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HUD Housing Finance Reform Plan Proposes Reorganization of Rental Housing Assistance Departments

Proposed Merger of Public Housing, HCV and Multi-family Programs into a New Office of Rental Housing Assistance Fails to Address Significant Human Capital and Technology Deficiencies

 

David Weber, PHADA Policy Analyst

As previously reported in the October 2 issue of the Advocate, on September 5, 2019, HUD issued a “Housing Finance Reform Plan” pursuant to the Presidential Memorandum issued March 27, 2019. The Department of the Treasury also issued a separate Housing Reform Plan pursuant to the same memorandum. The memorandum discusses changes in the housing finance system, continued conservatorship of the Government Sponsored Entities (the GSEs – Fannie Mae and Freddie Mac), and the increased exposure of U.S. taxpayers to a potential future bailout in event of another financial crisis. The memorandum directs Treasury and HUD to develop plans “to reform its housing finance system to reduce taxpayer risks, expand the private sector’s role, modernize government housing programs, and make sustainable home ownership for American families our benchmark of success.” Despite the memorandum’s focus on the housing finance system, HUD has presented proposals for reorganization that have essentially nothing to do with the housing finance system but would have a substantial impact on HUD’s various rental assistance programs.

The HUD Housing Finance Reform Plan focuses on the Federal Housing Administration and the Government National Mortgage Association (GNMA), which are a part of HUD. The Executive Summary and Introduction make no mention of HUD’s rental assistance programs: Public Housing, Housing Choice Voucher (HCV), and Multi-Family rental assistance programs. However, HUD buries proposals that could significantly impact HUD’s rental assistance programs in sections of the report that have little if anything to do with Housing Finance.

 

HUD Proposes Lifting the Rental Assistance Demonstration (RAD) Unit Cap

Section I. of the Reform Plan is titled “Refocus FHA to its Core Mission.” In Section I. 4. HUD discusses the FHA’s multi-family mortgage insurance products and proposes some changes to reduce the market share of FHA in multifamily lending. Then it turns to address RAD, devoting only one paragraph to the topic. In doing so, it correctly notes that RAD allows public housing projects to convert to long-term Section 8 rental assistance contracts, and to leverage the private market to make capital improvements. It fails, however, to indicate that properties can convert to either HUD multi-family Section 8 rental assistance contracts OR to public housing authority managed project-based Housing Choice Vouchers. Instead, it states that RAD allows “properties currently operating under HUD’s legacy programs to convert tenant-based vouchers to project-based assistance.” This statement is misleading at best, as the program awards tenant-based vouchers, which are then project based, in place of the assistance provided via HUD’s public housing and other legacy programs. The paragraph concludes by stating that RAD “has proven to be a successful model for preserving HUD assisted affordable rental housing that might otherwise be lost to disrepair or neglect.” The Plan then makes a single RAD-related recommendation, for a Legislative Reform to eliminate the 455,000-unit statutory cap on the RAD program.

The Reform Plan claims that the realignment will “Achieve greater efficiencies, reduce regulatory and administrative burdens, increase self-sufficiency opportunities for residents…, and promote greater cost efficiency and asset management of the subsidized portfolio.” Unfortunately, HUD provides no evidence to support these claims.

PHADA supports RAD and appreciates that it has been successful at many properties and is a valuable tool for local housing authorities to use in addressing the capital needs backlog. However, this recommendation is misplaced in a Housing Finance Reform Plan. The only link between RAD and Housing Finance Reform is that the Federal Housing Commissioner, who oversees and administers FHA, also serves as the Assistant Secretary of Housing overseeing HUD multifamily project based rental assistance programs and the processing of RAD transactions. Not all RAD transactions result in a project overseen by the Secretary of Housing, as RAD transactions resulting in project-based Housing Choice Vouchers are overseen by the Office of Public and Indian Housing upon completion of conversion. Further, the recommendation to eliminate the RAD unit cap is proposed without providing available evidence of RAD’s success, and without any relevance to the section’s heading: Ensuring that HUD’s Multi-family Programs are Appropriately Targeted. PHADA urges HUD to reconsider this recommendation in this context, and if necessary to re-present the recommendation for legislative changes with appropriate supporting information on the program’s results. Although RAD is a useful tool, HUD should provide thorough information on RAD’s impact to date before proposing such a significant expansion. The supporting information on RAD should include not only data on completed conversions, but also projections on increased costs over time to HUD’s Section 8 budget and the potential loss of additional affordable unit production as Low-Income Housing Tax Credits are diverted from new unit production to preservation of public housing. This would provide Congress with useful data and context when considering the recommendation.

 

HUD Proposes Combining Multifamily, Public Housing and Voucher Programs in New Office of Rental Assistance

Section III. of the HUD Housing Finance Reform Plan is titled “Provide FHA and GNMA the Tools to Appropriately Manage Risk.” Recommendations in this part include restructuring FHA as an autonomous corporation within HUD. Originally together because project based rental assistance was often combined with FHA multi-family mortgage insurance, HUD now recommends disconnecting its mortgage insurance and rental assistance programs into separate offices. Separating the duties and creating separate positions for the Federal Housing Commissioner and the Assistance Secretary of Housing makes sense. These are large programs responsible for the distribution of billions of dollars of rental assistance and mortgage backing each year and adding capacity to effectively manage these programs is much needed. The report goes further, however, and recommends creation of a new Office of Rental Subsidy, combining multi-family, public housing, and HCV Programs (as well as administration of RAD and REAC) into a new Office of Rental Subsidy and Asset Oversight under the Assistant Secretary of Housing. It also recommends that Congress establish a new Office of Native American Programs with its own Assistant Secretary.

In making these recommendations, the Reform Plan claims that the realignment will “Achieve greater efficiencies, reduce regulatory and administrative burdens, increase self-sufficiency opportunities for residents receiving federal rental assistance or supportive services, and promote greater cost efficiency and asset management of the subsidized portfolio.” Unfortunately, HUD provides no evidence to support these claims. Changing the reporting structure at the highest levels of HUD does not change the regulations, rules, or requirements of any programs making the claimed advantages regarding efficiencies and regulatory and administrative burdens dubious. The claim that this reorganization will increase self-sufficiency opportunities is mystifying as there is nothing about the realignment relating to self-sufficiency related programs or policies. Only the final claim of promoting cost efficiency and improved asset management of the subsidized portfolio seems to have any relationship to the proposed realignment.

 

HUD’s Plan for Reorganization Fails to Address Human Capital and Technology Challenges Facing Rental Assistance Programs

Importantly, however, the Reform Plan proposal fails to address the significant obstacles to such a reorganization. These obstacles include (a) diminished human capital, and (b) antiquated and incompatible data systems between PIH and Multifamily programs.

The Human Capital challenges at HUD are well documented. The 2020 Senate Appropriations Committee Report on S. 2520, appropriations for the Departments of Transportation, and Housing and Urban Development, and related agencies (THUD) highlights that HUD has lost 49 percent of its staff since its peak in 1991, including a loss of 18.5 percent of its workforce between 2008 and 2017. Further, nearly 25 percent of HUD’s staff are currently eligible for retirement, and within the next five years fully 45 percent of HUD’s staff will be eligible for retirement. The Committee appropriates additional investments in personnel to ensure HUD has the staff to carry out its mission and urges HUD to identify where these human capital challenges affect program operations. HUD’s reform plan acknowledges and addresses this issue in relation to FHA and GNMA in Section III. B. but does not address this in Public and Indian Housing or the Division of Housing. Its realignment plan for PIH and the Office of Housing does not acknowledge or address the staffing challenges existing within the current divisions or how the realignment will address those issues. Any reorganization plans must acknowledge and address these critical staffing issues.

The technology challenges at HUD are also well documented. The Public and Indian Housing Information System (PIC) is the primary system for managing both public housing and Housing Choice Voucher household assistance, with the Voucher Management System (VMS) handling voucher program funding to agencies, including project-based housing choice vouchers. PIC is severely outdated and inflexible, and HUD has made significant investment in development of PIC-NG (Next Generation), expected to be piloted in early 2020. HUD’s multi-family system, on the other hand, utilizes the Tenant Rental Assistance Certification System (TRACS) for recertification submissions.

HUD’s Reform Plan specifically addresses FHA Technology (Section III. D.) but fails to address the technological challenges facing its proposed combination of multi-family oversight with public housing and voucher program oversight. Will data systems be merged? Will PIC-NG be completed and implemented? These are critical questions that must be answered as part of any proposed reorganization of HUD’s offices.

Finally, HUD is proposing a ‘realignment’ that combines HUD’s multi-family, public housing, and housing choice voucher programs under the Assistant Secretary for Housing, separates the Federal Housing Administrator from the Assistant Secretary for Housing position, and creates a new Assistant Secretary for Native American Programs. The proposed Plan, however, fails to address what will happen to the existing Office of Public and Indian Housing and the position of Assistant Secretary for Public and Indian Housing. Like the challenges of Human Capital and Technology facing HUD and making any reorganization challenging, this is an important issue that must be addressed.

 

Rental Housing Assistance Reorganization is Misplaced and Inadequately Justified in the Housing Finance Reform Plan

HUD’s Housing Finance Reform Plan provides significant and useful information on the FHA, GNMA, and makes numerous recommendations regarding HUD’s role in the housing finance system. PHADA will leave it to finance professionals to debate the pros and cons of the presentation and recommendations. As it relates to reorganization of rental assistance programs, PHADA believes these are misplaced within the Housing Finance Reform Plan.

Reorganization of HUD may be needed to improve and streamline HUD’s oversight of rental assistance programs. Such proposals, however, should be separately and comprehensively analyzed and assessed similar to what was presented in the Reform Plan for FHA and GNMA and related entities. What are the challenges of such a reorganization? What specific changes will address what specific challenges? How do tenant-based vouchers fit within HUD’s concept of its rental assistance ‘portfolio?’ Separating the duties of the Federal Housing Commissioner from those of the Assistant Secretary for Housing makes sense just from a pure capacity standpoint. The broader realignment, however, should be much more fully developed and presented in order for Congress and the public to make an informed decision on the proposal’s merits.