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The original documents are located in Box 66, folder "FY 1978 Spring Planning Review -
HUD" of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 66 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Table of Contents
Page
I.
Overview
A. Overview
1
B. Legislative Summary
9
II.
Issue Papers
A. What should FHA's role be in the mortgage market?
12
B. What should be the thrust of Federal mortgage credit policy?
22
C. How should the Federal Government attempt to stimulate housing
construction?
28
D. What should be the level of funding for the Community Development
Block Grant Program in 1978 and 1979?
34
III. Exhibits (Exhibit # in parentheses)
A. Program Trends
39
B. Summary Tabulations (306B) :
1. Program Level
40
2. Budget Authority
41
3. Outlays
42
C. Analysis of Changes (306E)
43
D. Summary of Agency Totals (306F)
48
E. Reconciliation with 3-25 Estimate (306C)
49
F. Budget Threats (306D)
50
G. Program and Management Evaluations
62
H.
Management by Objectives
65
GERALD FORD LIBRARY
OVERVIEW
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Overview
This overview section focuses on HUD's four primary areas of activity: mortgage
insurance, other mortgage credit, subsidized housing, and community planning and
development. In each section, the Administration's objective, as CVAD understands
it, is compared with current policy, and major policy issues are identified.
I. Mortgage Insurance
Administration objective - To assist homebuyers and project developers who would
not be adequately served by the private market obtain mortgage credit.
Current policy - Default insurance is presently available to help finance the
purchase of any home or project, subject only to statutory mortgage limitations,
credit tests, and property standards. In many cases, the FHA-insured mortgagor
also has access to conventional or privately insured mortgage loans. Mortgage
insurance premiums do not reflect loss experience on either an aggregate or program
basis. Consequently, large numbers of FHA-insured mortgagors receive subsidies
from other FHA-insured mortgagors as well as from the Federal taxpayers.
Major issues:
1. To what extent should HUD be involved in the default insurance market?
(Issue #1) Pursuant to a Presidential directive, HUD is just completing an analysis
of alternative roles that the Federal Housing Administration could play in the mort-
gage insurance market. This analysis considers such topics as: (a) Should FHA
continue to provide primary default insurance on mortgages covering single- or multi-
family property? (b) To what extent should FHA compete with private insurers? (c)
Should the insurance premiums charged certain high-risk borrowers be subsidized?
(d) Should statutory limitations on eligible mortgages be lifted? A joint HUD-OMB
FORD
memorandum based on the HUD analysis will provide the President with policy options
on these issues.
BRALD
-1-
2. How can underwriting standards be maintained in the face of intense pressures
for section 8 production? At the present time, FHA mortgage insurance is necessary to
secure financing for new section 8 projects. Since Secretary Hills is heavily committed
to making the new construction component of section 8 work, FHA underwriters will be
under great pressure to approve section 8 projects for insurance. This is reminiscent
of former-Secretary Romney's emphasis on production, which had such a disasterous impact
on underwriting performance.
3. How can HUD's loan management and property disposition policies be improved?
HUD's policy toward avoiding claims and selling acquired assets has both short- and
long-term budgetary implications. Several aspects of that policy have special impor-
tance for the 1978 and 1979 budgets, including: (a) the criteria used in deciding
whether or not to accept assignment, or foreclose on an assigned mortgage, (b) the
target set for property sales, and (c) the emphasis placed on "as-is" sales (as
opposed to a repair-and-sell approach). We believe the Department should give a
higher priority to this issue.
II. Other Support for the Mortgage Market
Administration objective - To improve the ability of the Nation's capital market to
raise funds for housing, so that an adequate volume of housing construction can be
maintained.
Current policy - Special tax and regulatory provisions have been adopted to make housing
more attractive relative to other forms of investment. Some of these provisions (e.g.,
bad debt allowances, Regulation Q, limitations on S&L investments) accentuate fluctua-
tions in the availability of mortgage credit. This, in turn, puts added pressure on
the Federal Government to implement special programs for housing when credit is tight.
Administration policy during the past year has been directed at: (1) increasing the
demand for housing through mortgage interest subsidy programs (i.e., the tandem plans),
and (2) modernizing the regulatory framework within which financial intermediaries
operate (i.e., Financial Institutions Act).
Major issues:
1. What changes are needed to improve the operation of the mortgage market, and
how can these changes be achieved? (Issue #2) Given Congress' failure to pass the
Financial Institutions Act for the 4th year in a row, a fresh look at this proposal
-2-
and the problems it is intended to correct, is in order. The reassessment should take
into account actions which can be taken under existing law, as well as actions that
might improve the prospects for congressional approval of any necessary legislation.
The results would be reflected in next year's legislative program.
2. Should the Federal Government provide further inducements to investment in
housing? (Issue #2) Recently, a number of proposals have been advanced to increase
housing's competitive advantage in the capital market, including: (a) Representative
Sullivan's Home Owners Mortgage Loan Corporation, (b) Senator Brock's Housing
Incentive Investment Act, (c) the National Association of Homebuilder's proposed tax
credit for interest earned on savings deposits, and (d) Senator Humphrey's permanent
6 percent tandem plan. HUD is completing a study of housing finance that is designed
to make explicit the costs and benefits of these and other proposals. OMB will be
given an opportunity to review the study prior to release.
3. Should the Federal Government continue to hold assets acquired in connection
with special mortgage purchase programs? The 1977 Budget made no provision for the
sale of some $2.2 billion in tandem mortgages which were added to GNMA's inventory
in 1975. Nor did it provide for prepayment of the Federal Home Loan Bank Board's
outstanding loan from the Treasury. Sale of the GNMA mortgages and prepayment of
the FHLBB loan would produce receipts to offset outlays elsewhere in the budget.
4. What should the Federal Government's policy be toward the secondary mortgage
market? Even though the secondary market has continued to prosper as FHA insurance
volumes have dropped, additional Federal support may be needed to maintain liquidity
in the market. Options include portfolio insurance and reinsurance of PMIs.
III. Subsidized Housing
Administration objective - To assist lower income families in obtaining adequate
housing, pending comprehensive welfare reform.
Current policy - Primary emphasis has been placed on HUD's section 8 program for
existing housing, which focuses Federal aid on housing-poor families, rather than
on housing producers, and relies on private market incentives to control costs.
The new construction component of the program is being limited to the lowest
politically feasible level. Section 235 was reactivated to avoid a court-ordered
resumption of the program. There are no plans to continue the program once avail-
able authority has been used.
-3-
Major issues:
1. How should the Federal Government attempt to stimulate housing construction?
(Issue #3) Some program to encourage construction of new apartment units is probably
inescapable, regardless of the underlying need for such encouragement. As costs under
the section 8/new construction program continue to rise, other alternatives for
providing this stimulus are becoming more attractive.
2. Should the Federal Government subsidize homeownership? The section 235
homeownership assistance program is still popular with the homebuilders. They are
pushing for faster utilization of the contract authority released last October, as
well as for additional infusions of new authority. Since few section 235 participants
were living in substandard housing prior to entering the program, the main issue
involved here is the priority of ownership relative to other objectives (including
improved housing consumption).
3. Can the private market meet the housing needs of special groups such as
reservation Indians, the elderly and handicapped, and large families? A consumer-
oriented housing strategy assumes that the private market will supply whatever housing
units are demanded by consumers. Some observers do not believe that this assumption
holds true for certain groups with special needs or problems, and that publicly
assisted housing must take care of the unmet demand. More empirical analysis is
needed to resolve this dispute.
4. What should be the Federal role in selecting sites for public housing? The
Supreme Court's Gautreaux decision has directed greater attention to the process by
which sites for federally subsidized housing are selected. Although the 1974 Act
left site selection to localities in most instances, HUD will continue to get
involved in the issue as (a) other groups seek court orders requiring affirmative
action by the Department, (b) housing assistance plans are challenged, and (c)
individual section 8 projects are challenged by local governments.
5. Should Federal housing assistance programs be consolidated? At least nine
Federal agencies build, subsidize, or help finance housing. Areas of overlap
include: (a) direct subsidies - HUD, DOD, and USDA; (b) guarantees and insurance -
HUD, VA, and USDA; (c) seed money loans - HUD and the Appalachian Regional Commis- -
FORD
sion; (d) rehabilitation loans - HUD and SBA; (e) direct Federal construction
3
-4-
DOD and Interior/BIA. Significant tax expenditures overlap most of these categories.
Increased efficiency might result from consolidation of similar programs or by
concentrating housing programs in fewer agencies.
6. Should nonprofit sponsors get special treatment under Federal housing programs?
Although nonprofit groups do not perform well as housing sponsors, Federal policy
continues to encourage their participation in housing programs. If political considera-
tions necessitate favored treatment for these groups, (a) objective criteria should be
developed for weeding out the weakest ones, and (b) program regulations should be
revised to strengthen incentives for good management.
7. Should the Federal Government underwrite prepurchase and default counseling
for homebuyers? A HUD study indicates that default counseling may be cost-effective
from society's standpoint, even though it is not cost-effective in budget terms.
While this does not necessarily imply a Federal role, both HUD and the Congress are
clearly headed in this direction.
IV. Community Planning and Development
Administration objectives - (1) To increase the capacity of local governments to under-
take community development projects of their own choice, with a minimum of Federal
second-guessing and red tape. (2) To minimize the need for Federal disaster relief by
encouraging the purchase of flood insurance and discouraging development in flood-prone
areas.
Current policy - To smooth the transition from categorical to block grants, the
Administration has: (1) fully funded the block grant program, (2) accommodated the
needs of urban renewal cities with under-funded projects, and (3) attempted to
maintain an adequate discretionary balance for small metropolitan communities. At
the same time, high priority has been given to closing out uncompleted categorical
projects. Current policy is also directed at enrolling all flood-prone communities
in the Flood Insurance Program by 1983.
Major issues:
1. What should be the Administration's legislative strategy when the community
development block grant program comes up for reauthorization? (Issue #4) When the
Congress considers legislation to extend the block grant program next session, a
-5-
number of subissues are sure to arise, including: (a) funding level, (b) the phase-
out of hold-harmless as planned, (c) further transition money for underfunded urban
renewal projects, (d) continuation of the Rehabilitation Loan Program, and (e)
housing assistance plan requirements. Resolution of subissues (a) - (d) will have a
direct impact on the budget. The Administration may want to propose changes in the
program as well (for example, State allocation of discretionary funds, and further
program consolidations).
2. Should an effort be made to consolidate planning assistance programs? Every
study of Federal planning programs (and there have been many) has concluded that
extensive consolidation is warranted. The troublesome issue has always been: On
what basis should planning programs be consolidated?
3. How can the Flood Insurance Program's sanctions for noncompliance be preserved?
Although the Flood Insurance Program enjoys widespread support, it has encountered
stiff opposition from real estate interests (particularly in Gulf Coast States), and
from Senator Eagleton, who has taken up the cause of many small communities unwilling
to regulate land use in the flood plain. Unless adequate incentives for flood-plain
management are maintained, the program will not achieve the desired objective of
reducing flood damage.
V. Issues in Other Areas
A. Policy Development and Research - How can HUD's research program be given
greater focus and more relevancy to the Department's mission?
B. Fair housing:
1. What should be done to improve the performance of financial regulatory
agencies in combatting discrimination by lenders on the basis of race or sex?
2. What impact does HUD's processing of individual title VIII complaints
have on housing opportunities, and should the Department be given broader enforcement
powers?
FORD
-6-
C. HUD organization:
1. Should the administration of HUD's housing programs continue to be
divided between Housing Production and Housing Management?
2. Is there a need for regional offices between Washington and the area/
insuring offices?
D. Consumer Affairs - What is the impact of HUD's regulatory standards on
housing costs?
E. New Communities - What provision should be made in the 1978 and 1979 budgets
for foreclosure claims on existing projects?
VI. Tax Expenditures
There continues to be a need for more efficient and equitable alternatives to the
following housing-oriented tax expenditures:
A. The array of incentives aimed at increasing investment in multifamily housing.
B. Owner-occupant deductions for mortgage interest and property taxes.
C. Exemption from Federal taxes of interest earned on public agency debt.
VII. Budget Outlook
The 1977 Budget managed to show a reduction in HUD outlays below the 1976 level with-
out requiring a corresponding reduction in program activities. In fact, HUD's program
level is scheduled to increase more in percentage terms than budget authority for the
Government as a whole. The outlay reduction was made possible by providing for the
use of section 8 rental subsidies in connection with HUD-insured properties on the
brink of assignment. (Whether or not the full outlay reduction will be realized,
however, is very much in doubt.)
Regardless of the program decisions reflected in next year's budget, HUD outlays are
FORD
likely to increase sharply in 1978, on the strength of prior-year commitments. CVAD
ALD
-7-
staff estimates that over $5 billion in outlays are already built into the Department's
totals for 1978, even though the fiscal year does not begin for another 16 months. As
October 1, 1977, draws near, the opportunities for cutting outlays will be reduced
further. In CVAD's judgment, the only way to successfully avoid a significant rise in
1978 HUD outlays is to sell mortgage assets (thereby postponing the increase until 1979
or 1980).
Another factor in the 1978 outlay picture is the budget status of HUD's section 202
housing for the elderly program. Under existing law, section 202 outlays are excluded
from the budget totals, making an already popular program even more difficult to
control. CVAD believes it is vital to make section 202 once again subject to the
budget's discipline. (Strong support for returning the program to the budget has also
come from the House Appropriations Committee.) Accordingly, CVAD has reflected
section 202 outlays in the high, medium, and low alternative targets.
FORD
-8- -
4750'
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Legislative Summary
Senate
House
Bill Number
S. 3295
H.R. 12945
Title
Housing Amendments of 1976
Housing Authorization Act of 1976
Status
Passed by a vote of 55-24
Reported by the Committee on Banking,
on April 27.
Currency and Housing on May 6;
scheduled for floor action on May 25.
Undesirable features in one version only
Subsidized housing
Limitations on the Secretary's
Higher income limits under section
flexibility in providing
235/homeownership.
section 8 assistance to FHA-
insured projects.
Additional budget authority
Change in procedure for setting
for section 235/homeownership
minimum interest rate on USDA
(+$6 billion).
direct loans.
Extended contract terms for
Creation of a Homeowners Mortgage
section 8 projects financed by
Loan Corporation with authority to
the Farmers Home Administration.
provide $10 billion in 6½½ mortgage
loans.
Limitation on section 235/
homeownership mortgage insurance
FORD
premiums.
arve
-9-
Senate
House
Lower interest rate on section 202/
elderly loans.
Extension of authority to insure
section 236/rental housing loans.
Community Planning and Development
Erosion of incentives to participate
in the National Flood Insurance
Lower unemployment trigger under
Program.
the countercyclical community
development block grant program.
Mortgage insurance
Extensive authority for HUD to
compensate FHA-insured mortgagors
for property defects.
Undesirable features in both versions
Subsidized housing:
-- Contract authority earmarked for (1) public housing, (2) new construction,
and (3) reservation Indians.
Provision for public housing modernization at three times the level proposed
in the budget (mandatory in the Senate bill).
No provision to change definition of tenant income under the public housing
program; appropriation authorization for operating subsidies increased by
$112 million (25%).
-- Higher mortgage limits under the section 235/homeownership program.
Increased direct loan authorization for the section 202/elderly program.
-10-
Mortgage Credit:
-- Extension of authority for emergency mortgage purchases.
-- Extension of authority for emergency homeowners' relief.
Community Planning and Development:
-- Higher authorization for comprehensive planning.
-- Extension of authority to provide rehabilitation loans.
-- Broader definition of "rural area" under USDA programs.
-11-
FHA INSURANCE
1978 Spring Planning Review
Department of Housing and Urban Development
Issue #1: FHA Role
Statement of Issue
What should FHA's role be in the mortgage market?
Background
FHA mortgage insurance is available for any purchaser whose application for
home or project insurance meets credit, mortgage limit, and property standards.
Annual insurance premiums are set at one-half percent of the mortgage's
outstanding balance.
Private mortgage insurance (PMIs) companies' penetration of the mortgage market
increased dramatically from 4 percent in CY 1970 to 16 percent in 1973, but
declined in 1975 to 13 percent. However, the recent recovery has boosted PMI
activity to an annual rate of 14 percent. As PMIs have grown, FHA has been
left with riskier mortgages. Losses on these mortgages have turned FHA into a
$1.5 billion annual drain on the budget, despite surpluses in the basic
homeownership insurance program. Volume and loss rates as of 1975 are shown
below:
Insurance
Written
Insurance
Lifetime
Lifetime
Required
1975
in Force
Default Rate
Loss Rate
Reserves
($M)
($M)
(%)
(%)
($M)
Section-Program
203 Basic single family
4,224
48,792
9
4.3
-672
221 Moderate income
521
11,678
15
7.5 1/
+1,784
223 (e) Declining areas
129
1,384
28
22.7
+394
235 & 236 Interest subsidy
522
8,000
20
5.6
+1,375
Other programs
724
15,100
+191
Total 1975
6,120
84,954
+3,072
1/
Single-family rates. Multifamily default rate is 25 percent and loss rate is 13 percent.
2/
Single-family rates. Multifamily default rate is 20 percent and loss rate is 12 percent.
-12-
FORD TOTAL LIBR 1
A 1974 Presidential directive to HUD called for an analysis of alternative
roles that FHA could perform in the mortgage market. HUD has submitted a
second draft of the analysis, and the Department's major recommendations
are reviewed below.
Analysis of Alternatives
Issue A - Should FHA continue to provide default insurance on single-family
mortgages? The major findings for FHA's basic 1-4-family program (section 203 (b) )
are that:
Private mortgage insurers (PMIs) have attracted preferred risk mortgagors away
from FHA by charging premiums that more closely approximate marginal cost. The
price discrimination inherent in a single rate structure has made this "cream-
skimming" at lower premiums possible.
PMIs are solid insurance companies and service most geographic areas and home-
buying income groups. PMIs underserve rural and other small markets.
Program inefficiencies brought about by social reviews have increased processing
times, but were not significant causes of the basic 1-4 family insurance decline.
Arguments for continuing to insure single-family mortgages
Since PMIs are not insuring in all submarkets (especially smaller communities),
FHA provides insurance to some who probably would not obtain credit
elsewhere.
PMIs might exhibit monopolistic behavior without the availability of FHA
insurance.
Subsidy programs (section 235) need this financing vehicle.
Arguments against continuing to insure single-family mortgages
A private substitute (PMIs) is generally available.
FORD
-13-
FHA's tax-exempt status and Treasury borrowing rates are unfair
competitive devices against PMIs.
The impact of Federal insurance is of questionable efficiency for mort-
gage credit and housing production objectives.
HUD recommendation
Continue to provide single-family insurance in a manner which is complementary
to the private market, but make programmatic changes (discussed below).
CVAD recommendation
CVAD concurs with provision of single-family insurance, but recommends making
FHA less competitive with PMIs (discussed below).
Issue B - Should FHA continue to provide default insurance on multifamily mortgages?
In the multifamily area, PMIs have only begun insuring and FHA is writing little
insurance ($994 million in 1975), even with actuarially unsound premiums. FHA
insured 9 percent of all multifamily mortgage originations in 1975. Except for
the basic program, all multifamily insurance is actuarially unsound. Unlike the
single-family area, private insurers can identify little FHA multifamily insurance
for "cream-skimming." PMIs would be able to compete away more FHA multifamily
insurance if FHA premiums were made actuarially sound. The HUD study was unable
to identify any impact of multifamily mortgage insurance on the supply of housing.
Arguments for continuing to insure multifamily mortgages
This insurance may indirectly support low- and moderate-income tenants
(although no such benefits have been identified).
PMI insurance is generally not available (although insurance of any kind
may not be needed).
Subsidy programs (especially section 8) need this financing vehicle.
FORD
The multifamily market is currently depressed.
-14-
Arguments against continuing to insure multifamily mortgages
The insurance subsidies go to private multifamily investors (and lenders)
and no proof exists that these benefits are passed on to tenants through
lower rents or better services.
PMIs are beginning to insure multifamily mortgages.
FHA's tax-exempt status and Treasury borrowing rates offer unfair compe-
tition to PMIs.
Since foreclosure and resale of defaulted projects is so politically
difficult, the inventory and tenant problems are growing at a significant
rate.
HUD recommendation
Continue to provide multifamily insurance, but make programmatic changes
(discussed below).
CVAD recommendation
Plan on limiting FHA multifamily insurance to only being the financing vehicle
for subsidy programs when multifamily starts recover. Also, encourage PMI
multifamily insurance as discussed below.
Issue C - Should mortgage insurance premiums be established on an actuarially
sound basis, and if so how? The one-half percent premium is not actuarially
sound for mortgage insurance programs in total and also leads to cross-subsidiza-
tion within and between programs. The price elasticity of mortgage insurance is
estimated at -1.75, indicating that the volume of insurance written is sensitive
to change in prices (premiums). The price elasticity of a single insurer such as
FHA would be higher than this overall elasticity, which means that a 10-percent
increase in premiums might result in a 20-percent decline in FHA volume. Volume
decreases from a change to actuarially sound premiums would affect less than
25 percent of FHA's insurance business. However, the increase in cash at closing
-15-
could cause those groups presently dependent upon the actuarially unsound programs
to delay home purchase. The premium increases would fall disproportionately on
minorities and low-income families since they are the major clients of the
actuarially unsound programs. Nevertheless, HUD's analysis concludes that the
insurance subsidy does not provide significant assistance unless interest or other
subsidies are also provided. Changing to actuarially sound premiums would make
known and obvious the cost of each program.
HUD and OMB concur in changing to actuarially sound premiums by program. However,
legislation could be proposed to have different premiums within programs to reflect
different risk classes: risk-rating. Risk-rating could only be applied to FHA's
basic single-family program, since HUD sees "little real prospect" for risk-rating
multifamily programs and other single-family programs are too small.
Arguments for risk-rating within programs
Premiums could be set at the marginal cost of each identifiable risk group
which is a fairer price determination than a single premium per program.
Cross-subsidization of premiums would be minimized so that further PMI
cream-skimming would be reduced. PMIs have not tried risk-rating within
their market, so FHA could set lower premiums and be able to compete for
some of the profitable PMI market which might reduce outlays.
FHA's ability to discourage monopolistic behavior by PMIs would be enhanced.
Arguments against risk-rating within programs
With the advantages of being a Government corporation, FHA's ability to
price below and compete directly with PMIs would be significantly increased.
This approach would require untested premium-setting techniques although PMIs
now allow different payment plans for the same total premium.
Charges of Federal race discrimination (redlining) would occur since risk-
rating would single out lower income inner-city neighborhoods, and minorities
FORD
are a high proportion of these neighborhoods.
-16-
Congress might not overturn an administrative change to actuarially sound
premiums by program within the statutory annual maximum (1 percent), but
probably would refuse to provide new authority to risk-rate premiums.
HUD recommendation
HUD endorses in principle the concept of risk-rating or multiple premiums
within program, but recommends program-by-program actuarially sound premiums
until the risk-rating studies now being expedited are completed. Risk-rated
premiums would be set at a breakeven rate for taxpaying PMIs, plus a non-
competitive margin. FHA premiums would only be lower than PMI premiums where
PMIs were using their monopolistic power to get a great deal higher than
market prices for their insurance.
CVAD recommendation
CVAD recommends establishing actuarially sound premiums only on a program-by-
program basis. The better risk insurance would be further encouraged to be
insured by PMIs and FHA volume would decline. Increases in actuarially sound
premiums would be necessitated and eventually FHA would work itself out of
any insurance that the private market can handle. Any risk-rating system
would require congressional approval which seems unlikely. A legislative
proposal could be counterproductive to the objectives sought.
Issue D - Should the Federal Government directly subsidize part of an actuarially
sound premium for low- and moderate-income families in order to encourage home-
ownership? HUD has studied the impact of providing mortgage insurance with
subsidized premiums under the low- and moderate-income program (section 221).
However, no clear determination has been made that the net benefits are positive,
much less whether benefits exceed costs.
Arguments for subsidizing premiums for low- and moderate-income families
Mortgage credit would be available to families who do not have the down-
payment required for FHA basic insurance and could not obtain PMI insurance
or credit elsewhere.
-17-
Subsidized premiums could be offered as a tradeoff to obtain comparable
insurance terms (downpayment, expenses, term) with the basic and subsidy
(section 235) programs.
Explicit appropriations (forward funding) could be sought and congressional
approval granted for these subsidies.
Arguments against subsidizing premiums for low- and moderate-income families
Lower income families need more assistance than subsidized premiums for
homeownership and a subsidy homeownership program (section 235) is available.
The appropriations request for subsidies could be transferred within the
President's budget authority total to an undesirable grant program if
Congress mandated an actuarially unsound premium for this subsidized program.
Benefits from these subsidies for housing production or mortgage credit
objectives cannot be proven. The net benefits might be negative.
HUD recommendation
For the immediate future, HUD recommends that no program of mortgage insurance
for low-income families (other than section 235) be provided and that the low-
and moderate-income single-family program be terminated.
CVAD recommendation
CVAD concurs in the termination recommendation for the single-family program
for low- and moderate-income families.
Issue E - Should the Federal Government directly subsidize part of an actuarially
sound premium in older, declining areas? HUD has even more intensively studied
the benefits from the large insurance subsidies provided to older, declining areas.
However, the results are just as inconclusive in that the benefits cannot be
quantified and net benefits may be negative. Authority to insure the refinancing
of multifamily mortgages in older, declining areas was included in the 1974 Act,
-18-
but was not implemented pending completion of these studies. Consistent with
the recommendation to not subsidize any other insurance program for lower
income families (see Issue D), HUD recommends termination of the section 223 (e)
program for older, declining areas with one exception. The exception is to
directly subsidize actuarially sound premiums in neighborhood preservation areas.
Arguments for subsidizing actuarially sound premiums in neighborhood
preservation areas
The neighborhood preservation concept is a promising new approach that
has had some success in utilizing the existing housing stock. FHA
insurance appears to be a necessary element in a comprehensive strategy
to revive older, urban neighborhoods.
The subsidy would show that the Federal Government encourages this
development and is willing to share the risks and costs with local
government.
Local governments would be encouraged to become more active in neighborhood
preservation efforts.
The subsidy should be less than the current older, declining area program
since (1) preservation areas usually are not in substantial decline, and (2)
local government and other investment in these areas should support housing
values.
Arguments against subsidizing actuarially sound premiums in neighborhood
preservation areas
No criteria or local commitment requirements have been proposed for an area
to be a "neighborhood preservation area" eligible for subsidized insurance
besides a city's designation of any older, declining area. (Some criteria
have been identified from pilot cases, but none were included as part of
the recommendation.)
FOR
-19-
The neighborhood preservation approach has only been pilot-tested in
a few areas with limited success. A comprehensive set of local government
and private lender commitments seem to be required in addition to Federal
commitments.
This program would be attempting to develop insurable risks within older,
declining areas that have proven to be HUD's worst insurance risks.
Multifamily insurance in these areas is even less justified (investor VS.
homebuyer), and the current multifamily program in older, declining
areas has been a worse risk than the single-family program.
Multifamily refinancing also poses the difficult-to-control possibilities
of having the investor (1) draw his equity out, and (2) get an inflated
valuation.
Congress might extend this narrowly drawn subsidy request to numerous
other areas and groups.
More direct approaches (such as community development block grant set-
asides) are available if a policy decision was made for the Federal
Government to subsidize neighborhood preservation.
HUD recommendation
Provide single-family insurance (section 223 (e) ) for older, declining areas
only in neighborhood preservation areas and change to an economic life
standard. Premiums should be directly subsidized from a forward funding
appropriation that is available before program commencement.
HUD also recommends pursuing a "go-slow, experimental approach" in implementing
the insurance program for refinancing existing multifamily mortgages (section
223(f)) in older, declining areas, and perhaps limiting the program to
neighborhood preservation areas.
-20-
CVAD recommendation
CVAD recommends that HUD be requested to propose criteria and local commitments
that would be required for neighborhood preservation subsidies and refinancing
insurance. A decision would be put off at this time without prejudice to a
later proposal.
Budgetary effects (outlays in millions)
1978
1979
1980
1981
Alternative #1 (status quo)
1,160
1,030
830
750
Alternative #2 (HUD req.)
1,040
925
707
611
Alternative #3 (CVAD)
1,036
921
703
607
These outlay estimates only cover the direct impact of (1) elimination of rebates,
(2) increased premium income, and (3) reduced actuarially unsound insurance. No
estimates are made for risk-rating or less-than-major HUD recommendations made in
the draft FHA study but not reviewed here.
Implementation of CVAD recommendations
For issues where HUD and CVAD disagree, a joint issue paper should be drafted
by CVAD staff and transmitted to HUD staff for comment as soon after spring
preview as possible. This drafting and comment process should resolve some issues.
The remaining open issues should be presented to the President in an official HUD
Secretary/OMB Director issue paper. An attached paper should indicate to the
President where HUD and OMB are in agreement on recommended courses of action.
Presidential decisions should be obtained before August 1, 1976, so that HUD's budget
submission can reflect these decisions.
-21-
MORTGAGE CREDIT
1978 Spring Planning Review
Department of Housing and Urban Development
Issue #2: Mortgage Credit Policy
Statement of Issue
What should be the thrust of future Federal mortgage credit policy?
Background
The most recent mortgage credit policy efforts of the Administration have been:
(1) to support the short-run demand for housing when credit is tight or interest
rates are high, principally with HUD/GNMA "tandem" financing; and (2) to reform
the regulatory environment of mortgage lenders through the Administration-proposed
Financial Institutions Act (FIA). Tandem financing, however, has been accompanied
by interest subsidies of from 1.5 to 2.5 percent at the insistence of Congress.
This is a much greater level of subsidy than originally proposed by the Administra-
tion. Further, the FIA appears to be headed for defeat for the 4th year in a row.
A reassessment of mortgage credit policy might be useful in light of the progress
of recent policy. This paper attempts to set a framework for any such reassessment.
Alternatives
#1. Renew efforts to secure passage of the FIA, and continue to resist deeper
subsidies in proposals that seek to facilitate mortgage credit flows.
(Current Administration position.)
#2. Seek new tools to facilitate the flow of mortgage credit.
#3. Acknowledge a preferred status for housing over other types of investment,
and accordingly subsidize housing across the business cycle. (Preference
of key Congressmen and Senators in housing area.)
Analysis
Mortgage credit policy can be analyzed in terms of a continuum on which policy
positions may be placed according to the degree of comparative advantage afforded
-22-
housing over other forms of investment. At one extreme are policy proposals that
encourage mortgage investment by relying on market incentives. These proposals
are often directed at removing institutional restrictions (e.g., interest ceilings
or asset limitations) in credit markets that dampen market incentives. While they
might reduce cyclical fluctuations in the supply of mortgage credit (and thus
reduce the pressure for countercyclical aid to housing), they would not insulate
housing from the ups and downs of the general business cycle. Recent Administra-
tion policy has tended toward this end of the continuum. At the other extreme are
policy positions that assume housing is a valued, superior investment which should
be favored in the long run and insulated from the general business cycle in the
short run. Further, proposals toward this extreme of the continuum are character-
istically redistributive. The recent proposals of key congressional actors on
housing policy have tended toward this end of the continuum.
The beginning of a new Presidential term and the stalling of the FIA offer an
opportunity to reassess mortgage credit policy and to refocus the policy along
the continuum (in either direction) or to seek new means to achieve mortgage
credit objectives.
Alternative #1
A current mortgage credit policy tool of the Administration is the tandem
program, under which HUD/GNMA purchases below-market rate mortgages and resells
them, absorbing the discount required to meet private market yields. The program
was intended to be an emergency one for use in periods of tight credit. However,
the program has been vulnerable to tinkering, which deepens the subsidy. Although
the program currently puts the release of funds at the discretion of the Admin-
istration, it also contains a required 7-1/2 percent interest rate, which insures
a 1-1/2 to 2 percent subsidy in today's market. Subsidies have exceeded 2-1/2
percent in the past. These interest subsidies are larger than originally proposed,
and they create congressional and interest group pressure to use the program as a
redistributive tool, even when credit is not tight. Pending legislation would
extend the tandem mortgage purchase authority until October 1977, further
blurring the "emergency" character of the program. In addition, Senator Humphrey
has proposed permanent tandem-like financing at a 6-percent interest rate, which
would move the concept farther toward the subsidy extreme of the continuum.
-23-
The other recent, major mortgage credit proposal of the Administration, the
FIA, has not passed Congress for 4 years in a row. It has been the victim
of those who fear the FIA would not maintain the same privileged position
for housing investment as the current financial regulations and tax laws do,
and of the financial institutions which fear the loss of specialized lending
in the face of general financial competition. Most of the amendments and
counterproposals considered by Congress have been in the direction of larger,
longer-term subsidies to encourage housing investment (maintenance of
Regulation Q, a permanent system of advances for low- and moderate-income
mortgages, etc.).
Barring a major shift in the composition of Congress or unexpected success in
persuading financial institutions that the FIA will not hurt them, the Admin-
istration can expect continued resistence to the passage of the FIA and
continued tinkering with tandem mortgage financing.
Other, older Federal initiatives in the area of mortgage credit continue to
thrive with a wide spectrum of support. By and large, these initiatives use
market incentives, but include some subsidy impact. They are:
Federal insurance and guarantees of primary market mortgages, which makes
mortgage investment relatively homogeneous and facilitates the geographic
flow of credit.
Federally sponsored secondary markets (FNMA and FHLMC) make the flow of
mortgage credit more efficient.
Guarantees of securities backed by federally insured mortgages also add
homogeneity to mortgage investment, but in addition put the investment
in a form more nearly like the financial instruments employed in other
investment areas. This facilitates not only geographic flow, but also
flow between housing and other economic activities.
FORD
cave
-24-
Alternative #2
Academic literature and Federal agency research contain a variety of interesting
proposals in the mortgage credit area that are relatively untested (though not
unknown), and which are potential new policy tools. Many of these employ
market incentives and shun subsidies. While most would not have the impact of
the FIA on credit markets, they may be much easier tactically to implement.
Included are:
Variable-rate mortgages (VRMs), although they are currently blocked by
congressional resolution, lead a long list of potential reforms of the mort-
gage instrument. State-chartered savings and loans in California have been
offering VRMs for almost a year now, with success. A few large associations
are writing as much as 50 percent of their mortgages as VRMs. Other mortgage
reform possibilities include negative amortization, capital appreciation
sharing, and 5-year refinancing cycles patterned after Canadian experience.
HUD and the FHLBB both have research in progress on alternative mortgage forms.
The FHLMC is working on a system for grading conventional mortgages. This
would encourage geographic flows of credit and could lead to a more accurate
comparison of conventional and federally insured mortgages. Also, it would
make possible the issuance of securities backed by conventional mortgages,
thereby facilitating flows between housing and other investments.
Coinsurance of individual mortgages, to the extent it was applied to currently
uninsured mortgages, could contribute to secondary market efficiency, albeit
with a greater potential financial involvement by the Federal Government.
Portfolio insurance and reinsurance of PMIs are also possible new policy
tools to make mortgage investment more uniform geographically and more
comparable to other forms of investment. They would carry some Federal
financial exposure, but would still rely on market incentives to secure
credit efficiency.
-25-
Alternative #3
The current session of Congress has seen a wide assortment of program proposals
in the mortgage credit area that aim, in varying degrees, at a permanent compara-
tive advantage for housing investment. Among them are:
The permanent 6 percent tandem program mentioned above.
The National Association of Home Builders' proposed tax credit for interest
earned on savings deposited with mortgage lenders.
A proposed federally sponsored Homeowners Mortgage Loan Corporation, which
would make direct mortgage loans at 6-1/2 percent to qualifying households.
Although contained in pending authorization legislation for HUD, this
proposal is not expected to clear Conference Committee.
The same pending authorization legislation contains a proposal to lower the
interest rate on direct Federal housing for the elderly loans (section 202).
Senator Brock and Congressman Ashley have proposed a Deferred Mortgage
Interest Repayment Act (DMIRA) which would employ Federal loans to cover
the difference between a fixed borrower's rate and a variable lender's
rate. The DMIRA would also use the principle of capital appreciation
sharing by having the loan repaid from the proceeds upon resale. In
addition to using a Federal loan mechanism, the DMIRA proposed interest
subsidies by starting the mortgages at 7 percent. It is interesting to
note that the one change made in the proposal to date has been to deepen
the subsidy from 7 to 6 percent.
Budgetary effects
This paper has attempted to construct a policy framework to assist an evaluation
and reassessment of recent mortgage credit policy. Many of the possible changes
outlined are regulatory in nature and would have no budget impact. Others,
especially those near the subsidy end of the continuum, could have massive budget
-26-
impact. Reasonable estimates are impossible, however, because of the broad strokes
of analysis used and because of the infinite possible combinations of mortgage
credit proposals.
CVAD recommendation
OMB should seek from the relevant agencies a reassessment of current mortgage
credit policy including both substantive and tactical considerations.
-27-
SECTION 8
NEW CONSTRUCTION
1978 Spring Planning Review
Department of Housing and Urban Development
Issue #3: Housing Production Subsidies
Statement of Issue
How should the Federal Government attempt to stimulate housing construction?
Background
Current Administration policy. Subsidized new construction has been relegated to
a secondary role in the Administration's rental housing program for lower income
families (section 8). Primary emphasis is being given to consumer-oriented
subsidies keyed to the existing housing stock; subsidies for new construction
are being limited to the lowest level that is politically feasible. An adequate
supply of new units is to be achieved through normal economic incentives in the
private market, aided by sound monetary and fiscal policies.
Activity to date in 1976. The following table shows progress toward the budget
goals in 1976, along with the targets for 1977 (in units) :
1976 & TQ
1977
Approvals
Target
through 4/76
Target
Section 8:
New construction
112,500
57,967
112,500
Substantial
rehabilitation
12,500
5,300
12,500
Existing:
Regular
165,000
65,596
165,000
Loan management/
property disposition
110,000
---
110,000
Subtotal, Section 8
400,000
128,863
400,000
Conventional public housing
6,000
1,364
6,000
FORD : LIBRARY
Total
406,000
130,227
406,000
-28-
Subsidy levels. Officials and staff of both HUD and OMB (as well as some Members
of Congress) have been disturbed by the high costs projected for the new construc-
tion component of section 8. Nonetheless, pressure is intense from the Homebuilders
and their allies in Congress to increase subsidy levels further.
Alternatives
#1. Maintain the new construction component of section 8 at the level approved for
1976 and 1977 (125,000 units).
#2. Limit section 8 to existing housing, and support new construction under the
conventional public housing program.
#3. Limit section 8 to existing units, and encourage construction of new multifamily
units through the tandem plan.
Analysis
The analysis assumes that: (1) Federal production subsidies in some form are
inevitable, and (2) the existing component of section 8 makes sense (note: this
assumption should be tested). The primary considerations involved in this issue
are: cost-effectiveness of alternative subsidy mechanisms, the time pattern of
outlays, and budget controllability. In evaluating cost-effectiveness, attention
is limited to the "construction premium" of each alternative--that is, the cost
of developing a new unit over and above what it takes to subsidize a family in
existing housing. For purposes of this analysis, the latter is assumed to equal
the per-unit cost encountered under section 8/existing.
Cost-effectiveness
The table on page 30 contains estimates of the "construction premium" necessary
under each of the three options. (The appendix provides more detail on the cost
estimates.) It indicates that, in present value terms, tandem subsidies are much
less costly than either public housing or section 8. This is so because they are
intended for projects at the margin of feasibility (that is, those serving middle
upper income groups), rather than projects for which there is no market.
-29-
Cost of New Construction
Section 8/New
Public Housing
Tandem
Current Policy Sweeteners*
HUD Est.
CVAD Est.
Plan
Assumptions:
Annual rent increase
7.5%
7.5%
.9%
7.5%
N/A
Average tenant income in 1977
$5,000
$5,000
$5,000
$5,000
N/A
Annual increase in tenant income
5.0%
5.0%
3.0%
5.0%
N/A
Contract term
40 Years
40 Years
40 Years
40 Years
N/A
N/A
N/A
N/A
N/A
10.0%
Market interest rate
Contract interest rate
N/A
N/A
N/A
N/A
7.5%
First year cost:
Direct subsidy
$4,200
$4,600
$2,400
$2,400
$
Indirect subsidy
500
6,100
1,000
1,000
5,500
Subtotal
4,700
$10,700
$3,400
$3,400
$5,500
Less: Existing section 8
-1,700
-1,700
-1,700
-1,700
N/A
Construction premium
$3,000
$ 9,000
$1,700
$1,700
$5,500
Lifetime cost:
Direct subsidy
$1,064,100
$1,147,700
$141,100
$549,700
$N/A
Indirect subsidy
6,600
12,100
39,200
39,200
5,500
Subtotal
$1,070,700
$1,159,800
$180,300
$588,900
$5,500
Less: Existing section 8
-421,400
-421,400
-421,400
-421,400
N/A
Construction premium
$ 649,300
$ 738,400
$ -0-
$167,500
$5,500
Lifetime costs (present value) :
Direct subsidy
$118,900
$130,300
$30,800
$70,800
$N/A
Indirect subsidy
3,500
9,000
19,300
19,300
5,500
Subtotal
$122,500
$139,300
$50,100
$90,100
$5,500
Less: Existing section 8
-52,900
-52,900
-52,900
-52,900
N/A
Construction premium
$ 69,600
$ 86,400
$ -0-
$37,200
$5,500
N/A
Not applicable
*
Assumes tandem plan support and a 10% increase in fair market rents (as Secretary Hills
favors) .
**
Assumes that subsidy costs rise at the same rate as under section 8; in effect, HUD
assumes that capital costs are fixed and operating subsidies rise at 7.5%/year.
i
FORD
1117
-30-
GERALD
As for the effectiveness of the construction stimulus:
No evidence is available to indicate the extent to which section 8 subsidies
encourage net additions to the Nation's housing stock.
Projects built under the public housing program probably represent net
additions to the housing stock, since they do not compete with privately built
new units for either tenants or capital except in a very indirect way.
Empirical research has not been able to identify any positive impact of
tandem subsidies on housing starts.
Time pattern of outlays
Under all three alternatives there is a considerable lag between initial commit-
ment and the first subsidy disbursement. The lag is shorter for section 8 and
the tandem plan (2 - 2-1/2 years) than for public housing (nearly 4 years)
In the first full year in which subsidies are paid, outlays under the tandem plan
(construction premium only) are 80% higher than they are under section 8 as
currently designed. Adding tandem support to section 8, of course, would reverse
the relationship. Public housing costs in the first year are less than one-third
the cost of tandem subsidies, and only 60 percent the cost of section 8.
Budget controllability
Section 8 commitments tie up budget resources for 15-40 years. Moreover,
because there is a continuing relationship between HUD and section 8 projects,
the budget is exposed to cost increases above those assumed at the time of
commitment. FHA insurance also carries the risk of additional outlays.
Once a public housing unit is completed, debt service charges are fixed for a
40-year period. Operating subsidies have proven extremely difficult to control,
having increased at an annual rate of over 70 percent since 1969.
FORD
-31-
Tandem subsidies can be controlled more easily than either alternative because
they are paid at the front end, and need not involve a continuing Federal link
to the project.
Other considerations
Tandem subsidies generally go to projects serving middle income families. This
would prompt advocates of new construction for poor people to accuse the
Administration of being callous.
Budgetary effects (per 100,000 units)
(Outlays in Millions)
1977
1978
1979
1980
1981
Alternative #1 (Sec. 8)
86
552
1,107
Alternative #2 (Pub. Hsg.)
267
Alternative #3:
Existing section 8
9
125
212
599
958
Tandem subsidy
277
554
554
Total
9
125
489
1,153
1,512
Implementation of CVAD recommendation
CVAD believes that, given the political need for some new construction program,
tandem subsidies make much more sense than either section 8 or public housing.
Accordingly, CVAD believes HUD should be directed to include in its 1978 budget
submission (either as its recommendation or as an alternative) an estimate of the
budget requirements for a conventional tandem program in place of section 8/new.
-32-
Appendix
Comparison of First-Year Subsidy Costs
of New Construction Under Three Housing Programs
Section 8
Conventional
GNMA
Cost Element
FHA-Insured
State Hsg. Agency
Public Housing
Tandem Plan
Total development costs
$36,000
$36,000
$32,600
$36,000
Mortgage loan amount
$32,400
$32,400
$32,600
$32,400
Term (years)
40
40
40
N/A
Interest rate:
Market/contract
10%/10%
7.25%/7.25%
6%/6%
10%/7.5%
Tandem subsidy
N/A
N/A
N/A
$5,542
Annual loan amortization
$3,301
$2,487
$2,152
N/A
Operating expenses
1,966
1,966
1,208
N/A
Gross rent
$5,267
$4,453
$3,360
N/A
Tenant contribution
-1,100
-1,100
-975
N/A
Federal direct subsidy
$4,167
$3,353
$2,385
N/A
Indirect costs:
Foreclosure
35
---
----
---
HUD administrative
60
60
60
---
Federal taxes foregone
433
1,244
975
---
(Memo: local taxes foregone)
(---)
(---)
(737)
(---)
Total, indirect costs
$ 528
$1,304
$1,035
$ ---
Total, subsidy costs
$4,695
$4,597
$3,420
$5,542
FORD
SOURCE: HUD, with development costs revised to reflect actual experience to date.
-33-
D. BLOCK GRANTS
1978 Spring Planning Review
Department of Housing and Urban Development
Issue #4: Community Development Block Grant Program
Statement of Issue
What should be the level of funding for the Community Development Block Grant Program
for 1978 and 1979?
Background
The appropriation authorization for the Community Development Block Grant Program
expires after 1977.
The Secretary of HUD is required, by March 15, 1977, to submit a report to Congress
which makes recommendations for the program's future regarding the formula and
the distribution of the funds. The Secretary plans to submit the report by
December 31, 1976.
As required by the Budget Control Act of 1974, legislation has been submitted
to extend the program at the current level (less $100 million in special transition
funds) through 1978, with the qualification that the amount may be revised later
if the Secretary's report indicates the need for such revision.
Analysis
Because the goals of the Community Development Block Grant Program are very general,
it is difficult to quantify what resources must be available to achieve these goals.
The level of funding is largely a question of political judgment and priority.
Amending the 1974 Housing and Community Development Act to accommodate the extended
authorization is sure to open up for discussion other issues as well. The Adminis-
tration's success in getting its way on these issues is likely to be affected by
its willingness to increase funding levels.
A. Extension of hold-harmless.
SERLD R. FORD
The hold-harmless provision of the Community Development Block Grant Program
was designed to assure those communities that had participated in the categorical
programs a smooth transition to a block grant approach. The amounts are determined
-34-
by past categorical funding levels and are to be used to finance completion of
partially finished categorical programs as well as providing for any necessary
administrative adjustments.
The 1974 Act provides for the gradual phaseout of hold-harmless by 1980, at which
time all recipients will get only their fair share of the funds, as determined by
formula, and no more. However, HUD does not believe Congress will allow hold-harmless
to die or, if it does, the phaseout will be spread over a longer period of time.
The closeout of the categorical projects is moving very slowly thus far, as shown
below.
Number Remaining
1976 Target
1976 Actual
to be Closed Out
Urban renewal
342
168
1,273
Model cities
72
6
139
All other
1,263
631
1,404
The closeout of a project is preceded by a lengthy period of fact-finding regarding
its legal and financial status. HUD expects the pace to quicken as the adminis-
trative procedures are streamlined; i.e., centralization of effort, establishment of
task forces, etc.
To spur the closeout of urban renewal projects, HUD plans to utilize more fully the
power given the Secretary in section 112 of the 1974 Act; i.e., that a recipient's
entitlement amount may be reduced by 20 percent to pay off urban renewal loans.
While the local renewal agencies are unhappy about this, local government executives
have not issued many complaints and are generally anxious to get their remaining
categorical programs closed out.
The Department does not foresee a stepped-up successful closeout program as
bringing much, if any, influence to bear in phasing out hold-harmless. The Secretary
has said she has an open mind on hold-harmless, but no decisions will be made until
the evaluation report is completed.
-35-
B. Continuation/revision of the housing assistance plan requirement.
HUD does not plan to recommend any revision in the housing assistance plan require-
ment. While there have been and continue to be problems in administering this
requirement, the Department sees some value in the document: (1) it is a means
of monitoring a community's performance in meeting low- and moderate-income housing
needs; and (2) it serves as a useful vehicle for coordinating the block grants
with other HUD programs (e.g., procedures are now being implemented which require
coordination with the HAP before approval of section 8 applications). HUD has
offered substantial assistance to entitlement communities in determining their
"expected to reside" housing needs and is cracking down on applicants which do
not present sufficient HAP's. The 1976 applications indicate that grantees are
responding well to the stiffened requirements, although HUD has disapproved three
1976 applications thus far.
The HAP requirement hits hardest at the nonmetro discretionary recipient, who
does not have the substantial low- and moderate-income housing responsibility
to fulfill and has generally never participated in HUD programs before the estab-
lishment of block grants. HUD may consider recommending releasing these grantees
from the requirement in the future. There is indication that both Senator Proxmire
and Representative Ashley would be amenable to the idea after a somewhat longer
test period to determine exactly how useful or useless a HAP is for the nonmetro
communities.
C. Disbursement of the discretionary funds.
HUD estimates that, in 1977, 54 percent of its total block grant staff time will
be devoted to processing applications for discretionary grants, compared to 29
percent devoted to entitlement applications. However, HUD really has no plans
to address the possibility of State or other alternative disbursement of the
discretionary funds. The Department considers this the least of its problems
with the program right now and wishes to address and recommend changes only in
those areas where it seems essential.
If HUD is to recommend any changes in the program operation, as is likely, there
is considerable work to be done on evaluating the need for or impact of such recommen-
dations. This information would be included in the Secretary's report of December 31,
1977.
-36-
A current review of the evaluation effort indicates that there is a considerable
amount of confusion and delay. HUD is unwilling to discuss in much detail a precise
outline of the evaluation study until the Secretary makes some preliminary decisions.
The Department is working towards a November - December deadline for completion of
the evaluation report and apparently will submit a budget figure on September 15
which does not reflect the report's findings. HUD staff are assuming that recommen-
dations and a meaningful discussion of a 1978 budget figure will not begin till late
November - early December. If the report's conclusions and recommendations are to
impact the budget figure, it should be completed by September 15.
Alternatives
Of the aforementioned issues, only the extension of hold-harmless should have
a direct impact on budget totals. The other issues deal with administrative
problems.
At the present it appears that $3,148 million is the floor for appropriations
in 1978 and 1979. If the Administration agrees to an extension of hold-harmless,
increased funds would be needed so as not to divert funding from other recipients--
a politically and programmatically damaging idea. If the Administration wishes to
hold to the current phaseout schedule, additional funding may also be necessary,
in order to sway those recipients who stand to lose funds under an entitlement
allotment alone.
#1. Provide a major increase in funding (e.g., to $3.5 billion), including an
urgent needs fund, in order to secure a hold-harmless phaseout at the
current schedule. (high alternative)
#2. Provide a moderate increase in funding (e.g., to $3.3 billion) in order
to secure a hold-harmless phaseout at some point in time but less rapidly
than alternative #1. (medium alternative)
#3. Continue funding at current level and push for hold-harmless phaseout at
the current schedule. (low alternative)
FORDIN
ALD
-37-
Budgetary effects (in millions)
1978
1979
1980
1981
BA
O
BA
O
BA
O
BA
O
High alternative
3,500
2,470
3,500
2,776
3,500
3,117
3,500
3,352
Low alternative
3,148
2,400
3,148
2,600
3,148
2,800
3,148
3,000
Medium alternative
3,300
2,430
3,300
2,676
3,300
2,937
3,300
3,152
Recommendation
Because HUD has yet to proceed with any deliberation on its evaluation study, the
issues and alternatives listed are preliminary. However, it should be impressed upon
the Department that, if any changes in the formula or distributions or funds are to
be considered, recommendations, their supporting analysis and budget impact should
be submitted with the Secretary's budget request on September 15. We recommend
including this requirement in the planning letter to the Department.
-38-
PROGRAM TRENDS
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Selected Program Trends
(dollars in millions)
1969
1970
1971
1972
1973
1974
1975
1976
1977
I. Mortgage Insurance
A. Mortgage insurance written:
Units
564,092
644,106
838,559
830,458
538,880
316,972
292,261
295,506
Amount ($)
302,976
8,022
9,394
13,037
14,017
9,307
5,638
6,182
6,436
B. Mortgage assignments and
7,627
property acquisitions:
Single family
30,775
28,073
38,052
57,785
66,889
62,647
54,427
44,127
Multifamily
48,710
12,596
7,468
15,711
20,450
39,396
49,127
76,436
92,200
58,240
Inventory on hand
98,611
97,191
117,220
155,552
202,811
238,316
272,725
II. Other Mortgage Credit
308,382
279,795
A. Special mortgage purchase
commitments ($)
---
2,873
1,773
2,381
11,410
5,000
---
B. Guarantees of mortgage-backed
securities issued ($)
---
441
3,200
3,500
3,607
4,125
5,905
10,000
III. Subsidized Housing
10,000
A. New approvals:
Units
178,000
417,000
420,000
453,000
120,000
38,000
170,000
481,000
Obligations ($)
506,000
10,979
15,887
16,879
17,653
5,407
2,008
11,121
B. Subsidy costs:
23,935
25,428
Housing payments ($)
374
488
704
1,054
1,312
1,614
1,704
2,225
3,049
Public housing operating
subsidies ($)
13
28
103
233
348
320
475
535
464
IV. Community Development and Other
A. Community development:
New commitments ($)
1,642
1,633
1,880
2,471
2,361
716
2,735
2,893
3,248
Outlays ($)
794
1,379
1,594
1,958
1,865
1,872
1,973
2,290
2,575
B. Comprehensive planning grant
commitments ($)
43
50
50
100
100
75
100
75
25
C. Flood Insurance outlays ($)
1
1
3
7
14
51
44
110
173
D. Research obligations ($)
11
24
43
44
60
67
59
65
65
Assumes section 8 subsidies will save 67,500 units from assignment.
Tandem programs for nonsubsidized mortgages.
Includes new commitments for rehabilitation loans as well as community development block grants.
FORD
-39-
RALD
TABULATIONS
UNMARY S
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Summary Tabulation
Program Level
($ in Millions)
1976
1977
1978
1979
Current
Base
Most Likely
Base
Most Likely
Base
Most Likely
Mortgage Credit
Tandem Plan:
Purchase commitments
(5,000)
---
Subsidy
(3,500)
---
(1,500)
---
610
(1,500)
---
422
---
172
---
172
Subsidized Housing
1. Section 8 and public housing (Issue #3) :
Obligations (40 years)
25,775
Units
23,050
24,840
25,360
27,330
(406,000)
27,890
(406,000)
30,060
2. Public housing operating subsidies
(400,000)
(406,000)
(400,000)
(406,000)
540
(400,000)
460
600
3. Section 235/Homeownership:
550
690
620
760
Obligations (40 years)
1,950
2,820
Units
4,225
3,150
5,075
---
(75,000)
5,280
(100,000)
4. Section 202/Housing for the Elderly:
(150,000)
(100,000)
(170,000)
---
(170,000)
Loans
750
375
Units
1,000
375
1,000
375
(32,600)
1,000
(14,800)
5. Counseling and nonprofit-sponsor assistance
(40,000)
(13,600)
(36,400)
(12,400)
5
(33,100)
5
6. Other programs
15
15
---
1,400
15
---
---
---
---
Community Planning and Development
1. Community Development Block Grant Program
(Issue #4)
2,800
3,250
2. Comprehensive planning
3,250
3,150
3,500
3,150
75
3,500
25
3. Rehabilitation Loans
50
25
50
25
50
120
4. Urban Renewal
80
80
---
80
---
5. Flood Insurance
---
100
---
100
75
100
75
100
75
100
75
Research
60
70
60
70
60
70
60
Other
40
---
20
---
20
---
20
Agency total
34,200
30,160
34,640
32,775
38,160
32,240
41,175
40-Year obligations for rent supplements and grants to State housing agencies.
FORD
-40-
G7VD
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Summary Tabulation
Budget Authority
($ in Millions)
1976
1977
1978
1979
Current
Base
Most Likely
Base
Most Likely
Base
Most Likely
Mortgage Insurance
Federal Housing Administration Fund
(Issue #1)
1,620
975
975
1,110
1,110
950
950
Subsidized Housing
1. Section 8 and public housing (Issue #3)
18,030
16,580
16,000
25,360
27,330
27,890
30,060
2. Public housing operating subsidies
540
460
600
550
690
620
760
3. Section 235/homeownership
2,000
2,000
5,280
4. Section 202/housing for the elderly
(750)
(375)
(1,000)
(375)
1,000
(375)
1,000
5. Counseling and nonprofit-sponsor assistance
10
10
10
6. Other programs
1,440
---
---
Mortgage Credit
1. Tandem Plan
4,750
---
1,500
---
1,500
1,500
2. Other programs
10
10
10
10
10
10
10
Community Planning and Development
1. Community Development Block Grants (Issue #4)
2,800
3,250
3,250
3,150
3,500
3,150
3,500
2. Comprehensive planning
75
25
50
25
50
25
50
3. Rehabilitation Loans
50
50
60
60
4. Urban Renewal
100
100
5. Flood Insurance
75
100
75
100
75
100
75
6. New Communities
10
25
160
25
210
25
75
Research
50
70
60
70
60
70
60
Departmental Overhead and Other
190
220
220
220
220
220
220
Agency subtotal
29,640
21,710
24,960
30,610
37,925
33,060
43,720
Deductions for: Offsetting receipts
---
---
---
---
---
Agency total
29,640
21,710
24,960
30,610
37,925
33,060
43,720
Numbers in parentheses indicate off-budget.
FORD
2/
Includes 40-year obligations for rent supplements and grants to State housing agencies.
-41-
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Summary Tabulation
Outlays
($ in Millions)
1976
1977
1978
1979
Current
Base
Most Likely
Base
Most Likely
Base
Most Likely
Mortgage Insurance
Federal Housing Administration (Issue #1)
1,520
830
830
1,160
1,160
1,030
1,030
Subsidized Housing
1. Housing payments (including section 8,
section 235, and public housing) (Issue #3)
2,270
2,570
2,590
3,000
3,080
4,000
4,200
2. Public housing operating subsidies
160
460
490
500
540
550
675
3. Section 202/housing for the elderly
(-10)
(110)
(400)
(360)
1,100
(325)
1,150
4. Counseling and nonprofit-sponsor assistance
-1
2
7
12
13
Mortgage Credit
1. Tandem Plan
660
110
180
460
560
190
2. Other programs
75
70
70
70
70
60
60
Community Planning and Development
1. Community Development Block Grants
900
1,600
1,600
2,400
2,470
2,600
2,780
2. Comprehensive planning
90
75
80
25
50
25
50
3. Rehabilitation Loans
40
-8
70
-20
60
-20
60
4. Urban Renewal
1,150
1,225
1,225
600
650
400
500
5. Flood Insurance
110
200
175
250
220
250
225
6. New Communities
20
30
170
30
220
30
80
Research
60
70
60
70
60
70
60
Departmental Overhead and Other
460
320
330
125
150
120
150
Agency subtotal
7,510
7,560
7,870
8,670
10,400
9,120
11,230
Deductions for: Offsetting receipts
Agency total
7,510
7,560
7,870
8,670
10,400
9,120
11,230
Numbers in parentheses indicate off-budget.
-42-
ANAL YSIS
OF CHANGES
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Analysis of Changes
(in millions of dollars)
1977
1978
1979
B.A.
0
B.A.
0
B.A.
0
Base estimates
21,710
7,560
30,610
8,670
33,060
9,120
Likely changes due to--
Administration initiatives:
Housing for the elderly - putting the fund
back in the budget in 1978
---
---
+375
+360
+375
+325
Building energy conservation standards
+5
+2
+5
+5
+5
+5
New Communities - increase foreclosures
+135
+135
+185
+185
+50
+50
Congressional action:
FORD
Annual Contributions for Assisted Housing -
1977 reduction made possible by assuming
larger carryover from 1976; increases in
1978 and 1979 provide for increased new
construction
-575
---
+1,970
---
+2,170
---
Housing for the elderly (section 202)
(+625)
(+290)
+625
+740
+625
+825
Section 235/homeownership assistance
+2,000
+25
+2,000
+80
+5,280
+200
Public housing operating subsidies -
rejection of proposed savings and
increase above performance funding
+135
+25
+140
+45
+145
+125
-43-
1977
1978
1979
B.A.
0
B.A.
0
B.A.
0
Grants to State housing agencies -
failure to rescind 1976 authority
---
---
---
+10
---
+15
Counseling and nonprofit-sponsor
assistance
+10
+5
+15
+10
+15
+15
College Housing continuation of
the program
---
+5
---
+15
---
+15
GNMA: Special assistance - additional
tandem plan releases
+1,500
+65
+1,500
+90
+1,500
+195
Community development block grants
(1978 item)
---
---
+350
+70
+350
+175
Comprehensive planning
+25
+5
+25
+25
+25
+25
Urban Renewal - additional funds for
project closeouts
---
--
+100
+50
+100
+100
Rehabilitation Loans
+50
+75
+60
+80
+60
+80
Flood Insurance
-25
-25
-25
-25
-25
-25
Research
-10
-5
-10
-10
-10
-10
Most likely level
24,960
7,870
37,925
10,400
43,720
11,230
Housing for the elderly - hold to the
1977 base level
(-625)
(-290)
-625
-740
-625
-825
GNMA: Special assistance - do not
release additional mortgage purchase
authority
-1,500
-65 -1,500
-90
-1,500
-195
-44-
1977
1978
1979
B.A.
0
B.A.
0
B.A.
0
Urban Renewal - avoid further commitments
(or offset add-on's against community
development block grants)
---
---
-100
-50
-100
-100
Housing Payments - hold section 235 to
the 1977 base level
-2,000
-25 -2,000
-80
-5,280
-200
Federal Housing Administration:
Discontinue premium rebates on 1-1-77
-20
-20
-40
-40
-40
-40
Raise FHA premiums to actuarially sound
levels (but continue subsidizing
premiums in neighborhood preservation
areas)
-15
-15
-40
-40
-65
-65
Rehabilitation Loans - avoid further
commitments (or offset add-on's
against community development block
grants)
-50
-75
-60
-80
-60
-80
Public housing operating subsidies -
maintain at "old" performance
funding level
-25
---
-25
-15
-25
-25
Restore 1977 cuts in:
Flood Insurance
---
---
+25
+25
+25
+25
Research
---
---
+10
+5
+10
+10
High alternative target
21,350
7,670
33,570
9,300
36,060
9,735
-45-
1977
1978
1979
B.A.
0
B.A.
0
B.A.
0
Housing Payments - discontinue approvals
for new section 8 projects in 1977
-12,440
---
-13,685
---
-15,055
-185
Community development block grants -
limit the increase in 1978 and 1979
---
---
-200
-40
-200
-100
Public housing operating subsidies -
increase tenant rental payments (as
proposed in the 1977 Budget)
---
---
-115
-25
-120
-80
Do not restore 1977 cuts for Flood
Insurance and Research
---
---
-35
-30
-35
-35
Comprehensive planning - hold to 1977 base
-25
-5
-25
-25
-25
-25
College Housing - terminate the program as
proposed in the 1977 Budget
---
-5
---
-15
---
-15
Counseling and nonprofit-sponsor assist-
ance - rescind amounts added to 1977
Budget
-10
-5
-15
-10
-15
-15
Medium alternative target
8,870
7,655
19,495
9,150
20,615
9,285
Housing for the elderly - cut loan
commitments from $375M to $200M
beginning in 1977
(-175)
(-20)
-175
-75
-175
-175
Community development block grants -
hold to the 1977 base in 1978 and 1979
---
---
-150
-30
-150
-75
Comprehensive planning - terminate the
program in 1978
---
---
-25
-5
-25
-15
-46-
1977
1978
1979
B.A.
0
B.A.
0
B.A.
0
FHA - do not subsidize insurance premiums
-5
-5
-5
-5
-5
-5
Low alternative target
8,865
7,650
19,140
9,035
20,255
9,010
Further reductions:
Housing Payments - reduce section 8/
existing program level to 200,000
units in 1978 and 1979
---
--- -3,430
-5
-3,770
-90
Section 202 - terminate program and
replace with tandem plan assistance
---
---
---
-130
---
-233
CERALD
-47-
SUMMARY OF
AGENCY TOTALS
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Summary of agency totals
(in millions of dollars)
1977
1978
1979
1980
1981
Budget authority
Base estimate
21,710
30,610
33,060
35,640
38,710
Most likely level
24,960
37,925
43,720
44,400
47,750
High alternative target
21,350
33,570
36,060
X
X
Medium alternative target
8,870
19,495
20,615
X
X
Low alternative target
8,865
19,140
20,255
X
X
Outlays
Base estimate
7,560
8,670
9,120
10,060
11,460
Most likely level
7,870
10,400
11,230
12,350
13,750
High alternative target
7,670
9,300
9,735
X
X
Medium alternative target
7,655
9,150
9,285
X
X
Low alternative target
7,650
9,035
9,010
X
X
FORD
-48-
RECONCILIATION
OF AGENCY TOTALS
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
RECONCILIATION OF MARCH 25 ESTIMATE AND BASE
(in millions of dollars)
Budget Authority
Outlays
I. Reconciliation of 1977 base:
March 25 estimate
21,710
7,175
Administration initiatives:
(None)
Completed congressional action:
Rehabilitation loans - inaction on proposed
1976 rescission
---
+10
Reestimates:
(a) Urban Renewal and other terminated
community development grant programs -
slower spendout in FY 1976
---
+345
(b) GNMA: Special Assistance Functions
Fund - increased discounts on tandem
purchases
---
+30
Total, 1977 base
21,710
7,560
II. Base for 1978 through 1981:
1978
30,610
8,670
1979
33,060
9,120
1980
FORD
35,640
10,060
1981
38,710
11,460
RALD
-49-
LIKELY
Date:
5/21/76
BUDGET THREATS
Budget
examiner:
Eve Barrett
Program: Comprehensive Planning Grants
Extension: 4610
Agency:
Department of Housing and Urban Development
Three digit functional code: 450
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1981
(in millions of dollars)
+25
+25
+25
+25
+25
Budget authority
+5
+17
+25
+25
+25
Outlays
Brief description of threat:
Congressional action to date on HUD authorization and appropriation legislation appears headed
towards an increase in appropriations over the 1977 Budget request. Probability of the threat
materializing: .76-1.00.
-50-
LIKELY
Date:
5/21/7
BUDGET THREATS
Budget
examiner: Edward A. Brigham
Program: Emergency Mortgage Purchase Assistance
Extension: 4610
Agency: Department of Housing and Urban Development
Three digit functional code:
401
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1981
(in millions of dollars)
Budget authority
+1,500
---
---
Outlays
+66
+66
+145
+145
---
Brief description of threat: Of the $10 billion authorized for mortgage purchases by the Emergency
Housing Act of 1975, $5 billion has been appropriated, and $3 billion has been released by the
Administration (for multifamily mortgages in January, 1976). The concurrent budget resolution
provides for the appropriation of an additional $3 billion of mortgage purchase authority. However,
the 1977 HUD appropriations bill, as reported by the House subcommittee, contains no appropriation
of mortgage purchase authority. The most likely appropriation, therefore, is some intermediate
amount like $1.5 billion. We estimate that such an appropriation has a probability of 50 to 75
percent. Coupled with the unreleased funds, that action would make $3.5 billion available for use.
Since the use of the funds is at the discretion of the Administration and since conditions are
continuing to improve on housing markets, we estimate that the release would have a probability of
less than 25 percent. The outlay estimates assume current market interest rates and a 50-50 split
between single- and multifamily construction. They also assume an early 1977 release of the $3.5
billion.
FORD
-51-
LIKELY
Pace:
5/21,
BUDGET THREATS
Badget
examiner: Eve Barrett
Program: New Communities
Extension: 4610
enev: Department of Housing and Urban Development
Three digit functional code:
450
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
X
Other
Change in base estimate:
1977
1978
1979
1980
10
(in millions of dollars)
Budget authority
+137
+184
+51
+25
+25
Outlays
+137
+184
+51
+25
+25
Crief description of threat:
The 13 federally guaranteed new communities are in serious financial trouble. Independent studies
of each community are being conducted to determine (1) the value and marketability of the
property, and (2) the financial feasibility of reviving the community. HUD has not yet announced
any foreclosures, but the Department does expect some activity in 1977 and beyond. The 1977-1981
figures cover acquisition and resale of communities, foreclosures, and continued interest
payments. Probability of threat materializing: .76-1.00.
FORD & LIBRARY GERALD
-52-
LIKELY
Date:
5/21/
BUDGET THREATS
Budget
examiner:
Program:
Paul Newton
Payments for Operation of Low-Income Housing Projects
Extension:
4610
Agency:
Department of Housing and Urban Development
Three digit functional code:
604
Nature of threat (check one) :
Administration initiative
X
Congressional rejection of Administration
legislative proposal
and
X
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1981
(in millions of dollars)
Budget authority
+135
+140
+145
+150
+150
Outlays
+25
+45
+125
+130
+135
Brief description of threat:
Congress has shown no inclination to enact legislation revising the definition of income for
public housing tenants, and proposed authorizations reflect operating subsidy requirements
under the present system. This threat also assumes a $25 million discretionary add-on.
Probability: .75-1.00.
:
FORD
RALD
-53-
LIKELY
Date:
5/21/7
BUDGET THREATS
Budget
examiner: Eve Barrett
Program: Rehabilitation Loans
Extension: 4610
Agency: Department of Housing and Urban Development
Three digit functional code:
450
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
X
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1981
(in millions of dollars)
Budget authority
+50
+60
+60
+60
+60
Outlays
+70
+60
+60
+60
+60
Brief description of threat:
The Rehabilitation Loan Program is due to terminate August 22, 1976. However, Congress will likely
extend the program at least through fiscal 1977 with an appropriation authorization of $100 - $150
million. However, House Appropriation subcommittee action indicates the actual appropriation may
be $50 million or SO. Probability of threat materializing: .76-1.00.
FORD
2
-54-
LIKELY
:
5/21,
BUDGET THREATS
Budget
examiner:
William McQuaid
Program:
Section 202 - Elderly Housing - A
Extension: 4610
Agency:
Department of Housing and Urban Development -- off-budget
Three digit functional code:
401
Nature of threat (check one) :
X
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
19
(in millions of dollars)
Budget authority
---
+375
+375
+365
+355
Outlays
---
+359
+323
+288
+252
Brief description of threat:
The Housing and Community Development Act of 1974 amended the Section 202 program for Housing
for the Elderly and Handicapped and placed this direct loan program off-budget. The House
Appropriations subcommittee report on 1977 HUD appropriations suggests that the Administration
propose putting this account back on-budget. This part of the threat from the housing for
the elderly program assumes that the Administration will propose the same loan level in 1978
as contained in the 1977 Budget but the funding will be proposed on-budget. The congressional
threat from increasing this program level is presented in the threat from Section 202-Elderly
Housing B. Probability of threat materializing: .76-1.00.
FORD & GERALD LIBRARY
-55-
LIKELY
5/21,
BUDGET THREATS
Budget
examiner:
William McQuaid
Program:
Section 202 - Elderly Housing - B
Extension: 4610
Department of Housing and Urban Development -- off-budget
Three digit functional code:
401
Fature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
X
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1911
(in millions of dollars)
Budget authority
(+625) *
---
---
---
---
Outlays
(+289) * +741
+827
+667
+652
*Parentheses means off-budget.
Snief description of threat: The Senate passed the "Housing Amendments of 1976" which would
provide $2.5 billion in additional authority for section 202 - elderly housing loans. The
interest rate on these loans would be reduced approximately 2.1 percent per year for a 40 year
cost of $400 million per $1 billion in loans. While the 1977 outlays would be "off-budget,"
loan disbursements would increase Treasury borrowing which would drive Treasury rates up by an
unknown amount. The House Committee on Banking, Currency and Housing has reported out a bill
that also provides additional loan authority of $2.5 billion but the authority is to be spread
over a 3 year period. The House Appropriations subcommittee bill includes $750 million in loan
authority for this program. The additional outlays are assumed to be on-budget after 1977.
Probability of threat materializing: .76-1.00.
FORD & LIB 070
-56-
LIKELY
Date:
5/21
BUDGET THREATS
Budget
examiner:
William McQuaid
Program: Section 235 Homeownership Assistance
Extension: 4610
Agency: Department of Housing and Urban Development
Three digit functional code:
604
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
10
(in millions of dollars)
Budget authority
+2,000
---
---
--------
---
Outlays
+23
+67
+67
+67
+67
Brief description of threat:
The Senate has passed the bill "Housing Amendments of 1976.' " This bill would increase the
contract authority to make interest subsidy payments under the section 235 homeownership
assistance program by $200 million. These contracts can be for a maximum term of 30 years.
The budget authority resulting from this $200 million in contract authority would be $6
billion. The House subcommittee bill extended the section 235 program, but did not add new
contract authority. The first concurrent resolution adopted a $2 billion level of budget
authority for section 235 and the threat is based on this level. This additional contract
authority would be subject to release in Appropriations Acts. Probability of threat
materializing: 0.76-1.00.
RALD 917 R. FORD
-57-
POSSIBLE
Date:
5/21/7
BUDGET THREATS
Budget
examiner:
Eve Barrett
Program: Community Development Countercyclical Supplemental Assistance Extension:
4610
Agency: Department of Housing and Urban Development
Three digit functional code:
450
Nature of threat (check one) :
X
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1981
(in millions of dollars)
Budget authority
+780
-0-
-0-
-0-
-0-
Outlays
+260
+260
+260
-0-
-0-
Brief description of threat:
The Countercyclical Supplemental Assistance Authorization bill, designed to provide aid to areas
having unemployment rates of 8 percent when the national, seasonally adjusted average is 7 percent
or greater, may be enacted by July 1. The authorized level of $780 million would likely be
appropriated for 1977. Probability of threat: 0-.25.
FORD
-58-
Date:
POSSIBLE
5/21
BUDGET THREATS
Budget
examiner: William McQuaid
Program:
Defect Compensation
Extension: 4610
Amency:
Department of Housing and Urban Development
Three digit functional code:
401
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
X
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
19 1
(in millions of dollars)
Eudget authority
+56
+15
+15
+15
+15
Outlay
+56
+15
+15
+15
+15
Brief description of threat: The Senate has passed the bill "Housing Amendments of 1976." This
bill would extend and expand the provisions to provide compensation for defects found in homes
insured by the Federal Housing Administration (FHA). The provisions would retroactively include
all homes previously insured by FHA. Around five million homes are currently insured by FHA and
would be eligible for the defect compensation program. The retroactive features would require
over 1,000 employees to process claims. The prospective application of defect compensation
would change FHA's mortgage insurance program to a warranty program requiring an unknown number
of Federal inspectors. The estimates of claims rates and cost per claim for newly eligible units
are conservative and a loosely interpreted program could have costs in the hundreds of millions.
Probability of threat materializing: .26-.50.
ALD 817 R. FORD
-59-
POSSIBLE
Date:
5/21/76
BUDGET THREATS
Budget
examiner:
William J. McQuaid
Program: Section 236 Operating Subsidies
Extension: 4610
Agency:
Department of Housing and Urban Development
Three digit functional code:
604
Nature of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
Other
Change in base estimate:
1977
1978
1979
1980
1981
(in millions of dollars)
Budget authority
+50
+100
+200
+210
+220
Outlays
+50
+100
+200
+210
+220
Brief description of threat:
Recent court decisions have ordered HUD to pay operating subsidies for increased utility and
tax expenses. Almost 29,000 units in section 236 projects are in default and many others are
in financial trouble. Pressure is growing to fund a full program of operating subsidies to
provide the difference between operating and debt service costs and rents based on 25 percent
of the tenant's income. An adverse decision on a class action suit now before the U.S. District
Court for the District of Columbia could bring about this operating subsidy program. The
House Appropriations subcommittee bill would eliminate the funds now available for operating
subsidies by using them to pay interest subsidy housing payments. Probability of threat
materializing: .26-.50.
-60-
Date:
POSSIBLE
5/21
BUDGET THREATS
Budget
examiner: Eve Barrett
Program: Urban Renewal
Extension: 4610
Department of Housing and Urban Development
Three dimit functional code:
450
Tabore of threat (check one) :
Administration initiative
Congressional rejection of Administration
legislative proposal
Congressional: proposed new legislation
or appropriations change
X
Other
Change in base estimate:
1977
1978
1979
1980
1941
(in millions of dollars)
Budget authority
0
+100
+100
+100
+100
Outlays
0
+50
+100
+125
+125
Erief description of threat:
As HUD proceeds with the closeouts of urban renewal projects, it becomes more evident that
many projects will need additional financial assistance to be completed as planned. This
threat assumes Congress will provide additional relief through additional categorical grants.
Probability of threat materializing: .26-.50.
FORD & LIBRARY GERALD
-61-
EVAL UATIONS
AND OBJECTIVES
1978 Spring Planning Review
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Program and Management Evaluation Studies
Evaluation Study
Status
Top Priority:
Alternative roles for the Federal Housing Administration in the
mortgage market
Underway
Impact of the Performance Funding System on the operation of
public housing authorities
Underway
The cost-effectiveness of the section 8 lower income housing
assistance program
Underway
Social and economic costs of various loan management and
property disposition techniques
Underway
Evaluation of housing allowances
Underway
Impact of the Community Development Block Grant Program on
recipient communities
Recommended
by CVAD
Impact of the revised section 235 program on housing production,
housing consumption, and the general welfare of recipient
families
Recommended
by CVAD
Next in Importance:
Impact of the tandem plans on housing starts and the demand for
SAYS FORD
new homes
Underway
-62-
Evaluation Study
Status
Causes of excess maintenance requirements and rent delinquencies
in public housing projects
Underway
Evaluation of section 8 fair market rents
Underway
Access to housing in rural areas
Underway
Enforcement of title VIII of the 1968 HUD Act (Fair Housing)
and its impact on access to housing
Planned
Cost-effectiveness of HUD's contracting procedures under the
Flood Insurance Program
Recommended
by CVAD
Performance of nonprofit sponsors in HUD's housing programs
Recommended
by CVAD
Impact of the section 202 housing for the elderly loan
program on housing opportunities for elderly persons
Recommended
by CVAD
Important, but could be deferred:
Evaluation of regional offices and their place in HUD's field
organization
Underway
Relationship of HUD's research contracting to the Department's
mission
Underway
Evaluation of the Target Projects Program
Underway
Use of community development block grant funds by recipients,
and impact of HUD requirements on localities
Underway
-63-
Evaluation Study
Status
Evaluation of section 223 (f) mortgage insurance (existing
multifamily projects)
Underway
Impact of the section 701 comprehensive planning program
Recommended
by CVAD
Impact of HUD property and construction standards on housing
costs
Recommended
by CVAD
Impact of HUD's mortgage-backed securities program on the
supply of mortgage credit
Recommended
by CVAD
Worth undertaking as resources permit:
Use of incentive fees under the property disposition program
Underway
Evaluation of urban homesteading
Underway
Evaluation of alternatives for increasing reservation Indian
and Alaska native housing opportunities
Recommended
by CVAD
Impact of paying mortgage insurance claims with debentures
rather than cash
Recommended
by CVAD
-64-
FY 1978 Spring Planning Review
Department of Housing and Urban Development
Management by Objectives
Background
HUD has a highly developed MBO process which is titled the Goals Manage-
ment System. It includes six broad Departmental goals and seven levels
of objectives ranging from Presidential and Secretarial to field office,
the latter having been developed very recently. Attachment A gives
examples of the type and number of objectives at each level.
HUD has developed a two-tier tracking system to monitor these objectives.
The first tier is a Headquarters Operating Plan (blue book) which became
operational in FY 1975. This includes a monthly Secretarial Status
Report which summarizes accomplishments on major goals and objectives
and a more detailed and somewhat cumbersome quarterly status report
which tracks all central office objectives, tasks and milestones. The
second tier which became operational in FY 1976 are the quarterly
regional operating plans (yellow books) for each of the ten regional
offices. These plans include regional management objectives, program
objectives and resource allocation plans for all programmatic activities.
HUD intends to place particular emphasis on the further development of
the resource allocation plans in FY 1977.
Status
HUD's process is well developed and is actively used by the Secretary
to track major objectives. However, use of the system by Assistant
Secretary's and regional offices varies considerably.
Deputy Undersecretary Wallace has already developed a schedule for
the establishment of FY 77 objectives and operating plans. This
schedule, as well as the general direction of the system for FY 1977,
R. FORD
-65-
was endorsed at a recent all day management planning meeting held
by the Secretary with Assistant Secretarys and key staff members.
The extension of the system to regional and area offices has been
a painful process but it does appear to have improved communications
between the central office and the field.
The broader Departmental Management Initiatives which are an out-
growth of the MBO system have resulted in streamlining of some
programs and procedures.
The MBO process has been closely linked to a new budget issue
identification process which is somewhat similar to OMB's spring
planning review.
A key to the success of the HUD system has been the appointment
of an active Deputy Undersecretary for Management who has access to
and support from the Secretary and who is committed to both an
effective management system and timely resolution of important
policy and management issues.
Quality Of Objectives
A list of HUD's Secretarial objectives is included in Attachment B. On
the whole, HUD's system includes valuable and meaningful objectives
particularly in the evaluation area. However, there are some superficial
or marginally important objectives at the Assistant Secretarial level
which HUD should try to eliminate in order that the system continue to
reflect the true activities and priorities of the Department (e.g.,
complete improvement of State intergovernmental planning; develop
alternative coordination models that can be used by State/local officials.)
Performance On Objectives
FORD
The process has been credited with several accomplishments. For example,
-66-
the New Community Administration had considerably delayed developing
workout and phase-out plans for new communities in trouble. Since the
identification of this as a major problem, workout plans have been
developed for eleven communities and one project has been foreclosed.
Other examples include improved single family processing time,
initiation of an evaluation of the Performance Funding System, early
identification and correction of problems in meeting Indian housing
goals, and timely performance of CDBG activities. However, increasing
numbers of objectives are behind schedule and are listed as "major"
or minor problems in the Departments status reports. Of particular
concern are those which continue to be identified as problems with no
visible evidence of improvement such as equal opportunity, multi-
family sales goals, categorical close-outs and eliminating lead based
paint hazard. An additional concern relates to some objectives which
have broad titles but which further analysis indicates are much more
limited in scope such as the impact evaluation of CDBG.
System Problems
The two-tier tracking system which is run by two different offices
appears to involve a great deal of paperwork and some program staff
feel that it is confusing. The result is a tendency in some areas for
the system to become a "paper pushing" exercise by the staff rather than
a meaningful management process. The effect is that the objectives are
sometime not fully representative of work being performed or of the
priorities of activities. This does not negate the fact that the system
as a whole is one of the most effective management systems in the
Federal Government but it is a problem that should be dealt with.
Outlook
In the next year, HUD should focus its efforts in two areas:
FORD
1. Improving performance on problem objectives many of which are
identified above.
-67-
2. Streamlining the process to improve its use by and usefulness to
Department managers including Assistant Secretaries and Regional
Administrators.
- -68-
STA
RE OF HUD'S
GOALS MANAGEMENT SYSTEM
march 31, 1976
PRESIDENTIAL THROUGH AREA OFFICE OBJECTIVES
Approximate Number of
Objectives at Each
Level
Organizational Level
Process 1251
CDBG Entitle-
Presidential
-----
ment apps. in
10*
an average of
55 days
Process 1251
Sell 59,488
CDBG Entitle-
single family
Secretarial
-----
ment apps. in
...
properties
60
an average of
55 days
Process 1251
Sell 59,488
Reduce large
Assistant
CDBG Entitle-
single family
Housing Author-
Secretarial
-- ---
ment apps. in
- - -
properties
ity vacancy
324
an average of
rates from
55 days
6.8% to 5.1%
Process 228
Sell 16,099
Reduce large
Implement
10 Regional Offices
CDBG Entitle-
single family
Housing Author-
sanctions for
(V- Chicago)
-----
ment apps. in
- - -
properties
ity vacancy
consumer
573
an average of
rates from
affairs
55 days
4.7% to 4.1%
offenders
Process 13
Sell 467
Reduce large
Implement
Assure staff re-
77 Field Offices
CD3G Entitle-
single family
Housing Author-
sanctions for
sources are con-
(Milwaukee)
-----
ment apps. in
-
properties
ity vacancy
consumer
sistent w/work-
4000
an average of
rates from
affairs
load by reducing
utilization of
55 days
4.0% to 1.8%
offenders
overhead
*Not formally designated as such
Objectives for Period Ending 6/30/76
FORD & LIBRARY GERALD
-69-
MAJOR SECRETARIAL OBJECTIVES
GOALS MANAGEMENT SYSTEM - QUICK LOOK STATUS AS OF 3/31/76
ALL OBJECTIVES THROUGH TRANSITION QUARTER UNLESS OTHERWISE NOTED
GCAL I - Promote Viable Communities
GOAL II - Provide for Decent Housing
CPD
HPMC
HM/Field
PDR
0
Evaluate future role of existing 701
0 Process 14,000 units of elderly housing
0 No more than 10% variation on TPP
0
Develop strategies for countering "down"
program
(Satis)
for 202
(Satis)
goals
(Minor P)
periods of housing production cycle
(Minor p)
0 Revise COBG regs, procedures and
0 Review 480 mortgagees
(Minor P)
0 Do not exceed s/f acquisitions of
forms
(Minor P)
45,790 (90%) and s/f defaults of
8 Evaluate future prospects for homeowner-
0 Implement the Coinsurance Program for
108,163 (2.13%) for 2nd half and
ship and make recommendations (Satis)
0 1st arnual report to Congress on CO8G
up to 11,000 units
(Minor p)
transition quarter
(Satis)
due 1/1/76
(Comp)
# Evaluate future financial market environ-
8 Simplify Section 8 procedures (Minor P)
0
Do not exceed m/f defaults of 631
ment (federal and private) and the
0 Inform gov't officials and public on
(4.54%) and a m/f claim rate of 3.99%
adequate flow of credit
(Minor P)
COBG effectiveness
(Minor P)
HPMC/Field
for 2nd half of FY'76
(Satis)
8 Process 95% of all s/f apps. for condi-
o
Sell 59,488 S/F properties by
, Evaluate the impact of unsubsidized FHA
0 Public/private leveraging
for maximum
tional commitment in 5 days or less
6/30/76
(Satis)
s/f activities
(Satis)
economic impact from COBG
(Major P)
(Minor p)
8. Sell 145 m/f projects by 6/30/76
0 Develop Presidential position paper on
(Major P)
*
. Procedures for close-out of urban
0 Process up to 413 firm commitments on
Future Role of FHA
(Mincr P)
renewal projects
(Satis)
223(f) projects
(Satis)
0 Provide rental assistance on up to
0 Evaluate the impact of Sec. 8 (Minor P)
0 Bicentennial Program (Horizons on
Display)
0 Provide assistance on up to 290,000
110,000 units under Sec. 8 (Satis)
(Satis)
*
units under Section 8
(Major pl
0 Evaluate Direct Cash Assistance Experi-
8 Use $50 million in ACC authority to
CPD/Field
mental Program
(Satis)
0
Process 1346 entitlement apps. in an
0 Complete processing to firm commi tment
acquire HUD assisted housing (Satis)
average of 55 days
(Satis)
on 172 Sec. 236 apps.by 6/30/76(Minor P)
0 Obtain initial agreement on strategy for
GNMA
avoiding foreclosure on s/f and subsi-
8 Process 3481 CDBG discretionary
0
Provide 9,723 units of Indian Hous ing
6 Help stimulate economic recovery
dized m/f properties due to economic
by 6/30/76
(Majorp)
through guarantees of $12.6 billion
balances apps. in an average of 55
reasons
(Satis)
in mortgage backed securities
days
(Satis)
0 Award contract reservations for up
(370,000 units)
(Minor p)
0
Evaluate the impact of the Performance
a Close-out 1677 categorical grants and
to 75,000 units of Sec. 235 housing
Funding System
(Satis)
(Minor P)
0 Help stimulate economic recovery by
loans: (342 urban renewal: 72 model
cities; 1263 other)by 6/30/76 (Major P)
the purchase of $7.2 billion of mort-
. Develop a meaningful research program in
gages (219,100 units)
(Satis)
conjunction with the National Institute
FOR
of Building Sciences
(Minor P)
0 Evaluate nat'l impact of CDBG (Satis)
0 Extend authority under Emergency Home
Purchase Act to 6/30/76
(Comp)
# Implement initial phases of Solar Energy
NCA
Demonstration Program
(Satis)
6
Evaluate alternative approaches to
s Issue $3.0 billion in multifamily
Tandem commitments
New Communities
(Minor P)
(Minor P)
Evaluate effectiveness of the Tandem
Plan
(Satis)
0 Take action to support or phase out
existing New Communities
(Minor P).
GOAL III Achieve Equal Opportunity
GOAL IV Protect Consumer Interests
GOAL V Cope with Natural Disasters
GOAL VI Improve HUD Management
ED/Field
CARF
FIA
UM
*
8 Peduce inventory of Title VIII
Issue and enforce regulations for
0
Complete 924 Flood Insurance Rate
Assure the timely implementation of
the four initiatives included under
complaints open more than 150 days
mobile home safety standards(Minor P)
Studies
(Kinor P)
CMI-'75
(Minor P)
from 684 to 0 by 6/30/76
(Major.P)
KPMC/Field
ADM
# Reduce inventory of Title VI complaints
0 Complete resolution on up to 65,742
(Satis)
Complete the definition phase of the
open more than 180 days from 37 to 0
claims under 518(b)
by 6/30/76
(Major P)
Mortgage Accounting Program (HUDMAP)
(Satis)
PDR
8 Perform 194 Title VI compliance
Complete the study on condominium
reviews by 6/30/76
(Satis)
abuses and report to Congress (Comp)
PDR
Identify needs and options for
0
Develop suitable techniques for
providing timely data on housing and
Obtain 263 areawide affirmative market-
0
Major: P)
community development trends (Satis)
ing agreements by 6/30/75
eliminating the lead based paint
hazard
(Major P)
0
Increase the deposit of HUD funds in
minority banks to $18.35 million
CARF
(Minor P)
Implement Consumer Representation
Plan
(Satis)
Candidates for Presidential levèl
1.
objectives identified as such by HUD
The Presidential objective would
FORD
and OMB staff.
be to develop strategies for
handling the multi-family default
and acquisition problems.
GERALD
LIBRARY
-70-