[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

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                    Table 18-1.  FEDERAL RESOURCES IN SUPPORT OF COMMERCE AND HOUSING CREDIT                    
                                            (In millions of dollars)                                            
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                                                                            Estimate                            
            Function 370                1996   -----------------------------------------------------------------
                                       Actual      1997       1998       1999       2000       2001       2002  
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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
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  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).
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          Table 18-2.  SELECTED FEDERAL COMMERCE AND HOUSING CREDIT PROGRAMS PORTFOLIO CHARACTERISTICS          
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                                                                                        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  
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   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.