HUD Made Three- fourths of Its Housing Assistance Payments On Time in Fiscal Years 1995 Through 2004

Between fiscal years 1995 and 2004, HUD disbursed three-fourths of its  monthly housing assistance payments by the due date, but thousands of  payments each year were late, affecting many property owners. For this  10-year period, about 8 percent of all payments were delayed by 2 weeks or  more, a time frame we characterize as significant. 3). HUD’s contract renewal process itself also may take longer than expected,  contributing to late housing assistance payments, because the process is  largely manual and paper driven and requires multiple staff in the PBCAs  and HUD to complete (see fig. Three of the 16  owners with whom we spoke reported having to pay their mortgages or  other bills late as a result of HUD’s payment delays. Effects of Delayed Payments on Owners Varied Based on Several Factors, Particularly the Owners’ Financial Condition and Degree of Reliance on HUD’s Subsidy

According to owners as well as industry group and HUD officials, owners  who are heavily reliant on HUD’s subsidy to operate their properties are  more severely affected by payment delays than other owners. HUD also allows owners to withdraw funds from this account in the event  of HUD’s payment delays, so that owners are able to make their mortgage  payments. Most of the owners with whom we spoke reported that they  received no warning from HUD that their payments would be delayed. Delayed Housing Assistance Payments Were Unlikely to Cause Owners to Opt Out of HUD’s Programs or Discontinue Involvement in Providing Affordable Housing

Project owners, industry group officials, contract administrators, and HUD  officials we interviewed generally agreed that market factors primarily  drove an owner’s decision to opt out of HUD programs. However, while the timeliness of housing assistance payments has  improved in recent years, the number of significantly late payments  remains a concern. Although HUD has made changes to improve contract administration, it  has not comprehensively addressed the factors that most affect the  timeliness of payments—that is, its contract renewal and contract funding  and monitoring processes. Recommendations for Executive Action

To improve the timeliness of housing assistance payments and mitigate the  effects on owners when payments are delayed, we recommend that the  Secretary of Housing and Urban Development take the following three  actions:  streamline and automate the contract renewal process to prevent  processing errors and delays and eliminate paper/hard-copy  requirements to the extent practicable;  develop systematic means to better estimate the amounts that should be  allocated and obligated to project-based housing assistance payment  contracts each year, monitor the ongoing funding needs of each  contract, and ensure that additional funds are promptly obligated to  contracts when necessary to prevent payment delays; and  notify owners if their monthly housing assistance payments will be late  and include in such notifications the date by which HUD expects to  make the monthly payment to the owner.
Why GAO Did This Study

The Department of Housing and Urban Development (HUD) provides subsidies, known as housing assistance payments, under contracts with privately owned, multifamily projects so that they are affordable to low-income households. Project owners have expressed concern that HUD has chronically made late housing assistance payments in recent years, potentially compromising owners'ability to pay operating expenses, make mortgage payments, or set aside funds for repairs. GAO was asked to discuss the timeliness of HUD's monthly housing assistance payments, the factors that affect payment timeliness, and the effects of delayed payments on project owners.

What GAO Found

From fiscal years 1995 through 2004, HUD disbursed three-fourths of its monthly housing assistance payments on time, but thousands of payments were late each year, affecting many property owners. Over the 10-year period, 8 percent of payments were delayed by 2 weeks or more. Payments were somewhat more likely to be timely in more recent years. The process for renewing HUD's subsidy contracts with owners can affect the timeliness of housing assistance payments, according to many owners, HUD officials, and contract administrators that HUD hires to work with owners. HUD's renewal process is largely a manual, hard-copy paper process that requires multiple staff to complete. Problems with this cumbersome, paper-intensive process may delay contract renewals and cause late payments. Also, a lack of systematic internal processes for HUD staff to better estimate the amounts that HUD needs to obligate to contracts each year and monitor contract funding levels on an ongoing basis can contribute to delays in housing assistance payments. Although HUD allows owners to borrow from reserve accounts to lessen the effect of delayed housing assistance payments, 3 of 16 project owners told GAO that they had to make late payments on their mortgages or other bills--such as utilities, telephone service, or pest control--as a result of HUD's payment delays. Owners who are heavily reliant on HUD's subsidy to operate their properties are likely to be more severely affected by payment delays than other, more financially stable, owners. Owners reported receiving no warning from HUD when payments would be delayed, and several told GAO that such notification would allow them to mitigate a delay. Nonetheless, project owners, industry group officials, and HUD officials generally agreed that late housing assistance payments would be unlikely to cause an owner to leave HUD's housing assistance programs, because such a decision is generally driven primarily by local market factors.