HUD Scandal in L.A. Probably Averted by Steps to Clean ‘Mess’
Los Angeles is not likely to figure prominently in two key scandals at the Department of Housing and Urban Development, in part because officials took steps in 1988 to clean up “a mess” in which hundreds of thousands of dollars from the sales of foreclosed homes were lost, according to federal officials.
Moreover, officials said this week, California was not deeply involved in the separate influence-peddling scandal unfolding, in which Republican consultants who landed sought-after federal housing rehabilitation funds were awarded up to $1,500 per unit by private developers.
While some instances of influence-peddling may be unearthed here, an aide to Rep. Tom Lantos (D-San Mateo), whose committee is conducting hearings into HUD’s troubles, pointed out that California received less than 5% of the so-called “mod-rehab” funds.
Connections Not Used
Most mod-rehab funds were funneled to East Coast and Southern cities. Congressional sources and HUD officials said preference was given to cities with older housing stock not generally found on the West Coast, and that California developers apparently did not widely use political connections to get funds from the program.
In the troubled home-foreclosure program, HUD officials said this week, federal officials in Los Angeles acted quickly when an audit last year revealed that U.S. Escrow, a Downey firm, was holding onto $9 million in HUD sales proceeds, thus earning interest that should have gone to the government.
Robert J. De Monte, the new administrator of HUD’s Region 9 in San Francisco, which oversees the Los Angeles office, said the difference between Los Angeles and cities such as Washington, where similar audits were ignored, “is that the staff here acted on the audit finding, went after U.S. Escrow, got control of the cash, charged them interest and disbarred them from doing business with HUD.”
‘Terribly a Mess’
In a settlement, De Monte said, HUD agreed to allow U.S. Escrow to resume government business after it agreed to pay $250,000 in lost interest. “This was something that was terribly a mess and . . . we went after them,” he said.
Private escrow agents throughout the country, including a woman in Maryland dubbed Robin HUD, are believed to have cheated the federal coffers of up to $100 million by keeping proceeds from foreclosed homes they helped sell, or by turning sales money over to HUD up to a year late, reaping millions of dollars in interest.
The Los Angeles office processes about $6 million in sales from HUD-foreclosed homes every month, amounting to roughly 60 properties, and is one of the busiest in the country, said its deputy director, Robert Miller. Miller said the office has conducted an internal review and he is “99 and 44/100ths percent sure no other money has been lost” in the program.
Swirling Rumors
Whether other major wrongdoing exists in HUD programs in California is not yet known. But against a backdrop of swirling rumors in Washington, a number of inaccurate reports involving Los Angeles surfaced this week.
HUD Secretary Jack Kemp and Lantos both erred Tuesday in identifying Los Angeles during congressional testimony as one of 10 cities singled out for intense scrutiny because of the scandals.
Stuart E. Weisberg, staff director and counsel to the House Government Operations Committee’s employment and housing subcommittee, said HUD employees confused Lantos by accidentally supplying him with a list of cities that are under routine review because of past home foreclosure problems. When Lantos read out the list, Kemp mistakenly confirmed that the 10 cities were major HUD targets.
Wrongdoing Not Suspected
After that, reports surfaced that three auditors assigned to the House Committee on Banking and Finance were sent to the Los Angeles HUD field office Tuesday to investigate suspected wrongdoing.
However, a spokeswoman for the committee said Los Angeles was actually one of four cities where auditors were sent only to learn about day-to-day HUD field operations, not to investigate suspected troubles. Los Angeles was chosen because it has a high volume of activity, and the findings will be used to explore ideas for legislative reform, she said.
“There is nothing sinister about Los Angeles having been chosen,” the spokeswoman said. “They are looking at Los Angeles so they can ask intelligent questions when it comes time to draft new legislation, period.”
FBI Investigation
Problems in Los Angeles may yet surface, however. The U.S. attorney here, who was ordered along with other federal prosecutors to investigate HUD field offices nationwide, said they will probably ask the FBI to handle its investigation, which has not yet begun.
In addition, in the weeks to come, congressional investigators will focus more attention on troubles involving mortgage companies that allegedly vastly inflated appraisals of HUD properties in order to boost rents and mortgages.
Tennessee-based Benton Mortgage Co., which does business with many public housing agencies, including those in Los Angeles, has been placed on probation as a result of early findings that the firm over-appraised properties.
Benton Mortgage, which is under investigation by a federal grand jury, was embroiled in controversy in Los Angeles in February when it was revealed that the company was hand-picked for a $500,000 contract to refinance the city Housing Authority’s Owensmouth Gardens apartments in the San Fernando Valley.
Resigned Under a Cloud
Leila Gonzalez-Correa, the former director of the city agency and a personal friend of Benton Mortgage’s president, Donald Carter, awarded the contract without seeking other bids. Her actions prompted the city to draft changes in its contracting regulations. Gonzalez-Correa resigned under a cloud of public criticism for those and other management problems last spring.
Aside from the city Housing Authority contract, Benton Mortgage has also done business with two other agencies in Los Angeles. Under a contract with the city’s Community Development Department, Benton Mortgage’s apartment management subsidiary is running the Bryant-Vanalden apartment complex in Northridge, which is undergoing a tax-supported $25.6-million renovation. The past management stepped down amid cost overruns and delays.
In addition, Benton Mortgage had a contract with the county’s Housing Authority to refinance commission-owned properties.
