[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


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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

                              ----------                              

                         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

                              ----------                              


                         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.
                                ------                                


 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.