Kemp Halts Housing Program for the Elderly : HUD Secretary Cites Losses of $119 Million, Says Projects Were Not Serving Needy Citizens

HUD Secretary Jack Kemp on Thursday suspended the Retirement Service Center, a nationwide housing program for the elderly, saying that it has cost the federal government more than $119 million in direct losses and that it does not serve the low- and moderate-income citizens for whom it was created.

“This is a program that should serve low-income people, but instead is serving upper- and middle-income persons--and doing it very poorly at that,” Kemp said in a statement. “I plan a complete redesign of the Retirement Service Center program and will require that it be targeted to low- and moderate-income elderly.”

Halted Two Other Programs

It was the third program halted by Kemp since he took over the beleaguered Housing and Urban Development Department. He has also suspended or canceled the rental rehabilitation program and a loan insurance program that had financed such luxury projects as golf course condominiums. In recent months, as the HUD scandals have unraveled, investigators within HUD and on Capitol Hill have found that consultants with political connections helped obtain HUD financing for many of these projects in exchange for hefty fees.

The Retirement Service Center program was designed primarily for individuals 70 or older who are capable of living independently and who can pay market rates. (HUD officials said that the program was to make housing available for low- to moderate-income elderly, not those at the poverty level.) The centers do not provide nursing, medical services or continuous care, though they may provide central dining and other supportive services.

No Housing Shortages

The department said that many projects under the program were constructed in areas where there was not a sufficient shortage in housing for the elderly.

Further, in some instances, the program actually served the well-to-do instead, the department said. HUD identified one Florida project under the program that charged $2,100-a-month rent for two-bedroom units.

“Too often (Retirement Service Center) developments found few elderly tenants able to afford high rental rates,” the department said. “Foreclosure resulted, with HUD paying the bill.”

“We believe the projects failed because the field offices did not assure adequate markets existed for the projects, or did not assure the project sponsors had adequate prior experience with (Retirement Service Center-type) projects,” Thomas J. Bannon, the regional inspector general, wrote in his audit of the program.

HUD said that, to date, co-insurers have approved $626 million in mortgages under the program and that the department itself endorsed mortgages totaling $583.2 million.

The program has more than 150 projects nationwide, HUD officials said.

A HUD spokesman for Region 9, which covers California, Arizona, Nevada and Hawaii, said that only eight projects have been built in the four-state area under the program and that its suspension thus will have no discernible effect in the region.

The spokesman, Scott Reed, said that the projects closest to the Los Angeles area include one constructed in Riverside as well as two under construction in Escondido. He said that projects already built will not be affected by Kemp’s action and that it does not seem likely those under construction would be affected.

Kemp said that, in addition to direct losses, the Retirement Service Center program had also incurred loan defaults in excess of $250 million. Further, about 30% of the projects that received HUD backing since the program was established six years ago are in default, the department said, as well as 12% of those approved by co-insurers.

“Many projects, particularly in the co-insurance program, have not reached a stage in their development where they would be most likely to default, and the total percentage of defaults and government losses is expected to climb,” the department said in a statement.

Rep. Tom Lantos (D-San Mateo), whose House subcommittee is leading an investigation into fraud and mismanagement at the department, applauded Kemp’s decision to “clean up” the program, but he said that he wants to be sure the burgeoning scandal “is not used by some people to terminate necessary programs for ideological reasons.”

“I support what he is doing, if this is the best way to clean up the program,” said Lantos, chairman of the House Government Operations subcommittee on employment and housing. “But I intend to ask him (Kemp) . . . for a commitment that he will reinstate these programs. During the course of the last eight years, America’s housing problems have become vastly, vastly more serious. I want to be sure that the need is met.”

An audit conducted last November by a regional HUD inspector general studied 24 projects for the elderly in the Chicago, Cincinnati, Cleveland and Minneapolis-St. Paul area, and found that six were in default and that six others were considered financially troubled. The defaulted and financially troubled projects had mortgages in excess of $120 million.

One of the projects whose backers sought funding under the program was an apartment complex for the elderly in St. Paul that was promoted by Robert Weinberger, a Republican consultant and the nephew of former Defense Secretary Caspar W. Weinberger.

The project, which was not among those studied in the audit, was approved by the department after numerous lawmakers lobbied former HUD Secretary Samuel R. Pierce Jr. on its behalf. A letter supporting the project with the signature of Sen. Pete Wilson (R-Calif.)--a friend of the younger Weinberger--was among those sent to Pierce.

Lynda Schuler, a spokeswoman for Wilson, said that the letter was sent by Paul Rodriguez, Wilson’s field representative in Los Angeles, without Wilson’s knowledge and that Rodriguez “has been reprimanded quite severely by the senator.”

She said that Rodriguez sent the letter “because he assumed that this was something Sen. Wilson would want to support, based on his friendship with Mr. Weinberger. But, in fact, our Washington office had already told Mr. Weinberger that it could not get involved in the project because it was outside the state of California--and we just don’t do that.”

Staff writer Jill Stewart in Los Angeles contributed to this story.