Multifamily Housing Finance

To help build and rehabilitate multifamily rental housing, the Federal Housing Administration (FHA) provides lenders with mortgage insurance, or guarantees, for multifamily loans. In fiscal year 2001, FHA provided guarantees for all multifamily projects--regardless of program--on a first-come, first-served basis until the total budget authority for the multifamily programs was exhausted. FHA had obligated $81 million of the $101 million of its credit subsidy budget authority for the fiscal year by April 2001 and suspended issuing commitments for additional loans. FHA obligated most of its fiscal year 2001 subsidy budget authority by April 2001 because of unexpectedly high demand--five times FHA's estimate--for mortgage insurance under the Section 221(d)(3) Program, which is limited to nonprofit developers and cooperatives and has a higher subsidy rate than do other programs. FHA has taken steps to avoid this situation in the future. When most of the fiscal year 2001 credit subsidy budget authority was obligated, FHA placed several multifamily projects on a waiting list until funding became available. Most of these projects were funded using the remaining budget authority and credit subsidy from projects approved earlier that were later terminated or required less subsidy than expected. FHA estimates the total dollar amount of mortgages it expects to insure each year on the basis of the last year's levels. These estimates are then adjusted for inflation, the capacity of the field offices to process loan applications, and any changes or proposed changes to the programs. GAO found that the estimation process and types of data used to calculate the fiscal year 2002 credit subsidy rates for these programs were reasonable and complied with existing guidance from the Office of Management and Budget and federal accounting standards. The fiscal year 2002 credit subsidy rate calculations reflect several changes from the fiscal year 2001 calculations, including an annual premium increase for the Section 221(d)(4) Program, an anticipated increase in the use of the note sales program to dispose of acquired 221(d)(3) loans, and a change in the mix of loans included in the estimation process for the Section 241(a) Program.