Housing Issues in the 109th Congress
Housing Issues in the 109 Congress
Updated January 8, 2007
Maggie McCarty, Libby Perl, and Bruce E. Foote
Domestic Social Policy Division
Eugene Boyd, Pamela J. Jackson, and N. Eric Weiss
Government and Finance Division
Knowledge Services Group
Housing Issues in the 109 Congress
The 109th Congress considered a number of housing-related issues in its two
sessions. These included appropriations for the Department of Housing and Urban
Development (HUD); assistance for families and communities affected by Hurricanes
Katrina, Rita, and Wilma; reform of the Government Sponsored Enterprises —
Fannie Mae and Freddie Mac — and Federal Home Loan Banks (GSEs and FHLBs);
revisions to the FHA loan insurance program; and changes to existing housing
programs such as the Section 8 Housing Choice Voucher and the Low-Incometh
Housing Tax Credit program. However, the 109 Congress adjourned without
completing action in many of these areas.
During the appropriations process for both FY2006 and FY2007, Congress
faced possible cuts in various HUD programs. In FY2006, the President proposed
to reduce the HUD budget by 9%, which included removing the Community
Development Block Grant (CDBG) program from HUD. Congress did not make the
majority of the reductions requested by the President. In FY2007, the President
proposed to reduce funding to at least 13 HUD programs, while increasing funding
for 11 others. In its proposed spending bills, the House and Senate Appropriations
Committees restored many of the proposed cuts. However, at the end of calendar
year 2006, Congress had not passed a budget bill for FY2007. Instead, it provided
funding for HUD, among other agencies, through three continuing resolutions, the
third of which expires on February 15, 2007. For most HUD programs, this means
that funding continues at the FY2006 level.
Congress twice appropriated funds to HUD after the 2005 hurricanes. First,
Congress provided $11.5 billion for the CDBG program to be used in affected areas
(P.L. 109-148). This amount was divided among the states of Louisiana, Mississippi,
Alabama, Florida, and Texas. The second appropriation (P.L. 109-234) provided
$5.2 billion more to the CDBG program for hurricane recovery. In addition to these
two allocations of CDBG funds, in P.L. 109-148 Congress provided $390 million in
supplemental funding for Section 8 vouchers for families that had received HUD
assistance before being displaced by Hurricane Katrina.
Other activities in the 109th Congress included consideration of two bills to
strengthen oversight of the GSEs and FHLBs under one regulator (S. 190 and H.R.
1461). The House passed H.R. 1461 on October 26, 2005, while the Senate Banking
and Urban Affairs Committee reported S. 190 to the Senate on July 28, 2005.
Another bill (H.R. 5121) would have raised the FHA one-family mortgage limit, and
allowed mortgage premiums based on the borrower’s risk. In the area of affordable
housing, the House Financial Services Committee considered and passed a number
of housing bills, including H.R. 5443 to reform the Section 8 voucher program and
H.R. 5347, a bill to reauthorize the HOPE VI program. Legislation was also
introduced in the first session that would have increased Low-Income Housing Tax
Credits available to develop affordable housing (H.R. 2681, H.R. 659, and H.R.
3159). However, none of the aforementioned bills was enacted before the close of
the 109th Congress.
In troduction ..................................................1
Overarching Policy Issues.......................................2
The Budget Environment....................................2
Rebuilding after the 2005 Hurricanes..........................4
Housing Reconstruction After the 2005 Hurricanes...................5
Community Development Block Grant Funds....................5
The Louisiana Recovery Corporation Act.......................9
Section 8 Voucher Funding and Reform........................9
Public Housing Operating Funds.............................11
HOPE VI Funding........................................11
Section 202 Housing for the Elderly Program Funding............12
Section 811 Housing for the Disabled Program Funding..........13
Fannie Mae, Freddie Mac,
and Federal Home Loan Bank Regulation..................14
The Federal Housing Administration (FHA)....................16
Real Estate Settlement Procedures Act Regulation...............17
Low-Income Housing Tax Credit Modifications.................18
Community and Economic Development Consolidation Proposals..19
The Community Development Block Grant Program Formula......21
Rural Housing Funding....................................21
CRS Reports on Housing.......................................23
List of Tables
Table 1. Department of Housing and
Urban Development Appropriations, FY2002 to FY2006...............2
Table 2. Allocation of $5.2 Billion in
CDBG Disaster Relief Assistance (P.L. 109-234).....................7
Table 3. Allocation of $11.5 Billion in
CDBG Disaster Relief Assistance (P.L. 109-148).....................8
Key Policy Staff
NameArea of ExpertiseDivisionTelephone and E-Mail
Eugene BoydCommunity and
Bruce E. FooteHomeownership,
predatory lending, email@example.com
Kamilah M. HolderFair Housing and7-9496
Pamela J. JacksonHousing tax policy,
including the Low-
Income Housing Tax7-3967
Credit and otherG&Fpjackson@crs.loc.gov
incentives for rental
housing and owner-
Maggie McCartyAssisted rental housing,
including Section 8,DSP7-2163
public and firstname.lastname@example.org
lending oversight byG&Ftmurphy@crs.loc.gov
the OCC, OTS, FDIC,
and Federal Reserve
Libby PerlHousing for special
the elderly, disabled,email@example.com
N. Eric WeissFannie Mae, Freddie
Mac, and FederalG&F7-6209
Home Loan Banks,firstname.lastname@example.org
SBA disaster loans
Division abbreviations: ALD=American Law; DSP=Domestic Social Policy;
G&F=Government and Finance.
Housing Issues in the 109 Congress
Two issues affecting housing were prominent in the 109th Congress: the annual
budget process and the effects of Hurricane Katrina. In addition to these overarching
issues, other proposals addressed in the 109th Congress included legislation to create
a stronger regulator for Fannie Mae and Freddie Mac, and revisions to the FHA loan
insurance program. Legislation was also introduced on behalf of the Administration
to replace the Section 8 voucher program with a new block grant and to make major
changes to the public housing program.
In the area of the budget generally, as of the date of this report, Congress had not
yet enacted an FY2007 spending bill for the Department of Housing and Urban
Development (HUD).1 The President submitted his budget request on February 6,
2006. It included reductions for several programs, including the Community
Development Block Grant (CDBG) program, and increases for other programs, such
as the Section 8 voucher program. The Appropriations Committees in both houses
held hearings on the budget in which Members from both parties expressed concern
about several proposed funding reductions. The House of Representatives passed its
version of the funding bill (H.R. 5576) on June 14, 2006, and the Senate
Appropriations Committee reported its version to the full Senate on July 26, 2006.
Both versions of H.R. 5576 restored some of the proposed reductions in the
President’s budget, including funds for the CDBG program, the Section 202 Housing
for the Elderly program, and the Section 811 Housing for the Disabled program. At
the time of this update, Congress has enacted three continuing resolutions that
provide funding for HUD; the third of these expires on February 15, 2007.2
After Hurricane Katrina, Congress enacted two FY2006 funding bills that
provided funds to HUD for hurricane recovery and reconstruction (P.L. 109-148 and
P.L. 109-234). The majority of these funds was provided to the CDBG program in
states affected by the hurricanes.
1 For more information on HUD funding, see CRS Report RL33344, The Department of
Housing and Urban Development (HUD): FY2007 Budget, by Maggie McCarty, Libby Perl,
Bruce Foote, and Eugene Boyd.
2 The three continuing resolutions are P.L. 109-289, P.L. 109-369, and P.L. 109-383.
Table 1. Department of Housing and Urban Development
Appropriations, FY2002 to FY2006
(net budget authority in billions)
F Y 2002 F Y 2003 F Y 2004 F Y 2005 F Y 2006
$30.15 $31.01 $31.20 $31.92 $33.97
Source: House Appropriations Committee tables, as cited in CRS Appropriations reports. Totals
remain uncertain until all program experience has been recorded, a process that may not be completed
for several months after the end of the fiscal year.
Overarching Policy Issues
The Budget Environment. Members of Congress have shown increasing
concern about the size of the federal budget deficit and have sought ways to reduce
it. The President has outlined a two-pronged approach for reducing the federal
budget deficit: (1) increase revenues to the Treasury without raising taxes and (2) cut
spending.3 In both FY2006 and FY2007, the President sought to keep discretionary
spending growth below the rate of inflation. Although as of the date of this report,
Congress had not passed an FY2007 spending bill, in FY2006 Congress kept growth
below the rate of inflation.
The majority of HUD’s budget is discretionary funding, and many of its
programs were targeted for funding reductions in the 109th Congress. In his FY2006
budget, the President asked Congress to cut funding for several programs, including
Housing for the Elderly and Disabled, and to eliminate funding for several others,
including the Community Development Block Grant (CDBG) program, HOPE VI,
and Brownfields redevelopment. Congress did not enact most of the requested cuts
in FY2006. In FY2007, the President again requested large cuts for several HUD
programs, including Housing for the Elderly and Disabled, and CDBG. The
Administration criticized all of the programs slated for reduction for being ineffective
Efforts to contain discretionary spending have also increased internal pressures
in the HUD budget. The cost of the Section 8 voucher program is partially pegged
to housing costs, which have risen faster than inflation. As a result, the voucher
program requires increased funding to serve the same number of people. Since
HUD’s overall budget has been constrained, any increases in funding for the voucher
program have come at the expense of other programs. Another internal HUD budget
pressure involves the contribution of the Federal Housing Administration’s (FHA)
insurance program. FHA collects fees from participants, and excess fees are used by
Congress to offset the cost of the HUD budget. FHA’s market share has been
dropping in recent years, and as a result, the amount of excess fees has been
declining. With fewer fees to offset the cost of the HUD budget, the President and
Congress have had to find additional dollars to keep the overall budget at the same
3 See President’s FY2007 Budget, p. 16.
In this budget environment, Congress faced pressure to reduce funding for
HUD’s programs in the FY2006 and FY2007 appropriations processes. At the same
time, Congress continues to face pressure to maintain or increase funding for housing
programs because of a growing concern about a perceived shortage of affordable
Housing Affordability. The U.S. Housing Act of 1949 established a national
goal of “a decent home and a suitable living environment for every American
family.” Since the establishment of that goal, great progress toward it has been
made, with record homeownership rates and the elimination of much of the slums
and blight that plagued the first half of the last century. At the same time, problems
remain. The bipartisan, congressionally mandated Millennial Housing Commission’s4
2002 final report identified “affordability” as “the single greatest housing challenge
facing the nation.” The Harvard Joint Center for Housing Studies found that between
2001 and 2004, the number of households paying more than 30% of their income
toward housing increased from 31.3 million to 35 million.5 While affordability is the
overarching concern, different challenges face owners and renters.
Rising Housing Prices. Although the housing market is beginning to show
signs of slowing, an unprecedented U.S. housing boom led to record housing prices
again in 2005. Home equity stood at $11.2 trillion in 2005, up from $10 trillion in
2004, and it is estimated that the wealth effect from rising housing prices generated
one-third of the growth in consumer spending that year, helping to buoy the
economy.6 Homeownership rates slipped just slightly from their previous high in
2004, from 69% to 68.9% in 2005.7 And minorities, who have consistently lagged
behind whites in homeownership rates, have made some gains. Between 1995 and
during the same period, the percentage of white homeowners increased from 70.9%
to 75.8%. Despite this positive news, fears about the health of the housing market
and the sustainability of recent homeownership gains are growing.
Speculation about a housing “bubble” has permeated local and national real
estate news.8 Former Federal Reserve Chairman Alan Greenspan, in testimony
before the Joint Economic Committee on June 9, 2005, noted that, while he did not
believe that the U.S. was experiencing a national housing bubble, home prices in
some markets seemed to have risen to unsustainable levels. The pace of future
interest rate increases, the health of the economy, and the rate of job growth will all
play an important role in determining the pace of future housing price appreciation.
4 Housing is generally considered affordable if it costs no more than 30% of a family’s
5 Joint Center for Housing Studies of Harvard University, “The State of the Nation’s
Housing,” 2006, p. 25, available at [http://www.jchs.harvard.edu/publications/markets/
son2006/son2006.pdf], hereinafter “State of the Nation’s Housing report.”
6 Ibid., p. 6.
7 Ibid., p. 5.
8 For a more detailed analysis of the question of a housing bubble, see CRS Report
RL31918, U.S. Housing Prices: Is There a Bubble?, by Marc Labonte.
More serious market corrections could occur if speculators begin to fear the end of
the boom has arrived.
Soaring home prices have also resulted in a proliferation of exotic and
potentially risky mortgage products that make the entry into homeownership in these
hot markets more affordable. Loans for more than the value of the home,
interest-only loans, and various forms of adjustable rate mortgages have all become
options for households buying high-priced homes they could not otherwise afford.
At the lower end of the market, relaxed credit standards and the proliferation of
subprime loans have expanded the pool of first-time homebuyers to include families
with little or no cash and with limited or blemished credit histories. While all of
these practices have helped to increase the national homeownership rate, they come
with repayment risks. If interest rates soar, buyers with adjustable rate loans and
interest-only loans will be in for payment shocks, and some might find themselves
at risk of default. If the economy falters and there are job losses, some low- and
moderate-income families could be at risk of default if they become unemployed. A
small but growing number of low- and moderate-income homeowners are already
considered severely “cost-burdened,” meaning that they are spending half or more of
their incomes on housing.
Rent Burdens. In 2004, 8.4 million renter households were severely cost-
burdened (paying more than 50% of their income toward housing), an increase of9
more than 1 million from 2001. While moderate-income renters are not immune
from severe rent burdens, low-income renters face the greatest burdens; more than
86% of severely cost-burdened renters were in the bottom quintile of the income
distribution. When low-income families pay such a large portion of their incomes
for housing, they have little left to meet their other needs, let alone establish savings
or build assets. The problem of severe rent burdens appears to be growing as the
supply of low-cost rental units continues to dwindle. Harvard University’s 2006
Joint Center for Housing Studies report attributes the growing affordability problem
to two factors: land use regulations that drive up the price of housing and the growth
of low-wage jobs.10 The report notes that solving the problem will be difficult, and
will require the cooperation of government, business, and nonprofit organizations.
However, the federal government’s role in addressing what HUD has termed “worst-
case housing needs” is increasingly in question, as deficits grow and pressure to
restrain domestic spending mounts.
Rebuilding after the 2005 Hurricanes. After the initial need to evacuate
and relocate families after the 2005 hurricanes, the focus primarily shifted to recovery
and rebuilding of flood-damaged areas. The storms caused unprecedented damage
to the Gulf Coast housing stock. Studies estimated that the hurricanes and their
related flooding damaged 1.2 million housing units. Of those, over 305,000 were
seriously damaged. Most of the seriously damaged units were owner occupied —
about 63% or 193,000 homes. More than half of them lacked flood insurance (55%)
and about a quarter of them lacked any insurance (23%). Louisiana, specifically New
9 State of the Nation’s Housing report, p. 36, Table A-6.
10 Ibid., p. 25.
Orleans, was hit the hardest; about 67% of the seriously damaged units were located
in Louisiana (204,737 renter and owner-occupied homes).11
The demolition and rebuilding of housing structures in affected areas got off to
a slow start, particularly in and around New Orleans. The Federal Emergency
Management Agency (FEMA) released flood maps for New Orleans on April 12,
2006. The levees have been mostly rebuilt. As of August 2006, one year after
Hurricane Katrina, the Army Corps of Engineers had demolished 185 housing units
in Orleans Parish, and just under 38,600 building permits had been issued.12 In part,
the pace of rebuilding has been slowed by uncertainty at the local, state, and federal
levels about what the new New Orleans should be and how it should look.
The appropriate balance of public sector and private sector effort in rebuilding
the damaged housing stock is also still under debate. Private insurance will cover
some of the cost, and new investment may come to the area, but given the enormity
of the damage, the local, state, and federal governments have been heavily involved.
Thus far, Congress has approved more than $16 billion in Community Development
Block Grant (CDBG) funds and increased tax credit allocations to affected states to
aid in their rebuilding. The plans developed by local communities for spending the
CDBG funds were approved in the late spring and early summer, so the money is
beginning to flow to local communities.13 Other proposals were offered to expand
the government’s role, including one to create an entity to buy out owners of
damaged properties in at-risk areas, although none was enacted before the close of
the second session of the 109th Congress. (For more information, see CRS Report
RL33761, Rebuilding Housing After Hurricane Katrina: Lessons Learned and
Unresolved Issues, by N. Eric Weiss.)
Housing Reconstruction After the 2005 Hurricanes
Community Development Block Grant Funds. On June 15, 2006, the
President signed P.L. 109-234, an emergency supplemental appropriations act, and
the second of two laws that provided funds for Gulf Coast recovery efforts following
the hurricanes of 2005.14 The law included $5.2 billion in additional CDBG
assistance for the states of Alabama, Florida, Louisiana, Mississippi, and Texas. It
limited the amount that any one state may receive to $4.2 billion, and encouraged
states to target assistance to infrastructure reconstruction and activities that would
11 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.
12 Amy Liu, Matt Fellowes, and Mia Mabana,, “Katrina Index: Tracking Variables of Post-
Katrina Reconstruction,” The Brookings Institution, August 2006, p. 5, available at
[http://www.brookings .org/ me tro/pubs/2006_K atrinaIndex.pdf].
13 Office of the Federal Coordinator for Gulf Coast Rebuilding, Continuing Progress; A One
Year Update on Hurricane Recovery and Rebuilding, August 2006.
14 For details on the overall supplemental request, see CRS Report RL33298, FY2006
Supplemental Appropriations: Iraq and Other International Activities; Additional Katrina
Hurricane Relief, coordinated by Paul Irwin and Larry Nowels.
spur the redevelopment of affordable rental housing, including federally assisted
housing and public housing. It did not include language originally included in the
Senate bill prohibiting the use of CDBG funds for activities reimbursable by the
Small Business Administration, but kept in place a provision prohibiting the use of
CDBG funds for activities reimbursable by FEMA or the Army Corps of Engineers.
The law contained provisions regarding the use and administration of funds that do
!require that at least $1 billion of the CDBG amount be used for
repair and reconstruction of affordable rental housing in the
!allow each state to use no more than 5% of its supplemental CDBG
allocation for administrative expenses;
!allow the affected states to seek waivers of program requirements,
except those related to fair housing, nondiscrimination, labor
standards, and environmental review;
!allow Governors of the affected states to designate one or more
entities to administer the program;
!decrease the low- and moderate-income targeting requirement from
!require each state to develop a plan for the proposed use of funds to
be reviewed and approved by HUD;
!direct HUD to ensure that each state’s proposed plan gives priority
to activities that support infrastructure development and affordable
rental housing activities;
!require each state to file quarterly reports with House and Senate
Appropriations Committees detailing the use of funds;
!require HUD to file quarterly reports with the House and Senate
Appropriations Committees identifying actions by the Department
to prevent fraud and abuse, including the duplication of benefits; and
!prohibit the use of CDBG funds to meet matching fund requirements
of other federal programs.
Of the $5.2 billion appropriated for CDBG disaster recovery activities, $12
million was transferred to HUD’s salaries and expenses account, with $7 million of
this amount set aside for the cost of administering the Katrina Disaster Housing
Assistance Program/Disaster Voucher Program (KDHAP/DVP). The act also
transfered $9 million to the Office of Inspector General and $6 million to HUD’s
Working Capital Funds to be used to improve the capabilities of HUD’s disaster
recovery grant reporting system. On July 11, 2006, HUD announced that $4.2 billion
of the $5.2 billion supplemental appropriation for CDBG would be allocated to
Louisiana, and on August 18, it announced how funds would be distributed to the
remaining states (See Table 2). HUD determined the distribution of funds for
Alabama, Florida, Mississippi, and Texas based on unmet need and an analysis of
data from FEMA and the Small Business Administration. It then invited each state
to provide their own data on remaining recovery needs in order to make its decision.
Table 2. Allocation of $5.2 Billion
in CDBG Disaster Relief Assistance (P.L. 109-234)
T e xas $428,671,849
T otal $5,173,000,000
Source: HUD news releases, July 11, 2006, available at [http://www.hud.gov/news/
release.cfm?content=pr06-079.cfm], and August 18, 2006, available at [http://www.hud.gov/news/
Prior to enactment of P.L. 109-234, Congress approved $11.5 billion in
supplemental CDBG disaster-recovery assistance in the Defense Appropriations Act
for FY2006, P. L. 109-148, which was signed by the President on December 30,15
2005. These funds were to be used for “necessary expenses related to disaster
relief, long-term recovery, and restoration of infrastructure in the most impacted and
distressed areas” in the five states (Alabama, Florida, Louisiana, Mississippi, and
Texas) impacted by Hurricanes Katrina, Rita, and Wilma. The act allowed
!the affected states to use up to 5% of their supplemental allocation
for administrative costs;
!HUD to grant waivers of program requirements (except those
relating to fair housing, nondiscrimination, labor standards, and the
!Mississippi and Louisiana, the most affected states, to use up to $20
million for Local Initiative Support Corporation and Enterprise
Foundation-supported local community development corporations;
!the Governor of each state to designate multiple entities to
administer a portion, or all of a state’s share of the $11.5 billion.
The act also lowered the income targeting requirement for activities benefitting
low- and moderate-income persons from 70% to 50% of the state’s allocation;
limited the maximum amount of assistance any of the five states may receive to no
more than 54% of the total amount appropriated; and required each state to develop,
for HUD’s approval, a plan detailing the proposed use of funds, including eligibility
criteria and how the funds will be used to address long-term recovery and
infrastructure restoration activities. But the law did not specify the method to be used
15 For more details on this supplemental appropriation, see CRS Report RS22239,
Emergency Supplemental Appropriations for Hurricane Katrina Relief, by Keith Bea.
to allocate funding among the five states. That task was left to HUD. On January 25,
2006, HUD Secretary Alphonso Jackson announced the allocation of the $11.5
billion among the five states (See Table 3).
Table 3. Allocation of $11.5 Billion
in CDBG Disaster Relief Assistance (P.L. 109-148)
T e xas $74,523,000
T otal $11,500,000,000
Source: Federal Register, vol. 71, no. 29, Feb. 13, 2006, p. 7666.
According to an agency press release, HUD used a number of data sources in
developing the methodology for allocating the $11.5 billion in CDBG supplemental
assistance, including data sources from FEMA, the Small Business Administration,
the National Oceanic and Atmospheric Administration (NOAA), and the U.S.
Geological Survey. Using data from these agencies, HUD calculated for each of the
five states, the extent of each state’s unmet housing needs and areas of concentrated
distress. HUD defined unmet housing needs as homeowners and low-income renters
whose homes had major or severe damage, while concentrated distress was defined
as the total number of housing units with major or severe housing damage in counties
where 50% or more of the units had major or severe damage.16 HUD then allocated
on the degree of concentrated distress as measured by each state’s share of damaged
and destroyed housing stock, and business and infrastructure damage.
On February 13, 2006, HUD published a notice of allocations, waivers, and
alternative requirements governing the $11.5 billion in CDBG disaster recovery
assistance.17 In addition to providing waivers allowing the states to allocate funds
to CDBG entitlement communities and to directly administer the program, the notice
also included language stating that “Funds allocated are intended by HUD to be used
16 U.S. Dept. of Housing and Urban Development, “Jackson Announces Distribution of
$11.5 billion in Disaster Assistance to Five Gulf Coast States Impacted by Hurricanes;
Funding will help states in long-term recovery of high impact areas,” available at
[http://www.hud.gov/news/release.cfm?content=pr06-011.cfm], visited March 8, 2006.
17 U.S. Dept. of Housing and Urban Development, “Allocation and Common Application
and Reporting Waivers Granted to and Alternative Requirements for CDBG Disaster
Recovery Grantees Under the Department of Defense Appropriations Act, 2006,” Federal
Register, vol. 71, no. 29, Feb. 13, 2006, p. 7666.
toward meeting unmet housing needs in areas of concentrated distress.”18 The
language included in the act did not restrict the use of these funds to unmet housing
needs. Rather, the act provided some level of flexibility allowing funds to be used
for long term recovery and infrastructure restoration in the areas most affected by the
Gulf Coast Hurricanes of 2005.
The Louisiana Recovery Corporation Act. Bills were introduced in both
the House and Senate (H.R. 4100 and S. 2172, respectively) to create a Louisiana
Recovery Corporation as a federal government agency with the mission of
coordinating the economic stabilization and redevelopment of areas within Louisiana
that were devastated or significantly distressed by Hurricane Katrina or Hurricane
Rita. Although the House Financial Services Committee reported H.R. 4100 to the
House on December 15, 2005, neither the House or Senate bill received a floor vote.
As described in H.R. 4100 and S. 2172, the corporation would have followed
local redevelopment plans, and depended on financial incentives to obtain residential
and commercial property. It would not have had the power of eminent domain. It
would have purchased homeowners’ equity for a portion of the pre-hurricane value19
and paid the mortgage lenders no more than 60% of the pre-hurricane mortgage
balance. Owners and mortgage holders would have benefitted in cases where the
post-hurricane values were less than these amounts. Because mortgages would have
been forgiven in those cases, owners with mortgages would have benefitted more
than owners without mortgages. The corporation would have built infrastructure and
sold the property to developers to complete the redevelopment process. The original
owners would have had the right of first refusal to the developed property or to
similar property in a similar location. The two bills proposed to fund the corporation
for a 10-year period outside of the appropriations process through $100 million in
start-up funds and a $30 billion government bond issue.
Section 8 Voucher Funding and Reform. The Section 8 voucher program
has come under criticism in recent years for increases in its cost without
corresponding increases in the number of families it serves. In FY2006, Congress
funded the program at $15.8 billion, a 7% increase over FY2005, and it accounted
for more than 46% of the total HUD budget (in part because of reductions to other
programs). The program has also been criticized for not promoting self-sufficiency
among its participants and for its administrative complexity, which results in high
rates of error in calculating subsidies.
In response to these critiques, two major initiatives have emerged over the past
several years. The first involves changes to the way the program is funded.
Beginning with the FY2003 appropriations act and continued in the FY2004,
FY2005, and FY2006 laws, Congress has converted the voucher program from a
unit-based, actual cost program to a budget-based, fixed cost program. Prior to
19 At least 60% in H.R. 4100 and 80% in S. 2172.
FY2003, PHAs had a number of vouchers that they were authorized to distribute, and
HUD reimbursed them for the actual cost of those vouchers (statutorily set at roughly
rent minus 30% of family income). In FY2005, PHAs were funded based on the
number of vouchers they were using and the cost of those vouchers in a snapshot of
time — May through July 2004 — with an adjustment for inflation. This new
“budget-based” environment left some PHAs with less funding than they required to
continue serving the same number of families at the same level that they had in the
past. Many PHAs made program adjustments to reduce costs, but they were
constrained by federal laws and regulations governing the size of benefit they must
provide and the income levels of the families they must serve. The FY2006
appropriations law continued the trend and allocated funds to agencies based on what
they received in FY2005, plus inflation, pro-rated to fit within the amount
appropriated. The President’s budget requested that Congress use the same formula
again for FY2007, but a final FY2007 funding formula was not adopted before the
close of the 109th Congress. (For more information, see CRS Report RS22376,
Changes to Section 8 Housing Voucher Renewal Funding, FY2003-FY2006, by
The second major initiative was an Administration-led drive to eliminate the
existing Section 8 voucher program and replace it with a new and restructured
housing subsidy program. On April 13, 2005, Senator Allard introduced S. 771, and
on April 28 Representative Gary Miller introduced H.R. 1999, the State and Local
Housing Flexibility Act of 2005. Title I of S. 771 was titled the Flexible Voucher
Act, and its provisions were similar to those in the Administration’s Flexible
Voucher Program (FVP) proposal from the 108th Congress. It would have replaced
the Section 8 voucher program with the Flexible Voucher Program and would have
expanded eligibility for the program to higher-income families. It would also have
given PHAs the option to set time limits or increase tenant contributions toward rent.
The bills included two additional titles, one that would have modified the eligibility
and rent rules for public housing and another that would have extended and expanded
the Moving to Work Demonstration program. S. 771 was referred to the Senate
Banking Committee, and H.R. 1999 was referred to the House Financial Services
Committee; no action was taken on either bill before the end of the 109th Congress.
On June 14, 2006, the House Financial Services Committee approved H.R.
5443, the Section 8 Voucher Reform Act of 2006. This bipartisan bill was
introduced by Subcommittee Chair Representative Ney and Ranking Member
Representative Waters on May 22, 2006. The bill aimed to make the Section 8
voucher program more efficient, easier to administer, and more capable of promoting
economic self-sufficiency. It featured changes to the way tenant income is calculated
for purposes of rent and income determination, modifications to the housing quality
reviews, and a new funding allocation method that would have blended elements of
previous allocation strategies and recent strategies. The bill also featured a small
expansion of the Moving To Work demonstration, with a focus on performance
standards and evaluation. The bill received no further action before the close of the
109th Congress. (For more information, see CRS Report RL33270, The Section 8
Housing Voucher Program: Reform Proposals, by Maggie McCarty.)
Public Housing Operating Funds. HUD will begin using a new formula
to distribute public housing operating funds to public housing authorities in January
with the potential that some PHAs will receive substantial increases in funding and
others will receive substantial decreases.
Operating funds make up the difference between what tenants pay in rent and
the cost of running public housing. The amount a PHA receives is based on a set of
allowable expenses set by HUD. PHAs calculate their budgets by totaling up the
allowable expenses for all of their units and subtracting the amount they receive in
tenant rents. HUD then adds together all of the agencies’ budgets and compares the
total to the amount Congress appropriated for the operating fund that year. Typically,
Congress appropriates less than the full amount that PHAs qualify for under the
formula, so HUD applies an across-the-board cut to agencies’ budgets, called a20
proration. The 2006 proration was 86%, so agencies’ budgets were cut by 14%.
The new funding formula for FY2007, established by HUD through regulation,
adopts new allowable expense levels. It also requires PHAs to adopt a new form of
property management — called asset-based management — by FY2011. Some
agencies will qualify for a higher budget under the new allowable expense levels and
others will face reductions. Those that face a decrease can transition to asset-based
management sooner to help limit their losses. However, the magnitude of gains and
losses under the new formula will depend on how much is appropriated for the
operating fund and, subsequently, how low a proration HUD will set.
The President requested $3.5 billion for operating funds in FY2007, which is
the same amount that was provided in FY2006. According to HUD estimates, the
requested FY2007 funding level would lead to an 85% proration.21 PHA advocacy
groups have protested that HUD’s request would be insufficient to meet their needs.
They disagreed with HUD’s estimated proration and estimated that the actual22th
proration at the requested funding level would be close to 80%. The 109 Congress
adjourned without adopting a final FY2007 funding level for the Public Housing
Operating Fund. (For more information, see CRS Report RS22557 Public Housing:
Fact Sheet on the New Operating Fund Formula, by Maggie McCarty.)
HOPE VI Funding. The HOPE VI program provides competitive grants to
PHAs for the demolition and/or revitalization of distressed public housing. HOPE
VI has been popular with many Members of Congress, but it has been criticized by
the Administration, which argues that grantees spend money too slowly, and by
tenant advocates, who argue the program displaces more families than are housed in
new developments. Reflecting these criticisms, HUD proposed no new funding for
20 See [http://www.hud.gov/offices/pih/programs/ph/am/of/2006prorationexpl_sept06.pdf].
22 See Public Housing Authorities Directors Association (PHADA). 2006. Asset
management, yes — Micromanagement, no: PHADA’s solutions for getting HUD’s asset
management guidance on the right track. Washington, DC: PHADA. Available from
[http://www.phada.org/ pdf/asset_mgmt .pdf].
HOPE VI in its FY2004, FY2005, FY2006, and FY2007 budget submissions.
Congress continued funding the program in FY2004 ($149 million), FY2005 ($143
million), and FY2006 ($100 million), although at lower levels than in previous years
($570 million in FY2003). HUD’s FY2006 budget asked Congress to rescind the
funds Congress appropriated for the program in FY2005, but Congress rejected the
proposal. HUD’s FY2007 budget again asked Congress to rescind the funds it
appropriated in the prior year.
Authorization for the HOPE VI program was set to expire at the end of FY2006.
On July 27, 2005, Senator Mikulski introduced a bipartisan bill to reauthorize the
program through FY2011. The HOPE VI Improvement and Reauthorization Act of
2005 (S. 1513) included provisions designed to promote collaboration with local
school systems and give priority to grant applicants that minimize both temporary
and permanent displacement of public housing residents. Another HOPE VI
reauthorization bill, H.R. 5347, was introduced by Representative Shays on May 10,
was voted out of the House Financial Services Committee on May 24, 2006. While
no HOPE VI reauthorization bill was enacted, the continuing resolution (CR) that
funds HUD into the 110th Congress (P.L. 109-289, as amended by P.L. 109-383),
includes a provision extending the HOPE VI program for the duration of the CR.23
(For more information, see CRS Report RL32236, HOPE VI Public Housing
Revitalization Program: Background, Funding, and Issues, by Maggie McCarty.)
Section 202 Housing for the Elderly Program Funding. The Section
202 Housing for the Elderly program primarily provides capital grants and project
rental assistance to private non-profit developers so that they can provide housing for
very low-income elderly households (those with a member age 62 or older). The
Section 202 program also provides funds for service coordinators to work at Section
202-funded housing developments and connect residents with available services in
the community, and for conversion of buildings to assisted living facilities.
In FY2006, Congress appropriated $735 million for elderly housing programs.
Of this amount, $51 million went to fund service coordinators and $24.5 million was
allocated for assisted living conversion. The majority of remaining funds were
available to fund capital grants and project rental assistance for the Section 202
program. For FY2007, however, the President proposed to fund the Section 202
program at $546 million, approximately $196 million less than the President’s
FY2006 request, and a reduction of almost 26% from the FY2006 appropriation.
According to HUD estimates, the amount requested in the President’s budget for
FY2007 would have funded the construction of 2,730 new elderly housing units,
compared to FY2006, when 4,313 new units were funded. In their versions of the
appropriations bill (H.R. 5576), neither the House nor the Senate Appropriations
Committee followed the President’s recommendation. The House would have
provided $747 million for Section 202, while the Senate Appropriations Committee
would have provided $750 million. As of the date of this report, Section 202 is
funded under a continuing resolution (P.L. 109-383) that provides funding at the
23 See Section 130 of P.L. 109-289.
FY2006 level. (For more information, see CRS Report RL33508 Section 202 and
Other HUD Rental Housing Programs for the Low-Income Elderly, by Libby Perl.)
Section 811 Housing for the Disabled Program Funding. The Section
811 Housing for the Disabled program provides capital grants and project rental
assistance to developers that construct, acquire, or rehabilitate accessible housing for
very low-income persons with disabilities. The program also provides Section 8
Mainstream Vouchers for disabled tenants to use in the private rental market.
In FY2007, for the second year in a row, the President’s budget proposed to cut
funding for the Section 811 program nearly in half, from $237 million in FY2006 to
$119 million. The previous fiscal year, FY2006, the President’s budget request
similarly would have reduced funding for the program, to $120 million from the
FY2005 appropriation of $238 million. The proposed cut for FY2007 differed from
the request for FY2006, which would have provided funds only for Section 8
vouchers, and none for capital grants or project rental assistance contracts (PRAC).
While the FY2007 budget request would have allocated $75 million for voucher
renewals and approximately $15 million for new vouchers, it would also have
provided some funds for PRAC renewals and amendments ($15 million) and new
PRAC ($13 million). Both the House and the Senate Appropriations Committee
recommended that the Section 811 program be funded at $240 million, slightly above
the FY2006 level (H.R. 5576). The program is currently funded at the FY2006 level
under a continuing resolution, P.L. 109-383.
Homelessness. The Homeless Assistance Grants fund the four major
homeless assistance programs — Shelter Plus Care (S+C), the Supportive Housing
Program (SHP), Section 8 Moderate Rehabilitation Single Room Occupancy (SRO),
and Emergency Shelter Grants (ESG) — authorized by the McKinney-Vento
Homeless Assistance Act (P.L. 100-77) and administered by HUD. The act, which
was signed into law in 1987, has remained unauthorized since 1994. The President’s
FY2007 budget request, like his FY2004 through FY2006 budget requests, proposed
to consolidate the three competitive components of the Homeless Assistance Grants
account (S+C, SHP, and SRO) into one program. On September 29, 2005, Senator
Jack Reed introduced a bill (S. 1801) to reauthorize the McKinney-Vento Act. It
similarly would have consolidated the three competitive Homeless Assistance Grants
into one Homeless Assistance Program and would have made funds available for
permanent housing for non-disabled homeless families (current law does not allow
funds to be used for permanent housing for non-disabled families). The bill would
also have included homeless families in the definition of the chronically homeless
(discussed below) under certain circumstances. Another bill, H.R. 5041, introduced
by Representative Rick Renzi on March 29, 2006, also proposed to reauthorize the
McKinney-Vento Act and consolidate the competitive grants. H.R. 5041 provided
that no less than 30% of funds be used for permanent housing for disabled
individuals or families with a disabled member. No action was taken on either S.
In 2002, the Bush Administration set a goal of ending chronic homelessness in
10 years. The chronically homeless are generally single adults with serious mental
health and/or substance abuse problems. While the chronically homeless are
estimated to constitute only about 10% of the homeless population, they are
estimated to absorb more than half of the resources available for the homeless. The
Administration’s plan calls for increasing the number of permanent housing units
with supportive services (referred to as permanent supportive housing) developed
every year. As a part of that plan, the Administration first proposed a $200 million
Samaritan Initiative for FY2004, which would have funded the development of
permanent supportive housing for the chronically homeless. Legislation to enact the
Samaritan Initiative was introduced in the 108th Congress, but was not enacted and
funds were not provided. The President also proposed Samaritan Initiative funding
in FY2005 and FY2006, with no action by Congress.
In FY2006, Congress funded the homeless assistance grants at $1.3 billion,
approximately $86 million more than in FY2005. For FY2007, the President
requested just over $1.5 billion, again including a set-aside for the Samaritan
Initiative of $200 million. Both the House and the Senate Appropriations Committee
recommended more than $1.5 billion for the homeless assistance grants in the HUD
funding bill (H.R. 5576), although neither version contained separate funds for the
Samaritan Initiative. Currently, the homeless assistance grants are funded at the
FY2006 level under a continuing resolution, P.L. 109-383. (For more information
on homeless programs, see CRS Report RL30442, Homelessness: Recent Statistics,
Targeted Federal Programs, and Recent Legislation, coordinated by Libby Perl.)
Fannie Mae, Freddie Mac, and Federal Home Loan Bank Regulation.
Fannie Mae and Freddie Mac are government chartered, privately owned
corporations charged with supporting the secondary mortgage market. By purchasing
mortgages from the original lenders, they free up funds to be lent for more
mortgages. They do this by purchasing existing mortgages and either packaging and
selling them to investors, or keeping them in their own portfolios. They are not
allowed to lend directly to homeowners. To finance their portfolios, they sell bonds
and other debt to investors. The secondary mortgage market has improved the
efficiency of mortgage lending and lowered the interest rate that home owners pay.
Many economists and other analysts believe that because of their ties to the federal
government, Fannie Mae and Freddie Mac (also known as government-sponsored
enterprises or GSEs) can borrow at lower interest rates than they could otherwise and
that some of this advantage accrues to stockholders and employees.
Regulation of Fannie Mae and Freddie Mac is split between two parts of HUD.
The independent Office of Federal Housing Enterprise Oversight (OFHEO) is the
safety and soundness regulator. It has been the primary regulator during recent
accounting problems, although the Securities and Exchange Commission and the
Department of Justice have also been involved, especially in the case of Fannie Mae.
(See CRS Report RS21949, Accounting Problems at Fannie Mae, and CRS Report
RS21567, Accounting and Management Problems at Freddie Mac, both by Mark
Jickling, for more details.) 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. OFHEO has said that this
limitation is likely to remain in place for several years. Fannie Mae filed its annual
report (form 10-K) with the Securities and Exchange Commission on December 6,
2006, which was approximately 21 months late. The work on the restatement of
financial records continues at both of the GSEs.
HUD’s Financial Institutions Regulation Division establishes and monitors
affordable housing lending goals at Fannie Mae and Freddie Mac.
The Federal Home Loan Bank System is comprised of 12 regional banks (the
Banks) that collectively comprise the third housing GSE. Started in 1932 as lenders
to the savings and loan associations that were the primary lenders for home
mortgages, the Banks have undergone major changes, particularly since the cleanup
of the savings and loan association failures of the 1980s. As a result, membership in
the Banks has changed, today encompassing more commercial banks than savings
associations and including credit unions, insurance companies, and some associated
housing providers. Purposes of lending — while still primarily housing-related —
now include agricultural and small business lending. The changes also have resulted
in special mission set-asides for low- and moderate-income housing, special
programs for community development, and a continuing responsibility for paying
debt raised to fund deposit insurance payouts in the 1980s. For both mission and
safety and soundness, the five-member Federal Housing Finance Board (FHFB)
regulates the System.
Two bills were introduced in the first session of the 109th Congress to strengthen
the oversight of Fannie Mae, Freddie Mac, and the banks under a single regulator.
Most analysts believe that the Senate bill (S. 190) would have given the new
regulator greater powers than the House bill (H.R. 1461), especially in the area of
limiting the size the GSEs mortgage portfolios, which, some argue, could be a source
of risk to the nation’s financial system. H.R. 1461, unlike S. 190, would have created
a new Affordable Housing Fund that could have contributed as much as $350-$400
million for the development of affordable housing over the first two years. H.R.
1461 included controversial limits on the ability of nonprofit organizations that
receive money from the fund to attempt to influence public policy.
H.R. 1461 would also have raised the maximum size of the mortgage that
Fannie Mae and Freddie Mac could purchase in high cost areas of the country. This
ceiling, known as the conforming loan limit, was $417,000 for one-unit properties
for 2006. The main impact would have been to allow Fannie and Freddie to purchase
more mortgages on homes on the east and west coasts. (For more information on this
issue, see CRS Report RS22172, Proposed Changes to the Conforming Loan Limit,
by Barbara Miles and Mark Jickling.) The House passed H.R. 1461 on October 26,
The Senate Banking and Urban Affairs Committee ordered S. 190 reported to
the Senate on July 28, 2005. The full Senate did not consider S. 190. For more a
detailed comparison of the bills, see CRS Report RL32795, Government-Sponsored
Enterprises (GSEs): Regulatory Reform Legislation by Mark Jickling. For
information on controversial provisions concerning Fannie Mae and Freddie Mac see
CRS Report RS22336, GSE Reform: A New Affordable Housing Fund, by Eric
Weiss, and CRS Report RS22307, Limiting Fannie Mae’s and Freddie Mac’s
Portfolio Size, by Eric Weiss. For information on the FHLBs, see CRS Report
RL32815, Federal Home Loan Bank System: Policy Issues, by William D. Jackson.
The Federal Housing Administration (FHA). The FHA administers 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, 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.
The FY2007 HUD budget proposed comprehensive reform of the FHA single
family insurance program to enable FHA to be more flexible in responding to
changes in the mortgage market, and to provide a lower cost alternative to borrowers
who might otherwise choose subprime mortgage products or even become the
victims of predatory lending.
Many of the Administration’s reform proposals were included in H.R. 5121, as
passed by the House. An administrative provision in the House-passed version of the
HUD spending bill (H.R. 5576) included language from H.R. 5121. It would have
amended the National Housing Act (12 U.S.C. 1709(b)(2)) to limit FHA-insured
home loans to the lesser of the median price for the area or the Federal Home Loan
Mortgage Corporation (Freddie Mac) conforming loan limit.24 The bill would have
raised loan limits for low-cost areas from 48% to 65% of the Freddie Mac limit and
given FHA authority to insure 100% mortgages, with HUD determining what, if any,
down payment would be required based upon the likelihood of borrower default. The
borrower’s mortgage insurance premium would have been based upon the risk that
the borrower posed to the mortgage insurance fund.
The Senate Appropriations Committee did not include these provisions in its
version of H.R. 5576 because the committee did not believe that the proposal
included the necessary reforms to allow HUD to compete on the private market
without increased financial risk to the FHA insurance fund and without subjecting
the program to significant fraud and abuse. The Committee was concerned that the
proposals would move FHA closer to becoming the lender of last resort. Congressth
did not enact either H.R. 5121 or H.R. 5576 by the end of 109 Congress.
Predatory Lending. Since the early 1990s, lenders have developed better
methods of estimating the risks of certain mortgage loans, with the result that lenders
are now making home loans to persons who ordinarily would not qualify for loans,
given their income, savings, and credit profiles. The loans are often referred to as
24 Under present law the loan limit is the lesser of 95% of the median home price for the area
or 87% of the Freddie Mac limit.
subprime loans. There are many subprime loans that are the result of lenders making
legitimate pricing decisions based on the higher risks of loans because of some
characteristics of the borrowers. Problems occur when lenders deliberately market
the loans to populations such as low-income elderly and minority homeowners who
may have little understanding of complex financial products and who may have the
tendency to put too much trust in the assumption that the lender is trying to help
them. These lenders are often predators who take advantage of the ignorance of
borrowers and commit them to loans that are not in the borrowers’ financial interests.
The Home Owner Equity Protection Act (HOEPA)25 provides federal
prohibitions on certain predatory lending practices. Twenty-five states and several
municipalities have enacted similar statutes that sometimes offer much broader
protections than those afforded under HOEPA. (See CRS Report RL32784
Predatory Lending: A Comparison of State Laws to the Federal Home Ownership
and Equity Protection Act, by Nathan Brooks.) Varying requirements among state
and local statutes that seek to limit predatory lending have led many in the lending
community to call for a uniform federal statute. The difficulty, from a public policy
standpoint, is how to limit predatory lending without at the same time restricting the
ability of lenders to make loans that are legitimately priced according to the risk of
Predatory lending issues were addressed in H.R. 200, H.R. 1182, H.R. 1643, and
H.R. 4471 in the 109th Congress. The bills included provisions related to counseling
and financial literacy programs to give consumers the tools to recognize and avoid
becoming victims of predatory lending practices, amendments to the Truth in
Lending Act to add restrictions on high-cost mortgages and prohibit certain practices,
amendments to additional banking laws to combat predatory lending practices that
affect low- and moderate-income individuals, and a provision that would have
preempted state and local laws that address predatory lending. The 109th Congress
did not enact any of these predatory lending bills.
Some groups argue that the state and local laws result in a reduction of the
availability of credit to those who need the loans. A recent report by the Center for
Responsible Lending suggests that state and local laws work to reduce predatory
lending, and that such laws increase the availability of credit to those in need of it.26
Real Estate Settlement Procedures Act Regulation. The Real Estate
Settlement Procedures Act (RESPA) was enacted in 1974 to effect certain changes
in the settlement process for residential real estate. These changes were expected to
result in (1) more advance disclosure of settlement costs to home buyers and sellers,
(2) the elimination of kickbacks or referral fees that tended to cause unnecessary
increases in the costs of certain settlement services, (3) a reduction in the amounts
that buyers are required to place in escrow accounts for the payment of property taxes
25 Subtitle B of Title I of the Riegle Community Development and Regulatory Improvement
Act, P.L. 103-325; 15 U.S.C. § 1601 et seq.
26 Wei Li and Keith S. Ernst, The Best Value in the Subprime Market: State Predatory
Lending Reforms, The Center for Responsible Lending, February 23, 2006, available at
[ ht t p: / / www.r e sponsi bl e l e ndi ng.or g/ pdf s/ r r 010-St at e_Ef f ect s-0206.pdf ] .
and hazard insurance, and (4) reform and modernization of local record keeping of
land title information. The HUD regulation administering RESPA was issued on June
4, 1976. The regulation is referred to as Regulation X and is found in the Code of
Federal Regulations at 24 C.F.R. Part 3500. The only major revision to Regulation
X occurred on November 2, 1992.
RESPA requires lenders to provide consumers with estimates of settlement
costs, but no federal or state law requires the lenders to actually deliver settlement
costs in the amounts stated in the estimates. As a result, consumers often get hit with
unexpected fees at closing, and these unexpected fees can sometimes be hundreds
and even thousands of dollars more than expected. In addition, consumers generally
find the real estate settlement process confusing, and lenders find it cumbersome.
To date, reform of RESPA has not been a priority of Congress, but in recent
years HUD has sought to reform the rules under the existing law. Several changes
in Regulation X have been proposed since 1995, but none of them have resulted in
a final rule. The most recent proposal was made on July 29, 2002, in a proposed rule
entitled “Simplifying and Improving the Process of Obtaining Mortgages to Reduce
Settlement Costs to Consumers.”27 After strong opposition by some Members of
Congress and various industry groups, the proposal was withdrawn in March 2004
for further review and analysis. At the Mortgage Bankers Association annual policy
conference in Washington, D.C. on April 19, 2005, HUD Secretary Alphonso
Jackson pledged to work with Congress, consumer groups, and the housing industry
to reach a consensus on RESPA reform.28 During a series of meetings with these
groups over the summer, the Secretary said the Department will take as much time
as is necessary to develop a meaningful RESPA reform proposal, and that the
proposal will be introduced as a proposed rule enabling comments by interested
Low-Income Housing Tax Credit Modifications. The Low Income
Housing Tax Credit (LIHTC) was created by the Tax Reform Act of 1986 (P.L.
99-514) to provide an incentive for the acquisition and development or rehabilitation
of commercial property for affordable housing for renters. These federal housing tax
credits are awarded to developers of qualified projects. Sponsors, or developers, of
real estate projects apply to the corresponding state housing finance authority for
LIHTC allocations for their projects. Developers either use the credits or sell them
to investors to raise capital (or equity) for real estate projects. The tax benefit
reduces the debt and/or equity that the developer would otherwise have to incur.
With lower financing costs, tax credit properties can potentially offer lower, more
In December 2005, the Gulf Opportunity Zone Act of 2005 (P.L. 109-135) was
enacted to provide tax relief to communities adversely affected by Hurricanes
27 Federal Register, vol. 67, no. 145, July 29, 2002, pp. 49134-49174.
28 “Jackson Says He’s Listening on RESPA,” Housing Affairs Letter, Apr. 22, 2005.
Katrina, Wilma, and Rita.29 The new law temporarily added to existing LIHTC
allocation authority for Alabama, Louisiana, and Mississippi. There are now two
authorized allocations of tax credits for these states. The first allocation, which
existed prior to the Gulf Opportunity (GO) Zone enactment, is the nationwide
statutory allocation of $1.90 per capita per state. According to this formula, for
calendar year 2006, LIHTC authority was approximately $5,515,635 for Mississippi,
$8,579,963 for Louisiana, and $8,607,346 for Alabama. The per capita rate is
indexed for inflation and is adjusted annually.
The second allocation of tax credit authority, which is temporary, is in addition
to the amounts listed above. The second allocation is an amount equal to the lesser
of either $18.00 multiplied by the portion of the state’s population in the GO Zone
as determined prior to August 28, 2005, or the amount of tax credits that had been
allocated by each state to buildings in the GO Zone as determined prior to August 28,
2005.30 These provisions apply for 2006, 2007, and 2008. The second allocation will
yield an annual amount of approximately $12,000,000 for Mississippi, $23,000,000
for Louisiana, and $5,600,000 for Alabama for each of the three years.31
The new law also made an additional $3.5 million in LIHTC authority available
to both Texas and Florida in 2006.
Legislation introduced in the 109th Congress, but not enacted, also proposed
increases in the allocation amounts of the LIHTC. H.R. 2681, the Affordable
Housing Tax Credit Enhancement Act of 2005, proposed to double LIHTC authority
nationwide. Two other bills, H.R. 659 and H.R. 3159, each entitled the Community
Restoration and Revitalization Act of 2005, proposed increases in, and administrative
modifications to, the tax credit in order to target it more directly to low-income
Community and Economic Development Consolidation Proposals.
In FY2007, for the second consecutive year, the Administration included in its budget
request a proposal that would eliminate a number of federal economic and
community development programs. In its first proposal, the Administration’s
29 The Gulf Opportunity Zone (GO ZONE) is defined as those areas in Alabama,
Mississippi, and Louisiana that have been designated by the federal government as
warranting assistance due to Hurricane Katrina.
30 The amount of tax credits allocated by each state to buildings in the GO Zone prior to the
hurricane reflects not only the value of credits allocated to current construction projects that
may have been in progress, but also the value of credits allocated to buildings already placed
in service, yet still in the 10-year tax credit claim period.
31 U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of H.R. 4440, the
“Gulf Opportunity Zone Act of 2005,” as passed by the House of Representatives and the
Senate on December 16, 2005, JCX-89-05R, Dec. 20, 2005, and Technical Explanation of
the Revenue Provisions of H.R. 4440, the “Gulf Opportunity Zone Act of 2005,” as passed
by the House of Representatives and the Senate, JCX-88-05, Dec. 16, 2005.
FY2006 budget recommendations would have consolidated the activities of at least
18 existing community and economic development programs into a two-part grant
proposal called the “Strengthening America’s Communities Initiative” (SACI).
Responsibility for the 18 programs that were carried out by five federal agencies (the
Department of Housing and Urban Development, the Economic Development
Administration in the Department of Commerce, the Department of the Treasury, the
Department of Health and Human Services, and the Department of Agriculture)
would have been transferred to the Commerce Department, which currently
administers the programs of the Economic Development Administration. Under the
Administration’s FY2006 proposal, the Department of Commerce would have
administered a core program and a bonus program. The bonus program would have
awarded additional funds to communities that demonstrated efforts to improve
The FY2006 SACI proposal would have reduced total funding for the 18
programs from $5.6 billion in FY2005 to $3.7 billion in FY2006. Congress rejected
the Administration’s budget proposal and funded all 18 programs at a total level of
$5.3 billion. Although an outline of the proposal was included in the
Administration’s FY2006 budget documents, the Administration did not submit a
legislative proposal during the 1st session of the 109th Congress. Instead, after facing
significant opposition, an advisory group was established within the Department of
Commerce to help the Secretary develop a detailed legislative proposal.
The Administration’s FY2007 budget request outlined a revamped SACI
proposal. Under the FY2007 version, two of the 18 programs would have been
funded — HUD’s Community Development Block Grant program, and a new
Regional Development Account within the Economic Development Administration
(EDA). The FY2007 budget proposed a SACI funding level of $3.4 billion —
nearly $2 billion less than the aggregate appropriation for the 18 programs in
FY2006. The House version of the HUD spending bill (H.R. 5576) would have
appropriated $4.2 billion for the Community Development Fund (CDF), including
$3.873 billion for CDBG formula assistance, $57 million for Indian CDBG
assistance, $250 million for Economic Development Initiative (EDI) grants, and $20
million for Neighborhood Initiative (NI) grants. The Senate Appropriations
Committee provided for similar funding levels, including $4.2 billion for CDF,
$3.877 billion for CDBG, $58 million for Indian CDBG assistance, $250 million for
EDI, and $30 million for NI. The House version of H.R. 5576 also included
language requiring EDI and NI earmarked projects identified in the accompanying
report to provide a 40% match of local funds. This new matching fund requirement
was part of a House effort to reform the earmarking of funds.
The Administration’s FY2007 budget identified some general elements of the
new SACI proposal, including development of a common set of goals and
performance measures for federal community and economic development programs
by HUD and the Department of Commerce. In HUD, the Administration plans called
for a new CDBG allocation formula targeted to the neediest communities, a bonus
fund component, and reforms that address the program’s shortcoming outlined in the
Program Assessment Rating Tool. The Administration’s budget proposal called for
the creation of a new Regional Development Account (RDA) in EDA that would
have been funded at $257 million and would have replaced the agency’s current
budget categories of public works, economic adjustment assistance, technical
assistance and research and evaluation.
The Community Development Block Grant Program Formula. On
May 25, 2006, HUD unveiled its legislative proposal to reform the CDBG. The draft
proposal, which had no congressional sponsor in the 109th Congress, would eliminate
the program’s dual formula and the 70%/30% appropriations split between
entitlement communities and states. Instead, funds would be allocated among all
eligible communities and states using a single weighted formula consisting of the
!the number of households living in poverty;
!the number of overcrowded housing units;
!the number of female headed households with minor children;
!the number of housing units 50 years or older occupied by low
income households; and
!the per capital income.
The proposed formula is heavily weighted in favor of communities with
significant concentrations of persons living in poverty. Under the proposed formula
50% of the funds allocated are to be based on the poverty factor. Communities that
fail to meet a minimum grant threshold could seek assistance from the state or be
included in the grant application for an urban county. The proposal would also
include a $200 million challenge grant program that would award additional funds
to entitlement communities that target assistance to areas of concentrated need. The
House Appropriations Committee report accompanying H.R. 5576 (H.Rept. 109-
495), included a statement criticizing the Administration for failing to deliver a
reform proposal in time to be considered and acted on by the relevant committees of
Rural Housing Funding. In recent years, the Administration has proposed
zero funding for the Rural Housing and Economic Development program (RHED)
in HUD. The argument in favor of de-funding RHED is that rural housing needs can
be addressed through the housing programs administered by the Rural Housing
Service (RHS) of the U.S. Department of Agriculture (USDA). Despite the
President’s requests to de-fund the program, Congress has continued to provide
funding. For FY2006, the Administration proposed the consolidation of RHED into
a new program within the Department of Commerce. Congress did not accept the
proposal and funded RHED at $17 million for FY2006. (See discussion of
Community Development Block Grant Program above.) For FY2007, the
Administration again proposed zero funding for RHED. The House version of the
HUD spending bill (H.R. 5576), like the President’s proposal, had no funding for
RHED, while the Senate Appropriations Committee version provided $20 million for
the program. Congress did not enact H.R. 5576 by the end of the 109th Congress.
The FY2007 Budget for RHS rural housing programs within the USDA
proposed zero funding for Section 515 direct loans for multifamily housing and a
doubling of funding for the Section 538 guaranteed multifamily housing loans. An
issue for rural housing advocates is how to preserve affordable rental housing by
preventing or reducing the prepayment of Section 515 loans, or ensuring that the
housing continues to be available as affordable housing after prepayment. The
FY2006 Department of Agriculture Appropriations Act (P.L. 109-97) included $9
million for the cost of a demonstration program for the preservation and revitalization
of Section 515 housing. The President’s Budget did not provide funding for the
program in FY2007, and would have transferred any remaining balances from
FY2006 to the multifamily housing rural voucher program. However, the President’s
budget provided that Section 515 rural voucher funds could also be used for
preservation and revitalization of Section 515 multifamily rental housing properties.
In their versions of the USDA Appropriations spending bill (H.R. 5384), both the
House and Senate Appropriations Committee followed the President’s
recommendation to transfer funds from the demonstration program to the multifamily
housing rural voucher program.
On March 6, 2006, the USDA published a proposed rule that would require
borrowers who will be first-time homebuyers to provide documentation that they
have passed a publicly available homeowner education course.32 Unlike the housing
finance programs of the Department of Veterans Affairs (VA) and the Federal
Housing Administration (FHA), the Section 502 program is a means-tested program.
As such it is not surprising that the Section 502 program would have higher
delinquency rates than VA or FHA. The intent of the proposal is to help the
borrowers become successful homeowners and thereby decrease the delinquency rate.
For more information, see CRS Report RL33421, USDA Rural Housing
Programs: An Overview, by Bruce E. Foote.
32 U.S. Department of Agriculture. Direct Single Family Housing Loans and Grants, V.71
No. 43, March 6, 2006, p. 11167.
CRS Reports on Housing
CRS Report RL33344, The Department of Housing and Urban Development (HUD):
FY2007 Budget, by Maggie McCarty, Libby Perl, Bruce Foote, and Eugene
CRS Report RL32869, The Department of Housing and Urban Development (HUD):
FY2006 Budget, by Maggie McCarty, Libby Perl, Bruce Foote, and Eugene
CRS Report RL31918, U.S. Housing Prices: Is There a Bubble?, by Marc Labonte.
CRS Report RL33421, USDA Rural Housing Programs: An Overview, by Bruce
CRS Report RL33761, Rebuilding Housing After Hurricane Katrina: Lessons
Learned and Unresolved Issues, by N. Eric Weiss.
CRS Report RS22358, HUD’s Response to Hurricane Katrina, by Maggie McCarty,
Libby Perl, and Bruce Foote.
CRS Report RL33078, The Role of HUD Housing Programs in Response to Past
Disasters, by Maggie McCarty, Libby Perl, and Bruce Foote.
CRS Report RL33173, Hurricane Katrina: Questions Regarding the Section 8
Housing Voucher Program, by Maggie McCarty.
CRS Report RL33330, Community Development Block Grant Funds in Disaster
Relief and Recovery, by Eugene Boyd.
CRS Report RS22301, Rural Housing: USDA Disaster Relief Provisions, by Bruce
Section 8 Rental Assistance
CRS Report RL32284, An Overview of the Section 8 Housing Program, by Maggie
CRS Report RL33270, The Section 8 Housing Voucher Program: Reform Proposals,
by Maggie McCarty.
CRS Report RS22376, Changes to Section 8 Housing Voucher Renewal Funding,
FY2003-FY2006, by Maggie McCarty.
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.
CRS Report RS21199, No-Fault Eviction of Public Housing Tenants for Illegal Drug
Use: A Legal Analysis of Department of Housing and Urban Development v.
Rucker, by Charles V. Dale.
CRS Report RL33764, The HUD Homeless Assistance Grants: Distribution of
Funds, by Libby Perl.
CRS Report RL30442, Homelessness: Recent Statistics, Targeted Federal Programs,
and Recent Legislation, coordinated by Libby Perl.
CRS Report RS22328, The Homeless Management Information System, by Libby
CRS Report RS22286, The Emergency Food and Shelter Program, by Libby Perl.
CRS Report RL33508, Section 202 and Other HUD Rental Housing Programs for
the Low-Income Elderly, by Libby Perl.
CRS Report RS20704, Housing Opportunities for Persons with AIDS (HOPWA), by
CRS Report RL32104, Housing Assistance and Welfare: Background and Issues, by
CRS Report RL31753, Immigration: Noncitizen Eligibility for Needs-Based Housing
Programs, by Alison Siskin and Maggie McCarty.
CRS Report RL32823, An Overview of the Administration’s Strengthening
America’s Communities Initiative, by Eugene Boyd (Coordinator), Bruce
Mulock, Pauline Smale, Tadlock Cowan, Garrine Laney, and Bruce Foote.
CRS Report RL33330, Community Development Block Grant Funds in Disaster
Relief and Recovery, by Eugene Boyd.
CRS Report RS20197, Community Reinvestment Act: Regulation and Legislation,
by William D. Jackson.
CRS Report RL3375, Alternative Mortgages: Risks to Consumers and Lenders in the
Current Housing Cycle, by Edward Vincent Murphy.
CRS Report RS20530, FHA Loan Insurance Program: An Overview, by Bruce E.
Foote and Meredith Peterson.
CRS Report RL32784, Predatory Lending: A Comparison of State Laws to the
Federal Home Ownership and Equity Protection Act, by Nathan Brooks.
CRS Report RS20533, VA-Home Loan Guaranty Program: An Overview, by Bruce
E. Foote and Meredith Peterson.
CRS Report RS22389, An Introduction to the Design of the Low- Income Housing
Tax Credit, by Pamela J. Jackson.
CRS Report RS21104, Should Banking Powers Expand into Real Estate Brokerage
and Management?, by William D. Jackson.
Housing Government-Sponsored Enterprises (GSEs)
CRS Report RL33756, Fannie Mae and Freddie Mac: A Legal and Policy Overview,
by Michael V. Seitzinger and N. Eric Weiss.
CRS Report RS22336, GSE Reform: A New Affordable Housing Fund, by N. Eric
CRS Report RS22307, Limiting Fannie Mae’s and Freddie Mac’s Portfolio Size, by
N. Eric Weiss.
CRS Report RS21567, Accounting and Management Problems at Freddie Mac, by
CRS Report RS21949, Accounting Problems at Fannie Mae, by Mark Jickling.
CRS Report RL32815, Federal Home Loan Bank System: Policy Issues, by William
CRS Report RL32795, Government-Sponsored Enterprises (GSEs): Regulatory
Reform Legislation, by Mark Jickling.
CRS Report RS21724, GSE Regulatory Reform: Frequently Asked Questions, by
Loretta Nott and Barbara Miles.
CRS Report RL32230, Regulation of Fannie Mae and Freddie Mac under the
Federal Housing Enterprises Financial Safety and Soundness Act: A Legal
Analysis, by Nathan Brooks.
CRS Report RS21896, The Department of the Treasury’s Authority to Regulate GSE
Debt: A Legal Analysis, by Nathan Brooks.
Housing Tax Policy
CRS Report RS22389, An Introduction to the Design of the Low- Income Housing
Tax Credit, by Pamela J. Jackson.
CRS Report RL33025, Fundamental Tax Reform: Options for the Mortgage Interest
Deduction., by Pamela J. Jackson.
CRS Report RL32978, The Exclusion of Capital Gains for Owner-Occupied
Housing, by Jane G. Gravelle and Pamela J. Jackson.
CRS Report RS22052, Tax Treatment of Short Term Residential Rentals - Reform
Proposal, by Louis Alan Talley and Pamela J. Jackson.
CRS Report 95-710, The Fair Housing Act: A Legal Overview, by Jody Feder.