Shelterforce Interview:
Nicolas Retsinas
HUD Assistant Secretary for Housing-Federal Housing (FHA) Commissioner
By CHESTER HARTMAN

Shelterforce continues its series of interviews with key Washington housing figures (see FNMA Vice-President Barry Zigas, July/August, 1993, and HUD Assistant Secretary for Policy Development and Research Michael Stegman, November/December, 1993). In this issue, Associate Editor Chester Hartman interviews HUD Assistant Secretary for Housing-Federal Housing (FHA) Commissioner Nicolas Retsinas. Prior to coming to HUD, Retsinas was Executive Director of the Rhode Island Mortgage Finance Corporation and Director of Policy for the Governor of Rhode Island. Retsinas received a Masters in City Planning from Harvard (where he studied housing under then Professor Hartman).

Chester Hartman: What are your primary goals for your piece of the HUD agenda?

Nicolas Retsinas: There really are three. The first is what we call the portfolio. We inherited an array of problems. Mostly, an inventory of properties that have been deteriorating over the years. If we can't get our act together and stop the hemorrhaging and blight that causes neighborhoods to decline and affect peoples lives, then we've lost any credibility to re-engage as legitimate and credible actors.

The second priority is preservation [of the at-risk stock of subsidized housing]. The needs are so great we can't afford to fall behind. There are some very important substantive issues facing us in terms of the budget and resource limitations. We need to find a way that we don't fall far behind and lose any of the small gains we've made in recent years.

The third priority is [housing] production. Even though we don't yet have our act together – we haven't taken care of the portfolio, we haven't figured out how to preserve efficiently all the units we have within the resources we have – we still need to do more to get back to the production business. Those are our three priorities.

CH: Let me go over each of those in some detail. With respect to the expiring-use, at-risk stock, what do you think of the present law and programs relating to the stock of about a half million units, most of which is in good condition?

NR: The present law was the product of intense deliberation and compromise among a variety of parties. In theory, the law should work. In practice, however, it has been much more difficult. I am not yet sure whether it is appropriate to consider a legislative fix. But we do need something fixed. We need to look again at what our resources are and be very clear about what our goals are. Also, we need to be more efficient. In many ways we have avoided the difficult question of preservation – how to pay for it over time – by setting up a cumbersome and lengthy administrative procedure. We need to streamline that procedure. We need to find people to work with in thinking through that procedure. Doing that will put us in a position to have to face, maybe more quickly than we heretofore have, the real costs of preservation. But I think it's important that we understand what the tradeoffs and choices are.

We've put together work groups with a variety of outside people – private sector and community-based organizations and tenants – to help us think it through. It's premature to say whether that would lead to a legislative option next year or whether we can do something administratively.

CH: Is the present program too expensive? Aren't there cheaper ways of preserving this stock? And isn't throwing in a whole lot of Section 8 subsidies raising the price of these buildings?

NR: Certainly the cost of preservation is one that our budget would appear to be ill-equipped to absorb, and therein lies the dilemma. As I said at the outset, one of our goals is preservation. We can't afford to fall behind. Saying that, how do we balance that goal with fiscal reality? That's a real problem.

CH: Let me turn to the Section 8 program – particularly the new and the substantial rehabbed stock. It has been reported that the Fair Market Rents (FMRs) in many areas – for example, in D.C., – are quite high relative to current market conditions. What are the barriers to redoing the FMRs so as to better reflect those market trends and thus save the government money? If this isn't a real possibility, how about leaning on owners to voluntarily amend their Section 8 contracts.

NR: There are legal barriers – certain restrictions – to changing contracts. The government and the law frown upon that.

CH: You couldn't get the owners to do it voluntarily?

NR: It is very difficult to do that. I find that in some cases the rents that are higher than the market level pay for the extra services. The high rents are appropriate because you get more services. It's naive for us to think that, given the populations and the problems that we deal with, if we just pay to make sure that the four walls stand up and the roof stays on, we have fulfilled our obligation. In some cases, it is entirely appropriate to find some way to pay for community services: for example, a day care facility or access to service coordinators. So it is not apples and apples when you compare a rent that you might pay. Our test is how to ensure that we are getting those extra services in return. That's the challenge.

CH: Is there any thought of redoing the FMRs? Is there a staffing problem in doing that?

NR: There is both a staffing and administrative problem, but there are also some legal prohibitions in terms of reducing rents. What we are moving toward is a budget-based Fair Market Rent.

CH: What is that?

NR: Budget-based means you look at the real expenses of the development, at the issues of other services, and determine what's the appropriate rent, as opposed to automatically setting a rent based on a formula or some standard set in the past. Doing that takes more administrative responsibility and greater scrutiny.

CH: Let's move on to the multi-family property disposition program. What is the size of the current stock of HUD-owned, multi-family properties and at what rate are new units coming into the stock?

NR: The current inventory is around 180 developments. The greater problem facing us is the HUD-held mortgages, of which we have 2,500. Because of legislative restrictions, we are unable to foreclose and own that property, so, effectively, that's our inventory. Legally and technically, it's still in the hands of the owners but we essentially hold the mortgage and in many ways are de facto owners of these properties.

CH: At what rate are new properties coming into that stock?

NR: I think we slowed the hemorrhaging, in part because of the economy and some of the things that we are trying to do, such as refinancing. Those properties are probably coming into the inventory at the rate of maybe five to ten projects a month.

CH: Last spring there was a considerable brouhaha around a New York Times report of a Coopers and Lybrand study showing a previously unrecognized and unfunded $12 billion liability attributable to the HUD-insured properties. The Administration then proposed legislation to relieve this burden via cutbacks in Section 8 guarantees, and that legislation got the housing advocacy community pretty upset. The legislation never made it through Congress. In retrospect, what's your view of that whole experience and do you plan to introduce similar legislation in the next session of Congress?

NR: Well, the current Congress still is in session. There was legislation that was passed by the Senate and separate legislation was passed by the House on this issue. They were not the same legislation and that is the reason no legislation was passed. Whether we wish it or not, that legislation will have its own life come January when Congress reconvenes. No new legislation that would start from scratch will be introduced, but you already have existing packages to work with. We will strive again, as we did with the original legislation, to strike a balance between preservation goals and fiscal constraints. At the same time, we will be trying to get additional resources. It's sort of a balancing act. Clearly, some thought we hadn't struck the right balance, some thought we did.

CH: But isn't it likely there will be a loss of some affordable housing currently or in the near future?

NR: There is. There will be one of two choices. Either Congress will appropriate additional Section 8 subsidies under the current law so that all existing units will be saved, or they won't. If they don't, there will be a loss of unit s. Our legislation, however, protected all the tenants living in subsidized units. The tenants were never at risk. But there was a chance of a unit not being preserved.

CH: What do you think the chances are that the Congress will appropriate more Section 8 funds?

NR: Congress did appropriate more funds for FY 94. These funds, however, remain insufficient to address all of the units currently in, or coming into, our portfolio.

CH: Let me ask you about the single-family mortgage foreclosure and disposition program. About how many properties and units are in that inventory? I gather that, despite the label, the properties really are one- to four-unit structures.

NR: About 31,000 properties, mostly singles and only a few twos, threes, and fours.

CH: At what rate are new properties coming into that program?

NR: Pretty much at the same rate we are selling them. As a matter of fact, in fiscal 1993, we sold about 65,000 and acquired about 63,000. You may be interested to know that this summer we experimented with a new initiative in two HUD offices. We offered a discount for the disposition of our properties if the sale occurred to a not-for-profit or local government intermediary which would then transfer the property to home ownership. We established for the first time that disposition of property would emphasize home ownership and community revitalization, not just the best price for a single property.

CH: The health of the insurance fund had been the primary factor in disposing of the HUD inventory.

NR: It remains an important factor. My rationalization for emphasizing home ownership and community reinvestment is very simple: In many neighborhoods you're insuring many properties and sometimes selling a single property at the best price – for example, to an investor-owner, who then would just carry and speculate with the property, a transaction that might undermine our insurance of other properties. So my argument was that the overall health of the fund could be enhanced by greater attention to the communities. We were an investor in the neighborhood, not just an investor in the individual property.

CH: What are the prospects for making purchase money mortgages available for such purchases?

NR: We would very much like to do that, but are statutorily prohibited.

CH: But doesn't the Farmers Home Administration do it?

NR: Yes, and the RTC as well.

CH: Is that a statute you are trying to change?

NR: We tried last year but we weren't successful.

CH: One other way HUD could help low-income families whose loans have been assigned to HUD retain their homes is to reduce their interest rates to the federal cost of borrowing. I understand HUD not only has the statutory authority but a mandate to do that under the 1992 Housing Act.

NR: We are just starting to do that. We sent a notice out on December 8th.

CH: Elsewhere, you've expressed some unhappiness with the HUD mortgage assignment program – that you have insufficient staff to service the existing loans in your portfolio. In your statement to the Senate Banking Committee at your confirmation hearings you said you're committed to "making home ownership a reality for working families throughout the country." Doesn't this argue for increasing the rate of acceptances for mortgage assignments, which now average around 17 percent around the country and around five to six percent in some large metropolitan areas? Are you instructing your Area Offices to increase the rate of acceptance?

NR: No. My unhappiness with the mortgage assignment is its cumbersome nature. It has two goals that are somewhat at odds with each other and we don't seem to serve either goal very well. One very important goal is keeping people in their homes. The other is the fiduciary responsibility we have with the insurance fund. As you know, the fund is required statutorily to be self-sustaining. As a matter of fact, it is required by statute to turn a profit in order to meet certain capital standards – that is, to be more than self-sustaining. My concern is that the assignment program really does not appear to serve either goal very well. So we have put together a work group to clarify how we can make it more efficient. It includes representatives from the Mortgage Bankers Association – the primary lenders involved. I think lenders need to be take more of a role. In addition, the National Housing Law Project has been an articulate advocate on how we can best use the program to accomplish those goals. I expect a recommendation from the work group early in the calendar year.

CH: Some of the Legal Service attorneys who were involved in that review had serious disagreements with the results of the process and a concern about being excluded from further participation in formulating a revised program. Do you have plans to involve them in this in the future?

NR: They are still part of the process right now. Those are the two primary groups. There are others, but those two are the ones we singled out as the main parties.

CH: There's also a perception that this review process was carried out largely by old-time HUD staff, many of whom are from the Regain-Bush years and that neither you nor your Deputy Assistant Secretary, Deborah Williams, the political appointees who, presumably, have a more friendly view towards the needs of lower-income households, were greatly involved in that process.

NR: Well, first of all, the process was set up by the new leadership. There are 13,500 HUD employees. More specifically, within Housing there are about 6,000 employees. The new administration brought in somewhere between 12 and 14 people, which means that 5,986 of the employees are career employees. Some of them started within the last twelve years, many of them started beyond the last twelve years.

CH: But presumably you were directing their work.

NR: I direct all of them within the constraints of Civil Service. It is absolutely essential that, if we're going to make real changes, we make certain that all the HUD employees will be part of the change process. I am absolutely insistent – not letting it happen but insistent – that in all these processes the career staff be a part of every review. I can't do it any other way, because I'd like to think that when I leave here, and I will, that somehow the things we are doing will have an internal momentum of their own. I'm not going to pretend that a deus ex machina can come from the outside, and that 12 people somehow sort of influenced, overnight, 6,000 people.

CH: One more question about the mortgage assignment process review. I gather it focused exclusively on the initial processing of requests for mortgage assignment and didn't look at improvements that could be made in the program operations once the mortgages were assigned to HUD. I also understand that a separate review of those aspects of the program may be undertaken in 1994. Are you committed to undertaking that review as well, and if so when?

NR: Yes. The first review leads naturally into the other. I expect to get a preliminary report early in the calendar year, and then we will move to the second phase.

CH: As you mentioned, you recently implemented a demonstration program to sell single-family inventory properties in revitalization areas at a discount to Nonprofits for resale to low- and moderate-income families. Are you considering expanding that program to non-revitalization areas, a thrust that would clearly fit in with Secretary Cisnero's emphasis on mobility and the Moving to Opportunity demonstration [the expansion to six other cities of Chicago's Gautreaux program, providing Section 8 certificates to inner-city, subsidized housing residents who want to relocate to the suburbs]?

NR: I would certainly like to. My concern again is with that balance. Congress has been very clear that we have an obligation to make sure that the insurance fund is self-sustaining.

CH: Why would moving the discounted sale program out of revitalization areas endanger the fund?

NR: It's a question of volume. If it's a real discount, that is a loss to the fund. But absolutely I would like this to be the way we do business. We've got to keep revisiting this question of the fund, and as long as we are required to make a profit, which we are, it becomes more difficult. The tradeoffs involved if we are required to keep some of the fiduciary funds to meet capital standards and turn a profit is going to inhibit some of the social purposes.

CH: What is the discount you offer when doing these sales at below market cost?

NR: 30 percent.

CH: How is that set?

NR: By our low-income rules and guidelines.

CH: But you could make it less or more.

NR: Yes. But there is something to be said about some general consistency and targets.

CH: One final question. You've come from Rhode Island, the smallest state in union, to a totally different environment in terms of the scale of the problems and the resources you have available and to a wholly different political context. Even though you've only been here a couple of months, how would you compare those two experiences?

NR: This is a different world. I must admit there is some frustration. Here there is more of an obsession with process. HUD is probably a microcosm of Washington. But I'm not sure it's really different in other departments. Process is necessary. No question about that. But somehow the measure ought to be helping people over time. The good thing is there are a lot of good people here. One of the hardest things for me here is getting out – making sure I spend time outside of the building. These positions often have an in-box that looks like a dumpster. It's important to get reality checks. That's why I make a point to try to visit local Field Offices when I travel. Also, I always try to visit or speak with local groups. While it is very hard to do that here, it must be done in order to reach and hear their concerns and ideas. 

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