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DOCUMENT RESUHR
05419 - [B0905842]
HUD Needs To Better Assess Financial Soundness of Multifamily
Residential Projects before Insuring Them. CED-78-70; B-114860.
March 29, 1978. 3A pp. + 4 appendices (10 pp.).
Report to the Congress; by Elmer B. Staatx, Comptroller General.
Issue Area: Domestic Housing and Community Developaent:
Minimiz±ng Mortgagc Insurance Losseis (2108).
Contact: Community and Economic Development Div.
Budget Function: Commerce and Transportation: Mortgage Credit
aud Thrift Insurance (401).
Organization Concerned: Department of Housing and Urban
Development.
Congressional Relevance: House Committee in Barking, Currency
and Housing; Senate Committee on Banking, Housing and Urban
Affairs; Congress.
Authority: National Housing kct of 1934, Ls amended (12 U.S.C.
1701). Housing and Orbnn Development Act of 1968.
The Department of Housing and Urban Development (HUD)
began insuring multifamily housing projects in 1938 aDd, in
1954, began implebenting subsidized multifamily housing programs
to enable low- and moderate-income families tc improve their
housing conditions. Findings/Conclusions: Recently BUD ha3
incurred many financial losses due to mortgaqe defaults,
foreclcsures, and assignments on its multifamily loan insurance
programs. Aong the problems causing failures were that the
underwziters frequently overestimated revenues, underestimatei
expenses, and did not have supporting documentation. Actual
annual revenues for 13 of 30 projects examined were from 1% to
46% less than HUD estimates, and actual annual expenses for 27
of the projects exceeded estimates by from 5% to 110%. HOD's
major effort to improve its underwriting prccess through
computerized ifo:mstion on the incomes and expenses of
operating multifamily projects was inaccurate, incomplete, and
outdated. Contrary to HUD procedures, underwriters at times used
property assessment methods and tax rates not applicable to the
areas where proposed projects would be located, resulting in
unrealistically low estimates of proper,.y tax costs. Accurate
estimates would help in identifying alternatives to improve
financial viability, but once a project is approved, essentially
the only options available are to increase rents and/or provide
a moratorium on the interest and principal payments for a
short-term period. Recommendations: The Secretary of BUD
should: insist that field offices maintain accurate, complete,
and up-to-date information in the computer base used to evaluate
proposed prolects; insiat on underwriters' strict adherence to
procedures for preparing real estate tax estibates; require that
uniform methodologies be devised and used in projecting the
impact of inflationary trends; clarify procedures regarding
estimating occupancy levels; examine the possibility of](ViewImageLocal?handle=hein.gao/gaobaawxu0001&div=1&collection=&method=preview&ext=.png&size=3)