HUD AGREEMENTS WILL SAVE TAXPAYERS MILLIONS OF DOLLARS AND PRESERVE AFFORDABLE HOUSING FOR THOUSANDS OF FAMILIES IN 27 STATES

WASHINGTON - The Department of Housing and Urban Development has entered into agreements with housing finance agencies and private groups in 27 states and the District of Columbia that will save taxpayers millions of dollars and preserve affordable housing for thousands of low-income families.

HUD's Office of Multifamily Housing Assistance Restructuring (OMHAR) said today that it has entered into the portfolio restructuring agreements with 18 state or local housing finance agencies, along with three non-profit and private firms covering properties in nine additional states.

The 18 state or local housing finance agencies entering agreements are: Jefferson County, AL; District of Columbia; Florida; Chicago; Kentucky; Louisiana; Anne Arundel and Montgomery Counties, MD; Missouri; New Hampshire; Ohio; Rhode Island; South Carolina; South Dakota; Tennessee; Washington State; Kitsap County, WA; and West Virginia. Between the 18 state or local housing finance agencies, 196 mortgages will be restructured.

The private companies selected to assist with the restructuring include: First Housing, based in Tampa, FL; and Ontra, based in Austin, TX. First Housing and Ontra will restructure the debt on 54 properties located in Alaska, Arkansas, Hawaii, Kansas, Mississippi, Montana, Nebraska, Nevada, and Wyoming. No public agency in any of these states elected to participate in the program, and all of the contracts were competitively bid.

The contract agreements are part of an effort to preserve thousands of HUD-subsidized privately owned low-income apartment developments, said OMHAR Director Ira Peppercorn. OMHAR will oversee restructuring of the mortgages on the properties as rents are marked down to levels that are more in line with prevailing market rents. The program is known as Mark-to-Market.

HUD estimates that Mark-to-Market will produce substantial savings in the Project-Based Section 8 rental assistance program over the next five years, and more in years ahead, while preserving affordable housing for 850,000 people. Families in HUD's Section 8 Program pay 30 percent of their income toward rent, with HUD subsidies making up the difference.

High rental subsidies were established to encourage construction of affordable housing. Over the past 20 years, the subsidies escalated with inflation to exceed rents for comparable apartments on the private market. The Mark-to-Market Program was enacted by Congress in 1997 as part of a plan to secure the Section 8 Program from financial collapse and avert an affordable housing crises that could have threatened up to 4.4 million Americans with homelessness.

Under restructuring, owners of subsidized properties refinance part of their mortgage balance at lower interest rates and with deferred payments. This will enable owners to continue providing affordable housing even after HUD's Section 8 subsidies are reduced.

For example, in Cleveland, OH, the HUD-approved average rent for a subsidized apartment is $620 - compared with a rent of $487 for the same type of apartment on the private market. In Detroit, the comparable figures are $716 for a subsidized apartment, and $499 for an apartment on the private market. And in Washington, DC, the average HUD-subsidized rent is $734, while the typical unsubsidized apartment rents for $499.

Contracting with public state and local housing finance agencies has been a priority for OMHAR, which expects 14 other public agencies to sign contracts in the coming weeks. The additional contracts will facilitate the mortgage restructuring of 106 properties.

"These partnerships will enable HUD to both bring down the long-term costs of low-income housing subsidized by the Department and make sure families in need have access to decent and safe affordable housing," Peppercorn said.

"The Missouri Housing Development Commission is eager to get started with the program," said Executive Director Richard G. Grose. "We are looking forward to a mutually beneficial experience that will be helpful in preserving affordable housing."

Once the contracts are signed, Peppercorn said, most of the properties that are eligible for the Mark-to-Market Program will be in the process of having their debt restructured. Currently, about 500 properties are available for restructuring, with almost 1,100 more potentially becoming eligible by December. Today's announcement will enable about 400 properties in 44 states to begin the restructuring process. Known as Participating Administrative Entities, the agencies and firms awarded contracts as part of Mark-to-Market will work with OMHAR to restructure the existing debt or rent on about 3,800 properties in the United States.

Contracts to restructure 13 properties in Oklahoma, and New Jersey have been awarded to First Housing and Community Preservation Corporation Resources, Inc., pending formal approval of public agencies in those states. CPC, a New York-based non-profit that has significant experience in restructuring and tenant relations, will restructure the debt on 5 properties; First Housing will restructure 8 properties. Thirty properties in Pennsylvania were also awarded to CPC because of an urgent need to restructure properties in the state.

Content Archived: January 20, 2009