Housing Issues in the 106th Congress

CRS Report for Congress
th
Housing Issues in the 106 Congress
Upda ted Janua ry 22, 2001
E. Richard Bourdon
Analys t in Housing
Domestic Social Policy Division

Congressional Research Service ˜ The Library of Congress

Housing Issues in the 106 Congress
Summary
The final 2 m onths of the 106^th Congress saw t hree sign ificant p ieces of housing
legi slation adopted: t he FY2001 budget for t he Department of Housing and Urban
Development (HUD), an afford a b l e h ousing and homeownership bill, and
community renewal l egislation contai ning an increas e i n l ow incom e h ousing t ax
credits and p rivate activity bonds.
The P resident sign ed the VA-HUD FY 2001 appropriations bill, H.R. 4635, on
O c tober 2 7 (P.L. 106-377). The new l aw provides HUD with $30.6 billion fo r
FY2001, $4.7 billion above the p revious year’s $25.9 billion, but $1.8 b illion less
than the Administration’s request. All major p rograms received i ncreased funding
ex cept for drug elimination grants and the HOPE p rogram, both funded at l ast year’s
levels. The Housing C ertificate Fund, primarily S ection 8 rental assistance, received
$13.9 billion, $2.6 b illion more than the previous year. Although t he House- and
Senate-passed b ills r eco m m e nded few or no incremen tal vouchers, t he conference
report contained $483 million for 79,000 new vouchers. T o i ncrease voucher
utilization, 20% of vouchers (up from 15%) can be used at assisted rental projects.
Provisions to increase both t he Lo w Income Housing Tax Credit and p rivate
activity bonds were attached to a number o f b ills moving through t he 106^th Congress.
None had b ecome law until a t ax bill, H.R. 5662, containing housing t ax credit and
private activity bond increases, was added t o a broader appropriations package, H.R.
4577. The P resident sign ed H.R. 4577 on December 21, 2000 (P .L. 106-554). The
tax credit cap wil l i n c r e a s e t o $1.50 per capita in 2001 and t o $1.75 in 2002. This
change is ex pected to subsidiz e t he construction o f an additional 180,000 rental units
over t he nex t 5 years. The p rivate activity bond cap will increase t o t he l a rger of
$62.50 per s tate resident or $187.5 million i n 2001, and $75 per res ident or $225
millionin2002.
A number o f affordable housing and homeownership provisions in H.R. 1776,
a bill passed by t he House on April 6 by 407-8, were added t o a bipartisan housing
authoriz ation bill, H.R. 5640. The P resident sign ed this bill on December 27, 2000
(P.L. 106-569). Among the provisions in this wide-ranging act is the authoriz ation
to use S ection 8 housing vouchers to help fa milies accum u l at e downpaym ent s t o
purchase homes, and to refinance FHA-insured Home Equity Conversion M ortgages
for el d erl y hom eowners. C h anges were al s o m ade i n p rogram s for t h e el d erl y and
disabled, and manufactured housing regulations.
Other bills during t he 106^th Congress that did not get enacted included p roposals
to address “predatory l e nding” t o l ower income homebuyers (including fraudulent
appraisals, ex o rbitant loan fees and o th er onerous mortgage terms): H.R. 3901, H.R.
4213, H.R. 4250, S. 2405 and S . 2415. In addition, hearings were held on September
12, 2000 on bills proposing alternative uses f o r $ 5 b i l lion o f “ex cess” Federal
Housing Administration (FHA) mortgage insurance p rogram reserves: H.R. 4795, S.
2914, and S . 2997. One p roposal would h ave u sed t he surplus t o reduce i nsurance
p r e m i u m s , w h i l e a n o t h e r w o u l d h a v e s u b s i d i z e d n e w r e n t a l housi n g c o n s t r u c t i o n a n d
provided funds for t he preservation o f ex i sting rental p rojects.

Contents
TheHUDBudget ..............................................1
FY2001 Budget ...........................................1
OtherReadings ............................................3
FY2000 Budget ...........................................3
OtherReadings ............................................3
Lo w Income Housing Tax Credits and P rivate Activity Bonds ..........3
HousingTax Credits .......................................3
Issues andConcerns ........................................4
OtherReadings ............................................5
Private Activity Bonds ......................................5
HousingfortheElderlyandDisabled ..............................6
OtherReadings ............................................7
IncreasingHomeownership ......................................7
OtherReadings ............................................8
Manufactured Housing Industry R eforms ...........................8
Homeless AssistancePrograms ...................................9
OtherReadings ...........................................11
Property“Takings”............................................11
ReinsuranceofStateDisasterInsurancePrograms ...................11
OtherReadings ...........................................11
PredatoryLending ............................................12
OtherReadings ...........................................13
UseofSurplus FHAReservesforAffordableHousing ...............13
ListofTables
Table1. Department ofHousingand UrbanDevelopmentAppropriations .....3

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Housing Issues in the 106 Congress
TheHUDBudget
FY2001 Budget. On October 19, 2000, the Hous e and Senate approved t he
FY2001 VA/HUD appropriations bill (H.R . 4635), providing $30.6 billion for HUD
(H.Rept. 106-988). The President s igned P.L. 106-377 on October 27. The approved
budget provides about $4.7 billion m ore t han t he $25.9 billion enacted for FY2000.
Then-HUD Secretary C uomo called i t t h e b est budget in 20 years although t he
amount is $1.8 billion l ess t han P resident Clinton h ad requested for HUD.
Negotiations between Congress and Administration representatives in late September
and earl y Oct ober resul t ed i n a l arge i ncrease i n S ect i o n 8 recapt u res. “R ecapt u res”
are unused funds from a prior budget year that are t aken back from public housing
authorities, either to be redirected into another fiscal year’s budget or as a cancelled
appropriation. The $275 million o f S ection 8 recaptures approved b y both t he House
and S enat e i ncreas ed to $1. 8 billion i n t he conference negotiations. The
reprogramming o f t hese funds allowed m ore funding for a number of HUD programs,
in some cas es , m ore t han t he Administration’s o rigi nal request.
The Housing C ertificate Fund, which p ro v i des rental assistance to about 3
million l ow-income households , received $13.9 billion, nearly $2.6 b illion m ore t han
t h e previous year, although $187 million l ess t han t he Clinton Administrat i o n ’ s
request. The Administ r a t i o n h a d as ked for 120,000 new housing vouchers in
response t o t he rising number o f l ow income households payi ng m o r e t h an half of
thei r i ncome for rent. Both t he House- and S enat e-passed bills recommended few or
no additional vouchers. However, t he conference report i ncluded $453 million for

79,000 new vouchers.

During the 106^th Congress, there we r e d iscussions about the s trong economy,
the resulting d ifficulties o f u sing vouchers in tight rental markets, and whether a n ew
HUD production p rogram was n eeded. A n u m b e r o f s tudies indicated a growing
shortage of “affordable” rental housing (households with low i ncome who pay m ore
than 30% of their i ncome for shelter). Fo r e x a m p le, i n M arch 2000, HUD sent a
report to Congress, Rental Housing Assistance — The Worsening Crisis, whi c h
documented t hat a record 5.4 million unassisted very-low-income families pay over
half of their i ncome for housing or live i n severely d istressed housing. In J une, 2000,
the C enter for Housing P olicy rel eas ed a report, Housing America’s Wo rking¹
Families, which s tated t hat h aving a job does not gu arantee a family a d ecent p lace
to live at a n a f fordable cost. Among its findings: “More t han 220,000 teachers,

¹ The Center f or Housing Policy ( a r esearch affiliate of the National Housing Conference),
Housing America’s Working Families, New Century Housing, J une, 2000, p. 2. Washington,
D.C.

p o lice, and public safety officers across t he country spend m ore t han h al f t h e i r
income for housing, and t he problem is growing worse.”
T h e l ow level o f i ncremental vouchers originally approved b y t he House and
Senate stands in contrast to the 50,000 additional vouchers approved b y C ongress for
FY1999 and t he 60,000 for FY2000. During 200 0 , H U D w a s called upon in
congressional h earings to ex plain why so few o f t hese 110,000 incremental housing
vouc hers had b een put to use. The reasons generally gi ven were t hat t he sustained
e conom i c growt h had d ri ven down v acancy rat es, pushed u p rent s t o l evel s w h e r e
vouchers could not be used, and made particip a t i o n i n t he Section 8 p rogram less
appealing t o l andlords who could eas ily fill thei r units with market -rate tenants and
avoid t he “red tape” o f t h i s p rogram. The House VA/HUD Appropriations
Subcommittee s aid t h a t t h e re was n o n eed to put more vouchers into the p ipeline
until the difficulties of using the current supply were adequately resolved. Both HUD
and t he Subcommittee discussed options to addres s t his m atter, incl uding increas ing
the fair-market rents in some ex pensive areas, and gi ving landlords more incentives
to participate i n t he rental program. As noted, final nego tiations produc e d an
agreement for 79,000 new housing vouchers.
Prior t o conference nego tiations, HUD wa s concerned t hat m any o f its programs
w o uld either face cuts or be funded at t he previous year’s level. Fo r ex a m p l e , a s
passed b y t he House, H.R. 4635 would h ave p rovided $50 million l ess for the public
housing operating fund than requested a n d t h e p ublic housing capital fund would
have received $155 million l ess t han i n t he previous year. The Senate bill approved
funding for public housing at t he Clinton Administratio n ’s requested amounts.
However, the conference report p rovided $6.25 billion for these t wo funds, about $95
million above the requested amount. About 1.3 million families now live i n public
housing. Effo r t s t o r e v italiz e o r replace nearly 100,000 severely distressed public
housing units continue under t he HOPE VI program. T he conference report p rovided
$575 million, the s ame as t he previous year, but $50 million l ess t han reques t ed.
Many housing o rganiz ations worry that fewe r replacement units will be added t han
the number t orn down under HOP E VI, and t hat not all o f t he replacements will be
affordable to those who are d isplaced, s ince more “mix ed income” communities are
b e i ng built. (See CRS Report R L30589, HOPE V I: T h e R evi t a l i z at i o n o f S everel y
Distressed Public Housing, b y S usan Vanhorenbeck.)
The C linton Administration’s FY2001 HUD budget asked for an 18% increase
in homeless assistance grants, up $180 million from $1.020 billion i n FY2000 to $1.2
billion i n FY200 1 . The conference report p rovided $1.025 billion for homeless
assistance grants an d a l s o , for t he first time, funded t he Shelter P lus C are p rogram
in a s epar at e l ine item at $100 million. Thus, t he total approved for homeless
programs for FY2001 was $1.125 billion, $105 million m ore t han t he previous year,
b u t $ 7 5 million l ess t han requested. P rogram s for the elderly and disabled were
funded i n t he conference report at c l o s e to $1 billion, up from s lightly more than
$900 million t he previous year.
Several HUD programs pro v i d e funds for t he economic stabilization or
revitalization of communities, es peci ally for areas with high unemploym ent and
concentrated levels of poverty. The conference r e p o r t a pproved $ 5 b illion for
Community Development Block Grants, s ignificantly more than in either the House-

or Senate-passed b ills, and about $100 million m or e t han t he Administration’s
request. The HOME block grant program al so benefitted from l as t m i n u t e
nego tiations, wi t h t h e conference re port providing $1.8 billion, $200-$215 million
more than Hous e a n d Senate-a pproved bills and $150 million above the
Administration’s origi nal request.
Other Readings. See CRS Report R L30504, Appro p r iations for FY 2001:
VA, HUD, and Independent Agencies, by c o o rdinators Dennis W . S nook and E.
Richard Bourdon. Fo r general background on housing p rogram s , s e e CRS Report
RL30486, Housing t he Poor: Feder al Program s f o r Low-Income Families, by
Morton J . Schussheim.
FY2000 Budget. The P resident sign ed the VA, HUD, and Independent
Agencies appropriation b ill (H.R. 2684, P.L. 106-74) on October 20, 1999, providing
HUD with a FY2000 budget of $25.9 billion, about $1.9 billion m ore t han FY1999
but $2 billion l ess t han t he Administration h ad requested. Included i n t he budget
were a few unusual items in the housing certificate fund: $2.2 billion o f rescissions
and $4.2 billion o f advance funding that could not be spent until FY2001. The
budget provided $ 10.8 billion t o renew all ex p iring S ection 8 contracts, including
funds to help families where landlords decide not to continue in t h e S ect i o n 8
program o r where contract s are terminat ed . For the s econd time in 2 years, the HUD
budget included funds for an i ncrease i n t he number o f s ubsidiz ed rental housing
units fo r t h e poor: $347 million for about 60,000 additional general use vouchers.
Funding for o ther large HUD programs included $ 9 1 1 m illion for housing for the
elderly and disabled; $1.02 billion for homeless assistance grants; $1.6 billion for the
HOME p rogram; and $4.8 billion for Community Development Block Grants.
O t her Readings. See CRS Report R L30304, Appropriations for FY 2000:
VA, HUD, and Independent Agencies , b y Dennis W . S nook, coordinator.
Table 1. D epartment o f H ousing and Urban D evelopment
Appropriations
(budget authority in billions; n et after rescissions)
F Y 1996 F Y 1997 F Y 1998 F Y 1999 F Y 2000 F Y 2001
$19.13 $16.30 $21.44 $24.08 $25.94 $30.62
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Low I ncome Housi ng Tax Cr edi t s a nd Pr i vate Acti vi t y Bonds
Housing Tax Credits. The Low In com e H o u s i n g T ax C redi t (LIHTC ), a
1986 provision in the federal tax code, h as become the m ajor engi ne for s ubsidiz ing
the p roduction o f assisted rental housing affo rdable to lower i ncome households. At
least 800,000 new and rehabilitated units have been supported over t he program’s 14-
ye ar history. A 1997 General Accountin g Office study found that this program,

combined with funds from o ther federal housing p rograms, was h elping households
with very low i ncomes, averagi ng about $13,300 per year. These are families with
incomes equal t o about 37% of the ar e a m e d i a n , considerably lower t han t he
households with 50% to 60% of the m edian t hat t he program was generally intended
toserve.
W ith the robust economy redu c ing v acancy rates and pushing rents h igher,
housing t ax credits are b eing increasingl y called upon to help prevent t he loss of the
ex ist i n g s t o c k of federally-assisted rental units, rather t han t o i ncrease t he overall
supply o f affordable rental units. An i ncr easing number o f t ax credits are b eing used
to encourage S e c t i o n 8 landlords with ex pi ring contracts not to leave t he program.
More tax credits are also b eing used to convince S ection 8 l andlords to participate i n
the “mark-to-m a r k e t ” p rogram. And more tax credits are b eing used with HUD’s
HOPE VI p rogram which i s t earing down s ome o f t he worst b ig city high rise public
housing p rojects, and replacing them with lower-density mix ed income apartment
complexes.
These n ew uses for housing t ax credits, along with reports about the d ifficulties
tenants are having using housing vouchers in tight r e n t al markets, help ex plain t he
s t rong congressional s upport for increasing t he annual s upply o f t ax credits. H. R .

175 (N. J ohnson) and t he identical S. 1017 (Mack) h ad more than 450 co-sponsors.

These b ills would h ave i ncreased the annual amount of federal t ax credits that state
housing finance agencies can distribute t o d evelopers, from $1.25 per p erson i n t he
state, to $1.75, and would also have i ndex ed t he limit to inflation. This would have
raised the yearly supply o f t ax credits by 40%. An i dentical proposal was i ncluded
in President C linton’s FY2001 budget request, but without index i ng for i nflation.
Several m odified versions of thes e bills were added t o other legi slation m oving
through C ongress. On December 15, 2000, the House and S enate passed H.R. 4577
(H. R ept.106-1033), t he Consolidated Appropriations Act o f 2001, incorporating t he
provisions of a t ax bill, H.R. 5662. It will increase t he housing t ax credit cap to
$1.50 for 2001 and $1.75 thereafter, with index ation for inflation b eginning in 2003.
There will also be a $2 million s tate minim u m s t ar t i n g i n 2001, with inflation
protection b eginning in 2003. This law a l s o m odifies the criteria for allocating
housing credits among projects, requiring community revita l i z ation plans, public
housing wa iting lists, special housing n eeds, and o ther factors t o b e t aken into
consideration. There are also additional responsibilities for housing credit agencies,
including the requirement for a comprehensive m arket s tudy of the housing n eeds o f
low-income households a n d f o r regu lar site visits to monitor noncompliance with
habitability standards. It is estimated t hat an i ncreas e i n t he cap to $1.75 will result
in an additional 30,000 tax credit units a year at a cost o f $ 1 b illion over 5 years and
$6 billion over 10 years.
Issues and Concerns. In ter m s o f apartments p roduced, t he LIHTC h as
been very successful, as builders and inve stors h ave responded t o t his t ax incentive,
although t he ex t e n t , i f any, t o which these units would h ave b een produced in the
absence o f t he tax credit, is not known. Bu t n o p rogram of this siz e and complex ity
is free o f concerns. S ome observers worry that some of the m ore unfortunate results
of past housing p rograms could s urface later i n t his p rogram.

For ex ample, t here is concern t hat s ome of t he early tax credit project s will be
converted to market-rate units after t heir 15^th year of service, as the l aw allows under
certain conditions, creating an issue similar to landlords who “opt out” of HUD’s
S ect i o n 8 assi st ed rent al program . A recent report b y t he J o i n t C ent er for Housi n g
Studies of Harvard University and t he Neighborhood Reinvestment C o r poration,
Expiring Affordability of Low-Income Housing T ax Credit Properties: The N ext Era
i n Preservat i o n , estimates t hat 15-year affordability restrictions will end for the first
23,000 tax credit units in 2002. The r e p o r t c o n c ludes: “Lack of monitoring or
insufficient funds for p roperty repair o r purchase will place even properties for which
there i s i nterest i n p reserving aff ordability at risk of market conversion, reduced
income-targeting, or disinvestment and decline” (p. 37).
There are also questions about whether t he cost of prod u c i n g t ax credit rental
units is reasonable relative t o alternative ways o f h elping l o w i ncome households
with their housing n eeds. New construction i s almost always more ex pensive t han
the u se of ex isting apartments, and s ome obs ervers think i t i s i nappropriate to put low
income households in new units while moderate income households nearby in less
desirable housing s truggl e without assistance. The General Accou n t i n g O ffice is
currently conducting a study to compare t he costs o f t ax credit apartments with other
ex isting federal rental housing p rograms.
Others wonder about how well developers , i nvestors, and s ta te allocating
agenci es a re fol l o wi ng t h e com pl ex requi rements o f t his p rogram. T he In ternal
Revenue Service (IR S ) i s concerned about noncompliance among early tax credit
project s t hat have now passed t he 10-year credit period (by which time al l awarded
tax credits have been claimed b y t he invest or) and m ay n o l onger feel com p el l ed t o
abide by program rules. While the IRS considers overall compliance with program
requirements t o b e good, there h as been a s igni f i cant i ncrease i n t he number o f
violations reported by IRS field agents. The agency h as conducted a broad criminal
i n vestigation of l ow-income housing t ax credit projects s uspected of illegal
activities. (Housi n g and Devel opment R eport er , J une 26, 2000). The A f f o r d a ble
Housing Finance magazine (housingfinan ce.com) reported o n charges of favoritism
and s elf-dealing i n t he awarding of housing t ax credits in Tex as. In November, 2000,
a m ember o f t he Tex as Department of Housing and Community Development was
convicted in the U.S. District C ourt o f b ri bery, t heft, m ail fraud, a n d conspiracy to
defraud the government of low-income housing t ax credits. (Housing Affairs L etter,
November 10, 2000).
Other Readings. CRS Report R S20337, The L ow Income Housi n g T a x
Credit: Current Issues and Proposed Legislation , b y R ichard Bourdon.
P r i va te Activity Bonds. Housing t ax credit supporters also urged p ass a ge
of compani o n l egislation t hat would i ncr ease t he allowed annual s tate sale of tax -
ex empt private activity bonds. P roceeds from t he sale of these bonds are frequently
used in conjunction with the LIHTC program. (Businesses and individuals who buy
these bonds in effect lend money at b elow-m arket i nterest rates because they do not
have to pay federal income tax o n t he interest they earn o n t hese bonds.) The annual
limit of bonds that each state could s ell, imposed in 1986, was t he greater of $50 per
capita or $150 million. This cap was s cheduled to be gradually increased to $75 per
capita or $225 million over a 5-year period begi nning in 2003. H.R. 864 (Houghton)

and S . 459 (Breaux ) would h ave i ncreased the cap to $75 per capita or $225 million
in 2001 and i ndex ed i t t o i nflation. A t ax bill, H.R. 5662, containing an increase i n
the p rivate activity bond cap, was added t o a broad approp r i a tions measure, H.R.
4577, and p assed b y t he House and S enate on Decemb e r 1 5 . P resident C linton
sign ed the b ill on December 21, 2000 (P .L. 106-554). Under t he new l aw, t he $50
per capita or $150 million cap for each state (whichever i s greater), will increase t o
$62.50 per resident or $187.5 million i n 2001 and $75 per resident or $225 million
in 2002. The caps will be index ed for inflation i n 2003.
Housing for the Elderly and Disabled
A number of bills were introduced i n t h e 106^th Congress to make changes t o
HUD’s S ection 202 housing p rogram for t he elderly and to the S ection 811 program
for t he disabled. H.R. 202 (Laz io), Pres erving Affordable Housing fo r S e n i o r
Citizens, would h ave restructured t he fi nancing of ex i sting housing p r o j e cts for
senior citizens with the goals of both reducing t he costs t o t h e go vernment and
preserving such housing. Projects t hat w ere funded w i t h d i r ect loans and project-
based rental assistance before 1990 would b e converted to a p rogram of nonrepayable
capi t al grant s (i n effect , d ebt forgi veness). S ect i o n 8 cont ract s w oul d b e cancel l ed.
In stead, t hese projects would b e put under 5 -year renewable assist ance agreements.
A revised H.R. 202 incorporated provisions found in H.R. 425 (Vento), H.R. 1336
(Laz io), H.R. 1624 (LaFalce), S . 1319 (Bond), and the o rigi nal H.R. 202. A portion
of this revised H.R. 202 became Title V of t he FY2000 VA/HUD appropriations act,
H.R. 2684, sign ed by the P resident on October 20, 1999 (P.L. 106-74).
Under Title V, public housing authorities are allowed t o m ake rental assistance
paym ents on behalf of a family that uses an assisted living facility as a principal place
of residence and that uses the s upportive s er vices made available b y t he facility. But
thes e payments can only be used t o cover t he cost of renting t he dwelling and not for
the s upportive s ervices. P rovisions in the n ew law also p rotect ex isting residents of
federally assisted housing from h aving t o m ove out when rents are increased.
As enact ed, Title V did not incl ude provisions for federal matching grants for
the p reservation o f elderly and d isabled housing p rojects t hat were found in H.R. 425
and S . 1318. Another b ill, S. 2733 (Santorum), i ntroduced on J une 15, 2000, also
contai ned t he pres ervation m at ching grant. The Senate Banking Subcommittee on
Housing and Transportation h eld a hearing o n S . 2733 on J u ly 18, 2000. Under t he
bill, existing Section 202 housing for seniors and Section 811 housing for the
disabled could b e converted to assisted living facilities. Optional m atching grant
funds could b e u sed t o l everage m oney f or additional housing constru c t i on of
apartments for the elderly and d isabled. Supporters said that this legi slation would
also have gi ven t enants an opportunity to stay in their current homes r a ther than
having to move into an ex pensive nursing home.
During the s econd session of the 106^th Congress, there was additional l egislation
adopted that made changes t o HUD’s p rograms for the elderly and d isabled. On
December 2 7 , 2000, P resident C linton s igned H.R. 5640, the American
Homeownership and Economic Opportunity Act of 2000 (P.L.106-569). Under Title
V III, t h e p r e p a ym e n t o f m o r t g a g e s f o r S e c t i o n 2 0 2 p r o p e r t i e s w i l l b e a l l o w e d i f t h e
sponsor (owner) continues t he low-income use restrictions. The prepayment and

refinancing at l ower intere st rates allows sponsors t o build equity in their p roject.
Upon refinancing, the HUD Secretary m ust m ake available at l east 50% of the annual
savings resulting from reduced Section 8 or other rental housing assistance paym ents
in a m anner t hat i s favorable to tenants, such as increasing s upport i ve services,
rehabilitation m odernization, and ret rofitting of s tructures.
Also under Title VIII, S e c t i o n 2 0 2 s ponsors can form limited p artnerships with
for-profits, and compete for low i ncome housing t ax credits. This will allow o wners
to build bigger d evelopments and ac h i eve economies o f s cale. In addition, private
nonprofit housing p roviders can use all sources of financing, including federal funds,
for amenities, relevant design features, and construction o f affo r d able housing for
seniors. W ith the HUD Secretary’s approval , proj ect reserves can be used t o ret rofi t
obsolete o r unmarketable units.
There a re al s o similar provisions that allow for-profit limited partnerships t o
participat e i n t he Section 811 program for the disabled, and permit them to compet e
for l ow income housing t ax credits. Tenant-based rental assistance provided under
the C ranston-Gonz alez N a t i onal Affordable Housing Act can be provided b y a
privat e nonprofit organization as well as by a public housing agency as under
previous law. The amount of this tenant-b ased assistance is capped at 25% of the
yearly appropriation for Section 811 housing t o assure that money remains available
for construction o f affordable housing for the d isabled. Project reserves can be used
to reduce t he number of dwelling units i n a S ection 811 project to retrofit obsolet e
or unmarketable units.
Other Readings. C R S Report R L30247, Housing f or the Elderly: L egislation^th
in the 106 Congress , b y S usan Vanhorenbeck.
Increasing Homeow nership
There h as been strong bipartisan support for efforts t o i ncrease t he
homeownership rate, p articularly for m oderate- i ncome households and minorities.
H.R. 1776, the American Homeownershi p and Economic Opportunity Act o f 2000
(Laz io) contai ned a wide variet y of s uch i nitiatives . It passed t he House on April 6,
2000, amended, by a vote o f 417 to 8. On December 27, 2 0 00, P resident C linton
s i gned into law H.R.5640, the A m e ri can Ho m eowners hi p and Econom i c Opport uni t y
Act o f 2000 (P.L. 106-569). This b il l c o n tains a number o f homeownership
provision s , s o m e t h a t were in H.R. 1776. Under t his n ew law, up to one year of
S ect i o n 8 rent al assi st ance can be used as a downpaym ent o n t he purchase o f a hom e.
There i s a 3-year pilot p rogram to demonstrate t he use o f S ection 8 vouchers by the
di sabl ed t o becom e hom eowners.
Also under t he new l aw, t here is clarification t hat homeowners m ay cancel their
private mortgage insurance when the equity in their home r eaches 20% of their
remaining d ebt. T h e l aw allows for t he refinancing o f home equity conversion
m o rt gages ( H E C M s) for el d erl y hom eowners, wi t h t h e HUD S ecret ary gi v en t h e
discretion t o reduce t he si ngle premium p ayment to an amount to be determined by
an actuarial study to be conducted. An Indian Lands Title Report C ommission is to
be creat ed to find ways to facilitate home m ortgages on Indian trust l ands.

Other Readings. See CRS Report R S20527, H R . 1776 and S. 1452: The
American Homeownership and Economic Opportunity Act of 2000,byRichard
Bourdon.
M a nufactur ed Housi ng I ndustr y Refor ms
The m anufactured housing i ndustry, which builds homes in factories rather t han
at building s ites, plays a s i gn i f i c a n t role i n p roviding affordable housing t o l ower-
income households, particularly to the elderly. There are p resently about 9 million
manufactured homes. The average cost o f a n ew unit i n 1998 was $43,800, not
counting t he land, compared with $136,425, ex cluding l a nd, for a new s ite-built
hom e. Accordi n g t o t he Am eri can Associ at i o n o f R et i red P ersons (AAR P ), 44% of
manufactured home o wners are age 5 0 and above. T he industry h as been regu lated
by HUD since 1974, although t he s t aff t hat oversees manufactured housing h as
de c l i n e d f r o m a peak of 34 t o l ess t h an a quart er of t h at num ber i n recent years. In
1990, Congress established a national commission and pushed i t t o forge consensus
o n key reform i ssues, but this effort collapsed in 1994 over a prop o s a l t h a t
installation defect s be covered by a 5-year retailer warranty.
In October 1999, the Housing and Tran sportation S ubcommittee of t he Senate
Banking Committee held hearings on S. 1452. The American Association o f R etired
Persons testified t hat “the 1974 Act i s not working well for the m anufactured housing
industry nor for t he owners of these home s ” a n d e m p h asiz ed the failure to enforce
the construction s tandards as now written. HUD’s Assistant S ecretary for Housing
William Apgar sai d h i s a gency h ad worked with industry representatives and
consumer groups for over a decade i n an effort to update the code to reflect changes
in the t echnology t hat h ave t ransformed the i ndustry. Bu t, he noted, “numerous
legi slative i nitiatives have failed as consumers and manufact urers have wrangled
over how best to regulate this industry.” A vice president o f Fleetwood Enterprises,
representing t he industry’s t wo national t rade associations, agreed that “the Act h as
not kept pace with the rapid evolution o f t he industry and its products”and s aid t hese
associations enthusiastically supported t he proposed reforms.
On April 6 , 2000, the House p assed H.R. 1776, a m ajor homeownership bill that
also contained reforms to HUD’s m anufact u r ed housing regulations. On M ay 2,
2000, the S enate p assed S . 1452, a b ill to re v i s e t h e M a nufactured Housing S afety
Standards Act of 1974. H.R. 5640, an affordable housing and homeownership bill
that b ecame law on December 27, 2000 (P.L. 106-569), i ncluded m ost o f t he
proposed changes t o t he manufactured housin g regulations in the above mentioned
bills.
Under t he new l aw, a “consensus committee”of 2 1 m embers will be established
to represent p roducers o f m anufactured housing (7), u sers of manufactured housing
(7), an d t he general i nteres t and public offici al s (7). The purpose o f t he co mmittee
will be to make recommendations to the HUD Secretary for developing, amending
and revi s i n g t he Federal M anufact ured Ho me Construction and Safety S t andards Act
and t he enf o r cement regulations. A two-thirds vote will be required t o adopt
proposed standards. States will have 5 years t o adopt a d ispute resolution p rogram
for m anufact urers, ret ai l ers, and i n st al l ers t o a d d r e s s t he correct i o n o r repai r o f
defects i n m anufactured homes reported with in 1 year after t he date of installation.

In st ates not adopting t heir own d ispute res olution p rogram, HUD could contract with
an appropri at e agent i n t he st at e t o i m p l em ent such a p rogram . Duri n g t hese 5 years,
HUD and t he consensus committee will al so be charged with developing a “model”
manufactured housing i nstallation p rogram . In s tates not adopting an i nstallation
program, HUD could contract with an appropriate agent i n t hose states t o implement
the “model” installation program. This l egislation also encourages innovation and
cost-effectiv e construction t echniques, and calls for t he es tablishment of practical and
uniform federal construction s tandards t o p r o tect owners of manufactured homes
from unreasonable risk o f p ersonal i njury and property d amage.
Homeless Assistance Programs
H.R. 1073, the Homeless Housing P rograms C onsolidation and Fl ex ibility Act
(Laz i o ) woul d consol i d at e s even McKi nney Act hom el ess assi st ance program s i n t o
a b lock grant t o s tates. Th e b i l l was voted out of the Housing and Community
Opportunity Subcommittee of t he House Banking Commit tee with minor
amendments on April 15, 1999, although n o further action o ccurred during t he 106^th
Congress. The i ssue o f b lock granting hom eless assistance funds could come u p i n
the 107^th Congress. Several s ignificant homel ess p rovisions were approved as p art
of the VA-HUD FY2001 appropriations b ill (H. R . 2684, P.L. 106-377, October

27,2000). These are s ummariz ed at t he end o f t his homeless s ection.

On May 23, 2000, t h e S u b c o m mittee o n Housing and Transportation o f t he
Senate Banking C o m m i ttee h eld h earings on “the most appropriate means t o
c o n s o l i d a t e homeless p rograms at HUD.” The purpose was also to hear from t h e
GAO on the results of several o f t heir completed s tudies on federal homeless
programs. One report found that there are 50 federal p rograms with funds that can
assi st t h e hom el ess, wi t h 16 program s t arget ed ex cl usi v el y at t he hom el ess.² Since
1987, Congress has appropriated over $12 billion under t he HUD McKinney
program s . A t t he heari n g and el sewhere, t h ere h as been som e frust rat i o n ex p ressed
over evidence s howing t hat d espite the strong economy, the number o f homeless h as
not declined, a nd may even have i ncreas ed. S ubcommittee C hairman Allard said
“this h earing was to begi n a discussion on how we do better.”
On J u ly 27, 2000, Senator Allard intro duced S. 2968, the Local Housing
Opportunities Act, an o mnibus housing b ill that would consolidate and reform many
current HUD programs. It would consolidate HUD homeless assistance funds into
the M cKinney Homeless Assistance Perfo rmance Fund, initially distributing funds
accordi n g t o t he C D BG bl ock grant form ul a. Every t hree dol l ars of federal b l o ck
gr ant m oney would h ave t o b e m atched with one dollar o f s tate or loc a l m o n e y,
although t her e i s a liberal definition o f t he match, including salaries paid to staff,
volunteers, and t he value o f a lease o n a building.
Converting t o a block grant means homel ess funds would b e d istributed to states
and l ocalities bas ed on a formula. M ost of t he McKinney Act homel es s assistance
is now awarded t o m etropolitan areas on a competitive b asis. According t o HUD,

² U.S. General Accounting Office, Homelessness: Coordination and Evaluation of
Programs are Essential, Febr uar y 1999 ( GAO/ RCED-99-49) .

there were about 3,000 applications in 1999, with 1,835 applicants receiving funds.
A number of j urisdictions complain that this proces s i s very time consuming and the
uncertainty of winning funds makes l ong-range p lanning dif f i c u l t . They maintain
t h a t a f o r m u l a - b a s e d d i s t r i b u t i o n w o u l d a s s u r e t h a t m o r e c o m m u n i t i es recei ve a t l e a s t
some funds. Opponents argue that gi ving funds to all communities b ased on a s tatic
form ul a m ay not refl ect c h a n gi ng needs i n l ocal areas or speci al si t u at i ons. T hey
b e l i e v e that the automatic distribution of funds would reduce t he incentive t o be
creative and results-oriented.
At the M ay 23, 2000 hearing, the t hen-HUD D e p u t y A ssistant S ecretary Fred
Karnas J r. t estified t hat over t he years, HUD has worked with local governments and
their non-profit partners to refine their efforts t o attack homelessness. He said that
HUD strongly opposed moving to a formula-bas ed process o f d istributing homeless
assistance funds because it believed its current “ C o n t i n uum of Care” approach
balances l o cal deci sion-making and flex i bility with strong national performance
go als, and t hat t his h as proven v ery s uccessful.
Some nonprofit organiz ations that administer s ervi ces to the homeless worry
that a b lo c k gr a n t approach would l e ssen HUD involvement in the M cKinney
programs, suggesting m ore comfort with HUD’s s tewardship of these funds than with
some stat e or l ocal juri sdictions. S o m e a d v o cacy groups for t he homel ess cite an
increasing number o f j urisdictions that they say are becoming overly h a r s h on the
homel ess, treating t hem like criminal s i n s ome cas es . (For a survey of cities and how
t h ey have changed t hei r l aws, s ee “Ou t l a w i n g H o m e l e s s n e s s , ” ShelterForce, National
Housing Institute. J uly/ Augu st, 1999.) Maria Foscarinis, Ex ecutive Director of the
National Law Center on Homelessnes s and Poverty, says that non-profit
organiz ations are vulnerable t o b eing denied funds for homeless assistance because
their advocacy may h ave b een critical of local government actions. T he conflict i n
late 1999 bet w e e n the HUD Secretary and the M ayor of New York C ity over t he
awardi ng of hom el ess grant s gi v es an ex am pl e o f t he t ensi ons t h at can surface over
t h e al l o cat i o n o f hom el ess assi st ance. In t h i s pu b l i c i z ed case, t h e HUD S ecret ary
temporarily took control of $60 million of t he city’s federal homeless funds, citing
a federal dis t r i c t c o u r t ruling t hat found the city had improperly t ried to prevent a
group from receiving homeless assistance after t hey h ad criticiz ed the M ayor’s “get-
tough approach to homeless p eople.”
The HUD-VA appropriations bill for FY2001 t h a t w a s s igned i nto l aw by
Pres ident C linton on Oct ober 27, 2000 (H.Rept. 106- 988), c ont ai ned s everal
homeless pro visions. The Shelter P lus C are p rogram that funds annual rental
assistance contracts for families m oving from homeless n ess t o p ermanent housing
was established under a separate account, at a level o f $100 million for the renewal
of contracts ex p iring i n FY2001 and FY2002 . In addition, government entities
receiving homeless funds will be required to implement a coordinated d ischar ge
system for i ndividuals leaving i nstitutions or health care facilities wi t h t h e go a l of
preventing an immediat e ret urn t o homel essness. Third, at leas t 30% of al l federal
homeless funds must be used for p ermanent housing, with the hope of moving away
from a system of temporary approaches t o o n e of long-term s olutions to
homelessness.

On October 30, 2000, President C linton s igned H.R. 5417 into law (P.L. 106-
400) to rename the S tewart B. McKinney H o m e l ess Assistance Act as t he
“McKinney-Vento Homeless Assist anc e A ct” to honor the recently deceased
Repres entative Bruce Vento of M innesota.
Other Readings. See CRS Report R L30442, Homel essness: Recent
Statistics and Targeted Federal Programs ,byM.AnnWolfe.
Pr oper t y “ Taki ngs”
Property owners s ometimes feel that the val ue of thei r property has been
unfairly reduced without just compensation b y l ocal z oning and l and-use regulations.
S o me believe they have been victims of an illegal “taking” under t he Fi ft h
Amendment o f t h e Constitution. H.R. 1142 (Young), the Landowners Equal
Treatment Act o f 1999 proposed to ensure that landowners receive treatment equal
to that provided t o t he federal government when property m ust b e u sed. The House
Committee o n R esources held hearings on April 14, 1999. On J u n e 21, 2000, the
Committee reported out H.R. 1142 by a vote o f 2 7 t o 11, largely along party lines.
This l e gislation would i nsure t hat private property o wners are compensated when
their l a n d m u s t b e u sed b y t he federal government as habitat for endangered or
threat ened speci es . Opponents fear changes like t hese could undermine
environme n t a l l aws and local authority. No further action o ccurred. See H.Rept.

106-1011.

Reinsurance of S tate Disaster Insurance P rograms
O n March 15, 2000, the House Banking and Financial Services Com mittee
reported, as am ended, H.R. 21, the Homeowners Insurance Availability Act (Lazio).
(See H.Rept. 106-526.) There was no further action o n t his b ill in the 106^th Congress.
H.R. 21 was i ntended t o addres s t he problems o f homeowners who find it
difficult or impossible t o buy affordable insurance i f t hey live i n areas susceptible to
hurricanes, floods, and earthquakes. There h ad been predictions of hu r r i canes of
increased intensity al o n g t he East C oast and Florida in the immediat e years ahead.
(Alt hough t here was notably little hurricane activity in the year 2000.) During the
1990s, unusually ex pensive n atural disast ers h ave p u t a s train o n s ome i nsurance
markets, leaving s ome homeowners without coverage and i ncreasing t h e ir risk of
mortgage default. Some stat es have stepped i n t o h elp, but the case was made that
limited federal reinsurance would improve the effectivenes s of t hese stat e efforts.
H.R. 21 would have provided a federal rei nsurance program t o facilitate the
pooling and spreading o f risk o f catastrophic financial losses from n atural disasters.
It woul d h ave b een act i v at ed when resi dent i al l osses for a s t at e program reached $2
billion. The p rogram would h ave ended after 10 years unless t he U.S. Treasury found
that the p rivate market for catastrophic coverage was s till inadequate.
Other Readings. CRS Report R S20442, Homeowners’ Insurance
Availability Act of 1999 (H.R. 21), b y R awle O. King.

Pr edator y Lendi ng
A number o f b ills were introduced in the s econd session of the 106^th Congress
to addr e s s p r edatory lending, i ncluding S. 2415 (Sarbanes) and t he identical H.R.

4250 (LaFalce). None were adopted.

Predatory l ending is characteriz ed by mortgage refinancings , home equity loans,
and home repair l oans with unjustifiably high i nt erest rat es, ex cessi ve fees, b al l oon
paym ents, arbitrary cal l provisions, prepaym ent penalties, and t he imposition of other
onerous terms. S enator S arbanes, in introducing t he Predatory Lending Consumer
Protection Act of 2000 on April 12, 2000, said thes e l enders target lower i ncome
families, the elderly, and often uneducat ed homeowners for thei r abusive practices .
“They t arget p eople with a l ot of equity in their homes; t hey underwrite the p roperty
without regard to the ability of the borrower t o p ay the l oan b ack. They m ake t heir
money b y charging ex t remely high origination fees, and by packing o ther products
into the l oan, including upfront premium s for credi t l i fe i nsurance, or credi t
unem p l o ym ent i nsurance, and o t h ers, for whi ch t h ey get s i gni fi cant com m i ssi ons but
are o f n o v al ue to the homeowner.” These l oans have grown rapidly in minority
neighborhoods, o ften stripping away the wealth of owners that may h ave t aken them
decades or a lifetime to accumulate.
P redat ory l endi ng was t he pri n ci pal s ubj ect when t h en-HUD S ecret ary C uom o
spoke before the Senate Appropriations VA-HUD Subcommittee o n M arch 30, 2000.
He said that t h e F HA had already t aken a number of s teps to eliminat e predatory
lending practices from its programs so that many of the worst abuses are now found
in the conventional l oan m arket (loans not insured b y t he government). Amendments
made to the Truth in Lending Act by t he 1994 Hom e Ownership and Equity
Protection Act (HOEPA) h ave p revented some abuses but, b y o ther accounts, the Act
needs t o b e s trengt hen e d a n d e x panded. HUD convened a national t ask force that
held hearings in Washingt on, Atlanta, Lo s Angel es , New York, and Baltimore. A
joint report by HUD and the Treasury Department issued June 21, 2000, Curbing
Predatory Home Mortgage Lending, urges C ongress to adopt legi slation t hat would
restrict abus ive t erms and conditions on hi gh -cost l oans, p rohibit h armful sales
practices in mortgage market s, improve consumer literacy and discl osures , and
prohibit government-sponsored enterprises from purchasing l oans with predatory
feat ures and est abl i s hi ng predat ory l ending as a factor in Community Reinvestment
Act (CRA) evaluations.
The l egi s l at i o n b y S enat or S arbanes and R epresent at i v e LaFal ce was i nt ended
t o ex pand HOEP A and fi l l i n t h e p ercei ved gaps:
^! It would l ower HOEP A’s interest rate and t otal fee “triggers” t o
ex tend protections to greater n u m b e rs of high cost mortgage
refinancings , home equity loan s and home improvement loans.
^! It would ex pand HOEPA to restrict practices that facilitate mortgage
“flipping” and equity “stripping” - restricting t he financing o f fees
and points, prepayment penalties, single-premium credit i nsurance,
balloon paym ents and call p rovisions.
^! It would p revent lenders from m ak ing l oans without regard to the
b o rrower’s ab ility to repay t he debt, encourage credit an d d e b t

counseling and require new consumer warnings on the risk o f h igh-
cost secured borrowi ng.
^! It would encourage s tronger enforcement o f consumer protections by
st rengt h eni n g ci v i l rem ed i es and resci ssi on ri gh t s and i ncreasi n g
stat utory penalties for violations.
Similar p redatory lending bills were al so introduced: S . 2405 (Schumer), H.R.

3901 (Schakowsky), H.R. 4213 (Ney).

Other Readings. Congressional distribution m emorandum, “Comparison of
Predatory Lending Legi slation” by Bruce Foote. Augu st 2, 2000.
Use of S urplus FHA Reserve s f or Affordable Housing
The accounting firm o f Deloitte & Touche reported i n2000 that the FHA Mutual
Mortgage In surance Fund had a record economic value o f $16.6 billion at t he end o f
FY 1999, more than $5 billion above previous estimates. (The fund was close to
ban k r u p t cy i n the recession of 1990, with a negative value of $2.7 billion.) Since
this report, HUD and v arious housing groups have discussed how this surplus might
be used to increase affordable housing opportunities. A n u m b e r o f b ills were
introduced to addres s how the s urplus migh t be used. None of thes e bills were^th
adopted during t he 106 Congress.
Then-HUD S ecret ary C uom o s ai d recom m endations for using the s urplus could
include subsidiz ing t he construction o f n ew affordabl e rental housing, funding for
new rental assistance vouchers, and hom eownership initiat i v es . A new s tudy by
Housing America and t he National Training and Information C en t e r, ANew
Direction: How FHA Surpluses Can Solve America’s Housing C risis , s ai d, “S i n ce
FHA revenue has i ncreased due to the economic prosperity that has contributed to the
affordable housing s hortage, i t i s only appropriate to use t he FHA funds to mitigate
and even reverse such impacts.” The report s ays t hat t he $5 billion cou ld produce
over 200,000 units of affordable housing.
On J u ly 27, 2000, Senator J ohn Kerry introduced S. 2997, the National
Affordable Housing Trust Fund Act. The housing t rust fund would receive income
generated by t he main FHA m ortgage i nsurance program t hat w as i n ex cess o f t he
amount necessary to maintain a capital ratio of 3% for t he preceding fiscal year (that
some cons i d er a s afe l evel of reserves ). Similarly, certain ex ces s i ncome from
HUD’s Government National M ortgage Associat i o n w o u l d b e d irected into the
housing t rust fund. Currently, t he ex cess i ncome from t hese programs is returned to
the federal Treas ury and used to fund general government activities, and t hus,
perceived as l ost t o housing u se. (However, accounts are maintained by the T reasury
on whether t hese programs are running a s urplus or deficit, much like t he net b alance
of the S ocial S ecurity Trust Fund.) Under S . 2997, m o n ey “transferred” into the
housing t rust fund would b e u sed t o build rental housing for ex tremely l ow-income
families and to promote homeownership for l ow-income families. The C ommittee
on Banking, Housing, and Urban Affairs S ubco mmittee on Housing and
Transportation h eld h earings on the FHA surplus o n S eptember 12, 2000.

W h i l e n o t necessarily disagreeing about the n eed to address t he issue o f
affordable housing, some in Congress are uncertain about the d esirability of using t he
surpl u s reserves o r p rofi t s from t he F H A i n s u r ance busi n ess (assum i n g t hey are as
large as t he estimates) to pay for other hous ing programs. Some believe that if the
economy were t o t urn downward, with unemploym ent i ncreasing s ubstantially from
the current level, that the FHA surplus would r a p i d l y be reduced. Among other
altern at i v es being considered is to reduce t he FHA m ortgage i nsurance premiums
since t hey are paid by many minorities, first-time buyers, and others of m oderate
incomes. On J u ly 12, 2000, then-Representative Laz io, ch a i r m a n o f t he House
Housing and Community Opportunities S ubcommittee, i ntroduced H.R. 4795, the
Homeowners Rebate Act o f 2000, which would require HUD to rebate FHA ex cess
reserves to cer t ai n FHA-insured homeowners. An identical bill, S. 2914, was
introduced by Senator Allard.
On October 31, 2000, HUD announced a Homebuyer Savings P lan t hat t he
agency s a ys will save more than one million homeowners with FHA-insured
mortgages m ore t han $1 billion annually in insurance costs. Under t he plan, t he FHA
u p - f ront insurance p remium was reduced from 2.25% to 1.5% of the o rigi n a l l o a n
am o u nt. The plan also eliminated entirely FHA’s annual premium of .5% on al l
loans once homeowners build 22% equity in their h o m e ( m o deled after private
mortgage insurance cancellation l egis lation p assed b y C ongress in 1998). Under t he
t h i rd p art o f t he pl an, current FHA borrowers wi l l recei ve a refund on prem i u m s pai d
when t h ey sel l t h ei r hom e o r refi n ance t h ei r l oan. HUD S ecret ary C uom o s ai d t hat
none of the FHA’s $16 billion i n reserves will go to pay for this premium cut and t hat
the economic value of FHA’s i nsurance fund is ex pect ed to grow to $34 billion by

2006.