Housing and Urban Development Act of 1968

The act authorized $5.3 billion in spending over its first three years, designed to fund 1.7 million units over that time. In the longer term, the act was designed to cost $50 billion over 10 years, had it ever been fully implemented. Its policies were to be implemented by the United States Department of Housing and Urban Development, which had been created in 1965.

The legislation provided a significant expansion in funding for public programs, such as Public Housing. But it also marked a shift in federal programs, increasingly focusing on using private developers as a strategy to encourage housing production of affordable units. Though the program's 10-year ambitions were not achieved, in some ways it set the tone for future U.S. approaches to policy because of this focus on public-private joint initiatives in achieving public ends.

The creation of Ginnie Mae and new financing programs

The Act established Ginnie Mae to expand availability of mortgage funds for moderate income families using government-guaranteed mortgage-backed securities. The new entity was split from the former Fannie Mae, which retained other functions under that same name. The new entity was under the purview of the United States Department of Housing and Urban Development and its Federal Housing Administration.

The Act's major programs included Section 235 guarantees for lenders to offer mortgages for low- and moderate-income families with $200 down and 20% of a household's salary, and 1% mortgage interest rates. These guarantees were insured by the Federal Housing Administration.

The way Section 235 was designed, however, led to problems. Borrowers were submitted to limited credit requirements, and first-time buyer education was minimally provided. The Rouse Company used Section 235 to resell hundreds of homes that had been condemned and abandoned for a cancelled highway project in Baltimore, Maryland. After poor results, the highway project was renewed.

Section 235, in some cases, increased segregation; white families were encouraged to purchase in suburban, newly developed areas, whereas black families, held up by exclusionary practices, primarily purchased homes in lower-income, central-city areas. This pattern increased the wealth of many white families while leaving many black families behind. Though Section 235 provided aid to about a half a million families and cost the federal government $1.37 billion by 1974, the program featured very high rates of housing abandonment due to families being unable to pay the mortgage (10% of families foreclosed).

The act also included the more-successful Section 236 assistance for moderate-income renters, replacing the 221(d)(3) Below-Market-Interest Rate program that had been created by the 1961 Housing Act. As with Section 235, developers would receive a subsidy to reduce their mortgage interest rate to just 1%. This program was used to support the majority of housing built by New York's prolific Empire State Development Corporation, then known as the Urban Development Corporation, and which completed roughly 30,000 housing units between 1968 and 1975.