Feb. 28, 2007 — Abuses of a government home loan program ranged from checks written without appropriate documentation and misappropriation of funds to veterans' loans given to non-veterans and mortgages in default for as long as 14 years with no repercussions, a recent audit revealed. And that's not all.
"It was like a free-for-all," said Inspector General Steven Van Beverhoudt, whose office conducted the audit that uncovered the abuses.
In one instance, a loan recipient and employee of the Department of Housing, Parks and Recreation (the agency that managed the loan program), deposited funds into the wrong account. That employee, who is not named in the audit, got a $66,000 loan from the erroneous deposit.
Another check for $75,000 paid out with no evidence of a loan application being filed was paid to the former loan fund manager, who has since died.
The auditors also found no evidence that the loan was ever repaid. "With no file existing for review within Housing, we contacted Finance to determine if this individual was making payment through payroll deduction," the audit report says. "Finance officials indicated to us that this individual had never had payroll deductions made. Accordingly, no records of a loan to this individual exist at Housing, nor are there any records at Finance to indicate that payments were made."
Another large check, this one for $125,000, was issued in 2002, but never cleared the bank. Housing officials said procedure would have called for the check to be placed in a safe until cashed. It wasn't. Eventually it was found in an unrelated file and returned to Finance for cancellation.
As for the success of the program, the audit revealed that as of January 2006 a whopping 63 percent of the loans given were in default — one dating back 14 years. Ninety-one percent of the delinquent loans were to government employees. Though auditors were told that at least on St. Croix recipients were required to establish payroll deduction plans to repay the loans, they didn't.
"If payroll deductions were required of all government employees, the delinquency rate would have been significantly lower," the report said.
In a phone interview Wednesday, former Housing Commissioner Ira Hobson concurred, "What should have happened is the payments should have come out of their paychecks."
Out of 108 active loans territorywide, valued at $5 million, there were 68 delinquent accounts with a total delinquent balance of $609,225, the report said.
Hobson, who was the commissioner during the time that many of the abuses took place, said, "Some were before my time; some during my time, but someone has to get blamed."
He said he was not aware of many of the problems until the auditor's light was shone on them.
Van Beverhoudt, however, saw it a bit differently, "He signs off on these loans; he has final approval," van Beverhoudt said. "He must have known."
The report is clear that much of what took place relative to the Homestead and Home Loan Program, which was established in 1955 and at its inception administered by Property and Procurement, was deliberate circumvention of existing laws.
For example, due to a change in the law, Housing was asked to reimburse $1.3 million in funds that were deposited erroneously into the fund. Finance told Housing they had to return to the General Fund any appropriations they received until the negative balance was eliminated. Instead, a $900,000 appropriation was deliberately, according to auditors, deposited into the Veterans fund and then — to add insult to injury — three loans were given out of that money to non-veterans. One was to the previously mentioned employee who got $66,000 after participating in making the illegal deposit. To make matters worse, the loan was to refinance a previous mortgage. "The Loan Fund program does not provide for refinancing of existing home mortgages. The loans are specifically designed for land purchases, new construction or home improvements," the audit states.
In another case, a loan was given for $125,000 out of the Veterans Fund to a non-veteran. The maximum amount allowed, however, is $110,000.
It was undetermined (because no site inspection was conducted) whether a third non-veteran loan from the Veterans Fund was actually used to build a house.
Record keeping was also a mess, the report showed. In every case of 47 sample loans audited, the files were missing some type of documentation. The audit reveals that acting Commissioner St. Clarie N. Williams is taking action on the audit's recommendation. One action, which Hobson also mentioned, is the acquisition and implementation of a new mortgage software system.
Going forward any new loans to government employees will require payroll deduction, Williams said in a letter to van Beverhoudt.
Hobson laid the crux of the problem at the feet of people's attitudes about the government. "The program was not a bad idea," he said. "But it takes on a certain intensity because people are unwilling to pay the government."
To see the entire audit click here.
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