Rural Rental Housing

The Farmers Home Administration (FmHA) is authorized to provide housing project owners with various financial incentives, such as equity loans, to encourage them to keep their apartment buildings in FmHA's rural rental housing program rather than prepaying their loans and ending their involvement in the program. Although FmHA has been successful in preserving its rural rental housing inventory and preventing displacement of low-income tenants, the financial incentives FmHA provided to achieve these goals were substantial, and, in some cases, larger than they should have been. The $69-million tab to preserve nearly 6,000 apartment units may actually be higher because costs associated with the return on investment and rental assistance incentives are unknown. Although FmHA has developed a draft final regulation that should end the payment of excessive financial incentives, the final regulation has been continually delayed because of higher priorities.

GAO found that: (1) 140 FmHA projects either received financial incentives or were sold to nonprofit organizations, as authorized under the Housing and Development Act of 1987, to preserve low-income housing; (2) 5,870, or 4 percent, of the 160,000 eligible units were preserved through incentives totalling about $69 million; (3) 129 of the 140 projects received equity loans, which are most attractive to borrowers because they are unrestricted and can be repaid by project revenues; (4) the increased rental assistance payments and increased rate of return on investment incentives were rarely used without equity loans; and (5) FmHA encountered problems in the appraisal methodology, which resulted in inequities in the distribution of financial incentives.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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