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
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
- 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.
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
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;
- 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.
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
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
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
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
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
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.
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 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
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
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"
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.
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
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
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.
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
How annual performance goals support the achievement of this
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.