Housing Choice Voucher Program

In recent years, HUD’s voucher program annually helped provide  affordable rental housing to about 2 million households with very or  extremely low incomes. Approximately 2,400 state and local housing  agencies administer the voucher program on HUD’s behalf. Moving to Work Program

HUD implemented the MTW demonstration program in 1999. The purposes are to  (1) reduce costs and achieve greater cost-effectiveness in federal  housing expenditures, (2) give families with children incentives to obtain  employment and become self-sufficient, and (3) increase housing choices  for low-income families. The Condition of FHA’s Fund Has Worsened, and FHA’s Risk Assessment Mechanisms Are Not Fully in Place

		FHA’s Insurance Fund Has a Negative Capital Ratio

The insurance fund’s capital ratio dropped sharply in 2008 and fell below  the statutory minimum in 2009, when economic and market developments  created conditions that simultaneously reduced the fund’s economic value  (the numerator of the ratio) and increased the insurance-in-force (the  denominator of the ratio). If the capital reserve account were to be depleted due to additional  upward reestimates, FHA would need to draw on permanent and  indefinite budget authority to have sufficient reserves for all future  insurance claims on its existing portfolio. Further actions could help to restore FHA’s long-term financial soundness  and define its future role. For example, we previously concluded that  Congress or HUD needs to determine the economic conditions the  insurance fund would be expected to withstand without borrowing from  Treasury (drawing on permanent and indefinite budget authority). Based on the consultant’s  findings, as well as our internal control guidance and HUD guidance, we  recommended that FHA (1) integrate the internal quality control initiative  of the Office of Single Family Housing into the processes of the Office of  Risk Management, (2) conduct an annual risk assessment, and (3)  establish ongoing mechanisms—such as using report templates from the  consultant’s report—to anticipate and address risks that might be caused  by changing conditions. FHA has begun addressing recommendations made by the consultant. These initiatives are critical to FHA’s efforts to  assess and manage risk. HUD agreed with our  recommendations. After adjusting for inflation,  subsidy costs for existing vouchers grew 2.4 percent. Steps Congress and HUD Took to Manage Cost Increases

Since 2003, Congress and HUD have taken some actions to limit the  extent of increases, while maintaining assistance for existing program  participants. HUD has also taken steps to increase program efficiencies. Options to Reduce Program Costs or Increase Efficiencies

We identified several options that if implemented effectively, could reduce  voucher program costs or allow housing agencies to assist additional  households. Improved information on the level of subsidy reserve funding housing  agencies should maintain could aid budget decisions and reduce the  need for new appropriations. HUD neither  agreed nor disagreed with our recommendations. These reforms include streamlining complex and burdensome  requirements and improving the delivery and oversight of rental  assistance. For example, housing agencies must re-examine household  income and composition at least annually. We recommended in our March 2012 report that HUD consider proposing  to Congress options for streamlining and simplifying the administration of  the voucher program and making corresponding changes to the  administrative fee formula to reflect any new or revised administrative   We stated that such proposals should be informed by  requirements.results of HUD’s ongoing administrative fee study and the experience of  the MTW program. While each of these options could reduce costs or create administrative  efficiencies—each also involves trade-offs. Opportunities Exist to Improve Information on and Monitoring of the MTW Program

As we reported in April 2012, HUD has not identified standard  performance data and indicators needed to evaluate the MTW program. HUD also has not established performance indicators for the MTW  program. Consistent with our recommendations, HUD has taken initial steps to  revise performance reporting requirements for MTW agencies, but these  requirements had not yet been finalized as of March 2013. Because HUD does not currently have a systematic  process for identifying lessons learned, it is limited in its ability to promote  useful practices that could be implemented more broadly. Without a process for systematically assessing compliance with statutory  requirements, HUD lacks assurance that agencies are complying with  them. HUD also lacks assurance  that it is efficiently using its limited monitoring resources. Because HUD does not verify the accuracy of any reported  To improve HUD’s oversight over the MTW program, we recommended in   April 2012 that HUD (1) issue guidance that clarifies key program terms,  such as the statutory purposes and requirements MTW agencies must  meet; (2) develop and implement a systematic process for assessing  compliance with statutory requirements; (3) conduct an annual risk  assessment for MTW and implement risk-based monitoring policies and  procedures; and (4) implement control activities to verify the accuracy of a  sample of the performance information that MTW agencies self-report. Without more complete information on program  effectiveness and compliance, it will be difficult for Congress to know  whether an expanded MTW program would benefit additional agencies  and the residents they serve.
Why GAO Did This Study

HUD operates programs that provide mortgage insurance to homebuyers and subsidize the rents of low-income households. In recent years, HUD's FHA has experienced dramatic growth in its insurance portfolio. Expenditures for HUD's rental voucher program also have risen substantially. Through the MTW demonstration program, HUD has sought to reduce costs and achieve greater cost-effectiveness in federal expenditures for rental housing.
This testimony discusses (1) the financial condition of FHA's insurance fund and FHA's risk management, (2) the costs of the voucher program and options to increase its efficiency, and (3) HUD's efforts to evaluate and monitor the MTW program.
This testimony draws from GAO reports on FHA's insurance fund and oversight capacity ( GAO-10-827R and GAO-12-15), HUD's voucher program (GAO-12-300), and HUD's MTW program (GAO-12-490). GAO also reviewed updated information on the insurance fund and voucher subsidy reserves as of the end of 2012.

What GAO Found

The Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) faces financial and risk-management challenges. For the fourth straight year, capital reserves for FHA's Mutual Mortgage Insurance Fund are below the statutory minimum. Also, declining balances in the fund's capital reserve account have heightened the possibility that FHA will require additional funds to have sufficient reserves for all future insurance claims on its existing portfolio. Further actions could help to restore FHA's financial soundness. For example, GAO previously concluded that Congress or HUD needs to determine the economic conditions the fund would be expected to withstand without drawing on Department of the Treasury funding. With regard to risk management, FHA has made or plans improvements. For example, FHA implemented an initiative in 2009 to strengthen internal controls and risk assessment for single-family housing and created a risk office in 2010. However, FHA has only recently begun to integrate these activities and conduct annual risk assessments in accordance with HUD guidance. Without integrated and updated risk assessments that identify emerging risks, as GAO recommended, FHA lacks assurance that it has identified all its risks.
Congress and HUD have taken steps to limit cost increases in the Housing Choice Voucher (voucher) program while maintaining assistance for existing program participants. Nonetheless, between 2003 and 2010, program expenditures grew about 9 percent (after adjusting for inflation), mainly due to rising rents, declining household incomes, and decisions to expand the number of assisted households. GAO identified options that, if implemented effectively, could reduce the need for new appropriations, cut expenditures, or increase the number of households assisted. These options include (1) reducing the subsidy reserves (unspent funds) of state and local housing agencies that administer the program, (2) streamlining administrative requirements, and (3) implementing rent reforms and consolidating voucher administration. These options would also involve trade-offs, such as higher rent burdens for low-income households.
Opportunities exist to improve how HUD evaluates and monitors the Moving to Work (MTW) program, which is intended to give state and local housing agencies flexibility to design and test innovative strategies for providing housing assistance. HUD's guidance does not specify that performance information collected from participating housing agencies be outcome-oriented, and HUD has not identified performance indicators for the program. In addition, HUD has not developed a systematic process for identifying lessons learned from the program, which limits HUD's ability to promote useful practices for broader implementation. HUD also has not taken key monitoring steps set out in internal control standards, such as issuing guidance that defines program terms or assessing compliance with all the program's statutory requirements. As a result, HUD lacks assurance that agencies are complying with statutory requirements. Also, without more complete information on program effectiveness and compliance, it will be difficult for Congress to know whether an expanded MTW program would benefit additional agencies and the residents they serve. Consistent with GAO recommendations, HUD has begun to revise guidance on MTW performance reporting.

What GAO Recommends

GAO has made a number of recommendations to improve FHA's risk management, and FHA has taken some actions. GAO also recommended that HUD consider proposing to Congress options for improving the efficiency of the voucher program. HUD neither agreed nor disagreed and has not yet proposed such options. In addition, GAO recommended that HUD improve MTW information and monitoring. HUD partially agreed with these recommendations and has taken initial steps to improve performance data.