Purpose

To determine whether the loans awarded by New York City’s Department of Housing Preservation and Development (HPD) under the Article 8-A Program are being used only for qualified projects and their intended purpose, and whether loan recipients are complying with the requirements of their loans with respect to correcting violations and making other needed repairs. The audit covers loans awarded during the two fiscal years ended June 30, 2012.

Background

HPD administers the Article 8-A Loan Program (Program), which provides low interest rate loans to owners of rent-regulated multiple dwellings in New York City. The Program’s goal is to improve living conditions and to preserve safe and affordable housing for low- and moderate-income households. HPD provided us with 27 projects for which a total of $43.9 million in loans had been awarded during the audit period. We selected nine of these projects for review, consisting of 942 dwelling units, with loans totaling $19.8 million.

Key Findings

We found that HPD does not verify the accuracy of building owners' affidavits submitted to support their Program eligibility, and the reduced interest rates assigned to some of these owners are not supported. Over time, these interest rate reductions will cost the Program several millions of dollars in revenue. We also found that many significant building violations and agreed-upon repairs go unaddressed by owners, contrary to contractual requirements. These uncorrected conditions pose significant health and safety threats to building occupants. Lastly, one of the building owners appears to have received favorable treatment from HPD. Such treatment could result in less Program monies available for other Program-eligible building owners.

Key Recommendations

• Require independent confirmation of owner affidavits to ensure that only eligible applicants receive loans.
• Establish written procedures and guidelines for determining loan interest rates. Document the justification for any interest rate determinations below 3 percent.
• Establish written guidelines for building inspections that would ensure timely project compliance with Voluntary Repair Agreements and Housing Repair and Maintenance Agreements.
• Investigate the circumstances surrounding the apparent preferential treatment afforded Quadrant, as detailed in our report.

Other Related Audit/Report of Interest

New York City Department of Buildings: Outstanding Violations (2010-N-5)