Building a Track Record

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For a man with the political ambitions of Andrew Cuomo, his four years as HUD secretary (after four more as assistant in charge of community planning and development) might have seemed like an ideal opportunity. TV appearances, ribbon cuttings, reams of literally concrete accomplishments–the young aspirant with little more than a name and a nonprofit quickly accumulated all the makings of electoral success.

He also happened to have walked into one of the most thankless jobs in the president’s cabinet. When he took over in 1997, Cuomo inherited an agency that Republicans in Congress had vowed to abolish. It was certainly an easy target–bureaucratic, crippled by antiquated information systems and often entangled in messy local urban politics.

Despite everything–including a controversial downsizing of agency staff under his watch–Cuomo left his mark. He helped revamp subsidy programs so that HUD-sponsored apartments stayed affordable, and successfully pushed for expanding homeownership. Yet sometimes it was hard to know who he was working for. In true Clintonian fashion, Cuomo’s HUD sought to satisfy many constituencies, and the putative beneficiaries of federal housing an development programs did not always feel like they came first.

As the stories below detail, Cuomo’s HUD loosened oversight of home lenders, pressed for greater flexibility for cities spending federal dollars and pushed private redevelopment of former public housing sites. Those moves and others brought powerful public- and private-sector players to the support of HUD and its projects–and to Cuomo himself. Anyone wondering what his priorities might be as governor of New York would do well to ask what the were when Cuomo’s official job description was savior of cities.

Did Cleaning House Clean Out Homeowners?

During the late 1990s, a wave of individual catastrophes swept through urban, minority neighborhoods. Homeowners from Ozone Park to Philadelphia to Atlanta watched their dreams collapse, as their mortgage payments skyrocketed beyond their means. Most had taken out their first mortgages thanks to the Federal Housing Administration, a HUD division that promotes homeownership by protecting lenders in the event that a borrower can’t pay back.

The last decade has seen a massive increase in mortgage defaults among FHA borrowers. In 1992, 6.9 percent of borrowers fell more than 90 days behind on their payments. By early 2002, the rate had climbed to 11.2 percent.

Andrew Cuomo played a critical role in developing federal housing policies closely tied to the foreclosure explosion. He downsized HUD’s staff just as auditors warned that the agency’s oversight was skimpy. And he loosened some lending regulations, even as the evidence mounted that lenders themselves were knowingly selling loans that were guaranteed to bankrupt borrowers.

Clearly, no one public official or agency bears responsibility for the sharp expansion of predatory lending, the unseemly practice of selling high-cost loans–and employing misleading sales tactics and hidden fees–to low-income borrowers. Sweeping changes in the mortgage industry, growing interest from Wall Street and advances in technology played critical roles.

Eve so, the HUD secretary’s role in combating FHA foreclosures and predatory lending demands close scrutiny. As highway workers and retired teachers lost their homes to slimy salespeople and an indifferent bureaucracy, where was Andrew Cuomo?

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One of Cuomo’s first acts as secretary was an aggressive effort to continue the downsizing that had begun under his predecessor, Henry Cisneros. He announced a massive reorganization of the agency ad further job cuts, with the goal of shrinking the workforce by nearly 30 percent more. FHA bore the brunt of the shrinkage; staff dropped from 5,100 workers to 2,900.

Even before those cuts, an independent audit from the accounting giant KPMG had warned HUD in 1997 that FHA staffing was inadequate to prevent mortgage defaults. The reductions were also put in place just as HUD was pushing an expansion of FHA lending, in part by raising the cap on loans that could be insured from $86,000 to $208,800, to met President Clinton’s goal of increasing homeownership among poor and minority Americans. That expansion was successful: Between 1997 and 1999, total FHA lending grew by 63 percent. But it came at a price.

Estimating the actual value of a property is a crucial safeguard in home lending. But following a congressional mandate, in 1994 HUD changed the appraisal process, from randomly assigning an appraiser to allowing a lender to pick its own. The industry had convinced Congress that the randomized process was too slow and was bad for business.

It may have been, but in this case, Congress’ cure has been worse than the disease. In cities where recent FHA scandals have rocked neighborhoods–like the 203(k) mess that has led to nearly 600 abandoned buildings in New York City–at the heart of the problem were appraisers acting in collusion with unethical lenders. Typically, they overstated the value of property, saddling borrowers with unaffordable loans and decrepit homes.

Though Congress tied HUD’s hands, there was still wiggle room for initiatives to regulate appraisers and assist borrowers. But Secretary Cuomo failed to institute a key reform that could have protected homebuyers, charges William Sentner, president of the American Guild of Appraisers. In June 999, HUD proposed that all FHA mortgage lenders give potential homebuyers a copy of the full appraisal 15 days before closing. A few months later, the final rule was published, and it required that lenders give borrowers only a summary of the appraisal, just five days before closing. “The Mortgage Bankers Association of America and the National Association of Realtors had gotten a hold of Cuomo,” concludes Sentner. “They made sure consumers had no time to ask questions. They didn’t want scrutiny.”

“Five days seemed more than adequate,” protests former FHA Commissioner William Apgar, now a lecturer at the Kennedy School of Government at Harvard. He says HUD under Cuomo did its best to rein in fraudulent appraisers, but that ultimately the agency was handcuffed by the mandate to have lenders select their own appraisers, which he compared to “sending a rabbit out to deliver the lettuce.”

At the least, HUD could have watched those appraisers more closely, according to a 1999 report from Congress’ investigative wing, the General Accounting Office. It stated flatly that “HUD is not doing a good job of monitoring the performance of appraisers,” particularly because the agency didn’t adequately double-check their estimates. And even when it did, the GAO reported, appraisers with poor records were rarely penalized. In 1998, HUD discovered that 246 appraisers in Philadelphia and Denver had each submitted at least two bad appraisals, “but only 11 of the appraisers were prohibited from doing subsequent FHA appraisals,” he GAO noted.

As the number of FHA foreclosures rose steeply at the end of the 1990s, homeowners and activists fought hard to get policymakers’ attention. At first, those efforts fell on deaf ears. One upstate New York activist, who asked not to be named remembers back to 1997 and 1998, when she and others pleaded with HUD and FHA to take predatory lending seriously. “They didn’t want to use the word ‘predatory’ at all, even with clearly fraudulent lending practices going on,” she remembers.

When Cuomo finally did act–beginning in late 1999–he moved forcefully. Even typically cynical activists say they were impressed by the strong legislative actions recommended by a national predatory lending task force that Cuomo and several Democratic senators convened in April 2000. Cuomo announced an ambitious plan that May to fight FHA fraud, including a temporary moratorium on foreclosures in key “hot zones” where FHA delinquency rates were high, and a pledge to punish corrupt lenders and appraisers. Most notably for victimized homeowners, Cuomo pledged that his staff would re-do fraudulent mortgages in the hot zones, so that bad loans didn’t result in foreclosures.

While hopes were high that May, the last two years have seen only disappointment. The agency created narrow eligibility requirements for relief–the loans had to be less than two years old, and had to be more than 30 percent overvalued–that eliminated many homeowners who were seeking help. The process dragged on; not until this past April did HUD’s actual remediation offers come through. They were grossly inadequate, says Rick Wagner, director of litigation for Brooklyn Legal Services Corporation A, who recently filed a pair of lawsuits against mortgage lenders and HUD on behalf of homeowners who received no compensation. “The fact is that HUD has treated them as if what happened is their fault,” says Wagner. “It was simply a sound bite, a press conference, an illusory solution to a very real problem designed to reflect on Cuomo well politically, but not to remediate in any powerful way.”

Others say Cuomo is not to blame. Ken Strong, director of research and policy at the Community Law Office in Baltimore, where nearly a thousand homebuyers bought overvalued properties that had been “flipped” by corrupt realtors and lenders, thinks that Cuomo’s good intentions were dashed when Democrats lost the White House: “It was my impression that time ran out before they had a chance,” says Strong. Apgar agrees: “My sense is if we had stayed there past November [2000], we would have gotten the job done.”

There’s no debate that Andrew Cuomo’s response to the FHA lending crisis was inadequate. Two years after he announced he would not “rest until we know that not one FHA borrower falls prey to these practices,” the number of foreclosures continues to rise. We’re left only with the question of why the measures to fix it failed: Were they too little, or too late?

Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, a nonprofit that makes loans to low-income borrowers, picks the former. “It was a lot of smoke and no fire,” says Marks of HUD’s efforts to fight fraud. “Our experience with Andrew Cuomo was that ultimately he was not willing to go to war against abusive practices in the mortgage industry.”
i>–City Limits editors

Did new flexibility preserve anti-poverty dollars–or give cities loose cash?
Long a visible champion for the impoverished, Andrew Cuomo kept himself in the headlines during his eight-year stint at the HUD. He chastised New York City for its homeless policy (eventually taking over administration of its federal funds), threatened to sue gun manufacturers on behalf of the poor and brought television cameras into the nation’s most blighted areas.

But some housing advocates who worked with Cuomo say he had another side as well, one that did not always further the interest of the most disenfranchised. They point, in particular, to a series of decisions Cuomo made following pressure from big city mayors, governors and redevelopment officials. The officials wanted to loosen the mandates attached to Community Development Block Grants (CDBG)–a $4.4 billion-a-year program targeted primarily at low- and moderate-income communities–so the grants could be used to fund more general projects, like repaving roads and redeveloping commercial districts.

“We were yelling from the sidelines,” says one low-income housing advocate who unsuccessfully fought the changes in the mid-1990s. “We didn’t have the political juices.” The CDBG decisions left many in the public interest community feeling lukewarm or disappointed in Cuomo, as if the opportunity presented by a Democratic administration had been missed. “Cuomo always listened to a conversation with two ears,” said Cushing Dolbeare, he founder of the National Low Income Housing Coalition. “One was on the substance; one was on the politics.”

When Cuomo arrived at HUD in 1993, the political muscle, both in Congress and in the halls of HUD, wanted decreased regulation for local governments that rely on the money. At an August meeting, Cuomo, then an assistant secretary, announced a total reworking of the planning process, combining CDBG applications with three other programs into something he called the “Consolidated Plan.” The change undid language that encouraged local officials to spend their money on their neediest residents, says Ed Gramlich, an advocate who objected to Cuomo’s plans at the meeting. “They tossed everything out,” says Gramlich, a senior researcher at the Center for Community Change. “There were no more instructions, and they said we are just going to start with a clean slate.”

Howard Glaser, who was Cuomo’s deputy assistant from 1994 to 1996, says that HUD had a very good reason for the change: to save funding for CDG in the face of attacks from a hostile Congress. “Andrew’s approach on the whole at HUD was always to take away arguments that the Republicans had, [in order] to save the programs,” says Glaser. “Had Andrew Cuomo not taken action to make these programs work better, Congress without a doubt would have taken the money from these programs.” The problem with CDBG, he says, was that local officials were failing to spend all the money they received. Glaser blames onerous regulatory requirements, which called for localities to report such data as the income levels for beneficiaries of jobs programs.

At the time of the regulatory changes, local governments were already abusing the system. A 1993 audit by the HUD Inspector General, Susan Gaffney, found widespread municipal misuse of CDBG funds. By law, 70 percent of the grants must benefit low- and moderate-income residents. While HUD claimed that more than 90 percent of the money went to these groups, Gaffney found a series of institutionalized faulty accounting practices. She said the benefit to the poor was closer to 65 percent.

But the report did not appear to faze Cuomo. Several years later, he further weakened restrictions on CDBG, announcing a new program without any public review. Under the new rules, local governments could designate geographic zones in which at least 51 percent of the population is low- or moderate-income as “neighborhood revitalization areas.” CDBG dollars could thus be spent on job creation or housing improvement no matter whom the money benefited.

At the same time, advocates say, Cuomo allowed a continued loosening of enforcement for those cities abusing the system. “It was just startling to notice how much you didn’t see HUD anymore in your office,” says Ann O’Hara, associate director f Boston’s Technical Assistance Collaborative, who has worked with housing issues for 27 years and whose program received CDBG dollars. “The whole focus of the department turned inward, and much less to how grantees were doing.”

Glaser says that the advocates’ claim is simply inaccurate. Crackdowns on abuses in Milford, Connecticut, and Galveston, Texas, he says, reflected the agency’s commitment to maintaining strong enforcement.

Yet cities continued to flaunt regulations. Binghamton, New York, used CDB money to rebuild a main commercial street, enclose carousel horses in the city park and put up signs for tourists, while funding for a nearby homeless shelter was cut. Lex Liberatore, an associate director of Citizen Action of New York, remembers complaining about the apparent violations to HUD’s local area manager in 1997. The manager’s response, according to Liberatore, was blunt: “Forget about the regulations,” he said. “Let’s talk about reality.”

Gramlich blames that new reality on Cuomo’s oversight. “There was clearly a different attitude coming from headquarters,” he says. Years later, the management of CDBG dollars remains difficult to gauge. As recently as March, HUD said 84 percent of CDBG money was benefiting low- and moderate-income individuals but the agency has not released a detailed accounting of that money.

In 2000, HUD’s inspector general Gaffney–by now an avowed political foe of Cuomo’s–reported that the same problems she found in 1993 still existed. She recounted recommending that Cuomo increase CDBG regulation when he arrived at HUD. “However,” she noted, “those recommendations have not been implemented.”
–Michael Scherer

Public housing falls and new neighborhoods rise–with limited room for the poor.

“It is one of the things I’m most proud of,” Andrew Cuomo has said of his commitment as HUD secretary to provide $1.5 billion to help Chicago tear down all of its high-rise public housing and place the rest under private management. “We’re going to learn from the mistakes of the past.”

Many former residents of public housing would agree that their homes were in terrible shape–dreadfully deteriorated, or at least segregated, isolated and crime-ridden. But researchers who have studied the federal government’s decade-old response–demolishing more than 80,000 units of public housing and replacing them with privately built, mixed-income low-rise developments–are now asking whether amid the trees and townhouses, old mistakes are being compounded by new ones.

Perhaps no city is more affected right now than Chicago, where 53 high rises have been, or will soon be, demolished. The apartments were in dismal shape: In a 1996 HUD viability survey, 18,000 out of 38,000 flunked. Mismanagement and decrepitude led to high vacancy rats in some projects. At the same time, the housing authority–under HUD receivership from 1995 to 1999–maintained a 40,000-household waiting list.

Yet only one-third of the newly developed housing units will be available to poor people, resulting in a net loss of an estimated 14,000 affordable apartments. HUD was concerned enough about the impact of Mayor Richard Daley’s plans to a market study on the availability of low-cost housing. A team from the University of Illinois surveyed the six-county region, crunching numbers and interviewing landlords. They found that the areas where apartments were available were the South and West sides of the city–already overwhelmingly poor, isolated from economic opportunity and transportation, and segregated by race. “it’s not enough to make sure there are units,” says Janet Smith, a lead researcher on the study. “You have to be able to get into those areas.” #In addition, some findings certainly suggested an overall mismatch between supply and demand: For households making less than about $20,000 a year, the study found a shortage of about 153,000 apartments.

Smith and her team hoped to get the study released in time for a series of public hearings on the so-called Transformation Plan. It wasn’t. Instead, it got locked in a bitter back-and-forth between the researchers and Cuomo’s office. According to Smith, HUD officials “wanted us to say definitively whether the market would or wouldn’t absorb the new people.” She tried explaining the nuances of their findings and the impossibility of drawing a firm conclusion, to no avail.

Howard Glaser, who was Cuomo’s negotiator with the Daley administration, says HUD had every reason to demand precise answers. “The critical question in Chicago was, Could the market absorb additional residents?” he recounts. “This is what the University of Illinois was paid hundreds of thousands of dollars to find out. The agency would have been abdicating responsibility if it hadn’t drawn those conclusions.” As for the timing of the report’s release, “My recollection is that the report came out in record time.”

Chicago is now a living laboratory for the results. For the tenants already moving out of the towers, it hasn’t been easy. Sudhir Venkatesh, a sociologist at Columbia University, has been studying the former residents of Robert Taylor Homes, a two-mile-long colossus that housed 4,500 large families, as they make their way to new neighborhoods. Just seven of 28 buildings still stand.

Venkatesh has found that at least 30 percent of residents were not legal occupants, and thus have no subsidies to help pay the rent; some were squatters, others friends or family of leaseholders. It’s one reason, he suspects, why about 10 percent of households who’ve left report having been homeless or living in transient situations since they moved out. Even some legal tenants have found themselves ineligible for Section 8 vouchers, because they owe utility bills or get hit with “one strike” evictions for association with drug offenders.

Another researcher, Sue Popkin of the Urban Institute, has found that families who remain in public housing despite incentives to move often have serious personal problems, including mental illness and physical ailments. Attachment to the old neighborhood frequently proves difficult to break; even among those who have moved, Venkatesh is finding, most continue to use their old churches and grocery stores, and one-quarter still send their children to their former schools.

“In Chicago, a large proportion are there because it was the housing of last resort,” observes Popkin, who credits Cuomo with doing much more than his predecessor, Henry Cisneros, to make sure that residents receive social services during the transition. “They don’t have a place in the private rental market.” She maintains that some kind of supportive housing will be necessary: “They need to be treated as if all but homeless.”
–Alyssa Katz