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Statement of John C. Weicher
Assistant Secretary for Housing - Federal Housing Commissioner
before the US House of Representatives
Subcommittee on Housing and
Community Opportunity
July 20, 2004
Chairman
Ney, Ranking Member Waters, distinguished members of the Subcommittee
on Housing and Community Opportunity, thank you for inviting the
Department to testify on the GAO report entitled Multifamily Housing:
More Accessible HUD Data Could Help Efforts to Preserve Housing
for Low-Income Tenants (GAO-4-20).
This
Administration and the Department are firmly committed to preserving
affordable housing. Historically, the Department's rental housing
programs have been designed primarily to develop subsidized projects
that have rent affordability requirements for a fixed term. Therefore,
the Department has focused on retaining these properties as affordable
for at least the fixed term, and has worked with Congress to develop
tools and incentives to maintain affordability in cases of rental
assistance contract expirations. Although these tools and incentives
do not specifically address mortgage maturity, some of these incentive
programs such as the Mark to Market and the Section 236 Decoupling
have extended the affordability restrictions beyond the maturity
of the insured mortgage.
To
date, the Department has been very pleased with the success of the
role of these programs in assisting in the Department's efforts
to preserve the affordable housing stock. Under this Administration,
we have over 1,000 projects with over 86,000 units processed under
the Mark to Market Program, over 350 projects with approximately
32,000 units processed under the Section 236 Decoupling Program
and approximately 800 projects with some 80,500 units processed
under the Mark Up to Market Program. In these three programs combined,
the Department has preserved the affordability of over 2,000 projects
with about 200,000 units.
The
Section 202 Prepayment Program also allows owners to prepay their
HUD loans and obtain other financing, but keep the affordability
use restriction until the maturity of the original loan. The refinancing
of these loans allows additional funds to be made available to modernize
and rehabilitate these projects to ensure their long-term affordability
even beyond the prepayment of the loan. Due to the increasing number
of sponsors desiring FHA insurance to refinance these aging projects,
the Department has been reviewing its procedures to provide more
flexibility in underwriting an FHA-insured loan to replace the Section
202 loan. In recognition of the great need to assist these affordable
elderly housing projects and preserve this housing stock, the Department
is preparing a notice to allow these loans to be underwritten at
the existing Section 8 rent even if above market levels. This change
should enable substantially more Section 202 projects to be refinanced
through FHA and provide capital needed to make necessary repairs
and improvements to improve long-term viability.
Although
the incentives to extend affordability do not directly address the
termination of the affordability requirements resulting from mortgage
maturity, the Mark Up to Market, Mark to Market and Section 236
Decoupling Programs all provide incentives to owners to continue
to provide affordable housing on a long-term basis and beyond the
mortgage prepayment while improving the physical and financial viability
of the properties. These incentives have substantially decreased
the actual numbers of insured mortgages that would normally be maturing
in the next 10 years. In the GAO Report, they reviewed properties
with HUD mortgages that originated from 1959 through 1962 and found
that only 8, or 11% of the properties had reached mortgage maturity.
This data supports the Department's position that these incentives
are preserving affordable units for an extended period of time beyond
the original mortgage maturity date.
Currently,
there is no statutory authority for the Department to offer residents
special protections, such as enhanced vouchers, when a mortgage
matures unless rental assistance is also provided. In some of the
programs such as Section 221(d)(4) and Section 207 addressed by
the GAO study, there is not and never was an interest rate subsidy.
However, some residents receive rental assistance, and depending
on the type of rental assistance a resident receives, a resident
may be eligible to receive a voucher or continue with the project-based
rental assistance notwithstanding the section of the Act even though
the mortgage has matured.
As
the GAO report states, there are a total of 236,650 units in 2,328
properties where the mortgages are scheduled to mature through 2013.
Of this universe, 134,087 units (57%) receive project-based Section
8 assistance or other rental assistance. These residents will continue
to benefit from affordable rents and be protected, regardless of
when the mortgage matures, as long as there is a rental assistance
contract. Under current rules, if the rental assistance contract
expires or the owner elects not to renew the contract (opts out
of the contract), eligible residents are provided vouchers. Historically,
Congress has always provided appropriate renewal funds for these
contracts.
The
remaining 43% of the units in the GAO study (101,730) receive the
benefit not from rental assistance but rather through the mortgage
rate interest subsidy. * In properties financed under the Section
221(d)(3) BMIR and Section 236 programs, many residents do not receive
rental housing assistance. The question has been raised as to whether
the residents who do not receive rental assistance are able to afford
the potential increased rents upon the mortgage maturing. It should
be noted that residents of these projects typically have a higher
income than those under the rental assistance programs. The Section
236 program has no income limitations, and properties financed under
the Section 221(d)(3) BMIR program allow residents with incomes
of up to 95 percent of area median income. These are in contrast
to project-based Section 8 which limits residents' incomes to less
than 80 percent of area median income. It is also important to note
that unassisted residents of Section 221(d)(3) BMIR and Section
236 projects have average household income that is somewhat greater
than that of residents who receive rental assistance. In a 1998
HUD study, residents in the Section 221(d)(3) BMIR without rental
assistance had an average household income that was 83% greater
than that for residents in a Section 221(d)(3) BMIR project with
rental assistance. The average income of a household in a non-rental
assisted unit was $22,000 as compared to an average income of $12,000
for a household in a rental-assisted unit. Households in Section
236 units without rental assistance had an average household income
that was 30% greater than that for residents in Section 236 project
with rental assistance. The average income of a household in a non-rental
assisted-unit was $13,000 as compared to an average income of $10,000
for a household in a rental-assisted unit. Based on these statistics,
these residents potentially should have the ability to afford higher
rents. And in the case of the Section 236 program, many of these
residents may have been paying these higher rents throughout the
mortgage term.
Actual
history shows that many projects remain affordable after loan maturity.
Data gathered in conjunction with the GAO report indicate that there
were 32 properties where the HUD-insured mortgage had matured between
January 1, 1993 and December 31, 2002. Of these 32 properties, sixteen
are still serving low-income residents through rental assistance
contracts and ten properties that have no rental assistance contracts
were identified as affordable to residents with incomes below 50%
of area median income. After mortgage maturity, over 80% of the
properties (26 of 32) remain affordable to low- and moderate-income
residents.
Therefore,
because of incentives provided currently, such as vouchers and actual
experience, it would appear that there are few projects at risk
of losing the affordable housing units. For those projects where
the mortgages do mature, the projects are remaining affordable despite
the mortgage maturity.
The
Department certainly concurs with GAO that it is helpful to notify
our partners, both local and state governments, when HUD-insured
properties have the potential to leave HUD programs. In accordance
with GAO's recommendation in the Report, in the past thirty days,
the Department has begun posting a listing of HUD-insured mortgages
and Section 202 loans expiring in the next 10 years. The Department
will continue to post information and applicable data regarding
expiring rental assistance contracts on HUD's website. The Department
is also planning to solicit comments from our industry partners
on the information and data that is being provided so that we are
able to continue to improve the format and if necessary, modify
the current means of conveying the data on these properties to make
the data more widely available and accessible.
That
concludes my testimony. I would be happy to respond to questions
that you may have at this time.
Content Archived: June 25, 2010
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