We performed this review at the request of the U.S. Department of Housing and Urban Development's (HUD) Multifamily Program Center, Richmond field office, due to concerns regarding the appropriateness of HUD's current regulatory agreement with the Yorkville Cooperative (Cooperative). Our objective was to determine if HUD entered into the appropriate regulatory agreement with the Cooperative for its Section 221(d)(3) program.

HUD and the Cooperative did not enter into an appropriate regulatory agreement for participants of the Section 221(d)(3) program. The regulatory agreement executed in 1979 was intended for entities participating in the Multifamily Insurance program but it did not include specific regulatory requirements needed for entities participating in the program as cooperatives. The agreement failed to include necessary requirements pertaining to the general operating reserve account.

We recommend that the Director of HUD’s Multifamily Program Center, Richmond field office enter into an amended regulatory agreement with the Cooperative. The regulatory agreement should include a rider pertaining to the general operating reserve. This will ensure that the $989,521 in reserve funds will only be used for eligible expenses.