U.S. GOVERNMENT PUBLISHING OFFICE

31–271 PDF WASHINGTON : 2018

TEN YEARS OF TARP: EXAMINING THE HARDEST 

HIT FUND 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTERGOVERNMENTAL AFFAIRS 

AND THE

SUBCOMMITTEE ON 

GOVERNMENT OPERATIONS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

MAY 22, 2018 

Serial No. 115–85 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://oversight.house.gov 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

Trey Gowdy, South Carolina, Chairman 

John J. Duncan, Jr., Tennessee 

Darrell E. Issa, California 

Jim Jordan, Ohio 

Mark Sanford, South Carolina 

Justin Amash, Michigan 

Paul A. Gosar, Arizona 

Scott DesJarlais, Tennessee 

Virginia Foxx, North Carolina 

Thomas Massie, Kentucky 

Mark Meadows, North Carolina 

Ron DeSantis, Florida 

Dennis A. Ross, Florida 

Mark Walker, North Carolina 

Rod Blum, Iowa 

Jody B. Hice, Georgia 

Steve Russell, Oklahoma 

Glenn Grothman, Wisconsin 

Will Hurd, Texas 

Gary J. Palmer, Alabama 

James Comer, Kentucky 

Paul Mitchell, Michigan 

Greg Gianforte, Montana 

Elijah E. Cummings, Maryland, Ranking 

Minority Member 

Carolyn B. Maloney, New York 

Eleanor Holmes Norton, District of Columbia 

Wm. Lacy Clay, Missouri 

Stephen F. Lynch, Massachusetts 

Jim Cooper, Tennessee 

Gerald E. Connolly, Virginia 

Robin L. Kelly, Illinois 

Brenda L. Lawrence, Michigan 

Bonnie Watson Coleman, New Jersey 

Raja Krishnamoorthi, Illinois 

Jamie Raskin, Maryland 

Jimmy Gomez, Maryland 

Peter Welch, Vermont 

Matt Cartwright, Pennsylvania 

Mark DeSaulnier, California 

Stacey E. Plaskett, Virgin Islands 

John P. Sarbanes, Maryland 

SHERIA CLARKE, Staff Director 

ROBERT BORDEN, Deputy Staff Director 

WILLIAM MCKENNA, General Counsel 

KELSEY WALL, Professional Staff Member 

KILEY BIDELMAN, Clerk 


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SUBCOMMITTEE ON INTERGOVERNMENTAL AFFAIRS

Gary Palmer, Alabama, Chairman 

Glenn Grothman, Wisconsin, Vice Chair 

John J. Duncan, Jr., Tennessee 

Virginia Foxx, North Carolina 

Thomas Massie, Kentucky 

Mark Walker, North Carolina 

Mark Sanford, South Carolina 

Jamie Raskin, Maryland, Ranking Minority 

Member 

Mark DeSaulnier, California 

Matt Cartwright, Pennsylvania 

Wm. Lacy Clay, Missouri 

(Vacancy) 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS

Mark Meadows, North Carolina, Chairman 

Jody B. Hice, Georgia, Vice Chair 

Jim Jordan, Ohio 

Mark Sanford, South Carolina 

Thomas Massie, Kentucky 

Ron DeSantis, Florida 

Dennis A. Ross, Florida 

Rod Blum, Iowa 

Gerald E. Connolly, Virginia, Ranking 

Minority Member 

Carolyn B. Maloney, New York 

Eleanor Holmes Norton, District of Columbia 

Wm. Lacy Clay, Missouri 

Brenda L. Lawrence, Michigan 

Bonnie Watson Coleman, New Jersey 


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C O N T E N T S 

Page 

Hearing held on May 22, 2018 ............................................................................... 1 

WITNESSES 

Mr. Kipp Kranbuhl, Deputy Assistant Secretary for Small Business, Community Development, and Affordable Housing Policy, Office of the Assistant 

Secretary for Financial Institutions, U.S. Department of the Treasury 

Oral Statement ................................................................................................. 7 

Written Statement ............................................................................................ 9 

The Honorable Christy Goldsmith Romero, Special Inspector General for the 

Troubled Asset Relief Program, U.S. Department of Treasury 

Oral Statement ................................................................................................. 12 

Written Statement ............................................................................................ 14 

Ms. Verise Campbell, Chief Executive Officer, Nevada Affordable Housing 

Assistance Corporation 

Oral Statement ................................................................................................. 64 

Written Statement ............................................................................................ 66 

Ms. Cathy James, Business Development Manager, Alabama Housing Finance Authority 

Oral Statement ................................................................................................. 71 

Written Statement ............................................................................................ 73 

Mr. Scott Farmer, Executive Director, North Carolina Housing Finance Agency 

Oral Statement ................................................................................................. 81 

Written Statement ............................................................................................ 83 


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TEN YEARS OF TARP: EXAMINING THE 

HARDEST HIT FUND 

Tuesday, May 22, 2018 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INTERGOVERNMENTAL AFFAIRS, JOINT

WITH THE SUBCOMMITTEE ON GOVERNMENT OPERATIONS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittees met, pursuant to call, at 10:01 a.m., in Room 

2154, Rayburn House Office Building, Hon. Gary J. Palmer [chairman of the Subcommittee on Intergovernmental Affairs] presiding. 

Present from the Subcommittee on Intergovernmental Affairs: 

Representatives Palmer, Grothman, Duncan, Massie, Walker, and 

Raskin. 

Present from the Subcommittee on Government Operations: Representatives Meadows, Hice, Jordan, Sanford, DeSantis, Blum, and 

Connolly. 

Mr. PALMER. The Subcommittee on Intergovernmental Affairs 

and the Subcommittee on Government Operations will come to 

order. 

Without objection, the presiding member is authorized to declare 

a recess at any time. 

Today’s hearing marks the 10th anniversary of the Troubled 

Asset Relief Program, also known as TARP. Since 2009, this committee has conducted oversight of TARP programs and management. TARP was created in 2008 in the aftermath of the Nation’s 

worst economic recession in modern history. Often referred to as the bank bailout program, TARP was a $400 

billion program intended to stabilize the U.S. financial system and 

preserve home ownership. In 2010, the Treasury Department created the TARP program known as the Hardest Hit Fund to mitigate the impact of the housing crisis and to prevent foreclosures. 

The Hardest Hit Fund allocates up to $9.6 billion in TARP funds 

for locally tailored aid to 19 participating State housing finance 

agencies through 2020. 

Early in the program’s tenure, the Government Accountability 

Office and the Special Inspector for TARP issued reports on State 

implementation challenges and the program’s lack of established 

merits and goals. 

In 2017, the Office of the Special Investigator General of TARP, 

or SIGTARP, issued a report questioning $3 million in administrative expenses charged by State housing finance agencies. Such expenses included bonuses, barbecues, gym memberships, severance 


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payments, trips to the zoo, and other perks funded by Federal 

TARP dollars through the Hardest Hit Fund. 

The Treasury Department determined approximately 70 percent 

of these expenses are allowable under the terms of its participation 

agreement with the States. In other words, less than 30 percent of 

the $3 million questioned by SIGTARP was deemed recoverable by 

Treasury. 

It is the duty of Federal and State partners to ensure that taxpayer dollars for Federally funded, State-administered programs 

are used for their intended purposes. None of the payments identified by SIGTARP’s report advance the main purpose of the program, to prevent foreclosure and provide assistance to homeowners 

most affected by the housing crisis. 

Although many States have, according to Treasury, voluntarily refunded over $450,000 to the program since SIGTARP’s report, it 

is apparent that the questions over appropriate expenditures and 

program efficiencies remain. 

According to SIGTARP’s 2017 semi-annual report to Congress, 

fewer than half of all homeowners who sought assistance were admitted to the program, and nearly 30 percent of homeowners withdrew their applications. 

With nearly 2 billion in remaining funds left to be disbursed by 

the Treasury to the States, it is necessary to ensure proper safeguards are in place. 

I thank the witnesses from the Treasury Department, SIGTARP, 

and the representatives from three States, including my home 

State of Alabama, for being here today. 

I now recognize the ranking member of the Intergovernmental 

Affairs Subcommittee, Mr. Raskin, for 5 minutes for his opening 

statement. 

Mr. RASKIN. Chairman Palmer, Chairman Meadows, thanks so 

much for calling today’s hearing. And I want to thank all the witnesses for coming. 

The Hardest Hit program was set up to provide targeted aid to 

families in States that were decimated by the downturn of the 

housing markets. Funded by the Feds but administered by State 

governments, the Hardest Hit Fun has financed mortgage modification, unemployment assistance, transition assistance, mortgage reinstatement, and blight elimination. 

Since 2010, when it was created, the fund has assisted over 

350,000 families and removed 24,000 blighted properties in 18 

States and D.C., so I don’t want to understate the contributions it’s 

made. 

But although it’s helped many people avoid losing their homes, 

the diligent work of the Special Inspector General for TARP has 

provoked a lot of bipartisan anxiety about how State agencies are 

administering the program. And I have a number of profound concerns that I look forward to addressing today. 

The first is why my State, Maryland, and other States where 

people were hit very hard during the financial crisis were excluded 

completely from the Hardest Hit Fund. 

It has been very tough for me to read reports about scandalous 

abuses of the program, waste of money taking place, feather-bedding, and bloated budgets, while my State was completely excluded 


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from it. And I would like somebody to explain that to me, why did 

the Treasury Department exclude Maryland. 

In addition, why do we still have no analysis from Treasury 

about the success and potential expansion of the program now 7 

years into it? 

While States in need like mine receive zero dollars under the 

program, others received many millions of dollars that ended up 

going to fund excessive and egregious wasteful expenditures that 

were uncovered in the audits. 

And so I want to know, along with the chairman, why did all of 

this money go and why is this money going to lavish catered barbecue parties, Visa gift cards, employee bonuses, catered lunches 

with Treasury employees, fancy cars, and employee trips to the zoo. 

Now, I know a lot of States did not break the rules in any way. 

The California Hardest Hit Fund program seems to have the highest rate of homeowner approval, with over 73,000 Americans that 

have been assisted with apparently no wasteful expenditures reported. 

So I look forward today to our digging into the work of the Special Inspector General and her team at SIGTARP who uncovered 

the fact that Federal dollars meant to help people recovering from 

the greatest economic catastrophe since the Depression were being 

wasted on things like a car allowance of $11,000 for a MercedesBenz for a CEO. 

A September SIGTARP audit report found that the Nevada Af- fordable Housing Assistance Corporation misspent $8.2 million. In 

2017, Treasury reported to SIGTARP that Nevada’s HHF did not 

meet its utilization threshold and will have its allocation reduced 

by $6.7 million. Nevada was the only State participating in the program to have funds cut. 

The Georgia Department of Community Affairs provided the 

Hardest Hit funds to only 9.000 homeowners and rejected twothirds of the applicants. 

So, Mr. Chairman, there’s a lot of questions here that I want us 

to get to the bottom of today, and I thank you for calling this hearing. 

Mr. PALMER. I now recognize the chairman of the Subcommittee 

on Government Operations, Mr. Meadows, for 5 minutes for his 

opening statement. 

Mr. MEADOWS. Thank you, Mr. Chairman. I’ll be very brief. 

Inspector General Goldsmith Romero, thank you so much for 

being here. It was a pleasure to not only visityour workplace with 

so many dedicated individuals, but to see your leadership. And I 

just wanted to go on record to recognize that, and thank you for 

that. 

Mr. Farmer, welcome. You know, this isn’t Raleigh. Actually, if 

we could operate D.C. as well as we do Raleigh, we might be in better position. But I want to just say welcome. 

I also want to acknowledge your thoughtful insight on some of 

the issues that we may be talking about today in terms of your 

proactive stance there. I want to acknowledge that and thank you. 

And then my good friend, Mr. Oglesby, who’s actually in the 

audit. Bill is a constituent. And so I want to thank him for his advocacy on this particular area. 


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And as we look at all of this, this is all about being accountable 

for the hardworking American taxpayer dollar and making sure 

that those priorities go and are invested in those areas that best 

help those that are in need. And so as we look at that, it’s critically 

important that we do that. 

Mr. Chairman, I want to thank you for your leadership on this 

particular area. And I will yield back. 

Mr. PALMER. I now recognize the ranking member of the Government Operations Subcommittee, Mr. Connolly, for 5 minutes for his 

opening statement. 

Mr. CONNOLLY. Thank you, Mr. Chairman. And thank you to Mr. 

Meadows for calling today’s hearing to look into mismanagement 

and wasteful spending in the Hardest Hit program. And thanks to 

our witnesses for being here. 

The Oversight and Government Reform Committee has broad jurisdiction to look into fraud, waste, and abuse throughout the government, including when Federal dollars go to State and local governments or other recipients. Taxpayer dollars should not be 

viewed as a slush fund, and I welcome the committee’s oversight 

into this issue today. 

To ensure accountability wherever taxpayer dollars are spent, it’s 

also important that this committee look into wasteful spending 

elsewhere in the Federal Government. 

I would welcome a deeper look into wasteful spending at the Environment Protection Agency, for example: $43,000 on a soundproof 

booth for Administrator Scott Pruitt in violation of spending laws; 

$105,000 on Administrator Pruitt’s first-class fights in the first 

year on the job; $100,000 for a 4-day trip to Moscow; $120,000 on 

a 4-day trip to Italy; $45,000 for EPA aides to fly to Australia and 

prepare for yet another trip that had to be cancelled because of 

Hurricane Harvey; five-figure salary increases for preferred staff 

even after the White House Office of Personnel denied the request. 

This is not to mention Administrator Pruitt’s ethical challenges, 

including his cozy relationship with lobbyists for the industries regulated by the EPA. 

This committee should also look into how the Department of Interior was able to spend $139,000 on new doors for Secretary 

Zinke’s office, which makes the $31,000 dining set at the Department of Housing and Urban Development look like small potatoes. 

And this is just what we know from publicly reported expenditures. I’m sure if the committee took on a full-fledged and vigorous 

investigation into the wasteful spending by the Trump Cabinet 

we’d be able to find other examples of the flagrant misuse of taxpayer dollars. 

Ten years ago, a financial crisis hit the American people, the 

likes of which were unseen since the Great Depression. Housing 

prices plunged, 8.8 million jobs were lost, a liquidity crisis hit the 

financial sector, and the unemployment rate hit 10 percent. 

The meltdown left hundreds of thousands of homeowners underwater in their mortgages, owing more than their houses were 

worth. In 2008, U.S. foreclosure filings spiked more than 81 percent, and over 860,000 families lost their homes in foreclosures 

that year alone. 


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In response to this crisis, Congress enacted the Emergency Economic Stabilization Act, which, among other things, created the 

TARP, Troubled Asset Relief Program. TARP is widely considered 

a bank bailout authorizing the Secretary of the Treasury either to 

purchase or insure up to $700 billion in troubled assets owned by 

financial firms. 

TARP also sought to provide assistance to homeowners facing 

foreclosure by stabilizing housing markets and engaging in foreclosure mitigation through the Home Affordable Modification Program, the Federal Housing Administration Short Refinance Program, and the Hardest Hit Fund. 

The Hardest Hit Fund made funding available to the State housing finance agencies that had experienced the greatest declines in 

home prices. The program has helped homeowners stay in their 

houses and knock down blighted properties, raising property values 

of the surrounding homes. It’s grown into a $9.6 billion program 

funded by the Federal Government but administered by the States 

and has assisted more than 300,000 homeowners in 18 States and 

the District of Columbia. 

I support the cooperative federalism embedded in this program 

with the States and the Federal Government working together to 

solve common problems. But today’s hearing will highlight instances where that cooperative federalism has gone array. A number of Hardest Hit Fund partner States severely mismanaged their 

programs and/or misspent Federal funds. 

In September of 2016, the Special Inspector General for TARP 

found that the Nevada Housing Division allowed abuse and waste 

of $8.2 million in Hardest Hit Fund dollars instead of helping 

homeowners who were facing foreclosure. This included a car allowance of $500 a month for the CEO to drive a Mercedes-Benz totaling $11,000. Nearly the same amount of money was spent on employee bonuses, gifts, outings, and other perks, over 5,800 spent on 

holiday parties and gifts, 43,000 in bonuses, almost all of which 

were paid to a CEO who was later terminated. 

At the same time, the State agency had all but stopped homeowners from getting assistance through the Hardest Hit Fund, admitting only 117 Nevada homeowners in 2015, a year-on-year drop 

of 96 percent. 

The Special Inspector General for TARP also found that State 

agencies charged more than 100,000 for barbecues, picnics, celebrations, and other outings that included food and beverage. Instead 

of putting $14,124 toward assisting homeowners, the North Carolina Housing Finance Agency charged that amount for employee 

food and beverages. 

Overall, SIGTARP found that the agency charged more than 

$100,000 in unnecessary expenses. At the same time, that same 

agency denied 18.8 percent of homeowners who applied for housing 

assistance. State agencies even charged employee parking fees at 

the Hardest Hit Fund, as was the case in Michigan, which spent 

over 330,000 for that purpose. 

Eight years after the passage of TARP, the Special Inspector 

General for TARP continues to conduct audits of the Hardest Hit 

Fund expenditures to ensure that money is spent properly. In August 2017, SIGTARP found that the States had misspent 3 million 


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in TARP funds. We must remember, that’s $3 million which could 

have been used to provide mortgage assistance to underwater 

homeowners or to rehabilitate neighborhoods. 

The only thing more disappointing than State agencies using 

money meant to help homeowners on unnecessary expenditures is 

the Treasury Department’s reluctance to recover those misspent 

taxpayers dollars. After receiving SIGTARP’s audit, Treasury decided to claw back only 29 percent of the improperly spent funds. 

So long as TARP programs exist, it’s important that SIGTARP 

keep a watchful eye on those expenditures to ensure that taxpayer 

dollars are spent judiciously and for the purpose of which Congress 

intended. 

I’m glad we’re having this hearing. I’m glad we’re looking at the 

improper use and expenditure of funds. But I believe the same 

standard ought to be applied to the Trump Cabinet, and this committee should have hearings on those issues that are just as important to the American public. 

I yield back. 

Mr. PALMER. Thank you. 

I’m pleased to introduce our witnesses. Mr. Kipp Kranbuhl, deputy assistant secretary for small business, community development, 

and affordable housing policy in the Office of the Assistant Secretary for Financial Institutions at the U.S. Department of Treasury. 

Does all does that fit on one business card? 

The Honorable Christy Goldsmith Romero, Special Inspector 

General for the Troubled Asset Relief Program at the U.S. Department of Treasury. 

Ms. Verise Campbell, chief executive officer of the Nevada Affordable Housing Assistance Corporation. 

Ms. Cathy James, business development manager at the Alabama Housing Finance Authority. 

And Mr. Scott Farmer, executive director of the North Carolina 

Housing Finance Agency. 

Welcome to you all. 

Pursuant to committee rules, all witnesses will be sworn in before they testify, so please stand and raise your right hand. 

Do you solemnly swear or affirm the testimony you’re about to 

give is the truth, the whole truth, and nothing but the truth, so 

help you God? 

The record will reflect that all witnesses answered in the affirmative. 

Please be seated. 

In order to allow time for discussion, please limit your testimony 

to 5 minutes. Your entire written statement will be made part of 

the record. 

As a reminder, the clock in front of you shows the remaining 

time during your opening statement. The light will turn yellow— 

it’s kind of like a yellow light at a traffic stop, that means speed 

up, you have 30 seconds left—and red when your time is up. Please 

also remember to press the button, turn your microphone on before 

speaking. 

Mr. Kranbuhl, we’ll look forward to your testimony. 


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WITNESS STATEMENTS 

STATEMENT OF KIPP KRANBUHL 

Mr. KRANBUHL. Chairman Meadows, Chairman Palmer, Ranking 

Member Connolly, Ranking Member Raskin, and members of the 

subcommittees, thank you for the opportunity to testify today about 

Treasury’s efforts to mitigate the effects of the financial crisis on 

American homeowners through the Hardest Hit Fund, or HHF. 

Treasury established HHF in 2010 as a part of the Troubled 

Asset Relief Program, or TARP, in order to help prevent foreclosure 

and to stabilize housing markets in States hit hardest by the housing crisis. State housing finance agencies, or HFAs, in 18 States 

and the District of Columbia were selected to participate as these 

areas experienced unemployment rates at or above the national average and/or home price declines of greater than 20 percent. 

HHF was designed to give the participating HFAs the maximum 

flexibility to design and administer their own programs, each tailored to local conditions in their respective communities. 

As a part of this flexibility, the States have been able to adapt 

their programs in order to address the changing needs in their 

communities over time. As of December 31, 2017, States had assisted approximately 350,000 homeowners and funded the demolition and greening of nearly 24,000 blighted properties in distressed 

communities. 

However, the flexibility afforded to HFAs by the Hardest Hit 

Fund has made Treasury’s oversight a critical aspect of the program. Treasury maintains a strong commitment to ensure that the 

program achieves its goals and that Federal taxpayer dollars are 

used for their intended purpose. 

Treasury requires each HFA to set specific goals for its HHF program and to demonstrate steady progress towards meetings these 

goals. Treasury also maintains an ongoing dialogue and works with 

each of the HFAs to identify and address barriers that would keep 

the HFA from achieving its goals. 

Treasury has also connected more than 100 on-site compliance 

reviews across the participating HFAs, as well as additional targeted review to address specific programmatic risks. 

These reviews evaluate a number of critical program functions, 

such as whether the homeowners are evaluated in accordance with 

the HFA’s guidelines, program disbursements and administrative 

expenditures are appropriate, the information reported to Treasury 

is accurate, and the HFAs’ internal controls are functioning as intended to minimize the risk of noncompliance. 

Treasury takes corrective action when instances of noncompliance arise. This includes, for example, requiring the HFAs to reevaluate homeowners that were improperly denied, to reimburse 

HHF for improper expenditures, and to strengthen internal controls in order to prevent further noncompliance. 

In addition to compliance reviews, Treasury also shares this committee and SIGTARP’s commitment to preventing fraud, waste, 

and abuse in all TARP programs, and we certainly consider the 

recommendations in that regard. Treasury responds to SIGTARP 

recommendations in writing, and our responses are made available 

to the public. We work hard to address the concerns raised by 


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these recommendations in a manner that allows the programs to 

function as intended and in the context of TARP’s wind-down. 

For example, Treasury thoroughly reviewed the $2.2 million of 

cost questions in SIGTARP’s August 2017 report. This involved 

analyzing thousands of individual transactions incurred by all 19 

HFAs dating back to the program’s inception in 2010. 

Following this review, Treasury determined that $656,141 of the 

questioned cost did not comply with the Federal Government’s cost 

principles. The HFAs were required to reimburse HHF. 

For the reasons set forth in our April 6, 2018, letter to SIGTARP, 

a copy of which has been provided to the committee and is available on our website, Treasury determined that the remaining costs 

questioned by SIGTARP were allowable under Federal cost principles. 

As is the case with all TARP programs, HHF is winding down. 

Although Congress authorized additional funding in 2015, the program remains a temporary one. As of the end of April 2018, Treasury has disbursed $8.8 billion, or 92 percent of the $9.6 billion obligated under HHF. 

Although HFAs may continue issuing new approvals through December 31, 2020, most of the States have already begun to close 

down HHF programs or will do so this year as they exhaust their 

available funds. This includes California and Florida, the two largest States in the program. 

Treasury’s outstanding commitments under TARP represent just 

1 percent of the 475 billion authorized by Congress. As TARP 

winds down, Treasury remains committed to robust oversight and 

monitoring of all of its TARP programs, including HHF. 

I thank you again for the opportunity to testify today and welcome your questions. 

[Prepared statement of Mr. Kranbuhl follows:] 


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Testimony ofKipp Kranbuhl, 

Deputy Assistant Secretary, 

Office of Financial Institutions - Small Business, Community Development, and Affordable 

Housing Policy 

U.S. Department of the Treasury 

Hearing before the House Committee on Oversight and Government Reform 

Subcommittees on Intergovernmental Affairs and Government Operations 

May22,2018 

Chairman Meadows, Chairman Palmer, Ranking Member Connolly, Ranking Member Raskin, 

and Members of the Subcommittees, thank you for the opportunity to testizy today about 

Treasury's efforts to mitigate the effects of the financial crisis on American homeowners through 

the Housing Finance Agency Innovation Fund for Hardest Hit Housing Markets, also known as 

the Hardest Hit Fund or HHF. 

In 2008, Congress passed the Emergency Economic Stabilization Act of2008, 12 U.S.C. 5201, 

et seq., (as amended, EESA). This legislation provided Treasury with immediate authorities and 

resources to restore liquidity and stability to the nation's financial system in the wake of an 

historic economic crisis. Using its authorities under EESA, Treasury established the Troubled 

Asset Relief Program, known as TARP, an initiative that was unprecedented in both its design 

and scale. Congress initially authorized up to $700 billion for TARP programs, though Congress 

later reduced that authority to $475 billion. 

In the following years, Treasury disbursed nearly $412 billion ofTARP funds under a variety of 

programs designed to help stabilize banks, automobile manufacturers, and other institutions 

integral to the nation's economy. Treasury reserved additional funds for programs designed to 

protect home prices and prevent foreclosure. The first, and largest, of these housing programs 

was the Making Home Affordable® program, or MHA. Launched in 2009, MHA was a 

nationwide effort to help struggling homeowners avoid foreclosure by lowering mortgage 

payments to affordable levels. However, it soon became clear that a one-size-fits-all approach 

would not be sufficient to address all of the specific needs of homeowners and communities in 

the states that were hit hardest by the housing crisis. 

Treasury established HHF in 2010 as part ofTARP in order to help prevent foreclosure and to 

stabilize housing markets in states hit hardest by the housing crisis. State housing finance 

agencies, (together with certain designated entities, HFAs) in eighteen states and the District of 

Columbia were selected to participate, as these areas experienced unemployment rates at or 

above the national average, and/or home price declines of greater than 20 percent. 1 

1 The eighteen participating states consist of Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, 

Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South 

Carolina, and Tennessee. 

1 
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Unlike MHA- a national program based on uniform criteria set by the Federal governmentHHF was designed to give the participating HF As the maximum flexibility to design and 

administer their own programs, each tailored to local conditions in their respective communities. 

As a part of this flexibility, the states have been able to adapt their programs in order to address 

the changing needs of their communities over time. 

As of December 31, 2017, states had assisted approximately 350,000 homeowners and funded 

the demolition and greening of nearly 24,000 blighted properties in distressed communities. 

However, the flexibility afforded to HFAs by the Hardest Hit Fund has made Treasury's 

oversight a critical aspect of the program. Treasury maintains a strong commitment to ensure 

that the program achieves its goals and that federal taxpayer funds are used for their intended 

purpose. 

Treasury requires each HF A to set specific goals for its HHF program, and to demonstrate steady 

progress toward meeting these goals. Treasury works with each of the HFAs to identify and 

address barriers that would keep the HF A from achieving its goals. Subject to Treasury 

approval, the HF As may also modify their programs as needed in order to address the changing 

needs of their communities. Treasury also maintains an ongoing dialogue with the HFAs 

through in-person meetings and regularly scheduled calls, and it hosts annual summits where the 

various participating HF As can meet and share best practices. 

Treasury has also conducted more than I 00 on-site compliance reviews across the participating 

HF As, as well as additional, targeted reviews to address specific programmatic risks. These 

reviews evaluate a number of critical program functions, such as whether homeowners are 

evaluated in accordance with the HFA's guidelines, program disbursements and administrative 

expenditures are appropriate, the information reported to Treasury is accurate, and the HF A's 

internal controls are functioning as intended to minimize the risk of non-compliance. 

Treasury takes corrective action when instances of non-compliance arise. This includes, for 

example, requiring HF As to re-evaluate homeowners that were improperly denied, to reimburse 

HHF for improper expenditures, and to strengthen internal controls in order to prevent further 

non-compliance. 

In addition to compliance reviews, Treasury also takes SIGTARP's role seriously. We share this 

Committee's and SIGTARP's commitment to preventing fraud, waste, and abuse in all TARP 

programs, and we carefully consider recommendations in that regard. 

Treasury responds to SIGT ARP recommendations in writing, and our responses are made 

available to the public. We work hard to address the concerns raised by these recommendations, 

in a manner that allows the programs to function as intended and in the context ofT ARP' s winddown. With respect to HHF in particular, this has included, for example, issuing written 

guidance to clarify HF A obligations, recovering funds that were improperly spent, and requiring 

states to strengthen internal controls to prevent non-compliance in the future. 

2 
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For example, Treasury thoroughly reviewed the $2.2 million of costs questioned in SIGTARP's 

August 2017 Audit Report. This involved analyzing thousands of individual transactions 

incurred by all19 HFAs, dating back to the program's inception in 2010. Following this review, 

Treasury determined that $656,141 of the questioned costs did not comply with the Federal 

government's cost principles. The HFAs were required to reimburse HHF. For the reasons set 

forth in our April 6, 2018, letter to SIGT ARP-a copy of which has been provided to the 

Committee and is available on our website-Treasury determined that the remaining costs 

questioned by SIGTARP were allowable under Federal cost principles. 

As is the case with all T ARP programs, HHF is winding down. Although Congress authorized 

additional funding in 2015, the program remains a temporary one. As of the end of April2018, 

Treasury has disbursed $8.8 billion (or 92 percent) of the $9.6 billion obligated under HHF. 

Although HFAs may continue issuing new approvals through December 31,2020, most of the 

states have already begun to close down HHF programs or will do so this year as they exhaust 

their available funds. This includes California and Florida, the two largest states in the program. 

Treasury's outstanding commitments under TARP represent just one percent of the $475 billion 

authorized by Congress. As T ARP winds down, Treasury remains committed to robust oversight 

and monitoring of all of its TARP programs, including HHF. 

As part of this wind down, the Office of Financial Stability, which oversees HHF and other 

T ARP programs, was recently realigned to report to Treasury's Assistant Secretary for Financial 

Institutions. This realignment will enable our office to oversee an orderly and successful wind 

down of HHF that is in line with the wind down of other programs that are also overseen by this 

office, such as the State Small Business Credit Initiative and the Small Business Lending Fund. 

I thank you again for the opportunity to testifY today and welcome your questions. 

3 
12 

Mr. PALMER. I thank the gentleman for his testimony. 

The chair recognizes Ms. Goldsmith Romero for her testimony. 

STATEMENT OF CHRISTY GOLDSMITH ROMERO 

Ms. GOLDSMITH ROMERO. Chairman Palmer and Chairman 

Meadows and Ranking Member Raskin, Ranking Member Connolly 

and members of the committee, I really thank you for the support 

that you’ve given to SIGTARP. 

SIGTARP’s a law enforcement agency as well as a watchdog 

auditor; 415 defendants we investigated have been charged with 

crimes, including 100 bankers; 349 have already been convicted; 

247 sentenced to prison. We’ve recovered $10 billion from our investigations. That’s money going back to the government, to victims, to homeowners. That’s a 35 times return on investment on 

our budget. 

SIGTARP auditors have identified hundreds of millions of dollars 

in waste, questioned costs, cost savings. So I’m grateful that you’re 

examining the Hardest Hit Fund, because I’ve been there for the 

full 8 years of the program. 

At the very beginning of the program, Phyllis Caldwell, who’s the 

senior Treasury official who created the program, said to SIGTARP 

that what they were trying to do at Treasury was develop locally 

tailored strategies. And she explained this to us as: State agencies 

choose the type of program, the amount of funding, the number of 

homeowners that they want to help. 

The White House announced that the program would be under 

strict transparency and accountability rules, and Treasury promised that they would measure performance. 

Now, Phyllis Caldwell told us that meant: Are we reaching the 

right number of people? Are the States meeting their targets? If 

not, we’ll learn and we’ll adjust. 

By 2012, we found Treasury had moved away from that. The senior Treasury official who was in charge of implementing the program told SIGTARP: This is not our program, this is their program. 

After 2 years, at the height of the recession, only 3 percent of the 

money had gone out to only 7 percent of the homeowners who the 

program was estimated to help. Treasury has never taken ownership of this program or brought accountability. We made bread and 

butter IG practices, recommendations for best practices that were 

often dismissed. 

Some State agencies performed well. And so for low-performing 

State agencies, what we did was we did was we did data analytics. 

We talked to homeowners. We talked to whistleblowers. We talked 

to housing counselors and others. We identified obstacles that could 

be removed. 

For example, in Florida, seniors had trouble with online applications, that’s not surprising, or trouble getting documents such as 

tax assessments. In Georgia, homeowners had trouble because they 

had to go to the IRS and get a tax transcript within 30 days, which 

you can’t do and which other State agencies don’t require. 

After our report, some of these obstacles were removed and the 

performance improved. We found waste and misused dollars, which 

you’ve already talked about: parties, picnics, catered barbecues, 


KING-6430 with DISTILLER
13 

gifts, steak and seafood dinners, $500 a month for an executive to 

drive a Mercedes. 

I found one receipt in Illinois, $549 at a pizza restaurant, and it 

said: HHF funds officially given from U.S. Treasury and to celebrate, and the name of employee’s upcoming wedding. 

In comparison, Arizona and California, which has the most dollars, spent zero dollars on food and parties. 

We applied Treasury’s contract criteria. In 2010, Treasury’s top 

lawyer said that under appropriations law an expense must be necessary to what Congress authorized in TARP. And if the homeowner could get this assistance without it, it wasn’t necessary. 

Well, the Federal cost principles that have been talked about 

today start with ‘‘necessary.’’ Next, ‘‘reasonable.’’ Next, ‘‘allocable to 

the program.’’ And that top lawyer at Treasury warned that if you 

open this up farther, it’s going to authorize an almost unlimited 

number and variety of expenditures rendering the TARP law meaningless. 

And that’s what we found, days at the zoo and gym memberships 

and lawyers’ fees to settlement discrimination claims and Visa gift 

cards, custom shirts, building a customer center where most of the 

customers are not Hardest Hit Fund, moving to a luxury building, 

$20,000 severance package. 

Ultimately, every misused dollar is one less dollar for homeowners that would reduce the cost. We found that there were no 

Federal competition requirements that could save money and prevent fraud. We found that blight demolition rose 90 percent in 

Michigan, 65 percent in Ohio, 70 percent in Indiana. Army Corps 

of Engineers found asbestos mismanaged. 

So what are the top threats today in the program? Waste, anticompetitive conduct. In the blight program, corruption, fraud, antitrust, asbestos exposure. These are the types of areas we are investigating and auditing, so we have a vested interest in prevention. 

Greater accountability and controls are needed. There are billions of dollars at stake. More than 100,000 people applied for this 

program this year. Demolitions are just starting this year or 

haven’t even started in some cities. So it’s not too late. 

Thank you. 

[Prepared statement of Ms. Goldsmith Romero follows:] 


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14 


KING-6430 with DISTILLERInsert offset folio 4 here 31271.004

I 

Q\ SIGTARP' OffiCeofH,eSpecrolimpec'orGe"ercJI \SI for tile Troucled As\et Relref Program 

FOR OFFICIAL USE ONLY UNTIL RELEASED BY THE 

HOUSE COMMITIEE ON OVERSIGHT AND GOVERNMENT REFORM 

WRITTEN STATEMENT 

OF 

THE HONORABLE CHRISTY GOLDSMITH ROMERO 

SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM 

Before the Subcommittees on Intergovernmental Affairs and Government 

Operations and the Committee on Oversight and Government Reform 

U.S. HOUSE OF REPRESENTATIVES 

ON 

"Ten Years ofTARP: Examining the Hardest Hit Fund" 

May 22,2018 
15 


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Chairman Palmer, Chairman Meadows, Ranking Member Raskin, Ranking Member Connolly, 

and members of the Committee, I appreciate the opportunity to discuss The Office of the 

Special Inspector General for the Troubled Asset Relief Program's ("SIGTARP") oversight of 

TARP, including TARP's Hardest Hit Fund. 

Congress created SIGTARP to protect Americans 

from fraud, waste, and abuse related to TARP. 

Accountability through criminal and civil 

prosecutions is the goal ofSIGTARP's law 

enforcement mission. SI GT ARP special agents 

and investigators work hand-in-hand with federal 

and state prosecutors. We developed an 

innovative fraud-detection program that employs 

Protecting taxpayer dollars 

and programs drives 

SIGTARP's mission 

technology and intelligence to find crime without waiting for crime tips. There have been 

415 defendants charged with crimes including 100 bankers, 84% of those (349) have 

already been convicted, and others still await trial. While prosecutions take time, 24 7 

defendants have been sentenced to prison. The justice Department has brought 

enforcement actions against 11 institutions as a result of SIGTARP investigations. 

SIGTARP investigations have resulted in recoveries of$10 billion in restitution, forfeiture, 

fines, and homeowner relief- a 35 times return on investment from SIGTARP's annual 

budget 

SIGTARP also acts as a watchdog overTARP programs and the $3-4 billion spent in TARP 

each year. SIGTARP conducts performance audits as well as forensic audits that analyze 

general ledgers, receipts, and other documents to follow the money. SIGTARP auditors have 

identified improvements to program effectiveness, mismanagement, millions of dollars in 

waste, abuse, or other questioned costs for Treasury to recover, and millions of dollars in 

cost-saving changes. 

Results ofSIGTARP's Oversight since March 31,2017 

• $90 million recovered for the Federal government 

• 38 defendants convicted 

• 15 defendants arrested/indicted 

• 20 defendants referred to DO) for prosecution 

• 6 jury trials 

• $3 million questioned expenses 

• Risks of anticompetitive practices identified 

• Risk of asbestos exposure and other demolition risks identified 

• Costly mismanagement identified 

These recent oversight activities by SIGTARP add to the results ofSIGTARP's oversight over 

the years, including the following: 

2 
16 


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S10Billion .... 

Recovered from Investigations 

3 
17 


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SIGTARP investigations have led 

to enforcement actions against 

institutions. 

Bank of America. 

..... 

Morgari' SUNTRUST 

~JEFFERIES 

4 

JPMORGAN 

CHASE&Co. 

ally 

<> WILMINGTON TRUST 
18 


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Recent Activity in TARP Housing Programs: There has been much activity in TARP over the 

last year, triggering SIGTARP investigations and audits. SIGTARP conducts investigations and 

audits ofTARP dollars that have been spent With $11 billion still available to spend in TARP, 

we anticipate more oversight in upcoming years. 

HAMP and related programs ($27.8 billion program with $9 billion remaining 

obligated/committed through September 2023): Although Congress authorized TARP in 

2008, and the largest banks exited TARP in the following two years, Treasury extended the 

largest TARP housing program known as HAMP again and again. Banks and other financial 

institutions administer the program that involves modifying (lowering) participating 

homeowners' mortgage payments. While the homeowner application period terminated in 

December 2016, Treasury's current contracts to distribute up to $9 billion through 

September 2023, to more than 90 financial institutions including some of the largest banks 

that received TARP dollars in the bank bailout (for example, Bank of America, Wells Fargo, 

JP Morgan Chase, and Citigroup), in addition to non-banks (like Ocwen and Nationstar), is in 

5 
19 


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addition to the $18.1 billion already distributed. For example, Treasury has distributed to 

Ocwen $4.8 billion in HAMP and is committed/obligated to an additional $2.3 billion. 

Treasury has distributed to Wells Fargo $3 billion in HAMP, and is committed/obligated to 

an additional $1.4 billion. Treasury has distributed to JP Morgan Chase $3 billion in HAMP, 

and is committed/obligated to an additional $993 million. Treasury has distributed to Bank 

of America $2.1 billion in HAMP, and is committed/obligated to an additional $728 million. 

Treasury continues to provide billions of TARP dollars to these financial institutions every 

year and there are nearly one million homeowners in the program today. In the last year 

(through March 2018), Treasury distributed $2 billion to these financial institutions. With 

$18.8 billion in TARP distributed to more than 100 financial institutions, including some 

subjects of justice Department or state attorney general enforcement actions for wrongful 

conduct related to their customers, and $9 billion remaining to be spent as detailed in 

Appendix A, SIGTARP has identified unlawful conduct by banks and other financial 

institutions in HAMP as TARP's top management and performance challenge. SIGTARP is 

actively conducting investigations in this area. 

Hardest Hit Fund ("HHF'J ($9.6 billion program with $2.029 billion remaining as 

obligated/committed through December 2021): 

The Hardest Hit Fund has provided foreclosure mitigation assistance to 306,100 

homeowners in 19 states hard-hit by the crisis (43 percent of the 716,195 homeowners 

who applied). The program has also provided down payment assistance to 41,317 firsttime home buyers (86% of all homebuyers who applied -double the homeowner applicant 

admission rate). The Hardest Hit Fund blight demolition subprogram has demolished 

23,727 abandoned, blighted houses, with about one-third of those demolitions taking place 

in 2017. The specific decision of how to use HHF dollars (i.e. principal reduction, 

unemployment assistance, down payments or blight demolition) is made locally by state 

agencies that administer the program, and is approved by Treasury. 

S!GTARP's Early Oversight ofHHF: For several years, SIGTARP has reported to 

Congress each quarter on the performance of the HHF program in each of the 19 states. In 

these reports, we show how many people have been helped by the program in each state. 

We also show which state agencies are performing above the national average, at the 

national average, and below the national average. 

In SIGTARP's early audits of the Hardest Hit Fund, we made recommendations based on 

established best practices for Government programs. Last month, the House Committee on 

Oversight and Government Reform held a hearing where the Council of IGs reported on the 

top seven challenges facing the Government, based on common themes identified by each 

Inspector General. Four top common challenges across Government agencies and programs 

are: 

(1) Performance management and accountability challenges, including the lack of 

performance-based metrics; 

6 
20 


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(2) Financial management challenges, including weak controls to ensure taxpayer funds 

are used efficiently and effectively; 

(3) Procurement management challenges, including weaknesses in procurement 

planning and a lack of oversight over contractors' performance that can place 

taxpayer dollars at risk; and 

( 4) Grant management challenges, including deficiencies in monitoring and measuring 

the success of grants to ensure that grant investments achieve results, overseeing 

the use of grant funds to prevent misspent funds, and obtaining timely and accurate 

financial and performance information from grantees. 

These four top challenges for Government identified by Inspectors General align with 

SIGTARP's findings in the Hardest Hit Fund from 2010 through 2016. In those reports, 

SIGTARP strived to give Treasury the best recommendations that we could so that Treasury 

could strengthen the Hardest Hit Fund against these common challenges, and prevent fraud, 

waste, and abuse. SIGTARP recommended that Treasury conduct risk assessments, and 

incorporate best practices to mitigate each of these challenges and all risks that Treasury 

assessed. Incorporating best practices into a program saves Government resources from 

later dealing with the costly consequences that can result from these common challenges. 

Although some recommendations were implemented by Treasury and/or state agencies, 

many of SIGTARP's recommendations were not implemented. 

Recent Activity in HHF: With the Hardest Hit Fund scheduled to expire in fiscal year 2018, 

Congress extended the program's deadline in the 2016 omnibus spending bill and provided 

an additional $2 billion -dollars that remain available for spending until December 2021, as 

detailed in Appendix B. In calendar year 2017, Treasury disbursed nearly all remaining 

dollars to the state agencies and approved significant shifts in the program for how the 

remaining more than $2 billion will be spent. This led to significant activity in the program. 

Since january 1, 2017: 

• 114,033 people applied to HHF in 2017. To put that in context, a total of 347,417 

people have been admitted to the program since 2010 

• 19 state housing finance agencies spent $1.3 billion 

• $72 million came back into the program from actions like the sale or refinance of 

houses with an HHF lien 

• Eight state agencies announced new programs 

• 7,989 abandoned houses were demolished- about one-third all demolitions in the 

program 

• 84 cities/counties only started demolishing blighted houses in 2017 

• 1 state and 41 cities/counties have not yet reported starting demolitions 

Recent Oversight by SIGTARP: SIGTARP has continued to report to Congress each quarter on 

the performance of the HHF program in each ofthe 19 states. SIGTARP's April26, 2018 

Quarterly Report to Congress contained 72 pages of state-specific performance data, 

including each state agency's homeowner admission rate, denial rate, and withdrawn 

7 
21 


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application rate (as applications are often withdrawn by the state agency), which is 

compiled in summary as follows: 

Hardest Hit Fund Homeowner Admission Rate by State 

Homeownc'rS Homeowners 

State Approvt>d Who Applied 

Florida 30,669 138,373 

Arizona 5,061 21,505 

Alabama 6,300 26,744 

Georgia 10,395 32,597 

Nevada 5,676 16,877 

New Jersey 7,572 20,733 

California 73,856 175,700 

Oregon 13,435 31,176 

South Carolina 13,023 29,122 

Michigan 35,669 73,454 

Rhode Island 2,950 5,088 

Mississippi 4,457 6,684 

Illinois 17,992 26,943 

North Carolina 25,690 38,316 

Kentucky 9,395 13,455 

Ohio 25,970 37,015 

Dist Of Columbia 807 1,075 

Tennessee 7,356 9,684 

Indiana 9,827 11,654 

Total 

306,100 716,195 

8 

AdmiSSIOn 

Rate 

22.2% 

23.5% 

23.6% 

31.9% 

33.6% 

36.5% 

42.0% 

43.1% 

44.7% 

48.6% 

58.0% 

66.7% 

66.8% 

67.0% 

69.8% 

70.2% 

75.1% 

76.0% 

84.3% 

42.7% Nat1onal 

Average 
22 


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Hardest Hit Fund Homeowner Denial Rate by State 

Homeowners Homeowners 

State Demed who Appl1ed 

Arizona 13,987 21,505 

New Jersey 11,983 20,733 

Georgia 13,216 32,597 

Rhode Island 1,707 5,088 

South Carolina 9,595 29,122 

Michigan 22,774 73,454 

California 49,339 175,700 

Nevada 4,350 16,877 

Florida 34,842 138,373 

Mississippi 1,585 6,684 

North Carolina 7,220 38,316 

Illinois 4,997 26,943 

Kentucky 2,297 13,455 

Dist Of Columbia 181 1,075 

Tennessee 1,542 9,684 

Ohio 5,149 37,015 

Alabama 2,456 26,744 

Oregon 2,735 31,176 

Indiana 710 11,654 

Total 

190,665 716,195 

9 

Oen1al Rate 

65.0% 

57.8% 

40.5% 

33.5% 

32.9% 

31.0% 

28.1% 

25.8% 

25.2% 

23.7% 

18.8% 

18.5% 

17.1% 

16.8% 

15.9% 

13.9% 

9.2% 

8.8% 

6.1% 

26.6% National 

Average 
23 


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Hardest Hit Fund Withdrawn Application Rate (Applications are often withdrawn by state 

agencies) 

StatP Wtthdrawal' 

Alabama 17,705 

Arizona 2,363 

California 49,213 

Florida 63,377 

Georgia 8,675 

Illinois 3,134 

Indiana 1,117 

Kentucky 1,624 

Michigan 14,652 

Mississippi 621 

Nevada 6,801 

New Jersey 526 

North Carolina 4,909 

Ohio 5,684 

Oregon 14,517 

Rhode Island 324 

South Carolina 6,103 

Tennessee 754 

Dist Of Columbia 37 

Total 

202,136 

Homeowners 

who Applred 

26,744 

21,505 

175,700 

138,373 

32,597 

26,943 

11,654 

13,455 

73,454 

6,684 

16,877 

20,733 

38,316 

37,015 

31,176 

5,088 

29,122 

9,684 

1,075 

716,195 

10 

Wrthdrawal 

Ratt• 

66.2% 

11.0% 

28.0% 

45.8% 

26.6% 

11.6% 

9.6% 

12.1% 

19.9% 

9.3% 

40.3% 

2.5% 

12.8% 

15.4% 

46.6% 

6.4% 

21.0% 

7.8% 

3.4% 

28.2% National 

Average 
24 


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Performance metrics like these can serve as a risk assessment and give SIGTARP analytical 

insight into where to spend limited resources on a deep-dive audit. 

• SIGTARP's HHF Florida audit: In 2015, SIGTARP conducted an audit into the 

Hardest Hit Fund in Florida as the state agency only admitted 20% of all who 

applied, which was the lowest admission rate in all19 states. SIGTARP identified 

obstacles to program effectiveness. For example, SIGTARP identified that senior 

citizens faced problems applying for assistance and providing the required 

documentation. As a result, 46 percent of all seniors who had applied saw their 

application withdrawn and received no assistance. For those seniors who did 

receive HHF assistance, it took 9 to 10 months to obtain HHF assistance. SIGTARP 

made 20 recommendations to remove obstacles to program effectiveness. 

• SIGTARP's HHF Georgia audit: In 2017, SIGTARP conducted an audit into why the 

HHF homeowner admission rate for Georgia homeowners was consistently low 

compared to other states. SIGTARP found obstacles to program effectiveness 

including a confusing, online homeowner application system. We found 

unnecessary red tape such as the state agency requiring homeowners to obtain a tax 

transcript from the IRS when other state agencies in HHF accept copies of tax 

returns. The IRS's process to obtain a tax transcript takes more time than the state 

agency gave homeowners to complete their HHF application. This unnecessary red 

tape led to the state agency denying people for the program or withdrawing their 

application. It also resulted in unnecessary processing costs as applications were 

churned through the denial/withdrawal process because the package was not 

complete. SIGTARP found that the Georgia agency knew about many of the 

obstacles but did not remove them, which contributed to SIGTARP finding 

mismanagement. The Georgia agency reacted to our report positively, and has 

already begun removing some of these obstacles. The conclusion of this report is 

contained in Appendix C. 

Performance metrics and data analytics in 2015 revealed that HHF in Nevada suffered a 

steep drop off in homeowners admitted to the program (a 96% drop in homeowner 

admissions). In the entire year of 2015, only 117 Nevada homeowners were admitted to 

HHF, despite continued economic factors that showed housing market distress and above 

average unemployment. Despite the fact that it had all but stopped homeowners from 

getting HHF assistance, the non-profit administering the program in Nevada known as 

NAHAC had increased their administrative (operating) expenses charged to the Hardest Hit 

Fund. This risk assessment led to SIGTARP conducting a deep dive audit into the nonprofit's spending. 

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SIGTARP's HHF Nevada audit: SIGTARP's September 2016 report identified $8.2 million in 

waste, and a culture of waste and abuse, in HHF in Nevada that occurred under successive 

CEOs of NAHAC. The entire conclusion of this report is contained in Appendix C. In 

summary: 

• SIGTARP found a culture of NAHAC charging the Hardest Hit Fund for expenses that 

benefitted their employees, for example: annual holiday parties at a casino and 

country club, monthly birthday celebrations, annual employee family picnics, 

employee gifts like Visa gift cards, a Massage Envy gift certificate, an Edible 

Arrangement fruit basket, and a baby blanket, a $500 car allowance for NAHAC's 

CEO to drive a Mercedes Benz, country club lunches, a manager's outing at a highend cocktail bar, and more. 

• SIGTARP also found that NAHAC charged the Hardest Hit Fund to fix its problems,for 

example: a $20,000 severance payment to the CEO who was forced to resign, 

$184,319 on legal fees and settlement payments of discrimination claims made by 

former employees and a Department of Labor investigation into violation of the 

labor laws, the costs to hire a private investigator related to a former employee, 

$26,396 for forensic auditors to reconcile its books due to errors, $10,812 for an 

independent auditor to reconcile non-HHF bank accounts, $100,385 to move to a 

luxury office building with double the rent, with NAHAC subsequently breaking the 

lease, incurring legal fees, and paying rent on two offices in Las Vegas for one 

month. 

• SIGTARP found that during six months of2016, NAHAC kept for its own expenses $1 in 

Hardest Hit Funds for every $1 it provided to homeowners. 

Subsequently, Treasury only required repayment of 1% of the $8.2 million in waste 

identified by SIGTARP, approximately $82,000. 

SIGTARP's HHF Administrative Expense audits: The Nevada HHF audit triggered additional 

current and future audits into the administrative expenses of the state agencies and nonprofit companies administering HHF. Treasury has budgeted more than $1 billion for state 

agency administrative expenses, $810,312,810 of which has already been spent. 

SIGTARP released an audit in August 2017 questioning $3 million in state agency expenses 

charged to HHF. The spending that we found by each state agency varied widely. SIGTARP 

questioned more than $100,000 charged to the Hardest Hit Fund for barbeques, parties, 

picnics, celebrations, outings, food and beverages. SIGTARP found no consistency in 

charges for food and beverages. State agencies in North Carolina, Illinois and Nevada 

regularly charged for employee food and beverages. For example, the state agency in North 

Carolina charged the Hardest Hit Fund for parties, catered barbeques with decorations for 

50, 60 or 90 people, steak and seafood dinners, and regular meals. In June 2016, the Illinois 

state agency charged HHF $549 for a pizza party to "Celebrate HHF Funds officially given 

from U.S. Treasury and celebrating [employee's] upcoming wedding." 

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In comparison, the non-profit in California that has the most HHF dollars of any state and 

has admitted the most homeowners into the program, charged zero dollars for food or 

parties. The Arizona agency also charged zero dollars for food or parties. 

SIGTARP audited these expenses applying the criteria established by Treasury and GAO 

standards for waste. In 2010, Treasury Secretary Timothy Geithner declined requests by 

members of Congress to use Hardest Hit Funds for legal aid expenses or broad housing 

counselor expenses after determining that Congress did not authorize these expenses in the 

TARP law known as the Emergency Economic Stabilization Act. Secretary Geithner cited to 

an appropriations law analysis by Treasury's then-General Counsel George Madison. 

General Counsel Madison determined that to use HHF dollars, appropriations law requires 

that the charge be "necessary" for a homeowner to receive HHF assistance. Treasury 

included this "necessary'' requirement in its contracts with state agencies in HHF and 

applied the federal cost principles that apply to grants. The federal cost principles require 

first and foremost, that an expense be "necessary" for the specific purpose authorized by 

Congress, second, that the expense also be "reasonable," third, that the expense also be 

allocable to the Congressionally-authorized activity, and fourth, that the expense also not be 

specifically prohibited. 

In order to determine whether an expense was "necessary'' to: (1} comply with the first 

requirement of federal cost principles; and (2} adhere to Congressional intent in 

authorizing TARP spending, SIGTARP relied on Treasury General Counsel Madison's 

analysis applying appropriations law to Hardest Hit Fund expenses. SIGTARP did not 

question whether the expenses could be appropriately paid from other sources such as 

state funds. SIGTARP only analyzed whether they were appropriate to be charged to TARP 

dollars. 

In order to determine whether legal aid services were "necessary" for the Congressionallyauthorized purpose ofHHF, Treasury General Counsel Madison articulated two criteria: (1} 

legal aid services frequently would result in outcomes other than loan modification, and 

accordingly, are not by definition necessary for HHF; and (2) borrowers can obtain loan 

modifications without legal aid services. These were the criteria SIGTARP applied. For 

example, the fact that homeowners in California and Arizona could obtain HHF assistance 

without the state agencies charging HHF for parties and food meant that the second criteria 

articulated by General Counsel Madison was not met, those expenses were not "necessary," 

and therefore violated the first requirement of the federal cost principles. 

Throughout our audit, SIGTARP always kept in mind that Treasury did not authorize legal 

aid expenses or general housing counselor expenses to be paid from Hardest Hit Funds. 

Throughout our oversight ofTARP, we have learned that often local legal aid offices are the 

only reason why some homeowners receive assistance. In the audit of Georgia HHF, the 

Atlanta Legal Aid reported to us in several instances how they assisted the state agency in 

reconsidering homeowners who had been wrongfully denied, or had faced one of many 

common obstacles to receiving HHF assistance. Housing counselors also often steer 

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struggling homeowners to the HHF program. If those expenses were not necessary, than 

the zoo admissions for housing counselors were also not necessary under that reasoning. 

Some of the agencies have started to repay the charges questioned by SIGTARP. SIGTARP 

has been working with Treasury to assist in their recoveries of these taxpayer dollars. 

SIGTARP is currently auditing travel and conference expenses, and recent spending in 

Nevada, and anticipates additional audit work. We hope that these audits and that this 

hearing deters future misuse of Hardest Hit Funds. Our audits have already led to some 

state agencies reviewing spending that SIGTARP has not audited, and repaying Treasury, 

showing the benefit of oversight. We encourage these self-reviews. 

SIGTARP audits on competition requirements in HHF: In 2016 and again in 2018, SIGTARP 

reported on the lack of procurement standards that ensure full and open competition in 

HHF; including for state agency administrative expenses. Treasury's budget for each state 

agency contemplates contract awards, including: lawyers, accountants, auditors, 

consultants, communication professionals, marketing companies, information technology 

professionals, training professionals, website developers, counseling agencies, and more. 

However, there are no federal requirements for competition in HHF, unlike those that exists 

in federal grant programs, requirements that SIGTARP recommended that Treasury apply 

to HHF in 2016 and in 2018. State rules are inconsistent and may not apply. As reported in 

SIGTARP's audit, competition can save 20%, curb fraud, waste and abuse, improve 

contractor performance, deter favoritism, and promote accountability for results. 

Although Treasury and state agencies operate HHF much like a grant program, it is not 

actually a grant program, and therefore the procurement standards that would 

automatically apply to grants do not apply. After SIGTARP's 2016 audit in which it 

recommended that Treasury apply the procurement standards that apply to grants, 

Treasury only added a one-sentence requirement that state agencies ensure full and open 

competition limited only to the HHF blight demolition subprogram. 

Top Performance and Management Challenges in the Hardest Hit Fund 

Given our audit findings, and the fact that more than $1 billion is budgeted for state agency 

administrative expenses, SIGTARP has identified the risk of waste in state agency 

administrative expenses as a top management challenge in the Hardest Hit Fund. SIGTARP 

has recommended simple fixes to mitigate this challenge, recommendations focused on 

accountability and controls. 

Two of the other top performance or management challenges identified by SIGTARP for the 

Hardest Hit Fund relate to the blight elimination subprogram of the Hardest Hit Fund, a 

program that pays TARP dollars to hundreds of contractors in the demolition industry to 

demolish blighted houses in 269 cities or towns. We identified those top challenges as: (1) 

the risk of asbestos exposure, contaminated soil, and illegal dumping; and (2} the risk of 

corruption, anticompetitive acts (antitrust violations), and fraud. 

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SIGTARP reports to Congress quarterly on the progress of this subprogram, providing detail 

on the number of houses demolished by city or county, and the recipients ofTARP dollars. 

About one-third of the demolitions took place in 2017. SIGTARP is also actively conducting 

criminal investigations and audits into the blight subprogram. Our ongoing investigations 

remain confidential and law enforcement sensitive. Since 2015, SIGTARP has issued a 

series of recommendations to counter the challenges in the blight subprogram. SIGTARP 

has contracted with the Army Corps of Engineers to provide technical assistance, and they 

have raised significant concerns related to the lack of industry safeguards in the program, 

which we issued in a recent report SIGTARP reported in 2016 on the lack of federal 

requirements for competition that could save taxpayer dollars and protect against fraud. In 

April2017, SIGTARP reported to Congress on the rising costs ofTARP-funded demolition as 

the average per house demolition-related costs paid by TARP rose 90% in Michigan and 

65% in Ohio. Implementation of these recommendations would serve to protect taxpayers 

and local residents. 

In keeping with the Committee's hearing invitation that the Committee will examine 

SIGTARP's findings, I have included in Appendix C the full text of some ofSIGTARP's recent 

(2016-2018) reports containing our findings related to the Hardest Hit Fund. I also include 

a very high-level summary of the 124 SIGTARP recommendations made in these reports, 

recommendations designed to identify and prevent fraud, waste, and abuse, save costs, 

recover TARP dollars that we identified, and increase the effectiveness of the program. 

Given the length of each report, I have only provided the conclusion containing our findings. 

For greater context, I invite you to review the full reports as well as SIGTARP's quarterly 

reports to Congress, which provide additional context. Each of these are on SIGTARP's 

website. I am also happy to provide them to you. 

On behalf ofSIGTARP, I thank the Committee for supporting SIGTARP and for conducting 

oversight over the Hardest Hit Fund through this hearing. Implementation of the reforms 

recommended by SIGTARP will protect taxpayers and TARP. 

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Appendix A 

TREASURY CONTRACT$ FOR$27.8 BilLION TO BE PAID TO KAMP 

MORTGAGE SEIWICERS UNTIL 2023 AS. OF 3/!1/ZlJll 

Other Servicers 

(14llnsti!!Jtionsl' 

TOTAL 

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Appendix B 

STATUS OF $9.8 8tlliON IN MHHU!'JOSAVAilABlE TO STAT!! 

AGENCIES 111111m 'r~t" 

-: LmSI>Q!llligur•s ""'""'an-S243 mil1<>1ll "'cycled TAR!' _,c Source: TreaS!l!): !OSUOOSO to SIGTARP <lata call4/6120!8; SIGTARP analysis of HHf Qilaf!O!Iy 

fmanclill R•port;c 

This chart does not show all of the money to be spent over the 

next few years in the Hardest Hit Fund. Tens of millions of 

dollars are recycled back into the program each year from 

actions like the sale or refinance of a house with an HHF lien. 

Last year, $72 million recycled back into the program. 

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Appendix C 

SIGTARP's Recent Findings on the Hardest Hit Fund 

Waste and Abuse in the Hardest Hit 

Fund in Nevada 

Conclusion of SIGTARP audit issued September 29,2016 

The Nevada Housing Division allowed abuse and waste of $8.2 million in Hardest Hit 

Fund dollars instead of helping homeowners at risk of foreclosure.1 The Nevada 

Housing Division, the state housing finance agency, outsourced administration of the 

Hardest Hit Fund to one of its pre-existing components called the Nevada Affordable 

Housing Assistance Corporation ("NAHAC").z Its proposal to Treasury said, "Program 

leadership will come from the NAHAC Executive Committee .... The Nevada state agency's 

Executive Director, Chief Financial Officer and Chief of Federal Programs constitute the 

Executive Committee .... "3 Given that the Nevada Housing Division served as the agency 

responsible under Treasury's HHF contract, SIGTARP will refer to both NHD and NAHAC as 

"the state agency" or "Nevada state agency." 

Hardest Hit Fund programs are targeted to address these significant problems that place 

Nevada homeowners at risk of foreclosure, but the Hardest Hit Fund cannot be effective in 

tackling these problems if the TARP funds are kept for administrative expenses and do not 

get out to homeowners. 

SIGTARP found that the state agency took homeowner rescue dollars for itself, at the same 

time it all but stopped helping homeowners. 

}> In 2015, the Nevada state agency kept one TARP dollar for every TARP 

dollar it gave to a homeowner. it kept for itself more than $1.4 million of the 

$2.4 million in TARP dollars spent in administrative expenses in Nevada that year. 

1 For purposes of this calculation, SlGT ARP reduced the $2,241,396 wasted administrative expenses in 

2015 by the specific 2015 expenses identified in the report to avoid potential double counting. The specific 

2015 expenses totaled $1,915,465.49. 2 The state HFA is in contract with Treasury, and information on HHF appears on the state HFA's website. 

Treasury required that each state HFA use a financial institution to serve as an "eligible entity." NAI!AC is 

the eligible entity. When it launched HHF in 2010, NHD officials comprised a majority of the Executive 

Committee ofNAHAC's board. In 2013, NHD approved changes to the make-up ofNAHAC's board that 

reduced its influence over NAHAC and spun offNAHAC as a component. This is rare in HHF, as most 

state housing agencies in the Hardest Hit Fund administer the program, either themselves or through a 

special-purpose eligible entity created specifically for HHF. 3 By mid-2013, NAHAC's executive committee was no longer comprised ofNHD executives. The 

proposal is published on Treasury's website at https://www.treasury.gov/initiatives/financialstability/programs/housing-programslhhf/Documents/NV.pdf. 

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~ For half of2015, it spent more on itself than it provided to homeowners. The 

Nevada agency spent $1.2 million on itself, almost $250,000 more than it provided 

to homeowners. 

~ In 2015, it only admitted 117 new Nevada homeowners into the Hardest 

Hit Fund, a 95% decrease from 2012 and 2013. Although many homeowners 

in the nation have seen some recovery, many Nevada homeowners remain hard hit 

by unemployment and underwater mortgages-precisely the problems HHF was 

designed to address. Demand for the program continued, but in 2015, the state 

agency on(y admitted 14.5% of homeowners who applied. 

SIGTARP found that the Nevada state agency abused the Hardest Hit Fund with seemingly, a 

sense of entitlement and no appreciation for the fact that they were taking funds for 

themselves that were intended to help struggling Nevada homeowners stave off foreclosure. 

~ A car allowance of $500 per month for the CEO who drove a Mercedes was 

charged to the Hardest Hit Fund. The Nevada state agency expensed $11,000 to 

the Hardest Hit Fund beginning in October 2014, an expense that was not 

necessary to the administration of HHF, particularly because it was not charged in 

the past and official travel by car can be reimbursed by mileage. 

~ More than $10,000 charged to the Hardest Hit Fund for a manager outing 

at "the nation's best high volume cocktail bar" Herbs & Rye, a $105 country 

club lunch, a $900 company picnic, a $100 massage for an employee, a $124 

Edible Arrangement for the accounting staff, a baby gift for an employee, 

regular staff breakfasts, lunches and perks and a $4,500 bonus for the CEO, 

all while the number of homeowners admitted to the program plummeted. 

These expenses were not necessary for the Hardest Hit Fund as shown by the fact 

that the Nevada state agency provided HHF help to homeowners in past years 

withput buying meals and drinks and gifts for employees. SIGTARP found the 

Nevada state agency increased spending on wining and dining and freebies for 

employees, at the same time it decreased the number of homeowners admitted to 

the Hardest Hit Fund. The Nevada state agency abused HHF by spending these 

rescue dollars on its own employees like a private company, but making HHF foot 

the bill. 

~ December holiday parties for employees complete with holiday gift cards 

were charged to the Hardest Hit Fund. While nota large sum of money 

($5,811), it was money that could have helped some homeowners pay their 

mortgage. These parties started in December 2013 at a local restaurant, escalated 

to a casino in December 2014, and then a country club in December 2015, all while 

the agency's HHF help to homeowners plummeted. In the 4th quarter of2015, while 

holding their holiday party at a country club, the state agency on(y admitted 24 

new homeowners into the program-a meager 8% of the homeowners admitted 

two years prior. 

~ In july 2014, the state agency moved offices to the gleaming $130 million 

City Hall building in North Las Vegas, built three years earlier, without 

concern that their rent would nearly double, because they charged the full 

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rent to the Hardest Hit Fund. At the same time, the state agency cut their staff, 

and severely cut homeowner admissions to the program. The New York Times ran 

a story on November 19, 2011, criticizing city officials from moving into this new 

building derided by residents still suffering from the economy as "a Taj Mahal," 

http:(/www.nvtimes.com/2011/11!20/uslin-nortb-las-vegqs-new-cit;y-hall-is-aremjnder-Qj-flush-days.html? r-0. 4 The New York Times described the North Las 

Vegas City Hall building as having a view that stretched for miles, marble floors, 

granite tabletops, a parking lot covered with solar panels to keep cars cool in the 

Vegas heat, a we/lness center including fitness equipment, and an outdoor concert 

plaza. Given that one third of the homes in North Las Vegas were in foreclosure, 

and that houses that were occupied were worth less than half the value from two 

years prior, the New York Times reported one resident who lost his job as saying 

about the City Building, "It's just disrespectful-like they have no idea of what 

people are going through." 

In internal correspondence in 2014, the Nevada state agency discussed that City 

Hall was "much nicer space" and that it would help with employee morale, but 

showed no concern for the high rent City Hall rent was $11,200 per month, "one of 

the highest lease rates around," as described by the former CEO, and nearly double 

the prior rent of approximately $6,000. After the board changed in 2015, a new 

CEO broke the lease, but the state agency never reimbursed the Hardest Hit Fund 

for the excessive rent, instead continuing to charge the Hardest Hit Fund for costs 

to move the agency to a smaller more affordable office, lawyers' fees related to 

moving, and rent at two offices during their office move in the month ofjune 2015, 

for a combined waste total of more than $100,000. 

Violations of Federal labor laws, employee suits for discrimination, and careless 

accounting, all served to drive up costs, costs that the Nevada state agency expensed 

to Treasury. 

Lawyers to settle a Federal investigation by the Department of Labor who found that the 

state agency violated Federal law, employee discrimination lawsuits (block-billed at 

$123,217), and for an ethics investigation (block-billed at $18,160), a forensic auditor to 

reconstruct the financial books (at $26,395), an independent auditor to reconcile bank 

accounts (at $10,812), and a lawyer and private investigator (at $12,845), all worked to 

clean up situations that never should have happened in the first place, and certainly should 

not have been charged to the Hardest Hit Fund. 

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. 

1. Chosen to be the conduit ofTARP rescue funds from Treasury to Nevada 

homeowners, the state agency used those same funds to run nearly its entire 

business. They ran all expenses (HHF and non-HHF) first through the Hardest 

Hit Fund bank account, and then determined whether to reimburse any items 

back to that account, often not reimbursing. 

4 Jennifer Medina, "In Nevada, a City Hall Is a Reminder of Flush Days," The New York Times, Nov. 19, 

2011. 

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2. The Nevada state agency routinely paid their corporate credit card using a check 

drawn on the Hardest Hit Fund bank account and failed to reimburse the HHF 

account for non-HHF expenses. 

3. Treasury told the state agency in 2014 that it had caught, on a sample basis, 

charges unrelated to HHF. The state agency reimbursed Treasury for some of 

those charges. The state agency did not show Treasury other charges that were 

also not related to HHF. And the state agency continued to charge new non- HHF 

expenses to the Hardest Hit Fund. 

4. An external forensic auditor told the state agency in 2015 that non-HHF 

expenses were not allowed under Treasury's contract. The state agency 

continued to use HHF dollars for non-HHF expenses. 

5. The internal auditor and the external forensic auditor told the state agency that 

payroll costs had to be allocated between the Hardest Hit Fund and non-HHF 

funding sources according to a cost-sharing methodology, which the state 

agency ignored. 

6. The state agency had inappropriate travel and entertainment expenses and 

unsupported credit card charges caught by Treasury and the forensic auditor of 

$23,838. However, the state agency continued to charge entertainment expenses 

to HHF. 

7. The state agency initially shared overhead costs such as rent and payroll 

between both the Hardest Hit Fund and non-HHF funding, but then 

stopped that practice, instead charging all to the Hardest Hit Fund. Small 

and inconsistent reimbursements to Treasury for rent in the Reno office 

in 2012 of a total of$2,739, which decreased to $1,943 in 2013, evidence 

that the state agency knew that the Hardest Hit Fund should not pay 

100% of these costs. However, the state agency charged 100% of the Las 

Vegas office rent to the Hardest Hit Fund and, in 2014 and 2015, ceased 

reimbursements for the Reno rent. The state agency reimbursed 

Treasury nearly $100,000 for partial payroll in 2012, and about half that 

amount in 2013. It did not reimburse Treasury for any payroll in 2014, 

and in 2015 reimbursed a single paymentof$706. 

Warnings about inappropriate spending were met with a temporary fix to reverse those 

charges caught, while continuing the behavior. SIGTARP recently learned that although the 

state agency essentially terminated the latest CEO in May, who left on June 3, 2016, a twomonth severance package of$20,875 in full pay and benefits (including a fixed expense and 

automobile allowance of more than $600 per month) is being paid out of the HHF bank 

account. This has no purpose in HHF. SIGTARP finds that all of the deliberate behavior 

constitutes waste and abuse. 5 

5 According to GAO, waste is defined as the act of using or expending resources carelessly, extravagantly, 

or to no purpose. Abuse involves behavior that is deficient or improper when compared to 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. 

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The Hardest Hit Fund was not intended to be a cash cow for participating state agencies, 

and the state agency must pay these wasted expenses back. Treasury's HHF contract limits 

administrative expenses to only those "necessary to carry out the services." SlGTARP will 

report in the future on additional amounts this state agency must pay back. As President 

Obama has said in an Executive Order, the American people must be able to trust that the 

Government is doing everything in its power to stop wasteful practices and earn a high 

return on every dollar that is spent. The role ofSIGTARP, like other Offices of Inspector 

General, includes reporting on wasteful spending and abuse so that Federal agencies can act 

to stop the waste and abuse, and seek repayment. Sl GT ARP is an independent watchdog 

protecting taxpayer dollars. Every dollar wasted translates to one less dollar to help the 

homeowners Congress intended TARP to assist. A failure to seek and obtain repayment of 

these wasted federal dollars would only harm those people who HHF intended to serve. 

Sometime over the last three years, this state agency lost sight of the fact that they are only 

in this program to be the conduit through which Treasury provides T ARP rescue funds to 

Nevada homeowners to help them stay in their homes. NAHAC stopped performing under 

Treasury's contract, and the Nevada Housing Division allowed that to continue. Both state 

agencies seemingly had no regard for the squandered opportunity to help Nevada 

homeowners this program intended to assist, at a time when those homeowners needed it 

most. As a result, Nevada homeowners have not had fair access to these Federal funds. They 

have been treated differently and unfairly than homeowners in other participating states, 

all because of a low-performing state agency that engaged in waste and abuse. 

The Nevada Housing Division allowed the waste and abuse to occur unchecked. That 

arrangement is rare as typically state housing finance agencies themselves administer the 

Hardest Hit Fund in their state. The most recent termination ofNAHAC's CEO and greater 

involvement now by the Nevada Housing Division over NAHAC is not enough to protect this 

program against continued waste and abuse. Management and the board have changed 

many times over-four CEOs in the span of three years-and this pattern of waste and 

abuse continued under the Nevada Housing Division's nose. 

28 UNIMPLEMENTED PRIORITY RECOMMENDATIONS 

Rellecting cost Slll'lilgs and teCO!II!I'ies of 562.2 milm 

Treasuty slw'd recover $8.1 mifliln iJ waste frool Nevada coo1ractoc 

TteaSII'}' should R!fi'I(Ml coolrac:IDr NAHAC that wasted TARP dollars. 

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Unnecessary Expenses Charged 

to the Hardest Hit Fund 

Conclusion of SIGTARP audit issued August 25, 2017 

State agencies will spend $1.1 billion in administrative expenses to distribute $8.5 billion in 

TARP's Hardest Hit Fund. Every dollar spent on administrative expenses is one dollar less 

for homeowner assistance or one dollar saved for taxpayers. At the beginning of the 

program, then-Treasury Secretary Timothy Geithner determined that Treasury's authority 

under the Emergency Economic Stabilization Act did not allow TARP to pay for unnecessary 

state agency expenses, including legal aid or counseling programs. In Treasury's contracts 

with state agencies, TARP dollars spent on expenses must be "necessary" to modify 

homeowner loans through HHF, which is the authority in EESA for HHF. To give state 

agencies notice as to which expenses Treasury considered "necessary," Treasury included in 

each contract a list of "Permitted Expenses." 

SIGTARP is conducting a series of audits on state agency expenses in HHF, initially 

prompted by poor performance and rising costs in HHF in Nevada, and, subsequently, by a 

request from Chairman Charles Grassley. In SIGTARP's first audit in this series released in 

September 2016, SIGTARP identified $8.2 million in wasted TARP dollars in HHF in Nevada 

on expenses like parties, gifts, excessive rent, and legal costs to defend against Federal 

investigations and lawsuits. The chief executive officer of the Nevada agency was given a 

monthly allowance of $500 to drive a Mercedes, and was paid $20,000 in severance after he 

was fired- all charged to TARP. 

In this second report in the series, SIGTARP identifies nearly $3 million in state agency 

expenses that violate Treasury's contract, including TARP dollars spent on barbeques, 

parties and celebrations, food and beverages, employee bonuses and gifts, payments to 

former employees, employee gifts, employee gym memberships, and employee 

transportation perquisites. This also includes $258,333 for avoidable data storage costs, 

and a 2016 build-out of a state customer center that was charged 100% to TARP despite 

most people using the center for non-TARP programs. This is the second center TARP paid 

for in that state. SIGTARP found no consistency in charging TARP for expenses. Some state 

agencies were far more egregious than others. In addition to violating Treasury's contract, 

the most egregious wasted TARP dollars. 

The North Carolina Housing Finance Agency was particularly egregious in charging TARP 

for unnecessary expenses, including: 

• $10,000 for employee parties, celebrations, and outings, for example: 

o 4 barbeques with Treasury employees with 50, 60 or 90 people in 

attendance: $2,587 

o Steak and seafood dinner for 18 employees when HHF opened in 

2010 (ribeye, prime rib, grilled tuna, salmon, shrimp and grits, and a 

gratuity): $734 

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o Barbeque for employees working on Treasury audit: $660 

o Barbeque after reaching a milestone on the number of people 

helped: $290 

o Holiday lunches, holiday breakfasts, employee farewell ice cream 

party, birthday cake 

o Family picnic with pifiatas and candy: $348 

o Valentine's Day celebration with red velvet cake, flowers, and a "Vday Mailbox":$277 

• Employee gifts including: 

o Land's End shirts with the agency logo: $1,113 

o Visa gift cards, other gift cards, flowers, balloons, chocolates: $715 

• Gym memberships for six employees at $30 per month each: $8,880 

• $30,00 in food and beverages for employees, and sometimes as 

hospitality with others 

o Employees regularly charged TARP for restaurant meals, and to 

deliver food to (or carry food into} the office, for example: 

Seafood lunches at restaurants were regularly charged as 

"working lunches" 

• One employee charged TARP for a "working breakfast" at !HOP 

and a "working lunch," ordering seared tuna and crab cakes on 

the same day 

Two employees even charged $4.72 for Dunkin Donuts coffee as 

a "working breakfast" 

Even a single water bottle bought at CVS for $1.81 was charged 

toTARP 

o In a $5,590 dinner to celebrate housing counselors, agency 

employees and counselors ate tilapia, chicken, and pork chops drank 

virgin cocktails at a cost of$400; finished it off with mini cupcakes at 

a cost of $200; and paid a $770 gratuity, all charged to TARP 

• $35,000 in costs for an annual housing counselor conference and 

other counselor events 

• $18,000 in employee cash bonuses 

The North Carolina agency had a culture of treating TARP as a windfall. TARP dollars were 

38 times the total grants the agency previously received. Calling TARP a "game changer," the 

agency regularly charged TARP for unnecessary expenses that other state agencies were not 

charging. Many of these charges also constitute waste. 

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Some of these charges by agencies in North Carolina and other states were low in dollar 

amount. However, every taxpayer dollar matters. Spending decisions on small purchases set 

the tone for spending decisions on larger ticket items. In addition to state agencies in 

Nevada and North Carolina, other state agencies charged T ARP for parties (an employee 

retirement party in Illinois), picnics (a picnic with food trucks in Kentucky), and employee 

celebrations (employee appreciation day in Michigan). This is not what Congress intended 

in authorizing TARP or Treasury intended in its contracts. These charges constitute waste. 

In 2016, after Congress approved an additional $2 billion for HHF, employees at two state 

agencies became the first recipients of these TARP dollars in celebrations. The North 

Carolina agency charged TARP for a $50 gift card for an employee in recognition of getting 

new HHF funding. The Illinois Housing Development Authority charged TARP $549 at a 

pizza restaurant to celebrate getting new HHF funds and an employee's upcoming wedding. 

The Alabama agency also threw a barbeque for Treasury employees and state agency 

employees, charging hundreds to TARP for the barbeque and catered lunches with Treasury 

employees. The Kentucky and Oregon agencies also charged TARP for catered lunches with 

Treasury employees. 

In conducting this review, SIGTARP applied Treasury's contracts and Treasury's public 

interpretation of what is "necessary," each of which state agencies have had notice of since 

2010. Treasury's contract limited expenses to only those expenses "necessary to carry out 

the services." The "services" were the specific HHF programs defined in "service schedules" 

attached to the contract. Treasury even included a list of "Permitted Expenses" in the 

contract that could be necessary to carry out the services. State agencies also knew that, in 

2010, then-Treasury Secretary Geithner turned down multiple state requests to spend 

T ARP on legal aid or counseling programs because it was not authorized by EESA. 6 

Treasury's contracts applied a strict test, as explained by Treasury's then-general counsel, 

that all expenses must be necessary to "facilitate loan modifications to prevent avoidable 

foreclosures," the EESA authority for HHF. Treasury applied two criteria: (1) that legal aid 

services frequently would result in outcomes other than loan modifications, and 

accordingly, they are not-by-definition necessary or essential to loan modifications in HHF; 

and (2) that if borrowers can obtain loan modifications without the legal services, they were 

not necessary expenses. Applying this test to each of the expenses that SIGTARP questions 

in this report leads to the conclusion that these are unnecessary expenses. 

It is critically important to limit spending to what Congress intended when it authorized 

TARP.In 2010, Treasury's then-general counsel George Madison stated in a memorandum 

that became public: 

Here, one could argue that a general statutory purpose of EESA is to 

prevent foreclosures and that any expenditure reasonably related to 

that purpose are permissible. We believe that such an interpretation 

sweeps too broadly. It would authorize an almost unlimited number 

6 Secretary Geithner wrote public letters to 35 Members of Congress explaining Treasury's analysis of 

appropriations law and Treasury's interpretation of the authority provided to Treasury under EESA. 

Subsequently, some of these Members introduced bills in the House and Senate to allow this T ARP 

spending. The bills did not receive the votes necessary to become law. In its contracts, Treasury limited 

T ARP dollars for counseling to file intake, decision costs, successful file, and key business partners 

ongoing. 

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and variety of government expenditures- i.e. anything that is 

reasonably related to preventing foreclosures. It also would render 

meaningless the express provisions in EESA that together provide 

authority for the Hardest Hit Fund: Section 101 authorizes the 

Secretary to purchase "troubled assets from any financial institution," 

and 1 09{a) authorizes the Secretary to use "loan guarantees and 

credit enhancements to facilitate loan modifications to prevent 

avoidable foreclosures. Lastly, such an interpretation would be 

contrary to how Treasury implemented EESA. 

SIGTARP identified a number of state agency expenses that may be reasonably related to 

foreclosure prevention, but violate Treasury's contract because they are not necessary to 

modil}r loans in HHF. Each of these expenses is not listed in Treasury's list of Permitted 

Expenses. Each of these expenses frequently could have successful outcomes other than in 

HHF, and for each there were state agencies that modified loans in HHF without charging 

TARP for the expense. 

• Food and beverages of more than $100,000 (including in North 

Carolina), sometimes for their own employees, other times as 

hospitality for others were charged to TARP. The California state 

agency, which is allocated the most TARP dollars in HHF, and the 

Arizona state agency, each modified loans in HHF without charging 

TARP for food and beverages. 

• Unlike other state agencies, three state lllJencies charged TARP for 

employee transportation perquisites. These perks included $330,000 in 

'free parking"for Michigan state employees charged to TARP, 

$114,000 charged to TARP for Rhode Island agency employees to each 

receive an extra $105 each month in their paycheck to defray parking 

costs, and $113,000 to buy every Ohio agency employee a $90-110 

monthly bus pass or parking. 

• Unlike other state agencies, the South Carolina agency charged TARP 

for a senior official to have exclusive use of a state leased car for more 

than 4 years. 

• Nearly $1 million in cash bonuses or employee gifts by eight state 

agencies, settlements or litigation with former employees who had 

wrongful termination or discrimination complaints by three state 

agencies, severance payments to resigning or former employees by 

three state agencies, and unemployment payments to former 

employees by five state agencies, were all charged to TARP. To the 

extent that these state agencies are either required or choose to pay 

these expenses, they should do so using state funds as they are not 

necessary to modify loans in HHF. Other state agencies modified loans 

in HHFwithout charging TARP for these payments. 

Particularly egregious was the Nevada state agency that paid more than $43,000 in bonuses 

(including severance) to the CEO who was fired by the board, despite the fact that 

homeowner admissions to HHF had dropped 94%. Also egregious was more than $100,000 

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in bonuses to Florida agency employees, including bonuses to senior Florida officials that 

doubled and tripled after SIGTARP issued an audit in December 2015 on the state agency's 

severe underperformance in HHF. The executive director of the Florida agency was asked to 

resign by the governor in December 2016 for state-funded bonuses and a lavish dinner, 

while Floridians were waiting for foreclosure prevention assistance. Bonuses at both 

agencies constitute waste. 

SIGTARP also questioned two large state expenses. Lumped into the "Miscellaneous" 

category of Permitted Expenses, SIGTARP found that the Rhode Island agency had charged 

TARP $351,958 in 2016 to build out and startup a new customer center, including building 

a new kitchen and new furniture. TARP had already paid for the build-out of an office in 

2010.7Jn 2016, when Treasury allocated new TARP dollars to the Rhode Island agency, 

Treasury did not provide for any further permitted expenses for "one-time/start-up" 

expenses such as "building," "equipment," and "technology." The agency charged 100% of 

build-out/start-up costs, and then $116,219 in operating expenses to TARP despite the 

center also being used for non-HHF services. From June 2016 to May 2017, the percentage 

of homeowners visiting the center for HHF programs was only 29% versus 71% for nonHHF programs. Additionally, even though the Rhode Island agency had not charged TARP 

for any space for files and staff in their own building for 3 years when the program was 

closed, in 2015 the agency back-dated a "rent" charge of$96,590. 

Additionally, in 2015, the Washington, D.C. agency charged TARP $258,333 in avoidable 

storage costs. The Washington, D.C. agency paid this amount to Counselor Direct, an online 

application system contractor, for 5 years of data storage when the program was closed to 

homeowner applications. With many of the agencies contracting with Counselor Direct, 

taxpayers could end up paying $50,000 per month or more for each state agency for years 

of data storage. These costs should be mitigated, as TARP was not meant to be a windfall for 

one IT contractor. 

Taxpayers have paid more than they needed to for state agency expenses in HHF and state 

agencies have spent TARP dollars not as Congress and Treasury intended. SIGTARP found 

an elevated risk of fraud, waste, abuse, and overpayment because state agencies are 

I umping unnecessary expenses into "Permitted Expense" categories, limiting transparency, 

and shielding these expenses from oversight. 

Treasury did not hold state agencies accountable to the requirement in Treasury's contract 

that expenses must be necessary for the specific services in HHF. In 2012, GAO reported on 

rising administrative expenses in HHF, warning, "Treasury's rigorous oversight of spending 

decisions throughout the life of the program will be critical to helping ensure that funds are 

spent as intended." a Treasury regularly reviewed state agency expenses, but only on a small 

sample basis with minimum dollar thresholds. These reviews appear to be focused on 

compliance with Federal cost principles (OMB A-87). Cost principles do not authorize 

Federal spending, but instead, as Treasury's contract states, serve as an additional 

7 In its 2010 contract, Treasury included "permitted expenses" of$274,253 for one-time, start-up expenses, 

which Rhode Island Housing used to build out a new location. Rhode Island Housing used the location for 

only 2 years when HHF was open in the state. 8 See GAO, "Further Actions Needed to Enhance Assessments and Transparency of Housing Programs," 

July 2012, http://www.gao.gov/assets/600/592707.pdf. 

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limitation.9 For example, after SIGTARP's 2016 audit identified waste in HHF including a 

$20,000 severance payment to the fired CEO in Nevada, Treasury officials did not recover 

this payment, despite that it was not necessary to modil'y loans in HHF. Treasury officials 

appear to not even be applying Treasury's own test under the contracts-whether the 

expense was necessary to modil'y loans. 

Responsible stewardship by state agencies and rigorous oversight are needed to protect 

taxpayers. With more than $1 billion in taxpayer dollars on the line, state agencies must 

limit their expenses to only those necessary to modil'y loans in HHF. That has always been 

what Treasury's contracts require. The expenses SIGTARP questions in this report are out of 

$733 million already spent, and SIGTARP will conduct future audits of spent TARP dollars. 

Treasury should recover every dollar in unnecessary charges to TARP identified by 

SIGTARP in this report. 

This report should deter future unnecessary spending when state agencies can see that 

other state agencies modil'y loans in HHF without charging TARP for these same expenses. 

However, the responsibility to stop TARP spending on unnecessary expenses rests with 

Treasury. SIGTARP can only make recommendations to Treasury and cannot recover TARP 

dollars spent in violation of the contract or force Treasury to right the ship. To ensure that 

TARP dollars are used only as Congress and Treasury intended, and that taxpayers do not 

spend more than is necessary, Treasury should enforce the terms of its contracts for the 

$373 million that Treasury has allocated for future state expenses in HHF. 

30 UNIMPLEMENTED PRIORITY RECOMMENDATIONS 

Rellecmg recO\'!fies and cost s.Mws d 54,378,914 

TteaSII)' shocJd recOIII!I' ~ TNlP dollars fran state agencies. 

TreaSII}' shocJd perlonn mote tWaoos CNefSight d the state agency sperdw. 

9 Treasury's contract states, " ... the administrative expenses necessary to carry out the services (the 

"Permitted Expenses.") ... Additionally, all administrative expenses paid with HHF program funds shall be 

accounted for and are subject to OMB Circular A-87 ." 

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In summary: 

North Carolina state agency: $107,821 

$2,830 spent on four entered barbeques and other food with Treasury employees, one served 90 people, 

another 60 peop]e, and two more served 50 people; $8,219 on parties, picnics., celebrations, and outings, 

including, for E"JCample, a Valentine's day party with ~cor and food, steak and seafood dinnel'S, regular 

employee meals, and balloons, candles, cakes and cupcakes to celebrate the milestone of the number of 

homeowners helped; $18,091 on employee CBSh bonuses; $1,965 on VISA gift cards and other gifts including 

$1,113 on customi>ed Lands' End shirts and a $50 CVS gift cat'd to recognize new HHF Funding In 20 16; 

$11,8110 on gym memberships, $14, 124 for employee breakfasts, lunches and dinner sometimes with external 

parties; and $53~ 712 for food and other costs at events with housing counselors, including a {celebration' of 

counselon; that included $400 in v!Tgin cocktails, $200 In mini cupcakes and a $770 gratuity. 

Rhode Islandslafe agertcy: $1,238,226 

$1,031,310 spent for the fuH cost- despite the centers use fornon·I-IHF progrotns- to build out a new 

customer center with a new kitchen and fumituTC, backdated {storage' costs in the agency's own building while 

1111F was closed; $114,596 on a monthly $105 payment to each employee to defray parking and tnmsportation 

costs; $14,994 on severance to fonner employees; $75,703 on unemployment payments to fonner employees; 

and $1,625 on food and beverages, including at meetings with ]enders und trainings with counselors. 

Newuk.A.ffordsble HousingAsolstance Corporation: $240,677 

$194,294 spent on private investigators, settlement payments for discrimination, and severance payments to 

former employees; $43,497 spent an bonuses, of which nearly all went to the CEO who was later terminated; 

and $2,886 on two employee picnics and other celebrations and food. 

Florida state "8"""1' $107,864 

$106,77 4 spent on bonuses approved by the now terminated executive director; 

$636 on gift certificates lO employees; and $454 for a barbecue, an all employee lunch, and a lunch with Bank 

of America. 

Dlmict ofColwmbia's state agency: $259,017 

$258,333 spent to prepay for five yeal"ll of avoidable online storage access and data two years after the HI-IF 

program wall closed to homeowner applications; $202 fUr a continental breakfast with Treasury employees; and 

$48l on breakfast and snacks during a training. 

nllnois Housing state agency: $114,408 

$ 14 spent on Treasury employee breakfast; $98,305 spent on em.ployee cash awards; and $16,089 supplies, 

parties~ celebrations, food and beverages, (including for a contractor to deliver coffee and water), lunch at 

a p:i7:tD restaurant to uto celebrate getting new HHF funds and an employee's upcoming wec:Jdjng." and an 

employee retirement party. 

Mlch/e<m .-"'I"""Y' $337,349 

$77 spent on refreshmenbi and meals for lreasmy employees; $330,575 spent to provide free parking to 

employees; $6,642 in parties, celebrations or other food and beverages, including cupcakes, ice cream 

.!Uindwichcs, ballonns, and pizza; and $5~ on employee gifts from Bed, Bath & Beyond. 

AL.Inmoa .-"fl'JftCY' $70S 

$341 spent on meals and other food for Ttcosuryemployees, including a barbeque; $198 in other food, 

including meals with Rank of America staff; and $166 on Visa gift cards and &uit baskets. 

K-tucJey.-"fl""CY' $49,1SO 

$ J 59 spent on catered lunches with Treasury em.p.loyet!s; $46,811 spent on severance payments for three 

employees; $654 spent on gift certificate$ and cash bonwlll!!s, and $1,526 spent on food and beverages, 

including a picnic with food trucks, an employee gelato outing. 

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Ohio .-"'"f'CY' $204, ~22 

$127,932 spent on cars and a $90-110 monthly payment w employees fur transportation; $63,432 on 

unemployment payments to former employees; and $13,158 on events with hou5ing counselors, including paid 

admission at one 7.00 and breakfast and lunch at three other zoos. 

South Carol,_.- ag"""Y' $49,402 

$20,627 spent on an eJreeutive's use of a car for more than three years; $12,735 fur food and beverages at 

annual meetings with legislative staff and at training events; and $16,040 on employee bonuses. 

Oregon- "g<me)'' $16~,995 

$430 on restaurant lunches with 1reasury employees, including coffee, pastries and desserts, and twice 

for lunch for their staff to celebrate after Treasury's audit; $84,256 spent to settle a former employee's 

wrongful termination litigation and the legal claims of two other terminated employees; $79,742 spent on 

unemployment payments to former employees and $1,567 on food and beverages, including lunch at Newport 

Seafood Grill with Bank of America staff. 

r--e-agency: $5,985 

$5,558 spent on unemployment benefits; and $427 on food and beverages during a training. 

Georgia - "'"f'CY' $6,813 

$6,813 spent on a contractor to deliver breakroom beverages, including water, coffee, tea and hot cocoa. 

Indiana .-agency: $46,658 

$45, I 00 spent on employee bonuses; aod $1,558 on water for employees. 

Missimppi- "ll"f'CY' $8,111 

$369 spent on restaurant lunch for 30 people, including Treasury employees; $5,343 spent on unemployment 

benefits; and $2,399 on lnlining lunches with counselors. 

Califo....U. slate agency: $7,017 

$4,644 spent on contractor parking; and $2,373 to a contractor's laid-off employee to avoid the cost of litigation. 

Arizona slate agency: $2,244 

$2,244 spent on an employee bonus. 

New ]eney slate agency: $1,585 

$1,585 spent on food and be.eroges, including $472 at Land& Sea Restaurant and $1,113 at Italian Peoples Bakery. 

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The Hardest Hit Fund 

Lacks Standard Federal 

Requirements for Competition 

Conclusion of SIGTARP interim audit issued March 8, 2018 

Competition in the $9.6 billion Hardest Hit Fund is critical to protecting federal taxpayers, 

with 19 state housing finance agencies awarding and disbursing millions of dollars in 

contracts. The Office of Management and Budget said in 2007, "Competition is the 

cornerstone of our acquisition system. The benefits of competition are well established. 

Competition saves money for the taxpayer, improves contractor performance, curbs fraud, 

and promotes accountability for results." Competition also deters favoritism. 

SIGTARP found that most of the $9.6 billion Hardest Hit Fund has no federal requirements 

for competition, despite millions of dollars in federal contracts being awarded and 

disbursed by state housing finance agencies.lO Uniform federal procurement standards that 

require competition for grants (contained in 2 CFR 200, Subpart D) do not automatically 

apply because Treasury did not structure HHF as a grant. 

Federal taxpayers that fund the Hardest Hit Fund should receive no less protection because 

Treasury engaged in a legal construct to fit the program within its authority under the T ARP 

law (the Emergency Economic Stabilization Act), rather than call it a grant program. 

Federal uniform procurement standards prevent fraud, waste, and abuse, and ensure full 

and open competition that gives taxpayers the best value. 

Despite not structuring the Hardest Hit Fund as a grant, Treasury operates the program 

much like a grant, but without all of the standard protections of grants for taxpayers. HHF 

has the benefits of grants in achieving solutions that are flexible and targeted to local 

problems, which is a worthwhile goal. However, federal agencies issuing grants partner 

that flexibility and desire for local solutions with protections for federal taxpayers through 

"Uniform Administrative Requirements, Cost Principles, and Audit Requirements for 

Federal Awards" contained in 2 CFR Part 200. Subpart D of the regulation includes 

requirements for competition in procurements. 

Treasury should explicitly apply those federal procurement standards for competition 

contained in 2 CFR Part 200, Subpart D. Treasury has already explicitly applied the federal 

cost standards contained in Subpart E of the regulation. These cost principles, which do not 

discuss competition, are insufficient protection for taxpayers against anticompetitive 

actions. 

10 In June 2016, SIGTARP issued an audit on the then-$622 million Blight Elimination subprogram ofHHF 

and recommended that Treasury explicitly apply the uniform procurement standards, but Treasury did not 

do so. Instead, in December 2016, Treasury added one-sentence guidance on competition, requiring state 

agencies to ensure full and open competition, limited to the blight subprogram, a program that has now 

increased to $800 million. This one sentence is progress, but is not sufficient to protect taxpayers. Treasury 

should implement SIGTARP's remaining recommendations in that audit to apply standard federal 

procurement standards that require competition. 

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Because Treasury and state agencies operate this program much like a grant, HHF dollars 

should have the same federal taxpayer protections of a grant. Flexibility from state 

stewardship is a worthwhile goal, as long as the program is protected with federal 

requirements that prevents fraud, waste, and abuse, deters favoritism, levels the playing 

field, and save taxpayer dollars. The Department of Commerce Office of Inspector General 

recently reported on government-wide studies that indicate that using competition rather 

than noncompetitive procedures may result in 20% in savings.11 

With more than $2.354 billion in spending until December 2021, there is time to take action 

to prevent fraud, waste, and abuse and save taxpayer dollars. The uniform federal 

procurement standards requiring competition that already protect federal taxpayers in 

grant programs, prevent fraud, waste, and abuse, and promote good stewardship of federal 

taxpayer dollars, can have the same benefit for HHF. 

The uniform federal procurement standards for competition are the strongest protection 

for taxpayers funding this program. Reliance of state laws, which may or may not apply, is 

not the strongest protection. In some instances state procurement laws do not apply, and 

policies requiring competition are not enforced. As an example, in Nevada HHF, the 

contractor running the program is not subject to state procurement rules. SIGTARP found 

that Nevada HHF awarded contracts in 2016 and 2017 without following its policy to 

conduct a request for proposal for contracts over $25,000. Some of the contracts were 

awarded to former colleagues of those running the HHF Nevada program. This example 

shows why federal standards provide taxpayers the strongest protection. 

UNIMPLEMENTED PRIORITY RECOMMENDAllONS 

In order to prevent fraud, waste, abuse, and ensure lhat taxpayers aclieve the protection of 

full and open competition, including obtaining fhe best valle and cost savings, Treasury should 

apply the uniform proclleiTient standards (contained in 2 CFR 200, SdJpart D) to fhe 

Hardest Hit Fund just as it has already applied Slilpart E. 

11 See Commerce Office of Inspector General, "Awarding of U.S. Census Bureau Noncompetitive 

Contracts Did Not Consistently Follow Federal Acquisition Regulations and Commerce Acquisition 

Policies," September 25, 2017, citing to Healey, P.A. et al. Naval Postgraduate School, "The Value of 

Competitive Contracting," September 2014. 

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Treasury's HHF Blight Elimination 

Program Lacks Important Federal 

Protections Against Fraud, Waste, 

and Abuse 

Conclusion of SJGTARP audit issued June 16, 2016 

SIGTARP found that the Federal government funds two main programs for the demolition of 

blighted houses, but only the U.S. Department of Housing and Urban Development's ("HUD") 

program has Federal requirements to protect the Government against substantial risks 

inherent in contracting for demolition work-Treasury's Hardest Hit Fund does not. 

SIGTARP found that blight elimination under Treasury's Hardest Hit Fund lacks very basic 

Federal requirements that govern HUD's blight elimination program. While TARP-funded 

demolition of abandoned houses has great potential benefit to communities, the absence of 

Federal requirements specific to the risks inherent in blight elimination like those that exist 

in HUD's blight elimination program puts Treasury's program at great risk of fraud, waste, 

and abuse. At least one city mayor seeking funds under Treasury's program stated publicly 

that these funds come with no stipulations-a perception that will only change when 

Treasury creates Federal stipulations to mitigate substantial risk Right now, the risks of 

HHF blight elimination continue unregulated and unchecked for more than half a billion 

Federal dollars. 

Treasury followed HUD's lead in creating a Federally-funded blight elimination program, 

but made its program bigger (nearly $622 million compared to HUD's $300 million) and 

without blight-specific Federal requirements designed to protect against the risks inherent 

in this activity. While Treasury conducted a written analysis of the benefits of expanding 

HHF to include blight elimination, there is no Treasury written analysis of the risks. It 

should have been obvious to Treasury that demolition activities and the flow of Federal 

dollars through hundreds of individuals, companies, and other non-Federal entities carry 

far greater risk to the Federal Government than providing Federal funds to unemployed or 

at-risk homeowners, which had previously been HHF's sole activity. Treasury could have 

used HUD as a model for Federal requirements needed to mitigate risks inherent in blight 

elimination, but it did not-instead only amending its contract with participating state 

agencies with 2-3 pages of provisions in large type that are insufficient to protect against 

risks inherent to contracting for demolition and other activities. 

Treasury's Hardest Hit Fund program is significantly vulnerable to the substantial risks of 

unfair competitive practices and overcharging, either of which could lead to fraud, waste, 

and abuse. The most glaring difference between the two Federal blight programs is that 

HUD requires: (1) full and open competition (and other competition requirements); and (2) 

that demolition and other costs must be necessary and reasonable. Treasury requires 

neither. 

Treasury's program is at far greater risk than HUD's program given that Treasury has zero 

Federal requirements for competition. Unlike Treasury, HUD does not leave competition to 

chance. Without similar requirements to HUD, Treasury is not conducting any oversight 

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over whether there is competition in the solicitation or awarding of Federal funds or 

whether costs are necessary and reasonable. This means that more than half a billion in 

Federal dollars contracted with nearly 280 local partners, each who may have contractors 

and subcontractors, is being expended with zero Federal requirements for competition, and 

no requirement that demolition costs be necessary and reasonable. 

There is a substantial public interest in having Federal requirements for competition in this 

TARP program. Federal requirements for competition are designed to keep programs fair. 

The Administration has said that competition drives down costs, motivates better 

contractor performance, helps curb fraud and waste, and promotes innovation. Favoritism, 

undue influence, contract steering, bid-rigging, and other closed-door contracting 

processes, can result from a lack of Federal requirements for competition. 

There is no harm in Treasury creating Federal requirements for full and open competition, 

and other competition requirements, similar to HUD's program. HUD's program allows for 

the same locally-tailored solutions and flexibility that Treasury seeks, only with 

accountability and oversight not present in HHF, and with less risk of fraud, waste, and 

abuse. HUD protects the Federal Government and the program through 6 pages in small 

font of Federal requirements for competition, requirements that flow down to state and 

local governments. By contrast, in the face of Treasury's silence, the state agencies 

administering Treasury's program have no requirements for full and open competition in 

this program, with one very small exception. One small agency in South Carolina, which is 

allocated 6% of total funding forT ARP blight elimination, requires "open and free" 

competition, leaving 94% of this program (nearly $590 million in Treasury funding) with no 

requirement for full and open competition. Clearly, HHF South Carolina has determined that 

there is no harm in requiring full and open competition, just as there would be no harm to 

the remaining $590 million in funding through six other HHF state agencies. Beyond HHF 

South Carolina's single paragraph on competition, HHF Alabama (which is allocated 4% of 

TARP funding for blight elimination) has a single sentence in its guidelines on competition 

(requiring two bids}, evidencing that there is no harm in competition. 

Those running this program (Treasury and state agencies) are essentially allowing the 

recipients of Federal funds to determine whether to have competition and in what form. 

This has led to a patchwork of inconsistent or non-existent practices on competition. 

Treasury does not require that nearly $622 million in Federal funds will even be bid out at 

all. Treasury does not require that competition be full and open, prohibit a single quote 

from a sole source, or prohibit placing unreasonable requirements on firms to qualify. Two 

small HHF state agencies are the only ones in this program even attempting to set any 

requirements for competition, which is insufficient to protect nearly $622 million. 

Unlike Treasury, HUD does not allow the recipient of Federal dollars to set the rules on 

competition, but instead layers on any state or local laws or rules that might apply on top of 

Federal requirements. Unlike HUD, Treasury's program relies exclusively on state/city laws 

or rules. Local rules may not even apply to the nearly 280 local partners in Treasury's 

program because most (87%) of them are not municipalities or public agencies, but instead 

include nearly 100 individuals, 8 for-profit companies, 105 non-profit entities, and 33 land 

banks. Any rules that may apply are varied, leaving the Federal Government substantially at 

risk compared to HUD's blight elimination program. 

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SIGTARP also found that HUD limits Federal dollars for blight elimination to only necessary 

and reasonable costs, but Treasury does not, leaving HHF at risk of overcharges, waste, and 

fraud. Treasury has a cap of $25,000 or $35,000 per property, which is not sufficient to 

protect the Federal Government from paying for costs that are not necessary and 

reasonable. Treasury's cap far exceeds the average cost of demolition, reflective of worstcase-scenarios. Treasury's Blight Elimination Program is leaving the analysis of what is 

necessary and reasonable to the recipients of Federal funds. HUD does not place such trust 

or hope in recipients to protect the Federal government. 

At the very least, Treasury's program should have the same protection as the other 

Federally-funded blight elimination program. The requirements of a grant program (at 

HUD) should be the bare minimum for a TARP program. HHF does not have to be a grant for 

Treasury to protect it. That would be form over substance. Federal grant funds are not the 

only Federal funds that should be protected. TARP funds are bailout funds that Congress 

designed to be accompanied by accountability. TARP funds should have more accountability 

and oversight than grant programs. Treasury should make its own requirements to protect 

the program. 

The Hardest Hit Fund is a homeowner bailout program fought for by Congress, which 

rejected TARP at first. It is not a bailout of cities, no matter how good the intentions, or 

developers, construction companies, non-profits, for-profits, land banks, or individuals who 

are not at-risk homeowners. This program has a lot of self-interests involved and with that 

come risks and vulnerabilities that need strong protection-protection that exists in HUD's 

program, but not in Treasury's program. 

TARP funds for demolitions of abandoned properties were taken from programs that 

directly gave TARP money to homeowners, primarily in the form of unemployment and 

underemployment assistance. Every dollar that pays a demolition contractor for costs that 

are not necessary or reasonable is a dollar taken away from a homeowner. Every dollar that 

pays a demolition contractor for costs that are not necessary or reasonable is a dollar taken 

away from demolishing an abandoned house that causes safety concerns for a 

neighborhood. That is why it is so important that Treasury create Federal rules to protect 

this program and these bailout funds, and why it is so important that everyone with 

oversight ofTARP keeps this new use ofTARP for razing homes tightly focused and 

protected. 

18 UNIMPLEMENTED PRIORITY RECOMMENDATIONS 

Relleclilg Cost Savings of $161 million 

Treasuty should require state agencies to implement standard Federal contract 

requi"ements !hat ensure ful & open competmon for blight demolilioo beyond the ooe 

sentence Treasuty added on competition. 

Slate agencies should establish an independent detmmitatioo of demolition costs that are 

necesscuy and reasonable for each city (usilg independent experts, ttird party tar market 

value quotes and cUTJent/fistorical costs). 

State agencies sOOdd benchmark claims against the state agencies' independent determination of which costs are necessary and reasonable. 6 

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Implementing SIGTARP's 

Recommendations is Critical 

Given That Demolition Costs 

Continue to Rise 

Quarterly Report to Congress Apri12017, updated April26, 2018 

In April2017, SIGTARP found that demolition-related costs funded by TARP dollars rose 

significantly in Michigan and Ohio, which account for nearly half of all TARP-funded 

demolitions. The costs decreased after news reports on SIGTARP's june 2016 audit or after 

SIGTARP's April2017 report warning about rising costs. 

The average per house demolition-related costs funded by TARP in Michigan rose by 90%, 

then dropped after SIGTARP reports. 

MICHIGAN AVERAGE HHF DEMOLITION-RELATED COSTS 

1-klmts 

De~d 124 190 553 1,019 1,333 1.457 1,173 1.~5 1,096 702 616 404 996 1,008 776 891 

Quarter 

Source: S!GTARP .analysiS of data from Mtehigao H01J~1ng Finance Agency 

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In Ohio, the average per house demolition-related costs funded by TARP rose 65%, then 

declined after SIGTARP's Apri12017 report on rising costs in Ohio. 

OHIO AVERAGE HHF DEMOLITION-RELATED COSTS 

$20,000 

$15.356 SJS,QOO 

$16,000 

$14,000 

$12,000 

$10.000 

$8,000 

$6,000 

$4.000 

$2,000 

so Jun--14 

Homes 

~moishea 14 Dun!{ 130 261 m "' 253 435 "' "' "' R34 263 "' 810 1.146 

Quarttr 

These rising cost chart highlight the need for implementation of SIGTARP's recommendations on 

HHF's blight subprogram. 

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Risk of Asbestos Exposure, Illegal 

Dumping, and Contaminated Soil 

From Demolitions 

in Flint, Michigan and Other Cities 

Conclusion of SIGT ARP evaluation issued November 21, 2017 

The Hardest Hit Fund's blight elimination subprogram has the potential to fulfill its mission 

to stabilize neighborhoods suffering from "eyesore" abandoned houses, but only if the 

demolitions do no harm to Americans living in these towns. The U.S. Army Corps of 

Engineers conducted july 2017 field inspections of multiple properties in various stages of 

demolition and a document review of one completed demolition in Flint, Michigan. The 

Corps identified for SIGTARP three high-risk areas for demolitions: 1) proper removal and 

storage of asbestos and other hazardous material; 2) proper dumping of all debris and 

waste in appropriate landfills or recycling facilities; and 3) filling in the demolition hole 

with only clean soil. These high-risk areas not only threaten the goal of neighborhood 

stabilization, but also carry a high risk of fraud, waste, and abuse. 

The people of Flint, Michigan, require more than trust that these demolitions will not harm 

them-particularly after their contaminated water. The Corps identified that Treasury does 

not require the Michigan state agency to have any oversight to ensure these high-risk areas 

are handled properly through safeguards and quality assurance. This would likely be the 

same with all eight state agencies in the program, including agencies in Ohio, Illinois, 

Indiana, Tennessee, South Carolina, Alabama, and Mississippi. In the absence of Federal 

requirements, the Corps identified that the Michigan state housing agency's requirements 

do not adequately cover these high-risk areas. Absent state agency requirements, the Corps 

found that the local partner in Flint, Michigan-the Genesee County Land Bank Authorityis not doing enough to mitigate these high-risk areas, and failing to ensure that contractors 

meet all safety and environmental laws and standards. 

The Corps found that the Land Bank and its contractors may have allowed undue risks to 

keep the total project costs under the $25,000 cap, and that all agreements and 

documentation in the program were lacking in quality assurance. In the one completed 

demolition the Corps reviewed, asbestos was mismanaged, there was no proof of inspection 

to determine if debris was removed from the hole, and there was no proof of inspection to 

determine that the material placed in the hole was clean and from an approved source. 

There was no confirmation that the debris removed from the site went to an appropriate 

waste facility. 

The Corps' findings identify risks that could extend to any demolition site in the 248 

participating cities and/or counties. Given the seriousness of these risks, SIGTARP is making 

recommendations for Treasury and state agencies to mitigate them, and to prevent harm, 

fraud, waste, and abuse. Now is the time for Treasury and state agencies to mitigate the 

risks of asbestos exposure, illegal dumping, or demolition debris or other unclear material 

buried in the ground. Failure to implement SIGTARP's recommendations-which are 

industry standards-could result in violations of environmental and safety laws and 

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regulations; lead to fraud, waste, and abuse; and inflict long-lasting harm on these already 

hard-hit neighborhoods. 

Treasury's desire for state flexibility in the Hardest Hit Fund cannot eliminate the need for 

appropriate constraints. Treasury should place on state agencies the responsibility to 

ensure that asbestos removal, dumping, removal of debris, and filling in the holes is 

conducted properly, without harm to neighborhood stabilization-the goal of the program. 

Treasury must require state agencies to: 1) set technical requirements for all involved; and 

2) confirm that all technical requirements have been met before any payment ofTARP 

dollars.1z Treasury should require state agencies to hold local partners and contractors 

accountable to ensuring that all parts of the demolition process proceed safely, 

appropriately, and in compliance with all applicable environmental and safety requirements 

and standards, and without fraud, waste and abuse. Taxpayers and people living in hard-hit 

neighborhoods deserve nothing less. 

United States Army Corp of Engineers' Executive Summary 

This review encompassed the Blight Elimination Program agreements from the Department 

of Treasury (Treasury) with the State of Michigan (State), from the State to the Genesee 

County Land Bank Authority (Land Bank), and from the Land Bank to various contractors 

involved with the demolition process. Documents reviewed were for demolition of one 

home at 2725 Kellar Avenue in Flint, Michigan which was awarded in 2014. A USACE led 

field inspection of multiple properties in various stages of demolition by the Land Bank in 

Flint, Michigan was also conducted. 

Significant findings include: 

o Asbestos removal appears to have been mismanaged by the Land Bank, Global 

Environmental Engineering, DMC Consultants, and LA Construction. 

o It's unclear whether the material placed in the hole was clean and provided in 

accordance with the State and contract requirements. 

o On properties with significant quantities of hazardous materials, Partners and 

Contractors may have allowed undue risks in order to keep total project costs under 

the $25,000 cap. 

o All of the agreements and execution documentation were lacking in quality 

assurance. 

o The State, City, and Land Bank performed redundant inspections of winter grade 

and final grade, and no other physical inspections were documented. 

12 If a local partner and/or contractor does not follow the state agency requirements that the Corps and 

SIGT ARP recommend, they should not be paid, and they should remediatc the problem at their own cost. 

If the state agency suspects that a contractor is not in compliance with laws and regulations, it should refer 

the matter to SIGTARP for investigation. 

39 
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UNIMPLEMENTED PRIORITY RECOMMENDATIONS 

Tl!!aSII')' and stale agmcies should preclude fn:m pat1idpation al coolracllJr.s cllalge4llined tor lliolafioos of 

enwonmem.al or safely~ 

Tl!!aSII')' shoold ll!qWe state agencies to ilstal ~ common sense satesuanfs 111at llf'OI2d aeanst lisll of 

asbestos eliPQS!ft!, !legal~ of debris, and COIQmilaled matel'iallillilg 1t1e demolfion hole. 

Tteaswy should reqlli'l! state agencies to cmdl.d oversi8hf 1M!!' asbesiDs R!IIIIMII irlcfldJB not pa)'ilg TNlP dalars 

Ed aller COiWrrirlg that irlspeciJbn ~and olhet dociii'Jellls show~ R!IIIIMII of asbestos and 

other hazNdous t'll!llf!rials. 

Tl!!aSII')' should l'l!(jljiR! stare agencies to determile app«Ned SOIJia!S of Mart, and not pay TNlP dollars Ed atlllf 

conlirmilg that art ilspec1i:ln of lhe open hole showed lila! al dellris was I'I!II10!II!d, and lllat the hole is~ filed llliill 

cteart ll'llltetia/ tom art appiiM!d SOIJia!. 

Tteaswy should teQUiie state agencies to dl!tennile a list of 3j)llRM!d wasle fadfties, and not pay TNlP dolars unti 

after coofirrni!g lila! all debris was tisposed of at art ~ wash! or reeydhg faciilies, as docll'lleflled by landlil 

I'I!Cej)fs. wasle mdests. and IIUcii~Wlight lickets. 

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Improving TARP's Investment in 

American Workers 

Conclusion of SIGT ARP evaluation issued January 11, 2017 

As an investment in American workers, TARP's Hardest Hit Fund provides a temporary 

safety net to save the homes of now-unemployed or underemployed workers in the rust 

belt, south, and other hard-hit areas of the country. The program has helped more than a 

quarter of a million people, but there has been no reporting on the people denied entry into 

the program. SIGT ARP has found that most of the homeowners who were denied Hardest 

Hit funds earned less than $30,000, calling into question whether the program is effective in 

reaching those hardest hit In six states (including Ohio, North Carolina, and Indiana) three 

out of four people denied entry into the Hardest Hit Fund made less than $30,000. Nearly 

three out of every four people in six other states (including Michigan, Georgia, Illinois, 

Kentucky, and Tennessee) who were denied entry into the Hardest Hit Fund made less than 

$30,000. 

TARP was a bail out for companies like General Motors in areas like Detroit, Cleveland, and 

Flint, but Congress also required that TARP funds go to homeowners, including American 

workers who continue to feel the effects of the financial crisis and the recession that 

followed. In many states, the money has been slow to flow. The need for the program is so 

great that a bipartisan effort by Congress added an additional $2 billion in December 2015. 

Treasury extended the program three years until December 2020. More can be done to 

make sure those American workers who are hardest hit get this help. 

SIGTARP found that 84,965 out of 160,015 people denied for Hardest Hit Fund dollars 

earned less than $30,000 a year, including 64,979 people who made less than $20,000 a 

year. In 12 states, mostly in the rust belt and south, 70 percent or more of the people turned 

down for the Hardest Hit Fund made less than $30,000. At the same time, nearly 20,000 

people who made more than $70,000, including 6,000 people making more than $90,000, 

received Hardest Hit Fund dollars. 

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100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

.,o 

o"" 

Out of 19 states, with the exception of highly-populated California and Florida, Treasury set 

aside the most dollars for Ohio and Michigan. While the program has helped many in Ohio 

and Michigan, those are two states where high percentages of people turned down made 

under $30,000-86 percent in Ohio and 71 percent in Michigan. 

Percentage of Denied Workers \Nho Earned Less Than$30,00(),_ by City 

10 Earned Less Than $30,000 Earned $30,000 or More 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

*Dayton, Cleveland, Flint, M! Saginaw, Detroit, Ml Grand 

OH OH Ml Rapids, Ml 

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SIGTARP found high percentages of people turned down for the Hardest Hit Fund who 

earned less than $30,000 in cities where General Motors-which received $50 billion in 

TARP funds-or its suppliers closed plants or laid off workers: 

• 82% of the people in the Detroit area turned down made less than 

$30,000-that amounts to 4,829 people 

• 89% of the people in the Cleveland area turned down made less than 

$30,000 (619 people) 

• 84% of the people in the Flint area turned down made less than $30,000 

(407 people) 

• 83% of the people in the Saginaw area turned down made less than 

$30,000 (266 people) 

• 91% of the people in the Dayton area turned down made less than 

$30,000 (238 people) 

The expectation for a program that targets unemployed and underemployed workers 

should be that many struggling to save their homes will have lower incomes. The fact that 

so many turned down had lower incomes requires a deeper look into why they were turned 

down. 

State agencies' records provided to SIGTARP were non-existent. missing or incomplete 

about why the state agencies turned down these people making less than $30,000. There 

may be valid reasons why some of these people were denied, but it is impossible to know 

when state agencies managing this program do not keep records that detail specifically why 

each person was denied. That oversight is unjustifiable and should be remedied so 

appropriate action can be taken to get this money to the working class still feeling the 

impact of the crisis and recession. 

This program has a lot more potential to provide a safety net in certain communities until 

full-time jobs return, but that potential needs to be unlocked now. Despite GM returning to 

profitability, GM and others have closed plants in the past year, and more than 2,000 GM 

workers will be laid off at plants in Michigan and Ohio. 

The best way to unlock the full potential of the program is to remove too-stringent criteria 

that: (1) do not reflect the reality of the working class in that state; or (2) do not apply to 

homeowners in other states to get these funds. For example, a Michigan worker should not 

be turned down for the Hardest Hit Fund just because they received unemployment benefits 

(or saw their paycheck cut) more than 12 months ago, when a California homeowner does 

not have that same restriction for entry into the Hardest Hit Fund. There should be a level 

playing field for homeowners seeking help through this program. This 12-month timing 

restriction is also inconsistent with the new normal of unemployment-that it lasts a long 

time-and it does not reward a responsible Michigan homeowner who made ends meet for 

more than a year after receiving unemployment benefits, but has now run out of options. 

Sl GT ARP found other criteria in certain states for this program that are more restrictive 

than others. For example, a requirement in Michigan and some other states to show a 20% 

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pay cut in order to qualify as "underemployed" is either lower or non-existent in other 

states for this same program. SIGTARP also found criteria in certain states for this program 

that do not match the reality of unemployed workers. For example, a requirement that the 

person make sufficient income to afford their mortgage in the future may not be realistic 

now. The reality is that this is temporary help while the person looks for a full-time job, at 

which point the hope is that they will make enough income to afford their mortgage. 

Program criteria like these and others may have been well-intentioned, designed to ensure 

there was enough money to spread around. Nearly seven years later, with billions of dollars 

left, and the money slow to flow, state agencies should determine whether each program 

criteria is really necessary. 

Even good programs can be better. The Hardest Hit Fund can be more effective and efficient 

so that the state agencies can help more of America's working class save their home. That is 

a goal worth striving for, but it takes change, including unlocking the full potential of this 

program by deleting unnecessary restrictions. 

PRIORITY RECOMMENDATIONS 

Eliminate unneces881Y criteria that may preclude lower-income 

workem from HHF Unemployment Bridge 

Maintain detailed records of why each person was denied 

HIF Unemployment Bridge 

Allow workem facing upcoming layoffs to be eligible for 

HHF bekre becoming past-due on their mottgage 

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Eviction and Uprooting of Evansville, 

Indiana Residents to Qualify as 

Vacant Houses for TARP-Funded 

Demolition to Move a Ford 

Dealership to the Location 

Finding in Alert Letter Issued December 14,2015 

Despite Treasury's contract with Indiana's HFA limiting the TARP program [the HHF Blight 

Elimination program] to the demolition of vacant, abandoned, and blighted properties, 

Indiana's HFA approved lived-in residences to be included in the TARP program. SIGTARP 

found that Indiana's housing finance agency selected and approved lived-in homes on the 

desired relocation site of a car dealership in Evansville, Indiana, under the TARP program 

and used TARP funds to reimburse their demolition despite the presence of other 

abandoned properties in the city. Indiana's HFA allowed TARP's Hardest Hit Fund to be 

used as part of a plan that selected and approved live-in homes for demolition under HHF, 

which would require evicting or otherwise uprooting people from their homes. This was 

not the intent of HHF. Indiana's HFA may be following a strategy that might be permissible 

under HUD's NSP program, but unlike TARP, HUD's program imposes substantial legal 

requirements and protections on the acquisition of occupied properties. This puts TARP at 

great risk of abuse. 

PRIORITY RECOMMENDATIONS 

IMPLEMENTED 

Treasury should immediately direct state housing finance agencies that they should not aii!NI the 

Hardest Hit Fund to be used strategically to select lived-in residences for demolition, and should 

instead be used solely to select zombie propetties for demolition. 

UNIMPLEMENTED 

Treasury should daw back all Hardest Hit Fund monies used for lived-in residences that were 

selected for the blight elimination program, induding TARP payments of $246,490 for 18/ived-in 

residences in the neighbolhood of Area 55, in Evansville, Indiana, and recycle those funds to 

demolish abandoned zombie properlies. 

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Mismanagement of the Hardest Hit 

Fund in Georgia 

Conclusion of SIGT ARP audit issued October 13, 2017 

There are two TARP housing programs that operate in Georgia. The Making Home 

Affordable Program, a national program administered by Treasury, has provided TARP 

dollars to 80,026 Georgians. The Hardest Hit Fund administered by the Georgia Department 

of Community Affairs (the Georgia agency) has provided TARP dollars to only 9,061 

homeowners over more than 6 years, while $164 million, which is more than half of the 

available HHF dollars, remains unspent. Upon a request by Congressman John Lewis, 

SIGTARP audited the Hardest Hit Fund in Georgia to determine whether it had adequately 

served counties in his district, and to identify improvements. SIGTARP found that TARP's 

Hardest Hit Fund program has not adequately served those most in need in Georgia 

counties in Congressman Lewis' district in Atlanta and surrounding areas. 

The mission of the Hardest Hit Fund is to preserve homeownership, something that hard -hit 

homeowners in Atlanta and surrounding areas greatly need. This mission is accomplished 

by state agencies providing Hardest Hit Fund aid to families through local programs tailored 

to the urgent needs of the communities. If the state agency does not provide the aid, it 

cannot effectively address local needs. 

Homeowners in DeKalb, Clayton, and Fulton counties fit the definition of hard hit. So many 

in these three counties are hard hit not because of anything that is their fault, but instead 

because of where they live. These are Georgians caught in a pocket of slow recovery 

compared to other cities. Neighborhoods like Forest Park, Lakewood Heights, and Lithonia 

have been the subject of nationwide and local reporting on pervasive poverty and an 

uneven housing market. Many in these counties owe more than their house is worth. There 

are not enough jobs.13 The jobs that do exist often do not pay enough to cover the mortgage 

and other bills. There has been, and continues to be, a need for the Hardest Hit Fund. 

The need for the Hardest Hit Fund has always been urgent in DeKalb, Clayton, and Fulton 

counties. Nearly one quarter of all Georgia homeowners who lost their home to foreclosure 

since 2008lived in DeKalb, Clayton, or Fulton County. Foreclosures in Georgia can be very 

fast because banks do not have to go to court to foreclose on a Georgia homeowner. 

Treasury's promises that the Hardest Hit Fund would provide "urgent," "immediate," help 

"as soon as possible" meant that the program had an opportunity to prevent these fast 

foreclosures. Along with need, there was interest in the program, and many hard-hit 

Georgians applied. There were 29,750 Georgians who applied for the program, 9,516 from 

DeKalb, Clayton, and Fulton counties. 

SIGTARP found that the Hardest Hit Fund did not meet the urgent local needs affecting the 

housing recovery of Georgia homeowners living in DeKalb, Clayton, and Fulton counties. 

13 All three counties have above-average unemployment. Clayton County has a 5.9 percent 

unemployment rate compared to the national4.5 unemployment rate. DeKalb County and Fulton 

County also have above average unemployment rates at 4.9 percent each. 

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The Georgia agency turned away two-thirds of Georgians living in these counties for the 

Hardest Hit Fund-6,200 people-while more than one hundred million dollars sat idle.14 

The Georgia agency turned away thousands who could not afford to be turned away. In 

Fulton County, 75% of all applicants that the Georgia agency turned away earned less than 

$30,000 per year. In DeKalb County, 77% of all applicants that the Georgia agency turned 

away earned less than $30,000 per year and, in Clayton County, 81% of all applicants that 

the Georgia agency turned away earned less than $30,000 per year. Most turned away in 

these counties earned less than $20,000. 

The problems that SIGTARP found with the Hardest Hit Fund extended beyond these three 

Georgia counties to the entire state. Year after year, the Georgia agency ranked among the 

least effective state agencies in disbursing Hardest Hit Funds to homeowners to preserve 

homeownership-the goal of the program. SIGTARP reported on the severe 

underperformance of the Georgia agency 25 times in 5 years. Twice, U.S. Congressmen from 

Georgia wrote to then-President Obama to change or redirect the program. 

• Rather than respond to the most pressing problems of their 

communities, the Georgia agency turned away two of every three 

(20,051 of29,750) Georgians who applied for Hardest Hit Funds, one of 

the worst rates nationwide. 

• Three out of every four turned away earned less than $30,000, most 

earned less than $20,000, while millions ofTARP dollars sat idle. 

• In 2010, the Georgia agency told Treasury that it planned to distribute 

Hardest Hit Funds to 18,625 homeowners (9,000 homeowners in the 

first year, and 9,500 homeowners in the second year). However, it has 

taken more than 6 years for the Georgia agency to provided Hardest Hit 

Funds to 9,061 Georgia homeowners. 15 

• The Georgia agency has provided less than half of the available dollars 

($173.8 million out of $370.1 million) to homeowners. 

• Despite Georgia experiencing one of the highest levels of underwater 

homeowners in the nation, which is a contributing factor to Georgia's 

slow recovery from the crisis, the Georgia agency failed to provide 

underwater home HHF assistance for 6 years. 

• Despite Georgia having one of the largest populations in the United 

States of military and veterans, the Georgia agency turned away 2,310 

veterans-71% of all veterans who applied for the Hardest Hit Fund. 

14 The Georgia agency turned away 2,476 DeKalb County residents, 2,342 Fulton County residents, and 

I ,382 Clayton County residents who applied. There were 95,232 homeowners in these counties losing their 

home to foreclosure since September 2008. 15 As of March 31, 2017, !he latest data available as of the drafting of !he report. 

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Finding statewide ineffectiveness and inefficiency of HHF in Georgia, SIGTARP shifted the 

audit to determine the source of the problem, and how to fix it. 

SIGTARP found mismanagement by the Georgia agency paid by Treasury to provide this 

urgent aid to Georgia homeowners, and by Treasury in not holding the Georgia agency 

accountable.16 The Government Accountability Office (GAO) defines mismanagement as 

"creating substantial risk to an agency's ability to accomplish its mission." The mission of 

HHF is to preserve homeownership. The mission is accomplished by state housing finance 

agencies like the Georgia agency, providing aid to families through local programs tailored 

to the urgent needs of the communities. Conversely, the mission is not accomplished, given 

that the Georgia agency withheld aid. 

The Georgia agency's mismanagement of HHF included that it: 

• Failed to act with urgency in distributing this Federal aid, and 

withheld it from Georgians. While some families received the aid, the 

Georgia agency did not provide this aid with any urgency, and did not 

provide it to enough families. The Georgia agency did not meet its own 

target of providing assistance to 18,500 Georgians in the first 2 years (by 

September 2012}. Instead, after 2 years (as of September 30, 2012}, the 

Georgia agency provided this aid to less than 10% of that targetassisting only 1, 708 homeowners. The Georgia agency withheld this aid 

to Georgians over the years, meeting less than 50% of its own target as 

of March 31,2017 (the latest data available during the drafting of this 

report). By withholding this aid, and slow walking the aid it did 

distribute, the Georgia agency cut off Georgians' access to these funds, 

leaving thousands at risk of foreclosure without help available to 

homeowners in other states with similar situations. 

• Designed overly strict and unnecessary criteria for the HHF 

unemployment program that made it harder for a Georgia 

homeowner to receive this assistance than homeowners in other 

states. In this audit, SIGTARP provides 10 examples of overly strict 

criteria. For example, when in 2012, the Georgia agency required that a 

homeowner be no more than 6 months delinquent on their mortgage to 

qualil'y, people all but stopped applying. For the HHF 

unemployment/underemployment program, the Georgia agency did not 

recognize common hardships like illness, disability, divorce, and military 

orders that can lead to unemployment or underemployment. These 

hardships are recognized in the other TARP housing program (Making 

Home Affordable), and for HHF by other state agencies. A Georgia 

worker has to show they lost their job in the last 3 years (later expanded 

to 4 years), when homeowners in other states do not have this 

limitation. The Georgia agency disqualifies a homeowner who resigned 

from their job from getting HHF assistance, even if it was due to illness, 

16 Treasury did not hold the Georgia agency accountable to the targets set by the Georgia agency of9,000 

homeowners assisted the first year, and an additional 9,500 homeowners assisted the second year. Treasury 

also did not hold the Georgia agency accountable to targets Treasury set in April 2012 of250 new 

homeowners funded each month. 

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disability, or age. The Georgia agency accepts only severe 

underemployment of a 25% pay cut when other state agencies accept 

10%. These and other criteria are not required by Treasury and far 

stricter than some other state agencies require in HHF. 

• Failed to eliminate overly strict criteria despite repeated warnings 

and recommendations. The Georgia agency's mismanagement 

disadvantaged Georgia homeowners, making it harder for a Georgia 

homeowner to gain access to this Federal aid than homeowners in other 

states. The Georgia agency was repeatedly warned, and there were many 

recommendations to eliminate overly strict criteria. These 

recommendations came from Congressman Lewis, Congressman Henry 

"Hank" Johnson, SIGTARP, Treasury, and local non-profit groups. 

• Required significant red tape, had a confusing online application, 

provided very little in-person help to apply, and had burdensome 

document requirements. The online application was confusing, and 

there was little personal assistance available. More than 8,000 Georgians 

started the application but did not finish it and produce requested 

documents within 30 days, an artificial and unnecessary cutoff, so the 

Georgia agency withdrew their HHF application. This may have been due 

to the Georgia agency's burdensome document requests, for example, 

4 years of tax transcripts stamped by the IRS, 2 years of payment history 

generated by their mortgage servicer, and a separation letter from the 

prior employer showing that the homeowner lost their job through no 

fault oftheir own. 

The question SIGTARP was left with was, "what are they waiting for?" The mismanagement 

of the Georgia agency appears to be rooted in its desire to provide aid to only its overly 

restrictive view of what is a "Responsible Homeowner." The Obama Administration defined 

an irresponsible homeowner as someone who took out more of a loan than they could 

afford, and Treasury capped the mortgage for a homeowner receiving this Federal aid to the 

GSE conforming limit-around $424,100 for a single-family house in Georgia. Of the 

Georgians turned away, 99% had a mortgage below this cap. The Georgia agency added far 

more limitations and red tape than Treasury required or that existed for homeowners in 

other states for these same funds, putting Georgians at a disadvantage. 

The Georgia agency set a very high bar for Georgians to receive Hardest Hit Funds, and a 

very low bar for itself to receive these funds. The Georgia agency ran this program 

"guarding" the dollars and adding "precautions." This made the Federal funds last, which is 

contrary to the urgent nature of this program, but continues to keep the Georgia agency 

funded while other state agencies wound down operations. The Georgia agency has kept 

$32 million for itself to pay its salaries and other expenses. SIGTARP has serious concerns 

given that the Georgia agency has distributed only less than half of the funds earmarked for 

homeowners, but kept 70% of the fund earmarked for its own expenses. If held to its own 

"responsible" standard, the Georgia agency should not have been paid when it did not meet 

its targets or Treasury's targets for the number of homeowners assisted. The Georgia 

agency's track record is so poor that while other states took advantage of an additional $2 

billion that Congress approved starting in 2016 for HHF, Treasury turned down Georgia for 

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$33.5 million, out of concern that the Georgia agency would not spend the HHF dollars 

already set aside for Georgians. 

The Georgia agency's mismanagement is a significant lost opportunity for Georgians, but a 

window of opportunity still exists with $164 million remaining available in the program. 

This opportunity should not be lost. It will take wholesale changes in the Georgia agency, 

and in Treasury's oversight, to stop the mismanagement and change course. SIGTARP 

makes 30 recommendations for improvement, and implores the state agency and Treasury 

to adopt these recommendations fully and immediately. 

If the Georgia agency reacts defensively to this report and sticks with the status quo, 

Georgians will continue losing a crucial aid that can speed their recovery from the housing 

crisis-aid that homeowners in other states have had access to for years. If mismanagement 

continues, Federal taxpayers will continue paying for underperformance and 

mismanagement, and Georgia homeowners will be on their own, without effective access to 

this Federal foreclosure prevention aid. Georgians have been disadvantaged by the Georgia 

agency for far too long. 

PRIORilY RECOMMENDATIONS 

Mismanagmertt Cost Taxpayers $18.6 milion 

Georgia agency should remove impediments to Georgia homeowners receiving Hardest 

Hit Funds such as overly strict criteria and umecessary red tape. 

Georgia agency should lix a broken and confusing online application system. 

Georgia agency should conduct outreach to assist homeowners in applying counties. 

50 
64 

Mr. PALMER. The chair now recognizes Ms. Campbell for her testimony for 5 minutes. 

STATEMENT OF VERISE CAMPBELL 

Ms. CAMPBELL. Thank you, Mr. Chairman. 

Chairman Palmer, Chairman Meadows, and members of the committee, thank you for the opportunity to participate in today’s hearing and appear before you regarding implementation and oversight 

of the Hardest Hit Fund. 

For the record, my name is Verise Campbell. And since June of 

2016, I have been the chief executive officer for the Nevada Affordable Assistance Corporation, also known as NAHAC. 

I was selected by the State of Nevada to restructure NAHAC 

after the organization experienced a series of operational issues 

and a decrease in production. No State was hit harder than Nevada 

during the Great Recession and subsequent housing crisis, and the 

Nevada Hardest Hit Fund has been instrumental in helping people 

save their homes and get back on their feet. 

These are actual quotes from some of our homeowners: 

‘‘This program saved my life; it saved my children’s life.’’ 

‘‘I feel like the weight of the world has been lifted off of my 

shoulders.’’ 

‘‘We were under so much pressure, we didn’t know what to do. 

We thought we were going to lose our home until we spoke to the 

Hardest Hit.’’ 

Providing benefits to Nevada homeowners has not been without 

challenges. NAHAC acknowledges that there have been issues with 

its performance. 

Specifically, the most critical report was a SIGTARP report that 

actually indicated that there was fraud, waste, and abuse in Nevada in the amount of $8.2 million. However, subsequent Treasury 

audits for the same period found a significantly reduced amount of 

unallowable expenses, $136,000, not $8.2 million. NAHAC immediately reimbursed the $136,000 to Treasury. Nevertheless, it was without a doubt changes had to be made if 

NAHAC was going to effectively serve Nevada homeowners. 

Major changes were, in fact, made to NAHAC’s organizational 

structure, systems, and programs. In fact, our newest program is 

a downpayment assistance program entitled Hope Brings You 

Home, which was launched on May 1, 2018. $36 million was allocated to this program to assist 1,800 homeowners. To date, the 

downpayment assistance program has over 200 reservations, with 

over $3.8 million committed in its short time. 

The Nevada Affordable Housing Assistance Corporation has 

helped over 5,000, almost 6,000 Nevada households to date, and 

that number continues to grow. Programs have been instituted to 

solve Nevada’s housing crisis with the assistance of Treasury, Nevada’s business and industry, and the Nevada Housing Division. 

There were issues with the operations of NAHAC initially, but 

NAHAC has improved its organizational structure and its operations, resulting in better oversight, transparency, and controls, 

and increased capacity to help more Nevada families. 

New management is committed to efficiently and effectively utilize the remaining allocation of government funds to help more citiVerDate Nov 24 2008 12:54 Sep 20, 2018 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 H:\31271.TXT APRIL

KING-6430 with DISTILLER
65 

zens of one of the hardest hit States stay in their homes and stabilize Nevada’s housing market. 

Thank you. 

[Prepared statement of Ms. Campbell follows:] 


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KING-6430 with DISTILLERInsert offset folio 54 here 31271.054

TESTIMONY OF VERISE V. CAMPBELL 

Good afternoon Mr. Chairman and members of the committee. Thank you for the opportunity to participate in 

today's hearing and appear before you regarding implementation and oversight of the Hardest Hit Fund. 

For the record, my name is Verise Campbell. Since June of2016 I have been the Chief Executive Officer for 

the Nevada Affordable Housing Assistance Corporation, also known as "NAHAC." NAHAC is the designated 

administrative Eligible Entity for the Nevada Hardest Hit Fund (NVHHF). The Nevada Housing Division 

(Housing Division), which is a Division of the Nevada Department of Business and Industry (Business and 

Industry), was designated by the United States Department of the Treasury ("Treasury") as the State Housing 

Finance Agency or "HFA." I was selected by the State of Nevada to restructure NAHAC after the organization 

experienced a series of operational issues and a decrease in production that will be discussed below in more 

detail. 

OVERVIEW 

No state was hit harder than Nevada during the Great Recession and subsequent housing crisis, and the NVHHF 

has been instrumental in helping people save their homes and get back on their feet. In fact, countless 

homeowners have provided unsolicited thanks and poignant insight into how profoundly vital this assistance has 

been for them and their families. 

"This program saved my life; it saved my children's lives." 

"!fee/like the weight of the world has been lifted off of my shoulders!" 

"We were under so much pressure; we didn't know whot to do. We thought we were going to 

lose our home until we spoke to the Hardest Hit Fund. " 

These are actual quotes from Nevada homeowners who would have had nowhere else to turn had this program 

not been available to them. Through the assistance provided by NAHAC and the Hardest Hit Fund dollars 

provided by the federal government, the lives of Nevada homeowners continue to be transformed for the better 

by enabling people to stay in their homes, and the Nevada housing market has been stabilized as a result. 

Providing benefits to Nevada homeowners has not been without challenges. NAHAC acknowledges that there 

have been issues with its performance. The Special Inspector General for Troubled Asset Relief Program 

(SIGTARP) and Treasury released reports critical ofNAHAC's operations and productivity. The most critical 

report was released in September 2016 by SIGTARP. The SIGTARP report alleged mismanagement, fraud, 

waste and abuse by NAHAC in the amount of $8.2 million. However, subsequent Treasury audits for the same 

period found a significantly reduced amount of"unallowable" expenses; $136,000 (not $8.2 million). NAHAC 

immediately reimbursed the $136,000 to Treasury. Nevertheless, changes had to be made ifNAHAC was going 

to effectively serve Nevada homeowners. 

May 22,2018 NAHAC Testimony {Joint Subcommittee lntergov. Affairs and Gov. Ops., Oversight and Gov. Refonn) 
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NEW MANAGEMENT AND NEW FOCUS 

NAHAC made major changes to its organizational structure and operational guidelines, which have resulted in 

more transparency for the organization, better internal controls and more efficient systems. These changes 

contributed to better production and more households being served. NAHAC also received constructive input 

from Treasury, Nevada's Congressional delegation and Business and Industry and continues to solicit input 

from its community partners to make the assistance program available to more Nevadans and to more 

effectively assist them with their housing needs. 

NAHAC had experienced high staff turnover. As a result, in 2014 there was a sharp decline in production, 

which continued through 2015. During this period, Business and Industry and the Housing Division expressed 

concerns to Treasury regarding NAHAC's operations and the lack of cooperation from NAHAC's Board of 

Directors. Subsequently, Treasury issued a critical Performance Memorandum to NAHAC, which prompted 

resignations of the majority of NAHAC's Board of Directors. Thus, began the re-organization of NAHAC. 

New management set about to remedy the problems identified internally and by Treasury and SIGTARP. Since 

June 2016, the change in direction from previous years has been significant. NAHAC has followed the 

recommendations of Treasury and the Housing Division to correct mistakes and make the program stronger, 

more efficient, more transparent and more effective in helping Nevada families keep their homes. The 

following is an overview of the steps NAHAC has taken to more effectively manage the aid to Nevada families. 

Organizational Changes - In April 2016, NAHAC's bylaws were amended to operate NAHAC under 

Nevada's Open Meeting Laws, and to allow the State of Nevada and the Housing Division to provide direct 

oversight of Nevada's Hardest Hit Fund programs and operations as intended in the tri-party participation 

agreement between Treasury, NAHAC and the Housing Division. The Board of Directors now consists of two 

members from the Nevada Housing Division, one member from Business and Industry, and two independent 

members who have experience with real estate, housing, mortgage lending or other expertise related to 

mortgage assistance programs or sustainable housing. 

NAHAC also terminated its Chief Executive Officer and I was appointed to take over that position. From my 

initial assessment of the organization, it was apparent NAHAC had ample opportunity to improve its ability to 

efficiently and effectively carry out its mission. There were challenges in the following key areas: staffing, 

management, systems and programs; all of which hampered the ability to readily identify qualified candidates 

for assistance and timely distribute funds to homeowners in need. 

Staffing and Internal Controls - Under new management, NAHAC and the new Board of Directors acted 

decisively to realign operations and control administrative expenses. The organization currently operates with a 

significantly scaled-down workforce of ten (10) full-time employees, one (1) part-time employee, and six (6) 

temporary employees, compared to 19 full-time employees and no temporary staff in June 2016. In addition, 

staff was cross-trained to enable the organization to shift human capital resources based on need and demand. 

This has allowed for maximum cost efficiency without hiring and training additional staff as file volume 

fluctuates. Such cost control actions have brought the administrative budget in-line with Treasury's permitted 

administrative expenses, and NAHAC estimates that with the addition of the newly launched Down Payment 

Assistance Program, the administrative budget is likely to fall between 9 percent and 12 percent. 

May 22,2018 NAHAC Testimony (Joint Subcommittee Intergov. Affairs and Gov. Ops., Oversight and Gov. Refonn) 
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NAHAC also hired a local CPA firm, experienced with government compliance issues, to provide accounting 

and financial reporting services and to assist with compliance matters, including responding to inquiries and 

audits from Treasury and SIGTARP. As a result of NAHAC's past issues, NAHAC has been under constant 

audit by Treasury and the subject of multiple investigations by SIGTARP. NAHAC has done its best to be 

responsive given available staff and the deadlines imposed, while at the same time focusing on its obligations to 

assist Nevada homeowners. 

Systems - Since June 2016, NAHAC began to operate as a leaner and more efficient, transparent, and 

homeowner-focused organization without compromising service. One of the first issues current management 

addressed was the homeowner application process and the system behind it. The original system could not 

adequately and accurately handle the volume of applicants necessary to achieve NAHAC's funding goals. After 

careful research into other systems adopted by successful HHF states, NAHAC implemented a new 

comprehensive document and case management portal system, the Nevada Mortgage Assistance System 

(NMAS). This system, modeled after California's highly successful portal system, was rolled out on July 3, 

2017. One key benefit ofNMAS is the system's capability to identify eligible homeowners much earlier in the 

application process. This saves valuable time and greatly reduces the possibility of human error. NMAS 

yielded immediate results and has been a key component in reducing the time for a homeowner to receive a 

decision from 60 to 90 days to the current timetable of 30 to 45 days once an application is submitted. 

NAHAC also analyzed its front-end processes to identify cost savings and improvements in customer service, 

and launched its in-house call center on December 1, 2017. This has resulted in an immediate reduction in frontend related expenses, while at the same time increasing efficiency by streamlining and improving the first 

contact, intake, and application processes, and providing better customer service and direct management of 

these functions. 

Programs - Ensuring that programs are relevant and current to address the evolving housing market is key to 

successfully meeting the needs of Nevada's struggling homeowners. Since June 2016, NAHAC has submitted 

program enhancements and received approval from Treasury on four separate occasions. These program 

enhancements have allowed NAHAC to assist more Nevada homeowners and distribute more HHF dollars 

where they are most needed. For example, NAHAC realized homeowners on a fixed income were having 

difficulty qualifying for current HHF programs. After reviewing other programs around the country and 

discussion with Treasury, NAHAC developed an affordability component to the Principal Reduction Program. 

This one change allowed NAHAC to further assist Nevada's aging and disabled homeowners. 

The following four programs are available to aid existing homeowners who owe more than their home is worth, 

may be past due on their mortgage payments, and/or have experienced a job loss, underemployment, or other 

financial hardships. 

I. Principal Reduction 

2. Second Mortgage Reduction/Elimination 

3. Unemployment Mortgage Assistance 

4. Mortgage Reinstatement 

May 22,2018 NAIIAC Testimony(Joint Subcommittee Intergov. Affairs and Gov. Ops., Oversight and Gov. Reform) 
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A new Down Payment Assistance (DPA) Program- "Hope Brings You Home" was launched on May 1, 2018, 

allocating $36 million to assist approximately 1,800 homebuyers in targeted distressed areas. The purpose of the 

DPA program is to prevent future foreclosures by assisting with the stabilization of housing prices in targeted 

areas. As a requirement implemented by Treasury, NAHAC evaluated five housing market distress indicators 

across the State of Nevada and identified 27 ZIP Codes that exceeded the statewide rate in at least four (4) out 

of the five (5) distressed housing market indicators. The five indicators are: 

!. Delinquency 

2. Real Estate Owned (REO) Sales 

3. Short Sales 

4. Negative Equity 

5. Foreclosures 

Please see NAHAC's current list and description of all programs (Attachment A). 

Partnerships and Outreach- Since June 2016, NAHAC has significantly increased its efforts to partner with 

lending institutions to achieve positive outcomes for Nevada homeowners. NAHAC regularly hosts and 

participates in roundtables and webinars, outreach events, and co-branded mailings with lending partners and 

Housing Counseling Agencies (HCAs ). 

In March 2017 NAHAC's Board of Directors approved the formation of the NAHAC HCA Council to provide 

outreach events and training on an ongoing basis year-round. Nevada's top six HUD approved counseling 

agencies are members of the council, including: 

!. Chicanos Por La Causa 

2. Community Services ofNevada 

3. Money Management International Inc. (Doing Business as "Financial Guidance Center") 

4. Navicore Solutions 

5. Neighborhood Housing Services of Southern Nevada 

6. Nevada Partners 

NAHAC has been involved in numerous cases where homeowners were able to achieve assistance after 

NAHAC collaborated with a lender. These efforts have enabled NAHAC to build strong, mutually beneficial 

relationships with lending partners such as Wells Fargo Bank, Bank of America and Mr. Cooper (formerly 

NationStar Mortgage) that have furthered NAHAC's mission to assist homeowners. NAHAC continues to foster 

these relationships and has future community outreach events scheduled. Overall top participating lenders of the 

NVHHF programs are: Bank of America, Wells Fargo, Mr. Cooper and JP Morgan Chase. 

Improved Performance- Since June 2016, NAHAC has made significant strides to improve production, 

resulting in a year over year increase in assistance to Nevada homeowners, reduction of administrative 

expenses, and improvement in programs, outreach, and state-wide visibility and reporting. 

May 22,2018 NAHAC Testimony(Joint Subcommittee Jntergov. Affairs and Gov. Ops., Oversight and Gov. Refonn) 
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In 2016, NAHAC distributed $4,646,325 in assistance and helped approximately 100 households. In 2017, 

NAHAC provided assistance to approximately 232 households, resulting in $10,381,931 in assistance, which is 

a 123 percent increase in funding and 132 percent increase in households (2016 versus 2017). 

$2,000,000 

$1,500,000 

$1,000,000 

$500,000 

$0 

Funding Comparison 

-2018 

-2017 

--2016 

Since inception through April 2018, NAHAC has assisted approximately 5,823 households and disbursed 

$108,284,483. Please see "Total Funds Disbursed 2011-2018" (Attachment B). NAHAC continues to trend 

upward in 2018. From January 2018 through April 2018, approximately $4,824,784 in assistance has already 

been provided to 14 7 households. 

The new DPA program has yielded over 1 00 reservations with over $2 million committed in the first 10 days of 

operation. At its current production rate, all currently allocated DPA funds could be committed within the next 

9 to 12 months. Due to the performance of the DPA program, monthly funding is expected to increase in excess 

of $5 million a month once the DPA program is in full effect. 

With approximately $62 million remaining in program dollars, NAHAC must expend $1.9 million monthly to 

ensure all dollars are expended by the program term date of December 31, 2020. A particular area of concern 

raised was the potential return of additional HHF dollars to Treasury at the end of 2018 due to not meeting 

subsequent utilization thresholds.' At the current rate of production, NAHAC estimates that no additional funds 

will be reverted. As it stands today, total monthly funding could increase to over $5 million and the number of 

households served monthly to more than 230. The latest projections indicate all ofNAHAC's program dollars 

will be distributed to Nevadans in need prior to the December 2020 program end date. 

CONCLUSION 

NVHHF has helped 5,823 Nevada households and that number continues to grow every day. Programs have 

been instituted to solve Nevada's housing crisis with the assistance of Treasury, Business and Industry and the 

Housing Division. Systems are in place to make the assistance process better and faster to help struggling 

homeowners and stabilize neighborhoods. NAHAC has strong partnerships with housing counseling agencies 

and lending institutions to get the word out to help even more people. There were issues with the operation of 

NAHAC initially, but NAHAC has improved its organizational structure and its operations, resulting in better 

oversight, transparency and controls, and increased capacity to help more Nevada families. All of the expenses 

found to be unallowable by Treasury ($136,000 not $8.2 million) have been reimbursed, and new management 

is committed to efficiently and effectively utilize the remaining allocation of government funds to help more 

citizens of one of the hardest hit states stay in their homes and stabilize Nevada's housing markets. 

1 In January 2018 NAIIAC's HHF allocation was reduced by $6.66 million in Fifth Round Funding dollars (allocated in early 20l6)due to failure to 

meet Treasury's 2017 utilization threshold. 

May 22,2018 NAHAC Testimony (Joint Subcommittee Intergov. Affairs and Gov. Ops., Oversight and Gov. Reform) 
71 

Mr. PALMER. The chair now recognizes Ms. James for her testimony, 5 minutes. 

STATEMENT OF CATHY JAMES 

Ms. JAMES. Good morning. 

Chairman Palmer, Chairman Meadows, and members of the subcommittees, thank you for the invitation to discuss with you Alabama’s Hardest Hit program. My name is Cathy James. I’m the 

business development manager for the Alabama Housing Finance 

Authority. I also serve as the manager of the Hardest Hit Fund 

program in Alabama, which we call the Hardest Hit Alabama program. 

Alabama’s introduction to the Hardest Hit Fund began with a 

notification in 2010. Hardest Hit funds had already undergone two 

rounds of funding when HFA was invited to participate in round 

three. We quickly began creating our program and program guidelines. We began by reviewing term sheet templates that were furnished to us by the Department of Treasury which had been adopted by other States in rounds one and two. 

During the development of our process, close attention was paid 

to the respective allocations of program funds and administrative 

expenses. In total, Alabama’s allocation is $162.5 million, and 16.75 

percent is allocated to administrative expenses. 

During the 7 years of Hardest Hit assistance, the Department of 

Treasury has approved 12 term sheet changes for the State of Alabama. Our current portfolio of programs includes a mortgage payment assistance program, a loan modification program, a short sale 

program, and a blight elimination pilot program. 

More than 6,500 homeowners have been approved and received 

more than $63.8 million in program dollars. We have an average 

of $9,828 per household for assistance. Eighty-five percent of the 

households who received assistance in our mortgage payment assistance program had an annual income of $50,000 or less. Fortyfive percent of the homeowners who received assistance were 90- 

plus days delinquent on their first mortgage at the time of application. And the Hardest Hit funds have been disbursed in all 67 

counties in the State of Alabama. 

HFA undertakes the administration of the Hardest Hit funds 

program with great seriousness. To ensure regulatory and program 

compliance, Alabama’s Hardest Hit program is reviewed on a 

monthly basis by our internal audit team, an annual basis by an 

independent audit firm. And since the program’s inception, Alabama has completed five compliance reviews with the Department 

of Treasury. 

The 2017 SIGTARP report asserted that $705 of expenses 

charged by HFA to the Hardest Hit Fund was unreasonable and 

therefore unallowable. All noted expenses were related to Hardest 

Hit activities, such as in-house lunches for working conferences, in 

one instance lunch with a servicer participating in the Hardest Hit 

funds program, and promotional items to two homeowners who volunteered for radio and television ads. 

Alabama contested the allegations and defended the charges. 

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imburse Treasury $397. The balance of expenses were found to be 

reasonable. 

Since notification of Alabama’s allocation of Hardest Hit funds, 

we have worked to ensure that the program is programmatically 

sound and funds were not spent unnecessarily. HFA’s commitment 

to the proper use of Hardest Hit funds is unchanged. We will continue to provide Hardest Hit assistance to homeowners across the 

State of Alabama in compliance with the agreed-upon terms in the 

term sheets and in compliance with Federal guidelines. 

Thank you. 

[Prepared statement of Ms. James follows:] 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

Re: Ten Years ofTarp: Examining the Hardest Hit Fund, Hearing May 22,2018 

Written Statement of Proposed Testimony of Cathy James, 

Alabama Housing Finance Authority 

Chairman Palmer and Chairman Meadows and members of the Subcommittee on 

Government Operations and the members of the Subcommittee on Intergovernmental 

Affairs, thank you for the invitation to discuss with you Alabama's Hardest Hit Fund 

program. My name is Cathy James. I am the Business Development Manager for 

Alabama Housing Finance Authority. I also serve as the manager of the program in 

Alabama for the Hardest Hit Fund, which we call Hardest Hit Alabama. I have had this 

position throughout the program's existence. Today, I will provide an overview of 

Alabama's Hardest Hit Fund Programs, and SIGTARP' s December 2017 report 

concerning all state programs and certain expenses which it challenged to be 

unnecessary. For Alabama, that involved $705 spent on meals for in-house working 

lunches and promotional items. 

Alabama Housing Finance Authority (AHFA) was established in 1980 as a public 

corporation dedicated to the housing needs of low-moderate income home buyers in the 

State of Alabama. It operates several programs including the Multifamily programs for 

Housing Credits, HOME, Housing Trust Funds, and private activity bonds; the singlefamily programs for down payment assistance for home loans, and the Mortgage Credit 

Certificate Program for home loan assistance, and the Hardest Hit Alabama Program. 

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HHF Allocation Notification 

AHF A's introduction to the HHF began with its first notification for Hardest Hit 

funding in July 2010, with the Round 3 funding allocation of $62 million. Within days 

AHFA was informed that an additional $100 million had been allocated to the State of 

Alabama. AHFA quickly undertook the development of Term Sheets and program 

guidelines for an Unemployment program under Hardest Hit. We began by reviewing 

Term Sheet templates adopted by states which previously received funding in Rounds 1 

and 2. AHF A's goal has always been to develop a program which would help meet the 

needs, specifically, of the citizens of Alabama. During the development process, close 

attention was paid to the programmatic use of funds and funds allocated for the 

program administrative needs. In total Alabama has been allocated $162.5 million in 

HHF, 16.75% of which is allocated to administrative expenses. 

AHFA closed on the HHF Participation Agreement with Treasury on September 23, 

2010. By December 15, 2010, the pilot program was in operation. The statewide release 

of the program began in February 2011. 

Application Process 

Applicants interested in applying for Hardest Hit Alabama assistance, apply via an 

online application, a method which was determined to afford the greatest access to 

potential applicants. Preliminary to submitting an application, the homeowner creates 

an online profile. Once the profile is completed, the homeowner responds to a list of 

pre-qualification questions to determine if they meet the basic program qualifications. 

Homeowners who meet the basic program guidelines advance to the online application. 

Homeowners who do not meet the basic program guidelines are encouraged to contact 

a counselor if they feel they should qualify for assistance. 

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The application process proceeds through six phases: Intake, Counseling, 

Underwriting, Closing, Disbursement, and Monitoring. Each phase of the process 

receives the attention of a different HHA employee assigned to that phase. The 

employees work directly with the applicant through each phase. AHFA verifies the 

homeowner's eligibility for HHF assistance based of the following criteria: clear 

title/ ownership, past due payment amount, unemployment/underemployment status, 

unpaid principal balance, and total household income. Homeowners are required to 

provide upfront verification of several forms of documentation, including tax returns, 

income documentation, mortgage servicer information, and more. Once all required 

documentation has been received, the application is reviewed by HHA to determine 

eligibility. Applicants who meet program guidelines, are contacted by a closing agent 

to execute the note and mortgage. Disbursements to loan servicers begin once the 

document signing company provides verification that the note and mortgage have been 

executed. 

Homeowners who fail to complete the online application or who fail to provide the 

required documentation within 30-days of starting the process, have their application 

"withdrawn", not denied. To reactivate the application, applicants are instructed to 

contact their counselor and request reactivation. 

Hardest Hit Alabama Programs 

Throughout the seven years of HHF Assistance, the Department of Treasury has 

approved twelve Term Sheet changes for the AHFA. Each change request included a 

request for additional program components and/ or changes to existing programs. 

Alabama's current portfolio of HHF programs include the following programs: 

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1. The Mortgage Payment Assistance program is available to eligible 

homeowners who have experienced an involuntary job loss and are 

receiving unemployment compensation benefits or have experienced a 

substantial reduction in household income. HHA will provide a limited 

amount of monthly mortgage payments including principal, interest and 

escrow expenses. Eligible homeowners may avail themselves of this 

program only once. 

For unemployed homeowners 

Homeowners who have received unemployment benefits on or after 

January 2013 may be eligible for assistance. Funds will be disbursed to 

mortgage servicers for up to 12 months, not to exceed $30,000. 

For underemployed homeowners 

To be eligible as an underemployed homeowner, your household must 

demonstrate a financial hardship resulting in a 15% or greater reduction in 

total household income within the past 24 months. Funds will be 

disbursed to mortgage servicers for up to 12 months, not to exceed 

$30,000. 

To help delinquent borrowers, HHA will pay the mortgage servicer to 

bring the mortgage current, not to exceed $12,500. Homeowners cannot 

have a past due balance that exceeds $12,500. The maximum assistance 

per household is $30,000. 

For underemployed homeowners more than $12,500 past due 

To be eligible as an underemployed homeowner, the household must 

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demonstrate a financial hardship resulting in a 15% or greater reduction in 

total household income within the past 24 months. A one-time 

disbursement of up to $30,000 will be made to fully reinstate the mortgage 

loan. The reinstatement must result in a mortgage payment (including 

principal, interest, taxes, and insurance) of no more than 38% of the 

homeowner's income. 

2. The Loan Modification Assistance Program will provide funds to assist 

eligible financially distressed borrowers in achieving modification of their 

home loans or payoff of their mortgage liens. 

Loan Modification/Recast 

HHA will provide the assistance as a one-time distribution of funds to fill 

a financial gap that limits a homeowner's eligibility to qualify for a loan 

modification. Funds may be used to reduce the outstanding principal 

balance, pay delinquent escrow or past due payments, or recast the loan. 

To use the program, the mortgage servicer must approve the homeowner 

for the loan modification. The loan modification must result in a 

mortgage payment (including principal, interest, taxes, and insurance) of 

no more than 31% of the homeowner's income. The program is designed 

to work with both HAMP and non-HAMP modifications. The maximum 

assistance per household is $30,000. 

Lien Extinguishment 

Homeowners on a fixed income may receive up to $30,000 to pay off 

mortgage lien(s) on their home (excludes HELOC and reverse 

mortgages). 

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3. The Short Sale Assistance Program assists eligible financially distressed 

homeowners with the sale of their primary residence. The program is for 

homeowners who can no longer sustain their monthly mortgage 

obligation due to a hardship such as unemployment, underemployment, 

divorce, death or disability. The mortgage servicer must approve the 

homeowner for a short sale. The homeowner must provide information 

documenting income, short sale approval, executed sales contract, the 

value of the property, and payoff statement(s). Participating servicers 

must agree to accept a minimum loss of $1,000 on the first mortgage loan. 

4. The Blight Elimination Pilot Program assists municipalities with up to 

$30,000 per house to demolish dilapidated properties meeting program 

guidelines. 

By the numbers: Selected Program Outcomes 

• More than 6,500 homeowners in Alabama have received assistance of more than 

$63.8 million in program dollars. 

• 93% of program dollars have been disbursed on behalf of homeowners who 

qualified for the Mortgage Payment Assistance ("MP A") program. 

• 7% of funds have been disbursed on behalf of qualified homeowners for the Loan 

Modification Program. 

• The average amount of assistance per homeowner has been $9,828. 

• 85% of homeowners who received MPA have an annual income of $50,000 or 

less. 

• 45% of assisted homeowners were more than 90 days delinquent on their 

principal mortgage at the time of application. 

• HHF have been disbursed in all67 counties in the State of Alabama. 

• 12-month growth in cumulative program funds disbursed increased by 33.6% 

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• 12-month growth in cumulative homeowners assisted increased by 19.3% 

• Jefferson County residents account for approximately 20% of all homeowners 

assisted. Madison and Mobile counites rank second and third, respectively, with 

13% and 12%. Three properties have been demolished using funds Allocated to 

the Blight Elimination Program. The Greater Birmingham Habitat for Humanity 

offers worked closely with AHF A on the demolition of the three properties. 

• Recovered $1.1 million in HHF 

• No funds have been disbursed in respect to the Short Sale Program. 

• As of Q4 2017, Alabama has received notification of post assistance foreclosure 

proceedings for approximately 2% of approved homeowners. Homeownership 

retention is tracked after the assistance ends. 

Program Oversight 

As with all its programs, AHF A undertakes with great seriousness the administration of 

the HHF program. To insure regulatory and program compliance, Alabama's Hardest 

Hit Program is reviewed monthly by internal auditors and semi-annually by an 

independent audit firm. Since program inception, Alabama has also completed five 

Compliance Reviews with the Department of Treasury. The reviews noted only minor 

findings which were easily addressed. 

The December 2017 SIGTARP Report asserted that $705 of expenses charged by AHFA 

to HHF were unreasonable and, therefore, unallowable. All the noted expenses were 

related to HHF activities: in-house lunches during working conferences with Treasury 

personnel or, in one instance, a lender, and promotional items to two homeowners who 

volunteered for radio and television ads. Alabama contested the allegations and 

defended the charges. Even so, per the March 2018 Treasury Compliance Review 

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Report, AHFA agreed to reimburse Treasury $397, the balance of expenses being found 

proper. Alabama has submitted the required funds back to the HHF account and 

responded to Treasury's Compliance Review Report. 

Conclusion 

Since the notification of Alabama's allocation of HHF, we have worked to insure the 

program was programmatically sound and funds were not spent unnecessary. 

AHFA' s commitment to the proper use of HHF is unchanged. AHFA will continue 

provide HHF assistance to homeowners across the State of Alabama in compliance with 

the agreed upon terms outline in the Term Sheets and in compliance with OMB Circular 

A-87. 

END 

8 
81 

Mr. PALMER. The chair now recognizes Mr. Farmer for his questions for 5 minutes. 

STATEMENT OF SCOTT FARMER 

Mr. FARMER. Chairman Meadows, Chairman Palmer, and honorable members the committee, my name is Scott Farmer, and I’m 

the executive director of the North Carolina Housing Finance agency. 

Since January of 2017, it has been my honor to serve as executive director, and I’m proud to be with you today representing our 

board of directors and more than 160 dedicated staff. 

Thank you for the opportunity to share information about one of 

our most effective programs, the NC Foreclosure Prevention Fund, 

and its accomplishments on behalf of citizens in danger of losing 

their homes in the face of a significant economic downturn. 

The NC Foreclosure Prevention Foreclosure Fund helps responsible North Carolina homeowners struggling with mortgage payments while they search for work or retrain for a new career. Eligible homeowners include those facing foreclosure due to a no-fault 

job loss, reduction of income, or temporary financial hardship, such 

as illness, death of a spouse, or a natural disaster. 

The fund also provides housing counseling and assistance to veterans who are transitioning to civilian life. Veterans who have 

given so much in service to our Nation should never face the prospect of losing their home. This initiative has already saved more 

than 400 veteran families from losing their homes. 

The fund was launched in 2010 in the wake of the Great Recession when our State was identified by Treasury as hardest hit due 

to high unemployment and a high number of foreclosure filings. 

Since then, the fund has helped more than 26,000 homeowners 

keep their homes during difficult times. Approximately $706 million was allocated to our agency under the Hardest Hit Fund. 

To develop this program, we had to significantly expand our 

agency capacity. This included hiring more staff, leasing additional 

office space, building a complex application portal and website, and 

training hundreds of partners statewide. 

We were notified by Treasury that we were to receive Hardest 

Hit funds in April of 2010. The initial program was approved by 

Treasury in August of 2010, and we built, marketed, and implemented the program by October, in only 6 months. 

Standing up a program of this scale and complexity in that timeframe required long hours for staff, many of whom already had existing full-time workloads within our agency. The work is specialized, involved, and stressful when assisting homeowners who are 

understandably upset at potentially losing their homes. 

Among the thousands of hardworking families assisted by the 

fund is a small business owner in Alleghany County who has 

owned a thriving business since 1998. That changed when the recession hit, and by 2011 he and his wife were about to lose their 

home. Our assistance enabled them to hold onto their home. And 

I am pleased to report their business emerged from the recession 

stronger and recently celebrated its 20th anniversary. 

The fund also helped a Lee County veteran who struggled to find 

employment after his discharge from the U.S. Army. The assistVerDate Nov 24 2008 12:54 Sep 20, 2018 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 H:\31271.TXT APRIL

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ance kept his family in their home while he used the GI bill to acquire skills he needed for a civilian job. He is now employed by a 

local government. 

A worker in Buncombe County who was laid off from her job was 

able to keep her home with assistance from the fund while she 

sought new employment. She still lives in her home and now works 

for a healthcare nonprofit that focuses on providing medical care 

for underserved rural communities. 

The fund has also had a noteworthy impact on State and local 

economies. It has preserved an estimated $4.5 billion in property 

values, sustaining wealth not only for the homeowners we assisted 

but for their neighbors as well. 

On average, lenders and investors can expect to lose almost half 

of their investment in a foreclosed mortgage. Foreclosures prevented by our work have saved an estimated $1.5 billion in our 

State. This work also offsets the costs associated with broader social impacts of foreclosure, such as familial stress, neighborhood destabilization, crime, and degraded health outcomes. 

As noted, we have helped more than 26,000 North Carolinians in 

the nearly 8 years since the program was launched using a significant portion of the allocated Hardest Hit funds. We are currently 

winding down the program and expect to have committed all of our 

program funds by the second quarter of 2019. 

We are proud of what has been accomplished for North Carolina 

and its citizens through the NC Foreclosure Prevention Fund, and 

we would continue to ensure that eligible homeowners have the opportunity to benefit from this program. 

Thank you for the opportunity to share our story today, and I 

will be happy to answer any questions. 

[Prepared statement of Mr. Farmer follows:] 


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Testimony of 

Scott Farmer, Executive Director, 

North Carolina Housing Finance Agency 

before the 

Subcommittee on Intergovernmental Affairs 

and 

Subcommittee on Government Operations 

House Committee on Oversight and Government Reform 

2154 Rayburn House Office Building 

May 22,2018 

Chairman Meadows, Chairman Palmer, and Honorable Members of the committees, my name is 

Scott Farmer and I am executive director of the North Carolina Housing Finance Agency, a selfsupporting public agency with the mission to create affordable housing opportunities for North 

Carolinians whose needs are not met by the market. We are guided by sound business principles, 

focusing on maximizing investments in housing and minimizing operating costs. 

Since January 2017, it has been my honor to serve as executive director of the North Carolina 

Housing Finance Agency and I am proud to be with you today representing our Board of 

Directors and more than 160 dedicated staff. Our Agency has a long and successful record of 

stewardship of state and federal funds, financing nearly 270,000 homes and apartments worth 

$21.2 billion since its creation in 1973. 

Thank you for the opportunity to share information about one of our most effective programsthe NC Foreclosure Prevention Fund-and its accomplishments on behalf of citizens in danger 

of losing their homes in the face of a significant economic downturn. 

Using financing from the Hardest Hit Fund, the NC Foreclosure Prevention Fund (The Fund) 

helps responsible North Carolina homeowners struggling with mortgage payments while they 

search for work or retrain for a new career. Eligible homeowners include those facing 

foreclosure due to a no-fault job loss, reduction of income, or temporary financial hardship such 

as illness, death of a spouse or a natural disaster. 

The Fund also provides housing counseling and assistance to veterans who are transitioning to 

civilian life. Veterans who have given so much in service to our nation should never face the 

prospect of losing their home. 

Recognizing the challenges that returning to civilian life can pose, our state was among the first 

in the country to create a Veterans Initiative through the NC Foreclosure Prevention Fund. This 

initiative has already saved more than 400 veteran families from losing their homes. 

Page I of3 
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The Fund was launched in 2010 in the wake of the Great Recession when our state was identified 

by Treasury as "Hardest Hit" due to high unemployment and a high number of foreclosure 

filings. Since then, the Fund has helped more than 26,000 homeowners keep their homes during 

difficult times. 

Approximately $706 million was allocated to our Agency under the Hardest Hit Fund. To 

develop this program, we had to significantly expand our Agency's capacity. This included 

hiring more staff, leasing additional office space, building a complex application portal and 

website, and training hundreds of partners statewide. 

We were notified by Treasury that we were to receive Hardest Hit Funds in April2010. The 

initial program was approved by Treasury in August 2010, and we built, marketed, and 

implemented the Fund by October 20 I 0, in only six months. Standing a program up of this scale 

and complexity in that timeframe required long hours for staff, many of whom already had 

existing full-time workloads within our Agency. The work is specialized, involved, and stressful 

when assisting homeowners who are understandably upset at potentially losing their homes. 

We held many outreach events to work with our numerous business partners on program design, 

implementation, training, and marketing. These events were important tools in developing and 

maintaining a strong delivery network. Outreach events were also held across the state to reach 

impacted homeowners and laid-off workers. 

Among the thousands of hard-working families assisted by the Fund is a small business owner in 

Alleghany County who has owned a thriving business since 1998. That changed when the 

recession hit, and by 2011 he and his wife were about to lose their home. Our assistance enabled 

them to hold on to their home and keep operating their business. I am pleased to report their 

business emerged from the recession stronger, and recently celebrated its 20'h anniversary. 

The Fund also helped a Lee County veteran who struggled to find employment after his 

discharge from the US Army. The assistance kept his family in their home while he used the GI 

Bill to acquire the skills he needed for a civilian career. He is now employed by a local 

government. 

A worker in Buncombe County who was laid off from her job was able to keep her home with 

assistance from the Fund while she sought new employment. She still lives in her home, and now 

works for a healthcare nonprofit that focuses on providing medical care for underserved rural 

communities. 

In addition to making a difference in the lives of thousands of families facing the financial and 

emotional trauma of losing their homes, the Fund has also had a noteworthy impact on state and 

Page 2 of 3 
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local economies. It has preserved an estimated $4.5 billion in property value, sustaining wealth 

for not only the homeowners we assisted, but for their neighbors as well. 1 

On average, lenders and investors can expect to lose almost half of their investment in a 

foreclosed mortgage. Foreclosures prevented by our work have saved an estimated $1.5 billion in 

our state. 2

•

3 

This work also offsets the costs associated with the broader social impacts of foreclosure such as 

familial stress, neighborhood destabilization, crime, and degraded health outcomes.4•

5 

As noted, we have helped more than 26,000 North Carolinians in the nearly eight years since the 

program was launched, using a significant portion of the allocated Hardest Hit Funds. We are 

currently winding down the program and expect to have committed all of our program funds by 

the second quarter of2019. 

We are proud of what has been accomplished for North Carolina and its citizens through the NC 

Foreclosure Prevention Fund and we will continue to ensure that eligible homeowners have the 

opportunity to benefit from this program. Thank you for the opportunity to share our story. 

1 Harding, J., Rosenblatt, E., & Yao, V. (2009). The contagion effect of foreclosed properties. Journal of Urban 

Economics, 66(3):164-178. 2 S&P Global. (2016). U.S. Residential mortgage performance snapshot, second-quarter 2016. 3 Fitch Ratings. (2018, April). U.S. RMBS loan loss model criteria. 4 Kingsley, G.T., Smith, R., & Price, D. (2009, May). The impacts of foreclosures on families and communities. 5 Isaacs, J. (20 12. April). The ongoing impact of foreclosures on children. 

Page 3 of 3 
86 

Mr. PALMER. I thank the witnesses for their testimony. 

The chair now recognizes the gentleman from Tennessee, Mr. 

Duncan, for 5 minutes for his questions. 

Mr. DUNCAN. Well, thank you very much, Mr. Chairman. And 

thank you for calling this very important hearing. 

Ms. Goldsmith Romero, you listed a very impressive record for 

your office, but you also said that Nevada, for instance, had committed $8.2 million—or lost $8.2 million in waste, fraud, or abuse. 

And then Ms. Campbell just turned right beside you and said: Oh, 

it was only $136,000. 

What is the discrepancy there? Or what do you think about her 

statement that none of it really was waste, fraud, and abuse, or 

very little? 

Ms. GOLDSMITH ROMERO. So it wasn’t—we didn’t label it as 

fraud. We would label it as waste and abuse. I want to make that 

distinction clear, because it was our auditors. 

But it doesn’t make sense. I mean, to be honest, what NAHAC 

paid back was what Treasury requested, which also didn’t make 

sense. 

So, for example, the CEO that was driving a Mercedes-Benz was 

forced to resign and got a $20,000 severance package, and that’s 

been paid. That’s not necessary for a homeowner to get assistance 

in the Hardest Hit Fund. 

So what I found was that Treasury officials were applying the 

wrong standards. They were not applying the necessary standard, 

which is not only what’s baked into their contract but is the first 

requirement of the Federal cost principles, nor is it reasonable. 

That’s just one example. But there are many, many examples, 

like moving into a luxury building to improve employee morale, 

then deciding it’s more cost than you need because you doubled the 

rent. Breaking the lease, $20,000 in legal fees to break the lease, 

then move and pay rent. 

None of that was paid back. And this was all at a time when 

they really weren’t helping homeowners, getting this money out to 

homeowners. 

Mr. DUNCAN. All right. Thank you very much. 

The report says that as of December 2017, 347,000 people had 

been helped by this HHF program. 

Can somebody tell me how this works exactly? How many homes 

is that? In other words, most homes are in the name of the husband and wife both, or maybe more than one person. So how many 

homes are we talking about, does anybody know, of the 347,000? 

Ms. CAMPBELL. Mr. Committee Member, Verise Campbell from 

Nevada. 

We count households, so those numbers represent the household. 

Mr. DUNCAN. So those are 347,000 homes then. 

Ms. CAMPBELL. Households. 

Mr. DUNCAN. All right. And how long can somebody stay on this 

program? Ms. Goldsmith Romero mentioned it’s 8 years old. Have 

there been people that have been on this program from day one 

and they’re still on the program? Can anybody tell me? 

Ms. CAMPBELL. This is Cathy with Alabama Housing Finance 

Authority. 


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I think that each State is a little bit different. But for the State 

of Alabama, for the mortgage payment assistance program, our 

homeowners have up to 12 months, not to exceed $30,000. 

Mr. DUNCAN. And is that pretty typical of—you say each State 

is different, Ms. Campbell? 

Ms. CAMPBELL. Mr. Committee Member, our homeowners—it depends on the program. We have an unemployment program where 

a homeowner can stay on the program up to 18 months. And we 

have a limit for all of our programs combined, no more than 

$100,000 per household. 

Mr. DUNCAN. All right. Is that typical, Ms. Goldsmith Romero? 

Ms. GOLDSMITH ROMERO. Again, it varies, 2 years, 3 years, 1 

year. It just depends on the State. 

Mr. DUNCAN. All right. 

And now, Mr. Kranbuhl, it says there’s $2 billion unspent, is that 

correct, in one of these reports? 

Mr. KRANBUHL. It’s actually around $800 million. The $2 billion 

was the new authorization and around 5 from the 2015 vote, starting in 2016, could be spent through 2021. So there’s about $800,000 

left, or about 8 percent of the Hardest Hit funds remain available. 

Mr. DUNCAN. Is there a goal or a plan to—since unemployment 

is now so low and the economy is so strong—is there a plan to end 

this program or phase it out? 

Mr. KRANBUHL. Yes, sir. This program, the applications are 

available for those who have dollars, that $2 million that—sorry— 

$2 billion was allocated across the 19 States. 

So of the remaining funds, that applications may be accepted 

through December 31 of 2020, and dollars can be put out through 

December 31, 2020, if there are any remaining dollars. Certain 

States have already wound those down, so there are no longer dollars available. 

Mr. DUNCAN. So how many of the 19 States have wound down 

the program? 

Mr. KRANBUHL. California and Florida are already wound down 

or the final stages of winding down. Many of the others are initiating that wind-down now. 

Mr. DUNCAN. Thank you very much. 

Thank you Mr. Chairman. 

Mr. WALKER. [Presiding.] Thank you. 

The chair now recognizes the gentleman from Maryland for 5 

minutes. 

Mr. RASKIN. Mr. Chairman, with your permission, I’ll yield to 

Mr. Connolly and switch places with him, if that’s okay. 

Mr. WALKER. So moved. 

Mr. CONNOLLY. I thank the chair, and I thank my good friend 

from Maryland. I have a hearing and markup in Foreign Affairs, 

so I appreciate his consideration and gracefulness. 

I’m concerned about the apparent mismanagement of the Hardest Hit Fund program by some of our partner States. According to 

the Special Inspector General’s report, States spent over $600,000 

on cars for executives, free parking for staff, and monthly parking 

bus passes. States also spent $50,000 on events with housing counselors, $14,000 for employee meals, and $8,000 on gym memberVerDate Nov 24 2008 12:54 Sep 20, 2018 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 H:\31271.TXT APRIL

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ships. In 2017, the SIGTARP found nearly $3 million in such 

wasteful spending. 

Mr. Kranbuhl, where in the world did the States get the idea 

that this was permissible spending? 

Mr. KRANBUHL. Well, again, Mr. Ranking Member, I appreciate 

your question. I can’t speak for why the States make decisions they 

make, but they are required to follow Federal cost principles in all 

of their administrative expenses. And that is the standard that 

they’re required to follow. 

Mr. CONNOLLY. Well, I mean, okay, but some of them decided, 

based on those standards, that it was permissible to spend up to 

$8,000 in gym memberships using Federal funds that were intended for housing relief. 

How could that happen? Was there any oversight by the Department of Treasury with respect to the use of these funds? 

Mr. KRANBUHL. We have conducted more than 100 in-person reviews—— 

Mr. CONNOLLY. I’m sorry? 

Mr. KRANBUHL. The Treasury Department has conducted more 

than 100 in-person reviews with the States to review their administrative expenses. We work with them up front to make sure that 

there are standards followed, that there are—cost principles and 

compliance platforms are very clear. And we review those with 

them on the phone frequently if there is any—— 

Mr. CONNOLLY. Well, let me ask it differently. I mean, I get all 

that. We’ll stipulate all that. But the fact is somebody spent money 

on gym memberships. 

Does that meet with your approval? Did that meet with your 

standards? 

Mr. KRANBUHL. There are a range of expenses that are eligible 

and ineligible under Federal cost principles. 

Mr. CONNOLLY. Is gym membership ineligible or eligible? 

Mr. KRANBUHL. Sir, if you’d like to go through each line item, I’d 

be happy to meet with you and your staff. 

Mr. CONNOLLY. No, sir, I have a simple question in a public 

hearing. Is a gym membership payment a permissible use of these 

funds, from your point of view? 

Mr. KRANBUHL. Well, sir, again, all I can tell you is that the Federal cost principles are followed. And under certain circumstances 

there are wellness programs that are eligible. 

Mr. CONNOLLY. Oh, for God’s sake. 

Ms. Goldsmith Romero, is it permissible or not? Since, apparently, Mr. Kranbuhl doesn’t want to answer a reasonable question 

put to him that’s pretty simple. 

Ms. GOLDSMITH ROMERO. No. I mean, no. 

Mr. CONNOLLY. Thank you so much, Ms. Goldsmith Romero. 

That’s called declarative English, useful thing when we’re trying to 

get to the problem of problems. 

Can you elaborate, since Mr. Kranbuhl wants to gives us—read 

us, you know, strictures from a manual somewhere? 

Ms. GOLDSMITH ROMERO. Treasury sent me a letter and in April 

saying that they did think that gym memberships were allowed in 

the Federal cost principles. 


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Number one of Federal the cost principles: Got to be necessary 

to what Congress authorized. 

Mr. CONNOLLY. So unless the only way I can reach an agreement 

with a homeowner is at the gym, it wouldn’t be a permissible expense? 

Ms. GOLDSMITH ROMERO. No. And I think that raises a real danger of what could be allowed. 

Mr. CONNOLLY. Right. Well, in listening to Mr. Kranbuhl’s convoluted answer, right here, right now, I’ve got more concerns than 

I had going into this hearing, because apparently we’re not clear. 

And no wonder States are, you know, approving expenditures that 

clearly, to any commonsense witness, would not be allowable because of this kind of fuzzy guidance. 

The Treasury Department, Ms. Goldsmith Romero—since Mr. 

Kranbuhl is not going to be cooperative in answering, I’ll ask you— 

the Treasury Department only sought to recuperate 29 percent of 

the money that was misspent or wasted. 

Is that acceptable, from your point of view? And why only 29 percent? 

Ms. GOLDSMITH ROMERO. No, it’s not acceptable. You know, we 

worked hard to look at this. We didn’t put—we didn’t substitute 

our own judgment. We applied the Federal cost principles. You 

know, there’s a long history of applying the Federal cost principles. 

They apply to every grant. This is just standard IG work. So, no, 

it’s not acceptable. 

And I also want to say, when he said this program’s in winddown or that there’s not $2 billion, there is $2 billion remaining to 

be spent. The numbers that he’s talking about is what’s gone out 

of Treasury’s door, but it’s not been spent. So when he says California is closing down, California has $334 million to be spent. 

Mr. CONNOLLY. Very helpful. Thank you. And thanks for declarative answers. 

I yield back. 

Mr. WALKER. Thank you, Mr. Connolly. 

I will take a few minutes to follow up with some questions and 

then yield some time to Mr. Raskin. 

What actions, if any, did your agency, Mr. Farmer, take to address the concerns raised in the Special Inspector General for 

TARP’s report? 

Mr. FARMER. Yes. Thank you, sir. 

Immediately following the release of the report, our agency made 

the decision to repay a portion of those costs related to meals, primarily because there were a number of charges in there that we 

could have spent an inordinate amount of time debating back and 

forth whether or not it was allowed or not allowed. So we decided 

to repay the meals immediately. 

In addition to that, we hired a third party audit firm. We 

brought them into our office, had them look at the expenses, look 

at the categories and how we were categorizing expenses to give us 

advice to help us address any questions related to those expenses 

highlighted in the report. In addition to that, we also revised our 

travel and expense policies based on that guidance. 

In addition to that, we also provided all of the same records to 

Treasury. They did a similar review. While we did not agree with 


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everything that was included in the initial report and the categorization of some of the categories, we respect the role and responsibilities of SIGTARP in reviewing it. 

And so we tried to get back to the place where we knew the expenses, so we had better guidance moving forward so we would not 

make expenses or charge things that may not be allowed under the 

Federal principles. Treasury did their additional review, and we 

have since repaid all the dollars that have been requested of us to 

repay. 

Mr. WALKER. Why did your agency decide to return those funds 

to the Treasury? 

Mr. FARMER. Excuse me? 

Mr. WALKER. Why did your agency make the decision to return 

those funds to the Treasury? 

Mr. FARMER. For the initial amount, we actually had made the 

decision prior to the release of the report for some of the expenses. 

We had reviewed it and recognized some of those were questionable, and we were better off to repay than to, again, debate each 

and every fee. 

The other fees we repaid in March following the exit interview 

with Treasury. We paid an additional $5,100 at that point in time. 

Mr. WALKER. Have you received any guidance or training to your 

agency, received from the Treasury on the use of administration 

funds? Have you had any kind of correspondence or any kind of 

guidance from the Treasury? 

Mr. FARMER. We have received guidance over time from Treasury 

at different points. They were in our office, I think it was five times 

over a 7-year period, with on-site reviews. The administrative expenses were not an issue at any of those reviews. They have since 

provided some additional guidance regarding the Federal principles. And, again, those have been what we reviewed and instituted across the board for this program. 

Mr. WALKER. So their primary communication means is just visiting on-site? Is there any other way that they communicate with 

you? 

Mr. FARMER. No, it’s regularly with staff, with the staff that are 

administering the program, regularly communicate through emails, 

through phone calls, conference calls. As issues come up, they 

would bring that to the attention. There’s regular calls with the 

Hardest Hit Fund States as well where information is communicated out to the group. 

Mr. WALKER. Thank you very much. 

Ms. James, summary of questions and topics there. Would you 

like just to take maybe 30 seconds and kind of—instead of me 

going back to those same questions, give a summary of what I was 

asking of Mr. Farmer? 

Ms. JAMES. So, yes, sir. 

The SIGTARP report disclosed that there was $705 in misuse of 

funds. And we, of course, did not agree with that. But we did, after 

the Treasury report, reimburse $397. 

The funds were used concerning Hardest Hit activity, lunches, 

promotional items for some homeowners. So we did not consider 

the funds to be a misuse or unnecessary. 


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Mr. WALKER. What were some of the Hardest Hit Fund implementation challenges, Mr. Farmer? 

Mr. FARMER. Some of the difficulties were it was a relatively new 

program. We had a small-scale program in the State. But receiving 

the dollar amounts, it required us to basically start from scratch. 

As I mentioned in my remarks, we had to hire staff. Most of 

those were contractors, temporary contractors. We knew this was 

a time-limited program, so we tried to go out and hire. At our peak, 

I think we had 50 contractors that were working on the program. 

We continue to maintain that same staff. 

It was a Statewide program. And we’ve got a really large State 

with 100 different counties. We had to work with partners across 

the State. We held events as we were rolling out the program. We 

had to educate all the partners on what the program was going to 

be and then figure out a delivery vehicle to get that out to the 

homeowners. 

It required—we built, in-house, we built a database system for 

the portal, as we refer to it, for intake of the application, that not 

only our partners but also homeowners had the access. So that 

whether they were computer savvy, they had that ability. If they 

needed to go a counseling agency, we made sure they knew there 

was a counseling agency available. 

So it was really just the size and scale of the program initially 

and knowing that there was—there was a great need, and it was 

not an area that our agency had a lot of expertise in. We’re used 

to providing the affordable housing as opposed to saving the affordable housing. 

But it was a challenge that we took on. It was something the 

State needed at the time. And so we were glad to step into that 

role. And it certainly has been a learning experience for us. 

Mr. WALKER. Thank you, Mr. Farmer. 

The chair now recognizes the gentleman from Maryland, Mr. 

Raskin. 

Mr. RASKIN. Mr. Chair, thank you very kindly. 

Ms. Goldsmith Romero, we’ve got some information indicating 

that your office, the Office of the Special Inspector General, found 

information that led to criminal charges against 415 people and 

349 criminal convictions, with 247 people sentenced to prison. So 

that’s not just taking the office out for lunch. 

But what kinds of activities were taking place there? And is this 

just in the Hardest Hit Fund, or is that in TARP overall? 

Ms. GOLDSMITH ROMERO. Thank you for that question. 

TARP overall. So 100 of those are bankers. A good number of 

them are their banker’s co-conspirators, so we’re talking about 

bank fraud. There’s about 88 people who have gone to prison for 

scamming homeowners in TARP housing programs. So there’s a 

number of things related to the crimes that we’re looking for. 

Mr. RASKIN. Do the kinds of waste, fraud, and abuse that you 

identified in the Hardest Hit program afflict the other programs 

under TARP as well? 

Ms. GOLDSMITH ROMERO. Well, I think in terms of the TARP 

housing programs, we’ve found people who have tried to scam 

homeowners. The other ones are sort of program related, like bank 

fraud related to TARP banks. 


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Mr. RASKIN. Okay. 

So, Mr. Kranbuhl, let me come back to you. There’s some suggestion that Treasury, if not washing its hands of what goes on at the 

State level, is somewhat indifferent or lackadaisical about it. Is 

that right? I mean, do you basically just trust the State authorities 

to implement this in an efficient way with integrity? 

Mr. KRANBUHL. Thank you for your question, Mr. Ranking Member. We work with the States and have conducted more than 100 

in-person reviews. We can’t speak to what SIGTARP’s methodologies that they use are. However, our reviews are incredibly detailed. We look at each expenditure to make sure that they’re complying—— 

Mr. RASKIN. Have you followed through on all the recommendations that were made by the Special Investigator General that 

came out as part of her report? 

Mr. KRANBUHL. There are two reports that are outstanding and 

we’re still reviewing. But every—other than those two, we’ve replied to each line item recommendation that the Special Inspector 

General has provided in writing, and that is available to the public. 

Mr. RASKIN. When you say you replied to them—— 

Mr. KRANBUHL. We have written a response letter with each line 

item. 

Mr. RASKIN. Right. But, I mean, of course, what we’re interested 

in is terminating the underlying practices that are wasting public 

resources that should be going to people who are in need, right? 

Mr. KRANBUHL. We certainly are appreciative of that and are 

very focused on making sure no waste, fraud, or abuse occurs. We 

follow Federal cost principles along with every other Federal program. It’s a standard. 

Mr. RASKIN. Yeah. I mean, I guess, you know, you detected some 

frustration in Mr. Connolly’s response to you. But I also detect a 

certain kind of passivity about the enterprise: that we follow the 

principles and we stand by the law and so on. 

I mean, one expense that I think would make some sense is to 

bring all these people in from the 50 States to have a big meeting 

and say, ‘‘Here are the principles, and here’s what’s getting to get 

you sent to jail. And we’re very serious about enforcing this, because it’s the public’s money and it’s people who need it.’’ 

And I’m just curious about what kind of high octane intensity 

you’re bringing to the task of enforcing integrity within the system. 

Mr. KRANBUHL. Sure. We have had several annual meetings to 

share best practices and certainly review compliance procedures. 

Any time there’s an instance called into question, we work with the 

States to augment those and to strengthen their internal controls. 

With respect to Ranking Member Connolly’s question, the Federal cost principles allow for healthcare platforms for employees 

and health and wellness programs, and gym memberships do fall 

under that. 

Mr. RASKIN. Okay. 

Ms. Goldsmith Romero, do you feel confident that Treasury has 

responded positively to your recommendations and is implementing 

them in order to crack down on the waste, fraud, and abuse and 

get the money to the people who need it? 


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Ms. GOLDSMITH ROMERO. Let me say I do appreciate that there’s 

been some movement. 

But, no, this is an absolute misread of the Federal cost principles, which start with, one, necessary, as to what Congress intended;two, reasonable; three, allocable to the program. 

So when it comes down to accountability, if you really want to 

stop what’s going on, let’s just first start with repayment, because 

there’s no better way to deter future misuse of funds than repayment, and then let’s put some controls in here. 

But just because there Federal cost principles have a line in 

there about health and welfare does not mean that gym memberships or health and welfare things are actually necessary and what 

Congress intended, and that is being lost. 

Mr. RASKIN. Yeah. I mean, I would just like to say, the expenditures that are reported here are kind of eye-popping. And I think 

any government agency would be amazed to think that they can 

spend money on lavish Christmas parties, taking people on trips, 

even just purchasing lunch for the office on a daily or weekly basis, 

that kind of thing that we saw. I mean, it doesn’t make any sense. 

Well, look, the program arose because there was a terrible crisis 

that threw millions of people out of work and millions of people lost 

their homes, and the focus is on that. The big banks got essentially 

this huge subsidy, but we still have a lot of people around the 

country who are hurting and are in crisis. 

And so I guess the last point I’d want to ask back to you, Mr. 

Kranbuhl, are you convinced that you’ve got the controls in place 

right now to make sure that the money that’s still within the pipeline is going to be spent in the right way? And do you have the controls within Treasury to make sure that you guys are on top of it? 

Mr. KRANBUHL. I appreciate your question. 

We are very dedicated to working with this committee and 

SIGTARP to make sure, in each state, each program, to make sure 

that they’re following the proper Federal cost principles, that 

waste, fraud, and abuse are minimized, if not eliminated outright, 

that the intended use of the dollars that Congress has set forth will 

be followed, and that the real driver of this whole platform is to 

help homeowners in need. And we are committed to doing that, sir. 

Mr. RASKIN. Thank you, Mr. Chairman. I yield back. 

Mr. PALMER. I thank the gentleman. 

I now recognize myself for a few questions. 

Mr. Kranbuhl, you testified that you’ve expended $8.8 billion of the $9.6 billion. Is that correct? 

Mr. KRANBUHL. That is correct, sir. 

Mr. PALMER. So you only have $800 million left in the fund? 

Mr. KRANBUHL. That’s a large number but, yes, sir $800 million. 

Mr. PALMER. Yeah, that is a large number. But it also indicates 

that the program is virtually shut down. 

Mr. KRANBUHL. It is in wind-down. We have less than 1 percent 

of all dollars from TARP, a $475 billion program, left to deploy, yes, 

sir. 

Mr. PALMER. Ms. Goldsmith Romero, is that number consistent 

with what the IG has found? 

Ms. GOLDSMITH ROMERO. Well, that’s what has left the U.S. 

Treasury, but the money has not been spent. So if you think about 


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it this way, when we investigate fraud and when we audit waste, 

those are only of spent money. The money is protected. There’s $2 

billion that’s left unspent in the program. 

Mr. PALMER. So there’s still $2 billion out, but there’s $800 million left in Treasury? I just want to get that straight. 

Ms. GOLDSMITH ROMERO. Yeah. For my purposes, whatever is 

sitting in Treasury is nice and safe and secure. Whatever is out 

there and going to be out there in the future, which is $2 billion, 

that’s what I’ve got to watch out for. 

Mr. PALMER. What responsibility, Mr. Kranbuhl, do you think 

the Department of Treasury has for ensuring that, over these last 

few years, that this money was spent to achieve the stated purposes to help the families who were homeowners keep their homes? 

Mr. KRANBUHL. Well, there are several measures taken to make 

sure that the dollars are spent—— 

Mr. PALMER. No, I’m asking you. 

Mr. KRANBUHL. —not on the cost principles. 

Mr. PALMER. This is not a filibuster time. 

Mr. KRANBUHL. I agree. 

Mr. PALMER. This is I want to know what responsibility does the 

Department of Treasury have when you’re overseeing a program 

like this to make sure that, in this case administrative costs, don’t 

get out of hand? I mean, you do have an oversight responsibility. 

Mr. KRANBUHL. Certainly. 

From an administrative cost perspective, we work with them to— 

each State—to look at their internal controls. But more importantly, we’re working with them to make sure that dollars are 

being deployed. 

If they’re having a challenge, we’re working with each State HFA 

to make sure that their platforms are accessible to those who need 

it. 

Mr. PALMER. Where was Treasury when you had people driving 

Mercedes or renting office space in the Taj Mahal? 

I mean, I really appreciate the work of the inspector general, but 

generally if the inspector general is coming to call, the report is not 

always a good report. And that’s unfortunate, but it’s indicative 

that there’s a problem with oversight. 

And Treasury has a responsibility here. And I don’t like the idea 

of us having to have hearings like this and then coming back and 

trying to fix a problem that should never have occurred to start 

with. 

So I just want to know, does the Treasury take seriously its oversight responsibility to make sure that the people at the State level 

who are handling Federal dollars, taxpayer dollars, are not abusing 

those dollars? 

Mr. KRANBUHL. Certainly. We actually are identifying many of 

the items that SIGTARP has identified ourselves through our work, 

and then we refer it to SIGTARP for their review. But we’re very 

focused on that, Mr. Chairman. 

Mr. PALMER. Well, tell me what actions have been taken. Has 

anybody been fired? Has anybody been referred for investigation 

for criminal issues? 

Mr. KRANBUHL. There are many cases where we have required 

the States to replace their management teams to make sure that— 


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in the case of Nevada, for instance, we worked with their HFA to 

ensure that proper accountability was occurring and that the—— 

Mr. PALMER. He was forced to resign and paid $20,000 in severance. I mean, for crying out loud, is there anything that he could 

have done that would have gotten him fired? 

Mr. KRANBUHL. Sir, as we reviewed each situation, we offered 

our recommendations. 

Mr. PALMER. Let me ask this question of the folks who administer the programs from the State level. 

Did Treasury provide any guidance or training to you or your 

agency on the use of administrative funds? Did you attend any 

kind of training online, in person, face time? I mean, did you get 

any training? 

Ms. CAMPBELL. I know—this is Verise in Nevada—because of the 

way I was brought on, I was in constant contact with Treasury. 

Prior to me coming on, I did read correspondence where Treasury 

and SIGTARP both, as well as the Housing Division, had expressed 

some concern. 

Nevada’s situation—— 

Mr. PALMER. So you didn’t get training? You did not attend a 

training session? I mean—— 

Ms. CAMPBELL. No, actually I came in the door with training because I was walking hand-in-hand with Treasury because I came 

in after the problem was discovered. 

Mr. PALMER. All right. 

How about you, Ms. James? 

Ms. JAMES. I wouldn’t say that we received training. We did receive guidance via the agreement that we signed. But in terms of 

face time, it was always discussed at our summits. But training, 

per se, I cannot say that. 

Mr. PALMER. How about you, Mr. Farmer? 

Mr. FARMER. I would agree with Ms. James. That’s the same—— 

Mr. PALMER. Ms. Goldsmith Romero, is that a problem, if you’re 

charged with handling hundreds of millions of dollars? Is that adequate training? 

Ms. GOLDSMITH ROMERO. No. 

Mr. PALMER. Let me ask you this. 

Ms. James, you guys had $35 million for demolition, and you 

repurposed $34 million of that. You spent a million of it and only 

demolished three houses since 2014. 

I hope you didn’t spend a million dollars on it, because I think 

for a million dollars I could have gone in there with a sledgehammer and a wheelbarrow. And in a 4-year period, Mr. Raskin 

and I probably could have done that, and would have gladly done 

it for a million dollars. 

What do you think, Mr. Raskin? 

Mr. RASKIN. No doubt. 

Mr. PALMER. That drives me crazy. Prior to this job, I ran a 

think tank and also worked in the private sector and a couple engineering companies. And I had my staff do a little research for the 

Birmingham area, and the average cost to completely demolish a 

house, it ranged from $5,000 for a smaller home to $15,000. 


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At $15,000, that’s 67 houses that should have been demolished 

for a million dollars. Now, if you want to look at the median, 

$10,000, that’s 100 houses. 

If you demolish three houses, let’s say that’s $45,000. Let’s say 

they were the toughest ones to take down and haul off. What happened to that other $955,000? 

Ms. JAMES. The State is Alabama does have allocated a million 

dollars to the Blight Elimination Program. We’ve actually only disbursed $38,000 for those three properties that were demolished. 

Mr. PALMER. So you’ve got $962,000 in balance? 

Ms. JAMES. Correct. Thatis correct. 

Mr. PALMER. All right. On that, I’m not going to get into what 

the local responsibilities are for those houses, but I would point out 

that if these are homes that were previously owned and the mortgage is defaulted on and there are tax liens on them—which is 

typically the case. I know in Birmingham there are at least 16,000 

abandoned buildings. There’s 25,000 or so in Jefferson County that 

have tax liens on them. 

Is there any responsibility that the local municipalities have or 

any opportunity for the municipalities to take ownership of these 

homes and dispose of them? 

Ms. JAMES. We have worked very closely with the city of Birmingham as well as their land bank in terms of trying to get them 

up and running on our pilot program for the blight elimination 

product that we were offering. 

We reached out for the pilot program to two cities that we knew 

were in great need of assistance. We reached out to the city of Mobile as well as to the city of Birmingham. 

The city of Birmingham did submit an application, although the 

application was never completed. We have not heard from them. 

Our last conversation with the city of Birmingham was January 29. 

We had a conversation with a part of their new executive committee. 

They do have a new mayor in the city of Birmingham, and Mr. 

Roberts did reach out to us. And we had a conversation with him 

in January, but we have not had a response from his office. 

Mr. PALMER. One of the problems, potential problems that I see 

in some of these programs, particularly demolition, is that the 

State agencies ensure that there’s an open bid process for that type 

of work so that you don’t have a single source contractor, no bid 

rigging, no brother-in-law contract sort of thing. 

Ms. Campbell, I’ll start with you, and we’ll just go in order. Do 

you have those insurances in place? Would you be actively involved 

in monitoring the disbursement of any money to make sure that 

there was a fair and open bidding process? 

Ms. CAMPBELL. Thank you, Mr. Chair. 

Actually, SIGTARP released an interim report where they identified a weakness with our policy and procedures. When I came on, 

it was like restarting the organization all over again. And although 

we got multiple bids, we did not follow a specific RFP process. And 

that was one of the takeaways that we took back after SIGTARP 

recognized that, is that we are taking a look at all of the policies 

and procedures and seeing how we can tighten them up. 


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Mr. PALMER. Ms. James, considering only three houses have been 

demolished in 3 years, I don’t think that’s an issue yet. But when 

you do start expending that money, I highly encourage that. 

Mr. Farmer, do you have an oversight program in place to make 

sure that contracts are fairly bid? 

Mr. FARMER. We are not actually operating a blight program. 

That’s not one of the ones that we run in our State. 

Mr. PALMER. Will you? 

Mr. FARMER. No, we do not have an intention to run a blight program at this point. 

Mr. PALMER. Okay. 

Ms. Goldsmith Romero, in your investigation of how funds have 

been handled you’ve been looking at administrative costs. Have you 

also had an opportunity to look at not just the blight programs, but 

other areas where contracts have been let? And do you have any 

insight into whether or not these are getting adequate oversight? 

Ms. GOLDSMITH ROMERO. So in my opening statement I identified 

one of the top threats as anticompetitive conduct. And we’re actively conducting audits and investigations. 

And I would just say this. Our investigations are criminal investigations run by special agents at SIGTARP. They are confidential. 

So I’m not at liberty to discuss those. But I will say it’s a real 

issue, it’s a real issue in this program. 

Mr. PALMER. I want to go back to you, Mr. Kranbuhl. And I’m 

being a little generous to myself in the time, but I think this is 

very serious. I think we all take this seriously. 

The thing that disturbs me more than anything else, and this is 

particularly true in Alabama, Ms. James, that there were people 

out who lost their homes who were eligible for this program, but 

only 24 percent of Alabamians were able to get help from this fund. 

That’s the third lowest in the country. 

And it looks like new homeowners were given preference over existing homeowners. And from my perspective, the whole point of 

the program was to help people who owned their homes to be able 

to stay in their homes. 

Ms. JAMES. We don’t make a distinction in Alabama new versus 

existing homeowners. Our program is open to applicants who have 

suffered a hardship prior to their application of the program. We 

do have a significantly high withdrawal rate of applications, 

but—— 

Mr. PALMER. But that’s because the process is so impossibly complex and cumbersome. I mean, some of the same things that Ms. 

Goldsmith Romero has already testified about in Georgia and other 

places. 

What’s the national average? Wasn’t it like 80 something percent 

of the new homeowners got approved? 

Ms. GOLDSMITH ROMERO. Yeah, you’re talking about the Down 

Payment Assistance program. 

Mr. PALMER. Yeah. 

Ms. GOLDSMITH ROMERO. That’s like 88 percent. 

Mr. PALMER. Eighty-eight percent. 

Ms. GOLDSMITH ROMERO. Eighty-eight percent compared to like 

national average in the 40s for homeowners. 


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Mr. PALMER. We’re in the wind-down stage of this program, but 

from my perspective, particularly in Alabama, it was a failure. 

When two-thirds of the people who needed help couldn’t get help, 

for whatever reason, that’s a failure. 

Mr. Kranbuhl, I want to go back to you. How does Treasury go 

about monitoring these programs? I want to get back to the oversight. 

Mr. KRANBUHL. Well, I want to make it clear that every identified case of waste, fraud, or abuse, we’ve reclaimed every dollar 

that was—— 

Mr. PALMER. But you only reclaimed $400-and-something thousand dollars out of $3 million. 

Mr. KRANBUHL. Sir, I can’t speak to the standards that others 

have reviewed. However, at Treasury, in our program at HHF, we 

have reviewed each one and we’ve reclaimed each case that did not 

meet Federal cost principles. 

We can’t just decide, although things might sound improper, we 

have to have a standard, and that standard is the Federal cost 

principles that we follow, sir. And every time those have been violated, the dollars have been fully reclaimed. 

Mr. PALMER. So none of these things—well, I won’t say none of 

them. But it took SIGTARP bringing this before you to identify 

this. My guess is, is you didn’t provide this to SIGTARP, SIGTARP 

provided it to you. 

Mr. KRANBUHL. I can’t speak to each case there. There are, I suspect, cases that were provided to SIGTARP. However, we undertake a sample-based program that is risk adjusted in terms of how 

we pursue our review. So we do a sample study. I will tell you that 

less than 0.01 of 1 percent of all administrative dollars have been 

deemed improper per the Federal cost standards. 

Mr. PALMER. How would you respond to that assertion, Ms. Goldsmith Romero? 

Ms. GOLDSMITH ROMERO. So there’s like more than 

$800 million spent. I haven’t audited all of it. And nothing has 

been provided to us from Treasury. 

But, again, it is like not seeing the forest through the trees. I 

keep hearing Federal cost principles. And it starts with necessary. 

And why necessary? Because under appropriations law, you’ve got 

to get back to what Congress intended with TARP. 

So, yes, there might be some statement about rent as being allowed, but that doesn’t—you’ve still got to look at the program, is 

it necessary for the program. So if in Nevada they’re really not letting people into the program, moving to a luxury building, it is not 

the same, I mean. 

And so that seems to be lost, the context of something seems to 

be lost, getting back to what Congress intended. 

And I want to say this. When we apply the Federal cost principles, this is not like an IG shop going out on an island. There is 

years and years and years of GAO and other IG reports. This is 

just bread-and-butter work for an IG shop. This is not doing something that’s somehow remarkably different than anyone else. This 

is just really, really basic, get back to what Congress intended for 

spending. 


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Mr. PALMER. Well, I’m about to gavel myself. But I just want to 

say this. One of the reasons this really, really bothers me is that 

we sent out $140 billion in improper payments last year. And it 

will be more than that this year. 

This is possibly not in that realm, but it all adds up. And every 

dollar that is improperly expended, every dollar that’s wasted, 

every dollar that’s misused is a dollar that we’ve had to borrow and 

that adds to our interest burden. 

So I guess my concluding remark on this is, is that you’ve got 

to do better. And we’re going to insist that you do better and that 

the State agencies receiving Federal money do better. 

With that, I recognize Mr. Grothman, the gentleman from Wisconsin, for 5 minutes for his questions. 

Mr. GROTHMAN. Right. You guys have about $2 billion left in the 

TARP overall in your program. Is that right? Is that what you have 

here? 

Ms. GOLDSMITH ROMERO. Those are the unspent funds. 

Mr. GROTHMAN. Correct. 

What year was this program originally established, 2010? 

Mr. KRANBUHL. 2010, yes, sir. 

Mr. GROTHMAN. 2010. What do you plan on having happen with that $2 billion. 

Mr. KRANBUHL. So to be clear, the $2 billion, the amount that 

was appropriated, is an extension of the program. Congress extended the program through an additional $2 billion in 2015 with 

dollars made available in 2016. They go out to the States to be 

spent at the State level deciding how they should help homeowners 

most. 

Mr. GROTHMAN. Given that, I can’t remember whether I heard 

this on the news this morning or whatever, the housing market is 

booming, right, nationwide, I mean, in general housing costs are up 

everywhere, do you think it would be appropriate to take these 

funds back now and kind of what the chairman said, vice chairman 

said, give them back to the Treasury? Is it necessary that we help 

anybody else in this program? 

Mr. KRANBUHL. Mr. Vice Chairman, we at Treasury are administering a program put forth that Congress deemed necessary. And 

if the States are unable to use those dollars at the end of 2021, 

they will be returned to Treasury. 

Mr. GROTHMAN. What would happen if we grabbed the money 

now? 

Mr. KRANBUHL. My understanding is there would have to be a 

change to the—— 

Mr. GROTHMAN. Right, right, right. If we would change the law, 

we would change the law and say we’re not going to send any more 

money to the States, what bad thing would happen? 

Mr. KRANBUHL. Mr. Vice Chairman, States are utilizing dollars 

they believe are needed. If they cannot use them, they will return 

them. 

Mr. GROTHMAN. But we’re broke, kind of getting back to what 

the chairman said, we’re broke out of our mind, okay? 

Now, I know if you send money to States, they will always find 

a way to spend it ultimately. But, I mean, the question I have is, 

given that the housing market in this country right now is booming 


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like never before, I am told, do you feel it is necessary to send any 

more of these dollars to the States? 

What would happen if we didn’t? What would happen if we’d say 

we’re taking them back and we’re giving them back to the Treasury 

or whatever? 

Mr. KRANBUHL. Mr. Vice Chairman, I think that question might 

be best for the States. We are solely allowed to administer the program you set forth—— 

Mr. GROTHMAN. You can’t make any observations on the program 

you’re administering? So your mind is a blank. 

Mr. KRANBUHL. To your point, sir, the States have found plenty 

of uses for the dollars. 

Mr. GROTHMAN. Just out of curiosity here, there’s a general lack 

of urgency in this whole building upon spending Federal dollars. 

Does anybody on the panel know what percent of the Federal 

budget we’re borrowing this year? Just out of curiosity. We have 

five informed people here. You want to guess? 

Ms. Campbell, how much of the budget do you think we’re borrowing this year? We’ll call on you. 

Ms. CAMPBELL. Mr. Vice Chair, I do not care to guess. Thank 

you. 

Mr. GROTHMAN. Nobody is going to? Twenty-two percent. That’s 

kind of high, isn’t it, 22 percent? 

Okay. Well, we’ll give you some questions here that I prepared. 

Which State housing finance authorities perform better than others and to what do you attribute their success? 

Mr. KRANBUHL. Well, Mr. Vice Chairman, I would say that the 

States that have utilized the dollars most quickly have performed 

the best, States like California, Florida. However, their performance is really probably best gauged over time and history will decide that, sir, after the program is completed. 

Mr. GROTHMAN. Define success in these programs. 

Mr. KRANBUHL. We’ve helped more than 350,000 homeowners 

and demolitioned and greened 24,000 blighted properties. 

Mr. GROTHMAN. I have a question to either one of you that has 

got a housing finance authority. How would you describe the goals 

of the Hardest Hit Fund in your State? 

Mr. FARMER. I think the goal for North Carolina was to try and 

help as many as folks as we could during the economic crisis and 

recognizing that there was a real challenge with the high foreclosure rates that were not anything we had ever seen before and 

trying to help as many families as we could. 

Mr. GROTHMAN. Help them how? 

Mr. FARMER. Help them out. In our case, there were a number 

of different programs we operated. The primary one was the mortgage payment, where we would make their payment while they 

were out of work or had reduced work and while they were being 

retrained for their jobs. So it was basically getting them back on 

a good footing, bringing the mortgage payment current, getting 

them back to where they can remain in their homes. 

Mr. GROTHMAN. Okay. I’ll ask you because you’re from North 

Carolina. Do you have any money out there? You’re still operating, 

obviously. What would happen if we took back all the money that 


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hasn’t been spent right now to the Federal Government, our poor, 

broke, destitute Federal Government? 

Mr. FARMER. If you took back the money, we would basically 

have to shut down the programs sooner than anticipated. 

Right now, we anticipate closing out the second quarter of next 

year. So we would have to close it out at whatever point that the 

State recovered the dollars. 

So what it would amount to would be fewer households that 

would benefit from the foreclosure prevention. 

Mr. GROTHMAN. How are housing prices in North Carolina right 

now? 

Mr. FARMER. They’re doing really well. We are a growing State 

now, so obviously the economy has turned around. 

Mr. GROTHMAN. If housing prices were booming like they are in 

North Carolina in 2010, would they ever in a million years have 

thought up this program? 

Mr. FARMER. No, sir, I do not believe they would. 

Mr. GROTHMAN. Right, right, right. 

We’ll say the same thing, Ms. James from Alabama. If I gave you 

the same questions, what would you say? 

Ms. JAMES. We definitely enjoy the use of the Hardest Hit funds 

in the State of Alabama. We have helped several homeowners actually maintain home ownership. 

If, for some reason, these funds were withdrawn from our State, 

I do believe that there would be some people that would actually 

go into foreclosure. There has been a turnaround in our State. But 

removing the funds would cause some families to actually go into 

foreclosure. 

Mr. GROTHMAN. How are housing prices in Alabama? 

Ms. JAMES. Housing prices are doing well in Alabama as well. 

Mr. GROTHMAN. If housing prices were booming like they are 

now in Alabama like they were in 2010, do you think ever in a million years Congress would have begun such a program? 

Ms. JAMES. I would have to agree with North Carolina. I don’t 

think so. 

Mr. GROTHMAN. I have used more than enough time, so I thank 

the chairman for giving me an extra 20 seconds. 

Mr. PALMER. My pleasure. I thank the gentleman for his questions. 

I’ll now recognize the ranking member, Mr. Raskin, for followup. 

Mr. RASKIN. Mr. Chairman, thank you very much. 

Mr. Kranbuhl, I wanted to come back to something I started off 

with that is still bugging me, which is, why is Maryland not part 

of this program? What about the States that have been left out? 

Does Hardest Hit refer to the States or does it refer to the people 

who were the victims of the downturn? 

Mr. KRANBUHL. Mr. Ranking Member, the decisions on what 

States were eligible to participate in the Hardest Hit Fund were 

made under a set of criteria developed by a prior administration. 

If would you like, my team and I would be happy to come in and 

sit down with you and run through those criteria and talk about 

the other programs that Treasury has for helping the State of 

Maryland. 


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Mr. RASKIN. Well, are you actively reconsidering those criteria? 

I mean, it seems like there’s a lot of money that’s being wasted in 

other States, and maybe it is not necessary there. But we’ve got 

parts of Maryland that were just devastated and demolished by the 

crisis. So, I mean, is that something that’s under active consideration with you? 

Mr. KRANBUHL. We do not have authority to change the criteria 

at this point, sir. The changes to which States are eligible—— 

Mr. RASKIN. Well, why not? 

Mr. KRANBUHL. The criteria were set forth. The program is 

closed to—— 

Mr. RASKIN. But it’s a matter of administrative discretion, right? 

It was not built into TARP itself. 

Mr. KRANBUHL. Sir, I can’t answer that specifically. I would be 

happy to work with my team and sit down and we can go through 

that. 

Mr. RASKIN. Well, do you know of a Supreme Court case called 

Shelby County v. Holder? 

Mr. KRANBUHL. I do not. 

Mr. RASKIN. But in that case the Supreme Court said—it basically cut the heart out of the Voting Rights Act because different 

States were being treated differently. 

And here’s a program that has been set up by the Department 

of Treasury where some States get the benefit of it and other 

States are completely excluded from it. And if there’s billions of 

dollars that are sitting around that still haven’t been programmed, 

I would like you to reconsider why all these other States, including 

my own, were roped off from it. 

Mr. KRANBUHL. Vice Chairman Raskin, my understanding is that 

the legislation required that the funds had to be committed by October 2010 for the eligibility. Again, that was a prior administration. We can go through that with your office and my staff, if you’d 

like, sir. 

Mr. RASKIN. I would love it if Treasury would present us a legal 

memorandum analyzing whether you’ve got the authority to include the large parts of America that were excluded from the program. So, yes, I would very much appreciate that. 

Let me just ask you one other question, Mr. Kranbuhl, and I 

want to go to Nevada for a second. Whose job is it to coordinate 

and oversee the Hardest Hit Fund within Treasury? 

Mr. KRANBUHL. We have our 0ffice of Financial Stability, which 

administers all of the TARP programs, including the Hardest Hit 

Fund. 

And as far as oversight goes, they report to me as the deputy assistant secretary for small business community development and 

affordable housing policy and I report to the assistant secretary for 

financial institutions. 

Mr. RASKIN. The name of the office again is the Office of—— 

Mr. KRANBUHL. Financial Institutions. 

Mr. RASKIN. Financial Institutions. Okay. So is there a director 

of the Office of Financial Institutions? 

Mr. KRANBUHL. Assistant secretary. 

Mr. RASKIN. Assistant secretary. And who is that person? 

Mr. KRANBUHL. Assistant Secretary Christopher Campbell. 


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Mr. RASKIN. Christopher Campbell. So is he the person who is 

really in charge of it on a day-to-day basis. 

Mr. KRANBUHL. Sir, the program is administered by the Office of 

Financial Stability and their chief financial officer is day-to-day 

working with the—overseeing the team. 

Mr. RASKIN. What I’m trying to get the sense of is, is this somebody’s job at Treasury where they’re focused on this massive program with billions of dollars to distribute? Or is it just part of 

somebody’s portfolio of 10 or 15 different things they do? 

Mr. KRANBUHL. We have a team that is specifically focused on 

this program, as well as other—the Hardest Hit Fund program specifically. And then there’s also a team overseeing the overall TARP 

programs. We have roughly 30 folks who oversee the platform. 

Mr. RASKIN. Okay. So—— 

Mr. KRANBUHL. Administer the platform, too. 

Mr. RASKIN. Okay. So the buck stops where ultimately? If something goes wrong in the program, who within Treasury is the person who says, ‘‘We really need to make big changes in Nevada,’’ or, 

‘‘We need to revolutionize what’s going on in Alabama because the 

money is not getting to the people’’? Whose job is that? 

Mr. KRANBUHL. That specific job would fall to our Hardest Hit 

Fund team and the program director for that. And then that would 

be elevated to say, we want to make you aware of this, we’re going 

to recommend a change. For instance, in the State of Nevada, a 

new program was just put into place in April of this year to make 

sure that those dollars are spent properly. 

Mr. RASKIN. Okay. So, let me come to Nevada, Ms. Campbell. 

Now, I understand you’re part of the new regime. You’re not part 

of the people under whom there was a lot of waste and fraud and 

abuse. But to what do you attribute the problem that plagued the 

problem before you got there? 

Ms. CAMPBELL. Thank you for the opportunity to answer that 

question. 

I think there were multiple issues that I identified right off. The 

first thing was that there was really no systems in place that 

would create a strong foundation to administer such a program. I 

mean, the program was massive. 

The second thing was staffing. There were people, they had a 

great resume, however, they came from the banking industry. And 

I think that’s where some of the misunderstanding of how to interpret certain guidelines came in, they were coming from private sector. 

And then also I think—— 

Mr. RASKIN. Would you just elaborate that point? You mean they 

were accustomed—you’re talking about like the gym memberships 

and the—— 

Ms. CAMPBELL. Yes. 

Mr. RASKIN. —and the freewheeling spending and so on? 

Ms. CAMPBELL. Yes. For example, I’ll take lunches. And I think 

for one of ours, there was a staff member who was pregnant and 

they bought a baby gift. Well, that might be appropriate if you’re 

in private practice, but it is not appropriate under—— 

Mr. RASKIN. In government everybody kicks in their $10 or whatever, right? That’s how we do it. 


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Ms. CAMPBELL. Right, right. 

Mr. RASKIN. But you’re saying they were just writing checks—— 

Ms. CAMPBELL. Right. I think there was just a complete misunderstanding. 

And then also, as is demonstrated here today, there’s certainly, 

I guess, a difference of interpretation between SIGTARP and 

Treasury. It would be most helpful to the States if we had some 

uniformity there. 

So, I mean, even coming on, it was difficult. We hired a CPA firm 

as well. And we get this large super-circular and it is left to interpret. So—— 

Mr. RASKIN. Okay. I yield back. Thank you very much. 

Mr. PALMER. I thank the ranking member. 

Ms. Goldsmith Romero, I’m going give you the last word on this. 

And I would just like to hear from you about what you think we 

need to do from this point on. 

Ms. GOLDSMITH ROMERO. I think there needs to be greater accountability and greater controls. I mean, I went up and, just so 

you know, I met with Secretary Mnuchin. He said, ‘‘You’ve got to 

recover all this money. 

And I said, ‘‘Look, we don’t recover it. That’s up for you.’’ And 

then I met with Treasury’s general counsel. 

I think people in Treasury need to sit down, they need to reread 

the Federal cost principles. And they need to look at first page, 

which says ‘‘necessary.’’ 

And it goes beyond. We can talk about Federal cost principles all 

you want, but it comes down to appropriations law. In the Federal 

Government, you cannot spend money unless Congress authorized 

it. That’s what it all comes down for. 

And so that’s why the ‘‘necessary’’ provision can’t be left out. 

They need to go back and read this memorandum by their own 

general counsel. They need go back and take a look at all of this. 

Because what I’ve not seen in Treasury’s work papers is that determination about what’s necessary, that idea that if in California 

hundreds and thousands of people can get this help without this 

kind of expenses, without lunch every week, it’s not necessary. 

And so if you go back and look, Secretary Geithner said, much 

to the chagrin of a number of Congressmen, you can’t use this 

money for legal aid, you can’t use it for broad housing counselors. 

But we know a lot of people get into this program through legal 

aid or through general housing counselors, but you can’t charge it. 

So if you can’t charge that kind of reasonably related because it’s 

not necessary under appropriations law, then how can you take 

those same housing counselors to the zoo? 

So really I understand that Treasury is saying, well, there’s a 

provision in these cost principles that say this. But you got to read 

page 1. You got to read page 1, which says ‘‘necessary.’’ 

Federal cost principles cannot override appropriations law. That’s 

what it comes down to. 

So what I think everyone should do here, all the State agencies 

and everyone in Treasury involved, let’s get back to what did Congress intend in the TARP law and what is this program for. And 

it doesn’t matter whether something is related or reasonably related. That’s not the standard. Do you have to spend the money? 


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And what I also suggest they do is they talk to each other and 

say, California, you’re not spending anything on this. Arizona, 

you’re not spending anything on this. Other State agencies, you’re 

not spending anything. And they talk to each other and say, are 

you using this money for bonuses? 

You know, I think that’s where accountability comes in, is really—all it is about is getting back to what Congress authorized. And 

if they do that, and if they talk to each other and they work something out, then I think it will be back on track. But there’s got to 

be controls in there. It shouldn’t be just left up to each State. 

Mr. PALMER. Well, my concluding remarks on that is that, first 

of all, you have to take seriously what Congress intends. That’s 

true of every Federal agency. And if Treasury doesn’t take it seriously, then the State agencies may or may not take it seriously, but 

very likely they won’t even know what those criteria are. 

And that’s my whole point about the lack of training. I think 

when the Treasury or any Federal agency is overseeing money that 

is sent down to the States, there has to be a clear understanding 

of the parameters within which that money can be spent. 

Now, some of the money, as Mr. Raskin pointed out and that others have pointed out, was spent on things that anyone with any 

common sense would have known that if it wasn’t just plainly 

wrong it was definitely in the gray area. And I think Treasury has 

a responsibility to monitor that. That’s an oversight responsibility 

that you have. 

And what I’d like for you to do, Mr. Kranbuhl, is when you get 

back to Treasury, I would like for you to submit some suggested 

changes for the guidelines. I think on our end, as Members of Congress, we’ve got to be more diligent in making sure that our instructions are clear, that when we’re hemorrhaging funds like we 

are with deficit spending we can’t afford to waste another dollar. 

So with that, I just would say there seems to, in my opinion, 

there seems to be a lack of seriousness and commitment to help the 

hardest hit homeowners keep their homes and to prevent those 

abandoned homes from becoming blight on cities. And I don’t know 

what we can do to go back and fix what’s already been done, but 

I guarantee you, we’re going to pay attention to what happens 

going forward. 

And I think, Mr. Kranbuhl, that Treasury needs to inform everybody of that. I think the inspector general, SIGTARP, has done a 

good job on that, and I think they’ll be happy to let you know when 

those things are getting outside the lines. 

With that, I thank our witnesses again for appearing before us 

today. The hearing record will remain open for 2 weeks for any 

member to submit a written opening statement or questions for the 

record. 

If there’s no further business, without objection, the subcommittees stand adjourned. 

[Whereupon, at 11:38 a.m., the subcommittees were adjourned.] 

Æ 


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