DEFAULTS ON FHA-INSURED MORTGAGES (Part 3) TUESDAY, MAY 16, 1972 HOUSE OF REPRESENTATIVES, LEGAL AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 2203, Rayburn House Office Building, Hon. John S. Monagan (chairman of the subcommittee) presiding. Present: Representatives John S. Monagan, Fernand J. St Germain, George W. Collins, Garry Brown, and Richard W. Mallary. Also present: Richard L. Still, staff director; Charles A. Intriago, counsel; Jeremiah S. Buckley, counsel; Frances M. Turk, clerk; Helena Grady, assistant clerk; and J. P. Carlson, minority counsel, Committee on Government Operations. Mr. MONAGAN. We shall bring the hearing to order and proceed today. The subcommittee is resuming its hearings concerning the operations of the Federal Housing Administration, a component of the Department of Housing and Urban Development. Secretary Romney appeared before the subcommittee on May 3 with his principal staff. Due to the length of the Secretary's statement and the services in the Rotunda for the FBI Director, J. Edgar Hoover, time did not permit questioning of those officials of the Department having direct responsibility for those matters of concern to the subcommittee. The indictment of a former Area Director and FHA Insuring Office Director in Philadelphia last week makes it mandatory for this subcommittee to ascertain the true nature of the problem with FHA and to insist that all reasonable steps be taken by HUD and the Justice Department to bring to an immediate end the widespread criminal activity victimizing low-income purchases of both inner city existing housing and new subsidized suburban housing. Assistant Attorney General Petersen has assured us that the Department of Justice now clearly recognizes the seriousness of the problem. Mr. Petersen's creation of housing strike forces should serve notice on the criminal elements in our society that timely action will be taken. Questions relating to HUD referral procedures and adequacy of experienced personnel sources with HUD, however, remain. Our first witnesses this morning are prepared to respond to questions involving this crucial area. Mr. Maxwell and Mr. Haynes, we are pleased to have you back with us this morning. Should you have brief remarks by way of opening, you may proceed. If not, we will proceed to questions. (437) STATEMENT OF CHARLES G. HAYNES, INSPECTOR GENERAL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY DAVID O. MAXWELL, GENERAL COUNSEL Mr. MAXWELL. We have no opening statement, Mr. Chairman. Mr. MONAGAN. All right. Mr. STILL. Mr. Maxwell, please have Mr. Haynes submit his résumé for the record at this time. I believe this is his first appearance before the subcommittee. Mr. MAXWELL. It is my first time also. Mr. HAYNES. I will submit mine. Mr. MAXWELL. I am David O. Maxwell, General Counsel, and I have the pleasure of introducing to the committee Mr. Charles Haynes, who is the Inspector General for Housing and Urban Development. This is a new position in our Department and one which Mr. Haynes, as you will see from his résumé, is eminently well qualified to fill. We are very glad to have him on board. Mr. HAYNES. It is a pleasure to be here, Mr. Chairman. (The biographical sketches follow:) CHARLES G. HAYNES, INSPECTOR GENERAL Charles G. Haynes, 52, was appointed Inspector General of the U.S. Department of Housing and Urban Development on January 30, 1972, by Secretary Romney. A native of Kansas City, Mo., Mr. Haynes was reared in Washington, D.C., graduating from McKinley High School and Southeastern University, where he received his bachelor of commercial science degree in 1941 and his master of commercial science in 1946. He was admitted to practice as a certified public accountant in the District of Columbia in 1941. Prior to his appointment as a special agent in the Federal Bureau of Investigation in 1941, Mr. Haynes was employed as a public accountant in Washington, D.C. During 1941 to 1957 he served in various assignments for the FBI in the field and in headquarters. From 1955 to 1957 he was loaned to the House Committee on Appropriations to serve as director of its surveys and investigations staff. Mr. Haynes was appointed Director of Internal Audit for the Department of Health, Education, and Welfare in July 1957. Three years later, he was named Deputy Director of the Division of Mutual Security Investigations for the State Department, becoming Director in January 1961. He joined NASA in October 1961 as Director of Inspections and in January 1969 was named Director of Headquarters Administration, a position he held until moving to the Agency for International Development as Deputy Auditor General in March 1970, the position he held just prior to his appointment in HUD. Mr. Haynes is a member of the International Association of Chiefs of Police, the American Institute of Certified Public Accountants, Federal Government Accountants Association, the Association of Federal Investigators, and the Society of Former FBI Agents. Mr. Haynes and his wife, the former Irene Smith of Danville, Va., live in Silver Spring. They have five children-Mrs. John T. Miller of Mentor, Ohio; Mrs. Albert M. Warfield of White Plains, Md.; Mrs. Ronald Ryan of Silver Spring; Charles G. Jr., of Ellicott City, Md.; and Stephen J., at home. DAVID O. MAXWELL, GENERAL COUNSEL David Ogden Maxwell of Harrisburg, Pa., became General Counsel of the U.S. Department of Housing and Urban Development on November 5, 1970, following appointment by President Nixon and confirmation by the Senate. He was born in Philadelphia on May 16, 1930; attended Philadelphia public schools; and graduated from the Episcopal Academy in 1948. He received a B.A. degree from Yale in 1952 and a J.D. degree from Harvard Law School in 1955. Mr. Maxwell was associated with the Philadelphia law firm of Obermayer, Rebmann, Maxwell & Hippel from 1959 to 1967, becoming a partner in 1963. In January, 1967, he resigned from the law firm to accept appointment by Governor Shafer of Pennsylvania as insurance commissioner, a position he held until June, 1969, when the Governor appointed him secretary of administration and budget secretary. In the latter post, Mr. Maxwell served ex officio as secretary of the executive board of the Commonwealth; chairman, Governor's Council on Human Services; chairman, Governor's Committee on Labor Relations and Collective Bargaining; and member, Governor's Council on Urban Affairs. Mr. Maxwell is a member of the American, Pennsylvania, and Federal Bar Associations. He is also a fellow of the American Bar Foundation and a member of the American Judicature Society. He served on the Medical Assistance Advisory Council of the U.S. Department of Health, Education, and Welfare from November 1969 to October 1970. Active in the Pennsylvania Republican Party, Mr. Maxwell was a candidate for U.S. Congress in 1960; executive vice chairman of the Pennsylvania Citizens for Shafer in 1966; and director of the Nixon-Agnew campaign in Pennsylvania in 1968. He served in the U.S. Navy from September 1955 to August 1959, and was released from active duty as a lieutenant. He served as a legal officer in Naples, Italy, from 1957 to 1959. Mr. Maxwell was married to the former Joan Clark Paddock of Lenox, Mass., on December 14, 1968. Mr. STILL. Mr. Maxwell, I believe you have been furnished subsequent information from Assistant Attorney General Petersen concerning referrals or open cases. There seems to be some confusion as to the number of referrals. Have you received that information pertaining to open cases with the Department? Mr. MAXWELL. Yes, sir. We have received that. Mr. STILL. I believe that has been furnished to each of the members as well. The first question prompted by that information: Does HUD keep a record of all referrals to the Justice Department; and, if so, is that record broken down by program category and by criminal allegation involved? Mr. HAYNES. Let me discuss for a few minutes the kind of records we do keep, and I think that this will be responsive to your question. We have an Office of Investigation within the Office of the Inspector General. We open an investigative case on each matter referred to the Justice Department, and on each matter which is investigated by our own staff of investigators. We have a central file in Washington, we have a centralized record system. Most of the referrals to the FBI or the Justice Department are done in the field with copies received here in Washington. The cases are supervised here in Washington, so our staff of supervisory investigators are aware of the progress being made. There has been some confusion, I know, concerning the number and kind of investigative matters, and I will address myself to this this morning. First, I would like to say there will not be an agreement between the numbers that the Justice Department has and the numbers we have. This is for a variety of reasons, one of the principal reasons being that the Justice Department is receiving complaints on housing matters from a variety of sources, not only from HUD. They receive them from the news media, from citizen groups, consumer groups, from individual citizens, and they will open investigative matters and investigate them, and in due course we will receive the results of those through the media of an FBI report or an FBI memorandum. Conversely, we don't refer all cases to Justice. Those cases that are referred are those cases in which there appears to be the possibility of criminal action. So the two sets of figures will not agree. As of May 8, we had an active pending workload, both in our own office and in the Justice Department, of 1,282 cases. Now, of these 1,282 cases that were under active investigation, 973 were in the Justice Department, and this figure is in the same ball park that you have been furnished by Mr. Petersen. These figures change day by day, by the way. Cases are being opened and closed. Of the 973 in the Justice Department, 214 involve title I home improvement matters, and the other 759 involved a variety of other possible criminal violations. Mr. MONAGAN. Excuse me just a minute. Would you act as chairman, Mr. Mallary? We have a conflict with the Secretary of State. I have got to go down for a few minutes. We would like to keep going and get your testimony in the record. Mr. Mallary (presiding). Mr. STILL. Could I interrupt you at this point. Could you explain title I for the benefit of the committee. Have title I referrals been centralized? Mr. HAYNES. Title I of the Housing Act, authorizes loans to individuals for improvements of property. Because of the nature of these particular kinds of cases, the complaints that we receive concerning possible violations are sent to Washington and we refer them to the FBI or the Justice Department in Washington. The allegations concerning false statements in connection with title. I most frequently arise, almost invariably, after there has been a default on the loan. In the process of trying to work out the default, sometimes it becomes evident that either there has been a false statement made in that the level of the income of the applicant for the loan was lower than stated, or that the home improvement work for which the money was borrowed was not done and there was a false certification relating to the completion of the work. Mr. STILL. Would it be fair to categorize these cases, I believe you had an opportunity to look at Mr. Petersen's testimony and the members of the subcommittee's subsequent colloquy with him-as low priority cases? Mr. HAYNES. I think so, Mr. Still. I think they are generally individuals who default on the loan. There is no real pattern. They borrow the money to put a porch on the house and then they don't put the porch on the house. Mr. STILL. So one-fourth of the cases that you have just cited are in the title I category. Mr. HAYNES. Two hundred and fourteen out of 973. Mr. STILL. Please continue. Mr. HAYNES. We have 309 cases pending investigations, these are matters which are not violations. or probably will not develop into violations of the Federal law, or where it is too soon to tell whether or not there is sufficient reason to believe that they should be referred. |