The Senate Committee on Banking, Housing, and Urban Affairs held a confirmation hearing on June 17 regarding the nominations of San Antonio Mayor Julián Castro for the position of HUD Secretary, and Laura Werthheimer, a partner in the securities practice of the law firm Wilmer Cuttering Picking Hale and Dorr, for the position of Federal Housing Finance Agency (FHFA) Inspector General (IG).
Mayor Castro was nominated in anticipation of current HUD Secretary Shaun Donovan’s confirmation as Director of Office of Management and Budget (OMB). Secretary Donovan’s confirmation hearings were held on June 11 (see Memo, 6/13). The Senate Committee on Homeland Security and Government Affairs will mark up the Donovan nomination on Wednesday, June 25.
Mayor Castro was introduced by Senator John Cornyn (R-TX), who said that “after meeting with Mayor Castro, I’m encouraged that he would employ the same energetic vision that has characterized his tenure leading Texas’s second largest city.”
Committee Chair Tim Johnson (D-SD) asked Mayor Castro about addressing housing needs in Indian country and consultation with tribes. Mayor Castro responded, “absolutely, I’m committed to ensuring that HUD works closely with our tribal communities.” He added, “I fully understand that my experience is as a big city mayor; however, that as part of [HUD’s] mission, we don’t just serve big cities and urban areas. We also serve rural communities, small towns, and our tribal communities.”
Senator Johnson also asked Mayor Castro about a 2012 HUD IG report that found that the City of San Antonio was not properly administering its Neighborhood Stabilization Program grant. Mayor Castro responded that after HUD issued preliminary findings and backup documentation was provided by city staff, the city returned $125 million using city funds. The Mayor supported these and other corrective measures as soon as he learned of the issue.
Committee Ranking Member Mike Crapo (R-ID) expressed concern about the status of the Federal Housing Administration (FHA) insurance fund, saying “last year, this committee moved legislation, the FHA Solvency Act, with strong bipartisan support to get the FHA back on stable financial footing.” He asked the Mayor, “if confirmed, will you commit to help us move this piece of legislation and to move the FHA toward solvency?” Mayor Castro responded that “I am committed to helping to ensure…that the FHA is on a good track and to support legislative efforts to that effect.” He added that although he understood that FHA is now in a stable financial position, “if I am confirmed at HUD, I look forward to working with you and the committee to support legislative efforts as well.”
Housing finance reform and the Committee-approved Johnson-Crapo housing bill (see Memo, 5/16) were a prominent topic of discussion at the hearing, with multiple Senators raising the importance of continued action on reform efforts. Senator Crapo said, “Secretary Donovan has worked very closely with the Committee in helping to develop this legislation and advocating for its passage. If confirmed, will you commit to helping the Committee move this important piece of legislation?” Mayor Castro commended Senators Johnson and Crapo and the Committee members for their work on the legislation and said, “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 followed up by asking if the Mayor thought there were any negative consequences for Congressional inaction on housing finance reform. Mayor Castro responded, “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 (Mae) and Freddie (Mac) is not sustainable for the long term.”
Senators Jon Tester (D-MT), Mark Warner (D-VA), and Elizabeth Warren (D-MA) also asked about housing finance reform, specifically regarding the importance of expanding access to mortgage credit for creditworthy potential borrowers. Senator Warren said many Americans do not have access to mortgage credit and “the story is much worse for African American families, for Hispanic families. We have got to change what’s happening with Fannie and Freddie. We have got to make reforms.” Mayor Castro said, “I believe reform would be preferable to what we have in place now if the nation were to experience another down turn, another housing crisis as we just experienced.” He later added, “I don’t believe that the taxpayers are nearly as protected as they could be under this different model. And that’s a positive of this legislation.”
Senator Jack Reed (D-RI) asked the Mayor about his plans, if confirmed, to meet the federal goal of ending homelessness among veterans by 2015. Mayor Castro responded that HUD’s work to end veteran homelessness is a bright spot for the Committee and the Administration, and expressed that he would support ongoing efforts, particularly the HUD-VASH program, to meet the goal.
Senator Reed also asked about Mayor Castro’s vision for HUD, based on his experience as San Antonio’s Mayor. Mayor Castro said he wanted to address housing in a “holistic way, along with education, along with transit, I believe it has a bigger impact.” He also emphasized the importance of measuring outcomes, and the urgency for more affordable housing opportunities.
Senator Richard Shelby (R-AL) asked Mayor Castro about his strategy for dealing with rising costs for the Section 8 program. The Mayor replied, “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… I look forward to delving into more of the details to look at what way we can achieve some efficiencies and hopefully streamline.”
Senator Robert Menendez (D-NJ) asked if Section 8 voucher reform is a priority, and if the Mayor would work with the Committee to move reform legislation forward. The Senator said, “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 7 million. So, voucher reform, while some elements of this have been done by the Congress, there’s still much work let to be done.” Mayor Castro responded, “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. And of course I look forward to getting more up to speed on all the details of what is being proposed.”
Senator Menendez also noted that if confirmed, Mayor Castro would be tasked with administering and overseeing $15 billion in Community Development Block Grant Disaster Recovery dollars for areas impacted by Super Storm Sandy. The Senator invited Mayor Castro to tour areas of New Jersey impacted by Super Storm Sandy to “see the work that’s been done, but more importantly see the work that has not been done.” Mayor Castro assured the Senator that if confirmed, he would make sure that HUD works with the State of New Jersey to implement procedures directing remaining federal housing dollars to people affected by the storm in as effective a manner as possible.
Senator Sherrod Brown (D-OH) asked about the proposed Affirmatively Furthering Fair Housing (AFFH) rule, “What steps will you 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?” Mayor Castro responded that it is important that local authorities provide comments and feedback regarding the proposed AFFH rule. The Mayor said, “What I can commit to right now, whether it’s this issue or another rule on the table, is that we will diligently proceed and take in the comments and consider them.”
While the majority of the hearing was devoted to Mayor Castro, Ms. Wertheimer received a number of questions related to potential conflicts of interest and independence given her current job at the law firm of Wilmer Cutler Pickering Hale and Dorr. Senator Johnson asked Ms. Wertheimer about measures she would take, if confirmed, to assure that there is no conflict of interest between the work of FHFA and her past work and her husband’s current work at the law firm of Mayer Brown and Platt. Ms. Wertheimer responded that as soon as she knew she was under consideration for the position of FHFA Inspector General she spoke at length with FHFA’s ethics officer. She said that if confirmed, she would recuse herself from any matter in which her law firm appears before FHFA or FHFA’s IG. Ms. Wertheimer added she also would recuse herself from any case in which her husband’s law firm appears before FHFA or its IG, as well as from matters in which any of her clients were involved, even if they were represented by other law firms. Ms. Wertheimer added that if confirmed, she and her husband would divest from “several items in our portfolio because of potential appearance of impropriety issues.”
Ms. Wertheimer reinforced that she is committed to conducting work across agencies, particularly the Department of the Treasury, which is a party to a preferred stock purchase agreement related to the repaying of federal funds provided to Fannie Mae and Freddie Mac during the financial crisis.
An archived hearing webcast and all witness testimony are at: http://1.usa.gov/1pdBFDS