L.A. HOUSING DEPARTMENT CRITICIZED AUDIT SAYS LACK OF OVERSIGHT COSTS AGENCY MILLIONS.

Byline: KERRY CAVANAUGH

Staff Writer

Despite a tight budget to build and maintain affordable homes, the Los Angeles Housing Department has lost millions of dollars by failing to ensure borrowers comply with loan promises and sometimes lends money to developers who have defaulted on previous city loans, according to an audit released Monday.

The Housing Department has made big improvements in how it manages and monitors loans, but the agency still loses an estimated $6 million a year in potential income because it doesn't have the staff to review annual financial statements submitted by borrowers, City Controller Laura Chick wrote in the audit.

"These very important public dollars are needed to provide safe and livable neighborhoods through the development and preservation of decent and affordable housing," Chick said. "It is essential that we ensure the public that these monies are meeting their intended targets."

The Housing Department provides loans to first-time homebuyers and seed money to developers to build low-income rentals. The agency oversees a $100 million affordable trust fund, which helped fund 4,765 new units from 2004-2006, and manages a $735 million loan portfolio.

Housing General Manager Mercedes Marquez, who has led the department since 2004, disputed some of Chick's assertions and pointed out that her staff has collected $50 million by cracking down on delinquent loans and stalled projects. But she said she agreed with the spirit of the audit.

"The direction that the controller goes in, I would agree with because it's the same direction I've been going in for three years," she said. "We have to be public sector entrepreneurs."

The audit found that the Housing Department concentrates too much money among a pool of 30 developers -- many of whom have defaulted on loans. And the department continues to loan developers money after they have failed to pay back loans on time -- contrary to city policy.

Marquez said the department has recruited for-profit developers to apply for loans, and had 26 more applications for funding in the beginning of 2007 than in all of 2003. Plus, the department now checks the loan history and performance of every borrower before approving new loans.

In addition, the audit found the department is slow to collect on delinquent borrowers. Auditors found 101 loans worth $34 million that were behind payment and unresolved.

The department is also quick to write off loans and has unnecessarily lost money on some projects, the audit found.

In one example, it wrote off $1.4 million owed by the developer of the Tupper Tobias Village housing project in Panorama City.

In 2001, the city loaned the developer $3.4 million to build 14 houses that would be sold to low-income homebuyers, but Tupper-Tobias LLC had financial problems and couldn't recoup construction costs through the home sales.

Then the Housing Department provided mortgage assistance to the homebuyers, but did not require equity sharing or any requirement that the homes be resold to low-income residents.

One buyer bought one of the new four-bedroom homes in 2003 for $182,000 and sold the house six months later for $348,000.

"To me there's something wrong with selling houses at such a low price, and then the folks who buy it in a year or two turning around (selling) and making a big profit," Chick said.

"This program is about helping families of limited means get their foot in their door. If they are benefiting by hundreds of thousands of dollars, let's help the next family out."

kerry.cavanaugh(at)dailynews.com

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