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REDUCING WASTE, FRAUD, AND ABUSE 

IN HOUSING PROGRAMS: INSPECTOR 

GENERAL PERSPECTIVES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 10, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–41 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

PATRICK T. MCHENRY, North Carolina, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

SEAN P. DUFFY, Wisconsin 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

AL GREEN, Texas, Ranking Member 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

CAROLYN B. MALONEY, New York 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 10, 2013 .......................................................................................... 1 

Appendix: 

September 10, 2013 .......................................................................................... 21 

WITNESSES 

TUESDAY, SEPTEMBER 10, 2013 

Montoya, Hon. David A., Inspector General, Office of the Inspector General, 

U.S. Department of Housing and Urban Development ..................................... 4 

APPENDIX 

Prepared statements: 

Montoya, Hon. David A. ................................................................................... 22 

(1) 

REDUCING WASTE, FRAUD, AND ABUSE 

IN HOUSING PROGRAMS: INSPECTOR 

GENERAL PERSPECTIVES 

Tuesday, September 10, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Patrick T. McHenry 

[chairman of the subcommittee] presiding. 

Members present: Representatives McHenry, Fitzpatrick, Duffy, 

Fincher, Hultgren, Wagner, Barr; Green, Maloney, Delaney, 

Sinema, Beatty. and Heck. 

Chairman MCHENRY. The Subcommittee on Oversight and Investigations of the Financial Services Committee will come to order. 

The hearing today is entitled, ‘‘Reducing Waste, Fraud, and 

Abuse in Housing Programs: Inspector General Perspectives.’’ And 

we have one witness today in the first panel. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

And now, we will recognize both the ranking member and the 

chairman for an opening statement, and then we will get on with 

the Inspector General’s testimony. I recognize myself for 5 minutes. In Fiscal Year 2013, Congress allocated $34 billion for the Department of Housing and Urban Development’s (HUD’s) budget, 

with an additional $16 billion appropriated to HUD’s Community 

Development Block Grant (CDBG) program in the aftermath of 

Superstorm Sandy. 

In the first 6 months of this year, the HUD Inspector General’s 

(IG’s) office has released 49 audits, which included recommendations that $739.5 million in funds be put to better use. These 49 

audits also identified over $770 million in questioned costs and 

more than $1 billion in collections from audits. 

As a result of the HUD IG’s investigations of suspected fraud in HUD programs, HUD has so far recovered $74.9 million, and the 

investigations resulted in 225 indictments or information gathering 

and 270 convictions, pleas or pretrial diversions during this fairly 

short 6-month period. 

Of particular concern to this committee is the handling of the 

CDBG program, the largest source of Federal financial assistance 

to support State and local neighborhood revitalization, housing reVerDate Nov 24 2008 15:24 Mar 19, 2014 Jkt 086676 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\86676.TXT TERRI
2 

habilitation, and economic development activities. Over the years, 

HUD has failed to adequately account for how taxpayers’ funds are 

being spent in the CDBG program, leading to wasteful spending 

and frivolous pork barrel projects. 

Although one of the three natural program objectives for the 

CDBG program is that projects principally benefit low- and moderate-income persons, critics have noted that the CDBG funds often 

end up being used for parks, pools, street signs, and community 

centers, thus diverting dollars from those communities with the 

greatest need, in particular housing. In fact, The New York Times 

has exposed a practice where well-off communities sold grants to 

other communities in exchange for smaller purses that had no 

strings attached. This is very troublesome. It also highlights a concern that CDBG’s formulas for disbursing grant funds may be outdated and unsuitable for today. 

Others have commented on administrative failures within the 

program. The Government Accountability Office (GAO) has noted 

failures in HUD’s ability to track funds appropriated in the program. This goes back to a 2006 GAO review of the CDBG program 

which found that HUD does not centrally maintain the data needed 

to determine compliance with statutory spending limits. GAO 

added that HUD had not developed a plan to replace monitoring 

staff or fully involved its field staff in plans to redesign an information system that they use to monitor these grant recipients. 

I understand the Office of Inspector General has worked tirelessly to fight waste, fraud, and abuse identified within HUD, and 

I look forward to our testimony today from the Inspector General, 

Inspector General Montoya, on ways in which HUD can better 

track the taxpayers’ money and put it to best use as the Congress 

intended. 

With that, I yield back the balance of my time, and I recognize 

the ranking member for 5 minutes for an opening statement. 

Mr. GREEN. Thank you, Mr. Chairman. And I thank the witness 

for appearing today. I also would like to thank the staff for the 

stellar performance it has demonstrated in providing us with intelligence on some crucial and critical issues that we will confront 

today. 

I am very grateful for this hearing, Mr. Chairman, because this 

hearing affords us an opportunity to explain how HUD is being required to do much, much more with much, much less. And I would 

quote the IG, who indicates that the Department’s primary mission 

is to create strong, sustainable, inclusive communities and quality 

affordable homes for all, and that is a noble mission. 

I would also quote from the IG wherein it is cited that achieving 

HUD’s mission while exercising the appropriate level of oversight 

to prevent or mitigate waste, fraud, and abuse continues to be an 

ambitious challenge for its limited staff. The IG goes on to say that 

over the years, HUD has seen a steady decline in its staffing level 

while at the same time it was called upon to administer an increasing number of programs. At the end of Fiscal Year 2012, HUD had 

just over 8,300 staff compared to about 9,700 a decade earlier, and 

even greater levels in the 1990s. This has forced HUD to continue 

to rely heavily on contractors to carry out many of its programs 

3 

and to expect that local and State jurisdictions and recipients of 

HUD’s funds conduct their own oversight and due diligence. 

HUD has a success story, but this hearing is not about the successes. HUD has some situations, some circumstances that we have 

to address, but I don’t think we can overlook the fact that HUD is 

understaffed. I don’t think we can overlook the fact that sequestration has had an impact on HUD and is having an impact on many 

of HUD’s programs. 

I have intelligence indicating that about 125,000 individuals and 

families could lose assistance provided through the Housing Choice 

Program and become at risk of homelessness because of sequestration; further, that sequestration cuts would result in 100,000 formerly homeless people, including veterans, being removed from 

their current housing or emergency shelter, putting them at risk of 

being homeless. Further sequestration cuts could result in 7,300 

fewer low-income households receiving permanent and short-term 

supportive housing assistance. This would be rent and utility assistance. Nine hundred fewer Native American families would be 

able to obtain housing loan guarantees. Three thousand vulnerable 

children would not be protected from lead poisoning. 

Now, this was just accorded me, and I am going through it rather hurriedly, but my point is that there is more to the story than 

meets the eye. And my hope is that the headlines tomorrow will 

not indicate that HUD has not been diligent in trying to help people and to meet its goals. 

In fact, I would like to share just a brief story that is not true, 

but let us assume that you have a beach that is being patrolled by 

two lifeguards, and let us assume that due to sequestration, one is 

cut, and we have one lifeguard who is patrolling this beach. And 

we have three persons who are in need of assistance, and the lifeguard swims out, and he pulls in two people, but unfortunately, he 

cannot bring in the third. My hope is that the headlines would not 

read, ‘‘One Person Drowns While Lifeguard is on Duty,’’ because 

there is a lot more that is happening at HUD than what will be 

presented today. My hope is that the entire story will be told, and 

I appreciate greatly what the Inspector General has done to 

present both sides of the story. 

I yield back the balance of my time. 

Chairman MCHENRY. We will now recognize the vice chairman 

for 1 minute for an opening statement. 

Mr. FITZPATRICK. I thank the chairman for the moment here, and 

I thank Mr. Montoya for your testimony here today and for the 

time that we spent in my office talking about specific issues. 

In February, Representatives Scott Garrett and Rob Andrews of 

New Jersey and I wrote a letter to Secretary Donovan asking him 

for more details about the mechanisms in place to ensure that disaster relief administered by HUD was going to go only to those 

communities that were affected by Superstorm Sandy. We also 

wanted to better understand how HUD was going to ensure that 

the money would only be used on projects specifically related to 

Sandy relief. 

It took 6 months to receive a reply, but in August we finally got 

back a two-page response dated August 12th. And quite frankly, I 

expected a few more details from a letter that took 6 months to 

4 

write. The response we got back touches on a few programs and 

specifically mentions your office as being part of the oversight effort. So, Mr. Montoya, I appreciate your testimony on disaster relief, and I am looking forward to it. I plan on following up with a 

few questions about how exactly HUD plans on accounting for and 

tracking the money that many of us supported in the Sandy relief 

package with the expectation it would be spent appropriately. 

I yield back. 

Chairman MCHENRY. I will now recognize the Inspector General 

of the U.S. Department of Housing and Urban Development, the 

Honorable David Montoya. Mr. Montoya was sworn in as HUD Inspector General on December 1, 2011. Mr. Montoya’s 26-year career 

has been dedicated to public service, focused on law enforcement, 

with over 16 years of oversight, supervisory, and leadership positions, including more than 10 years experience in the Federal Senior Executive Service. Mr. Montoya is a native of El Paso, Texas. 

Our ranking member is also a Texan, although from a different end 

of the State, and apparently that is about a million miles apart— 

Mr. GREEN. We all have the same humidity, Mr. Chairman. 

Chairman MCHENRY. Mr. Montoya is a 1986 graduate of the 

University of Texas at El Paso. 

Without objection, the witness’ written statement will be made a 

part of the record. The witness will now be recognized for 5 minutes to give an oral presentation of his testimony. 

Mr. Montoya, I know you are very familiar with testifying before 

Congress. We have a very simple lighting system: green; yellow; 

red. Yellow means hurry up, as it does in the traffic system. 

Once you have given your opening statement, we will recognize 

each Member for 5 minutes for the purposes of questioning, and 

just be aware that the microphone is very sensitive and sort of directionally sensitive in particular. 

So with that, we will now recognize Mr. Montoya for 5 minutes. 

STATEMENT OF THE HONORABLE DAVID A. MONTOYA, INSPECTOR GENERAL, OFFICE OF THE INSPECTOR GENERAL, 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. MONTOYA. Thank you, Mr. Chairman. 

Chairman McHenry, Ranking Member Green, and members of 

the subcommittee, I am David Montoya, the Inspector General of 

the Department of Housing and Urban Development, and I thank 

you for the opportunity to discuss our good work today. 

During the last 2 semiannual reports, we issued 135 audits and other reviews which resulted in more than $1.5 billion in funds put 

to better use, nearly $2 billion in questioned costs, and more than 

$1 billion in collections as a result of our audit efforts. Our investigations led to $613 million in recoveries, 579 indictments or informations, and 555 convictions of criminals that impacted HUD programs. 

The Department faces a significant management challenge in 

monitoring the billions of dollars it disburses through its various 

programs, not the least of which is the disaster program funds provided to various States, cities, and local governments. This challenge is particularly pressing for HUD because of limited resources 

to directly perform the oversight, the broad nature of HUD proVerDate Nov 24 2008 15:24 Mar 19, 2014 Jkt 086676 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\86676.TXT TERRI
5 

grams, the length of time needed to complete some of these 

projects, the ability to waive certain HUD program requirements, 

and the lack of understanding of disaster assistance grants by recipients. 

As it relates to OIG’s work involving oversight of Hurricane 

Sandy funding, we are employing our best practices garnered from 

years of experience in reviewing disaster recovery efforts. Starting 

at the earliest stages, we are working diligently with the Department and the affected States to examine the program design and 

to review their implementation plans for ways to efficiently promote desired disaster assistance. 

After initial stage activities, and as funding begins to flow, we 

will use our evaluation and inspection capability and data-mining 

capacity to review implementation activities. One of our primary 

tasks will be to analyze and mine vast amounts of data to look for 

indicators of fraud and mismanagement. 

Our efforts in disaster fraud are threefold: our fraud awareness 

and prevention efforts; auditing to ensure compliance with laws, 

rules, and regulations in order to disrupt mismanagement or fraud 

at the earliest occurrence; and finally, civil and criminal investigations of allegations of disaster-related frauds. 

With regard to the Federal Housing Administration’s Mutual 

Mortgage Insurance Fund, for the past 4 years, the Fund has failed 

to meet its legislatively mandated 2 percent capital ratio, and each 

of these 4 years has seen a further decline in the ratio to the point 

that based on the latest actuarial study in November of last year, 

the Fund has a negative economic value of $16.3 billion. Based on 

current projections, the capital reissue will not reach the 2 percent 

level until 2017, marking 8 years below the 2 percent threshold 

mandated by Congress. Moreover, for the first time in its history, 

FHA may need to use its mandatory appropriation authority to 

supplement its reserves. 

Restoring the Fund’s finances has been a priority of HUD, and 

while HUD has increased premiums and taken other steps to restore the financial health of the Fund, we have focused on civil 

fraud investigations with the Department of Justice in an effort to 

further prevent or mitigate fraud and to return losses to the fund 

account. 

The FHA single-family program continues to be a major focus for 

us. During the last 2 semiannual periods, we issued 25 audits in 

this program area, reporting $325 million in questioned costs and 

nearly $800 million in funds to be put to better use. 

In addition to audits of participating lenders, we completed internal audits of various aspects of HUD’s administration of the program. For example, a recent review of FHA’s Preforeclosure Sale 

Program (PFS), we identified that based on our statistical projection, FHA paid an estimated $1 billion in claims for just under 

12,000 preforeclosure sales that did not meet the criteria for participation in the FHA program. 

In another audit on HUD’s oversight of the Home Equity Conversion Mortgage (HECM) program, we concluded that HUD’s policies 

did not always ensure that borrowers complied with the program 

residency requirements. 

6 

Finally, in an audit of HUD’s oversight of its REO management 

and marketing program, we found that HUD did not have adequate 

procedures in place to ensure consistent and adequate enforcement 

of asset and field service manager contracts. 

Since Fiscal Year 1991, OIG has reported on a lack of integrated 

financial management systems, including the need to enhance 

FHA’s management controls over its portfolio of integrated insurance financial systems. 

The Department’s role has greatly increased over the last decade 

as it has faced unanticipated disasters and economic crisis, in addition to its other missions that have increased its visibility and reaffirmed its vital role in providing services that impact the lives of 

our citizens. My office is strongly committed to working with the 

Department and the Congress to ensure that these important programs operate efficiently and effectively. 

Thank you for the opportunity to testify today, and I would be 

happy to answer any questions. 

[The prepared statement of Inspector General Montoya can be 

found on page 22 of the appendix.] 

Chairman MCHENRY. Thank you, Inspector General Montoya. I 

now recognize myself for 5 minutes for questions. 

Inspector General Montoya, on August 28th, I sent you a letter 

which requested you to investigate whether HUD violated statutory prohibitions on lobbying in an email communication sent from 

the Deputy Secretary of HUD. On July 31st, HUD’s Deputy Secretary sent an email which requested that ‘‘friends and colleagues’’ 

contact specific U.S. Senators and encourage them to vote in favor 

of procedural motions in advance of Senate consideration of the 

HUD appropriations bill. As I stated in the letter, the directness 

and specificity of the email communication appeared to violate the 

well-established Federal restrictions on lobbying by Federal agencies. 

To that end, I asked your office to thoroughly investigate the 

matter and report your findings no later than September 30th of 

this year. So, Mr. Montoya, I understand you cannot discuss an ongoing investigation, but in the interest of transparency, can you acknowledge receipt of my letter on August 28, 2013? 

Mr. MONTOYA. Yes, Mr. Chairman, we are in receipt of that letter. 

Chairman MCHENRY. Thank you. 

Do you anticipate that you will be able to comply with the committee’s request by September 30th? 

Mr. MONTOYA. Yes, Mr. Chairman, we are hoping to do so. 

Chairman MCHENRY. Thank you. 

Also in the interest of fairness, we have received—as of 10:19 

this morning, the GAO has accepted our request to review this very 

same matter, and will begin engagement shortly, and will contact 

us with their findings as well. 

To explore how big the HUD Inspector General’s job is in managing the record disaster relief funds, I want to ask you, how is 

your office collaborating with HUD to fight waste, fraud, and abuse 

with respect to Superstorm Sandy disaster relief? 

Mr. MONTOYA. Thank you for the question, Mr. Chairman. We 

have been involved with HUD since the outset of the disaster. Our 

7 

experience in hindsight through many years of disaster recovery 

suggests that we need to be looking at these issues at the very beginning. And so, we have been working with them on not only 

fraud prevention and outreach sort of efforts, but also providing 

them our experience on other issues and concerns we have seen in 

previous disasters, namely Hurricane Katrina in the Gulf Coast. 

Chairman MCHENRY. Sure. 

And what steps has HUD taken independently of the HUD IG 

to ensure that disaster relief for Superstorm Sandy will be responsibly disbursed? 

Mr. MONTOYA. The Secretary created a task force, and it is my 

understanding that they have been diligently working with the various States, including New York City, to ensure that these funds, 

as they begin to roll out, are properly used and oversighted not 

only by HUD, but by the various States and the City of New York. 

Chairman MCHENRY. Going back to 2000, even as late as 2009, 

the HUD IG has uncovered and repeatedly identified HUD-approved lending—FHA-approved lending, they were not following 

HUD loan underwriting requirements. What systemic problems has 

your office uncovered in the FHA program regarding underwriting 

practices of FHA-insured mortgages? And when did the HUD IG 

first take issue recommendations to HUD on this topic? 

Mr. MONTOYA. We did get back them about 2009. We became 

heavily involved in the whole idea of underwriting and origination 

practices and the servicing, quite frankly, of FHA mortgages, and 

we have been providing HUD recommendations since that time. 

Early on, we were looking at much of this stuff in a more regionalized, localized sort of environment. It was only until about 2010 

that we started looking at this as a national problem and primarily 

focused on the larger lenders which were insured by FHA mortgages. 

What we were finding through our civil reviews of loan files, if 

you will, are basically what we call material underwriting deficiencies. These are not technical violations like forgetting to include 

a signature or a Social Security number; these are whole-scale material deficiencies that really go to the fundamental ability of the 

loan to survive, for example: failing to document a borrower’s employment, that is fundamental to any mortgage; failing to document a borrower’s payment history of housing obligations; and finally, failing to verify that borrowers possess the necessary funds 

to close. 

Chairman MCHENRY. And has HUD taken prompt corrective action on this? 

Mr. MONTOYA. We believe they tried to make some headway on 

that. I think that on many occasions HUD is still very slow to respond to a lot of these. They play a dual role, if you will, between 

trying to buffer the mortgage market and provide mortgages to 

low- and moderate-income families, while at the same time trying 

to adhere to a very strict— 

Chairman MCHENRY. Yes, but they have not complied with material deficiencies, is what your office has said, and so at the same 

time, they have come to Congress and asked for an appropriations 

for shortfalls in the FHA fund. This is deeply concerning to us, and 

8 

I hope this message becomes loud and clear to HUD that they 

should comply with your recommendations in a prompt manner. 

With that, I now yield to the ranking—okay, we will recognize 

Mr. Delaney for 5 minutes. 

Mr. DELANEY. I was going to yield my time to the ranking member. 

Mr. GREEN. I thank the gentlemen very much. And, again, I 

thank the witness for appearing. 

As I indicated previously, you have indicated that HUD has limited staffing, and that over the years you have seen a decline in 

the number of persons who are staffing HUD. I would like you to 

comment on this if you would, please, in terms of how this limited 

staffing impacts HUD’s ability to meet its mission. 

Mr. MONTOYA. Yes, sir. Thank you, Mr. Green, for the question. 

In essence, what we have seen is the lowest staffing numbers of 

HUD probably ever. I think they are at their lowest staffing number, if our information serves us correctly, and it comes at a point 

where they have taken on more responsibilities. We just went 

through a serious financial crisis; we are still trying to dig out of 

that. We also have disasters with which we are dealing. And so, 

it becomes more and more difficult with regard to HUD’s staffing 

to properly and directly oversee these programs that they administer. 

The reason for the lower numbers, part of it, I think, goes back 

to the numbers being set by OMB and just how much staffing each 

agency should have. So what HUD has obviously tried to do to get 

past that staffing number is to have more contracting and more 

contractors on board. In fact, we have seen contractors overseeing 

contractors because HUD’s own staff isn’t able to oversee the contractors, which is a little ironic and, of course, quite frankly, I 

think more expensive than having full-time employees on board. 

And I think it does have an impact on them. 

Having said all of that, what I would also say, Mr. Green, is that 

with regards to much of the funding that goes to the State and localities, it is our fundamental belief, and, I believe, HUD’s, that 

these localities should also take responsibility for proper oversight 

and management of those programs. 

Mr. GREEN. Thank you. 

And you do agree that much of what your report speaks to involves the localities in terms of things that have not been done to 

meet the proper standards so as to guard against waste, fraud, and 

abuse? 

Mr. MONTOYA. Yes, sir, that is correct. 

Mr. GREEN. Now, let us talk for a brief moment about CDBG disaster grants. Is it true that historically when Congress has allocated these supplemental appropriations, Congress has also allocated administrative funds? 

Mr. MONTOYA. Yes, sir, that is correct. 

Mr. GREEN. And with the lack of administrative funds, how does 

that impact HUD’s ability to properly engage in oversight? 

Mr. MONTOYA. With regards to the administrative funds, the administrative funds are to be used by the local and State organizations receiving them to conduct their own oversight. These administrative funds really go to the localities to oversee the program 

9 

that they are managing. Somewhere on the order of 20 percent of 

their funding goes to administrative accounts. 

We have done some reviews to determine just what those administrative monies are going for, and whether they are going to serve 

the purpose of oversight management of the programs, or whether 

they are being used for other purposes that really don’t have anything to do with the particular program or assisting low- to moderate-income households. 

Mr. GREEN. When we have these large supplemental appropriations, should HUD be accorded additional resources to help manage 

the supplemental appropriations? 

Mr. MONTOYA. That is a tough question, given sequestration and 

the budget cuts that we are all facing. I think there is enough oversight responsibility to go around. We can always do more with 

more is as the old adage goes. I don’t know what the right balance 

of proper staffing would be. 

I think part of what affects HUD in being able to be more robust 

in oversight is the fact that they just can’t seem to finish or complete the information on IT projects, projects that would help them 

to look at data closer, to review information more specifically in 

each of these programs. I think that until some of their IT infrastructure is completed, you are going to have manual work to accomplish the goal of oversight. So, it is sort of twofold; it is not just 

staffing, I think it has to do with their infrastructure and their 

ability to oversee it technically. 

Mr. GREEN. Thank you. I yield back. 

Chairman MCHENRY. We will now recognize the vice chairman, 

Mr. Fitzpatrick, for 5 minutes. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

And, Mr. Montoya, again, thank you for your testimony here 

today. 

I want to follow up on comments in the opening statement of 

Ranking Member Green. He was talking about unfortunate headlines, and on that issue, in September of 2005—I guess it is the anniversary of Hurricanes Rita and Katrina probably next week, it 

has been 8 years to the day—there were a lot of unfortunate headlines. The Federal Government, through FEMA and through HUD, 

rushed to the scene, wanted to provide assistance, and provided 

significant Federal dollars. Housing dollars were dispatched, Community Development Block Grants. And there were a lot of unfortunate headlines in the waste and fraud that existed, the massive 

dollars and the lack of controls. 

I referenced in my opening remarks the letter that we sent to 

HUD earlier this year requesting how the Department will ensure 

that the Community Development Block Grant funds are being 

used appropriately and effectively. And the response we got back 

6 months later stated that there are rules set forth requiring that 

the money is only spent in the most distressed areas, and listing 

a couple of monitoring techniques. 

Sixteen billion dollars requires very aggressive oversight. So my 

first question, Mr. Montoya, and it is really following up on the 

questions of the chairman, is what specific controls does HUD 

have? Specific controls. What do they have in place to ensure—not 

just require, but to ensure—that the monies spent in those areas 

10 

that were most effective, which is where the money was intended 

to be spent and where it needs to be spent—so what did HUD have 

either before February of this year, or what have they put in place 

subsequent to February when those dollars were released that is 

forming the basis of how you monitor their activities, specifically 

in the $16 billion CDBG appropriation? 

Mr. MONTOYA. Sir, I don’t know that anything different has 

changed within their programs. They have their program that will 

help to conduct some of this oversight and, again, working with the 

States and the City of New York. I think what was different in this 

particular case is that the money that was allocated does have a 

lifespan to it. In Katrina, when money was allocated, there was no 

lifespan to the money. In fact, there are still billions of dollars out 

there to be used in the Gulf Coast for recovery. 

So for Sandy I think that is a turn in the right direction, and 

we have opined on that for a number of years. It allows or it requires people to manage this money more quickly, to actually have 

something happen with it. And I think that is one of the biggest 

tools that HUD will have at its disposal to help monitor it. I think 

they have done a far better job than any of us did really with 

Katrina in the Gulf Coast disasters with the early coordination and 

with what we have seen with them coordinating with the States 

and the City of New York and us being involved at the very outset. 

But what I can tell you is that with any amount of money such 

as this, we can expect to see some fraud. At some level, at some 

point, we can expect to see some fraud. I don’t think we are ever 

going to get away from that when you deal with money. But to the 

extent that HUD appears to be aggressive in this preparation for 

the rollout, and that we are doing the same, we are also coordinating with a whole host of other IGs and other State and local entities as a sort of force multiplier so that we are not all looking at 

the same thing, to the extent that we all be looking at different 

things, we multiply these forces exponentially so that we can actually get to more oversight, if you will. 

Mr. FITZPATRICK. So what other State and local agencies would 

you be working with—county level, community development, monitors? Who are the others that you are using to describe what you 

call the force multiplier? 

Mr. MONTOYA. Quite frankly, at all levels, at the very local level, 

at the State level. We have met with attorneys general of the 

States, we have met with district attorneys, we have met with regulators, we have met with the State community development program folks. We have provided already some very early fraud prevention-type messaging on what we see with regards to disaster 

funding and where we expect to see these frauds. 

Mr. FITZPATRICK. Have you begun to see any examples of jurisdictions wanting to spend Sandy relief resources outside of affected 

areas or outside of storm-damaged counties? 

Mr. MONTOYA. No, sir, we have not heard of that. 

Mr. FITZPATRICK. I yield back. 

Chairman MCHENRY. I now recognize Mrs. Maloney for 5 minutes. 

Mrs. MALONEY. Thank you very much, and welcome, Mr. Montoya. 

11 

HUD’s IG has a very difficult job, but also a very important one, 

because so much disaster funding now flows through HUD. And 

disaster funding, by definition, needs to be spent quickly, and there 

is an inherent tension between the need to get the money out the 

door quickly to ensure the maximum impact and the need to ensure that the money is spent properly. So you have quite a challenge and a really important and vital role. 

Recent press reports have indicated that the FHA plans to reduce the conforming loan limits for Fannie Mae and Freddie Mac 

later this year; however, this movement will not affect FHA’s conforming loan limits, which will remain at $729,000. If Mr. DeMarco 

proceeds with the plan to lower Fannie and Freddie’s conforming 

loan limits, I would strongly urge him to reconsider. Will FHA be 

able to pick up the slack with that movement? Will FHA be able 

to pick up the conforming loan limits for the larger ones that 

Fannie and Freddie will no longer be covering? And in your opinion, is FHA adequately prepared to take on the additional mortgages that will shift from the GSEs to FHA? 

Mr. MONTOYA. I don’t know that I can completely answer your 

first question, Mrs. Maloney, as far as whether HUD can take that 

on and what those right limits should be. In the area of higher loan 

amounts, as long as the loans are written appropriately, we do see 

better activity with those loans. 

With regard to HUD’s—FHA’s capacity to properly oversight 

that, I think, quite frankly, they have difficulty managing their 

current risk without adding yet more to that. 

Mrs. MALONEY. I think that is something government has to look 

at, because if the change goes through, then there will be a huge 

shift over at FHA of all these higher loan limits. And as one who 

represents a high-cost-of-housing district, higher loan limits are 

what the middle class is. So if we don’t have FHA there to handle 

it, it will really close access to the market for my constituents and 

many people across the country. I would like to ask you to look at 

it, and discuss it with Sean and others, and see what we can do 

about it. 

But you said in your testimony that your staff began another review of the underwriting practices of FHA-approved lenders in 

2012, and you have been already questioned on this, but my specific question is, have the error rates in this review been as high 

as the error rates in the 2010 review? 

Mr. MONTOYA. Most of what we are looking at still relates to the 

earlier years, ma’am, the 2010 sort of timeframe. 

Mrs. MALONEY. So you are not looking at 2012 yet? 

Mr. MONTOYA. For the most part, no. 

Mrs. MALONEY. For the most part, no? 

Mr. MONTOYA. No, most of those would not have not seasoned 

enough for us to be able to tell whether these things are going into 

early default. 

Mrs. MALONEY. What are the error rates in 2010 reviews; what 

are they? 

Mr. MONTOYA. I don’t know that I can give you a specific number; I can give you some specific examples. We have found many 

of these lenders in the 50 percent range, where 50 percent of these 

loans that we have statistically sampled should never have been 

12 

underwritten. I think at one particular lender we found the percentage as—I believe it was 85 percent of those loans should never 

have been underwritten. 

Mrs. MALONEY. Would the Dodd-Frank Act address that, now 

that you have to have certain criteria, no more no-doc loans? Has 

that been corrected now with government reform? 

Mr. MONTOYA. I believe so, yes, and certainly the seller-funded 

downpayment has been addressed. And what I would like to also 

say is keep in mind that what we are targeting is the higher-risk 

lenders, those where we have seen sort of a pattern or practice of 

high risk or early default-type loans. 

Mrs. MALONEY. Can you briefly discuss the lessons your office 

learned in our audit of HUD’s hurricane/disaster recovery program? 

Mr. MONTOYA. Yes, ma’am. We had a number of lessons learned, 

most of which we have shared—I think all of them we have shared 

with the Department. Certainly, one of the lessons we learned was 

that there is a need, we think, to have money earmarked for certain timeframes so it is not just out there. I think we estimate 

something over $2 billion is still left out in Gulf Coast States for 

expenditure for the disaster, keeping in mind, though, that the disaster funds need to be used for necessary and reasonable needs. 

And so 8 years after the fact, we would question just how much necessity and need is still there for that $2 billion. 

Chairman MCHENRY. The gentlelady’s time has expired. We will 

now recognize Mrs. Wagner of Missouri for 5 minutes. 

Mrs. WAGNER. Thank you, Mr. Chairman, and I thank the Inspector General for being here. 

Inspector General Montoya, in your prepared testimony you describe how HUD IG audits of the FHA Single-Family Mortgage Insurance Program uncovered questioned cost totaling $325 million 

and $800 million in funds that could be put to ‘‘better use.’’ Has 

HUD indicated to your office that it is taking the necessary steps 

to limit waste in the Single-Family Mortgage Insurance Program? 

Mr. MONTOYA. Yes, ma’am, and I think with the recent legislation and changes they have made, it appears to us that they are 

certainly making some headway into accepting our recommendations. Our concern has been the length of time it takes HUD to accept our recommendations. 

Mrs. WAGNER. And what is the average length of time? 

Mr. MONTOYA. I think with regard to the seller-funded downpayment concern, that was 8 years. It took them 8 years. 

Mrs. WAGNER. Eight years. 

Mr. MONTOYA. Yes. I think with regard to those loans, that will 

impact the Fund by something on the order of $15 billion. 

There is a little bit of a pattern of HUD not recognizing the good 

work of our audit staff, and even some of the recommendations of 

our investigative staff. And when we take—when they take those 

kind of serious delays on what otherwise we think are good practices, it does have an impact. 

Mrs. WAGNER. Should Congress expect more HUD IG reports 

documenting hundreds of millions of dollars of questioned costs and 

funds to be put to better use in the FHA program? 

Mr. MONTOYA. Yes, ma’am, I believe you will. I think with the 

series of civil reviews and investigations we are conducting of some 

13 

of these larger lenders, we are hoping to have some settlements by 

the end of calendar year. I think you are going to see some very 

large dollars. 

Mrs. WAGNER. What have the HUD IG internal audits of HUD’s 

administration of FHA programs revealed about HUD’s ability to 

responsibly manage FHA? 

Mr. MONTOYA. What I would say about both FHA and Ginnie 

Mae is in a lot of ways, they may very well lack the inherent experience they need to run financial markets like this. They do a fair 

amount of contracting, but I think, quite frankly, trying to keep 

good people in—components that you can compare to private sector 

organizations which operate in the marketplace is difficult on a 

Federal salary. And I have said it before—I think one recommendation I would make is some exemption or exception not to all of FHA 

or Ginnie Mae, but to portions of it to allow for higher salary to 

compete in the market with good people, good staff. 

Mrs. WAGNER. The FHA program has a large inventory of foreclosed properties due to poor underwriting practices that we talked 

about here and declines in the housing market. In your view has 

FHA done a solid job in ensuring the maximum returns for its REO 

inventory? 

Mr. MONTOYA. No. In our view, they haven’t done enough. Recently, there was a GAO audit which looked at how FHA compared 

to the GSEs, and I believe in certain cases they were far below 

what the GSEs were capable of doing. And I will give you one example. For 2011 alone, FHA’s return on disposition timeframe had 

equaled those of the Enterprises—well, it had not. It could have increased its proceeds by as much as $400 million and decreased its 

holding costs by up to $600 million. Overall, FHA would have reduced its REO losses by $1 billion if they had followed more of the 

practices of what you see in the GSEs. 

Mrs. WAGNER. Thank you. I yield back my time, Mr. Chairman. 

Chairman MCHENRY. We will now recognize Mrs. Beatty for 5 

minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Mr. Ranking Member. Inspector General Montoya, I also thank you for being here, 

and giving testimony. I have had an opportunity to look through 

your testimony, and we have heard from some of my other colleagues as we talked about the disaster relief funds, and hopefully, 

you can help me have a better understanding. 

In your testimony on page 2, you talk about some of the difficulties, more specifically as it related to Sandy, which became somewhat contentious to us when we had to, as lawmakers, look at the 

dollars that we were going to allocate to it. 

Then further through the testimony, you talk about how it becomes more compounded and complex to figure out because of dollars given to HUD from various departments of how to monitor 

this. 

So since we don’t control those things, we didn’t expect Sandy, 

what can you say to me that would be helpful to me as a lawmaker 

as we look at funding disasters? I think about what we went 

through with Katrina and what we went through with Sandy. So 

now having the experience on doing the audits, allocating the dolVerDate Nov 24 2008 15:24 Mar 19, 2014 Jkt 086676 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\86676.TXT TERRI
14 

lars, can you share with me what really has not worked or what 

has worked that you are looking at, from your purview? 

Mr. MONTOYA. Yes, ma’am. Thank you for the question. It is an 

excellent question. 

I think one of the biggest things we can do is adjust the Stafford 

Act and the provisions of the Stafford Act with regards to data 

sharing and data matching. Frankly, it is quite cumbersome and 

quite time-consuming for agencies to try to enter agreements to 

share data, for example, HUD sharing data with FEMA, who is 

also sharing data with SBA, three of the primary deliverers of relief. And then it becomes even more concerning when IGs, folks in 

my oversight position, have to enter these agreements to share 

data. 

Really, this is borne by the Computer Matching Act that has 

these requirements for us to enter into these agreements. And 

what I would say is that the only effect that really has is making 

it more difficult for the government to use the information it already has. So I think if Congress could do anything, we would certainly support— and I know that the Council of Inspectors General 

has sent to the OMB some legislative proposals to make those 

changes so that it is easier for us to share data. And it is certainly 

an oversight function for the IGs to share data between the various 

groups. That is about the only way we are going to be able to tell 

where all the money is going and whether it is going to the same 

individual, which also then gets to the duplicative payment sort of 

concern that we have in any disaster. 

Mrs. BEATTY. Thank you. 

Speaking of payments, what are the expected spend-out rates for 

disaster funding, and how close are we to those rates? 

Mr. MONTOYA. I don’t know that I could give you what the rates 

are, ma’am. I can tell you that the first round of allocations have 

gone out to the States and the City. I think the City of New York, 

just under $2 billion; New York State, just under $2 billion; same 

thing with New Jersey. I don’t know what those spending rates 

are. I would have to get back to you on that, ma’am. But when you 

talk about a timeline of 2 years for expenditure, the rates are going 

to be pretty swift. 

Mrs. BEATTY. Thank you. I yield back. 

Chairman MCHENRY. We now recognize Mr. Barr for 5 minutes. 

Mr. BARR. Thank you, Mr. Montoya, for your service. 

In reviewing the semiannual report from your office, you reported that during the last two 6-month cycles, the OIG issued 135 

audits and other reviews, which resulted in more than $1.5 billion 

in funds put to better use, and nearly $2 billion in questioned costs, 

and more than $1 billion in collections from audits. Your investigations led to $613 million in recoveries, 579 indictments, and 555 

convictions of criminals that impacted HUD programs. 

On the one hand, the taxpayers would be very heartened to hear 

about the hard work that your office is engaging in, in terms of 

rooting out waste, fraud, and abuse. On the other hand the underlying fraud that we are seeing would lead the taxpayers to be very, 

very concerned about the level of fraud that is taking place in these 

HUD programs. And I was particularly alarmed to read about the 

programs related to the Hurricane Katrina efforts on the home eleVerDate Nov 24 2008 15:24 Mar 19, 2014 Jkt 086676 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\86676.TXT TERRI
15 

vation issue and how the vast majority of the beneficiaries of these 

funds were not actually doing what was required of them in the 

grant agreement; namely, to elevate their homes so that the next 

time the hurricane comes, we won’t see the same level of destruction and disaster. 

So my initial question to you is, what do these numbers tell us? 

Are these numbers telling us that you are getting at most of the 

fraud that is out there, and that you are just doing a lot of good 

work, or is what you are uncovering here just the tip of the iceberg? 

Mr. MONTOYA. I would have to say it is a little bit of the tip of 

the iceberg. And just to clarify what some of these numbers mean, 

when we say, ‘‘funds put to better use,’’ really what we are talking 

about are funds that could be better utilized if they followed our 

recommendations, for example, or monies that weren’t spent in accordance with the requirements. 

So it is not necessarily money we would have saved. They very 

well could have spent that money anyway. It is just that they 

would have spent it the right way instead of the wrong way. Our 

review of that is it to ensure that the wrong way doesn’t continue, 

because that is where you end up with potential fraud aspects. 

So just to clarify, with regards to our Office of Investigations, 

when we talk about recoveries in the $600 millions, that does come 

back to the taxpayer. That comes back to the U.S. Treasury in the 

form of fines, penalties, and restitution. So I just wanted to clarify 

that. 

But when we talk about fraud in its various programs, it runs 

the gamut, not the least of which is the Home Elevation Incentive 

Program, to which you just referred. We would potentially consider 

that a fraud by the individuals because, as you said, they signed 

a contract agreement, they took $30,000, and they didn’t do what 

they needed to with it. 

So while it is a little bit of the iceberg, I would keep in mind that 

HUD has many, many programs. It is a $40-billion-a-year-plus disbursement organization. So on any financial transaction, you are 

going to see some level of fraud. 

Mr. BARR. I understand that, but your testimony that it could be 

just the tip of the iceberg is troubling, mainly because not only it 

is a waste of taxpayer dollars, but also because as these funds are 

diverted through fraud, they are diverted away from people who 

really need the assistance. And so I think from a fiscal responsibility standpoint, we can be concerned, but if this is the tip of the 

iceberg, we should also be concerned that disaster assistance is not 

getting to the people who really need it and is instead going to 

fraudulent transactions. 

Let me ask you about the undisbursed funds. It looks like there 

are quite a few appropriations that have not actually reached victims of disaster. It looks like 89 percent of the funds for Hurricanes 

Katrina, Rita, and Wilma have been allocated, but that remains— 

there is still 11 percent that has not. Only 39 percent of the funds 

have been made available for Hurricanes Ike, Gustav, and Dolly. 

And then for 9/11, it looks like only 83 percent of the funds have 

been disbursed. 

16 

So of the funds that have not been disbursed, is that an indication that Congress is overappropriating, that Congress is actually 

appropriating funds in excess of the actual need? 

Mr. MONTOYA. That would be hard to say, sir, but what I would 

tell you is by putting time limits on these funds, like you did in 

Sandy, that would certainly give us a better sense of whether we 

are over- or underfunding. 

It is very hard to calculate, I think, in any disaster, especially 

with what happened in the Gulf Coast States. But, again, what I 

would say is that because these funds that are still outstanding in 

the Gulf Coast States are really meant for needs—necessary and 

reasonable needs that haven’t been met, our question would be 

after 8 years just how many of those are there, and are there $2 

billion worth? 

Mr. BARR. It looks like my time has expired, so I will yield back. 

Thank you. 

Chairman MCHENRY. Thank you for the self-policing. 

We will now recognize Mr. Heck for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman, Ranking Member Green. 

And, Mr. Montoya, thank you so much for being here, sir. 

Last month, my good friend Congressman Fitzpatrick and I had 

the distinct pleasure to see H.R. 2167 become Public Law 113–29, 

otherwise known as the Reverse Mortgage Stabilization Act. Has 

your office had a chance to review that? 

Mr. MONTOYA. Yes, sir, we have. 

Mr. HECK. And accordingly, have you had a chance to compare 

the two mortgagee letters that HUD sent out last week to the intent and language of 113–29? 

Mr. MONTOYA. I personally have not. My audit staff has, and we 

believe it does comport with the intentions of Congress. 

Mr. HECK. Thank you. 

I note in your report that one of your findings was of a sample 

of 174 reverse mortgage borrowers, 37 were revealed to not meet 

the requirement that the home for which they were granted a reverse mortgage was their primary residence. My question, sir, is do 

you have an opinion one way or another on whether or not that 

percentage, which I think calculates out to be about 20 or 21 percent, is a true representative indication of the number systemwide? 

Mr. MONTOYA. Yes, sir. When we do our sampling, we use statistical modeling, and so we try to extrapolate the entire universe of 

those loans. So I would say—it would be safe to say that based on 

our statistical sampling modeling, probably 20 percent of all loans 

you could argue have homeowners not living in them as their primary residences as is required by the program. 

Mr. HECK. And your office’s finding is that constitutes legal default? 

Mr. MONTOYA. Yes, sir, that would be correct. 

Mr. HECK. You recommended that HUD ‘‘direct the applicable 

lenders to verify and provide documentation of borrowers’ compliance with residency and implement control policies or procedures 

to at least annually match information.’’ What is the status of 

HUD’s effort to do that? 

17 

Mr. MONTOYA. With regards to the home issue and whether they 

are using it as their primary residence, it certainly wasn’t one of 

the issues that they had addressed in the new mortgagee letters. 

I think it is always going to be a concern. It is honestly a difficult 

area for them to look at in one particular area where we have 

fraud, where you have people who will come out and take the elderly to use them as straw buyers, they are obviously never going to 

live in the home. So we have those type of issues we have to deal 

with, but it is an area we believe HUD needs to be strong in for 

a number of reasons, not the least of which is that it helps the elderly not being taken advantage of as straw buyers when it comes 

to these sorts of schemes. 

Mr. HECK. I guess the question is have they directed the applicable lenders to verify and provide documentation per your recommendation? 

Mr. MONTOYA. I don’t know if they have, in fact, or not, but certainly the lenders involved in these programs should be familiar 

with the requirements of the program. But we can certainly ask 

HUD to do that and to ensure that they have. 

Mr. HECK. It would seem, given that not doing so yields a 21 percent default rate, that it would be prudent to do so. 

My last question is related to VASH. Obviously, as somebody 

who represents the third largest military installation in America 

where a huge percentage of people choose to retire for their quality 

of life and remain, this is a program that is especially utilized. And 

given that there are two agencies that share jurisdiction over it, 

both HUD and the VA, which seems to me to be an occasional recipe for confusion and, therefore, noncompliance, perhaps you could 

talk to me a little bit about how the IG offices work together to ensure that those two agencies with overlapping jurisdiction get it 

right to the benefit of our veterans, sir. 

Mr. MONTOYA. Yes, sir. Thank you for the question. 

With regard to homeless veterans, it is certainly an area of concern for us, so much so that in November of this year, we will be 

conducting an oversight review of the VASH program, and how 

that is working, and whether these housing authorities are abiding 

by the program’s rules and requirements to provide housing for 

veterans and their families, sir. So thank you for the question. 

With regard to our coordination, the housing IGs, for lack of a 

better term, have created a little work group, and that would be 

myself as HUD, the Federal Finance Housing Agency, the VA, and 

the Department of Agriculture, and we meet quite regularly in 

order to coordinate on these kinds of things. Again, the idea of 

force multipliers—I don’t want to be looking at something the VA 

may be looking at and vice versa, because if we are all looking at 

something different, we provide, I think, better economies of scales 

to the taxpayers. 

So I can assure you that we are having daily discussions, and if 

we were to find something amiss, we would certainly involve the 

IG of the VA in this particular case to work with us on either an 

audit or an investigation if we felt it was needed. 

Mr. HECK. And, Mr. Chairman, could I sneak one tiny quick one 

in? 

Chairman MCHENRY. Yes, you have, but go right ahead. 

18 

Mr. HECK. Thank you, sir. 

You indicated you would be doing a review of VASH in the fall. 

What is the estimated completion date of that effort? 

Mr. MONTOYA. We are shooting for prior to March 31st, sir, and 

we will be sure to get you a copy of that. 

Mr. HECK. Again, thank you, sir. 

Thank you, Mr. Chairman, for your indulgence. 

Chairman MCHENRY. Thank you for your line of questioning. 

And we will now recognize the ranking member for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Let me start with FIRREA. You have indicated that we have considerable monies that are recovered pursuant to this statute, and 

for edification purposes, that is the Financial Institutions Reform, 

Recovery, and Enforcement Act. And you make a recommendation 

with reference to these recoveries. 

First, give us some indication as to how you have used this to 

make the recoveries, and then, if you would, I would like for you 

to address the recommendation. 

Mr. MONTOYA. With regard to our civil oversight, using a number 

of different laws, the False Claims Act, FIRREA, to recover loans 

from these larger institutions, we are making headway in recoveries. We have done that previously on a number of cases, the largest for us being a settlement with Bank of America to the tune of 

about a billion dollars, some of that coming back to the FHA’s 

mortgage fund. We have others that are in the pipeline in negotiations that we are still looking at; they have not been settled. 

With regard to our servicing, a national settlement that we had 

a year-and-a-half ago, the $25 billion, some of those funds came 

back to FHA’s Mutual Mortgage Fund to help offset these losses. 

So I think these are certainly strong laws for us to use. 

The Department of Justice (DOJ), though, makes the decision on 

which one to proceed. When we are working our matters as fact 

finders, we will coordinate with DOJ and, working with them, we 

will make a decision whether a False Claims Act charge would be 

more appropriate than FIRREA or what other charge might be. So 

really it is up to DOJ not only to do that, but to negotiate what 

type of settlement would come out of these in conjunction with 

HUD as a partner in that. 

Mr. GREEN. Your recommendation is really what I want to get 

to. You have indicated that the funds, when you recover them, will 

go to the Treasury, and you have an alternative recommendation. 

Mr. MONTOYA. Yes, sir. My recommendation would be that more 

of these funds come back to the program that was impacted. In this 

case, it would be the MMI Fund of FHA. 

Mr. GREEN. And if you would, just go into the rationale for this, 

please. Why would you want the funds to come back to the program as opposed to Treasury? 

Mr. MONTOYA. On most civil settlements, the whole idea is you 

are trying to make the entity that suffered the loss whole, and to 

the extent that FHA’s fund has suffered in the billions, my feeling 

as an overseer would be that some of those funds should come back 

to make that program whole. It is the one that suffered the losses. 

By making it whole through these settlements, it avoids them having to go the Treasury to make an appropriations draw sometime 

19 

later this year. So it is actually a benefit to the taxpayer for FHA 

to be able to do that, and those are issues that we are in discussion 

with DOJ on when it comes to settlement agreements and where 

that money should go. 

Mr. GREEN. Now, one more thing. You have tried to put things 

in a proper perspective with reference to the fraud that you have 

called to our attention, and you have made the statement, ‘‘you can 

expect to see some fraud.’’ In terms of trying to put things in perspective, in all of the programs that we find that are huge—let us 

take the Department of Defense—we find that we have some fraud 

in the Department of Defense when properly audited. Is this a fair 

statement? 

Mr. MONTOYA. Yes, sir. And I would like to add to that. It is not 

just fraud; it is mismanagement. 

Mr. GREEN. Do you find some mismanagement when we audit 

the Department of Defense? You don’t do— 

Mr. MONTOYA. Defense or HUD? Are you referring to— 

Mr. GREEN. No, I am speaking now of other programs, because 

you were trying to put it in perspective when you said you are 

going to see some fraud. 

Mr. MONTOYA. Right. 

Mr. GREEN. What I am trying to do is give you an opportunity 

to do this, because there are other programs, when you put them 

in perspective, they, too, have fraud, but it is your job to root out 

and find this fraud, call it to our attention so that we can eliminate 

it. 

Mr. MONTOYA. Absolutely, sir, and that is the role of all inspectors general. 

Mr. GREEN. So, with reference to your statement, ‘‘we should expect to see some fraud,’’ just elaborate briefly, please, because I 

think that it helps us to better understand that while we have 

some problems that we have to deal with, that HUD is not at the 

point of about to crash, and that these are not insurmountable 

problems. 

Mr. MONTOYA. Right. No, sir, HUD is certainly not about to 

crash, and what I would say is, yes, in all of these government 

agencies and programs, there are about 78 inspectors general, and 

in our discussions we all virtually see the same thing. There is a 

matter—there is an amount of fraud, there is an amount of mismanagement, waste, abuse. All of these things could have a financial impact on the agencies which we all oversee. HUD is no different than anyone else. It is just the nuances on where those 

mismanagements, frauds, and abuses occur. 

Mr. GREEN. And finally, in the private sector, you also have 

fraud, and it is uncovered, and hopefully we take appropriate action when we find it. Your point is that it happens, we want to 

eliminate it, and that your office is doing a good job. Is that a fair 

statement? And I assume you would agree that you are doing a 

good job? 

Mr. MONTOYA. I would agree with the entire statement, sir. 

Thank you. 

Mr. GREEN. Thank you. 

Chairman MCHENRY. With no further questions, this hearing entitled, ‘‘Reducing Waste, Fraud, and Abuse in Housing Programs: 

20 

Inspector General Perspectives’’ now concludes. I would like to 

thank our witness for his testimony today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing is now adjourned. 

[Whereupon, at 11:08 a.m., the hearing was adjourned.] 

(21) 

A P P E N D I X 

September 10, 2013 

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