When Carolyn Federoff joined the Department of Housing and Urban Development in 1986, she believed in the agency’s mission of providing affordable housing and revitalizing cities, and many of her 10,000 colleagues shared her idealism.
Today, Federoff and many of her colleagues feel more frustrated than idealistic. The agency is down to 8,600 employees, and is slowly disintegrating as experienced employees depart and those who remain bemoan the lack of leadership and pervasive sense of powerlessness at the agency.
“Eighty percent of us came to work for HUD because of the mission. We're not satisfied with mediocrity,” said Federoff, who is president of Council 222 of the American Federation of Government Employees (AGFE). “It is not pleasant to come to work and have to face customers with legitimate requests and legitimate needs, and be the front line for HUD's endless excuses.”
A few hundred miles away, the former director of a state housing agency remembers how frustrating it was trying to work with HUD collaboratively. “They did not want to be our partner. They treated us like the enemy,” the former director said. “The bottom line is things are not getting done, things that are not that difficult to do.”
Successful housing developers who have worked with HUD frequently in the past told AHF they feel it’s no longer worth the aggravation and cost. “HUD has become such an entrenched bureaucracy that it is no longer effective and cannot be fixed. The cost of dealing with HUD has reached the point it where it just isn’t worth it anymore,” said a senior executive of a private housing development and management firm who has worked with FHA programs, including the Sec. 236 program, since 1975. He said HUD staff often seem more interested in finding minor flaws with transactions than in finding ways to solve problems.
HUD has a history of bad management and poor responsiveness to markets and programs users under both Democratic and Republican leaders. But a large number of program users have told Affordable Housing Finance they think it has gotten much worse since George Bush has been president. That’s largely because, judging from his public statement Bush cares only about homeownership programs and fighting homelessness, and he has given no support at all to other aspects of HUD’s mission.
Many sources said HUD Secretary Alphonso Jackson is knowledgeable about housing but is a poor leader who has allowed the agency’s performance to worsen in many regards.
“My biggest beef with Jackson is that he is an invisible leader within HUD, and this shows in that Agency's administrative drift,” said one respondent to an AHF readers’ survey in 2006. “In the 35 years I have been working with HUD, I have rarely seen it so administratively demoralized, slow to roll out new initiatives and resolve management issues, and so detached from its constituents.”
The agency that once produced hundreds of thousands of units of new and rehabilitated affordable housing yearly now does very little to add to the stock of affordable housing. The agency is now mostly focused on preservation of thousands of apartment projects it has previously financed and built, but its results are generally poor.
“We as a nation cannot afford to lose that housing, and HUD does not have an effective policy to preserve it. In fact it does many things that work against preservation,” said one former senior HUD official.
“You get the sense from them (HUD) sometimes that they feel no responsibility to maintain it in any way,” said a former state housing agency director in regard to the Bush administration’s refusal to adequately fund public housing rehab operations.
The agency’s main programs for helping to produce new housing are the mortgage insurance programs of the Federal Housing Administration (FHA). But multifamily production has been shrinking. From Oct. 1, 2006 to May 14, 2007, FHA only issued firm commitments to insure 64 loans for to-be-built or to-be-rehabbed apartments, and none were out of its Los Angeles, New York, or and Seattle offices. The agency offers some of the best loan terms around but borrowers are turned off by its slowness, red tape, and lack of flexibility.
Even when it comes to single-family homeownership, the only aspect of housing policy that seems to interest Bush, FHA is not doing well. The agency’s share of single family lending has dropped from 16 percent in 2000 to 5 percent in 2004. It is now estimated at between 2 and 3 percent. At the same, the percentage of FHA home loans that were delinquent has risen from 11.8 percent in second quarter of 2002 to 13.5 percent in the fourth quarter, or about the same percentage as the much-criticized subprime lending industry, according to the Mortgage Bankers Association.
Congressionally approved budget cuts have been a large part of the problem but a wide range of HUD users and program analysts say the agency could accomplish a great deal more with the same funding levels if it would improve its management and streamline its programs.
Can HUD reclaim the role it once played as a leader in housing? “The department needs good solid managers to build morale and attract talent. They are not there now,” said Rick Lazio, the former Republican congressman from New York who once headed the House housing subcommittee, speaking at the AHF LIVE Conference last October.
Like Lazio, most experts interviewed by AHF think that the only hope for HUD is a strong new secretary who will bring in high-quality managers based on their ability, not their political loyalties.
Under the current leadership at HUD, many sources said, the key to doing business successfully is working with one of the field offices that has good staff willing to take chances. In such offices, staffers operate independently and decisively, and avoid actions that would require the involvement of HUD headquarters staff.
“There was no leadership coming from Washington,” said a former high-level HUD field office staffer, who took it upon himself to make things happen in his office with preservation and other projects.
Not only would headquarters not take any chances or show any innovation in their approach to development challenges, they were painfully slow to respond at all. The HUD field office executive said it would often add six to 12 months to the development process if a request had to be sent to HUD headquarters.
The current HUD secretary and his predecessors are inclined toward autocratic, top-down management, wherein headquarters dictates policies without doing anything to get the views or support of field staff, and often without bothering to train field staff on how to implement the policies, AHF was told.
Andrew Cuomo was considered a very knowledgeable and hardworking secretary. However, his effort to make HUD more responsive to local communities by appointing “community builders” who served a community outreach role was doomed, some said, because he never sold the policy to regular program staff. They did not support the program and actually worked to undermine it, a HUD staffer told AHF.
The most common complaint from HUD users has little do with grand policy choices or innovative program design. It is simply HUD staff’s inability make decisions quickly and its unwillingness to take any risks in its decision-making.
To HUD users, the agency seems more than just slow. In certain offices and for certain programs, it would be easy to conclude that the goal is to prevent deals from getting done and drive the parties to the deals crazy in the process.
Consider the so-called “2530” previous participation review process, which is intended to identify participants in a deal and their prior dealings with HUD. First, HUD applies it very rigorously, so that a large number of parties to a deal have to submit all information about their past involvements with HUD deals and get clearance. The reviews were time-consuming, costly, and did very little to protect the taxpayers. Then HUD decided to eliminate paper filings and require the filings to be done electronically. One slight problem: the electronic system it set up to do that does not work much of the time.
The simple notion of getting agency staff to make consistent decisions in a timely way looms as large as an impossible dream to many program users.
To make any impact on bureaucratic inertia, a new leader needs to start with the fundamental task of rebuilding HUD’s work force by recruiting more experienced people, and providing much more effective training and then empowering them to act.
The first step is to make HUD an appealing place to work again.
Morale is horrible at HUD, particularly at headquarters, Federoff and others said. A number of experienced executives have resigned in recent years, largely because of frustration with the agency’s inertia and the political activities of its top executives. The morale of field staff varies. But sources said most field staff share a sense of powerlessness and frustration with the agency’s political leaders, and sometimes take their anger out on HUD program users.
A well-trained, well-qualified staff motivated by a sense of mission would be a huge achievement, but AHF’s sources also hope for a fundamental change in how HUD views its role and how it runs its programs.
They think HUD should tear up the playbook it still carries over from its origins during former President Lyndon Johnson’s “Great Society” policy initiatives of the 1960s. To be relevant in the future, HUD should rely more heavily on private real estate market forces and much less on detailed, proscriptive regulations and narrowly focused categorical programs.
Many experts think HUD relies far too much on a “retail” approach, reviewing individual transactions and trying to apply very detailed regulations. It’s inherently inefficient, and with less than full staffing by highly trained people, it’s very difficult to do this effectively, especially when innovative approaches don’t fit a standard mold.
“HUD's current situation benefits no one. Is HUD still a retail entity administering active programs? If the answer is ‘yes’, then the administration should budget properly funding all of HUD's current programs, and Congress should provide that funding,” said David A. Smith, CEO of Recap Advisors, LLC. “If ‘no’, then we should acknowledge that HUD is nothing more than a conduit for various targeted block grants, give the financial administration and oversight to the states, separately spin out FHA, and eliminate HUD as a cabinet department,” he added.
The National Council of State Housing Agencies (NCSHA) wants HUD to “build a culture that encourages employees to approve innovative approaches to solving housing problems and give program administrators more flexibility,” said Garth Rieman, director of housing advocacy and strategic initiatives.
Private developers, both profit-motivated and nonprofit, would like HUD to stop trying to micromanage every aspect of the deals it finances and rely on normal market forces. They say HUD should follow the lead of the housing tax credit program, which has produced more than 1.5 million apartments with a minimal commitment of government staffing by relying heavily on private investors in deals to make sure they are run properly and that developers take responsibility for compliance.
To its credit, the Bush administration has made some attempts to increase the flexibility of HUD programs, particularly the housing voucher program. But state and local agencies are concerned that in the current budget situation, flexibility also means funding cuts.
The agency’s record in actually increasing flexibility, even when directed to do so by Congress, is poor. In 1989, Congress passed legislation directing HUD to begin deregulating public housing, but HUD has been very slow to implement the law. (For an in-depth look at HUD’s implementation of the public housing law, see AHF March, page 46)
Many observers blame this sluggishness on weak leadership, and for executives’ inability to overcome the inherent reluctance of HUD staff to give up control they now exercise over individual transactions and local housing authorities.
While state housing agencies have steadily gained stature and capacity over the last 25 years, HUD has steadily lost those things, and don’t think HUD staff don’t resent it. For many years, at least since the early 1980s, HUD has had more of an adversarial than collaborative relationship with states.
“HUD has not adapted successfully to the devolution of housing program. Housing policy is increasingly being made at the state and local level, and HUD is not set up to effectively "add value" to state and local decision-making,” said Jeffrey M. Lubell, executive director of the Center for Housing Policy, the research affiliate of the National Housing Conference (NHC). He has served as director of the policy development division of the Office of Policy Development and Research at HUD.
The bulk of new federally assisted housing comes from the state-administrated housing tax credit program, which HUD has little to do with. When a developer wants to combine housing tax credits with assistance that is administered by HUD, such as Sec. 8 rental assistance, it can be problematic. Developers say HUD shows no interest in helping resolve conflicts between its programs and the tax credit rules.
There is still a chance that HUD can be dragged into the twenty-first century and begin to close the gap between its methods and the best practices of the nation’s highly successful state and local housing agencies. It has some excellent programs that work well.
One of the most widely cited successes is Ginnie Mae, which provides guarantees for bonds backed by FHA-insured mortgages. The Ginnie Mae regulations are minimal and there is a detailed program guide. “Lenders and other partners are consulted before major changes are made so that implications for the programs are fully understood before implemented. Lenders are viewed as partners, not adversaries,” said Cheryl Malloy, senior vice president of multifamily and governance for the Mortgage Bankers Association (MBA). The Risk-Sharing Program, which allows state housing agencies to handle underwriting of FHA loans, has been a tremendous success, Malloy said. “But HUD should take this program further, delegating more completely and eliminating counter-productive restrictions like refusing to allow cash-out refinancing.”
Another success is the performance-based Section 8 contract administration initiative, under which HUD has contracted with many state HFAs to administer project-based Sec. 8 contracts, according to NCSHA. But even this program should be more results-oriented, focused more on desired outcomes than mandated procedures. To its credit, HUD is reconsidering this program and looking for ways to improve it, NCHSA said.
The HOME program is a good example of a program that works well, too. HOME delegates substantial decision-making authority to state and local HFAs.
HUD also has many hundreds of very motivated employees who wish their organization did more to help them achieve its mission.
“I am totally dedicated to the mission of HUD and love what I am able to do through HUD.” “My gratification comes through my team and my community, not from the organization.”
Click here for The Top 10 Ways to Improve HUD.