Portfolio Reengineering: The Nonprofit Role

Over 500,000 units of HUD multifamily assisted housing have rents that are “out of whack” – that is, higher than market rent, according to HUD’s estimates. While many owners may not participate in HUD’s portfolio reengineering, as many as 100,000 units may be “restructured” between now and 2004. The unpaid principal balance on these units is nearly $4 billion. A great deal of work lies ahead.

Failure to resolve this issue will likely result in a cutback in subsidies without a corresponding reduction in the FHA insured mortgage. That will inevitably lead to increased foreclosures and deterioration of the housing, as owners dip into their operational budgets to pay the mortgage.

This country’s Section 8 housing stock can best be saved if nonprofit organizations get fully involved. Under portfolio reengineering, HUD would delegate to state and local housing agencies the role of “reengineering” these properties. If state or local housing agencies are not capable of, or interested in, resolving the financials on these properties, nonprofit organizations can restructure the financing to assure long term affordability.

Nonprofit Purchasers

Literally tens of thousands of federally assisted and insured apartments have been transferred to nonprofit organizations during the past four years. Catalyzed over the past 10-15 years by state and federal legislation encouraging production and preservation of housing by nonprofit organizations, this sector is a growing presence in the field.

Where a resident-endorsed nonprofit organization seeks to purchase one of these properties, what value does it introduce? In addition to the reasons cited by others in this issue, the requirement of “resident endorsement” helps keep the transaction legitimate, arms length from the current for-profit owner, and involves tenants in decision-making concerning their homes. Nonprofit organizations also often have a broader community development mission, enabling them to access funds for tutoring, job training, emergency food assistance, social services, and other support programs.

Nonprofit organizations that serve as information clearinghouses – including the National Housing Trust, the California Housing Partnership Corporation, the National Housing Law Project, and the Low Income Housing Information Service – should also be involved in portfolio reengineering. These organizations help develop data to focus attention on particular multifamily properties at risk. These organizations should also train tenants and other nonprofits that want to sustain this housing resource.

The cost to HUD of renewing Section 8 contracts over the next decade, and the policy implications flowing from this issue, pose significant challenges. Capable, legitimate nonprofit organizations can help the government reduce its Section 8 subsidy costs, help residents keep their homes, and help maintain affordable housing throughout the nation.

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