HUD Aide Lauded Program That Led to Defaults : Demery Backed Lender Coinsurance, Which Could Cost Public $500 Million

When Thomas T. Demery was new on the job at the Department of Housing and Urban Development in late 1986, he gave a speech introducing himself to his co-workers, outlining what he wanted to accomplish as the assistant secretary in charge of millions of dollars of housing loans.

One of the things he rhapsodized about was the agency’s coinsurance program, a concept he called “the wave of the future.”

“Coinsurance is the epitome of the (Ronald) Reagan Administration,” he wrote in a draft of his remarks that was released to the press along with other documents Thursday.

Underwriting Lenders

“It delegates to the private sector what the private sector can do best: put deals together, analyze and evaluate risk, and underwrite that risk,” Demery wrote. “At the same time, coinsurance takes the government out of the processing and decision-making in mortgage finance transactions. Under coinsurance, HUD, in essence, underwrites lenders rather than individual loans.”

Three years later, one of the largest lenders underwritten by the government has gone belly up, defaulting on scores of loans that could cost taxpayers more than $500 million. And Demery is one of the principal figures being investigated by Congress as it probes charges of mismanagement, fraud and abuse at HUD.

In addition, a federal grand jury is investigating allegations of theft, fraud and money laundering involving the coinsurance program and Washington-based DRG Funding Corp., which eventually defaulted on 29% of its loans.

Demery’s papers, obtained under the Freedom of Information Act, shine little new light on happenings at the beleaguered housing agency, but they offer insights about one of the central participants in the growing influence-peddling scandal.

The single box of documents shows that Demery came to the agency sensing a “malaise” and left bitterly fighting with his boss because he wanted to fire a deputy who regularly missed meetings because of a busy social schedule.

Demery wrote volumes of thank-you notes and forwarded the resumes of friends to prospective employers, as well as sending out his own resume in an unsuccessful attempt to become secretary of HUD.

Demery, a former Michigan real estate agent and mortgage broker who worked in Reagan’s 1980 campaign, administered several of HUD’s biggest programs, including $225 million in moderate rehabilitation funds awarded annually and the massive Federal Housing Administration’s mortgage insurance program. Through loan defaults and alleged mismanagement, the FHA has been losing millions of dollars a year.

In the speech during his first week on the job, the new assistant secretary stressed “program enforcement” as a way of “ . . . combatting defaults and bankruptcies.”

But, after three weeks, Demery wrote a memo to his deputies complaining that the agency was bedeviled by “malaise.” He said the agency “does not appear to have an overall sense of direction” and found an “urgency in our need to provide leadership.”

” . . . There is a feeling permeating Housing that there is a lack of purpose, coordination and specific accomplishment,” he wrote on Nov. 17, 1986. “ . . . We are adrift in a great morass of rules, regulations and policy without any particular focus.”

One thing Demery tried to focus on was firing his deputy, R. Hunter Cushing.

“The issue remains that you’ve lost control of the people who work for you, the public you serve, and the industry you oversee,” Demery said in a 1986 letter to Cushing. Demery called Cushing’s offer to “abdicate authority” in return for retaining his title “not a workable solution” and said he would speak to HUD Secretary Samuel R. Pierce Jr. about removing him.

But Pierce sided with his executive assistant, Deborah Gore Dean, who supported Cushing even though he worked for Demery.

Rebuffed and not happy, Demery wrote to Cushing after he missed a meeting in June, 1988:

“Summertime attendance conflicts due to heavy social commitments and inconvenient flight schedules are inappropriate reasons for not attending staff meetings. I also think your suggestion to change my meeting time to accommodate your social life was equally inappropriate.”

Demery had no better luck in lobbying for the job of HUD secretary.

He sent a form letter dated Dec. 7, 1988, to several senators, congressmen and a high-ranking aide to President-elect Bush asking for the job, which eventually went to Jack Kemp.

“I have become greatly challenged and sensitized to the public policy questions surrounding the homeless, the availability of low-income housing, and the difficulty the elderly and first-time home buyers face in finding affordable housing,” he wrote, asking for support.

In social missives, Demery was effusive. In 1988, he wrote to Sen. Strom Thurmond (R-S. C.): “What a nice surprise to receive the delicious pecans! When I saw the bucket, I thought Colonel Sanders was delivering fried chicken--but this is much more appreciated.”

The former commissioner appears also to have been something of an idealist, having compiled a five-page listing of optimistic quotations under the heading of “Housing Has a Commitment to Excellence Because Housing Helps People.”

Among annotated quotes from St. Francis, George Bernard Shaw, John Wooden, Dr. Martin Luther King Jr. and Howard Cosell were some that appear to be Demery’s own. One reads: “People forget how fast you did a job--but they remember how well you did it.”