Some owners that are reaching the end of their RHS mortgage terms may  wish to exit the program. RHS Developed a Tool That Estimates That Large Numbers of Mortgages Will Mature Starting in 2028, and Better Controls Could Improve Data Accuracy

		RHS Developed a Tool to Estimate Property Exit Dates

In March 2016, RHS developed the Multi-Family Housing Property  Preservation Tool (preservation tool), an electronic system designed to  use data from AMAS and MFIS to estimate mortgage maturity and  property exit dates and to calculate new dates that may result from RHS’s  preservation efforts. Industry stakeholders  said that low-income tenants living in these properties could face  escalating rents or lose their housing altogether. In addition, over 13,000  properties (94 percent) and about 407,000 units (95 percent) are  estimated to have mortgages that will mature between 2028 and 2050  (see fig. 2). 3). Better Controls Could Improve the Accuracy and Utility of Maturing Mortgage Data

Our review identified three internal control shortcomings that could impact  the accuracy, completeness, and timeliness of RHS’s data on properties  with maturing mortgages. Second, RHS lacked controls to check the accuracy and completeness of  underlying data used by the preservation tool. RHS Has Taken Steps to Address Properties with Maturing Mortgages, but Lacked Comprehensive Planning and Faces Statutory Constraints That Limit Preservation

While RHS has taken steps to address properties with maturing  mortgages, such as identifying various options and incentives intended to  preserve the affordability of properties for low-income tenants, a majority  of properties with maturing mortgages from 2014 to 2017 have exited  RHS’s rural rental housing program. While taking these  steps would help RHS’s preservation efforts, some tenants may still be at  risk of losing rental assistance when mortgages mature because RHS  cannot continue to provide rental assistance. RHS is  also not systematically collecting data for monitoring purposes. However, the percentage of exits (61 percent) suggests that  RHS’s current planning efforts have not proven sufficient to prevent the  majority of properties with mortgages that have matured from exiting its  rural housing program. Law Limits RHS’s Ability to Offer Rental Assistance and Vouchers to Low- income Tenants

RHS has options to extend loan terms in order to continue rental  assistance at properties but cannot continue providing rental assistance  to tenants once the loan is paid off and the property exits RHS’s  affordable housing program. Tenants living in these  properties could be subject to rent increases or the risk of displacement. In addition, when the Department of Housing and Urban Development  (HUD) faced a similar loss of affordable housing, Congress gave the  department authority in 2011 to further protect tenants through the  creation of the Rental Assistance Demonstration (RAD). Without the authority to continue providing rental assistance or to provide  vouchers to tenants at existing properties whose mortgages have  matured, RHS is not well positioned to protect tenants from potential  increased rents or displacement from their units. (Recommendation 1)
The RHS Administrator should establish a process to help ensure  regular and frequent updates for the preservation tool and its  underlying data. (Recommendation 5)

	Agency Comments

We provided a draft of this report for review and comment to RHS and  HUD. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine the Rural Housing Service’s (RHS)  efforts to (1) estimate the dates that properties may exit the rural rental  housing program due to mortgage maturity, and (2) preserve the  affordability of rural rental properties with maturing mortgages. To examine RHS’s efforts to estimate property exit dates, we analyzed  RHS documentation and interviewed RHS officials about the data the  agency uses to identify and preserve properties with maturing mortgages.
Why GAO Did This Study

Under its rural housing program, RHS provides mortgages and rental assistance to support affordable rental units for low-income tenants (see figure). When these mortgages reach the end of their terms (mature), property owners may exit the program; current law does not allow RHS to continue providing rental assistance when such exiting occurs. As a result, tenants in properties with mortgages that are maturing may face rent increases or lose their housing altogether.
GAO was asked to examine how RHS is addressing the risks posed by maturing mortgages. This report examines RHS's efforts to (1) estimate rural housing property exit dates and (2) preserve the affordability of rural rental properties with maturing mortgages. GAO reviewed RHS mortgage loan data and preservation documents, and interviewed RHS officials and industry stakeholders.

What GAO Found

The U.S. Department of Agriculture's Rural Housing Service (RHS) implemented an automated tool to estimate when properties could exit the rural rental housing program, but RHS lacked sufficient controls to ensure the accuracy, completeness, and timeliness of those estimates. In 2016, RHS developed its Multi-Family Housing Property Preservation Tool to replace a manual process of estimating exit dates. RHS data suggest that a smaller number of properties could exit RHS's program in the near term, but between 2028 and 2050, over 90 percent of RHS's properties and units could exit the program (about 13,000 properties with 407,000 units). However, RHS lacked controls that would better ensure the accuracy and completeness of these estimated exit dates, such as the verification of key data input at mortgage origination. In addition, RHS had not established a regular process to update the preservation tool's underlying data due to staff turnover and data system challenges. Without these controls, RHS may lack assurance that is has reliable data for calculating exit dates and initiating preservation efforts.
While RHS has taken actions to address properties with maturing mortgages, such as offering property owners options designed to prevent property exits, about 60 percent of properties with maturing mortgages exited the program between 2014 through 2017. The agency's planning efforts lacked key steps such as (1) establishing preservation goals, (2) developing metrics for evaluating preservation efforts, and (3) analyzing and responding to risks facing its portfolio such as resource limits and growing capital rehabilitation needs. Without taking these actions, RHS is not well positioned to preserve affordable housing in the near term or when much larger numbers of properties and units could exit the program starting in 2028. Although taking the steps above would help RHS's preservation efforts, some tenants may still be at risk of losing rental assistance when mortgages mature. Accordingly, allowing RHS to renew rental assistance after mortgage maturity could protect assisted low-income tenants from increased rents or displacement from their units. When the Department of Housing and Urban Development (HUD) faced a similar loss of affordable housing subsidies, Congress authorized the department in 2011 to continue providing rental assistance at properties after contracts expired.

What GAO Recommends

Congress should consider granting RHS authority to continue providing rental assistance to tenants in properties with maturing mortgages. GAO is also making five recommendations, including that RHS improve data quality and take steps to comprehensively plan for preserving properties with maturing mortgages. We provided a draft of this report for review and comment to RHS and HUD. RHS agreed with all five of GAO's recommendations.