three decades of politics and failed policies at hud · 2016. 10. 20. · introduction...

The U.S. Department of Housing and UrbanDevelopment has long been plagued by scandals,mismanagement, and policy failures. Most recent-ly, HUD’s subsidies and failed oversight of FannieMae and Freddie Mac helped to inflate the hous-ing bubble, which ultimately burst and cascadedinto a major financial crisis. Given this giant policy blunder, now is a good

time to review the many failures in HUD leader-ship over the years. This study discusses howHUD officials operate within a highly politicizedenvironment, which is heavily influenced by thegroups that HUD subsidizes and regulates,including the housing industry, financial insti-tutions, and community activists. At the same time, HUD leaders often put their

personal goals ahead of those of the general public.Recent HUD secretaries have focused on gainingprivate benefits while doing favors for businessinterests and political insiders. These leadershipfailures are illustrated in this study by profiles offour recent HUD secretaries: Samuel Pierce in the1980s, Henry Cisneros and Andrew Cuomo in the1990s, and Alphonso Jackson in the 2000s. These public officials touted seemingly noble

goals while pursuing personal and political agen-das that ended up harming taxpayers and theeconomy. Even if there were a need for federalhousing programs, experience has shown thatHUD could not implement such programs with-out mismanagement, cronyism, and other abuses.Federal housing policies illustrate broader

realities of government intervention. When mak-ing decisions, policymakers usually have self-interested goals that conflict with the broaderinterests of taxpayers and the general public.Furthermore, their visions for improving societywith federal programs usually backfire becauseof the distortions that those programs create inthe economy. Housing was traditionally a private concern,

and it should be made so again because govern-ment involvement has done great damage. Alas,policymakers have not learned this lesson evenafter the recent housing boom and bust. Sincethe housing and financial meltdowns, federalintervention in housing markets has substantial-ly increased, thus paving the way for furthertroubles down the road for taxpayers and theeconomy.

Three Decades of Politics and Failed Policies at HUD

by Tad DeHaven

_____________________________________________________________________________________________________

Tad DeHaven is a budget analyst at the Cato Institute and researcher for www.downsizinggovernment.org.

Executive Summary

No. 655 November 23, 2009

367920_PA655_1stClass:PaMaster.qxd 11/6/2009 2:57 PM

Introduction

Mismanagement, financial abuses, andfailed policies have resulted in many scandalsat the $65 billion Department of Housingand Urban Development over the decades.Numerous HUD officials have enrichedthemselves or conferred benefits on peoplewith political and financial connections. Thisstudy looks at such leadership failures duringthe tenures of four HUD secretaries underthree recent presidents:

• Samuel Pierce, 1981–1989, Ronald Rea-gan’s HUD secretary

•Henry Cisneros, 1993–1997, Bill Clinton’sfirst HUD secretary

•Andrew Cuomo, 1997–2001, Bill Clinton’ssecond HUD secretary

• Alphonso Jackson, 2003–2009, GeorgeW. Bush’s second HUD secretary

One reason that HUD has been scandal-prone is that it administers such a large andcomplicated array of subsidies and regula-tions. Many HUD programs involve policy-makers in federal, state, and local govern-ments. At the same time, HUD programs aid alarge range of private interests, includinghome builders, realtors, financial companies,and community groups. Until recently, HUDwas also charged with overseeing the vastfinancial activities of Fannie Mae and FreddieMac. The resulting range and complexity ofHUD programs has created many opportuni-ties for people in the public and private sectorsto take personal advantage.Secretary Pierce’s tenure was so scandal-

prone that it led to 17 criminal convictions,including convictions of three former HUDassistant secretaries. Secretaries Cisneros andCuomo ignored the economic risks created bytheir political strategy of increasing the homeownership rate. Alphonso Jackson oversaw theinflation of the housing bubble and then thebust, while using his office to reward friendsand political allies. HUD activities sadly illus-trate that the general public interest is often a

low priority for the people who create andadminister federal programs.

The Pierce Years, 1981–1989

President Ronald Reagan entered officepromising to downsize the government andreduce federal intervention in the economy.His administration sought to cut traditionalsubsidies for public housing and to focus onproviding more flexible housing benefits totenants. However, HUD reform was a low pri-ority of the Reagan administration, and thatdisregard contributed to the major scandalsthat enveloped the department during the1980s.Those scandals owe a lot to the misman-

agement and corruption of Samuel Pierce,Reagan’s HUD secretary for eight years. Amajor review undertaken by Pierce’s successorat HUD, Jack Kemp, uncovered “significantproblems” of fraud, theft, mismanagement,and influence-peddling in activities thataccounted for 94 percent of the department’sbudget.1 Estimated losses from this abuseranged from $2 billion to $6 billion.2

Pierce took a disengaged approach to HUD—often watching soap operas with youngeraides during work hours—and allowed HUDto become a “dumping ground” for politicalappointees who used their positions for per-sonal gain.3 He assigned a HUD staffer towork full-time on a book to be called “ThePierce Years,” which ended up as an 87-pageglossy pamphlet printed at taxpayer expense.4

Pierce enjoyed the perks of office—for exam-ple, taking five taxpayer-funded trade junketsto the Soviet Union, which resulted in very lit-tle business being generated.5

When Pierce did make hands-on manage-ment decisions, it often resulted in friendsand politically connected businesses gettingfavorable HUD treatment, as these examplesillustrate:

• Pierce backed a $4.5 million HUD grantto convert an aircraft carrier into a muse-um, a project that was championed by his

2

One reason that HUD hasbeen scandal-prone is that it

administers sucha large and

complicated arrayof subsidies and

regulations.


former law-firm clients. The grant wasapproved shortly after Pierce’s formerclient Larry Fisher met with Pierce tosolicit his help.6 Fisher was a wealthy realestate developer and a large Republicandonor.

• Pierce overrode the recommendations ofthe department’s top career officials topush through a project in Durham, NorthCarolina, that was sought by CharlesMarkham, the mayor of the city and a for-mer law firm associate of Pierce.7 The dealincluded a $2.3 million grant, $11.8 mil-lion in rent subsidies, and HUD-backedmortgage insurance.8

• Pierce helped his friend and RepublicanParty supporter, jazz musician LionelHampton, obtain a 20-year, $21 millionrent subsidy for a housing project inNewark, New Jersey.9

Those sorts of personal favors, however,were small potatoes compared to the systemat-ic abuses engineered by Pierce and his top assis-tants. One of the costliest scandals involvedHUD’s section 223(f) coinsurance program,which was kicked off in 1983 and was designedto rehabilitate multifamily housing units. Theprogram was lucrative for favored mortgagelenders—such as the Washington, D.C., firmDRG—but it put taxpayers on the hook for 85percent of the value of any losses on mortgageloans. The program put mortgage lenders incharge of overseeing the entire process—fromunderwriting to foreclosure and disposition—and it allowed them to collect excessively highfees. The end result of the program was that

participating lenders overmortgaged projectsin order to collect the high fees. In his book,HUD Scandals, former HUD official IrvingWelfeld writes:

By the middle of 1988, five years afterthe program was inaugurated, partici-pating lenders had coinsured 846 loans.The amount of the mortgages was $4.8billion. By 1998, led by the highest-flying firm in the business, DRG, the

program went off course—106 loans,having an outstanding principle and ac-crued interest amount of $700 million,were in default. The largest coinsurer inthe program, DRG, which had 272 coin-sured mortgages, contributed 79 de-faults and a half billion dollars in losses.The program was in free-fall descent—65 of DRG defaults had occurred in1988. By March of 1990 the dollar vol-ume of defaults had reached $1.6 bil-lion, and HUD was rushing to shut theprogram down.10

A year after the 223(f) coinsurance pro-gram was initiated, a mid-level HUD officialwarned in a memo, “This is the most fraud-prone system ever spawned by HUD, but wehave been overruled so many times in mat-ters of compliance that I have given up regis-tering protests.”11 Two years later, a regionalHUD administrator wrote to his superiors inWashington that he was “convinced thatfinancial problems of national proportionsare inevitable unless something is done.”12

However, the department’s political overseerswere not interested in such naysaying.In 1984, after HUD investigators deter-

mined that DRG was inflating appraisal val-ues of properties in order to collect higherfees, the firm’s activities were restricted. DRGpromptly hired a particularly powerful lob-byist to get the restrictions lifted: formerHUD secretary under Gerald Ford, CarlaHills, who would later serve as U.S. TradeRepresentative under George H. W. Bush. InMay 1985, a few weeks after meeting withHills and her team, Pierce lifted the restric-tions on DRG.Another scandal-prone program at HUD

during Pierce’s tenure involved the Section 8moderate rehabilitation program. “Mod-rehab” was launched in 1979 to financerepairs to housing units for rent to low-income tenants. The program originally con-tained a “fair-share” provision, which meantthat funding was awarded to state and localpublic housing authorities on the basis ofpopulation and demographics.

3

Those sorts ofpersonal favors,however, weresmall potatoescompared to thesystematic abusesengineered byPierce and his top assistants.


In 1984, Congress allowed HUD to waivethe fair-share provision and make allocationssubjectively by means of a panel consisting ofPierce’s executive assistant, the assistant secre-tary of housing, and the undersecretary of thedepartment. But as Pierce’s executive assistant,Deborah Dean, later told the Wall StreetJournal, “[Mod-rehab] was set up and designedto be a political program . . . I would have tosay we ran it in a political manner.”13Dean wasat the center of the abuse, and she was initial-ly sentenced to 21 months in prison on 12counts of corruption, bribery, and perjury in1994.14 Five of the counts were later reversedon appeal, and her sentence was eventuallyreduced to three years of probation, includingsix months of home confinement.15

Under the program, “a trove of rent subsi-dies, tax credits, and consulting fees, totalingmillions of dollars on each housing project,flowed to GOP faithful and their associates.”16

HUD became a sort of graduate school forethics-challenged officials to master the com-plexities of housing programs such as mod-rehab, and then join the private sector and usetheir connections at HUD to cash in.17

Using congressional testimony, HUDdocuments, and interviews, the New YorkTimes compiled a lengthy list of those bene-fiting from their political connections toHUD in the 1980s. Some earned substantialconsulting fees for persuading Pierce and histop aides to approve federal subsidies, where-as others used their connections to secureHUD subsidies for their own projects. Thefollowing is just a sampling:18

• Philip Winn, assistant secretary at HUD.Winn was a cofounder of the WinnGroup, which secured HUD backing fora housing project in Colorado. The WinnGroup received $133 million in federalrent subsidies and $29 million in federaltax credits.

• Philip Abrams, undersecretary at HUD.Abrams was a cofounder of the WinnGroup, and earned $100,000 in consult-ing fees from HUD.

• Lance Wilson, executive assistant to

Pierce. Wilson was a member of the WinnGroup, and was involved in five projectsthat secured $92 million in HUD subsi-dies. As vice president at the PaineWebberGroup, Wilson became an adviser toHUD on bond sales. He was convicted onone felony count in 1993.19

•Maurice Barksdale, assistant secretary atHUD. Barksdale received $300,000 inconsulting fees for helping with secur-ing HUD approval of eight or nine pro-jects.

•Michael Karem, deputy assistant secre-tary at HUD. Karem received $360,000for consulting on three subsidized pro-jects.

• James Watt, secretary of the interior.Watt received $420,000 for helpingclients secure subsidies for three HUD-related projects.

• Joseph Strauss, special assistant to Pierce.Strauss received $1.7 million in consult-ing fees for helping win HUD subsidiesfor various projects. He worked withJames Watt.

•Gerald Carmen, head of General ServicesAdministration. Carmen earned $2.3 mil-lion in the sale of tax credits for a subsi-dized project.

• Frederick M. Bush, leading fundraiser inthe George H. W. Bush presidential cam-paign. Bush received $600,000 for con-sulting on a dozen subsidized projects.

• Edward Brooke, former senator fromMassachusetts. Brooke received $183,000for consulting and legal work on twohousing projects.

In 1990, a report adopted unanimously bythe House Government Operations Commit-tee concluded, “At best, Secretary Pierce wasless than honest and misled the subcommitteeabout his involvement in abuses and fav-oritism in HUD funding decisions. At worst,Secretary Pierce knowingly lied and committedperjury during his testimony.”20 An indepen-dent counsel investigation into HUD activitiesunder Pierce’s watch was instituted in 1990and wrapped up in 1996. Pierce himself was

4

HUD became a sort of graduate

school for ethics-challenged

officials.


not indicted, based on his agreement to admitthat “he created an atmosphere at HUD thatallowed influence-peddling to go on.”21 In all,the independent counsel investigation intoHUD corruption on Pierce’s watch yielded 17convictions, including convictions of three for-mer HUD assistant secretaries. Reflecting on Pierce’s tenure, Irving

Welfeld writes, “Integrity of public processeswas replaced by partisan favoritism and thefragile bond of trust between the electorateand appointed officials was shattered.”22 Inreality, the “bond of trust” with federal poli-cymakers is an illusion. Many HUD pro-grams—and programs in other agencies—areoften just tools that officials use for personaland political gain. President George H. W. Bush’s HUD sec-

retary, Jack Kemp, spent much of his four-year tenure trying to rehabilitate the depart-ment’s sullied image. Kemp was a championof supply side tax cuts, but he was not veryinterested in restraining spending. Indeed,HUD’s budget increased substantially duringKemp’s tenure and his zeal for fosteringhomeownership would become a hallmark ofsubsequent administrations.

The Cisneros Years,1993–1997

In the Clinton administration, a primarymission of HUD was to increase home owner-ship rates, especially among minorities andlow-income families. That mission was carriedout through HUD subsidy programs andthrough the two government-connectedmortgage finance giants, Fannie Mae andFreddie Mac. In 1992, HUD was given regula-tory authority over these government-spon-sored enterprises (GSEs) in order to ensurethat they were “adequately capitalized andoperating safely.”23 At the same time, HUDwas given new leverage to push the two firmsinto greater lending for riskier “underserved”markets. We now know that HUD’s strategy ofencouraging riskier mortgages, which waspursued on multiple fronts during the 1990s,

helped to fuel the housing bubble and subse-quent crash in the early 21st century.Henry Cisneros served as President Bill

Clinton’s HUD secretary from 1993 to 1997,when he resigned to deal with allegations thathe lied to the FBI about payments he made toa former mistress. Cisneros plead guilty in1999 and was fined $10,000, avoiding a possi-ble prison sentence. Cisneros oversaw a politicized HUD that

mobilized to help fend off the Republicans,who gained a congressional majority in the1994 election. The resurgent GOP initiallysought to eliminate many departments andagencies as part of a plan to rein in federalspending and reduce budget deficits. HUDwas one of the Republican targets, anddepartment officials fought back in numer-ous ways to ward off proposed reforms.HUD held a series of “standing up for com-

munities” rallies, financed by taxpayers, whichencouraged local officials and special interestgroups to lobby against Republican budgetcuts. One piece of propaganda distributed byHUD’s New York office warned that the bud-get cuts “would dramatically expand Ameri-ca’s underclass” and that “thousands of fami-lies, many with children, would end uphomeless.”24 HUD sponsored a NationalTenants Organization convention in PuertoRico to defend the department. That eventwas so political that a HUD translator walkedout of the proceedings in protest.25 Accordingto HUD’s inspector general, an NTO officialresponded that “he really didn’t care whetherHUD translated or not because the point wasto get rid of Newt Gingrich.”26

Cisneros used HUD as a political tool, butwhen he left office he was lauded for theincrease in homeownership rates that occurredon his watch. Part of his apparently winningstrategy, Cisneros noted, was HUD’s “ability toconvince lenders, builders and real estateagents that there was money to be made in sell-ing housing to low- and moderate-incomeindividuals.”27 Part of this “convincing” in-volved HUD-initiated legal actions againstmortgage lenders who declined higher per-centages of loans for minorities than whites. As

5

HUD’s strategy of encouragingriskier mortgageshelped to fuel thehousing bubbleand subsequentcrash in the early21st century.


a result of such political pressure, lenders beginlowering their lending standards, which wasanother contributing factor to the housingboom and bust in the 2000s.28

A key weapon in the Cisneros arsenal wasthe Clinton administration’s changes to theCommunity Reinvestment Act. The CRA waspassed in 1977 and updated in 1995 to pres-sure lenders into making more loans to mod-erate-income borrowers by allowing regula-tors to deny merger approvals for banks withlow CRA ratings. Even complaints broughtby activists, such as the leftist group ACORN,were counted in a bank’s CRA rating. Under political pressure, banks began issu-

ing more loans to otherwise uncreditworthyborrowers while purchasing more CRA mort-gage-backed securities.29 As housing financeexpert Peter Wallison noted, “The mostimportant fact associated with the CRA is theeffort to reduce underwriting standards. . . .Once those standards were relaxed . . . theyspread rapidly to the prime market and tosubprime markets where loans were made bylenders other than insured banks.”30

Business Week columnist Peter Coy notedthat the Clinton “administration went to ri-diculous lengths to increase the nationalhomeownership rate. It promoted paper-thindownpayments and pushed for ways to getlenders to give mortgage loans to first-timebuyers with shaky financing and incomes.”31

The Clinton administration’s approach wasencapsulated by the 1994 National Home-ownership Strategy, prepared under Cisner-os’s direction. Here is an excerpt from theplan:

For many potential homebuyers, thelack of cash available to accumulate therequired downpayment and closingcosts is the major impediment to pur-chasing a home. Other households donot have sufficient available income tomake the monthly payments on mort-gages financed at market interest ratesfor standard loan terms. Financingstrategies, fueled by the creativity andresources of the private and public sec-

tors, should address both of these finan-cial barriers to homeownership.32

The thrust is clear: if people don’t have “cash”or “income,” the government will help themget a house anyway. In the political drive toincrease the home ownership rate, old-fash-ioned ideas such as individual responsibilityand the riskiness of real estate investmentwhere thrown by the wayside. Apparentlyembarrassed by this 1994 strategy document,HUD removed it from its website after thehousing bubble burst in recent years.Coy notes that the George W. Bush admin-

istration “continued the practices becausethey dovetailed with his Ownership Societygoals, and of course Congress was stronglybehind the push.”33 But it was the Clintonadministration that launched the all-out driveto put people into homes that they could notafford. That helped plant the seeds for thehousing boom and bust in the followingdecade, as financial expert Joseph R. Masonnoted:

The Strategy certainly helped somerenters achieve the dream of home-ownership. But the Strategy was alsofundamentally misused to extendmore credit to prime borrowers, fuel-ing home price inflation. That homeprice inflation led builders to buildever more developments, using creativefinancing to leverage their bets onhome price appreciation in the bubbleenvironment, ultimately resulting inrecord foreclosures in the present mar-ketplace.34

Cisneros planted another seed for thehousing bubble and its subsequent burst byputting Fannie Mae and Freddie Mac underconstant pressure to facilitate more lending to“underserved” markets.35 While Cisneros’sown HUD administration acknowledged thatmortgages financed by Fannie and Freddie in“underserved” areas have a higher risk ofdefault, it did not see that “there need be anysafety and soundness impediment” to the pol-

6

The thrust isclear: if people

don’t have “cash”or “income,” thegovernment willhelp them get ahouse anyway.


icy.36 It was under the direction of Cisnerosthat HUD agreed to allow Fannie and Freddiecredit toward its “affordable housing” targetsby buying subprime mortgages.37

After four years of introducing economicdistortions into housing markets, HenryCisneros spent most of his post-HUD careermaking money in those markets, as many ex-HUD officials do. In 2000, Cisneros formed ahousing development company in partner-ship with KB Homes and became a KB direc-tor. The KB board also included the formerCEO of Fannie Mae, James Johnson. The NewYork Times noted that “it made for a cozy net-work.”38 Indeed, Fannie Mae bought orbacked many of the mortgages that were inKB development projects. In 2001, Cisneros joined the board of

Fannie Mae’s biggest client, the now notori-ous Countrywide Financial, the companythat was center stage in the subprime lendingscandals of recent years. When the housingbubble was inflating, Countrywide and KBtook full advantage of the liberalized lendingstandards fueled by HUD under Cisneros. Inaddition to the money he received as a KBdirector, Cisneros’ company, in which heheld a 65 percent stake, received $1.24 mil-lion in consulting fees from KB in 2002.39

When Cisneros stepped down from Coun-trywide’s board in 2007, he called it a “well-managed company” and said that he had“enormous confidence” in its leadership.40 Yetone wonders whether Cinsneros was just try-ing to escape before the crash. Just days beforehis resignation, Countrywide announced a$1.2 billion loss, and reported that a third of itsborrowers were late on mortgage payments.41

According to SEC records, Cisneros earned a$360,000 salary at Countrywide in 2006, andhe has gained $5 million from stock sales since2001.42

The Cuomo Years,1997–2001

Andrew Cuomo joined the Clinton admin-istration as an assistant secretary of HUD in

1993. He replaced Cisneros as secretary in1997, where he remained until the end ofClinton’s second term. Cuomo’s housing poli-cies followed the same approach as his prede-cessor—seeking personal publicity, panderingto special interest groups, and encouragingthose who were not financially suited for homeownership to nonetheless move into homes. Cuomo began cultivating his image at

HUD as assistant secretary. In 1993, he orga-nized a lavish conference costing taxpayers$235,360 to announce a new anti-povertyprogram, and he flooded attendees with slo-ganeered shopping bags, HUD buttons, andglossy brochures. One observer called it a“rah-rah rally for Andrew Cuomo.”43 Cuomodoubled the number of top-level staff mem-bers under him, and in one of his years asassistant secretary, he spent almost $1 mil-lion on travel. According to the Wall StreetJournal, the lavish spending on “image-mak-ing . . . strained HUD budgets so much thatofficials have devised plans to pay some billsby diverting money from projects intendedto help people.”44

Being assistant secretary was a good job,but Cuomo wanted the top spot. He got hischance when Cisneros announced his inten-tion to resign after Clinton was reelected in1996. Seattle Mayor Norm Rice was thoughtto be Clinton’s first choice to replace Cisneros,but he was knocked out when HUD launchedan investigation into his possible misuse of afederal loan. The investigation, which waslaunched a week after the 1996 election, hadbeen approved by Cuomo’s office. The resultwas that Clinton went with Cuomo as secre-tary. Rice was later cleared, but the timing ofthe investigation and a leak to the press sug-gested involvement by Cuomo.45

A HUD employee characterized Cuomo’stenure “as all show and very self-promoting. Healways was a politician.”46 In 2000, Cuomo’sHUD administration issued 302 press releasesin 331 working days. Most of these releasescontained headlines touting Cuomo’s role. (Bycomparison, less than one-third of HUD’spress releases in 2009 have mentioned the cur-rent secretary’s name in the headline). And in a

7

A HUD employeecharacterizedCuomo’s tenureas “all show and very self-promoting.”


move reminiscent of Samuel Pierce, Cuomospent $900,000 in taxpayer money on abrochure detailing his own accomplish-ments.47

When it became apparent that Cuomowould run for governor of New York, hemade 25 official HUD visits to the state—21more than to any other state. In his final yearas HUD secretary, he announced $170 mil-lion in HUD grant money for economicdevelopment along the Erie Canal. One for-mer HUD employee noted, “It was about me,me, me, me. If he didn’t get a headline out ofit, he didn’t want to hear about it.”48

One thing Cuomo didn’t like to see was crit-icisms of HUD by the department’s inspectorgeneral, Susan Gaffney. Gaffney, who had avery good reputation, was subject to a smearcampaign by Cuomo’s staff that aimed toundermine her and force her out.49 Cuomowas reported to be angry with Gaffney oversome of her audit reports that reflected poorlyon him. One audit suggested that HUD’sdetermination of which cities were designated“empowerment zones” under a billion-dollarprogram were subject to political manipula-tion.50 An aide to Cuomo told a reporter, “Thatwas his baby—when the audit report came out,he went crazy.”51 Another report by Gaffney’soffice found widespread mismanagement inbillions of dollars of HUD contracts.52

Like Cisneros, Cuomo’s main policy lega-cy was promoting subsidies for increasingthe home ownership rate and weakeningsafeguards against excessive mortgage mar-ket risks. For example, Cuomo successfullyadvocated that Congress raise the ceiling onFederal Housing Administration–insuredmortgages while lowering down-paymentrequirements.53 Those moves helped set thestage for higher FHA-insured mortgagedefault rates in later years. Cuomo also supported efforts to have

home sellers funnel money to nonprofitgroups to help pay for buyers’ down paymentsand closing costs. These “down payment assis-tance” loans ended up having default ratestwice that of standard FHA-insured mort-gages.54 Cuomo portrayed his efforts as help-

ing to increase homeownership rates forminorities, but he also had an interest in pleas-ing mortgage industry officials who would lat-er help finance his gubernatorial campaign.55

Cuomo also worked hard to receive supportfrom leftist housing advocacy groups, such asACORN.56

During the Cuomo years, mortgage indus-try officials and housing advocates wantedFannie Mae and Freddie Mac to purchasegreater volumes of high-risk loans offered toless credit-worthy borrowers. Cuomo’s HUDpressured Fannie and Freddie to increase theportion of their portfolios consisting of loansto moderate-income and higher-risk borrow-ers. Cuomo applied pressure by having HUDpublicly “investigate” whether Fannie andFreddie were sufficiently in compliance withgovernment fair-lending standards designedto prevent discrimination.57

At the time, numerous financial analystssaw the problems coming with these strate-gies, but policymakers such as Cuomo didnot change course. Here is a prescient obser-vation by a New York Times reporter in 1999:

In moving, even tentatively, into thisnew area of lending, Fannie Mae is tak-ing on significantly more risk, whichmay not pose any difficulties duringflush economic times. But the govern-ment-subsidized corporation may runinto trouble in an economic downturn,prompting a government rescue simi-lar to that of the savings and loanindustry in the 1980s.58

We know now that Fannie and Freddie’sexpansion into low-quality mortgages was ahuge mistake. But with Cuomo, fiscally pru-dent policies took a backseat to his politicalaspirations.

The Jackson Years,2001–2009

The Bush administration’s HUD com-bined some of the Reagan era’s corruption

8

With Cuomo, fiscally prudentpolicies took a

backseat to his political aspirations.


with some of the Clinton era’s politicizedpush for increased homeownership rates. TheBush administration proposed tighter over-sight of Fannie and Freddie, but it did little toend the mortgage giants’ federal benefits ortheir rapid expansion. The housing bubbleexpanded and then burst on Jackson’s watch,and he and the Bush administration deserve ashare of the blame.Alphonso Jackson was named a deputy

secretary at HUD a few months into Presi-dent George W. Bush’s first term. He becamethe acting secretary in late 2003, and perma-nent secretary in April 2004. He replaced MelMartinez, who resigned to run for an openSenate seat in Florida. Jackson resigned inApril 2008 in the midst of allegations that hehad used his official power to benefit friendsand Republican Party loyalists. He remainsunder federal investigation.Jackson’s troubles began in 2006 when he

told an audience that he killed a potentialHUD contract after the contractor toldJackson he didn’t like President Bush. Jacksonlater claimed to have made the story up. AHUD inspector general’s report found thatJackson did instruct staff to favor friends ofthe president when awarding HUD contracts,but it did not find concrete evidence that hisorders were followed.59

A Washington Post investigation of HUDcontracting under Jackson found that “theproportion of contracts awarded to smallblack- and Hispanic-owned businesses . . .rose from 6 percent to nearly 35 percent. Theproportion of contracts open to full compe-tition decreased from 71 percent to 33 per-cent.”60 The practice of awarding HUD con-tracts to Republican-friendly minority firmswas common under Jackson, and the Post sto-ry provided numerous examples.A number of examples of cronyism at

HUD have caught the eye of investigators.Major contracting work from the depart-ment was apparently given to friends ofJackson. In one instance, a no-bid contractwas given to Jackson friend Michael Hollis torun the Virgin Islands Housing Authority.Hollis earned $1 million as the executive

administrator of the housing authority, plusan undetermined amount from serving as anadviser to Smith Real Estate Services, whichreceived $3.5 million from HUD for work atthe VIHA. Anonymous HUD officials told aNational Journal reporter that “there was noindication that Hollis had any experiencerunning a public housing agency beforearriving in the Virgin Islands.”61

Investigators are also looking into Jackson’srole in getting his golfing buddy WilliamHairston $485,000 in contract work with thetroubled Housing Authority of New Orleans,which had been taken over by HUD in 2002.Another aspect of this investigation is thatHANO awarded a $127 million redevelopmentcontract to an Atlanta firm, Columbia Resi-dential, which owed Jackson between $250,000and $500,000 for “past services” as a “part-ner/consultant.”62 In other words, it appearsthat Jackson might have been looking toreceive payment for helping to steer a HANOcontract to Columbia Residential.When Jackson resigned in 2008, he was in

the midst of another controversy regardingsweetheart deals for friends, this time involv-ing the Philadelphia Housing Authority. PHAexecutive director Carl Greene sued HUD,claiming that it tried to punish PHA by with-holding funds after PHA refused to sell land toJackson’s friend, music mogul Kenny Gamble,at “rock-bottom prices.”63

Then in June 2008, Condé Nast Portfolioreported that influential members of Congressand other government officials had receivedvery favorable mortgage loans from Country-wide Financial.64 Countrywide had a specialVIP program that sought to influence impor-tant housing officials in the federal govern-ment and Fannie Mae by offering them mort-gages with reduced fees and other perks. Thelist of beneficiaries included Alphonso Jack-son, who was on a select list known as “Friendsof Angelo,” or “FOA,” named after Country-wide chairman and CEO Angelo Mozilo.In December 2003, while he was acting sec-

retary of HUD, Jackson applied to Country-wide for a $308,000 mortgage to buy a vaca-tion home in Hilton Head, South Carolina.

9

The housing bubble expandedand then burst onJackson’s watch.


Jackson’s loan came through a week beforePresident Bush named him HUD secretary.Even before that, Jackson had refinanced amortgage with Countrywide through the VIPprogram. Former Countrywide loan officerRobert Feinberg says that both of Jackson’sloans came with special discounts.65

When asked if he received breaks on theloans, Jackson said: “Not to my knowledge. If Idid, it certainly wasn’t discussed with me.”66

However, a March 2009 report by the Repub-lican staff of the House Committee on Over-sight and Government Reform concludedthat Countrywide made VIP borrowers awareof the preferential treatment. The report not-ed that “at times, Friends of Angelo used theirpreferred status to refer friends or familymembers to the VIP department. Sometimesthe Friends of Angelo expected their friendsand family to receive the same preferentialtreatment.”67

The same month Jackson sought the VIPmortgage for his vacation house, his daughter,Annette Watkins, had a mortgage processedthrough the same special program. Accordingto the House report, “Jimmie Williams [Coun-trywide’s Washington lobbyist] contactedCountrywide Senior Vice President Perry onWatkins’s behalf because ‘Jackson suggestedhis daughter talk with Countrywide.’”68

In 1999, Countrywide, which had becomethe nation’s largest residential housinglender, reached an exclusive agreement to sellFannie Mae billions of dollars in mortgagesin exchange for lower “guarantee” fees thatFannie charged originators when it boughttheir loans. The success, and then failure, ofboth entities became intertwined as Fanniepurchased large amounts of subprime loansand securities, which allowed subprimelenders like Countrywide to grow their busi-nesses. When the subprime market collapsedin 2007, Countrywide collapsed as well. Itwas bought at a fire sale price by the Bank ofAmerica, while a broken Fannie Mae was tak-en over by the federal government. This point is crucial. Many commentators

put the blame for the subprime meltdown onthe shady or overly aggressive mortgage orig-

inators, such as Countrywide. But it was ulti-mately Fannie and Freddie that drove the sys-tem. First, as the GSEs purchased more loansfrom mortgage lenders, the lenders were ableto originate more and more loans. Second,the GSEs’ increasing purchases of subprimeloans brought them into competition withprivate-label issuers that traditionally special-ized in these loans. According to PeterWallison:

The increased demand from the GSEsand the competition with private-labelissuers drove up the value of subprimeand Alt-A mortgages, reducing the riskpremium that had previously sup-pressed originations. As a result, manymore marginally qualified or unquali-fied applicants for mortgages wereaccepted, and these loans joined theflood of junk loans that flowed to boththe GSEs and the private-label issuersbeginning in late 2004.69

It was under Secretary Jackson that HUDdecided in 2004 to again increase Fannie andFreddie’s “affordable” housing goals whileallowing the financial giants to continue theClinton-era policy of counting subprimemortgages as credit towards meeting thatgoal. Despite Fannie’s 81-percent increase inlending to minority families in 2003, Jacksonchastised the organization for its “failure tolead.”70 Jackson’s pressure on the GSEs camedespite the fact that regulators were growingincreasingly concerned with subprime lend-ing. The Washington Post noted that “housingexperts and some congressional leaders nowview those decisions as mistakes that con-tributed to an escalation of subprime lendingthat is roiling the U.S. economy.”71

Secretary Jackson also pushed for theadoption of riskier rules at HUD’s FHA. TheFHA was created during the 1930s to helpmoderate-income families buy homes by pro-viding a 100 percent taxpayer guarantee onmortgages below a certain dollar limit. Overthe decades, the downpayment requirementon these loans was steadily reduced from the

10

Secretary Jacksonpushed for the

adoption of riskier rules at HUD’s FHA.


original 20 percent to just 3.5 percent. Suchlow downpayment requirements encouragehigh default rates by prompting borrowerswho can’t really afford homes to nonethelessbuy homes. Amazingly, at the height of thehousing bubble, Secretary Jackson advocatedreducing the downpayment requirements onFHA-insured loans all the way to zero. As with many federal officials, Jackson

seems to have been focused on what’s goodfor the government, not what’s good for tax-payers. Private subprime lenders had dramat-ically reduced the FHA’s share of the housingmarket in prior years, and that promptedJackson to proclaim that he was “absolutelyemphatic about winning back our share ofthe market.”72 Another indication thatJackson wasn’t looking out for taxpayers isthat default rates on loans insured by theFHA hit record highs during his tenure andcontinued to soar into 2009.73 Indeed, tax-payers continue to be in a very precarious sit-uation as the FHA’s “market share” hassoared, and the agency now insures one inthree new mortgages.74

Alas, like previous HUD secretaries,Jackson was too busy enjoying the perks ofoffice to worry about taxpayers’ exposure to apossible housing downturn. Jackson had ataxpayer-provided chef and full-time securitydetail. During his tenure, $7 million wasspent on a new auditorium and cafeteria atHUD’s headquarters, and his personal officespent $100,000 to obtain oil portraits ofJackson and four previous HUD secretaries.75

The Political Environmentof HUD Policymaking

We have seen how both Republican andDemocratic housing officials have made self-interested and economically damaging deci-sions over the decades. An important driverof the bad policymaking is the large influ-ence that housing lobby groups have inWashington. Ultimately, federal policymak-ers are responsible for their actions, but abrief review of the political power of the

housing lobbies illustrates where policymak-ers get a lot of their bad ideas.Housing and real estate groups have long

had large influence over housing policy. Oneof the biggest groups is the NationalAssociation of Realtors, which has been thethird largest contributor to federal politicalcampaigns over the past two decades of allgroups and corporations.76 NAR supports allkinds of federal benefits and subsidies for thehousing industry, such as tax credits, higherfederal loan limits, and schemes to reducemortgage interest rates. At the peak of thehousing boom in 2006, the group’s annualreport boasted that it was successfully lobby-ing Congress to “eliminate restrictive downpayment requirements” on FHA loans.77

That year it mobilized its members to floodCongress with 500,000 letters and faxes overa single piece of legislation.78 This year, NARhas continued to push for federal housingbenefits in its “Housing Stimulus Plan” and“Comprehensive Housing Strategy.”79

The National Association of Homebuildersis another powerful lobby group, ranked 23rdin contributions in the last two decades.80 Arecent press release from the group illustratesthat it also continues to push for federal sub-sidies:

With the U.S. Congress returning fromits August recess, the nation’s homebuilders are moving into the secondphase of their “Revive Housing, RestoreAmerica” campaign, urging lawmakersin Washington to take a number of cru-cial steps to support housing as theframework for creating jobs and pullingthe nation’s economy out of a devastat-ing recession. . . . Expanding the taxcredit [for first-time home buyers] hasbeen the centerpiece of NAHB’s massivegrassroots campaign, which began lastmonth when association membersacross the country began meeting withtheir members of Congress.81

Perhaps the heaviest hitters of the housinglobbyists have been the finance companies,

11

An important driver of bad policymaking is the large influence thathousing lobbygroups have inWashington.


Fannie Mae and Freddie Mac. Fannie andFreddie spent an enormous $170 millionbetween 1998 to 2008 on various federal lobby-ing activities.82 In addition, the housing financegiants and their employees gave campaign con-tributions to members of Congress on commit-tees responsible for overseeing them—almost$15 million between 2000 to 2008.83

Other than campaign contributions, hous-ing lobby groups use many techniques toinfluence members of Congress. Fannie andFreddie, for example, opened “partnershipoffices” in congressional districts across thecountry in the 1990s to help provide localpolitical support for favored members ofCongress. Another way that the housinggiants have influenced the Washington debateis through pro-housing policy reports, some-times commissioned from prominent econo-mists. A 2002 issue of Fannie Mae Papers, forexample, was authored by Nobel LaureateJoseph Stiglitz, Jonathan Orszag, and the cur-rent director of the Office of Management andBudget Peter Orszag, who was then at theBrookings Institution. The study concludedthat “the probability of default by the GSEs isextremely small.”84

Another channel of influence in housingpolicymaking has been the revolving doorbetween government offices and the privatesector. A recent report provided a list ofprominent Washington people who have hadclose ties to Fannie and Freddie:85

•Former Fannie Mae CEO Jim Johnsonmanaged Walter Mondale’s 1984 presiden-tial campaign, chaired the vice presidentialselection committee for John Kerry, andwas involved in President Obama’s vicepresidential selection process. Johnsonreceived a cut-rate mortgage on his homefrom Countrywide Financial, which was amajor business partner of Fannie Mae’s.

•Former Fannie Mae CEO Franklin Raineswas a director of the Office of Manage-ment and Budget under President Clin-ton. Raines, who left Fannie in the wake ofan accounting scandal, earned over $90million in compensation between 1998

and 2004.86 Raines was the subject of a fed-eral investigation into whether he manipu-lated Fannie Mae earnings to maximize hisbonuses, and ultimately settled for a $25million fine. Raines was also one of theinsiders who received a specially discount-ed home mortgage rate from CountrywideFinancial.

• Clinton deputy attorney general JamieGorelick became a Fannie Mae vice-chairman following her stint with theadministration. She earned over $26million in compensation from FannieMae between 1998 and 2002.87

• Former Fannie Mae senior vice presidentJohn Buckley was a Republican congres-sional staffer and senior adviser to thepresidential campaigns of Ronald Rea-gan and Bob Dole.

• Former Fannie senior vice president ArneChristenson was a senior adviser to Re-publican House Speaker Newt Gingrich.

• Rep. Barney Frank’s (D-MA) partnerHerb Moses was an executive at FannieMae from 1991 to 1998 while Frank saton the House Banking Committee,which was responsible for overseeing theGSEs.

• President Clinton appointed currentWhite House chief of staff Rahm Eman-uel to Freddie Mac’s board of directors,where he earned $320,000 in compensa-tion and sold stock worth more than$100,000. Emanuel was a senior adviserto Clinton between 1993 and 1998.

Over the decades, Fannie Mae’s executivesuites became filled with Washington insid-ers, who were paid big bucks to defend thecompany’s federal privileges. A WashingtonPost columnist noted that “Fannie Mae . . .has become over the years a place where for-mer government officials and others withgood political connections can go to makemillions of dollars.”88 House hearings in2004 revealed that 21 Fannie Mae executivesearned more than $1 million per year.89

After many warnings over the years byanalysts concerned about the dangers posed

12

Another channelof influence inhousing policy-

making has beenthe revolvingdoor between government

offices and theprivate sector.


by the rapidly growing Fannie and Freddie,the two finance giants imploded in 2008 andwere taken over by the government. The twoentities racked up losses of $165 billion overthe last two years, much of which has landedon taxpayers.90 Congress generally ignoredthe risks posed by Fannie and Freddie, nodoubt partly a result of the firms’ huge lob-bying efforts. Since the financial crash, one would think

that Congress and the administration wouldbe moving to withdraw federal housing sub-sidies from the market because they havecaused so much damage. However, the oppo-site is happening. Policymakers are followingthe advice of the various housing lobbygroups that continue pushing to expand fed-eral intervention in housing markets. A WallStreet Journal editorial recently raised thealarm about the expanding role of the FHA:

Everyone knows how loose mortgageunderwriting led to the go-go days ofmultitrillion-dollar subprime lending.What isn’t well known is that a parallelsubprime market has emerged over thepast year—all made possible by theFederal Housing Administration . . .Last year banks issued $180 billion ofnew mortgages insured by the FHA,which means they carry a 100 percenttaxpayer guarantee. Many of these havethe same characteristics as subprimeloans: low downpayment require-ments, high-risk borrowers, and inmany cases shady mortgage origina-tors. FHA now insures nearly one ofevery three new mortgages, up from 2percent in 2006.91

As the Journalnotes, the realtor and home-builder lobby groups have been cheerleadingfor the FHA’s expansion, and they continueto help block sensible reforms to FHA rules,such as increasing downpayment require-ments and reducing the federal guaranteefrom the current 100 percent.92

At the same time, taxpayers face related fed-eral housing exposure from HUD’s Govern-

ment National Mortgage Association (GinnieMae). That agency provides guarantees onmortgage-backed securities bundled from fed-erally insured loans issued by the FHA andother federal agencies. By the end of next year,Ginnie Mae is expected to be guaranteeing $1trillion of mortgage securities, double theamount in 2007.93 All in all, “among the FHA,Ginnie, Fannie and Freddie, nearly 9 of every10 new mortgages in America now carry a fed-eral taxpayer guarantee.”94 It appears thattoday’s policymakers have learned little fromdecades of mismanagement and failure in fed-eral housing programs.

Conclusion

This review of housing policies and HUDleadership in recent decades suggests that weneed to discard the idea that federal housingofficials act in the general public interestwhen setting their agendas. HUD leadershave variously put career advancement, partyinterests, personal financial interests, and thedemands of lobby groups ahead of soundpolicy choices.While government officials and advocates

for housing subsidies view HUD programsthrough rose-tinted glasses, the reality is thatfederal housing intervention has done farmore harm than good. The housing andfinancial meltdowns of recent years have part-ly, or largely, stemmed from the distortionsinjected into markets by federal housing regu-lations and subsidies through HUD and otheragencies. We have learned that when the gov-ernment intervenes in the housing industry,the results are often cronyism, mismanage-ment, and economic distortions, not efficientpolicy outcomes. With many members of Congress beholden

to the housing lobbies, it will take a strong ini-tiative from the executive branch to reversecourse and reduce housing subsidies. Unfor-tunately, the Obama administration has beendoubling down on the government’s interven-tions in housing markets. The HUD agencies,Ginnie Mae and the FHA, could become the

13

It appears thattoday’s policy-makers havelearned littlefrom decades ofmismanagementand failure in federal housingprograms.


next Fannie Mae and Freddie Mac requiringhuge bailouts, but policymakers are encourag-ing the rapid growth of these agencies.95 As aresult, it will be no surprise if we face govern-ment-caused turbulence in housing marketsdown the road and taxpayers are hit once againwith the costs of failed federal policies.

Notes1. “Still Rising: the H.U.D. Bill, and Smell,” edito-rial, New York Times, July 13, 1989, p. A22.

2. Ibid., p. A22.

3. Steven V. Roberts, Joseph P. Shapiro, andRonald A. Taylor, “The Undoing of Silent SamPierce,” U.S. News and World Report, September 18,1989, p. 29.

4. Edward T. Pound and Jill Abramson, “Mishan-dling HUD: Pierce May Have Kept Hands Off, butProjects of Pals Sailed Through,” Wall StreetJournal, July 12, 1989, p. 1.

5. Ibid., p. 1.

6. Edward T. Pound, “HUD Provided $4.5 Millionfor Project Backed by Pierce’s Old Firm, Ex-Clients,” Wall Street Journal, August 7, 1989, p. 1.

7. Steven Waldman, et al., “The HUD Ripoff,”Newsweek, August 7, 1989, p. 16.

8. Pound and Abramson, “Mishandling HUD,” p. 1.

9. Ibid., p. 1.

10. Irving H. Welfeld, HUD Scandals: HowlingHeadlines and Silent Fiascoes (New Brunswick, NJ:Transaction Publishers, 1992), p. 78.

11. Edward T. Pound and Jill Abramson, “HUDOfficials Had Warnings of Plan’s Losses,” WallStreet Journal, July 17, 1989, p. 1.

12. Ibid., p. 1.

13. Edward T. Pound and Kenneth H. Bacon,“Favored Friends: Housing Subsidy Plan for thePoor Helped Contributors to GOP,” Wall StreetJournal, May 25, 1989, p. 1.

14. “Former Official Sentenced, Fined for HUDCorruption,” Wall Street Journal, February 28,1994, p. C15.

15. See James P. Scanlan, Attorney at Law, http://jpscanlan.com/prosecutorialmisconduct.html.

16. Edward T. Pound and Kenneth H. Bacon,“Favored Friends,” p. 1.

17. See Welfeld, pp. 92–95.

18. “The Nation; The Many Paths of the H.U.D.Investigation,” New York Times, August 13, 1989.

19. Joe Davidson, “Former HUD Aide, 2 OthersConvicted of Giving Gratuities to U.S. Official,”Wall Street Journal, “January 6, 1993, p. A12.

20. Kenneth J. Cooper, “Pierce Misled Hill, PanelConcludes,” Washington Post, November 2, 1990, p.A23.

21. Toni Locy, “Watt Pleads to Misdemeanor inHUD Case,” Washington Post, January 3, 1996, p. A1.

22. Welfeld, p. 75.

23. This was the Housing Enterprises FinancialSafety and Soundness Act. The Act created theOffice of Federal Housing Enterprise Oversightwithin HUD.

24. Ruth Larson, “HUD Rallies Criticized asIllegal Lobbying Efforts,” Washington Times, April7, 1995, p. A4.

25. Susan Gaffney, Inspector General, Departmentof Housing and Urban Development, Testimonybefore the Subcommittee on Human Resourcesand Intergovernmental Relations, House Com-mittee on Government Reform and Oversight,February 29, 1996, p. 15.

26. Ibid., p. 15.

27. Judith Evans, “HUD’s Cisneros to Leave aLegacy of Public Housing Reform,” Washington Post,November 30, 1996, p. E1.

28. Lawrence H. White, “How Did We Get intoThis Financial Mess?” Cato Institute BriefingPaper no. 110, November 18, 2008, p. 6.

29. Ibid., pp. 5–6.

30. Peter J. Wallison, “Cause and Effect: Govern-ment Policies and the Financial Crisis,” AmericanEnterprise Institute Financial Services Outlook,November 2008, p. 3.

31. Peter Coy, “Bill Clinton’s Drive to IncreaseHomeownership Went Way Too Far,” BusinessWeek,February 27, 2008.

32. Quoted in Joseph R. Mason, “A NationalHomeownership Strategy for the New Millen-nium,” Criterion Economics, LLC Market Com-mentary, February 26, 2008, p. 2.

14


33. Coy.

34. Mason, p. 3.

35. See John Connor, “HUD to Review MortgageRules for Racial Bias,” Wall Street Journal, April 14,1994, p. A6.

36. “Housing-Aid Goals in Underserved AreasProposed by HUD,” Wall Street Journal, June 20,1995, p. A5.

37. Carol D. Leonnig, “How HUD Mortgage PolicyFed the Crisis,” Washington Post, June 10, 2008, p.A1.

38. David Streitfeld and Gretchen Morgenson,“Building Flawed American Dreams,” New YorkTimes, October 19, 2008, p. A1.

39. Ibid., p. A1.

40. “In Brief: Cisneros Resigns from Country-wide,” Los Angeles Times, October 25, 2007, p. C6.

41. Gary Martin, “Cisneros Builds on HelpingHispanic Homeowners Avoid Foreclosure,” SanAntonio Express-News, February 25, 2009, p. A10.

42. Christopher Cooper and Amy Chozick, “Cam-paign ’08: As Clinton Rips Countrywide CisnerosIsn’t Mentioned,” Wall Street Journal, February 29,2008, p. A6.

43. Byron York, “Andrew Cuomo, Big Spender,”Wall Street Journal, August 17, 1994, p. A12.

44. Ibid., p. A12.

45. Brian Blomquist, “Cuomo Engineered HisHigh Rise—Used Loan Probe to KO Rival for FedHousing Job,” New York Post, May 21, 2002, p. 6.

46. Brian Blomquist, “Andy Was Part of MeGeneration: Colleagues,” New York Post, May 21,2002, p. 6.

47. Brian Blomquist, “Cuomo Engineered HisHigh Rise,” p. 6.

48. Brian Blomquist, “Andy Was Part of MeGeneration,” p. 6.

49. Rochelle Sharpe, “Housing Agency InspectorGeneral Says Cuomo Uses ‘Dirty Tricks’ againstHer,” Wall Street Journal, September 10, 1998, p. A24.See also Judith Havemann, “Housing Officials DropComplaint against IG,” Washington Post, September15, 1997, p. A21.

50. Department of Housing and Urban Develop-ment, Inspector General, “Audit of Empowerment

Zone, Enterprise Community and Economic Devel-opment Initiative Grant Selection Processes,” AuditCase No. 95-HQ-154-0002, August 31, 1995.

51. George Archibald, “HUD Inspector GeneralSurvives Bid to Oust Her,” Washington Times,September 19, 1997, p. A4.

52. Department of Housing and Urban Develop-ment, Inspector General, “HUD ContractingActivity,” Audit Case No. 97-PH-163-0001, Sep-tember 30, 1997.

53. Wayne Barrett, “Andrew Cuomo and Fannieand Freddie,” Village Voice, August 5, 2008.

54. John Berlau, “The Subprime FHA,” Wall StreetJournal, October 15, 2007, p. A23.

55. Barrett.

56. Ibid.

57. “Fannie Mae Data Scrutinized for Bias,” AtlantaJournal-Constitution, February 24, 2000, p. 6F.

58. Steven A. Holmes, “Fannie Mae Eases Creditto Aid Mortgage Lending,” New York Times, Sep-tember 30, 1999.

59. Elizabeth Williamson, “Probe Finds JacksonUrged Favoritism in HUD Contracts,” WashingtonPost, September 22, 2006, p. A15.

60. Carol D. Leonnig, “HUD Repeatedly Dis-missed Staff Concerns about Contracts,” Wash-ington Post, May 18, 2008, p. A10.

61. Edward T. Pound, “A Helping Hand,” NationalJournal, November 17, 2007, pp. 46–49.

62. Edward T. Pound, “HUD Probe Heats Up,”National Journal, December 15, 2007, pp. 45–47.

63. Inga Saffron, “After a Big Bang, HUD DustupLingers,” Philadelphia Inquirer, March 31, 2008, p.A1.

64. Daniel Golden, “Angelo’s Many ‘Friends’,”Conde Nast Portfolio, August 2008.

65. Ibid.

66. Ibid.

67. Rep. Darrell Issa (R-CA), House Committee onOversight and Government Reform, staff report,“Friends of Angelo: Countrywide’s Systemic andSuccessful Effort to Buy Influence and BlockReform,” March 19, 2009, p. 49.

68. Ibid., p. 31.

15


69. Wallison, p. 6.

70. David S. Hilzenrath, “HUD Chief CriticizesFannie Mae, Washington Post, July 2, 2004, p. E2.

71. Leonnig, “How HUD Mortgage Policy Fed theCrisis,” p. A1.

72. Kenneth R. Harney, “FHA Alternatives to Sub-prime Loans,” Washington Post, May 14, 2005, p. F1.

73. Department of Housing and Urban Develop-ment, Office of Policy Development and Infor-mation, U.S. Housing Market Conditions, February2009, p. 78. See also “The Next Fannie Mae,” WallStreet Journal, August 11, 2009.

74. “The Next Housing Bust,” editorial, Wall StreetJournal, May 5, 2009, p. A13.

75. Carol D. Leonnig, “HUD Chief Inattentive toCrisis, Critics Say,” Washington Post, April 13, 2008,p. A1.

76. Analysis by the Center for Responsive Politicsavailable at www.opensecrets.org/orgs/list.php.CRP’s tally includes contributions to candidatesand parties, including direct contributions, polit-ical action committee contributions, and contri-butions of individuals connected with each orga-nization.

77. National Association of Realtors, Annual Re-port, 2006, p. 6, www.realtor.org/realtororg.nsf/pages/annual_report.

78. Ibid., p. 8.

79. National Association of Realtors, “RealtorsContinue Push for Comprehensive HousingStrategy,” press release, January 16, 2009.

80. Center for Responsive Politics.

81. National Association of Homebuilders, “Build-

ers Step Up Campaign to Revive Housing, CreateJobs,” press release, September 7, 2009.

82. Bethany McLean, “Fannie Mae’s Last Stand,”Vanity Fair, February 2009.

83. Issa, p. 15.

84. Joseph Stiglitz, Jonathan Orszag, and PeterOrszag, “Implications of the New Fannie Mae andFreddie Mac Risk-Based Capital Standard,” FannieMae Papers 1, no. 2 (March 2002): 2.

85. Issa, pp. 16–17.

86. Office of Federal Housing Enterprise Over-sight, “Report of the Special Examination of Fan-nie Mae,” May 2006, p. 58, www.fhfa.gov/webfiles/747/FNMSPECIALEXAM.pdf.

87. Ibid., p. 58.

88. Albert B. Crenshaw, “High Pay at Fannie Maefor the Well-Connected,” Washington Post, Decem-ber 23, 2004, p. E3.

89. David Hilzenrath, “Fannie Mae Salaries RileHill,” Washington Post, October 11, 2004, p. E1.

90. Jody Shenn, “Skepticism on Privatizing Fannie,Freddie,” Washington Post, September 11, 2009, p. A24.

91. “The Next Housing Bust,” p. A13.

92. Ibid., p. A13.

93. “The Next Fannie Mae.”

94. Ibid. See also Deborah Solomon and JonHilsenrath, “No Easy Exit for Government asHousing Market’s Savior,” Wall Street Journal,September 15, 2009.

95. The Wall Street Journal raises the alarm on thisissue. See “The Next Fannie Mae.”

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