Multifamily Housing: HUD's Portfolio Reengineering Proposal: Cost and Management Issues

GAO discussed the Department of Housing and Urban Development's (HUD) proposal to reengineer its multifamily rental housing portfolio, focusing on: (1) the problems affecting the section 8 portfolio; (2) HUD plans to address these problems; and (3) how properties will be affected by the reengineering proposal. GAO noted that: (1) the problems affecting the insured Section 8 portfolio include high subsidy costs, high exposure to insurance loss, and the poor condition of many rental properties; (2) these problems stem from program design flaws that contribute to high subsidies, and weaknesses in HUD oversight and management of insured properties; (3) the proposal addresses these problems by decoupling HUD mortgage insurance and project-based rental subsidies and subjecting the properties to commercial market forces; (4) the process would allow property owners to set rent at market levels, terminate Federal Housing Administration (FHA) mortgage insurance, and replace project-based Section 8 subsidies with portable tenant-based subsidies; (5) the vast majority of Section 8 properties need their debt reduced to maintain operations; (6) it will cost between $6 and $7 billion to reengineer the Section 8 portfolio; and (7) Congress needs to consider whether rental assistance should be project-based or tenant-based, the level of protection for displaced households, the extent of FHA insurance for restructured loans, and the degree to which the federal government should finance rehabilitation costs.