Multifamily Housing

The Department of Housing and Urban Development's (HUD) permanent "mark-to-market" program was recently established to restructure the agency's multifamily portfolio of insured Section 8 housing projects. The program will, if necessary, reset rents and reduce mortgage debt to permit a positive cash flow. Rents for many HUD-assisted and -insured multifamily housing projects substantially exceed the market level, which results in higher subsidies under the Section 8 program. HUD received $3.8 billion for Section 8 project-based subsidies in fiscal year 1998. This report discusses the development of HUD's Office of Multifamily Housing Assistance Restructuring, which runs the mark-to-market program. GAO focuses on (1) the Office's organization and staffing and how it relates to HUD's overall structure, (2) whether it is on schedule to meet its key operational and reporting requirements, (3) the procedures and systems it will use to oversee the program's implementation, (4) the status of projects included in three mark-to-market demonstration programs and how HUD is using the information gathered from these programs, and (5) the actions it has taken to obtain information and feedback from parties affected by the program.

GAO noted that: (1) because a Director for OMHAR was not appointed until October 21, 1998, HUD had not made final decisions at the time of GAO's review on the Office's staffing and organization or on how the Office would relate to HUD's overall structure; (2) in addition to the 10 staff currently assigned to work on the mark-to-market program, HUD's preliminary plans call for hiring approximately 75 staff for OMHAR; (3) the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1998, provides the Director special compensation authority to pay employees of OMHAR at a higher level than other employees in order to obtain the skills and expertise needed to accomplish the program's purposes; (4) HUD has made considerable progress toward meeting its key operational requirements for implementing the mark-to-market program; (5) because of delays in obtaining contract support and the sheer volume of tasks that HUD needs to complete, some of these tasks either have been or will be completed behind their original schedule; (6) the HUD officials responsible for the mark-to-market program are in the process of establishing or planning several procedures and systems designed to oversee the implementation of the program; (7) these include: (a) a system for measuring the performance of the entities responsible for carrying out restructuring transactions on HUD's behalf; (b) an Internet-based system to track the actions taken by these entities in carrying out mark-to-market functions; and (c) an audit guide to test these entities' compliance with the program's requirements and objectives; (8) as of October 14, 1998, most of these procedures and systems were still being developed; (9) in accordance with legislative requirements, HUD mark-to-market staff have taken actions to obtain information and feedback from affected parties; (10) specifically, they: (a) have developed program guidance that includes steps to involve affected parties including tenants and neighborhood associations, at various points in the restructuring process; and (b) have held three public forums to obtain recommendations from organizations representing affected parties on implementing certain legislative provisions; and (11) in addition to the legislatively required actions, HUD invited organizations representing project owners and managers, tenant groups, nonprofit organizations, lenders, coalitions of local and state government agencies, and other advocacy groups to submit ideas and comments on developing the program and to participate in meetings to discuss these issues.