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Highlights

Through its Section 232 program, the Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) insures approximately $12.5 billion in mortgages for residential care facilities. In response to a requirement in the 2005 Consolidated Appropriations Conference Report and a congressional request, GAO examined (1) HUD's management of the program, including loan underwriting and monitoring; (2) the extent to which HUD's oversight of insured facilities is coordinated with the states' oversight of quality of care; (3) the financial risks the program poses to HUD's General Insurance/Special Risk Insurance (GI/SRI) Fund; and (4) how HUD estimates the annual credit subsidy cost for the program.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development To ensure that field offices are aware of and implement current requirements and policies for the Section 232 Mortgage Insurance for Residential Care Facilities program, and reduce risk to the GI/SRI Fund, the Secretary of Housing and Urban Development should direct the FHA Commissioner to revise the "Multifamily Asset Management and Project Servicing Handbook" in a timely manner to include monitoring requirements specific to Section 232 properties.
Closed - Not Implemented
According to HUD officials, the Handbook has been revised and is scheduled for internal clearance at HUD by November 1, 2010.
Department of Housing and Urban Development To ensure that field offices are aware of and implement current requirements and policies for the Section 232 Mortgage Insurance for Residential Care Facilities program, and reduce risk to the GI/SRI Fund, the Secretary of Housing and Urban Development should direct the FHA Commissioner to establish a process for systematically sharing loan underwriting and monitoring practices among field offices involved with the Section 232 program.
Closed - Implemented
All production and asset management functions have been transferred to the Office of Health Care Programs (OHCP). The Multifamily Housing program is completing its role in managing Section 232 loans. OHCP underwriters are being trained to utilize a standardized process for Section 232 application processing. Loan underwriting and monitoring are regularly shared in both the development and asset management activities of OHCP through a unified loan commmittee, regular management and staff reports, and conference calls.
Department of Housing and Urban Development To ensure that field offices are aware of and implement current requirements and policies for the Section 232 Mortgage Insurance for Residential Care Facilities program, and reduce risk to the GI/SRI Fund, the Secretary of Housing and Urban Development should direct the FHA Commissioner to assure, as part of the department's strategic human capital management efforts, sufficient levels of staff with appropriate training and expertise for Section 232 loans.
Closed - Not Implemented
According to HUD officials, additional staff are needed to meet current demand levels for Section 232.
Department of Housing and Urban Development To ensure that field offices are aware of and implement current requirements and policies for the Section 232 Mortgage Insurance for Residential Care Facilities program, and reduce risk to the GI/SRI Fund, the Secretary of Housing and Urban Development should direct the FHA Commissioner to incorporate a review of annual inspection reports for insured Section 232 facilities that are subject to federal or state inspections, even in the absence of a revised regulatory agreement.
Closed - Implemented
On August 8, 2016, the Office of Residential Care Facilities (ORCF)informed us that the Centers for Medicare and Medicaid Services (CMS) implemented its Star rating system. This system uses previous surveys of the facilities and a number of other factors to assess quality of care. Facilities are ranked from one to five stars--with five stars being the best. The Office of Healthcare Programs (OHP) provides HUD's Account Executives, who oversee the Asset Management for the Section 232 program, with a monthly report that addresses the star ratings of each of the Section 232 facilities, as well as any of its facilities that are Special Focus Facilities. CMS deems Special Focus Facilities to have the poorest quality of care. HUD's Account Executives must follow up with the facilities' servicing lenders and the operators by going over survey reports. These reports are currently posted on the CMS website. OHP also has a contract to develop another tool that will be used by OHP to analyze quality of care of Section 232 facilities. It will be used to supplement its monitoring under the star rating system. These processes address the concerns reflected in our report related to inspection reports and we closed the recommendation.
Department of Housing and Urban Development To ensure that field offices are aware of and implement current requirements and policies for the Section 232 Mortgage Insurance for Residential Care Facilities program, and reduce risk to the GI/SRI Fund, the Secretary of Housing and Urban Development should direct the FHA Commissioner to complete and implement the revised regulatory agreements in a timely manner.
Closed - Implemented
On August 8, 2016, HUD informed us that the Office of Residential Care Facilities (ORCF) was established in December 2008 as a "virtual team" within the Office of Healthcare Programs--that is, ORCF is organized as an out-stationed program office from Headquarters, rather than by separate Field Offices. As such, the processes and procedures for ORCF became centralized for the entire country. Shortly after its inception, ORCF began to establish its own collection of standard documents for healthcare facilities. These documents (including Healthcare Regulatory Agreements for Borrowers, Operators and Master Tenants) were vetted through the HUD clearance process, and published in the Federal Register for public comments in May 2012, with final OMB approval and publication for use on March 14, 2013. Since that time, ORCF received an initial one-year renewal and then a subsequent three-year renewal of the entire document collection on June 1, 2014. The Healthcare Regulatory Agreements have been in use since that time and are intended to promote compliance with HUD requirements and obligations. Although completion of this work has taken a number of years, these documents, including the regulatory agreements, are responsive to our recommendation. The current agreements will expire in June 2017, and HUD is already beginning the review process to obtain OMB approval for renewal.

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