oversight

The Department of Housing and Urban Development: Information on Its Role, Programs, and Issues

Published by the Government Accountability Office on 1997-07-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division


      B-277207


      July 21, 1997


      The Honorable Rick A. Lazio
      Chairman, Subcommittee on Housing
       and Community Opportunity
      Committee on Banking and Financial Services
      House of Representatives

      Subject:   The Department of Housing and Urban Development: Information on
                 Its Role. Programs, and Issues

 •?   Dear Mr. Chairman:

      This report transmits a briefing that presents information on (1) the role,
      organization, and resources of the Department of Housing and Urban
      Development (HUD); (2) HUD's major programs, their condition, and related
      issues; (3) critical issues facing HUD; and (4) tools to help the Congress and the
      administration address these and other issues. With the change in
      congressional leadership 2 years ago, we presented to your staff a video
      overview of HUD's programs and the issues facing the Department. This year,
      we prepared an updated and expanded video presentation. As requested by
      your office, that information is reproduced here with accompanying notes for
      you and Members of the Subcommittee.

      Created in 1965, HUD carries out the federal government's missions, policies,
      and programs for housing and community development. Through its multiple
      social and financial roles, HUD directly or indirectly affects most Americans. Its
      functions fall into four categories-housing assistance, housing finance,
      community development, and regulation. The Departnment faces a number of
      critical issues, including the demands that renewing Section 8 contracts places
      on its budget and the designation of its programs as being at high risk of waste,
      fraud, and mismanagement.




                                               GAO/RCED-97-173R HUD's Programs and Issues
B-277207
The information presented in this report is based on reports we have issued and
testimony we have given, as well as on HUD's program and budget information.
We hope that this information will assist you in your work on reforming HUD's
programs and in your consultations with the Department on the missions and
performance of HUD's programs. If you or your staff have any questions,
please contact me on (202) 512-7631.

Sincerely yours,




Judy A. England-Joseph
Director, Housing and Community
 EJirelopment Issues




Enclosure

2                                       GAO/RCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                    ENCLOSURE I

                     OVERVIEW OF THE DEPARI'MENT
                  OF HOUSING AND URBAN DEVELOPMENT




      GAO     Housing and Community
              Develop ient Programs and Issues

              The Department of Housing and Urban
              Development (HUD):
              Information on its Role, Programs, and
              Issues




3                                     GAO/RCED-97-17SR HUD ' s Programs aad Issues
    ENCLOSURE I                                             ENCLOSURE I

      GAO     Contents of Briefing


            · HUD's role, organization, and resources
            · Program description, condition, and
              related issues
            * Critical issues for the Department
            * Tools to help the Congress and the
              administration




4                                GAO/RCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                              ENCLOSURE I


      GAO      HUD's Role

             * Congressional interest in housing and
               community development has been
               long-standing.
            * Housing Act of 1949 declared a goal of a
               "decent home and a suitable living
               environment for every American family."
            · In 1965, HUD was created, incorporating
               major housing programs.


When HUD was created, the following programs and agencies were incorporated into the
new Department:

·      The Federal Housing Administration (FHA), created in 1934.

·      Public housing programs, established by the Housing Act of 1937.

*      The Urban Redevelopment Program, established in 1949.




5                                                GAO/RCED-97-178R !JD's Programs and Issues
    ENCLOSURE I                                                              ENCLOSURE I

      GAO       HUD's Role


                Today, HUD encompasses programs for
                homeowners, renters, and communities,
                as well as protections for families.




Since HUD's creation, the following programs and responsibilities have been added:

*      The Government National Mortgage Association (Ginnie Mae), in 1968.

·      Responsibility for fair housing and equal opportunity, in 1968.

*      The Community Development Block Grant (CDBG) Program, in 1974.

HUD also directs a variety of social service programs that assist special groups, such as
the homeless and the elderly, and establishes and enforces regulations protecting the
interests of home buyers and renters.




6                                                   GAO/RCED-97-17R HUD's Program and Ilues
    ENCLOSURE I                                                                   ENCLOSURE I

      GAO       HUD's Role
                HUD Is One of Many Players

                      State and local         HUD
                      governments                     GSEs
                                                              Private mortgage insurers
                PHAs                      /                        Lenders
                                                                     Ala, ,,       ,i    D';+t,     4 ,_>
          Nonprofit
          groups                                                        Federal home
                                                                        loan banks
          HHS
                                                                        FDIC
              USDA

                Commerce                                          Investors
                          VA                               SBA
                                   Treasury         DOT



Many entities help meet our nation's housing and community development needs.

Much of the tenant income for the various income groups served by HUD comes in the
form of welfare and Supplemental Security Income-programs that are administered
primarily through the Department of Health and Human Services (HHS).

Other federal programs that contribute to meeting housing needs include those of the
Departments of Agriculture (USDA), Commerce, Transportation (DOT), the Treasury, and
Veterans Affairs (VA), as well as those of the Small Business Administration (SBA) and
the Federal Deposit Insurance Corporation (FDIC).

Other important contributors include three government-sponsored enterprises (GSEs)-
Fannie Mae, Freddie Mac, ard the Federal Home Loan Banks-and private investors,
public housing authorities (PHAs), and nonprofit groups.


7                                                   GAO/RCED-97-1783R    UD's Programs and Issues
    ENCLOSURE I                                                                       ENCLOSURE I


      GAO         HUD's Organization


                                            Secretary
                                        Deputy Secretary


                             aAssistant Secretary,   Assistant Secretary,        Assistant
                         Asssary.
                              Congressional and      Community Planning      Secretary, Policy
          Public Affairs       Intergovernmental      and Dovelopment        Development and
                                    Relations                                   Research


       Assistant Secretary,   Assistant Secretary,   Assistant Secretary,
        Fair Housing and        Administration        Housing (Federal      Public and ndian
        Equal Opportunity                                                       Housing
                                                        Commissioner)




HUD is the second smallest Cabinet Department.

In fiscal year 1996, HUD had 11,400 full-time equivalents (FTEs) reporting to eight
assistant secretaries.

In addition to Ginnie Mae, HUD has the following six coics: Office of Chief Financial
Officer, Office of Inspector General, Office of Federal Housing Enterprise Oversight,
Office of Departmental Equal Employment Opportunity, Office of General Counsel, and
Office of Lead-Based Paint Abatement and Poisoning Prevention.




8                                                        GAO/BRCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                                       ENCLOSURE I

      CGAO     HUD's Organization
               HUD's State and Area Offices




                            life~~I                   I




                                                                     ,State   Ofice (41)
                                                                       State and Secretary's Representative
                                                                       Office (10)
                                                                     * Area Office (28)




In 1995, HUD's field office structure was reorganized to eliminate a layer of review by
eliminating regional offices and requiring field office staff to report to the appropriate
program assistant secretaries at headquarters.

In fiscal year 1996, 8,240 FTEs (about 72 percent of HUD's FTEs) were in field locations,
which comprised 51 state offices (10 of which are both State and Secretary's
Representative offices) and 28 area offices. The 10 Secretary's Representatives perforra
as the "eyes and ears" of the Secretary. They are responsible for coordinating HUD's
programs within state and area offices.




9                                                   GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                               ENCLOSURE I


     GAO            HUD's Resources
                    HUD Budget Authority, FY 1991-2002
       Dollars in bi!lions
       $35

       $30

       $25

       $20 -"

       $15

       $10

        $5
        $0          19,92    1993,    194
                                        ,      1 ,       I        Il                I       I       I    20
             1991   1992     1993     1994     1995    1996     1997     1998     1999    2000    2001   2002

                                             Actual              Estimates



     Note: Budget authority for fiscal years 1997 through 2002 are estimates. FY = fiscal year.
     Source: Historical Tables: Budoet of the United States Government. Fiscal Year 1998.

From fiscal year 1991 through fiscal 1997, HUD's budget authority declined from about
$27.6 billion to less than $20 billion. However, the President's budget proposes increases
for fiscal years 1998 through 2002.




10                                                                       GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                                           ENCLOSURE I


      GAO             HUD's Resources
                      HUD's Staff, FY 1993-98
                FTEs in thousands
                14




               10




                4




                    1993             1994               1995               1996                 1997     1998
     Note: The number of FTEs for fiscal years 1997 and 1998 are estimates. FY = fiscal
                                                                                        year.
     Source: Budoet of the United States Governmeant. Fiscal Year 1998.


HUD's staffing-as measured by FTEs-has cleclined over the past 3 years from about
13,300 in fiscal year 1993 to about 11,400 in fiscal 1996 and is projected to decline to
about 11,000 by fiscal 1998.

In terms of the number of employees, HUD also expects a decline in the next few years.
While HUD currently has about 10,500 employees, it expects the number of employees
                                                                                     to
decline to about 7,500 by 2000.




11                                                                    GAO/IACED-97.173R HUD's Programs and Issues
ENCLOSURE I                                                                ENCLOSURE I


     GAO      Program Description, Condition, and
              Related Issues


               Hosusing                                  Finance
               Housing                                   Finance


            Community
                                                      Regulatory
           Development


HUD's programs may be categorized into four broad areas-assisted housing, housing
finance, community development, and regulatory.




12                                              GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                  ENCLOSURE I


     GAO      Assisted Housing


              Project-based housing
               *-Public housing-
               * Privately-owned housing

             Tenant-based housing
               * Section 8 certificates
              * Section 8 vouchers



HUD helps provide assisted housing in two ways.

      Project-based assistance requires residents to live in specific housing units to
      receive housing assistance. This includes public housing, which is owned and
      operated by public housing authorities, and privately owned housing, which is
      owned by private landlords. HUD's major program for privately owned housing is
      called the Section 8 project-based program.

     Tenant-based assistance allows residents greater choice in selecting a housing unit.
     HUD provides tenant-based assistance through the Section 8 certificate and
     voucher programs, through which HUD pays a portion of residents' rent.




13                                                GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                   ENCLOSURE I


      GAO           Assisted Housing
                    Number of Households Served

                                                                            Public hcising
         Tenant-based Section 8                                             (1.25 million
         (1.43 milion--                                                     households)
          households)
                                                                 31.4 %

                                   35.9 %

                                                                32.7 %
                                                                                    Project-based
                                                                                     Section 8
                                                                                    (1.3 million
                                                                                     households)



      Source: HUD's Office of Policy Development and Research, Mar. 1995.


HUD's three major rental assistance housing programs-public housing, Section 8 project-
based assistance, and Section 8 tenant-based assistance-together serve about 4 million
households.




14                                                                  GAO/RCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                                                                  ENCLOSURE I


       GAO             Assisted Housing
                       Renters Served, FY 1995
           Percentage
           60 f




           30t        -E



          10


                   Nonwhite                   Framilies               Elderly household             Primary income
                                            with children              (65 and older)            is public assistance




     Note: Assisted housing reners served is HUDs estimate of the number of renters inpublic housing and Secton
     housing--both project. and tenant-based. Groups overlap. 'Families with children' incudes families                   8
                                                                                                           with children and
     certain other dependents, regardless -f the age or disability status of the head of household. FY a fiscal year.
     Source: GAO's analysis of HUD's data.


Of the households served by HUD's three major rental assistance programs in 1995,

*         minorities account for more than half;

          families with children account for over half;

         elderly households without children account for 30 percent, and the disabled
         account for about an additional 11 percent; and

         almost half list public assistance as their primary source of income; about another
         11 percent cite the Social Security pension as their primary source of income; and
         about another 35 percent cite wages as their primary source of income.


15                                                                        GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                         ENCLOSURE I


     GAO        Assisted Housing


       Application process for public housing and
       Section 8 certificates and vouchers
      Renter       _    Applies to            Put on                Receives housing
         o              PHA                   waiting               assistance
                                              list                  a




Applicants for any of HUD's three major rental assistance programs participate in a
similar process that begins with an application to the local PHA.

The renter may be put on a waiting list if no units are available. In 1993, the Council of
Large Public Housing Authorities-an association comprising large housing authorities-
estimated that nearly 1 million people were on waiting lists for housing assistance. A
PHA may close its waiting list when it has more families on the list than can be assisted
in the near future.

Once a unit is available, it is offered to the renter.




16                                                       GAO/RCED-97-173R HUD's Programu   and laues
 ENCLOSURE I                                                                 ENCLOSURE I


     GAO       Assisted Housing
               Public Housing
               * Localities operate PHAs under state
                 charter.
               * PHAs contract with HUD to provide
                 housing and abide by federal
                 regulations inreturn for federal funds.
               · Residents generally pay 30 percent of
                 their income in rent.


PHAs operate under state and local laws that cover such items as the PHA's organization
and structure. In many cities, the mayor appoints a governing body or board of
commissioners that hires the executive director, who oversees day-to-day operations.

PHAs and HUD enter into an annual contributions contract (ACC) under which a PHA
agrees to abide by federal regulations to, among other things, operate with economy and
efficiency. In return, HUD agrees to provide the PHA with federal funds to operate and
maintain housing.




17                                               GxAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                ENCLOSURE I


     GAO      Assisted Housing
              Major Federal Public Housing Funds
              * Operating subsidy--to cover
                percentage of gap between PHAs'
                operating expenses and income
              * Modernization--for repairs
              * Drug elimination--to combat drug crime
              * HOPE VI--to revitalize distressed
                communities

HUD provides PHAs with funds for operations, improvements, and other purposes.

*     An operating subsidy covers a percentage of the difference between PHAs'
      expenses and the income they receive from the residents' payment toward rent.

*     Modernization funds are used for repairs and the rehabilitation of housing units
      and to upgrade management and operations. While PHAs with 250 or more units
      get these funds according to a formula, smaller PHAs must compete for funds.

*     PHAs compete for drug elimination funds that can be used for such things as
      security personnel and investigators, physical improvements to enhance security,
      and drug use reduction programs.

*     PHAs compete for HOPE VI funds to revitalize or demolish severely distressed
      housing and provide community and supportive services.

18                                               GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                         ENCLOSURE I


     GAO         Assisted Housing--Public Housing
                 Funds, Fiscal Years 1995-97
        Dollars in billions
        $3.5
          $3 -      2.9       2            $2.8
                                            2                         2.9
        $2.5                                             .5                        2.5
          $2
        $1.5


        $0.5
          $0
                       1995                     1996                        1997
                              [] Operating subsidy bi Modernization




HUD provides two major sources of funds for PHAs; the operating subsidy, which has
remained relatively stable; and modernization funds, which have declined in recent years.


According to HUD, the amount of operating subsidies that PHAs received in fiscal year
1996 was 10 percent less than what they needed.

While an estimated backlog of an additional $10 billion to $20 billion in modernization
funding is needed to repair the nation's public housing, some PHAs have large amounis of
unspent modernization funds.




19                                                     GAO/RCED-97-173R HUD's Programs and Isues
ENCLOSURE I                                                                 ENCLOSURE I


     GAO      Assisted Housing
              Project-Based Housing Programs

               Privately owned project-based housing
               * Section 8 project-based housing
                  assistance
               * Other programs
                 * Elderly housing (Section 202)
                 * Special needs (Section 811)
                 · Existing multifamily loans

HUD's Section 8 project-based program (HUD's major project-based privately owned
housing program) pays a portion of residents' rent to live in housing owned by private
landlords. Residents live in housing that is designated as assisted housing for them. With
each landlord, HUD enters into a contract to guarantee rent payments for a time period,
the terms of which can be as short as 1 year.

Other project-based programs include the Section 202 program for elderly persons and the
Section 811 program for persons with disabilities.

In multifamily housing, HUD insures lenders against losses on loans made to landlords.




20                                                GAO/RCED-97-173R HUD' Programs and Issues
 ENCLOSURE I                                                                  ENCLOSURE I

     GAO        Assisted Housing
                Tenant-Based Housing Programs
              * Certificates and vouchers are used.
              * Residents live in their choice of privately-
                owned housing.
             * PHAs operate Section 8 tenant-hased
                programs.
             · HUD has annual contracts with PHAs.




HUD enters into annual contracts with PHAs Lo operate its two major tenant-based
programs-the Section 8 certificate program and voucher program. PHAs then execute
contracts with owners of private housing and guarantee rent payments on behalf of low-
income residents.
Under the certificate program, residents generally pay 30 percent of their income toward
rent and utilities. The PHA pays the difference between the rent charged and each
resident's payment. Under the voucher program, the PHA pays the difference between
the local payment standard and 30 percent of the resident's monthly income. Voucher
residents must pay more than 30 percent of their income for rent and utilities if the unit
rent is greater than the payment standard. The resident would pay less than 30 percent
of his/her income if the unit rent is less than the payment standard.




21                                                 GAO/RCED-97-173R HUD's Promapm and Issues
ENCLOSURE I                                                              ENCLOSURE I


     GAO     Assisted Housing
             Condition

             Most PHAs are run satisfactorily, but
             some are very troubled.
             Many Section 8 project-based units have
             above-market rents, and some units are
             in very poor condition.
             High cost of providing Section 8 housing
             creates severe budget pressures.



About 65 PHAs (2 percent) are rated as "troubled" by HUD becuise they have scored less
than 60 out of 100 points in a set of performance indicators called the Public Housing
Management Assessment Program (PHMAP). These troubled PHAs manage about 14
percent of the nation's public housing units.

Some Section 8 housing units are also in poor condition, and many have above-market
rents.

The high cost of providing Section 8 units has created pressures on HUD's budget. When
the contracts between HUD and owners of private housing expire, they must be renewed
or those units will be lost. The budget authority needed to maintain Section 8 units-
including those under contract-will account for a major portion of HUD's budget
authority in the next few years.



22                                              GAO/ICED-97-173R iUD's Program and Imues
 ENCLOSURE I                                                                 ENCLOSURE I


     GAO       Assisted Housing
               Condition
                * Many eligible households do not
                  receive assistance.
               * Some Section 8 recipients do not find
                  housing.
               * Cost of public housing and certificates
                  varies by location.




Many households that are eligible for assisted housing programs do not receive
assistance. According to a 1992 HUD report, about 13.8 million households were eligible
for assisted housing programs in 1989, but less than one-third of these households
received assistance. (HUD considers households with a reported income below 80
percent of an area's median income eligible for assistance.)

Some Section 8 recipients do not find housing. According to a 1994 HUD-funded study,
about 13 percent of a sample of recipients of Section 8 certificates or vouchers did not
find housing using Section 8 rental assistance.




23                                                GAOIICED-97-178R HUD's Programs ad Issues
ENCLOSURE I                                                                                          ENCLOSURE I


     GAO           Assisted Housing
                   Condition
                   Unassisted Households With Worst Case
                           Housing Needs in 1993
                        Total 5.3 million households (12.8 million people)
                                        Families with children


                                                    43%

                                                                                 Single with disabilities,
                                      32%                                        no children
                   Other                                  22%



                                                         Elderly head of household,
                                                         no children

     Note: These households are renters without assistance from HUD with incomes below 50 percent of the median area
     income. They pay over half their income in rert and utilities or live in substandard housing.
     Source. Rental Housing Assistance at a Crossroads: A Renort to Congress on Worst Case Housing Needs, HUD, PD&R,
     Mar. 1996


According to HUD, 5.3 million households (comprising about 12.8 million people) had
worst case housing needs in 1993. HUD defines these households as renters who have a
very low income (below 50 percent of median area income). do not receive federal
housing assistance, and either

*       pay over half of their income in rent and utilities or

*       live in substandard housing.

The "other" category in this figure includes such households as nonelderly singles and
childless couples.


24                                                                 GAO/RCED-97-I7SR HUD's Prorams and Issues
    ENCLOSURE I                                                                              ENCLOSURE I


      GAO           Assisted Housina
                    Condition
       Public Housing Can Cost Less or More Than Section 8
       Certificates
         Per unit monthly costs
         $1,400
         $1.200                                    1.100
         $1,000                                              9
          $800                                                            700
          $600
          $400
                                                                                 $240
          $200

            $0
                       Buffalo, N.Y.            Los Angeles, Calif.    McDonough, Ga.
                                                      PHAs
                            O Section 8 certificates        1I Public housing

      Source: GAO/RCED-95-195. June 20, 1995.



Among PHAs, per unit monthly costs for Section 8 certificates vary as compared with
those of public housing.

         In Buffalo, New York, the monthly unit cost of Section 8 certificates averages $400
         less than the cost to provide public housing.

*        In Los Angeles, California, and McDonough, Georgia, the average monthly unit cost
         of Section 8 certificates was $170 more and $460 more, respectively, than the
         average cost to provide public housing.

Wide variations in the cost of public housing and Section 8 certificates also exist among
individual housing developments. Analyses of the costs of tenant- and prcject-based
approaches on a development-by-development basis may allow PHAs to determine which
approach is more cost-effective.

25                                                                GAO/RCED-97-1738 HUD's Programs and Issues
ENCLOSURE I                                                                   ENCLOSURE I


     GAO Assisted Housing
         Issues
              * Whom to serve and how
                * What share of the eligible and at what o
                  level of subsidy
                * Approach to providing
                  assistance--tenant and/or project
                  based




The basic assisted-housing issue facing the Congress and the administration is which
households to assist and how to best accomplish this effectively and economically.

HUD's housing assistance programs reach only a portion of eligible households. In a time
of limited resources, should the federal government assist all those who are currently
eligible, which would lower the level of subsidy per household, or provide higher
subsidies to just the neediest households?

Because the cost to provide public housing and certificates varies by location, limiting
federal assistance to only public housing or certificates may not be cost effective for all
communities. Moreover, while tenant-based assistance is intended to provide a household
with more housing choices than public housing, finding a Section 8 unit depends on the
availability of affordable housing in a specific area



26                                                 GAO/BRCED-97-173R HUD's Programs and Issues
     ENCLOSURE I                                                                ENCLOSURE I


       GAO      Assisted Housing
                Issues
                * Resolving long-term funding
                  commitments
               * State and local capacity to operate
                  programs if federal role decreases
               * Impact of welfare reform on rent
                  subsidies




Legal commitments involving Section 8 contracts and FHA-insured mortgages are
                                                                                long-
term financial commitments to the government. Since the 1970s, HUD has provided
                                                                                   PHAs
with an operating subsidy to supplement rent paid by residents under the Performance
Funding System.

The ability of state and local governments to take a greater role in housing programs
                                                                                         will
be affected by these governments' financial capacity and willingness to assume
                                                                                  this
responsibility. Some state and local officials believe that their governments can administer
these programs if they receive the proper resources, such as funding and staff.
                                                                                   Yet, very
low-income and homeless. populations may receive less assistance, according to
                                                                                   some
studies and housing advocacy associations.

About half of all households in assisted housing list public assistance as their
                                                                                 primary
source of income, and any change in residents' incomes due to welfare reform will
                                                                                      affect
their rental payments and, thus, the amount of subsidies that HUD needs to provide.

27                                                  GAO/RCED-97-173R HUD's hPograms and Issues
    ENCLOSURE I                                                                ENCLOSURE I


      GAO       Housing Finance

              FHA provides
              · Single-family and multifamily mortgage
                insurance
              * Property disposition
              * Counseling to home buyers
              Ginnie Mae securitizes
              government-insured and
              government-guaranteed loans

Although FHA does not make loans or build housing, it

·       insures single-family and multifamily mortgages,

·       disposes of properties that it acquires from lenders, and

·       offers home buyers counseling and other programs.


Ginnie Mae guarantees the timely payment of principal and interest on mortgage-backed
securities.




28                                                  GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                                  ENCLOSURE I


      GAO           Housing Finance
                    FHA's Insurance Portfolio
          Unpaid principal balance = $418 billion as of July 1996


               Single-family


                                                                                 1% Othsr
                                                                     12%

                                                                                Multifamily




     Source: The Commissioner's Executive Reoorts July 1996.



FHA covers nearly 100 percent of lenders' losses on FHA-insured single-family and
multifamily mortgages. FHA is liable for about $418 billion in outstanding insurance on

*        single-family mortgages worth $364 billion,

*        multifamily mortgages worth $48 billion, and

*        property improvement and manufactured housing loans worth $6 billion.




29                                                             GAO/IRCED-97-178R HUD's Programs and Issues
ENCLOSURE I                                                                 ENCLOSURE I


     GAO      Housing Finance
              FHA's Single-Family Housing
               · Although FHA's share of the entire
                 mortgage market has fluctuated and is
                 now at about 9 percent, FHA is an
                 important player in certain market
                 segments.
               * Economic value was about $9.4 billion
                 as of September 30, 1996.
               * Losses average $24,000 per foreclosed
                 property.

FHA's share of all single-family mortgages has fluctuated in recent years. For example,
FHA's share was about 9 percent for the first three quarters of 1996, 12 percent in 1994,
and 6 percent in 1992. In certain markets, FHA is an important player, nationwide, FHA's
share of the insured market was about 30 percent in the first three quarters of 1996.

FHA's single-family insurance program is self-sufficient and has not cost taxpayers any
money. Although it experienced substantial losses in the 1980s, this program's financial
condition has improved substantially. According to Price Waterhouse's 1997 actuarial
study, the Mutual Mortgage Insurance Fund-the insurance fund supporting FHA's
principal single-family insurance program-had an economic value/reserves of about $9.4
billion as of September 30, 1996.

Losses on foreclosed properties during the 19-year period ending September 30, 1993,
averaged $24,000 in 1994 dollars but are offset by insurance premiums paid to FHA by
borrowers, not by the U.S. Treasury.

30                                                GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                ENCLOSURE I


     GAO       Housing Finance
               FHA's Loan Approval Process
        Buyer and seller        Lender approves the            FHA issues certificate
       agree on price and           mortgage.                      of mortgage
       enter into contract.



      Buyer applies for a         Buyer and seller
      mortgage through a           present at loan
           lender.                    closing.



       Lender verifies that     Lender submits loan
      borrower qualifies for   package to FHA's field
           the loan.                  office.




31                                              GAO/RCED-97-173R HUD's Programs and Iasses
ENCLOSURE I                                                                                   ENCLOSURE I


     GAO              Housing Finance
                      FHA's Single-Family Borrowers, 1995
             Percentage
             80
             70
                                    60
                                    63
             60                                                                      30
             50
             40                              i               35
             30                 W                ;                            0; .-IA/£E -. = - -30
             20                                        TV.         :
             10 '-0-.::

                             First-time              Low-income                  Minority
                                                     Borrowers
            Total = 568,845

     Note: Groups overlap.
     Source: GAO's analysis of HUD's data.


FHA's single-family insurance serves many different populations by insuring loans to
purchase or refinance home mortgages. For example, low-income borrowers-those with
incomes not exceeding 80 percent of the area's median income-represented over 35
percent of the single-family mortgages that FHA insured in 1995.




32                                                                GAO/ICED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                  ENCLOSURE I


     GAO       Housing Finance
               FHA's Multifamily Housing
             * Market share has decreased from 30
               percent in early 1980s to 2.2 percent in
               1992.
             · During 1992-95, volume doubled for new
               construction.
            · Potential claims could reach $6 billion to
               $7 billion.
            · Many properties are in poor financial and
               physical condition.

While FHA's share of the multifamily mortgage market declined substantially from the
early 1980s to 1992, some of FHA's multifamily insurance programs have grown
dramatically. Since 1992, loans for new construction and group housing have more than
doubled in volume, and the financing of existing units has increased by half.

According to the accounting firm Ernst & Young, over the next 10 years, FHA's
multifamily loan portfolio will have potential claims of $6 billion to $7 billion that may
result from restructuring loans on projects that receive Section 8 project-based assistance.

Many properties are in poor financial and physical condition. Ernst & Young estimated
that the nation's insured Section 8 housing portfolio needed over $7.7 billion for
immediate and deferred maintenance and repairs.




33                                                 GAO/RCED-97-173R HUD's Program and Issues
ENCLOSURE I                                                                                               ENCLOSURE I


        GAO            Housing Finance
                       FHA's Multifamily Renters
                Race/Ethnicity                                         Household Income
                                                                 Below 50 percent of area
                    White                                        median income (AMI)




                              32%           ~         Other                             _
                                                                                       19%              Greater than 80
                                                                                                        percent of AMI


                        Blacks                                                 From 50 to 80
                                                                               percent of AMI



       Note: Income distribution does not equal 100 percent due to rounding.
       Source: 1993 Abt Associates Study.


Of the residents living in FHA-insured multifamily housing, two-thirds have very low
income and over 40 percent are minorities.




34                                                                             GAO/RCED-97-173R }UD's Programs and Issues
 ENCLOSURE I                                                                  ENCLOSURE I


     GAO       Housing Finance

              Ginnie Mae
              * Guarantees timely payment of principal
                and interest on mortgage-backed
                securities.
              · Provides liquidity to lenders.
              * Nearly all FHA-insured, VA-guaranteed,
                and Rural Housing Service-guaranteed
                loans are inGinnie Mae pools.


Ginnie Mae does not purchase loans. Rather, it guarantees (with the full faith and credit
of the U.S. government) that investors who purchase securities issued by approved
lenders will receive the timely payment of principal and interest on them.

By pooling mortgages and selling securities backed by these mortgages, lenders convert a
norliquid asset-a loan-into a liquid asset-cash. About 70 percent of the funds used to
purchase Ginnie Mae-guaranteed securities come from nontraditional mortgage investors,
including pension and retirement funds, life insurance companies, and individuals.

Nearly all FHA-insured loans and those guaranteed by VA and the Rural Housing Service
(RHS) are in Ginnie Mae pools. Lenders may retain higher servicing fees by using Ginnie
Mae's services than if they were to sell their loans to Fannie Mae and Freddie Mac.




35                                                GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                              ENCLOSURE I


     GAO            Housing Finance

               Share of Single-Family and Multifamily
          Mortgage-Backed Securities, September 30, 1996
                          Dollars inbillions
                                                                          Fannie Mae $636


      Freddie Mac $546



                                                        ~Othersources                                      $273

                                Ginnie Mae $497
     Note: Other Includes Rural Housing Service. Excludes mortgages on nonresidential nonfarm properties and farm
     properties.
     Source: Federal Reserve Bulletin. May 1997.


Lenders who wish to sell or convert mortgages into securities may use Ginnie Mae,
Faxade Mae, Freddie Mac, or other sources.

Of all of these sources of liquidity, Ginnie Mae represented about 25 percent of the
mortgage-backed securities outstanding at the end of September 1996. Together, Fannie
Mae and Freddie Mac accounted for over 60 percent of the mortgages held in pools.

As of September 30, 1996, outstanding mortgage-backed securities totaled nearly $2
trillion nationwide.




36                                                                    GAO/RCED-97-17SR HUD' Programs and Issues
ENCLOSURE I                                                                                             ENCLOSURE I


      GAO           Housing Finance
                    Condition
                                    Mortgage Debt Outstanding
                                                    September 30, 1996
                                                     Dollars in billions



                       Single-                            -
                       family
                       $3,854            b          93%                            X      Multifamily
                                                                                          $302




     Note: Excludes mortgages on nonresidential nonfarm properties and farm properties.
     Source: Federal Reserve Bulletin. May 1,"97.


As of September 1996, all outstanding nonfarm residential mortgages in the United States
totaled over $4 trillion.

Nearly all outstanding mortgage debt is for single-family mortgages.

In general, the single-family mortgage market is well developed, and the multi.amily
mortgage market is less well developed.




37                                                                    GAO/RCED-97-173R HID'e Programs and Issues
ENCLOSURE I                                                                                              ENCLOSURE I


     GAO Housing Finance
                   Condition
                  Single-Family Mortgages Made During 1996
                                               (Total = $785 billion)



                  Not insured                         70.1%

                                                                                            VA-guaranteed

                                                                                         FHA-insured



                                                               Privately insured



     Note: Not insured include Rural Housing Service-guaranteed loans. Does not equal 100 percent due to rounding.
     Source: U.S. Housin Market Conditions, HUD, May 1997.


While FHA insured about 9 percent of all mortgages made during 1996, this amount
represents about 31 percent of all insured mortgages.

In 1996, private mortgage insurance companies insured slightly more mortgages than did
the federal governmment.




38                                                                   GAO/RCED-97-173R HID's Programs and Issues
 ENCLOSURE J                                                                          ENCLOSURE I


      GAO          Housing Finance
                   Condition
       FHA's Share of Single-Family Home Purchase
       Mortgages for Entire Market and Three Market
       Segments, 1994
        Percent
        30
        25                                                 24
                  2020                                                        21
                                                                              V<;    =
                      15

        10 A


               Entire market         Low-income         Minority       First-time buyer
                                            Market segment

     Sorce: GAO/RCED-96-123, Aug. 13, 1998.



While FHA insured about 15 percent of all mortgages used to finance the purchase of a
house in 1994, it insured a greater percentage of mortgages for low-income, minority, and
first-time home buyers.




39                                                        GAO/RCED-97-1733R HUD's Program and Issues
ENCLOSURE I                                                                                             ENCLOSURE I


     GAO            Housing Finance
                    Condition
       Number of homeowners assisted in 1995
       700,000

      600,000

      500,000             -




      400,000

      300,000

      200,000

      100,000

             0
                  FHA         VA   MRB      CIP      AHP     NRC     NHSA CDBG HOME HOPEIII RHS
                                                           Program
     Note: MRB represents state Mortgage Revenue Bond programs. CIP is the Community Investment Program. AHP is
     the Affordable Housing Program. NRC is Neighborhood Reinvestment Corporation. NHSA is Neighborhood Housing
     Services of America. HOME is the Home Investment Partnership Program. HOPEIII isthe homeownership program of
     the Housing Opportunities for People Everywhere program. Data are for fiscal or calendar year 1995, except for the
     MRB and CDBG proarams, for which the data are for 1994 and 1992. resoectivelv.
     Source: GAO/RCED-96 123, Aug. 13, 1996.

FHA has served more homeowners than all other federal programs aimed at affordable
home ownership combined. In 1995, FHA assisted about 570,000 homeowners, while the
remaining programs that are shown in this figure assisted about 540,000. VA's program to
promote affordable home ownership, the next largest program, served over 260,000 home
buyers.




40                                                                    GAO/RCED-97-1731 HUD's Programs and Issues
 ENCLOSURE I                                                                ENCLOSURE I


     GAO      Housing Finance
              Condition
                            Budget authority
                 -FHAi's-   -- :"                   Other affordable
           singlefamily progm              -- homeOwnrihprograms
                 :0(None)

               Number of homeowners assisted
             ~.:leDgamHA's
            .-..       ypr
                         = ;::-hoe
                           r-                -h;. -,.- Ot........h:-h-
                                                        ter
                                                        L affordablo.;
              : si~am'~progem
                           r.;              ·   home;ownershipprograms




Overall, FHlA's single-family loan program, which costs the government nothing, reaches
the same number of home buyers as all the other affordable home ownership programs.
However, most of the other government programs need federal funding, and with the
exception of VA, CIP, and NHSA-for which income data were not available-these
programs assist borrowers with relatively lower incomes than FHA's borrowers. The U.S.
tax code has provided broad support for homeownership, regardless of income.

The Community Reinvestment Act (CRA) and goals placed on Fannie Mae and Freddie
Mac to purchase mortgages in underserved markets are tools for encouraging the private
sector to reach underserved market segments, but their effect is not yet clear.




41                                               GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                   ENCLOSURE I


     GAO      Housing Finance
              Issues
            · Whom to serve and how
              · Homeownership rate
              · Extent of unmet capital needs
              * Effect of other approaches--tax
                incentives, bank system support, CRA
            · Financial solvency
            * State and local capacity


Whom to serve and how to serve them is the basic issue with federal support for
financing single- and multifamily housing.

·     At what rate of homeownership does cost outweigh benefit?

·     What are the unmet capital needs for the nation's multifamily housing?

·     How effective are various methods of supporting mortgage financing?

Changes to FHA's role may affect the solvency of its funds. For example, loans to riskier
borrowers could require federal subsidies and/or increased premiums for borrowers.

Increased reliance on state and local governments to provide services similar to FHA's
may be affected by the fiscal capacity and experience of these governments. Some states
have a long history of helping to finance housing-others do not.

42                                                GAO/RCED-97-1738   HUD's Programs and Issues
 ENCLOSURE I                                              ENCLOSURE I


     GAO    Community Development

            * CDBG Program
            * Home Investment Partnership Program
              (HOME)
           * Empowerment Zones and Enterprise
              Communities (EZ/EC) Program
           * Homelessness (McKinney Act)
              Programs




43                             GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                   ENCLOSURE I


     GAO      Community Development

           CDBG program
           * $4.5 billion outlays infiscal year 1996
           * Formula-based grants
           * 70/30 split between entitlement
             communities and small cities
           · Broad range of eligible uses



The CDBG program, established by the Housing and Community Development Act of
1974, was intended to primarily benefit low- and moderate-income people. The program
provides annual grants-principally to state and local governments-for aid in community
development (CD).

*     Grant amounts are based on a formula that considers demographic and economic
      conditions.

*     IIn general, entitlement communities (mostly large cities) are allocated 70 percent
      of funds, and states are allocated 30 percent for small cities.

*     Grantees have broad discretion in how to spend funds, as long as they benefit low-
      and moderate-income people, prevent or eliminate slums or blight, or meet other
      urgent CD needs. Grantees must spend at least 70 percent of their funds on
      activities benefitting low- and moderate-income people.

44                                                 GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                 ENCLOSURE I


     GAO      Community Development

           Economic Development Loan Fund
           Economic Development Initiative grant
           program




The Economic Development Loan Fund, also known as the Section 108 Loan Guarantee
program, allows CDBG grantees to pledge future CDBG funds as principal collateral for
loans that are guaranteed by HUD.

*     Loans for up to five times the annual CDBG grant for large economic development
      projects are financed through public offerings on the private sector capital market
      and are guaranteed by HUD.

*     As of September 30, 1996, HUD had approved 930 loans totaling $4.4 billion.

Economic Development Initiative (EDI) grants supplement community development
programs and provide equity grants for large-impact projects.




45                                                GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                       ENCLOSURE I


     GAO           Community Development

              CDBG Entitlement Communities Program
          Expenditures by Type of Activity, Fiscal Year 1993
                                                                                      Housing
              Public works
                                           23%
                                                                          7%                Acquisition and
                                                                                              clearance

                                                                                        Economic
                                                                                       development
                  Administration and
                                                             Public service


     Source: Renewing Government. 1996 Consolidated Annual Report for HUD's Community Development Programs, HUD.



The most prevalent use of CDBG funds by entitlement communities was for housing
activities (36 percent), which was mostly for rehabilitating affordable housing.

The next most prevalent use--public works (23 percent)-include such items as street and
sidewalk repair.




46                                                               GAO/RCED-97-173R      HUD's Programs and Issaes
 ENCLOSURE I                                                               ENCLOSURE I


     GAO      Community Development
              HOME Program
            * $1.2 billion of outlays in fiscal year 1996
            * Grants to participating local and state
              governments on a formula basis
           * 60/40 split between large communities
              and states
           · Affordable housing (rental and owned)
           * Funds from nonfederal sources of at
              least 25 percent of federal funds

Projects supported by the Home Investment Partnership (HOiME) program are limited to
serving persons with incomes at or below 80 percent of an area's median income.

Funds are used to increase homeownership and provide affordable housing opportunities
for low- and very low-income people.




47                                              GAO/ICED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                             ENCLOSURE I


     GAO            Community Development
                    HOME Program
           Distribution of Occupant Income as a Percentage
             of the Median Area Income, Fiscal Year 1995
                      Rental units                                  Homeowner units


                      68.8%0                                 A                  21 7%

                                                    2.2%




                                            Percent of median income
                               D]   0 to 30 0 31 to 50 · 51 to 60 * 61 to 80

     Source: HUD.


For the HOME program, actual performance shows that almost 70 percent of the tenants
had incomes that were at or below 30 percent of an area's median income, and over half
of homeowners had incomes that were at or below 50 percent of an area's median
income.




48                                                          GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                ENCLOSURE I


     GAO      Community Development
              EZ/EC Program
           * Grants and incentives
           * Economic development and social
             services
          * One-time allocation
          * Social service block grants from HHS
          · Financial benefits for zones



The Omnibus Budget and Reconciliation Act of 1993 authorized the Secretaries of HUD
and Agriculture to designate empowerment zones (EZs) and enterprise communities
(ECs) to receive significant tax incentives and block grants.

Together, EZs and ECs received about $800 million m HHS' Social Services Block Grants
(via states) and tax-exempt bond financing.
Businesses located within EZs may take advantage of an increased depreciation write-c Ff
($37,500 versus $17,500) and wage-tax credits of up to $3,000 per employee, per year.

Supplemental EZs and Enhanced ECs were later named and funded with $300 million in
EDI grants.




49                                               GAO/RCED-97-173R HUD's Prograns and Issues
ENCLOSURE I                                                                                                    ENCLOSURE I


     GAO Community Development
                     EZ/EC Locations




                                                                                                     '0   Urban EZ (6)
                                                                                                      *   Supplemental EZ (2)


                                                                                                      0O Enhanced EC (4)
     Source: Buitding Communities To=ther.Urban Empwerment Zones and Enterprise Communities, July 1995, HUD.




Six urban EZs (Atlanta, Baltimore, Chicago, Detroit, New York, and Philadelphia/Camden)
each received $100 million in Social Services Block Grants (SSBGs) and authority to use
tax-exempt bond financing. Businesses located in EZs may use wage-tax credits and
accelerated depreciation. Two Supplemental EZs received EDI grants-Los Angeles
received $125 million, and Cleveland received $87 million. Cleveland also received an
additional $3 million in SSBGs and authority to use tax-exempt bond financing. Sixty ECs
each received $3 million in SSBGs and authority to use tax-exempt bond financing. Four
Enhanced ECs each received $22 million in EDI grants, $3 million in SSBGs, and authority
to use tax-exempt bond financing.




50                                                                      GAO/RCED-97-173R HUD's Progranms and Issues
 ENCLOSURE I                                                                ENCLOSURE I


     GAO       Community Development
               Homelessness Program
            * Formula and competitive grants
            * "Continuum of care"
              · Immediate (emergency) shelter
              · Transitional housing with supportive
                services
             * Permanent housing or permanent
                supportive housing arrangements


Homelessness programs (under the McKinney Act) include Emergency Shelter Grants,
Supportive Housing Program, Shelter Plus Care, and the Section 8 single-room occupancy
program.

Although each program is small, as a group they provide an important source of funds for
assisting the homeless ($823 million in budget authority in fiscal year 1996).

HUD emphasizes a continuum of care, dependent on need, to provide emergency housing
as well as transitional and permanent housing and supportive services for homeless
individuals and families.




51                                               GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                       ENCLOSURE I


     GAO            Community Development
                    Condition
         Percentage of Population Living in Census Tracts
         With More Than 40 Percent Poverty
           Percentage of population
           !2
                                                                                       11
           10
                                                              8
            8                                            -


            6
                              5
            4
            2

            0,                                                          --
                            1970                             1980                     1990
                                                         Census
     Source: Budact of the United States Government fiscal year 1998.



t'e concentration of poverty is increasing. Over 10 percent of the nation's population is
now living in census tracts that have a poverty rate of more than 40 percent.




52                                                                      GAO/RCED-97-173R HUD's Programs and Issu
 ENCLOSURE I                                                                                                              ENCLOSURE I


      GAO                 Community Development
                          Condition
        CDBG Entitlement Communities and Allocations,
        Fiscal Years 1980-97
          $3,500                                                                                                                2,000
          $3,000                                                                                      ,.

          $2,500                                                            o1,00
                     $2,Allocations in 1992 constant                                        ...o0f
         $2,000           dollars in millions                                                    Number of ertitlement
                                          .......        ,,.     ......o.
                                                                    ...                          communities
         $1,500


                            f.1 F]
                                 F- F-wv                                                                                        .00
           $500                                            .#:


              $o     r:                    H;Hfl
                                             10                             :'I_ IH-f
                                                                                   :1h
                                                                    Fiscal year
     Source: Federal Funds LocalChoies:      An     valuation of the Community Development Block Grant Proiram -'   )D, May 1995, and HUD
     program data.


The number of entitlement communities has been increasing, and CDBG allocations for
entitlement communities have also risen.

From 1980 through 1997, the number of entitlement communities rose from 663 to 975.

In constant i992 dollars, the allocation for entitlement communities has risen, except
during fiscal years 1982, 1986, 1988, 1990, and 1996.

In nominal dollars, from 1981 through 1995, the allocation for entitlement communities
went from a peak of $2.667 billion to $3.14 billion. Its lowest amount was $1.972 billion
in 1990.




53                                                                                  GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                    ENCLOSURE I


       GAO      Community Development
                Issues
             · Whom to serve and how
               * Targeted or flexible use of funds
               * Comprehensive approach
               * Appropriateness of formula for today
             * Accountability and results
               . Ensuring intended use of funds
               . Measuring outcomes

The broad issue in community development is whom to serve and how.

·       How can the federal government best ensure viable urban communities?

        Use of a comprehersive approach-one that is targeted to a specific geographic
        area, includes residents' input, addresses both physical and social needs, and uses
        public and private resources-enhances the chances of improving conditions in
        distressed neighborhoods.

*       Is the formLla that P r uses to allocate CDBG adequately targeting funds to the
        most neeAv cornrn

L, e:change for added ic._   xibility, state and local governments now establish specific
bel',unhmxks .md performance measures.


:.:4                                                GAO/RCED-97-173R HUJD's Programs and Issues
ENCLOSURE I                                                   ENCLOSURE I


     GAO        Regulatory Functions

            *   Fair housing
           *    Interstate land sales
           *    Real estate settlement procedures
           *    National manufactured housing
           *    Lead-based paint
           *    Home mortgage disclosure
           *    Fannie Mae and Freddie Mac




55                                 GAO/RCED-97-17SR HUD's Programs and Issues
ENCLOSURE I                                                                   ENCLOSURE I


      GAO      Regulatory Functions
               Fair Housing
              * HUD resolves housing discrimination
                disputes through conciliation and
                administrative hearings and provides
                state and local fair housing agencies
                with financial and technical support.
              * Justice litigates cases ifconciliation fails
                and either party chooses to have the
                case heard ina federal court.


HUD's Fair Housing regulatory responsibilities are to investigate complaints and ensure
compliance with fair housing practices.

*      HUD's Fair Housing Assistance Program (FLAP) provides state and local agencies
       with financial and technical support. The agencies must be certified by HUD to be
       eligible to receive federal funds (32 states).

*      HUD's Fair Housing Initiatives Program (FHIP) provides grants for state and local
       governments, nonprofits, and other public or private entities that enforce fair
       housing issues or educate people about them.

The Department of Justice litigates (1) cases formally charged by HUD after conciliation
fails and either party chooses to have the case heard in federal court and (2) cases
involving a pattern or practice of housing discrimination of major national sigluficance.


.56                                                GAO/RCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                                                                               ENCLOSURE I


      GAO            Regulatory Functions
                     Fair Housing Complaints
          Bases of complaints, fiscal year 1994                       Major Issues in complaints, fiscal year 1994
       Total complaints to HUD and FHAP = 9,670                            Total complaints to HUD = 4,884
                                   Race s;--44i                        Termns/conditions                                            60

                                                                          Refusal to rent                    -          33
        Familial status                25
                                       _

                                                                               Coercion         :

              Disability ?             24                                      Financing            S12

                   Sex                     14                                Advertising            3
                                                                    False representation            3
       National origin .:~ 11
                                                                          Refusal to sell       2
                 Other        7                                                    Other ,              7

                          0       10       20   30   40   50   60                           0           10   20    30    40   50   60    70
                                  Percentage                                                                      Percentage
      Source: 1994 Annual Report to Congress on Fair Housing Prorams HUD, June 1996.



In fiscal year 1994, HUD received 4,884 fair housing complaints, and FHAP received 4,786
complaints. While almost half of these complaints were based on race; a fourth were
based on familial status and nearly a fourth on disability.

The major issues involved

e        imposing disparate terms or conditions on the sale or rental of housing (60
         percent);

*        a refusal to rent (33 percent); and

*        an attempt to use coercion, threats, or intimidation to interfere with fair housing
         rights (18 percent).


57                                                                         GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                           ENCLOSURE I


     GAO           Regulatory Functions
                   Fair Housing
     Percentage of Time Blacks and Hispanics Receive Less
     Favorable Treatment Than Nonminorities When Visiting
     a Housing Agent
                 Percentage
                 60
                         ~~~50
                                                                         43
                 40
                 30
                 20

                 10

                  0
                                      Blacks                            Hispanics
                                            0 Renters         U Homebuyers
     Source: Housing Discrimination Study: Incidence and Severity of Unfavrable Treatmet, HUD, Oct. 1991.



According to a 1991 study, HUD estimates that almost half of the time that either black or
Hispanic renters and homebuyers visit a housing agent, they receive less favorable
treatment than nonminority renters and homebuyers. Less favorable treatment included
such actions as being excluded from information about available housing and being
quoted higher rents for advertised units than nonminority counterparts.




58                                                                  GAO/RCED-97-1731R HUD's Programs and Issues
ENCLOSURE I                                               ENCLOSURE I


     GAO   Regulatory Functions
           Interstate Land Sales
           * Certain developers of subdivisions
             must provide to prospective
             purchasers property reports which
             contain information required by HUD.
           * HUD is authorized to investigate
             alleged violations of the Interstate
             Land Sales Full Disclosure Act and to
             bring suit against the violators.




59                             GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                    ENCLOSURE I


     GAO        Regulatory Functions
                Real Estate Settlement Procedures
           .I     I                    I

                · HUD requires lenders to provide all
                  home mortgage applicants with timely
                  good-faith estimates of the closing
                  costs they will pay at settlement.
                · Procedures are intended to prevent the
                  payment of unearned mortgage
                  settlement fees.




60                                  GAC/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                               ENCLOSURE I


     GAO   Regulatory Functions
           National Manufactured Housing
           * HUD establishes a national building
             code and enforces it for dwellings that
             are not built on-site.
           · HUD provides standards to research,
             test, and evaluate fire safety, body and
             frame construction, and major systems
             such as heating.
           · HUD's standards are mandatory and
             preemptive of state laws.




61                              GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                 ENCLOSURE I

     GAO    Regulatory Functions
            Lead-Based Paint Abatement
             HUD
           * operates a grant program to state and
             local governments to develop
             abatement methods;
           * develops regulations to reduce lead
             paint in federal housing; and
           * provides technical assistance on
             abatement to housing providers,
             governments, uevelopers, and others.




62                               GAO/ICED-97-173R HUD's Programs and Irssues
 ENCLOSURE I                                              ENCLOSURE I


     GAO Regulatory Functions
         Home Mortgage Disclosure
           HUD
         * compiles data from mortgage
           companies on mortgage applications
           and loans made or purchased and
         * provides the public with information to
           determine whether financial
           institutions are serving a community's
           needs for housing finance.




63                             GAO/RCED-97-178R HUD's Programs and Isaues
ENCLOSURE I                                                 ENCLOSURE I


     GAO   Regulatory Functions
           Fannie Mae & Freddie Mac Oversight
           The Office of Federal Housing Enterprise
           Oversight (OFHEO) ensures the
           financial safety and soundness of Fannie
           Mae and Freddie Mac.
           The Assistant Secretary for Housing has
           responsibility to ensure that goals for the
           purchase of loans in underserved
           markets are met.




64                               GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                ENCLOSURE I


     GAO      Critical Issues Facing the Department

            · Budget squeeze
            * Portfolio reengineering
            · HUD as a high-risk agency




HUD must compete with other nondefense Departments and agencies for domestic
discretionary funding. Within HIUD, renewals of Section 8 contracts represent an
increasing demand on resources.

Although HUD has made significant progress in addressing material management
weaknesses, it remains a "high-risk" agency.

Recent legislative measures to reform federal management have provided tools that could
help the Congress and the administration deal with HUD's most pressing issues. These
tools include the Government Performance and Results Act (GPRA), the Chief Financial
Officers (CFO) Act, and the Clinger-Cohen Act.




65                                               GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                                       ENCLOSURE I


        GAO            Critical Issues Facing the Department
                       Budget Squeeze
            Estimated U.S. Budqet Authority for Fiscal Year 1998

                Mandatory
                funding (mostly
                entitlement
                programs)


                                                                                     Domestic
                                                                                     discretionary
                                                                                     funding

                                                    Defense/international affairs
                                                    discretionary funding

        Source: GAO's analysis of data from Historical Tables: Budoet of the United States Government, fiscal year 1998.



For the estimated 1998 federal budget, mandatory spending represents almost 70 percent
of the total budget authority, and discretionary spending represents a little over 30
percent.




68                                                                        GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                                               ENCLOSURE I


     GAO            Critical Issues Facing the Department
                    Budget Squeeze
                   HUD's Budget, Fiscal Years 1991-2002
                     Percentage of U.S. domestic discretionary budget authority
           16
           14
           12
           10

             6



              1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
                                                          Fiscal year

                                                 Actual            Estimates

     Note: Data for fiscal year 1996 are actual, and for fiscal years 1997 to 2002 are estimated.
     Source: GAO's analysis of data from Historical Tables: Budget of the United States Government, fiscal year 1998.


The estimates for HUD's share of domestic discretionary spending reflect dramatic
increases in fiscal years 1998 and 1999 and more modest increases in subsequent years to
the point where HUD's budget is estimated to represent about 12.5 percent of all
domestic discretionary spending.




67                                                                    GAO/RCED-97-173R HUD's Programs and Issues
:EN,'TLf    SULE I                                                                                         ENCLOSURE I


{tif G               Crii ;.al Issues Facing the Department
                     Bulaet Squeeze
    GTrclWth atf' ection 8 Renewals in Discretionary Budget
, X :uth~)r[it
      t,
4i     0     DCaArs    i!-I billions



            $20 ,



              :ISection                        3
                                                                  renewals



                            I
                            1997 IVVS1998             1999         2000         2001         2002
                                                   Fiscal year


     Source (.iAO's analysis of data from HUD's congressional iustification for fiscal vear 1998 budget.


'r.n :.'e ~.;t.xre, renewals of Section 8 contracts will take a growing share of HUD's
  ,,iz:i;rettloi try budget authority. For fiscal year 1998, renewals will account for almost 40
!Percentof the Department's budget authority, by the century mark, they will account for
has' of its budget authority. Beginrning in 2000, the estimated budget authority for
    .e',ing Fiec.:ti on 8 contracts will exceed the estimated budget authority for all :.emaini.g
HUJD pro vllaus.

 ni terms of outlays, providing housing assistance payrmen.ts under Section 8 contracts Is
 dready respon.ible for a large percentage of HUD's total outlays. In fiscal year 1996,
outlays fo: Section 8 assisted housing totaled just over $20 billion, or about 80 percent of
the nearly $26 billion in HUD's total outlays.




68                                                                         GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                                                   ENCLOSURE I


     GAO            Critical Issues Facing the Department
                    Budget Squeeze
      Budget Authority for Section 8, Fiscal Years 1997-2006
      Dollars in bill!ons
      $25
      $20
      $20               .-                                            -        -
                                                                               ---                              -
      $15
      $10

        $5

             1997      1998       1999       2000        2001     2002           2003        2004       2005    2006
                                                          Fiscal year
                                Project-based units         Tenant-based units           All units



     Source: GAO's analysis of data from HUD's congressional justification for its fiscal year 1998 budget.


According to HUD, budget authority for Section 8 contract renewals on both project- and
tenant-based units will continue to increase.

The projected increase in contract renewals also reflects a shift toward increased tenant-
based assistance through 1999.




69                                                                        GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                   ENCLOSURE I


     GAO      Critical Issues Facing the Department
              Portfolio Reengineering
           · HUD provides project-based Section 8
             assistance for over 20,000 properties.
           * Over 8,600 Section 8 properties also
             have mortgages insured by FHA.
           * Impact of portfolio reengineering on
             FHA's insurance fund could increase
             claims by $6 billion to $7 billion.



"Portfolio reengineering" is an attempt to resolve long-standing problems with properties
that receive project-based Section 8 rental subsidies and have FHA-insured mortgages.
The basic problems with the insured Section 8 portfolio are high subsidy costs, high
exposure to insurance losses, and the poor condition of many properties.

As of April 1996, HUD provided about 20,400 properties with project-based Section 8
rental subsidies; 8,636 of these properties also had FHA-insured mortgages (excluding 167
properties that were insured under FHA's moderate rehabilitation program).

Writing-down FHA-insured mortgages could result in claims against FHA that Ernst &
Young estimates could total from $6 billion to $7 billion.




70                                                 GCAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                               ENCLOSURE I


     GAO      Critical Issues Facing the Department
              Portfolio Reengineering
           * Even if debt were forgiven, 11-15
             percent of the FHA-insured projects
             would cover operating expenses only;
             another 11-15 percent would not even
             cover their operating expenses.




From 22 to 30 percent of the properties that receive project based Section 8 rental
subsidies and have FHA-insured mortgages would be unable to compete in the private
market even if their mortgages were forgiven entirely.




71                                              GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                     ENCLOSURE I


     GAO      Critical Issues Facing the Department
              High Risk
            *HUD isconsidered a "high-risk" agency
              due to long-standing, Department-wide
              deficiencies in
             * internal controls,
             * information and financial management
               systems,
             · organizational structure, and
             * mix of staff and skills.

In 1994, we designated HUD as a high-risk agency because of four long-standing,
Department-wide management deficiencies that have made it vulnerable to waste, fraud,
abuse, and mismanagement These deficiencies include

*     weak internal controls, such as a lack of necessary data and management
      processes;

*     poorly integrated, ineffective, and generally unreliable information and financial
      management systems;

*     organizational problems, such as overlapping and ill-defined responsibilities and
      authorities between HUD's headquarters and field organizations, and a lack of
      management accountability and responsibility; and

*     an insufficient mix of staff with proper skills.

72                                                   GAO/RCED-97-173R HUD's Programs and lssues
ENCLOSURE I                                                                  ENCLOSURE I


     GAO       Critical Issues Facing the Department
               High Risk--Actions Taken
            HUD has
              · implemented a management planning
                and control program,
             * begun to operate portions of major new
                information and management systems,
             * reorganized and consolidated its field
                structure, and
             * increased training and begun an
                assessment of future training needs.
HUD has begun to address these deficiencies, but many corrective actions are far from
complete.

Although HUD has fully implemented its new management planning and control program
to identify, rank, and abate the major risks in each program, HUD's Inspector General has
questioned the program's effectiveness.

While portions of HUD's information and financial management systems are operating,
some major improvements will not be completed before 2000, and 93 systems do not
comply with the Federal Managers' Financial Integrity Act (FMFIA).

HUD has additional plans to empower field personnel and streamline headquarters.
Although HUD has increased staff training and begun to assess future training needs,
HUD continues to have staff resource problems in its major programs.


73                                                GAO/BCED-97-173R BUD's Programs and Issues
ENCLOSURE I                                                                  ENCLOSURE I


     GAO      Critical Issues Facing the Department
              High Risk--Status
           * Remaining material weaknesses are
             significant and long-standing.
           * HUD's Offices of Housing and Public
             and Indian Housing rely primarily on
             financial audits and other IGaudits to
             identify new material weaknesses.
           * 93 information systems still do not
             comply with requirements.
           * Staffing and training remain insufficient.

Although the number of open material weaknesses decreased from 51 in fiscal year 1991
to 9 in fiscal year 1995, those 9 are long-standing and involve large sums of money. In
addition, we remain concerned that

*       IHUD's management planning and control program may not be effective in assessing
      risks and developing strategies to abate them;

*     the 93 information and financial management systems that do not meet FMFIA's
      requirements may not provide timely, accurate, and reliable financial information
      and reports; and

*     many program directors reported that while the overall quality of training and
      skills of their staff had improved, HUD's training remained only fair or poor.



74                                                GAO/RCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                                 ENCLOSURE I


      GAo        Critical Issues Facing the Department
                 High Risk--Further Actions Needed
               * Move toward eliminating major internal
                 control weaknesses.
              * Complete plans to improve information
                 and financial management systems.
              * Complete plans for reorganizing
                 headquarters and field offices.
              * Complete efforts to assess staff skills;
                 develop appropriate training to address
                 skills needed for job responsibilities.

While HUD deserves credit for its progress in addressing management deficiencies, many
actions are far from completed. HUD needs to

*       eliminate major internal control weaknesses, fully implement its management
        planning and control program, and ensure the proper balance between program
        delivery and program monitoring;

*       complete integration of its major infon., tion and financial management systems,
        make all of them comply with FMFIA, and improve their usefulness to managers;

·       complete its current plans for reorganizing headquarters and field offices; and

*       complete its efforts to asses its employees' skills, develop training, and increase
        the number of staff receiving training.


75                                                   GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                ENCLOSURE I


     GAO    Critical Issues Facing the Department
            High Risk
           HUD's programs will remain high-risk until
           * the Department completes more of its
             planred corrective actions, principally
             those related to internal controls and
             information systems and
           * the administration and the Congress
             agree on HUD's mission, structure, and
             approaches to programs.




76                               GAO/RCED-97-173R HUD's Programs and Issues
 ENCLOSURE I                                                                ENCLOSURE I


     GAO      Tools to Help the Congress and the
              Administration
              · The Government Performance and
                Results Act.
              · The Chief Financial Officers Act.
              · Information technology reforms.




GPRA requires agencies to clarify their mission and develop meaningful j -easures of
results.

The CFO Act, as amended, provides managers-for the first time-with audited financial
statements for nearly all federal agencies.

The Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996 reform the
management of information technology to help ensure that managers have useful
information.

The reforms embodied in these acts provide a foundation of work for the federal
government to apply the best management practices that have been successfully used by
the private sector and state and local governments.



77                                               GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                  ENCLOSURE I


     GAO     Tools to Help the Congress and the
             Administration--GPRA
           As a tool for the Congress to help ensure
           agency performance, GPRA
           * makes agencies focus on attaining
             measurable outcomes,
           * requires agencies to consult with the
             Congress on plans and goals, and
           * requires strategic plans that include
             mission statements and outcome-related
             strategic goals.

GPRA requires that each federal agency, in consultation with the Congress, prepare a
strategic plan by September 1997. The plan must include a i,mprehensive mission
statement, the agency's long-term strategic goals, and a description of how the agency
intends to achieve those goals.

GPRA should provide decisionmakers with the information they need to assess the results
of federal programs.




78                                                GAO/RCED-97-173R HUD's Programs and Issues
ENCLOSURE I                                                                   ENCLOSURE I


     GAO Tools to Help the Congress and the
         Administration--CFO Act
            The CFO Act of 1990 requires that the 24
            largest federal Departments and agencies
            appoint CFOs.
            The Government Management Reform Act
            of 1994 expanded the CFO Act to require
            that these Departments and agencies
            prepare and have audited financial
            statements for their entire operations
            beginning infiscal year 1996.


The CFO Act sets expectations for federal agencies on deploying modem financial and
information systems, developing better performance and cost measures, and designing
results-oriented reports on their financial conditions and operating perfonmance.

For the first time, all major government agencies--covering virtually the entire federal
budget-will have to exercise this more stringent financial reporting and control discipline.

Better financial management is central to providing much needed accountability and
addressing high.-risk problems. It gives decisionmakers an opportunity to ensure that
agencies promptly and thoroughly correct problems identified in audits.




79                                                 GAO/RCED-97-173R HUD's Programs and Issues
    ENCLOSURE I                                                                ENCLOSUIME I


      GAO       Tools to Help the Congress and the
                Administration--IT Reform
                The Clinger-Cohen Act of 1996 and the
                Paperwork Reduction Act of 1995 are
                aimed at better managing investments in
                information technology (IT)and
                maximizing the benefits from
                investments in technology while
                controlling the risks of system
                development efforts.



The information technology reforms represented by the Clinger-Cohen Act of 1996 and the
Paperwork Reduction Act of 1995

·       require major agencies to appoint Chief Information Officers, who report to agency
        heads;

·       tighten controls over investments in technology;

·       redesign inefficient work processes; and

*       use performance measurements to assess technology's contribution to achieving
        mission results.


(385683)

80                                                  GAO/RCED-97-173R HUD's Programs and Issues
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