GAO Suggests Housing Trust Funds Changes

How well does HUD oversee the nation’s Housing Trust Funds, which flow to states for affordable housing? The Fed’s oversight group suggests five changes.

WASHINGTON – On August 8, the U.S. Government Accountability Office (GAO) released a report entitled “Affordable Housing: Improvements Needed in HUD’s Oversight of the Housing Trust Fund Program.”

The Housing Trust Fund (HTF) provides grants to states, which use them to produce and preserve affordable housing for extremely low- and very low-income households. It requires Fannie Mae and Freddie Mac to set aside 4.2 basis points of each dollar of unpaid principal balance of new mortgage purchases. Of that amount, 65% is put into the HTF and distributed, based on a formula, to each U.S. state and the District of Columbia.

Under the rules, states must use at least 80% of their annual grants for rental housing, up to 10% for homeownership and up to 10% for “reasonable administrative and planning costs.”

About 41% of units created via HTF were one-bedroom units, according to the report, and 16% were single-room efficiency units.

Report findings

Immediately after states began receiving HTF funds from the fourth quarter of 2017 through 2018, the production of completed units averaged about seven units per quarter, growing to almost 300 units per quarter in 2021, the most recent data in the report.

GAO found HUD had not adequately monitored grantee compliance in reporting project completion dates, and it had not been clear with grantees about cost certification requirements for completed HTF projects.

Report recommendations

GAO issued the following five recommendations for actions HUD should take to improve its oversight of the HTF program:

1. Develop and implement a centralized process to monitor HTF grantees’ compliance with the requirement to report completion information within 120 days of the final project drawdown
2. Develop and implement a centralized process to monitor data on the total number of units in completed projects for likely errors
3. Enhance communication of the cost certification requirement to grantees
4. Conduct a comprehensive assessment of HTF fraud risks in accordance with GAO’s Fraud Risk Framework and HUD’s fraud risk management policy
5. Disclose that the amount of non-HTF funds may be under-reported and that HTF units are only a portion of the total units in HTF-assisted projects.

The report notes that HUD has agreed to the recommendations and already has outlined planned actions to address them; GAO will update the status of the open recommendations as HUD responds.

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