- Critics share concerns about OMHAR>
- A different take on OMHAR’s future
- One idea for change
Despite intense criticism from local project sponsors and governments, Congress decided to continue to entrust the job of restructuring the nation’s stock of older assisted housing to a fairly new federal organization known as Office of Multifamily Housing Assistance Restructuring (OMHAR).
OMHAR was created by a statute passed by Congress in 1997 as an independent agency charged with restructuring financing and reducing rents on Sec. 8 properties that had rents in excess of HUD’s Fair Market Rents. In short, the agency was charged with running what became known as the “mark-to-market” program.
In fall 2001, the House approved legislation (H.R. 2589) extending both the Sec. 8 mark-to-market program and OMHAR itself. The measure was expected to be tacked onto the recently approved VA-HUD FY 2002 appropriations bill, though those final appropriation details are still to be determined.
OMHAR has faced a great deal of criticism over the years, especially from the National Council of State Housing Agencies (NCSHA). At a hearing before the Senate housing subcommittee this summer, Barbara Thompson, executive director of NCSHA, faulted OMHAR for long delays in beginning the program and a process that “values rules over results.”
NCSHA, as well as local housing agencies and lenders, have said OMHAR was created to exercise oversight only, making sure local participating administrative entities (PAEs) did a good job in restructuring Sec. 8 projects. Instead, they say, the agency is becoming closely involved in the details of most decisions they make.
Critics share concerns about OMHAR
OMHAR’s critics say many decisions depend on an intimate knowledge of local real estate markets and OMHAR staff does not have the local market knowledge to render informed opinions. At best, the OMHAR staff delays the process by forcing PAEs to justify their position. At worse, OMHAR staff may force local PAEs to take actions that are not consistent with the local market.
In its first three years of existence, OMHAR accomplished very little. Then, in the fall of 2000, it announced a package of financial incentives intended to entice owners of Sec. 8 housing and nonprofit project buyers to participate in the mark-to-market program (known as M2M in the industry). After that, the program began to attract more participants and OMHAR began to close a fair number of restructuring transactions, including many so-called “light” restructurings in which rents were reduced but the underlying project financing was left intact.
At the hearing last summer, several leading senators expressed approval for the progress OMHAR had made and praised its personnel. Senate housing subcommittee chairman Jack Reed (D-R.I.) and ranking member Wayne Allard (R-Colo.) both praised OMHAR’s “very competent and talented staff.”
Generally, the witnesses at the hearing agreed that “the progress of restructurings, which began far too slowly, has now picked up dramatically,” as Charles Wehrwein put it. Wehrwein is the vice president for Mercy Housing, Inc., of Denver.
According to Peter Guerrero, director of physical infrastructure issues for the U.S. General Accounting Office (GAO), as of May 2001, OMHAR had restructured the rents and mortgage financing on 107 properties. Another 486 properties had had their rents restructured without restructuring the financing. Significantly, much of that restructuring work has been completed since January 2001, when OMHAR released its revised Operating Procedures Guide.
For witnesses representing the National Alliance of HUD Tenants and Mercy Housing, Inc., this increase in productivity was enough to justify leaving the mark-to-market program to OMHAR’s staff. As Wehrwein put it, OMHAR is “competent and improving, and it would be a waste of the taxpayer’s resources invested to date to let it expire, or otherwise reconfigure it, just as it was beginning to reach its potential.”
Likewise, the representatives of the GAO and the National Leased Housing Association agreed that the mark-to-market program should continue to be run through a separate office, and that office, whether or not it happens to be OMHAR, should have a sufficient number of trained staff dedicated to the program.
A different take on OMHAR’s future
NCSHA took a different view. “Some will say 'leave OMHAR alone’. It’s not perfect, but it’s a lot better than it was,” Thompson testified. “We must not settle for that.”
Thompson also felt OMHAR’s method of operation should be largely changed. Thompson’s organization represents the nation’s state housing agencies that, according to OMHAR’s Congressional mandate, are supposed to be doing much of the actual work of the mark-to-market program as participating administrative entities (PAEs). “Regrettably, OMHAR has failed to utilize the talents of the state HFAs, as Congress intended,” Thompson said. “Instead, OMHAR has treated HFAs like automatons.”
Thompson was the only witness who testified without reading from a prepared statement. She spoke passionately on what she and many state agencies feel to be OMHAR’s shortcomings, most of which are grouped around OMHAR’s relative inability to make good use of state agencies. NCSHA believes that a Republican-controlled HUD will be more inclined to delegate program responsibility to states.
OMHAR had shut several state agencies out of the program by simply assigning their assets to private entities, often without their knowledge or approval, an illegal violation of OMHAR’s legislative mandate, according to Thompson.
The loss of public agencies to the program is important because, as Wehrwein pointed out in his testimony, “public PAEs have a better understanding of how to strike a balance between cost savings and quality affordable housing.”
The witness from NCSHA also was frustrated that OMHAR may well be forgiven for the program’s early delays now that production has quickened. “They wasted two years,” Thompson told Affordable Housing Finance magazine.
Thompson quoted the Senate Appropriations Committee fiscal year 2001 HUD appropriations report, which recommended that OMHAR’s functions be transferred to HUD’s Office of Multifamily Housing. “The program has been fraught with delays due to unnecessary and prolonged negotiation tactics by OMHAR, an overly prescriptive operating guide, and the inability to utilize state housing finance agencies,” according to the report.
The GAO raised another serious question for OMHAR at the hearing. The 486 properties that had their rents reduced without a mortgage restructuring include 76 properties that did not meet OMHAR’s underwriting criteria. “In other words,” Guerrero told the senators, “these properties received a rent restructuring even though OMHAR’s analysis showed that the properties’ incomes might not be enough to cover mortgage payments, operating expenses and ongoing repair needs after the properties’ rents were reduced to market.” In these cases, OMHAR lacked the legal authority to force owners to accept a full restructuring.
OMHAR processed another 56 properties as full mortgage restructurings but was unable to complete the restructuring of the projects’ mortgages. “OMHAR believes that many of these restructurings are unlikely to be completed,” Guerrero said.
The senators were disturbed by the news, but at present no better remedy has been suggested than monitoring by HUD field offices.
One idea for change
A suggestion for change at the agency came from John Bentz, who spoke on behalf of the National Leased Housing Association. Bentz pushed for a change in the mark-to-market statute, which asked that owners share in necessary rehabilitation costs. He also asked for more flexible exceptional rent standards for projects in very depressed rural or urban markets ñ markets in which a project receiving market-rate rents might not survive. Finally, he asked for a mechanism that would compensate landlords for unforeseen costs, such as a specific renovation need or rise in utility rates.
Geraldine Thomas, vice president of the National Alliance of HUD Tenants, asked Congress to change the statute that makes owner participation in the mark-to-market program entirely voluntary. “As long as Congress is unwilling to require owner participation in Sec. 8 renewals and/or regulate rents for assisted housing,” Thomas said, “owners will continue to opt out of the program.”
The mark-to-market program may eventually save the government billions of dollars in inflated Sec. 8 rents, while preserving thousands of Sec. 8 properties as affordable housing. There are 3,715 more Sec. 8 contracts expiring in the next three fiscal years, almost half of which may have rents above market and would fall under mark-to-market’s mandate, according to OMHAR Director Ira Peppercorn.