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HUD reform: the media event.

HUD REFORM The Media Event

Thank you, Jim Watt. Thanks a whole lot. At first blush this may seem a somewhat curious way to start an article on a recently passed ominibus housing bill.

Wasn't Jim Watt the high-profile "let's really stick it to the pinko whale lovers" secretary of interior in the original Reagan cabinet? You remember, the Western purist who was going to wage a one-man holy war against Washington and its bloated bureaucracies and fatted giveway programs. Unfortunately, Watt had the same joke writer as Earl Butz, an otherwise competent secretary of agriculture during the Nixon years, whose government career, like Watt's, was abruptly ended because of a display of similarly poor taste.

When, immediately following his resignation, Watt was not besieged with requests from Johnny Carson's or David Letterman's booking agents, he underwent an instant conversion. He suddenly began viewing that once-despised trough of federal dollars, not as an enemy but lo and behold as a friend.

Our born-again purveyor of access set out on the prowl with a vengeance and, as it happened, HUD became one of his first stops. Several calls and some $300,000 later, Watt became the prime catalyst for one of last summer's longer-running hits, the HUD scandals of 1989, finally culminating in HR 1, The Department of Housing and Urban Development Reform Act of 1989.HUD reform on one level can be viewed as a classic example of politically expedient overreaction. This is not to say Samuel Pierce's eight-year tenure at HUD will in future years be cited as an example of government at its best. Or, that there wasn't a need for real reform. There were indeed many serious problems. Unfortunately, few were as sexy as the seemingly endless conga line of well-connected Republicans cashing in on what was left of HUD's once mighty array of programs.

Yet, HR 1 was not the byproduct of careful congressional consideration or debate. In fact, there was no debate. There wasn't even a conference. In the final analysis, one of the most wide-ranging housing bills of recent times, a bill that has quite serious implications for the mortgage banking industry, became in the eyes of many members in both houses, simply one of several impediments to adjournment, the last exam before Christmas vacation.

The bill's quick acceptance was a predictable response to last summer's almost daily, front-page coverage, and 100-plus hours of television exposure, which overnight transformed HUD from the near invisible agency it had become during the Reagan years, to public enemy number one.

The subcommittee on employment and housing of the House Government Operations Committee is set up to serve simply as an oversight committee. With limited exceptions, it has no authority to legislate. Yet, its name belongs next to HR 1 as much, if not more, than the House Banking Committee. How a strange confluence of events came together to produce this legislative package is chronicled in the following paragraphs in what is an admittedly personal, and no doubt biased view. The precise details of this eleventh-hour gift to the industry were discussed in an earlier article entitled "Checkbook Sanctions" Mortgage Banking, February 1990, pp. 67)

It all starts at the top

Several years ago, when I lobbied on behalf of the mortgage banking industry, I predicted on more than one occasion that Sam Pierce would turn out to be one of the ablest, most effective, leaders HUD had ever known. His low profile, quiet and skillful management of the department would be the perfect antidote to the venomous passions of the Reagan zealots for whom the dismantling of HUD was a top priority. Sam Pierce would surprise the skeptics I thought. He would leave a leaner, but still operative, department, while making the final move in a career that had been characterized by unquestioned accomplishment and excellence. Secretary Pierce would become Mr. Justice Pierce and assume his rightful place on the Supreme Court, I concluded.

With the benefit of hindsight, that was not one of my better predictions. Had I only known about his fondness for daytime television soap operas, I might have tempered my enthusiasm.

His credentials notwithstanding, Pierce fell far short of my predictions from day one. Perhaps in the future, one of the many psycho-journalists who ply their trade in Washington or New York, the kind who specialize in long-distance analysis, will afford us some insights into what went wrong with Pierce. Until then, I can only assume he peaked at his swearing in.

Pierce was not guilty of simply benign neglect. His neglect was nothing short of malignant; and nowhere was that more apparent than with his top appointments. With only one exception--Lance Wilson, his initial executive assistant--he played little, if any, role in staffing his department. (Contrast that with Jack Kemp, who early on defied the White House, Senator Mitch McConnell [R-KY] and the entire Kentucky congressional delegation, who were pushing Joseph Schiff for FHA commissioner. Kemp wanted his own "man," who just happened to be a woman, and a particularly accomplished one at that. Joe Schiff had to settle for a job as Assistant Secretary for Public Housing and Indian Affairs and C. Austin Fitts, a protege of Treasury Secretary Nicholas Brady, was tapped for what many consider the second most important job at HUD.)

As the Reaganites arrived in Washington, HUD quickly became an ideological, toxic waste dump--a department of last resort. For the most part, the people who got the top jobs at HUD had no relevant experience, and their deputies and special assistants even less so. In addition, jobs that in the past had been staffed by high quality career people, such as the two, key, deputy assistant secretary jobs at FHA, became political.

The regions were no different--often times worse.

With very few exceptions, the non-career staff at HUD during the Pierce years was the most mediocre in HUD's 25-year history. Of perhaps even greater significance, was the number of chronic vacancies. It is hard to recall when all the assistant secretary positions were filled at the same time. Indeed, for well over half of Pierce's tenure, either the position of FHA commissioner or under secretary was vacant. This was also occurring at a time when HUD was undergoing significant staff reductions, particularly in the field.

And if things were not bad enough, inside the concrete walls of 7th and D streets, a number of external factors were generating added pressures. The Reagan administration has been routinely criticized as anti-housing. I am not sure that is an accurate assessment. There were forces within the administration, however, that were clearly anti-HUD, particularly OMB.

Moreover, Congress, for all its rhetoric about Reagan's lack of a commitment to housing, passed only one major housing bill in nearly eight years. FHA's insuring authority lapsed more often during the Reagan years than it had in HUD's entire prior existence. Finally, with the notable exception of MBA, aggressive support from the department's traditional constituency groups was decidedly lacking. Thus, it is not at all surpising that a serious leadership void from the top on down quickly afflicted the department. A vacuum was created, a vacuum that would be filled by a most unlikely player.

Debbie Who?

If someone had given you a million to one odds that a former bartender who ranked 507 out of 509 in her college class, would join the likes of George and Barbara Bush, Manuel Noriega, Mikhail Gorbachev, Madonna and Pete Rose as one of People magazine's "25 most intriguing people of the year," you would have been crazy to wager even a nickle. Yet, on page 85 of the 1989 year-end issue of People is the not-so-smiling countenance of Deborah Gore Dean.

It says something about HUD under Pierce that Debbie Dean rose from the head of the executive secretariat, (i.e. the juggler of secretarial correspondence) to the de facto Secretary of HUD. Perhaps, more than any one person or thing, Debbie Dean came to symbolize how out-of-hand things had gotten at HUD. This is not intended as any criticism of Dean. In fact, I give her an A-plus for initiative. Just think how different things might have been if some of that initiative had rubbed off on her boss.

Let's kill all the consultants

Consultants have always played a role, not just in HUD programs, but in all government programs. Sometimes they go by another name--lawyers. Whether because of experience on the other side of the desk or simply because of a specialized expertise, these consultants know how the game is played. Some may have political connections, but in most instances that is incidental to their success. They bring real value to the table and are typically paid in a manner commensurate with not only their results, but their time and efforts as well. Of course, I know this firsthand, being one of these lawyer/consultants myself. During the Pierce years, the rules of the game were changed radically. Expertise became irrelevant, perhaps even an impediment. Politics, which always had played a role in the decisionmaking process at the highest levels of HUD, became the dominant, if not exclusive, consideration. Except, it was not politics as usual.

While these new-age consultants certainly got rich, and the developers got their projects, what did the HUD officials get? Why did they do it? What was the "quid pro quo?" No one really knows. But, if I had to hazard a guess, it would be along these lines. To begin with, these people simply were not all that bright. Many of them were ideological groupies who quickly came to the realization that merely having been a foot soldier, or even an officer in the Reagan revolution, did not translate into a meaningful job offer on the outside. Many of them came to government to enhance embarrassingly thin resumes. If they were nice to the consultants, they would make a friend--a powerful friend--and perhaps that friend one day would be in a position to help out.

The Mod-rehab scandal was indeed a disgrace, but in the overall context of the programs HUD administered it was relatively insignificant. And, it may have remained that way if the Hill, and because of the Hill the media, had not latched onto it. And why did the media, and The Washington Post, in particular, become enamored not only with Mod rehab, but with such other arcane subjects as closing agents and coinsurance? Why did hardly a day pass during the summer of 1989 without HUD in the headlines? In a word, C-Span.

Lights, camera, action

C-Span is to political groupies what ESPN (the cable network sports channel) is to sports nuts. It provides extensive live coverage of the House and Senate, key hearings of congressional committees and subcommittees, and assorted executive branch happenings. This gavel-to-gavel coverage is aired and re-aired 24 hours a day, 365 days a year. Through the miracle of C-Span, one could have followed the accounts of John Tower's sexual and beverage proclivities, as well as other assorted traits presumably bearing on his fitness to be Secretary of Defense, being explored in their minutest detail, without ever abandoning the comfort of one's couch. However, if C-Span's audience was limited to political "wannabees," this article would not have been written.

C-Span allows Capitol Hill reporters to be in more than one place at one time, and, most importantly, provides the networks with a veritable supermarket of sound bytes. The power of C-Span should not be underestimated. It is not simply an "inside the beltway? phenomenon. This fact certainly was not lost on Congressman Tom Lantos, a five-term Democrat from San Mateo, California. Although Lantos may not have been the least well known of California's 45 representatives, as chairman of a rather insignificant sub-committee, he wasn't exactly a household word either.

Enter Jim Watt

Armed with a series of fresh and not-so-fresh reports from HUD's inspector general, Congressman Lantos scheduled a series of hearings on a wide range of alleged abuses at HUD during the Pierce years. Not surprisingly, with "Silent Sam" gone, replaced by a less than taciturn Jack Kemp, it was tough enough to get members of the subcommittee to even drop by, let alone the media, C-Span included.

Then, on an otherwise slow news day, Jim Watt would change that forever. To the chagrin of some, and no doubt the pleasure of others, Watt showed that four-plus years of relative obscurity had not hampered his ability to stir the passions of his fellow citizens. Once a lightening rod, always a lightening rod. And that night on all three networks, Jim Watt was back, proclaiming with near evangelical fervor that there was absolutely nothing wrong, improper or even curious about him calling his former cabinet colleague Sam Pierce on behalf of a client who needed a few spare Modrehab units. Had he evinced even a semblance of contrition, things might have been different. Watt's arrogance was exceeded only by his hourly rate and HR 1's eggs were fertilized.

When you're hot, you're hot

Tom Lantos may be many things but stupid he is not. Imagine his surprise when he and millions of other prime-time viewers witnessed him lecturing Watt on the sins of greed and hypocrisy. His television debut may have been in a supporting role, but he would quickly change that. After all, he was the chairman. Along the way, he had a few tune-up fights with some assorted bit players, piquing the interest of the media in general, and C-Span programmers, in particular. Yet, he appeared destined to be just another "everybody's famous for 15 minutes" celebrity. Then he got another break. Sam Pierce accepted an invitation to testify voluntarily before the subcommittee.

There is only one way to describe former Secretary Pierce's, former Judge Pierce's, former Treasury General Counsel Pierce's, former Battle, Fowler senior partner Pierce's testimony; he threw the fight. He went into the tank. No person, not even one with Pierce's credentials, could have proven to be such a miserable witness or have displayed such a total lack of credibility, unless they truly intended that result in my opinion. After Pierce's cameo appearance, Lantos was on a roll. Visions of "Nightline" were dancing in his snow white head. Washington loves nothing better than a good old-fashioned feeding frenzy. Watergate, Iran Contra, John Tower and now Sam Pierce and HUD. What better way to make the hot, humid days of summer pass quickly by. Pierce was the rabbit and Lantos would soon be joined by a whole new group of hounds.

If Lantos was master of hounds, then Stuart Weisberg, the subcommittee staff director, was the chief dog handler. A career government lawyer, he came to the Hill at a relatively old age. (These days anyone over 30 up there is old.) For someone in his position, opportunity does not knock often. The hearings were his best shot at moving up from the relative obscurity of the employment and housing subcommitteee. As they say in baseball, he was ready for the show, the majors--the full committee or a more high-profile subcommittee.

A moral outrage contest

With multiple committee and subcommittee assignments, plus the need to spend more time back in one's district, it is no wonder that most members of the House believe that they have earned their pay if they simply show up long enough to ask a question and perhaps even wait for the answer. This might have been the case with Lantos' colleagues on the subcommitteee, but they too knew a good thing when they saw it.

One of the more oversued and inaccurate terms in Washington is "bi-partisan." Lantos, complete with his Eastern European accent, was a model of solemnity as he punctuated his frequent opening statements with repeated references to the bi-partisan nature of the hearings. Me thinks he doth protest a bit too much.

By the summer of 1989, the Democrats had lost the ethical high ground. Speaker Wright had out-Nixoned Nixon in his resignation and Tony Coelho, albeit with much class, had exited as well. Moreoever, George Bush was proving that hard work was not an impediment to high popularity ratings. Even the stock market was behaving. And while the Democrats did have firm control of both the House and Senate, what fun is control without an issue, a focus?

Once it became clear that the Lantos hearings promised to be the most visible game in town, member attendance increased dramatically. Stuart Weisberg proved to be a master talent scout. Week after week he managed to produce prime, political, cannon fodder. The Democrats were in heaven. The Republicans had no choice but to go along, always trying, but never quite succeeding in mounting greater moral outrage.

The parade of witnesses ranged from a distinguished former HUD Secretary, who had the temerity to have represented a client in a thoroughly professional and ethical manner, to "Robin HUDM" who waived her fifth amendment rights, only to justify her diversion of millions of HUD's dollars on the scriptures. Others, with much less to fear, showed greater respect for this Constitutional protection. Former Senator William Proxmire was even brought back for an ethics primer.

A number of dedicated officials, including a few political appointees, were pilloried for simply following the law. In what was an all-too-typical example of the subcommittee's lack of understanding of how HUD functioned, former General Counsel John Knapp, one of the few competent senior players at HUD, was accused in the most derisive manner of being a hands-off general counsel, a devotee of the Pierce-style of management. If John Knapp deserved any criticism for his years at HUD, it was for his penchant for immersing himself into too many issues. Reluctant to delegate, he personally wrote and re-wrote regulation after regulation.

A revised game plan

When Secretary Kemp appeared before his former House colleagues, he was holding the pattest of pat hands. After all, none of this had happened on his watch. In a statement that had many wondering if he was using Jesse Jackson as a speech writer, Kemp proclaimed that it was time for HUD to take the money away from the greedy and give it back to the needy, or words to that effect. Yet, before one could do that, a host of inherited problems of course had to be cleaned up. Reform. It's politically appealing and it's non-capital intensive. To a chorus of adulation, reminiscent of bygone Sundays in Rich's stadium in Buffalo, Jack Kemp, ever fleet of foot, bid his former colleagues adieu, with a promise to return, his jersey still immaculately clean.

Enough is enough is enough

Once Secretary Kemp had acknowledged that HUD was indeed broke, and promised to fix it, the hearings had truly run their useful course. Yet, they continued on. Chairman Lantos and his prime-time colleagues, blinded by the glare of the kleig lights, lost sigh t of one essential fact. All this happened yesterday. It was no longer going on.

We know why it happened. No amount of hearings, no amount of polemial excess, will change the facts. What transpired at HUD was unique to Pierce and company only in degree. Political influence and HUD were well acquainted long before January 1981. Washington is truly a company town. Very few people ever really go home again. However, to hear Congressman Lantos and his colleagues talk, one could not help but conclude that no former congressman or congressional staffer had ever used their previous connections to make money. I am sure that those who remain in Washington after serving on the Hill, to practice law, as opposed to "consulting," do so only to draft wills and handle real estate settlements.

A recent Wall Street Journal editorial talks about what happens when the TV lights go down and the notebooks close on a Washington "scandal." It offered this noteworty assessment of Congress:

"Last month, after Congress approved $28 million in pork barrel projects out of the same discretionary fund at the heart of the HUD scandal, Secretary Jack Kemp demanded Congress rescind its action. He is now being told to cool it if he wants good relations with legislators. Representative Louis Stokes, [D-OH] who siphoned $800,000 out of the fund for a Cleveland housing project, says that if Mr. Kemp wants a fight he can get it, because we are determined to exercise our prerogatives under the Constitution.' Those prerogatives obviously include the right of Congress to label lobbying by HUD consultants 'influence peddling,' while their own smoke-filled room tactics on behalf of developers or folks like Charlie Keating are merely 'constituent service.'"

Guilt by association

The Lantos hearings produced an interesting phenomenon. Anything related to HUD was immediately tainted. FHA's losses were not the legitimate result of an accounting change or the collapse of the oil patch economy. They were simply another scandal. Except this one had real dollars attached to it. Things got so bad that Paul Newman was on the verge of having the name of one of his greatest movies changed, and Patricia Neal was even considering returning her Oscar. Thus, when Secretary Kemp unveiled his reform package, which was, I kid you not, subtitled, "Clearing the Decks," the Hill latched onto it with the degree of fervor usually reserved for an invitation to play in a celebrity pro am. HUD reform quickly took on a life ot its own and when the "Ethics Express" finally pulled out of the station, there was no stopping it.

Will HR 1 head off future HUD scandals? Absolutely. Unfortunately, it will do it in the same way that cutting off someone's arm stops him from scratching. A better question is would future HUD scandals be prevented in its absence? The arrival of Jack Kemp and the truly talented group of managers he personally recruited ensured that. Yet, it will also change the way mortgage bankers do business in ways they haven't even begun to think about. On the other hand, isn't a $5,000 civil penalty for each time one of your employees forgets to have a face-to-face interview, a small price to pay for reforming HUD?

Peter Kaplan is a partner with Weiner, McCaffrey, Brodsky, Kaplan & Levin P.C., a Washington, D.C. law firm.
COPYRIGHT 1990 Mortgage Bankers Association of America
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Title Annotation:Department of Housing and Urban Development
Author:Kaplan, Peter
Publication:Mortgage Banking
Date:Mar 1, 1990
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