MORTGAGE INSURANCE:

Report to Congressional Committees

September 2026

GAO-26-109028

United States Government Accountability Office

A report to congressional committees

Contact: Jill Naamane at naamanej@gao.gov

What GAO Found

Each year, the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) insures billions of dollars in mortgages for multifamily properties through a variety of programs. HUD’s section 542(c) program provides FHA insurance for loans on affordable multifamily properties that are originated, underwritten, and serviced by housing finance agencies (HFA). The program is also known as the risk-sharing program because HUD and HFAs share the risk of loss on the loans. From fiscal years 2016 through 2025, HFAs underwrote over $12 billion (adjusted for inflation) in FHA-insured multifamily loans under the program. These loans helped finance 776 projects that are expected to produce or preserve about 93,670 rental units (see figure).

Three traditional HUD mortgage insurance programs GAO selected for comparison—in which HUD-approved lenders process applications—each financed more multifamily housing than the risk-sharing program. These three programs and the risk-sharing program collectively helped finance projects expected to produce or preserve nearly 1.3 million multifamily units from fiscal years 2016 through 2025. The risk-sharing program accounted for 7 percent of the total units. The traditional programs may be used for both affordable and market-rate projects, while the risk-sharing program may be used only for affordable projects. According to HUD officials, around half of the projects under the traditional programs are market rate.

HUD’s traditional and risk-sharing programs are similar in some areas but differ in other areas, partly because their requirements differ. Under the traditional programs, HUD-approved lenders prepare and submit loan applications for FHA insurance in accordance with HUD’s uniform standards and procedures. Under the risk-sharing program, HFAs use their own standards and procedures. GAO found that the traditional and risk-sharing programs have some similarities in loan processing and underwriting, but HUD’s role in those activities and program oversight differs. For example, HUD approves projects under the traditional programs, and HFAs approve projects under the risk-sharing program.

Why GAO Did This Study

Section 542 of the Housing and Community Development Act of 1992 directed FHA to demonstrate the effectiveness of new forms of federal credit enhancement (e.g., mortgage insurance) for multifamily housing loans. The risk-sharing program was initiated as a pilot program in 1994 and made permanent in 2001.

HFAs must be approved by HUD to participate in the risk-sharing program, and HUD had approved 37 HFAs as of July 2026. HUD delegates to state and local HFAs the authority to originate, underwrite, and service loans for the new construction, substantial rehabilitation, purchase, or refinancing of affordable multifamily housing. In general, a unit is considered affordable if rent plus utilities does not exceed 30 percent of household income. HFAs may elect to share from 10 percent to 90 percent of the loss on a loan with HUD.

Senate Report 119-47 includes a provision for GAO to review HUD’s risk-sharing program. This report describes (1) how the program contributed to the production and preservation of affordable multifamily housing during fiscal years 2016–2025 and (2) how it compares with selected traditional HUD mortgage insurance programs for multifamily housing.

GAO analyzed HUD data on FHA multifamily mortgage insurance programs and reviewed HUD regulations and program documents. GAO also collected and reviewed documents on HFA multifamily programs. GAO interviewed HUD officials; representatives and HFA members of relevant HFA associations; and representatives of the Mortgage Bankers Association and two lenders.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Abbreviations
FFB	Federal Financing Bank
FHA	Federal Housing Administration
HFA	housing finance agency
HUD	Department of Housing and Urban Development
LIHTC	Low-Income Housing Tax Credit
MAP	Multifamily Accelerated Processing

September 15, 2026

The Honorable Cindy Hyde-Smith
Chair
The Honorable Kirsten Gillibrand
Ranking Member
Subcommittee on Transportation, Housing and Urban Development, and Related Agencies
Committee on Appropriations
U.S. Senate

The Honorable Steve Womack
Chairman
The Honorable James E. Clyburn
Ranking Member
Subcommittee on Transportation, Housing and Urban Development, and Related Agencies
Committee on Appropriations
House of Representatives

The U.S. faces a widespread shortage of rental units that are affordable to very low- and extremely low-income renter households.[1] According to the Department of Housing and Urban Development (HUD), in 2023, 59 affordable units were available nationwide for every 100 very low-income renter households, and 38 affordable units were available for every 100 extremely low-income renter households.[2]

Each year, HUD’s Federal Housing Administration (FHA) insures billions of dollars in mortgages for multifamily rental properties under a variety of programs. HUD’s section 542(c) program provides FHA insurance for loans on affordable multifamily properties that are originated, underwritten, and serviced by state and local housing finance agencies (HFA).[3] The program is also called the HFA risk-sharing program because HUD and HFAs share the risk of loss on loans. In comparison, under its traditional mortgage insurance programs, HUD generally assumes all the risk of loss and performs loan-processing and asset management functions.

Senate Report 119-47 includes a provision for us to review HUD’s risk-sharing program. This report describes

·         how the HFA risk-sharing program contributed to the production and preservation of affordable multifamily housing during fiscal years 2016 through 2025 and

·         how the risk-sharing program compares with selected traditional HUD mortgage insurance programs for multifamily housing.

To address the first objective, we used HUD’s FHA multifamily firm commitments and endorsements database to analyze the number and selected characteristics of the multifamily projects financed through HUD’s HFA risk-sharing program from fiscal years 2016 through 2025.[4] To assess the reliability of these data, we reviewed database documentation, including controls designed to ensure the data are complete and accurate; interviewed knowledgeable HUD officials; and manually tested the data to identify missing data, outliers, and obvious errors. We found the data to be sufficiently reliable for providing information on multifamily housing production and preservation through HUD’s risk-sharing program, including insured loan amounts and number of projects and rental units. In addition, we reviewed the Federal Financing Bank’s documents on its role in financing loans under the risk-sharing program.[5] Finally, we identified and reviewed articles and other information issued by stakeholders, including nonprofit associations, about HUD’s risk-sharing program.

To address the second objective, we used the HUD database as described above to analyze the number of rental units financed through selected traditional HUD mortgage insurance programs from fiscal years 2016 through 2025.[6] We reviewed HUD regulations and documents covering its traditional mortgage insurance programs, including the Multifamily Accelerated Processing (MAP) Guide, and for the risk-sharing program, the Housing Finance Agency Risk-Sharing Pilot Program Handbook.[7] We also reviewed underwriting guides, program term sheets, and other documents from websites of HFAs that participate in the risk-sharing program.

For both objectives, we interviewed HUD officials and representatives from the Center for Public Enterprise, two lenders that HUD approved to process loans under its Multifamily Accelerated Processing program, the Mortgage Bankers Association, and the National Association of Affordable Housing Lenders.[8] We also interviewed a representative from the National Association of Local Housing Finance Agencies and two of its HFA members that participate in the risk-sharing program, and a representative from the National Council of State Housing Agencies and six of its HFA members that participate in the risk-sharing program. We also reviewed prior GAO reports on HUD’s traditional and risk-sharing multifamily housing programs.[9]

We conducted this performance audit from February 2026 to September 2026 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Background

HUD’s Traditional Mortgage Insurance Programs

Through FHA, HUD provides insurance on mortgages originated by approved lenders to facilitate the production and preservation of multifamily rental housing properties.[10] It does so through a variety of traditional programs under the National Housing Act, including the following:

·         Section 213, 220, 221(d)(4), 231, and 241(a) programs provide mortgage insurance for loans financing market-rate and affordable projects to facilitate new construction or substantial rehabilitation of multifamily rental properties, housing for seniors, cooperative housing, and single-room occupancy projects.

·         Section 223(f) and 223(a)(7) programs provide mortgage insurance for the purchase or refinance of existing rental properties and a streamlined refinancing option for mortgages that already have FHA insurance.

Under these traditional programs, HUD generally processes applications for mortgage insurance through its Multifamily Accelerated Processing (MAP) program. Only HUD-approved MAP lenders may submit applications. HUD permits MAP lenders to prepare much of the application documentation, including due diligence and underwriting. To be an approved MAP lender, a lender must demonstrate, among other things, that it is financially sound, has a satisfactory lending record, and has qualified underwriters. According to HUD, MAP is designed to establish uniform national standards for approved lenders to prepare, process, and submit loan applications for FHA multifamily mortgage insurance.

HUD’s Risk-Sharing Program

Section 542 of the Housing and Community Development Act of 1992 directed HUD to carry out programs through FHA to demonstrate the effectiveness of providing new forms of federal credit enhancement (e.g., mortgage insurance) for multifamily loans. Originally initiated as a pilot program in 1994, the HFA risk-sharing program was made permanent in 2000 under HUD’s fiscal year 2001 appropriations act.[11] According to HUD regulations, the use of federal credit enhancements increases access to capital markets and thereby increases the supply of affordable multifamily housing.

HFAs must apply and be approved by HUD to participate in the risk-sharing program, among other things. To be approved, an HFA must, among other things, carry an issuer credit rating of “A” or better from a nationally recognized credit rating agency, receive an overall rating of “A” for its general obligation bonds, or otherwise demonstrate its capacity as a sound and experienced HFA. An HFA without an issuer credit rating of “A” must establish and maintain a specifically identified dedicated account consisting entirely of liquid assets (i.e., cash or cash equivalents or readily marketable securities) in a financial institution acceptable to HUD. Once approved, the HFA can enter into a risk-sharing agreement with HUD.[12] HUD has approved 37 HFAs to participate in the risk-sharing program since the inception of its pilot program.[13]

Under the risk-sharing program, HUD delegates to state and local HFAs the authority to underwrite, process, and service loans and to manage and dispose of properties that fall into default. The program allows HFAs to underwrite loans for the new construction, substantial rehabilitation, purchase, or refinancing of affordable multifamily housing, including for older adults. HFAs may elect to share from 10 percent to 90 percent of the loss on a loan with HUD. In the event of a claim, HFAs reimburse HUD for their portion of the loss pursuant to their risk-sharing agreement.

HFAs that assume 50 to 90 percent of the risk on loans can use their own underwriting standards and loan terms and conditions without further approval from HUD; this is referred to as level I approval. HFAs that assume less than 50 percent of the risk are given level II approval and must have their underwriting standards and loan terms and conditions approved by HUD.[14] The actual percentage of risk that an HFA assumes may vary from one loan to another but must be documented for each loan.

Affordable Housing

Multifamily residential properties, such as apartment buildings, are generally financed with multifamily mortgage loans. Potential future income from rents, a key reason why developers pursue multifamily projects, is an important factor lenders use when evaluating multifamily mortgage applications. Multifamily projects that target lower-income households may not generate sufficient rental income to repay their mortgages and meet profitability targets, making them less attractive to developers and lenders. To lower rents to levels that lower-income households can afford, developers seek various types of capital and operating subsidies as well as rental assistance payments to tenants to make projects financially feasible.

Assistance for affordable multifamily housing projects can come in many forms of subsidy, including public and private sources of funding. The federal government encourages developers and lenders to invest in affordable multifamily properties by offering various incentives, including Low-Income Housing Tax Credits (LIHTC), FHA multifamily mortgage insurance, and HUD programs such as the Housing Trust Fund and the HOME Investment Partnerships Program.[15] State and local governments and private organizations may also offer incentives or programs to fund affordable multifamily housing. For example, HFAs issue tax-exempt bonds to finance mortgages for multifamily housing for low-income renters.

The LIHTC program is the largest source of federal assistance for developing affordable rental housing.[16] The program provides federal income tax credits to encourage private equity investments in the construction of new or rehabilitation of existing low-income housing.[17] Each state receives an annual allocation of these tax credits and evaluates developers’ proposals to use the credits against the state’s allocation plan. These plans identify priority housing needs and contain selection criteria for awarding credits.[18] In addition to meeting criteria outlined in an allocation plan, projects awarded tax credits must remain affordable to qualifying households for at least 30 years.[19]

Risk-Sharing Program Contributed to Affordable Multifamily Housing in Fiscal Years
2016–2025

HFAs Used the Risk-Sharing Program to Help Finance over 93,000 Affordable Rental Units

From fiscal years 2016 through 2025, HFAs underwrote over $12 billion (adjusted for inflation) in FHA-insured multifamily loans under the risk-sharing program. These loans helped finance 776 affordable multifamily projects that are expected to produce or preserve about 93,670 rental units.[20] As shown in figure 1, the annual loan amounts and total number of units produced or preserved varied over the period.

Notes: Total mortgage loan amounts represent the amounts that the Federal Housing Administration promised to insure at initial endorsement. Dollar amounts are adjusted for inflation using the fiscal year gross domestic product price index and presented in fiscal year 2025 dollars.

LIHTC Use in Risk-Sharing Projects

Of the 776 projects accepted under the risk-sharing program from fiscal years 2016 through 2025, 563, or 73 percent, received LIHTC. These projects produced or preserved about 67,320 rental units, or about 72 percent of the total units produced or preserved under the program over the period.

According to HUD’s LIHTC database, approximately 3.9 million housing units were placed in service from 1987 through 2024. In 2018, we reported that one of two types of LIHTC programs had financed an estimated 50,000 housing units annually since 2010.[21]

Potential Financing and Rent Benefits

As we previously reported, credit enhancement, such as FHA mortgage insurance, can affect loan terms when an HFA sells bonds to raise capital to lend to multifamily housing developers.[22] By providing additional support, the credit enhancement can improve the HFA’s bond rating, allowing it to obtain a lower interest rate or longer-term loan. The HFA can pass these benefits along to the developer, which in turn can convey them to tenants in the form of lower monthly rents.

Representatives from two HFAs similarly told us that the risk-sharing program enables their HFAs to improve their credit ratings and lower the interest rates on their tax-exempt bonds. One representative said the HFA can pass on its lower borrowing costs to its borrowers. A representative from another HFA told us that having multifamily loans insured under the risk-sharing program allows the HFA to retain less capital to protect against losses and use that capital to fund other housing programs.

Characteristics of Risk-Sharing Projects

From fiscal years 2016 through 2025, use of the risk-sharing program generally shifted from the purchase and refinancing of existing properties to new construction and substantial rehabilitation (see fig. 2). HUD officials and a representative from an HFA told us the shift was partly caused by changes in interest rates. Representatives from two other HFAs told us their states have prioritized new construction.

Note: HUD’s section 542(c) program, also referred to as the risk-sharing program, provides Federal Housing Administration insurance for loans on affordable multifamily properties that are underwritten, processed, and serviced by state and local housing finance agencies.

From fiscal years 2016 through 2025, 22 state and local HFAs—located in 18 states and the District of Columbia—underwrote loans for multifamily projects under the risk-sharing program. As shown in table 1, HFAs in New York, Massachusetts, and Maryland accounted for the largest loan amounts during the period, representing around 67 percent of the total.

Location	Number of projects	Total mortgage amount	Percent of total mortgage amount
New York	70	$3,100,619,837	29%
Massachusetts	187	$2,803,306,292	26%
Maryland	77	$1,277,619,445	12%
California	52	$775,846,259	7%
Illinois	64	$689,118,726	6%
New Hampshire	77	$571,952,601	5%
Rhode Island	54	$531,347,000	5%
Colorado	53	$479,306,000	4%
Minnesota	92	$295,688,762	3%
Washington, D.C.	6	$140,190,000	1%
Vermont	14	$56,613,000	1%
Virginia	8	$37,742,561	<1%
New Jersey	4	$33,774,432	<1%
Wisconsin	6	$21,927,000	<1%
Michigan	2	$6,174,086	<1%
New Mexico	4	$3,770,000	<1%
Ohio	2	$2,330,000	<1%
Utah	3	$2,030,000	<1%
Kentucky	1	$690,000	<1%

Source: GAO analysis of Department of Housing and Urban Development (HUD) data.  |  GAO‑26‑109028

Note: Total mortgage loan amounts represent the amounts the Federal Housing Administration promised to insure at initial endorsement. Dollar amounts are not adjusted for inflation.

Multifamily projects financed under the risk-sharing program varied in size from fiscal years 2016 through 2025 (see fig. 3). Most projects had either 50 to 99 rental units or 100 to 199 rental units.

Federal Financing Bank Initiative Financed About $4 Billion in Risk-Sharing Program Loans

In 2014, HUD and the Federal Financing Bank (FFB) started an initiative under which FFB provides financing for multifamily loans insured under HUD’s risk-sharing program. At the time, HUD stated the initiative would reduce the interest rate for affordable multifamily housing compared with the cost of tax-exempt bonds under then-current market conditions, increase the supply and preservation of affordable housing, and ensure the availability of competitive financing to underserved segments of the market.[23]

To participate in the HUD-FFB initiative, HUD requires HFAs to assume 50 percent of the risk on all loans originated under the initiative and have a credit rating of “A” or better. According to FFB’s 2025 annual report, 16 HFAs participate in the initiative, and an additional five HFAs were finalizing documents to begin participation in 2026.[24] According to FFB officials, FFB does not play a role in determining which HFA projects receive FFB funding. Rather, HUD provides its firm commitments to HFAs for their risk-sharing projects, which then allows HFAs to sell their FHA-insured loans to FFB. The use of FFB financing can eliminate the need for HFAs to issue their own bonds to finance the projects.

From fiscal years 2016 through 2025, FFB financed nearly $4 billion (adjusted for inflation) in loans for 276 multifamily projects under the risk-sharing program (see fig. 4). These projects produced or preserved about 30,900 rental units during the period, ranging from a high of 5,776 units in fiscal year 2017 to a low of 618 units in fiscal year 2023.[25] HUD stopped accepting new applications under the HUD-FFB initiative in 2019 but honored existing commitments, allowing FFB to finance projects completed during or after 2019. HUD resumed the initiative in 2022. In its fiscal year 2027 congressional budget justification, HUD did not project that any new firm commitments would be issued in 2027 but stated it would honor existing commitments.[26]

Notes: Total mortgage loan amounts represent the amounts that the Federal Housing Administration promised to insure at initial endorsement. Dollar amounts are adjusted for inflation using the fiscal year gross domestic product price index and presented in fiscal year 2025 dollars. The HUD-FFB initiative stopped accepting new applications after December 31, 2018, but honored existing commitments.

Views on the HUD-FFB financing initiative vary. In a January 2026 letter to the Department of the Treasury and HUD, the National Council of State Housing Finance Agencies expressed concern about the effect of terminating the initiative on affordable housing. The council noted that the initiative has financed affordable housing, including small projects in rural areas that could not attract other financing, and produced revenue for the federal government.

In contrast, in a June 2024 letter to Treasury and HUD, the Mortgage Bankers Association expressed concern about continuing the FFB initiative. According to the association, the initiative creates direct and unfair competition with private sector lenders that participate in HUD’s MAP program and may discourage their future participation in the market.

Risk-Sharing Program Financed Fewer Units Than and Differed from Traditional HUD Programs

Selected Traditional Insurance Programs Generally Provided Financing for More Multifamily Housing Units Than the Risk-Sharing Program

The three traditional HUD mortgage insurance programs we selected—the section 221(d)(4), 223(a)(7), and 223(f) programs—generally have provided more multifamily housing financing than the risk-sharing program (see fig. 5). These traditional and risk-sharing programs collectively financed projects that produced or preserved nearly 1.3 million multifamily rental units from fiscal years 2016 through 2025.[27] The risk-sharing program accounted for 7 percent of the total units over the period, and its annual share ranged from a high of 21 percent in fiscal year 2024 to a low of 4 percent in fiscal year 2021.[28]

Note: HUD’s section 542(c) program, also referred to as the risk-sharing program, provides Federal Housing Administration (FHA) insurance for loans on affordable multifamily properties that are underwritten, processed, and serviced by state and local housing finance agencies. HUD’s section 223(a)(7) program insures mortgage loans to facilitate the refinancing of certain FHA-insured mortgages. HUD’s section 221(d)(4) program insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily housing. HUD’s section 223(f) program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing.

HUD officials told us that some MAP lenders view the HFA risk-sharing program as a competitor to HUD’s traditional multifamily programs. However, the officials said the traditional programs can be used for both market-rate and affordable housing projects, while the risk-sharing program can be used only for affordable housing. They said this difference can limit competition between traditional and risk-sharing programs and estimated that about 50 percent to 60 percent of multifamily projects under the traditional programs are market rate.

According to two MAP lender representatives, HUD’s risk-sharing and traditional programs can compete against each other for multifamily projects. One representative said HFAs have a competitive advantage because they can combine risk-sharing financing with other incentives or subsidies, such as LIHTC and grants. However, the representatives said competition between their firms and HFAs is limited because of differences in their customer bases and project types.

State and local HFAs have the mission of meeting affordable housing needs. Representatives from five HFAs generally told us the risk-sharing program helps HFAs achieve this mission, in part by providing them with an additional tool to finance multifamily projects. Two representatives said the program enables their HFAs to execute financially complex projects that could not be executed easily under the traditional programs. Two HFAs said they use both HUD’s traditional and risk-sharing programs to help meet the different needs of their customers, with each program offering certain advantages and disadvantages. Finally, an HFA representative told usHFAs review most risk-sharing loans for other reasons, such as the allocation of LIHTC, so there is efficiency in having them underwrite the loans.

HUD’s Traditional and Risk-Sharing Programs Differ in Some Areas

HUD’s traditional and risk-sharing programs generally serve to help finance multifamily housing. They are similar in some program areas but differ in other areas, in part because they are subject to different requirements. Key differences between the programs include the following:

·         Under the risk-sharing program, HFAs select which projects receive financing and FHA insurance. Under the traditional programs, HUD approves which projects receive financing and FHA insurance.

·         The risk-sharing program may be used to finance only affordable multifamily properties, including mixed-income housing.[29] The traditional programs may be used to finance affordable and market-rate properties.

·         Under the risk-sharing program, HFAs use their own standards and procedures to underwrite and process loans.[30] Under the traditional programs, MAP lenders prepare, process, and submit loan applications for FHA multifamily mortgage insurance in accordance with HUD’s uniform national standards.[31]

·         Under the risk-sharing program, HFAs contract with HUD to reimburse it for a portion of the loss from loan defaults. Under the traditional programs, HUD generally assumes all losses from loan defaults.

We reviewed four aspects of HUD’s traditional and risk-sharing programs to identify similarities and differences: application processes, underwriting standards, costs, and oversight.

Application Processes Have Similar Stages, but HUD’s Role Differs

As shown in table 2, the application processes for FHA insurance under HUD’s traditional and risk-sharing programs generally comprise similar activities. However, the processes differ in the requirements that apply, who conducts the activities, and the extent of HUD’s involvement.

Application stage	Traditional program	Risk-sharing program
Prescreening stage	The Multifamily Accelerated Process (MAP) lender and borrower and HUD hold concept meeting to discuss the proposed project.	The borrower provides the housing finance agency (HFA) with basic information about the proposed project. HFA provides feedback on the proposal.
Pre-firm commitment/approval stage	The MAP lender submits a pre-application to HUD. The pre-application for new construction is designed to permit HUD to review the feasibility of a proposed project before the lender, borrower, and HUD spend the time and expense involved in processing a firm commitment application. HUD processes, reviews, and underwrites the pre-application submission and recommends the submission be approved, approved with conditions, returned to lender for modification, or rejected. If appropriate, HUD issues the MAP lender an invitation letter to submit a firm commitment application.	The borrower submits an application and due diligence (e.g., third-party reports) and other information needed to underwrite the project. HFA analyzes the application and information and, if appropriate, seeks internal approval, such as from its board of directors.
Firm commitment/approval application stage	The MAP lender submits a firm commitment application, which includes underwriting forms, third-party reports, and other information. If appropriate, HUD issues a firm commitment letter (i.e., promise to insure the mortgage) to the applicant.	HFA approves the application and submits information to HUD and requests a firm approval letter. Upon positive completion of its retained reviews, HUD issues a firm approval letter.
Closing on construction loan and initial endorsement stagea	The MAP lender prepares a draft closing package, which is then reviewed by HUD. When the lender and borrower close on the construction loan, HUD provides its initial endorsement of the loan for mortgage insurance.	HFA prepares and circulates a draft closing package. Subsequently, HFA and the borrower close on the construction loan. HFA submits the closing package to HUD. HUD reviews the closing document and provides its initial endorsement of the loan for mortgage insurance.
Construction stage	HUD conducts inspections during construction, processes and approves loan advances, administers and enforces routine labor standards, and reviews and approves cost certification.	HFA conducts inspections during construction, processes and approves loan advances, administers and enforces routine labor standards, and reviews and approves cost certification.
Permanent loan and final endorsement	The MAP lender prepares the draft closing package, and HUD reviews it. When the lender and borrower close on the construction loan, HUD provides its initial endorsement of the loan for mortgage insurance.	HFA prepares and circulates the draft closing package. Subsequently, HFA and the borrower close on the permanent loan. HFA submits the closing docket to HUD. HUD reviews the closing document and provides its final endorsement of the loan.

Source: GAO analysis of Department of Housing and Urban Development (HUD) and HFA information.  |  GAO‑26‑109028

Note: The application stages for new construction, substantial rehabilitation, purchase, and refinancing projects generally are similar, but new construction and substantial rehabilitation projects include the construction stage and permanent loan and final endorsement stage. For this reason, we selected new construction projects for comparison.

^aIn projects where the Federal Housing Administration does not insure the construction loan, only the permanent loan is insured and a single endorsement is required after satisfactory completion of construction, substantial rehabilitation, or repairs.

Production Times and Costs Are Not Easily Compared

Differences in production times (the amount of time from when the borrower initially meets with the lender to final endorsement) and costs between HUD’s traditional and risk-sharing programs are affected by a variety of factors, making them difficult to directly compare. For example, as discussed above, the FHA-insurance application processes differ between the programs, which can affect production times and, in turn, production costs.[32] Production times or costs also can differ between programs or within a program depending on a range of factors, such as project type, size, or location. Finally, data needed to methodically analyze production times and costs are not publicly or readily available.

Production Times

A project’s production time generally spans from when a borrower meets with HUD or the HFA to discuss the project to when HUD provides its final endorsement. Using HUD data, we estimated that the average time from firm commitment to final endorsement for new construction projects under the section 221(d)(4) program in fiscal years 2023 and 2024 was nearly 1,000 days and 860 days, respectively.[33] The average time under the risk-sharing program in fiscal years 2023 and 2024 was nearly 1,080 days and 1,090 days, respectively. Our analysis does not consider factors that could affect production times, such as differences in project size or location. In addition, our estimates do not capture the time spent on the stages before HUD’s firm commitment or approval.

HUD officials told us that comparing production times between the traditional and risk-sharing programs would not be meaningful because the programs’ application processes differ. Under the traditional programs, application stages are regimented and set by the MAP guide. In contrast, under the risk-sharing program, HFAs control their application processes and time frames.

Representatives from two HFAs told us they can process loans faster under the risk-sharing program because of their delegated authority. However, representatives from another HFA told us loan processing under the risk-sharing program can be long because of the need to negotiate and reach agreement on loan terms and conditions across multiple funding sources.

Production Costs

Production costs comprise hard costs—including land, existing structures, and construction—and soft costs—including contractor, architect, engineer, and developer fees and construction-loan financing.

·         Hard costs. A potential cost difference between the traditional and risk-sharing programs is the application of the Davis-Bacon Act to a project.[34] Under HUD’s risk-sharing regulations, new construction and substantial rehabilitation projects are not subject to the act’s prevailing wage requirements, if an HFA elects not to obtain FHA insurance for its construction loan and if the project does not receive other federal assistance that triggers the requirements. In contrast, the Davis-Bacon Act’s requirements generally apply to new construction and substantial rehabilitation projects under HUD’s traditional programs.

Representatives from two HFAs told us they consider the applicability of the Davis Bacon Act’s requirements when developing projects under the risk-sharing program. They also said risk-sharing projects, such as for public or older-adult housing, can be subject to the Davis-Bacon Act’s requirements because the projects receive other federal assistance. They said that if a project were subject to the act’s prevailing wage requirements, the project’s cost would increase substantially.

A representative from a MAP lender told us that HFAs have flexibility under the risk-sharing program to avoid higher wages under the Davis-Bacon Act. A representative from another MAP lender told us general contractors and subcontractors for FHA-insured new construction or substantial rehabilitation projects generally must comply with the Davis-Bacon Act’s prevailing wage rates. According to the representative, these rates pose the biggest obstacle to building affordable multifamily housing because of their impact on construction costs.

·         Soft costs. Under its MAP program, HUD sets its application and inspection fees and limits lender fees. In comparison, each HFA participating in the risk-sharing program generally sets its own fee schedule, and the types and amounts can differ among the HFAs.[35]

A representative from an HFA told us that transaction costs are similar under both programs because due diligence costs and underwriting reviews are similar. A representative from another HFA told us costs under HUD’s section 221(d)(4) program are higher than under the risk-sharing program because the HFA charges only an application and reservation fee.

According to HUD officials, HFAs may elect not to obtain FHA insurance for their construction loans, given the potential to reduce costs and administrative requirements.

Our prior work on LIHTC provides additional context for differences in production costs.[36] For example, we identified legal, accounting, and other fees associated with using multiple funding sources as one among several possible explanations for why costs may differ between LIHTC and market-rate projects. This work also identified wide variation in development costs among LIHTC projects completed from 2011 through 2015 and drivers of such variation, including construction type, project scale, and geographic factors.

Selected Underwriting Standards Are Similar, and HUD Officials Said Loans Have Performed Well

HUD officials and representatives from two HFAs and a MAP lender told us underwriting standards are similar between the traditional and risk-sharing programs. As discussed earlier, MAP lenders use HUD’s standards to underwrite loans under the traditional mortgage insurance programs, while HFAs use their own standards to underwrite loans under the risk-sharing program.

According to HUD’s 1995 risk-sharing handbook, in processing the FHA-insurance application and underwriting the project, an HFA must

·         determine that a market for the project exists, taking into consideration any HUD comments about the potential for the project to adversely impact proposed or existing federally insured and assisted projects in the area,

·         establish the maximum insurable mortgage and review plans and specifications for compliance with HFA standards,

·         determine the acceptability of the proposed mortgagor and management agent,

·         approve the Affirmative Fair Housing Marketing Plan,

·         make any other determinations necessary to ensure acceptability of the proposed project,

·         ensure that the environmental review is conducted in accordance with regulatory requirements before requesting HUD to conduct its retained review, and

·         ensure that any required subsidy layering review is completed by the applicable housing credit agency or HUD before loan approval.[37]

According to HUD officials, loans under HUD’s risk-sharing and traditional programs have both performed well and pose low risk to the FHA insurance fund.[38] They told us there have been no claims on risk-sharing loans since 2014 and no claims on FFB-financed risk-sharing loans since FFB began financing them.[39]

We reviewed three financial ratios that HUD uses to determine the maximum loan amount under its traditional programs.[40]

·         Debt service coverage ratio is used in underwriting to evaluate the potential for a property’s income to cover the property’s mortgage debt.[41] In general, the higher the ratio, the less the property is likely to face financial difficulties that could lead to default. As shown in figure 6, one of the 15 selected HFAs adopted a less conservative debt service coverage ratio than HUD. The remaining HFAs adopted ratios that were equal to or more conservative than HUD’s ratios.

Notes: Affordable housing for the Federal Housing Administration’s multifamily mortgage insurance programs is defined as projects meeting either the minimum affordability requirement for the Low-Income Housing Tax Credit or the requirements for project-based Section 8 (certain project-based rental assistance). These minimum debt service coverage ratios apply to affordable housing projects under HUD’s section 221(d)(4) and 223(f) programs. The section 221(d)(4) program insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily housing. The section 223(f) program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily housing. HUD revised its minimum debt service coverage ratio in January 2025 from 1.15 to 1.11.

·         Loan-to-value ratio is used to determine whether a property’s cash value will be sufficient to cover the mortgage debt in the event of foreclosure.[42] In general, the lower the ratio, the more likely the property’s value will be sufficient to pay off the outstanding mortgage obligation. The MAP guide uses this ratio for purchases and refinancing of existing rental housing. As shown in figure 7, one of the 15 selected HFAs adopted a less conservative loan-to-value ratio than HUD. The remaining HFAs adopted ratios that were equal to or more conservative than HUD’s ratios.

Notes: Affordable housing for the Federal Housing Administration’s multifamily mortgage insurance programs is defined as projects meeting either the minimum affordability requirement for the Low-Income Housing Tax Credit or the requirements for project-based Section 8 (certain project-based rental assistance). These minimum loan-to-value ratios apply to affordable housing projects under HUD’s section 221(d)(4) and 223(f) programs. The section 221(d)(4) program insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily housing. The section 223(f) program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily housing. HUD revised the minimum loan-to-value ratio in January 2025 from 87 percent to 90 percent.

·         Loan-to-cost ratio is used to compare the amount of a project’s mortgage loan to the project’s total cost.[43] A lower ratio means a lower amount of debt is being used to finance the project. The MAP guide generally uses this ratio for new construction and substantial rehabilitation projects. As shown in figure 8, two of the 15 selected HFAs adopted a less conservative loan-to-cost ratio than HUD. The remaining HFAs adopted ratios that were equal to or more conservative than HUD’s ratios.

Notes: Affordable housing for the Federal Housing Administration’s multifamily mortgage insurance programs is defined as projects meeting either the minimum affordability requirement for the Low-Income Housing Tax Credit or the requirements for project-based Section 8 (certain project-based rental assistance). These minimum loan-to-cost ratios apply to affordable housing projects under HUD’s section 221(d)(4) and 223(f) programs. The section 221(d)(4) program insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily housing. The section 223(f) program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily housing. HUD revised its minimum loan-to-cost ratio in January 2025 from 87 percent to 90 percent. Some HFAs do not use the loan-to-cost ratio. As a result, the total for the loan-to-cost ratio does not equal 15 HFAs.

HUD’s Oversight Requirements for MAP Lenders and HFAs Are Generally Similar

Based on our review of HUD regulations and guidance, we found that HUD’s oversight requirements for MAP lenders and HFAs participating in the risk-sharing program are generally similar.[44] As discussed above, MAP lenders and HFAs must be approved by HUD to participate in the MAP programs and the risk-sharing program, respectively. In general, HUD’s oversight is intended to ensure that MAP lenders and HFAs continue to comply with their program requirements.

Oversight of Traditional Programs

According to HUD officials, HUD oversees MAP lenders to ensure that they are qualified, well capitalized, and conducting sound underwriting to minimize losses to the FHA insurance fund.

Under HUD’s regulations and MAP guide, MAP lenders are subject to the following reporting requirements, quality control plan requirements, and reviews:[45]

·         Reporting requirements. HUD requires MAP lenders to submit annual audited financial statements and annual certifications, which include the names of key personnel, any corrective actions taken as a result of their most recent quality control reviews, and a summary of loans underwritten by new MAP underwriters. MAP lenders also must notify HUD of changes in their key personnel, address or contact information, and quality control plans and reapply to be a MAP lender if there is a change in ownership, controlling interest, or the way they materially do business.

·         Quality control plan requirements. HUD requires MAP lenders to implement a quality control plan to assure their compliance with MAP program requirements. The plan must describe (1) the requirements for MAP loan origination, underwriting, closing, construction-loan administration, and loan servicing, as applicable, and (2) the actions the lender will take to oversee and manage risks in the MAP lending process. MAP lenders are required to review and update their quality control plans annually.

In addition, MAP lenders must have their MAP operation reviewed annually by an independent and properly licensed professional auditor. According to the MAP guide, the review must be sufficient in scope to enable the lender to evaluate the performance of its MAP operation and compliance with MAP program requirements. The reviews must document all positive and negative findings in writing and be presented to the lender’s senior management committee. MAP lenders are required to report the results of their reviews to HUD, including any corrective action plans.

·         Reviews. According to its guide, HUD is to conduct a full MAP lender review and quality control plan audit once every 3 years for all active MAP lenders with 3 or more years of MAP experience, or more frequently for any lender that HUD determines requires enhanced monitoring. HUD may perform limited reviews and updates during intervening years. For MAP lenders with less than 3 years of MAP experience, the guide specifies that HUD conduct full or limited reviews annually.

Oversight of the Risk-Sharing Program

According to HUD officials, the agency primarily oversees HFAs in the risk-sharing program by reviewing the information they periodically submit. The officials told us HUD has not conducted on-site reviews of HFAs because of resource constraints. The officials also said that because HFAs are exposed to loan losses under the program, HFAs have an incentive to be conservative in underwriting loans.

Under HUD’s regulations and 1995 handbook for the risk-sharing program, which HUD officials told us they plan to update, HFAs participating in the risk-sharing program are subject to reporting requirements and monitoring, and the handbook provides for reviews.[46] These requirements and procedures include the following:

·         Reporting requirements. HUD requires HFAs to submit, among other information, annual audited financial statements, semiannual reports on the amounts and status of their loans, and an annual certification attesting to their compliance with all eligibility requirements during the past year. HFAs also are required to notify HUD of any changes to their standards and procedures, loan terms, and conditions.[47]

·         Monitoring. According to its handbook, HUD remotely monitors HFAs by reviewing project underwriting and management and servicing information to assess compliance with their underwriting standards and procedures. HUD also may remotely monitor HFAs to ensure they continue to meet eligibility requirements.

·         Reviews. HUD’s handbook provides for on-site reviews of HFAs based on HUD’s remote monitoring and other information. Such reviews would generally be intended to assess an HFA’s compliance with the HUD handbook’s requirements. However, as noted above, the agency has not conducted on-site reviews due to resource constraints. In addition, according to HUD regulations, HUD will review the underwriting standards, loan terms and conditions, and asset management and servicing procedures for level II HFAs every 5 years.

Agency Comments

We provided a draft of this report to HUD and Treasury for their review and comment. HUD and Treasury did not provide comments on the report.

We are sending copies of this report to the appropriate congressional committees, the Secretary of Housing and Urban Development, the Secretary of the Treasury, and other interested parties. In addition, the report will be available at no charge on the GAO website at https://www.gao.gov.

If you or your staff have any questions about this report, please contact me at naamanej@gao.gov. Contact points for our Offices of Congressional Relations and Media Relations may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I.

Jill Naamane
Director, Financial Markets and Community Investment

GAO Contact

Jill Naamane, naamanej@gao.gov

Staff Acknowledgments

In addition to the contact named above, Rich Tsuhara (Assistant Director), Phil Curtin (Analyst in Charge), Genesis Galo, Jill Lacey, Marc Molino, Jessica Sandler, Jennifer Schwartz, Jack Wang, and Steve Westley made key contributions to this report.

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