Subsidized Housing:

HUD Oversight of the Villa San Pedro Project

RCED-87-159BR: Published: Aug 20, 1987. Publicly Released: Sep 23, 1987.

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Pursuant to a congressional request, GAO reviewed the Department of Housing and Urban Development's (HUD) oversight of a subsidized low- and moderate-income housing project, focusing on: (1) events related to the project; (2) actions HUD could take to remedy the project's problems; (3) whether HUD acted aggressively and effectively in response to the project's problems; and (4) HUD options for ensuring that the project remains available as low- and moderate-income housing.

GAO found that HUD assisted the project by: (1) insuring its mortgage and allowing it to obtain a low interest rate; (2) subsidizing rental payments for low- and moderate-income project tenants; and (3) providing interest-free loans for repairs and improvements under its Flexible Subsidy Program. GAO also found that: (1) HUD identified a number of problems with the project over 6 years, including deferred maintenance, ineffective management, inadequate financial records, conflicts between the project's board of directors and its sponsoring organization, and condemnation of half of the project's units, with a subsequent tenant lawsuit and rent strike; (2) HUD focused on persuading the project directors to improve management and decided not to take legal action because it was uncertain about the potential legal outcome; (3) HUD refused requests for flexible subsidies until the repair situation at the project became critical; and (4) the project defaulted on its mortgage in 1986, forcing HUD to take over the mortgage from the lender. In addition, GAO found that HUD could either: (1) allow the project's bankruptcy reorganization proceedings to continue, which would force the project owners to sell and would give HUD an opportunity to approve the new owner; or (2) foreclose on the mortgage, which would deny HUD an opportunity to approve the new owner and could allow the current owners to reap a profit.

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