GAO-04-20, Multifamily Housing: More Accessible HUD Data Could Help Efforts to Preserve Housing for Low-Income Tenants


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Report to the Committee on Financial Services, House of 
Representatives:

January 2004:

MULTIFAMILY HOUSING:

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

GAO-04-20:

GAO Highlights:

Highlights of GAO-04-20, 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 over 23,000 properties by offering owners favorable 
long-term mortgage financing or rental assistance payments 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. GAO was asked to determine 
the number of HUD mortgages that are scheduled to mature in the next 
10 years, the potential impact on tenants, and what HUD and others can 
do to keep these properties affordable.

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. A CD-ROM (GAO-04-
210SP) that accompanies this report provides property-level data for 
subsidized properties with mortgages scheduled to mature.

Impacts on tenants depend on tenant protections available under 
program statutes and regulations, as well as on property owners’ 
decisions about their properties. While about 134,000, or 57 percent, 
of the rental units in the 2,328 properties are protected by rental 
assistance contracts, tenants in over 101,000 units without rental 
assistance are at risk of paying higher rents after mortgage maturity 
because no requirement exists to protect tenants when HUD mortgages 
mature. Absent specific requirements, property owners’ decisions on 
whether to continue serving low-income tenants after their HUD 
mortgages mature depend on many factors, including neighborhood 
incomes, property conditions, and owners’ missions. Of the 32 
properties with HUD mortgages that matured during the past 10 years, 
16 have rental assistance contracts that continue to subsidize at 
least some units, and 10 of the remaining 16 that GAO was able to 
contact offer rents that are affordable to tenants with incomes below 
50 percent of area median income. 

HUD does not offer incentives to owners to keep properties affordable 
upon mortgage maturity. While many state and local agencies GAO 
surveyed offer 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.

What GAO Recommends:

To help state and local housing agencies track properties with 
maturing mortgages, we recommend that the Secretary of 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.

GAO provided a draft of this report to HUD for comment. HUD agreed 
with the report’s conclusions and recommendations.

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-20].

To view the full product, including the scope and methodology, click 
on the link above. 

To view the survey results (GAO-04-211SP), click on the following link 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-211SP]. To place 
an order for a copy of the CD-ROM (GAO-04-210SP) with property-level 
data, click on the following link 
[Hyperlink, http://www.gao.gov/cgi-bin/ordtab.pl].

For more information, contact David G. Wood at (202) 512-8678 or 
WoodD@gao.gov.

[End of section]

Contents:

Letter: 

Results in Brief: 

Background: 

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

Tenant Impacts Depend on Protections and Property Owners' Decisions: 

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

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes:

Appendix I: Scope and Methodology: 

Appendix II: Questions from December 10, 2002, Letter from the House 
Committee on Financial Services: 

Appendix III: Comments from the Department of Housing and Urban 
Development: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Staff Acknowledgments: 

Tables: 

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

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

Table 3: Data for 16 Properties with Matured HUD Mortgages and without 
Project-Based Rental Assistance Contracts: 

Figures: 

Figure 1: Universe of Subsidized Properties, 2003: 

Figure 2: HUD Mortgages Scheduled to Mature Annually through 2013: 

Figure 3: Subsidized Properties with HUD Mortgages Scheduled to Mature 
through 2013, by State: 

Figure 4: Percentage of HUD-Subsidized Mortgages within Each State 
Scheduled to Mature through 2013: 

Figure 5: Expiring Rental Assistance Contracts, 2003 through 2013: 

Figure 6: Properties with Mortgages Scheduled to Mature and/or Expiring 
Long-Term Rental Assistance Contracts, 2003 through 2013: 

Figure 7: Assisted Units in Properties with Mortgages Scheduled to 
Mature and/or Expiring Long-Term Rental Assistance Contracts, 2003 
through 2013: 

Figure 8: HUD Mortgages Scheduled to Mature on Properties without Rental 
Assistance: 

Figure 9: State and Local Agencies' Efforts to Identify and Track 
Properties That May Leave HUD Programs: 

Abbreviations: 

BMIR: below-market interest rate:

CDBG: Community Development Block Grant:

COSCDA: Council of State Community Development Agencies:

FHA: Federal Housing Administration:

HUD: Department of Housing and Urban Development:

NALHFA: National Association of Local Housing Finance Agencies:

NCDA: National Community Development Association:

NCSHA: National Council of State Housing Agencies:

OMHAR: Office of Multifamily Housing and Restructuring:

RAP: Rental Assistance Payment program:

REAC: Real Estate Assessment Center:

REMS: Real Estate Management System:

TRACS: Tenant Rental Assistance Certification System:

Letter January 23, 2004:

The Honorable Michael G. Oxley: 
Chairman: 
The Honorable Barney Frank: 
Ranking Minority Member: 
Committee on Financial Services: 
House of Representatives:

Since the 1950s, the Department of Housing and Urban Development (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. Properties subsidized under these HUD programs 
represent a significant source of housing that is currently affordable 
to low-income households.

HUD programs that provide mortgage financing in subsidized properties 
to private developers are known by the section of the act that 
authorized them.[Footnote 1] We consider a property subsidized if HUD 
provided favorable financing (below-market interest rate mortgages), 
rental assistance, or both. They include the following programs:

* 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.[Footnote 2] 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; and:

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

Frequently, properties that benefited from HUD mortgages were coupled 
with long-term rental assistance provided under various programs, such 
as project-based Section 8, Rent Supplement, and Rental Assistance 
Payment (RAP) programs. (The project-based Section 8 program also 
provides rental assistance to owners of properties that were not 
financed with HUD mortgages.) Rental subsidy was also provided through 
the Section 8 Moderate Rehabilitation program, which is administered by 
local housing authorities and tied to rehabilitated units. Rental 
assistance programs basically pay property owners a portion of the 
monthly rents for units occupied by assisted low-income tenants. 
Subsidized financing, rental assistance, or a combination of both 
allows property owners the opportunity to earn financial returns while 
limiting the rents paid by low-income tenants to a fixed percentage of 
their household incomes.

Both mortgages and rental assistance contracts are for set periods of 
time, and subject to specific program provisions, properties become 
eligible to leave HUD programs when mortgages mature or when HUD or 
owners elect not to renew expiring rental assistance contracts. HUD 
mortgages subsidized under Section 202, Section 221(d)(3) BMIR, and 
Section 236 restrict how much rent an owner can charge. These 
restrictions are generally effective until the mortgage is paid off. 
Mortgages financed under Section 221(d)(3), Section 221(d)(4), and 
Section 231 do not have similar requirements. In addition, certain 
properties are eligible to leave HUD programs by paying off the 
mortgage prior to the maturity date.

As agreed with your offices, this report provides information on (1) 
the numbers and selected characteristics of HUD-subsidized rental 
properties scheduled to reach mortgage maturity over 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. The 10 
questions contained in your December 10, 2002, letter and summary 
answers are presented in appendix II.

To address these objectives, we analyzed HUD databases, including the 
Real Estate Management System (as of April 2003), to identify the 
characteristics of those properties with mortgages that have already 
reached maturity as well as those scheduled to reach maturity by 
December 31, 2013.[Footnote 3] We also interviewed HUD and housing 
industry officials and reviewed literature on the preservation of low-
income housing. Because nationwide data on tools and incentives that 
can be used to preserve affordable housing do not exist, we used a Web-
based questionnaire to survey 327 state and local housing and community 
development agencies to determine what tools and incentives they use to 
keep HUD-subsidized properties affordable to low-income tenants and 
which of the tools and incentives they believed to be effective. We 
received 226 usable responses, for a response rate of 69 percent. We 
reviewed statutes and regulations, interviewed HUD officials, and 
obtained relevant documents to identify tenants' protections when 
mortgages mature in subsidized properties. Additional details on our 
scope and methodology, including information on our survey design and 
participants, are discussed in appendix I. We performed our work from 
January through November 2003 in accordance with generally accepted 
government auditing standards.

Results in Brief:

Nationwide, 21 percent (2,328) of the 11,267 subsidized properties with 
HUD mortgages are scheduled to reach mortgage maturity through 2013 
(see fig.1), but among states this percentage varies significantly: 
from 7 percent in Alabama, to 53 percent in South Dakota. Nearly all of 
these 2,328 properties were financed under the Section 236, Section 
221(d)(3) BMIR, and Section 221(d)(3) programs, and about three-
quarters of these mortgages are scheduled to mature in the last 3 years 
of the 10-year period.

Figure 1: Universe of Subsidized Properties, 2003:

[See PDF for image]

[End of figure]

Impacts on tenants depend in part on tenant protections available under 
program statutes and regulations, 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 under the 
Section 202, Section 221(d)(3) BMIR, and Section 236 programs that do 
not receive rental assistance may have to pay higher rents or move to 
other housing when the HUD mortgages on these properties mature and 
rent restrictions are lifted. Further, owners are not required to 
notify tenants when a property's mortgage is about to mature. In 
contrast, owners are required to notify tenants by up to 1 year in 
advance of their intent to prepay mortgages or opt out of the rental 
assistance contracts. Property owners' 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 owners' 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.[Footnote 4] However, they noted that their 
member agencies could offer tools and incentives, such as loans and 
grants, to keep properties affordable after mortgage maturity. Yet, 
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 5]

This report contains recommendations to the Secretary of HUD intended 
to help state and local housing agencies gain access to useful 
information on HUD-subsidized properties, including mortgage maturity 
dates.

Background:

Prior to the early 1970s, the federal government provided affordable 
multifamily housing to low-and moderate-income households by 
subsidizing the production of either privately owned housing or 
government-owned public housing. Under the production programs, the 
subsidy is tied to the unit (project-based), and tenants benefit from 
reduced rents while living in the subsidized unit. These programs 
include Section 202, Section 221(d)(3) BMIR, and Section 236. A portion 
of the units in properties developed under these production programs 
received rental assistance under programs such as Rent Supplement, 
Rental Assistance Payments (RAP), and project-based Section 8 in order 
to reach lower-income tenants.[Footnote 6]

In the early 1970s, questions were raised about the production 
programs' effectiveness: many moderate-income tenants benefited from 
federal assistance, while lower-income families did not; federal costs 
of producing housing exceeded the private-sector costs to produce the 
same services; and allegations of waste surfaced.[Footnote 7] Interest 
in a more cost-effective approach led Congress to explore options for 
using existing housing to shelter low-income tenants. The Housing and 
Community Development Act of 1974, a major overhaul of housing laws, 
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. 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.

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, among other things, 
Congress created a special type of voucher, known as an enhanced 
voucher, to protect tenants from rent increases in these properties. 
Enhanced vouchers differ from regular tenant-based housing vouchers in 
two ways. Enhanced vouchers may provide a greater subsidy (that is, be 
used to rent more expensive units) and give tenants a right to remain 
in their unit after conversion to market rent, thus creating an 
obligation for the owner to accept the voucher. So long as the rent 
remains reasonable, the tenant's portion of the rent should:

not increase.[Footnote 8] If the tenant elects to move, the voucher 
becomes a "regular" housing voucher and is subject to the program's 
standard rent limits.

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, 
for example, 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' prepayment of the mortgage (37 percent) 
and foreclosure (22 percent).

Funds provided by other federal programs can be used by states and 
localities to subsidize housing for low-income tenants. The CDBG 
program, authorized by the Housing and Community Development Act of 
1974, distributes grants to local and state governments for community 
development activities. Rehabilitation and other housing activities now 
consistently represent the largest single use of CDBG funds. Other 
funds for housing production have been made available through the HOME 
program, authorized by the Cranston-Gonzalez National Affordable 
Housing Act of 1990, which awards block grants to state and local 
governments primarily for the development of affordable housing. Under 
the Low-Income Housing Tax Credit Program, authorized by the Tax Reform 
Act of 1986, state housing finance agencies provide tax incentives to 
private investors to develop housing affordable to low-income tenants.

In addition to using their HOME and CDBG allocations as well as tax 
credits, some states and localities have established housing trust 
funds and other financial mechanisms, which have helped organizations 
acquire subsidized properties that may leave HUD's programs. Further, 
the states and localities may use other tools and incentives, such as 
offering property tax relief, to encourage owners to keep serving low-
income tenants.

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

Nationwide, 21 percent (2,328) of the 11,267 subsidized properties with 
HUD mortgages are scheduled to mature through 2013. The percentage 
varies significantly by state: from 7 percent in Alabama, to 53 percent 
in South Dakota. Nearly all of these 2,328 properties were financed 
under the Section 236, Section 221(d)(3) BMIR, and Section 221(d)(3) 
programs, and about three-quarters of these mortgages are scheduled to 
mature in the last 3 years of the 10-year period. The remaining 79 
percent of HUD's outstanding mortgages in subsidized properties are 
scheduled to mature after 2013.

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) have mortgages that are 
scheduled to mature through 2013. The remaining 79 percent of these 
mortgages are scheduled to reach maturity outside of the 10-year 
period. Additionally, the bulk of these mortgages (about 75 percent) 
are scheduled to mature in the latter 3 years of the 10-year period 
(see fig. 2). 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 2: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: 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: HUD subsidized mortgage: [D]; 
Percentage of properties: [D]; 
Total units: [D]; 
Units assisted with project-based Section 8[A]: [D].

Total; 
Number of properties: HUD subsidized mortgage: 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 through 2013 Also Varies by 
State:

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

Figure 3: Subsidized Properties with HUD Mortgages Scheduled to Mature 
through 2013, by State:

[See PDF for image]

Note: The map shown here 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]

Further, while 21 percent of HUD mortgages on subsidized properties 
nationwide are scheduled to mature through 2013, individual states have 
significantly different shares of these mortgages. Figure 4 shows the 
proportion of each state's inventory of properties with HUD mortgages 
scheduled to mature in the 10-year period. The percentage varies 
significantly by state: from 7 percent in Alabama, to 53 percent in 
South Dakota. The CD-ROM that accompanies this report provides detailed 
property-level data that allows the users to perform similar analyses 
to track mortgage maturity by state or other location (congressional 
district or metropolitan area), as well as by other variables such as 
property category or rental assistance program.

Figure 4: Percentage of HUD-Subsidized Mortgages within Each State 
Scheduled to Mature through 2013:

[See PDF for image]

[End of figure]

More HUD Mortgages Are Scheduled to Mature after 2013:

Over 8,900 properties, containing almost 680,000 units, have 
outstanding HUD mortgages scheduled to mature after 2013. Most of these 
mortgages were financed under the Section 202, Section 221(d)(4), and 
Section 236 programs. About 85 percent of the 680,000 units receive 
rental assistance. Many of these rental assistance contracts will be 
expiring through 2013. Specifically, 8,166 properties with HUD 
mortgages have rental assistance contracts expiring through 2013, 
affecting about 530,000 assisted units. Thus, while mortgages are not 
scheduled to mature during the period, these properties have tenants 
who could potentially face rent increases.

According to HUD data, in the next 10 years, rental assistance contract 
expiration will affect a total of 18,048 properties--10,382 with HUD 
mortgages and another 7,666 without HUD mortgages--containing almost 
1.1 million assisted units. Most of these long-term contracts are set 
to expire in the near future--before the end of 2007 (see fig. 5).

Figure 5: Expiring Rental Assistance Contracts, 2003 through 2013:

[See PDF for image]

Note: The data only reflect long-term contract expirations and not 
expected annual renewals of these contracts.

[End of figure]

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. A 2001 publication by AARP reported that if past 
trends continue, 85 to 90 percent of contracts will be 
renewed.[Footnote 9] The extent to which the trend continues will 
depend on the availability of program funding and housing market 
conditions.

As shown in figure 6, mortgage maturity and rental assistance contract 
expiration will affect a total of 18,553 properties through 2013:

* 505 properties will be affected by maturing mortgages only (480 of 
these are not covered by rental assistance contracts, and the remaining 
25 have rental assistance contracts that expire outside of our 10-year 
window).

* 1,823 properties will be affected by both events (because they have 
rental assistance contracts set to expire and HUD mortgages scheduled 
to mature by 2013).

* 16,225 properties will be affected by expiring rental assistance 
contracts only (8,166 of these have HUD mortgages, but the mortgages 
are not scheduled to mature until after 2013).

Figure 6: Properties with Mortgages Scheduled to Mature and/or Expiring 
Long-Term Rental Assistance Contracts, 2003 through 2013:

[See PDF for image]

Note: The 18,553 properties represent about 81 percent of the 23,051 
HUD-subsidized properties.

[End of figure]

There are about 1.1 million assisted units in those properties with 
mortgages maturing or rental assistance expiring in the 10-year period. 
These units make up nearly 81 percent of all assisted units in HUD's 
inventory. As figure 7 shows, about 48,000 units are in properties with 
maturing mortgages only, about 951,400 assisted units are in properties 
that have expiring rental assistance only, and about 132,600 assisted 
units (out of the approximate 188,600 total units) are in properties 
with both mortgages maturing and rental assistance expiring in the 10-
year period.

Figure 7: Assisted Units in Properties with Mortgages Scheduled to 
Mature and/or Expiring Long-Term Rental Assistance Contracts, 2003 
through 2013:

[See PDF for image]

Note: 48,045 units with maturing HUD mortgages only are not assisted:

[End of figure]

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 to more affordable housing 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. Over the next 10 
years, 480 subsidized properties that do not have rental assistance 
contracts are scheduled to reach mortgage maturity. Unassisted tenants 
in some of these properties are at risk of not being able to afford 
their units if rents are raised. The remaining 1,848 subsidized 
properties with HUD mortgages scheduled to mature through 2013 have 
rental assistance contracts, and the protections against rent increases 
offered under the rental assistance programs will apply. However, not 
all units in these properties are covered by the rental assistance 
contracts, thus limiting the number of tenants protected. A number of 
factors may affect owners' decisions regarding the continued 
affordability of their properties after mortgages mature, including 
neighborhood incomes, physical condition of the property, and owners' 
missions. While experience with mortgage maturity has been limited, 16 
of the 32 subsidized properties that reached mortgage maturity in the 
past 10 years are still serving low-income tenants through project-
based Section 8 rental assistance contracts. Additionally, at least 10 
of the remaining properties that reached mortgage maturity over the 
past 10 years are still serving low-income tenants.

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

There is no statutory requirement for 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 then, the 
tenants in a total of 102,563 units are not protected under the rental 
assistance programs. Of these, 101,730 units under Section 202, Section 
221(d)(3) BMIR, and Section 236 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; 
Number of properties: None: 166; 
Number of properties: Rental assistance program[A]: 
Project-based Section 8: 1,123; 
Number of properties: Rental assistance program[A]: 
Rent Supplement: 40; 
Number of properties: Rental assistance program[A]: 
Other[B]: 4; 
Number of properties: Total: 1,333.

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

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

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

Financing program: HUD subsidized mortgage: Section 202; 
Number of properties: None: 20; 
Number of properties: Rental assistance program[A]: 
Project-based Section 8: 14; 
Number of properties: Rental assistance program[A]: 
Rent Supplement: 5; 
Number of properties: Rental assistance program[A]: 
Other[B]: 2; 
Number of properties: Total: 41.

Financing program: HUD unsubsidized mortgage: Section 221(d)(3); 
Number of properties: None: 0 ; 
Number of properties: Rental assistance program[A]: 
Project-based Section 8: 403; 
Number of properties: Rental assistance program[A]: 
Rent Supplement: 28; 
Number of properties: Rental assistance program[A]: 
Other[B]: 0; 
Number of properties: Total: 431.

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

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

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

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

Percent of total; 
Number of properties: None: 21%; 
Number of properties: Rental assistance program[A]: 
Project-based Section 8: 76%; 
Number of properties: Rental assistance program[A]: 
Rent Supplement: 3%; 
Number of properties: Rental assistance program[A]: 
Other[B]: <1%; 
Number of properties: 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]

These unassisted tenants are mostly housed in properties financed under 
Section 221(d)(3) BMIR and Section 236 (see fig. 8). According to a HUD 
study, tenants in properties with mortgages under these 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.[Footnote 10] 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.

Figure 8: HUD Mortgages Scheduled to Mature on Properties without 
Rental Assistance:

[See PDF for image]

Note: Total of 480 subsidized properties.

[End of figure]

Tenants in units covered by a rental assistance program--there are 
134,087 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. 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 prepay their mortgage or opt out of their Section 8 
contract are required to notify tenants. For example, when owners opt 
out of the Section 8 project-based program, they are required to notify 
tenants 1 year in advance of the contract expiration. In cases where 
owners prepay their mortgages under the Section 236 or Section 
221(d)(3) BMIR programs, tenants must be given notice at least 150, but 
not more than 270, days prior to prepayment. Some locations have 
established even more stringent notification requirements.

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

Many factors can 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 surrounding neighborhood has 
gentrified and 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.[Footnote 11] 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, at 1 of the 16 properties 
(nonprofit ownership) whose mortgages matured in the past 10 years and 
that do not currently have project-based Section 8 assistance, the 
property manager 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 
substantially 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. The 
level of prices has 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 Are Offering 
Rent 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.[Footnote 12] 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 3 
properties, it covers 54 percent of the units (174 assisted units).

Using HUD's archived data for inactive properties, we attempted to 
contact the property managers of the remaining 16 properties 
(consisting of 1,997 units) to determine if the properties currently 
offer rents affordable to low-income tenants. We were able to obtain 
rent information for 10 properties.[Footnote 13] 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 14] According to HUD's 
database, only 2 of these properties ever had Section 8 project-based 
contracts, and both expired in early 2000. We could not obtain actual 
tenant incomes since property managers told us that they are not 
required to maintain such information for properties without federal 
use restrictions. Using the reported average rent for a 2-bedroom unit, 
we estimated the income needed to afford the reported rent (that is, 
the income needed if no more than 30 percent of gross income would be 
used for rent). We then compared this estimated income to the area's 
median household income for 2003. The rent affordability percentages in 
table 3 express the estimated income needed as a percentage of the area 
median income. Thus, numbers less than 50 indicate that the unit is 
affordable to households with incomes 50 percent or less of the area 
median income. The available data for the 16 properties is summarized 
in table 3. 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.

Table 3: Data for 16 Properties with Matured HUD Mortgages and without 
Project-Based Rental Assistance Contracts:

Property: 1; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: July 1998[A]; 
Total units: 16; 
Number of voucher holders: 3; 
Average rent for 2-bedroom unit: $500; 
Rent affordability: 39%; 
Ownership: For-profit.

Property: 2; 
Prior FHA mortgage program: Section 231; 
Mortgage maturity: date: August 2001; 
Total units: 73; 
Number of voucher holders: 0; 
Average rent for 2-bedroom unit: $525[B]; 
Rent affordability: 39%; 
Ownership: Nonprofit.

Property: 3; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: June 2002; 
Total units: 82; 
Number of voucher holders: N/A; 
Average rent for 2-bedroom unit: N/A; 
Rent affordability: N/A; 
Ownership: Nonprofit.

Property: 4; 
Prior FHA mortgage program: Section 221(d)(3); 
Mortgage maturity: date: October 2002; 
Total units: 43; 
Number of voucher holders: 0; 
Average rent for 2-bedroom unit: $185[ C]; 
Rent affordability: 15%; 
Ownership: Co-op.

Property: 5; 
Prior FHA mortgage program: Section 221(d)(4); 
Mortgage maturity: date: October 1999[A]; 
Total units: 32; 
Number of voucher holders: N/A; 
Average rent for 2-bedroom unit: N/A; 
Rent affordability: N/A; 
Ownership: Limited dividend[D].

Property: 6; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: February 2002; 
Total units: 103; 
Number of voucher holders: 10; 
Average rent for 2-bedroom unit: $695; 
Rent affordability: 39%; 
Ownership: For-profit.

Property: 7; 
Prior FHA mortgage program: Section 231; 
Mortgage maturity: date: July 2000; 
Total units: 76; 
Number of voucher holders: 0; 
Average rent for 2-bedroom unit: [E]; 
Rent affordability: [E]; 
Ownership: Nonprofit.

Property: 8; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: April 2000; 
Total units: 114; 
Number of voucher holders: 3; 
Average rent for 2-bedroom unit: $519; 
Rent affordability: 29%; 
Ownership: For-profit.

Property: 9; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: May 1998; 
Total units: 15; 
Number of voucher holders: N/A; 
Average rent for 2-bedroom unit: N/A; 
Rent affordability: N/A; 
Ownership: N/A.

Property: 10; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: May 2000; 
Total units: 477; 
Number of voucher holders: 38; 
Average rent for 2-bedroom unit: $550; 
Rent affordability: 44%; 
Ownership: Nonprofit.

Property: 11; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: April 2002; 
Total units: 70; 
Number of voucher holders: 10; 
Average rent for 2-bedroom unit: $710; 
Rent affordability: 40%; 
Ownership: For-profit.

Property: 12; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: May 2002; 
Total units: 135; 
Number of voucher holders: 80; 
Average rent for 2-bedroom unit: $565; 
Rent affordability: 45%; 
Ownership: For-profit.

Property: 13; 
Prior FHA mortgage program: Section 231; 
Mortgage maturity: date: April 2002; 
Total units: 557; 
Number of voucher holders: 61; 
Average rent for 2-bedroom unit: $340[B]; 
Rent affordability: 41%; 
Ownership: Nonprofit.

Property: 14; 
Prior FHA mortgage program: Section 231; 
Mortgage maturity: date: January 2001; 
Total units: 72; 
Number of voucher holders: 0; 
Average rent for 2-bedroom unit: [E]; 
Rent affordability: [E]; 
Ownership: Nonprofit.

Property: 15; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: June 2002; 
Total units: 80; 
Number of voucher holders: 0; 
Average rent for 2-bedroom unit: $285[C]; 
Rent affordability: 11%; 
Ownership: Co-op.

Property: 16; 
Prior FHA mortgage program: Section 221(d)(3) BMIR; 
Mortgage maturity: date: November 2000; 
Total units: 52; 
Number of voucher holders: N/A; 
Average rent for 2-bedroom unit: N/A; 
Rent affordability: N/A; 
Ownership: N/A. 

Source: GAO analysis of information from property managers and HUD.

Note: N/A means not available.

[A] Both of these properties also had project-based Section 8 contracts 
that opted-out in early 2000.

[B] Average rents for these properties are for 1-bedroom units.

[C] Since these are cooperatives, the rents (monthly fees) only reflect 
carrying charges, which include such expenses as real estate taxes and 
insurances but not any individual mortgage payments that a co-op member 
may have.

[D] For limited dividend owners, the distributions of income are 
restricted by state law or the Federal Housing Administration (FHA) 
Commissioner.

[E] These properties are skilled nursing facilities and do not charge 
traditional rents.

[End of table]

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 can offer tools and incentives, such as loans and grants, that 
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.

The agencies indicated that funds available through HUD's HOME and CDBG 
programs and the Low-Income Housing Tax Credit program are effective 
means for preserving the affordability of HUD-subsidized housing. They 
also identified financial assistance to nonprofit organizations to aid 
them in acquiring HUD-subsidized properties as an effective tool. 
However, over 50 percent of the agencies reported that they have no 
tracking system in place to systematically identify properties that 
could potentially leave HUD's affordable housing programs and thus 
might be candidates for affordability preservation assistance.

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

HUD does not offer property owners any specific incentive to keep 
properties affordable to low-income tenants after maturity of their HUD 
mortgages. 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. These incentives 
are as follows:

* Mark-up-to-Market allows owners to increase the rents for units 
subsidized under the project-based Section 8 rental assistance program 
up to market levels in exchange for keeping the units in the Section 8 
inventory for a minimum of 5 years.

* Section 236 Decoupling can be activated when the owner prepays a 
Section 236 mortgage and obtains conventional financing. By agreeing to 
keep the property affordable for at least another 5 years beyond the 
original term of the mortgage, owners can keep the interest rate 
reduction payments that they were receiving when they had a HUD-
financed mortgage.

* Section 202 Prepayments allow owners to prepay their HUD loans and 
obtain other financing, but they must keep the affordability use 
restriction until the maturity date of the original loan.

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, as in the Section 236 
Decoupling incentive, or allow property owners to be better positioned 
financially to continue providing affordable housing, as in the case of 
Section 202 Prepayments and Mark-up-to-Market.

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

The 226 state and local agencies that responded to our survey commented 
on the effectiveness of 18 tools and incentives as a mean to preserve 
HUD's affordable rental housing. Of the 18, 6 were funded directly by 
the federal government, while 12 were administered by state and local 
governments and were 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.[Footnote 15]

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. 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. However, knowing when properties 
will be eligible to leave HUD's programs could better position state 
and local agencies to use available tools and incentives at mortgage 
maturity. 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. Their comments included the following:

* "It would be helpful if HUD would provide local governments periodic 
reports on the status of HUD properties in the locality.":

* "I believe a lot of CDBG entitlement agencies would be willing to 
track properties that could leave HUD's affordable housing programs if 
HUD would provide them with a listing of the properties."[Footnote 16]

* "Communication between project-based property owners, HUD, and local 
public housing authorities is not very effective.":

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. 9). 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 9: 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.[Footnote 17] This 
Web site contains detailed property-level data on active HUD-insured 
mortgages and expiring rental assistance contracts.[Footnote 18] 
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.

Conclusions:

HUD's rental housing programs have developed subsidized properties for 
low-and moderate-income tenants that carry rent affordability 
requirements for a fixed period. As a result, HUD has focused on 
keeping these properties affordable for at least that period, and its 
tools and incentives have mainly addressed mortgage prepayments and 
rental assistance contract expiration, not mortgage maturity. While a 
share of the properties with HUD mortgages are scheduled to reach 
maturity over the next 10 years, it is uncertain how many of these 
properties will attempt to convert to market-rate housing and raise 
rents, making the units in these properties unaffordable for many 
tenants. While state and local agencies might be able to play an 
important role in maintaining the affordability of properties eligible 
to leave HUD programs because of mortgage maturity or other reasons, 
these agencies need to know in advance which properties are eligible to 
leave HUD's programs, and when, in order to use tools and incentives 
that can help keep the properties affordable. Even though HUD makes 
property-level data available to the public on its Web site, state and 
local agency responses to our survey suggest that HUD data may not be 
as readily accessible, and therefore as useful, as they could be. HUD 
officials responsible for maintaining the data on the subsidized 
properties agreed.

Recommendations for Executive Action:

To help state and local housing agencies track HUD-subsidized 
properties that may leave HUD's programs upon mortgage maturity or for 
other reasons, we recommend that the Secretary of HUD solicit the views 
of state and local agencies to determine (1) the specific information 
concerning HUD-subsidized properties that would be most useful to their 
affordability preservation efforts and (2) the most effective format 
for making this information available, and then use the results to 
modify the current means of conveying the data on these properties to 
make the data more widely available and useful.

Agency Comments and Our Evaluation:

We provided a draft of this report to HUD for its review and comment. 
In a letter from the Assistant Secretary for Housing (see app. III), 
HUD agreed with the report's findings, conclusions, and 
recommendations. HUD also noted that while it believes that a wide 
array of public and private entities concerned about preserving the 
affordable housing stock are using the databases currently available 
through HUD's Web site, it could improve the format and modify the 
current means of conveying the data on these properties to make the 
data more readily available. In its letter, HUD also provided technical 
comments, which we incorporated as appropriate.



As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to interested Members of Congress and congressional committees. We also 
will send copies to the Secretary of the Department of Housing and 
Urban Development and the Director of the Office of Management and 
Budget and make copies available to others upon request. The report 
will be available at no charge on the GAO Web site at 
[Hyperlink, http://www.gao.gov]. A CD-ROM 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-210SP], which 
includes property-level data for subsidized properties with mortgages 
scheduled to mature or expiring rental assistance contracts, will 
accompany this report and can be ordered at 
[Hyperlink, www.gao.gov/cgi-bin/ordtab.pl].

The results of our survey of state and local agencies 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-211SP]
will also be available on the GAO Web site at 
[Hyperlink, www.gao.gov/cgi-bin/getrpt?GAO-04-211SP].

Please contact me at (202) 512-8678, or Andy Finkel at (202) 512-6765, 
if you or your staff have any questions concerning this report. Key 
contributors to this report are listed in appendix IV.

Signed by: 

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

[End of section]

Appendixes: 

Appendix I Scope and Methodology:

To develop a state-by-state inventory of multifamily properties with 
HUD mortgages scheduled to mature and to identify the properties' 
characteristics, we analyzed and combined information from several HUD 
databases. We used data from HUD's Real Estate Management System 
(REMS), which contains information on active properties in Datamart, as 
well as from the Tenant Rental Assistance Certification System (TRACS), 
which contains information on Section 8 contracts. We also incorporated 
data from HUD's Real Estate Assessment Center (REAC) and--through the 
Office of Multifamily Housing and Restructuring (OMHAR)--data from the 
Annual Financial Statements submitted to HUD by property owners. To 
ensure the HUD data were reliable, we performed internal checks to 
determine (1) the extent to which the data were complete and accurate, 
(2) the reasonableness of the values contained in the data fields, and 
(3) whether any data limitations existed in the data we relied upon to 
do our work. Based on our reliability assessment, we concluded that the 
data were reliable for purposes of this report. The data obtained from 
HUD are as of April 15, 2003. To have 10 full years of data, our 
analysis covered the period from April 15, 2003, through December 31, 
2013.

For the properties with existing HUD mortgages, we identified those 
that also have project-based rental assistance contracts. We then 
separately identified properties that do not have HUD mortgages, but 
have project-based rental assistance contracts that are also due to 
expire through 2013. To obtain occupancy data relating to the 
individual properties, we used the system containing the financial 
statements that are prepared and submitted annually to HUD by property 
owners. For each property, we obtained the following information:

* property identification number,

* property name,

* address,

* city,

* state,

* zip code,

* metropolitan area,

* congressional district,

* total number of units,

* total number of assisted units,

* name of HUD financing program,

* property category,

* mortgage maturity date,

* name of rental assistance program,

* rental assistance expiration date,

* number of rental assistance contracts,

* rental assistance contract status,

* type of client (tenant) served,

* type of property ownership,

* economic occupancy rate,

* subsidy utilization rate, and:

* property inspection score (REAC score).

We also used HUD's database to identify properties whose mortgages have 
matured over the last 10 years. To determine how many properties are 
still serving low-income tenants, we first identified those that are 
covered by rental assistance contracts. For 14 of the 16 properties 
without current rental assistance contracts, we obtained contact 
information from HUD's archived database (the database did not have 
sufficient complete information on the other 2). We then contacted 
these properties via telephone to determine if the management was still 
serving low-income tenants.

We reviewed HUD regulations to determine the potential impact on 
tenants when HUD mortgages mature. In particular, we reviewed the 
eligibility of tenants to receive enhanced vouchers and other 
protections against increases in rents when properties leave HUD's 
programs. We discussed these regulations with appropriate HUD officials 
and also requested that HUD identify protections available to tenants 
under the various housing programs.

To identify the incentives that HUD, the states, and localities could 
offer owners under existing laws and regulations, we interviewed HUD, 
state, and local officials and reviewed available literature. Because 
there are no nationwide data available on the utilization of tools and 
incentives at the state and local level and no single agency is 
responsible for administrating the various incentives for any state, we 
surveyed state and local housing and community development agencies via 
the Internet. We identified the survey participants through lists 
provided by four national housing industry organizations. Specifically, 
we surveyed members of the National Council of State Housing Agencies 
(NCSHA), which represents state housing finance agencies; the Council 
of State Community Development Agencies (COSCDA), which represents 
state housing and community development agencies; the National 
Community Development Association (NCDA), which represents local 
communities that administer federally supported programs such as CDBG 
and HOME; and the National Association of Local Housing Finance 
Agencies (NALHFA), which represents local housing finance agencies. The 
survey covered (1) their experiences in preserving affordable housing, 
(2) the incentives used and their effectiveness, and (3) the extent to 
which they identify and track properties that could leave HUD's 
programs.

In developing the survey, we met with officials at the four national 
organizations to gain a better understanding of the issues and modified 
our questions based on their comments. We then pretested with several 
state and local agencies throughout the country, such as the Department 
of Community Development in Amarillo, Texas; the Department of 
Neighborhood Development in Boston, Massachusetts; and the Ohio Housing 
Finance Agency. During these pretests, we observed the officials as 
they filled out the survey over the Internet. After completing the 
pretest survey, we interviewed the respondents to ensure that (1) the 
questions were clear and unambiguous, (2) the terms we used were 
precise, (3) the survey did not place an undue burden on the agency 
officials completing it, and (4) the survey was independent and 
unbiased. On the basis of the feedback from the pretests, we modified 
the questions as appropriate. Information about accessing the survey 
was provided to a contact person at each of 327 state and local housing 
and community development agencies in 50 states, the District of 
Columbia, and Puerto Rico. The survey was activated on May 12, 2003; it 
was available until September 5, 2003. To ensure security and data 
integrity, we provided each agency with a password to access and 
complete the survey.

We originally included 373 potential respondents in our survey, but 
eliminated 46 for various reasons, including those agencies having no 
authority over affordable housing and those with no HUD properties in 
their jurisdictions. As a result, 327 potential respondents remained--
46 from NCSHA, 65 from COSCDA, 130 from NCDA, and 86 from NALHFA. From 
the 327, we obtained 226 usable responses--38 from NCSHA, 47 from 
COSCDA, 83 from NCDA, and 58 from NALHFA--for an overall response rate 
of 69 percent.

[End of section]

Appendix II: Questions from December 10, 2002, Letter from the House 
Committee on Financial Services:

We would like the following questions answered in this General 
Accounting Office report:

1. This letter includes a list of the privately owned, publicly 
assisted multifamily housing mortgage programs.

* 221(d)(3):

* Market rate with rent supplement:

* Below Market Rate Interest Rates (BMIR) with rent supplement or 
section 8:

* 236:

* Insured and Noninsured:

* Rental Assistance Projects (RAP):

* Rent Supplement:

* Section 8:

* 221(d)(4) with all or partial Section 8:

* 202s with rent supplement or Section 8:

* 231s with rent supplement:

* Section 8 moderate rehabilitation (not funded through HUD, maybe 
PHA):

* Noninsured rent supplement projects (12 projects only in NY and 
Minnesota):

Please update the list if there are other programs that should have 
been included and include any omitted programs in your answers to the 
other questions requested in this report.

We did not identify any programs to add to the list. The report 
encompasses all of these programs with the following exceptions: (1) 
HUD does not collect mortgage information on noninsured rent supplement 
properties because the properties do not use HUD financing. HUD does 
have data on the rent supplement contracts alone, which we included in 
the CD-ROM; (2) Section 8 Moderate Rehabilitation properties are 
excluded because HUD does not track these properties in its multifamily 
database and maintains no aggregate data on properties in the program.

2. What is the potential impact on the renewal of those Section 8 
contracts in projects where FHA mortgages mature, the principal is paid 
off entirely, and the affordability restrictions attendant to the 
mortgages expire?

The impact of a matured HUD mortgage, by itself, on an owner's decision 
to renew a Section 8 contract is uncertain because there are a number 
of other factors that can affect the decision. For a profit-motivated 
owner, the decision to renew would likely be influenced by the 
condition of the property and the income levels in the surrounding 
neighborhood. If the surrounding neighborhood has gentrified and 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 living in the surrounding area, it may be more 
profitable to keep the property in the affordable inventory by renewing 
the Section 8 contract. Tools and incentives offered by HUD, state, and 
local agencies may also influence these decisions.

For a nonprofit owner, the decision would likely be motivated largely 
by cash flow considerations since, in theory, these owners are not 
primarily motivated by economic returns. HUD data show that nonprofit 
organizations own about 36 percent of the properties with mortgages 
scheduled to mature in the next 10 years. Since mortgage maturity 
results in an improvement in property cash flow, reaching mortgage 
maturity would not by itself necessarily trigger removal from the 
affordable inventory. Additionally, a nonprofit organization would be 
more likely to keep the property affordable to low-income tenants 
because to do otherwise would conflict with its basic mission of 
providing affordable housing. Thus, nonprofit owners would likely 
continue to renew Section 8 contracts.

3. We request an inventory, in chart form, of all the units that will 
reach maturity in the next 10 years. The inventory should include:

* Property name, city, and state:

* Property MSA (metropolitan statistical area):

* Month and year of mortgage maturity:

* Type of multifamily program for each development:

* Number of units for each development:

* Expiration date of Section 8 contract for each development (if any):

* Contract status of Section 8 contract for each development (if any):

* Number of section 8 units for each development (if any):

* Total number of units covered under each of the programs and their 
location by state:

* Total number of units for all developments:

* Total number of units that are occupied:

* Total number of section 8 units:

* Type of families housed, i.e. families, elderly, etc.

* Whether the unit is owned by a profit or nonprofit organization:

All the data elements cited above are included in the CD-ROM that 
accompanies this report. Data on property inspection scores, subsidy 
utilization rates, street addresses, and the congressional district in 
which the property is located are also included.

4. What will happen to the units and hence the families occupying the 
units once the mortgages expire? What rights, if any, do these tenants 
have regarding their rent costs subsequent to the expiration of the 
mortgage term and pay off of the entire mortgage principal?

Provided there is no other subsidy, owners of properties whose HUD-
subsidized mortgages have matured are generally no longer required to 
charge reduced rents to tenants that meet HUD's income limits, and the 
tenants do not have any rights or protections. Depending on the owner's 
decision, tenants could face higher rents and, if they were unable to 
afford them, would have to move. However, if the units are covered by a 
rental assistance contract, the tenants would not be affected by the 
mortgage maturity. As long as the rental assistance is in force, these 
tenants would continue to benefit from subsidized rents.

5. Under existing laws and regulations, are there Federal government 
incentives that HUD could offer the owners of the multifamily housing 
developments to keep properties affordable upon maturity of the FHA 
mortgage and pay off the principal? Under existing law and regulations, 
what types of incentives are available for each state and the District 
of Columbia that could be made available to the owners of the 
multifamily housing developments? Have they been successful?

HUD does not offer property owners any specific incentive to keep 
properties affordable to low-income tenants after maturity of their HUD 
mortgage. 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. These incentives 
include the Mark-up-to-Market program, Section 236 Decoupling, and 
Section 202 Prepayments. 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, as in 
the Section 236 Decoupling incentive, or allow property owners to be 
better positioned financially to continue providing affordable housing, 
as in the case of Section 202 Prepayments and Mark-up-to-Market.

State and local agencies identified tools and incentives to preserve 
affordable housing, but not specifically for addressing maturing HUD 
mortgages. The 226 state and local agencies that responded to our 
survey commented on the effectiveness of 18 tools and incentives as a 
mean to preserve HUD's affordable rental housing. Of the 18, 6 were 
funded directly by the federal government, while 12 were administered 
by state and local governments and were 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.

6. What are the possible effects if the Section 8 contract maturity 
date is shorter than the FHA mortgage maturity date?

The effects depend largely on the owner's decision about the future use 
of the property. As noted in our response to question 2, an owner's 
decision to renew a Section 8 contract can be influenced by a number of 
factors, such as neighborhood incomes, the condition of the property, 
and owner's mission. Consideration of these factors would likely also 
apply to properties where the Section 8 contract expiration date is 
earlier than the scheduled maturity date on the HUD mortgage.

When mortgage maturity is imminent, an owner may also consider what the 
impact of losing the interest rate subsidy as well as paying off the 
HUD mortgage will be on the property's cash flow. 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 substantially reduced the value of this subsidy relative 
to the rental assistance subsidy, which is adjusted annually to account 
for increases in operating costs. Project-based rental assistance now 
provides the bulk of the assistance to these subsidized properties. 
Therefore, it is possible that, under certain circumstances, such as 
where a surrounding neighborhood has gentrified and the property can be 
upgraded at a reasonable cost, a for-profit owner may decide to forgo 
the remaining interest rate subsidy payments and prepay the mortgage at 
the time the project-based contract expires. However, because most 
owners have had the right to prepay mortgages and opt out of their 
Section 8 contracts for a number of years, the economic factors that 
drive the decision to convert to market rate when mortgages mature are 
no different than in the past.

From the tenant's perspective, if the owner elects to enter into a new 
Section 8 contract, the tenants in assisted units will be protected for 
the duration of the contract. If the owner elects not to enter into a 
new Section 8 contract with or without prepaying the mortgage, the 
tenants in the units that previously received rental assistance would 
receive enhanced vouchers. Enhanced vouchers give the tenants the right 
to stay in their units and generally protect them from rent increases 
in the properties after the Section 8 contract expires, regardless of 
the maturity date of the HUD mortgage.

7. For those mortgages that have reached mortgage maturity or are soon 
to do so, what actions, if any, have been taken by state, local, or 
other bodies to ensure that affordability has been maintained after the 
FHA mortgages are extinguished or are about to be paid off in their 
entirety? Have the efforts been successful?

According to officials from the four national housing and community 
development organizations we contacted, because relatively few HUD 
mortgages have matured to date, their member state and local agencies 
have not experienced the need to deal with mortgage maturity. They 
noted that their member agencies can offer tools and incentives, such 
as loans and grants, to 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 specifically to keep units affordable after 
mortgage maturity.

8. Please provide data on how many units/developments have already 
reached mortgage maturity, the current status of those units/
developments, and whether those units/developments are still serving 
low-income families.

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 3 properties, it 
covers 54 percent of the units (174 assisted units).

Using HUD's archived data for inactive properties, we attempted to 
contact the property managers of the remaining 16 properties 
(consisting of 1,997 units) to determine if the properties currently 
serve low-income tenants. We were able to obtain rent information for 
10 properties.[Footnote 19] We found that all 10 (none of which have 
project-based rental assistance contracts) are still primarily serving 
low-income tenants and that the current rents are affordable to tenants 
with incomes below 50 percent of area median income. According to HUD's 
database, only 2 of these properties ever had Section 8 project-based 
contracts, and both expired in early 2000. We could not obtain actual 
tenant incomes since property managers told us that they are not 
required to maintain such information for properties without federal 
use restrictions.

9. The provision of enhanced vouchers does not currently apply to 
Section 236 or Section 221 (d) (3) mortgages that mature. What is the 
impact on the current tenant population upon mortgage maturity?

There is no statutory requirement for 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 Section 236 or Section 221(d)(3) mortgages would be eligible 
for enhanced vouchers under rental assistance programs, such as 
project-based Section 8. Depending on property owners' decisions, 
tenants in these properties who do not receive rental assistance could 
face higher, possibly unaffordable, rents.

10. What recommendations does GAO propose to address or alleviate the 
potential loss of affordable housing arising from FHA mortgage 
maturations?

Awareness of the potential for a HUD mortgage to mature, while not a 
guarantee of action, could help state or local agencies' ability to use 
available tools or incentives for preserving properties' affordability 
to low-income tenants. Therefore, to help state and local housing 
agencies track HUD-subsidized properties that may leave HUD's programs 
upon mortgage maturity or for other reasons, we are recommending that 
the Secretary of HUD solicit the views of state and local agencies to 
determine (1) the specific information concerning HUD-subsidized 
properties that would be most useful to their affordability 
preservation efforts and (2) the most effective format for making this 
information available, and then use the results to modify the current 
means of conveying the data on these properties to make the data more 
readily available.

[End of section]

Appendix III: Comments from the Department of Housing and Urban 
Development:

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 
WASHINGTON, DC 20410-8000:

ASSISTANT SECRETARY FOR HOUSING-
FEDERAL HOUSING COMMISSIONER:

October 17, 2003 

Mr. David G. Wood:

Director, Financial Markets and Community Investment 
United States General Accounting Office:

441 G Street, NW Washington, DC 20548:

Dear Mr. Wood:

Thank you for this opportunity to review and provide comments on the 
draft report, Multifamily Housing: More Accessible HUD Data Could Help 
Efforts to Preserve Housing for Low-Income Tenants (GAO-04-20). The 
report contains GAO's determination of the numbers of HUD properties 
that are scheduled to reach mortgage maturity or rental assistance 
expiration in the next ten years, the potential impact on tenant rents, 
and an assessment of what HUD and others can do to keep these 
properties affordable.

The Department would concur in the "Results in Brief' comments (draft 
report, pages 3-6) that "HUD and state and local housing and community 
development agencies provide a variety of tools and incentives to 
owners of low-income multifamily properties to keep them affordable to 
low-income tenants upon mortgage maturity or the expiration of rental 
assistance contracts." The Department would also concur that in the 
"Conclusions" (draft report, page 24) that state and local agencies 
play an important role in maintaining the affordability to low-income 
tenants of HUD-subsidized properties that become eligible to leave 
HUD's programs due to mortgage maturity, rental assistance contract 
expiration, or other reasons and need to know in advance which 
properties are eligible to leave HUD's programs and when, in order to 
use the tools and incentives that can keep the properties affordable to 
low-income tenants.":

The draft report has one recommendation:

To ensure that state and local housing agencies have timely and 
accessible information to track HUD-subsidized properties that may 
leave HUD's programs, GAO recommends that the Secretary of HUD solicit 
the views of state and local agencies to determine the (1) specific 
information concerning HUD-subsidized properties that would be most 
useful to their affordability preservation efforts and (2) most 
effective format for making this information available, and use the 
results to modify the current means of conveying the data on these 
properties and make the data widely available.

The Department's response:

Over the last few years, our experience with providing information and 
various data on a variety of HUD programs to the public has taught us 
that posting downloadable databases on the 
worldwide web is the most efficient and practical means to provide such 
information. The Department currently posts information and applicable 
data regarding expiring rental assistance contracts on the Office of 
Housing's Multifamily Housing web page. This information and data is 
used by a wide array of public and private entities that are concerned 
about low-income housing and the preservation of that housing stock. 
Also in our experiences, the Department has found that in particular, 
any local or state agency interested in obtaining this information and 
data does have the capacity to access the web page in today's computer 
environment.

However, to the extent that additional information or data about the 
Department's inventory is needed by these entities, the Department can 
provide additional information and or data on the web page.

As one of HUD's priorities is to preserve affordable housing, the 
Department can also continue to improve the format for making this 
information available and if necessary, modify the current means of 
conveying the data on these properties to make the data more widely 
available.

Please note that the draft report does contain inaccurate descriptions 
of the programs and the use of subsidies, however, the Department will 
limit additional comments to the following clarifications:

1) The Note on page 12 should be clarified and restated to say:

Under certain conditions, a lender may transfer or "assign" to HUD the 
mortgage note. Section 221(g)(4) allows a lender to assign certain 20-
year old, current, HUD mortgages to HUD and the Department assumes the 
role of mortgagee and services the mortgage. Lenders may also assign 
defaulted mortgages per the terms of the mortgage insurance contract. 
With the exception of 221(g)(4), the mortgage insurance protects the 
lender from losses in the event the owner fails to pay the mortgage.

2) On page 18, first paragraph, last sentence should be clarified and 
restated to say:

If the rental assistance contract is in force, residents will continue 
to receive the benefits of project-based rental assistance. If the 
contract terminates, the residents will be eligible to apply for 
regular or enhanced vouchers.

3) On page 31, the chart should omit the Section 202 with capital 
advance and PRAC programs as these programs are not subjects of this 
report.

4) On page 4, the last bullet of the Statement of Facts should be 
clarified to say:

Although HUD is not required to protect tenants from rent increases due 
to mortgage maturity, most of these tenants would nonetheless be 
eligible for enhanced vouchers under rental assistance programs, such 
as Section 8 tenant-based subsidy, if property owners opted out of the 
expiring rental assistance contract.

5) On page 6, the bullet regarding the Section 236 Decoupling should be 
clarified to say:

Section 236 Decoupling can be activated when the owner prepays the HUD 
mortgage and obtains conventional financing. By agreeing to keep the 
property affordable for another five years, the owners can keep the 
interest rate reduction payments that they were receiving when they had 
a HUD financed mortgage.

Thank you again for the opportunity to provide comments on this draft 
report and if additional information can be provided to you, please 
feel free to contact Beverly Miller, Director of Multifamily Asset 
Management at (202) 708-3730.

Sincerely,

Signed by: 

John C. Weicher: 
Assistant Secretary for Housing - Federal Housing Commissioner:

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Andy Finkel (202) 512-6765 Rich LaMore (617) 788-0571:

Staff Acknowledgments:

In addition to those named above, Mark Egger, Daniel Garcia-Diaz, 
Nadine Garrick, Curtis Groves, Austin Kelly, John McDonough, John 
McGrail, Luann Moy, Barbara Roesmann, William Sparling, Thomas Taydus, 
and James Vitarello made key contributions to this report.

(250123):

FOOTNOTES

[1] We refer to mortgages made under these programs simply as "HUD 
mortgages."

[2] The start year for the mortgage financing programs reflects the 
year of authorization and not necessarily the year when the programs 
became operational.

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

[4] The organizations include the National Council of State Housing 
Agencies (NCSHA), which represents state housing finance agencies; the 
Council of State Community Development Agencies (COSCDA), which 
represents state housing and community development agencies; the 
National Community Development Association (NCDA), which represents 
local communities that administer federally supported programs such as 
Community Development Block Grant (CDBG) and HOME; and the National 
Association of Local Housing Finance Agencies (NALHFA), which 
represents local housing finance agencies. 

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

[6] HUD has converted most of the original Rent Supplement and RAP 
contracts to the project-based Section 8 program.

[7] For example, see U.S. Department of Housing and Urban Development, 
Housing in the Seventies: A Report of the National Housing Policy 
Review (Washington, D.C.: 1974).

[8] There are instances where tenants could encounter problems with the 
issuance and use of enhanced vouchers. These include (1) tenants having 
to pay a higher security deposit, (2) tenants undergoing a rescreening 
for voucher eligibility under new selection criteria--thereby 
disqualifying some tenants who previously received project-based 
subsidies, and (3) owners electing not to rent the unit. 

[9] AARP Public Policy Institute, Section 8 Project-Based Rental 
Assistance: The Potential Loss of Affordable Federally Subsidized 
Housing Stock (Washington, D.C.: February 2001). 

[10] In a 1998 HUD study, tenants in Section 221(d)(3) BMIR units 
without rental assistance had an average household income that was 83 
percent greater than that for tenants in Section 221(d)(3) BMIR units 
with rental assistance. Households in Section 236 units without rental 
assistance had an average household income that was 30 percent greater 
than that for tenants in Section 236 units with rental assistance.

[11] This is based on information in HUD's database for 2,237 of the 
2,328 properties. For the remaining 91 properties (4 percent of the 
total), HUD's database did not indicate the ownership type.

[12] In addition, we examined the properties with mortgage insurance 
that originated from 1959 through 1962. The mortgage maturity dates for 
these properties had passed, but we found that only 8, or 11 percent of 
the 76 properties, had reached mortgage maturity. 

[13] Of the remaining 6 properties, we did not include 2 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 who 
were not required to provide us with information did not respond.

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

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

[16] "Entitlement agencies" refers to agencies in entitlement 
communities that are eligible to receive CDBG funding. These 
communities must meet certain population thresholds and must develop 
their own programs and plans, with priority given to low-and moderate-
income persons.

[17] See www.hud.gov/offices/hsg/mfh/mfdata.cfm. 

[18] Since only insured mortgages are included in this database, direct 
loans under the Section 202 program are not included.

[19] Of the remaining 6 properties, we did not include 2 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 who 
were not required to provide us with information did not respond.

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