GAO Releases Report on Housing Trust Fund

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) program is designed to preserve and increase the supply of affordable housing units. HUD allocates program funds to states for affordable housing projects.

The Context: The Housing Trust Fund was established in the wake of the 2008 financial crisis by the Housing and Economic Recovery Act, which 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 this amount, 65 percent is set aside into the HTF and distributed by formula to each state and the District of Columbia. This requirement was suspended until 2015, and Fannie Mae and Freddie Mac began transferring funds into the HTF in 2016.

The GAO report was issued in response to a request sent on April 14, 2021, by Representatives Patrick McHenry (R-NC) and Steve Stivers (R-OH). GAO was asked to examine the use and oversight of HTF funds. The McHenry/Stivers letter to GAO criticized the HTF program, claiming it cost $1 million per completed unit of housing.

GAO found, however, that the average overall per-unit (non-HTF-assisted and HTF-assisted unit) development cost of the 70 projects it examined was $232,000. The average per-unit development cost for new construction projects was $74,000 higher than for rehabilitation projects. And the average per-unit development cost for projects developed by nonprofit entities was $40,000 higher than for projects developed by for-profit entities. To explain the difference, GAO referred to studies that observed that nonprofits focus more on populations that are more costly to serve, such as special needs tenants who may require additional or enhanced facilities. In addition, nonprofits tend to focus on smaller projects that in general have higher per-unit costs due to the inability to benefit from economies of scale.

Findings & Recommendations: The report identified several deficiencies in HUD’s management of the HTF program and included five recommendations to improve HTF oversight. The report found that HUD had not adequately monitored grantee compliance with requirements for reporting project completion dates and had not properly clarified for grantees the requirement that they obtain cost certifications for completed HTF projects.

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

• Develop and implement a centralized process to monitor HTF grantees’ compliance;
• Develop and implement a centralized process to monitor data on the total number of units in completed projects for likely errors;
• Enhance communication of the cost certification requirement to grantees;
• Conduct a comprehensive assessment of HTF fraud risks; and
• 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 Reaction: According to the report, HUD has agreed to the recommendations and has already outlined planned actions to address them. And GAO will update the status of the open recommendations as HUD responds.