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Highlights

What GAO Found

The U.S. Department of Agriculture's Rural Housing Service (RHS) implemented an automated tool to estimate when properties could exit the rural rental housing program, but RHS lacked sufficient controls to ensure the accuracy, completeness, and timeliness of those estimates. In 2016, RHS developed its Multi-Family Housing Property Preservation Tool to replace a manual process of estimating exit dates. RHS data suggest that a smaller number of properties could exit RHS's program in the near term, but between 2028 and 2050, over 90 percent of RHS's properties and units could exit the program (about 13,000 properties with 407,000 units). However, RHS lacked controls that would better ensure the accuracy and completeness of these estimated exit dates, such as the verification of key data input at mortgage origination. In addition, RHS had not established a regular process to update the preservation tool's underlying data due to staff turnover and data system challenges. Without these controls, RHS may lack assurance that is has reliable data for calculating exit dates and initiating preservation efforts.

While RHS has taken actions to address properties with maturing mortgages, such as offering property owners options designed to prevent property exits, about 60 percent of properties with maturing mortgages exited the program between 2014 through 2017. The agency's planning efforts lacked key steps such as (1) establishing preservation goals, (2) developing metrics for evaluating preservation efforts, and (3) analyzing and responding to risks facing its portfolio such as resource limits and growing capital rehabilitation needs. Without taking these actions, RHS is not well positioned to preserve affordable housing in the near term or when much larger numbers of properties and units could exit the program starting in 2028. Although taking the steps above would help RHS's preservation efforts, some tenants may still be at risk of losing rental assistance when mortgages mature. Accordingly, allowing RHS to renew rental assistance after mortgage maturity could protect assisted low-income tenants from increased rents or displacement from their units. When the Department of Housing and Urban Development (HUD) faced a similar loss of affordable housing subsidies, Congress authorized the department in 2011 to continue providing rental assistance at properties after contracts expired.

Estimated Number of Rural Housing Service Properties, by State and Territory

Estimated Number of Rural Housing Service Properties, by State and Territory

Why GAO Did This Study

Under its rural housing program, RHS provides mortgages and rental assistance to support affordable rental units for low-income tenants (see figure). When these mortgages reach the end of their terms (mature), property owners may exit the program; current law does not allow RHS to continue providing rental assistance when such exiting occurs. As a result, tenants in properties with mortgages that are maturing may face rent increases or lose their housing altogether.

GAO was asked to examine how RHS is addressing the risks posed by maturing mortgages. This report examines RHS's efforts to (1) estimate rural housing property exit dates and (2) preserve the affordability of rural rental properties with maturing mortgages. GAO reviewed RHS mortgage loan data and preservation documents, and interviewed RHS officials and industry stakeholders.

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Recommendations

Congress should consider granting RHS authority to continue providing rental assistance to tenants in properties with maturing mortgages. GAO is also making five recommendations, including that RHS improve data quality and take steps to comprehensively plan for preserving properties with maturing mortgages. We provided a draft of this report for review and comment to RHS and HUD. RHS agreed with all five of GAO's recommendations.

Matter for Congressional Consideration

Matter Status Comments
For RHS properties whose mortgages have matured, Congress should consider granting RHS the authority to renew annual rental assistance payments to owners who wish to continue to receive them and provide vouchers to tenants living in rental assistance units in properties whose owners choose to no longer receive rental assistance.
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In September 2019, Sen. Jeanne Shaheen introduced S. 2567 that proposed decoupling Section 521 rental assistance from the Section 515 mortgage, allowing rental assistance to continue after the mortgage is paid in full. The bill also would expand the use of the Section 542 Rural Development Voucher program to include all tenants in properties with loans that had matured, rather than just tenants in properties with prepaid mortgages. Sen. Shaheen's bill was referred to the Senate Committee on Banking, Housing, and Urban Affairs. As of September 2020, no additional action had been taken.

Recommendations for Executive Action

Agency Affected Recommendation Status
Rural Housing Service The RHS Administrator should establish additional controls to check the accuracy of all loan information entered into RHS information technology systems, to help ensure complete, accurate, and reliable data for estimating rural rental housing property exit dates. (Recommendation 1)
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USDA said it would prioritize the development of options for the RHS Information Technology System , including dashboards and other protocols, to provide more analytical assessments and accurate data with respect to mortgage maturity dates and property-level information. It also said it would strengthen its partnership with Rural Development's Information Technology staff and develop more effective communication tools with RHS field personnel to highlight the importance of maintaining reliable data. USDA estimated it would complete these steps by September 30, 2019. However, as of May 2020, USDA officials had not provided us documentation of their efforts.
Rural Housing Service The RHS Administrator should establish a process to help ensure regular and frequent updates for the preservation tool and its underlying data. (Recommendation 2)
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USDA said it would embed quality assurance in the preservation tool to ensure that the underlying data are accurately sourced, maintained, and analyzed. USDA also said it would ensure involvement from RHS National Office staff and RHS field office staff in this process to maximize the resources allocated to ensuring that the tool's data are integral and timely. Finally, USDA said RHS National Office personnel in the Deputy Administrator's office will be assigned quality control responsibility for the accurate maintenance of the tool. USDA estimated it would complete these steps by September 30, 2019. However, as of May 2020, USDA officials had not provided us documentation of their efforts.
Rural Housing Service The RHS Administrator should establish performance goals and measures for its rural rental housing preservation and rehabilitation efforts and report out these outcomes. (Recommendation 3)
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USDA said it would incorporate preservation goals, objectives, and measures into its on-going updates and edits to handbook guidance. As an initial step, on June 4, 2018, the agency incorporated the guidance provided in the Unnumbered Letter titled "Dynamic Servicing Strategies for the Multi-family Housing Direct Loan Portfolio." The revisions also renamed Chapter 6 of the handbook to "Portfolio and Property Assessment." USDA said on-going guidance updates will prioritize preservation as the goal of servicing strategies and require program staff to exhaust all potential remedies to achieve this goal prior to proceeding to terminate assistance or otherwise not preserve the affordable housing property. USDA officials expected these and other steps to be completed by September 30, 2019. However, in May 2020, USDA officials said publication of the guidance had been delayed, and guidance was not expected to issue until early fiscal year 2022.
Rural Housing Service The RHS Administrator should monitor the results of rural rental housing preservation efforts and assess the degree to which those efforts yielded intended outcomes. (Recommendation 4)
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USDA said that in conjunction with its establishment of preservation goals and objectives, it would utilize a performance tracking system and establish management routines to discuss and strategize how to achieve these goals. In November 2019, USDA officials said they had assessed the Section 515 Multi-Family Housing Preservation and Revitalization demonstration program and planned to finalize a plan that would enhance program delivery efficiency and consistency within 8 months (July 2020). However, as of May 2020, USDA officials had not provided documentation showing performance tracking or routine monitoring efforts. The officials said they planned to complete an evaluation of rural housing preservation goals or objectives by the third quarter of fiscal year 2022.
Rural Housing Service The RHS Administrator should identify, analyze, and respond to risks to achieving its preservation goals, including resource and staffing limitations. (Recommendation 5)
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USDA said it would utilize a performance tracking system and establish management routines to discuss and strategize how to achieve its goals. According to USDA, this will include an assessment of challenges and risks that may affect the achievement of performance and preservation objectives. However, as of May 2020, USDA had not provided us documentation of its efforts to identify, analyze and respond to risks to achieving its preservation goals.

Full Report

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