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entitled 'HUD Homeownership Programs: Data Limitations Constrain 
Assessment of the American Dream Downpayment Initiative' which was 
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Report to Congressional Committees: 

June 2006: 

HUD Homeownership Programs: 

Data Limitations Constrain Assessment of the American Dream Downpayment 
Initiative: 

GAO-06-677: 

GAO Highlights: 

Highlights of GAO-06-677, a report to congressional committees. 

Why GAO Did This Study: 

While at an all-time high level, homeownership remains out of reach for 
many Americans, especially low-income families and minorities. In 2003, 
Pub. L. No. 108-186 created the American Dream Downpayment Initiative 
(ADDI) to help low-income, first-time homebuyers cover the up-front 
costs of buying a home (up to the greater of $10,000 or 6 percent of 
the purchase price) and authorized funding through fiscal year 2007. 
The Department of Housing and Urban Development (HUD) allocates ADDI 
funds to over 400 jurisdictions (e.g., states, cities, and counties). 
Pub. L. No. 108-86 directed GAO to perform a state-by-state analysis of 
ADDI’s impact. This report discusses (1) HUD-reported information on 
ADDI expenditures and assisted households, and the limitations on the 
quality of these data and (2) the views of officials from selected 
jurisdictions on factors that affected their ability to use their funds 
and on the program’s impact. 

What GAO Found: 

Based on data collected through its Integrated Disbursement and 
Information System (IDIS), HUD reported that through December 31, 2005, 
jurisdictions had spent $98.5 million of the $211 million appropriated 
for ADDI, helping more than 13,000 families—nearly half of which were 
minorities—become homeowners. At the state level, reported expenditures 
ranged from $0 to $10.3 million, and the number of projects (assisted 
households) ranged from 0 to 985. However, because of data limitations 
in IDIS and HUD’s inconsistent guidance to jurisdictions on data entry, 
these figures include an unknown number of non-ADDI projects that 
provided down-payment assistance to first-time homebuyers. As a result, 
the expenditures and accomplishments attributable to ADDI are not 
known. HUD officials said that it was not feasible to create a control 
for ADDI in IDIS by the time the program began and that to do so now 
would be costly. 

Although most of the 40 jurisdictions GAO contacted have used some 
portion of their ADDI grants, officials from many jurisdictions said 
that the combination of high housing prices and the low incomes of 
eligible families made it challenging to spend their funds. In higher-
cost areas, such as Los Angeles, California, jurisdictions must combine 
numerous subsidies with ADDI funds to bridge the gap between home 
prices and homebuyers’ mortgages. However, in lower-cost areas, such as 
Grand Rapids, Michigan, ADDI alone is sufficient to make up the 
difference (see fig.) Officials from the jurisdictions GAO contacted 
indicated that ADDI has not had a significant impact on local 
homeownership rates because the program has been modestly funded and is 
relatively new. In addition, some jurisdictions reported difficulties 
in serving populations that the program targeted for outreach, such as 
recipients of rental housing assistance. 

Figure: Difference between the Median Purchase Price and Median 
Mortgage for Homes Purchased with ADDI Assistance in Los Angeles, CA 
and Grand Rapids, MI: 

[See PDF for Image] 

[End of Figure] 

What GAO Recommends: 

GAO recommends that, if Congress reauthorizes ADDI beyond fiscal year 
2007, HUD develop and implement controls and issue guidance—seeking 
funds to do so, if necessary—that would ensure that the expenditures 
and accomplishments attributed to ADDI are accurate. HUD did not 
comment on our recommendations but disagreed with the report’s 
assessment of the implications of the agency’s data limitations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-677]. 

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

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

HUD Reported That Participating Jurisdictions Spent About Half of Their 
ADDI Allocations, but These Data Contain an Unknown Number of Non-ADDI 
Projects: 

Many Selected Participating Jurisdictions Cited Challenges in Spending 
ADDI Funds and Viewed the Program's Impact as Limited: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: Summary of Review of Literature on Barriers to 
Homeownership: 

Appendix III: Comparison of Selected Rules Applicable to Fiscal Year 
2003 ADDI Funds to Those for Fiscal Year 2004-2007 Funds: 

Appendix IV: Statistics That HUD Reported for ADDI through December 31, 
2005: 

Appendix V: Profiles of ADDI Programs in Four Jurisdictions: 

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

Appendix VII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Homeownership Rates by Race/Ethnicity and Income Band, 2001: 

Table 2: Comparison of Selected ADDI Rules for Different Fiscal Years: 

Table 3: State-by-State ADDI Expenditures and Accomplishments Reported 
by HUD through December 31, 2005: 

Table 4: Selected Characteristics of ADDI Recipients in the City of Los 
Angeles, as of January 2006: 

Table 5: Selected Characteristics of ADDI Recipients in the City of 
Grand Rapids, as of February 2006: 

Table 6: Selected Characteristics of ADDI Recipients in the State of 
Texas Program, as of February 2006: 

Table 7: Subsidies Available to Homebuyers in the City of Sacramento by 
Income Level or Voucher Program: 

Figures: 

Figure 1: Percentage of National Total of Low-Income Renters and ADDI 
Allocations by State for Fiscal Years 2003-2006: 

Figure 2: HUD-Reported State ADDI Expenditures through December 31, 
2005: 

Figure 3: HUD-Reported Income of Assisted Households, April 2004- 
December 2005: 

Figure 4: Number of Selected Jurisdictions Reporting Misidentified ADDI 
Projects and Total Percentage of Misidentified Projects, as of December 
31, 2005: 

Figure 5: Difference between the Median Purchase Price and Median 
Mortgage for Homes Purchased with ADDI Assistance in Los Angeles, CA, 
and Grand Rapids, MI: 

Figure 6: Jurisdictions with ADDI Allocations of $50,000 or Less, 
Fiscal Years 2003-2006: 

Figure 7: Example of a Homebuyer's Financing Package Incorporating ADDI 
and LAHD Programs: 

Abbreviations: 

ADDI: American Dream Downpayment Initiative: 

CDBG: Community Development Block Grant: 

FHA: Federal Housing Administration: 

HAF: Homebuyer Assistance Fund: 

HAP: Homebuyer Assistance Program: 

HRA: Housing and Redevelopment Agency: 

HOME: HOME Investment Partnerships program: 

HUD: Department of Housing and Urban Development: 

IDIS: Integrated Disbursement and Information System: 

LAHD: Los Angeles Housing Department: 

PSID: Panel Study of Income Dynamics: 

[See PDF for image] 

[End of figure] 

[See PDF for image] 

[End of figure] 

Letter June 30, 2006: 

The Honorable Richard C. Shelby: 
Chairman: 
The Honorable Paul S. Sarbanes: 
Ranking Minority Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

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

Although the national homeownership rate has reached an all-time high 
of 69 percent, homeownership is out of reach for many Americans, 
especially low-income families and minorities. Recognizing that 
homeownership has the potential to help families achieve long-term 
financial stability and revitalize and stabilize communities, the 
federal government has long sought to make ownership more affordable 
for American families. Most recently, Congress in 2003 passed the 
American Dream Downpayment Act (Act), which created the American Dream 
Downpayment Initiative (ADDI) under the Department of Housing and Urban 
Development's (HUD) HOME Investment Partnerships (HOME) program. The 
purpose of ADDI is to help eligible low-income households become 
homeowners by providing funds for a down payment, closing costs, and, 
if necessary, rehabilitation work done in conjunction with a home 
purchase.[Footnote 1] The Act authorized funds for ADDI for fiscal 
years 2004 through 2007.[Footnote 2] 

Like the HOME program as whole, ADDI provides formula-based grants to 
participating jurisdictions (i.e., states, cities, counties, or 
consortiums of cities and counties), which can administer these grants 
on their own, or with or through third parties or subgrantees. However, 
ADDI funds are subject to certain restrictions that do not apply to 
other HOME funds. The jurisdictions may use ADDI grants only for down- 
payment, closing cost, and rehabilitation assistance to low-income, 
first-time homebuyers who are purchasing homes priced within limits 
under HUD's Section 203(b) single-family mortgage insurance program, 
which vary by location. In contrast, jurisdictions may use other HOME 
funds to purchase, construct, or rehabilitate affordable housing for 
rent or ownership by low-income households, or provide down-payment 
assistance or direct rental assistance to low-income households. Unlike 
other HOME funds used for homeownership assistance, the amount of ADDI 
assistance per homebuyer is limited to $10,000 or 6 percent of the 
purchase price, whichever is greater.[Footnote 3] However, 
jurisdictions can combine ADDI assistance with other funding sources 
(including other HOME funds) to assist eligible households. 

HUD maintains information about ADDI projects in a central database. 
More specifically, HUD requires participating jurisdictions to enter 
information for each household (project) they assist into HUD's 
Integrated Disbursement and Information System (IDIS)--which collects 
information on activities funded by a number of grant programs 
(including the HOME program) administered by HUD's Office of Community 
Planning and Development. For example, the jurisdictions enter for each 
project the amount of assistance provided and certain characteristics 
of the assisted households. HUD uses the data in IDIS to monitor 
participating jurisdictions and to generate reports. One of these is 
the ADDI Accomplishment Report, which provides information on ADDI 
program expenditures and reported accomplishments for each 
jurisdiction. In general, HUD considers ADDI funds and other HOME funds 
used for down-payment assistance to be expended when a participating 
jurisdiction disburses funds to an eligible homebuyer and indicates the 
project status as "complete" in IDIS. 

The Act directed GAO to perform a state-by-state analysis of the impact 
of ADDI grants. To do this, we first obtained IDIS data on the amount 
of ADDI funds that HUD allocated to each state's participating 
jurisdictions and the amount they used to assist homebuyers. However, 
we found significant limitations with the quality of these data. 
Accordingly, this report discusses (1) HUD-reported information on ADDI 
expenditures and assisted households from the program's inception 
through December 31, 2005, and the limitations on the quality of these 
data and (2) the views of officials from selected jurisdictions on 
factors that affected their ability to use ADDI funds and on the 
program's impact. 

To address these objectives, we reviewed the laws, regulations, and 
agency guidance relevant to ADDI. We also analyzed the data from HUD's 
ADDI Accomplishment Report and reviewed guidance and other 
documentation for IDIS. We performed limited electronic testing on 
HUD's ADDI data to detect obvious errors and checked the reliability of 
the HUD-reported ADDI expenditure data against information from 33 
selected participating jurisdictions. We visited 13 participating 
jurisdictions--four states, 6 cities, and three consortiums--that we 
selected to cover different geographic regions, housing markets, and 
jurisdiction types. Also, we interviewed officials from a selection of 
27 additional jurisdictions--nine states, 11 cities, three counties, 
and four consortiums--designed to cover the four types of jurisdictions 
and those with relatively high and low funding allocations and 
expenditure levels, according to HUD's data.[Footnote 4] We did not 
generalize the results of our interviews to the entire population of 
jurisdictions that received an ADDI allocation because we contacted 
only a small selection of jurisdictions. Further, the limitations of 
HUD's data did not allow us to draw any conclusions about the program's 
accomplishments. 

Appendix I contains a more detailed description of our scope and 
methodology and a list of the jurisdictions we contacted. We conducted 
our work in Washington, D.C., and Chicago, Illinois, from July 2005 
through June 2006, in accordance with generally accepted government 
auditing standards. 

Results in Brief: 

Based on data in IDIS from participating jurisdictions nationwide, HUD 
reported that through December 31, 2005, the jurisdictions had expended 
$98.5 million of the $211 million appropriated for ADDI and had helped 
more than 13,000 low-income households--nearly half of which were 
minorities--become homeowners. At the state level, reported 
expenditures ranged from $0 (South Dakota) to $10.3 million 
(California), and the number of assisted households ranged from 0 
(South Dakota) to 985 (Ohio). IDIS data also indicated, among other 
things, that about one-third of the assisted households earned less 
than 50 percent of the median income for their areas, and the remaining 
two-thirds earned 50 to 80 percent. However, because of internal 
control weaknesses in HUD's process for designating ADDI projects in 
IDIS, these figures actually include an unknown number of non-ADDI HOME 
projects that provided down-payment assistance to first-time 
homebuyers.[Footnote 5] Specifically, (1) IDIS does not contain a 
discrete control to distinguish ADDI projects from non-ADDI HOME 
projects and (2) HUD did not provide clear and consistent guidance to 
jurisdictions on how to distinguish between the two in IDIS. As a 
result, the expenditures and accomplishments attributable to ADDI are 
not known and the data HUD reports for the program, including the 
characteristics of the assisted households, do not represent 
exclusively ADDI projects. HUD officials said that they did not create 
a discrete ADDI control in IDIS because a reengineering of IDIS was 
nearly complete when the program was enacted, redesigning IDIS would 
have taken several years and would not have been cost-effective given 
ADDI's modest size and limited authorization period, and the first-time 
homebuyers receiving ADDI and other HOME funds are from the same 
population. 

Although most of the jurisdictions we contacted (representing about 9 
percent of all jurisdictions that received an ADDI allocation since the 
program began) have used some portion of their ADDI grants, 
jurisdiction officials cited several factors that affected their 
ability to spend their funds and indicated that the program's impact 
has been limited. For example, officials from many of these 
jurisdictions said that a combination of high housing prices, the low 
incomes of eligible families, and the program's per-household 
assistance limits made it challenging to expend their funds. Officials 
from some of the higher cost selected jurisdictions told us that many 
eligible households often cannot afford to purchase even less expensive 
homes without large amounts of assistance to reduce their mortgage 
loans to affordable levels. In the City of Los Angeles, for instance, 
the difference between the median purchase price (excluding closing 
costs) and the median mortgage amount for homes purchased with ADDI 
assistance was approximately $122,000. To help bridge such large gaps, 
many of the selected jurisdictions have developed homeownership 
programs that provide multiple subsidies, including ADDI funds, to 
eligible homebuyers. Some of these programs are complex, utilizing 
several sources of assistance, and can be time consuming to implement 
because jurisdiction officials need to assess a family's eligibility 
for each subsidy. Though ADDI has helped low-income households become 
homeowners, officials from the large majority of jurisdictions we 
contacted said that the program was too modestly funded and new to have 
had a significant impact on local homeownership rates. In addition, 
officials from several jurisdictions we contacted said that they have 
had difficulties serving certain populations that the program targeted 
for outreach, including recipients of rental housing assistance (due to 
lack of sufficient income to become homeowners, even with down payment 
assistance) and residents of mobile home parks (due to difficulties in 
marketing the program to them). 

To ensure that ADDI expenditures and accomplishments are accurately 
reported, we recommend that if Congress authorizes ADDI beyond fiscal 
year 2007, the Secretary of HUD (1) develop and implement a discrete 
control in IDIS that distinguishes ADDI projects from non-ADDI HOME 
projects, seeking funds to do so if necessary, and (2) issue guidance 
to participating jurisdictions on how to use this control to enter 
consistent data on ADDI projects into IDIS. We obtained comments on a 
draft of this report from HUD. HUD did not comment on our 
recommendations but disagreed with the report's emphasis on data 
limitations and our assessment of the effect of these limitations on 
management and oversight of the program. HUD's comments are discussed 
in the Agency Comments and Our Evaluation section, and its written 
comments appear in appendix VI. 

Background: 

According to numerous studies, the most significant barrier to 
homeownership is having money for a down payment and closing costs. 
Other related studies also have shown that, on average, low-income and 
minority families have lower levels of accumulated wealth (savings) 
than higher-income and nonminority families. (See app. II for a summary 
of studies on barriers to homeownership). This disparity is reflected 
in the gap in homeownership rates between the different populations 
(see table 1).[Footnote 6] 

Table 1: Homeownership Rates by Race/Ethnicity and Income Band, 2001: 

Category Race/ethnicity: White; 
Income band: <50%: 59.2%; 
Income band: 50-79.9%: 68.4%; 
Income band: 80-99.9%: 75.2%; 
Income band: 100-120%: 79.6%; 
Income band: >120%: 88.1%; 
Income band: All households: 74.2%. 

Category Race/ethnicity: Black; 
Income band: <50%: 33.4; 
Income band: 50-79.9%: 51.7; 
Income band: 80-99.9%: 59.4; 
Income band: 100-120%: 63.2; 
Income band: >120%: 76.2; 
Income band: All households: 48.5. 

Category Race/ethnicity: Hispanic; 
Income band: <50%: 28.2; 
Income band: 50-79.9%: 44.4; 
Income band: 80-99.9%: 55.2; 
Income band: 100-120%: 59.0; 
Income band: >120%: 76.9; 
Income band: All households: 46.4. 

Category Race/ethnicity: Asian; 
Income band: <50%: 28.4%; 
Income band: 50-79.9%: 48.1%; 
Income band: 80-99.9%: 51.6%; 
Income band: 100-120%: 63.3%; 
Income band: >120%: 72.3%; 
Income band: All households: 53.2%. 

Sources: HUD and U.S. Census Bureau. 

Note: Income band is the percentage of national median income. 

[End of table] 

Signed into law in December 2003, the American Dream Downpayment Act 
amended the Cranston-Gonzalez National Affordable Housing Act to create 
ADDI, which, according to HUD, aims to increase the homeownership rate, 
especially among lower income and minority households.[Footnote 7] The 
Act authorized up to $200 million annually for fiscal years 2004 
through 2007 for down-payment, closing cost, and limited rehabilitation 
assistance for low-income families--those earning no more than 80 
percent of the median income for their area, adjusted for family size-
-who are first-time homebuyers.[Footnote 8] Prior to the Act, the 
Consolidated Appropriations Resolution of 2003 authorized and 
appropriated $74.5 million in fiscal year 2003 funds specifically for 
down-payment assistance under the HOME program. (As explained in app. 
III, some of the rules for allocating and using fiscal year 2003 ADDI 
funds are significantly different from the rules for funds appropriated 
for subsequent fiscal years). Participating jurisdictions could not 
expend ADDI funds until April 2004, when HUD issued interim regulations 
for the program. 

Down-payment assistance is one of the multiple uses of HOME funds. 
Since the HOME program was created in 1990, total spending on down- 
payment assistance reached nearly $1.6 billion as of January 2006. For 
fiscal years 2001 through 2004, annual commitments for down-payment 
assistance under the HOME program (including ADDI since 2004) were 
relatively steady, averaging $156 million, but grew to nearly $203 
million in fiscal year 2005.[Footnote 9] In creating ADDI, Congress 
effectively set aside a portion of total HOME funding specifically for 
low-income, first-time homebuyers. ADDI appropriations peaked in fiscal 
year 2004 at $87 million, dropping to $49.6 million in fiscal year 2005 
and to $24.8 million in fiscal year 2006. 

Like the rest of the HOME program, ADDI is administered by 
participating jurisdictions, which receive funding allocations from 
HUD. Beginning with the fiscal year 2004 appropriation, HUD has 
allocated ADDI funds to the states based on the percentage of the 
national total of low-income renters residing in each state (as 
explained in app. III, ADDI funds provided in the fiscal year 2003 
appropriation were distributed differently). The aggregate funding 
amounts for fiscal years 2003 through 2006, by state, are shown in 
figure 1. 

Figure 1: Percentage of National Total of Low-Income Renters and ADDI 
Allocations by State for Fiscal Years 2003-2006: 

[See PDF for image] 

[End of figure] 

A similar calculation, using the total numbers of low-income renters 
within each state, determines the amounts participating jurisdictions 
receive. Participating jurisdictions must have a population of at least 
150,000 or otherwise qualify for an allocation of greater than $50,000 
under the ADDI formula to receive program funding. The difference 
between a state's overall allocation and the total amount allocated to 
qualifying cities, counties, and consortiums (as well as any allocation 
a jurisdiction declines) within that state is administered by the 
state. Four hundred forty-five jurisdictions received an ADDI 
allocation in one or more fiscal years from 2003 through 2006. 
Jurisdictions must commit ADDI funds within 2 years of the date HUD 
obligates ADDI allocations and expend those funds within 5 years of 
that date.[Footnote 10] 

As a condition for receiving an ADDI funding allocation, HUD requires 
participating jurisdictions to include ADDI funds in their annual 
consolidated plans, which outline policies for addressing housing needs 
in their areas. Specifically, jurisdictions must describe how they plan 
to use ADDI funds; how they plan to conduct targeted outreach to 
recipients of rental housing assistance (through HUD's public housing 
and Housing Choice Voucher programs, for example) and residents of 
manufactured housing (e.g., mobile homes); and what actions they will 
take to ensure the suitability of families receiving ADDI assistance to 
undertake and maintain homeownership (e.g., through homebuyer 
counseling).[Footnote 11] Jurisdictions typically administer their ADDI 
funds in one of three ways: (1) on their own; (2) in partnership with 
one or more third parties, such as nonprofit organizations or mortgage 
lenders; or (3) through subgrantees who administer the program on their 
behalf. ADDI regulations prohibit the use of ADDI funds for program 
administration costs; however, jurisdictions may use a portion of their 
other HOME funds for this purpose. 

ADDI appropriations for fiscal year 2004 and later provide eligible 
families up to $10,000 or 6 percent of the purchase price of a home, 
whichever is greater, to apply toward a down payment and closing costs 
for the purchase of single-family housing (including one-to four-unit 
family dwellings, condominiums, cooperatives, and manufactured housing 
or a manufactured housing lot) that does not exceed HUD's purchase 
price limits. Except for the fiscal year 2003 appropriation, ADDI funds 
also may be used for rehabilitation in conjunction with the purchase of 
a home. However, a participating jurisdiction's rehabilitation 
assistance may not exceed 20 percent of its annual ADDI allocation. 
Jurisdictions can give ADDI assistance to eligible families in several 
forms, including interest-or noninterest-bearing loans or direct 
grants. Whatever the form of assistance, HUD regulations require that 
assistance be repaid, in full or in part, upon the sale of the home if 
the sale occurs within the "affordability period" (generally 5 to 10 
years, depending on the amount of assistance).[Footnote 12] 
Jurisdictions may combine ADDI funds with other subsidies--such as 
other HOME funds, Community Development Block Grant (CDBG) funds, 
Section 8 homeownership vouchers, or state and local funds--to make 
ownership more affordable for eligible households.[Footnote 13] 

HUD Reported That Participating Jurisdictions Spent About Half of Their 
ADDI Allocations, but These Data Contain an Unknown Number of Non-ADDI 
Projects: 

HUD reported that from the program's inception through December 31, 
2005, participating jurisdictions had expended roughly half of the $211 
million in ADDI appropriations and assisted more than 13,000 low-income 
households--nearly half of which were minorities--with a home 
purchase.[Footnote 14] According to HUD, these data represent projects 
that met the agency's definition of ADDI projects in IDIS. However, 
because of weaknesses in HUD's internal controls for ADDI reporting, 
these data are a mix of ADDI and an unknown number of non-ADDI HOME 
projects; consequently, the expenditures and accomplishments 
attributable to ADDI are not known. More specifically, IDIS does not 
contain a discrete control to distinguish ADDI projects from non-ADDI 
HOME projects, and HUD provided inconsistent guidance to jurisdictions 
on how to distinguish between the two in IDIS. HUD officials said that 
it was not feasible to implement a discrete ADDI control in IDIS by the 
time ADDI began operating and that to do so now would be costly. 

HUD Reported That Jurisdictions Expended About $99 Million through 
December 31, 2005, and That Nearly Half of the Households Were 
Minorities: 

According to HUD's ADDI Accomplishment Report, through December 31, 
2005, jurisdictions had expended $98.5 million of the $211 million 
appropriated for ADDI through fiscal year 2005 and assisted 13,300 
households, 48 percent of which were minorities. At the state level, 
reported expenditures ranged from $0 (South Dakota) to $10.3 million 
(California), and the number of assisted household ranged from 0 (South 
Dakota) to 985 (Ohio). HUD's Accomplishment Report indicated that half 
of the states expended more than $1 million each (see fig. 2). Appendix 
IV provides HUD-reported ADDI expenditures and accomplishments for each 
state. However, as discussed in the next section of this report, the 
ADDI data HUD reported are a mix of ADDI and non-ADDI HOME projects due 
to internal control weaknesses. 

Figure 2: HUD-Reported State ADDI Expenditures through December 31, 
2005: 

[See PDF for image] 

Source: GAO and HUD. 

[A] Includes Puerto Rico, which received funding only for fiscal year 
2003, in the $500,000 to $999,999 range. 

[End of figure] 

HUD collects various data on households assisted through the HOME 
program, including ADDI, through IDIS. These data indicate, among other 
things, that from April 2004 (the month ADDI activity began) through 
December 31, 2005: 

* 32 percent of the households assisted by ADDI were single-parent 
families. 

* 20 percent of the mortgages used to purchase homes with ADDI 
assistance were insured by HUD's Federal Housing Administration (FHA). 

* About one-third of the assisted households earned less than 50 
percent of the median income for their areas, and the remaining two- 
thirds earned 50 to 80 percent (see fig. 3). 

* 76 percent of the assisted households received some form of homebuyer 
counseling. (Jurisdictions are encouraged but not required to provide 
homebuyer counseling for ADDI or other HOME projects).[Footnote 15] 

Through its new Outcome Performance Measurement System, HUD plans to 
collect additional information on households assisted by HOME and the 
other formula grant programs funded by the agency's Office of Community 
Planning and Development. The system, which is scheduled for full 
implementation in fiscal year 2007, will aggregate, at the national and 
local level, information on the outcomes of the projects funded by the 
programs. Among other things, HUD will use the system to collect 
information on the number of HOME-assisted (including ADDI-assisted) 
households that previously received rental housing assistance. 

Figure 3: HUD-Reported Income of Assisted Households, April 2004- 
December 2005: 

[See PDF for image] 

[End of figure] 

Internal Control Weaknesses Allow Non-ADDI HOME Projects to Be Credited 
to ADDI: 

According to HUD officials, the agency initiated a wide-ranging 
redesign of IDIS in 2002 and, as part of these efforts, added new data 
elements (first-time homebuyer and down-payment costs) in anticipation 
of the possibility that Congress would eventually pass a down-payment 
assistance program of some kind. HUD released the redesigned IDIS in 
March 2004, shortly before the implementation of ADDI. According to HUD 
officials, because HUD was unable to anticipate all of the program 
features in the final law, the agency decided to establish rules in 
IDIS that used the new data elements and provided guidance to 
jurisdictions on entering data that were intended to capture 
information on ADDI projects to the extent possible. However, these 
rules are not sufficient to allow HUD to clearly distinguish ADDI 
projects from non-ADDI projects, and HUD's guidance to jurisdictions 
was inconsistent. Accordingly, HUD's internal controls for ADDI 
reporting do not meet GAO's Standards for Internal Control in the 
Federal Government because HUD cannot be certain that the ADDI 
expenditure and accomplishment data it reports are representative of: 

ADDI projects.[Footnote 16] GAO's Standards call for controls that 
would appropriately classify projects so that the collected information 
maintains its relevance, value, and usefulness for controlling 
operations and making decisions. 

No Mechanism to Distinguish ADDI from Non-ADDI HOME Projects: 

According to HUD officials, the agency did not create a control in IDIS 
that would distinguish ADDI from non-ADDI HOME projects for several 
reasons as follows: 

* The most recent IDIS reengineering effort was nearing completion by 
the time ADDI was enacted. 

* It was not feasible to redesign IDIS to separately track ADDI 
projects by the time the ADDI program began operating (HUD estimated 
several years for redesign). 

* ADDI is part of the HOME program, and the first-time homebuyers 
receiving ADDI and other HOME funds are from the same population. 

* To develop and implement such a control would not have been cost- 
effective given ADDI's modest size and the limited period (4 years) for 
which it was authorized.[Footnote 17] 

HUD officials said that, for these reasons, they faced a choice of not 
capturing any data on ADDI or implementing procedures that would 
capture data on projects that met the basic criteria for the program 
(i.e., down-payment assistance to first-time homebuyers) but that also 
included non-ADDI HOME projects. HUD officials stated that they 
recognized the limitations of these procedures but said that, under the 
circumstances, they made the best available choice. The officials said 
that the agency has no plans to update IDIS to include a discrete 
control for ADDI and estimated that to do so would be costly. 

In lieu of creating such a control, HUD established rules in IDIS under 
which the agency credits ADDI with all of a jurisdiction's completed 
HOME projects that provided down-payment assistance to first-time 
homebuyers in amounts within the ADDI per-household limits--up to the 
point at which the jurisdiction's ADDI allocations are 
exhausted.[Footnote 18] After a jurisdiction's ADDI allocations are 
exhausted, HUD credits any remaining project assistance and all 
additional first-time homebuyer projects to other HOME funds. 

In its HOME monitoring handbook, HUD acknowledged that, as a result of 
the IDIS limitation relating to ADDI designations, the agency's ADDI 
data contains a mix of ADDI and non-ADDI HOME projects. Specifically, 
the handbook states that the projects HUD credits to ADDI may not be 
the same projects that jurisdictions intended to use their ADDI funds 
for and classified them as such in their records. Consequently, the 
agency instructed HUD staff who monitor jurisdictions' administration 
of HUD programs to assess for compliance with ADDI requirements only 
those projects that jurisdictions designated as ADDI in their records 
and to assess all other projects for compliance with HOME requirements, 
regardless of whether HUD credited them to ADDI. 

Inconsistent Guidance on Data Entry: 

The guidance HUD provided to jurisdictions for entering ADDI project 
data into IDIS is inconsistent and permits jurisdictions to enter 
inaccurate data. As a result, HUD cannot ensure that the data for all 
HOME projects that jurisdictions enter into IDIS are accurate and 
complete. According to GAO's Standards, agencies should provide clear 
and consistent guidance on data entry to prevent inaccuracies. 

HUD instructed jurisdictions to use the "first-time homebuyer" field 
when entering data in IDIS to distinguish between ADDI and non-ADDI 
HOME projects (entering "yes" to credit ADDI and "no" to credit other 
HOME funds). However, in the same guidance, HUD wrote that 
jurisdictions should enter "yes" in the first-time homebuyer field even 
when they use other HOME funds to assist a first-time homebuyer because 
HUD uses this field to capture accomplishment data on all first-time 
homebuyers whether or not jurisdictions assisted them with ADDI funds. 

The latitude jurisdictions have to enter "no" in the first-time 
homebuyer field in IDIS, even when they in fact are assisting this type 
of homebuyer, reduces HUD's ability to reliably measure first-time 
homebuyer activity under the HOME program. HUD's new Outcome 
Performance Measurement System--which will be integrated into IDIS and 
fully implemented in fiscal year 2007--will include a "direct financial 
assistance to homebuyers" indicator that, among other things, is 
intended to measure the number of first-time homebuyers assisted with 
HOME funds. Because the system will use the first-time homebuyer field 
in IDIS, this indicator may inaccurately reflect the number of first- 
time homebuyers. More specifically, if jurisdictions enter "no" for 
first-time homebuyer projects in order to credit their other HOME funds 
instead of their ADDI funds, the indicator will be artificially low. 
HUD officials said that they could not foresee many circumstances where 
this would occur and that any negative impact on data accuracy will 
probably be minimal; consequently, the agency does not plan to revise 
its guidance to jurisdictions. However, HUD does not have a means of 
determining how often jurisdictions might enter "no" to spend HOME 
funds that would otherwise expire or to avoid crediting projects to 
ADDI that were administered by subgrantees that did not receive ADDI 
funds. 

Extent of Inaccurate Data Is Unknown: 

Although the full extent to which HUD is designating non-ADDI HOME 
projects as ADDI projects is unknown, the jurisdictions we contacted 
identified many examples where this was occurring. We contacted 33 
(about 7.5 percent) of the 445 jurisdictions that received an ADDI 
allocation since the program began to check the reliability of project 
expenditures in HUD's ADDI Accomplishment Report as of December 31, 
2005. We excluded three jurisdictions from our analysis because they 
had unreliable local records or documented IDIS data entry errors. Of 
the remaining 30 jurisdictions, 13 told us that some percentage of 
their projects were, according to their records, non-ADDI HOME projects 
(see fig. 4). The other 17 jurisdictions did not identify any non-ADDI 
HOME projects in HUD's report. In total, the 30 jurisdictions indicated 
that 29 percent of the reported projects were non-ADDI HOME projects. 

Figure 4: Number of Selected Jurisdictions Reporting Misidentified ADDI 
Projects and Total Percentage of Misidentified Projects, as of December 
31, 2005: 

[See PDF for image] 

Note: We excluded three selected jurisdictions from the population of 
the 33 we contacted because of unreliable local records or documented 
IDIS data entry errors. 

[End of figure] 

The City of Baltimore and the State of Pennsylvania provide examples 
where HUD designated non-ADDI projects as ADDI. Specifically: 

* HUD included, as ADDI expenditures and accomplishments, five 
Baltimore projects totaling $25,000 that actually were "settlement 
expense grants" funded through a portion of the city's HOME allocation. 
The city does not fund these grants with its ADDI allocation and has 
internal tracking mechanisms independent from IDIS to differentiate its 
ADDI and settlement expense grant expenditures. HUD credited these 
projects to ADDI because these projects met the agency's IDIS rules for 
crediting ADDI (that is, the city recorded down-payment assistance to a 
first-time homebuyer for the purchase of a home and changed the project 
status to "complete"). 

* In Pennsylvania, 4 out of a potential pool of 75 subgrantees had 
applied for and received a portion of the state's ADDI allocation as of 
January 2006. Although the state's records for these subgrantees showed 
only two ADDI projects with $20,000 in total ADDI expenditures, HUD's 
ADDI Accomplishment Report showed 196 additional ADDI projects, 
totaling $1.6 million. These additional projects reflect the non-ADDI 
HOME activity of subgrantees that did not receive ADDI funds. 

Moreover, officials from 12 of the 33 jurisdictions we contacted told 
us that HUD's ADDI Accomplishment Report, as of December 31, 2005, did 
not include some of these jurisdictions' ADDI projects.[Footnote 19] 
One potential reason for this is that the jurisdictions may not have 
changed the status of their ADDI projects to "complete" in IDIS as of 
that date. However, of the 307 projects the jurisdictions identified as 
ADDI, over half (168 projects) did not appear either in HUD's Open 
Activities Report (which contains information on all HOME projects that 
jurisdictions entered but did not indicate as "complete" in IDIS) or 
the ADDI Accomplishment Report as of February 28, 2006. HUD most likely 
credited these 168 projects to the jurisdictions' other HOME funds. Of 
the remaining projects, 103 were included in the ADDI Accomplishment 
Report, and 36 were in the Open Activities Report.[Footnote 20] 

Many Selected Participating Jurisdictions Cited Challenges in Spending 
ADDI Funds and Viewed the Program's Impact as Limited: 

Although most of the jurisdictions we contacted (representing about 9 
percent of all jurisdictions that received an ADDI allocation since the 
program began) have used some portion of their ADDI grants, 
jurisdiction officials cited several factors that affected their 
ability to spend their funds and indicated that the program's impact 
has been limited. Officials from many of these selected jurisdictions 
told us that high housing prices coupled with the low-incomes of ADDI- 
eligible families have made it difficult to use ADDI funds to assist 
the families. In addition, officials in the jurisdictions we contacted 
generally indicated that ADDI thus far has not had a significant impact 
on homeownership rates in their jurisdictions because the program is 
new and has received modest levels of funding. Finally, several of the 
jurisdictions reported difficulties in assisting certain populations-- 
for example, recipients of rental housing assistance because they lack 
income to become homeowners, even with assistance. 

High Housing Prices Coupled with Low Incomes Have Made It Difficult to 
Assist Eligible Households with ADDI Funds in Many Selected 
Jurisdictions: 

Although most of the 40 participating jurisdictions we contacted have 
been able to use some portion of their ADDI funding to assist eligible 
families in their areas, officials from many of these jurisdictions 
said that a combination of high housing prices, low family incomes, and 
the per-household limit on ADDI assistance have made it challenging. 
For example, according to officials from the City of Los Angeles, as of 
March 2006, the city had spent only about 22 percent of its total ADDI 
allocation for fiscal years 2003 through 2005 due to these factors. 
Officials from a number of higher-cost jurisdictions we contacted-- 
including the cities of Los Angeles and Sacramento, California; 
Boston, Massachusetts; New York, New York; and Washington, D.C.--told 
us that eligible families in their jurisdictions have had difficulties 
finding homes they could afford. For instance, an official from the 
City of Sacramento, California, said that the city receives monthly 
reports of the multiple listing service--the local organizations 
through which real estate brokers share information about properties 
for sale--to identify homes that ADDI-eligible homebuyers could 
purchase. The official said that in February 2006 there were only 45 
single-family homes listed that the jurisdiction considered affordable 
to ADDI- eligible homebuyers, an insignificant number relative to the 
number of low-income homebuyers in Sacramento, according to that 
official. Similarly, an official from the City of Boston noted that the 
number of homes for sale within HUD's purchase price limits was small 
relative to the number of ADDI-eligible households residing in the 
city. 

In addition, officials from some of the higher-cost participating 
jurisdictions with whom we spoke said that because of the large 
disparity between incomes and housing prices, many eligible families 
cannot afford to purchase even these less expensive homes without large 
amounts of assistance to reduce their mortgage loans to affordable 
levels. For example, the median purchase price (excluding closing 
costs) of homes purchased by ADDI-assisted households in Los Angeles 
was $264,000. However, the median mortgage for these households was 
about $142,000, leaving a gap of about $122,000 that needed to be 
filled by a combination of homebuyers' savings and homeownership 
assistance. In contrast, officials in most of the lower-cost 
jurisdictions we spoke with said that the corresponding gaps in their 
areas were smaller than in other areas of the country. For example, in 
Grand Rapids, Michigan, the gap for ADDI-: 

assisted families was about $1,000 (see fig. 5).[Footnote 21] Appendix 
V provides more information about the use of ADDI funds in, and 
challenges faced by, four of the jurisdictions that we contacted. 

Figure 5: Difference between the Median Purchase Price and Median 
Mortgage for Homes Purchased with ADDI Assistance in Los Angeles, CA, 
and Grand Rapids, MI: 

[See PDF for image] 

[End of figure] 

Although officials from most of the jurisdictions with whom we spoke 
said that they combined at least one other subsidy with ADDI funds, 
regardless of the market conditions in their areas, jurisdictions in 
more expensive areas--where the differences between home prices and 
mortgages were substantial--generally used more complicated mechanisms 
to maximize the amount of assistance given to eligible homebuyers. 
Officials from higher-cost jurisdictions we spoke with also said that 
ADDI was not the primary source of down-payment assistance for their 
homebuyer programs and, because of the program's per-household 
assistance limit, was treated more as a supplement to larger funding 
sources, such as other HOME funds. For example, officials of the City 
of Los Angeles said they typically combine more than seven different 
subsidies--including ADDI, other HOME, and state down-payment 
assistance such as CalHome and California Housing Finance Agency loans-
-with other HOME funds constituting the largest of the 
subsidies.[Footnote 22] Some of these programs are complex and can be 
time-consuming to implement because officials need to assess a family's 
eligibility for each subsidy. 

Officials from several other jurisdictions we spoke with in which the 
gap was not substantial said they did not need to combine subsidies to 
make homeownership a reality for the families they assisted. For 
example, officials from the cities of Grand Rapids, Michigan; 
Indianapolis, Indiana; and the State of Texas said that the down- 
payment assistance offered through ADDI generally was sufficient to 
bridge the gap between home prices and the mortgages for which lower- 
income families qualified. 

ADDI Has Not Had a Significant Impact on the Homeownership Rates of 
Selected Participating Jurisdictions Due to Modest Funding Levels and 
the Newness of the Program: 

According to officials in most of the 40 jurisdictions we contacted, 
ADDI's impact has been limited because the program is new and modestly 
funded. Consistent with this view, HUD data indicates that 
approximately 40 percent of the jurisdictions that were allocated ADDI 
funds for fiscal year 2005 received $50,000 or less.[Footnote 23] The 
percentage increased to 67 percent in fiscal year 2006 (see fig. 
6).[Footnote 24] 

Figure 6: Jurisdictions with ADDI Allocations of $50,000 or Less, 
Fiscal Years 2003-2006: 

[See PDF for image] 

[End of figure] 

Statements by and information from officials in the jurisdictions that 
we contacted indicated that, because of modest funding levels for ADDI 
and the newness of the program, ADDI thus far has had no significant 
impact on homeownership rates in those areas. This was particularly 
true for jurisdictions we contacted in higher cost areas where the 
disparity between the incomes of eligible households and housing prices 
was large, and the households thus needed large subsidies. For example, 
the City of Modesto, California, received approximately $36,000 in ADDI 
funds in fiscal year 2005 and about $18,000 in fiscal year 2006. A city 
official said that the typical gap between the purchase price of a home 
and an eligible family's mortgage was about $70,000 and that Modesto's 
total ADDI allocation was not sufficient to assist many, if any, 
eligible families in the area. Relatively small allocations also 
affected lower-cost jurisdictions we contacted. For example, the City 
of Amarillo, Texas, received approximately $35,000 in ADDI funding in 
fiscal year 2005 and approximately $17,000 in fiscal year 2006. With an 
average grant amount of approximately $9,000 per ADDI-assisted 
household, Amarillo likely will serve four households with its fiscal 
year 2005 ADDI allocation and fewer with its fiscal year 2006 
allocation. In addition, several of the officials in the jurisdictions 
we contacted noted that the program is still relatively new and that 
they could not begin spending their funding allocations until April 
2004, after HUD issued interim regulations for ADDI. Some officials 
also stated that, because they needed time to develop local policies 
and procedures to implement the regulations, their ADDI programs were 
not in full operation until some months after this date. For these 
reasons, it may be some time before a sufficient number of households 
are assisted so to have an appreciable impact on homeownership rates, 
particularly at current funding levels. 

HUD officials concurred that ADDI's impact on homeownership rates has 
been limited but also noted that, as a result of ADDI, jurisdictions 
that did not previously use any of their HOME funds for down-payment 
assistance are now doing so. The officials said that, in contrast, some 
jurisdictions that did use a portion their HOME funds for down-payment 
assistance prior to ADDI may now be using their ADDI allocations as a 
substitute for (instead of a supplement to) these funds, thus limiting 
the marginal impact of the program. Officials in a small number of the 
jurisdictions we contacted said that, to varying degrees, they were 
using their ADDI funds in this manner. 

Some Selected Jurisdictions Experienced Problems Assisting Recipients 
of Rental Housing Assistance and Other Populations: 

Officials from a number of the 40 jurisdictions we contacted said that 
they have experienced difficulties in using ADDI to assist certain 
populations, including those that ADDI targeted for outreach-- 
specifically, recipients of rental housing assistance and residents of 
manufactured housing. For example, most of the jurisdictions we 
contacted said that it was particularly hard to provide assistance to 
recipients of rental housing assistance (e.g., Housing Choice Voucher 
households and residents of public housing) because these households 
typically have very-low incomes and insufficient savings to purchase a 
home. For example, as of March 2006, the average income of a public 
housing resident was about $11,000. Even with ADDI or other subsidies, 
such households may be unable to purchase homes because their incomes 
are insufficient to accommodate mortgage payments. 

However, some of the participating jurisdictions we contacted have been 
able to help a limited number of public housing tenants and Housing 
Choice Voucher recipients become homeowners by combining ADDI 
assistance with other programs. For example, the City of Sacramento, 
California, administers HUD programs under which the city rehabilitates 
and sells existing public housing and other subsidized units to current 
residents who are able to afford them. Buyers of these units receive 
ADDI assistance, along with other subsidies, including assistance 
through the Section 8 Homeownership Voucher program. 

Although serving rural areas is not a specific ADDI requirement, 
officials from some participating jurisdictions we spoke with, 
particularly those that are states, told us that they have faced 
difficulties serving rural areas because they lacked existing housing, 
and the costs associated with building new housing were high. For 
example, North Dakota officials told us that the supply of housing in 
rural areas of the state was limited and that market conditions made it 
economically infeasible to build new homes for low-income families. 

However, a few of the state-level jurisdictions we contacted have been 
able to assist families that live in rural areas. For example, Texas 
law requires the state participating jurisdiction to serve areas that 
are not HUD-designated participating jurisdictions (i.e., cities, 
counties, and consortiums that receive ADDI funds directly from 
HUD).[Footnote 25] State officials said that, in practice, the state 
serves mostly rural areas with its ADDI program. Officials added that 
they are able to serve rural areas in the state because the cost of 
housing, including new construction, is relatively low. For example, in 
the City of Temple, Texas, the cost of a typical new single-family home 
ranges from $50,000 to $80,000. 

Finally, officials from some jurisdictions we spoke with cited several 
difficulties in assisting residents of manufactured housing. For 
example, some officials, particularly those from state-level 
jurisdictions we contacted, said that they found it hard to locate all 
of the mobile home parks in their areas, which limited their ability to 
market ADDI to this population. Other officials noted that mobile home 
park residents are often already homeowners and, therefore, do not meet 
the program's eligibility requirements. In addition, officials who had 
tried to conduct outreach to mobile home parks that include residents 
who are not owners said that park owners often discouraged efforts to 
market homeownership programs to their tenants. 

Conclusions: 

Congress established ADDI under the multipurpose HOME program, and 
authorized funding through fiscal year 2007, to provide a dedicated 
stream of funding to help low-income households overcome a principal 
barrier to homeownership--covering the up-front costs of buying a 
property. Obtaining accurate data on ADDI expenditures and the numbers 
and characteristics of assisted households would be an essential first 
step in assessing the program's impact. Although HUD, in anticipation 
of Congress authorizing a down-payment assistance program, changed its 
existing information system--IDIS--to collect such information, the 
agency was unable to anticipate all features of ADDI, and this change 
to IDIS was insufficient to collect information exclusively on ADDI 
projects. Due partly to the program's modest size and limited 
authorization period, HUD decided not to create a discrete control for 
ADDI and instead went forward with procedures for designating ADDI 
projects in IDIS that had recognized limitations. As a result, HUD's 
current procedures for collecting ADDI project information in IDIS 
allow non-ADDI HOME projects to be included in the expenditures and 
accomplishments attributed to the program. It is, therefore, difficult 
to draw any conclusions about what ADDI has accomplished, and Congress 
lacks reliable information on which to base decisions about the 
program's reauthorization. However, because creating new data controls 
for ADDI in IDIS would require an investment of resources, to do so 
would be prudent only if ADDI is authorized beyond fiscal year 2007. 

Even if HUD had more reliable data on ADDI expenditures and projects, 
it might be too early to assess their impact given the relatively short 
amount of time that the program has been operating--about 2 years. 
However, the market conditions and financing constraints described by 
the 40 jurisdictions we contacted (about 9 percent of the jurisdictions 
that received ADDI funds), and the likelihood that these conditions and 
constraints exist in many other areas, suggest that ADDI faces a number 
of challenges that could limit its impact. First, while most of these 
jurisdictions were using their ADDI allocations, the allocations were 
likely too small to assist enough families to significantly increase 
homeownership rates. Second, in jurisdictions where the gap between 
home prices and the mortgages affordable to eligible families is 
greater than the ADDI per-household limits, ADDI will have an impact 
only to the extent that other sources of homeownership assistance are 
available to use in conjunction with ADDI funds, and officials are able 
to effectively use such combinations. Finally, absent concerted efforts 
by jurisdictions to combine different sources of subsidies, the use of 
ADDI as a tool to help recipients of rental housing assistance become 
homeowners may be limited because the very low incomes of this 
population pose a major obstacle to homeownership. Nevertheless, 
consistent with long-standing federal efforts to make homeownership 
more affordable for American families, ADDI ensures that a broad range 
of participating jurisdictions use a portion of their total HOME 
allocations to help low-income families become first-time homeowners. 

Recommendations for Executive Action: 

To ensure that ADDI expenditures and accomplishments are accurately 
reported, we recommend that, if Congress authorizes ADDI beyond fiscal 
year 2007, the Secretary of HUD take the following two actions: 

* develop and implement a discrete control in IDIS that distinguishes 
ADDI projects from non-ADDI HOME projects, seeking funds to do so if 
necessary; 
and: 

* issue guidance to participating jurisdictions on how to use this 
control to enter consistent data on ADDI projects into IDIS. 

Agency Comments and Our Evaluation: 

We provided HUD with a draft of this report for review and comment. HUD 
provided comments in a letter from the General Deputy Assistant 
Secretary for Community Planning and Development (see app. VI). HUD did 
not comment on our recommendations but made several comments about 
other aspects of our draft report. 

First, HUD stated that the title of the draft report was "misleading 
considering the findings and recommendations in the report." 
Specifically, HUD agreed with a statement in the draft report's 
Conclusions section stating that it might be too early to assess the 
impact of ADDI given the relatively short time the program has been in 
operation and believed that the title of the report should have 
captured the essence of this statement. Although this statement was one 
of several points in our conclusion, the more fundamental issue we 
raised--discussed in both the Conclusions section and the body of the 
draft report--was that HUD lacked accurate data on ADDI expenditures 
and accomplishments. Because accurate data are essential for program 
evaluation, as well as program management and oversight, our draft 
report recommended that, if the program is reauthorized, HUD develop 
and implement controls and issue guidance that would ensure that data 
attributed to ADDI are accurate. We continue to believe that the title 
of our report accurately represented this fundamental issue and the 
reasoning behind the report's recommendation. 

Second, HUD said that the cost of changing IDIS to separately capture 
ADDI projects "could not be justified at the time of ADDI's rollout in 
2004 by any reasonable cost/benefit analysis" and that the agency had 
explained this in great detail to GAO officials during the course of 
the review. HUD estimated the cost of such a change to be at least $1 
million. However, HUD did not provide us with a cost/benefit analysis 
or, in fact, any analysis or detailed estimate of costs or benefits 
either during the course of our review or in its comment letter. HUD 
commented further that in a May 2006 meeting, GAO officials had agreed 
that the agency's decision not to invest funds and divert resources to 
create a discrete ADDI control appeared to be justified from HUD's 
perspective. Contrary to HUD's assertion, we did not agree in this 
meeting that HUD's decision was justified. Because HUD provided no 
evidence of any cost/benefit analysis, we are not able to determine 
whether any steps HUD took to assess the costs and benefits of revising 
IDIS were reasonable and thus whether its decision was justified. 
However, our draft report acknowledged the rationale behind HUD's 
decision and indicated that, according to HUD, creating a discrete ADDI 
control would require a significant investment of resources. Finally, 
HUD stated that (1) the agency's reasons for not creating a discrete 
ADDI control needed to be discussed in the beginning of the report to 
provide a clearer understanding of the agency's actions and (2) our 
draft report did not recognize one of these reasons--specifically, that 
the agency did not know whether ADDI would receive funding beyond 2007. 
Our draft report presented HUD's overall view on the feasibility of 
creating a discrete ADDI control in both the Highlights and Results in 
Brief sections at the front of the report. In addition, our draft 
report did cite ADDI's authorization period as one of the agency's 
reasons. However, in response to HUD's comments, we added language to 
both the Highlights and the Results in Brief sections of the final 
report to further explain the agency's rationale. 

Third, HUD stated that it disagreed with the draft report's contention 
that the ADDI expenditures and accomplishments the agency reported are 
not representative of ADDI projects. In support of this statement, HUD 
cited an analysis--using data in IDIS--from which the agency concluded 
that "the population served by ADDI set-aside funds and other HOME 
funds are, for all intents and purposes, one and the same." Because 
HUD's analysis is based on data compiled using the same flawed 
procedures discussed in our report, we do not believe that HUD has 
presented a sound basis for this conclusion. In addition, our draft 
report did not state that HUD's data "are not representative of ADDI 
projects." Rather, it said that due to internal control weaknesses, 
HUD's data include an unknown number of non-ADDI HOME projects and that 
the agency, therefore, cannot be certain of the extent to which the 
data represent ADDI projects. HUD also cited jurisdictions' practice of 
combining ADDI and other HOME funds as evidence that the populations 
served by ADDI and other HOME funds are essentially the same. However, 
this practice merely shows that other HOME funds may be used to assist 
first-time homebuyers and does not demonstrate that all first-time 
homebuyers served by other HOME funds share the same characteristics as 
those served by ADDI. Further, even if both ADDI and non-ADDI HOME 
funds serve similar populations, HUD is responsible for complying with 
federal internal control standards that call for controls to 
appropriately classify projects--in this case projects that are funded 
from programs with different allocation formulas and requirements. 

Fourth, HUD stated that it "rejects the contention that the [ADDI] 
information collected is not relevant, of value, and useful for 
controlling operations and making decisions" and that the agency is 
"using such information operationally to, among other things, 
aggressively track and, as appropriate, take necessary actions toward 
improving the performance of sixty-seven participating jurisdictions 
that have yet to expend any of their ADDI funds." Although our review 
found many instances where HUD's IDIS data overstated and potentially 
understated jurisdictions' ADDI expenditures, our draft report did not 
contend that HUD's data have no value. However, because of the 
limitations, we believe it is unlikely that these data capture the 
total population of jurisdictions that have yet to expend any of their 
ADDI funds. 

Finally, HUD disagreed with statements in our draft report that data 
limitations prevented GAO from assessing ADDI's impact and 
accomplishments and stated that GAO's methodology was not adequate to 
respond to the congressionally mandated study of ADDI. As we stated in 
the draft report, accurate data on ADDI expenditures and 
accomplishments would be an essential first step in assessing the 
program, and HUD lacks accurate data. Collecting such data would have 
required us to contact all 445 jurisdictions that have received ADDI 
funds since the program's inception, as well as any third parties or 
subgrantees that administered these jurisdictions' ADDI programs. We 
determined that such an approach would have been prohibitively 
expensive and an inefficient use of funds, particularly given that it 
would not have produced a supporting information system for future data 
collection. Further, we kept the relevant congressional committees 
apprised of our scope, methodology, and research objectives throughout 
the review, including the limitations in HUD's data that affected our 
work. 

We are sending copies of this report to the Secretary of HUD and other 
interested congressional committees. We also will make copies available 
to others upon request. In addition, the report will be available at no 
charge on the GAO Web site at [Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-8678 or w [Hyperlink, woodd@gao.gov] 
oodd@gao.gov. Contact points for our Office of Congressional Relations 
and Public Affairs may be found on the last page of this report. Key 
contributors to this report are listed in appendix VII. 

Signed by: 

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

[End of section] 

Appendix I: 
Scope and Methodology: 

To obtain information on American Dream Downpayment Initiative (ADDI) 
expenditures and assisted households through December 31, 2005, we 
obtained and analyzed data from the Department of Housing and Urban 
Development's (HUD's) ADDI Accomplishment Report and Open Activities 
Report. To assess the reliability of the data in HUD's ADDI 
Accomplishment Report, which is generated from the agency's Integrated 
Disbursement and Information System (IDIS), we (1) performed limited 
electronic testing of data elements contained in HUD's ADDI 
Accomplishment Report to detect obvious errors; (2) reviewed existing 
information about the data and HUD's rules for crediting ADDI in IDIS; 
(3) interviewed officials from HUD's Office of Community Planning and 
Development about ADDI program requirements, the agency's IDIS 
controls, and guidance to jurisdictions on the procedures for entering 
ADDI project information into IDIS; and (4) performed some checks of 
the HUD-reported ADDI expenditure data against records from a selection 
of 33 jurisdictions--11 states, 13 cities, three counties, and six 
consortiums. We visited 13 of these participating jurisdictions--4 
states, 6 cities, and three consortiums--that we judgmentally selected 
to cover different geographic regions, housing markets, and 
jurisdiction types. We interviewed officials from the 20 remaining 
jurisdictions--7 states, 7 cities, three counties, and three 
consortiums--which was a stratified, random sample designed to cover 
the four types of jurisdictions and those with relatively high and low 
funding allocations and expenditure levels, according to HUD's data as 
of December 31, 2005. 

We also reviewed laws, regulations, and agency guidance relevant to 
ADDI and the HOME Investment Partnerships (HOME) program, as well as 
guidance and documentation for HUD's IDIS. We also consulted GAO's 
Standards for Internal Control in the Federal Government and Internal 
Control Management and Evaluation Tool. We used these standards to 
assess whether HUD's internal controls for ADDI reporting were 
sufficient to ensure that the agency was accurately reporting ADDI 
expenditures and accomplishments. We did not assess the reliability of 
HUD's Open Activities Report or the additional IDIS data that HUD 
provided us on the characteristics of the households the agency 
attributed to ADDI from April 2004 through the end of December 2005. 

We were not able to determine the reliability of the expenditures or 
number of assisted households that HUD reported for the ADDI program as 
of December 31, 2005, because of certain limitations. Specifically: 

* IDIS lacks a discrete control to distinguish ADDI projects from non- 
ADDI HOME projects; 

* HUD's guidance gives jurisdictions latitude to enter inaccurate data 
into IDIS; 

* Data reported by HUD may not capture all ADDI projects; 
and: 

* We contacted a small percentage (7.5 percent) of the 445 
jurisdictions that received an ADDI allocation, since the program 
began, to check the reliability of HUD's ADDI data. 

Nevertheless, in order to provide descriptive information about the 
ADDI program and highlight the problems we identified with IDIS, we 
present the ADDI data as reported by HUD. These were the only data 
available from HUD on the ADDI activities of participating 
jurisdictions nationwide. Due to these limitations, these figures need 
to be interpreted and used cautiously. 

To describe the views of officials from selected jurisdictions on 
factors that affected their ability to use ADDI funds and on the 
program's impact, we obtained information from a total of 40 
jurisdictions (the 33 noted previously plus seven others--two states, 
four cities, and one consortium--that we contacted while we were still 
developing our methodology) through site visits, phone interviews, or 
document requests (see list below).[Footnote 26] Specifically, we 
visited 13 of these jurisdictions and interviewed officials from the 
remaining 27. We asked these officials about their administration of 
ADDI, including outreach activities and the extent to which they used 
third parties or subgrantees; whether they had a down-payment 
assistance program prior to ADDI and any federal, state, and local 
sources of homeownership assistance they use in addition to ADDI; 
the housing market conditions in their jurisdictions; and the 
demographics of the populations they assist. We also asked them about 
their views on ADDI's impact on homeownership rates, the amount of ADDI 
funds they receive relative to demand for the program, and the ADDI per-
household assistance limits. For the 13 jurisdictions we visited, we 
also obtained data and documentation on the different subsidies they 
used to promote homeownership and the characteristics of ADDI-assisted 
households. To supplement the information from the selected 
jurisdictions, we also analyzed nationwide data from HUD on the ADDI 
allocations each jurisdiction received for fiscal years 2003 through 
2006. 

During the course of our work, we contacted the following 40 ADDI 
jurisdictions: 

Cities: 

Amarillo, Texas: 
Austin, Texas: 
Baltimore, Maryland: 
Boston, Massachusetts: 
Chicago, Illinois: 
Grand Rapids, Michigan: 
Indianapolis, Indiana: 
Inglewood, California: 
Los Angeles, California: 
Minneapolis, Minnesota: 
Modesto, California: 
New York City, New York: 
Philadelphia, Pennsylvania: 
Pittsburgh, Pennsylvania: 
Sacramento, California: 
Seattle, Washington: 
Washington, D.C. 

Counties: 

Hamilton County, Ohio: 
Montgomery County, Ohio: 
Will County, Illinois: 

Consortiums: 

Alameda County Consortium, California: 
Barnstable County Consortium, Massachusetts: 
Butler County Consortium, Ohio: 
Cuyahoga County Consortium, Ohio: 
Dakota County Consortium, Minnesota: 
Hennepin County Consortium, Minnesota: 
St. Louis County Consortium, Missouri: 

States: 

California: 
Florida: 
Maryland: 
Massachusetts: 
Michigan: 
Minnesota: 
New Mexico: 
North Dakota: 
Ohio: 
Oklahoma: 
Pennsylvania: 
Texas: 
Washington: 

We did not generalize the results of our interviews to the entire 
population of jurisdictions that received an ADDI allocation because we 
contacted only a small selection of jurisdictions. Further, the 
internal control problems associated with HUD's data did not allow us 
to make any conclusions about the program's accomplishments. 

We performed our work from July 2005 through June 2006, in accordance 
with generally accepted government auditing standards. 

[End of section] 

Appendix II: 
Summary of Review of Literature on Barriers to Homeownership: 

Several academics have identified barriers to homeownership among all 
types of households, evaluated the relative importance and magnitude of 
these barriers, and hypothesized on the extent to which relaxation of 
these barriers (or constraints) could increase homeownership among 
certain populations, as well as the overall homeownership rate. The 
literature we reviewed most commonly cited a lack of wealth (i.e., 
liquid assets for a down payment and closing costs), a lack of income 
(i.e., liquid assets to make monthly mortgage payments and to pay for 
home maintenance and repair), and poor credit as barriers to 
homeownership, with lack of wealth being the most significant, 
especially among minority households.[Footnote 27] 

Englehardt (1994) noted that housing prices affect potential buyers in 
many ways but most significantly through the down-payment 
requirement.[Footnote 28] He found that the higher the house price, the 
greater the amount of the down payment required, and the greater the 
barrier to homeownership. According to Englehardt, intergenerational 
transfers (i.e., the transfer of wealth from parents to their children) 
effectively negate this wealth constraint, allowing households to 
purchase homes sooner than they otherwise would if they had to save for 
the down payment on their own. In a subsequent study, Mayer and 
Englehardt (1996) noted that the percentage of the down payment coming 
from gifts is negatively related to income and wealth and positively 
related to median house price.[Footnote 29] Combined with data showing, 
among other things, that the percentage of the down payment coming from 
gifts is increasing and that the percentage from savings is decreasing, 
the study suggests that some buyers are having an increasingly 
difficult time saving for a down payment. 

Stegman, Quercia, McCarthy, and Rohe found an increasing disparity 
between the growth in income of lower-income families and an increase 
in the operating costs of homes over time.[Footnote 30] Using data from 
the Federal Housing Administration and the U.S. Census Bureau's Annual 
Housing Survey, the authors found that the cost of operating a single- 
family home in the past decade rose at an annual rate of 11.5 percent, 
while household incomes (for all households) grew at an annual rate of 
7.7 percent between 1974 and 1980. Based on this national information, 
they concluded that, on average, families with low incomes in 1974 
could carry a market-rate mortgage of no more than a $43,900 (in 1990 
dollars), meaning that they would have needed capital grants of $10,600 
to buy a house priced at 75 percent of the median price for a given 
area. Very-low income households faced an even larger constraint and 
required deeper subsidies (approximately $39,000). 

Finally, Haurin, Hendershott, and Wachter (1997) found that households 
that are constrained because of low income or wealth have a 
substantially reduced probability of owning a home.[Footnote 31] They 
concluded that the severity of constraints faced by the households will 
not affect the homeownership rate unless an intervention (such as down- 
payment assistance) eliminates the constraint. These findings and those 
of Englehardt; Mayer and Englehardt; and Stegman, Quercia, McCarthy, 
and Rohe are consistent with our finding that, in jurisdictions with 
high housing costs, large subsidies are required to finance the gap 
between homebuyers' mortgage amounts and the high prices of homes. 

Several additional studies highlight the impact of the "wealth 
constraint" on minority households.[Footnote 32] For example, Gyourko, 
Linneman, and Wachter note that among wealth-constrained households 
(i.e., those households with insufficient net worth to meet down 
payment and closing cost requirements), whites own at systematically 
higher rates than minorities, suggesting that minorities not only are 
less likely to own than whites, but that they are also 
disproportionately wealth constrained. The authors found that, in 1983, 
wealth-constrained whites owned homes at roughly double the 10.3 
percent rate of wealth-constrained minorities. 

Finally, several studies suggest that small amounts of down-payment 
assistance or other similar subsidies could substantially increase the 
homeownership rate among low-income and minority households in 
particular.[Footnote 33] However, the findings in these studies 
generally are not based on results from controlled field studies and 
should not be construed as definitive evidence of the impact down- 
payment assistance programs. For example, Listokin, Wyly, Schmitt, and 
Voicu (2001) estimated the portion of renters who would qualify for 
homeownership with mortgages that permit, among other things, low down 
payments. They estimated that 9.2 percent of all renters could afford a 
modestly priced home with a standard mortgage without any down-payment 
assistance, but that the estimated percentage would increase to 16.2 
percent with an asset supplement (i.e., down-payment assistance). 
Comparatively, the authors estimated that the share of black renters 
who could afford a modestly priced home with a standard mortgage was 
2.7 percent. The authors found that the only way to substantially 
increase that percentage would be through an asset supplement; 
they estimated that a $10,000 supplement would increase the percentage 
to 29.8 percent. 

[End of section] 

Appendix III: Comparison of Selected Rules Applicable to Fiscal Year 
2003 ADDI Funds to Those for Fiscal Year 2004-2007 Funds: 

The rules governing the allocation and use of American Dream 
Downpayment Initiative (ADDI) funds for fiscal year 2003 differ 
somewhat from those for fiscal years 2003 through 2007. Table 2 
summarizes the similarities and differences for selected rules. 

Table 2: Comparison of Selected ADDI Rules for Different Fiscal Years: 

Rule: Funding formula; 
Fiscal year 2003 funds: Need[A] for, and prior commitment to, 
assistance to homebuyers; 
Fiscal year 2004-2007 funds: Need[A] by state; 
then, by local participating jurisdiction. Funds only to local 
jurisdictions with populations of more than 150,000 or that qualify for 
an allocation greater than $50,000. 

Rule: Ineligible participating jurisdictions; 
Fiscal year 2003 funds: None; 
Fiscal year 2004-2007 funds: The Commonwealth of Puerto Rico and local 
participating jurisdictions in Puerto Rico. 

Rule: Eligible homebuyers; 
Fiscal year 2003 funds: Low-income, first-time homebuyers. 
Fiscal year 2004-2007 funds: Low-income, first-time homebuyers. 

Rule: Eligible uses of funds; 
Fiscal year 2003 funds: Down-payment assistance; 
Fiscal year 2004-2007 funds: Down-payment assistance and rehabilitation 
done in conjunction with a home purchase. Rehabilitation must be 
completed within 1 year of purchase. 

Rule: Administrative costs; 
Fiscal year 2003 funds: Cannot be used for administrative costs. 
Fiscal year 2004-2007 funds: Cannot be used for administrative costs. 

Rule: Assistance caps; 
Fiscal year 2003 funds: Subject to HOME Investments Partnerships 
program (HOME) maximum per-unit subsidy; 
Fiscal year 2004-2007 funds: The greater of $10,000 or 6 percent of the 
home's purchase price; 
also subject to HOME maximum per-unit subsidy when used in combination 
with HOME funds. 

Rule: Matching requirement[B]; 
Fiscal year 2003 funds: Applies; 
Fiscal year 2004-2007 funds: Does not apply. 

Rule: Uniform Relocation Act requirements[C]; 
Fiscal year 2003 funds: Applies; 
Fiscal year 2004-2007 funds: Does not apply. 

Source: HUD. 

Note: Project "soft-costs" are reasonable and necessary costs incurred 
by the homebuyer or participating jurisdiction associated with the 
financing of single-family housing (inspection fees, for example). 

[A] "Need" is the percentage of low-income households residing in 
rental housing based on census data. 

[B] As participating jurisdictions use HOME funds, they incur a match 
liability--25 cents for each dollar of HOME funds spent--that must be 
satisfied by the end of each federal fiscal year. 

[C] The purpose of the Uniform Relocation Act is to provide uniform, 
fair, and equitable treatment of persons whose real property is 
acquired or who are displaced in connection with federally funded 
projects. Tenants displaced because their dwelling was purchased using 
fiscal year 2003 ADDI funds are eligible for relocation assistance and 
payments. 

[End of table] 

[End of section] 

Appendix IV: Statistics That HUD Reported for ADDI through December 31, 
2005: 

The amount of expenditures, assisted households, and assisted minority 
households reported by the Department of Housing and Urban Development 
(HUD) varied by state (see table 3). According to HUD's data, 

* The amount of American Dream Downpayment Initiative (ADDI) 
expenditures ranged from a low of $0 (South Dakota) to a high of $10.3 
million (California). 

* The number of assisted households ranged from a low of 0 (South 
Dakota) to a high of 985 (Ohio). Texas assisted the most minority 
households (607). 

* Excluding fiscal year 2003 ADDI funds (because they are subject to 
different per-household assistance limits than funds for subsequent 
years), the average and median assistance per household were $6,871 and 
$6,840, respectively. For minority households, the comparable figures 
were $7,123 and $7,000. The amount of assistance provided ranged from 
less than $1,000 to $28,748. 

However, as discussed in the body of this report, these figures, 
including data in the following table, represent a mix of ADDI and an 
unknown number of non-ADDI HOME projects. 

Table 3: State-by-State ADDI Expenditures and Accomplishments Reported 
by HUD through December 31, 2005: 

State: Ala; 
Down-payment assistance: $2,525,806; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $2,525,806; 
Total number of households: 258; 
Number of minority households within total number of households: 101. 

State: Alaska; 
Down-payment assistance: $462,288; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $462,288; 
Total number of households: 43; 
Number of minority households within total number of households: 14. 

State: Ariz; 
Down-payment assistance: $729,421; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $729,421; 
Total number of households: 89; 
Number of minority households within total number of households: 57. 

State: Ark; 
Down-payment assistance: $181,208; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $181,208; 
Total number of households: 30; 
Number of minority households within total number of households: 20. 

State: Calif; 
Down-payment assistance: $10,325,690; 
Rehabilitation assistance: $3,774; 
Total ADDI assistance: $10,325,690; 
Total number of households: 685; 
Number of minority households within total number of households: 469. 

State: Colo; 
Down-payment assistance: $1,345,807; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $1,345,807; 
Total number of households: 243; 
Number of minority households within total number of households: 78. 

State: Conn; 
Down-payment assistance: $821,996; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $821,996; 
Total number of households: 54; 
Number of minority households within total number of households: 40. 

State: D.C; 
Down-payment assistance: $713,779; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $713,779; 
Total number of households: 54; 
Number of minority households within total number of households: 52. 

State: Del; 
Down-payment assistance: $8,050; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $8,050; 
Total number of households: 1; 
Number of minority households within total number of households: 0. 

State: Fla; 
Down-payment assistance: $5,505,023; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $5,505,023; 
Total number of households: 590; 
Number of minority households within total number of households: 355. 

State: Ga; 
Down-payment assistance: $3,754,127; 
Rehabilitation assistance: $4,350; 
Total ADDI assistance: $3,758,477; 
Total number of households: 596; 
Number of minority households within total number of households: 424. 

State: Hawaii; 
Down-payment assistance: $520,612; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $520,612; 
Total number of households: 44; 
Number of minority households within total number of households: 30. 

State: Idaho; 
Down-payment assistance: $647,900; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $647,900; 
Total number of households: 197; 
Number of minority households within total number of households: 24. 

State: Ill; 
Down-payment assistance: $4,327,641; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $4,327,641; 
Total number of households: 447; 
Number of minority households within total number of households: 288. 

State: Ind; 
Down-payment assistance: $2,913,858; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $2,913,858; 
Total number of households: 669; 
Number of minority households within total number of households: 149. 

State: Iowa; 
Down-payment assistance: $102,099; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $102,099; 
Total number of households: 10; 
Number of minority households within total number of households: 8. 

State: Kans; 
Down-payment assistance: $1,750,611; 
Rehabilitation assistance: $19,708; 
Total ADDI assistance: $1,770,319; 
Total number of households: 244; 
Number of minority households within total number of households: 64. 

State: Ky; 
Down-payment assistance: $1,895,810; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $1,895,810; 
Total number of households: 241; 
Number of minority households within total number of households: 75. 

State: La; 
Down-payment assistance: $1,070,606; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $1,070,606; 
Total number of households: 152; 
Number of minority households within total number of households: 120. 

State: Maine; 
Down-payment assistance: $595,544; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $595,544; 
Total number of households: 81; 
Number of minority households within total number of households: 6. 

State: Mass; 
Down-payment assistance: $3,069,062; 
Rehabilitation assistance: $12,731; 
Total ADDI assistance: $3,081,793; 
Total number of households: 467; 
Number of minority households within total number of households: 199. 

State: Md; 
Down-payment assistance: $2,565,254; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $2,565,254; 
Total number of households: 346; 
Number of minority households within total number of households: 242. 

State: Mich; 
Down-payment assistance: $2,972,693; 
Rehabilitation assistance: $10,917; 
Total ADDI assistance: $2,979,171; 
Total number of households: 334; 
Number of minority households within total number of households: 170. 

State: Minn; 
Down-payment assistance: $397,308; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $397,308; 
Total number of households: 55; 
Number of minority households within total number of households: 11. 

State: Miss; 
Down-payment assistance: $534,564; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $534,564; 
Total number of households: 32; 
Number of minority households within total number of households: 17. 

State: Mo; 
Down-payment assistance: $3,385,899; 
Rehabilitation assistance: $2,200; 
Total ADDI assistance: $3,388,099; 
Total number of households: 572; 
Number of minority households within total number of households: 206. 

State: Mont; 
Down-payment assistance: $698,906; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $698,906; 
Total number of households: 63; 
Number of minority households within total number of households: 7. 

State: N.C; 
Down-payment assistance: $4,637,120; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $4,637,120; 
Total number of households: 684; 
Number of minority households within total number of households: 385. 

State: N.Dak; 
Down-payment assistance: $532,353; 
Rehabilitation assistance: $8,852; 
Total ADDI assistance: $541,205; 
Total number of households: 152; 
Number of minority households within total number of households: 5. 

State: N.H; 
Down-payment assistance: $819,865; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $819,865; 
Total number of households: 80; 
Number of minority households within total number of households: 6. 

State: N.J; 
Down-payment assistance: $1,368,659; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $1,368,659; 
Total number of households: 169; 
Number of minority households within total number of households: 123. 

State: N.Mex; 
Down-payment assistance: $753,146; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $753,146; 
Total number of households: 99; 
Number of minority households within total number of households: 68. 

State: N.Y; 
Down-payment assistance: $5,151,769; 
Rehabilitation assistance: $110,351; 
Total ADDI assistance: $5,262,120; 
Total number of households: 697; 
Number of minority households within total number of households: 273. 

State: Nebr; 
Down-payment assistance: $954,591; 
Rehabilitation assistance: $25,495; 
Total ADDI assistance: $980,086; 
Total number of households: 111; 
Number of minority households within total number of households: 11. 

State: Nev; 
Down-payment assistance: $879,620; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $879,620; 
Total number of households: 140; 
Number of minority households within total number of households: 113. 

State: Ohio; 
Down-payment assistance: $5,457,679; 
Rehabilitation assistance: $26,137; 
Total ADDI assistance: $5,483,816; 
Total number of households: 985; 
Number of minority households within total number of households: 399. 

State: Okla; 
Down-payment assistance: $452,666; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $452,666; 
Total number of households: 228; 
Number of minority households within total number of households: 167. 

State: Oreg; 
Down-payment assistance: $312,956; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $312,956; 
Total number of households: 48; 
Number of minority households within total number of households: 7. 

State: Pa; 
Down-payment assistance: $2,733,890; 
Rehabilitation assistance: $10,524; 
Total ADDI assistance: $2,744,414; 
Total number of households: 428; 
Number of minority households within total number of households: 132. 

State: Puerto Rico; 
Down-payment assistance: $716,517; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $716,517; 
Total number of households: 48; 
Number of minority households within total number of households: 48. 

State: R.I; 
Down-payment assistance: $409,944; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $409,944; 
Total number of households: 43; 
Number of minority households within total number of households: 24. 

State: S.C; 
Down-payment assistance: $1,806,087; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $1,806,087; 
Total number of households: 521; 
Number of minority households within total number of households: 228. 

State: S.Dak; 
Down-payment assistance: $0; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $0; 
Total number of households: 0; 
Number of minority households within total number of households: 0. 

State: Tenn; 
Down-payment assistance: $3,330,401; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $3,330,401; 
Total number of households: 453; 
Number of minority households within total number of households: 189. 

State: Tex; 
Down-payment assistance: $5,898,550; 
Rehabilitation assistance: $10,288; 
Total ADDI assistance: $5,908,838; 
Total number of households: 776; 
Number of minority households within total number of households: 607. 

State: Utah; 
Down-payment assistance: $239,619; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $239,619; 
Total number of households: 115; 
Number of minority households within total number of households: 15. 

State: Va; 
Down-payment assistance: $3,530,851; 
Rehabilitation assistance: $13,704; 
Total ADDI assistance: $3,540,055; 
Total number of households: 385; 
Number of minority households within total number of households: 233. 

State: Vt; 
Down-payment assistance: $155,142; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $155,142; 
Total number of households: 8; 
Number of minority households within total number of households: 1. 

State: W.Va; 
Down-payment assistance: $215,958; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $215,958; 
Total number of households: 21; 
Number of minority households within total number of households: 5. 

State: Wash; 
Down-payment assistance: $1,665,382; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $1,665,382; 
Total number of households: 164; 
Number of minority households within total number of households: 35. 

State: Wisc; 
Down-payment assistance: $1,926,957; 
Rehabilitation assistance: $97,365; 
Total ADDI assistance: $2,024,322; 
Total number of households: 313; 
Number of minority households within total number of households: 53. 

State: Wyo; 
Down-payment assistance: $362,915; 
Rehabilitation assistance: $0; 
Total ADDI assistance: $362,915; 
Total number of households: 35; 
Number of minority households within total number of households: 2. 

State: Total; 
Down-payment assistance: $98,134,199; 
Rehabilitation assistance: $356,396; 
Total ADDI assistance: $98,477,882; 
Total number of households: 13,300; 
Number of minority households within total number of households: 6,355. 

Sources: GAO and HUD. 

Note: According to HUD officials and explanatory documents on the 
agency's Web site, down-payment assistance plus rehabilitation 
assistance should equal total ADDI assistance on the above report; 
however, we found that the report contains three cases where 
rehabilitation assistance was excluded from total ADDI assistance. 

[End of table] 

[End of section] 

Appendix V: 
Profiles of ADDI Programs in Four Jurisdictions: 

We contacted 40 participating jurisdictions that were awarded American 
Dream Downpayment Initiative (ADDI) grants in fiscal years 2003 through 
2005. We describe below ADDI programs in 4 of the 40 jurisdictions we 
contacted--Los Angeles, California; Grand Rapids, Michigan; the State 
of Texas; and Sacramento, California. We selected these four 
jurisdictions to illustrate how the program is operating in relatively 
high-cost and low-cost locations and is being used to assist targeted 
or hard-to-reach populations. 

Los Angeles, California: 

According to the National Association of Home Builders/Wells Fargo 
Housing Opportunity Index, Los Angeles was the most expensive city to 
live in the United States in 2005.[Footnote 34] The disparity between 
the annual income of an eligible low-income family--one earning 80 
percent or less of the area median income--and the purchase price of 
homes represents one of the most significant obstacles to homeownership 
for first-time homebuyers in Los Angeles. For example, the median 
purchase price of homes purchased by ADDI-assisted households in Los 
Angeles was $264,000, while the median mortgage amount was about 
$142,000. As a result of this large gap, the Los Angeles Housing 
Department (LAHD) administers a complex homebuyer assistance program, 
in which more than seven subsidies can be combined to assist eligible 
first-time, low-income homebuyers. 

LAHD offers several programs to low-income, first-time homebuyers who 
need assistance to purchase a home in the city. Using HOME Investment 
Partnerships (HOME) program funds, LAHD offers purchase assistance of 
up to $90,000 to eligible homebuyers. LAHD also provides eligible 
homebuyers with ADDI funds--$10,000 or up to 6 percent of the purchase 
price of a home, whichever is greater--to help cover the cost of the 
down payment and closing costs. Both programs offer the assistance as 
30-year, deferred zero-interest loans, which are payable upon the sale 
or transfer of the property. Homebuyers are required to complete at 
least 8 hours of homebuyer education from one of LAHD's approved 
providers to obtain these loans and must contribute a minimum of 3 
percent of the sales price from their own savings toward the down 
payment. Homebuyers may contribute as little as 1 percent toward the 
down payment by attending 12 hours of homebuyer education training. As 
shown below, the LAHD loans are combined with state and other subsidies 
to maximize the benefits of the subsidies and make homeownership in the 
city affordable for eligible families (see fig. 7). 

Figure 7: Example of a Homebuyer's Financing Package Incorporating ADDI 
and LAHD Programs: 

[See PDF for image] 

[End of figure] 

As of January 2006, LAHD had assisted 32 low-income, first-time 
homebuyers with ADDI funds. Of the 32 homebuyers who received ADDI 
funds, all used more than one subsidy, 25 were minorities, and 23 
earned 60 percent or more of the area median income (see table 4). 

Table 4: Selected Characteristics of ADDI Recipients in the City of Los 
Angeles, as of January 2006: 

Range; 
ADDI assistance: $10,920-$25,200; 
Additional public and private assistance: $25,683-$192,319; 
Homebuyer cash contribution: $1,850- $22,400; 
Purchase price: $182,000-$420,000; 
First mortgage amount: $80,700-$256,854. 

Median; 
ADDI assistance: $15,840; 
Additional public and private assistance: $122,788; 
Homebuyer cash contribution: $5,460; 
Purchase price: $264,000; 
First mortgage amount: $141,700. 

Average; 
ADDI assistance: $15,465; 
Additional public and private assistance: $119,850; 
Homebuyer cash contribution: $6,425; 
Purchase price: $257,758; 
First mortgage amount: $146,992. 

Sources: GAO and City of Los Angeles. 

[End of table] 

Grand Rapids, Michigan: 

According to the National Association of Home Builders/Wells Fargo 
Housing Opportunity Index, the City of Grand Rapids was among the 15 
most affordable metropolitan areas to live in the United States in 
2005. According to the city's 2005-2010 Consolidated Housing and 
Community Development Plan, the city's overall homeownership rate in 
2000 was about 60 percent. However, within the areas generally targeted 
for its homebuyer assistance programs, the homeownership rate was less 
than 48 percent. The city's consolidated plan also states that most 
renters with incomes of 51 to 80 percent of the city's area median 
income have the ability to secure housing through the private market. 
However, these households still face two impediments to homeownership: 
(1) down payments and closing costs and (2) the availability of quality 
housing within their price range. 

The Grand Rapids Community Development Department integrated the ADDI 
program into its existing Homebuyer Assistance Fund (HAF) program, 
which is funded with other HOME grants. HAF offers a zero-interest, 
deferred payment loan of up to $5,000 for down-payment and closing cost 
assistance to first-time, low-income homebuyers. These loans are 
forgivable after 5 years. Eligible homebuyers are informed of the HAF 
program through various means, including participating mortgage 
lenders. To be considered for a HAF loan, eligible homebuyers must be 
approved for a mortgage loan from 1 of 15 participating lenders, 
contribute at least 1 percent of the sales price toward the down 
payment, have assets that do not exceed $5,000, and complete a 
homebuyer education course. Of 41 families who received assistance 
through ADDI, as of February 2006, 37 were minorities (see table 5). 

Table 5: Selected Characteristics of ADDI Recipients in the City of 
Grand Rapids, as of February 2006: 

Range; 
ADDI assistance: $3,698-$5,000; 
Income: $16,497-$47,776; 
Homebuyer cash contribution: $500-$2,824; 
Purchase price: $64,900- $110,500; 
First mortgage amount: $63,491-$109,388. 

Median; 
ADDI assistance: $5,000; 
Income: $26,487; 
Homebuyer cash contribution: $999; 
Purchase price: $86,000; 
First mortgage amount: $84,996. 

Average; 
ADDI assistance: $4,846; 
Income: $28,282; 
Homebuyer cash contribution: $1,157; 
Purchase price: $87,177; 
First mortgage amount: $85,737. 

Sources: GAO and City of Grand Rapids. 

[End of Table] 

State of Texas: 

Due to lower incomes (residents of nonmetropolitan areas earn 
approximately $13,000 less annually than residents of metropolitan 
areas) and lack of access to resources (such as bonds, large tax bases, 
and investment capital) in less populous areas, the State of Texas 
gives special programmatic consideration to lower-income individuals 
and households residing in rural areas. For example, Section 
2306.111(c) of the Texas Government Code requires that the state 
participating jurisdiction allocate 95 percent of its HOME (including 
ADDI) funds to areas that are not other HUD-designated participating 
jurisdictions. Combined with its annual ADDI allocation, the state 
dedicated approximately $6.7 million to its Homebuyer Assistance 
Program (HAP) for fiscal year 2006. 

The Texas Department of Housing and Community Affairs administers HAP 
through 20 subgrantees that are selected through a competitive process. 
Families apply for down-payment assistance through these subgrantees. 
Selected families receive 10-year forgivable loans that cannot exceed 
the greater of $10,000 or 6 percent of the purchase price of a home. Of 
the 42 homebuyers who received ADDI funds through HAP, as of February 
2006, 32 were minorities, 24 had mortgages insured by HUD's Federal 
Housing Administration, 21 purchased homes in rural areas, and 8 earned 
less than 60 percent of the area median income. The average amount of 
ADDI assistance per household was approximately $6,500 (see table 6). 

Table 6: Selected Characteristics of ADDI Recipients in the State of 
Texas Program, as of February 2006: 

Range; 
ADDI assistance: $3,100-$10,000; 
Additional public and private assistance: $0-$5,275; 
Homebuyer cash contribution: $0-$19,862; 
Purchase price: $40,900-$163,200; 
First mortgage amount: $25,000- $160,678. 

Median; 
ADDI assistance: $5,200; 
Additional public and private assistance: $0; 
Homebuyer cash contribution: $0; 
Purchase price: $97,450; 
First mortgage amount: $91,397. 

Average; 
ADDI assistance: $6,470; 
Additional public and private assistance: $526; 
Homebuyer cash contribution: $1,025; 
Purchase price: $94,942; 
First mortgage amount: $90,237. 

Sources: GAO and State of Texas. 

[End of table] 

Sacramento, California: 

The Sacramento Housing and Redevelopment Agency (HRA) administers two 
HUD programs through which it targets its homeownership programs, 
including ADDI, to recipients of rental housing assistance (e.g., 
Housing Choice Voucher households and residents of public housing)--the 
Section 5(h) and Section 32 homeownership programs.[Footnote 35] 

* Under the Section 5(h) homeownership program, public housing 
authorities (agencies that administer HUD's federal rental housing 
assistance programs) can sell units and developments that, because of 
their location or other factors, are no longer efficient for the 
housing authority to operate. Residents of these developments are given 
first priority to purchase the units. Housing authorities may use other 
HUD assistance, including ADDI funds, to help finance the purchase and 
sale of these units. 

* Similar to the Section 5(h) program, the Section 32 homeownership 
program permits public housing authorities to make public housing units 
available for purchase by low-income families, including recipients of 
federal rental housing assistance. The program also permits housing 
authorities to give capital funds to public housing residents to 
purchase homes (down-payment and closing cost assistance, subordinate 
financing, or below-market financing) or use capital funds to acquire 
homes that will be sold to low-income families. Housing authorities may 
use other HUD assistance, including ADDI funds, to help finance the 
purchase and sale of these units. 

Under the Sacramento HRA's homebuyer program, eligible homebuyers can 
layer up to four subsidies, depending on their annual income, to use 
toward the purchase of a condominium or single-family home in the City 
or County of Sacramento (see table 7). Total assistance available to a 
family can range up to $40,000. According to an official from the 
Sacramento HRA, about 75 percent of homebuyers obtain one or more 
subsidies. 

Table 7: Subsidies Available to Homebuyers in the City of Sacramento by 
Income Level or Voucher Program: 

Income level: Less than 60 percent of area median income or property 
located in a targeted area; 
Subsidies available: Eligible families may layer up to four of the 
following programs: 
* First- Time Homebuyer program or; 
* Target Area Homebuyer program[A]; 
* ADDI[B]; 
* Mortgage Assistance program or; 
* CalHome Mortgage Assistance program[C]; 
* Mortgage Certificate Credit program[D]. 

Income level: 60 to 80 percent of area median income; 
Subsidies available: Eligible families may layer up to three of the 
programs listed above. 

Income level: Homeownership Voucher program participants; 
[Empty]; 
Subsidies available: Recipients of Section 8 Homeownership Vouchers may 
combine their assistance with the following three programs: 
* First- Time Homebuyer program[A]; 
* ADDI[B]; 
* CalHome Mortgage Assistance program[C]. 

Source: Sacramento HRA. 

Note: HUD's Homeownership Voucher program allows recipients of Housing 
Choice Vouchers to use their monthly subsidies to make payments on a 
mortgage. Assistance is available for 10 to 15 years, depending on the 
terms of the first mortgage. Program participants must be first-time 
homebuyers, have full-time employment, and make a minimum income (based 
on HUD guidelines). 

[A] The First-Time Homebuyer program and Target Area Homebuyer program 
provide homebuyers with down-payment and closing cost assistance (30- 
year deferred payment loan). The maximum amount of assistance available 
under each of the programs is $5,000, and recipients must be first-time 
homebuyers (recipients do not need to be first-time homebuyers in case 
of the Target Area program), low-income (or low or moderate in the case 
of the Target Area program) homebuyers. Both of these programs are 
partly funded by HUD's Community Development Block Grant and HOME 
programs. 

[B] To receive ADDI funds, a homebuyer must meet the criteria set forth 
in the American Dream Downpayment Act. Assistance is in the form of a 
10-year forgivable loan. 

[C] The Mortgage Assistance program and the CalHome Mortgage Assistance 
program offer 30-year deferred payment loans that are used to reduce 
the amount of the purchaser's first mortgage. The amount of assistance 
for which a homebuyer can qualify cannot exceed $20,000 (Mortgage 
Assistance program) or $25,000 (CalHOME). Recipients must be low- 
income, first-time homebuyers, and the assistance can be used to 
purchase a home in eligible areas of the City and County of Sacramento. 

[D] The Mortgage Credit Certificate program reduces the amount of 
federal income tax a recipient pays, making more income available to 
qualify for a mortgage and make monthly mortgage payments. 

[End of table] 

Under its Section 5(h) program, Sacramento HRA is in the process of 
rehabilitating and selling 73 scattered vacant houses and units. As of 
April 2006, 4 families who were recipients of federal rental housing 
assistance and 12 who were not had purchased homes under this program. 
All 16 families received ADDI assistance. In addition, Sacramento HRA 
is currently in the process of implementing a Section 32 program. Under 
this program, the city will rehabilitate and sell 200 existing housing 
units and plans to use ADDI to make these units more affordable to 
potential buyers. 

[End of section] 

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

U.S. Department Of Housing And Urban Development: 
Washington, D.C. 20410-7000: 

Office Of For Community Planning And Development: 

June 7, 2006: 

Mr. David G. Wood: 
Director, Financial Markets and Community Investment Team: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Wood: 

We have reviewed the Government Accountability Office's (GAO) proposed 
report entitled Homeownership: Limitations in HUD's Data Hamper 
Assessment of the American Dream Downpayment Initiative (GAO-06-677). 
Our comments are as follows. 

It is our belief that the title page "HUD Homeownership Programs - Data 
Limitations Constrain Assessment of the American Dream Downpayment 
Initiative" is misleading considering the findings and recommendations 
in the report. In addition, on page 26 of the report GAO states that it 
might be too early to assess the impact of American Dream Downpayment 
Initiative (ADDI) given the relatively short time the program has been 
in operation. We agree with that statement. In our opinion titling the 
report "Too Early to Assess the Impact of the American Dream 
Downpayment Initiative," would more accurately capture the essence. 

As for our data needs, we made a conscious, educated decision to build 
the system we did to control the ADDI funding. The reasons for our 
decision are not stated until mid-way through the main body of the GAO 
report. This information needs to be provided to the reader in the 
beginning of the report, so they will obtain a clearer understanding of 
the actions taken. 

HUD actually began the process of developing a system to control the 
ADDI funding in 2002 when the design of major improvements to the 
Integrated Disbursement and Information System (IDIS) used by HUD to 
report on accomplishments in HOME and three other formula programs were 
initiated. HUD decided to add two data collection elements (i.e., first-
time homebuyer and downpayment/closing costs) in anticipation of the 
possibility that Congress would eventually pass a downpayment 
assistance program of some kind. It was at this time in 2002 that 
Congress first appropriated, and later rescinded, $50 million in 
funding for a downpayment initiative. 

ADDI legislation was finally enacted by Congress and signed by the 
President in December 2003. The changes to the HOME portion of the IDIS 
data system initiated in 2002 were eventually released in March 2004, 
two weeks before publication of the ADDI regulations. The final ADDI 
legislation contained additional provisions that could not have been 
anticipated in 2002 and, as a consequence, were not incorporated into 
the redesigned data collection system. 

HUD has explained in great detail to GAO that the cost (estimated by 
HUD to be $1 million or more) of system changes to capture the ADDI set-
aside within HOME, as a separate activity in IDIS, could not be 
justified at the time of ADDI's rollout in 2004 by any reasonable cost/ 
benefit analysis. Furthermore, any such changes could not have been 
implemented until sometime in FY 2007 at the earliest, even if a 
decision had been taken to do so in 2004. In actuality, our decision 
was well founded. Representatives from GAO agreed in an exit conference 
on May 9, 2006, that the decision not to invest significant funds and 
divert resources to set up a discrete reporting system for ADDI 
appeared to be justified from HUD's perspective. The bases for this 
decision were that: (1) the populations served by ADDI and HOME were 
essentially the same; (2) other modifications to IDIS, including the 
new performance measurement system for HOME, CDBG, HOPWA and ESG, were 
more urgent; and (3) ADDI was only authorized by Congress through FY 
2007. Indeed, GAO states on pages 25 and 26 of its assessment that only 
if ADDI is authorized beyond FY 2007 would it become prudent to invest 
the resources necessary to set up separate reporting for ADDI in IDIS, 

Considering the factors we had to deal with, we believed then and now 
that our decision was the most practical approach to take. This is 
particularly true given the fact that we do not know if there will be 
funding for the ADDI program beyond 2007. This fact is not mentioned in 
the summary on page 14 but should be included there and in the 
executive summary as well. 

GAO was presented with the difficult assignment of preparing a state- 
by-state impact assessment less than two years after American Dream 
Downpayment Initiative (ADDI) funds were first made available and only 
18 months since the majority of grantees received their first 
allocations. Further complicating GAO's work was the fact that the 
subject of the assessment was not a separate and distinct federal 
program. ADDI is a set-aside created by statute within the existing 
HOME Program to fund activities (downpayment assistance and 
rehabilitation) that: (1) were already eligible under HOME; (2) were 
being carried out extensively since 1992; and (3) served the same 
population as HOME. While ADDI was specifically targeted toward 
assisting first-time homebuyers, HOME was serving that subset of 
homebuyers as well. To document the similarities, the following table 
compares downpayment and rehabilitation assistance provided nationally 
to first-time homebuyers through the ADDI set-aside and, separately, 
through other HOME funding since March 2004: 

Table: Comparison of Downpayment and Rehabilitation Assistance Provided 
Nationally to First-time Homebuyers through ADDI set-aside and, 
seperately, through other HOME funding since March 2004:

Number of complete units: 
ADDI Set-aside*: 15,667; 
Other HOME Funds: 16,422. 

Number of Bedrooms: 0; 
ADDI Set-aside*: 0.1%; 
Other HOME Funds: 0.1%. 

Number of Bedrooms: 1; 
ADDI Set-aside*: 2.7%; 
Other HOME Funds: 2.2%. 

Number of Bedrooms: 2; 
ADDI Set-aside*: 23.1%; 
Other HOME Funds: 22.0%. 

Number of Bedrooms: 3; 
ADDI Set-aside*: 65.0%; 
Other HOME Funds: 67.4%. 

Number of Bedrooms: 4; 
ADDI Set-aside*: 8.0%; 
Other HOME Funds: 7.2%. 

Number of Bedrooms: 5; 
ADDI Set-aside*: 0.7%; 
Other HOME Funds: 0.9%. 

Income of Assisted Housheolds: 0-30% of median; 
ADDI Set-aside*: 6.9%; 
Other HOME Funds: 5.3%. 

Income of Assisted Housheolds: 30-50% of median; 
ADDI Set-aside*: 25.6%; 
Other HOME Funds: 24.4%. 

Income of Assisted Housheolds: 50-80% of median; 
ADDI Set-aside*: 67.4%; 
Other HOME Funds: 70.2%. 

Type of Household Assisted: Single/non-Elderly; 
ADDI Set-aside*: 30.4%; 
Other HOME Funds: 29.7%. 

Type of Household Assisted: Elderly; 
ADDI Set-aside*: 2.3%; 
Other HOME Funds: 2.2%. 

Type of Household Assisted: Related/Single Parent; 
ADDI Set-aside*: 32.1%; 
Other HOME Funds: 29.6%. 

Type of Household Assisted: Related/Two Parent; 
ADDI Set-aside*: 27.4%; 
Other HOME Funds: 29.9%. 

Type of Household Assisted: Other; 
ADDI Set-aside*: 7.6%; 
Other HOME Funds: 8.3%. 

Race/Ethnicity: White; 
ADDI Set-aside*: 51.7%; 
Other HOME Funds: 45.5%. 

Race/Ethnicity: Black; 
ADDI Set-aside*: 28.1%; 
Other HOME Funds: 27.1%. 

Race/Ethnicity: Asian; 
ADDI Set-aside*: 1.8%; 
Other HOME Funds: 1.3%. 

Race/Ethnicity: Hispanic; 
ADDI Set-aside*: 15.8%; 
Other HOME Funds: 24.2%. 

Race/Ethnicity: Other; 
ADDI Set-aside*: 2.1%; 
Other HOME Funds: 1.3%. 

Average Assistance Per Unit: 
ADDI Set-aside*: $11,412**; 
Other HOME Funds: $11,239. 

* - 1.4 percent of the HOME appropriation in FY 2006: 

** - Includes other HOME funds expended on ADDI-assisted units: 

[End of table] 

An analysis of these data indicates that the population served by ADDI 
set-aside funds and other HOME funds are, for all intents and purposes, 
one and the same. In fact, as GAO itself concludes, participating 
jurisdictions use HOME and ADDI funds interchangeably, often combining 
ADDI set-aside funds and other HOME funds in the very same project and 
even assisting the very same household. Information provided from 
participating jurisdictions through IDIS indicates that ADDI-set-aside 
funds were used in combination with other HOME funds to assist 3,942 
households, 25 percent of the total ADDI designated units completed 
through April 30, 2006. Consequently, HUD categorically rejects the 
notion put forth by GAO in its report that the information provided by 
HUD for ADDI was fundamentally incorrect or created a barrier that 
would have prevented GAO from having complied with the congressional 
request to show ADDI's impact on states and to draw conclusions about 
ADDI accomplishments. 

Furthermore, given these data, HUD rejects the contention that ADDI 
expenditures and accomplishments as reported are not representative of 
ADDI projects or that the information collected is not relevant, of 
value, and useful for controlling operations and making decisions. 

At the very moment this GAO report is being published, HUD is using 
such information operationally to, among other things, aggressively 
track and, as appropriate, take necessary actions toward improving the 
performance of sixty-seven participating jurisdictions that have yet to 
expend any of their ADDI funds. 

HUD is disappointed that GAO did not present the report requested by 
Congress that would have provided a fuller understanding of the impact 
of ADDI on participating jurisdictions. Instead of being a footnote to 
the state-by-state impact assessment, as would have been appropriate, 
the procedures put in place by HUD to address and to overcome the 
infeasibility of having a separate electronic reporting system for ADDI 
became the report's primary focus. 

GAO acknowledges on page 3 and again on page 32 of its report that, 
questions of data quality aside, the limited nature of its survey made 
it impossible to generalize results to other participating 
jurisdictions not part of the survey. The title of the report itself 
and the emphasis on the data issues throughout only distract attention 
from GAO's failure to develop a methodology and prepare a report that 
could be responsive to Congress' request. 

Your positive consideration of our comments is appreciated. 

Sincerely, 

Signed by: 

Nelson R. Bregon: 
General Deputy Assistant Secretary For Community Planning and 
Development: 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David G. Wood (202) 512-8678: 

Staff Acknowledgments: 

In addition to the individual named above, Steve Westley, Assistant 
Director; Heather T. Atkins; William R. Chatlos; John T. McGrail; Marc 
Molino; Josephine Perez; Barbara Roesmann; Cory Roman; and Sidney H. 
Schwartz also made key contributions to this report. 

(250255): 

FOOTNOTES 

[1] Pub. L. No. 108-186. To be eligible for ADDI funds, households must 
be both low-income and first-time homebuyers, as defined by 42 U.S.C. § 
12704. Eligibility does not indicate that the household is creditworthy 
or capable of obtaining a mortgage with or without ADDI or other 
assistance. 

[2] Prior to the Act, the Consolidated Appropriations Resolution of 
2003 (Pub. L. No. 108-7) authorized and appropriated $74.5 million in 
fiscal year 2003 funds specifically for down-payment assistance under 
an existing program. The fiscal year 2003 funds generally can be used 
for the same purposes as funds authorized by the Act and are considered 
ADDI funds as a practical matter. However, some of the rules governing 
the fiscal year 2003 funds significantly differ from the rules for 
funds appropriated for subsequent fiscal years. 

[3] Projects using other HOME funds are subject to the HOME per-unit 
subsidy limits established under Section 221(d)(3)(ii) of the National 
Housing Act (12 U.S.C. § 17151(d)(3)(ii)). The subsidy limit varies by 
participating jurisdiction, and by property type and size within a 
jurisdiction. For example, the maximum per-unit subsidy for a three- 
bedroom, single-family home in Chicago, Illinois, was approximately 
$175,000 in 2005. In comparison, the maximum amount of assistance that 
ADDI could have provided was $16,500 (6 percent of $275,200, the HUD 
purchase price limit for a single-family home in Chicago). 

[4] While we contacted or visited a total of 40 jurisdictions, we 
excluded 7 of them from our reliability check of HUD's ADDI expenditure 
data because our contacts occurred while we were still developing our 
methodology. 

[5] Throughout this report, we use the term "non-ADDI HOME" to refer to 
HOME projects that provided down-payment assistance to first-time 
homebuyers and did not use ADDI funds. 

[6] The homeownership rate is the number of households that own their 
homes divided by the total number of households. 

[7] 42 U.S.C. § 12821. 

[8] A first-time homebuyer is an individual and his or her spouse who 
has not owned a home during the 3-year period prior to purchase of a 
home with ADDI assistance; 
or a displaced homemaker or single parent who, even if while married, 
owned a home with his or her spouse or resided in a home owned by the 
spouse. 42 U.S.C. § 12704. 

[9] HUD did not have data on annual expenditures specifically for down- 
payment assistance prior to 2004. Commitment means that the 
jurisdiction has executed a legally binding agreement with a state 
recipient, subrecipient, or contractor to use a specific amount of HOME 
funds for a project. 24 C.F.R. 92.2. We obtained the figures on HOME 
expenditures and commitments from "acquisitions" data in HUD's National 
Production Report. According to HUD officials, these data are the only 
consistent measure of HOME down-payment assistance over time. We did 
not assess the reliability of these data. Since March 2004, HUD has 
captured down-payment assistance as a separate field in IDIS. 

[10] Beginning with HUD's fiscal year 2002 appropriation (Pub. L. No. 
107-73), a time limit was imposed on each year's total HOME 
appropriation. Funds that HUD has not obligated (including funds 
deobligated for a jurisdiction's failure to commit or expend them) by 
the required date must be returned to the Department of the Treasury. 
Prior to fiscal year 2002, the appropriations acts permitted HUD to 
recapture, reallocate, and reobligate HOME funds until expended. 

[11] HUD offers rental assistance to low-income renters primarily 
through the public housing and Housing Choice Voucher programs. Under 
each program, HUD makes up the difference between a unit's monthly 
rental cost (or for public housing, the operating cost) and the 
tenant's payment, which is generally equal to 30 percent of the 
tenant's adjusted monthly income. 

[12] 24 C.F.R. 92.254. The affordability period may extend to 15 years 
if a homebuyer receives $40,000 or more in ADDI and other HOME funds. 

[13] The CDBG program is a HUD formula grant program that provides 
communities with resources to address a wide range of community 
development needs. CDBG funds may be used to provide direct 
homeownership assistance, including interest rate subsidies and down- 
payment and closing cost assistance, to low-and moderate-income 
families. The Section 8 Homeownership Voucher program allows eligible 
recipients of Housing Choice Vouchers to use their monthly subsidies to 
make payments on a mortgage. Assistance is available for 10 to 15 
years, depending on the terms of the first mortgage. 

[14] The $211 million in appropriations is the sum of the 
appropriations for fiscal years 2003 ($74.5 million), 2004 ($87 
million), and 2005 ($49.6 million). 

[15] HUD's data on the characteristics of assisted households for this 
period are not directly comparable to the agency's ADDI Accomplishment 
Report because of differences in the number of projects reported. We 
did not check the reliability of the characteristics data; 
however, we found that a small number of these records did not indicate 
household income. HUD does not collect, or require, jurisdictions to 
collect information on the performance of non-FHA-insured mortgages 
used by HOME-assisted households because the agency is not required to 
do so and because of impediments the agency and jurisdictions would 
encounter in collecting these data from private market lenders. 

[16] GAO issued these standards as required by 31 U.S.C. §3512(c). Also 
see GAO, Standards for Internal Control in the Federal Government, GAO/ 
AIMD-00-21.3.1 (Washington, D.C.: November 1999) and GAO, Internal 
Control Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: 
August 2001). 

[17] We did not independently estimate the cost of implementing such a 
control. 

[18] HUD credits each project to one year of ADDI allocation only. If a 
project provides an amount of down-payment assistance that exceeds the 
ADDI per-household limit, HUD credits the assistance to a 
jurisdiction's fiscal year 2003 ADDI allocation first (which is subject 
to the HOME maximum per-unit subsidy). If a project has both down- 
payment and rehabilitation assistance, HUD credits the assistance to a 
jurisdiction's ADDI allocations for fiscal year 2004 and later. 

[19] Eighteen of the selected participating jurisdictions reported no 
missing ADDI projects. We excluded three jurisdictions from the 33 we 
contacted because of unreliable local records or documented IDIS data 
entry errors. 

[20] HOME rules require jurisdictions to enter project completion data 
into IDIS within 120 days of making a final draw of funds for a 
project. 24 C.F.R. 92.502(d)(1). If jurisdictions do not change the 
status of a project in IDIS to "complete" despite the fact that they 
have drawn all the funds for these projects, these projects will not 
appear on the ADDI Accomplishment Report but should appear in the Open 
Activities Report. 

[21] We did not obtain information on closing costs from the 
jurisdictions we contacted. Because we did not include these costs in 
the purchase price of the homes, our analysis may understate the actual 
gaps between median home prices and mortgage amounts but illustrates 
the relative difference between higher-cost and lower-cost locations. 

[22] In November 2002, California voters passed Proposition 46, The 
Housing and Emergency Shelter Trust Fund Act of 2002, which created a 
$2.1 billion dollar bond that funds different down-payment assistance 
programs. Both the CalHOME program and the California Housing Finance 
Agency's down-payment assistance loans are funded, to some extent, 
through Proposition 46 bonds. 

[23] Jurisdictions that receive an ADDI allocation have the ability to 
decline the funds, which then revert to the state in which the 
participating jurisdiction is located. However, HUD's data do not 
reflect allocations that were declined. 

[24] As previously noted, the annual amount Congress has appropriated 
for ADDI has declined since the inception of the program. For example, 
the ADDI appropriation for fiscal year 2006 is about half of the amount 
appropriated for fiscal year 2005. 

[25] Section 2306.111(c) of the Texas Government Code requires that the 
state participating jurisdiction allocate 95 percent of its HOME funds 
(including ADDI) to areas that are not HUD-designated participating 
jurisdictions, meaning that most of the state's HOME/ADDI funding is 
awarded to rural communities. 

[26] Because we were still developing our methodology when we contacted 
the seven jurisdictions, we did not include them in our reliability 
check of HUD's ADDI expenditure data. 

[27] As our report notes, the American Dream Downpayment Assistance 
Initiative was designed to give low-income households money for a down 
payment and closing costs, thus helping to address this primary barrier 
to ownership. 

[28] G. Englehardt, "House Prices and the Decision to Save for 
Downpayments," Journal of Urban Economics, vol. 36 (1994): 209-237. 

[29] C. Mayer and G. Englehardt, "Gifts, Downpayments, and Housing 
Affordability," Journal of Housing Research, vol. 7, no. 1 (1996): 59- 
77. 

[30] M. Stegman, R. Quercia, G. McCarthy, and W. Rohe, "Using the Panel 
Study of Income Dynamics (PSID) to Evaluate the Affordability 
Characteristics of Alternative Mortgage Instruments and Homeownership 
Assistance Programs," Journal of Housing Research, vol. 2, no. 2 
(1991): 161-211. 

[31] D. Haurin, P. Hendershott, and S. Wachter, "Borrowing Constraints 
and the Tenure Choice of Young Households," Journal of Housing 
Research, vol. 8, no. 2 (1997): 137-155. 

[32] See J. Gyourko, P. Linneman, and S. Wachter, "Analyzing the 
Relationships Among Race, Wealth, and Home Ownership in America," 
Journal of Housing Economics, vol. 8 (1999): 63-89 and D. Listokin, E. 
Wyly, B. Schmitt, and I. Voicu, "The Potential and Limitations of 
Mortgage Innovation in Fostering Homeownership in the United States," 
Housing Policy Debate, vol. 12, no. 3 (2001): 465-513. Also see the 
following Department of Housing and Urban Development studies: Z. Di 
and X. Liu, "The Importance of Wealth and Income in the Transition to 
Homeownership." U.S. Department of Housing and Urban Development Office 
of Policy Development and Research, (2005) and C. Herbert, D. Haurin, 
S. Rosenthal, and M. Duda, "Homeownership Gaps Among Low-Income and 
Minority Borrowers and Neighborhood," U.S. Department of Housing and 
Urban Development Office of Policy Development and Research, (2005). 

[33] See Di and Liu (2005); 
C. Herbert and W. Tsen, "The Potential of Downpayment Assistance for 
Increasing Homeownership Among Minority and Low-Income Households," 
U.S. Department of Housing and Urban Development Office of Policy 
Development and Research, (2005); 
and Listokin, Wyly, Schmitt, and Voicu (2001). 

[34] The index ranks metropolitan areas based on their affordability. 
Affordability is calculated based on the share of homes sold in an area 
that would have been affordable to a family earning the median income 
in that area. 

[35] Regulations under 24 C.F.R. Part 906 govern both programs. 

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