    [Budget of the U.S. Government]
    [VI. Investing in the Common Good: The Major Functions of the Federal Government]
    [18. Commerce and Housing Credit]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                        18.  COMMERCE AND HOUSING CREDIT

      ----------------------------------------------------------------------

                        Table 18-1.  FEDERAL RESOURCES IN SUPPORT OF COMMERCE AND HOUSING CREDIT
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                Estimate
                Function 370                1996   -----------------------------------------------------------------
                                           Actual      1997       1998       1999       2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority...      3,721      2,362      3,308      3,770      5,242      3,221      3,230
      Mandatory Outlays:
        Existing law...................    -13,793    -11,418        710      2,512      6,925      5,708      6,778
        Proposed legislation...........  .........  .........       -714         56        271     -1,683     -1,909
    Credit Activity:
      Direct loan disbursements........      1,570      8,824      4,973      1,682      1,928      2,258      2,405
      Guaranteed loans.................    181,277    168,959    161,613    161,534    163,350    166,218    169,216
    Tax Expenditures:
      Existing law.....................    182,415    188,935    195,875    204,780    213,495    222,030    229,670
      Proposed legislation.............  .........         69        243        228        202        174        144
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
      The Federal Government provides financing and encourages private
    support for commerce and housing in many ways. It provides direct loans
    and loan guarantees to ease access to mortgage and commercial credit;
    sponsors private enterprises that support the secondary market for home
    mortgages; regulates private credit intermediaries, especially
    depository institutions; and offers tax incentives. All told, the
    Government provides about $1.5 billion a year in support for housing
    credit that, in turn, supports over $100 billion in housing loans and
    loan guarantees. (Another $16 billion in subsidies for low-income
    housing programs is classified in the Income Security function.)
      The Federal Government also dedicates about $2 billion a year to
    promote business and maintain the safety and soundness of our financial
    institutions. The Small Business Administration (SBA) provides aid and
    counsel to small businesses, particularly minority- and women-owned
    ones. The Commerce Department helps expand U.S. sales and create jobs by
    promoting technological development and policies that enhance U.S.
    industrial competitiveness and expand exports. Government regulators
    protect depositors against losses when insured commercial banks,
    thrifts, and credit unions fail.

    Mortgage Credit

       The Government provides loans and loan guarantees to expand access to
    homeownership, and helps low-income families afford suitable apartments.
    It helps meet the needs of would-be homeowners who lack the savings,
    income, or credit history to qualify for a conventional mortgage. It
    also helps provide credit to finance the purchase, construction, and
    rehabilitation of rental housing for low-income persons. Housing credit
    programs run by the Departments of Housing and Urban Development (HUD),
    Agriculture (USDA), and Veterans Affairs (VA) supported over $100
    billion in loan and loan guarantee commitments in 1996, helping over 1.3
    million households (see Table 18-2).
      ----------------------------------------------------------------------

              Table 18-2.  SELECTED FEDERAL COMMERCE AND HOUSING CREDIT PROGRAMS PORTFOLIO CHARACTERISTICS
    ----------------------------------------------------------------------------------------------------------------
                                                                                            Number of
                                                                                             housing   Dollar volume
                                                                            Dollar volume    units/       of total
                                                                              of loans/       small     outstanding
                                                                              guarantees   businesses      loans/
                                                                              written in    financed   guarantees as
                                                                               1996 (in     by loans/  of the end of
                                                                              millions)    guarantees     1996 (in
                                                                                           written in    millions)
                                                                                              1996
    ----------------------------------------------------------------------------------------------------------------
    Mortgage Credit:
       HUD FHA Mutual Mortgage Insurance (MMI) Fund.......................       59,221       739,603      363,994
      HUD General Insurance and Special Risk Insurance (GI/SRI) Fund......       12,220       301,730       91,176
      USDA/RHS Section 502 single-family loans............................        2,700        48,000       21,054
      USDA/RHS multifamily loans..........................................          150         1,894       11,410
      VA guaranteed loans.................................................       28,676       291,635      130,031
                                                                           -----------------------------------------
      Subtotal, Mortgage Credit...........................................      102,967     1,382,862      617,665

    SBA guaranteed loans..................................................        8,205        50,520       28,329

    Total Assistance......................................................      111,172     1,433,382      645,994
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
       HUD's Mutual Mortgage Insurance (MMI) Fund, which the Federal Housing
    Administration (FHA) runs, helps increase access to single-family
    mortgage credit in metropolitan areas. In 1996, the MMI Fund guaranteed
    over $59 billion in mortgages for over 739,000 households. Over two-
    thirds of such mortgages

    [[Page 164]]

    go to first-time homebuyers. Fees and premiums
    paid to the MMI Fund fully offset program costs--the program receives no
    annual appropriation from Congress.
       USDA's Rural Housing Service (RHS) offers direct and guaranteed loans
    and grants to help very low- to moderate-income rural residents buy and
    maintain adequate, affordable housing. Its 502 direct loan program
    provides loans for buying, rehabilitating, or repairing single-family
    homes. Its 502 guaranteed loan program guarantees up to 90 percent of a
    private loan for buying new or existing housing. Together, the two 502
    programs provided $2.7 billion in loans and loan guarantees in 1996,
    supporting 48,000 households. RHS's 515 program, which generally lends
    to private developers, finances both the construction and rehabilitation
    of rural rental housing for low- to moderate-income, elderly, and
    handicapped rural residents. It provided $150 million in direct loans in
    1996, supporting over 1,800 households.
       VA helps veterans and active duty personnel buy and improve homes.
    Its Loan Guarantee Program (classified in the Veterans Benefits and
    Services function) provides housing credit assistance to veterans and
    service members. The Government partially guarantees the loans from
    private lenders, providing $29 billion in loan guarantees in 1996. VA
    also provides direct loans to the buyers of acquired properties,
    including $1.3 billion in loans in 1996.
       The Government plays an important role in supporting the secondary
    mortgage market. Congress created the Government National Mortgage
    Association (Ginnie Mae) in 1968 to support the secondary mortgage
    market for FHA, VA, and USDA single- and multi-family mortgages. Under
    its Mortgage-Backed Securities (MBS) program, Ginnie Mae guarantees the
    timely payment of principal and interest on securities backed by pools
    of FHA, VA, and USDA mortgages issued by private mortgage institutions.
    The program raises liquidity in the secondary mortgage market and
    attracts new sources of capital for residential loans. To date, Ginnie
    Mae has originated over $1 trillion in securities, of which over $480
    billion remain outstanding. Its MBS single-family program has helped
    over 19 million low- and moderate-income families buy homes.
       The Federal National Mortgage Association (Fannie Mae) and the
    Federal Home Loan

    [[Page 165]]

    Mortgage Corporation (Freddie Mac) are congressionally
    chartered, shareholder-owned corporations known as Government Sponsored
    Enterprises (or GSEs). Congress chartered them to provide stability in
    the secondary market for residential mortgages, and promote access to
    mortgage credit throughout the Nation, including under-served areas. The
    GSEs issue and guarantee mortgage-backed securities (MBS), and they hold
    debt-financed portfolios of mortgages, MBS, and other mortgage-related
    securities. By the end of 1996, Fannie Mae and Freddie Mac had financed
    $1.51 trillion in mortgages and other assets. As of September 30, 1996,
    the two GSEs had outstanding $1.4 trillion in mortgages purchased or
    guaranteed. Because they are classified as private, Fannie Mae and
    Freddie Mac are not included in the budget.
      A third housing GSE, the Federal Home Loan Bank System (FHLBS), is a
    member-owned cooperative that provides liquidity to mortgage lenders by
    making collateralized loans, called advances. At the end of 1996,
    outstanding FHLBS advances totaled $153 billion.
       The Government also plays an important role in ensuring that
    consumers get the information they need to make informed housing
    decisions. For example, HUD and the Environmental Protection Agency
    jointly issued a regulation in 1996 to require owners of housing built
    before 1978 to disclose, to prospective buyers or renters, information
    about any known lead-based paint hazards. Informed buyers and renters
    are best-positioned to decide how to protect their families at an
    affordable cost.

     Rental Housing and Homeless Assistance Grants

       The Federal Government also provides support for housing assistance
    through a number of HUD programs in the Income Security function. HUD's
    rental programs provided subsidies for over 4.8 million low-income
    households in 1996--1.4 million for units in conventional public housing
    projects; 1.8 million in rental subsidies attached to privately-owned
    multifamily housing projects; and 1.6 million in rental vouchers not
    tied to specific projects. In addition, USDA's RHS rental assistance
    grants to low-income rural households provided $541 million to support
    40,050 new and existing rental units in 1996.
       The Federal Government also makes grants to help the homeless,
    supporting emergency shelters and transitional and permanent housing.
    Four agencies--HUD, VA, the Department of Health and Human Services, and
    the Federal Emergency Management Agency--provide 98 percent of the
    Federal help targeted to the homeless. For 1996, HUD provided $823
    million in homeless assistance grants, representing 73 percent of the
    $1.13 billion targeted Government-wide funding total.

     Housing Tax Incentives

       The Government provides significant support for housing through tax
    preferences. The two largest tax benefits are the mortgage interest
    deduction for owner-occupied homes (which will cost the Government $285
    billion in lost revenue from 1998 to 2002) and the deductibility of
    State and local property tax on owner-occupied homes (costing $95
    billion over the same five years).
       Other tax provisions also encourage investment in housing: (1)
    homeowners can avoid capital gains taxes from selling their homes if
    they use the gains to buy another one (costing $81 billion from 1998 to
    2002); (2) taxpayers 55 and older can avoid capital gains taxes on up to
    $125,000 from selling their homes (costing $27 billion); (3) States and
    localities can issue tax-exempt mortgage revenue bonds, whose proceeds
    subsidize purchases by first-time, low- and moderate-income home buyers;
    and (4) installment sales provisions let some real estate sellers defer
    taxes. Finally, the Low-Income Housing Tax Credit provides incentives
    for constructing or renovating rental housing that helps low-income
    tenants for at least 15 years. The President proposes to expand tax
    benefits for homeowners, which would ensure that 99 percent of all home
    sales are exempt from capital gains taxes.

    [[Page 166]]

    Commerce, Technology, and International Trade

       The Commerce Department and SBA promote industrial competitiveness.
       Commerce promotes the development of technology and advocates sound
    technology policies. Commerce's Advanced Technology Program provides
    cost-shared, competitive grants for industry research and development
    that are paying off in jobs created, strategic alliances formed, and
    technology developed. Commerce's Manufacturing Extension Partnership
    (MEP) provides technological information and expertise to the Nation's
    381,000 smaller manufacturers. MEP's clients indicate an 8-to-1 return
    on Federal investment in firm sales, jobs created or retained, and labor
    and material savings. Commerce's Patent and Trademark Office (PTO)
    protects U.S. intellectual property rights around the world through
    bilateral and multilateral negotiation, and through its domestic patent
    and trademark system, now issuing over 100,000 patents a year. Its
    International Trade Administration (ITA) promotes exports, fights unfair
    foreign trade barriers, and negotiates multilateral and bilateral trade
    agreements. In 1995 alone, ITA estimates that it supported $15.5 billion
    in gross exports and 248,000 jobs.
       Commerce's Census Bureau collects, tabulates, and distributes a wide
    variety of statistical information about Americans and the economy. A
    key effort is the constitutionally-mandated decennial census--the basis
    for reapportioning seats in the U.S. House of Representatives, redrawing
    State legislative districts, and distributing billions of dollars of
    Federal, State, and local funds. In addition, Commerce's Bureau of
    Economic Analysis prepares and interprets U.S. economic accounts,
    including the gross domestic product, wealth accounts, and the U.S.
    balance of payments.
       SBA, which Congress created in 1953 to aid, counsel, assist, and
    protect small business, expands access to capital by guaranteeing
    private loans. The loans carry longer terms and lower rates than the
    small businesses otherwise would have received. SBA guaranteed over $8.2
    billion in small business loans in 1996.

     Financial Regulation

       The Government protects depositors against losses when insured
    commercial banks, thrifts, and credit unions fail. Deposit insurance
    also wards off widespread disruption in financial markets by making it
    less likely that one institution's failure will cause a financial panic
    and a cascade of other failures. From 1985 to 1995, Federal deposit
    insurance protected depositors in over 1,400 failed banks and 1,100
    savings associations, with total deposits of over $700 billion. The
    Resolution Trust Corporation (RTC), a temporary agency created to handle
    thrift failures from 1989 to 1995, protected 25 million deposit accounts
    in 747 failed institutions.
       The Federal Deposit Insurance Corporation (FDIC) insures the deposits
    of banks and savings associations (thrifts) through two separate
    insurance funds, the Bank Insurance Fund (BIF) and the Savings
    Association Insurance Fund (SAIF). The National Credit Union
    Administration (NCUA) insures the deposits of credit unions. Currently,
    these varied kinds of deposits are insured for up to $100,000 per
    account. The FDIC insures deposits at over 9,500 commercial banks and
    almost 2,000 savings institutions, for a total of $2.7 trillion in
    insured deposits. The NCUA insures about 11,500 credit unions, with $260
    billion in insured deposits.
       Because the Government bears the risk of losses, it regulates banks,
    thrifts, and credit unions to ensure that they operate in a safe and
    sound manner. Five agencies regulate Federally-insured depository
    institutions: The Office of the Comptroller of the Currency regulates
    national banks, the Office of Thrift Supervision regulates thrifts, the
    Federal Reserve regulates State-chartered banks that are Fed members,
    the FDIC regulates other State-chartered banks, and the NCUA regulates
    credit unions.
       Other regulatory institutions include the Securities and Exchange
    Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
    The SEC oversees U.S. capital markets and regulates the securities
    industry, protecting investors and maintaining the fairness and
    integrity of domestic securities markets by preventing fraud and abuse
    and ensuring the adequate disclosure of informa-

    [[Page 167]]

    tion. The CFTC regulates
    U.S. futures and options markets, preventing fraud and abuse.

     Commerce Tax Incentives

       The tax law provides incentives to encourage business investment and
    savings. Those who inherit capital assets, for instance, do not pay
    taxes on gains that accrued during the original owner's lifetime--a
    benefit that will cost the Government an estimated $173 billion from
    1998 to 2002. Capital gains also are subject to a maximum 28 percent
    rate, making them attractive to taxpayers who are paying higher income
    tax rates. Other capital gains provisions benefit investments in small
    businesses. Other tax provisions benefit small firms, including the
    graduated corporate income tax and up-front deductions, or
    ``expensing,'' for certain investments by small businesses.