[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

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                     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

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  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

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                       Table 8-2.  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 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
----------------------------------------------------------------------------------------------------------------

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          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

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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

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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.

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  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

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          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

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          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.