[Budget of the United States Government]
[VI. Investing in the Common Good: Program Performance in Federal Functions]
[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                   1997   -----------------------------------------------------------
                                             Actual     1998      1999      2000      2001      2002      2003  
----------------------------------------------------------------------------------------------------------------
Spending:                                                                                                       
  Discretionary Budget Authority..........     2,787     3,204     3,336     5,100     2,923     2,858     2,859
  Mandatory Outlays:                                                                                            
    Existing law..........................   -17,624       201       689     7,074     8,167     8,372     7,734
    Proposed legislation..................  ........        -6      -336      -357      -363      -371      -388
Credit Activity:                                                                                                
  Direct loan disbursements...............     8,666     2,662     1,500     1,381     1,341     1,322     1,314
  Guaranteed loans........................   180,090   190,463   200,662   203,825   205,906   206,412   210,442
Tax Expenditures:                                                                                               
  Existing law............................   186,870   183,555   182,730   188,705   196,095   203,500   210,320
  Proposed legislation....................  ........      -260      -403      -358      -340      -348      -386
----------------------------------------------------------------------------------------------------------------

  ----------------------------------------------------------------------
   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. In total, the 
Government provides about $750 million a year in support for housing 
credit that, in turn, supports over $100 billion in housing loans and 
loan guarantees. (Another $20 billion in subsidies for low-income 
housing programs is classified in the Income Security function.)
   The Federal Government also dedicates over $2 billion a year to 
promote business and maintain the safety and soundness of our financial 
markets and institutions. 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.
   As general goals:
   Federal housing credit programs will continue their efforts 
          to expand homeownership Nation-wide and will continue to 
          provide homeownership opportunities to underserved people in 
          low-homeownership areas.
   Financial regulators will work to promote the fairness and 
          integrity of U.S. financial markets and ensure the safety and 
          soundness of federally-insured deposits.

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 of the Departments of Housing and Urban Development (HUD), 
Agriculture (USDA), and Veterans Affairs (VA) supported over $100 
billion in loan and loan guarantee commitments

[[Page 188]]

in 1997, helping over 1.3 million households (see Table 18-2). All of 
these programs have contributed to the success of the President's 
National Homeownership Initiative which, along with a strong economy, 
has helped boost the national homeownership rate to 66 percent--its 
highest ever.
   In 1999, through its Mortgage Credit programs, the Federal 
          Government will approach the goal set by the President's 
          National Homeownership Initiative, which is a 67.5 percent 
          homeownership rate in the year 2000.
   HUD's Mutual Mortgage Insurance (MMI) Fund, run by the Federal 
Housing Administration (FHA), helps increase access to single-family 
mortgage credit in both urban and rural areas. In 1997, the MMI Fund 
guaranteed over $61 billion in mortgages for over 740,000 households. 
Over three-fourths of such mortgages went to first-time homebuyers. Fees 
and premiums paid to the MMI Fund fully offset program costs.
   The FHA/MMI fund will continue to remain solvent and self-
          sustaining.
   FHA will work with the Government National Mortgage 
          Association (Ginnie Mae) to increase the share of first-time 
          homebuyers in each HUD Field Office by one percent a year over 
          1995 levels, and increase lending in distressed communities by 
          10 percent.
   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. One RHS goal is to reduce the 
number of rural residents living in substandard housing. The number of 
substandard housing units in rural areas has fallen from just over three 
million units in 1970 to just over one million in 1990, paralleling the 
increase in Federal housing assistance over the same period.
   RHS' direct loan program provides subsidized loans to very-low and 
low-income rural residents. Its single family guaranteed loan program 
guarantees up to 90 percent of a private loan for buying new or existing 
housing. Together, the two programs provided $2.7 billion in loans and 
loan guarantees
  ----------------------------------------------------------------------

  Table 18-2.  SELECTED FEDERAL COMMERCE AND HOUSING CREDIT PROGRAMS: CREDIT PROGRAMS PORTFOLIO CHARACTERISTICS 
                                          (Dollar amounts in millions)                                          
----------------------------------------------------------------------------------------------------------------
                                                                                Numbers of                      
                                                          Dollar volume of    housing units/    Dollar volume of
                                                           direct loans/      small business   total outstanding
                                                             guarantees     financed by loans/  loans/guarantees
                                                          written in 1997       guarantees      as of the end of
                                                                             written in 1997          1997      
----------------------------------------------------------------------------------------------------------------
Mortgage Credit:                                                                                                
                                                                                                                
  HUD/FHA Mutual Mortgage Insurance Fund...............             61,175            740,320            306,530
  HUD/FHA General Insurance and Special Risk Insurance                                                          
   Fund................................................             13,318            271,655             87,079
  USDA/RHS Sec. 502 single-family loans................              2,706             55,500             22,526
  USDA/RHS multifamily loans...........................                165              2,083             11,901
  VA guaranteed loans..................................             24,287            238,833            146,576
                                                        --------------------------------------------------------
    Subtotal, Mortgage Credit..........................            101,651          1,308,391            574,612
                                                                                                                
SBA Guaranteed Loans...................................             10,782             47,146             31,181
                                                        --------------------------------------------------------
    Total Assistance...................................            112,433          1,355,537            605,793
----------------------------------------------------------------------------------------------------------------

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

[[Page 189]]


in 1997, providing 55,500 decent, safe affordable homes for rural 
Americans.
   In 1999, RHS will continue to reduce the number of rural residents 
living in substandard housing by:
   providing $4 billion in loan and loan guarantees for 65,000 
          new or improved homes, a 9,500, or 14.6 percent, increase over 
          1997.
   VA recognizes the service that veterans and active duty personnel 
provide to the Nation by helping them buy and retain homes. The 
Government partially guarantees the loans from private lenders, 
providing $26 billion in loan guarantees in 1997.
   To meet the goal of ensuring that the program meets veterans' 
          needs, VA will improve credit and program management. In 1999, 
          VA will begin implementing electronic data interchange in loan 
          origination and servicing.
   To meet the goal of improving opportunities for veterans to 
          achieve homeownership, VA will collaborate with interested 
          agencies to provide more and better opportunities to finance 
          veteran home purchases. In 1999, VA will collaborate with the 
          Departments of Housing and Urban Development and of Defense.
   Congress created Ginnie Mae in 1968 to support the secondary market 
for FHA, VA, and USDA mortgages. Ginnie Mae guarantees the timely 
payment of principal and interest on securities backed by pools of 
mortgages issued by private institutions. The program raises liquidity 
in the secondary market and attracts new sources of capital for loans. 
To date, Ginnie Mae has originated over $1.3 trillion in securities, of 
which over $530 billion remain outstanding. It has helped over 20 
million low- and moderate-income families buy homes.
   In 1999, Ginnie Mae will continue to pool 95 percent of FHA 
          and VA loans for sale to investors, increasing the efficiency 
          of the mortgage markets and lowering financing costs for home 
          buyers.
   The Federal National Mortgage Association (Fannie Mae), the Federal 
Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan 
Bank System (FHLBS) are congressionally chartered, shareholder-owned 
corporations known as Government Sponsored Enterprises (GSEs). GSEs were 
chartered to provide stability in the secondary market for residential 
mortgages, and promote access to mortgage credit throughout the Nation, 
including under-served areas. Fannie Mae and Freddie Mac issue and 
guarantee mortgage-backed securities (MBS), and they hold debt-financed 
portfolios of mortgages, MBS, and other mortgage-related securities. The 
FHLBS provides liquidity to mortgage lenders by making collateralized 
loans, called advances, which totaled $182 billion at the end of 1997. 
Because they are classified as private, the Federal Government does not 
include GSEs in the budget totals.
   Each year, HUD sets housing goals for Fannie Mae and Freddie Mac with 
regard to lower-income families and under-served communities. For a 
discussion of these goals, see Chapter 8, ``Underwriting Federal Credit 
and Insurance,'' in Analytical Perspectives.

Rental Housing and Homeless Assistance

   The Federal Government provides 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 1997--
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 $524 million to support 39,860 new 
and existing rental units in 1997.
   For 1999, agencies will meet the following performance goals:
   Continue RHS' commitment of 40,000 new and existing units in 
          1999.
   Increase the percentage of families with children in public 
          housing deriving most of their income from work from 37 
          percent in 1997 to 43 percent by 2000.
   Reduce the isolation of low-income groups within a community 
          or geographic area by increasing the percentage of Section 8

[[Page 190]]

          families with children living in low-poverty Census tracts 
          from 60 percent in 1997 to 65 percent in 2000.
   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 
(HHS), and the Federal Emergency Management Agency--provide 98 percent 
of the Federal help targeted to the homeless. For 1997, HUD provided 
$823 million in homeless assistance grants, representing 58 percent of 
the $1.42 billion targeted Government-wide funding total.
   In 1999, HHS will expand its outreach of services from 80,000 
          persons contacted in 1997 to 92,000 in 1999.

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 $299 
billion from 1999 to 2003) and the deductibility of State and local 
property tax on owner-occupied homes (costing $100 billion over the same 
five years).
   Other tax provisions also encourage investment in housing: (1) 
capital gains of up to $500,000 on home sales are exempt from taxes 
(costing $51 billion from 1999 to 2003); (2) States and localities can 
issue tax-exempt mortgage revenue bonds, whose proceeds subsidize 
purchases by first-time, low- and moderate-income home buyers; and (3) 
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. This tax expenditure costs about $2.4 billion a 
year. The President proposes to raise the volume cap on the low-income 
housing tax credit, thus providing more credits and more housing for 
low-income families.

Commerce, Technology, and International Trade

   The Commerce Department promotes the development of technology and 
advocates sound technology policies. 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.
   In 1999, PTO will issue over 120,000 patents, and reduce the 
          average pendency time for each invention from 22.7 months to 
          an average of 20.9 months.
   In 1999, PTO will reduce the average pendency for each 
          trademark from the current 16.5 months to an average of 15.5 
          months.
   To promote intellectual property protection overseas, PTO 
          will provide technical assistance to 52 developing countries.
   Commerce's National Institute of Standards and Technology (NIST) 
works with industry to develop and apply technology, measurements, and 
standards. NIST administers the Manufacturing Extension Partnership 
(MEP), which provides technological information and expertise to its 
clients among the Nation's 382,000 smaller manufacturers.
   In 1999, NIST will increase sales of its collected standard 
          reference materials to 38,142, and its labs will perform 8,900 
          calibrations and tests, yielding $7 million in revenue.
   In 1999, MEP will improve its coverage of small business by 
          supporting 33,473 completed provider activities, and increase 
          client sales by $389 million.
   The International Trade Administration (ITA) strives to promote an 
improved trade posture for U.S. industry and develop the export 
potential of U.S. firms in a manner consistent with U.S. foreign and 
economic policy.
   In 1999, ITA estimates that it will review 15 more 
          applications for free trade zones than in 1998, supporting a 
          gross increase of 25,000 jobs.
   ITA's U.S. Foreign Commercial Service will increase the 
          number of companies that receive export assistance from 11,500 
          in 1997 to about 14,000 by the end of 1999.

[[Page 191]]

   Commerce's Census Bureau collects, tabulates, and distributes a wide 
variety of statistical information about Americans and the economy, 
including the constitutionally-mandated decennial census. In 2000, the 
Census Bureau will conduct a decennial census that will reduce the net 
undercount by almost 1.6 percent, compared to the 1990 Census. In 
addition, Commerce's Bureau of Economic Analysis (BEA) prepares and 
interprets U.S. economic accounts, including the Gross Domestic Product 
(GDP), wealth accounts, and the U.S. balance of payments.
   In preparation for the 2000 Census, the Census Bureau will 
          canvass 94 million city-style addresses in 1999.
   In 1999, BEA will ensure the timely dissemination of economic 
          data by publishing 12 monthly Surveys of Current Business and 
          32 national GDP and personal income news releases.

Small Business Administration (SBA)

   SBA, which Congress created in 1953 to aid, counsel, assist, and 
promote small business, expands access to capital by guaranteeing 
private loans. The loans carry longer terms and lower interest rates 
than small businesses would otherwise receive. SBA guaranteed over $10.8 
billion in small business loans in 1997.
   In 1999, SBA will work to increase the number of small 
          businesses receiving counseling and training to 1.2 million, a 
          10-percent increase over the estimated 1998 level.
   SBA will guarantee 56,400 new Sec. 7(a) and Sec. 504 business 
          loans in 1999, a seven-percent increase over the expected 1998 
          volume of 52,500.

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 Federal Deposit Insurance Corporation (FDIC) insures the deposits 
of banks and savings associations (thrifts) through two separate 
insurance funds, the Bank Insurance Fund and the Savings Association 
Insurance Fund. The National Credit Union Administration (NCUA) insures 
deposits at credit unions. These varied kinds of deposits are insured 
for up to $100,000 per account. The FDIC insures deposits at over 9,200 
commercial banks and over 1,800 savings institutions, with a total value 
of $2.7 trillion. The NCUA insures deposits in 11,300 credit unions with 
a total value of $290 billion.
   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 Federal Reserve 
members; the FDIC regulates other State-chartered banks; and the NCUA 
regulates credit unions.
   In calendar 1998, the FDIC will perform 3,081 safety and 
          soundness inspections.
   Other financial 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 information. The CFTC 
regulates U.S. futures and options markets, protecting market users and 
the public from fraud and abuse and fostering open, competitive, and 
financially sound commodity futures and options markets.
   The SEC will work to examine every investment company complex 
          and every investment advisor at least once every five years.
   The CFTC will work to ensure 100-percent compliance from 
          market professionals, financial intermediaries, and Self-Regu

[[Page 192]]

          latory Organizations with CFTC standards for registration, 
          sound financial practices, and effective enforcement programs.
   The CFTC will review every designation application and rule 
          change request, with the exception of stock index futures 
          (which require SEC approval) within 10 to 45 days and respond 
          to trading exchanges (e.g., Chicago Board of Trade) with an 
          approval or deficiency letter.

Federal Trade Commission (FTC)

   The FTC enforces various consumer protection and antitrust laws that 
prohibit fraud, deception, anticompetitive mergers, and other unfair and 
anticompetitive business practices in the marketplace.
   In 1999, the FTC will save consumers $200 million by stopping 
          fraud and other unfair practices, and another $200 million by 
          stopping anticompetitive behavior.

Federal Communications Commission (FCC)

   The FCC works to encourage competition in communications and to 
promote and support every American's access to telecommunications 
services. The FCC executes its mission through four main activities: 
Authorization of Service, Policy and Rulemaking, Enforcement, and Public 
Information Services.
   In 1999, the FCC will work to achieve 90 percent of customer 
          speed of disposal processing goals to improve its 
          authorization of services activities. The Commission will re-
          engineer and integrate licensing databases and implement 
          electronic filing to further increase efficiency in the 
          licensing process.
   In 1999, the FCC will improve the connection of classrooms 
          and libraries and rural healthcare facilities to the Internet 
          while maintaining affordable service to rural Americans. The 
          FCC will also strive to make telecommunications services more 
          accessible to persons with disabilities.

Commerce Tax Incentives

   The tax law provides incentives to encourage business investment. It 
taxes capital gains at a lower rate than other income, which will cost 
the Government $139 billion from 1999 to 2003. In addition, the law does 
not tax gains on inherited capital assets that accrue during the 
lifetime of the original owner, which will cost $51 billion from 1999 to 
2003. The law also provides more generous depreciation allowances for 
machinery, equipment, and buildings. Other tax provisions benefit small 
firms generally, including the graduated corporate income tax rates, 
preferential capital gains treatment for small corporation stock, and 
write-offs of certain investments. Credit unions, small insurance 
companies, and insurance companies owned by certain tax-exempt 
organizations also enjoy tax preferences. Tax benefits for other kinds 
of businesses are described in other chapters in Section VI.