HUD Homeownership Programs
Data Limitations Constrain Assessment of the American Dream Downpayment Initiative Gao ID: GAO-06-677 June 30, 2006While at an all-time high level, homeownership remains out of reach for many Americans, especially low-income families and minorities. In 2003, Pub. L. No. 108-186 created the American Dream Downpayment Initiative (ADDI) to help low-income, first-time homebuyers cover the up-front costs of buying a home (up to the greater of $10,000 or 6 percent of the purchase price) and authorized funding through fiscal year 2007. The Department of Housing and Urban Development (HUD) allocates ADDI funds to over 400 jurisdictions (e.g., states, cities, and counties). Pub. L. No. 108-86 directed GAO to perform a state-by-state analysis of ADDI's impact. This report discusses (1) HUD-reported information on ADDI expenditures and assisted households, and the limitations on the quality of these data and (2) the views of officials from selected jurisdictions on factors that affected their ability to use their funds and on the program's impact.
Based on data collected through its Integrated Disbursement and Information System (IDIS), HUD reported that through December 31, 2005, jurisdictions had spent $98.5 million of the $211 million appropriated for ADDI, helping more than 13,000 families nearly half of which were minorities become homeowners. At the state level, reported expenditures ranged from $0 to $10.3 million, and the number of projects (assisted households) ranged from 0 to 985. However, because of data limitations in IDIS and HUD's inconsistent guidance to jurisdictions on data entry, these figures include an unknown number of non-ADDI projects that provided down-payment assistance to first-time homebuyers. As a result, the expenditures and accomplishments attributable to ADDI are not known. HUD officials said that it was not feasible to create a control for ADDI in IDIS by the time the program began and that to do so now would be costly. Although most of the 40 jurisdictions GAO contacted have used some portion of their ADDI grants, officials from many jurisdictions said that the combination of high housing prices and the low incomes of eligible families made it challenging to spend their funds. In higher-cost areas, such as Los Angeles, California, jurisdictions must combine numerous subsidies with ADDI funds to bridge the gap between home prices and homebuyers' mortgages. However, in lower-cost areas, such as Grand Rapids, Michigan, ADDI alone is sufficient to make up the difference. Officials from the jurisdictions GAO contacted indicated that ADDI has not had a significant impact on local homeownership rates because the program has been modestly funded and is relatively new. In addition, some jurisdictions reported difficulties in serving populations that the program targeted for outreach, such as recipients of rental housing assistance.
RecommendationsOur 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.
Director: Team: Phone:GAO-06-677, HUD Homeownership Programs: Data Limitations Constrain Assessment of the American Dream Downpayment Initiative
This is the accessible text file for GAO report number GAO-06-677
entitled 'HUD Homeownership Programs: Data Limitations Constrain
Assessment of the American Dream Downpayment Initiative' which was
released on June 30, 2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Committees:
June 2006:
HUD Homeownership Programs:
Data Limitations Constrain Assessment of the American Dream Downpayment
Initiative:
GAO-06-677:
GAO Highlights:
Highlights of GAO-06-677, a report to congressional committees.
Why GAO Did This Study:
While at an all-time high level, homeownership remains out of reach for
many Americans, especially low-income families and minorities. In 2003,
Pub. L. No. 108-186 created the American Dream Downpayment Initiative
(ADDI) to help low-income, first-time homebuyers cover the up-front
costs of buying a home (up to the greater of $10,000 or 6 percent of
the purchase price) and authorized funding through fiscal year 2007.
The Department of Housing and Urban Development (HUD) allocates ADDI
funds to over 400 jurisdictions (e.g., states, cities, and counties).
Pub. L. No. 108-86 directed GAO to perform a state-by-state analysis of
ADDI‘s impact. This report discusses (1) HUD-reported information on
ADDI expenditures and assisted households, and the limitations on the
quality of these data and (2) the views of officials from selected
jurisdictions on factors that affected their ability to use their funds
and on the program‘s impact.
What GAO Found:
Based on data collected through its Integrated Disbursement and
Information System (IDIS), HUD reported that through December 31, 2005,
jurisdictions had spent $98.5 million of the $211 million appropriated
for ADDI, helping more than 13,000 families”nearly half of which were
minorities”become homeowners. At the state level, reported expenditures
ranged from $0 to $10.3 million, and the number of projects (assisted
households) ranged from 0 to 985. However, because of data limitations
in IDIS and HUD‘s inconsistent guidance to jurisdictions on data entry,
these figures include an unknown number of non-ADDI projects that
provided down-payment assistance to first-time homebuyers. As a result,
the expenditures and accomplishments attributable to ADDI are not
known. HUD officials said that it was not feasible to create a control
for ADDI in IDIS by the time the program began and that to do so now
would be costly.
Although most of the 40 jurisdictions GAO contacted have used some
portion of their ADDI grants, officials from many jurisdictions said
that the combination of high housing prices and the low incomes of
eligible families made it challenging to spend their funds. In higher-
cost areas, such as Los Angeles, California, jurisdictions must combine
numerous subsidies with ADDI funds to bridge the gap between home
prices and homebuyers‘ mortgages. However, in lower-cost areas, such as
Grand Rapids, Michigan, ADDI alone is sufficient to make up the
difference (see fig.) Officials from the jurisdictions GAO contacted
indicated that ADDI has not had a significant impact on local
homeownership rates because the program has been modestly funded and is
relatively new. In addition, some jurisdictions reported difficulties
in serving populations that the program targeted for outreach, such as
recipients of rental housing assistance.
Figure: Difference between the Median Purchase Price and Median
Mortgage for Homes Purchased with ADDI Assistance in Los Angeles, CA
and Grand Rapids, MI:
[See PDF for Image]
[End of Figure]
What GAO Recommends:
GAO recommends that, if Congress reauthorizes ADDI beyond fiscal year
2007, HUD develop and implement controls and issue guidance”seeking
funds to do so, if necessary”that would ensure that the expenditures
and accomplishments attributed to ADDI are accurate. HUD did not
comment on our recommendations but disagreed with the report‘s
assessment of the implications of the agency‘s data limitations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-677].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David G. Wood at (202)
512-8678 or woodd@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
HUD Reported That Participating Jurisdictions Spent About Half of Their
ADDI Allocations, but These Data Contain an Unknown Number of Non-ADDI
Projects:
Many Selected Participating Jurisdictions Cited Challenges in Spending
ADDI Funds and Viewed the Program's Impact as Limited:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Summary of Review of Literature on Barriers to
Homeownership:
Appendix III: Comparison of Selected Rules Applicable to Fiscal Year
2003 ADDI Funds to Those for Fiscal Year 2004-2007 Funds:
Appendix IV: Statistics That HUD Reported for ADDI through December 31,
2005:
Appendix V: Profiles of ADDI Programs in Four Jurisdictions:
Appendix VI: Comments from the Department of Housing and Urban
Development:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Homeownership Rates by Race/Ethnicity and Income Band, 2001:
Table 2: Comparison of Selected ADDI Rules for Different Fiscal Years:
Table 3: State-by-State ADDI Expenditures and Accomplishments Reported
by HUD through December 31, 2005:
Table 4: Selected Characteristics of ADDI Recipients in the City of Los
Angeles, as of January 2006:
Table 5: Selected Characteristics of ADDI Recipients in the City of
Grand Rapids, as of February 2006:
Table 6: Selected Characteristics of ADDI Recipients in the State of
Texas Program, as of February 2006:
Table 7: Subsidies Available to Homebuyers in the City of Sacramento by
Income Level or Voucher Program:
Figures:
Figure 1: Percentage of National Total of Low-Income Renters and ADDI
Allocations by State for Fiscal Years 2003-2006:
Figure 2: HUD-Reported State ADDI Expenditures through December 31,
2005:
Figure 3: HUD-Reported Income of Assisted Households, April 2004-
December 2005:
Figure 4: Number of Selected Jurisdictions Reporting Misidentified ADDI
Projects and Total Percentage of Misidentified Projects, as of December
31, 2005:
Figure 5: Difference between the Median Purchase Price and Median
Mortgage for Homes Purchased with ADDI Assistance in Los Angeles, CA,
and Grand Rapids, MI:
Figure 6: Jurisdictions with ADDI Allocations of $50,000 or Less,
Fiscal Years 2003-2006:
Figure 7: Example of a Homebuyer's Financing Package Incorporating ADDI
and LAHD Programs:
Abbreviations:
ADDI: American Dream Downpayment Initiative:
CDBG: Community Development Block Grant:
FHA: Federal Housing Administration:
HAF: Homebuyer Assistance Fund:
HAP: Homebuyer Assistance Program:
HRA: Housing and Redevelopment Agency:
HOME: HOME Investment Partnerships program:
HUD: Department of Housing and Urban Development:
IDIS: Integrated Disbursement and Information System:
LAHD: Los Angeles Housing Department:
PSID: Panel Study of Income Dynamics:
[See PDF for image]
[End of figure]
[See PDF for image]
[End of figure]
Letter June 30, 2006:
The Honorable Richard C. Shelby:
Chairman:
The Honorable Paul S. Sarbanes:
Ranking Minority Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Michael G. Oxley:
Chairman:
The Honorable Barney Frank:
Ranking Minority Member:
Committee on Financial Services:
House of Representatives:
Although the national homeownership rate has reached an all-time high
of 69 percent, homeownership is out of reach for many Americans,
especially low-income families and minorities. Recognizing that
homeownership has the potential to help families achieve long-term
financial stability and revitalize and stabilize communities, the
federal government has long sought to make ownership more affordable
for American families. Most recently, Congress in 2003 passed the
American Dream Downpayment Act (Act), which created the American Dream
Downpayment Initiative (ADDI) under the Department of Housing and Urban
Development's (HUD) HOME Investment Partnerships (HOME) program. The
purpose of ADDI is to help eligible low-income households become
homeowners by providing funds for a down payment, closing costs, and,
if necessary, rehabilitation work done in conjunction with a home
purchase.[Footnote 1] The Act authorized funds for ADDI for fiscal
years 2004 through 2007.[Footnote 2]
Like the HOME program as whole, ADDI provides formula-based grants to
participating jurisdictions (i.e., states, cities, counties, or
consortiums of cities and counties), which can administer these grants
on their own, or with or through third parties or subgrantees. However,
ADDI funds are subject to certain restrictions that do not apply to
other HOME funds. The jurisdictions may use ADDI grants only for down-
payment, closing cost, and rehabilitation assistance to low-income,
first-time homebuyers who are purchasing homes priced within limits
under HUD's Section 203(b) single-family mortgage insurance program,
which vary by location. In contrast, jurisdictions may use other HOME
funds to purchase, construct, or rehabilitate affordable housing for
rent or ownership by low-income households, or provide down-payment
assistance or direct rental assistance to low-income households. Unlike
other HOME funds used for homeownership assistance, the amount of ADDI
assistance per homebuyer is limited to $10,000 or 6 percent of the
purchase price, whichever is greater.[Footnote 3] However,
jurisdictions can combine ADDI assistance with other funding sources
(including other HOME funds) to assist eligible households.
HUD maintains information about ADDI projects in a central database.
More specifically, HUD requires participating jurisdictions to enter
information for each household (project) they assist into HUD's
Integrated Disbursement and Information System (IDIS)--which collects
information on activities funded by a number of grant programs
(including the HOME program) administered by HUD's Office of Community
Planning and Development. For example, the jurisdictions enter for each
project the amount of assistance provided and certain characteristics
of the assisted households. HUD uses the data in IDIS to monitor
participating jurisdictions and to generate reports. One of these is
the ADDI Accomplishment Report, which provides information on ADDI
program expenditures and reported accomplishments for each
jurisdiction. In general, HUD considers ADDI funds and other HOME funds
used for down-payment assistance to be expended when a participating
jurisdiction disburses funds to an eligible homebuyer and indicates the
project status as "complete" in IDIS.
The Act directed GAO to perform a state-by-state analysis of the impact
of ADDI grants. To do this, we first obtained IDIS data on the amount
of ADDI funds that HUD allocated to each state's participating
jurisdictions and the amount they used to assist homebuyers. However,
we found significant limitations with the quality of these data.
Accordingly, this report discusses (1) HUD-reported information on ADDI
expenditures and assisted households from the program's inception
through December 31, 2005, and the limitations on the quality of these
data and (2) the views of officials from selected jurisdictions on
factors that affected their ability to use ADDI funds and on the
program's impact.
To address these objectives, we reviewed the laws, regulations, and
agency guidance relevant to ADDI. We also analyzed the data from HUD's
ADDI Accomplishment Report and reviewed guidance and other
documentation for IDIS. We performed limited electronic testing on
HUD's ADDI data to detect obvious errors and checked the reliability of
the HUD-reported ADDI expenditure data against information from 33
selected participating jurisdictions. We visited 13 participating
jurisdictions--four states, 6 cities, and three consortiums--that we
selected to cover different geographic regions, housing markets, and
jurisdiction types. Also, we interviewed officials from a selection of
27 additional jurisdictions--nine states, 11 cities, three counties,
and four consortiums--designed to cover the four types of jurisdictions
and those with relatively high and low funding allocations and
expenditure levels, according to HUD's data.[Footnote 4] We did not
generalize the results of our interviews to the entire population of
jurisdictions that received an ADDI allocation because we contacted
only a small selection of jurisdictions. Further, the limitations of
HUD's data did not allow us to draw any conclusions about the program's
accomplishments.
Appendix I contains a more detailed description of our scope and
methodology and a list of the jurisdictions we contacted. We conducted
our work in Washington, D.C., and Chicago, Illinois, from July 2005
through June 2006, in accordance with generally accepted government
auditing standards.
Results in Brief:
Based on data in IDIS from participating jurisdictions nationwide, HUD
reported that through December 31, 2005, the jurisdictions had expended
$98.5 million of the $211 million appropriated for ADDI and had helped
more than 13,000 low-income households--nearly half of which were
minorities--become homeowners. At the state level, reported
expenditures ranged from $0 (South Dakota) to $10.3 million
(California), and the number of assisted households ranged from 0
(South Dakota) to 985 (Ohio). IDIS data also indicated, among other
things, that about one-third of the assisted households earned less
than 50 percent of the median income for their areas, and the remaining
two-thirds earned 50 to 80 percent. However, because of internal
control weaknesses in HUD's process for designating ADDI projects in
IDIS, these figures actually include an unknown number of non-ADDI HOME
projects that provided down-payment assistance to first-time
homebuyers.[Footnote 5] Specifically, (1) IDIS does not contain a
discrete control to distinguish ADDI projects from non-ADDI HOME
projects and (2) HUD did not provide clear and consistent guidance to
jurisdictions on how to distinguish between the two in IDIS. As a
result, the expenditures and accomplishments attributable to ADDI are
not known and the data HUD reports for the program, including the
characteristics of the assisted households, do not represent
exclusively ADDI projects. HUD officials said that they did not create
a discrete ADDI control in IDIS because a reengineering of IDIS was
nearly complete when the program was enacted, redesigning IDIS would
have taken several years and would not have been cost-effective given
ADDI's modest size and limited authorization period, and the first-time
homebuyers receiving ADDI and other HOME funds are from the same
population.
Although most of the jurisdictions we contacted (representing about 9
percent of all jurisdictions that received an ADDI allocation since the
program began) have used some portion of their ADDI grants,
jurisdiction officials cited several factors that affected their
ability to spend their funds and indicated that the program's impact
has been limited. For example, officials from many of these
jurisdictions said that a combination of high housing prices, the low
incomes of eligible families, and the program's per-household
assistance limits made it challenging to expend their funds. Officials
from some of the higher cost selected jurisdictions told us that many
eligible households often cannot afford to purchase even less expensive
homes without large amounts of assistance to reduce their mortgage
loans to affordable levels. In the City of Los Angeles, for instance,
the difference between the median purchase price (excluding closing
costs) and the median mortgage amount for homes purchased with ADDI
assistance was approximately $122,000. To help bridge such large gaps,
many of the selected jurisdictions have developed homeownership
programs that provide multiple subsidies, including ADDI funds, to
eligible homebuyers. Some of these programs are complex, utilizing
several sources of assistance, and can be time consuming to implement
because jurisdiction officials need to assess a family's eligibility
for each subsidy. Though ADDI has helped low-income households become
homeowners, officials from the large majority of jurisdictions we
contacted said that the program was too modestly funded and new to have
had a significant impact on local homeownership rates. In addition,
officials from several jurisdictions we contacted said that they have
had difficulties serving certain populations that the program targeted
for outreach, including recipients of rental housing assistance (due to
lack of sufficient income to become homeowners, even with down payment
assistance) and residents of mobile home parks (due to difficulties in
marketing the program to them).
To ensure that ADDI expenditures and accomplishments are accurately
reported, we recommend that if Congress authorizes ADDI beyond fiscal
year 2007, the Secretary of HUD (1) develop and implement a discrete
control in IDIS that distinguishes ADDI projects from non-ADDI HOME
projects, seeking funds to do so if necessary, and (2) issue guidance
to participating jurisdictions on how to use this control to enter
consistent data on ADDI projects into IDIS. We obtained comments on a
draft of this report from HUD. HUD did not comment on our
recommendations but disagreed with the report's emphasis on data
limitations and our assessment of the effect of these limitations on
management and oversight of the program. HUD's comments are discussed
in the Agency Comments and Our Evaluation section, and its written
comments appear in appendix VI.
Background:
According to numerous studies, the most significant barrier to
homeownership is having money for a down payment and closing costs.
Other related studies also have shown that, on average, low-income and
minority families have lower levels of accumulated wealth (savings)
than higher-income and nonminority families. (See app. II for a summary
of studies on barriers to homeownership). This disparity is reflected
in the gap in homeownership rates between the different populations
(see table 1).[Footnote 6]
Table 1: Homeownership Rates by Race/Ethnicity and Income Band, 2001:
Category Race/ethnicity: White;
Income band: 120%: 88.1%;
Income band: All households: 74.2%.
Category Race/ethnicity: Black;
Income band: 120%: 76.2;
Income band: All households: 48.5.
Category Race/ethnicity: Hispanic;
Income band: 120%: 76.9;
Income band: All households: 46.4.
Category Race/ethnicity: Asian;
Income band: 120%: 72.3%;
Income band: All households: 53.2%.
Sources: HUD and U.S. Census Bureau.
Note: Income band is the percentage of national median income.
[End of table]
Signed into law in December 2003, the American Dream Downpayment Act
amended the Cranston-Gonzalez National Affordable Housing Act to create
ADDI, which, according to HUD, aims to increase the homeownership rate,
especially among lower income and minority households.[Footnote 7] The
Act authorized up to $200 million annually for fiscal years 2004
through 2007 for down-payment, closing cost, and limited rehabilitation
assistance for low-income families--those earning no more than 80
percent of the median income for their area, adjusted for family size-
-who are first-time homebuyers.[Footnote 8] Prior to the Act, the
Consolidated Appropriations Resolution of 2003 authorized and
appropriated $74.5 million in fiscal year 2003 funds specifically for
down-payment assistance under the HOME program. (As explained in app.
III, some of the rules for allocating and using fiscal year 2003 ADDI
funds are significantly different from the rules for funds appropriated
for subsequent fiscal years). Participating jurisdictions could not
expend ADDI funds until April 2004, when HUD issued interim regulations
for the program.
Down-payment assistance is one of the multiple uses of HOME funds.
Since the HOME program was created in 1990, total spending on down-
payment assistance reached nearly $1.6 billion as of January 2006. For
fiscal years 2001 through 2004, annual commitments for down-payment
assistance under the HOME program (including ADDI since 2004) were
relatively steady, averaging $156 million, but grew to nearly $203
million in fiscal year 2005.[Footnote 9] In creating ADDI, Congress
effectively set aside a portion of total HOME funding specifically for
low-income, first-time homebuyers. ADDI appropriations peaked in fiscal
year 2004 at $87 million, dropping to $49.6 million in fiscal year 2005
and to $24.8 million in fiscal year 2006.
Like the rest of the HOME program, ADDI is administered by
participating jurisdictions, which receive funding allocations from
HUD. Beginning with the fiscal year 2004 appropriation, HUD has
allocated ADDI funds to the states based on the percentage of the
national total of low-income renters residing in each state (as
explained in app. III, ADDI funds provided in the fiscal year 2003
appropriation were distributed differently). The aggregate funding
amounts for fiscal years 2003 through 2006, by state, are shown in
figure 1.
Figure 1: Percentage of National Total of Low-Income Renters and ADDI
Allocations by State for Fiscal Years 2003-2006:
[See PDF for image]
[End of figure]
A similar calculation, using the total numbers of low-income renters
within each state, determines the amounts participating jurisdictions
receive. Participating jurisdictions must have a population of at least
150,000 or otherwise qualify for an allocation of greater than $50,000
under the ADDI formula to receive program funding. The difference
between a state's overall allocation and the total amount allocated to
qualifying cities, counties, and consortiums (as well as any allocation
a jurisdiction declines) within that state is administered by the
state. Four hundred forty-five jurisdictions received an ADDI
allocation in one or more fiscal years from 2003 through 2006.
Jurisdictions must commit ADDI funds within 2 years of the date HUD
obligates ADDI allocations and expend those funds within 5 years of
that date.[Footnote 10]
As a condition for receiving an ADDI funding allocation, HUD requires
participating jurisdictions to include ADDI funds in their annual
consolidated plans, which outline policies for addressing housing needs
in their areas. Specifically, jurisdictions must describe how they plan
to use ADDI funds; how they plan to conduct targeted outreach to
recipients of rental housing assistance (through HUD's public housing
and Housing Choice Voucher programs, for example) and residents of
manufactured housing (e.g., mobile homes); and what actions they will
take to ensure the suitability of families receiving ADDI assistance to
undertake and maintain homeownership (e.g., through homebuyer
counseling).[Footnote 11] Jurisdictions typically administer their ADDI
funds in one of three ways: (1) on their own; (2) in partnership with
one or more third parties, such as nonprofit organizations or mortgage
lenders; or (3) through subgrantees who administer the program on their
behalf. ADDI regulations prohibit the use of ADDI funds for program
administration costs; however, jurisdictions may use a portion of their
other HOME funds for this purpose.
ADDI appropriations for fiscal year 2004 and later provide eligible
families up to $10,000 or 6 percent of the purchase price of a home,
whichever is greater, to apply toward a down payment and closing costs
for the purchase of single-family housing (including one-to four-unit
family dwellings, condominiums, cooperatives, and manufactured housing
or a manufactured housing lot) that does not exceed HUD's purchase
price limits. Except for the fiscal year 2003 appropriation, ADDI funds
also may be used for rehabilitation in conjunction with the purchase of
a home. However, a participating jurisdiction's rehabilitation
assistance may not exceed 20 percent of its annual ADDI allocation.
Jurisdictions can give ADDI assistance to eligible families in several
forms, including interest-or noninterest-bearing loans or direct
grants. Whatever the form of assistance, HUD regulations require that
assistance be repaid, in full or in part, upon the sale of the home if
the sale occurs within the "affordability period" (generally 5 to 10
years, depending on the amount of assistance).[Footnote 12]
Jurisdictions may combine ADDI funds with other subsidies--such as
other HOME funds, Community Development Block Grant (CDBG) funds,
Section 8 homeownership vouchers, or state and local funds--to make
ownership more affordable for eligible households.[Footnote 13]
HUD Reported That Participating Jurisdictions Spent About Half of Their
ADDI Allocations, but These Data Contain an Unknown Number of Non-ADDI
Projects:
HUD reported that from the program's inception through December 31,
2005, participating jurisdictions had expended roughly half of the $211
million in ADDI appropriations and assisted more than 13,000 low-income
households--nearly half of which were minorities--with a home
purchase.[Footnote 14] According to HUD, these data represent projects
that met the agency's definition of ADDI projects in IDIS. However,
because of weaknesses in HUD's internal controls for ADDI reporting,
these data are a mix of ADDI and an unknown number of non-ADDI HOME
projects; consequently, the expenditures and accomplishments
attributable to ADDI are not known. More specifically, IDIS does not
contain a discrete control to distinguish ADDI projects from non-ADDI
HOME projects, and HUD provided inconsistent guidance to jurisdictions
on how to distinguish between the two in IDIS. HUD officials said that
it was not feasible to implement a discrete ADDI control in IDIS by the
time ADDI began operating and that to do so now would be costly.
HUD Reported That Jurisdictions Expended About $99 Million through
December 31, 2005, and That Nearly Half of the Households Were
Minorities:
According to HUD's ADDI Accomplishment Report, through December 31,
2005, jurisdictions had expended $98.5 million of the $211 million
appropriated for ADDI through fiscal year 2005 and assisted 13,300
households, 48 percent of which were minorities. At the state level,
reported expenditures ranged from $0 (South Dakota) to $10.3 million
(California), and the number of assisted household ranged from 0 (South
Dakota) to 985 (Ohio). HUD's Accomplishment Report indicated that half
of the states expended more than $1 million each (see fig. 2). Appendix
IV provides HUD-reported ADDI expenditures and accomplishments for each
state. However, as discussed in the next section of this report, the
ADDI data HUD reported are a mix of ADDI and non-ADDI HOME projects due
to internal control weaknesses.
Figure 2: HUD-Reported State ADDI Expenditures through December 31,
2005:
[See PDF for image]
Source: GAO and HUD.
[A] Includes Puerto Rico, which received funding only for fiscal year
2003, in the $500,000 to $999,999 range.
[End of figure]
HUD collects various data on households assisted through the HOME
program, including ADDI, through IDIS. These data indicate, among other
things, that from April 2004 (the month ADDI activity began) through
December 31, 2005:
* 32 percent of the households assisted by ADDI were single-parent
families.
* 20 percent of the mortgages used to purchase homes with ADDI
assistance were insured by HUD's Federal Housing Administration (FHA).
* About one-third of the assisted households earned less than 50
percent of the median income for their areas, and the remaining two-
thirds earned 50 to 80 percent (see fig. 3).
* 76 percent of the assisted households received some form of homebuyer
counseling. (Jurisdictions are encouraged but not required to provide
homebuyer counseling for ADDI or other HOME projects).[Footnote 15]
Through its new Outcome Performance Measurement System, HUD plans to
collect additional information on households assisted by HOME and the
other formula grant programs funded by the agency's Office of Community
Planning and Development. The system, which is scheduled for full
implementation in fiscal year 2007, will aggregate, at the national and
local level, information on the outcomes of the projects funded by the
programs. Among other things, HUD will use the system to collect
information on the number of HOME-assisted (including ADDI-assisted)
households that previously received rental housing assistance.
Figure 3: HUD-Reported Income of Assisted Households, April 2004-
December 2005:
[See PDF for image]
[End of figure]
Internal Control Weaknesses Allow Non-ADDI HOME Projects to Be Credited
to ADDI:
According to HUD officials, the agency initiated a wide-ranging
redesign of IDIS in 2002 and, as part of these efforts, added new data
elements (first-time homebuyer and down-payment costs) in anticipation
of the possibility that Congress would eventually pass a down-payment
assistance program of some kind. HUD released the redesigned IDIS in
March 2004, shortly before the implementation of ADDI. According to HUD
officials, because HUD was unable to anticipate all of the program
features in the final law, the agency decided to establish rules in
IDIS that used the new data elements and provided guidance to
jurisdictions on entering data that were intended to capture
information on ADDI projects to the extent possible. However, these
rules are not sufficient to allow HUD to clearly distinguish ADDI
projects from non-ADDI projects, and HUD's guidance to jurisdictions
was inconsistent. Accordingly, HUD's internal controls for ADDI
reporting do not meet GAO's Standards for Internal Control in the
Federal Government because HUD cannot be certain that the ADDI
expenditure and accomplishment data it reports are representative of:
ADDI projects.[Footnote 16] GAO's Standards call for controls that
would appropriately classify projects so that the collected information
maintains its relevance, value, and usefulness for controlling
operations and making decisions.
No Mechanism to Distinguish ADDI from Non-ADDI HOME Projects:
According to HUD officials, the agency did not create a control in IDIS
that would distinguish ADDI from non-ADDI HOME projects for several
reasons as follows:
* The most recent IDIS reengineering effort was nearing completion by
the time ADDI was enacted.
* It was not feasible to redesign IDIS to separately track ADDI
projects by the time the ADDI program began operating (HUD estimated
several years for redesign).
* ADDI is part of the HOME program, and the first-time homebuyers
receiving ADDI and other HOME funds are from the same population.
* To develop and implement such a control would not have been cost-
effective given ADDI's modest size and the limited period (4 years) for
which it was authorized.[Footnote 17]
HUD officials said that, for these reasons, they faced a choice of not
capturing any data on ADDI or implementing procedures that would
capture data on projects that met the basic criteria for the program
(i.e., down-payment assistance to first-time homebuyers) but that also
included non-ADDI HOME projects. HUD officials stated that they
recognized the limitations of these procedures but said that, under the
circumstances, they made the best available choice. The officials said
that the agency has no plans to update IDIS to include a discrete
control for ADDI and estimated that to do so would be costly.
In lieu of creating such a control, HUD established rules in IDIS under
which the agency credits ADDI with all of a jurisdiction's completed
HOME projects that provided down-payment assistance to first-time
homebuyers in amounts within the ADDI per-household limits--up to the
point at which the jurisdiction's ADDI allocations are
exhausted.[Footnote 18] After a jurisdiction's ADDI allocations are
exhausted, HUD credits any remaining project assistance and all
additional first-time homebuyer projects to other HOME funds.
In its HOME monitoring handbook, HUD acknowledged that, as a result of
the IDIS limitation relating to ADDI designations, the agency's ADDI
data contains a mix of ADDI and non-ADDI HOME projects. Specifically,
the handbook states that the projects HUD credits to ADDI may not be
the same projects that jurisdictions intended to use their ADDI funds
for and classified them as such in their records. Consequently, the
agency instructed HUD staff who monitor jurisdictions' administration
of HUD programs to assess for compliance with ADDI requirements only
those projects that jurisdictions designated as ADDI in their records
and to assess all other projects for compliance with HOME requirements,
regardless of whether HUD credited them to ADDI.
Inconsistent Guidance on Data Entry:
The guidance HUD provided to jurisdictions for entering ADDI project
data into IDIS is inconsistent and permits jurisdictions to enter
inaccurate data. As a result, HUD cannot ensure that the data for all
HOME projects that jurisdictions enter into IDIS are accurate and
complete. According to GAO's Standards, agencies should provide clear
and consistent guidance on data entry to prevent inaccuracies.
HUD instructed jurisdictions to use the "first-time homebuyer" field
when entering data in IDIS to distinguish between ADDI and non-ADDI
HOME projects (entering "yes" to credit ADDI and "no" to credit other
HOME funds). However, in the same guidance, HUD wrote that
jurisdictions should enter "yes" in the first-time homebuyer field even
when they use other HOME funds to assist a first-time homebuyer because
HUD uses this field to capture accomplishment data on all first-time
homebuyers whether or not jurisdictions assisted them with ADDI funds.
The latitude jurisdictions have to enter "no" in the first-time
homebuyer field in IDIS, even when they in fact are assisting this type
of homebuyer, reduces HUD's ability to reliably measure first-time
homebuyer activity under the HOME program. HUD's new Outcome
Performance Measurement System--which will be integrated into IDIS and
fully implemented in fiscal year 2007--will include a "direct financial
assistance to homebuyers" indicator that, among other things, is
intended to measure the number of first-time homebuyers assisted with
HOME funds. Because the system will use the first-time homebuyer field
in IDIS, this indicator may inaccurately reflect the number of first-
time homebuyers. More specifically, if jurisdictions enter "no" for
first-time homebuyer projects in order to credit their other HOME funds
instead of their ADDI funds, the indicator will be artificially low.
HUD officials said that they could not foresee many circumstances where
this would occur and that any negative impact on data accuracy will
probably be minimal; consequently, the agency does not plan to revise
its guidance to jurisdictions. However, HUD does not have a means of
determining how often jurisdictions might enter "no" to spend HOME
funds that would otherwise expire or to avoid crediting projects to
ADDI that were administered by subgrantees that did not receive ADDI
funds.
Extent of Inaccurate Data Is Unknown:
Although the full extent to which HUD is designating non-ADDI HOME
projects as ADDI projects is unknown, the jurisdictions we contacted
identified many examples where this was occurring. We contacted 33
(about 7.5 percent) of the 445 jurisdictions that received an ADDI
allocation since the program began to check the reliability of project
expenditures in HUD's ADDI Accomplishment Report as of December 31,
2005. We excluded three jurisdictions from our analysis because they
had unreliable local records or documented IDIS data entry errors. Of
the remaining 30 jurisdictions, 13 told us that some percentage of
their projects were, according to their records, non-ADDI HOME projects
(see fig. 4). The other 17 jurisdictions did not identify any non-ADDI
HOME projects in HUD's report. In total, the 30 jurisdictions indicated
that 29 percent of the reported projects were non-ADDI HOME projects.
Figure 4: Number of Selected Jurisdictions Reporting Misidentified ADDI
Projects and Total Percentage of Misidentified Projects, as of December
31, 2005:
[See PDF for image]
Note: We excluded three selected jurisdictions from the population of
the 33 we contacted because of unreliable local records or documented
IDIS data entry errors.
[End of figure]
The City of Baltimore and the State of Pennsylvania provide examples
where HUD designated non-ADDI projects as ADDI. Specifically:
* HUD included, as ADDI expenditures and accomplishments, five
Baltimore projects totaling $25,000 that actually were "settlement
expense grants" funded through a portion of the city's HOME allocation.
The city does not fund these grants with its ADDI allocation and has
internal tracking mechanisms independent from IDIS to differentiate its
ADDI and settlement expense grant expenditures. HUD credited these
projects to ADDI because these projects met the agency's IDIS rules for
crediting ADDI (that is, the city recorded down-payment assistance to a
first-time homebuyer for the purchase of a home and changed the project
status to "complete").
* In Pennsylvania, 4 out of a potential pool of 75 subgrantees had
applied for and received a portion of the state's ADDI allocation as of
January 2006. Although the state's records for these subgrantees showed
only two ADDI projects with $20,000 in total ADDI expenditures, HUD's
ADDI Accomplishment Report showed 196 additional ADDI projects,
totaling $1.6 million. These additional projects reflect the non-ADDI
HOME activity of subgrantees that did not receive ADDI funds.
Moreover, officials from 12 of the 33 jurisdictions we contacted told
us that HUD's ADDI Accomplishment Report, as of December 31, 2005, did
not include some of these jurisdictions' ADDI projects.[Footnote 19]
One potential reason for this is that the jurisdictions may not have
changed the status of their ADDI projects to "complete" in IDIS as of
that date. However, of the 307 projects the jurisdictions identified as
ADDI, over half (168 projects) did not appear either in HUD's Open
Activities Report (which contains information on all HOME projects that
jurisdictions entered but did not indicate as "complete" in IDIS) or
the ADDI Accomplishment Report as of February 28, 2006. HUD most likely
credited these 168 projects to the jurisdictions' other HOME funds. Of
the remaining projects, 103 were included in the ADDI Accomplishment
Report, and 36 were in the Open Activities Report.[Footnote 20]
Many Selected Participating Jurisdictions Cited Challenges in Spending
ADDI Funds and Viewed the Program's Impact as Limited:
Although most of the jurisdictions we contacted (representing about 9
percent of all jurisdictions that received an ADDI allocation since the
program began) have used some portion of their ADDI grants,
jurisdiction officials cited several factors that affected their
ability to spend their funds and indicated that the program's impact
has been limited. Officials from many of these selected jurisdictions
told us that high housing prices coupled with the low-incomes of ADDI-
eligible families have made it difficult to use ADDI funds to assist
the families. In addition, officials in the jurisdictions we contacted
generally indicated that ADDI thus far has not had a significant impact
on homeownership rates in their jurisdictions because the program is
new and has received modest levels of funding. Finally, several of the
jurisdictions reported difficulties in assisting certain populations--
for example, recipients of rental housing assistance because they lack
income to become homeowners, even with assistance.
High Housing Prices Coupled with Low Incomes Have Made It Difficult to
Assist Eligible Households with ADDI Funds in Many Selected
Jurisdictions:
Although most of the 40 participating jurisdictions we contacted have
been able to use some portion of their ADDI funding to assist eligible
families in their areas, officials from many of these jurisdictions
said that a combination of high housing prices, low family incomes, and
the per-household limit on ADDI assistance have made it challenging.
For example, according to officials from the City of Los Angeles, as of
March 2006, the city had spent only about 22 percent of its total ADDI
allocation for fiscal years 2003 through 2005 due to these factors.
Officials from a number of higher-cost jurisdictions we contacted--
including the cities of Los Angeles and Sacramento, California;
Boston, Massachusetts; New York, New York; and Washington, D.C.--told
us that eligible families in their jurisdictions have had difficulties
finding homes they could afford. For instance, an official from the
City of Sacramento, California, said that the city receives monthly
reports of the multiple listing service--the local organizations
through which real estate brokers share information about properties
for sale--to identify homes that ADDI-eligible homebuyers could
purchase. The official said that in February 2006 there were only 45
single-family homes listed that the jurisdiction considered affordable
to ADDI- eligible homebuyers, an insignificant number relative to the
number of low-income homebuyers in Sacramento, according to that
official. Similarly, an official from the City of Boston noted that the
number of homes for sale within HUD's purchase price limits was small
relative to the number of ADDI-eligible households residing in the
city.
In addition, officials from some of the higher-cost participating
jurisdictions with whom we spoke said that because of the large
disparity between incomes and housing prices, many eligible families
cannot afford to purchase even these less expensive homes without large
amounts of assistance to reduce their mortgage loans to affordable
levels. For example, the median purchase price (excluding closing
costs) of homes purchased by ADDI-assisted households in Los Angeles
was $264,000. However, the median mortgage for these households was
about $142,000, leaving a gap of about $122,000 that needed to be
filled by a combination of homebuyers' savings and homeownership
assistance. In contrast, officials in most of the lower-cost
jurisdictions we spoke with said that the corresponding gaps in their
areas were smaller than in other areas of the country. For example, in
Grand Rapids, Michigan, the gap for ADDI-:
assisted families was about $1,000 (see fig. 5).[Footnote 21] Appendix
V provides more information about the use of ADDI funds in, and
challenges faced by, four of the jurisdictions that we contacted.
Figure 5: Difference between the Median Purchase Price and Median
Mortgage for Homes Purchased with ADDI Assistance in Los Angeles, CA,
and Grand Rapids, MI:
[See PDF for image]
[End of figure]
Although officials from most of the jurisdictions with whom we spoke
said that they combined at least one other subsidy with ADDI funds,
regardless of the market conditions in their areas, jurisdictions in
more expensive areas--where the differences between home prices and
mortgages were substantial--generally used more complicated mechanisms
to maximize the amount of assistance given to eligible homebuyers.
Officials from higher-cost jurisdictions we spoke with also said that
ADDI was not the primary source of down-payment assistance for their
homebuyer programs and, because of the program's per-household
assistance limit, was treated more as a supplement to larger funding
sources, such as other HOME funds. For example, officials of the City
of Los Angeles said they typically combine more than seven different
subsidies--including ADDI, other HOME, and state down-payment
assistance such as CalHome and California Housing Finance Agency loans-
-with other HOME funds constituting the largest of the
subsidies.[Footnote 22] Some of these programs are complex and can be
time-consuming to implement because officials need to assess a family's
eligibility for each subsidy.
Officials from several other jurisdictions we spoke with in which the
gap was not substantial said they did not need to combine subsidies to
make homeownership a reality for the families they assisted. For
example, officials from the cities of Grand Rapids, Michigan;
Indianapolis, Indiana; and the State of Texas said that the down-
payment assistance offered through ADDI generally was sufficient to
bridge the gap between home prices and the mortgages for which lower-
income families qualified.
ADDI Has Not Had a Significant Impact on the Homeownership Rates of
Selected Participating Jurisdictions Due to Modest Funding Levels and
the Newness of the Program:
According to officials in most of the 40 jurisdictions we contacted,
ADDI's impact has been limited because the program is new and modestly
funded. Consistent with this view, HUD data indicates that
approximately 40 percent of the jurisdictions that were allocated ADDI
funds for fiscal year 2005 received $50,000 or less.[Footnote 23] The
percentage increased to 67 percent in fiscal year 2006 (see fig.
6).[Footnote 24]
Figure 6: Jurisdictions with ADDI Allocations of $50,000 or Less,
Fiscal Years 2003-2006:
[See PDF for image]
[End of figure]
Statements by and information from officials in the jurisdictions that
we contacted indicated that, because of modest funding levels for ADDI
and the newness of the program, ADDI thus far has had no significant
impact on homeownership rates in those areas. This was particularly
true for jurisdictions we contacted in higher cost areas where the
disparity between the incomes of eligible households and housing prices
was large, and the households thus needed large subsidies. For example,
the City of Modesto, California, received approximately $36,000 in ADDI
funds in fiscal year 2005 and about $18,000 in fiscal year 2006. A city
official said that the typical gap between the purchase price of a home
and an eligible family's mortgage was about $70,000 and that Modesto's
total ADDI allocation was not sufficient to assist many, if any,
eligible families in the area. Relatively small allocations also
affected lower-cost jurisdictions we contacted. For example, the City
of Amarillo, Texas, received approximately $35,000 in ADDI funding in
fiscal year 2005 and approximately $17,000 in fiscal year 2006. With an
average grant amount of approximately $9,000 per ADDI-assisted
household, Amarillo likely will serve four households with its fiscal
year 2005 ADDI allocation and fewer with its fiscal year 2006
allocation. In addition, several of the officials in the jurisdictions
we contacted noted that the program is still relatively new and that
they could not begin spending their funding allocations until April
2004, after HUD issued interim regulations for ADDI. Some officials
also stated that, because they needed time to develop local policies
and procedures to implement the regulations, their ADDI programs were
not in full operation until some months after this date. For these
reasons, it may be some time before a sufficient number of households
are assisted so to have an appreciable impact on homeownership rates,
particularly at current funding levels.
HUD officials concurred that ADDI's impact on homeownership rates has
been limited but also noted that, as a result of ADDI, jurisdictions
that did not previously use any of their HOME funds for down-payment
assistance are now doing so. The officials said that, in contrast, some
jurisdictions that did use a portion their HOME funds for down-payment
assistance prior to ADDI may now be using their ADDI allocations as a
substitute for (instead of a supplement to) these funds, thus limiting
the marginal impact of the program. Officials in a small number of the
jurisdictions we contacted said that, to varying degrees, they were
using their ADDI funds in this manner.
Some Selected Jurisdictions Experienced Problems Assisting Recipients
of Rental Housing Assistance and Other Populations:
Officials from a number of the 40 jurisdictions we contacted said that
they have experienced difficulties in using ADDI to assist certain
populations, including those that ADDI targeted for outreach--
specifically, recipients of rental housing assistance and residents of
manufactured housing. For example, most of the jurisdictions we
contacted said that it was particularly hard to provide assistance to
recipients of rental housing assistance (e.g., Housing Choice Voucher
households and residents of public housing) because these households
typically have very-low incomes and insufficient savings to purchase a
home. For example, as of March 2006, the average income of a public
housing resident was about $11,000. Even with ADDI or other subsidies,
such households may be unable to purchase homes because their incomes
are insufficient to accommodate mortgage payments.
However, some of the participating jurisdictions we contacted have been
able to help a limited number of public housing tenants and Housing
Choice Voucher recipients become homeowners by combining ADDI
assistance with other programs. For example, the City of Sacramento,
California, administers HUD programs under which the city rehabilitates
and sells existing public housing and other subsidized units to current
residents who are able to afford them. Buyers of these units receive
ADDI assistance, along with other subsidies, including assistance
through the Section 8 Homeownership Voucher program.
Although serving rural areas is not a specific ADDI requirement,
officials from some participating jurisdictions we spoke with,
particularly those that are states, told us that they have faced
difficulties serving rural areas because they lacked existing housing,
and the costs associated with building new housing were high. For
example, North Dakota officials told us that the supply of housing in
rural areas of the state was limited and that market conditions made it
economically infeasible to build new homes for low-income families.
However, a few of the state-level jurisdictions we contacted have been
able to assist families that live in rural areas. For example, Texas
law requires the state participating jurisdiction to serve areas that
are not HUD-designated participating jurisdictions (i.e., cities,
counties, and consortiums that receive ADDI funds directly from
HUD).[Footnote 25] State officials said that, in practice, the state
serves mostly rural areas with its ADDI program. Officials added that
they are able to serve rural areas in the state because the cost of
housing, including new construction, is relatively low. For example, in
the City of Temple, Texas, the cost of a typical new single-family home
ranges from $50,000 to $80,000.
Finally, officials from some jurisdictions we spoke with cited several
difficulties in assisting residents of manufactured housing. For
example, some officials, particularly those from state-level
jurisdictions we contacted, said that they found it hard to locate all
of the mobile home parks in their areas, which limited their ability to
market ADDI to this population. Other officials noted that mobile home
park residents are often already homeowners and, therefore, do not meet
the program's eligibility requirements. In addition, officials who had
tried to conduct outreach to mobile home parks that include residents
who are not owners said that park owners often discouraged efforts to
market homeownership programs to their tenants.
Conclusions:
Congress established ADDI under the multipurpose HOME program, and
authorized funding through fiscal year 2007, to provide a dedicated
stream of funding to help low-income households overcome a principal
barrier to homeownership--covering the up-front costs of buying a
property. Obtaining accurate data on ADDI expenditures and the numbers
and characteristics of assisted households would be an essential first
step in assessing the program's impact. Although HUD, in anticipation
of Congress authorizing a down-payment assistance program, changed its
existing information system--IDIS--to collect such information, the
agency was unable to anticipate all features of ADDI, and this change
to IDIS was insufficient to collect information exclusively on ADDI
projects. Due partly to the program's modest size and limited
authorization period, HUD decided not to create a discrete control for
ADDI and instead went forward with procedures for designating ADDI
projects in IDIS that had recognized limitations. As a result, HUD's
current procedures for collecting ADDI project information in IDIS
allow non-ADDI HOME projects to be included in the expenditures and
accomplishments attributed to the program. It is, therefore, difficult
to draw any conclusions about what ADDI has accomplished, and Congress
lacks reliable information on which to base decisions about the
program's reauthorization. However, because creating new data controls
for ADDI in IDIS would require an investment of resources, to do so
would be prudent only if ADDI is authorized beyond fiscal year 2007.
Even if HUD had more reliable data on ADDI expenditures and projects,
it might be too early to assess their impact given the relatively short
amount of time that the program has been operating--about 2 years.
However, the market conditions and financing constraints described by
the 40 jurisdictions we contacted (about 9 percent of the jurisdictions
that received ADDI funds), and the likelihood that these conditions and
constraints exist in many other areas, suggest that ADDI faces a number
of challenges that could limit its impact. First, while most of these
jurisdictions were using their ADDI allocations, the allocations were
likely too small to assist enough families to significantly increase
homeownership rates. Second, in jurisdictions where the gap between
home prices and the mortgages affordable to eligible families is
greater than the ADDI per-household limits, ADDI will have an impact
only to the extent that other sources of homeownership assistance are
available to use in conjunction with ADDI funds, and officials are able
to effectively use such combinations. Finally, absent concerted efforts
by jurisdictions to combine different sources of subsidies, the use of
ADDI as a tool to help recipients of rental housing assistance become
homeowners may be limited because the very low incomes of this
population pose a major obstacle to homeownership. Nevertheless,
consistent with long-standing federal efforts to make homeownership
more affordable for American families, ADDI ensures that a broad range
of participating jurisdictions use a portion of their total HOME
allocations to help low-income families become first-time homeowners.
Recommendations for Executive Action:
To ensure that ADDI expenditures and accomplishments are accurately
reported, we recommend that, if Congress authorizes ADDI beyond fiscal
year 2007, the Secretary of HUD take the following two actions:
* develop and implement a discrete control in IDIS that distinguishes
ADDI projects from non-ADDI HOME projects, seeking funds to do so if
necessary;
and:
* issue guidance to participating jurisdictions on how to use this
control to enter consistent data on ADDI projects into IDIS.
Agency Comments and Our Evaluation:
We provided HUD with a draft of this report for review and comment. HUD
provided comments in a letter from the General Deputy Assistant
Secretary for Community Planning and Development (see app. VI). HUD did
not comment on our recommendations but made several comments about
other aspects of our draft report.
First, HUD stated that the title of the draft report was "misleading
considering the findings and recommendations in the report."
Specifically, HUD agreed with a statement in the draft report's
Conclusions section stating that it might be too early to assess the
impact of ADDI given the relatively short time the program has been in
operation and believed that the title of the report should have
captured the essence of this statement. Although this statement was one
of several points in our conclusion, the more fundamental issue we
raised--discussed in both the Conclusions section and the body of the
draft report--was that HUD lacked accurate data on ADDI expenditures
and accomplishments. Because accurate data are essential for program
evaluation, as well as program management and oversight, our draft
report recommended that, if the program is reauthorized, HUD develop
and implement controls and issue guidance that would ensure that data
attributed to ADDI are accurate. We continue to believe that the title
of our report accurately represented this fundamental issue and the
reasoning behind the report's recommendation.
Second, HUD said that the cost of changing IDIS to separately capture
ADDI projects "could not be justified at the time of ADDI's rollout in
2004 by any reasonable cost/benefit analysis" and that the agency had
explained this in great detail to GAO officials during the course of
the review. HUD estimated the cost of such a change to be at least $1
million. However, HUD did not provide us with a cost/benefit analysis
or, in fact, any analysis or detailed estimate of costs or benefits
either during the course of our review or in its comment letter. HUD
commented further that in a May 2006 meeting, GAO officials had agreed
that the agency's decision not to invest funds and divert resources to
create a discrete ADDI control appeared to be justified from HUD's
perspective. Contrary to HUD's assertion, we did not agree in this
meeting that HUD's decision was justified. Because HUD provided no
evidence of any cost/benefit analysis, we are not able to determine
whether any steps HUD took to assess the costs and benefits of revising
IDIS were reasonable and thus whether its decision was justified.
However, our draft report acknowledged the rationale behind HUD's
decision and indicated that, according to HUD, creating a discrete ADDI
control would require a significant investment of resources. Finally,
HUD stated that (1) the agency's reasons for not creating a discrete
ADDI control needed to be discussed in the beginning of the report to
provide a clearer understanding of the agency's actions and (2) our
draft report did not recognize one of these reasons--specifically, that
the agency did not know whether ADDI would receive funding beyond 2007.
Our draft report presented HUD's overall view on the feasibility of
creating a discrete ADDI control in both the Highlights and Results in
Brief sections at the front of the report. In addition, our draft
report did cite ADDI's authorization period as one of the agency's
reasons. However, in response to HUD's comments, we added language to
both the Highlights and the Results in Brief sections of the final
report to further explain the agency's rationale.
Third, HUD stated that it disagreed with the draft report's contention
that the ADDI expenditures and accomplishments the agency reported are
not representative of ADDI projects. In support of this statement, HUD
cited an analysis--using data in IDIS--from which the agency concluded
that "the population served by ADDI set-aside funds and other HOME
funds are, for all intents and purposes, one and the same." Because
HUD's analysis is based on data compiled using the same flawed
procedures discussed in our report, we do not believe that HUD has
presented a sound basis for this conclusion. In addition, our draft
report did not state that HUD's data "are not representative of ADDI
projects." Rather, it said that due to internal control weaknesses,
HUD's data include an unknown number of non-ADDI HOME projects and that
the agency, therefore, cannot be certain of the extent to which the
data represent ADDI projects. HUD also cited jurisdictions' practice of
combining ADDI and other HOME funds as evidence that the populations
served by ADDI and other HOME funds are essentially the same. However,
this practice merely shows that other HOME funds may be used to assist
first-time homebuyers and does not demonstrate that all first-time
homebuyers served by other HOME funds share the same characteristics as
those served by ADDI. Further, even if both ADDI and non-ADDI HOME
funds serve similar populations, HUD is responsible for complying with
federal internal control standards that call for controls to
appropriately classify projects--in this case projects that are funded
from programs with different allocation formulas and requirements.
Fourth, HUD stated that it "rejects the contention that the [ADDI]
information collected is not relevant, of value, and useful for
controlling operations and making decisions" and that the agency is
"using such information operationally to, among other things,
aggressively track and, as appropriate, take necessary actions toward
improving the performance of sixty-seven participating jurisdictions
that have yet to expend any of their ADDI funds." Although our review
found many instances where HUD's IDIS data overstated and potentially
understated jurisdictions' ADDI expenditures, our draft report did not
contend that HUD's data have no value. However, because of the
limitations, we believe it is unlikely that these data capture the
total population of jurisdictions that have yet to expend any of their
ADDI funds.
Finally, HUD disagreed with statements in our draft report that data
limitations prevented GAO from assessing ADDI's impact and
accomplishments and stated that GAO's methodology was not adequate to
respond to the congressionally mandated study of ADDI. As we stated in
the draft report, accurate data on ADDI expenditures and
accomplishments would be an essential first step in assessing the
program, and HUD lacks accurate data. Collecting such data would have
required us to contact all 445 jurisdictions that have received ADDI
funds since the program's inception, as well as any third parties or
subgrantees that administered these jurisdictions' ADDI programs. We
determined that such an approach would have been prohibitively
expensive and an inefficient use of funds, particularly given that it
would not have produced a supporting information system for future data
collection. Further, we kept the relevant congressional committees
apprised of our scope, methodology, and research objectives throughout
the review, including the limitations in HUD's data that affected our
work.
We are sending copies of this report to the Secretary of HUD and other
interested congressional committees. We also will make copies available
to others upon request. In addition, the report will be available at no
charge on the GAO Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or w [Hyperlink, woodd@gao.gov]
oodd@gao.gov. Contact points for our Office of Congressional Relations
and Public Affairs may be found on the last page of this report. Key
contributors to this report are listed in appendix VII.
Signed by:
David G. Wood:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I:
Scope and Methodology:
To obtain information on American Dream Downpayment Initiative (ADDI)
expenditures and assisted households through December 31, 2005, we
obtained and analyzed data from the Department of Housing and Urban
Development's (HUD's) ADDI Accomplishment Report and Open Activities
Report. To assess the reliability of the data in HUD's ADDI
Accomplishment Report, which is generated from the agency's Integrated
Disbursement and Information System (IDIS), we (1) performed limited
electronic testing of data elements contained in HUD's ADDI
Accomplishment Report to detect obvious errors; (2) reviewed existing
information about the data and HUD's rules for crediting ADDI in IDIS;
(3) interviewed officials from HUD's Office of Community Planning and
Development about ADDI program requirements, the agency's IDIS
controls, and guidance to jurisdictions on the procedures for entering
ADDI project information into IDIS; and (4) performed some checks of
the HUD-reported ADDI expenditure data against records from a selection
of 33 jurisdictions--11 states, 13 cities, three counties, and six
consortiums. We visited 13 of these participating jurisdictions--4
states, 6 cities, and three consortiums--that we judgmentally selected
to cover different geographic regions, housing markets, and
jurisdiction types. We interviewed officials from the 20 remaining
jurisdictions--7 states, 7 cities, three counties, and three
consortiums--which was a stratified, random sample designed to cover
the four types of jurisdictions and those with relatively high and low
funding allocations and expenditure levels, according to HUD's data as
of December 31, 2005.
We also reviewed laws, regulations, and agency guidance relevant to
ADDI and the HOME Investment Partnerships (HOME) program, as well as
guidance and documentation for HUD's IDIS. We also consulted GAO's
Standards for Internal Control in the Federal Government and Internal
Control Management and Evaluation Tool. We used these standards to
assess whether HUD's internal controls for ADDI reporting were
sufficient to ensure that the agency was accurately reporting ADDI
expenditures and accomplishments. We did not assess the reliability of
HUD's Open Activities Report or the additional IDIS data that HUD
provided us on the characteristics of the households the agency
attributed to ADDI from April 2004 through the end of December 2005.
We were not able to determine the reliability of the expenditures or
number of assisted households that HUD reported for the ADDI program as
of December 31, 2005, because of certain limitations. Specifically:
* IDIS lacks a discrete control to distinguish ADDI projects from non-
ADDI HOME projects;
* HUD's guidance gives jurisdictions latitude to enter inaccurate data
into IDIS;
* Data reported by HUD may not capture all ADDI projects;
and:
* We contacted a small percentage (7.5 percent) of the 445
jurisdictions that received an ADDI allocation, since the program
began, to check the reliability of HUD's ADDI data.
Nevertheless, in order to provide descriptive information about the
ADDI program and highlight the problems we identified with IDIS, we
present the ADDI data as reported by HUD. These were the only data
available from HUD on the ADDI activities of participating
jurisdictions nationwide. Due to these limitations, these figures need
to be interpreted and used cautiously.
To describe the views of officials from selected jurisdictions on
factors that affected their ability to use ADDI funds and on the
program's impact, we obtained information from a total of 40
jurisdictions (the 33 noted previously plus seven others--two states,
four cities, and one consortium--that we contacted while we were still
developing our methodology) through site visits, phone interviews, or
document requests (see list below).[Footnote 26] Specifically, we
visited 13 of these jurisdictions and interviewed officials from the
remaining 27. We asked these officials about their administration of
ADDI, including outreach activities and the extent to which they used
third parties or subgrantees; whether they had a down-payment
assistance program prior to ADDI and any federal, state, and local
sources of homeownership assistance they use in addition to ADDI;
the housing market conditions in their jurisdictions; and the
demographics of the populations they assist. We also asked them about
their views on ADDI's impact on homeownership rates, the amount of ADDI
funds they receive relative to demand for the program, and the ADDI per-
household assistance limits. For the 13 jurisdictions we visited, we
also obtained data and documentation on the different subsidies they
used to promote homeownership and the characteristics of ADDI-assisted
households. To supplement the information from the selected
jurisdictions, we also analyzed nationwide data from HUD on the ADDI
allocations each jurisdiction received for fiscal years 2003 through
2006.
During the course of our work, we contacted the following 40 ADDI
jurisdictions:
Cities:
Amarillo, Texas:
Austin, Texas:
Baltimore, Maryland:
Boston, Massachusetts:
Chicago, Illinois:
Grand Rapids, Michigan:
Indianapolis, Indiana:
Inglewood, California:
Los Angeles, California:
Minneapolis, Minnesota:
Modesto, California:
New York City, New York:
Philadelphia, Pennsylvania:
Pittsburgh, Pennsylvania:
Sacramento, California:
Seattle, Washington:
Washington, D.C.
Counties:
Hamilton County, Ohio:
Montgomery County, Ohio:
Will County, Illinois:
Consortiums:
Alameda County Consortium, California:
Barnstable County Consortium, Massachusetts:
Butler County Consortium, Ohio:
Cuyahoga County Consortium, Ohio:
Dakota County Consortium, Minnesota:
Hennepin County Consortium, Minnesota:
St. Louis County Consortium, Missouri:
States:
California:
Florida:
Maryland:
Massachusetts:
Michigan:
Minnesota:
New Mexico:
North Dakota:
Ohio:
Oklahoma:
Pennsylvania:
Texas:
Washington:
We did not generalize the results of our interviews to the entire
population of jurisdictions that received an ADDI allocation because we
contacted only a small selection of jurisdictions. Further, the
internal control problems associated with HUD's data did not allow us
to make any conclusions about the program's accomplishments.
We performed our work from July 2005 through June 2006, in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II:
Summary of Review of Literature on Barriers to Homeownership:
Several academics have identified barriers to homeownership among all
types of households, evaluated the relative importance and magnitude of
these barriers, and hypothesized on the extent to which relaxation of
these barriers (or constraints) could increase homeownership among
certain populations, as well as the overall homeownership rate. The
literature we reviewed most commonly cited a lack of wealth (i.e.,
liquid assets for a down payment and closing costs), a lack of income
(i.e., liquid assets to make monthly mortgage payments and to pay for
home maintenance and repair), and poor credit as barriers to
homeownership, with lack of wealth being the most significant,
especially among minority households.[Footnote 27]
Englehardt (1994) noted that housing prices affect potential buyers in
many ways but most significantly through the down-payment
requirement.[Footnote 28] He found that the higher the house price, the
greater the amount of the down payment required, and the greater the
barrier to homeownership. According to Englehardt, intergenerational
transfers (i.e., the transfer of wealth from parents to their children)
effectively negate this wealth constraint, allowing households to
purchase homes sooner than they otherwise would if they had to save for
the down payment on their own. In a subsequent study, Mayer and
Englehardt (1996) noted that the percentage of the down payment coming
from gifts is negatively related to income and wealth and positively
related to median house price.[Footnote 29] Combined with data showing,
among other things, that the percentage of the down payment coming from
gifts is increasing and that the percentage from savings is decreasing,
the study suggests that some buyers are having an increasingly
difficult time saving for a down payment.
Stegman, Quercia, McCarthy, and Rohe found an increasing disparity
between the growth in income of lower-income families and an increase
in the operating costs of homes over time.[Footnote 30] Using data from
the Federal Housing Administration and the U.S. Census Bureau's Annual
Housing Survey, the authors found that the cost of operating a single-
family home in the past decade rose at an annual rate of 11.5 percent,
while household incomes (for all households) grew at an annual rate of
7.7 percent between 1974 and 1980. Based on this national information,
they concluded that, on average, families with low incomes in 1974
could carry a market-rate mortgage of no more than a $43,900 (in 1990
dollars), meaning that they would have needed capital grants of $10,600
to buy a house priced at 75 percent of the median price for a given
area. Very-low income households faced an even larger constraint and
required deeper subsidies (approximately $39,000).
Finally, Haurin, Hendershott, and Wachter (1997) found that households
that are constrained because of low income or wealth have a
substantially reduced probability of owning a home.[Footnote 31] They
concluded that the severity of constraints faced by the households will
not affect the homeownership rate unless an intervention (such as down-
payment assistance) eliminates the constraint. These findings and those
of Englehardt; Mayer and Englehardt; and Stegman, Quercia, McCarthy,
and Rohe are consistent with our finding that, in jurisdictions with
high housing costs, large subsidies are required to finance the gap
between homebuyers' mortgage amounts and the high prices of homes.
Several additional studies highlight the impact of the "wealth
constraint" on minority households.[Footnote 32] For example, Gyourko,
Linneman, and Wachter note that among wealth-constrained households
(i.e., those households with insufficient net worth to meet down
payment and closing cost requirements), whites own at systematically
higher rates than minorities, suggesting that minorities not only are
less likely to own than whites, but that they are also
disproportionately wealth constrained. The authors found that, in 1983,
wealth-constrained whites owned homes at roughly double the 10.3
percent rate of wealth-constrained minorities.
Finally, several studies suggest that small amounts of down-payment
assistance or other similar subsidies could substantially increase the
homeownership rate among low-income and minority households in
particular.[Footnote 33] However, the findings in these studies
generally are not based on results from controlled field studies and
should not be construed as definitive evidence of the impact down-
payment assistance programs. For example, Listokin, Wyly, Schmitt, and
Voicu (2001) estimated the portion of renters who would qualify for
homeownership with mortgages that permit, among other things, low down
payments. They estimated that 9.2 percent of all renters could afford a
modestly priced home with a standard mortgage without any down-payment
assistance, but that the estimated percentage would increase to 16.2
percent with an asset supplement (i.e., down-payment assistance).
Comparatively, the authors estimated that the share of black renters
who could afford a modestly priced home with a standard mortgage was
2.7 percent. The authors found that the only way to substantially
increase that percentage would be through an asset supplement;
they estimated that a $10,000 supplement would increase the percentage
to 29.8 percent.
[End of section]
Appendix III: Comparison of Selected Rules Applicable to Fiscal Year
2003 ADDI Funds to Those for Fiscal Year 2004-2007 Funds:
The rules governing the allocation and use of American Dream
Downpayment Initiative (ADDI) funds for fiscal year 2003 differ
somewhat from those for fiscal years 2003 through 2007. Table 2
summarizes the similarities and differences for selected rules.
Table 2: Comparison of Selected ADDI Rules for Different Fiscal Years:
Rule: Funding formula;
Fiscal year 2003 funds: Need[A] for, and prior commitment to,
assistance to homebuyers;
Fiscal year 2004-2007 funds: Need[A] by state;
then, by local participating jurisdiction. Funds only to local
jurisdictions with populations of more than 150,000 or that qualify for
an allocation greater than $50,000.
Rule: Ineligible participating jurisdictions;
Fiscal year 2003 funds: None;
Fiscal year 2004-2007 funds: The Commonwealth of Puerto Rico and local
participating jurisdictions in Puerto Rico.
Rule: Eligible homebuyers;
Fiscal year 2003 funds: Low-income, first-time homebuyers.
Fiscal year 2004-2007 funds: Low-income, first-time homebuyers.
Rule: Eligible uses of funds;
Fiscal year 2003 funds: Down-payment assistance;
Fiscal year 2004-2007 funds: Down-payment assistance and rehabilitation
done in conjunction with a home purchase. Rehabilitation must be
completed within 1 year of purchase.
Rule: Administrative costs;
Fiscal year 2003 funds: Cannot be used for administrative costs.
Fiscal year 2004-2007 funds: Cannot be used for administrative costs.
Rule: Assistance caps;
Fiscal year 2003 funds: Subject to HOME Investments Partnerships
program (HOME) maximum per-unit subsidy;
Fiscal year 2004-2007 funds: The greater of $10,000 or 6 percent of the
home's purchase price;
also subject to HOME maximum per-unit subsidy when used in combination
with HOME funds.
Rule: Matching requirement[B];
Fiscal year 2003 funds: Applies;
Fiscal year 2004-2007 funds: Does not apply.
Rule: Uniform Relocation Act requirements[C];
Fiscal year 2003 funds: Applies;
Fiscal year 2004-2007 funds: Does not apply.
Source: HUD.
Note: Project "soft-costs" are reasonable and necessary costs incurred
by the homebuyer or participating jurisdiction associated with the
financing of single-family housing (inspection fees, for example).
[A] "Need" is the percentage of low-income households residing in
rental housing based on census data.
[B] As participating jurisdictions use HOME funds, they incur a match
liability--25 cents for each dollar of HOME funds spent--that must be
satisfied by the end of each federal fiscal year.
[C] The purpose of the Uniform Relocation Act is to provide uniform,
fair, and equitable treatment of persons whose real property is
acquired or who are displaced in connection with federally funded
projects. Tenants displaced because their dwelling was purchased using
fiscal year 2003 ADDI funds are eligible for relocation assistance and
payments.
[End of table]
[End of section]
Appendix IV: Statistics That HUD Reported for ADDI through December 31,
2005:
The amount of expenditures, assisted households, and assisted minority
households reported by the Department of Housing and Urban Development
(HUD) varied by state (see table 3). According to HUD's data,
* The amount of American Dream Downpayment Initiative (ADDI)
expenditures ranged from a low of $0 (South Dakota) to a high of $10.3
million (California).
* The number of assisted households ranged from a low of 0 (South
Dakota) to a high of 985 (Ohio). Texas assisted the most minority
households (607).
* Excluding fiscal year 2003 ADDI funds (because they are subject to
different per-household assistance limits than funds for subsequent
years), the average and median assistance per household were $6,871 and
$6,840, respectively. For minority households, the comparable figures
were $7,123 and $7,000. The amount of assistance provided ranged from
less than $1,000 to $28,748.
However, as discussed in the body of this report, these figures,
including data in the following table, represent a mix of ADDI and an
unknown number of non-ADDI HOME projects.
Table 3: State-by-State ADDI Expenditures and Accomplishments Reported
by HUD through December 31, 2005:
State: Ala;
Down-payment assistance: $2,525,806;
Rehabilitation assistance: $0;
Total ADDI assistance: $2,525,806;
Total number of households: 258;
Number of minority households within total number of households: 101.
State: Alaska;
Down-payment assistance: $462,288;
Rehabilitation assistance: $0;
Total ADDI assistance: $462,288;
Total number of households: 43;
Number of minority households within total number of households: 14.
State: Ariz;
Down-payment assistance: $729,421;
Rehabilitation assistance: $0;
Total ADDI assistance: $729,421;
Total number of households: 89;
Number of minority households within total number of households: 57.
State: Ark;
Down-payment assistance: $181,208;
Rehabilitation assistance: $0;
Total ADDI assistance: $181,208;
Total number of households: 30;
Number of minority households within total number of households: 20.
State: Calif;
Down-payment assistance: $10,325,690;
Rehabilitation assistance: $3,774;
Total ADDI assistance: $10,325,690;
Total number of households: 685;
Number of minority households within total number of households: 469.
State: Colo;
Down-payment assistance: $1,345,807;
Rehabilitation assistance: $0;
Total ADDI assistance: $1,345,807;
Total number of households: 243;
Number of minority households within total number of households: 78.
State: Conn;
Down-payment assistance: $821,996;
Rehabilitation assistance: $0;
Total ADDI assistance: $821,996;
Total number of households: 54;
Number of minority households within total number of households: 40.
State: D.C;
Down-payment assistance: $713,779;
Rehabilitation assistance: $0;
Total ADDI assistance: $713,779;
Total number of households: 54;
Number of minority households within total number of households: 52.
State: Del;
Down-payment assistance: $8,050;
Rehabilitation assistance: $0;
Total ADDI assistance: $8,050;
Total number of households: 1;
Number of minority households within total number of households: 0.
State: Fla;
Down-payment assistance: $5,505,023;
Rehabilitation assistance: $0;
Total ADDI assistance: $5,505,023;
Total number of households: 590;
Number of minority households within total number of households: 355.
State: Ga;
Down-payment assistance: $3,754,127;
Rehabilitation assistance: $4,350;
Total ADDI assistance: $3,758,477;
Total number of households: 596;
Number of minority households within total number of households: 424.
State: Hawaii;
Down-payment assistance: $520,612;
Rehabilitation assistance: $0;
Total ADDI assistance: $520,612;
Total number of households: 44;
Number of minority households within total number of households: 30.
State: Idaho;
Down-payment assistance: $647,900;
Rehabilitation assistance: $0;
Total ADDI assistance: $647,900;
Total number of households: 197;
Number of minority households within total number of households: 24.
State: Ill;
Down-payment assistance: $4,327,641;
Rehabilitation assistance: $0;
Total ADDI assistance: $4,327,641;
Total number of households: 447;
Number of minority households within total number of households: 288.
State: Ind;
Down-payment assistance: $2,913,858;
Rehabilitation assistance: $0;
Total ADDI assistance: $2,913,858;
Total number of households: 669;
Number of minority households within total number of households: 149.
State: Iowa;
Down-payment assistance: $102,099;
Rehabilitation assistance: $0;
Total ADDI assistance: $102,099;
Total number of households: 10;
Number of minority households within total number of households: 8.
State: Kans;
Down-payment assistance: $1,750,611;
Rehabilitation assistance: $19,708;
Total ADDI assistance: $1,770,319;
Total number of households: 244;
Number of minority households within total number of households: 64.
State: Ky;
Down-payment assistance: $1,895,810;
Rehabilitation assistance: $0;
Total ADDI assistance: $1,895,810;
Total number of households: 241;
Number of minority households within total number of households: 75.
State: La;
Down-payment assistance: $1,070,606;
Rehabilitation assistance: $0;
Total ADDI assistance: $1,070,606;
Total number of households: 152;
Number of minority households within total number of households: 120.
State: Maine;
Down-payment assistance: $595,544;
Rehabilitation assistance: $0;
Total ADDI assistance: $595,544;
Total number of households: 81;
Number of minority households within total number of households: 6.
State: Mass;
Down-payment assistance: $3,069,062;
Rehabilitation assistance: $12,731;
Total ADDI assistance: $3,081,793;
Total number of households: 467;
Number of minority households within total number of households: 199.
State: Md;
Down-payment assistance: $2,565,254;
Rehabilitation assistance: $0;
Total ADDI assistance: $2,565,254;
Total number of households: 346;
Number of minority households within total number of households: 242.
State: Mich;
Down-payment assistance: $2,972,693;
Rehabilitation assistance: $10,917;
Total ADDI assistance: $2,979,171;
Total number of households: 334;
Number of minority households within total number of households: 170.
State: Minn;
Down-payment assistance: $397,308;
Rehabilitation assistance: $0;
Total ADDI assistance: $397,308;
Total number of households: 55;
Number of minority households within total number of households: 11.
State: Miss;
Down-payment assistance: $534,564;
Rehabilitation assistance: $0;
Total ADDI assistance: $534,564;
Total number of households: 32;
Number of minority households within total number of households: 17.
State: Mo;
Down-payment assistance: $3,385,899;
Rehabilitation assistance: $2,200;
Total ADDI assistance: $3,388,099;
Total number of households: 572;
Number of minority households within total number of households: 206.
State: Mont;
Down-payment assistance: $698,906;
Rehabilitation assistance: $0;
Total ADDI assistance: $698,906;
Total number of households: 63;
Number of minority households within total number of households: 7.
State: N.C;
Down-payment assistance: $4,637,120;
Rehabilitation assistance: $0;
Total ADDI assistance: $4,637,120;
Total number of households: 684;
Number of minority households within total number of households: 385.
State: N.Dak;
Down-payment assistance: $532,353;
Rehabilitation assistance: $8,852;
Total ADDI assistance: $541,205;
Total number of households: 152;
Number of minority households within total number of households: 5.
State: N.H;
Down-payment assistance: $819,865;
Rehabilitation assistance: $0;
Total ADDI assistance: $819,865;
Total number of households: 80;
Number of minority households within total number of households: 6.
State: N.J;
Down-payment assistance: $1,368,659;
Rehabilitation assistance: $0;
Total ADDI assistance: $1,368,659;
Total number of households: 169;
Number of minority households within total number of households: 123.
State: N.Mex;
Down-payment assistance: $753,146;
Rehabilitation assistance: $0;
Total ADDI assistance: $753,146;
Total number of households: 99;
Number of minority households within total number of households: 68.
State: N.Y;
Down-payment assistance: $5,151,769;
Rehabilitation assistance: $110,351;
Total ADDI assistance: $5,262,120;
Total number of households: 697;
Number of minority households within total number of households: 273.
State: Nebr;
Down-payment assistance: $954,591;
Rehabilitation assistance: $25,495;
Total ADDI assistance: $980,086;
Total number of households: 111;
Number of minority households within total number of households: 11.
State: Nev;
Down-payment assistance: $879,620;
Rehabilitation assistance: $0;
Total ADDI assistance: $879,620;
Total number of households: 140;
Number of minority households within total number of households: 113.
State: Ohio;
Down-payment assistance: $5,457,679;
Rehabilitation assistance: $26,137;
Total ADDI assistance: $5,483,816;
Total number of households: 985;
Number of minority households within total number of households: 399.
State: Okla;
Down-payment assistance: $452,666;
Rehabilitation assistance: $0;
Total ADDI assistance: $452,666;
Total number of households: 228;
Number of minority households within total number of households: 167.
State: Oreg;
Down-payment assistance: $312,956;
Rehabilitation assistance: $0;
Total ADDI assistance: $312,956;
Total number of households: 48;
Number of minority households within total number of households: 7.
State: Pa;
Down-payment assistance: $2,733,890;
Rehabilitation assistance: $10,524;
Total ADDI assistance: $2,744,414;
Total number of households: 428;
Number of minority households within total number of households: 132.
State: Puerto Rico;
Down-payment assistance: $716,517;
Rehabilitation assistance: $0;
Total ADDI assistance: $716,517;
Total number of households: 48;
Number of minority households within total number of households: 48.
State: R.I;
Down-payment assistance: $409,944;
Rehabilitation assistance: $0;
Total ADDI assistance: $409,944;
Total number of households: 43;
Number of minority households within total number of households: 24.
State: S.C;
Down-payment assistance: $1,806,087;
Rehabilitation assistance: $0;
Total ADDI assistance: $1,806,087;
Total number of households: 521;
Number of minority households within total number of households: 228.
State: S.Dak;
Down-payment assistance: $0;
Rehabilitation assistance: $0;
Total ADDI assistance: $0;
Total number of households: 0;
Number of minority households within total number of households: 0.
State: Tenn;
Down-payment assistance: $3,330,401;
Rehabilitation assistance: $0;
Total ADDI assistance: $3,330,401;
Total number of households: 453;
Number of minority households within total number of households: 189.
State: Tex;
Down-payment assistance: $5,898,550;
Rehabilitation assistance: $10,288;
Total ADDI assistance: $5,908,838;
Total number of households: 776;
Number of minority households within total number of households: 607.
State: Utah;
Down-payment assistance: $239,619;
Rehabilitation assistance: $0;
Total ADDI assistance: $239,619;
Total number of households: 115;
Number of minority households within total number of households: 15.
State: Va;
Down-payment assistance: $3,530,851;
Rehabilitation assistance: $13,704;
Total ADDI assistance: $3,540,055;
Total number of households: 385;
Number of minority households within total number of households: 233.
State: Vt;
Down-payment assistance: $155,142;
Rehabilitation assistance: $0;
Total ADDI assistance: $155,142;
Total number of households: 8;
Number of minority households within total number of households: 1.
State: W.Va;
Down-payment assistance: $215,958;
Rehabilitation assistance: $0;
Total ADDI assistance: $215,958;
Total number of households: 21;
Number of minority households within total number of households: 5.
State: Wash;
Down-payment assistance: $1,665,382;
Rehabilitation assistance: $0;
Total ADDI assistance: $1,665,382;
Total number of households: 164;
Number of minority households within total number of households: 35.
State: Wisc;
Down-payment assistance: $1,926,957;
Rehabilitation assistance: $97,365;
Total ADDI assistance: $2,024,322;
Total number of households: 313;
Number of minority households within total number of households: 53.
State: Wyo;
Down-payment assistance: $362,915;
Rehabilitation assistance: $0;
Total ADDI assistance: $362,915;
Total number of households: 35;
Number of minority households within total number of households: 2.
State: Total;
Down-payment assistance: $98,134,199;
Rehabilitation assistance: $356,396;
Total ADDI assistance: $98,477,882;
Total number of households: 13,300;
Number of minority households within total number of households: 6,355.
Sources: GAO and HUD.
Note: According to HUD officials and explanatory documents on the
agency's Web site, down-payment assistance plus rehabilitation
assistance should equal total ADDI assistance on the above report;
however, we found that the report contains three cases where
rehabilitation assistance was excluded from total ADDI assistance.
[End of table]
[End of section]
Appendix V:
Profiles of ADDI Programs in Four Jurisdictions:
We contacted 40 participating jurisdictions that were awarded American
Dream Downpayment Initiative (ADDI) grants in fiscal years 2003 through
2005. We describe below ADDI programs in 4 of the 40 jurisdictions we
contacted--Los Angeles, California; Grand Rapids, Michigan; the State
of Texas; and Sacramento, California. We selected these four
jurisdictions to illustrate how the program is operating in relatively
high-cost and low-cost locations and is being used to assist targeted
or hard-to-reach populations.
Los Angeles, California:
According to the National Association of Home Builders/Wells Fargo
Housing Opportunity Index, Los Angeles was the most expensive city to
live in the United States in 2005.[Footnote 34] The disparity between
the annual income of an eligible low-income family--one earning 80
percent or less of the area median income--and the purchase price of
homes represents one of the most significant obstacles to homeownership
for first-time homebuyers in Los Angeles. For example, the median
purchase price of homes purchased by ADDI-assisted households in Los
Angeles was $264,000, while the median mortgage amount was about
$142,000. As a result of this large gap, the Los Angeles Housing
Department (LAHD) administers a complex homebuyer assistance program,
in which more than seven subsidies can be combined to assist eligible
first-time, low-income homebuyers.
LAHD offers several programs to low-income, first-time homebuyers who
need assistance to purchase a home in the city. Using HOME Investment
Partnerships (HOME) program funds, LAHD offers purchase assistance of
up to $90,000 to eligible homebuyers. LAHD also provides eligible
homebuyers with ADDI funds--$10,000 or up to 6 percent of the purchase
price of a home, whichever is greater--to help cover the cost of the
down payment and closing costs. Both programs offer the assistance as
30-year, deferred zero-interest loans, which are payable upon the sale
or transfer of the property. Homebuyers are required to complete at
least 8 hours of homebuyer education from one of LAHD's approved
providers to obtain these loans and must contribute a minimum of 3
percent of the sales price from their own savings toward the down
payment. Homebuyers may contribute as little as 1 percent toward the
down payment by attending 12 hours of homebuyer education training. As
shown below, the LAHD loans are combined with state and other subsidies
to maximize the benefits of the subsidies and make homeownership in the
city affordable for eligible families (see fig. 7).
Figure 7: Example of a Homebuyer's Financing Package Incorporating ADDI
and LAHD Programs:
[See PDF for image]
[End of figure]
As of January 2006, LAHD had assisted 32 low-income, first-time
homebuyers with ADDI funds. Of the 32 homebuyers who received ADDI
funds, all used more than one subsidy, 25 were minorities, and 23
earned 60 percent or more of the area median income (see table 4).
Table 4: Selected Characteristics of ADDI Recipients in the City of Los
Angeles, as of January 2006:
Range;
ADDI assistance: $10,920-$25,200;
Additional public and private assistance: $25,683-$192,319;
Homebuyer cash contribution: $1,850- $22,400;
Purchase price: $182,000-$420,000;
First mortgage amount: $80,700-$256,854.
Median;
ADDI assistance: $15,840;
Additional public and private assistance: $122,788;
Homebuyer cash contribution: $5,460;
Purchase price: $264,000;
First mortgage amount: $141,700.
Average;
ADDI assistance: $15,465;
Additional public and private assistance: $119,850;
Homebuyer cash contribution: $6,425;
Purchase price: $257,758;
First mortgage amount: $146,992.
Sources: GAO and City of Los Angeles.
[End of table]
Grand Rapids, Michigan:
According to the National Association of Home Builders/Wells Fargo
Housing Opportunity Index, the City of Grand Rapids was among the 15
most affordable metropolitan areas to live in the United States in
2005. According to the city's 2005-2010 Consolidated Housing and
Community Development Plan, the city's overall homeownership rate in
2000 was about 60 percent. However, within the areas generally targeted
for its homebuyer assistance programs, the homeownership rate was less
than 48 percent. The city's consolidated plan also states that most
renters with incomes of 51 to 80 percent of the city's area median
income have the ability to secure housing through the private market.
However, these households still face two impediments to homeownership:
(1) down payments and closing costs and (2) the availability of quality
housing within their price range.
The Grand Rapids Community Development Department integrated the ADDI
program into its existing Homebuyer Assistance Fund (HAF) program,
which is funded with other HOME grants. HAF offers a zero-interest,
deferred payment loan of up to $5,000 for down-payment and closing cost
assistance to first-time, low-income homebuyers. These loans are
forgivable after 5 years. Eligible homebuyers are informed of the HAF
program through various means, including participating mortgage
lenders. To be considered for a HAF loan, eligible homebuyers must be
approved for a mortgage loan from 1 of 15 participating lenders,
contribute at least 1 percent of the sales price toward the down
payment, have assets that do not exceed $5,000, and complete a
homebuyer education course. Of 41 families who received assistance
through ADDI, as of February 2006, 37 were minorities (see table 5).
Table 5: Selected Characteristics of ADDI Recipients in the City of
Grand Rapids, as of February 2006:
Range;
ADDI assistance: $3,698-$5,000;
Income: $16,497-$47,776;
Homebuyer cash contribution: $500-$2,824;
Purchase price: $64,900- $110,500;
First mortgage amount: $63,491-$109,388.
Median;
ADDI assistance: $5,000;
Income: $26,487;
Homebuyer cash contribution: $999;
Purchase price: $86,000;
First mortgage amount: $84,996.
Average;
ADDI assistance: $4,846;
Income: $28,282;
Homebuyer cash contribution: $1,157;
Purchase price: $87,177;
First mortgage amount: $85,737.
Sources: GAO and City of Grand Rapids.
[End of Table]
State of Texas:
Due to lower incomes (residents of nonmetropolitan areas earn
approximately $13,000 less annually than residents of metropolitan
areas) and lack of access to resources (such as bonds, large tax bases,
and investment capital) in less populous areas, the State of Texas
gives special programmatic consideration to lower-income individuals
and households residing in rural areas. For example, Section
2306.111(c) of the Texas Government Code requires that the state
participating jurisdiction allocate 95 percent of its HOME (including
ADDI) funds to areas that are not other HUD-designated participating
jurisdictions. Combined with its annual ADDI allocation, the state
dedicated approximately $6.7 million to its Homebuyer Assistance
Program (HAP) for fiscal year 2006.
The Texas Department of Housing and Community Affairs administers HAP
through 20 subgrantees that are selected through a competitive process.
Families apply for down-payment assistance through these subgrantees.
Selected families receive 10-year forgivable loans that cannot exceed
the greater of $10,000 or 6 percent of the purchase price of a home. Of
the 42 homebuyers who received ADDI funds through HAP, as of February
2006, 32 were minorities, 24 had mortgages insured by HUD's Federal
Housing Administration, 21 purchased homes in rural areas, and 8 earned
less than 60 percent of the area median income. The average amount of
ADDI assistance per household was approximately $6,500 (see table 6).
Table 6: Selected Characteristics of ADDI Recipients in the State of
Texas Program, as of February 2006:
Range;
ADDI assistance: $3,100-$10,000;
Additional public and private assistance: $0-$5,275;
Homebuyer cash contribution: $0-$19,862;
Purchase price: $40,900-$163,200;
First mortgage amount: $25,000- $160,678.
Median;
ADDI assistance: $5,200;
Additional public and private assistance: $0;
Homebuyer cash contribution: $0;
Purchase price: $97,450;
First mortgage amount: $91,397.
Average;
ADDI assistance: $6,470;
Additional public and private assistance: $526;
Homebuyer cash contribution: $1,025;
Purchase price: $94,942;
First mortgage amount: $90,237.
Sources: GAO and State of Texas.
[End of table]
Sacramento, California:
The Sacramento Housing and Redevelopment Agency (HRA) administers two
HUD programs through which it targets its homeownership programs,
including ADDI, to recipients of rental housing assistance (e.g.,
Housing Choice Voucher households and residents of public housing)--the
Section 5(h) and Section 32 homeownership programs.[Footnote 35]
* Under the Section 5(h) homeownership program, public housing
authorities (agencies that administer HUD's federal rental housing
assistance programs) can sell units and developments that, because of
their location or other factors, are no longer efficient for the
housing authority to operate. Residents of these developments are given
first priority to purchase the units. Housing authorities may use other
HUD assistance, including ADDI funds, to help finance the purchase and
sale of these units.
* Similar to the Section 5(h) program, the Section 32 homeownership
program permits public housing authorities to make public housing units
available for purchase by low-income families, including recipients of
federal rental housing assistance. The program also permits housing
authorities to give capital funds to public housing residents to
purchase homes (down-payment and closing cost assistance, subordinate
financing, or below-market financing) or use capital funds to acquire
homes that will be sold to low-income families. Housing authorities may
use other HUD assistance, including ADDI funds, to help finance the
purchase and sale of these units.
Under the Sacramento HRA's homebuyer program, eligible homebuyers can
layer up to four subsidies, depending on their annual income, to use
toward the purchase of a condominium or single-family home in the City
or County of Sacramento (see table 7). Total assistance available to a
family can range up to $40,000. According to an official from the
Sacramento HRA, about 75 percent of homebuyers obtain one or more
subsidies.
Table 7: Subsidies Available to Homebuyers in the City of Sacramento by
Income Level or Voucher Program:
Income level: Less than 60 percent of area median income or property
located in a targeted area;
Subsidies available: Eligible families may layer up to four of the
following programs:
* First- Time Homebuyer program or;
* Target Area Homebuyer program[A];
* ADDI[B];
* Mortgage Assistance program or;
* CalHome Mortgage Assistance program[C];
* Mortgage Certificate Credit program[D].
Income level: 60 to 80 percent of area median income;
Subsidies available: Eligible families may layer up to three of the
programs listed above.
Income level: Homeownership Voucher program participants;
[Empty];
Subsidies available: Recipients of Section 8 Homeownership Vouchers may
combine their assistance with the following three programs:
* First- Time Homebuyer program[A];
* ADDI[B];
* CalHome Mortgage Assistance program[C].
Source: Sacramento HRA.
Note: HUD's Homeownership Voucher program allows recipients of Housing
Choice Vouchers to use their monthly subsidies to make payments on a
mortgage. Assistance is available for 10 to 15 years, depending on the
terms of the first mortgage. Program participants must be first-time
homebuyers, have full-time employment, and make a minimum income (based
on HUD guidelines).
[A] The First-Time Homebuyer program and Target Area Homebuyer program
provide homebuyers with down-payment and closing cost assistance (30-
year deferred payment loan). The maximum amount of assistance available
under each of the programs is $5,000, and recipients must be first-time
homebuyers (recipients do not need to be first-time homebuyers in case
of the Target Area program), low-income (or low or moderate in the case
of the Target Area program) homebuyers. Both of these programs are
partly funded by HUD's Community Development Block Grant and HOME
programs.
[B] To receive ADDI funds, a homebuyer must meet the criteria set forth
in the American Dream Downpayment Act. Assistance is in the form of a
10-year forgivable loan.
[C] The Mortgage Assistance program and the CalHome Mortgage Assistance
program offer 30-year deferred payment loans that are used to reduce
the amount of the purchaser's first mortgage. The amount of assistance
for which a homebuyer can qualify cannot exceed $20,000 (Mortgage
Assistance program) or $25,000 (CalHOME). Recipients must be low-
income, first-time homebuyers, and the assistance can be used to
purchase a home in eligible areas of the City and County of Sacramento.
[D] The Mortgage Credit Certificate program reduces the amount of
federal income tax a recipient pays, making more income available to
qualify for a mortgage and make monthly mortgage payments.
[End of table]
Under its Section 5(h) program, Sacramento HRA is in the process of
rehabilitating and selling 73 scattered vacant houses and units. As of
April 2006, 4 families who were recipients of federal rental housing
assistance and 12 who were not had purchased homes under this program.
All 16 families received ADDI assistance. In addition, Sacramento HRA
is currently in the process of implementing a Section 32 program. Under
this program, the city will rehabilitate and sell 200 existing housing
units and plans to use ADDI to make these units more affordable to
potential buyers.
[End of section]
Appendix VI:
Comments from the Department of Housing and Urban Development:
U.S. Department Of Housing And Urban Development:
Washington, D.C. 20410-7000:
Office Of For Community Planning And Development:
June 7, 2006:
Mr. David G. Wood:
Director, Financial Markets and Community Investment Team:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Wood:
We have reviewed the Government Accountability Office's (GAO) proposed
report entitled Homeownership: Limitations in HUD's Data Hamper
Assessment of the American Dream Downpayment Initiative (GAO-06-677).
Our comments are as follows.
It is our belief that the title page "HUD Homeownership Programs - Data
Limitations Constrain Assessment of the American Dream Downpayment
Initiative" is misleading considering the findings and recommendations
in the report. In addition, on page 26 of the report GAO states that it
might be too early to assess the impact of American Dream Downpayment
Initiative (ADDI) given the relatively short time the program has been
in operation. We agree with that statement. In our opinion titling the
report "Too Early to Assess the Impact of the American Dream
Downpayment Initiative," would more accurately capture the essence.
As for our data needs, we made a conscious, educated decision to build
the system we did to control the ADDI funding. The reasons for our
decision are not stated until mid-way through the main body of the GAO
report. This information needs to be provided to the reader in the
beginning of the report, so they will obtain a clearer understanding of
the actions taken.
HUD actually began the process of developing a system to control the
ADDI funding in 2002 when the design of major improvements to the
Integrated Disbursement and Information System (IDIS) used by HUD to
report on accomplishments in HOME and three other formula programs were
initiated. HUD decided to add two data collection elements (i.e., first-
time homebuyer and downpayment/closing costs) in anticipation of the
possibility that Congress would eventually pass a downpayment
assistance program of some kind. It was at this time in 2002 that
Congress first appropriated, and later rescinded, $50 million in
funding for a downpayment initiative.
ADDI legislation was finally enacted by Congress and signed by the
President in December 2003. The changes to the HOME portion of the IDIS
data system initiated in 2002 were eventually released in March 2004,
two weeks before publication of the ADDI regulations. The final ADDI
legislation contained additional provisions that could not have been
anticipated in 2002 and, as a consequence, were not incorporated into
the redesigned data collection system.
HUD has explained in great detail to GAO that the cost (estimated by
HUD to be $1 million or more) of system changes to capture the ADDI set-
aside within HOME, as a separate activity in IDIS, could not be
justified at the time of ADDI's rollout in 2004 by any reasonable cost/
benefit analysis. Furthermore, any such changes could not have been
implemented until sometime in FY 2007 at the earliest, even if a
decision had been taken to do so in 2004. In actuality, our decision
was well founded. Representatives from GAO agreed in an exit conference
on May 9, 2006, that the decision not to invest significant funds and
divert resources to set up a discrete reporting system for ADDI
appeared to be justified from HUD's perspective. The bases for this
decision were that: (1) the populations served by ADDI and HOME were
essentially the same; (2) other modifications to IDIS, including the
new performance measurement system for HOME, CDBG, HOPWA and ESG, were
more urgent; and (3) ADDI was only authorized by Congress through FY
2007. Indeed, GAO states on pages 25 and 26 of its assessment that only
if ADDI is authorized beyond FY 2007 would it become prudent to invest
the resources necessary to set up separate reporting for ADDI in IDIS,
Considering the factors we had to deal with, we believed then and now
that our decision was the most practical approach to take. This is
particularly true given the fact that we do not know if there will be
funding for the ADDI program beyond 2007. This fact is not mentioned in
the summary on page 14 but should be included there and in the
executive summary as well.
GAO was presented with the difficult assignment of preparing a state-
by-state impact assessment less than two years after American Dream
Downpayment Initiative (ADDI) funds were first made available and only
18 months since the majority of grantees received their first
allocations. Further complicating GAO's work was the fact that the
subject of the assessment was not a separate and distinct federal
program. ADDI is a set-aside created by statute within the existing
HOME Program to fund activities (downpayment assistance and
rehabilitation) that: (1) were already eligible under HOME; (2) were
being carried out extensively since 1992; and (3) served the same
population as HOME. While ADDI was specifically targeted toward
assisting first-time homebuyers, HOME was serving that subset of
homebuyers as well. To document the similarities, the following table
compares downpayment and rehabilitation assistance provided nationally
to first-time homebuyers through the ADDI set-aside and, separately,
through other HOME funding since March 2004:
Table: Comparison of Downpayment and Rehabilitation Assistance Provided
Nationally to First-time Homebuyers through ADDI set-aside and,
seperately, through other HOME funding since March 2004:
Number of complete units:
ADDI Set-aside*: 15,667;
Other HOME Funds: 16,422.
Number of Bedrooms: 0;
ADDI Set-aside*: 0.1%;
Other HOME Funds: 0.1%.
Number of Bedrooms: 1;
ADDI Set-aside*: 2.7%;
Other HOME Funds: 2.2%.
Number of Bedrooms: 2;
ADDI Set-aside*: 23.1%;
Other HOME Funds: 22.0%.
Number of Bedrooms: 3;
ADDI Set-aside*: 65.0%;
Other HOME Funds: 67.4%.
Number of Bedrooms: 4;
ADDI Set-aside*: 8.0%;
Other HOME Funds: 7.2%.
Number of Bedrooms: 5;
ADDI Set-aside*: 0.7%;
Other HOME Funds: 0.9%.
Income of Assisted Housheolds: 0-30% of median;
ADDI Set-aside*: 6.9%;
Other HOME Funds: 5.3%.
Income of Assisted Housheolds: 30-50% of median;
ADDI Set-aside*: 25.6%;
Other HOME Funds: 24.4%.
Income of Assisted Housheolds: 50-80% of median;
ADDI Set-aside*: 67.4%;
Other HOME Funds: 70.2%.
Type of Household Assisted: Single/non-Elderly;
ADDI Set-aside*: 30.4%;
Other HOME Funds: 29.7%.
Type of Household Assisted: Elderly;
ADDI Set-aside*: 2.3%;
Other HOME Funds: 2.2%.
Type of Household Assisted: Related/Single Parent;
ADDI Set-aside*: 32.1%;
Other HOME Funds: 29.6%.
Type of Household Assisted: Related/Two Parent;
ADDI Set-aside*: 27.4%;
Other HOME Funds: 29.9%.
Type of Household Assisted: Other;
ADDI Set-aside*: 7.6%;
Other HOME Funds: 8.3%.
Race/Ethnicity: White;
ADDI Set-aside*: 51.7%;
Other HOME Funds: 45.5%.
Race/Ethnicity: Black;
ADDI Set-aside*: 28.1%;
Other HOME Funds: 27.1%.
Race/Ethnicity: Asian;
ADDI Set-aside*: 1.8%;
Other HOME Funds: 1.3%.
Race/Ethnicity: Hispanic;
ADDI Set-aside*: 15.8%;
Other HOME Funds: 24.2%.
Race/Ethnicity: Other;
ADDI Set-aside*: 2.1%;
Other HOME Funds: 1.3%.
Average Assistance Per Unit:
ADDI Set-aside*: $11,412**;
Other HOME Funds: $11,239.
* - 1.4 percent of the HOME appropriation in FY 2006:
** - Includes other HOME funds expended on ADDI-assisted units:
[End of table]
An analysis of these data indicates that the population served by ADDI
set-aside funds and other HOME funds are, for all intents and purposes,
one and the same. In fact, as GAO itself concludes, participating
jurisdictions use HOME and ADDI funds interchangeably, often combining
ADDI set-aside funds and other HOME funds in the very same project and
even assisting the very same household. Information provided from
participating jurisdictions through IDIS indicates that ADDI-set-aside
funds were used in combination with other HOME funds to assist 3,942
households, 25 percent of the total ADDI designated units completed
through April 30, 2006. Consequently, HUD categorically rejects the
notion put forth by GAO in its report that the information provided by
HUD for ADDI was fundamentally incorrect or created a barrier that
would have prevented GAO from having complied with the congressional
request to show ADDI's impact on states and to draw conclusions about
ADDI accomplishments.
Furthermore, given these data, HUD rejects the contention that ADDI
expenditures and accomplishments as reported are not representative of
ADDI projects or that the information collected is not relevant, of
value, and useful for controlling operations and making decisions.
At the very moment this GAO report is being published, HUD is using
such information operationally to, among other things, aggressively
track and, as appropriate, take necessary actions toward improving the
performance of sixty-seven participating jurisdictions that have yet to
expend any of their ADDI funds.
HUD is disappointed that GAO did not present the report requested by
Congress that would have provided a fuller understanding of the impact
of ADDI on participating jurisdictions. Instead of being a footnote to
the state-by-state impact assessment, as would have been appropriate,
the procedures put in place by HUD to address and to overcome the
infeasibility of having a separate electronic reporting system for ADDI
became the report's primary focus.
GAO acknowledges on page 3 and again on page 32 of its report that,
questions of data quality aside, the limited nature of its survey made
it impossible to generalize results to other participating
jurisdictions not part of the survey. The title of the report itself
and the emphasis on the data issues throughout only distract attention
from GAO's failure to develop a methodology and prepare a report that
could be responsive to Congress' request.
Your positive consideration of our comments is appreciated.
Sincerely,
Signed by:
Nelson R. Bregon:
General Deputy Assistant Secretary For Community Planning and
Development:
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
David G. Wood (202) 512-8678:
Staff Acknowledgments:
In addition to the individual named above, Steve Westley, Assistant
Director; Heather T. Atkins; William R. Chatlos; John T. McGrail; Marc
Molino; Josephine Perez; Barbara Roesmann; Cory Roman; and Sidney H.
Schwartz also made key contributions to this report.
(250255):
FOOTNOTES
[1] Pub. L. No. 108-186. To be eligible for ADDI funds, households must
be both low-income and first-time homebuyers, as defined by 42 U.S.C. §
12704. Eligibility does not indicate that the household is creditworthy
or capable of obtaining a mortgage with or without ADDI or other
assistance.
[2] Prior to the Act, the Consolidated Appropriations Resolution of
2003 (Pub. L. No. 108-7) authorized and appropriated $74.5 million in
fiscal year 2003 funds specifically for down-payment assistance under
an existing program. The fiscal year 2003 funds generally can be used
for the same purposes as funds authorized by the Act and are considered
ADDI funds as a practical matter. However, some of the rules governing
the fiscal year 2003 funds significantly differ from the rules for
funds appropriated for subsequent fiscal years.
[3] Projects using other HOME funds are subject to the HOME per-unit
subsidy limits established under Section 221(d)(3)(ii) of the National
Housing Act (12 U.S.C. § 17151(d)(3)(ii)). The subsidy limit varies by
participating jurisdiction, and by property type and size within a
jurisdiction. For example, the maximum per-unit subsidy for a three-
bedroom, single-family home in Chicago, Illinois, was approximately
$175,000 in 2005. In comparison, the maximum amount of assistance that
ADDI could have provided was $16,500 (6 percent of $275,200, the HUD
purchase price limit for a single-family home in Chicago).
[4] While we contacted or visited a total of 40 jurisdictions, we
excluded 7 of them from our reliability check of HUD's ADDI expenditure
data because our contacts occurred while we were still developing our
methodology.
[5] Throughout this report, we use the term "non-ADDI HOME" to refer to
HOME projects that provided down-payment assistance to first-time
homebuyers and did not use ADDI funds.
[6] The homeownership rate is the number of households that own their
homes divided by the total number of households.
[7] 42 U.S.C. § 12821.
[8] A first-time homebuyer is an individual and his or her spouse who
has not owned a home during the 3-year period prior to purchase of a
home with ADDI assistance;
or a displaced homemaker or single parent who, even if while married,
owned a home with his or her spouse or resided in a home owned by the
spouse. 42 U.S.C. § 12704.
[9] HUD did not have data on annual expenditures specifically for down-
payment assistance prior to 2004. Commitment means that the
jurisdiction has executed a legally binding agreement with a state
recipient, subrecipient, or contractor to use a specific amount of HOME
funds for a project. 24 C.F.R. 92.2. We obtained the figures on HOME
expenditures and commitments from "acquisitions" data in HUD's National
Production Report. According to HUD officials, these data are the only
consistent measure of HOME down-payment assistance over time. We did
not assess the reliability of these data. Since March 2004, HUD has
captured down-payment assistance as a separate field in IDIS.
[10] Beginning with HUD's fiscal year 2002 appropriation (Pub. L. No.
107-73), a time limit was imposed on each year's total HOME
appropriation. Funds that HUD has not obligated (including funds
deobligated for a jurisdiction's failure to commit or expend them) by
the required date must be returned to the Department of the Treasury.
Prior to fiscal year 2002, the appropriations acts permitted HUD to
recapture, reallocate, and reobligate HOME funds until expended.
[11] HUD offers rental assistance to low-income renters primarily
through the public housing and Housing Choice Voucher programs. Under
each program, HUD makes up the difference between a unit's monthly
rental cost (or for public housing, the operating cost) and the
tenant's payment, which is generally equal to 30 percent of the
tenant's adjusted monthly income.
[12] 24 C.F.R. 92.254. The affordability period may extend to 15 years
if a homebuyer receives $40,000 or more in ADDI and other HOME funds.
[13] The CDBG program is a HUD formula grant program that provides
communities with resources to address a wide range of community
development needs. CDBG funds may be used to provide direct
homeownership assistance, including interest rate subsidies and down-
payment and closing cost assistance, to low-and moderate-income
families. The Section 8 Homeownership Voucher program allows eligible
recipients of Housing Choice Vouchers to use their monthly subsidies to
make payments on a mortgage. Assistance is available for 10 to 15
years, depending on the terms of the first mortgage.
[14] The $211 million in appropriations is the sum of the
appropriations for fiscal years 2003 ($74.5 million), 2004 ($87
million), and 2005 ($49.6 million).
[15] HUD's data on the characteristics of assisted households for this
period are not directly comparable to the agency's ADDI Accomplishment
Report because of differences in the number of projects reported. We
did not check the reliability of the characteristics data;
however, we found that a small number of these records did not indicate
household income. HUD does not collect, or require, jurisdictions to
collect information on the performance of non-FHA-insured mortgages
used by HOME-assisted households because the agency is not required to
do so and because of impediments the agency and jurisdictions would
encounter in collecting these data from private market lenders.
[16] GAO issued these standards as required by 31 U.S.C. §3512(c). Also
see GAO, Standards for Internal Control in the Federal Government, GAO/
AIMD-00-21.3.1 (Washington, D.C.: November 1999) and GAO, Internal
Control Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.:
August 2001).
[17] We did not independently estimate the cost of implementing such a
control.
[18] HUD credits each project to one year of ADDI allocation only. If a
project provides an amount of down-payment assistance that exceeds the
ADDI per-household limit, HUD credits the assistance to a
jurisdiction's fiscal year 2003 ADDI allocation first (which is subject
to the HOME maximum per-unit subsidy). If a project has both down-
payment and rehabilitation assistance, HUD credits the assistance to a
jurisdiction's ADDI allocations for fiscal year 2004 and later.
[19] Eighteen of the selected participating jurisdictions reported no
missing ADDI projects. We excluded three jurisdictions from the 33 we
contacted because of unreliable local records or documented IDIS data
entry errors.
[20] HOME rules require jurisdictions to enter project completion data
into IDIS within 120 days of making a final draw of funds for a
project. 24 C.F.R. 92.502(d)(1). If jurisdictions do not change the
status of a project in IDIS to "complete" despite the fact that they
have drawn all the funds for these projects, these projects will not
appear on the ADDI Accomplishment Report but should appear in the Open
Activities Report.
[21] We did not obtain information on closing costs from the
jurisdictions we contacted. Because we did not include these costs in
the purchase price of the homes, our analysis may understate the actual
gaps between median home prices and mortgage amounts but illustrates
the relative difference between higher-cost and lower-cost locations.
[22] In November 2002, California voters passed Proposition 46, The
Housing and Emergency Shelter Trust Fund Act of 2002, which created a
$2.1 billion dollar bond that funds different down-payment assistance
programs. Both the CalHOME program and the California Housing Finance
Agency's down-payment assistance loans are funded, to some extent,
through Proposition 46 bonds.
[23] Jurisdictions that receive an ADDI allocation have the ability to
decline the funds, which then revert to the state in which the
participating jurisdiction is located. However, HUD's data do not
reflect allocations that were declined.
[24] As previously noted, the annual amount Congress has appropriated
for ADDI has declined since the inception of the program. For example,
the ADDI appropriation for fiscal year 2006 is about half of the amount
appropriated for fiscal year 2005.
[25] Section 2306.111(c) of the Texas Government Code requires that the
state participating jurisdiction allocate 95 percent of its HOME funds
(including ADDI) to areas that are not HUD-designated participating
jurisdictions, meaning that most of the state's HOME/ADDI funding is
awarded to rural communities.
[26] Because we were still developing our methodology when we contacted
the seven jurisdictions, we did not include them in our reliability
check of HUD's ADDI expenditure data.
[27] As our report notes, the American Dream Downpayment Assistance
Initiative was designed to give low-income households money for a down
payment and closing costs, thus helping to address this primary barrier
to ownership.
[28] G. Englehardt, "House Prices and the Decision to Save for
Downpayments," Journal of Urban Economics, vol. 36 (1994): 209-237.
[29] C. Mayer and G. Englehardt, "Gifts, Downpayments, and Housing
Affordability," Journal of Housing Research, vol. 7, no. 1 (1996): 59-
77.
[30] M. Stegman, R. Quercia, G. McCarthy, and W. Rohe, "Using the Panel
Study of Income Dynamics (PSID) to Evaluate the Affordability
Characteristics of Alternative Mortgage Instruments and Homeownership
Assistance Programs," Journal of Housing Research, vol. 2, no. 2
(1991): 161-211.
[31] D. Haurin, P. Hendershott, and S. Wachter, "Borrowing Constraints
and the Tenure Choice of Young Households," Journal of Housing
Research, vol. 8, no. 2 (1997): 137-155.
[32] See J. Gyourko, P. Linneman, and S. Wachter, "Analyzing the
Relationships Among Race, Wealth, and Home Ownership in America,"
Journal of Housing Economics, vol. 8 (1999): 63-89 and D. Listokin, E.
Wyly, B. Schmitt, and I. Voicu, "The Potential and Limitations of
Mortgage Innovation in Fostering Homeownership in the United States,"
Housing Policy Debate, vol. 12, no. 3 (2001): 465-513. Also see the
following Department of Housing and Urban Development studies: Z. Di
and X. Liu, "The Importance of Wealth and Income in the Transition to
Homeownership." U.S. Department of Housing and Urban Development Office
of Policy Development and Research, (2005) and C. Herbert, D. Haurin,
S. Rosenthal, and M. Duda, "Homeownership Gaps Among Low-Income and
Minority Borrowers and Neighborhood," U.S. Department of Housing and
Urban Development Office of Policy Development and Research, (2005).
[33] See Di and Liu (2005);
C. Herbert and W. Tsen, "The Potential of Downpayment Assistance for
Increasing Homeownership Among Minority and Low-Income Households,"
U.S. Department of Housing and Urban Development Office of Policy
Development and Research, (2005);
and Listokin, Wyly, Schmitt, and Voicu (2001).
[34] The index ranks metropolitan areas based on their affordability.
Affordability is calculated based on the share of homes sold in an area
that would have been affordable to a family earning the median income
in that area.
[35] Regulations under 24 C.F.R. Part 906 govern both programs.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds;
evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
