Housing Finance

Expanding Capital for Affordable Multifamily Housing Gao ID: RCED-94-3 October 27, 1993

One of the nation's most critical housing problems today is the shortage of decent and affordable multifamily rental housing. Congress has been trying to expand the availability of capital to finance such housing through credit enhancements--mechanisms for transferring credit risk from one party to another--such as mortgage insurance. Congress has authorized the Federal Housing Administration to undertake risk-sharing demonstration projects to test the effectiveness of new forms of federal credit enhancements for multifamily housing. This report examines (1) the problems that have led to the shortage of mortgage financing for affordable multifamily housing, (2) the factors limiting the expansion of a secondary market for such housing, (3) alternative forms of federal credit enhancements, and (4) ways to estimate and limit the federal government's exposure to risks in adopting specific credit enhancements.

GAO found that: (1) the supply of capital for multifamily housing has decreased because regulations for multifamily housing lending are less attractive to depository institutions; (2) the secondary market for small multifamily housing loans is limited because of the difficulty in standardizing loans and the risks of lending capital for housing targeted to lower-income households; (3) credit enhancement options that delegate responsibility to state and national financial intermediaries for processing, underwriting, and monitoring individual loans can improve financing for affordable multifamily housing; (4) the federal government and investors need accurate information on the performance of multifamily loans to assess risk; and (5) a national database could address actual credit risks by providing performance data on multifamily housing loans.

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.

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