1. GAO Report on RD MFH
Focus: Maturing Mortgages

2. GAO Study Released on May17, 2018 Purpose of Study:
Examine how RHS is addressing the risks posed by maturing mortgages
Extent that RD has tools and strategies to preserve these properties
40 page report

3. GAO
Random samples of files from 5 states (CA, IL, MN, PA & VA) to assess accuracy and completeness of data on RRH 515 properties.
States selected based on geographic diversity, number of properties and high number of properties nearing maturity.
Reviewed number of properties that could exit between 2017 – 2050
Reviewed properties eligible to prepay mortgages
Audit conducted between May 2016 – May 2018.

4. GAO
March, 2016, RHS developed Multi-Family Housing Property Preservation Tool
Replaces manually calculated exit dates for rural properties
Make information publicly accessible, improve program transparency

5. GAO
Analysis: 900 properties, (6% of portfolio) with 20,000 units (5 percent) will have maturing mortgages and could exit the program between 2017 and 2027.
As of June, 2017, shows 35% of RHS portfolio (4,944 of 14,075 properties) have mortgages eligible for prepayment and could exit early.
Prepaid mortgages lose RA but tenants qualify for vouchers. Mortgages on or after December 15, 1989, not allowed to prepay

6. GAO
Data Shortcomings
RHS lacks internal controls to ensure accuracy of all loan information. Maturing mortgages never followed, new data set.
RHS lacks controls to check accuracy and completeness of underlying data used by preservation tool.
Has not developed a regular, timely process for updating the preservation tool’s underlying data and exit date info. Last update June, 2017.

7. GAO
Two studies commissioned by RHS to understand impact of maturing mortgages and key issues.
Study 1
USDA Rural Rental Housing Portfolio: The Early Implication of Maturing Mortgages Housing Assistance Council September, 2016

8. GAO
Study 2
Rural Development Multi-Family Housing Comprehensive Property Assessment CoreLogic and RSM, LLP March 1, 2016
Outlines issues facing the portfolio like the $5.6 billion needed to rehab properties program wide and potential policy solutions for potential early exits.

9. GAO RHS Options Preventing Exits & Preserving Affordability
Reamortization same size debt, longer terms
Re-Am Lite no appraisal required
Deferral up to 20 years
Prepayment Offer incentives offered
Prepayment no loan, no RA, vouchers to tenants
Transfer new owner, new terms, new restrictions

10. GAO RHS Options continued 2016, NP allowed RTO
With options in place, 61% (148 of 244) properties with mortgages that matured between 1/2014 and 12/2017 exited the program

11. Year Properties Exits % 2014 14 10 71% 2015 62 39 63% 2016 80 46 58%
GAO
Property Exits
Year Properties Exits % % % % %
Total %

12. Stakeholders offer various opinions
GAO
Stakeholders offer various opinions
Options & incentives not adequate or broad appeal to owners
Extending loan term a short term solution
Options taken by owners with no other choice but to stay in
Condition of property
Market is poor for a sale of property
Can not get market rate rents (or low mkt rents)
Today, we hope to answer these and other questions concerning a housing program that needs new energy, new money and a new attitude.

13. GAO
GAO points out a lack of documented goals by RHS for preserving the program nor created measures for tracking progress toward those goals
RHS not monitoring and assessing options and incentives in a way that would inform or improve the use of these options, i.e. what are the outcomes (page 20)
RHS has not fully analyzed or responded to risks facing the program
Owner behavior
Resource constraints

14. GAO
Management of maturing mortgages staff workloads staff training additional guidance Rehabilitation costs Studies estimate $5.6 billion in rehab costs No additional requests for funding Need for additional strategies for increased numbers of maturing mortgages coming after 2027

15. GAO
Proposals:
Decouple RA from mortgage, loan paid off, tenant gets RA
Provide vouchers to tenants when loan is matured/paid off
Above proposed in April-2016 but no action taken (page 23)
HUD created Rental Assistance Demonstration in 2011 when faced with similar loss of rental assistance at properties

16. GAO
Conclusions
Preservation tool a positive first step to help define property exit dates, alert stakeholders to properties with maturing mortgages and begin to preserve their affordability
Need better data controls to insure accuracy of data and timely updating of data for all
Accelerate strategic planning on next bigger wave of maturing mortgages

17. Matter for Congressional Consideration
GAO
Matter for Congressional Consideration
For RHS properties whose mortgages have matured, Congress should consider granting RHS the authority to renew annual rental assistance payments to owners who wish to continue to receive them and provide vouchers to tenants living in rental assistance units in properties whose owners choose to no longer receive rental assistance.

18. Five recommendations for executive action
GAO
Five recommendations for executive action
RHS Administrator should establish additional controls to check the accuracy of all loan information entered into RHS technology systems to help ensure complete, accurate and reliable data for estimating rural rental housing property exit dates
RHS Administrator should establish a process to ensure regular and frequent updates for the preservation tool and its underlying data

19. Recommendations continued
GAO
Recommendations continued
Should establish performance goals and measures for its rural rental housing preservation and rehab efforts and report out these outcomes
Should monitor the results of preservation efforts and assess degree to which those efforts yielded intended outcomes
Should identify, analyze and respond to risks to achieving its preservation goals, including resource and staffing limitations

20. GAO
The draft report was given to RHS and HUD for review and comment.
RHS provided technical comments that were incorporated into report and stated that it agreed with all five of the recommendations.
HUD had no comments on the draft