Millions of Dollars for Rehabilitating Housing Can Be Used More Effectively

CED-80-19: Published: Dec 7, 1979. Publicly Released: Dec 7, 1979.

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Annually, about $240 million in Federal funds are not being used effectively for rehabilitating housing under the Department of Housing and Urban Development's (HUD) Section 312 Rehabilitation Loan Program and its Community Development Block Grant Program.

Borrowers are refinancing existing home mortgages with low-cost rehabilitation loans, thereby diverting substantial funds from housing rehabilitation. Some borrowers receive low-payment loans even though they could afford higher payments. Communities often award direct grants to cover all rehabilitation costs rather than requiring homeowners to finance part of the cost from other sources or using loans that, when repaid, will return money to community rehabilitation programs. Many communities are inconsistent or ineffective in giving funding priority to low- and moderate-income borrowers. They award loans to higher income borrowers who could obtain financial assistance from commercial sources instead of to more needy, lower income homeowners who require assistance.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: The Congress should amend section 312 of the Housing Act of 1964 to provide for deferred payment loans and to prohibit the refinancing of existing indebtedness secured by a property being rehabilitated. In addition, the Congress should amend section 105 of the Housing and Urban Development Act of 1974, as amended, to eliminate the refinancing of existing indebtedness secured by a property being rehabilitated as an eligible activity under the block grant program.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should: (1) develop section 312 single-family loan regulations implementing higher interest rates and shorter repayment periods to reflect the applicant's loan repayment ability, as provided for by the enabling legislation; (2) develop section 312 regulations to require that low- and moderate-income borrowers receive funding priority by restricting loans to higher income homeowners to the exceptions defined by the Secretary; (3) amend block grant regulations to prohibit the use of grants unless they are combined with other funds; (4) provide technical assistance to communities in using deferred payment loans instead of grants to help lower income property owners who cannot afford to make monthly loan payments; and (5) provide technical assistance to communities using block grant funds for single-family rehabilitation loans in developing methods to adjust loan payments to reflect the borrower's repayment ability.

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