FY 1998 - 2003 Strategic Plan
Strategic Objective #6

Increase homeownership opportunities, especially in Central Cities, through a variety of tools, such as expanding access to mortgage credit.

Introduction

One of HUD's most important functions is to increase homeownership opportunities for all Americans. Through homeownership, a family acquires a place to live and raise children. A home is also an asset that can grow in value and provide the capital needed to finance future needs of the family, such as college or financial security for retirement.

HUD will increase homeownership through various efforts, including the Urban Homestead Initiative. HUD's efforts include:

• Federal Housing Administration (FHA)

• Homeownership Zones

• Government National Mortgage Association (Ginnie Mae) Targeted Lending Initiative

• Government-Sponsored Enterprises

• The National Homeownership Strategy

• Homeownership Empowerment Vouchers

• HOME Program Assistance to New Homebuyers

• Assistance to Habitat for Humanity and other self-help homeownership organizations

• Public Housing Homeownership

• Indian Loan Guarantee Program

HUD's efforts in these areas have met with great success:

• In 1996, the United States homeownership rate rose to 65.4 percent, the highest level since 1981.

• 73.2 percent of FHA purchase transaction business in calendar 1996 was to first time homebuyers (purchase transactions are non­refinancing).

• 29 percent of FHA's first time homebuyer business in calendar 1996 was to minority borrowers.

• Ensuring methods of integrating accessible, single­story dwelling units into projects receiving HUD funds or insured by HUD under its insurance programs, that consist of multi­story townhouses, and/or seeking other ways to ensure accessibility of multi­story townhouse developments.

Strategies

The Urban Homestead Initiative

Homeownership is often the most effective antidote to the many problems that plague a city. Over the last two years, significant progress has been made towards President Clinton's goal of reaching an all time high level of homeownership in America by the year 2000. The homeownership rate has increased from 64.2 percent at the end of 1994 to 65.4 percent today. The expansion of homeownership over the last three years is the largest expansion in 30 years.

However, the most significant urban challenge remains - the exodus of the middle class from the cities. In order to halt - and hopefully reverse - this trend, HUD will begin an "Urban Homesteading Initiative."

The goals of this initiative are:

• lower homeownership costs for city homebuyers
• make communities safer
• increase use of homeownership empowerment vouchers

FHA: Lowering Homeownership Costs for City Homebuyers

HUD has reduced the mortgage insurance premium (through the FHA insurance program) for first-time homebuyers obtaining homebuyer counseling. The up-front premium would be reduced by 12.5 percent (from 2 percent to 1.75 percent of the mortgage amount). HUD expects 45,000 homebuyers a year to benefit from the reduction which makes homeownership more affordable.

To stimulate further activity and reduce disparities between suburban and central city homeownership rates, the President also has announced an additional reduction of 25 basis points targeted at middle class and lower income first time homebuyers in central cities who receive homebuyer counseling.

FHA Insurance Fund

FHA insures private lenders against loss on mortgages financing single family homes, multifamily projects, health care facilities, property improvements and manufactured homes. The primary goal of FHA's insurance programs is to expand homeownership and affordable housing for all Americans. The FHA programs are organized into four major activities:

• The Mutual Mortgage Insurance (MMI) Fund, which supports FHA's basic single family homeownership program and is self-sustaining;

• The General Insurance (GI) Fund, which supports a wide variety of multifamily and single family insured loan programs;

• The Special Risk Insurance (SRI) Fund, which supports multifamily rental projects and loans to high-risk borrowers; and

• The Cooperative Management Housing Insurance (CMHI) Fund, which supports insurance on market-rate cooperative apartment projects and, like the MMI Fund, is self-sustaining.

FHA serves that portion of the population locked out of the conventional market. FHA has become a more results-oriented, financially accountable credit-enhancement operation over the last four years and will continue to serve the homeownership needs of people and places that the private sector leaves behind.

Making Communities Safer - The Officer Next Door Initiative

In order to encourage homeownership in central cities, they must be safe enough to raise a family. To make central cities safer, HUD proposes to use its programs to further the goal of community policing, by providing incentives for police officers to live in communities in which they work. Under the Officer Next Door initiative, the FHA will offer police officers a 50 percent discount on the purchase of HUD-owned foreclosed properties in designated revitalization areas. HUD will also encourage its local PHAs to create special preferences which allow police officers to reside in public housing developments.

Homeownership Zones

This program targets homeownership expansion in inner cities. These grants leverage substantial public and private investment, used by cities to reclaim abandoned and distressed neighborhoods through the creation of large-scale homeownership developments. Program funds support infrastructure costs, site preparation, land acquisition or deferred-payment mortgages to working families.

Self-Help Homeownership Opportunities Program

Habitat for Humanity, Housing Assistance Council, Neighborhood Reinvestment Corporation and Northwest Regional Facilitators have all received grants to create homeownership opportunities for low-income families. Funds are used for land acquisition or infrastructure improvement, and will stimulate new investment from public and private sources, including significant amounts of "sweat equity" from both the homebuyers and volunteers.

Ginnie Mae: Targeted Lending Initiatives

Ginnie Mae is using its Mortgage-Backed Security Program to provide incentives to lenders to do more business in targeted Central City Areas. Through the Targeted Lending Initiative (TLI), Ginnie Mae reduced the guarantee fees it charges lenders by up to 50 percent for making mortgage loans in any of the Nation's 72 Empowerment Zones or Enterprise Communities and adjacent eligible Central City Areas.

The incentive to lenders is expected to increase Central City lending by $5 billion by the Year 2000. The initiative's first year (FY 1997) has a goal of $1 billion increase. That goal will be exceeded, resulting in increased homeownership for almost 15,000 families.

Government-Sponsored Enterprises (GSEs)

The Federal Housing Enterprises Financial Safety and Soundness Act gives HUD the responsibility to monitor GSE compliance with the fair lending provisions of that act and the Fair Housing Act. HUD also has the responsibility to establish goals for GSE purchases of mortgages in urban, rural and under-served areas to expand homeownership opportunities for low- and very low-income families.

Homeownership Empowerment Vouchers

Approximately 1.4 million households receive Section 8 certificates and vouchers to help them rent apartments in the private market. Under the Section 8 program, the Federal Government makes up the difference between a family's rental housing costs and the amount a family can afford. However, there are many low-income families who are able to accept the responsibilities of homeownership but cannot do so because they are caught in a spiral of renting. The current Section 8 rental housing program cannot assist these households.

The administration now proposes to allow hard-working families to use Section 8 assistance as Empowerment Vouchers to become first-time homebuyers. The use of Empowerment Vouchers is consistent with the administration's goal to promote family self-sufficiency, encourage the formation of household wealth, and foster healthy communities. The administration's public housing reform bill includes provisions that would enable working families to purchase their own homes by using Section 8 subsidies to support the debt services on the mortgage. Under the administration's proposal, a family must have income from employment and must make a contribution toward their own downpayment.

Because the underlying mortgages to be used with Empowerment Vouchers will be originated by private mortgage lenders, it is important to get the participation of the secondary markets to purchase the loans from lenders and sell them to investors. This allows a lender to continue making mortgages.

To help launch this important homeownership initiative, Freddie Mac has pledged that once the legislation passes, it will participate in a demonstration program to purchase up to 2,000 mortgages originated by private lenders using the Section 8 Homeownership/ Empowerment vouchers. Under the terms of the agreement between Freddie Mac and HUD, Freddie Mac would originate mortgages requiring three percent down payments in order that low and very-low income families can become homeowners. The down payment would come from the family's own savings as well as from gifts, loans, or grants. The family will contribute a reasonable amount of its income toward the monthly payments. The balance of the mortgage payment will be provided through the Empowerment Vouchers.

PIH: Public Housing Homeownership

As part of its application for Hope VI assistance, a PHA may propose to include homeownership opportunities for public housing residents within a mixed finance/mixed income development. Eligibility requirements for such units must be essentially the same as the program requirements of other HUD homeownership programs such as Nehemiah and Section 5(h) of the 1937 Act. A PHA that proposes homeownership activities, submits a Homeownership Plan to HUD that describes all aspects of the proposed homeownership activities. HUD's proposed legislation will increase opportunities for public housing homeownership by allowing PHAs to sell units to organizations that will serve as conduits for homeownership sales. These organizations will manage and organize sales and provide assistance to eligible families as they purchase homes. Homes must be sold to eligible families within 5 years and any proceeds from sales must be used for housing purposes such as resident organizations on capital replacements.

PIH: Indian Loan Guarantee Program

This program, administered by the Office of Public and Indian Housing, provides loan guarantees for Native American Families and tribally designated housing entities (formerly Indian housing authorities) to purchase, construct and/or rehabilitate single family homes on restricted land and in designated Indian areas. It provides opportunities to expand homeownership through the private financing of home mortgages which would otherwise not have been possible because of the unique status of Indian land. Private financing for the purchase of homes in Indian country was almost non-existent prior to the implementation of this program in 1994.

The National Homeownership Strategy

The National Homeownership Strategy is a group of housing industry and Government representatives who have developed a plan to boost the national homeownership rate to 67.5 percent by the year 2000. Among the national partners are 60 national housing organizations and their affiliates. The strategy will continue to focus on increasing the number of local homeownership partnerships working in support of this effort.

A key focus of this partnership is opening markets to racial and ethnic minorities and others who had not realized the American dream of homeownership. The homeownership goal can only be achieved if homeownership significantly increases beyond the 43.7% level at the end of 1994. In fair lending best practices agreements, local lenders express their ongoing commitment to reach out to central cities with information about the homebuying process and to establish fair lending goals in their communities.

Homeownership Retention

HUD must not only encourage homeownership, but must also address the issue of homeownership retention. Increasing the rate of first-time homebuyers is useless unless those homebuyers continue to succeed in homeownership.

CPD

CPD programs address the issue of retention from the perspective of maintaining the physical existence of the home. From 1993 to FY 1996 CPD programs assisted over 1.1 million persons with housing rehabilitation. Most of this assistance went to existing homeowners under the CDBG program. In FY 1992, CDBG entitlement grantees expended $443 million in grants and loans for rehabilitation of single­family dwelling units owned by existing homeowners and, in FY 1993, grantees expended $440 million. A total number of 163,691 single family dwelling units during the two year period were rehabilitated with CDBG entitlement funds. Of these units, 91 percent were owned by low­ and moderate­income persons. The HOME program provides assistance to existing low­income homeowners for home repairs. HOME participating jurisdictions spent $277 million to rehabilitate 18,500 units for existing homeowners in 1994 and $181 million to rehabilitate 11,500 units in 1995. Cumulative production through June 30, 1996 for existing homeowners is 47,000.

Housing

FHA insurance programs are designed to offer opportunities to potential home­buyers who might otherwise not be able to realize their dreams of homeownership. For people who have obtained an FHA­insured mortgage, and who encounter financial difficulties which result in a mortgage delinquency, FHA has structured a Loss Mitigation Program which will maximize the opportunity for borrowers to retain homeownership and cure the delinquency on their mortgage.

Existing relief measures such as special forbearance, mortgage modifications, pre­ foreclosure sale and deed­in­lieu are being been expanded to enable a greater number of homeowners to be eligible for the programs. A new tool, partial claims, supports homebuyers who can only partially recover from a financial difficulty.

With the help of these new tools FHA expects that, by the year 2002, the Department will help 20% of all homeowners (or approximately 12,000 families a year), who in the past would have lost their home to foreclosure remain in their home and "cure" their delinquency.

Planning for the Future

In addition to expanding new homeownership opportunities, the Department will also assist the Nation's large and growing elderly population in maintaining viable homeownership. The Department will promote accessibility in FHA insured and non-FHA insured single family homes so that homeowners may maintain independence in their homes as they become elderly.

Program Evaluation

HUD has conducted evaluations for programs intended to promote homeownership for low income families. Among these recent efforts are evaluations of the Habitat for Humanity homeownership program, HOPE 3, the Single Family Property Disposition Demonstration, the Section 203(k) program, and pre-purchase counseling programs. The Department also recently completed a major assessment of Indian housing needs and program, which examined options for increasing homeownership in Indian country.

As the Department pursues the goal of increasing the homeownership rate, it will continue to track homeownership. As part of this effort, it will monitor the production of its major programs, such as FHA, HOME, and CDBG in their effect on homeownership. Special attention will be given to measuring the results of individual programs, as well as to the combination of programs (e.g., housing built with HOME and insured by FHA), and how they contribute to the change in the national rate.

Linkage to HUD 2020: Management Reform Plan

Single Family Housing currently performs loan production, asset management and property disposition with 2,080 employees in 81 locations across the country, in addition to 190 Headquarters staff. The creation of Homeownership Centers (HOCs) will generate economies of scale and encourage better use of technology. To "jump start" the transition, HUD will either streamline or outsource Real Estate Owned activities and sell nearly all assigned notes.

This consolidation and streamlining will provide faster, more uniform service to clients, lenders and borrowers. Loan production will increase in targeted populations with better marketing and outreach. Processing time for insurance endorsements will be cut from two weeks to one day. Providing higher quality, more efficient service to the customer will allow HUD to achieve its homeownership objective.

Proposed legislation in the Multifamily Management Reform Act of 1997 includes the extension of FHA note sale authority permanently. Note sales reduce staff drain that results from having to service troubled properties and notes. Reducing the burden on staff will allow HUD to improve the delivery of services to its clients.

External Factors

Housing is greatly dependent on conditions in the financial markets for the success of many of its programs. For example, if interest rates are high, many potential homeowners cannot afford the cost of first-time homeownership, resulting in much reduced production volume for FHA. Similarly, if the economy is weak with high unemployment, FHA loans may be adversely impacted by defaults since many financially strapped homeowners may not be able to make their mortgage payments.

In other areas, such as the National Homeownership Strategy, Housing/FHA is a key player in the partnership of various organizations attempting to raise the national homeownership rate, but Housing is not the dominant player and is unable to raise the rate to the target without the concerted effort of all the partners.

How annual performance goals support the achievement of this objective

Increasing the national homeownership rate to 67.5% by the Year 2000 remains a goal of the Clinton Administration. Within the limitations set forth under External Factors, above, HUD will do everything it can to reach this goal. We will increase the amount of single family FHA mortgage insurance in underserved areas each year and increase the share of first time homebuyers through Housing, FHA and Ginnie Mae programs. Through PIH programs, we will measure the number of public housing residents and Native Americans purchasing homes. However, purchasing alone will not suffice. Homeownership counseling and other services must address homeownership retention. The objective to this would be to reduce the default rate. Within the limitations stated under External Factors, above, HUD will provide services targeted to the reduction of the default rate.

See Appendix I for specific performance measures.

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