Order Code RL32899
CRS Report for Congress
Received through the CRS Web
Housing Issues in the 109th Congress
Updated October 11, 2005
Maggie McCarty, Libby Perl, and Bruce Foote
Domestic Social Policy Division
Eugene Boyd and Pamela Jackson
Government and Finance Division
Congressional Research Service ˜ The Library of Congress
Housing Issues in the 109th Congress
Summary
On February 7, 2005, the Administration submitted a $29.1 billion FY2006
budget request for the Department of Housing and Urban Development (HUD),
which would be a decrease of $2.8 billion, or almost 9%, from FY2005. At about the
same time, several appropriation subcommittees were reorganized, and responsibility
for the HUD budget was transferred to a new Transportation, Treasury, and Housing
and Urban Development, the Judiciary, District of Columbia Subcommittee in the
House, and to a new Judiciary, Housing and Urban Development, and Related
Agencies Subcommittee in the Senate. The most controversial part of the proposed
HUD budget, which explains much of the proposed $2.8 billion cut, would eliminate
the Community Development Block Grant (CDBG) program and transfer its
purposes to the Department of Commerce, combining it with 17 other programs
(which collectively had $5.6 billion of appropriations in FY2005) into a new $3.7
billion Strengthening America’s Communities grant program. Both the House and
Senate indicated objections to this proposal in their versions of the FY2006 budget
resolution (H.Con.Res. 95), and the House-passed and Senate Appropriations
Committee-passed versions of the FY2006 HUD funding bill (H.R. 3058) retained
funding for CDBG at HUD.
The Administration has proposed a major reform of the voucher and public
housing programs (introduced as S. 771 and H.R. 1999: the State and Local Housing
Flexibility Act of 2005) that would change income eligibility and targeting rules and
add greater flexibility for public housing authorities. The Administration has also
reintroduced homeownership proposals for lower-income and minority households
— the Zero Downpayment Mortgage and the Payment Incentives initiatives. The
Administration’s Single Family Homeownership Tax Credit, a tax incentive for
developers of affordable single-family housing, has been reintroduced (S. 859, H.R.
1549). It is estimated to cost $2.5 billion over five years. Other housing related
issues before the 109th Congress include bills to address predatory lending (H.R. 200,
H.R. 1182, H.R. 1643) and continuing efforts to reform the Real Estate Settlement
Procedures Act. Hearings have been held on legislation to create a more aggressive
regulator for Fannie Mae and Freddie Mac (H.R. 1461, S. 190), and H.R. 1461 has
been approved by the House Financial Services Committee.
In late August, a catastrophic hurricane hit Louisiana, Mississippi, Alabama, and
Florida. While the Federal Emergency Management Agency (FEMA) is coordinating
the immediate response to the disaster wrought by Katrina, Congress will likely turn
to HUD and other agencies’ housing and community development programs to
address needs of the evacuees and impacted communities. Already, a number of
Katrina bills with housing provisions have been introduced (S. 1637, S. 1765, S.
1766) and H.R. 3894, H.R. 3895, and H.R. 3896 have been passed in the House.
This report will be updated as issues develop and legislation proceeds in the
109th Congress.
Key Policy Staff
CRS
Name
Area of Expertise
Division
Telephone and E-Mail
Eugene Boyd
Community and
economic development,
including Community
7-8689
G&F
Development Block
eboyd@crs.loc.gov
Grants, Brownfields,
empowerment zones
Bruce Foote
Homeownership,
including FHA,
7-7805
DSP
predatory lending, rural
bfoote@crs.loc.gov
housing, GSEs, RESPA
Jody Feder
Fair Housing and
7-8088
housing-related legal
ALD
jfeder@crs.loc.gov
questions
Pamela Jackson
Housing tax policy,
including the Low
Income Housing Tax
7-3967
Credit and other
G&F
pjackson@crs.loc.gov
incentives for rental
housing and owner-
occupied housing
Maggie McCarty
Assisted rental housing,
including Section 8,
7-2163
DSP
public and assisted
mmccarty@crs.loc.gov
housing, HOME
Libby Perl
Housing for special
populations, including
7-7806
DSP
the elderly, disabled,
eperl@crs.loc.gov
homeless, HOPWA
Division abbreviations: ALD=American Law; DSP=Domestic Social Policy;
G&F=Government and Finance
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overarching Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Hurricane Katrina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Role of HUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Housing Affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Community Development Block Grant Program . . . . . . . . . . . . . . . . . . . . . . 7
Administration’s Economic Development Consolidation Proposal . . . 8
CDBG Formula Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
De-Linking Brownfields and Section 108 Assistance . . . . . . . . . . . . . . 9
CDBG-Related Earmarks and Set-Asides . . . . . . . . . . . . . . . . . . . . . . . 9
Assisted Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Housing Choice Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Public Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 811 Housing for the Disabled Program . . . . . . . . . . . . . . . . . . 13
Homelessness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Homeownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
HUD Homeownership Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Homeownership Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Fannie Mae and Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Predatory Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Real Estate Settlement Procedures Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Rural Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CRS Products on Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Tables
Table 1. Department of Housing and Urban Development Appropriations,
FY2002 to FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Table 2. Homeownership Rates, by Household Category . . . . . . . . . . . . . . . . . 15
Housing Issues in the 109th Congress
Introduction
Prior to Hurricane Katrina (discussed later in this report), housing issues in the
109th Congress centered around the Administration’s proposed FY2006 budget for
the Department of Housing and Urban Development (HUD) and the congressional
response.1 The budget included a controversial proposal to replace Community
Development Block Grant (CDBG) and related programs with a new initiative in the
Department of Commerce, rescission of $2.6 billion in previously appropriated but
unspent HUD funds, the recommendation to eliminate the HOPE VI program, and
significant cuts to the housing for persons with disabilities and the lead hazard
reduction programs. The Administration’s budget proposed to increase the Section
8 rental voucher program by $1.1 billion and homeless assistance grants by $200
million. Legislation was introduced on behalf of the Administration to replace the
Section 8 voucher program with a new block grant and to make major changes to the
public housing program, and the Administration continued to support several
initiatives to increase the homeownership rate for lower-income and minority
households. Other congressional interests have included legislation to combat
predatory lending, proposals to create a stronger regulator for Fannie Mae and
Freddie Mac, and continuing efforts to reform the Real Estate Settlement Procedures
Act.
Table 1. Department of Housing and Urban Development
Appropriations, FY2002 to FY2006
(Net budget authority in billions)
FY2002
FY2003
FY2004
FY2005
FY2006
$30.15
$31.01
$31.20
$31.92
$29.15*
Source: House Appropriations Committee tables, as cited in CRS Appropriations reports. Totals
remain uncertain until all program experience has been recorded, a process that may not be completed
for several months after the end of the fiscal year.
* The FY2006 figure is the House Appropriations Committee’s re-estimate of the Administration’s
budget request.
1 For a more detailed discussion, see CRS Report RL32869, The Department of Housing and
Urban Development (HUD): FY2006 Budget, by Bruce Foote, Maggie McCarty, and Eugene
Boyd.
CRS-2
Overarching Policy Issues
Hurricane Katrina. The catastrophic devastation wrought by Hurricane
Katrina in late August, and to a lesser degree, Hurricane Rita in late September,
captured the immediate attention of Congress. In the aftermath, the Federal
Emergency Management Agency (FEMA) has taken the lead role in finding
emergency temporary shelter for displaced families. The role that HUD and other
housing and community development programs will play in meeting both the short-
and long-term housing needs of the families displaced by the hurricanes, as well as
in rebuilding the impacted regions, has yet to be determined. HUD programs have
been used as a conduit for funneling short-, interim-, and long-term funding to
disaster-stricken communities many times in the past, most recently in response to
the four hurricanes that struck Florida in 2004 and after the September 11 attacks.
However, Katrina’s impact on the region’s housing stock eclipses that of any other
natural or manmade disaster in the history of this country. Also unprecedented are
the spillover effects, with tens, if not hundreds, of thousands of residents relocating
to other states. While looking to prior uses of HUD resources in times of disaster
may be informative, given the scope of the recent devestation, new and broad
initiatives to meet the interim- and long-term needs of the affected region and its
residents may be proposed in the 109th Congress.2
Administration Actions. The Administration has taken a number of first
steps designed to make housing programs and assistance available to victims of
Katrina. HUD established a toll-free number for HUD-assisted families who have
been displaced — such as public housing residents and Section 8 voucher holders —
to call in order to reestablish their benefits. In conjunction with that number, the
Department has identified a number of vacant units across the country in which to
house displaced tenants, both formerly assisted and unassisted. As in past disasters,
the Secretary has encouraged local communities to apply for waivers in order to
redirect their existing HOME and CDBG funds. The Secretary has also stated that
the Department will tap its public housing emergency capital reserve to fund the
repair of damaged public housing units.
The President’s declaration of a disaster, as in the case of Hurricane Katrina,
automatically triggers certain procedures with regard to FHA-insured mortgages in
the affected areas. The procedures remain in effect for one year from the date of the
declaration. The following procedures become effective: (1) a moratorium on
foreclosures is in effect for 90 days from the date of declaration; (2) lenders are
encouraged to offer special forbearance, mortgage modification, refinancing, and
waiver of late charges to affected borrowers; (3) families whose residences were
destroyed or severely damaged are eligible for 100% financing under Section 203(h)
of the National Housing Act for reconstruction or replacement of the residences; (4)
damaged properties become eligible for Section 203(k) financing under which the
costs to purchase and to rehabilitate the property are included in one loan, and HUD
waives the requirement that the property has been completed for more than one year
prior to application for a Section 203(k) mortgage; (5) the underwriting guidelines
2 For more information, see CRS Report RL33078, The Role of HUD Housing Programs in
Response to Disasters, by Maggie McCarty, Libby Perl, and Bruce Foote.
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are relaxed to permit disaster victims to qualify for loans even if their total monthly
debt, including the proposed mortgage, would equal 45% of gross income; (6)
lenders are directed to ensure that hazard claims are expeditiously filed and settled,
and lenders may not retain hazard insurance proceeds to make up an existing
arrearage without the written consent of the borrower.
To make Low Income Housing Tax Credit (LIHTC) units available to displaced
families, the IRS and Department of Treasury have waived the program’s income-
eligibility and non-transient rules for property owners to be able to house families
impacted by Katrina.
The U.S. Department of Agriculture (USDA) has several programs that provide
housing loans and assistance to residents of rural areas. Unlike HUD, several of the
USDA programs provide direct loans. Borrowers who are receiving direct home
loans from USDA are provided a “no-questions-asked” six-month moratorium on
mortgage payments if such borrowers live in the Presidentially declared disaster
areas. Families residing in USDA-assisted rental complexes that are made homeless
by a disaster may apply for occupancy at any other USDA-assisted apartment
complex as a “displaced tenant.” Applicants are placed on a special list to be offered
any vacant unit, or the next one available if no vacancies currently exist. Residents
receiving rental assistance from USDA in units made uninhabitable by Hurricane
Katrina may be permitted to transfer the assistance to another eligible apartment
complex.
On September 23, 2005, the Secretaries of HUD and the Department of
Homeland Security announced a joint transitional housing assistance initiative for
Hurricane Katrina evacuees. The initiative provides two types of assistance, both
funded by emergency supplemental funds provided to the Federal Emergency
Management Agency (FEMA). The first is a type of individual and household grant
administered by FEMA. Displaced homeowners and renters (except for
HUD-assisted renters) will receive from FEMA a cash grant of $2,358 to be used for
housing-related expenses. The amount is meant to represent three months of housing
costs and is calculated using the national average fair-market rent for a two-bedroom
apartment. Families who receive the assistance must show receipts to prove that it
was used for eligible expenses, and the grant counts against the $26,200 limit for
individual and household assistance that families may receive. FEMA has indicated
that the assistance may be extended for up to 18 months and that the amount may be
adjusted to reflect regional rent variations in the future. Families’ eligibility for this
assistance is determined when they register with FEMA.
For families that do not qualify for the FEMA assistance noted above, FEMA
is providing funding to HUD to administer the HUD Katrina Disaster Housing
Assistance Program (KDHAP). The program provides ongoing rental assistance, for
up to 18 months, to displaced HUD assisted renters (including Section 8 voucher
holders, families who had lived in public housing, and families that had lived in other
forms of HUD-assisted rental housing) and displaced homeless families. The rental
assistance is administered by local public housing authorities and is calculated at
100% of the local area fair market rent. Families are required to pay any difference
between the rental assistance amount and the actual rent for the unit they have
selected. This program does not have any income eligibility or targeting
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requirements and families’ eligibility is determined after they register for FEMA
assistance and contact the KDHAP intake number (1-866-373-9509).
Legislative Action. A number of Katrina recovery and relief bills have been
introduced in Congress. On September 8, 2005, Senator Reid introduced the Katrina
Emergency Relief Act of 2005 (S. 1637). Title III includes the “Helping to House
Victims of Hurricane Katrina Act of 2005.” The bill would provide $3.5 billion in
emergency supplemental appropriations to HUD to fund temporary vouchers for
families displaced by Hurricane Katrina. The vouchers would be authorized for six
months, but would be extended for an additional six months unless the Secretary
determined that they were no longer needed. Funding would also be available to
provide related assistance to families, such as security deposits and relocation
assistance. Many of the rules regarding eligibility and tenant payments would be
waived and the upper limit on the amount of assistance that can be provided would
be raised from the current standard of 110% of the local Fair Market Rent to 150%
of the local Fair Market Rent. Also on September 8, Senator Sarbanes offered the
same “Helping to House Victims of Hurricane Katrina Act of 2005” as a floor
amendment, to the Commerce-Justice-Science FY2006 appropriations bill (H.R.
2862). The amendment was adopted.
On September 22, 2005, the Senators from Louisiana introduced identical
bi-partisan relief and recovery bills. The Hurricane Katrina Disaster Relief and
Economic Recovery Act (S. 1765 and S. 1766) calls for new programs and additional
funding in areas ranging from defense, to energy, to health care, to the environment.
The housing section would provide $3.5 billion for emergency Section 8 vouchers;
$50 billion for CDBG, up to $5 billion of which could be transferred to each of the
HOME program and HOPE VI program; and $3 billion for mortgage relief. The bills
have been referred to the Senate Finance Committee.
On September 26, 2005, the members of the Louisiana House delegation
introduced the Hurricane Katrina Emergency Housing Act of 2005 (H.R. 3894). The
bill would permit the temporary waiver of a number of the rules in the Section 8
voucher program, including those regarding eligibility, tenant contributions towards
rent, income verification, lease terms and inspections, for families with vouchers that
were displaced by Hurricanes Katrina and Rita. The bill would also permit the
waiver of certain requirements in the project-based Section 8 program, including
those governing tenant contributions towards rent, income verification, lease terms
and inspections and would prohibit the expiration of Section 8 project-based
contracts while the units were uninhabitable. Unlike the voucher provision, the
project-based Section 8 provisions would not permit the waiver of income eligibility
requirements and the waivers would not be restricted to families that were receiving
assistance prior to the hurricanes. Finally, the bill mandates that two reports be made
to Congress: one identifying the inventory of government or government-held
properties that could be made available for emergency, temporary, or permanent
housing following a disaster; and one assessing state emergency housing plans. The
bill does not include any additional appropriations for the Section 8 programs.
On the same date, all but one member of the same delegation introduced two
additional housing bills: the Hurricane Katrina Emergency Relief CDBG Flexibility
Act of 2005 (H.R. 3896) and the Rural Housing Hurricane Relief Act of 2005 (H.R.
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3895). The CDBG bill would waive the cap on the amount of CDBG funds that can
be used for community services and would waive the public hearing requirements for
communities impacted by Hurricanes Katrina and Rita. The rural housing bill would
allow the temporary conversion of certain rental assistance tied to uninhabitable
housing units to voucher and would expand the uses of certain loans. All three bills
were approved by the House on October 6, 2005.
In addition to those already discussed, a number of new proposals to provide
short-term housing assistance and to aid in the rebuilding of damaged communities
will likely be considered in the 109th Congress. The President, in a national address
on September 15, 2005, stated that he would pursue a new Urban Homesteading
initiative and a Gulf Opportunity Zones initiative to help rebuild the impacted region.
Other proposals that could be considered may include the provision of emergency
supplemental funds for HOME and CDBG, an expansion of the LIHTC program, and
the development of a regional redevelopment authority to coordinate the resources
and plan for the long-term recovery from Katrina.
A number of questions arise when considering any of these options. How will
assistance that is generally directed to states directly affected by a disaster be
modified to account for the spillover effects of Katrina? How long will waivers of
program rules be in effect and what equity and accountability issues may such
waivers raise? What can be done to help families that need to smoothly transition
from emergency FEMA assistance to longer-term HUD assistance? How long should
assistance be available, and what strings should be attached to it? Congress will
grapple with these questions not only in trying to address the housing needs arising
from Katrina, but also in trying to address the myriad of other needs — education,
employment, health, nutrition — that Katrina has created.
The Role of HUD. Recurring proposals to reduce funding for many of HUD’s
programs have caused some to question the Department’s current and future role.
Among the agencies overseen by the new Transportation, Treasury, HUD, Judiciary,
District of Columbia and Related Agencies Appropriations Subcommittee, HUD’s
budget is proposed for one of the most drastic decreases, with a number of programs
slated for elimination. Some also see the Administration’s decision to house the new
Strengthening America’s Communities Initiative (SACI), which is designed to
replace the CDBG program, at the Commerce Department rather than at HUD as a
vote of “no confidence” in the agency. Furthermore, the proposed elimination of
CDBG, which constitutes the Department’s primary community development
program, raises questions about the urban development component of HUD’s name
and mission. Some of these concerns were voiced by the chairman of the House
Appropriations Subcommittee, Representative Knollenberg, who stated in a March
17 oversight hearing that the Administration itself was contributing to HUD’s image
as lacking “competency” to manage and implement programs.
HUD notes in its FY2006 budget summary that it has undertaken a number of
initiatives under the direction of the President’s Management Agenda to address
longstanding management problems, although it will take several years to achieve the
President’s goals. The Department also identifies reform of the Section 8 voucher
program as its top priority, motivated at least in part by the fact that the program is
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repeatedly designated as a high-risk program by the Government Accountability
Office (GAO) due to its high level of subsidy errors. Finally, HUD’s budget
summary acknowledges that the SACI proposal is a “fundamental change” but
maintains that it would result in a more targeted and unified program, to replace the
“maze” of “costly and duplicative” programs at multiple departments that
communities currently have to navigate.
Housing Affordability. The U.S. Housing Act of 1949 established a national
goal of “a decent home and a suitable living environment for every American
family.” Since the establishment of that goal, great progress towards it has been
made, with record homeownership rates and the elimination of much of the slums
and blight that plagued the first half of the last century. At the same time, problems
remain. The bi-partisan, congressionally-mandated Millennial Housing
Commission’s 2002 final report identified “affordability”3 as “the single greatest
housing challenge facing the nation.” The Harvard Joint Center for Housing Studies’
2005 State of the Nation’s Housing report found that more than 37 million American
families faced housing affordability problems or lived in inadequate or overcrowded
housing. While affordability is the overarching concern, different factors threaten the
affordability of owners and renters.
Rising Housing Prices. The unprecedented U.S. housing boom continues
on, with house prices again setting records in 2004. Home equity stood at $9.6
trillion in 2004 and it is estimated that the wealth effect from rising housing prices
generated one third of the growth in consumer spending last year, helping to buoy the
economy. Homeownership rates have reached all-time highs, up to 69% in 2004. And
minorities, who have consistently lagged whites in homeownership rates, have made
some gains. According to the Harvard Joint Center for Housing Studies’ 2005 State
of the Nation’s Housing report,4 between 1991 and 2003, the minority share of first
time homebuyers increased from 22% to 35%. Despite all of the good news, fears
about the health of the housing market and the sustainability of recent
homeownership gains are growing.
Speculation about a housing “bubble” has permeated local and national real
estate news. Federal Reserve Chairman Alan Greenspan, in testimony before the
Joint Economic Committee on June 9, 2005 noted that, while he does not believe that
the U.S. is experiencing a national housing bubble, home prices in some markets
seem to have risen to unsustainable levels. The pace of future interest rate increases,
the health of the economy, and the rate of job growth will all play an important role
in determining the pace of future housing price appreciation. More serious market
corrections could occur if speculators begin to fear the end of the boom has arrived.
Soaring home prices have also resulted in a proliferation of exotic and
potentially risky mortgage products that make the entry into homeownership in these
hot markets more affordable. Loans for more than the value of the home,
3 Housing is generally considered affordable if it costs no more than 30% of a family’s
income.
4 Available at [http://www.jchs.harvard.edu/publications/markets/son2005/index.html].
CRS-7
interest-only loans, and various forms of adjustable rate mortgages have all become
options for households buying high-priced homes they could not otherwise afford.
At the lower end of the market, relaxed credit standards and the proliferation of
subprime loans have expanded the pool of first-time homebuyers to include families
with little or no cash and with little or blemished credit histories. While all of these
practices have helped to increase the national homeownership rate, they come with
repayment risks. If interest rates soar, buyers with adjustable rate loans and
interest-only loans would be in for payment shocks, and some would find themselves
at risk of default. If the economy falters and there are job losses, some low- and
moderate-income families could be at risk of default if they become unemployed. A
small but growing number of low- and moderate-income homeowners are already
considered severely cost burdened, meaning they are spending half or more of their
incomes on housing.
Rent Burdens. In 2003, over 8 million renter households were severely cost
burdened, an increase of over 1.3 million from 2000. While moderate-income
renters are not immune from severe rent burdens, low-income renters face the
greatest burdens; just over half of all renters in the bottom quarter of the income
distribution were severely cost burdened in 2003. When low-income families pay
such a large portion of their incomes on housing, they have little left to meet their
other needs, let alone establish savings or build assets. The problem of severe rent
burdens appears to be growing as the supply of low-cost rental units continues to
dwindle. The Joint Center for Housing Studies’ report attributes the growing
“affordability problem” to a “structural mismatch between the large number of low-
wage jobs that the economy is generating and the high costs of supplying housing.”
They note that solving the problem will be difficult and will require the cooperation
of government, business and non-profits. However, the federal government’s role
in addressing what HUD has termed “worst-case housing needs” is increasingly in
question as deficits grow and pressure to restrain domestic spending mounts.
Community Development Block Grant Program
The Community Development Block Grant (CDBG) program, administered by
the Department of Housing and Urban Development, is the largest source of federal
grant assistance in support of state and local government housing and community
development efforts. Created in 1974 as Title I of the Housing and Community
Development Act, P.L. 94-393, the program is also the longest-running federal block
grant program. In FY2005, the program allocated $4.15 billion in assistance to
approximately 1,168 entitlement communities, states, and Puerto Rico using one of
two formulas intended to measure community development needs. States and
communities may use CDBG assistance to fund any of 25 categories of eligible
activities, including economic development, housing, historic preservation, public
facilities, public services, works, and energy conservation. Although states and local
governments are given broad discretion concerning the mix of program activities that
they can undertake, the statute governing the program requires that each activity must
address one of three national objectives: (1) principally benefit low- and moderate-
income persons; (2) aid in preventing or eliminating slums or blight; or (3) address
an urgent community development need posing a threat to the health and safety of
residents of a community. The program’s authorizing language also requires that
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70% of a community’s CDBG allocation be used in support of activities principally
benefitting low- and moderate-income persons.
Administration’s Economic Development Consolidation Proposal.
The 109th Congress may consider several CDBG-related issues, including a proposal
by the Bush Administration that would eliminate the CDBG program and 17 other
existing community development, economic development, and community service
programs, and transfer their activities to a new program — Strengthening America’s
Communities — to be administered by the Department of Commerce. The proposal
is being opposed by groups representing state and local officials, including the
National League of Cities, the U.S. Conference of Mayors, the National Association
of Counties, and the Council of Community Development Agencies. The
Administration, which has not yet released a detailed legislative proposal, contends
that the programs, including CDBG, whose activities would be consolidated have
been judged to be ineffective, duplicative, and lack measurable long-term objectives.
The new program, as proposed by the Administration, is intended to
! reduce duplication and fragmentation in the delivery of federal
economic development assistance;
! target assistance to communities with the greatest need; and
! improve accountability by requiring communities to focus on
measurable outcomes of grant assistance.
On June 30, 2005, the House, by a vote of 405 to 18, approved H.R. 3058, the
Departments of Transportation, Treasury, Housing and Urban Development, the
Judiciary, and the District of Columbia Appropriations Act for FY2006 (TTHUD)
and forwarded the bill to the Senate for its consideration. As reported by the House
Appropriations Committee, the bill included $4.15 billion for the CDBG formula-
based program ($3.86 billion) and the Economic Development Initiative ($290
million). Before approving the bill, the House considered and approved several
amendments, one of which would provide FY2006 funding for the Youthbuild
program within HUD (rather than the Department of Labor, as requested by the
Administration). The House approved by voice vote an amendment (H.Amdt. 396)
offered by Representative Knollenberg that would provide an additional $67.5
million to fund the activities of the Community Development Fund (CDF), with at
least $50 million of that amount available for the Youthbuild program. In approving
H.R. 3058, the House bill rejects the Administration’s “Strengthening America’s
Communities Initiative.” The additional funds would increase total funding for the
CDF account to $4.2 billion. During floor consideration of the bill, the chairman of
the TTHUD Appropriations Subcommittee, Representative Knollenberg, stated that
he would continue to seek a means of restoring the CDBG formula-based program
to its FY2005 funding level ($4.1 billion). The Senate Appropriations Committee-
reported version of H.R. 3058 also continues funding for CDBG and related
programs at HUD.
For a more detailed discussion, see CRS Report RL32823, An Overview of the
Administration’s Strengthening America’s Communities Initiative, by Eugene Boyd
(Coordinator), Bruce Mulock, Pauline Smale, Tadlock Cowan, Garrine Laney, and
Bruce Foote.
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CDBG Formula Changes. Congress may also consider legislation that could
change the program’s allocation formula and targeting requirements. A HUD study
released in February 2005, outlined four alternatives to the existing formula. The
study, CDBG Formula Targeting to Community Development Need, notes that the
variables used to allocate CDBG funds to local governments have not changed since
1978, and that although the formulas continue to allocate assistance based on need,
the ability of the formulas to do so “has declined substantially over the last 26 years.”
A change in the program’s formula may have regional implications.
De-Linking Brownfields and Section 108 Assistance. In addition,
Congress may consider two other issues: de-linking the Brownfield Economic
Development Initiative (BEDI) from the CDBG Section 108 loan guarantee program,
and reducing the number and amount of funds allocated to CDBG-related earmark
and set-aside programs. Currently, a community seeking to access BEDI funds may
do so only if it makes use of the Section 108 loan guarantees. This is particularly
cumbersome for smaller, nonentitlement communities, which must gain the support
of the state in order to access either BEDI or Section 108 funding. De-linking the
BEDI program from Section 108 loan guarantees would create a free-standing
program that would reduce the expense associated with underwriting Section 108
bonds and notes. At least one bill has been introduced in the House, H.R. 280, that
would de-link the two programs.
The Administration’s Strengthening America’s Communities Initiative (SACI)
would eliminate both the Brownfields and Section 108 programs. During its
consideration and passage of the Departments of Transportation, Treasury, Housing
and Urban Development, the Judiciary, and the District of Columbia Appropriations
Act for FY2006 (TTHUD), the House approved an amendment that would provide
$24 million for the Brownfield program, but includes no additional funding for the
Sec. 108 program. The Senate Appropriations Committee-reported version of H.R.
3058 includes funding for both the Brownfields and Section 108 loan guarantees
programs.
CDBG-Related Earmarks and Set-Asides. The CDBG program is funded
under an account called the Community Development Fund (CDF), which includes
a number of CDBG-related earmarks and set-asides. As a cost-saving measure,
Congress may act to reduce the number of CDBG-related earmarks and set-aside
programs as a means of preserving funding for the formula component of the CDBG
program. Critics of CDBG-related set-asides and earmarks believe that these
programs siphon funds from the formula portion of the CDBG program. For
FY2005, Congress appropriated approximately $600 million for CDBG-related
earmarks and set-asides, with approximately 55% ($330 million) of that awarded on
a noncompetitive basis to congressionally directed projects. Eliminating or reducing
funding for CDBG-related set asides and earmarks could, but does not necessarily,
translate into additional funds for the CDBG formula program.
The House-passed version of the HUD funding bill, H.R. 3058, would reduce
the amount of funding for and number of CDBG-related set-asides and earmarks
funded within the CDF account. The bill would provide funding for Youthbuild, a
job training program ($50 million), and Economic Development Initiative (EDI)
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grants for congressionally earmarked projects ($290 million). Funding for university-
related programs would be transferred to the Department’s Office of Policy Research
and Development, approximately $29 million. The bill would also transfer funding
for the National Community Development Initiative and the Self-Help Housing
Opportunity Program to a new account within HUD in support of homeownership.
The Senate Appropriations Committee-reported version of H.R. 3058 funds most
CDBG set-asides within the CDF account.
Assisted Housing
Housing Choice Vouchers. The Section 8 voucher program, also called the
Housing Choice Voucher program, provides rental subsidies to low-income families
that they can use to reduce their rent in the private market. The voucher pays roughly
the difference between the rent for a unit and the family’s contribution, which is
approximately 30% of their income. The program currently provides around 2
million subsides, but demand for them is great and in many communities, waiting
lists for vouchers are years long or even closed.
The program has come under criticism in recent years for cost increases without
corresponding increases in the number of families served. In FY2005, Congress
funded the program at $14.7 billion, a 4% increase over FY2004 and a 17% increase
over FY2003. Over this same period, Congress did not fund any new vouchers. In
FY2006, the President has requested $15.8 billion for the voucher program, an
increase of over 7%, none of which would be available to serve additional families.
The program accounted for more than 46% of the total HUD budget in FY2005 and
is slated to account for more than half of the HUD budget in FY2006 (in part because
of reductions to other programs). In addition to its cost, the program has been
criticized for its administrative complexity, which results in high rates of error in
calculating subsidies, and for not promoting self-sufficiency among its participants.
In response to these critiques, two major initiatives have emerged over the past
several years. The first involves changes to the way the program is funded.
Beginning with changes in the FY2003 appropriations act and continued in the
FY2004 and FY2005 laws, Congress has begun to convert the voucher program from
a unit-based, actual cost program to a budget-based, fixed cost program. Prior to
FY2003, PHAs were issued a number of vouchers that they were authorized to
distribute, and they were reimbursed by HUD for the actual cost of those vouchers
(statutorily set at roughly rent minus 30% of family income.) In FY2005, PHAs were
funded based on the number of vouchers they were using and the cost of those
vouchers in a snapshot of time — May through July 2004 — with an adjustment for
inflation. This new “budget-based” environment has left some PHAs with less
funding than they require to continue serving the same number of families at the
same level that they had in the past. Many PHAs have made program adjustments
to reduce costs, but they are constrained by federal laws and regulations governing
the size of benefit they must provide and the income levels of the families they must
serve. The President’s FY2006 budget request for the voucher program, and the
House-passed version of the HUD FY2006 funding bill (H.R. 3058), would continue
and expand the practice of budget-based funding for PHAs by distributing funds to
agencies based on the amount they received in FY2005 rather than their projected
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cost and usage for FY2006. The Senate Appropriations Committee-reported version
of H.R. 3058 would fund PHAs using a different formula than that proposed by the
President and accepted by the House. The Senate bill would distribute funding to
agencies based on their actual costs and the number of vouchers they used in the past
12 months.
The second major initiative is a HUD-led drive to eliminate the existing Section
8 voucher program and replace it with a new and restructured housing subsidy
program. In the first session of the 108th Congress, the Administration’s FY2004
budget proposed a voucher reform initiative titled Housing Assistance for Needy
Families (HANF). HANF would have provided block grants to states to undertake
a more broadly defined form of tenant-based rental assistance, as well as
homeownership and other activities defined by the Secretary. Eligibility rules would
have been looser than current voucher rules, as would subsidy determination rules.
The initiative was resisted by low-income housing advocates who argued that it
would fail to serve the neediest families. It was also opposed by PHA groups who
argued that local PHAs were better suited to administer a voucher program than
states because of their history and proximity to communities. Critics of the proposal
also argued that the block grant structure of HANF would lead to future funding cuts.
HANF legislation was introduced in the House and the Senate, but no further action
was taken.
In the second session of the 108th Congress, the President included a Flexible
Voucher Program (FVP) proposal in his FY2005 budget request. Also designed to
replace the existing voucher program, FVP would have continued to use PHAs as
administering bodies, but would have adopted looser eligibility and subsidy
determination rules than both the existing program and the previously proposed
HANF. FVP came under criticism by low-income housing advocates and PHA
groups for many of the same reasons HANF was criticized. However, PHA advocacy
groups noted that they did desire additional program flexibility, including some of
the flexibility that FVP would have provided, particularly if budget-based funding is
to continue in the future. No legislation was introduced to enact FVP; HUD stated
in testimony that it did not intend to introduce FVP as authorizing legislation, but
instead expected the Appropriations Committees to include authorizing language for
FVP in the FY2005 appropriations bill. FVP was not enacted in the 108th Congress.
On April 13, 2005, Senator Allard introduced S. 771, and on April 28
Representative Gary Miller introduced H.R. 1999, the State and Local Housing
Flexibility Act of 2005. Title I of S. 771 is titled the Flexible Voucher Act, and its
provisions are similar to those in the Administration’s FVP proposal from the 108th
Congress. It would replace the Section 8 voucher program with the Flexible Voucher
Program and would expand eligibility for the program to higher-income families and
would give PHAs the option to set time limits or increase tenant contributions toward
rent. The bills include two additional titles, one that would modify the eligibility and
rent rules for public housing and another that would extend and expand the Moving
to Work Demonstration program. S. 771 has been referred to the Senate Banking
Committee, and H.R. 1999 has been referred to the House Financial Services
Committee. For more information, see CRS Report RL31930, Section 8 Housing
Choice Voucher Program: Funding and Related Issues, by Maggie McCarty.
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Public Housing. Public housing is a program of publicly owned and federally
subsidized housing units managed at the local level by quasi-governmental PHAs and
available to low-income families, including seniors and the disabled. Congress
provides funding for both the ongoing operating needs as well as the long-term
capital modernization needs of public housing. The major issues in public housing
surround both of those subsidies.
Operating Subsidies. Congress funds and HUD provides operating funds
to PHAs to help make up the difference between what tenants pay in rent and what
it costs to run public housing. Most agree that the current formula for calculating the
distribution of subsides is outdated, however, coming up with a new formula has
proved difficult. In 2000, Congress directed HUD to contract with the Harvard
University Graduate School of Design to conduct a study on “the costs incurred in
operating well-run public housing.” The purpose of the study was to develop a new
system for distributing operating subsidies to PHAs. The findings were reported in
2003; the major conclusions were that operating costs should be benchmarked to the
operating costs of private housing providers and that public housing should be
converted from agency-based funding and management to property-based funding
and management. Congress directed HUD to undertake negotiated rulemaking with
stakeholders to develop a new formula for distributing operating funds based on
Harvard’s recommendations. HUD released the proposed rule on April 14, 2005 (70
FR 19857-19875). It has been controversial, as it differs in significant ways from the
final rule that was agreed upon in the negotiated rulemaking sessions. HUD has
stated that it modified the rule “to better reflect Administration policies and
budgetary priorities.”5 It will present major changes in the way PHAs manage their
buildings and receive funding, with the potential that some PHAs will receive
substantial increases in funding and others will receive substantial decreases.
The House-passed version of the FY2006 HUD funding bill (H.R. 3058) directs
the Secretary to fund agencies using the negotiated rule rather than the proposed rule.
While the Senate Appropriations Committee-reported version of H.R. 3058 does not
require the Secretary to use the negotiated rule, the accompanying report (S.Rept.
109-109) states that the Committee expects the final rule to reflect the negotiated rule
to the greatest extent possible.
Capital Subsidies. It is estimated that there is a backlog of unmet capital
modernization needs in public housing, totaling between $18 billion and $20 billion
and that new capital needs accrue at a rate of $2-$3 billion per year. Public housing
advocacy groups argue that the Administration’s funding requests ($2.3 billion in
FY2006) and the amount provided by Congress ($2.6 billion in FY2005) are not
sufficient to either keep up with new needs or address the backlog. If capital needs
go unmet, public housing runs the risk of becoming dilapidated and uninhabitable.
One emerging trend in public housing is the leveraging of private resources by
PHAs to fund modernization needs. According to HUD’s budget justification:
5 See Regulatory Impact Analysis of “Revisions to the Public Housing Operating Fund
Program” (FR-4874-P-01), Department of Housing and Urban Development, available at
[http://www.hud.gov/offices/pih/publications/4874_op_fund_prop_ea.pdf].
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To date, HUD has approved 34 transactions in which, a total of 93 PHAs are
participating (some of these transactions include pools of multiple PHAs). The
total amount of loan and bond financing approved to date is approximately $1.7
billion. HUD currently has 15 requests pending to borrow another $765 million
for 25 PHAs. HUD has been contacted by representatives for over 150 PHAs
expressing interest in pursuing transactions in excess of $357 million.
HOPE VI. The HOPE VI program provides competitive grants to PHAs for the
demolition and/or revitalization of distressed public housing. HOPE VI has been
popular with many Members of Congress, but has come under criticism from the
Administration for slow expenditure of funds by grantees and from tenant advocates
for displacing more residents than are housed in new developments. Reflecting these
criticisms, HUD has proposed no new funding for HOPE VI in its FY2004, FY2005,
and FY2006 budget submissions. Congress continued funding the program in
FY2004 ($149 million) and FY2005 ($143 million), although at a lower level than
in previous years ($570 million in FY2003).
The President’s most recent budget submission proposes to rescind the funding
Congress provided to HOPE VI in FY2005. HUD has not yet awarded the FY2005
funds, although the Notice of Funding Availability (NOFA) inviting communities to
apply for the FY2005 funds was issued on March 21, 2005. The NOFA warns
applicants that Congress may rescind any HOPE VI funds awarded through the
NOFA. The House-passed version of the HUD funding bill (H.R. 3058) would not
rescind the FY2005 funding for HOPE VI and would provide $60 million for the
program in FY2006. The Senate Appropriations Committee-reported version of
H.R. 3058 would also not rescind FY2005 funding and would fund the HOPE VI
program at $150 million in FY2006.
Authorization for the program is set to expire at the end of FY2006. On July 27,
2005, Senator Mikulski introduced a bipartisan bill to reauthorize the HOPE VI
program through FY2011. The HOPE VI Improvement and Reauthorization Act of
2005 (S. 1513), includes provisions designed to promote collaboration with local
school systems and give priority to grant applicants that minimize both temporary
and permanent displacement of public housing residents. For more information, see
CRS Report RL32236, HOPE VI Public Housing Revitalization Program:
Background, Funding, and Issues, by Maggie McCarty.
Section 811 Housing for the Disabled Program. The Section 811
Housing for the Disabled program provides both capital grants and rental assistance
subsidies for developers to use to build low-cost, accessible housing for persons with
disabilities. The President’s FY2006 budget request for Section 811 represents a
50% cut in funding from FY2005. Further, the funding provided would not be
available for capital grants, rather, the full amount would be used to provide vouchers
to persons with disabilities. HUD budget documents do not provide a rationale for
the funding reduction or the restriction against use for capital grants. In testimony
on March 17, 2005, before the House Appropriations Subcommittee on
Transportation, Treasury, HUD, the Judiciary, and the District of Columbia, the
Secretary of HUD referred to the need to make unpopular cuts in programs such as
Section 811 in order to maintain adequate funding for Section 8 and programs for the
homeless.
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In the House-passed version of the FY2006 HUD appropriations bill (H.R.
3058), funding for Section 811 is just over the FY2005 level, at $238 million, and is
almost double the President’s request. The House bill also allows up to $157 million
to be used for capital grants and project-based rental assistance. The Senate
Appropriations Committee bill provides a funding level of $240 million, a slight
increase over FY2005, and double the budget request. Like the House bill, the
Senate version continues to allow funding for capital grants.
Homelessness
In 2002, the Bush Administration set a goal of ending chronic homelessness in
10 years. The chronically homeless are generally single adults with serious mental
health and/or substance abuse problems. While they are estimated to constitute only
about 10% of the homeless population, they are estimated to absorb more than half
of the resources available for the homeless. The Administration’s plan calls for
increasing the number of permanent housing units with supportive services (referred
to as permanent supportive housing) developed every year. As a part of that plan, the
Administration has proposed a $200 million Samaritan Initiative, which would fund
the development of permanent supportive housing for the chronically homeless.
Legislation to enact the Samaritan Initiative was introduced in the 108th Congress, but
was not enacted and funds were not provided. In his FY2006 budget request, the
President requested that $200 million be set-aside within the Homeless Assistance
Grants account at HUD for a Samaritan Initiative, without a request for separate
authorizing legislation. The Administration has also proposed for the second year to
set-aside $75 million in the Homeless Assistance Grants account for transfer to the
Department of Justice for a Prisoner Re-entry Initiative. This initiative would be
targeted at preventing homelessness among individuals exiting prison and aiding
their successful transition to community life and employment. The set-aside was not
enacted in FY2005.
The Homeless Assistance Grants account funds the four major homeless
assistance programs — Shelter Plus Care, Supportive Housing, Section 8 Moderate
Rehabilitation Single Room Occupancy, and Emergency Shelter Grants — authorized
by the McKinney-Vento Homeless Assistance Act and administered by HUD. The
act, which was signed into law in 1987, has remained unauthorized since 1994 and
legislation to reauthorize the McKinney Act has not been introduced in the 109th
Congress. The President’s FY2006 budget request, as in his FY2004 and FY2005
budget requests, proposes to consolidate the three competitive components of the
Homeless Assistance Grants account (Shelter Plus Care, Supportive Housing, and
Section 8 Moderate Rehabilitation Single Room Occupancy) into one program.
Consolidation legislation, either as a part of a larger McKinney Act reauthorization
bill or as an independent piece of legislation, was not introduced in the 108th
Congress and has not been introduced in the 109th.
The House version of the FY2006 appropriations bill, H.R. 3058, provides
$1.34 billion for homelessness programs, $100 million less than the President’s
request, and approximately $100 more than funding for FY2005. The Senate
Appropriations Committee version allocates $1.42 billion, which is $25 million
below the President’s budget request, and $75 million more than the House
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recommendation. Neither the Senate nor the House version of the bill provides
funding for the Samaritan Initiative and the Prisoner Re-Entry Initiative. For more
information, see CRS Report RL30442, Homelessness: Recent Statistics, Targeted
Federal Programs, and Recent Legislation, coordinated by Maggie McCarty.
Homeownership
The national homeownership rate stood at 69.1% at the end of the first quarter
of 2005, just below the record of 69.2% reached in the second and fourth quarters of
2004. Despite major gains in recent years, Table 2 below shows that homeownership
rates for lower-income and minority households remain significantly lower than the
rate for whites. There are a number of reasons for these lower rates. Minorities have
lower incomes than whites and a larger percentage live in central cities, both of
which make it more difficult to find a desirable home to purchase. (Many larger
cities have thousands of dilapidated boarded-up homes in distressed neighborhoods,
but the purchase and rehabilitation of individual units is rarely an option for lower-
income buyers without the help of a Community Development Corporation or some
similar organization.) For a variety of reasons, many lower-income households have
poor credit records, which makes obtaining a mortgage more difficult, more
expensive, or impossible.
Table 2. Homeownership Rates, by Household Category
(numbers in percentages)
1st
Quarter
1994
2003
2004
2005
Total
64.0
68.3
69.0
69.1
White, non-Hispanic
70.0
75.4
76.0
76.0
Black
42.5
48.8
49.7
49.3
Hispanic
41.2
46.7
48.1
49.7
Households with family incomes
greater than or equal to the median
78.5
83.3
83.8
84.5
family income
Households with family incomes
48.1
51.3
51.3
53.0
less than the median family income
Source: Table prepared by the Congressional Research Service (CRS) based on data from the U.S.
Census Bureau.
The Administration has made increasing homeownership for lower-income
groups the centerpiece of its housing policy. They argue that homeownership offers
minorities the best opportunity to accumulate wealth that can later be used for
education, to start a business, or to take advantage of other opportunities that may not
be available to those without financial assets. They make the case that increased
homeownership can help to stabilize and revitalize economically distressed
neighborhoods.
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While most housing advocates find it difficult to oppose additional
homeownership opportunities for lower-income families, there is increasing concern
being expressed that the Administration’s focus on homeownership is unbalanced.
Critics say that HUD’s policy should have more emphasis on maintaining or
increasing the choice of housing available, including rental housing.
HUD Homeownership Initiatives. The Administration is proposing two
homeownership initiatives in the FHA program for FY2006. One initiative would
permit 100% FHA financing for first-time buyers with strong credit records. Under
the other initiative, HUD would amend its underwriting guidelines in order to permit
borrowers with blemished credit records to obtain FHA-insured loans. The FHA
insurance premiums for these borrowers would be increased to cover the higher risks
and costs involved in these initiatives. The President’s budget assumed that these
initiatives would create $268 million in additional negative appropriations in
FY2006. The House Appropriations Committee, however, did not accept the
Administration’s assumptions. The Committee’s re-estimate assumes zero savings
from the proposed initiatives. In the 109th Congress, H.R. 3043, the Zero
Downpayment Pilot Program Act of 2005, has been introduced, but, as previously
noted, the budget impact is still likely to be an issue. On June 30, 2005, the House
Financial Services Subcommittee held a hearing on the bill.
Homeownership Tax Credit. The Administration’s FY2006 budget request
to Congress included a proposal to create a single-family housing tax credit
(SFHTC). The SFHTC, which has been proposed in previous years, would be made
available to developers of new or rehabilitated affordable single-family housing in
distressed neighborhoods, for the production of homes for low- and moderate-income
homebuyers. Structured similarly to the Low-Income Housing Tax Credit (LIHTC),
which subsidizes the construction of affordable rental housing, the SFHTC would
authorize state or local housing agencies to award credits to new or rehabilitated
housing projects that develop single-family housing for low-income families in
census tracts with median incomes of 80% or less of the greater of area or state-wide
median income, or in areas defined as chronically distressed. The Administration
intends for the tax credit to create or increase homeownership opportunities in
distressed neighborhoods, and to revitalize these neighborhoods by increasing the
rate of homeownership. As proposed, the tax credit would be available beginning in
FY2006 and would lose $2.7 billion in tax revenue through FY2010. Bipartisan
authorization bills H.R. 1549 and S. 859 have been introduced.
Fannie Mae and Freddie Mac
Currently, the Office of Federal Housing Enterprise Oversight (OFHEO) is the
office within HUD that is responsible for regulating the safety and soundness of the
operations of the Federal National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac). Other HUD staff are
responsible for regulating the mission of Fannie Mae and Freddie Mac. The Federal
Housing Finance Board (FHFB) regulates the safety and soundness of the Federal
Home Loan Banks. Fannie Mae, Freddie Mac, the FHLB are referred to as the
housing government-sponsored enterprises (GSEs).
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Stronger regulation of the housing GSEs has been an issue for many years. The
issue has gotten a push from the emergence of an accounting scandal at Freddie Mac
in June 2003, and from allegations in 2004 of accounting and management problems
at Fannie Mae.
Two GSE reform bills have been introduced in the 109th Congress — S. 190 and
H.R. 1461. The bills are similar and would replace OFHEO and FHFB with a new
regulatory agency. The new agency would be responsible for the safety, soundness,
and mission regulation of Fannie Mae, Freddie Mac, and the Federal Home Loan
Banks (FHLBs). Both would enable the regulator to require Fannie Mae and Freddie
Mac to adhere to their statutory secondary market role, and would oversee the
affordable housing goals for Fannie Mae and Freddie Mac, as well as their new
program applications. The agency would be funded by the GSEs and would not be
subject to congressional appropriations. In case of financial distress, the bills would
authorize the new regulator to appoint a receiver for either Fannie Mae or Freddie
Mac. On May 25, 2005, H.R. 1461 was marked up and reported by the Financial
Services Committee. As reported the bill includes a controversial provision which
would use funds from the GSEs to create an affordable housing fund. For more
information, see CRS Report RL32795, Government-Sponsored Enterprises (GSEs):
Regulatory Reform Legislation, by Mark Jickling.
Predatory Lending
Since the early 1990s, lenders have developed better methods of estimating the
risks of certain mortgage loans, with the result that lenders are now making home
loans to persons who ordinarily would not qualify for loans, given their income,
savings, and credit profiles. The loans are often referred to as subprime loans. There
are many subprime loans that are the result of lenders making legitimate pricing
decisions based on the higher risks of loans because of some characteristics of the
borrowers. Problems occur when lenders deliberately market the loans to
populations such as low-income elderly and minority homeowners who may have
little understanding of complex financial products and who may have the tendency
to put too much trust in the assumption that the lender is trying to help them. These
lenders are often predators who take advantage of the ignorance of borrowers and
commit them to loans that are not in the borrowers’ financial interests.
The Home Owner Equity Protection Act (HOEPA)6 provides federal
prohibitions on certain predatory lending practices, and twenty-five states and several
municipalities have enacted similar statutes that sometimes offer much broader
protections than those afforded under HOEPA. (See CRS Report RL32784
Predatory Lending: A Comparison of State Laws to the Federal Home Ownership
and Equity Protection Act, by Nathan Brooks.) Varying requirements among state
and local statutes which seek to limit predatory lending have led many in the lending
community to the call for a uniform federal statute. The difficulty, from a public
policy standpoint, is how to limit predatory lending without at the same time
6 Subtitle B of Title I of the Riegle Community Development and Regulatory Improvement
Act, P.L. 103-325; 15 U.S.C. § 1601 et seq.
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restricting the ability of lenders to make loans that are legitimately priced according
to the risk of the borrowers.
Predatory lending issues are addressed in H.R. 200, H.R. 1182, and H.R. 1643,
which include provisions related to counseling and education and financial literacy
programs to prevent predatory lending, amendments to the Truth in Lending Act to
add restrictions on high-cost mortgages and prohibit certain practices, and
amendments to additional banking laws to combat predatory lending practices that
affect low- and moderate-income individuals.
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 to
effect certain changes in the settlement process for residential real estate. These
changes were expected to result in (1) more advance disclosure of settlement costs
to home buyers and sellers, (2) the elimination of kickbacks or referral fees that
tended to cause unnecessary increases in the costs of certain settlement services, (3)
a reduction in the amounts that buyers are required to place in escrow accounts for
the payment of property taxes and hazard insurance, and (4) reform and
modernization of local record keeping of land title information. The HUD regulation
administering RESPA was issued on June 4, 1976. The regulation is referred to as
Regulation X and is found in the Code of Federal Regulations at 24 C.F.R. Part 3500.
The only major revision to Regulation X occurred on November 2, 1992.
RESPA requires lenders to provide consumers with estimates of settlement
costs, but no federal or state law requires the lenders to deliver settlement costs in the
amounts stated in the estimates. As a result, consumers often get hit with unexpected
fees at closing, and these unexpected fees can sometimes be hundreds and even
thousands of dollars more than expected. In addition, consumers generally find the
real estate settlement process confusing, and lenders find it cumbersome.
To date, reform of RESPA has not been a priority of Congress, but in recent
years HUD has sought to reform the rules under the existing law. Several changes
in Regulation X have been proposed since 1995, but none of them have resulted in
a final rule. The most recent proposal was made on July 29, 2002, in a proposed rule
entitled “Simplifying and Improving the Process of Obtaining Mortgages to Reduce
Settlement Costs to Consumers” (67 FR 49134). After strong opposition by some
Members of Congress and various industry groups, the proposal was withdrawn in
March 2004 for further review and analysis. At the Mortgage Bankers Association
annual policy conference in Washington, D.C. on April 19, 2005, HUD Secretary
Alphonso Jackson pledged to work with Congress, consumer groups, and the housing
industry to reach a consensus on RESPA reform.7 The Secretary expects to submit
a proposal for public comment in late fall or early winter.
7 “Jackson Says He’s Listening on RESPA,” Housing Affairs Letter, Apr. 22, 2005.
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Rural Housing
In prior years, the Administration has proposed zero funding for the Rural
Housing and Economic Development program (RHED) in HUD, but Congress has
responded by funding the program at about $25 million. For FY2006, the
Administration is proposing to consolidate RHED into a new program within the
Department of Commerce. (See discussion of Community Development Block Grant
Program above.)
The FY2006 budget proposes several cuts in the rural housing programs of the
Department of Agriculture (USDA). The most drastic cut would have been in the
Section 515 Rural Rental Housing program, which would have a 73% reduction from
the FY2005 appropriation level. As passed by the House, H.R. 2744 would fund the
Section 515 program at $100 million instead of the $27 million proposed by the
President’s budget. The budget expresses a preference for loan guarantees over direct
lending programs, so the budget would have doubled funding for the Section 538
Rental Housing Guarantee program. The House bill funds it at the FY2005 level.
Similarly, the bill would fund the Section 502 Single Family Direct program at near
the FY2005 level instead of the reduction proposed by the budget. The bill increases
funding for the Section 502 Single Family Guarantee program as proposed by the
budget. An issue for rural housing advocates is how to prevent or reduce the
prepayment of such loans, or at least ensure that the housing continues to be available
as affordable housing for rural residents.
CRS Products on Housing
In General
CRS Report RL32869, The Department of Housing and Urban Development (HUD):
FY2006 Budget, by Maggie McCarty, Libby Perl, Bruce Foote, and Eugene
Boyd.
CRS Report RL32443, The Department of Housing and Urban Development (HUD):
FY2005 Budget, by Richard Bourdon (Coordinator), Bruce Foote, Maggie
McCarty, and Eugene Boyd.
CRS Report RL31918, U.S. Housing Prices: Is There a Bubble?, by Marc Labonte.
Section 8 Rental Assistance
CRS Report RL32284, An Overview of the Section 8 Housing Program, by Maggie
McCarty.
CRS Report RL31930, Section 8 Housing Choice Voucher Program: Funding and
Related Issues, by Maggie McCarty.
Public Housing
CRS Report RS21591, Community Service Requirement for Residents of Public
Housing, by Maggie McCarty.
CRS Report RL32236, HOPE VI Public Housing Revitalization Program:
Background, Funding and Issues, by Maggie McCarty.
CRS-20
CRS Report RS21199, No-Fault Eviction of Public Housing Tenants for Illegal Drug
Use: A Legal Analysis of Department of Housing and Urban Development v.
Rucker, by Charles V. Dale.
Special Populations
CRS Report RL30442, Homelessness: Recent Statistics, Targeted Federal Programs,
and Recent Legislation, coordinated by Maggie McCarty.
CRS Report RL32104, Housing Assistance and Welfare: Background and Issues, by
Maggie McCarty.
CRS Report RS20704, Housing Opportunities for Persons with AIDS (HOPWA), by
Maggie McCarty.
CRS Report RL31753, Immigration: Noncitizen Eligibility for Needs-Based Housing
Programs, by Alison Siskin and Maggie McCarty.
Community Development
CRS Report RL32823, An Overview of the Administration’s Strengthening
America’s Communities Initiative, by Eugene Boyd (Coordinator), Bruce
Mulock, Pauline Smale, Tadlock Cowan, Garrine Laney, and Bruce Foote.
Housing Finance
CRS Report RS20530, FHA Loan Insurance Program: An Overview, by Bruce E.
Foote and Meredith Peterson.
CRS Report RL32784, Predatory Lending: A Comparison of State Laws to the
Federal Home Ownership and Equity Protection Act, by Nathan Brooks.
CRS Report RS20533, VA-Home Loan Guaranty Program: An Overview, by Bruce
E. Foote and Meredith Peterson.
Housing Government-Sponsored Enterprises (GSEs)
CRS Report RS21567, Accounting and Management Problems at Freddie Mac, by
Mark Jickling.
CRS Report RS21949, Accounting Problems at Fannie Mae, by Mark Jickling.
CRS Report RL32815, Federal Home Loan Bank System: Policy Issues, by William
Jackson.
CRS Report RL32795, Government-Sponsored Enterprises (GSEs): Regulatory
Reform Legislation, by Mark Jickling.
CRS Report RS21724, GSE Regulatory Reform: Frequently Asked Questions, by
Loretta Nott and Barbara Miles.
CRS Report RL32230, Regulation of Fannie Mae and Freddie Mac under the
Federal Housing Enterprises Financial Safety and Soundness Act: A Legal
Analysis, by Nathan Brooks.
CRS Report RS21896, The Department of the Treasury’s Authority to Regulate GSE
Debt: A Legal Analysis, by Nathan Brooks.
CRS-21
Housing Discrimination
CRS Report 95-710, The Fair Housing Act: A Legal Overview, by Jody Feder.
CRS Report RS20418, Funding for Major Civil Rights Enforcement Agencies, by
Garrine P. Laney