WASHINGTON -- Congress must move quickly to pass legislation permitting the Department of Housing and Urban Development to sell billions of dollars in nonperforming multifamily loans because the agency will be hit with many more loan defaults in the near future, a GAO official said yesterday.
"In our view, prompt action on this legislation is needed" because "a substantial number of insured mortgages are at risk of default," said Judy England-Joseph, the director for housing and community development issues in the GAO's resources, community, and economic development division.
England-Joseph was testifying before the House Banking Committee's subcommittee on housing and community development.
The legislation would be significant for the municipal market because HUD wants state and local governments to buy some of the loans. State and local housing officials have said they expect that multi-family housing bonds or 501(c)(3) bonds would be issued to rehabilitate apartments that were built with the loans.
The nonperforming loans that the department is trying to sell were insured by the Federal Housing Administration and assigned to HUD over the last several years by lenders when borrowers defaulted.
Although department officials want to get the loans off their books, they believe the law does not give them clear authority to do so. Thus, the legislation restates the conditions under which HUD can sell subsidized loans and clarifies the department's authority to sell unsubsidized loans.
Congress attempted to pass the bill last year but adjourned before completing action. This year, housing lawmakers were originally planning to fold the bill into a bigger package reauthorizing all federal housing programs, which is not expected to come to a final vote in Congress for a several months.
But recently House Banking Committee Chairman Henry Gonzalez, D-Tex., and Sen. Paul Sarbanes, D-Md., chairman of the Senate Banking Committee's housing sub-committee, said they were willing to pass the loan sale bill ahead of the reauthorization measure, though they have not laid out a timetable for voting on it.
England-Joseph urged Gonzalez to push forward with that initiative, saying that "the need for prompt action on this matter is critical." She said "the potential exists for a far greater number of insured loans to default and for additional losses to be sustained" by HUD.
By July 1993 HUD had accumulated in its portfolio 2,432 mortgages, representing an unpaid principal balance of $7.45 billion, a 50% increase from 1989. At the time, HUD was insuring more than 15,000 multi-family loans with an unpaid principal balance of about $43.6 billion.
"A substantial portion of these loans are at risk of default," England-Joseph said.
But she also urged housing law-makers to keep a close eye on HUD even after passage of the loan-sale legislation.
"While the bill's provisions would held HUD improve the management of its HUD-held portfolio, given the serious nature of the problem, it is important that HUD's success in reducing deliquencies and avoiding foreclosures be closely monitored," England-Joseph said.
