Multifamily Rural Housing: Prepayment Potential and Long-Term Rehabilitation Needs for Section 515 Properties Page: 3 of 18
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Congress ultimately enacted legislation that precluded prepayment for
loans made on or after December 15, 1989. For loans made before that
date, prepayment is restricted.
As agreed with your office, this report covers (1) the number of properties
whose section 515 loans have been prepaid and the effect of prepayment
on the section 515 portfolio; (2) the estimated impact on the number of
properties in the portfolio by changing the legislation that restricted
prepayment for loans made before December 15, 1989, and; (3) the long-
term rehabilitation needs of the properties in the section 515 portfolio.
Our work is based on reviews of agency and published data; analyses of
data from three RHS accounting systems; and discussions with industry
representatives, Department of Housing and Urban Development (HUD)
officials, and RHS headquarters and state officials. We were unable to
survey property owners about their prepayment intentions because the
RHS database is not designed to readily match owner and property
location data. However, we were able to measure factors that RHS and
industry representatives believe limit the potential for prepaying. We were
also able to identify additional factors that are likely to impact
prepayment, but we could not measure them without performing in-depth
financial analyses of individual properties. We performed our work from
June 2001 through March 2002 in accordance with generally accepted
government auditing standards. Additional details on our scope and
methodology are discussed in appendix I.
Results in Brief Prepayment activity has been minimal and has removed a small
percentage of properties from the section 515 portfolio. RHS has funded
many more new properties than the portfolio has lost through prepayment.
Since the program began, the number of new properties added to the
portfolio exceeded the number that left the program after prepayment in
every year except 2001. In that year, the balance changed because of a
continued decline in funding rather than a significant increase in
prepayment activity.
If the statutory requirement restricting prepayment for loans made before
December 15, 1989, were changed to allow prepayment without
restrictions after 20 years from the date of the loan, we estimate that
prepayment could be an option for the owners of about 3,900, or about 24
percent, of all section 515 properties over the next 8 years. Owners of
about 950 of these properties would immediately become eligible to
prepay. This estimate is based on our analysis of economic factors that weGAO-02-397 Multifamily Rural Housing
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United States. General Accounting Office. Multifamily Rural Housing: Prepayment Potential and Long-Term Rehabilitation Needs for Section 515 Properties, report, May 10, 2002; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc294263/m1/3/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.