Integrity and Reforms v Fiasco and Embarrassment

Today, Andrew Cuomo and Mark Green have something in common: they’re both focusing on Andrew Cuomo’s record at HUD. Here

Today, Andrew Cuomo and Mark Green have something in common: they’re both focusing on Andrew Cuomo’s record at HUD.

Here is Andrew Cuomo’s new commercial – airing, according to the campaign, in “major media markets” – which talks in part about how, as part of “Bill Clinton’s cabinet, he brought integrity and reforms to a troubled agency, targeting fraud and abuse.” (Not incidentally, the spot also includes a picture of Cuomo looking perfectly happy next to Eliot Spitzer.)

And here’s what appears to a length rebuttal released by the Green campaign as part of the launch of his self-labeled “comparison campaign” with Cuomo’s “mismanagement and mediocrity” as housing secretary. The campaign-within-a-campaign to tear down Cuomo’s public record began today with Green standing outside a battered old building in Harlem and calling his opponent’s resume a “fiasco” and an “embarrassment.” (Full, long, release after the jump.)

This is not an entirely surprising development. Green needs to make up ground. Cuomo, presumably, has decided that he’s happy where he is.

But for the purposes of determining its impact on the AG race – and leaving aside, for the moment, the more difficult job of fairly assessing the substance of it – whose version is more believable?

— Josh Benson

UPDATE: From Wendy Katz at the Cuomo campaign:

“We will leave it to the voters to decide whom to believe about Andrew’s record of results—the mean attacks of the perennial politician or the words of President Bill Clinton: ‘During your four years as Secretary, you led one of the most dramatic and successful reforms of a federal agency in modern U.S. history, with HUD going from the bringk of elimination to the forefront of the struggle for justice in America.'”


Stands in front of boarded up Harlem building to begin
month-long contrast of his successful record of fighting for
New Yorkers in two attorney-general like offices with Andrew Cuomo’s “fiasco” and “embarrassment” in office.
“An Attorney General should fight fraud, not preside over it.”

New York, NY – “Now that the State Election Board this week has certified that four Democrats are on the ballot, I am today beginning The Comparison Campaign: Why Democrats Deserve an Experienced People’s Lawyer as Attorney General and not a Typical Politician with a Flawed Record,’ ” said Mark Green, as he stood in front of a boarded-up brownstone in Harlem, a location emblematic of the problems surrounding Andrew Cuomo’s management of the HUD’s 203(k) program.

“Andrew Cuomo has many political advantages in this contest, except the one that voters care about most — who has the best record and agenda to effectively serve as Attorney General,” Green added. “My main rival wants to run on his last name and hide from debates and comparisons. But a campaign is a comparison. And since he repeatedly says that his record at HUD qualifies him to be Attorney General, I had to study that claim – which turns out to be a gross exaggeration. When major newspapers and independent authorities describe his record on the 203(k) program as a ‘fiasco’ and an ’embarrassment,’ it’s time to question what qualifies him to succeed Eliot Spitzer.”

City Limits, a respected periodical covering public policy in non-profit organizations, put it this way, “In Harlem, the abandoned brownstones are…the biggest Federal housing scandal to hit the City in years.”


Green continued, “I have accepted six debates around the state – and Andrew Cuomo only one of the six. So over the next weeks I will bring the debate directly to the people, who deserve to compare us and decide who could best do the job as our next Attorney General.”

“The Comparison Campaign therefore has two premises. First, 35 years of experience as a People’s Lawyer in and out of public office uniquely qualifies me to be Attorney General, especially my nearly 12 years fighting fraud and corruption in two attorney-general like positions. Second, Andrew Cuomo’s qualification as a former housing secretary is both largely irrelevant to the job of Attorney General, while his record fighting fraud is also marred by mismanagement and mediocrity.”

The 20 comparisons began with Green highlighting his record fighting home improvement fraud when, as NYC Consumer Affairs Commissioner, he increased restitution to defrauded homeowners by 800%, and filed 31 lawsuits against unlicensed contractors as compared to only one in the previous 20 years. “Because it was then the #1 consumer problem, I made it my earliest initiative – and shrank housing repair fraud.”

Cuomo’s oversight of HUD’s 203(k) Home Rehabilitation Mortgage Insurance Program, in contrast, was referred to by The New York Times as a “fiasco” and an “embarrassment for the Department of Housing and Urban Development and its secretary, Andrew M. Cuomo.”

The 203(k) program was created in 1978 to bring stability to low-income neighborhoods. Its goal is to foster homeownership in low-income neighborhoods. Lenders, nonprofits and rehabilitation consultants are all subject to approval by HUD. It allows borrowers to finance both the purchase of a house and rehabilitation costs through a single mortgage. The program was open only to owner-occupiers or nonprofit groups. Much of the funding went to New York City entities.

The program created a wave of fraudulent activity in New York City and around the country. Shady speculators purchased brownstones and other buildings, obtained inflated appraisals and ‘flipped’ the properties at inflated prices to nonprofits and other owners eligible for 203(k) loans. But many of the nonprofits staggered under their mortgage payments, leaving the properties in shambles. Often, the nonprofits were thinly disguised fronts whose sole purpose was to rip-off taxpayers and potential homeowners. The fraud cost taxpayers hundreds of millions of dollars, and left hundreds of brownstones in Harlem and Brooklyn uninhabitable.

The nonpartisan General Accounting Office reported in June 1999 that “HUD is not adequately overseeing key aspects of the 203(k) program.” According to the GAO, Cuomo’s HUD failed to: (1) ensure that lenders followed HUD’s guidelines, (2) review the loans, and (3) properly train and monitor inspectors.


Moreover, HUD facilitated fraudulent appraisals by neglecting to review appraisals in violation of its own rules. Also, in 1999, Cuomo rejected a proposed rule that would ensure that potential homebuyers were given a copy of their appraisal 15 days before closing. And when housing inspectors blew the whistle on corrupt appraisals and recommended that HUD randomly appoint appraisers — rather than let mortgage lenders choose these crucial people — HUD ignored them.

Eliot Spitzer, who in 2000 sued one of the corrupt non-profits Helpline Soul Rescue Ministry for ripping off the 203(k) program, said at the time, “Because of this massive fraud, a program that should have helped stabilize low-income neighborhoods, instead only increased neighborhood blight and left tenants living in squalid conditions.”

According to the New York Times, in September 1995, HUD regulations specified that the 203(k) loans be awarded to groups with experience in providing housing. Yet, Spitzer noted that “although Helpline had no housing experience, it was able to access the loans through the federal Housing and Urban Development Agency’s 203 (k) program.”

Green also reviewed Cuomo’s attempt to save face after the scandal became public and threatened to become an issue in the 2002 Governor’s race. Just days before leaving office, Cuomo proposed an expensive deal for HUD to take possession of the brownstones involved in the fraud, and work with local community groups to repair them. At the time, Cuomo assured victims that his plan would be binding on the incoming administration. HUD later scrapped the proposal.

Mark Green said, “HUD’s 203(k) is a worthy program to rehabilitate buildings and provide low-income housing. All it needed was a competent watchdog to prevent fraud. Does this building look rehabilitated?”


I. Background of the 203(k) Program
• “The Section 203(k) program was created in 1978 to bring stability to low-income neighborhoods where absentee ownership is high. The program is unusual because it allows borrowers to finance both the purchase of a house and rehabilitation costs through a single mortgage. Otherwise, the buyer would have to get interim financing at high interest rates to buy the home, separate financing for the rehabilitation, and then permanent financing when the work was completed. A permanent conventional loan cannot be issued for more than a house is worth.” (NYT 11/26/00)
• “The program is open only to owner-occupiers or nonprofit groups, and its goal is to foster homeownership in low-income neighborhoods. Lenders, nonprofits and rehabilitation consultants are all subject to approval by HUD.” (NYT 11/26/00)
• Many of the nonprofit groups “did not have experience in providing housing and ultimately defaulted on the loans.” (NYT 12/10/00)
• The scams left “at least 450 New York brownstones in default and in worse condition than before.” (NYT 12/10/00)
• The program created a wave of fraudulent activity in New York City and around the country. “In the scam, first exposed by City Limits, crooked realtors bought small buildings, overappraised them and quickly ‘flipped’ the properties at inflated prices to nonprofits eligible for special loans from HUD. The federal agency’s 203(k) program helped those groups buy and renovate small, run-down buildings. But many of the nonprofits staggered under their mortgage payments, leaving the properties in shambles.” (City Limits 2/1/04)
• Of the nearly 600 properties purchased overall, “about half are vacant and half are occupied. Almost all of them are in foreclosure or are owned by HUD. Since January 1998, the city has found about 19,000 housing code violations at these properties and has spent more than $1 million on emergency repairs on the occupied properties.” (NYT 7/6/01)
• “Cuomo declined to place a dollar figure on the fraud, but his aide … estimated the ultimate cost of each mortgage at up to $400,000. With 465 properties linked to the fraud, that would place the cost at up to $186 million. That estimate does not include the future cost of renovations, which will vary from building to building.” (Newsday 1/18/01)
A. Cuomo’s Last Minute Bailout Proposal in Final Days of Office
• “The mortgage fiasco has been an embarrassment for the Department of Housing and Urban Development and its secretary, Andrew M. Cuomo. In announcing its response to the scandal just days before leaving office, Mr. Cuomo, a likely candidate for governor of New York next year, said he wanted to turn a ‘tragedy’ into an opportunity.” (NYT 1/18/01)
• Cuomo’s last minute plan called for HUD to take possession of the brownstones as soon as possible and assume the cost of repairing them. The repairs were to be managed by local non profit groups which would then sell unoccupied properties to families to low-income families. (NYT 1/18/01).
• Cuomo’s bail-out was, in essence, what the program was supposed to do in the first place. (New York Post 4/5/01)
B. Bailout Failure
• Problems with Cuomo’s plan were evident from the initial announcement:
• “The remedy fashioned by Mr. Cuomo and his agency’s partners faces some hurdles. Although the brownstones are in default, nearly all of them are still owned by the nonprofit agencies, which have been reluctant to turn them over to HUD and avoid foreclosure.” (NYT 1/18/01)
• “Then, too, there is the question of whether the Bush administration will honor HUD’s 11th-hour commitment, as outlined in a memorandum of understanding between the agency and the nonprofit groups.” (NYT 1/18/01)
• But Cuomo assured the public that his bail out and agreements with community groups would be binding on the incoming administration. (NYT 4/2/01; New York Post 4/5/01)
• In May 2001, HUD announced it had “scrapped a costly plan that was engineered by Andrew M. Cuomo … as a remedy for a vast federal home mortgage scandal.” The revised plan “will spend an estimated $80 million to make the buildings habitable and them sell them at market rates to individuals or nonprofit groups. They said care would be taken to find responsible buyers.” Cuomo was running for governor at the time. A former aide called the plan “penny-wise and pound-foolish” and said that HUD “put politics ahead of sound policy.” (NYT 5/11/01)
• “The new plan was immediately denounced by the well-established community development groups that had hammered out the agreement with … Mr. Cuomo in the waning days of the Clinton administration. (NYT 5/11/01)
A. Ignored Early Warnings
• “As far back as 1996, before Cuomo became HUD secretary, [HUD Inspector General Susan] Gaffney had been warning that the agency’s 203(k) loan program, which backs mortgages for low-income people to buy single-family homes, posed a great risk of fraud.” (Newsday 1/14/01)
• “In 1997, Housing and Urban Development Secretary Andrew Cuomo announced a wide-ranging effort to streamline the massive federal housing agency and make it more efficient. Almost immediately, a steady stream of warnings began to emanate from HUD’s Office of Inspector General. Cuomo’s plan, Inspector General Susan Gaffney said, would reduce oversight and make a billion-dollar program that provides loans to fix up single-family homes ‘highly vulnerable’ to fraud.” (Newsday 1/14/2001)
B. Ineffective Oversight
• “[A]s early as September 1995, [HUD] regulations specified that the loans be awarded to groups with experience in providing housing.” (NYT 11/26/00)
• According to a June 1999 GAO report: “HUD is not adequately overseeing key aspects of the 203(k) program.”
o Guidelines not followed: “With respect to lenders, HUD’s Homeownership Centers do not adequately ensure that lenders are complying with the program’s guidelines.” (GAO Report, June 1999).
o No reviews of loans: “203(k) loans were not targeted for review to ensure that the lenders are properly administering them. … “In one center, HUD management made a conscious decision not to review 203(k) loans because it lacked trained staff.” (GAO Report, June 1999)
o Neglecting to train inspectors and consultants: “HUD does not properly train and monitor 203(k) home inspectors and consultants, who are responsible for designing and overseeing the home rehabilitation process.” (GAO Report, June 1999)
• HUD Allowed Fraudulent Appraisals By Rejecting Reforms And Failing to Enforce Its Own Policies:
o No review of appraisers: “The FHA is supposed to review 10 percent of all appraisals to ensure that homeowners and taxpayers aren’t being cheated – but sources familiar with the agency say such reviews rarely take place. ‘There just isn’t the staff or the know-how to pull off that kind of thing,” says a former official who asked not to be identified.'” (Mother Jones, July/August 2000)
o Rejected disclosure rule (potentially for political reasons): “[S]ecretary Cuomo failed to institute a key reform that could have protected homebuyers, charges William Sentner, president of the American Guild of Appraisers. In June 1999, HUD proposed that all FHA mortgage lenders give potential homebuyers a copy of the full appraisal 15 days before closing. A few months later, the final rule was published, and it required that lenders give borrowers only a summary of the appraisal, just five days before dosing. ‘The Mortgage Bankers Association of America and the National Association of Realtors had gotten a hold of Cuomo,’ concludes Sentner. ‘They made sure consumers had no time to ask questions. They didn’t want scrutiny.'” (City Limits, September/October 2002)
o Rejected random appraiser selections: Private inspectors, such as whistleblower Jim Hawthorne, even urged HUD to use randomly assigned appraisers and inspectors, rather than letting the mortgage companies pick those crucial people. In the New York transactions, prosecutors say, the same person was either the consultant or inspector for the same company–Mortgage Lending of America, a Long Island lender–in about 200 property deals. (Village Voice, 1/23/01)
V. Newspaper Commentary
• On Fraud: “Although Mr. Cuomo has talked a great game about his revamping of H.U.D., he was not able to keep his own agency from being swindled. Instead of giving speeches, staging superficial photo ops and going to cocktail parties in Washington, D.C., he might have done better if he had stayed in his office and kept an eye on the details. Does he understand the damage his agency has done to the residents of Harlem who must live amidst the decaying buildings?” (The New York Observer editorial, 1/15/01)
• Cuomo’s embarrassing fiasco: “The mortgage fiasco has been an embarrassment for the Department of Housing and Urban Development and its secretary, Andrew M. Cuomo.” (NYT 1/15/01)
• Cuomo “oblivious”: “And under former HUD Secretary Andrew Cuomo, the department reportedly was oblivious to all the pocket-lining going on. HUD allegedly failed to adequately check the backgrounds of the nonprofits involved. Not only were proper-ties flipped, but repairs were not made. And hundreds of buildings are now in default.” (New York Daily News editorial, 5/14/01)
• Bail-out plan political: “HUD, under Cuomo, messed up big time by letting itself be defrauded in a multimillion-dollar mortgage program. Why should the taxpayers pay to wipe the egg off the former secretary’s face as he undertakes his gubernatorial run? … While HUD was a victim in the fraud, the General Accounting Office accused Cuomo’s agency of “not adequately overseeing key aspects of the program.” … Not the kind of management record that any gubernatorial candidate wants hanging over his head … And it’s hard not to suspect that the [bail out] plan put Cuomo’s political career ahead of any serious housing concerns.” (New York Post editorial, 4/5/01)

Integrity and Reforms v Fiasco and Embarrassment