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Selection Process for Loans for Section 202 Housing for the Elderly and Handicapped

Published: Oct 31, 1984. Publicly Released: Oct 31, 1984.
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Highlights

In response to a congressional request, testimony was given on the review process used by the Department of Housing and Urban Development (HUD) in 1983 to select borrowers who received low-interest, direct loans for the construction of elderly and handicapped housing to determine whether: (1) the selection system was conducive to the efficient selection of project sponsors; and (2) allegations that project selections had been based upon political considerations rather than merit were correct. GAO found that the changes made in 1983 shifted the decisionmaking responsibility away from the field office to the regional office. Although the field office project scores were based upon subjective criteria, the judgments were well documented. However, undocumented regional office scores affected the projects selected by the Assistant Secretary for Housing. This created the perception or possibility that projects were selected for other than merit. GAO discovered apparent regulatory and procedural violations among five projects in Ohio for which $11 million was involved. GAO found: (1) an identity of interest between a nonprofit sponsor and a construction firm; (2) the sale of a project site by a builder to the nonprofit sponsor; and (3) the selection of a project sponsor who appeared to lack adequate financial qualifications. All of these actions were in violation of HUD handbook evaluation procedures. Four of the projects were selected from the backup list of the Secretary's discretionary fund, and one was rejected by the HUD field office as ineligible, but was funded by order from HUD headquarters. GAO could find no evidence that the regional review and selection process had any positive effect on the selection program. If HUD believes that it is desirable to have regional oversight of the field office selection process, it should: (1) establish standards for such oversight; (2) provide adequate information with which to perform the oversight; and (3) require full documentation for regional office actions which alter decisions made by the field offices. Similar procedures and requirements should be applied to the Secretary's discretionary fund.

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