In May 1987 Paul Adams, inspector general of the Department of Housing and Urban Development (HUD), estimated up to $844 million could be saved if Washington refinanced HUD-subsidized home mortgages, at the time locked into interest rates as high as 17.5 percent. Reagan-administration officials rejected the proposal – leaving the Treasury owing banks $5 million extra each month – and justified their decision by pointing to a refinancing cost, which HUD analysts later estimated at one-twenty-fifth the size of the ultimate savings.
The real reason behind the decision, of course, was concern that the windfall would be used to nourish the low-income housing program the administration was trying to kill. According to the Wall Street Journal, “Senior officials feared that any money saved would be plowed back into the subsidy program, which the Reagan administration wanted to pare back.”
· One year earlier, the Journal reports, Walter Sevier, deputy administrator of HUD’s Fort Worth, Texas, regional office, had complained to his superiors about underwriting abuses – including inflated home appraisals – in the $5 billion multi-family “co-insurance” program, through which HUD assumes 81 percent of claim costs and private insurers the remaining 19 percent in cases of mortgage defaults. The losses from the program Sevier was referring to are now estimated to total more than $1 billion.
· Wherever HUD inspectors look, they are stunned by impropriety and ineptitude. Auditors recently determined that fraud, loose management, and economic downturns have reduced the reserve account of HUD’s Federal Housing Administration fund – insurer of 5.5 million mortgages totaling $275 billion – to $2.8 billion. And current HUD Secretary Jack Kemp says 94 percent of HUD’s funds are similarly mismanaged.
For the first four years of the Reagan Revolution, then HUD secretary Samuel Pierce did as he was told and slashed funding for low-income housing, reversing HUD’s mandate – set when it was created in 1965 as part of Lyndon Johnson’s “Great Society” – to provide housing for the poor.
A Manhattan attorney who has served earlier Republican administrations in assorted capacities, Pierce cut the housing budget by two-thirds, raised the income percentage paid by subsidized low-income renters from 25 percent to 30 percent, and eliminated a quarter of HUD’s staff, including a slew of auditors who might have salvaged the fraud-plagued co-insurance program.
For the second four Reagan years, Pierce and his aides made rich men of developers whose poorly rated projects were touted by high-priced Republican “consultants.”
The Reagan team had hit Washington vowing to eliminate waste in social welfare. It ended by elevating waste to creed. If Iran-contra was the fruit of the New Right’s cold-war dialectic and its contempt for the democratic process, then the plundering of HUD was its domestic counterpart.
The bill for HUD’s blunders cannot match the Reagan administration’s masterpiece, the $125-billion-to-$150-billion savings-and-loan bailout. But the Republican insiders who sold developers access to HUD brass were clearly major-league influence peddlers.
Those whose names won them lucrative consulting contracts include former secretary of the Interior James Watt, who made more than $400,000, and former Massachusetts senator Ed Brooke, who earned $150,000. Their clients were developers with projects regional HUD offices had deemed unfundable. When a Watt or a Brooke phoned Pierce or one of his aides, local administrators were overruled and projects were quickly bankrolled. Once lauded by conservatives as “the unsung hero of the Reagan Revolution,” Pierce bears primary responsibility for a monumental betrayal of public trust.
Pierce’s failures alone, however, would not have been so catastrophic without numerous accomplices, including politically appointed aides who ignored early warnings of the fraud and mismanagement riddling HUD’s mortgage-insurance programs. But perhaps the most insidious contributor to the agency’s disintegration was old-fashioned venality, repackaged as the modern-day consulting/public relations/lobbying firm.
When Ronald Reagan vowed ours would again be a land of opportunity, the opportunists at PR firms were listening. On the inside track was the Washington-based consulting firm of Black, Manafort, Stone and Kelly, which advised presidential aspirants Reagan, George Bush, and Kemp, and whose ex-partner Lee Atwater parlayed Willie Horton and the Pledge of Allegiance into a presidency for Bush and the Republican National Committee chairmanship into a position for himself.
After helping to mastermind both Reagan-Bush campaigns, BMS&K was hot. Offering access to Republican officeholders, the firm won six-figure lobbying contracts to polish the image of the Philippines’ Marcos and the Bahamas’ drug-tainted Pindling administrations.
But BMS&K’s balance sheet really took off when it caught a whiff of HUD’s carcass.
In 1986, according to published reports, BMS&K partner Paul Manafort, another top campaign strategist for George Bush, met with Sam Pierce’s top aide, Deborah Gore Dean, and former HUD official Laurance Gay, who was by then on the BMS&K payroll. The subject was a 326-unit low-income housing development in Seabrook, New Jersey, which local officials had rejected as wasteful and unnecessary. Within a week, HUD overruled the locals and awarded $31 million in federal subsidies to the project’s developer, CFM Corporation, which proceeded to pay BMS&K $1000 for each of the 326 apartments. Although not an unusual move for HUD, this time the cronyism was particularly incestuous. A one-third interest in CFM Corporation is held by none other than Paul Manafort.
Manafort’s friend Deborah Dean emerges as the Oliver North of HUD. Although she graduated 507th in a Georgetown University class of 509, Dean rapidly made up for her academic performance with pedigree. Her father was chairman of the Atomic Energy Commission, her mother the paramour of Nixon attorney general John Mitchell, and her uncle a Maryland gubernatorial candidate.
Mitchell, who died in November, had served 20 months for Watergate crimes. But despite the jail time, his influence had remained intact. Before passing away, Mitchell landed Deborah Dean on the federal express track.
By age 34, Dean was Pierce’s right-hand woman. He even recommended her for assistant secretary of HUD. But Pierce’s opinion of Deborah Dean took a 180-degree turn when he was called to testify before the House Government Operations Committee, chaired by Congressman Tom Lantos (D-California), which began investigating HUD in April. If Pierce is now to be believed, Republican insiders had charmed Dean, and not himself, into shoveling millions in HUD low-income housing funds to developers, one of whom paid former attorney general Mitchell $75,000 for consulting services.
When Dean was called before the Committee, she took the Fifth. And like former lieutenant colonel North, she wants immunity before she testifies. As for Sam Pierce, contrary to reputation, he did more than trim his budget, accumulate frequent-flier miles, and watch soap operas.
As first reported by the Journal, in 1985 Pierce and his aides funded a multi-million-dollar project in Durham, North Carolina, that had been pushed by Durham mayor Charles Markham, one of Pierce’s former colleagues at a New York law firm. Besides cronyism, the Durham affair is a showcase for the revolving door between government and private industry.
Pierce had told federal housing commissioner Shirley Wiseman he wanted the project funded, notwithstanding concerns that the proposed site was next to active train tracks and was used to store sulfuric acid and cyanide. Over Wiseman’s objections, HUD awarded the developer, Myerson/Allen & Company, of Boston, a $2.3 million urban development grant and $11.5 million in rent subsidies. Wiseman resigned in protest.
The project’s principal advocates were Markham, himself a HUD official in the Nixon administration, and Louis Kitchin, a top adviser to the Reagan-Bush campaigns, who earned $25,000 for helping Myerson/Allen. Their supporters at HUD included Deborah Dean and Assistant Secretary Alfred Moran.
Moran went into private legal practice in 1986 with fellow former HUD official Lynda Murphy, who then happened to be bond counsel for Myerson/Allen for the Durham project; she was also a close friend of Deborah Dean. Furthermore, prior to leaving HUD, the Journal reports, Moran had signed off on a unique policy waiver that allowed Myerson/Allen to add HUD rent subsidies to its own cash flow in establishing its equity base. Without the waiver, the Boston developer would not have qualified for HUD funding because of insufficient capital reserves.
The toxic chemicals were dealt with similarly. This time the rule waiver was authorized by Janet Hale, who now claims Deborah Dean pressured her into signing on Hale’s first day as Shirley Wiseman’s successor. Morton Myerson, spouse of Massachusetts State Representative Eleanor Myerson (D-Brookline), told the Phoenix that since his retirement in 1985 from Myerson/Allen, the company has been fully owned by his former partner, John Allen. Myerson, who says he currently has no financial interest in the Durham project, added that in his extensive dealings with HUD over a 25-year period, its leadership during the Reagan administration was “easily the most corrupt and worst I ever encountered.”
Because of the discrepancies between his testimony and that of Wiseman and Hale, Pierce is being recalled by Lantos’s committee. Under oath, Pierce is likely to be asked the following.
· Why Island Park, Long Island, the 97 percent white hometown of Senator Alphonse D’Amato, a fellow New York Republican, received six times its just share of community-development funds while Pierce was running HUD.
· Why those who purchased HUD-subsidized Island Park homes for $40,000 to $45,000 include D’Amato’s cousin and the son of Geraldine McGann, a village board member named regional HUD administrator after lobbying by D’Amato.
· Why minority families with incomes under the stated $30,000 limit were denied access to the same homes, one of which has been resold for $270,000.
· Why, after meeting with then DRG, Inc., legal counsel Carla Hills, Ford-administration HUD secretary and currently the US trade representative, Pierce waived restrictions on mortgages HUD could co-insure with DRG, a Washington insurance firm, imposed because of past DRG abuses. Those transgressions have since multiplied and now are estimated to have cost the co-insurance program several hundred million in mortgage defaults.
· Why, as the New York Times reports, a Waterbury, Connecticut, developer who paid BMS&K $47,000 to help secure federal rent subsidies was told by a BMS&K housing consultant that the money went to the Republican National Committee “for funds to elect the president.”
Conjuring up Watergate visions may seem far-fetched, but the comparison is lent credence by one former HUD official’s claim that Deborah Dean was ordered to steer contracts toward BMS&K as a payoff for its role in Republican presidential campaigns.
But like the scene when the light goes on in a roach-infested kitchen, the HUD scandal offers more than anything else a unique glimpse of the Reagan Revolution in action. The tragedy of it is that the taxpayers are footing the bill, and that HUD was plundered while homelessness became an American institution.