Treasury finds troubles with TARP in Nevada

Audit finds that mortgage-assistance program in Nevada has wasted money, not helped enough homeowners

President Barack Obama delivers a speech in the eastern Las Vegas valley Monday, Oct. 24, 2011. Obama spoke about the American Jobs Act and announced a housing initiative to help homeowners with federally guaranteed mortgages refinance their homes.

Alleged waste

The Office of the Special Inspector General for the Troubled Asset Relief Program identified $8.2 million in wasted spending in the Hardest Hit Fund Nevada, including:

• $11,000 for the CEO’s car allowance

• $10,963.68 spent on employee bonuses, employee gifts, employee outings, staff lunches and other employee perks

• $5,811.27 spent for holiday parties and gifts

• $100,385.20 wasted on excessive rent, relocation and related costs

• $184,319.21 spent on legal expenses to defend violations and alleged violations of the law

• $26,395.70 to pay for forensic auditors to reconcile its books

• $10,812.00 for the independent auditor to reconcile non-HHF bank accounts

• $19,874.75 paid for the terminated CEO’s severance package

• $10,840.18 spent on non-HHF expenses identified by Treasury

• $23,838.25 identified by Treasury for unsupported and non-HHF expenses

• $2,241,396 in wasted excessive administrative expenses during 2015, which exceeded the per-homeowner cost in 2013

• $7,459,626.22 in overhead

Seeking to address the housing crisis in the states most affected by unemployment, the federal government created a fund in 2010 to help homeowners pay mortgages. Nevada stood to benefit from an allocation of about $200 million as part of the Hardest Hit Fund. But six years later, half the funding has yet to be disbursed, with many homeowners turned away from the program.

Although the fund — controlled by the nonprofit Nevada Affordable Housing Assistance Corp. (NAHAC) — approved payouts for thousands of homeowners in its first three years, assistance plunged after 2014, a trend that prompted federal and state inquiries into the fund’s management and day-to-day operations. Under new management, it is in the process of reforms.

In a harsh September report detailing wasteful spending, an independent federal auditor criticized the fund for acting with “a sense of entitlement and no appreciation for the fact that it was taking funds for itself from the homeowners the program intended to help.”

That audit came nearly a year after the state agency charged with overseeing NAHAC sent a letter to Treasury officials raising concerns about the fund, citing its lack of transparency, poor customer service and high turnover.

The housing assistance corporation wasted $8.2 million from the Hardest Hit Fund on holiday parties, lunches, high rent and unnecessary overhead, the audit found. The audit said Treasury officials should seek reimbursement from NAHAC or the Nevada Housing Division, which contracted NAHAC to administer the funds. Federal officials have yet to act on the audit, and the state disputes its findings, saying that wasteful spending is closer to $200,000.

“While Nevada homeowners continue to struggle to recover from the financial crisis, federal dollars designated to help them have been used on holiday parties, luxury office rent, employee gift cards and other wasteful expenses — even a $500 car allowance for a Mercedes-Benz,” said Christy Goldsmith Romero, special inspector general for the Troubled Asset Relief Program. “At the same time, Nevada’s already-low number of homeowners admitted to the Hardest Hit Fund plummeted by 94 percent from 2013 to 2015.”

Drop-in assistance

In addition to uncovering spending on the Mercedes-Benz allowance, Amazon gift cards and a holiday party at the Gold Coast, the September audit and other state documents reveal how little assistance the fund has provided to Nevada homeowners in recent years.

Nevada’s Hardest Hit Fund has provided assistance by helping homeowners who are unemployed or underemployed reduce and pay their mortgages. In 2012 and 2013, NAHAC approved funding for 2,101 and 2,111 homeowners. By 2015, the approvals had dropped to 117.

The audit, which found that 85 percent of the 805 homeowners who applied for support in 2015 were denied, criticized the NAHAC program for a spike in administrative costs per homeowner.

In its findings, the audit reported that, “in 2015, (NAHAC) spent $20,527 in administrative costs per new homeowner admitted — nearly 15 times the $1,370 per homeowner it spent on administrative costs in the first quarter of 2013 … amounting to wasted expense of $2,241,396.”

A letter that the Nevada Housing Division sent to Treasury officials in October 2015 reveals what might have accounted for the drop in payouts to distressed homeowners. That letter says NAHAC often made decisions in closed meetings and skirted Nevada’s open-meeting law, making it “impossible for the state to fulfill its role of monitoring and tracking the Hardest Hit Fund.”

The letter argued that NAHAC used a complicated intake process, clashed with outside housing agencies, offered poor customer service and relied on leadership with misplaced priorities.

Taking corrective action

Even before the audit was published, the state and the Treasury Department had taken steps to bolster the Hardest Hit Fund, which is set to expire in 2020. In response, Treasury officials sent a memo to NAHAC asking that the nonprofit increase its payouts for assistance. It said that if such action was not taken, the Treasury Department would end its contract.

In response, NAHAC’s CEO was removed, and it started conducting public meetings.

“With the Treasury’s action after we asked them to intervene, several board members resigned, the bylaws of the nonprofit were changed and the state once again had a seat at the table,” said Teri Williams, a spokesperson for the Nevada Department of Business and Industry, which oversees the housing division.

NAHAC’s new chief operating officer, Verise Campbell, said the organization already improved its application process and increased the financial support some homeowners receive.

“We are taking the opportunity to pick every piece of that report apart and trying to figure out what happened,” said Campbell, who is exploring ways to make it easier to qualify for funds.

This could be a positive sign for homeowners, said Michele Johnson, the CEO of Financial Guidance Center, an agency that advises clients to seek support from the Hardest Hit Fund.

“What I hope it means for Nevada homeowners is that if they tried to access Hardest Hit funds in the past and weren’t successful, they should try to do it again,” she said.

Despite the changes, the audit recommends further action. It says the Treasury Department should remove NAHAC as the administrator of the Hardest Hit Fund and require NAHAC or the state of Nevada to pay the $8.2 million that the audit identified as wasteful and abusive spending. Any potential reimbursement would likely go back to the fund, a spokesman at the Treasury Department said.

A dispute over responsibility

Who will be held responsible for the potential $8.2 million payment and the future of NAHAC is a politically sensitive question. All parties involved are pointing fingers.

Although NAHAC was created in 2003 as a nonprofit to serve the Nevada Housing Division, state officials argue that it is a standalone nonprofit organization under the ultimate oversight of the Treasury Department. But the audit argues that the line distinguishing the housing division and the nonprofit is blurrier and that both could bear some responsibility.

In the coming months, the state and Treasury Department will be tasked with determining responsibility for the allegations in the audit. A spokesperson for the Treasury Department said the agency is still reviewing the audit recommendations, and the state has argued that only a fraction of the reported $8.2 million in wasteful spending is in question.

“Based on the audit, we have requested the Nevada Attorney General’s office to immediately open an investigation,” wrote Bruce Breslow, the state official responsible for overseeing the Nevada Housing Division. “We have also asked the Nevada Attorney General to designate the appropriate staff and resources to work side-by-side with the U.S. Treasury and, if necessary, pursue action against those responsible for any misuses of taxpayer funds.”