An Overview of Federal Support for Housing

November 3, 2009

The federal government commits substantial budgetary resources to support housing and mortgage markets through a combination of spending programs and tax provisions. During the crisis of the past two years, the commitment expandedto about $300 billion in 2009from the placement into conservatorship in September 2008 of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and the creation of new housing programs. Today CBO released a brief describing, in broad terms, the array of federal activities that support housing and the recent expansion of particular programs.

As shown in the figure below, most of the federal governments spending for housing supports homeownership. In fiscal year 2009, the federal government devoted almost four times the amount of budgetary resources to supporting homeownership (about $230 billion) as it devoted to improving rental affordability ($60 billion).

Federal Spending for Housing, 2009

(In Billions of Dollars)

The government supports homeownership by subsidizing the costs of owning a home (reducing down payments, mortgage insurance costs, and tax liability) and increasing the availability of mortgage loans. Until recently, the bulk of federal support for homeownership took the form of tax expenditures (that is, subsidies conveyed through reductions in taxes), which make it less expensive to own a home by reducing taxes for homeowners and investors.

As a result of recent actions to address the crisis, the government now provides roughly equivalent amounts of support for homeownership through tax expenditures and spending programs. About 80 percent of the federal support for renters is provided by spending programs; the remainder is provided through tax expenditures. The federal government also shapes the housing and mortgage markets through regulationas provided, for example, in the Truth in Lending Act and the Home Mortgage Disclosure Act.

This brief categorizes 28 federal housing activities by type of support (homeownership or rental), mechanism (spending or taxation), and budgetary cost in 2009. The largest single budgetary cost is associated with the tax deduction for mortgage interest, which resulted in an estimated revenue loss of $80 billion in 2009. On the spending side, in 2009 the Treasury Department initiated the Making Home Affordable program, which provides incentive payments to mortgage servicers and homeowners to facilitate the process of refinancing or modifying loans so that homeowners can move into lower-cost or fixed rate mortgages. The Treasury has committed up to $50 billion to that program, and Fannie Mae and Freddie Mac are expected to spend up to $25 billion---though only a very small portion of the $75 billion was spent in 2009.

This brief was prepared by Elizabeth Cove Delisle of CBOs Budget Analysis Division.