HUD Homeownership Programs: Data Limitations Constrain Assessment
of the American Dream Downpayment Initiative (30-JUN-06,	 
GAO-06-677).							 
                                                                 
While at an all-time high level, homeownership remains out of	 
reach for many Americans, especially low-income families and	 
minorities. In 2003, Pub. L. No. 108-186 created the American	 
Dream Downpayment Initiative (ADDI) to help low-income, 	 
first-time homebuyers cover the up-front costs of buying a home  
(up to the greater of $10,000 or 6 percent of the purchase price)
and authorized funding through fiscal year 2007. The Department  
of Housing and Urban Development (HUD) allocates ADDI funds to	 
over 400 jurisdictions (e.g., states, cities, and counties). Pub.
L. No. 108-86 directed GAO to perform a state-by-state analysis  
of ADDI's impact. This report discusses (1) HUD-reported	 
information on ADDI expenditures and assisted households, and the
limitations on the quality of these data and (2) the views of	 
officials from selected jurisdictions on factors that affected	 
their ability to use their funds and on the program's impact.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-677 					        
    ACCNO:   A56199						        
  TITLE:     HUD Homeownership Programs: Data Limitations Constrain   
Assessment of the American Dream Downpayment Initiative 	 
     DATE:   06/30/2006 
  SUBJECT:   Data collection					 
	     Data integrity					 
	     Disadvantaged persons				 
	     Federal aid for housing				 
	     Housing						 
	     Housing programs					 
	     Low income housing 				 
	     Minorities 					 
	     Program evaluation 				 
	     Subsidies						 
	     American Dream Down Payment Fund			 
	     HUD Home Investment Partnership Program		 
	     HUD Integrated Disbursement and			 
	     Information System 				 
                                                                 

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GAO-06-677

     

     * Report to Congressional Committees
          * June 2006
     * HUD HOMEOWNERSHIP PROGRAMS
          * Data Limitations Constrain Assessment of the American Dream
            Downpayment Initiative
     * Contents
          * Results in Brief
          * Background
          * HUD Reported That Participating Jurisdictions Spent About Half of
            Their ADDI Allocations, but These Data Contain an Unknown Number
            of Non-ADDI Projects
               * HUD Reported That Jurisdictions Expended About $99 Million
                 through December 31, 2005, and That Nearly Half of the
                 Households Were Minorities
               * Internal Control Weaknesses Allow Non- ADDI HOME Projects to
                 Be Credited to ADDI
                    * No Mechanism to Distinguish ADDI from Non-ADDI HOME
                      Projects
                    * Inconsistent Guidance on Data Entry
                    * Extent of Inaccurate Data Is Unknown
          * Many Selected Participating Jurisdictions Cited Challenges in
            Spending ADDI Funds and Viewed the Program's Impact as Limited
               * High Housing Prices Coupled with Low Incomes Have Made It
                 Difficult to Assist Eligible Households with ADDI Funds in
                 Many Selected Jurisdictions
               * ADDI Has Not Had a Significant Impact on the Homeownership
                 Rates of Selected Participating Jurisdictions Due to Modest
                 Funding Levels and the Newness of the Program
               * Some Selected Jurisdictions Experienced Problems Assisting
                 Recipients of Rental Housing Assistance and Other
                 Populations
          * Conclusions
          * Recommendations for Executive Action
          * Agency Comments and Our Evaluation
     * Scope and Methodology
     * Summary of Review of Literature on Barriers to Homeownership
     * Comparison of Selected Rules Applicable to Fiscal Year 2003 ADDI Funds
       to Those for Fiscal Year 2004-2007 Funds
     * Statistics That HUD Reported for ADDI through December 31, 2005
     * Profiles of ADDI Programs in Four Jurisdictions
          * Los Angeles, California
          * Grand Rapids, Michigan
          * State of Texas
          * Sacramento, California
     * Comments from the Department of Housing and Urban Development
     * GAO Contact and Staff Acknowledgments
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to Congressional Committees

June 2006

HUD HOMEOWNERSHIP PROGRAMS

Data Limitations Constrain Assessment of the American Dream Downpayment
Initiative

Contents

Tables

Figures

June 30, 2006Letter

The Honorable Richard C. Shelby Chairman The Honorable Paul S. Sarbanes
Ranking Minority Member Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Michael G. Oxley Chairman The Honorable Barney Frank Ranking
Minority Member Committee on Financial Services House of Representatives

Although the national homeownership rate has reached an all-time high of
69 percent, homeownership is out of reach for many Americans, especially
low-income families and minorities. Recognizing that homeownership has the
potential to help families achieve long-term financial stability and
revitalize and stabilize communities, the federal government has long
sought to make ownership more affordable for American families. Most
recently, Congress in 2003 passed the American Dream Downpayment Act
(Act), which created the American Dream Downpayment Initiative (ADDI)
under the Department of Housing and Urban Development's (HUD) HOME
Investment Partnerships (HOME) program. The purpose of ADDI is to help
eligible low-income households become homeowners by providing funds for a
down payment, closing costs, and, if necessary, rehabilitation work done
in conjunction with a home purchase.1 The Act authorized funds for ADDI
for fiscal years 2004 through 2007.2

Like the HOME program as whole, ADDI provides formula-based grants to
participating jurisdictions (i.e., states, cities, counties, or
consortiums of cities and counties), which can administer these grants on
their own, or with or through third parties or subgrantees. However, ADDI
funds are subject to certain restrictions that do not apply to other HOME
funds. The jurisdictions may use ADDI grants only for down-payment,
closing cost, and rehabilitation assistance to low-income, first-time
homebuyers who are purchasing homes priced within limits under HUD's
Section 203(b) single-family mortgage insurance program, which vary by
location. In contrast, jurisdictions may use other HOME funds to purchase,
construct, or rehabilitate affordable housing for rent or ownership by
low-income households, or provide down-payment assistance or direct rental
assistance to low-income households. Unlike other HOME funds used for
homeownership assistance, the amount of ADDI assistance per homebuyer is
limited to $10,000 or 6 percent of the purchase price, whichever is
greater.3 However, jurisdictions can combine ADDI assistance with other
funding sources (including other HOME funds) to assist eligible
households.

HUD maintains information about ADDI projects in a central database. More
specifically, HUD requires participating jurisdictions to enter
information for each household (project) they assist into HUD's Integrated
Disbursement and Information System (IDIS)-which collects information on
activities funded by a number of grant programs (including the HOME
program) administered by HUD's Office of Community Planning and
Development. For example, the jurisdictions enter for each project the
amount of assistance provided and certain characteristics of the assisted
households. HUD uses the data in IDIS to monitor participating
jurisdictions and to generate reports. One of these is the ADDI
Accomplishment Report, which provides information on ADDI program
expenditures and reported accomplishments for each jurisdiction. In
general, HUD considers ADDI funds and other HOME funds used for
down-payment assistance to be expended when a participating jurisdiction
disburses funds to an eligible homebuyer and indicates the project status
as "complete" in IDIS.

The Act directed GAO to perform a state-by-state analysis of the impact of
ADDI grants. To do this, we first obtained IDIS data on the amount of ADDI
funds that HUD allocated to each state's participating jurisdictions and
the amount they used to assist homebuyers. However, we found significant
limitations with the quality of these data. Accordingly, this report
discusses (1) HUD-reported information on ADDI expenditures and assisted
households from the program's inception through December 31, 2005, and the
limitations on the quality of these data and (2) the views of officials
from selected jurisdictions on factors that affected their ability to use
ADDI funds and on the program's impact.

To address these objectives, we reviewed the laws, regulations, and agency
guidance relevant to ADDI. We also analyzed the data from HUD's ADDI
Accomplishment Report and reviewed guidance and other documentation for
IDIS. We performed limited electronic testing on HUD's ADDI data to detect
obvious errors and checked the reliability of the HUD-reported ADDI
expenditure data against information from 33 selected participating
jurisdictions. We visited 13 participating jurisdictions-four states, 6
cities, and three consortiums-that we selected to cover different
geographic regions, housing markets, and jurisdiction types. Also, we
interviewed officials from a selection of 27 additional jurisdictions-nine
states, 11 cities, three counties, and four consortiums-designed to cover
the four types of jurisdictions and those with relatively high and low
funding allocations and expenditure levels, according to HUD's data.4 We
did not generalize the results of our interviews to the entire population
of jurisdictions that received an ADDI allocation because we contacted
only a small selection of jurisdictions. Further, the limitations of HUD's
data did not allow us to draw any conclusions about the program's
accomplishments.

Appendix I contains a more detailed description of our scope and
methodology and a list of the jurisdictions we contacted. We conducted our
work in Washington, D.C., and Chicago, Illinois, from July 2005 through
June 2006, in accordance with generally accepted government auditing
standards.

Results in Brief

Based on data in IDIS from participating jurisdictions nationwide, HUD
reported that through December 31, 2005, the jurisdictions had expended
$98.5 million of the $211 million appropriated for ADDI and had helped
more than 13,000 low-income households-nearly half of which were
minorities-become homeowners. At the state level, reported expenditures
ranged from $0 (South Dakota) to $10.3 million (California), and the
number of assisted households ranged from 0 (South Dakota) to 985 (Ohio).
IDIS data also indicated, among other things, that about one-third of the
assisted households earned less than 50 percent of the median income for
their areas, and the remaining two-thirds earned 50 to 80 percent.
However, because of internal control weaknesses in HUD's process for
designating ADDI projects in IDIS, these figures actually include an
unknown number of non-ADDI HOME projects that provided down-payment
assistance to first-time homebuyers.5 Specifically, (1) IDIS does not
contain a discrete control to distinguish ADDI projects from non-ADDI HOME
projects and (2) HUD did not provide clear and consistent guidance to
jurisdictions on how to distinguish between the two in IDIS. As a result,
the expenditures and accomplishments attributable to ADDI are not known
and the data HUD reports for the program, including the characteristics of
the assisted households, do not represent exclusively ADDI projects. HUD
officials said that they did not create a discrete ADDI control in IDIS
because a reengineering of IDIS was nearly complete when the program was
enacted, redesigning IDIS would have taken several years and would not
have been cost-effective given ADDI's modest size and limited
authorization period, and the first-time homebuyers receiving ADDI and
other HOME funds are from the same population.

Although most of the jurisdictions we contacted (representing about 9
percent of all jurisdictions that received an ADDI allocation since the
program began) have used some portion of their ADDI grants, jurisdiction
officials cited several factors that affected their ability to spend their
funds and indicated that the program's impact has been limited. For
example, officials from many of these jurisdictions said that a
combination of high housing prices, the low incomes of eligible families,
and the program's per-household assistance limits made it challenging to
expend their funds. Officials from some of the higher cost selected
jurisdictions told us that many eligible households often cannot afford to
purchase even less expensive homes without large amounts of assistance to
reduce their mortgage loans to affordable levels. In the City of Los
Angeles, for instance, the difference between the median purchase price
(excluding closing costs) and the median mortgage amount for homes
purchased with ADDI assistance was approximately $122,000. To help bridge
such large gaps, many of the selected jurisdictions have developed
homeownership programs that provide multiple subsidies, including ADDI
funds, to eligible homebuyers. Some of these programs are complex,
utilizing several sources of assistance, and can be time consuming to
implement because jurisdiction officials need to assess a family's
eligibility for each subsidy. Though ADDI has helped low-income households
become homeowners, officials from the large majority of jurisdictions we
contacted said that the program was too modestly funded and new to have
had a significant impact on local homeownership rates. In addition,
officials from several jurisdictions we contacted said that they have had
difficulties serving certain populations that the program targeted for
outreach, including recipients of rental housing assistance (due to lack
of sufficient income to become homeowners, even with down payment
assistance) and residents of mobile home parks (due to difficulties in
marketing the program to them).

To ensure that ADDI expenditures and accomplishments are accurately
reported, we recommend that if Congress authorizes ADDI beyond fiscal year
2007, the Secretary of HUD (1) develop and implement a discrete control in
IDIS that distinguishes ADDI projects from non-ADDI HOME projects, seeking
funds to do so if necessary, and (2) issue guidance to participating
jurisdictions on how to use this control to enter consistent data on ADDI
projects into IDIS. We obtained comments on a draft of this report from
HUD. HUD did not comment on our recommendations but disagreed with the
report's emphasis on data limitations and our assessment of the effect of
these limitations on management and oversight of the program. HUD's
comments are discussed in the Agency Comments and Our Evaluation section,
and its written comments appear in appendix VI.

Background

According to numerous studies, the most significant barrier to
homeownership is having money for a down payment and closing costs. Other
related studies also have shown that, on average, low-income and minority
families have lower levels of accumulated wealth (savings) than
higher-income and nonminority families. (See app. II for a summary of
studies on barriers to homeownership). This disparity is reflected in the
gap in homeownership rates between the different populations (see table
1).6

Table 1: Homeownership Rates by Race/Ethnicity and Income Band, 2001

                                        

                         Income  
                          band   
        Category            <50%     50-     80- 100-120% >120%           All 
     Race/ethnicity                79.9%   99.9%                   households 
White                   59.2%   68.4%   75.2%    79.6% 88.1%         74.2% 
Black                    33.4    51.7    59.4     63.2  76.2          48.5 
Hispanic                 28.2    44.4    55.2     59.0  76.9          46.4 
Asian                   28.4%   48.1%   51.6%    63.3% 72.3%         53.2% 

Sources: HUD and U.S. Census Bureau.

Note: Income band is the percentage of national median income.

Signed into law in December 2003, the American Dream Downpayment Act
amended the Cranston-Gonzalez National Affordable Housing Act to create
ADDI, which, according to HUD, aims to increase the homeownership rate,
especially among lower income and minority households.7 The Act authorized
up to $200 million annually for fiscal years 2004 through 2007 for
down-payment, closing cost, and limited rehabilitation assistance for
low-income families-those earning no more than 80 percent of the median
income for their area, adjusted for family size-who are first-time
homebuyers.8 Prior to the Act, the Consolidated Appropriations Resolution
of 2003 authorized and appropriated $74.5 million in fiscal year 2003
funds specifically for down-payment assistance under the HOME program. (As
explained in app. III, some of the rules for allocating and using fiscal
year 2003 ADDI funds are significantly different from the rules for funds
appropriated for subsequent fiscal years). Participating jurisdictions
could not expend ADDI funds until April 2004, when HUD issued interim
regulations for the program.

Down-payment assistance is one of the multiple uses of HOME funds. Since
the HOME program was created in 1990, total spending on down-payment
assistance reached nearly $1.6 billion as of January 2006. For fiscal
years 2001 through 2004, annual commitments for down-payment assistance
under the HOME program (including ADDI since 2004) were relatively steady,
averaging $156 million, but grew to nearly $203 million in fiscal year
2005.9 In creating ADDI, Congress effectively set aside a portion of total
HOME funding specifically for low-income, first-time homebuyers. ADDI
appropriations peaked in fiscal year 2004 at $87 million, dropping to
$49.6 million in fiscal year 2005 and to $24.8 million in fiscal year
2006.

Like the rest of the HOME program, ADDI is administered by participating
jurisdictions, which receive funding allocations from HUD. Beginning with
the fiscal year 2004 appropriation, HUD has allocated ADDI funds to the
states based on the percentage of the national total of low-income renters
residing in each state (as explained in app. III, ADDI funds provided in
the fiscal year 2003 appropriation were distributed differently). The
aggregate funding amounts for fiscal years 2003 through 2006, by state,
are shown in figure 1.

Figure 1: Percentage of National Total of Low-Income Renters and ADDI
Allocations by State for Fiscal Years 2003-2006

A similar calculation, using the total numbers of low-income renters
within each state, determines the amounts participating jurisdictions
receive. Participating jurisdictions must have a population of at least
150,000 or otherwise qualify for an allocation of greater than $50,000
under the ADDI formula to receive program funding. The difference between
a state's overall allocation and the total amount allocated to qualifying
cities, counties, and consortiums (as well as any allocation a
jurisdiction declines) within that state is administered by the state.
Four hundred forty-five jurisdictions received an ADDI allocation in one
or more fiscal years from 2003 through 2006. Jurisdictions must commit
ADDI funds within 2 years of the date HUD obligates ADDI allocations and
expend those funds within 5 years of that date.10

As a condition for receiving an ADDI funding allocation, HUD requires
participating jurisdictions to include ADDI funds in their annual
consolidated plans, which outline policies for addressing housing needs in
their areas. Specifically, jurisdictions must describe how they plan to
use ADDI funds; how they plan to conduct targeted outreach to recipients
of rental housing assistance (through HUD's public housing and Housing
Choice Voucher programs, for example) and residents of manufactured
housing (e.g., mobile homes); and what actions they will take to ensure
the suitability of families receiving ADDI assistance to undertake and
maintain homeownership (e.g., through homebuyer counseling).11
Jurisdictions typically administer their ADDI funds in one of three ways:
(1) on their own; (2) in partnership with one or more third parties, such
as nonprofit organizations or mortgage lenders; or (3) through subgrantees
who administer the program on their behalf. ADDI regulations prohibit the
use of ADDI funds for program administration costs; however, jurisdictions
may use a portion of their other HOME funds for this purpose.

ADDI appropriations for fiscal year 2004 and later provide eligible
families up to $10,000 or 6 percent of the purchase price of a home,
whichever is greater, to apply toward a down payment and closing costs for
the purchase of single-family housing (including one- to four-unit family
dwellings, condominiums, cooperatives, and manufactured housing or a
manufactured housing lot) that does not exceed HUD's purchase price
limits. Except for the fiscal year 2003 appropriation, ADDI funds also may
be used for rehabilitation in conjunction with the purchase of a home.
However, a participating jurisdiction's rehabilitation assistance may not
exceed 20 percent of its annual ADDI allocation. Jurisdictions can give
ADDI assistance to eligible families in several forms, including interest-
or noninterest-bearing loans or direct grants. Whatever the form of
assistance, HUD regulations require that assistance be repaid, in full or
in part, upon the sale of the home if the sale occurs within the
"affordability period" (generally 5 to 10 years, depending on the amount
of assistance).12 Jurisdictions may combine ADDI funds with other
subsidies-such as other HOME funds, Community Development Block Grant
(CDBG) funds, Section 8 homeownership vouchers, or state and local
funds-to make ownership more affordable for eligible households.13

HUD Reported That Participating Jurisdictions Spent About Half of Their
ADDI Allocations, but These Data Contain an Unknown Number of Non-ADDI
Projects

HUD reported that from the program's inception through December 31, 2005,
participating jurisdictions had expended roughly half of the $211 million
in ADDI appropriations and assisted more than 13,000 low-income
households-nearly half of which were minorities-with a home purchase.14
According to HUD, these data represent projects that met the agency's
definition of ADDI projects in IDIS. However, because of weaknesses in
HUD's internal controls for ADDI reporting, these data are a mix of ADDI
and an unknown number of non-ADDI HOME projects; consequently, the
expenditures and accomplishments attributable to ADDI are not known. More
specifically, IDIS does not contain a discrete control to distinguish ADDI
projects from non-ADDI HOME projects, and HUD provided inconsistent
guidance to jurisdictions on how to distinguish between the two in IDIS.
HUD officials said that it was not feasible to implement a discrete ADDI
control in IDIS by the time ADDI began operating and that to do so now
would be costly.

HUD Reported That Jurisdictions Expended About $99 Million through
December 31, 2005, and That Nearly Half of the Households Were Minorities

According to HUD's ADDI Accomplishment Report, through December 31, 2005,
jurisdictions had expended $98.5 million of the $211 million appropriated
for ADDI through fiscal year 2005 and assisted 13,300 households, 48
percent of which were minorities. At the state level, reported
expenditures ranged from $0 (South Dakota) to $10.3 million (California),
and the number of assisted household ranged from 0 (South Dakota) to 985
(Ohio). HUD's Accomplishment Report indicated that half of the states
expended more than $1 million each (see fig. 2). Appendix IV provides
HUD-reported ADDI expenditures and accomplishments for each state.
However, as discussed in the next section of this report, the ADDI data
HUD reported are a mix of ADDI and non-ADDI HOME projects due to internal
control weaknesses.

Figure 2: HUD-Reported State ADDI Expenditures through December 31, 2005

aIncludes Puerto Rico, which received funding only for fiscal year 2003,
in the $500,000 to $999,999 range.

HUD collects various data on households assisted through the HOME program,
including ADDI, through IDIS. These data indicate, among other things,
that from April 2004 (the month ADDI activity began) through December 31,
2005:

o 32 percent of the households assisted by ADDI were single-parent
families.

o 20 percent of the mortgages used to purchase homes with ADDI assistance
were insured by HUD's Federal Housing Administration (FHA).

o About one-third of the assisted households earned less than 50 percent
of the median income for their areas, and the remaining two-thirds earned
50 to 80 percent (see fig. 3).

o 76 percent of the assisted households received some form of homebuyer
counseling. (Jurisdictions are encouraged but not required to provide
homebuyer counseling for ADDI or other HOME projects).15

Through its new Outcome Performance Measurement System, HUD plans to
collect additional information on households assisted by HOME and the
other formula grant programs funded by the agency's Office of Community
Planning and Development. The system, which is scheduled for full
implementation in fiscal year 2007, will aggregate, at the national and
local level, information on the outcomes of the projects funded by the
programs. Among other things, HUD will use the system to collect
information on the number of HOME-assisted (including ADDI-assisted)
households that previously received rental housing assistance.

Figure 3: HUD-Reported Income of Assisted Households, April 2004-December
2005

Internal Control Weaknesses Allow Non-ADDI HOME Projects to Be Credited to
ADDI

According to HUD officials, the agency initiated a wide-ranging redesign
of IDIS in 2002 and, as part of these efforts, added new data elements
(first-time homebuyer and down-payment costs) in anticipation of the
possibility that Congress would eventually pass a down-payment assistance
program of some kind. HUD released the redesigned IDIS in March 2004,
shortly before the implementation of ADDI. According to HUD officials,
because HUD was unable to anticipate all of the program features in the
final law, the agency decided to establish rules in IDIS that used the new
data elements and provided guidance to jurisdictions on entering data that
were intended to capture information on ADDI projects to the extent
possible. However, these rules are not sufficient to allow HUD to clearly
distinguish ADDI projects from non-ADDI projects, and HUD's guidance to
jurisdictions was inconsistent. Accordingly, HUD's internal controls for
ADDI reporting do not meet GAO's Standards for Internal Control in the
Federal Government because HUD cannot be certain that the ADDI expenditure
and accomplishment data it reports are representative of

ADDI projects.16 GAO's Standards call for controls that would
appropriately classify projects so that the collected information
maintains its relevance, value, and usefulness for controlling operations
and making decisions.

No Mechanism to Distinguish ADDI from Non-ADDI HOME Projects

According to HUD officials, the agency did not create a control in IDIS
that would distinguish ADDI from non-ADDI HOME projects for several
reasons as follows:

o The most recent IDIS reengineering effort was nearing completion by the
time ADDI was enacted.

o It was not feasible to redesign IDIS to separately track ADDI projects
by the time the ADDI program began operating (HUD estimated several years
for redesign).

o ADDI is part of the HOME program, and the first-time homebuyers
receiving ADDI and other HOME funds are from the same population.

o To develop and implement such a control would not have been
cost-effective given ADDI's modest size and the limited period (4 years)
for which it was authorized.17

HUD officials said that, for these reasons, they faced a choice of not
capturing any data on ADDI or implementing procedures that would capture
data on projects that met the basic criteria for the program (i.e.,
down-payment assistance to first-time homebuyers) but that also included
non-ADDI HOME projects. HUD officials stated that they recognized the
limitations of these procedures but said that, under the circumstances,
they made the best available choice. The officials said that the agency
has no plans to update IDIS to include a discrete control for ADDI and
estimated that to do so would be costly.

In lieu of creating such a control, HUD established rules in IDIS under
which the agency credits ADDI with all of a jurisdiction's completed HOME
projects that provided down-payment assistance to first-time homebuyers in
amounts within the ADDI per-household limits-up to the point at which the
jurisdiction's ADDI allocations are exhausted.18 After a jurisdiction's
ADDI allocations are exhausted, HUD credits any remaining project
assistance and all additional first-time homebuyer projects to other HOME
funds.

In its HOME monitoring handbook, HUD acknowledged that, as a result of the
IDIS limitation relating to ADDI designations, the agency's ADDI data
contains a mix of ADDI and non-ADDI HOME projects. Specifically, the
handbook states that the projects HUD credits to ADDI may not be the same
projects that jurisdictions intended to use their ADDI funds for and
classified them as such in their records. Consequently, the agency
instructed HUD staff who monitor jurisdictions' administration of HUD
programs to assess for compliance with ADDI requirements only those
projects that jurisdictions designated as ADDI in their records and to
assess all other projects for compliance with HOME requirements,
regardless of whether HUD credited them to ADDI.

Inconsistent Guidance on Data Entry

The guidance HUD provided to jurisdictions for entering ADDI project data
into IDIS is inconsistent and permits jurisdictions to enter inaccurate
data. As a result, HUD cannot ensure that the data for all HOME projects
that jurisdictions enter into IDIS are accurate and complete. According to
GAO's Standards, agencies should provide clear and consistent guidance on
data entry to prevent inaccuracies.

HUD instructed jurisdictions to use the "first-time homebuyer" field when
entering data in IDIS to distinguish between ADDI and non-ADDI HOME
projects (entering "yes" to credit ADDI and "no" to credit other HOME
funds). However, in the same guidance, HUD wrote that jurisdictions should
enter "yes" in the first-time homebuyer field even when they use other
HOME funds to assist a first-time homebuyer because HUD uses this field to
capture accomplishment data on all first-time homebuyers whether or not
jurisdictions assisted them with ADDI funds.

The latitude jurisdictions have to enter "no" in the first-time homebuyer
field in IDIS, even when they in fact are assisting this type of
homebuyer, reduces HUD's ability to reliably measure first-time homebuyer
activity under the HOME program. HUD's new Outcome Performance Measurement
System-which will be integrated into IDIS and fully implemented in fiscal
year 2007-will include a "direct financial assistance to homebuyers"
indicator that, among other things, is intended to measure the number of
first-time homebuyers assisted with HOME funds. Because the system will
use the first-time homebuyer field in IDIS, this indicator may
inaccurately reflect the number of first-time homebuyers. More
specifically, if jurisdictions enter "no" for first-time homebuyer
projects in order to credit their other HOME funds instead of their ADDI
funds, the indicator will be artificially low. HUD officials said that
they could not foresee many circumstances where this would occur and that
any negative impact on data accuracy will probably be minimal;
consequently, the agency does not plan to revise its guidance to
jurisdictions. However, HUD does not have a means of determining how often
jurisdictions might enter "no" to spend HOME funds that would otherwise
expire or to avoid crediting projects to ADDI that were administered by
subgrantees that did not receive ADDI funds.

Extent of Inaccurate Data Is Unknown

Although the full extent to which HUD is designating non-ADDI HOME
projects as ADDI projects is unknown, the jurisdictions we contacted
identified many examples where this was occurring. We contacted 33 (about
7.5 percent) of the 445 jurisdictions that received an ADDI allocation
since the program began to check the reliability of project expenditures
in HUD's ADDI Accomplishment Report as of December 31, 2005. We excluded
three jurisdictions from our analysis because they had unreliable local
records or documented IDIS data entry errors. Of the remaining 30
jurisdictions, 13 told us that some percentage of their projects were,
according to their records, non-ADDI HOME projects (see fig. 4). The other
17 jurisdictions did not identify any non-ADDI HOME projects in HUD's
report. In total, the 30 jurisdictions indicated that 29 percent of the
reported projects were non-ADDI HOME projects.

Figure 4: Number of Selected Jurisdictions Reporting Misidentified ADDI
Projects and Total Percentage of Misidentified Projects, as of December
31, 2005

Note: We excluded three selected jurisdictions from the population of the
33 we contacted because of unreliable local records or documented IDIS
data entry errors.

The City of Baltimore and the State of Pennsylvania provide examples where
HUD designated non-ADDI projects as ADDI. Specifically:

o HUD included, as ADDI expenditures and accomplishments, five Baltimore
projects totaling $25,000 that actually were "settlement expense grants"
funded through a portion of the city's HOME allocation. The city does not
fund these grants with its ADDI allocation and has internal tracking
mechanisms independent from IDIS to differentiate its ADDI and settlement
expense grant expenditures. HUD credited these projects to ADDI because
these projects met the agency's IDIS rules for crediting ADDI (that is,
the city recorded down-payment assistance to a first-time homebuyer for
the purchase of a home and changed the project status to "complete").

o In Pennsylvania, 4 out of a potential pool of 75 subgrantees had applied
for and received a portion of the state's ADDI allocation as of January
2006. Although the state's records for these subgrantees showed only two
ADDI projects with $20,000 in total ADDI expenditures, HUD's ADDI
Accomplishment Report showed 196 additional ADDI projects, totaling $1.6
million. These additional projects reflect the non-ADDI HOME activity of
subgrantees that did not receive ADDI funds.

Moreover, officials from 12 of the 33 jurisdictions we contacted told us
that HUD's ADDI Accomplishment Report, as of December 31, 2005, did not
include some of these jurisdictions' ADDI projects.19 One potential reason
for this is that the jurisdictions may not have changed the status of
their ADDI projects to "complete" in IDIS as of that date. However, of the
307 projects the jurisdictions identified as ADDI, over half (168
projects) did not appear either in HUD's Open Activities Report (which
contains information on all HOME projects that jurisdictions entered but
did not indicate as "complete" in IDIS) or the ADDI Accomplishment Report
as of February 28, 2006. HUD most likely credited these 168 projects to
the jurisdictions' other HOME funds. Of the remaining projects, 103 were
included in the ADDI Accomplishment Report, and 36 were in the Open
Activities Report.20

Many Selected Participating Jurisdictions Cited Challenges in Spending
ADDI Funds and Viewed the Program's Impact as Limited

Although most of the jurisdictions we contacted (representing about 9
percent of all jurisdictions that received an ADDI allocation since the
program began) have used some portion of their ADDI grants, jurisdiction
officials cited several factors that affected their ability to spend their
funds and indicated that the program's impact has been limited. Officials
from many of these selected jurisdictions told us that high housing prices
coupled with the low-incomes of ADDI-eligible families have made it
difficult to use ADDI funds to assist the families. In addition, officials
in the jurisdictions we contacted generally indicated that ADDI thus far
has not had a significant impact on homeownership rates in their
jurisdictions because the program is new and has received modest levels of
funding. Finally, several of the jurisdictions reported difficulties in
assisting certain populations-for example, recipients of rental housing
assistance because they lack income to become homeowners, even with
assistance.

High Housing Prices Coupled with Low Incomes Have Made It Difficult to
Assist Eligible Households with ADDI Funds in Many Selected Jurisdictions

Although most of the 40 participating jurisdictions we contacted have been
able to use some portion of their ADDI funding to assist eligible families
in their areas, officials from many of these jurisdictions said that a
combination of high housing prices, low family incomes, and the
per-household limit on ADDI assistance have made it challenging. For
example, according to officials from the City of Los Angeles, as of March
2006, the city had spent only about 22 percent of its total ADDI
allocation for fiscal years 2003 through 2005 due to these factors.
Officials from a number of higher-cost jurisdictions we
contacted-including the cities of Los Angeles and Sacramento, California;
Boston, Massachusetts; New York, New York; and Washington, D.C.-told us
that eligible families in their jurisdictions have had difficulties
finding homes they could afford. For instance, an official from the City
of Sacramento, California, said that the city receives monthly reports of
the multiple listing service-the local organizations through which real
estate brokers share information about properties for sale-to identify
homes that ADDI-eligible homebuyers could purchase. The official said that
in February 2006 there were only 45  single-family homes listed that the
jurisdiction considered affordable to ADDI-eligible homebuyers, an
insignificant number relative to the number of low-income homebuyers in
Sacramento, according to that official. Similarly, an official from the
City of Boston noted that the number of homes for sale within HUD's
purchase price limits was small relative to the number of ADDI-eligible
households residing in the city.

In addition, officials from some of the higher-cost participating
jurisdictions with whom we spoke said that because of the large disparity
between incomes and housing prices, many eligible families cannot afford
to purchase even these less expensive homes without large amounts of
assistance to reduce their mortgage loans to affordable levels. For
example, the median purchase price (excluding closing costs) of homes
purchased by ADDI-assisted households in Los Angeles was $264,000.
However, the median mortgage for these households was about $142,000,
leaving a gap of about $122,000 that needed to be filled by a combination
of homebuyers' savings and homeownership assistance. In contrast,
officials in most of the lower-cost jurisdictions we spoke with said that
the corresponding gaps in their areas were smaller than in other areas of
the country. For example, in Grand Rapids, Michigan, the gap for ADDI-

assisted families was about $1,000 (see fig. 5).21 Appendix V provides
more information about the use of ADDI funds in, and challenges faced by,
four of the jurisdictions that we contacted.

Figure 5: Difference between the Median Purchase Price and Median Mortgage
for Homes Purchased with ADDI Assistance in Los Angeles, CA, and Grand
Rapids, MI

Although officials from most of the jurisdictions with whom we spoke said
that they combined at least one other subsidy with ADDI funds, regardless
of the market conditions in their areas, jurisdictions in more expensive
areas-where the differences between home prices and mortgages were
substantial-generally used more complicated mechanisms to maximize the
amount of assistance given to eligible homebuyers. Officials from
higher-cost jurisdictions we spoke with also said that ADDI was not the
primary source of down-payment assistance for their homebuyer programs
and, because of the program's per-household assistance limit, was treated
more as a supplement to larger funding sources, such as other HOME funds.
For example, officials of the City of Los Angeles said they typically
combine more than seven different subsidies-including ADDI, other HOME,
and state down-payment assistance such as CalHome and California Housing
Finance Agency loans-with other HOME funds constituting the largest of the
subsidies.22 Some of these programs are complex and can be time-consuming
to implement because officials need to assess a family's eligibility for
each subsidy.

Officials from several other jurisdictions we spoke with in which the gap
was not substantial said they did not need to combine subsidies to make
homeownership a reality for the families they assisted. For example,
officials from the cities of Grand Rapids, Michigan; Indianapolis,
Indiana; and the State of Texas said that the down-payment assistance
offered through ADDI generally was sufficient to bridge the gap between
home prices and the mortgages for which lower-income families qualified.

ADDI Has Not Had a Significant Impact on the Homeownership Rates of
Selected Participating Jurisdictions Due to Modest Funding Levels and the
Newness of the Program

According to officials in most of the 40 jurisdictions we contacted,
ADDI's impact has been limited because the program is new and modestly
funded. Consistent with this view, HUD data indicates that approximately
40 percent of the jurisdictions that were allocated ADDI funds for fiscal
year 2005 received $50,000 or less.23 The percentage increased to 67
percent in fiscal year 2006 (see fig. 6).24

Figure 6: Jurisdictions with ADDI Allocations of $50,000 or Less, Fiscal
Years 2003-2006

Statements by and information from officials in the jurisdictions that we
contacted indicated that, because of modest funding levels for ADDI and
the newness of the program, ADDI thus far has had no significant impact on
homeownership rates in those areas. This was particularly true for
jurisdictions we contacted in higher cost areas where the disparity
between the incomes of eligible households and housing prices was large,
and the households thus needed large subsidies. For example, the City of
Modesto, California, received approximately $36,000 in ADDI funds in
fiscal year 2005 and about $18,000 in fiscal year 2006. A city official
said that the typical gap between the purchase price of a home and an
eligible family's mortgage was about $70,000 and that Modesto's total ADDI
allocation was not sufficient to assist many, if any, eligible families in
the area. Relatively small allocations also affected lower-cost
jurisdictions we contacted. For example, the City of Amarillo, Texas,
received approximately $35,000 in ADDI funding in fiscal year 2005 and
approximately $17,000 in fiscal year 2006. With an average grant amount of
approximately $9,000 per ADDI-assisted household, Amarillo likely will
serve four households with its fiscal year 2005 ADDI allocation and fewer
with its fiscal year 2006 allocation. In addition, several of the
officials in the jurisdictions we contacted noted that the program is
still relatively new and that they could not begin spending their funding
allocations until April 2004, after HUD issued interim regulations for
ADDI. Some officials also stated that, because they needed time to develop
local policies and procedures to implement the regulations, their ADDI
programs were not in full operation until some months after this date. For
these reasons, it may be some time before a sufficient number of
households are assisted so to have an appreciable impact on homeownership
rates, particularly at current funding levels.

HUD officials concurred that ADDI's impact on homeownership rates has been
limited but also noted that, as a result of ADDI, jurisdictions that did
not previously use any of their HOME funds for down-payment assistance are
now doing so. The officials said that, in contrast, some jurisdictions
that did use a portion their HOME funds for down-payment assistance prior
to ADDI may now be using their ADDI allocations as a substitute for
(instead of a supplement to) these funds, thus limiting the marginal
impact of the program. Officials in a small number of the jurisdictions we
contacted said that, to varying degrees, they were using their ADDI funds
in this manner.

Some Selected Jurisdictions Experienced Problems Assisting Recipients of
Rental Housing Assistance and Other Populations

Officials from a number of the 40 jurisdictions we contacted said that
they have experienced difficulties in using ADDI to assist certain
populations, including those that ADDI targeted for outreach-specifically,
recipients of rental housing assistance and residents of manufactured
housing. For example, most of the jurisdictions we contacted said that it
was particularly hard to provide assistance to recipients of rental
housing assistance (e.g., Housing Choice Voucher households and residents
of public housing) because these households typically have very-low
incomes and insufficient savings to purchase a home. For example, as of
March 2006, the average income of a public housing resident was about
$11,000. Even with ADDI or other subsidies, such households may be unable
to purchase homes because their incomes are insufficient to accommodate
mortgage payments.

However, some of the participating jurisdictions we contacted have been
able to help a limited number of public housing tenants and Housing Choice
Voucher recipients become homeowners by combining ADDI assistance with
other programs. For example, the City of Sacramento, California,
administers HUD programs under which the city rehabilitates and sells
existing public housing and other subsidized units to current residents
who are able to afford them. Buyers of these units receive ADDI
assistance, along with other subsidies, including assistance through the
Section 8 Homeownership Voucher program.

Although serving rural areas is not a specific ADDI requirement, officials
from some participating jurisdictions we spoke with, particularly those
that are states, told us that they have faced difficulties serving rural
areas because they lacked existing housing, and the costs associated with
building new housing were high. For example, North Dakota officials told
us that the supply of housing in rural areas of the state was limited and
that market conditions made it economically infeasible to build new homes
for low-income families.

However, a few of the state-level jurisdictions we contacted have been
able to assist families that live in rural areas. For example, Texas law
requires the state participating jurisdiction to serve areas that are not
HUD-designated participating jurisdictions (i.e., cities, counties, and
consortiums that receive ADDI funds directly from HUD).25 State officials
said that, in practice, the state serves mostly rural areas with its ADDI
program. Officials added that they are able to serve rural areas in the
state because the cost of housing, including new construction, is
relatively low. For example, in the City of Temple, Texas, the cost of a
typical new single-family home ranges from $50,000 to $80,000.

Finally, officials from some jurisdictions we spoke with cited several
difficulties in assisting residents of manufactured housing. For example,
some officials, particularly those from state-level jurisdictions we
contacted, said that they found it hard to locate all of the mobile home
parks in their areas, which limited their ability to market ADDI to this
population. Other officials noted that mobile home park residents are
often already homeowners and, therefore, do not meet the program's
eligibility requirements. In addition, officials who had tried to conduct
outreach to mobile home parks that include residents who are not owners
said that park owners often discouraged efforts to market homeownership
programs to their tenants.

Conclusions

Congress established ADDI under the multipurpose HOME program, and
authorized funding through fiscal year 2007, to provide a dedicated stream
of funding to help low-income households overcome a principal barrier to
homeownership-covering the up-front costs of buying a property. Obtaining
accurate data on ADDI expenditures and the numbers and characteristics of
assisted households would be an essential first step in assessing the
program's impact. Although HUD, in anticipation of Congress authorizing a
down-payment assistance program, changed its existing information
system-IDIS-to collect such information, the agency was unable to
anticipate all features of ADDI, and this change to IDIS was insufficient
to collect information exclusively on ADDI projects. Due partly to the
program's modest size and limited authorization period, HUD decided not to
create a discrete control for ADDI and instead went forward with
procedures for designating ADDI projects in IDIS that had recognized
limitations. As a result, HUD's current procedures for collecting ADDI
project information in IDIS allow non-ADDI HOME projects to be included in
the expenditures and accomplishments attributed to the program. It is,
therefore, difficult to draw any conclusions about what ADDI has
accomplished, and Congress lacks reliable information on which to base
decisions about the program's reauthorization. However, because creating
new data controls for ADDI in IDIS would require an investment of
resources, to do so would be prudent only if ADDI is authorized beyond
fiscal year 2007.

Even if HUD had more reliable data on ADDI expenditures and projects, it
might be too early to assess their impact given the relatively short
amount of time that the program has been operating-about 2 years. However,
the market conditions and financing constraints described by the 40
jurisdictions we contacted (about 9 percent of the jurisdictions that
received ADDI funds), and the likelihood that these conditions and
constraints exist in many other areas, suggest that ADDI faces a number of
challenges that could limit its impact. First, while most of these
jurisdictions were using their ADDI allocations, the allocations were
likely too small to assist enough families to significantly increase
homeownership rates. Second, in jurisdictions where the gap between home
prices and the mortgages affordable to eligible families is greater than
the ADDI per-household limits, ADDI will have an impact only to the extent
that other sources of homeownership assistance are available to use in
conjunction with ADDI funds, and officials are able to effectively use
such combinations. Finally, absent concerted efforts by jurisdictions to
combine different sources of subsidies, the use of ADDI as a tool to help
recipients of rental housing assistance become homeowners may be limited
because the very low incomes of this population pose a major obstacle to
homeownership. Nevertheless, consistent with long-standing federal efforts
to make homeownership more affordable for American families, ADDI ensures
that a broad range of participating jurisdictions use a portion of their
total HOME allocations to help low-income families become first-time
homeowners.

Recommendations for Executive Action

To ensure that ADDI expenditures and accomplishments are accurately
reported, we recommend that, if Congress authorizes ADDI beyond fiscal
year 2007, the Secretary of HUD take the following two actions:

o develop and implement a discrete control in IDIS that distinguishes ADDI
projects from non-ADDI HOME projects, seeking funds to do so if necessary;
and

o issue guidance to participating jurisdictions on how to use this control
to enter consistent data on ADDI projects into IDIS.

Agency Comments and Our Evaluation

We provided HUD with a draft of this report for review and comment. HUD
provided comments in a letter from the General Deputy Assistant Secretary
for Community Planning and Development (see app. VI). HUD did not comment
on our recommendations but made several comments about other aspects of
our draft report.

First, HUD stated that the title of the draft report was "misleading
considering the findings and recommendations in the report." Specifically,
HUD agreed with a statement in the draft report's Conclusions section
stating that it might be too early to assess the impact of ADDI given the
relatively short time the program has been in operation and believed that
the title of the report should have captured the essence of this
statement. Although this statement was one of several points in our
conclusion, the more fundamental issue we raised-discussed in both the
Conclusions section and the body of the draft report-was that HUD lacked
accurate data on ADDI expenditures and accomplishments. Because accurate
data are essential for program evaluation, as well as program management
and oversight, our draft report recommended that, if the program is
reauthorized, HUD develop and implement controls and issue guidance that
would ensure that data attributed to ADDI are accurate. We continue to
believe that the title of our report accurately represented this
fundamental issue and the reasoning behind the report's recommendation.

Second, HUD said that the cost of changing IDIS to separately capture ADDI
projects "could not be justified at the time of ADDI's rollout in 2004 by
any reasonable cost/benefit analysis" and that the agency had explained
this in great detail to GAO officials during the course of the review. HUD
estimated the cost of such a change to be at least $1 million. However,
HUD did not provide us with a cost/benefit analysis or, in fact, any
analysis or detailed estimate of costs or benefits either during the
course of our review or in its comment letter. HUD commented further that
in a May 2006 meeting, GAO officials had agreed that the agency's decision
not to invest funds and divert resources to create a discrete ADDI control
appeared to be justified from HUD's perspective. Contrary to HUD's
assertion, we did not agree in this meeting that HUD's decision was
justified. Because HUD provided no evidence of any cost/benefit analysis,
we are not able to determine whether any steps HUD took to assess the
costs and benefits of revising IDIS were reasonable and thus whether its
decision was justified. However, our draft report acknowledged the
rationale behind HUD's decision and indicated that, according to HUD,
creating a discrete ADDI control would require a significant investment of
resources. Finally, HUD stated that (1) the agency's reasons for not
creating a discrete ADDI control needed to be discussed in the beginning
of the report to provide a clearer understanding of the agency's actions
and (2) our draft report did not recognize one of these
reasons-specifically, that the agency did not know whether ADDI would
receive funding beyond 2007. Our draft report presented HUD's overall view
on the feasibility of creating a discrete ADDI control in both the
Highlights and Results in Brief sections at the front of the report. In
addition, our draft report did cite ADDI's authorization period as one of
the agency's reasons. However, in response to HUD's comments, we added
language to both the Highlights and the Results in Brief sections of the
final report to further explain the agency's rationale.

Third, HUD stated that it disagreed with the draft report's contention
that the ADDI expenditures and accomplishments the agency reported are not
representative of ADDI projects. In support of this statement, HUD cited
an analysis-using data in IDIS-from which the agency concluded that "the
population served by ADDI set-aside funds and other HOME funds are, for
all intents and purposes, one and the same." Because HUD's analysis is
based on data compiled using the same flawed procedures discussed in our
report, we do not believe that HUD has presented a sound basis for this
conclusion. In addition, our draft report did not state that HUD's data
"are not representative of ADDI projects." Rather, it said that due to
internal control weaknesses, HUD's data include an unknown number of
non-ADDI HOME projects and that the agency, therefore, cannot be certain
of the extent to which the data represent ADDI projects. HUD also cited
jurisdictions' practice of combining ADDI and other HOME funds as evidence
that the populations served by ADDI and other HOME funds are essentially
the same. However, this practice merely shows that other HOME funds may be
used to assist first-time homebuyers and does not demonstrate that all
first-time homebuyers served by other HOME funds share the same
characteristics as those served by ADDI. Further, even if both ADDI and
non-ADDI HOME funds serve similar populations, HUD is responsible for
complying with federal internal control standards that call for controls
to appropriately classify projects-in this case projects that are funded
from programs with different allocation formulas and requirements.

Fourth, HUD stated that it "rejects the contention that the [ADDI]
information collected is not relevant, of value, and useful for
controlling operations and making decisions" and that the agency is "using
such information operationally to, among other things, aggressively track
and, as appropriate, take necessary actions toward improving the
performance of sixty-seven participating jurisdictions that have yet to
expend any of their ADDI funds." Although our review found many instances
where HUD's IDIS data overstated and potentially understated
jurisdictions' ADDI expenditures, our draft report did not contend that
HUD's data have no value. However, because of the limitations, we believe
it is unlikely that these data capture the total population of
jurisdictions that have yet to expend any of their ADDI funds.

Finally, HUD disagreed with statements in our draft report that data
limitations prevented GAO from assessing ADDI's impact and accomplishments
and stated that GAO's methodology was not adequate to respond to the
congressionally mandated study of ADDI. As we stated in the draft report,
accurate data on ADDI expenditures and accomplishments would be an
essential first step in assessing the program, and HUD lacks accurate
data. Collecting such data would have required us to contact all 445
jurisdictions that have received ADDI funds since the program's inception,
as well as any third parties or subgrantees that administered these
jurisdictions' ADDI programs. We determined that such an approach would
have been prohibitively expensive and an inefficient use of funds,
particularly given that it would not have produced a supporting
information system for future data collection. Further, we kept the
relevant congressional committees apprised of our scope, methodology, and
research objectives throughout the review, including the limitations in
HUD's data that affected our work.

We are sending copies of this report to the Secretary of HUD and other
interested congressional committees. We also will make copies available to
others upon request. In addition, the report will be available at no
charge on the GAO Web site at http://www.gao.gov .

If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or [email protected] . Contact points for our
Office of Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report are listed in
appendix VII.

David G. Wood Director, Financial Markets   and Community Investment

Appendix I  Scope and Methodology

To obtain information on American Dream Downpayment Initiative (ADDI)
expenditures and assisted households through December 31, 2005, we
obtained and analyzed data from the Department of Housing and Urban
Development's (HUD's) ADDI Accomplishment Report and Open Activities
Report. To assess the reliability of the data in HUD's ADDI Accomplishment
Report, which is generated from the agency's Integrated Disbursement and
Information System (IDIS), we (1) performed limited electronic testing of
data elements contained in HUD's ADDI Accomplishment Report to detect
obvious errors; (2) reviewed existing information about the data and HUD's
rules for crediting ADDI in IDIS; (3) interviewed officials from HUD's
Office of Community Planning and Development about ADDI program
requirements, the agency's IDIS controls, and guidance to jurisdictions on
the procedures for entering ADDI project information into IDIS; and (4)
performed some checks of the HUD-reported ADDI expenditure data against
records from a selection of 33 jurisdictions-11 states, 13 cities, three
counties, and six consortiums. We visited 13 of these participating
jurisdictions-4 states, 6 cities, and three consortiums-that we
judgmentally selected to cover different geographic regions, housing
markets, and jurisdiction types. We interviewed officials from the 20
remaining jurisdictions-7 states, 7 cities, three counties, and three
consortiums- which was a stratified, random sample designed to cover the
four types of jurisdictions and those with relatively high and low funding
allocations and expenditure levels, according to HUD's data as of December
31, 2005.

We also reviewed laws, regulations, and agency guidance relevant to ADDI
and the HOME Investment Partnerships (HOME) program, as well as guidance
and documentation for HUD's IDIS. We also consulted GAO's Standards for
Internal Control in the Federal Government and Internal Control Management
and Evaluation Tool. We used these standards to assess whether HUD's
internal controls for ADDI reporting were sufficient to ensure that the
agency was accurately reporting ADDI expenditures and accomplishments. We
did not assess the reliability of HUD's Open Activities Report or the
additional IDIS data that HUD provided us on the characteristics of the
households the agency attributed to ADDI from April 2004 through the end
of December 2005.

We were not able to determine the reliability of the expenditures or
number of assisted households that HUD reported for the ADDI program as of
December 31, 2005, because of certain limitations. Specifically:

o IDIS lacks a discrete control to distinguish ADDI projects from non-ADDI
HOME projects;

o HUD's guidance gives jurisdictions latitude to enter inaccurate data
into IDIS;

o Data reported by HUD may not capture all ADDI projects; and

o We contacted a small percentage (7.5 percent) of the 445 jurisdictions
that received an ADDI allocation, since the program began, to check the
reliability of HUD's ADDI data.

Nevertheless, in order to provide descriptive information about the ADDI
program and highlight the problems we identified with IDIS, we present the
ADDI data as reported by HUD. These were the only data available from HUD
on the ADDI activities of participating jurisdictions nationwide. Due to
these limitations, these figures need to be interpreted and used
cautiously.

To describe the views of officials from selected jurisdictions on factors
that affected their ability to use ADDI funds and on the program`s impact,
we obtained information from a total of 40 jurisdictions (the 33 noted
previously plus seven others-two states, four cities, and one
consortium-that we contacted while we were still developing our
methodology) through site visits, phone interviews, or document requests
(see list below).  1 Specifically, we visited 13 of these jurisdictions
and interviewed officials from the remaining 27. We asked these officials
about their administration of ADDI, including outreach activities and the
extent to which they used third parties or subgrantees; whether they had a
down-payment assistance program prior to ADDI and any federal, state, and
local sources of homeownership assistance they use in addition to ADDI;
the housing market conditions in their jurisdictions; and the demographics
of the populations they assist. We also asked them about their views on
ADDI's impact on homeownership rates, the amount of ADDI funds they
receive relative to demand for the program, and the ADDI per-household
assistance limits. For the 13 jurisdictions we visited, we also obtained
data and documentation on the different subsidies they used to promote
homeownership and the characteristics of ADDI-assisted households. To
supplement the information from the selected jurisdictions, we also
analyzed nationwide data from HUD on the ADDI allocations each
jurisdiction received for fiscal years 2003 through 2006.

During the course of our work, we contacted the following 40 ADDI
jurisdictions:

Cities

Amarillo, Texas Austin, Texas Baltimore, Maryland Boston, Massachusetts
Chicago, Illinois Grand Rapids, Michigan Indianapolis, Indiana Inglewood,
California Los Angeles, California Minneapolis, Minnesota Modesto,
California New York City, New York Philadelphia, Pennsylvania Pittsburg,
Pennsylvania Sacramento, California Seattle, Washington Washington, D.C.

Counties

Hamilton County, Ohio Montgomery County, Ohio Will County, Illinois

Consortiums

Alameda County Consortium, California Barnstable County Consortium,
Massachusetts Butler County Consortium, Ohio Cuyahoga County Consortium,
Ohio Dakota County Consortium, Minnesota Hennepin County Consortium,
Minnesota St. Louis County Consortium, Missouri

States

California Florida Maryland Massachusetts Michigan Minnesota New Mexico
North Dakota Ohio Oklahoma Pennsylvania Texas Washington

We did not generalize the results of our interviews to the entire
population of jurisdictions that received an ADDI allocation because we
contacted only a small selection of jurisdictions. Further, the internal
control problems associated with HUD's data did not allow us to make any
conclusions about the program's accomplishments.

We performed our work from July 2005 through June 2006, in accordance with
generally accepted government auditing standards.

Appendix II  Summary of Review of Literature on Barriers to Homeownership

Several academics have identified barriers to homeownership among all
types of households, evaluated the relative importance and magnitude of
these barriers, and hypothesized on the extent to which relaxation of
these barriers (or constraints) could increase homeownership among certain
populations, as well as the overall homeownership rate. The literature we
reviewed most commonly cited a lack of wealth (i.e., liquid assets for a
down payment and closing costs), a lack of income (i.e., liquid assets to
make monthly mortgage payments and to pay for home maintenance and
repair), and poor credit as barriers to homeownership, with lack of wealth
being the most significant, especially among minority households.1

Englehardt (1994) noted that housing prices affect potential buyers in
many ways but most significantly through the down-payment requirement.2 He
found that the higher the house price, the greater the amount of the down
payment required, and the greater the barrier to homeownership. According
to Englehardt, intergenerational transfers (i.e., the transfer of wealth
from parents to their children) effectively negate this wealth constraint,
allowing households to purchase homes sooner than they otherwise would if
they had to save for the down payment on their own. In a subsequent study,
Mayer and Englehardt (1996) noted that the percentage of the down payment
coming from gifts is negatively related to income and wealth and
positively related to median house price.3 Combined with data showing,
among other things, that the percentage of the down payment coming from
gifts is increasing and that the percentage from savings is decreasing,
the study suggests that some buyers are having an increasingly difficult
time saving for a down payment.

Stegman, Quercia, McCarthy, and Rohe found an increasing disparity between
the growth in income of lower-income families and an increase in

the operating costs of homes over time.4 Using data from the Federal
Housing Administration and the U.S. Census Bureau's Annual Housing Survey,
the authors found that the cost of operating a single-family home in the
past decade rose at an annual rate of 11.5 percent, while household
incomes (for all households) grew at an annual rate of 7.7 percent between
1974 and 1980. Based on this national information, they concluded that, on
average, families with low incomes in 1974 could carry a market-rate
mortgage of no more than a $43,900 (in 1990 dollars), meaning that they
would have needed capital grants of $10,600 to buy a house priced at 75
percent of the median price for a given area. Very-low income households
faced an even larger constraint and required deeper subsidies
(approximately $39,000).

Finally, Haurin, Hendershott, and Wachter (1997) found that households
that are constrained because of low income or wealth have a substantially
reduced probability of owning a home.5 They concluded that the severity of
constraints faced by the households will not affect the homeownership rate
unless an intervention (such as down-payment assistance) eliminates the
constraint. These findings and those of Englehardt; Mayer and Englehardt;
and Stegman, Quercia, McCarthy, and Rohe are consistent with our finding
that, in jurisdictions with high housing costs, large subsidies are
required to finance the gap between homebuyers' mortgage amounts and the
high prices of homes.

Several additional studies highlight the impact of the "wealth constraint"
on minority households.6 For example, Gyourko, Linneman, and Wachter note
that among wealth-constrained households (i.e., those households with
insufficient net worth to meet down payment and closing cost
requirements), whites own at systematically higher rates than minorities,
suggesting that minorities not only are less likely to own than whites,
but that they are also disproportionately wealth constrained. The authors
found that, in 1983, wealth-constrained whites owned homes at roughly
double the 10.3 percent rate of wealth-constrained minorities.

Finally, several studies suggest that small amounts of down-payment
assistance or other similar subsidies could substantially increase the
homeownership rate among low-income and minority households in
particular.7 However, the findings in these studies generally are not
based on results from controlled field studies and should not be construed
as definitive evidence of the impact down-payment assistance programs. For
example, Listokin, Wyly, Schmitt, and Voicu (2001) estimated the portion
of renters who would qualify for homeownership with mortgages that permit,
among other things, low down payments. They estimated that 9.2 percent of
all renters could afford a modestly priced home with a standard mortgage
without any down-payment assistance, but that the estimated percentage
would increase to 16.2 percent with an asset supplement (i.e.,
down-payment assistance). Comparatively, the authors estimated that the
share of black renters who could afford a modestly priced home with a
standard mortgage was 2.7 percent. The authors found that the only way to
substantially increase that percentage would be through an asset
supplement; they estimated that a $10,000 supplement would increase the
percentage to 29.8 percent.

Appendix III  Comparison of Selected Rules Applicable to Fiscal Year 2003
ADDI Funds to Those for Fiscal Year 2004-2007 Funds

The rules governing the allocation and use of American Dream Downpayment
Initiative (ADDI) funds for fiscal year 2003 differ somewhat from those
for fiscal years 2003 through 2007. Table 2 summarizes the similarities
and differences for selected rules.

Table 2: Comparison of Selected ADDI Rules for Different Fiscal Years

                                        

     Rule                     Fiscal year 2003 funds                 Fiscal year   
                                                                      2004-2007    
                                                                        funds      
Funding        Needa for, and prior commitment to, assistance to    Needa by       
formula        homebuyers.                                          state; then,   
                                                                    by local       
                                                                    participating  
                                                                    jurisdiction.  
                                                                    Funds only to  
                                                                    local          
                                                                    jurisdictions  
                                                                    with           
                                                                    populations of 
                                                                    more than      
                                                                    150,000 or     
                                                                    that qualify   
                                                                    for an         
                                                                    allocation     
                                                                    greater than   
                                                                    $50,000.       
Ineligible     None.                                                The            
participating                                                       Commonwealth   
jurisdictions                                                       of Puerto Rico 
                                                                    and local      
                                                                    participating  
                                                                    jurisdictions  
                                                                    in Puerto      
                                                                    Rico.          
Eligible                                                Low-income, 
homebuyers     first-time homebuyers                                
Eligible uses  Down-payment assistance.                             Down-payment   
of funds                                                            assistance and 
                                                                    rehabilitation 
                                                                    done in        
                                                                    conjunction    
                                                                    with a home    
                                                                    purchase.      
                                                                    Rehabilitation 
                                                                    must be        
                                                                    completed      
                                                                    within 1 year  
                                                                    of purchase.   
Administrative                                       Cannot be used 
costs          for administrative costs                             
Assistance     Subject to HOME Investments Partnerships program     The greater of 
caps           (HOME) maximum per-unit subsidy.                     $10,000 or 6   
                                                                    percent of the 
                                                                    home's         
                                                                    purchase       
                                                                    price; also    
                                                                    subject to     
                                                                    HOME maximum   
                                                                    per-unit       
                                                                    subsidy when   
                                                                    used in        
                                                                    combination    
                                                                    with HOME      
                                                                    funds.         
Matching       Applies.                                             Does not       
requirementb                                                        apply.         
Uniform        Applies.                                             Does not       
Relocation Act                                                      apply.         
requirementsc                                                       

Source: HUD.

Note: Project "soft-costs" are reasonable and necessary costs incurred by
the homebuyer or participating jurisdiction associated with the financing
of single-family housing (inspection fees, for example).

a"Need" is the percentage of low-income households residing in rental
housing based on census data.

bAs participating jurisdictions use HOME funds, they incur a match
liability-25 cents for each dollar of HOME funds spent-that must be
satisfied by the end of each federal fiscal year.

cThe purpose of the Uniform Relocation Act is to provide uniform, fair,
and equitable treatment of persons whose real property is acquired or who
are displaced in connection with federally funded projects. Tenants
displaced because their dwelling was purchased using fiscal year 2003 ADDI
funds are eligible for relocation assistance and payments.

Appendix IV  Statistics That HUD Reported for ADDI through December 31, 2005

The amount of expenditures, assisted households, and assisted minority
households reported by the Department of Housing and Urban Development
(HUD) varied by state (see table 3). According to HUD's data,

o The amount of American Dream Downpayment Initiative (ADDI) expenditures
ranged from a low of $0 (South Dakota) to a high of $10.3 million
(California).

o The number of assisted households ranged from a low of 0 (South Dakota)
to a high of 985 (Ohio). Texas assisted the most minority households
(607).

o Excluding fiscal year 2003 ADDI funds (because they are subject to
different per-household assistance limits than funds for subsequent
years), the average and median assistance per household were $6,871 and
$6,840, respectively. For minority households, the comparable figures were
$7,123 and $7,000. The amount of assistance provided ranged from less than
$1,000 to $28,748.

However, as discussed in the body of this report, these figures, including
data in the following table, represent a mix of ADDI and an unknown number
of non-ADDI HOME projects.

Table 3: State-by-State ADDI Expenditures and Accomplishments Reported by
HUD through December 31, 2005

                                        

State  Down-payment Rehabilitation  Total ADDI      Total        Number of 
            assistance     assistance  assistance  number of         minority 
                                                  households       households 
                                                                 within total 
                                                                    number of 
                                                                   households 
Ala.     $2,525,806             $0  $2,525,806        258              101 
Alaska      462,288              0     462,288         43               14 
Ariz.       729,421              0     729,421         89               57 
Ark.        181,208              0     181,208         30               20 
Calif.   10,325,690          3,774  10,325,690        685              469 
Colo.     1,345,807              0   1,345,807        243               78 
Conn.       821,996              0     821,996         54               40 
D.C.        713,779              0     713,779         54               52 
Del.          8,050              0       8,050          1                0 
Fla.      5,505,023              0   5,505,023        590              355 
Ga.       3,754,127          4,350   3,758,477        596              424 
Hawaii      520,612              0     520,612         44               30 
Idaho       647,900              0     647,900        197               24 
Ill.      4,327,641              0   4,327,641        447              288 
Ind.      2,913,858              0   2,913,858        669              149 
Iowa        102,099              0     102,099         10                8 
Kans.     1,750,611         19,708   1,770,319        244               64 
Ky.       1,895,810              0   1,895,810        241               75 
La.       1,070,606              0   1,070,606        152              120 
Maine       595,544              0     595,544         81                6 
Mass.     3,069,062         12,731   3,081,793        467              199 
Md.       2,565,254              0   2,565,254        346              242 
Mich.     2,972,693         10,917   2,979,171        334              170 
Minn.       397,308              0     397,308         55               11 
Miss.       534,564              0     534,564         32               17 
Mo.       3,385,899          2,200   3,388,099        572              206 
Mont.       698,906              0     698,906         63                7 
N.C.      4,637,120              0   4,637,120        684              385 
N.Dak.      532,353          8,852     541,205        152                5 
N.H.        819,865              0     819,865         80                6 
N.J.      1,368,659              0   1,368,659        169              123 
N.Mex.      753,146              0     753,146         99               68 
N.Y.      5,151,769        110,351   5,262,120        697              273 
Nebr.       954,591         25,495     980,086        111               11 
Nev.        879,620              0     879,620        140              113 
Ohio      5,457,679         26,137   5,483,816        985              399 
Okla.       452,666              0     452,666        228              167 
Oreg.       312,956              0     312,956         48                7 
Pa.       2,733,890         10,524   2,744,414        428              132 
Puerto      716,517              0     716,517         48               48 
Rico                                                      
R.I.        409,944              0     409,944         43               24 
S.C.      1,806,087              0   1,806,087        521              228 
S.Dak.            0              0           0          0                0 
Tenn.     3,330,401              0   3,330,401        453              189 
Tex.      5,898,550         10,288   5,908,838        776              607 
Utah        239,619              0     239,619        115               15 
Va.       3,530,851         13,704   3,540,055        385              233 
Vt.         155,142              0     155,142          8                1 
W.Va.       215,958              0     215,958         21                5 
Wash.     1,665,382              0   1,665,382        164               35 
Wisc.     1,926,957         97,365   2,024,322        313               53 
Wyo.       $362,915             $0    $362,915         35                2 
Total   $98,134,199       $356,396 $98,477,882     13,300            6,355 

Sources: GAO and HUD.

Note: According to HUD officials and explanatory documents on the agency's
Web site, down-payment assistance plus rehabilitation assistance should
equal total ADDI assistance on the above report; however, we found that
the report contains three cases where rehabilitation assistance was
excluded from total ADDI assistance.

Appendix V  Profiles of ADDI Programs in Four Jurisdictions

We contacted 40 participating jurisdictions that were awarded American
Dream Downpayment Initiative (ADDI) grants in fiscal years 2003 through
2005. We describe below ADDI programs in 4 of the 40 jurisdictions we
contacted-Los Angeles, California; Grand Rapids, Michigan; the State of
Texas; and Sacramento, California. We selected these four jurisdictions to
illustrate how the program is operating in relatively high-cost and
low-cost locations and is being used to assist targeted or hard-to-reach
populations.

Los Angeles, California

According to the National Association of Home Builders/Wells Fargo Housing
Opportunity Index, Los Angeles was the most expensive city to live in the
United States in 2005.1 The disparity between the annual income of an
eligible low-income family-one earning 80 percent or less of the area
median income-and the purchase price of homes represents one of the most
significant obstacles to homeownership for first-time homebuyers in Los
Angeles. For example, the median purchase price of homes purchased by
ADDI-assisted households in Los Angeles was $264,000, while the median
mortgage amount was about $142,000. As a result of this large gap, the Los
Angeles Housing Department (LAHD) administers a complex homebuyer
assistance program, in which more than seven subsidies can be combined to
assist eligible first-time, low-income homebuyers.

LAHD offers several programs to low-income, first-time homebuyers who need
assistance to purchase a home in the city. Using HOME Investment
Partnerships (HOME) program funds, LAHD offers purchase assistance of up
to $90,000 to eligible homebuyers. LAHD also provides eligible homebuyers
with ADDI funds-$10,000 or up to 6 percent of the purchase price of a
home, whichever is greater-to help cover the cost of the down payment and
closing costs. Both programs offer the assistance as 30-year, deferred
zero-interest loans, which are payable upon the sale or transfer of the
property. Homebuyers are required to complete at least 8 hours of
homebuyer education from one of LAHD's approved providers to obtain these
loans and must contribute a minimum of 3 percent of the sales price from
their own savings toward the down payment. Homebuyers may contribute as
little as 1 percent toward the down payment by attending 12 hours of
homebuyer education training. As shown below, the LAHD loans are combined
with state and other subsidies to maximize the benefits of the subsidies
and make homeownership in the city affordable for eligible families (see
fig. 7).

Figure 7: Example of a Homebuyer's Financing Package Incorporating ADDI
and LAHD Programs

As of January 2006, LAHD had assisted 32 low-income, first-time homebuyers
with ADDI funds. Of the 32 homebuyers who received ADDI funds, all used
more than one subsidy, 25 were minorities, and 23 earned 60 percent or
more of the area median income (see table 4).

Table 4: Selected Characteristics of ADDI Recipients in the City of Los
Angeles, as of January 2006

                                        

        ADDI assistance       Additional Homebuyer cash    Purchase price   First mortgage 
                              public and   contribution                             amount 
                                 private                                  
                              assistance                                  
Range   $10,920-$25,200 $25,683-$192,319 $1,850-$22,400 $182,000-$420,000 $80,700-$256,854 
Median          $15,840         $122,788         $5,460          $264,000         $141,700 
Average         $15,465         $119,850         $6,425          $257,758         $146,992 

Sources: GAO and City of Los Angeles.

Grand Rapids, Michigan

According to the National Association of Home Builders/Wells Fargo Housing
Opportunity Index, the City of Grand Rapids was among the 15 most
affordable metropolitan areas to live in the United States in 2005.
According to the city's 2005-2010 Consolidated Housing and Community
Development Plan, the city's overall homeownership rate in 2000 was about
60 percent. However, within the areas generally targeted for its homebuyer
assistance programs, the homeownership rate was less than 48 percent. The
city's consolidated plan also states that most renters with incomes of 51
to 80 percent of the city's area median income have the ability to secure
housing through the private market. However, these households still face
two impediments to homeownership: (1) down payments and closing costs and
(2) the availability of quality housing within their price range.

The Grand Rapids Community Development Department integrated the ADDI
program into its existing Homebuyer Assistance Fund (HAF) program, which
is funded with other HOME grants. HAF offers a zero-interest, deferred
payment loan of up to $5,000 for down-payment and closing cost assistance
to first-time, low-income homebuyers. These loans are forgivable after 5
years. Eligible homebuyers are informed of the HAF program through various
means, including participating mortgage lenders. To be considered for a
HAF loan, eligible homebuyers must be approved for a mortgage loan from 1
of 15 participating lenders, contribute at least 1 percent of the sales
price toward the down payment, have assets that do not exceed $5,000, and
complete a homebuyer education course. Of 41 families who received
assistance through ADDI, as of February 2006, 37 were minorities (see
table 5).

Table 5: Selected Characteristics of ADDI Recipients in the City of Grand
Rapids, as of February 2006

                                        

                    ADDI          Income    Homebuyer Purchase   First mortgage 
              assistance                         cash    price           amount 
                                         contribution          
Range   $3,698-$5,000 $16,497-$47,776  $500-$2,824 $64,900- $63,491-$109,388 
                                                      $110,500 
Median         $5,000         $26,487         $999  $86,000          $84,996 
Average        $4,846         $28,282       $1,157  $87,177          $85,737 

Sources: GAO and City of Grand Rapids.

State of Texas

Due to lower incomes (residents of nonmetropolitan areas earn
approximately $13,000 less annually than residents of metropolitan areas)
and lack of access to resources (such as bonds, large tax bases, and
investment capital) in less populous areas, the State of Texas gives
special programmatic consideration to lower-income individuals and
households residing in rural areas. For example, Section 2306.111(c) of
the Texas Government Code requires that the state participating
jurisdiction allocate 95 percent of its HOME (including ADDI) funds to
areas that are not other HUD-designated participating jurisdictions.
Combined with its annual ADDI allocation, the state dedicated
approximately $6.7 million to its Homebuyer Assistance Program (HAP) for
fiscal year 2006.

The Texas Department of Housing and Community Affairs administers HAP
through 20 subgrantees that are selected through a competitive process.
Families apply for down-payment assistance through these subgrantees.
Selected families receive 10-year forgivable loans that cannot exceed the
greater of $10,000 or 6 percent of the purchase price of a home. Of the 42
homebuyers who received ADDI funds through HAP, as of February 2006, 32
were minorities, 24 had mortgages insured by HUD's Federal Housing
Administration, 21 purchased homes in rural areas, and 8 earned less than
60 percent of the area median income. The average amount of ADDI
assistance per household was approximately $6,500 (see table 6).

Table 6: Selected Characteristics of ADDI Recipients in the State of Texas
Program, as of February 2006

                                        

                  ADDI Additional    Homebuyer   Purchase price   First mortgage 
            assistance public and         cash                            amount 
                          private contribution                  
                       assistance                               
Range   $3,100-$10,000  $0-$5,275   $0-$19,862 $40,900-$163,200 $25,000-$160,678 
Median          $5,200         $0           $0          $97,450          $91,397 
Average         $6,470       $526       $1,025          $94,942          $90,237 

Sources: GAO and State of Texas.

Sacramento, California

The Sacramento Housing and Redevelopment Agency (HRA) administers two HUD
programs through which it targets its homeownership programs, including
ADDI, to recipients of rental housing assistance (e.g., Housing Choice
Voucher households and residents of public housing)-the Section 5(h) and
Section 32 homeownership programs.2

o Under the Section 5(h) homeownership program, public housing authorities
(agencies that administer HUD's federal rental housing assistance
programs) can sell units and developments that, because of their location
or other factors, are no longer efficient for the housing authority to
operate. Residents of these developments are given first priority to
purchase the units. Housing authorities may use other HUD assistance,
including ADDI funds, to help finance the purchase and sale of these
units.

o Similar to the Section 5(h) program, the Section 32 homeownership
program permits public housing authorities to make public housing units
available for purchase by low-income families, including recipients of
federal rental housing assistance. The program also permits housing
authorities to give capital funds to public housing residents to purchase
homes (down-payment and closing cost assistance, subordinate financing, or
below-market financing) or use capital funds to acquire homes that will be
sold to low-income families. Housing authorities may use other HUD
assistance, including ADDI funds, to help finance the purchase and sale of
these units.

Under the Sacramento HRA's homebuyer program, eligible homebuyers can
layer up to four subsidies, depending on their annual income, to use
toward the purchase of a condominium or single-family home in the City or
County of Sacramento (see table 7). Total assistance available to a family
can range up to $40,000. According to an official from the Sacramento HRA,
about 75 percent of homebuyers obtain one or more subsidies.

Table 7: Subsidies Available to Homebuyers in the City of Sacramento by
Income Level or Voucher Program

                                        

             Income level                       Subsidies available           
Less than 60 percent of area       Eligible families may layer up to four  
median income or property located  of the following programs:              
in a targeted area                                                         
                                      o First-Time Homebuyer program or       
                                                                              
                                      o Target Area Homebuyer programa        
                                                                              
                                      o ADDIb                                 
                                                                              
                                      o Mortgage Assistance program or        
                                                                              
                                      o CalHome Mortgage Assistance programc  
                                                                              
                                      o Mortgage Certificate Credit programd  
60 to 80 percent of area median    Eligible families may layer up to three 
income                             of the programs listed above.           
Homeownership Voucher program      Recipients of Section 8 Homeownership   
participants                       Vouchers may combine their assistance   
                                      with the following three programs:      
                                                                              
                                      o First-Time Homebuyer programa         
                                                                              
                                      o ADDIb                                 
                                                                              
                                      o CalHome Mortgage Assistance programc  

Source: Sacramento HRA.

Note: HUD's Homeownership Voucher program allows recipients of Housing
Choice Vouchers to use their monthly subsidies to make payments on a
mortgage. Assistance is available for 10 to 15 years, depending on the
terms of the first mortgage. Program participants must be first-time
homebuyers, have full-time employment, and make a minimum income (based on
HUD guidelines).

aThe First-Time Homebuyer program and Target Area Homebuyer program
provide homebuyers with down-payment and closing cost assistance (30-year
deferred payment loan). The maximum amount of assistance available under
each of the programs is $5,000, and recipients must be first-time
homebuyers (recipients do not need to be first-time homebuyers in case of
the Target Area program), low-income (or low or moderate in the case of
the Target Area program) homebuyers. Both of these programs are partly
funded by HUD's Community Development Block Grant and HOME programs.

bTo receive ADDI funds, a homebuyer must meet the criteria set forth in
the American Dream Downpayment Act. Assistance is in the form of a 10-year
forgivable loan.

cThe Mortgage Assistance program and the CalHome Mortgage Assistance
program  offer 30-year deferred payment loans that are used to reduce the
amount of the purchaser's first mortgage. The amount of assistance for
which a homebuyer can qualify cannot exceed $20,000 (Mortgage Assistance
program) or $25,000 (CalHOME). Recipients must be low-income, first-time
homebuyers, and the assistance can be used to purchase a home in eligible
areas of the City and County of Sacramento.

dThe Mortgage Credit Certificate program reduces the amount of federal
income tax a recipient pays, making more income available to qualify for a
mortgage and make monthly mortgage payments.

Under its Section 5(h) program, Sacramento HRA is in the process of
rehabilitating and selling 73 scattered vacant houses and units. As of
April 2006, 4 families who were recipients of federal rental housing
assistance and 12 who were not had purchased homes under this program. All
16 families received ADDI assistance. In addition, Sacramento HRA is
currently in the process of implementing a Section 32 program. Under this
program, the city will rehabilitate and sell 200 existing housing units
and plans to use ADDI to make these units more affordable to potential
buyers.

Appendix VI  Comments from the Department of Housing and Urban Development

Appendix VII  GAO Contact and Staff Acknowledgments

David G. Wood (202) 512-8678

In addition to the individual named above, Steve Westley, Assistant
Director; Heather T. Atkins; William R. Chatlos; John T. McGrail; Marc
Molino; Josephine Perez; Barbara Roesmann; Cory Roman; and Sidney H.
Schwartz also made key contributions to this report.

(250255)

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Highlights of GAO-06-677 , a report to congressional committees

June 2006

HUD HOMEOWNERSHIP PROGRAMS

Data Limitations Constrain Assessment of the American Dream Downpayment
Initiative

While at an all-time high level, homeownership remains out of reach for
many Americans, especially low-income families and minorities. In 2003,
Pub. L. No. 108-186 created the American Dream Downpayment Initiative
(ADDI) to help low-income, first-time homebuyers cover the up-front costs
of buying a home (up to the greater of $10,000 or 6 percent of the
purchase price) and authorized funding through fiscal year 2007. The
Department of Housing and Urban Development (HUD) allocates ADDI funds to
over 400 jurisdictions (e.g., states, cities, and counties). Pub. L. No.
108-86 directed GAO to perform a state-by-state analysis of ADDI's impact.
This report discusses (1) HUD-reported information on ADDI expenditures
and assisted households, and the limitations on the quality of these data
and (2) the views of officials from selected jurisdictions on factors that
affected their ability to use their funds and on the program's impact.

What GAO Recommends

GAO recommends that, if Congress reauthorizes ADDI beyond fiscal year
2007, HUD develop and implement controls and issue guidance-seeking funds
to do so, if necessary-that would ensure that the expenditures and
accomplishments attributed to ADDI are accurate. HUD did not comment on
our recommendations but disagreed with the report's assessment of the
implications of the agency's data limitations.

Based on data collected through its Integrated Disbursement and
Information System (IDIS), HUD reported that through December 31, 2005,
jurisdictions had spent $98.5 million of the $211 million appropriated for
ADDI, helping more than 13,000 families-nearly half of which were
minorities-become homeowners. At the state level, reported expenditures
ranged from $0 to $10.3 million, and the number of projects (assisted
households) ranged from 0 to 985. However, because of data limitations in
IDIS and HUD's inconsistent guidance to jurisdictions on data entry, these
figures include an unknown number of non-ADDI projects that provided
down-payment assistance to first-time homebuyers. As a result, the
expenditures and accomplishments attributable to ADDI are not known. HUD
officials said that it was not feasible to create a control for ADDI in
IDIS by the time the program began and that to do so now would be costly.

Although most of the 40 jurisdictions GAO contacted have used some portion
of their ADDI grants, officials from many jurisdictions said that the
combination of high housing prices and the low incomes of eligible
families made it challenging to spend their funds. In higher-cost areas,
such as Los Angeles, California, jurisdictions must combine numerous
subsidies with ADDI funds to bridge the gap between home prices and
homebuyers' mortgages. However, in lower-cost areas, such as Grand Rapids,
Michigan, ADDI alone is sufficient to make up the difference (see fig.).
Officials from the jurisdictions GAO contacted indicated that ADDI has not
had a significant impact on local homeownership rates because the program
has been modestly funded and is relatively new. In addition, some
jurisdictions reported difficulties in serving populations that the
program targeted for outreach, such as recipients of rental housing
assistance.

Difference between the Median Purchase Price and Median Mortgage for Homes
Purchased with ADDI Assistance in Los Angeles, CA and Grand Rapids, MI
*** End of document. ***