Rental Housing

Implementing the New Federal Incentives to Deter Prepayments of HUD Mortgages Gao ID: PEMD-91-2 April 30, 1991

Pursuant to a congressional request, GAO provided information about the likelihood that owners of low- and moderate-income rental housing stock will seek prepayments of mortgages insured under the National Housing Act.

GAO found that: (1) the precise number of properties eligible for prepayment was uncertain, ranging from a low of 334,000 family units to a high of 367,000; (2) the four studies it reviewed regarding the number of eligible properties did not use the same procedures in reaching their estimates, and Department of Housing and Urban Development (HUD) databases had data errors that made it difficult to identify the units eligible for prepayment; (3) owners in low-supply, high-demand rental housing markets wanted to prepay their HUD-insured mortgages when they became eligible because of the increase in property values, the limited return on investment, and the uncertain legislative environment; (4) none of the owners in the high-supply, low-demand markets intended to prepay and convert their properties to market-rate rentals because of stagnant or decreasing property values, high vacancy rates, and guaranteed rents; and (5) the lack of field personnel financial expertise and HUD headquarters guidance caused delays in processing applications for prepayments and could allow owners to prepay if HUD can not provide incentives within 15 months after approving a plan of action.


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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