Testimony 

Before the Subcommittee on Housing and 

Community Opportunity, Committee on 

Financial Services, House of 

Representatives

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Tuesday, July 20, 2004 MULTIFAMILY HOUSING

More Accessible HUD Data 

Could Help Efforts to 

Preserve Housing for LowIncome Tenants 

Statement of David G. Wood, Director 

Financial Markets and Community Investment 

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

To view the full product, click on the link 

above. For more information, contact David 

G. Wood at (202) 512-8678 or 

WoodD@gao.gov. 

Highlights of GAO-04-992T, a report to the 

Committee on Financial Services, House 

of Representatives 

July 20, 2004

MULTIFAMILY HOUSING 

More Accessible HUD Data Could Help 

Efforts to Preserve Housing for LowIncome Tenants 

Nationwide, the HUD mortgages on 2,328 properties—21 percent of the 

11,267 subsidized properties with HUD mortgages—are scheduled to mature 

in the next 10 years, but among states this percentage varies significantly: 

from 7 percent in Alabama, to 53 percent in South Dakota. About threequarters of these mortgages are scheduled to mature in the last 3 years of the 

10-year period. As part of our analysis, we developed a searchable database 

available on a CD-ROM, showing property-level data for each of HUD’s 

subsidized rental properties scheduled to mature in the next 10 years. 

Impacts on tenants depend on tenant protections available under program 

statutes and regulations, as well as on property owners’ decisions about 

their properties. No statutory requirement exists to protect tenants from 

increases in rent when HUD mortgages mature, absent the existence of 

rental assistance contracts or other subsidies. Without tenant protection 

requirements, tenants in over 101,000 units that do not receive rental 

assistance may have to pay higher rents or move when the HUD mortgages 

on these properties mature and rent restrictions are lifted. During the past 

10 years, HUD-insured mortgages at 32 properties reached mortgage 

maturity, and the majority of these properties are still serving low-income 

tenants. 

HUD does not offer incentives to owners to keep properties affordable upon 

mortgage maturity. While many state and local agencies GAO surveyed 

offered incentives to preserve affordable housing, they have not directed 

them specifically at properties where HUD mortgages mature. Most of the 

agencies do not track HUD mortgage maturity dates for subsidized 

properties. In addition, although HUD’s Web site contains detailed propertylevel data, some state and local agencies perceive that the information is not 

readily available. 

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

Programs 

The Department of Housing and 

Urban Development (HUD) has 

subsidized the development of 

about 1.7 million rental units in 

over 23,000 privately owned 

properties by offering owners 

favorable long-term mortgage 

financing, rental assistance 

payments, or both in exchange for 

owners’ commitment to house lowincome tenants. When owners pay 

off mortgages—the mortgages 

“mature”—the subsidized financing 

ends, raising the possibility of rent 

increases. Based on a report 

issued in January 2004, this 

testimony discusses (1) the number 

and selected characteristics of 

HUD-subsidized rental properties 

with mortgages scheduled to 

mature in the next 10 years, (2) the 

potential impact on tenants upon 

mortgage maturity, and (3) the 

tools and incentives that HUD, the 

states, and localities offer owners 

to keep HUD properties affordable 

upon mortgage maturity. 

In its report, GAO recommended 

that HUD solicit the views of state 

and local housing agencies to 

determine what information on 

HUD-subsidized properties is 

needed and the most effective 

format to convey this information. 

HUD concurred with the report’s 

conclusions and recommendations. 
Page 1 GAO-04-992T 

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to be here today to discuss our report to you 

on properties with mortgage financing provided through the Department 

of Housing and Urban Development (HUD).1

 Since the 1950s, HUD has 

subsidized about 1.7 million rental units in over 23,000 privately owned 

properties that are generally affordable to low-income tenants—those with 

incomes 80 percent or less of area median income. HUD supported the 

development of affordable housing by offering property owners favorable 

mortgage financing, long-term rental assistance contracts, or both in 

exchange for owners’ commitment to house low-income tenants for at 

least 20 years and, in some cases, up to 40 years. However, many of these 

commitment periods will be completed in the next 10 years as the HUD 

mortgages reach their scheduled maturity dates and long-term rental 

assistance contracts expire. These subsidized properties represent a 

significant source of housing that is affordable to low-income households. 

My statement today, which is based on our January 2004 report, discusses 

(1) the numbers and selected characteristics of HUD-subsidized rental 

properties that are scheduled to reach mortgage maturity through 2013—

roughly the next 10 years; (2) the potential impact on tenants when 

mortgages reach maturity; and (3) the tools and incentives that HUD, the 

states, and localities offer owners to keep HUD properties affordable 

when mortgages mature. In preparing the report, we analyzed HUD 

databases to identify the characteristics of those properties with 

mortgages that have already reached maturity as well as those that are 

scheduled to reach maturity by December 31, 2013.2

 We surveyed 327 state 

and local housing and community development agencies to obtain 

information on what tools and incentives they use to keep HUD-subsidized 

properties affordable to low-income tenants. In addition, we reviewed 

statutes and regulations and interviewed HUD officials to identify tenants’ 

protections when mortgages on subsidized properties mature. We 

performed our work from January through November 2003 in accordance 

with generally accepted government auditing standards. 

 1

U.S. General Accounting Office, Multifamily Housing: More Accessible HUD Data Could 

Help Efforts to Preserve Housing for Low-Income Tenants GAO-04-20 (Washington D.C.; 

January 23, 2004). 

2

To have 10 full years of data, our analysis covered the period from April 15, 2003, through 

December 31, 2013. 
Page 2 GAO-04-992T 

To summarize: 

• Nationwide, 21 percent or 2,328 of the 11,267 subsidized properties with 

HUD mortgages are scheduled to reach mortgage maturity through 2013, 

but among states this percentage varies significantly: from 7 percent in 

Alabama, to 53 percent in South Dakota. These properties contain 236,650 

units. Nearly all of these 2,328 properties were financed under three 

specific HUD programs, two of which operated only between 1961 and 

1973. About three-quarters of the mortgages are scheduled to mature in the 

last three years of the 10-year period. 

• Impacts on tenants depend in part on tenant protections available under 

program regulations and statutes, as well as on owners’ decisions about 

their properties. No statutory requirement exists to protect tenants from 

increases in rent when HUD mortgages mature, absent the existence of 

rental assistance contracts or other subsidies. Without tenant protection 

requirements, tenants in over 101,000 units that do not receive rental 

assistance may have to pay higher rents or move when the HUD mortgages 

on these properties mature and rent restrictions are lifted. Further, owners 

are not required to notify tenants when a property’s mortgage is about to 

mature. In contrast, owners are required to notify tenants up to 1 year in 

advance of their intent to prepay mortgages or decline renewal of rental 

assistance contracts. Property owners’ decisions on whether they continue 

to serve low-income tenants after their HUD mortgages mature depend on 

many factors, such as neighborhood incomes, the condition of their 

properties, and owners’ missions. During the past 10 years, HUD-insured 

mortgages at 32 properties reached mortgage maturity, and the majority of 

these properties are still serving low-income tenants. 

• HUD does not offer any tool or incentive to keep properties affordable 

after HUD mortgages mature, although it does offer incentives to keep 

properties affordable under certain other circumstances, such as the 

expiration of rental assistance contracts or prepayment of HUD 

mortgages. According to officials from the four national housing and 

community development organizations we contacted, because few HUD 

mortgages have matured to date, their member state and local agencies 

have not experienced the need to develop programs to deal with mortgage 

maturity specifically. They noted that their member agencies could offer 

tools and incentives, such as loans and grants, to keep properties 

affordable after mortgage maturity. However, over 50 percent of the state 

and local agencies that responded to our survey reported that they have no 

system in place to identify and track properties that may leave HUD’s 
Page 3 GAO-04-992T 

programs, and about three-quarters of them did not track the maturity 

dates of HUD mortgages.3

Based on our findings, we recommended that HUD provide more widely 

available and useful information for state and local agencies to track 

subsidized properties that may leave HUD programs. 

Prior to the early 1970s, the federal government provided affordable 

multifamily housing for low- and moderate-income households by 

subsidizing the production of either privately owned housing or 

government-owned public housing. Under production programs, the 

subsidy is tied to the unit (project-based), and tenants benefit from 

reduced rents while living in the subsidized unit. HUD’s mortgage 

financing programs include: 

• Section 202 Elderly and Disabled Housing Direct Loan, which provided 

below-market interest rates on up to 40-year mortgages to developers of 

rental housing for low-income elderly and persons with disabilities from 

1959 to 1991. Congress changed Section 202 to a grant program in 1990. 

• Section 221(d)(3) Below-Market Interest Rate (BMIR), which provided 

subsidized financing on private 40-year mortgages to developers of rental 

housing from 1961 to 1968. 

• Section 236, which provided monthly subsidies to effectively reduce 

interest rates on private 40-year mortgages for rental housing from 1968 to 

1973. 

• Sections 221(d)(3) and 221(d)(4), which insured private mortgages to 

developers of rental housing from 1961. 

• Section 231, which insured private mortgages to developers of rental 

housing for the elderly from 1959. 

In order to reach lower-income tenants, a portion of the units in many 

properties developed under these production programs were further 

subsidized by provision of rental assistance, under programs such as Rent 

Supplement, Rental Assistance Payments (RAP), and project-based 

Section 8. 

 3

Additional details on the results of our survey are available on the Internet at 

www.gao.gov/cgi-bin/getrpt? GAO-04-211SP. 

Background 
Page 4 GAO-04-992T 

In the early 1970s, questions about the production programs’ effectiveness 

led the Congress to explore options for using existing housing to shelter 

low-income tenants. The Housing and Community Development Act of 

1974 included both approaches—a project-based new construction and 

substantial rehabilitation program and a tenant-based rent certificate 

program for use in existing housing (currently named the Housing Choice 

Voucher program)—all referred to as Section 8 housing.4

 Project-based 

and tenant-based Section 8 assistance is targeted to tenants with incomes 

no greater than 80 percent of area median income, and tenants generally 

pay rent equal to 30 percent of adjusted household income. The projectbased Section 8 program also provides rental assistance to owners of 

properties that were not financed with HUD mortgages. 

Beginning in the late 1980s, owners of some subsidized properties began 

to be eligible to leave HUD programs by prepaying their mortgages or 

opting out of their project-based Section 8 rental assistance contracts. 

Once these owners removed their properties from HUD programs, they 

were no longer obligated to maintain low rents or accept rental assistance 

payments. In response, in 1996, Congress created a special type of 

voucher, known as an enhanced voucher, to protect tenants from rent 

increases in these properties.5

Not all property owners repay mortgages as originally scheduled. For 

example, an owner may refinance the mortgage to pay for improvements 

to the property. Other owners may experience financial difficulties and 

default on their mortgages. From January 1993 through December 2002, 

HUD data show that the agency terminated the insurance on 231 

mortgages. About 14 percent were due to mortgages that matured; other 

reasons included owners’ mortgage prepayment (37 percent) and 

foreclosure (22 percent). 

 4

Funds provided by other federal programs, such as HUD’s Community Development Block 

Grant and HOME programs, can be used by states and localities to subsidize housing for 

low-income tenants. Also, the Low-Income Housing Tax Credit program provides tax 

incentives for private investors to develop housing affordable to low-income tenants. 

5

Enhanced vouchers differ from regular tenant-based housing vouchers in that they (1) may 

provide a greater subsidy (that is, may be used to rent more expensive units) and (2) give 

tenants a right to remain in their units after conversion to market rent. 
Page 5 GAO-04-992T 

Nationwide, 21 percent of subsidized properties with HUD mortgages have 

mortgages that are scheduled to mature from 2003 through 2013, but the 

percentage varies significantly by state. Nearly all of these properties were 

financed under the Section 236, Section 221(d)(3) BMIR, and Section 

221(d)(3) programs. 

Of the 11,267 subsidized properties (containing 914,441 units) with HUD 

mortgages, 21 percent (2,328 properties containing 236,650 units) have 

mortgages that are scheduled to mature from 2003 through 2013. The 

remaining 79 percent of these mortgages (on over 8,900 properties) are 

scheduled to reach maturity outside of the 10-year period.6

 Additionally, 

the bulk of these mortgages (about 75 percent) are scheduled to mature in 

the latter three years of the 10-year period (see fig. 1). This concentration 

in the latter part of the 10-year period is attributable to the 40-year Section 

221(d)(3) BMIR and Section 236 mortgages that HUD helped finance in the 

late 1960s and 1970s, respectively. 

Figure 1: HUD Mortgages Scheduled to Mature Annually through 2013 

 6

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

Section 236 programs. 

About One-Fifth of 

HUD’s Mortgages Are 

Scheduled to Mature 

through 2013 

Scheduled Mortgage 

Maturities Through 2013 

Vary by Year and Program 
Page 6 GAO-04-992T 

As table 1 shows, about 57 percent of the properties with mortgages 

scheduled to mature in the 10-year period were financed under Section 

236, 22 percent under Section 221(d)(3) BMIR, and 19 percent under 

Section 221(d)(3). Section 202, Section 221(d)(4), and Section 231 

accounted for only 3 percent of these properties. 

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

Financing program 

Number of 

properties

Percentage of 

properties Total units 

Units assisted with

 project-based Section 8a

HUD subsidized mortgage 

Section 236 1,333 57% 139,769 78,139 

Insured 1,333 57% 139,769 78,139 

Noninsuredb 0 0% 0 0

Section 221(d)(3) BMIR 502 22% 56,573 18,810 

Section 202 41 2% 3,208 871 

HUD unsubsidized mortgage 

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

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

Section 231 7 c 598 410 

Noninsured rent supplement d d d d 

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

Source: GAO analysis of HUD data. 

a

Also included are units that receive RAP or Rent Supplement. Project-based Section 8, however, is 

the dominant form of rental assistance across all financing programs. The Section 8 Moderate 

Rehabilitation program is not included in this table because HUD’s multifamily database does not 

track this program. 

b

No mortgage was scheduled to mature in this period. 

c

Less than 1 percent. 

d

Since properties with noninsured rent supplement do not carry a HUD mortgage, HUD does not track 

mortgage-level data on these properties. 
Page 7 GAO-04-992T 

The number of mortgages scheduled to mature through 2013 varies greatly 

by state (see fig. 2). Although the average is 46 mortgages per state 

(including the District of Columbia), the number ranges from a high of 273 

maturing mortgages in California to 3 in Vermont. 

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

Note: The figure above includes 2,311 of the 2,328 properties in our analysis—excluded are 

properties in territories of the United States, such as Puerto Rico and Guam. 

The states also vary considerably in terms of the percentage of their 

respective HUD mortgages on subsidized properties that are scheduled to 

mature through 2013, ranging from 7 percent in Alabama to 53 percent in 

South Dakota. 

Number of Mortgages 

Scheduled to Mature by 

2013 Also Varies by State 
Page 8 GAO-04-992T 

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

to pay higher rents or move when HUD-subsidized mortgages reach 

maturity. This is because no statutory requirement exists to protect 

tenants from increases in rent when HUD mortgages mature and rent 

restrictions are lifted. A number of factors may affect owners’ decisions 

regarding the continued affordability of their properties after mortgages 

mature, including neighborhood incomes, physical condition of the 

property, and owners’ missions. 

There is no statutory authority that requires HUD to offer tenants special 

protections, such as enhanced vouchers, when a HUD mortgage matures. 

However, tenants who receive rental assistance in properties with 

maturing mortgages would be eligible for enhanced vouchers under rental 

assistance programs, such as project-based Section 8. 

Of the 2,328 subsidized properties with mortgages scheduled to mature 

through 2013, 480—containing 45,011 units—do not have rental assistance 

contracts (see table 2). While the remaining 1,848 properties are 

subsidized with rental assistance, not all units within the properties are 

covered. According to HUD data, about 30 percent of the units in these 

properties are not covered—a total of 57,552 units with tenants who do 

not receive rental assistance. Altogether, the tenants in a total of 102,563 

units are not protected under the rental assistance programs. Of these, 

101,730 units—most of them in properties with mortgages under the 

Section 221(d)(3) BMIR and Section 236 programs—could face higher 

rents after mortgage maturity when the rent restrictions under these 

programs are lifted. 

Tenant Impacts 

Depend on 

Protections and 

Property Owners’ 

Decisions 

HUD Does Not Offer 

Protection for Unassisted 

Tenants in Properties with 

Maturing Mortgages 
Page 9 GAO-04-992T 

Table 2. Subsidized Properties with HUD Mortgages Scheduled to Mature through 

2013, by Rental Assistance Program 

Number of properties 

 Rental assistance programa 

Financing program None

Project-based 

 Section 8 

Rent 

Supplement Otherb Total

HUD subsidized mortgage

Section 236 166 1,123 40 4 1,333 

Insured 166 1,123 40 4 1,333 

Noninsuredc 0 0 0 0 0

Section 221(d)(3) 

BMIR 294 206 2 0 502 

Section 202 20 4 5 2 41 

HUD unsubsidized mortgage

Section 221(d)(3) 0 403 27 0 431 

Section 221(d)(4) 0 14 0 0 14 

Section 231 0 6 1 0 7 

Noninsured rent 

supplement d d d d d

Total 480 1,766 76 6 2,328 

Percent of total 21% 76% 3% <1% 100%

Source: GAO analysis of HUD data. 

Note: Percentages may not add due to rounding. 

a

The Section 8 Moderate Rehabilitation program is not included in this table because HUD’s 

multifamily database does not track this program. 

b

Includes contracts for service coordinators. 

c

No mortgage was scheduled to mature in this period. 

d

Since properties with noninsured rent supplement do not carry a HUD mortgage, HUD does not track 

mortgage-level data on these properties. 

According to a HUD study, tenants in properties with mortgages under the 

Section 221(d)(3) BMIR and Section 236 programs have an average 

household income somewhat greater than that for tenants who receive 

rental assistance; thus, they may be somewhat more able to afford higher 

rents. Properties financed under the Section 221(d)(3) BMIR program 

allow tenants with incomes of up to 95 percent of area median income; in 

comparison, project-based Section 8 does not serve tenants earning more 

than 80 percent of area median income. 
Page 10 GAO-04-992T 

Tenants in units covered by a rental assistance program—there are about 

134,087 such units in the properties with HUD mortgages scheduled to 

mature through 2013—will continue to benefit from affordable rents, 

regardless of when the mortgage matures, as long as the rental assistance 

contract is in force. When long-term rental assistance contracts expire, 

HUD may renew them. Currently, HUD generally renews expiring longterm contracts on an annual basis but may go as long as 5 years, and in 

some cases, 20 years. According to HUD, during the late 1990s, about 90 

percent of the property owners renewed their contracts, thereby 

continuing to provide affordable housing. The extent to which the trend 

continues will depend on the availability of program funding and housing 

market conditions. If a rental assistance contract expires prior to 

mortgage maturity and the owner opts not to renew it, assisted tenants 

would be eligible for enhanced vouchers. 

Tenants could potentially be affected by the length of time given to them 

to adjust to rent increases as well as by the amount of the increase. 

Property owners are not required to notify tenants when they pay off their 

mortgage at mortgage maturity. In contrast, property owners electing to 

opt out of the Section 8 project-based program must notify tenants 1 year 

in advance of the contract expiration. Owners electing to prepay their 

mortgages under the Section 236 or Section 221(d)(3) BMIR programs 

must notify tenants at least 150, but not more than 270, days prior to 

prepayment. 

Many factors could influence an owner’s decision to keep a property in the 

affordable inventory or convert to market rate rents upon mortgage 

maturity. For a profit-motivated owner, the decision may be influenced by 

the condition of the property and the income levels in the surrounding 

neighborhood. If the property can be upgraded at a reasonable cost, it may 

be more profitable to turn the building into condominiums or rental units 

for higher income tenants. If repair costs are substantial or if high-income 

residents are not present in the surrounding area, it may be more 

profitable to leave the property in the affordable inventory. Tools and 

incentives offered by state and local agencies may also influence this 

decision. In addition, because most of these owners have had the right to 

prepay their mortgages and opt out of their Section 8 contracts for a 

number of years, the economic factors that drive a decision to convert to 

market rate are not unique to mortgage maturity. 

HUD data show that nonprofit organizations own about 38 percent of the 

properties with mortgages scheduled to mature in the next 10 years. For a 

A Number of Factors 

Influence An Owner’s 

Decision to Keep a 

Property Affordable Upon 

Mortgage Maturity 
Page 11 GAO-04-992T 

nonprofit owner, the decision would likely be motivated by cash flow 

considerations since, in theory, these owners are not primarily motivated 

by economic returns. Since mortgage maturity results in an improvement 

in property cash flow, reaching mortgage maturity by itself would not 

necessarily trigger removal from the affordable inventory. For example, 

the property manager at one of the 16 properties (nonprofit ownership) 

whose mortgage matured in the past 10 years and who does not currently 

have project-based Section 8 assistance told us that no longer having to 

pay the mortgage left money for repairs needed to keep the units 

affordable for their low-income senior tenants. Additionally, a nonprofit 

organization would be more likely to keep the property affordable to lowincome tenants because to do otherwise could conflict with its basic 

mission of providing affordable housing. 

Another factor is the loss of the interest rate subsidy that occurs when the 

mortgage matures. When interest rate subsidies were first paid to 

properties built in the 1960s and 1970s, they represented substantial 

assistance to property owners. Over time, inflation has reduced the value 

of this subsidy. For example, the average interest rate subsidy payment for 

a Section 236 property with a mortgage maturing in the next 10 years is 

$66 per unit per month. Price levels have roughly quadrupled since 1970, 

so to have the same purchasing power would require about $260 in today’s 

dollars. Section 8 and similar project-based rental assistance now provide 

the bulk of the assistance to these subsidized properties—75 percent of 

the assistance versus about 25 percent that derives from the Section 236 

interest-rate subsidy. Furthermore, inflation will continue to erode the 

value of the interest-rate subsidy until mortgage maturity, while the rental 

assistance subsidy is adjusted annually to account for increases in 

operating costs. 

Our review of HUD’s data showed that HUD-insured mortgages at 32 

properties matured between January 1, 1993, and December 31, 2002. 

Sixteen of the 32 properties are still serving low-income tenants through 

project-based Section 8 rental assistance contracts. For 13 of these 16 

properties, the rental assistance covers 100 percent of the units (799 

assisted units), and for the remaining three properties it covers 54 percent 

of the units (174 assisted units). 

Most Properties with HUD 

Mortgages That Reached 

Maturity Offer Rents 

Affordable to Low-Income 

Tenants 
Page 12 GAO-04-992T 

Using HUD’s archived data for inactive properties, we were able to obtain 

rent information for 10 of the remaining 16 properties.7

 We found that all 

10 (none of which have project-based rental assistance contracts) are 

offering rents that are affordable to tenants with incomes below 50 

percent of area median income.8

 Because of the variety of factors that can 

influence owners’ decisions, however, these properties are not necessarily 

indicative of what will happen to other properties as their HUD mortgages 

mature. 

Various property managers we contacted also provided information about 

their efforts to keep their properties affordable. For example, a senior 

complex (nonprofit ownership) continues to generally charge residents 

about 30 percent of their income for rent as they did when they were in 

HUD’s subsidized portfolio. According to the property manager of two of 

the properties (for-profit ownership), he unsuccessfully sought incentives 

from HUD in 2002 to keep the properties in the inventory when the 

mortgages reached maturity and both properties left HUD’s multifamily 

portfolio. However, both properties are accepting tenant-based vouchers 

and the rents in both properties are affordable to very low-income tenants. 

HUD does not offer any tools or incentives to keep properties affordable 

after HUD mortgages mature, although it does offer incentives to maintain 

affordability for properties that also have expiring rental assistance 

contracts. According to officials from the four national housing and 

community development organizations we contacted, because few HUD 

mortgages have matured to date, their member state and local agencies 

have not experienced the need to develop programs to deal with mortgage 

maturity. They noted that their member agencies could offer tools and 

incentives, such as loans and grants, which might be used by owners to 

keep properties affordable after mortgage maturity. However, about threequarters of the state and local agencies that responded to our survey 

reported that they do not track the maturity dates on HUD mortgages, and 

 7

Of the remaining six properties, we did not include two because they are skilled nursing 

facilities and do not charge traditional rents. We could not obtain information on the others 

because there was insufficient contact information in HUD’s archived database with which 

to locate current owners or managers, or the owners or managers were unwilling to 

provide us with information. 

8

Rent is generally considered affordable if it does not exceed 30 percent of tenant’s gross 

income. 

Tools and Incentives 

Are Available to Help 

Keep Properties 

Affordable, but Are 

Not Specifically 

Designed to Deal with 

HUD Mortgage 

Maturity 
Page 13 GAO-04-992T 

none provided examples of tools or incentives used to keep units 

affordable after mortgage maturity.9

During the 1990s, HUD established incentive programs to deal with the 

loss of affordable units because owners were prepaying their mortgages 

and opting out of their Section 8 contracts, but these incentives do not 

directly address the termination of the affordability requirements resulting 

from mortgage maturity. Rather, they can extend, under certain 

circumstances, the affordability period beyond the original term of the 

mortgage or allow property owners to be better positioned financially to 

continue providing affordable housing. 

The state and local agencies we surveyed identified 18 different tools and 

incentives used to preserve affordable housing. Of the 18, 6 were funded 

directly by the federal government, while 12 were administered by state 

and local governments and not directly federally funded. However, there 

was no evidence that they have been used to protect properties when HUD 

mortgages mature. This may be because relatively few mortgages have 

matured to date. 

State and local tools and incentives include housing trust funds used to 

make loans and grants, financial assistance to nonprofit organizations to 

aid them in acquiring HUD-subsidized properties, and property tax relief to 

owners of HUD-subsidized properties. These state and local agencies 

identified several incentives that they believe are the most effective in 

preserving the affordability of housing for low-income tenants. For 

example, over 60 percent of the 62 state agencies that responded identified 

the 4-percent tax credit and HOME programs as effective means for 

preserving the affordability of HUD-subsidized properties. Of the 76 local 

agencies that responded, over 70 percent identified HOME as effective and 

over 60 percent identified CDBG as effective. 

 9

The detailed results of our survey (GAO-04-211SP) are available on our website, at 

www.gao.gov/cgi-bin/getrpt?GAO-04-211SP. 

HUD Does Not Offer 

Incentives to Keep 

Properties Affordable after 

Mortgage Maturity 

State and Local Agencies 

Identified Tools and 

Incentives to Preserve 

Affordable Housing, but 

Not Specifically for 

Covering Mortgage 

Maturity 
Page 14 GAO-04-992T 

Over 50 percent of the survey respondents reported that they have no 

system in place to identify and track properties in their states or localities 

that could leave HUD’s subsidized housing programs. Further, about threequarters reported that they do not track the maturity dates of HUD 

mortgages. Several respondents to our survey noted that it would be 

helpful to them if HUD could provide information about properties that 

might leave HUD’s programs. 

Of the 102 agencies that indicated they identified and tracked properties, 

56 (55 percent) said that they monitored the scheduled maturity dates of 

HUD mortgages on local properties (see fig. 3). More agencies (82 or 80 

percent) reported that they identified and tracked properties that might 

opt out of HUD project-based rental assistance contracts. 

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

Note: “Extended use expiration” refers to the expiration of the use-agreement period, when owners 

must continue to keep their tax credit properties affordable to low-income tenants after the initial 15-

year affordability period required by the Internal Revenue Code has ended. The length of this 

extended period of affordability is 15 years or more, depending on individual state requirements. 

HUD officials noted that they make property-level information available to 

the public on HUD’s multifamily housing Web site. This Web site contains 

detailed property-level data on active HUD-insured mortgages and 

expiring rental assistance contracts. However, according to our survey, 

some state and local agencies perceive that the information is not readily 

available. One problem may be that these data are in a format that may not 

Fewer Than Half of State 

and Local Agencies 

Identify and Track 

Properties That May Leave 

HUD Programs 
Page 15 GAO-04-992T 

be sufficiently “user-friendly” for these agencies. The data must be 

accessed using database software, which requires users to be proficient in 

these types of software. 

HUD officials agreed that the agency could provide more “user friendly” 

information because the data are not as accessible to state and local 

agencies as they could be. They also noted that these agencies could 

benefit from a “watch list” that identifies properties that may leave HUD 

subsidy programs in their jurisdictions, such as upon mortgage maturity, 

especially if such data were updated annually and readily available online 

so that agencies would have the information needed to prioritize and fund 

efforts to preserve low-income housing in their jurisdictions. 

While awareness of the potential for a HUD mortgage to mature or rental 

assistance to end does not guarantee that state or local agencies will take 

action to preserve the assisted units’ affordability to low-income tenants, 

such knowledge could better position state and local agencies to use 

available tools and incentives. Accordingly, we recommended that HUD 

take steps to provide more widely available and useful information. Using 

HUD’s data that we obtained to respond to your request, we also 

developed a prototype searchable database, available in CD-ROM format, 

showing property-level data for each of HUD’s subsidized rental properties 

scheduled to mature in the next 10 years.10

Mr. Chairman, this concludes my prepared statement. I would be happy to 

answer any questions at this time. 

For further information on this testimony, please contact David G. Wood 

at (202) 512-8678, or Andy Finkel at (202) 512-6765. Individuals making key 

contributions to this testimony included Mark Egger, Daniel Garcia-Diaz, 

Rich LaMore, and John McGrail. 

 10This CD-ROM is available as a special GAO product (GAO-04-210SP) and may be ordered 

via the Internet at www.gao.gov/cgi-bin/ordtab.pl. 

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