Mortgages Assigned to HUD Under Section 221(g)(4) of the National Housing Act

Pursuant to a congressional request, GAO provided information on the potential long-term costs to the Department of Housing and Urban Development (HUD) of the provisions of section 221 of the National Housing Act.

Legislation enacted in 1954 as part of section 221 of the act allows mortgagees holding mortgages insured under section 221 to assign them to HUD, if they are not delinquent and are at least 20 years old but not more than 21 years old, in exchange for interest-bearing debentures. Because the section 221 provision allows mortgagees to obtain debentures bearing current interest rates in return for mortgages bearing 20-year-old rates, future costs to HUD could be substantial. GAO estimated that the HUD net cash outlay by the year 2013 could exceed $6.9 billion in debenture principal and interest for the existing multifamily portion of the section 221 program. Legislative changes have been proposed in the Senate version of the HUD 1983 housing authorization bill to eliminate the assignment provision in future section 221 insurance contracts, but similar provisions have not been included in the House bill.