House Report 106-553 - AMERICAN HOMEOWNERSHIP AND ECONOMIC OPPORTUNITY ACT OF 2000

[House Report 106-553]
[From the U.S. Government Publishing Office]

106th Congress Rept. 106-553
HOUSE OF REPRESENTATIVES
2d Session Part 2

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AMERICAN HOMEOWNERSHIP AND ECONOMIC OPPORTUNITY ACT OF 2000

_______

April 5, 2000.--Ordered to be printed

_______

Mr. Leach, from the Committee on Banking and Financial Services,
submitted the following

SUPPLEMENTAL REPORT

[To accompany H.R. 1776]

This supplemental report shows the cost estimate of the
Congressional Budget Office with respect to the bill (H.R.
1776), as reported, which was not included in the report
submitted by the Committee on Banking and Financial Services on
March 29, 2000 (H. Rept. 106-553).
This supplemental report is submitted in accordance with
clause 3(a)(2) of rule XIII of the Rules of the House of
Representatives.

U.S. Congress,
Congressional Budget Office,
Washington, DC, April 4, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services, House of
Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1776, the American
Homeownership and Economic Opportunity Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Carla Pedone.
Sincerely,
Barry B. Anderson
(For Dan Crippen, Director).
Enclosure.

H.R. 1776--American Homeownership and Economic Opportunity Act of 2000

Summary: H.R. 1776 aims to promote homeownership among
lower-income families who might otherwise not be able to afford
it. The bill would amend a number of existing statutes in an
attempt to reduce regulations, to facilitate access by lower-
income families to federal mortgage insurance and loan
guarantees, and to increase the flexibility available to local
governments in using both newly authorized and existing
programs for providing homeownership assistance. The bill would
authorize appropriations to fund existing housing programs as
well as new initiatives.
CBO estimates H.R. 1776 would authorize the appropriation
of about $36 billion over the fiscal year 2001-2005 period,
assuming adjustments for inflation, and roughly $35 billion
without adjustments for inflation. CBO estimates that enactment
of the bill also would reduce direct spending by $675 million
and federal revenues by $90 million over the five-year period.
Therefore, pay-as-you-go procedures would apply.
H.R. 1776 contains several intergovernmental mandates as
defined in the Unfunded Mandates Reform Act (UMRA), but CBO
estimates that the costs of complying with these mandates would
not exceed the threshold established under that act ($55
million in 2000, adjusted annually for inflation).
The bill also contains private-sector mandates as defined
in UMRA. Because those new requirements would depend on
specific standards that would be established by the Secretary
of Housing and Urban Development, CBO cannot determine whether
their direct cost to the private sector would exceed the
threshold specified in UMRA ($109 million in 2000, adjusted
annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1776 is summarized in Tables 1 and 2
below. Table 1 shows the authorizations of appropriations in
the bill gradually increasing with inflation from $7.0 billion
in fiscal year 2001 to an estimated $7.4 billion in fiscal year
2005. Appropriation of those sums would result in additional
outlays of $223 million in 2001 and an estimated $20.1 billion
over the 2001-2005 period. Table 2 shows similar figures but
assumes no adjustments for inflation. Under that scenario,
outlays would increase by an estimated $19.7 billion over the
five-year period.
The bill would also reduce direct spending by an estimated
$116 million in 2001 and a total of $675 million over the five-
year period. In addition, the bill would reduce federal
revenues by $17 million in 2001 and a total of $90 million over
the five-year period.
The costs of this legislation would fall within budget
functions 370 (mortgage and housing credit), 450 (community and
regional development), and 600 (income security).
Basis of estimate: CBO assumes that H.R. 1776 will be
enacted during fiscal year 2000 and that the authorized amounts
would be appropriated by the beginning of each fiscal year.

Spending subject to appropriation

Where the bill specifies an authorization for 2001 and
authorizes such sums as may be necessary in later years, CBO
has computed authorizations for future years both with and
without adjustments for inflation. The discussion below,
however, focuses on the estimates with the adjustments for
inflation (see Table 3).
Title I: Removal of Barriers to Housing Affordability
Title I would authorize the appropriation of an estimated
$80 million, which would result in an estimated $47 million in
additional outlays over the 2001-2005 period.

TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 1776, WITH ADJUSTMENTS FOR INFLATION
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2000 2001 2002 2003 2004 2005
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SPENDING SUBJECT TO APPROPRIATION

Spending Under Current Law:
Budget Authority................................ 6,694 0 0 0 0 0
Estimated Outlays............................... 5,518 5,739 4,226 2,093 980 438
Proposed Changes:
Estimated Authorization Level................... 0 6,993 7,113 7,205 7,303 7,429
Estimated Outlays............................... 0 223 2,119 4,848 6,098 6,779
Proposed Spending Under H.R. 1776:
Estimated Authorization Level \1\............... 6,694 6,993 7,113 7,205 7,303 7,429
Estimated Outlays............................... 5,518 5,962 6,345 6,941 7,078 7,217

DIRECT SPENDING

Spending Under Current Law \2\:
Budget Authority Authority...................... -2,345 -2,414 -2,487 -2,561 -2,637 -2,717
Estimated Outlays............................... -2,344 -2,414 -2,487 -2,561 -2,637 -2,717
Proposed Changes:
Estimated Budget Authority...................... 0 -124 -134 -138 -142 -145
Estimated Outlays............................... 0 -116 -134 -138 -142 -145
Proposed Spending Under H.R. 1776 \2\:
Estimated Budget Authority...................... -2,345 -2,538 -2,621 -2,699 -2,779 -2,862
Estimated Outlays............................... -2,344 -2,530 -2,621 -2,699 -2,779 -2,862

REVENUES

Revenues Under Current Law \3\...................... 15 17 17 18 19 19
Proposed Changes.................................... 0 -17 -17 -18 -19 -19
Proposed Revenues Under H.R. 1776 \3\............... 15 0 0 0 0 0
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\1\ The amount shown for 2000 is the amount appropriated for these programs.
\2\ Includes offsetting receipts generated by the FHA single-family loan guarantee program and outlays for HUD's
manufactured housing activities.
\3\ Fees from inspection of manufactured homes.

TABLE 2.--ESTIMATED BUDGETARY EFFECTS OF H.R. 1776, WITHOUT ADJUSTMENTS FOR INFLATION
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION

Spending Under Current Law:
Budget Authority................................ 6,694 0 0 0 0 0
Estimated Outlays............................... 5,518 5,739 4,226 2,093 980 438
Proposed Changes:
Estimated Authorization Level................... 0 6,993 6,996 6,971 6,946 6,946
Estimated Outlays............................... 0 223 2,114 4,809 5,979 6,558
Proposed Spending Under H.R. 1776:
Estimated Authorization Level \1\............... 6,694 6,993 6,996 6,971 6,946 6,946
Estimated Outlays............................... 5,518 5,962 6,340 6,902 6,959 6,996

DIRECT SPENDING

Spending Under Current Law \2\:
Estimated Budget Authority...................... -2,345 -2,414 -2,487 -2,561 -2,637 -2,717
Estimated Outlays............................... -2,344 -2,414 -2,487 -2,561 -2,637 -2,717
Proposed Changes:
Estimated Budget Authority...................... 0 -124 -134 -138 -142 -145
Estimated Outlays............................... 0 -116 -134 -138 -142 -145
Proposed Spending Under H.R. 1776 \2\:
Estimated Budget Authority...................... -2,345 -2,538 -2,621 -2,699 -2,779 -2,862
Estimated Outlays............................... -2,344 -2,530 -2,621 -2,699 -2,779 -2,862

REVENUES

TABLE 3.--ESTIMATED AUTHORIZATIONS AND SPENDING SUBJECT TO APPROPRIATION, WITH ADJUSTMENTS FOR INFLATION, BY
PROVISION
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
TITLE I

Additional Administrative Costs for Housing Impact Analyses:
Estimated Authorization................................... (\1\) (\1\) (\1\) (\1\) (\1\)
Estimated Outlays......................................... (\1\) (\1\) (\1\) (\1\) (\1\)
Grants for Regulatory Barrier Removal Strategies:
Estimated Authorization................................... 15 15 16 16 16
Estimated Outlays......................................... (\1\) 5 11 14 15

TITLE III

Down Payment Assistance:
Estimated Authorization \2\............................... 0 0 0 0 0
Estimated Outlays \2\..................................... 1 2 3 4 0
Pilot Program:
Estimated Authorization................................... 2 0 0 0 0
Estimated Outlays......................................... (\1\) 1 1 0 0

TITLE IV

Community Development Block Grants:
Estimated Authorization................................... 4,900 4,983 5,062 5,150 5,238
Estimated Outlays......................................... 98 1,668 3,754 4,502 4,821
Housing Opportunities for Persons with AIDS:
Estimated Authorization................................... 260 264 269 274 278
Estimated Outlays......................................... 5 73 147 222 268

TITLE V

Home Investment Partnerships:
Estimated Authorization................................... 1,641 1,669 1,698 1,727 1,758
Estimated Outlays......................................... 33 247 776 1,183 1,515
Loan Guarantees:
Estimated Authorization................................... 9 9 9 9 9
Estimated Outlays......................................... 1 3 6 8 9

TITLE VI

Neighborhood Reinvestment Corporation:
Estimated Authorization................................... 90 92 93 95 96
Estimated Outlays......................................... 90 92 93 95 96
Homeownership Zone Grants:
Estimated Authorization................................... 25 25 0 0 0
Estimated Outlays......................................... 1 6 15 18 9
Local Capacity Building:
Estimated Authorization................................... 25 25 26 26 27
Estimated Outlays......................................... 1 9 19 23 25
Assistance for Self-Help Housing Providers:
Estimated Authorization................................... 25 25 26 0 0
Estimated Outlays......................................... 1 9 19 25 17

TITLE VII

Lands Title Commission:
Estimated Authorization................................... 1 0 0 0 0
Estimated Outlays......................................... (\1\) (\1\) 0 0 0
Indian Loan Guarantees:
Estimated Authorization................................... 0 6 6 6 7
Estimated Outlays......................................... 0 6 6 6 7

TITLE XI

Manufactured Housing Improvement:
Estimated Authorization................................... 0 0 0 0 0
Estimated Outlays......................................... -8 -2 -2 -2 -3
Total:
Estimated Authorization................................... 6,993 7,113 7,205 7,303 7,429
Estimated Outlays......................................... 223 2,119 4,848 6,098 6,779
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000 per year.
\2\ The estimate assumes that funds would be appropriated for renewing all Section 8 contracts. Allowing the use
of Section 8 rental assistance for down payment assistance for homeowners would speed up the spending of
Section 8 funds initially, as increasing numbers of families would take advantage of this provision. The
estimated outlays represent that initial increase in spending patterns. Budget authority would not be
affected.

Housing Impact Analysis. Section 102 of H.R. 1776 would
require certain federal agencies, when publishing proposed and
final rules, to either certify that their rule would not have a
significant impact on the affordability of housing or to
prepare a regulatory analysis of the rule's impact on the
affordability of housing. CBO estimates that these requirements
would increase the overall administrative costs to the federal
government by about $2 million over the 2001-2005 period.
Few of the roughly 4,000 rules issued each year would have
an estimated annual economic impact of $100 million or more on
the housing industry, and thus trigger the requirement for an
impact analysis. Preparing the impact analyses where required,
including the costs incurred by the agencies for reviewing
public comments and those incurred by the Department of Housing
and Urban Development (HUD) for collecting and publishing the
information, would cost no more than $200,000 per year starting
in 2002, when that requirement is assumed to be fully
implemented. The additional costs of certifying rules would add
an estimated $300,000 per year.
Grants for Regulatory Barrier Removal Strategies. Section
103 would authorize the appropriation of $15 million for fiscal
year 2001 and such sums as may be necessary over the 2002-2005
period for grants to state and local governments to develop
strategies to remove regulatory barriers. Under current law,
$15 million is authorized through set-asides from Community
Development Block Grant (CDBG) funds. This provision would
eliminate the use of CDBG set-asides for these grants. CBO
estimates that section 103 would result in outlays of about $45
million over the five-year period.
Title III: Section 8 Homeownership Option
Title III would authorize the appropriation of $2 million
in 2001 and increase outlays, primarily for Section 8 housing
subsidies, by $12 million over the 2001-2005 period.
Down Payment Assistance. In lieu of 12 months of rental
assistance payments, section 301 would authorize public housing
agencies to provide a single up-front grant to eligible
households, which would be used to help families purchase a
home. CBO expects that this provision would initially speed up
the spending of Section 8 funds until the number of households
taking advantage of this provision each year levels off. CBO
estimates that this provision would add $1 million to Section 8
outlays in fiscal year 2001. The increment would grow to $4
million in 2004, at which point CBO expects that the number of
households using this provision would no longer increase. At
that point, the additional outlays in 2005 from the shift of
payments from 2006 into 2005 would roughly equal the outlay
savings in 2005 from the shift of payments from 2005 into 2004.
The estimate assumes that sufficient budget authority would be
appropriated each year to renew all expiring Section 8
contracts. Because the provision would require approval in
advance in appropriation acts, it would not affect direct
spending.
CBO expects that relatively few households would use this
provision because the low incomes of households eligible for
Section 8 make it difficult for most to qualify for a mortgage.
Of the Section 8 certificates and vouchers that become
available in 2001 because of turnover, CBO assumes that roughly
0.25 percent would be used for this purpose, with that
percentage rising to 2 percent by 2004. As a result, the number
of participating households would grow from around 400 in
fiscal year 2001 to about 3,600 per year by 2004.
Homeownership Pilot Program. Section 303 would authorize
the appropriation of $2 million for fiscal year 2001 for
homeownership pilot programs authorized under the Quality
Housing and Work Responsibility Act of 1998, subject to the
availability of matching funds from other sources. No funds are
authorized for later years. CBO estimates that roughly one-half
of these funds would be spent in 2002 and the remainder in
2003.
Title IV: Community Development Block Grants
CBO estimates that, over the 2001-2005 period, Title IV
would authorize the appropriation of $26.7 billion, assuming
adjustments for inflation. Resulting outlays would total $15.6
billion over the five-year period.
Community Development Block Grant (CDBG) Program. Section
401 would authorize $4.9 billion for fiscal year 2001 for CDBG
and such sums as may be necessary for the 2002-2005 period. The
appropriation for 2000 was $4.8 billion. CBO estimates that the
bill would authorize a total of $25.3 billion over the five-
year period and that outlays would increase by $14.8 billion
over that period.
Housing Opportunities for Persons with AIDS (HOPWA)
Program. Section 408 would authorize the appropriation of $260
million for fiscal year 2001 for HOPWA and such sums as may be
necessary for the 2002-2005 period. For 2000, $232 million was
appropriated for this program. CBO estimates that the bill
would authorize a total of $1.3 billion over the 2001-2005
period, increasing outlays by $715 million.
Title V: Home Investment Partnerships Program
Title V would authorize the appropriation of an estimated
$8.5 billion in budget authority, resulting in $3.8 billion in
estimated outlays over the 2001-2005 period.
HOME Program. Section 401 would authorize $1.65 billion for
fiscal year 2001 for the Home Investment Partnerships Program
(HOME) and such sums as may be necessary for each of the
following four years. Under Section 504, a certain amount of
these appropriations would be set aside for credit subsidies
for a new loan guarantee program. That provision would
authorize the Secretary of HUD to guarantee a cumulative total
of up to $2 billion in loans issued by eligible local
jurisdictions for financing the acquisition, new construction,
or rehabilitation of affordable housing. CBO assumes that local
jurisdictionswould borrow $400 million per year over the 2001-
2005 period. CBO further assumes that the credit subsidy rate for these
obligations would be 2.3 percent, the same rate that is experienced
under a similar program authorized by section 108 of the Housing and
Community Development Act of 1974. Therefore, CBO estimates that of the
total HOME appropriation, about $9 million per year would be set aside
for the credit subsidies.
Based on the historical spending rate for the HOME program,
CBO estimates that appropriation of the authorized amounts for
the HOME program would result in additional outlays of $3.8
billion over the five-year period, including $27 million for
the new loan guarantee program.
Title VI: Local Homeownership Initiatives
CBO estimates that Title VI would authorize the
appropriation of $721 million and increase outlays by $663
million over the 2001-2005 period.
Neighborhood Reinvestment Corporation. Section 601 would
authorize $90 million for fiscal year 2001 for a payment to the
Neighborhood Reinvestment Corporation, and such sums as may be
necessary for the 2002-2005 period to support neighborhood
preservation projects. The appropriation for 2000 totaled $75
million. This provision would add an estimated $466 million to
outlays over the 2001-2005 period.
Homeownership Zones. Section 602 would authorize the
appropriation of $25 million for fiscal year 2001 and such sums
as necessary for 2002 for Homeownership Zone Grants. No
appropriation as provided for Homeownership Zone Grants in
2000. Based on information from the Department of Housing and
Urban Development, CBO estimates that this provision would add
$49 million to outlays over the five-year period.
Local Capacity Building. Section 604 would authorize the
appropriation of such sums as necessary for the Capacity
Building for Community Development and Affordable Housing
program. In fiscal year 2000, grants for capacity building were
funded through CDBG at $20 million. This provision would add
the National Association of Housing Partnerships to the list of
organizations eligible to provide housing assistance with funds
that would be authorized under this section. To reflect this
change, CBO assumed that the funding level would grow to $25
million in fiscal year 2001. CBO expects that appropriation of
these funds would result in discretionary outlays of $77
million over the 2001-20005 period.
Self-Help Housing Providers. Section 606 would authorize
the appropriation of $25 million for fiscal year 2001 and such
sums as may be necessary for 2002 and 2003 for assistance to
providers of self-help housing. For 2000, funding for this
program was provided as a set-aside of $20 million in the
appropriation for the CDBG program. CBO estimates that the
appropriation of the authorized funds would add $71 million to
outlays over the 2001-2005 period.
Title VII: Native American Homeownership
CBO estimates that Title VII would authorize the
appropriation of $26 million and add the same amount in outlays
over the 2001-2005 period.
Lands Title Commission. Section 701 would establish a Lands
Title Commission to facilitate home loan mortgages on Indian
trust lands. The commission would examine the system used by
the Bureau of Indian Affairs for maintaining ownership records
relating to trust lands and determine how to improve or replace
that system in order to ensure that Native Americans are not
restricted in their ability to obtain conventional mortgage
loans. The bill would authorize a one-time appropriation of
$0.5 million for expanses, which CBO estimates would be spent
by the end of fiscal year 2002.
Loan Guarantees. Section 702 would limit commitment
authority for Indian housing loan guarantees to the levels
specified in appropriations acts for each fiscal year, and
authorize such sums as may be necessary to carry out this
program for each fiscal year after 2001. (Under current law,
the program is already authorized for 2001). CBO estimates that
appropriations of $6 million to $7 million a year would
increase discretionary outlays by $25 million over the 2002-
2005 period.
Native American Housing Assistance. Section 703 would amend
certain provisions of the Native American Housing Assistance
and Self-Determination Act of 1996 (NAHASDA). Most changes
concern participation and oversight requirements and
enforcement of program rules, many of which have already been
implemented under current law. Although these provisions could
increase the costs of administering the program, CBO estimates
that any increase would be negligible.
Title XI: Manufactured Housing Improvement
Under current law, HUD charges manufacturers fees for the
cost of inspecting manufactured homes. These fees are recorded
in the budget as revenues, and the spending of the fees does
not require further appropriation. CBO estimates that under
current law such spending will be $18 million a year over the
2001-2005 period. Title XI would make federal spending
associated with manufactured housing subject to appropriation,
thus reducing direct spending for this program. (Collection of
the fees would also became subject to appropriation action.)
Title XI would require HUD to establish committee to set
regulations for the industry, a program to resolve disputes and
a program to monitor the installation of manufactured housing.
These new responsibilities would significantly increase federal
spending to more than $50 million a year, but such costs would
be offset through higher fees. Because CBO expects such fees to
be collected more quickly than they would be spent, CBO estimates that
Title XI would reduce discretionary outlays by $17 million over the
2001-2005 period.

Direct Spending and Revenues

H.R. 1776 would make several changes affecting the Federal
Housing Administration's (FHA's) single-family program and
HUD's program governing standards for manufactured housing,
resulting in a net decrease in both spending and revenues (see
Table 4)
Title II: Homeownership through Mortgage Insurance and Loan
Guarantees
CBO estimates that Title II would reduce net direct
spending by a total of $593 million over the 2001-2005 period.
This title would permanently change the process for determining
down payments for single-family mortgages insured by FHA and
provide authority for FHA to offer guarantees for two new loan
guarantee programs.
Simplification of Down Payment. Section 203 would
permanently change the process FHA uses to determine the amount
of down payments that are necessary for mortgages on single-
family homes that are insured by FHA. Under current law, the
down payment requirement is calculated using a formula
established in a 1996 pilot program. Under this formula, the
maximum mortgage amount that can be insured by FHA is
determined by using a fixed percentage of the home value,
excluding closing costs. Authority to use this formula expires
at the end of fiscal year 2000, and this provision would make
its use permanent
Based on information from FHA, CBO estimates that
continuing the use of the down payment formula would slightly
increase the loan-to-value (LTV) ratios for about 15 percent of
the loans guaranteed each year after 2000. The LTV ratio, which
indicates how much equity a borrower initially has in the home,
serves as a good predictor of the likelihood of default. As
such, CBO assumes that borrowers with less equity (that is,
higher LTV ratios) would have higher default rates. Thus, we
estimate that this provision would increase the cost of
guaranteeing some loans, resulting in a decrease in offsetting
receipts of $7 million in 2001 and $39 million over the 2001-
2005 period. (Under current law, FHA guarantees of new single-
family mortgages result in net offsetting receipts to the
government because the credit subsidy is estimated to be
negative. That is, guarantee fees for new mortgages more than
offset the costs of expected defaults, resulting in net
receipts from the single-family loan guarantee program.) The
estimated changes in the loan subsidy receipts would be
recorded in each of the years when new loans are disbursed.

TABLE 4.--ESTIMATED DIRECT SPENDING AND REVENUE EFFECTS, BY PROVISION
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
TITLE II

Down Payment Simplification:
Estimated Budget Authority................................ 7 8 8 8 8
Estimated Outlays......................................... 7 8 8 8 8
Reduced Down Payments for Teachers and Municipal Workers:
Estimated Budget Authority................................ -24 -33 -34 -35 -36
Estimated Outlays......................................... -24 -33 -34 -35 -36
Hybrid ARMs:
Estimated Budget Authority................................ -90 -92 -94 -96 -98
Estimated Outlays......................................... -90 -92 -94 -96 -98
TITLE XI

Manufactured Housing Improvement:
Estimated Budget Authority................................ -17 -17 -18 -19 -19
Estimated Outlays......................................... -9 -17 -18 -19 -19
Estimated Revenues........................................ -17 -17 -18 -19 -19
Total:
Estimated Budget Authority................................ -124 -134 -138 -142 -145
Estimated Outlays......................................... -116 -134 -138 -142 -145
Estimated Revenues: -17 -17 -18 -19 -19
----------------------------------------------------------------------------------------------------------------

Reduced Down Payment Requirements. Section 204 would reduce
the down payment requirements for federally insured mortgages
for teachers and uniformed municipal employees. Enacting this
provision could enable certain teachers and uniformed municipal
employees to purchase homes within their work regions with a
FHA guarantee, by providing a down payment as low as one
percent of the mortgage amount instead of a minimum of 3
percent that is currently required. In addition, for each year
that the loan is held and the borrower continues to teach or
work in the designated school district or jurisdiction, FHA
would waive 20 percent of the up-front cost of obtaining the
loan. Normally, FHA charges a fee of 2.25 percent of the loan
amount as the up-front cost of obtaining a FHA loan guarantee.
The budgetary impact of this new loan program would depend
on how people would react to the incentive it would create for
households to seek homeownerships--in particular, how many
households would use this provision to help them become
homeowners and how long would homeowners remain in their homes.
Based on information from associations representing teachers
and mortgage bankers, CBO expects that about 50,000 loans
(worth about $5 billion) under this program would be guaranteed
each year. Furthermore, we assume that, of this expected
volume, 50 percent would come from entirely new FHA borrowers
and 50 percent would come from borrowers who have used the FHA
program anyway but who would switch now to this more attractive
option. On balance, CBO expects that this new program would be
profitable (and thus generate negative subsidies), though not
as profitable as the current single-family program where fees
are not waived or reduced and the default rates are slightly
lower. We estimate that this new program would have a negative
subsidy rate of 2.0 percent, compared to a negative subsidy
rate of 2.6 percent for FHA's current single-family program.
CBO estimates the program would result in net additional
receipts of $24 million in 2001 and $162 million over the 2001-
2005 period.
Hybrid ARMS. Section 210 would authorize FHA to insure a
relatively new mortgage product, known as hybrid adjustable-
rate mortgages (ARMs). These mortgages carry an initial fixed
interest rate for longer than one year and then are subject to
interest rate adjustments. The hybrid ARMs authorized to be
guaranteed under the bill would carry an initial fixed interest
rate for a period of not less than three years of the mortgage
term. Under currently law, FHA has the authority to insure
mortgages with one-year ARMs, though this product has seen
demand in recent years.
Based on information from FHA, CBO estimates that about
60,000 new loans (worth about $6 billion) would be guaranteed
each year under this new authority. Because we expect such
loans to result in fewer defaults than the one-year ARMs (but
more defaults than conventional loans), CBO estimates a
negative subsidy rate of 2.0 percent for such guarantees. As a
result, we anticipate that enacting this provision would
increase receipts by $90 million in 2001 and $470 million over
the next five years.
Title XI: Manufactured Homes
Title XI would make HUD's spending associated with
manufactured housing, and the collection of the related fees,
subject to appropriation. CBO estimates that such a change
would reduce revenues by about $90 million and direct spending
by $82 million over the 2001-2005 period.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects in the current year, the budget year, and the
succeeding four years are counted.

TABLE 5.--ESTIMATED IMPACTS FOR H.R. 1776 ON DIRECT SPENDING AND RECEIPTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays..................................... 0 -116 -134 -138 -142 -145 -149 -152 -157 -161 -163
Changes in receipts.................................... 0 -17 -17 -18 -19 -19 -20 -21 -22 -23 -24
--------------------------------------------------------------------------------------------------------------------------------------------------------

Estimated impact on state, local, and tribal governments:
Title XI, the manufactured housing section, contains several
preemptions of state authority:
From the date of enactment of the bill until
the date that HUD finalizes its standard governing the
installation of manufactured housing, states would be
prohibited from lowering their standards from those
that are already in place;
Once the federal installation standard is
finalized, if they choose to create their own
installation standard and program, states would be
required to set standards that are no less rigorous
than the federal program. State installation programs
that do not meet the federal minimum would be
superseded by the HUD standards; and
Similarly, states that choose to create a
dispute resolution program would be required to set
standards that are at least as stringent as the federal
program; otherwise HUD would administer the program in
the state.
CBO treats such preemptions of state law as mandates under
UMRA. The mandates would impose no costs on state, local, or
tribal governments, however, because the affected entities are
not required to take any action. States that choose not to
establish their own standards would be regulated and monitored
by HUD.
Other provisions of Title XI would broaden the activities
HUD is authorized to include in its calculation of inspection
fees for manufactured housing, and expand its authority to
collect those fees in states where such collections are
prohibited under current law. Though these provisions would
change the method by which inspection fees are calculated and
levied on manufacturers of manufactured housing, CBO estimates
that states would continue to receive at least the same amount
of funding under this program as they collect under current
law.
Estimated impact on the private sector: Title XI also
contains private-sector mandates as defined in UMRA. Currently,
manufacturers of manufactured housing must pay a fee to cover
the cost of construction and safety inspections and other
administrative activities. The bill would increase the cost of
that mandate by expanding the activities covered by the fee to
include items such as the on-site inspection of newly installed
homes and the operation of a dispute resolution program. CBO
estimates that those changes would increase private-sector
costs by $9 million in 2001 and by a total of $108 million over
the 2001-2005 period, assuming that 25 percent of new-home
installations would be inspected. (The added cost could be
higher or lower depending on the requirements specified by the
Secretary of HUD.)
The bill would also impose new federal standards on the
installation of manufactured homes, including requiring
installation inspections and mandating that all installers be
trained and licensed. The cost of those new requirements to the
private sector would also depend on the specific standards
established by the Secretary of HUD.
Overall, because the requirements imposed by the bill would
depend in large part on future actions of the Secretary of HUD,
CBO cannot determine whether their direct cost to private-
sector entities would exceed the threshold specified in UMRA
($109 million in 2000, adjusted annually for inflation).
Previous CBO estimates: Section 703 of H.R. 1776
incorporates the revisions in S. 400 as passed in the Senate on
February 28, 2000. In its cost estimate for S. 400, dated July
14, 1999, CBO stated that enactment could have a small impact
on the federal cost of administering the programs authorized by
NAHASDA, but would not have a significant impact on the federal
budget.
Estimate prepared by: Federal Cost: Carla Pedone, Susanne
Mehlman, Lanetee Keith, Mark Hadley, and John Righter. Federal
Revenues: Hester Grippando. Impact on State, Local, and Tribal
Governments: Susan Sieg Tompkins. Impact on the Private Sector:
Bruce Vavrichek.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.