[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
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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 1997 -----------------------------------------------------------
Actual 1998 1999 2000 2001 2002 2003
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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
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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. 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
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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
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Table 18-2. SELECTED FEDERAL COMMERCE AND HOUSING CREDIT PROGRAMS: CREDIT PROGRAMS PORTFOLIO CHARACTERISTICS
(Dollar amounts in millions)
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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
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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
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Subtotal, Mortgage Credit.......................... 101,651 1,308,391 574,612
SBA Guaranteed Loans................................... 10,782 47,146 31,181
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Total Assistance................................... 112,433 1,355,537 605,793
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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
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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.
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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
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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.