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Congressional Testimony

Statement of Jan E. Shadburn
Former Administrator, Housing Programs

Before the Senate Subcommittee on Agriculture, Rural Development and Related Agencies
March 3, 1998

Mr. Chairman and members of the Committee, thank you for this opportunity to testify today on the President's Fiscal Year 1999 budget proposal and discuss some of the accomplishments and goals of the Housing Programs.

The Housing Programs continues to provide opportunities to rural families which help them improve their standard of living, move out of poverty and build for the future. We enable rural communities to enhance the quality of life of their residents and to strengthen their economic competitiveness and sustainability. We accomplish this by providing rural people and communities access to credit -- which, as you know, is often limited in rural areas. We also subsidize loans and rents and provide technical assistance and support to complete their community development efforts.

Our community facilities direct and guaranteed loan and grant programs provide funding for essential facilities such as health care centers, fire stations, municipal buildings and day care centers. These facilities allow rural communities to improve the quality of life for their citizens and remain competitive in attracting jobs and businesses.

In the rural United States, 5.6 million households live below the poverty line. Almost one quarter of rural households pay more than 30% of their income for housing with more than four of every 10 rural poverty level households paying more than 50% of their income for housing. Minorities in rural America are disproportionately likely to be low-income or in poverty and have housing problems. One third of African-American households, and almost one third of Hispanic households, pay more than 30% of their income for housing. Rural African-American households are far more likely to live in seriously inadequate housing than are rural white households or urban African-American households. Native Americans continue to be the most poorly housed population in America.

Our programs are largely targeted to lift these populations out of poverty and provide stability for the family, the community and rural America. Some communities have been rebuilt from disaster or economic downturn, others have reversed the outward migration of their people and jobs and have built a sustainable economy and tax base. We have invested in two of our most vital assets- our people and our small communities- and enabled them to have a part of the American Dream. To assure our programs meet the needs of rural America, Housing Programs has developed five strategies to further the implementation of the Rural Development Strategic Plan.

The five strategies are as follows:

Support self-sufficiency

The Housing Programs homeownership programs offer rural people and their families the most basic piece of the American Dream -- the chance to own their homes. The President's FY 1999 Budget requests a program level of $1 billion for the Section 502 Direct program and $3 billion for the Section 502 Guarantee program. This $4 billion dollar program level will provide approximately 65,000 homes for individuals and families in FY 1999 and ensure that the homeownership opportunities that are accessible in suburban and urban America are equally available to rural America.

Housing Programs has also proposed legislation to permit the use of Federal guarantees to help graduate current direct loan borrowers to private credit. Many of our borrowers do not have sufficient equity to graduate and qualify for conventional credit. Further, they are statutorily prohibited from graduating to our guaranteed program. The President's FY 1999 Budget requests an authorization of a $100 million for graduating direct loan borrowers into the guaranteed program.

The Mutual Self-help Grant program enables low and very-low income rural families to become homeowners through the efforts of their "sweat equity" contribution while simultaneously building and stabilizing their communities. The sweat equity contributed by these families not only builds communities, but also reduces the cost of the mortgage and enables the Agency to reach a lower-income customer. The majority of the mortgages are provided by the Agency's Direct 502 loan which allows the interest rate to be subsidized down to as low as 1% based on income.

These self-help borrowers have exceptional track records--both lower delinquency rates and better graduation. Over half have paid off their loans in full or graduated to private credit. Approximately 27,000 self-help loans have been made since the program's inception in 1971, providing housing for approximately 1,000 families per year. In FY 1995, Housing Programs received over a 100% increase in the grant program. In FY 1998, the program expanded to 46 states with an estimated 121 grantees serving approximately 1,600 new homeowners. The FY 1999 request of $26 million would enable Housing Programs to serve over 100 grantees.

Time and time again we hear stories of how participating in the self-help program has truly turned borrowers lives around-- enabling them to achieve the equity from homeownership that can finance children's education, launch entrepreneurial careers and move families towards financial independence.

For example, Rudy and Angie Lopez lived from one paycheck to another; he was a cook, she was a waitress. Owning a home seemed out of reach until they qualified for the Mutual Self-Help Housing program. After completing their home, Rudy and Angie Lopez decided to open their own business. Now they operate Rudy and Angie's Mexican Restaurant in Grover Beach, California.

In support of Secretary Glickman's Civil Rights Action Team Report, the Administration is requesting a significant increase for Farm Labor Housing over the available level in FY 1998. For FY 1999, the $20 million increase in budget authority would provide for $32 million for farm labor housing loans and $13 million for grants. These additional funds will address some of the worst housing in the country by providing increased safe and affordable rental housing for our farmworkers. The horrendous housing conditions that some of these families endure impact their health and their quality of life.

In Molalla, Oregon, Soledad Morales lives with her farmworker husband, his elderly mother, and her four children; she cares for other farmworker's children in her apartment. Before they moved into Housing Programs' farmworker housing, they lived together with many families. "Meal preparation and access to the bathroom were the worst part; with so many in one kitchen and one bathroom, sometimes I'd have to get up at 2:00 a.m. to bathe or make my husband's lunch, and sometimes I'd have to wait until 11:00 at night. It was chaotic and impossible to keep clean, since there wasn't agreement about cleanliness."

"Our health is better here; I think we live better. The children live better because they have the freedom to play outside in the lawns, playground and court. There's also counseling, classes, more access to programs, more communication. Also, here, those of us who give and receive childcare can participate in co-payment and reimbursement programs that we couldn't access before, due to the condition or distance of our homes from services."

This is just one example of the thousands of hardworking, low-income American families whose housing and quality of life will benefit from the increased funding requested for farm labor housing loans and grants in FY 1999.

The President's FY 1999 request for Community Facilities program levels provides an increase of approximately $50 million over the available levels in FY 98. We have significantly increased the utilization of the guaranteed program. In reviewing applications for assistance, we first consider if the project can be funded by a guaranteed loan. If this is not feasible, we look at a blended approach prior to considering the direct loan and/or the grant program. As a result of this approach, we have significantly expanded the number of guaranteed loans made to rural communities by approximately 100% between FY 1995 and FY 1997.

Access to high quality, affordable child care is a major priority for many young working rural families. The benefits of this kind of care are numerous: children are nurtured in a safe environment, parents have the opportunity to enter the work force to earn sufficient income to obtain an acceptable standard of living, and employers maintain a work force whose productivity is not impaired by unstable child care arrangements. Recognizing the importance of providing excellent child care to America's low-income rural families, the Housing Programs has consistently invested in child care facilities through the Community Facilities program.

In FY 1997, 19 States obligated $8.8 million in direct and guaranteed Community Facility loans and grants for 32 new child care centers. Five of these centers are funded through a new partnership that includes Housing Programs, the Federal Housing Finance Board, Head Start, the Freddie Mac Foundation and the Rural Local Initiatives Support Corporation (Rural LISC). These partnerships and others go beyond funding to provide technical assistance and build capacity.

Housing Programs programs also enable many rural elderly residents to remain self sufficient by continuing to live independently. The Section 504 repair loan and grant program, the Section 515 multi-family housing program and the Section 521 rental assistance program all enable elderly residents to live independently. For others who can no longer be independent, Housing Programs helps provide a decent quality of life in their own rural communities. The Community Facilities Programs finance assisted-living, adult and child day care, emergency services, nursing homes and health care facilities to help improve the quality of life.

These programs are helping people like Ms. Caroline Young, a 70 year old tenant currently living in LaPaula Villa Apartments, a 515 complex located in Friars Point, Mississippi, a poor Delta town. Ms. Young rented a home on the outskirts of Friars Point, prior to moving to the complex four years ago. The living conditions were deplorable, with cracks in the walls and floor. Ms. Young indicated she could see the ground through the cracks. The house was very old and extremely cold in the winter months. Even though the home had gas heat, she had to wear layers of clothes to keep warm. Now that she lives in the 515 project, she feels her health has improved significantly. Ms. Young said, "it's like living in a mansion compared to my previous living conditions."

If it were not for the Section 515 multi-family housing and rental assistance programs, Ms. Young would likely not have been able to live independently in a decent safe environment. Ms. Young sought other housing options before finding a vacancy at a local 515 project, including an assisted living facility and a group home, both of which would have resulted in a greater cost to the government.

For FY 1999, the President's Budget requests $583 million for rental assistance. This level is needed to renew $544 million of expiring contracts, enabling 37,516 elderly individuals and families to continue to live in decent and affordable housing. In addition to renewals, based on the FY 99 loan and grant request for Farm Labor Housing, $8.4 million of rental assistance will be used specifically to ensure affordability for all new Farm Labor tenants. For Section 515, $5.9 million has been requested to preserve affordability in projects eligible for prepayment and prevent displacement of tenants.

Expand access to our programs to all eligible rural Americans

Under Secretary Glickman's leadership, Housing Programs is continuing its outreach to underserved communities and populations. Native Americans are among the poorest housed groups in America and mortgage financing has not been widely available on Tribal lands. In 1995, USDA and HUD jointly conducted a series of homeownership conferences to enhance opportunities for lending on Native American lands. One result of these conferences is a comprehensive guide for Rural Development staff called "Lending on Native American Lands." In addition, Housing Programs is working closely with Fannie Mae and several Tribal councils to better serve Native Americans' housing needs.

Housing Programs has also improved the quality of life on tribal lands by expanding the use of the Community Facilities programs by Native American communities. The Agency has placed increased emphasis to provide funding opportunities to tribal colleges through the Community Facilities loan and grant programs. In FY 1997, the Agency provided a total of $9,950,000 in financing through the direct, guaranteed and grant program to Native Americans. This funding provided day care, administrative, medical and food preparation facilities.

Housing Programs has been promoting outreach activities to historically underserved customers. For example, Housing Programs has participated in the "Homeownership Opportunities for Women" (HOW) partnership, one of 58 national partners in the President's Homeownership Initiative. HOW is committed to increasing national homeownership rates for women.

On July 11, 1997, Secretary Glickman and HUD Secretary Cuomo signed a Memorandum of Understanding outlining the responsibilities between the two Departments on how to manage Fair Housing complaints. This MOU provides a more efficient and streamlined process for handling discrimination claims. In addition, Housing Programs has worked hard to ensure that all of our borrowers and staff follow the Fair Housing Laws. We are continuing to incorporate a Fair Housing training component at all national housing training meetings.

Reinvention and partnerships

We are continuing our reinvention and partnership efforts we initiated over three years ago. Our reinvention efforts in the single family 502 direct loan program were a great success and have set the standard for future efforts. We reduced the size of the 502 regulation by almost 90% and made it easy to read. We are currently streamlining and simplifying our other housing programs. As we move to a balanced budget with the President's FY 1999 Budget request, we all recognize the need for automation and modern technology to increase our efficiency, improve our customer service and cut costs. The USDA field structure has been reduced in the number of offices and employees. We have to work harder and smarter to continue to reach our customers. The ongoing reinvention of the housing programs include the following:

Expand our partnerships and leveraging opportunities

I would like to share with you our continued efforts to build partnerships and leveraging opportunities which expand our limited resources, drive dollars into rural communities, and build private, nonprofit and other public sector participation in local rural development efforts, increasing their likelihood of success.

The goal of the President's National Partnership for Homeownership is to provide homeownership to an additional eight million Americans by the year 2000. In support of the President's Initiative, we have formed many successful partnerships. Let me tell you about one.

The Rural Home Loan Partnership, formed in June of 1996 by Housing Programs, the Rural Local Initiatives Support Corporation (Rural LISC) and the Federal Home Loan Bank System, enables more families below 80 percent of area median income to achieve homeownership. Housing Programs provides a fixed-rate, subsidized 502 mortgage to cover a portion of the cost of a house, while a local bank provides financing for the remaining portion. Private non-profit community development corporations (CDCs) identify and counsel eligible borrowers and aid in the development of affordable housing opportunities. This partnership is just one example of our leveraging success. In FY 1997, with all partners, we leveraged 46.24% or $125,699,475 dollars of the Section 502 low-income allocation with $58,149,512 dollars from lenders.

Housing Programs's loan guarantee programs have brought increased numbers of financial institutions into partnership with the Agency. Over 2,000 lenders now participate in the Section 502 guarantee loan program which serves low and moderate-income residents.

In the 515 multifamily housing program, we increasingly employ partnerships with state housing finance agencies, CDBG and HOME funds, the private sector and local community organizations. This has allowed Housing Programs to reach larger numbers of low-income tenants with limited budget authority.

In the new Section 538 Guarantee Multi Family housing program, we have completed two years under a demonstration mode and are in the third year of operation. For FY 1996 and FY 1997, the Agency provided $41 million in guarantees for 25 projects, which when leveraged with other funding, financed total development costs of $71.5 million. For FY 1998, the Agency proposes to issue final regulations and a Notice of Funding Availability in the late Spring.

In the Community Facilities programs for FY 1997, Housing Programs has leveraged over 50% of its Direct funds and 26.5% of the guarantee funds, with state, local and private partners. Housing Programs developed a new partnership with the Department of Health and Human Services Head Start, the Freddie Mac Foundation and Rural LISC (Local Initiatives Support Corporation) to expand the number of child care centers in rural America and demonstrate a variety of financing models.

Protect the Government's interest

I would like to offer my appreciation for the reforms to the Section 515 program that were passed by this Committee in the FY 1997 Appropriation Act. The Department worked diligently to expedite the implementation of these reforms, and they were published as an interim rule on May 7, 1997 and as a final rule on December 23, 1997. In developing these rules, Housing Programs worked extensively with stakeholders representing for-profit and non-profit developers as well as housing advocacy groups, state housing finance agencies and other interested parties.

As a result of this Congress' and the Administration's efforts to provide the necessary tools to provide the proper oversight and management, the 515 portfolio is healthier and safer today. The tenants' and government's interest are protected.

In March of 1998, a joint effort between the Office of Inspector General (OIG) and the Housing Programs will begin. This will include joint participation between National and field staff from both Housing Programs and OIG to identify and review projects, owners and management companies in 12 states that potentially are at risk for financial abuse. This will allow Housing Programs and OIG to assess the recent legislative changes including the equity skimming provision and their effect on curbing fraud, waste and abuse in the 515 program.

We have become concerned, as I know this Committee has, with the increasing need for budget authority for our rental assistance program, which has grown from $404 million in 1993 to $541 million last year, and is projected to reach $650 million by 2000. We are exploring ways to address this issue while preserving the safety net for rural families. We will work with the Congress on this effort in the coming months.

Since 1994, the Agency has placed a high priority on rehabilitation of Section 515 Multi Family projects. Currently, the 515 Multi Family portfolio consists of over 18,000 projects with over 458,000 units. With this large and aging portfolio, the Administration is committed to preserve the integrity of these structures and protect both the tenants' and government's interest.

Now I would like to highlight the following points from the FY 1999 Budget proposal.

For section 502 direct single family housing loans in FY 1999, we are requesting a loan level of $1 billion. This is the same level provided in the FY 1998 Appropriation Act. For the Section 502 guaranteed loans, we are requesting a loan level of $3 billion.

In the section 515 multi-family housing loans, a loan level of $100 million is requested for FY 1999. The loan level request for housing repair loans (Section 504) is $25 million. For domestic farm labor housing loans, we are requesting $32 million program level, a $17 million increase over FY 1998 to meet the needed housing for farm workers consistent with the recommendations in Secretary Glickman's Civil Rights Action Team Report. We are requesting $5 million for two loan programs for housing site development. This significant increase over current levels will allow the Agency to effectively serve applicants on a national level.

The loan level request for the Multifamily Housing guarantee program (section 538) is $150 million. This will allow Housing Programs to have a fully operational program that will provide approximately 2,000 units to low and moderate-income tenants in rural areas.

The budget authority appropriation requested for the housing and community facilities loan programs is $231 million, approximately $13 million less than in the 1998 appropriation.

An increase of $42 million to $583 million is requested for rural rental assistance in 1999.

For the Self Help Technical Assistance Grants we are requesting $26 million, the same level as appropriated in FY 1998.

The housing grant programs are being requested for FY 1999 under the Rural Housing Assistance Grants Program. Within this program, our requests include $13 million for farm labor grants, $25 million for housing repair grants, and $9 million for housing preservation grants. The supervisory and technical assistance grant program and the compensation for construction defects grant program will continue to operate in FY 1999 with small amounts of carry-over funds which will be available.

The community facility program request is included in the proposed Rural Community Advancement Program. Within that overall program, we project that $200 million will be available for direct community facility loans and that another $210 million will be available in the guaranteed loan program. Approximately $8 million is proposed for community facility grants. The appropriation requested within RCAP to support the community facility programs is $36 million for FY 1999. This is $10 million more than is available for FY 1998.

For administrative expenses, the Budget requests $429 million. This is a $15 million increase from FY 1998. Housing Programs's ability to successfully implement the Centralizing Servicing Center and deliver the programs in the field and protect the portfolio requires this increase in administrative expenses.

This is the conclusion of my statement. I appreciate the opportunity to appear before this Committee today and as always, I will respond to any questions that you may have at this time.

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