"Pervasive culture of waste and abuse" discovered in Nevada Hardest Hit Fund program

Thanks to what investigators are calling a “pervasive culture of waste and abuse,” millions of dollars from the federal government that were supposed to help struggling Nevada homeowners keep their homes instead went to pay for cars, holiday parties, employee bonuses, employee gifts, employee outings, staff lunches, and a number of other wasteful expenses, a scathing investigation by a federal watchdog found.

According to a new report from the Office of the Special Inspector General for the Troubled Asset Relief Program (also called SIGTARP), the state-designated contractor in charge of Nevada’s portion of the government’s Hardest Hit Fund wasted $8.2 million that was designated pay for the administration costs of the program, all while dramatically cutting the number of struggling homeowners that the program actually helped.

The Hardest Hit Fund was created in 2010 and is designed to help state housing finance agencies assist struggling homeowners and help stabilize neighborhoods in many of the nation’s hardest hit communities, as part of the Troubled Asset Relief Program.

The program saw billions of dollars funneled to state housing agencies to operate foreclosure prevention and neighborhood stabilization solutions in the 19 states that were the most impacted by the housing crisis.

One of those states is Nevada, where the rate of foreclosure still ranks in the top five nationally.

The SIGTARP report shows that so far the Department of the Treasury provided $202 million in HHF funds to the Nevada Housing Department, which in turn tasked the Nevada Affordable Housing Assistance Corporation with administering the program in the state.

In addition to receiving federal funding pass along to struggling homeowners in various forms, the state housing agencies also received funding to administer the program.

According to the SIGTARP investigation, the Nevada state agency received $16.6 million to pay for its expenses, but used only roughly half of that amount as designed.

The remaining $8.2 million went to a number of expenses that were well outside the boundaries of what the federal funding was designated for.

According to Christy Goldsmith Romero, Special Inspector General For The Troubled Asset Relief Program, the Nevada Affordable Housing Assistance Corporation used the program as a “cash cow for every expense imaginable while all but stopping admitting new homeowners.”

Per SIGTARP data, Nevada’s acceptance rate for borrowers into the Hardest Hit Fund program plummeted by 94% from 2013 to 2015, while at the same time, the Nevada Affordable Housing Assistance Corporation used federal money on “wasteful expenses.”

According to the SIGTARP report, the number of homeowners admitted to the program plummeted from 2,111 in 2013 to 541 in 2014 and 117 in 2015.

But at the same time, the NAHAC continued to spend millions of dollars in administrative expenses.

“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,” Romero said. “That is the textbook definition of waste and abuse.”

And by textbook, Romero literally means textbook.

According to SIGTARP, the Government Accountability Office defines waste as “the act of using or expending resources carelessly, extravagantly, or to no purpose”, described also as “taxpayers do not receive reasonable value for money in connection with any government-funded activity due to inappropriate acts or omissions by officials with control over or access to government resources.”

The GAO also defines abuse as “behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary…. This includes the misuse of authority or position for personal gain or for the benefit of another.”

All of which NAHAC engaged in, according to SIGTARP.

“We did not find isolated incidents, or that waste was under certain leadership,” Romero said.

“We found a pervasive culture of waste and abuse, coupled with a lack of performance,” Romero continued. “To allow this contractor to remain in this program puts millions of taxpayer dollars at significant risk and is a lost opportunity to give Nevada homeowners a fresh start to receive these funds.”

The SIGTARP investigation found that n 2015 the Nevada state agency kept nearly one TARP dollar for itself for every TARP dollar it provided to a homeowner.

For six months in 2015, NAHAC kept more in TARP money for itself than it distributed to homeowners.

According to the SIGTARP report, its investigation, which began after discovering that homeowners in Nevada were not receiving HHF funds, uncovered misuse of government money in numerous, and in some cases, brazen incidences.

“SIGTARP found that the Nevada state agency used TARP rescue funds to treat their employees — $500 a month car allowance to the CEO who drove a Mercedes Benz, holiday parties at a casino and country club, holiday gifts, a company picnic, a massage gift certificate, a baby gift, gift certificates for movies and restaurants, Amazon gift cards, regular lunches and food, birthday cakes, a retirement cake, an expensive fruit basket, even a ‘manager outing’ at an establishment dubbed the nation’s best high volume cocktail bar, and moving to the gleaming $130 million City Hall building in North Las Vegas, described as the ‘Taj Mahal’ in the New York Times, nearly doubling the rent it paid for even more space than it needed, and a bonus and later a 2 month severance package for a non-performing CEO — all charged to the Hardest Hit Fund,” the SIGTARP report states.

At issue is the use of federal funds to essentially fund the entire agency, which is not how the Hardest Hit Fund program is designed to work. Under the terms of the Hardest Hit Fund program, the government provides funding to administer the program but the state agency is supposed to provide all additional operating capital.

But that’s not what happened in Nevada.

“TARP essentially funded the state agency, including rent on two offices and the salaries of employees, for an agency who did not perform under their contract with Treasury,” SIGTARP said. “The state agency dropped homeowner admissions to the program to only 6% of admissions at its peak year, but still sought 100% of their overhead from TARP. The agency should repay $7.4 million in rent, utilities, and payroll.”

According to SIGTARP, NAHAC also used hundreds of thousands of dollars in federal funding defending itself against a federal labor investigation that found NAHAC broke the law and employee discrimination lawsuits.

“This is not a case of mistake or negligence. SIGTARP found a deliberate attempt by the Nevada state agency to charge the Hardest Hit Fund for every expense it could, all while it denied Nevada homeowners admission to the program,” SIGTARP’s report showed.

“Sometime over the last three years, this state agency lost sight of the fact that it is only in this program to be the conduit through which Treasury provides TARP rescue funds to Nevada homeowners to help them stay in their homes,” SIGTARP continued. “The Hardest Hit Fund was not intended to be a cash cow for participating state agencies.”

Interestingly, earlier this year, the Treasury announced $2 billion in additional funding for the HHF nationwide.

Of that, nearly $9 million went to the state of Nevada, despite the state only handing out 57.7% of the HHF money it received as of February 2016.

According to the Treasury data, at the time, Nevada’s utilization of HHF funding was lowest among the 18 states to receive additional funding.

In some cases, the affected states had already exhausted 100% of the previous HHF allocations, while others, including North Carolina, New Jersey, Ohio, Michigan and Tennessee have utilized nearly 90% of their previously allocated funds.

That round of funding was followed by an additional round of funding, which Nevada did not apply for.

As for the state’s HHF program now, SIGTARP suggests wholesale changes.

“The Nevada Housing Division should immediately fire its contractor and repay all bailout funds that were wasted and abused, which total $8.2 million,” Romero said. “The strongest recommendation we can make to Treasury is that Treasury not let that contractor anywhere near HHF.”

To read the SIGTARP report in full, click here.

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