FY 1999 Annual Performance Plan

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 homeownership efforts include:

• Federal Housing Administration (FHA)
• Homeownership Zones
• Government National Mortgage Association (Ginnie Mae) Targeted Lending Initiative
• Government-Sponsored Enterprises
• Homeownership Empowerment Vouchers
• Public Housing Homeownership and Indian Loan Guarantee Program
• Homeownership Retention

Strategies

FHA: Lowering Homeownership Costs for City Homebuyers

HUD has reduced the mortgage insurance premium through the FHA insurance program. The first-time homebuyer, by obtaining homebuyer counseling, reduces the up-front premium 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.

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.

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.

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 these families to use Section 8 assistance as Empowerment Vouchers to become first-time homebuyers. This is consistent with the administration's goal to promote family self-sufficiency, encourage the formation of household wealth, and foster healthy communities.

PIH: Public Housing Homeownership and Indian Loan Guarantee Program

As part of its application for Hope VI assistance, a PHA may propose to include homeownership opportunities for its residents. 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.

The Indian Loan Guarantee 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.

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.

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.

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 just two Homeownership Centers (HOCs), instead of 81, 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.

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, 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.

Annual Performance Goals

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 increase the number of public housing residents and Native Americans purchasing homes. HUD will continue to provide services targeted to the reduction of the default rate.

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