HUD faces default crisis on subsidies Cost could be billions, Cisneros acknowledges

THE BALTIMORE SUN

WASHINGTON -- The Clinton administration is attempting to solve a looming $18 billion financial crisis involving federal rent subsidies on low-income apartments, but the proposed fix might end up costing taxpayers several billion dollars, federal officials said yesterday.

Housing and Urban Development Secretary Henry G. Cisneros acknowledged for the first time yesterday that owners of nearly 1 million low-income housing units could default on $18 billion worth of federally backed mortgages if the government does not increase already inflated subsidies on those units or take other steps to address their problems. An estimated 2.5 million low-income Americans live in the affected housing units.

Increased subsidies, which currently cost the government about $5 billion a year, appear unlikely at a time when Congress is attempting to balance the federal budget. An alternative remedy backed by Cisneros would have the federal government make direct payments to the mortgage holders for the low-income housing, thereby reducing the loans to levels that could be supported by smaller federal subsidies and avoiding defaults on the loans, which are insured by the Federal Housing Administration.

The plan could save the government billions of dollars in losses by avoiding a financial meltdown in low-income housing markets. But it could attract criticism on grounds that the government is bailing out urban slumlords.

"It's a Catch-22 problem, but we're doing something about it," Cisneros said.

The plan depends on changes to the tax code that would allow property owners to get the bailouts without having to pay federal income taxes on the government assistance. Cisneros said the agency is nearing agreement with Congress on his approach.

"It is the most serious financial issue that we face, and that is why we are offering a solution, because it gets worse if it is unattended," Cisneros said. "The subsidies become very large. It overwhelms most of HUD's other programs if left unattended. But we are very close to having a joint approach to this with the Congress."

But Rep. Jerry Lewis, a California Republican who is chairman of the House Appropriations subcommittee that controls the HUD budget, sharply disputed that the Clinton administration is near agreement with Congress. "I don't think any light has been focused on what some might say is a bailout for slumlords," Lewis said. "The committees haven't even begun to examine this."

Pub Date: 5/16/96

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