Rural Rental Housing: Incentives Maintain Low-Income Housing but Clearer Guidance Needed.

This report responds to your request that we review the financial incentives provided by the U.S. Department of Agricultures Farmers Home Administration FmHA to owners of FmHA-supported multifamily housing projects apartment buildings. The Rural Rental Housing Displacement Prevention provisions of the Housing and Community Development Act of 1987 authorize FmHA to provide existing multifamily project owners with various financial incentives, such as equity loans, that encourage them to keep their projects in FmHAs rural rental housing program rather than prepaying their loans and terminating involvement in the program.1 In this way, FmHA is able to preserve the housing units under its rural rental housing program and prevent the displacement of low-income tenants. The need to provide financial incentives to multifamily project owners arose because FmHA did not include prepayment restrictions in the rural rental housing loan contracts that it approved before December 21, 1979. As a result, during the early and mid-1980s, some borrowers with pre-1979 loans found it financially beneficial to prepay their loans, remove their projects from FmHAs program, and convert the housing to other uses such as commercial rental units. This reduced FmHAs rural rental housing inventory and caused the displacement of some low-income tenants. Loans made since December 21,1979, contain provisions designed to preserve FmHA multifamily housing projects and prevent tenant displacement. As agreed, this report provides information on 1 the extent to which financial and other incentives offered by FmHA have been accepted by project owners to preserve the agencys rural rental housing inventory through September 30,1991, 2 the types of incentives used by FmHA, and 3 the problems encountered by FmHA in providing these incentives. KAR p. 2