Multifamily Housing
More Accessible HUD Data Could Help Efforts to Preserve Housing for Low-Income Tenants Gao ID: GAO-04-992T July 20, 2004The Department of Housing and Urban Development (HUD) has subsidized the development of about 1.7 million rental units in over 23,000 privately owned properties by offering owners favorable long-term mortgage financing, rental assistance payments, or both in exchange for owners' commitment to house low-income tenants. When owners pay off mortgages--the mortgages "mature"--the subsidized financing ends, raising the possibility of rent increases. Based on a report issued in January 2004, this testimony discusses (1) the number and selected characteristics of HUD-subsidized rental properties with mortgages scheduled to mature in the next 10 years, (2) the potential impact on tenants upon mortgage maturity, and (3) the tools and incentives that HUD, the states, and localities offer owners to keep HUD properties affordable upon mortgage maturity.
Nationwide, the HUD mortgages on 2,328 properties--21 percent of the 11,267 subsidized properties with HUD mortgages--are scheduled to mature in the next 10 years, but among states this percentage varies significantly: from 7 percent in Alabama, to 53 percent in South Dakota. About three-quarters of these mortgages are scheduled to mature in the last 3 years of the 10-year period. As part of our analysis, we developed a searchable database available on a CD-ROM, showing property-level data for each of HUD's subsidized rental properties scheduled to mature in the next 10 years. Impacts on tenants depend on tenant protections available under program statutes and regulations, as well as on property owners' decisions about their properties. No statutory requirement exists to protect tenants from increases in rent when HUD mortgages mature, absent the existence of rental assistance contracts or other subsidies. Without tenant protection requirements, tenants in over 101,000 units that do not receive rental assistance may have to pay higher rents or move when the HUD mortgages on these properties mature and rent restrictions are lifted. During the past 10 years, HUD-insured mortgages at 32 properties reached mortgage maturity, and the majority of these properties are still serving low-income tenants. HUD does not offer incentives to owners to keep properties affordable upon mortgage maturity. While many state and local agencies GAO surveyed offered incentives to preserve affordable housing, they have not directed them specifically at properties where HUD mortgages mature. Most of the agencies do not track HUD mortgage maturity dates for subsidized properties. In addition, although HUD's Web site contains detailed property-level data, some state and local agencies perceive that the information is not readily available.
GAO-04-992T, Multifamily Housing: More Accessible HUD Data Could Help Efforts to Preserve Housing for Low-Income Tenants
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Testimony:
Before the Subcommittee on Housing and Community Opportunity, Committee
on Financial Services, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10: 00 a.m. EDT:
Tuesday, July 20, 2004:
Multifamily Housing:
More Accessible HUD Data Could Help Efforts to Preserve Housing for
Low-Income Tenants:
Statement of David G. Wood, Director Financial Markets and Community
Investment:
GAO-04-992T:
GAO Highlights:
Highlights of GAO-04-992T, a report to the Committee on Financial
Services, House of Representatives
Why GAO Did This Study:
The Department of Housing and Urban Development (HUD) has subsidized
the development of about 1.7 million rental units in over 23,000
privately owned properties by offering owners favorable long-term
mortgage financing, rental assistance payments, or both in exchange for
owners‘ commitment to house low-income tenants. When owners pay off
mortgages”the mortgages ’mature“”the subsidized financing ends, raising
the possibility of rent increases. Based on a report issued in January
2004, this testimony discusses (1) the number and selected
characteristics of HUD-subsidized rental properties with mortgages
scheduled to mature in the next 10 years, (2) the potential impact on
tenants upon mortgage maturity, and (3) the tools and incentives that
HUD, the states, and localities offer owners to keep HUD properties
affordable upon mortgage maturity.
What GAO Found:
Nationwide, the HUD mortgages on 2,328 properties”21 percent of the
11,267 subsidized properties with HUD mortgages”are scheduled to mature
in the next 10 years, but among states this percentage varies
significantly: from 7 percent in Alabama, to 53 percent in South
Dakota. About three-quarters of these mortgages are scheduled to
mature in the last 3 years of the 10-year period. As part of our
analysis, we developed a searchable database available on a CD-ROM,
showing property-level data for each of HUD‘s subsidized rental
properties scheduled to mature in the next 10 years.
Impacts on tenants depend on tenant protections available under program
statutes and regulations, as well as on property owners‘ decisions
about their properties. No statutory requirement exists to protect
tenants from increases in rent when HUD mortgages mature, absent the
existence of rental assistance contracts or other subsidies. Without
tenant protection requirements, tenants in over 101,000 units that do
not receive rental assistance may have to pay higher rents or move when
the HUD mortgages on these properties mature and rent restrictions are
lifted. During the past 10 years, HUD-insured mortgages at 32
properties reached mortgage maturity, and the majority of these
properties are still serving low-income tenants.
HUD does not offer incentives to owners to keep properties affordable
upon mortgage maturity. While many state and local agencies GAO
surveyed offered incentives to preserve affordable housing, they have
not directed them specifically at properties where HUD mortgages
mature. Most of the agencies do not track HUD mortgage maturity dates
for subsidized properties. In addition, although HUD‘s Web site
contains detailed property-level data, some state and local agencies
perceive that the information is not readily available.
State and Local Agencies‘ Efforts to Identify and Track Properties that
May Leave HUD Programs:
[See PDF for image]
[End of figure]
What GAO Recommends:
In its report, GAO recommended that HUD solicit the views of state and
local housing agencies to determine what information on HUD-subsidized
properties is needed and the most effective format to convey this
information. HUD concurred with the report‘s conclusions and
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-992T.
To view the full product, click on the link above. For more
information, contact David G. Wood at (202) 512-8678 or WoodD@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I appreciate the opportunity to be here today to discuss our report to
you on properties with mortgage financing provided through the
Department of Housing and Urban Development (HUD).[Footnote 1] Since
the 1950s, HUD has subsidized about 1.7 million rental units in over
23,000 privately owned properties that are generally affordable to low-
income tenants-those with incomes 80 percent or less of area median
income. HUD supported the development of affordable housing by offering
property owners favorable mortgage financing, long-term rental
assistance contracts, or both in exchange for owners' commitment to
house low-income tenants for at least 20 years and, in some cases, up
to 40 years. However, many of these commitment periods will be
completed in the next 10 years as the HUD mortgages reach their
scheduled maturity dates and long-term rental assistance contracts
expire. These subsidized properties represent a significant source of
housing that is affordable to low-income households.
My statement today, which is based on our January 2004 report,
discusses (1) the numbers and selected characteristics of HUD-
subsidized rental properties that are scheduled to reach mortgage
maturity through 2013-roughly the next 10 years; (2) the potential
impact on tenants when mortgages reach maturity; and (3) the tools and
incentives that HUD, the states, and localities offer owners to keep
HUD properties affordable when mortgages mature. In preparing the
report, we analyzed HUD databases to identify the characteristics of
those properties with mortgages that have already reached maturity as
well as those that are scheduled to reach maturity by December 31,
2013.[Footnote 2] We surveyed 327 state and local housing and community
development agencies to obtain information on what tools and incentives
they use to keep HUD-subsidized properties affordable to low-income
tenants. In addition, we reviewed statutes and regulations and
interviewed HUD officials to identify tenants' protections when
mortgages on subsidized properties mature. We performed our work from
January through November 2003 in accordance with generally accepted
government auditing standards.
To summarize:
* Nationwide, 21 percent or 2,328 of the 11,267 subsidized properties
with HUD mortgages are scheduled to reach mortgage maturity through
2013, but among states this percentage varies significantly: from 7
percent in Alabama, to 53 percent in South Dakota. These properties
contain 236,650 units. Nearly all of these 2,328 properties were
financed under three specific HUD programs, two of which operated only
between 1961 and 1973. About three-quarters of the mortgages are
scheduled to mature in the last three years of the 10-year period.
* Impacts on tenants depend in part on tenant protections available
under program regulations and statutes, as well as on owners' decisions
about their properties. No statutory requirement exists to protect
tenants from increases in rent when HUD mortgages mature, absent the
existence of rental assistance contracts or other subsidies. Without
tenant protection requirements, tenants in over 101,000 units that do
not receive rental assistance may have to pay higher rents or move when
the HUD mortgages on these properties mature and rent restrictions are
lifted. Further, owners are not required to notify tenants when a
propertyís mortgage is about to mature. In contrast, owners are
required to notify tenants up to 1 year in advance of their intent to
prepay mortgages or decline renewal of rental assistance contracts.
Property ownersí decisions on whether they continue to serve low-income
tenants after their HUD mortgages mature depend on many factors, such
as neighborhood incomes, the condition of their properties, and ownersí
missions. During the past 10 years, HUD-insured mortgages at 32
properties reached mortgage maturity, and the majority of these
properties are still serving low-income tenants. HUD does not offer any
tool or incentive to keep properties affordable after HUD mortgages
mature, although it does offer incentives to keep properties affordable
under certain other circumstances, such as the expiration of rental
assistance contracts or prepayment of HUD mortgages. According to
officials from the four national housing and community development
organizations we contacted, because few HUD mortgages have matured to
date, their member state and local agencies have not experienced the
need to develop programs to deal with mortgage maturity specifically.
They noted that their member agencies could offer tools and incentives,
such as loans and grants, to keep properties affordable after mortgage
maturity. However, over 50 percent of the state and local agencies that
responded to our survey reported that they have no system in place to
identify and track properties that may leave HUD's programs, and about
three-quarters of them did not track the maturity dates of HUD
mortgages.[Footnote 3] Based on our findings, we recommended that HUD
provide more widely available and useful information for state and
local agencies to track subsidized properties that may leave HUD
programs.
Background:
Prior to the early 1970s, the federal government provided affordable
multifamily housing for low-and moderate-income households by
subsidizing the production of either privately owned housing or
government-owned public housing. Under production programs, the subsidy
is tied to the unit (project-based), and tenants benefit from reduced
rents while living in the subsidized unit. HUD's mortgage financing
programs include:
* Section 202 Elderly and Disabled Housing Direct Loan, which provided
below-market interest rates on up to 40-year mortgages to developers of
rental housing for low-income elderly and persons with disabilities
from 1959 to 1991. Congress changed Section 202 to a grant program in
1990.
* Section 221(d)(3) Below-Market Interest Rate (BMIR), which provided
subsidized financing on private 40-year mortgages to developers of
rental housing from 1961 to 1968.
* Section 236, which provided monthly subsidies to effectively reduce
interest rates on private 40-year mortgages for rental housing from
1968 to 1973.
* Sections 221(d)(3) and 221(d)(4), which insured private mortgages to
developers of rental housing from 1961.
* Section 231, which insured private mortgages to developers of rental
housing for the elderly from 1959.
In order to reach lower-income tenants, a portion of the units in many
properties developed under these production programs were further
subsidized by provision of rental assistance, under programs such as
Rent Supplement, Rental Assistance Payments (RAP), and project-based
Section 8.
In the early 1970s, questions about the production programs'
effectiveness led the Congress to explore options for using existing
housing to shelter low-income tenants. The Housing and Community
Development Act of 1974 included both approaches-a project-based new
construction and substantial rehabilitation program and a tenant-based
rent certificate program for use in existing housing (currently named
the Housing Choice Voucher program)-all referred to as Section 8
housing.[Footnote 4] Project-based and tenant-based Section 8
assistance is targeted to tenants with incomes no greater than 80
percent of area median income, and tenants generally pay rent equal to
30 percent of adjusted household income. The project-based Section 8
program also provides rental assistance to owners of properties that
were not financed with HUD mortgages.
Beginning in the late 1980s, owners of some subsidized properties began
to be eligible to leave HUD programs by prepaying their mortgages or
opting out of their project-based Section 8 rental assistance
contracts. Once these owners removed their properties from HUD
programs, they were no longer obligated to maintain low rents or accept
rental assistance payments. In response, in 1996, Congress created a
special type of voucher, known as an enhanced voucher, to protect
tenants from rent increases in these properties.[Footnote 5]
Not all property owners repay mortgages as originally scheduled. For
example, an owner may refinance the mortgage to pay for improvements to
the property. Other owners may experience financial difficulties and
default on their mortgages. From January 1993 through December 2002,
HUD data show that the agency terminated the insurance on 231
mortgages. About 14 percent were due to mortgages that matured; other
reasons included owners' mortgage prepayment (37 percent) and
foreclosure (22 percent).
About One-Fifth of HUD's Mortgages Are Scheduled to Mature through
2013:
Nationwide, 21 percent of subsidized properties with HUD mortgages have
mortgages that are scheduled to mature from 2003 through 2013, but the
percentage varies significantly by state. Nearly all of these
properties were financed under the Section 236, Section 221(d)(3) BMIR,
and Section 221(d)(3) programs.
Scheduled Mortgage Maturities Through 2013 Vary by Year and Program:
Of the 11,267 subsidized properties (containing 914,441 units) with HUD
mortgages, 21 percent (2,328 properties containing 236,650 units) have
mortgages that are scheduled to mature from 2003 through 2013. The
remaining 79 percent of these mortgages (on over 8,900 properties) are
scheduled to reach maturity outside of the 10-year period.[Footnote 6]
Additionally, the bulk of these mortgages (about 75 percent) are
scheduled to mature in the latter three years of the 10-year period
(see fig. 1). This concentration in the latter part of the 10-year
period is attributable to the 40-year Section 221(d)(3) BMIR and
Section 236 mortgages that HUD helped finance in the late 1960s and
1970s, respectively.
Figure 1: Figure 1: HUD Mortgages Scheduled to Mature Annually through
2013:
[See PDF for image]
[End of figure]
As table 1 shows, about 57 percent of the properties with mortgages
scheduled to mature in the 10-year period were financed under Section
236, 22 percent under Section 221(d)(3) BMIR, and 19 percent under
Section 221(d)(3). Section 202, Section 221(d)(4), and Section 231
accounted for only 3 percent of these properties.
Table 1: Subsidized Properties with HUD Mortgages by Program Scheduled
to Mature through 2013:
Financing program: HUD subsidized mortgage: Section 236;
Number of properties: 1,333;
Percentage of properties: 57%;
Total units: 139,769;
Units assisted with project-based Section 8[A]: 78,139.
Financing program: HUD subsidized mortgage: Insured;
Number of properties: 1,333;
Percentage of properties: 57%;
Total units: 139,769;
Units assisted with project-based Section 8[A]: 78,139.
Financing program: HUD subsidized mortgage: Noninsured[B];
Number of properties: 0;
Percentage of properties: 0%;
Total units: 0;
Units assisted with project-based Section 8[A]: 0.
Financing program: HUD subsidized mortgage: Section 221(d)(3) BMIR;
Number of properties: 502;
Percentage of properties: 22%;
Total units: 56,573;
Units assisted with project-based Section 8[A]: 18,810.
Financing program: HUD subsidized mortgage: Section 202;
Number of properties: 41;
Percentage of properties: 2%;
Total units: 3,208;
Units assisted with project-based Section 8[A]: 871.
Financing program: HUD unsubsidized mortgage: Section 221(d)(3);
Number of properties: 431;
Percentage of properties: 19%;
Total units: 35,263;
Units assisted with project-based Section 8[A]: 34,711.
Financing program: HUD unsubsidized mortgage: Section 221(d)(4);
Number of properties: 14;
Percentage of properties: [C];
Total units: 1,239;
Units assisted with project-based Section 8[A]: 1,146.
Financing program: HUD unsubsidized mortgage: Section 231;
Number of properties: 7;
Percentage of properties: [C];
Total units: 598;
Units assisted with project-based Section 8[A]: 410.
Financing program: HUD unsubsidized mortgage: Noninsured rent
supplement;
Number of properties: [D];
Percentage of properties: [D];
Total units: [D];
Units assisted with project-based Section 8[A]: [D].
Total;
Number of properties: 2,328;
Percentage of properties: 100%;
Total units: 236,650;
Units assisted with project-based Section 8[A]: 134,087.
Source: GAO analysis of HUD data.
[A] Also included are units that receive RAP or Rent Supplement.
Project-based Section 8, however, is the dominant form of rental
assistance across all financing programs. The Section 8 Moderate
Rehabilitation program is not included in this table because HUD's
multifamily database does not track this program.
[B] No mortgage was scheduled to mature in this period.
[C] Less than 1 percent.
[D] Since properties with noninsured rent supplement do not carry a HUD
mortgage, HUD does not track mortgage-level data on these properties.
[End of table]
Number of Mortgages Scheduled to Mature by 2013 Also Varies by State:
The number of mortgages scheduled to mature through 2013 varies greatly
by state (see fig. 2). Although the average is 46 mortgages per state
(including the District of Columbia), the number ranges from a high of
273 maturing mortgages in California to 3 in Vermont.
Figure 2: Figure 2: Subsidized Properties with HUD Mortgages Scheduled
to Mature through 2013, by State:
[See PDF for image]
Note: The figure above includes 2,311 of the 2,328 properties in our
analysis-excluded are properties in territories of the United States,
such as Puerto Rico and Guam.
[End of figure]
The states also vary considerably in terms of the percentage of their
respective HUD mortgages on subsidized properties that are scheduled to
mature through 2013, ranging from 7 percent in Alabama to 53 percent in
South Dakota.
Tenant Impacts Depend on Protections and Property Owners' Decisions:
Over the next 10 years, low-income tenants in over 101,000 units may
have to pay higher rents or move when HUD-subsidized mortgages reach
maturity. This is because no statutory requirement exists to protect
tenants from increases in rent when HUD mortgages mature and rent
restrictions are lifted. A number of factors may affect ownersí
decisions regarding the continued affordability of their properties
after mortgages mature, including neighborhood incomes, physical
condition of the property, and owners' missions.
HUD Does Not Offer Protection for Unassisted Tenants in Properties with
Maturing Mortgages:
There is no statutory authority that requires HUD to offer tenants
special protections, such as enhanced vouchers, when a HUD mortgage
matures. However, tenants who receive rental assistance in properties
with maturing mortgages would be eligible for enhanced vouchers under
rental assistance programs, such as project-based Section 8.
Of the 2,328 subsidized properties with mortgages scheduled to mature
through 2013, 480-containing 45,011 units-do not have rental assistance
contracts (see table 2). While the remaining 1,848 properties are
subsidized with rental assistance, not all units within the properties
are covered. According to HUD data, about 30 percent of the units in
these properties are not covered-a total of 57,552 units with tenants
who do not receive rental assistance. Altogether, the tenants in a
total of 102,563 units are not protected under the rental assistance
programs. Of these, 101,730 units-most of them in properties with
mortgages under the Section 221(d)(3) BMIR and Section 236
programs-could face higher rents after mortgage maturity when the rent
restrictions under these programs are lifted.
Table 2: Subsidized Properties with HUD Mortgages Scheduled to Mature
through 2013, by Rental Assistance Program:
Number of properties:
Financing program: HUD subsidized mortgage: Section 236;
None: 166;
Rental assistance program[A]: Project-based Section 8: 1,123;
Rental assistance program[A]: Rent Supplement: 40;
Rental assistance program[A]: Other[B]: 4;
Total: 1,333.
Financing program: HUD subsidized mortgage: Section 236: Insured;
None: 166;
Rental assistance program[A]: Project-based Section 8: 1,123;
Rental assistance program[A]: Rent Supplement: 40;
Rental assistance program[A]: Other[B]: 4;
Total: 1,333.
Financing program: HUD subsidized mortgage: Section 236: Noninsured[C];
None: 0;
Rental assistance program[A]: Project-based Section 8: 0;
Rental assistance program[A]: Rent Supplement: 0;
Rental assistance program[A]: Other[B]: 0;
Total: 0.
Financing program: HUD subsidized mortgage: Section 221(d)(3) BMIR;
None: 294;
Rental assistance program[A]: Project-based Section 8: 206;
Rental assistance program[A]: Rent Supplement: 2;
Rental assistance program[A]: Other[B]: 0;
Total: 502.
Financing program: HUD subsidized mortgage: Section 202;
None: 20;
Rental assistance program[A]: Project-based Section 8: 4;
Rental assistance program[A]: Rent Supplement: 5;
Rental assistance program[A]: Other[B]: 2;
Total: 41.
Financing program: HUD unsubsidized mortgage: Section 221(d)(3);
None: 0;
Rental assistance program[A]: Project-based Section 8: 403;
Rental assistance program[A]: Rent Supplement: 27;
Rental assistance program[A]: Other[B]: 0;
Total: 431.
Financing program: HUD unsubsidized mortgage: Section 221(d)(4);
None: 0;
Rental assistance program[A]: Project-based Section 8: 14;
Rental assistance program[A]: Rent Supplement: 0;
Rental assistance program[A]: Other[B]: 0;
Total: 14.
Financing program: HUD unsubsidized mortgage: Section 231;
None: 0;
Rental assistance program[A]: Project-based Section 8: 6;
Rental assistance program[A]: Rent Supplement: 1;
Rental assistance program[A]: Other[B]: 0;
Total: 7.
Financing program: HUD unsubsidized mortgage: Noninsured rent
supplement;
None: [D];
Rental assistance program[A]: Project-based Section 8: [D];
Rental assistance program[A]: Rent Supplement: [D];
Rental assistance program[A]: Other[B]: [D];
Total: d.
Financing program: HUD unsubsidized mortgage: Total;
None: 480;
Rental assistance program[A]: Project-based Section 8: 1,766;
Rental assistance program[A]: Rent Supplement: 76;
Rental assistance program[A]: Other[B]: 6;
Total: 2,328.
Financing program: HUD unsubsidized mortgage: Percent of total;
None: 21%;
Rental assistance program[A]: Project-based Section 8: 76%;
Rental assistance program[A]: Rent Supplement: 3%;
Rental assistance program[A]: Other[B]:
