Zero-Down FHA Loans Again Proposed in 2007 Budget
Unveiling an austere budget that proposes to cut non-defense discretionary spending for the second straight year, President Bush on Feb. 6 delivered his $2.77 trillion fiscal 2007 budget proposal to the Congress.
The White House is proposing saving $65 billion over five years by slowing the growth of entitlement spending and saving an additional $20 billion by eliminating or largely reducing more than 140 government programs.
While the President’s budget recommends spending levels for the next fiscal year, it is not legally binding. Congressional appropriators will have the final say in program realignment and spending levels.
Zero Downpayment Mortgage Program
The Administration is once again proposing a zero downpayment mortgage insurance program, which was originally announced by FHA Commissioner John Weicher during the 2004 International Builders’ Show, but which was not acted upon by Congress.
The program would be aimed at serving first-time home buyers who have good credit, but who lack funds to pay downpayment and closing costs. In last year’s fiscal 2006 budget, the Administration estimated that this program would help 200,000 borrowers achieve homeownership.
A version of this program was proposed in 2005 as a pilot program limited to 50,000 loan applicants. However, the proposal was not acted upon by either the House or Senate.
In addition, the fiscal 2007 budget blueprint proposes a “payment incentives” sub-prime mortgage program that would be targeted to serve families with “limited or weak credit histories.” The program would assist first-time home buyers. Loans insured under this plan would bear higher than standard mortgage insurance premiums, which would decrease after the borrower established a record of timely payment.
Community Development Block Grants
The Administration requested $33.6 billion for the Department of Housing and Urban Development, a decrease of $1 billion or roughly 2% from the fiscal 2006 spending plan.
The plan calls for another “consolidation” of the Community Development Block Grant (CDBG) program for this year, but unlike last year, the Administration is proposing that it remain at HUD. The consolidation would eliminate the Brownfields and Economic Development Initiative, the Rural Housing and Economic Development program and the Section 108 Loan Guarantee program.
The budget would cut the CDBG program by 27%, from $4.1 billion to $3 billion. The grants provide affordable housing and supportive services to families with low to moderate incomes.
The HOME Investment Partnerships Program, the largest federal block grant program dedicated to creating affordable housing for low-income families, would receive $1.7 billion in fiscal 2007, an increase of $123 million from the previous year.
The White House is proposing a total of $15.9 billion for the Section 8 housing voucher program, an increase of about $346 million over the previous fiscal year. Of the $15.9 billion, $14.4 billion would be directed to the Section 8 voucher renewals. Project-based rental assistance would rise to $5.5 billion from $4.9 billion, up 12%.
In other areas of interest to housing, the President’s budget plan:
- Calls for reform of the housing government-sponsored enterprises, and the creation of a new, strong, independent regulatory agency to oversee Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
- Proposes implementing a risk-based mortgage insurance premium for FHA borrowers, although no details of the White House plan are included.
- Eliminates funding for the Hope VI program.
- Increases the mortgage insurance premium on some of the key FHA multifamily programs, perhaps up to 32 basis points, with the premium capped at 80 basis points.
- Eliminates the Partnership for Advancing Technology in Housing (PATH) program.
- Fails, after five straight years, to request the creation of a homeownership tax credit.
- Slashes funding for the Section 502 Guaranteed Rural Housing Loan program to $7 million, from $41 million in fiscal 2006. The subsidy rate for home purchases would increase from 1.16% to 1.21%.
- Abolishes the Section 515 Multifamily Rural Rental Housing Direct Loan program.
- Rescinds the Carl D. Perkins Vocational Education Grant program.
- Establishes funding for endangered species listings and critical habitat designations at $17.7 million, up $129,000 over the previous fiscal year.
- Reduces Job Corps funding to $1.5 billion, down approximately $15 million from fiscal year 2006.
- Transfers the YouthBuild program from HUD to the Department of Labor, and funds the program at $50 million.
- Offers no recommendations on tax simplification, although the budget praises the work of the President’s Advisory Panel on Federal Tax Reform and the report it used in November as a foundation for a national discussion on tax reform. The budget simply states that the Treasury Department will study tax reform.
NAHB continues to analyze the President’s budget package, and will be working with congressional appropriators as they craft the FY 2007 spending bills.
Given the spartan budget presented to Capitol Hill, the scores of key programs that have been cut or eliminated and the number of lawmakers who have already voiced concerns over the President’s budget, the ensuing appropriations process is likely to be drawn out and contentious.
For more information, e-mail Jenna Morgan Hamilton at NAHB, or call her at 800-368-5242 x8407.