Housing Issues in the 106th Congress

CRS Report for Congress
Housing Issues in the 106 Congress
Upda ted Janua ry 22, 2001
E. Richard Bourdon
Analys t in Housing
Domestic Social Policy Division

Congressional Research Service ˜ The Library of Congress

Housing Issues in the 106 Congress
The final 2 m onths of the 106 th Congress saw t hree sign ificant p ieces of housing
legi slation adopted: t he FY2001 budget for t he Department of Housing and Urban
Development (HUD), an afford a b l e h ousing and homeownership bill, and
community renewal l egislation contai ning an increas e i n l ow incom e h ousing t ax
credits and p rivate activity bonds.
The P resident sign ed the VA-HUD FY 2001 appropriations bill, H.R. 4635, on
O c tober 2 7 (P.L. 106-377). The new l aw provides HUD with $30.6 billion fo r
FY2001, $4.7 billion above the p revious year’s $25.9 billion, but $1.8 b illion less
than the Administration’s request. All major p rograms received i ncreased funding
ex cept for drug elimination grants and the HOPE p rogram, both funded at l ast year’s
levels. The Housing C ertificate Fund, primarily S ection 8 rental assistance, received
$13.9 billion, $2.6 b illion more than the previous year. Although t he House- and
Senate-passed b ills r eco m m e nded few or no incremen tal vouchers, t he conference
report contained $483 million for 79,000 new vouchers. T o i ncrease voucher
utilization, 20% of vouchers (up from 15%) can be used at assisted rental projects.
Provisions to increase both t he Lo w Income Housing Tax Credit and p rivate
activity bonds were attached to a number o f b ills moving through t he 106th Congress.
None had b ecome law until a t ax bill, H.R. 5662, containing housing t ax credit and
private activity bond increases, was added t o a broader appropriations package, H.R.
4577. The P resident sign ed H.R. 4577 on December 21, 2000 (P .L. 106-554). The
tax credit cap wil l i n c r e a s e t o $1.50 per capita in 2001 and t o $1.75 in 2002. This
change is ex pected to subsidiz e t he construction o f an additional 180,000 rental units
over t he nex t 5 years. The p rivate activity bond cap will increase t o t he l a rger of
$62.50 per s tate resident or $187.5 million i n 2001, and $75 per res ident or $225
A number o f affordable housing and homeownership provisions in H.R. 1776,
a bill passed by t he House on April 6 by 407-8, were added t o a bipartisan housing
authoriz ation bill, H.R. 5640. The P resident sign ed this bill on December 27, 2000
(P.L. 106-569). Among the provisions in this wide-ranging act is the authoriz ation
to use S ection 8 housing vouchers to help fa milies accum u l at e downpaym ent s t o
purchase homes, and to refinance FHA-insured Home Equity Conversion M ortgages
for el d erl y hom eowners. C h anges were al s o m ade i n p rogram s for t h e el d erl y and
disabled, and manufactured housing regulations.
Other bills during t he 106th Congress that did not get enacted included p roposals
to address “predatory l e nding” t o l ower income homebuyers (including fraudulent
appraisals, ex o rbitant loan fees and o th er onerous mortgage terms): H.R. 3901, H.R.
4213, H.R. 4250, S. 2405 and S . 2415. In addition, hearings were held on September
12, 2000 on bills proposing alternative uses f o r $ 5 b i l lion o f “ex cess” Federal
Housing Administration (FHA) mortgage insurance p rogram reserves: H.R. 4795, S.
2914, and S . 2997. One p roposal would h ave u sed t he surplus t o reduce i nsurance
p r e m i u m s , w h i l e a n o t h e r w o u l d h a v e s u b s i d i z e d n e w r e n t a l housi n g c o n s t r u c t i o n a n d
provided funds for t he preservation o f ex i sting rental p rojects.

TheHUDBudget ..............................................1
FY2001 Budget ...........................................1
OtherReadings ............................................3
FY2000 Budget ...........................................3
OtherReadings ............................................3
Lo w Income Housing Tax Credits and P rivate Activity Bonds ..........3
HousingTax Credits .......................................3
Issues andConcerns ........................................4
OtherReadings ............................................5
Private Activity Bonds ......................................5
HousingfortheElderlyandDisabled ..............................6
OtherReadings ............................................7
IncreasingHomeownership ......................................7
OtherReadings ............................................8
Manufactured Housing Industry R eforms ...........................8
Homeless AssistancePrograms ...................................9
OtherReadings ...........................................11
ReinsuranceofStateDisasterInsurancePrograms ...................11
OtherReadings ...........................................11
PredatoryLending ............................................12
OtherReadings ...........................................13
UseofSurplus FHAReservesforAffordableHousing ...............13
Table1. Department ofHousingand UrbanDevelopmentAppropriations .....3

Housing Issues in the 106 Congress
FY2001 Budget. On October 19, 2000, the Hous e and Senate approved t he
FY2001 VA/HUD appropriations bill (H.R . 4635), providing $30.6 billion for HUD
(H.Rept. 106-988). The President s igned P.L. 106-377 on October 27. The approved
budget provides about $4.7 billion m ore t han t he $25.9 billion enacted for FY2000.
Then-HUD Secretary C uomo called i t t h e b est budget in 20 years although t he
amount is $1.8 billion l ess t han P resident Clinton h ad requested for HUD.
Negotiations between Congress and Administration representatives in late September
and earl y Oct ober resul t ed i n a l arge i ncrease i n S ect i o n 8 recapt u res. “R ecapt u res”
are unused funds from a prior budget year that are t aken back from public housing
authorities, either to be redirected into another fiscal year’s budget or as a cancelled
appropriation. The $275 million o f S ection 8 recaptures approved b y both t he House
and S enat e i ncreas ed to $1. 8 billion i n t he conference negotiations. The
reprogramming o f t hese funds allowed m ore funding for a number of HUD programs,
in some cas es , m ore t han t he Administration’s o rigi nal request.
The Housing C ertificate Fund, which p ro v i des rental assistance to about 3
million l ow-income households , received $13.9 billion, nearly $2.6 b illion m ore t han
t h e previous year, although $187 million l ess t han t he Clinton Administrat i o n ’ s
request. The Administ r a t i o n h a d as ked for 120,000 new housing vouchers in
response t o t he rising number o f l ow income households payi ng m o r e t h an half of
thei r i ncome for rent. Both t he House- and S enat e-passed bills recommended few or
no additional vouchers. However, t he conference report i ncluded $453 million for

79,000 new vouchers.

During the 106 th Congress, there we r e d iscussions about the s trong economy,
the resulting d ifficulties o f u sing vouchers in tight rental markets, and whether a n ew
HUD production p rogram was n eeded. A n u m b e r o f s tudies indicated a growing
shortage of “affordable” rental housing (households with low i ncome who pay m ore
than 30% of their i ncome for shelter). Fo r e x a m p le, i n M arch 2000, HUD sent a
report to Congress, Rental Housing Assistance — The Worsening Crisis, whi c h
documented t hat a record 5.4 million unassisted very-low-income families pay over
half of their i ncome for housing or live i n severely d istressed housing. In J une, 2000,
the C enter for Housing P olicy rel eas ed a report, Housing America’s Wo rking1
Families, which s tated t hat h aving a job does not gu arantee a family a d ecent p lace
to live at a n a f fordable cost. Among its findings: “More t han 220,000 teachers,

1 The Center f or Housing Policy ( a r esearch affiliate of the National Housing Conference),
Housing America’s Working Families, New Century Housing, J une, 2000, p. 2. Washington,

p o lice, and public safety officers across t he country spend m ore t han h al f t h e i r
income for housing, and t he problem is growing worse.”
T h e l ow level o f i ncremental vouchers originally approved b y t he House and
Senate stands in contrast to the 50,000 additional vouchers approved b y C ongress for
FY1999 and t he 60,000 for FY2000. During 200 0 , H U D w a s called upon in
congressional h earings to ex plain why so few o f t hese 110,000 incremental housing
vouc hers had b een put to use. The reasons generally gi ven were t hat t he sustained
e conom i c growt h had d ri ven down v acancy rat es, pushed u p rent s t o l evel s w h e r e
vouchers could not be used, and made particip a t i o n i n t he Section 8 p rogram less
appealing t o l andlords who could eas ily fill thei r units with market -rate tenants and
avoid t he “red tape” o f t h i s p rogram. The House VA/HUD Appropriations
Subcommittee s aid t h a t t h e re was n o n eed to put more vouchers into the p ipeline
until the difficulties of using the current supply were adequately resolved. Both HUD
and t he Subcommittee discussed options to addres s t his m atter, incl uding increas ing
the fair-market rents in some ex pensive areas, and gi ving landlords more incentives
to participate i n t he rental program. As noted, final nego tiations produc e d an
agreement for 79,000 new housing vouchers.
Prior t o conference nego tiations, HUD wa s concerned t hat m any o f its programs
w o uld either face cuts or be funded at t he previous year’s level. Fo r ex a m p l e , a s
passed b y t he House, H.R. 4635 would h ave p rovided $50 million l ess for the public
housing operating fund than requested a n d t h e p ublic housing capital fund would
have received $155 million l ess t han i n t he previous year. The Senate bill approved
funding for public housing at t he Clinton Administratio n ’s requested amounts.
However, the conference report p rovided $6.25 billion for these t wo funds, about $95
million above the requested amount. About 1.3 million families now live i n public
housing. Effo r t s t o r e v italiz e o r replace nearly 100,000 severely distressed public
housing units continue under t he HOPE VI program. T he conference report p rovided
$575 million, the s ame as t he previous year, but $50 million l ess t han reques t ed.
Many housing o rganiz ations worry that fewe r replacement units will be added t han
the number t orn down under HOP E VI, and t hat not all o f t he replacements will be
affordable to those who are d isplaced, s ince more “mix ed income” communities are
b e i ng built. (See CRS Report R L30589, HOPE V I: T h e R evi t a l i z at i o n o f S everel y
Distressed Public Housing, b y S usan Vanhorenbeck.)
The C linton Administration’s FY2001 HUD budget asked for an 18% increase
in homeless assistance grants, up $180 million from $1.020 billion i n FY2000 to $1.2
billion i n FY200 1 . The conference report p rovided $1.025 billion for homeless
assistance grants an d a l s o , for t he first time, funded t he Shelter P lus C are p rogram
in a s epar at e l ine item at $100 million. Thus, t he total approved for homeless
programs for FY2001 was $1.125 billion, $105 million m ore t han t he previous year,
b u t $ 7 5 million l ess t han requested. P rogram s for the elderly and disabled were
funded i n t he conference report at c l o s e to $1 billion, up from s lightly more than
$900 million t he previous year.
Several HUD programs pro v i d e funds for t he economic stabilization or
revitalization of communities, es peci ally for areas with high unemploym ent and
concentrated levels of poverty. The conference r e p o r t a pproved $ 5 b illion for
Community Development Block Grants, s ignificantly more than in either the House-

or Senate-passed b ills, and about $100 million m or e t han t he Administration’s
request. The HOME block grant program al so benefitted from l as t m i n u t e
nego tiations, wi t h t h e conference re port providing $1.8 billion, $200-$215 million
more than Hous e a n d Senate-a pproved bills and $150 million above the
Administration’s origi nal request.
Other Readings. See CRS Report R L30504, Appro p r iations for FY 2001:
VA, HUD, and Independent Agencies, by c o o rdinators Dennis W . S nook and E.
Richard Bourdon. Fo r general background on housing p rogram s , s e e CRS Report
RL30486, Housing t he Poor: Feder al Program s f o r Low-Income Families, by
Morton J . Schussheim.
FY2000 Budget. The P resident sign ed the VA, HUD, and Independent
Agencies appropriation b ill (H.R. 2684, P.L. 106-74) on October 20, 1999, providing
HUD with a FY2000 budget of $25.9 billion, about $1.9 billion m ore t han FY1999
but $2 billion l ess t han t he Administration h ad requested. Included i n t he budget
were a few unusual items in the housing certificate fund: $2.2 billion o f rescissions
and $4.2 billion o f advance funding that could not be spent until FY2001. The
budget provided $ 10.8 billion t o renew all ex p iring S ection 8 contracts, including
funds to help families where landlords decide not to continue in t h e S ect i o n 8
program o r where contract s are terminat ed . For the s econd time in 2 years, the HUD
budget included funds for an i ncrease i n t he number o f s ubsidiz ed rental housing
units fo r t h e poor: $347 million for about 60,000 additional general use vouchers.
Funding for o ther large HUD programs included $ 9 1 1 m illion for housing for the
elderly and disabled; $1.02 billion for homeless assistance grants; $1.6 billion for the
HOME p rogram; and $4.8 billion for Community Development Block Grants.
O t her Readings. See CRS Report R L30304, Appropriations for FY 2000:
VA, HUD, and Independent Agencies , b y Dennis W . S nook, coordinator.
Table 1. D epartment o f H ousing and Urban D evelopment
(budget authority in billions; n et after rescissions)
F Y 1996 F Y 1997 F Y 1998 F Y 1999 F Y 2000 F Y 2001
$19.13 $16.30 $21.44 $24.08 $25.94 $30.62
S o urce: B ud ge t levels r emain uncertain until all p ro gr am experience has b een recorded, and a n y
supplemental appropriatio ns or rescissions have b een taken into consideratio n; thus, FY199 6 - 00
figur es are from b ud get sub missions o f sub sequent years. Estimates fo r FY2001 are from the Ho use
Ap p r o p r iatio ns Sub c o mmittee o n V A, HUD, and I nd ep end e nt Agencies.
Low I ncome Housi ng Tax Cr edi t s a nd Pr i vate Acti vi t y Bonds
Housing Tax Credits. The Low In com e H o u s i n g T ax C redi t (LIHTC ), a
1986 provision in the federal tax code, h as become the m ajor engi ne for s ubsidiz ing
the p roduction o f assisted rental housing affo rdable to lower i ncome households. At
least 800,000 new and rehabilitated units have been supported over t he program’s 14-
ye ar history. A 1997 General Accountin g Office study found that this program,

combined with funds from o ther federal housing p rograms, was h elping households
with very low i ncomes, averagi ng about $13,300 per year. These are families with
incomes equal t o about 37% of the ar e a m e d i a n , considerably lower t han t he
households with 50% to 60% of the m edian t hat t he program was generally intended
W ith the robust economy redu c ing v acancy rates and pushing rents h igher,
housing t ax credits are b eing increasingl y called upon to help prevent t he loss of the
ex ist i n g s t o c k of federally-assisted rental units, rather t han t o i ncrease t he overall
supply o f affordable rental units. An i ncr easing number o f t ax credits are b eing used
to encourage S e c t i o n 8 landlords with ex pi ring contracts not to leave t he program.
More tax credits are also b eing used to convince S ection 8 l andlords to participate i n
the “mark-to-m a r k e t ” p rogram. And more tax credits are b eing used with HUD’s
HOPE VI p rogram which i s t earing down s ome o f t he worst b ig city high rise public
housing p rojects, and replacing them with lower-density mix ed income apartment
These n ew uses for housing t ax credits, along with reports about the d ifficulties
tenants are having using housing vouchers in tight r e n t al markets, help ex plain t he
s t rong congressional s upport for increasing t he annual s upply o f t ax credits. H. R .

175 (N. J ohnson) and t he identical S. 1017 (Mack) h ad more than 450 co-sponsors.

These b ills would h ave i ncreased the annual amount of federal t ax credits that state
housing finance agencies can distribute t o d evelopers, from $1.25 per p erson i n t he
state, to $1.75, and would also have i ndex ed t he limit to inflation. This would have
raised the yearly supply o f t ax credits by 40%. An i dentical proposal was i ncluded
in President C linton’s FY2001 budget request, but without index i ng for i nflation.
Several m odified versions of thes e bills were added t o other legi slation m oving
through C ongress. On December 15, 2000, the House and S enate passed H.R. 4577
(H. R ept.106-1033), t he Consolidated Appropriations Act o f 2001, incorporating t he
provisions of a t ax bill, H.R. 5662. It will increase t he housing t ax credit cap to
$1.50 for 2001 and $1.75 thereafter, with index ation for inflation b eginning in 2003.
There will also be a $2 million s tate minim u m s t ar t i n g i n 2001, with inflation
protection b eginning in 2003. This law a l s o m odifies the criteria for allocating
housing credits among projects, requiring community revita l i z ation plans, public
housing wa iting lists, special housing n eeds, and o ther factors t o b e t aken into
consideration. There are also additional responsibilities for housing credit agencies,
including the requirement for a comprehensive m arket s tudy of the housing n eeds o f
low-income households a n d f o r regu lar site visits to monitor noncompliance with
habitability standards. It is estimated t hat an i ncreas e i n t he cap to $1.75 will result
in an additional 30,000 tax credit units a year at a cost o f $ 1 b illion over 5 years and
$6 billion over 10 years.
Issues and Concerns. In ter m s o f apartments p roduced, t he LIHTC h as
been very successful, as builders and inve stors h ave responded t o t his t ax incentive,
although t he ex t e n t , i f any, t o which these units would h ave b een produced in the
absence o f t he tax credit, is not known. Bu t n o p rogram of this siz e and complex ity
is free o f concerns. S ome observers worry that some of the m ore unfortunate results
of past housing p rograms could s urface later i n t his p rogram.

For ex ample, t here is concern t hat s ome of t he early tax credit project s will be
converted to market-rate units after t heir 15th year of service, as the l aw allows under
certain conditions, creating an issue similar to landlords who “opt out” of HUD’s
S ect i o n 8 assi st ed rent al program . A recent report b y t he J o i n t C ent er for Housi n g
Studies of Harvard University and t he Neighborhood Reinvestment C o r poration,
Expiring Affordability of Low-Income Housing T ax Credit Properties: The N ext Era
i n Preservat i o n , estimates t hat 15-year affordability restrictions will end for the first
23,000 tax credit units in 2002. The r e p o r t c o n c ludes: “Lack of monitoring or
insufficient funds for p roperty repair o r purchase will place even properties for which
there i s i nterest i n p reserving aff ordability at risk of market conversion, reduced
income-targeting, or disinvestment and decline” (p. 37).
There are also questions about whether t he cost of prod u c i n g t ax credit rental
units is reasonable relative t o alternative ways o f h elping l o w i ncome households
with their housing n eeds. New construction i s almost always more ex pensive t han
the u se of ex isting apartments, and s ome obs ervers think i t i s i nappropriate to put low
income households in new units while moderate income households nearby in less
desirable housing s truggl e without assistance. The General Accou n t i n g O ffice is
currently conducting a study to compare t he costs o f t ax credit apartments with other
ex isting federal rental housing p rograms.
Others wonder about how well developers , i nvestors, and s ta te allocating
agenci es a re fol l o wi ng t h e com pl ex requi rements o f t his p rogram. T he In ternal
Revenue Service (IR S ) i s concerned about noncompliance among early tax credit
project s t hat have now passed t he 10-year credit period (by which time al l awarded
tax credits have been claimed b y t he invest or) and m ay n o l onger feel com p el l ed t o
abide by program rules. While the IRS considers overall compliance with program
requirements t o b e good, there h as been a s igni f i cant i ncrease i n t he number o f
violations reported by IRS field agents. The agency h as conducted a broad criminal
i n vestigation of l ow-income housing t ax credit projects s uspected of illegal
activities. (Housi n g and Devel opment R eport er , J une 26, 2000). The A f f o r d a ble
Housing Finance magazine (housingfinan ce.com) reported o n charges of favoritism
and s elf-dealing i n t he awarding of housing t ax credits in Tex as. In November, 2000,
a m ember o f t he Tex as Department of Housing and Community Development was
convicted in the U.S. District C ourt o f b ri bery, t heft, m ail fraud, a n d conspiracy to
defraud the government of low-income housing t ax credits. (Housing Affairs L etter,
November 10, 2000).
Other Readings. CRS Report R S20337, The L ow Income Housi n g T a x
Credit: Current Issues and Proposed Legislation , b y R ichard Bourdon.
P r i va te Activity Bonds. Housing t ax credit supporters also urged p ass a ge
of compani o n l egislation t hat would i ncr ease t he allowed annual s tate sale of tax -
ex empt private activity bonds. P roceeds from t he sale of these bonds are frequently
used in conjunction with the LIHTC program. (Businesses and individuals who buy
these bonds in effect lend money at b elow-m arket i nterest rates because they do not
have to pay federal income tax o n t he interest they earn o n t hese bonds.) The annual
limit of bonds that each state could s ell, imposed in 1986, was t he greater of $50 per
capita or $150 million. This cap was s cheduled to be gradually increased to $75 per
capita or $225 million over a 5-year period begi nning in 2003. H.R. 864 (Houghton)

and S . 459 (Breaux ) would h ave i ncreased the cap to $75 per capita or $225 million
in 2001 and i ndex ed i t t o i nflation. A t ax bill, H.R. 5662, containing an increase i n
the p rivate activity bond cap, was added t o a broad approp r i a tions measure, H.R.
4577, and p assed b y t he House and S enate on Decemb e r 1 5 . P resident C linton
sign ed the b ill on December 21, 2000 (P .L. 106-554). Under t he new l aw, t he $50
per capita or $150 million cap for each state (whichever i s greater), will increase t o
$62.50 per resident or $187.5 million i n 2001 and $75 per resident or $225 million
in 2002. The caps will be index ed for inflation i n 2003.
Housing for the Elderly and Disabled
A number of bills were introduced i n t h e 106th Congress to make changes t o
HUD’s S ection 202 housing p rogram for t he elderly and to the S ection 811 program
for t he disabled. H.R. 202 (Laz io), Pres erving Affordable Housing fo r S e n i o r
Citizens, would h ave restructured t he fi nancing of ex i sting housing p r o j e cts for
senior citizens with the goals of both reducing t he costs t o t h e go vernment and
preserving such housing. Projects t hat w ere funded w i t h d i r ect loans and project-
based rental assistance before 1990 would b e converted to a p rogram of nonrepayable
capi t al grant s (i n effect , d ebt forgi veness). S ect i o n 8 cont ract s w oul d b e cancel l ed.
In stead, t hese projects would b e put under 5 -year renewable assist ance agreements.
A revised H.R. 202 incorporated provisions found in H.R. 425 (Vento), H.R. 1336
(Laz io), H.R. 1624 (LaFalce), S . 1319 (Bond), and the o rigi nal H.R. 202. A portion
of this revised H.R. 202 became Title V of t he FY2000 VA/HUD appropriations act,
H.R. 2684, sign ed by the P resident on October 20, 1999 (P.L. 106-74).
Under Title V, public housing authorities are allowed t o m ake rental assistance
paym ents on behalf of a family that uses an assisted living facility as a principal place
of residence and that uses the s upportive s er vices made available b y t he facility. But
thes e payments can only be used t o cover t he cost of renting t he dwelling and not for
the s upportive s ervices. P rovisions in the n ew law also p rotect ex isting residents of
federally assisted housing from h aving t o m ove out when rents are increased.
As enact ed, Title V did not incl ude provisions for federal matching grants for
the p reservation o f elderly and d isabled housing p rojects t hat were found in H.R. 425
and S . 1318. Another b ill, S. 2733 (Santorum), i ntroduced on J une 15, 2000, also
contai ned t he pres ervation m at ching grant. The Senate Banking Subcommittee on
Housing and Transportation h eld a hearing o n S . 2733 on J u ly 18, 2000. Under t he
bill, existing Section 202 housing for seniors and Section 811 housing for the
disabled could b e converted to assisted living facilities. Optional m atching grant
funds could b e u sed t o l everage m oney f or additional housing constru c t i on of
apartments for the elderly and d isabled. Supporters said that this legi slation would
also have gi ven t enants an opportunity to stay in their current homes r a ther than
having to move into an ex pensive nursing home.
During the s econd session of the 106th Congress, there was additional l egislation
adopted that made changes t o HUD’s p rograms for the elderly and d isabled. On
December 2 7 , 2000, P resident C linton s igned H.R. 5640, the American
Homeownership and Economic Opportunity Act of 2000 (P.L.106-569). Under Title
V III, t h e p r e p a ym e n t o f m o r t g a g e s f o r S e c t i o n 2 0 2 p r o p e r t i e s w i l l b e a l l o w e d i f t h e
sponsor (owner) continues t he low-income use restrictions. The prepayment and

refinancing at l ower intere st rates allows sponsors t o build equity in their p roject.
Upon refinancing, the HUD Secretary m ust m ake available at l east 50% of the annual
savings resulting from reduced Section 8 or other rental housing assistance paym ents
in a m anner t hat i s favorable to tenants, such as increasing s upport i ve services,
rehabilitation m odernization, and ret rofitting of s tructures.
Also under Title VIII, S e c t i o n 2 0 2 s ponsors can form limited p artnerships with
for-profits, and compete for low i ncome housing t ax credits. This will allow o wners
to build bigger d evelopments and ac h i eve economies o f s cale. In addition, private
nonprofit housing p roviders can use all sources of financing, including federal funds,
for amenities, relevant design features, and construction o f affo r d able housing for
seniors. W ith the HUD Secretary’s approval , proj ect reserves can be used t o ret rofi t
obsolete o r unmarketable units.
There a re al s o similar provisions that allow for-profit limited partnerships t o
participat e i n t he Section 811 program for the disabled, and permit them to compet e
for l ow income housing t ax credits. Tenant-based rental assistance provided under
the C ranston-Gonz alez N a t i onal Affordable Housing Act can be provided b y a
privat e nonprofit organization as well as by a public housing agency as under
previous law. The amount of this tenant-b ased assistance is capped at 25% of the
yearly appropriation for Section 811 housing t o assure that money remains available
for construction o f affordable housing for the d isabled. Project reserves can be used
to reduce t he number of dwelling units i n a S ection 811 project to retrofit obsolet e
or unmarketable units.
Other Readings. C R S Report R L30247, Housing f or the Elderly: L egislationth
in the 106 Congress , b y S usan Vanhorenbeck.
Increasing Homeow nership
There h as been strong bipartisan support for efforts t o i ncrease t he
homeownership rate, p articularly for m oderate- i ncome households and minorities.
H.R. 1776, the American Homeownershi p and Economic Opportunity Act o f 2000
(Laz io) contai ned a wide variet y of s uch i nitiatives . It passed t he House on April 6,
2000, amended, by a vote o f 417 to 8. On December 27, 2 0 00, P resident C linton
s i gned into law H.R.5640, the A m e ri can Ho m eowners hi p and Econom i c Opport uni t y
Act o f 2000 (P.L. 106-569). This b il l c o n tains a number o f homeownership
provision s , s o m e t h a t were in H.R. 1776. Under t his n ew law, up to one year of
S ect i o n 8 rent al assi st ance can be used as a downpaym ent o n t he purchase o f a hom e.
There i s a 3-year pilot p rogram to demonstrate t he use o f S ection 8 vouchers by the
di sabl ed t o becom e hom eowners.
Also under t he new l aw, t here is clarification t hat homeowners m ay cancel their
private mortgage insurance when the equity in their home r eaches 20% of their
remaining d ebt. T h e l aw allows for t he refinancing o f home equity conversion
m o rt gages ( H E C M s) for el d erl y hom eowners, wi t h t h e HUD S ecret ary gi v en t h e
discretion t o reduce t he si ngle premium p ayment to an amount to be determined by
an actuarial study to be conducted. An Indian Lands Title Report C ommission is to
be creat ed to find ways to facilitate home m ortgages on Indian trust l ands.

Other Readings. See CRS Report R S20527, H R . 1776 and S. 1452: The
American Homeownership and Economic Opportunity Act of 2000,byRichard
M a nufactur ed Housi ng I ndustr y Refor ms
The m anufactured housing i ndustry, which builds homes in factories rather t han
at building s ites, plays a s i gn i f i c a n t role i n p roviding affordable housing t o l ower-
income households, particularly to the elderly. There are p resently about 9 million
manufactured homes. The average cost o f a n ew unit i n 1998 was $43,800, not
counting t he land, compared with $136,425, ex cluding l a nd, for a new s ite-built
hom e. Accordi n g t o t he Am eri can Associ at i o n o f R et i red P ersons (AAR P ), 44% of
manufactured home o wners are age 5 0 and above. T he industry h as been regu lated
by HUD since 1974, although t he s t aff t hat oversees manufactured housing h as
de c l i n e d f r o m a peak of 34 t o l ess t h an a quart er of t h at num ber i n recent years. In
1990, Congress established a national commission and pushed i t t o forge consensus
o n key reform i ssues, but this effort collapsed in 1994 over a prop o s a l t h a t
installation defect s be covered by a 5-year retailer warranty.
In October 1999, the Housing and Tran sportation S ubcommittee of t he Senate
Banking Committee held hearings on S. 1452. The American Association o f R etired
Persons testified t hat “the 1974 Act i s not working well for the m anufactured housing
industry nor for t he owners of these home s ” a n d e m p h asiz ed the failure to enforce
the construction s tandards as now written. HUD’s Assistant S ecretary for Housing
William Apgar sai d h i s a gency h ad worked with industry representatives and
consumer groups for over a decade i n an effort to update the code to reflect changes
in the t echnology t hat h ave t ransformed the i ndustry. Bu t, he noted, “numerous
legi slative i nitiatives have failed as consumers and manufact urers have wrangled
over how best to regulate this industry.” A vice president o f Fleetwood Enterprises,
representing t he industry’s t wo national t rade associations, agreed that “the Act h as
not kept pace with the rapid evolution o f t he industry and its products”and s aid t hese
associations enthusiastically supported t he proposed reforms.
On April 6 , 2000, the House p assed H.R. 1776, a m ajor homeownership bill that
also contained reforms to HUD’s m anufact u r ed housing regulations. On M ay 2,
2000, the S enate p assed S . 1452, a b ill to re v i s e t h e M a nufactured Housing S afety
Standards Act of 1974. H.R. 5640, an affordable housing and homeownership bill
that b ecame law on December 27, 2000 (P.L. 106-569), i ncluded m ost o f t he
proposed changes t o t he manufactured housin g regulations in the above mentioned
Under t he new l aw, a “consensus committee”of 2 1 m embers will be established
to represent p roducers o f m anufactured housing (7), u sers of manufactured housing
(7), an d t he general i nteres t and public offici al s (7). The purpose o f t he co mmittee
will be to make recommendations to the HUD Secretary for developing, amending
and revi s i n g t he Federal M anufact ured Ho me Construction and Safety S t andards Act
and t he enf o r cement regulations. A two-thirds vote will be required t o adopt
proposed standards. States will have 5 years t o adopt a d ispute resolution p rogram
for m anufact urers, ret ai l ers, and i n st al l ers t o a d d r e s s t he correct i o n o r repai r o f
defects i n m anufactured homes reported with in 1 year after t he date of installation.

In st ates not adopting t heir own d ispute res olution p rogram, HUD could contract with
an appropri at e agent i n t he st at e t o i m p l em ent such a p rogram . Duri n g t hese 5 years,
HUD and t he consensus committee will al so be charged with developing a “model”
manufactured housing i nstallation p rogram . In s tates not adopting an i nstallation
program, HUD could contract with an appropriate agent i n t hose states t o implement
the “model” installation program. This l egislation also encourages innovation and
cost-effectiv e construction t echniques, and calls for t he es tablishment of practical and
uniform federal construction s tandards t o p r o tect owners of manufactured homes
from unreasonable risk o f p ersonal i njury and property d amage.
Homeless Assistance Programs
H.R. 1073, the Homeless Housing P rograms C onsolidation and Fl ex ibility Act
(Laz i o ) woul d consol i d at e s even McKi nney Act hom el ess assi st ance program s i n t o
a b lock grant t o s tates. Th e b i l l was voted out of the Housing and Community
Opportunity Subcommittee of t he House Banking Commit tee with minor
amendments on April 15, 1999, although n o further action o ccurred during t he 106th
Congress. The i ssue o f b lock granting hom eless assistance funds could come u p i n
the 107 th Congress. Several s ignificant homel ess p rovisions were approved as p art
of the VA-HUD FY2001 appropriations b ill (H. R . 2684, P.L. 106-377, October

27,2000). These are s ummariz ed at t he end o f t his homeless s ection.

On May 23, 2000, t h e S u b c o m mittee o n Housing and Transportation o f t he
Senate Banking C o m m i ttee h eld h earings on “the most appropriate means t o
c o n s o l i d a t e homeless p rograms at HUD.” The purpose was also to hear from t h e
GAO on the results of several o f t heir completed s tudies on federal homeless
programs. One report found that there are 50 federal p rograms with funds that can
assi st t h e hom el ess, wi t h 16 program s t arget ed ex cl usi v el y at t he hom el ess. 2 Since
1987, Congress has appropriated over $12 billion under t he HUD McKinney
program s . A t t he heari n g and el sewhere, t h ere h as been som e frust rat i o n ex p ressed
over evidence s howing t hat d espite the strong economy, the number o f homeless h as
not declined, a nd may even have i ncreas ed. S ubcommittee C hairman Allard said
“this h earing was to begi n a discussion on how we do better.”
On J u ly 27, 2000, Senator Allard intro duced S. 2968, the Local Housing
Opportunities Act, an o mnibus housing b ill that would consolidate and reform many
current HUD programs. It would consolidate HUD homeless assistance funds into
the M cKinney Homeless Assistance Perfo rmance Fund, initially distributing funds
accordi n g t o t he C D BG bl ock grant form ul a. Every t hree dol l ars of federal b l o ck
gr ant m oney would h ave t o b e m atched with one dollar o f s tate or loc a l m o n e y,
although t her e i s a liberal definition o f t he match, including salaries paid to staff,
volunteers, and t he value o f a lease o n a building.
Converting t o a block grant means homel ess funds would b e d istributed to states
and l ocalities bas ed on a formula. M ost of t he McKinney Act homel es s assistance
is now awarded t o m etropolitan areas on a competitive b asis. According t o HUD,

2 U.S. General Accounting Office, Homelessness: Coordination and Evaluation of
Programs are Essential, Febr uar y 1999 ( GAO/ RCED-99-49) .

there were about 3,000 applications in 1999, with 1,835 applicants receiving funds.
A number of j urisdictions complain that this proces s i s very time consuming and the
uncertainty of winning funds makes l ong-range p lanning dif f i c u l t . They maintain
t h a t a f o r m u l a - b a s e d d i s t r i b u t i o n w o u l d a s s u r e t h a t m o r e c o m m u n i t i es recei ve a t l e a s t
some funds. Opponents argue that gi ving funds to all communities b ased on a s tatic
form ul a m ay not refl ect c h a n gi ng needs i n l ocal areas or speci al si t u at i ons. T hey
b e l i e v e that the automatic distribution of funds would reduce t he incentive t o be
creative and results-oriented.
At the M ay 23, 2000 hearing, the t hen-HUD D e p u t y A ssistant S ecretary Fred
Karnas J r. t estified t hat over t he years, HUD has worked with local governments and
their non-profit partners to refine their efforts t o attack homelessness. He said that
HUD strongly opposed moving to a formula-bas ed process o f d istributing homeless
assistance funds because it believed its current “ C o n t i n uum of Care” approach
balances l o cal deci sion-making and flex i bility with strong national performance
go als, and t hat t his h as proven v ery s uccessful.
Some nonprofit organiz ations that administer s ervi ces to the homeless worry
that a b lo c k gr a n t approach would l e ssen HUD involvement in the M cKinney
programs, suggesting m ore comfort with HUD’s s tewardship of these funds than with
some stat e or l ocal juri sdictions. S o m e a d v o cacy groups for t he homel ess cite an
increasing number o f j urisdictions that they say are becoming overly h a r s h on the
homel ess, treating t hem like criminal s i n s ome cas es . (For a survey of cities and how
t h ey have changed t hei r l aws, s ee “Ou t l a w i n g H o m e l e s s n e s s , ” ShelterForce, National
Housing Institute. J uly/ Augu st, 1999.) Maria Foscarinis, Ex ecutive Director of the
National Law Center on Homelessnes s and Poverty, says that non-profit
organiz ations are vulnerable t o b eing denied funds for homeless assistance because
their advocacy may h ave b een critical of local government actions. T he conflict i n
late 1999 bet w e e n the HUD Secretary and the M ayor of New York C ity over t he
awardi ng of hom el ess grant s gi v es an ex am pl e o f t he t ensi ons t h at can surface over
t h e al l o cat i o n o f hom el ess assi st ance. In t h i s pu b l i c i z ed case, t h e HUD S ecret ary
temporarily took control of $60 million of t he city’s federal homeless funds, citing
a federal dis t r i c t c o u r t ruling t hat found the city had improperly t ried to prevent a
group from receiving homeless assistance after t hey h ad criticiz ed the M ayor’s “get-
tough approach to homeless p eople.”
The HUD-VA appropriations bill for FY2001 t h a t w a s s igned i nto l aw by
Pres ident C linton on Oct ober 27, 2000 (H.Rept. 106- 988), c ont ai ned s everal
homeless pro visions. The Shelter P lus C are p rogram that funds annual rental
assistance contracts for families m oving from homeless n ess t o p ermanent housing
was established under a separate account, at a level o f $100 million for the renewal
of contracts ex p iring i n FY2001 and FY2002 . In addition, government entities
receiving homeless funds will be required to implement a coordinated d ischar ge
system for i ndividuals leaving i nstitutions or health care facilities wi t h t h e go a l of
preventing an immediat e ret urn t o homel essness. Third, at leas t 30% of al l federal
homeless funds must be used for p ermanent housing, with the hope of moving away
from a system of temporary approaches t o o n e of long-term s olutions to

On October 30, 2000, President C linton s igned H.R. 5417 into law (P.L. 106-
400) to rename the S tewart B. McKinney H o m e l ess Assistance Act as t he
“McKinney-Vento Homeless Assist anc e A ct” to honor the recently deceased
Repres entative Bruce Vento of M innesota.
Other Readings. See CRS Report R L30442, Homel essness: Recent
Statistics and Targeted Federal Programs ,byM.AnnWolfe.
Pr oper t y “ Taki ngs”
Property owners s ometimes feel that the val ue of thei r property has been
unfairly reduced without just compensation b y l ocal z oning and l and-use regulations.
S o me believe they have been victims of an illegal “taking” under t he Fi ft h
Amendment o f t h e Constitution. H.R. 1142 (Young), the Landowners Equal
Treatment Act o f 1999 proposed to ensure that landowners receive treatment equal
to that provided t o t he federal government when property m ust b e u sed. The House
Committee o n R esources held hearings on April 14, 1999. On J u n e 21, 2000, the
Committee reported out H.R. 1142 by a vote o f 2 7 t o 11, largely along party lines.
This l e gislation would i nsure t hat private property o wners are compensated when
their l a n d m u s t b e u sed b y t he federal government as habitat for endangered or
threat ened speci es . Opponents fear changes like t hese could undermine
environme n t a l l aws and local authority. No further action o ccurred. See H.Rept.


Reinsurance of S tate Disaster Insurance P rograms
O n March 15, 2000, the House Banking and Financial Services Com mittee
reported, as am ended, H.R. 21, the Homeowners Insurance Availability Act (Lazio).
(See H.Rept. 106-526.) There was no further action o n t his b ill in the 106 th Congress.
H.R. 21 was i ntended t o addres s t he problems o f homeowners who find it
difficult or impossible t o buy affordable insurance i f t hey live i n areas susceptible to
hurricanes, floods, and earthquakes. There h ad been predictions of hu r r i canes of
increased intensity al o n g t he East C oast and Florida in the immediat e years ahead.
(Alt hough t here was notably little hurricane activity in the year 2000.) During the
1990s, unusually ex pensive n atural disast ers h ave p u t a s train o n s ome i nsurance
markets, leaving s ome homeowners without coverage and i ncreasing t h e ir risk of
mortgage default. Some stat es have stepped i n t o h elp, but the case was made that
limited federal reinsurance would improve the effectivenes s of t hese stat e efforts.
H.R. 21 would have provided a federal rei nsurance program t o facilitate the
pooling and spreading o f risk o f catastrophic financial losses from n atural disasters.
It woul d h ave b een act i v at ed when resi dent i al l osses for a s t at e program reached $2
billion. The p rogram would h ave ended after 10 years unless t he U.S. Treasury found
that the p rivate market for catastrophic coverage was s till inadequate.
Other Readings. CRS Report R S20442, Homeowners’ Insurance
Availability Act of 1999 (H.R. 21), b y R awle O. King.

Pr edator y Lendi ng
A number o f b ills were introduced in the s econd session of the 106th Congress
to addr e s s p r edatory lending, i ncluding S. 2415 (Sarbanes) and t he identical H.R.

4250 (LaFalce). None were adopted.

Predatory l ending is characteriz ed by mortgage refinancings , home equity loans,
and home repair l oans with unjustifiably high i nt erest rat es, ex cessi ve fees, b al l oon
paym ents, arbitrary cal l provisions, prepaym ent penalties, and t he imposition of other
onerous terms. S enator S arbanes, in introducing t he Predatory Lending Consumer
Protection Act of 2000 on April 12, 2000, said thes e l enders target lower i ncome
families, the elderly, and often uneducat ed homeowners for thei r abusive practices .
“They t arget p eople with a l ot of equity in their homes; t hey underwrite the p roperty
without regard to the ability of the borrower t o p ay the l oan b ack. They m ake t heir
money b y charging ex t remely high origination fees, and by packing o ther products
into the l oan, including upfront premium s for credi t l i fe i nsurance, or credi t
unem p l o ym ent i nsurance, and o t h ers, for whi ch t h ey get s i gni fi cant com m i ssi ons but
are o f n o v al ue to the homeowner.” These l oans have grown rapidly in minority
neighborhoods, o ften stripping away the wealth of owners that may h ave t aken them
decades or a lifetime to accumulate.
P redat ory l endi ng was t he pri n ci pal s ubj ect when t h en-HUD S ecret ary C uom o
spoke before the Senate Appropriations VA-HUD Subcommittee o n M arch 30, 2000.
He said that t h e F HA had already t aken a number of s teps to eliminat e predatory
lending practices from its programs so that many of the worst abuses are now found
in the conventional l oan m arket (loans not insured b y t he government). Amendments
made to the Truth in Lending Act by t he 1994 Hom e Ownership and Equity
Protection Act (HOEPA) h ave p revented some abuses but, b y o ther accounts, the Act
needs t o b e s trengt hen e d a n d e x panded. HUD convened a national t ask force that
held hearings in Washingt on, Atlanta, Lo s Angel es , New York, and Baltimore. A
joint report by HUD and the Treasury Department issued June 21, 2000, Curbing
Predatory Home Mortgage Lending, urges C ongress to adopt legi slation t hat would
restrict abus ive t erms and conditions on hi gh -cost l oans, p rohibit h armful sales
practices in mortgage market s, improve consumer literacy and discl osures , and
prohibit government-sponsored enterprises from purchasing l oans with predatory
feat ures and est abl i s hi ng predat ory l ending as a factor in Community Reinvestment
Act (CRA) evaluations.
The l egi s l at i o n b y S enat or S arbanes and R epresent at i v e LaFal ce was i nt ended
t o ex pand HOEP A and fi l l i n t h e p ercei ved gaps:
! It would l ower HOEP A’s interest rate and t otal fee “triggers” t o
ex tend protections to greater n u m b e rs of high cost mortgage
refinancings , home equity loan s and home improvement loans.
! It would ex pand HOEPA to restrict practices that facilitate mortgage
“flipping” and equity “stripping” - restricting t he financing o f fees
and points, prepayment penalties, single-premium credit i nsurance,
balloon paym ents and call p rovisions.
! It would p revent lenders from m ak ing l oans without regard to the
b o rrower’s ab ility to repay t he debt, encourage credit an d d e b t

counseling and require new consumer warnings on the risk o f h igh-
cost secured borrowi ng.
! It would encourage s tronger enforcement o f consumer protections by
st rengt h eni n g ci v i l rem ed i es and resci ssi on ri gh t s and i ncreasi n g
stat utory penalties for violations.
Similar p redatory lending bills were al so introduced: S . 2405 (Schumer), H.R.

3901 (Schakowsky), H.R. 4213 (Ney).

Other Readings. Congressional distribution m emorandum, “Comparison of
Predatory Lending Legi slation” by Bruce Foote. Augu st 2, 2000.
Use of S urplus FHA Reserve s f or Affordable Housing
The accounting firm o f Deloitte & Touche reported i n2000 that the FHA Mutual
Mortgage In surance Fund had a record economic value o f $16.6 billion at t he end o f
FY 1999, more than $5 billion above previous estimates. (The fund was close to
ban k r u p t cy i n the recession of 1990, with a negative value of $2.7 billion.) Since
this report, HUD and v arious housing groups have discussed how this surplus might
be used to increase affordable housing opportunities. A n u m b e r o f b ills were
introduced to addres s how the s urplus migh t be used. None of thes e bills wereth
adopted during t he 106 Congress.
Then-HUD S ecret ary C uom o s ai d recom m endations for using the s urplus could
include subsidiz ing t he construction o f n ew affordabl e rental housing, funding for
new rental assistance vouchers, and hom eownership initiat i v es . A new s tudy by
Housing America and t he National Training and Information C en t e r, ANew
Direction: How FHA Surpluses Can Solve America’s Housing C risis , s ai d, “S i n ce
FHA revenue has i ncreased due to the economic prosperity that has contributed to the
affordable housing s hortage, i t i s only appropriate to use t he FHA funds to mitigate
and even reverse such impacts.” The report s ays t hat t he $5 billion cou ld produce
over 200,000 units of affordable housing.
On J u ly 27, 2000, Senator J ohn Kerry introduced S. 2997, the National
Affordable Housing Trust Fund Act. The housing t rust fund would receive income
generated by t he main FHA m ortgage i nsurance program t hat w as i n ex cess o f t he
amount necessary to maintain a capital ratio of 3% for t he preceding fiscal year (that
some cons i d er a s afe l evel of reserves ). Similarly, certain ex ces s i ncome from
HUD’s Government National M ortgage Associat i o n w o u l d b e d irected into the
housing t rust fund. Currently, t he ex cess i ncome from t hese programs is returned to
the federal Treas ury and used to fund general government activities, and t hus,
perceived as l ost t o housing u se. (However, accounts are maintained by the T reasury
on whether t hese programs are running a s urplus or deficit, much like t he net b alance
of the S ocial S ecurity Trust Fund.) Under S . 2997, m o n ey “transferred” into the
housing t rust fund would b e u sed t o build rental housing for ex tremely l ow-income
families and to promote homeownership for l ow-income families. The C ommittee
on Banking, Housing, and Urban Affairs S ubco mmittee on Housing and
Transportation h eld h earings on the FHA surplus o n S eptember 12, 2000.

W h i l e n o t necessarily disagreeing about the n eed to address t he issue o f
affordable housing, some in Congress are uncertain about the d esirability of using t he
surpl u s reserves o r p rofi t s from t he F H A i n s u r ance busi n ess (assum i n g t hey are as
large as t he estimates) to pay for other hous ing programs. Some believe that if the
economy were t o t urn downward, with unemploym ent i ncreasing s ubstantially from
the current level, that the FHA surplus would r a p i d l y be reduced. Among other
altern at i v es being considered is to reduce t he FHA m ortgage i nsurance premiums
since t hey are paid by many minorities, first-time buyers, and others of m oderate
incomes. On J u ly 12, 2000, then-Representative Laz io, ch a i r m a n o f t he House
Housing and Community Opportunities S ubcommittee, i ntroduced H.R. 4795, the
Homeowners Rebate Act o f 2000, which would require HUD to rebate FHA ex cess
reserves to cer t ai n FHA-insured homeowners. An identical bill, S. 2914, was
introduced by Senator Allard.
On October 31, 2000, HUD announced a Homebuyer Savings P lan t hat t he
agency s a ys will save more than one million homeowners with FHA-insured
mortgages m ore t han $1 billion annually in insurance costs. Under t he plan, t he FHA
u p - f ront insurance p remium was reduced from 2.25% to 1.5% of the o rigi n a l l o a n
am o u nt. The plan also eliminated entirely FHA’s annual premium of .5% on al l
loans once homeowners build 22% equity in their h o m e ( m o deled after private
mortgage insurance cancellation l egis lation p assed b y C ongress in 1998). Under t he
t h i rd p art o f t he pl an, current FHA borrowers wi l l recei ve a refund on prem i u m s pai d
when t h ey sel l t h ei r hom e o r refi n ance t h ei r l oan. HUD S ecret ary C uom o s ai d t hat
none of the FHA’s $16 billion i n reserves will go to pay for this premium cut and t hat
the economic value of FHA’s i nsurance fund is ex pect ed to grow to $34 billion by