Scheduled Mortgage Maturities Through 2013 Vary by Year and Program

Of the 11,267 subsidized properties (containing 914,441 units) with HUD  mortgages, 21 percent (2,328 properties containing 236,650 units) have  mortgages that are scheduled to mature from 2003 through 2013. Additionally,  the bulk of these mortgages (about 75 percent) are scheduled to mature in  the latter three years of the 10-year period (see fig. 1). 2). The states also vary considerably in terms of the percentage of their  respective HUD mortgages on subsidized properties that are scheduled to  mature through 2013, ranging from 7 percent in Alabama to 53 percent in  South Dakota. 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 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. Property owners are not required to notify tenants when they pay off their  mortgage at mortgage maturity. HUD data show that nonprofit organizations own about 38 percent of the  properties with mortgages scheduled to mature in the next 10 years. Most Properties with HUD Mortgages That Reached Maturity Offer Rents Affordable to Low-Income Tenants

Our review of HUD’s data showed that HUD-insured mortgages at 32  properties matured between January 1, 1993, and December 31, 2002. Sixteen of the 32 properties are still serving low-income tenants through  project-based Section 8 rental assistance contracts. 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. However, about three- quarters of the state and local agencies that responded to our survey  reported that they do not track the maturity dates on HUD mortgages, and  none provided examples of tools or incentives used to keep units  affordable after mortgage maturity. These state and local agencies  identified several incentives that they believe are the most effective in  preserving the affordability of housing for low-income tenants. 3). 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. Using  HUD’s data that we obtained to respond to your request, we also  developed a prototype searchable database, available in CD-ROM format,  showing property-level data for each of HUD’s subsidized rental properties  scheduled to mature in the next 10 years.
Why GAO Did This Study

The Department of Housing and Urban Development (HUD) has subsidized the development of about 1.7 million rental units in over 23,000 privately owned properties by offering owners favorable long-term mortgage financing, rental assistance payments, or both 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. Based on a report issued in January 2004, this testimony discusses (1) the number and selected characteristics of HUD-subsidized rental properties with mortgages scheduled to mature in the next 10 years, (2) the potential impact on tenants upon mortgage maturity, and (3) the tools and incentives that HUD, the states, and localities offer owners to keep HUD properties affordable upon mortgage maturity.

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. As part of our analysis, we developed a searchable database available on a CD-ROM, showing property-level data for each of HUD's subsidized rental properties scheduled to mature in the next 10 years. Impacts on tenants depend on tenant protections available under program statutes and regulations, as well as on property owners' decisions about their properties. No statutory requirement exists to protect tenants from increases in rent when HUD mortgages mature, absent the existence of rental assistance contracts or other subsidies. Without tenant protection requirements, tenants in over 101,000 units that do not receive rental assistance may have to pay higher rents or move when the HUD mortgages on these properties mature and rent restrictions are lifted. During the past 10 years, HUD-insured mortgages at 32 properties reached mortgage maturity, and the majority of these properties are still serving low-income tenants. HUD does not offer incentives to owners to keep properties affordable upon mortgage maturity. While many state and local agencies GAO surveyed offered 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.