Mortgages under RHS’s program can be used to build, acquire, and rehabilitate rental housing in rural areas and are generally 30-year loans with 50-year amortization periods and include subsidized interest rates as low as 1 percent. To help finance housing projects and keep rents affordable to low-income tenants, RHS offers rental assistance subsidies to some property owners, which cover the difference between the tenant’s contribution and a unit’s rent. The rental assistance program, authorized in 1974, provides the rental subsidies through agreements with property owners for an amount estimated to last for 1 year as required under the program’s appropriations acts. Eligible tenants pay no more than 30 percent of their income toward the rent, and RHS pays the balance to the property owner. Tenants must be low-income (incomes above 50 percent of area median income but not more than 80 percent of area median income) or very-low- income (with incomes not more than 50 percent of area median income) to be eligible for rental assistance. The agreements with the owners expire when the original dollar amount obligated is fully expended. Agreements specify that owners will receive payments on behalf of tenants in a designated number of units at the property. In addition, property owners must certify tenants’ incomes annually or when a tenant experiences a substantial change in income. Statutorily, rental assistance is tied to RHS loans for rural rental housing and is no longer provided to property owners once mortgages mature. The program supports five general types of rural rental housing projects— family; elderly (units may be occupied by an income-eligible household that includes a tenant or co-tenant who has a disability or is age 62 or older, or both); mixed (project has both family and elderly units); congregate housing (project may be occupied by income-eligible elderly households that need meals or other services); and group homes (may be occupied by income-eligible elderly persons or individuals with disabilities who share living space within a rental unit). Properties with RHS rental housing mortgages can exit the program in three ways—foreclosure, prepayment, and natural maturity of the mortgage. When an owner defaults on loan payments and the property is foreclosed, it may exit RHS’s program. Properties can also exit the program when loans mature naturally, meaning the loan is paid off as scheduled by the original loan term. Loans can also be prepaid, meaning payments are made ahead of schedule, which ends the loan term early. Only those loans made on or after December 15, 1989, are ineligible to prepay. As previously noted, once a property exits RHS’s program, owners are generally no longer required to provide housing for low- income tenants and properties are no longer eligible to receive rental assistance that is used to keep rents affordable for tenants. Some owners that are reaching the end of their RHS mortgage terms may wish to exit the program. Other owners may wish to remain in the program and continue renting to low-income tenants. RHS has offered tools and incentives to help owners stay in the program and preserve the affordability of rural rental housing. Some of these tools involve extending mortgage terms, which extends the availability of rental assistance to properties. RHS’s June 2017 data showed that the program had approximately 14,000 properties containing 427,000 rental units. Of these, approximately 12,000 properties (85 percent) and 282,000 units (66 percent) received rental assistance. According to RHS, the agency has not financed any new rental housing properties since 2011. Instead, RHS has generally used program funding to repair and rehabilitate existing program properties. RHS properties are geographically dispersed, but one-quarter of the RHS program, or about 3,500 properties, was concentrated in six states as of June 2017: Texas (670 properties); Missouri (609); North Carolina (595); Michigan (564); Illinois (534); and Minnesota (509) (see fig. 1). Appendix II provides data in table form for RHS properties, units, and units with rental assistance. RHS’s Multi-Family Housing Portfolio Management Division and the Multi- Family Preservation-Direct Loan Division administer USDA’s rural rental housing loan program. RHS’s national office also maintains the Automated Multi-Family Housing Accounting System (AMAS) and Multi- Family Information System (MFIS) databases, develops program policy, and oversees management of the program. RHS state offices administer the day-to-day operations of the rural rental housing program, including entering key mortgage and project information contained in hard copy mortgage closing documents into the AMAS and MFIS databases. In March 2016, RHS developed the Multi-Family Housing Property Preservation Tool (preservation tool), an electronic system designed to use data from AMAS and MFIS to estimate mortgage maturity and property exit dates and to calculate new dates that may result from RHS’s preservation efforts. Before introducing the preservation tool in 2016, RHS officials manually calculated exit dates for rural rental properties, a process that was subject to errors and inconsistencies due to properties with multiple mortgages and mortgages that could be prepaid. AMAS and MFIS track loan closing dates; loan amounts; interest rates; and property location, among other information, but were not designed to estimate property exit dates. According to RHS officials, the preservation tool and the underlying data it uses are publicly accessible via the Internet and are intended to improve program transparency and help support the agency’s preservation efforts. Users can search for the date a property began operating; total number of units; units receiving RHS rental assistance; mortgage amount and interest rate; mortgage prepayment eligibility; and property exit date estimates, among other information. The preservation tool enables RHS to look at trends in property exits across years and help determine when RHS will need to take preservation actions. As of April 2018, RHS had estimated property exit data available from 2017 to 2050, but not information on properties whose mortgages may mature in 2051 or beyond. RHS officials said that data will be released publically on its website when available. Our analysis of data used by the preservation tool showed that approximately 900 properties (6 percent of the program’s portfolio), including 20,000 units (5 percent), will have maturing mortgages and could exit the program between 2017 and 2027. Industry stakeholders said that low-income tenants living in these properties could face escalating rents or lose their housing altogether. In addition, over 13,000 properties (94 percent) and about 407,000 units (95 percent) are estimated to have mortgages that will mature between 2028 and 2050 (see fig. 2). Our analysis of RHS’s June 2017 data, the most recent data available, also showed that 35 percent of RHS’s rural rental properties (4,944 out of 14,075 properties) have mortgages that are eligible for prepayment and could exit the RHS program ahead of their original mortgage maturity date. This earlier exit could cause tenants to face rent increases or search for alternative affordable housing earlier than expected (see fig. 3). According to RHS, if an owner prepays and a property exits the RHS program, rental assistance is no longer available to assist that property’s tenants. Concerns about the loss of affordable units led Congress to enact legislation that precluded prepayment for loans made on or after December 15, 1989. For those properties that are eligible for prepayment, RHS officials said they cannot predict which owners might make this choice and the agency has not been collecting data on borrower’s prepayment choices. As a result, outreach to these owners is particularly important for possible preservation of affordable housing. Our review identified three internal control shortcomings that could impact the accuracy, completeness, and timeliness of RHS’s data on properties with maturing mortgages. First, RHS lacks sufficient controls to help ensure the accuracy of all loan information for each mortgage at the time of initial data entry because it only retroactively reviews a sample of loan document information entered into AMAS and MFIS. Although RHS staff reviews some loan information through the agency’s State Internal Review process, officials noted that the review of mortgage data entered into AMAS and MFIS only occurs for each field office at least once every 5 years and includes a step for staff to review and reconcile AMAS information with loan documents to help ensure the accuracy of RHS debt instruments. RHS officials added that they improved the guidance in October 2017 by adding specific data checks intended to help ensure that loan amount, interest rate, and amortization period information were correct. In addition, during our review of RHS’s rural rental housing loan documents, we identified mismatches between loan document information and the data in AMAS and MFIS used by the preservation tool. We found errors in the data on mortgage amounts, closing dates, and repayment periods in an estimated 3 percent to 5 percent of the properties in five states we examined. While the data we reviewed had limited errors, without appropriate internal controls, RHS cannot be assured that the data that is used by the preservation tool will be reliable in the future, and the mismatches suggest that RHS could improve how data are entered into AMAS and MFIS. According to RHS officials, these systems were not designed to estimate the expected maturity of rural rental housing mortgages. At the time of the systems’ development, officials said that it was not a priority to build in controls to ensure the accuracy of such estimates. RHS officials said that rural rental housing mortgages would not mature for many years after they were originated. As a result, RHS did not create controls intended to ensure the accuracy of data related to mortgage maturity and did not prioritize establishing a process to check that data. Federal internal control standards state that management is responsible for designing control activities for information systems and information processing objectives to support the completeness, accuracy, and validity of information processing. Without these controls, mortgage information used by the preservation tool to estimate property exit dates may be inaccurate and could affect the reliability of exit date estimates needed to identify properties for possible preservation. Second, RHS lacked controls to check the accuracy and completeness of underlying data used by the preservation tool. When we examined the underlying data the preservation tool uses to estimate property exit dates, we observed missing (blank) values for some property address; property state; borrower address; and management company name information. For example, borrower address and property address were missing for 588 and 141, respectively, of the roughly 14,000 properties. In addition, some properties in RHS’s data included estimated property exit dates but contained incomplete information (“N/A” designations) for key variables such as property name; property address; property state; number of units; and type of housing. Although RHS has been developing and implementing the preservation tool since 2016 and has made the preservation tool’s exit date estimates available on its website, the agency has not yet developed a control process to identify potential issues with its underlying data. As noted above, federal internal control standards require activities to help ensure the completeness, accuracy, and validity of program information. Without information that has been checked for accuracy, RHS might not be assembling the most complete and accurate information with which to estimate exit dates and begin possible preservation of rural rental housing for low-income tenants. In addition, RHS is missing an opportunity to improve data on properties with maturing mortgages and be better positioned to address those properties to protect low-income tenants. Third, the agency has not developed a regular, timely process for updating the preservation tool’s underlying data and exit date information. Since RHS developed the tool in March 2016, RHS updated the underlying data for September and December 2016 and June 2017 but not for 2018. RHS staff said the data were intended to be updated quarterly because information that affects exit date calculations changes as RHS preserves rural rental housing or properties exit the RHS program. However, RHS officials said that they have been unable to update the preservation tool quarterly due to staff attrition and competing program demands across RHS. Federal internal control standards require activities to help ensure the accuracy and validity of program information. For RHS’s information to be accurate and valid, it needs to be as current as possible for program management purposes. Since the mortgage maturity dates of properties are affected by RHS’s preservation options and the exit dates of properties can change over time as mortgages mature, it is critical for RHS to have accurate, complete, and timely rural rental housing information. Without controls to help ensure that RHS, industry stakeholders, and the public have the most recent data available, they might not have the most current information that could be used for estimating property exit dates and starting preservation. While RHS has taken steps to address properties with maturing mortgages, such as identifying various options and incentives intended to preserve the affordability of properties for low-income tenants, a majority of properties with maturing mortgages from 2014 to 2017 have exited RHS’s rural rental housing program. Moreover, RHS has not taken important steps to comprehensively plan and prepare for the much larger number of potential property exits in future years, such as developing goals and metrics to assess the effectiveness of its preservation efforts and analyzing risks to its ability to preserve properties. While taking these steps would help RHS’s preservation efforts, some tenants may still be at risk of losing rental assistance when mortgages mature because RHS cannot continue to provide rental assistance. RHS also cannot provide vouchers to tenants residing in properties whose mortgages have matured. In addition to developing the preservation tool as a first step in preserving properties with maturing mortgages, RHS officials said they commissioned two studies on the impacts of maturing mortgages to advance the agency’s understanding of key issues. Officials said they hoped the two studies would help the agency prepare for maturing mortgages. In September 2016, the Housing Assistance Council completed its first study for RHS, which identified the characteristics of RHS’s rural housing program and the impact that maturing mortgages may have on tenants and geographic regions. The report noted that understanding these characteristics and effects is important for planning and implementing strategies to preserve the properties. According to officials, the second study, which was under review by the agency as of December 2017, was intended to outline issues facing RHS’s multifamily housing program, such as the estimated $5.6 billion needed to rehabilitate properties program-wide, and possible policy solutions for addressing potential property exits. RHS has offered property owners several options to prevent property exits and preserve the access to and affordability of housing for low- income tenants (see fig. 4). Reamortization: Loan reamortization and a shortened reamortization process (known as “Re-Am Lite”) allow borrowers to repay outstanding loan balances over new, longer repayment periods. By extending the term of the loan, officials said that the agency can continue providing rental assistance to that property. Re-Am Lite does not require borrowers to have their properties appraised, which officials said can shorten the reamortization application process by 60 to 90 days. Deferral: Borrowers can defer repayment of direct loans for up to 20 years. This prevents property exits and preserves affordability for low- income tenants by continuing the payment of rental assistance to property owners. Loan deferrals can be offered under the Multi- Family Housing Preservation and Revitalization program. This 12- year-old demonstration program offers a combination of property rehabilitation funding and the opportunity for owners to reamortize or defer loan payments to help keep rents affordable. Officials said the program can also be used to attract new owners who wish to stay in the affordable housing program by offering a funding source for property rehabilitation. Prepayment Offer: If borrowers decline RHS’s options that extend loan terms (reamortization, Re-Am Lite, and deferral), but wish to remain in the RHS portfolio, the agency encourages property owners to submit a request to prepay their mortgage, if eligible to do so and if their mortgages are 12 or more months from maturity. After an owner submits a prepayment request, RHS is authorized to offer owners incentives to avert prepayment. These incentives include increased returns on investment to for-profit owners, additional rental assistance units, and equity loans. Prepayment: If borrowers decline RHS’s options, the agency encourages property owners to prepay their loans. While owners who prepay would no longer have rural rental housing loans with RHS or be eligible to receive rental assistance from the agency, prepayment of a loan allows RHS to provide vouchers to tenants affected by the loss of affordable housing. According to RHS data, only about 5,000 of the 14,000 properties within RHS’s multifamily housing program are eligible to prepay loans. Transfer: RHS has taken steps to facilitate the sale (transfer) of properties to new owners to prevent property exits. Officials described this as a key preservation tool because new RHS mortgage terms typically accompany the sale and allow for rental assistance to continue at properties where applicable. First, the agency established a more centralized and standardized transfer process based on input from developers, owners, and other stakeholders, which officials say reduced the average property transfer time from 156 to 112 days. Second, RHS maintains a spreadsheet available on the agency’s website, called the Preliminary Assessment Tool, which officials said streamlines and provides greater transparency to the property transfer process for potential buyers and sellers. The agency also hosted three conferences in 2016 designed to help find new buyers for RHS properties whose owners were seeking to sell their properties. Finally, in September 2016, RHS announced a 2-year pilot program to encourage nonprofit organizations to purchase rural rental properties with maturing mortgages, which could create new loan terms that would extend the repayment period and continue the properties’ affordability. Prior to the pilot, nonprofit owners were not required to make an initial equity contribution to projects and therefore could not earn any return on investment. Under the pilot, loan transfers to nonprofits would allow nonprofits to earn returns on their own resources initially invested in the property. Despite the preservation options and incentives identified by RHS, 61 percent (148 of 244) of the properties with mortgages that matured between January 2014 and December 2017 exited the agency’s rural rental housing program (see table 1). Some industry stakeholders said that options and incentives did not adequately or broadly appeal to property owners. They added that existing options and incentives would be used primarily by owners who have no other choice but to stay in the program. Stakeholders explained that owner choice might be limited because of the condition of their property or because their property is located in a market that would not accommodate the sale of a property or rent increases to market levels. Some stakeholders also said options that extend loan terms only offer a short-term solution to preservation challenges because mortgages cannot be extended indefinitely. RHS’s efforts lacked a number of important steps that would better position the agency to preserve properties. First, RHS lacked documented goals for preserving its program and has not created measures for tracking progress toward those goals. In the absence of documented goals, RHS national officials stated that the agency’s goal is to preserve all properties within its program that are needed to ensure sufficient affordable housing, though they acknowledged that current resource levels would preclude that possibility and that some owners may leave the program regardless of the options the agency offers. Second, RHS is not monitoring and assessing options and incentives it is providing in a way that would inform or improve the use of these options. While the agency can track preservation status—meaning whether a property is still within the program or not—through its preservation tool discussed above, it is not actively tracking preservation outcomes. RHS is also not systematically collecting data for monitoring purposes. RHS officials said agency databases contain variables that would show which options owners choose to use, but added that this information is not available in a single source. RHS is also not collecting information that would help them assess options. For example, the agency is not collecting information from property owners on what options and incentives appeal to them. This information would help the agency assess preservation options on how well they are being received by borrowers. Similarly, RHS is not monitoring the results of efforts to preserve properties, including information on how many properties were transferred as a result of its three buyers-sellers conferences. Finally, RHS has not fully analyzed or responded to the risks facing its rural rental housing program, such as the following: Owner behavior—RHS officials told us a key risk to preserving its rural rental housing program is that the agency cannot predict whether owners will choose to leave the program or stay. To help respond to this risk, the agency directed staff to notify owners 3 years in advance that their loan is maturing and that options are available for preserving the property within the program. While this window could provide RHS with the time to plan for property exits, RHS is not collecting information from owners on why they may choose to exit rather than stay in the affordable housing portfolio. The agency’s effort to predict owner behavior would be aided by collecting and analyzing data on how many owners choose to leave the program and why. Resource constraints—During a May 2017 conference, a senior RHS official highlighted the issue of agency resource constraints for addressing maturing mortgages, saying that the agency does not have the ability or the financial resources to preserve all of the properties that could leave the program once the loans mature. RHS has also acknowledged that, even at lower levels of about 80 maturing mortgages each year, the agency does not have the resources to provide all preservation options to every owner who wishes to use them. RHS has also not analyzed or planned for how it would prioritize the use of limited resources. RHS national office officials said there is some guidance that could be used by state offices to prioritize the use of resources, but this guidance was not specific to addressing maturing mortgages and was in the process of being updated to include information that could be used to help prioritize limited resources for preserving properties. That update is expected by January 2019. Management of maturing mortgages—RHS has not analyzed or responded to risks involving staff management of maturing mortgages. For example, the agency’s national office said that staff attrition and turnover in the national, state, and field offices that manage mortgages have resulted in fewer staff managing its program in general and that they were not sure what the effect of maturing mortgages would have on staff workloads. RHS staff in some of the states we visited expressed concern that workloads are already heavy and that any increase caused by maturing mortgages, including smaller numbers occurring now, might affect their ability to be responsive to program needs. Similarly, some state office staff expressed concerns that they were not trained for managing and responding to properties with maturing mortgages and needed additional guidance from the national office. RHS national office officials said that while the agency does not provide training specific to maturing mortgages, it does provide training on loan servicing, which includes the use of preservation options, and the national office conducts monthly conference calls that all state offices participate in, which have included maturing mortgages as a topic and which can be used to answer staff questions about maturing mortgages. Rehabilitation Costs—RHS has commissioned two studies on the risks that program-wide rehabilitation costs pose to its ability to preserve its program, but has not analyzed or planned for how it would address the estimated $5.6 billion needed to rehabilitate its aging portfolio of properties. Officials said that they have met with industry stakeholders and Congress about capital needs estimates, but no additional steps such as requesting additional funding were taken. Officials added that federal budget uncertainties caused by years of continuing resolutions and a sequestration have made planning for maturing mortgages and program-wide rehabilitation more difficult. However, RHS has been aware of growing rehabilitation needs since at least 2004, when the agency released a commissioned study that said capital needs program-wide would continue to increase and cost more if not addressed. Federal internal control standards call for agencies to define objectives in specific and measurable terms to enable management to identify, analyze, and respond to risks related to achieving those objectives. Specifically, these standards call for agencies to establish goals and performance measures for tracking progress toward achieving goals; establish activities that monitor performance and assess results so that appropriate action is taken; and identify, analyze, and respond to risks related to achieving their goals. RHS officials said that, as of December 2017, they had not taken steps to develop goals and measures, perform key monitoring and assessments, and analyze and respond to risks because the larger number of potential property exits is not expected to begin for another 10 years (2028). RHS officials said that they were using this time to see how their existing options and resources perform, and that the agency would make resource and other adjustments over time as they gained experience with preservation. However, as discussed above, mortgages have already begun to mature and the majority of properties with maturing mortgages between 2014 and 2017 exited the agency’s rural rental housing program. Some property owners may have chosen to exit the program regardless of additional actions or incentives. For example RHS officials noted that many of the property owners whose mortgages are currently maturing are nearing retirement or prefer market returns to RHS’s options and incentives. However, the percentage of exits (61 percent) suggests that RHS’s current planning efforts have not proven sufficient to prevent the majority of properties with mortgages that have matured from exiting its rural housing program. By not having taken the planning steps identified above, RHS is not well positioned to respond to properties that currently have maturing mortgages and require action, nor is the agency prepared for the future larger number of potential property exits that starts in 2028. In particular, without developing goals and measures, conducting sound monitoring and assessments of rural rental housing program developments, and analyzing and responding to risks, RHS may not have the key information, staff, tools, and resources in place to effectively preserve properties and prevent the financial hardship that increasing housing costs could cause rural low-income tenants or the loss of their housing altogether. RHS has options to extend loan terms in order to continue rental assistance at properties but cannot continue providing rental assistance to tenants once the loan is paid off and the property exits RHS’s affordable housing program. Some owners of properties with maturing mortgages may be open to continue offering rental assistance and agree to restrict the units to eligible low-income tenants after mortgage maturity. Further, some industry stakeholders cited that having the ability to extend existing rental assistance contracts after mortgage maturity would be useful in protecting tenants from rent increases or displacement. However, in some cases, property owners may not want to extend rental assistance contracts after mortgage maturity. Tenants living in these properties could be subject to rent increases or the risk of displacement. RHS lacks the authority to provide vouchers to tenants in these situations. Voucher assistance would allow RHS to provide assistance to the tenants to help pay for rent in their existing unit or at other rental housing in the private market without requiring the owner to serve low-income tenants exclusively. In 2016, legislation was introduced that would have allowed RHS to continue providing rental assistance to properties through new contracts with owners after their loans matured or to provide vouchers to tenants under different circumstances, including mortgage maturity. In exchange for accepting rental assistance payments on behalf of eligible tenants, the legislation would have required the property owners to enter into an agreement with RHS to ensure that the property remained subject to low- income use restrictions for an additional period of time. In cases where a new rental assistance contract is not possible, RHS would offer vouchers to tenants after mortgage maturity. The proposed legislation was introduced on April 12, 2016, but no further action on the bill was taken. In the past, Congress has taken legislative action to continue rental assistance to low-income tenants and protect them from the impact of terminated assistance. For example, beginning in fiscal year 2006, Congress has authorized RHS to provide vouchers to tenants affected by loan prepayments, which leads to the property owners’ exit of the RHS’s housing program. Tenants receiving vouchers after the prepayment of a loan could use them to remain in the property after it exits RHS’s program or to find other suitable housing in the private market. Congress has limited the amount that RHS paid in subsidies. The amount of a voucher is limited to the difference between the comparable fair market rent for the housing unit occupied by a tenant and the rent paid by the tenant on the date of prepayment or foreclosure. In addition, when the Department of Housing and Urban Development (HUD) faced a similar loss of affordable housing, Congress gave the department authority in 2011 to further protect tenants through the creation of the Rental Assistance Demonstration (RAD). Before the RAD program, HUD had limited authority to extend rental assistance at these properties when contracts expired or owners terminated contracts. However, this demonstration, among other things, allowed HUD to continue providing rental assistance to property owners after the original contracts expired. In 2014, we reported that the conversion of rental assistance should not have an effect on voucher program costs because HUD uses the same calculation for providing budget authority for the project-based vouchers converted under RAD as it does for calculating budget authority for tenant-protection vouchers. Without the authority to continue providing rental assistance or to provide vouchers to tenants at existing properties whose mortgages have matured, RHS is not well positioned to protect tenants from potential increased rents or displacement from their units. The agency could lose important sources of low-income housing, which for some communities may be the only source of affordable housing. Further, without the authority to offer vouchers to tenants living in units that received rental assistance at mortgage maturity, tenants may also face rent increases and not be able to afford their rents in properties where the owners choose not to extend their rental assistance contracts. Continued provision of rental assistance could be limited to units or tenants that were receiving rental assistance at mortgage maturity and would not represent an expansion of the number of units or tenants assisted. Furthermore, Congress could structure this to have no or limited budgetary impact, similar to what was done under HUD’s RAD program. For example, subsidies could be kept at a level that is similar to what was provided at mortgage maturity. RHS’s preservation tool is a positive first step to help the agency estimate property exit dates, alert stakeholders to properties with maturing mortgages, and begin to preserve their affordability. However, the lack of data controls for information on RHS rural rental properties raises concerns about data used by the preservation tool, especially as RHS applies preservation options that extend mortgages and result in new exit dates. The lack of controls for underlying data used by the preservation tool, and missing information on some properties, demonstrate that RHS has opportunities to improve rural housing program data as properties continue to have maturing mortgages. RHS has not been able to update the preservation tool’s data on a regular basis. Developing controls with clear guidance on the frequency and process for routinely updating data on RHS’s website could help ensure that preservation efforts are based on the most current information available. Regular updated information would also help ensure that industry and other stakeholders have the most recent information available on RHS’s rural rental housing program. While RHS has taken steps to better understand maturing mortgage challenges and preserve properties, RHS’s strategy to use the next several years to plan for the larger number of expected future maturations and test available preservation options does not address the significant number of mortgages that will mature before then. The agency has also not taken important planning steps required by federal internal control standards to establish goals and performance measures for tracking progress toward achieving goals; establish activities that monitor performance and assess results so that appropriate action is taken; and identify, analyze, and respond to risks related to achieving their goals. Actions to enhance the agency’s data and controls, and strengthen its comprehensive planning and program evaluation processes, would better position RHS to respond to maturing mortgages, preserve its rural rental housing program, and maintain affordable housing for low-income tenants. Further, the agency lacks the authority to continue rental assistance to properties with matured mortgages and is limited in its ability to issue vouchers to tenants affected by property exits. Even if the agency takes additional steps to plan for maturing mortgages or increases options and incentives for preserving housing, these limits to rental assistance and vouchers restrict RHS’s ability to protect tenants. These limits also effect RHS’s ability to meet the agency’s objective of providing decent, safe, and sanitary housing to low-income rural residents. Expanding RHS’s ability to protect existing tenants would give the agency tools that are available to other affordable rental housing programs, and could be implemented in a way to maintain, rather than increase, program size and costs. We are making the following matter for congressional consideration: For RHS properties whose mortgages have matured, Congress should consider granting RHS the authority to renew annual rental assistance payments to owners who wish to continue to receive them and provide vouchers to tenants living in rental assistance units in properties whose owners choose to no longer receive rental assistance. We are making the following five recommendations to RHS: The RHS Administrator should establish additional controls to check the accuracy of all loan information entered into RHS information technology systems, to help ensure complete, accurate, and reliable data for estimating rural rental housing property exit dates. (Recommendation 1) The RHS Administrator should establish a process to help ensure regular and frequent updates for the preservation tool and its underlying data. (Recommendation 2) The RHS Administrator should establish performance goals and measures for its rural rental housing preservation and rehabilitation efforts and report out these outcomes. (Recommendation 3) The RHS Administrator should monitor the results of rural rental housing preservation efforts and assess the degree to which those efforts yielded intended outcomes. (Recommendation 4) The RHS Administrator should identify, analyze, and respond to risks to achieving its preservation goals, including resource and staffing limitations. (Recommendation 5) We provided a draft of this report for review and comment to RHS and HUD. RHS provided technical comments, which we incorporated into the report, and stated that it agreed with all five of our recommendations but did not provide a formal agency comment letter. HUD stated that it had no comments on the draft. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, the Secretary of Housing and Urban Development, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. Our objectives were to examine the Rural Housing Service’s (RHS) efforts to (1) estimate the dates that properties may exit the rural rental housing program due to mortgage maturity, and (2) preserve the affordability of rural rental properties with maturing mortgages. To examine RHS’s efforts to estimate property exit dates, we analyzed RHS documentation and interviewed RHS officials about the data the agency uses to identify and preserve properties with maturing mortgages. To determine what steps RHS has taken to help ensure the accuracy and reliability of RHS’s Multi-Family Housing Property Preservation Tool (preservation tool), we reviewed documentation that included the preservation tool’s user guide, and the capabilities it offered the agency and the public. We also conducted interviews with RHS national and state office officials about the preservation tool and about how the agency’s Automated Multi-Family Housing Accounting System (AMAS) and the Multi-Family Housing Information System (MFIS) operate. AMAS contains data on loans and rental assistance contracts and MFIS tracks monthly loan and rental assistance payments and contains data on the location of RHS’s rural rental properties. Both systems provide data used by the preservation tool to calculate mortgage maturity and exit dates for rural rental housing properties. To determine how the preservation tool was built and the main information it uses to determine mortgage maturity and property exit dates, and the information it calculates for users, we interviewed the contractor hired by the agency to create and populate the preservation tool. To analyze the accuracy of AMAS and MFIS data used by the preservation tool to calculate mortgage maturity and property exit dates, we reviewed mortgage documents that RHS uses to populate those systems. We reviewed loan documents for a generalizable stratified random sample of 100 properties in five states—California; Illinois; Minnesota; Pennsylvania; and Virginia—to determine if loan information found within mortgage documents matched data contained in AMAS and MFIS for selected variables relevant to mortgage maturity and property exit date calculations. We stratified the population of 2,152 loan documents in the five states by state, number of loans per property, and age groups. We computed an initial sample size of 60 properties for a simple random sample to achieve an upper bound of no more than 5 percentage points, an expected error (inaccurate data field) rate of 0 percent, and a 95 percent confidence level. We then proportionally allocated the sample across the strata and increased sample sizes in stratum within each state so that we selected at least 10 properties with more than 1 loan and 10 properties older than 20 years old. States we visited were selected based on their geographic diversity, diversity (age and size of program) of rural rental housing properties, and their proximity to GAO offices. To select properties’ loan files for this review, we created a nongeneralizable sample of 20 properties in each of the five states. We also interviewed agency officials knowledgeable about the data— including officials from RHS, Rural Development’s Office of Operations and Management, and the U.S. Department of Agriculture’s (USDA) National Financial and Accounting Operations Center—about the processes used to populate these systems and any quality checks in place for ensuring that data were inputted completely and accurately, including any available documentation on these steps. We also interviewed RHS state office officials, who service loans, about the process for identifying errors in these systems and making corrections. To determine which rural rental housing properties were estimated to exit the RHS program and where these properties were located, we analyzed RHS’s raw data from June 2017 (the latest available RHS data). We analyzed the data to determine the number of properties, units, and rental assistance units with property exit dates by state and by year from 2017 to 2050. We also generated summary statistics on the number of properties that were eligible to prepay their mortgages. In assessing RHS’s data we also conducted checks on the data for outliers and missing information. Although we found a selected number of data anomalies that point to the need for better data controls, we determined the data we used were sufficiently reliable for purposes of describing the estimated number of properties that could exit the RHS program between 2017 and 2050. To better understand the calculations used by the preservation tool, we reviewed the logic or code it uses to calculate mortgage maturation dates. For this analysis, we used documentation on the program used to generate estimates and compared this documentation to the code to see if there were any operational differences. Additionally, we reviewed each of the functions within the logic and looked for inconsistencies in logic or deviations from financial convention that might cause incorrect predictions. To examine steps RHS has taken to preserve properties with maturing mortgages, we reviewed documents that listed options available for retaining properties with maturing mortgages. We gathered and analyzed documentation on any comprehensive planning efforts by RHS to address rural rental housing maturing mortgages, including documentation showing preservation goals and measures, and any assessments of RHS’s plans, efforts, or resources needed to address maturing mortgages. We also analyzed documentation and interviewed national and state RHS officials about any training and guidance that was being provided to staff on maturing mortgages. In addition, we interviewed RHS national and state officials about what tools, resources, and plans were in place for addressing maturing mortgages and their limits. Further, we asked about ongoing efforts to address maturing mortgages, including any plans to obtain additional resources for managing maturing mortgages now and in the future when a larger number of properties are expected to have loans mature. We reviewed and interviewed officials about studies commissioned by RHS on the effects of maturing mortgages on the rural affordable rental housing program and affected communities and on program-wide rehabilitation needs and cost estimates. We also assessed how the studies and reports were conducted for any flaws in their approaches and methodologies. To determine stakeholder perspectives on how RHS was managing maturing mortgages, we interviewed officials from a judgmental sample of rural housing industry organizations. We took multiple steps to identify these industry organizations. First, we met with an affordable housing organization with a national membership that represents owners; developers; housing advocates; and tenants. We asked this national organization to identify industry organizations that work with RHS. From that list, we focused on organizations that also had a multi-state or national focus. Second, during interviews with these organizations, we requested additional contacts. We interviewed organizations that were named during multiple interviews. This selection process allowed us to identify stakeholders that represented a diverse range of roles in the rural housing industry including: developers, borrower and tenant advocacy organizations, and organizations advocating for the retention or expansion of affordable housing. To determine how other agencies approached expiring rental assistance contracts and low-income housing preservation, we also interviewed Department of Housing and Urban Development officials. More specifically, we determined what key steps and best practices the department used to preserve its multifamily housing program properties, including properties with maturing mortgages, and what tools and resources were required for managing its housing program. We conducted this performance audit from May 2016 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Harry Medina (Assistant Director); Steve Ruszczyk (Analyst in Charge); Holly Hobbs; Enyinnaya David Aja; Jim Ashley; Stephen Brown; William Chatlos; DuEwa Kamara; John McGrail; Marc Molino; and Tovah Rom made key contributions to this report.
Under its rural housing program, RHS provides mortgages and rental assistance to support affordable rental units for low-income tenants (see figure). When these mortgages reach the end of their terms (mature), property owners may exit the program; current law does not allow RHS to continue providing rental assistance when such exiting occurs. As a result, tenants in properties with mortgages that are maturing may face rent increases or lose their housing altogether. GAO was asked to examine how RHS is addressing the risks posed by maturing mortgages. This report examines RHS's efforts to (1) estimate rural housing property exit dates and (2) preserve the affordability of rural rental properties with maturing mortgages. GAO reviewed RHS mortgage loan data and preservation documents, and interviewed RHS officials and industry stakeholders. The U.S. Department of Agriculture's Rural Housing Service (RHS) implemented an automated tool to estimate when properties could exit the rural rental housing program, but RHS lacked sufficient controls to ensure the accuracy, completeness, and timeliness of those estimates. In 2016, RHS developed its Multi-Family Housing Property Preservation Tool to replace a manual process of estimating exit dates. RHS data suggest that a smaller number of properties could exit RHS's program in the near term, but between 2028 and 2050, over 90 percent of RHS's properties and units could exit the program (about 13,000 properties with 407,000 units). However, RHS lacked controls that would better ensure the accuracy and completeness of these estimated exit dates, such as the verification of key data input at mortgage origination. In addition, RHS had not established a regular process to update the preservation tool's underlying data due to staff turnover and data system challenges. Without these controls, RHS may lack assurance that is has reliable data for calculating exit dates and initiating preservation efforts. While RHS has taken actions to address properties with maturing mortgages, such as offering property owners options designed to prevent property exits, about 60 percent of properties with maturing mortgages exited the program between 2014 through 2017. The agency's planning efforts lacked key steps such as (1) establishing preservation goals, (2) developing metrics for evaluating preservation efforts, and (3) analyzing and responding to risks facing its portfolio such as resource limits and growing capital rehabilitation needs. Without taking these actions, RHS is not well positioned to preserve affordable housing in the near term or when much larger numbers of properties and units could exit the program starting in 2028. Although taking the steps above would help RHS's preservation efforts, some tenants may still be at risk of losing rental assistance when mortgages mature. Accordingly, allowing RHS to renew rental assistance after mortgage maturity could protect assisted low-income tenants from increased rents or displacement from their units. When the Department of Housing and Urban Development (HUD) faced a similar loss of affordable housing subsidies, Congress authorized the department in 2011 to continue providing rental assistance at properties after contracts expired. Congress should consider granting RHS authority to continue providing rental assistance to tenants in properties with maturing mortgages. GAO is also making five recommendations, including that RHS improve data quality and take steps to comprehensively plan for preserving properties with maturing mortgages. We provided a draft of this report for review and comment to RHS and HUD. RHS agreed with all five of GAO's recommendations.