Palm Desert Project Went Bankrupt : HUD Aided Plan to Sell the Poor $85,000 Condos

Philip Drell wondered why the U.S. Department of Housing and Urban Development, which is supposed to promote affordable housing, was subsidizing a luxury country club and condominium development in the California desert a few miles from Palm Springs.

“We always thought it was a curious sort of project for HUD to be involved in,” Drell, senior planner with the City of Palm Desert, said in an interview Friday.

Members of Congress wondered the same thing. In 1983, then-Sen. William Proxmire (D-Wis.) asked HUD whether a project in which condominiums for low-income families cost $85,000 and $15 million was being spent for a golf course and clubhouse met its affordable housing guidelines.

On Thursday, HUD announced that it planned to terminate the loan guarantee program under which the project had been subsidized, a program that has guaranteed $500 million in loans in the last 16 years.

HUD Secretary Jack Kemp said the program was “riddled with abuse,” had suffered enormous losses and had failed to benefit the needy. Kemp, who had been lobbied to keep the program alive by a former HUD official who represents developers it aided, said losses so far total $90 million.

The guarantee program is the latest chapter in an unfolding saga of mismanagement and allegations of favoritism at HUD.

Two months ago, Kemp suspended another housing program that was designed to renovate buildings for use by moderate-income people after there were charges that politically connected consultants had received funding for questionable projects.

Consultants were also involved as intermediaries in more than half of the projects under the loan guarantee program, called the Title X Land Development Mortgage Insurance Program, according to a 1986 report by HUD’s inspector general.

Title X was established to provide loan guarantees for developers of vacant land who might encounter difficulty with local financing. In exchange, the developers were supposed to set aside a certain percentage of the units for families with low and moderate incomes.

The HUD inspector general’s report, obtained under the Freedom of Information Act, declared that Title X had failed to accomplish its goal of increasing affordable housing. The report said 16 of the 17 projects examined provided no housing for moderate-income families, and none offered units for low-income families. Half of the 32 projects in the program at the end of 1985 were in default, the report said.

Housing at Acid Pit Aided

Among the projects that benefited from the program were three housing developments near the Stringfellow Acid Pit in Riverside County, which the Environmental Protection Agency has categorized as a hazardous waste site. Previous reports to HUD had suggested that the ground water in the area near the three projects was contaminated.

Singled out for particular criticism in the audit was the Desert Falls Country Club project in Palm Desert, which went bankrupt in 1985 and cost HUD $13.6 million. Since then, the project has come under control of new owners and has become successful without government assistance.

According to the HUD report, the project was originally planned to include 1,111 residential units surrounded by a championship golf course, a 34,000-square-foot clubhouse, 17 tennis courts and two swimming pools.

Drell, the Palm Desert planning official, said the proposal was approved by the city in 1979 without any HUD backing. The lead developer was Oscar A. Wiggins, who at the time was head of a Santa Ana firm called Pacific Coast Builders.

The project languished for about two years until Palm Desert officials got word that HUD was going to guarantee part of the loan to finance the project. The guaranteed loan was to be used only to develop the residential units and related streets and common areas.

In exchange, the developer was required to set aside 20% of the units for families with moderate to low incomes. The price for the units was to be $75,000, but it later went up to $85,000.

However, HUD’s regional office in Los Angeles raised questions in late 1981 about the eligibility of the project.

Rather than increasing affordable housing, the report said, the project was “recreation-resort oriented” and “would not increase the supply of anything other than high-priced housing.”

The report said the recreational facilities, part of the justification for HUD assistance, would be available only to residents who paid a one-time $15,000 fee and monthly dues.

There were other problems. The environmental impact statement required as part of the HUD package uncovered a threat to the fringe-toed lizard, a desert resident that became an endangered species in 1980.

According to Drell, the Desert Falls developers tried to satisfy environmental concerns by designating the sand traps on the golf course as habitats for the lizards. Instead, they were assessed $600 an acre to help acquire land for a nature conservancy in the Coachella Valley to protect the lizard.

The HUD inspector general’s report says the project was approved despite the objections after an unidentified assistant secretary at HUD said the $75,000 condos were “within the spirit of our guidelines.”

Cost HUD $13.6 Million

In April, 1985, the project went into default and HUD wound up losing $13.6 million, the report said. Attempts to reach Wiggins were unsuccessful, but several people familiar with the project said that his company has gone out of business.

Shirley M. Wiseman, former deputy assistant secretary for housing at HUD, said in an interview Friday that, after taking office in 1983, she rewrote the rules for the loan-guarantee program.

“We rewrote those guidelines so if there was no affordable housing there’d be no Title X,” said Wiseman, who left the agency in 1985 and is now head of the National Assn. of Home Builders, a trade group in Washington, as well as being a builder and developer in Lexington, Ky., for over 20 years.

Wiseman was identified by Kemp as one of the consultants who assisted developers in obtaining Title X guarantees. The others were identified as Maurice Barksdale, another former HUD official, and Tricia Canzeri, wife of a former Ronald Reagan Administration official.

Wiseman acknowledged that she lobbied Kemp soon after he took office this year to keep the program. She defended the program, contending that it had provided essential affordable housing.