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RURAL HOUSING
SERVICE
Better Data Controls,
Planning, and
Additional Options
Could Help Preserve
Affordable Rental
Units
Report to the Subcommittee on
Agriculture, Rural Development, Food
and Drug Administration, and Related
Agencies, Committee on Appropriations,
U.S. Senate
May 2018
GAO-18-285
United States Government Accountability Office
United States Government Accountability Office
Highlights of GAO-18-285, a report to the
Subcommittee on Agriculture, Rural
Development, Food and Drug
Administration, and Related
Agencies,
Committee on Appropriations, U.S. Senate
.
May 2018
RURAL HOUSING SERVICE
Better
Data Controls, Planning, and Additional
Options
Could Help Preserve Affordable Rental Units
What GAO Found
The U.S. Department of Agriculture’s Rural Housing Service (RHS) implemented
an automated tool to estimate when properties could exit the rural rental housing
program, but RHS lacked sufficient controls to ensure the accuracy,
completeness, and timeliness of those estimates. In 2016, RHS developed its
Multi-Family Housing Property Preservation Tool to replace a manual process of
estimating exit dates. RHS data suggest that a smaller number of properties
could exit RHS’s program in the near term, but between 2028 and 2050, over 90
percent of RHS’s properties and units could exit the program (about 13,000
properties with 407,000 units). However, RHS lacked controls that would better
ensure the accuracy and completeness of these estimated exit dates, such as
the verification of key data input at mortgage origination. In addition, RHS had
not established a regular process to update the preservation tool’s underlying
data due to staff turnover and data system challenges. Without these controls,
RHS may lack assurance that is has reliable data for calculating exit dates and
initiating preservation efforts.
While RHS has taken actions to address properties with maturing mortgages,
such as offering property owners options designed to prevent property exits,
about 60 percent of properties with maturing mortgages exited the program
between 2014 through 2017. The agency’s planning efforts lacked key steps
such as (1) establishing preservation goals, (2) developing metrics for evaluating
preservation efforts, and (3) analyzing and responding to risks facing its portfolio
such as resource limits and growing capital rehabilitation needs. Without taking
these actions, RHS is not well positioned to preserve affordable housing in the
near term or when much larger numbers of properties and units could exit the
program starting in 2028. Although taking the steps above would help RHS’s
preservation efforts, some tenants may still be at risk of losing rental assistance
when mortgages mature. Accordingly, allowing RHS to renew rental assistance
after mortgage maturity could protect assisted low-income tenants from
increased rents or displacement from their units. When the Department of
Housing and Urban Development (HUD) faced a similar loss of affordable
housing subsidies, Congress authorized the department in 2011 to continue
providing rental assistance at properties after contracts expired.
Estimated Number of Rural Housing Service Properties, by State and Territory
View GAO-18-285. For more information,
contact
Daniel Garcia-Diaz at (202) 512-8678
or
GarciaDiazD@gao.gov.
Why GAO Did This Study
Under its rural housing program,
RHS provides mortgages and rental
assistance to support affordable
rental units for low-income tenants
(see figure). When these mortgages
reach the end of their terms
(mature), property owners may exit
the program; current law does not
allow RHS to continue providing
rental assistance when such exiting
occurs. As a result, tenants in
properties with mortgages that are
maturing may face rent increases or
lose their housing altogether.
GAO was asked to examine how
RHS is addressing the risks posed
by maturing mortgages. This report
examines RHS’s efforts to (1)
estimate rural housing property exit
dates and (2) preserve the
affordability of rural rental properties
with maturing mortgages. GAO
reviewed RHS mortgage loan data
and preservation documents, and
interviewed RHS officials and
industry stakeholders.
What GAO Recommends
Congress should consider granting
RHS authority to continue providing
rental assistance to tenants in
properties with maturing mortgages.
GAO is also making five
recommendations, including that
RHS improve data quality and take
steps to comprehensively plan for
preserving properties with maturing
mortgages.
We provided a draft of this
report for review and comment to RHS
and HUD. RHS agreed with all five of
GAO’s recommendations.
Page i GAO-18-285 Rural Housing Service
Letter 1
Background 3
RHS Developed a Tool That Estimates That Large Numbers of
Mortgages Will Mature Starting in 2028, and Better Controls
Could Improve Data Accuracy 7
RHS Has Taken Steps to Address Properties with Maturing
Mortgages, but Lacked Comprehensive Planning and Faces
Statutory Constraints That Limit Preservation 15
Conclusions 25
Matter for Congressional Consideration 26
Recommendations for Executive Action 26
Agency Comments 27
Appendix I Objectives, Scope, and Methodology 29
Appendix II Number of Properties and Units That Could Exit the Rural Housing
Service’s Program Between 2017 and 2050 33
A
ppendix III GAO Contact and Staff Acknowledgments 35
Table
Table 1: Rural Housing Service Rental Properties That Exited the
Program between 2014 and 2017 19
Figures
Figure 1: Estimated Number of Rural Housing Service Rental
Properties, Total Units, and Units with Rental Assistance,
by State 6
Figure 2: Estimated Number of Rural Housing Service Rental
Properties and Units That Could Exit RHS’s Program
between 2017 and 2050, by Year 9
Figure 3: Estimated Number of Rural Housing Service Rental
Properties with Mortgages Eligible for Prepayment
between 2017 and 2050, by State 11
Contents
Page ii GAO-18-285 Rural Housing Service
Figure 4: Overview of Rural Housing Service’s Options to
Preserve the Access to and Affordability of Properties for
Low-Income Tenants 18
Abbreviations
AMAS Automated Multi-Family Housing Accounting
System
HUD U.S. Department of Housing and Urban
Development
MFIS Multi-Family Information System
Preservation Tool Multi-Family Housing Property Preservation Tool
RAD Rental Assistance Demonstration
RHS Rural Housing Service
USDA U.S. Department of Agriculture
This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.
Page 1 GAO-18-285 Rural Housing Service
441 G St. N.W.
Washington, DC 20548
May 17, 2018
The Honorable John Hoeven
Chairman
The Honorable Jeff Merkley
Ranking Member
Subcommittee on Agriculture, Rural
Development, Food and Drug
Administration, and Related Agencies
Committee on Appropriations
United States Senate
The U.S. Department of Agriculture’s (USDA) rural rental housing
program was created in the 1960s and 1970s to help provide funding for
the development of affordable multifamily rental properties.
1
Through the
department’s Rural Housing Service (RHS), USDA has provided
mortgage loans (mortgages), interest subsidies, and rental assistance for
more than 14,000 properties with 400,000 units of affordable rental
housing for low- and very-low income rural tenants, including vulnerable
residents such as the elderly and people with disabilities.
Some of RHS’s oldest rural rental mortgages have begun to mature—that
is, reach the end of their repayment schedules, at which point they could
exit the affordable housing program. Property owners whose RHS
mortgages have matured are no longer required to provide housing to
low-income tenants and no longer receive RHS rental assistance, which
covers the difference between the tenant’s contribution and the unit’s
rent. As a result, tenants in properties whose mortgages have matured
may no longer be able to afford their rents. RHS has therefore identified
1
USDA’s rural rental housing program consists of its Section 514 Farm Labor Direct Loans
program (including both off-farm and on-farm farm labor housing), Section 515 Multi-
Family Housing Direct Loans program, and Section 521 Rental Assistance Program. The
Housing Act of 1961 added Section 514 to the Housing Act of 1949 (42 U.S.C. §1484).
For off-farm labor housing, a Section 514 loan can be combined with a grant authorized
under Section 516 of the Housing Act of 1949 (42 U.S.C. §1486). The Senior Citizens
Housing Act of 1962 amended the Housing Act of 1949 by adding Section 515 (42 U.S.C.
§1485). In 1974, Section 521 of the Housing Act of 1949 was amended to authorize rental
assistance (42 U.S.C. § 1490a).
Letter
Page 2 GAO-18-285 Rural Housing Service
ways to preserve affordable housing for tenants in properties with
maturing mortgages.
2
You asked us to examine what information RHS has on rural rental
housing maturing mortgages and the extent to which RHS has tools and
strategies to preserve those properties. This report examines RHS’s
efforts to (1) estimate the dates that properties may exit the rural rental
housing program due to mortgage maturity and (2) preserve the
affordability of rural rental properties with maturing mortgages.
To examine RHS’s efforts to estimate property exit dates, we analyzed
RHS documentation and interviewed RHS officials about the data the
agency uses to identify and preserve properties with maturing mortgages.
To assess the accuracy and completeness of data used to determine
property exit dates, we reviewed and analyzed two different types of data.
First, we analyzed a stratified random sample of RHS mortgage loan
documents in five selected states—California, Illinois, Minnesota,
Pennsylvania, and Virginia. We selected these states based on their
geographic diversity and number of rural rental properties, and because
they had a high number of mortgages nearing maturity. Second, we
reviewed and assessed the underlying data the agency uses to estimate
property exit dates. To assess the reliability of these data, we reviewed
RHS documentation, tested the data for missing or erroneous values, and
interviewed RHS officials. As discussed later in this report, we identified a
selected number of errors in the data for the sample of RHS mortgage
documents and underlying data that we reviewed. However, we
determined the data we used were sufficiently reliable for purposes of
estimating the number of properties, units, and units with rental
assistance that could exit the rural rental housing program between 2017
and 2050, and for properties that are eligible to prepay their mortgages.
To examine steps RHS has taken to preserve properties with maturing
mortgages, we reviewed RHS guidance and documentation on the
agency’s options for preventing properties from exiting the program. In
addition, we interviewed RHS national and state officials about what tools,
resources, and plans were in place for addressing maturing mortgages
and rehabilitating properties. We also interviewed officials from a
judgmental sample of rural housing industry organizations that we
2
For the purposes of this report, preservation refers to steps RHS has taken to keep rural
rental housing affordable for low-income tenants.
Page 3 GAO-18-285 Rural Housing Service
selected by identifying stakeholders that represented a diverse range of
roles in the rural housing industry including: developers, borrower and
tenant advocacy organizations, and organizations advocating for the
retention or expansion of affordable housing. To determine how other
agencies approached expiring rental assistance contracts and low-
income housing preservation, we reviewed past GAO reports and
interviewed officials from the Department of Housing and Urban
Development. Appendix I describes our objectives, scope, and
methodology in greater detail.
We conducted this performance audit from May 2016 to May 2018 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Mortgages under RHS’s program can be used to build, acquire, and
rehabilitate rental housing in rural areas and are generally 30-year loans
with 50-year amortization periods and include subsidized interest rates as
low as 1 percent.
3
To help finance housing projects and keep rents
affordable to low-income tenants, RHS offers rental assistance subsidies
to some property owners, which cover the difference between the tenant’s
contribution and a unit’s rent.
4
The rental assistance program, authorized in 1974, provides the rental
subsidies through agreements with property owners for an amount
estimated to last for 1 year as required under the program’s
3
According to RHS officials, Section 515 loan terms were 40 to 50 years until 1997, at
which time the term was changed to 30 years with loan amortization extending to 50 years
in order to reduce the monthly loan payment for borrowers. At the end of the 30-year term,
owners may need to pay a balloon payment to cover the remaining balance of the loan or
reamortize the loan. Unlike Section 515 direct loans, Section 514 direct loans have
repayment terms of 33 years.
4
The rental assistance program is authorized by Section 521 of the Housing Act of 1949,
as amended (42 U.S.C.1490a). See GAO, Rural Housing Service: Additional Actions
Would Help Ensure Reasonableness of Rental Assistance Estimates, GAO-17-725
(Washington, D.C.: Sept. 13, 2017) for additional information on RHS’s rental assistance
program.
Background
Page 4 GAO-18-285 Rural Housing Service
appropriations acts.
5
Eligible tenants pay no more than 30 percent of their
income toward the rent, and RHS pays the balance to the property owner.
Tenants must be low-income (incomes above 50 percent of area median
income but not more than 80 percent of area median income) or very-low-
income (with incomes not more than 50 percent of area median income)
to be eligible for rental assistance. The agreements with the owners
expire when the original dollar amount obligated is fully expended.
Agreements specify that owners will receive payments on behalf of
tenants in a designated number of units at the property. In addition,
property owners must certify tenants’ incomes annually or when a tenant
experiences a substantial change in income. Statutorily, rental assistance
is tied to RHS loans for rural rental housing and is no longer provided to
property owners once mortgages mature.
The program supports five general types of rural rental housing projects—
family; elderly (units may be occupied by an income-eligible household
that includes a tenant or co-tenant who has a disability or is age 62 or
older, or both); mixed (project has both family and elderly units);
congregate housing (project may be occupied by income-eligible elderly
households that need meals or other services); and group homes (may
be occupied by income-eligible elderly persons or individuals with
disabilities who share living space within a rental unit).
Properties with RHS rental housing mortgages can exit the program in
three ways—foreclosure, prepayment, and natural maturity of the
mortgage. When an owner defaults on loan payments and the property is
foreclosed, it may exit RHS’s program.
6
Properties can also exit the
program when loans mature naturally, meaning the loan is paid off as
scheduled by the original loan term. Loans can also be prepaid, meaning
payments are made ahead of schedule, which ends the loan term early.
Only those loans made on or after December 15, 1989, are ineligible to
prepay. As previously noted, once a property exits RHS’s program,
owners are generally no longer required to provide housing for low-
5
The length of agreements has changed over time. According to RHS officials, RHS
issued 20-year agreements from the program’s inception through fiscal year 1982, 5-year
agreements during fiscal years 1983–2003, 4-year agreements in fiscal years 2004–2006,
and a combination of 1- and 2-year agreements in fiscal year 2007. Officials said RHS has
issued 1-year agreements since fiscal year 2008.
6
If a project that is subject to restrictive use provisions is sold to a purchaser who will not
operate the property as a Section 515 or Section 514 property, the agency has no means
to continue to enforce the restrictive use provisions after the sale is finalized.
Page 5 GAO-18-285 Rural Housing Service
income tenants and properties are no longer eligible to receive rental
assistance that is used to keep rents affordable for tenants.
Some owners that are reaching the end of their RHS mortgage terms may
wish to exit the program. Other owners may wish to remain in the
program and continue renting to low-income tenants. RHS has offered
tools and incentives to help owners stay in the program and preserve the
affordability of rural rental housing. Some of these tools involve extending
mortgage terms, which extends the availability of rental assistance to
properties.
RHS’s June 2017 data showed that the program had approximately
14,000 properties containing 427,000 rental units. Of these,
approximately 12,000 properties (85 percent) and 282,000 units (66
percent) received rental assistance.
7
According to RHS, the agency has
not financed any new rental housing properties since 2011. Instead, RHS
has generally used program funding to repair and rehabilitate existing
program properties.
RHS properties are geographically dispersed, but one-quarter of the RHS
program, or about 3,500 properties, was concentrated in six states as of
June 2017: Texas (670 properties); Missouri (609); North Carolina (595);
Michigan (564); Illinois (534); and Minnesota (509) (see fig. 1). Appendix
II provides data in table form for RHS properties, units, and units with
rental assistance.
7
As of April 2018, RHS’s most recent data on properties with maturing mortgages were
data from June 2017.
Page 6 GAO-18-285 Rural Housing Service
Figure 1: Estimated Number of Rural Housing Service Rental Properties, Total Units, and Units with Rental Assistance, by
State
1 to 100 properties
101 to 200
201 to 300
301 to 400
401 to 500
More than 500
Sources: GAO analysis of Rural Housing Service data. | GAO-18-285
AK
HI
PR
GU
VI
35
292
185
167
64
83
115
515
670
28
98
16
1
Properties
Properties map
130
54
129
104
134
267
189
373
333
289
249
340
306
375
431
428
509
564
534
469
408
609
439
489
451
429
414
370
595
245
207
297
MA - 66
CT - 65
RI - 12
NJ - 90
DE - 51
MD - 149
VT - 120
NH - 84
Interactive Graphic
Hover over states for details. Click menu to the right for different maps.
Housing units map
Housing units with
rental assistance map
Page 7 GAO-18-285 Rural Housing Service
RHS’s Multi-Family Housing Portfolio Management Division and the Multi-
Family Preservation-Direct Loan Division administer USDA’s rural rental
housing loan program.
8
RHS’s national office also maintains the
Automated Multi-Family Housing Accounting System (AMAS) and Multi-
Family Information System (MFIS) databases, develops program policy,
and oversees management of the program. RHS state offices administer
the day-to-day operations of the rural rental housing program, including
entering key mortgage and project information contained in hard copy
mortgage closing documents into the AMAS and MFIS databases.
9
In March 2016, RHS developed the Multi-Family Housing Property
Preservation Tool (preservation tool), an electronic system designed to
use data from AMAS and MFIS to estimate mortgage maturity and
property exit dates and to calculate new dates that may result from RHS’s
preservation efforts. Before introducing the preservation tool in 2016,
RHS officials manually calculated exit dates for rural rental properties, a
8
According to RHS officials, the Multi-Family Preservation-Direct Loan Division is tasked
with providing underwriters for loans and leads the agency’s preservation efforts. The
division also manages loan prepayment requests.
9
AMAS, which is the system of record implemented in 1985 that is used to record loan
level data, contains housing and financial data on RHS properties. MFIS tracks property
and tenant information and, for the purpose of managing properties with maturing
mortgages, includes information on property location. If RHS is able to preserve the
affordability of rural rental housing properties through extending loan terms, for example,
these systems would help track the extensions and RHS would calculate new mortgage
maturity and property exit dates.
RHS Developed a
Tool That Estimates
That Large Numbers
of Mortgages Will
Mature Starting in
2028, and Better
Controls Could
Improve Data
Accuracy
RHS Developed a Tool to
Estimate Property Exit
Dates
Page 8 GAO-18-285 Rural Housing Service
process that was subject to errors and inconsistencies due to properties
with multiple mortgages and mortgages that could be prepaid. AMAS and
MFIS track loan closing dates; loan amounts; interest rates; and property
location, among other information, but were not designed to estimate
property exit dates.
According to RHS officials, the preservation tool and the underlying data it
uses are publicly accessible via the Internet and are intended to improve
program transparency and help support the agency’s preservation
efforts.
10
Users can search for the date a property began operating; total
number of units; units receiving RHS rental assistance; mortgage amount
and interest rate; mortgage prepayment eligibility; and property exit date
estimates, among other information. The preservation tool enables RHS
to look at trends in property exits across years and help determine when
RHS will need to take preservation actions. As of April 2018, RHS had
estimated property exit data available from 2017 to 2050, but not
information on properties whose mortgages may mature in 2051 or
beyond. RHS officials said that data will be released publically on its
website when available.
Our analysis of data used by the preservation tool showed that
approximately 900 properties (6 percent of the program’s portfolio),
including 20,000 units (5 percent), will have maturing mortgages and
could exit the program between 2017 and 2027. Industry stakeholders
said that low-income tenants living in these properties could face
escalating rents or lose their housing altogether. In addition, over 13,000
properties (94 percent) and about 407,000 units (95 percent) are
estimated to have mortgages that will mature between 2028 and 2050
(see fig. 2).
11
10
See
https://public.tableau.com/profile/greg.steck7461#!/vizhome/USDARuralDevelopmentMulti
-FamilyHousing/Overview for the preservation tool and link to the underlying data
download. Rural Housing Service, Preservation Tool underlying data link, accessed
February 5, 2018, https://www.rd.usda.gov/files/MFH_Property_Public_No_PII.xlsx.
11
We analyzed RHS’s publicly-available website data by sorting and counting the number
of properties estimated to exit in each year between 2017 and 2050 and where they are
located based on the state included in each property’s address information.
RHS Data Show a
Significant Increase in
Maturing Mortgages after
2027
Page 9 GAO-18-285 Rural Housing Service
Figure 2: Estimated Number of Rural Housing Service Rental Properties and Units That Could Exit RHS’s Program between
2017 and 2050, by Year
Our analysis of RHS’s June 2017 data, the most recent data available,
also showed that 35 percent of RHS’s rural rental properties (4,944 out of
14,075 properties) have mortgages that are eligible for prepayment and
could exit the RHS program ahead of their original mortgage maturity
date. This earlier exit could cause tenants to face rent increases or
search for alternative affordable housing earlier than expected (see fig.
3). According to RHS, if an owner prepays and a property exits the RHS
program, rental assistance is no longer available to assist that property’s
Page 10 GAO-18-285 Rural Housing Service
tenants. Concerns about the loss of affordable units led Congress to
enact legislation that precluded prepayment for loans made on or after
December 15, 1989.
12
For those properties that are eligible for
prepayment, RHS officials said they cannot predict which owners might
make this choice and the agency has not been collecting data on
borrower’s prepayment choices. As a result, outreach to these owners is
particularly important for possible preservation of affordable housing.
12
Pub. L. No. 101-235, § 206, 103 Stat. 1987, 2041 (1989), codified, as amended, at 42
U.S.C. § 1472(c)(1)(B).
Page 11 GAO-18-285 Rural Housing Service
Figure 3: Estimated Number of Rural Housing Service Rental Properties with
Mortgages Eligible for Prepayment between 2017 and 2050, by State
Page 12 GAO-18-285 Rural Housing Service
Our review identified three internal control shortcomings that could impact
the accuracy, completeness, and timeliness of RHS’s data on properties
with maturing mortgages.
First, RHS lacks sufficient controls to help ensure the accuracy of all loan
information for each mortgage at the time of initial data entry because it
only retroactively reviews a sample of loan document information entered
into AMAS and MFIS. Although RHS staff reviews some loan information
through the agency’s State Internal Review process, officials noted that
the review of mortgage data entered into AMAS and MFIS only occurs for
each field office at least once every 5 years and includes a step for staff
to review and reconcile AMAS information with loan documents to help
ensure the accuracy of RHS debt instruments.
13
RHS officials added that
they improved the guidance in October 2017 by adding specific data
checks intended to help ensure that loan amount, interest rate, and
amortization period information were correct. In addition, during our
review of RHS’s rural rental housing loan documents, we identified
mismatches between loan document information and the data in AMAS
and MFIS used by the preservation tool. We found errors in the data on
mortgage amounts, closing dates, and repayment periods in an estimated
3 percent to 5 percent of the properties in five states we examined.
14
While the data we reviewed had limited errors, without appropriate
internal controls, RHS cannot be assured that the data that is used by the
preservation tool will be reliable in the future, and the mismatches
suggest that RHS could improve how data are entered into AMAS and
MFIS.
13
According to Rural Development Instruction 2000-M (05-19-04), State Internal Reviews
are comprehensive evaluation reviews of the delivery of programs and administrative
functions in field offices and centralized program functions within the state. According to
RHS officials, the state director has discretion to conduct more frequent reviews if staff
suspects data weaknesses, changes in personnel occur, or loan information discrepancies
occur in the initial sample of loans chosen for review.
14
RHS staff enters information from loan documents for RHS’s rural rental housing into
AMAS and MFIS. The preservation tool draws information from AMAS and MFIS to
estimate when mortgages will mature and when properties could exit the RHS program.
Our review of loan documents included selecting a stratified random sample of 100
properties in California; Illinois; Minnesota; Pennsylvania; and Virginia. Our results are
limited to the states we inspected and cannot be generalized to other states, which may
have different error rates. The estimated percentages are projections (generalizations) to
all properties in the five states we included in our review. Estimated data entry error rates
are based on the results of our review of loan documents from a stratified random sample
of 100 properties selected from the 2,151 properties in the five states. The upper bounds
of the 95 percent confidence intervals for these estimates do not exceed 12 percent.
Better Controls Could
Improve the Accuracy and
Utility of Maturing
Mortgage Data
Page 13 GAO-18-285 Rural Housing Service
According to RHS officials, these systems were not designed to estimate
the expected maturity of rural rental housing mortgages. At the time of the
systems’ development, officials said that it was not a priority to build in
controls to ensure the accuracy of such estimates. RHS officials said that
rural rental housing mortgages would not mature for many years after
they were originated. As a result, RHS did not create controls intended to
ensure the accuracy of data related to mortgage maturity and did not
prioritize establishing a process to check that data.
Federal internal control standards state that management is responsible
for designing control activities for information systems and information
processing objectives to support the completeness, accuracy, and validity
of information processing.
15
Without these controls, mortgage information
used by the preservation tool to estimate property exit dates may be
inaccurate and could affect the reliability of exit date estimates needed to
identify properties for possible preservation.
Second, RHS lacked controls to check the accuracy and completeness of
underlying data used by the preservation tool. When we examined the
underlying data the preservation tool uses to estimate property exit dates,
we observed missing (blank) values for some property address; property
state; borrower address; and management company name information.
For example, borrower address and property address were missing for
588 and 141, respectively, of the roughly 14,000 properties. In addition,
some properties in RHS’s data included estimated property exit dates but
contained incomplete information (“N/A” designations) for key variables
such as property name; property address; property state; number of units;
and type of housing.
Although RHS has been developing and implementing the preservation
tool since 2016 and has made the preservation tool’s exit date estimates
available on its website, the agency has not yet developed a control
process to identify potential issues with its underlying data. As noted
above, federal internal control standards require activities to help ensure
the completeness, accuracy, and validity of program information. Without
information that has been checked for accuracy, RHS might not be
assembling the most complete and accurate information with which to
estimate exit dates and begin possible preservation of rural rental housing
15
GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: Sept. 10, 2014).
Page 14 GAO-18-285 Rural Housing Service
for low-income tenants. In addition, RHS is missing an opportunity to
improve data on properties with maturing mortgages and be better
positioned to address those properties to protect low-income tenants.
Third, the agency has not developed a regular, timely process for
updating the preservation tool’s underlying data and exit date information.
Since RHS developed the tool in March 2016, RHS updated the
underlying data for September and December 2016 and June 2017 but
not for 2018. RHS staff said the data were intended to be updated
quarterly because information that affects exit date calculations changes
as RHS preserves rural rental housing or properties exit the RHS
program. However, RHS officials said that they have been unable to
update the preservation tool quarterly due to staff attrition and competing
program demands across RHS.
Federal internal control standards require activities to help ensure the
accuracy and validity of program information. For RHS’s information to be
accurate and valid, it needs to be as current as possible for program
management purposes. Since the mortgage maturity dates of properties
are affected by RHS’s preservation options and the exit dates of
properties can change over time as mortgages mature, it is critical for
RHS to have accurate, complete, and timely rural rental housing
information.
Without controls to help ensure that RHS, industry stakeholders, and the
public have the most recent data available, they might not have the most
current information that could be used for estimating property exit dates
and starting preservation.
Page 15 GAO-18-285 Rural Housing Service
While RHS has taken steps to address properties with maturing
mortgages, such as identifying various options and incentives intended to
preserve the affordability of properties for low-income tenants, a majority
of properties with maturing mortgages from 2014 to 2017 have exited
RHS’s rural rental housing program. Moreover, RHS has not taken
important steps to comprehensively plan and prepare for the much larger
number of potential property exits in future years, such as developing
goals and metrics to assess the effectiveness of its preservation efforts
and analyzing risks to its ability to preserve properties. While taking these
steps would help RHS’s preservation efforts, some tenants may still be at
risk of losing rental assistance when mortgages mature because RHS
cannot continue to provide rental assistance. RHS also cannot provide
vouchers to tenants residing in properties whose mortgages have
matured.
In addition to developing the preservation tool as a first step in preserving
properties with maturing mortgages, RHS officials said they
commissioned two studies on the impacts of maturing mortgages to
advance the agency’s understanding of key issues. Officials said they
hoped the two studies would help the agency prepare for maturing
mortgages. In September 2016, the Housing Assistance Council
completed its first study for RHS, which identified the characteristics of
RHS’s rural housing program and the impact that maturing mortgages
may have on tenants and geographic regions.
16
The report noted that
understanding these characteristics and effects is important for planning
and implementing strategies to preserve the properties. According to
officials, the second study, which was under review by the agency as of
December 2017, was intended to outline issues facing RHS’s multifamily
housing program, such as the estimated $5.6 billion needed to
rehabilitate properties program-wide, and possible policy solutions for
addressing potential property exits.
17
16
Housing Assistance Council, USDA Rural Rental Housing Portfolio: The Early
Implications of Maturing Mortgages (Washington, D.C.: September 2016). The Housing
Assistance Council is a national nonprofit organization based in Washington, D.C., that
provides technical housing services; financial products; housing program and policy
assistance; research; and training and information services to public, nonprofit, and
private organizations focusing on providing affordable housing to low-income rural
families.
17
CoreLogic and RSM US LLP, USDA Rural Development Multi-Family Housing
Comprehensive Property Assessment (McLean, VA., and Irvine, Calif.: Mar. 1, 2016).
RHS Has Taken
Steps to Address
Properties with
Maturing Mortgages,
but Lacked
Comprehensive
Planning and Faces
Statutory Constraints
That Limit
Preservation
RHS has Taken Steps to
Preserve Properties with
Maturing Mortgages with
Limited Success to Date
Page 16 GAO-18-285 Rural Housing Service
RHS has offered property owners several options to prevent property
exits and preserve the access to and affordability of housing for low-
income tenants (see fig. 4).
• Reamortization: Loan reamortization and a shortened reamortization
process (known as “Re-Am Lite”) allow borrowers to repay
outstanding loan balances over new, longer repayment periods. By
extending the term of the loan, officials said that the agency can
continue providing rental assistance to that property. Re-Am Lite does
not require borrowers to have their properties appraised, which
officials said can shorten the reamortization application process by 60
to 90 days.
• Deferral: Borrowers can defer repayment of direct loans for up to 20
years. This prevents property exits and preserves affordability for low-
income tenants by continuing the payment of rental assistance to
property owners.
18
Loan deferrals can be offered under the Multi-
Family Housing Preservation and Revitalization program. This 12-
year-old demonstration program offers a combination of property
rehabilitation funding and the opportunity for owners to reamortize or
defer loan payments to help keep rents affordable.
19
Officials said the
program can also be used to attract new owners who wish to stay in
the affordable housing program by offering a funding source for
property rehabilitation.
20
18
Loan payment deferral is typically allowed under the Multi-Family Housing Preservation
and Revitalization demonstration, which is described in more detail below. The
demonstration caps payment deferral at 20 years.
19
The Multi-Family Housing Preservation and Revitalization demonstration was initially
authorized by the fiscal year 2006 Agriculture Appropriations Act, Pub. L. No. 109-97, 119
Stat. 2120, 2138 (2005), and has since been reauthorized through annual appropriations
acts. See, e.g., Pub. L. No. 115-31, 131 Stat. 135, 153 (2017). At the start of the program,
the average age of a project with a Section 515 loan was 28 years and much of the RHS
program needed revitalization. The purpose of the MPR demonstration is to ensure that
existing rental projects provide decent affordable rental housing over the remaining term
of any RHS loan or the remaining term of any existing restrictive use provisions,
whichever ends later.
20
Funding for the Multi-Family Housing Preservation and Revitalization program is
appropriated annually, but remains “available until expended,” that is, does not need to be
obligated by the agency during the same funding year. RHS can hold funding in reserve in
order to fund projects larger than the agency’s annual appropriation for the program. RHS
received the following fiscal year appropriations for its Multi-Family Housing Preservation
and Revitalization demonstration: about $18 million in 2013; $20 million in 2014; $17
million in 2015; $22 million in 2016; and $22 million in 2017.
Page 17 GAO-18-285 Rural Housing Service
• Prepayment Offer: If borrowers decline RHS’s options that extend
loan terms (reamortization, Re-Am Lite, and deferral), but wish to
remain in the RHS portfolio, the agency encourages property owners
to submit a request to prepay their mortgage, if eligible to do so and if
their mortgages are 12 or more months from maturity. After an owner
submits a prepayment request, RHS is authorized to offer owners
incentives to avert prepayment. These incentives include increased
returns on investment to for-profit owners, additional rental assistance
units, and equity loans.
21
• Prepayment: If borrowers decline RHS’s options, the agency
encourages property owners to prepay their loans. While owners who
prepay would no longer have rural rental housing loans with RHS or
be eligible to receive rental assistance from the agency, prepayment
of a loan allows RHS to provide vouchers to tenants affected by the
loss of affordable housing. According to RHS data, only about 5,000
of the 14,000 properties within RHS’s multifamily housing program are
eligible to prepay loans.
• Transfer: RHS has taken steps to facilitate the sale (transfer) of
properties to new owners to prevent property exits. Officials described
this as a key preservation tool because new RHS mortgage terms
typically accompany the sale and allow for rental assistance to
continue at properties where applicable.
22
First, the agency
established a more centralized and standardized transfer process
based on input from developers, owners, and other stakeholders,
which officials say reduced the average property transfer time from
156 to 112 days. Second, RHS maintains a spreadsheet available on
the agency’s website, called the Preliminary Assessment Tool, which
officials said streamlines and provides greater transparency to the
property transfer process for potential buyers and sellers. The agency
also hosted three conferences in 2016 designed to help find new
buyers for RHS properties whose owners were seeking to sell their
21
RHS can offer for-profit owners increased returns on investment in exchange for
continuing their mortgage and remaining within RHS’s program. RHS officials described
this as an incentive for properties to stay in the program and keep properties affordable
instead of leaving it for potentially higher profits in the private market. Providing additional
rental assistance for a property owner’s units is another incentive. Additional rental
assistance can increase occupancy rates at a property by making it affordable to more
low-income residents. RHS may also offer equity loans directly to property owners as an
incentive to prevent property exits. These loans can be used at the discretion of the
property owners and are therefore attractive to owners whose properties may face
revitalization or other needs.
22
Some RHS properties do not have rental assistance contracts.
Page 18 GAO-18-285 Rural Housing Service
properties.
23
Finally, in September 2016, RHS announced a 2-year
pilot program to encourage nonprofit organizations to purchase rural
rental properties with maturing mortgages, which could create new
loan terms that would extend the repayment period and continue the
properties’ affordability. Prior to the pilot, nonprofit owners were not
required to make an initial equity contribution to projects and therefore
could not earn any return on investment. Under the pilot, loan
transfers to nonprofits would allow nonprofits to earn returns on their
own resources initially invested in the property.
Figure 4: Overview of Rural Housing Service’s Options to Preserve the Access to and Affordability of Properties for Low-
Income Tenants
23
The conferences were held in French Lick, Indiana; Charlotte, North Carolina; and Des
Moines, Iowa.
Page 19 GAO-18-285 Rural Housing Service
Despite the preservation options and incentives identified by RHS, 61
percent (148 of 244) of the properties with mortgages that matured
between January 2014 and December 2017 exited the agency’s rural
rental housing program (see table 1). Some industry stakeholders said
that options and incentives did not adequately or broadly appeal to
property owners. They added that existing options and incentives would
be used primarily by owners who have no other choice but to stay in the
program. Stakeholders explained that owner choice might be limited
because of the condition of their property or because their property is
located in a market that would not accommodate the sale of a property or
rent increases to market levels. Some stakeholders also said options that
extend loan terms only offer a short-term solution to preservation
challenges because mortgages cannot be extended indefinitely.
Table 1: Rural Housing Service Rental Properties That Exited the Program between
2014 and 2017
Properties with
maturing mortgages
Properties that have exited due
to mortgage maturity
Calendar year
Total
Total
Percent
2014
14
10
71
2015
62
39
63
2016
80
46
58
2017
88
53
60
Total
244
148
61
Source: GAO analysis of RHS data. GAO-18-285.
RHS’s efforts lacked a number of important steps that would better
position the agency to preserve properties. First, RHS lacked
documented goals for preserving its program and has not created
measures for tracking progress toward those goals. In the absence of
documented goals, RHS national officials stated that the agency’s goal is
to preserve all properties within its program that are needed to ensure
sufficient affordable housing, though they acknowledged that current
resource levels would preclude that possibility and that some owners may
leave the program regardless of the options the agency offers.
Second, RHS is not monitoring and assessing options and incentives it is
providing in a way that would inform or improve the use of these options.
While the agency can track preservation status—meaning whether a
property is still within the program or not—through its preservation tool
discussed above, it is not actively tracking preservation outcomes. RHS is
RHS Has Not
Comprehensively Planned
to Preserve Properties
with Maturing Mortgages
Page 20 GAO-18-285 Rural Housing Service
also not systematically collecting data for monitoring purposes. RHS
officials said agency databases contain variables that would show which
options owners choose to use, but added that this information is not
available in a single source. RHS is also not collecting information that
would help them assess options. For example, the agency is not
collecting information from property owners on what options and
incentives appeal to them. This information would help the agency assess
preservation options on how well they are being received by borrowers.
Similarly, RHS is not monitoring the results of efforts to preserve
properties, including information on how many properties were transferred
as a result of its three buyers-sellers conferences.
Finally, RHS has not fully analyzed or responded to the risks facing its
rural rental housing program, such as the following:
• Owner behavior—RHS officials told us a key risk to preserving its
rural rental housing program is that the agency cannot predict whether
owners will choose to leave the program or stay. To help respond to
this risk, the agency directed staff to notify owners 3 years in advance
that their loan is maturing and that options are available for preserving
the property within the program. While this window could provide RHS
with the time to plan for property exits, RHS is not collecting
information from owners on why they may choose to exit rather than
stay in the affordable housing portfolio. The agency’s effort to predict
owner behavior would be aided by collecting and analyzing data on
how many owners choose to leave the program and why.
• Resource constraints—During a May 2017 conference, a senior RHS
official highlighted the issue of agency resource constraints for
addressing maturing mortgages, saying that the agency does not
have the ability or the financial resources to preserve all of the
properties that could leave the program once the loans mature. RHS
has also acknowledged that, even at lower levels of about 80
maturing mortgages each year, the agency does not have the
resources to provide all preservation options to every owner who
wishes to use them. RHS has also not analyzed or planned for how it
would prioritize the use of limited resources. RHS national office
officials said there is some guidance that could be used by state
offices to prioritize the use of resources, but this guidance was not
specific to addressing maturing mortgages and was in the process of
being updated to include information that could be used to help
prioritize limited resources for preserving properties. That update is
expected by January 2019.
Page 21 GAO-18-285 Rural Housing Service
• Management of maturing mortgages—RHS has not analyzed or
responded to risks involving staff management of maturing
mortgages. For example, the agency’s national office said that staff
attrition and turnover in the national, state, and field offices that
manage mortgages have resulted in fewer staff managing its program
in general and that they were not sure what the effect of maturing
mortgages would have on staff workloads. RHS staff in some of the
states we visited expressed concern that workloads are already heavy
and that any increase caused by maturing mortgages, including
smaller numbers occurring now, might affect their ability to be
responsive to program needs. Similarly, some state office staff
expressed concerns that they were not trained for managing and
responding to properties with maturing mortgages and needed
additional guidance from the national office. RHS national office
officials said that while the agency does not provide training specific to
maturing mortgages, it does provide training on loan servicing, which
includes the use of preservation options, and the national office
conducts monthly conference calls that all state offices participate in,
which have included maturing mortgages as a topic and which can be
used to answer staff questions about maturing mortgages.
• Rehabilitation Costs—RHS has commissioned two studies on the
risks that program-wide rehabilitation costs pose to its ability to
preserve its program, but has not analyzed or planned for how it
would address the estimated $5.6 billion needed to rehabilitate its
aging portfolio of properties. Officials said that they have met with
industry stakeholders and Congress about capital needs estimates,
but no additional steps such as requesting additional funding were
taken. Officials added that federal budget uncertainties caused by
years of continuing resolutions and a sequestration have made
planning for maturing mortgages and program-wide rehabilitation
more difficult. However, RHS has been aware of growing rehabilitation
needs since at least 2004, when the agency released a commissioned
study that said capital needs program-wide would continue to
increase and cost more if not addressed.
24
Federal internal control standards call for agencies to define objectives in
specific and measurable terms to enable management to identify,
analyze, and respond to risks related to achieving those objectives.
Specifically, these standards call for agencies to establish goals and
24
The two studies commissioned by RHS are the CoreLogic and RSM US LLP report
previously sited, and ICF Consulting, Rural Rental Housing: Comprehensive Assessment
and Portfolio Analysis (Fairfax, VA.: November 2004).
Page 22 GAO-18-285 Rural Housing Service
performance measures for tracking progress toward achieving goals;
establish activities that monitor performance and assess results so that
appropriate action is taken; and identify, analyze, and respond to risks
related to achieving their goals.
RHS officials said that, as of December 2017, they had not taken steps to
develop goals and measures, perform key monitoring and assessments,
and analyze and respond to risks because the larger number of potential
property exits is not expected to begin for another 10 years (2028). RHS
officials said that they were using this time to see how their existing
options and resources perform, and that the agency would make resource
and other adjustments over time as they gained experience with
preservation. However, as discussed above, mortgages have already
begun to mature and the majority of properties with maturing mortgages
between 2014 and 2017 exited the agency’s rural rental housing program.
Some property owners may have chosen to exit the program regardless
of additional actions or incentives. For example RHS officials noted that
many of the property owners whose mortgages are currently maturing are
nearing retirement or prefer market returns to RHS’s options and
incentives. However, the percentage of exits (61 percent) suggests that
RHS’s current planning efforts have not proven sufficient to prevent the
majority of properties with mortgages that have matured from exiting its
rural housing program.
By not having taken the planning steps identified above, RHS is not well
positioned to respond to properties that currently have maturing
mortgages and require action, nor is the agency prepared for the future
larger number of potential property exits that starts in 2028. In particular,
without developing goals and measures, conducting sound monitoring
and assessments of rural rental housing program developments, and
analyzing and responding to risks, RHS may not have the key
information, staff, tools, and resources in place to effectively preserve
properties and prevent the financial hardship that increasing housing
costs could cause rural low-income tenants or the loss of their housing
altogether.
Page 23 GAO-18-285 Rural Housing Service
RHS has options to extend loan terms in order to continue rental
assistance at properties but cannot continue providing rental assistance
to tenants once the loan is paid off and the property exits RHS’s
affordable housing program.
25
Some owners of properties with maturing
mortgages may be open to continue offering rental assistance and agree
to restrict the units to eligible low-income tenants after mortgage maturity.
Further, some industry stakeholders cited that having the ability to extend
existing rental assistance contracts after mortgage maturity would be
useful in protecting tenants from rent increases or displacement.
However, in some cases, property owners may not want to extend rental
assistance contracts after mortgage maturity. Tenants living in these
properties could be subject to rent increases or the risk of displacement.
RHS lacks the authority to provide vouchers to tenants in these situations.
Voucher assistance would allow RHS to provide assistance to the tenants
to help pay for rent in their existing unit or at other rental housing in the
private market without requiring the owner to serve low-income tenants
exclusively.
In 2016, legislation was introduced that would have allowed RHS to
continue providing rental assistance to properties through new contracts
with owners after their loans matured or to provide vouchers to tenants
under different circumstances, including mortgage maturity.
26
In exchange
for accepting rental assistance payments on behalf of eligible tenants, the
legislation would have required the property owners to enter into an
agreement with RHS to ensure that the property remained subject to low-
income use restrictions for an additional period of time. In cases where a
new rental assistance contract is not possible, RHS would offer vouchers
to tenants after mortgage maturity. The proposed legislation was
introduced on April 12, 2016, but no further action on the bill was taken.
27
In the past, Congress has taken legislative action to continue rental
assistance to low-income tenants and protect them from the impact of
terminated assistance. For example, beginning in fiscal year 2006,
Congress has authorized RHS to provide vouchers to tenants affected by
loan prepayments, which leads to the property owners’ exit of the RHS’s
25
See 42 U.S.C. § 1490a(a)(2).
26
H.R. 4908 (114
th
Congress), Rural Housing Preservation Act of 2016, April 12, 2016.
27
An identical bill, S. 2783 (114th Cong.), was introduced in the Senate at the same time.
As with H. R. 4908, no action was taken on S. 2783.
Law Limits RHS’s Ability to
Offer Rental Assistance
and Vouchers to Low-
income Tenants
Page 24 GAO-18-285 Rural Housing Service
housing program.
28
Tenants receiving vouchers after the prepayment of a
loan could use them to remain in the property after it exits RHS’s program
or to find other suitable housing in the private market. Congress has
limited the amount that RHS paid in subsidies. The amount of a voucher
is limited to the difference between the comparable fair market rent for the
housing unit occupied by a tenant and the rent paid by the tenant on the
date of prepayment or foreclosure.
In addition, when the Department of Housing and Urban Development
(HUD) faced a similar loss of affordable housing, Congress gave the
department authority in 2011 to further protect tenants through the
creation of the Rental Assistance Demonstration (RAD).
29
Before the
RAD program, HUD had limited authority to extend rental assistance at
these properties when contracts expired or owners terminated
contracts.
30
However, this demonstration, among other things, allowed
HUD to continue providing rental assistance to property owners after the
original contracts expired.
31
In 2014, we reported that the conversion of
rental assistance should not have an effect on voucher program costs
because HUD uses the same calculation for providing budget authority for
28
Section 542 of the Housing Act of 1949, as amended, authorizes the U.S. Department of
Agriculture (USDA) to make vouchers available to assist very-low income families to
reside in rental housing in rural areas. 42 USC 1490r Appropriations legislation has limited
the use of vouchers to low-income families living in Section 515 properties whose
mortgages are prepaid after September 30, 2005. See, e.g., Agriculture, Rural
Development, Food and Drug Administration, and Related Agencies Appropriations Act,
2006, Pub. L. No. 109-97, 119 Stat. 2120, 2139 (2006); Consolidated and Further
Appropriations Act, 2013, Pub. L. No.113-6, 127 Stat. 198, 213 (2013); Consolidated
Appropriations Act, 2017, Pub. L. No. 115-31, 131 Stat. 135, 153 (2017). A loan can be
prepaid through either prepayment or foreclosure action. See e.g., 82 Fed. Reg. 21972
(May 11, 2017).
29
In GAO, HUD Rental Assistance Demonstration: Information on Initial Conversions to
Project-Based Vouchers, GAO-14-402 (Washington, D.C.: Apr. 24, 2014), we noted that in
2014 rental assistance contracts for about 38,000 affordable housing units currently
subsidized by HUD were expected to expire over the next several years.
30
Rental assistance contracts under these programs were entered into the 1960s, 1970s,
and 1980s, and typically had agreement terms of 15, 20, and 40 years. Contracts were
either not eligible for renewal or had limited contract renewal provisions and new contracts
were not authorized.
31
The three HUD programs are the Rent Supplement, Rental Assistance Payment, and
Moderate Rehabilitation programs. The Rental Assistance Demonstration program was
authorized by Congress in November 2011 under the Consolidated and Further
Continuing Appropriations Act of 2012. Pub. L. No. 112-55 125 Stat. 553, 673-675 (2011).
Page 25 GAO-18-285 Rural Housing Service
the project-based vouchers converted under RAD as it does for
calculating budget authority for tenant-protection vouchers.
32
Without the authority to continue providing rental assistance or to provide
vouchers to tenants at existing properties whose mortgages have
matured, RHS is not well positioned to protect tenants from potential
increased rents or displacement from their units. The agency could lose
important sources of low-income housing, which for some communities
may be the only source of affordable housing. Further, without the
authority to offer vouchers to tenants living in units that received rental
assistance at mortgage maturity, tenants may also face rent increases
and not be able to afford their rents in properties where the owners
choose not to extend their rental assistance contracts. Continued
provision of rental assistance could be limited to units or tenants that
were receiving rental assistance at mortgage maturity and would not
represent an expansion of the number of units or tenants assisted.
Furthermore, Congress could structure this to have no or limited
budgetary impact, similar to what was done under HUD’s RAD program.
For example, subsidies could be kept at a level that is similar to what was
provided at mortgage maturity.
RHS’s preservation tool is a positive first step to help the agency estimate
property exit dates, alert stakeholders to properties with maturing
mortgages, and begin to preserve their affordability. However, the lack of
data controls for information on RHS rural rental properties raises
concerns about data used by the preservation tool, especially as RHS
applies preservation options that extend mortgages and result in new exit
dates. The lack of controls for underlying data used by the preservation
tool, and missing information on some properties, demonstrate that RHS
has opportunities to improve rural housing program data as properties
continue to have maturing mortgages. RHS has not been able to update
the preservation tool’s data on a regular basis. Developing controls with
clear guidance on the frequency and process for routinely updating data
on RHS’s website could help ensure that preservation efforts are based
on the most current information available. Regular updated information
would also help ensure that industry and other stakeholders have the
most recent information available on RHS’s rural rental housing program.
32
GAO, HUD Rental Assistance Demonstration: Information on Initial Conversions to
Project-Based Vouchers, GAO-14-402 (Washington, D.C.: Apr. 24, 2014).
Conclusions
Page 26 GAO-18-285 Rural Housing Service
While RHS has taken steps to better understand maturing mortgage
challenges and preserve properties, RHS’s strategy to use the next
several years to plan for the larger number of expected future maturations
and test available preservation options does not address the significant
number of mortgages that will mature before then. The agency has also
not taken important planning steps required by federal internal control
standards to establish goals and performance measures for tracking
progress toward achieving goals; establish activities that monitor
performance and assess results so that appropriate action is taken; and
identify, analyze, and respond to risks related to achieving their goals.
Actions to enhance the agency’s data and controls, and strengthen its
comprehensive planning and program evaluation processes, would better
position RHS to respond to maturing mortgages, preserve its rural rental
housing program, and maintain affordable housing for low-income
tenants.
Further, the agency lacks the authority to continue rental assistance to
properties with matured mortgages and is limited in its ability to issue
vouchers to tenants affected by property exits. Even if the agency takes
additional steps to plan for maturing mortgages or increases options and
incentives for preserving housing, these limits to rental assistance and
vouchers restrict RHS’s ability to protect tenants. These limits also effect
RHS’s ability to meet the agency’s objective of providing decent, safe,
and sanitary housing to low-income rural residents. Expanding RHS’s
ability to protect existing tenants would give the agency tools that are
available to other affordable rental housing programs, and could be
implemented in a way to maintain, rather than increase, program size and
costs.
We are making the following matter for congressional consideration:
• For RHS properties whose mortgages have matured, Congress
should consider granting RHS the authority to renew annual rental
assistance payments to owners who wish to continue to receive them
and provide vouchers to tenants living in rental assistance units in
properties whose owners choose to no longer receive rental
assistance.
We are making the following five recommendations to RHS:
Matter for
Congressional
Consideration
Recommendations for
Executive Action
Page 27 GAO-18-285 Rural Housing Service
• The RHS Administrator should establish additional controls to check
the accuracy of all loan information entered into RHS information
technology systems, to help ensure complete, accurate, and reliable
data for estimating rural rental housing property exit dates.
(Recommendation 1)
• The RHS Administrator should establish a process to help ensure
regular and frequent updates for the preservation tool and its
underlying data. (Recommendation 2)
• The RHS Administrator should establish performance goals and
measures for its rural rental housing preservation and rehabilitation
efforts and report out these outcomes. (Recommendation 3)
• The RHS Administrator should monitor the results of rural rental
housing preservation efforts and assess the degree to which those
efforts yielded intended outcomes. (Recommendation 4)
• The RHS Administrator should identify, analyze, and respond to risks
to achieving its preservation goals, including resource and staffing
limitations. (Recommendation 5)
We provided a draft of this report for review and comment to RHS and
HUD. RHS provided technical comments, which we incorporated into the
report, and stated that it agreed with all five of our recommendations but
did not provide a formal agency comment letter. HUD stated that it had no
comments on the draft.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Agriculture, the Secretary of Housing and
Urban Development, and other interested parties. In addition, the report is
available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
Agency Comments
Page 28 GAO-18-285 Rural Housing Service
the last page of this report. Key contributors to this report are listed in
appendix III.
Daniel Garcia-Diaz
Director, Financial Markets
and Community Investment
Appendix I: Objectives, Scope, and
Methodology
Page 29 GAO-18-285 Rural Housing Service
Our objectives were to examine the Rural Housing Service’s (RHS)
efforts to (1) estimate the dates that properties may exit the rural rental
housing program due to mortgage maturity, and (2) preserve the
affordability of rural rental properties with maturing mortgages.
To examine RHS’s efforts to estimate property exit dates, we analyzed
RHS documentation and interviewed RHS officials about the data the
agency uses to identify and preserve properties with maturing mortgages.
To determine what steps RHS has taken to help ensure the accuracy and
reliability of RHS’s Multi-Family Housing Property Preservation Tool
(preservation tool), we reviewed documentation that included the
preservation tool’s user guide, and the capabilities it offered the agency
and the public. We also conducted interviews with RHS national and state
office officials about the preservation tool and about how the agency’s
Automated Multi-Family Housing Accounting System (AMAS) and the
Multi-Family Housing Information System (MFIS) operate. AMAS contains
data on loans and rental assistance contracts and MFIS tracks monthly
loan and rental assistance payments and contains data on the location of
RHS’s rural rental properties. Both systems provide data used by the
preservation tool to calculate mortgage maturity and exit dates for rural
rental housing properties. To determine how the preservation tool was
built and the main information it uses to determine mortgage maturity and
property exit dates, and the information it calculates for users, we
interviewed the contractor hired by the agency to create and populate the
preservation tool.
To analyze the accuracy of AMAS and MFIS data used by the
preservation tool to calculate mortgage maturity and property exit dates,
we reviewed mortgage documents that RHS uses to populate those
systems. We reviewed loan documents for a generalizable stratified
random sample of 100 properties in five states—California; Illinois;
Minnesota; Pennsylvania; and Virginia—to determine if loan information
found within mortgage documents matched data contained in AMAS and
MFIS for selected variables relevant to mortgage maturity and property
exit date calculations. We stratified the population of 2,152 loan
documents in the five states by state, number of loans per property, and
age groups. We computed an initial sample size of 60 properties for a
simple random sample to achieve an upper bound of no more than 5
percentage points, an expected error (inaccurate data field) rate of 0
percent, and a 95 percent confidence level. We then proportionally
allocated the sample across the strata and increased sample sizes in
stratum within each state so that we selected at least 10 properties with
more than 1 loan and 10 properties older than 20 years old. States we
Appendix I: Objectives, Scope, and
Methodology
Appendix I: Objectives, Scope, and
Methodology
Page 30 GAO-18-285 Rural Housing Service
visited were selected based on their geographic diversity, diversity (age
and size of program) of rural rental housing properties, and their proximity
to GAO offices.
To select properties’ loan files for this review, we created a
nongeneralizable sample of 20 properties in each of the five states. We
also interviewed agency officials knowledgeable about the data—
including officials from RHS, Rural Development’s Office of Operations
and Management, and the U.S. Department of Agriculture’s (USDA)
National Financial and Accounting Operations Center—about the
processes used to populate these systems and any quality checks in
place for ensuring that data were inputted completely and accurately,
including any available documentation on these steps. We also
interviewed RHS state office officials, who service loans, about the
process for identifying errors in these systems and making corrections.
To determine which rural rental housing properties were estimated to exit
the RHS program and where these properties were located, we analyzed
RHS’s raw data from June 2017 (the latest available RHS data). We
analyzed the data to determine the number of properties, units, and rental
assistance units with property exit dates by state and by year from 2017
to 2050. We also generated summary statistics on the number of
properties that were eligible to prepay their mortgages. In assessing
RHS’s data we also conducted checks on the data for outliers and
missing information. Although we found a selected number of data
anomalies that point to the need for better data controls, we determined
the data we used were sufficiently reliable for purposes of describing the
estimated number of properties that could exit the RHS program between
2017 and 2050.
To better understand the calculations used by the preservation tool, we
reviewed the logic or code it uses to calculate mortgage maturation dates.
For this analysis, we used documentation on the program used to
generate estimates and compared this documentation to the code to see
if there were any operational differences. Additionally, we reviewed each
of the functions within the logic and looked for inconsistencies in logic or
deviations from financial convention that might cause incorrect
predictions.
To examine steps RHS has taken to preserve properties with maturing
mortgages, we reviewed documents that listed options available for
retaining properties with maturing mortgages. We gathered and analyzed
documentation on any comprehensive planning efforts by RHS to address
Appendix I: Objectives, Scope, and
Methodology
Page 31 GAO-18-285 Rural Housing Service
rural rental housing maturing mortgages, including documentation
showing preservation goals and measures, and any assessments of
RHS’s plans, efforts, or resources needed to address maturing
mortgages. We also analyzed documentation and interviewed national
and state RHS officials about any training and guidance that was being
provided to staff on maturing mortgages. In addition, we interviewed RHS
national and state officials about what tools, resources, and plans were in
place for addressing maturing mortgages and their limits. Further, we
asked about ongoing efforts to address maturing mortgages, including
any plans to obtain additional resources for managing maturing
mortgages now and in the future when a larger number of properties are
expected to have loans mature. We reviewed and interviewed officials
about studies commissioned by RHS on the effects of maturing
mortgages on the rural affordable rental housing program and affected
communities and on program-wide rehabilitation needs and cost
estimates. We also assessed how the studies and reports were
conducted for any flaws in their approaches and methodologies.
To determine stakeholder perspectives on how RHS was managing
maturing mortgages, we interviewed officials from a judgmental sample of
rural housing industry organizations. We took multiple steps to identify
these industry organizations. First, we met with an affordable housing
organization with a national membership that represents owners;
developers; housing advocates; and tenants. We asked this national
organization to identify industry organizations that work with RHS. From
that list, we focused on organizations that also had a multi-state or
national focus. Second, during interviews with these organizations, we
requested additional contacts. We interviewed organizations that were
named during multiple interviews. This selection process allowed us to
identify stakeholders that represented a diverse range of roles in the rural
housing industry including: developers, borrower and tenant advocacy
organizations, and organizations advocating for the retention or
expansion of affordable housing.
To determine how other agencies approached expiring rental assistance
contracts and low-income housing preservation, we also interviewed
Department of Housing and Urban Development officials. More
specifically, we determined what key steps and best practices the
department used to preserve its multifamily housing program properties,
including properties with maturing mortgages, and what tools and
resources were required for managing its housing program.
Appendix I: Objectives, Scope, and
Methodology
Page 32 GAO-18-285 Rural Housing Service
We conducted this performance audit from May 2016 to May 2018 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Appendix II: Number of Properties and Units
That Could Exit the Rural Housing Service’s
Program between 2017 and 2050
Page 33 GAO-18-285 Rural Housing Service
State
Properties that could exit Rural
Housing Service’
s rural rental
housing program
Units that could exit Rural
Housing Service’
s rural rental
housing program
Units with rental assistance that could exit
Rural Housing Service’
s rural rental
housing program
AK
35
847
796
AL
451
14,809
7,981
AR
439
9,898
6,085
AZ
115
3,946
3,423
CA
515
26,577
18,294
CO
129
3,738
2,858
CT
65
2,495
1,776
DE
51
1,681
1,307
FL
414
18,897
12,946
GA
429
15,431
8,583
HI
28
1,039
838
IA
408
8,465
7,071
ID
167
4,241
3,878
IL
534
9,970
7,237
IN
469
12,739
7,405
KS
289
5,876
3,842
KY
431
11,724
6,394
LA
375
12,290
7,934
MA
66
1,930
1,614
MD
149
5,346
3,073
ME
333
8,035
6,216
MI
564
17,168
9,480
MN
509
10,313
6,540
MO
609
14,869
8,667
MS
489
14,998
9,334
MT
130
2,287
1,915
NA
8
0
0
NC
595
21,971
16,921
ND
134
2,350
1,771
NE
189
3,052
2,334
NH
84
2,486
2,112
NJ
90
3,225
2,117
NM
104
4,106
3,255
NV
64
2,024
1,695
Appendix II: Number of Properties and Units
That Could Exit the Rural Housing Service’s
Program between 2017 and 2050
Appendix II: Number of Properties and Units
That Could Exit the Rural Housing Service’s
Program between 2017 and 2050
Page 34 GAO-18-285 Rural Housing Service
State
Properties that could exit Rural
Housing Service’
s rural rental
housing program
Units that could exit Rural
Housing Service’
s rural rental
housing program
Units with rental assistance that could exit
Rural Housing Service’
s rural rental
housing program
NY
428
13,003
5,755
OH
373
14,047
8,768
OK
249
7,383
5,115
OR
185
6,352
4,969
PA
297
9,971
6,934
PR
98
5,636
3,803
RI
12
421
376
SC
306
11,287
6,754
SD
267
5,159
3,846
TN
340
11,798
7,392
TX
670
23,477
14,414
UT
83
2,126
1,728
VA
245
10,016
6,832
VI
16
432
428
VT
120
1,946
1,481
WA
292
8,868
6,324
WI
370
8,584
5,811
WP
(Guam)
1
49
0
WV
207
6,532
4,263
WY
54
1,516
1,204
(blank)
1
0
0
Total
14,075
427,426
281,889
Source: GAO analysis of RHS data. GAO-18-285.
Appendix III: GAO Contact and Staff
Acknowledgments
Page 35 GAO-18-285 Rural Housing Service
Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov
In addition to the contact named above, Harry Medina (Assistant
Director); Steve Ruszczyk (Analyst in Charge); Holly Hobbs; Enyinnaya
David Aja; Jim Ashley; Stephen Brown; William Chatlos; DuEwa Kamara;
John McGrail; Marc Molino; and Tovah Rom made key contributions to
this report.
Appendix III: GAO Contact and Staff
Acknowledgments
GAO Contact
Staff
Acknowledgments
(100826)
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