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Resources, Community, and 

Economic Development Division 

B-240419 

January 14,1QQl 

The Honorable Marilyn Lloyd 

Chairman, Subcommittee on Housing 

and Consumer Interest 

Select Committee on Aging 

I Iouse of Representatives 

Dear Madam Chairman: 

In response to your request, this report addresses the processing time for section 202 

projects from fund reservation to construction start. Specifically, the report discusses the 

increase in processing time that can be caused by limitations placed on fair market rents, 

additional sponsor contributions because of insufficient fair market rents to cover 

development costs, inconsistent interpretation of cost containment requirements, and 

inconsistent administration of the program by the Department of Housing and Urban 

Development (HUD) field offices, The report addresses these causes and contains a number of 

recommendations to better ensure the timely completion of section 202 projects. 

As agreed with your office, unless you publicly announce its contents earlier, we plan no 

further distribution of this report until 30 days from the date of this letter. At that time, we 

will send copies to the Secretary, Department of Housing and Urban Development; the 

Director, Office of Management and Budget; other congressional committees and 

subcommittees interested in housing matters; and other interested parties, We will make 

copies available to others upon request. 

Our work was conducted under the general direction of John M. 01s Jr., Director, Housing 

and Community Development Issues, who can be reached at (202) 2755525. Other major 

contributors are listed in appendix VI. 

Sincerely yours, 

.J. Dexter Peach 

Assistant Comptroller General 
Ekecutive Summary F 

Purpose Nonprofit organizations receive direct loans for constructing or rehabilitating rental housing for the elderly and handicapped under Section 202 

of the U.S. Housing Act of 1959 (12 U.S.C. 17Olq). As of 1988, the 

Department of Housing and Urban Development (HUD) had 3-years’ 

worth of projects where construction had not started. 

Noting this backlog, the Chairman, Subcommittee on Housing and Consumer Interest, House Select Committee on Aging, asked GAO to examine 

MID'S project processing. The chairman was concerned that lengthy project processing might be increasing nonprofit organizations’ (sponsors’) 

costs and delaying the delivery of housing to the elderly and handicapped. As agreed, this report examines trends in project processing 

times between 1980 and 1988 and relates sponsors’ views on the reasons 

for delays in processing. 

Background The section 202 program allows HUD to make 50-year direct loans to nonprofit sponsors to construct or rehabilitate rental housing designed specifically for the elderly and handicapped, Over the years, amendments 

to the 1959 legislation have targeted the se&ion 202 program to lower 

income (defined by HUD as not exceeding 80 percent of an area’s median 

income) elderly and handicapped and have provided them with rental 

assistance payments to make this housing affordable. 

Project processing involves a series of HUD reviews of project plans 

which occur between the time HUD reserves funds for a project and the 

start of construction. HUD reviews are intended to ensure that proposed 

projects meet program requirements, are well-designed but meet cost 

containment standards, have sufficient and reasonable construction 

budgets, and have rents in line with new construction fair market rents. 

Fair market rents are established annually by HUD for individual 

housing areas on the basis of rents for comparable units. 

Between 1980 and 1989, the Congress authorized $6.9 billion for 

133,851 units of section 202 housing. During this period, HUD returned to 

the Treasury about $932 million, or 13 percent, of the total authorized 

loan authority. 

Results in Brief Over the past 9 years, the time required to process a section 202 project 

increased. As a result, many low-income elderly and handicapped people 

Page 2 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Executive Summary 

have been delayed in receiving housing assistance. In 1988, only 10 percent of IIIJD’S 51 field offices achieved the program’s goal of starting project construction within 18 months after fund reservation. 

Three factors stand out as the primary reasons for processing delays. 

First, HUD has indirectly restricted funds available to finance section 202 

projects by establishing fair market rents that are too low in some cases 

and do not reflect the cost of construction. Second, IIIJD offices are inconsistent in their cost containment reviews and often change project plans 

in an effort to lower costs to limits supportable by fair market rents. 

Third, IIIJD’S administration of the section 202 program varies among 

field offices because some field offices have developed effective 

processing procedures and practices, while others have not. 

Principal Findings 

Processing Time Has 

Increased 

The time required for HUD’S processing of section 202 projects has risen 

an average of 7.5 months from 19.3 months in 1980 to 26.8 months in 

1988. As of November 1989, 1,092 projects were under IIIJD review and 

awaiting construction. About 45 percent of these projects had been in 

processing for at least 2 years. 

Fair Market Rent Limits 

Increase Processing Time 

Fair market rents determine the income available to cover the operating 

costs and loan payments for a section 202 project. When fair market 

rents are too low to cover project costs, IIIJD often requires sponsors to 

perform time-consuming and costly redesigns of their projects and file 

lengthy appeals for increases to the fair market rents. 

Fair market rents for section 202 projects are low in certain areas of the 

country because of two IIIJD policy decisions aimed at controlling program costs. First, in 1982, IIUD headquarters began capping fair market 

rent increases at predetermined national inflation rates rather than 

using local rental market surveys conducted by its field offices. If field 

office rent surveys are higher than HUD’S predetermined inflation rate, 

fair market rents are set at the lower capped amounts. Over time, the 

impact of capping fair market rents has resulted in wide disparities in 

certain areas of the country between the lower HrJD-allowed rents and 

the higher market survey rents Second, in 1986, HIJD began limiting 

Page 3 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Executive Summary 

allowable mortgage loans to fair market rents in place at the time of 

fund reservation. 

Fair Market Rent Limits 

Lead to Sponsor 

Contribution 

Section 202 legislation allows nonprofit sponsors to finance 100 percent 

of allowable project development costs. However, even after sponsors 

redesign their projects to comply with HIJD reviews and receive the maximum rents allowable under IIIJD regulations-120 percent of the area’s 

fair market rent-it still may be insufficient to cover project development costs. In five of the six field offices GAO visited, nonprofit sponsors 

were required to make monetary contributions ranging from $600 to 

$350,000 to projects in order to begin construction. 

Application of Cost 

Containment Increases 

Processing Time 

IIIJD performs cost containment reviews to ensure that section 202 

projects are of a modest design and are not excessive in terms of amenities or construction materials. The reviews apply to all projects regardless of fair market rent levels. HUD field offices normally perform these 

reviews and can approve rents up to 110 percent of the fair market rent. 

Increases above this percentage, but not exceeding the maximum of 120 

percent, require IIIJD headquarters review and approval. 

Cost containment reviews generally do not cause significant processing 

delays when fair market rents are adequate. They become a problem 

when IIIJD offices use cost containment as a means to reduce project 

costs so they are covered by the fair market rents. Repeated field office 

and headquarters reviews, coupled with the resulting project redesigns, 

add a significant amount of time to project processing. 

On the basis of GAO'S questionnaire to sponsors, GAO found examples of 

inconsistent interpretations of cost containment requirements. These 

inconsistent interpretations may be caused by a lack of training and of 

headquarters oversight. Since 1986, headquarters has provided field 

office staff two l-day training sessions on cost containment compliance. 

IIeadquarters has also conducted cost containment reviews at only 5 of 

the 5 1 field offices that process section 202 projects. 

HUD Program 

Administration Causes 

Processing Delays 

Two field offices that GAO visited allowed processing delays to routinely 

occur and provided little guidance to project participants in meeting program requirements. These offices consistently had processing times in 

excess of IIIJD'S maximum allowable 24-month processing criterion that 

was in effect at the time of our review. Conversely, GAO also visited two 

Page 4 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Executive Summary 

offices that paid strict attention to timely processing and consistently 

achieved program processing goals. The offices with timely processing 

had several management techniques in common. Specifically, these 

offices required project development teams and HUD field office staff to 

periodically meet during project processing to discuss time goals, cost 

containment objectives, program requirements, and regulatory mortgage 

limits. 

IIIJD headquarters did not monitor the processing performance of field 

offices. As a result, section 202 project processing receives differing 

degrees of management attention among field offices. Without adequate 

monitoring, IILJD cannot identify processing techniques that are working 

well nor be aware of field offices experiencing processing delays that 

could benefit from these techniques. 

Recommendations To better ensure the timely completion of section 202 projects, the Secretary, HJD, should (1) establish fair market rents for section 202 projects 

that reflect the cost of modest housing in local rental markets to help 

reduce processing time and make it more likely that the section 202 program will provide 100 percent of sponsor financing for modestly 

designed projects and (2) ensure that supervisory visits and reviews are 

implemented to validate consistent application of cost containment 

requirements among field offices. 

Agency Comments IIIJD acknowledged that the factors cited in GAO'S draft report had the 

effect of increasing section 202 project processing time. IIIJD said that it 

had developed, or was in the process of developing, actions to deal with 

these factors. These actions include increasing fair market rents while 

minimizing the potential budget effects, monitoring cost containment at 

field offices for consistent application, issuing instructions aimed at 

establishing project processing timetables and requiring regular communications with project development teams, and monitoring field office 

processing time and establishing a goal to start project construction 

within an average of 24 months. HID'S comments on GAO'S draft report 

arc included as appendix V of this report. 

Page I5 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Contents . 

Executive Summary 2 

Chapter 1 8 

Introduction HUD’s Section 202 Elderly Housing Program 8 

How the Section 202 Program Works 10 

Objectives, Scope, and Methodology 12 

Chapter 2 15 

Section 202 Project The Section 202 Pipeline 15 

Processing Time Has Average Processing Time for Section 202 Projects Has 16 

Increased 

Increased Processing Time Varies Among HUD Regions and Field 18 

Offices 

Chapter 3 

Reasons Why Section Fair Market Rents 20 

202 Processing Time Cost Containment Reviews 26 

HIJD Administration 29 

Has Increased Conclusions 32 

Recommendations 33 

Agency Comments and Our Evaluation 33 

Appendixes Appendix I: Questionnaire Methodology and Results 

Appendix II: Section 202 Program Activity 

Appendix III: Section 202 Pipeline Status by HUD Region 

and Processing Field Office as of November 9, 1989 

Appendix IV: Section 202 Average Processing Time by 

HIJD Region and Processing Field Office 

Appendix V: Comments From the Department of Housing 

and IJrban Development 

36 

40 

42 

45 

48 

Appendix VI: Major Contributors to This Report 51 

Tables Table 2.1: Section 202 Project Processing Pipeline 

Table 2.2: Projects Starting Construction That Exceeded 

24 Months in Processing 

15 

16 

Table 2.3: HIJD Field Offices’ Success in Meeting Project 

Processing Criteria in 1988 

19 

Page 6 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Table 1.1: Analysis of Factors for Processing Delays 

According to National Sponsors and Consultants and 

Local Consultants (For Projects Exceeding 24 Months 

in Process) 

38 

Table 11.1: Section 202 Amounts Appropriated, Unused, 

and Recaptured for Fiscal Years 1980 Through 1989 

Table 11.2: Section 202 Projects Starting Construction and 

in the Pipeline-1980-1989 

40 

41 

Figures Figure 2.1: Average Processing Time for Section 202 

Projects 

17 

Figure 2.2: Section 202 Project Processing Time in 1988 

by HUD Region 

18 

Figure 3.1: Comparison of Field Office Rent Surveys and 

Published Fair Market Rents for the Coos Bay, 

Oregon, Market Area 

23 

Abbreviations 

FMKS fair market rents 

GAO General Accounting Office 

HUD Department of Housing and Urban Development 

MIDLIS Multifamily Insured and Direct Loan Information System 

Page 7 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

Several million households headed by elderly or handicapped persons 

with limited incomes need government assistance to obtain decent and 

affordable housing. The Department of Housing and Urban Development’s (HUD) section 202 program is the primary means of federal assistance available to provide new housing units to help meet this need. 

HUD’s Section 202 

Elderly Housing 

Program 

Section 202 of the U.S. Housing Act of 1959, as amended (12 U.S.C. 

17Olq), authorizes HUD to make 50-year direct loans to nonprofit sponsors to construct or rehabilitate rental housing for the elderly or handicapped. Interest rates on the loans are based on the average interest rate 

on all interest bearing obligations of the United States not to exceed 9.25 

percent. The section 202 direct loan is available to cover 100 percent of 

the cost of land plus the cost to design and construct or rehabilitate a 

project. 

Section 202 projects are designed to provide elderly and/or handicapped 

residents with an independent living environment that includes provisions for necessary services, such as health, continuing education, welfare, recreation, and transportation, Projects can also include essential 

service facilities, such as dining facilities and multipurpose community 

rooms. 

The Housing and Community Development Act of 1974 permits HUD to 

use the section 202 program in conjunction with the section 8 rental 

housing assistance program. The section 8 program, established by the 

1974 act, authorized HIJD to make rental assistance payments on behalf 

of lower income families (households) to enable them to obtain decent 

and affordable housing. Lower income families are defined as those with 

incomes not exceeding 80 percent of the median income (adjusted for 

household size) for their particular area of residence. However, section 8 

assistance is now generally targeted to low-income families with 

incomes that do not exceed 50 percent of the median for the area. 

Families eligible for section 8 rental assistance generally are required to 

pay 30 percent of their adjusted monthly income for rent. The assistance 

payment covers the difference between the amount the tenant pays and 

the fair market rent for the unit. Section 202 project rents are limited to 

the amount necessary to operate and maintain the project and to cover 

Page 8 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

the amortization of the debt incurred to develop and construct the project.’ Additionally, project rents cannot exceed 120 percent of the fair 

market rents (FMRS) established annually by HUD for each housing area 

on the basis of rents for comparable units. HUD field offices are allowed 

to approve rents up to 110 percent of the FMRS while the 120-percent 

ceiling requires headquarters approval. 

FMRS serve as a control on the amount of mortgage financing that sponsors can obtain for project construction costs. In authorizing HIJD to 

approve project rents up to 120 percent of FMRS, the Congress anticipated that this authority would be used only in exceptional cases, 

according to the House and Senate conference committee report on the 

1974 act. 

The FMRS for new construction include provisions for all utilities except 

telephone service; ranges and refrigerators; and all maintenance, management, and other services required to obtain privately developed, 

newly constructed rental housing of a modest (nonluxury) nature. Separate FMRS have been established for units with different numbers of bedrooms, for various building types (e.g., elevator, walkup), and for 

different housing market areas. FMRS for section 202 projects include an 

additional 5 percent to cover the special housing needs of the elderly 

and/or handicapped, such as emergency call systems and grab bars. 

The Housing and Community Development Act of 1987 modified the section 202 program by setting new requirements for non-elderly handicapped people. HIJD implemented this legislation in May 1989 when it 

issued a final rule establishing a separate section 202 Direct Loan Program for Housing for Handicapped People. Two major differences 

between the new non-elderly handicapped program and the elderly program are: 

. projects for handicapped persons will no longer compete with applications for the elderly and 

+ rents for handicapped projects will no longer be based on FMRS but 

rather will be determined by the reasonable and necessary cost of operating the projects including the debt service on the loan. 

The new non-elderly handicapped provisions took effect for the fiscal 

year 1989 budget period. Because HUD and program sponsors had no 

‘FM& for section 202 are determined under 24 CFR 885.5. These FMRs are established independently from FMRs used under section 8 certificate and voucher programs. 

Page 9 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

experience with the new non-elderly handicapped program, this report 

deals with the section 202 elderly or handicapped program as it existed 

prior to HUD'S implementation of the new non-elderly handicapped 

program. 

How the Section 202 Before construction of a section 202 housing project can begin, HUD 

Program Works requires sponsors to go through a series of processing stages. These 

stages include requirements designed to ensure that the proposed project (1) is eligible for a section 202 loan and rent subsidy assistance 

under section 8, (2) serves programmatic goals, (3) is well-designed but 

modest, (4) has a sufficient and reasonable construction budget, and (5) 

has rents that are in line with section 8 rent limits and that are adequate 

to support project management, maintenance, and debt service. Because 

of the complexity of the process, most nonprofit sponsors employ consultants to prepare the proposal and oversee development of the project. 

The section 202 process begins with an annual appropriation. Using this 

amount as a base, HUD allocates funding to its 51 field offices that process section 202 loans. This allocation comes in the form of an announcement in the Federal Register called a Notification of Fund Availability. 

Each field office then publishes a notice in its service area announcing 

its intent to accept applications for project development from interested 

nonprofit sponsors. Each field office accepts applications and conducts a 

rating and ranking for selection. 

Applications describe the prospective sponsor, the proposed site, the 

project layout and design, and the services to be provided to tenants. All 

accepted applications and their relative rankings are submitted to the 

appropriate HUD region which evaluates the applications from all field 

offices in its region and submits a recommendation to the Director, 

Office of Multifamily Housing Development. Finally, usually on the last 

working day of the fiscal year, the Assistant Secretary for Housing 

announces all projects selected for fund reservation. At this point the 

cognizant field offices notify successful applicants that funds have been 

reserved for their projects and the processing clock starts. 

1Jnder HUD regulations, the nonprofit sponsor must begin construction 

on a project for which funds were reserved within 18 months. The regulations also authorize the Assistant Secretary for Housing to grant one 

Page 10 GAO/RCED-914 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

extension not to exceed 6 months. Therefore, according to MID’S regulations, the maximum amount of time between fund reservation and construction start can be no more than 24 months2 The regulations state 

that the field office manager shall cancel any reservations that exceed 

18 months unless a 6-month extension is granted. The time period 

between fund reservation and construction start is known as the project 

processing “pipeline.” Project processing involves two key stages: (1) 

conditional commitment and (2) firm commitment. 

Conditional commitment and firm commitment processing are similar in 

most respects. A sponsor submits preliminary project plans and specifications to obtain IIIJD’S general approval during the conditional commitment stage and then submits final project plans and specifications to 

obtain a firm commitment. Thus, conditional commitment and firm commitment can be viewed as two reviews-one general, one specific-of a 

common set of requirements. 

At the field offices, projects undergo five kinds of technical analyses in 

both stages of processing: 

1. Architecture and engineering analysis ensures that projects comply 

with IIUD minimum property standards and design requirements for elderly and handicapped units. 

2. Cost analysis establishes estimates of the cost of projects including 

estimates of costs not attributable to dwelling use. 

3. Valuation analysis prepares land appraisals, operating expense estimates, estimated income determinations, the section 202 loan amount 

allowable based on projects’ total development costs, and mortgage 

amounts serviceable with project’s income. 

4. Mortgage credit analysis determines the financial capacity of the 

sponsor and/or the borrower corporation to close the transaction and 

operate the project after developing estimates of the capital needed to 

defray cash requirements above the loan amount and immediate operation expenses. 

“Our results are based on the 24-month criterion in effect at the time of our review. In April 1990, 

IIlJD amended its regulations to allow a maximum of 36 months if the delay was not the borrower’s 

fault. 

Page 11 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

5. Housing management analysis reviews the management capability of 

the borrower or the management agent, the adequacy of the operating 

expenses, and the management plan. 

In the final stage of processing-initial loan closing-the borrower 

escrows the cash requirements established by HUD. HIJD then establishes 

an account from which the sponsor may draw funds needed to begin and 

complete construction of the project. The initial loan closing is usually 

completed within several weeks of the completed firm commitment. 

With the start of construction, the processing time clock stops.” 

Objectives, Scope, and The Chairman of the Subcommittee on Housing and Consumer Interests, 

Methodology House Select Committee on Aging, asked us to 

l determine the average processing time from fund reservation to construction start for section 202 projects that started construction between 

1980 and 1988, 

. examine whether average processing time has increased or decreased 

between 1980 and 1988 and whether there were any significant differences in processing times among field offices or because of project type, 

and 

l identify reasons for increases or decreases in processing times. 

To accomplish these objectives, we analyzed section 202 program regulations and data obtained from several sources including HUD’S New 

York, Philadelphia, Fort Worth, and Seattle regional offices and the following field offices associated with these regions: Newark, Philadelphia, 

Pittsburgh, Little Rock, New Orleans, and Portland. 

To determine the average processing time from fund reservation to construction start, we analyzed data recorded in IIIJD’S Multifamily Insured 

and Direct Loan Information System (MIDLIS). IJsing MIDLIS, we evaluated 

the processing time-the time between fund reservation and construction start-for all section 202 projects that started construction between 

1980 and the end of 1988 regardless of the date of fund reservation. 

This information was developed on a national, IICJD region, and IIIJD field 

office basis for all projects and according to occupant type-elderly or 

handicapped. 

“The Cranston-Gonzalez National Affordable IIousing Act (P.L. 101~626), dated November 28, 1990, 

authorizes the Secretary of HOD to take certain actions to expedite the financing and construction of 

wction 202 projects. !b:cause IIlJD has not yet implemented this authority, its effect on proccssing 

wction 202 projects is not discussed in this report. 

Page 12 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

To examine whether average processing time has increased or decreased 

between 1980 and 1988, we computed this time for every project that 

began construction during this time period. We compiled this information for each year for comparative purposes. Our analysis identified HUD 

regions and field offices with below average, average, and above 

average processing times. 

To a limited degree, we verified processing date information in the MIDLIS 

system at the six field offices we visited. In general, we found this information to be acceptable for our analysis of the time between fund reservation and construction start. However, during our analysis of the MIDLIS 

information we found that 245 projects, or about 9 percent of the 

projects which started construction between 1980 and 1988, could not 

be included in our analysis because they did not have a fund reservation 

date. This number of projects could significantly affect the average 

processing time information for 1980 and 1981 since 137 of these 245 

projects-56 percent-started construction in these 2 years. 

To determine reasons for changes in processing times and variations 

among field offices, we performed case file reviews in each of the six 

HIJD field offices we visited. The six field offices were selected for geographical dispersion and variations in average processing times. 

Through the case file reviews at these offices and discussions with IIIJD 

staff and sponsors and consultants associated with these and other 

projects, we identified 18 factors contributing to increased processing 

time. 

We developed a questionnaire using these 18 factors to solicit the views 

of national sponsors and national and local consultants to determine 

which factors had the greatest impact on processing time. Appendix I 

provides a description of the methodologies used to develop our questionnaire and sample respondents. Because our selections of sponsors 

and consultants were judgmental, we cannot apply the results of our 

questionnaire to the section 202 program in total. However, in making 

these judgmental selections we considered sponsors’ and consultants’ 

processing experience and geographical locations. The projects of the 

selected sponsors and consultants represented about one-third of the 

3,268 projects funded between 1980 and 1988. 

We performed our work at HUD headquarters, regional, and field offices 

from January through December 1989. We contacted sponsors and consultants between July and September 1989. Our review was performed 

in accordance with generally accepted government auditing standards. 

Page 13 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 1 

Introduction 

In addition to asking us to examine project processing time and reasons 

for changes, the requester’s office, in February 1990, asked us to obtain 

information on the use of section 202 loan funding. HUD'S budget division Office of Financial Management, provided us with information on 

funds available for section 202 loans, fund reservations, and unused and 

recaptured loan funding for fiscal years 1980439. We did not verify the 

figures provided. This information is contained in appendix II. 

Page 14 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 2 

Section 202 Project Processing Time 

Has Increased 

There is a backlog of 1,092 section 202 projects and 35,103 units for 

which HUD has approved funding but for which construction has not yet 

started.1 The backlog of projects is commonly referred to as the 

processing pipeline. About 45 percent of the units in the pipeline have 

been in HUD processing for at least 2 years. 

According to our analysis, processing time increased by an average of 

7.5 months from 1980 through 1988. Furthermore, in 1980,33 percent 

of the section 202 projects took longer than 24 months to process, and in 

1988,58 percent took longer than 24 months. HUD had not enforced its 

regulatory requirement that projects will be terminated and fund reservations will be cancelled unless construction starts within 24 months of 

fund reservation. Our analysis shows significant variations in 

processing time among HUD regions and field offices. Also, on average, 

handicapped projects take longer to process than elderly projects with a 

difference of about 2 months in 1988. 

The Section 202 

Pipeline 

Our analysis of HUD'S MIDLIS information, as of November 9, 1989, shows 

that 1,092 projects representing 35,103 units were in the processing 

pipeline. Table 2.1 shows the status of these projects and units by 

months in process. 

Table 2.1: Section 202 Project 

Processing Pipeline Projects in 

Year of funding approval Months in process pipeline Units in pipeline 

1983 72 3 134 

.-__.-- ..______- 

1984 60 16 680 

1985 48 53 1,914 

1986 36 128 5,274 

Iii87 

~ ~---__ 

24 209 7,712 

7988 12 387 10,951 

1989 0 296 8,438 ~~ ~--.__ . . -_____.. 

Total 1,092 35,103 

Source: HUD MIDLIS data as of November 9, 1989. 

As shown in table 2.1,72 projects reserved in 1983, 1984, and 1985, 

representing 2,728 units, have been in the HIJD processing pipeline for at 

least 48 months, or twice the maximum allowed by HUD regulations. In 

total, 409 projects representing 15,714 units have been in the pipeline 

‘The 1,092 projects represent about 31 percent of all section 202 projects funded between 1980 and 

19R9. 

Page 15 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 2 

Section 202 Project Processing Time 

Has Increased 

for at least 24 months. Adherence to HUD'S regulations in effect when 

these projects entered the pipeline would have require that all 409 

projects in the pipeline beyond 24 months be terminated. Even with 

HIJD'S revised 36 month criteria, at least 200 projects should be considered for termination. Our concern with this new criterion is discussed in 

chapter 3. 

According to HIJD'S director of assisted elderly and handicapped housing 

division, HUD is reluctant to terminate projects for being in process for 

excessive periods of time because funds for the projects cannot be 

reused and, therefore, the projects would be lost for elderly and handicapped housing. Project terminations that do occur are usually the 

result of sponsors deciding to stop project processing. Appendix III 

shows the number of pipeline projects as of November 9, 1989, by HIJD 

region and processing field office and the length of time these projects 

have been in the pipeline. 

Average Processing The average processing time for projects starting construction has been 

Time for Section 202 increasing. Projects starting construction in 1980 averaged 19.3 months 

in the pipeline while projects starting in 1988 averaged 26.8 monthsProjects Has Increased an increase of 7.5 months. As shown in table 2.2, of the 246 projects 

starting construction in 1980,33 percent were in the pipeline longer 

than 24 months. However, of the 295 projects starting construction in 

1988, 58 percent exceeded 24 months in processing time. 

Table 2.2: Projects Starting Construction 

That Exceeded 24 Months in Processing Percent 

Year of funding Projects starting Projects exceeding exceeding 24 

approval construction 24 months months 

..~..._ -.-~ 

1980 246 82 33 

1981 318 140 44 

-__-. --- 

1982 353 165 47 

1983 321 141 44 

--- 

1984 280 98 35 

-...~-.- 

1985 312 96 31 

_...._ ____~--~ ----____ .~ _~~_~-- _~~ 

1986 256 89 35 

1987 267 141 53 

___-. 

1988 295 170 58 

-~ 

Total 2,646 1,122 42 

Source: HUD MIDLIS data as of November 9, 1989 

Page 16 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 2 

Section 202 Pmject Processing Time 

Has Increased 

We also examined processing time by occupant type-elderly and handicapped. Processing time differences between these two categories varied 

from year to year with a difference of only 2.3 months in 1988. In 1980, 

181 elderly projects started construction in an average of 19.1 months, 

while the 65 handicapped projects averaged 20 months in the pipeline. 

In 1988, 159 elderly projects started construction in an average of 25.8 

months while the 136 handicapped projects started construction in an 

average of 28.1 months. Figure 2.1 shows the trend in processing time 

for all projects starting construction from 1980 through 1988 and also 

the trends for elderly and handicapped projects separately. 

---- -----.-_ 

Figure 2.1: Average Processing Time for 

Section 202 Project5 

36 Months In Procodng 

12 

lSB0 1981 1982 1983 1904 1965 1986 1967 1988 

Construction Start Year 

- Elderly Projects (1,59f3) 

-I-- Handicapped Projects (1.050) 

m Total Projects (2,648) 

Source: HUD MIDLIS data as of November 9, 1989. 

Page 17 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
CXaptm 2 

Section202PMjectFroceasingTlme 

Haa Increaecd 

Processing Time 

Varies Among HUD 

Regions and Field 

Offices 

Processing time for section 202 projects differs significantly among the 

HUD field offices. As figure 2.2 shows, the combined field office average 

processing time in only 3 of the 10 HUD regions was less than 24 months 

for projects starting construction in 1988. The average processing time 

ranged from 18.3 months for field offices in the Kansas City region to 

36.8 months for the field offices in the Boston region. 

Figure 2.2: Section 202 Project 

Prkessing Time in 1988 by HUD Region Avemgs Months In Processing 

38 

30 

24 

18 

12 

HUD R5glonal OfficWNumber of Projects in 1988 

Source: HUD MIDLIS data as of November 9, 1989. 

Even wider disparities in average processing time exist among HUD field 

offices. For example, for projects starting construction in 1988, the 

Providence field office took 50.8 months to process one project while the 

Fort Worth field office took 15.1 months to process one project. These 

were the only projects starting construction in these field offices in 

1988. Table 2.3 shows the success in processing within the 24-month 

criterion for the 49 HUD field offices which processed section 202 

projects in 1988. 

Page 18 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 2 

Section 202 Project Processing Time 

Has Increased 

Table 2.3: HUD Field Offices’ Success in 

Meeting Project Processing Criteria in 

1988 Category 

--~- -____ 

Construction starts averaging over 24 months 

---____ __- 

Construction starts averaging 18.1 - 24 months 

Construction starts averaging 18 months or less 

___----_~----__- 

Total 

Number of field Percenta e of 

office3 field of 7. Ices 

26 - 53 

___-.... - 

18 37 

5 10 

49 100 

aTw~ field offices had no construction starts in 1988 

As table 2.3 shows, only five field offices-10 percent-met HUD'S regulatory goal of starting construction within 18 months. Further, 26 field 

offices-53 percent-exceeded HUD'S maximum regulatory time limit of 

24 months between fund reservation and start of construction. 

Appendix IV shows the 1988 average processing times for projects 

starting construction and the number requiring processing times of 18 

months or less, 18.1 to 24 months, and more than 24 months for each 

HIJD region and field office. Reasons for these differences are discussed 

in chapter 3. 

Page 19 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Reasons Why Section 202 Processing Time 

Has Increased 

As noted in chapter 2, the time between reserving funds and starting 

construction for new section 202 projects is increasing. Our reviews of 

project files and discussions with sponsors and consultants of section 

202 projects revealed that while various factors taken together can 

delay construction starts, the following three factors were the most frequently cited reasons for project delays: 

. Fair market rents. In efforts to control program costs, HUD has suppressed FMRS to levels that in many cases can not support section 202 

project development leading to project redesigns and appeals for 

increased FMRS. While HUD'S efforts have reduced section 202 costs, the 

reductions have come at the expense of nonprofit sponsors who have 

needed to delay construction while raising funds to cover costs not provided by the FMRS. Sponsor contributions are necessary despite the legislative authority for the program to provide loan funds to cover 100 

percent of a project’s development costs. 

. Cost containment. Faced with inadequate FMRS for section 202 projects, 

HUD offices repeatedly attempt to reduce costs by requiring sponsors to 

make project changes and redesigns. Sponsors also expressed concern 

about inconsistent cost containment reviews among HUD offices. 

. HUD administration. The degree of management attention given the section 202 program varies among HUD field offices. While three of the six 

HUD offices we visited establish agreements on processing time goals 

through meetings between their technical staffs and the sponsors’ 

design teams, the other three offices appear to provide sponsors little 

guidance. 

While sponsors and consultants cited FMR~, cost containment, and HUD 

administration as factors greatly increasing processing time on their 

projects, they also identified several other factors as being somewhat 

important in increasing processing time. Appendix I discusses these 

other factors. 

Fair Market Rents Of the 30 sponsors and consultants with projects exceeding 24 months in 

processing, 22 responded to our questionnaire that processing time is 

greatly increased because of fair market rents. More specifically, several 

sponsors and consultants stated that HUD is setting section 202 FMRS too 

low in many areas of the country. Furthermore, they indicated that, as a 

result, allowable rents do not cover all of a project’s development and 

operating costs. Insufficient funds cause processing delays because 

sponsors must either find ways to cut costs through time-consuming 

Page 20 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Reasons Why Section 202 Processing Time 

Has Increased 

project redesign, filing lengthy appeals to HUD for higher FMRS, or raising 

money to cover funding shortfalls. 

The 22 sponsors and consultants attributed inadequate section 202 FMRS 

to one or two HUD policy decisions. In 1982 and 1986, respectively, HUD 

decided to control costs in the section 202 program by (1) capping 

annual FMR determinations to a predetermined inflation rate adjustment instead of using actual HUD field office surveys of local market rent 

levels and (2) limiting FMRS to the rents in effect at the time of fund 

reservation. 

Our reviews of project files in five of the six field offices we visited 

disclosed that cases existed where projects 

l were designed according to HUD'S cost containment specifications, 

. received the maximum allowable FMRS, and 

l still required sponsor contributions to bring the mortgage down to a 

level supportable by the FMRS. 

Requiring sponsors to make large monetary contributions in order to 

make project construction feasible conflicts with the legislative 

authority to provide direct loans to qualified nonprofit sponsors at 100 

percent of allowable project development costs. 

HUD recognizes that inadequate section 202 FMRS delay construction 

starts. On December 20, 1989, the Secretary of HUD reported to the 

Chairman, Subcommittee on Housing and Urban Affairs, Senate Committee on Banking, Housing and Urban Affairs, on actions HUD is taking 

to expedite section 202 processing. The Secretary said that since August 

1989 HUD has allowed projects that have been in the pipeline for over 2 

years to use 1987 FMRS in place of FMRS in effect at the time of fund 

reservation. The Secretary stated that the use of 1987 FMRS and a 

reduced interest rate has improved processing, in that 1,000 units 

started construction in October 1989 an increase of 45 percent over the 

number of starts a year earlier. 

FMRs Determine Most 

Project Loan Amounts 

IJnder HUD regulations, a project’s section 202 loan is based on the 

lowest of two amounts: (1) A section 202 per-unit-cost limit which may 

be adjusted for the market area where the project is to be built. This 

estimate is made by the cognizant HUD field office at the time of fund 

reservation. (2) An estimate of a project’s land and construction costs. 

This estimate, or cost valuation, is made by HUD field office staff based 

Page 21 GAO/RCEDS14 Housing for the Elderly and Handicapped 
Chapter 3 

Reasons Why Section 202 Processing Time 

Has Increased 

on project plans and specifications submitted by the sponsor at conditional and firm commitment. Notwithstanding these regulations, HUD'S 

processing manual for section 202 projects also stipulates that the loan 

cannot exceed the amount supportable by the FMRS after considering 

project operating expenses. 

Because of different data sources used in calculating the three estimates, there can be wide variations in allowable loan amounts under the 

three methods. For example, a national consultant stated that in one 

case HUD'S fund reservation amount for a loo-unit project in Texas was 

about $2.8 million; the field office’s valuation of the project at firm commitment was $2.1 million; however, the maximum mortgage amount 

supportable by the FMRS was $1.7 million, The maximum section 202 

loans allowable for projects we reviewed were usually based on FMR 

determinations. 

A section 202 project in the Portland, Oregon, area illustrates the effect 

inadequate FMRS had on project processing. 

Inadequate FMRs Are For a number of years in the early 1980s market rents in the areas 

Delaying a Portland Field served by the Portland field office were declining due to a depressed 

Office Project local economy. According to the Portland field office’s director of 

housing development, rent surveys prepared by the field office reflected 

this local market recession, and fair market rents for section 202 

projects declined. However, in the mid-1980s, the Portland area 

economy experienced an upturn and rent levels increased substantially. 

During the period 1986 through 1988, HUD capped fair market rents to 

an inflation factor averaging about 3 percent while actual rents were 

increasing at about 8 percent. Consequently, market rents soon exceeded 

HUD'S allowable fair market rents. 

According to field office staff, the disparity between actual and allowable rent levels in the Portland area has effectively precluded sponsors 

from building section 202 projects in many areas of the Portland market. 

Figure 3.1 shows a comparison of new construction rents as determined 

by Portland field office rent surveys compared to HUD published new 

construction FMRS for l-bedroom units in a 2- to 4- story building with an 

elevator in the Coos Bay, Oregon, market area. 

Page 22 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Reasone Why Section 202 Processing Time 

Has Increased 

Figure 3.1: Comparison of Field Office 

Rent Surveys and Published Fair Market 

Rents for the Coos Bay, Oregon, Market 400 Monthly par Unll Eldotly FMR 

Area 

375 

275 

250 -. ., _ _- ..- -_ ,,.__ 

. -,.-.- 

1982 1983 1984 1985 1986 1987 1988 1989 

Ftseal Yom 

- Field Office Market Survey Rents 

---I Published Fair Market Rents (FMRs) 

l-E&A on Elderly FMRs for l-Bedroom Units in a 2-to 4- story building with an elevator. 

2-FMRs for Fiscal Year 1988 were not published until December 1,1989, but were effective 

retroactively to September 15, 1988. 

3-FMRs for fiscal year 1989 have not been published. 

Note: Data based on elderly FMRs for l-bedroom units in a 2- to 4-story building with an elevator. FMRs 

for fiscal year 1988 were not published until December 1, 1989, but were effective retroactively to September 15, 1988. FMRs for fiscal year 1989 have not been published. 

As illustrated in figure 3.1, new construction survey rents and published 

rents were nearly identical from 1982 through 1985 when rents were 

decreasing. The rents corresponded because HUD uses survey rents to 

adjust FMRS downward. However, beginning in 1986, survey rents 

increased at a more rapid pace than inflation adjusted rents approved 

by HUD. By fiscal year 1988, survey rents were $350 per month while 

published rents were $308 per month, a differential of 14 percent. 

A project located in the Coos Bay market area illustrates the dual effect 

of HUD capping FMRS and also limiting FMRS to those in effect at the time 

of fund reservation. The sponsor of this project was notified in September 1986 that HUD reserved $1,097,800 based on the section 202 perunit-cost limit adjusted for the Portland market area. 

Page 23 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
chaptm 9 

Reaaone Why Se&ion 202 Prowssing Time 

Ha19 Increased 

In July 1987, about 9 months after fund reservation, the Portland field 

office issued a conditional commitment for the project. At this time, the 

field office valued the project at $750,487. It also authorized FMRS to be 

raised to 110 percent, or $316 per month. With these FMRS, the project 

could support a development cost of $617,700, or $132,787 less than the 

valuation estimate. 

The sponsor began developing drawings and specifications of the project 

for HUD'S firm commitment review prior to obtaining construction bids. 

In December 1987, the sponsor provided detailed drawings and specifications to the Portland field office architectural, engineering, and cost 

branch for a firm commitment review. The Portland staff responded in 

15 days with 11 cost containment suggestions such as reducing the 

number of parking places, minimizing landscaping, and asking local 

authorities to waive permit charges. The sponsor agreed to these 

changes and in January 1988 resubmitted the revised project plans. In 

March 1988, the Portland field office sent the sponsor the results of its 

firm commitment processing. The field office found the project to be cost 

contained and, based on the detailed project specifications, estimated 

the project’s valuation cost at $837,615. 

On April 26, 1988, the field office requested HUD headquarters approval 

to use 120 percent of FMRS for this project. The Assistant Secretary 

agreed that the project met the objectives of cost containment and 

approved the project for a 120-percent FMR exception rent, based on the 

FMRS at the time of fund reservation. At the 120-percent of FMR level, or 

$345 per month for l-bedroom units, HUD headquarters found that the 

project’s maximum allowable mortgage could not exceed $723,400. 

Thus, although the project met HUD'S cost containment objectives, the 

mortgage supportable by the 1986 FMRS was still $114,215 below the valuation cost estimate. Following the Assistant Secretary’s approval of 

120 percent of FMRS, Portland issued the firm commitment in June 

1988-20 months after fund reservation. 

Upon receiving the firm commitment, the sponsor obtained construction 

bids. Construction bids were higher than the valuation estimated by the 

field office in March 1988. Based on the construction bids, the field 

office valued the project’s estimated cost at $862,120. Since the maximum direct loan supportable by the FMRS was only $723,400, the project 

had a cash shortfall of $138,720. 

On December 1, 1989, HUD published 1988 fair market rents, which for 

Coos Bay were $308 for l-bedroom units. HUD permitted the Coos Bay 

Page 24 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Reaa~ns Why Section 202 Processing Time 

Has Increased 

project to use the 1988 FMRS escalated to the 120-percent exception level, 

or $369 per month. In addition, the project was able to take advantage 

of a lower interest rate, which declined from 9.25 percent in 1988 to 

8.375 percent on September 19,1989. Even with the 1988 FMRS and a 

lower interest rate, the Coos Bay project still could only support a mortgage of $828,500. This is still $33,620 below the estimated project development costs. A rent of $374 per month would be needed to cover this 

difference and meet 100 percent of the project’s development costs. 

We note that if HUD had accepted the field office survey rents for fiscal 

year 1988, FMRS would have been $350 per month. With this rent, the 

field office could have approved a 7-percent increase to the FMRS 

without central office approval and the project could have been 100 percent financed. Nevertheless, as of April 16, 1990, the nonprofit sponsor 

was unable to provide $33,620 to cover the estimated shortfall and the 

project remained stalled in HUD’S processing pipeline. 

If FMRS were set so that this project did not require a sponsor contribution, HUD’S costs would increase in two ways. First, the section 202 loan 

would increase by $33,620. However, since the project has unused loan 

reservation funds of $269,300-the difference between the fund reservation amount and the maximum allowable mortgage-the increase in 

section 202 loan authority would be covered. In addition, section 8 subsidy costs would increase by $3,161 per year, or $63,220 over a 20-year 

period. 

From 1980-89, HUD did not use or recapture $932 million (13 percent) of 

the $6.9 billion section 202 loan authority established through appropriations The $932 million includes $490.8 million in funds that were not 

used because project loan funds were less than project reservation 

amounts. However, because HUD’S accounting systems do not track the 

amount of sponsor contributions, it is not possible without a project-byproject review to determine the overall effect that increasing FMHS would 

have on total program costs. Appendix II presents section 202 funding 

and project processing information for 1980 through 1989. 

Additional Examples of 

Inadequate FMRs 

Y 

In four other HUD offices we found examples of sponsors receiving the 

maximum allowable FMRs-the projects met cost containment objectives-but still needing to make contributions for allowable project 

development costs. The required sponsor contributions ranged in 

amount from $600 to $350,000. 

Page 26 GAO/RCED-91-4 Ibusing for the Elderly and Handicapped 
Chapter 3 

Rea8ons Why Section 202 Processing Time 

Haa Increased 

According to HIJD staff in each of these field offices, local rent surveys 

showed actual rents to be higher than the FMRS ultimately approved by 

HUD. The staff stated that had project rents been based on these surveys, 

sponsor contributions would have been eliminated or greatly reduced. 

Little Rock, Arkansas, was the only location that we visited in which 

FMRS were not identified as a problem by HUD field office staff and section 202 consultants. In Little Rock, the survey rents and the published 

FMRS were the same from 1986 to 1988. In 1988, the Little Rock office 

processed section 202 projects in an average of 16.3 months, whereas 

the nationwide average was 26.8 months. 

Cost Containment 

Reviews 

Of the 30 sponsors and consultants with projects exceeding 24 months in 

processing, 23 cited cost containment reviews as greatly increasing 

processing time in response to our questionnaire. Eighteen of the 23 

agreed that cost containment was a necessary HUD function to assure 

modest project designs. However, they stated that the policy is subject 

to interpretation and often driven by the levels of the section 202 FMRS 

rather than by design and construction considerations. 

HUD'S cost containment policy is intended to prevent projects from being 

excessive in terms of amenities and cost of materials, thereby ensuring a 

proposed project is of modest design. The policy states that cost containment applies to all projects regardless of FMR level. Items specifically 

prohibited from section 202 projects include swimming pools, saunas, 

balconies, atriums, dishwashers, and individual trash compactors. HUD 

also reviews whether the project design is cost-efficient in terms of site 

use, structure type, and common spaces and amenities. 

Eighteen of the 23 sponsors and consultants stating that cost containment greatly increased processing time expressed frustration with the 

implementation of cost containment because they perceive the reviews 

being applied differently depending on the adequacy of the section 202 

FMRS to support total development costs. When FMRS are adequate to support development costs, cost containment is usually not a problem 

according to these sponsors and consultants, However, they stated that 

cost containment becomes a problem when FMRS are too low to support 

project development costs. 

According to these sponsors and consultants, HUD applies repetitive and 

inconsistent cost containment reviews in an attempt to reduce these 

costs when FMRS are too low. They added that each review finds another 

problem with the design or construction material-sometimes requiring 

Page 26 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Reasons Why Section 202 Processing Time 

Haa Increased 

changes to be made to items already changed in response to a previous 

review. When HUD disallows design or construction materials, the 

sponsor must either redesign the project or contribute funds to cover the 

nonallowable costs. HUD regional office administrators in Fort Worth and 

Philadelphia agreed with sponsors’ comments that HUD will search for 

ways to cut project costs to the level that allowable rents will support. 

HUD oversees the way its field offices implement cost containment but 

only to a limited degree. Since 1986, cost containment training has consisted of two l-day training sessions given in 1988 and 1990 to field 

office staff. According to HUD'S technical support division director, onsite compliance reviews are the superior method of assuring consistent 

field office treatment of cost containment. She said, however, that limited resources do not allow for more than 10 on-site visits each year. 

However, only six on-site cost containment compliance reviews have 

been made in the past 3 years to the 51 processing field offices 

according to the architectural and engineering branch chief in the technical support division.1 

HUD'S December 20, 1989, report on expediting section 202 processing 

cited cost containment as a factor contributing to processing delays. The 

Secretary reported that HUD is continuing to study this issue. 

The following example illustrates the processing delays that additional 

cost containment reviews have caused a nonprofit sponsor in starting 

construction of a section 202 project in the Philadelphia, Pennsylvania, 

field office. 

Example of a Project 

Affected by Additional 

Cost Containment Review 

Cost containment reviews have been a problem for a 59-unit project 

being processed by the Philadelphia field office. At fund reservation in 

.s September 1986, HUD reserved $3,419,500 for this project. However, as 

of February 1990, firm commitment still had not been issued, mainly 

because of differences in cost containment interpretations between the 

field office and headquarters. 

During its June 1987 cost containment review at conditional commitment, the Philadelphia HUD field office recommended several design 

changes. At conditional commitment, the field office also approved a 

1 lo-percent exception to the Philadelphia area’s published section 202 

I While six on-site cost containment reviews have been conducted since 1986, only five field offices 

were involved. The Greensboro, North Carolina, field office was reviewed twice. 

Page 27 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 2 

Reasons Why Section 202 Processing Time 

Has Increased 

FMRS. The published rent for a l-bedroom unit was $705 per month, and 

the rent at a 1 lo-percent exception level was $776 per month. The 

exception level rent would support a mortgage amount of $3,374,600 

while the field office valued the project at $3,375,900. In July 1987, the 

consultant informed the field office that the project would be redesigned 

to make the field office cost containment changes. The sponsor made the 

changes, and the field office issued conditional commitment in February 

1988. 

The consultant submitted the project’s firm commitment application 

including the project’s detailed plans and specifications in August 1988. 

The field office also performed another cost containment review and, in 

October 1988, informed the consultant of six additional cost containment measures, including eliminating several ornate design features, 

such as bricked archways, and eliminating a dishwasher, trash compactor, and microwave oven in the community room. In November 1988, 

the sponsor accepted three of the additional changes, but agreed to provide $33,408 at initial closing to retain the other design features. 

Finally, in April 1989, the field office valued the project at $3,940,800. 

In May 1989, the field office accepted the project as cost contained. 

However, because rents were limited to $775 per month, HUD'S maximum 

allowable mortgage of $3,374,500 would not support project costs. Since 

project costs exceeded 110 percent of FMRS, the sponsor asked HUD headquarters for a 120-percent FMR exception rent. At the 120-percent level, 

FMRS would increase to $846 per month and would support a mortgage of 

$3,814,300. This amount is less than the project valuation and would 

require an additional sponsor contribution of $93,100. Since this amount 

was greater than the original fund reservation, the sponsor was required 

to seek an amendment to the original reservation amount from HUD 

headquarters. As part of the approval process, HUD headquarters conducted a cost containment review. 

In July 1989, the field office sent the sponsor the results of the headquarters cost containment review. On the basis of its interpretation of 

cost containment requirements, headquarters listed 10 items that 

needed to be eliminated or redesigned to meet cost containment objectives. According to the headquarters review, the most effective way to 

address most of these items would be a complete redesign of the project 

from a 6-story to a 5-story structure. The field office told the sponsor he 

had two choices. He could either (1) redesign the project as suggested or 

(2) pay for the nonallowable costs, estimated at $147,000. 

Page 28 GAO/RCED-914 Housing for the Elderly and Handicapped 
Chapter 3 

Reasons Why Section 202 Processing Time 

Has Increaeed 

In July 1989, the consultant appealed the headquarters decision. The 

consultant’s appeal pointed out that after several design changes the 

field office determined the project was cost contained and that making 

the redesign envisioned by headquarters would add nearly one year of 

processing time and increase project costs by $478,000. In December 

1989, HUD headquarters informally notified the field office that the 

headquarters June 1989 cost containment review was HUD'S official position As of March 1990, the project was stalled in the processing pipeline 

because the sponsor did not have the money to redesign the project or 

pay for the unallowed costs. 

Other Problems With Cost 

Containment Reviews 

Sponsors and consultants of projects in several geographic locations provided examples of differing interpretations among offices on cost containment requirements. For example, on one project, which received 

firm commitment in November 1989, the Greensboro, North Carolina, 

field office determined that the project design was not in compliance 

with cost containment objectives. The office required the consultant to 

redesign the project from an 8-unit row structure to an 8-unit block 

structure with 4 units back to back. According to the consultant the 

Greensboro office had previously certified the same 8-unit row structure 

three times previously, when FMRS covered project costs. However, in the 

most recent project, FMRS did not cover estimated project costs. Meanwhile, on another project, which received firm commitment in March 

1990, the Columbia, South Carolina, field office approved the consultant’s same 8-unit row structure design as meeting cost containment 

objectives. South Carolina’s elderly FMRS were adequate to cover estimated project costs according to the consultant. 

Several sponsors and consultants we contacted also expressed concern 

about HUD changes that result in higher operating costs or higher lifetime project costs. For example, one HUD field office required a project to 

be built with electric heat for all units because electric heating units are 

cheaper to install than gas heating units. However, electric heat often 

results in higher utility costs for the life of the project. Other examples 

given were potentially higher heating costs in cases where insulation 

was reduced and additional costs for pest extermination in cases where 

window screens were eliminated. 

HUD Admi’nistration When responding to our questionnaire, 22 of the 30 sponsors and consultants with projects exceeding 24 months in processing indicated that 

HUD review time greatly increased processing time. In addition, 20 of the 

Page 29 GAO/RCED914 Housing for the Elderly and Handicapped 
Chapter3 

ReaSOna Why Section 202 Processing Time 

Has Increaeed 

30 also indicated that HUD staff actions greatly increased processing 

time. We combined these responses into an overall category of HUD 

administration. According to nine respondents, section 202 housing was 

not a high priority program in HUD, and HUD staff allowed processing 

delays to occur and provided little assistance to sponsors in meeting 

processing requirements. Although 16 respondents ‘were critical of HUD'S 

administration of the program, 9 sponsors and consultants also commented that H~JD employees are hardworking and simply overburdened 

with the volume of paperwork involved in section 202 processing. 

Other than responding to a congressional directive to determine the reasons for section 202 processing delays, HUD headquarters did not monitor its regional or field office processing performance. In practice, field 

offices differed significantly in the degree of management attention 

given to the program. 

For example, the Newark and New Orleans HUD field offices routinely 

experienced processing delays beyond 24 months. These offices did not 

provide program participants the same degree of assistance as other 

field offices in executing processing requirements. Conversely, the Pittsburgh and Little Rock field offices processed most projects in less than 

24 months, and they had several management techniques in common. 

Although HUD regulations do not provide time goals for issuing firm 

commitment, each office established such goals. Also, each office 

required the field office’s technical staffs-architecture and engineering, cost, valuation, mortgage credit, and housing management-to 

meet with project development teams during the conditional and firm 

commitment stages of processing. The meetings were meant to ensure 

that the development teams understood and accepted HUD'S cost containment objectives, program requirements, and regulatory mortgage limits. 

HUD'S section 202 processing requirements provide target dates for certain processing steps that account for 8 to 9 months of the total 18- 

month processing goal. HUD'S notification to selected sponsors that their 

section 202 project applications were selected for funding includes a 

statement that construction shall start within 18 months unless extensions are granted. These requirements include: 

l the sponsor’s submission of a conditional commitment application 

within 60 days-90 days for a complex proposal-of the notification of 

fund reservation, 

Page 30 GAO/RCEDQl-4 Housing for the Elderly and Handicapped 
- 

1 

Chapter 3 

Reasons W hy Section 202 Processing Time 

Has Increased 

. HIJD'S review and issuance of the conditional commitment within 60 days 

of receipt of a complete application, and 

. the sponsor’s submis s ion of a firm commitment application within 120 

days of issuance of conditional commitment. 

I-IUD has not established any additional target dates for reviewing and 

issuing the firm commitment. Moreover, HUD does not require its field 

offices to meet with the sponsor to discuss cost containment objec tives 

and allowable mortgage limits during this processing s tage. Firm commitment is a critical processing s tage in which the project’s design and 

materials are finalized for HUD review. 

The following example illus trates the differences in adminis tration of 

the section 202 program in the Little Rock and New Orleans HUD offices. 

Example of Differences 

HUD Adminis tration of 

Sec tion 202 Program in 

Two Field Offices 

in HIJD'S MIDLIS sys tem shows that 98 percent of the section 202 projects 

the funded during 1980 to 1986, in the Little Rock office, s tarted construction within 24 months. In contrast, only 29 percent of the section 202 

projects funded during this period in the New Orleans office s tarted cons truction within 24 months. 

Field office offic ials in Little Rock attributed their consis tently timely 

performance in meeting section 202 goals to two fac tors. Firs t, project 

s ize was limited to a maximum of 20 units beginning in 1983. This decis ion accelerated project s tarts by moving s ites to rural areas where s ite 

selec tion problems were minimized. Second, HUD offic ials and project 

development teams met at project funding and during conditional and 

firm commitment processing to establish mutually agreed upon times 

and costs and precluded potential future delays by eliminating misunderstandings. Little Rock offic ials added that they believed FMRS were 

adequate for section 202 projects and that, as part of their meetings 

with project development teams, it was specifically s tated that no 

waivers of the FMR limits would be allowed. 

New Orleans field office offic ials attributed frequent processing delays 

to cost containment, inadequate FMRS, s ite control problems, and to a low 

priority given the section 202 program within the field office, According 

to the field office manager, the processing of elderly and handicapped 

housing is a low priority because the field office is insufficiently s taffed 

for timely performance on all HUD programs. Unlike the Little Rock 

Office, the New Orleans office did not conduct meetings at the firm commitment s tage between field office review s taff and the sponsor’s design 

Page 31 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Beaeons Why Section 202 Processing Time 

Haa Increased 

. 

team. Local consultants who dealt with the New Orleans office confirmed that aside from limited management attention, cost containment 

and inadequate FMRS were also reasons for delays in New Orleans. 

The Fort Worth regional administrator and the director, Office of 

Housing, agreed that cost containment, FMR limitations, and site selection were all problems contributing to processing delays in New Orleans, 

However, they did not concur with the New Orleans office’s contention 

of being understaffed. The regional administrator said that the New 

Orleans office was better staffed than other HUD field offices in the 

region. Furthermore, the Little Rock office was able to avoid processing 

delays because of adequate FMRS and by building small projects in 

nonmetropolitan areas according to these officials. 

The management styles of the two offices have greatly contributed to 

the processing time differences according to a national consultant who 

deals with both offices. Specifically, the consultant noted that the Little 

Rock office requires each project’s development team (architect, consultant, attorney, etc.) to work with HUD in establishing budgets and 

designs within cost containment limits and FMRS. Conversely, the New 

Orleans office provides little guidance to program participants and does 

not collaborate with the sponsor’s design team at firm commitment 

which leads to lengthy delays when FMR limits are exceeded or when 

cost containment is an issue. 

Conclusions We believe that HUD has a responsibility to assure that its fair market 

rent levels represent fair caps on the rents that nonprofit sponsors can 

charge in section 202 projects. Low FMRS have helped create backlogs of 

section 202 projects not starting construction, precluded certain areas of 

the country from participating in the section 202 program, and required 

significant nonprofit sponsor contributions that the program’s legislation did not intend. 

HIJD offices have been inconsistent in their application of cost containment. In locations where HUD sets section 202 FMRS too low, HUD offices 

repeatedly review and change project design plans in attempts to lower 

costs to amounts that can be supported by the lower rents. Low FMRS 

followed by duplicative cost containment reviews often result in timeconsuming redesigns of projects. Sponsors and consultants of section 

202 projects also told us that HUD offices are inconsistent in determining 

what are acceptable project costs. This may be due to HUD providing limited training and oversight of cost containment implementation. 

Page 32 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Retwon Why Section 202 Processing Time 

HIIB Increaecd 

We also noted there were sharp differences in the degree of attention 

paid to timely section 202 processing at the HUD field offices we visited. 

Some HUD offices paid strict attention to timely section 202 processing, 

while other offices allowed processing delays to occur and provided 

little assistance to sponsors in meeting processing requirements. The 

field offices with timely section 202 processing established procedures 

beyond those in HUD'S processing requirements. Specifically, these 

offices establish time goals to issue firm commitments. HUD processing 

requirements do not include target dates for this activity. In addition, at 

firm commitment, these offices require their technical staffs-architecture and engineering, cost, valuation, mortgage credit, and housing management-to meet with project development teams to ensure that 

sponsors understand and accept cost containment objectives and allowable mortgage limits. 

Moreover, other than responding to a congressional directive to determine the reasons for section 202 processing delays, HUD has not adequately monitored its regional or field office section 202 processing 

performance. 

Recommendations To better facilitate the timely completion of section 202 projects, we recommend that the Secretary of HUD: 

l Establish fair market rents for section 202 projects at levels that reflect 

local rental markets to help improve processing time and also make it 

more likely that the section 202 program will provide 100 percent 

sponsor financing for modestly designed housing. 

l Ensure that supervisory visits and reviews by HUD headquarters and 

regional offices are implemented to validate consistent application of 

cost containment requirements among field offices. 

Agency Comments and In commenting on a draft of this report (see app. V), HUD agreed with 

Our Evaluation our conclusion that inadequate section 202 project fair market rents 

have contributed to delays in processing section 202 projects because 

they do not always accurately reflect local market rents in a given area. 

However, HUD pointed out that using actual market rents could increase 

program costs beyond an acceptable level. HUD went on to comment that 

it is endeavoring to develop an approach to increasing the FMRS that 

would support the market rents while also minimizing the budget impact 

as much as possible. We agree that there would be a budgetary impact if 

FMRS are increased. However, in terms of funding section 202 projects, 

Page 33 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Chapter 3 

Reason6 Why Section 202 Processing Time 

Has Increased 

H‘IJD needs to take into account Congress’ intent that development costs 

for these projects are authorized to be provided at 100 percent. 

In regard to applying cost containment guidelines consistently, HIJD said 

that all field offices were provided training in 1988 and 1990. Because 

HUD believes that these training sessions have increased field offices’ 

awareness and understanding of cost containment objectives, application of cost containment guidelines are being decentralized to the field 

offices. HUD plans to monitor field office compliance with cost containment through random project reviews and field office visits. We agree 

with HUD'S approach of decentralizing cost containment to the field 

offices provided that HUD headquarters and regional office monitoring is 

adequate to ensure the consistent application of cost containment 

objectives. 

HUD has taken action in response to a proposal in our draft report that 

processing time goals be established. In June 1990, HUD issued a notice to 

all field offices requiring them to develop timetables for processing section 202 projects. This notice also requires field office staff to ensure 

regular communications between the sponsor’s development team and 

the HUD field office staff during all phases of processing. 

In accordance with the final proposal in our draft report, HUD said that 

both headquarters and regional offices are now monitoring field office 

processing time. HUD also said that it plans to establish, in fiscal year 

1991, a goal to process section 202 projects in an average of 24 months 

or less with a maximum allowable time of 36 months. HUD recently 

amended its regulations to codify that intent. Given HUD'S planned 

actions to correct the factors causing delays, we do not believe 

increasing the processing time goals to 36 months was warranted. By 

adjusting section 202 FMRS, improving communications between the field 

office staff and borrowers’ development team, training staff, and 

increasing field office reviews, HUD should be able to meet its original 

processing goals of 18 to 24 months. In fact, in field offices where corrective action by HUD is not needed, 21 projects were processed within 

an average of 20 months in 1988. 

Page 34 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Page 35 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
ppendix I 

bt 

” 

es ionmxire Methodology and IXesults I 

Questionnaire 

Methodology 

To determine the reasons for processing delays among HUD field offices, 

we identified 18 possible factors through reviews of HUD project files 

and discussions with both HUD staff and consultants. We conducted computer-assisted telephone interviews with 40 judgmentally selected sponsors and consultants and asked them how these 18 factors may have 

affected their projects’ processing times.’ As a group, these sponsors and 

consultants had processing experience covering 1,098 projects in 48 of 

HUD’S 51 processing field offices and all 10 HUD regions. The interviews, 

ranging from 1 to 2 hours in duration, focused on determining the degree 

to which various factors affected processing times on specific section 

202 projects. 

We interviewed 4 national sponsors out of 18 that we identified in HUD’S 

MIDLIS computer system. We selected all national sponsors who had at 

least 25 projects, did business with more than two HUD regions, and had 

projects funded in at least two different funding years. The four sponsors whom we identified represented 236 projects. 

We interviewed 9 national consultants out of 14 that we identified 

through discussions with HUD officials and consultants. We selected all 

national consultants who had at least 25 projects, experience in at least 

two HUD regions, and had projects funded in at least two different 

funding years. The nine national consultants whom we identified represented 573 projects. 

We interviewed 27 local consultants out of 108 whom HUD field office 

staff identified as having projects funded in the six HUD field offices 

chosen for our review. We selected local consultants who had worked on 

at least three projects in two different funding years. The 27 local consultants represented 289 projects. 

The sponsors and consultants we interviewed represented about onethird of all section 202 projects funded between 1980 and 1988. However, since our selection of HUD field offices and survey participants was 

judgmental, the results of our analysis is not applicable to the section 

202 program in total. In addition, each respondent was asked to discuss 

any additional factors affecting processing times on their projects that 

may not have been included in the list of 18 items. The respondents 

were also asked to provide documentation regarding the major factors 

they identified as greatly increasing processing times on their projects. 

‘Sponsors are nonprofit organizations who apply for section 202 loans. Consultants for nonprofit 

sponsors help them conform to HUD requirements and also select the project’s development team. 

Page 36 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Appendix I 

Queetionnabe Methodology and Reeulta 

Questionnaire 

Responses 

Of the 40 selected sponsors and consultants, 30 had projects that 

exceeded 24 months in processing. Since 24 months is supposed to be the 

maximum processing time, we concentrated our efforts on establishing 

those factors that caused project processing to exceed this limit. Therefore, the remaining information is based on 30 responses. 

The combined responses of the 30 sponsors and consultants with 

projects that exceeded 24 months in processing showed that they most 

frequently indicated (1) cost containment (23 of 30), (2) fair market 

rents (both capping (22 of 30) and maintaining (17 of 30) FMR levels), 

and (3) HUD administration (review time (22 of 30), and HUD staff (20 of 

30)) as the major factors greatly increasing processing time. Since more 

than 50 percent of these respondents indicated that these factors greatly 

increased processing time, we designated these factors as being of major 

importance. 

More than 50 percent of the 30 respondents also indicated that an additional five factors either greatly or somewhat increased processing time 

on their projects exceeding 24 months in processing.2 However, since 

these factors were not indicated as greatly increasing processing time by 

a majority of the 30 respondents, we designated these factors as being of 

some importance rather than major importance. 

Table I. 1 shows survey participant responses to each of the 18 factors 

included in our questionnaire for the 30 sponsors and consultants with 

projects exceeding 24 months in processing. The results indicate the percentage reporting the factors as either greatly or somewhat increasing 

processing time on their projects. While sponsors and consultants also 

identified several additional factors as causes for delays on section 202 

projects, these additional factors were not mentioned frequently and 

were applicable to delays on specific projects. 

?he five additional factors that increased processing time included (1) operating expenses, (2) local 

regulations, (3) information required by HUD, (4) competitive bid, and (6) cost containment versus 

local design. 

Page 37 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Appendix I 

Questionnaire Methodology and Results 

Table 1.1: Analysis of Factora for Processing Delays According to National Sponsors and Consultants and Local Consultants (For 

Proiects Exceedina 24 Months in Process) 

Factor title 

Of major importance --- - 

Cost contarnment 

Lrmrted FMRs 

Marntained FM& 

HUD revrew time 

HUD staff 

Of some importance ~. 

Operating expenses 

lnformatron required by HUD 

Local regulatrons 

Competrtrve bid 

Effect on processing time’ 

Greatly Somewhat 

Description increased increased 

Requirement that the building is not 

excessive in terms of amenities and cost of 

materials. 76.7 13.3 

-__- -____ -___- 

Cap of FMRs at certain inflation limits 

beginning in 1982. 75.9 10.3 

Maintenance of FMRs to those in effect at the 

time of fund reservation beginning in 1986. 58.6 10.3 

___----.-.--.. ~~~~- -.- 

Amount of time required by HUD to review 

material submitted for processing. 73.3 16.7 

HUD staff assigned to oversee processing 66.7 10.0 

_- 

Since FMRs must cover both debt service and 

operating expenses, every dollar of income 

assigned to operating expenses reduces the 

amount of income available to cover debt 

service. This reduces the maximum loan 

amount supportable by FMRs and increases 

the potential for sponsor contributions. 46.7 20.0 

-- -_.__- ~~-.. 

Financial statement disclosures and identity 

of interest statements at all stages of 

processing. 26.7 33.3 __I-~-_ _--.-. 

Obtaining local zoning permits. 30.0 30.0 

..-___ 

Competitive biddin is mandatory when 

protects exceed 11 B percent of FMRs or the 

mortgage amount exceeds $2 million. 31.3 25.0 

--- 

Cost contarnment versus local design Cost containment may disallow costs for local 

code requirements increasing sponsor 

contributions. 23.3 30.0 

Other factors ~~~~. .~_____~_. ~__ ..- .~ 

Local opposition Community opposition to the project can 

delay processing or require the selection of a 

different site. 30.0 13.3 

.~ .~~~~~ . -~~-. .~ ___. -__~..-I______----~-...-~~~~.. 

Field office changes Processing procedures that differ from other 

field office. 23.3 6.7 

__.__ _--~-.. --. -....~- 

No elderly sate control Lack of site control requirement prior to fund 

reservation for elderly project funded in 1986. 12.5 31.3 

Archrtect expenence Architect’s experience with section 202 

requirements can affect processing time. 10.0 23.3 

..-. 

Handicapped support HUD requires support services to assist the 

less mobile, handicapped persons to be 

contracted for at firm commitment. 8.3 12.5 

Contractor experience 

__--- 

Contractor’s experience with section 202 

requirements can affect processing time. 3.3 13.3 

--.___. 

(continued) 

Page 39 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Appendix I 

Questionnaire Methodology and Results 

-.-----.- .._.__ -----. -__-_- 

Factor title 

Sponsor expenence 

Consultant experience 

Effect on processing timea 

Greatly Somewhat 

Description increased increased 

Sponsor’s experience with section 202 - 

requirements can affect processing time. 3.1 6.3 

Consultant’s expenence with section 202 

requirements can affect processing time. 0.0 0.0 

aListed by percentage of 30 respondents having prefects exceedrng 24 months in processing The percentages do not total to 100. For the remaining percentages, the respondents indicated that the factor 

decreased or had IMe or no effect on processing time or the respondent was either unsure of the effect 

on processing time or found It not applicable. 

Source: GAO analysrs of questtonnarre responses. 

Page 39 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Appendix II 

Section 202 Program Activity 

During fiscal years 1980 through 1989, HUD had authority to issue $6.9 

billion in section 202 loans to finance the construction of 133,851 units 

of new elderly and handicapped rental housing. While most of the 

authorized housing units were built or are in the processing pipeline, a 

substantial amount of appropriated funds were unused. During the loyear period, HUD financed the construction or has in process 96 percent 

of the authorized units, while only 4 percent, or 5,424 units, were terminated after approval. However, of the $6.9 billion appropriated for the 

program, about $932 million, or 13 percent, was initially unused or 

recaptured. Recaptured funds are funds reserved in prior fiscal years 

for specific section 202 projects, but not used. Table II.1 shows the loan 

amounts available for the program, and the unused and recaptured loan 

authority, for fiscal years 1980 through 1989. 

.._ _---__ 

Table 11.1: Section 202 Amounts 

Appropriated, Unused, and Recaptured 

for Fiscal Years 1960 Through 1969 

Dollars in thousands 

Reservation 

Loan limitation Unused loan amounts Total unused or 

Fiscal year approved funds recaptured recaptured 

1980 $1,053,560" $121,045 $55,998 $177,043 

1981 895,848b 23,271 46,979 70,250 

1982 830,848 12,025 58,705 70,730 

1983 634,200 862 108,193 109,055 

1984 666,400 ~~~ 564 105,101 105,665 

1985 600,000 3,050 73,819 76,869 

1986 603,899 48,058 59,643 107,701 

1987 592,661 18,612 61,388 80,000 

1988 565,776 742 61,047 61,789 

1989 480,106 2,384 70,827 73,211 

Total $6,923,298 $230,613 $701,700 $932,313 

% fiscal year 1980, the sectron 202 program was authorized to reuse all funding available from pnor 

fiscal years. Thus amounted to $223.6 million. 

bin fiscal year 1961, the section 202 program was authorized to reuse 565 million of recaptured reservations from prior years 

The unused loan funds shown in table 11.1, or $230.6 million, are funds 

that were not reserved in the year appropriated. Since fiscal year 1981, 

these funds have not been available for use in the section 202 program 

in succeeding fiscal years and, therefore, revert back to the Treasury. 

The reservation amount recaptured, or $702 million, includes $210.9 

million that was reserved for projects funded during fiscal years 1980 

through 1989, but the projects were terminated in years after fund reservations were made, and $490.1 million in funds that were not used 

Page 40 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
. 

Appendix II 

Section 202 Program Activity 

because project loan funds were less than project reservation amounts. 

Recaptured funds from prior year appropriations cannot be reused and 

are, therefore, not available for section 202 projects. 

The numbers of new section 202 units starting construction have been 

declining in the last several years. The reasons for the decline have been 

both decreasing funding for the program as well as increasing project 

processing time. Table II.2 shows that while decreasing numbers of 

projects have started construction, the section 202 pipeline-projects 

reserved but not starting construction-has continued to grow. 

Table 11.2: Section 202 Projects Starting 

Construction and in the Pipeline-1980- Starting Construction In the Pipeline 

1989 Calendar year Projects Units Projects Units 

1980 .a, 246 16,760 656 32,909 

1981 318 17,437 604 29,227 

1982 353 18,217 560 26,404 

___________~.___. ~~~~. 

1983 321 15,615 551 24,270 

--. _~._____ .~ 

1984 280 12,093 655 25,585 

-- ___~ _.___ __-. ---~~--~.~-~ 

1985 312 13,044 703 24,955 

1986 256 9,396 774 26,642 

1987 267 8,496 875 30,381 

_~ ~~~ --.~~ ~~. ~~- .~~ ..-~ 

1988 295 9,678 974 31,807 

1989 178 5,142 1,092 35,103 

-__-- 

Total 2.828 125.878 

Source: HUD MIDLIS data as of November 9, 1989 

Page 41 GAO/RCED-914 Housing for the Elderly and Handicapped 
Qpmlix III n 

Section 202 Pipeline Status by HUD Region and 

Processing Field Office as of November 9,1989 

Months 

Projects in Pipeline Total 

O-l 1 12-23 24-35 38-47 48 or more projects ..II___ __-._ 

HUD Region I-Boston 

Providence, RI 3 0 2 3 1 9 

Hartford,CT 

-. ..-~ _-~- ___- 

------.4~~-~- 2 1 3 14 

Boston, MA 11 IO 7 3 6 37 

__-- -_____ 

Manchester, NH 3 5 0 1 0 9 

__~._. I___-- 

Total 21 19 11 8 10 69 

!lr; Region II-New 

t&w York, NY 

Buffalo, NY 

10 15 16 11 9 61 

11 15 5 3 2 36 

Newark, NJ 5 8 7 6 3 29 

__~-_-...--..~ 

San Juan. PR 1 4 6 3 2 16 

HUD Region IIIPhiladelphia 

Washington, DC 

Pittsburgh, PA 

Philadelphia, PA 

Charleston, WV 

Richmond, VA 

Baltrmore, MD 

Total 

2 5 2 4 0 13 

___-~- _-._ 

9 8 0 1 0 18 

.~___-- ____.. ~~~ -. ~- 

9 9 4 7 7 36 

--- .____. .~ 

3 4 5 2 0 14 

__.____-__- ___- -. 

9 8 4 3 1 25 

___ 

4 4 5 1 2 16 

__~.---- ._____--I_--. ---. ~~~ 

36 38 20 18 10 122 

HUD Region IV-Atlanta 

.~~ --- ~. 

Greensboro, NC 26 25 5 1 0 57 

Columbia, SC 4 8 7 2 0 21 

Atlanta, GA 3 11 4 6 2 26 

Birmingham, AL 6 11 5 1 0 23 

Jacksonville, FL 15 16 16 12 3 62 

Jackson, MS 6 7 4 1 2 20 

Louisville, KY 0 8 1 0 0 9 

Nashville, TN 2 8 5 0 3 18 

_.-- 

Knoxville, TN 3 3 3 1 0 10 

Total 65 97 50 24 10 246 

(continued) 

Page 42 GAO/RCED-914 Housing for the Elderly and Handicapped 
Appendix Hl 

Section 202 PIpeline Statua, by HUD Region 

and Processing Field Office as of November 

9,1989 

Projects in Pipeline Total 

O-l 1 12-23 24-35 36-47 48 or more proiects 

HUD Region VChicago 

Cleveland, OH ____-____.~.- 4 7 7 6 2 26 

----- ~___-..- .- ..- -. 

Columbus, OH 1 0 8 1 10 20 _I_.-__ ___.___- 

Detroit, MI 3 6 2 1 1 13 

-- __--._- ._~.. 

Cincinnati. OH 0 6 5 0 0 11 

Grand Rapids, MI 0 

--..- 

Chicago, IL 15 

Indianapolis, IN--------- IO 

Mi,waukee, w, 

.-.. -- ..-. -~~ . 

--8 

4 4 1 0 9 

.-__- 

18 12 9 12 66 

-.__ _.-_..__. -.__--~. .~-- 

5 6 2 2 25 

-__ 

, , 2 0 0 21 

Minneapolis, MN 6 8 2 0 0 16 

__--- 

Total 56 73 41 20 17 207 

HUD Region VI-Fort 

Worth 

New Orleans, LA 5 2 5 4 1 17 

Little Rock, AR 13 10 1 0 0 24 

Fort Worth, TX 0 7 5 8 2 22 

. _ .._ -. _.~~ .- .-. --.-.~~~~ ~. -__.-- 

Houston, TX 3 3 1 0 0 7 

___-__ 

San Antonio, TX 4 2 1 0 0 7 

Oklahoma City, OK 2 6 4 2 0 14 

-__ 

Total 27 30 17 14 3 91 

HUD Region VIIKansas City 

Des Moines, IA 

Kansas City, MO 

St. Louis, MO 

Omaha, NE 

Total 

5 7 1 0 0 13 

____ .-- 

10 10 3 0 0 23 

__..____--- ~-~ 

6 8 3 0 0 17 

.-.-----~~-..~___ 

4 4 0 0 0 8 

25 29 7 0 0 61 

HUD Region VIIIDenver 

Denver, CO 

Total 

4 

4 

7 

7 

~~._____ 

1 2 0 14 

1 2 0 14 

(continued) 

Page 43 GAO/RCED-91-4 Housing for the Elderly and Handicapped 

\ 
Appendix III 

Section 202 Pipeline Status by HUD Region 

and Processing Field Office as of November 

f&1989 

Projects in Pipeline Total 

O-11 12-23 24-35 36-47 48 or more projects _ .__ .-- .--------.-____ .___..- 

HUQ Region IX-San 

Francisco 

-. 

San Francisco, CA 8 11 10 7 3 39 

___--. ---- -- __-._I_-. -~- 

Los Angeles, CA 14 17 9 6 3 49 

Phoenix, AZ 2 4 3 1 0 10 

- ..--.____ ~-__ ___--- - 

Sacramento, CA 2 2 2 -2 0 8 

-.-__ 

Honolulu, HI 0 4 1 0 0 5 

Total 26 36 25 16 6 111 

HUD Region X-Seattle 

Anchorage, AK 0 0 0 0 0 0 

~.~- _--..~-.- -~~. 

Portland, OR 4 7 2 1 0 14 

--.. --~..----.~-.~~~.-~-.~_-.--.---~ -- ._~ 

Seattle, WA 5 7 1 2 0 15 .-Total .~~ --.~~ .__. -~~ _.__ -~--9-..--~ -- ___I. .--~--- 

3 3 0 29 

HUD National Total 296 387 209 128 72 1.092 

Source: HUD MIDLIS data as of November 9, 1989 

Page 44 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
1 

PW 

; 

1 

%~&I 202 Average Processing Time by HUD 

Region and Processing Field Office 

Months 

~_.._~ 

1988 average 

processing time 

Projects Start? &onstruction in - 

f 

(months) 0 - 18 18.1 - 24 More than 24 

-..-. ___. 

HUD Reaion I-Boston 

Providence, RI 50.8 0 0 1 

..-__-- ~._______. 

Hartford, CT 36.3 0 2 4 

___-. ~__----___-___~-.______________I_______.-~ 

Boston, MA 28.9 0 1 4 

____.--___-.- ..- .----- ___- 

Manchester, NH 38.6 0 0 6 

_.-- ___~___ 

Total 35.8 0 3 15 

HUD Region Ii-New York 

-------. 

New York, NY 

Buffalo. NY 

_-- 

36.0 0 0 9 

--__. .__.- 

27.4 1 0 6 

Newark, NJ 41 ,l 0 0 5 

-.-----. ---_-- -- -__-- 

San Juan, PR 27.8 0 0 1 

.-.______ 

Total 34.1 1 0 21 

HUD Region iliPhiladelphia 

Washington, D.C-~-~-~---- 

Pittsburgh, PA 

Philadelphia, PA 

Charleston, WV 

-.~- 

33.2 0 

19.8 2 

3.55 1 

a 

.--__._- 

0 1 

3 2 

1 5 

-.--__- --- 

Richmond, VA 27.7 1 0 5 

~.~.. ___.... --...--- - .- 

Baltimore, MD 28.4 0 0 4 

.~~. __ . ..~ .-.- ~_.. ~--.----- 

Totai 28.0 4 4 17 

HUD Region IV-Atlanta -_-^--.-.~------~..---. ~__-.- 

Greensboro, NC 22.5 5 17 12 

__-.---- 

Columbia, SC 23.4 0 1 0 

--~. -___. .--. .~..___ __. 

Atlanta. GA 38.9 0 0 4 

Birmingham, AL 19.4 2 2 1 

.-. _~_.. -_ --.. -__ -.-.-. -~ 

Jacksonville, FL 30.0 1 2 10 

~____.__ -._--.--. 

Jackson, MS 32.5 1 1 7 

___- 

Louisville, KY 17.2 1 3 0 

Nashville, TN 

~~_.~~~-.~- _~_-----. ____--.- 

28.5 2 0 4 

-.-~~~. __---...-..--- ___-- 

Knoxville, TN 26.1 ___- 

_______. 

2 3 4 

-___.- 

_____-- 

____--.. 

Total 25.9 14 29 42 

(continued) 

Page 46 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
--- v 

Appendix Iv 

Section 202 Average Processing Time by HUD 

Region aud Processing Field Office 

1988 average Projects Startin Construction in 

processing time 1 8 88 

(months) 0 - 18 18.1 - 24 More than 24 

HUD Region V-Chicago 

___-___ I__- -__ 

Cleveland, OH 29.4 0 1 4 

_-. _- ..___ -.._..- __.._~~_____~_____________ --__------~-.- 

Columbus, OH 20.9 2 1 2 

Detroit, MI 36.4 0 1 7 

Cincinnati, OH 22.8 1 0 4 

____- ____~-. 

Grand Raoids. MI 19.5 0 3 0 

I 

--_____ ___. _ -------- -~ 

Chicago, IL 38.5 0 1 10 

Indianapolis, IN 27.9 0 2 4 

Milwaukee, WI 23.4 1 2 6 

_- 

Minneapolis, MN 20.3 1 1 2 

-_ -----~~-..-... 

Total 28.5 5 12 39 

HUD Region VI-Fort Worth 

-~. -____- I_-- _____- 

New Orleans, LA 40.9 0 0 5 

Little Rock, AR 16.3 4 3 1 

Fort Worth, TX 15.1 1 0 0 

---.-- ____ ~~-__ 

Houston, TX 22.1 0 4 2 

San Antonio, TX 19.9 0 1 0 

.._~ ----I_ 

Oklahoma Citv. OK 20.3 1 2 1 

Total 

-__.. 

23.4 6 10 9 

HUD Region VII-Kansas 

City 

Des Moines. IA 

__-__-_..~--.--. .~--..-~-.- 

20.5 3 3 1 

17.6 7 2 3 

St. Louis, MO 

Omaha, NE 

Total 

HUD Region VIII-Denver 

Denver, CO 

Total 

20.0 1 1 1 

__- _I_-.- 

16.0 2 3 0 his-- _.___ s-.--.--.--~.-..-~ 

29.0 1 2 7 

29.0 1 2 7 

(continued) 

Page 46 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Appendix IV 

Section 202 Average Processing Tie by HUD 

Region and Processing Field Office 

HUD Region IX-San 

Francisco 

San Francisco, CA 

Los &&s, CA 

Phoenix, AZ 

Sacramento, CA 

Honolulu, HI 

Total 

HUD Region X-Seattle 

Anchorage, AK 

Portland, OR 

Seattle, WA 

Total 

1988 average 

processing time 

Projects Start~f8;onstruction in 

(months) 0 - 18 18.1 - 24 More than 24 

29.2 0 1 7 

27.2 0 2 2 

--20.1 0 2 0 

28.1 0 0 ~1 

23.6 0 1 1 

___~~~ ~~. ~_~~ 

27.0 0 6 11 

a 

19.7 2 1 3 

20.5 1 2 1 

20.0 3 3 4 

1988 HUD National Total 26.8 47 78 170 

aNot applicable because the Anchorage, Alaska, and Charleston, West Virginia, offices did not have any 

projects startlng constructlon in 1988. 

Source: HUD MIDLIS data as of November 9, 1989 

Page 47 GAO/RCED-91-4 Housing for the Elderly and Handicapped 
Amendix V 

Comments From the Department of Housing 2 

and Urban Development 

THE UNDER SECRETARY OF HOUSING AND URBAN DEVELOPMENT 

WASHINGTON, DC 20410 

August 24, 1990 

Mr. John M. Ols, Jr 

Director, Community and Economic 

Development Division 

United States General Accounting Office 

Washington, D.C. 20548 

Dear Mr. 01s: 

Your letter of July 13, 1990, addressed to the Secretary of 

Housing and Urban Development transmitting a proposed report to 

the Congress entitled: "Housing for the Elderly and Handicapped: 

HUD Policy Decisions Delay Section 202 Construction Starts 

(GAO/RCED-90-187)," has been referred to me for reply. 

I will answer the recommendations in the order that they are 

presented in the report. 

Recommendation No 1: The Secretary of HUD should establish fair 

market rents that accurately reflect the cost of modest housing 

in local rental markets to help reduce processing time and also 

making it more likely that the section 202 program will provide 

100 percent of sponsor financing for modestly designed projects. 

Reply: The Department recognizes that the capping process, 

while affording short term benefits as related to budget impact, 

has, in many instances, resulted in increased costs in the longrun and has inhibited our ability to provide this housing for the 

intended occupants within a reasonable timeframe. For these 

reasons, the Department is currently assessing various options in 

connection with the publication of the FY 1989 FMRs. For the 

past eight years, increases in FMRs have been limited to the 

lesser of the FMRs submitted by Field Offices which reflect local 

market conditions or the previous year's FMRs increased by a 

percentage determi:ned by Headquarters (capped rent). This 

process has led, in some areas, to a widening gap between the 

market-based rent and the published FMRs, and has contributed, in 

some cases, to the clogging of the Section 202 pipeline. Simply 

deciding to publish FMRs based on market data may appear to be 

the easy solution. However, the budget impact in terms of 

additional Section 8 contract and budget authority needed to 

support the higher, uncapped rents may render this alternative 

unacceptable. The Department is endeavoring to develop an 

approach to increasing the FMRs that would support the market 

rents proposed by our Field Offices while minimizing the budget 

impact as much as possible. Other options involve a cap which 

may be established in different ways. 

Recommendation No 2: The Secretary of HUD should ensure more 

consistent application of cost containment reviews among field 

offices either by increased training or supervisory visits. 

Page 48 GAO/RCED-91-I Housing for the Elderly and Handicapped 
Appendix V 

Comment6 From the Department of Housing 

and Urban Development 

Reply: Considerable training on cost containment has already 

occurred. Three two-day training sessions were conducted in 

1986, two one-day sessions in 1988, and three one-day sessions in 

1990. All field offices were covered in this training. During 

the last year, the field office staff has demonstrated increased 

awareness and understanding of the Department's cost containment 

objectives. As a result of improved field performance, 

Headquarters is decentralizing the cost containment review 

process to the field offices. Headquarters and the regional 

offices will monitor field office performance through random 

reviews of projects and through field office visits. 

Recommendation No 3: The Secretary of HUD should establish 

processing time goals, such as those currently employed in 

offices who have had success with sponsor and field office staff 

meetings for this purpose. 

Reply: The Department has issued instructions to the field 

offices that address this recommendation. On June 30, 1990, the 

Department issued Notice H 90-37 entitled: "Revised Section 202 

Fund Reservation Extension and Cancellation Policy". This 

Notice requires field offices to meet with borrowers and develop 

a schedule to start of construction. It requires the field 

office staff to take initiative in making sure that the 

borrower's development team and the HUD field staff are in 

regular communication during all phases of the development 

process. It requires justification for any delays experienced 

during the development process, and sets up a monitoring process 

whereby Headquarters will monitor each region's and each field 

office's performance by rank ordering the ten regions and each 

field office within a region based on the average time lapsed 

between the issuance of the fund reservation and the start of 

construction. The Department intends to take additional actions 

as well. For example, the Department intends to ask for reuse of 

recaptured Section 202 loan authority. If the Department 

succeeds in getting reuse of recapture, instructions will be sent 

to each regional office authorizing them to reuse such recapture 

for amendments to projects in the pipeline, giving priority to 

the field office from which the recaptured authority came. The 

Department is also including pipeline goals in the FY 1991 

Regional Management Plan, which will require that a certain 

percentage of the projects reserved in a given fiscal year be 

started. The Department is also scheduled to conduct Section 20 

program training which will include participants from all field 

offices. 

2 

Page 49 GAO/RCEDBl-4 Housing for the Elderly and Handicapped 
-.- 

Appendix V 

Comments From the Department of Housing 

and Urban Development 

. 

Recommendation No 4: The Secretary of HUD should require 

headquarters and regional office monitoring of field office 

processing time. 

Reply: The Department is now monitoring field office processing 

time. Unfortunately, field office processing time will look even 

worse than the GAO report shows if the field offices succeed in 

bringing to start of construction those cases approved in FY 1987 

and prior fiscal years. In order to avoid penalizing the field 

for getting these cases started, the Department will include in 

its FY 1991 Regional Manayement Plan a goal for each region to 

start all cases with fund reservations received in FY 1988 or 

subsequent fiscal years in an average of 24 months or less. This 

goal will be monitored through the Multifamily Insured and Direct 

Loan Information System, and field offices that perform poorly 

will receive field reviews by Headquarters or reyional staff. 

Sincerely yours, 

Under Secretary 

Page 50 GAO/RCEDSl-4 Housing for the Elderly and Handicapped 
Appendix VI 

,/ l!@jor Contributors to This Report 

- 

II,,,..“a...A, .Jxesuu1-ces, 

Community, and 

Economic 

Dennis W. Fricke, Assistant Director 

Robert J. Tice, Assignment Manager 

Alice G. Feldesman, Senior Social Science Analyst 

J. Michael Bollinger, Advisor/Senior Evaluator 

Development Division, 

Washington, D.C. 

Philadelphia Regional Darryl L. Wittenburg, Evaluator-in-Charge 

Office Sharon S. Linville, Evaluator 

D. Richard Stengel, Evaluator 

Anne-Marie Lasowski, Evaluator 

Daniel M. Weeber, Technical Specialist 

Dallas Regional Office ~~m’,“~~~a$~~ator 

, 

(snalm) Page Sl GAO/RCED-91-4 Housing for the Elderly and Handicapped 

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