Summary: GAO investigated certain allegations by black developers that the Department of Housing and Urban Development's (HUD) San Francisco regional office systematically discriminated against minority developers in HUD insured profitmaking housing projects.
Walter J. Taylor and Albert L. McKee alleged that HUD conspired against them in refusing to insure their multifamily projects for reasons of racial discrimination and that HUD underwriting regulations work to discriminate against blacks. No evidence was found by GAO to support the complainants' allegations. Further, the challenged underwriting procedures, specifically the fair market rent test and the financial resources requirement, were judged reasonable and necessary to help ensure approval of economically sound projects and protect the Government's interest. Basically, both projects were affected by the same factor, building cost increases, that would have required charging higher rents than those charged for comparable dwellings in the area, which is specifically forbidden by HUD underwriting procedures. Also, the HUD income estimate for the projects was lower than the amount needed to justify the level of mortgage insurance required.
