HUD’s Office of Housing contracts with performance-based contract administrators to administer the housing assistance payments (HAP) contract with owners.  Through RAD, HUD oversees the HAP contracts for converted properties and monitors owners for compliance with HUD’s requirements, which include maintaining (1) units in decent, safe, and sanitary condition and (2) reserve for replacement accounts to help defray the cost of replacing properties’ capital items.

We found HUD needs to improve its oversight of the physical condition of public housing units that converted to PBRA and FHA-insured PBV under the RAD program.  Of the 242 units we observed, 65 percent contained 576 deficiencies, 63 of which were life-threatening deficiencies.  Converted properties are required to maintain reserve for replacement accounts to fund extraordinary maintenance, repair, and replacement of capital items.  However, owners’ reserve for replacement accounts’ balances were not supported for 13 of the 14 properties reviewed.  Further, HUD did not ensure that initial inspections of converted properties occurred in a timely manner.

The unit deficiencies occurred because the properties’ (1) management officials did not ensure that staff or contractors inspected the physical condition of RAD units annually and (2) maintenance departments were understaffed, resulting in delayed inspections and repairs.  Further, HUD did not ensure that its staff consistently performed management and occupancy reviews (MOR) to monitor the operation of the properties for compliance with HUD’s requirements for the physical condition of RAD units and reserve for replacement accounts.  Specifically, for the properties that we reviewed, HUD’s staff had not conducted (1) initial MORs for 50 percent of the properties even though they had been converted under RAD between 3 to 10 years ago and (2) timely initial MORs for nearly 48 percent of the properties.  HUD also did not have a (1) process for monitoring the timeliness of properties’ initial inspections and (2) clear guidance specifying the timing of initial inspections for non-FHA-insured PBRA properties.

As a result, families resided in units that were not decent, safe, and sanitary. Further, there is an increased risk of (1) additional families’ residing in units that are not decent, safe, and sanitary and (2) properties’ reserve for replacement accounts being insufficiently maintained to address extraordinary maintenance, repair, and replacement of capital items.  Further, HUD did not have necessary information to determine the (1) initial physical of condition of the units, including identifying deficiencies that require timely corrective actions, and (2) timing of properties’ next inspection, which is based on each property’s previous inspection score. 

We made several recommendations to HUD to improve its oversight of properties converted under RAD.  Specifically, we made recommendations related to determining the timing and completion of initial and subsequent MORs, including issuing updated guidance that includes a system to track the timeliness of initial MORs.  We also made recommendations to provide training to staff members to ensure that they have the skills necessary to complete MORs of converted properties and to review the reserve for replacement account balances for all properties to ensure the accuracy of the account balances.  Lastly, we made recommendations for HUD to implement adequate procedures and controls to ensure that servicing lenders comply with HUD time requirements in initial inspections of converted properties and determine an appropriate timeframe for when noninsured PBRA converted properties should be initially inspected and work with the Real Estate Assessment Center to ensure that inspections are ordered and completed within that timeframe.