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Highlights

The Loan Management Set-Aside (LMSA) Program is administered by the Department of Housing and Urban Development (HUD) to help maintain the financial viability of multifamily housing projects with cash-flow problems. The program is available to both insured and held projects. GAO reviewed the process used by HUD to allocate LMSA funds in fiscal years (FY) 1983 and 1984 and the basis used by HUD for restricting the use of LMSA funds for held projects.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development 1. The Secretary of Housing and Urban Development should develop specific procedures for identifying and selecting projects to be funded and the procedures should be incorporated into the LMSA handbook and the Code of Federal Regulations (CFR). These procedures should explain to field offices how factors used to identify and select projects to receive LMSA funds (for example, imminent danger of default, number of units requested, and owner contribution) are to be determined, documented, and evaluated.
Closed - Implemented
Prior to the final allocation of FY 85 LMSA funds, HUD did not identify for its field offices the specific selection factors to be used. However, HUD did explain to its field offices how to determine and document a number of factors, some of which were used in the final allocation process. HUD plans to formalize procedural improvements in FY 86.
Department of Housing and Urban Development 2. The Secretary of Housing and Urban Development should develop specific procedures for identifying and selecting projects to be funded and the procedures should be incorporated into the LMSA handbook and CFR. These procedures should instruct the field offices to document clearly for headquarters that: (1) projects' financial problems are traceable to inadequate cash flow; and (2) the infusion of program funds is expected to provide a reasonable assurance of long-term project viability.
Closed - Implemented
For the FY 85 allocation process, HUD issued a memo in December 1984, requiring its field offices to submit the necessary documentation on projects' financial situation. HUD, however, has not incorporated these changes in the LMSA handbook or CFR, but plans to formalize procedural improvements in FY 86.
Department of Housing and Urban Development 3. The Secretary of Housing and Urban Development should develop specific procedures for identifying and selecting projects to be funded and the procedures should be incorporated into the LMSA handbook and CFR. These procedures should state clearly the extent to which tenants' financial situation (measured in terms of rent-to-income ratio) should be: (1) considered by field offices when identifying projects; and (2) documented when submitting funding proposals to headquarters.
Closed - Implemented
For the FY 85 allocation process, HUD issued memos to its field offices regarding the consideration and documentation of tenants' financial situation. HUD, however, has not incorporated these changes in the LMSA handbook or CFR, but plans to formalize procedural improvements in FY 86.
Department of Housing and Urban Development 4. The Secretary of Housing and Urban Development should insert in the LMSA handbook and CFR a methodology to measure and compare the cost-effectiveness of using LMSA on insured versus held projects. The methodology should explain whether, for a well-managed held project, cost-effectiveness should be measured only in the context of minimizing expenditures from the HUD multifamily insurance fund or in the broader context of the overall costs avoided by the government if a held project is likely to go into foreclosure and eventually sold with subsidies to lower income tenants.
Closed - Implemented
HUD: did not develop a methodology to measure cost-effectiveness; elected to focus resources on insured and section 202 projects; and to consider held projects on an exception basis questions addressing extensive effort to differentiating between insured and held projects given the limited funding. It appears unlikely that HUD will insert a methodology in the handbook or CFR.

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