Multifamily Housing

Between 1990 and 1993, the Department of Housing and Urban Development (HUD) began foreclosure on a large number of insured mortgages on multifamily properties with financial, physical, or operating problems. However, HUD was unable to sell many of the properties promptly because of the long-term rent subsidies the agency had attached to the properties. Purchasers of 62 properties agreed to restrict rents charged to low-income households to the same rents that they would have paid under the HUD rent subsidy program--usually 30 percent of the household income. GAO found that HUD has not (1) provided its field offices nor purchasers of HUD multifamily properties with clear instructions on the procedures owners must follow in managing properties subject to rent restrictions or (2) established long-term requirements specifying how field offices should oversee owners' compliance with agreed-upon use restrictions. As a result, HUD has placed inconsistent requirements on property owners and, until recently, had not required field offices to oversee owners' compliance.

GAO found that: (1) HUD has not provided adequate instructions on how the rent-restriction alternative should be implemented; (2) HUD has inconsistently enforced its policy of filling vacant units on a first-come, first-served basis, which ensures that new property owners accept low-income households regardless of how much rental income the owners receive; (3) HUD did not require its field offices to monitor property owners' compliance with rent-restriction agreements until July 1994, since it placed a low priority on establishing monitoring requirements because few properties were sold with rent restrictions; (4) HUD plans to issue instructions clarifying program requirements by May 1, 1995; (5) changes authorized by new property disposition legislation are likely to diminish HUD use of the current rent-restriction alternative; and (6) many occupants of rent-restricted units may be required to pay rents computed as a percentage of the area median income rather than as 30 percent of their own adjusted household income.