Two issues affecting housing were prominent in the 109 th Congress: the annual budget process and the effects of Hurricane Katrina. In addition to these overarching issues, other proposals addressed in the 109 th Congress included legislation to create a stronger regulator for Fannie Mae and Freddie Mac, and revisions to the FHA loan insurance program. Legislation was also introduced on behalf of the Administration to replace the Section 8 voucher program with a new block grant and to make major changes to the public housing program. In the area of the budget generally, as of the date of this report, Congress had not yet enacted an FY2007 spending bill for the Department of Housing and Urban Development (HUD). The President submitted his budget request on February 6, 2006. It included reductions for several programs, including the Community Development Block Grant (CDBG) program, and increases for other programs, such as the Section 8 voucher program. The Appropriations Committees in both houses held hearings on the budget in which Members from both parties expressed concern about several proposed funding reductions. The House of Representatives passed its version of the funding bill ( H.R. 5576 ) on June 14, 2006, and the Senate Appropriations Committee reported its version to the full Senate on July 26, 2006. Both versions of H.R. 5576 restored some of the proposed reductions in the President's budget, including funds for the CDBG program, the Section 202 Housing for the Elderly program, and the Section 811 Housing for the Disabled program. At the time of this update, Congress has enacted three continuing resolutions that provide funding for HUD; the third of these expires on February 15, 2007. After Hurricane Katrina, Congress enacted two FY2006 funding bills that provided funds to HUD for hurricane recovery and reconstruction ( P.L. 109-148 and P.L. 109-234 ). The majority of these funds was provided to the CDBG program in states affected by the hurricanes. Members of Congress have shown increasing concern about the size of the federal budget deficit and have sought ways to reduce it. The President has outlined a two-pronged approach for reducing the federal budget deficit: (1) increase revenues to the Treasury without raising taxes and (2) cut spending. In both FY2006 and FY2007, the President sought to keep discretionary spending growth below the rate of inflation. Although as of the date of this report, Congress had not passed an FY2007 spending bill, in FY2006 Congress kept growth below the rate of inflation. The majority of HUD's budget is discretionary funding, and many of its programs were targeted for funding reductions in the 109 th Congress. In his FY2006 budget, the President asked Congress to cut funding for several programs, including Housing for the Elderly and Disabled, and to eliminate funding for several others, including the Community Development Block Grant (CDBG) program, HOPE VI, and Brownfields redevelopment. Congress did not enact most of the requested cuts in FY2006. In FY2007, the President again requested large cuts for several HUD programs, including Housing for the Elderly and Disabled, and CDBG. The Administration criticized all of the programs slated for reduction for being ineffective or inefficient. Efforts to contain discretionary spending have also increased internal pressures in the HUD budget. The cost of the Section 8 voucher program is partially pegged to housing costs, which have risen faster than inflation. As a result, the voucher program requires increased funding to serve the same number of people. Since HUD's overall budget has been constrained, any increases in funding for the voucher program have come at the expense of other programs. Another internal HUD budget pressure involves the contribution of the Federal Housing Administration's (FHA) insurance program. FHA collects fees from participants, and excess fees are used by Congress to offset the cost of the HUD budget. FHA's market share has been dropping in recent years, and as a result, the amount of excess fees has been declining. With fewer fees to offset the cost of the HUD budget, the President and Congress have had to find additional dollars to keep the overall budget at the same level. In this budget environment, Congress faced pressure to reduce funding for HUD's programs in the FY2006 and FY2007 appropriations processes. At the same time, Congress continues to face pressure to maintain or increase funding for housing programs because of a growing concern about a perceived shortage of affordable housing. The U.S. Housing Act of 1949 established a national goal of "a decent home and a suitable living environment for every American family." Since the establishment of that goal, great progress toward it has been made, with record homeownership rates and the elimination of much of the slums and blight that plagued the first half of the last century. At the same time, problems remain. The bipartisan, congressionally mandated Millennial Housing Commission's 2002 final report identified "affordability" as "the single greatest housing challenge facing the nation." The Harvard Joint Center for Housing Studies found that between 2001 and 2004, the number of households paying more than 30% of their income toward housing increased from 31.3 million to 35 million. While affordability is the overarching concern, different challenges face owners and renters. Although the housing market is beginning to show signs of slowing, an unprecedented U.S. housing boom led to record housing prices again in 2005. Home equity stood at $11.2 trillion in 2005, up from $10 trillion in 2004, and it is estimated that the wealth effect from rising housing prices generated one-third of the growth in consumer spending that year, helping to buoy the economy. Homeownership rates slipped just slightly from their previous high in 2004, from 69% to 68.9% in 2005. And minorities, who have consistently lagged behind whites in homeownership rates, have made some gains. Between 1995 and 2005, the percentage of minority homeowners increased from 43.7% to 53.1%; during the same period, the percentage of white homeowners increased from 70.9% to 75.8%. Despite this positive news, fears about the health of the housing market and the sustainability of recent homeownership gains are growing. Speculation about a housing "bubble" has permeated local and national real estate news. Former Federal Reserve Chairman Alan Greenspan, in testimony before the Joint Economic Committee on June 9, 2005, noted that, while he did not believe that the U.S. was experiencing a national housing bubble, home prices in some markets seemed to have risen to unsustainable levels. The pace of future interest rate increases, the health of the economy, and the rate of job growth will all play an important role in determining the pace of future housing price appreciation. More serious market corrections could occur if speculators begin to fear the end of the boom has arrived. Soaring home prices have also resulted in a proliferation of exotic and potentially risky mortgage products that make the entry into homeownership in these hot markets more affordable. Loans for more than the value of the home, interest-only loans, and various forms of adjustable rate mortgages have all become options for households buying high-priced homes they could not otherwise afford. At the lower end of the market, relaxed credit standards and the proliferation of subprime loans have expanded the pool of first-time homebuyers to include families with little or no cash and with limited or blemished credit histories. While all of these practices have helped to increase the national homeownership rate, they come with repayment risks. If interest rates soar, buyers with adjustable rate loans and interest-only loans will be in for payment shocks, and some might find themselves at risk of default. If the economy falters and there are job losses, some low- and moderate-income families could be at risk of default if they become unemployed. A small but growing number of low- and moderate-income homeowners are already considered severely "cost-burdened," meaning that they are spending half or more of their incomes on housing. In 2004, 8.4 million renter households were severely cost-burdened (paying more than 50% of their income toward housing), an increase of more than 1 million from 2001. While moderate-income renters are not immune from severe rent burdens, low-income renters face the greatest burdens; more than 86% of severely cost-burdened renters were in the bottom quintile of the income distribution. When low-income families pay such a large portion of their incomes for housing, they have little left to meet their other needs, let alone establish savings or build assets. The problem of severe rent burdens appears to be growing as the supply of low-cost rental units continues to dwindle. Harvard University's 2006 Joint Center for Housing Studies report attributes the growing affordability problem to two factors: land use regulations that drive up the price of housing and the growth of low-wage jobs. The report notes that solving the problem will be difficult, and will require the cooperation of government, business, and nonprofit organizations. However, the federal government's role in addressing what HUD has termed "worst-case housing needs" is increasingly in question, as deficits grow and pressure to restrain domestic spending mounts. After the initial need to evacuate and relocate families after the 2005 hurricanes, the focus primarily shifted to recovery and rebuilding of flood-damaged areas. The storms caused unprecedented damage to the Gulf Coast housing stock. Studies estimated that the hurricanes and their related flooding damaged 1.2 million housing units. Of those, over 305,000 were seriously damaged. Most of the seriously damaged units were owner occupiedâabout 63% or 193,000 homes. More than half of them lacked flood insurance (55%) and about a quarter of them lacked any insurance (23%).