Improving the Process for Allocating Loan Management Set-Aside Funds to Multifamily Housing Projects

Gao ID: RCED-85-29 November 16, 1984

The Loan Management Set-Aside (LMSA) Program is administered by the Department of Housing and Urban Development (HUD) to help maintain the financial viability of multifamily housing projects with cash-flow problems. The program is available to both insured and held projects. GAO reviewed the process used by HUD to allocate LMSA funds in fiscal years (FY) 1983 and 1984 and the basis used by HUD for restricting the use of LMSA funds for held projects.

HUD used a process that consisted of three stages to allocate program funds in FY 1983 and 1984. First, headquarters issued a memorandum containing instructions to field offices on the factors to consider in identifying projects that would benefit from LMSA funds. Second, field offices identified possible projects and submitted statistical and/or narrative information on funding needs to headquarters. Third, headquarters used the field data to select projects to receive LMSA funds. GAO determined that HUD needs to: (1) provide clearer instructions to its field offices on how to identify projects with the greatest potential for mortgage default; (2) provide guidance to its field offices on how to compute the number of units and the related amount of LMSA assistance needed for a project; (3) require that its field offices document how LMSA funds would ensure projects' long-term viability, especially how LMSA funds would solve cash-flow problems; and (4) clarify how tenant income, which affects the amount of rent the project owner can charge, should be considered in identifying projects and documented when submitting funding proposals to headquarters. GAO also found that HUD has not developed an approach to measure when it is cost-effective to use LMSA funds for held rather than insured projects. GAO concluded that HUD needs to clarify how to measure cost-effectiveness for held projects in order to provide reasonable assurance that program funds are spent effectively.

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.

Director: John H. Luke Team: General Accounting Office: Resources, Community, and Economic Development Division Phone: (202) 275-6111


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