About One-Fifth of HUD’s Mortgages Are Scheduled to Mature through 2013

Nationwide, 21 percent (2,328) of the 11,267 subsidized properties with  HUD mortgages are scheduled to mature through 2013. The percentage  varies significantly by state: from 7 percent in Alabama, to 53 percent in  South Dakota. Nearly all of these 2,328 properties were financed under the  Section 236, Section 221(d)(3) BMIR, and Section 221(d)(3) programs, and  about three-quarters of these mortgages are scheduled to mature in the last  3 years of the 10-year period. Tenant Impacts Depend on Protections and Property Owners’ Decisions

Over the next 10 years, low-income tenants in over 101,000 units may have  to pay higher rents or move to more affordable housing when HUD- subsidized mortgages reach maturity. This is because no statutory  requirement exists to protect tenants from increases in rent when HUD  mortgages mature and rent restrictions are lifted. A number of factors may affect owners’ decisions regarding the  continued affordability of their properties after mortgages mature,  including neighborhood incomes, physical condition of the property, and  owners’ missions. Additionally, at least 10 of the  remaining properties that reached mortgage maturity over the past 10 years  are still serving low-income tenants. Tenants in units covered by a rental assistance program—there are 134,087  units in the properties with HUD mortgages scheduled to mature through  2013—will continue to benefit from affordable rents, regardless of when  the mortgage matures, as long as the rental assistance contract is in force. Property  owners are not required to notify tenants when they pay off their mortgage  at mortgage maturity. Tools and Incentives Are Available to Help Keep Properties Affordable, but Are Not Specifically Designed to Deal with HUD Mortgage Maturity

HUD does not offer any tools or incentives to keep properties affordable  after HUD mortgages mature, although it does offer incentives to maintain  affordability for properties that also have expiring rental assistance  contracts. This Web site contains  detailed property-level data on active HUD-insured mortgages and expiring  rental assistance contracts. However, according to our survey, some state  and local agencies perceive that the information is not readily available. A CD-ROM (GAO- 04-210SP), which includes property-level data for subsidized properties  with mortgages scheduled to mature or expiring rental assistance  contracts, will accompany this report and can be ordered at  www.gao.gov/cgi-bin/ordtab.pl. We reviewed HUD regulations to determine the potential impact on tenants  when HUD mortgages mature. We found that  all 10 (none of which have project-based rental assistance contracts) are  still primarily serving low-income tenants and that the current rents are  affordable to tenants with incomes below 50 percent of area median  income. Therefore, to help state and local housing agencies track  HUD-subsidized properties that may leave HUD’s programs upon mortgage  maturity or for other reasons, we are recommending that the Secretary of  HUD solicit the views of state and local agencies to determine (1) the  specific information concerning HUD-subsidized properties that would be  most useful to their affordability preservation efforts and (2) the most  effective format for making this information available, and then use the  results to modify the current means of conveying the data on these  properties to make the data more readily available.
Why GAO Did This Study

The Department of Housing and Urban Development (HUD) has subsidized the development of over 23,000 properties by offering owners favorable long-term mortgage financing or rental assistance payments in exchange for owners' commitment to house low-income tenants. When owners pay off mortgages--the mortgages "mature"--the subsidized financing ends, raising the possibility of rent increases. GAO was asked to determine the number of HUD mortgages that are scheduled to mature in the next 10 years, the potential impact on tenants, and what HUD and others can do to keep these properties affordable.

What GAO Found

Nationwide, the HUD mortgages on 2,328 properties--21 percent of the 11,267 subsidized properties with HUD mortgages--are scheduled to mature in the next 10 years, but among states this percentage varies significantly: from 7 percent in Alabama, to 53 percent in South Dakota. About three-quarters of these mortgages are scheduled to mature in the last 3 years of the 10-year period. A CD-ROM (GAO-04-210SP) that accompanies this report provides property-level data for subsidized properties with mortgages scheduled to mature. Impacts on tenants depend on tenant protections available under program statutes and regulations, as well as on property owners' decisions about their properties. While about 134,000, or 57 percent, of the rental units in the 2,328 properties are protected by rental assistance contracts, tenants in over 101,000 units without rental assistance are at risk of paying higher rents after mortgage maturity because no requirement exists to protect tenants when HUD mortgages mature. Absent specific requirements, property owners' decisions on whether to continue serving low-income tenants after their HUD mortgages mature depend on many factors, including neighborhood incomes, property conditions, and owners' missions. Of the 32 properties with HUD mortgages that matured during the past 10 years, 16 have rental assistance contracts that continue to subsidize at least some units, and 10 of the remaining 16 that GAO was able to contact offer rents that are affordable to tenants with incomes below 50 percent of area median income. HUD does not offer incentives to owners to keep properties affordable upon mortgage maturity. While many state and local agencies GAO surveyed offer incentives to preserve affordable housing, they have not directed them specifically at properties where HUD mortgages mature. Most of the agencies do not track HUD mortgage maturity dates for subsidized properties. In addition, although HUD's Web site contains detailed property-level data, some state and local agencies perceive that the information is not readily available. Refer to GAO-04-211SP for survey details.