Housing and Urban Development: Potential Implications of Legislation
Proposing to Dismantle HUD (Chapter Report, 02/21/97, GAO/RCED-97-36).

Pursuant to a congressional request, GAO examined the implications of
one of the proposals to dismantle the Department of Housing and Urban
Development (HUD), the Housing Opportunities and Empowerment Act,
focusing on the: (1) bill's proposed changes in housing assistance,
community development, and housing finance and the potential impact of
these changes on the customers of these programs; and (2) capacity of
the states and other federal agencies to assume HUD's functions and the
tasks to be accomplished in dismantling HUD within the 5 years specified
in the bill.

GAO found that: (1) the recent proposal to dismantle HUD, S. 1145,
couples reduced federal funding with fundamental changes to the federal
role in housing and community development; (2) if enacted, such a bill
could have far-reaching effects on renters, communities, and would-be
home buyers; (3) while the bill's plan to institute a voucher system to
allow tenants to choose their residence could expand housing choices for
renters in some areas, its phaseout of assistance for specific projects
could reduce the supply of affordable housing and housing choices in
other areas, according to HUD and state officials; (4) nonetheless,
rising costs make current levels of housing assistance increasingly
difficult for the nation to afford in an era of declining federal
discretionary budgets; (5) accordingly, budgetary constraints may well
reduce federal housing programs and services, whether these programs are
reformed or not; (6) the bill's creation of a block grant for community
development would give the states and localities more choice in spending
federal funds, but the total federal funding for community development
programs would be cut by about 40 percent; (7) the current beneficiaries
of federal programs targeted to their needs might receive less
assistance in an open competition for funds at the local level; (8)
also, small cities would see a significant reduction in the federal
funding for their projects; (9) although some of the bill's other
provisions are designed to reduce the federal government's risk in
insuring loans and guaranteeing mortgage-backed securities, these same
provisions would make purchasing a home more difficult, especially for
low-income and first-time buyers; (10) both the states and the federal
agencies that would receive HUD's functions generally believed that they
could assume additional programmatic and administrative responsibilities
if they also received additional resources; (11) however, several of the
federal agencies cautioned that they did not seek to assume HUD's
functions; (12) HUD maintained that transferring its functions to other
agencies would break up the network it has developed to implement its
programs, would adversely affect the delivery of services to its
clients, and would eliminate the focus on housing and community
development it has provided as a cabinet-level department; and (13) the
bill's implementation would depend on the resolution agency's ability t*

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

 REPORTNUM:  RCED-97-36
     TITLE:  Housing and Urban Development: Potential Implications of 
             Legislation Proposing to Dismantle HUD
      DATE:  02/21/97
   SUBJECT:  Federal agency reorganization
             Housing programs
             Community development programs
             Public housing
             Federal aid for housing
             Proposed legislation
             Mortgage programs
             Government guaranteed loans
             Interagency relations
             Federal downsizing
IDENTIFIER:  HUD Community Development Block Grant Program
             HUD Section 8 Certificate Program
             HUD Section 8 Voucher Program
             Mutual Mortgage Insurance Fund
             Cooperative Management Housing Insurance Fund
             Special Risk Insurance Fund
             HUD Fair Housing Assistance Program
             HUD Public Housing Program
             HUD Section 8 Rental Assistance Program
             Small Cities Community Development Block Grant
             FHA Single-Family Mortgage Insurance Program
             HUD Fair Housing Initiatives Program
             HUD Home Investment Partnership Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

February 1997

HOUSING AND URBAN DEVELOPMENT -
POTENTIAL IMPLICATIONS OF
LEGISLATION PROPOSING TO DISMANTLE
HUD

GAO/RCED-97-36

Proposal to Dismantle HUD

(385625)


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

  AIDS
  CBO - Congressional Budget Office
  CDBG - Community Development Block Grant
  EPA - Environmental Protection Agency
  FDIC - Federal Deposit Insurance Corporation
  FHA - Federal Housing Administration
  FHMIFA - Federal Home Mortgage Insurance Fund Administration
  FTC - Federal Trade Commission
  GAO - General Accounting Office
  HFA - Housing Finance Agency
  HHS - Department of Health and Human Services
  HMDA - Home Mortgage Disclosure Act
  HUD - Department of Housing and Urban Development
  NAPA - National Academy of Public Administration
  OFHEO - Office of Federal Housing Enterprise Oversight
  OMB - Office of Management and Budget
  PHA - Public Housing Authority
  RESPA - Real Estate Settlement Procedure Act
  RHS - Rural Housing Service
  RTC - Resolution Trust Corporation
  USDA - Department of Agriculture
  VA - Department of Veterans Affairs
  VPA - Veterans Preference Act

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


B-275718

February 21, 1997

The Honorable Alfonse D'Amato
Chairman, Committee on Banking,
 Housing, and Urban Affairs
United States Senate

The Honorable Connie Mack
Chairman, Subcommittee on Housing
 Opportunity and Community Development
Committee on Banking, Housing,
 and Urban Affairs
United States Senate

The Honorable Lauch Faircloth
United States Senate

This report responds to your request that we examine the implications
of one of the proposals to dismantle HUD--S.  1145, the Housing
Opportunities and Empowerment Act.  Specifically, the report (1)
examines the bill's proposed changes in housing assistance, community
development, and housing finance and the potential impact of these
changes on the customers of these programs and (2) discusses the
capacity of the states and other federal agencies to assume HUD's
functions and the tasks to be accomplished in dismantling HUD within
the 5 years specified in the bill. 

We are sending copies of this report to the Secretaries of Housing
and Urban Development, Health and Human Services, Agriculture, and
the Treasury; the Directors of the Offices of Management and Budget
and Personnel Management; the Attorney General; the Chairmen of the
Federal Reserve Board and the Federal Trade Commission; the
Administrator of the Environmental Protection Agency; the Chief
Executive Officer of the Federal Home Loan Mortgage Corporation; and
the President of the Federal National Mortgage Association.  We will
make copies available to others on request. 

Please call me at (202) 512-7631 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
X. 

Judy A.  England-Joseph
Director, Housing and Community
 Development Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Efforts to balance the federal budget by early in the next century
will impose difficult choices about discretionary spending for the
Department of Housing and Urban Development (HUD) and other federal
departments and agencies.  Most balanced budget plans include a
freeze in discretionary spending at current levels to help reduce the
deficit.  Under such a freeze, spending would be nearly 20 percent
lower by the year 2002 than if current levels were allowed to
increase with inflation.  Although budget constraints will test and
challenge many agencies and programs, they can also prompt reforms of
long-standing problems in programs' management and design. 

HUD spent about $29 billion in fiscal year 1995 to, among other
things, make rental housing affordable, revitalize communities, and
support homeownership.  However, in recent years, several
organizations, including GAO, have identified significant
deficiencies in the Department's internal controls, information and
financial management systems, organizational structure, and mix of
staff and skills.  Recognizing the need to address these concerns as
well as to reduce discretionary spending, the administration, the
Congress, and others have offered proposals to restructure HUD,
privatize or transfer some of its functions, or dismantle the agency. 

The Chairs of the Senate Committee on Banking, Housing, and Urban
Affairs and its Subcommittee on Housing Opportunity and Community
Development and Senator Faircloth asked GAO to examine the
implications of one of the proposals introduced in the 104th Congress
to dismantle HUD--S.  1145, the Housing Opportunities and Empowerment
Act.  This report (1) examines the bill's proposed changes in housing
assistance, community development, and housing finance and the
potential impact of these changes on the customers of these programs
and (2) discusses the capacity of the states and other federal
agencies to assume HUD's functions and the tasks to be accomplished
in dismantling HUD within the 5 years specified in the bill. 
Projections of the bill's impact on the federal budget, developed by
the Congressional Budget Office (CBO), will be published in a
separate report.  As agreed with the requesters' offices, this report
assumes that the bill would cover the 5-year period from 1997 to
2002, rather than the period from 1995 to 2000 that is specified in
S.  1145.  To obtain information on these issues, GAO, among other
things, visited six states and 11 federal agencies and surveyed
representatives of 44 state community development agencies. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

Since HUD was created in 1965, it has grown to include some 240
programs and activities and hundreds of billions of dollars in
financial commitments.  Through its multiple social and financial
roles, it directly or indirectly affects most Americans through its
functions, which fall into four categories--housing assistance,
community development, housing finance, and regulation.  S.  1145
(and an identical bill, H.R.  2198) would dismantle HUD, transferring
some of its functions to other federal agencies, the states, or the
private sector and eliminating other functions altogether.  To manage
the transition, the bill would redesignate HUD as the Housing and
Urban Development Programs Resolution Agency and make this temporary
agency responsible for administering and concluding HUD's affairs
within 5 years. 

Under S.  1145, HUD's public housing and other rental housing
assistance programs that provide subsidies for specific projects,
referred to as project-based assistance, would be phased out and
replaced with a flexible voucher system that would allow tenants to
choose where they live.  Tenants could use their vouchers to either
rent or purchase any unit they could afford, but a household's
receipt of vouchers would generally be limited to a lifetime maximum
of 5 years.  The program would be administered by the Department of
Health and Human Services (HHS), but the states could choose to
receive a block grant allocation to administer the vouchers on HHS'
behalf or develop their own housing assistance programs.  The funding
for HUD's community development grants, as well as many of the
Department's grant programs for housing and assistance to the
homeless and people with special needs, would be combined--and
greatly reduced--to form a grant program that would be administered
by a new, independent agency.  A shared-risk insurance program
administered by the Department of the Treasury would replace the
Federal Housing Administration's (FHA) single-family mortgage
insurance program.  Several other programs, including FHA's
multifamily insurance program, would be terminated, as would the
federal government's direct participation in the secondary mortgage
market.  Various other regulatory and enforcement activities would be
transferred to other federal departments. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The recent proposal to dismantle HUD--S.  1145--couples reduced
federal funding with fundamental changes to the federal role in
housing and community development.  If enacted, such a bill could
have far-reaching effects on renters, communities, and would-be home
buyers.  While the bill's plan to institute a voucher system to allow
tenants to choose their residence could expand housing choices for
renters in some areas, its phaseout of assistance for specific
projects could reduce the supply of affordable housing--and housing
choices--in other areas, according to HUD and state officials. 
Nonetheless, rising costs make current levels of housing assistance
increasingly difficult for the nation to afford in an era of
declining federal discretionary budgets.  Accordingly, budgetary
constraints may well reduce federal housing programs and services,
whether these programs are reformed or not.  The bill's creation of a
block grant for community development would give the states and
localities more choice in spending federal funds, but the total
federal funding for community development programs would be cut by
about 40 percent.  The current beneficiaries of federal programs
targeted to their needs, such as the homeless, might receive less
assistance in an open competition for funds at the local level. 
Also, small cities would see a significant reduction in the federal
funding for their projects.  Although some of the bill's other
provisions are designed to reduce the federal government's risk in
insuring loans and guaranteeing mortgage-backed securities, these
same provisions would make purchasing a home more difficult,
especially for low-income and first-time buyers. 

Both the states and the federal agencies that would receive HUD's
functions generally believed that they could assume additional
programmatic and administrative responsibilities if they also
received additional resources.  However, several of the federal
agencies cautioned that they did not seek to assume HUD's functions. 
HUD maintained that transferring its functions to other agencies
would break up the network it has developed to implement its
programs, would adversely affect the delivery of services to its
clients, and would eliminate the focus on housing and community
development it has provided as a cabinet-level department.  The
priority that other agencies would give to some of HUD's functions
remains an open question.  Finally, the bill's implementation would
depend on the resolution agency's ability to transfer functions and
administer--and in some cases resolve--complex financial commitments
within the required 5-year period.  Lessons learned from previous
experiences in eliminating agencies, especially in dissolving the
Resolution Trust Corporation, could assist the resolution agency. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      BILL COULD INCREASE CHOICE
      IN HOUSING AND COMMUNITY
      DEVELOPMENT, BUT AID TO SOME
      VULNERABLE POPULATIONS MIGHT
      BE REDUCED
-------------------------------------------------------- Chapter 0:4.1

Replacing a mixed project-based and tenant-based housing assistance
program with a voucher-only system could give renters more choice in
deciding where they would live.  The extent of their choice would,
however, depend on a number of factors, including the amount of their
rental subsidy compared with the costs of housing in any given
market.  Under S.  1145, currently assisted properties--1.3 million
units of public housing and 1.4 million units of housing receiving
section 8 project-based assistance--would be required to compete in
the marketplace.  During a 5-year transition period, the resolution
agency would settle expiring long-term commitments to provide rental
assistance through a process comparable to one that HUD has
considered for reducing the government's expenditures for these
commitments.  The resolution agency would also administer a block
grant to operate and improve those public housing properties with an
approved plan for becoming more competitive.  But some of the public
housing and other assisted properties might not become competitive. 
If tenants chose not to remain or if rental income was otherwise
insufficient to cover operating costs, the properties might not
remain viable, and their loss could decrease the supply of affordable
housing.  Any such loss could decrease the opportunities for
recipients of voucher assistance to exercise choice in some housing
markets, including tight markets such as those in San Francisco and
New York City.  However, for most households, according to both HUD
and CBO, affordability is the main problem, not a shortage of
housing.  Additionally, under a tenant-based system, landlords would
know that tenants could move and would, in principle, have more
incentive to maintain their projects. 

Combining the funding for HUD's community development
programs--currently about $8 billion--into a block grant to be funded
at $5 billion in the first year, distributing it to the states and
large metropolitan areas, and allowing these entities to decide how
they would spend the funds--within federal guidelines--would give
these entities more choice.  But studies on local development issues
have shown that communities often choose to invest in projects
benefiting broad-based constituencies and reduce the funding targeted
to low-income groups.  For example, populations such as the homeless,
who are guaranteed a measure of assistance under HUD's McKinney Act
programs, might not fare as well under a block grant that did not
target some funds directly to them.  Also, the bill's reductions of
almost 60 percent during the first year in the grants to 3,000 small
cities would mean that these cities would either receive smaller
grants or fewer of them would receive grants.  Either way, these
communities might have to cut or scale back their community
development activities. 


      BILL WOULD REDUCE THE
      FEDERAL ROLE IN HOUSING
      FINANCE
-------------------------------------------------------- Chapter 0:4.2

Under S.  1145, the federal government would provide partial mortgage
insurance only for single family homes and would no longer insure
multifamily dwellings.  Borrowers would have to make a larger down
payment to buy a home, and mortgage credit would be less readily
available for some multifamily projects.  The bill could reduce the
federal government's exposure to loss (1) by lowering the percentage
of a home mortgage loan that the federal government could insure from
the current level of 100 percent to no more than 35 percent and (2)
by no longer guaranteeing mortgage-backed securities.  The federal
government's actual losses would depend upon risk-sharing agreements
negotiated between the Department of the Treasury and state housing
finance agencies and/or private mortgage insurers.  However, these
changes, combined with a new provision limiting a loan to no more
than 97 percent of the value of a home, might result in loan terms
similar to those now offered by the private market.  Consequently,
some low-income families and first-time home buyers who would
formerly have qualified for a federally insured loan might not do so
under the bill's provisions.  As a result, some would-be home buyers
might have to delay purchasing a home while accumulating additional
cash, purchase a home of lesser value, or in some cases never become
homeowners.  Eliminating FHA as a source of insurance for multifamily
mortgages would eliminate a relatively small, but in some instances
important, source of credit enhancement for developers of projects
for lower-income renters, as well as for hospitals and nursing homes
in certain locations. 


      STATES AND RECEIVING
      AGENCIES SAY THEY WOULD NEED
      RESOURCES TO IMPLEMENT
      TRANSFERRED FUNCTIONS AND
      COULD EXPERIENCE SOME
      DIFFICULTIES
-------------------------------------------------------- Chapter 0:4.3

Officials in the six states GAO visited believed that their state
could take on most of the bill's proposed responsibilities.  In the
housing assistance area, most officials said they would need funding
for additional staff or automated systems to accomplish the tasks
that this proposal would transfer to the states.  However, almost 80
percent of the respondents to a GAO survey of state community
development officials said their state could easily assume the
community development responsibilities by dividing the grant among
state agencies.  State housing finance agencies, according to their
association and one bond-rating agency, do not have the capital to
participate in risk-sharing arrangements to insure single-family
mortgages.  Most state and local officials GAO contacted said their
state would be unlikely to supplement the federal funding provided in
S.  1145, but the state's actual response might differ, depending on
its resources and priorities.  The states vary in their experience
with programs such as those they might administer under S.  1145. 
Thirty-three states currently administer some federal tenant-based
assistance, according to a 1994 housing industry survey.  Forty-eight
states share in administering HUD's Community Development Block Grant
program, which somewhat resembles the bill's proposed block grant. 
Eight states currently provide single-family mortgage insurance. 

Most of the federal agencies slated to receive responsibilities from
HUD generally agreed that their missions were compatible with the new
functions and that they could assume the responsibilities if they
also received the necessary resources, but some agencies indicated
that implementation might pose problems.  HUD cited differences in
missions, organizations, and operating procedures that it believed
would impede the delivery of services to its clients and eliminate
the advocacy for housing and community development issues provided by
a cabinet-level department.  The departments of Health and Human
Services and Justice agreed with HUD that they do not have the
appropriate field organizations--and, in the case of Justice--the
investigative staff to carry out the fair housing program
effectively.  Treasury and the Environmental Protection Agency
acknowledged that they are not experienced in dealing with HUD's
traditional clients.  HUD believes that the transfers could
considerably weaken the impact of the programs.  However, S.  1145
does allow for the transfer of some HUD program staff and resources
to the receiving agencies.  Given the complexity and uncertainty of
the issues associated with transferring functions, GAO did not
determine how many HUD staff might be transferred to receiving
agencies. 


      PROPOSED RESOLUTION AGENCY
      WOULD FACE DIFFICULT TASKS
-------------------------------------------------------- Chapter 0:4.4

Dismantling HUD and restructuring, transferring, or eliminating its
programs would place significant responsibilities on the proposed
resolution agency.  During its 5-year term, the agency would need to
administer--and in some cases resolve--over $400 billion in loan
insurance and approximately $464 billion in mortgage-backed security
guarantees.  These commitments generally extend well beyond 5 years. 
In addition, the agency would need to administer nearly $100 billion
in section 8 project-based rental assistance contracts, the majority
of which will expire during the next 5 years.  Dismantling a
department as large as HUD would be a significant undertaking. 
Lessons learned, particularly in dissolving the Resolution Trust
Corporation and in reorganizing smaller agencies, could be applicable
if S.  1145 were enacted.  For example, in previous work on
dismantling and reorganizing agencies, GAO has found that useful
actions include establishing an interagency task force to help
transfer assets, personnel, and operations; developing a
comprehensive strategy for addressing all financial commitments; and
reviewing internal controls and information systems.  These actions
could facilitate the transition if it occurs.  For example, reviewing
internal controls and information systems could identify areas that
require careful monitoring to prevent waste, fraud, and abuse in
resolving HUD's financial commitments. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:5

GAO requested comments on a draft of this report from HUD, HHS, and
the Office of Management and Budget (OMB).  GAO also provided
excerpts of the draft report pertaining to the proposed transfers of
HUD functions to the departments of Agriculture, Justice, and the
Treasury; the Environmental Protection Agency; the Federal Reserve
Board; the Federal Trade Commission; the Office of Personnel
Management; Freddie Mac; and Fannie Mae for their comments.  HUD,
HHS, the departments of Justice and of the Treasury, and OMB
expressed their strong disagreement with S.  1145, and several of
these agencies cited the need for a cabinet-level department to
provide a focus for housing and community development issues.  HUD
also said that the report was deeply flawed in its methodology,
content, and conclusions because it does not fully discuss (1) the
harm to HUD's customers that HUD believes would result from
dismantling the department, (2) the loss of a national housing and
community development policy, and (3) the difficulties involved in
transferring HUD's functions to other agencies and to other levels of
government.  After reviewing HUD's comments, GAO added information to
the report to recognize possible additional consequences for home
buyers and homeowners of the proposed changes to FHA.  However, it is
not possible to predict the exact impact of the bill on HUD's
customers because the bill gives states and localities increased
flexibility in making spending decisions.  Neither GAO nor HUD can
assess with any certainty what spending choices states and
communities would make.  GAO also added several references to HUD's
position on the difficulties involved in transferring the
Department's functions and the loss of a national housing and
community development policy.  The continued need for a cabinet-level
department to address housing and community development issues is a
policy question for the Congress and the administration to decide. 

OMB said that issues related to the reorganization and administration
of HUD's functions should be evaluated on their own merits, not as a
strategy for reducing the deficit.  OMB said that the administration
believes that assigning HUD's functions to other agencies would
counteract its reinvention goals.  HHS said the proposal was not well
advised and the planned transfers might result in little or no cost
savings to the federal government.  This report provides information
on the potential positive and negative implications of S.  1145 and,
as such, does not take a position on the bill.  Projections of the
bill's impact on the federal budget will be developed and published
by CBO in a separate report.  The Department of Justice stressed the
extreme burden that transferring HUD's fair housing responsibilities
would impose on it, especially the drain of resources from its
primary mission of fair housing enforcement.  Six of the remaining
seven agencies provided clarifying language for the portions of the
report that discuss their agency.  GAO incorporated the comments, as
appropriate, throughout the report.  The agencies' written comments
and GAO's detailed responses appear in appendixes III through IX. 
Additionally, GAO's responses to the agencies' broader comments are
summarized at the end of chapters 1 through 4. 


INTRODUCTION
============================================================ Chapter 1

Created in 1965, the Department of Housing and Urban Development
(HUD) carries out the federal government's missions, policies, and
programs in housing and community development.  Its activities are
designed to implement a broad range of statutory mandates, from
making housing affordable, to helping revitalize communities, to
supporting homeownership.  Since 1965, HUD has grown to include some
240 programs and activities and hundreds of billions of dollars in
financial commitments.  Its annual outlays for fiscal year 1995 were
about $29 billion.  Studies performed by HUD's Office of Inspector
General, the National Academy of Public Administration (NAPA), GAO,
and others have documented inefficiencies in organization and
deficiencies in management that impede the effectiveness of HUD's
programs.  Leaders in the administration and the Congress agree that
HUD must, at a minimum, be restructured to better meet the nation's
housing and community development needs.  Some policymakers believe
that HUD's problems are so great that they can be cured only by
dismantling the agency and transferring or eliminating its functions. 
This report focuses on the two most recent proposals to dismantle
HUD--S.  1145 and H.R.  2198.  For convenience, we refer to both
bills, which are identical, as S.  1145.\1


--------------------
\1 S.  1145 is cited as the Housing Opportunities and Empowerment
Act. 


   HUD'S MISSIONS HAVE EVOLVED
---------------------------------------------------------- Chapter 1:1

As a new cabinet-level department, HUD took over most, though not
all, of the federal housing and community development functions that
had been located in independent agencies.  Its focus, as defined in
the legislation that created it, was primarily urban--".  .  .  the
sound development of the Nation's communities and metropolitan
areas." HUD took over the rental assistance and low-income housing
production functions of the Public Housing Administration and the
Housing and Home Finance Agency, the mortgage insurance functions of
the Federal Housing Administration (FHA), and the secondary market
functions for government-insured and guaranteed loans.  HUD did not,
however, take over the housing programs administered by the Veterans
Administration (VA) and the Rural Housing Service\2 or the economic
development programs operated by the Department of Commerce.  In
addition, HUD does not control the tax policies that affect housing,
such as the homeowner's deductions for mortgage interest and property
taxes, and it does not oversee all of the financial institutions,
such as banks, savings and loans, and mortgage companies, that
participate in the nation's mortgage markets. 

Even though HUD has not assumed all of the nation's housing
functions, it has primary responsibilities for programs in four
areas--housing assistance, community development, housing finance,
and regulatory issues. 

  -- Housing Assistance:  HUD provides (1) public housing assistance
     through allocations to public housing authorities and (2)
     private-market housing assistance through rental subsidies for
     properties, referred to as project-based assistance, or for
     tenants, known as tenant-based assistance.  In contrast to
     entitlement programs, which provide benefits to all who qualify,
     the benefits of HUD's housing assistance programs are limited by
     budgetary constraints to only about one-fourth of those who are
     eligible. 

  -- Community Development:  Primarily through grants to states,
     large metropolitan areas called entitlement areas, small cities,
     towns, and counties, HUD provides funds for local economic
     development, housing development, and assistance to the
     homeless.  The funding for some programs, such as those for the
     homeless, may also be distributed directly to nonprofit groups
     and organizations. 

  -- Housing Finance:  FHA insures lenders--including mortgage banks,
     commercial banks, savings banks, and savings and loan
     associations--against losses on mortgages for single-family
     properties, multifamily projects, and other facilities.  The
     Government National Mortgage Association (Ginnie Mae), a
     government-owned corporation within HUD, guarantees investors
     the timely payment of principal and interest on securities
     issued by lenders of FHA-insured and VA- and Rural Housing
     Service-guaranteed loans. 

  -- Regulatory Issues:  HUD is responsible for regulating interstate
     land sales, home mortgage settlement services, manufactured
     housing, lead-based paint abatement, and home mortgage
     disclosures.  The Office of Federal Housing Enterprise
     Oversight, an independent office within HUD, is responsible for
     regulating the safety and soundness of Fannie Mae and Freddie
     Mac.  HUD also supports fair housing programs and is partially
     responsible for enforcing federal fair housing laws. 

To carry out its many responsibilities, HUD was staffed by about
10,500 employees at the end of fiscal year 1996. 


--------------------
\2 Formerly called the Farmers Home Administration. 


   DESPITE ACCOMPLISHMENTS,
   PROBLEMS IMPEDE EFFICIENCY AND
   EFFECTIVENESS
---------------------------------------------------------- Chapter 1:2

Through its programs, HUD makes housing affordable for about 4.5
million lower-income tenants, helps to revitalize over 4,000
communities, and has insured mortgages for about 23 million
homeowners.  In addition, as a cabinet-level department, HUD has
given visibility and priority to housing and community development
issues and has built up networks for implementing its programs.  In
some instances, HUD's offices have pioneered the development of
services.  For example, FHA initiated home mortgages with very small
down payments and reverse mortgages.\3

Despite these accomplishments, HUD has, over the years, developed
both administrative and programmatic problems.  In 1994, GAO
designated HUD as a high-risk agency because of four long-standing
management deficiencies--weak internal controls; poorly integrated,
ineffective, and generally unreliable information and financial
management systems; an ineffective organization; and an insufficient
mix of staff with the proper skills.  Internal control weaknesses,
such as not having the necessary data and management processes,
contributed to the HUD scandals of 1989.  Deficient information and
financial management systems have not supported program managers'
needs or provided adequate control over housing and community
development programs.  Organizational problems have included
overlapping and ill-defined responsibilities and authorities between
the Department's headquarters and field organizations and a
fundamental lack of management accountability and responsibility. 
Not having enough staff with the proper skills has hampered the
monitoring and oversight of programs and delayed the updating of
procedures.  While HUD has formulated approaches and initiated
actions to address its departmentwide deficiencies, its efforts are
far from reaching fruition and problems continue.\4

In response to legislation and other initiatives, programs were
created with missions that overlap or are linked only tangentially to
primary missions within HUD.  In December 1994, HUD's Inspector
General recommended eliminating, consolidating, or restructuring many
of HUD's 240 programs and activities, 91 of which, the Inspector
General said, were questionably related to the Department's primary
mission.  We reported that several of the larger programs on this
list seemed to contribute directly to meeting the housing needs of
low-income people.\5 However, we estimated that 27 programs listed by
the Inspector General could be reassessed to determine the need for
them and their relative value in achieving HUD's mission.  Other
problems cited by the Inspector General included disproportionately
high administrative costs, inflexible program requirements, and a
multiplicity of programs with similar objectives that promote
separate federal and local bureaucracies.  Until the problems that we
and the Inspector General identified are resolved, HUD's programs are
likely to remain vulnerable to waste, fraud, and abuse. 

Further exacerbating these concerns is the need to reduce
discretionary spending governmentwide over the next several years to
balance the budget by early in the next century.  Most balanced
budget plans include a freeze in discretionary spending at current
nominal levels, meaning that by the year 2002, spending will be
nearly 20 percent lower than it would be if it were allowed to
increase with inflation. 


--------------------
\3 A reverse mortgage allows borrowers, who are 62 years of age and
older, to convert the equity in their homes into a monthly stream of
income or a line of credit.  These mortgages are purchased by Fannie
Mae. 

\4 See High Risk Series:  Department of Housing and Urban Development
(GAO/HR-97-12, Feb.  1997). 

\5 Housing and Urban Development:  HUD's Reinvention Blueprint Raises
Budget Issues and Opportunities (GAO/T-RCED-95-196, July 13, 1995). 


   THE ADMINISTRATION, THE
   CONGRESS, AND OTHERS HAVE
   PROPOSED CHANGES
---------------------------------------------------------- Chapter 1:3

HUD's problems have led to studies and proposals for change,
including the administration's reinvention plans, the National
Academy of Public Administration's (NAPA) study,\6 and several bills
to reorganize or dismantle HUD.  These proposals uniformly recognize
the need to revise the delivery of housing and community development
services.  They also recognize that budgetary constraints dictate
changes.  However, the proposals differ in the role they envision for
the federal government. 

The administration's initial reinvention plans, introduced in
December 1994, assume the need for a cabinet-level housing and
community development agency and focus on restructuring and
consolidating programs.  Initially, the plans proposed to (1) remove
public housing authorities from HUD's subsidy programs and make them
compete in the private market; (2) consolidate 60 major categorical
programs into three flexible, performance-based funds; and (3)
transform FHA into a results-oriented, financially accountable
credit-enhancement operation.  In 1996, the administration updated
its plans, retaining most of the provisions but revising the proposal
for public housing.  Under the current plans, HUD would continue to
subsidize public housing but would consolidate and streamline
programs to improve its delivery of services to low-income residents. 

The NAPA study, issued in July 1994, recommended that the Congress
and HUD restructure the agency to consolidate its programs and reform
its management.  The study suggested that if HUD did not operate
under a clear mandate and in an effective manner in 5 years, its
existence should be reevaluated.  In addition, the study recommended
that HUD modify its operations and work from the bottom up rather
than from the top down, supporting local initiatives consistent with
its mission instead of imposing its own strategies on localities. 
For most programs, the study proposed a shift in decision-making
authority from headquarters to the field and from the federal
government to the state or local level.  Finally, the study
recommended that the Congress give HUD broad waiver and demonstration
authority to allow the states to experiment with changes in their
housing and community development programs. 

Between February 1995 and August 1995, the 104th Congress introduced
five bills in the House and Senate to dismantle HUD.\7 These bills
would move farther than the NAPA study in shifting power from the
federal government to the states, and they would transfer some
governmental responsibilities to the private sector.  Furthermore,
they would transfer the remaining federal responsibilities to other
federal agencies and terminate HUD's existence.  The two most recent
bills--S.  1145 and H.R.  2198--are the subject of this report.  For
convenience, we refer to both bills, which are identical, as S. 
1145. 


--------------------
\6 Renewing HUD:  A Long-Term Agenda for Effective Performance (July
1994). 

\7 S.  435, Feb.  16, 1995; H.R.  1098, Mar.  1, 1995; H.R.  1923,
June 22, 1995; H.R.  2198, Aug.  4, 1995; and
S.  1145, Aug.  10, 1995. 


   S.  1145 WOULD INTRODUCE
   SWEEPING CHANGES
---------------------------------------------------------- Chapter 1:4

S.  1145 would dramatically change the federal role in housing and
community development.  To reduce the federal government's spending
for housing and community development, the bill would shift many of
HUD's operations to other federal agencies, provide block grants to
the states, and rely more on the private sector.  The bill seeks to
give the recipients of housing assistance more choice in deciding
where to live and communities more choice in deciding how to spend
their community development funds; however, it would also reduce the
federal funding for community development.  In addition, it would
increase the influence of the private market in federal housing
assistance and housing finance.  As the NAPA study and the
administration's proposals recommended, the bill would increase
decision-making at the state and local levels, bringing the
administration of programs--and accountability for their
results--closer to the persons affected by the decisions.  Overall,
the bill seeks to reduce federal spending for housing and community
development activities by consolidating and eliminating programs. 

To accomplish its goals for housing assistance, S.  1145 would phase
out HUD's public housing and rental housing assistance programs and
replace them with a flexible, tenant-based voucher system, to be
administered by the Department of Health and Human Services (HHS). 
Public housing properties and properties that formerly received
section 8 project-based rental assistance would have to compete for
tenants with other rental properties in the marketplace.  Tenants
could use their vouchers to either rent or purchase any unit they
could afford, but a household's receipt of vouchers would generally
be limited to a lifetime maximum of 5 years.\8 The states could
choose to receive a block grant allocation and administer vouchers on
behalf of HHS or develop their own housing assistance program. 

S.  1145 would consolidate HUD's community development programs,
including many categorical ones, into a block grant for housing and
community development, of which $1 billion would be set aside for
Indian housing, the elderly, people with disabilities, and people
with AIDS.  The grant would be administered by a new, independent
agency, the Housing and Community Opportunities Agency.  This change
would give communities more choice in spending federal funds, but
both large and small communities would have less money to spend. 
Under the housing and community development grant, entitlement areas
would receive 80 percent of the total funding provided, while small
cities would receive 20 percent.  However, the total funding would be
cut by about 40 percent as soon as the bill's provisions went into
effect and would then be reduced even further over time. 

S.  1145 would restrict the federal government's role in housing
finance to covering losses on single-family mortgages, at a
substantially reduced rate--down from 100 percent to a maximum of 35
percent.  It would transfer the responsibility for operating the
single-family mortgage insurance program to the Department of the
Treasury, which would negotiate agreements for sharing the risk of
insuring single-family mortgages with other mortgage insurers--the
states and/or the private sector.  Additionally, it would eliminate
federal loan insurance for multifamily and certain other properties
and terminate Ginnie Mae, leaving these areas for the states and
private sector to cover. 

Finally, S.  1145 would transfer HUD's regulatory functions to other
federal agencies, designated in this report as receiving agencies. 
These agencies include the departments of the Treasury and Justice,
the Environmental Protection Agency, and other independent agencies. 
To manage these changes, the bill would redesignate HUD as the
Housing and Urban Development Programs Resolution Agency and make
this agency responsible for administering and concluding HUD's
affairs within 5 years.\9 Among other things, the resolution agency
would have to resolve, or provide for resolving, hundreds of billions
of dollars in financial commitments and manage HUD's shutdown.  Table
1.1 summarizes the organizational changes that would occur under S. 
1145. 



                               Table 1.1
                
                  Shifts in Responsibility From HUD to
                             Other Agencies
                             Under S. 1145

                               Proposed action
                            ----------------------
                            Abolis          Transf
Function                    h       Change  er      Receiving agency
--------------------------  ------  ------  ------  ------------------
Housing assistance                  X       X       Federal Housing
                                                    Voucher Agency\a
                                                    in HHS

Community development               X               An independent
                                                    Housing and
                                                    Community
                                                    Opportunities
                                                    Agency\a


Housing finance
----------------------------------------------------------------------
Secondary mortgage market   X                       Fannie Mae,
                                                    Freddie Mac, or
                                                    other private
                                                    secondary mortgage
                                                    market entities
                                                    may assume
                                                    function

Federal mortgage                    X       X       Federal Home
insurance--single-family                            Mortgage Insurance
                                                    Fund
                                                    Administration,\a
                                                    Department of the
                                                    Treasury

Federal mortgage            X                       No receiving
insurance--multifamily                              agency
                                                    contemplated in
                                                    the bill


Regulatory
----------------------------------------------------------------------
Fair housing                X\b             X       Department of
                                                    Justice

Interstate land sales                       X       Federal Trade
                                                    Commission

Real estate settlement                      X       Board of Governors
procedures                                          of the Federal
                                                    Reserve System

National manufactured                       X       Department of
housing                                             Agriculture

Lead-based paint                            X       Environmental
                                                    Protection Agency

Home mortgage disclosure                    X       Department of the
                                                    Treasury

Government-sponsored        X\c             X       Department of the
enterprise oversight                                Treasury
----------------------------------------------------------------------
\a These agencies would be created under S.  1145. 

\b The Fair Housing Initiatives Program would be abolished. 

\c The bill does not address all of HUD's responsibilities under the
Federal Housing Enterprises Financial Safety and Soundness Act of
1992.  Specifically, the bill does not specify the disposition of
HUD's responsibilities for ensuring that Fannie Mae and Freddie Mac
fulfill their public purposes and serve the housing needs of the
country.  Under S.  1145, programs that are not transformed,
transferred, or continued would expire. 

The changes that would occur under S.  1145 in housing assistance,
community development, and housing finance are discussed in more
detail in chapters 2 and 3 of this report.  Chapter 4 discusses the
capacity of the states and the receiving agencies to assume HUD's
former responsibilities.  Chapter 5 discusses the resolution agency's
responsibilities, including resolving HUD's financial commitments,
and lessons learned from previous efforts to dismantle or reorganize
federal agencies.  The Congressional Budget Office (CBO) will provide
its estimate of the bill's impact on the federal budget in a separate
report.  Appendixes I and II provide details on the receiving
agencies' responsibilities and the resolution agency's financial
commitments, respectively. 


--------------------
\8 Indian Housing Authority programs are not included because Indian
tribes would receive a housing block grant through another section of
S.  1145. 

\9 S.  1145 was introduced on August 10, 1995, and calls for
terminating the resolution agency on September 30, 2000.  However, in
this report, we assume that the 5-year period begins in 1997 and ends
in 2002. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:5

The Chairs of the Senate Committee on Banking, Housing, and Urban
Affairs and its Subcommittee on Housing Opportunity and Community
Development and Senator Faircloth asked GAO to examine the
implications of one of the proposals to dismantle HUD--S.  1145, the
Housing Opportunities and Empowerment Act.  Specifically, the
requesters asked GAO to (1) examine the bill's proposed changes in
housing assistance, community development, and housing finance and
the potential impact of these changes on the customers of these
programs and (2) discuss the capacity of the states and other federal
agencies to assume HUD's functions and the tasks to be accomplished
in dismantling HUD within the 5 years specified in the bill.  As
agreed with the requesters' offices, this report assumes that the
bill would cover the 5-year period from 1997 to 2002, rather than the
period from 1995 to 2000 specified in S.  1145.  The requesters also
asked CBO to project the federal costs of implementing the bill's
provisions.  CBO's projections will be published in a separate
report. 

To examine the proposed changes, we reviewed the bill's provisions
and examined major administrative and other legislative proposals
introduced to change the federal role in housing and community
development.  We conducted a literature search and discussed S.  1145
with officials from the Office of Management and Budget (OMB), HUD,
NAPA, interest groups and associations, and think tanks.  To assess
the impact of the proposed changes in housing assistance, community
development, and housing finance on HUD's clients, we interviewed and
gathered studies and position papers from senior HUD officials, think
tanks, and interest groups representing HUD's clients, including
tenant organizations, public housing authorities, lenders, major
bond-rating agencies, government-sponsored enterprises, private
mortgage insurers, state agencies, and local governments. 

To examine the bill's implications for entities outside the federal
government, we met with officials from national associations
representing state and local governments-- including the National
Governors' Association, the National Council of State Housing
Agencies, the Council of State Community Development Agencies, and
the U.S.  Conference of Mayors--and we conducted a survey of
community development officials from the 47 states represented by the
Council of State Community Development Agencies.  We received
responses to this survey from officials in 44 states.\10 We reviewed
existing literature on states' fiscal capacity and visited officials
in six states--Alabama, Illinois, Maryland, Massachusetts, Texas, and
Washington--that we had selected because they differed from one
another in their fiscal capacity, federal and state funding for
housing assistance, experience in administering section 8 programs,
experience with troubled public housing authorities, political
philosophy, and geographic location.  The findings resulting from our
visits are not projectable to all 50 states.  Because S.  1145 would
not directly expand the role of local governments, we focused
specifically on states' capacity to take on expanded
responsibilities.  Changes in local responsibilities would depend
largely on the states' decisions. 

To examine the bill's implications for the receiving agencies and the
resolution agency, we conducted interviews and collected
documentation and studies from the federal agencies designated to
receive HUD's functions and from HUD.  We also drew on our own prior
and ongoing work on HUD and on reorganizing federal agencies. 
Specifically, we interviewed officials from OMB, the General Services
Administration, and the Office of Personnel Management to gather the
current guidance on reorganizing federal agencies.  To better
understand the functions that would be transferred, we interviewed
HUD officials and reviewed HUD documents on the mission, staffing,
and internal controls of each function.  Using this information, we
interviewed officials from the receiving agencies to obtain their
views on the implications of transferring HUD's functions to them. 
We interviewed officials from the departments of Agriculture, Health
and Human Services, Justice, and the Treasury; the Environmental
Protection Agency; the Federal Reserve Board of Governors; the
Federal Trade Commission; the Federal National Mortgage Association
(Fannie Mae); and the Federal Home Loan Mortgage Corporation (Freddie
Mac). 


--------------------
\10 We did not obtain completed surveys from Alaska, Colorado,
Hawaii, Kentucky, New York, and Wyoming. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 1:6

In commenting on a draft of the report, the Acting Secretary of HUD
expressed concern that our methodology did not include adequate
consultation with HUD's customers.  Over the course of this study, we
interviewed and/or collected documentation from organizations that
represent a wide range of HUD's customers.  Information obtained from
this work is included in chapters 2 and 3.  We also revised the
methodology section of our report to reflect more clearly the range
of organizations we interviewed. 


S.  1145 COULD INCREASE CHOICE IN
HOUSING AND COMMUNITY DEVELOPMENT,
BUT SOME VULNERABLE POPULATIONS
MIGHT RECEIVE LESS ASSISTANCE
============================================================ Chapter 2

S.  1145 would dramatically reduce the federal role in housing and
community development and could have far-reaching effects on renters
and communities.  The bill's plan to institute a voucher system could
expand housing choices for renters in some areas, but its phaseout of
project-based assistance could reduce the supply of affordable
housing--and housing choices--in other areas.  Similarly, the bill's
creation of a single block grant for community development would give
the states and localities more choice in spending federal funds for
projects in their communities, but some of HUD's current clients,
especially the homeless and very low-income families, might receive
less assistance. 


   IMPACT OF PROPOSED CHANGES IN
   RENTAL ASSISTANCE, WOULD DEPEND
   ON A NUMBER OF FACTORS
---------------------------------------------------------- Chapter 2:1

Replacing housing assistance with a voucher system would, in
principle, give renters more choice in deciding where they would
live.  In fact, the extent of their choice would depend, in large
part, on the amount of the subsidy provided compared with the cost of
housing in the area.  Under S.  1145, currently assisted properties
would be required to compete in the marketplace.  During a transition
period, the resolution agency would settle long-term commitments to
provide rental assistance and provide funds through a block grant to
operate and improve public housing properties with an approved plan
for becoming more competitive.  However, if tenants chose not to
remain and other renters were not attracted to the properties or if
rental income was otherwise insufficient to cover operating costs,
the properties would not remain viable, and their loss would decrease
the supply of affordable housing.  Reductions in the supply of
affordable housing could decrease the opportunities for recipients of
voucher assistance to exercise choice, particularly in housing
markets where affordable housing was in short supply. 


      HUD CURRENTLY PROVIDES
      PUBLIC HOUSING AND
      PRIVATE-MARKET HOUSING
      ASSISTANCE
-------------------------------------------------------- Chapter 2:1.1

HUD provides two basic types of rental housing assistance:  public
housing and private-market housing assistance.  Public housing is
owned and operated by local government agencies known as public
housing authorities (PHA).  HUD provides funds to these authorities
primarily to operate and make capital improvements to public housing
projects.  The private-market housing programs provide
"project-based" and "tenant-based" rental assistance to owners of
private rental housing.  For project-based assistance,\1 eligible
lower-income households must live in designated housing.  HUD has
contracted with the owners of this housing to provide rental payments
for units in those properties for a certain time period.  For
tenant-based assistance (the section 8 certificate and housing
voucher programs), assisted households may live in rental units of
their choice as long as the units meet HUD's standards for rent and
quality.  Generally, HUD administers its private-market rental
housing programs through housing owners or PHAs, depending on the
program. 

HUD spent about $25 billion in fiscal year 1995 to provide rental
housing assistance for about 4.5 million units.  HUD targets rental
assistance primarily toward households classified by law as having
very low incomes.  For households with four people, very low incomes
are those that do not exceed 50 percent of the local area's median
income.  Because of its high costs, the public housing program was
sharply curtailed in 1983, and section 8 project-based rental
assistance was discontinued for new construction or substantial
rehabilitation.  Nevertheless, because of the pattern of past
funding, most people who receive federal rental aid today receive
project-based subsidies.  As shown in figure 2.1, of the 4.5 million
units assisted by HUD, about 29 percent are in public housing, about
40 percent receive project-based assistance, and about 31 percent
receive tenant-based assistance, according to HUD. 

   Figure 2.1:  Distribution of
   HUD-Assisted Housing Units

   (See figure in printed
   edition.)

Source:  HUD's Office of Policy Development and Research (Mar. 
1996). 


--------------------
\1 Project-based assistance programs include the rent supplement;
section 221(d)(3) below-market interest rate; section 202 elderly;
section 236; and section 8 new construction, substantial
rehabilitation, and moderate rehabilitation programs and some smaller
programs. 


      S.  1145 WOULD REPLACE
      CURRENT ASSISTANCE WITH A
      VOUCHER SYSTEM
-------------------------------------------------------- Chapter 2:1.2

Under the bill, all existing public housing and project-based rental
housing assistance would be phased out and replaced with a
tenant-based voucher system administered by the Department of Health
and Human Services (HHS).  During the 5-year transition phase, the
resolution agency would take actions to ensure the continued
viability of projects with project-based section 8 contracts that
expire during the period and provide operating and capital grants to
PHAs that have an approved plan for making their housing competitive. 
The grants would also fund the demolition of units that could not be
made competitive.  During the phaseout, tenants would start to
receive vouchers that they could use to stay in their current
apartment, move to another apartment, or purchase a home.  Any
section 8 assistance or public housing commitments still in effect at
the termination of the resolution agency would be transferred to the
voucher administrator in HHS.  The bill limits the amount of
assistance available during the 5-year transition period and then
permanently limits the assistance to the amount necessary to (1)
provide housing assistance to the same number of families as received
assistance under any section 8 or public housing program during
fiscal year 1997 and (2) cover administrative fees.\2 Under the bill,
the subsidy is generally limited to the difference between 30 percent
of a household's adjusted income and a rent ceiling known as the fair
market rent.\3

As shown in figure 2.2, the states could choose to develop their own
rental assistance program, administer the federal program for their
state, or allow HHS to carry out the program in their state.  If a
state chose to develop its own program, it would receive an annual
grant and would have latitude in determining how the funds could be
used.  For example, the state could request to waive the requirement
that the grants be used for voucher assistance and could, with HHS'
approval, use the funds for affordable housing activities--such as
constructing or rehabilitating units or providing homeownership
assistance or housing counseling--as long as these activities were
consistent with those of the state's general welfare assistance
program.  If the state chose to operate the voucher program, it could
use the vouchers to assist low-income renters and homeowners.  The
state would also be able to determine the duration of the assistance
and could assist individuals and families whose incomes did not
exceed the median income for the area--a higher income level than HUD
now targets.  If HHS were to run the program for a state, it would
enter into contracts with local voucher assistance agencies to
administer the assistance.  The requirements would be similar to
those of the state-run voucher program except that the assistance
would be limited to 5 years--for all but the elderly and
disabled--and monthly assistance payments would be limited to the
difference between 30 percent of the household's adjusted income and
the fair market rent. 

   Figure 2.2:  Provision of
   Rental Assistance Under S. 
   1145

   (See figure in printed
   edition.)


--------------------
\2 Indian Housing Authority programs are not included because Indian
tribes would receive a housing block grant through another section of
S.  1145. 

\3 Under S.  1145, the fair market rent would be the dollar amount
that reflects the rent for a standard-quality unit of a particular
size and type in a certain market area. 


      ELIMINATION OF PROJECT-BASED
      ASSISTANCE COULD AFFECT THE
      SUPPLY OF AFFORDABLE HOUSING
-------------------------------------------------------- Chapter 2:1.3

Under the bill, the over two-thirds of HUD's assisted units that
receive either public housing or project-based assistance would
become unsubsidized units competing in the market.  Without a subsidy
for every unit, some of this housing--including 1.4 million units of
project-based section 8 housing and 1.3 million units of public
housing--might not remain viable. 


         SOME SECTION 8 PROPERTIES
         MIGHT NOT REMAIN VIABLE
         AT MARKET RENTS
------------------------------------------------------ Chapter 2:1.3.1

During the 5-year term of the resolution agency, section 8 contracts
covering almost 1 million units will expire, while most of the
remaining contracts will expire by 2006.  For about three-fourths of
its properties with project-based section 8 subsidies, HUD estimates
that the rental subsidies exceed the market rents for comparable
properties.  As the contracts for the assisted projects expire and
the tenants receive vouchers, the rents charged by landlords could
rise or fall, depending on the local rental market.  In general, the
tenants could decide whether to move elsewhere or to stay in their
units. 

Over time, affordable housing units may be lost as owners who cannot
operate at market rates default or as owners in tight housing markets
raise their rents to levels that certificate holders cannot afford. 
In either case, tenants could be displaced.  As a further
complication, almost half of all the properties with section 8
project-based subsidies have mortgages insured by FHA, which would
have to pay lenders' claims if the owners defaulted.  Recognizing
these possibilities, S.  1145 contains "mark-to-market" provisions
that would, for contracts expiring during the 5-year transition
period, give the resolution agency broad authority to take actions
such as adjusting the FHA-insured mortgages to bring the properties'
rental income and operating expenses into line and to decrease the
likelihood of defaults on FHA-insured mortgages.  These goals are
similar to those proposed by HUD.  The remaining section 8
properties, whose mortgages are not insured by FHA, also present
complications, particularly for the states.  Specifically, as the
Republican Governors' Housing Task Force cautioned, if the federal
government were to unilaterally not renew expiring section 8
contracts, it would jeopardize the ability of the states to meet
their financing obligations.  Such an action could have serious
consequences for the states' future financing capacity. 
Consequently, the states believe they must be held harmless from the
effects of any mark-to-market action on uninsured section 8 projects. 
According to HUD's data, just over half of all section 8 projects are
not insured by FHA.  Furthermore, over half of the units in uninsured
section 8 projects are in projects whose contracts will expire after
the year 2000.  The financial impact of the losses that the federal
government could incur are discussed in chapter 5. 


         SOME PUBLIC HOUSING MIGHT
         NOT BE COMPETITIVE
------------------------------------------------------ Chapter 2:1.3.2

In converting the 1.3 million units of public housing to compete in
the private market, the resolution agency, along with the PHAs, would
face difficult decisions about which assets could be made viable in 5
years and which should be demolished.  While the bill requires the
planning to determine which projects would likely be viable, many
PHAs might have difficulty developing plans because public housing
was not built to the private market's standards and its operation has
not been guided by the market's forces, according to a recent HUD
study.\4 Thus, many PHAs might find that they lacked the information
to analyze their housing stock, management practices, and local
housing markets to determine the viability of their housing, and they
might need to have contractors perform these studies.  Since the bill
does not provide funding specifically for the studies, it would have
to come from the operating funds or modernization grants provided
under the bill, potentially putting a further strain on PHAs'
budgets. 

In addition, the physical condition of public housing has
deteriorated over time because operating subsidies and modernization
funds have not kept pace with needs.  For example, for fiscal year
1996, about 90 percent of public housing's operating needs were
covered by the appropriation, leaving about 10 percent of the
expenses unfunded by either subsidy or rent.  Because of such
shortfalls, routine maintenance is typically deferred.  Since 1981,
almost $29 billion has been provided for modernizing public housing. 
However, a backlog estimated at between $10 billion and $20 billion
still exists, and, despite recent progress in reducing the backlog,
needs continue to accrue.  As shown in figure 2.3, the bill provides
total funding for operating subsidies and capital grants
(modernization funds) of $5.3 billion for fiscal year 1998, $3.3
billion for fiscal year 1999, $1.5 billion for fiscal year 2000, and
$56 million for fiscal year 2001.  In comparison, for fiscal year
1997, a total of about $6 billion was appropriated for public
housing.  Given this funding gap, the General Counsel for the Council
of Large Public Housing Authorities and the President of the National
Association of Housing and Redevelopment Officials said that they do
not believe that the appropriations in the bill--even when considered
in light of the proposed deregulation--would be sufficient for the
bulk of public housing to become competitive.  As we reported
previously, the condition of the existing stock and its per-unit
operating costs vary tremendously.\5 While some projects with high
operating costs would not be viable after renovation because their
expenses would exceed their rental income, other projects with low
operating expenses could, if they retained or attracted tenants, use
their rental revenues to pay for rehabilitation. 

   Figure 2.3:  Fiscal Year 1997
   Public Housing Funding Compared
   With the Funding Proposed in S. 
   1145

   (See figure in printed
   edition.)


--------------------
\4 Public Housing in a Competitive Market:  An Example of How It
Would Fare, HUD Office of Policy Development and Research (Apr. 
1996). 

\5 Public Housing:  Converting to Housing Certificates Raises Major
Questions About Cost (GAO/RCED-95-195, June 20, 1995). 


      RENTERS COULD CHOOSE TO MOVE
      IF AFFORDABLE HOUSING WERE
      AVAILABLE
-------------------------------------------------------- Chapter 2:1.4

The impact of S.  1145 on tenants would depend on the local housing
market.  Where the supply of affordable housing was sufficient, the
vouchers could provide housing choice.  To the extent that current
residents exercised their choice by moving out of very poor
neighborhoods, a basic goal asserted by those who favor tenant-based
subsidies would be met.  CBO observed that "recipients of
tenant-based housing assistance--except the elderly--were less likely
than recipients of project-based aid to report dissatisfaction with
their neighborhood or housing unit."\6 Additionally, HUD's Inspector
General recommended that actions be taken to decouple project-based
subsidies from insured projects because they insulate the owners of
projects from normal market forces and result in inferior projects
and services for tenants.  With tenant-based subsidies, landlords
would know that tenants could move and would have more incentive to
maintain their projects, according to CBO.  However, both housing and
community development officials in the six states we visited and HUD
officials told us that substituting vouchers for all project-based
assistance and public housing could reduce the supply of affordable
housing and hamper households' ability to find affordable housing in
some localities.  Officials from five states mentioned that
discontinuing project-based assistance would exacerbate the shortage
of affordable housing.  HUD agrees that housing markets nationwide
are uneven, making an across-the-board approach to housing assistance
unworkable.  In areas such as New York, San Francisco, and areas of
expanding growth where housing markets are tight, rebuilding units is
the only practical way to retain affordable units and avoid
displacing households, according to HUD. 

However, CBO and HUD agree that the primary causes of severe housing
problems across the country are not shortages of housing but lagging
incomes and high housing costs.  In fact, in 1993, about 6 million
unsubsidized households had "worst-case" needs, according to HUD,
meaning that they had incomes of less than 50 percent of their area's
median income and paid more than 50 percent of their incomes for
housing or lived in substandard housing.  For most of these
households, affordability was their only housing problem.  HUD and
others have argued that certificates give low-income households the
purchasing power they need to afford the housing that is available in
the private market.  A 1994 study by Abt Associates, Inc., performed
for HUD, found that nearly 9 out of 10 households (excluding New York
City) in HUD's mainstream section 8 voucher and certificate programs
were able to find rental housing by using their vouchers and
certificates.\7

As we reported previously,\8 actual housing choice depends on many
factors, including the characteristics of the current tenants and
their inclination to move, the availability of affordable housing,
the willingness of private landlords to accept tenants with housing
certificates, and the extent to which laws prohibiting housing
discrimination are followed and enforced.  In a case study of the
Baltimore housing authority, HUD found that massive movement out of
public housing following a change to tenant-based vouchers would be
unlikely.  The president of the National Association of Housing and
Redevelopment Officials, who is also the executive director of the
Richmond housing authority, said he fears that 20 to 30 percent of
the tenants in public housing would move.  He said that he and other
PHA directors are concerned that PHAs would be faced with partially
occupied buildings and dwindling resources.  Another factor that
would influence choice is the level of subsidy to be provided through
the certificate.  The states that operated their own program could
determine the amount of the subsidy for their state.  In theory, if a
state wanted to serve more clients, it could provide smaller payments
for each client.  If it wanted to serve fewer people or stimulate
other movements, it could provide larger payments. 


--------------------
\6 The Challenges Facing Federal Rental Assistance Programs (Dec. 
1994). 

\7 Section 8 Rental Voucher and Rental Certificate Utilization Study: 
Final Report (Oct.  1994). 

\8 Public Housing:  Converting to Housing Certificates Raises Major
Questions About Cost (GAO/RCED-95-195, June 20, 1995). 


   BLOCK GRANTS WOULD GIVE SOME
   COMMUNITIES MORE CHOICE BUT
   COULD DECREASE AID FOR
   VULNERABLE POPULATIONS
---------------------------------------------------------- Chapter 2:2

Combining the funding for HUD's community development programs into a
single block grant, distributing it to the states and large
metropolitan areas, and allowing these entities to decide how they
would spend the funds--within federal guidelines--would give these
entities more choice.  But studies have shown that communities often
choose to invest in projects benefiting higher-income groups. 
Populations such as the homeless, who are guaranteed a measure of
assistance under HUD's categorical McKinney Act programs, might not
fare as well under a block grant that did not target some funds
directly to them, according to these studies. 


      HUD CURRENTLY ASSISTS
      COMMUNITIES THROUGH MANY
      GRANT PROGRAMS
-------------------------------------------------------- Chapter 2:2.1

Through a variety of programs, HUD provides flexible funding for
local economic development, housing development, and assistance for
the homeless to and through the states; entitlement areas (mostly
cities with at least 50,000 people and urban counties);
nonentitlement cities, towns, and counties; and other jurisdictions. 
HUD's primary community development program is the Community
Development Block Grant (CDBG) program, for which $4.6 billion was
appropriated in fiscal year 1997 for grants to aid in the development
of viable communities through activities such as housing
rehabilitation, public works, public services, and economic
development.  Under CDBG, grants are distributed directly using a
statutory formula to entitlement areas and to the 48 states that
manage the program on behalf of nonentitlement communities (HUD
manages the program for Hawaii and New York).  Another major grant
program is the HOME Investment Partnerships program, which was
appropriated $1.4 billion in fiscal year 1997 to provide grants to
states and localities for a wide range of housing activities,
including building or rehabilitating affordable housing, assisting
first-time home buyers, and offering tenant-based rental assistance. 
HUD was appropriated $823 million in fiscal year 1997 to assist the
homeless through six McKinney Act programs--Shelter Plus Care,
Supportive Housing, Emergency Shelter Grants, Section 8 Moderate
Rehabilitation for Single-Room Occupancy Projects, Rural Homeless
Housing Assistance, and Safe Havens.  Some forms of assistance--such
as that for the homeless--may go directly to nonprofit groups and
organizations without going through governmental jurisdictions. 


      S.  1145 WOULD CONSOLIDATE
      AND REDUCE GRANT FUNDING
-------------------------------------------------------- Chapter 2:2.2

As shown in figure 2.4, HUD's multiple grant programs would be
combined to form a grant that would be administered by an independent
agency--the Housing and Community Opportunities Agency.  S.  1145
would give the states and localities greater flexibility in
determining the types of activities to fund.  The grant funds could
be used for community or neighborhood development, affordable
housing, or relocation.  The grant would be allocated to the states
and entitlement areas in much the same way as CDBG funds are
currently allocated.  However, the entitlement areas would receive 80
percent of the funding and the states 20 percent.  Currently, the
split is 70 percent to the entitlement areas and 30 percent to the
states under CDBG and 60 percent to participating jurisdictions and
40 percent to the states under the HOME program.  In addition, S. 
1145 would require that 90 percent of the funds be used annually to
benefit low-income families--defined by the bill as those with
incomes that do not exceed 80 percent of the area's median income. 
The CDBG program currently requires that 70 percent of the funds be
used to benefit low- and moderate- income families over a 1- to
3-year period.  Each year, the bill would set aside $1 billion for a
grant for housing for special populations--the elderly, people with
disabilities, and people with AIDS.  The set-aside would be allocated
to the states on the basis of need as indicated by objective
measures.  Indian tribes would receive 1 percent of the total block
grant, and, in addition, Indian housing authorities would receive an
amount not to exceed the funding they received for housing in fiscal
year 1995. 

   Figure 2.4:  Provision of
   Community Development
   Assistance Under S.  1145

   (See figure in printed
   edition.)

As figure 2.5 shows, federal funding for the single block grant for
community development and special populations proposed under S.  1145
would start at $5 billion for fiscal year 1998 and decline over 5
years to $3 billion, where it would be capped.  The block grant would
replace approximately $8 billion in fiscal year 1997 funding for
various programs supporting community development, housing, and the
homeless. 

   Figure 2.5:  Comparison of
   Current Funding for Programs to
   Be Consolidated Under the Block
   Grant With Funding Under S. 
   1145 for Fiscal Years 1998-2002

   (See figure in printed
   edition.)

In addition, the new agency would inherit HUD's outstanding
commitments for loan guarantees made under the CDBG program.  Under
section 108 of the Housing and Community Development Act of 1974,
communities and states that receive CDBG grants can apply for loans
to obtain additional financing.  HUD guarantees notes issued by
grantees for up to five times their current year's CDBG grant;
current and future CDBG grant funds serve as the collateral for these
loans.  The proceeds from the notes can be used to finance community
and economic development projects that are too large to be financed
from the grantee's annual grant.  The financial impact of these
guarantees is discussed in chapter 5. 


      STATES AND LOCALITIES WOULD
      HAVE GREATER FLEXIBILITY IN
      SETTING SPENDING PRIORITIES,
      BUT SERVICE TO THE POOREST
      CLIENTS MIGHT DECLINE
-------------------------------------------------------- Chapter 2:2.3

The consolidation of HUD's programs for community development,
housing development, and the homeless was supported, in general, by
NAPA and by representatives from the Brookings Institution and the
Hudson Institute, the National Association of Counties, the
Association of Local Housing Finance Agencies, the National Community
Development Association, and the U.S.  Conference of Mayors. 
However, HUD, the organizations representing state and local
governments, and housing officials generally favored two or three
block grants covering housing, community development, and assistance
for the homeless.  For example, in its reinvention plans, HUD has
proposed to consolidate these programs into three block grants.  The
Deputy Director of the Office of Executive Services in the Community
Planning and Development Division, who was otherwise critical of S. 
1145's provisions, noted that a single block grant would be less
costly to administer than separate programs.  However, the president
of the Progress and Freedom Foundation and a representative from the
Brookings Institution cited drawbacks to block grants, such as
difficulties in maintaining accountability for missions' objectives
and funding and reductions in flexibility accompanying the addition
of set-asides and restrictions on or cuts in funding.\9

HUD, the National Council of State Housing Agencies, and program
officials in all six of the states we visited said that state and
local decisions under a consolidated block grant would result in less
funding for affordable housing and/or the homeless.  According to
HUD, because the bill contains no specific requirements for serving
either very low-income persons--those with incomes that do not exceed
50 percent of their area's median income--or the homeless and because
activities for these populations do not enjoy wide support in some
cities, consolidation could result in sharp funding reductions for
these populations.  According to an official from the U.S. 
Conference of Mayors, local governments face a great deal of
political pressure to fund their police departments and environmental
mandates, rather than housing, which has traditionally been a federal
responsibility.  Some Maryland state officials thought that few funds
would be allocated for the homeless under a consolidated block grant,
particularly in entitlement areas.  These officials were concerned
that without HUD's emphasis on providing a continuum of care, some
areas would use their funds for emergency shelter rather than address
the multiple needs of the homeless.  However, the stakeholders
representing state and local governments and housing officials
expressed concern that additional set-asides or other restrictions
would be added to the block grants, limiting state or local
flexibility. 

Several studies support the concern of some stakeholders that under a
consolidated block grant, states and localities would reduce the
funding targeted to very poor households.  An analysis of the
activities funded through HUD's HOME and CDBG programs in fiscal year
1992 by a sample of cities indicated that the cities used their
grants for purposes that were more closely aligned with their
nonfederal spending than they did with other federal funding
sources.\10 According to the study, distributing more funds through
block grants would likely lead to greater expenditures to benefit
moderate- and middle-income households.  Similarly, an analysis of
the transfer of the CDBG Small Cities program from HUD to the states
found that, overall, the states spent less money than the federal
government on housing and community development activities for low-
and moderate-income households and more on economic development and
public works projects.\11 Finally, a Department of Agriculture
bulletin on how rural areas would be affected by block grants noted
that the "states have used block grants to spread development funds
around to benefit more rural communities" and, as a result, have
allocated less money for poor people and communities.\12

Specific funding provisions in the bill, including the set-aside for
housing for special populations and the 10-percent increase in
funding for entitlement areas, could mean a further decline in the
services provided elsewhere, as the states and localities made
difficult choices among competing priorities.  In our survey of
community development officials, 98 percent (43 of the 44 state
officials responding) believed the funding decreases would
significantly affect their residents.  In addition, because of the
funding cuts and the increase in the proportion of funds for
entitlement communities, the 3,000 nonmetropolitan areas would either
receive smaller grants or fewer communities would receive grants. 
According to HUD, the grants could become too small to have much
impact.  In addition, HUD said that nonprofit organizations that rely
on the CDBG and HOME programs for partial funding might have to
terminate or sharply curtail their services.  Nonprofit providers of
assistance to the homeless would be the most vulnerable, according to
HUD, since they would no longer have direct access to federal funds
and the bill does not contain any set-asides for the homeless. 

Despite their desire for flexibility, some local officials are
concerned about creating additional block grants that flow through
the states.  According to representatives from the U.S.  Conference
of Mayors, the National Association for County Community and Economic
Development, and the Council of Large Public Housing Authorities,
urban areas often suffer when the states are involved in
administering programs.  In Maryland, a panel of local officials from
municipalities near Washington, D.C., explained that the CDBG
nonentitlement program was better run by HUD than by the state, which
took over the program's administration in 1987.  Similarly, a
representative of public housing authorities in Illinois told us that
he would prefer to work directly with the federal government in
operating housing assistance programs, rather than with the state
government.  Reasons cited by these local officials for preferring to
work with the federal rather than the state government include (1)
the influence of state politics on programs' administration and (2)
the imposition of burdensome bureaucratic requirements by the state. 
These officials would prefer federal programs that channel funds
directly to local areas. 


--------------------
\9 The Brookings Institution, the Hudson Institute, and the Progress
and Freedom Foundation are research and public policy organizations. 

\10 Edward G.  Goetz, "Potential Effects of Federal Policy Devolution
on Local Housing Expenditures," Publius:  The Journal of Federalism,
Vol.  25, No.  3 (Summer 1995). 

\11 Edward T.  Jennings, Jr., et al., From Nation to States:  The
Small Cities Community Development Block Grant Program (Albany, NY: 
SUNY Press, 1986). 

\12 Richard J.  Reeder, "How Would Rural Areas Fare Under Block
Grants?" Agriculture Information Bulletin No.  724-03 (Apr.  1996). 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 2:3

HUD said that our report does not fully discuss provisions of the
bill that it believes would have harmful effects on the Department's
low- and moderate-income customers and their communities in rural,
suburban, and urban areas.  The bill's call for eliminating public
housing and replacing it with housing vouchers could have a
significant impact on all communities, according to HUD.  HUD pointed
out that in a previous report we identified potential problems with a
"one size fits all approach" to providing housing assistance because
costs differ among areas.  In addition, HUD noted that the impact on
communities and on the poor of consolidating and cutting--by 40
percent--the funding for the Community Development Block Grant, the
HOME program and the current programs for the homeless--would also be
devastating.  Neither we nor HUD can assess with any certainty what
spending choices states and communities would make.  However, on the
basis of our extensive interviews with representatives of federal and
state agencies and affected populations and of our analysis of
relevant studies, we believe that the information presented in this
chapter reasonably reflects the most likely effects of the bill on
those presently served by HUD and its programs. 


THE FEDERAL ROLE IN HOUSING
FINANCE WOULD BE REDUCED
============================================================ Chapter 3

The federal role in housing finance would change dramatically under
the provisions of S.  1145.  Specifically, the federal government
would provide partial mortgage insurance only for single-family
homes, would no longer insure multifamily mortgages, and would no
longer provide liquidity to certain lenders.  Because of the
limitations on the percentage of the value of the home that could be
financed and the percentage of the losses that would be covered by
insurance, some home buyers--particularly lower-income and first-time
buyers--who would have qualified for federally insured loans without
the changes envisioned in the bill could have difficulty obtaining a
home mortgage or might never become homeowners.  In addition,
veterans and rural residents, as well as certain lower-income home
buyers benefiting from other affordable homeownership
programs--particularly those of state housing finance agencies
(HFA)--could have more difficulty obtaining--or could pay higher
costs to obtain--a home mortgage without FHA as a source of mortgage
insurance and Ginnie Mae as a source of liquidity to lenders. 
Eliminating the federal role in insuring multifamily mortgages could
particularly affect the availability of mortgages for affordable
rental housing, and, in New York and New Jersey, for hospitals. 
Finally, risk-sharing as envisioned in the bill could diminish the
federal role in stabilizing housing markets.  Specifically, according
to FHA, the loss of FHA's ability to serve as a market stabilizer in
economic downturns could mean greater losses in home equity value for
low-and moderate-income homeowners and greater volatility in the
economy. 

Both FHA's principal single-family mortgage insurance program and
Ginnie Mae's guarantee program have expected revenues that exceed
their expected costs.  The resulting surplus lowers the federal
deficit.  The budgetary implications of the bill's housing finance
proposals are described in appendix II. 


   HUD INSURES MORTGAGES AND
   PROVIDES LIQUIDITY TO LENDERS
---------------------------------------------------------- Chapter 3:1

HUD supports housing finance principally through FHA's mortgage
insurance program and Ginnie Mae's program for providing liquidity to
lenders of government-insured loans. 


      FHA INSURES MORTGAGES
-------------------------------------------------------- Chapter 3:1.1

FHA was established under the National Housing Act of 1934 to improve
housing standards and conditions, to provide an adequate home
financing system by insuring home mortgages and providing credit, and
to stabilize the mortgage market.  FHA insures private lenders
against losses on mortgages financing homes, multifamily properties,
and health care facilities and against losses on loans for property
improvements and manufactured homes.  In July 1996, FHA had insurance
on 6,490,546 single-family loans totaling about $364 billion.  It had
insurance on an additional 15,876 multifamily loans (totaling almost
2 million units) and 474,750 property improvement and manufactured
housing loans, totaling about $48 billion and $6 billion,
respectively.  FHA also held 126,467 notes on properties with unpaid
principal balances totaling $8.4 billion and held 26,531
single-family and multifamily properties acquired at a cost of $2.1
billion.  According to Price Waterhouse's latest actuarial study, the
Mutual Mortgage Insurance Fund--the insurance fund supporting FHA's
principal single-family insurance program--had an economic net worth
of over $7 billion as of September 30, 1995.\1 That is, the current
cash available to the fund, plus the net present value of all future
cash inflows and outflows expected to result from outstanding
mortgages in the fund, is about $7 billion. 

While serving a relatively small part of the entire single-family
mortgage market, FHA is an important resource for certain market
segments.  Specifically, while FHA insured about 8 percent of the
dollar amount of all mortgages made in 1995--both home purchase
mortgages and refinancings--FHA-insured loans represented about 26
percent of the dollar amount of all insured loans made that year. 
(See fig.  3.1.) Borrowers of FHA-insured mortgages are more likely
to have lower incomes, be first-time home buyers, or be minorities
than are borrowers of privately insured loans.  For example, while
FHA insured about 15 percent of all mortgages used to purchase homes
in 1994, it insured 20 percent of all home purchase mortgages made to
low-income borrowers, 24 percent of those made to minorities, and 21
percent of those made to first-time home buyers.  In addition, in
1994 FHA insured more home purchase mortgages in nine states than did
private mortgage insurers or the Department of Veterans Affairs (VA). 

   Figure 3.1:  Share of
   Single-Family Mortgages--Home
   Purchase and Refinancings--Made
   During 1995

   (See figure in printed
   edition.)

Source:  U.S.  Housing Market Conditions, HUD's Office of Policy
Development and Research (May 1996). 

In 1995, FHA's mortgage insurance on loans for multifamily properties
helped finance the construction of 17,113 new rental units; the
purchase or refinancing of 32,383 existing rental units; and the
construction, substantial rehabilitation, and purchase or refinancing
of 12,888 units of group housing and health care facilities. 
Combined, these multifamily activities represented over $2.3 billion
in mortgage insurance written in 1995. 


--------------------
\1 FHA has four insurance funds.  The Mutual Mortgage Insurance (MMI)
fund provides mortgage insurance principally for 30-year fixed-rate
single-family home mortgages and is required to be actuarially sound. 
The General Insurance (GI) fund provides mortgage insurance for
multifamily properties, including nursing homes and hospitals, and is
not required to be actuarially sound.  The GI fund is dependent on
budget appropriations to sustain operations.  The Cooperative
Management Housing Insurance (CMHI) fund and the Special Risk
Insurance (SRI) fund have had very little activity in recent years
and, according to HUD's Office of Inspector General, represent a
comparatively small exposure to additional losses. 


      GINNIE MAE'S GUARANTEES
      RAISE CAPITAL FOR MORTGAGE
      LOANS
-------------------------------------------------------- Chapter 3:1.2

Ginnie Mae, a wholly owned government corporation, was established to
expand affordable housing in America by providing liquidity to
certain lenders through an efficient government-guaranteed secondary
market for federally insured or guaranteed loans.  Its programs
facilitate the financing of single-family, multifamily, and
manufactured homes.  Specifically, Ginnie Mae guarantees the timely
payment of principal and interest on privately issued securities that
are backed by pools of FHA-insured and VA- and Rural Housing Service
(RHS)-guaranteed mortgages.  In fact, according to Ginnie Mae, nearly
all FHA-insured, VA-guaranteed, and RHS-guaranteed mortgages are in
Ginnie Mae pools.\2 Ginnie Mae's mortgage-backed securities program
provides a means of channeling funds from the nation's securities
markets into local housing markets.  According to Ginnie Mae, the
U.S.  government's full-faith-and-credit guaranty of these securities
makes them widely accepted in sectors of the capital markets that
would not otherwise be likely to supply funds to the mortgage market. 
Approximately 70 percent of the funds used to purchase Ginnie
Mae-guaranteed securities come from nontraditional mortgage
investors, including pension and retirement funds, life insurance
companies, and individuals.  The maturities on these guarantees are
for up to 40 years.  As shown in figure 3.2, as of September 30,
1995, Ginnie Mae-guaranteed securities represented 26 percent of all
single-family and multifamily mortgages held in mortgage pools.  At
the end of fiscal year 1995, Ginnie Mae had outstanding guarantees of
mortgage-backed securities totaling $464 billion.  Ginnie Mae's
programs had negative net outlays--or profits--of $464 million in
fiscal year 1995. 

   Figure 3.2:  Share of
   Single-Family and Multifamily
   Mortgage-Backed Securities
   Insured or Guaranteed as of
   September 30, 1995

   (See figure in printed
   edition.)

Note:  Excludes Rural Housing Service. 

Source:  Federal Reserve Bulletin (Nov.  1996). 


--------------------
\2 Fannie Mae, in partnership with the RHS, developed the market for
RHS-guaranteed loans.  According to Fannie Mae, it has provided more
than $787 million in financing to over 13,000 families since the
beginning of this partnership. 


   FEDERAL SUPPORT FOR HOUSING
   FINANCE WOULD BE REDUCED
---------------------------------------------------------- Chapter 3:2

Under S.  1145, HUD would no longer insure multifamily mortgages or
guarantee mortgage-backed securities, and the agency that would
replace FHA would be limited in how it could insure mortgages. 
Specifically, the bill would abolish FHA and replace FHA's
single-family mortgage insurance program with a program in which risk
would be shared between qualified mortgage insurers and a Federal
Home Mortgage Insurance Fund operated by a new agency--the Federal
Home Mortgage Insurance Fund Administration (FHMIFA)--within the
Department of the Treasury.  Unlike FHA's mortgage insurance, this
proposed new fund would not be backed by the full faith and credit of
the United States.  The new agency would be authorized to provide
partial insurance on mortgages for families with incomes of 80
percent of their area's median income (125 percent for first-time
home buyers and for homes purchased in economically distressed areas)
and for refinancing a mortgage previously insured under a
risk-sharing agreement.\3 It would not be authorized to insure
single-family mortgages for other prospective buyers or multifamily
mortgages.  Furthermore, the federal government would no longer
provide liquidity to lenders, as Ginnie Mae does now.  Finally,
low-income homeowners would be eligible to receive housing assistance
vouchers for up to 60 months--or for longer if a state chose to
design its own program.\4 The bill also provides for the sale of
FHA's mortgage insurance interests and for the termination of Ginnie
Mae. 

Under the bill's provisions, initial capital of $100 million to $500
million for the Federal Home Mortgage Insurance Fund would come from
the sale of FHA's mortgage insurance interests.\5 FHMIFA would set
standards for lenders and underwriting standards for borrowers.  It
would enter into risk-sharing agreements with qualified mortgage
insurers.  To be qualified, insurers would need a AA rating from a
rating agency and could include state and local housing and housing
finance agencies or private mortgage insurers in coordination with
HFAs.\6 Together, FHMIFA and a qualified mortgage insurer would
insure no more than 35 percent of a loan, a lender would finance no
more than 97 percent of a property's value, and a borrower's income
could not exceed 80 percent of the area's median income (or 125
percent of the median income for first-time home buyers or properties
located in economically distressed areas).  Premiums would remain at
the levels currently authorized under FHA's principal program for
single-family mortgages, and premiums and losses would be shared as
agreed between the fund and the qualified mortgage insurers. 

Qualified mortgage insurers would underwrite loans and collect
insurance premiums--retaining a portion for administrative expenses
and passing the remainder on to the fund.  An insurer would pay
claims to lenders and dispose of foreclosed properties conveyed to
the insurer and collect against borrowers assigned to the insurer. 
The resulting losses would be shared between the insurer and the
fund.  The total amount of the losses covered by the fund and the
qualified mortgage insurer would be limited to 35 percent of the
loan.  Currently, FHA covers 100 percent of the losses on loans that
it insures, while the maximum coverage on privately insured loans is
35 percent.  According to the bill, FHMIFA and a qualified mortgage
insurer would negotiate an agreement on how the risk would be shared. 
In addition, the qualified mortgage insurers and FHMIFA would agree
on the portion of the premiums that the insurer could retain and the
amount that the insurance fund would receive. 

To provide liquidity to lenders of mortgages made under the proposed
risk-sharing arrangement, as well as mortgages guaranteed by VA and
RHS, the bill suggests that Fannie Mae, Freddie Mac, or private
conduits might provide a means of channeling capital.  The bill does
not specify the conditions under which these entities would perform
such a function. 

The bill establishes transition provisions for selling FHA's mortgage
insurance interests and administering any interests not sold, as well
as for winding up Ginnie Mae's affairs.  In essence, the bill would
transfer these commitments to the resolution agency for their orderly
sale and/or administration.  Although the bill would transfer the
administration of any unsold mortgage insurance interests to FHMIFA,
it does not specify how Ginnie Mae's guarantees of mortgage-backed
securities--with maturities of up to 40 years--would be administered
beyond the 5-year term of the resolution agency.  The bill does,
however, specify that the resolution agency should provide the
Congress with a plan for phasing out Ginnie Mae's guarantees.  The
specific tasks to be performed by the resolution agency, the limits
it faces in doing so, and the implications of resolving these
commitments are described in detail in chapter 5. 


--------------------
\3 Refinancings would be limited to instances in which the amount of
the original loan did not exceed 150 percent of the outstanding
principal of the mortgage being refinanced. 

\4 Upon the sale of a home for which the homeowner had received
housing assistance vouchers, the homeowner would be required to
return any additional assistance received as a result of not
considering any amount of income imputed from the family's equity in
the house. 

\5 FHA's mortgage insurance interests include the assets, interests,
debts, and obligations of the resolution administrator attributable
to the residential mortgage insurance provided by the resolution
administrator or the Secretary of HUD.  These interests include
rights to the payment of mortgage insurance premiums and properties
and mortgages held by the administrator or the Secretary of HUD. 

\6 According to Moody's, insurance companies rated AA offer excellent
financial security.  Together with the AAA group, they constitute
what are generally known as high-grade companies. 


   HOME MORTGAGES WOULD BE HARDER
   TO OBTAIN FOR SOME HOME BUYERS
   UNDER THE BILL'S PROVISIONS
---------------------------------------------------------- Chapter 3:3

Given certain restrictions on the loans that could be insured under
the bill's risk-sharing provisions and the elimination of Ginnie Mae,
some home buyers would find it more difficult and, in some instances,
more costly to obtain home mortgages.  Particularly hard hit would be
low-income and first-time home buyers.  According to HUD, the bill's
provisions "would strike a devastating blow to potential home
buyers." HUD further notes that the proposal's requirements for
serving only lower-income and first-time home buyers would freeze out
many home buyers who currently pay FHA's higher premiums because they
have no conventional-market alternative.  Finally, HUD believes that
lenders would be exposed to additional risk because of the reduction
in coverage from 100 percent to 35 percent, which could result in
credit rationing and higher prices in interest and fees.  Some home
buyers who would have qualified for FHA-insured loans might also
qualify for mortgages offered by other mortgage market entities. 


      SOME BORROWERS WOULD NEED
      MORE CASH TO PURCHASE A HOME
-------------------------------------------------------- Chapter 3:3.1

The bill's provision limiting a loan to no more than 97 percent of a
property's value would likely increase the cash required of a
borrower.  As a result, some prospective borrowers would have to
delay their purchase of a home or might, in some cases, never
purchase a home.  We reported in August 1996 that about 66 percent of
the FHA-insured single-family loans made for the purchase of a home
in 1995 did not meet three important guidelines used by private
mortgage insurers.\7 That is, about two-thirds of these home buyers
might not have qualified for private mortgage insurance for the loan
they received.  An even greater proportion of first-time home buyers
and low-income home buyers might not have qualified for a privately
insured loan of the same amount.  Specifically, about 77 percent of
the first-time home buyers and 86 percent of the low-income home
buyers who obtained FHA-insured mortgages in 1995 might not have
qualified for privately insured loans.  The bill's provision limiting
a loan to 97 percent of a property's value is equal to the most
liberal percentage allowed by private mortgage insurance companies
today.  On the basis of this ratio alone, about one-third of the
borrowers who obtained FHA-insured mortgages in 1995 might not have
qualified for private mortgage insurance for the loans they
received.\8 That is, these borrowers had loans for an amount that
exceeded 97 percent of their property's value and, under the bill's
provisions, would need either to contribute more cash toward the
purchase of a home or purchase a home of lesser value.\9 An April
1995 study conducted for the Mortgage Bankers Association--which
represents most lenders of single-family mortgage loans--concluded
that the majority of the customers served under FHA's principal
single-family mortgage insurance fund would probably not have
sufficient financial resources to qualify for private mortgage
insurance if FHA were terminated.  Furthermore, according to the
study, low-income individuals would have particular difficulty in
obtaining additional cash resources.\10

According to FHA lenders who participated in an October 1995 focus
group sponsored by FHA, a reduction in FHA's insurance coverage would
cause lenders to increase their prices to cover the perceived
increase in risk.  According to these lenders,

     "this increase [in risk] will lead to an overall decline in FHA
     volume, as high-risk borrowers are either unable to meet
     stricter underwriting criteria imposed by lenders or are unable
     to afford insurance, and as the higher price of FHA insurance
     induces lower risk borrowers to choose conventional insurance,
     FHA will be less able to reach underserved areas and borrowers,
     as well as geographic areas suffering from economic downturns or
     hit by natural disasters, and the homeownership rate will fall."

Also contributing to a likely increase in cost to borrowers would be
the loss of the full-faith-and-credit backing of the U.S. 
government.  Specifically, according to FHA, without this credit
enhancement, investors would provide capital to lenders at a higher
cost, increasing the cost of homeownership to borrowers.  In
addition, a more targeted insurance program, as envisioned in the
bill, could concentrate risk in the newly envisioned fund, making it
less able to survive economic downturns, according to FHA. 

Finally, the changes in housing finance envisioned in the bill would
also affect borrowers served through affordable housing programs who
now rely on FHA's insurance.  For example, FHA's mortgage insurance
helps state HFAs raise capital for their single-family and
multifamily mortgage programs.  The credit enhancement provided by
this insurance, backed by the full-faith-and-credit of the United
States, makes the loans made by HFAs less risky.  Without this
enhancement, investors in securities issued by state HFAs would
demand a higher return on their investments.  These additional costs
would be passed on to borrowers.  In 1994, FHA insured over 55
percent of the loans made by state HFAs.  With the added protection
of mortgage insurance, these HFAs may offer more flexible terms than
they could offer otherwise. 


--------------------
\7 These guidelines included the most liberal private-sector
guidelines for the amount of the loan as a percent of the property's
value--known as the loan-to-value ratio--and the amount of the
borrower's monthly total debt and housing debt payments as a percent
of the borrower's monthly gross income--known as the total
debt-to-income and housing-expense-to-income ratios.  See
Homeownership:  FHA's Role in Helping People Obtain Home Mortgages
(GAO/RCED-95-123, Aug.  13, 1996). 

\8 This analysis excludes loans used for the purpose of refinancing
an existing mortgage. 

\9 Some FHA borrowers whom we have identified as not being able to
qualify for private mortgage insurance on the loan they received
might have been able to increase their down payment, thereby lowering
their loan-to-value and total-debt-to-income ratios and qualifying
for private mortgage insurance on a smaller loan. 

\10 William M.  Isaac and James A.  Marino, FHA Single-Family
Mortgage Insurance:  Its Relevance in Today's Market, The Secura
Group, prepared for the Mortgage Bankers Association of America (Apr. 
25, 1995). 


      CAPITAL FOR SOME MORTGAGE
      LOANS MIGHT BE MORE
      DIFFICULT TO RAISE
-------------------------------------------------------- Chapter 3:3.2

As mentioned earlier, the bill would eliminate Ginnie Mae--which
today provides a channel for mortgage funds for nearly all
government-insured and government-guaranteed loans.  According to
officials of Fannie Mae and Freddie Mac--organizations specifically
mentioned in the bill as candidates for performing functions similar
to those now performed by Ginnie Mae--they would immediately be able
to purchase any new loans that met their underwriting guidelines.\11
However, their qualifying ratios, particularly for total
debt-to-income and loan-to-value, are the same as those used by
private mortgage insurance companies.  Consequently, under the bill's
provisions for risk-sharing, coupled with the elimination of Ginnie
Mae, only those borrowers who could meet the private-sector's
existing qualifying ratios would be likely to obtain loans insured
under the bill's provisions.\12 That is, Fannie Mae and Freddie Mac
would be likely to immediately channel funds from the capital market
to the housing market for borrowers who could meet today's standards
for privately insured loans.  As mentioned above, on the basis of our
analysis of home purchasers who received FHA loans in 1995, up to
two-thirds of the borrowers with FHA-insured loans would not meet
these standards, and would, therefore, need to delay their purchase
of a home, purchase a home of lesser value, or make a greater initial
investment in their home.\13 According to officials of Mortgage
Insurance Companies of America, private mortgage insurers might be
able to offer more flexible underwriting for loans in which they
shared the risks as envisioned in the bill.  Fannie Mae and Freddie
Mac would, however, first need to better understand the risks
associated with any changes to their underwriting and the price they
would need to charge for purchasing such loans.  For some borrowers,
the provision of vouchers might increase the affordability of the
home they currently owned or wished to purchase. 

The loss of Ginnie Mae could also affect the availability of
mortgages for veterans and rural home buyers.  Currently, lenders of
loans guaranteed by VA and the Rural Housing Service may retain 44
basis points (0.44 percent of the loan amount) for servicing loans
when they are pooled into securities that are guaranteed by Ginnie
Mae.  But when these loans are securitized by Fannie Mae or Freddie
Mac, the lenders might retain fewer basis points.  This difference in
servicing fees creates an incentive for lenders that originate
government-insured and government-guaranteed loans to utilize Ginnie
Mae's services and explains why nearly all such loans are held in
securities guaranteed by Ginnie Mae.  Consequently, some veterans and
moderate-income rural home buyers might find a home mortgage more
difficult to obtain.  Ultimately, the terms of the mortgages made
under the risk-sharing provisions of the bill would need to be
established before the secondary market agencies could determine the
risk and pricing for purchasing and securitizing such loans. 


--------------------
\11 Many mortgages made to low- and moderate-income home buyers are
purchased by Fannie Mae and Freddie Mac.  For 1997, 42 percent of
Fannie Mae's and Freddie Mac's mortgage purchases are required to be
for mortgages issued to families with low and moderate incomes. 

\12 Fannie Mae and Freddie Mac may purchase loans that exceed these
guidelines. 

\13 Both Fannie Mae and Freddie Mac have affordable loan programs and
arrangements with certain lenders under which some of these borrowers
may qualify for a mortgage. 


      FINANCING FOR MULTIFAMILY
      PROJECTS WOULD BE MORE
      DIFFICULT TO OBTAIN
-------------------------------------------------------- Chapter 3:3.3

FHA's role in facilitating the financing of multifamily projects is
more limited than it once was, but it is still significant for
multifamily projects for lower-income renters, as well as for
hospitals and nursing homes in certain locations.  Eliminating FHA as
a source of insurance for multifamily mortgages would eliminate a
relatively small, but in some instances important, source of credit
enhancement for developers of such projects. 

FHA's role in insuring mortgages for unassisted multifamily projects
has generally increased in the last few years, after a period of
decline.  Specifically, FHA insured twice the dollar amount in
mortgages for constructing new rental units in 1995 as it did in
1992, as well as almost twice the dollar amount in mortgages for
congregate housing, nursing homes, assisted living, and
board-and-care facilities.  The dollar amount of the mortgages for
purchasing or refinancing existing rental units has fluctuated during
the last few years but has exceeded the amount for 1992.  While the
extent to which FHA's share of the entire market has changed in
recent years is unclear, FHA's Office of Multifamily Housing Programs
wrote in its Business Strategic Plan of October 1994 that FHA's share
of the multifamily mortgage lending market had fallen from over 30
percent during the early 1980s to 2.2 percent in 1992.  However, the
renters served by projects financed with FHA-insured loans generally
had lower incomes than renters in general, according to FHA. 
Although FHA's multifamily insurance program for hospitals is
concentrated in just two states--New York and New Jersey--it may
serve as a significant source of credit enhancement for financing
hospitals in these two states.  Some of FHA's multifamily mortgage
programs have been profitable.  Specifically, according to a May 1995
analysis prepared by Abt Associates, Inc., FHA's insurance on loans
for hospitals and for refinancing multifamily loans had a positive
net cash flow for those loans endorsed between 1987 and 1994. 
Finally, FHA sees its role in pioneering and providing credit
enhancement for multifamily mortgages serving the lower end of the
market as critical, and the agency is working to better meet the
needs of underserved renters and areas. 

For multifamily projects as for single-family residences--but to a
lesser extent--some state HFAs--including those in Louisiana,
Missouri, and Ohio--rely on FHA's mortgage insurance for financing. 
In addition, in recent years some state HFAs have entered into
risk-sharing arrangements with FHA for financing multifamily
projects.  Without FHA, these HFAs would need to seek another form of
credit enhancement to finance such projects. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 3:4

HUD believes that we do not give sufficient emphasis to the bill's
impact on homeownership.  According to HUD, eliminating the federal
backing for mortgage insurance would eliminate clients now served by
FHA, but we cannot say how many prospective borrowers would be unable
to obtain a home mortgage under the bill's provisions.  While our
analysis of the types of loans received by FHA borrowers recognizes
the percentage of such borrowers who did not meet the most liberal
underwriting guidelines, we cannot say with certainty that all of
these borrowers could not qualify for other mortgages.  In addition,
because the bill does not specify the terms for sharing risk with
qualified mortgage insurers, we cannot determine how many borrowers
would be affected.  In this regard, we share HUD's concern that
mortgages insured under the risk-sharing provisions might be those
products already offered on the private market.  In fact, we
recognize in the report that the restriction on loan-to-value ratio
alone replicates a feature of products already offered by the private
market.  We have also added information to the report, in response to
HUD's comments, to recognize the impact on the cost to borrowers of
the envisioned fund's not being backed by the full-faith-and-credit
of the U.S.  government, and we have expanded our description of
FHA's role in the multifamily mortgage market.  Finally, in response
to comments from Fannie Mae and Freddie Mac that our report does not
recognize the extent to which these agencies serve low- and
moderate-income families, we added information on their efforts and
noted that the agencies may purchase loans whose terms exceed their
underwriting guidelines. 


STATES HAVE VARIED CAPACITY AND
RECEIVING AGENCIES GENERALLY HAVE
COMPATIBLE MISSIONS, BUT
IMPLEMENTATION COULD POSE
DIFFICULTIES
============================================================ Chapter 4

Many states already have some experience in administering housing and
community development programs.  Most officials in the six states we
visited believed they could take on additional programmatic and
administrative responsibilities and welcomed the prospect of greater
involvement in deciding how to spend federal funds.  Although the
state government officials responding to our survey generally
indicated that their state would not be likely to supplement the
federal block grant, past experience with block grants in the early
1980s showed that the states used a variety of approaches to help
offset federal funding reductions.  Similarly, a majority of the
federal agencies that would receive HUD's functions generally
indicated that they could assume the additional responsibilities if
they received adequate resources; however, they said implementation
would pose problems.  S.  1145 does not explicitly expand the role of
localities in administering housing and community development
programs; rather, changes in the role of localities would depend
largely on the states. 


   STATES ARE WILLING TO ASSUME A
   GREATER ROLE BUT HAVE VARIED
   ADMINISTRATIVE AND FISCAL
   CAPACITY
---------------------------------------------------------- Chapter 4:1

The states vary in their experience with programs such as they might
administer under S.  1145.  Officials responsible for current
housing, community development, and welfare programs in the six
states that we visited generally believed that their state could
develop the capacity to take on most additional administrative
responsibilities associated with an increased role in these programs. 
In the housing assistance area, most said that they would need
funding for additional staff and automated systems.  However, 79
percent of the respondents to our survey of community development
officials in 47 states said their state could easily assume the
community development responsibilities by dividing the grant among
state agencies.  The one area in which the states would not be able
to fully participate is risk-sharing to insure single-family
mortgages, according to the National Council of State Housing
Agencies.  Although studies show that some states have greater fiscal
capacity than others, most of the state officials we contacted did
not believe that their state government would be likely to contribute
additional funding for housing and community development activities. 


      STATE OFFICIALS HAVE VARIED
      EXPERIENCE ADMINISTERING
      HOUSING AND COMMUNITY
      DEVELOPMENT PROGRAMS
-------------------------------------------------------- Chapter 4:1.1

Many states have experience administering housing assistance through
existing programs.  In 1994, 33 states, the District of Columbia, and
Puerto Rico had HFAs that administered tenant-based rental assistance
through either the section 8 certificate or voucher program or the
HOME program, according to a survey conducted by the National Council
of State Housing Agencies.  Some states--such as Massachusetts and
Maryland--already administer rental assistance programs that they
designed and fund.  In addition, the states are generally already
equipped with a network of local public housing authorities (PHA)
that operate public housing, many of which also administer section 8
certificates and vouchers.  However, the PHAs currently receive their
funding directly from the federal government and are not supportive
of proposals that involve the states, according to three PHA
associations.  Also, the PHAs typically interact directly with HUD
and may have only a limited ongoing relationship with the state. 

Officials responsible for housing, community development, and welfare
programs in five of the six states we visited indicated that if S. 
1145 were implemented, their state would probably opt for a
state-designed program that would include a tenant-based rental
assistance component, such as vouchers, and would use the existing
PHA infrastructure along with other local agencies for delivering
rental assistance to residents.  In the other state, Illinois,
officials from the governor's office and the housing and community
development departments were uncertain whether the state would want
to administer the program.  The officials said that they support
tenant-based assistance but have found, in administering
approximately 400 rental units as HUD has shifted from project- to
tenant-based assistance, the state's administrative costs have risen
because the tenants are more scattered and more travel is required to
conduct inspections.  However, the state's director of social
services thought that his department should design and administer the
program so that the state could use housing assistance as a tool to
help welfare recipients become self-sufficient. 

Forty-eight states and Puerto Rico have experience working with the
existing CDBG program--a role somewhat similar to the one they would
play in administering the nonentitlement portion of the community
development and special populations block grant proposed in S.  1145. 
However, the states vary in the number of years they have worked with
the CDBG program.  In 1982, the states were given the chance to take
over the administration of the nonentitlement portion of the CDBG
program.  While most states were eager to take over this role, Hawaii
and New York continue to rely on HUD to administer the program for
their state.  In 1994, 37 states and the Virgin Islands participated
in the HOME program.  Many states also have experience administering
programs for the homeless, the elderly, and people with AIDS. 

Prior experience in administering housing and community development
programs or other block grants may help the states take on additional
responsibilities for administering block grants for housing and
community development.  During a review of the nine block grants
created by the Omnibus Budget Reconciliation Act of 1981, we found
that when a state had operated categorical programs in a particular
program area, the transition to block grants in that area was
smoother because the state could rely on its existing management and
service delivery systems.\1 The states also consolidated offices or
took other steps to coordinate related programs when assuming
responsibility for the 1981 block grants.  The transition to new
block grants was not as smooth in program areas that had been funded
almost entirely by the federal government. 

Only eight states currently insure single-family mortgages--a
responsibility S.  1145 would make available to the states through
risk-sharing with the federal government.  Most HFAs rely on FHA or
the private market to insure their loans.  For example, officials at
the Illinois HFA said that their agency cannot insure its own
mortgages because its enabling legislation requires it to use private
insurance on its mortgages.  Although few states currently insure
mortgages, virtually all of them make direct loans to first-time home
buyers using the proceeds from tax exempt bonds. 


--------------------
\1 Block Grants:  Characteristics, Experiences, and Lessons Learned
(GAO/HEHS-95-74, Feb.  9, 1995). 


      STATES BELIEVED THEY COULD
      TAKE ON ADDITIONAL HOUSING
      AND COMMUNITY DEVELOPMENT
      RESPONSIBILITIES, BUT
      LOCALITIES SAID STATES
      LACKED EXPERIENCE IN HOUSING
-------------------------------------------------------- Chapter 4:1.2

The states could take on additional housing responsibilities,
according to the National Council of State Housing Agencies.  Also,
state officials responsible for housing, community development, and
welfare in the six states we visited believed that the strength of
their housing and community development departments, their capacity
at the local level, and their interagency coordination would help
them take on additional responsibilities for housing assistance. 
However, these officials believed they would need funds for
additional staff and automated systems to assume the new
responsibilities.  Although state officials generally believed they
could handle the expanded administrative responsibilities that could
result from the implementation of S.  1145's housing assistance
provisions, officials from localities in these states generally did
not share this confidence.  Local PHA directors and associations
representing local governments in some of the states we visited did
not believe that their state government had the administrative
capacity or the experience with local housing problems needed to
administer housing programs.  In addition, to the extent that S. 
1145 resulted in the transfer of responsibility for subsidized
multifamily housing projects to the states, states with little or no
experience in administering multifamily housing would not be well
positioned to carry out these responsibilities, according to Moody's
Investors' Service--one of the two major bond-rating agencies. 

Assuming responsibility for administering the block grant for
community development, affordable housing, and special populations by
distributing the grant funds among existing state departments would
be easy, according to 79 percent of those who responded to our survey
of community development officials.  Conversely, only 5 percent said
that their state would be likely to create a new state agency to
administer the proposed block grant.  Seventy-two percent thought
that the state would be unlikely to hire additional staff to
administer the program.  The states are more likely to shift staff
between departments or offices, according to the officials surveyed. 

Most state HFAs could not participate in risk-sharing because they
would be unable to supply the capital needed to meet the rating
requirement the proposal would establish for qualified mortgage
insurers, according to officials from the National Council of State
Housing Agencies and Moody's.  Officials from the National Council
said that some older HFAs--in New York, Florida, and Massachusetts,
for example--do have significant reserves that they have been able to
build over time.  However, the newer HFAs have not had the time to
develop reserves and the reserves that they do have are pledged
against bond issues.  In addition, the bond issues have come under
tighter restrictions over time, which have restricted HFAs in
building reserves. 


      STATES SAID THEY WOULD BE
      UNLIKELY TO SUPPLEMENT
      FEDERAL FUNDS
-------------------------------------------------------- Chapter 4:1.3

None of the officials we surveyed indicated that their state would be
likely to provide additional funds for community development to
compensate for the bill's proposed reductions.  Almost all of these
officials believed that their state would not provide additional
funds because of its (1) inability or unwillingness to increase state
tax rates and/or (2) balanced budget requirement.  According to the
Center for the Study of the States, the states are unlikely to raise
their own taxes much to offset federal cutbacks, and the revenue from
the existing taxes of most states will not grow enough to enable the
states to make up for large reductions in federal aid.\2 For example,
officials in Washington State said that because the state has a
balanced budget requirement and an initiative that limits state
spending increases, the state would be precluded from providing
additional funding for housing or community development.  Balanced
budget requirements exist in 49 states, according to the National
Conference of State Legislatures. 

Other limitations on the states' ability to provide additional funds
cited by survey respondents included competition for state funds and
the impact of other federal spending cuts.  The Center for the Study
of the States calculated that state spending for activities such as
economic development and housing was cut back sharply during the
early 1990s.  According to 1996 testimony by a senior fellow at the
Urban Institute before the House Budget Committee, if cutbacks in
federal aid cause fiscal stress for states, programs that received a
small share of the states' funds in the early 1990s would continue to
lose out to spending for other activities, such as prisons.\3 Federal
spending cuts in areas such as welfare, job training, and education
were cited by almost half of the survey respondents as moderately or
greatly influencing their state's decision not to provide additional
funds for community development.\4 For example, officials in
Massachusetts said they would have to wait and see how their state
fared with welfare reform before determining how much more they could
spend for housing and community development.  However, this state
differed from others we visited because officials believed that
strong pressure from housing advocacy groups within the state could
result in increased funding. 

Although the state government officials responding to our survey
generally indicated that their state would not be likely to
supplement the federal block grant, the actual fiscal capacity of
state governments appears to be more varied than the responses would
suggest.  Several recent studies indicate that while some states are
weak in terms of their fiscal capacity, others are fairly strong.  We
reported in 1993, for instance, that the widespread disparities among
the levels of public services that the states could afford reflected
differences in their fiscal capacity.\5 The six states we visited had
varied levels of fiscal capacity, according to the 1993 report's
ranking of states.  Maryland and Massachusetts were ranked in the top
(strongest) quartile, Washington was in the second quartile, Illinois
was in the third quartile, and Alabama and Texas were in the bottom
(weakest) quartile.  Furthermore, according to the National
Governors' Association and the National Association of State Budget
Officers, the states' revenues for 1995 exceeded projected levels. 
About half of the states enacted tax cuts in part because of moderate
economic growth.\6 In addition, experience with block grants in the
early 1980s showed that the states used a variety of approaches to
help offset federal funding reductions.  For example, after nine
block grants were created in the early 1980s, the states used
carry-over funds from categorical programs, added state revenues, and
transferred funds among programs to help make up for much of the
reductions in federal funding.\7 An April 1995 study on block grants
concluded that ".  .  .  critics who had predicted that states would
be unable and/or unwilling to use their own funds to offset federal
cuts were proven wrong."\8 The study noted that spending for social
services, which had seemed especially vulnerable, received
surprisingly strong support. 

However, some observers do not believe that the states would be
willing or able to offset the reductions.  The Center for the Study
of the States concluded that even though fiscal conditions have
improved in recent years, the states have limited financial reserves
available.  If the federal government sharply reduces its aid to the
states, according to the Center, it should not be under the illusion
that the states can easily afford to replace the lost funds.\9 The
Center's study on block grants noted that

     ".  .  .  the anti-tax mood reflected currently in Washington is
     also prevalent in the states.  If massive reductions in federal
     aid occur, many states would probably respond by increasing
     taxes somewhat, but not nearly .  .  .  [enough] to replace the
     federal funding cuts."


--------------------
\2 Steven D.  Gold, "The ABCs of Block Grants," State Fiscal Brief of
the Center for the Study of the States, Nelson A.  Rockefeller
Institute of Government, No.  28 (Mar.  1995). 

\3 Steven D.  Gold, "The Potential Impacts of Devolution on State
Government Programs and Finances," The Urban Institute (Mar.  5,
1996). 

\4 Only respondents who estimated that their state would probably or
definitely not provide additional funds were asked this question. 
Those that were uncertain were not asked about the influence of the
various factors on the state's decision. 

\5 State and Local Finances:  Some Jurisdictions Confronted by Short-
and Long-Term Problems (GAO/HRD-94-1, Oct.  6, 1993). 

\6 The Fiscal Survey of States, National Governors' Association and
the National Association of State Budget Officers (Oct.  1995). 

\7 See Block Grants:  Characteristics, Experience, and Lessons
Learned (GAO/HEHS-95-74, Feb.  9, 1995). 

\8 Cheryl D.  Hayes, Rethinking Block Grants:  Toward Improved
Intergovernmental Financing for Education and Other Children's
Services, The Finance Project (Apr.  1995). 

\9 Steven D.  Gold, "The Impact of New Federal Policies on State
Governments," State Fiscal Brief of the Center for the Study of the
States, Nelson A.  Rockefeller Institute of Government, No.  26 (Jan. 
1995). 


   MISSIONS OF SOME RECEIVING
   AGENCIES MAY BE COMPATIBLE, BUT
   PROGRAM DELIVERY MAY DIFFER
---------------------------------------------------------- Chapter 4:2

Officials from the federal agencies that would receive functions
transferred under S.  1145 generally believed that their missions
were compatible with those of the transferring functions; however,
they expressed some concerns about whether their organizational
structures, resources, and staff skills would meet the requirements
of the transferring functions.  HUD, in contrast, maintained that
transferring its functions to other agencies would break up the
network it has developed to implement its programs and could
adversely affect the delivery of services to its clients.  The
priority that other agencies would give to some of HUD's regulatory
functions is also unclear. 


      WHILE MOST AGENCIES SEE
      THEIR MISSIONS AS BROADLY
      COMPATIBLE, SOME AGENCIES
      SAID THE TRANSFERS WOULD
      CREATE DIFFICULTIES
-------------------------------------------------------- Chapter 4:2.1

Most of the designated receiving agencies considered their missions
to be very similar to HUD's, while HUD did not generally believe that
its mission in each area was compatible with that of the respective
receiving agency.  Officials from the agencies that would receive
seven of the nine functions to be transferred did not see
compatibility of mission as a significant issue for their respective
agency.  HUD officials, however, considered only two
missions--overseeing home mortgage disclosures and overseeing housing
finance entities--to be compatible with the respective receiving
agency's mission. 

HHS considers its mission very similar to HUD's because both agencies
are attempting to move people to self-sufficiency.  HHS administers
several programs primarily focused on providing services and
assistance to low-income, needy children and families.  About 20
percent of the beneficiaries of these programs also depend on HUD's
housing assistance programs.  Conversely, in HUD's view, HHS'
entitlement programs differ fundamentally from HUD's housing
assistance programs.  HUD also disagreed that many of the same
clients are served by both agencies, indicating that 67 percent of
those in public housing obtain their income from sources other than
public assistance. 

Both the Department of the Treasury--slated to administer the
mortgage insurance function--and HUD consider the proposed transfer a
difficult fit.  Treasury sees itself as the formulator and manager of
the federal government's domestic and international tax and financial
policies, while it sees HUD as a program agency primarily responsible
for developing housing policy.  Within HUD, FHA is responsible for
improving housing standards, providing an adequate home financing
system through its mortgage insurance program, and stabilizing the
mortgage market.  Although FHA's mortgage insurance program is a
credit-related program, FHA's core mission as a mortgage insurer is
unrelated to Treasury's operation, according to both HUD and Treasury
officials.  Furthermore, both HUD and Treasury believe that the
transfer would considerably weaken the influence of the program on
its constituents because Treasury is not experienced in dealing with
FHA's traditional clients:  home buyers, tenants, mortgage lenders,
realtors, builders, nonprofit developers, and state and local
governments. 

While both HUD and the Department of Justice see their roles in
enforcing the Fair Housing Act as complementary, they believe that
the act would be undermined if both their functions were combined
under a single agency.  Under the act, HUD is responsible for
carrying out all of the functions relating to administrative
enforcement of the act.  Accordingly, HUD investigates, conciliates,
or otherwise oversees the disposition of nearly 10,000 individual
complaints annually.  Justice's role is to litigate cases in federal
court either when a case is referred from HUD after a formal charge
has been issued and one of the parties elects to have the case heard
in federal court or when Justice initiates a case of broader national
significance.  According to both Justice and HUD, this separation of
duties between HUD and Justice currently works well, and both
agencies were opposed to a previous proposal to transfer HUD's fair
housing functions to Justice.  HUD also expressed concern that its
broader role in affirmatively furthering fair housing across other
HUD programs and activities would be lost.  Justice officials said
they believe that even with a complete transfer of funding and
personnel, the federal fair housing enforcement effort would suffer
because the cost and disruption of the transfer would be significant
and would drain resources away from Justice's mission of fair housing
enforcement.  Furthermore, both HUD and Justice believe the Fair
Housing Assistance Program--a program through which HUD certifies
states to resolve fair housing disputes--would not fit well at
Justice because Justice is primarily an enforcement rather than an
administrative agency. 


      AGENCIES SAID THAT LACK OF
      ORGANIZATIONAL STRUCTURE,
      RESOURCES, AND HOUSING
      EXPERTISE COULD HAMPER
      INTEGRATION OF HUD'S
      FUNCTIONS
-------------------------------------------------------- Chapter 4:2.2

Although many receiving agencies thought that they could integrate
the transferred functions, they generally believed that the task
would not be easy because they lack either an organizational
structure or the resources needed for implementation.  For example,
HHS indicated that it carries out its functional responsibilities
predominantly through grants-in-aid, which are administered in
partnership with state and local governments, tribes, and
private-sector grantees.  HHS believes that in order to administer
the voucher program, it might need to develop an extensive field
structure, because HUD's structure includes 52 state and 29 area
offices, in contrast to HHS' 10 regional offices.  Treasury believes
that it would need staff with appropriate skills and experience with
the housing industry to provide oversight and structure for the
single-family insurance program.  Treasury said that it does not have
staff with similar types of knowledge, skills, or
abilities--technical or otherwise--to continue the operations of a
reconfigured FHA.  Justice officials and HUD agreed that
Justice--which is primarily a headquarters organization--would have
trouble assimilating a field structure into its organization and
carrying out HUD's administrative activities.  According to the
Attorney General's undated response to a similar proposal,

     "The [Justice] Department does not have a comparable field
     office structure, and has no current capacity to handle the
     nearly 10,000 complaints received annually.  .  .  .  In order
     to carry out administrative responsibilities currently handled
     by HUD; the Department of Justice would have to duplicate the
     existing structure at HUD, with related disruption and start-up
     costs attached."

S.  1145 would make some resources available to the receiving
agencies.  However, the level and location of the resources that
would be made available is not certain.  HUD had about 10,500
employees in its headquarters and field offices as of September 30,
1996.  As discussed above, S.  1145, if enacted, would change many of
the functions these employees currently perform.  It would also
affect the size of the workforce needed to carry out these functions. 
Efforts to assess this effect and its consequences for HUD need to
consider the requirements of the current federal law.  The Veterans
Preference Act of 1944 (VPA) gives certain federal employees
reemployment rights in some instances when functions are transferred
from one federal agency to another or one federal agency is replaced
by another.  The act's provisions would appear to apply to the
transfer of programs under S.  1145.\10 If S.  1145 were enacted and
VPA's provisions were found to be applicable, assessments would have
to determine which existing HUD functions had been transferred
elsewhere and whether the functions of particular HUD employees had
been transferred. 

Some functions, such as the administration of public housing, would
at some point be discontinued, since public housing would be phased
out under S.  1145.  Other functions, such as the guarantee of home
mortgages under FHA, would continue to be performed under S.  1145,
but in a much different and more limited way.  State governments and
the private sector would have a much larger role under S.  1145 in
administering a number of the restructured housing and community
development programs and the federal government would have a smaller
one.  Under these circumstances, fewer federal employees would be
needed to operate the programs.  Even when S.  1145 would clearly
transfer a function without change from HUD to another agency, the
receiving agency might decide that it did not need as many employees
to perform the function as HUD currently employs. 

Given the complexity and uncertainty of the issues associated with
transferring functions, we did not attempt to determine the impact of
S.  1145 on the future employment of HUD's current workforce.  If S. 
1145 were not exempted from VPA's provisions, HUD's current functions
would have to be compared with the restructured functions that other
agencies would perform under the bill.  Such an analysis was beyond
the scope of this report.  Appendix I provides more details on the
functions to be transferred, as well as the agencies' missions,
organizational compatibility, and staffing. 

Primary concerns of HUD about the impact of transferring its
functions to different agencies were the less extensive housing
expertise at the new agencies and the disruption of networks that HUD
has built up to help implement its programs.  For example, HUD said
that if HHS took over the housing assistance function, the linkages
that HUD has created between housing and community development
activities would end.  In addition, HUD and EPA officials believe
that if HUD's lead-based paint abatement functions were transferred
to EPA, the nature of the relationships between the program's
customers and clients would change because EPA does not manage
housing and EPA's contacts are not as well developed as HUD's. 
Similarly, HUD noted that its responsibilities for enforcing the Real
Estate Settlement Procedures Act involve traditional HUD
constituents--home buyers, state regulatory agencies, and consumer
trade groups.  If these responsibilities were transferred to the
Federal Reserve, new relationships would have to be established to
maintain the same level of service.  In addition, HUD said that under
the Fair Housing Program, it receives many calls involving housing
issues other than discrimination that it can effectively refer to
other HUD offices or local networks.  According to HUD, Justice has
neither the familiarity with housing programs nor the knowledge of
local communities and personalities that makes HUD's referral system
effective. 

Additionally, several federal, state, and local officials--including
HUD officials--expressed concern that if HUD were abolished and its
functions were transferred to other federal, state, and possibly
local agencies, the federal focus on housing policy would be lost. 
Some of them indicated that the loss of a cabinet-level advocate for
housing and community development issues--an advocate with a sole
focus on these areas--could mean that these areas would not get
adequate federal funding in the future.  In previous testimony, we
suggested that elevating the Environmental Protection Agency to the
cabinet--"would affirm the prominence and permanence of the federal
role in environmental protection."\11 Conversely, dismantling HUD
could diminish the "prominence and permanence" of the federal role in
housing and community development. 


--------------------
\10 See National Council of CSA Locals, American Federation of
Government Employees (AFGE) AFL-CIO v.  Schweiker, 526 F.  Supp. 
861. 

\11 Creation of a Department of the Environment, (GAO/T-RCED-93-6,
Feb.  18, 1993). 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 4:3

HUD, HHS, Justice, OMB, and Treasury expressed their strong
disagreement with S.  1145 and several of these agencies cited the
need for a cabinet-level department to provide a focus for housing
and community development issues.  HUD also said that the report is
deeply flawed because it does not fully discuss either the
difficulties involved in transferring HUD's functions to other
agencies and to other levels of government or the loss of a national
housing and community development policy.  We added several
references to HUD's position on the difficulties involved in
transferring its functions and the loss of a national housing and
community development policy.  However, the continued need for a
cabinet-level department to address housing and community development
issues is a policy question for the Congress and the administration
to decide. 

OMB stated that "issues related to the reorganization and
administration of HUD's functions should be evaluated on their own
merits, not as a strategy for reducing the deficit by seemingly
arbitrary reductions in spending." OMB said that the administration
believes that assigning HUD's functions to other agencies would be
counterproductive relative to its reinvention goals.  HHS said that
the proposal is not well advised and the planned transfers might
result in little or no cost savings to the federal government.  This
report provides information on the potential positive and negative
implications of S.  1145 and, as such, does not take a position on
the bill.  Projections of the bill's impact on the federal budget
will be developed and published by CBO in a separate report.  Justice
stressed the extreme burden that transferring HUD's Fair Housing Act
responsibilities would create for their department, especially the
drain of resources from its primary mission of fair housing
enforcement.  The remaining six agencies provided clarifying language
for the portions of the report that discuss their agencies.  We
incorporated the comments, as appropriate, throughout the report. 


THE PROPOSED RESOLUTION AGENCY
WOULD FACE DIFFICULT TASKS
============================================================ Chapter 5

The proposed HUD Programs Resolution Agency, as envisioned by S. 
1145, would face a difficult task in restructuring, transferring, or
eliminating HUD's programs.  Over a 5-year period, the agency would
need to address hundreds of millions of outstanding financial
commitments, transfer nine HUD functions to receiving agencies and
one function to a newly created agency, and terminate several
programs.  In carrying out these responsibilities, the resolution
agency could learn from previous federal efforts to abolish,
reorganize, or transfer federal programs and dispose of assets. 


   RESOLUTION AGENCY WOULD MANAGE
   TRANSITION FOR ALL MAJOR
   FUNCTIONS
---------------------------------------------------------- Chapter 5:1

S.  1145 directs the resolution agency to perform all of HUD's
functions--excluding those abolished or transferred to other agencies
by the bill--for a 5-year period.  For the functions that would be
abolished or transferred, the agency would oversee their transition. 
Thus, S.  1145 mandates that the resolution agency conduct a vast
range of activities, such as distributing block grants, closing down
entire programs, establishing a new agency, and transferring a number
of programs to other agencies.  More specifically, the agency's
responsibilities would range from providing housing assistance
through administering a block grant for public housing and settling
expiring section 8 contracts to selling $429 billion in mortgage
insurance interests to raise at least $100 million in capital within
3 years for an insurance fund. 

Additionally, the bill imposes various planning requirements on the
resolution agency, including developing an overall plan for winding
up the affairs of the agency within 5 years and more specific plans
for (1) settling the affairs of Ginnie Mae, (2) providing for the
transition of assistance for public housing to voucher assistance,
and (3) immediately marketing and selling FHA's mortgage insurance
interests.  The required planning would serve an important role in
communicating to the Congress and the public how the resolution
agency would interpret its mandates and how it would operate.  Figure
5.1 details the responsibilities of the agency as mandated by S. 
1145. 

   Figure 5.1:  Responsibilities
   of the Resolution Agency Under
   S.  1145 for Housing
   Assistance, Community
   Development, Housing Finance,
   and Regulatory Functions

   (See figure in printed
   edition.)

As part of its 5-year effort to close out terminated programs and
oversee the transition of other functions, the resolution agency
would be responsible for ensuring that federal commitments made prior
to the bill's enactment were maintained.  In some cases, the
resolution agency might need to plan for the administration of some
of the commitments beyond its own 5-year term.  The commitments
include contractual obligations, outstanding mortgage guarantees and
insurance, and loans and properties held by HUD, as well as
borrowings.  Specifically, the commitments include over $418 billion
in loan insurance, approximately $464 billion in mortgage-backed
security guarantees, almost $100 billion in section 8 project-based
rental assistance contracts, over $10 billion in notes and properties
held by HUD, $678 million in section 108 loan guarantees, $46 billion
in other contracted commitments, and $15 billion in borrowings. 

While most of the section 8 project-based assistance contracts will
expire during the life of the resolution agency, most of the
insurance, guarantees, and borrowings will outlive the term of the
agency and would be transferred to other agencies.  For example, the
bill would transfer the administration of outstanding mortgage
insurance obligations to Treasury's Federal Home Mortgage Insurance
Fund.  Likewise, the bill would transfer section 8 contracts whose
terms extend beyond the life of the resolution agency to HHS. 
Finally, the bill does not specify how long-term guarantees of
section 108 loans and of Ginnie Mae's mortgage-backed securities
would be administered beyond the term of the resolution agency.  The
bill does, however, direct the resolution agency to provide the
Congress with a plan for phasing out Ginnie Mae's guarantees. 

Table 5.1 lists HUD's financial commitments as of the end of fiscal
year 1995, as well as the agency that would receive responsibility
for the commitments that outlive the resolution agency.  For more
detailed explanations of HUD's functions that involve financial
commitments for the resolution agency, see appendix II. 



                               Table 5.1
                
                HUD's Financial Commitments as of Fiscal
                               Year 1995

                         (Dollars in millions)

                                                             Receiving
Title                                           Amount        agency\a
--------------------------------------  --------------  --------------
FHA single-family insured portfolio\b       $364,323\c        Treasury
FHA multifamily insured portfolio\b          $48,162\c        Treasury
FHA title I insured portfolio\b               $5,957\c        Treasury
FHA single-family note portfolio\b            $3,721\c        Treasury
FHA multifamily note portfolio\b              $4,125\c        Treasury
FHA title I note portfolio\b                    $503\c        Treasury
FHA single-family property                    $1,830\d        Treasury
 portfolio\b\
FHA multifamily property portfolio\b            $312\d        Treasury
Ginnie Mae guarantee of mortgage-           $464,000\e              \f
 backed securities
Section 8 contracts                            $96,958             HHS
CDBG, section 108 loan guarantees                 $678              \g
Section 235/236 and other contracted         $45,876\h              \g
 commitments
Borrowings (governmental and                   $15,271              \g
 intragovernmental)
======================================================================
Total                                       $1,051,716
----------------------------------------------------------------------
\a Agency responsible for the financial commitment after the
resolution agency's 5-year term expires. 

\b As of July 1996. 

\c Unpaid principal balance. 

\d Acquisition cost. 

\e This figure is approximate. 

\f To be determined. 

\g Not specified. 

\h Does not include CDBG contractual commitments, since the CDBG
program would be transferred to a newly created Housing and Community
Opportunities Agency. 

Source:  U.S.  Department of Housing and Urban Development Report on
Fiscal Year 1995 Financial Statements, HUD Office of Inspector
General (96-FO-177-0003, Aug.  16, 1996), and Portfolio and
Production Report, FHA Housing Comptroller (July 1996). 

The resolution agency would face certain legal constraints on how it
could settle HUD's commitments.  For example, the bill recognizes
that selling FHA's mortgage insurance interests or terminating Ginnie
Mae would not relieve the federal government of commitments backed by
the full faith and credit of the United States.  Generally, the bill
provides that all grants, loans, contracts, agreements, and other
obligations that have been issued before the transfer of functions
shall continue in effect according to their terms until modified,
terminated, superseded, set aside, or revoked in accordance with law. 
Consequently, because of the nature of some commitments, the federal
government might continue to have a contingent liability regardless
of how these commitments were resolved.  For example, if the
purchaser of an FHA mortgage insurance interest were required to pay
claims but was ultimately unable to do so, the federal government
would be responsible for meeting its original commitment to the
holders of the affected FHA-insured mortgages. 

In addition to the constraints described above, the federal
government could be subject to unexpected losses, depending on how
its commitments were resolved.  For example, selling only the most
profitable of FHA's mortgage insurance interests might have the net
result of lowering the overall value of FHA's mortgage insurance
interests.  That is, even the most profitable insurance interest
would likely be sold at a discount because private
purchaser's--unlike FHA--need a return on their investment sufficient
to cover any risk of default as well as tax expenses and a return to
shareholders.  The federal government might be left with only the
unprofitable part of the insurance portfolio, supported by capital
that--because of the discount at which insurance interests might be
sold--would likely be valued at something less than its value before
such a sale.  For example, we estimate that for the single-family
portfolio, loans originated before 1984 would have net positive cash
flows for 1998 and the remaining years of the mortgage; therefore,
only these loans would have value for potential investors unless the
government gave these investors a portion of the up-front premium.\1
The remaining single-family portfolio--which we estimate to have net
negative cash flows for 1998 and later years--would likely remain
with the federal government.  Even if the sale of FHA's single-family
mortgage insurance interests included provisions that ensured that
the federal government had no responsibility for covering lenders'
losses, to the extent that these lenders experienced dramatic losses
affecting their ability to pay investors in their Ginnie
Mae-guaranteed securities, some or all of the loan losses could fall
to the federal government as it honored its full-faith-and-credit
commitments on Ginnie Mae-guaranteed securities.  Finally, while the
section 108 loan guarantees are covered by future CDBG grants, the
decline in funding for grantees specified in the bill would limit the
ability of these grantees to repay lenders, potentially resulting in
greater claims against the resolution agency or the agency designated
to assume HUD's responsibility for guaranteeing these loans. 


--------------------
\1 These loans have net positive cash flows for 1998 and the
remaining years because the expected annual premiums plus the
proceeds from the sale of properties exceed the expected claims and
administrative expenses.  We assume that the mortgage insurance
interest to be sold is the future stream of premium payments and that
the purchaser would not be responsible for any partial refunds of
up-front premiums that are due upon the prepayment of a mortgage. 
Loans insured between October 1984 and June 1991 do not have annual
premiums.  Also, in 1998, loans insured during fiscal years 1993,
1994, and 1995 would not have aged enough for the premiums plus the
proceeds from the sale of properties to exceed the expected claims
and administrative expenses. 


      S.  1145 DOES NOT ADDRESS
      SOME PROGRAMS
-------------------------------------------------------- Chapter 5:1.1

While S.  1145 generally addresses the major responsibilities within
HUD--housing assistance, community development, and housing
finance--certain programs within these areas would be terminated
because the bill does not provide for their transformation or
continuation.  For example, within the community development area,
because the bill does not address the Urban Empowerment Zones and
Enterprise Communities program, HUD's involvement with the program
would be terminated, leaving the resolution agency to close out
technical assistance contracts and determine who would oversee the
remainder of the urban part of this program.  This program benefits
communities by providing local governments and private nonprofit
organizations with increased flexibility in meeting federal laws and
regulations that might otherwise hinder their ability to implement
comprehensive local plans for addressing the housing and economic
problems of distressed neighborhoods.  The loss of HUD's oversight of
the urban portion of this program would diminish the federal role in
helping localities initiate and maintain a comprehensive approach to
revitalizing distressed neighborhoods.  Other agencies involved in
administering this program could continue it.  Within the area of
housing assistance, the Fair Housing Initiatives Program (section 561
of the Housing and Community Development Act of 1987) is not included
as one of similar housing assistance functions to be transferred to
the Department of Justice.  This program funds public and private
organizations for activities such as education outreach, enforcement
activities, and the legal expenses incurred in prosecuting fair
housing cases.  Unlike the programs discussed above, these programs
do not contain commitments that would need to be addressed by the
resolution agency. 

In the housing finance area, the bill does not address all of HUD's
responsibilities under the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992.  Specifically, while S.  1145 does
provide for transferring the responsibilities for regulating the
safety and soundness of Fannie Mae and Freddie Mac now performed by
HUD's Office of Federal Housing Enterprise Oversight, it does not
specify the disposition of HUD's responsibilities for ensuring that
Fannie Mae and Freddie Mac fulfill their public purposes and serve
the housing needs of the country.  Among these responsibilities are
establishing, monitoring, and enforcing goals for Fannie Mae's and
Freddie Mac's purchase of mortgages financing housing for low- and
moderate-income families; housing located in central cities, rural
areas, and other underserved areas; and affordable housing for
specially targeted families.  According to HUD, assigning these
responsibilities to the resolution agency would reduce their
importance for Fannie Mae and Freddie Mac and signal the probable
elimination of these agencies' public purpose goals.  Ultimately,
Fannie Mae and Freddie Mac would devote fewer resources and
innovative products to these activities, according to HUD. 
Furthermore, if S.  1145 were implemented, HUD officials believe that
this function should continue and be transferred to a cabinet-level
agency. 


   LESSONS LEARNED FROM PRIOR
   EFFORTS TO ABOLISH, REORGANIZE,
   OR TRANSFER FEDERAL PROGRAMS
   COULD EASE TRANSITION
---------------------------------------------------------- Chapter 5:2

The proposed resolution agency could benefit from certain lessons
learned from past efforts to abolish or reorganize federal agencies,
transfer their programs, or dispose of their assets.  While the
previous efforts do not perfectly parallel the current plans for
dismantling HUD, they do involve some of the same activities--such as
transferring functions to other agencies and disposing of
assets--and, thus, some of the lessons learned in the past might be
applicable.\2 For example, we previously stressed the importance of
creating an interagency transition task force to provide overall
guidance on the transfer of assets, personnel, and operations to
receiving agencies.  We also highlighted the importance of
establishing internal controls and developing an asset disposition
plan when resolving financial commitments.  Applying these lessons in
consolidating, eliminating, and transferring federal housing and
community development programs might help not only to reduce the risk
of mismanagement, waste, fraud, and abuse within the programs but
also to save money for the federal government by increasing the
efficiency of the transition.  Additionally, a number of officials we
interviewed noted some special considerations in abolishing HUD,
including the possible elimination of staff positions and the wide
dispersal of programs in the field with established support networks. 


--------------------
\2 We previously examined a number of efforts to abolish, reorganize,
or transfer federal programs and dispose of assets, including a
proposal to abolish the Department of Commerce; efforts to reorganize
and transfer programs at the Department of Energy, Federal Emergency
Management Agency, Equal Employment Opportunity Commission, Federal
Labor Relations Authority, International Development Cooperation
Agency, Merit Systems Protection Board, and Office of the Special
Counsel; and the disposition of assets by the Resolution Trust
Corporation.  See Commerce Dismantlement:  Observations on Proposed
Implementation Mechanism (GAO/T-GGD-95-233, Sept.  6, 1995),
Department of Energy:  Observations on the Future of DOE
(GAO/T-RCED-96-224, July 23, 1996), Implementation:  The Missing Link
in Planning Reorganizations (GAO/GGD-81-57, Mar.  20, 1981), and
Resolution Trust Corporation:  Management Improvements Reduce Risks
but Transition Challenges Remain (GAO/T-GGD-95-163, May 16, 1995). 


      RESOLUTION AGENCY COULD USE
      INTERAGENCY TRANSITION TASK
      FORCE IN TRANSFERRING
      FUNCTIONS BETWEEN AGENCIES
-------------------------------------------------------- Chapter 5:2.1

A number of lessons learned from previous reorganizations would be
applicable to the resolution agency's mandates to transfer some of
HUD's personnel and programs and dispose of HUD's outstanding
obligations.  For example, as noted in our prior work, on the
Resolution Trust Corporation Completion Act,\3 the Congress required
the establishment of an interagency transition task force to help
transfer the Resolution Trust Corporation's (RTC) assets, personnel,
and operations to the Federal Deposit Insurance Corporation (FDIC). 
The act assigned the task force--which included representatives of
RTC and FDIC--specific duties, including examining both corporations'
operations, evaluating their differences, recommending which of RTC's
systems should be preserved for FDIC's use, and reporting its
findings to the Congress.  Some key elements for planning the
transition included (1) "best practice reviews" conducted jointly by
RTC and FDIC to identify differences in their respective operations
and recommend practices for adoption by FDIC after RTC's dissolution,
(2) information system reviews to assist the Secretary of the
Treasury in recommending which of RTC's systems should be adopted by
FDIC, and (3) implementation plans to identify the appropriate
staffing and organizational structure for RTC's functions after their
absorption by FDIC.\4 The corporations also reviewed the legal and
policy issues involved in transferring RTC's responsibilities and
operations to FDIC and reviewed internal controls to ensure that
vulnerabilities to waste, fraud, and abuse were minimized during and
after the transition.  Office of Management and Budget and Office of
Personnel Management officials we interviewed emphasized the
importance of incorporating some of these elements in the transfer of
HUD's functions.  They suggested that an interagency group should be
established, that the receiving agencies would need to revise their
organizational structures before the new programs were transferred,
and that the entities should schedule at least 6 months for planning
the transfers. 


--------------------
\3 GAO/T-GGD-95-163, May 16, 1995. 

\4 While S.  1145 does not specifically recommend the establishment
of an interagency transition task force or the use of best practice
or information system reviews, it does mandate that the resolution
administrator consult with officials from RTC, FDIC, and other
federal agencies about selling FHA's assets. 


      ESTABLISHING INTERNAL
      CONTROLS AND AN ASSET
      DISPOSITION PLAN COULD
      PROVIDE FOR THE ORDERLY
      RESOLUTION OF FINANCIAL
      COMMITMENTS
-------------------------------------------------------- Chapter 5:2.2

Additional lessons can be gathered from the shutdown of RTC, which
was tasked with disposing of about $443 billion in financial assets,
real estate, and other assets after the failure of numerous saving
and loan institutions.  Most importantly, internal controls were in
place to monitor the disposition of assets.  We previously testified
that a successful transition between entities would include ensuring
that sufficient controls were in place over the assets that would be
sold during the remaining life of RTC, as well as over the assets
transferred from RTC to FDIC.\5 Since the resolution agency would
also need to dispose of the assets received in the course of
abolishing a program within HUD, it would need to develop an asset
disposition plan with specific strategies.  Currently, although S. 
1145 specifies that the resolution agency should develop plans for
disposing of some of HUD's assets--such as a plan for marketing and
selling FHA's mortgage insurance interests--it does not recommend
that the agency develop an overall strategy for inventorying,
assessing, and disposing of all of HUD's assets.  In our previous
testimony on a proposal to dismantle the Department of Commerce, we
noted a similar concern--that although the proposal contained a
planning requirement, it did not specify a strategy for disposing of
assets.\6

We also previously reported on the importance of developing and
managing credible information systems to maximize revenues from the
sale of assets.  We reported on a number of problems with RTC's
information systems, including inaccurate and incomplete data, which
contributed to our prior designation of RTC as a high-risk area.\7 As
discussed in chapter 1, HUD also has generally unreliable information
and financial management systems.  Dismantling and transferring HUD's
programs without--at a minimum--reviewing and addressing, where
possible, the current inadequacies within these systems and
developing asset disposition plans could increase the risks of fraud,
waste, and abuse in the management, transfer, and sale of HUD's
assets. 

Finally, lessons learned about closing out contracts following the
transfer of agencies' functions could be applicable.  We previously
stressed the importance of ensuring the adequate management and
oversight of asset management contracts continuing at FDIC after
RTC's shutdown.  We suggested that FDIC might benefit by evaluating
its own contracts in conjunction with RTC's contracts to explore
opportunities for combining, canceling, or extending them.  This same
approach could be applied to any HUD contracts transferred to other
agencies, such as the Housing and Community Opportunities Agency,
whose creation is mandated by S.  1145. 


--------------------
\5 GAO/T-GGD-95-163, May 16, 1995. 

\6 GAO/T-GGD-95-233, Sept.  6, 1995. 

\7 High-Risk Series:  Resolution Trust Corporation (GAO/HR-93-4, Dec. 
1992). 


      HUD PRESENTS SPECIAL
      CONSIDERATIONS
-------------------------------------------------------- Chapter 5:2.3

Officials from two organizations with prior experience in abolishing
agencies or transferring functions between agencies--the Office of
Personnel Management and the National Academy of Public
Administration--observed that the proposal to dismantle HUD differs
from previous efforts to abolish other federal agencies.  For
example, several officials stated that dismantling HUD would be more
complicated because the Department has approximately 10,500
staff--many more than the two other federal agencies that were
recently abolished, the Interstate Commerce Commission and the Bureau
of Mines.  While some of HUD's staff would probably be transferred to
receiving agencies, the staffing for programs scheduled to be phased
out or terminated would be reduced over time.  Thus, some of HUD's
positions would eventually be eliminated.  Addressing the needs of
HUD's staff in these positions would create additional administrative
responsibilities for the resolution agency, including the processing
of employees' grievances and appeals. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 5:3

Some lessons learned in dismantling or reorganizing other federal
agencies could benefit the proposed resolution agency in overseeing
the dissolution of HUD and the transfer of some of its functions. 
The creation of an interagency task force, the development of an
asset disposition strategy, and the review of agencies' functions and
contracts to identify opportunities for integration have proved
valuable in the past and could facilitate the actions proposed in S. 
1145.  Finally, a review of HUD's internal controls and information
systems could identify areas requiring especially careful monitoring
to prevent waste, fraud, and abuse, particularly in resolving HUD's
huge financial commitments. 


IMPLICATIONS OF S.  1145 ON THE
RECEIVING AGENCIES
=========================================================== Appendix I

S.  1145 proposes actions involving 12 of the Department of Housing
and Urban Development's (HUD) functions.  Of these, nine would be
transferred to other federal agencies, one would be transferred to a
newly created agency, and two would be abolished.  Of the 10
functions to be transferred, the following 4 would be changed
significantly: 

  -- Housing assistance programs, including both tenant-based and
     project-based rental assistance and public housing programs
     would be replaced by a voucher assistance program that would be
     administered by the Department of Health and Human Services
     (HHS). 

  -- Community and special population assistance programs would be
     combined to form block grants to states and localities, which
     would be administered by a newly created, independent Housing
     and Community Opportunities Agency. 

  -- The federal housing mortgage insurance authority of the Federal
     Housing Administration would be repealed and a Federal Home
     Mortgage Insurance Fund administered by a Federal Home Mortgage
     Insurance Fund Administration within the Department of the
     Treasury would be created. 

  -- The Office of Federal Housing Enterprise Oversight, a regulatory
     function, would be transferred to Treasury and would become
     responsible for monitoring the safety and soundness of the
     Federal Home Mortgage Insurance Fund as well as for continuing
     to oversee housing finance institutions. 

In addition, HUD's remaining regulatory functions would be
transferred to other federal agencies but would remain essentially
unchanged:  Fair housing would be transferred to the Department of
Justice; interstate land sales to the Federal Trade Commission (FTC);
real estate settlement procedures to the Federal Reserve Board;
national manufactured housing to the Department of Agriculture
(USDA); lead-based paint abatement to the Environmental Protection
Agency (EPA); and home mortgage disclosure to Treasury.  Finally, the
Government National Mortgage Association (Ginnie Mae) would be
abolished and the resolution administrator would establish a plan for
winding up its affairs.  According to the bill, this plan may provide
for Freddie Mac and Fannie Mae or other private secondary mortgage
market entities to assume Ginnie Mae's secondary market functions. 


   HOUSING ASSISTANCE FUNCTION
   WOULD BECOME A VOUCHER PROGRAM
   ADMINISTERED BY HHS
--------------------------------------------------------- Appendix I:1

The housing assistance function, which is administered by HUD's
Office of Public and Indian Housing, has two primary goals.  The
first is to provide decent and safe shelter for low-income residents
at rents they can afford.  The second is to revitalize communities
through reductions in the number of distressed public housing units,
recovery partnerships with the worst-performing housing authorities,
and the promotion of mixed-income developments.  The community
revitalization goal takes into account the large federal investment
in the nation's public housing inventory, as well as the uneven
nature of housing markets across the country.  Since 1937, the
federal government has invested some $90 billion in the public
housing inventory.  Currently, a total of 3,225 housing authorities
manage 1.3 million units. 

Under S.  1145, the housing assistance function would be converted to
a voucher program administered by HHS.  HUD's Office of Public and
Indian Housing, which currently has over 1,300 staff, would be
abolished.  With one exception--employees who develop fair market
rents for the Section 8 Housing Assistance Program--S.  1145 does not
specify that personnel currently assigned to the housing assistance
function would be transferred to HHS.  However, the bill would
authorize the personnel connected with any transferred function be
made available to the head of the receiving agency as directed by the
Office of Management and Budget (OMB). 


      HHS SEES HOUSING ASSISTANCE
      FUNCTION AS BEING COMPATIBLE
      WITH ITS MISSION, WHILE HUD
      DOES NOT
------------------------------------------------------- Appendix I:1.1

HHS officials believe that HHS' mission is similar to HUD's in that
HHS is attempting to move people to self-sufficiency.  In addition,
while HHS primarily provides services and assistance to low-income,
needy children and families, many of these same individuals depend on
public housing assistance.  Approximately 8 percent of the families
assisted by HHS reside in public housing, 12 percent receive rental
subsidies from HUD, and over 2 percent receive rental subsidies from
other sources. 

HUD believes that HHS should not receive the housing assistance
function because HHS traditionally administers entitlement programs
intended to provide income assistance to individuals and families.\1
The public housing program is a nonentitlement program developed to
provide transitional housing for people needing decent, safe, and
affordable shelter while working to improve their economic condition. 
Approximately 40 percent of the households residing in public housing
remain there for 3 years or less, and 67 percent obtain their primary
income from sources other than public assistance.  Hence, the
populations served by HUD and HHS are not the same. 

In addition, HUD believes that the housing assistance function, as
envisioned under S.  1145, would focus exclusively on providing
housing; the community revitalization element of the federal
government's work would be lost, as well as the large federal
investment in the nation's public housing inventory.  HUD believes
that an across-the-board approach to housing assistance would be
doomed to failure because housing markets nationwide are uneven.  In
some locations, such as New York, San Francisco, and areas of
expanding growth, housing markets are so tight that rebuilding units
would be the only practical means of ensuring housing for residents. 


--------------------
\1 Welfare assistance was changed from an entitlement program to a
nonentitlement block grant program under the recently enacted
Personal Responsibility and Work Opportunity Act of 1996. 


      HHS BELIEVES AN EXTENSIVE
      FIELD STRUCTURE MIGHT BE
      NECESSARY
------------------------------------------------------- Appendix I:1.2

HHS' organizational structure might not be compatible with HUD's. 
Whereas HUD relies on an extensive field structure to deliver housing
assistance, HHS does not have such a field structure.  Instead, HHS
administers its income assistance programs through grants
administered in partnership with state and local governments, tribes,
and private-sector grantees.  HHS believes that to administer the
voucher program, it might need to develop an extensive field
structure.  However, the flexibility provided to the states under the
Personal Responsibility and Work Opportunity Reconciliation Act of
1996, commonly known as welfare reform, would allow the states to
coordinate the delivery of both kinds of assistance. 


   COMMUNITY DEVELOPMENT FUNCTION
   WOULD BE TRANSFERRED TO NEWLY
   CREATED AGENCY
--------------------------------------------------------- Appendix I:2

HUD's community development function is administered by the
Department's Office of Community Planning and Development, which has
about 850 employees.  The goal of HUD's community development
programs is to improve the lives of low-income Americans by providing
decent and affordable housing, revitalizing neighborhoods and
communities, stimulating economic growth, providing economic
opportunities, and delivering needed services.  This summary goal is
broken down into a number of subsidiary goals, such as reducing the
isolation of income groups within communities and geographical areas
and making housing more affordable for very low-income families
through the use of tenant-based rental assistance. 

According to HUD, the sole purpose of the block grant proposed under
section 202 of S.  1145 is to provide assistance to eligible states,
entitlement areas, and Indian tribes to be used as they determine
appropriate for meeting their community and economic development and
their affordable housing needs.  According to HUD, although the bill
stipulates that not less than 90 percent of the total assistance
provided shall be used to support eligible activities benefiting
low-income families, HUD believes that serving low- and
moderate-income persons is no longer a central stated purpose of the
legislation.  Furthermore, according to HUD, most of the subsidiary
goals established in the existing legislation, such as serving the
homeless and very low-income persons, are not covered by the proposed
block grant. 

Under S.  1145, the administration of the proposed block grant
program would be the sole function of the new Housing and Community
Opportunities Agency.  While the bill does not provide for
transferring any HUD staff to this new agency, it gives the agency's
director the authority to transfer program and support staff from HUD
to fill positions established by the director.  But fewer staff would
be needed, presumably, to administer a single grant--especially one
whose funding was decreasing.  The major disadvantage of the proposed
reorganization, according to HUD, is that it would impede the
development of a comprehensive approach to urban revitalization,
since the rest of HUD's programs would be dispersed among different
agencies.  HUD's experience shows that a fragmented approach to the
development of cities is ineffective.  The proposed block grant
program would be isolated.  Lacking a common plan, cities would have
no incentive to coordinate urban development activities.  HUD
believes that although a number of programs that currently require a
consolidated plan have been folded into the single block grant
program, the consolidated plan would no longer be a unifying element
for urban programs. 

HUD officials do support some consolidation.  In its reinvention
plans, HUD has already proposed consolidating many of its programs
into three flexible performance-based funds. 


   HOUSING FINANCE FUNCTIONS WOULD
   BE CHANGED SUBSTANTIALLY
--------------------------------------------------------- Appendix I:3

HUD is responsible for three functions related to housing finance: 
providing mortgage insurance, providing liquidity to lenders, and
overseeing the secondary mortgage market. 


      FEDERAL MORTGAGE INSURANCE
      WOULD BE TRANSFERRED TO
      TREASURY
------------------------------------------------------- Appendix I:3.1

The Federal Housing Administration (FHA) was established under the
National Housing Act of 1934 to improve housing standards and
conditions, to provide an adequate home financing system by insuring
home mortgages and extending credit, and to stabilize the mortgage
market.  FHA insures private lenders against losses on mortgages
financing homes, multifamily projects, and health care facilities and
against losses on loans for property improvements and manufactured
homes.  FHA's overall goal is to help expand homeownership and make
housing affordable for all Americans.  FHA serves home
buyers--particularly first-time and low-income, provides affordable
rental housing to low- and moderate-income renters, and provides
financing for a variety of health-care facilities needed by
communities. 

S.  1145 would abolish FHA and replace FHA's single-family insurance
program with a Federal Home Mortgage Insurance Fund operated by the
Federal Home Mortgage Insurance Fund Administration within Treasury. 
FHA's multifamily program would be terminated. 


         TREASURY AND HUD DO NOT
         SEE MISSIONS AS
         COMPATIBLE
----------------------------------------------------- Appendix I:3.1.1

Treasury does not believe that its mission is consistent with FHA's. 
Treasury sees its role as the formulator and manager of the federal
government's domestic and international tax and financial policies. 
Components of this role include formulating domestic and
international economic and tax policy; setting fiscal policy;
governing the fiscal operations of the government; maintaining
foreign assets control; managing the public debt; performing certain
law enforcement functions; managing the development of financial
policy; and representing the United States on international monetary,
trade, and investment issues. 

In contrast, Treasury believes that HUD is principally a program
agency with the primary role of developing housing policy.  Moreover,
Treasury believes that transferring the mortgage insurance function
to Treasury would, at the very least, result in a difficult
transition, since Treasury is not experienced in dealing with FHA's
traditional clientele, and might even have a negative impact on
homeownership.  Treasury recognizes that the reconfigured mortgage
insurance program would rely on private mortgage insurers to
underwrite and service mortgage loans, but administering this program
would require staff with the appropriate skills and experience in
housing to provide oversight and structure.  Treasury assumes that
the private mortgage insurance industry would not be able to provide
underwriting and other necessary services without close oversight and
corrections from a sophisticated staff.  Treasury believes that it
does not have staff experienced in these areas, and S.  1145 does not
provide for the direct transfer of FHA's approximately 5,000
employees.  Treasury said that it does not have staff with similar
types of knowledge, skills, or abilities--technical or otherwise--to
continue the operations of a reconfigured FHA.  Treasury also finds
unclear how much cross-support is presently provided among FHA's five
components:  single-family housing, multifamily housing, operations,
comptroller (financial control), and hospital insurance. 

HUD believes that a significant narrowing of FHA's purposes and goals
would occur if S.  1145 were enacted.  The newly created Federal Home
Mortgage Insurance Fund in Treasury would not be supported by the
full faith and credit of the U.S.  government, and FHA's multifamily
and health care programs would be eliminated altogether.  According
to HUD, "this new structure would strike a devastating blow to
potential home buyers.  Serving only below-median, first-time home
buyers would freeze out many FHA-insured home buyers who pay FHA's
higher premiums because they have no conventional market
alternative."\2 Finally, lenders would be exposed to additional risk
because the federal government would reduce its insurance coverage
from 100 percent to 35 percent, resulting in credit rationing and
higher interest rates and origination fees. 

HUD further contends that except in so far as FHA's core mission as a
mortgage insurer is credit related, that mission is unrelated to
Treasury's operation.  To the extent that the Low-Income Housing Tax
Credit program has brought Treasury into the arena of providing
affordable housing, HUD concedes that some experience may be claimed. 
However, that program is administered by the states, applies to
multifamily housing only, and is overseen by Treasury only in terms
of the credit's tax treatment.  Furthermore, HUD believes that the
influence on the program's constituents would be weakened
considerably.  Treasury is not experienced in dealing with FHA's
traditional clients:  home buyers, tenants, mortgage lenders,
realtors, builders, nonprofit developers, and state and local
governments. 


--------------------
\2 S.1145 provides partial insurance on mortgages for families with
incomes of 80 percent of their area's median income (125 percent for
first-time home buyers and for homes purchased in economically
distressed areas). 


      HUD'S SECONDARY MORTGAGE
      MARKET FUNCTION WOULD BE
      ABOLISHED
------------------------------------------------------- Appendix I:3.2

Ginnie Mae, a wholly owned government corporation, was established to
support expanded affordable housing in America by providing an
efficient, government-guaranteed secondary market for federally
insured or guaranteed loans.  Ginnie Mae is responsible for providing
federal subsidies to borrowers to make housing more affordable and
for implementing a mortgage-backed securities program primarily for
mortgages insured by FHA and the Department of Veterans Affairs (VA). 
Its programs help provide financing for single-family, multifamily,
and manufactured homes. 

S.  1145 would terminate Ginnie Mae and provide for Fannie Mae or
Freddie Mac or other private secondary mortgage market entities
approved by the Secretary of HUD to assume Ginnie Mae's secondary
market functions.  S.  1145 does not provide for transferring Ginnie
Mae's personnel.  Currently, Ginnie Mae has 72 employees, all of whom
are located in Washington, D.C. 

Ginnie Mae, Fannie Mae, and Freddie Mac agreed that they share
missions in that the purpose of all three is to attract capital to
the housing market.  But they also agreed that their operations
differ because Ginnie Mae's securities are backed by the
full-faith-and-credit of the federal government, while Fannie Mae's
and Freddie Mac's are not.  In addition, according to Fannie Mae and
Freddie Mac officials, neither could securitize all FHA mortgages at
the price currently charged by Ginnie Mae.  Ginnie Mae believes that
its termination would weaken the government's ability to serve low-
and moderate-income home buyers, especially FHA's and VA's customers. 
Ginnie Mae also believes that Fannie Mae and Freddie Mac principally
serve the conventional market and thus the low- and moderate-income
segment would, if pursued, be a small part of their business and
would logically occupy less of their focus or mission.  However, many
home buyers whose loans are purchased or securitized by Fannie Mae
and Freddie Mac have low or moderate incomes.  Fannie Mae, for
example, expects to meet or exceed its 1996 goal for purchasing loans
made to low- and moderate-income families.  For 1996, that goal is 40
percent, and for 1997, it is 42 percent (for both Fannie Mae and
Freddie Mac). 

Both Fannie Mae and Freddie Mac officials said that they would not
expect a major change in their operations if Ginnie Mae were
abolished, and both were unsure how much of Ginnie Mae's business
they could absorb, but they agreed that their fees would likely be
higher than those Ginnie Mae currently charges. 


   HUD'S REGULATORY FUNCTIONS
   WOULD BE TRANSFERRED
--------------------------------------------------------- Appendix I:4


      FAIR HOUSING
------------------------------------------------------- Appendix I:4.1

The Fair Housing Act prohibits discrimination in any housing
activities relating to the sale or rental of dwellings, in the
availability of residential real estate-related transactions, or in
the provision of services in connection with such transactions
because of race, color, religion, sex, handicap, familial status, or
national origin.  The act makes the Secretary of HUD responsible for
investigating complaints and ensuring compliance with fair housing
practices.  The Fair Housing Assistance Program provides financial
and technical support to state and local fair housing agencies that
administer laws certified by HUD as being "substantially equivalent"
to the federal Fair Housing Act. 

S.  1145 would transfer the fair housing function and the Fair
Housing Assistance Program to the Department of Justice.  Justice
officials believe that transferring all fair housing enforcement
activities to it would have legal ramifications.  The Fair Housing
Amendments Act of 1988 distinguishes between the roles of Justice and
HUD in fair housing enforcement.  The act gave HUD the authority to
quickly resolve fair housing disputes by closing them through
conciliation and administrative hearings presided over by
administrative law judges.  According to Justice, the act intended to
have an efficient and cost-effective process in place at HUD and
recognizes the close ties that HUD should maintain with the housing
community.  In contrast, the act foresees Justice's role in
enforcement actions involving individual fair housing claims as the
litigator of those cases formally charged by HUD after conciliation
has failed and only after either party to the charge elects to have
the case heard in federal court.  According to Justice and HUD
officials, this separation of duties between HUD and Justice
currently works well.  Both agencies are opposed to both a previous
proposal and this proposal to transfer HUD's fair housing functions
to Justice. 

HUD believes that transferring the fair housing function to Justice
would compromise the Congress' intent to ensure that fair housing
would be an integral part of federal housing policy.  Also, the
transfer would contravene decades of legal precedent ordering the
Secretary of HUD to integrate fair housing concerns into the
administration of HUD's programs. 


         TRANSFER WOULD POSE
         ORGANIZATIONAL AND
         STAFFING ISSUES
----------------------------------------------------- Appendix I:4.1.1

The Fair Housing Act and the Fair Housing Assistance Program are
administered by 265 HUD employees.\3 Of this total, 233 are located
in HUD's field offices.  Most of the day-to-day intake,
investigation, and conciliation, as well as the ongoing
community-based technical assistance and customer service, occurs in
these offices. 

Justice believes that it has neither the field organization nor the
investigative staff to carry out the fair housing program
effectively.  One official told us that Justice is an agency of
litigators, not investigators.  To the extent that Justice is an
investigative agency, its investigative function is, by and large,
carried out by the Federal Bureau of Investigation.  According to the
Justice official, investigating every fair housing complaint,
regardless of merit, as the act requires would not make productive
use of the Bureau's scarce resources.  Moreover, Justice has always
focused on litigating large cases with a high impact, not on
investigating and conciliating individual complaints.  In addition,
several officials cited general problems that arise when a litigating
agency picks up an administrative agency's responsibilities.  For
example, under the Fair Housing Assistance Program, HUD monitors the
state and local fair housing agencies that receive funds, certifies
participating states, and revokes certifications when agencies are
not performing adequately.  Justice, according to some of its
officials, is not set up to administer such programs. 

HUD believes that Justice is neither familiar with housing programs,
which generate large numbers of inquiries, nor well acquainted with
local communities and key players, as is necessary for a referral
system to function effectively.  Furthermore, changes in this area
would adversely affect recent improvements in customer service. 
Other customers of HUD's fair housing operation are state and local
agencies enforcing state and local laws.  Relationships with these
entities have developed over several years and provide an important
basis for sharing skills, knowledge, and resources. 

HUD further contends that, depending on how Justice implemented the
functions, a transfer could produce subtle differences as well. 
HUD's staff are carefully trained in intake and interview skills,
frequently have skills in analyzing and handling difficult people,
and are accustomed to handling many challenging inquiries.  Justice,
by contrast, has more lawyers handling the same functions, and to
some inquirers, lawyers might be more intimidating than HUD's staff. 
Justice officials told us that if HUD's staff were transferred, the
investigators would be difficult to place because their grade
structure is higher than that of Justice's investigative staff. 


--------------------
\3 According to HUD, the Office of Fair Housing and Equal Opportunity
has 664 staff.  About 265 of those staff handle complaint-related
matters and the Fair Housing Assistance Program.  The other staff are
devoted to ensuring fair housing in all HUD-funded programs.  These
figures do not count the staff assigned by the Office of General
Counsel or the Office of Administrative Law Judges. 


      INTERSTATE LAND SALES
------------------------------------------------------- Appendix I:4.2

HUD's function under the Interstate Land Sales Full Disclosure Act is
to ensure that certain developers of subdivisions (1) provide
adequate disclosure to purchasers through the registration of their
properties and (2) do not engage in any fraudulent or deceitful
transaction, practice, or course of business in the sale of lots in
their subdivisions.  S.  1145 would transfer this function to FTC. 

The mission of both HUD and FTC is to protect consumers; therefore,
both agencies believe their missions are complementary.  However,
according to FTC staff, the methods and type of personnel used by the
two agencies to handle consumer disclosure and fraud differ
significantly.  According to an FTC official, FTC does not (1)
administer registrations of this type, (2) have an organization to
handle individual complaints, or (3) have criminal enforcement
authority.  Furthermore, HUD believes that developers might not
comply with the act unless steps were taken to ensure compliance
through adequate reviews of registration and exemption requests. 


         A SMALL STAFF IN
         HEADQUARTERS CURRENTLY
         ADMINISTERS THE PROGRAM
----------------------------------------------------- Appendix I:4.2.1

Within HUD, the Interstate Land Sales and Real Estate Settlement
Procedures Act (RESPA) Division of the Office of Consumer and
Regulatory Affairs carries out the Department's responsibilities
under the Interstate Land Sales Full Disclosure Act.  Employees are
directly assigned to the program, and no field staff enforce the act. 

FTC officials said that if this function were transferred to FTC, it
would probably be located in the Bureau of Consumer Protection,
Division of Enforcement.  However, FTC has undergone significant
downsizing and is currently level-funded.  FTC staff emphasized that
the agency could not effectively perform the function unless the
legislation transferring the program specifically allocated enough
funds and full-time employees to cover the program's direct (e.g.,
salary costs for the transferred employees) and indirect costs (e.g.,
increased overhead and administrative costs that would be incurred in
collecting and administering the fees and maintaining the
registration files.) Section 144 of S.  1145 would allow (but would
not require) OMB to make available to the receiving agency funds that
were available to HUD in connection with the transferred function. 


      REAL ESTATE SETTLEMENT
      PROCEDURES
------------------------------------------------------- Appendix I:4.3

RESPA requires lenders to provide applicants for home mortgages with
timely good-faith estimates of the closing costs they will be
expected to pay upon settlement.  The purpose of RESPA is to
eliminate the payment of unearned fees in connection with settlement
services provided in mortgage transactions.  Section 8 of RESPA
prohibits kickbacks and referral fee arrangements.  Specifically, it
prohibits the giving or accepting of any fee, kickback, or thing of
value for referrals of real estate settlement service business
involving mortgage loans.  S.  1145 would transfer HUD's RESPA
responsibilities to the Federal Reserve Board. 

A Federal Reserve Board official indicated that S.  1145 does not
represent the first attempt to transfer HUD's RESPA functions to the
Board.  Bills from both houses of Congress dealing with regulatory
relief previously called for the transfer of HUD's regulatory
requirements under RESPA to the Board.\4 According to this official,
the Federal Reserve Chairman spoke in opposition to the transfer,
particularly of RESPA's section 8 provision. 

According to HUD officials, the intended goal of RESPA might change
if it were transferred to the Federal Reserve Board.  The Board's
focus is on the financial responsibilities of a central bank, not on
mortgage settlement services.  In addition, unlike the Board, RESPA
covers not only financial institutions but also other lenders and
other settlement providers, such as real estate agents and brokers,
title agents and underwriters, and credit-reporting companies.  The
customers and clients of RESPA are among HUD's traditional
constituents.  New relationships and networks would have to be
established by the Federal Reserve Board in order to continue the
same level of service. 


--------------------
\4 On March 30, 1995, H.R.  1362, the Financial Institutions
Regulatory Relief Act of 1995, was introduced.  Under this bill,
rule-writing authority for all provisions of RESPA would have been
transferred to the Board.  Also on March 30, 1995, S.  650, the
Economic Growth and Regulatory Paperwork Reduction Act of 1995, was
introduced.  As under the House bill, rule-writing authority for all
provisions of RESPA would have been transferred to the Board. 


         MINIMAL NUMBER OF HUD
         EMPLOYEES CURRENTLY
         PERFORM IN THE FUNCTION
----------------------------------------------------- Appendix I:4.3.1

According to an associate division director of the Federal Reserve
Board, the RESPA function, if transferred, would most likely be
placed in the Board's Division of Consumer and Community Affairs. 
This division could accept the transfer, but it would have to request
additional capacity from the Board.  In addition, this official
believed that a complete transfer of the function might not be the
Board's preference; the Board might want to integrate the function
into its current operations rather than administer the function as
HUD currently does. 

According to HUD, five employees are assigned to the RESPA function. 
In addition, six staff from HUD's Office of General Counsel spend at
least 50 percent of their time on RESPA issues.  Under section 144 of
S.  1145, OMB can make available to the receiving agency funds that
were available to HUD in connection with the transferred function. 


      NATIONAL MANUFACTURED
      HOUSING
------------------------------------------------------- Appendix I:4.4

The manufactured home (a dwelling that is not site-built) industry is
the only segment of the American housing industry that is regulated
by a national building code and a federally controlled enforcement
system.  The National Manufactured Housing Construction and Safety
Standards Act of 1974 defines various criteria that HUD is to employ
in establishing standards for activities such as conducting research
and testing and evaluating relevant data on the construction and
safety of manufactured homes.  HUD's standards are considered
mandatory and preemptive of all state laws.  The standards cover such
topics as fire safety, body/frame construction requirements, plumbing
systems, and heating, cooling, and fuel-burning systems.  S.  1145
would transfer HUD's manufactured housing function to USDA. 

USDA officials said the manufactured housing program complements the
core mission and objectives of the Department's Rural Housing Service
(RHS), but USDA does not finance many manufactured homes.  (Most
housing assistance involves homes with foundations.) In the few
instances when USDA is involved with manufactured housing, it follows
HUD's building standards.  Currently, USDA does not have the
resources to set its own standards. 

HUD believes that the influence of the program on its constituents
(producers and home buyers) would probably diminish under USDA
because RHS lacks technical expertise in manufactured housing.  In
addition, USDA might not be able to regulate manufactured housing in
urban and suburban developments, where its use has recently
increased.  For example, Los Angeles changed its zoning laws to allow
the use of manufactured housing to promote affordable homeownership
and help stabilize troubled neighborhoods. 


         HUD PROGRAM HAS OUTSIDE
         SUPPORT
----------------------------------------------------- Appendix I:4.4.1

According to HUD, 18 full-time permanent employees are assigned to
its Manufactured Housing and Standards Division, which has the
principal responsibility for administering the act's requirements. 
The staff include structural, electrical, and mechanical engineers,
as well as management staff with relevant academic backgrounds.  In
addition, the program receives administrative support from the
National Conference of States on Building Codes and Standards, as
well as 36 state administering agencies and 25 private engineering
and inspection agencies.  State agencies, which currently share HUD's
responsibility for enforcing this program's requirements, are
predominantly located within housing-oriented departments within
their state governments and their missions are, therefore, more
likely to be compatible with HUD's than with USDA's. 

RHS currently has about 130 staff in headquarters and 5,056 staff in
its field offices.  The staff are typically loan specialists who
process and service loans and guarantees for residential housing and
for community and business programs.  RHS officials said that
assuming the manufactured housing function's broad enforcement
powers, such as the powers to issue subpoenas and use injunctive
relief, should not be a problem for RHS.  RHS employees are
accustomed to ensuring that requirements are being met for their
respective programs. 


      LEAD-BASED PAINT ABATEMENT
------------------------------------------------------- Appendix I:4.5

HUD is charged with providing safe and affordable housing and is
focused on reducing childhood lead poisoning without disrupting the
housing market.  HUD provides technical guidance to housing
authorities and health departments on detecting and controlling
lead-based paint hazards in housing, provides grants to local
governments to adopt housing-based strategies, and works to establish
consensus among various housing interests.  For example, according to
HUD, it has worked to develop sound working relationships with the
local housing and health departments that administer HUD's lead-based
paint grant program and with the housing industry in general. 

S.  1145 would transfer any portion of HUD's lead-based paint
function that was not repealed by the bill to EPA.  EPA's stated goal
is to reduce lead exposures to the fullest extent practicable and to
avoid high blood lead levels.  The agency is particularly interested
in reducing the risk of exposure to children.  While EPA officials
believe that EPA's and HUD's missions are complementary and that the
agencies work closely together to help reduce childhood lead
poisoning, they find HUD's mission to be broader.  Whereas HUD
performs risk assessments and oversees the management (i.e.,
abatement, interim controls) of lead-based paint in public housing,
EPA does not believe it has the expertise, experience, or willingness
to undertake these activities.  However, EPA believes that it could
easily assimilate other activities that the bill proposes to
transfer, such as administering grants into its current structure. 

Conversely, HUD said the mission of its lead-based paint program is
not congruent with EPA's core mission.  According to HUD, EPA is
charged with setting standards for lead levels in paint, dust, and
soil; conducting training; and accrediting laboratories.  HUD also
said that it has issued proposed regulations to incorporate
lead-based paint requirements across all federally assisted housing
programs at HUD.  Without authority over the housing programs, EPA
would be unable to effectively monitor these requirements, according
to HUD.  In addition, HUD questioned the level of priority that
lead-based paint issues would receive at EPA. 


         A TRANSFER WOULD POSE
         ORGANIZATIONAL AND
         STAFFING ISSUES
----------------------------------------------------- Appendix I:4.5.1

HUD's Office of Lead-Based Paint Abatement and Poisoning Prevention
relies primarily on its 25 full-time headquarters employees to
operate the program.  No field staff are assigned directly to the
program.  According to EPA officials, if HUD's lead-based paint
program were transferred to EPA, the likely recipient would be the
Chemical Management Division (CMD) within the Office of Pollution
Prevention and Toxics.  This division currently has 58 staff, the
majority of whom work on lead and asbestos issues.  If the entire
function were transferred to EPA (with the 25 staff), the division
would have to reorganize to accept HUD's staff.  In addition,
accepting and integrating HUD's Senior Executive Service and grade 15
positions into the division would be very difficult, given the
division's grade structure. 


      HOME MORTGAGE DISCLOSURE
------------------------------------------------------- Appendix I:4.6

The Home Mortgage Disclosure Act (HMDA) was enacted to provide the
public with information for determining whether financial
institutions are serving the housing needs of their communities. 
Additionally, information collected under the act is used to assist
regulatory agencies in identifying possible discriminatory lending
patterns and enforcing antidiscrimination statutes.  HUD's
responsibilities under HMDA involve compiling submissions from
mortgage companies on the applications these companies receive and on
the home purchase and home improvement loans they originate or
purchase.  S.  1145 would transfer this function to Treasury. 

Treasury currently collects HMDA data from national banks and
thrifts.  Specifically, the Office of the Comptroller of the Currency
and the Office of Thrift Supervision collect and apply HMDA
information in the context of compliance with the Community
Reinvestment Act, the Equal Credit Opportunity Act, and the Fair
Housing Act.  However, Treasury does not regulate mortgage companies
and lacks experience in the application of HMDA data for such
entities.  Accordingly, Treasury believes that transferring HUD's
data collection responsibilities under HMDA to Treasury would be
inconsistent with Treasury's existing mission.  Treasury said it
cannot predict what impact a transfer would have on the current users
of HMDA data or on the affordable housing market.  Treasury assumes
that separating the collection from the application of the data for
affordable housing purposes could have a significant adverse impact
on low- and moderate-income home buyers and renters. 

Conversely, according to the HUD official overseeing HUD's HMDA
responsibilities, the goal of the function would complement
Treasury's mission.  He pointed out that Treasury already oversees
the act's reporting requirements for other agencies that regulate
financial institutions, including the Office of the Comptroller of
the Currency and the Office of Thrift Supervision.  He added that the
transfer should have no effect on the program's customers. 

HUD's responsibilities under HMDA are generally carried out by five
contract employees who process the data submissions from about 1,000
lenders annually.  The HMDA function is highly automated.  Two HUD
employees implement the Department's HMDA responsibilities part-time. 


      OVERSIGHT OF FANNIE MAE,
      FREDDIE MAC, AND THE FUND
      WOULD BE TRANSFERRED TO
      TREASURY
------------------------------------------------------- Appendix I:4.7

Title XIII of the Housing and Community Development Act of 1992,
known as the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, established the Office of Federal Housing
Enterprise Oversight (OFHEO) as an independent office within HUD. 
The primary function of OFHEO is to ensure the financial safety and
soundness and the capital adequacy of Fannie Mae and Freddie Mac. 

Under S.  1145, OFHEO would be transferred to Treasury, and the
Director of OFHEO would monitor the safety and soundness of the newly
created Federal Home Mortgage Insurance Fund.  OFHEO believes that
its program goal complements Treasury's core mission in that Treasury
is broadly concerned with minimizing the federal government's
borrowing needs and with maintaining the smooth functioning of the
nation's financial markets. 

Treasury's Office of the Comptroller of the Currency and Office of
Thrift Supervision are the safety and soundness regulators for
national banks and savings and loan associations.  To the extent that
OFHEO's mission is to oversee the safety and soundness of Fannie Mae
and Freddie Mac, Treasury believes that this mission is consistent
with one of its own roles. 

However, OFHEO believes that the significant synergies created by its
current relationship with other parts of HUD would be lost, while no
important compensating benefits would be gained.  HUD would save no
money from OFHEO's departure; OFHEO is fully funded by assessments
from its enterprises and reimburses HUD for any services it uses. 
OFHEO believes that it needs to be familiar and involved with broader
national housing policy issues.  Fannie Mae and Freddie Mac have a
dominant influence on most aspects of housing finance.  To properly
evaluate the impact of safety and soundness regulations on the
broader issues, as well as the impact of other policy decisions on
safety and soundness, OFHEO believes that it should remain a part of
the department making these decisions. 

In addition, OFHEO believes that its goal could conflict with
Treasury's core mission if appropriate safety and soundness actions
for Fannie Mae, Freddie Mac, or the federal home mortgage insurance
fund were viewed, at certain times, as having an undesirable effect
on the performance of the economy's housing sector, the economy as a
whole, or other depository institutions. 

According to OFHEO, S.  1145 does not require Treasury to make any
significant organizational changes because OFHEO would retain its
independent authority for internal management, budget, regulations,
examinations, and enforcement actions.  Treasury agrees.  In
addition, S.  1145 would transfer all 64 of OFHEO's permanent
full-time employees to Treasury.  However, if its mission were
expanded to monitor the safety and soundness of the insurance fund as
well as of Fannie Mae and Freddie Mac, OFHEO believes it would likely
have to hire additional staff. 


FINANCIAL COMMITMENTS INHERITED BY
THE RESOLUTION AGENCY
========================================================== Appendix II


   FHA'S MORTGAGE INSURANCE
-------------------------------------------------------- Appendix II:1

FHA administers about 40 mortgage insurance programs, including
programs for insuring single-family and multifamily mortgages, as
well as loans for property improvements, cooperatives, condominiums,
housing for the elderly and the handicapped, and hospitals.  In July
1996, FHA had insurance on 6,490,546 single-family loans totaling
about $364 billion.  It had insurance on an additional 15,876
multifamily loans and 474,750 property improvement and manufactured
housing loans, totaling about $48 billion and $6 billion,
respectively.  FHA also held 126,467 notes with an unpaid principal
balance totaling about $8.3 billion and held 26,531 properties
acquired at a cost of about $2.1 billion.  Overall, according to
FHA's fiscal year 1995 financial statement, liabilities exceed assets
by $3.3 billion.  According to Price Waterhouse's latest actuarial
study, the Mutual Mortgage Insurance Fund--FHA's principal insurance
fund for single-family housing--had an economic net worth of over $7
billion as of September 30, 1995.\1 That is, the cash available to
the fund, plus the net present value of all future cash inflows and
outflows expected to result from the outstanding mortgages in the
fund, was over $7 billion. 

The bill would require the resolution agency to sell FHA's mortgage
insurance interests so that by the end of its third year, the agency
would realize at least $100 million--to be used to capitalize a newly
created insurance fund in Treasury.  These actions must be done in
accordance with a plan to be prepared by the resolution agency within
6 months of the bill's enactment and submitted to the Office of
Management and Budget (OMB) and the Congress.  OMB must, in turn,
certify that the portion of the plan concerning the sale of FHA's
mortgage insurance interests will result in no net cost to the
federal government.  The resolution agency faces important
limitations in accomplishing this sale, and the bill recognizes that
the sale of FHA's insurance interests would not relieve the federal
government of its original commitment of the full faith and credit of
the United States to cover 100 percent of any losses that lenders
might sustain from these loans.  In addition, the bill would allow
the resolution agency to target the most valuable or marketable
insurance interests for sale during the first 3 years and would
require the resolution agency to maximize the net present value
return from the sale of these interests without incurring any net
cost to the federal government.  The bill would also require the
resolution agency to protect investors in and lenders for mortgages
insured by FHA and to minimize the risk of loss to the federal
government (including Ginnie Mae) resulting from the nonpayment of
insurance claims on defaulted mortgages insured by FHA. 

While the single-family loans insured by FHA are backed by reserves
and FHA's single-family portfolio has a positive net economic value,
in total FHA had a negative net worth as of September 30, 1995. 
According to FHA officials, the resolution agency would be unlikely
to realize the minimum $100 million in initial capitalization from
the sale of FHA's mortgage insurance interests.  Such a sale would
reduce the capital reserves of the existing fund without
proportionally reducing the federal government's exposure to losses,
according to FHA.  Therefore, FHA might not be able to sell its
mortgage insurance interests without incurring a net cost to the
federal government.  In contrast, officials from the Mortgage
Insurance Companies of America believe that $100 million could be
realized from the sale of FHA's mortgage insurance interests.  They
note that potential customers include the reinsurance market,
mortgage insurance companies, and other investors and syndicates. 
The value to purchasers would depend on the model they would use for
estimating the value of the portfolio.  Furthermore, the sale of
FHA's insurance portfolio might allow some private mortgage insurers
to better diversify their risk.  Our analysis shows that the
FHA-insured single-family mortgages made in 1983 and in earlier years
would have net positive cash flows from 1998 through the end of their
terms and would, therefore, be likely candidates for purchase by the
private sector.  While the present value of the net cash flows from
this part of FHA's portfolio exceeds $100 million, any private
investor would likely require a discount in purchasing these cash
flows because private investors--unlike FHA--need to earn profits
sufficient to cover tax expenses and shareholders' returns while
maintaining sufficient capital reserves. 

Selling FHA's mortgage insurance interests would not relieve the
federal government of its initial commitment to cover 100 percent of
any losses sustained by lenders holding FHA-insured loans.  As noted,
FHA-insured single-family loans originated in 1983 and earlier would
be likely candidates for sale if a purchaser were required to pay
anticipated claims.  However, if a purchaser were also required to
refund any up-front premiums for prepaid loans,\2 FHA would likely
need to pay the purchaser a fee to cover a portion of the up-front
premium.  The remaining years on the insured single-family portfolio
extend beyond the life of the resolution agency.  The unpaid
principal balance on the FHA-insured single-family loans originated
in 1983 and earlier represents only about 5 percent of the entire
single-family insured portfolio.  The unsold portfolio would be
transferred to Treasury.  Yet any lender that held an FHA-insured
mortgage would need to be protected, even when the loan's mortgage
insurance interests had been sold.  That is, the federal government
would remain liable for any claims by a lender holding an FHA-insured
loan if the entity that purchased the mortgage insurance interest
proved unable to pay the claim.  In effect, the sale of mortgage
insurance interests might not relieve the federal government of all
liability for future claims.  To protect itself against the
possibility of a purchaser's being unable to pay claims, the federal
government could require that the purchaser meet certain conditions,
including having a AAA rating and establishing an escrow account,
according to officials of the Mortgage Insurance Companies of
America. 


--------------------
\1 FHA has four insurance funds--the Mutual Mortgage Insurance (MMI),
General Insurance (GI), Cooperative Management Housing Insurance
(CMHI), and Special Risk Insurance (SRI) funds.  The MMI fund
provides mortgage insurance principally for 30-year fixed rate
single-family home mortgages and is required to be actuarially sound. 
The GI fund provides mortgage insurance for multifamily properties,
including nursing homes and hospitals, and is not required to be
actuarially sound.  In fact, the GI fund is dependent on budgetary
appropriations to sustain operations.  The CMHI and SRI funds have
had very little activity in recent years and, according to HUD's
Inspector General, represent a comparatively small exposure to
additional losses. 

\2 Loans insured between October 1984 through June 1991 do not have
annual premiums.  In 1998, loans insured during fiscal years 1993,
1994, and 1995 will not have aged to the point where annual premiums
plus proceeds from the sale of properties exceed expected claims and
administrative expenses. 


   GUARANTEES OF MORTGAGE-BACKED
   SECURITIES
-------------------------------------------------------- Appendix II:2

The Government National Mortgage Association (Ginnie Mae) guarantees
the timely payment of principal and interest on privately issued
securities that are backed by pools of FHA-insured and VA- and Rural
Housing Service (RHS)-guaranteed mortgages.  In fact, nearly all
FHA-insured, VA-guaranteed, and RHS-guaranteed mortgages are in
Ginnie Mae pools.  The maturities on these guarantees are for up to
40 years.  At the end of fiscal year 1995, Ginnie Mae had outstanding
guarantees of mortgage-backed securities totaling $464 billion.  The
program had negative net outlays of $464 million in fiscal year 1995. 
The Mortgage-Backed Securities Program provides a means for
channeling funds from the nation's securities markets into the
housing market.  The federal government's full-faith-and-credit
guaranty of these securities makes them widely accepted in sectors of
the capital markets that otherwise would not be likely to supply
funds to the mortgage market.  Approximately 70 percent of the funds
used to purchase Ginnie Mae-guaranteed securities come from
nontraditional mortgage investors, including pension and retirement
funds, life insurance companies, and individuals. 

The bill would terminate Ginnie Mae and require the resolution agency
to establish a plan for winding up its affairs.  Specifically, the
bill would transfer Ginnie Mae's authority to the resolution agency,
but only to the extent necessary to fulfill the outstanding
obligations and settle the business of Ginnie Mae.  According to the
bill, the resolution agency's plan for winding up Ginnie Mae's
affairs might provide for Fannie Mae, Freddie Mac, or other private
secondary mortgage market entities to assume Ginnie Mae's secondary
market functions.  The bill also specifies that the plan should
include any recommendations for legislation that might be needed for
terminating Ginnie Mae and should be submitted to the Congress within
the first year of the bill's enactment. 

Ginnie Mae's pledge to back investments with the full faith and
credit of the United States would be an important restriction on any
effort to resolve Ginnie Mae's outstanding guarantees.  The bill
recognizes these commitments in section 143, which provides that all
agreements in effect prior to the transfer of a function shall
continue in effect according to their terms until modified,
terminated, superseded, set aside, or revoked in accordance with law. 
While the bill does not specify how these guarantees should be
resolved, the resolution agency would need to administer them during
its term and arrange for their continued administration beyond its
term.  In planning to wind up Ginnie Mae's functions, the resolution
agency would also need to consider the impact of Ginnie Mae's
termination on veterans and rural home buyers whose loans would no
longer be securitized by Ginnie Mae. 


   SECTION 8 CONTRACTS
-------------------------------------------------------- Appendix II:3

To increase the supply of affordable housing, HUD provided contracts
to developers that guaranteed for a certain time period the payment
to landlords of a portion of the rent on units in those properties. 
These contracts were important considerations for the lenders that
provided mortgages for the projects.  In addition, many of the loans
for these projects were insured by FHA.  According to HUD's latest
data, about 1.4 million units at about 20,400 multifamily properties
receive section 8 project-based subsidies.  Of these properties,
8,636 have FHA-insured mortgages whose unpaid principal balances
total nearly $18 billion.  Over time, these properties' section 8
subsidies have increased dramatically, and today many of the section
8 contracts are about to expire.  According to April 1996 data,
contracts covering about 85 percent of the project-based section 8
units in the insured section 8 portfolio will expire by the end of
2002 and about 98 percent by the end of 2006.  Without a continuation
of the subsidy, many of the projects would not be economically
viable.  About half of the project-based section 8 units in the
uninsured section 8 portfolio will expire after 2002.  For
FHA-insured properties with section 8 contracts, a reduction in the
contract would lead to defaults and claims against FHA's insurance
fund. 

Recognizing that many properties could not cover expenses and
borrowers might eventually default on their mortgages if the
properties were forced to compete in the commercial market without
their project-based section 8 subsidies, in May 1995 HUD proposed
restructuring FHA-insured mortgages to bring income and expenses into
line.  This proposal--called "mark-to-market"--has undergone some
changes since, and the fiscal year 1997 appropriation for HUD
includes a demonstration program covering properties with contract
rents that exceed 120 percent of their area's fair market rents. 
Under this demonstration--for owners who agree to participate--HUD
has the flexibility to use tools such as reinsurance, debt
forgiveness, and second mortgages to decrease the escalating costs of
section 8 rental assistance, prevent mortgage defaults, protect
residents against dislocation, and resolve associated tax issues. 
Owners of projects with rents exceeding 120 percent of their area's
fair market rents who do not choose to participate in the
demonstration would have their contract rents reduced to 120 percent
of the fair market rents.  Also, the appropriation requires HUD, if
requested by the project owner, to renew for 1 year contracts with
rents below 120 percent of the fair market rents. 

As described in chapter 2, the bill envisions providing housing
assistance to individuals through a voucher program, rather than
through public housing, project-based assistance, and voucher and
certificate programs, as HUD does today.  Moving to a voucher-only
program would require the resolution agency to resolve existing
project-based section 8 contracts that expire during the 5-year
transition period.  In fact, the bill includes mark-to-market
provisions that would authorize the resolution agency to take the
actions necessary to ensure the financial viability of multifamily
housing projects with project-based rental assistance contracts
expiring before the end of the resolution agency's term. 
Specifically, the mark-to-market provisions in the bill allow for
remedies to make economically viable projects with section 8
assistance contracts--particularly those that have FHA-insured
mortgages.  The bill would also protect the validity of the section 8
assistance commitments made before the effective date of the bill;
any section 8 assistance commitments still in effect upon the
termination of the resolution agency would be transferred to the
voucher administrator in HHS. 

The resolution agency faces a challenge in reducing the costs of
subsidies for multifamily housing projects with project-based
assistance contracts while maintaining the federal government's
commitment to the projects' owners.  Furthermore, not renewing
section 8 contracts or reducing the federal subsidy could have
financial consequences for the state housing finance agencies (HFA)
that have provided financing for some of the projects.  In fact, the
1997 appropriation specifically exempts state HFAs from the contract
rent ceiling of 120 percent of the fair market rent.  That is,
section 8 contracts for projects with financing or insurance from
state HFAs may be renewed at their current contract rents even if
these rents exceed 120 percent of the fair market rents.  While not
placing any of its section 8 ratings under review, in July 1995
Moody's Investors Service disclosed to investors its concern that
legislative proposals that negatively affect revenue streams of
section 8 projects could adversely affect the financial feasibility
of those projects.  To induce projects' owners to voluntarily
renegotiate their section 8 contracts, the resolution agency would
need to provide a financial incentive, including debt forgiveness as
well as a mechanism to offset or mitigate any tax consequences of
debt forgiveness.  For any section 8 contracts that expire after the
termination of the resolution agency, the federal commitments would
endure and be administered by the voucher administrator. 


   CDBG SECTION 108 LOAN
   GUARANTEES
-------------------------------------------------------- Appendix II:4

The bill would merge HUD's programs/grants for community
revitalization, housing development, and assistance for the homeless
into one block grant that would be administered by a newly created
agency.  The new agency would inherit HUD's outstanding commitments
for loan guarantees made under one of the programs to be merged--the
Community Development Block Grant (CDBG) program.  Under CDBG,
communities and states that receive grants can, under section 108 of
the Housing and Community Development Act of 1974, apply for
additional financing in the form of loans.  HUD guarantees notes
issued by grantees for up to five times their current year's CDBG
grant and treats future CDBG grant funds as collateral for the loans. 
The proceeds from these notes can be used to finance community and
economic development projects that are too large to be financed from
the grantee's annual grant. 

The amount of the outstanding section 108 loan guarantees as of
September 30, 1995, was $678 million.  The maximum repayment period
for these loans is 20 years.  While the loan guarantees are covered
by the grantees' future program funds, the decline in funding for
CDBG entitlement grantees envisioned in the bill would make repaying
lenders more difficult for these grantees, potentially resulting in
greater claims against HUD, which guarantees these loans. 

In addition, HUD's role as a collection agent for $131.4 million in
outstanding notes from section 108 offerings would have to be
transferred to another agency.  Financing for the section 108 program
is currently provided through the sale of guaranteed notes in
periodic public offerings.  However, prior to July 1, 1986, the
guaranteed notes were purchased by the Federal Financing Bank, under
the Department of the Treasury.  Although the notes are no longer
sold to the Federal Financing Bank, HUD continues to serve as a
collection agent for the bank. 


   OTHER FUNDS BORROWED BY HUD
-------------------------------------------------------- Appendix II:5

Several HUD programs have the authority to borrow funds for their
operations.  During the 1960s, 1970s, and 1980s, public housing
authorities (PHA) and Indian housing authorities borrowed funds from
the private sector and from the Federal Financing Bank to finance the
construction and rehabilitation of low-rent housing.  These funds are
being repaid by HUD on behalf of the PHAs.  In addition, HUD borrows
from Treasury to finance section 202 loans, and FHA's Mutual Mortgage
Insurance fund borrows to cover cash shortfalls.  As of September 30,
1995, HUD projected that its payments of principal on the borrowed
funds would total $15.3 billion.  Additionally, HUD reported that
during fiscal years 1994 and 1995, it paid $1.2 billion in interest
on the borrowed funds. 




(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)

and 8. 



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Housing and
Urban Development's letter dated January 24, 1997. 


   GAO'S COMMENTS
-------------------------------------------------------- Appendix II:6

1.  After reviewing HUD's comments, we added information to the
report to recognize additional consequences to HUD's customers of the
proposed changes to FHA.  HUD expressed concern that dismantlement
would result in the loss of a national housing and community
development policy and focus.  This is a policy question
appropriately decided by the Congress and the administration.  In
response to HUD's comments about the difficulties involved in
transferring HUD's functions to other agencies or other levels of
government, we added several references to HUD's position in the
report.  All three issues are discussed in more detail in the
comments that follow. 

2.  We believe that the report examines the bill's potential impact
on HUD's customers and discusses the capacity of the states and other
federal agencies to assume HUD's functions and the tasks to be
accomplished in dismantling HUD within the 5 years specified in the
bill.  HUD's principal criticism of our analysis is that the report
".  .  .  amounts to little more than a six-state opinion poll.  . 
.".  However, HUD does not recognize that our visits to these states
were but one method used to collect information.  Chapter 1 includes
a description of the methodology we used in completing our analysis. 
In addition to the visits--the results of which we recognize may not
be projected to all 50 states--we met with officials from national
associations representing state and local governments; surveyed
community development officials from the 47 states represented by the
Council of State Community Development Agencies; reviewed existing
literature on states' capacity; discussed S.  1145 with officials
from the Office of Management and Budget (OMB), HUD, the National
Academy of Public Administration, interest groups and associations,
and think tanks; interviewed and gathered studies and position papers
from senior HUD officials, think tanks, and interest groups
representing HUD's clients, including tenant organizations, public
housing authorities, lenders, major bond-rating agencies,
government-sponsored enterprises, private mortgage insurers, state
agencies, and local governments; and conducted interviews and
collected documentation and studies from the federal agencies
designated to receive HUD's functions and from HUD.  We also drew on
our own prior and ongoing work on HUD and on reorganizing federal
agencies. 

3.  The bill's impact on low- and moderate-income customers and their
communities are described in chapters 2 and 3.  While we recognize
that the bill could adversely affect the availability of mortgage
capital, supply of affordable housing, and vulnerable
populations--for example--we cannot say with certainty to what degree
these customers would be adversely affected. 

4.  While HUD believes that eliminating the federal backing for
mortgage insurance would exclude clients now served, we believe the
number of prospective borrowers who would be unable to obtain a home
mortgage under the bill's provisions is uncertain.  While our
analysis recognizes the percentage of FHA borrowers who, on the basis
of the loans they received, did not meet the most liberal
private-sector underwriting guidelines, we cannot say with certainty
that all of these borrowers could not qualify for other mortgages. 
In addition, because the bill does not specify the terms for sharing
risk with qualified mortgage insurers, we cannot say with certainty
how many borrowers would be affected.  In this regard, we share HUD's
concern that mortgages insured under the risk-sharing provisions
might be those products already offered on the private market. 
Specifically, we recognize in the report that the restriction on the
loan-to-value ratio alone replicates features of products already
offered by the private market. 

5.  We expanded our description in chapter 3 of FHA's role in the
multifamily mortgage market to reflect this point. 

6.  Chapter 2 of the report mentions several impacts on communities,
including possible reductions in the supply of affordable housing. 
It also notes the uneven nature of housing markets nationwide that
makes across-the-board approaches to housing assistance unworkable. 
In addition, we cite the findings from our 1995 report that the
condition of the existing housing stock and its per-unit operating
costs vary tremendously. 

7.  Chapter 2 discusses the 40-percent cut in these programs and the
potential impact of consolidating these programs on vulnerable
populations.  We specifically mention several studies that support
the concern of some stakeholders that under a consolidated block
grant, the states and localities would reduce the funding targeted to
very poor households.  However, it is not possible to predict the
exact impact of these potential funding cuts because the bill gives
states and localities increased flexibility in making spending
decisions.  We have no way to assess with any certainty the spending
choices states and communities might make. 

8.  Chapter 3 discusses the impact on veterans and rural residents of
eliminating Ginnie Mae.  We made no changes in response to HUD's
comments. 

9.  Assessing the need for a single cabinet-level agency to provide
leadership, coordination, and focus on housing and community
development was outside the scope of this report, as agreed with our
requesters.  However, both the executive summary and the body of the
report discuss HUD's position that this bill would eliminate the
focus on housing and community development that it has provided as a
cabinet-level department. 

10.  Chapters 4 and 5 describe the difficulties of transferring HUD's
functions.  We assessed the compatibility of HUD's missions with
those of the receiving agencies; differences in the agencies'
organizational structures, staffing and expertise; and the
limitations on resolving HUD's current commitments.  However, we have
made a number of changes in the report to further clarify and
emphasize HUD's perspective on some of these difficulties.  Finally,
as agreed with the requesters' offices, we did not estimate the costs
of transferring these functions and creating new agencies, as
envisioned in the bill, because CBO plans to publish a cost estimate
in a separate report. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
========================================================== Appendix II


The following are GAO's comments on the Department of Health and
Human Service's letter dated January 23, 1997. 


   GAO'S COMMENTS
-------------------------------------------------------- Appendix II:7

1.  We added several references to HHS' position in the report,
noting the Department's belief that the proposal to shift some of
HUD's programs to HHS is not well advised and that the shift may
provide little or no cost savings to the federal government. 
However, the need for a cabinet-level department to address housing
and community development issues is a policy question for the
Congress and the administration to decide.  Additionally, in appendix
I, we mention HHS' concerns about the proposed transfers of certain
programs, including the concern that an extensive field structure
would be needed to administer some programs. 

2.  Projections of the bill's impact on the federal budget will be
developed and published by CBO in a separate report.  Chapter 2
points out that although the states and localities would have greater
flexibility in setting priorities, the funding cuts envisioned in the
bill and the increase in the proportion of funds for entitlement
communities would reduce either the amounts of the grants to the
3,000 nonmetropolitan areas or the number of communities receiving
grants.  We also note that service to the poorest clients could
decline, though the effects of the funding cuts are uncertain, since
the extent to which the states and localities would use their own
funds to offset the funding reductions is unknown. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE OFFICE OF
MANAGEMENT AND BUDGET
========================================================== Appendix II



(See figure in printed edition.)


The following are GAO's comments on the Office of Management and
Budget's (OMB) letter dated January 6, 1997. 


   GAO'S COMMENTS
-------------------------------------------------------- Appendix II:8

1.  At the end of the report's executive summary, we note that OMB
strongly disagrees with the provisions of S.  1145 and believes that
HUD's "functions should be evaluated on their own merits, not as a
strategy for reducing the deficit.  .  .  ." OMB also observed that
assigning HUD's functions to other agencies would be
counterproductive relative to HUD's reinvention goals.  We do not
take a position on these issues because we believe they are policy
questions for the Congress and the administration to decide. 




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
THE TREASURY
========================================================== Appendix II


The following are GAO's comments on the Department of Treasury's
letter dated January 14, 1997. 


   GAO'S COMMENTS
-------------------------------------------------------- Appendix II:9

1.  At the end of the report's executive summary, we note that the
Department of the Treasury disagrees with the provisions of S.  1145
and supports a cabinet-level department to provide focus for housing
and community development issues.  The need for a cabinet-level
department to address housing and community development issues is a
policy question for the Congress and administration to decide. 




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE ENVIRONMENTAL
PROTECTION AGENCY
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Environmental Protection
Agency's (EPA) memorandum dated January 16, 1997, and letter dated
January 24, 1997. 


   GAO'S COMMENTS
------------------------------------------------------- Appendix II:10

1.  In chapter 4, we note EPA's concern about assuming a broad role
in managing lead-based paint in public housing, and in appendix I we
cite EPA's concern that the agency does not have the expertise,
experience, or willingness to manage public housing.  However,
appendix I also notes that EPA could assimilate certain specific
lead-based paint activities, such as grants administration. 

2.  We revised the sentences to address EPA's comments. 

3.  The paragraph cited by EPA discussed HUD's assistance to housing
authorities and health departments in detecting and controlling
lead-based paint hazards in housing.  This assistance is not limited
to public housing, as EPA suggests.  HUD also oversees a grant
program for controlling lead-based paint in private low-income
housing.  Therefore, we did not revise the paragraph. 

4.  The formal comments referenced by EPA are contained in its
January 16, 1997, memorandum addressed earlier in this appendix. 

5.  Our report states that EPA and HUD work closely together to help
reduce childhood lead poisoning.  However, appendix I also notes
EPA's concern that although the agencies' missions are complementary,
HUD's mission is broader--HUD focuses on reducing childhood lead
poisoning while still managing housing so that the housing market is
not disrupted. 




(See figure in printed edition.)Appendix VIII
COMMENTS FROM THE FEDERAL RESERVE
BOARD
========================================================== Appendix II




(See figure in printed edition.)Appendix IX
COMMENTS FROM THE DEPARTMENT OF
AGRICULTURE
========================================================== Appendix II


The following are GAO's comments on the Department of Agriculture's
letter dated January 8, 1997. 


   GAO'S COMMENTS
------------------------------------------------------- Appendix II:11

1.  Appendix I notes that officials within Department of
Agriculture's Rural Housing Service (RHS) stated that assuming the
manufactured housing function's broad enforcement powers, such as the
powers to issue subpoenas and use injunctive relief, should not be a
problem for RHS.  Additionally, section 144 of S.  1145 states that
transferred functions would include the funds associated with the
functions. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix X

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION

R.  Tim Baden
Susan Beekman
Leslie Black-Plumeau
Erin Bozik
Larry Dyckman
Bess Eisenstadt
Mathew Scire

GENERAL GOVERNMENT DIVISION

Scott Derrick
Frank Minore

ATLANTA FIELD OFFICE

Anne Olson
Paige Smith

BOSTON FIELD OFFICE

Diana Gilman
Rich LaMore




RELATED GAO PRODUCTS
============================================================ Chapter 1

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-97-12, Feb.  1997). 

Multifamily Housing:  Effects of HUD's Portfolio Reengineering
Proposal (GAO/RCED-97-7, Nov.  1, 1996)

Homeownership:  FHA's Role in Helping People Obtain Home Mortgages
(GAO/RCED-96-123, Aug.  13, 1996). 

Department of Energy:  Observations on the Future of DOE
(GAO/T-RCED-96-224, July 23, 1996). 

Housing Enterprises:  Potential Impacts of Severing Government
Sponsorship (GAO/GGD-96-120, May 13, 1996). 

FHA Hospital Mortgage Insurance Program:  Health Care Trends and
Portfolio Concentration Could Affect Program Stability
(GAO/HEHS-96-29, Feb.  27, 1996). 

Homeownership:  Mixed Results and High Costs Raise Concerns About
HUD's Mortgage Assignment Program (GAO/RCED-96-2, Oct.  18, 1995). 

Multifamily Housing:  Issues and Options to Consider in Revising
HUD's Low-Income Housing Preservation Program (GAO/T-RCED-96-29, Oct. 
17, 1995). 

Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/T-RCED-96-25, Oct.  13, 1995). 

Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/T-RCED-96-22, Oct.  13, 1995). 

Commerce Dismantlement:  Observations on Proposed Implementation
Mechanism (GAO/T-GGD-95-233, Sept.  6, 1995). 

Block Grants:  Issues in Designing Accountability Provisions
(GAO/AIMD-95-226, Sept.  1, 1995). 

HUD Management:  Greater Oversight Needed of FHA's Nursing Home
Insurance Program (GAO/RCED-95-214, Aug.  25, 1995). 

Property Disposition:  Information on HUD's Acquisition and
Disposition of Single-Family Properties (GAO/RCED-95-144FS, July 24,
1995). 

Housing and Urban Development:  HUD's Reinvention Blueprint Raises
Budget Issues and Opportunities (GAO/T-RCED-95-196, July 13, 1995). 

Public Housing:  Converting to Housing Certificates Raises Major
Questions About Cost (GAO/RCED-95-195, June 20, 1995). 

Purpose of, Funding for, and Views on Certain HUD Programs
(GAO/RCED-95-189R, June 20, 1995). 

Multifamily Housing:  HUD's Mart-to-Market Proposal
(GAO/T-RCED-95-230, June 15, 1995). 

Multifamily Housing:  HUD's Proposal to Restructure Its Portfolio
(GAO/T-RCED-95-226, June 13, 1995). 

Government Restructuring:  Identifying Potential Duplication in
Federal Missions and Approaches (GAO/T-AIMD-95-161, June 7, 1995). 

HUD Management:  FHA's Multifamily Loan Loss Reserves and Default
Prevention Efforts (GAO/RCED/AIMD-95-100, June 5, 1995). 

Program Consolidation:  Budgetary Implications and Other Issues
(GAO/T-AIMD-95-145, May 23, 1995). 

Government Reorganization:  Issues and Principles
(GAO/T-GGD/AIMD-95-166, May 17, 1995). 

Resolution Trust Corporation:  Management Improvements Reduce Risks,
but Transition Challenges Remain (GAO/T-GGD-95-163, May 16, 1995). 

Multifamily Housing:  Better Direction and Oversight by HUD Needed
for Properties Sold With Rent Restrictions (GAO/RCED-95-72, Mar.  22,
1995). 

Housing and Urban Development:  Reforms at HUD and Issues for Its
Future (GAO/T-RCED-95-129, Mar.  14, 1995). 

Housing and Urban Development:  Reforms at HUD and Issues for Its
Future (GAO/RCED-95-108, Feb.  22, 1995). 

Housing and Urban Development:  Reinvention and Budget Issues
(GAO/T-RCED-95-112, Feb.  22, 1995). 

Block Grants:  Characteristics, Experiences, and Lessons Learned
(GAO/HEHS-95-74, Feb.  9, 1995). 

Community Development:  Comprehensive Approaches Address Multiple
Needs but Are Challenging to Implement (GAO/RCED/HEHS-95-69, Feb.  8,
1995). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-95-11, Feb.  1995). 

Housing and Urban Development:  Major Management and Budget Issues
(GAO/T-RCED-95-89, Jan.  24, 1995 and GAO/T-RCED-95-86, Jan.  19,
1995). 

Reengineering Organizations:  Results of a GAO Symposium
(GAO/NSIAD-95-34, Dec.  13, 1994). 

Federally Assisted Housing:  Expanding HUD's Options for Dealing With
Physically Distressed Properties (GAO/T-RCED-95-38, Oct.  6, 1994). 

Rural Development:  Patchwork of Federal Programs Needs to Be
Reappraised (GAO/RCED-94-165, July 28, 1994). 

Federally Assisted Housing:  Condition of Some Properties Receiving
Section 8 Project-Based Assistance Is Below Housing Quality Standards
(GAO/T-RCED-94-273, July 26, 1994, and Video, GAO/RCED-94-01VR). 

Public Housing:  Information on Backlogged Modernization Funds
(GAO/RCED-94-217FS, July 15, 1994). 

Homelessness:  McKinney Act Programs Provide Assistance but Are Not
Designed to Be the Solution (GAO/RCED-94-37, May 31, 1994). 

Section 8 Rental Housing:  Merging Assistance Programs Has Benefits
but Raises Implementation Issues (GAO/RCED-94-85, May 27, 1994). 

Lead-Based Paint Poisoning:  Children in Section 8 Tenant-Based
Housing Are Not Adequately Protected (GAO/RCED-94-137, May 13, 1994). 

HUD Information Resources:  Strategic Focus and Improved Management
Controls Needed (GAO/AIMD-94-34, Apr.  14, 1994). 

Multifamily Housing:  Status of HUD's Multifamily Loan Portfolios
(GAO/RCED-94-173FS, Apr.  12, 1994). 

Community Development:  Block Grant Economic Development Activities
Reflect Local Priorities (GAO/RCED-94-108, Feb.  17, 1994). 

Multifamily Housing:  Status of HUD's Multifamily Loan Portfolios
(GAO/RCED-94-3, Oct.  27, 1993). 

State and Local Finances:  Some Jurisdictions Confronted by Short-
and Long-Term Problems (GAO/HRD-94-1, Oct.  6, 1993). 

Government National Mortgage Association:  Greater Staffing
Flexibility Needed to Improve Management (GAO/RCED-93-100, June 30,
1993). 

Multifamily Housing:  Impediments to Disposition of Properties Owned
by the Department of Housing and Urban Development (GAO/T-RCED-93-37,
May 12, 1993). 

HUD Reforms:  Progress Made Since the HUD Scandals but Much Work
Remains (GAO/RCED-92-46, Jan.  31, 1992). 


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