Testimony By: Jim Arbury
Before: House of Representatives Financial Services Committee
|Date: May 5, 2009|
On April 23, NMHC testified before the House Financial Services Committee, urging lawmakers to reject proposals that would require the initial purchaser of a foreclosed property to assume any existing Section 8 housing assistance payment contracts and allow Section 8 renters to remain in place for the term of the lease. (Our oral testimony appears below.)
The proposal has been included as a provision in mortgage reform legislation (H.R. 1728) currently being debated in the House as well as in a standalone bill (H.R. 1247). They are part of a broader effort being advanced by low-income housing advocates to protect the growing number of renters being evicted from foreclosed houses and condos that they had rented. In addition to the Section 8 provisions, both bills would require that renters in foreclosed properties be allowed to remain in the property until the end of their lease or be given a 90-day notice before being required to move if the purchaser wanted to occupy the property as a primary residence.
In our testimony and our oral statements, we worked to educate lawmakers that the problems they are trying to solve are occurring almost exclusively in the single-family sector and that when foreclosures do take place in the multifamily sector, existing leases transfer with the title and are honored. Therefore, additional renter protections are not necessary for renters in apartments (defined as properties with five or more units). We also strongly opposed efforts to make the Section 8 program mandatory, which is a clear break from what Congress intended when it created the program.
We also underscored the importance of not imposing additional constraints and onerous regulations on the apartment sector that would discourage investment in rental housing at a time when the nation's demand for rental housing outstrips supply and is rising as a result of the recession. We will continue to oppose these measures in the pending legislation and in a Section 8 reform bill that is expected to be released soon.
I would like to thank you on behalf of the National Multifamily Housing Council and the National Apartment Association for the opportunity to provide the Committee with important information about the apartment sector as you begin debate on H.R. 1728.
You have my written statement. At this time I would like to make a brief oral statement.
As you take action to address the foreclosure crisis and the problems that accompany it, we urge you to carefully consider the meaningful differences between the single-family/multi-unit sector, such as duplexes and fourplexes, and the apartment sector, which we define as properties with five or more units.
Without a proper understanding of those differences, any actions taken to address the single-family meltdown may cause unintended consequences for the apartment sector. Understanding the needs of the apartment sector is more important now than ever because
The word multi-unit has been used to encompass not only duplexes and four-plexes, but also multifamily apartment rental communities with five or more units. The distinction between multi-unit and multifamily is being blurred when data is presented that suggests there is a big foreclosure problem in multi-unit properties.
Nobody likes to see people evicted from their home as we saw last year before various lenders announced a moratorium on evictions. Before the moratorium, many people who had purchased a single-family or condominium home during the housing “bubble” could not make their mortgage payments. And since single-family houses and condos are intended to be “ownershiip” housing, the lenders were eager to move that housing as quickly as they could – this resulted in evictions, but then the lenders found out that there were few buyers.
Ownership housing is fundamentally different from multifamily apartment rental housing. We are not in the business of selling. We are in the business of renting homes to millions of Americans. If a multifamily apartment rental community goes into foreclosure, residents are not evicted. There is a much more orderly transition. The community continues to be managed as a rental community. We want to retain residents – not evict them.
One only has to look at the history of what happened during the recession of the late-1980’s and early 1990’s when a number of apartment communities that had been overleveraged went into foreclosure. There were no stories about evictions from those communities because of the foreclosure.
Multifamily apartment rental communites – those with five or more units – are fundamentally different from where the huge national problem with foreclosure/evictions lies.
I offer this perspective to help you understand why it’s critical that any actions you take to address the foreclosure crisis not adversely affect the ability of the apartment sector to meet the great demand for affordable rental housing.
We truly understand the Committee's desire to protect renters, who through no fault of their own face eviction because they are renting a foreclosed property. But the proposed tenant protections included in H.R. 1728--and a stand-alone bill, H.R. 1257, the “Protecting Tenants at Foreclosure Act of 2009"—could have many unintended consequences that could lead to less private investment in affordable multifamily rental apartment housing.
Therefore We strongly oppose provisions in these bills that would essentially mandate participation in the voluntary Section 8 voucher program. Specifically, the legislation requires the “immediate successor in interest” of a foreclosed property to be subject to any pre-existing lease and Housing Assistance Payment (HAP) contracts for Section 8 recipients. Through changes in the language to the HAP contract, the legislation attempts to subject a new owner, who is the “immediate successor in interest,” to the existing HAP contract that was agreed to by the previous owner.
There are many problems with this provision. First, it is not clear how it would be applied considering that the new purchaser is not party to the existing HAP contract. Further, the HAP contract is not a recorded covenant or lien that passes with the transfer of title to the property. Finally, it is not clear whether this new requirement subjects the “immediate successor in interest” to the contract violations of the previous owner.
When Congress created the Section 8 program, it explicitly made the program voluntary because it recognized that there are costs and burdens imposed on property owners who choose to participate. Now this legislation seeks to mandate that in the event of a foreclosure the “immediate successor in interest” would be subject to the HAP contract of the previous owner. In other words, Section 8 participation would be mandatory.
We fully support Section 8. It is a critical program for meeting the housing needs of millions of Americans, and many member firms willingly participate in the program. But historically the program has been troubled with inefficiencies and bureaucratic requirements that make it more expensive to rent to a Section 8 voucher holder than to a market-rate renter. Instead of making participation mandatory, we need to reform the program.
We do not believe that the proposed renter protections are necessary for the multifamily part of the rental market. We go further – the proposed provisions will deter private investment in affordable rental housing. As you know, Section 8 voucher renters do NOT lose their subsidy as a result of a foreclosure. For this reason, it is unclear why Congress would want to provide additional protections to voucher renters while infringing on the rights of the potential purchaser or the “immediate successor in interest.”
This provision could have the unintended consequence of making it more difficult to encourage the resale of foreclosed multifamily rental properties. And, as i said before, It could also greatly diminish private investment in affordable housing at a time when demand for affordable rental housing is higher than ever. We understand the appeal of such mandates, but ultimately they are self-defeating.
Foreclosure and eviction may well happen in single-family and condos, but not in multifamily.
In any economic cycle – good or bad – multifamily foreclosures will occur for a variety of reasons. But new owners come in and there is an orderly transition to better management of the property.
We strongly support efforts to provide more multifamily apartment rental housing that is affordable. Various government mandates and some rules serve to weaken – not strengthen – our ability to bring in private investment. This is not the time to add to those problems.
Thank you for theopportunity to present our views. We look forward to working with Congress to ensure that all Americans have decent, safe and affordable multifamily apartment rental housing.