The Department of Housing and Urban Development has proposed changes in its regulations that critics say will allow the agency to sell low-income apartment buildings to the highest bidder, resulting in a loss of homes available to the nation's poor.
Although a law passed in 1978 says the "principal goal of the property disposition program shall be to maintain the existing stock of multifamily projects as decent housing available to and affordable by low- and moderate-income families," HUD is proposing rules that say the department "ordinarily will seek to dispose of each multifamily project that it acquires through foreclosure in such manner as will ensure the maximum return" to the government.
HUD acquires apartment projects when owners default on mortgages insured by the agency. In most cases, HUD pays the lender's insurance claim, and forecloses on the property or accepts a deed in lieu of foreclosure. The department does not keep and manage these projects, but sells or demolishes them. Proceeds from sales are channeled into the mortgage insurance funds and used to insure more mortgages.
In 1982, HUD proposed eliminating the requirement that property be poreserved for low-income people, but Congress refused.
However, the regulations now would make provision of subsidies for multifamily housing when it is sold "totally discretionary," James R. Grow, an attorney with the National Housing Law Project in Berkeley, Calif., told a hearing of the House Government Operations housing subcommittee this week.
"If we were seeking to maximize the return to the Treasury, we would not have built subsidized housing in the first place," said Rep. Barney Frank (D-Mass.), the subcommittee chairman. "We made a national decision that this type of housing should be provided.
"Budget considerations make it highly unlikely than any significant amount of new construction will go forward," Frank continued. "To many of us, that makes it all the more important to maintain a federal policy that preserves the units we have."
Grow urged that buildings be sold with the requirement that they will continue to be used as subsidized housing whenever possible. "Without. . . subsidies under the Section 8 programs, these units can't be maintained for low-income use," he said.
Instead of emphasizing the saving of apartments, however, the new standards would "make it much easier to justify the demolition of projects . . . ," he added.
Another outcome of the proposed rules would be racial and economic resegregation of neighborhoods, Frank charged. When buildings are sold at market rates in areas where property values are rising, low-income tenants are not able to afford the new rents.
Grow said the new regulations are marked by an "extraordinary vagueness. One can read through these regulations and be totally unable to predict what the outcome will be in any particular disposition decision."
HUD General Counsel John J. Knapp, noting objections contained in a letter from Frank to HUD that "the extraordinary discrection HUD is seeking could run afoul of . . . congressional intent," acknowledged that HUD "plainly" wants more leeway in deciding what to do with property it repossesses. The department wants to make its decisions "on a case-by-case basis, taking fully into account all pertinent individual circumstances" of a project.
"What we are dealing with in property disposition are projects which have already proven to be market failures, even in many cases with the aid of subsidy," Knapp said. The agency expects "the character of the projects that come into the HUD-owned inventory . . . will increasingly be of a severely troubled nature" because of successful attempts in recent years to "keep marginally troubled projects" from defaulting.
Knapp said he does not think "there is a substantial basis for the subcommittee to conclude that this change in the regulations will change significantly the bottom-line outcome of the disposition decisions that are made," because the agency is allowed to waive the present regulations when circumstances dictate, prompting subcommittee members to ask him why, if this is the case, HUD needs a rules change.
Richard Schapiro, director of New Jersey's Divison of Public Interest Advocacy, said HUD waivers of the present rules have resulted in "a depletion of the housing stock for low-income people. . . . The New Jersey experience will demonstrate that there really is no need for the proposed regulations, because the waiver provisions in the present regulations" give HUD the leeway it wants, allowing it to make exceptions to the rules.
"Our concern is that the exception will now become the rule," Schapiro said. He cited as an example of his fears the sale in June 1983 of an 184-unit project without subsidies and without any obligation on the new owner to maintain the housing for low-income residents. Another apartment complex sale took place recently, under the same conditions, to an owner "whose present intent is to convert them to condominiums."
HUD does not need congressional approval to implement the proposed regulations. A subcommittee aide said, however, HUD could be sued by anyone who believed the rules did not accurately reflect the intent of housing statutes. Congress also could pass legislation countermanding the regulations, but such action by the Republican-controlled Senate would be considered unlikely.