I'm not sure you have to go as far a mental hospitals. If you just build half decent government funded accommodation it deals with a lot of the problem. Plus maybe the odd visitor to help them fill forms etc if they are not capable of doing that. It surprises me that the US doesn't do more of that.
There is a history of modern worldwide homelessness. A single law signed by Reagan was only a small part of this phenomenon. The bipartisan law itself mainly concerned ending indefinite detention (sound familiar?) and for the most part, added programs to help the mentally ill. It did affect funding.
A large portion of Americans are too selfish to pay extra tax to support the poor. They don't realize that their selfishness hurts everyone, including themselves:
http://www.ted.com/talks/richard_wilkinson
