Multifamily Housing: More Accessible HUD Data Could Help Efforts 
to Preserve Housing for Low-Income Tenants (20-JUL-04,		 
GAO-04-992T).							 
                                                                 
The Department of Housing and Urban Development (HUD) has	 
subsidized the development of about 1.7 million rental units in  
over 23,000 privately owned properties by offering owners	 
favorable long-term mortgage financing, rental assistance	 
payments, or both in exchange for owners' commitment to house	 
lowincome tenants. When owners pay off mortgages--the mortgages  
"mature"--the subsidized financing ends, raising the possibility 
of rent increases. Based on a report issued in January 2004, this
testimony discusses (1) the number and selected characteristics  
of HUD-subsidized rental properties with mortgages scheduled to  
mature in the next 10 years, (2) the potential impact on tenants 
upon mortgage maturity, and (3) the tools and incentives that	 
HUD, the states, and localities offer owners to keep HUD	 
properties affordable upon mortgage maturity.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-992T					        
    ACCNO:   A11043						        
  TITLE:     Multifamily Housing: More Accessible HUD Data Could Help 
Efforts to Preserve Housing for Low-Income Tenants		 
     DATE:   07/20/2004 
  SUBJECT:   Federal aid for housing				 
	     Housing programs					 
	     Low income housing 				 
	     Mortgage loans					 
	     Rent subsidies					 
	     Rental housing					 
	     Rental rates					 
	     Data bases 					 
	     Incentives 					 

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GAO-04-992T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Housing and Community Opportunity, Committee on
Financial Services, House of Representatives

For Release on Delivery

Expected at 10:00 a.m. EDT MULTIFAMILY HOUSING

Tuesday, July 20, 2004

 More Accessible HUD Data Could Help Efforts to Preserve Housing for Low-Income
                                    Tenants

Statement of David G. Wood, Director Financial Markets and Community
Investment

GAO-04-992T 

Highlights of GAO-04-992T, a report to the Committee on Financial
Services, House of Representatives

The Department of Housing and Urban Development (HUD) has subsidized the
development of about 1.7 million rental units in over 23,000 privately
owned properties by offering owners favorable long-term mortgage
financing, rental assistance payments, or both in exchange for owners'
commitment to house lowincome tenants. When owners pay off mortgages-the
mortgages "mature"-the subsidized financing ends, raising the possibility
of rent increases. Based on a report issued in January 2004, this
testimony discusses (1) the number and selected characteristics of
HUD-subsidized rental properties with mortgages scheduled to mature in the
next 10 years, (2) the potential impact on tenants upon mortgage maturity,
and (3) the tools and incentives that HUD, the states, and localities
offer owners to keep HUD properties affordable upon mortgage maturity.

In its report, GAO recommended that HUD solicit the views of state and
local housing agencies to determine what information on HUD-subsidized
properties is needed and the most effective format to convey this
information. HUD concurred with the report's conclusions and
recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-992T.

To view the full product, click on the link above. For more information,
contact David G. Wood at (202) 512-8678 or [email protected].

July 20, 2004

MULTIFAMILY HOUSING

More Accessible HUD Data Could Help Efforts to Preserve Housing for Low-Income
Tenants

Nationwide, the HUD mortgages on 2,328 properties-21 percent of the 11,267
subsidized properties with HUD mortgages-are scheduled to mature in the
next 10 years, but among states this percentage varies significantly: from
7 percent in Alabama, to 53 percent in South Dakota. About threequarters
of these mortgages are scheduled to mature in the last 3 years of the
10-year period. As part of our analysis, we developed a searchable
database available on a CD-ROM, showing property-level data for each of
HUD's subsidized rental properties scheduled to mature in the next 10
years.

Impacts on tenants depend on tenant protections available under program
statutes and regulations, as well as on property owners' decisions about
their properties. No statutory requirement exists to protect tenants from
increases in rent when HUD mortgages mature, absent the existence of
rental assistance contracts or other subsidies. Without tenant protection
requirements, tenants in over 101,000 units that do not receive rental
assistance may have to pay higher rents or move when the HUD mortgages on
these properties mature and rent restrictions are lifted. During the past
10 years, HUD-insured mortgages at 32 properties reached mortgage
maturity, and the majority of these properties are still serving
low-income tenants.

HUD does not offer incentives to owners to keep properties affordable upon
mortgage maturity. While many state and local agencies GAO surveyed
offered incentives to preserve affordable housing, they have not directed
them specifically at properties where HUD mortgages mature. Most of the
agencies do not track HUD mortgage maturity dates for subsidized
properties. In addition, although HUD's Web site contains detailed
propertylevel data, some state and local agencies perceive that the
information is not readily available.

State and Local Agencies' Efforts to Identify and Track Properties that
May Leave HUD Programs

Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to be here today to discuss our report to you
on properties with mortgage financing provided through the Department of
Housing and Urban Development (HUD).1 Since the 1950s, HUD has subsidized
about 1.7 million rental units in over 23,000 privately owned properties
that are generally affordable to low-income tenants-those with incomes 80
percent or less of area median income. HUD supported the development of
affordable housing by offering property owners favorable mortgage
financing, long-term rental assistance contracts, or both in exchange for
owners' commitment to house low-income tenants for at least 20 years and,
in some cases, up to 40 years. However, many of these commitment periods
will be completed in the next 10 years as the HUD mortgages reach their
scheduled maturity dates and long-term rental assistance contracts expire.
These subsidized properties represent a significant source of housing that
is affordable to low-income households.

My statement today, which is based on our January 2004 report, discusses
(1) the numbers and selected characteristics of HUD-subsidized rental
properties that are scheduled to reach mortgage maturity through 2013-
roughly the next 10 years; (2) the potential impact on tenants when
mortgages reach maturity; and (3) the tools and incentives that HUD, the
states, and localities offer owners to keep HUD properties affordable when
mortgages mature. In preparing the report, we analyzed HUD databases to
identify the characteristics of those properties with mortgages that have
already reached maturity as well as those that are scheduled to reach
maturity by December 31, 2013.2 We surveyed 327 state and local housing
and community development agencies to obtain information on what tools and
incentives they use to keep HUD-subsidized properties affordable to
low-income tenants. In addition, we reviewed statutes and regulations and
interviewed HUD officials to identify tenants' protections when mortgages
on subsidized properties mature. We performed our work from January
through November 2003 in accordance with generally accepted government
auditing standards.

1U.S. General Accounting Office, Multifamily Housing: More Accessible HUD
Data Could Help Efforts to Preserve Housing for Low-Income Tenants
GAO-04-20 (Washington D.C.; January 23, 2004).

2To have 10 full years of data, our analysis covered the period from April
15, 2003, through December 31, 2013.

To summarize:

o  	Nationwide, 21 percent or 2,328 of the 11,267 subsidized properties
with HUD mortgages are scheduled to reach mortgage maturity through 2013,
but among states this percentage varies significantly: from 7 percent in
Alabama, to 53 percent in South Dakota. These properties contain 236,650
units. Nearly all of these 2,328 properties were financed under three
specific HUD programs, two of which operated only between 1961 and 1973.
About three-quarters of the mortgages are scheduled to mature in the last
three years of the 10-year period.

o  	Impacts on tenants depend in part on tenant protections available
under program regulations and statutes, as well as on owners' decisions
about their properties. No statutory requirement exists to protect tenants
from increases in rent when HUD mortgages mature, absent the existence of
rental assistance contracts or other subsidies. Without tenant protection
requirements, tenants in over 101,000 units that do not receive rental
assistance may have to pay higher rents or move when the HUD mortgages on
these properties mature and rent restrictions are lifted. Further, owners
are not required to notify tenants when a property's mortgage is about to
mature. In contrast, owners are required to notify tenants up to 1 year in
advance of their intent to prepay mortgages or decline renewal of rental
assistance contracts. Property owners' decisions on whether they continue
to serve low-income tenants after their HUD mortgages mature depend on
many factors, such as neighborhood incomes, the condition of their
properties, and owners' missions. During the past 10 years, HUD-insured
mortgages at 32 properties reached mortgage maturity, and the majority of
these properties are still serving low-income tenants.

o  	HUD does not offer any tool or incentive to keep properties affordable
after HUD mortgages mature, although it does offer incentives to keep
properties affordable under certain other circumstances, such as the
expiration of rental assistance contracts or prepayment of HUD mortgages.
According to officials from the four national housing and community
development organizations we contacted, because few HUD mortgages have
matured to date, their member state and local agencies have not
experienced the need to develop programs to deal with mortgage maturity
specifically. They noted that their member agencies could offer tools and
incentives, such as loans and grants, to keep properties affordable after
mortgage maturity. However, over 50 percent of the state and local
agencies that responded to our survey reported that they have no system in
place to identify and track properties that may leave HUD's

programs, and about three-quarters of them did not track the maturity
dates of HUD mortgages.3

Based on our findings, we recommended that HUD provide more widely
available and useful information for state and local agencies to track
subsidized properties that may leave HUD programs.

Background 	Prior to the early 1970s, the federal government provided
affordable multifamily housing for low-and moderate-income households by
subsidizing the production of either privately owned housing or
government-owned public housing. Under production programs, the subsidy is
tied to the unit (project-based), and tenants benefit from reduced rents
while living in the subsidized unit. HUD's mortgage financing programs
include:

o  	Section 202 Elderly and Disabled Housing Direct Loan, which provided
below-market interest rates on up to 40-year mortgages to developers of
rental housing for low-income elderly and persons with disabilities from
1959 to 1991. Congress changed Section 202 to a grant program in 1990.

o  	Section 221(d)(3) Below-Market Interest Rate (BMIR), which provided
subsidized financing on private 40-year mortgages to developers of rental
housing from 1961 to 1968.

o  	Section 236, which provided monthly subsidies to effectively reduce
interest rates on private 40-year mortgages for rental housing from 1968
to 1973.

o  	Sections 221(d)(3) and 221(d)(4), which insured private mortgages to
developers of rental housing from 1961.

o  	Section 231, which insured private mortgages to developers of rental
housing for the elderly from 1959.

In order to reach lower-income tenants, a portion of the units in many
properties developed under these production programs were further
subsidized by provision of rental assistance, under programs such as Rent
Supplement, Rental Assistance Payments (RAP), and project-based Section 8.

3Additional details on the results of our survey are available on the
Internet at www.gao.gov/cgi-bin/getrpt? GAO-04-211SP.

In the early 1970s, questions about the production programs' effectiveness
led the Congress to explore options for using existing housing to shelter
low-income tenants. The Housing and Community Development Act of 1974
included both approaches-a project-based new construction and substantial
rehabilitation program and a tenant-based rent certificate program for use
in existing housing (currently named the Housing Choice Voucher
program)-all referred to as Section 8 housing.4 Project-based and
tenant-based Section 8 assistance is targeted to tenants with incomes no
greater than 80 percent of area median income, and tenants generally pay
rent equal to 30 percent of adjusted household income. The projectbased
Section 8 program also provides rental assistance to owners of properties
that were not financed with HUD mortgages.

Beginning in the late 1980s, owners of some subsidized properties began to
be eligible to leave HUD programs by prepaying their mortgages or opting
out of their project-based Section 8 rental assistance contracts. Once
these owners removed their properties from HUD programs, they were no
longer obligated to maintain low rents or accept rental assistance
payments. In response, in 1996, Congress created a special type of
voucher, known as an enhanced voucher, to protect tenants from rent
increases in these properties.5

Not all property owners repay mortgages as originally scheduled. For
example, an owner may refinance the mortgage to pay for improvements to
the property. Other owners may experience financial difficulties and
default on their mortgages. From January 1993 through December 2002, HUD
data show that the agency terminated the insurance on 231 mortgages. About
14 percent were due to mortgages that matured; other reasons included
owners' mortgage prepayment (37 percent) and foreclosure (22 percent).

4Funds provided by other federal programs, such as HUD's Community
Development Block Grant and HOME programs, can be used by states and
localities to subsidize housing for low-income tenants. Also, the
Low-Income Housing Tax Credit program provides tax incentives for private
investors to develop housing affordable to low-income tenants.

5Enhanced vouchers differ from regular tenant-based housing vouchers in
that they (1) may provide a greater subsidy (that is, may be used to rent
more expensive units) and (2) give tenants a right to remain in their
units after conversion to market rent.

About One-Fifth of Nationwide, 21 percent of subsidized properties with
HUD mortgages have

mortgages that are scheduled to mature from 2003 through 2013, but the
HUD's Mortgages Are percentage varies significantly by state. Nearly all
of these properties were Scheduled to Mature financed under the Section
236, Section 221(d)(3) BMIR, and Section

221(d)(3) programs.

  through 2013

Scheduled Mortgage Maturities Through 2013 Vary by Year and Program

Of the 11,267 subsidized properties (containing 914,441 units) with HUD
mortgages, 21 percent (2,328 properties containing 236,650 units) have
mortgages that are scheduled to mature from 2003 through 2013. The
remaining 79 percent of these mortgages (on over 8,900 properties) are
scheduled to reach maturity outside of the 10-year period.6 Additionally,
the bulk of these mortgages (about 75 percent) are scheduled to mature in
the latter three years of the 10-year period (see fig. 1). This
concentration in the latter part of the 10-year period is attributable to
the 40-year Section 221(d)(3) BMIR and Section 236 mortgages that HUD
helped finance in the late 1960s and 1970s, respectively.

Figure 1: HUD Mortgages Scheduled to Mature Annually through 2013

6Most of these mortgages were financed under the Section 202, Section
221(d)(4), and Section 236 programs.

As table 1 shows, about 57 percent of the properties with mortgages
scheduled to mature in the 10-year period were financed under Section 236,
22 percent under Section 221(d)(3) BMIR, and 19 percent under Section
221(d)(3). Section 202, Section 221(d)(4), and Section 231 accounted for
only 3 percent of these properties.

Table 1. Subsidized Properties with HUD Mortgages by Program Scheduled to
Mature through 2013

Number of Percentage of Units assisted with Financing program properties
properties Total units project-based Section 8a

               HUD subsidized mortgage HUD unsubsidized mortgage

           Section 236             1,333      57%      139,769         78,139 
             Insured               1,333      57%      139,769         78,139 
           Noninsuredb               0         0%         0       
      Section 221(d)(3) BMIR        502       22%       56,573         18,810 
           Section 202              41         2%       3,208     

                    Section 221(d)(3) 431 19% 35,263 34,711

c

                        Section 221(d)(4) 14 1,239 1,146

c

Section 231 7 598

d d d d

Noninsured rent supplement

                        Total 2,328 100% 236,650 134,087

Source: GAO analysis of HUD data.

aAlso included are units that receive RAP or Rent Supplement.
Project-based Section 8, however, is the dominant form of rental
assistance across all financing programs. The Section 8 Moderate
Rehabilitation program is not included in this table because HUD's
multifamily database does not track this program.

bNo mortgage was scheduled to mature in this period.

cLess than 1 percent.

dSince properties with noninsured rent supplement do not carry a HUD
mortgage, HUD does not track mortgage-level data on these properties.

Number of Mortgages The number of mortgages scheduled to mature through
2013 varies greatly Scheduled to Mature by by state (see fig. 2). Although
the average is 46 mortgages per state 2013 Also Varies by State (including
the District of Columbia), the number ranges from a high of 273

               maturing mortgages in California to 3 in Vermont.

Figure 2: Subsidized Properties with HUD Mortgages Scheduled to Mature
through 2013, by State

Note: The figure above includes 2,311 of the 2,328 properties in our
analysis-excluded are properties in territories of the United States, such
as Puerto Rico and Guam.

The states also vary considerably in terms of the percentage of their
respective HUD mortgages on subsidized properties that are scheduled to
mature through 2013, ranging from 7 percent in Alabama to 53 percent in
South Dakota.

Tenant Impacts Over the next 10 years, low-income tenants in over 101,000
units may have

to pay higher rents or move when HUD-subsidized mortgages reach Depend on
maturity. This is because no statutory requirement exists to protect
Protections and tenants from increases in rent when HUD mortgages mature
and rent

restrictions are lifted. A number of factors may affect owners' decisions
Property Owners' regarding the continued affordability of their properties
after mortgages Decisions mature, including neighborhood incomes, physical
condition of the

property, and owners' missions.

HUD Does Not Offer Protection for Unassisted Tenants in Properties with
Maturing Mortgages

There is no statutory authority that requires HUD to offer tenants special
protections, such as enhanced vouchers, when a HUD mortgage matures.
However, tenants who receive rental assistance in properties with maturing
mortgages would be eligible for enhanced vouchers under rental assistance
programs, such as project-based Section 8.

Of the 2,328 subsidized properties with mortgages scheduled to mature
through 2013, 480-containing 45,011 units-do not have rental assistance
contracts (see table 2). While the remaining 1,848 properties are
subsidized with rental assistance, not all units within the properties are
covered. According to HUD data, about 30 percent of the units in these
properties are not covered-a total of 57,552 units with tenants who do not
receive rental assistance. Altogether, the tenants in a total of 102,563
units are not protected under the rental assistance programs. Of these,
101,730 units-most of them in properties with mortgages under the Section
221(d)(3) BMIR and Section 236 programs-could face higher rents after
mortgage maturity when the rent restrictions under these programs are
lifted.

Table 2. Subsidized Properties with HUD Mortgages Scheduled to Mature
through 2013, by Rental Assistance Program

                Number of properties Rental assistance programa

Project-based Rent Financing program None Section 8 Supplement Otherb
Total

               HUD subsidized mortgage HUD unsubsidized mortgage

                    Section 236      166   1,123         40   4         1,333 
                        Insured      166   1,123         40   4         1,333 
                    Noninsuredc    0              0       0   0    
              Section 221(d)(3)                                    
                           BMIR      294    206           2   0           502 
                    Section 202    20             4       5   2    

             Section 221(d)(3)    0        403          27    0           431 
             Section 221(d)(4)    0             14       0    0     
                   Section 231    0              6       1    0     
               Noninsured rent                                      
                    supplement    d              d       d        d         d 
                         Total   480      1,766         76    6         2,328 
              Percent of total      21%    76%          3%   <1%         100% 

Source: GAO analysis of HUD data.

Note: Percentages may not add due to rounding.

aThe Section 8 Moderate Rehabilitation program is not included in this
table because HUD's multifamily database does not track this program.

bIncludes contracts for service coordinators.

cNo mortgage was scheduled to mature in this period.

dSince properties with noninsured rent supplement do not carry a HUD
mortgage, HUD does not track mortgage-level data on these properties.

According to a HUD study, tenants in properties with mortgages under the
Section 221(d)(3) BMIR and Section 236 programs have an average household
income somewhat greater than that for tenants who receive rental
assistance; thus, they may be somewhat more able to afford higher rents.
Properties financed under the Section 221(d)(3) BMIR program allow tenants
with incomes of up to 95 percent of area median income; in comparison,
project-based Section 8 does not serve tenants earning more than 80
percent of area median income.

Tenants in units covered by a rental assistance program-there are about
134,087 such units in the properties with HUD mortgages scheduled to
mature through 2013-will continue to benefit from affordable rents,
regardless of when the mortgage matures, as long as the rental assistance
contract is in force. When long-term rental assistance contracts expire,
HUD may renew them. Currently, HUD generally renews expiring longterm
contracts on an annual basis but may go as long as 5 years, and in some
cases, 20 years. According to HUD, during the late 1990s, about 90 percent
of the property owners renewed their contracts, thereby continuing to
provide affordable housing. The extent to which the trend continues will
depend on the availability of program funding and housing market
conditions. If a rental assistance contract expires prior to mortgage
maturity and the owner opts not to renew it, assisted tenants would be
eligible for enhanced vouchers.

Tenants could potentially be affected by the length of time given to them
to adjust to rent increases as well as by the amount of the increase.
Property owners are not required to notify tenants when they pay off their
mortgage at mortgage maturity. In contrast, property owners electing to
opt out of the Section 8 project-based program must notify tenants 1 year
in advance of the contract expiration. Owners electing to prepay their
mortgages under the Section 236 or Section 221(d)(3) BMIR programs must
notify tenants at least 150, but not more than 270, days prior to
prepayment.

A Number of Factors Influence An Owner's Decision to Keep a Property
Affordable Upon Mortgage Maturity

Many factors could influence an owner's decision to keep a property in the
affordable inventory or convert to market rate rents upon mortgage
maturity. For a profit-motivated owner, the decision may be influenced by
the condition of the property and the income levels in the surrounding
neighborhood. If the property can be upgraded at a reasonable cost, it may
be more profitable to turn the building into condominiums or rental units
for higher income tenants. If repair costs are substantial or if
high-income residents are not present in the surrounding area, it may be
more profitable to leave the property in the affordable inventory. Tools
and incentives offered by state and local agencies may also influence this
decision. In addition, because most of these owners have had the right to
prepay their mortgages and opt out of their Section 8 contracts for a
number of years, the economic factors that drive a decision to convert to
market rate are not unique to mortgage maturity.

HUD data show that nonprofit organizations own about 38 percent of the
properties with mortgages scheduled to mature in the next 10 years. For a

nonprofit owner, the decision would likely be motivated by cash flow
considerations since, in theory, these owners are not primarily motivated
by economic returns. Since mortgage maturity results in an improvement in
property cash flow, reaching mortgage maturity by itself would not
necessarily trigger removal from the affordable inventory. For example,
the property manager at one of the 16 properties (nonprofit ownership)
whose mortgage matured in the past 10 years and who does not currently
have project-based Section 8 assistance told us that no longer having to
pay the mortgage left money for repairs needed to keep the units
affordable for their low-income senior tenants. Additionally, a nonprofit
organization would be more likely to keep the property affordable to
lowincome tenants because to do otherwise could conflict with its basic
mission of providing affordable housing.

Another factor is the loss of the interest rate subsidy that occurs when
the mortgage matures. When interest rate subsidies were first paid to
properties built in the 1960s and 1970s, they represented substantial
assistance to property owners. Over time, inflation has reduced the value
of this subsidy. For example, the average interest rate subsidy payment
for a Section 236 property with a mortgage maturing in the next 10 years
is $66 per unit per month. Price levels have roughly quadrupled since
1970, so to have the same purchasing power would require about $260 in
today's dollars. Section 8 and similar project-based rental assistance now
provide the bulk of the assistance to these subsidized properties-75
percent of the assistance versus about 25 percent that derives from the
Section 236 interest-rate subsidy. Furthermore, inflation will continue to
erode the value of the interest-rate subsidy until mortgage maturity,
while the rental assistance subsidy is adjusted annually to account for
increases in operating costs.

Most Properties with HUD Our review of HUD's data showed that HUD-insured
mortgages at 32 Mortgages That Reached properties matured between January
1, 1993, and December 31, 2002. Maturity Offer Rents Sixteen of the 32
properties are still serving low-income tenants through Affordable to
Low-Income project-based Section 8 rental assistance contracts. For 13 of
these 16

properties, the rental assistance covers 100 percent of the units
(799Tenants assisted units), and for the remaining three properties it
covers 54 percent of the units (174 assisted units).

  Tools and Incentives Are Available to Help Keep Properties Affordable, but Are
  Not Specifically Designed to Deal with HUD Mortgage Maturity

Using HUD's archived data for inactive properties, we were able to obtain
rent information for 10 of the remaining 16 properties.7 We found that all
10 (none of which have project-based rental assistance contracts) are
offering rents that are affordable to tenants with incomes below 50
percent of area median income.8 Because of the variety of factors that can
influence owners' decisions, however, these properties are not necessarily
indicative of what will happen to other properties as their HUD mortgages
mature.

Various property managers we contacted also provided information about
their efforts to keep their properties affordable. For example, a senior
complex (nonprofit ownership) continues to generally charge residents
about 30 percent of their income for rent as they did when they were in
HUD's subsidized portfolio. According to the property manager of two of
the properties (for-profit ownership), he unsuccessfully sought incentives
from HUD in 2002 to keep the properties in the inventory when the
mortgages reached maturity and both properties left HUD's multifamily
portfolio. However, both properties are accepting tenant-based vouchers
and the rents in both properties are affordable to very low-income
tenants.

HUD does not offer any tools or incentives to keep properties affordable
after HUD mortgages mature, although it does offer incentives to maintain
affordability for properties that also have expiring rental assistance
contracts. According to officials from the four national housing and
community development organizations we contacted, because few HUD
mortgages have matured to date, their member state and local agencies have
not experienced the need to develop programs to deal with mortgage
maturity. They noted that their member agencies could offer tools and
incentives, such as loans and grants, which might be used by owners to
keep properties affordable after mortgage maturity. However, about
threequarters of the state and local agencies that responded to our survey
reported that they do not track the maturity dates on HUD mortgages, and

7Of the remaining six properties, we did not include two because they are
skilled nursing facilities and do not charge traditional rents. We could
not obtain information on the others because there was insufficient
contact information in HUD's archived database with which to locate
current owners or managers, or the owners or managers were unwilling to
provide us with information.

8Rent is generally considered affordable if it does not exceed 30 percent
of tenant's gross income.

none provided examples of tools or incentives used to keep units
affordable after mortgage maturity.9

HUD Does Not Offer Incentives to Keep Properties Affordable after Mortgage
Maturity

During the 1990s, HUD established incentive programs to deal with the loss
of affordable units because owners were prepaying their mortgages and
opting out of their Section 8 contracts, but these incentives do not
directly address the termination of the affordability requirements
resulting from mortgage maturity. Rather, they can extend, under certain
circumstances, the affordability period beyond the original term of the
mortgage or allow property owners to be better positioned financially to
continue providing affordable housing.

State and Local Agencies Identified Tools and Incentives to Preserve
Affordable Housing, but Not Specifically for Covering Mortgage Maturity

The state and local agencies we surveyed identified 18 different tools and
incentives used to preserve affordable housing. Of the 18, 6 were funded
directly by the federal government, while 12 were administered by state
and local governments and not directly federally funded. However, there
was no evidence that they have been used to protect properties when HUD
mortgages mature. This may be because relatively few mortgages have
matured to date.

State and local tools and incentives include housing trust funds used to
make loans and grants, financial assistance to nonprofit organizations to
aid them in acquiring HUD-subsidized properties, and property tax relief
to owners of HUD-subsidized properties. These state and local agencies
identified several incentives that they believe are the most effective in
preserving the affordability of housing for low-income tenants. For
example, over 60 percent of the 62 state agencies that responded
identified the 4-percent tax credit and HOME programs as effective means
for preserving the affordability of HUD-subsidized properties. Of the 76
local agencies that responded, over 70 percent identified HOME as
effective and over 60 percent identified CDBG as effective.

9The detailed results of our survey (GAO-04-211SP) are available on our
website, at www.gao.gov/cgi-bin/getrpt?GAO-04-211SP.

Fewer Than Half of State and Local Agencies Identify and Track Properties
That May Leave HUD Programs

Over 50 percent of the survey respondents reported that they have no
system in place to identify and track properties in their states or
localities that could leave HUD's subsidized housing programs. Further,
about threequarters reported that they do not track the maturity dates of
HUD mortgages. Several respondents to our survey noted that it would be
helpful to them if HUD could provide information about properties that
might leave HUD's programs.

Of the 102 agencies that indicated they identified and tracked properties,
56 (55 percent) said that they monitored the scheduled maturity dates of
HUD mortgages on local properties (see fig. 3). More agencies (82 or 80
percent) reported that they identified and tracked properties that might
opt out of HUD project-based rental assistance contracts.

Figure 3: State and Local Agencies' Efforts to Identify and Track
Properties That May Leave HUD Programs

Note: "Extended use expiration" refers to the expiration of the
use-agreement period, when owners must continue to keep their tax credit
properties affordable to low-income tenants after the initial 15year
affordability period required by the Internal Revenue Code has ended. The
length of this extended period of affordability is 15 years or more,
depending on individual state requirements.

HUD officials noted that they make property-level information available to
the public on HUD's multifamily housing Web site. This Web site contains
detailed property-level data on active HUD-insured mortgages and expiring
rental assistance contracts. However, according to our survey, some state
and local agencies perceive that the information is not readily available.
One problem may be that these data are in a format that may not

be sufficiently "user-friendly" for these agencies. The data must be
accessed using database software, which requires users to be proficient in
these types of software.

HUD officials agreed that the agency could provide more "user friendly"
information because the data are not as accessible to state and local
agencies as they could be. They also noted that these agencies could
benefit from a "watch list" that identifies properties that may leave HUD
subsidy programs in their jurisdictions, such as upon mortgage maturity,
especially if such data were updated annually and readily available online
so that agencies would have the information needed to prioritize and fund
efforts to preserve low-income housing in their jurisdictions.

While awareness of the potential for a HUD mortgage to mature or rental
assistance to end does not guarantee that state or local agencies will
take action to preserve the assisted units' affordability to low-income
tenants, such knowledge could better position state and local agencies to
use available tools and incentives. Accordingly, we recommended that HUD
take steps to provide more widely available and useful information. Using
HUD's data that we obtained to respond to your request, we also developed
a prototype searchable database, available in CD-ROM format, showing
property-level data for each of HUD's subsidized rental properties
scheduled to mature in the next 10 years.10

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions at this time.

For further information on this testimony, please contact David G. Wood at
(202) 512-8678, or Andy Finkel at (202) 512-6765. Individuals making key
contributions to this testimony included Mark Egger, Daniel Garcia-Diaz,
Rich LaMore, and John McGrail.

10This CD-ROM is available as a special GAO product (GAO-04-210SP) and may
be ordered via the Internet at www.gao.gov/cgi-bin/ordtab.pl.

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