Bush budget would change voucher program and reduce FHA premium.

On Feb. 2, President Bush sent his FY 2005 budget to Congress. The $31.3 billion included for the Department of Housing and Urban Development (HUD) reflects the administration's focus on expanding homeownership opportunities while holding the line or reducing rental housing activities.

Specifically, the proposal would create a zero-downpayment FHA home mortgage program for families with poor credit that would pay for itself by charging borrowers a higher mortgage insurance premium. (See next item.) Meanwhile, the proposal threatens to dramatically under-fund and dangerously revamp the Section 8 Housing Voucher program.

Proposed FY 2005 voucher funding falls at least $1.5 billion below what is needed to cover all the vouchers currently authorized, a short fall that will result in up to 250,000 fewer vouchers. In addition, after failing to turn the Housing Voucher program into a state block grant program last year, this year the administration wants to block grant the voucher funds to public housing agencies (PHA) under a new "Flexible Voucher Program" (FVP).

Importantly, the FVP changes voucher funding from being unit based to being dollar-based, meaning it would no longer be determined by the cost of housing. Instead, PHAs would receive a set amount each year based on a formula, making it easier for Congress to hold funding increases below actual housing costs. PHAs would be allowed to eliminate current targeting requirements and develop their own rent systems. There is no protection that households currently using vouchers would continue to be served under this program.

The administration said the changes are. designed to improve program performance and reduce the number of unused vouchers each year. Housing advocates suggest, however, that it is primarily a cost-cutting effort. NAA/NMHC will again vigorously oppose any effort to under-fund existing voucher holders and to block grant the voucher program. NAA/NMHC will continue to urge Congress and HUD to implement the bureaucratic reforms long suggested by NAA/NMHC as a more appropriate way of improving program performance.

In a bit of good news for the rental housing sector, the administration's proposed IVY 2005 budget would reduce the mortgage premium for the Section 221 (d)(4) program, the primary loan program available to for-profit developers and owners, by five basis points. Effective Oct. 1, the premium would fall from 50 basis points to 45 basis points. If passed, this would be the third consecutive year that HUD has lowered its mortgage insurance premium, but it would be the first time a reduction was made for a specific borrower class.

Although the administration is asking Congress to approve the reduction, HUD already has the statutory authority to adjust the premium in consultation with the Office of Management and Budget. By lowering the premium further and working to improve loan processing time, HUD hopes to keep the FHA program competitive with private loan options.

Homeownership Incentive Criticized

President Bush's FY 2005 budget includes a proposal to have FHA insure zero-downpayment loans for households with blemished credit. Meanwhile, the National Association of Home Builders and others are pushing for a new Home Owners Tax Credit that has the potential to take funding away from the Low-Income Housing Tax Credit (LIHTC).

NAA/NMHC vigorously oppose these initiatives because they only further tilt America's housing policy toward homeownership and perpetuate the dangerous disconnect between our housing policy and our housing needs. Mayors and congressional commissions say that creating more rental housing should be our top housing priority, yet more and more of our limited resources are diverted to homeownership.

In a statement to the press on behalf of NAA/NMHC, NMHC President Doug Bibby questioned the wisdom of a "homeownership above all else and at any cost" policy. He pointed out that the election-year homeownership hype has caused many to lose sight of three important facts. Not everyone wants to own a home. Not everyone has the means to own a home. And trying to create a nation of homeowners will ultimately harm not only many of those owners, but also local communities.

Creating more homeownership opportunities for minorities is a worthy goal, but unsustainable homeownership is not in anyone's interest. Foreclosures are at record levels, and FHA foreclosures in particular are trending beyond levels they have ever seen before. The National Housing Conference reports that 51 percent of working families with critical housing needs are owners, not renters.

The low- and moderate-income families targeted with this initiative are more likely to buy older houses that are more expensive to maintain and are located in struggling neighborhoods where price appreciation can be elusive. With no equity and little cash reserves, these house holds are one paycheck away from financial disaster. Even worse, homeownership can trap these highly leveraged families in deteriorating neighborhoods.

Putting families into homes they cannot sustain has a ripple effect. If new homeowners cannot afford to maintain their homes, then nearby property values decline, if families default and abandon their houses, then cities, counties, towns mid school districts also lose tax revenue. One researcher estimated that cities spend, on average, $27,000 per FHA foreclosure,

Rental housing may not be as strong a political message as homeownership, but the simple fact is that this nation needs apartments. They are needed for the 73 million Echo Boomers and the 13 million immigrants expected to flood into the housing market in the next decade. They are needed for the millions of hard-working families who cannot find affordable housing near their jobs.

They are needed for every town that wants to accommodate population growth without giving up all its green space and adding to pollution and traffic. And they are needed for every city that wants to reclaim a decaying downtown neighborhood. The biggest housing success story of the past 10 years is the downtown revivals taking place from Philadelphia to San Jose. These stories owe their success not to new homeownership initiatives but to apartment developers who took a chance and created new housing downtown.

Promoting homeownership is a worthy goal, but homeownership programs should be structured to "first, do no harm." The president's newest proposal does not meet that standard. The United States has real housing problems it must solve, and it cannot hope to solve them exclusively on the back of homeownership.

NAA members can access a set of talking points at www.naahq.org/government/government.aspx.

Fair Housing: New Requirements

On Dec. 19, HUD published guidance for property owners who receive may federal assistance clarifying their obligations to accommodate people with limited English proficiency (LFP).

Title VI of the 1964 Civil Rights Act requires recipients of federal assistance to ensure that people with LEP have meaningful access to their programs and activities. At the end of January, NAA/NMHC and other real estate groups submitted comments criticizing the notice as another burden that will impose substantial cost and possible liability for owners who accept federal assistance. The notice, which HUD implies it already considers to be in effect even though it has just been published for comment, effectively requires owners to translate a broad array of "vital" documents, such as resident applications, leases, lease attachment applications, facility roles, facility regulations, termination/eviction notices and more, in multiple languages.

It also requires verbal translations of these documents for those who do not read in their native language. This attempt to shift responsibility for translating documents to owners is impractical and expensive and threatens the uniform system of HUD-adopted model lease forms by requiring owners to create their own translations of them. Noting HUD's need to comply with Title VI, NAA/NMHC suggests that the department should bear the burden of translating basic program documents, especially because HUD created many of these "model" documents in the first place. In addition, NAA/NMHC note that owners should not bear responsibility for assuring competency of translators/interpreters. Finally, NAA/NMHC urged HUD to withdraw the notice or clarify that it is not in effect until it provides reliable and uniform standards that owners can use to determine when they need to make translated documents available. See www.naahq.org/government/government.aspx.

Class Action Vote Delayed

NAA/NMHC have learned that consideration of pending class action reform legislation, a priority for our organizations, may be delayed until as late as March because Senate Republicans want to consider a pension reform measure and a bill to reauthorize transportation funding first.

NAA/NMHC have urged congress to pass the Class Action Fairness Act (S. 1751) to protect responsible apartment firms, which have been recent targets for costly class action litigation involving fax marketing, lease termination fees and mold, from abusive suits.