OMHAR Gets a Second Chance
Despite criticism from project sponsors and governments, OMHAR will
continue to be responsible for restructuring the nation’s stock of older
assisted housing
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.
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