[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)
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Estimate
Function 370 2000 -----------------------------------------------------------
Actual 2001 2002 2003 2004 2005 2006
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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
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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.
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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
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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
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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
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Subtotal, Business Credit.......................... 13,222 48,487 45,621
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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.