Rural Housing Service: Better Data Controls, Planning, and Additional Options Could Help Preserve Affordable Rental Units
Highlights
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.
Estimated Number of Rural Housing Service Properties, by State and Territory
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.
Recommendations
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.
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| 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. | As of March 2024, Congress had not enacted legislation fully addressing this matter. Legislation was introduced in the 116th, 117th, and 118th Congresses that would (1) decouple RHS rental assistance to property owners from RHS mortgages, allowing RHS to continue providing rental assistance to property owners whose mortgages have matured and (2) expand the eligibility of RHS rental assistance vouchers to low-income tenants in properties with matured RHS mortgages. However, none of the legislation has received full congressional approval. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Rural Housing Service | The RHS Administrator should establish additional controls to check the accuracy of all loan information entered into RHS information technology systems, to help ensure complete, accurate, and reliable data for estimating rural rental housing property exit dates. (Recommendation 1) |
In August 2022, RHS finalized an appendix to its post-loan-closing standard operating procedure to help ensure the quality of loan data entered into RHS's information systems. The appendix is a checklist of key project and loan data fields that RHS staff will review for accuracy.
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| Rural Housing Service | The RHS Administrator should establish a process to help ensure regular and frequent updates for the preservation tool and its underlying data. (Recommendation 2) |
RHS implemented a new preservation tool, the Preservation Tracking System, in June 2020 and developed processes to refresh system data and outputs. The system generates a quarterly maturing mortgages report by extracting regularly updated data from RHS's accounting and information systems. The report calculates estimated property exit dates based on current loan balances and mortgage maturity dates.
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| Rural Housing Service | The RHS Administrator should establish performance goals and measures for its rural rental housing preservation and rehabilitation efforts and report out these outcomes. (Recommendation 3) |
In May 2022, RHS completed development of, and began implementing, a Production & Preservation (P2) Pipeline and Dashboard to measure and report on processing time frames across programs, locations, transaction types, and organizational units. The dashboard highlights various performance metrics for evaluating program administration and efficiency. In conjunction with this effort, RHS developed initial processing guidelines--including several specific to property preservation--that it plans to adopt as fiscal year 2023 performance goals after completing a validation process. According to RHS, the establishment of performance metrics and the P2 Pipeline and Dashboard has positioned RHS to produce additional reports on the efficiency of its preservation efforts and how those efforts contribute to preservation goals.
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| Rural Housing Service | The RHS Administrator should monitor the results of rural rental housing preservation efforts and assess the degree to which those efforts yielded intended outcomes. (Recommendation 4) |
As of November 2023, RHS was (1) monitoring the results of a pilot program to facilitate the transfer of properties to new owners, thereby preventing properties from exiting RHS's affordable housing portfolio and (2) working on an evaluation of the program to show the number of completed property preservations and their effect on the condition and longevity of the portfolio. RHS anticipates completing the evaluation after December 31, 2023. We will update the status of the recommendation when RHS completes its evaluation.
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| Rural Housing Service | The RHS Administrator should identify, analyze, and respond to risks to achieving its preservation goals, including resource and staffing limitations. (Recommendation 5) |
RHS identified technical assistance grants as a mechanism for responding to risks to achieving the agency's preservation goals, such as resource and staffing limitations. In December 2021, RHS issued a Notice of Funding Availability (NOFA) seeking applications from qualified nonprofits and public housing authorities (PHA) to provide technical assistance aimed at preventing the loss of affordable rental housing due to maturing RHS mortgages or other reasons. The grantees will provide technical assistance, including financial and legal services, to help other nonprofits and PHAs acquire properties at risk of exiting RHS's rental housing program, thereby keeping the properties in RHS's affordable housing portfolio. RHS made an initial round of grant awards in June 2022.
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