Mr. BARTLETT. Thank you, Mr. Secretary.

Thank you, Mr. Chairman.

Chairman GONZALEZ. Thank you, Mr. Bartlett.

Mr. Morrison, I apologize for having overlooked you before, but we'll make up for it and be liberal in the time allotted.

Mr. MORRISON. Thank you, Mr. Chairman.

We keep working on the pecking order here. It's a long process. Mr. Secretary, I'm just following on the gentleman from Texas' question about the UDAG's. I think he somewhat misstated what you've told us in your testimony in that—as I understand it—if you had your way, personally, you'd be perfectly pleased to have that program to administer in the future. And I just hope that the committee and the Congress will give you your wish rather than what the administration has imposed on you.

But the important thing that you said earlier in your testimony, was that the administration had proposed its priorities and obviously now it was time for Congress to act. My concern is whether when Congress establishes those priorities, we can count on you and the others at HUD to carry out our decisions.

In November 1983, we passed a reauthorized of the Section 235 Program. And we included in that legislation significant changes in the applicability of that program to two- and three-family residences. And it's now 1985-March 1985. As far as I know, your Department has not even issued proposed regulations to implement those changes.

Can you explain to me why there's been that kind of delay?

Secretary PIERCE. I don't think that-I can never find reasons for delays in regulations that go on for an exorbitant amount of time. I'd like to talk with the people who have been working on those regulations for just a moment.

[Pause.]

Secretary PIERCE. Well, as I understand it, they have gotten out the regulations on the three bedrooms. It's only the one with the four bedrooms that they haven't gotten out yet. And they say they're working on that. So, up to three bedrooms, they've gotten out.

Mr. MORRISON. I don't-you are saying that you have published proposed regulations for two and three family, the expansion for rehabilitation?

Secretary PIERCE. That's what I am told.

Mr. MORRISON. What issue of the Federal Register are those published in?

[Pause.]

Secretary PIERCE. Well, I misunderstood. They said that they have not published the regulations as yet and they're still working on them. And they said it just took them that much time. And I agree with you, I don't like this either.

Mr. MORRISON. Well, Mr. Secretary, can you give us a commitment when you're going to publish these proposed regulations? [Pause.]

Chairman GONZALEZ. Will you yield to me?

Mr. MORRISON. Certainly, Mr. Chairman.

Secretary PIERCE. I am told-I am told that it will be this year. I would hope so. [Laughter.]

But I'm going to say this. Regulations are not easy and they go through one tremendous amount of time, but this is, and I agree, too long.

Chairman GONZALEZ. Will your assistant identify herself, and your title?

Ms. MCVAY WISEMAN. Yes, sir, my name is Shirley McVay Wiseman, and I'm the General Deputy Assistant Secretary for Housing. Mr. MORRISON. Well, I want to pursue this section 235 matter a little further, if I might. First, continuing on the question of regulations, last August, $150 million in new authority was appropriated for the implementation of this program. And your Department has consistently taken the position that it will not fund the expanded eligibility for two- and three-family units that is in the statute.

Now, Mr. Secretary, I know you're an attorney. And I know you know that a statute takes precedence over any regulation. And I wonder how it is you can explain that the Department has ignored the specific nondiscrimination provisions in the statute which say: "You cannot deny funding for 235 authority on the basis that it is for two- or three-family units, or it's for a substantial rehabilitation rather than new construction.'

Secretary PIERCE. Well, I don't believe they have denied it.

Mr. MORRISON. Well, I have your own notice on this which says that it cannot be applied to these units, however, because regulations must be developed for a program

Secretary PIERCE. I understand you have to have a publication before you can do it. You have to publish the regulation.

Mr. MORRISON. I think not, Mr. Secretary. I think that there is a statute that instructs the Department not to discriminate on a certain basis. And your failure to issue regulations does not excuse failure to apply the statute as written.

it.

Secretary PIERCE. Well, let me talk to my general counsel about

[Pause.]

Chairman GONZALEZ. Mr. Knapp. I know the gentleman's name, so Mr. Knapp is the chief counsel for HUD.

Secretary PIERCE. General counsel, John Knapp.
Chairman GONZALEZ. General counsel.

Mr. KNAPP. John Knapp, general counsel of the Department. I don't have a familiarity at the moment, a recollection of the specific provisions that Mr. Morrison is speaking of, whether the statutory provision is really phrased in that kind of an absolute way of nondiscrimination as opposed to an authorization to fund up to those-I can only say, Mr. Morrison, I will look at it and respond to you.

Mr. MORRISON. Well, I'd appreciate that and I'd appreciate it be done promptly because we've been asking about this since the money was appropriated. The money was supposed to be issued within 30 days. And it is a matter of great concern to me as the author of some of the new provisions. The new provisions are what allowed us to convince the Appropriations Committee that this program was worth trying again and they are exactly what the Department is not implementing. That is what I meant at the begin

ning when I said I had a concern about whether or not we were going to have our priorities carried out.

[At the request of Congressman Morrison, the following additional information was submitted for inclusion in the record by Mr. Knapp:]

RESPONSE RECEIVED FROM MR. KNAPP

The statute is written as you described. It provides that the Secretary "may not deny insurance on the basis that a mortgage involves a two- to three-family dwelling or is to be used to finance substantial rehabilitation rather than new construction."

That provision obviously does not remove the right of the Secretary to prescribe reasonable terms and conditions governing the insurance of mortgages on twofamily and three-family dwellings. Mortgages covering dwellings that include rental units present unique issues not otherwise addressed in the Section 235 program, such as how rental income should be taken into account in determining the mortgagor's income for purposes of calculating the amount of interest subsidy. Should there be, for example, an imputed minimum fair market rent? In addition, the statute itself prescribes certain special conditions, including that the mortgagor "agree that during the term of the mortgage each of the rental units shall be occupied by, or available for occupancy, persons and families whose incomes do not exceed 1100 per centum of the area median income." This requires definition of how the condition of "availability for occupancy" is satisfied, how tenant eligibility is to be determined, what happens when the tenant's income rises above the area median income, and so forth.

Normally, these are the types of questions that are resolved through notice-andcomment rulemaking. I don't say that they have to be resolved that way, but normally that is the most desirable way of proceeding, as this Subcommittee has on many occasions insisted. That is why I approved an opinion to the effect that neither the non-denial provision to which I referred above, nor the separate provision, also enacted in 1983, that the Secretary begin issuing new Section 235 commitments and reservations within 30 days after appropriation of budget authority, was intended to preclude the use of rulemaking for establishing the terms and conditions under which insurance would be granted for mortgages on two- and three-family dwellings.

I must say again, however, that while rulemaking is permitted and is normally desirable, it is not required. The FHA insurance programs are covered by the Administrative Procedure Act exemption for "grants, benefits, and contracts." In addition, there is the "good cause" exemption under both the APA and HUD's own rulemaking policies. In this case, both the passage of time since enactment of the 1983 legislation and the fact that the program is scheduled to expire on September 30, 1985, justify the Department in imposing conditions for two- and three-family mortgage insurance by notice rather than through notice-and-comment rulemaking. Field instructions are now in preparation and will be issued expeditiously, in ample time for applications to be made and considered for the funding that is currently available.

Mr. MORRISON. Let me ask one further question, if I could, about section 235. That is, as of December 1984, Mr. Secretary, you've published an allocation of 5,303 units under section 235. And out of that allocation, you have allocated to New England a grand and overwhelming total of 100 units, less than 2 percent of the national total.

I wonder on what needs basis you've made that kind of an allocation of units. And am I correct that this has been done just on the basis of developer applications rather than any assessment of the kind of needs that we have in our communities.

Secretary PIERCE. Now I'll have to let you answer.

Ms. MCVAY WISEMAN. This allocation was based on need by our field offices and we took an extensive survey of demand and set a floor at 100 units. And region 1, that you are speaking of, that 100 units that were allocated there, not one unit has been used to date.

Mr. MORRISON. Well, you might note, as I said earlier, that your Department has failed to implement the precise expansion of authority which is most applicable to the cities in New England. And it's not surprising that you're having a hard time using the units when you're not implementing the exact changes in the program that were intended to make them useful in that area.

However, I'm also aware there were a substantial number of units requested in New England. And I don't understand how this is a reflection of need. Some 1,300-according to a letter from the Secretary dated November 6, 1984, there were 1,350 units requested in New England. So I don't understand your statement that there are not units needed.

Ms. MCVAY WISEMAN. I don't know how many were requested. I don't have that information with me. But I do know that we did set a bottom floor of 100 and region 1 received 100 units and there were no requests for the other units, of which the regulations have not been implemented, to my knowledge.

Mr. MORRISON. Mr. Secretary, I would just appreciate if you would send me an explanation of how this allocation reflects the national need rather than just a response to developer interest. Secretary PIERCE. We will do that.

Mr. MORRISON. Thank you.

Thank you, Mr. Chairman.

Chairman GONZALEZ. Thank you, Mr. Morrison.

[At the request of Congressman Morrison, the following additional information was submitted for inclusion in the record by Secretary Pierce:]

RESPONSE RECEIVED FROM SECRETARY PIERCE

When HUD received the allocation of $150 million, we first determined that approximately 5400 units could be funded nationally. Because program requirements (mortgage limits, etc.) preclude activity in some areas, we wanted to make certain that units were distributed to those areas where they could be used. Our experience with earlier funding allotments indicated that units went unused in many areas and it was necessary to reallocate units frequently.

To avoid this problem, we solicited interest in this program from all of our field offices. When field offices canvassed their industry, it was not limited to developers only. In fact, in the State of Connecticut, many local groups expressed interest. The list of sponsors included:

Neighborhood Housing Inc., New Haven.

Corporation for Urban Home Ownership, New Haven.

On a national basis, we received requests from over 7,000 builder/sponsors totaling 70,000 units. Since every area could offer legitimate reasons why their request deserved special consideration, we simply divided the units proportionally based on a region's percentage of the total demand. In this way, we could be as objective as possible in our distribution process. As a result, even though 1300 units may have been requested for New England, that number is a small portion of the 70,000 units nationally.

Chairman GONZALEZ. Mr. Roth.

Mr. ROTH. Mr. Chairman, our colleague, Mr. Bartlett, complimented you on your evenhandedness. And I wish to compliment the other combatant in this joust and this trial by ordeal, and that's you, Mr. Secretary. You must relish the chance to come before this committee [laughter] because this committee is always so nice, congenial, civil, courteous, agreeable, affable, consideration. So I'm sure you'll rush to come back again.

I rather appreciate your statement, Mr. Chairman, because I think it was a tough statement for you to make but one that I think has to be made; when we are suffering these huge deficits and we want to keep this economy strong, I think the last thing we can do is to vote for H.R. 1, which would increase spending in this area from $11 billion to $22 billion, just doubling it. I don't know how that's going to take care of our deficits.

But, from my experience, EHAP, the voucher system has worked very well. One of my cities that I represent, Mr. Secretary, is Green Bay, WI. And from my experience in Green Bay, this voucher approach has worked very well. It's been effective and it's been efficient, and I hope that you continue it.

And from your statement, I think that you are right on target. And I wonder if you would elaborate a little on that for us.

Secretary PIERCE. Well, EHAP has worked, we think, very well and because it's worked so well, we really don't think there's need for a demonstration program with vouchers. We think it's already been proven between 1970 and now that the section 8 existing type of certificate, which is the forerunner of the voucher, is a very workable tool and a very good tool.

So we think that we know enough to go full-blast with the vouch

ers.

Mr. ROTH. I also, Mr. Secretary, represent some areas where Indian housing is very important in northeast Wisconsin. Now the voucher system is not geared for that area.

How are you going to work that?

Secretary PIERCE. Well, we'll get so many Indian housing units and we'll put them up in those areas.

Mr. ROTH. So, pardon me, you allocate those on a racial basis around the country? Is that the way that works?

Secretary PIERCE. On a fair share basis.

Mr. ROTH. I think a real telling point this morning is the chart you brought along, Mr. Secretary. And, if I may so, I don't think you put enough emphasis on it. When you take a look at the families assisted and the housing debt, I think that that's a real feather in your cap and I think that you should point to that more often and point that out.

Secretary PIERCE. Thank you.

Mr. ROTH. Thank you, Mr. Chairman.

Chairman GONZALEZ. Mr. Roth, if you will yield, I don't believe you mean to imply that the experimental program in Green Bay, that so-called Housing Allowance Program, is the same as the Voucher Program that has been advanced by the administration. Mr. ROTH. Well, the Secretary will correct me if I'm wrong. I think that's a forerunner for the Voucher Program.

Secretary PIERCE. Yes, it is.

Chairman GONZALEZ. Well, but it was a 1971 program, Mr. Roth. Secretary PIERCE. But we've continued it from the seventies and to now.

Chairman GONZALEZ. It was based on the old section 23 Leased Housing Program, Mr. Secretary. You know that. It has no relevance to this present experimental Voucher Program, Mr. Roth. I think the record should show that.

Mr. ROTH. Would the Chairman yield?