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Committee on Financial Services

United States House of Representatives

Archive Press Releases

April 1, 1998

OPENING STATEMENT
REPRESENTATIVE RICK LAZIO
CHAIRMAN, SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY


The Subcommittee will come to order.

Today, we meet to hear testimony on the Federal Housing Administration’s Single Family Property Disposition program.

Since I first arrived as a Member of Congress in 1993, I have heard numerous success stories of families and individuals who have been served well by FHA by facilitating their path to homeownership. Created during the depression-era, FHA has in reality created and stabilized what is now a well-financed private mortgage finance market, including a secondary market and private mortgage insurance.

Just like any other product or idea almost three-quarters of a century old, FHA is now showing its age. Just like the Model T Ford that spurred an entire automobile industry and evolved into new models and new manufacturing techniques, it now seems like the time that FHA must begin to prepare itself for the 21st century. None of us here have a definitive picture of what the mortgage finance system will look like or operate twenty years from now. I can assure you, however, that just as the industry has changed significantly in the last twenty years, we will face those same changes in the future.

Any discussion or proposal to modernize FHA must ask some fundamental but yet common-sense questions.

For example:

  • Who and what purpose will FHA serve—what will its mission be?
  • Does FHA meet the needs of those families underserved in the private market?
  • Does FHA supplement, compliment, or encroach upon the private sector?
  • Or, more importantly, will FHA be prepared for the future if it continues along the same path it has taken over the last 64 years—a little change here, a little tinkering there?

Just as we have heard success stories, there are some major disappointments as well. In particular, if we measured performance by the level of defaults or insurance claims, FHA’s recent history raises some serious questions.

  • FHA delinquencies increased 23% since 1988—an increase three times higher than delinquencies in the VA program and completely contrary to the trend in the conventional private market.
  • Defaults in the FHA program increased by 74% in just one year and projected to go higher.
  • FHA-paid claims rose 18%, from $4.2 billion to $5.3 billion from 1996 to 1997.

Even more alarming and the focus of our discussions today is that properties disposed during the FY 1997 year were nearly 70,000, with a constant stable of 30,000 in the inventory at any given time. However you want to look at it, that’s 70,000 neighbors and families who suffer everytime HUD disposes of a property—blighted neighborhoods, falling property values, criminal and drug activity, to mention only part of the negative impact in some cases.

Today, it is important that we hear from our distinguished witnesses to more clearly understand a key function of FHA: the disposition of foreclosed properties owned by FHA.

HUD transmitted to the Subcommittee a pre-publication proposed rule that restructures FHA’s disposition process. HUD is also proposing legislative changes in its budget request for FY 99. Moreover, I am aware of a March 18th meeting between FHA and a variety of real estate property managers to discuss what may be a third option. This flurry of activity, coupled with high default and claim rates is sobering. What are the Administration’s future plans? How will "HUD 2020" address declining staff? Is FHA destroying neighborhoods in the process?

I think the Subcommittee would benefit from an open discussion and explanation of the current FHA disposition process and the Department’s future goals, whether regulatory or statutory.

The Subcommittee will also benefit from testimony from our watchdog agency—the General Accounting Office on HUD’s performance in the disposition area and how private contracts are monitored. I wrote GAO on February 4th requesting a study on FHA and, in particular, single family delinquencies. HUD’s own watchdog—the Inspector General can elucidate on questions even she has raised regarding HUD’s disposition process and its contracting activity.

On panel two—Mr. Michael Quinn, a native of Long Island, NY, will place in context the ideal type of disposition process and give us some information to compare and contrast FHA’s proposed legislation.

I think the most important witnesses, today, however, are the community groups. Ms. Gail Jackson of Chicago, who we invited at the request of Subcommittee Member, Mr. Jesse Jackson, Jr.,--Mr. Carl Edwards, invited at the request of Subcommittee Member Julia Carson. And Ms. Cincotta, who has appeared before the Committee before. These witnesses will provide, in context, how Washington policy affects local neighborhoods and communities.

While some prejudged this hearing, I want to assure all that we are simply seeking out the facts. Before this Subcommittee can make recommendations to this Congress on any issue relevant to FHA, we must get a handle on the status of FHA and why we are witnessing increased defaults and foreclosures despite the fact that:

  • the country has been in sustained economic prosperity since 1993;
  • unemployment is at record low levels;
  • mortgage interest rates are at historically low levels, and
  • previous FHA reforms in the 1990 reconciliation process were supposed to decrease the likelihood of delinquencies and mortgage defaults.

This hearing is a first step in what could be a collaborative way to attack increasing FHA foreclosures, but maybe even larger policy issues that need to be confronted this Congress.

Once again, welcome to our witnesses.

The Chair will now recognize other Members for opening statements.



 

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