[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
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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
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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
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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
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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.
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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-
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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.