Federal housing officials are making a determined effort to sell more troubled housing projects to private companies, an approach that critics say will displace many low-income tenants and reduce the dwindling stock of apartments for the poor.
The Department of Housing and Urban Development has adopted a new policy of intentionally bidding low at foreclosure sales for federally insured properties. To make sure that private firms get the point, the agency has been announcing its bid in advance, a practice that reportedly has stoppped.
The result is that HUD, which once acquired most of the troubled projects at auctions, has been outbid on all 10 properties sold under the new procedure, in one instance by a single dollar.
"HUD just wants to get rid of the properties, wash their hands of it and get out of the business," said Rep. Barney Frank (D-Mass.), who recently chaired House hearings on the issue. "That's why they're having these fire sales. They think it's inappropriate for the housing department of the United States to have anything to do with housing."
But Federal Housing Commissioner Philip Abrams contends that HUD is getting a good price for the properties and that private owners make better landlords than the government.
"The value of the property is what people will pay for it in the marketplace," Abrams said. ". . . The fact that we didn't become owners of these 10 projects proves we're on the right track . . . . An appraisal is a subjective judgment. A bid is cash on the barrelhead."
Abrams said that HUD has sold only one "subsidized" project and that the rest were federally insured buildings not originally intended for the poor.
He acknowledged that federal insurance amounts to a subsidy for the developer but said that HUD has no obligation to notify tenants of a sale or to bar the new owners from raising rents or converting apartments to condominiums. "This is not low-income housing stock," Abrams said.
The dispute between Frank and Abrams, a former Massachusetts developer who campaigned against him frequently, mirrors the emerging debate over federal housing policy.
For years, HUD has been acquiring federally insured and financed housing projects after they went into default. Since President Reagan took office, however, HUD has cut its inventory of federally financed projects from 306 to 123, which has greatly reduced the agency's maintenance costs.
When a private owner is on the verge of default, HUD often acts as a bank by holding a foreclosure sale. In the past, the agency usually bought each project by bidding 90 percent of the remaining mortgage. It then generally continued to provide rent subsidies to needy tenants.
Last summer, however, Abrams announced in a memo that he wanted "to return the government's inventory of properties to the private sector as quickly as possible."
HUD's revised bidding policy had a quick impact. Last month, for example, HUD held foreclosure sales for the two Spring Lake apartment projects in Gadsden, Ala.
An independent appraiser told HUD that the first building was worth $1.7 million, but HUD sold it to the highest bidder for $1.4 million. The department bid $712,000.
The appraiser said that the second Spring Lake building was worth $755,000. HUD sold it for $530,000. The department's bid, which subtracts the agency's holding costs for a transitional period, was $315,350.
Frank likened HUD's policy to the Interior Department's controversial sale of federal coal leases, saying, "They're giving away part of the value."
Federal auditors found that 40 percent of the tenants at Spring Lake are eligible for federal rent subsidies. HUD says that figure is overstated.
Abrams conceded that rent increases could force some tenants to move, but he has offered to give the displaced tenants Section 8 housing certificates, known as "vouchers," which can be used like cash to help pay the rent on any apartment.
Congressional critics, however, say that vouchers do nothing to increase the housing supply and that many tenants losing their homes in federally insured buildings will not be able to find affordable apartments elsewhere.
After HUD announced last fall that it would bid $67,500 for a project in Mobile, the only private bidder won the property for $67,501.
Abrams, responding to criticism from Frank, has agreed to stop disclosing HUD's bids in advance.
In some cases, a 1981 law gives HUD the option of requiring purchasers of such projects to continue to set aside units for low-income tenants. But the agency never issued regulations to implement that law and is seeking its repeal.
James R. Grow, an attorney with the National Housing Law Project, said that the new disposal policy comes at a time when HUD is trying to cut back on payments to public housing authorities and has all but halted construction of subsidized housing.
"There's no new production program to compensate for the loss of thousands of units from an already inadequate stock of low-income housing," Grow said. "Some of these units are in gentrifying neighborhoods and will be lost to low-income people forever. It would leave the poor warehoused in the poorest projects that nobody wants.
"Even assuming that HUD's goal is to maximize the return to the treasury, they're not doing a very good job of it," Grow said, adding that HUD pays little attention to the independent appraisals it receives and sells many projects for less than market value.
"HUD calculates market value in a very stupid way, without regard to the tax advantages you would get, when everyone knows one of the major incentives for buying these properties is the tax shelters," Frank said.
Abrams replied that HUD does not agree with the methods of the independent appraisers it hires and that the value of the projects has declined because of higher interest rates.