close X
11/13/2018

HUD Emails Reveal Significant Agency Confusion Regarding 2013/2014 Multi-Billion Dollar Mortgage Settlements

More than three years ago, Cause of Action Institute (CoA Institute) filed a Freedom of Information Act (FOIA) request for information related to the U.S. Department of Housing and Urban Development’s (HUD) involvement in the 2013/2014 multibillion-dollar mortgage settlements between the U.S. Department of Justice (DOJ) and Bank of America, J.P. Morgan Chase, and Citigroup. The settlements, drafted by a number of government agencies including HUD, were intended to make the banks pay compensation for their alleged involvement in faulty residential mortgage securities practices that contributed to the 2008 financial crisis.

The agreements included “consumer-relief provisions” that required or permitted banks to provide billions of dollars in “donations” to government-approved third parties in lieu of paying funds to the U.S. Treasury. CoA Institute was suspicious of how this money would be given out, and we suspected favored special interest groups from the Obama-era were lobbying high-level HUD officials and seeking hand-outs. In 2016, CoA Institute filed a complaint after HUD failed to produce records responsive to our 2015 FOIA request, and in late 2016, the agency began producing responsive documents. As CoA Institute explained in a 2017 blog post, many of the early communications produced show evidence of the behavior we’re most concerned with. However, the most recent productions reveal an additional troublesome fact – there was a significant amount of uncertainty among influential HUD officials regarding the details of the agreements that led to HUD employees scrambling to answer settlement-related questions posed by popular media outlets.

The following screenshots are excerpts of internal HUD email communications regarding an inquiry from Fox News in 2015, about a year after the settlements were finalized. A Fox News reporter questioned whether La Raza and NeighborWorks America, both intermediaries[1], were “HUD-approved” and eligible to receive funding under the terms set forth in the settlements. Despite being responsible for providing the list of eligible beneficiaries for consumer-relief donations, HUD officials reveal in these communications a significant amount of uncertainty, confusion, and disagreement regarding what organizations are eligible to receive such donations. Specifically, they struggled to determine whether intermediaries and housing counseling agencies or solely housing counseling agencies were entitled to receive the funding. The screenshots included below are only pieces of the full email thread that continued for many pages as HUD personnel went back and forth with each other in an attempt to find answers.

Most of the individuals included in these emails were not only senior HUD officials at the time of the correspondence, but they were also in similar, if not the same, positions at the time the settlements were drafted. Those individuals included: Michelle Aronowitz was the Deputy General Counsel for Enforcement and Fair Housing from October 2009 until January 2017; from about 2009 until 2017, Jacob Press was a legal counsel and worked in HUD’s congressional relations office; Edward Golding was a senior advisor until April 2015 when he became the Principal Deputy Assistant Secretary for Housing; Sarah Gerecke remains the Deputy Assistant Secretary at the Office of Housing Counseling, the same role she had when the settlements were drafted.

The confusion illustrated in these communications raises a number of questions, including why didn’t these prominent HUD officials know which types of organizations (e.g., intermediaries, housing counseling agencies, etc.) were eligible to receive funding? And, why did it take so long to determine which organizations were considered “HUD-approved housing counseling agencies”? These are questions that should have been resolved in 2013 when the settlements were being drafted rather than a year after they were finalized. This confusion further illustrates the disturbing nature of these agreements, which benefited a substantial number of third-party organizations at the expense of those harmed.

A complete copy of the most recent HUD production that contained these emails can be viewed here and here.

[1] HUD-Approved Intermediaries provide supportive housing counseling services through a network of affiliates or branches. Services include training, pass-through funding, technical assistance, and overseeing their networks to ensure services are satisfactory. In contrast, HUD-Approved Housing Counseling Agencies directly provide advice on buying a home, renting, defaults, foreclosures, and credit issues.

Libby Rudolf is a litigation support analyst at Cause of Action Institute.

 

Media, Blog Learn More
03/15/2018

Inspector General Admits to Flawed FOIA Rule and Intends to Request HUD Revisions

The Department of Housing and Urban Development (“HUD”) Office of Inspector General (“OIG”) has responded to Cause of Action Institute’s (“CoA Institute’) letter requesting that the watchdog recall and revise its direct final rule implementing changes to its Freedom of Information Act (“FOIA”) regulations.  CoA Institute criticized the OIG’s cross-referenced definition of a “representative of the news media,” which improperly retained the outdated “organized and operated” standard, rather than incorporating the statutory definition.  The OIG now admits that its flawed FOIA rule “does not track the current statutory language,” and agrees that the D.C. Circuit’s decision in Cause of Action v. Federal Trade Commission is controlling.

As we previously explained, the OIG, as an independent component of HUD, maintains its own rules regulating public access to its records.  Yet the OIG still relies on department-wide FOIA policy in certain respects, including HUD’s general provisions for charging fees to requesters.  With respect to the definition of a news media requester, HUD’s regulations do not comport with statutory and judicial authorities.

Although the HUD watchdog concedes it promulgated a flawed FOIA rule, it will not commit to revising its regulations due to the “difficulty” of doing so.  The OIG has instead forwarded CoA Institute’s letter to HUD with the request that the agency-wide regulations be amended.

Unfortunately, HUD issued its own final rule implementing revised FOIA regulations back in January 2017.  When it did so, the agency did not solicit public feedback.  CoA Institute nevertheless submitted a comment to explain the deficiency in HUD’s rule.  That comment went unanswered and, to date, HUD has not indicated any intention of revisiting its flawed rule.  It is promising that the OIG agrees there is a serious deficiency in its regulations.  Considering that acknowledgement, though, the agency should undertake efforts now to fix the obvious error.

Ryan Mulvey is Counsel at Cause of Action Institute

Media, Blog Learn More
02/26/2018

CoA Institute Calls on HUD Watchdog to Pull Flawed FOIA Rule

Cause of Action Institute (“CoA Institute”) has sent a public letter to the Department of Housing and Urban Development (“HUD”) Office of Inspector General (“OIG”) to request that the agency watchdog recall and revise its recent direct final rule implementing changes to its Freedom of Information Act (“FOIA”) regulations.  Specifically, CoA Institute explained that the OIG’s flawed FOIA rule cross-references deficient fee provisions in HUD’s current department-wide regulations.

As an independent component of HUD, the OIG maintains its own rules regulating public access to its records.  In and of itself, this is not an unwelcome fact.  These component-specific FOIA regulations are important for maintaining the OIG’s independence and limiting the potential politicization of disclosure processes by HUD political staff.  Yet the OIG still relies on department-wide FOIA policy in certain important respects.  For example, the OIG cross-references many of HUD’s general regulatory provisions for charging fees to requesters.  The OIG’s new rule only slightly modified its existing cross-reference to reflect the changes introduced last year by HUD in response to the FOIA Improvement Act of 2016.

News Media Fee Category

Unfortunately, when revising its agency-wide regulations last year, HUD failed to eliminate the so-called “organized and operated” standard from its definition of a “representative of the news media.”  Such language has been used in the past to deny news media requester status to government watchdog organizations like CoA Institute.  Indeed, CoA Institute took the Federal Trade Commission to court, and argued its case all to the way to the D.C. Circuit, just to get the agency to acknowledge that its retention of the “organized and operated” standard was unlawful and led to improperly denying CoA Institute a fee reduction.  The D.C. Circuit eventually issued a landmark decision in CoA Institute’s favor to clarify proper fee category definitions and their application in FOIA cases.

Like the OIG earlier this week, HUD forwent a comment period and issued a direct final rule without any public feedback.  After CoA Institute nevertheless sent the agency a letter to explain the deficiency in HUD’s rulemaking, our comment went unanswered.  And, to date, HUD has not indicated any intention of again revising its own flawed FOIA rule to conform with statutory and judicial authorities.

CoA Institute has convinced a number of other agencies that solicited public comment to adopt a proper definition of “representative of the news media” in line with the FOIA statute and controlling case law.  Those agencies include, among others, the Consumer Product Safety Commission, Office of the Special Counsel, Department of Defense, U.S. Agency for International Development, and Department of Homeland Security.  We hope that the OIG will similarly acknowledge the need to revisit its flawed FOIA rule by eliminating the cross-reference to HUD’s improper fee provisions and adopting a proper definition of a news media requester.

Ryan Mulvey is Counsel at Cause of Action Institute

Media, Blog Learn More
10/13/2017

HUD Ignores the Law for 3 years: A Closer Look

Cause of Action Institute (“CoA Institute”) is investigating the U.S. Department of Housing and Urban Development (“HUD”) for its failure to comply with a 2014 court decision requiring the agency to award contracts based on a competitive bidding process. The United States Court of Appeals for the Federal Circuit held that HUD unlawfully categorized Performance Based Annual Contribution Contracts as “cooperative agreements” instead of procurement contracts.[1] Despite this ruling, HUD has continued to treat these contracts as cooperative agreements for the last three years, allowing unelected bureaucrats to award public housing funds to favored groups and blocking others from competing for the contracts. CoA Institute urges Secretary Ben Carson to bring HUD back into compliance immediately.

Cooperative Agreement v. Procurement Contract

The agency’s use of Performance Based Annual Contribution Contracts’s comports with the statutory definition of a procurement contract. A procurement contract exists when “(1) the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; or (2) the agency decides in a specific instance that the use of a procurement contract is appropriate.”[2] Conversely, a cooperative agreement exists when, “the purpose of the relationship is to transfer a thing of value, to carry out a public purpose of support.”[3] When HUD or any other federal agency uses a procurement contract, it must comply with federal procurement laws, such as the Competition in Contracting Act and the Federal Acquisition Regulation.[4] By improperly classifying Performance Based Annual Contribution Contracts’s, HUD was able to ignore these important contracting safeguards and to select any recipient it wished, making it ripe for cronyism.

Waste of taxpayer dollars

In addition to its defiance of a court order, HUD also harmed its relationship with PHAs like Navigate Affordable Housing Partners (“Navigate”), which had previously been eligible to compete for housing assistance dollars across state lines. HUD’s decision to alter its long-standing classification of these contracts was intended to generate an estimated savings of $208 million in voucher programs and $250 million in the public housing program.[5] Moreover, HUD announced it was not going to allow PHAs to compete for Performance Based Annual Contribution Contracts’s outside of their home states even though some, like Navigate, had competed beyond state lines and were able to provide the government with the best value.[6]

Change on the Horizon

According to a recent Washington Examiner article, discussions of HUD’s return to the competitive bidding process has already begun. HUD officials, however, have failed to elaborate on when the necessary changes will take place. CoA Institute will continue to monitor HUD’s unacceptable delay in complying with the court’s orders. Additionally, CoA Institute will continue to examine whether other government agencies are partaking in the same or similar unlawful activity as HUD.

HUD should take immediate action to ensure that its policies are in line with federal law to ensure money intended for public housing isn’t wasted on bureaucrats’ favored PHAs.

Travis Millsaps is counsel and Katie Parr is a law clerk at the Cause of Action Institute

 

[1] See United States v. CMS Contract Mgmt. Servs., 745 F.3d 1379, 1380 (Fed. Cir. 2014) cert. denied subnom.

[2] 31 U.S.C. § 6303.

[3] See 31 U.S.C. § 6305.

[4] See CMS Contract Mgmt. Servs, supra note 1, at 1381; see also Competition in Contracting Act, P.L. 98-369, §§ 2701-2753, 98 Stat. 1175 (1984) and 48 C.F.R. 31 2017 et seq.

[5] Press Release, Nat’l Ass’n of Hous. & Redevelopment Officials, NAHRO Analyzes Impact of HUD Proposed Savings (Oct. 31, 2012), available at http://www.nahro.org/nahro-analyzes-impact-hud-proposed-savings.

[6] See CMS Contract Mgmt. Servs., supra note 1 at 1383.

Blog, Media Learn More
08/8/2017

Documents Reveal Special Interest Groups Lobbied HUD for Mortgage Settlement Funds

Groups committed to “revolutionary social change” sent proposals, met with high-level HUD officials

The Obama-era appears to have been a flush time for a number of favored special interest groups seeking hand-outs. It now appears that the previous administration’s pattern and practice of circumventing the congressional appropriations process to funnel money to third-party groups may have been more widespread than we thought. Beginning in 2013, the federal government entered into a number of settlements with major banks to resolve claims related to the issuance of residential-mortgage-backed securities. These settlements included billions of dollars in “consumer relief” payments that should have gone to the alleged victims, but instead were funneled to third-party organizations, including to those favored by the Obama administration.

CoA Institute has been investigating these settlements for several years and has recently uncovered documents indicating that some of these third-party organizations were directly lobbying high-level Housing and Urban Development (“HUD”) officials for a piece of the settlement pie. These documents are consistent with prior records discovered by the House Judiciary Committee regarding similar lobbying of Department of Justice (“DOJ”) officials.

In May of 2015, the House Judiciary Committee wrote a letter to the DOJ requesting information and documents relevant to the residential-mortgage-backed securities settlements.  The information they received suggested that some third-party organizations were advocating for provisions that included mandatory donation requirements from which they would benefit.

One of the communications the House Judiciary Committee received was an email sent on November 8th, 2013 from the Leadership Conference on Civil and Human Rights (LCCHR) to the DOJ.  In the email, LCCHR urged the DOJ to include funds in the JP Morgan settlement promoting community restoration and specifically seeking investment in Virginians Organized for Interfaith Community Engagement (VOICE) and their Metro Industrial Areas Foundation (Metro-IAF) affiliates. The DOJ also provided the House Judiciary Committee with an email from VOICE leadership to the head of legislative affairs at the DOJ.  VOICE asked to set-up a meeting to make the argument that grants to community equity restoration funds be mandatory in all future settlements.

Commentators have noted that groups like VOICE and their IAF affiliates have “a commitment to what [they] call ‘revolutionary social change’” promoted through their own training institutes. One “objective of the training is to help leaders see the connection between their local issues and the broader national IAF objectives and associated progressive causes.”

CoA Institute recently received documents from HUD that are similar to those that the House Judiciary Committee received from the DOJ two years ago.  CoA Institute filed a FOIA request for information on HUD’s involvement in the mortgage settlements.  After filing a complaint against HUD for failing to disclose its role in the mortgage settlements, COA received documents including the segments below from HUD. The HUD documents reveal communications between HUD and VOICE, the same organization that had been lobbying the DOJ to receive settlement funds.

For instance, the following is an email between senior policy advisor Michelle Maiwurm, then working for Sen. Mark Warner (D-VA), and Damon Smith, then Principal Deputy General Counsel at HUD, discussing opportunities for third parties, such as VOICE, to submit proposals for the settlement agreement.

The lead organizer at VOICE, Martin Trimble, responds to a meeting with HUD officials Lelaine Bigelow and Damon Smith earlier that day and attaches the fund proposal.

 

Here are the relevant portions from VOICE’s proposal for the VOICE/Metro IAF National Community Equity Restoration Fund mentioned in the previous email correspondence.

The parallel evidence discovered from documents submitted to the House Judiciary Committee and those provided to CoA Institute helps explain why Attorney General Jeff Sessions recently prohibited DOJ from entering into settlement agreements that provide for payments to non-governmental, third-party organizations that are not parties to the dispute. In order to ensure this problem won’t reoccur in a future administration or with other agencies, however, Congress should pass the Stop Settlement Slush Funds Act of 2017. This bill would prevent all agencies, not just DOJ, from entering into these slush-fund agreements, would remove agencies’ ability to divert funds to politically-aligned third-parties and would allow them to be disbursed to actual victims of the alleged violations or deposited in the Treasury, as required by law.

Josh Schopf is Counsel and Cara Brown is Law Clerk at Cause of Action Institute, a Washington, D.C. non-profit oversight group advocating for economic freedom and individual opportunity.

 

 

 

Media, Blog Learn More
06/7/2017

Cause of Action Institute Applauds AG Sessions’ Termination of Settlement Fund Payouts to Third-Party Groups

Cause of Action Institute (“CoA Institute”) applauds Attorney General Jeff Sessions’ prohibition on settlement agreements that include a payment or loan to non-governmental entities that are not parties to the dispute. On June 5, 2017, AG Sessions issued a memorandum entitled “Prohibition on Settlement Payments to Third Parties” to senior Department of Justice (“DOJ”) officials.[1]  The memorandum prevents all DOJ attorneys from “enter[ing] into any agreement on behalf of the United States in settlement of federal claims or charges, including settling civil litigation[.]”[2]  AG Sessions has taken an important first step to reign in agency overreach that impels private companies to foot the bill for an administration’s otherwise unfunded policy objectives.

Cause of Action Institute President and CEO John Vecchione: “I applaud Sec. Sessions for his bold reversal of the previous administration’s unwise pattern of using settlements with private companies to fund favored political projects. These deals were negotiated behind closed doors and wound up funneling money to third party groups rather than to the victims of the Defendant’s alleged misconduct. The government should not abuse the settlement process to fund favored political causes, often in direct contravention of Congress’ appropriation authority. The Trump administration’s strong stance against these ill-conceived deals is a step in the right direction, but this policy should be codified in statute as well.”

For years, CoA Institute has raised concerns about these settlement practices. Two years prior to the DOJ memorandum, CoA Institute began investigating  DOJ’s multi-million dollar, closed-door settlements with banks over their alleged faulty mortgage practices.  The opaque settlement process provided no accountability and prevented congressional oversight of what should be taxpayer funds.[3]  We submitted a FOIA request and a petition for rulemaking to seek clarity from DOJ regarding its statutory authority to enter into these settlement agreements that require private companies to allocate significant settlement funds to third-party groups.[4]  We also raised concerns about how—and who—selected the third-party recipients of the payouts.  If DOJ required the payouts go to specific third-parties, then the administration could direct millions of dollars to any administration-favored organization.  The bank settlements also provided an incredible incentive for the banks to “donate” the money to such favored causes—a 2-to-1 penalty forgiveness provision.  In the bank settlement cases the settlement funds were being directed to liberal groups approved by the Department of Housing and Urban Development and the Department of the Treasury.

CoA Institute has continued to monitor this issue as other agencies, often in conjunction with DOJ, entered into settlement agreements providing money to third-party groups unrelated to the alleged violations.[5]  Recently, we wrote a letter to EPA Administrator Scott Pruitt regarding an Obama-era settlement with Harley-Davidson, Inc. that funneled $3 million to a project unrelated to the alleged violations.[6]  The Harley-Davidson consent decree follows the same pattern of abuse: an agency brings an enforcement action against a company that is settled quickly behind closed doors and provides for a payout to a politically aligned organization.  In the Harley-Davidson case, EPA required a $3 million “Emissions Mitigation Project” to remedy the alleged violations of the Clean Air Act.

While the DOJ memorandum provides a carve-out for payouts that “directly remed[y] the harm sought to be redressed,” the Harley-Davidson agreement fails to connect the alleged violation—excess gas and nitrogen oxides emissions—to the project—replacing wood-burning appliances in the northeast. Given the lack of the required nexus, EPA overstepped its authority by requiring Harley-Davidson to fund the changeout project and should look to replace that project with one that remedies the alleged violations.  Further, the project replaces these appliances by having a third-party group distribute funds to individuals that buy new appliances.

In 2009, Congress increased a tax credit to help fund wood-burning appliance changeouts, but in 2011, the following Congress slashed that tax credit. EPA’s requirement that Harley-Davidson fund the wood-burning appliance project essentially supplants the congressional appropriations process by providing funding for a program that Congress defunded.

Congress has also raised concerns about this usurpation of its authority to spend funds. In order to prevent these projects from reemerging under a new administration, Rep. Bob Goodlatte (R-Va.) has introduced the Stop Settlement Slush Funds Act of 2017 which has passed out of committee to be taken up by the full House.[7]  This legislation will prevent all agencies, not just DOJ, from entering into these slush-fund settlement agreements with non-governmental entities that are not parties to the litigation.  This bill will remove agencies’ ability to divert funds to politically-aligned third parties and allow them to be disbursed to actual victims of the alleged violations or deposited in the Treasury, as required by law.

[1] Memorandum from Jeff Sessions, Attorney Gen., U.S. Dep’t of Justice, to U.S. Attorneys et al. (June 5, 2017), available at https://www.justice.gov/opa/press-release/file/971826/download.

[2] Id.

[3] See Dan Epstein, Obama DOJ Channels Bank Shakedown Money to Private Groups, Investor’s Bus. Daily (July 7, 2015), http://www.investors.com/politics/perspective/justice-department-says-bank-shakedowns-public-service/.

[4] Press Release, Cause of Action Inst., Cause of Action Launches Investigation into the Justice Department’s Settlements with Large Financial Firms (June 17, 2015), https://causeofaction.org/cause-of-action-launches-investigation-into-the-justice-departments-settlements-with-large-financial-firms/.

[5] See generally Congress to Consider a Bill to Halt Government Slush Funds, Cause of Action Inst. (Sept. 7, 2016), https://causeofaction.org/growing-concern-over-controversial-mortgage-settlements/.

[6] Press Release, Cause of Action Inst., Pruitt Should Reconsider Obama-Era Settlement with Harley-Davidson that Funnels Millions to an Unrelated, Politically-Favored Project (June 1, 2017), https://causeofaction.org/pruitt-reconsider-obama-era-settlement-harley-davidson-funnels-millions-unrelated-politically-favored-project/.

[7] Stop Settlement Slush Funds Act of 2017, H.R. 732, 115th Cong. (2017).

Media, Blog Learn More
07/13/2016

Cause of Action Institute Sues HUD to Disclose its Role in Controversial Mortgage Settlements

Banks required to provide “donations” to government-approved third parties

Washington D.C. – Cause of Action Institute (CoA Institute) today filed a complaint in the U.S. District Court for the District of Columbia against the United States Department of Housing and Urban Development (HUD) for failing to produce records about its role in the federal government’s multi-million dollar agreements with big banks over their allegedly faulty residential mortgage securities practices.  HUD has failed to produce relevant documents for more than a year after CoA Institute filed a Freedom of Information Act (FOIA) request for information.

Cause of Action Institute President & CEO, and former federal judge, Alfred J. Lechner, Jr.: “Taxpayers deserve to know why the money from these agreements is going to third parties and not being returned to the Treasury Department.  The Obama administration should be held accountable when agencies like HUD make decisions behind closed doors and fail to produce timely relevant documents in accordance with the law.”

Starting in 2013, the Department of Justice (DOJ) in collaboration with HUD and other agencies entered into a series of agreements with three large banks to resolve potential federal and state legal claims that these institutions knowingly sold billions of dollars in faulty residential mortgage-backed securities to investors prior to and during the 2008 financial crisis.  These agreements contain so-called consumer relief provisions requiring or permitting that banks provide “donations” to government-approved third parties in lieu of paying funds to settle the federal claims into the U.S. Treasury.

CoA Institute, a nonprofit legal watchdog organization, has led efforts to investigate these controversial agreements.  Last year, CoA Institute issued multiple public records requests aimed at exploring whether the federal government was authorized to encourage or force banks to steer funds to these third-party groups that support various initiatives backed by the Obama administration.  One of these requests was submitted to HUD on July 8, 2015.

HUD has failed to respond or produce any documents in response to CoA Institute’s request.  Recent evidence uncovered by the House Financial Services Oversight & Investigations Subcommittee, chaired by Congressman Sean Duffy, indicates that these agreements were structured, in a DOJ-HUD collaboration, with, in Chairman Duffy’s words, a “keen eye to make sure conservative groups could not access any money through these settlements.”

CoA institute is suing to force HUD to respond to its request and to get to the bottom of these issues.

  • Cause of Action Institute’s full complaint with exhibits is available HERE.
Press Release, Media Learn More