Originally Broadcast April 5, 2008

Washington, D.C.

Announcer: Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org. And now The Business of Government Hour.

Mr. Morales: Good morning. I'm Al Morales, your host and managing partner of The IBM Center for The Business of Government.

Throughout its history, the U.S. Department of Housing and Urban Development, commonly known as HUD, has sought to increase homeownership, support community development, and increase access to affordable housing. Government best serves its taxpayers when it's performing well and producing sound results. Over the past several years, HUD has taken many notable steps to enhance its program management and overall performance.

With us this morning to discuss HUD's success in such areas is our special guest Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. Good morning, Roy.

Mr. Bernardi: Good morning, Al. Nice to be with you and Steve.

Mr. Morales: Also joining us in our conversation is Steve Sieke, director in IBM's Federal Civilian Industry Practice. Good morning, Steve.

Mr. Sieke: Good morning, Al.

Mr. Morales: Roy, let's start out by taking a moment to provide our listeners with an overview of the Department of Housing and Urban Development. Can you tell us a bit about HUD's history and its mission today?

Mr. Bernardi: Well, HUD was founded in 1996, as the 11th department of the federal government. And, you know, the acronym HUD, Housing and Urban Development, the mission is threefold: to increase homeownership, to support community development, and to increase access to affordable housing free from discrimination. That pretty much gives you the overall.

Mr. Morales: Well, that's certainly a pretty broad mission with the country of ours. Can you give us a little bit more perspective and some more specifics, such as how is HUD organized, the size of its budget, number of full-time employees, and perhaps the geographic footprint of the agency?

Mr. Bernardi: Well, the number of full-time employees has been decreasing over the years. At one time, there was a high of 12,000, but in 2008, our number of employees is 8,600. Obviously the headquarters is here in Washington. We have regional and local field offices around the country. We have 82 offices throughout the United States, and also in, well, Puerto Rico, Guam, and the Virgin Islands.

Mr. Sieke: So, Roy, now that you've provided us with a sense of the larger organization, perhaps you could tell us more about your area and your specific role as deputy secretary and chief operating officer within HUD. What are your specific responsibilities and duties?

Mr. Bernardi: To meet the President Bush's Management Agenda is the primary responsibility; to improve ethics and accountability within HUD's programs and among its grant partners; and to oversee the attainment of program goals and assure adequate resources for attaining them. It's basically day-to-day to manage the overall operations. And as you can imagine, not only to look at the program offices, but the support offices and making sure that every dollar that we're utilizing is given to the people that need it the most.

Mr. Sieke: So that's a pretty broad set of responsibilities. Regarding those responsibilities and duties, what are the top three challenges that you face in your position and how have you addressed those challenges?

Mr. Bernardi: Well, there's so many challenges and it'd be difficult to say the top three, but let me tell you a challenge that not only we face at HUD, but I think everywhere in the federal government. The number of employees that are eligible for retirement at HUD is better than 60 percent. And just in the last year, a significant number of our senior management have retired. And how difficult it is to replace these folks. You really can't do it, that institutional knowledge, that longevity that they've had, the relationships that they've built with staff within the program areas, within their office areas, and also obviously the constituency that we serve throughout the country. But we're trying to backfill those. We're trying to hire people that we can bring in that will work under these managers, and making sure that hopefully, in a gradual way, that we don't lose too awfully much. But that is a significant challenge.

Another challenge, and we'll get into that a little bit later, is our FHA reform, modernization. With the subprime crises. and the housing crises in general, that has been a significant challenge for us, especially this past year. Last August, when everything seemed to be coming apart, we realized full well that FHA modernization, which we'd been asking the Congress to basically go ahead and approve, needs to be done, and we're very close to that.

Another challenge is basically making sure that we have the budgetary means to put forth the dollars we need so that folks in our programs, whether it's public and Indian housing, whether it's the Community Development Block Grant Program, our homeless program, housing opportunity for people with AIDS, every year it's a challenge with Congress to making sure that we have the resources we need. I would say that -- there's others, of course, but those are the top.

Mr. Morales: Roy, I understand that prior to coming to HUD, you were mayor and chief executive of the wonderful city of Syracuse, New York. Could you describe a bit your career path for our listeners? How did you get started in government?

Mr. Bernardi: I started my career working in city government as the city auditor quite a while back. That's an elected position. I was elected to that position and served in that position for 18 years, and ran for mayor back in 1993. It wasn't my first run for mayor, so for the young folks that are out there listening about career paths and opportunities, you know, don't give up if you don't succeed the first time. But I ran in 1981 and ran in '85, and came very close both times. I'm a Republican and Syracuse is a very strong Democratic city. Even as the auditor, I was well respected and received a substantial number of votes. However, 1993 was the year for me and reelected in '97. Reelected, won every single ward in the city of Syracuse, the only person, Republican or Democrat, to ever do that. So I think the folks liked the first four years.

Being mayor of any city is the nicest job perhaps that anyone could want, but it's also the most difficult job in the United States, with perhaps the exception of the presidency, because you're right there with the people. You go into a grocery store, you're on the street, and everyone comes up and everyone has a condition or a circumstance that they want addressed. It was a wonderful seven and a half years.

I was asked by the administration to come down in 2001, and I did that. And I left the term six months before it expired, but I had the opportunity to crime reduction, economic development. The city ended up with a nice surplus in the bank. When I got there, there was no money in the bank at all.

We have an excellent Public Works Department. We brought jobs and we brought companies into downtown Syracuse. We did an awful lot of restoration. We did an awful lot of remediation of contaminated properties. It was great to manage the professional staff and also the appointments that I made. I never looked at it as being a Republican mayor. I was just "the" mayor. And I'm affectionately referred to that title. Even at HUD, people call me "the mayor" more than they call me the deputy secretary. Just a wonderful experience.

Public service is a great career and I would encourage anyone who -- especially the younger folks out there to take a look at it. And I think it's exciting times right now, if I may, with the presidential election this year. The first time in how many years where there's no incumbent or no vice president running, and you can just see the excitement in the country in both parties, and that's good. That's what America's all about.

Mr. Morales: It certainly is and that's certainly a wonderful set of accomplishments. So as you reflect back on those experiences, especially those as mayor and your previous tenure as HUD's assistant secretary of community planning and development, how have these experiences prepared you for your current leadership role and shaped your management approach and perhaps you leadership style today?

Mr. Bernardi: I always believed, and still do, that you may be the person at the top, but if you want something to get done, if you want success, you have to be able to not only choose good people, but to give them the authority to do the things that need to be done, provide them with encouragement, making sure that you have significant amount of quality time with your in Syracuse, it was the commissioners and the police chief and the fire chief. And here at HUD now, it's the assistant secretaries and the director of the various programs.

You need to "empower" is a word that's overused, but you need to let them know that you want them to succeed. I always believe that you set a goal, you have an objective, you let people know what it is, and then you let them, the key word is "them," let them do it. You know, don't get in the way, don't micromanage. And I have a personality that I could do that, but I try to not do that. You know, some people will look back at certain presidents and say, gosh, you know, they wanted to get involved in every single detail. Well, that's why you have people -- I would hope that my management style there is one where people respect me for the work that I do, but they also enjoy the way I -- and appreciate the way I treat them. You know, the woman that comes in and empties the trash containers at the end of the day, you know, she's as much a part of HUD as the assistant secretary who just left my office. So respect, understanding, okay, a mistake is made, let them know a mistake is made and you correct that. You know, no retributions.

Mr. Morales: What is being done to mitigate the subprime mortgage situation and stabilize the home mortgage market? We will ask Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Al Morales, and this morning's conversation is with Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. Also joining us in our conversation from IBM is Steve Sieke.

Roy, we understand that HUD has been aggressive in taking action to mitigate the effects of the subprime mortgage issues, which, unfortunately, has been compounded by a slow housing market. Could you describe HUD's efforts in this area? Specifically, what initiatives are being considered to assist those in danger of losing their home due to foreclosures, such as programs like FHA Secure, Project Lifeline, or Hope Now, just to name a few?

Mr. Bernardi: Well, we've seen the problems coming in the housing market for several years, as you mentioned, with the home price appreciation, dramatically it outpaced affordability, the low interest rates and investors accepting higher risk mortgage products. And basically, you know, that's the bottom line to it. Everyone said this isn't going to end. As a matter of fact, I told my wife Alice not two years ago, I said now is the time to sell the house that we bought in 2001. And she said why? I said because this won't last. Nothing goes on forever.

Unfortunately, I think many of the due diligences that needed to be done were not done. People just continued to push. That's why we're pushing. We're pushing for FHA modernization. As you mentioned, we created FHA Secure and we worked with Treasury to encourage the private sector to form the Hope Now Alliance.

Talk a little bit about FHA modernization. Some borrowers with subprime and exotic loans knew what they were getting into. Many families who were steered into subprime loans would have been better off with a safe and affordable FHA loan product. FHA is back since the 1930s, and as you all understand it's 3 percent down, it's a fixed mortgage over 30 years. Well, that became pass� back in '04 and '05 and '06. Everyone else had a better product than FHA.

And our loan limits, they're controlled by statute, could not keep up with the home price inflation, and FHA lacked the flexibility to provide new and competitive loan products. So basically our market share just decreased substantially. That's why we've been working with Congress, as I mentioned earlier, for two years on legislation that would modernize FHA.

The bill that we put forth has broad bipartisan support. The House passed the FHA Modernization Bill on September the 18th, and the Senate passed their version on December the 14th. But you know how it all works down here. Now they've got to get together in committee and hammer it out. We're cautiously optimistic. That's an overused phrase here in Washington. I didn't use that much in Syracuse. Then it'll get out of committee and the president's desk within the next couple of weeks.

FHA Secure. We believe we can help hundreds of thousands of homeowners who are in trouble through FHA Secure, a temporary initiative, designed for families who are good credit risks, but were steered into option adjustable-rate mortgages with interest rate resets that raised their mortgage payment to a level they could no longer afford. This initiative relaxed FHA guidelines to permit lenders to originate an FHA-insured new mortgage for a borrower who is delinquent as a result of the interest rate reset. So that's the folks out there that have the subprime mortgage. They're current. You know, they may be delinquent, but they're not in foreclosure, and that reset is obviously going to lead them to foreclosure. If the subprime mortgage is greater than the property value, lenders can refinance into a safe FHA first mortgage and carry back a subordinate second mortgage that exceeds FHA's normal loan-to-value ratios.

Now, since September of last year, more than 280,000 applications have been received for FHA Secure, and more than 100,000 secure loans have already closed. So this is one way, FHA Secure, in which we've been able to add assistance to the situation that we have.

Now, the Hope Now Alliance, which has received some news just recently in both newspapers and electronic media. Treasury Secretary Paulson and HUD Secretary Jackson have been forceful advocates for strong private sector response to the nationwide problem. And together, the two secretaries have encouraged 26 of the nation's largest mortgage servicers, representing about 90 percent of all mortgage loans, to join together with HUD-approved housing counseling agencies, major investors and industry trade groups, to create comprehensive and coordinated programs to avoid foreclosures and stabilize homeownership. They've made significant strides in a relatively short period of time. They're establishing and aggressively advertising a nationwide hotline for borrowers who need mortgage help, and that number is 888-999-HOPE. It's receiving about 4,000 calls per day and it's providing comprehensive telephone counseling.

So many people, when times get tough, they don't know what to do. They're ashamed of maybe what they -- the situation that they're in. And we just realized full well in working with our private partners that we needed to make sure that people had someone they could call and get started on trying to rectify a bad situation. Getting investor and SEC, Securities and Exchange Commission, authority to fast-track the modification of loans, where interest rates resets made mortgages unaffordable for otherwise creditworthy borrowers. The SEC just cleared the path for fast-track in mid-January, and we expect the first reports later this month.

Another program is Project Lifeline. It's the latest effort to reach no-contact borrowers. Almost 50 percent of borrowers whose loans go to foreclosure have had no communication, as I mentioned earlier, with their lenders, despite repeated attempts by lenders to reach them. Project Lifeline targets seriously delinquent borrowers, who are facing foreclosure, and offers them another chance. If a borrower responds to a Project Lifeline letter by contacting the lender or Hope Now hotline and providing financial information, the lender will delay initiation or continuation of a foreclosure for at least 30 days to allow time to work out a solution.

Everyone has to take some responsibility, you know. This situation didn't come because people were out there taking loans that -- that's one scenario, taking loans that they couldn't afford. You know, lenders have the responsibility here, appraisers have responsibility, the brokers, the investment bankers. There's enough responsibility to go around. Hope Now, in conjunction with HUD and NeighborWorks America, is sponsoring a nationwide series of homeownership preservation fairs to both spread the message that help is available and to provide on-site loan workout assistance for borrowers who attend. And Secretary Jackson has keynoted many of these events.

It's important to recognize, and we always say this, that there's no one-size-fits-all answer to this problem. We need to accelerate the efforts we are taking now to employ a variety of different strategies. I think that's what's taking place. When we say one size does not fit all, that's the difficulty with this, you know. A lot of people will say, well, the solution would be to do just, you know, Project Now, Project Safe, other proposals that are out there by Congress. But really, every loan has its own little nuances: affordability, how do you restructure, is it possible to restructure it.

So we need to make sure that we stay very vigilant on all of this. And we at HUD were hoping for FHA modernization to pass. That will provide us with an opportunity, that'll raise the caps on the amount of money on mortgages that we can insure. You know, we're also looking to be flexibility with a down payment. As opposed to the 3 percent, you know, it could maybe go to 1 or 1 1/2 percent. And also the insurance, we want to insure to risk. We've been set in stone, so to speak, for so long we haven't had any real changes to the FHA Mortgage Insurance Program, that these changes would allow us to not only help folks that are in trouble, but also first-time homebuyers.

Mr. Morales: So these are wonderful programs that are helping people that perhaps are in trouble today or are at-risk of getting in trouble. Could you discuss what's being done to perhaps regulate the mortgage industry to help prevent some of the issues that we've discussed? And what's HUD's role in this area?

Mr. Bernardi: Well, Regulation Z changes. In December, the Federal Reserve proposed a number of changes to the Regulation Z, the truth-in-lending that would be applicable to all loans. Lenders would be prohibited from paying the yield spread premium to mortgage brokers without the written approval of the borrower, and that's key. I think the borrower has to know what that yield spread premium amount is going to be, and obviously give the borrower an opportunity to maybe shop around. For those you out there, the yield spread premium is the fee paid by a lender to a broker for a higher rate of loan.

Creditors and mortgage brokers could not coerce a real estate appraiser to misstate a home's value. I think some people maybe saw recently that Attorney General Cuomo, former Secretary Cuomo, dealt with Fannie and Freddie on appraisals. You know, are these appraisals accurate? You know, are you putting too much pressure on appraisers to have them come in with a number that you need? So we need to be very vigilant there. And companies that service mortgage loans would be required to credit consumers' loan payments timely, provide a schedule of fees to a consumer upon request, and adhere to other fair servicing practices.

For high-cost loans, lenders would be required to verify a borrower's income and assets before extending credit. Now isn't that a novel approach, huh? As I mentioned earlier, you know, you get excited. You know, geez, you know, how many deals do you close in a day? You know, the realtor would say, gosh, I sold six homes. And the appraiser says, well, I've done this number of appraisals. And the lender -- and the investors are asking the lenders we need more of those mortgages.

Well, anyway, I don't want to get off here, but there would be strict limits on pre-payment penalties and lenders would have to establish escrow accounts for taxes and insurance. It's important when you sit down that the borrower not only knows what that principal and what the interest and what all the fees are, you know, to stay in that home, you also have taxes and you have insurance.

Truth in lending. Proposed revisions to truth in lending acts, advertising rules would require additional information about rates, monthly payments, and other loan features; ban deceptive or misleading advertising practices, and require the lenders to provide a good faith estimate within three days after loan application for all mortgage loan types, not just home purchase loans, and prohibit charging any loan fees until the good faith estimate has been received. These actions are aggressive and directed at the source of the problem.

There's always a trade-off obviously between consumer protection and over-regulation that chokes off accessibility of credit. But what we're finding right now is that we had -- we didn't have enough consumer protection and we need to get back to that.

Real Estate Settlement Procedures Act, RESPA. RESPA reform. This is something that we're rolling out right now. We're not the prime regulator, HUD, of lending institutions and mortgage originators. However, in addition to continuing to enhance the loss mitigation protections available to borrowers with FHA-insured loans, that loss mitigation that we have is we actually when people get in trouble, we sit down and try to work with them so we can mitigate any losses.

HUD does have regulatory authority over real estate settlements, and HUD will be publishing a proposed rule -- you're hearing it here for the first time -- under the Real Estate Settlement Procedure Act that will bring about significant reform to the home-buying and mortgage loan process. The rule would require that a standardized, good faith estimate, GFE, that would substantially enhance disclosure of loan terms be given to the consumer at the first stage of the loan process. This good faith estimate would consolidate settlement charges into major categories to avoid fee proliferation and show total estimated settlement charges prominently on the first page, so the consumer can easily compare loan offers.

This is something that we find very interesting and I'm sure people will -- we've tested it out and it seems to work well, and that's the proposed rule is going to include what we call "the closing script," which will be prepared, of course, and read to the consumer by the closing agent to ensure that the consumer understands the exact terms of the loan that he or she is receiving. Sometimes something's on paper, fine. Well, let me read this to you so you'll understand it.

The rule provides more loan information in an understandable manner, so consumers can shop for the best loan, thereby lowering costs and promoting homeownership. We want to make sure that when someone sits down at that good faith estimate, that when you receive that initially, at closing time that they match with that HUD 52.

Mr. Sieke: Well, Roy, that's an impressive set of initiatives that you're working on there. Let me turn now to another topic. HUD's management issues had kept it on the GAO's list of agencies with high-risk programs. However, recently, the GAO removed HUD's Single-Family Housing Mortgage Insurance and Rental Housing Assistance programs from its high-risk list. Could you tell us more about this significant achievement? And what specifically did your department do to be removed from this list?

Mr. Bernardi: Well, HUD was the only cabinet agency to be placed on the GAO high-risk list, watch list, back in 1994. And unfortunately, it covered all of our core programs: FHA mortgage insurance, rental housing assistance, community grants. The Washington Post at that time called us "the ugly duckling of government." So Secretary Jackson and I, we had a lot of corrective work to do, so we were committed to being removed from the list. So we developed the general strategy that addresses management infrastructure issues, focusing on performance, not just compliance. We initiated risk-based targeting of extensive third-party program delivery. We demanded increased reliance on automation and increased performance metrics and accountability.

We overhauled two of HUD's major programs: the Single-Family Housing Mortgage Insurance and the Rental Housing Assistance Program. The Single-Family Housing Mortgage Insurance Program, we accomplished this by FHA improving our lending process. On the Rental Housing Assistance, in 2001, we estimated that HUD's Department of Public Housing and various tenant-based and project-based rental assistance programs issued $3,200,000,000 in gross annual and proper payments attributable to program administrative errors and tenants' underreporting of income.

To reduce these improper rental assistance payments, we worked with housing industry partners and tenant advocacy groups to improve program guidance, training, and automated systems support. We developed and implemented the Enterprise Income Verification System, a web-based state-of-the-art system to share income data and other federal databases with public housing authorities to improve the income verification. And we did that with HHS; that was a nice partnership. They have data on employment, both federal and state, that we were able to utilize.

These collective actions led to a 60 percent decline in gross improper payments between 2001 and 2005. The money that has been paid in error is now being used to house more low-income families. We all know that there's waiting lists everywhere, so those erroneous payments coming down give us the opportunity to help more Americans that are in need.

The high-risk designation was removed in January of '07, because we demonstrated a top management commitment and a workable corrective plan. So we're very proud of that.

Mr. Sieke: HUD obviously played a significant role in supporting Gulf Coast residents displaced by Hurricanes Katrina, Rita, and Wilma. Could you tell us about the department's efforts in this area? What lessons have you learned during the response to these events and to what extent does the creation of the National Housing Locator System illustrate a key lesson learned?

Mr. Bernardi: Well, HUD has worked with its federal, state, and local partners throughout the affected Gulf Coast to design and deploy housing economic development infrastructure programs. In public housing, we recognize the need for continued coordination, long-term housing solutions for the residents that were displaced by the Hurricanes Katrina and Rita. We were asked to design a program to assist those folks that were displaced through an interagency agreement between HUD and FEMA.

Last spring, HUD and FEMA announced that HUD will take over long-term rental assistance for approximately 45,000 eligible non-HUD-assisted families that were displaced by those hurricanes, from FEMA, through a demonstration program called the Disaster Housing Assistance Program. And we implemented that in three phases. After the hurricanes did hit, obviously HUD was responsible for the people that were under our jurisdiction, but there were an awful lot of other folks out there that were hurt. So working with FEMA, we put together the Disaster Housing Assistance Program. We were able to be very helpful, help these families locate a safe place to live, rebuild their lives, and get on a path to self-sufficiency. As I mentioned, the implementation of the Disaster Housing Assistance Program well underway, and we've been successful and we've overcome many obstacles. It's going quite well.

The Community Development Block Grant Program, very interesting. The president and the Congress provided $17 billion through CDBG for Alabama, Florida, Louisiana, Mississippi, and Texas. You've all heard about the Road Home Program in Louisiana, and also the Road Home Program in Mississippi. Louisiana's helped more than 100,000 folks back into housing. Mississippi has helped more than 15,000 homeowners and rental programs to construct or reconstruct more than 50,000 available units are also underway.

There was a lot to learn by everyone following these hurricanes that hit the Coast, and the Homeland Security Council's report, The Federal Response to Hurricane Katrina: Lessons Learned, that was issued in February of 2006. The key HUD lesson learned, HUD, with extensive experience providing housing resources for those in need, must use its extensive networks of regional offices, state and local agencies to prepare for potential relocation emergencies. We used our over 4,200 public housing authorities and our field offices everywhere to assist folks that needed housing.

The hurricanes challenged us in ways that had not been previously challenged. The challenges helped drive innovation at the agency of the National Housing Locator System, Steve, that you mentioned. That's a one-stop shop for families in need of a place to live as a result of a disaster. An example, the locator merges federal housing resources with several commercial housing locators to offer a single outlet for locating rental housing around the country. So what you have is you have this locator system, when an emergency occurs an individual or an organization has an opportunity to find out what housing is available, single-family housing, multi-family housing. Where is it? What's the cost of it?

The locator lists for-sale properties that HUD and the Department of Agriculture and the Veterans Department have acquired through foreclosures. Families utilizing the web locator can search by city, area code, price range, acceptance of housing voucher, acceptance of pets, accessibility, elderly, accommodations for the handicapped. And in most cases, the database also includes an address and map of the housing complex and the contact information for the landlord, monthly rent, and things of that nature.

During the recent wildfires in Southern California, HUD's Emergency Response Team tested the system and we found out that it works. Our team successfully assisted more than 2,000 families during their search for transitional housing. While we're convinced the National Housing Locator is a major step forward, we plan to continue refining, testing, and expanding the system, as you would imagine.

Mr. Morales: That's wonderful. Along similar lines, I think you would agree, Roy, from your experiences as mayor, that the chronically homeless are often the most visible and difficult to serve populations. Yet providing housing and ending chronic homelessness is one of the first steps towards self-sufficiency. Could you tell us about HUD's efforts towards ending chronic homelessness? More specifically, how has HUD improved its effectiveness in assisting the homeless move from transitional housing into permanent housing?

Mr. Bernardi: The chronically homeless, to define them, are single persons with disabilities, who live on the streets or in emergency shelters for an extended period of time. That's how you define chronically homeless. The group represents 20 percent of the entire homeless population in the country, but yet they utilize 50 percent of the emergency shelter resources. So the administration, we found it imperative to focus attention on this needy group, which consumes so much of the nation's resources.

So in 2002, HUD committed to ending chronic homeless. And we've engaged our partners: the states, the cities and counties, as well as nonprofit organizations, foundations, and businesses to achieve this goal. We provide incentives in our National Homeless Assistance Competition, including bonus funding to communities that will provide housing, permanent housing, and services to this group.

In 2007, we awarded communities $330 million in housing and needed services. And these needed services, such as drug treatment, mental health counseling, and job training to the chronically homeless, and we're starting to see results. In 2005, there were approximately 167,000 chronic homeless persons. In 2006, that figure has dropped to 156,000, which is a 12 percent reduction.

Mr. Sieke: That's wonderful.

Mr. Bernardi: It is fantastic. We're very proud of that. That's the first time ever that this country has seen a reduction related to homelessness.

Now, as you can imagine, the chronically homeless, they're very difficult to serve. They're individuals that are out there with alcohol addiction, drug addiction, mental illnesses. But we have found that by concentrating on a permanent solution as best as you possibly can for these individuals, to provide them with permanent housing, to have all the continuums of care throughout the country recognize that the more permanent housing they do, the faster we can deal with this population, that will provide us with additional resources, more resources within our budget to help families, to help children, and to help the remainder of the homeless population.

We just need to make sure that, you know, we don't have a revolving door here. The Interagency Council on the Homeless, Philip Mangano, travels the country and talks exclusively about how we need to make sure chronic homelessness is addressed. And we have partnerships with cities and counties and states to end chronic homelessness within 10 years. So not only at the national level do we have this goal and objective, but the folks on the ground throughout this country are also partners with us.

Mr. Morales: That's fantastic. How has HUD sought to instill a culture that emphasizes performance and results? We will ask Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Roy Bernardi, deputy secretary at HUD. Also joining us in our conversation from IBM is Steve Sieke.

Roy, as you know, since the inception in 2001, the President's Management Agenda, or PMA, has been the key strategy for improving the federal agency management and performance. Could you give us a sense of how HUD leadership approached the PMA from the beginning and what are some of the critical lessons learned from these efforts?

Mr. Bernardi: Well, the main goal of the management initiative is to improve service and make the agencies more efficient and more effective. The president laid this down in 2001 and Clay Johnson over at OMB, he's made sure that very department has taken it to heart and has done what's necessary. Secretary Jackson and I, we're committed to the goals of the PMA and to improving our programs at HUD.

Just briefly, the PMA measures government programs, and we have a traffic light system: we have green, yellow and red. And in 2002, all six of HUD's initial PMA initiatives had red scores; not good. In the initiative, red, of course, means serious jeopardy and unlikely to realize objectives. As of 2008, we have improved scores on five of those initiatives. We're green on three initiatives, we're yellow on two, and we're red on only one, competitive sourcing. Competitive sourcing has proved quite a challenge.

Just briefly with that, you have programs that are done in-house or in-agency and you source them out, and it's difficult. You would think there'd be an awful lot of folks out there that would like to compete with a federal agency in a particular program, but we have found that very difficult, but we're still trying to go with it. We're the first agency to achieve green scores on two additional, beside the six, multiagency initiatives: the Faith-Based Community Initiative and, as we talked about earlier, eliminating improper payments. We set the mark there.

Pretty much we feel good with our objectives. We've done some nice things. The goal is to obviously be green on all of the areas, on status and on progress, but we were red. I remember we were red back in '04, when I became the deputy, on just about everything. But the way to do it is every single initiative to put a person or persons in charge, as I mentioned earlier with my management style, and say here's what OMB, here's what GAO wants. Here's what we need to achieve. Let's set the guideline for doing it.

We do it quarterly and we're great at quarterly on our status and we're great at quarterly on our performance. And we feel very good about where -- how far we've come.

Mr. Bernardi: Okay. HUD has traditionally been the leader on OMB's Credit Program Policy Council. Through efforts such as sharing and expanding FHA's Credit Alert Interactive Voice Response System, there's another acronym for you, huh, that process is for use by all federal programs as a systemic means of flagging entities indebted to the government through loan defaults or other activities to preclude giving them further benefits until their debts are paid.

FHA, as you know, administers one of the largest and most successful housing loan guaranty programs in the world. Since 1934, its initiative, we've provided mortgage insurance to over 35 million single-family households and over 50,000 multifamily housing projects, containing approximately 5.7 million apartment units. FHA is a self-sustaining government corporation that operates off of insurance premiums rather than taxpayers' dollars. So they have to manage their risks to survive just like any commercial business.

FHA's single-family housing mortgage insurance program was on the GAO's high-risk program list when we arrived back in 2001. Through a separate HUD Management and Performance Initiative of the President's Management Agenda, which predated the newer Credit Management Initiative, HUD has already completed a number of significant internal control improvements to reduce the risk of FHA's single-family housing mortgage insurance program. The implementation of credit-watch and appraiser-watch systems and the implementation of the total automated underwriting process, these risk management improvements are primary factors in GAO's removal of the FHA program from the high-risk list in January of '07.

FHA's effective risk management practices are a reason why FHA can effectively serve to provide homebuyers a lower cost and less risky alternative to the subprime market. And again, I will make the plug for the modernization, for the Congress to act very quickly to give us what we need in FHA, so that we can help even more people.

Mr. Sieke: Roy, as you know, the president's E-Government Initiative stresses the value of electronic methods for providing greater levels of public service at lower cost. HUD is a recognized leader among government agencies for this initiative. Would you elaborate on your department's efforts in this area?

Mr. Bernardi: HUD works in partnership with other federal agencies to provide the public with simple, easy-to-use government services and information. These services are accessible, effective, and reduce the burden for customers, and are saving money and time across the participating federal agencies. Basically almost everything is electronic now. The applications that come in for all of our various programs, we require them to be electronic. If they're not electronic, you don't -- you're not able to compete for the grants.

We have had significant accomplishments with e-loans and grants.gov. The e-loans collected $6 million in delinquent debts, and grants.gov, a cost savings of $2-1/2 million. So we're very pleased with what we've been able to do with the E-Government Initiative.

Mr. Sieke: Good. Well, let's move to something now that we're hearing a lot about in the news and that's predatory lending. Predatory lending involves deception and fraud by creditors, mortgage brokers, or even home improvement contractors. It's harmful not only to the consumer, but also harms the economic vitality of the community at large. What steps is HUD taking to reduce predatory lending? And what can be done beyond educating potential homebuyers to recognize such practices?

Mr. Bernardi: Well, Steve, you mentioned educating potential homebuyers, and we've increased funding for housing counseling by 200 percent since 2001. It's very, very important that -- to educate families so they have the financial literacy to protect themselves against predatory lenders. This year, we awarded $50 million in funding to provide classes and personal assistance to prospective buyers and renters as well as current homeowners who are having trouble making their mortgage payments.

Of course, it's wrong. It's a violation of federal law. And Secretary Jackson has created a Fair Lending Division within the Office of Fair Housing and Equal Opportunity to focus specific attention on enforcement of fair lending laws. We have enforcement actions that we can take.

I mentioned the educational component part of it. I think people have to be aware that, unfortunately, there are people out there that will take advantage. And with our Office of Fair Housing and Equal Opportunity, they've done more. In fact, they've been out there monitoring and bringing more charges and more enforcement and working with the Inspector General's Office to make sure that we let it be known out there that we don't tolerate this.

Mr. Sieke: It sounds like the right actions to take. We're in a time of tight budgets and constrained funding. And agencies are often challenged with the need to implement needed infrastructure modifications, including needed IT system upgrades for ongoing and new programs, such as any changes required by the FHA Modernization Bill, which you've mentioned. Has this impacted HUD? And if so, what actions is the department taking to mitigate these challenges?

Mr. Bernardi: Well, IT funding is an area where we could still use some help from Congress. We've been at them all year, going back and forth. Unfortunately, Congress continues to cut our IT funding requests. We have one of the lowest IT budgets in the federal government, even though we have one of the largest and most complex program structures. When HUD has been given IT resources, we're very successful in effectively utilizing them. Let's put it this way: If you're going to modernize and you're going to consolidate your various systems that you have, you need the resources to do that. And we're very hopeful that -- like we talked about the Enterprise Income Verification System, for example. We need to do more of that, but you need resources to do that so that your information technology system is up to date, that it's effective, and that you can continue to improve it as time goes by.

Mr. Morales: Roy, as you look back at the management challenges that you, the secretary, and your staff have faced over the last four to five years, what are some of the success stories that you're most proud of?

Mr. Bernardi: Well, most proud of, as I mentioned earlier, removing HUD from the GAO high-risk program list in January of 2007. I mean, we've been on that since 1994, and that was just a significant achievement.

We strengthened internal controls in two of our largest program areas: single-family housing mortgage insurance and rental housing assistance. Internal controls go such a long way in making sure that the money ends up where it needs to go. And by doing that, we gained support for these programs from OMB and Congress. And now HUD efficiently and effectively provides affordable rental housing and homeownership opportunities to nearly 10 million low-income American households a year; very, very proud of that.

We're proud of the much-needed upgrades to our 40-year-old headquarters facility. We have a new child care center that just opened, and we'll be opening a new cafeteria and a new auditorium any day now.

And, you know, it's rewarding to know that we're leaving the agency substantially better than we found it in 2001.

Mr. Morales: That's great. What does the future hold for the U.S. Department of Housing and Urban Development? We will ask Roy Bernardi, deputy secretary at HUD, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. Also joining us in our conversation from IBM is Steve Sieke.

Roy, despite the importance of the housing industry to the American economy, it can still take 10 to 25 years for new housing technology to achieve full penetration in the marketplace. Could you tell us about the Partnership for Advancing Technology in Housing, or PATH? How does PATH accelerate the adoption of housing technologies and promote innovation?

Mr. Bernardi: Well, the PATH homes are energy-efficient. They're durable and disaster-efficient. HUD is partnering with the private sectors to get markets penetration about this important issue. We're also working with organizations, such as the National Association of Home Builders, and private developers throughout the country to reduce the timeframe to five years. We're going to continue to encourage the building and buying community to adopt these new technologies. We all want to make sure that we do this as efficiently and effectively as possible.

Mr. Sieke: Roy, collaboration is a big theme in government these days. How do you collaborate with other federal agencies? And what kinds of other partnerships are you developing now to improve operations or outcomes at HUD? And how many of these partnerships change over time?

Mr. Bernardi: Well, we work by means of interagency agreements with several agencies. For example, Department of Transportation, subprime mortgage crises; Environmental Protection Agency, lead and other contamination abatement in homes; and with the Department of Homeland Security, disaster relief, housing assistance; Health and Human Services, as I mentioned earlier, that income verification system that was so helpful to us in reducing our erroneous payments.

We participate in collaborations established by Executive Order. As an example, the President's Committee for People with Intellectual Disabilities, the President's Adult Education Working Group, the Interagency Council on the Homeless.

Mr. Sieke: Roy, in an earlier segment you talked about the limited staff resources that you're dealing with now and the fact that approximately 60 percent of HUD's workforce will be eligible to retire by Fiscal Year 2009. How are you handling the pending retirement wave? And what is HUD doing to address staff imbalances and other human capital challenges that have to be you have to be facing that this point?

Mr. Bernardi: Yeah, we mentioned earlier, Steve, we're committed to making sure that we have a succession plan that's going to keep the agency not only viable, but vibrant and progressive. Key elements of the plan are a strong strategic recruiting initiative and training and development of the current employees. And when it comes to training and development, Secretary Jackson launched a HUD-wide initiative in 2006, requiring all HUD managers to prepare individual annual training plans for each of their employees. For the first time, this gave us the ability to see all the training needs across the entire department and prioritize our training. You know, we would like to be able to, obviously, train everyone all of the time, but resources obviously don't provide that.

So we're working actively making sure that when it comes to our younger employees that we have a student loan repayment program and we try to accelerate promotions. We try to backfill with folks that have been there, like the senior executive service, our SESes, when they retire that's a substantial loss. But we have folks in the GS system that are 13s, 14s, and 15s, and you just want to make sure. I was always cognizant of this when I was mayor of Syracuse, and I've done this as the assistant secretary for community planning and development and try to do it in my position as deputy secretary, is when we know that someone -- I try to tell our folks, let us know when you're going to be leaving, and then to try to put person or persons with that individual for hopefully a significant period of time so they can fill that gap quickly.

Mr. Morales: So, Roy, transitioning now to the future, what are some of the major opportunities and challenges your organization will encounter? And how do you envision your department will evolve over the next, let's say, three to five years? And if I may be so bold as to ask, what advice might you give the next administration in facing these challenges head on?

Mr. Bernardi: Well, our goal during this transition year is to leave the agency better prepared to deliver its services than when we arrived. In fact, I have weekly meetings every Monday morning with the assistant secretaries and the directors of the various programs, and telling them that what we really need to do during this transition is make sure that we have career employees who know the accomplishments, know where we are, and that these people will serve with the administration coming in as the conduit, if you will, so that nothing is lost and what we've been able to accomplish doesn't miss a beat.

The ultimate measure of the program changes made by this administration is that for the first time, as I mentioned, since '94, you know, we're off that high-risk list. And how we got off that, we need to make sure that we transition that to the new folks coming in.

To sum up the changes, we need to -- we just need to consolidate with the new folks coming in as to where we are and the successes that we had, and also let them know the challenges that are still there.

Mr. Morales: Sure, sure. Given your dedication to public service, both as an elected official and now as a leader at the federal level, what advice would you give to a person who's out there perhaps considering a career in public service either at a local level or at a federal level?

Mr. Bernardi: Well, as I mentioned at the outset, you know, people will do something in life for many different reasons. Hopefully, because they enjoy it. I would tell anyone out there if you don't enjoy what you do, then run away from it. You have to like what you do, just like your folks sitting here.

And you can make a lot of money. You're not going to do it in government. I tell folks that, tell young folks that especially. But there's also something about, you know, an accomplishment, what makes you tick inside. And I think all of us, regardless of where we come from, regardless of our standing, and regardless of our economic situation, when you're able to help -- that's the word -- when you're able to help someone, it makes you feel good. That's what public service is all about, you're helping people.

And there's many different ways in which you can do that. I would say to anyone that would want to get into public service at the local level, obviously you're -- "local" means you're right there on the ground. You know, you're face-to-face with the people that you're helping. That's why the 82 offices we have around the country, I love visiting them and I love talking to those folks because they're right there with the folks in the towns and villages and counties, you know, providing the vouchers, providing the economic assistance, providing the infrastructure needs.

And, you know, at the end of the day, every day, you can say to yourself I've helped someone. I've made someone who needs help, their life much easier. And many of the agencies in the federal government, but I'm particularly proud and biased, if you will, to HUD. I mean, we provide housing. We provide such an important part of a person's life to people who couldn't afford it, safe, decent, clean, affordable housing.

And if you want to feel good at the end of the day and at the end of your career I was at a retirement party yesterday for a gentleman who was head of the CDBG program for the last 17 years at HUD in the Department of Community Planning and Development. And all the retirements that I attend, this one included, how pleased they are when their career is over that they were really able to make a difference.

So I would say to everyone it's the highest calling, after your family, the highest calling to help other people.

Mr. Morales: That's a wonderful perspective and great advice. We have reached the end of our time. I want to thank you for fitting us into your busy schedule. But more importantly, Steve and I would like to thank you for your dedicated service to our country, both as mayor of Syracuse and now as deputy secretary at HUD.

Mr. Bernardi: If I may, Al and Steve, I want to thank you as well for this time. You know, what you're doing here is you're getting information out to people. And hopefully, we're -- somebody listening out there will be able to take some of this and help someone else. So again, Al and Steve, thank you and a pleasure to be with you.

Mr. Morales: Thank you very much. This has been The Business of Government Hour, featuring a conversation with Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. My co-host has been Steve Sieke, director in IBM's Federal Civilian Industry Practice.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who may not be able to hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.

For The Business of Government Hour, I'm Albert Morales. Thank you for listening.

Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m., and visit us on the web at businessofgovernment.org. There you can learn more about our programs and get a transcript of today's conversation. Until next week, it's businessofgovernment.org.