HUD Audit Faults Ex-Officials’ Venture
Three former government housing officials reaped millions in “unjustified profits” and increased costs in two troubled housing programs through a mortgage company suspended from government work because of questionable business practices, a federal audit says.
The three--including Philip D. Winn, now ambassador to Switzerland--are among those who capitalized on their knowledge of the housing programs and the lender’s lax enforcement of government regulations.
They formed a joint development venture after working briefly at the Department of Housing and Urban Development. That venture was called Winn & Associates, which according to another HUD audit, was the development company involved in one of the projects.
The mortgage on the project was insured by a company known as Benton Mortgage.
Calculations Improper
The audit by HUD’s inspector general detailed how they used “paper” corporations to increase their profits and how Benton Mortgage used improper calculations to inflate mortgages and rent subsidies paid by the government.
The audit does not accuse the three former officials of criminal wrongdoing but recommends internal administrative sanctions against Benton Mortgage.
A company spokesman said Benton’s loan portfolio is sound, that it has not defaulted on any HUD co-insured loans and that the company has already filed a 2,500-page response to the HUD audit.
The inspector general audited 14 projects in the agency’s moderate rehabilitation program financed and co-insured by Benton Mortgage, located in Knoxville, Tenn., and found that in none of the cases did the lender follow HUD rules or “prudent underwriting practices.”
Worked at HUD
Three of those projects were developed by companies partly owned by Winn, who served one year as an assistant HUD secretary and federal housing commissioner before being appointed ambassador to Switzerland by former President Ronald Reagan.
Two other former HUD officials, Philip Abrams and Joseph M. Queenan, were partners with Winn in one of the projects, the 160-apartment Sierra Pointe complex in Las Vegas.
The report, which did not name the developers, said Benton “manipulated rents and appraised values” to get the highest allowable mortgage for the Sierra Pointe project.
According to the report, Benton overestimated Sierra Pointe’s anticipated rents and the property’s value by including the government assistance and overstating the sales prices of two comparable properties. That resulted in a Benton-approved, co-insured mortgage for Sierra Pointe that the audit said was $2.5 million more than it should have been.
The moderate rehabilitation and mortgage co-insurance programs are among four that recently have been suspended, revised or restricted by HUD Secretary Jack Kemp after inspector general’s reports revealed evidence of widespread abuse and mismanagement during the Reagan Administration.
Another Winn group project was singled out as an example of Benton’s aiding in the “pyramiding of profits” by contractors and subcontractors through “contrived identities of interests and paper conduit companies.”
Firm Sold in 1987
In that instance, Sundance Housing Associates Ltd., a company Winn listed as part of his holdings on a 1988 financial disclosure form, owned 25% of the Sierra Vista Apartments in Arapahoe County, Colo. The form also showed that the company was formed and then sold in 1987 after the project was completed.
Sundance Housing selected Mead Associates Inc. as the contractor to rehabilitate Sierra Vista. Mead then formed M. A. Builders Inc. as a construction company with common ownership. Sundance Housing and M. A. Builders then formed Sundance Builders Inc.
Sundance Builders then became the general contractor and Mead a subcontractor.
Property owners and developers with common interests are eligible for certain profit and risk allowances in HUD’s co-insurance program.
However, the agency does not allow for the added profit or overhead costs when a subcontractor appears to be a “paper” corporation, a company with no demonstrated ability in the field or no significant business outside its sphere of interest.
Investigators determined that all three prohibitive conditions existed on the Sierra Vista project and four others and concluded that “unjustified profits totaled $1,442,296 for the five projects.”
