Order Code RL32899
CRS Report for Congress
Received through the CRS Web
Housing Issues in the 109th Congress
Updated April 25, 2006
Maggie McCarty, Libby Perl, and Bruce E. Foote
Domestic Social Policy Division
Eugene Boyd, Pamela J. Jackson, and N. Eric Weiss
Government and Finance Division
Meredith Peterson
Knowledge Services Group
Congressional Research Service ˜ The Library of Congress
Housing Issues in the 109th Congress
Summary
The second session of the 109th Congress will likely consider a number of
housing-related issues, including assistance for families and communities affected
by Hurricanes Katrina, Rita, and Wilma; FY2007 appropriations for the Department
of Housing and Urban Development (HUD); reform of the Government Sponsored
Enterprises — Fannie Mae and Freddie Mac — and Federal Home Loan Banks
(GSEs and FHLBs); and increases in or changes to the Low-Income Housing Tax
Credits.
Congress has appropriated $11.9 billion to HUD in FY2006 supplemental
funding to provide assistance in areas affected by the hurricanes. The Community
Development Block Grant (CDBG) program received $11.5 billion of this amount,
which was divided among the states of Louisiana, Mississippi, Alabama, Florida, and
Texas. Congress also provided $390 million in Section 8 vouchers for families that
had received HUD assistance before being displaced by Hurricane Katrina. Another
supplemental appropriations bill, H.R. 4939, passed the House of Representatives on
March 16, 2006, and was reported out of the Senate Appropriations Committee on
April 7, 2006 (S. Rept.109-203). The House version of the bill would appropriate
$4.2 billion to the CDBG program for disaster recovery activities whereas the Senate
Appropriations Committee has recommended $5.2 billion for disaster relief activities.
The President’s budget proposal for FY2007 would reduce funding to at least
13 HUD programs and increase funding for 11 others from the FY2006 appropriation
level. The largest dollar reduction would be seen in the CDBG program, which the
President has proposed to reduce from $3.7 billion in FY2006 (not including
supplemental funding) to $3.0 billion in FY2007, a reduction of nearly 20%. Section
202 Housing for the Elderly, Section 811 Housing for the Disabled, the public
housing capital fund, and HOPE VI would also be cut. Housing Opportunities for
Persons with AIDS (HOPWA), Section 8 vouchers, Homeless Assistance Grants, and
the HOME program would all be increased under the President’s budget.
Two bills to strengthen oversight of the GSEs and FHLBs under one regulator
were introduced in the first session of the 109th Congress (S. 190 and H.R. 1461).
The House passed H.R. 1461 on October 26, 2005. The Senate Banking and Urban
Affairs Committee reported S. 190 to the Senate on July 28, 2005.
Legislation was also introduced in the first session of the 109th Congress that
would increase Low-Income Housing Tax Credits (LIHTC). The LIHTC program
gives tax credits to developers that build and rehabilitate housing that is affordable
to those households with low incomes. The Affordable Housing Tax Credit
Enhancement Act of 2005 (H.R. 2681) would double LIHTC authority nationwide.
Two bills, H.R. 659 and H.R. 3159, each entitled the Community Restoration and
Revitalization Act of 2005, would also increase credits, but would also modify the
tax credit in order to target it more directly to low-income communities.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overarching Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Rebuilding after the 2005 Hurricanes . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Budget Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Housing Affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Housing Reconstruction After the 2005 Hurricanes . . . . . . . . . . . . . . . . . . . 5
Community Development Block Grant Funds . . . . . . . . . . . . . . . . . . . . 5
The Louisiana Recovery Corporation Act . . . . . . . . . . . . . . . . . . . . . . . 8
Housing Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8 Voucher Funding and Reform . . . . . . . . . . . . . . . . . . . . . . . . 9
Public Housing Operating Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
HOPE VI Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 202 Housing for the Elderly Program Funding . . . . . . . . . . . . 11
Section 811 Housing for the Disabled Program Funding . . . . . . . . . . 11
Homelessness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Housing Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Fannie Mae, Freddie Mac, and Federal Home Loan Bank
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Predatory Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Real Estate Settlement Procedures Act Regulation . . . . . . . . . . . . . . . 15
Low-Income Housing Tax Credit Modifications . . . . . . . . . . . . . . . . . 16
Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Community and Economic Development Consolidation Proposals . . 17
Rural Housing Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CRS Products on Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Tables
Table 1. Department of Housing and Urban Development Appropriations,
FY2002 to FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Table 1. Allocation of $11.5 Billion in CDBG Disaster Relief Assistance
(P.L. 109-148) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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, 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
Eric Weiss
Fannie Mae, Freddie
Mac, and Federal
7-6209
G&F
Home Loan Banks,
eweiss@crs.loc.gov
SBA disaster loans
Division abbreviations: ALD=American Law; DSP=Domestic Social Policy;
G&F=Government and Finance
Housing Issues in the 109th Congress
Introduction
The effects of Hurricane Katrina and the annual budget process have driven
housing issues in the 109th Congress thus far. Congress has enacted an FY2006
supplemental funding bill, with another pending, that provided funds to the
Department of Housing and Urban Development (HUD) for hurricane recovery and
reconstruction. Congress may consider legislation to provide additional funding or
to offer additional guidance for the funds already provided. Congress will also
consider HUD’s FY2007 budget in the second session. The President submitted his
budget request on February 6, 2006. It included reductions for several programs,
including the Community Development Block Grant (CDBG) program, and increases
for other programs, such as the Section 8 voucher program. The Appropriations
Committees in both houses held hearings on the budget in which Members from both
parties expressed concern about several proposed funding reductions.
In the second session, Congress may also consider: new initiatives to promote
homeownership; legislation to combat predatory lending; proposals to create a
stronger regulator for Fannie Mae and Freddie Mac; and reform of the Real Estate
Settlement Procedures Act. Legislation was also 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.
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
$33.97
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.
CRS-2
Overarching Policy Issues
Rebuilding after the 2005 Hurricanes. The initial need to evacuate and
relocate families after the 2005 hurricanes is mostly met and, while some families are
still in temporary and transitional living situations, focus has now primarily shifted
to recovery and rebuilding. The storms caused unprecedented damage to the Gulf
Coast housing stock. Studies estimate that the hurricanes and their related flooding
damaged 1.2 million housing units. Of those, over 305,000 were seriously damaged.
Most of the seriously damaged units were owner occupied — about 63% or 193,000
homes. More than half of them lacked flood insurance (55%) and about a quarter of
them lacked any insurance (23%). Louisiana, specifically New Orleans, was hit the
hardest; about 67% of the seriously damaged units were located in Louisiana
(204,737 renter and owner-occupied homes).1
The future of the affected areas — especially in and around New Orleans — has
not been determined. The levees have not been fully redesigned or rebuilt and new
FEMA flood maps have not been drawn. As of March 2006, the Army Corps of
Engineers had not demolished any housing units in New Orleans and few building
permits had been issued.2 The pace of rebuilding has been slowed by uncertainty at
the local, state, and federal levels about what the new New Orleans should be and
how it should look.
The appropriate balance of public sector and private sector effort in rebuilding
the damaged housing stock is also still under debate. Private insurance is expected
to cover some of the cost, and new investment may come to the area, but given the
enormity of the damage, the local, state, and federal governments have been heavily
involved. Thus far, Congress has approved grants and increased tax credit
allocations to affected states to aid in their rebuilding. Other proposals have been
offered to expand the government’s role, including one to create an entity to buy out
owners of damaged properties in at-risk areas. Congress is likely to continue to
consider the best way to respond to the damage throughout the second session of the
109th Congress.
The Budget Environment. Members of Congress have shown increasing
concern about the size of the federal budget deficit and have sought ways to reduce
it. The President has outlined a two-pronged approach for reducing the federal
budget deficit: increase revenues to the Treasury without raising taxes and cut
spending.3 In FY2006, the President sought to keep discretionary spending growth
below the rate of inflation and Congress complied. The President’s FY2007 budget
again seeks to keep discretionary spending growth below the rate of inflation.
1 CRS analysis of data found in U.S. Department of Housing and Urban Development,
Office of Policy Development and Research, Current Housing Unit Damage Estimates:
Hurricanes Katrina, Rita, and Wilma, February 12, 2006.
2 Katz, Bruce, Fellowes, Matt, and Mabana, Mia, Katrina Index: Tracking Variables of Post-
Katrina Reconstruction, The Brookings Institution, March 2, 2006, p. 4.
3 See President’s FY2007 Budget, p. 16.
CRS-3
The majority of HUD’s budget is discretionary funding and many of its
programs have been targeted for funding reductions. The President’s FY2006 budget
asked Congress to cut funding for several programs, including Housing for the
Disabled and Housing for Persons with AIDS, and to eliminate funding for several
others, including the Community Development Block Grant (CDBG) program,
HOPE VI, and Brownfields redevelopment. Congress did not enact most of the
requested cuts in FY2006. For FY2007, the President again requested large cuts for
several HUD programs, including Housing for the Elderly, Housing for the Disabled,
and CDBG. The Administration has criticized all of the programs slated for
reduction for being ineffective or inefficient.
Efforts to contain discretionary spending have also increased internal pressures
in the HUD budget. The cost of the Section 8 voucher program is partially pegged
to housing costs, which have risen faster than inflation. As a result, the voucher
program requires increased funding to serve the same number of people. Since
HUD’s overall budget has been constrained, any increases in funding for the voucher
program have come at the expense of other programs. Another internal HUD budget
pressure involves the contribution of the Federal Housing Administration’s (FHA)
insurance program. FHA collects fees from participants, and excess fees are used by
Congress to offset the cost of the HUD budget. FHA’s market share has been
dropping in recent years, and as a result, the amount of excess fees has been
declining. With fewer fees to offset the cost of the HUD budget, the President and
Congress have had to find additional dollars to keep the overall budget at the same
level.
Congress is likely to face pressure to reduce funding for HUD’s programs in the
FY2007 appropriations process. At the same time, Congress is also likely to face
pressure to maintain or increase funding for housing programs because of a growing
concern about a perceived shortage of affordable housing.
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”4 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.5 While affordability is the overarching concern, different factors threaten
the affordability of owners and renters.
4 Housing is generally considered affordable if it costs no more than 30% of a family’s
income.
5 The report is available at [http://www.jchs.harvard.edu/publications/markets/son2005/
index.html].
CRS-4
Rising Housing Prices. The unprecedented U.S. housing boom has
continued, with housing 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 that year, helping to
buoy the economy.6 Homeownership rates reached all-time highs, up to 69% in
2004.7 And minorities, who have consistently lagged behind whites in
homeownership rates, have made some gains. According to the Harvard Joint Center
for Housing Studies, 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.8 Former Federal Reserve Chairman Alan Greenspan, in testimony
before the Joint Economic Committee on June 9, 2005 noted that, while he did 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,
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 limited 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 will be in for payment shocks, and some might 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.
6 Joint Center for Housing Studies, Harvard University, State of the Nation’s Housing
Report, 2005.
7 Ibid.
8 For a more detailed analysis of the question of a housing bubble, see CRS Report
RL31918, U.S. Housing Prices: Is There a Bubble?
CRS-5
Rent Burdens. In 2003, over 8 million renter households were severely cost
burdened, an increase of over 1.3 million from 2000.9 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 for 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.
Housing Reconstruction After the 2005 Hurricanes
Community Development Block Grant Funds. On February 16, 2006,
in support of Gulf Coast recovery efforts following the hurricanes of 2005, the
Administration forwarded to Congress a $19.8 billion supplemental appropriations
request.10 The request included $4.2 billion in additional CDBG assistance for the
state of Louisiana for housing and flood mitigation activities. The funds would be
used for infrastructure improvements, real property acquisition or relocation, and
other activities designed to reduce the risk of future damage including elevating
homes in the most flood prone areas.
On March 8, 2006, the Senate Appropriations Committee held a hearing on the
President’s supplemental appropriations request and Senator Kay Bailey Hutchison
of Texas voiced concern about the absence of additional assistance for Texas. The
Senator noted that the Administration’s proposal to provide $4.2 billion in emergency
supplemental assistance exclusively for use by Louisiana was unfair to Texas, which
used its regular CDBG appropriations to assist Katrina victims evacuating from
Louisiana. In addition to the cost of addressing the immediate needs of evacuees, the
state incurred additional educational and public safety expenses associated with the
significant increase in population. In his testimony before the Committee, Texas
Governor Rick Perry requested an additional $2 billion in CDBG funds be awarded
to the state.
On March 16, 2006, the House passed its version of the Administration’s
emergency supplemental request. The House version of H.R. 4939 would
appropriate $4.2 billion for CDBG disaster recovery activities, the same amount
9 Joint Center for Housing Studies, Harvard University, State of the Nation’s Housing
Report, 2005.
10 For details on the overall supplemental request, see CRS Report RL33298, FY2006
Supplemental Appropriations: Iraq and Other International Activities; Additional Katrina
Hurricane Relief, coordinated by Paul Irwin and Larry Nowels.
CRS-6
requested by the Administration. The Senate Appropriations Committee, which
reported its version of the bill on April 5, 2006 (S.Rept. 109-203), recommends an
appropriation of $5.2 billion for disaster recovery activities. Both the House and the
Senate Appropriations Committee versions of the bill would make the funds
available to the five states affected by the hurricanes of 2005. The Administration
had sought to provide the assistance exclusively to Louisiana. The House and Senate
versions of H.R. 4939 target assistance to both infrastructure reconstruction and
activities that would spur the redevelopment of affordable rental housing. Both
versions of H.R. 4939 would also:
! require that at least $1 billion of the CDBG amount be used for
repair and reconstruction of affordable rental housing in the
impacted areas;
! allow each state to use no more than 5% of its supplemental CDBG
allocation for administrative expenses;
! allow the affected states to seek waivers of program requirements,
except those related to fair housing, nondiscrimination, labor
standards, and environmental review;
! allow Governors of the affected states to designate one or more
entities to administer the program;
! prohibit the use of CDBG funds for activities reimbursable by
FEMA or the Army Corps of Engineers, additionally, the Senate
Committee version of the bill also would prohibit CDBG funds for
activities reimbursable by the Small Business Administration;
! lower the program’s low- and moderate-income targeting
requirement from 70% to 50% of the funds awarded;
! require each state to develop a plan for the proposed use of funds to
be reviewed and approved by HUD;
! require each state to file quarterly reports with House and Senate
Appropriations Committees detailing the use of funds;
! require HUD to file quarterly reports with the House and Senate
Appropriations Committees identifying actions by the Department
to prevent fraud and abuse, including the duplication of benefits; and
! prohibit the use of CDBG funds to meet matching fund requirements
of other federal programs.
Prior to considering the Administration’s current $4.2 billion supplemental
CDBG disaster recovery request for the hurricanes of 2005, Congress approved $11.5
billion in supplemental CDBG disaster-recovery assistance in the Defense
Appropriations Act for FY2006, P. L. 109-148, which was signed by the President
on December 30, 2005.11 These funds are to be used for “necessary expenses related
to disaster relief, long-term recovery, and restoration of infrastructure in the most
impacted and distressed areas” in the five states (Alabama, Florida, Louisiana,
Mississippi, and Texas) impacted by Hurricanes Katrina, Rita, and Wilma. The act
allows:
11 For more details on this supplemental appropriation, see CRS Report RS22239,
Emergency Supplemental Appropriations for Hurricane Katrina Relief, by Keith Bea.
CRS-7
! the affected states to use up to 5% of their supplemental allocation
for administrative costs;
! HUD to grant waivers of program requirements (except those
relating to fair housing, nondiscrimination, labor standards, and the
environment);
! Mississippi and Louisiana, the most affected states, to use up to $20
million for Local Initiative Support Corporation and Enterprise
Foundation-supported local community development corporations;
and
! the Governor of each state to designate multiple entities to
administer a portion, or all of a state’s share of the $11.5 billion.
The act also lowers the income targeting requirement for activities benefitting
low- and moderate-income persons from 70% to 50% of the state’s allocation; limits
the maximum amount of assistance any of the five states may receive to no more than
54% of the total amount appropriated; and requires each state to develop, for HUD’s
approval, a plan detailing the proposed use of funds, including eligibility criteria and
how the funds will be used to address long-term recovery and infrastructure
restoration activities. But it does not specify the method to be used to allocate
funding among the five states. That task was left to HUD. On January 25, 2006,
HUD Secretary Alphonso Jackson announced the allocation of the $11.5 billion
among the five states (See Table 1).
Table 1. Allocation of $11.5 Billion in CDBG Disaster Relief
Assistance (P.L. 109-148)
State
Allocation
Alabama
$74,388,000
Florida
$82,904,000
Louisiana
$6,210,000,000
Mississippi
$5,058,185,000
Texas
$74,523,000
Total
$11,500,000,000
Source: HUD, Federal Register, Feb. 13, 2006, vol. 71, no. 29, p. 7666.
According to an agency press release, HUD used a number of data sources in
developing the methodology for allocating the $11.5 billion in CDBG supplemental
assistance, including data sources from FEMA, Small Business Administration,
National Oceanic and Atmospheric Administration (NOAA), and U.S. Geological
Survey. Using data from these agencies, HUD calculated for each of the five states,
the extent of each state’s unmet housing needs and areas of concentrated distress.
HUD defines unmet housing needs as homeowners and low-income renters whose
homes had major or severe damage, while concentrated distress is defined as the
total number of housing units with major or severe housing damage in counties
CRS-8
where 50% or more of the units had major or severe damage.12 HUD then allocated
55% of the funds based on each state’s unmet housing needs and the remaining 45%
on the degree of concentrated distress as measured by each state’s share of damaged
and destroyed housing stock, and business and infrastructure damage.
On February 13, 2006, HUD published a notice of allocations, waivers, and
alternative requirements governing the $11.5 billion in CDBG disaster recovery
assistance.13 In addition to providing waivers allowing the states to allocate funds
to CDBG entitlement communities and directly administer the program, the notice
also includes language that states that “Funds allocated are intended by HUD to be
used toward meeting unmet housing needs in areas of concentrated distress.”14 The
language included in the act does not restrict the use of these funds to unmet housing
needs. Rather, the act provides some level of flexibility allowing funds to be used
for long term recovery and infrastructure restoration in the areas most affected by the
Gulf Coast Hurricanes of 2005.
The Louisiana Recovery Corporation Act. Bills are pending in both the
House and Senate (H.R. 4100 and S. 2172, respectively) to create a Louisiana
Recovery Corporation as a federal government agency with the mission of
coordinating the economic stabilization and redevelopment of areas within Louisiana
that were devastated or significantly distressed by Hurricane Katrina or Hurricane
Rita. The corporation would follow local redevelopment plans, and it would depend
on financial incentives to obtain residential and commercial property. It would not
have any power of eminent domain. It would purchase homeowners’ equity for a
portion of the pre-hurricane value15 and pay the mortgage lenders no more than 60%
of the pre-hurricane mortgage balance. Owners and mortgage holders would benefit
in cases where the post-hurricane values were less than these amounts. Because the
mortgage would be forgiven, owners with mortgages would benefit more than owners
without mortgages. The corporation would build infrastructure and sell the property
to developers who would complete the redevelopment process. The original owners
would have the right of first refusal to the developed property or to similar property
in a similar location. The corporation would be funded with $100 million in start-up
federal funds and by a $30 billion government bond issue. It would not be part of the
regular appropriations process. The corporation would cease operations after 10
years. The House Financial Services Committee approved an amended version of the
bill and reported it to the House on December 15, 2005. The Senate Banking,
12 U.S. Dept. of Housing and Urban Development, Jackson Announces Distribution of $11.5
billion in Disaster Assistance to Five Gulf Coast States Impacted by Hurricanes; Funding
will help states in long-term recovery of high impact areas. Available at
[http://www.hud.gov/news/release.cfm?content=pr06-011.cfm], visited March 8, 2006.
13 U.S. Dept. of Housing and Urban Development, “Allocation and Common Application
and Reporting Waivers Granted to and Alternative Requirements for CDBG Disaster
Recovery Grantees Under the Department of Defense Appropriations Act, 2006,” Federal
Register, vol. 71, no. 29, Feb. 13, 2006, p. 7666.
14 Ibid, p. 7666.
15 At least 60% in H.R. 4100 and 80% in S. 2172.
CRS-9
Housing, and Urban Affairs Committee held hearings on Louisiana’s recovery from
the hurricanes, including the Louisiana Recovery Corporation, on February 15, 2006.
Housing Assistance
Section 8 Voucher Funding and Reform. The Section 8 voucher program
has come under criticism in recent years for increases in its cost without
corresponding increases in the number of families it serves. In FY2006, Congress
funded the program at $15.8 billion, a 7% increase over FY2005, and it accounted
for more than 46% of the total HUD budget (in part because of reductions to other
programs). For FY2007, the President requests $15.9 billion for the voucher
program, an increase of over 3%. The program has also been criticized for not
promoting self-sufficiency among its participants and for its administrative
complexity, which results in high rates of error in calculating subsidies.
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 the FY2003 appropriations act and continued in the FY2004,
FY2005, and FY2006 laws, Congress has converted the voucher program from a
unit-based, actual cost program to a budget-based, fixed cost program. Prior to
FY2003, PHAs had a number of vouchers that they were authorized to distribute, and
HUD reimbursed them 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 FY2006
appropriations law continued the trend and allocated funds to agencies based on what
they received in FY2005, plus inflation, pro-rated to fit within the amount
appropriated. The President’s budget requests that Congress use the same formula
again for FY2007. (For more information, see CRS Report RS22376, Changes to
Section 8 Housing Voucher Renewal Funding, FY2003-FY2006, by Maggie
McCarty.)
The second major initiative is an Administration-led drive to eliminate the
existing Section 8 voucher program and replace it with a new and restructured
housing subsidy program. 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 Flexible Voucher
Program (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. It would also 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
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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 RL33270, The Section 8 Housing Voucher
Program: Reform Proposals, by Maggie McCarty.)
Public Housing Operating Funds. HUD will begin using a new formula
to distribute public housing operating funds to public housing authorities in 2007.
It will cause major changes in the way PHAs receive funding, with the potential that
some PHAs will receive substantial increases in funding and others will receive
substantial decreases.
Operating funds make up the difference between what tenants pay in rent and
the cost of running public housing. The amount a PHA receives is based on a set of
allowable expenses set by HUD. PHAs calculate their budgets by totaling up the
allowable expenses for all of their units and subtracting the amount they receive in
tenant rents. HUD then adds together all of the agencies’ budgets and compares the
total to the amount Congress appropriated for the operating fund that year. Typically,
Congress appropriates less than the full amount that PHAs qualify for under the
formula, so HUD applies an across-the-board cut to agencies’ budgets, called a
proration. The 2006 proration was 89%, so agencies’ budgets were cut by 11%.16
The new funding formula for FY2007, established by HUD through regulation,
adopts new allowable expense levels. It also requires PHAs to adopt a new form of
property management — called asset-based management — by FY2011. Some
agencies will qualify for a higher budget under the new allowable expense levels and
others will face reductions. Those that face a decrease can transition to asset-based
management sooner to help limit their losses. However, the magnitude of gains and
losses under the new formula will depend on how much is appropriated for the
operating fund and, subsequently, how low a pro-ration HUD will set.
HUD requested $3.5 billion for operating funds in FY2007, which is the same
amount that was provided in FY2006. According to HUD estimates, the FY2007
funding level will lead to an 85% proration.17 PHA advocacy groups have protested
that HUD’s request is insufficient to meet their needs. They have disagreed with
HUD’s estimated proration and estimate the actual proration will be close to 80%.18
They also argue that agencies facing cuts will not be able to stop their losses because,
they contend, HUD has not issued sufficient guidance on asset-based management.19
HOPE VI Funding. The HOPE VI program provides competitive grants to
PHAs for the demolition and/or revitalization of distressed public housing. HOPE
16 HUD FY2007 Congressional Budget Justifications, page E-4.
17 Ibid.
18 See Public Housing Authorities Directors Association (PHADA). 2006. Asset
management, yes — Micromanagement, no: PHADA’s solutions for getting HUD’s asset
management guidance on the right track. Washington, DC: PHADA. Available from
[http://www.phada.org/pdf/asset_mgmt.pdf]
19 Ibid.
CRS-11
VI has been popular with many Members of Congress, but it has been criticized by
the Administration, which argues that grantees spend money too slowly, and by
tenant advocates, who argue the program displaces more families than are housed in
new developments. Reflecting these criticisms, HUD proposed no new funding for
HOPE VI in its FY2004, FY2005, FY2006, and FY2007 budget submissions.
Congress continued funding the program in FY2004 ($149 million), FY2005 ($143
million), and FY2006 ($100 million), although at a lower level than in previous years
($570 million in FY2003). HUD’s FY2006 budget asked Congress to rescind the
funds Congress appropriated for the program in FY2005, but Congress rejected the
proposal. HUD’s FY2007 budget again asks Congress to rescind the funds it
appropriated in the prior year.
Authorization for the HOPE VI program is set to expire at the end of FY2006.
On July 27, 2005, Senator Mikulski introduced a bipartisan bill to reauthorize the
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 202 Housing for the Elderly Program Funding. The Section
202 Housing for the Elderly program primarily provides capital grants and project
rental assistance to developers so that they can provide housing for very low-income
elderly households (those with a member age 62 or older). The Section 202 program
also provides funds for service coordinators to work at Section 202-funded housing
developments and connect residents with available services in the community.
Additionally, the Section 202 program allocates funds so that developments may be
converted to assisted living facilities.
In FY2006, Congress appropriated $735 million for the Section 202 program.
Of this amount, $51 million went to fund service coordinators and $24.5 million was
allocated for assisted living conversion. The majority of remaining funds were
available to fund capital grants and project rental assistance. In the President’s
proposed budget for FY2007, however, the Section 202 program would receive $546
million, approximately $196 million less than the President’s FY2006 request, and
a reduction of almost 26% from the FY2006 appropriation. According to HUD
estimates, the amount requested in the President’s budget for FY2007 would fund the
construction of 2,730 new elderly housing units, compared to FY2006, when 4,313
new units were funded. Funding for service coordinators would increase to $59
million, while funding for assisted living conversion would remain approximately the
same at $25 million.
Section 811 Housing for the Disabled Program Funding. The Section
811 Housing for the Disabled program provides capital grants and project rental
assistance to developers that construct, acquire, or rehabilitate accessible housing for
very low-income persons with disabilities. The program also provides Section 8
Mainstream Vouchers for disabled tenants to use in the private rental market.
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For the second year in a row the President’s FY2007 budget proposal would cut
funding for the Section 811 program nearly in half, from $237 million in FY2006 to
$119 million. In FY2006 the President’s budget request similarly would have
reduced funding for the program, to $120 million from the FY2005 appropriation of
$238 million. The proposed cut for FY2007 differs from the request for FY2006,
which would have provided funds only for Section 8 vouchers, and none for capital
grants or project rental assistance contracts (PRAC). While the FY2007 budget
request would allocate $75 million for voucher renewals and approximately $15
million for new vouchers, it would also provide some funds for PRAC renewals and
amendments ($15 million) and new PRAC ($13 million).
Homelessness. The Homeless Assistance Grants fund the four major
homeless assistance programs — Shelter Plus Care (S+C), the Supportive Housing
Program (SHP), Section 8 Moderate Rehabilitation Single Room Occupancy (SRO),
and Emergency Shelter Grants (ESG) — authorized by the McKinney-Vento
Homeless Assistance Act (P.L. 100-77) and administered by HUD. The act, which
was signed into law in 1987, has remained unauthorized since 1994. The President’s
FY2007 budget request, as in his FY2004 through FY2006 budget requests, proposes
to consolidate the three competitive components of the Homeless Assistance Grants
account (S+C, SHP, and SRO) into one program. On September 29, 2005, Senator
Jack Reed introduced a bill (S. 1801) to reauthorize the McKinney-Vento Act. It
would similarly consolidate the three competitive Homeless Assistance Grants into
one Homeless Assistance Program and would make up to 10% of funds available for
permanent housing for non-disabled homeless families. Current law does not allow
funds to be used for permanent housing for non-disabled families. The bill would
also include homeless families in the definition of the chronically homeless
(discussed below) under certain circumstances. Another bill, H.R. 4347, would also
reauthorize the McKinney-Vento Act and consolidate the competitive grants.
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 the chronically homeless 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 first proposed a $200 million
Samaritan Initiative for FY2004, which would have funded 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. The President also proposed Samaritan Initiative funding
in FY2005 and FY2006, with no action by Congress. In his FY2007 budget request,
the President again requested $200 million for the Samaritan Initiative, without a
request for separate authorizing legislation. Additionally, the Administration
proposed to set-aside $25 million in the Homeless Assistance Grants account for
transfer to the Department of Labor for a Prisoner Re-entry Initiative. The initiative,
which the President also proposed in FY2005 and FY2006, would attempt to prevent
homelessness among individuals leaving prison. Congress did not appropriate funds
for either the Samaritan or Prison Re-entry initiative in FY2006.
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In FY2006, Congress funded the homeless assistance grants at $1.3 billion,
approximately $86 million more than in FY2005. For FY2007, the President
requested just over $1.5 billion, including set-asides for the Samaritan and Prisoner
Re-entry Initiatives. (For more information on homeless programs, see CRS Report
RL30442, Homelessness: Recent Statistics, Targeted Federal Programs, and Recent
Legislation, coordinated by Libby Perl.)
Housing Finance
Fannie Mae, Freddie Mac, and Federal Home Loan Bank Regulation.
Fannie Mae and Freddie Mac are government chartered, privately owned
corporations charged with supporting the secondary mortgage market. By purchasing
mortgages from the original lenders, they free up funds to be lent for more
mortgages. They do this by purchasing existing mortgages and either packaging and
selling them to investors, or keeping them in their own portfolios. They are not
allowed to lend directly to homeowners. They finance their portfolios by selling
bonds and other debt to investors. The secondary mortgage market has improved the
efficiency of mortgage lending and lowered the interest rate that home owners pay.
Many economists and other analysts believe that because of their ties to the federal
government, Fannie Mae and Freddie Mac (also known as government-sponsored
enterprises or GSEs) can borrow at lower interest rates than they could otherwise and
that some of this advantage accrues to stockholders and employees.
Regulation of Fannie Mae and Freddie Mac is split between two parts of HUD.
The independent Office of Federal Housing Enterprise Oversight (OFHEO) is the
safety and soundness regulator. It has been the primary regulator during recent
accounting problems, although the Securities and Exchange Commission and the
Department of Justice have also been involved, especially in the case of Fannie Mae.
(See CRS Report RS21949, Accounting Problems at Fannie Mae, by Mark Jickling
and CRS Report RS21567, Accounting and Management Problems at Freddie Mac,
by Mark Jickling for more details.) HUD’s Financial Institutions Regulator Division
establishes and monitors affordable housing lending goals at Fannie Mae and Freddie
Mac.
The Federal Home Loan Bank System is comprised of 12 regional banks (the
Banks) that collectively comprise the third housing GSE. Started in 1932 as lenders
to the savings and loan associations that were the primary lenders for home
mortgages, the Banks have undergone major changes, particularly since the cleanup
of the savings and loan association failures of the 1980s. As a result, membership in
the Banks has changed, today encompassing more commercial banks than savings
associations and including credit unions, insurance companies, and some associated
housing providers. Purposes of lending — while still primarily housing-related —
now include agricultural and small business lending. The changes also have resulted
in special mission set-asides for low- and moderate-income housing, special
programs for community development, and a continuing responsibility for paying
debt raised to fund deposit insurance payouts in the 1980s. For both mission and
safety and soundness, the five-member Federal Housing Finance Board (FHFB)
regulates the System.
CRS-14
Two bills were introduced in the first session of the 109th Congress to strengthen
the oversight of Fannie Mae, Freddie Mac, and the banks under a single regulator.
Most analysts believe that the Senate bill (S. 190) would give the new regulator
greater powers than the House bill (H.R. 1461) would, especially in the area of
limiting the size the GSEs mortgage portfolios, which, some argue, could be a source
of risk to the nation’s financial system. H.R. 1461, unlike S. 190, would create a new
Affordable Housing Fund that could contribute as much as $350-$400 million for the
development of affordable housing over the first two years. H.R. 1461 includes
controversial limits on that ability of nonprofit organizations that receive money from
the fund to attempt to influence public policy.
H.R. 1461 would also raise the maximum size of the mortgage that Fannie Mae
and Freddie Mac could purchase in high cost areas of the country. This ceiling,
known as the conforming loan limit, is $417,000 for one-unit properties for 2006.
The main impact would be to allow Fannie and Freddie to purchase more mortgages
on homes on the east and west coasts. (For more information on this issue, see CRS
Report RS22172, Proposed Changes to the Conforming Loan Limit, by Barbara
Miles and Mark Jickling.)
The House passed H.R. 1461 on October 26, 2005. The Senate Banking and
Urban Affairs Committee reported S. 190 to the Senate on July 28, 2005. (For more
a detailed comparison of the bills, see CRS Report RL32795, Government-Sponsored
Enterprises (GSEs): Regulatory Reform Legislation by Mark Jickling. For
information on controversial provisions concerning Fannie Mae and Freddie Mac see
CRS Report RS22336, GSE Reform: A New Affordable Housing Fund, by Eric
Weiss, and CRS Report RS22307, Limiting Fannie Mae’s and Freddie Mac’s
Portfolio Size, by Eric Weiss. For information on the FHLBs, see CRS Report
RL32815, Federal Home Loan Bank System: Policy Issues, by William Jackson.)
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)20 provides federal
prohibitions on certain predatory lending practices. 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
20 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.
CRS-15
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 that seek to limit predatory lending have led many in the lending
community to call for a uniform federal statute. The difficulty, from a public policy
standpoint, is how to limit predatory lending without at the same time 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, H.R. 1643, and
H.R. 4471. The bills include provisions related to counseling and financial literacy
programs to give consumers the tools to recognize and avoid becoming victims of
predatory lending practices, amendments to the Truth in Lending Act to add
restrictions on high-cost mortgages and prohibit certain practices, amendments to
additional banking laws to combat predatory lending practices that affect low- and
moderate-income individuals, and a provision that would preempt state and local
laws that address predatory lending.
Some groups argue that the state and local laws result in a reduction of the
availability of credit to those who need the loans. A recent report by the Center for
Responsible Lending suggests that state and local laws work to reduce predatory
lending, and that such laws increase the availability of credit to those in need of it.
Real Estate Settlement Procedures Act Regulation. 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 actually 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
CRS-16
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.21 During a series of meetings with
these groups over the summer, the Secretary said the Department will take as much
time as is necessary to develop a meaningful RESPA reform proposal, and that the
proposal will be introduced as a proposed rule enabling comments by interested
parties.
Low-Income Housing Tax Credit Modifications. The Low Income
Housing Tax Credit (LIHTC) was created by the Tax Reform Act of 1986 (P.L.
99-514) to provide an incentive for the acquisition and development or rehabilitation
of commercial property for affordable housing for renters. These federal housing tax
credits are awarded to developers of qualified projects. Sponsors, or developers, of
real estate projects apply to the corresponding state housing finance authority for
LIHTC allocations for their projects. Developers either use the credits or sell them
to investors to raise capital (or equity) for real estate projects. The tax benefit
reduces the debt and/or equity that the developer would otherwise have to incur.
With lower financing costs, tax credit properties can potentially offer lower, more
affordable rents.
In December 2005, the Gulf Opportunity Zone Act of 2005 (P.L. 109-135) was
enacted to provide tax relief to communities adversely affected by Hurricanes
Katrina, Wilma, and Rita.22 The new law temporarily adds to existing LIHTC
allocation authority for Alabama, Louisiana, and Mississippi. There are now two
authorized allocations of tax credits for these states. The first allocation, which
existed prior to the Gulf Opportunity (GO) Zone enactment, is the nationwide
statutory allocation of $1.90 per capita per state. According to this formula, for
calendar year 2006, LIHTC authority is approximately $5,515,635 for Mississippi,
$8,579,963 for Louisiana, and $8,607,346 for Alabama. As mentioned earlier, the
per capita rate is indexed for inflation and is adjusted annually.
The second allocation of tax credit authority, which is temporary, is in addition
to the amounts listed above. The second allocation is an amount equal to the lesser
of either $18.00 multiplied by the portion of the state’s population in the GO Zone
as determined prior to August 28, 2005, or the amount of tax credits that had been
allocated by each state to buildings in the GO Zone as determined prior to August 28,
2005.23 These provisions apply for 2006, 2007, and 2008. The second allocation will
21 “Jackson Says He’s Listening on RESPA,” Housing Affairs Letter, Apr. 22, 2005.
22 The Gulf Opportunity Zone (GO ZONE) is defined as those areas in Alabama,
Mississippi, and Louisiana that have been designated by the federal government as
warranting assistance due to Hurricane Katrina.
23 The amount of tax credits allocated by each state to buildings in the GO Zone prior to the
hurricane reflects not only the value of credits allocated to current construction projects that
may have been in progress, but also the value of credits allocated to buildings already placed
in service, yet still in the 10-year tax credit claim period.
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yield an annual amount of approximately $12,000,000 for Mississippi, $23,000,000
for Louisiana, and $5,600,000 for Alabama for each of the three years.24
The new law also makes an additional $3.5 million in LIHTC authority available
to both Texas and Florida in 2006.
Other legislation introduced in the 109th Congress also proposes increases in the
allocation amounts of the LIHTC. H.R. 2681, the Affordable Housing Tax Credit
Enhancement Act of 2005, proposes to double LIHTC authority nationwide. Both
H.R. 659 and H.R. 3159, each entitled the Community Restoration and Revitalization
Act of 2005, propose increases in, and administrative modifications to, the tax credit
in order to target it more directly to low-income communities.
Other Issues
Community and Economic Development Consolidation Proposals.
For the second consecutive year, the Administration has included in its budget
request a proposal that would eliminate a number of federal economic and
community development programs. Last year, the Administration’s FY2006 budget
recommendations included a proposal that would have consolidated the activities of
at least 18 existing community and economic development programs into a two-part
grant proposal called the “Strengthening America’s Communities Initiative” (SACI).
Responsibility for the18 programs now being carried out by five federal agencies (the
Department of Housing and Urban Development, the Economic Development
Administration in the Department of Commerce, the Department of the Treasury, the
Department of Health and Human Services, and the Department of Agriculture)
would have been transferred to the Commerce Department, which currently
administers the programs of the Economic Development Administration. Under the
Administration’s FY2006 proposal, the Department of Commerce would have
administered a core program and a bonus program. The bonus program would have
awarded additional funds to communities that demonstrated efforts to improve
economic conditions.
The FY2006 SACI proposal would have reduced total funding for the 18
programs from $5.6 billion in FY2005 to $3.7 billion in FY2006. Congress rejected
the Administration’s budget proposal and funded all 18 programs at a total level of
$5.3 billion. Although an outline of the proposal was included in the
Administration’s FY2006 budget documents, the Administration did not submit a
legislative proposal during the 1st session of the 109th Congress. Instead, after facing
significant opposition, an advisory group was established within the Department of
Commerce to assist the Secretary develop a detailed legislative proposal.
24 U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of H.R. 4440, the
“Gulf Opportunity Zone Act of 2005,” as passed by the House of Representatives and the
Senate on December 16, 2005, JCX-89-05R, Dec. 20, 2005, and Technical Explanation of
the Revenue Provisions of H.R. 4440, the “Gulf Opportunity Zone Act of 2005,” as passed
by the House of Representatives and the Senate, JCX-88-05, Dec. 16, 2005.
CRS-18
The Administration’s FY2007 budget request outlines a revamped SACI
proposal. Under the FY2007 version, two of the 18 programs would be funded —
HUD’s Community Development Block Grant program, and a new Regional
Development Account within the Economic Development Administration (EDA).
The FY2007 budget proposes a SACI funding level of $3.4 billion — nearly $2
billion less than the aggregate appropriation for the 18 programs in FY2006.
The Administration’s FY2007 budget identifies some general elements of the
new SACI proposal, including development of a common set of goals and
performance measures for federal community and economic development programs
by HUD and the Department of Commerce. In HUD, the Administration plans calls
for a new CDBG allocation formula targeted to the neediest communities, a bonus
fund component, and reforms that address the program’s shortcoming outlined in the
Program Assessment Rating Tool. The Administration’s budget proposal calls for
the creation of a new Regional Development Account (RDA) in EDA that would be
funded at $257 million and would replace the agency’s current budget categories of
public works, economic adjustment assistance, technical assistance and research and
evaluation.
Rural Housing Funding. In recent years, the Administration has proposed
zero funding for the Rural Housing and Economic Development program (RHED)
in HUD, but Congress has continued to fund the program. For FY2006, the
Administration proposed the consolidation of RHED into a new program within the
Department of Commerce. Congress did not accept the proposal and funded RHED
at $17 million for FY2006. (See discussion of Community Development Block Grant
Program above.) For FY2007, the Administration is again proposing zero funding for
RHED. It is argued that rural housing needs will be addressed through the housing
programs administered by the Rural Housing Service (RHS) of the U.S. Department
of Agriculture (USDA).
The FY2007 Budget for RHS rural housing programs proposes zero funding for
Section 515 direct loans for multifamily housing and a doubling of funding for the
Section 538 guaranteed multifamily housing loans. An issue for rural housing
advocates is how to prevent or reduce the prepayment of Section 515 loans, or at
least ensure that the housing continues to be available as affordable housing for rural
residents. P.L. 109-97 included $9 million for the cost of a demonstration program
for the preservation and revitalization of Section 515 housing. The Budget would not
fund the program in FY2007, and would transfer any balances to the multifamily
housing rural voucher program. Language would provide that, subject to
authorization, these funds could also be used for preservation and revitalization of
Section 515 multifamily rental housing properties.
On March 6, 2006, the USDA published a proposed rule that would require
borrowers who will be first-time homebuyers to provide documentation that they
have passed a publicly available homeowner education course.25 Unlike the housing
finance programs of the Department of Veterans Affairs (VA) and the Federal
25 U.S. Department of Agriculture. Direct Single Family Housing Loans and Grants, V.71
No. 43, March 6, 2006, p. 11167.
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Housing Administration (FHA), the Section 502 program is a means-tested program.
As such it is not surprising that the Section 502 program would have higher
delinquency rates than VA or FHA. The intent of the proposal is to help the
borrowers become successful homeowners and thereby decrease the delinquency rate.
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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.
Disaster Relief
CRS Report RS22358, HUD’s Response to Hurricane Katrina, by Maggie McCarty,
Libby Perl, and Bruce Foote.
CRS Report RL33078, The Role of HUD Housing Programs in Response to Past
Disasters, by Maggie McCarty, Libby Perl, and Bruce Foote.
CRS Report RL33173, Hurricane Katrina: Questions Regarding the Section 8
Housing Voucher Program, by Maggie McCarty.
CRS Report RL33330, Community Development Block Grant Funds in Disaster
Relief and Recovery, by Eugene Boyd.
CRS Report RS22301, Rural Housing: USDA Disaster Relief Provisions, by Bruce
E. Foote.
Section 8 Rental Assistance
CRS Report RL32284, An Overview of the Section 8 Housing Program, by Maggie
McCarty.
CRS Report RL33270, The Section 8 Housing Voucher Program: Reform Proposals,
by Maggie McCarty.
CRS Report RS22376, Changes to Section 8 Housing Voucher Renewal Funding,
FY2003-FY2006, 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 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 Libby Perl.
CRS-21
CRS Report RS22328, The Homeless Management Information System, by Libby
Perl.
CRS Report RS22286, The Emergency Food and Shelter Program, by Libby Perl.
CRS Report RL32104, Housing Assistance and Welfare: Background and Issues, by
Maggie McCarty.
CRS Report RS20704, Housing Opportunities for Persons with AIDS (HOPWA), by
Libby Perl.
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.
CRS Report RL33330, Community Development Block Grant Funds in Disaster
Relief and Recovery, by Eugene Boyd.
CRS Report RS20197, Community Reinvestment Act: Regulation and Legislation,
by William D. Jackson.
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.
CRS Report RS22389, An Introduction to the Design of the Low- Income Housing
Tax Credit, by Pamela J. Jackson.
CRS Report RS21104, Should Banking Powers Expand into Real Estate Brokerage
and Management?, by William D. Jackson.
Housing Government-Sponsored Enterprises (GSEs)
CRS Report RS22336, GSE Reform: A New Affordable Housing Fund, by N. Eric
Weiss.
CRS Report RS22307, Limiting Fannie Mae’s and Freddie Mac’s Portfolio Size, by
Eric Weiss.
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-22
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.
Housing Tax Policy
CRS Report RS22389, An Introduction to the Design of the Low- Income Housing
Tax Credit, by Pamela J. Jackson.
CRS Report RL33025, Fundamental Tax Reform: Options for the Mortgage Interest
Deduction., by Pamela J. Jackson.
CRS Report RL32978, The Exclusion of Capital Gains for Owner-Occupied
Housing, by Jane G. Gravelle and Pamela J. Jackson.
CRS Report RS22052, Tax Treatment of Short Term Residential Rentals - Reform
Proposal, by Louis Alan Talley and Pamela J. Jackson.
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.