Hud

The U.S. Department of Housing and Urban Development (HUD) was established as a Cabinet-level department in 1965 but identifies its origins in the creation of the Federal Housing Administration (FHA) in 1937. This view is appropriate given that HUD has significantly reduced its urban development activities to focus on housing and homeownership initiatives. This shift follows a broader federal policy movement throughout the 1990s that identified homeownership as a potential solution to a wide range of urban problems.

HUD is responsible for developing and administrating federal urban and housing policy. The department includes five program offices: Housing, the Government National Mortgage Association (Ginnie Mae), Public and Indian Housing, Community Planning and Development, and Fair Housing and Equal Opportunity.

The FHA is the largest program in the Housing office and insures mortgages issued by financial institutions based on specific criteria. In so doing, the FHA substantially reduces the lending risk for financial institutions and allows them to make more loans at lower interest rates to moderate-income homebuyers.

Ginnie Mae operates in the secondary mortgage market by purchasing mortgages from the originating financial institutions and then selling securities backed by those mortgages to private investors. Investors are able to make a profit on the securities, and Ginnie Mae returns a profit as the mortgages are paid back in a timely manner. The secondary market provides financial institutions with a new source of capital that allows them to make more home loans. In addition, those loans can be made to higher-risk borrowers (typically moderate-income, first-time borrowers) because the risk of the mortgage is spread out across a large number of investors.

The Public and Indian Housing office oversees hundreds of local public housing authorities (PHAs) and provides housing for the lowest-income households in the nation. This office has drawn substantial criticism over the years for its bureaucratic excess (a charge leveled at HUD in general). The HOPE VI program was a response to some of these criticisms. This program attempted to rectify two decades of neglect by providing $5.3 trillion in funding from 1993 to 2002 to address the problems of “severely distressed” public housing. HOPE VI focused on a new form of public housing with lower densities and, when possible, mixed-income residents. Residents were also encouraged to use the Housing Choice Voucher program (formerly termed Section 8 housing), which provides low-income households with vouchers that can be used to subsidize rent (or house payments) in private market housing. The vouchers are popular, but waiting lists for them often are long and the program is poorly funded. HOPE VI has won awards for its innovative approach and has clearly changed the physical landscape of public housing. However, it has also been the target of many criticisms for a variety of reasons. Most important, the original one-to-one replacement policy was dropped, and significantly more low-income housing units were demolished than were rebuilt.

The Community Planning and Development office implements HUD's community and economic development programs, including Community Development Block Grants (CDBG) and the Economic[Page 231] Development Loan Guarantee Fund. Although some of these programs are sizable, most pale in comparison with the funds involved in the housing programs.

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