Audit a Case Study in HUD's 'Revolving Door'
Sep. 23, 1989
WASHINGTON (AP) _ When government auditors in May 1988 asked Benton Mortgage Co. President Thomas Ford whether he knew an agency official named Deborah Gore Dean, he responded that he ''had been introduced to her.''
Six months later, the Department of Housing and Urban Development auditors traveled to Tennessee to brief Benton officials on their critical findings. They encountered a familiar face.
It was Deborah Gore Dean, then a privately employed housing consultant.
Ms. Dean, the former top aide to HUD Secretary Samuel Pierce, objected on the spot to the strong and harsh language used in various portions of the report,'' one auditor wrote in his notes.
The notes are among boxes of working papers used to compile the audit. The documents, made available to The Associated Press, provide a case study of the ''revolving door'' at HUD that agency and congressional investigators believe contributed to scandals during the Reagan administration.
Ms. Dean is just one of more than a dozen former HUD officials who had dealings with Benton, a major lender in HUD programs now facing an FBI investigation of its conduct.
Some of the former HUD officials work at Benton, others are consultants to the firm and others still were developers who got financing through the Knoxville lender.
The auditors concluded that three former HUD officials, including Ambassador to Switzerland Philip Winn, reaped millions in ''unjustified profits'' by using their knowledge of HUD rules to create ''paper'' development and construction companies to increase HUD subsidies.
The former officials often financed their projects through Benton, which has handled more than $2 billion in HUD financing in the past 25 years.
The federal investigators reviewed 14 of the more than 250 HUD projects in which Benton has participated, and found in none of the 14 did the company use prudent underwriting practices.
In fact, the report said many of the properties were appraised by Benton at exorbitant levels, allowing the company to reap larger fees on its HUD-backed mortgages.
The audit recommended administrative sanctions against Benton. The company has repeatedly denied any wrongdoing, saying it received HUD clearances for items questioned by the auditors.
Still, the working papers indicate that Benton officials made it no secret that they retained former HUD officials to win favors at the agency.
Ford told the auditors Benton retained Washington attorney Lynda Murphy, a former HUD official and a close friend of Ms. Dean's, ''when Benton needed a waiver from HUD,'' according to the working papers.
Michael Karem, another former HUD official who occassionally worked for Benton, ''is paid to do waivers,'' Ford told the auditors, according to their notes.
Half the 14 Benton projects reviewed received waivers, in most cases permission to charge the maximum allowable rents in HUD projects involved in a rehabilitation program. Since low-income tenants pay only a fraction of their income as rent, higher rents mean higher costs for HUD.
While Murphy, Karem and other former HUD officials were helping Benton and developers of projects it financed win waivers, another former HUD official was being called on by the company to appraise property.
The auditors found it peculiar that Benton on five occassions hired a Washington-based appraiser to review properties located in the South and Southwest, because of the higher fees for travel.
The auditors, according to their notes, said they could find no reason for hiring the appraiser, a former HUD official, ''unless the distant firm gave the mortgagee the appraisal value that it wanted for the project.''
The 14 projects reviewed participated in HUD's Section 8 Moderate Rehabilitation Program. A nationwide audit of that program triggered the HUD investigations.
In that report HUD's inspector general found that former agency officials appeared to have received special treatment, as well as donors to a charity that a ranking HUD official helped found.
Winn and partners Philip Abrams and J. Michael Queenan were developers or consultants on many of the 14 projects reviewed, increasing their profits by setting up development and contracting companies that the auditors said were in most cases disbanded after a project was completed. In essence, the Winn group made profits as builders and developers of projects in addition to their profits as owners.
When not involved in the ownership of a Benton-financed project, Queenan often served as a consultant, as did a partner, former HUD official Ronny Mahon.
Included in the audit papers are canceled checks showing Queenan made at least $216,000 in consulting fees from Benton; Mahon, $363,578.
Also among the canceled checks are a handful of Benton donations to FOOD for Africa, a charity that former HUD Assistant Secretary Thomas Demery helped establish. It was Demery, who was in charge of most housing programs, who granted most of the waivers Benton got on the audited projects. The canceled checks to FOOD total $19,000.
''All expenses appear to be legal, however, contributions to an organization which Tom Demery ... is secretary is a strong indicator that contributions are made if you want to be involved in HUD's mod rehab program,'' the auditors wrote.
They also found that Benton contributed $15,000 to the ''President's Dinner'' a fund-raiser to help former President Reagan buy a house in California.
''The $15,000 payment for the 'President's Dinner' is another indicator of mod rehab units being awarded based on political consideration,'' the auditors said.