Preservation of HUD-Assisted Housing
Maggie McCarty
Specialist in Housing Policy
Libby Perl
Specialist in Housing Policy
April 13, 2010
Congressional Research Service
7-5700
www.crs.gov
R41182
CRS Report for Congress
P
repared for Members and Committees of Congress

Preservation of HUD-Assisted Housing

Summary
The term “assisted housing preservation” refers to public policy efforts to maintain the
affordability of rental properties financed or subsidized by the Department of Housing and Urban
Development (HUD) but owned by private for-profit or nonprofit organizations. Beginning in the
late 1950s, HUD extended mortgage and/or rental-assistance to owners, in exchange for which
the owners agreed to make their units affordable to low- and, in some cases, moderate-income
tenants. The agreements to maintain affordability, sometimes called “affordability restrictions,”
were to last between 20 years and 50 years depending on the program. When these affordability
restrictions come to an end, owners have the option to stop providing affordable housing to
tenants. In some, but not all, cases, tenants living in units that are leaving the assisted housing
stock receive housing vouchers that are meant to prevent their displacement.
Properties at issue in assisted housing preservation were developed through various programs.
HUD provided mortgage assistance or direct loans to owners through the Section 202 loan
program and the Section 236 and Section 221(d)(3) Below Market Interest Rate (BMIR)
mortgage insurance programs, all named for the sections of the housing acts under which they
were created. HUD also subsidized tenant rents through programs such as the Rent Supplement
program, the Rental Assistance Payment program, and the Section 8 project-based rental-
assistance program. In some cases, owners received both mortgage financing assistance and
rental-assistance.
Property owners that received mortgage financing assistance can end their federal obligation to
provide affordable housing early by prepaying their mortgages (in some cases), or end it when the
mortgage terms come to an end. Owners that entered into rental-assistance contracts with HUD
can choose not to renew their contracts when they end. In some cases, HUD can choose to
terminate assistance contracts with owners when properties are in poor physical or financial
condition. In the past, Congress attempted to reduce the number of property owners that leave
HUD-assisted housing programs by restricting owners’ abilities to prepay their mortgages.
However, these laws (known by their acronyms, ELIHPA and LIHPRHA) faced legal challenges
and are no longer in effect. Currently, the primary preservation tool available to HUD is the
ability to restructure debt and rental-assistance in Section 8 contracts, as authorized by the
Multifamily Assisted Housing Reform and Accountability Act (MAHRA).
There have been several proposals to expand the tools available to HUD to help preserve assisted
housing. Recent proposals would, in general, focus on incentives to owners to remain in HUD
programs or to encourage “preservation purchasers” to buy the properties and maintain
affordability. However, any new incentives will require additional funding. In a limited funding
environment, questions regarding preservation include whether all properties can and should be
preserved, and, if not, which should be the highest priority.
This report introduces the concept of assisted housing preservation, provides background
information, and discusses current public policy issues and proposed legislation, including H.R.
4868, the Housing Preservation and Tenant Protection Act, and S. 118, the Section 202
Supportive Housing for the Elderly Act.

Congressional Research Service

Preservation of HUD-Assisted Housing

Contents
Introduction ................................................................................................................................ 1
Properties at Issue ....................................................................................................................... 4
Financing Assistance (Mortgage Loan and/or Insurance Assistance) ...................................... 4
Section 202 Loan Program .............................................................................................. 4
Section 221(d)(3) Below Market Interest Rate Program................................................... 5
Section 236 Program....................................................................................................... 6
Rental Assistance .................................................................................................................. 8
The Rent Supplement Program........................................................................................ 8
The Rental Assistance Payment (RAP) Program.............................................................. 9
Section 8 Project-Based Rental Assistance ...................................................................... 9
How Affordability Restrictions Come to an End ........................................................................ 13
Financing Assistance: Mortgage Prepayment and Maturation .............................................. 14
Section 236 and Section 221(d)(3) BMIR ...................................................................... 14
Section 202 Loan Program ............................................................................................ 15
Rental Assistance: Expiring Rental-Assistance Contracts..................................................... 16
Section 8....................................................................................................................... 16
RAP and Rent Supplement ............................................................................................ 16
Troubled Properties............................................................................................................. 16
Implications for Tenants ...................................................................................................... 18
Previous and Ongoing Efforts to Preserve Assisted Housing...................................................... 19
Financing Assistance........................................................................................................... 20
Emergency Low-Income Housing Preservation Act (ELIHPA) ...................................... 20
Low-Income Housing Preservation and Resident Homeownership Act
(LIHPRHA) ............................................................................................................... 21
IRP Decoupling............................................................................................................. 24
Flexible Subsidy Program ............................................................................................. 24
Rental Assistance ................................................................................................................ 25
Section 8 Expiring Contracts, Renewals, and the Multifamily Assisted Housing
Reform and Accountability Act (MAHRA)................................................................. 25
Mark-to-Market and Section 8 Renewal ........................................................................ 26
Recent Initiatives: Contract Preservation Provisions and Green Retrofit Funding........... 29
“At Risk” Properties............................................................................................................ 30
Preservation Priorities ............................................................................................................... 30
Location and Community.................................................................................................... 32
Physical Condition of the Property ...................................................................................... 33
Tenant Needs ...................................................................................................................... 33
Type of Owner .................................................................................................................... 34
Weighing the Costs and Benefits of Preservation ................................................................. 34
Property Characteristics ............................................................................................................ 35
Section 202 Loans............................................................................................................... 35
Financing Assistance: Rent-Restricted, Insured Units .......................................................... 37
Rental Assistance ................................................................................................................ 38
Summary ............................................................................................................................ 40
Preservation Options ................................................................................................................. 41
Financial Incentives for the Current Owner to Maintain Affordability.................................. 42
Congressional Research Service

Preservation of HUD-Assisted Housing

Incentives to Sell to Preservation Purchasers ....................................................................... 43
Requirements for Current Owners ....................................................................................... 44
What if Property Is Not Preserved? ..................................................................................... 45
Current Legislation ................................................................................................................... 45
The Housing Preservation and Tenant Protection Act (H.R. 4868) ....................................... 45
The Section 202 Supportive Housing for the Elderly Act (S. 118)........................................ 47

Figures
Figure 1. Types of Units at Issue in Assisted Housing Preservation.............................................. 3

Tables
Table 1. Properties and Units with Active Section 202 Loans..................................................... 36
Table 2. Loan Maturity Date Ranges for Properties with Active 202 Loans ................................ 36
Table 3. REAC Inspection Scores for Properties with Active 202 Loans .................................... 37
Table 4. Active Section 236 and BMIR Properties and Units...................................................... 37
Table 5. Mortgage Maturity Date Ranges for Active 236 and BMIR Properties.......................... 38
Table 6. Inspection Scores for Active 236 and BMIR Properties with Rental Assistance ............ 38
Table 7. Rent-Assisted Properties and Units .............................................................................. 39
Table 8. Expirations for RAP and Rent Supplement Contracts ................................................... 39
Table 9. Ownership of Rent-Assisted Properties ........................................................................ 40
Table 10. Inspection Scores for Rent-Assisted Properties at Latest Inspection............................ 40
Table A-1. Categories of Preservation Properties ....................................................................... 48
Table B-1. Key Terms Used in This Report................................................................................ 51

Appendixes
Appendix A. Preservation Properties at a Glance ....................................................................... 48
Appendix B. Glossary ............................................................................................................... 51

Contacts
Author Contact Information ...................................................................................................... 52

Congressional Research Service

Preservation of HUD-Assisted Housing

Introduction
The Department of Housing and Urban Development (HUD) has provided housing assistance for
low-income households through numerous programs.1 In some programs, HUD provided
assistance by entering into financial arrangements with private owners (both for-profit and
nonprofit), who in turn developed and continue to own rental housing projects. In exchange for
assistance from HUD, owners agreed to provide affordable housing to tenants for a period of
time, anywhere from 20 to 50 years depending on the program. These HUD programs are no
longer active, but they created hundreds of thousands of units of affordable housing from the late
1950s through the late 1980s, and these units continue to provide affordable housing to nearly 1.4
million families.
The affordability terms agreed to by property owners participating in these programs, sometimes
referred to as “affordability restrictions,” began to come to an end in the 1980s. When the
restrictions on these properties end, there is a risk that they will become unaffordable to low- and
moderate-income tenants, and that those tenants will be displaced. Efforts to maintain the
affordability of the remaining HUD-assisted properties as their affordability restrictions come to
an end are often referred to as “assisted housing preservation.”
This report focuses on assisted housing preservation efforts involving six specific HUD
programs, three of which provided financing assistance to private owners through low-interest
loans and/or mortgage insurance, and three of which provided rental-assistance to owners. These
programs were often used in combination with each other, with a property owner receiving both
financing assistance and rental-assistance.
The following financing assistance programs are covered in this report:
• The Section 202 loan program, active from 1959 to 1990. HUD extended low-
interest, direct loans to property owners for durations of 40 or 50 years. The
Section 202 loan program helped finance the development of approximately
216,000 units of affordable housing; today, about 145,000 units are in properties
that still have active loans.
• The Section 221(d)(3) BMIR (Below Market Interest Rate) program, active
from 1961 to 1968. HUD provided mortgage insurance for low-interest, 40-year
loans to private developers. The Section 221(d)(3) BMIR program helped finance
the creation of approximately 159,000 units of affordable housing, more than
15,000 of which are in properties that still have active loans insured through the
BMIR program.
• The Section 236 program, active from 1968 to 1974. HUD provided mortgage
insurance for 40-year loans along with mortgage subsidy payments to private
developers. The Section 236 program helped finance the development of
approximately 400,000 units of affordable housing, more than 150,000 of which
are in properties that still have active loans insured through the Section 236
program.

1 For more information about federally assisted housing, see CRS Report RL34591, Overview of Federal Housing
Assistance Programs and Policy
, by Maggie McCarty et al.
Congressional Research Service
1

Preservation of HUD-Assisted Housing

The following rental-assistance programs are also covered in this report.
• The Rent Supplement program, active from 1965 to 1973. HUD provided
long-term (up to 40 years) rental-assistance contracts to owners of properties
with HUD-assisted financing. Most Rent Supplement contracts were
converted to Section 8 project-based contracts (described below), although
nearly 13,000 units continue to receive Rent Supplement assistance.
• The Rental Assistance Payment (RAP) program, active in the mid-1970s.
HUD provided long-term (up to 40 years) rental-assistance contracts to
owners of Section 236 properties. Most RAP contracts have been converted
to Section 8 assistance (described below), although nearly 16,000 units
continue to receive RAP assistance.
• The Section 8 project-based program, active from 1974 to 1983. HUD
provided long-term (up to 40 years) rental-assistance contracts to owners of
newly constructed or substantially rehabilitated properties, as well as existing
properties (including Section 202, Section 221(d)(3) BMIR, and Section 236
properties). Roughly 1.2 million units continue to receive Section 8 project-
based rental-assistance.
While other affordable housing programs also face expiring use restrictions, this report focuses on
these six programs for several reasons: (1) Many of the property owners are private for-profit
organizations that may have interests other than providing affordable housing when their
affordability restrictions come to an end. This contrasts with, for example, the Public Housing
program, where owners are quasi-governmental entities whose primary purpose is providing
affordable housing. (2) The majority of the affordability restrictions in these six programs will
come to an end during the next 5-15 years, depending on the program. This contrasts with newer
housing production programs, such as the Section 202 Supportive Housing for the Elderly capital
grants program, the Section 811 Supportive Housing for Persons with Disabilities program, or
Low Income Housing Tax Credits, where affordability restrictions may extend many years into
the future. (3) In past years, Congress has enacted laws that attempted to address housing
preservation related to many of these six programs. These attempts met with varying success.
This report does not address the programs of the Department of Agriculture’s Rural Housing
Service.
Figure 1 illustrates the universe of rental units that were created as part of the six programs
discussed in this report. The large circle in the center represents the housing units that receive
rental-assistance through the Section 8, Rent Supplement, and RAP programs. The circle on the
left represents housing units that continue to have active financing through the Section 221(d)(3)
BMIR and Section 236 mortgage insurance programs, and the circle on the right represents units
that continue to have active financing through the Section 202 loan program. As can be seen in
the diagram, the area of overlap between the left and center circles represents Section 221(d)(3)
BMIR and Section 236 units that also receive some form of rental-assistance, while the overlap
between the right and center circles shows Section 202 units that receive some form of rental-
assistance.2 See also Table A-1, in Appendix A, which provides a summary of the properties at
issue in assisted housing preservation and their characteristics.

2 In some cases, not all units in properties with rental assistance contracts receive rental assistance. For example, it is
possible that in a 100 unit building, only 80 units may receive rental assistance. Figure 1 does not include unassisted
(continued...)
Congressional Research Service
2


Preservation of HUD-Assisted Housing

Figure 1. Types of Units at Issue in Assisted Housing Preservation

Source: Property and Unit counts are based on CRS analysis of HUD data from the Multifamily Assistance and
Section 8 Contracts Database, the Insured Multifamily Mortgages Database, and the 202 Direct Loans database,
as of September 30, 2009.
This report is divided into six main sections. The first section provides greater detail about the six
programs for which housing preservation is an issue. The second section describes how
affordability restrictions come to an end. In the case of financing assistance, this can occur
through mortgage prepayment or maturation, and in the case of rental-assistance, it can occur
when contracts expire. And in cases of both financing and rental-assistance, properties may
become unavailable as affordable housing due to physical deterioration. The second section also
discusses what happens to tenants when affordability restrictions end. In the third section, the
report describes efforts by both Congress and HUD to extend affordability restrictions in these
programs. Some of these efforts have been successful, and some have not. The fourth section
discusses preservation priorities—factors that interested parties (owners, tenants, local
communities, HUD, Members of Congress) may take into consideration when determining
whether a property should be preserved as assisted housing. In the fifth section, the report
presents data about the numbers of properties and units of housing involved in the six programs
discussed throughout the report. The final section of the report discusses various options
regarding how to preserve assisted housing, including current legislation.

(...continued)
units in properties that have rental assistance contracts for some units but that do not receive financing assistance (i.e.
no BMIR/236/202). As shown in Appendix A, there are a total of 1,136,783 units in properties with rental assistance
contracts without financing assistance.
Congressional Research Service
3

Preservation of HUD-Assisted Housing

Additionally, a review and summary of the properties at issue can be found in Appendix A, and a
glossary of key terms can be found in Appendix B.
Properties at Issue
Numerous HUD programs have used subsidies to private owners as a way to develop affordable
rental housing units. HUD first began to interact with private developers and owners in the early
1960s, largely by providing low-interest loans, and later, Federal Housing Administration (FHA)
insurance on mortgages, to developers so that they would have lower debt payments and would in
turn be able to charge lower rents to tenants. Units in developments that resulted from these
arrangements were considered rent restricted, with property owners agreeing to keep rents at an
affordable level. Later, primarily with the creation of Section 8 project-based rental-assistance in
1974, the federal government began to pay a portion of tenant rents directly to owners. In some
cases, property owners received both financing and rental-assistance from HUD. This section of
the report discusses six HUD programs through which private owners (both for-profit and
nonprofit) received assistance from HUD and for which housing preservation is now a concern.
Financing Assistance (Mortgage Loan and/or Insurance Assistance)
For a number of years during the 1960s and 1970s, HUD subsidized the production of affordable
housing through incentives to private developers, including low-interest direct loans and, later,
mortgage insurance through the Federal Housing Administration (FHA).3 The loan and mortgage
insurance assistance was meant to lower building owners’ costs so that the owners could charge
rents that would be affordable to low- and moderate-income families. In exchange for HUD
assistance, building owners agreed to maintain their properties’ affordability for a period of
time—generally anywhere from 20 to 50 years. The primary programs that used these incentives
were the Section 202 loan program, the Section 221(d)(3) BMIR program, and the Section 236
program, each named for the section of the housing acts under which they were created. Although
most of these units did not initially receive rental-assistance, over the years HUD has provided
rental-assistance for some units to ensure that they are affordable to low-income households. (See
discussion under “Rental Assistance” later in this report.)
Section 202 Loan Program
The Section 202 Supportive Housing for the Elderly program,4 enacted as part of the Housing Act
of 1959 (P.L. 86-372), was initially a direct loan program in which the government loaned money
to nonprofit organizations to develop affordable housing for elderly households—defined as those
with a family member age 62 and older. (For-profit entities were not eligible to participate in the
Section 202 loan program.) The Section 202 program operated as a direct loan program until

3 Mortgage insurance encourages private lenders to make loans they would not otherwise offer, or make loans at rates
lower than they would otherwise offer, because the insurance protects the lender from financial losses resulting from
default.
4 The Section 202 program is codified at 12 U.S.C. § 1701q. Regulations can be found at 24 C.F.R. §§ 891.100 -
891.865. Relevant HUD Handbooks are 4350.3, “Occupancy Requirements for Subsidized Multifamily Housing
Programs,” and 4571.3, “Section 202 Supportive Housing for the Elderly.” For more information, see CRS Report
RL33508, Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents, by Libby Perl.
Congressional Research Service
4

Preservation of HUD-Assisted Housing

1990, when the structure of the program changed and HUD began to offer capital grants to
developers instead of direct loans.5 This report focuses on the loan program because the
affordability restrictions attached to the properties funded by capital grants will not begin to
expire until approximately 2030.
The Section 202 loan program had two different phases. From the program’s inception until 1974,
HUD extended loans with low interest rates (generally 3%) to developers. These pre-1974 loans
funded the development of housing for moderate-income, elderly households. Some units were
also set aside to serve tenants with disabilities. In exchange for the assistance provided through
government loans, building owners agreed to ensure that their units were affordable for 50 years.
In 1974, the Housing and Community Development Act (P.L. 93-383) made changes to the
Section 202 loan program. The law changed the interest rate charged on government loans from
3% to the U.S. Treasury’s cost of borrowing. P.L. 93-383 also made Section 8 project-based
rental-assistance available to owners so that units would be affordable for low-income tenants.
The initial duration of the Section 8 rental-assistance contracts was 20 years. (For more
information about Section 8 rental-assistance, see the “Section 8 Project-Based Rental
Assistance” section of this report.)
The income eligibility for tenants in Section 202 housing varies based on the phase at which a
Section 202 property was developed. Units developed in the earliest years of the program, prior to
1962, have no income restrictions. Those developed from 1962 to 1974 serve tenants with low
incomes—at or below 80% of area median income. In general, those developed after 1974 serve
tenants with low- or very-low incomes—at or below 50% of area median income.
During the loan phase of the Section 202 program (through the early 1990s), approximately
216,204 units were developed.6 Currently, the number of Section 202 units with active loans
(versus those funded through capital grants) is approximately 144,506.7
Section 221(d)(3) Below Market Interest Rate Program
The Section 221(d)(3) Below Market Interest Rate (BMIR) program8 was enacted as part of the
Housing Act of 1961 (P.L. 87-70) in order to provide housing for those families with incomes too
high for public housing but too low for market-rate rents.9 Through the program, private lenders

5 See the Cranston-Gonzalez National Affordable Housing Act (P.L. 101-625). These newer units also receive rental-
assistance, referred to as PRAC (Project Rental-assistance Contracts). PRAC is also used as a rental subsidy in the
Section 811 Housing for Persons with Disabilities program.
6 Barbara A. Haley and Robert W. Gray, Section 202 Supportive Housing for the Elderly: Program Status and
Performance Measure
, U.S. Department of Housing and Urban Development, Office of Policy Development and
Research, June 2008, p. 20, http://www.huduser.org/Publications/pdf/sec_202_1.pdf.
7 The estimated number of Section 202 units is based on CRS analysis of HUD’s 202 Direct Loans database as of
September 30, 2009.
8 The Section 221(d)(3) program is codified at 12 U.S.C. § 1715l(d)(3). Regulations can be found at 24 C.F.R. §§ 221.1
- 221.800. The applicable HUD Handbook is 4560.01, “Mortgage Insurance for Multifamily Moderate Income Housing
Projects.”
9 Senate Committee on Banking and Currency, Housing Act of 1961, Senate report to accompany S. 1922, 87th Cong.,
1st sess., S.Rept. 281, May 19, 1961. The Section 221(d)(3) program also contained a market interest rate component,
but unlike the BMIR program, it was not designed to ensure affordability. John R. Gallagher, Nonprofit Housing Rent
Supplement Program Under Section 221(d)(3) of the National Housing Act
(Washington, DC: Urban America, Inc.,
1968), p. 4.
Congressional Research Service
5

Preservation of HUD-Assisted Housing

extended FHA-insured loans with interest rates of 3% and durations of up to 40 years to
developers of multifamily rental housing projects of at least five units.10 Lenders then sold the
mortgages to the Federal National Mortgage Association (Fannie Mae).11 The program continued
until 1968, when the Section 236 program replaced it as a vehicle for producing multifamily
housing for low-income families.
Section 221(d)(3) BMIR units are available to households with incomes up to 95% of the area
median income.12 HUD approves a BMIR rent for each property, and that rent is set and adjusted
based on the budget for the property, including actual operating costs, debt service, and any
allowable dividend. Most residents pay the BMIR rent; however, if, after moving in, a tenant’s
income increases and exceeds 110% of the BMIR income limit, then the household must pay
110% of the BMIR rent.13 Some units are subsidized to assist tenants with low incomes through
the Rent Supplement Program, though many Rent Supplement subsidies have been converted to
Section 8 project-based assistance.14
The Section 221(d)(3) BMIR program created approximately 159,000 units in 845 properties.15
Today, there are roughly 15,218 units in 124 properties with active Section 221(d)(3) BMIR
financing.16
Section 236 Program
The Section 236 program17 was enacted as part of the Housing and Urban Development Act of
1968 (P.L. 90-448). The program, which was active in providing funds to produce new housing
units from 1969 through 1973,18 provided mortgage insurance to housing developers for the

10 Leonard Garland Gaston, “The 221(d)(3) Below Market Interest Rate and Rent Supplement Housing Program”
(Ph.D. dissertation, Ohio State University, 1969), p. 120.
11 John R. Gallagher and John J. O’Donnell, Nonprofit Housing Under Section 221(d)(3) of the National Housing Act
(Washington, DC: Urban America, Inc., 1966), p. 20.
12 HUD Handbook 4350.3, chapter 3, paragraph 3-6. For 2009 BMIR rents, see http://www.huduser.org/datasets/il/il09/
IncomeLimits_236_BHMIR.pdf.
13 Ibid., chapter 5, paragraph 5-29.
14 U.S. Department of Housing and Urban Development, FY2011 Congressional Budget Justifications, p. L-1,
http://hud.gov/offices/cfo/reports/2011/cjs/Rental_Housing_Assistance_Program_2010.pdf (hereinafter, FY2011 HUD
Budget Justifications
).
15 The Section 221(d)(3) program also included a Market Rate program that did not feature mortgage subsidies.
However, some Section 221(d)(3) Market Rate properties received additional assistance in the form of Rent
Supplement contracts, conditioned on use restrictions similar to those in the BMIR program. The Section 221(d)(3)
Market Rate program created roughly 80,000 units in 1,034 properties subject to use restrictions. Preventing the
Disappearance of Low-Income Housing,
Hearing before the Subcommittee on Housing and Community Development
of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, 100th Cong., 2nd Sess., June 8,
1988, p. 61.
16 The estimate of BMIR units is based on CRS analysis of the HUD Mortgages Currently Insured database, as of
September 30, 2009.
17 The Section 236 program is codified at 12 U.S.C. § 1715z-1. Regulations can be found at 24 C.F.R. §§ 236.1-
236.1001. The applicable HUD Handbook is 4350.3, “Occupancy Requirements of Subsidized Multifamily Housing
Programs.”
18 Congress appropriated funds for new Section 236 developments until 1973, when the Nixon Administration
determined that it would make no new funding commitments to federally subsidized housing programs. Although this
moratorium on new subsidized housing ended in 1974 with the enactment of that year’s Housing and Community
Development Act (P.L. 93-383), the Section 236 program was not revived.
Congressional Research Service
6

Preservation of HUD-Assisted Housing

construction and rehabilitation of multifamily housing that would be affordable to low- and
moderate-income families.19 Private nonprofit organizations, limited dividend corporations, and
cooperative housing corporations were eligible to participate. In addition to mortgage insurance,
the program provided (and continues to provide) mortgage subsidies to building owners through a
mechanism called Interest Reduction Payments (IRPs).20 At the time developers built their
housing, they borrowed funds at the market interest rate. The government then provided an IRP
subsidy that ensured that owners would only pay a 1% interest rate on their mortgages.21 The low
interest payments were meant to reduce the financing costs paid by owners, which would, in turn,
permit owners to pass the savings on to tenants by charging lower, more affordable rents.22
Contracts between HUD and building owners for IRPs were initially supposed to last 40 years.23
However, in order to attract developers to the Section 236 program, some contracts enabled
owners to prepay their mortgages after 20 years.24
The Section 236 program serves households with low incomes—those earning 80% or less of the
area median income—although owners may admit over-income tenants in certain
circumstances.25 Tenants pay one of two rent levels: basic rent or market rate rent, depending on
income. The basic rent is the amount the owners need to support the facilities at a 1% mortgage
interest rate.26 Market rate rent is the amount needed to support the facilities at the mortgage
interest rate without the IRPs. Both the basic rent and market rent are set by the property owner
based on the budget of the individual property and are subject to HUD’s approval.27 Tenants pay
the basic rent or 30% of their income, whichever is higher, but rent cannot exceed the market rate.
In addition, some tenants in Section 236 housing have their rents subsidized. HUD initially
provided subsidies through either the Rent Supplement or Rental Assistance Payment (RAP)
programs, but when Section 8 project-based assistance was introduced in 1974, many of the
subsidies were converted to Section 8 assistance.28 (See the “Rent-Assisted Units” section of this
report for more information.)
The Section 236 program created approximately 400,000 units of affordable housing in more than
3,600 properties;29 today, approximately 155,449 units in 1,418 properties continue to be insured

19 12 U.S.C. §1715z-1(j).
20 12 U.S.C. §1715z-1(a).
21 12 U.S.C. §1715z-1(c).
22 HUD was also authorized to make IRP payments to some owners of properties that did not have FHA mortgage
insurance. Specifically, the statute permitted HUD to make IRP payments to properties “whose mortgages were made
by State or local housing finance agencies or State or local government agencies.” 12 U.S.C. § 1715z-1(r). These
properties are referred to as state-aided properties.
23 Hearing before the Senate Special Committee on Aging, Subcommittee on Housing for the Elderly, Adequacy of
Federal Response to Housing Needs of Older Americans
, 92nd Cong., 1st sess., August 2, 1971, p. 130.
24 House Committee on Banking, Finance and Urban Affairs, Subcommittee on Housing and Community
Development, Preventing the Disappearance of Low Income Housing, 100th Cong., 2nd sess., June 8, 1988, p. 4.
25 HUD Handbook 4350.3, chapter 3, paragraphs 3-6 and 3-8. Recent income limits are available at
http://www.huduser.org/portal/datasets/il.html.
26 12 U.S.C. § 1715z-1(f).
27 Ibid. Note that HUD has the authority to set higher, market-based, basic and market rents for units with rental-
assistance.
28 FY2011 HUD Budget Justifications, p. M-2.
29 Preventing the Disappearance of Low-Income Housing, Hearing before the Subcommittee on Housing and
Community Development of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, 100th
Congress, 2nd Session, June 8, 1988.
Congressional Research Service
7

Preservation of HUD-Assisted Housing

through the Section 236 program.30 As many as 249,000 units continue to receive IRPs;31 this
number is higher than the number of insured units as a result of IRP “decoupling,” a process in
which owners may prepay their insured mortgages and continue to receive IRPs. The process is
discussed later in this report, in the section “IRP Decoupling.”
Rental Assistance
As discussed previously, the early federal housing programs provided financing assistance to
private developers of affordable housing with the idea that the reduced capital and/or debt service
costs would allow owners to charge low rents that would be affordable to lower-income families.
Over time, it became clear that the financing assistance was not sufficient to make rents low
enough to be affordable to the poorest families while still maintaining the financial viability of
the properties. In order to more deeply target housing assistance to the poorest families while also
ensuring that property owners received sufficient rental income to successfully operate their
properties, the federal government began providing rental-assistance contracts to private property
owners for all or a portion of their units. The rental-assistance contracts—referred to as project-
based rental-assistance because the assistance is tied to specific units in a project—permitted
tenants to pay a lower, income-based rent, with the federal government making up the difference
between a tenant’s contribution and the rent for the unit, as set by HUD. With the creation of the
Section 8 project-based rental-assistance program in the mid-1970s, rental-assistance contracts
became the primary form of federal assistance for new affordable multifamily housing
developments until the program was ended in the mid-1980s.
The Rent Supplement Program
The Rent Supplement program32 was enacted as part of the Housing and Urban Development Act
of 1965 (P.L. 89-117) to subsidize the rent payments of low-income households living in certain
federally assisted properties, including those with Section 221(d)(3) mortgage insurance and
Section 202 loans.33 Under the Rent Supplement program, HUD entered into contracts with
building owners to make up the difference between 25% of tenant income (later raised to 30%)
and the rent for the unit.34 Generally, up to 20% of units in a building were eligible for Rent
Supplement payments, although the Housing and Urban Development Act of 1969 (P.L. 91-152)
made up to 40% of units eligible for subsidy payments if the HUD Secretary determined it was
necessary.35 Rent Supplement contracts were written for the duration of the HUD-insured
mortgage.36

30 Figure based on CRS analysis of data from the Insured Multifamily Mortgages Database.
31 FY2011 HUD Budget Justifications, p. M-1.
32 The Rent Supplement program is codified at 12 U.S.C. § 1701s. Regulations can be found at 24 CFR § 215, as in
effect immediately before May 1, 1995. The applicable HUD Handbook is 4350.3, “Occupancy Requirements of
Subsidized Multifamily Housing Programs.”
33 The program was initially developed to supplement Section 221(d)(3) units; however, when the Section 221(d)(3)
program was replaced with the Section 236 program in 1968 (P.L. 90-448), Section 236 units were made eligible for
Rent Supplement contracts in the same law.
34 12 U.S.C. § 1701s(d) and 12 U.S.C. § 1715z-1(f).
35 12 U.S.C. § 1701s(j)(1)(d).
36 FY2011 HUD Budget Justifications, p. L-1.
Congressional Research Service
8

Preservation of HUD-Assisted Housing

The Rent Supplement program was suspended in 1973 when President Nixon imposed a
moratorium on the new construction of subsidized housing (the “Nixon Moratorium”). Most Rent
Supplement contracts were converted to Section 8 contracts in the mid-1980s.37 The main
exception was properties that were financed with state funds rather than an FHA-insured
mortgage. At its peak, the Rent Supplement program assisted 179,908 units.38 Between
conversions to Section 8 and contract expirations, there are far fewer contracts today. According
to HUD, the remaining Rent Supplement contracts are primarily found in state-aided properties.39
Today, there are about 12,847 Rent Supplement units.40
The Rental Assistance Payment (RAP) Program
In the Housing and Community Development Act of 1974 (P.L. 93-383), Congress created the
Rental Assistance Payment (RAP) program.41 The RAP program was designed to provide
additional rental-assistance contracts to Section 236 properties. As with Rent Supplement
contracts, RAP contracts were meant to allow property owners to serve lower-income families
than they otherwise might be able to serve. Since no new Section 236 commitments were entered
into following the Nixon Moratorium, RAP contracts were made available to existing Section 236
properties. RAP contracts were limited to 20% of a property’s units (or more at the discretion of
the Secretary),42 and were written for the duration of the FHA-insured mortgage or 40 years,
whichever was shorter.43
As with the Rent Supplement program, most RAP contracts were converted to Section 8 contracts
in the mid-1980s. Today, there are about 15,870 RAP units remaining.44
Section 8 Project-Based Rental Assistance
In addition to creating the Rental Assistance Payment program for existing Section 236
properties, the Housing and Community Development Act of 1974 also created a new program

37 See Department of Housing and Urban Development FY2010 Budget Justifications, p. N-1, http://www.hud.gov/
offices/cfo/reports/2010/cjs/hsg2010.pdf. On May 19, 1992, a Notice of Funding Availability (NOFA) entitled “Fund
Availability (NOFA) for the Conversion of Rent Supplement and Rental-assistance Program Units to Section 8
Assistance” was published at 57 Federal Register 21334 announcing funds for the conversion of Rent Supplement
project units to Section 8 assistance under the loan management set-aside program. This conversion was authorized by
Title II of the FY1992 Departments of Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Act. About 10 years earlier, a similar conversion from Rent Supplement to Section 8
assistance occurred.
38 Data taken from CRS Report 89-100E, Trends in Funding and Numbers of Households in HUD-Assisted Housing,
Fiscal Years 1975-1989
, by Grace Milgrim, March 9, 1989.
39 FY2011 HUD Budget Justifications, p. L-1.
40 Data based on CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database, as of
September 30, 2009.
41 The Rental Assistance Payment program is codified at 12 U.S.C. § 1715z-1(f)(2). Regulations can be found at 24
CFR §§ 236.701-765. The applicable HUD Handbook is 4350.3, “Occupancy Requirements of Subsidized Multifamily
Housing Programs.”
42 Section 236f(2), as added by Section 212 of the Housing and Community Development Act of 1974.
43 24 C.F.R. §236.725.
44 Data based on CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database, as of
September 30, 2009.
Congressional Research Service
9

Preservation of HUD-Assisted Housing

called the Section 8 program.45 The Section 8 program consisted of three components: new
construction, substantial rehabilitation, and existing housing certificates. The first two
components were designed to promote the development of new housing, whereas the latter was
designed to subsidize rents in the existing housing stock. Later, HUD expanded the use of Section
8 project-based rental-assistance by making it available to properties with HUD financing
assistance, including those with Section 202 loans and Section 221(d)(3) and Section 236
mortgage insurance.
New Construction, Substantial Rehabilitation, Existing Housing
Under the new construction and substantial rehabilitation components of the early Section 8
program, HUD entered into long-term (20- or 40-year) contracts46 with private property owners
who were willing to construct new units or rehabilitate older ones to house low- and very low-
income tenants. Owners could be for-profit or nonprofit entities and the contracts could cover all
or part of the units in their developments. Some of these new properties were financed with FHA-
insured mortgages, some were financed with state-based financing, and some were built without
insured or assisted financing.
Under the Section 8 program, HUD agreed to make housing assistance payments (HAP) toward
each unit covered under the contract for the duration of the contract. Those assistance payments
made up the difference between a previously agreed-upon rent and the tenants’ required
contribution toward rent (initially 25%—later raised to 30%—of their adjusted income ). The
rents were generally not to exceed 110% of the Fair Market Rent (FMR) established by HUD,
although they could go as high as 20% above FMR if the Secretary determined it to be necessary
in special circumstances. 47 In order to receive assistance, all assisted units had to be rented to
low-income families, and some proportion of the units had to be rented to very low-income
families.48
The existing housing portion of the Section 8 program—also called the Section 8 certificate
program—was tenant-based, meaning that the assistance was tied to a tenant rather than a unit.
Under the certificate program, HUD would provide the local public housing authorities (PHAs)
that own and manage public housing with renewable contracts49 for a specified number of
certificates. PHAs would then award those certificates to eligible families, who could use them to
rent the housing of their choice in the private market. HUD would pay the difference between the
tenant’s contribution toward the rent (30% of family income) and the rent for the unit. The
contract rent was generally limited to the HUD-set FMR for the area.50

45 The Section 8 program is codified at 42 U.S.C. § 1437f. Regulations can be found at 24 CFR §§ 880-888. The
applicable HUD Handbook is 4350.3, “Occupancy Requirements of Subsidized Multifamily Housing Programs.”
46 The authorizing statute permitted contract terms of up to 20 years for most properties and up to 40 years for state-
aided properties. See U.S. Housing Act of 1937, Section 8(e)(1), as added by the Housing and Community
Development Act of 1974.
47 See 42 U.S.C. § 1437f(c), 1976 edition.
48 See 42 U.S.C. § 1437f(c)(5)-(7), 1976 edition, and 42 U.S.C. § 1437n(c), 2009 edition.
49 The authorizing statute specified that contracts could be no less than one month and no more than 15 months. See 42
U.S.C. § 1437f(d), 1976 edition.
50 42 USC §1437f(c).
Congressional Research Service
10

Preservation of HUD-Assisted Housing

The Housing and Community Development Amendments of 1978 (P.L. 95-557) added a moderate
rehabilitation component to the Section 8 program. Under Section 8 Moderate Rehabilitation
(Mod-Rehab), rental-assistance was provided to projects that were in need of repairs costing at
least $1,000 per unit to make the housing decent, safe, and sanitary.51
By the early 1980s, concern about the Section 8 program was growing, particularly about the
development of new units under the new construction and substantial rehabilitation portions of
the program. The program was perceived as having per-unit costs that were too high and
development times that were too slow, which was leading to the accumulation of large amounts of
unused funding. Concern was also growing about the implications of project-based assistance
models, which resulted in properties with high concentrations of poverty. Also, because contracts
were written for such long terms, appropriators had to provide large amounts of budget authority
each time they funded a new contract. As the budget deficit grew, many Members of Congress
became concerned with the high costs associated with Section 8 new construction and substantial
rehabilitation, and these segments of the Section 8 program were repealed in the Housing and
Urban-Rural Recovery Act of 1983 (P.L. 98-181).52 The 1983 act also created a new, tenant-based
housing voucher program, similar to the Section 8 existing certificate program.53 The Section 8
existing program was eventually replaced by the Section 8 Housing Choice Voucher program,
which is the largest direct housing assistance program in use today.54
Additional Uses of Section 8 Project-Based Rental Assistance
Several other forms of Section 8 project-based rental-assistance, or uses for existing Section 8
project-based rental-assistance, were developed following the 1974 act, several of which were
targeted to properties that had been constructed with HUD-assisted financing through the Section
202, Section 221(d)(3)BMIR, and Section 236 programs.
HUD created the Section 8 Loan Management Set Aside (LMSA) initiative55 in 1976 as a way
to reduce claims on HUD’s FHA insurance fund and to reduce the rent burdens on low-income
families.56 Financially troubled FHA-insured properties (including properties with Section 202
loans and Section 221(d)(3) and Section 236 insured financing) were eligible to apply to receive

51 Following criticism of the program for high expense and mismanagement, authority for Section 8 Moderate
Rehabilitation contracts was repealed in 1991. Section 289(b) of P.L. 101-625 repealed authority for the Mod Rehab
program, effective October 1, 1991, except with respect to single room occupancy dwellings for homeless individuals.
For more information on problems with the Moderate Rehabilitation program, see U.S. Congress, Senate Committee on
Banking, Housing, and Urban Affairs, Subcommittee on HUD/Mod Rehab Investigation, Final Report and
Recommendations
, Committee Print, 101st Cong., 2 sess., S. Prt. 101-124 (Washington: GPO, 1990).
52 While the authority for Section 8 contracts on new properties was repealed, HUD continued to provide Section 8
project-based rental-assistance contracts through programs such as LMSA and Property Disposition for several years
after the repeal.
53 The original voucher program was created as a five-year demonstration. It was reauthorized and made permanent by
the Housing and Community Development Act of 1987 (P.L. 100-242).
54 The current Section 8 voucher program is similar to the previous Section 8 existing program, in that it provides
portable rent subsidies for families to use in the housing of their choice. It was initially created in the early 1980s and it
fully replaced the Section 8 existing program in 1998. For more information, see CRS Report RL32284, An Overview
of the Section 8 Housing Programs
, by Maggie McCarty.
55 The regulations governing LMSA can be found at 24 C.F.R. § 886 Part A and the relevant HUD Handbook is HUD
Handbook 4350.2, “Section 8 Loan Management Set-Aside Program for Projects.”
56 The interim rule establishing the program was published in 41 Federal Register 12170, March 23, 1976.
Congressional Research Service
11

Preservation of HUD-Assisted Housing

an allocation of Section 8 rental-assistance for up to 100% of their units. This allowed tenants to
pay income-based rents (up to 100% of FMR, or 120% with prior HUD permission).57 The
federal government paid the difference between the tenant rents and a rent level necessary to help
the property avoid a default and subsequent claim on the FHA fund. Rents could be adjusted
annually, or more frequently at HUD’s option. Adjustments were based on a written request of an
owner or on an Annual Adjustment Factor (AAF).58 Owners would also be paid 80% of their rent
for units vacant for up to 60 days. Section 8 contract terms under LMSA were initially five years,
renewable in five-year increments. Congress stopped providing funding for LMSA in FY1994.59
The Housing and Community Development Act of 1987 (P.L. 100-242), as a part of broader
preservation proposals, required HUD to provide Section 8 contracts in several additional
circumstances. Title I60 required HUD to facilitate the sale to a third party of FHA-insured
properties that HUD had acquired through foreclosure.61 These properties included those financed
through the Section 221(d)(3) BMIR program and the Section 236 program. HUD met the
requirement by providing rental-assistance contracts to purchasers through the Section 8
Property Disposition
program. In 1995, HUD stopped entering into new Section 8 property
disposition contracts and began using Section 8 tenant-based vouchers once properties were
sold.62
Title II of the Housing and Community Development Act authorized the provision of new Section
8 contracts as a part of preservation transactions. Under the Housing Preservation Program,
HUD entered into project-based Section 8 contracts with owners of HUD-assisted multifamily
properties (including Section 221(d)(3) and Section 236 insured mortgages) at risk of leaving the
affordable housing stock as an incentive to owners keep their properties affordable. The program
ran from 1987 to 1996; in 1997, Congress discontinued the use of these contracts as a cost-saving
measure and the program was terminated in 1998.63
Current Status
While HUD does not have authority to enter into new Section 8 project-based rental-assistance
contracts, there are roughly 1.2 million Section 8 project-based units still under contract.64 Of
those units, about two-thirds were subsidized through the new construction, substantial
rehabilitation, and moderate rehabilitation versions of Section 8. About a quarter were subsidized

57 For Section 221(d)(3) BMIR, Section 236, and Section 202, Section 8 subsidies were the difference between the
previously established rent for the unit and the tenant contribution ( 24 C.F.R. § 886.118).
58 24 C.F.R. § 886.112. Contract rents are generally adjusted annually based on the AAF. The AAF is derived from data
on residential housing costs in particular market areas. In some cases, HUD can also make rent adjustments based on
property-specific budget needs, at the request of the owner.
59 U.S. General Accounting Office, Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating and
Using Unexpended Balances Are Ineffective
, GAO/RCED-98-202, July 1998, p. 14, http://www.gao.gov/archive/1998/
rc98202.pdf.
60 See § 181 of P.L. 100-242.
61 The regulations governing Property Disposition can be found at 24 C.F.R. § 886 Part C.
62 U.S. General Accounting Office, Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating and
Using Unexpended Balances are Ineffective
, GAO/RCED-98-202, July 1998, p. 16, http://www.gao.gov/archive/1998/
rc98202.pdf.
63 Ibid. p. 16.
64 Data based on CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database, as of
September 30, 2009.
Congressional Research Service
12

Preservation of HUD-Assisted Housing

through the LMSA version, and about half the remaining units were subsidized through the
property disposition and preservation versions.
The Annual Contributions Contracts between owners and HUD describe how many units in an
owner’s property are subsidized, as well as how the rent level was set and how rent is to be
adjusted.65 Owners are required to maintain their properties according to HUD-set quality
standards, and are required, generally, to contribute to a replacement reserve account. For the
most part, HUD has contracted with third parties, referred to as Performance-Based Contract
Administrators (PBCAs), to manage Section 8 project-based contracts.66
As discussed later in this report (“Mark-to-Market and Section 8 Renewal”), when project-based
Section 8 contracts expire, the owner can choose to either renew the contract with HUD67 or leave
the program and charge market rents for units. When an owner ends a HAP contract with HUD,
the tenants in the building are provided with vouchers designed to allow them to stay in their unit.
(See “Implications for Tenants” later in this report.)
Residual Receipts
In some cases, income from a Section 202, Section 221(d)(3), Section 236, or Section 8 rent-assisted property (rents
plus subsidy) is greater than the amount needed to meet the operating costs, debt service, and replacement reserves
for the property. Some for-profit owners are permitted to keep all excess income generated from their property.
Other for-profit owners, called “limited-dividend” owners, are capped at the amount of excess income they can
retain. Nonprofit owners are not permitted to keep excess funding.
In the case of “limited-dividend” for-profit owners, as well as nonprofit owners, excess income must be deposited in a
“residual receipts” account. HUD may permit owners to take allocations from the residual receipts account in a
limited number of circumstances, such as to make repairs to a property.
At the end of the affordability agreement, except in the case of certain Section 8 properties, any remaining funds in
the residual receipts account reverts to the property owner. In the case of certain properties with Section 8
contracts entered into after 1979 (referred to as New Regulation, or New Reg, properties), any remaining funds
revert to HUD. (For more information about Residual Receipts, see Chapter 25 of HUD Handbook 4350.1.)
How Affordability Restrictions Come to an End
A variety of circumstances may lead owners to stop providing affordable housing and leave HUD
subsidized housing programs. In high-rent areas, owners may decide to pay off their assisted
mortgages or choose not to renew a Section 8 rental-assistance contract in order to convert a
property to market-rate housing or to sell the building at a profit. In cases where a property has
been allowed to deteriorate significantly or the owner has violated the HUD program rules in
other ways, HUD may choose to end a contract with an owner. This section details these
possibilities.

65 24 C.F.R. §§ 888.111 through 888.420.
66 PBCAs are all PHAs, and most are also State Housing Finance Agencies. They are paid a fee by HUD to manage the
contracts, including ensuring that HAPs are paid, conducting management and occupancy reviews, and following up
after physical inspections.
67 The ability of HUD to renew contracts is subject to appropriations from Congress. Generally, Congress has provided
sufficient appropriations for HUD to renew all contracts with owners who wish to renew.
Congressional Research Service
13

Preservation of HUD-Assisted Housing

Financing Assistance: Mortgage Prepayment and Maturation
The federal affordability restrictions on assisted housing come to an end when owners prepay
their mortgages (if prepayment is an option), when the mortgages mature, or if HUD chooses to
terminate its contract with a housing provider. The circumstances under which affordability
restrictions may come to an end depend on the program under which the property was developed.
Section 236 and Section 221(d)(3) BMIR
Section 236 and Section 221(d)(3) program contracts can come to an end through both mortgage
prepayment and mortgage maturation. In both programs, the initial term of the affordability
restrictions was to be 40 years, the same as the duration of the mortgages. However, in order to
attract property owners to the programs, HUD inserted clauses in many mortgage contracts
allowing owners to prepay their mortgages after 20 years without HUD approval.68 The ability to
prepay is limited to for-profit owners; units owned by for-profit owners made up about 62% of
the total Section 236 housing stock and 59% of the total Section 221(d)(3) BMIR inventory.69
Because Section 221(d)(3) and Section 236 properties were funded prior to 1974, owners became
eligible to prepay by the mid-1990s.
An owner’s ability to prepay is also dependent on whether there is a rental-assistance contract
attached to all or a portion of the units. Owners with no rental-assistance contracts can prepay the
mortgage, at which point tenants receive enhanced Section 8 vouchers that allow them to either
stay in their units or move elsewhere. 70 (For more information about enhanced vouchers, see the
“Implications for Tenants” section of this report.) Owners with Rent Supplement contracts cannot
prepay their mortgages.71 For owners with Section 8 contracts, rental-assistance payments are to
continue through the contract term, at which point the owner can opt out of the Section 8
program. At that point, income-eligible tenants receive enhanced Section 8 vouchers.72 According
to HUD, between 1998 and 2004 approximately 1,409 Section 236 and Section 221(d)(3) BMIR
property owners prepaid their mortgages.73
Section 236 and Section 221(d)(3) owners also can choose to convert units to market-rate housing
at the end of the 40-year mortgage term. At that point, if any Rent Supplement contract is still in

68 Sara E. Johnson, “In Depth Review of the Title VI Program,” Prepared for the Making LIHPRHA Work Conference,
Washington, DC, October 8, 1992, p. A-19 (hereinafter, “In Depth Review of the Title VI Program”). The rights of for-
profit (limited dividend) owners to prepay were outlined in regulation. For Section 236, see 24 C.F.R. § 236.30 (1971)
and for Section 221(d)(3), see 24 C.F.R. § 221.524 (1969).
69 The National Low Income Housing Preservation Commission, Preventing the Disappearance of Low-Income
Housing
, Report to Congress, Washington, DC, 1988, p. 19 (hereinafter, Preventing the Disappearance of Low-Income
Housing
).
70 U.S. Department of Housing and Urban Development, Notice PIH 01-41, Section 8 Tenant-Based Assistance
(Enhanced and Regular Housing Choice Vouchers) for Housing Conversion Actions: Policy and Processing Guidance
,
issued November 14, 2001, pp. 21-22 (hereinafter, HUD Notice PIH 01-41).
71 24 C.F.R. § 236.30(a)(1)(i) (1995) and 24 C.F.R. § 221.524(a)(1)(ii) (1995).
72 HUD Notice PIH 01-41, pp. 18-24.
73 Meryl Finkel et al., Multifamily Properties: Opting In, Opting Out and Remaining Affordable, Department of
Housing and Urban Development, Prepared by Econometrica and Abt Associates, Washington, DC, January 2006, p.
14, http://www.huduser.org/Publications/pdf/opting_in.pdf (hereinafter, Multifamily Properties: Opting In, Opting Out
and Remaining Affordable
).
Congressional Research Service
14

Preservation of HUD-Assisted Housing

place, it will be terminated.74 Section 8 contracts continue until their expiration, at which point
tenants receive enhanced vouchers. If units are not rent assisted, then tenants do not receive
Section 8 vouchers upon mortgage maturation.
Section 202 Loan Program
Although Section 202 owners may prepay their loans under certain circumstances, in general,
prepayment does not result in the end of affordability restrictions. As part of an FY1984
supplemental appropriations act (P.L. 98-181), Section 202 owners were given the option of
prepaying their loans with HUD permission. However, under the law’s provisions, owners are
required to continue to operate the property through the date of the original loan under terms at
least as advantageous to tenants as those under the original loan. The American Homeownership
and Economic Opportunity Act of 2000 (P.L. 106-569) added that, if there is a rental-assistance
contract in place, the property owner must continue to operate under the terms required by the
rental-assistance contract through loan maturity.75
While most Section 202 owners may only prepay their loans with HUD permission, there is an
exception for some properties that were financed between 1977 and 1982 where owners had
written into the contract the right to prepay their loans without permission from HUD.76 However,
because most Section 202 units financed during this time period also received Section 8
assistance, prepayment does not necessarily mean an end to tenant assistance because Section 8
rental-assistance contracts continue in place until contract expiration.77 If units have Rent
Supplement contracts, those contracts terminate at the time of prepayment and tenants receive
regular Section 8 vouchers.78 If owners with the right to prepay without notice choose instead to
follow HUD guidelines and give notice of intent to prepay, then the Rent Supplement and Section
8 contracts continue in place. 79
Section 202 units may also convert to market-rate housing when the loans reach the end of the
40- or 50-year maturation period. As with the Section 236 and Section 221(d)(3) programs, if any
Rent Supplement contract is in place, it will be terminated at the end of the loan. Section 8
contracts continue until their expiration, at which point tenants receive enhanced vouchers if

74 HUD Notice PIH 01-41, p. 19.
75 P.L. 106-569 further gave Section 202 owners the ability to refinance their mortgages if they obtain a loan with a
lower interest rate, and if the new loan results in reduced debt service (i.e. reduced principal and interest payments).
These requirements have made it difficult (if not impossible) for owners of older Section 202 developments—those
with interest rates at about 3%—to refinance due to an inability to find lower interest rates.
76 U.S. Department of Housing and Urban Development, Notice H 02-16, Prepayment of Direct Loans on Section 202
and 202/8 Projects with Inclusion of FHA Mortgage Insurance Guidelines
, issued August 23, 2002, p. 3 (hereinafter,
HUD Notice H 02-16).
77 In addition, if owners applied to HUD for permission to prepay and followed HUD prepayment requirements, they
would be exempt from the requirements of the Multifamily Assisted Housing Reform and Accountability Act
(MAHRA). Provisions exempting Section 202 owners who refinance pursuant to P.L. 106-569 were codified as part of
the FY2002 Departments of Labor, and Health and Human Services, and Education Appropriations Act (P.L. 107-116).
See Section 612(h). For more information, see the “Section 8 Expiring Contracts, Renewals, and the Multifamily
Assisted Housing Reform and Accountability Act (MAHRA)” section of this report.
78 HUD Notice H 02-16, pp. 11-12. However, if the owner was also opting out of a Section 8 contract, then tenants
receiving Rent Supplement assistance would receive enhanced vouchers. HUD Notice PIH 01-41, p. 18.
79 Ibid., pp. 9-10.
Congressional Research Service
15

Preservation of HUD-Assisted Housing

owners choose not to renew. If units are not rent assisted, then tenants do not receive Section 8
vouchers upon mortgage maturation.
Rental Assistance: Expiring Rental-Assistance Contracts
Section 8
When Section 8 project-based housing assistance payment (HAP) contracts expire, the property
owner can, generally, either renew the contract with HUD or leave the program. If the owner
chooses not to renew the contract, and faces no further restrictions on the property,80 the owner
can choose to charge whatever rent the market will bear,81 or sell or convert the property to
another use. As discussed later in this report, a number of factors can influence a property
owner’s decision to either stay in the Section 8 program or to leave, such as the state of the
housing market, other available options, and the mission/profit orientation of the owner.
However, if the property is in poor condition, then the owner may not have the option to renew
the contract, as HUD may choose not to renew.
When a HAP contract with HUD ends, the tenants in the building are provided with some form of
voucher designed to either allow them to stay in their unit or move to a new home.
According to a HUD analysis, from 1998-2004, owners of over 11,000 properties (nearly 800,000
units) chose to renew their Section 8 contracts and owners of 1,363 properties (nearly 80,000
units) chose to opt-out of their Section 8 contract. Another 1,367 properties (almost 110,000
units) had been foreclosed upon or enforcement action had been taken.82
RAP and Rent Supplement
Unlike Section 8 project-based rental-assistance, HUD has no authority to renew RAP and Rent
Supplement contracts when they expire. These contracts generally expire at the same time that the
assisted mortgages mature. Upon expiration, tenants being assisted under RAP contracts are not
eligible for tenant protection vouchers; tenants being assisted under Rent Supplement contracts
are eligible for tenant protection vouchers, and in some cases, enhanced vouchers.83
Troubled Properties
Another way that properties can leave the assisted housing stock is when HUD chooses to sever
the contract with a troubled property or through an owner’s default on an FHA-insured mortgage
or HUD loan. HUD regularly assesses both the physical and financial health of the multifamily
insured and assisted housing stock through its Real Estate Assessment Center (REAC).

80 If the property also had assisted financing, it is possible that the property could continue to be subject to affordability
restrictions after the expiration of the rental-assistance contract.
81 This is assuming the jurisdiction in which the property is located has not adopted local rent control or rent
stabilization policies.
82 Multifamily Properties: Opting In, Opting Out and Remaining Affordable, p. 15.
83 Tenants can receive enhanced vouchers if the property includes a project-based Section 8 contract that is also
expiring. For more information, see HUD Notice PIH 01-41.
Congressional Research Service
16

Preservation of HUD-Assisted Housing

As a condition of receiving mortgage assistance, rental-assistance, or both, property owners agree
to maintain their properties according to both local building codes and HUD’s Uniform Physical
Condition Standards (UPCS).84 If owners fail to maintain their properties, HUD can find them in
default of their contracts.
Properties are periodically inspected to ensure that they comply with the UPCS.85 Based on the
findings of those inspections, each property is assigned a numeric score.86 Any score below 60 is
considered at risk,87 and these properties are referred to the Departmental Enforcement Center
(DEC).88 Once a property has been referred to the DEC, the owner meets with the DEC staff and
then has 60 days to make repairs necessary to raise the score above the failing point. If the owner
cannot or will not repair the property within 60 days, then HUD will find the property in default
of its assistance contract. When a property defaults on its contract, HUD has a number of options.
In the case of a project-based rental-assistance property, HUD can choose to abate, or end, the
Section 8 contract and issue vouchers to the tenants. In the case of a property with an assisted
mortgage, HUD can choose to pursue foreclosure of the property and take ownership. HUD can
also encourage the owner to pursue a transfer of the property to another owner. Federal
regulations give HUD broad flexibility to use its discretion in these cases.89
According to HUD’s FY2009 Performance and Accountability Report, 93.3% of privately owned,
HUD-insured properties met HUD’s physical condition standards in FY2009.90 While the
majority of the stock passed inspection, some units among those that failed were found to have
multiple exigent health and safety concerns.91
HUD can also choose to take action against a property owner for financial reasons. All owners of
HUD-insured, HUD-held, and assisted properties must submit annual financial statement and
audit information to REAC.92 REAC reviews the statements to determine the financial health of
properties in their various portfolios, protect the Department from financial loss (through claims
on the FHA insurance fund), ensure proper use of revenues and federal subsidies, and assess

84 The standards can be found at 24 C.F.R. Part 200, Subpart S, §§ 200.925 through 200.955.
85 HUD has adopted a “3-2-1” model, where properties that have the highest inspection scores are only inspected every
three years, properties with good scores are inspected every two years, and properties with troubled scores are
inspected every year.
86 The scoring process is described in 24 C.F.R. Part 200, Subpart P, §§ 200.850 through 200.857.
87 Regardless of the score, any exigent health and safety concerns must be mitigated immediately and written
notification must be provided to HUD within three days. 24 C.F.R. § 200.857(c)(2).
88 While the regulation (24 C.F.R. § 200.857(h)) requires that any property with a score below 30 be automatically
referred to the DEC, HUD changed its procedures as of November 1, 2002, so that any property with a score below 60
is now referred to the DEC. See January 16, 2003, Memorandum from Beverly J. Miller, Director, Office of
Multifamily Asset Management, subject: Properties With Inspection Scores Under 60 Points, http://www.hud.gov/
offices/hsg/mfh/hto/60points.pdf.
89 See 24 CFR § 200.857(i).
90 U.S. Department of Housing and Urban Development, FY2009 Performance and Accountability Report, November
16, 2009, p. 135, http://hud.gov/offices/cfo/reports/hudfy2009par.pdf (hereinafter FY2009 Performance and
Accountability Report
).
91 The average number of exigent health and safety violations found in failing properties was 2.73, which is a
significant decrease from the average of 7.6 in FY2006. FY2009 Performance and Accountability Report, p. 118.
92 24 C.F.R. Part 5 Subpart H, §§ 200.210 through 200.245.
Congressional Research Service
17

Preservation of HUD-Assisted Housing

owner compliance with Business Agreements (e.g., use restrictions, Housing Assistance Payment
Contracts, etc.).93
If an owner is found to be improperly managing its federal funds in the program, then HUD can
find the owner in default of the assistance contract and take action against the owner. That action
could include financial penalties, but could also lead HUD to terminate the assistance contract.
Again, HUD has broad discretion in determining how to handle properties with financial
irregularities. According to HUD’s FY2009 Performance and Accountability Report, 98.6% of
multifamily assisted and/or insured properties had no compliance issues or audit findings, or had
any such issues or findings resolved by the end of the fiscal year.94
From 1998 through 2004, according to HUD, 2,385 properties with 182,945 units had left the
assisted housing stock as a result of HUD enforcement action or foreclosure.95
Implications for Tenants
In some cases, when an affordability restriction on a HUD-assisted property ends, low-income
tenants may receive a rent subsidy to help protect them from rent increases or allow them to move
to a new unit and pay an affordable rent.96 These rent subsidies are provided in the form of
Section 8 Housing Choice Vouchers. Families receiving Section 8 vouchers generally pay 30% of
their income toward their rent for the unit of their choice in the private market, and HUD makes
up the difference between the tenant’s payment and rent for the unit. Vouchers are portable, which
means if a family chooses to move, they can take their voucher subsidy with them.
When vouchers are provided to families who are losing other forms of HUD-assisted housing
(such as when affordability restrictions end), they are referred to as tenant protection vouchers.97
One difference between tenant protection vouchers and regular Section 8 vouchers is that families
who receive tenant protection vouchers must pay at least as much rent as they were paying under
their previous assistance program, even if it exceeds 30% of their income. Some tenant protection
vouchers, called enhanced vouchers, have special features that allow them to increase to values
higher than normally allowed in the voucher program in order to allow families to remain in their
units as rents increase.
Tenant protection vouchers are generally provided to families who are losing their assistance as a
result of HUD enforcement and property disposition actions (through foreclosure or abatement of
a Section 8 contract) and when certain Rent Supplement contracts end (where there is not also a
Section 8 project-based contract in place).
Enhanced vouchers are generally provided to families who are losing their assistance because an
owner decided to opt-out of renewing a project-based Section 8 rental-assistance contract.

93 Department of Housing and Urban Development, “Industry User Guide for the Financial Assessment Subsystem—
Multifamily Housing (FASSUB),” Release 7.0.0.0, http://www.disasterhousing.gov/offices/reac/products/fass/
fassmf_pdfs/chap1_introduction.pdf.
94 FY2009 Performance and Accountability Report, p. 136.
95 Multifamily Properties: Opting In, Opting Out and Remaining Affordable, p. 15.
96 These vouchers are not automatically provided; Congress must first appropriate funding for these vouchers. Congress
has typically provided sufficient funding to provide tenant protection and enhanced vouchers to all eligible families.
97 See HUD Notice PIH 2001-41 for more details about enhanced and tenant protection vouchers.
Congressional Research Service
18

Preservation of HUD-Assisted Housing

Enhanced vouchers are also provided to tenants in certain properties when owners prepay their
assisted mortgages. Generally, tenants in properties with mortgages that can be prepaid without
prior HUD approval are eligible to receive enhanced voucher assistance. When enhanced
vouchers are issued following a prepayment, all eligible families receive a voucher, not just those
who were receiving assistance prior to the prepayment. In order to be eligible, families must be
low income, or have moderate incomes if they are elderly or disabled, or must live in a low-
vacancy area. Enhanced vouchers lose their enhanced nature and convert to regular vouchers
when and if a family moves from its original property.
In some cases, families do not receive tenant protection or enhanced vouchers when affordability
agreements end. Families who live in properties where the affordability agreement would be
terminated upon mortgage prepayment, and prior HUD approval to prepay is required, would not
generally receive tenant protection or enhanced vouchers upon mortgage prepayment. The types
of properties that fit this category include those with nonprofit owners, those with certain limited-
dividend owners,98 and those with certain for-profit owners, including those with Rent
Supplement contracts and those with other assistance.99 Additionally, families living in properties
with maturing mortgages without Section 8 assistance and tenants with assistance through the old
Rental Assistance Payment (RAP) program do not currently receive either tenant protection or
enhanced vouchers.
Previous and Ongoing Efforts to Preserve
Assisted Housing

By the mid-1980s, Congress and HUD had become concerned about the potential loss of
hundreds of thousands of units of privately owned, assisted housing serving low-income families.
Under the direction of Congress and HUD, a “National Housing Preservation Task Force” was
convened. The Task Force’s final report, issued in 1987, identified four primary threats to the
inventory: expiration of rental-assistance contracts, maturation of secondary financing, an aging
housing supply with limited incentives for owners to maintain properties, and owners becoming
eligible to prepay. Of the more than 2 million units in the assisted housing inventory at the time,
the Task Force identified 645,000 as being the most vulnerable to loss.100
In response to these concerns about the loss of the assisted housing inventory, Congress enacted
several laws that gave private owners of HUD-assisted housing incentives to maintain the
affordability of their properties. One of these laws, the Multifamily Assisted Housing Reform and
Accountability Act (P.L. 105-65) is currently in effect and addresses the renewal of Section 8
contracts between HUD and property owners. Two other laws, neither of which are currently in
effect, addressed mortgage prepayments by private owners. These are the Emergency Low-
Income Housing Preservation Act (P.L. 100-242) and the Low-Income Housing Preservation and
Resident Homeownership Act (P.L. 101-625). While these laws are no longer in effect, the
properties that went through their preservation processes are still governed by the agreements that
were established at the time. This section describes these laws and their current status.

98 Specifically, this involves situations where a nonprofit owner sold the property to a for-profit owner but the for-profit
owner did not assume the mortgage.
99 Such as Flexible Subsidy loans, discussed later in this report.
100 See Preventing the Disappearance of Low-Income Housing, footnote 69.
Congressional Research Service
19

Preservation of HUD-Assisted Housing

Financing Assistance
Emergency Low-Income Housing Preservation Act (ELIHPA)101
Congress initially attempted to address mortgage prepayments and the loss of affordable housing
units by enacting Title II of the Housing and Community Development Act of 1987 (P.L. 100-
242), the Emergency Low-Income Housing Preservation Act (ELIHPA). The law prevented
owners from prepaying their mortgages in many circumstances, and was described by some as a
moratorium on mortgage prepayment. ELIHPA was designed to be a temporary measure, and
intended to give Congress time to develop a permanent plan for addressing prepayments.
The ELIHPA restrictions applied to owners of properties insured under the Section 236 program,
to owners of Section 221(d)(3) market rate properties that also received rental-assistance through
Section 8 or the Rent Supplement program, owners of Section 221(d)(3) BMIR projects, and
those properties held by the HUD Secretary and formerly insured under one of these programs.102
The law required owners to obtain HUD approval prior to prepayment, even in cases where the
mortgage contract allowed prepayment without HUD approval. Owners that wished to prepay
their mortgages were required to submit to HUD a notice of intent to prepay, together with a plan
explaining their proposed changes to the mortgage, the low-income affordability restrictions, and
ownership of the building. The plan was also to include an assessment of how prepayment and
other actions would affect existing tenants and how they would affect the general availability of
affordable housing in the community.
HUD was to allow the prepayment of the mortgage, along with the termination of affordability
restrictions, only if certain conditions were met.
• In cases where comparable affordable housing was not available for current
tenants, the plan could not, without good cause, “materially increase economic
hardship” or displace current tenants who wanted to stay.
• The prepayment could not affect the supply of decent, safe, and sanitary housing
that was affordable for low- and very low-income families in the area, the ability
of families to find housing near employment, or the housing opportunities for
minorities in the community. Alternatively (if a plan did not meet this
requirement), a state and local jurisdiction could approve the plan as being in
accordance with the state plan developed pursuant to ELIHPA.
For owners who wanted to maintain affordability or could not meet prepayment requirements,
ELIHPA gave HUD the authority to offer incentives to owners to maintain affordability. Among
the incentives were an increase in the return that owners could receive on their investment;
increased access to residual receipts accounts or project reserves; additional Section 8
assistance103 or increases in Section 8 rents for units with existing contracts; and capital

101 ELIHPA was initially codified at 12 U.S.C. § 1715l, note. Although the text remains, when ELIHPA was
superseded by the Low Income Housing Preservation and Resident Homeownership Act (LIHPRHA, P.L. 101-625),
the law was moved to 12 U.S.C. §§ 4101 et. seq. ELIHPA was subsequently amended by Title X, Subtitle B of the
Stewart B. McKinney Homeless Assistance Act Amendments of 1988 (P.L. 100-628).
102 P.L. 100-242, Section 233.
103 See discussion of Housing Preservation Program Section 8 contracts under “Additional Uses of Section 8 Project-
Based Rental Assistance” earlier in this report.
Congressional Research Service
20

Preservation of HUD-Assisted Housing

improvement loans. Owners that accepted incentives agreed to continue providing affordable
housing for the period of time covered by the original mortgage—generally an additional 20
years.104
ELIHPA’s provisions were originally slated to sunset two years after enactment (on February 5,
1990),105 however, the law was extended by Congress through November 1990, when it was
superseded by the Low-Income Housing Preservation and Resident Homeownership Act
(described below).106 However, owners that entered into preservation agreements with HUD
under the terms of ELIHPA were bound by the terms of those agreements.107
Low-Income Housing Preservation and Resident Homeownership Act
(LIHPRHA)

In 1990, Title VI of the Cranston-Gonzalez National Affordable Housing Act (P.L. 101-625), the
Low-Income Housing Preservation and Resident Homeownership Act (LIHPRHA), replaced the
temporary ELIHPA law with what was intended to be a permanent preservation program.108 The
new program covered the same types of housing developments and, like ELIHPA, limited the
occasions on which owners could prepay their mortgages and terminate affordability restrictions,
and it also provided incentives for building owners to offer affordable housing. However,
LIHPRHA differed from ELIHPA by providing owners with a third potential option: selling their
properties to qualified purchasers under certain circumstances.
Regardless of the option an owner selected, LIHPRHA—similar to ELIHPA—instituted
requirements that owners notify HUD, state or local governments, and residents of their intent.
Both laws also developed tenant protections for residents whose properties were prepaid or (in the
case of LIHPRHA) sold, in the form of Section 8 vouchers.
Option 1: Prepayment
LIHPRHA was similar to ELIHPA in limiting the ability of owners to prepay their mortgages and
terminate affordability restrictions. As with ELIHPA, HUD could only permit owners to prepay if
HUD determined that the prepayment would not materially increase economic hardship or
displace current tenants without good cause, and would not affect the supply of housing for low-
income and very low-income households, housing near employment, and housing for

104 Section 224 of P.L. 100-242, as amended by section 1023 of the Stewart B. McKinney Homeless Assistance Act
Amendments of 1988 (P.L. 100-628), codified at 12 U.S.C. § 1715l note.
105 See section 203 of P.L. 100-242 for repeal provisions.
106 The program was extended three times, through November 30, 1990, so that it would not lapse before the enactment
of LIHPRHA. See P.L. 101-235, P.L. 101-402, and P.L. 101-494.
107 U.S. Congress, Conference Committee, Housing and Community Development Act of 1987, report to accompany S.
825, 100th Cong., 1st sess., November 6, 1987, H.Rept. 100-426.
108 “In Depth Review of the Title VI Program,” pp. A-20 to A-21. LIHPRHA was subsequently amended by Title III of
the Housing and Community Development Act of 1992 (P.L. 102-550). Congress considered HUD’s implementation of
P.L. 101-625 “severely deficient in several respects” and provided further direction in the amendments. See U.S.
Congress, Senate Committee on Banking, Housing, and Urban Affairs, The National Affordable Housing Act
Amendments of 1992
, report to accompany S. 3031, 102nd Cong., 1st sess., November 23, 1992, S.Rept. 102-332. The
provisions in S. 3031 regarding affordable housing preservation were incorporated into P.L. 102-550. LIHPRHA is
codified at 12 U.S.C. § 4101 et. seq.
Congressional Research Service
21

Preservation of HUD-Assisted Housing

minorities.109 Owners wishing to prepay were required, as they were in ELIHPA, to file a notice
of intent to prepay with HUD and to certify that the aforementioned conditions were met. If
owners prepaid their mortgages, tenants could remain in the housing at the same rental rates for
three years, and if tenants moved, the owners were responsible for paying half of the moving
costs.110
If owners did not meet these conditions for prepayment, one of three scenarios could occur. An
owner could (1) maintain affordability, assisted by incentives from HUD, generally in the form of
higher rents; (2) sell the property to a qualified purchaser who would maintain affordability; or
(3) prepay the mortgage and convert units to market rate housing, though this was only allowed in
a limited number of circumstances—such as when HUD approved a plan for preservation
incentives but did not provide them or when no qualified purchaser could be found.
Option 2: Stay In
For owners that chose to stay in the program and maintain their properties as affordable
housing—either because they were not permitted to prepay, or because they wanted to remain in
the program—LIHPRHA modified the preservation incentives under ELIHPA. The ELIHPA
preservation incentives included Section 8 rental-assistance, rent increases paid by tenants, HUD-
insured loans for equity take-outs, and grants and deferred-payment loans for capital
improvements. Under LIHPRHA, some preservation incentives were expanded: the value of
Section 8 rents increased to 120% of FMR (from 100% under ELIHPA), and families eligible to
receive Section 8 assistance expanded to those at 80% of area median income (up from those at
50% under ELIHPA).111 However, LIHPRHA limited the amount of assistance that could be
provided to a property in other ways. The amount of annual returns an owner could realize was
limited to 8% of equity (from no specified limit under ELIHPA), access to residual receipts was
limited (there were no restrictions under ELIHPA), and loan limits for owners who stayed in the
program were reduced.112
Option 3: Sale
LIHPRHA created a third option for property owners: sale to a qualified purchaser—a buyer that
would maintain the affordability of the property. This option could occur in situations where
owners were not permitted to prepay, where they were unable to receive sufficient preservation
incentive funding to stay in, or where they wanted to sell their properties. Owners wishing to
pursue this option were also required to submit a notice of intent to HUD.
There were a number of ways in which a sale could occur. (1) In the first six months, owners
were required to attempt to find a “priority purchaser” that was either a resident council or
community-based nonprofit organization that had the support of the majority of tenants.113 (2) If
no buyer could be found during the first six-month period, during the subsequent six months the
owner could sell to any priority purchaser, including nonprofits or state and local housing

109 12 U.S.C. § 4108.
110 12 U.S.C. § 4113.
111 “In Depth Review of the Title VI Program,” pp. A-25 to A-26.
112 Ibid.
113 24 C.F.R. § 248.157 and § 248.161 (1993).
Congressional Research Service
22

Preservation of HUD-Assisted Housing

agencies. (3) If a priority purchaser could not be found, owners could sell to “qualified
purchasers”—for-profit entities that agreed to continue providing affordable housing. (4) If an
owner could not find a qualified purchaser after three additional months had elapsed, the owner
could decide to stay in as the owner of the property and accept incentives, or the owner could sell
the building and convert units to market rate rent.114
In all sales, LIHPRHA authorized HUD to provide purchasers with rental incentives similar to
those received by owners that retained the property.
The End of ELIHPA and LIHPRHA
By the mid-1990s, concern was growing among housing advocates, HUD, and Congress about
the cost of HUD’s preservation efforts.115 Under ELIHPA and LIHPRHA, 751 properties with
more than 90,000 units had completed plans of action (POAs) and received preservation funding
through FY1996.116 According to GAO testimony in 1995, the average cost to preserve a unit of
housing was about $19,000,117 and a GAO survey of 40 properties found that HUD preservation
funding exceeded the value of the properties in more than half of the cases.118
In addition to concerns about cost, LIHPRHA presented legal issues. Some property owners
contested the provisions of both ELIHPA and LIHPRHA, arguing both that the laws violated the
contracts under which the owners had agreed to participate in the program, and that the laws
constituted a taking of private property by the government. The lawsuits contesting ELIHPA and
LIHPRHA have had varying outcomes. Some have been settled; according to HUD, three cases
have been settled and payments of $35 million, $2 million, and $1.25 million have or will be
made.119 Some cases have been decided in favor of owners and some cases continue to be
litigated.120

114 12 U.S.C. § 4114.
115 In testimony before the Senate Banking Committee’s Subcommittee on Housing Opportunity and Community
Development, GAO noted that “HUD, HUD’s OIG, the House and Senate Committees on Appropriations, and the
National Alliance of HUD Tenants have all expressed concerns about the program’s high cost—over $1.2 billion or an
average of $19,152 per unit for projects that have completed the preservation process.” See U.S. General Accounting
Office, Multifamily Housing: Issues and Options to Consider in Revising HUD’s Low Income Housing Preservation
Program
, T-RCED-96-29, October 17, 1995, p. 2, http://archive.gao.gov/papr2pdf/155409.pdf (hereinafter, Multifamily
Housing: Issues and Options to Consider in Revising HUD’s Low Income Housing Preservation Program
).
116 U.S. General Accounting Office, Housing Preservation: Policies and Administrative Problems Increase Costs and
Hinder Program Operations
, RCED-97-169, July 18, 1997, p. 6, http://www.gao.gov/archive/1997/rc97169.pdf
(hereinafter, Housing Preservation: Policies and Administrative Problems Increase Costs and Hinder Program
Operations
).
117 Multifamily Housing: Issues and Options to Consider in Revising HUD’s Low Income Housing Preservation
Program
, p. 7.
118 Housing Preservation: Policies and Administrative Problems Increase Costs and Hinder Program Operations, p. 7.
119 U.S. Department of Housing and Urban Development, FY2008 Performance and Accountability Report, p. 336,
http://www.hud.gov/offices/cfo/reports/hudpar-fy2008.pdf.
120 See, for example, Cienega Gardens v. U.S., 503 F.3rd 1266 (Fed. Cir. 2007). The plaintiffs in Cienega Gardens
began their lawsuit in 1994. The Court of Appeals for the Federal Circuit held in 2003 that ELIHPA and LIHPRHA did
result in a compensable taking as it applied to four model plaintiffs. However, that court remanded to a lower court for
additional proceedings with respect to the claims raised by the other, non-model plaintiffs in the case because the
record did not account for the facts of those individual plaintiffs. The lower court subsequently held that ELIHPA and
LIHPRHA constituted a compensable taking with regard to the non-model plaintiffs. However, the Court of Appeals
for the Federal Circuit, in its latest Cienega Gardens decision, vacated the lower court’s holding in favor of the non-
(continued...)
Congressional Research Service
23

Preservation of HUD-Assisted Housing

In the FY1996 HUD appropriations law, Congress reinstated the right of owners to prepay their
mortgages without prior HUD permission, effectively overriding the central provision of
LIHPRHA.121 In the FY1997 appropriations laws, Congress imposed caps on the amount of
funding HUD could provide in preservation incentives for owners undergoing LIHPRHA
preservation transactions. In FY1998, Congress stopped providing funding to HUD for
preservation incentives to owners under LIHPRHA, effectively ending the LIHPRHA program.122
IRP Decoupling
When Section 236 owners initially began prepaying their mortgages, the prepayment also brought
an end to the interest reduction payments (IRPs). HUD paid IRPs to owners of Section 236
properties to ensure that the effective interest rate on the mortgage was 1%. However, as part of
the FY2000 HUD Appropriations Act (P.L. 106-74), Congress implemented a process known as
“IRP decoupling,” through which Section 236 owners may prepay their mortgages but continue to
receive IRPs. Owners must agree to maintain the affordability of the property for five years
beyond the time period in which they receive the IRPs.123 Owners may continue to receive IRPs
either through the balance of the term of the original Section 236 mortgage or longer if the owner
requests it; however, if the term of IRPs is lengthened, then the amount of each IRP is reduced.124
Flexible Subsidy Program
By the late 1970s, some assisted housing properties were facing financial distress and risking
default on their HUD-assisted financing. If the properties defaulted, the federal government
would face financial losses through FHA as well as the loss of affordable housing units. In
response, Congress created a new Operating Assistance for Troubled Multifamily Housing
Properties program as part of the Housing and Community Development Amendments of 1978
(P.L. 95-557). The program was designed to “restore or maintain the financial soundness, assist in
the improvement of the management, and to maintain the low- to moderate-income character” of
certain assisted multifamily housing properties. The assistance was later expanded to include
loans for capital improvements. Initially, projects assisted under the Section 236 IRP program, the
Section 221(d)(3) BMIR program, and the Rent Supplement program were eligible to receive the
assistance. Later, Congress expanded eligibility to certain Section 8 properties (those that were
converted from RAP or Rent Supplement) and Section 202 properties, among others.125 While the

(...continued)
model plaintiffs and remanded for further proceedings to address issues with the lower court’s legal analysis. (Cienega
X
, 503 F.3d at 1270.)
121 See P.L. 104-134, in which Congress stated that “an owner of eligible low-income housing may prepay the
mortgage or request voluntary termination of a mortgage insurance contract, so long as the owner agrees not to raise
rents for sixty days after prepayment.”
122 The House Appropriations Committee Report accompanying the FY1998 appropriations bill (H.Rept. 105-175)
stated that the Committee was not recommending funding for preservation due to the results of a General Accounting
Office report showing the high cost of the program. The FY1998 Appropriations Act did provide $10 million “to
compensate organizations that incurred costs of appraisals and preparing plans of action.” (See Conference Report,
H.Rept. 105-297).
123 12 U.S.C. § 1715z-1(e)(2).
124 See U.S. Department of Housing and Urban Development, Notice H 00-08, Guidelines for Continuation of Interest
Reduction Payments after Refinancing
, issued May 16, 2000, pp. 3-4.
125 The fund was established by P.L. 100-242 § 186(b)(1). Description taken from HUD Handbook 4355.1, “Flexible
Subsidy.”
Congressional Research Service
24

Preservation of HUD-Assisted Housing

program was initially funded with appropriations, a revolving fund—the Flexible Subsidy Fund—
was established later to provide assistance. This fund consisted of Section 236 excess residual
receipts, as well as proceeds from loan repayments and interest.126
HUD provided Flexible Subsidy assistance through two programs. The Operating Assistance
Program (OAP) provided temporary funding to replenish project reserves, cover operating costs,
and pay for limited physical improvements. The assistance was provided as a non-amortizing
“contingent loan” that could be repaid with excess residual receipts or upon the sale of the
property. The Capital Improvement Loan Program (CILP) provided assistance intended to cover
the cost of major capital improvements that could not be accomplished with program reserves.
The assistance was provided in the form of amortizing loans, generally with an interest rate of
6%.127 Properties that received Flexible Subsidy assistance were required to maintain affordability
for the life of their original mortgage.128
New obligation authority for Flexible Subsidy assistance was last provided in FY1995. According
to HUD, the Flexible Subsidy program was no longer needed after Congress created the authority
for assistance through the Multifamily Assisted Housing Reform and Accountability Act
(described in the next section of this report).129
Rental Assistance
Section 8 Expiring Contracts, Renewals, and the Multifamily Assisted Housing
Reform and Accountability Act (MAHRA)

Both ELIHPA and LIHPRHA were primarily focused on the stock of housing eligible for
mortgage prepayment; neither law addressed another threat to the assisted housing stock
identified in the 1987 Preservation Task Force report: the cost of renewing project-based rental-
assistance contracts. Most Section 8 contracts—which were originated between 1974 and 1983—
had terms of 20 years and were funded with up-front appropriations. By the mid-1990s, the
contracts had begun expiring. Renewing the contracts would require new budget authority, for
which Congress would have to provide new appropriations. In a tight budget environment, there
was a concern that the cost of renewing Section 8 contracts could take up an expanding share of
the HUD budget, leading to less funding for other priorities. Not renewing the contracts would
save money, but it would mean that low-income families would lose their housing assistance.
Further complicating matters, many of these properties were FHA-insured and many were
receiving above-market rents. If the owners faced a drop in rent as a result of the loss of
assistance, they could end up in default on their loans and the federal government—through the
FHA insurance fund—would face a financial loss. Congress also discovered that many of these
FHA-insured and rent-assisted properties were financially or physically distressed, including a
number that were being mismanaged.130

126 P.L. 100-242 § 185(g).
127 HUD Handbook 4355.1, Chapter 1.
128 HUD Handbook 4355.1, p. 1-2.
129 U.S. Department of Housing and Urban Development, FY2004 Congressional Budget Justifications, p. H-1,
http://hud.gov/offices/cfo/reports/04estimates/flexible.pdf.
130 For more information, see U.S. Congress, House Committee on Banking and Financial Services, Subcommittee on
(continued...)
Congressional Research Service
25

Preservation of HUD-Assisted Housing

The policy problem facing Congress was how to restructure the program in a way that would be
beneficial to the families living in these properties, cost-saving for the federal government, and
attractive to project owners. Ultimately, Congress designed a restructuring program that reduced
the federal subsidies to owners of properties insured by FHA, lowered the above-market rents
payable to these owners, and restructured the mortgages of properties so that owners could
operate effectively on less income.
This restructuring plan—referred to as Mark-to-Market—was created by the Multifamily Assisted
Housing Reform and Affordability Act. It was passed by Congress as Title V of the VA-HUD
Appropriations Act for FY1998 (P.L. 105-65). The act was signed into law on October 27, 1997,
and it expired on September 30, 2001. The program was reauthorized through a series of
continuing resolutions until January 10, 2002, when it was amended and reauthorized through
FY2006 under Title VI of the Labor, Health and Human Services, Education, and Related
Agencies Appropriations Act for FY2002 (P.L. 107-116).131 Section 21043 of the Revised
Continuing Appropriations Resolution, 2007 (P.L. 110-5) extended the authorization through
October 1, 2011.132
Mark-to-Market and Section 8 Renewal
Ultimately, at the end of a Section 8 contract an owner has two options: renew the contract, or opt
out of renewing the contract. Under the terms of MAHRA, as implemented by HUD, owners
wishing to renew their Section 8 contracts face different renewal procedures depending on the
circumstances of the property. Those circumstances include the original subsidy type, the type of
property owner, the property’s rents relative to market, and the financial state of the property. The
owner generally has six options: renew at existing rents (if rents are at market), be referred for
renewal through a full Mark-to-Market restructuring (if rents are above market), renew at higher
rents (if rents are below market), renew subject to special rules (if exempted from restructuring),
renew based on terms of earlier preservation initiatives, or opt-out of the program by not
renewing. These processes are detailed in the Section 8 Renewal Policy Guidebook,133 and are
generally summarized below.
Mark-to-Market
The Mark-to-Market restructuring process is targeted to FHA-insured properties owned by for-
profit owners receiving above-market rents. Owners of such properties with contracts up for
renewal are referred to the Office of Affordable Housing Programs at HUD to be evaluated for
Mark-to-Market eligibility. The Mark-to-Market process is designed to reduce rents to market
rates. Owners participating in Mark-to-Market have two options: they can either accept the

(...continued)
Housing and Community Opportunity, Resolving the FHA Multifamily Portfolio: HUD’s Mark-to-Market Proposal,
104th Cong., 1st sess., June 13, 1995, H.Hrg. 104-21 (Washington, DC: GPO, 1996).
131 Taken from CRS Report RL31182, Assisted Housing: Section 8 Mark-to-Market Restructuring, by Susan M.
Vanhorenbeck.
132 MAHRA is codified at 42 U.S.C. § 1437f note. As a result, this report references the sections of the act rather than
the statute.
133 Department of Housing and Urban Development, Section 8 Renewal Policy Guidebook, April 17, 2009, Edition,
http://www.hud.gov/offices/hsg/mfh/exp/guide/s8renew.pdf.
Congressional Research Service
26

Preservation of HUD-Assisted Housing

reduced rents and renew for a one-year term (referred to as Mark-to-Market “lite”); or they can
accept the reduced rents and have their outstanding debt restructured (referred to as “full”).
In a Mark-to-Market full restructuring, the owner’s debt and income is renegotiated so that the
income the owner receives is sufficient to cover rehabilitation needs, operating expenses, and
reserve replenishment.134 This is accomplished through a full or partial payment of claim from the
FHA insurance fund.135 The lower mortgage debt level can then be supported with lower rents.136
Mark-to-Market full renewals are subject to 30-year affordability restrictions, meaning that the
owner must commit to maintain the property under a project-based contract (subject to the
availability of appropriations) for 30 years. Owners undergoing a Mark-to-Market “lite”
transaction are not subject to long-term affordability agreements. The new rents are adjusted each
year using Annual Adjustment Factors (AAFs) published by HUD.
According to HUD, as of January 21, 2010, over 2,000 Section 8 properties had gone through full
Mark-to-Market mortgage restructurings, and almost 800 properties had been through Market-to-
Market “lite” transactions.137
Mark-up-to-Market
Mark-up-to-Market was created in 1999 to provide an incentive for owners of below-market
properties in strong markets to renew their contracts at market-comparable rents.138 In order to be
eligible, properties must be owned by for-profit or limited-distribution owners, they must be in
good physical condition, and if the property has an affordability restriction, the owner must be
able to terminate it without prior HUD permission.139 In exchange for higher rents, owners that
choose to go through Mark-up-to-Market renewals must agree to contract terms of at least five
years. During that time, rents are adjusted each year using HUD’s published AAFs.
Exception Projects
Some properties are not eligible for Mark-to-Market or Mark-up-to-Market, even if their rents are
above or below market. These properties include properties that are owned by nonprofits, that

134 Some properties are unable to complete the debt restructuring component of Mark-to-Market, for a variety of
reasons, but they still have their rents reduced to market. These properties may be at risk of default, and they are
considered “Watch List” properties. They receive a special form of renewal contract, with acknowledgement that they
remain eligible and may pursue restructuring at a later date. For more information, see HUD Memorandum, “Revised
Guidance on Monitoring OMHAR Watch List Properties,” September 27, 2001.
135 In a payment of claim, HUD makes a payment from the FHA insurance fund to reduce or eliminate the principal
balance on an FHA-insured loan.
136 Generally, the original FHA-insured first mortgage is paid off and replaced with a new, smaller, and often FHA-
insured mortgage. The claim paid from the insurance fund is not necessarily forgiven; instead, it can serve as a
secondary debt upon which payment is only due if funds are available or at sale or refinancing.
137 Mark-to-Market Pipeline Summary Report, as of January 21, 2010, available at http://www.hud.gov/offices/hsg/
omhar/readingrm/reports.cfm.
138 The market comparable rent is capped at 150% of local Fair Market Rent, although owners can appeal for a higher
rent if their properties serve vulnerable populations, are located in a low-vacancy area, or have strong community
support.
139 HUD does have the authority to approve discretionary Mark-up-to-Markets for properties that would otherwise be
ineligible, if they meet certain criteria, including properties that serve a vulnerable population, are located in an area
with low vacancy rates, or have strong community support.
Congressional Research Service
27

Preservation of HUD-Assisted Housing

were financed with state or local funding in lieu of FHA mortgage insurance, that have Section
202 or rural housing loans (unless it was refinanced with an FHA-insured mortgage), that
participate in the Section 8 Moderate Rehabilitation Single Room Occupancy program, or that
otherwise do not have an FHA-insured mortgage.
Exception projects are renewed at rents that are the lesser of current rents plus the local Operating
Cost Adjustment Factors (OCAFs) established by HUD, or the rent level needed to meet
operating expenses. If the owner signs a multiyear contract, the rents can be set either via OCAF
or based on the needs of their budget (referred to as budget-based rent increases).
Other Renewals
Some properties have rents at market levels or have rents below market but the owners choose not
to participate in Mark-up-to-Market. In these cases, owners can submit a Rent Comparability
Study (RCS) and have their rents renewed at their current level, plus an OCAF adjustment or a
budget-based rent increase. Unlike in Mark-up-to-Market cases, owners renewing under this
option are not required to commit to five-year renewals or use agreements.140
Opt Out
If an owner chooses not to renew an expiring Section 8 contract, he or she is considered to be
“opting-out.”141 Owners who opt out are subject to federal notification requirements and must
notify tenants and HUD at least one year before the end of the contract of their intention to renew
or not renew. Then, four months before contract termination, owners must formally notify HUD
in writing if they are going to renew or opt out.
As noted earlier, tenants living in properties whose owners “opt out” are eligible for enhanced
vouchers (see “Implications for Tenants” earlier in this report). Enhanced vouchers are tenant-
based Section 8 vouchers with special attributes. Their values can increase to the gross rent for
the unit, as long as it is reasonable, even if it exceeds local standards. Families must continue to
contribute at least as much toward rent as they were before they received their voucher, even if it
was above 30% of their income. And tenants who receive enhanced vouchers have the right to
remain in their units as long as the units continue to be offered as rental housing, and as long as
the tenants are in compliance with their leases (and state and local law).

140 Another subset of properties participated in HUD’s earlier Portfolio Reengineering Demonstration program (under
LIPHRA and ELIHPA). Those properties, in some cases, are required to renew their contracts, and, in other cases, can
choose to renew under any option for which they qualify.
141 Some owners do not have the option to opt-out; for example, owners who participated in earlier preservation
initiatives and must maintain affordability for a certain period of time.
Congressional Research Service
28

Preservation of HUD-Assisted Housing

Recent Initiatives: Contract Preservation Provisions and Green
Retrofit Funding

Contract Preservation Provisions
In recent years, Congress has adopted two new preservation policies through the annual
appropriations process, beginning with the FY2006 HUD appropriations law (P.L. 109-115). The
first addresses HUD’s treatment of HUD-owned or managed properties with Section 8 project-
based rental assistance contracts. Section 311 of P.L. 109-115 required HUD, to the extent
feasible, to maintain Section 8 project-based rental assistance contracts when managing or
disposing of multifamily properties owned or held by the Secretary as a result of foreclosure.
Prior practice had often been to terminate Section 8 project-based contracts and replace the
assistance with vouchers. In cases where the Secretary determined that continued rental assistance
payments for the existing property were not feasible, the provision permitted HUD to transfer the
rental assistance to another multifamily property or replace it with vouchers.
The second policy permits HUD to approve the transfer of rental assistance contracts and use
restrictions from one property to another under certain circumstances. Section 318 of P.L. 109-
115 authorized the Secretary to approve the transfer of mortgage debt, project-based rental
assistance, and use restrictions from one HUD-assisted multifamily housing property to another
property in cases where the transferring property is either physically obsolete or economically
nonviable. In order to approve the transfer, among other requirements, the receiving project must
exceed physical standards and the Secretary must determine that the transfer is in the best
interests of the tenants.
Because these authorities were provided through an appropriations act, they expire at the end of
the fiscal year unless they are renewed. The FY2007 year-long continuing resolution (P.L. 110-5)
extended the two preservation-related provisions through FY2007, and the FY2008
appropriations law (P.L. 110-161, Sections 220 and 215) made changes to the transfer authority
and extended both provisions through the end of FY2008. The authorities have subsequently been
extended in FY2009 and FY2010.142 According to HUD, as of March 2010, the transfer authority
has been used less than a dozen times since it was created in 2006.143
Green Retrofit Program for Multifamily Housing
The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) provided $250
million to fund retrofit investments in HUD-assisted multifamily properties that will reduce
ongoing utility consumption, benefit resident health, and/or benefit the environment. HUD used
the funding to create the Green Retrofit Program (GRP). Through GRP, HUD provided
competitive grants and loans to owners of properties assisted through the Section 8 project-based
rental assistance program, as well as the Section 202 and 811 programs. Owners receiving GRP
funds are required to extend their affordability agreements for an additional 15 years.144

142 See the FY2009 HUD appropriations law (P.L. 111-8, Section 218 and Section 212) and the FY2010 HUD
appropriations law (P.L. 111-117, Sections 217 and 212).
143 HUD Press Release No. 10-057, “HUD Program Brings Seniors Back Home to New Orleans: Grants will transform
and upgrade public housing programs while creating jobs,” March 26, 2010.
144 See HUD Notice H 09-02, Green Retrofit Program for Multifamily Housing (GRP), May 13, 2009.
Congressional Research Service
29

Preservation of HUD-Assisted Housing

“At Risk” Properties
Discussions around the issue of affordable housing preservation assume that properties are at risk
of being lost to the affordable housing stock, whether through mortgage prepayment, expiring
contracts, or the financial or physical health of the property, unless there is some kind of
intervention. However, not all properties present the same level or type of risk, and situations
vary based on numerous factors, including existing subsidy structures, the condition of the
property, the type of ownership, and the property location.145
For example, some assisted properties may not be at risk of being lost to the affordable housing
stock at all. Mission-oriented owners of properties in good financial and physical condition may
be likely to extend affordability agreements and may have little motivation to convert their
properties to another use. In other cases, assisted properties may not be immediately at risk, but
they may be in the future. For example, some properties have owners who would like to use the
property for other purposes, but they are bound by extended affordability agreements. Other
owners may wish to leave the affordable housing business, but cannot find a purchaser willing to
pay the asking price for the property or commit to the long-term affordability agreements. Other
owners may wish to sell, but they face economic disincentives, such as large capital gains taxes.
Some properties are more immediately at risk. Where properties face financial or physical
distress, the owner may wish to maintain the property as affordable housing, but the income and
subsidy structure may render the property unsustainable. And some properties are at risk because
the owners have other, more desirable options at the end of their affordability restrictions. For
example, a for-profit owner may have the option to profit from higher rents at the end of the
affordability restriction.146 Or a mission-oriented owner, such as a church, may decide that it
would rather use its property for another mission-related purpose, such as a school or other
facility, at the end of the affordability restriction.
In these various circumstances, different interventions may be necessary to preserve the
properties as affordable housing, and those interventions could be costly. Given limits to federal
resources, priorities may need to be established when determining whether and how to preserve
affordable housing. The next section of the report discusses some of these priorities.
Preservation Priorities
An initial question in discussing preservation is whether the government should intervene to
maintain federally assisted housing beyond its original contract term at all. The modes of subsidy
that led to the creation of these properties—subsidized multifamily mortgages and project-based
rental-assistance contracts—have been replaced with different models of assistance, such as the
Section 8 tenant-based voucher program and the Low-Income Housing Tax Credit. The original

145 See, for example, U.S. General Accounting Office, More Accessible HUD Data Could Help Efforts to Preserve
Housing for Low-Income Tenants
, GAO-04-20, January 2004, pp. 4-5, http://www.gao.gov/new.items/d0420.pdf.
146 See, for example, Multifamily Properties: Opting In, Opting Out and Remaining Affordable, p vii. This HUD study
examined the characteristics of properties where owners prepaid their mortgages or opted out of rental-assistance
contracts (or both) and compared them to properties that remained in the affordable housing stock. Among the findings
were that owners in neighborhoods with higher market rents as well as those with older properties left the stock at
higher rates.
Congressional Research Service
30

Preservation of HUD-Assisted Housing

HUD subsidy programs were ended, in part, because of their perceived limitations, particularly
their high costs147 and concerns that they concentrated poverty.
Today, Section 8 housing vouchers have become the primary form of deeply targeted housing
assistance; there have even been proposals to replace the stock of federally assisted housing with
vouchers.148 Vouchers are considered less expensive than project-based assistance and provide
families with mobility and housing choices. However, the voucher program has its limitations.
Landlords are not required to accept vouchers, and for some populations, especially persons who
are elderly or have disabilities, accessible housing may not be available in the private market.
These critiques of the voucher program are used to support calls for the preservation and
development of project-based housing assistance.149 With few exceptions,150 no statutory
authority exists to create new, deeply targeted HUD-assisted housing. The Low-Income Housing
Tax Credit, and, to a lesser degree, the HOME Investment Partnerships Block Grant program,
help to fund the creation of new affordable housing developments; however, they are not as
deeply subsidized as the older, HUD rent-assisted properties. Given the limited funding and
authority for developing new, deeply subsidized housing, the stock of federally assisted housing
is currently irreplaceable. Further, in many cases, it would be more expensive to build new
housing than it would be to preserve the existing stock.151
As evidenced by the history of federal housing preservation policy discussed earlier in this report,
Congress and the federal government have generally taken the position that preserving assisted
housing is a desirable federal housing policy goal.
However, even if it is less expensive than new construction, preservation can be costly. Many
properties were built in the 1960s and 1970s and may be in need of repair in order to be habitable
for an additional 20 to 40 years. As a result, funds are often needed for rehabilitation and
improvements, possibly requiring federal grants or insured loans. Another cost could be funds for
ongoing or new rental-assistance. In cases where units already receive rental-assistance
(principally through Section 8), continued rental-assistance is needed to maintain affordability for
low-income tenants. In addition, some currently unassisted units may need rental-assistance to
help pay for increased operating costs after rehabilitation has occurred. A third possible cost may

147 For example, see Mark Shroder and Arthur Reiger, “Vouchers versus Production Revisited,” Journal of Housing
Research, vol. 11, no. 1, which finds that the Section 8 certificate (voucher) program is less expensive than the original
Section 8 program.
148 Edgar O. Olsen, Achieving Fundamental Housing Policy Reform, Department of Economics, University of Virginia,
April 24, 2006.
149 For example, while the Millennial Housing Commission’s Final Report recommended expanding the voucher
program, it also recommended preserving the existing stock of assisted housing as well as using new production
resources. For a discussion of the role of project-based assistance, see Jill Khadduri and Charles Wilkins, “Designing
Subsidized Housing Programs: What Have We Learned?,” in Revisiting Rental Housing: Policies, Programs, and
Priorities
, ed. Nicolas P. Retsinas and Eric S. Belsky (Washington, DC: Brookings Institution, 2008), pp. 163-164.
150 The Section 202 Supportive Housing for the Elderly program, the Section 811 Supportive Housing for Persons with
Disabilities program, and the HOPE VI program each provides capital funds for new construction of assisted housing.
However the HOPE VI program does not create new units; it replaces existing units.
151 See, for example, The MacArthur Foundation, Window of Opportunity: Preserving Affordable Rental Housing,
http://www.macfound.org/site/c.lkLXJ8MQKrH/b.4278471/apps/s/content.asp?ct=4620007. The MacArthur
Foundation reported spending half the cost of a new rental housing unit to preserve 45,000 units of existing rental
housing.
Congressional Research Service
31

Preservation of HUD-Assisted Housing

be providing incentives to owners to encourage them to maintain affordability or to sell to a
purchaser who will.
In addition to the costs of preservation, a transaction may require the cooperation of multiple
parties—building owners, tenants, the local community, and HUD—each of whom could have
their own interest in whether and how a property is preserved. In addition, each property may
have characteristics that make its preservation more or less costly and feasible. These
characteristics can include the property location, its physical condition, the needs of the tenants,
and the type of owner organization (nonprofit versus for-profit), together with the effectiveness of
the owner. These factors, in turn, can create different options for owners, present the federal
government with varying preservation costs, and affect community interest in maintaining the
property as affordable housing.
This section of the report discusses several of the factors that may play a part in the decision to
preserve federally assisted housing: property location, property condition, tenant needs, and type
of owner. Given the reality of limited federal resources, HUD and Congress may have to weigh
competing priorities to determine which preservation strategies are the most cost effective and
which properties should be preserved.
Location and Community
The location of a property can affect its value, both positively and negatively. A well-located
property may have many potential benefits for tenants, making its preservation a priority. For
example, some assisted housing properties are located in desirable areas near public
transportation or other community assets such as parks, schools, shops, medical providers, and
community and senior centers. Access to public transportation may make it easier for low-income
families to find and maintain employment or for families with special needs (such as those that
include persons who are elderly or have disabilities) to be able to live independently. An assisted
property might also be the only affordable rental housing in an otherwise low-poverty
neighborhood. If it were no longer available, families may be required to move from an area of
economic opportunity to one of concentrated poverty. In rural areas, an assisted housing property
might be the only affordable housing available, or perhaps even the only rental housing available.
At the same time, however, owners of properties that are desirably located may have an incentive
to convert the property to a more profitable use when affordability restrictions end, making it
difficult for potentially displaced families to find comparable housing.
Conversely, other federally assisted properties are located in areas with high concentrations of
poverty and crime and with limited access to reliable public transportation and other community
amenities.152 These properties may serve to limit the opportunities of their tenants. Preserving
well-located properties may be a higher priority than preserving properties in distressed areas
with limited opportunities.

152 For example, see Sandra J. Newman Ann B. Schnare, “And A Suitable Living Environment for All: The Failure of
Housing Programs to Deliver on Housing Quality,” Housing Policy Debate, vol. 8 issue 4, 1997, http://www.mi.vt.edu/
data/files/hpd%208(4)/hpd%208(4)_newman.pdf, which found that the federally assisted housing stock was more
concentrated in “underclass” areas than the private market stock of housing or where families with vouchers had
chosen to live. However, it was less concentrated than public housing.
Congressional Research Service
32

Preservation of HUD-Assisted Housing

Physical Condition of the Property
The physical condition of an assisted property can also affect the feasibility of its preservation.
Some properties have deteriorated to the point that they have difficulty passing annual housing
quality inspections. It may be very expensive to repair these properties so that they can provide
adequate housing for families. There can be many reasons that a property has fallen into physical
disrepair, and those reasons may influence the cost and feasibility of its preservation.
Most physically distressed properties are also financially distressed. They have operating income
that is low or negative, leading to underinvestment in routine maintenance and replacement
reserves. These properties may be financially distressed because they were not designed in ways
that would allow them to succeed. For example, demand for efficiency units is low, making it
hard for properties featuring only efficiency units to compete with other properties, even in a
subsidized market.153 If a property’s units are not desirable or well matched to demand in the
surrounding community, it could have occupancy problems. High vacancy rates can lead to
financial distress, which can ultimately lead to physical decline.
While some owners may be unwilling or unable to maintain properties, in some cases a property
may be physically well designed and desirable, but the financing and/or subsidy structure has led
to a financial imbalance. For example, many for-profit property owners took accelerated
depreciation and mortgage interest tax deductions early in their property ownership. This allowed
them to have strong and positive cash flow. But, over time, if the owner was unable to recapitalize
the property (secure new funding for improvements),154 those deductions became unavailable,
leaving the owner with insufficient income to cover operating expenses, replacement reserves,
and tax liability later. This may be due to poor planning on the part of the owner, or to changing
market conditions.
Whether or not a physically distressed property is worth preserving may depend on the level of
deterioration, the overall relevance and desirability of the design of the property, and other
factors.
Tenant Needs
The needs of a tenant population may make preservation a priority in some cases, principally in
the case of elderly tenants and tenants with disabilities. When the alternative to preservation is
providing tenants with Section 8 vouchers, tenants who are elderly or have a disability may have
difficulty finding housing that meets their needs, particularly if their mobility is impaired. The
difficulty of relocating, combined with potential accessibility features of HUD-assisted
properties, could weigh in favor of preservation. In addition, some properties offer supportive

153 See, for example, Leonard F. Heumann, Karen Winter-Nelson, and James R. Anderson, The 1999 National Survey
of Section 202 Elderly Housing
, American Association of Retired Persons, January 2001, p. 7, http://assets.aarp.org/
rgcenter/il/2001_02_housing.pdf.
154 The Center for Housing Policy/National Housing Institute has a useful explanation of recapitalization in the context
of housing preservation: “Many multifamily developments need to be recapitalized after a certain number of years to
cover the costs of deferred maintenance and upgrades to bring them into conformity with current living standards.
Affordable multifamily homes also need to be recapitalized periodically, but because of legal or practical limitations on
permissible rents, it is difficult to support new debt for this purpose.” See http://www.housingpolicy.org/
glossary.html#R.
Congressional Research Service
33

Preservation of HUD-Assisted Housing

services through a service coordinator or other means; if those properties are not preserved,
tenants may not be able to find replacement housing where services are offered.
According to CRS analysis of resident characteristics data from HUD, about 62% of families
living in HUD rent-assisted properties were elderly and/or disabled.155
Type of Owner
The characteristics of property owners may affect their willingness or ability to maintain
affordability after their contracts with HUD expire. Profit-motivated owners may be more likely
to sell their property or convert it to market-rate housing than mission-driven, nonprofit
organizations. In 2006, HUD released an analysis of properties that had left HUD programs,
comparing their characteristics to those properties that remained part of the assisted housing
stock. Of those owners that either prepaid their mortgages or opted out of Section 8 contracts,
86% were for-profit organizations (compared to 55% of total owners that were for-profit) while
only 9% were nonprofits.156 HUD commented on the fact that nonprofit owners have been less
likely to leave HUD-assisted housing: “many nonprofits are motivated by the goal of providing
affordable housing to low-income people, and would not opt out even if they could leave the
stock.”157 Properties with for-profit owners may require more costly preservation incentives than
those with nonprofit owners.
Another factor could be an owner’s ability to operate and maintain the property. If an owner has
not operated a property well or has allowed it to deteriorate, HUD may not be willing to continue
subsidies or extend preservation incentives to the existing owner.
Weighing the Costs and Benefits of Preservation
Weighing the costs and benefits of preserving an assisted housing property can be difficult. This
is due, at least in part, to the wide range of stakeholders in the property. For any given property,
the stakeholders include the property owner, the tenants, the surrounding neighborhood, the state
and local government, the federal government (specifically HUD), and, potentially, Members of
Congress. These stakeholders may have different views about the relative costs and benefits of
preserving the property.
• Owners are generally focused on maximizing their financial investments,
although nonprofit owners may have mission-oriented goals (which may or may
not involve affordable housing).
• Residents’ concerns could include preventing their own displacement or
improving their own living environments; however, thoughts about the best way
to achieve either goal could vary from resident to resident.
• Local community leaders, and local and/or state government officials, could see
the property as a valuable community asset, or as a blight and a tax on local
resources.

155 Data as of September 30, 2008.
156 Multifamily Properties: Opting In, Opting Out and Remaining Affordable, p. 24.
157 Ibid., p. 25.
Congressional Research Service
34

Preservation of HUD-Assisted Housing

• Similarly, HUD may see the property as a high-performing federal asset, or as a
low-performing risk to the FHA insurance fund.
• Some Members of Congress may consider it important to preserve existing
subsidies due to limited authority to create new project-based housing, but other
Members may see the cost of preservation as being too high given their desire to
limit discretionary spending.
The heterogeneity of the assisted housing stock further complicates efforts to consider the costs
and benefits of preservation. As outlined earlier, some properties are better located than others,
some are in better physical conditions than others, some serve particularly vulnerable populations,
and their owners have varying levels of commitment and capacity. The subsidy status of the
properties also varies widely. Some have received relatively large amounts of federal funding
over the years through rental-assistance contracts and subsidized mortgages; others have received
much less, perhaps only an interest rate that was initially below market, but is now at or above
market. These factors influence both the potential cost of preserving the property as well as the
potential implications of not acting to preserve the property.
Ultimately, when it comes to assisted housing preservation, owners can choose what to do with
their properties. However, these choices are constrained by federal, state, or local laws and may
be influenced by the availability of preservation incentives. For example, as described earlier,
property owners cannot terminate rental-assistance contracts without first providing at least one
year’s notification to tenants. This policy is designed to give tenants time to organize an attempt
to launch a preservation effort, or to prepare for a change in their subsidy status. In terms of
incentives, HUD has historically held the primary role in determining which properties have
access to preservation incentives, although the agency may take into account the views of other
stakeholders.
Property Characteristics
As noted earlier, there are several different types of assisted housing properties at issue in terms
of preservation. Some have assisted financing (through FHA or the Section 202 loan program),
some have rental-assistance contracts, and some have both. The level of affordability of the
property, the length of time the affordability must be maintained, and the options at the end of the
assistance contract all vary depending on the type of subsidy provided. This section of the report
presents detailed characteristics of properties at issue in preservation, organized around types of
assistance. The first section presents data regarding the Section 202 loan program, the second
section covers the Section 236 and Section 221(d)(3) BMIR programs, and the third section
presents data regarding units receiving rental assistance through the Rent Supplement, RAP, and
Section 8 programs. Note that there may be some overlap among data presented in the three
sections. For example, Table 1 includes Section 202 units that receive rental assistance; these
units are also included in Table 7, which shows all rent-assisted units. See Table A-1 in
Appendix A for disaggregated units.
Section 202 Loans
As can be seen in Table 1, there are 2,786 properties with active Section 202 loans. The majority
of units in those properties receive rental-assistance.
Congressional Research Service
35

Preservation of HUD-Assisted Housing

Table 1. Properties and Units with Active Section 202 Loans
Rent-Assisted
Properties
Units
Units
Percent Assisted
Active Section 202 Loans
2,786
144,506
118,428
82%
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database and the
202 Direct Loans database, as of September 30, 2009.
As noted earlier in this report, once a Section 202 loan matures, the affordability agreement
between the owner and HUD generally ends, unless the property has a rent-assistance contract
that is extended. As is shown in Table 2, the majority of Section 202 properties have loans that
will not mature until more than 15 years from now.
Table 2. Loan Maturity Date Ranges for Properties with Active 202 Loans
Unassisted
Maturity Dates
Properties
Units Assisted
Units
Total
Units
through 2014
47
3,354
1,342
4,696
2015-2019 183
9,789
12,619
22,408
2020-2024 979
9,672
53,076
62,748
2025-beyond 1,567
3,045
51,205
54,250
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database and the
202 Direct Loans database, as of September 30, 2009.
Note: Ten properties were missing maturity dates.
As discussed previously, HUD inspects properties annually, biannually, or every three years,
depending on the property’s most recent inspection score. Under HUD regulations, properties
with scores below 30 are automatically referred to the Departmental Enforcement Center (DEC)
for corrective action, and recently, HUD has adopted a policy that properties with scores above 30
but below 60 should also be referred, unless there are mitigating circumstances.158
Properties in poor physical condition are at risk of default on their HUD assistance contracts and
of being lost to the affordable housing stock. Less than 3% of properties with Section 202 loans
have scores low enough to require referral to the Departmental Enforcement Center, and more
than 60% have inspection scores high enough to require inspection only every three years.

158 See Memorandum from Beverly J. Miller, Director, HUD Office of Multifamily Asset Management, to All Owners,
Agents and Contract Administrators, Performance Based Contract Administrators, Rural Housing Service, Properties
With Inspection Scores Under 60 Points
, January 16, 2003, http://www.hud.gov/offices/hsg/mfh/hto/60points.pdf.
Congressional Research Service
36

Preservation of HUD-Assisted Housing

Table 3. REAC Inspection Scores for Properties with Active 202 Loans
REAC Scores
Number of Properties Percent of Properties
30 or below, automatic referral to DEC
4
0.1%
31-59, referral to DEC
73
2.6%
60-79, annual inspections
310
11.2%
80-89, biennial inspections
656
23.6%
90 and above, inspections every three years
1,737
62.5%
Source: CRS analysis of HUD data from the 202 Direct Loans database and the Multifamily Assisted Property
Physical Inspection Dataset, as of September 30, 2009 .
Note: Six properties were missing inspection scores.
Financing Assistance: Rent-Restricted, Insured Units
As shown in Table 4, there are about 1,542 properties with mortgage insurance through the
Section 236 and Section 221d(3) BMIR programs. As discussed earlier in this report, these
mortgage insurance programs conferred affordability restrictions on the properties and their
owners. The properties with active Section 236 or BMIR financing provide more than 170,000
units of housing subject to affordability restrictions; about 56% of those units also have rental-
assistance.
Table 4. Active Section 236 and BMIR Properties and Units
Rent-Assisted
Percent Rent-
Properties
Total
Units
Units
Assisted Units
Active Section 236 and BMIR financing
1,542
170,667
95,532
56%
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database and the
Insured Multifamily Mortgages Database, as of September 30, 2009.
Note: Data extracted from the Insured Multifamily Mortgages Database based on “Section of Act” identification
codes provided to CRS by HUD.
As discussed earlier in this report, upon maturation of Section 236 and BMIR insured loans,
owners have the authority to convert their properties to market uses, including charging market-
rate rents. Upon such a conversion, any units with rental-assistance will continue to receive rent
assistance under the terms of the rent-assistance contract while it is in effect. If the owner does
not renew the rent-assistance contract, except in the case of units with Rent Supplement contracts,
the residents will receive tenant protection vouchers, and in many cases, they will receive
enhanced vouchers. Renters in unassisted properties are not eligible for tenant protection
vouchers upon maturation under current law. As shown in Table 5, most of these properties are
facing mortgage maturation in the next five years, with about 57,835 units at risk of unassisted
rent increases.
Congressional Research Service
37

Preservation of HUD-Assisted Housing

Table 5. Mortgage Maturity Date Ranges for Active 236 and BMIR Properties
Unassisted
Rent-Assisted
Maturity Periods
Properties
Units
Units
Total Units
through 2014
1,145
57,835
65,500
123,335
2015-2019 317
14,249
24,066
38,315
2020-2024 18
1,361
1,329
2,690
2025-beyond 62
1,690
4,637
6,327
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database and the
Insured Multifamily Mortgages Database, as of September 30, 2009.
As shown in Table 6, about 7% of FHA-insured, rent-restricted properties had inspection scores
low enough to require referral to the Departmental Enforcement Center for corrective action. The
highest percentage of properties (45.8%) have scores high enough to require inspections only
every three years.
Table 6. Inspection Scores for Active 236 and BMIR Properties with
Rental Assistance
Inspection Scores
Number of Properties Percent of Properties
30 or below, automatic referral to DEC
10
0.8%
31-59, referral to DEC
71
5.8%
60-79, annual inspections
202
16.5%
80-89, biennial inspections
382
31.2%
90 and above, inspections every three years
561
45.8%
Source: CRS analysis of HUD data from the Multifamily Assisted Property Physical Inspection Dataset Database,
the Insured Multifamily Mortgages Database, and the Section 8 Contracts Database, as of September 30, 2009.
Note: CRS was unable to include inspection scores for Section 236 and BMIR properties that do not receive
rental-assistance due to data limitations.
Rental Assistance
As shown in Table 7, there are 17,207 properties that have rental-assistance contracts with HUD.
Note that in a given property, it is possible that some units are not covered by a rental-assistance
contract. In aggregate, of the more than 1.4 million units in the rent-assisted properties, 88% are
covered by rental-assistance contracts. It is also possible that a property can have contracts for
more than one type of rental-assistance. Most rent-assisted properties have only Section 8
assistance;159 only about 2% of properties have only RAP assistance or Rent Supplement
assistance. A small number of properties have a combination of the different types of rental-
assistance (for example, both a Section 8 and RAP contract). Not surprisingly, the percentage of
units assisted in RAP-only and Rent Supplement-only properties is much lower than the

159 For the purposes of this analysis, properties with Section 8 contracts include properties with Project Assistance
Contracts (PAC). PAC contracts were provided from about 1988 to 1990 to properties with Section 202 loans where
the properties were designated for persons with disabilities. The PAC was provided in lieu of Section 8 project-based
rental-assistance.
Congressional Research Service
38

Preservation of HUD-Assisted Housing

percentage of units assisted in Section 8-only properties, since both the RAP and Rent
Supplement programs had limits on the percentage of units that could be assisted in a property.
Including those units in properties with a mix of contracts, there are 15,870 RAP units, 12,847
Rent Supplement units, and 1.2 million Section 8 units. From a preservation standpoint, the type
of assistance is important. HUD has no authority to renew RAP and Rent Supplement contracts,
which assist nearly 30,000 units, and only has the authority to provide tenant protection vouchers
upon contract termination to tenants in Rent Supplement units, not tenants in RAP units.
Table 7. Rent-Assisted Properties and Units
Total Units in
Total
Assisted
Percent

Properties
Properties Assisted
Units Assisted
Al rental-assistance
17,207
1,405,606
1,233,426
88%
RAP contracts only
129
28,201
15,416
55%
Rent Supplement contracts
242 38,754
12,311
32%
only
Section 8 contracts only
16,811
1,335,313
1,203,215
90%
Mix of rental-assistance
contract types
25 3,338
2,484
74%
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database, as of
September 30, 2009.
Note: Section 8 Only data include HAP contracts, SCHAP contracts, and PAC contracts. Data do not include
PRAC or APRAC contracts.
Table 8 provides information on the expiration period for rent-assistance contracts, broken down
by type. As is shown in the table, most Rent Supplement expirations will happen within the next
five years, whereas most RAP expirations will happen within the next 10 years. Under current
law, these contracts cannot be renewed. Most Section 8 contracts will expire in the next five
years. For the most part, owners can choose to renew Section 8 contracts if they wish.
Table 8. Expirations for RAP and Rent Supplement Contracts
Rent
Section 8
Supplement
Total
Percent of
Contract
Assisted
RAP Assisted
Assisted
Assisted
Assisted
Expirations
Units
Units
Units
Units
Units
through
2014
793,296 1,439 8,991 803,726 65%
2015-2019 91,122
13,933
3,750
108,805
9%
2020-2024 181,154
401
76
181,631
15%
2025-beyond 139,132
97 30
139,259
11%
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database, as of
September 30, 2009.
As noted earlier in this report, the ownership type of a property can be indicative of the likelihood
that the owner will choose to exit an assisted housing program. As shown in Table 9,
approximately 41% of properties with rental-assistance contracts are owned by nonprofit owners.
Congressional Research Service
39

Preservation of HUD-Assisted Housing

Roughly 42% are owned by for-profit owners. Another 15% are owned by limited-dividend
owners. Limited-dividend owners face caps on the return they can receive on their investment in a
rent-assisted property. As a result, limited dividend may be the ownership type with the greatest
incentive to leave the program, depending on other factors.
Table 9. Ownership of Rent-Assisted Properties
Ownership Types
Percent of Properties
Limited dividend
15%
Nonprofit 41%
Other 2%
For-Profit 42%
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database, as of
September 30, 2009.
Note: 1,947 properties had missing values for property ownership type.
Another factor that can affect whether a property remains part of the assisted housing stock is the
physical condition of the property. As can be seen in Table 10, the majority of properties with
rent-assistance contracts have high enough inspection scores to allow them to be inspected only
every three years. However, 6% of properties, at their last inspection, had scores low enough to
require corrective action.
Table 10. Inspection Scores for Rent-Assisted Properties at Latest Inspection
Inspection Scores
Number of Properties
Percent of Properties
30 or below, automatic referral to DEC
105
1%
31-59, referral to DEC
801
5%
60-79, annual inspections
2,479
14%
80-89, biennial inspections
4,686
27%
90 and above, inspections every three years
9,061
53%
Source: CRS analysis of HUD data from the Multifamily Assistance and Section 8 Contracts Database and the
Multifamily Assisted Property Physical Inspection Dataset, as of September 30, 2009.
Note: 75 properties had missing values.
Summary
As presented in these data (including the data presented in Table A-1 in Appendix A), almost
17,700 properties containing more than 1.33 million subsidized units (with financing or rental
assistance) have some form of federal affordability restrictions that are scheduled to end.160 In
some cases, those agreements will be renewed and continued, in other cases, they will be
terminated at the owner’s choice, at HUD’s choice, or because there is no authority to renew the
agreements. Those in the latter category are the easiest to identify. Just under 29,000 units of

160 Because some rental assistance contracts do not cover all units in a building, there are approximately 117,317 units
in properties with rental assistance contracts that are not themselves rent-assisted.
Congressional Research Service
40

Preservation of HUD-Assisted Housing

housing are subsidized by RAP and Rent Supplement contracts that HUD has no authority to
renew. More than 10,000 of those contracts will expire in the next five years. However, HUD
does have authority to provide ongoing rental-assistance, in the form of tenant protection
vouchers, to those families living in units with expiring Rent Supplement contracts. These
represent just under 13,000 total units, well over half of which will expire in the next five years.
HUD does not have the authority to provide ongoing rental-assistance to those families living in
units with expiring RAP contracts; these represent more than 16,000 total units, of which just
under 10% will expire in the next five years.
HUD also does not have any current tools to extend affordability agreements on properties with
maturing HUD-assisted financing through the Section 202, Section 221(d)(3) BMIR, and Section
236 programs. While those properties with HUD-assisted financing together with Section 8
contracts can extend their federal affordability agreements through renewal of their Section 8
contracts, properties without Section 8 contracts do not have this option. There are 315 properties
with FHA-insured loans through the Section 236 or Section 221(d)(3) BMIR programs containing
over 31,000 units, and 176 properties with Section 202 loans containing just under 15,000 units
that have no rental-assistance contracts. While some of these owners may not increase their rents
to market rates once the affordability restrictions end, there is no federal law preventing them
from doing so and there is no federal rent assistance available to the families living in these units
if their rents increase.
For those properties that have the option to extend their affordability agreements, it can be
difficult to determine what may happen at the end of their current agreements. Of the more than
1.2 million units with Section 8 assistance that can be renewed, over half have rental-assistance
contracts that will expire over the next five years. As long as the property is not in default of its
assistance contract (and, as shown in Table 10, most properties have at least passing physical
inspection scores), the owner can decide whether or not to renew the contract. Well over half of
these rent-assisted properties are owned by for-profit entities, including the 15% owned by for-
profit owners who receive “limited-dividends,” or caps on their profits. While all for-profit
owners may be at greater risk of opting-out of renewing their contracts than nonprofit owners,
limited-dividend owners may be the most likely not to renew if they can receive comparable
rents, and greater profits, in the private market.
Preservation Options
As described earlier in this report, the federal government has a limited set of preservation tools.
HUD has the authority to renew expiring rental-assistance contracts for those properties that have
them, and, in some circumstances, restructure the outstanding debt on a property if it has FHA-
insured financing. In other circumstances, HUD has the authority to provide residents facing
displacement with rental-assistance. For properties with maturing mortgages, HUD has no
preservation authority. Earlier preservation laws gave HUD additional tools, including the
authority to provide new rental-assistance contracts, secondary financing to shore up troubled
properties, and enhanced restrictions on property owners’ rights to exit certain programs. These
additional preservation tools are no longer available; they were eliminated out of concern about
their high cost and about their infringement on property owners’ rights.
In recent years, particularly as concern about maturing mortgages has grown, there have been
calls from low-income housing advocates, tenants’-rights organizations, and property owners to
adopt policies that encourage preservation and expand the set of preservation tools available to
Congressional Research Service
41

Preservation of HUD-Assisted Housing

HUD. A number of proposals that would encourage housing preservation have been made as part
of legislation161 or through recommendations from interested groups.162 These proposals generally
fall into two broad categories: (1) incentives for current owners to maintain their properties or sell
them to preservation purchasers, and (2) restrictions on owners.
It is important to note that federal efforts are not the only preservation efforts. In recent years,
state and local governments, along with affordable housing preservation advocates, have
increased the local role in affordable housing preservation. Several states and localities have set
aside their own funds, or prioritized the use of their federal funds, for preservation incentives. For
example, according to CRS analysis of 2008 state Low-Income Housing Tax Credit (LIHTC)
Qualified Allocation Plans, 27 states awarded additional points to preservation projects in their
competitions for tax credits, and an additional 17 states set aside a portion of tax credits for
preservation purposes.
The following section of the report discusses current federal preservation policy options.
Financial Incentives for the Current Owner to
Maintain Affordability

There are a number of methods through which the government could provide incentives for
existing owners to maintain their properties as affordable housing. These options include reducing
owner debt, increasing the amount of rent subsidies owners receive, allowing owners to access
reserve funds, or providing funds to rehabilitate and improve properties. One consideration when
offering incentives is what strings to attach to them. Generally, when owners have received
preservation incentives in the past they have been required to extend any affordability restrictions
(for between five and 30 years, depending on the incentive) and, in some cases, renew any
expiring rental-assistance contracts. Incentive options include the following:
• Debt reduction—Reducing owners’ debt may reduce their operating costs,
freeing up funds for needed repairs, or it may make it more feasible for owners to
enter into new loans, the proceeds of which could be used to rehabilitate
properties. HUD could be given explicit authority to subordinate or forgive loans
that it made to property owners over the years. For example, HUD extended
Flexible Subsidy loans to Section 236 and Section 202 owners, among others, to
help “restore or maintain the financial or physical soundness of the project.”163 If
HUD waived this debt in the case of a refinancing, an owner would not have to
use loan proceeds to pay off the debt and would have more funds available to
improve the property. HUD could also be given authority to make partial
payments of claim from the FHA insurance fund to reduce the debt of FHA-
insured properties. HUD already has the authority to do this in certain
circumstances; that authority is primarily used in Mark-to-Market transactions.

161 See, for example, the Affordable Housing Preservation Tax Relief Act (H.R. 2887), the Section 202 Supportive
Housing for the Elderly Act (S. 118), and the Housing Preservation and Tenant Protection Act (H.R. 4868), all of
which were introduced in the 111th Congress.
162 A group made up of numerous housing organizations released preservation recommendations in 2007. See National
Preservation Working Group, Legislative Provisions to Support the Preservation of Affordable Housing, April 2007,
http://content.knowledgeplex.org/kp2/cache/documents/3747/374781.pdf.
163 12 U.S.C. § 1715z-1a(d).
Congressional Research Service
42

Preservation of HUD-Assisted Housing

• Increased rents and/or rent assistance—If owners were to receive higher rents,
they might be better able to pay for improvements to their properties or may be
willing to continue to provide affordable housing. In the case of rent-assisted
units, the federal government would likely pay the cost of increased rents. In the
case of units without rent assistance, lower-income tenants could end up paying
the cost of increased rents unless additional rent subsidies were provided.
• Access to reserves—Some property owners with rental-assistance contracts are
required to establish residual receipt accounts. In some circumstances, HUD can
permit owners to access these funds for reinvestment in the property.164
Expanding access to these reserves could give owners the incentive to maintain
their properties as affordable housing.
• Loans or grants for recapitalization—HUD could make loans or grants directly to
building owners to enable them to improve their properties. This has happened in
the past through the Flexible Subsidy Program. Currently, HUD does not receive
any funding for this purpose.
Incentives to Sell to Preservation Purchasers
Another method of preserving housing is to give owners incentives to sell their properties to
organizations that will continue to maintain affordability for some period of time. This could
occur with owners who no longer wish to participate as affordable housing providers or where
owners are not considered “good” owners by the residents, the local community, and HUD. The
potential buyers in this scenario are sometimes referred to as “preservation purchasers” and are
often nonprofit organizations or state housing finance agencies, and, in some circumstances,
organizations of residents. Incentives to sell to preservation purchasers could come in different
forms:
• Exit tax relief—Congress could enact a law to reduce the tax liability of owners
that sell their properties to preservation purchasers. Some for-profit owners face
large tax bills when they sell their assisted properties due to capital gains taxes.165
In cases where owners have held property for decades, capital gains taxes may be
quite high and act as a disincentive for the owner to sell the property.
• Financial assistance for preservation purchasers—In some cases, potential
preservation purchasers do not have the technical expertise or access to funding
necessary to allow them to purchase a property. In order to aid preservation
purchasers, federal funding could be used to provide technical assistance and/or
pre-development grants that would aid preservation purchasers in putting
together financing to purchase a property. Funding could also be provided for
direct grants or loans to help preservation entities purchase and rehabilitate a
property. Another option is to fund additional rental-assistance contracts, which
can serve to both provide ongoing operating assistance and act as a credit
enhancement when a purchaser is seeking private market financing.

164 See HUD Handbook 4350.1, Chapter 25-11.
165 The amount of capital gains depends on the basis of the property upon sale. Very simply, the basis is the purchase
(or development) price of the property, minus depreciation, plus improvements. Capital gains are the difference
between the basis and the sale price.
Congressional Research Service
43

Preservation of HUD-Assisted Housing

Requirements for Current Owners
Another way to preserve affordable housing would be to impose requirements on property
owners. Such requirements could include limiting an owner’s options in selling the property,
giving tenants the right to enforce existing housing quality standards, and expanding tenant
notification requirements.
An advantage of owners requirements is that they can accomplish the goal of preservation
without costly incentives. However, requirements that restrict an owner’s ability to sell or convert
a property to market-rate housing could result in legal challenges. As discussed earlier in this
report (“Previous and Ongoing Efforts to Preserve Assisted Housing”), in the late 1980s and early
1990s Congress enacted laws designed to limit the ability of owners to end affordability
restrictions. The laws resulted in years of litigation over whether these restrictions resulted in a
constitutional “takings” claim. The federal government has lost several of these lawsuits and
some are still pending. Owner requirement options include the following:
• Right of first refusal or right of first purchase for preservation purchaser166—One
proposal is to give preservation purchasers a right to purchase properties in order
to prevent them from being converted to market-rate housing. In this scenario, if
an owner wanted to sell the property he or she would first have to attempt to sell
the property to an organization that would maintain affordability, or would have
to accept a fair market offer by a preservation purchaser over other offers.
• Right of first refusal or right of first purchase for tenants—Another option similar
to the right of first purchase or right of first refusal for a preservation purchaser
would be offering the same rights to tenants. The idea is that, with sufficient
notification, tenants can get technical assistance, organize themselves, and
purchase the property in which they live.
• Tenant enforcement of HUD contracts—A criticism preservation advocates have
made of current policy is that tenants have no way to compel HUD to enforce its
rules, such as those meant to ensure that properties do not deteriorate to the point
that they fail inspection. It has been proposed that if tenants were given the
standing to compel enforcement with contract rules, properties may be better
maintained and may not be at risk of loss due to HUD enforcement action. This
type of private right of action exists in fair housing law and would give tenants
greater power in negotiation with private property owners.
• Tenant notification—In cases where owners plan to convert units to market-rate
housing or sell the property to an owner that will not maintain affordability, they
must notify tenants. Proposals have been made to expand these notification
requirements; this would help resident groups organize in case they wish to
purchase the property or contest a sale, or it would give them ample time to find
alternative arrangements with their vouchers. Current law requires that owners
give a minimum notification of at least 150 days before prepaying an FHA-

166 Under a right of first refusal, an owner must offer a property for purchase to the priority entity, and generally must
accept a fair market price if offered by the priority entity before the owner can sell the property to a non-priority entity
in the private market. Under a right of first purchase, the priority entity has preference over other private market
bidders as long as the offer made by the priority entity is at least equivalent to the other offers made.
Congressional Research Service
44

Preservation of HUD-Assisted Housing

insured mortgage and at least a one-year notice before choosing not to renew a
Section 8 contract.
What if Property Is Not Preserved?
In some cases, a property either cannot be preserved with existing incentives, or should not be
preserved, perhaps due to its physical condition or location. In circumstances where an individual
property will not be preserved, there may be options to either transfer the assistance to another
property or provide residents with ongoing assistance.
• Transferring Section 8 assistance—If a property is significantly deteriorated,
outdated, or poorly located, one preservation option is to transfer the assistance
attached to the property (its rental-assistance contract and/or its affordability
restriction) to another, better-suited property. The idea is to preserve the existing
assistance, since there is no authority for new rental-assistance contracts or
affordability restrictions. In recent years, Congress has given HUD limited
authority to undertake these types of transfers,167 and there has been interest in
further expanding that authority.
• Expanded Enhanced Voucher Eligibility—In the case of mortgage prepayment or
termination of a Section 8 contract, the tenants receive vouchers in some
circumstances. These vouchers are designed to provide ongoing rent assistance to
tenants and to protect them from rent increases, which may allow them to remain
in their current rental units. In the case of the expiration of RAP and Rent
Supplement contracts, as well as in the case of mortgage maturation or HUD-
approved prepayments (in the absence of rental-assistance contracts), the
residents are not eligible for vouchers. There have been proposals to expand
enhanced voucher eligibility to those groups that are not currently eligible.
Current Legislation
Several preservation-related proposals have been introduced in the 111th Congress.
The Housing Preservation and Tenant Protection Act (H.R. 4868)
An extensive preservation bill, the Housing Preservation and Tenant Protection Act (H.R. 4868)
was introduced in the House on March 17, 2010, by the Chairman of the House Financial
Services Committee. The bill is similar to a draft preservation bill that had been circulated as part
of a hearing held by the Subcommittee on Housing and Community Opportunity of the House
Financial Services Committee in July 2009.168 The bill includes versions of most of the proposals

167 Authority has been provided through the annual HUD appropriations acts since FY2006.
168 U.S. Congress, House Committee on Financial Services, Subcommittee on Housing and Community Opportunity,
Legislative Options for Preserving Federally- and State-Assisted Affordable Housing and Preventing Displacement of
Low-Income, Elderly and Disabled Tenants
, 111th Cong., 1st sess., July 15, 2009, H.Hrg. 111-59,
http://www.house.gov/apps/list/hearing/financialsvcs_dem/59.pdf. The draft legislation is available at
http://www.house.gov/apps/list/hearing/financialsvcs_dem/frank_035_xml.pdf.
Congressional Research Service
45

Preservation of HUD-Assisted Housing

discussed in the previous section of this report. Among others, the bill includes the following
provisions:
• Regarding Section 221(d)(3) BMIR and Section 236 properties with maturing
mortgages, H.R. 4868 would make grants or loans available to rehabilitate the
property if owners so chose, and would extend enhanced voucher protections to
unassisted tenants upon mortgage maturation. The bill would also create a
“Preservation Exchange Program,” through which HUD would facilitate the
transfer of a property with a maturing mortgage to a preservation purchaser.
HUD would be authorized to provide incentives both to current owners and
purchasers, including the forgiveness of outstanding Flexible Subsidy loans.
• H.R. 4868 would authorize the conversion of RAP and Rent Supplement
contracts to Section 8, which would allow them to be renewed.
• The bill would establish a form of right of first refusal/right of first purchase for
HUD (or its assignee) whereby HUD could match the offer of a third party and
purchase a property in order to maintain its affordability.
• H.R. 4868 would permit owners to request project-based assistance in lieu of
enhanced vouchers, and would require HUD to provide such assistance, as long
as the owner agreed to extend the contract at least 20 years.
• In terms of tenant protection and assistance, H.R. 4868 would authorize funding
for technical assistance for tenant organizations and give tenants a private right of
action to enforce program rules.
• The bill also contains a version of the Section 202 preservation legislation
(discussed in the next section of this report), as well as an authorization and
modification to rural housing preservation initiatives that have been authorized
and funded through recent appropriations acts.
The legislation would authorize “such sums as necessary” to fund various preservation incentives,
making it dependent on the Appropriations Committees to fund most of the new initiatives.
Both low-income housing advocates and industry organizations representing assisted property
owners provided feedback on the draft legislation during the hearings in 2009.169 While many of
the proposals contained in the draft legislation were supported by both advocates and owners
groups, provisions related to restrictions on owners (right of first purchase/right of first refusal
and private right of standing for residents) proved controversial, with tenant advocates in support
of the provisions and owners groups opposed. Based on testimony given during a hearing on the
introduced legislation on March 24, 2010,170 property owners continue to be concerned about the
right of first refusal and private right of standing provisions and tenant advocates continue to
support such provisions.

169 See the testimony, as printed in U.S. Congress, House Committee on Financial Services, Subcommittee on Housing
and Community Opportunity, Legislative Options for Preserving Federally- and State-Assisted Affordable Housing and
Preventing Displacement of Low-Income, Elderly and Disabled Tenants
, Hearing, 111th Cong., 1st sess., July 15, 2009,
H. Hrg. 111-59 (Washington: GPO, 2009).
170 U.S. Congress, House Committee on Financial Services, Subcommittee on Housing and Community Opportunity,
H.R. 4868, Housing Preservation and Tenant Protection Act of 2010, March 24, 2010.
Congressional Research Service
46

Preservation of HUD-Assisted Housing

The Section 202 Supportive Housing for the Elderly Act (S. 118)
A bill that would make some changes and additions to current law governing the Section 202
program has been introduced in the 111th Congress. The Section 202 Supportive Housing for the
Elderly Act of 2009 (S. 118) is similar to two bills that were introduced in the 110th Congress—
H.R. 2930 (which was passed by the House) and S. 2736.
What is most relevant for housing preservation is that the version of the bill introduced in the
111th Congress would address the way in which Section 202 properties are refinanced. The
change would allow owners of older Section 202 developments (those funded prior to 1974) to
refinance in order to address the property’s physical needs.171 Under current law, owners may
refinance their Section 202 loans if the refinancing “results in a lower interest rate on the
principal of the loan for the project and in reductions in debt service” (i.e. reduced principal and
interest payments).172 However, loans extended prior to 1974 have interest rates of about 3%,
which makes it difficult to refinance into a loan with reduced debt service. Under S. 118, loans
with interest rates at or below 6% could be refinanced without the requirement of lower debt
service as long as owners used the proceeds to address the property’s physical needs. In addition,
S. 118 would extend the term of affordability to 20 years beyond the term of the original Section
202 loan.173 Currently, owners that refinance are required to maintain affordability only through
the term of the original Section 202 loan.
Another change to existing law contained in S. 118 would be a new “preservation project rental-
assistance” program for owners with Section 202 units that were built prior to 1974, when most
units did not receive rental-assistance.174 The rental-assistance would be available to owners that
refinanced their loans. In these cases, if owners had to increase rents due to increased debt
service, the rental-assistance would prevent displacement of tenants.
For more information on S. 118, see CRS Report RL33508, Section 202 and Other HUD Rental
Housing Programs for Low-Income Elderly Residents
, by Libby Perl.


171 A similar proposal for refinancing Section 202 loans was included in the FY2009 and FY2010 appropriations acts;
however, these changes are only in effect for the duration of the fiscal years covered by the appropriations laws. In
addition, HUD has not issued guidance on how the provisions would be implemented, so no refinancings have taken
place.
172 12 U.S.C. § 1701q, note.
173 Unlike the FY2010 Consolidated Appropriations Act (P.L. 111-117), in which only those owners with loans that
have interest rates at or below 6% must extend the affordability term by 20 years, S. 118 would extend the term for all
owners that refinance.
174 However, some pre-1974 properties later received rental-assistance through the Rent Supplement program and the
Loan Management Set Aside program.
Congressional Research Service
47


Appendix A. Preservation Properties at a Glance
Table A-1. Categories of Preservation Properties

Type of
Options at the End
Approximate
Level of
Length of
Participating
Type of Families
of Assistance
Number of
Property Type
Affordability
Affordability
Owners
Served
Contract
Properties (Units)a
FHA Mortgage
In the Section 236
Initial contracts were
Owners may be
For Section 236
At prepayment or
315 properties
Insurance Only
program, residents
for 40 years; however, nonprofit or for-profit properties, eligible
default, residents
(31,532 total units)
pay basic rent (the
private for-profit
entities.
households are those
receive Section 8
(No rental-assistance)
amount the owners
owners were given
earning 80% or less of
vouchers. At
need to support the
the option of
the area median
maturation, owners
facilities at a 1%
prepaying their
income (AMI), and for can raise rents to
mortgage interest
mortgages and ending
Section 221(d)(3)
market rate and there
rate) or 30% of their
use restrictions after
properties, income
is no authority for
income. In the Section 20 years.
eligibility is set at 95%
vouchers.
221(d)(3) BMIR
of AMI (although
program, tenants pay
owners may admit
the BMIR rent as set
over-income tenants
by HUD.
in certain
circumstances in both
programs).
Rental Assistanceb
Residents pay 30% of
Initial contracts could
Owners may be
Tenants are low-
Owner can choose to
13,370 properties
Onlyc
their incomes toward
be up to 20 years;
nonprofit or for-profit income, with most
renew contract under
(1,136,783 total units;
rent.
renewal contracts are
entities.
assistance targeted to
one of several
1,019,466 rent-
(No BMIR, 236, 202)
general y for five year
very low-income and
options. If owner
assisted units)
terms, although they
extremely low-income chooses not to
can be for 20 year
tenants.
renew, then tenants
terms depending on
receive vouchers.
the renewal option.
CRS-48


Type of
Options at the End
Approximate
Level of
Length of
Participating
Type of Families
of Assistance
Number of
Property Type
Affordability
Affordability
Owners
Served
Contract
Properties (Units)a
FHA Mortgage
Residents in assisted
Generally, the longer
Owners may be
Families must be low-
At prepayment or
1,227 properties
Insurance with Rental
units pay 30% of their
of the mortgage
nonprofit or for-profit income in order to
default, all residents in (139,135 total units;
Assistance
incomes toward rent;
insurance use
entities.
reside in units with
properties with
95,532 rent-assisted
unassisted renters pay restriction or the
rental-assistance.
Section 8 contracts
units)
either basic rents
rental-assistance
Families living in
receive vouchers.
(Section 236) or the
contract.
unassisted units must
BMIR rent (Section
meet the income
Upon mortgage
221(d)(3) BMIR).
requirements of the
maturation, rents can
mortgage insurance
go to market rate.
program.
HUD does not have
the authority to
renew RAP and Rent
Supplement contracts
upon expiration.
Section 202 Loan
Rent set by owner
During the 1960s,
Owners must be
Tenants are either
Owners must
176 properties
Only
based on funds
loan terms were 50
nonprofit
elderly families (those
maintain affordability
(14,699 total units)
required to support
years; the term was
organizations.
with a member age 62 through the term of
building operating
reduced to 40 years
or older) or tenants
the original mortgage,
expenses.
as part of the Housing
with disabilities.
even in cases of
and Community
Unassisted units are
prepayment. After the
Development Act of
general y meant to be
mortgage expires,
1974.
affordable to low- or
owners may increase
moderate-income
rents to market rate
households.
and tenants do not
receive vouchers.
CRS-49


Type of
Options at the End
Approximate
Level of
Length of
Participating
Type of Families
of Assistance
Number of
Property Type
Affordability
Affordability
Owners
Served
Contract
Properties (Units)a
Section 202 Loan with In assisted units,
The restrictions due
Owners must be
Elderly tenants and
Owners must
2,610 properties
Rental Assistance
residents pay 30% of
to loan terms are 40
nonprofit
tenants with
maintain affordability
(129,807 total units;
their income toward
years, with initial
organizations
disabilities living in
under the terms of
118,428 rent-assisted
rent. In unassisted
Section 8 contract
assisted units must be
the loan and rental-
units)
units, tenants pay rent terms up to 20 years.
low-income.
assistance contracts
set by owner.
even in cases of
prepayment. If the
mortgage matures,
rents can be increased
to market and only
Section 8 assisted
residents receive
vouchers.
Source: Property and unit counts are based on CRS analysis of HUD data, including the Multifamily Assistance and Section 8 Contracts Database, the Insured Multifamily
Mortgages Database, and the 202 Direct Loans database, as of September 30, 2009.
a. Not al units in properties with rental-assistance contracts are covered by those contracts. Where relevant, counts of both rent-assisted units and unassisted units are
provided.
b. Rental assistance includes Section 8 (including PAC) as wel as RAP and Rent Supplement. It does not include Project Rental Assistance Contracts (PRAC), which are
provided to modern Section 202 and Section 811 properties.
c. The term “Rental Assistance Only” means that the property does not have an active Section 236 or Section 221(d)(3)BMIR insured loan or 202 direct loan. However,
many of these properties do have other forms of FHA-insured financing or state-aided financing.

CRS-50

Preservation of HUD-Assisted Housing

Appendix B. Glossary
Table B-1. Key Terms Used in This Report
Term Explanation
Area Median Income
The income levels used by HUD to establish household eligibility for most assisted housing
programs. Area median incomes are established by HUD each year for each metropolitan
area, parts of some metropolitan areas, and each non-metropolitan county, and they are
adjusted for family size.
Affordability
An agreement between HUD and a property owner that limits the amount of rent a
Restriction
property owner can charge to residents of the property in exchange for HUD financing
and/or rental-assistance. The restriction may last for the length of the assistance contract or
some longer or shorter period.
ELIHPA
Acronym for the Emergency Low-Income Housing Preservation Act, a law that prevented
owners of Section 221(d)(3) BMIR and Section 236 properties from prepaying their
mortgages unless certain conditions were met. ELIHPA was enacted in 1987 and was
replaced by LIHPRHA in 1990.
Fair Market Rent
FMRs are established by HUD and are meant to represent the gross rent level needed to
(FMR)
obtain modest housing in a community. They are used as a part of the Section 8 contract
renewal process, in some circumstances. FMRs are determined for metropolitan areas, non-
metropolitan counties, and states. For most areas, the FMR is set at the 40th percentile rent
paid by recent movers, which means that the rents for 40% of al standard quality rental
housing units rented within the past 18 months are at or below the FMR. For some high cost
areas, the FMR is set at the 50th percentile rent or the median rent, so that the rents for 50%
of standard units are at or below the FMR.
FHA Mortgage
Insurance provided by HUD’s Federal Housing Administration to protect private lenders in
Insurance
case of borrower default. FHA insures loans for both single-family and multifamily properties.
Flexible Subsidy
A program that provided loans to properties with HUD-assisted financing having financial
Program
difficulties. Congress gave HUD the authority to provide flexible subsidy assistance in 1978,
and FY1995 was the last year in which Congress provided new obligation authority for the
program.
Housing Preservation A form of a Section 8 project-based contract that was provided as an incentive for owners
Program
with HUD-assisted financing to keep their properties affordable. Congress gave HUD the
authority to enter into these contracts in 1987, and the program was terminated in 1998.
LIHPRHA
Acronym for Low-Income Housing Preservation and Resident Homeownership Act, a law
that replaced ELIHPA as a means to prevent private owners from prepaying Section
221(d)(3) BMIR and Section 236 mortgages except under certain circumstances. LIHPRHA
was enacted in 1990, and Congress stopped providing funding to HUD for preservation
incentives to owners in FY1998.
LMSA
Acronym for Loan Management Set Aside, a form of Section 8 rental-assistance provided to
properties with HUD-assisted financing that were financially troubled, including those
financed through the Section 202 loan program, the Section 221(d)(3) BMIR program, and
the Section 236 program. HUD provided LMSA assistance from 1976 through 1994.
Low-Income
Term used by HUD to describe households with income at or below 80% of the area median
Households
income.
MAHRA
Acronym for Multifamily Assisted Housing Reform and Accountability Act. Enacted in 1996,
the law established procedures and authority for the renewal of expiring Section 8 contracts,
including the Mark-to-Market process.
RAP
Acronym for Rental Assistance Payment program, an early form of rental-assistance contract
attached to properties with HUD-assisted financing. RAP replaced the Rent Supplement
program in 1974. Most RAP units were converted to Section 8 assistance in 1980s.
Congressional Research Service
51

Preservation of HUD-Assisted Housing

Term Explanation
Rent Supplement
The first form of rental-assistance contract, it was attached to properties with HUD-assisted
financing. Most Rent Supplement units were converted to Section 8 assistance in the early
1980s.
Section 202 Loan
A HUD program providing direct, low-interest loans to nonprofit developers for the
Program
construction of affordable housing for persons who are elderly or have a disability. The
program was created in 1959 and extended loans until the early 1990s. In 1990, the loan
program was replaced with the Section 202 capital grant program.
Section 202 Capital
The current version of the Section 202 program. In 1990, Congress changed the financing
Grant Program
mechanism in the Section 202 program from direct loans to capital grants. The capital grants
need not be repaid as long as the owner provides housing that is affordable to very low-
income elderly residents for at least 40 years.
Section 221(d)(3)
A HUD FHA mortgage insurance program that insured and subsidized below-market interest
BMIR Program
rate (BMIR) loans for affordable housing developments. The program was active from 1961
to 1968.
Section 236 Program A HUD FHA mortgage insurance program that provided below-market financing through
Interest Reduction Payments for affordable housing developments, active from 1968 to 1973.
Section 8 Project-
Program created in 1974 to provide rental-assistance contracts to newly constructed and
Based Rental
substantially rehabilitated properties. The program was later expanded to provide contracts
Assistance
to certain existing properties with HUD-assisted financing (see LMSA). The authority to
provide contracts for new units was repealed in 1983.
Section 8 Property
Form of Section 8 contract provided to properties that defaulted on HUD-assisted financing
Disposition
and were sold by HUD to new owners.
Very Low-Income
Term used by HUD to describe households with income at or below 50% of the area median
Households
income.


Author Contact Information

Maggie McCarty
Libby Perl
Specialist in Housing Policy
Specialist in Housing Policy
mmccarty@crs.loc.gov, 7-2163
eperl@crs.loc.gov, 7-7806


Congressional Research Service
52