Part Two: Closing the Opportunity Gaps

Homeownership is the essence of the American dream. In June 1995 President Clinton committed the Nation to increasing the homeownership rate to 67.5 percent by the year 2000. He brought together a partnership of 58 key public and private organizations to forge a National Homeownership Strategy. The efforts of these national partners, led by HUD Secretary Andrew Cuomo, to reduce the financial, information, and systemic barriers to homeownership are amplified by local partnerships at work in over 100 cities. These efforts are having an impact: By the end of 1997, homeownership had reached a record-high 66 percent rate.39

But the job is not done. Homeownership in central cities and among women, minorities, and lower income Americans continues at or below 50 percent.40 HUD has proposed a number of steps to expand homeownership opportunities for these underserved populations:

• Increase the Federal Housing Administration (FHA) loan limit so that more middle-income city residents and minorities, who have traditionally tended to rely on FHA mortgage insurance, can enjoy the benefit of FHA single-family mortgage insurance, including downpayments of less than 5 percent, and more flexible underwriting criteria. Raising the loan limit to a single nationwide threshold of $227,150 would also provide borrowers more room to finance housing rehabilitation costs under FHA's purchase rehab program -- an important consideration in older urban housing markets.

• Fund a new round of Homeownership Zones. This program enables cities to undertake large-scale, mixed-income developments of single-family homes that can be a catalyst for bringing distressed inner-city neighborhoods back to life, attracting businesses that typically cluster around stable, owner-occupied developments.

• Play-by-the-Rules Homeownership Initiative. The President's FY 1999 budget for the Neighborhood Reinvestment Corporation includes $25 million for a new initiative that would make the dream of homeownership more accessible to 10,000 families who have been responsible and paid their rent on time but are currently underserved by the housing market.

• Expand the use of tenant-based Section 8 rental assistance so that hard-working families that are ready to take on homeownership can use their rental assistance to help pay a mortgage instead.

• Increase funding for the Housing Counseling program, which reaches out to help minority, and immigrant homebuyers in particular, learn more about the process of finding, financing, and maintaining a home.

Expand the Supply of Affordable Rental Housing

The demand for affordable rental housing is at an all-time high, but the supply of units for low-income families continues to shrink. Housing assistance already helps more than 2 million very-low-income households in central cities, but another 2.75 million urban renters still have urgent housing assistance needs.

100,000 Additional Section 8 Vouchers. Since FY 1995, Congress has provided virtually no new rental assistance to serve the more than 1 million families on waiting lists for such assistance. The Administration proposes to provide 100,000 families and individuals with portable rental assistance in FY 1999. These vouchers will include 50,000 welfare-to-work housing vouchers and 34,000 for homeless individuals and families.

Low-Income Housing Tax Credit. The largest single source of development capital for affordable rental housing remains the Low-Income Housing Tax Credit, which currently helps fund between 75,000 and 90,000 affordable units each year. The Administration's proposal to restore the value of the credit, which has eroded in recent years due to rising building costs, is expected to result in the production of an additional 150,000 to 180,000 units over the next 5 years.

HOME Bank. Cities use their annual HOME allocations to expand affordable rental housing opportunities by building, rehabilitating, and buying multifamily rental properties, for tenant-based rental assistance, or to rehabilitate owner-occupied housing or provide assistance to new homebuyers. The budget includes $1.55 billion in HOME block grants. These funds will help fund 78,520 units of affordable housing and rental assistance for 11,200 families.

HUD's proposed HOME Bank will allow HOME funds to do even more by creating a loan guarantee feature similar to the Section 108 provision of the Community Development Block Grant (CDBG) program. Cities will be able to borrow up to five times their current HOME allocation which will allow them to undertake broad-based neighborhood revitalization strategies and take advantage of economies of scale by producing or rehabilitating a large number of rental or ownership units in a single project in a relatively short period of time.

Enforce Fair Housing Laws

In April 1998, the United States celebrated the 30th anniversary of the Fair Housing Act, which codified our Nation's commitment to ensuring fair housing for every American. We are closer to attaining this goal than we were in 1968. Nonetheless, prejudice persists. Overt discrimination has been driven underground and become much more subtle, but minority Americans, persons living with disabilities, families with children, religious minorities, and other groups continue to suffer when denied housing opportunities as a result of discrimination. As a result, the 1999 budget proposes increasing funding by more than two-thirds over FY 1998 levels, to $52 million.

HUD is committed to cracking down on all forms of housing discrimination. HUD has pledged to double the number of fair housing enforcement actions taken during the President's second term. It has entered into voluntary best practice agreements with more than 100 key home mortgage lenders nationwide, as well as with major housing industry groups.

HUD also supports and works closely with a nationwide network of public agencies and nonprofit fair housing organizations to enforce the Fair Housing Act. HUD's Fair Housing Assistance Program helps ensure that States and cities have the financial resources to process fair housing complaints. In addition, the Fair Housing Initiatives Program (FHIP) provides competitive grants to dozens of local, regional, and national nonprofit fair housing groups. FHIP helps fund their testing and enforcement activities.

Increase Access to Credit

Discriminatory treatment can affect entire neighborhoods. In the past, it was not uncommon for lenders and insurance companies to "redline" urban communities that were regarded as inherently risky because they were poor or predominately minority. The consequences of this practice were predictable: Choking off credit for homes and businesses in these communities accelerated their physical deterioration and decline into poverty and played a key role in ending this practice in most communities.

The Community Reinvestment Act (CRA) requires lenders to provide services to all segments of the areas in which they are located. The Act has made a real difference in hard-pressed urban neighborhoods. The Administration's recent reforms of CRA regulations have shifted the focus of lender compliance firmly to performance -- actual lending, investment, and services -- instead of paperwork. From 1992 to 1997, nonprofit groups estimate that the private sector has pledged nearly $400 billion in loan commitments -- 90 percent of all such commitments made since CRA was passed in 1977. In 1996 alone, large banks made $18 billion in community development loans under CRA.41 However, much remains to be done.

Reduce Homelessness

HUD's homeless assistance grants help local governments and nonprofits transform emergency shelter and human services systems for homeless persons into a seamless continuum of care. The continuum strategy assembles a coordinated array of housing and supportive service options that can respond to the needs of all homeless people in the community -- including those living with substance abuse problems or mental illness -- at every step of their individual journeys from homelessness to permanent housing and self-sufficiency.

The President's budget requests $1.15 billion to strengthen the continuum of care nationwide in FY 1999, an increase of almost 40 percent over FY 1998 which if enacted would be the highest homeless assistance budget ever. With these funds, HUD provides flexible support that cities can use to fill gaps in their own continuum of resources. For example, the Department plans to fund an additional 15,000 transitional beds and 3,500 permanent beds linked, as appropriate, to services such as health and mental health care, job training, child care, and substance abuse treatment. HUD also proposes to use 34,000 Section 8 incremental vouchers to allow local communities to help homeless individuals and families secure permanent housing.