Thursday, February 3, 2011

Gabrielle Giffords, HUD watcher

On January 24, with Rep. Gabrielle Giffords' recovery still slow and uncertain, HUD's Office of Inspector General quietly posted a report on an investigation of HUD loan insurance practices, conducted at Giffords' request.

The report says HUD made a poorly researched decision to insure a $29.9 million loan to a seniors' project known as "The Retreat at Santa Rita Springs" in Green Valley, Arizona. (The partnership owning the project had a general partner called "Retreat Fast, Inc.", which might have given them a clue.) Right after HUD was firmly on the hook to back the loan, the project caved in financially. The loan note was sold off at a loss of more than $20 million to HUD.

A few months ago, HUD's Inspector General investigated the borrower, finding some misuse of security deposits and other small money problems, but not any misconduct "significant enough to cause the project's default." It said the main problem was just too few tenants moving in. (The more recent report says, "Throughout its entire operations, the community's occupancy rate did not exceed six percent.")

The more recent report has more juice in it, and more resonance as an example of housing-boom fatuity, because it explores why HUD placed such a big bet in the first place on a business plan that wasn't adding up. In detail, it reads like a How Not To guide, with daily operations ignored and budding problems hence unseen. The report recommends that HUD stop processing its entire Sec. 231 category of loan insurance -- the type involved in the fiasco -- until it can change rules and requirements to stop similar mistakes from happening again.

And this investigation started with a complaint from Gabrielle Giffords. Show me any Republican thunderer against HUD "waste, fraud and abuse" who has done anything usefully similar.

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By the way, it was probably just business as usual, but Thomas E. Chestnut, the owner of Chestnut Construction, which reports completing a $23,665,000 job for The Retreat at Santa Rita Springs, was a donor, per FEC lookup, to Jonathan Paton, who sought to be Giffords' opponent in the last election but lost the Republican primary. The figures are a little confusing because various amounts were given and returned, but it looks like Chestnut's net gift to Paton was $2400. Chestnut did once also give Giffords about $500 but that was back in 2006, hence in a different election.

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