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GAO Report on RD MFH Focus: Maturing Mortgages

This GAO report examines how RHS is addressing the risks posed by maturing mortgages and the extent to which RD has tools and strategies to preserve these properties. It also highlights data shortcomings and proposes solutions for increased numbers of maturing mortgages.

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GAO Report on RD MFH Focus: Maturing Mortgages

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  1. GAO Report on RD MFH Focus: Maturing Mortgages Texas Rural Rental Housing Preservation Academy June 6, 2018

  2. GAO • Study Released on May17, 2018 • Purpose of Study: • Examine how RHS is addressing the risks posed by maturing mortgages • Extent that RD has tools and strategies to preserve these properties • https://www.gao.gov/products/GAO-18-285 • 40 page report

  3. GAO • Random samples of files from 5 states (CA, IL, MN, PA & VA) to assess accuracy and completeness of data on RRH 515 properties. • States selected based on geographic diversity, number of properties and high number of properties nearing maturity. • Reviewed number of properties that could exit between 2017 – 2050 • Reviewed properties eligible to prepay mortgages • Audit conducted between May 2016 – May 2018.

  4. GAO • March, 2016, RHS developed Multi-Family Housing Property Preservation Tool • Replaces manually calculated exit dates for rural properties • Make information publicly accessible, improve program transparency

  5. GAO • Analysis: 900 properties, (6% of portfolio) with 20,000 units (5 percent) will have maturing mortgages and could exit the program between 2017 and 2027. • As of June, 2017, shows 35% of RHS portfolio (4,944 of 14,075 properties) have mortgages eligible for prepayment and could exit early. • Prepaid mortgages lose RA but tenants qualify for vouchers. Mortgages on or after December 15, 1989, not allowed to prepay

  6. GAO • Data Shortcomings • RHS lacks internal controls to ensure accuracy of all loan information. Maturing mortgages never followed, new data set. • RHS lacks controls to check accuracy and completeness of underlying data used by preservation tool. • Has not developed a regular, timely process for updating the preservation tool’s underlying data and exit date info. Last update June, 2017.

  7. GAO • Two studies commissioned by RHS to understand impact of maturing mortgages and key issues. • Study 1 • USDA Rural Rental Housing Portfolio: The Early Implication of Maturing Mortgages Housing Assistance Council September, 2016 • http://www.ruralhome.org/storage/documents/policy-notes/rpn_maturing-mortgages-usda-2016.pdf

  8. GAO • Study 2 • Rural Development Multi-Family Housing Comprehensive Property Assessment CoreLogic and RSM, LLP March 1, 2016 • Outlines issues facing the portfolio like the $5.6 billion needed to rehab properties program wide and potential policy solutions for potential early exits. • https://www.rd.usda.gov/files/reports/USDA-RD-CPAMFH.pdf

  9. GAO • RHS Options Preventing Exits & Preserving Affordability • Reamortization same size debt, longer terms • Re-Am Lite no appraisal required • Deferral up to 20 years • Prepayment Offer incentives offered • Prepayment no loan, no RA, vouchers to tenants • Transfer new owner, new terms, new restrictions

  10. GAO • RHS Options continued • 2016, NP allowed RTO • With options in place, 61% (148 of 244) properties with mortgages that matured between 1/2014 and 12/2017 exited the program

  11. GAO • Property Exits • Year Properties Exits % • 2014 14 10 71% • 2015 62 39 63% • 2016 80 46 58% • 2017 88 53 60% • Total 244 148 61%

  12. GAO • Stakeholders offer various opinions • Options & incentives not adequate or broad appeal to owners • Extending loan term a short term solution • Options taken by owners with no other choice but to stay in • Condition of property • Market is poor for a sale of property • Can not get market rate rents (or low mkt rents)

  13. GAO GAO points out a lack of documented goals by RHS for preserving the program nor created measures for tracking progress toward those goals RHS not monitoring and assessing options and incentives in a way that would inform or improve the use of these options, i.e. what are the outcomes (page 20) RHS has not fully analyzed or responded to risks facing the program Owner behavior Resource constraints

  14. GAO Management of maturing mortgages staff workloads staff training additional guidance Rehabilitation costs Studies estimate $5.6 billion in rehab costs No additional requests for funding Need for additional strategies for increased numbers of maturing mortgages coming after 2027

  15. GAO • Proposals: • Decouple RA from mortgage, loan paid off, tenant gets RA • Provide vouchers to tenants when loan is matured/paid off • Above proposed in April-2016 but no action taken (page 23) • HUD created Rental Assistance Demonstration in 2011 when faced with similar loss of rental assistance at properties

  16. GAO • Conclusions • Preservation tool a positive first step to help define property exit dates, alert stakeholders to properties with maturing mortgages and begin to preserve their affordability • Need better data controls to insure accuracy of data and timely updating of data for all • Accelerate strategic planning on next bigger wave of maturing mortgages

  17. GAO • Matter for Congressional Consideration • For RHS properties whose mortgages have matured, Congress should consider granting RHS the authority to renew annual rental assistance payments to owners who wish to continue to receive them and provide vouchers to tenants living in rental assistance units in properties whose owners choose to no longer receive rental assistance.

  18. GAO • Five recommendations for executive action • RHS Administrator should establish additional controls to check the accuracy of all loan information entered into RHS technology systems to help ensure complete, accurate and reliable data for estimating rural rental housing property exit dates • RHS Administrator should establish a process to ensure regular and frequent updates for the preservation tool and its underlying data

  19. GAO • Recommendations continued • Should establish performance goals and measures for its rural rental housing preservation and rehab efforts and report out these outcomes • Should monitor the results of preservation efforts and assess degree to which those efforts yielded intended outcomes • Should identify, analyze and respond to risks to achieving its preservation goals, including resource and staffing limitations

  20. GAO • The draft report was given to RHS and HUD for review and comment. • RHS provided technical comments that were incorporated into report and stated that it agreed with all five of the recommendations. • HUD had no comments on the draft

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