The Obama administration has forwarded its 2014 budget request to Congress, and it has big ramifications for housing. The top line figures, including all on-budget federal spending, add up to $3.77 trillion in total spending. The deficit, according to the president’s own proposal, will add up to $744 billion.
Boiling things down to the housing budget, the president is asking for $47.6 billion for the Department of Housing and Urban Development – 9.7 percent more than in 2012, and 6 percent more than the 2013 request.
The Associated Press frames this as a 50.7 percent decrease. I’m still trying to figure out how the AP does its math. The budget includes nearly a billion dollars to bail out the Federal Housing Administration, still creaking under the strain of the 5-year-old mortgage crisis.
The FHA is the agency that guarantees loans made to lower-income homebuyers who can only scrape together a 3.5 percent down payment. Those are the very people hardest hit by the housing collapse because they went so quickly into negative equity situations. The agency was further dinged by the rise in popularity of “strategic defaults.”
Originally, the FHA was supposed to function on premiums it charged to homeowners. But for the past several years it has been functionally insolvent, with reserves grossly inadequate to cover expected losses. If the bailout happens, this would be the first time since the agency was created during the Great Depression that they received taxpayer money.
Ultimately, it means that it’s the taxpayers, not the lenders, who pay the bill for strategic defaulters. And by “taxpayers,” I’m including people who have never owned a home.
As unwelcome as a $943 million bailout bill is, it could have been a lot worse. The agency got a break from some increases in house prices over the last year. They were also successful in turning foreclosures-waiting-to-happen into performing loans by blessing off on hundreds of thousands of modifications under HAMP. The two happy circumstances actually reduced the expected reserves shortfall from some $16 billion down to less than $1 billion.
The FHA bailout would be in addition to the $137 billion that taxpayers lost in bailing out Fannie and Freddie.
Winners in the president’s HUD proposal include homeless veterans: The administration wants to fund vouchers for up to 10,000 homeless veterans, under the HUD-VA Supportive Housing Program.
HUD has been funding about 10,000 vouchers for rental assistance each year for veterans, with the benefits clustered around major VA medical centers. Incidentally, the Department of Veterans Affairs recently took down a Nashville-area scammer who stole hundreds of thousands of dollars from the VA by fraudulently accepting grants to provide housing to homeless veterans – without providing those services.
The largest line item in the HUD budget goes not to homeowners – at least, not directly – but to renters. The president’s budget provides $37.4 billion in rental housing assistance to 4.7 million low-income families. This is enough to provide a substantial support for those who own rental properties catering to this market.
Another $2.4 billion is allocated toward the president’s goal of ending chronic homelessness, including homelessness among veterans and their families.
The budget also includes a $20 million increase for the Supportive Housing for the Elderly Program and the Supportive Housing for Persons with Disabilities Program. The total outlay for both programs under the President’s proposal would rise to $526 million.
People with AIDS get their own line item in the HUD budget, too: The president finds room in the federal budget for a third of a billion dollars to fund a modernized Housing Opportunities for Persons With AIDS program. That’s right – the allocation specifically for people with AIDS is well over half the total allocation for all the elderly and disabled in the country. According to the administration’s budget proposal, “This modernization includes a new formula that will distribute HOPWA funds based on the current population of people living with HIV/AIDS, fair market rents, and poverty rates in order to target funds to areas with the most need.”
Moving over to programs to support residential homeowners themselves – as opposed to renters and their landlords, the administration is planning to commit enough funds to guarantee $178 billion in mortgage loans in 2014. The budget also calls for $132 million in funding for counseling and foreclosure assistance initiatives like the NeighborWorks’ National Foreclosure Mitigation Counseling Program.
Budget losers include anyone who relies on the HOME Investment Partnerships Program – which the administration has slated for a modest reduction. However, the administration also claims that the effect of this reduction will be partially offset by a $1 billion allocation to the Housing Trust Fund to expand the supply of housing targeted to families with very low incomes.
Moving over to the revenue column, the president, fresh from having secured a major tax increase on higher-income earners in the fiscal cliff deal in January, is proposing a series of tax increases. Most notably for real estate investors and homeowners, the president is looking to limit the home interest deduction and other itemized deductions to 28 percent. Something called a “financial crisis responsibility fee” on financial firms is expected to raise $59.3 billion. That fee is ultimately going to be passed on to the consumer as well, one way or the other, in the form of interest rate or fee increases.
The president is also cutting the budget for the Community Development Block Grant program, which is popular among local government officials looking to throw bones at favored constituents back home. The administration plans to slash this budget from $3 billion to $2.8 billion – one of the only line items I could find to actually see a year-over-year reduction that doesn’t involve national security.