Owners of section 515 properties who wished to prepay the loan pursuant to their original loan agreements and remove their properties from the section 515 program have sued the federal government. This number far exceeded the number of properties that left the portfolio after prepayment. Fiscal year 2001 is the only year when the number of prepayments exceeded the number of properties added to the portfolio. Prepayment Potential Limited by Series of Factors

If the statutory requirement covering loans made before December 15, 1989, were changed to allow prepayment without restriction after 20 years from the date of the loan, we estimate that prepayment could be an option for the owners of 3,872, or about 24 percent, of the 16,366 section 515 properties. Heavy dependence on RHS rental assistance that would cease upon prepayment. However, with prepayment and funding restricted, this original expectation has not been realized, and RHS does not know the full cost of the long-term rehabilitation needs of the properties in its portfolio. RHS field staffs perform annual and triennial property inspections. Where data was available, we determined the number of properties whose loans were prepaid.
What GAO Found

Nearly 450,000 elderly and other households depend on federal assistance to live in multifamily rural rental properties that were constructed with subsidized federal loans. Because the properties were built in areas when and where privately financed housing units, affordable by lower income households, were not considered economically feasible, the U.S. Department of Agriculture's Rural Housing Service (RHS) has made direct loans available to developers of affordable multifamily housing under its section 515 program. RHS has funded many more new properties than the portfolio has lost through prepayment. The number of new properties added to the portfolio exceeded the number that left the program after prepayment in every year except 2001. If the statutory requirement restricting prepayment for loans made before December 1989, were changed to allow prepayment without restrictions after 20 years from the date of the loan, prepayment could be an option for the owners of 3,900 of all section 515 properties over the next eight years. RHS field staff routinely inspect properties, complete and retain detailed descriptions of noted deficiencies, and transmit the summaries of the deficiencies identified to a central database. Only current deficiencies are identified, however, so the data are of only limited value for determining the cost of the long-term rehabilitation needs of individual properties.