[Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002 Baseline Projections]
[III. Major Functions of the Federal Government]
[8. Commerce and Housing Credit]
[From the U.S. Government Printing Office, www.gpo.gov]
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8. COMMERCE AND HOUSING CREDIT
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Table 8-1. Federal Resources in Support of Commerce and Housing Credit
(Dollar amounts in millions)
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Percent
Function 370 1993 2001 Change:
Actual Estimate 1993-2001
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Spending:
Discretionary budget authority............................................ 4,092 2,932 -28%
Mandatory outlays \1\..................................................... -25,562 2,964 NA
Credit Activity:
Direct loan disbursements................................................ 5,012 1,670 -67%
Guaranteed loans......................................................... 79,378 229,578 189%
Tax expenditures............................................................ 160,040 254,680 59%
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NA = Not applicable.
\1\ Mandatory outlays in 1993 were offset by nearly $28 billion in deposit insurance collections primarily from
the sale of assets and insurance premiums.
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During the Clinton-Gore Administration, the homeownership rate reached
a record high level, increasing investment in the Nation's communities
and enabling an additional nine million American families to build
personal equity in a home. Facilitating homeownership is one of many
ways the Government supports housing and advances commerce. The
Government 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.
Restoring the Public's Trust in the Department of Housing and Urban
Development (HUD)
The Administration improved HUD operations through a concerted and
persistent management overhaul over the past several years, aiming
toward a more unified and responsive organization. Today, HUD employees
have a clearer mission, one that emphasizes customer service and the
achievement of results. HUD's information and financial systems are
better. The Department now has the additional tools to assess how its
intermediaries are performing, set performance goals, and reward and
penalize on the basis of performance. The end product is a better
business organization to deliver necessary services to the Nation. As
the General Accounting Office reported, ``HUD continues to make credible
progress in overhauling its operations to correct its management
deficiencies,'' and it credited the HUD Management Reform Plan as ``a
major contributor to this progress.''
Providing 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 (VA)
supported $123 billion in loan and loan guarantees in 2000, an increase
of almost 10 percent from 1993. All of these programs have contributed
to the success of the President's National Homeownership Initiative
which, along with a strong economy, helped boost national homeownership
from 63 million in 1993 to 72
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million in 2000, exceeding the Administration's goal and reaching a
record level (see Chart 8-1).
HUD's Federal Housing Administration (FHA): The Mutual Mortgage
Insurance Fund, run by the FHA, helps increase access to single-family
mortgage credit across the United States. In 2000, the MMI Fund insured
over $86 billion in mortgages for almost 900,000 households. During this
Administration, FHA strengthened the financial health of the MMI Fund
while guaranteeing more loans for borrowers and reducing the rate of
property foreclosures. FHA also now serves more underserved borrowers
than it did at the start of this Administration, e.g., over 80 percent
of FHA borrowers who purchased their homes in 2000 are first-time
homeowners, up from 67 percent in 1993, and 42 percent of FHA borrowers
who purchased their homes in 2000 belong to a minority group, as
compared to only 23 percent in 1993. 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.
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 RHS direct loan
program for single family housing provides subsidized direct loans to
very-low and low-income rural residents who would be unable to get
credit elsewhere. The RHS guaranteed loan program for single family
housing guarantees up to 90 percent of a private mortgage. During this
Administration, the RHS single family housing programs together provided
500,000 rural families with decent, safe, affordable homes,
significantly reducing the number of rural residents living in
substandard housing. In 1993, RHS financed approximately 42,000 home
loans, and in 2001 it expects to provide 57,000 loans, a 36-percent
increase.
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During this period, RHS also significantly improved its customer
service to its 650,000 housing borrowers, as well as its financial
accountability by centralizing the servicing of its single family
housing direct loan portfolio. Through this effort, RHS established an
escrow system; reduced operating costs, loan losses, foreclosures and
delinquency rates; and, brought RHS accounting more in line with the
commercial sector. These new efficiencies enabled RHS to provide more
subsidized loans with no additional budget authority. Since 1993, the
RHS single family housing programs provided almost $30 billion in direct
loans and loan guarantees.
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. 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 securitizes the majority of FHA, VA, and RHS mortgages, and
together with the Government-sponsored enterprises that operate in the
secondary market for mortgages, provides lenders with the liquidity to
maintain a steady supply of credit available for housing.
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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
housing Dollar
Dollar units/small volume of
volume of business total
direct loans/ financed by outstanding
guarantees loans/ loans/
written in guarantees guarantees
2000 written in as of the
2000 end of 2000
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Mortgage Credit:
HUD/FHA Mutual Mortgage 86,274 873,265 449,579
Insurance Fund.............
HUD/FHA General Insurance 12,506 154,492 98,888
and Special Risk Insurance
Fund.......................
USDA/RHS single-family loans 3,324 51,400 27,697
USDA/RHS multi-family loans. 246 7,400 11,397
VA guaranteed loans......... 20,159 175,559 199,759
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Subtotal, Mortgage Credit. 122,509 1,262,116 787,320
Business Credit:
SBA Guaranteed Loans........ 13,195 48,422 45,556
SBA Direct Loans............ 27 65 65
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Subtotal, SBA Loans....... 13,222 48,487 45,621
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Total Assistance........ 135,731 1,310,603 832,941
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Expanding Access to Decent Housing
The Federal Government provides rental housing assistance through a
number of HUD and USDA programs. (Spending on housing assistance is
included in Chapter 14, ``Income Security.'') These rental assistance
programs provide subsidies for 4.9 million low-income households.
HUD expanded rental assistance to help more than 250,000 low-income
families from 1993 through 2001. The number of families
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with severe housing needs has remained roughly the same from 1993 to
1999, exceeding five million households throughout the period.
This Administration proposed historic reforms in the public housing
and Section 8 rental assistance programs. With bipartisan support, the
Congress enacted the bulk of these reforms in the Quality Housing and
Work Responsibility Act of 1998, the first significant housing bill
passed in several years. The Act promotes income mixing in public
housing, which reduces concentrations of poverty; gives local public
housing authorities the flexibility to adopt admissions and rent
policies that do not penalize working families; and, raises management
performance standards for assisted-housing providers.
The Act also reforms HUD's housing voucher program to target more aid
to those most in need; provides local public housing authorities with
the flexibility to respond to local price changes in the rental market;
expands owner participation in the program by adopting private market
real estate practices; and finally, permits the use of vouchers for home
purchase. Actions also were taken to make it easier for families to use
vouchers in tight rental markets and to protect assisted tenants from
rent increases by providing additional subsidies where necessary.
As part of its commitment to assure that all public housing residents
live in decent, safe, and sanitary conditions, the Administration worked
to demolish deteriorating, non-viable public housing units and replace
them with either new, less-dense, mixed-income public housing or housing
vouchers. In total, the Administration demolished nearly 60,000 public
housing units and has funded the future demolition of 50,000 more. The
President also established the One Strike and You're Out policy in 1996
to create safer assisted-housing communities. The policy gives public
housing agencies the authority to screen and evict residents who are
involved in drugs and drug-related crime.
USDA's RHS ensured that over the last eight years, 273,600 poor
families were able to continue renting decent, safe affordable housing
in areas that otherwise offer few rental housing opportunities. RHS
provides direct loans to private developers for the construction and
rehabilitation of rental housing for very low- to low-income residents,
elderly households, and disabled individuals. RHS combines these loans
with Rental Assistance Grants to reduce the rent paid by very-low income
tenants. In 1996, RHS also began a rural multifamily housing guarantee
loan program.
The Administration also provided housing assistance and supportive
services for the very low-income elderly and disabled to help them live
as independently as possible, including the conversion of existing
elderly housing to assisted living facilities. Since 1993, HUD added
approximately 75,000 units to the elderly and disabled housing stock.
Providing 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 and the deductibility of State and
local property tax on owner-occupied homes (which collectively will cost
the Government $87 billion in 2001, a 41-percent increase since 1993).
Other tax provisions also encourage investment in housing. States and
localities can issue tax-exempt mortgage revenue bonds, whose proceeds
subsidize purchases by first-time, low- and moderate-income home buyers.
Also, installment sales provisions let some real estate sellers defer
taxes. Finally, the low-income housing tax credit supports the
construction or renovation of 60,000 to 90,000 units of affordable
rental housing annually. The use of this tax credit increased by 114
percent since 1993.
The Community Renewal Act of 2000 increased the amount of low-income
housing tax credits that may be allotted by State housing agencies to
qualifying projects. The Taxpayer Relief Act of 1997 provided a new
exclusion for capital gains on principal residences that substantially
simplifies the tax treatment of houses for most taxpayers. Under the
provision, taxpayers can exclude up to $250,000 of capital gain on
principal residences ($500,000 for married taxpayers filing jointly).
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Promoting 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.
Despite record growth in applications, PTO has maintained its average
processing time for both patent and trademark applications. In 2001, PTO
will issue over 165,509 patents, a 54-percent increase since 1993. Also
in 2001, PTO will register 211,500 trademarks, a 185-percent increase
since 1993.
Commerce's National Institute of Standards and Technology (NIST): NIST
works with industry to develop measurements, standards, and technology
to promote American competitiveness. NIST also assists industry through
the Advanced Technology Program (ATP) and the Manufacturing Extension
Partnership (MEP). Since 1993, NIST has expanded its research into new
fields such as nanotechnology and e-commerce. MEP, which disseminates
technological information and expertise to smaller manufacturers,
achieved nationwide coverage in 1997. Today MEP operates 400 assistance
centers in all fifty States plus Puerto Rico. ATP, a public/private
partnership, has administered approximately $1.5 billion in Federal
matching funds for 468 projects since its inception.
In 2001, NIST laboratories will produce over 2,200 technical
publications, a three-percent increase since 1993. MEP will serve more
than 33,600 clients in 2001, 7,600 more than in 1997. In that same time,
MEP assistance will have increased clients' sales by $748 million and
generated $607 million in additional capital investment. ATP will fund
the research and development of 200 new technologies in 2001, a dramatic
increase over the four studied in 1993.
Commerce's International Trade Administration (ITA): Since 1993, ITA
has greatly expanded its outreach to small and medium sized firms to
develop their export potential. In 2000, ITA serviced over 137,000 small
to medium sized businesses, almost double the 1993 level. ITA also
supported trade negotiation, market-access, and trade-enforcement
activities that greatly benefit the Nation's economy.
Commerce's Bureau of Export Administration (BXA): BXA is a regulatory
agency that enforces U.S. export controls. In 2001, BXA will issue
14,000 licenses for dual-use commodities (military or civilian use),
5,200 more than in 1996.
Under the Chemical Weapons Convention (CWC) implementing legislation,
BXA leads international inspections of U.S. chemical production sites
and regulates the export of key toxic and precursor chemicals.
Regulations for CWC inspections were finalized in May 2000, ensuring
U.S. compliance with CWC while protecting the proprietary commercial
information of U.S. industry.
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
decennial census. In addition, BEA prepares and interprets U.S. economic
accounts, including the Gross Domestic Product. BEA and the Census
Bureau are also leading Government efforts to monitor and analyze the
impacts of the new Digital Economy.
Since 1993, the Census Bureau has completed a wide array of
demographic and economic surveys and censuses, including the
constitutionally-mandated decennial census of population, which is used
for apportioning seats in the House of Representatives across States,
redistricting within States, and the distribution of nearly $200 billion
in Federal funds to States and localities. During Census 2000, the
Census Bureau mailed or hand delivered census forms to 120 million
households nationwide. Non-response follow-up interviews were also
conducted with approximately 42 million households. This year, the 67-
percent mail response rate improved over the 65-percent response rate
for the
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1990 Census, arresting a decades-long decline in mail response. The
Census Bureau also completed, on schedule and ahead of the 1990 Census
pace, the collection of data from the remaining households that did not
respond by mail (33 percent). While the Census Bureau must await the
results of the Accuracy and Coverage Evaluation survey to determine the
ultimate accuracy and completeness of Census 2000, the Census Bureau is
classifying Census 2000 as an operational success.
Small Business Administration (SBA): SBA assists and promotes small
business by expanding access to capital through guaranteed private
sector loans. SBA guaranteed over $14.5 billion in small business loans
in 2000. SBA loans carry longer terms and lower interest rates than
those for which small businesses would otherwise qualify. Between 1993
and 2000, SBA guaranteed $80.6 billion in loans compared to the $78.0
billion in loans guaranteed between 1953 and 1992. SBA also provides
technical assistance and venture capital.
A key component of the Administration's economic development strategy
over the past eight years has been to increase access to capital and
credit for women- and minority-owned firms. Between 1993 and 2000, SBA
provided $12 billion in loans to women, which is more than double the
$5.7 billion provided in the previous nineteen years between 1973 and
1992. Likewise, SBA provided $18.4 billion in loans to minorities
between 1993 and 2000, which is more than double the $7.9 billion
provided between 1953 and 1992. Further, Federal contract awards to
minority-owned firms increased to $6.2 billion in 1999 from $3.4 billion
in 1990.
Complementing SBA's loan programs are technical assistance programs,
which increase the borrower's probability of success. For instance, to
date, SBA has not experienced any defaults on its direct microloan
program, which has a substantial technical assistance component. This
suggests that technical assistance has had a positive impact. The
Administration also increased the number of small businesses receiving
counseling and training to 1.15 million in 2000 from 900,000 in 1993.
Outreach efforts are expected to reach 1.2 million small businesses in
2001.
The New Markets initiative, enacted in December 2000, is the
Administration's most recent effort to foster private-sector investment
in rural and inner-city communities. New Markets Venture Capital, New
Markets Technical Assistance, and the BusinessLINC programs provide $250
million in public and private capital, plus technical assistance to
increase entrepreneurial success and mentoring opportunities for
aspiring small businesses.
Federal Trade Commission (FTC): The 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. Since 1992, the FTC has obtained judgments
for over $800 million in consumer redress and established a consumer
complaint database that is shared with more than 270 law enforcement
partners. The FTC continues to protect the marketplace by successfully
monitoring a record number of corporate merger transactions that have
tripled in volume over the last eight years. Congress recently enacted
Administration-proposed legislation that will make the merger-review
process more equitable by establishing a new three-tiered fee structure
that increases the bottom filing threshold.
Federal Communications Commission (FCC): As the introduction of
wireless, Internet-based and new communication technologies continues to
grow, the FCC has focused on market-based solutions in a deregulatory
environment. The FCC's market-based auctions program has been a driving
force in promoting efficient use of the spectrum and recovering a fair
return to the general public for this resource, including over $20
billion in actual and estimated cash receipts through 2001. The auctions
program also fostered a four-fold increase in the number of wireless
phone subscribers and enabled a 40-percent drop in wireless phone bills.
Over the past four years, local telephone service competition increased
significantly in large part due to the FCC's aggressive implementation
of the Telecommunications Act of 1996. Over the past three years, the
FCC fully funded the E-rate program to wire 82 percent of public schools
and 51 percent of public libraries to the Internet. The FCC also
expanded services to those in
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underserved communities, including Native Americans and the 54 million
Americans with disabilities.
Providing Tax Incentives for Commerce
The tax law provides incentives 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 incentive will cost the
Government $33 billion in 2001, a 68-percent increase since 1993. 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 four years, several capital gains provisions were
enacted to limit certain perceived abuses related to capital gains
taxes. The capital gains tax incentive cost the Government $6 billion in
1993, but it will cost the Government almost $42 billion in 2001. In
addition, the law does not tax gains on inherited capital assets that
accrue during the lifetime of the original owner. Tax law changes during
this Administration also provided an increase in expensing for small
businesses, and an increase in the top corporate tax rate.
Regulating Financial Institutions and Markets
Federal Deposit Insurance: Federal deposit insurance protects
depositors against losses when insured commercial banks, thrifts
(savings institutions), and credit unions fail. From 1985 to 1995, this
insurance protected depositors in over 1,400 failed banks and 1,100
failed thrifts, with total deposits of over $700 billion. As of June
2000, the Bank Insurance Fund, the Savings Association Insurance Fund,
and the Credit Union Share Insurance Fund insured total deposits of more
than $3.3 trillion. 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; the Federal
Deposit Insurance Corporation regulates other State-chartered banks;
and, the National Credit Union Administration regulates credit unions.
Securities and Exchange Commission (SEC) and Commodity Futures Trading
Commission (CFTC): The 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 have
protected investors during a period of unprecedented growth in our
Nation's financial markets. Between calendar years 1990 and 1999,
trading volume on stock exchanges and NASDAQ increased by nearly five
times, and dollar volume increased by more than nine times.
Additionally, an increasing number of Americans now participate in the
Nation's financial markets. For example, the number of households that
own mutual funds has increased by 60 percent since 1994. Today, nearly
half of all households own mutual funds.