HUD Reassessment Procedures for Multifamily Housing Projects During the Approval Process and Construction Phase

GAO conducted a study in response to a congressional request to determine: (1) whether Department of Housing and Urban Development (HUD) procedures to reassess its commitment to projects when changes such as increased construction costs and high interest rates make their financial outlook questionable were followed in approving the Park Crestwood project in Crestwood, Missouri; (2) HUD procedures to obtain comments from local jurisdictions on proposed projects; and (3) what comments were obtained from local jurisdictions on the Park Crestwood project.

HUD procedures call for reassessing a project's financial viability during the approval process whenever changes are proposed which would affect the project's expense and income projections or whenever the HUD commitment to insure the project is modified or allowed to terminate. HUD made two reassessments on the Park Crestwood project in accordance with its procedures. In addition, HUD procedures require the reassessment of a project after construction begins if a developer requests a mortgage increase or if the project is reported to be in default. According to HUD officials, there has been no need to reassess the Park Crestwood project since construction began. HUD procedures call for foreclosure on projects under construction that are in default for reasons such as a prolonged work stoppage. However, remedies are generally sought to complete projects in foreclosure. HUD procedures also require an agency to obtain comments on proposed projects from State and local governments during the approval process. HUD obtained input on the proposal's consistency with local area planned housing assistance needs, in accordance with its procedures, before approving the Park Crestwood project. Some concerns were raised about the project's drainage system, inadequate heating systems, and exterior and swimming pool maintenance. The comments were considered, but were not an impediment to the project's approval.