Resolution Trust Corporation: Affordable Housing Disposition Program
Achieving Mixed Results (Letter Report, 09/28/94, GAO/GGD-94-202).

This report reviews the Resolution Trust Corporation's (RTC) Affordable
Housing Disposition Program. Specifically, GAO (1) assesses RTC's
progress in providing home ownership and rental opportunities for very
low-, lower-, and moderate-income families since GAO last reported in
September 1992; (2) assesses RTC's procedures for ensuring that
purchasers of program properties comply with income and occupancy
requirements; and (3) attempts to identify RTC's costs of running the
program. GAO also provides information on the status of RTC's and the
Federal Deposit Insurance Corporation's joint plan for continuing the
program after RTC closes in December 1995.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-202
     TITLE:  Resolution Trust Corporation: Affordable Housing 
             Disposition Program Achieving Mixed Results
      DATE:  09/28/94
   SUBJECT:  Low income housing
             Housing programs
             Disadvantaged persons
             Surplus federal property
             Eligibility determinations
             Real estate sales
             Property disposal
             Real estate purchases
             Rental housing
             Administrative costs
IDENTIFIER:  RTC Affordable Housing Disposition Program
             RTC Compliance Monitoring Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

September 1994

RESOLUTION TRUST CORPORATION -
AFFORDABLE HOUSING DISPOSITION
PROGRAM ACHIEVING MIXED RESULTS

GAO/GGD-94-202

Affordable Housing Disposition


Abbreviations
=============================================================== ABBREV

  AHDP - Affordable Housing Disposition Program
  FDIC - Federal Deposit Insurance Corporation
  FHLBA - Federal Home Loan Bank Act
  FIRREA - Financial Institutions Reform, Recovery, and Enforcement
     Act of 1989
  IG - Inspector General
  LURA - land use restriction agreement
  RTC - Resolution Trust Corporation

Letter
=============================================================== LETTER


B-258219

September 28, 1994

The Honorable Donald W.  Riegle, Jr.
Chairman
The Honorable Alfonse M.  D'Amato
Ranking Minority Member
Committee on Banking, Housing, and
 Urban Affairs
United States Senate

The Honorable Paul S.  Sarbanes
Chairman
The Honorable Christopher S.  Bond
Ranking Minority Member
Subcommittee on Housing and
 Urban Affairs
Committee on Banking, Housing,
 and Urban Affairs
United States Senate

The Honorable Henry B.  Gonzalez
Chairman
The Honorable James A.  Leach
Ranking Minority Member
Committee on Banking, Finance and
 Urban Affairs
House of Representatives

The Honorable Marge Roukema
Ranking Minority Member
Subcommittee on Housing and
 Community Development
Committee on Banking, Finance
 and Urban Affairs
House of Representatives

This report, mandated by the RTC Completion Act of 1993,\1 reviews
the Resolution Trust Corporation's (RTC) Affordable Housing
Disposition Program (AHDP).  Specifically, as agreed with the
Committees and Subcommittees, we (1) assessed RTC's progress in
providing home ownership and rental opportunities for very low-,
lower-, and moderate-income families\2 since we last reported in
September 1992; (2) assessed RTC's procedures for ensuring that
purchasers of AHDP properties comply with income and occupancy
requirements; and (3) attempted to identify RTC's costs of
administering AHDP.  We also are providing information on the status
of RTC's and the Federal Deposit Insurance Corporation's (FDIC) joint
plan for continuing AHDP after RTC closes in December 1995. 


--------------------
\1 Resolution Trust Corporation Completion Act, P.L.  103-204, 107
Stat.  2369, 2409 (1993). 

\2 Families approved to buy AHDP properties cannot earn more than 50
percent of their area's median income to qualify as very low-income,
80 percent to qualify as lower-income, and 115 percent to qualify as
moderate-income. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Overall, RTC has achieved mixed results in its AHDP.  RTC continues
to make progress in providing home ownership and rental opportunities
for very low-, lower-, and moderate-income families.  As of June 30,
1994, RTC had sold about 63 percent (21,327 of 33,716) of the
single-family properties that were marketed through AHDP.  Of those
sold, 11,798 were sold since we last reported on AHDP in September
1992.  Also, as of June 30, RTC had sold about 54 percent (673 of
1,245) of the multifamily properties marketed through AHDP; 489 were
sold during the past 2 years.  Although sales of multifamily
properties have increased over the past 2 years, complete data on the
number of multifamily housing units occupied by income-eligible
households were not available as of June 30, 1994. 

RTC also improved its procedures for ensuring that purchasers of
single-family properties comply with AHDP income and occupancy
requirements.  Specifically, RTC directed its field offices to
require that buyers of single-family properties provide evidence of
their income, such as copies of income tax returns or recent pay
statements, to demonstrate their eligibility.  RTC has developed a
compliance monitoring program, but several problems hampered RTC's
ability to ensure that multifamily property owners achieve and
maintain the set-aside requirements.  For example, the multifamily
program lacked time frames and may lack sufficient enforcement
actions to encourage multifamily property owners to comply with
set-aside requirements.  Further, RTC lacked assurance that all
properties sold under AHDP had the required deed restrictions
critical to monitoring compliance with set-aside requirements.  As of
June 30, 1994, deed restrictions for 113 multifamily properties
either could not be located by RTC or needed legal corrections. 
Consequently, these properties were not being monitored for
compliance with set-aside requirements. 

We were unable to determine the difference between the cost to sell
properties under AHDP and outside the program primarily because data
comparing the sales price received from AHDP properties to the
estimated sales price that would have been received had the property
been sold in RTC's regular disposition program were not available. 
However, RTC reported that the administrative costs for AHDP averaged
$11.8 million for calendar years 1991 through 1993 and were $6.8
million from January through July 1994.  These expenditures include
costs such as salary and travel; however, they do not reflect
property holding costs. 

In April 1994, RTC and FDIC developed a plan for unifying their
respective AHDPs as required by the RTC Completion Act.  Under the
plan, FDIC will assume responsibility for the marketing and managing
of RTC affordable housing properties not later than October 1995. 
Currently, RTC and FDIC are engaging in joint affordable housing
single-family sales events involving 313 properties. 


   BACKGROUND
------------------------------------------------------------ Letter :2

RTC's AHDP was mandated by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA).  This was a new
program that had to be fully developed by RTC.  The requirement to
preserve affordable housing added a goal that could compete with
another mandate for RTC--to maximize the net recoveries on the sale
or other disposition of the assets of failed thrifts.  FIRREA added
section 21A(c) to the Federal Home Loan Bank Act (FHLBA) and charged
RTC with providing affordable home ownership and rental housing
opportunities to very low-, lower-, and moderate-income families. 
Since 1989, there have been several amendments to the affordable
housing provisions of FHLBA relating to the administration of the
program and authorizing special provisions for nonprofit
organizations and public agencies to acquire properties through the
program.\3

In January 1990, RTC set up a separate organization to manage its
AHDP (see app.  I for statistics on staff assigned to AHDP).  This
unit consists of a headquarters office that develops and issues AHDP
regulations and advises the field offices that are responsible for
implementing AHDP regulations. 

AHDP consists of two components:  single-family and multifamily. 
Under the single-family component, RTC offers to sell qualifying 1-
to 4-unit properties to eligible families, nonprofit organizations,
and public agencies during a 97-day period.  The affordability
guidelines state that families approved to buy the properties or
those occupying the property\4 cannot earn more than 115 percent of
their area's median income (adjusted for family size) and must occupy
the property as a principal residence for at least 1 year. 

Initially, under the multifamily program, RTC listed properties with
clearinghouses that marketed the properties to qualifying purchasers
for 90 days.  During this period, public agencies, nonprofit
organizations, and for-profit organizations could submit expressions
of interest.  After the 90-day exclusive marketing period, qualifying
purchasers interested in purchasing the property had 45 days to
submit an offer. 

In May 1992, as authorized by the RTC Refinancing, Restructuring, and
Improvement Act of 1991, RTC implemented a direct sales program that
allows public agencies and nonprofit organizations to negotiate
directly with RTC to purchase eligible multifamily properties.  Under
the direct sales program, a multifamily property is marketed
exclusively to public agencies for no more than 30 days.  If no
public agency expresses interest during this period, RTC next offers
the property to nonprofit organizations during another exclusive
30-day marketing period.  If a nonprofit organization does not
express interest at the end of the 30-day period, properties are to
be marketed through the clearinghouse procedures. 

Properties sold under AHDP are to be bound by a land use restriction
agreement (LURA), which is a deed restriction that all purchasers are
required to sign when they acquire property through AHDP. 
Single-family purchasers or those who occupy single-family properties
agree to live in the property as a principal residence for at least 1
year.  Multifamily purchasers agree to set aside at least 35 percent
of the units for very low- and lower-income families for the useful
life of the property, which has been defined to be the later of 40
years from the date of the LURA or 50 years from the date the
property was occupied as multifamily housing.\5 The LURA binds the
purchaser and all subsequent owners of the multifamily property for
the full term of the agreement, and its conditions remain in effect
over the useful life of the property. 

To ensure that the requirements of the LURAs are achieved and
maintained, RTC has entered into memorandums of understanding with
state monitoring agencies.  Under the memorandums, the state agencies
are responsible for monitoring and enforcing owner compliance with
the occupancy requirements.  Specifically, agencies are to provide
training and guidance to property owners and managers on program
procedures and requirements, monitor and enforce corrective actions
in cases of noncompliance, and report semiannually to RTC and its
successor agency on their compliance monitoring activities.  To
offset the cost of monitoring owner compliance with the LURA, each
owner also agrees to pay the state monitoring agency or RTC an annual
administrative fee. 


--------------------
\3 Section 21A(c) of FHLBA has subsequently been amended by the
Resolution Trust Corporation Act of 1991, P.  L.  102-18, 105 Stat. 
58 (Mar.  23, 1991); the Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 (The RTC Improvement Act),
P.  L.  102-233, 105 Stat.  1761 (Dec.  12, 1991); and the Resolution
Trust Corporation Completion Act, P.  L.  103-204, 107 Stat.  2369
(Dec.  17, 1993). 

\4 Public agencies and nonprofit organizations are allowed to
purchase single-family properties under AHDP if they agree to make
the property available for rent or sale to eligible families who
agree to occupy the property as a principal residence for at least 1
year. 

\5 While purchasers are required to designate at least 35 percent of
the units in the property for very low- and lower-income families,
many nonprofit and public agency buyers have agreed to set aside
higher percentages for such families. 


      PAST AUDIT REPORTS
---------------------------------------------------------- Letter :2.1

Over the past 2 years, we and RTC's Inspector General (IG) have
reported on RTC's AHDP.\6 In addition to providing statistics on the
number of properties sold under AHDP, these reports have identified
internal control weaknesses and compliance issues that had an adverse
impact on AHDP. 

In September 1992, we reported that RTC lacked controls to verify
that purchasers were eligible to acquire property through the
single-family program or that they were complying with the program's
1-year occupancy requirement.  We concluded that RTC could not ensure
that the program was meeting its goal of providing affordable housing
for very low-, lower-, and moderate- income families and was
vulnerable to program violations.  We also reported that due to
system limitations and data integrity problems, RTC's real estate
management information system had only limited ability to support the
affordable housing program.  This limited support hindered RTC's
ability to evaluate the program's effectiveness and accurately report
on its status to Congress. 

We also reported that while RTC had published operating procedures
for marketing and selling multifamily properties, it needed to
strengthen its internal controls by monitoring and overseeing the
implementation of these procedures to ensure that they were being
executed properly and consistently throughout RTC. 

In April 1993, RTC's IG reported that RTC did not fully achieve the
intent of AHDP due to internal control weaknesses.  The IG reported
that two RTC offices--the Southeastern Consolidated Office and the
Tulsa Consolidated Office--did not fully meet their AHDP objectives
because internal control procedures were not adequate.  For these two
offices, RTC did not have reasonable assurance that buyers were
eligible to purchase single-family properties.  Also, RTC could not
ensure that properties were adequately marketed or listed with
clearinghouses and that all AHDP supporting documentation was kept in
property files.  Finally, RTC did not have procedures to monitor
multifamily occupancy requirements to ensure that rental
opportunities were provided only to eligible individuals. 


--------------------
\6 Resolution Trust Corporation:  More Actions Needed to Improve
Single-Family Affordable Housing Program (GAO/GGD-92-136, Sept.  29,
1992); Resolution Trust Corporation:  Affordable Multifamily Housing
Program Has Improved but More Can Be Done (GAO/GGD-92- 137, Sept. 
29, 1992); and Affordable Housing Disposition Program at Selected
Offices, RTC Office of Inspector General (Audit Report A93-023, Apr. 
13, 1993). 


   OBJECTIVE, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

The RTC Completion Act of 1993 directed us to determine the
effectiveness of RTC's AHDP in providing affordable home ownership
and rental housing for very low-, lower-, and moderate-income
families.  In response to the mandate and subsequent discussions with
your Committees and Subcommittees, we agreed to (1) assess RTC's
progress in providing home ownership and rental opportunities for
very low-, lower-, and moderate-income families since we last
reported in September 1992; (2) assess RTC's procedures for ensuring
that purchasers of AHDP properties comply with all AHDP requirements,
including occupancy requirements; and (3) identify RTC's costs of
administering AHDP.  We also agreed to provide information on the
plans to unify RTC's and FDIC's AHDP. 

To accomplish the first objective, we obtained and analyzed RTC
statistics on the number of single- and multifamily properties sold
from January 1990 through June 30, 1994.  Due to time constraints, we
used RTC data as provided to us; we did not verify the accuracy or
reliability of the data we obtained. 

To assess RTC's procedures for ensuring that purchasers of AHDP
comply with income and occupancy requirements, we examined the
policies and procedures used under the program to sell eligible
single- and multifamily properties.  We also interviewed RTC
officials in headquarters as well as the Dallas and Denver field
offices to obtain their views on the usefulness of AHDP policies and
procedures in helping them achieve the goals of the program.  We
selected these two field offices because of their geographic
dispersion and because they had sold over half of the AHDP properties
since inception of the program.  However, the results of our work
cannot be projected to other RTC field offices.  We also interviewed
representatives from nonprofit and for-profit organizations as well
as state monitoring agencies in Texas and Colorado to obtain their
perspectives on AHDP. 

To supplement our interviews with RTC AHDP officials, we developed a
data collection instrument to obtain information on the
implementation of RTC internal controls governing the sale of
single-family properties.  We randomly selected 103 of the 8,722
single-family property sales in RTC's Dallas field office during
1993.  Through this sample, we sought to verify the implementation of
RTC procedures used to ensure that single- family properties were
sold to income-eligible families and that purchasers occupied the
properties for at least 1 year.  We did not independently verify the
information we received. 

To identify RTC's AHDP cost, we attempted to determine any difference
between the costs incurred by RTC in selling properties under AHDP
and its regular disposition program.  To determine a difference would
require knowledge of what RTC could have sold AHDP property for in an
unrestricted market.  We could then compare this price to the sales
price obtained by selling properties under AHDP.  These data were not
available from RTC.  Nonetheless, we collected and reviewed available
RTC data on administrative costs associated with operating AHDP from
1990 through July 1994. 

Finally, to determine the status of RTC's and FDIC's plan for
unifying their affordable housing programs, we reviewed the plan and
interviewed RTC and FDIC officials. 

We did our work between February and August 1994 in accordance with
generally accepted government auditing standards.  On September 12,
1994, we discussed a draft of this report with officials at RTC's
headquarters responsible for managing the program, including the
Director of AHDP.  These officials generally agreed with our findings
and recommendations.  We have incorporated their comments where
appropriate. 


   PROGRESS CONTINUES IN
   SINGLE-FAMILY PROGRAM
------------------------------------------------------------ Letter :4

Overall, RTC had marketed 33,716 single-family properties under AHDP. 
Since we last reported on AHDP in September 1992, RTC had sold an
additional 11,798 single-family properties.  As of June 30, 1994, RTC
had sold 21,327 single-family properties for a total sales revenue of
$584 million (see app.  II for a summary of RTC's AHDP single-family
sales).  Another 2,837 single-family properties were in AHDP's
inventory.  According to AHDP officials, the remaining 9,552 were
sold outside AHDP because no acceptable offer was received before the
AHDP marketing period expired. 

However, RTC faces several challenges as it attempts to sell the
remaining 2,837 single-family properties in its AHDP inventory.  As
shown in figure 1, almost half of the single-family properties in the
AHDP inventory were not being marketed as of June 30, 1994. 
According to the Director of AHDP, this was primarily because the
properties were not properly prepared for marketing in accordance
with RTC procedures.  Under these procedures, marketing cannot begin
until all required documents and reviews (i.e., deed, title searches,
appraisals, environmental reviews, and legal correspondence
summarizing litigation affecting marketability) are completed. 

   Figure 1:  Status of 2,837
   Single-Family Properties in the
   AHDP Inventory as of June 30,
   1994

   (See figure in printed
   edition.)

Source:  GAO analysis of RTC AHDP reports. 

On the basis of concerns we raised, RTC has implemented actions to
improve AHDP single-family property sales.  For example, RTC improved
its procedures to ensure that single-family properties are sold to
income-eligible buyers and that they comply with the 1-year occupancy
requirement.  In June 1992, RTC directed its field offices to require
that buyers provide evidence of their income, such as copies of
income tax returns or recent pay statements, to demonstrate their
eligibility.  RTC also required that RTC staff, including
contractors, reconfirm income eligibility when the specific property
to be purchased is selected and ascertain from buyers whether their
income has changed since initial qualifications.  Our limited test in
RTC's Dallas field office showed that during 1993, 100 of the 103
single-family properties in our sample were sold to income-eligible
families.  However, in the remaining 3 cases, we were not able to
determine whether the single-family property was sold to an eligible
buyer because the documentation was not available in the files we
reviewed. 

RTC also has implemented a process to review program violators.  As
of June 30, 1994, 704 requests for litigation services had been made
to RTC's Legal Services Division.  The nature of these requests
included litigation matters such as program violations,
implementation of LURAs, and civil litigation.  Of the 704 requests,
28 were dismissed because a determination was made that they did not
warrant civil action.  Forty-two cases were under investigation, and
634 were being reviewed to determine whether litigation was
warranted.  Data provided by RTC on September 13, 1994, showed that
about 34 percent (218 of the 634) of the cases had been resolved and
completed. 


   MULTIFAMILY SALES INCREASED BUT
   PROGRAM PROBLEMS REMAIN
------------------------------------------------------------ Letter :5

Although sales of multifamily properties increased over the past 2
years, RTC data showed that only 45 percent of the housing units set
aside for very low- and lower-income families were occupied by
eligible households.  Several problems hamper RTC's ability to ensure
that occupancy requirements are achieved.  First, complete data on
the occupancy of housing units set aside for very low- and
lower-income families were not available.  Second, the law and RTC
regulations do not specify how and when property owners are to meet
occupancy requirements.  Third, sufficient enforcement actions for
not complying with the LURA may not be available.  Finally, RTC has
no assurance that LURAs were executed, recorded, and kept for all
multifamily properties sold under AHDP. 


      MULTIFAMILY PROPERTY SALES
      INCREASED SINCE 1992
---------------------------------------------------------- Letter :5.1

RTC marketed 1,245 multifamily properties under AHDP from January
1990 through June 1994.  When we last reported on this program in
September 1992, RTC had sold less than 21 percent (184 of 865) of the
multifamily properties that it had offered for sale.  Since then, RTC
has sold another 489 properties, bringing its total sales to 673
multifamily properties for a total sales revenue of $767 million (see
app.  II for a summary of AHDP's multifamily sales).  As of June 30,
1994, 267 multifamily properties were available for sale.  According
to AHDP officials, the remaining 305 multifamily properties were sold
outside AHDP because no acceptable offer was received before the AHDP
marketing period expired. 

Overall, the majority of the multifamily properties were sold to
for-profit organizations, as shown in figure 2.  However, in May
1992, RTC began its direct sales program and since then has sold all
eligible multifamily properties to public agencies and nonprofit
organizations exclusively.  Nevertheless, some of these properties
subsequently have been sold to for-profit organizations by public
agencies and RTC does not have authority to prohibit such resales. 
For example, 17 percent (8 of 47) of the multifamily properties sold
by RTC's Dallas field office to public agencies as of July 1994 were
subsequently resold to for-profit organizations.  Additionally, one
of the multifamily properties sold by RTC's Denver field office to a
public agency was resold to a for-profit organization. 

   Figure 2:  Purchasers of 673
   Multifamily Properties Sold as
   of June 30, 1994

   (See figure in printed
   edition.)

Source:  GAO analysis of RTC AHDP reports. 

The Director of AHDP said that such resales may expand the ability of
public agencies to provide more affordable housing in their
communities because they may require that 50 percent of the units be
set aside for lower-income families compared to RTC's 35 percent
set-aside requirement.  Under AHDP procedures, if a public agency
resells the multifamily property within 2 years, 50 percent of the
profits earned on the sale are to be shared with RTC.  The 50 percent
that the public agency retains is to be reinvested in low-income
housing, according to RTC. 


      COMPLETE DATA ON STATUS OF
      MULTIFAMILY OCCUPANCY
      REQUIREMENTS WERE NOT
      AVAILABLE
---------------------------------------------------------- Letter :5.2

As of August 1994, RTC did not have complete data to assess property
owners' compliance with multifamily occupancy requirements.  Without
such data, RTC has no assurance that the occupancy requirements were
being met.  The Director of AHDP estimated that such data would be
available after November 1994, when the computer software for the
state housing agencies is scheduled to be completed. 

To ensure that the purchasers of multifamily properties comply with
the occupancy requirements, RTC entered into agreements with state
agencies to serve as monitoring agents.  As of July 1994, RTC had
entered into agreements with 23 of the 37 states where multifamily
properties were sold (see fig.  3).  However, while RTC is working to
get the remaining states to serve as monitoring agencies, purchasers
of multifamily properties are not being monitored for compliance with
occupancy requirements in states such as California and Louisiana,
where 14 and 24 multifamily properties were sold, respectively. 
Further, RTC had received compliance monitoring reports from only 8
of the 23 states with which it had monitoring agreements. 

   Figure 3:  States With
   Multifamily Property Sales and
   RTC Monitoring Agreements as of
   June 30, 1994

   (See figure in printed
   edition.)

Note:  We did not verify the states' data, and we do not know whether
they are representative of nationwide program results. 

Source:  RTC AHDP. 

We discussed our concerns about the lack of complete data with AHDP
officials.  As a result, AHDP officials telephoned the other 15
states that had not provided reports to obtain information on actual
unit occupancy.\7 These data showed that very low- and lower-income
families occupied about 45 percent (12,900 of 28,874) of the required
set-aside units as shown in figure 4. 

   Figure 4:  Set-Aside Units
   Occupied by Very Low- or
   Lower-Income Families as of
   June 1994

   (See figure in printed
   edition.)

Note:  The total number of required set-aside units was 28,874. 

Source:  RTC AHDP. 


--------------------
\7 These 15 states signed monitoring agreements with RTC early in
1994 and had not submitted compliance monitoring reports because RTC
does not require them to file reports until 6 months after the
agreements are signed. 


      LAW AND REGULATIONS DO NOT
      STATE HOW OCCUPANCY
      REQUIREMENTS ARE TO BE MET
---------------------------------------------------------- Letter :5.3

Although 35 percent of the units in a multifamily property are
required to be set aside for very low- and lower-income families, the
law does not state how or when this is to be achieved.  Further, the
law does not allow for the fulfillment of AHDP objectives through the
displacement of existing tenants.  Specifically, the act states: 

     "No purchaser of an eligible multifamily housing property may
     terminate the occupancy of any person residing in that property
     on the date of purchase for purposes of meeting the lower income
     occupancy requirement .  .  .  "

The law further provides that the purchaser of the multifamily
property is deemed to be in compliance with the 35-percent set- aside
requirement "if each newly vacant dwelling unit is reserved for
lower-income occupancy until the lower-income occupancy requirement
is met."

Neither RTC nor the state monitoring agencies have established time
frames for multifamily property owners to comply with set-aside
requirements.  According to RTC officials and state agencies, time
frames were not being imposed on purchasers of multifamily properties
because the law does not allow the fulfillment of AHDP objectives
through the displacement of existing tenants.  Even though many of
these buildings were acquired by purchasers that RTC said it believed
would provide maximum housing for lower-income families, the status
of approximately 49 percent (14,199 of 28,874) of the total set-aside
units was not known as of June 30, 1994.  In addition, as of June
1994, RTC did not have information on the number of set-aside units
that were not being met as a result of the existing tenant protection
provision of the law. 


      SUFFICIENT ENFORCEMENT
      ACTIONS FOR NONCOMPLIANCE
      WITH MULTIFAMILY SET-ASIDE
      REQUIREMENTS MAY NOT EXIST
---------------------------------------------------------- Letter :5.4

Achieving and maintaining the set-aside requirements in the LURA are
critical to achieving the AHDP objectives as envisioned by Congress. 
Thus, it is important to have sufficient enforcement actions to
compel multifamily property owners to comply with LURA requirements. 

As of June 30, 1994, only 26 percent (158 of 614)\8 of the owners of
multifamily properties requiring LURAs were in full compliance with
occupancy requirements.  On September 13, 1994, RTC reported that
another 121 properties were working toward full compliance but was
not able to provide the status on the remaining 335 multifamily
properties.  Several factors such as income, level of occupancy at
the time of purchase, and property rehabilitation needs may affect
the rate at which property owners move into compliance.  However, RTC
acknowledged that several multifamily properties that were sold
during 1990 have not yet reached full compliance. 

RTC's compliance monitoring program includes two primary phases: 
precompliance and compliance.  The precompliance phase begins when a
buyer purchases an AHDP property and continues until the owner
certifies full compliance with the requirements specified in the
LURA.  Under the precompliance phase, it is possible for a property
owner to remain in precompliance for the 40- to 50-year life of the
property without being penalized for not satisfying the requirements
in the LURA.  However, if a property owner that is in precompliance
does not rent the next available unit to an income-eligible
household, a $50 fine may be assessed by the state monitoring agency. 

Once the state monitoring agency has acknowledged that the property
owner has achieved full compliance with the LURA requirements, the
property is considered in the compliance phase.  When property owners
fall out of compliance, a state monitoring agency may impose actions
ranging from issuing a notice of noncompliance to charging the owner
a fine of $50 per year for each set-aside unit not occupied by very
low- or lower-income families.  The maximum fine charged for
noncompliance cannot exceed the annual monitoring fee.\9 Once the
maximum fine has been assessed, no additional fines for noncompliance
can be charged until the next year.  However, charging a $50
noncompliance fine may not be sufficient to compel some property
owners to comply with occupancy requirements because of their ability
to quickly recapture the $50 per unit fine through higher rents.  RTC
AHDP officials said they also have the authority to take legal
actions against multifamily property owners for noncompliance. 
However, RTC's Legal Services Division said that this authority has
not yet been tested.  This recourse may not be available in all
states because of variations in state real estate laws. 

Nonetheless, an official from one of RTC's state monitoring agencies
said that stiffer fines are needed to encourage property owners to
comply with the occupancy requirements specified in the LURAs. 
Another state monitoring agency official said that monitoring and
training alone will not move owners into full compliance.  Further,
RTC AHDP officials acknowledge that the $50 per unit fine may not be
sufficient in all cases. 


--------------------
\8 RTC reports that 59 of the 673 multifamily properties sales did
not require LURAs because they were conveyed or sold in bulk sale. 
Under a bulk sale, the 35 percent set-aside requirement applies to
the entire purchase. 

\9 The annual monitoring fee is $50 per set-aside unit and is
calculated based on the number of such units in the building. 


      RTC LACKS ASSURANCE THAT ALL
      AHDP PROPERTIES HAVE LURAS
---------------------------------------------------------- Letter :5.5

RTC could not locate or needed to make legal corrections to 113 (or
about 18 percent) of the 614 multifamily sales with mandated LURAs
that required the purchaser and any subsequent owner to rent the
set-aside units to very low- and lower-income families.\10 RTC
requires that multifamily set-aside units remain dedicated throughout
the useful life of the property (generally 40 to 50 years).  To
ensure that this happens, RTC requires that purchasers execute a
LURA, which is contained in the deed or other recorded instrument,
binding the purchaser and subsequent owners for the full term of the
LURA.  The LURAs also provide that RTC and state monitoring agencies
shall monitor compliance with the occupancy requirements. 

However, RTC cannot monitor purchasers' compliance with occupancy
requirements in those cases where it cannot locate the LURAs. 
Although RTC was searching for the LURAs, at least 113 multifamily
properties were not being monitored as of August 1994.  RTC
recognizes the seriousness of this condition and said its Legal
Services Division and field office staffs were working to resolve it. 


--------------------
\10 In addition to the 113 multifamily LURAs, RTC could not find
another 1,934 single-family LURAs that required the owners or those
occupying the property to reside in it as their principal residence
for at least 1 year. 


   DIFFICULT TO DETERMINE COST TO
   SELL AHDP PROPERTIES
------------------------------------------------------------ Letter :6

We were unable to determine the cost of selling properties under AHDP
primarily because RTC continues to be hampered by data problems.  To
determine the cost incurred by RTC in selling AHDP properties would
require knowledge of what RTC could have sold the AHDP property for
in an unrestricted private sector market.  For example, the
calculation of losses, if any, would require using appraisals to
compare existing sales of similar properties in similar markets
during the same time the AHDP property was sold. 

Additionally, data are needed on a number of factors, including (1)
sales price for comparable property sold by RTC in its regular
disposition program, (2) length of time to sell properties outside
AHDP, and (3) property holding costs.  These data were not maintained
by RTC and would be difficult to collect.  Even with such data,
however, we could only estimate the cost of selling AHDP properties,
including any losses. 

Nonetheless, RTC was able to provide us with the administrative costs
of operating AHDP.  These costs include expenditures such as salary
and travel but not property holding costs.  RTC reports that the
administrative costs for AHDP averaged $11.8 million for calendar
years 1991 through 1993 and were $6.8 million through July 1994. 
These administrative costs are shown in table 2. 



                           Table 1
           
                  AHDP Administrative Costs

                    (Dollars in millions)

                                                      Admini
                                                      strati
                                                          ve
Calendar year                                          costs
----------------------------------------------------  ------
1990                                                      \a
1991                                                   $11.1
1992                                                   $13.5
1993                                                   $10.7
1994\b                                                  $6.8
------------------------------------------------------------
\a Data for 1990 were not available from RTC. 

\b Data for 1994 are as of July. 

Source:  RTC AHDP reports. 


   RTC AND FDIC HAVE DEVELOPED A
   PLAN FOR UNIFYING AHDP
------------------------------------------------------------ Letter :7

As required by the RTC Completion Act, on April 22, 1994, RTC and
FDIC entered into an agreement to unify their affordable housing
programs.\11 This agreement is designed to provide a general
framework for addressing program unification actions to be taken by
RTC and FDIC before FDIC assumes responsibility for managing both
programs, which is scheduled to occur no later than October 1995. 

The plan for the unified program, to the extent practical, includes
such elements as the use of RTC's seller financing for both single-
and multifamily properties and its direct sales program for public
agencies and nonprofit organizations.  Also, FDIC's accounting
procedures, to the extent practical, are to be used to ensure that
AHDP expenditures are accounted for properly.  Finally, the plan also
provides that RTC and FDIC shall, to the extent practical,
consolidate enforcement activities for monitoring compliance with
single- and multifamily LURAs for properties sold affordably. 

Additionally, during the transition period, RTC and FDIC are engaging
in several activities to facilitate the program unification.  For
example, four joint RTC and FDIC affordable housing single-family
sales events were held in June and July 1994.  These sales were held
in Connecticut, Massachusetts, and California and involved 313
single-family properties.  RTC also marketed 10 multifamily
properties for FDIC during 1994. 


--------------------
\11 The FDIC affordable housing program was created as part of the
Federal Deposit Insurance Corporation Improvement Act of 1992 to
provide housing opportunities for very low-, lower-, and
moderate-income families.  The program received appropriated funds
totaling $5 million in fiscal year 1993 and $7 million in fiscal year
1994.  Under FDIC's program, only single-family properties are being
marketed and sold. 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

RTC's AHDP has achieved mixed results in providing affordable home
ownership and rental housing opportunities to very low-, lower-, and
moderate-income families.  Progress continues in the sales of both
single- and multifamily properties and the development of procedures
over the single-family program.  Additionally, RTC and FDIC have
developed a plan for the unification of their respective programs. 

However, RTC cannot ensure that buyers of AHDP multifamily properties
comply with occupancy requirements because

  complete information to assess the occupancy status of each
     property was not available;

  specific time frames that could help encourage multifamily property
     owners to comply with occupancy requirements were not
     established;

  enforcement actions to compel multifamily property owners into
     compliance with occupancy requirements may be insufficient; and

  control over execution and protection of all LURAs, both single-
     and multifamily, was inadequate. 

An effective compliance monitoring program is critical to ensuring
that multifamily property owners achieve and maintain the set-aside
requirements in the LURA for the 40- to 50-year life of a property. 
Thus, we believe that RTC's ability to effectively oversee its
monitoring compliance program would be improved by obtaining complete
information on occupancy status of each multifamily property,
establishing specific time frames to comply with occupancy
requirements, determining if stiffer penalties for noncompliance are
needed, and ensuring that LURAs are properly recorded. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :9

We recommend that RTC's Deputy and Acting Chief Executive Officer
require the Director of AHDP to

  establish specific time frames for each multifamily property to
     comply with occupancy requirements, although an exemption should
     be provided when the failure to comply is caused by the law that
     prohibits displacing existing tenants;

  ensure that complete information on the status of occupancy
     requirements is maintained;

  determine if stiffer penalties are warranted to encourage property
     owners to comply with occupancy requirements; and

  ensure that all LURAs are accounted for, executed, and recorded. 

Also, we recommend that the RTC/FDIC Transition Task Force consider
the issues identified in this report, especially the weaknesses in
RTC's compliance monitoring program for multifamily properties.  If
RTC and FDIC decide to use RTC's compliance monitoring program, we
believe that certain aspects of it should be reviewed as discussed in
our recommendations above. 


   AGENCY COMMENTS
----------------------------------------------------------- Letter :10

On September 12, 1994, we discussed the information in this report
with RTC AHDP officials, including the Director.  Generally, they
agreed with our findings and recommendations.  The majority of their
comments clarified or updated information on AHDP processes and
procedures.  We included this information in the report where
appropriate. 


--------------------------------------------------------- Letter :10.1

We are sending copies of this report to interested congressional
committees and members, the Chairman of the Thrift Depositor
Protection Oversight Board, the Chairman of the Affordable Housing
Advisory Board, and the Deputy and Acting Chief Executive Officer of
RTC.  We will also provide copies to others upon request. 

Major contributors to this report are listed in appendix III.  If you
have any questions, please contact me on (202) 736-0479. 

Gaston L.  Gianni, Jr.
Associate Director, Government
 Business Operations Issues


RTC AHDP STAFF ALLOCATIONS
=========================================================== Appendix I


RTC AHDP location                   1992      1993    1994\a
------------------------------  --------  --------  --------
Atlanta, GA                            5         8        12
Baton Rouge, LA                        4        \b        \b
Costa Mesa, CA                         3        \b        \b
Dallas, TX                             3        12        18
Denver, CO                            12        14        14
Elk Grove Village, IL                  3        \b        \b
Houston, TX                            2        \b        \b
Kansas City, KS                        8         9        11
Newport Beach, CA                      2         4         7
San Antonio, TX                        3        \b        \b
Tampa, FL                              8        \b        \b
Valley Forge, PA                       2         6        10
Washington, DC                        11        15        19
============================================================
Total                                 66        68        91
------------------------------------------------------------
Note:  Data for 1990 and 1991 were not available from RTC. 

\a Information for 1994 is as of June 30. 

\b In January 1993, RTC closed six offices:  Baton Rouge, LA; Costa
Mesa, CA; Elk Grove Village, IL; Houston, TX; San Antonio, TX; and
Tampa, FL. 

Source:  RTC Office of Human Resources Management. 


SUMMARY OF AHDP PROPERTY
DISPOSITION, JANUARY 1990-JUNE 30,
1994
========================================================== Appendix II

                    (Dollars in thousands)

                                                       Sales
                                                  value as a
                  Number       Sales              percent of
Disposition         sold       value  Book value  book value
------------  ----------  ----------  ----------  ----------
Single-           21,327    $583,917    $839,706         70%
 family
Multifamily          673    $766,852  $1,265,323         61%
------------------------------------------------------------
Sou9rce:  RTC AHDP reports. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Ronald L.  King, Assistant Director, Government Business Operations
Issues
Tammy R.  Conquest, Senior Evaluator
Abiud A.  Amaro, Evaluator
Anne M.  Hilleary, Senior Evaluator
Kenneth E.  John, Senior Social Science Analyst

DENVER REGIONAL OFFICE

Ronald J.  Guthrie, Evaluator-in-Charge
Gina M.  Guarascio, Evaluator
Pamela K.  Tumler, Reports Analyst

OFFICE OF THE CHIEF ECONOMIST,
WASHINGTON, D.C. 

William McNaught, Economist

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C. 

Susan S.  Linder, Attorney-Advisor
