Audit Report On The Department Of Housing Preservation And Development’s Monitoring Of The Affordable Housing Lottery’s Compliance With Eligibility Guidelines

Executive Summary

The New York City (City) Department of Housing Preservation and Development (HPD) is the largest municipal housing preservation and development agency in the nation.  Established in 1978, HPD works with public and private partners to provide high quality affordable housing for low- and moderate-income families in neighborhoods throughout the five boroughs.  To accomplish that goal, HPD enters into agreements with developers who agree to construct new buildings or rehabilitate existing ones that will include apartments at rents or sale prices that are “affordable” as defined by the City. HPD offers a variety of different programs such as subsidies and financing tools (e.g. loans and tax incentives) to developers to provide affordable apartments for individuals and families.  In exchange for obtaining these benefits, including the ability to purchase properties at a reduced cost, the developers are required to sell or rent to the public a certain number of apartments (units) within their dwelling complexes at affordable prices.

Because the demand for affordable housing in New York City far exceeds the supply available, HPD uses a lottery system to ensure that, in accordance with program guidelines, set-asides, and preferences applicable to each development project, the process for selecting applicants is fair and provides equal opportunity to all who seek housing.  HPD’s Marketing and Affordability Unit (Marketing Unit) oversees the marketing of affordable housing units, the lottery process that is used, and reviews required documents to verify applicant eligibility.

The housing developer’s representative (the Marketing Agent) is responsible for interviewing applicants and reviewing the documentation they provide to determine whether the applicants meet the requirements for household size and annual household income as established by the housing program and stated in the advertisements.  The Marketing Agent, before renting or selling a unit, is required to verify the applicant’s information, perform background and credit checks, and submit the Application Information Form (AIF) along with supporting documentation to HPD for approval.

As of May 19, 2017, 15 active projects were listed on New York City Housing Connect (Housing Connect), the HPD Marketing Unit’s online application system, with a total of 522 affordable units available.  The application deadlines for these projects—all within Fiscal Year 2017—varied. We conducted this audit to determine whether HPD adequately monitors Marketing Agents’ compliance with eligibility guidelines and established preferences of the New York City Affordable Housing Lottery.

Audit Findings and Conclusions

The audit found that HPD’s monitoring of the Marketing Agents’ compliance with eligibility guidelines and established preferences of the New York City Affordable Housing Lottery is generally adequate.  In 2013, the lottery changed from a solely manual process to an automated one that allows applicants to submit applications electronically on-line or through the mail. HPD now creates the lottery log through an automated process that ensures that every applicant is entered into the Housing Connect system, receives a randomized log number, and receives a chance at being selected for the affordable housing lottery, either through random selection or in accordance with an established preference.

However, we identified some areas of the application review process where HPD needs improvement.  In particular, we found that HPD’s files lacked specific documentation, such as asset certification forms, that it should have received and reviewed as part of its oversight of applicant eligibility.  Such reviews are necessary to help ensure that only people who are within the programs’ asset limit guidelines are allowed to obtain affordable housing through HPD’s programs.  Through an independent asset review of a sample of applicants, we found that all but one met HPD’s property ownership requirement and thus were eligible for the housing they received.  As to that one applicant, however, we found that the applicant who was awarded an apartment owned property in another state and the assessed value of that property exceeded the asset limit for a four-person household by more than $60,000 for that particular affordable housing project.  Finally, we found that HPD does not receive and review any documentation for applicants whom the Marketing Agent deemed ineligible.  Independent review of the documentation supporting rejections would help ensure that a Marketing Agent does not improperly disqualify applicants with lower log numbers in an effort to favor applicants with a higher log number in violation of program rules.  These matters are discussed in greater detail in the sections that follow in this report.

Audit Recommendations

The audit resulted in three recommendations, specifically, that HPD:

· Ensure that its files contain required documentation as set forth in the Marketing Handbook and that it conducts a complete and thorough independent review of applicant eligibility.

· Consider performing asset property searches for prospective residents to determine whether they meet HPD property ownership requirements and are within applicable asset limits before awarding leases for the affordable apartments.

· Implement controls within its affordable housing lottery process whereby its officials test a random sample of cases to determine whether the reasons provided for rejecting applicants were valid so as to reduce the likelihood that a Marketing Agent might improperly disqualify an applicant.

Agency Response

In its response, HPD stated that it already implemented one recommendation and believes that the other two are not necessary.  Specifically, HPD officials stated, “we agree with much of what the Audit Report contains. . . .  [W]e also believe that certain recommendations in the report address monitoring practices that are already sufficient or strong.”

We disagree with HPD’s assessment that its monitoring practices addressed in the report are “already sufficient or strong” and continue to recommend that HPD implement the recommendations to obtain additional assurance that eligible applicants are offered apartments in the correct order, in accordance with the goals of the City’s Affordable Housing Lottery.