In addition, in September 1996, HUD entered into pilot contracts with one corporation to test the approach of contracting out all management and marketing functions associated with HUD’s inventory of acquired single-family properties at three field offices—the Maryland and Louisiana state offices and the Sacramento Area Office—that, according to HUD’s Single-Family Property Disposition Director, were already understaffed in relation to the sizes of their inventories. Weaknesses Exist in HUD’s Oversight of REAM Contracts

We found that HUD does not have a system in place for monitoring its field offices’ administration of REAM contracts. As a result, the government may sell properties for less than they are worth or incur unnecessary holding and maintenance costs because the properties are not marketable. These changes are motivated primarily by HUD’s larger effort to downsize the agency and to substantially reform management practices agencywide. HUD envisions that these changes, when implemented, will limit the need for REAM contractors’ services. Nevertheless, it appears that HUD’s property disposition operations will continue to rely on contractors’ services to some extent for the foreseeable future. Many of these staff reductions will come from single-family housing operations, including Real Estate Owned functions. Specifically, according to the Deputy Assistant Secretary for Single-Family Housing, the Department plans to sell the rights to properties before they enter inventory, thus enabling them to be quickly disposed of once they become available. Specifically, these controls should require that (1) field locations complete performance evaluations of contractors (using the standard monitoring guide in HUD’s Property Disposition Handbook) prior to renewing contracts and communicate the results of these evaluations to the contractors in writing in a timely manner; (2) field location program offices maintain files on contractors’ performance; (3) HUD staff or contractors hired to perform monitoring duties conduct monthly on-site inspections of a sample of properties in inventory; (4) contracts contain clear and consistent requirements on when contractors’ routine inspection reports must be submitted to HUD for review; (5) HUD staff ensure that real estate asset management contractors notify HUD of deteriorated or hazardous conditions at custodial properties; and (6) HUD headquarters obtain sufficient information to monitor homeownership centers’ and field offices’ administration of the contracts. Objectives, Scope, and Methodology

As requested by the Chairman, Subcommittee on Housing and Community Opportunity, House Committee on Banking and Financial Services; the Chairman, Subcommittee on VA, HUD, and Independent Agencies, Senate Committee on Appropriations; and the Chairman, Subcommittee on Financial Institutions and Regulatory Relief, Senate Committee on Banking, Housing and Urban Affairs,we evaluated (1) whether the Department of Housing and Urban Development (HUD) is ensuring that real estate asset management (REAM) contractors meet their contractual obligations and (2) what actions HUD has planned or under way to change its handling and disposition of the single-family properties in its inventory.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed: (1) whether the Department of Housing and Urban Development (HUD) is ensuring that real estate asset management contractors meet their contractual obligations; and (2) what actions HUD has planned or under way to change its handling and disposition of the single-family properties in inventory.

What GAO Found

GAO noted that: (1) HUD does not have an adequate system in place to assess oversight of real estate asset management contractors, and the three HUD field offices that GAO visited varied greatly in their efforts to monitor these contractors' performance; (2) none of the offices adequately performed all of the functions needed to ensure that the contractors meet their contractual obligations to maintain and protect HUD-owned properties; (3) GAO's physical inspection of properties for which the contractors in each location were responsible identified serious problems, including vandalism, maintenance problems, and safety hazards; (4) these included such things as broken windows, graffiti, leaking roofs, and broken steps; (5) these conditions may decrease the marketability of HUD's properties; decrease the value of surrounding homes; increase HUD's holding costs; and, in some cases, threaten the health and safety of neighbors and potential buyers; (6) in connection with HUD's plans to reduce staff by about 29 percent by the year 2002, HUD's single-family property disposition operations, including the real estate asset management function, are in a period of transition; (7) these changes are closely linked to HUD's agencywide 2020 Management Reform Plan; (8) they include: (a) a reduction in property disposition staff and the consolidation of all field offices' single-family housing operations into four homeownership centers; (b) plans to sell the rights to properties before they are assigned to HUD's property disposition inventory so that they can be quickly disposed of once they become available; and (c) to some degree, the use of contracts similar to a pilot program started in September 1996 to test the approach of contracting out all marketing and management functions associated with acquired properties; and (9) while HUD envisions that these changes will eventually limit the need for real estate asset management contractors' services, there will continue to be properties in need of such services for the foreseeable future, even if on a smaller scale.