In order to give you a better perspective of the Department's debt collection initiatives and its implementation of the DCIA, I would like to first present a description of the Department's debt portfolio. As of September 30, 1996, there was approximately $2,282 billion in delinquent debt due the Department (a decrease of $443 million from the balance of September 30, 1995). Of this amount, approximately $1,764 billion pertained to FHA receivables that resulted from defaulted insured loans. Because of this, our major debt collection initiatives (including asset sales) center around ways to service and dispose of these FHA receivables. I have attached charts that summarize the nature of HUD's delinquent debt (Exhibit "A") and the nature of HUD's delinquent debt in excess of 180 days old (Exhibit "B").

Before addressing the specific issues that were included as part of your invitation to the Secretary to participate in these hearings, let me first say that HUD is in substantial compliance with the major provisions of DCIA.

$ we have addressed the administrative offset provision of the Act by referring FHA Title I debt (debt related to our manufactured housing and home improvement loan guarantee program) to Treasury for offset. This is the majority of the debt that could be referred.

$ we are addressing the cross-servicing provisions of the Act by working with Treasury to transfer responsibility and staff of HUD's FHA existing Seattle Asset Recovery Center (ARC) to the jurisdiction of Treasury (this will be explained in more detail later).

$ we have a successful asset sales program that has made us the leader in the federal government in this area.

$ we pioneered the use of the Credit Alert Interactive Voice Response System (CAIVRS) as a pre-screening tool to bar individuals who owe the government money from obtaining new government loans or loan guarantees. A more detailed discussion of this system is included later in this text.

Now to address the specific issues raised by the Committee.

1. Completion of chart. - The chart included with your request has been completed and is included as our Exhibit "C". Highlights are:

$ The adjusted debt over 180 days delinquent includes Single Family ($477 million) and Multifamily ($545 million) debt which is part of our asset sales program and will not be referred to Treasury for offset.

$ The amount to be collected by internal offset is GNMA debt ($308 million), associated with our Mortgage Backed Securities Program, that will be collected from the FHA insurance or VA guarantees.

$ We have participated in the Tax Refund Offset program since its inception in 1986.

$ A statutory impediment currently exists which will prevent the Department from selling subsidized multifamily notes with an unpaid balance of $1.232 billion. The Department has sent language to the Committee of jurisdiction to permit the sale of subsidized Multifamily notes.

2. Implementation of Administrative Offset Program.

$ HUD has referred $135 million to Treasury for inclusion in the offset program; as shown below:

Program Cases Referred Dollars
FHA Title I 15,518 $134.5 million
Admin Debt 103 $400 thousand

$ The cases that were referred to Treasury for the administrative offset program are essentially the same cases that were sent to the Internal Revenue Service for the Tax Refund Offset Program.

$ In addition to the debt that has already been referred to the offset program, we are currently clarifying the eligibility of delinquent debt associated with the Section 312 program for referral to the offset program: 2,700 Cases with a value of $23.5 million.

3. The status of regulations to implement DCIA is as follows:

$ The Department's existing regulations governing debt collection and interagency agreements for the routine use of records under the Privacy Act of 1974, are adequate to permit our participation in the Treasury Offset Program.

$ We have published an amendment to the Civil Monetary Penalties regulations, and published new inflation adjustment factors for these penalties, as required by DCIA.

4. Cross-Agency System issues. The Department participates in government-wide system user groups that provide input to Treasury concerning systems changes or enhancements that are needed to implement the provisions of DCIA. While we currently have no major systems issues regarding implementing DCIA, we are awaiting some technical guidance from Treasury (file formats, particular indicators or values to be used in a given situation) concerning Treasury's proposed rule on mandatory tax identification numbers. However, our understanding is that Treasury will address the concerns of all agencies after receiving all comments to this proposed rule.

5. Legislative Proposals pending before the subcommittee. HUD and the Administration is studying the merits of these bills but is not prepared to take a formal position at this time. As always, the Administration is willing to work with the Committee on legislation for the purpose of creating management tools needed to ensure program integrity, effective debt collection, and the protection of individual privacy issues.

I would like to use this opportunity to further discuss areas of debt collection where we believe the Department has an innovative and positive story to tell.

SEATTLE ASSET RECOVERY CENTER To conform with the cross-servicing provisions of DCIA, HUD has proposed to the Treasury Department a unique approach to the collection of debt. Under this proposal, HUD would join Treasury in a pilot project in which one of HUD's debt management facilities, the Seattle ARC, would operate as a Treasury Debt Collection Center and collect delinquent Title I and, eventually, all HUD debts would fall under the jurisdiction of the DCIA. The Seattle ARC will carry out Treasury responsibilities under the DCIA and take program direction from Treasury's Debt Management Service staff. HUD would turn over the total operation -- staff, equipment and space -- to Treasury. The pilot would run for less than a year and conclude with an evaluation of the Seattle ARC's success as a reimbursable debt collection center for Treasury.

This pilot was sent to the National Performance Review (NPR) for designation as a reinvention laboratory. This pilot program would promote one of the overall goals of NPR's reinvention laboratory effort: building models of interagency cooperation that promote savings and work efficiencies in the federal sector. Through the use of such a pilot, and the ultimate transfer of HUD staff to Treasury, strategic objectives are accomplished for both HUD and Treasury. HUD's Business Process Redesign of its Title I debt collection activities identified opportunities to gain efficiencies and free up staff by streamlining business processes and leveraging the provisions of the DCIA, such as cross-servicing. Further, DCIA requires Treasury to establish Debt Collection Centers to service debt referred to Treasury by the various agencies. This potential transfer matches the skills in debt collection of current HUD staff in its Seattle ARC with the need for Treasury to establish Debt Collection Centers as required by DCIA.

ASSET SALES HUD's asset sales program is a significant element of our compliance with DCIA. This program was started in 1994 and was designed to dispose of up to $11 billion of notes that resulted from defaulted loan guarantees. The mortgage loan sales program includes both single family and multifamily mortgages and is designed to:

(1) transfer the mortgages back to the private sector, where they can be more efficiently serviced and
(2) allow more of FHA's resources to be assigned to monitor the more than $400 billion worth of single family and multifamily mortgages the agency currently insures. More proactive monitoring of the FHA insured portfolio lowers the likelihood of defaults and claims in this critical inventory and, in the long run, reduces taxpayer exposure. Since 1994, HUD has sold over 115 thousand defaulted loans and received gross proceeds of over $7.5 billion.

CAIVRS The DCIA states that "delinquent Federal debtors will be barred from obtaining Federal loans or loan insurance guarantees." HUD has addressed this provision of DCIA through its use of the Credit Alert Interactive Voice Response System (CAIVRS). CAIVRS is a Federal government interagency shared database, whose participants are users from HUD, USDA, VA, SBA, FDIC and the Department of Education. The purpose of the system is to alert participating Federal lending agencies when an applicant for benefits/loans has a Federal loan which is currently in default or foreclosure, or has had a claim paid by the reporting agency. CAIVRS was initially developed by FHA in 1987 to screen loan applicants for the Single Family Mortgage Insurance Program. It was later expanded to support the Title I Property Improvement/Manufactured Homes Insurance Programs and the Section 312 Rehabilitation Loan Program. Since 1987, over 24 million borrowers have been pre-screened through CAIVRS. Starting in 1993, the scope of CAIVRS was expanded to include the other agencies indicated above. As a result of this process, we understand participating Agencies have realized cash collections of delinquent debts.

In conclusion, let me emphasize:
$ HUD is in substantial compliance with the provisions of DCIA;
$ HUD has used its asset sales program as our primary method of disposing of FHA debt that resulted from defaulted loan guarantees in our multifamily and single family programs; and
$ HUD will pursue the formal move of the Seattle ARC to Treasury.

I would welcome any questions at this time.