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![handle is hein.gao/gaobabndt0001 and id is 1 raw text is:
UNITED STATES GENERAL ACCOUNTING OFFICE
WASHINGTON, D.C. 20548
RESOURCES, COMMUNITY,
AND ECONOMIC DEVELOPMENT
DIVISION
B-207448 OCTOBER 24, 1983
The Honorable Jake Gain
Chairman, Subcommittee on
HUD-Independent Agencies 122676
Committee on Appropriations
United States Senate
Subject: Mortgages Assigned to the Department of Housing and
Urban Development Under Section 221(g)(4) of the
National Housing Act (GAO/RCED-84-40)
Dear Mr. Chairman:
As requested, this report transmits information provided in
our June 30, 1983, briefing regarding the potential long-term
costs to the Department of Housing and Urban Development (HUD)
because of the provisions contained in Section 221(g)(4) of the
National Housing Act [12 U.S.C. S17151(g)(4)]. Enclosure I con-
tains details on the results of our work and an explanation of our
objectives, scope, and methodology.
Legislation, enacted in 1954 as part of section 221 of the
National Housing Act, allows .mortgagees holding mortgages insured
under section 221 to assign them to HUD, if they are not delin-
quent and are at least 20 years old but not more than 21 years
old, in exchange for interest bearing debentures (i.e., regis-
tered, transferable securities which are federally guaranteed
obligations with respect to the payment of principal and semi-
annual interest). Because the section 221(g)(4) provision allows
mortgagees to obtain debentures bearing current interest rates in
return for mortgages bearing 20-year old rates, future costs to
HUD could be substantial. For example, we estimated that HUD's
net cash outlay, by the year 2013, could exceed $6.9 billion in
debenture principal and interest for the existing multifamily
portion of the section 221 program. At a rate of 10 percent,
$887.3 million would have to be invested today to pay this esti-
mated debt by the year 2013. The 10 percent rate represents
outstanding yield on government securities, which is consistent
with our period of analysis.
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