Housing Assistance: Opportunities Exist to Increase Collaboration and Consider Consolidation
Released: 2012-09-17T00:00:00

Letter

Background

Federal Housing Assistance

The federal government funds multiple programs that subsidize housing construction and rehabilitation, assist homebuyers and renters, and provide assistance to state and local governments through a variety of spending and loan programs, tax expenditures, regulatory requirements, and other activities aimed at promoting housing.

Federal housing assistance generally was created in response to the Great Depression. However, the largest current activity (in terms of forgone revenue) associated with homeownership—the mortgage interest deduction—was introduced in 1913, when the federal income tax was enacted. Further assistance was created in the 1930s, when most rural residents worked on farms and rural areas generally were poorer than urban areas. Accordingly, Congress authorized separate housing assistance for rural areas and made USDA responsible for administering it. Specifically, in 1937 the Bankhead-Jones Farm Tenant Act authorized USDA to provide long-term, low-interest loans to farm tenants and sharecroppers so that they could purchase and repair farms, including homes on farms. The Housing Act of 1949 authorized new rural lending programs through USDA and made farm owners eligible for assistance for dwellings and other farm buildings if the farm was located on land capable of producing at least $400 worth of agricultural commodities annually. Amendments added in 1961 made nonfarm properties eligible for single-family loans and created the farm labor housing program. A 1962 amendment created the rural rental housing program.Housing Administration (FHA) began providing mortgage insurance in 1934, and the first public housing program was authorized in 1937. FHA became part of HUD when HUD was created in 1965.

In 2012, HUD and Treasury administer some of the largest programs, with USDA and VA providing specific assistance to rural communities and veterans. In addition, the government-sponsored enterprises—Fannie Mae and Freddie Mac—have supported the mortgage market by helping to create a secondary market for mortgage loans. Financial regulators are responsible for ensuring that regulated institutions comply with consumer financial protections or otherwise serve the communities in which they operate.

Federal housing assistance generally can be categorized as follows:

Homeownership programs, often called single-family housing programs, provide mortgage insurance, loan guarantees, direct loans for homeowners, and grants or loans for home repairs or modifications.

Rental housing programs, often called multifamily programs, provide loans, interest rate subsidies, loan guarantees, tax incentives, or a combination of these to promote the development and rehabilitation of privately owned rental properties.

Rental assistance programs, which make rents affordable to eligible households by paying the difference between the unit’s rent and 30 percent of a household’s adjusted income. These programs include (1) tenant-based rental assistance that provides vouchers for eligible tenants to rent privately owned apartments or single-family homes and can be applied to different properties if tenants move; and (2) project-based rental assistance that is attached to specific properties and available to tenants only when they are living in units at these properties.

Public housing offers units for eligible tenants in properties owned and administered by public housing authorities.

Tax expenditures, such as exclusions, exemptions, deductions (including the mortgage interest deduction), credits, deferrals, and preferential rates, can promote homeownership or the development of privately owned rental housing through the federal tax code.

The federal government uses varying income thresholds for different housing programs to identify target populations or set eligibility requirements. Although some federal housing programs do not have specific income eligibility requirements, such as VA’s Home Loan Guaranty program for veterans, many of HUD’s and USDA’s multifamily programs and Treasury’s Low-Income Housing Tax Credit (LIHTC) program have specific income eligibility requirements. The most common income thresholds used for the programs are: very low-income—no more than 50 percent of the area’s median income (AMI); low-income—no more than 80 percent of AMI; and moderate-income—no more than 115 percent of AMI.

Defining Fragmentation, Overlap, and Duplication

Fragmentation refers to those circumstances in which more than one federal agency (or more than one organization in an agency) is involved in the same broad area of national interest. Overlap occurs when programs have similar goals, devise similar strategies and activities to achieve those goals, or target similar users. Duplication occurs when two or more agencies or programs engage in the same activities or provide the same services to the same beneficiaries. In some instances, it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort.

Multiple Agencies Provide Housing Assistance

Twenty different entities administered 160 programs, tax expenditures, and other tools that supported homeownership and rental housing in fiscal year 2010, reflecting the fragmentation in federal housing delivery. See e-supplement (GAO-12-555SP) for the list of programs, tax expenditures, other tools, and their related budgetary information. We identified 11 primary purposes for the activities (see fig. 1). Of the 11 purposes (categories) identified, 3 generally relate to support for homeownership (including purchasing a home), 4 to support for rental housing and tenants, and 4 to both. Within each category, multiple agencies administer programs that serve the same purpose, illustrating the fragmentation of homeownership and rental housing programs.

The most commonly identified purpose was assistance for buying, selling, or financing a home. This category includes single-family mortgage programs that provide mortgage insurance or guarantees administered through HUD, USDA, and VA. As we have noted, the mortgage interest deduction represented the single largest activity—in terms of annual forgone revenue—associated with homeownership. In fiscal year 2010, the estimated revenue loss for the mortgage interest deduction was almost $80 billion. The most widely used housing tax expenditure, in terms of number of participants, was the deduction for state and local property taxes.nearly 40 million taxpayers claimed this deduction on their 2009 returns.

In the secondary market, originators of mortgage loans package them into securities and sell the securities to investors. federally guaranteed mortgages issued by certain mortgage lenders. In turn, these lenders—generally banks and thrifts—use the proceeds to originate additional mortgages.

The federal government increased its support for homeownership in response to the current housing crisis, providing emergency assistance or other extraordinary support to the housing market and homeowners through a number of initiatives. Most of the activities we identified as emergency assistance were intended to support homeownership. For example, Treasury and the Federal Reserve System purchased mortgage-backed securities issued by Fannie Mae and Freddie Mac to help support the availability of mortgage credit for prospective homebuyers or homeowners wishing to refinance. And, HUD and Treasury administer programs that provide financing assistance to struggling homeowners—such as the Making Home Affordable program, which reduces borrowers’ monthly mortgage payments.

Regulatory requirements also support homeownership by establishing standards for residential mortgage lending, among other things. For example, the Real Estate Settlement Procedures Act of 1974 requires lenders to disclose mortgage closing documents to homebuyers and sellers. Financial Protection Bureau, or CFPB), the federal financial regulators, and HUD are involved in the examination and enforcement of this and other regulatory requirements. The Federal Financial Institutions Examination Council, a formal interagency body, also plays a role by prescribing uniform principles, standards, and report forms for the federal examination of financial institutions.

Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601-2617. produce and preserve affordable rental housing. Some of HUD’s multifamily loan guarantee programs are estimated to produce more revenue than expenditures. These estimates are reviewed annually, and because the underlying loans may have terms of up to 40 years, their ultimate cost is uncertain. Further, HUD and USDA have multiple programs that support low-income households by providing assistance to rental property owners to cover all or a portion of the tenant’s rent.

Finally, many activities support homeownership and rental housing both directly and indirectly. For example, HUD administers multiple block grant programs that provide state and local governments with flexible funding to address community development needs, including support of homeownership or rental housing. And one regulatory requirement—the Community Reinvestment Act (CRA)—supports the financing of homeownership and the creation of affordable rental housing, among other things. Another regulatory requirement, the Fair Housing Act, protects homebuyers and renters from discrimination.

Overlap Exists in Both Single- and Multifamily Housing Programs

To identify housing programs that had a potential for overlap, we used findings from our prior work that examined programs that offer similar housing services to similar beneficiaries. These programs included selected HUD and USDA single- and multifamily programs, VA’s single- family housing loan guarantee program, and Treasury’s LIHTC. We also included Treasury’s mortgage interest and property tax deductions because they are the largest programs in terms of overall funding. We compared agency goals, products offered, geographic areas served, service delivery, and, for single-family programs, recipients’ income levels. Evidence of overlap existed across many of these dimensions for the single-family products offered by HUD, USDA, VA, and Treasury, but important differences also existed. Although selected HUD, USDA, and Treasury multifamily housing programs had overlapping purposes, the products, areas served, and delivery methods differed to varying degrees.

Some Single-Family Programs Overlap

Agency Goals

Seven single-family programs administered by HUD, USDA, VA, and Treasury overlap in their broad purpose of supporting homeownership, but only HUD has an explicit housing priority and strategic goal (see table 1). Federal agencies outline long-term goals and objectives in their strategic plans and annual goals in their performance plans. In addition, in the fiscal year 2013 President’s Budget, agencies identified a limited number of 2-year agency priority goals that align with the long-term goals and objectives in their strategic plans. Agency priority goals target areas in which agencies want to achieve near-term performance through focused attention of senior leadership. HUD included the prevention of foreclosures as a priority goal. As of April 2012, USDA, VA, and Treasury had not highlighted homeownership among their agency priority goals. Under its strategic goal to strengthen the nation’s housing market, HUD uses its single-family guaranteed loan program to meet its subgoal of creating financially sustainable homeownership opportunities. Under its broad strategic goal of assisting rural communities, USDA uses its single- family loan and grant programs to increase the number of homeownership opportunities available in rural areas. VA’s guarantee for home mortgages is one among many entitlements that veterans earn. The program falls under VA’s broad strategic goal of improving the quality and accessibility of health care, benefits, and memorial services while optimizing value. Finally, although the mortgage interest and property tax deductions are the two tax expenditures most widely used by homeowners, Treasury does not have stated goals for these, or most other, tax expenditures. However, these tax expenditures are generally recognized as reducing the after-tax costs of financing and maintaining a home.

The selected single-family guaranteed loan programs of HUD (FHA), USDA’s Rural Housing Service (RHS), and VA overlap, but differences exist among the products, and only USDA offers certain direct loans to finance the purchase of homes for low- and very low-income families (see FHA, VA, and RHS guarantee 30-year fixed-rate mortgages table 2).requiring little or no down payment from borrowers and charge up-front fees that generally vary from 1.75 to 2.15 percent. The government guarantee makes all of these loans eligible for inclusion in Ginnie Mae- guaranteed mortgage-backed securities. All the products require that the borrowers occupy the home and permit borrowers to use loan proceeds to purchase a home or refinance an existing loan.

The products also have some important distinctions. For example,

VA loan guarantees are an entitlement available only to veterans who have served in a branch of the armed services and received an honorable discharge, certain currently serving members of the Reserves or National Guard, and spouses of veterans under certain circumstances.

RHS loan guarantees are limited by income and geography.

FHA requires at least a 3.5-percent down payment, while RHS and VA require none.

Additionally, loan guarantee programs vary in the extent to which the agencies cover potential losses of the lender or other mortgage holder. FHA provides 100-percent coverage of eligible losses when borrowers default. This guarantee covers the unpaid principal balance, interest costs, and certain costs of foreclosure and conveyance. USDA’s guarantee provides coverage for eligible losses of up to 90 percent of the original principal, including unpaid principal and interest; principal and interest on USDA-approved advances for protection and preservation of the property; and the costs associated with selling the foreclosed property. One of the most significant differences among these products is the loss coverage offered by VA, which covers from 25 to 50 percent of the original principal.

Of the agencies, only USDA (RHS) offers single-family housing programs specifically for low- and very low-income families. RHS offers two unique products: a subsidized direct loan for the purchase of single-family housing, with interest rates as low as 1 percent, to low-income borrowers unable to qualify for credit elsewhere, and a home repair program that offers grants or loans (with interest rates of 1 percent) to very low-income rural residents. RHS may subsidize the interest on single-family direct loans, depending on the borrower’s income.

As shown in table 1, two of the largest tax expenditures that provide assistance to homeowners are the mortgage interest and property tax deductions, with about half of all homeowners receiving housing assistance through them. Taxpayers who itemize their deductions may deduct mortgage interest and property taxes on their principal residence and a second residence. Deductions are adjustments from adjusted gross income (AGI). Whether or not a taxpayer itemizes deductions depends on whether the sum of these deductions plus any other itemized deductions exceeds the limits on the standard deduction. Taxpayers are subject to certain limits on the total amount of mortgage interest that can be claimed. The total amount of mortgage debt for which interest may be claimed cannot exceed $1 million. In addition, taxpayers may deduct interest payments on up to $100,000 of home equity debt. There are no dollar limits on the amounts of property taxes that can be deducted. Taxpayers with higher incomes are subject to additional limitations on use of these two deductions.

Data from selected single-family programs show some overlap in the income and location of households served. Among the single-family loan guarantee programs, all served moderate- and low-income populations, although only USDA’s program restricts eligibility on the basis of income. USDA limits borrower income to 115 percent of AMI. Although FHA and VA do not have this restriction, 1,291,000 or 74 percent of FHA borrowers and at least 130,000 VA borrowers also fell into this income category in fiscal year 2009 (see fig. 2). In part because of the number of borrowers it serves, FHA guaranteed more loans to borrowers with incomes at or below 115 percent of AMI than RHS and VA combined.

Further, although RHS may serve only borrowers with incomes at or below 80 percent of AMI in its direct single-family loan program, FHA also serves this group of borrowers. Specifically, 50 percent of FHA borrowers in fiscal year 2009 had incomes at or below 80 percent of AMI. However, RHS single-family direct loans may be combined with other resources to help reach very low-income families that may not have the income or down payment often needed to qualify for other financing. For example, these loans may be used in self-help housing projects in which future owners help build their own houses. The “sweat equity” reduces the cost of construction and the overall loan amount.

The loan guarantee programs overlapped in rural areas. USDA characterizes locations as rural or urban using different measures. Our analysis showed overlap in areas served using three different USDA characterizations for geographic areas. Section 520 of the Housing Act of 1949, as amended, defines the terms “rural” and “rural area” for the rural housing programs that are the focus of this report. The definition is largely based on population, but also considers other factors, such as proximity to metropolitan areas and access to mortgage credit. As of 2011, 97 percent of the land area of the United States and 37 percent of the population were eligible for rural housing programs (see fig. 3). Eligible areas will be adjusted based on the results of the 2010 Census. As we reported in 2004, the definition can lead to inconsistent eligibility determinations.

Although RHS offers its single-family products only in eligible rural areas, and FHA and VA programs are not restricted to any geographic location, FHA and VA also guaranteed a substantial number of loans in RHS- eligible areas. While a larger percentage of RHS borrowers with guaranteed loans were located in more remote rural areas compared with FHA and VA borrowers, FHA served a larger number of borrowers in these areas. Table 3 characterizes the location of single-family guaranteed loans relative to their distance from the boundaries separating RHS-eligible and -ineligible areas. For example, 50 percent of the RHS single-family guaranteed loans were located inside or within 10 miles of ineligible areas and 23 percent were located more than 25 miles from ineligible areas. FHA and VA loans were concentrated in or close to RHS- ineligible areas; 89 percent of both FHA and VA loans were for properties inside or within 10 miles of RHS-ineligible areas, and 4 percent were for properties located more than 25 miles from RHS-ineligible areas. FHA guaranteed more loans than RHS in all location categories, including more than twice as many loans as RHS in areas more than 50 miles from RHS-ineligible areas.

USDA’s Economic Research Service categorizes zip codes by degree of rurality into four types—urban, suburban, small-town rural, and isolated rural. While 89 percent of FHA’s and 86 percent of VA’s single-family loan guarantees were in urban or suburban zip codes, both agencies also guaranteed a substantial number of single-family loans in rural zip codes (see table 4). FHA guaranteed more loans than RHS in all zip code types. Further, FHA guaranteed more than 210,000 loans in rural zip codes, while RHS guaranteed 59,000 loans, or about half of its loans, in rural zip codes. Although a greater percentage of the RHS-guaranteed loans were in rural zip codes compared with FHA and VA loans, more than half the RHS-guaranteed loans were in urban and suburban zip codes.

The Economic Research Service also has developed a rural-urban continuum that categorizes U.S. counties by degree of rurality.this continuum, we distinguished four types of counties—metropolitan, urbanized nonmetropolitan, rural nonmetropolitan, and completely rural nonmetropolitan. FHA and VA also guaranteed a substantial number of loans in nonmetropolitan or what could be considered more rural counties (see fig. 4.) Additionally, FHA guaranteed more loans than RHS in both metropolitan and completely rural nonmetropolitan counties. Specifically, FHA guaranteed a greater number of loans than RHS in all the nonmetropolitan categories. And although a greater percentage of RHS- guaranteed loans were in nonmetropolitan counties compared with FHA and VA loans, more than half of its loans were in metropolitan counties.

Opportunities Exist to Improve Collaboration and Effectiveness but Would Involve Trade- offs

HUD, USDA, VA, and Treasury have collaborated on efforts in their housing programs, but opportunities exist to improve collaboration and effectiveness. Specifically, the Single Family Housing Task Force has not yet developed a formal approach to help guide its collaboration efforts. And, although the Rental Policy Working Group has followed best practices and increased collaboration on selected multifamily rental housing programs, its efforts have not been as effective as possible. Consolidation or increased coordination of some programs and activities could be beneficial, but also entails significant challenges and implications that we discuss below.

No Formal Approach to Guide Single-Family Collaboration Efforts

As of April 2012, a number of federal efforts to coordinate housing programs were at various stages of implementation, including a task force established to evaluate the potential for coordinating or consolidating single-family loan programs. Overall, the task force’s efforts have not incorporated key principles on effective collaboration. In February 2011, the Administration reported to Congress that it would establish a task force to evaluate the potential for coordinating or consolidating the single- The members of the task family loan programs at HUD, USDA, and VA.force include senior-level officials from each of the three agencies and OMB officials. According to the officials, besides naming members, no dedicated funding or other resources had been devoted to the task force as of April 2012.

We have reported that federal agencies often face a range of barriers when they attempt to collaborate with other agencies, including missions and goals that are not mutually reinforcing, concerns about controlling jurisdiction over missions and resources, and incompatible procedures, processes, data, and computer systems. In an October 2005 report, we identified eight key practices that can help enhance and sustain collaboration among federal agencies. The key practices are (1) define and articulate a common outcome; (2) establish mutually reinforcing or joint strategies; (3) identify and address needs by leveraging resources; (4) agree on agency roles and responsibilities; (5) establish compatible policies; (6) develop mechanisms to monitor, evaluate, and report on results; (7) reinforce agency accountability for collaborative efforts through agency plans and reports; and (8) reinforce individual accountability for collaborative efforts through performance management systems. While these practices can facilitate greater collaboration, we recognize that other practices also may do so. Furthermore, the specific ways in which agencies implement these practices may differ in the context of the specific collaboration challenges agencies face. For example, joint activities can range from occasional meetings between employees in which the roles and responsibilities of the respective agencies are reaffirmed, to more structured task teams operating over a period of time. But absent effective collaboration, routine interagency meetings could result in limited information being communicated and few joint agreements reached or implemented.

In comparing the single-family task force’s efforts with key collaboration practices, we found that the agencies have not taken steps that are consistent with the practices. For example, other than the announcement of the task force, member agencies said that they had yet to identify goals or expected outcomes, and could not provide strategies each agency might utilize. The task force can benefit from identifying and agreeing on goals, and evaluating the goals against realistic expectations of how to achieve them. The task force also has not yet identified resources needed to accomplish its goals; agreed on roles or responsibilities; taken steps to establish compatible policies, procedures or other means to operate; or made clear how they would be made accountable for collaborative efforts and report on results. In addition to our key practices, the Government Performance and Results Act Modernization Act of 2010 (GPRAMA), establishes a new framework for agencies to improve government performance by taking a more crosscutting and integrated approach to key issues. GPRAMA requirements could lead to improved coordination and collaboration among agencies. For instance, GPRAMA requires each agency to identify the organizations and program activities—both internal and external to the agency—that contribute to each agency’s goals. However, according to HUD and USDA officials, much of the single-family task force’s efforts to date have been informal. For instance, the officials noted that senior agency officials met biweekly in teleconferences to share information and best practices on housing policy and programs and discussed current economic issues affecting the housing market and ways to streamline the housing programs in a coordinated manner.

According to HUD and OMB officials, aside from the biweekly meetings, a benchmarking effort associated with the single-family task force recently was established. Specifically, OMB will collect and analyze data on direct and guaranteed housing loan programs as a way to develop greater insight into best practices, potential overlap, and synergies among the housing programs. According to HUD, as of April 2012, no milestones or resource estimates were available for the task force and no results were expected until a more formal approach for the task force was established. Additionally, agency officials stated that no further collaborative efforts among single-family housing programs were planned. OMB and HUD officials stated that over the past few years, agency attention has been focused on trying to improve the overall condition of the housing market, making it difficult to turn attention to interagency efforts for program coordination or consolidation. HUD officials also noted that the ongoing housing crisis has been a complicating factor in addressing the broader issue of housing finance reform, and mostly has overshadowed the issue.

Nonetheless, in addition to focusing on the ongoing housing crisis and the level of government support for the housing market, it is also important to focus some attention on the way that government support for housing is delivered and strike the appropriate balance between these issues. The task force was established to explore ways in which programs can be better coordinated or consolidated to serve homeowners more effectively. Part of that analysis is the assessment of coordination and consolidation of HUD, USDA, and VA programs. By incorporating key practices on collaboration and developing a more formal approach for the single-family task force, HUD, USDA, VA, and OMB can evaluate the potential for coordinating or consolidating single-family loan programs, and possibly generate savings and efficiencies while better serving homeowners. They also may be able to help drive further collaboration, establish complementary goals and strategies for achieving results, and increase transparency (by reporting on their collaborative efforts). As the task force moves forward, developing a formal approach for the task force’s collaborative efforts could help the agencies establish the guidance and direction needed to systematically bring about a productive working relationship and further help improve single-family loan programs.

Opportunities Exist to Increase Effectiveness of Multifamily Collaboration Efforts

HUD, USDA, and Treasury officials have been working to align the requirements of some multifamily housing programs through the Rental Policy Working Group. Although the efforts of the working group have been consistent with a majority of our key practices, the group has yet to take additional steps to reinforce agency accountability for collaborative efforts.

In response to the need for better-coordinated multifamily housing policy, in July 2010 the White House’s Domestic Policy Council established the interagency Rental Policy Working Group. The working group consists of the White House Domestic Policy Council, National Economic Council, OMB, HUD, USDA, and Treasury. The purpose of the working group is to better align rental requirements across programs, and thereby increase the effectiveness of federal rental policy and improve participant outcomes. According to working group documents, the group established guiding principles, which centered on administrative changes that could help respond to the concerns of external stakeholders (rental housing owners, developers, and managers, and state and local housing agency officials); required minimal statutory action; were realizable at little or no cost or through education, outreach, or the issuance of new guidance or rules; and helped create cost and time savings for all parties.

The working group solicited recommendations for improved rental policy coordination from external stakeholders. Within the working group, interagency teams considered the recommendations, reviewed current policies, and identified opportunities for greater federal alignment, increased overall programmatic efficiency, and reduced costs and regulatory burdens. Stakeholders have noted that inefficiencies can arise when a multifamily housing project has multiple layers of assistance (such as subsidies, tax expenditures, or mortgage insurance) from one or more federal agencies. To help address those inefficiencies, the working group identified 10 key areas or initiatives for alignment and further study, based on recommendations from rental housing owners, developers, and managers, and state and local officials (see table 9). Overall, the initiatives are aimed at reducing unnecessary program regulations, lessening administrative barriers so that developers and property owners more easily can participate in programs, reducing duplicative administrative actions to reduce costs for agencies and program participants, and increasing coordination to allow better targeting of agency resources.

For two initiatives, HUD, USDA, and other federal and state housing agencies have pilot programs under way in several states to test the alignment activities before national implementation. Specifically, two pilots will assess the feasibility of the proposed changes to physical inspections and subsidy layering reviews and identify steps for better coordination and information-sharing for potential replication on a national scale. As of April 2012, the participating state HFAs and federal agencies had signed memorandums of understanding (MOU) detailing roles and responsibilities. The working group plans to develop recommendations from the pilot findings.

In comparing the Rental Working Group’s efforts against the key practices that we previously identified to help agencies effectively collaborate, we found that HUD, USDA, and Treasury have taken steps that are consistent with a majority of the practices. In particular, the agencies, through the Rental Policy Working Group, defined and articulated a common outcome; established mutually reinforcing or joint strategies in soliciting suggestions from federal, state, local, and private officials; allocated resources and identified key initiatives, including estimating the resources and time frames necessary for implementation; agreed on roles and responsibilities, including designating a responsible lead office and participating offices to help implement the alignment activities; established compatible policies and procedures and collected and analyzed information that led to the prioritization and development of the recommendations for rental policy alignment; developed mechanisms to monitor, evaluate, and report on their efforts, established milestones for alignment activities, and launched pilots to test some alignment activities; and used performance-management systems to strengthen individual accountability for results for some senior agency executives.

Finally, in some cases, the agencies used a more formal approach to collaboration, such as an MOU, to specify the roles and responsibilities of those involved in the alignment effort.

Although the efforts of the Rental Policy Working Group are consistent with the majority of our key practices, the working group has not yet taken additional steps to reinforce agency accountability for collaborative efforts. Methods to build accountability for collaborative efforts include documenting those efforts (and associated goals, strategies, roles and responsibilities, actions or measures to be taken, and timelines) in the agencies’ annual and strategic plans. Our review of the agencies’ recent annual and strategic plans found that none of the agencies in the working group had included their collaborative efforts. By not including their collaborative efforts in the plans, the agencies have not taken full advantage of opportunities to further build accountability for actions already taken, or underway. For example, they have missed opportunities to underscore the importance of their collaborative efforts agencywide.

Furthermore, the Rental Policy Working Group efforts did not include any plans to deal with statutory changes that could help increase overall programmatic efficiency and reduce costs and regulatory burdens once the administrative changes were implemented. To achieve more immediate results, the Working Group started with those actions that required no statutory action. However, the working group’s long-term collaborative efforts could be enhanced if it were to include areas beyond administrative changes. According to USDA and Treasury, the Working Group’s efforts helped inform proposals in the President’s fiscal year 2013 budget (for legislative changes to the LIHTC program). By not expanding its guiding principles to include statutory changes, the agencies may miss additional opportunities to highlight those areas in which statutory action could help respond to additional stakeholder concerns and generate savings and efficiencies in housing programs. Such information about statutory changes also could help to provide relevant and useful information to policy makers as they consider overall improvements to HUD, USDA, and Treasury housing programs.

Coordinated Reviews of Housing Tax Expenditures and Related Programs Would Be Beneficial

As we recommended in September 2005 and reiterated in March 2011, coordinated reviews of tax expenditures and related housing spending programs with similar goals could help assess the relative effectiveness of tax expenditures in terms of their benefits and costs, and help policymakers reduce overlap and inconsistencies and direct scarce resources to the most-effective or least-costly methods to deliver federal support. As of April 2012, OMB had not used its budget and performance review processes to systematically review tax expenditures and promote integrated reviews of related tax and spending programs. GPRAMA could serve as a vehicle for furthering interdepartmental coordination of housing programs, including tax expenditures. As noted previously, in February 2012, the Administration announced 14 interim crosscutting policy areas, and some goals specifically identify tax expenditures as contributing activities.

The combination of the LIHTC program with other federal, state, or local funding sources helps underscore the importance of assessing the effectiveness, costs, and benefits of tax expenditures in relation to housing programs. In 2007, we reported that using federal funds to leverage nonfederal funds can be a useful tool for financing affordable housing and that public and private-sector officials generally regarded it However, we also reported that leveraging at the project level favorably.can be challenging and inefficient, partly because federal, state, and local funding sources often have different application and other requirements and deadlines. As discussed previously, the Rental Policy Working Group was created in part to address these varying requirements.

For this report, we interviewed developers and industry representatives, who estimated that leveraging different funding sources and the associated requirements and the time needed to put together the multiple funding sources necessary to make projects feasible increased project costs. For example, one multifamily developer told us that it typically took from 3 to 4 years to begin construction and leveraging the various funding sources typically added 5-10 percent to project costs. He stressed that the biggest factor in extending project lengths was the time needed to secure multiple funding sources, navigate and comply with multiple requirements, and align funding cycles. He added that obtaining LIHTCs also can slow the process because a project might not receive credits one year or might require more than one year’s worth of credit allocations from the state before it was feasible.

The 2007 report also concluded that better information about combining multiple federal sources and amounts—from both tax and spending programs—for rental housing projects could be useful in identifying areas for agencies to coordinate program measurement. Although Treasury tracks taxpayer compliance with LIHTC program rules and HUD collects some information on a few other types of federal subsidy an LIHTC project might receive, neither agency collects leveraging data nor reports a leverage measure for the program. Basic financial information about the multiple sources and amounts—from tax and spending programs—a housing project received could be useful in identifying areas for agencies to coordinate in measuring performance for programs that have overlapping purposes. As we reported in 2008, while HUD and Treasury reported leverage measures that described the ratio of all other funds (federal, state, local, and private) compared with a specific program’s funds, alternative measures describing total federal investment provided considerably different results and could be of value to policymakers.

To provide more accurate, relevant, and useful information to Congress and others, our 2008 report recommended that OMB provide guidance to help agencies determine how to calculate, describe, and use leverage measures in a manner consistent with their programs’ design; and reevaluate the use of such measures and disclose their relevance to program goals and in future performance reviews of housing programs. At the time, there was no agency-specific or government-wide guidance on what agencies should disclose about the leverage measures they reported or how to calculate them for specific programs. Although OMB has used leveraging as a program output measure in the past, as of April 2012, OMB had not taken action to issue guidance for agencies calculating leverage measures. Better measures of the total federal support and mix of funding would be helpful in better understanding how tax expenditures contribute to rental housing project outcomes and identifying areas of overlap for further coordination.

Furthermore, additional data could help assess how tax expenditures benefit homeownership compared with programs with similar goals. This information is currently not always collected on tax returns unless IRS needs the information or collection was legislatively mandated. We recommended in 2009 and 2010 that IRS collect property addresses (which can differ from a taxpayer’s mailing address) to improve enforcement of mortgage interest deductions. Collecting this information from taxpayers or lenders also could facilitate analysis of who benefits from the mortgage interest and property tax deductions as well as other housing tax provisions. As of April 2012, IRS had not yet taken action to collect property address information.

Consolidating Single- Family Loan Guarantee Programs Could Improve Programs and Produce Savings

Consolidation or greater coordination of RHS and HUD single-family loan programs that serve similar markets and provide similar products may offer opportunities for savings in the long term. For example, program consolidation could improve service delivery, especially when programs with similar objectives and markets are brought together and conflicting requirements and overlap reduced. Consolidation could achieve savings to the extent that agency overhead and, potentially, staffing were reduced. Further, consideration of program consolidation could create opportunities to reassess the various RHS and HUD single-family programs or activities and eliminate programs that are overlapping, or outdated, or whose costs no longer justify federal spending. However, consolidation also presents a number of challenges that we discuss later in the report. We first reported in 2000 that overlap exists among products offered and markets served by FHA, RHS, and others and questioned the need for maintaining separate programs for rural areas. Additionally, we noted the potential for administrative savings by consolidating programs that provided similar products and served similar markets. For instance, FHA and RHS offer similar guaranteed single-family products and operate in the same areas. With VA, which offers a guaranteed loan program, FHA and RHS encourage lenders to make loans by guaranteeing them against losses they might incur if borrowers defaulted on their mortgages. As discussed earlier, lenders in FHA and RHS programs use FHA’s mortgage scorecard in evaluating borrowers for mortgages. However, RHS’s program offers more generous terms than FHA’s program (such as no down payment and lower overall mortgage insurance premiums). And RHS’s single-family direct loans have no counterparts in FHA or VA. Also, VA loan guarantees are an entitlement only available to veterans, certain members of the Reserves and National Guard, and spouses of certain veterans. RHS guaranteed loans are limited by borrower income and location. Despite the differences, we noted that FHA, RHS, and VA all serve a significant share of low- to moderate-income households.

We suggested in September 2000 that Congress consider requiring HUD and USDA to examine the benefits and costs of merging those programs that serve similar markets and provide similar products. Recognizing the statutory restrictions that exist on both agencies’ programs, as a first step we suggested that Congress consider requiring HUD and USDA to explore merging their single-family guaranteed lending programs and multifamily portfolio management programs, taking advantage of the best practices of each and ensuring that targeted populations were not adversely affected. Congress held hearings on the report in 2003 but no further actions have been taken.

Our analyses have shown evidence of overlap in certain aspects of the FHA and RHS single-family programs. First, RHS increasingly has moved from direct to guaranteed loans. The number of guaranteed single-family loans first exceeded the number of direct single-family loans in 1995, and the trend has intensified since 2008. In fiscal year 2010, RHS made more than 28,100 single-family direct loans and grants and guaranteed more than 130,000 single-family loans. Since 2011, the Administration has requested large cuts in RHS direct loan programs. For example, the 2012 President’s Budget did not request any funding for Section 504 direct repair loans and requested a 67 percent reduction for Section 502 direct loans. The budget request stated that the shift in direction acknowledges that the single-family direct loan program has struggled to make a measurable impact due to flat funding levels and a labor-intensive review process. According to RHS officials, after the implementation of early-out and buy-out authority at the beginning of fiscal year 2012, RHS had about 900 full-time equivalent staff managing its direct loan program, and about 400 staff managing its larger guaranteed loan program.

Second, the Administration has proposed that RHS use direct endorsement lenders to approve guaranteed loans. Specifically, the 2011 and 2012 President’s Budgets proposed that RHS use direct endorsement lenders in its guaranteed loan program to make RHS more efficient and allow time to transition the staff managing guaranteed loans to other priorities. endorsement lenders to approve mortgage applications without first submitting paperwork to HUD. As of September 2011, it had about 3,700 such lenders.

Greater Coordination or Consolidation of Certain HUD and RHS Multifamily Activities Could Help Improve Programs

The 2013 President’s budget did not propose that RHS use direct endorsement lenders. on participants and the benefit of aligning the requirements of these programs.

HUD and RHS face similar challenges in managing their portfolio of affordable rental properties. Properties assisted by both agencies are aging and need new investments for capital improvements. Also, some property owners may decide to leave the programs and convert their properties to market rate and no longer be subject to rent and tenant income requirements. In response to these challenges, RHS offers incentives that provide equity investments and favorable loan financing to property owners seeking to recapitalize their properties or at risk of exiting the program. Similarly, HUD has various financing tools that offer incentives to property owners to remain in the program. When property owners do exit the program, HUD and RHS offer special rental assistance to households to help ensure that their rents remain affordable.

Further, similarities in guaranteed multifamily loans indicate the need for greater coordination. For instance, among multifamily loan programs, RHS programs (whether direct or guaranteed) are more prevalent in rural areas than the much larger FHA multifamily guaranteed loan program. However, RHS has been moving toward guaranteed multifamily loans, primarily as a leveraged source of funds when preserving its direct loan properties. Moreover, the 2013 President’s budget proposes funding for Section 538 guaranteed loans but not for Section 515 direct loans. According to RHS officials, the only new Section 515 direct loans being made are for preserving existing properties. As discussed earlier, properties with RHS loans also tended to be much smaller than properties with FHA loans, suggesting that RHS and its products have served a unique market segment and that RHS may have a product model that could be useful for FHA. Over the years, HUD has proposed variations of guaranteed loans for small properties, such as in more rural areas where HUD properties are smaller and more comparable in size to RHS properties. For example, HUD announced demonstration programs in 1997 and 2006 for variations of small project guaranteed loans.

More recently, the Rental Policy Working Group discussed existing programs that HUD might use for smaller properties, including RHS’ Section 538 guarantee program. The discussions resulted in the Rental Policy Working Group developing a proposal for the 2013 budget that would allow HUD to implement flexibilities with its Section 542(b) risk- share program to make risk-share loans to refinance, rehabilitate, and recapitalize small properties. The proposal would allow HUD to use this existing program to expand availability of capital to small properties. If successful, this program could be used in urban and rural areas, as HUD has no geographic restrictions. While statutory action would be needed for HUD to implement the changes to its Section 542(b) risk-share program, the working group focused on this effort because it required only minor statutory changes.

Consolidation or Increased Coordination Presents Immediate Challenges and Has Longer-Term Implications

Consolidation presents a number of challenges in the short and long term. These include overcoming statutory barriers; assessing products to be offered; establishing effective delivery structures; aligning resources, policies, and requirements; and ensuring continuing oversight and performance of existing commitments. Potential for savings in the long term must be weighed carefully against the immediate challenges and against the potential implications of consolidation for agency goals and objectives and households served. We previously reported on questions agencies should consider when evaluating whether to consolidate and noted that identifying and agreeing on specific consolidation goals and realistic expectations for their achievement are the key to any consolidation effort.groups should not rule out studying the potential for consolidation if the potential for long-term savings through better alignment of resources and delivery structures outweighs the challenges and long-term costs. For example, VA’s housing program is an entitlement earned by veterans and RHS’s guaranteed program is only available to low- and moderate- income households in rural areas. And HUD operates the Good Neighbor Next Door program, which restricts eligibility by profession (for example, to teachers and law enforcement officers).

But the fact that programs serve different targeted Several of the immediate challenges that would stem from any consolidation efforts have long been a concern for the agencies. In 2000, when we first recommended that Congress consider requiring USDA and HUD to examine the benefits and costs of merging programs such as their single-family guaranteed programs, USDA noted that such a merger could be detrimental to rural areas, which could lose a federal voice. In addition, HUD noted that without legislative changes, any efforts to merge the programs likely would result in a more cumbersome delivery system. In May 2011 testimony before the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity, some industry experts said a proposed consolidation plan merited further discussion, but others stated the proposal could negatively affect USDA’s efforts to deliver its other rural development programs. In September, the RHS Administrator testified that while RHS and HUD shared an important commitment to meeting the housing needs of rural America, she opposed the proposed consolidation plan. She said that RHS housing services uniquely served rural communities by working in “synergy” with other rural development programs.

Since then, RHS officials and several housing industry officials with whom we spoke also have raised concerns about consolidating RHS and HUD programs. They have argued that rural housing assistance is a part of the community development package that USDA’s rural development agencies (RHS, Rural Utilities Service, and Rural Business Cooperative Service) can offer and that consolidating RHS programs into HUD would disrupt the interrelationship between the three rural development agencies in USDA. RHS officials pointed to the human capital challenges that would arise from any consolidation. For example, they noted that training would be an issue because product requirements, information systems, and agency processes and procedures differ between HUD and RHS. In addition, they questioned whether any consolidation would help improve the delivery of service to rural areas. RHS officials and industry officials expressed concern that rural guaranteed single- and multifamily programs would get “lost” in HUD. Some RHS and industry officials also noted that program consolidation would not address the gap in access to affordable housing credit for those individuals who could not qualify for HUD or other conventional single-family loans.

While training and information systems are important considerations for any consolidation or increased coordination between the agencies, consolidation or increased coordination does not necessarily require that product terms be aligned. FHA already offers multiple products with different terms and conditions. And although FHA does not have the extensive delivery structure RHS uses to perform loan origination under its now diminishing direct loan program, the continuing need for this RHS product has been questioned by USDA and OMB. Moreover, the more similar the products become, the stronger the argument for a consolidated delivery structure. In the long term, this could present an opportunity for the agencies to take advantage of the best features of each agency’s structure.

In relation to concerns about the level of focus on rural housing in HUD, HUD currently serves a larger number of homeowners in rural areas than RHS serves, and HUD administration officials told us that they considered HUD an agency that served housing needs in all communities—urban, suburban, and rural. Also, while RHS housing programs align with several of HUD’s priority goals, USDA currently does not have priority goals for housing, and housing programs have not been a high priority in USDA. For multifamily housing, we first reported in 2002 that RHS could not prioritize the long-term rehabilitation needs of the properties in its Section 515 direct loan portfolio. The fiscal year 2013 budget is the first in which the agency is requesting funding for a permanent (in place of a current demonstration program) multifamily preservation and revitalization program for its rural rental housing portfolio. As described earlier, we reported in 2004 that RHS did not have access to the same wage matching data as HUD to assure that rental payments under the Section 521 rental assistance program were accurate. USDA proposed legislation to access Department of Health and Human Services data for wage matching purposes in the fiscal year 2013 budget. In addition, the administrative and reporting structure of rural housing programs among USDA components has varied. As we reported in 2000, the position of RHS Administrator is at the same organizational level as the State Rural Development Offices, which can develop their own program delivery systems. As a result, state offices still report to the Under Secretary for Rural Development rather than the RHS Administrator on housing issues. The state offices also have developed various interpretations rather than uniform standards on issues ranging from rent calculations to loan prepayment.

Combining programs would not eliminate the need for managing existing commitments. Both FHA and RHS have loan guarantees with terms of as much as 40 years. In the single-family programs, both agencies have systems in place for monitoring the performance of existing mortgages and ensuring that loan servicers and contractors carry out functions related to loss mitigation, foreclosure, and property management, as well as systems for holding lenders accountable in the loan origination process. The continuing need for these functions would necessitate careful planning and alignment to permit consolidation.

Consolidating or coordinating existing programs and activities also raise important implications because of costs, and the potential impact on people and agency mission. When consolidation or increased coordination results in significant shifts of people, space, technology and systems, several issues arise. As an example, simply moving staff and responsibilities could increase costs and not result in any process improvements. Ensuring long-term benefits from cost savings and improved operations will require careful consideration of the responsibilities and staffing resources needed for the combined operation. For example, if the single-family loan programs of RHS and HUD were to be consolidated, it would be necessary to specify the impact on employees, including changes in roles and responsibilities, processes and procedures, individual accountability, and day-to-day operations. There also would be transition issues to consider, such as costs of leases and unoccupied federal property, or moving expenses for employees transferred to new sites. Consolidation or increased coordination also may have implications for borrowers, lenders, developers, and other industry participants. For instance, some borrowers and lenders who may have worked extensively with particular programs could experience increased costs in the short term for adapting existing program administration, personnel, processes, and systems.

Whether through consolidation or further coordination, RHS, FHA, and VA have opportunities to assess the potential for learning from the practices of each other. RHS did this when its guarantee program was created. For instance, RHS officials told us that they had examined FHA’s system when they established their guaranteed program and decided it would be more cost-effective to require lenders to dispose of properties. Thus, unlike FHA, RHS relies on lenders to take title of foreclosed properties and manage and market them. But, RHS and FHA have not taken steps to further explore the relative benefits and costs of each other’s approaches. This and other areas may represent an opportunity for the agencies to explore how to take advantage of their respective best practices, while minimizing the adverse impact on targeted populations.

Finally, combining management of the portfolio of existing multifamily projects might require reassessing methods for overseeing and monitoring these projects. Some noted that in RHS, staff were responsible for a particular portfolio of multifamily projects and offered a direct point of communication for these projects. They pointed out that HUD, which provides funding for far more projects, did not have staff responsible for individual projects. Also, payment structures for RHS- direct multifamily loans are linked and are offset by RHS rental assistance payments. Combining RHS and HUD rental assistance programs would require assessing the implications of aligning payment methods for the two programs.

Conclusions

The federal government plays an important role in encouraging homeownership and ensuring the availability of decent, safe, and affordable rental housing through a variety of single- and multifamily programs that provide rental assistance, public housing, and tax expenditures. Numerous agencies administer these fragmented programs, and recent assessments have shown that some programs overlap (that is, provide similar products and serve similar populations).

Ongoing fiscal constraints and the accompanying move toward greater use of guaranteed lending and leveraging of federal funds with other public and private funding sources have called into question the feasibility of maintaining the current fragmented structure for providing support to housing and, in particular, the overlap in certain housing programs. Policymakers and agencies have been tasked with continuing to meet affordable housing needs while protecting taxpayer investments. Consolidation and improved collaboration can offer an effective means of realizing necessary cost savings and eliminating unnecessary overlap.

While consolidation and improved coordination efforts are underway, they could be improved and expanded to help ensure that agencies do not miss opportunities to generate savings and efficiencies in their housing programs. A recently created task force may help evaluate the potential for coordinating or consolidating the single-family housing loan programs at HUD, USDA, and VA and the agencies have been working to consolidate and align certain requirements in multifamily housing programs through the Rental Policy Working Group. However, the single- family task force has not yet specified its goals or expected outcomes, roles and responsibilities, resources, or a means of monitoring or reporting on results and reinforcing agency accountability for collaborative efforts. Incorporating these key practices for effective collaboration would help the task force and HUD, USDA, and VA establish the guidance and direction needed to systematically bring about a productive working relationship. With a more effective collaborative approach, the agencies also can generate opportunities to evaluate the potential for improving, coordinating, or consolidating single-family housing loan programs. Certain aspects of the single-family programs show great potential for consolidation—as we have reported, overlap exists in products offered, service delivery, and geographic areas served. Therefore, the task force agencies could productively focus on the products offered, delivery structure, and systems and resources that support the programs as part of any assessment of coordination and consolidation of the programs. For instance, agencies could consider whether and how to align product terms and conditions, and how to optimize service delivery methods. Or, they could move beyond administrative change, and assess what might be accomplished in terms of coordination or consolidation through statutory changes. Such assessments represent valuable first steps and would serve as resources for the agencies.

The Rental Policy Working Group, which has followed a majority of our key collaboration practices, already has taken steps to identify specific areas in which to align sometimes conflicting and redundant requirements. But it focused on actions that require minimal or no statutory changes, or minimal or no costs. Overlap in multifamily programs exists in the overall purpose of programs, delivery structures, and provision of project-based rental assistance. However, any consolidation of multifamily programs would require statutory changes. There is more the Rental Policy Working Group can do to build on its success. For example, it could expand its guiding principles to include areas in which statutory action across individual agencies and programs may be needed to help increase overall programmatic efficiency and save additional taxpayer dollars. It could take additional steps to reinforce agency accountability for collaborative efforts by documenting collaborative efforts in its strategic and annual plans. In addition to the two efforts highlighted above, and as we previously recommended, coordinated reviews of tax expenditures with related spending programs could help reduce overlap and inconsistencies and direct scarce resources to the most effective or least costly methods to deliver federal support.

Options to increase collaboration or to effect consolidation in HUD and USDA’s single- and multifamily loan programs that serve similar markets, provide similar products, or have similar delivery structures could enhance the efficiency of and improve the programs overall. But as we have noted, they are not without a number of human capital, information technology, and other significant challenges and implications. We first reported on these options in 2000. The potential exists for greater collaboration or consolidation, including considering statutory action, if applicable. Policy makers face difficult decisions on the structure and funding of housing programs and activities across federal agencies. Although Congress ultimately would have to decide, agencies could further this effort by exploring the potential benefits and costs of consolidating overlapping programs. Such analyses represent a key step on the path to determining the viability of consolidation. The analyses also can support the Administration’s efforts to reform the government’s role in housing finance.

Recommendations for Executive Action

To enhance task force efforts to evaluate the potential for coordination or consolidation of single-family housing programs and activities, the Secretaries or other designated officials of HUD, USDA, and VA, and the Director of OMB should take steps to establish a more rigorous approach to collaboration. For example, as a first step, agencies could define and articulate goals or common outcomes and identify opportunities that can be addressed or problems solved through their collaborative efforts. Enhancing the task force’s efforts also could entail establishing and implementing a written agreement; specifying roles and responsibilities; establishing mechanisms to monitor, evaluate, and report on results; and reinforcing accountability for collaborative efforts.

To further improve HUD, USDA, and Treasury’s efforts through the Rental Policy Working Group to consolidate and align certain requirements in multifamily housing programs, the Rental Working Group should take steps to document collaborative efforts in strategic and annual plans to help reinforce agency accountability for these efforts.

To build on task force and working group efforts already underway to coordinate, consolidate, or improve housing programs, and help inform Congress’s decision-making process, the Secretaries or other designated officials of HUD, Treasury, USDA, and VA should evaluate and report on the specific opportunities for consolidating similar housing programs, including those that would require statutory changes.

Agency Comments and Our Evaluation

GAO provided a draft of this report for review and comment to the Consumer Financial Protection Bureau, Department of the Interior, Department of Labor, Farm Credit Administration, Federal Deposit Insurance Corporation, Federal Financial Institutions Examination Council, Federal Housing Finance Agency, Board of Governors of the Federal Reserve System, HUD, IRS, National Credit Union Administration, NeighborWorks America, Office of the Comptroller of the Currency, OMB, Treasury, USDA, and VA. HUD’s Acting Assistant Secretary for Housing-Federal Housing Commissioner, USDA’s Under Secretary for Rural Development, and VA’s Chief of Staff provided written comments, which we address below and which are reprinted in appendixes II, III, and IV, respectively. OMB staff provided a general comment by e-mail. The Department of Interior, Federal Financial Institutions Examination Council, Board of Governors of the Federal Reserve System, HUD, IRS, Treasury, USDA, and VA provided technical comments, which we incorporated as appropriate. The Farm Credit Administration, Federal Deposit Insurance Corporation, National Credit Union Administration, NeighborWorks America, and Office of the Comptroller of the Currency stated they had no comments. Finally, the Consumer Financial Protection Bureau, Department of Labor, and Federal Housing Finance Agency provided no comments.

HUD stated that the report accurately reflected HUD’s collaborative efforts and agreed with the report’s recommendations. However, in response to the recommendation that HUD and the other agencies establish a more rigorous approach to collaboration, HUD noted the importance of assessing the timing of implementing the recommendation because the relevant agencies have been fully focused on the ongoing recovery of the housing market. OMB staff expressed a similar concern. HUD further stated that it will consult with other interested parties to establish a framework through which to respond to our recommendation and noted that an approximate time frame might involve waiting until after February 2014. As we stated in the report, in addition to focusing on the ongoing housing crisis and government support for the housing market, focusing on achieving efficiencies and cost savings and the delivery of government support for housing is important. By incorporating key practices on collaboration and developing a more formal approach to the single-family task force, HUD, USDA, VA, and OMB can evaluate the potential for coordinating or consolidating single-family loan programs, and possibly generate savings and efficiencies while better serving homeowners. As we noted in the report, whether through consolidation or further coordination, RHS, FHA, and VA have opportunities to assess the potential for learning from the practices of each other.

VA concurred with the recommendation to enhance the single-family task force’s efforts. VA said that the agency welcomed opportunities to coordinate with other agencies and share best practices and looked forward to refining and improving its own program by applying other agencies’ best practices. VA concurred in principle with our recommendation on identifying opportunities to evaluate and report on opportunities for consolidation as long as the efforts were coordinated and not unilateral, adding that unilateral actions could waste resources and have other negative effects. We modified the recommendation to make it clear that we were referring to efforts through the interagency task force and working group and not unilateral evaluations. In addition, VA reiterated its position that while collaborating and coordinating with other housing programs could be beneficial, combining VA’s unique home loan guaranty program with other housing programs would go against the statutory intent that established an earned benefit for veterans.

USDA generally agreed with our recommendations, stating that collaborative efforts already under way should reduce duplication of efforts by stakeholders working with multiple agencies as well as “bureaucratic red tape, processing times, and ultimately program costs.” USDA also provided a summary of the agency’s positions on a number of other issues. First, USDA stated that RHS’s single-family guaranteed loan program has been performing better than FHA’s loan programs because RHS controlled risk by tightening underwriting and performing preclosing reviews. RHS has reported lower delinquency rates than FHA, and concluded that these differences were due to the tighter controls. However, RHS’s analysis does not control for other factors that could explain differences between the agencies’ delinquency and default rates. Second, RHS suggests that borrowers of its guaranteed loans could not afford FHA-guaranteed loans, but it has not conducted the analysis needed to make this judgment. RHS’s lower fees and lack of down payment could divert prospective borrowers from programs such as FHA’s, which could offer further evidence of the overlap in federal mortgage products. Finally, USDA reiterated its position that rural communities have a unique set of challenges and that rather than duplicating other federal programs, USDA’s housing programs address unique needs. However, we found that HUD also serves rural areas through its single- and multifamily programs. Further, RHS’ greater reliance on guaranteed single-family lending has lessened the differences between RHS and FHA single-family loan programs; for example, more than half of the new RHS-guaranteed single-family loans made in 2009 were in urban or suburban areas.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Agriculture, the Secretary of Housing and Urban Development, the Acting Director of the Office of Management and Budget, the Secretary of Veterans Affairs, the Secretary of the Treasury, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please contact me at (202) 512-8678 or sciremj@gao.gov, or Jim White at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This report assesses (1) programs and activities the federal government uses to support rental housing and homeownership; (2) the extent to which overlap or fragmentation exists in the goals, products, geographic coverage, service delivery mechanisms, and recipient income levels of selected housing programs and activities of the Departments of Housing and Urban Development (HUD), Agriculture (USDA), Veterans Affairs (VA), and Treasury; and (3) the extent to which federal efforts have increased coordination for selected housing programs and activities, and implications of further coordinating or consolidating selected housing programs or activities.

For purposes of this study, we defined duplication, overlap, and fragmentation.

Duplication occurs when two or more agencies or programs engage in the same activities or provide the same services to the same beneficiaries.

Overlap occurs when multiple programs have similar goals, devise similar strategies and activities to achieve those goals, or target similar users.

Fragmentation occurs when more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national interest.

Programs and Activities the Federal Government Uses to Support Rental Housing and Homeownership

To identify federal agencies’ support for housing in fiscal year 2010, we compiled an inventory of direct spending programs, tax expenditures, and other activities, such as regulatory requirements—to which we collectively refer as “activities”—related to housing. To identify programs, we first collected information on programs categorized as housing programs from the Catalog of Federal Domestic Assistance. We also reviewed the fiscal year 2012 President’s Budget; program documentation from HUD, USDA, and VA; studies by the Congressional Research Service, Congressional Budget Office (CBO), and other housing groups; and the Compendium of Federal Single Family Mortgage Programs and Related Activities. We collected descriptive information about each program, including (1) the administering or implementing agencies or entities; (2) type of assistance provided; (3) eligibility of recipients in terms of geographic or income restrictions; and (4) other relevant nonfederal entities involved in administering, distributing, or delivering federal assistance, if any.

We compared the programs among the sources described above to create an inventory of federal support for housing. We excluded certain programs that can support housing but were covered in our other recent reports on duplication, overlap, and fragmentation. For example, the inventory does not include housing counseling programs that we covered in 2012 Annual Report: Opportunities to Reduce Duplication, Overlap, and Fragmentation, Achieve Savings, and Enhance Revenue, GAO-12-342SP (Washington, D.C.: Feb. 28, 2012), or homeless housing programs that we discussed in two March 2011 reports—Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011); and List of Selected Federal Programs That Have Similar or Overlapping Objectives, Provide Similar Services, or Are Fragmented Across Government Missions, GAO-11-474R (Washington, D.C.: Mar. 18, 2011). Additionally, we excluded Federal Trade Commission and Department of Justice enforcement efforts related to certain consumer protections. In some cases, names of programs were inconsistent among the various sources we reviewed. As a result, our usage either conformed with program names as cited in past GAO reports or with agency documents.

Our list of 15 housing tax expenditures is based on lists of tax expenditures and estimates of their cost compiled annually by Treasury and the Joint Committee on Taxation (JCT). Both Treasury and JCT list tax expenditures by budget function. We compiled a preliminary list of tax expenditures for fiscal year 2010 listed under the “housing” subfunction of the commerce and housing budget function, and added other housing- related provisions listed under other budget functions. Our universe included expired tax expenditures listed by either Treasury or JCT that had estimated revenue losses for fiscal year 2010.

While the tax expenditure lists were generally similar, Treasury and JCT’s method for reporting specific tax expenditures differed slightly. For the 15 tax expenditures we listed, both Treasury and JCT listed nine under the housing budget subfunction. Treasury and JCT each reported another tax expenditure, but grouped the expenditures under different functions. Two tax expenditures were listed only by JCT, and another only by Treasury. Furthermore, we identified one tax expenditure that both Treasury and JCT reported under the veterans’ benefits and services budget function, but which appeared to support housing activities. We also identified another tax expenditure that neither Treasury nor JCT reported annually, but which JCT identified in a separate report on housing tax incentives.

We did not include in our list two tax expenditures Treasury reported under the housing budget subfunction because JCT did not list one and listed the other under the “other business” subfunction. We also did not include a tax expenditure that JCT reported under housing, but Treasury reported under the community development function. As a final step, we Officials compared our list with similar lists of housing tax expenditures.from Treasury and the Internal Revenue Service (IRS) also reviewed our final list of housing tax expenditures before publication of , GAO-12-555SP the e-supplement to this report that lists the tax expenditures as part of all federal housing activities.

To identify regulatory requirements, we included financial regulators (whose responsibilities include helping ensuring that regulated institutions comply with consumer financial protections) and regulators of government-sponsored enterprises (government agencies that provide oversight and supervision of government-sponsored enterprises) and focused on those regulations affecting participants in the housing market, including lenders, consumers, and others involved in homeownership and rental housing. For example, we included the Farm Credit Administration because Farm Credit System associations are authorized to engage in rural housing lending under the agency’s regulations. We also include as an administering entity the Federal Financial Institutions Examination Council, which is a formal interagency body that prescribes uniform principles, standards, and report forms for the federal examination of financial institutions and makes recommendations to promote uniformity in the supervisions of financial institutions. We relied on our recent reports related to federal mortgage lending laws: Mortgage Reform: Potential Impacts of Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage Market, GAO-11-656 (Washington, D.C.: July 19, 2011); and Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight, GAO-11-433 (Washington, D.C.: May 2, 2011).

To summarize federal support for homeownership and rental housing, we reviewed descriptive information about each activity. To characterize the primary purpose for each, we identified 11 categories that illustrate the primary public policy goals associated with each activity, and used the best available information to make a determination. In selecting the categories, we focused on the title, mission, objective, or goal of each activity and made a judgmental determination about common groupings for the activities. We also shared the categories and related descriptions with the responsible agencies. The 11 purposes that we identified are listed below:

Assistance for buying, selling, or financing a home – assistance to individuals who are purchasing or refinancing a home or a preferential tax treatment on the sale of a home. Also, certain assistance to homeowners who are having difficulty making their mortgage payments.

Assistance for homeowners – assistance to current homeowners to improve or change their properties, or tax expenditures that allow homeowners to deduct costs associated with homeownership.

Increasing the availability of mortgage loans – actions taken to provide additional liquidity in the housing market, allowing private and government lenders to make additional mortgage loans.

Assistance for financing rental housing – financial assistance for the production or preservation of rental housing.

Assistance for rental property owners – financial assistance to owners of rental properties for units rented to low-income tenants, or tax expenditures that reduce the after-tax costs associated with owning and maintaining rental property.

Rental assistance for tenants – payments on behalf of tenants to reduce their rent payments.

Operation/management of rental housing – financial assistance to current owners of rental housing for the operation or management of rental housing.

Regulatory requirement – regulations affecting participants in the housing market, including lenders, consumers, and others who buy, sell, or rent housing.

Supports housing and other activities – activities that support any of the above activities under rental housing and homeownership. Also, activities in other areas in which the federal government is involved that have indirect effects on housing.

Regulator of government-sponsored enterprises – government agencies that provide oversight and supervision of government- sponsored enterprises.

Emergency assistance to housing market or current homeowners – actions taken to stabilize the housing market or provide financial assistance to homeowners to make their mortgages more affordable; or to provide temporary assistance through the tax code for homeowners.

We used a two-step process to independently assign each activity a primary purpose based on the descriptions listed above, but because many of the activities we reviewed have multiple purposes, we further characterized the type of housing assistance for each activity as related to (1) homeownership, (2) rental housing, or (3) homeownership and rental housing (both). First, an initial determination was made about the primary purpose and type of housing supported for each activity. Second, each determination was independently reviewed to verify the category assignments. When needed, the activity and category in question were discussed. For the tax expenditures, we also compared our selections with how others, including the Congressional Research Service, CBO, and JCT had described the purpose or activity for housing-related tax expenditures. Finally, we shared the inventory with the responsible agencies and incorporated their comments as appropriate.

We also identified the type of assistance associated with each activity in our inventory. In some cases, the agencies provided program dollars to an entity such as a nonprofit or local government that administered the funds to serve the primary targeted recipient. For the purposes of this report, we used “type of assistance” as it relates to the primary targeted recipient. Generally, the programs in our inventory provided the following types of assistance:

Grant – to any other governmental or nongovernmental entity, or

Direct payment – to property owner, homeowner, tenant;

Direct loan – from government agency direct to borrower;

Guaranteed loan – through approved private lenders; Insured loan – through approved private lenders;

Block grant – to other nonfederal governmental entities that have flexibility on use of funds;

Tax exclusions, exemptions, or deductions;

Tax credits; and

Deferrals of tax.

The inventory also contains budgetary information for each activity we identified for fiscal year 2010. To determine the budgetary obligations for spending programs, we reviewed the fiscal year 2012 President’s Budget and agencies’ budget justifications for fiscal year 2012, which contained the actual obligations for fiscal year 2010. To determine the revenue loss estimates for tax expenditures in fiscal year 2010, we reviewed the annual lists of tax expenditures Treasury and JCT compiled. Some of the activities in our inventory incurred no obligations in fiscal year 2010 for a number of reasons; for example, the activity was not part of the federal budget or was inactive in that year. We determined the data and information collected related to each activity and fiscal year 2010 budgetary information to be sufficiently reliable for the purposes of this report. We confirmed information found in the President’s Budget for fiscal year 2012, agencies’ budget justifications, and agency documentation with agency officials.

Extent to Which Overlap or Fragmentation Existed in Selected Housing Programs or Activities

To determine the extent to which overlap or fragmentation occurred in the selected housing programs or activities of HUD, USDA, VA, and Treasury, we updated and expanded the work from our 2000 report on opportunities and barriers to reducing overlap and fragmentation in We focused delivering single-family and multifamily housing programs.on selected single-family and multifamily programs at HUD, USDA, and VA, and on Treasury’s Low-Income Housing Tax Credit (LIHTC) program and the mortgage interest and property tax deductions as of 2010. We identified housing programs that may have similar or overlapping objectives, provide similar services to similar beneficiaries, or are fragmented across missions. For single-family programs, we included the federal loan guarantee programs from USDA, VA, and the largest of HUD’s program; the direct loan programs at USDA; and Treasury’s two largest tax expenditures that provide assistance to homeowners. Specifically, the single-family programs included in our scope were

One- to Four-Family Home Mortgage Insurance (Section 203(b));

Rural Housing Single Family Loans - guaranteed (Section 502

Rural Housing Single Family Loans - direct (Section 502 direct);

Very Low-Income Direct Repair Loans and Grants (Section 504);

VA Home Loan Guaranty;

Mortgage Interest Deduction; and

Property Tax Deduction.

For multifamily housing programs, we included programs that finance multifamily housing and programs that provide project-based rental assistance. As USDA has fewer housing programs, we selected these first, then selected the active programs at HUD and Treasury with similar purposes. For example, while HUD administers many programs that provide loan guarantees for multifamily housing, we selected HUD’s Section 221(d)(3) and (d)(4) programs because they are most similar to USDA’s Section 538 loan guarantee and because they had the most loan activity of HUD’s programs. The other selected HUD, USDA, and Treasury programs are similar in that they require that the owner keep the properties available to the eligible populations or keep the rents affordable or both. Finally, USDA’s Section 521 provides rental assistance to property owners for units rented to low-income tenants. Similarly, HUD’s project-based rental assistance provides payments to property owners for the same purpose; therefore, we decided to select HUD’s project-based rental assistance (Section 8, Section 202, Section 811, and other rental supplement programs). We excluded some large HUD multifamily housing programs from this analysis because there were no similar housing programs at USDA. For example, the public housing and housing choice voucher programs were excluded. Specifically, the multifamily programs included in our scope were

Supportive Housing for the Elderly (Section 202);

Supportive Housing for Persons with Disabilities (Section 811);

Mortgage Insurance for Rental and Cooperative Housing (Sections 221(d)(3) and (d)(4));

Project-Based Rental Assistance;

Multifamily Direct Rural Rental Housing Loans (Section 515);

Farm Labor Housing Loans and Grants (Sections 514 and 516);

Rural Rental Housing Guaranteed Loans (Section 538);

Rural Rental Assistance Payments (Section 521); and

Low-Income Housing Tax Credit.

We collected and analyzed information and data on the goals, program details, eligibility, product delivery, geographic locations, and populations benefiting from agency housing programs. We identified those housing programs that may have similar or overlapping objectives, provide similar services, or are fragmented across missions. Overlap and fragmentation may not lead to actual duplication, and some degree of overlap and duplication may be justified.

We categorized locations based on three different USDA-developed characterizations of rural and urban, and analyzed agency data from the selected programs based on these characterizations. To do so, we geocoded (that is, mapped the geographic coordinates of) the addresses of properties supported by selected programs of HUD, USDA, VA, and Treasury. By comparing the frequency of properties or units within the type of county or zip code, we could assess the degree to which the three agencies operated in the same types of locations or operated within certain distances of the similar areas. We used MapInfo—a geographic information system designed to prepare maps and graphs that allow users to easily visualize connections between data and geography. For single-family loan analyses, we used a single year of data—active loans that were made in 2009 because they constituted the most recent data. For HUD and USDA multifamily programs, we used the portfolio as of February and May 2012, respectively. For Treasury’s LIHTC program, we used data on projects placed in service from 1998 through 2007 because they were the most reliable and complete data available and included LIHTC projects that remain within the 15-year tax credit compliance period.

We analyzed the geocoded properties and units supported by the selected programs in three ways:

We obtained RHS’ program eligibility map from USDA and analyzed the land mass and population that are represented by these areas. We used the geocoded locations of the single-family guaranteed loans to determine whether the properties were within RHS ineligible areas or calculated the distance to the nearest ineligible area.

We analyzed the geocoded locations of the single-family and multifamily properties using the four-category version of the Economic Research Service’s rural urban commuting area codes. We reported in 2005 that categorization of smaller areas provides a more precise delineation of rural than the county-based rural-urban continuum.

We distinguished four county categories by collapsing the nine categories in the Economic Research Service’s rural-urban continuum. We analyzed the geocoded locations of the single-family and multifamily properties using this categorization.

Additionally, we analyzed borrower income and location data for the HUD and VA single-family guaranteed loan programs and compared borrower income with county-level data on area median income (AMI). For RHS’s single-family guaranteed loans, we used the program eligibility limit of 115 percent of AMI for borrower income and loan-level location data. We analyzed the locations of properties using the rural-urban continuum.

To determine how RHS’s field structure has changed over time and determine the work breakdown by location within RHS programs, we analyzed field office location and full-time equivalent assignment data from RHS. Also, to determine the difference in the trends between the guaranteed and direct loan programs, we analyzed single-family historical loan data from RHS and Housing Assistance Council data. To assess the reliability of the data we used for geographic and income analysis, we conducted reasonableness checks, including testing the electronic data files for any missing or illogical data, reviewed existing information about data quality, interviewed officials familiar with the data, and corroborated key information. On the basis of this review, we determined that the data used were sufficiently reliable for purposes of our analysis.

Furthermore, to perform our analysis of how different income levels and geographic areas claim the deductions for mortgage interest expenses and property taxes, we reviewed IRS zip code data for tax year 2008 (the latest zip code data available). The IRS zip code data include information for every zip code for which 250 or more returns were filed. Variables include the total number of tax returns filed, ranges of adjusted gross income (AGI) reported on those returns, and the total amounts of property taxes and mortgage interest deducted (as claimed on Form 1040 Schedule A, lines 6 and 10, respectively).

To analyze how the two deductions are used by different income levels, we compared the share of total returns in each AGI range to the share of total mortgage interest and property tax deductions in each range. We also reviewed analysis by JCT about the distribution of tax expenditures for the mortgage interest and property tax deductions by income class in 2009. To analyze how taxpayers in different geographic locations used the deductions, we used the IRS data to calculate and compare the mortgage interest and property tax deductions claimed on tax returns from each state relative to each state’s share of total returns. We also used IRS zip code data to analyze use of the mortgage interest and property tax deductions in rural and urban areas.

Using IRS data to analyze the geographic use of housing tax expenditures has some limitations. The IRS data reported by state and by zip code are based on the mailing address as reported by the taxpayer. However, some taxpayers may have used the address of a tax lawyer, accountant, or a place of business. Such addresses each could have been located in a state or zip code different than the state or zip code in which the taxpayer resided. Furthermore, taxpayers report the total dollar amount of mortgage interest or property taxes claimed, but do not report whether they were taking the deduction on their main home, a second home, or both.

Finally, to determine what previous studies had found about usage of housing-related tax expenditures in various geographic locations, we conducted a literature review for studies on the geographic distribution of the mortgage interest and property tax deductions. We identified and reviewed four studies that had used IRS tax return or Census data to analyze the geographic distribution of the mortgage interest and property tax deductions.

Extent to Which Federal Efforts Increased Coordination for Selected Programs and Activities and Implications of Greater Coordination or Consolidation

To determine the extent to which federal efforts have increased coordination for selected housing programs and activities, we collected and analyzed information, where available, on the efforts taken by HUD, USDA, VA, and Treasury to increase coordination or collaboration on selected housing programs. We reviewed documentation describing the efforts and obtained input from agency officials, including the Office of Management and Budget, on the single-family task force, White House Rural Council, and Rental Policy Working Group. We reviewed our prior work on interagency collaboration and key practices that can help enhance and sustain collaborative efforts, and compared the agencies’ efforts with our eight key collaboration practices to determine the extent to which the efforts were consistent with our key practices. As no law or regulation requires collaboration between HUD, USDA, VA, and Treasury, we relied on established practices and our views in examining consistency.

We identified selected housing programs and activities that may benefit from greater coordination or consolidation as first stated in our 2000 report on housing programs and our prior work on tax expenditures, and supplemented that with the recent analysis of fragmentation and overlap described here. To identify some of the challenges and implications of coordinating or consolidating selected housing programs or activities, we reviewed prior GAO and other reports, and collected and analyzed information from housing industry, HUD, USDA, and Office of Management and Budget officials on potential proposals for mitigating duplication, overlap and fragmentation, and some of the challenges and implications of increased coordination or consolidation.

We conducted this performance audit from July 2011 through August 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Comments from the Department of Housing and Urban Development

Appendix III: Comments from the U.S. Department of Agriculture

Appendix IV: Comments from the Department of Veterans Affairs

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov James R. White, (202) 512-9110 or whitej@gao.gov.

Staff Acknowledgments

In addition to the individuals named above, Andy Finkel, Assistant Director; MaryLynn Sergent, Assistant Director; Michelle Bowsky; Emily Chalmers; Andrea Dawson; Karen Jarzynka-Hernandez; Mark Kehoe; Anar Ladhani; John McGrail; John Mingus; Marc W. Molino; Alise Nacson; Barbara Roesmann; Erinn Sauer; Carrie Watkins; and Edwin Yuen made key contributions to this report.