A damning new report from a federal watchdog shows that 19 state housing finance agencies wasted millions of dollars that should have gone to struggling homeowners as part of the government’s Hardest Hit Fund program.
The report, published Friday by the Office of the Special Inspector General for the Troubled Asset Relief Program, showed that SIGTARP’s investigation found that the all 19 of the state housing finance agencies that participated in the Hardest Hit Fund collectively wasted $3 million on items like barbecues, steak and seafood dinners, gift cards, flowers, gym memberships, employee bonuses, litigation, celebrations, and cars, instead of using the money to help struggling borrowers.
The Hardest Hit Fund was created in 2010 and is designed to help state’s housing finance agencies assist struggling homeowners and help stabilize neighborhoods in many of the nation’s hardest hit communities, as part of TARP.
The program initially set aside $7.6 billion for those communities, but last year, the Department of the Treasury announced that it was committing an additional $2 billion to the Hardest Hit Fund.
The money in the Hardest Hit Fund program went to state housing agencies in Alabama, Arizona, California, Washington, D.C., Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, North Carolina, New Jersey, Nevada, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee.
According to SIGTARP’s report, the Hardest Hit Fund program established significant guidelines around what the state agencies could do with the money they received from the Treasury.
Specifically, all expenses charged to TARP by the state agencies must be “necessary” to facilitate loan modifications. The SIGTARP report provides more detail on how the payment structure works.
“Treasury’s contracts with the state agencies administering HHF also included a schedule of permitted expenses, which listed specific categories of necessary expenses and dollar limits,” SIGTARP said in its report.
But SIGTARP’s investigation found that each of state agencies “lumped unnecessary expenses into permitted expenses categories, elevating the risk of fraud, waste, abuse, and overpayment throughout the program,” in some form or fashion.
Included among those unnecessary expenses were meals and other expenses directly involving Treasury officials.
All in all, the SIGTARP report found that the 19 housing finance agencies charged $3 million in unnecessary charges to TARP.
As SIGTARP notes in its report, some of the expenses are minor, including TARP gift cards for employees, TARP barbecues, TARP flowers, TARP gym memberships, and TARP balloons, but others were significant.
For example, Rhode Island charged to TARP “hundreds of thousands for the construction of a customer center even though it is also used for non-HHF purposes—years after billing TARP for the build-out of an office in 2010,” the report stated.
The SIGTARP report lays out some of the other “wasteful” spending by the housing finance agencies, including:
North Carolina Housing Finance Agency. $107,578 for barbecues with Treasury employees, parties, celebrations, Visa gift cards, flowers, restaurant outings including steak and seafood dinners, gifts, gym memberships, regular employee meals, and employee cash bonuses, customized Lands’ End shirts, and a CVS gift card to recognize new HHF funding in 2016.
Rhode Island Housing. $1,031,210 for a new customer center with a new kitchen and new furniture in 2016, marketing, systems and rent that were fully charged to HHF but also used for other purposes, backdated “rent” for three years when the HHF program was closed, and a monthly employee payment to defray transportation costs.
Nevada Housing Division. $43,497 in bonuses, of which nearly all went to the chief executive officer who was later terminated, and employee picnics.
Florida Housing Finance Corporation. $106,774 in bonuses approved by the now terminated executive director. Gift certificates to employees and a barbecue.
District of Columbia's Housing Finance Agency. $258,333 to prepay for five years of avoidable online storage access and data two years after the HHF program was closed to homeowner applications.
Illinois Housing Development Authority. $98,305 in employee cash retention awards. HHF funds were also spent for lunch at a pizza restaurant to “to celebrate getting new HHF funds and an employee’s upcoming wedding.”
Alabama Housing Finance Authority. A TARP barbecue with Treasury employees Visa gift cards, and fruit baskets.
Kentucky Housing Corporation. Picnic with food trucks, an employee gelato outing, catered lunches with Treasury employees.
Ohio Housing Finance Agency. More than $13,000 in events with housing counselors, including admissions to three zoos and catering.
South Carolina State Housing Finance and Development Authority. An executive’s use of a car for more than four years
But the SIGTARP report doesn’t only hold the state agencies responsible for the wasteful spending.
SIGTARP also chides the Treasury for not doing enough to prevent the issue from happening.
“Treasury did not hold state agencies accountable to the requirement in Treasury’s contract that expenses must be necessary for the specific services in HHF,” SIGTARP wrote in its report. “Treasury regularly reviewed state agency expenses, but only on a small sample basis with minimum dollar thresholds.”
In a statement, SIGTARP’s Christy Goldsmith Romero did not mince words either.
“Congress did not authorize TARP dollars for barbecues, steak and seafood dinners, gift cards, flowers, gym memberships, employee bonuses, litigation, celebrations, cars, and other unnecessary expenses of state housing agencies, but those are some of the charges SIGTARP’s forensic analysis uncovered,” Goldsmith Romero said.
“SIGTARP previously reported on scores of people who earn under $30,000 a year, but were turned down for the Hardest Hit Fund. Now we find that some state housing agencies are more willing to keep TARP dollars for themselves than distribute it to low-earning homeowners, a violation of TARP contracts and inconsistent with TARP law,” Goldsmith Romero continued.
“With more than $1 billion to be spent on HHF administrative expenses, the mindset must change at state agencies and Treasury. Otherwise taxpayers will continue to pay more for these services than is necessary,” Goldsmith Romero added. “TARP is not a source to fund state agency’s general operations, boost state employees’ morale, or throw catered barbecues when Treasury employees visit. TARP is not a windfall.”
SIGTARP concludes its report by calling for the Treasury to recover the $3 million in wrongful spending from the housing agencies.
“This report should deter future unnecessary spending when state agencies can see that other state agencies modify loans in HHF without charging TARP for these same expenses,” SIGTARP said. “However, the responsibility to stop TARP spending on unnecessary expenses rests with Treasury.”
In a response from Treasury that was included in the report, the department said that it agrees that the Treasury should recover the amounts expended in violation of program requirements.
For a look at the full SIGTARP report, click here.