Wednesday, October 28, 2015
HUD backs $9.5 million loan on property valued at $3.8 million
COLORADO SPRINGS, Colo. — The Department of Housing and Urban Development provided a $9.4 million loan guarantee to renovate an apartment complex here eight months after the owner convinced the county to value the complex at just $3.8 million, a Watchdog.org investigation found.
The loan for Apollo Village Apartments defaulted and the property was foreclosed on in 2012 with HUD losing as much as $4.5 million on the deal, public trustee records show.
Pete Sepp, president of the National Union of Taxpayers, said these government programs put a substantial amount of taxpayer money at risk and should be eliminated.
“Unfortunately, many government loan programs to individual business people aren’t necessarily dictated by the best interests of taxpayers or the laws of the marketplace,” he said after reviewing information Watchdog.org provided him on the loan. “It’s a classic dilemma we see with the federal subsidies programs.”
After the owner defaulted, HUD officials apparently did not do everything they could to recover as much money as possible, a fact Sepp called “unbelievable.”
Instead of foreclosing, HUD sold the note to a private company for $5 million and the company foreclosed on the property six months later, selling the Apollo complex for $6.2 million – netting a $1.2 million profit the government could have realized to offset part of the loss, foreclosure and HUD records show.
Christine Baumann, spokeswoman for the regional HUD office in Denver, said it was HUD policy to sell the defaulted loans through the Multifamily Assets Loan Sales instead of foreclosing.
She said the Federal Housing Authority is funded by fees and not taxpayers, but, when pressed and shown news reports, she conceded that taxpayers provided $1.7 billion in 2013 to shore up the FHA’s reserves.
Baumann defended the loan guarantee, saying the federal government had to step in after the housing crisis to help businesses with projects like the Apollo Village complex. She said the tax money was needed because of the foreclosure crisis, most from single-family defaults.
“Back when the crisis was happening and even today, there are a lot of lenders who don’t want to loan money to people who don’t have perfect credit,” she said. “We get a packet from lenders and we evaluate them and assess the risk and whether it’s a good bet to provide access to credit for people who have been overlooked.”
But the details of the Apollo deal raise questions about whether it was a good gamble and how much due diligence HUD officials did on the project.
First, the project wasn’t even intended for affordable housing. The loan guarantee was to repair the 216 market-rate units built in 1973, according to HUD, the owner who defaulted and a representative of the current owner.
“On its face, it doesn’t seem to comport with the goals of HUD in providing affordable housing,” Sepp said.
Then the loan guarantee was completed eight months after the owner successfully convinced the county to slash the value of the apartment project because the complex was in such bad shape.