Source: https://www.everycrsreport.com/files/20170221_R44304_d4d4f4c4136e9d3e70356b1b34b15883625b6deb.html
Timestamp: 2020-08-08 00:51:42
Document Index: 749196477

Matched Legal Cases: ['§702', '§982', '§2110', '§703', '§3601', '§3601']

Updated February 21, 2017 (R44304)
The 114th Congress considered a number of housing-related issues against this backdrop. Some of these issues were related to housing for low-income individuals and families, including appropriations for housing programs in a limited funding environment, proposed reforms to certain rental assistance programs administered by the Department of Housing and Urban Development (HUD), debate over funding for two affordable housing funds (the Housing Trust Fund and the Capital Magnet Fund), and the possible reauthorization of the main program that provides housing assistance to Native Americans. Congress also took the occasion of HUD's 50th anniversary to reflect on the department's role through hearings and other actions.
Congress also deliberated on certain housing finance-related issues, including possible targeted changes to Fannie Mae and Freddie Mac, oversight of mortgage-related rulemakings, and issues related to the future and financial health of FHA.
Two fair housing issues were also active in the 114th Congress. HUD recently released a new rule updating certain HUD grantees' responsibilities to "affirmatively further" fair housing. Separately, the Supreme Court issued a decision affirming that disparate impact claims are allowable under the Fair Housing Act. Congress expressed interest in both of these developments.
As in recent years, the 114th Congress considered several housing-related tax provisions as part of a broader tax extenders bill. These housing-related provisions included extensions of the exclusion for canceled mortgage debt, the deduction for mortgage insurance premiums, and provisions related to the low-income housing tax credit.
The 114th Congress considered a number of housing-related issues against this backdrop. Some of these issues reflected larger questions about policies that could accelerate recovery in the housing and mortgage markets or factors that could be hampering recovery. For example, Congress considered legislation to modify certain mortgage-related laws and regulations that were put in place during the aftermath of the housing downturn, in response to concern that these new rules may be impeding access to mortgage credit. However, some feel that changes to the rules could weaken consumer protections. Congress also considered certain changes related to two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, as well as other housing finance-related issues.
In addition, the 114th Congress considered a number of issues related to affordable rental housing and assisted housing programs administered by the Department of Housing and Urban Development (HUD). These issues included appropriations for housing programs in a limited funding environment, certain reforms to some HUD-assisted housing programs, the reauthorization of the main program of housing assistance for Native American tribes, and debate about GSE contributions to two affordable housing funds that were created in 2008 but received GSE funding for the first time beginning in 2016.
Additional issues of active interest to Congress included oversight of HUD on the occasion of the department's 50th anniversary, issues related to enforcement of the Fair Housing Act, and the status of certain housing-related tax provisions.
This report begins with an overview of housing and mortgage market conditions to provide context for the housing issues that the 114th Congress considered, and then discusses major housing issues that were active during the Congress. This report is meant to provide a broad overview of the issues and is not intended to provide detailed information or analysis. However, it includes references to other, more in-depth CRS reports on the issues where possible.
The housing market turmoil that began around 2007 was characterized by, among other things, falling house prices that left many households with little or no equity in their homes. As shown in Figure 1, on a year-over-year basis house prices increased from 2000 to mid-2007 then declined for several years through the end of 2011. House prices began to rise again nationally in 2012. They continued to rise throughout 2015 and 2016, with the rate of increase remaining relatively consistent since the beginning of 2015. While rising house prices are beneficial for current homeowners, and especially for households whose home values fell to levels below the amount they owed on their mortgages, they can also make it less affordable for prospective homebuyers to purchase homes.
With home prices increasing on a national basis, the number of households estimated to have negative equity has been falling. As shown in Figure 2, in the third quarter of 2016 just over 6% of all mortgaged properties were estimated to have negative equity. In comparison, in the second quarter of 2011 the negative equity share was estimated at about 25%.
Q1 2011-Q3 2016
Source: Figure created by CRS based on data in CoreLogic's Equity Report, Third Quarter 2016.
Although rising home prices have helped many households regain equity, it is estimated that over 3 million homes with a mortgage remain in negative equity across the country.2 Furthermore, although the overall rate of negative equity is improving, negative equity is not evenly distributed across the country. In particular, negative equity remains persistently high in many low-income and minority neighborhoods. Lower-priced homes also continue to experience negative equity at higher rates than higher-priced homes.3 This suggests that many areas are not experiencing housing market recovery at the same pace as other areas.
Partly because of rising house prices and decreasing negative equity, mortgage foreclosure rates have also been consistently declining. As shown in Figure 3, the share of mortgages in the foreclosure process decreased to about 1.5% in the fourth quarter of 2016. This is notably lower than the peak of over 4.5% in 2010 and the lowest rate of mortgages in the foreclosure process since the second quarter of 2007. In comparison, in the early 2000s foreclosure rates generally ranged between 1% and 1.5%.
Figure 4 shows the annual number of existing home sales for each year from 1995 through 2016. Existing home sales during that period peaked in 2005 at over 7 million before falling to a low of about 4.1 million in 2008. In 2016, there were nearly 5.5 million existing homes sold, the highest number of existing home sales since 2006 and similar to the numbers seen in the late 1990s and early 2000s.
Source: Figure created by CRS using data from HUD's U.S. Housing Market Conditions report for the second quarter of 2016, available at https://www.huduser.gov/portal/ushmc/hd_home_sales.html, and the National Association of Realtors Existing Home Sales Overview Chart for Printing at https://www.nar.realtor/topics/existing-home-sales.
Figure 5 shows the annual number of new home sales for each year from 1995 through 2016. Though the number of new home sales has begun to increase somewhat, reaching over 560,000 in 2016, new home sales remain well below the levels seen in the late 1990s and early 2000s, when they tended to be between 800,000 and 1 million per year.
Housing starts for single-family homes also fell during the housing market turmoil, reflecting decreased home purchase demand. Nevertheless, as housing markets have started to stabilize, there have been signs that housing starts are also beginning to increase. As shown in Figure 6, which shows the seasonally adjusted annual rate of housing starts for each month from January 1995 through December 2016, the seasonally adjusted annual rate of housing starts in one-unit residential buildings was generally between 1.2 million and 1.8 million each month from 2000 through 2007. Since that time, however, the seasonally adjusted annual rate of housing starts fell to a rate of between 400,000 and 600,000 for each month until about 2013. More recently, housing starts have been trending upward, and were close to or exceeded a seasonally adjusted annual rate of over 700,000 for much of 2015 and 2016. However, they remained well below the levels seen throughout the 1990s and early 2000s.
Source: Figure created by CRS using data from the U.S. Census Bureau, New Residential Construction Historical Data, http://www.census.gov/construction/nrc/historical_data/. Data are through December 2016.
Relatively low numbers of mortgage originations have persisted despite continued low mortgage interest rates. As shown in Figure 8, the average interest rate on a 30-year fixed-rate mortgage has been under 5% since May 2010 and was under 4% for most of 2012 and the first half of 2013.12 Interest rates started to rise slowly in the second half of 2013 but generally remained below 4.5%. Since then, interest rates again declined and were below 4% for much of 2015 and 2016.
January 1999-December 2016
As shown in Figure 9, nearly two-thirds of the total dollar volume of mortgages originated in the first three quarters of 2016 were either guaranteed by a federal agency such as FHA or VA (21%) or backed by Fannie Mae or Freddie Mac (44%). Over one-third of the dollar volume of mortgages originated was held in bank portfolios (34%), while less than 1% was securitized in the private market. The share of new mortgage originations, by dollar volume, insured by a federal agency or guaranteed by Fannie Mae or Freddie Mac has fallen from a high of nearly 90% in 2009. Nevertheless, the share of mortgage originations with federal mortgage insurance or a Fannie or Freddie guarantee remains elevated compared to the 2002-2007 period, when FHA and VA mortgages constituted a very small share of the mortgage market and the GSE share ranged from about 30% to 50%.13
Source: Figure created by CRS based on Inside Mortgage Finance data as reported in Urban Institute, Housing Finance Policy Center, Housing Finance at a Glance, January 2017, p. 8.
As shown in Figure 10, the share of renters has been increasing in recent years, reaching close to 37% of all occupied housing units in 2016. This was the highest share of renters since the early 1990s. The homeownership rate has correspondingly decreased, falling from a high of 69% in 2004 to just over 63% in 2016.14
In addition to an increase in the share of households who rent, the overall number of renter households has been increasing as well. In 2016, there were over 43 million occupied rental housing units, compared to 40 million in 2013 and fewer than 36 million in 2008.15
In general, the increase in renters has led to a decrease in rental vacancy rates in many, though not all, areas of the country.16 This has been the case in many areas even though the supply of rental housing has been increasing through both new multifamily construction and the conversion of some previously owner-occupied single-family units to rental housing.17 In many cases, the increase in the rental housing supply has not kept up with the increase in rental housing demand.
As shown in Figure 11, on a national basis the rental vacancy rate was over 10% in most quarters from 2008 through 2010. Since then, the rate has steadily declined, reaching about 8% at the end of 2013 and 7% at the end of both 2014 and 2015. At the end of 2016, the rental vacancy rate was 6.9%.18
Q1 2000-Q4 2016
Decreasing vacancy rates tend to lead to an increase in rents. Harvard University's Joint Center for Housing Studies reports that rents have generally been increasing in recent years at a rate that outpaces inflation.19 Rising rents can contribute to housing affordability problems, particularly for households with lower incomes.
The number of cost-burdened renter households increased to 21.3 million, compared to 20.8 million in 2013 and 20.6 million in 2012. This represents close to half of all households who rent.20 Not surprisingly, cost burdens are more common among lower-income households. Minority households are more likely to be cost-burdened, and affordability problems are particularly prevalent in higher-cost housing markets.21 Figure 12 shows the number of renter households with moderate or severe cost burdens in 2014 and selected previous years.
Furthermore, according to HUD, 7.7 million renters were considered to have "worst-case housing needs" in 2013 (the most recent data available).22 Households with worst-case housing needs are defined as renters with incomes at or below 50% of area median income who do not receive federal housing assistance and who pay more than half of their incomes for rent, live in severely inadequate conditions, or both.23 The 7.7 million households with worst-case housing needs in 2013 was a decrease from 8.5 million in 2011, but it was 30% higher than the 6 million households with worst-case housing needs in 2007.24
A number of the housing issues that the 114th Congress considered had to do with federally assisted housing programs that are intended to provide affordable housing for eligible lower-income households. Most federal housing programs are administered by HUD.
HUD was created as a Cabinet-level agency by the Housing and Urban Development Act of 1965, which was signed into law by President Lyndon B. Johnson on September 9, 1965. HUD,25 stakeholders,26 researchers,27 the press,28 and Members of Congress29 took the opportunity of HUD's 50th anniversary to reflect on and assess the function of the department to-date and to consider its role in the future. In honor of the anniversary, the chairman of the House Financial Services Committee put out a call for "all interested advocates, organizations, and ordinary citizens to join the effort to modernize the delivery of federal housing assistance and submit their ideas on how to restructure and rebuild HUD for today's generation."30 Subsequently, the committee held a hearing entitled "The Future of Housing in America: 50 Years of HUD and its Impact on Federal Housing Policy."31
More than three-quarters of HUD's appropriations are devoted to three programs: the Section 8 Housing Choice Voucher (HCV) program, Section 8 project-based rental assistance, and the public housing program. Funding for Section 8 vouchers makes up the largest share of HUD's budget, accounting for nearly half. The cost of the Section 8 voucher program has been growing in recent years. This is in part because Congress has created more vouchers each year over the past several years (largely to replace units lost to the affordable housing stock in other assisted housing programs or to provide targeted assistance for homeless veterans), and in part because the cost of renewing individual vouchers has been rising as gaps between low-income tenants' incomes and rents in the market have been growing.32
The cost of Section 8 project-based rental assistance has also been growing in recent years as more and more long-term rental assistance contracts on older properties expire and are renewed, requiring new appropriations.33 Public housing, the third-largest expense in HUD's budget, has, arguably, been underfunded (based on studies undertaken by HUD of what it should cost to operate and maintain public housing)34 for many years. As a result, there is regular pressure from low-income housing advocates and others to increase funding for public housing.
All of these considerations influenced the 114th Congress's consideration of HUD appropriations.
For more information about trends in HUD funding, see CRS Report R42542, Department of Housing and Urban Development (HUD): Funding Trends Since FY2002, by Maggie McCarty; for the current status of HUD appropriations and related CRS reports, see the CRS Appropriations Status Table.
The Section 8 Housing Choice Voucher program is HUD's largest direct housing assistance program for low-income families, both in terms of the number of families it serves (over 2 million) and the amount of money it costs (over $19 billion in FY2015, over 40% of HUD's appropriation). The program is administered at the local level, by public housing authorities (PHAs), and provides vouchers—portable rental subsidies—to very low-income families. They can use the vouchers to reduce their rents in the private market units of their choice (subject to certain cost limits). The program has been criticized for, among other issues, its administrative complexity—particularly income eligibility and rent policies—and growing cost.35
The public housing program has existed longer than either Section 8 program but is now smaller in size, with approximately 1 million units of low-rent public housing available to eligible low-income tenants. Public housing is owned by the same local PHAs that administer the Section 8 voucher program and those PHAs receive annual operating and capital funding from Congress through HUD. Much of the public housing stock is old and in need of capital repairs. According to the most recent study conducted by HUD, addressing the outstanding physical needs of the public housing stock would cost nearly $26 billion.36 The amount Congress typically provides in annual appropriations for capital needs has not been sufficient to address that backlog. In response, PHAs have increasingly relied on other sources of financing, particularly private market loans, to meet the capital needs of their housing stock, including by converting their public housing properties to Section 8 assistance through the Rental Assistance Demonstration.37 Like the two Section 8 programs, the public housing program has been criticized for being overly complex and burdensome to administer, especially in light of recent funding reductions.
No major reform legislation was considered in the 113th Congress. However, the President requested, in his annual budget submissions, that Congress enact several of the less controversial administrative reforms (e.g., those related to income calculation and verification) as part of the annual appropriations acts. The FY2014 Omnibus funding measure (P.L. 113-76) and the FY2015 HUD appropriations law (P.L. 113-235) included several of the requested administrative reforms.38 The FY2016 appropriations law (P.L. 114-113) contained a more controversial provision: an expansion of the MTW demonstration by 100 agencies.
Early in the 114th Congress, several relatively noncontroversial administrative reform bills were approved by the House, including the Tenant Income Verification Relief Act of 2015 (H.R. 233), to allow PHAs and owners of federally assisted housing to recertify fixed-income families' incomes only once every three years instead of annually; and the Preservation Enhancement and Savings Opportunity Act of 2015 (H.R. 2482), to allow the owners of certain Section 8 project-based rental assistance properties to access property reserves, subject to certain limitations. These bills, and others, were enacted into law as part of the Surface Transportation Reauthorization and Reform Act of 2015 (P.L. 114-94).39
Late in the first session of the 114th Congress, the chairman of the Housing and Insurance Subcommittee of the House Financial Services Committee introduced the Housing Opportunity through Modernization Act of 2015 (H.R. 3700), which was co-sponsored by the ranking member of the subcommittee. It included a number of reforms related to administrative streamlining—including changes to income definition and review policies for all three primary assisted housing programs, changes to Section 8 voucher inspection procedures, and increased flexibility in public housing funding—that were similar to consensus provisions from earlier reform bills, among other provisions. It did not include some of the more controversial provisions from prior reform bills, such as a further expansion of the MTW demonstration. It was approved unanimously by the House on February 2, 2016. The Senate approved the bill via unanimous consent on July 14, 2016, and President Obama signed it into law on July 29, 2016 (P.L. 114-201). For more information on H.R. 3700, see CRS Report R44358, Housing Opportunity Through Modernization Act (H.R. 3700), by Maggie McCarty, Libby Perl, and Katie Jones.
Although the 113th Congress considered reauthorization legislation, none was enacted. In the 114th Congress, both the House and the Senate again considered NAHASDA reauthorization bills. The House passed a NAHASDA reauthorization bill (H.R. 360) in March 2015, while in the Senate a different bill (S. 710) was reported out of committee.
Among other things, both H.R. 360 and S. 710 would have reauthorized the NAHBG and the Native Hawaiian Housing Block Grant, which provides housing assistance to low-income Native Hawaiians, as well as two home loan guarantee programs that benefit Native Americans and Native Hawaiians, respectively. Both bills would have also made some changes to NAHBG program requirements, authorized a demonstration program intended to increase private financing for housing activities in tribal areas, and authorized a program to provide housing vouchers and supportive services for Native American veterans who are homeless or at risk of homelessness.40 In response to concerns about certain tribes not spending their NAHBG funds in a timely fashion, both bills also included a provision to reduce funding to tribes with annual allocations of $5 million or more who have large balances of unexpended NAHBG funds. (The vast majority of tribes receive annual allocations below $5 million.)
Although the House and Senate bills were similar in many ways and addressed many of the same issues, they were not identical. Each bill contained some provisions not included in the other, and in some cases the bills addressed the same issue in different ways. Furthermore, while tribes and Congress are generally supportive of NAHASDA, there has been some disagreement in Congress over specific provisions or policy proposals that have been included in reauthorization bills. Ultimately, no NAHASDA reauthorization legislation was enacted during the 114th Congress.
For more information on NAHASDA and the NAHBG in general, see CRS Report R43307, The Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA): Background and Funding, by Katie Jones. For more information on reauthorization efforts in the 114th Congress, see CRS Report R44261, The Native American Housing Assistance and Self-Determination Act (NAHASDA): Issues and Reauthorization Legislation in the 114th Congress, by Katie Jones.
The Housing Trust Fund is a HUD program that is intended to provide dedicated federal funding for affordable housing activities, with a focus on the production of rental housing for very low- and extremely low-income households. The funding is provided to states via formula.
The Capital Magnet Fund is a Treasury program, administered by the Community Development Financial Institutions (CDFI) Fund, that is intended to provide competitive funding for affordable housing activities to CDFIs and other eligible nonprofit organizations.41 The Capital Magnet Fund can be used for a broader range of affordable housing activities than the Housing Trust Fund.
In December 2014, Fannie Mae's and Freddie Mac's regulator directed them to begin setting aside funds for the Housing Trust Fund and Capital Magnet Fund for the first time during calendar year 2015.42 The first contributions were transferred to the funds in early 2016. HUD announced the first Housing Trust Fund allocations to states in May 2016,43 and the CDFI Fund announced competitive grant awards through the Capital Magnet Fund in September 2016.44
These affordable housing funds, particularly the Housing Trust Fund, have been controversial. Supporters argue that these funds are necessary to address a pressing need for an increased supply of affordable rental housing for the poorest households.45 Supporters also argue that a benefit of these programs is that they are funded outside of the annual appropriations process, meaning that they are less likely to compete with other housing programs for funding.46 Critics raise a number of concerns, including arguing that these funds are duplicative of other housing programs and that providing funding outside of the appropriations process limits Congress's role in overseeing them.47 Further, opponents argue that Fannie Mae and Freddie Mac should not be diverting funds to the Housing Trust Fund or Capital Magnet Fund while they remain in conservatorship, and that the programs could become "slush funds" for favored political groups despite limitations on the uses of funds.48
Given these concerns, some Members of Congress have sought to stop Fannie Mae and Freddie Mac from funding the Housing Trust Fund and/or the Capital Magnet Fund. For example, in the 114th Congress, the Pay Back the Taxpayers Act (H.R. 574) would have prohibited Fannie Mae and Freddie Mac from contributing to either fund while Fannie and Freddie remain in conservatorship. The bill was not enacted. Additionally, the FY2016 HUD appropriations bill that passed the House (H.R. 2577) would have diverted any funds intended for the Housing Trust Fund (but not the Capital Magnet Fund) in FY2016 to HUD's HOME program instead.49 That provision was not included in the final FY2016 HUD appropriations law.
For more information on the Housing Trust Fund, see CRS Report R40781, The Housing Trust Fund: Background and Issues, by Katie Jones.
Other issues that the 114th Congress considered were related to the housing finance system and the ability of households to obtain mortgages.
Fannie Mae and Freddie Mac are two government-sponsored enterprises (GSEs) that were created by Congress to support homeownership. By law, Fannie Mae and Freddie Mac cannot make mortgages; rather, they are restricted to purchasing mortgages that meet certain requirements from lenders.50 Once the GSEs purchase a mortgage, they either package it with others into a mortgage-backed security (MBS), which they guarantee and sell to institutional investors, or retain it as a portfolio investment.
In 2008, during the housing and mortgage market turmoil, Fannie Mae and Freddie Mac entered voluntary conservatorship overseen by their regulator, the Federal Housing Finance Agency (FHFA). As part of the legal arrangements of this conservatorship, the Treasury Department contracted to purchase up to $200 billion of new senior preferred stock from each of the GSEs. To date, Treasury has purchased a total of nearly $188 billion of senior preferred stock from the two GSEs and has received a total of $251 billion in dividends.51 These funds become general revenues. Since June 2012, neither GSE has needed additional support from Treasury.
There was less movement toward comprehensive housing finance reform in the 114th Congress. However, the 114th Congress considered legislation that would make certain specific, more-targeted reforms to the GSEs. Some of these proposed reforms focused on the terms of the GSEs' conservatorship, while others attempted to advance some of the larger goals of housing finance reform, such as increasing the role of private capital in the housing finance system. Specifically, legislation was introduced in the 114th Congress to restrict the use of the GSEs' dividends paid to Treasury to offset other spending, prevent Treasury from disposing of the senior preferred stock without enabling legislation, and limit executive compensation at the GSEs. Legislation was also proposed to mandate that the GSEs share mortgage risks with the private sector, and to encourage improvements to the secondary mortgage market through a common platform for mortgage securitization. Each of these issues is discussed in turn.
When the GSEs purchase a mortgage, they charge the seller a fee for guaranteeing timely payment of principal and interest to the ultimate investor. Unless offset by reduced mortgage purchases or increased losses due to foreclosure, increasing guarantee fees increases GSE profits.52 Under the terms of Treasury's support agreements, all of the GSEs' profits from whatever sources53—including those arising from increased guarantee fees—are paid as dividends to Treasury.
In recent years, Congress has sometimes used, or proposed to use, a portion of the increases to these fees as offsets for other types of government spending. In particular, the Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) directed FHFA to increase the GSEs' guarantee fees through 2021 and use the increase to offset the cost of extending the payroll tax cut. More recently, other bills have proposed extending the guarantee fee increase as a "pay for" to offset spending, though legislation that would do so has not been enacted.54 Some have opposed the use of GSE fees to fund other activities, arguing that raising fees unnecessarily increases costs for mortgage borrowers. Others have raised concerns that the ability to use GSE fees as offsets for other spending could reduce enthusiasm for broader housing finance reform.
The Financial Regulatory Improvement Act of 2015 (S. 1484)55 would have prohibited the use of the GSEs' guarantee fees in scoring appropriations under the Congressional Budget Act of 1974 (P.L. 93-344).56 The bill contained two exceptions. First, the fees could have been scored if they resulted from the disposition of the senior preferred stock. Second, the fees could have been scored if the proceeds were used to finance reforms of the secondary mortgage market.57
Fannie Mae's and Freddie Mac's support agreements with Treasury require the GSEs to reduce their capital buffer each year until it is eliminated on January 1, 2018. Both FHFA Director Melvin L. Watt58 and Fannie Mae President and CEO Timothy J. Mayopoulos59 have said that after January 1, 2018, any losses would require the GSEs to draw down support agreement funds at Treasury. Fannie Mae has $117.6 billion60 and Freddie Mac has $140.5 billion61 available to draw from Treasury under the support agreement.
The Consolidated Appropriations Act, 2016 (P.L. 114-113) included provisions that restrict the Secretary of the Treasury from disposing of the senior preferred stock unless future legislation authorizing such action is signed into law.62 This could give Congress input into the future of the GSEs.
In July 2015, FHFA approved Fannie Mae's and Freddie Mac's requests to raise the annual target compensation of their chief executive officers to $4 million from $600,000. The Equity in Government Compensation Act of 2015 (P.L. 114-93), enacted in November 2015, reduced the maximum executive compensation to $600,000.
In 2012, FHFA directed Fannie Mae and Freddie Mac to develop programs to share mortgage credit risk with the private sector, which would reduce the risk they impose on the federal government. Both of the GSEs have developed programs under which they, in effect, purchase insurance from the private sector.63 S. 148464 would have encouraged these programs by codifying them.
Fannie Mae and Freddie Mac each issue their own MBS, which differ from each other. FHFA has determined that both GSEs' computer systems supporting the MBSs must be modernized and that it would improve the efficiency of the secondary mortgage market if the GSEs adopted a common MBS. This MBS system modernization is being developed by a jointly owned subsidiary known as Common Securitization Solutions (CSS). Freddie Mac issued MBS implementing the common securitization platform (CSP) release 1 in December 2016.65 Both GSEs are expected to issue MBS implementing CSP release 2 in 2018.66
S. 1484 would have directed FHFA to expand access to CSS to other private MBS issuers besides the GSEs.67 It would have required reports to Congress, revised the composition of the CSS board of directors, established a timetable for issuing the new type of MBS, and restricted the risks that CSS can take.
While each of the rules is different, the 114th Congress focused on several policy issues that are common among them. First, some are concerned about the regulatory burden lenders face in satisfying the new rules, especially small lenders.70 Others argue, however, that the benefits associated with the new regulations, such as enhanced protections for consumers and promoting stability in the housing finance system, justify the higher costs on lenders. Second, some in Congress question how the rules will affect credit availability for creditworthy borrowers. As discussed earlier in the "Overview of Housing and Mortgage Market Conditions" section, mortgage originations and home sales are at relatively low levels and mortgage credit is relatively tight compared to the early 2000s, and some argue that the new regulations have contributed to the slow recovery. Others contend, however, that the regulations are intended to prevent those unable to repay their loans from receiving credit and have been appropriately tailored to ensure that those who can repay are able to receive credit.
The 114th Congress considered these and other policy concerns in its oversight of the financial regulators through many different hearings and by acting on legislation. In the Senate, the Senate Banking Committee reported the Financial Regulatory Improvement Act of 2015 (S. 1484).71 S. 1484 encompassed a broad package of reforms to the financial regulatory system, including several sections that would have modified mortgage-related rulemakings. S. 1484 included provisions related to, among other things, the QM rule, appraisals, manufactured housing, and the Federal Home Loan Banks.72
In the House, the Financial Services Committee reported numerous pieces of legislation that would have also modified some of the mortgage-market rulemakings. The bills covered, among other things, manufactured housing, the QM rule, escrow accounts, mortgage servicing, and mortgage disclosures. Several of these bills passed the House, such as the Preserving Access to Manufactured Housing Act of 2015 (H.R. 650) and the Mortgage Choice Act of 2015 (H.R. 685). Many of the proposals to modify mortgage-related rulemakings that received floor or committee action were also included in the Financial CHOICE Act (H.R. 5983), a wide-ranging package of proposals that would have reformed many aspects of the financial system.73 The Financial CHOICE Act was reported by the Financial Services Committee on September 13, 2016.
For more information on some of the legislative proposals to modify mortgage-related rulemakings in the 114th Congress, see CRS Report R44035, "Regulatory Relief" for Banking: Selected Legislation in the 114th Congress, coordinated by Sean M. Hoskins.
FHA is intended to be self-supporting: fees paid by borrowers are meant to cover the costs of defaults. However, for the last several years there have been concerns about FHA's finances. By law, FHA is required to maintain a capital ratio of 2%. The capital ratio fell below 2% in FY2009 and remained below that level until it again reached the 2% threshold at the end of FY2015.74 Concerns about FHA's finances culminated when FHA received a mandatory appropriation from Treasury at the end of FY2013 to ensure that it had sufficient funds to cover all of its anticipated future costs. Since that time, FHA's finances have improved (as evidenced by the capital ratio again reaching the 2% threshold), although concerns remain.
For more information on FHA-insured mortgages in general, see CRS Report RS20530, FHA-Insured Home Loans: An Overview, by Katie Jones. For more information on FHA's financial status, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund), by Katie Jones.
Two issues related to fair housing have also prompted congressional interest and were active during the 114th Congress.
While some in Congress praised the Supreme Court's decision,92 others have opposed the use of disparate impact claims in Fair Housing Act cases. In the 114th Congress, the Protect Local Independence in Housing Act of 2015 (H.R. 3145) was introduced in response to the Inclusive Communities ruling. It would have amended the FHA to make clear that the act does not protect against disparate impact discrimination. Furthermore, a floor amendment to the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2016 (H.Amdt. 337 to H.R. 2578), which passed the House, would have prohibited the Department of Justice from using funds appropriated by the bill from being used to enforce the FHA in a manner that relies on disparate impact discrimination. Similarly, a floor amendment to the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act, 2016 (H.Amdt. 428 to H.R. 2577), which passed the House, would have prohibited HUD from using funds appropriated by the bill "to implement, administer, or enforce" its disparate impact regulations. These provisions were not included in the final FY2016 appropriations law.
For more information, see CRS Report R44203, Disparate Impact Claims Under the Fair Housing Act, by David H. Carpenter.
Under the AFH, program participants are to assess their jurisdictions and regions for fair housing issues, specifically, areas of segregation or lack of integration, racially or ethnically concentrated areas of poverty, significant disparities in access to opportunity, and disproportionate housing needs. Program participants identify factors that contribute to these fair housing issues and set priorities and goals for overcoming the effects of the contributing factors. Program participants are to include strategies and actions to achieve their goals in their Consolidated and PHA Plans. HUD provides data for program participants to use in preparing their AFHs, and has developed tools that help program participants through the AFH process. In addition, the AFH requires public participation, and, unlike the AI, program participants must submit and have their AFHs approved by HUD.
In the 114th Congress, proposed legislation, including appropriations language, would have kept HUD from implementing the AFFH rule. For example, the Local Zoning Decisions Protection Act of 2015 (S. 1909) would have prohibited federal funds from being used to administer, implement, or enforce the AFFH rule, and from being used to maintain a database containing information on community racial disparities or disparities in access to housing. In addition, the House amended its version of the FY2016 Departments of Transportation and Housing and Urban Development appropriations act (H.Amdt. 399 to H.R. 2577) to prohibit funds appropriated by the bill from being used to carry out the AFFH rule. Such a provision was not included in the final FY2016 HUD appropriations law. Further, when the Senate considered the FY2017 HUD funding bill (also H.R. 2577), an amendment to withhold funding was proposed (S.Amdt. 3897), but ultimately tabled. Instead, an amendment was adopted that would have prevented HUD from using funds to direct grantees to make specific changes to their zoning laws as part of enforcing the AFFH rule (S.Amdt. 3970). As of the date of this report, FY2017 appropriations had not been finalized, and funding was provided pursuant to a continuing resolution.
For more information about the AFFH rule and HUD Fair Housing programs, see CRS Report R44557, The Fair Housing Act: HUD Oversight, Programs, and Activities, by Libby Perl.
The Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142), signed into law on December 20, 2007, temporarily excluded qualified canceled mortgage debt income that is associated with a primary residence from taxation. Thus, the act allowed taxpayers who did not qualify for one of several existing exceptions to exclude canceled mortgage debt from gross income. The provision was originally effective for debt discharged before January 1, 2010, and was subsequently extended several times.104 Most recently, the PATH Act extended the exclusion through the end of 2016. The act also allows for debt discharged after 2016 to be excluded from income if the taxpayer entered into a binding written agreement before January 1, 2017.
For a more detailed analysis of the canceled mortgage debt exclusion, see CRS Report RL34212, Analysis of the Tax Exclusion for Canceled Mortgage Debt Income, by Mark P. Keightley and Erika K. Lunder.
For more information on the LIHTC program, see CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit, by Mark P. Keightley and Jeffrey M. Stupak; and CRS Report RS22917, The Low-Income Housing Tax Credit Program: The Fixed Subsidy and Variable Rate, by Mark P. Keightley and Jeffrey M. Stupak.
The high levels of lead found in the City of Flint's drinking water, and the corresponding public health concerns raised by the elevated blood lead levels detected in children in Flint, raised a number of questions for federal policymakers. Many of these questions involve the state of the nation's water infrastructure.111 Others involve how best to identify and address environmental hazards in the home.
HUD's Office of Lead Hazard Control and Healthy Homes (OLHCHH) administers two grant programs designed specifically to address the hazards presented by lead-based paint in homes, an environmental risk for which the federal government has played a significant role in both regulation and remediation.112 HUD's OLHCHH also administers a smaller Healthy Homes Demonstration Grant program, which provides competitive grants to address housing-related hazards to children beyond lead-based paint. In light of the situation in Flint, several proposals were introduced in the 114th Congress to provide additional funding for the Healthy Homes program, although none were enacted.113
Sean M. Hoskins, Section Research Manager ([email address scrubbed], [phone number scrubbed])
CoreLogic, Equity Report, Third Quarter 2016, http://www.corelogic.com/research/negative-equity/corelogic-q3-2016-equity-report.pdf. There are multiple organizations that estimate negative equity using different methodologies. While different organizations might arrive at different estimates of the number of households with negative equity, all generally agree that negative equity has been decreasing in recent years on a national basis.
Urban Institute Housing Finance Policy Center, Housing Finance at a Glance: A Monthly Chartbook, January 2017, p. 8, http://www.urban.org/sites/default/files/publication/87471/january_chartbook_final.pdf.
HUD established a website devoted to the anniversary at http://hud50.hud.gov/.
For more information about the Section 8 project-based rental assistance program, see CRS Report RL32284, An Overview of the Section 8 Housing Programs: Housing Choice Vouchers and Project-Based Rental Assistance, by Maggie McCarty.
See Title LXXVII, Title LXXVIII, Title LXXIX, and Title LXXXI.
This program would be similar to the HUD-Veterans Affairs Supportive Housing (HUD-VASH) program administered by HUD and the Department of Veterans Affairs to assist homeless veterans. The FY2015 HUD appropriations law provided that a portion of FY2015 HUD-VASH funds be used for tribes. For more information on HUD-VASH, see CRS Report RL34024, Veterans and Homelessness, by Libby Perl.
For more information on CDFIs and the CDFI Fund, see CRS Report R42770, Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues, by Sean Lowry.
The HOME program is a flexible block grant that provides funds to states and eligible local governments to use for affordable housing activities that benefit low-income households. For more information, see CRS Report R40118, An Overview of the HOME Investment Partnerships Program, by Katie Jones.
One of the restrictions is that the mortgages must not exceed the conforming loan limit, which in 2016 was $417,000, except for certain high-cost areas where the limit cannot exceed $625,500, and Alaska, Hawaii, Guam, and the U.S. Virgin Islands where the limit is set by statute at 150% of the nationwide limit (this limit was also $625,500).
By law, the GSEs' businesses are limited to buying, selling, and holding mortgages. The preferred stock purchase agreements between each of the GSEs and Treasury are available at https://www.fhfa.gov/Conservatorship/Pages/Senior-Preferred-Stock-Purchase-Agreements.aspx.
§702 of S. 1484, and §982 of S. 1910. The FY2016 budget resolution, S.Con.Res. 11, §2110, contained a similar prohibition on using increased GSE profits to pay for spending increases.
If S. 1484 had become law, subsequent legislation could have modified these scoring rules.
§703 of S. 1484 contained similar provisions.
Freddie Mac, Freddie Mac Migrates Certain Securities Functions to CSP, December 8, 2016, at http://www.freddiemac.com/singlefamily/news/2016/1208_csp.html.
See CRS Report R43999, An Analysis of the Regulatory Burden on Small Banks, by Sean M. Hoskins and Marc Labonte.
S. 1484 was among the financial regulatory changes included in the version of the FY2016 Financial Services and General Government Appropriations Act (S. 1910) that was reported by the Senate Appropriations Committee. (See CRS Insight IN10278, Financial Regulatory Improvement Act Included in Senate Appropriations Bill, by Sean M. Hoskins, Marc Labonte, and Baird Webel.) The mortgage-related provisions discussed in the text were generally not included in the final FY2016 appropriations law.
For more information on the QM rule, see CRS Report R43081, The Ability-to-Repay Rule: Possible Effects of the Qualified Mortgage Definition on Credit Availability and Other Selected Issues, by Sean M. Hoskins; for more on appraisals, see CRS Report RS22953, Regulation of Real Estate Appraisers, by Edward V. Murphy; for more on manufactured housing, see CRS Report R44035, "Regulatory Relief" for Banking: Selected Legislation in the 114th Congress, coordinated by Sean M. Hoskins; for more on the Federal Home Loan Banks, see CRS Report RL32815, Federal Home Loan Bank System: Policy Issues, by Edward V. Murphy.
For an overview of the Financial CHOICE Act, see CRS Report R44631, The Financial CHOICE Act: Policy Issues, coordinated by Sean M. Hoskins.
42 U.S.C. §3601. The FHA, 42 U.S.C. §§3601 et seq., was originally enacted as Title VIII of the Civil Rights Act of 1968. For an overview of the FHA, see CRS Report 95-710, The Fair Housing Act (FHA): A Legal Overview, by David H. Carpenter and Jody Feder.
135 S. Ct. 2504 (2015). The Supreme Court had granted certiorari in two similar disparate impact cases in each of the previous two terms; however, in both those cases, the parties reached settlement agreements before the Court had the opportunity to issue an opinion on whether disparate impact claims are cognizable under the FHA. See Magner v. Gallagher, 132 S. Ct. 1306 (2012) and Twp. of Mt. Holly v. Mt Holly Garden Citizens in Action, Inc., 134 S. Ct. 636 (2013). See also CRS Legal Sidebar WSLG1151, Supreme Court Set to Review Fair Housing Case: Third Time's the Charm?, by Jody Feder.
For more information, see CRS Insight IN10446, Lead in Flint, Michigan's Drinking Water: Federal Regulatory Role, by Mary Tiemann.
For more information, see CRS Report RS21688, Lead-Based Paint Poisoning Prevention: Summary of Federal Mandates and Financial Assistance for Reducing Hazards in Housing, by Jerry H. Yen.
For example, H.R. 4479 would have provided $5 million to HUD's Healthy Homes program for addressing lead hazard reduction in drinking water in Flint and S. 2579 would have provided an extra $10 million for Healthy Homes, not directed specifically to Flint.