    [Budget of the United States Government]
    [III. Creating a Better Government]
    [8. Commerce and Housing Credit]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                         8.  COMMERCE AND HOUSING CREDIT

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

                         Table 8-1.  Federal Resources in Support of Commerce and Housing Credit
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Estimate
                   Function 370                   2000   -----------------------------------------------------------
                                                 Actual     2001      2002      2003      2004      2005      2006
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority..........     5,115       687      -286       -75      -389      -504      -470
      Mandatory Outlays:.
        Existing law..........................    -1,263    -2,462     6,691     4,740     4,027     4,160     2,900
        Proposed legislation..................  ........  ........       -95      -108      -119      -130      -143
    Credit Activity:
      Direct loan disbursements...............     1,322     1,725     1,602     1,576     1,567     1,561     1,558
      Guaranteed loans........................   218,697   231,340   250,765   263,247   272,765   282,387   289,973
    Tax Expenditures:
      Existing law............................   242,455   254,680   266,700   277,810   289,470   301,230   314,770
    ----------------------------------------------------------------------------------------------------------------
    Notes: Discretionary budget authority is offset by receipts (negative credit subsidy) to the Department of
      Housing and Urban Development for loan guarantee programs.

    2000 discretionary budget authority includes cyclical expenses associated with the decennial census.

      ----------------------------------------------------------------------
      The Federal Government facilitates commerce and supports housing
    through many diverse activities. 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; protects investors
    when insured depository institutions fail; promotes exports and
    technology; collects our Nation's statistics; and offers tax incentives.

    Mortgage Credit

      The Government provides loans and loan guarantees to increase
    homeownership, and to help low-income families afford suitable
    apartments. Housing credit programs of the Departments of Housing and
    Urban Development (HUD), Agriculture (USDA), and Veterans Affairs
    supported $123 billion in new loan and loan guarantee commitments in
    2000, helping nearly 1.3 million households. All of these programs have
    contributed to boosting the national homeownership rate, now at a record
    high of 67.7 percent (see Chart 8-1).

      The 2002 goal for the national homeownership rate is 68.5
              percent.

      HUD's Federal Housing Administration (FHA): The Mutual Mortgage
    Insurance (MMI) Fund, run by FHA, helps increase access to single-family
    mortgage credit across the United States. As noted in Table 8-2, FHA
    also insures mortgage loans for multi-family housing as part of its
    General Insurance and Special Risk Insurance Fund. In 2000, the MMI Fund
    insured over $86 billion in mortgages for almost 900,000 households. Of
    the FHA borrowers who purchased their homes in 2000, more than 80
    percent are first-time homeowners and 42 percent belong to a minority
    group. In 2002, FHA will achieve the following:
      the share of FHA mortgage insurance for first-time home buyers
              will increase to 82 percent; and

    [[Page 62]]

      the share of FHA mortgage insurance for minority households
              will increase to 44 percent.

      To help achieve these goals, the Administration proposes to allow FHA
    to insure a popular new type of financial product on the mortgage
    market, hybrid adjustable-rate mortgages (ARMs). Hybrid ARMs are
    adjustable-rate loans that carry an initial fixed interest rate for
    longer than one year. Hybrid ARMs will substantially enhance FHA's
    product line, offering a sound mortgage product to borrowers who do not
    qualify for a fixed-rate mortgage or cannot afford the fixed-rate
    pricing, but who want to avoid the volatility associated with
    traditional ARMs.
      The Administration will reduce FHA fraud and improve program controls.
    Inadequate information systems have weakened FHA's ability to monitor
    lenders that use its guarantees. A scheme to defraud the Government,
    known as ``property-flipping,'' recently highlighted internal weaknesses
    in FHA's single-family systems and controls. To combat the scheme, last
    year FHA implemented emergency foreclosure moratoria to protect
    borrowers in areas where property-flipping was prevalent. FHA will
    strengthen the integrity of internal systems and controls to eliminate
    the need for foreclosure moratoria or other emergency responses. Actions
    will include improving the loan origination process and providing better
    monitoring of lenders and appraisers.

      USDA's Rural Housing Service (RHS): RHS offers direct and guaranteed
    loans and grants to help very low- to moderate-income rural residents
    buy and maintain adequate, affordable housing. The single family direct
    loan program provides subsidized loans to very low-income rural
    residents, while the single family guarantee loan program guarantees up
    to 90 percent of a private loan for moderate-income rural residents.
    Together, the two programs provided $3 billion in loans and loan
    guarantees in 2000, providing 46,000 decent, safe affordable homes for
    rural Americans.

      In 2002, RHS will further reduce the number of rural residents
              living in substandard housing by providing $4 billion

    [[Page 63]]

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

                           Table 8-2.  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 2000       guarantees      as of the end of
                                                                                 written in 2000          2000
    ----------------------------------------------------------------------------------------------------------------
    Mortgage Credit:
      HUD/FHA Mutual Mortgage Insurance Fund...............             86,274            873,265            449,805
      HUD/FHA General Insurance and Special Risk Insurance              12,506            154,492             98,888
       Fund................................................
      USDA/RHS single-family loans.........................              3,324             51,400             27,697
      USDA/RHS multifamily loans...........................                246              7,400             11,397
      VA guaranteed loans..................................             20,159            175,559            199,759
                                                            --------------------------------------------------------
        Subtotal, Mortgage Credit..........................            122,509          1,262,116            787,546

    Business Credit:
      SBA Guaranteed Loans.................................             13,195             48,422             45,556
      SBA Direct Loans.....................................                 27                 65                 65
                                                            --------------------------------------------------------
        Subtotal, Business Credit..........................             13,222             48,487             45,621
                                                            --------------------------------------------------------
      Total Assistance.....................................            135,731          1,310,603            833,167
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
              in loans and loan guarantees (equal to the 2001 enacted level)
              for 55,800 new or improved homes.

      Veterans' Affairs (VA): 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 loans from private
    lenders, providing $20 billion in loan guarantees in 2000. One of VA's
    key goals has been to improve loan servicing to avoid veteran
    foreclosures.
      In 2002, VA will be successful in intervening to help veterans
              avoid foreclosure 34 percent of the time. Over the past
              several years, VA has decreased foreclosures by approximately
              10 percent.

      Ginnie Mae: The Congress created Ginnie Mae in 1968 to support the
    secondary market for FHA, VA, and RHS mortgages through securitization.
    Ginnie Mae guarantees the timely payment of principal and interest on
    privately issued securities that are backed by pools of FHA, VA, and RHS
    mortgages. The Ginnie Mae guarantee gives lenders access to the capital
    markets for funds to originate new loans. Together with the Government-
    sponsored enterprises that operate in the secondary market for
    mortgages, Ginnie Mae provides lenders with the liquidity to maintain a
    steady supply of credit available for housing.
      In 2002, Ginnie Mae will securitize 85 percent of eligible FHA
              and VA loans, enhancing mortgage market efficiency and
              lowering costs for home buyers.

    Rental Housing

      The Government provides housing assistance through a number of HUD and
    USDA programs. These rental assistance programs provide subsidies for
    five million low-income households. In 1999, families with severe
    housing needs dropped by over 400,000 to 4.9 million. This is the first
    decrease in severe housing needs in 10 years. The budget provides $197
    million to fund 34,000 new HUD vouchers for low-income families. HUD
    will adopt program reforms to eliminate the accumulation of excess
    balances that have

    [[Page 64]]

    resulted in the recapture of one to two billion dollars in unspent funds
    annually over the past few years.
      Weak oversight of local housing providers has reduced the quality of
    housing services and increased costs, reducing the number of households
    that receive assistance. HUD will improve its management of these
    providers to encourage compliance and subject non-performers to remedial
    action. Currently, HUD overpays hundreds of millions of dollars in low-
    income rent subsidies because tenants' incomes are underreported and
    rents are improperly calculated or not fully collected. HUD will
    undertake a series of reforms to correct these errors.
      The Administration will work to remove deteriorating, obsolete public
    housing units through the implementation of public housing reform
    legislation passed in 1998 and replace them with housing vouchers that
    families can use to obtain better housing available on the private
    market. Over time, removing the most costly-to-maintain, obsolete public
    housing developments is expected to reduce the need for capital
    spending.
      The budget terminates the Public Housing Drug Elimination program for
    the following reasons: the same types of activities (e.g., security
    patrols and better lighting) are eligible under the Public Housing
    Operating and Capital programs; the program was found to have limited
    impact; current regulatory tools, such as eviction, are effective in
    reducing drug-related crime in public housing; and fighting crime and
    drugs is not directly related to HUD's core mission--it is the mission
    of Federal law enforcement and other agencies whose programs help combat
    illegal drugs and crime in public housing communities.
      HUD's Supportive Housing for the Elderly program works with non-
    profits to create housing and supportive services tailored to the needs
    of the very low-income elderly. The Supportive Housing for the Disabled
    program provides housing and supportive services necessary to promote
    stability and self-sufficiency of very low-income disabled households.
    The budget provides for the construction of approximately 7,500 units
    for the elderly and over 1,500 units for the disabled.
      USDA's RHS rental assistance grants to low-income rural households
    provided $640 million to support 42,000 new and existing rental units in
    2000. RHS's multifamily housing programs, which generally lend to
    private developers, finances both the construction and rehabilitation of
    rural rental housing for low- to moderate-income, elderly, and
    handicapped rural residents, as well as farm laborers. The budget
    provides $257 million in direct and guaranteed loans, providing over
    5,200 new units for very low-income tenants in rural America.
      HUD and USDA intend to meet the following performance goals:
      For the period 2001-2002, reduce the number of households with
              severe housing needs by four percent among families with
              children, and elderly and disabled households.
      In 2002, demolish 13,000 more obsolete, deteriorated public
              housing units.
      In 2002, decrease the number of public housing units managed
              by troubled housing authorities by 15 percent.
      For 2002, increase the share of welfare families that move
              from welfare to work while assisted by tenant-based Section 8
              by two percentage points over 2001.
      For 2002, make new and continued rental assistance commitments
              to fund 43,000 rural rental assistance units (a one-percent
              decrease from 2001).

    Housing Tax Expenditures

      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 is estimated to cost the
    Government $66 billion in 2002 and $353 billion over five years) and the
    deductibility of State and local property tax on owner-occupied homes
    (costing $26 billion in 2002 and $146 billion over five years).
      The Administration will propose an investor-based tax credit, designed
    to encourage investors to redevelop single-family housing or construct
    new single-family housing for low-income home buyers. The credit for
    investors

    [[Page 65]]

    will amount to as much as 50 percent of project costs for eligible home
    rehabilitation or construction. The tax credit will increase by 100,000
    the number of homes available to low-income families and those living in
    low-income areas. Credits will be distributed by State agencies that
    will have the flexibility to tailor the program to local needs. In
    addition, the Administration proposes to create one million new
    Individual Development Accounts (IDAs) through a tax incentive.
    Financial institutions will receive a federal tax credit for matching
    the contributions made to IDAs by low- to moderate-income individuals
    saving to buy a first home, start a business, or pay for education.
      Other tax provisions also encourage investment in housing: (1)
    taxpayers can deduct capital gains of up to $500,000 on home sales
    (costing $104 billion from 2002 to 2006); (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.
    In addition, the low-income housing tax credit (LIHTC) provides
    incentives for constructing or renovating rental housing that help low-
    income tenants (costing approximately $3.5 billion in 2002). The
    Community Renewal Act of 2000 expanded the LIHTC by increasing the per
    capita allocation to States from $1.25 to $1.50 in 2002, $1.75 in 2003,
    and indexing the allocation to inflation thereafter. The LIHTC will
    support construction or rehabilitation of nearly 100,000 rental units
    annually.

    Commerce, Technology, and International Trade

      Technology and Intellectual Property Rights: The Department of
    Commerce undertakes a range of activities to promote technological
    innovation. In 1999, the Nation's intellectual property rights system
    was strengthened with the passage of the landmark American Inventors
    Protection Act, which reformed patent law and converted Commerce's
    Patent and Trademark Office (PTO) into a performance-based organization
    to better serve America's entrepreneurs and innovators. PTO also
    protects U.S. intellectual property rights around the world through
    international treaties. The budget includes a 10-percent increase in
    PTO's budget so that it can continue to meet these crucial
    responsibilities. In 2002:
       PTO expects to issue approximately 167,000 patents with an
              average processing time for inventions of 26.7 months, despite
              a 12-percent increase in patent applications over the 2001
              level.
       PTO expects to register approximately 127,000 trademarks and
              maintain an average processing time for trademarks of 20
              months despite a 20.2-percent increase in trademark
              applications over the 2001 level.

      Commerce's National Institute of Standards and Technology (NIST): NIST
    works with industry to develop and apply technology, measurements, and
    standards to promote American competitiveness. NIST also assists
    industry through the Manufacturing Extension Partnership (MEP), which
    makes technological information and expertise available to smaller
    manufacturers, and the Advanced Technology Program (ATP) which supports
    businesses' development of pre-competitive technologies. In 2002:
       NIST laboratories will offer 1,350 standard reference
              materials and 68 standard reference data titles, a 2.7 percent
              and three percent increase, respectively, over the 2001 level.
       MEP will serve more than 37,000 clients, increase their sales
              by $24 million, and generate $134 million in additional
              capital investments.
      New ATP awards will be suspended. The program will be
              reevaluated to determine whether it is still warranted.

      Commerce's International Trade Administration (ITA): 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 2002, ITA will assist approximately 54,000 small to medium
              sized businesses in exporting to new markets, the same level
              as in 2001.

    [[Page 66]]

      Commerce's Bureau of Export Administration (BXA): The BXA is a
    regulatory agency that enforces U.S. export controls and protects the
    proprietary commercial information of industry. The budget includes a
    six-percent increase in BXA's overall budget.
      In 2002, BXA will issue at least 12,000 licenses for dual use
              commodities (military or civilian use) and increase the number
              of investigations of export control violations by seven
              percent over the 2001 level.

      Commerce's Census Bureau and Bureau of Economic Analysis (BEA): The
    Census Bureau collects, tabulates, and distributes a wide variety of
    statistical information about Americans and the economy, including the
    constitutionally-mandated decennial census. BEA prepares and interprets
    U.S. economic accounts, including the Gross Domestic Product (GDP).
      In 2002, the Census Bureau will deliver on time 100 percent of
              their scheduled releases, including over 12 major detailed
              demographic products from the decennial census. These
              products, which include socio-economic data such as income,
              occupation, education, disability, and ancestry, are necessary
              for the distribution of nearly $200 billion in Federal funds
              annually to States, counties, and over 39,000 towns, cities,
              and other Governmental entities.
      In 2002, BEA will strive to maintain its number one
              international ranking in GDP timeliness, its high customer
              satisfaction rating of 4.3 (on a five-point scale), and
              accuracy and reliability of the GDP by incorporating data on
              new and rapidly growing economic activities, such as e-
              business.

      Commerce's Emergency Steel and Oil and Gas Loan Guarantee Programs:
    The budget proposes to rescind $125 million of unobligated balances from
    these two loan guarantee programs ($10 million from the steel program
    and $115 million from the oil and gas program). Sufficient funds remain
    to address pending 2001 applicants for both programs. The oil and gas
    program was created in 1999 when oil and gas prices were far below
    current levels, and applications for the program have been particularly
    limited.
      Small Business Administration (SBA): SBA supports small businesses
    through Federal guarantees, which increase the availability of capital
    and credit, by promoting Federal procurement opportunities, and by
    providing management and other business training. SBA's largest business
    credit programs are: the general business loan guarantee (7(a)) program;
    the certified development company program; and the small business
    investment company equity capital program. The budget anticipates that
    SBA will guarantee more than $17.5 billion in small business loans and
    equity investments in 2002.
      The budget includes $5 million and proposes $25 million over the next
    five years for the Paul D. Coverdell Drug Free Workplace Program, which
    gives grants to organizations that help small businesses develop
    employee education programs and company drug policies. The New Freedom
    Initiative includes $5 million in technical assistance to help small
    businesses comply with the Americans with Disabilities Act and hire more
    people with disabilities.
      The objective of SBA's loan guarantee programs is to correct market
    imperfections. The 2002 Budget recognizes that some small businesses may
    have trouble accessing capital but by increasing fees, the budget does
    not require the Government to subsidize their cost of borrowing.
      The budget supports $20.5 million in loans ($35,000 and under)
    targeted to entrepreneurs traditionally considered ``unbankable,''
    largely due to inexperience with credit, lack of assets, or the need for
    ongoing technical assistance. To also increase the borrower's
    probability of success, the loans are complimented with $20 million in
    associated technical assistance.
      To further help people whose business needs for small loans
              (under $150,000) are not met by traditional lenders, SBA will
              implement changes enacted in 2001 to increase the percentage
              of 7(a) loan volume made to small borrowers from less than 10
              percent to 20 percent.
      In 1999, SBA initiated an ongoing $10 billion loan asset sale
              program reflecting a recognition that the private sector can
              service these loans more effectively and

    [[Page 67]]

              efficiently than the Government. SBA plans to conduct two
              asset sales during 2002. In addition, SBA will explore the
              feasibility of contracting out all loan servicing functions
              and closing unneeded loan servicing centers.
      In 2002, SBA will work with Federal agencies to achieve the
              Government-wide small business procurement goal of 23 percent
              of total Federal contracting dollars. Of the projected $180 to
              200 billion in total Federal procurement in 2002, the
              Government expects to award $42 to 46 billion to small
              businesses.

      Federal Trade Commission (FTC): FTC enforces various consumer
    protection and antitrust laws that prohibit fraud, deception, anti-
    competitive mergers, and other unfair and anti-competitive business
    practices in the marketplace.
      In 2002, FTC reports that it will protect consumers by
              stopping the sales of $400 million worth of fraudulent
              products, and save the public an estimated $1 billion by
              stopping anti-competitive business practices that lead to
              price increases, which are then passed on to consumers.

      Federal Communications Commission (FCC): FCC works to encourage a
    fully competitive market place in communications and to promote
    affordable communications services for all Americans. Through
    introduction of more efficient licensing, FCC will ensure a more rapid
    introduction of new services and technologies. Through policy
    rulemakings and enforcement actions, FCC promotes competition in the
    public interest. FCC ensures efficient spectrum management; enforces
    commission rules, regulations and authorities; and promotes consumer
    information and awareness of communications options and providers
    through the dissemination of Commission decisions and actions. In 2002:
      FCC will achieve 90 percent of licensing activities within
              established timeframes; and
      eighty percent of all FCC applications will be filed
              electronically.

    Financial Regulation

      Federal Deposit Insurance: Federal deposit insurance protects
    depositors against losses when insured commercial banks, thrifts
    (savings institutions), and credit unions fail. Currently, the Federal
    Deposit Insurance Corporation (FDIC), and the National Credit Union
    Administration's (NCUA's) funds insure more than $3 trillion in deposits
    at more than 20,000 institutions. Five agencies regulate federally-
    insured depository institutions to ensure their safety and soundness:
    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; FDIC
    regulates other State-chartered banks; and, NCUA regulates credit
    unions.
      In calendar year 2001, FDIC will perform more than 2,600
              safety and soundness examinations.
       In 2002, NCUA will reduce the percentage of federally-insured
              credit unions that are undercapitalized to two percent of
              operating credit unions.

      Securities and Exchange Commission (SEC) and Commodity Futures Trading
    Commission (CFTC): SEC regulates U.S. capital markets and the securities
    industry and facilitates capital formation. The CFTC regulates U.S.
    futures and options markets. Both regulators protect investors by
    preventing fraud and abuse in U.S. capital markets and ensuring adequate
    disclosure of information. In 2002:
       SEC will examine every investment company complex and every
              investment advisor at least once during each five-year and
              5.7-year examination cycle, respectively.
       CFTC will review every contract market designation
              application and derivatives transaction execution facility
              registration application within 30 to 60 days and respond to
              applicant exchanges with a notification letter. CFTC will also
              review requests for approval of products and rule changes
              within 90 days and respond to

    [[Page 68]]

              trading exchanges (e.g., Chicago Board of Trade).

    Commerce Tax Expenditures

      The tax law provides expenditures to encourage business investment.
    The Government taxes capital gains at a lower rate than other income.
    The tax law provides more generous depreciation allowances for
    machinery, equipment, and buildings. This business expenditure is
    estimated to cost the Government $35 billion in 2002. Other tax
    provisions benefit small firms generally, including the graduated
    corporate income tax rates, preferential capital gains tax 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.
      The Taxpayer Relief Act of 1997 significantly changed the tax
    treatment and lowered tax rates for long-term capital gains. Also,
    during the last few years, several capital gains provisions were enacted
    to limit certain perceived abuses related to capital gains taxes. The
    capital gains tax expenditure will cost the Government almost $43
    billion in 2002. In addition, the law does not tax gains on inherited
    capital assets that accrue during the lifetime of the original owner.
    Recent tax law changes also provided an increase in expensing for small
    businesses, and an increase in the top corporate tax rate.