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Testimony: 

Before the Subcommittee on Housing and Community Opportunity, Committee 
on Financial Services, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10: 00 a.m. EDT: 

Tuesday, July 20, 2004: 

Multifamily Housing: 

More Accessible HUD Data Could Help Efforts to Preserve Housing for 
Low-Income Tenants: 

Statement of David G. Wood, Director Financial Markets and Community 
Investment: 

GAO-04-992T: 

GAO Highlights: 

Highlights of GAO-04-992T, a report to the Committee on Financial 
Services, House of Representatives 

Why GAO Did This Study: 

The Department of Housing and Urban Development (HUD) has subsidized 
the development of about 1.7 million rental units in over 23,000 
privately owned properties by offering owners favorable long-term 
mortgage financing, rental assistance payments, or both in exchange for 
owners’ commitment to house low-income tenants. When owners pay off 
mortgages—the mortgages “mature”—the subsidized financing ends, raising 
the possibility of rent increases. Based on a report issued in January 
2004, this testimony discusses (1) the number and selected 
characteristics of HUD-subsidized rental properties with mortgages 
scheduled to mature in the next 10 years, (2) the potential impact on 
tenants upon mortgage maturity, and (3) the tools and incentives that 
HUD, the states, and localities offer owners to keep HUD properties 
affordable upon mortgage maturity.

What GAO Found: 

Nationwide, the HUD mortgages on 2,328 properties—21 percent of the 
11,267 subsidized properties with HUD mortgages—are scheduled to mature 
in the next 10 years, but among states this percentage varies 
significantly: from 7 percent in Alabama, to 53 percent in South 
Dakota. About three-quarters of these mortgages are scheduled to 
mature in the last 3 years of the 10-year period. As part of our 
analysis, we developed a searchable database available on a CD-ROM, 
showing property-level data for each of HUD’s subsidized rental 
properties scheduled to mature in the next 10 years.

Impacts on tenants depend on tenant protections available under program 
statutes and regulations, as well as on property owners’ decisions 
about their properties. No statutory requirement exists to protect 
tenants from increases in rent when HUD mortgages mature, absent the 
existence of rental assistance contracts or other subsidies. Without 
tenant protection requirements, tenants in over 101,000 units that do 
not receive rental assistance may have to pay higher rents or move when 
the HUD mortgages on these properties mature and rent restrictions are 
lifted. During the past 10 years, HUD-insured mortgages at 32 
properties reached mortgage maturity, and the majority of these 
properties are still serving low-income tenants. 

HUD does not offer incentives to owners to keep properties affordable 
upon mortgage maturity. While many state and local agencies GAO 
surveyed offered incentives to preserve affordable housing, they have 
not directed them specifically at properties where HUD mortgages 
mature. Most of the agencies do not track HUD mortgage maturity dates 
for subsidized properties. In addition, although HUD’s Web site 
contains detailed property-level data, some state and local agencies 
perceive that the information is not readily available.

State and Local Agencies’ Efforts to Identify and Track Properties that 
May Leave HUD Programs: 

[See PDF for image]

[End of figure]

What GAO Recommends: 

In its report, GAO recommended that HUD solicit the views of state and 
local housing agencies to determine what information on HUD-subsidized 
properties is needed and the most effective format to convey this 
information. HUD concurred with the report’s conclusions and 
recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-992T.

To view the full product, click on the link above. For more 
information, contact David G. Wood at (202) 512-8678 or WoodD@gao.gov.

[End of section]

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to be here today to discuss our report to 
you on properties with mortgage financing provided through the 
Department of Housing and Urban Development (HUD).[Footnote 1] Since 
the 1950s, HUD has subsidized about 1.7 million rental units in over 
23,000 privately owned properties that are generally affordable to low-
income tenants-those with incomes 80 percent or less of area median 
income. HUD supported the development of affordable housing by offering 
property owners favorable mortgage financing, long-term rental 
assistance contracts, or both in exchange for owners' commitment to 
house low-income tenants for at least 20 years and, in some cases, up 
to 40 years. However, many of these commitment periods will be 
completed in the next 10 years as the HUD mortgages reach their 
scheduled maturity dates and long-term rental assistance contracts 
expire. These subsidized properties represent a significant source of 
housing that is affordable to low-income households.

My statement today, which is based on our January 2004 report, 
discusses (1) the numbers and selected characteristics of HUD-
subsidized rental properties that are scheduled to reach mortgage 
maturity through 2013-roughly the next 10 years; (2) the potential 
impact on tenants when mortgages reach maturity; and (3) the tools and 
incentives that HUD, the states, and localities offer owners to keep 
HUD properties affordable when mortgages mature. In preparing the 
report, we analyzed HUD databases to identify the characteristics of 
those properties with mortgages that have already reached maturity as 
well as those that are scheduled to reach maturity by December 31, 
2013.[Footnote 2] We surveyed 327 state and local housing and community 
development agencies to obtain information on what tools and incentives 
they use to keep HUD-subsidized properties affordable to low-income 
tenants. In addition, we reviewed statutes and regulations and 
interviewed HUD officials to identify tenants' protections when 
mortgages on subsidized properties mature. We performed our work from 
January through November 2003 in accordance with generally accepted 
government auditing standards.

To summarize: 

* Nationwide, 21 percent or 2,328 of the 11,267 subsidized properties 
with HUD mortgages are scheduled to reach mortgage maturity through 
2013, but among states this percentage varies significantly: from 7 
percent in Alabama, to 53 percent in South Dakota. These properties 
contain 236,650 units. Nearly all of these 2,328 properties were 
financed under three specific HUD programs, two of which operated only 
between 1961 and 1973. About three-quarters of the mortgages are 
scheduled to mature in the last three years of the 10-year period.

* Impacts on tenants depend in part on tenant protections available 
under program regulations and statutes, as well as on owners' decisions 
about their properties. No statutory requirement exists to protect 
tenants from increases in rent when HUD mortgages mature, absent the 
existence of rental assistance contracts or other subsidies. Without 
tenant protection requirements, tenants in over 101,000 units that do 
not receive rental assistance may have to pay higher rents or move when 
the HUD mortgages on these properties mature and rent restrictions are 
lifted. Further, owners are not required to notify tenants when a 
propertyís mortgage is about to mature. In contrast, owners are 
required to notify tenants up to 1 year in advance of their intent to 
prepay mortgages or decline renewal of rental assistance contracts. 
Property ownersí decisions on whether they continue to serve low-income 
tenants after their HUD mortgages mature depend on many factors, such 
as neighborhood incomes, the condition of their properties, and ownersí 
missions. During the past 10 years, HUD-insured mortgages at 32 
properties reached mortgage maturity, and the majority of these 
properties are still serving low-income tenants. HUD does not offer any 
tool or incentive to keep properties affordable after HUD mortgages 
mature, although it does offer incentives to keep properties affordable 
under certain other circumstances, such as the expiration of rental 
assistance contracts or prepayment of HUD mortgages. According to 
officials from the four national housing and community development 
organizations we contacted, because few HUD mortgages have matured to 
date, their member state and local agencies have not experienced the 
need to develop programs to deal with mortgage maturity specifically. 
They noted that their member agencies could offer tools and incentives, 
such as loans and grants, to keep properties affordable after mortgage 
maturity. However, over 50 percent of the state and local agencies that 
responded to our survey reported that they have no system in place to 
identify and track properties that may leave HUD's programs, and about 
three-quarters of them did not track the maturity dates of HUD 
mortgages.[Footnote 3] Based on our findings, we recommended that HUD 
provide more widely available and useful information for state and 
local agencies to track subsidized properties that may leave HUD 
programs.

Background: 

Prior to the early 1970s, the federal government provided affordable 
multifamily housing for low-and moderate-income households by 
subsidizing the production of either privately owned housing or 
government-owned public housing. Under production programs, the subsidy 
is tied to the unit (project-based), and tenants benefit from reduced 
rents while living in the subsidized unit. HUD's mortgage financing 
programs include: 

* Section 202 Elderly and Disabled Housing Direct Loan, which provided 
below-market interest rates on up to 40-year mortgages to developers of 
rental housing for low-income elderly and persons with disabilities 
from 1959 to 1991. Congress changed Section 202 to a grant program in 
1990.

* Section 221(d)(3) Below-Market Interest Rate (BMIR), which provided 
subsidized financing on private 40-year mortgages to developers of 
rental housing from 1961 to 1968.

* Section 236, which provided monthly subsidies to effectively reduce 
interest rates on private 40-year mortgages for rental housing from 
1968 to 1973.

* Sections 221(d)(3) and 221(d)(4), which insured private mortgages to 
developers of rental housing from 1961.

* Section 231, which insured private mortgages to developers of rental 
housing for the elderly from 1959.

In order to reach lower-income tenants, a portion of the units in many 
properties developed under these production programs were further 
subsidized by provision of rental assistance, under programs such as 
Rent Supplement, Rental Assistance Payments (RAP), and project-based 
Section 8.

In the early 1970s, questions about the production programs' 
effectiveness led the Congress to explore options for using existing 
housing to shelter low-income tenants. The Housing and Community 
Development Act of 1974 included both approaches-a project-based new 
construction and substantial rehabilitation program and a tenant-based 
rent certificate program for use in existing housing (currently named 
the Housing Choice Voucher program)-all referred to as Section 8 
housing.[Footnote 4] Project-based and tenant-based Section 8 
assistance is targeted to tenants with incomes no greater than 80 
percent of area median income, and tenants generally pay rent equal to 
30 percent of adjusted household income. The project-based Section 8 
program also provides rental assistance to owners of properties that 
were not financed with HUD mortgages.

Beginning in the late 1980s, owners of some subsidized properties began 
to be eligible to leave HUD programs by prepaying their mortgages or 
opting out of their project-based Section 8 rental assistance 
contracts. Once these owners removed their properties from HUD 
programs, they were no longer obligated to maintain low rents or accept 
rental assistance payments. In response, in 1996, Congress created a 
special type of voucher, known as an enhanced voucher, to protect 
tenants from rent increases in these properties.[Footnote 5]

Not all property owners repay mortgages as originally scheduled. For 
example, an owner may refinance the mortgage to pay for improvements to 
the property. Other owners may experience financial difficulties and 
default on their mortgages. From January 1993 through December 2002, 
HUD data show that the agency terminated the insurance on 231 
mortgages. About 14 percent were due to mortgages that matured; other 
reasons included owners' mortgage prepayment (37 percent) and 
foreclosure (22 percent).

About One-Fifth of HUD's Mortgages Are Scheduled to Mature through 
2013: 

Nationwide, 21 percent of subsidized properties with HUD mortgages have 
mortgages that are scheduled to mature from 2003 through 2013, but the 
percentage varies significantly by state. Nearly all of these 
properties were financed under the Section 236, Section 221(d)(3) BMIR, 
and Section 221(d)(3) programs.

Scheduled Mortgage Maturities Through 2013 Vary by Year and Program: 

Of the 11,267 subsidized properties (containing 914,441 units) with HUD 
mortgages, 21 percent (2,328 properties containing 236,650 units) have 
mortgages that are scheduled to mature from 2003 through 2013. The 
remaining 79 percent of these mortgages (on over 8,900 properties) are 
scheduled to reach maturity outside of the 10-year period.[Footnote 6] 
Additionally, the bulk of these mortgages (about 75 percent) are 
scheduled to mature in the latter three years of the 10-year period 
(see fig. 1). This concentration in the latter part of the 10-year 
period is attributable to the 40-year Section 221(d)(3) BMIR and 
Section 236 mortgages that HUD helped finance in the late 1960s and 
1970s, respectively.

Figure 1: Figure 1: HUD Mortgages Scheduled to Mature Annually through 
2013: 

[See PDF for image]

[End of figure]

As table 1 shows, about 57 percent of the properties with mortgages 
scheduled to mature in the 10-year period were financed under Section 
236, 22 percent under Section 221(d)(3) BMIR, and 19 percent under 
Section 221(d)(3). Section 202, Section 221(d)(4), and Section 231 
accounted for only 3 percent of these properties.

Table 1: Subsidized Properties with HUD Mortgages by Program Scheduled 
to Mature through 2013: 

Financing program: HUD subsidized mortgage: Section 236; 
Number of properties: 1,333; 
Percentage of properties: 57%; 
Total units: 139,769; 
Units assisted with project-based Section 8[A]: 78,139.

Financing program: HUD subsidized mortgage: Insured; 
Number of properties: 1,333; 
Percentage of properties: 57%; 
Total units: 139,769; 
Units assisted with project-based Section 8[A]: 78,139.

Financing program: HUD subsidized mortgage: Noninsured[B]; 
Number of properties: 0; 
Percentage of properties: 0%; 
Total units: 0; 
Units assisted with project-based Section 8[A]: 0.

Financing program: HUD subsidized mortgage: Section 221(d)(3) BMIR; 
Number of properties: 502; 
Percentage of properties: 22%; 
Total units: 56,573; 
Units assisted with project-based Section 8[A]: 18,810.

Financing program: HUD subsidized mortgage: Section 202; 
Number of properties: 41; 
Percentage of properties: 2%; 
Total units: 3,208; 
Units assisted with project-based Section 8[A]: 871.

Financing program: HUD unsubsidized mortgage: Section 221(d)(3); 
Number of properties: 431; 
Percentage of properties: 19%; 
Total units: 35,263; 
Units assisted with project-based Section 8[A]: 34,711.

Financing program: HUD unsubsidized mortgage: Section 221(d)(4); 
Number of properties: 14; 
Percentage of properties: [C]; 
Total units: 1,239; 
Units assisted with project-based Section 8[A]: 1,146.

Financing program: HUD unsubsidized mortgage: Section 231; 
Number of properties: 7; 
Percentage of properties: [C]; 
Total units: 598; 
Units assisted with project-based Section 8[A]: 410.

Financing program: HUD unsubsidized mortgage: Noninsured rent 
supplement; 
Number of properties: [D]; 
Percentage of properties: [D]; 
Total units: [D]; 
Units assisted with project-based Section 8[A]: [D].

Total; 
Number of properties: 2,328; 
Percentage of properties: 100%; 
Total units: 236,650; 
Units assisted with project-based Section 8[A]: 134,087. 

Source: GAO analysis of HUD data.

[A] Also included are units that receive RAP or Rent Supplement. 
Project-based Section 8, however, is the dominant form of rental 
assistance across all financing programs. The Section 8 Moderate 
Rehabilitation program is not included in this table because HUD's 
multifamily database does not track this program.

[B] No mortgage was scheduled to mature in this period.

[C] Less than 1 percent.

[D] Since properties with noninsured rent supplement do not carry a HUD 
mortgage, HUD does not track mortgage-level data on these properties.

[End of table]

Number of Mortgages Scheduled to Mature by 2013 Also Varies by State: 

The number of mortgages scheduled to mature through 2013 varies greatly 
by state (see fig. 2). Although the average is 46 mortgages per state 
(including the District of Columbia), the number ranges from a high of 
273 maturing mortgages in California to 3 in Vermont.

Figure 2: Figure 2: Subsidized Properties with HUD Mortgages Scheduled 
to Mature through 2013, by State: 

[See PDF for image]

Note: The figure above includes 2,311 of the 2,328 properties in our 
analysis-excluded are properties in territories of the United States, 
such as Puerto Rico and Guam.

[End of figure]

The states also vary considerably in terms of the percentage of their 
respective HUD mortgages on subsidized properties that are scheduled to 
mature through 2013, ranging from 7 percent in Alabama to 53 percent in 
South Dakota.

Tenant Impacts Depend on Protections and Property Owners' Decisions: 

Over the next 10 years, low-income tenants in over 101,000 units may 
have to pay higher rents or move when HUD-subsidized mortgages reach 
maturity. This is because no statutory requirement exists to protect 
tenants from increases in rent when HUD mortgages mature and rent 
restrictions are lifted. A number of factors may affect ownersí 
decisions regarding the continued affordability of their properties 
after mortgages mature, including neighborhood incomes, physical 
condition of the property, and owners' missions.

HUD Does Not Offer Protection for Unassisted Tenants in Properties with 
Maturing Mortgages: 

There is no statutory authority that requires HUD to offer tenants 
special protections, such as enhanced vouchers, when a HUD mortgage 
matures. However, tenants who receive rental assistance in properties 
with maturing mortgages would be eligible for enhanced vouchers under 
rental assistance programs, such as project-based Section 8.

Of the 2,328 subsidized properties with mortgages scheduled to mature 
through 2013, 480-containing 45,011 units-do not have rental assistance 
contracts (see table 2). While the remaining 1,848 properties are 
subsidized with rental assistance, not all units within the properties 
are covered. According to HUD data, about 30 percent of the units in 
these properties are not covered-a total of 57,552 units with tenants 
who do not receive rental assistance. Altogether, the tenants in a 
total of 102,563 units are not protected under the rental assistance 
programs. Of these, 101,730 units-most of them in properties with 
mortgages under the Section 221(d)(3) BMIR and Section 236 
programs-could face higher rents after mortgage maturity when the rent 
restrictions under these programs are lifted.

Table 2: Subsidized Properties with HUD Mortgages Scheduled to Mature 
through 2013, by Rental Assistance Program: 

Number of properties: 

Financing program: HUD subsidized mortgage: Section 236; 
None: 166; 
Rental assistance program[A]: Project-based Section 8: 1,123; 
Rental assistance program[A]: Rent Supplement: 40; 
Rental assistance program[A]: Other[B]: 4; 
Total: 1,333.

Financing program: HUD subsidized mortgage: Section 236: Insured; 
None: 166; 
Rental assistance program[A]: Project-based Section 8: 1,123; 
Rental assistance program[A]: Rent Supplement: 40; 
Rental assistance program[A]: Other[B]: 4; 
Total: 1,333.

Financing program: HUD subsidized mortgage: Section 236: Noninsured[C]; 
None: 0; 
Rental assistance program[A]: Project-based Section 8: 0; 
Rental assistance program[A]: Rent Supplement: 0; 
Rental assistance program[A]: Other[B]: 0; 
Total: 0.

Financing program: HUD subsidized mortgage: Section 221(d)(3) BMIR; 
None: 294; 
Rental assistance program[A]: Project-based Section 8: 206; 
Rental assistance program[A]: Rent Supplement: 2; 
Rental assistance program[A]: Other[B]: 0; 
Total: 502.

Financing program: HUD subsidized mortgage: Section 202; 
None: 20; 
Rental assistance program[A]: Project-based Section 8: 4; 
Rental assistance program[A]: Rent Supplement: 5; 
Rental assistance program[A]: Other[B]: 2; 
Total: 41.

Financing program: HUD unsubsidized mortgage: Section 221(d)(3); 
None: 0; 
Rental assistance program[A]: Project-based Section 8: 403; 
Rental assistance program[A]: Rent Supplement: 27; 
Rental assistance program[A]: Other[B]: 0; 
Total: 431.

Financing program: HUD unsubsidized mortgage: Section 221(d)(4); 
None: 0; 
Rental assistance program[A]: Project-based Section 8: 14; 
Rental assistance program[A]: Rent Supplement: 0; 
Rental assistance program[A]: Other[B]: 0; 
Total: 14.

Financing program: HUD unsubsidized mortgage: Section 231; 
None: 0; 
Rental assistance program[A]: Project-based Section 8: 6; 
Rental assistance program[A]: Rent Supplement: 1; 
Rental assistance program[A]: Other[B]: 0; 
Total: 7.

Financing program: HUD unsubsidized mortgage: Noninsured rent 
supplement; 
None: [D]; 
Rental assistance program[A]: Project-based Section 8: [D]; 
Rental assistance program[A]: Rent Supplement: [D]; 
Rental assistance program[A]: Other[B]: [D]; 
Total: d.

Financing program: HUD unsubsidized mortgage: Total; 
None: 480; 
Rental assistance program[A]: Project-based Section 8: 1,766; 
Rental assistance program[A]: Rent Supplement: 76; 
Rental assistance program[A]: Other[B]: 6; 
Total: 2,328.

Financing program: HUD unsubsidized mortgage: Percent of total; 
None: 21%; 
Rental assistance program[A]: Project-based Section 8: 76%; 
Rental assistance program[A]: Rent Supplement: 3%; 
Rental assistance program[A]: Other[B]: <1%; 
Total: 100%. 

Source: GAO analysis of HUD data.

Note: Percentages may not add due to rounding.

[A] The Section 8 Moderate Rehabilitation program is not included in 
this table because HUD's multifamily database does not track this 
program.

[B] Includes contracts for service coordinators.

[C] No mortgage was scheduled to mature in this period.

[D] Since properties with noninsured rent supplement do not carry a HUD 
mortgage, HUD does not track mortgage-level data on these properties.

[End of table]

According to a HUD study, tenants in properties with mortgages under 
the Section 221(d)(3) BMIR and Section 236 programs have an average 
household income somewhat greater than that for tenants who receive 
rental assistance; thus, they may be somewhat more able to afford 
higher rents. Properties financed under the Section 221(d)(3) BMIR 
program allow tenants with incomes of up to 95 percent of area median 
income; in comparison, project-based Section 8 does not serve tenants 
earning more than 80 percent of area median income.

Tenants in units covered by a rental assistance program-there are about 
134,087 such units in the properties with HUD mortgages scheduled to 
mature through 2013-will continue to benefit from affordable rents, 
regardless of when the mortgage matures, as long as the rental 
assistance contract is in force. When long-term rental assistance 
contracts expire, HUD may renew them. Currently, HUD generally renews 
expiring long-term contracts on an annual basis but may go as long as 5 
years, and in some cases, 20 years. According to HUD, during the late 
1990s, about 90 percent of the property owners renewed their contracts, 
thereby continuing to provide affordable housing. The extent to which 
the trend continues will depend on the availability of program funding 
and housing market conditions. If a rental assistance contract expires 
prior to mortgage maturity and the owner opts not to renew it, assisted 
tenants would be eligible for enhanced vouchers.

Tenants could potentially be affected by the length of time given to 
them to adjust to rent increases as well as by the amount of the 
increase. Property owners are not required to notify tenants when they 
pay off their mortgage at mortgage maturity. In contrast, property 
owners electing to opt out of the Section 8 project-based program must 
notify tenants 1 year in advance of the contract expiration. Owners 
electing to prepay their mortgages under the Section 236 or Section 
221(d)(3) BMIR programs must notify tenants at least 150, but not more 
than 270, days prior to prepayment.

A Number of Factors Influence An Owner's Decision to Keep a Property 
Affordable Upon Mortgage Maturity: 

Many factors could influence an owner's decision to keep a property in 
the affordable inventory or convert to market rate rents upon mortgage 
maturity. For a profit-motivated owner, the decision may be influenced 
by the condition of the property and the income levels in the 
surrounding neighborhood. If the property can be upgraded at a 
reasonable cost, it may be more profitable to turn the building into 
condominiums or rental units for higher income tenants. If repair costs 
are substantial or if high-income residents are not present in the 
surrounding area, it may be more profitable to leave the property in 
the affordable inventory. Tools and incentives offered by state and 
local agencies may also influence this decision. In addition, because 
most of these owners have had the right to prepay their mortgages and 
opt out of their Section 8 contracts for a number of years, the 
economic factors that drive a decision to convert to market rate are 
not unique to mortgage maturity.

HUD data show that nonprofit organizations own about 38 percent of the 
properties with mortgages scheduled to mature in the next 10 years. For 
a nonprofit owner, the decision would likely be motivated by cash flow 
considerations since, in theory, these owners are not primarily 
motivated by economic returns. Since mortgage maturity results in an 
improvement in property cash flow, reaching mortgage maturity by itself 
would not necessarily trigger removal from the affordable inventory. 
For example, the property manager at one of the 16 properties 
(nonprofit ownership) whose mortgage matured in the past 10 years and 
who does not currently have project-based Section 8 assistance told us 
that no longer having to pay the mortgage left money for repairs needed 
to keep the units affordable for their low-income senior tenants. 
Additionally, a nonprofit organization would be more likely to keep the 
property affordable to low-income tenants because to do otherwise could 
conflict with its basic mission of providing affordable housing.

Another factor is the loss of the interest rate subsidy that occurs 
when the mortgage matures. When interest rate subsidies were first paid 
to properties built in the 1960s and 1970s, they represented 
substantial assistance to property owners. Over time, inflation has 
reduced the value of this subsidy. For example, the average interest 
rate subsidy payment for a Section 236 property with a mortgage 
maturing in the next 10 years is $66 per unit per month. Price levels 
have roughly quadrupled since 1970, so to have the same purchasing 
power would require about $260 in today's dollars. Section 8 and 
similar project-based rental assistance now provide the bulk of the 
assistance to these subsidized properties-75 percent of the assistance 
versus about 25 percent that derives from the Section 236 interest-rate 
subsidy. Furthermore, inflation will continue to erode the value of the 
interest-rate subsidy until mortgage maturity, while the rental 
assistance subsidy is adjusted annually to account for increases in 
operating costs.

Most Properties with HUD Mortgages That Reached Maturity Offer Rents 
Affordable to Low-Income Tenants: 

Our review of HUD's data showed that HUD-insured mortgages at 32 
properties matured between January 1, 1993, and December 31, 2002. 
Sixteen of the 32 properties are still serving low-income tenants 
through project-based Section 8 rental assistance contracts. For 13 of 
these 16 properties, the rental assistance covers 100 percent of the 
units (799 assisted units), and for the remaining three properties it 
covers 54 percent of the units (174 assisted units).

Using HUD's archived data for inactive properties, we were able to 
obtain rent information for 10 of the remaining 16 properties.[Footnote 
7] We found that all 10 (none of which have project-based rental 
assistance contracts) are offering rents that are affordable to tenants 
with incomes below 50 percent of area median income.[Footnote 8] 
Because of the variety of factors that can influence owners' decisions, 
however, these properties are not necessarily indicative of what will 
happen to other properties as their HUD mortgages mature.

Various property managers we contacted also provided information about 
their efforts to keep their properties affordable. For example, a 
senior complex (nonprofit ownership) continues to generally charge 
residents about 30 percent of their income for rent as they did when 
they were in HUD's subsidized portfolio. According to the property 
manager of two of the properties (for-profit ownership), he 
unsuccessfully sought incentives from HUD in 2002 to keep the 
properties in the inventory when the mortgages reached maturity and 
both properties left HUD's multifamily portfolio. However, both 
properties are accepting tenant-based vouchers and the rents in both 
properties are affordable to very low-income tenants.

Tools and Incentives Are Available to Help Keep Properties Affordable, 
but Are Not Specifically Designed to Deal with HUD Mortgage Maturity: 

HUD does not offer any tools or incentives to keep properties 
affordable after HUD mortgages mature, although it does offer 
incentives to maintain affordability for properties that also have 
expiring rental assistance contracts. According to officials from the 
four national housing and community development organizations we 
contacted, because few HUD mortgages have matured to date, their member 
state and local agencies have not experienced the need to develop 
programs to deal with mortgage maturity. They noted that their member 
agencies could offer tools and incentives, such as loans and grants, 
which might be used by owners to keep properties affordable after 
mortgage maturity. However, about three-quarters of the state and local 
agencies that responded to our survey reported that they do not track 
the maturity dates on HUD mortgages, and none provided examples of 
tools or incentives used to keep units affordable after mortgage 
maturity.[Footnote 9]

HUD Does Not Offer Incentives to Keep Properties Affordable after 
Mortgage Maturity: 

During the 1990s, HUD established incentive programs to deal with the 
loss of affordable units because owners were prepaying their mortgages 
and opting out of their Section 8 contracts, but these incentives do 
not directly address the termination of the affordability requirements 
resulting from mortgage maturity. Rather, they can extend, under 
certain circumstances, the affordability period beyond the original 
term of the mortgage or allow property owners to be better positioned 
financially to continue providing affordable housing.

State and Local Agencies Identified Tools and Incentives to Preserve 
Affordable Housing, but Not Specifically for Covering Mortgage 
Maturity: 

The state and local agencies we surveyed identified 18 different tools 
and incentives used to preserve affordable housing. Of the 18, 6 were 
funded directly by the federal government, while 12 were administered 
by state and local governments and not directly federally funded. 
However, there was no evidence that they have been used to protect 
properties when HUD mortgages mature. This may be because relatively 
few mortgages have matured to date.

State and local tools and incentives include housing trust funds used 
to make loans and grants, financial assistance to nonprofit 
organizations to aid them in acquiring HUD-subsidized properties, and 
property tax relief to owners of HUD-subsidized properties. These state 
and local agencies identified several incentives that they believe are 
the most effective in preserving the affordability of housing for low-
income tenants. For example, over 60 percent of the 62 state agencies 
that responded identified the 4-percent tax credit and HOME programs as 
effective means for preserving the affordability of HUD-subsidized 
properties. Of the 76 local agencies that responded, over 70 percent 
identified HOME as effective and over 60 percent identified CDBG as 
effective.

Fewer Than Half of State and Local Agencies Identify and Track 
Properties That May Leave HUD Programs: 

Over 50 percent of the survey respondents reported that they have no 
system in place to identify and track properties in their states or 
localities that could leave HUD's subsidized housing programs. Further, 
about three-quarters reported that they do not track the maturity dates 
of HUD mortgages. Several respondents to our survey noted that it would 
be helpful to them if HUD could provide information about properties 
that might leave HUD's programs.

Of the 102 agencies that indicated they identified and tracked 
properties, 56 (55 percent) said that they monitored the scheduled 
maturity dates of HUD mortgages on local properties (see fig. 3). More 
agencies (82 or 80 percent) reported that they identified and tracked 
properties that might opt out of HUD project-based rental assistance 
contracts.

Figure 3: Figure 3: State and Local Agencies' Efforts to Identify and 
Track Properties That May Leave HUD Programs: 

[See PDF for image]

Note: "Extended use expiration" refers to the expiration of the use-
agreement period, when owners must continue to keep their tax credit 
properties affordable to low-income tenants after the initial 15-year 
affordability period required by the Internal Revenue Code has ended. 
The length of this extended period of affordability is 15 years or 
more, depending on individual state requirements.

[End of figure]

HUD officials noted that they make property-level information available 
to the public on HUD's multifamily housing Web site. This Web site 
contains detailed property-level data on active HUD-insured mortgages 
and expiring rental assistance contracts. However, according to our 
survey, some state and local agencies perceive that the information is 
not readily available. One problem may be that these data are in a 
format that may not be sufficiently "user-friendly" for these agencies. 
The data must be accessed using database software, which requires users 
to be proficient in these types of software.

HUD officials agreed that the agency could provide more "user friendly" 
information because the data are not as accessible to state and local 
agencies as they could be. They also noted that these agencies could 
benefit from a "watch list" that identifies properties that may leave 
HUD subsidy programs in their jurisdictions, such as upon mortgage 
maturity, especially if such data were updated annually and readily 
available online so that agencies would have the information needed to 
prioritize and fund efforts to preserve low-income housing in their 
jurisdictions.

While awareness of the potential for a HUD mortgage to mature or rental 
assistance to end does not guarantee that state or local agencies will 
take action to preserve the assisted units' affordability to low-income 
tenants, such knowledge could better position state and local agencies 
to use available tools and incentives. Accordingly, we recommended that 
HUD take steps to provide more widely available and useful information. 
Using HUD's data that we obtained to respond to your request, we also 
developed a prototype searchable database, available in CD-ROM format, 
showing property-level data for each of HUD's subsidized rental 
properties scheduled to mature in the next 10 years.[Footnote 10]

Mr. Chairman, this concludes my prepared statement. I would be happy to 
answer any questions at this time.

Contacts and Acknowledgements: 

For further information on this testimony, please contact David G. Wood 
at (202) 512-8678, or Andy Finkel at (202) 512-6765. Individuals making 
key contributions to this testimony included Mark Egger, Daniel Garcia-
Diaz, Rich LaMore, and John McGrail.

FOOTNOTES

[1] U.S. General Accounting Office, Multifamily Housing: More 
Accessible HUD Data Could Help Efforts to Preserve Housing for Low-
Income Tenants GAO-04-20 (Washington D.C.; January 23, 2004).

[2] To have 10 full years of data, our analysis covered the period from 
April 15, 2003, through December 31, 2013.

[3] Additional details on the results of our survey are available on 
the Internet at www.gao.gov/cgi-bin/getrpt? GAO-04-211SP.

[4] Funds provided by other federal programs, such as HUD's Community 
Development Block Grant and HOME programs, can be used by states and 
localities to subsidize housing for low-income tenants. Also, the Low-
Income Housing Tax Credit program provides tax incentives for private 
investors to develop housing affordable to low-income tenants.

[5] Enhanced vouchers differ from regular tenant-based housing vouchers 
in that they (1) may provide a greater subsidy (that is, may be used to 
rent more expensive units) and (2) give tenants a right to remain in 
their units after conversion to market rent.

[6] Most of these mortgages were financed under the Section 202, 
Section 221(d)(4), and Section 236 programs.

[7] Of the remaining six properties, we did not include two because 
they are skilled nursing facilities and do not charge traditional 
rents. We could not obtain information on the others because there was 
insufficient contact information in HUD's archived database with which 
to locate current owners or managers, or the owners or managers were 
unwilling to provide us with information.

[8] Rent is generally considered affordable if it does not exceed 30 
percent of tenant's gross income.

[9] The detailed results of our survey (GAO-04-211SP) are available on 
our website, at www.gao.gov/cgi-bin/getrpt?GAO-04-211SP.

[10] This CD-ROM is available as a special GAO product (GAO-04-210SP) 
and may be ordered via the Internet at www.gao.gov/cgi-bin/ordtab.pl.

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