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Multifamily Housing: HUD Missed Opportunities to Reduce Costs on Its Uninsured Section 8 Portfolio

RCED-99-217 Published: Jul 30, 1999. Publicly Released: Jul 30, 1999.
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Highlights

Pursuant to a congressional request, GAO reviewed the Department of Housing and Urban Development's (HUD) portfolio of section 8 properties that are not insured by the Federal Housing Administration, focusing on: (1) section 8 rental assistance provided to properties in HUD's uninsured portfolio; (2) the financial benefits that may be available to state and local housing agencies that participate in the section 8 program; and (3) the ways HUD and the state agencies oversee the physical and financial condition of the properties in their respective uninsured section 8 portfolios and the information they have on the physical and financial condition of these properties.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development The Secretary of Housing and Urban Development should determine whether the state agencies are required, under the McKinney Act, to share savings from refunding bonds associated with all contracts entered into between 1979 and 1984. If so, HUD should revise its applicable rules and regulations to clarify the requirements for sharing bond refunding savings with the federal government. For contracts associated with bonds that have already been refunded, HUD should determine whether it can require the state agencies to begin sharing the section 8 savings they retain.
Closed – Not Implemented
The FHA Commissioner's response to this recommendation indicates that the Department is of the view that state agencies should not be required to share savings generated from refunding bonds associated with all contracts entered into between 1979 and 1984, and that HUD regulations should not be amended to impose such a requirement. The response states that the McKinney Act amendment, read in combination with its legislative history, is ambiguous on this point. Furthermore, it states that HUD's Office of General Counsel advised the Office of Housing that, while it could seek to recover such savings--that is, it had authority to do so under the statute--it was not required to do so. The Department chooses not to recover savings from state agencies relevant to the refunding transactions in question.
Department of Housing and Urban Development To ensure that state and local housing finance agencies comply with HUD's guidance on deducting bond refunding savings before calculating rent increases, the Secretary of Housing and Urban Development should require HUD to provide the state and local agencies with the appropriate methodology and examples of calculations and ensure that the rule is kept current and integrated into HUD's guidance on annual section 8 rent increases.
Closed – Implemented
HUD issued Notice H 03-28 on December 1, 2003, which, among other things, provides instructions on how to deduct bond refunding savings before calculating rent increases. Part B of the notice titled "Servicing of McKinney Act Shared Savings Bond Refundings" indicates that the instructions result from audit findings of HUD's Inspector General and the GAO. Per GAO's recommendation, the notice includes an appendix with a sample case on how to calculate rent increases when bond refunding savings are involved.
Department of Housing and Urban Development To eliminate excess costs from paying dual fees to state agencies administering section 8 rental assistance contracts, the Secretary of Housing and Urban Development should require HUD to enforce its regulation prohibiting dual fees unless there is a documented, sound, and equitable basis for waiving the regulation. To enforce the regulation, HUD should identify all section 8 contracts for which state agencies receive both an administrative fee under the section 8 contract and an override fee, including those contracts that are not subject to a refunding agreement with HUD.
Closed – Implemented
In GAO's June 2005 follow-up with HUD, it had completed the waiver request process for the 17 states identified as dual fee states. HUD granted waivers to all 17 states--the final waiver was granted on May 24, 2005.

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Topics

Cost controlstate relationsHousing programsLow income housingRent subsidiesRental housingRental ratesState-administered programsMortgage marketBail bonds