97-169 E
Updated May 21, 1998
CRS Report for Congress
Received through the CRS Web
Housing Issues in the 105th Congress
Richard Bourdon
Analyst in Housing
Economics Division
Summary
Progress is reportedly being made on smoothing the way for a conference
committee on public housing and Section 8 reform bills, H.R. 2 and S. 462. However,
HUD Secretary Cuomo remains strongly opposed to the income targeting provisions in
these bills. On FY1999 budget matters, HUD insists that billions of dollars of Section
8 “excess” reserves that GAO auditors have “found” will be needed for future Section
8 contract renewals. But on May 1, 1998, an emergency supplemental appropriations
bill was signed into law (P.L. 105-174) that temporarily cuts $2.3 billion from Section
8 program reserves.
The Administration has proposed to increase the Federal Housing Administration’s
(FHA) mortgage insurance loan limits to $227,150 nationwide, saying this is needed to
increase homeownership among minorities and in cities. House Housing subcommittee
Chairman Lazio views the proposal as an unnecessary intrusion into the private sector.
Bills that would provide for the automatic cancellation of private mortgage insurance
once a homeowner’s equity reached a certain amount, H.R. 607 and S. 318, passed the
House and Senate last year and await a conference. H.R. 3039, to help homeless
veterans find housing and re-enter the job market, awaits a House vote. A bill to
consolidate seven McKinney Act homeless assistance programs into a block grant, H.R.
217, passed the House by 386-23 on March 3, 1998. Legislation to increase the amount
of tax credits that states can allocate annually under the Low-Income Housing Tax
Credit program include H.R. 2990, H.R. 3290, and S.1252.
Other matters that are or could come before Congress in 1998 include (1) the
overhaul of the Real Estate Settlement Procedures Act that would address the brokers’
fee (“yield spread premium”) matter and other issues; (2) H.R. 3206, legislation that
would make it easier for residents to oppose group homes for sex offenders, recovering
drug addicts, and convicted felons; (3) several “takings” bills, H.R. 992 and H.R. 1534,
that would give property owners claiming financial loss speedier access to legal review;
and (4) legislation intended to protect elderly homeowners from paying exorbitant fees
for home equity conversion loans, S. 562. This report will be updated as issues develop
and legislation progresses.
Congressional Research Service ˜
The Library of Congress
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Housing Authorization Reform Bills
H.R. 2 (The Housing Opportunity and Responsibility Act of 1997) was approved by
the House last May. Currently, households in public housing have extremely low
incomes, averaging 17% of the area median, about $7,000 nationally. In a break from
current policy, H.R. 2 would require that (only) 35% of all new households admitted (as
vacancies occur) have incomes below 30% of the local median. Supporters say this is to
promote more mixed-income communities with role models and to “change the culture”
at projects. The admission of more working poor with somewhat higher incomes would
also provide public housing authorities (PHAs) with more rental income. But critics fear
this change would increase the number of homeless. HUD Secretary Cuomo recently
expressed strong objection to the proposed income-targeting, saying it would harm the 5.3
million very low-income families who receive no rental assistance but who now pay more
than 50% of their income for rent or live in substandard housing. H.R. 2 would also
eliminate the Housing Act of 1937, the basic framework of current housing programs.
Some say that removing the 1937 Act would create a legal mess since an estimated 650
state and local laws are cross-referenced to it.
The less sweeping S. 462 (The Public Housing Reform and Responsibility Act of
1997) maintains the 1937 Act and would reserve a larger percentage of units for the very
poor: at least 40% of new admissions would have to have incomes no more than 30% of
the local area median income; at least 70% of newly admitted families would have to have
incomes no more than 60% of median income; and the remainder would have to have
incomes at or below 80% of median. Similar targeting changes would be made for
allocating new Section 8 tenant-based assistance.
In other parts of these bills, disincentives to work would be decreased. In addition,
some able-bodied, nonelderly, nonworking tenants would have to provide 8 hours a month
of community service. Under a controversial home rule flexible grant option in H.R. 2,
local governments could design their own affordable housing program combining funds
from public housing and a new “choice-based” assistance program. Both bills deregulate
the 3,400 PHAs, giving them more flexibility to make decisions, but deal sternly with
chronically troubles agencies. Both consolidate numerous public housing programs into
two flexible block grants, and give tenants a larger role in planning and operations.
The substantial differences between these bills have made it impossible to reach
agreement for two years, but chances may have improved for a compromise this year.
Other Readings
Housing Authorization Bills: Overview of H.R. 2 and S. 462. CRS Report 98-443 E by
Susan Vanhorenbeck. May 8, 1998. 4 p.
HUD’s FY1999 Budget
The Administration’s HUD budget for FY1999 would provide $25.2 billion to
revitalize communities, create jobs, produce affordable housing, and expand home
ownership. HUD had thought this amount would be sufficient to renew all Section 8
contracts since the agency also planned to use several billion dollars in project reserve
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accounts. But an emergency supplemental appropriations bill (H.R. 3579) was signed into
law on May 1, 1998 (P.L. 105-174) that rescinds $2.3 billion from the Section 8 program.
Housing supporters have been assured that this is a temporary cut and funds will be made
available to renew all Section 8 contracts.
The Administration’s HUD budget proposal includes $585 million for 103,000 new
housing vouchers, of which 50,000 would be for welfare recipients needing housing to
get or keep a job. 34,000 of the vouchers would be for the homeless and 8,800 would be
used for the elderly. The Community Development Block Grant program would increase
to $4.725 billion, with $238 million of decreased set-asides. The Home Program would
increase by $50 million to $1.883 billion.
The emphasis on job creation includes $400 million in grants for a community
empowerment fund and $1.5 billion over 10 years for 15 additional urban empowerment
zones authorized in last year’s tax act. Funding for brownfield development would double
from $25 million to $50 million. There would be $25 million for home ownership zones
to create about 1,500 single family homes in inner-city neighborhoods. With carryover
funds, HUD is asking for $2.93 billion for public housing operating funds. Modernization
funds would increase to $2.55 billion. Block grants for native Americans would be set
at $600 million. Homeless assistance would increase to $1.15 billion. Funds for fair
housing efforts would more than double to $52 million in keeping with the
Administration’s efforts to crackdown on housing discrimination.
Congressional work on FY1998 appropriations for HUD is expected to begin not too
long after the Memorial Day recess.
Other Readings
The Budget of the Department of Housing and Urban Development (HUD) FY1999. CRS
Report 98-345 E by Susan Vanhorenbeck, Bruce E. Foote, and Pauline Smale. April
3, 1998. 13 p.
Proposed Increase in FHA Mortgage Insurance Limits
The Administration has proposed in its FY1999 HUD budget to increase the size of
the mortgage the government’s “FHA” program can insure to $227,150 nationwide.
Currently, the limit is $86,300 in lower-cost areas, but can go to $170,300 in high-cost
areas. This program has traditionally served first-time buyers of moderate incomes who
have little money for down payments, and those with blemished credit records. The
Administration says the higher limits are needed to expand home ownership opportunities
to minorities, women, and city residents, and that the 225 different limits across the
country cause problems. Some think the change could make money for the FHA by
insuring loans for buyers with incomes up to $80,000 - which could then be used to offset
losses from high rates of foreclosures. However, others believe that high-income
borrowers who turn to FHA are likely to mean risky loans that would also cost HUD
through foreclosures. Home builders and real estate agents support the change, but private
mortgage insurers and others say this is an unnecessary intrusion into the private market.
Other critics believe the FHA has frequently harmed lower-income neighborhoods by
supporting careless lending, resulting in boarded-up or vandalized homes that are later
sold at rock-bottom prices, to the dismay of nearby owners. They say low-income
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purchasers often buy homes that soon require major repairs that new owners cannot pay
for. National People’s Action is calling for mandatory property inspections.
Other Readings
Raising the FHA Mortgage Limit: Issues and Options. CRS Report 98-421 by Bruce
Foote and Pamela Hairston. May 4, 1998. 29 p.
Low-Income Housing Tax Credit Program
Under the Low Income Housing Tax Credit program, states are permitted to allocate
federal tax credits to investors who agree to build or renovate affordable rental housing
units for low- and moderate-income households. Supporters say the formula for allocating
annual tax credits, $1.25 per capita, has not been changed since 1986 and thus, has been
eroded by inflation. H.R. 2990 (Ensign and Rangel) and S. 1252 (D’Amato) would
increase the credit limit to $1.75 per capita and index it for inflation beginning in 1999.
The Administration’s proposal increases the cap to $1.75 but has no inflation adjustor.
H.R.3290 (N. Johnson) increases the cap to $1.75, indexes it, and also implements several
administrative reforms recommended by the House Ways and Means Subcommittee on
Oversight and the GAO. The cost of the program is estimated at $12 billion over
FY1999-2003. Critics doubt that this very complex “project-based”program is the most
efficient way to deliver affordable housing and wonder if the units will be adequately
maintained as they get older. But the program, often supplemented by other federal
housing program funds, has helped to produce at least 500,000 apartments since 1987.
Consolidation of Homeless Housing Programs
H.R. 217 (Lazio) would authorize an annual appropriation of $1 billion for homeless
programs, up $177 million over last year’s amount, but less than the Administration’s
FY1999 request of 1.15 billion. 30% would be earmarked for a permanent housing fund
and, in a bi-partisan compromise, the 15% cap on spending for emergency homeless
shelters was removed from the original bill. The bill would consolidate seven McKinney
Act homeless assistance programs into a block grant with part of the funds awarded
through a competitive process. It passed the House by 386-23 on March 3, 1998.
Other Readings
H.R. 217: Homeless Housing Programs Consolidation and Flexibility Act. CRS Report
98-181 E, by Pauline Smale. March 2, 1998. 3 p.
Cancellation of Private Mortgage Insurance
Last year the House passed by a vote of 421 to 7 H.R. 607 (Hansen), the
Homeowners Insurance Protection Act, that requires the automatic cancellation of private
mortgage insurance as soon as a homeowner’s equity reaches 25%. Many owners
currently continue to pay insurance premiums long after it is necessary to protect lenders.
A similar bill, S. 318 by Senator D’Amato, Chairman of the Senate Banking Committee,.
Was passed by the Senate, amended, on November 9, 1997. This legislation is supported
by the Consumers Union and National Association of Realtors.
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Other Readings
Private Mortgage Insurance: Cancellation Options. CRS Report 97-373. December 17,
1997, by Bruce Foote.
The Real Estate Settlement Procedures Act (RESPA)
The purpose of the Real Estate Settlement Procedures Act (RESPA) of 1974 is to
keep the costs of purchasing a home down by encouraging competition between firms
providing necessary settlement services. A HUD spokesman has called RESPA a
“fundamentally flawed statute.” Congress directed HUD and the Federal Reserve Board
to come up with ideas for streamlining RESPA and the related Truth in Lending Act. A
draft report is now being reviewed. A contentious issue-within-an issue is whether fees
and “yield-spread premiums” charged by mortgage brokers are for services rendered to
borrowers — or referral fees, which would violate RESPA. In September 1997 HUD
proposed that mortgage brokers be required to sign contracts stating who they work for
(do they have a fiduciary responsibility to the borrower?) and who is paying them how
much. An industry group is proposing their own RESPA reforms. One recommendation
would allow a single price to be provided to consumers for all the required settlement
services. This might make it possible for consumers to competitively shop these “one-
price” packages, particularly if shopping could be done quickly and easily, such as on the
Internet. However, the National Association of Realtors is opposing this approach, even
though they “were told their commissions would not be in the package of settlement
services.”(National Mortgage News. 11/24/97).
Other Readings
The Real Estate Settlement Procedures Act: Is It Working? CRS Report 94-841 E.,
November 1, 1994, by Richard Bourdon.
The Real Estate Settlement Procedures Act: Disclosure of Fees to Mortgage Brokers.
CRS Report 98-285 E, by Bruce Foote. 22 p. Updated March 24, 1998.
Fair Housing Amendments: Group Homes
A hotly debated H.R. 3206 (Bilbray) passed the House Judiciary Subcommittee on
February 25. The bill would lessen the fear that some local groups now have in opposing
group homes for convicted felons, sex offenders and recovering drug addicts. The Justice
Department, in upholding the Fair Housing Act, has dealt harshly with opponents of these
homes who, it says, have filed frivolous court challenges. The Coalition to Preserve the
Fair Housing Act says that the bill “scales back basic civil rights protections and
endangers an enforcement system that is working” (Housing & Development Reporter.
3/9/98).
Property “Takings”
On March 12, the House passed H.R. 992 by 230-180, a bill involving disputes
between property owners and then enforcement of local land-use laws. Owners often feel
the value of their property has often been unfairly reduced without just compensation —
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an illegal “taking” under the Fifth Amendment of the Constitution. H.R. 992 would make
it easier and quicker for owners to settle their grievances by bypassing local
administrative agencies and state courts, but opponents say these changes could
undermine environmental laws. A similar bill, H.R. 1534 was approved by the House (as
amended) in October 1997 and by the Senate Judiciary Committee on February 26, 1998.
Housing for Homeless Veterans
The House Veterans’ Affairs Committee approved H.R. 3039 (as amended) and
reported the bill to the House on March 17, 1998. The Veterans Transitional Housing
Opportunities Act of 1998 would help homeless veterans find housing and make is easier
for them to re-enter the job market. Under a pilot program, the VA would guarantee up
to 15 loans totaling $100 million for multifamily transitional housing. Loans would be
for the construction or rehabilitation of, or acquisition of land for, the transitional
housing. The loans would be made in connection with funding or the provision of
substantial property or services for the property by either a state or local government or
nongovernmental entity. No more than 90% of the development’s cost could be insured.
No more than 5 of the loans could be guaranteed during the first 3 years after enactment
of this Act.
Tighter Controls Sought on REITs
Many analysts believe that a small number of Real Estate Investment Trusts (REITs)
have pushed beyond the intentions of the law and are engaging in questionable tax
sheltering activities. On March 26, 1998, the chairman of the House and Senate tax
writing committees submitted H.R. 3558 and the identical S. 1871 that would limit the
tax advantages of REITs, particularly for the small number that are especially favored,
called “paired-share” or “stapled” REITs. The Administration has proposed similar
restrictions. Industry defenders of current law say the proposed changed would be unfair
to existing shareholders. Under the proposed bills, the grandfathered REITs would
generally remain favored to the extent they were as of March 26, 1998, but could not
expand beyond these boundaries.
Other Readings
Real Estate Investment Trusts: Tighter Controls Proposed for Tax-Favored REITs by
Richard Bourdon. CRS Report 98-362 E. 6 p. April 10, 1998.
Housing Issues in the 105 Congress, by Richard
th
Bourdon, Economics Division. Updated
May 20, 1998. 6 p.