Harvard Suggests Solution to HUD Mess: Shutter It

By Timmons, Heather | American Banker, January 8, 1998 | Go to article overview

Harvard Suggests Solution to HUD Mess: Shutter It


Timmons, Heather, American Banker


There's only one way to stop the fraud and inefficiencies that have afflicted the Department of Housing and Urban Development, a recent Harvard University study says: Shut the agency down.

"Abuse of the program has plagued HUD almost from the start," said Howard Husock, director of case studies in public policy at Kennedy School of Government and author of The Inherent Flaws of HUD. "It just keeps on keeping on."

Mr. Husock's study follows a rough year for the agency. Predatory lending practices surfaced in HUD's reverse mortgage program, and internal fraud was discovered in its contracting division.

In addition, former HUD secretary Henry Cisneros and two other HUD employees were indicted for lying to the Federal Bureau of Investigation, and mortgage lenders criticized the agency for its inability to finalize compensation legislation.

Mr. Husock's study argues that HUD's problems are rooted in its very premise: Fraud occurs at the agency because its lending program is backed by guarantees and artificially seeks to invest capital where it wouldn't normally go.

Instead, inner cities should be allowed to run their natural course, Mr. Husock said. "Neighborhoods will come back of their own accord," he said. Although eliminating housing subsidies may hurt some individuals in the short run, that should not be factored into the bigger picture, he said.

"We're spending $8 billion a year on federal housing subsidies," Mr. Husock said. "That's a lot of money."

Mr. Husock favors eliminating the Community Reinvestment Act and the Low Income Tax Credit entirely. "Bankers are caught in a vortex" that puts them at an unfair business advantage, he said. …

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