You are the Inspector General of HUD in 1999. Your old friend, Jerry O’Shea of the Brooklyn Tenants Council, called you two months ago to say that he has received some puzzling complaints. Tenants are telling him that they live in buildings owned by Helpline Soul Rescue Ministries, a not-for-profit organization that has qualified for federal guarantees under HUD’s 203k program for their mortgage loans on more than 100 buildings. The 203k program guarantees mortgage loans taken out in order to buy and improve marginal buildings to enable them to provide decent and viable housing. The tenants say, however, that not only are the buildings not being renovated, they are not even being provided with heat or hot water or basic repairs.
At your request, your assistant has done a little digging as to one such building, just as a sample. 625-15 Essex Avenue in Brooklyn, a four-family building, has 612 housing violations, including exposed wiring, rats, roaches, a broken toilet, and holes in the ceiling. Gennie Phillips, the president of Helpline, has said that she had little experience in housing and was misled by the realty company, Tri-Metro Realty Corporation, which was supposed to rehabilitate and manage the buildings. Most of the $250,000, from the 203k loan, she said, went to Tri-Metro, to pay for these services, leaving a small administrative fee to cover Helpline’s overhead. She said that Tri-Metro encouraged her to have Helpline buy the building three years ago, and led her to believe that with increased rent proceeds from the building which would result from filling vacant apartments once the building was improved, she would be able to repay the $250,000 mortgage loan. Tri-Metro also supplied the expert who provided the appraisal needed for the mortgage loan and its guarantee from HUD. Michael Fox, a vice president of Mortgage Lending of America (MLA), a mortgage loan company, issued the loan to Helpline. Phillips said, however, that maintenance and repair costs were much higher than she expected, resulting in Helpline’s ultimate default on the mortgage. Since the mortgage was guaranteed, though, HUD reimbursed MLA for the amount of the loan.
Your assistant pointed out at least one apparent anomaly: according to the mortgage files, the building was appraised for $200,000, which enabled HUD to approve the initial mortgage loan guarantee for $250,000. However, similar buildings in the area typically sell for about $130,000.
New York alone accounts for 35 not-for-profit organizations involved in the 203k program. Nationwide, HUD insured $400 million in such loans by 1996 and $3.6 billion worth by 1998. In the past few weeks, your staff has received complaints similar to O’Shea’s complaint from various parts of the
country.
Explain the problems faced by the tenants at 625-15 Essex Avenue. Don’t restate facts: explain your theory as to WHY they are facing those problems.
Summarize your recommendations to the Secretary of HUD and to Congress.
Do you anticipate any political problems in response to your report and/or your recommendations?
Similar to your previous “You are the IG” assignments, the minimum word count for this assignment is 750 and this assignment is due on Saturday, March 12
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