Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 29, 1990 TAG: 9004290015
SECTION: NATIONAL/INTERNATIONAL PAGE: A3 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
On at least two occasions, prominent Republican political consultants swayed senior Department of Housing and Urban Development officials to overrule field deputies and approve loans for projects in the troubled Retirement Service Center program, the audit says.
The study details a new favoritism and myriad management problems at HUD during the Reagan-administration tenure of Secretary Samuel Pierce Jr. It also suggests the price tag for that mismanagement is rising, with no end in sight, as millions of dollars in government-insured loans go sour.
"There is a high probability that as more recently approved [retirement centers] proceed through their processing stages, additional projects will become troubled or go into default," the auditors concluded.
And the money lost and wasted in many cases went to projects that catered not to low- and moderate-income people but for developments with fountain-filled lobbies, plush dining rooms, swimming pools and rents over $2,000 a month.
It would take an income of at least $25,000 a year to live in many of the centers, while the median annual income for the over-65 population is roughly $15,000.
As in other HUD programs in which private lenders were allowed to underwrite HUD-insured mortgages, the audit found lenders were too generous in their appraisals and thus approved excessive mortgages.
Such bloated loans bring lenders higher fees and result in higher rents because of the cash flow needed to pay the mortgage. The high rents in turn contribute to the unusually high vacancy rate in such projects, the auditors said, ultimately causing cash crunches that trigger defaults.
HUD Secretary Jack Kemp suspended the program last July after a limited audit in the Chicago area first touched on its problems, finding bad or shaky loans totaling $119 million. Kemp has yet to decide whether to revive the program. The auditors said it would need a total overhaul and cited "ample justification" to kill it.
In the report's nationwide review of the program, auditors said 62 of 190 Retirement Service Centers - or nearly 33 percent - either had defaulted or were financially troubled. The mortgages for the 62 facilities total $599 million - nearly 40 percent of the $1.6 billion spent on the program. HUD is liable for at least 85 percent and in some cases 100 percent of the loans should they default.
The $599 million figure was from loan data through last October. Preliminary results of a follow-up review that includes more recent data paint an even bleaker picture, a HUD official said Friday.
The auditors told Kemp he needs to develop a program to sell the centers that are coming under HUD's control because of defaults.
The report said that in at least 17 cases HUD field offices and the private lenders ignored reports in which HUD economists said local housing markets would not sustain the projects. Fifteen of those projects are now in default or severe financial trouble.
The auditors also questioned 10 cases in which officials at HUD headquarters overruled field office rejections of project proposals. In most cases, no documentation could be found to support the reversals, the report said. At least two of those involved political favoritism, the audit said.
In one case, the developer of a project rejected by HUD officials in San Francisco because of a saturated market paid $30,000 to GOP consultant Lou Kitchin, who worked for both the Reagan and Bush presidential campaigns.
Kitchin met with senior HUD officials in Washington, including top Pierce deputy Deborah Gore Dean, and won approval for the $13.2 million project. That project, the Woodcrest Retirement Service Center in Escondido, is surviving because of the default of a nearby HUD-insured center, the audit said.
In the second case, Robert Weinberger, a Republican consultant and the nephew of former Defense Secretary Caspar Weinberger, persuaded HUD headquarters officials to overrule local officials and approve a $3.7 million HUD-insured mortgage for the Rosewood Estate development in Roseville, Minn.
The audit refers to the consultants but does not name them. But the role of Kitchin and Weinberger in the projects surfaced last year during investigations of influence-peddling at the agency.
Many of the management shortfalls cited by the auditors included seemingly routine tasks. The report said HUD failed to require status reports from the private lenders, had few written guidelines for program management, did not coordinate headquarters decisions with appropriate field offices and never bothered to assess the potential risks of the program or whether it would result in affordable housing.
by CNB