Outlook
FW: Agenda Item 3.3 - Housing Department Loan Portfolio Audit From City Clerk
Date Mon 8/ 17/ 2026 10:19 AM
To Agendadesk
From: brian darby
Sent: Sunday, August 16, 2026 1:10 PM
To: The Office of Mayor Matt Mahan ◄
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District4
Subject: Agenda Item 3.3 - Housing Department Loan Portfolio Audit [External Email. Do not open links or attachments from untrusted sources. Learn morel Dear Mayor Mahan and Members of the City Council:
I am writing regarding Agenda Item 3.3, the Housing Department Loan Portfolio Audit.
The audit is useful and, in my view, raises issues that deserve continued Council attention. San Jose's affordable multifami ly housing loan portfolio is substantial: approx imately $745.6 million in outstanding permanent loans, with nearly 25,000 units subject to active loans, affordability restrictions, or development commitments.
Given the size of that public investment, the City's monitoring and asset management capacity should be proportionate to the portfolio it is responsible for protecting.
The audit indicates that the Asset Management team has struggled to comp lete all required property reviews and inspections. In late 2025, a very small number of staff were responsible for reviewing hundreds of properties and nearly 25,000 units. The audit also found that a significant portion of required reviews were not completed in 2024 and 2025, that field audits had been paused, and that there was an inspection backlog.
Those find ings are concerning , but they also appear to reflect a broader issue of staffing, systems, procedures, and organizational capacity rather than a simple failure by individual employees. The audit itself ident ifies vacancies, unclear expectations, and inadequate software as factors limiting the team's ability to keep pace with its responsibilities.
Another important find ing involves affordability comp liance. In the auditor's limited sample of 878 units across ten properties, 11 O tenants had incomes above the applicable income cap, including 48 whose incomes were at least 140 percent of the applicable limit.
That finding deserves attention, but it should also be considered carefully. A limited sample should not be treated as evidence that the same percentage applies to the entire portfolio. In addition, household incomes can legitimately change after tenants initially qualify for affordable housing. The appropriate response should protect the integrity of scarce affordable housing while avoiding policies that unnecessarily punish households whose economic circumstances improve.
The audit also raises a management issue that seems especially important: the City did not have a documented escalation process for significant or repeated compliance problems, and monitoring was not systematically prioritized according to the risk presented by individual properties.
For a portfolio of this size, a risk based approach makes sense. Properties with strong financial performance, good physical conditions, and consistent compliance should not necessarily receive the same level of scrutiny as properties showing repeated violations, financial problems, or affordability concerns.
There are also reasons for encouragement.
The City Auditor deserves credit for producing a detailed and constructive report with nine specific recommendations rather than simply identifying problems. Those recommendations address strategic planning, software, automated rent and income review, standardized procedures and training, better documentation, compliance policies, escalation procedures, and risk based monitoring.
The Housing Department also deserves credit for accepting all nine recommendations and for already beginning several corrective efforts, including updated procedures, development of a rent-roll compliance portal, evaluation of improved asset-management software, and more formal compliance and escalation procedures.
My principal concern is therefore not whether the Council should accept this audit. It should.
The more important question is what happens afterward.
I encourage the Council to ensure that the recommendations, staffing and resource needs, and stated completion dates receive meaningful follow up. In particular, Council should eventually have a clear answer to a basic management question:
Does the Housing Department's Asset Management team have sufficient staffing, technology, procedures, and authority to responsibly oversee a portfolio of approximately $745 million and nearly 25,000 affordable housing units?
The Department's willingness to accept the recommendations is a positive beginning. The real measure of success will be whether the improvements are implemented and whether future reviews demonstrate that the City is consistently protecting both its financial investment and the affordability commitments made to San José residents.
Thank you to the City Auditor and Housing Department staff for the work reflected in this report.
Respectfully,
Brian Darby