Hosing Housing

HUD auditors find conflicts and abuses in Houston's affordable-homes program

In January 1995, shortly after Bob Lanier was sworn in as mayor of Houston for the second time, another anointment of some significance took place in an office a few miles from downtown: Michael Stevens, a wealthy real estate developer, was chosen president of the Houston Housing Finance Corporation.

HHFC is a public nonprofit created under state law to issue bonds to finance mortgage loans for low- and moderate-income families. Despite its mission, HHFC rarely intersected with city housing officials. Other than holding title to "urban homesteads" purchased by the city with federal money, the agency, whose board of directors is appointed by City Council, had operated in obscurity since its formation in 1979.

That changed when, early in his second term, Lanier named Stevens his Special Assistant to the Mayor for Housing and Inner-City Revitalization. Though the position paid just $1 a year, it transformed Stevens into the second most influential person in city government. Until Lanier left office in January 1998, tens of millions of tax dollars were "coordinated" by Stevens, who was charged with, among other things, turning the city's affordable-housing program into a national model.

Until a few weeks ago, most people wouldn't argue with Stevens's effort toward that end. With Lanier's support and a seemingly endless stream of city and federal grants, loans and subsidies, Stevens started a program called Homes for Houston in January 1996. According to city officials, the initiative has been a rousing success, providing additional affordable housing each year to some 5,000 low-to-moderate-income families. (Some housing advocates dispute that number.)

But a recent audit by investigators from the U.S. Department of Housing and Urban Development (HUD) found that Homes for Houston is tainted by inept management and conflicts of interest that resulted in the waste and possible misuse of more than $800,000 in federal mortgage-assistance funds.

In its most disturbing finding, the audit says that city housing director Margie Bingham, who also sits on HHFC's board of directors, helped negotiate a subcontract on behalf of the agency against the advice of city attorneys, who had warned on two separate occasions that Stevens planned to "assign away ... essentially all of [HHFC's] duties" to the nonprofit Housing Opportunities of Houston, another city contractor.

Moreover, Bingham later changed the terms of the city contract, without City Council approval, to incorporate an apparently improper fee arrangement with HHFC, auditors say. As a result, auditors discovered that the city was double-billed for about $218,960 in administrative costs. According to the auditors' report, another $203,000 is "unsupported," meaning Bingham's department paid that amount to HHFC without properly verifying that any work had been performed.

None of this, the auditors say, would have happened "if the City had taken its own legal counsel's advice...." Auditors also cited a conflict of interest between HHFC and Bingham, who, auditors say, exercised "questionable" behavior by voting with other HHFC board members to subcontract the agency's work to Housing Opportunities of Houston.

"Since the city was apparently unable to maintain its objectivity due to the conflicting interests," the audit report states, "improper contracting occurred."

Auditors found other problems with the city program as well. For instance, the report cites numerous instances where the city provided mortgage assistance to home buyers "who have sufficient funds to purchase their own homes and are not in need of government assistance." In one extreme case, a family with more than $75,000 in the bank received a $10,000 subsidy for down payment and closing costs.

Pending final HUD approval, auditors have recommended the city repay $347,000 spent in violation of federal guidelines. That figure could more than double, unless the city is able to provide sufficient documentation to justify an additional $457,000 in administrative fees and home-buyer subsidies.

City housing officials sharply dispute the audit report and are asking HUD for a "file-by-file review" of the problem cases. Bingham was unavailable for comment. Mike Loftin, an assistant director of housing, says the city broke no federal or local regulations and that auditors failed to take into consideration the success of the home-buyers assistance program.

Loftin also says HUD, and "to some extent the city legal department," does not understand the "long-standing relationship" between city housing officials and HHFC, particularly since the home-buyers assistance program was begun in 1994.

"The point people get hung up on is that the nature of services being provided by HHFC and Housing Opportunities is almost identical," Loftin says. "But that's an oversimplification, one of many oversimplifications and generalizations in the audit that we just have a real problem with."

There is, however, one sentence in the audit report that Loftin doesn't bother trying to defend: HUD's characterization of Michael Stevens as "the unofficial supervisor" of the city housing department.

"I have no comment on that," he says.In fact, the HUD audit only reinforces the extent to which Stevens exercised control over the city's housing policy. As Lanier's urban-revitalization czar, Stevens appeared in public often, speaking passionately about publicly funded projects such as the renovation of the Rice Hotel into loft-style apartments and the massive makeover of the Midtown area.

While those projects garnered attention, Stevens was every bit as instrumental in reshaping the way the city doles out housing assistance, in particular about $10 million in so-called HOME grants the city receives from HUD every year.

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