HOUSING

RENTAL HOUSING ASSISTANCE PROGRAM

(Section 236)

No appropriation is requested for the Rental Housing Assistance program in 2000. No new commitment activity has occurred since the program was terminated in 1973. However, the program does have activity from amendments or recaptures in connection with State-aided projects.

The inventory of Section 236 units will be affected by three separate activities in the foreseeable future: Preservation Prepayment; Multifamily Enforcement; and the Interest Reduction Payment (IRP) Grant program.

Preservation Prepayment. As an incentive to attract developers into the original Section 236 program, participants were given the right to prepay their subsidized mortgage after 20-years.

In the 1990's, when mortgages began to hit the 20-year mark, the Department implemented the Preservation program to encourage project owners to continue in the low-income housing program. However, since not enough Preservation funding has been made available in the form of incentives, and no new funding is proposed, it was anticipated that owners would begin to prepay mortgages in large numbers in 1998 and 1999. Approximately 12,000 units were prepaid in 1998, and comparable levels of prepayments are anticipated for 1999 and 2000.

When owners prepay, some of the units are already occupied by tenants receiving Section 8 assistance. Other tenants may be income eligible but not presently receiving assistance. These tenants may face rent increases and will be assisted with Tenant Protection vouchers.

Because the Section 236 mortgage is prepaid and liquidated, the IRP interest subsidy contract terminates. Previously obligated contract authority and imputed budget authority is subject to recapture. In 1998, a total of $140 million was recaptured, mainly as a result of preservation prepayments. Of this amount, $125 million was rescinded. For fiscal year 1999, and 2000, amounts recaptured due to preservation prepayments, or from mortgage terminations due to enforcement actions or mortgage restructuring will be available for use in the IRP grant program.

Multifamily Enforcement. Housing is undertaking an expanded program of addressing insured multifamily projects experiencing operating problems including: poor housing quality standards, financial problems and poor owner administration. It is anticipated that some projects will experience a termination or non-renewal of Section 8 assistance. Tenants living in affected projects may have existing project-based Section 8 converted to tenant-based vouchers. Additional Tenant Protection vouchers may be used to aid income eligible families not presently receiving assistance but who would be adversely affected by HUD enforcement actions.

IRP Grant Program. As part of Portfolio Re-Engineering, some Section 236 mortgages are expected to be partially paid down or completely written-off. Consequently, there will be Section 236 IRP recaptures from these restructurings. Title V of the 1998 Appropriations Act makes the IRP recaptures available for grants to project owners. The grants will be in an amount and pattern over the years that tracks the original IRP outlay pattern. The number of older assisted projects expected to be handled in the restructuring process has been revised downward from earlier estimates reflecting revised assumptions about the number of such projects with over market rents. As a result, recapture of Section 236 IRP associated with the Mark-to-Market process is also reduced.

2. CHANGES FROM 1998 ESTIMATES INCLUDED IN 1999 BUDGET

The 1999 Budget estimated that $70 million would be used in 1998 for assistance to State-aided projects. Actual activity totaled $31.5 million.

3. CHANGES FROM 1999 BUDGET ESTIMATES

The 1999 Budget estimates reflected an IRP Grant program that was larger in scope and concentrated within a shorter time frame.

The fiscal year 2000 Budget includes of a more gradual impact from marking-to-market Section 8 rents, as discussed under Summary of Budget Request.

1. Original Program. The Section 236 program, as enacted in 1968, provides a subsidy to reduce mortgage interest payments. The maximum subsidy available to a project was set at the difference between the monthly payment for principal, interest, and mortgage insurance premium on the outstanding mortgage at the market rate of interest and the monthly payment that would be required under a mortgage bearing an interest rate of 1 percent.

A basic rental charge that was deemed sufficient to meet operating expenses plus debt service expenses at the 1 percent rate of interest was determined for each unit. Every tenant is required to pay the basic rental charge or up to 30 percent of income, whichever is higher. Contract approvals for new projects were discontinued in January 1973, except for "bona fide" commitments outstanding at that time and for amendments to prior contracts.

2. "Deep Subsidy" Program. The Rental Assistance Payments (RAP/"deep subsidy") program, authorized by the Housing and Community Development Act of 1974, was designed to aid very low-income families in Section 236 projects by permitting HUD to provide additional subsidies equal to the difference between the basic rent and 30 percent of income for a certain percentage of units in a project. Most insured projects receiving RAP funding have converted to Section 8 assistance. The remaining inventory of RAP assisted projects is largely limited to State-aided, bond-financed, projects which continue to receive amendment funding from a special set-aside.
3. State Agency Financed Projects (RAP funding). Amendments to State agency sponsored RAP projects will continue to be funded utilizing the set-asides of contract authority provided for in the 1983 Supplemental Appropriations Act. The following table provides the status of the set-aside of contract authority established for non-insured RAP assisted projects and the estimated use of the set-aside during fiscal years 1998-2000:

The Housing and Urban Development Act of 1968 authorized the Secretary to establish a fund for the deposit of rental collections in excess of the established basic rent for units in subsidized Section 236 projects. Pursuant to Section 201 of the Housing and Community Development Amendments of 1978, excess rental collections that continue to be deposited into the fund are to be paid to the Flexible Subsidy Fund. However, recent Appropriations Acts contain provisions likely to result in reductions of the collections of these excess receipts. The following table reflects the status of funds: