Housing Finance:

Expanding Capital for Affordable Multifamily Housing

RCED-94-3: Published: Oct 27, 1993. Publicly Released: Oct 27, 1993.

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Pursuant to a legislative requirement, GAO examined: (1) the problems that have led to the shortage of mortgage financing for affordable multifamily housing; (2) the factors limiting the expansion of multifamily housing financing; (3) alternative federal credit enhancements; and (4) ways to limit the federal government's exposure to risk in adopting specific credit enhancements.

GAO found that: (1) the supply of capital for multifamily housing has decreased because regulations for multifamily housing lending are less attractive to depository institutions; (2) the secondary market for small multifamily housing loans is limited because of the difficulty in standardizing loans and the risks of lending capital for housing targeted to lower-income households; (3) credit enhancement options that delegate responsibility to state and national financial intermediaries for processing, underwriting, and monitoring individual loans can improve financing for affordable multifamily housing; (4) the federal government and investors need accurate information on the performance of multifamily loans to assess risk; and (5) a national database could address actual credit risks by providing performance data on multifamily housing loans.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: To establish a national database on multifamily housing loans, Congress should consider reauthorizing and appropriating funds for the task force authorized by the Housing and Community Development Act of 1992.

    Status: Closed - Not Implemented

    Comments: Congress has yet to appropriate funds to establish a database on multifamily housing loans, and it does not appear that funds will be provided in the foreseeable future. However, initiatives were begun but terminated due to lack of funding by the private sector to establish this database. As part of GAO's follow-up review, mandated by the Housing and Community Development Act of 1992, GAO will inquire as to the impact on the risk-sharing demonstration programs of not having this database.

    Recommendations for Executive Action

    Recommendation: The Secretary of Housing and Urban Development and the Chairman of the Federal Housing Finance Board should direct that the task force recommend in its report which agency or institution should be given the authority and responsibility for maintaining and managing the database in the future.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Not Implemented

    Comments: The lack of funding has precluded action on this recommendation. Future funding is unlikely.

    Recommendation: The Secretary of Housing and Urban Development and the Chairman of the Federal Housing Finance Board, in their capacity as cochairpersons of the interagency task force on multifamily housing, should direct that the task force, once created, to research and resolve several critical policy and technical issues in developing a national database on multifamily housing. These issues concern the: (1) confidentiality of and access to the data; (2) inclusion of performance data on prospective as well as past loans; (3) definition of items and underwriting standards to be included in the database; (4) question of who should bear the cost of developing and maintaining the database; (5) question of whether the required data should be provided voluntarily or required by federal law; and (6) standardization of the public subsidy risk associated with affordable multifamily housing.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Not Implemented

    Comments: The lack of appropriations for the congressionally authorized task force has precluded action on this recommendation. Future appropriations are unlikely.

    Recommendation: The Secretary of Housing and Urban Development and the Chairman of the Federal Housing Finance Board, in their capacity as cochairpersons of the interagency task force on multifamily housing, should direct that the task force, once created, to research and resolve several critical policy and technical issues in developing a national database on multifamily housing. These issues concern the: (1) confidentiality of and access to the data; (2) inclusion of performance data on prospective as well as past loans; (3) definition of items and underwriting standards to be included in the database; (4) question of who should bear the cost of developing and maintaining the database; (5) question of whether the required data should be provided voluntarily or required by federal law; and (6) standardization of the public subsidy risk associated with affordable multifamily housing.

    Agency Affected: Congress

    Status: Closed - Not Implemented

    Comments: The lack of appropriations for the congressionally authorized task force has precluded action on this recommendation. Future appropriations are unlikely.

    Recommendation: FHA should reassess its staffing and management information systems and make any necessary staff realignments or requests for additional resources necessary to help ensure that it has adequate capacity to successfully implement the credit enhancement demonstration programs.

    Agency Affected: Department of Housing and Urban Development: Federal Housing Administration

    Status: Closed - Implemented

    Comments: HUD has implemented these credit enhancement demonstration programs with dedicated staff and management information systems in headquarters and specifically designated field offices nationwide. This implementation effort, however, was not based on any thorough reassessment of its staffing and management information system capacity.

    Recommendation: The Commissioner, FHA, should incorporate in draft instructions or regulations the policies and procedures agreed to. These regulations should specify the: (1) data that must be collected in the demonstration programs to ensure that thorough evaluations of the costs and benefits of these programs can be made; and (2) way FHA will monitor participating institutions' compliance with the objectives and requirements of the demonstration programs, including any provisions requiring the participating institutions to adopt new operating procedures for improving the financing of affordable housing.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: Regulations for FHA's Credit Enhancement Demonstration Program were finalized in December 1995 and HUD Handbook 4590.1 outlines program coordination procedures between HUD and state and local housing finance agencies. To date, over 30 state and local agencies have begun participating in this program.

    Recommendation: The Secretary of Housing and Urban Development, in cooperation with the Commissioner of the Federal Housing Administration (FHA), should convene a conference of senior officials representing each of the financial institutions referred to in the authorizing legislation. The conference should begin to: (1) draft policies and procedures for participating in the credit enhancement demonstration programs; (2) develop options for providing credit enhancements on individual loans as well as loan pools; and (3) formulate principles to guide the implementation of the credit enhancement options.

    Agency Affected: Department of Housing and Urban Development: Federal Housing Administration

    Status: Closed - Implemented

    Comments: HUD has met with officials of state and local housing agencies as well as those representing major financial institutions. Further, HUD entered into credit enhancement demonstration agreements with these parties. Following GAO's follow-up review mandated by the Housing and Community Development Act of 1992, GAO will evaluate HUD's success in implementing this recommendation.

    Recommendation: The Secretary of Housing and Urban Development, in cooperation with the Commissioner of the Federal Housing Administration (FHA), should convene a conference of senior officials representing each of the financial institutions referred to in the authorizing legislation. The conference should begin to: (1) draft policies and procedures for participating in the credit enhancement demonstration programs; (2) develop options for providing credit enhancements on individual loans as well as loan pools; and (3) formulate principles to guide the implementation of the credit enhancement options.

    Agency Affected: Department of Housing and Urban Development: Federal Housing Administration

    Status: Closed - Implemented

    Comments: HUD has met with officials of state and local housing agencies as well as those representing major financial institutions. Further, HUD has negotiated credit enhancement demonstration agreements with these parties. Following GAO's follow-up review mandated by the Housing and Community Development Act of 1992, GAO will evaluate HUD's success in implementing this recommendation.

    Recommendation: The Secretary of Housing and Urban Development and the Chairman of the Federal Housing Finance Board should direct that the task force recommend in its report which agency or institution should be given the authority and responsibility for maintaining and managing the database in the future.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Not Implemented

    Comments: The lack of funding has precluded action on this recommendation. Future funding is unlikely.

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