020. But, we did not just set a vision. We set precise
numeric goals for achieving our vision. We promised the
community that we would come back every year and report back on
how we were doing, good or bad. With the help of the State
Demographer, we developed a public report card, available for
anyone to see on SA2020.org, to give San Antonians a real-time
snapshot of how we are doing.
Similarly, I would like HUD to focus on outcomes, not only
inputs. We should not just track projects and dollars spent. We
must measure those investments by the impact they make.
Secretary Donovan has built a strong foundation for this, and,
if confirmed, I will work hard to make this the norm at HUD.
HUD's role is one of the most critical in Government
because it directly impacts American families. From enforcing
Fair Housing rights to revitalizing distressed areas, from
assisting veterans in finding permanent housing to helping
communities rebuild after a natural disaster hits, the
Department is making an impact in small towns, big cities,
rural communities, and Tribal communities across the country.
The 21st century is shaping up to be the Century of Cities,
and I believe there is a reason for that. In America's local
communities, partnerships and pragmatism are the key drivers to
success. That perspective has guided my efforts. If confirmed,
I look forward to working with you to strengthen opportunity
for Americans through HUD's efforts.
Once again, thank you, Chairman Johnson, Ranking Member
Crapo, and Members of the Committee for your consideration to
my nomination. It is an honor to appear before you and I look
forward to answering any questions.
Chairman Johnson. Thank you.
Ms. Wertheimer, please proceed.
STATEMENT OF LAURA S. WERTHEIMER, OF THE DISTRICT OF COLUMBIA,
TO BE INSPECTOR GENERAL, FEDERAL HOUSING FINANCE AGENCY
Ms. Wertheimer. Chairman Johnson, Ranking Member Crapo,
Members of the Committee, thank you very much for the
opportunity to appear before you today.
I am honored to be President Obama's nominee for Inspector
General of the Federal Housing Finance Agency, and before I
begin, I would like to introduce my family who has accompanied
here today, my husband, Andy Pincus, our daughter, Kate Pincus,
my steadfast mother, Sidelle Wertheimer, my in-laws, Walter and
Ann Pincus. And, with that, let me get to the meat of what I
would like to say in my statement.
The FHFA plays a crucial role in our financial system as
the safety and soundness regulator of Fannie Mae, Freddie Mac,
and the 12 Regional Federal Home Loan Banks to ensure they
operate in a safe and sound measure [sic] and serve as a
reliable source of liquidity and funding for housing. And, as
Senator Crapo mentioned, since September 2008, almost 6 years
now, the agency has acted as conservator for Fannie Mae and
Freddie Mac to protect and conserve the assets and property of
those enterprises and protect the taxpayers' investment, which
is currently $187.5 billion. Currently, Fannie Mae and Freddie
Mac guarantee more than $5 trillion in mortgages in this
country, three out of every four.
Congress mandated strong, independent oversight of agency
programs and operations by the FHFA OIG to safeguard taxpayer
dollars. To carry out this oversight, the OIG conducts and
coordinates audits and evaluations of agency activities and
investigations of the agency and its regulated entities.
Much of my professional career has focused on leading
investigations into alleged wrongdoing and counseling clients
on improvements to internal controls and processes to prevent
and detect violations of law. I have deep experience running
independent investigations for audit committees and committees
of independent directors of public companies. These
investigations have looked into a wide range of areas:
financial statement reporting and disclosure errors; alleged
accounting irregularities; misconduct by corporate officers and
employees; possible improper payments to foreign government
officials; whistleblower claims; and other significant issues
identified by a host of stakeholders.
In each of these investigations, we followed the facts
wherever they led, without fear or favor. We developed remedial
measures tailored to the facts found. We monitored
implementation of that remediation. A number of these
investigations, led to dismissal or resignation of high-level
company employees and adoption of significant new policies and
internal controls.
If confirmed as FHFA Inspector General, I will exercise my
duties aggressively, independently, and fearlessly. I have a
deep appreciation of the critical importance of conducting
rigorous, fair, and thorough audits, evaluations, and
investigations, of communicating the results to stakeholders
clearly, and holding individuals accountable for their actions.
I pledge to be responsive to this Committee and to Congress as
a whole, and to develop a good working relationship with the
FHFA Director.
After more than 30 years in the private sector, I am
honored to have this opportunity for public service. My father
was a first-generation immigrant who came to this country with
his parents in 1938. They escaped with the clothes on their
backs and they spoke only German.
My grandparents had to reinvent themselves in this strange
new environment. My grandmother found work as a domestic house
cleaner, and my grandfather was employed to scrub out cocoa
barrels on the New York docks. Together, they earned enough to
rent an apartment in Kew Gardens, a community populated with
German and Austrian refugees. My father enrolled in New York
City Public Schools, learned to speak unaccented English, and
graduated as valedictorian of his high school class. America
has given so much to me and to my family. I am eager to give
something back to America.
Thank you and the Committee for your consideration of my
nomination. I look forward to answering your questions.
Chairman Johnson. Thank you for your testimony.
If any Members have written questions for the record for
the nominees, I ask that you please submit them by noon this
Friday, June 20. I also ask that the nominees respond to the
written questions quickly so that we can move the nominations
forward.
We will now begin asking questions of our witnesses. Will
the Clerk please put 5 minutes on the clock for each Member.
Mayor Castro, in your opening statement, you mentioned some
of your priorities, if confirmed. Would your priorities also
include working to address the vast housing needs in Indian
Country and engage in consultation with Tribes?
Mr. Castro. Thank you very much for the question, Chairman
Johnson, and I appreciate your very strong advocacy for our
Tribal communities. Absolutely, I am committed to ensuring that
we work closely with our Tribal communities. I look forward to,
at HUD, being focused on that.
I fully understand--and that in--my experience is as a big
city mayor. However, that as part of HUD's mission, we do not
just serve big cities or urban areas. We also serve rural
communities, small towns, and our Tribal communities. I look
forward, if I am confirmed, to working with you and with your
staff and other Committee Members as the NAHASDA
reauthorization, perhaps, moves forward, and on issues related
to our Nation's Tribal communities.
Chairman Johnson. I have been handed a note that
Representative Joaquin Castro is here.
Mayor Castro, a 2012 HUD IG report found that San Antonio
had not administered a 2008 Neighborhood Stabilization Program
Grant in accordance with program rules. Can you tell me what
happened with that grant and how the city addressed this issue
and what your involvement was as Mayor?
Mr. Castro. Yes. Thank you very much for the question,
Chairman Johnson. The HUD IG did issue preliminary findings
with respect to the Neighborhood Stabilization Program and the
city of San Antonio. After consulting with city of San Antonio
staff, the city of San Antonio staff provided back-up
documentation to clarify those preliminary findings. At the end
of the day, about $125,000 was paid back with non-Federal
funds, city of San Antonio funds, as soon as the Council and I
learned about that issue. We were supportive of corrective
measures that were put in place. There was an NSP checklist,
for instance, that was created. Compliance was strengthened.
Personnel were removed who had had authority over that program.
And, I look forward, if I am confirmed, to ensuring that we are
vigilant with our grantees with the NSP program and other
programs, as well.
Chairman Johnson. Ms. Wertheimer, we have discussed the
steps you plan to take, if confirmed, to address potential
conflicts of interest relating to your past work on behalf of
clients as well as potential conflicts with respect to your
husband's work. Can you please describe these steps to the
Committee?
Ms. Wertheimer. Absolutely. Thank you, Senator. When the
President--when I was advised the President sought to nominate
me, I appreciated the need to get ahead of potential conflicts
of interest, and so I spoke at length with the designated
Ethics Officer of the Federal Housing Finance Agency and
explained my strong interest in avoiding either actual or
perceived conflicts of interest, or even the appearance of a
conflict.
And so to that end, the designated Ethics Officer of the
agency, in consultation with the Office of Government Ethics
and I, agreed that I would recuse myself entirely from any
matter in which my law firm, Wilmer, Cutler, Pickering, Hale
and Dorr, appears before the agency or before the FHFA OIG, so,
not just limited to OIG matters, and that I would also recuse
myself from matters in which my husband's law firm, Mayer,
Brown and Platt, appeared before the FHFA or the FHFA OIG, so
that there was no appearance issue with respect to my husband's
law firm.
In addition, I agreed to refrain, or to recuse myself
entirely from any matter in which clients of mine with whom I
had worked on matters, if they were represented by another law
firm, for example, if they were to appear before the FHFA or
FHFA OIG, even on matters unrelated to matters I had advised
them on, that I would recuse myself for a period of, I believe
it is 2 years.
And, last, there are several items in our portfolio that,
because of potential appearance of impropriety issues, we
agreed to divest within 60 days of my nomination--of my
appointment, if that is to occur.
Chairman Johnson. Senator Crapo.
Senator Crapo. Thank you, Mr. Chairman.
Mayor Castro, the FHA Insurance Fund has been
undercapitalized since 2009. At the end of fiscal year 2013,
FHA announced that it would need $1.7 billion from Treasury to
cover an increase in anticipated costs of loan guarantees. This
marked the first time that the FHA needed funds from Treasury
to cover an increase in expected future losses in its single-
family mortgage program.
Last year, this Committee moved legislation, the FHA
Solvency Act, with strong bipartisan support, to get the FHA
back on stable financial footing. If confirmed, will you commit
to help us move this piece of legislation and to move the FHA
toward solvency?
Mr. Castro. Thank you very much for the question, Ranking
Member Crapo, and I want to commend you and the Committee for,
as you said, very strong bipartisan work on the FHA Solvency
Act. I am committed to helping to ensure that, if I am
confirmed, that the FHA is on a good track and to support
legislative efforts to that effect. It is my understanding that
the independent actuary has said, at least for fiscal year
2015, that the FHA is on a stronger track, that it will not
need another draw. But, I, if I am confirmed at HUD, I look
forward to working with you and to the Committee to support
legislative efforts, as well.
Senator Crapo. Thank you very much, and that is good news
to hear.
Will you assure us that the FHA will not do anything to
reduce its incoming capital before it has met its statutory
obligations?
Mr. Castro. Thank you for the question. Of course, I am
hesitant to commit to things specifically, not having been at
HUD and seen all of the details. However, I will say that I
share with you a commitment to ensuring that the FHA has a
positive capital reserve ratio, that it is on the right track,
and that it does not need another mandatory appropriation.
Senator Crapo. Well, I thank you for your attention to
that.
Second, to change issues quickly, as we did when we met
privately, I want to discuss with you the housing finance
reform legislation that this Committee has put forward.
Secretary Donovan has worked very closely with this Committee
in helping to develop this legislation and negotiating and
advocating for its passage. If confirmed, will you commit to
helping the Committee to move this important piece of
legislation so that we can get our financial housing market
back on track for long-term stability?
Mr. Castro. Senator, you and Chairman Johnson, Committee
Members, are to be commended for the work that you have done on
this issue, and I share your goals of ensuring that we have a
housing finance system that both protects the taxpayers in a
stronger way than we have had in place and also balances access
to credit for folks of modest means who are creditworthy. And,
so, I look forward, if I am confirmed, to being an active
participant as the Committee and as the Senate continues to
work on this issue, this legislation. Absolutely.
Senator Crapo. Thank you. Do you believe there are any
negative consequences to our inaction on reforming Fannie and
Freddie and resolving the conservatorship, and if so, what are
they?
Mr. Castro. Well, I do believe that the status quo is not
in the best interest of Americans. I believe that if we can
resolve these issues that I know the Committee is still very
much discussing, even though this has made it out of Committee,
that it would be preferable for the taxpayers not to be in the
position of first loss and that the current conservatorship of
Fannie and Freddie is not sustainable for the long term. I know
that there is litigation already that has arisen, for instance,
out of this, and so there have been some negative consequences.
I will say, finally, that I know it is a balancing act,
that there are concerns in terms of access to credit. And,
having represented San Antonio and seen these issues on the
ground level, I can understand those concerns, and if I am
confirmed, I would look forward to being an active participant
in trying to come to a resolution on that.
Senator Crapo. Thank you.
Ms. Wertheimer, I am about out of time, and so I am going
to have to submit most of my questions to you, and some
additional ones to Mayor Castro in writing after the hearing,
but one quick question to you that I do want to ask is another
unique situation for the FHFA IG is the fact that the Treasury
Department is a party a preferred stock purchase agreement
which set the conservatorship terms for funding and repayment
for Fannie and Freddie. How do you envision the FHFA IG
interacting with Treasury or the Treasury IG to ensure adequate
oversight given this unique situation?
Ms. Wertheimer. Senator Crapo, my--the predecessor in this
position, Mr. Linick, devoted a significant effort to
developing collaborative working relationships with IGs in
other agencies, including the Treasury Department, and the IGs,
through cross-agency work, worked extremely effectively in
oversight responsibilities where there was shared oversight.
And, I would envision continuing that cross-agency
collaboration with IGs in Treasury as well as with IGs in other
agencies and with U.S. Attorneys across the country. That is
the way we are going to get this job done, because there is
cross-agency responsibility for enforcement of the laws.
Senator Crapo. Thank you.
Chairman Johnson. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman, and
welcome, Mayor Castro and Ms. Wertheimer.
Mayor, can you share or elaborate on your vision of housing
and urban development, particularly based on your experience as
Mayor of San Antonio.
Mr. Castro. Thank you for that question, Senator Reed.
Well, as a local elected official, of course, my viewpoint on
this was from the other end----
Senator Reed. Mm-hmm.
Mr. Castro.----working at the ground level, and what I have
found absolutely essential to ensuring that folks have good
opportunity by what HUD does is to work across agencies. That
is what we did in San Antonio. Very early on in my tenure, we
got together our Housing Authority with our Transit Agency, one
of our urban core school districts, one of our universities,
the United Way, to figure out how we could make better use of
resources and understanding from being at that local level that
housing is an important component of overall quality of life
and providing opportunity, but it is not the only component.
When we tackle these issues in a more holistic way, along with
education, along with transit, I believe it has a bigger
impact, and I will be looking for opportunities to do that.
Second, one of my significant take-aways from my experience
in San Antonio as it relates to housing is that we need to
measure the outcomes. We set a goal early on, for instance, in
San Antonio, of trying to create 5,000 housing units in our
downtown by the year 2020, and later, we increased that to
7,500. It has been my professional experience that when you set
a goal and when you are measuring results, you are much more
likely to stay on track to try and achieve that.
And then, finally, I see out there the urgency for more
affordable housing opportunities in our urban community in San
Antonio, but throughout the Nation, and I would work very hard,
if I am confirmed, to do what we can to create those
opportunities.
Senator Reed. Well, thank you, Mayor.
Shifting to another issue that is going to be vitally
important, and that is the Administration's commitment to end
veterans' homelessness by 2015, and we are close in some parts
of the country. In Rhode Island, we think we have approximately
97 homeless veterans at this time. We want it to be zero. But,
can you tell us, what are your plans to help States,
particularly Rhode Island, to reach this goal of no veterans'
homelessness?
Mr. Castro. And, I commend you for the work that you and
Members of the Committee have done. This, I believe, is a real
bright spot for your work, for the Administration's work, and
for the work of Secretary Donovan, and a very laudable goal, to
effectively eliminate veterans' homelessness by the end of
2015. One of the primary ways that we have supported that--that
HUD has supported that is through the VASH Program vouchers in
close collaboration with the VA to help ensure that homeless
veterans have the opportunity to get housing in local
communities.
And, if I am confirmed, I look forward to bringing a ton of
energy to be supportive of that and to meet that goal. I know
how important this is that we make right by our veterans, and
HUD, if I am confirmed, will be a key, key driver of that.
Senator Reed. Well, thank you very much, Mayor.
Ms. Wertheimer, you have an incredible record and your
career has been distinguished by great intelligence, great
integrity. And, I was impressed with your response to Senator
Johnson's, the Chairman's question about maintaining the
appearance as well as the reality of independence. And, all I
want to say is that this is going to be a continuous effort on
your part, because, as you pointed out so succinctly, you know,
many times, you will have firms that you have worked with on
the other side of the table, clients on the other side of the
table. But, I just want to, again, emphasize the notion of not
just the reality, because I have no doubt you are going to be
scrupulous in your conduct, but the perception that there are
conflicts. And, let me just reinforce that point again, if I
may.
Ms. Wertheimer. Thank you, Senator. I agree with you. I
think an independent IG is only as credible as the, not only
the actual independence, but the perceived independence. So, it
is critical to me that this office, if I am confirmed, maintain
both actual and avoid any appearance of lack of independence.
Senator Reed. Thank you very much. Thank you, Mr. Chairman.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Mayor Castro, for years, I believe the problems of the FHFA
have been well known by this Committee and probably a lot of
other people. During the housing boom, the FHA, unwisely, I
believe, guaranteed a lot of risky mortgages with low
downpayments to borrowers. They were not the only ones. These
mortgages have resulted in billions of dollars of losses to the
taxpayer.
In the interests of a stable and a fortified housing
market, could you speak to your perspective, if you have one
yet, of the reserve ratio of the Mutual Mortgage Insurance
Fund, what it should be, and what about the minimum downpayment
levels. Do you have a perspective on that?
Mr. Castro. Thank you very much for the question, Senator,
and I want to commend you for your work over the years on this
issue. Of course, the health of the FHA has been the subject, I
know, of tremendous scrutiny and debate. I believe that there
can be action taken to ensure that the FHA stays on a positive
track.
Senator Shelby. Mm-hmm.
Mr. Castro. My understanding, my preliminary understanding
is that it is on a much more positive track now than it had
been. Of course, the Reverse Mortgage Program and also some
loans from the 2007 to 2009 time period were problematic. As
you have mentioned and other Committee Members have mentioned,
this was an unprecedented event, for it to need a mandatory
appropriation. So, I believe that as we move forward, that
there is reason to believe--to have more confidence in the FHA.
I am also aware, on the other end, that the credit quality of
borrowers for the FHA is stronger than it ever has been, with a
FICO score of just under 700.
And, so, my perspective, whether it relates to the
requirements for downpayments or other measures, is that we
achieve this balance to stay within the mission of the FHA, the
historic mission, to ensure that first-time home buyers, that
folks of modest means who are creditworthy, that they have the
opportunity to reach the American dream of home ownership, but
at the same time, that we have policies in place that ensure
that what happened a couple years ago does not happen again.
Senator Shelby. I want to get into the Section 8 area. In
fiscal year 2014, which we are in now, funding for the Section
8 programs total nearly $29.1 billion of the $45.47 billion in
outlays for the Department of Housing and Urban Development. I
believe that is about 64 percent. That is a heavy outlay. Could
you talk about what, if any plans you have thought about as
policy to try to rein in spending for this program. We know
this is an important program for a lot of people, but I also
serve on the Appropriations Committee. We have to deal with
real numbers, too.
Mr. Castro. Well, thank you very much for that question. I
am fully aware that, as you say, the Section 8 program does
consume a tremendous amount of HUD's overall budget and that
rents rise every year, and so we face that continuing
challenge. I look forward to delving into more of the details
to look at what ways we can achieve some efficiencies and,
hopefully, streamline. I know that under Secretary Donovan's
leadership, HUD has looked at ways that it can be more nimble
and achieve cost savings. And, if I am confirmed, Senator, I
would look forward to visiting with you about this issue.
Senator Shelby. In the years leading up to the financial
crisis, FHA's mortgage insurance market share went from less
than 5 percent to more than 30 percent in 2008. Those were the
boom years. It continues to hover, I believe, at levels around
20 percent. What do you think of--have you thought about the
area of expanding the Private Mortgage Insurance sector and
ultimately moving toward a fully private sector mortgage
insurance market, or is that too far out for you?
Mr. Castro. Thank you for the question, Senator. Well, I
believe that the FHA does have an important role to play. Of
course, it played a countercyclical role during this downturn,
and as you mentioned, what we have seen is that as the housing
market has gotten stronger and we see more private capital in
the market, we have seen that market share go down.
Senator Shelby. OK.
Mr. Castro. And, so, I believe that there is a strong role
for the FHA, and if I am confirmed, I look forward to visiting
with you and the Committee as we set that.
Senator Shelby. Ms. Wertheimer, my time is running short--
it is out, I guess--but, I would like to ask you one or two
questions.
Chairman Johnson. Uh----
Senator Shelby. What is your view of the level of
independence needed between the IG and the Director of the FHFA
and his senior staff, and how important is it for the Inspector
General, which you have been nominated for, to not only have
adequate resources--you have got to have those--but also
unfettered access to all of FHFA's records and data?
Chairman Johnson. We will take this question, and then we
will move to Senator Menendez.
Senator Shelby. Go ahead. You can answer the question.
Ms. Wertheimer. Thank you, Senator. I think independence is
at the core of the IG mission. The--and, I have deep experience
leading independent investigations. I value the importance of a
working relationship with the FHFA Director, to report to him
on what has been found in a collegial manner. But, it is not a
collaborative relationship because the IG reports not only to
the Director, but to Congress, and, therefore, in terms of
reporting, what the IG has found, either in its evaluations or
its audits or its investigations, will be communicated
respectfully, but there will not be a collaboration on the
reporting--on how to formulate a report.
With respect to access, access is at the core of how the IG
can fulfill its mission. If there is not unfettered access to
the materials, the output will not be worth anything.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Mayor Castro, I must tell you, there are not too many
Castros I like----
[Laughter.]
Senator Menendez.----but, I do like you and the
Congressman, so I look forward to working with you as the----
Mr. Castro. Thank you.
Senator Menendez.----Subcommittee Chair on Housing.
You know, as you and I had an opportunity to discuss, New
Jersey faced the worst natural disaster in its history and
thousands of lives were affected, and many are still affected.
If confirmed, you would have an important role of administering
and overseeing approximately $15 billion in Community
Development Block Grant Disaster Relief funding that was
appropriated by the Sandy Emergency Relief Act, which I fought
to pass. I am glad to see that we have deviated from an
original attempt to spend $2 billion of that money on a
National Resiliency Competition. It is now to about a billion,
and New Jersey is going to be eligible for that competition,
which, originally, we were told we were not. So, we are moving
in the right direction.
But, there is a lot still to be done. Many people are
hurting in our State and in the region. So, I would like to
invite you to join me on a tour of New Jersey to see both the
work that has been done, but more importantly, see the work
that has not been done and that is left still to achieve a full
recovery and rebuild stronger. So, could I get your commitment
as you move upon confirmation to visit with us in New Jersey,
especially as the National Resiliency Competition is going to
take place, to inform you of what the challenges we have.
Mr. Castro. Thank you very much for that question, Senator
Menendez. I enjoyed our visit yesterday and want to commend
you, as well, for your very strong and effective advocacy for
folks who have been impacted by Superstorm Sandy. Of course, I
would appreciate the opportunity to understand these issues
even better by visiting New Jersey.
Senator Menendez. Now, the State has some very well
publicized issues with administering CDBG grants in this
context, particularly with contractors and the approval
process. As HUD awaits New Jersey's amended plan for the third
tranche of funding, will you commit to working with me and the
State to ensure proper contracting procedures are put into
place and that the housing application process is as efficient
as possible. All of these funds do nothing if, at the end of
the day, it does not make its way to affected people.
Mr. Castro. I agree with you, and as a local official, of
course, this has been my concern, ensuring that wherever
resources come from, whether local, State, or Federal, that the
rubber hits the road and that the lives that are meant to be
impacted positively are impacted. If confirmed, I certainly
will work with you to ensure that we do our best job on our--
that HUD does its best job on its end to ensure success.
Senator Menendez. You know, the Subcommittee held a hearing
on the Section 8 Rental Assistance Voucher reform, and it is an
issue of priority for our affordable housing advocates, public
housing authorities, affordable housing developers. According
to the National Low Income Housing Coalition, for example, in
my State of New Jersey alone, we have a shortfall of more than
200,000 units affordable and available for our most vulnerable,
extremely low-income households. And, nationally, the shortfall
is greater than seven million. So, voucher reform, while some
elements of this have been done by the Congress, there is still
much work left to be done. Do you consider Section 8 Voucher
reform legislation to be a priority, and will you work with us
to help move the remaining elements of reform?
Mr. Castro. I appreciate the question. I certainly do
understand the importance of looking at reform, and as was
mentioned earlier, the significance of this as a line item in
HUD's budget. Of course, I look forward to getting more up to
speed on all the details of what is being proposed. However, if
I am confirmed, I certainly will work with you and Members of
the Subcommittee and this Committee to do what we can.
Senator Menendez. I appreciate that. For me, it may be a
line item, but this is about millions of people's lives.
Mr. Castro. Certainly.
Senator Menendez. And, so, I may see it a little different
than some of my colleagues, at the end of the day. From whence
I came from and who I represent, I do not look simply at line
items. I look at the lives that are affected. And, I hope that
when you become HUD Secretary, you are going to look at the
lives that are affected, not simply the line items----
Mr. Castro. Of course, Senator, I certainly will. I have
done that throughout my time in public service, and as a local
official have been primarily concerned with how the residents
of my community are impacted by the actions that we take in
public service. So, I recognize that, overall, we want people
to have good housing opportunities, and if I am confirmed, look
forward to working with you on that.
Senator Menendez. I am sure you will. I just sometimes need
to be the countervailing force here on some other----
Chairman Johnson. Senator Corker.
Senator Corker. Thank you, Mr. Chairman, and I thank both
of you for your willingness to serve in this capacity. Mr.
Chairman, I am going to help get you back on schedule here and
be very brief.
To the Mayor, I know that as a former mayor, there is no
job that is more gratifying, personally, than being the mayor
of a city. As we change jobs, sometimes we have impact in
different ways that maybe are not quite as up close and
personal, but this certainly is a very important role. And,
part of what you will be doing, and you have discussed this
with Members as you have answered questions, you will be
involved in what happens with Freddie and Fannie. I mean, it
ultimately affects FHA. Obviously, people seek your guidance.
I know we had a conversation about this, and I am going to
ask most of my questions in writing so we can move along with
this hearing, but it is my understanding that you do believe
that the duopolistic nature of the way things are today with
two enterprises basically being it relative to the secondary
market, that you believe that that has no place in the American
society and you would work with us to end that type of
arrangement. I know that you were a little vague on support of
the bill, and you should be at this point, but relative to that
one point, it is my understanding you agree with that 100
percent.
Mr. Castro. Senator, thank you for the question and for the
visit that we had. I absolutely believe that there are better
alternatives than what we have in place with this duopoly, with
the conservatorship. I agree with you on that point. And, I
know, of course, as with any legislation, that the devil is in
the details and finding that common ground. If I am confirmed,
I look forward to being an active participant in that.
Senator Corker. Well, to both of you, we will have some
QFRs, and, Mr. Mayor, subject to those coming in appropriately,
I look forward to supporting you in this nomination. I thank
you both for your willingness to serve, and Mr. Chairman, I
will turn over the rest of my time----
Chairman Johnson. Thank you
Senator Corker.----and hopefully get some points for this.
Thank you.
[Laughter.]
Chairman Johnson. Senator Brown.
Senator Brown. You get points from Senator Tester for that,
since he can now ask questions.
[Laughter.]
Senator Brown. Thank you, Mr. Chairman.
Ms. Wertheimer, thank you for joining us, and Mayor Castro,
nice to see you.
Two local concerns I want to raise, just not as a question,
but to thank you for the discussion we had and what HUD has
been doing and what I assume from our conversation we will
continue. One involves the City Gospel Mission in Cincinnati,
which we discussed, a religiously affiliated men's homeless
shelter operating on HUD land. HUD has--the work that City
Gospel has done to provide emergency housing in a way that
meets HUD's Fair Housing expectations, obviously, are
important. I think we are close, but we are not there yet. But,
they serve an absolute critical need for homeless men in
Cincinnati without restricting access to service or employment
and I appreciate the work that you have done there and thanks
for your interest in moving that along.
Second was the issue of streamlining multi-family
operations. I understand 50 offices will be consolidated into
just 12. As of 2016, there will no longer be any multi-family
operations in many States, including Ohio, the seventh-biggest
State in the country. I support efforts to make HUD more
efficient. I share the concerns of Ohio's community leaders,
though, that eliminating on-the-ground supervision could lower
the quality of multi-family residences and reduce compliance.
Secretary Donovan was highly engaged. We had perhaps three,
maybe four conversations about it. My staff and his staff
worked assiduously on it. Since the plan was announced, your
predecessor committed to ensure the transition does not
negatively impact the millions of families it employs who are
affected by these local multi-family offices. So, taking care
of the service they provide and the workers that are employed
there, and I appreciate your commitment on that.
Now, let me ask one question. A year ago, HUD proposed
updates on a rule to ensure that recipients of HUD funds are
living up to their commitment to affirmatively further Fair
Housing goals. But, 9 months after comments were received, HUD
still has not received the proposed data tools that would be
included for public feedback, nor has it finalized the much-
needed changes it proposed last July. Just tell me, if you
would, tell the Committee what steps that you will take to make
sure that State and local recipients of HUD funds engage in
meaningful discussions about providing equal housing
opportunities for people in our country.
Mr. Castro. Thank you very much for the question, Senator
Brown, and for the visit that we had the other day. I, of
course, have not been part of the rulemaking process before
now. However, with regard to affirmatively furthering Fair
Housing, I do believe it is important that there be that kind
of guidance and comments from local authorities. I know that
the San Antonio Housing Authority, for instance, provided
comments. And, so, what I can commit to right now, whether it
is this issue or another rule that is on the table, is that we
will diligently proceed and take in the comments and consider
them, and more generally, that I consider this something of
importance for our local housing authorities.
Senator Brown. OK. Thank you. Thank you, Mr. Chairman.
Chairman Johnson. Thank you. Seth tells me that we will
wait until ten after eleven. I apologize for this, but if you
could abbreviate your questions slightly. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman, and I will try to
abbreviate my question.
Thank you, Ms. Wertheimer and Mayor Castro. Good to see you
both, and I appreciate the discussion we had in my office,
Mayor Castro, but I do need to follow up on one of the topics
we discussed.
Many Members of this Committee have already alluded to the
ongoing work to reform housing finance. And, while we have a
range of opinions about how best to do that, I believe there is
a unanimous agreement on this Committee that, however we do it,
it has got to involve bringing private capital into financing
residential mortgages.
At the same time that we are having this discussion, as you
know, there is a movement underway to attempt, by certain
communities, to attempt to use eminent domain as an argument to
justify confiscating mortgages from private lenders at a
discount, some who knows what discount to what they are
actually worth.
First of all, I think it is a blatant violation of contract
sanctity if they go ahead and do this. It is a taking of
private property for private gain, which I think our
Constitution clearly forbids. And, it cannot but have a
devastating impact on the ability to attract private capital,
if private lenders know that they run this risk.
So, my question is, as HUD Secretary, will you take active
steps to deter this kind of activity, and specifically, would
you forbid the FHA from participating in the refinancing of
mortgages that were confiscated using eminent domain?
Mr. Castro. Yes. Thank you very much, Senator, for the
question and for our conversation the other day. As I mentioned
the other day in our conversation, this particular device that
I know a handful of cities have employed was an issue of first
impression for me. This is not something that the city of San
Antonio has tried. I understand, in fact, that it has not been
put into effect actually in any city and that there is
litigation surrounding it.
I can understand why communities with a whole bunch of
folks who are underwater might think of this method. However, I
do see your point on why it causes concern among mortgage
lenders. And, at this time, I would say that, if I am
confirmed, I would look forward to visiting with you and with
Committee Members on what HUD's programmatic response ought to
be.
Senator Toomey. Well, I mean, I appreciate the ongoing
discussion and the visiting, but I really think Senators ought
to know what your views are about using eminent domain to
confiscate mortgages and would you intend to allow the FHA to
participate in that.
Mr. Castro. Thank you, Senator. I can certainly see your
concern, and as I said, it is not something that the city of
San Antonio, or under my leadership, we ever proposed or drew
up. I would like, however, if I am confirmed, the opportunity
to get a little bit more detail on the issue, understand it a
little bit better, and then take that up with you and Members
of the Committee.
Senator Toomey. So, I see I am not going to get an answer
to my question, Mr. Chairman, and I will yield the balance of
my time.
Chairman Johnson. Senator Tester.
Senator Tester. It is good to have you here, Mayor, along
with your wife and your brother. I appreciate you being willing
to serve.
You had talked in an earlier question about taxpayers
should not be in first position of loss with Fannie Mae and
Freddie Mac. Do not let me put words in your mouth, but that is
what I heard. Do you believe that the taxpayers can be
protected without reform of Fannie Mae and Freddie Mac?
Mr. Castro. Thank you, Senator, for the question. I believe
that reform would be preferable to what we have in place now if
the Nation were to experience another downturn, another housing
crisis as we just experienced, and for that reason, I commend
the Committee for working toward a housing finance model that
takes the taxpayers out of their position of first loss and
puts the private sector in that position.
I fully understand, though, as well, the concerns of folks
with regard to the other part of the balance, which is access
to credit, and that we have had a housing finance system in
place that seeks to ensure opportunity for Americans of modest
means who are creditworthy borrowers. So, I can understand the
very real concerns.
If I am confirmed, I would look forward to, hopefully,
bringing some fresh energy to this and to working with Members
of the Committee who are willing to work to find a resolution.
So, just to answer your question, I do not believe that the
taxpayers are nearly as protected as they could be under this
different model and that is a positive of the legislation.
Senator Tester. OK. Do you think that access to credit
versus taxpayer protection, do you believe we can have both?
Mr. Castro. I absolutely believe that we can have both, and
I know and I commend the Members of this Committee for working
toward those dual goals. And, if I am confirmed, I look forward
to working with you to achieve both of those goals that I
believe need to be a part of any legislation.
Senator Tester. Housing conditions in Indian Country are in
terrible shape. We visited about it when we were in my office.
And, I appreciate the work that HUD has done in Indian Country.
There is some word that the agency might be looking at
different data sources and could potentially change the funding
for Tribes that would have a negative effect on the Tribes in
Montana. Could you give me assurances that any new formula that
the agency would use in the future to allocate Tribal housing
funds would not unduly disrupt the ongoing Tribal housing
programs?
Mr. Castro. Thank you for that, and I want to commend you
for the strong advocacy that you have shown in our
conversations, and more generally, with respect to Tribal
communities. I absolutely would agree with you that what we
want to do is provide through our actions more--or, HUD wants
to provide more housing opportunities and not less, and so what
we--what HUD would seek to do, if I am confirmed, is to work
with our Tribal communities, as we traditionally do, and also
with you, Senator, and with the Committee to achieve a good
balance.
Senator Tester. I look forward to that.
Ms. Wertheimer, could you talk about what exactly would be
required of the Federal Government if additional assistance
were required and what obligations the enterprises would have
to the taxpayers.
Ms. Wertheimer. You mean, were the enterprises to----
Senator Tester. That is correct.
Ms. Wertheimer.----operate at a loss----
Senator Tester. That is correct.
Ms. Wertheimer.----and then need to draw down?
Senator Tester. Yes.
Ms. Wertheimer. The formula for when additional monies can
be accessed has been set in the agreements that are in place. I
think the taxpayers are already invested to the tune of a
hundred-and----
Senator Tester. Eighty-seven.
Ms. Wertheimer.----87.5 billion, and additional draws would
further increase the risk to those taxpayers. It seems to me
that the mission of the Inspector General's office----
Senator Tester. Yes.
Ms. Wertheimer.----which is independent, rigorous, thorough
oversight, does not change, because the fact that the
taxpayers' burden is increased heightens, if you will, the
mission of the OIG, but does not change what it will do in
terms of its audits, evaluations, and investigations.
Senator Tester. Thank you. Thank you, Mr. Chairman.
Chairman Johnson. Senator Warner, we have a couple minutes.
Senator Warner. I will be very--as brief as I can be,
because I want to make sure Senator Warren gets her two cents
in.
Thank you both for your willingness to serve.
Ms. Wertheimer, I am going to ask you a written question
about the recent OIG, FHFA OIG report on the common
securitization platform and how we move forward on that.
Mayor Castro, great to see you. I enjoyed our visit. I
simply want to--I know you are going to get up to speed on GSE
reform. I would commend you, under Secretary Miller's recent
comments pointing out that the current profitability of the
GSEs is unsustainable, that they, with their shrinkage
requirement of 15 percent of their portfolio on a regular
basis, the small amount of profits they are making is
disappearing. It would take 20 years to recapitalize them. We
would still have the same debate--are they going to be for-
profit, not-for-profit?
We have discussed the current status quo, which has,
particularly access to credit to African Americans, Latinos at
an all-time low.
And, the question that Senator Tester asked about--and was
directed toward Ms. Wertheimer--the recent stress test shows a
potential vulnerability of up to $190 billion of additional.
Now, we do need to make sure credit locks and others, and
Senator Warren, in particular, and others have been working on
how we improve this legislation.
So, I would simply ask, again, maybe for the fourth or
fifth time, my hope is you will be confirmed, that you will get
up to speed very, very quickly, and that GSE reform will be
first out of the box on your list of priorities. Do you want to
add a quick comment to that so we can move to Senator Warren?
Mr. Castro. Thank you, Senator, for the comments, and as I
mentioned, if I am confirmed, I do look forward to working with
you and with the Committee to hopefully bringing some fresh
energy to this and to helping to move a housing finance model
that I think works for Americans.
Senator Warner. And, I will just simply add, there are
improvements on the legislation that Senator Warren and others
of ours have been working on. But, I would commend the urgency
of Under Secretary Miller's comments about how vulnerable
taxpayers are, as well as some of the just awful access to
credit for low-income people at this moment in time.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Warren.
Senator Warren. Thank you very much, Mr. Chairman, and
thank you, Senator Warner, for your speed.
Thank you both for being here, for your willingness to
serve. I am going to submit questions for the record, but I do
want to make a point. You have been asked about GSE reform
repeatedly because it is so important, important to our
economy. We have talked about different problems we face right
now. I would emphasize the problem of access, that many people
are being cut out of the housing market. You know, in 2001,
before the housing bubble, when Fannie and Freddie were
operating normally, the average credit score for a borrower
receiving a Fannie- or Freddie-backed purchase money loan was
711. By 2013, the average credit score had jumped to 756. So,
in the wake of the financial crisis of 2008, more American
families are struggling with damaged credit, but Fannie and
Freddie have raised standards by nearly 50 points. Keep in mind
that nearly 50 million Americans lie between those two points
on the credit score continuum. The story is much worse for
African American families, for Hispanic families. We have got
to change what is happening with Fannie and Freddie. We have
got to make reforms, and a large part of that is because of
access. Any kind of reforms we do have got to be reforms that
make mortgages accessible to middle-class families, that make
mortgages accessible to families that are trying to build the
American dream for themselves.
So, I will stop there and submit the questions around that
for the record.
Thank you, Mr. Chairman.
Chairman Johnson. I thank all the nominees for your
testimony and for your willingness to serve our Nation.
I will remind Members to submit questions for the record by
noon this Friday, June 20. Nominees, please submit your answers
to the written questions as soon as possible so that we can
move your nominations forward in a timely manner.
This hearing is adjourned.
[Whereupon, at 11:13 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
and responses to written questions supplied for the record
follow:]
PREPARED STATEMENT OF JULIAN CASTRO
To Be Secretary, Department of Housing and Urban Development
June 17, 2014
Thank you Chairman Johnson, Ranking Member Crapo and Members of
the Committee for welcoming me today. I am deeply honored to appear
before you as President Obama's nominee for Secretary of the Department
of Housing and Urban Development. I want to thank President Obama for
his confidence in me.
Allow me to also thank Senator Cornyn. He is a dedicated public
servant, who also happens to hail from the great city of San Antonio,
and I am incredibly grateful for his support and his generous
introduction.
I want to express my deep gratitude to my family and friends,
especially my wife, Erica, and my brother, Congressman Joaquin Castro,
both of whom have joined me. Without their support, I simply would not
be here today.
Finally, I want to commend this Committee, which has a well-earned
reputation for working in a bipartisan fashion on behalf of the
American people. It has been a pleasure to meet with you and your staff
throughout this process. If confirmed, I look forward to our continued
engagement to advance issues critical to our Nation's future.
Mr. Chairman, I appear before you today with more than just
professional experience in dealing with housing and urban development.
I also bring my own personal experience. I grew up on the West Side of
San Antonio in a neighborhood of hardworking families of very modest
means. My father--at two different times in his life--lived in public
housing. My mother worked for the San Antonio Housing Authority.
I've seen with my own eyes how talented and driven Americans who
just want a fair shot are weighed down by the conditions in which they
live, and this simply isn't right. All Americans deserve the same
opportunities that I had, and I've dedicated my career to giving back
to the country that has given so much to me.
As Mayor, I made it my mission to help create a vibrant,
economically prosperous urban core that expands housing opportunities
for all San Antonians. In 2010, we launched the ``Decade of Downtown'',
an initiative to spark investment in our center city and older
neighborhoods. This effort has attracted $350 million in private sector
investment, which will produce more than 2400 housing units by the end
of 2014.
Looking ahead, during my recent visits with Committee Members, many
of you asked about my priorities if I am confirmed. Allow me to share
two of them with you. First, I am a strong believer in cross-agency
collaboration. San Antonio's East Side is the only neighborhood in
America to receive a Promise Neighborhoods grant, a Choice
Neighborhoods grant, a Byrne Criminal Justice Program grant and a
Promise Zone designation. We accomplished this by getting beyond silos
and working across agencies to improve housing, educational achievement
and overall quality of life. This is the kind of collaborative approach
I would like to enhance at HUD.
Second, as a local elected official, I am also keenly aware of the
value of measuring results. In San Antonio, we initiated a process of
unprecedented public engagement and accountability called SA2020.
Through a series of community meetings, residents spoke clearly about
what kind of city they wanted to be in 2020. But we didn't just set a
vision. We set precise, numeric goals for achieving our vision. We
promised the community that we would come back every year and report
back on how we were doing: good or bad. With the help of the State
demographer, we developed a public report card, available for anyone to
see on SA2020.org, to give San Antonians a real-time snapshot of how
we're doing.
Similarly, I would like HUD to focus on outcomes, not only inputs.
We shouldn't just track projects and dollars spent. We must measure
those investments by the impact they make. Secretary Donovan has built
a strong foundation for this and, if confirmed, I will work hard to
make this the norm at HUD.
HUD's role is one of the most critical in Government because it
directly impacts American families. From enforcing fair housing rights
to revitalizing distressed areas--from assisting veterans in finding
permanent housing to helping communities rebuild after a natural
disaster hits--the Department is making an impact in small towns, big
cities, rural communities and tribal communities across the country.
The 21st century is shaping up to be the century of cities. And I
believe there's a reason for that: In America's local communities,
partnerships and pragmatism are the key drivers to success. That
perspective has guided my efforts. If confirmed, I look forward to
working with you to strengthen opportunity for Americans through HUD's
efforts.
Once again, thank you Chairman Johnson, Ranking Member Crapo and
Members of the Committee for your consideration of my nomination. It is
an honor to appear before you. I would be happy to answer your
questions.
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PREPARED STATEMENT OF LAURA S. WERTHEIMER
To Be Inspector General, Federal Housing Finance Agency
June 17, 2014
Chairman Johnson, Ranking Member Crapo and Members of the
Committee, thank you for this opportunity to appear before you today. I
am honored to be President Obama's nominee for Inspector General of the
Federal Housing Finance Agency (``FHFA''). The FHFA plays a critical
role in our financial system as the safety and soundness regulator of
the Federal National Mortgage Association (``Fannie Mae''), the Federal
Home Loan Mortgage Corporation (``Freddie Mac''), and the Federal Home
Loan Bank System, comprised of 12 regional Federal Home Loan Banks
(``FHLBanks''). Since September 2008, Fannie Mae and Freddie Mac have
been in conservatorship under FHFA, because of concern that their
deteriorating financial condition threatened the stability of the
financial markets. Fannie Mae and Freddie Mac currently own or
guarantee $5 trillion in mortgages, three out of every four mortgages
in this country.
The FHFA Inspector General's mission is to promote the economy,
efficiency, and effectiveness of FHFA's programs and operations. To
carry out this mission, OIG conducts and coordinates audits and
evaluations of FHFA's activities, which includes FHFA's regulation of
Fannie Mae, Freddie Mac, and the FHLBanks and its conservatorships of
Fannie Mae and Freddie Mac, and investigations involving FHFA, Fannie
Mae, Freddie Mac, and the FHLBanks. Strong independent oversight of
FHFA programs and operations is critical to safeguard taxpayer dollars
and ensure that FHFA programs and the FHFA's conservatorships of Fannie
Mae and Freddie Mac are conducted in accordance with the laws enacted
by Congress.
Much of my professional career has focused on leading
investigations into alleged wrongdoing and counseling clients on
improvements to internal controls and processes to prevent and detect
violations of governing laws and regulations. I have significant
experience running independent investigations for audit committees and
committees of independent directors of public companies looking into
financial statement reporting and disclosure errors, alleged accounting
irregularities, misconduct by corporate officers and employees,
possible improper payments to foreign government officials,
whistleblower claims, and other significant issues identified by
internal or external auditors. These investigations followed the facts
wherever they led, without fear or favor; developed remedial measures
tailored to the facts found; and monitored implementation of that
remediation.
If confirmed as the FHFA Inspector General, I will exercise my
duties aggressively and independently. I have a deep appreciation of
the critical importance of conducting rigorous, fair and thorough
audits, evaluations and investigations, communicating the results to
stakeholders clearly and holding individuals and entities accountable
for their actions. I pledge to be responsive to this Committee and to
Congress as a whole and will work to develop a good working
relationship with the FHFA Director.
After more than 30 years in the private sector, I am honored to
have an opportunity for public service. My father was a first
generation immigrant who came to this country with his parents in 1938,
escaping with the clothes on their backs and speaking only German. My
grandparents had to reinvent themselves in a strange, new environment:
my grandmother found work as a domestic house cleaner and my
grandfather was employed to scrub out cocoa barrels on the New York
docks. Together, they earned enough to rent an apartment in Kew
Gardens, a community populated with German and Austrian refugees. My
father enrolled in New York City public schools, learned to speak
unaccented English, and graduated as valedictorian of his high school
class.
America has given much to me and to my family. I am eager to give
something back to America.
Thank you and the Committee for your consideration of my
nomination. I look forward to answering your questions.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM JULIAN
CASTRO
Q.1. Secretary Donovan has been a strong vocal proponent of the
housing finance reform bill S. 1217 that passed this Committee
last month. He worked closely with the White House and the
Committee in negotiating this legislation and advocating for
its passage. He has previously stated that ``The proposed
Johnson-Crapo bill provides the best chance to overhaul the
mortgage finance system this decade.'' Do you agree and if
confirmed, will you commit to helping the Committee to move S.
1217 so that we can get our financial housing market on a track
for long-term stability?
A.1. While I am not familiar with the details of Treasury's
analysis, as I emphasized at my hearing, leaving the
Government-Sponsored Enterprises (GSEs) in conservatorship
indefinitely is not an acceptable option. In my view, ending
taxpayer bailouts, preserving the 30-year mortgage and
improving access to responsible, creditworthy borrowers is an
essential part of comprehensive housing reform and, if
confirmed, I will work with the Committee on S. 1217 to achieve
these goals.
Q.2. Treasury Under Secretary Mary Miller recent stated,
``(e)ven if truly rehabilitating the GSEs were possible,
recapitalizing them adequately would take at least 20 years.
During these 20 years, the taxpayer would remain at risk of
having to bailout the GSEs during another downturn. We would
also be signing up for another 20 years of underserving
responsible credit-worthy Americans seeking to buy a home.'' Do
you agree with this statement?
A.2. Yes, I reiterate the commitment I made before the
Committee on June 17, 2014, regarding my unwavering support for
moving forward with this legislation. I believe that
comprehensive housing finance reform is one of the last
remaining pieces of work to do to respond to the financial
crisis and prevent it from happening again. President Obama
believes that we cannot afford to turn back to a housing
finance system where the private sector wins during good times,
but leaves the taxpayers on the hook during bad times.
Comprehensive housing reform will strengthen the economy and
help create a safer and sounder housing finance sector. As I
stated at the hearing, I strongly share the Committee's goals
of ensuring that we have a housing finance system that both
protects the taxpayers in a stronger way than we have had in
the past, and also balances access to credit for folks of
modest means who are credit-worthy. If confirmed, I look
forward to being an active participant as the Committee and the
Senate continue to work on this bi-partisan legislation.
Q.3.a. The FHA Insurance fund has been undercapitalized since
2009. At the end of FY2013, FHA announced that it would need
$1.7 billion from Treasury to cover an increase in anticipated
costs of loan guarantees. This marked the first time that FHA
needed funds from Treasury to cover an increase in expected
future losses in its single-family mortgage program. Last year,
the Committee moved legislation--the FHA Solvency Act, with
strong bipartisan support, to get FHA back on stable financial
footing to ensure that FHA is there for future generations.
During your confirmation hearing you stated that you were
committed to ensuring that FHA maintain a positive capital
reserve ratio. Do you commit to achieving and maintaining that
ratio as required by law?
A.3.a. If confirmed, I commit to continuing and building upon
the appropriate and balanced measures taken to date to improve
the health of the FHA's Mutual Mortgage Insurance Fund. I
understand that in its most recent report the independent
actuary predicted that the Fund would reach the statutory 2
percent capital reserve ratio in 2016. While I understand that
these projections are subject to economic assumptions and
models which may vary from year to year, I do also believe FHA
is on the right track to meet that statutory mandate in the
near term particularly based on the $15 billion dollar
improvement reported in the most recent independent actuary
report.
Q.3.b. Are there any instances in which you believe it would be
acceptable to lower incoming revenues while in violation of
Federal law as it pertains to required level of capital for
FHA?
A.3.b. The FHA, in playing both a countercyclical role in the
housing market and also serving as a resource for underserved,
low wealth and creditworthy borrowers, must always balance it
mission with its fiduciary and legal responsibilities. I
understand that while the Fund is on the right track there are
still risks in the outstanding portfolio that must be actively
managed. As evidenced by the $15 billion improvement in the
health of the Fund as of its most recent annual report, the FHA
has worked hard over the last few years to establish a premium
structure that appropriately accounts for risk and encourages
access to mortgage credit for responsible, creditworthy
borrowers and encourages the return of private capital.
While the FHA has raised premiums 6 times since 2009, it
has also taken other aggressive steps to strengthen the credit
quality of new loans, now insuring the strongest loans in the
organization's 80 year history. In addition, FHA has instituted
policies to reduce losses and improve recoveries on claims paid
from the Fund.
If confirmed, I look forward to continuing to explore other
mechanisms to continue these positive measures, balancing risk
to the Fund with preserving access to mortgage credit. FHA
recently announced a number of measures intended to mitigate
risk of incoming loans while providing opportunities for
housing finance to creditworthy borrowers who are not otherwise
being served in today's tight market environment. I would
review those programs to assure that they adequately protect
the Fund and keep it on track for maintaining its positive
capital trajectory. Furthermore, if confirmed, I would ensure
FHA continues to monitor economic conditions, access to credit,
and the financial health of the Fund on an on-going basis,
taking appropriate actions as needed.
Q.4. The Department and the FHA program have consistently
projected overly optimistic forecasts for the solvency of the
MMIF, while the actual condition of the fund has worsened. Just
recently the FHA has proposed a new pilot program to reduce
premiums for home buyers. How do you intend to balance credit
access and affordability with accurate pricing and protecting
the American taxpayer?
A.4. FHA is taking action on a number of policy changes aimed
at improving access to credit but these are not being taken at
the expense of the insurance fund. As I understand, policies
such as those outlined in the Blueprint for Access will
continue to protect the Fund, even as they enhance access.
Thus, factoring in the substantial changes FHA has made in
terms of credit, pricing and loss mitigation policies, I
believe FHA should continue to assess ways that it can
diligently protect the Fund while facilitating access to
affordable mortgage products for underserved borrowers and
communities seeking a pathway to the middle class.
Q.5. Currently, we are in very tight budgetary times which may
mean finding ways to save money throughout the Federal
Government. As such, it is incumbent upon all leaders in
Government to find ways to reduce spending, especially when
such reductions are achievable without a reduction in service.
If confirmed, will you commit to looking at items that will
reduce fraud, waste and overlapping programs to help reduce the
Federal deficit?
A.5. If confirmed, I will commit to exploring ways to reduce
fraud, waste and inappropriately redundant programs, and am
dedicated to using the HUDStat process, for example, to examine
all programs at HUD for consolidation and streamlining
opportunities while protecting the recipients of HUD funding.
Every dollar used to support the most vulnerable populations in
our country needs to be used to its maximum efficiency, and I
commit to pushing for that efficiency in every program.
Q.6.a. If confirmed, your leadership of HUD would provide you
with the opportunity to instill the importance of transparency
and cooperation with HUD stakeholders as well as Congress. I
recently asked a previous HUD nominee a series of questions
related to actions brought by HUD. Specifically, I asked the
question below and received little by way of an informative
response.
In recent years, several Federal regulatory agencies
have increased significantly the use of ``disparate
impact'' enforcement actions in their oversight of the
housing and financial sectors. Disparate impact
enforcement actions have been brought even in the
absence of direct discriminatory evidence or
discriminatory motive. In your opinion, when should
disparate impact enforcement actions and cases be
brought when there is no evidence of direct
discriminatory evidence or discriminatory motive exist?
Should a Federal agency be required to share any
economic analysis conducted upon which such action has
been based? If not, then how should these analyses be
verified?
If you are confirmed will you commit to instilling throughout
all of HUD a culture that fosters more open communication with
both stakeholders and Congressional oversight?
A.6.a. Yes. I am committed to open communication with both
stakeholders and Congress. If confirmed, and in the spirit of
Executive Orders regarding transparency, I will work to ensure
that such communication is provided with both Congress and
stakeholders to the fullest extent consistent with statutes
that govern HUD's interactions, including the HUD Reform Act
and Appropriations requirements.
Q.6.b. What is your response to the questions above that I
asked of the previous nominee and received little by way of an
answer?
A.6.b. Many civil rights statutes allow for proof of
discrimination without evidence of discriminatory intent. Among
them are Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Equal Credit Opportunity
Act (ECOA), and the Fair Housing Act. Under such statutes,
evidence of the impact of the challenged action is required,
and the defendant has the opportunity to prove that the
challenged practice was nonetheless justified.
As you know, the Fair Housing Act's disparate impact
standard is not new. HUD has been using this method of proving
discrimination in housing for decades, and it also is widely
accepted by the other Federal financial regulatory and
enforcement agencies. In fact, in 1994, eleven such agencies,
including the Federal Reserve System, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Department of Treasury, plus HUD and DOJ,
adopted a Policy Statement on Fair Lending recognizing that
disparate impact is one of the methods they would use to
identify lending discrimination under the Fair Housing Act and
ECOA.
In the context of any enforcement actions by HUD under the
Fair Housing Act, the Department explains the bases for its
finding of reasonable cause to believe discrimination occurred
(or did not occur) in a formal determination of reasonable
cause (or no reasonable cause). This is so in all cases,
including those relying on a discriminatory effects method of
proof.
If confirmed, I would continue to rely on this longstanding
and widely accepted law enforcement method to distinguish
between unnecessary barriers to equal opportunity in the
housing market and valid policies and practices that are
crafted to advance the legitimate interests of housing
providers, mortgage lenders, and others covered by the Fair
Housing Act. It is my understanding that few of the
discrimination claims charged by the Department involve
disparate impact claims, but regardless of volume, I would
ensure that the Department enforces this standard, like all
laws it enforces, in a fair and judicious manner.
Q.7. HUD has a number of rental programs target acquisition and
maintenance of the Nation's older, affordable rental stock.
There have been significant changes to these programs within
the past 18 months. Part of balancing your duties to protect
the taxpayer with the programs' goal of providing access to
individuals and families earning below area median income, is
ensuring that the financial protections in place appropriate
match the risk of each program. If you are confirmed, will you
commit to a review of these programs to ensure that risk
mitigation is appropriate?
A.7. If confirmed, I look forward to working with Congress to
make sure that oversight of these important programs is
appropriate to the risk of each program. I believe that each
Federal dollar should be used to its maximum efficiency, and
this requires careful oversight by both HUD and Congress. I
look forward to working with Congress, if confirmed, to ensure
that HUD is striking the correct balance between protecting the
taxpayer and providing affordable housing for individuals of
modest means.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR HAGAN FROM JULIAN
CASTRO
Q.1. Mr. Castro: over the next few years, North Carolina will
be providing supportive housing to thousands of non-elderly
adults with serious mental illness who will have access to new
services from our State's public mental health system. As part
of a settlement with the Federal Government, my State has
agreed to provide thousands of new units of permanent
supportive housing as an alternative to adult care home
settings that were deemed to be institutional in nature. I am
concerned that it may be more difficult for these individuals
to receive Housing Choice Vouchers from Public Housing Agencies
(PHAs) because of bureaucratic obstacles to obtaining approval
from HUD headquarters.
If confirmed, will you commit to working with this
Committee and stakeholders (including the disability community)
to simplify these rules for PHAs and State housing agencies?
A.1. HUD has worked with other States that are implementing
settlements with the Federal Government to transition
individuals with disabilities out of institutional settings and
into community-based housing. In a number of instances, HUD has
authorized the use of preferences for this purpose, providing
such individuals with easier access to Housing Choice Vouchers
when they are ready to live in community-based housing. If
confirmed, I would be happy to work with North Carolina in
obtaining the necessary legal authorizations.
Q.2.a. It has been brought to my attention that HUD made a
commitment to the MTW agencies across the country to extend
their contract agreements for another 10 years. I understand
that MTW agencies have grown increasingly concerned about the
expiration of their existing contracts in 2018. While this may
be several years away, the uncertainty regarding contract
renewal has begun to impact their ability to enter into long-
term strategic partnerships and joint funding agreements with
partners such as mental health systems and school districts. It
also has an impact on financing arrangements for long-term and
large-scale redevelopment projects being undertaken by MTW
agencies. I understand that the commitment to extend the MTW
contracts was formalized this past March by the Assistant
Secretary for Public and Indian Housing. Are you aware of the
MTW contract extension commitment by HUD?
A.2.a. Yes. As Mayor of San Antonio, I am familiar with how the
San Antonio Housing Authority (SAHA) has used its flexibilities
as a Moving to Work (MTW) agency to design and test innovative
strategies related to rent reform and family self-sufficiency.
I have seen first-hand what this program can do to address
local community needs. In preparation for my nomination
hearing, I was informed by HUD staff of discussions related to
MTW contract extensions. It is my understanding that, in the
spring of this year, the Assistant Secretary stated at an
industry meeting that she would consider granting early
contract extensions for MTW public housing authorities who met
certain performance standards. I understand the Department is
presently reviewing its contract extension options on account
of MTW contract litigation.
Q.2.b. If confirmed as HUD Secretary, will you follow up to
ensure that HUD honors its commitment to these housing
authorities?
A.2.b. If confirmed, I am committed to ensuring that HUD meets
its obligations under the MTW contracts.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARREN FROM JULIAN
CASTRO
Q.1. One of HUD's most important responsibilities is helping
enforce the Fair Housing Act. But HUD's office of Fair Housing
and Equal Opportunity is severely understaffed. There are
currently 575 full-time employees in the Office--the fewest
there have been at any point in the past 25 years. In 2008, the
bipartisan National Commission on Fair Housing and Equal
Opportunity, led by former HUD Secretaries Jack Kemp and Henry
Cisneros, found that the Office needed at least 750 employees
to operate effectively. That means we have a 30 percent
shortfall. Other than trying to get additional money from
Congress, how would you attempt to address this staffing
shortfall?
A.1. My understanding is that the Office of Fair Housing and
Equal Opportunity (FHEO) currently has 533 full-time employees,
which, as you note is the lowest staffing level for the office
in 25 years.
As the agency charged with enforcement of the Fair Housing
Act for the country, HUD must use its resources to the greatest
extent possible for this effort and work with Congress to
support adequate funding to support that effort. To my
knowledge, FHEO has already taken a number of steps to deal
with the present staffing constraints, including reducing
management positions, streamlining its offices, improving
training and implementing work sharing. In addition, the office
has modernized some systems to reduce duplication of work.
However, should HUD receive no additional funds to support fair
housing, HUD likely will have to make difficult choices about
Departmental priorities. If confirmed, I am committed to
continuing this approach in a manner that will allow FHEO to
pursue its mission to the fullest extent possible.
Q.2. Tenants in HUD housing can be valuable partners with HUD
in overseeing the Nation's multi-billion dollar investment in
low income rental housing. Congress has authorized $10 million
annually for tenant participation in Section 8 housing since
2002. Yet out of the $120 million Congress has authorized HUD
to spend on tenant participation in the last 12 years, HUD has
spent only $3 million for that purpose. If you are confirmed,
will you use the funds authorized for tenant participation for
their specified purpose?
A.2. I agree that tenants can be valuable partners with HUD in
managing the Department's investment in affordable rental
housing. I also understand from HUD staff that while there is
authorization for a tenant participation program out of the
Project-Based Section 8 account, no dollars were appropriated
for this purpose between 2002 and 2011. When the current
Administration came into office, it evaluated the problems the
OIG had found with a former program and re-instituted a new
tenant participation program with accountability measures
called the Tenant Resources Network and requested and received
$10 million in 2011 from Congressional Appropriators for the
program. I also understand that the Department, through the
Tenant Resource Network and other means does provide funding to
tenants to participate in their affordable, assisted housing
communities, advancing the intent of the applicable authorizing
statute.
If confirmed as Secretary, I would take steps to ensure
that all HUD dollars are appropriately and effectively spent in
order to advance the Department's mission and obligations. In
the case of tenant involvement, within budget constraints, I
would utilize existing statutory authority to assist these
organizations in support of their communities.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR COBURN FROM JULIAN
CASTRO
Q.1. In your testimony, you state that cross-agency
collaboration will be one of your top priorities. In an August
2012 report, ``Opportunities Exist to Increase Collaboration
and Consider Consolidation,'' GAO identified 160 Federal
housing assistance initiatives administered by 20 different
Federal entities costing about $160 billion in FY2010. 89 of
these programs are administered by HUD.
As Secretary, how will eliminating, consolidating, and
streamlining duplicative or overlapping programs within and
outside HUD fit into your stated goal to boost cross-agency
collaboration? Moreover, will you work with Congress to seek
any necessary legislative authority to eliminate, consolidate,
or streamline HUD programs?
A.1. If confirmed, I commit to working with Congress very
closely to achieve any legislative authority needed to
eliminate, consolidate or streamline HUD programs that have
been found to be duplicative, where appropriate. I understand
that HUD has already worked with Congress extensively to
achieve several streamlining goals in the rental assistance
portfolio, such as allowing for consolidation of Public Housing
Authorities and streamlining duplicative reporting
requirements. In addition, HUD has worked with Congress over
the past 2 years to consolidate legacy programs like the Rent
Supplement (Rent Supp) program and the Rental Assistance
Payment (RAP) program into the Rental Assistance Demonstration.
I am very committed to cross-agency collaboration, as shown
in my work as Mayor of San Antonio. In making decisions about
collaboration and consolidation, I focus on the value and
impact of each dollar, data that indicate program outcomes, and
areas for which duplication is occurring and can be eliminated.
If confirmed, I will work with Congress to continue to
streamline programs, while always remembering the people on the
receiving end of the support.
Q.2. In January 2013, Congress passed a bill to provide $60.4
billion in emergency disaster aid for the areas devastated by
Hurricane Sandy. The States of New York and New Jersey plan to
spend $65 million of the Federal disaster aid on television ads
promoting local tourism. The States sought and received waivers
to use the CDBG Disaster Recovery funds to promote local
tourism. Do you believe television advertisements to promote
tourism is an appropriate use of Federal disaster relief funds?
A.2. As mayor of a city with strong economic growth, I know
well the importance of economic development. Tourism is an
integral part of San Antonio's economy. Advertising is crucial
to drawing new and repeat visitors to the area. I agree with
the position taken by HUD that Federal disaster recovery funds
that are available for economic revitalization of disaster
areas may be used to support some tourism activities in
distressed areas whose local economies were dependent on
tourism prior to the disaster. This is the position that HUD
has taken in the past and most recently with respect to
activities in New York and New Jersey where tourism suffered a
significant blow as a result of Hurricane Sandy.
Q.3. FHA currently uses accounting methods prescribed by the
Federal Credit Reform Act of 1990 (FCRA). Under FCRA, FHA
calculates the expected future costs and gains of its insurance
claims, but does not account for variations in market risk.
According to CBO, ``the single-family mortgage guarantees made
by FHA between 1992 and 2012 have had a net Federal budgetary
cost of about $15 billion, according to the most recent
estimates by FHA. In contrast, FHA's initial estimates of the
budgetary impact of those guarantees sum to savings of $45
billion.'' FHA's single-family mortgage guarantee program is
projected to rise from $150 billion in FY2015 to $250 billion
in FY2025. CBO estimates that using FCRA accounting the program
will earn taxpayers $63 billion over the next 10 years. But
under fair value accounting, the program will actually cost the
taxpayer $30 billion over the same time period.
CBO states that ``the fair-value approach offers a more
comprehensive estimate of Federal costs.'' Do you agree with
CBO's assessment that Congress should use fair value accounting
to assess the real costs of FHA's Single Family Mortgage
Guarantee Program to the taxpayer?
A.3. As I understand, the Office of Management and Budget
implements the requirements of the Federal Credit Reform Act of
1990 to measure the cost of Federal programs. This form of
accounting for Federal programs is, according to the Analytical
Perspectives accompanying the President's budget, intended to
reflect the estimated lifetime costs of loans and loan
guarantees up front on a net present value basis.
Fair Value Accounting represents an alternate view for
measuring Federal credit programs. It requires additional
assumptions and adds factors that may not be relevant for
assessing budget affects, thus yielding cost estimates that may
be unnecessarily inflated relative to real costs.
If confirmed, I will manage the Department in a way that is
consistent with the legal and administrative obligations
applicable to the Department and the Federal Government as a
whole.
Q.4. The HUD IG office recently reported that based on an audit
of 75 local public housing agencies (PHAs), HUD has doled out
about $225 million in questionable spending at those PHAs since
2012. David Montoya testified that ``over the course of our
work, we have seen that PHAs often run with little oversight
and are, in some instances, prone to ethical lapses that may
attract media attention.'' Montoya went on to state that the
boards and commissions tapped to oversee the PHAs ``exercises
little or no oversight and the members themselves have few or
no qualifications to effectively discharge their
responsibilities.''
Additionally, while PHAs continue to misuse millions in
taxpayer dollars, many of them have failed to maintain adequate
living conditions. Instead, some have provided at times
dangerous housing facilities. Montoya testified that ``time and
again we see violations of housing quality standards at
individual PHAs.'' An external audit of the New York City
Housing Authority found that HUD will potentially pay more than
$148 million in housing assistance for units that materially do
not comply with HUD's standards in that single PHA.
During your hearing, you stated that you will work to find
savings in the Section 8 housing programs. Finding costs
savings must begin with knowing where the funds are going in
the first place. As HUD Secretary, what specific steps will you
take to implement a robust oversight component into our
Nation's PHAs to prevent the massive waste and potential fraud
the HUD OIG has identified? Further, what steps will you take
to ensure that HUD funding is prioritized to bring up the
living conditions to meet HUD standards?
A.4. Improving the living conditions for public housing and
housing choice voucher families is personal for me.
I understand that there have been oversight issues in the
Housing Choice Voucher program because SEMAP, the PHA
performance evaluation system for the HCV program, is primarily
based on self-certification. HUD has relied on self-
certification because the Department has not, and in this
fiscal environment, will not have the resources necessary to
conduct reviews of each of the nearly 4,000 PHAs across the
country. For this reason, the Department has moved to a risk-
based approach. As it pertains to the HCV program, in FY14, PIH
launched Quality Assurance inspections of 30,000-40,000 voucher
units which will be completed by December 30, 2014, and provide
a first time significant in-depth look at HQS standard
compliance in our largest PHAs. Technical Assistance and follow
up quality control will be provided to those PHAs who are not
ensuring property owners maintain their units at an acceptable
level.
As for HUD's overall oversight and monitoring initiatives,
it is my understanding that over the past 4 years HUD has
significantly improved oversight and accountability with
respect to public housing authorities. As the appointing
official for the Board of Commission of the San Antonio Housing
Authority, I fully understand the critical role State and local
governments and the boards we appoint play in providing the
primary oversight for PHAs.
While preparing for my nomination hearing, one of the many
things I learned was that the Department has already
significantly increased management and ethics training for PHA
Board of Commissioners. Relatedly, managers are providing
technical assistance and training to PHAs on internal controls
and best practices at regional and national conventions of
industry associations throughout the year. I also understand
that a new partnership between PIH and the OIG has just been
formed to provide additional technical assistance to governing
boards to strengthen oversight efforts. Last, I understand that
the Department is developing several risk-based, early
detection tools to more quickly mitigate performance issues.
These are all strong, initial steps in ongoing efforts to
prevent waste, fraud and abuse. If I am confirmed, I will
continue to push for staff specializing in risk mitigation. I
will also push for additional funding for IT systems to address
ongoing PHA performance challenges and to improve monitoring
and oversight of statutory and regulatory requirements.
Q.5. Under current practice, HUD grants can be used to repay
HUD loans. The Senate approved an amendment in 2011 that would
prohibit the use of Federal grants to repay Federal loans. Do
you believe that entities should be able to receive HUD grants
to repay HUD loans?
A.5. I have not studied this issue in depth and would want to
collect additional information before offering a view. A number
of factors may be relevant for consideration, including whether
repayment of the Federal loan with HUD grants helps achieve
measured long-term savings, permits recapitalization of
property, keeps costs low in response to changing market
conditions, and preserves essential affordable housing. As I
noted during the hearing, I am a firm believer in measuring
outcomes and, if confirmed, would utilize this approach in
addressing this very important question.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM LAURA S.
WERTHEIMER
Q.1. The Inspector General of the FHFA is in a rather unique
situation. The Director of FHFA acts as not only regulator, but
also executive and shareholder of both Fannie Mae and Freddie
Mac.
Because of this unique situation, how do you believe the
FHFA JG needs to go about providing adequate oversight as
compared to an JG without that unique circumstance?
A.1. The Housing and Economic Recovery Act of 2008 (``HERA'')
imposes a number of duties on the Federal Housing Finance
Agency (``FHFA'') as the conservator of Fannie Mae and Freddie
Mac (``the Enterprises''), and as the regulator of the
Enterprises and the Federal Home Loan Bank System. As
conservator, FHFA assumes the authority of the management and
boards of Fannie Mae and Freddie Mac during the period of the
conservatorship and directs the Enterprises' business
activities and operations in order to conserve and preserve the
assets of each company. As regulator, FHFA's mission is to
ensure through its supervision and examination activities that
each of the regulated entities is operating in a safe and sound
manner so they can serve as a reliable source of liquidity and
funding for housing finance and community investment.
HERA also amended the Inspector General Act of 1978 to
establish the Office of Inspector General of the FHFA (``FHFA
OIG''). That Act empowers Inspectors General, to ``conduct,
supervise, and coordinate audits and investigations relating to
the programs and operations'' of the respective agency. Under
the Inspector General Act, the duties and responsibilities of
FHFA OIG remain the same, whether FHFA acts as conservator or
regulator: to promote the economy, efficiency, and
effectiveness of FHFA's programs and operations through
independent and rigorous oversight.
Of course, the existence of the conservatorships means that
FHFA has a much broader range of responsibilities with respect
to the Enterprises than just its duties as regulator. FHFA
OIG's role is correspondingly broader, because it must perform
appropriate oversight of FHFA's exercise of its conservatorship
responsibilities. FHFA's conservatorship responsibilities
encompass the authority of the management and boards of the
Enterprises, and FHFA OIG therefore must structure its
oversight program to examine FHFA's exercise of those critical
responsibilities, which differ significantly from the typical
Federal financial regulatory programs. My experience in
conducting independent investigations of alleged wrongdoing and
compliance with governing laws and regulations on behalf of
private-sector companies' audit committees will be particularly
useful in performing this aspect of FHFA OIG's
responsibilities.
The critical importance of FHFA OIG's independent oversight
is underscored by the $187 billion in taxpayer monies that the
Enterprises have drawn, pursuant to their agreements with the
Department of the Treasury, and the potential $5 trillion in
taxpayer exposure from the mortgages owned or guaranteed by the
Enterprises. If confirmed as Inspector General, I will focus on
the core mission of the FHFA OIG: to protect the taxpayer with
independent and thorough audits, evaluations, and
investigations of FHFA's programs and operations.
Q.2. Does FHFA's operations as conservator of Fannie and
Freddie require a different type of oversight than does its
operations as regulator of the Federal Home Loan Banks, in
order to assure adequate review of its activities?
A.2. The FHFA OIG mission remains the same, whether FHFA acts
as conservator or as regulator: to protect the taxpayer through
independent and rigorous oversight of FHFA's programs and
operations--whether as regulator or as conservator. If
confirmed as FHFA Inspector General, I intend to analyze FHFA's
functions as conservator and regulator to identify high risk
areas and target resources for audits, evaluations, and
investigations accordingly. As discussed in the answer to the
previous question, the nature of the conservatorship
responsibilities is different from FHFA's regulatory
responsibilities and therefore is likely to carry risks that
differ from FHFA's regulatory responsibilities, and accordingly
produce a different--and probably more extensive--list of
activities that should be subject to audits, evaluations, and
investigations.