FY 99 Budget
III. A. Continuing the Growth of Homeownership

But the job is not done. Homeownership in central cities and among women, minorities, and lower income Americans hovers at or below 50 percent. In many parts of the country and in many neighborhoods, even middle-class families have a hard time affording homes or making the continued investments needed to protect their most valuable asset.

The budget includes a number of initiatives to allow more Americans to make the dream of homeownership a reality (see the following chart).

Expanding Homeownership Opportunity
(Budget Authority and Loan Limitations in Millions)

Program	FY 1998	FY 1999	1999 vs. 1998
HOME Grants a/	$1,500	$1,550	$50
HOME Bank Loan Guarantee credit subsidy	0	11	11
Housing Counseling Assistance b/	[20]	[25]	[5]
Homeownership Zones	0	25	25
Indian Housing Loan Guarantee	5	6	1
Title VI Federal Guarantees for Tribal Housing	[5] c/	5	5
Lead Hazard Reduction	60	85	25
Total, Grants	1,565	1,682	117
Loan Limitations
Federal Housing Administration Loans	110,000	110,000	0
Government National Mortgage
Association (Ginnie Mae)	130,000	150,000	20,000
HOME Bank Loan Guarantee	0	100	100
Indian Housing Loan Guarantee Fund	62	69	7
Title VI Federal Guarantee for Tribal Housing	45	44	(1)
Total, Loan Commitment
Limitation	240,107	260,213	20,106

Notes: Bracketed amounts do not add into totals. Item in parentheses reflects reduction.

a/ Does not reflect funding for Elderly and Disabled Housing which is categorized under Affordable Housing

b/ Funded as a set-aside within the HOME Grants program.

c/ Funded as a set-aside within the Indian Housing Block Grants Program.

1. Higher FHA Loan Limits

President Clinton's budget calls for a new initiative to help millions more hard-working middle-class American families qualify to become homeowners by raising home mortgage insurance limits used by the Federal Housing Administration.

The higher ceiling on FHA mortgages would open the door of homeownership to millions of American families who are currently locked out. In all, about 3 million more families could qualify for FHA mortgages over the next five years - and millions more in future years.

The FHA single family mortgage program has been one of the most successful joint public-private ventures ever established by the Congress. The FHA provides mortgage insurance that enables homebuyers to secure mortgages from private lenders. Over the past 60 years, FHA has made homeownership available to nearly 25 million families throughout the country.

Once a driving force for middle-income home buyers, FHA has lost relevance for many middle-class families. The use of FHA insurance has been declining, in large measure, because the ceiling on loans which FHA insures has not kept pace with rising home values. In 1970, FHA accounted for more than 25 percent of all loans issued. In 1996, this share had fallen to less than 10 percent.

Today, FHA has over 250 separate loan limits ranging from $86,317 in more than 2,000 low-cost counties to $170,362 in 130 higher-cost counties. About 930 counties have loan limits set at 95 percent of local median home sales price which fall between $86,317 and $170,362.

This change would impose a single, nationwide limit of $227,150, which would simplify the current system and bring FHA back in line with the limit used by Fannie Mae and Freddie Mac, the two largest providers of mortgage credit in the market place. The higher ceiling on FHA mortgages will open the door of homeownership to American families presently locked out of home buying in both high-cost metropolitan markets, and lower-cost suburban and rural markets by making them eligible for the benefits that FHA offers.

The higher loan limits will also increase the capacity of families to purchase and rehab older homes, an important component of neighborhood revitalization efforts. Overall, the average loan insured under this initiative will be less than $150,000. For lower-cost regions such as the South and Midwest, the bulk of new loans insured under the program would be in the $100,000 to $130,000 range, which are prohibited by current ceilings.

FHA-insured loans benefit homebuyers by: allowing down payments under 5 percent, allowing homebuyers to borrow closing costs, allowing more homebuyers to qualify for mortgages, and allowing homebuyers to use gifts from family members and others to make their downpayments.

In addition to enhancing homeownership opportunities, raising FHA loan limits is good for the federal budget. The insurance premiums and fees associated with new mortgage business will provide FHA with an increase in revenues of more than $200 million per year.

2. HOME Bank: Leveraging the Home Program

The budget proposes a substantial enhancement to the effective HOME Investment Partnership Program, which provides flexible grants to states and local governments. The new initiative will add a new loan guarantee feature, enabling states and localities to leverage private investment with current HOME grants for more rental housing and homeownership developments. This new HOME Bank will provide an effective new tool to enhance housing production.

a. HOME Investment Partnership Program. The HOME program request for 1999 is $1.88 billion; $1.55 billion is for HOME grants (with $25 million for Housing Counseling assistance). The remaining $333 million is for elderly and disabled activities.

The $45 million increase in formula allocations will continue the Department's efforts to assist communities to provide permanent housing to low- and moderate-income families consistent with locally determined priorities. The program can be used to provide tenant-based assistance, to finance the construction and rehabilitation of multifamily rental housing, and for homeownership assistance.

HUD estimates that FY 1999 formula funding would produce substantial amounts of housing: 78,520 units of affordable housing for owners and renters through construction, rehabilitation and acquisition activities; another 11,200 families would receive tenant-based rental assistance.

The HOME program has a remarkable record of success. The program has:

• provided substantial funding to non-profit developers of affordable housing, far in excess of program requirements;

• brought new homeownership developments to distressed inner-city neighborhoods;

• provided opportunities for poor families to live in mixed-income rental projects; and

• provided States and communities with flexibility to meet local needs, such as homeless families completing the continuum of care program, and families with disabilities and others participating in self-sufficiency or supportive housing programs.

b. HOME Loan Guarantee Program. Building on HUD's recent success with the Section 108 loan guarantee feature of the CDBG program, the FY 1999 budget proposes a similar enhancement to the HOME program: a new loan guarantee feature. This feature will permit HOME participating jurisdictions (PJs) to leverage up to five times their current HOME allocation in private sector funding to finance large-scale development and other activities. The budget supports $100 million of new loan guarantees at an estimated cost of $11 million in FY 1999.

The proposed program will complement and enhance the existing HOME program by permitting PJs to secure additional debt needed to finance larger rental or homeownership developments. Private lenders will respond to the new form of credit enhancement by offering larger long-term loans; the federal guarantee ensures lenders that risks traditionally associated with lending for affordable housing development, particularly large-scale, high-cost development, will be eliminated. The PJ guarantees the lender the payment of principle and interest on the loan, should the housing developer default. This security encourages lenders to offer long-term, fixed-rate financing.

The ability to borrow a large sum of money will encourage communities to undertake broad-based neighborhood revitalization strategies and to take advantage of economies of scale, producing or rehabilitating a large number of rental or ownership units in a single undertaking within a relatively short time frame.

3. Homeownership Zones

The Budget proposes $25 million in 1999 to enable cities to undertake large-scale single family developments in inner-city neighborhoods.

Creating new concentrated homeownership developments as part of a whole neighborhood strategy is central to redeeming blighted and troubled neighborhoods. Homeownership serves as a foundation for additional investment in residential, commercial, and economic development of the Homeownership Zone. HUD has funded six Homeownership Zones with 1996 funding and will announce a new round of five to seven designated zones in the near future.

With an infusion of low- and middle-income homeowners, these zones are transforming their city neighborhoods. Not only do these zones attract homeowners, they create demand for other neighborhood economic activities like grocery stores and dry cleaners. Because a majority of the newly constructed units are reserved for low- and moderate-income families, the zones are also designed to attract middle-income families in order to increase the long-term stability of a neighborhood. This program is expected to help address one of the most difficult problems faced by cities: retaining middle-income families.

The request of $25 million will support between five and seven Homeownership Zones, based on the average grant of $3 million to $5 million. In turn, these funds will create about 1,500 new homeowners. In 1997, HUD received 70 applications but HUD was only able to fund six new zones.

4. Homeownership Empowerment Vouchers

Approximately 1.4 million households currently receive Section 8 certificates and vouchers to help them rent apartments in the private market. Under the Section 8 program, HUD makes up the difference between a family's rent and the amount the family can afford, generally 30 percent of income. However, there are many low-income families who are poised to accept the responsibilities of homeownership but cannot break out of the rental market. The current Section 8 program does not allow subsidies to be used to pay a mortgage, rather than a landlord.

HUD is proposing to allow these hard-working families to use Section 8 assistance as Empowerment vouchers to become first-time homebuyers. This will help promote family self-sufficiency, encourage the formation of household wealth and foster healthier communities. This is a pending legislative proposal with no direct budget consequences.

Under HUD's proposal, a family must have income from employment and must make a contribution toward their own downpayment. It is presumed that these homeowners will have mortgages financed by conventional lending institutions, and thus homeowners will have to meet private market underwriting criteria.

5. Housing Counseling

The Housing Counseling program, a set-aside in the HOME program, is designed to provide pre- and post-purchase counseling assistance to clients on housing issues. The request for counseling funds is increased by 25 percent over the 1998 enacted level of $20 million to $25 million in 1999.

Despite the success of the President's National Homeownership Strategy, homeownership education and counseling is still in great demand, providing both an opportunity and a challenge in raising the homeownership rate. Recent ethnographic studies completed in 1997 examined the homebuying experience of minority and immigrant households. These groups are the least likely to become homeowners, the studies concluded, because of the lack of knowledge about the homebuying process, the lack of credit histories to justify mortgage applications, and a lack of information about financing options.

Therefore, housing counseling remains an important feature of the President's commitment to increase the country's homeownership rate.

6. Officer Next Door

To make central cities safer and further the goal of community policing, HUD implemented the Officer Next Door program. This program provides incentives for police officers to live in the communities where they work by offering a 50 percent discount on the purchase of HUD-owned foreclosed properties in designated revitalization areas. To date, HUD has accepted 592 sales contracts and closed 270 deals on HUD-held properties under this initiative, making significant progress on our goal of 1,000 sales.

7. Lead Hazard Reduction

The 1999 Budget requests $85 million for the lead hazard program, a 40 percent increase over 1998 levels.

The increase of $25 million is dedicated to the implementation of a new "Healthy Homes Initiative." This initiative will address housing-related childhood diseases and injuries. In 1999, the program will demonstrate and test new housing maintenance techniques, fund home inspections, assess renovation and construction methods, and implement a new public education campaign to prevent diseases and injuries around the home, including lead hazards.

The Healthy Homes Initiative is being created in response to a growing incidence of disease and injury occurring in the home environment. As children spend increasing amounts of time in the home, reducing the incidence of childhood diseases in the home is of increasing importance. Chronic lung diseases now cause 4,500 deaths per year, and its prevalence has increased 50 percent in the past 10 years; 80 percent of all fires now occur in the home. Exposure to toxic chemicals improperly stored cause additional harm. No comprehensive national strategy now exists to coordinate and implement health and housing responses to these diseases and injuries.

The lead reduction program has scored significant gains in recent years. Currently 34 States have enacted lead-paint contractor certification laws. Continued funding is required in 1999 to expand this certification to all States. Funds will also be used to conduct technical studies and provide technical assistance to improve the effectiveness of lead reduction efforts conducted through other Federal programs and by private homeowners nationwide. Of the $60 million proposed for the lead hazard program, $50 million will be used as grants to States to conduct lead abatement activities and $10 million will be targeted to technical assistance and technical studies of abatement techniques.

8. Neighborhood Reinvestment Corporation

The President is proposing $30 million for the Neighborhood Reinvestment Corporation, a separately budgeted organization, which will pilot a program to help renters with solid payment track records own their own homes. This initiative will focus on underserved populations, including women, minorities and central city residents. Secretary Cuomo serves on the board of the Neighborhood Reinvestment Corporation.

9. Fair Housing

Under Secretary Cuomo's leadership, HUD has taken a prominent role in the President's One America initiative, doubling its targeted number of housing discrimination enforcement actions and partnering with 67 non-profit housing groups to reduce housing discrimination. HUD has also entered into 113 best practice agreements with key lenders, resulting in more fair lending practices and expanded opportunities for low-income minority families.

At President Clinton's direction, Secretary Cuomo launched efforts to double the number of fair housing enforcement actions to crack down on housing discrimination during the President's second term. These efforts include HUD's new "Make Em Pay" initiative to take civil action against people who commit housing-related hate crimes. During 1997, the compensation for persons alleging discrimination and hate acts has increased dramatically, resulting in a 224 percent jump in compensation to victims $7.7 million for May-September 1997, compared with $3.5 million for May-September 1996.

The FY 1999 budget proposes a 73 percent increase in funding for fair housing activities to allow HUD to follow through on the Secretary's commitment to protect the right of every American family to live and raise their children in any neighborhood they can afford.

73% INCREASE TO FIGHT HOUSING DISCRIMINATION
(Budget Authority in Millions)

PROGRAM	1998	1999	1999 vs 1998
Fair Housing Initiative Program	$15	$29	$14
Fair Housing Assistance Program	15	23	8
Total Fair Housing Activities	30	52	22

a. Fair Housing Initiatives Program (FHIP). The 1999 Budget nearly doubles funding for the Fair Housing Initiatives Program - from $15 million in 1998 to $29 million in 1999. The FHIP program provides funding to help private, non-profit fair housing organizations carry out programs that enhance compliance with fair housing laws.

There are three key components to the increase. First, the budget proposes a $10 million housing discrimination audit, to assess systematically the levels of housing discrimination in 20 communities across the country. The audit findings and data will also be used as evidence to enhance fair housing enforcement efforts. Second, FY 1999 resources will increase funding available to private non-profit fair housing groups around the nation, so they can do more to reduce housing discrimination. These groups use HUD assistance to help pay for investigations and lawsuits. Third, funding will create a national Fair Housing Rights Education Campaign to inform Americans about their legal rights and responsibilities under the Fair Housing Act and to provide them with assistance when confronted by illegal discrimination.

b. Fair Housing Assistance Program (FHAP). The FHAP program enables HUD to certify State or local fair housing enforcement programs as "substantially equivalent" agencies. FHAP reimburses the agencies for handling fair housing complaints filed in their jurisdictions. Funding for FHAP is proposed at $23 million, up from $15 million in FY 1998.

The FHAP provides assistance to State and local agencies that administer fair housing laws certified by the Department as "substantially equivalent" to Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988. The assistance includes support for enforcement activities, including complaint processing, training, technical assistance, data and information systems and coordinated activities to increase fair housing enforcement. The program is designed to encourage inter-governmental enforcement of fair housing laws and provide incentives for States and localities to assume greater responsibility for administering fair housing laws.