Order Code RL33879
Housing Issues in the 110th Congress
Updated February 8, 2008
Libby Perl, Maggie McCarty, and Bruce E. Foote
Domestic Social Policy Division
Eugene Boyd, Darryl E. Getter, Pamela J. Jackson,
Edward Vincent Murphy, and N. Eric Weiss
Government and Finance Division
David H. Carpenter
American Law Division
Meredith Peterson
Knowledge Services Group

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Housing Issues in the 110th Congress
Summary
A number of housing-related issues have become prominent in the 110th
Congress. Possibly the most visible issue is the prevalence of subprime loans and
growing mortgage default and foreclosure rates. Congress has responded with
numerous hearings and legislative proposals to change the way in which the lending
and home-buying industry is regulated and to assist borrowers who are facing default
and foreclosure. On December 20, 2007, the President signed P.L. 110-142, the
Mortgage Debt Forgiveness Relief Act (H.R. 3648). Among other bills Congress is
considering are the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915),
which has been approved by the House, and the Homeownership Preservation and
Protection Act of 2007 (S. 2452), which was introduced on December 12, 2007.
Concern over subprime loans and mortgage foreclosures has also entered the
debate over reform of the government-sponsored enterprises (GSEs) — Fannie Mae
and Freddie Mac — and Federal Home Loan Banks (FHLBs), although efforts to
reform the GSEs and FHLBs began prior to the prominence of the debate over
subprime loans. On May 22, 2007, the House passed and sent to the Senate H.R.
1427, which would create a new regulator for the GSEs. The bill would also use
profits from the GSEs to create an affordable housing fund, the funds from which
would be transferred to a National Affordable Housing Trust Fund, if enacted. (The
House passed a bill that would create a National Affordable Housing Trust Fund,
H.R. 2895, on October 10, 2007.) Two bills that would reform the GSEs have also
been introduced in the Senate — S. 1100 and S. 2391.
Another issue being considered in the 110th Congress involves potential
revisions to the Federal Housing Administration (FHA) loan insurance program.
Both the House and Senate have passed FHA reform bills, H.R. 1852, the Expanding
Homeownership Act, and S. 2338, the FHA Modernization Act. Both bills would
make changes to the FHA program, including raising single-family mortgage limits
and modifying the insurance premium pricing structure. However, H.R. 1852 would
authorize the transfer of some FHA funds into an affordable housing fund, while S.
2338 would not.
Another congressional agenda item is providing assistance to victims of the
2005 hurricanes. On March 23, 2007, the House passed the Gulf Coast Hurricane
Housing Recovery Act of 2007 (H.R. 1227). A similar Hurricane Katrina recovery
bill (S. 1668) has been introduced in the Senate.
Additional legislation in the 110th Congress includes Section 8 voucher reform
legislation (H.R. 1851) and a bill to reauthorize the HOPE VI program (H.R. 3524),
both of which have been approved by the House, and a bill to reauthorize the
McKinney-Vento Homeless Assistance Act (S. 1518), which has been approved by
the Senate Banking Committee. The House has considered legislation that would
preserve assisted housing, including the Mark-to-Market Extension and Enhancement
Act (H.R. 3965), which has been approved by the House Financial Services
Committee, and the Section 515 Rural Housing Property Transfer Improvement Act
(H.R. 3873), which was approved by the House on January 24, 2008.

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Key Policy Staff
CRS
Telephone and
Name
Area of Expertise
Division
E-Mail
Eugene Boyd
Community and economic
development, including
7-8689
Community Development
G&F
eboyd@crs.loc.gov
Block Grants, Brownfields,
empowerment zones
David H.
Consumer law and mortgage
Carpenter
lending, housing law, including
7-9118
ALD
fair housing, consumer issues
dcarpenter@crs.loc.gov
of bankruptcy
Bruce E. Foote
Homeownership, including
7-7805
FHA, predatory lending, rural
DSP
bfoote@crs.loc.gov
housing, RESPA
Darryl E. Getter
Housing finance issues,
including mortgage
7-2834
G&F
underwriting and FHA lending
dgetter@crs.loc.gov
criteria
Pamela Jackson
Housing tax policy, including
the Low- Income Housing Tax
Credit and other incentives for
7-3967
G&F
rental housing and owner-
pjackson@crs.loc.gov
occupied housing
Maggie McCarty
Assisted rental housing,
7-2163
including Section 8, public and
DSP
mmccarty@crs.loc.gov
assisted housing, HOME
Edward Vincent
Non-traditional mortgages,
Murphy
including lending oversight
7-4972
by the OCC, OTS, FDIC, and
G&F
tmurphy@crs.loc.gov
Federal Reserve, and Federal
Home Loan Banks
Libby Perl
Housing for special
populations, including the
7-7806
DSP
elderly, disabled, homeless,
eperl@crs.loc.gov
HOPWA
N. Eric Weiss
Fannie Mae, Freddie Mac, and
7-6209
G&F
SBA disaster loans
eweiss@crs.loc.gov
Division Abbreviations:
ALD — American Law Division
DSP — Domestic Social Policy
G&F — Government and Finance

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Contents
The Current Housing Market: Subprime Lending and the Rise in Foreclosures . . 1
Subprime Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exotic Mortgages, Resets, and Rising Foreclosures . . . . . . . . . . . . . . . 2
The Role of Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Price Declines, Unsold Inventories, and Falling Construction Starts . . 4
Initiatives That Would Change the Lending and Homebuying Process . . . . . . . . 5
Regulating Lenders and Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Regulation of Other Participants in the Process . . . . . . . . . . . . . . . . . . . . . . . 6
Mortgage Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Appraiser Objectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Borrower Counseling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Truth in Lending Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Home Ownership and Equity Protection Act . . . . . . . . . . . . . . . . 12
Real Estate Settlement Procedures Act . . . . . . . . . . . . . . . . . . . . . . . . 14
Home Mortgage Disclosure Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Predatory Lending and Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Efforts to Assist Troubled Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Working with Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Administration Proposal to Freeze Interest Rates . . . . . . . . . . . . . 18
Borrower Workouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxing Debt Forgiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Reforming Federally Sponsored Financing Institutions . . . . . . . . . . . . . . . . . . . . 21
GSE Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Fannie Mae, Freddie Mac, and Federal Home Loan Bank
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Affordable Housing Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FHA Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Expanding American Homeownership Act (H.R. 1852) . . . . . . . 26
The FHA Modernization Act (S. 2338) . . . . . . . . . . . . . . . . . . . . . . . . 27
GSE and FHA Provisions in the Economic Stimulus Act . . . . . . . . . . . . . . 28
Housing After the 2005 Hurricanes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Rebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Ongoing Housing Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Housing Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The HUD Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Federally Assisted Housing Funding and Reform . . . . . . . . . . . . . . . . . . . 37
Section 8 Voucher Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

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Public Housing Operating Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
HOPE VI Reauthorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Assisted Housing Preservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Previous Legislative Efforts to Preserve Affordable Housing . . . . . . . 41
The Mark-to-Market Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 202 Housing for the Elderly Program Preservation . . . . . . . . 42
Other Preservation Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Homelessness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
CRS Reports on Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

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Housing Issues in the 110th Congress
The Current Housing Market:
Subprime Lending and the Rise in Foreclosures
The housing market experienced significant stress in 2007. Borrowers found
it difficult to meet their mortgage obligations, and late payments and foreclosures
increased. The biggest increases in mortgage defaults have occurred among
subprime borrowers — those borrowers with significant indicators of heightened risk
of default, such as blemished credit history or high debt-to-income ratio. Subprime
borrowers may have relied upon the low interest rates and rapid house price
appreciation that occurred between 2001-2005 to continue but now face significant
risk of foreclosure as housing markets slow. Changes in mortgage contracts and the
method of funding mortgages, such as interest-only and adjustable rate mortgages,
could have contributed to housing market stress. Troubles in the housing market are
not relegated to subprime borrowers, however. Falling prices and slowing home
sales affect all home owners. Declining construction starts affect local employment.
These troubles in the current housing market, combined with changes in mortgage
contracts, have led some economists to forecast even higher default rates in coming
months.1
Subprime Lending. Since the early 1990s, lenders have developed better
methods for estimating the risks posed by borrowers with blemished credit profiles,
with the result that lenders now offer home loans to consumers who earlier would
have been denied mortgage credit. These loans are often referred to as subprime
loans. Typically, loans to subprime borrowers have higher interest rates and fees than
loans to prime borrowers because subprime borrowers have historically experienced
higher default rates. Delinquency and foreclosure rates for subprime loans rose
rapidly during the second half of 2006 and the first half of 2007. On April 11, 2007,
the Joint Economic Committee issued a special report on rising foreclosures. The
report predicted that subprime foreclosures would continue to rise, and recommended
immediate action to minimize any costs that foreclosures can impose on surrounding
communities.2 (For more information about subprime loans, see CRS Report
1 Some are concerned that the problems in the housing market also will lead to increased
filings for bankruptcy. As a result, a number of legislative proposals have been introduced
in the 110th Congress that are directed at the subprime mortgage market, including at least
four bills seeking to amend § 1322 of Chapter 13 of the Bankruptcy Code. For more
information about these bills and how mortgages are dealt with in bankruptcy, see CRS
Report RL34301, The Primary Residence Exception: Legislative Proposals in the 110th
Congress to Amend Section 1322(b)(2) of the Bankruptcy Code, by David H. Carpenter.
2 U.S. Congress Joint Economic Committee, Sheltering Neighborhoods from the
(continued...)

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CRS-2
RL33930, Subprime Mortgages: Primer on Current Lending and Foreclosure
Issues, by Edward Vincent Murphy.)
Although the primary causes of foreclosure are personal financial setbacks (job
loss or medical calamity), the recent rise in subprime foreclosures may be partly due
to imprudent underwriting standards during the housing boom that occurred between
approximately 2002 and 2005. House prices rose rapidly in certain markets, which
may have encouraged some borrowers in hot markets to assume more debt than was
prudent. Rapidly rising prices encourage excess debt because, once in the home, the
borrower earns the house price appreciation, which can then be used to refinance the
house on more favorable terms. In order to take advantage of anticipated
appreciation, some subprime borrowers turned to mortgage products with low
introductory payments, but which risked higher future payments.
The 110th Congress has held a series of hearings on subprime markets. For
example, on March 27, 2007, the House Financial Services Committee held
“Subprime and Predatory Mortgage Lending: New Regulatory Guidance, Current
Market Conditions and Effects on Regulated Financial Institutions.” The Senate
Banking, Housing, and Urban Affairs Committee held “Mortgage Market Turmoil:
Causes and Consequences” on March 22, 2007. After the Senate Banking Committee
hearing, Chairman Dodd on April 18, 2007, convened a summit of mortgage market
stakeholders to discuss ideas and propose solutions to subprime market volatility.
Exotic Mortgages, Resets, and Rising Foreclosures. Slowing housing
markets may frustrate the plans of borrowers who used nontraditional mortgages,
sometimes referred to as exotic mortgages, to finance their homes. One form of
alternative mortgage has an interest-only (I/O) introductory period for two, three,
five, or more years. The borrower pays no principal during the introductory period,
but then payments increase when the I/O period expires because the remainder of the
borrower’s payments must pay off the principal over a shorter period of time. For
example, a 2/28 mortgage has an I/O introductory payment for two years but then
resets to a higher payment for the remaining 28 years of the loan. Another form of
alternative mortgage, the adjustable rate mortgage (ARM), employs a variable
interest rate, which adjusts to changes in a market interest rate. One of the simplest
ARMs offers an initial low rate, called a teaser, at the beginning of the loan and then
resets after an introductory period. The teaser rate may apply for one year or for as
little as one month. (For more information about alternative mortgage terms, see
CRS Report RL33775, Alternative Mortgages: Causes and Policy Implications of
Troubled Mortgage Resets in the Subprime and Alt-A Markets, by Edward Vincent
Murphy.)
These I/O loans, ARMs, and hybrids of the two result in fluctuating monthly
house payments for borrowers. Because of the increased use of 2/28 hybrid ARMs
during 2005 and 2006, tens of billions of dollars of subprime loans will reset their
payments each month until fall of 2008. If borrowers with resetting mortgages had
2 (...continued)
Foreclosure Storm, April 11, 2007, available at [http://jec.senate.gov/Documents/Reports/
subprime11apr2007.pdf].

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CRS-3
planned to depend on continued house price appreciation to sustain their homes, then
the recent housing slowdown could result in sharply rising foreclosure rates.
Foreclosure rates are rising, especially among subprime borrowers. Some of the
geographic distribution of mortgage defaults can be explained by the performance of
local economies. The rise in the national foreclosure rate, however, is difficult to
explain because the national unemployment rate remains relatively low. Late
payments, as measured by a Mortgage Bankers Association survey, are rising among
borrowers with ARMs, whether subprime or not. Subprime borrowers with fixed
rate mortgages, however, are not experiencing higher rates of late payment. This
heightened risk among ARMs is cause for concern because most of the subprime
2/28s that must reset between now and the fall of 2008 are hybrid ARMs. In addition
to the subprime ARMs that reset in 2008, there will be increasing jumbo mortgage3
resets in 2009. The increase in unsustainable loans during relatively strong national
economic conditions raises the question of how the loans were qualified by the
lenders in the first place.
The Role of Securitization. Many loans, especially subprime and jumbo
loans, were financed outside of traditional banking channels in a process called
securitization. In securitization, a lender sells loans quickly, rather than keeping
them on the lender’s books. Many similar loans are then pooled together in trusts,
or special purpose vehicles (SPVs). Pieces of the funds flowing through the trusts,
called tranches, are sold to investors. Although securitization may have helped
increase the supply of funds available for mortgages and thus held down interest rates
for borrowers, it may also have facilitated the rise of non-bank lenders operating
without federal supervision of their underwriting standards. The disproportionate
rise in defaults among loans originated and securitized outside federal supervision
has caused some to call for greater scrutiny of the process. (For more information
about securitization, see CRS Report RS22722, Securitization and Federal
Regulation of Mortgages for Safety and Soundness, by Edward Vincent Murphy.)
One concern is that securitization may have separated the up-front returns of
mortgage originators from the long-term risk of securities holders. If the
securitization process does not have adequate controls, mortgage originators could
have the incentive to encourage borrowers to take on too much debt because the
mortgage originator might not suffer losses if the borrower defaults in the future.
The securitization community argues that investors are sophisticated market analysts
who include contract clauses in securitization transactions to prevent mortgage
originators from passing on this risk.
One proposal to address concerns raised by securitization would make
secondary market investors liable for deceptive or predatory marketing by primary
lenders. Some believe that extension of liability to the secondary market, referred to
as assignee liability, would prevent secondary market investors from purposefully
remaining ignorant of the marketing strategies of primary lenders. In this view, if
secondary market investors were held liable, they would tighten underwriting
3 Jumbo loans are too large to be eligible for purchase by Fannie Mae or Freddie Mac. This
cap, called the conforming loan limit is currently $417,000.

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CRS-4
standards and more closely monitor the practices of their lending partners. Others
argue that extension of liability could create too much uncertainty for rating agencies
to evaluate risks and lead to a shutdown of the secondary market. Representative
Frank introduced a bill (H.R. 3915, discussed below) that would establish some
liability for mortgage-backed-securities (MBS) issuers under some circumstances,
but not the purchasers of MBS.
The 110th Congress is examining the role of securitization in recent subprime
volatility. The House Financial Services Committee held a hearing, “The Role of the
Secondary Market in Subprime Mortgage Lending,” on May 8, 2007. The Senate
Banking Committee held a hearing on April 17, 2007, “Subprime Mortgage Market
Turmoil: Examining the Role of Securitization.”
Price Declines, Unsold Inventories, and Falling Construction Starts.
After increasing at a rapid rate during 2001-2005, house prices slowed significantly
during 2006-2007, even though the national unemployment rate has not significantly
increased. One important sign of inconsistencies in a housing market is a price
decline in an area with a relatively strong local economy. Although not true in every
case, local job growth and income growth generally lead to increases in demand for
housing and result in higher prices because housing supply responds relatively
slowly. The current market is unusual because the Washington DC area, for
example, had an unemployment rate of 3% in July 2007, well below the national
average of 4.7%, yet house prices declined 7.2% compared to July 2006, according
to Standard and Poor’s Case/Schiller Index.4 Similar price declines were reported in
Phoenix, Miami, and several California cities, despite relatively strong local
employment conditions. Areas with relatively poor local job markets, such as
Michigan and Ohio, are also experiencing house price declines.
The inventory of unsold homes is rising, as is the home owner vacancy rate.
One indicator of the strength of a local housing market is the length of time it takes
to sell a house. If houses are selling more slowly than the rate at which people are
offering them for sale, then the inventory of unsold homes grows. The National
Association of Realtors (NAR) reports that the month supply of homes on the market
has risen from 4.5 in 2005 to 10.0 in August 2007; a month supply is calculated by
taking the number of homes currently offered for sale and dividing by the current
number of sales per month. A balanced market has a month supply between 5.0 and
6.0 according to the NAR. The existence of a glut of unsold homes is also evidenced
by rising vacancy rates. According to the Census Bureau, the home owner vacancy
rate is at the highest level it has been since the survey began in 1956.

The slowing housing market is hurting builders and construction workers. As
the supply of unsold homes has increased, builders have begun canceling options to
acquire land for new construction and have offered reduced-price upgrades and other
discounts on existing homes. The result has been even further downward pressure
on prices and a slowdown in new construction. For example, the National
4 The Case/Schiller index is a survey based on same-unit transactions and covers selected
metropolitan regions. The National Association of Realtors calculate changes in median
sales price, which rose 0.3% for the Washington area.

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CRS-5
Association of Home Builders confidence index fell more than 50% from 2005 to
2007. The index measures home builders’ expectations of home sales for the next
six months.
Initiatives That Would Change the
Lending and Homebuying Process
Some Members of Congress have responded to the troubles in the current
housing market by introducing a number of bills that would modify the lending and
home purchase process in an effort to prevent similar events from occurring in the
future. Some of these proposals would regulate the behavior of lenders, mortgage
brokers, and other participants in the lending process. Other legislation would either
expand the amount of information required to be disclosed to borrowers or increase
the availability of borrower counseling. Some legislation would attempt to prevent
fraudulent practices, sometimes referred to as predatory lending. Several of these
pieces of legislation are discussed below; their analysis may be covered over multiple
sections of the report.
Regulating Lenders and Servicers
Currently, no national system for licensing mortgage originators exists. Instead,
mortgage lenders are licensed at the state level. The Mortgage Reform and Anti-
Predatory Lending Act (H.R. 3915), as approved by the House, would require that a
person engaging in the business of loan origination (which, under the bill’s
definition, would include mortgage brokers) obtain and maintain a registration as a
registered loan originator or a license as a state-licensed loan originator. The bill
would mandate the establishment of a national system for licensing mortgage
originators if a state has not established an adequate system within a specified period
of time. The bill would also provide for educational requirements for mortgage
originators.
H.R. 3915 would reform mortgage origination by making changes to mortgage
servicing and the appraisal process. The bill would require certain borrowers to open
escrow accounts for taxes and insurance. Further, it would require that these costs
be included in quotes provided to consumers and be considered when assessing a
borrower’s ability to repay the loan. The bill would also limit forced-place insurance,
which is insurance coverage obtained by a servicer to protect the mortgagee’s interest
in the property. If a borrower attempts to refinance his or her mortgage within six
months of obtaining a loan, H.R. 3915 would require a second appraisal at no charge
to the borrower. The bill would additionally require borrowers to receive a copy of
their appraisal at least three days before the loan closes.
The Mortgage Reform and Anti-Predatory Lending Act, as passed by the House,
would also establish a federal duty of care for mortgage originators, requiring them
to “diligently work to present the consumer with a range of residential mortgage loan
products for which the consumer qualifies.” Mortgage originators would also be
required to present consumers with comparative cost and benefit information

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CRS-6
regarding available loans. In addition, H.R. 3915 would prohibit mortgage
originators from steering borrowers toward loans that are not in their interests.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, would also attempt to improve the mortgage lending
process by establishing enhanced requirements and restrictions on lenders, servicers,
originators, brokers, and appraisers. With regard to servicing, S. 2452 would create
an agency relationship between servicers and lenders, thus bringing servicers under
state and federal agency laws. Additionally, lenders and servicers would be required
to “act in good faith and with fair dealing,” as well as “act with reasonable skill, care,
diligence, and in accordance with the highest standards” with regard to all home
mortgages. The bill would limit the amount of and types of late fees and fees applied
due to insufficient funds that could be charged against a borrower. The bill also
would regulate how servicers and lenders assess collateral protection insurance,
handle escrow accounts, handle disputes arising with borrowers, initiate foreclosures,
and provide payoff statements.
The Homeownership Preservation and Protection Act of 2007 would also
require originators (which, under the bill’s definition, would include lenders and
brokers) to take into account the borrower’s ability to pay and to verify that
borrowers receive a net tangible benefit before originating certain loans.5 S. 2452,
as introduced in the Senate, would also require originators to, among other things,
“make reasonable efforts to secure a home mortgage loan that is appropriately
advantageous to the borrower, considering all the circumstances” and “follow
reasonable and lawful instructions from the borrower.”
Another bill in the House of Representatives would promote national licensing
of certain mortgage originators. The Predatory Mortgage Lending Practices
Reduction Act, H.R. 2061, introduced by Representative Stephanie Tubbs Jones,
would require certification of mortgage lenders specifically for subprime, federally
related mortgage loans.6 Under H.R. 2061, the Secretary of the Department of
Housing and Urban Development (HUD) would establish standards and procedures
for suspension and revocation of the certification.
Additionally, some legislation that would regulate mortgage brokers also
contains provisions for the regulation of mortgage lenders. For a discussion of these
bills, see the “Mortgage Brokers” section, below.
Regulation of Other Participants in the Process
Mortgage Brokers. Mortgage brokers help match borrowers with mortgage
lenders. Some have argued that brokers have a conflict of interest because, although
they are agents of mortgage lenders, many borrowers rely on the advice of mortgage
5 These requirements are described in greater detail in the “Suitability” section of this report.
6 The term “federally related mortgage loan” is defined by the Real Estate Settlement
Procedures Act. 12 U.S.C. §2602. The term includes loans that are made by federally
regulated lenders, are insured or originated by the government, are intended to be sold to
Fannie Mae, Ginnie Mae, Freddie Mac, or the Federal Home Loan Mortgage Corporation.

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CRS-7
brokers when choosing a mortgage. In many cases, borrowers think that brokers are
working for them and in their best interests. In order to reduce any conflict of
interest, some critics suggest additional regulation of mortgage brokers. Mortgage
brokers argue that, as members of the community in which they operate, they rely on
their reputations for business and therefore do not require additional regulation.
The Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915), as
approved by the House, would require mortgage brokers to be licensed either by state
or federal law. H.R. 3915 would give states time to enact licensing systems that
comport with the bill’s requirements. If any state did not enact licensing laws within
24 months, HUD would have the authority to establish and maintain a licensing
system.
The bill also would require a system of licensing and testing for loan
originators and would proscribe a loan processor or underwriter from working as an
independent contractor unless licensed or registered as a mortgage broker.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, would create a fiduciary relationship between brokers and
borrowers. As a fiduciary, a broker would have to “act in the best interest of the
borrower ... and refrain from compromising the rights or interests of the borrower in
favor of the rights or interest of another, ... and clearly disclose to the borrower ... all
material information that might reasonably affect” the borrower’s rights, benefits, and
interests under a mortgage. S. 2452 also would prohibit brokers from “steering”
borrowers into loans that are more expensive than loans for which they qualify. The
bill would require brokers to use income documentation to verify a borrower’s ability
to pay. Reliance solely on statements of income made by borrowers would not be
sufficient verification of ability to pay. S. 2452 would place additional restrictions
on brokers, such as limiting the circumstances in which they may be compensated
through yield spread premiums. The bill would extend civil liability for many Truth-
in-Lending Act (TILA)7 violations to mortgage brokers.8
The Borrower’s Protection Act of 2007 (S. 1299) would require mortgage
originators (including mortgage brokers) to verify the ability of an applicant to repay
a loan. The bill would also prohibit the practice of steering borrowers to mortgage
products that are not advantageous to them. Lenders and brokers would be prohibited
from mischaracterizing borrowers’ credit histories or the appraised value of the
property securing the loan.
The American Home Ownership Preservation Act of 2007 (S. 2114) would
create a national registry of mortgage brokers. The Federal Financial Institutions
Examinations Council (FFIEC) would be responsible for maintaining the registry and
would be empowered to create rules for the database. At a minimum, the database
7 TILA is contained in Title I of the Consumer Credit Protection Act, P.L. 90-301 (1968),
81 Stat. 146, as amended by 15 U.S.C. § 1601 et seq. TILA is described in more detail in
the “Disclosure Requirements” section of this report.
8 Currently, 15 U.S.C. § 1640, which pertains to civil liability for certain violations of TILA,
only applies to creditors and their assignees. The bill would amend § 1640 to cover
mortgage brokers, as well.

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CRS-8
would include the name and address of each broker, along with credit and criminal
background checks and fingerprints.
The Mortgage Broker Transparency and Accountability Act of 2007 (H.R. 3296)
would establish an “agency relationship” between mortgage brokers and consumers.
Mortgage brokers would have a duty to disclose the risks and benefits of the
mortgages offered. Mortgage brokers would have to obtain and permanently
maintain a bond. The bill would also prohibit steering to higher-cost mortgages as
long as lower-cost products were available with the loan features requested by the
borrower.
The Fairness for Homeowners Act of 2007 (H.R. 3081) would require mortgage
brokers (and lenders) to verify the borrower’s ability to pay back the mortgage loan.
It caps at 5% the amount of compensation in the finance charge for the loan that
mortgage brokers (and lenders) can receive and prohibits any undisclosed
compensation.
Under the Predatory Mortgage Lending Practices Reduction Act (H.R. 2061),
the Secretary of HUD would make rules for mortgage brokers in subprime, federally
related mortgage transactions. The rules would certify and test mortgage brokers for
knowledge of applicable federal law, subprime lending, predatory lending, and the
law regarding competency to contract.
Current regulation permits independent mortgage brokers to become FHA-
approved lenders, but they must have a minimum net worth of $250,000, and they
must be sponsored by lenders. H.R. 1752, the Expanding American Homeownership
Act, would place the requirements for mortgage brokers in statute by amending the
National Housing Act. The bill would also change the eligibility requirements to
permit mortgage brokers to become FHA-approved lenders if they are licensed in the
state where the property is located, they post a $75,000 surety bond, and they meet
other FHA requirements.
Appraiser Objectivity. Another area where a potential conflict of interest
could occur is in the appraisal of property in order to determine a home’s value.
Appraisers are supposed to be objective. However, the desire for repeat business
from lenders may result in some appraisers feeling pressure to assess a house at a
high enough value to ensure that the borrower will qualify for the proposed loan.
Currently, the Appraisal Subcommittee of the Federal Financial Institutions
Examinations Council (FFIEC) helps set minimum standards for state licensing of
appraisers.
Among the bills that would regulate appraisals is the Mortgage Reform and
Anti-Predatory Lending Act (H.R. 3915), which would require a written appraisal by
a licensed appraiser in Home Ownership and Equity Protection Act (HOEPA)9 loan
9 Subtitle B of Title I of the Riegle Community Development and Regulatory Improvement
Act, P.L. 103-325 (1994). HOEPA is codified as part of the Truth in Lending Act (TILA)
at 15 U.S.C. § 1601 et seq. HOEPA is described in more detail in the “Disclosure
(continued...)

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CRS-9
transactions. The bill, as passed by the House, would establish federal standards for
appraisers and appraisal management firms. The bill would require that appraisers
be independent and that they have no financial stake in the property they are
appraising. It declares that seeking to influence an appraiser, related to any loan
secured by the borrower’s principal residence, would be an unfair and deceptive trade
practice and establishes financial penalties that would be imposed for violations. The
federal banking agencies and the Federal Trade Commission would be directed to
jointly make rules for unfair trade practices relating to appraisals.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, would provide that appraisers, in addition to other state and
federal duties, “act with reasonable skill, care, diligence, and in accordance with the
highest standards; and act in good faith and with fair dealing” with regard to any
mortgage with which they are involved. S. 2452 also requires that all appraisals be
“accurate and reasonable” and meet certain bond requirements. Additionally, the bill
would prohibit servicers and lenders from providing appraisers with expected
appraisal values or attempting to otherwise inappropriately influence appraisers and
would require servicers and lenders to provide appraisal reports to all home loan
applicants anytime an appraisal is conducted. The bill would require certain
modifications of loans that were based upon appraisals that “exceeded the true
market value by 10 percent or more.”10
The Homebuyers Protection Act (H.R. 3535), which also seeks to regulate
appraisals, would require a licensed appraiser to appraise a home in any mortgage
transaction (currently only loans extended by federally regulated lenders require
licensed appraisers). The Expanding Homeownership Act (H.R. 1852) and the
Predatory Lending Reduction Act (H.R. 2061) would impose civil penalties against
parties who attempt to influence an appraisal.
Suitability. The term “suitability” in the mortgage lending context refers to
whether the terms of a loan are suitable for a particular borrower on the basis of
income, monthly mortgage payments, and other financial characteristics. A loan
might be considered unsuitable if a borrower is unable to support the monthly
mortgage payments on his or her income. Mortgage originators, including brokers
and lenders, could be made liable for defaults if underwriting standards are unsuitable
for the borrower’s circumstances. One advantage of this approach is that originators
have direct contact with borrowers and generally have the potential to obtain a great
deal of information about each borrower’s circumstances (as compared to mortgage-
backed securities investors or financial regulators). Originator liability could ensure
that mortgage brokers and lenders retain a stake in the long-term performance of their
loans even if the loans are sold or securitized. A disadvantage of this approach is that
suitability is difficult to define, is subject to significant uncertainty and litigation risk,
and is determined only after events occur that trigger defaults.
9 (...continued)
Requirements” section of this report.
10 The bill would provide local authorities with the power to adjust this 10% threshold in
certain situations.

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CRS-10
The Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915), as
approved by the House, would prohibit creditors from making residential mortgage
loans unless they first determined that, on the basis of documentation at the time of
the loan, borrowers had a “reasonable ability to repay the loan.” Regulations
establishing what constitutes a reasonable ability to repay would be established by
the Federal Reserve Board, the Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and the Federal Trade
Commission. Determination of a consumer’s ability to repay would be based on
factors that include current income, expected income, credit history, current
obligations, and debt-to-income ratio. H.R. 3915 would also require that creditors
determine that loans would constitute a “net tangible benefit” to the consumer. A
loan would not represent a net tangible benefit if it refinanced an existing mortgage
and the points and fees exceeded the amount of newly advanced principal.
Violations of the “ability to repay” or “net tangible benefit” provisions of H.R. 3915
could result in liability not only for the lender but also for any assignee, including
securitizers.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, would set certain suitability standards on all home mortgage
loans and more stringent standards on “subprime mortgage loans” and
“nontraditional mortgage loans.” First, regarding all home mortgage loans, the bill
would require originators to determine a borrower’s ability to pay the loan on the
basis of individual financial characteristics similar to those provided in H.R. 3915,
described above. The bill would also place limitations on yield spread premiums and
provide protections to certain lease holders of properties that are foreclosed upon.
“Nontraditional mortgage loans” under the bill would be loans with terms that
allow negative amortization or provide payment of only the loan’s interest.
“Subprime mortgages loans” are loans with APRs that exceed certain thresholds in
relation to prevailing Treasury securities or prime rates as established by the Federal
Reserve Board’s H.15 publications. The bill would require originators of these two
types of loans to verify that borrowers have a reasonable ability to pay the principal,
interest, homeowner’s insurance, and property taxes based on individual financial
characteristics. The bill would establish a rebuttable presumption that a borrower
does not have a reasonable ability to pay a nontraditional mortgage loan or subprime
mortgage loan if total monthly debts account for greater than 45% of the borrower’s
monthly gross income. Additionally, originators would not be allowed to refinance
an existing mortgage with a nontraditional mortgage loan or a subprime mortgage
loan unless the refinanced loan provides the borrower with a “net tangible benefit,”
as that term would be prescribed through rulemaking by the Federal Reserve Board.
In addition to suitability standards, S. 2452 would wholly proscribe prepayment
penalties and yield spread premiums in nontraditional and subprime mortgage loans,
as well as require escrow accounts for the payment of property taxes and insurance
for these loans.
Borrower Counseling. Several bills in the 110th Congress would increase
the availability of borrower counseling in order to improve borrowers’ understanding
of loan terms. The Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915),
as approved by the House, would create an Office of Housing Counseling within
HUD to coordinate counseling for home buyers and renters. The Homeownership

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CRS-11
Protection and Enhancement Act of 2007 (S. 1386), emphasizes homeownership
counseling and assistance. The bill would direct the Secretary of HUD to award
competitive grants to enable state housing finance agencies to establish State
Homeownership Protection Centers. S. 1386 would require lenders to notify
borrowers of the availability of homeownership counseling and homeownership
protection center services. Under special circumstances, it would allow a one-time
emergency grant to help troubled borrowers remain in their homes.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, would require that, for certain loans, either servicers or
lenders provide borrowers certain disclosures regarding the availability of HUD-
approved housing counseling agencies. Disclosures would have to be made at the
time of settlement, when borrowers are 30 and 60 days delinquent on their mortgage
payments, and before a lender or servicer “accelerates maturity of a mortgage
obligation, commences legal action, including mortgage foreclosure ... or takes
possession of [the property securing the mortgage] ....” The bill would also bar, for
45 days, lenders and servicers from initiating or continuing foreclosure proceedings
against borrowers who have confirmed their participation in HUD-approved
foreclosure prevention counseling. The bill, among other things, would mandate that
lenders and servicers work with HUD-approved housing counseling agencies.
The Predatory Lending Reduction Act (H.R. 2061) would amend the
Community Development Banking and Financial Institutions Act of 199411 to
authorize the Community Development Financial Institutions Fund to make grants
to nonprofit community development corporations for the education and training of
borrowers and community groups regarding predatory lending practices.
Disclosure Requirements
The mortgage lending industry has multiple laws that regulate the information
that must be disclosed to consumers. These include the Truth in Lending Act
(TILA), the Home Ownership and Equity Protection Act (HOEPA), and the Real
Estate Settlement Procedures Act (RESPA). Another law, the Home Mortgage
Disclosure Act (HMDA) regulates the information that lenders are required to collect
from loan applicants; the information is then made available to the public. The
current increase in subprime and exotic mortgages has resulted in proposals to
increase disclosure requirements as a means of ensuring that borrowers understand
the terms of their loan transactions.
A Federal Trade Commission (FTC) study tested 819 mortgage consumers to
document their understanding of current mortgage cost disclosures and loan terms,
as well as their ability to avoid deceptive lending practices.12 The authors found that
borrowers (both prime and subprime) did not understand important mortgage costs
11 12 U.S.C. §4701 et seq.
12 See James M. Lacko and Janis K. Pappalardo, Improving Consumer Mortgage
Disclosures: An Empirical Assessment of Current and Prototype Disclosure Forms, Bureau
of Economics Staff Report, Federal Trade Commission, June 2007, [http://www.ftc.gov/os/
2007/06/P025505MortgageDisclosureReport.pdf].

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CRS-12
after viewing mortgage cost disclosures. Some borrowers had difficulty identifying
the annual percentage rate (APR) of the loan and loan amounts. Many borrowers did
not understand why the interest rate and APR of a loan would differ.13 In addition,
borrowers had the most trouble understanding loan terms for the more complicated
mortgage products such as those with optional credit insurance, interest-only
payments, balloon payments, and prepayment penalties. Borrowers were unable to
determine whether balloon payments, prepayment penalties or up-front loan charges
were part of the loan. Survey results also indicated that some consumers may still
need borrower counseling and education to understand terminology used in the
mortgage lending and settlement industry.
The Truth in Lending Act. The Truth-In-Lending Act (TILA) of 1968
requires lenders to disclose the cost of credit and repayment terms of mortgage loans
before borrowers enter into any transactions.14 TILA also gives borrowers the right
to rescind the loan transaction within three days from the date of signing. The
Federal Reserve Board implements TILA through Regulation Z.15 Several bills in the
110th Congress would make changes to TILA.
The Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915), as
approved by the House, would amend TILA to require escrow accounts to be
established for some borrowers in order to ensure sufficient funds for property taxes
and insurance. This bill would also require, for certain loans, additional disclosures
regarding terms such as variable rate adjustments, payments made to originators, and
payment schedules.
The Fair Disclosure for Homeowners Act (H.R. 3705) would require a separate
written notice under TILA when a borrower has an adjustable rate mortgage that is
scheduled to reset. The Homebuyers Protection Act (H.R. 3535) and the American
Home Ownership Preservation Act (S. 2114) would require TILA disclosures
regarding mortgage brokers and mortgage broker fees. The Predatory Mortgage
Lending Practices Reduction Act (H.R. 2061) would amend TILA to establish a set
of best practices and require creditors to provide a good faith resolution of
complaints.
The Home Ownership and Equity Protection Act. The 1994 Home
Ownership Equity Protection Act (HOEPA) was enacted as an amendment to TILA.16
(For more information about HOEPA, see CRS Report RL34259, A Predatory
Lending Primer: The Home Ownership and Equity Protection Act, by David H.
Carpenter.) Borrowers of HOEPA loans must be provided with certain disclosures
13 The APR is the annual cost of a loan, which includes the interest cost of the principal loan
amount, insurance, and other fees expressed as a percentage. The mortgage interest rate
only includes the interest cost of the principal loan amount expressed as a percentage.
14 TILA is contained in Title I of the Consumer Credit Protection Act, P.L. 90-301, 81 Stat.
146, as amended by 15 U.S.C. § 1601 et seq.
15 12 C.F.R. § 226.
16 HOEPA is implemented through Regulation Z, 12 C.F.R. Part 226, sections 31, 32, and
34.

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CRS-13
three days before the loan is closed, in addition to the three-day right of rescission
generally required by TILA. This gives consumers a total of six days to decide
whether to enter into the transaction. HOEPA applies to mortgages that are secured
by a borrower’s primary residence but exempts certain loans from its coverage, most
notably residential mortgage transactions, which are basically loans provided for the
purchase or initial construction of the homes securing the loans.17 HOEPA’s
protections apply where (1) the non-exempt loan’s “APR exceeds by more than 10
percentage points the yield on Treasury securities with comparable periods ... of
maturity ...” or (2) “the total points and fees payable by [a borrower] at or before
closing exceed the greater of 8 percent of the total [non-exempt] loan amount” or
$561.18
In light of the recent increase in subprime mortgage lending, proposals to add
to HOEPA’s protections have been advanced. The Mortgage Reform and Anti-
Predatory Lending Act (H.R. 3915), as approved by the House, would include home
purchase loans in the definition of “high cost mortgages” covered by HOEPA. The
bill would also reduce, in some instances, the fee thresholds that trigger HOEPA
protections. The threshold for primary mortgages would be set at a level where the
APR exceeds by more than 8% (10% for transactions less than $50,000 and where
“the dwelling is personal property”) the prevailing rate on Treasury securities with
comparable periods of maturity.19 For subordinate mortgages, the threshold would
be set where the APR exceeds by more than 10% the prevailing rate on Treasury
securities with comparable periods of maturity.20 The bill would establish a third set
of thresholds for any covered mortgage that (1) has total points and fees exceeding
5% of the total loan amount where the loan is for more than $20,000; (2) has total
points and fees exceeding $1,000 or 8% of the entire amount of the loan, which ever
is less, where the loan is for less than $20,000; or (3) allows for prepayment penalties
more than 36 months after closing or for prepayment penalties that are greater than
2% of the prepaid amount. The bill also would expand the charges that are to be
considered points and fees for high-cost mortgages. H.R. 3915 would prohibit
balloon payments on high-cost loans under certain circumstances, prohibit lending
without regard to a borrower’s ability to repay, disallow late fees that exceed certain
levels, and require lenders to verify that borrowers have received counseling from a
HUD-approved agency prior to entering into a high-cost mortgage transaction.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, also would make significant changes to HOEPA. These
17 These types of loans are often referred to as purchase money mortgages. Because of the
exemption of “residential mortgage transactions,” HOEPA’s coverage is basically limited
to certain secondary mortgages and refinances.
18 The $561 figure is for 2008. The Federal Reserve Board adjusts this number annually
based upon changes to the Consumer Price Index.
19 Treasury securities are measured “on the 15th day of the month preceding the month in
which the application for the extension of credit is received by the creditor . . . .”
20 The Board has the authority to adjust the APR thresholds, but 15 U.S.C. § 1602(aa)(2)(B)
provides a floor and ceiling for such adjustments. The bill would establish different floors
and ceilings for first mortgages and secondary mortgages.

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CRS-14
changes would be very similar to those proposed by H.R. 3915. S. 2452 would
amend the definition of “high-cost mortgages” to include home purchase loans. The
bill also would change the triggers for HOEPA protections much like H.R. 3915.
The most significant difference between the two bills on this matter is that S. 2452
would not provide for the points and fees trigger (three) that is based exclusively on
prepayment penalties. The Homeownership Preservation and Protection Act of 2007
would place additional restrictions on HOEPA loans including prohibitions on
certain balloon payments, certain acceleration clauses, compensation through certain
yield spread premiums, and the refinancing of certain points and fees. Additionally,
the bill would bar originators from refinancing an existing mortgage into a high-cost
mortgage unless the new mortgage provides the borrower a net tangible benefit.
The Preservation of Federalism in Banking Act (H.R. 1996) would make
national banks and federal savings associations subject to state laws that provide
greater protections than those provided by HOEPA. Currently, approximately thirty
states and the District of Columbia have enacted statutes similar to HOEPA, some
of which offer much broader protections than those afforded under HOEPA.21 The
Predatory Mortgage Lending Practices Reduction Act (H.R. 2061) would implement
several new requirements for high-cost mortgages governed by HOEPA. The bill
would require lenders that enter into high-cost mortgages to establish and maintain
a best-practices plan in accordance with regulations that the Federal Reserve Board
would be directed to prescribe; prohibit lenders from imposing or collecting fees on
high-cost mortgages if they had not been previously disclosed; and require that all
disclosures of charges and fees on high-cost mortgages be separately enumerated and
clearly labeled and described.
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.22 The law requires lenders to provide
estimates of settlement costs to borrowers. Among RESPA’s requirements are (1)
advance disclosure of estimated settlement costs, referred to as a good faith estimate
(GFE) to home buyers and sellers (a list of the actual closing costs must be provided
to borrowers at the time of closing), (2) the elimination of kickbacks or referral fees
among settlement service providers (e.g., brokers, lenders, title companies, and
appraisers) that tended to cause unnecessary increases in the costs of certain
settlement services, (3) a limitation 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.
Additionally, servicers are required to provide borrowers with certain notices each
time a federally related mortgage loan is sold, transferred, or assigned to a new
holder.
21 See CRS Report RL34259, A Predatory Lending Primer: The Home Ownership and
Equity Protection Act, by David H. Carpenter.
22 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.

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CRS-15
Consumers generally find the real estate settlement process confusing, and
lenders find it cumbersome. Although RESPA requires lenders to provide consumers
with estimates of settlement costs, no federal or state law requires the lenders to
deliver settlement costs in the amounts stated in the estimates. As a result,
consumers often receive unexpected fees at closing, and these unexpected fees can
sometimes be hundreds and even thousands of dollars more than expected. Changes
to both current GFE disclosure forms as well as the information disclosed within
them could arguably lead to less confusion about loan and settlement costs.
In the 110th Congress, the Mortgage Reform and Anti-Predatory Lending Act
(H.R. 3915), as passed by the House, would amend RESPA to prohibit servicers of
federally related mortgage loans from failing to adhere to other specified
requirements including charging fees for answering “valid qualified written
requests,” failing to timely respond to requests to correct certain errors, and taking
out force-placed insurance23 without a “reasonable basis” for believing that the
borrower has not maintained required property insurance. H.R. 3915 would also
amend RESPA’s GFE form to provide additional disclosures regarding variable rate
adjustments, the percentage of the borrower’s monthly income that will go towards
loan payments, and other terms. The Mortgage Disclosure Simplification Act (H.R.
3725) would amend RESPA to require lenders to submit to borrowers a one-page
description of the “essential terms of the loan.” This would include the “best
possible estimate” of the total loan amount, loan to value ratio, final maturity date,
amount and due date of a balloon payment, prepayment penalties, the interest rate
and corresponding monthly payment amount, the income on which the loan amount
is based, the total amount of settlement charges, and the amount of fees paid to a
broker.
The Homeownership Preservation and Protection Act of 2007 (S. 2452), as
introduced in the Senate, would amend RESPA to require additional information to
be included in the notice that must be submitted to borrowers by servicers each time
a federally related mortgage is sold, transferred, or assigned to a new holder. This
information would pertain to whether the debt is current, or when and why the debt
became delinquent, the loan balance, the escrow balance, and the payment history.
Home Mortgage Disclosure Act. The Home Mortgage Disclosure Act
(HMDA), was enacted in 1975 (P.L. 94-200) to help regulators determine where it
was necessary to further investigate redlining or geographical discrimination.24
HMDA requires covered institutions25 to report home mortgage originations by
23 Force-placed insurance is insurance coverage obtained by a servicer to protect the
mortgagee’s interest in the property.
24 HMDA is implemented by the Federal Reserve Board Regulation C (12 CFR Part 203).
25 Covered institutions or those required to report HMDA data include banks, savings and
loans, credit unions, and mortgage and consumer finance companies depending upon the
size of their assets and percentage of business related to housing-lending activity. Although
most home-secured mortgage loans are reported under HMDA, there are some exceptions.
Home equity loans taken out for purposes other than those related to the home, such as home
improvements, are not reported under HMDA. Also, lenders that do not have offices in
(continued...)

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CRS-16
geographic area, financial institution type, borrower race, sex, income, and whether
the loan is for home purchase or refinance. In 1989, Congress expanded HMDA to
include the race, sex, and borrower income of those applicants that were rejected for
loans.26 In 2002, Congress expanded HMDA again to include the annual percentage
rate and to require lenders to identify loans subject to HOEPA requirements; the law
requiring loan rate or pricing information was implemented in 2004.27
Currently, HMDA does not require lenders to report every variable used to
evaluate applicants. Because the collected data is released to the public, there is
concern about protecting the privacy of individuals. However, HMDA has been
criticized for not including more variables that could be used to help verify or rule
out discrimination, such as borrower credit history information. Some borrowers pay
more for their loans relative to others because they exhibit higher levels of credit risk.
Having credit history information would be necessary to determine if observed
pricing differentials reflect differences in financial risk or discrimination. Other
useful variables include borrower characteristics such as total assets and debts as well
as loan characteristics, such as the loan-to-value ratio. The Community
Reinvestment Modernization Act (H.R. 1289) would expand the information required
to be disclosed pursuant to HMDA to include discount points, origination fees,
financing of lump sum insurance premium payments, balloon payments, prepayment
penalties, loan-to-value ratios, debt-to-income ratios, housing payment-to-income
ratios, and credit score information. The bill would also make manufactured home
loans subject to HMDA requirements.
Predatory Lending and Fraud
As discussed earlier in this report, the subprime mortgage market has made it
possible for borrowers with poor credit, low income, or little savings to qualify for
mortgage loans. The subprime market may be considered a dual market. There is
“good” subprime lending that opens up credit opportunities for higher-risk borrowers,
and there is “predatory” subprime lending. (Although prime loans may also be
predatory loans, they are most often subprime loans.) Under “good” subprime
lending, the loans are made with terms that appropriately compensate the lender for
the enhanced risk posed by the borrowers, and the terms include a reasonable return
to the lender. The loans are marketed in a manner that is fair to borrowers and
understandable by borrowers.
Predatory subprime lending is the opposite of good subprime lending. Predatory
lenders make loans on terms that overcompensate the lenders for the risk posed by
the borrowers. The loans are marketed on terms that are not fair to the borrowers or
25 (...continued)
metropolitan statistical areas are not required to report HMDA data. See
[http://www.fdic.gov/news/news/press/2005/pr3005a.html].
26 P.L. 101-73, 103 Stat 183. Sections 1211(d) and 1212.
27 P.L. 107-155, 116 Stat 81.

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CRS-17
understandable to the borrowers. The loans are often actively and purposely marketed
to low-income minorities and the elderly.28
The 110th Congress has begun to examine the practices of predatory lending.
The Senate Banking Committee held a hearing on February 7, 2007, entitled
“Preserving the American Dream: Predatory Lending Practices and Home
Foreclosures.” In addition, legislation has been introduced that contains provisions
intended to address lending practices that could be considered predatory. These bills
include H.R. 1289, H.R. 2061, and S. 1222, discussed below. H.R. 3915 and S.
2452, as discussed in-depth above, also seek to regulate some common predatory
lending practices. Some of these proposed changes include ensuring that certain
refinances provide a net tangible benefit to the borrower and augmenting disclosure
requirements for certain loans. S. 2452 would also give banking regulators the
authority to promulgate rules that establish unfair and deceptive acts or practices for
each of the institutions they regulate.29
The Community Reinvestment Modernization Act of 2007 (H.R. 1289) would
amend the Community Reinvestment Act of 1977 (CRA) to provide that if a
regulated financial institution is found to have engaged in a credit practice, such as
predatory lending, that negatively affects a community or neighborhood, the loans
would not count toward determining whether the institution is meeting the credit
needs of the entire community. The institution’s CRA rating would then be reduced
accordingly. The bill would also allow limits to be placed on the ability of the
institutions to sell their loans to Fannie Mae, Freddie Mac, and Ginnie Mae.
The Predatory Mortgage Lending Reduction Act (H.R. 2061) would make it
illegal to engage in any unfair or deceptive act or practice when providing mortgage
lending or mortgage brokerage services on a subprime, federally related mortgage
loan. HUD, the Federal Reserve, and the Federal Trade Commission would be able
to jointly issue interpretive rules, statements of policy, and regulations defining such
acts and practices. Violators would be subject to a civil penalty of up to $10,000 for
the first violation and up to $20,000 for subsequent violations. H.R. 2061 would also
amend the Consumer Credit Protection Act30 to add a new title — the “Consumer
Fairness Act.” The title would declare as unenforceable a provision in any consumer
contract or transaction that requires binding arbitration to resolve any controversy
arising out of the contract. An exception would be made for a written agreement
entered into after a controversy occurs that calls for binding arbitration of that
controversy.
Another bill, the Stopping Mortgage Transactions Which Operate to Promote
Fraud, Risk, Abuse, and Underdevelopment Act (STOP FRAUD Act, S. 1222),
28 National Predatory Lending Task Force, Curbing Predatory Home Mortgage Lending: A
Joint Report, U.S. Department of Housing and Urban Development and U.S. Department
of the Treasury, June 2000, p. 69, available at [http://www.huduser.org/Publications/pdf/
treasrpt.pdf].
29 This authority would be provided by amending the Federal Trade Commission Act, 15
U.S.C. § 57a(f).
30 15 U.S.C. §1601 et seq.

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CRS-18
would impose civil and criminal penalties against mortgage brokers and lenders that
defraud consumers in the process of extending credit. The bill would also require
lenders of home loans without certain disclosure features to go through the state
judicial or administrative process in foreclosure. In addition, S. 1222 contains
provisions that would allow borrowers going through foreclosure proceedings to
assert defenses against assignees of the original mortgage lender.
For more information about predatory lending, see CRS Report RL34259, A
Predatory Lending Primer: The Home Ownership and Equity Protection Act, by
David H. Carpenter.
Efforts to Assist Troubled Borrowers
In addition to initiatives to modify the homebuying process for future buyers,
efforts have also been made to assist borrowers who are currently at risk of losing
their homes. Congress is considering legislation — and administrative agencies have
taken action — aimed at encouraging borrower workouts and improving the
availability of refinancing options. Legislation has also been introduced to remove
the requirement that debt forgiveness be treated as taxable income.
Working with Borrowers
Thus far, there are no proposals to provide direct federal funding to pay off the
debt of overextended borrowers. However, Congress has provided additional
funding for housing counseling programs to assist troubled borrowers. Specifically,
the FY2008 Consolidated Appropriations Act (H.R. 2764) provides $180 million to
the Neighborhood Reinvestment Corporation for mortgage foreclosure mitigation
activities and $50 million for HUD’s housing counseling program. Much of the
focus of housing counseling for troubled borrowers involves working with lenders
to arrive at payment plans or other options to make up arrearages — often referred
to as borrower workouts — or helping borrowers refinance into loans with better
terms. Both legislative and administrative actions have been taken to promote
borrower workouts and refinances.
The Administration Proposal to Freeze Interest Rates. Treasury
Secretary Henry Paulson has brokered an alliance, known as “The Hope Now
Alliance,” between lenders, servicers, and investors, which sets voluntary guidelines
under which some borrowers whose mortgage payments are set to rise may get
temporary relief. The plan would provide a five-year freeze on mortgage interest
rates for certain subprime mortgage borrowers. The plan is designed to buy time for
both homeowners and lenders so that borrowers can refinance into more affordable
fixed-rate loans in order to limit the number of mortgages going into default and
reduce the number of homes for sale in an already saturated market.31
31 For more information about the Hope Now Alliance, see the program’s web page,
available at [http://www.hopenow.com/].

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CRS-19
To qualify, at least six conditions must be met: (1) borrowers must reside in the
residences covered by the mortgage, (2) borrowers must be current with their
mortgage payments, (3) the loans must have been taken out between January 1, 2005,
and July 31, 2007, (4) the loans must have an adjustable interest rate that will reset
between January 1, 2008, and July 31, 2010, (5) payments would increase by more
than 10% after the scheduled reset; and (6) borrowers must have credit scores below
660 and less than 10% higher than their scores at the time of origination.
Borrower Workouts. Federal and state financial regulating agencies have
issued new guidance to regulated lenders encouraging loan restructuring for troubled
borrowers to avoid foreclosure where feasible.32 The agencies include the Federal
Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller
of the Currency, the National Credit Union Administration, the Office of Thrift
Supervision, and the Conference of State Bank Supervisors. Loan servicers were
instructed to review their full authority to modify loans for borrowers who are already
delinquent and for borrowers for whom it is reasonably foreseeable that they will
default. Despite recognition of subprime problems since January 2006, loan
workouts do not appear to be occurring in large numbers. The head of the FDIC,
Sheila Bair, has expressed frustration at the relatively low level of loan modification
that is occurring.33 In a recent speech, she said that less than 1% of troubled
subprime loans have been restructured in any meaningful way.
Securitization might present an obstacle to borrower workouts in some cases.
Many troubled loans were sold to special purpose trusts, which pass the payments on
to investors. A private servicer is typically contracted to administer the loans on
behalf of the trust according to a prearranged set of rules. In order to comply with
the Real Estate Mortgage Investment Conduit (REMIC) tax rules, these trusts must
remain passive. The passivity requirement could be interpreted as barring the trusts
from granting servicers additional discretion to modify loans when market conditions
are unanticipated. These issues are further complicated by accounting rules that
lenders comply with when transferring the loans to the trusts, particularly FAS 140,
which governs the definition of a true sale. Under the rule, it was unclear whether
these loans held in trust could be modified if a default was reasonably foreseeable
(instead of after a default had already occurred). Fear of lawsuits by frustrated
investors could discourage some servicers from aggressively restructuring loans.
Recognizing potential limitations on borrower workouts due to securitization,
the House Financial Services Committee sent a letter (June 15, 2007) to the
Securities and Exchange Commission (SEC) requesting clarification of FAS 140.
The SEC, which oversees the Financial Accounting Standards Board, responded
(July 24, 2007) that a servicer who modified the loan of a borrower who was likely
to become delinquent would not constitute active management and therefore should
not be an obstacle to loan workouts. To date, the industry does not appear to have
responded to these letters with a significant increase in borrower workouts.
32 “Federal Financial Regulatory Agencies and CSBS Issue Statement on Loss Mitigation
Strategies for Servicers of Residential Mortgages,” FDIC Press Release, September 4, 2007.
33 Remarks by FDIC Chairman Sheila Bair at Clayton Holding, Inc. Investor Conference —
New York, NY, October 4, 2007.

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CRS-20
Refinancing. Some overextended borrowers, or those facing interest rate
resets, have had difficulty refinancing their loans on better terms, in part because of
a lack of liquidity in the private market. Fannie Mae and Freddie Mac (known as
government sponsored enterprises, or GSEs) purchase mortgages from lenders so that
the lenders have funds available to make additional loans.
Two bills in the Senate — the Protecting Access to Safe Mortgages Act (S.
2036) and the Promoting Refinancing Opportunities for Mortgages Impacted by the
Subprime Emergency (PROMISE) Act (S. 2169) — would temporarily raise the
Fannie Mae and Freddie Mac portfolio caps by not less than 10% in order to help
increase liquidity in the market and make loans more available for at-risk or troubled
borrowers. S. 2036 would dedicate 50% of the additional funds under the higher
portfolio caps to purchasing mortgages with resets between June 2005 and December
2009. The PROMISE Act (S. 2169) would devote 85% of the additional funds
available under the portfolio cap increase “for the purpose of refinancing subprime
mortgages at risk of foreclosure.” S. 2036, unlike the PROMISE Act, would also
raise loan limits in high-cost areas so that Fannie Mae and Freddie Mac could
purchase loans that they would not otherwise be able to (currently the GSEs may not
purchase loans above $417,000 for single-family properties). The provisions in S.
2036 would sunset one year after enactment of the bill; those in S. 2169 would sunset
after six months.
Two similar bills in the House would raise the GSE portfolio caps (also by not
less than10%) but would not increase the $417,000 loan limit. The Protecting Access
to Safe Mortgages Act (H.R. 3777) does not specify how the increase in available
funds under the portfolio cap would be used; its provisions would sunset one year
after its enactment. The second bill, H.R. 3838, a bill to temporarily raise the
mortgage caps applicable to Freddie Mac and Fannie Mae, like S. 2169, would
devote 85% of funds available under the increased caps to refinancing mortgages at
risk of foreclosure. The provisions in H.R. 3838 would sunset after six months.
In September 2007, the Administration announced a new, temporary program
through which the Federal Housing Administration (FHA) will insure refinanced
mortgages of troubled borrowers; the program is called FHASecure. The program
applies to borrowers with non-FHA-insured, adjustable rate mortgages who had been
able to make timely payments prior to their interest rate resets. These borrowers may
be eligible to refinance their loans with FHA insured mortgages (if they are able to
find FHA lenders to extend credit), as long as they can meet certain criteria, such as
having sufficient income to support payments on the new loans.34 The program will
only accept loan applications signed no later than December 31, 2008.
Taxing Debt Forgiveness
As lenders and borrowers work to resolve indebtedness issues, some
transactions are resulting in cancellation of debt. Mortgage debt cancellation can
occur when lenders restructure loans, reducing principal balances, or sell properties
34 For HUD guidance on FHASecure, see [http://www.fha.gov/reference/ml2007/07-
11ml.doc].

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CRS-21
— either in advance, or as a result, of foreclosure proceedings. If a lender forgives
or cancels debt, current tax law may treat it as cancellation of debt (COD) income,
which is subject to tax.
Proposals have been made to exclude COD income from taxation. On October
4, 2007, the House passed the Mortgage Debt Forgiveness Relief Act of 2007 (H.R.
3648) by a vote of 386 to 27. As passed by the House, the act would have
permanently excluded discharged, or canceled, qualified residential debt from
income. The Senate modified H.R. 3648 by proposing a three-year exclusion of
COD income. The Senate passed H.R. 3648 on December 14, 2007; the House
passed the modified version of H.R. 3648 on December 18, 2007. The bill was
signed into law (P.L. 110-142) on December 20, 2007, with the temporary exclusion
of COD income rather than a permanent exclusion. (For more information on this
issue, see CRS Report RL34212, Analysis of the Proposed Tax Exclusion for
Canceled Mortgage Debt Income, by Pamela J. Jackson and Erika Lunder.)
A rationale for excluding COD income has focused on minimizing hardship for
households in distress. Policymakers have expressed concern that households
experiencing hardship and possibly losing their homes, presumably as a result of
financial distress, should not incur an additional hardship by being taxed on canceled
debt income. Additionally, legislators have been pursuing Federal Housing
Administration (FHA) and government-sponsored enterprise (GSE) reform efforts,
in part to alleviate the current mortgage crisis. As efforts to minimize the rate of
foreclosure are being made, lenders are, in some cases, renegotiating loans with
borrowers to keep them in their homes. For some policymakers, the exclusion of
canceled debt income may be a necessary step to ensure that homeowner retention
efforts are not thwarted by tax policy.
Opponents of an exclusion of COD income might argue that the provision
makes debt forgiveness more attractive for homeowners relative to current tax law
and could encourage homeowners to be less responsible about fulfilling debt
obligations.
Reforming Federally Sponsored
Financing Institutions
GSE Regulation
Fannie Mae, Freddie Mac, and Federal Home Loan Bank Regulation.
Fannie Mae and Freddie Mac are federally chartered, privately owned corporations
charged with supporting the secondary mortgage market. They are not allowed to
lend directly to homeowners, but by purchasing mortgages from the original lenders,
they free up funds to be lent for more mortgages. After Fannie Mae and Freddie Mac
purchase mortgages, they either package and sell them to investors, or keep them in
their own portfolios. To finance their portfolios, they sell bonds and other debt to
investors.

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CRS-22
This buying and selling of existing mortgages has created a secondary mortgage
market that has improved the efficiency of mortgage lending and lowered the interest
rate that homeowners 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, while HUD’s Financial Institutions Regulation
Division establishes and monitors affordable housing lending goals. OFHEO has
been the primary regulator during recent accounting problems, although the
Securities and Exchange Commission (SEC) has also been involved. (For more
information about accounting problems at Fannie Mae and Freddie Mac, see CRS
Report RS21949, Accounting Problems at Fannie Mae, and CRS Report RS21567,
Accounting and Management Problems at Freddie Mac, both by Mark Jickling.)
Both Fannie Mae and Freddie Mac have statutory exemptions from filing
financial documents with the SEC, but both have voluntarily agreed to make these
filings. Freddie Mac announced on July 12, 2002, that it would begin filing with the
SEC, but its accounting problems have prevented it from doing so. Fannie Mae filed
its 2004 annual report (form 10-K) with the SEC on December 6, 2006, which was
approximately 21 months late. Neither GSE is yet filing current annual financial
statements.
On May 23, 2006, Fannie Mae signed a consent order with OFHEO agreeing to
limit its portfolio of mortgages and mortgage-backed securities to $727 billion, the
December 13, 2005, level. Freddie Mac agreed on July 1, 2006 to limit retained
portfolio growth to 0.5% quarterly until the company can file financial reports on a
timely basis. OFHEO has said that these limitations are likely to remain in place for
several years.
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. (For information on the FHLBs, see CRS Report RL32815,
Federal Home Loan Bank System: Policy Issues, by Edward Vincent Murphy.)

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CRS-23
On March 9, 2007, House Financial Services Committee Chairman Frank
introduced H.R. 1427, the Federal Housing Finance Reform Act of 2007. The bill
would change the regulation of the GSEs, consolidate oversight, and create the
Federal Housing Finance Agency (FHFA) as an independent regulator with authority
similar to that of bank regulators. H.R. 1427 would give the Federal Housing
Finance Agency explicit authority to adjust the enterprises’ risk-based capital and,
in specific circumstances, to limit the size of their portfolios for limited periods of
time. The bill would also create an affordable housing fund (see discussion below).
Hearings on the legislation were held on March 12 and March 15, 2007. On March
29, 2007, the House Financial Services Committee approved H.R. 1427 and reported
it to the House floor. The House passed H.R. 1427 on May 24, 2007, and sent it to
the Senate where it was referred to the Banking, Housing, and Urban Affairs
Committee.
On April 12, 2007, Senator Hagel introduced S. 1100, The Housing Enterprise
Regulatory Reform Act of 2007. S. 1100, like H.R. 1427, would abolish OFHEO
and establish an independent agency to oversee the GSEs, with enhanced safety and
soundness, disclosure, and enforcement tools. S. 1100 differs from H.R. 1427 on
provisions to enable the new agency to monitor and control the GSEs’ investment
portfolios, and S. 1100 does not include an affordable housing fund. On November
16, 2007, Senator Jack Reed introduced S. 2391, the Government-Sponsored
Enterprise Mission Improvement Act. The bill does not include the same regulation
and oversight provisions as S. 1100, but it would define new affordable housing
goals for the GSEs, establish a duty to serve underserved markets, and establish an
affordable housing fund. Neither H.R. 1427, S. 1100, nor S. 2391 have been
considered in the Senate. (For more information about GSE reforms in H.R. 1427
and S. 1100, see CRS Report RL33940, H.R. 1427 and S. 1100: Reforming the
Regulation of Government-Sponsored Enterprises, by Mark Jickling, Edward
Vincent Murphy, and N. Eric Weiss.)
Affordable Housing Fund. As noted earlier, H.R. 1427 would create an
affordable housing fund, which would be funded by contributions from Fannie Mae
and Freddie Mac on the basis of a percentage of their total mortgage portfolios
(essentially, mortgages retained in portfolio plus those guaranteed and sold regardless
of the form, such as mortgage backed securities). The primary purpose of the fund
in H.R. 1427 would be to increase housing opportunities for extremely low- and very
low-income homeowners and renters. Specifically, the funds could be used for the
production, preservation, and rehabilitation of rental and homeownership housing,
as well as for related infrastructure costs.
In the first year of the Affordable Housing Fund, money would be allocated to
areas affected by the 2005 hurricanes. In years two through five, H.R. 1427 would
distribute the funds to the states and recognized Indian tribes using a formula to be
developed by HUD. The states would develop plans to further distribute the funds
to for-profit, not-for-profit, and faith-based organizations. The bill would end the
requirement for Fannie Mae and Freddie Mac to contribute money to the fund after
five years.

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CRS-24
The House bill contains a provision that would transfer the affordable housing
funds to a National Affordable Housing Trust Fund, if such a trust fund is enacted
(see discussion below).
S. 2391 would create two GSE affordable housing programs with contributions
from Freddie Mac and Fannie Mae. The first, which would be called the Affordable
Housing Block Grant Program, would distribute 65% of GSE contributions by
formula to the states. The states, in turn, could use the funds to increase and preserve
rental housing for very low- and extremely low-income households, as well as to
promote homeownership among these households. In 2008, all of the resources in
the Affordable Housing Block Grant Program would be used to assist borrowers
facing foreclosure. Money would be distributed by the Secretary of HUD to states
and tribally designated housing entities based on a formula. The bill would require
the Secretary to develop a formula to distribute funds that would be based on (1)
population, (2) the 90-day delinquency rate, and (3) the ratio of foreclosures to
owner-occupied households in the state.
The remaining 35% of GSE contributions would be directed to a second
affordable housing program, the Capital Magnet Fund, that would be within the
existing Community Development Financial Institutions (CDFIs) Fund in the
Department of the Treasury. The CDFI Fund promotes economic and community
development through assistance to community development financial institutions,
which typically provide loans and financial services in under-served neighborhoods.
The new Capital Magnet Fund would award competitive grants with the purpose of
attracting private capital and supporting investment in housing for low-income, very
low-income, and extremely low-income households, as well as economic
development activities and community service facilities. Grantees, including
community development financial institutions and private nonprofit organizations,
could use funds to capitalize a revolving loan fund, an affordable housing fund, or
a fund to support economic development activities; to provide loan loss reserves; and
for risk sharing loans.

Like the House bill, S. 2391 provides that, if a National Affordable Housing
Trust Fund were to be enacted, funds from both the National Affordable Housing
Block Grant Program and the Capital Magnet Fund would be transferred to the Trust
Fund.
National Affordable Housing Trust Fund. The affordable housing fund
portions of both H.R. 1427 and S. 2391 include a provision requiring that the
affordable housing funds be transferred to a National Affordable Housing Trust Fund
upon enactment of such a trust fund. A National Affordable Housing Trust Fund
would provide a dedicated source of revenue to support affordable housing. A
coalition of low-income housing organizations, led by the National Low Income
Housing Coalition (NLIHC), has advocated establishment of such a trust fund for
several years. Legislation to create a National Affordable Housing Trust Fund using
a portion of Federal Housing Administration (FHA) receipts as the dedicated source
of revenue was introduced, but not enacted, in the 106th, 107th, and 108th Congresses.
Since FHA receipts are currently deposited in the U.S. Treasury, diverting them to
a housing trust fund would count as new spending. In the 109th and 110th Congresses,

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CRS-25
the NLIHC advocated including an affordable housing fund provision funded by non-
federal resources in GSE reform legislation.
The most recent National Affordable Housing Trust Fund bill was introduced
on June 27, 2007, by House Financial Services Committee Chairman Frank and
several bipartisan cosponsors. The National Affordable Housing Trust Fund Act of
2007 (H.R. 2895) proposes to use affordable housing funds created by the GSE and
FHA reform bills (discussed below) to provide formula grants to states and localities
and competitive grants to Indian Tribes. The funds could be subgranted to for-profit
and non-profit organizations for the creation, rehabilitation, or financial support of
rental housing as well as downpayment and closing cost assistance for first-time
homebuyers. The bill would require that all funds be used to benefit families at or
below 80% of local area median income, and that 75% of all funds be used to benefit
families at the higher of 30% of local area median income or the poverty line. The
bill was approved by the House Financial Services Committee on July 31, 2007 and
was passed by the House on October 10, 2007.
On December 19, 2007, Senator Kerry introduced legislation to create a
National Affordable Housing Trust Fund (S. 2523). The Senate bill is largely the
same as the House bill.
FHA Reform
The Federal Housing Administration (FHA), an agency within HUD, oversees
a variety of mortgage insurance programs that insure lenders against loss from loan
defaults by borrowers. Through FHA insurance, lenders make loans that otherwise
may not be available to borrowers, and enable borrowers to obtain loans for home
purchase and home improvement, as well as for the purchase, repair, or construction
of apartments, hospitals, and nursing homes. The programs are administered through
two program accounts — the Mutual Mortgage Insurance/Cooperative Management
Housing Insurance fund account (MMI/CMHI) and the General Insurance/Special
Risk Insurance fund account (GI/SRI). The MMI/CMHI fund provides insurance for
home mortgages. The GI/SRI fund provides insurance for more risky home
mortgages, for multifamily rental housing, and for an assortment of special-purpose
loans such as hospitals and nursing homes. (For more information on FHA, see CRS
Report RS20530, FHA Loan Insurance Program: An Overview, by Bruce E. Foote
and Meredith Peterson.)
In 1934, FHA was established to provide consumers with an alternative during
a lending crisis. Since then, FHA has insured more than 34 million properties. In
recent years, however, its market share has been dropping. In 1991, FHA loans
accounted for about 11% of the market; by 2004, that share had dropped to about
3%.35 The mortgages insured through the FHA program are also judged to have
35 Alan Greenspan and James Kennedy, Estimates of Home Mortgage Originations,
Repayments, and Debt on One-to-Four-Family Residences, Federal Reserve Board.
September 2005, available at [http://www.federalreserve.gov/Pubs/feds/2005/200541/
200541pap.pdf].

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CRS-26
become increasingly risky.36 Default rates and the amounts of insurance claims have
grown even as participation in the program has declined, raising the need to both
increase participation in the program and improve its financial stability by ensuring
that participants are credit-worthy in order to maintain the viability of FHA.37
The Expanding American Homeownership Act (H.R. 1852). On
September 18, 2007, the House passed H.R. 1852, the Expanding Homeownership
Equity Act. The bill aims to make FHA loans more marketable by increasing the
loan amount insured under the program, making it easier for low-income borrowers
to get FHA loans without down payments, and pricing mortgage insurance premiums
according to borrower risk.
FHA mortgage limits are set on an area-by-area basis, and under current law,
loans on one-family homes are limited to the lesser of 95% of the median home price
for an area, or 87% of the conforming loan limit for Freddie Mac and Fannie Mae.
As passed by the House, H.R. 1852 would limit FHA loans to the lesser of 125% of
the area median or 175% of the Freddie Mac conforming loan limit. In addition, H.R.
1852 would give HUD authority to raise these resulting loan limit amounts by up to
$100,000 by area and/or by unit size if market conditions warrant. The bill would
also increase the maximum loan term from 35 to 40 years, and allow first-time home
buyers to be exempt from the 3% down payment requirement.
Under current law, HUD may collect from borrowers an up-front FHA mortgage
insurance premium of up to 2.25% of the loan amount.38 HUD may also collect an
annual premium of up to 0.55% of the loan balance for the full term of the loan from
borrowers making downpayments of less that 5%. HUD may collect an annual
insurance premium of 0.50% of the loan balance from borrowers making
downpayments of 5% or more, but borrowers making downpayments in excess of
10% only have to pay this annual insurance for the first 11 years of the mortgage.
For zero or low downpayment borrowers, H.R. 1852 would allow FHA to
increase its up-front premium to 3%, and would increase the annual premium to
0.75%. HUD would be directed to establish underwriting standards to provide
mortgage insurance for borrowers with FICO credit scores of less than 560, and such
borrowers would pay an up-front mortgage insurance premium of up to 3% of the
mortgage amount. For loans insured after October 1, 2007, HUD would have the
flexibility to charge up front and annual insurance premiums based upon the risk that
the low downpayment and high risk borrowers posed to the FHA insurance fund. (For
more information about this issue, see CRS Report RS22662, H.R. 1852 and
Revisiting the FHA Premium Pricing Structure: Proposed Legislation in the 110th
Congress, by Darryl E. Getter.)
36 Senate Appropriations Committee, report to accompany H.R. 5576, the Transportation,
Treasury, Housing and Urban Development Appropriations Act 2007, 109th Cong., 2nd sess.,
S.Rept. 109-293, July 26, 2006.
37 Ibid.
38 Administratively, HUD has set the insurance premium at 1.5% of the loan amount.

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H.R. 1852 would allow FHA to set mortgage insurance premiums on the basis
of the risk that the borrower poses to the FHA insurance fund. The bill would then
permit FHA to reduce the insurance premiums for borrowers who establish a record
of timely mortgage payments. HUD would have the discretion to reduce the
insurance premiums to high risk borrowers who make timely payments for three
years. HUD would be required to reduce the insurance premiums to high risk
borrowers who make timely payments for five years.
Under present law, HUD may insure no more than 275,000 home equity
conversion mortgages (HECMs), a limit that HUD has already reached. The
maximum mortgage limit for HECMs is set on an area-by-area basis. H.R. 1852
would amend the National Housing Act to remove the limit on the number of
HECMs that may be insured, and provide that the national mortgage limit for
HECMs would be 100% of the Freddie Mac limit. The bill would also permit
HECMs to be used for the purchase of a one- to four-family home by an elderly
borrower who would occupy one of the units as a principal residence. HECMs could
also be used to purchase shares in cooperatives. Limits would be placed on the
amount of origination fees that may be charged to HECM borrowers. (For more
information on HECMs, see CRS Report RL33843, Reverse Mortgages:
Background and Issues, by Bruce E. Foote.)
In addition to the provisions noted above, H.R. 1852 would require HUD to
include the rate of default and foreclosure on zero and no downpayment mortgages
in its annual reports to Congress. The report would also include actions taken by
HUD with respect to loss mitigation on its single-family housing programs.
Borrowers would be able to use FHA insured home loans to purchase single-family
homes to be used as child care facilities and the maximum loan could be increased
by up to 25%. The National Housing Act would be amended to permit FHA-insured
loans to borrowers who wanted to refinance out of high cost privately-insured
mortgages. Borrowers in default or at risk of default would be able to refinance into
FHA-insured loans. For each fiscal year, the net increase in the negative credit
subsidy for the mortgage insurance programs under Title II of the National Housing
Act would be appropriated for several purposes. For FY2008 through FY20012, up
to $100 million would be appropriated for increased funding for housing counseling;
up to $25 million would be appropriated for improving technology, procedures and
salaries; and the remainder would be appropriated for an Affordable Housing Fund
(discussed previously).
The FHA Modernization Act (S. 2338). On December 14, 2007, the Senate
passed S. 2338, the FHA Modernization Act. The bill would increase the FHA loan
limit to 100% of the conforming loan limit for Freddie Mac. Currently the loan limit
on one-family homes is the lesser of 95% of the median home price for an area or
87% of the conforming loan limit for Freddie Mac and Fannie Mae. The bill would
require borrowers to contribute 1.5% in cash or its equivalent towards the purchase
of the home. The required funds could come from relatives of the borrower, but
borrowers could not use funds from either sellers or third parties reimbursed by
sellers. According to the Senate Banking Committee’s report, both HUD and the
Government Accountability Office have found that loans with seller-funded down

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payments “have led to significant losses for the FHA fund.”39 Another provision of
S. 2338 would place a 12-month moratorium on the implementation of risk-based
premiums for FHA-insured mortgages.
The Senate bill would make changes to the Home Equity Conversion Mortgage
(HECM) program that are similar to those proposed in the House bill. Like H.R.
1852, the Senate bill would remove the limit on the number of HECMs that may be
insured through the FHA program. In addition, the mortgage limit for HECMs would
be set at 100% of the Freddie Mac limit. The Senate bill would also permit HECMs
to be used for housing cooperatives. Under S. 2338, HECMs could be used for the
purchase of one- to four-unit properties as long as the borrower occupied one of the
units as a principle residence. Origination fees on HECMs would be limited to 1.5%
of the value of the home.
The Senate bill would also establish a five-year pilot program that would allow
lenders to use an automated process to underwrite FHA-insured loans to borrowers
without sufficient credit histories. This process would allow lenders to take account
of payment histories that are not always included in credit reports. According to the
Senate Banking Committee’s report, borrowers with low credit scores may have a
history of on-time payments for items such as rent or utilities, for example, but these
payments are not necessarily included in credit reports (S.Rept. 110-227).
Another provision in the Senate bill would increase the loan limits on the Title
I Manufactured Housing Loan Insurance program. Under current law, the FHA loan
limit on manufactured homes is $48,000; S. 2338 would increase the loan limit to
more than $69,000. Future increases in the manufactured loan limit would be made
annually and would be based on an index that HUD would be directed to develop.
The bill would also prohibit the charging of kickbacks and unearned fees in
transactions involving manufactured housing.
Additional provisions in S. 2338 would direct HUD and FHA, in consultation
with the lending industry, to develop and implement a plan to improve FHA’s loss
mitigation process. The bill would also establish a three-year pre-purchase
counseling demonstration program. The demonstration program would test
alternative forms of pre-purchase counseling, including telephone counseling, in-
person counseling, web-based counseling, and counseling classes.
GSE and FHA Provisions in the Economic Stimulus Act
The Economic Stimulus Act of 2008 (H.R. 5140), which was approved by both
the House and Senate on February 7, 2008, includes provisions that temporarily
increase the size of loans that Fannie Mae and Freddie Mac can purchase, and that
FHA can insure. (For more information about these provisions, see CRS Report
RS22799, The Recovery Rebates and Economic Stimulus for the American People
of 2008 Act and Jumbo Mortgages, by N. Eric Weiss.)
39 See S.Rept. 110-227.

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The stimulus bill increases the GSE conforming loan limit for mortgages
originated between July 1, 2007, and December 31, 2008, to a maximum of $729,750
in high-cost areas. This means that Fannie Mae and Freddie Mac can purchase
mortgages in these areas above the current conforming loan limit of $417,000 up to
the new limit. The limit for any area is the greater of (1) the 2008 conforming loan
limit ($417,000); or (2) 125% of the area median house price, but no more than 175%
of the 2008 conforming loan limit ($729,750, which is 175% of $417,000). In
addition, FHA would be able to insure mortgages in high-cost areas up to this same
$729,750 limit. The authority for FHA to insure these mortgages would expire
December 31, 2008. Currently the FHA limit ranges from $200,160 to $362,790 in
high-cost areas.

Housing After the 2005 Hurricanes
Hurricanes Katrina, Rita, and Wilma, which struck Gulf Coast states in the fall
of 2005, had an enormous effect on the housing stock in that region. Studies estimate
that the hurricanes and their related flooding damaged 1.2 million housing units in
Louisiana, Mississippi, Florida, Texas, and Alabama.
Of the 1.2 million damaged housing units, more than 305,000 were severely
damaged.40 Severe damage includes real or personal property loss above certain
dollar thresholds.41
! Louisiana, specifically New Orleans, had the highest percentage of
severely damaged units; approximately 67%, or 204,737 renter- and
owner-occupied homes with severe damage were located in
Louisiana.42
! Of the 305,000 severely damaged units in all five affected states,
most were owner occupied — about 63% or 193,000 homes.43
! More than half of the 193,000 severely damaged, owner-occupied
units lacked flood insurance (55%) and about a quarter of them
lacked any insurance (23%).44
40 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, available at [http://www.huduser.
org/Publications/pdf/GulfCoast_HsngDmgEst.pdf].
41 For a detailed breakdown of damage that qualifies as severe, see ibid., pp. 4-5.
42 Ibid.
43 Ibid.
44 Ibid.

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! Approximately 112,000 rental units in the five affected states were
severely damaged.45
! Of the 112,000 severely damaged rental units, 13%, or
approximately 14,500 units, were HUD subsidized.
On February 6, 2007, the House Financial Services Committee held a hearing
to discuss federal housing efforts in response to the 2005 hurricanes. Much of the
discussion at that hearing focused on the slow pace of rebuilding, as well as the
future of the damaged federally assisted housing stock. On March 7, 2007, the
Committee approved the Gulf Coast Hurricane Housing Recovery Act of 2007 (H.R.
1227), which was subsequently approved by the full House on March 21, 2007. On
September 25, 2007, the Senate Banking Committee held a hearing entitled “Two
Years After the Storm: Housing Needs in the Gulf Coast.” The hearing discussed,
but did not consider, S. 1668, a version of the Gulf Coast Housing Recovery Act of
2007 sponsored by the Committee Chairman (Senator Dodd) and Senator Landrieu.
(For more information, see the “Legislation” section below.)
Rebuilding
Although private insurance will pay some of the cost of rebuilding housing in
the affected states, federal funds are part of the effort as well. In the first year, the
federal response included $15.3 billion paid out under the National Flood Insurance
Program; $10.4 billion in Small Business Administration (SBA) disaster loans; $6
billion from the Federal Emergency Management Agency (FEMA) in the Individuals
and Households Assistance Program; $4.8 billion in reimbursements to Alabama,
Louisiana, and Mississippi for activities such as debris removal; and nearly $975
million approved in Community Disaster Loans. FEMA also approved housing and
rental assistance including travel trailers, mobile homes, and personal housing repairs
for 1.6 million households.46 Additional funds included more than $19 billion in
Community Development Block Grant (CDBG) funds to the five affected states
(Louisiana, Mississippi, Florida, Texas, and Alabama) to help with rebuilding
efforts.47 (For more information, see CRS Report RL33761, Rebuilding Housing
After Hurricane Katrina: Lessons Learned and Unresolved Issues, by N. Eric Weiss.)
45 Testimony of HUD Deputy Secretary Roy A. Bernardi before the House Committee on
Financial Services Hearing “Federal Housing Response to Hurricane Katrina” February 6,
2007, (hereafter “Katrina Hearing”), available at [http://www.house.gov/apps/list/hearing/
financialsvcs_dem/htbernardi020607.pdf].
46 Federal Emergency Management Agency, By the Numbers — One Year Later: FEMA
Recovery Update for Hurricane Katrina, August 22, 2006, available at [http://www.fema.
gov/news/newsrelease.fema?id=29109]. All numbers are as of August 18, 2006.
47 Emergency CDBG funds were provided in P.L. 109-148, P.L. 109-234, P.L. 110-116. For
more information, see CRS Report RL33330, Community Development Block Grant Funds
in Disaster Relief and Recovery, by Eugene Boyd.

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Many Members of Congress have expressed displeasure at the perceived slow
pace of rebuilding after Katrina.48 While there are indications that the pace of
rebuilding is quickening,49 many areas have not been rebuilt and many families are
still displaced. According to FEMA, in February 2007, 90,000 families still lived in
temporary housing and 35,000 families were still receiving rental assistance 17
months after the storm.50 Factors behind the delay include the length of time it took
to develop and approve rebuilding plans, the pace of infrastructure repairs in the
neighborhoods and surrounding communities, the decisions on the future of damaged
public housing units, and the size and timing of private insurance settlements to
homeowners seeking to return to those neighborhoods.
Another rebuilding issue involves the rehabilitation and/or rebuilding of
federally assisted housing in areas damaged by the 2005 hurricanes. At the February
6, 2007 hearing before the House Financial Services Committee, HUD Deputy
Secretary Roy Bernardi testified that of the 5,100 occupied public housing units
damaged in New Orleans during Hurricane Katrina, nearly 2,000 were habitable and
approximately 1,200 are occupied or would be shortly.51 However, members of the
Financial Services Committee questioned HUD’s plans to demolish the
approximately 4,100 units in the four largest public housing developments and
replace them with mixed income housing. HUD’s demolition plans have been met
with opposition from tenant organizations and low-income housing advocates, and
several lawsuits have been filed.52 Provisions included in H.R. 1227 and S. 1668
(discussed below) are designed to limit HUD’s ability to demolish public housing.
Oversight
As noted earlier, Congress has appropriated tens of billions of dollars toward
hurricane recovery and relief. Given its large investment, Congress has conducted
several oversight hearings and requested many oversight reports on how effectively
and efficiently the recovery and rebuilding money is being spent.
48 See Opening Remarks of Honorable Maxine Waters, Katrina Hearing, available at
[http://www.house.gov/apps/list/hearing/financialsvcs_dem/oswaters020607.pdf]; and David
Hammer, “Senate Democrats Vow to Fix Disaster Recovery,” New Orleans Times Picayune,
January 29, 2007, available at [http://www.nola.com/newslogs/tpupdates/index.ssf?/
mtlogs/nola_tpupdates/archives/2007_01_29.html#231017].
49 Brookings Institution, Katrina Index: Tracking Recovery of New Orleans and the Metro
Area, in collaboration with the Greater New Orleans Community Data Center, January 2007,
[http://www.gnocdc.org/KI/KatrinaIndex.pdf].
50 Statement of David Garratt, Acting Director of Recovery, Federal Emergency
Management Agency, Department of Homeland Security, Katrina Hearing, available at
[http://www.house.gov/apps/list/hearing/financialsvcs_dem/htgarratt020607.pdf].
51 Deputy Secretary Bernardi’s testimony is available at [http://www.house.gov/apps/list/
hearing/financialsvcs_dem/htbernardi020607.pdf].
52 See Julia Cass and Peter Whoriskey, “New Orleans to Raze Public Housing: Many Units
Closed Since Katrina to Be Demolished, Despite Protests,” Washington Post, December 8,
2006.

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Much of the assistance provided to displaced families immediately after
Hurricane Katrina was in the form of individual and household direct assistance from
FEMA. The Government Accountability Office (GAO) has found that system to be
fraught with waste, fraud, and abuse.53 In response to these and other concerns,
Congress has enacted several pieces of legislation aimed at improving the flexibility
and accountability of FEMA, and may consider others in the 110th Congress.54
In addition to concerns about waste, fraud, and abuse, Congress has expressed
concern about the slow pace of spending in the funding it has provided for helping
families rebuild their homes. Congress thrice appropriated Community Development
Block Grant (CDBG) funds to Gulf Coast states affected by the 2005 hurricanes to
help rebuild homes and infrastructure. The first amount disbursed was $11.5 billion,
the second amount was nearly $5.2 billion, and the third amount was $3 billion (to
be used exclusively for Louisiana). Each state that received funds — Louisiana,
Mississippi, Florida, Texas, and Alabama — was required to develop and have
approved by HUD a plan for how it would use the funds. HUD approved the state
plans in the late spring and early summer of 2006, so funds have begun to be released
to households and to local communities.55 At the House Financial Services
Committee Hearing on February 6, 2007, HUD Deputy Secretary Roy Bernardi
testified that approximately $1.2 billion in CDBG funds had been expended.
Committee members expressed concern at the slow disbursement rate, particularly
regarding the Louisiana “Road Home” program, in which only 400 claimants had
received funds.
Ongoing Housing Assistance
Both HUD and FEMA have provided ongoing rental assistance through two
programs for tenants displaced by the 2005 hurricanes. HUD has been providing
rental assistance through the Disaster Voucher Program (DVP) to households that
lived in HUD-assisted housing or were homeless prior to Hurricanes Katrina and
Rita. FEMA provided rental assistance to any other tenant or homeowner in need of
housing assistance. Beginning on December 1, 2007, HUD assumed administration
of the FEMA rental assistance program for the program’s duration. This new
arrangement was announced on April 26, 2007.56
53 U.S. Government Accountability Office, Unprecedented Challenges Exposed the
Individuals and Households Program to Fraud and Abuse; Actions Needed to Reduce Such
Problems in Future, GAO Report GAO-06-1013, September 2006.
54 For more information, see CRS Report RL33729, Federal Emergency Management Policy
Changes After Hurricane Katrina: A Summary of Statutory Provisions, coordinated by Keith
Bea.
55 Office of the Federal Coordinator for Gulf Coast Rebuilding, Continuing Progress: A 1-
Year Update on Hurricane Recovery and Rebuilding, August 2006, available at
[https://www.dhs.gov/xlibrary/assets/GulfCoast_Katrina1yearFactSheet.pdf].
56 See HUD News Release, Housing assistance extended for Gulf Coast hurricane victims
for another 18 months, April 26, 2007, available at [http://www.hud.gov/news/release.
cfm?content=pr07-051.cfm], and HUD, Fact Sheet: Providing Continued Assistance for
Gulf Coast Hurricane Victims, available at [http://www.hud.gov/news/releases/
(continued...)

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Although both the HUD DVP program and the FEMA program (which is now
administered by HUD) provide rental assistance to disaster victims, the two programs
operate differently. HUD provides DVP rental assistance through vouchers. The
voucher is similar to a Section 8 voucher, and may be used to help pay for rent
anywhere in the country as long as a landlord is willing to accept it. One year after
Hurricane Katrina, HUD estimated that 25,000 households had been assisted through
DVP;57 at the February 6 hearing before the House Financial Services Committee,
Assistant Secretary Bernardi testified that about 12,000 families were still
participating in the program. DVP was originally scheduled to end September 30,
2007, at which time families were expected to transition back onto the programs from
which they were initially displaced. However, the FY2007 supplemental
appropriations act (P.L. 110-28) extended the period of DVP availability to
December 31, 2007. There are remaining questions regarding what will happen to
families who were homeless before the storm and those whose homes are still under
construction. Provisions included in H.R. 1227 and S. 1668, The Gulf Coast
Hurricane Housing Recovery Act (discussed below) would further extend the length
of time families could receive DVP assistance. (For more information about DVP
see CRS Report RL33173, Hurricane Katrina: Questions Regarding the Section 8
Voucher Program, by Maggie McCarty.)
FEMA began providing short-term rental assistance to disaster victims just after
Hurricanes Katrina and Rita struck; after six months, in February of 2006, FEMA
began to convert the short-term assistance to longer-term rental assistance (up to 18
months). The assistance has been extended twice more since then. On February 28,
2007, President Bush extended the assistance for an additional six months. On April
26, 2007, the President announced that HUD would assume administration of the
program, and assistance would be extended through March 1, 2009. After an initial
delay, HUD assumed administration of FEMA’s rental assistance program on
December 1, 2007, for the 28,000 people that were still being served.58 A floor
amendment added to H.R. 1227 would provide for otherwise income-eligible families
still receiving rental assistance or living in trailers to transfer into the Section 8
voucher program upon expiration of their FEMA assistance.
Although HUD has assumed administration of FEMA’s rental assistance
program, FEMA has continue to administer the trailer program; in November 2007,
over 50,000 families affected by the hurricanes resided in trailers.59 FEMA has begun
offering tenants an opportunity to purchase their trailers, and beginning in January
56 (...continued)
pr07-051.cfm], accessed April 30, 2007. Hereinafter “HUD News Releases.”
57 Continuing Progress: A 1-Year Update on Hurricane Recovery and Rebuilding.
58 See HUD New Release, “Rental Payments Continue for Remaining Katrina/Rita
Households in Rental Housing: FEMA-HUD Disaster Housing Assistance Program (DHAP)
Launched Dec. 1, 2007,” December 4, 2007, available at [http://www.hud.gov/news/
release.cfm?content=pr07-176.cfm].
59 See FEMA News Release, “Myths & Facts: Travel Trailers,” November 8, 2007, available
at [http://www.fema.gov/news/newsrelease.fema?id=41647].

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2008, HUD and FEMA will work to transition eligible families out of trailers and
into rental housing in the private market.
Under the FEMA and HUD joint agreement, beginning in March 2008, both
families receiving rental assistance and those living in trailers will be required to pay
a portion of the cost of their housing. Each month, the amount they are required to
contribute will increase, with an exemption made for elderly and disabled families.60
Legislation
On March 21, 2007, the House approved the Gulf Coast Hurricane Housing
Recovery Act of 2007 (H.R. 1227). The bill contains a wide range of provisions,
including those that would make modifications to, and increase reporting on,
assistance provided in earlier supplemental appropriations acts. The bill would also
clarify the treatment of certain federally assisted properties. Key provisions are
summarized below.
CDBG-related provisions would
! authorize and fund a pilot program in Louisiana to acquire certain
individual properties for the purpose of aggregating them and
making them available for development.
! prohibit FEMA from withholding hazard mitigation funds from
Louisiana on the basis of a provision in the Louisiana Road Home
program that penalizes families who do not agree to live in the state.
! require quarterly reports from GAO on CDBG spending.
! make other changes to the treatment of CDBG funds for purposes of
(1) individual eligibility for other disaster-related assistance and (2)
meeting match requirements in other programs.
Public and Assisted Housing related provisions would
! require HUD to conduct a survey of displaced New Orleans public
housing residents to determine their interest in returning.
! require the Housing Authority of New Orleans (HANO) to make
available for occupancy by August 1, 2007, the greater of 3,000
public housing units or a number of units sufficient to house families
wishing to return.
! prohibit HANO from demolishing or disposing of public housing
without a plan to replace each unit with a public housing (or other
comparable) unit.
! guarantee a right of return to all New Orleans public housing
residents wishing to return.
! place restrictions on the demolition and disposition of other public
housing units in the disaster areas and require PHAs to offer a right
of return for displaced families.
60 See HUD News Releases.

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! authorize such sums as necessary to rehabilitate, repair, and/or
redevelop public housing in New Orleans, including the cost of
providing supportive services to tenants.
! authorize the extension of the Disaster Voucher Program through
January 1, 2008, and permit families to transfer their DVP vouchers
to the regular voucher program upon expiration of the DVP program.
! clarify the allocation of FY2007 Section 8 voucher renewal funding
for disaster-affected areas.
! direct the Secretary to approve feasible proposals to preserve
project-based rental assistance connected to damaged privately
owned multifamily rental properties.
! authorize such sums as necessary to supply replacement vouchers for
public housing or private multifamily project-based rental assistance
units that will not be rebuilt.
! authorize such sums as necessary to create 4,500 new project-based
vouchers for use in supportive housing for the homeless, seniors and
persons with disabilities in the Hurricane-affected regions, 3,000 of
which would be available for the state of Louisiana, upon request.
Other provisions would
! authorize a transfer of funds from FEMA to HUD to be used to
reimburse landlords for damages incurred as a result of their
participation in FEMA’s city lease program.
! give the Secretary of HUD the authority to either take title of or
make insurance payments on behalf of certain FHA-insured single-
family properties that did not have hazard or flood insurance.
! provide for otherwise income-eligible FEMA housing assistance
recipients to transfer to the Section 8 voucher program upon
termination of their FEMA assistance.
! require GAO to study the distribution of federal funds to Gulf Coast
states.
! commend Americans for the rebuilding efforts.
Several of these provisions proved controversial during both committee markup
and floor consideration. Amendments were considered, but rejected, that would have
struck the authorization of additional vouchers and would have limited the amount
of funds authorized for rebuilding public housing.
On June 20, 2007, the Gulf Coast Housing Recovery Act of 2007 (S. 1668) was
introduced in the Senate. The bill contains many of the same provisions as H.R.
1227, including a pilot program to use CDBG funds for development in Louisiana,
a requirement that the Housing Authority of New Orleans make at least 3,000 public
housing units available to residents, and the extension of the Disaster Voucher
Program (to June 30, 2008), together with the right of tenants to covert DVP
vouchers to regular vouchers. The bill was referred to the Senate Banking
Committee, which held a hearing on September 25, 2007.

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Housing Assistance
The U.S. Housing Act of 1949 (P.L. 81-171) established a national goal of “a
decent home and a suitable living environment for every American family.” Since
the enactment of P.L. 81-171, a number of HUD programs have been established to
provide rental housing assistance for low-income individuals and families who
struggle to afford housing.61 Affordable housing remains beyond the reach of many,
however. According to the Harvard Joint Center for Housing Studies, in 2005, 8.2
million low-income renter households were severely cost burdened (paying more
than 50% of their income toward housing), an increase of over one million from
2001 (and an increase from 18.9% of all renter households to 22.3%).62 While
moderate-income renters were not immune from severe rent burdens, low-income
renters faced the greatest burdens; over 85% of severely cost burdened renters were
in the bottom quintile of the income distribution.63 Further, HUD, in its most recent
report on worst case housing needs, found that in 2005, 5.99 million unassisted, very
low-income renters either paid more than half their income in rent or lived in
severely substandard housing.64 This was an increase from 5.01 million renters in
2001, from 4.76% of all households to 5.50%.65 The federal government’s role in
addressing worst-case housing needs is increasingly in question as deficits grow and
pressure to restrain domestic spending mounts.
The HUD Budget
Funding for HUD’s assisted housing programs has been affected in recent years
both by the efforts of the Administration and Congress to contain discretionary
spending and by concerns internal to the HUD budget. In his FY2009 budget, the
President has proposed to hold the growth in non-defense discretionary spending to
less than 1% in the coming year, and to keep discretionary spending below the rate
of inflation.66 The majority of the HUD budget is discretionary funding, and the
President requested large cuts for several programs in FY2009, including Housing
for the Elderly and Persons with Disabilities and the Community Development Block
Grant. However, the President’s FY2008 budget recommended similar cuts to
housing programs, but Congress appropriated over $2 billion more than was
recommended by the President for FY2008.
61 Housing is generally considered affordable if it costs no more than 30% of a family’s
income.
62 Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing
2007, June 2007, pp. 25, 37 available at [http://www.jchs.harvard.edu/publications/markets/
son2007/son2007.pdf].
63 Ibid., p. 37.
64 U.S. Department of Housing and Urban Development, Affordable Housing Needs 2005:
Report to Congress, May 2007, p. 11, available at [http://www.huduser.org/Publications/
pdf/AffHsgNeeds.pdf].
65 Ibid., p. 13.
66 Overview of the President’s 2009 Budget, p. 5, available at [http://www.whitehouse.gov/
omb/budget/fy2009/pdf/budget/overview.pdf].

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Within the HUD budget, the cost of the Section 8 voucher program — which
accounts for over a third of the total HUD budget — generally requires increased
funding to serve the same number of people each fiscal year. (The program is
partially pegged to housing costs, which have risen faster than inflation in recent
years.) 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 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. (For more
information see CRS Report RL34022, The Department of Housing and Urban
Development: FY2008 Appropriations, coordinated by Maggie McCarty.)
Federally Assisted Housing Funding and Reform
Section 8 Voucher Reform. The Section 8 voucher program provides
portable housing subsidies to low-income families that they can use to subsidize the
cost of rental housing in the private market. Since 2003, HUD has advocated the
abolishment of the existing Section 8 housing choice voucher program and its
replacement with a new program. Part of the Administration’s rationale for
advocating major program changes was a desire to curb cost growth in the program.
However, the effects of earlier program reforms, market changes, and recent funding
allocation changes67 have all worked together to limit growth in the cost of a voucher
within the structure of the current program. The other rationale for program reform
has to do with reducing administrative complexity in the program and providing the
public housing authorities (PHAs) that administer the program with more flexibility.
It is generally agreed, by the Administration, low income housing advocates, and
PHA industry groups, that the voucher program is too complex and administratively
burdensome. However, the Administration, low-income housing advocates, and
PHA industry groups do not necessarily agree about the best way to reduce that
complexity without compromising the level of assistance provided to low-income
tenants.
In the 109th Congress, a bipartisan Section 8 voucher reform bill was approved
by the House but not enacted before the end of the Congress (H.R. 5443). A similar
bill, the Section 8 Voucher Reform Act of 2007 (H.R. 1851), has been introduced in
the 110th Congress. The bipartisan bill is sponsored by Chairwoman Waters of the
subcommittee of jurisdiction in the House. It would change the way income is
calculated for the purposes of eligibility and rent-setting (for the voucher program,
as well as public housing and project-based Section 8) and adopt a new method for
allocating voucher funds, among other changes. On May 25, 2007, the House
Financial Services Committee passed H.R. 1851 with a number of amendments.
Among them were provisions to expand the Moving to Work program (renamed the
Housing Innovation Program) and authorization of up to 20,000 new incremental
67 For more information, see CRS Report RS22376, Changes to Section 8 Housing Voucher
Renewal Funding, FY2003-FY2006, by Maggie McCarty.

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vouchers in each of the next five years. On July 12, 2007, the bill was approved by
the full House. (For more information, see CRS Report RL34022, Section 8
Housing Choice Voucher Program: Issues and Reform Proposals in the 110th
Congress, by Maggie McCarty.)
Public Housing Operating Funds. In January 2007, HUD began using a
new formula to distribute public housing operating funds to public housing
authorities. Under the new formula, some PHAs’ eligibility for funding increased,
and others decreased. Those increases and decreases are phased in over two and five
years, respectively. However, any funding increases will be reduced and any funding
decreases will be further deepened if the appropriations provided by Congress are not
sufficient to fund all PHAs at their full eligibility levels.
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 2007 proration was 83%, meaning that agencies received 83% of their
budgets.
The new funding formula for FY2007, established by HUD through regulation
with input from PHA industry groups, adopted new allowable expense levels. It also
requires PHAs to adopt a new form of property management — called asset-based
management — by FY2011. Some agencies qualify for a higher budget under the
new allowable expense levels and others face reductions, although both increases and
decreases will be phased in. 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 proration HUD will set. (For more
information, see CRS Report RS22557, Public Housing: Fact Sheet on the New
Operating Fund Formula, by Maggie McCarty.)
Asset-Based Management. The new operating fund rule also contained a
requirement that PHAs convert to a new type of management, called asset-based
management, by 2011. Currently, PHAs are able to centrally manage their public
housing stock, meaning a PHA can receive funding, budget, and provide services for
all of their units in the same way, on a portfolio-wide basis. Under asset-based
management, PHAs will receive funding and will be required to budget for their units
on a project-by-project basis. As noted earlier, PHAs that are slated to lose funding
under the new operating fund rule can convert to asset-based management before the
2011 deadline in order to limit their losses. In order for PHAs to limit their losses
in 2008, they must prove that they have converted to asset-based management by the
deadline set by HUD.
There have been two main controversies surrounding this process, with the first
concerning the deadline. HUD’s initial guidance stated that PHAs must prove that

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they have converted to asset-based management by April 15, 2007 in order to stop
their losses in the first year.68 A subsequent draft notice published by HUD stated
that the deadline was October 15, 2007.69 HUD then published a statement on its
website that the April 15 deadline was the correct deadline. PHA advocacy groups
actively lobbied for HUD to use the October 15, 2007 deadline, and asked Members
of Congress to support legislation requiring HUD to use that deadline.70 On April
10, 2007, HUD announced that it was postponing the deadline to October 15, 2007.71
The second controversy surrounds how PHAs should demonstrate that they have
converted to asset-based management. HUD published preliminary guidance in
September 2006.72 PHA industry groups have argued that HUD’s guidance is “overly
prescriptive,” and have lobbied for HUD to make modifications, particularly in
relation to fee schedules HUD has proposed.73 On January 16, 2007, the Chairmen
of the Senate Banking and House Financial Services Committees sent a letter to
HUD asking the Department to suspend implementation of the conversion to asset-
based management until after the authorizing committees have “had the opportunity
to look into the issue further.”74 On September 25, 2007, the House Financial
Services Committee approved H.R. 3521, Public Housing Asset Management
Improvement Act of 2007. The bill would prohibit HUD from publishing a
management fee schedule before FY2011 and without first undertaking negotiated
rulemaking, and it would extend exemption from asset-based management
requirements from agencies with 250 or fewer units to those with 500 or fewer units.
Several of these provisions were included in the FY2008 appropriations law (P.L.
110-161).
HOPE VI Reauthorization. The HOPE VI program provides competitive
grants to PHAs for the demolition and/or revitalization of distressed public housing.
68 HUD, PIH Notice 2006-14, Operating Fund Program Final Rule: Transition Funding and
Guidance on Demonstration of Successful Conversion to Asset Management to Discontinue
the Reduction of Operating Subsidy, issued March 22, 2006.
69 HUD, “Public Housing Operating Fund Program; Revised Transition Funding Schedule
for Fiscal Year 2008 Through Fiscal Year 2012,” 71 Federal Register 68404, November 24,
2006.
70 Letter from Council of Large Public Housing Authorities, National Association for
Housing and Redevelopment Officials, and Public Housing Authorities Directors
Association to HUD Secretary Alphonso Jackson, dated December 6, 2006.
71 HUD’s website, accessed April 18, 2007, at [http://www.hud.gov/offices/pih/programs/
ph/am/].
72 HUD, PIH Notice 2006-35, Operating Fund Program Final Rule: Transition Funding and
Guidance on Demonstration of Successful Conversion to Asset Management to Discontinue
the Reduction of Operating Subsidy — Extension of Stop Loss Deadline to April 15, 2007,
issued September 25, 2006.
73 For example, see Public Housing Authority Directors Association, “PHADA makes
recommendations to HUD on dealing with budget gap,” PHADA News, July 3, 2006,
available at [http://www.phada.org/news.php?id=248].
74 “Committee Chairs Weigh In on Asset Management Implementation,” National Low
Income Housing Coalition, Memo to Members, vol. 12, no. 3, January 19, 2007.

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HOPE 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 has requested no
new funding for HOPE VI each year since FY2004. Congress has continued funding
the program, although at lower levels than in previous years (the FY2008
appropriation was $100 million, compared with $570 million in FY2003).
The statute authorizing the HOPE VI program includes a sunset clause. The
sunset date was September 30, 2006. However, the FY2007 funding bill (P.L. 110-5)
provided an extension of the HOPE VI program through the end of FY2007, and the
FY2008 funding bill (P.L. 110-161) extended the program through the end of
FY2008. On March 8, 2007, the HOPE VI Improvement and Reauthorization Act
of 2007 (S. 829) was introduced by Senator Mikulski and Senator Martinez. It would
reauthorize the program through FY2013 and, according to the sponsors’ press
release, make “several improvements to ensure grants are cost-efficient, and effective
at improving resident and community life.”75
A House HOPE VI reauthorization bill — The HOPE VI Improvement and
Reauthorization Act of 2007 (H.R. 3524)76 — was approved by the full House on
January 17, 2007. The bill is sponsored by Representative Waters, who chairs the
Housing and Community Opportunity subcommittee of the House Financial Services
committee. It would reauthorize the HOPE VI program through FY2015 at $800
million per year and make a number of changes to the program. According to the
committee’s press release, the bill would “provide for the retention of public housing
units, prevent re-screening of returning residents, protect residents from disruptions
resulting from the grant, increase resident involvement, improve the efficiency and
expediency of HOPE VI construction, and achieve green developments.”77 (For more
information, see CRS Report RL32236, HOPE VI Public Housing Revitalization
Program: Background, Funding, and Issues, by Maggie McCarty.)
Assisted Housing Preservation
Assisted housing preservation involves efforts to maintain the affordable nature
of federally assisted housing. Many affordable housing projects were developed by
private owners with assistance from the government, including programs
administered by HUD, the Low Income Housing Tax Credit (LIHTC) program, and
the programs of the Department of Agriculture’s Rural Housing Service. In
exchange for government assistance in developing their properties, building owners
entered into contracts with the government in which they agreed to serve low-income
75 Press release from the office of Barbara Mikulski, Mikulski Introduces Legislation To
Continue, Strengthen Hope VI Program, March 8, 2007, [http://mikulski.senate.gov/
record.cfm?id=270346].
76 This bill is similar to a bill with the same title and sponsor, but a different bill number
(H.R. 3126) that was introduced on July 23, 2007.
77 Press release from the House Financial Services Committee, Financial Services
Committee Passes Housing Measures, September 26, 2007, [http://www.house.gov/apps/
list/press/financialsvcs_dem/press0926073.shtml].

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CRS-41
families through reduced rents and/or federal rent subsidies for a certain number of
years. Depending on the assisted housing program, the duration of these contracts,
or “use restrictions,” range from 15 to 50 years.78 In recent years, these contracts
have begun to expire or, in some cases, property owners have chosen to pay off their
mortgages early and end the use restrictions. Contracts for rental assistance,
including project-based Section 8 rental assistance, have also begun to expire. By
2005, nearly 200,000 formerly assisted housing units were no longer subject to use
restrictions due to mortgage prepayment or expiration of project-based rental
assistance.79 The mortgages on a further 2,328 HUD properties, representing 237,000
housing units, are expected to mature by 2013.80 These properties make up 21% of
the total number of properties with HUD-assisted mortgages.
Previous Legislative Efforts to Preserve Affordable Housing.
Beginning in 1987, Congress started to enact legislation to help preserve affordable
rental housing. Congress first attempted to address the problem through the
Emergency Low-Income Housing Preservation Act (ELIHPA).81 The act temporarily
prevented owners of Section 221(d)(3) and Section 236 developments from
prepaying their mortgages without approval from HUD. In 1990 Congress enacted
the Low-Income Housing Preservation and Resident Homeownership Act
(LIHPRHA) as part of the Cranston-Gonzalez National Affordable Housing Act (P.L.
101-625). The program created incentives for building owners to continue offering
affordable housing through the Section 221(d)(3) and Section 236 programs.
LIHPRHA has not been funded since FY1997 (P.L. 104-204), but during the 1990s
it is estimated to have preserved 100,000 units of Section 221(d)(3) and Section 236
housing.82
In 1997, the Multifamily Assisted Housing Reform and Accountability Act
(MAHRA, P.L. 105-65) created the Mark-to-Market program.83 The program applies
to owners of multifamily housing projects that have HUD-insured or HUD-held loans
as well as project-based Section 8 rental assistance contracts in which the rent
collected is considered above-market. (Market rent is based on either the rent levels
of comparable unassisted properties in a building’s area or on area fair market rent
levels as determined by HUD.) Mark-to-Market allows those owners with above-
78 Programs in which assisted housing preservation is an issue include the Section 221(d)(3)
program, the Section 236 program, the Section 202 and 811 programs, the Section 515 rural
housing program, and the Low Income Housing Tax Credit Program.
79 National Housing Trust, HUD-Assisted, Project-Based Losses by State, March 2, 2005,
available at [http://www.nhtinc.org/prepayment/State_Loss_Report.pdf].
80 U.S. Government Accountability Office, More Accessible HUD Data Could Help to
Preserve Housing for Low-Income Tenants, GAO-04-20, January 2004, p. 4, available at
[http://www.gao.gov/new.items/d0420.pdf].
81 ELIHPA was part of the Housing and Community Development Act of 1987 (P.L. 100-
242).
82 Emily Achtenberg, Stemming the Tide: A Handbook on Preserving Subsidized Multifamily
Housing, Local Initiatives Support Corporation, September 1, 2002, p. 2, available at
[http://www.lisc.org/content/publications/detail/893].
83 Mark-to-Market is codified at 42 U.S.C. §1437f, note.

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market rents to renew their rental assistance contracts with HUD, although at a lower
rate, while also restructuring their outstanding debt on the property. The program is
designed both to ensure that HUD pays reasonable market rents for subsidized
properties and to provide incentives for owners of assisted properties to renew their
contracts with HUD. Mark-to-Market allows rents on up to 5% of units eligible for
the program to be set at levels that exceed market rents, as long as they do not exceed
120% of market rent. The FY2007 year-long continuing resolution (P.L. 110-5)
extended the Mark-to-Market program through the end of FY2011.
The Mark-to-Market Program. On January 23, 2007, Representative
Maxine Waters introduced the Mark-to Market Extension Act (H.R. 647), a bill that
would make changes to the Mark-to-Market program. On October 23, 2007, the
House Financial Services Committee held a hearing regarding the bill. Two days
later, Representative Waters introduced a nearly identical bill but with additional
provisions. The new bill, the Mark-to-Market Extension and Enhancement Act (H.R.
3965), was approved by the House Financial Services Committee on October 31,
2007.
H.R. 3965 would extend the Mark-to-Market program until the end of FY2012
and would make eligible for the program certain properties where rent is not
considered above-market, as long as the HUD Secretary determines that debt
restructuring is necessary to preserve the property. The bill would also allow the
Secretary to waive the requirement that rent levels be above market for properties in
federally declared disaster areas (as long as uninsured damage is likely to exceed
$5,000 per unit). In addition, the bill would increase the cap on the percentage of
units eligible to restructure rents to levels above market rents from 5% to 9% and
would waive the cap in disaster areas. It would also permit certain non-profit owners
to participate in mortgage restructuring. Another provision of H.R. 3965 would
apply to late Section 8 payments from HUD to property owners. The bill would
require HUD to alert owners at least 10 days before the Section 8 payment due date
if it anticipates that a payment will be late. If a Section 8 payment is more than 30
days late, HUD would be required to pay interest to the building owner. An
amendment adopted at the markup of H.R. 3965 would make changes to the Mark-to-
Market provisions that encourage resident involvement in the preservation and
improvement of their low-income housing developments. As amended, H.R. 3965
would authorize not less than $10 million for technical assistance that may be used
to train tenants and provide for capacity building.
Section 202 Housing for the Elderly Program Preservation.
Properties developed as part of HUD’s Section 202 Housing for the Elderly program
are aging, and their mortgages are beginning to mature. Between 1959, when the
Section 202 program was established, and the early 1990s, the program loaned
money to developers of projects for low-income elderly persons (defined by HUD as
those age 62 and older). Beginning in 1974, the program also provided Section 8
rental assistance. Legislation has been introduced that would address aspects of
refinancing Section 202 projects in order to maintain their affordability and prevent
physical deterioration.
The Section 202 Supportive Housing for the Elderly Act (H.R. 2930) was
approved by the House on December 5, 2007. The bill would expand the

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circumstances under which a building owner may refinance a Section 202 loan.
Under current law, a Section 202 loan may only be refinanced if the new loan has a
lower interest rate. H.R. 2930 would also allow refinancing if the proceeds from the
new loan are used to address the project’s physical needs, the rent charged to tenants
does not change, and the cost of any Section 8 contract is not increased. The bill
would also expand the ways in which project owners may use proceeds from
refinanced loans. Funds could be used to provide supportive services without
limitation (current law limits 15% of funds for this use), payment of developers fees,
and for equity returns to nonprofit sellers. In addition, H.R. 2930 would create
Preservation Project Rental Assistance to assist residents who live in Section 202
units that do not currently receive rental assistance (these include a portion of units
financed prior to 1974).
A provision was added during House Financial Services Committee markup that
would allow Section 202 project owners to give a preference to homeless elderly
applicants. Another addition to the bill would limit HUD’s ability to put conditions
on the amount of proceeds that Section 202 owners may realize from a sale or
refinancing, or the way in which owners use the proceeds. HUD would only be able
to impose conditions on the amount or use of proceeds if there were an existing
contract between HUD and the project owner that authorized the conditions. (For
more information on the Section 202 program, see CRS Report RL33508, Section
202 and Other HUD Rental Housing Programs for the Low-Income Elderly, by
Libby Perl.)
Other Preservation Legislation. H.R. 44, the Stabilizing Affordable
Housing in the Future Act, has been introduced in the 110th Congress. The bill would
require HUD to maintain rental assistance contracts on multifamily units it manages
or owns due to mortgage default or foreclosure. In cases where HUD-owned or
HUD-managed property is no longer able to be rehabilitated, H.R. 44 would permit
HUD to contract with owners of other properties to make project-based rental
assistance payments for existing tenants. Another provision would require that in
cases where HUD disposes of multifamily properties, the property must be appraised
according to industry standards (another bill in the 110th Congress, H.R. 655, would
do the same).
Another bill, the Section 515 Rural Housing Property Transfer Improvement Act
(H.R. 3873), would facilitate the preservation of affordable housing developments
that are located in rural areas. The Section 515 program is part of the Department of
Agriculture’s (USDA’s) Rural Housing Service. The program provides low-interest
loans to housing developers to make it possible to build multifamily housing that is
affordable to low-income families and individuals. H.R. 3873 would make it easier
for an owner of a Section 515 building owner to transfer the property to another
owner while maintaining the property’s affordability. The House approved H.R.
3873 on January 24, 2008. (For more information about USDA rural housing
programs, see CRS Report RL33421, USDA Rural Housing Programs: An Overview,
by Bruce Foote.)
Recent HUD appropriations have also contained preservation-related provisions.
Section 318 of the FY2006 HUD appropriations law (P.L. 109-115) authorized HUD
to transfer project-based rental assistance contracts, debt, and low-income use

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restrictions from one multifamily property to another, subject to some criteria. The
provision was designed to ensure that, if a property is no longer available or viable,
the rental assistance contract can be maintained at another property. While this
provision has been generally supported by preservation advocates, they have argued
that some of the criteria — such as the requirement that the transferring property and
the receiving property have the same number of units — should be lifted in order to
make the transfers more workable. This authority was extended in the FY2007
continuing resolution (P.L. 110-5) and the FY2008 HUD appropriations law (Sec.
215 of P.L. 110-161).
Section 311 of the FY2006 HUD appropriations law also contained a similar
provision, requiring HUD to maintain rental assistance contracts on any properties
held by the Secretary (generally, as a result of mortgage foreclosure), or to transfer
the contracts to another viable property. In the past, when HUD took possession of
a property, it would generally terminate the rental assistance contract and provide the
tenants with vouchers. This authority was also extended in the FY2007 continuing
resolution, and similar language was included in the FY2008 HUD appropriations
law (Sec. 220 of P.L. 110-161).
Homelessness
The HUD homeless assistance grants, established as part of the McKinney-
Vento Homeless Assistance Act (P.L. 100-77), consist of four separate grant
programs. The Emergency Shelter Grants (ESG) Program distributes funds to
communities through a formula allocation, and they, in turn, may use the funds for
the renovation, major rehabilitation or conversion of buildings into emergency
shelters. Grantees may also use funds to provide services to homeless individuals,
and for homelessness prevention activities, although not more than 30% of funds may
be used for either of these purposes. The grants for the other three homeless
assistance grant programs are awarded competitively through HUD’s continuum of
care (CoC) system. These programs are the Supportive Housing Program (SHP),
Shelter Plus Care (S+C) program, and the Section 8 Moderate Rehabilitation
Assistance for Single-Room Occupancy Dwellings program (SRO). Unlike the ESG
program, the three competitive grant programs focus on transitional and permanent
supportive housing for the homeless. (For more information on the homeless
assistance grants, see CRS Report RL33764, The HUD Homeless Assistance Grants:
Distribution of Funds, by Libby Perl.)
In the 110th Congress, two bills have been introduced that would reauthorize the
housing programs of McKinney-Vento. The Homeless Emergency Assistance and
Rapid Transition to Housing (HEARTH) Act of 2007 (H.R. 840) was introduced on
February 6, 2007, and the Community Partnership to End Homelessness Act of 2007
(S. 1518) was introduced on May 24, 2007. On September 19, 2007, the Senate
Banking, Housing, and Urban Affairs Committee unanimously approved S. 1518.
The two bills, H.R. 840 and S. 1518, are similar in that they would both
consolidate the three competitive homeless assistance grants (S+C, SHP, and SRO)
into one consolidated grant, called the Continuum of Care Program in H.R. 840 and
the Community Homeless Assistance Program in S. 1518 (the President has also
urged the consolidation of these three programs in his last six budgets). The two bills

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would also codify the system through which the funds are distributed, retaining many
aspects of the current Continuum of Care system. H.R. 840 would authorize the
homeless assistance grants at $2.5 billion for FY2008, and S. 1518 would provide an
authorization level of $2.2 billion. However, in S. 1518, permanent housing
contracts would be renewed through the Section 8 program rather than through the
funds made available for the homeless assistance grants.
Both bills propose to expand the definition of “homeless individual,” although
each would do so in a different way. Under the current definition, a homeless
individual is one who lacks a fixed, regular, and adequate nighttime residence, and
who resides in a temporary shelter (including transitional housing for the mentally
ill), an institution (with qualifications), or a place not designed for human habitation.
H.R. 840 would include in the definition persons who are sharing housing due to
economic hardship and those living in hotels, motels, or campgrounds due to a lack
of alternative accommodations. H.R. 840 would also include in the definition those
individuals residing in transitional housing, not just transitional housing for the
mentally ill, as in current law. In addition, H.R. 840 would include substandard
housing in the list of accommodations in which a person would be considered
homeless (the list also includes cars, parks, abandoned buildings, and bus or train
stations).
S. 1518 would also expand the definition of “homeless individual” to include
individuals and families who are sharing housing, but unlike H.R. 840, those
doubled-up households must also (1) lack the resources to pay for decent and safe
housing, (2) only be permitted to remain in the shared housing for a short period of
time, (3) have moved three or more times in the past year or at least two times within
the last 21 days, and (4) not be able to make a significant financial contribution
toward the shared housing. S. 1518 would also include among homeless individuals
those persons residing in a hotel or motel, with the same reservations as those sharing
housing, however. In addition, S. 1518 would change the definition of chronically
homeless to include families with an adult member who has a disability (currently
only unaccompanied individuals are included). The definition would also include
persons released from institutions as long as, prior to entering the institution, they
otherwise met the definition of chronically homeless, and had been institutionalized
for fewer than 90 days.
Both S. 1518 and H.R. 840 would allow more funds to be used for homelessness
prevention activities. Under current law, only ESG funds can be used for
homelessness prevention activities; the other three homeless assistance grants cannot
be used for prevention. H.R. 840 would allow up to 3% of Continuum of Care
Program funds to be used to prevent homelessness, and would remove the ESG
restriction that not more than 30% of funds be used to prevent homelessness. S. 1518
would allocate 20% of funds made available by Congress for the homeless assistance
grants to the newly-named Emergency Solutions Grants program; of those funds, at
least 40% would be available for activities such as rental assistance and housing
relocation for persons at risk of homelessness.
S. 1518 would also create a separate process for rural communities to apply for
grants, while in the House bill, rural communities would be part of the same
application process in the Continuum of Care Program as non-rural areas. S. 1518

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would allow grantees in rural communities to apply separately for funds that would
otherwise be awarded as part of the consolidated Community Homeless Assistance
Program. Unlike the Community Homeless Assistance Program, however, rural
communities would be able to serve persons who do not meet HUD’s definition of
“homeless individual;” the bill provides that HUD may award grants for the costs of
assisting those in the worst housing situations in their geographic area, those in
imminent danger of losing housing, and the lowest-income residents in the
community.
CRS Reports on Housing
In General
CRS Report RL34022, The Department of Housing and Urban Development (HUD):
FY2008 Budget, by Maggie McCarty, Libby Perl, Bruce Foote, Eugene Boyd,
and Meredith Peterson.
CRS Report RL33421, USDA Rural Housing Programs: An Overview, by Bruce
Foote.
Disaster Relief
CRS Report RL34087, FEMA Disaster Housing and Hurricane Katrina: Overview,
Analysis, and Congressional Options, by Francis X. McCarthy.
CRS Report RL33761, Rebuilding Housing After Hurricane Katrina: Lessons
Learned and Unresolved Issues, by N. Eric Weiss.
CRS Report RS22358, The Role of HUD Housing Programs in Response to
Hurricane Katrina, Maggie McCarty, Libby Perl, Bruce E. Foote, Eugene Boyd.

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.
Section 8 Rental Assistance
CRS Report RL32284, An Overview of the Section 8 Housing Program, by Maggie
McCarty.
CRS Report RL34022, Section 8 Housing Choice Voucher Program: Issues and
Reform Proposals in the 110th Congress, by Maggie McCarty.

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CRS Report RL33929, Recent Changes to the Section 8 Voucher Renewal Funding
Formula, by Maggie McCarty.
Public Housing
CRS Report RS22557, Public Housing: A Fact Sheet on the New Operating Fund,
by Maggie McCarty.
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.
Special Populations
CRS Report RL30442, Homelessness: Targeted Federal Programs, and Recent
Legislation, coordinated by Libby Perl.
CRS Report RL34024, Veterans and Homelessness, by Libby Perl.
CRS Report RL33764, The HUD Homeless Assistance Grants: Distribution of
Funds, by Libby Perl.
CRS Report RL33956, Counting Homeless Persons: Homeless Management
Information Systems, by Libby Perl.
CRS Report RL33508, Section 202 and Other HUD Rental Housing Programs for
Low-Income Elderly Residents, by Libby Perl.
CRS Report RL34318, 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.
Housing Finance
CRS Report RL33775, Alternative Mortgages: Causes and Policy Implications of
Troubled Mortgage Resets in the Subprime and Alt-A Markets, by Edward
Vincent Murphy.
CRS Report RL34232, Understanding Mortgage Foreclosure: Recent Events, the
Process, and Costs, by Darryl E. Getter.
CRS Report RL33930, Subprime Mortgages: Primer on Current Lending and
Foreclosure Issues, by Edward Vincent Murphy.
CRS Report RL34259, A Predatory Lending Primer: The Home Ownership and
Equity Protection Act, by David H. Carpenter

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CRS Report RS22722, Securitization and Federal Regulation of Mortgages for
Safety and Soundness, by Edward Vincent Murphy.
CRS Report RS22741, Is Securitization an Obstacle to Subprime Borrower
Workouts?, by Edward Vincent Murphy.
CRS Report RL34195, Modifying Mortgage Disclosure Products to Influence
Affordability, by Darryl E. Getter.
CRS Report RL34182, Financial Crisis? The Liquidity Crunch of August 2007, by
Darryl E. Getter, Mark Jickling, Marc Labonte, and Edward Vincent Murphy.
CRS Report RL34301, The Primary Residence Exception: Legislative Proposals in
the 110th Congress to Amend Section 1322(b)(2) of the Bankruptcy Code, by
David H. Carpenter.
CRS Report RS20530, FHA Loan Insurance Program: An Overview, by Bruce E.
Foote and Meredith Peterson.
CRS Report RS22662, H.R. 1852 and Revisiting the FHA Premium Pricing
Structure: Proposed Legislation in the 110th Congress, by Darryl E. Getter.
CRS Report RL33843, Reverse Mortgages: Background and Issues, by Bruce E.
Foote.
CRS Report RS20533, VA-Home Loan Guaranty Program: An Overview, by Bruce
E. Foote and Meredith Peterson.
Housing Government-Sponsored Enterprises (GSEs)
CRS Report RL33940, H.R. 1427 and S. 1100: Reforming the Regulation of
Government-Sponsored Enterprises, by Mark Jickling, Edward Vincent
Murphy, and N. Eric Weiss.
CRS Report RL34236, Fannie Mae and Freddie Mac: Proposals to Regulate Their
Mortgage Portfolio Size in the 110th Congress, by N. Eric Weiss.
CRS Report RL33756, Fannie Mae and Freddie Mac: A Legal and Policy Overview,
by Michael V. Seitzinger and N. Eric Weiss.
CRS Report RL34158, Creating GSE Affordable Housing Funds: Proposed
Legislation in the 110th Congress, by N. 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 RS21724, GSE Regulatory Reform: Frequently Asked Questions, by N.
Eric Weiss.

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CRS Report RL32815, Federal Home Loan Bank System: Policy Issues, by Edward
Vincent Murphy.
CRS Report RS22172, Proposed Changes to the Conforming Loan Limit, by Mark
Jickling and N. Eric Weiss.
Housing Tax Policy
CRS Report RS22389, An Introduction to the Design of the Low- Income Housing
Tax Credit, by Pamela J. Jackson.
CRS Report RL33904, The Low-Income Housing Tax Credit: A Framework for
Evaluation, by Pamela J. Jackson.
CRS Report RL34212, Analysis of the Proposed Tax Exclusion for Canceled
Mortgage Debt Income, by Pamela J. Jackson and Erika Lunder.
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 Pamela J. Jackson.

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