[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                    REDUCING WASTE, FRAUD, AND ABUSE

                     IN HOUSING PROGRAMS: INSPECTOR

                          GENERAL PERSPECTIVES

=======================================================================


                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT

                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 10, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-41




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
              Subcommittee on Oversight and Investigations

              PATRICK T. McHENRY, North Carolina, Chairman

MICHAEL G. FITZPATRICK,              AL GREEN, Texas, Ranking Member
    Pennsylvania, Vice Chairman      EMANUEL CLEAVER, Missouri
PETER T. KING, New York              KEITH ELLISON, Minnesota
MICHELE BACHMANN, Minnesota          ED PERLMUTTER, Colorado
SEAN P. DUFFY, Wisconsin             CAROLYN B. MALONEY, New York
MICHAEL G. GRIMM, New York           JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       KYRSTEN SINEMA, Arizona
RANDY HULTGREN, Illinois             JOYCE BEATTY, Ohio
DENNIS A. ROSS, Florida              DENNY HECK, Washington
ANN WAGNER, Missouri
ANDY BARR, Kentucky
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 10, 2013...........................................     1
Appendix:
    September 10, 2013...........................................    21

                               WITNESSES
                      Tuesday, September 10, 2013

Montoya, Hon. David A., Inspector General, Office of the 
  Inspector General, U.S. Department of Housing and Urban 
  Development....................................................     4

                                APPENDIX

Prepared statements:
    Montoya, Hon. David A........................................    22


                    REDUCING WASTE, FRAUD, AND ABUSE


                     IN HOUSING PROGRAMS: INSPECTOR


                          GENERAL PERSPECTIVES

                              ----------                              


                      Tuesday, September 10, 2013

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick T. 
McHenry [chairman of the subcommittee] presiding.
    Members present: Representatives McHenry, Fitzpatrick, 
Duffy, Fincher, Hultgren, Wagner, Barr; Green, Maloney, 
Delaney, Sinema, Beatty. and Heck.
    Chairman McHenry. The Subcommittee on Oversight and 
Investigations of the Financial Services Committee will come to 
order.
    The hearing today is entitled, ``Reducing Waste, Fraud, and 
Abuse in Housing Programs: Inspector General Perspectives.'' 
And we have one witness today in the first panel.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    And now, we will recognize both the ranking member and the 
chairman for an opening statement, and then we will get on with 
the Inspector General's testimony. I recognize myself for 5 
minutes.
    In Fiscal Year 2013, Congress allocated $34 billion for the 
Department of Housing and Urban Development's (HUD's) budget, 
with an additional $16 billion appropriated to HUD's Community 
Development Block Grant (CDBG) program in the aftermath of 
Superstorm Sandy.
    In the first 6 months of this year, the HUD Inspector 
General's (IG's) office has released 49 audits, which included 
recommendations that $739.5 million in funds be put to better 
use. These 49 audits also identified over $770 million in 
questioned costs and more than $1 billion in collections from 
audits.
    As a result of the HUD IG's investigations of suspected 
fraud in HUD programs, HUD has so far recovered $74.9 million, 
and the investigations resulted in 225 indictments or 
information gathering and 270 convictions, pleas or pretrial 
diversions during this fairly short 6-month period.
    Of particular concern to this committee is the handling of 
the CDBG program, the largest source of Federal financial 
assistance to support State and local neighborhood 
revitalization, housing rehabilitation, and economic 
development activities. Over the years, HUD has failed to 
adequately account for how taxpayers' funds are being spent in 
the CDBG program, leading to wasteful spending and frivolous 
pork barrel projects.
    Although one of the three natural program objectives for 
the CDBG program is that projects principally benefit low- and 
moderate-income persons, critics have noted that the CDBG funds 
often end up being used for parks, pools, street signs, and 
community centers, thus diverting dollars from those 
communities with the greatest need, in particular housing. In 
fact, The New York Times has exposed a practice where well-off 
communities sold grants to other communities in exchange for 
smaller purses that had no strings attached. This is very 
troublesome. It also highlights a concern that CDBG's formulas 
for disbursing grant funds may be outdated and unsuitable for 
today.
    Others have commented on administrative failures within the 
program. The Government Accountability Office (GAO) has noted 
failures in HUD's ability to track funds appropriated in the 
program. This goes back to a 2006 GAO review of the CDBG 
program which found that HUD does not centrally maintain the 
data needed to determine compliance with statutory spending 
limits. GAO added that HUD had not developed a plan to replace 
monitoring staff or fully involved its field staff in plans to 
redesign an information system that they use to monitor these 
grant recipients.
    I understand the Office of Inspector General has worked 
tirelessly to fight waste, fraud, and abuse identified within 
HUD, and I look forward to our testimony today from the 
Inspector General, Inspector General Montoya, on ways in which 
HUD can better track the taxpayers' money and put it to best 
use as the Congress intended.
    With that, I yield back the balance of my time, and I 
recognize the ranking member for 5 minutes for an opening 
statement.
    Mr. Green. Thank you, Mr. Chairman. And I thank the witness 
for appearing today. I also would like to thank the staff for 
the stellar performance it has demonstrated in providing us 
with intelligence on some crucial and critical issues that we 
will confront today.
    I am very grateful for this hearing, Mr. Chairman, because 
this hearing affords us an opportunity to explain how HUD is 
being required to do much, much more with much, much less. And 
I would quote the IG, who indicates that the Department's 
primary mission is to create strong, sustainable, inclusive 
communities and quality affordable homes for all, and that is a 
noble mission.
    I would also quote from the IG wherein it is cited that 
achieving HUD's mission while exercising the appropriate level 
of oversight to prevent or mitigate waste, fraud, and abuse 
continues to be an ambitious challenge for its limited staff. 
The IG goes on to say that over the years, HUD has seen a 
steady decline in its staffing level while at the same time it 
was called upon to administer an increasing number of programs. 
At the end of Fiscal Year 2012, HUD had just over 8,300 staff 
compared to about 9,700 a decade earlier, and even greater 
levels in the 1990s. This has forced HUD to continue to rely 
heavily on contractors to carry out many of its programs and to 
expect that local and State jurisdictions and recipients of 
HUD's funds conduct their own oversight and due diligence.
    HUD has a success story, but this hearing is not about the 
successes. HUD has some situations, some circumstances that we 
have to address, but I don't think we can overlook the fact 
that HUD is understaffed. I don't think we can overlook the 
fact that sequestration has had an impact on HUD and is having 
an impact on many of HUD's programs.
    I have intelligence indicating that about 125,000 
individuals and families could lose assistance provided through 
the Housing Choice Program and become at risk of homelessness 
because of sequestration; further, that sequestration cuts 
would result in 100,000 formerly homeless people, including 
veterans, being removed from their current housing or emergency 
shelter, putting them at risk of being homeless. Further 
sequestration cuts could result in 7,300 fewer low-income 
households receiving permanent and short-term supportive 
housing assistance. This would be rent and utility assistance. 
Nine hundred fewer Native American families would be able to 
obtain housing loan guarantees. Three thousand vulnerable 
children would not be protected from lead poisoning.
    Now, this was just accorded me, and I am going through it 
rather hurriedly, but my point is that there is more to the 
story than meets the eye. And my hope is that the headlines 
tomorrow will not indicate that HUD has not been diligent in 
trying to help people and to meet its goals.
    In fact, I would like to share just a brief story that is 
not true, but let us assume that you have a beach that is being 
patrolled by two lifeguards, and let us assume that due to 
sequestration, one is cut, and we have one lifeguard who is 
patrolling this beach. And we have three persons who are in 
need of assistance, and the lifeguard swims out, and he pulls 
in two people, but unfortunately, he cannot bring in the third. 
My hope is that the headlines would not read, ``One Person 
Drowns While Lifeguard is on Duty,'' because there is a lot 
more that is happening at HUD than what will be presented 
today. My hope is that the entire story will be told, and I 
appreciate greatly what the Inspector General has done to 
present both sides of the story.
    I yield back the balance of my time.
    Chairman McHenry. We will now recognize the vice chairman 
for 1 minute for an opening statement.
    Mr. Fitzpatrick. I thank the chairman for the moment here, 
and I thank Mr. Montoya for your testimony here today and for 
the time that we spent in my office talking about specific 
issues.
    In February, Representatives Scott Garrett and Rob Andrews 
of New Jersey and I wrote a letter to Secretary Donovan asking 
him for more details about the mechanisms in place to ensure 
that disaster relief administered by HUD was going to go only 
to those communities that were affected by Superstorm Sandy. We 
also wanted to better understand how HUD was going to ensure 
that the money would only be used on projects specifically 
related to Sandy relief.
    It took 6 months to receive a reply, but in August we 
finally got back a two-page response dated August 12th. And 
quite frankly, I expected a few more details from a letter that 
took 6 months to write. The response we got back touches on a 
few programs and specifically mentions your office as being 
part of the oversight effort. So, Mr. Montoya, I appreciate 
your testimony on disaster relief, and I am looking forward to 
it. I plan on following up with a few questions about how 
exactly HUD plans on accounting for and tracking the money that 
many of us supported in the Sandy relief package with the 
expectation it would be spent appropriately.
    I yield back.
    Chairman McHenry. I will now recognize the Inspector 
General of the U.S. Department of Housing and Urban 
Development, the Honorable David Montoya. Mr. Montoya was sworn 
in as HUD Inspector General on December 1, 2011. Mr. Montoya's 
26-year career has been dedicated to public service, focused on 
law enforcement, with over 16 years of oversight, supervisory, 
and leadership positions, including more than 10 years 
experience in the Federal Senior Executive Service. Mr. Montoya 
is a native of El Paso, Texas. Our ranking member is also a 
Texan, although from a different end of the State, and 
apparently that is about a million miles apart--
    Mr. Green. We all have the same humidity, Mr. Chairman.
    Chairman McHenry. Mr. Montoya is a 1986 graduate of the 
University of Texas at El Paso.
    Without objection, the witness' written statement will be 
made a part of the record. The witness will now be recognized 
for 5 minutes to give an oral presentation of his testimony.
    Mr. Montoya, I know you are very familiar with testifying 
before Congress. We have a very simple lighting system: green; 
yellow; red. Yellow means hurry up, as it does in the traffic 
system.
    Once you have given your opening statement, we will 
recognize each Member for 5 minutes for the purposes of 
questioning, and just be aware that the microphone is very 
sensitive and sort of directionally sensitive in particular.
    So with that, we will now recognize Mr. Montoya for 5 
minutes.

STATEMENT OF THE HONORABLE DAVID A. MONTOYA, INSPECTOR GENERAL, 
OFFICE OF THE INSPECTOR GENERAL, U.S. DEPARTMENT OF HOUSING AND 
                       URBAN DEVELOPMENT

    Mr. Montoya. Thank you, Mr. Chairman.
    Chairman McHenry, Ranking Member Green, and members of the 
subcommittee, I am David Montoya, the Inspector General of the 
Department of Housing and Urban Development, and I thank you 
for the opportunity to discuss our good work today.
    During the last 2 semiannual reports, we issued 135 audits 
and other reviews which resulted in more than $1.5 billion in 
funds put to better use, nearly $2 billion in questioned costs, 
and more than $1 billion in collections as a result of our 
audit efforts. Our investigations led to $613 million in 
recoveries, 579 indictments or informations, and 555 
convictions of criminals that impacted HUD programs.
    The Department faces a significant management challenge in 
monitoring the billions of dollars it disburses through its 
various programs, not the least of which is the disaster 
program funds provided to various States, cities, and local 
governments. This challenge is particularly pressing for HUD 
because of limited resources to directly perform the oversight, 
the broad nature of HUD programs, the length of time needed to 
complete some of these projects, the ability to waive certain 
HUD program requirements, and the lack of understanding of 
disaster assistance grants by recipients.
    As it relates to OIG's work involving oversight of 
Hurricane Sandy funding, we are employing our best practices 
garnered from years of experience in reviewing disaster 
recovery efforts. Starting at the earliest stages, we are 
working diligently with the Department and the affected States 
to examine the program design and to review their 
implementation plans for ways to efficiently promote desired 
disaster assistance.
    After initial stage activities, and as funding begins to 
flow, we will use our evaluation and inspection capability and 
data-mining capacity to review implementation activities. One 
of our primary tasks will be to analyze and mine vast amounts 
of data to look for indicators of fraud and mismanagement.
    Our efforts in disaster fraud are threefold: our fraud 
awareness and prevention efforts; auditing to ensure compliance 
with laws, rules, and regulations in order to disrupt 
mismanagement or fraud at the earliest occurrence; and finally, 
civil and criminal investigations of allegations of disaster-
related frauds.
    With regard to the Federal Housing Administration's Mutual 
Mortgage Insurance Fund, for the past 4 years, the Fund has 
failed to meet its legislatively mandated 2 percent capital 
ratio, and each of these 4 years has seen a further decline in 
the ratio to the point that based on the latest actuarial study 
in November of last year, the Fund has a negative economic 
value of $16.3 billion. Based on current projections, the 
capital reissue will not reach the 2 percent level until 2017, 
marking 8 years below the 2 percent threshold mandated by 
Congress. Moreover, for the first time in its history, FHA may 
need to use its mandatory appropriation authority to supplement 
its reserves.
    Restoring the Fund's finances has been a priority of HUD, 
and while HUD has increased premiums and taken other steps to 
restore the financial health of the Fund, we have focused on 
civil fraud investigations with the Department of Justice in an 
effort to further prevent or mitigate fraud and to return 
losses to the fund account.
    The FHA single-family program continues to be a major focus 
for us. During the last 2 semiannual periods, we issued 25 
audits in this program area, reporting $325 million in 
questioned costs and nearly $800 million in funds to be put to 
better use.
    In addition to audits of participating lenders, we 
completed internal audits of various aspects of HUD's 
administration of the program. For example, a recent review of 
FHA's Preforeclosure Sale Program (PFS), we identified that 
based on our statistical projection, FHA paid an estimated $1 
billion in claims for just under 12,000 preforeclosure sales 
that did not meet the criteria for participation in the FHA 
program.
    In another audit on HUD's oversight of the Home Equity 
Conversion Mortgage (HECM) program, we concluded that HUD's 
policies did not always ensure that borrowers complied with the 
program residency requirements.
    Finally, in an audit of HUD's oversight of its REO 
management and marketing program, we found that HUD did not 
have adequate procedures in place to ensure consistent and 
adequate enforcement of asset and field service manager 
contracts.
    Since Fiscal Year 1991, OIG has reported on a lack of 
integrated financial management systems, including the need to 
enhance FHA's management controls over its portfolio of 
integrated insurance financial systems.
    The Department's role has greatly increased over the last 
decade as it has faced unanticipated disasters and economic 
crisis, in addition to its other missions that have increased 
its visibility and reaffirmed its vital role in providing 
services that impact the lives of our citizens. My office is 
strongly committed to working with the Department and the 
Congress to ensure that these important programs operate 
efficiently and effectively.
    Thank you for the opportunity to testify today, and I would 
be happy to answer any questions.
    [The prepared statement of Inspector General Montoya can be 
found on page 22 of the appendix.]
    Chairman McHenry. Thank you, Inspector General Montoya. I 
now recognize myself for 5 minutes for questions.
    Inspector General Montoya, on August 28th, I sent you a 
letter which requested you to investigate whether HUD violated 
statutory prohibitions on lobbying in an email communication 
sent from the Deputy Secretary of HUD. On July 31st, HUD's 
Deputy Secretary sent an email which requested that ``friends 
and colleagues'' contact specific U.S. Senators and encourage 
them to vote in favor of procedural motions in advance of 
Senate consideration of the HUD appropriations bill. As I 
stated in the letter, the directness and specificity of the 
email communication appeared to violate the well-established 
Federal restrictions on lobbying by Federal agencies.
    To that end, I asked your office to thoroughly investigate 
the matter and report your findings no later than September 
30th of this year. So, Mr. Montoya, I understand you cannot 
discuss an ongoing investigation, but in the interest of 
transparency, can you acknowledge receipt of my letter on 
August 28, 2013?
    Mr. Montoya. Yes, Mr. Chairman, we are in receipt of that 
letter.
    Chairman McHenry. Thank you.
    Do you anticipate that you will be able to comply with the 
committee's request by September 30th?
    Mr. Montoya. Yes, Mr. Chairman, we are hoping to do so.
    Chairman McHenry. Thank you.
    Also in the interest of fairness, we have received--as of 
10:19 this morning, the GAO has accepted our request to review 
this very same matter, and will begin engagement shortly, and 
will contact us with their findings as well.
    To explore how big the HUD Inspector General's job is in 
managing the record disaster relief funds, I want to ask you, 
how is your office collaborating with HUD to fight waste, 
fraud, and abuse with respect to Superstorm Sandy disaster 
relief?
    Mr. Montoya. Thank you for the question, Mr. Chairman. We 
have been involved with HUD since the outset of the disaster. 
Our experience in hindsight through many years of disaster 
recovery suggests that we need to be looking at these issues at 
the very beginning. And so, we have been working with them on 
not only fraud prevention and outreach sort of efforts, but 
also providing them our experience on other issues and concerns 
we have seen in previous disasters, namely Hurricane Katrina in 
the Gulf Coast.
    Chairman McHenry. Sure.
    And what steps has HUD taken independently of the HUD IG to 
ensure that disaster relief for Superstorm Sandy will be 
responsibly disbursed?
    Mr. Montoya. The Secretary created a task force, and it is 
my understanding that they have been diligently working with 
the various States, including New York City, to ensure that 
these funds, as they begin to roll out, are properly used and 
oversighted not only by HUD, but by the various States and the 
City of New York.
    Chairman McHenry. Going back to 2000, even as late as 2009, 
the HUD IG has uncovered and repeatedly identified HUD-approved 
lending--FHA-approved lending, they were not following HUD loan 
underwriting requirements. What systemic problems has your 
office uncovered in the FHA program regarding underwriting 
practices of FHA-insured mortgages? And when did the HUD IG 
first take issue recommendations to HUD on this topic?
    Mr. Montoya. We did get back them about 2009. We became 
heavily involved in the whole idea of underwriting and 
origination practices and the servicing, quite frankly, of FHA 
mortgages, and we have been providing HUD recommendations since 
that time.
    Early on, we were looking at much of this stuff in a more 
regionalized, localized sort of environment. It was only until 
about 2010 that we started looking at this as a national 
problem and primarily focused on the larger lenders which were 
insured by FHA mortgages.
    What we were finding through our civil reviews of loan 
files, if you will, are basically what we call material 
underwriting deficiencies. These are not technical violations 
like forgetting to include a signature or a Social Security 
number; these are whole-scale material deficiencies that really 
go to the fundamental ability of the loan to survive, for 
example: failing to document a borrower's employment, that is 
fundamental to any mortgage; failing to document a borrower's 
payment history of housing obligations; and finally, failing to 
verify that borrowers possess the necessary funds to close.
    Chairman McHenry. And has HUD taken prompt corrective 
action on this?
    Mr. Montoya. We believe they tried to make some headway on 
that. I think that on many occasions HUD is still very slow to 
respond to a lot of these. They play a dual role, if you will, 
between trying to buffer the mortgage market and provide 
mortgages to low- and moderate-income families, while at the 
same time trying to adhere to a very strict--
    Chairman McHenry. Yes, but they have not complied with 
material deficiencies, is what your office has said, and so at 
the same time, they have come to Congress and asked for an 
appropriations for shortfalls in the FHA fund. This is deeply 
concerning to us, and I hope this message becomes loud and 
clear to HUD that they should comply with your recommendations 
in a prompt manner.
    With that, I now yield to the ranking--okay, we will 
recognize Mr. Delaney for 5 minutes.
    Mr. Delaney. I was going to yield my time to the ranking 
member.
    Mr. Green. I thank the gentlemen very much. And, again, I 
thank the witness for appearing.
    As I indicated previously, you have indicated that HUD has 
limited staffing, and that over the years you have seen a 
decline in the number of persons who are staffing HUD. I would 
like you to comment on this if you would, please, in terms of 
how this limited staffing impacts HUD's ability to meet its 
mission.
    Mr. Montoya. Yes, sir. Thank you, Mr. Green, for the 
question.
    In essence, what we have seen is the lowest staffing 
numbers of HUD probably ever. I think they are at their lowest 
staffing number, if our information serves us correctly, and it 
comes at a point where they have taken on more 
responsibilities. We just went through a serious financial 
crisis; we are still trying to dig out of that. We also have 
disasters with which we are dealing. And so, it becomes more 
and more difficult with regard to HUD's staffing to properly 
and directly oversee these programs that they administer.
    The reason for the lower numbers, part of it, I think, goes 
back to the numbers being set by OMB and just how much staffing 
each agency should have. So what HUD has obviously tried to do 
to get past that staffing number is to have more contracting 
and more contractors on board. In fact, we have seen 
contractors overseeing contractors because HUD's own staff 
isn't able to oversee the contractors, which is a little ironic 
and, of course, quite frankly, I think more expensive than 
having full-time employees on board. And I think it does have 
an impact on them.
    Having said all of that, what I would also say, Mr. Green, 
is that with regards to much of the funding that goes to the 
State and localities, it is our fundamental belief, and, I 
believe, HUD's, that these localities should also take 
responsibility for proper oversight and management of those 
programs.
    Mr. Green. Thank you.
    And you do agree that much of what your report speaks to 
involves the localities in terms of things that have not been 
done to meet the proper standards so as to guard against waste, 
fraud, and abuse?
    Mr. Montoya. Yes, sir, that is correct.
    Mr. Green. Now, let us talk for a brief moment about CDBG 
disaster grants. Is it true that historically when Congress has 
allocated these supplemental appropriations, Congress has also 
allocated administrative funds?
    Mr. Montoya. Yes, sir, that is correct.
    Mr. Green. And with the lack of administrative funds, how 
does that impact HUD's ability to properly engage in oversight?
    Mr. Montoya. With regards to the administrative funds, the 
administrative funds are to be used by the local and State 
organizations receiving them to conduct their own oversight. 
These administrative funds really go to the localities to 
oversee the program that they are managing. Somewhere on the 
order of 20 percent of their funding goes to administrative 
accounts.
    We have done some reviews to determine just what those 
administrative monies are going for, and whether they are going 
to serve the purpose of oversight management of the programs, 
or whether they are being used for other purposes that really 
don't have anything to do with the particular program or 
assisting low- to moderate-income households.
    Mr. Green. When we have these large supplemental 
appropriations, should HUD be accorded additional resources to 
help manage the supplemental appropriations?
    Mr. Montoya. That is a tough question, given sequestration 
and the budget cuts that we are all facing. I think there is 
enough oversight responsibility to go around. We can always do 
more with more is as the old adage goes. I don't know what the 
right balance of proper staffing would be.
    I think part of what affects HUD in being able to be more 
robust in oversight is the fact that they just can't seem to 
finish or complete the information on IT projects, projects 
that would help them to look at data closer, to review 
information more specifically in each of these programs. I 
think that until some of their IT infrastructure is completed, 
you are going to have manual work to accomplish the goal of 
oversight. So, it is sort of twofold; it is not just staffing, 
I think it has to do with their infrastructure and their 
ability to oversee it technically.
    Mr. Green. Thank you. I yield back.
    Chairman McHenry. We will now recognize the vice chairman, 
Mr. Fitzpatrick, for 5 minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    And, Mr. Montoya, again, thank you for your testimony here 
today.
    I want to follow up on comments in the opening statement of 
Ranking Member Green. He was talking about unfortunate 
headlines, and on that issue, in September of 2005--I guess it 
is the anniversary of Hurricanes Rita and Katrina probably next 
week, it has been 8 years to the day--there were a lot of 
unfortunate headlines. The Federal Government, through FEMA and 
through HUD, rushed to the scene, wanted to provide assistance, 
and provided significant Federal dollars. Housing dollars were 
dispatched, Community Development Block Grants. And there were 
a lot of unfortunate headlines in the waste and fraud that 
existed, the massive dollars and the lack of controls.
    I referenced in my opening remarks the letter that we sent 
to HUD earlier this year requesting how the Department will 
ensure that the Community Development Block Grant funds are 
being used appropriately and effectively. And the response we 
got back 6 months later stated that there are rules set forth 
requiring that the money is only spent in the most distressed 
areas, and listing a couple of monitoring techniques.
    Sixteen billion dollars requires very aggressive oversight. 
So my first question, Mr. Montoya, and it is really following 
up on the questions of the chairman, is what specific controls 
does HUD have? Specific controls. What do they have in place to 
ensure--not just require, but to ensure--that the monies spent 
in those areas that were most effective, which is where the 
money was intended to be spent and where it needs to be spent--
so what did HUD have either before February of this year, or 
what have they put in place subsequent to February when those 
dollars were released that is forming the basis of how you 
monitor their activities, specifically in the $16 billion CDBG 
appropriation?
    Mr. Montoya. Sir, I don't know that anything different has 
changed within their programs. They have their program that 
will help to conduct some of this oversight and, again, working 
with the States and the City of New York. I think what was 
different in this particular case is that the money that was 
allocated does have a lifespan to it. In Katrina, when money 
was allocated, there was no lifespan to the money. In fact, 
there are still billions of dollars out there to be used in the 
Gulf Coast for recovery.
    So for Sandy I think that is a turn in the right direction, 
and we have opined on that for a number of years. It allows or 
it requires people to manage this money more quickly, to 
actually have something happen with it. And I think that is one 
of the biggest tools that HUD will have at its disposal to help 
monitor it. I think they have done a far better job than any of 
us did really with Katrina in the Gulf Coast disasters with the 
early coordination and with what we have seen with them 
coordinating with the States and the City of New York and us 
being involved at the very outset.
    But what I can tell you is that with any amount of money 
such as this, we can expect to see some fraud. At some level, 
at some point, we can expect to see some fraud. I don't think 
we are ever going to get away from that when you deal with 
money. But to the extent that HUD appears to be aggressive in 
this preparation for the rollout, and that we are doing the 
same, we are also coordinating with a whole host of other IGs 
and other State and local entities as a sort of force 
multiplier so that we are not all looking at the same thing, to 
the extent that we all be looking at different things, we 
multiply these forces exponentially so that we can actually get 
to more oversight, if you will.
    Mr. Fitzpatrick. So what other State and local agencies 
would you be working with--county level, community development, 
monitors? Who are the others that you are using to describe 
what you call the force multiplier?
    Mr. Montoya. Quite frankly, at all levels, at the very 
local level, at the State level. We have met with attorneys 
general of the States, we have met with district attorneys, we 
have met with regulators, we have met with the State community 
development program folks. We have provided already some very 
early fraud prevention-type messaging on what we see with 
regards to disaster funding and where we expect to see these 
frauds.
    Mr. Fitzpatrick. Have you begun to see any examples of 
jurisdictions wanting to spend Sandy relief resources outside 
of affected areas or outside of storm-damaged counties?
    Mr. Montoya. No, sir, we have not heard of that.
    Mr. Fitzpatrick. I yield back.
    Chairman McHenry. I now recognize Mrs. Maloney for 5 
minutes.
    Mrs. Maloney. Thank you very much, and welcome, Mr. 
Montoya.
    HUD's IG has a very difficult job, but also a very 
important one, because so much disaster funding now flows 
through HUD. And disaster funding, by definition, needs to be 
spent quickly, and there is an inherent tension between the 
need to get the money out the door quickly to ensure the 
maximum impact and the need to ensure that the money is spent 
properly. So you have quite a challenge and a really important 
and vital role.
    Recent press reports have indicated that the FHA plans to 
reduce the conforming loan limits for Fannie Mae and Freddie 
Mac later this year; however, this movement will not affect 
FHA's conforming loan limits, which will remain at $729,000. If 
Mr. DeMarco proceeds with the plan to lower Fannie and 
Freddie's conforming loan limits, I would strongly urge him to 
reconsider. Will FHA be able to pick up the slack with that 
movement? Will FHA be able to pick up the conforming loan 
limits for the larger ones that Fannie and Freddie will no 
longer be covering? And in your opinion, is FHA adequately 
prepared to take on the additional mortgages that will shift 
from the GSEs to FHA?
    Mr. Montoya. I don't know that I can completely answer your 
first question, Mrs. Maloney, as far as whether HUD can take 
that on and what those right limits should be. In the area of 
higher loan amounts, as long as the loans are written 
appropriately, we do see better activity with those loans.
    With regard to HUD's--FHA's capacity to properly oversight 
that, I think, quite frankly, they have difficulty managing 
their current risk without adding yet more to that.
    Mrs. Maloney. I think that is something government has to 
look at, because if the change goes through, then there will be 
a huge shift over at FHA of all these higher loan limits. And 
as one who represents a high-cost-of-housing district, higher 
loan limits are what the middle class is. So if we don't have 
FHA there to handle it, it will really close access to the 
market for my constituents and many people across the country. 
I would like to ask you to look at it, and discuss it with Sean 
and others, and see what we can do about it.
    But you said in your testimony that your staff began 
another review of the underwriting practices of FHA-approved 
lenders in 2012, and you have been already questioned on this, 
but my specific question is, have the error rates in this 
review been as high as the error rates in the 2010 review?
    Mr. Montoya. Most of what we are looking at still relates 
to the earlier years, ma'am, the 2010 sort of timeframe.
    Mrs. Maloney. So you are not looking at 2012 yet?
    Mr. Montoya. For the most part, no.
    Mrs. Maloney. For the most part, no?
    Mr. Montoya. No, most of those would not have not seasoned 
enough for us to be able to tell whether these things are going 
into early default.
    Mrs. Maloney. What are the error rates in 2010 reviews; 
what are they?
    Mr. Montoya. I don't know that I can give you a specific 
number; I can give you some specific examples. We have found 
many of these lenders in the 50 percent range, where 50 percent 
of these loans that we have statistically sampled should never 
have been underwritten. I think at one particular lender we 
found the percentage as--I believe it was 85 percent of those 
loans should never have been underwritten.
    Mrs. Maloney. Would the Dodd-Frank Act address that, now 
that you have to have certain criteria, no more no-doc loans? 
Has that been corrected now with government reform?
    Mr. Montoya. I believe so, yes, and certainly the seller-
funded downpayment has been addressed. And what I would like to 
also say is keep in mind that what we are targeting is the 
higher-risk lenders, those where we have seen sort of a pattern 
or practice of high risk or early default-type loans.
    Mrs. Maloney. Can you briefly discuss the lessons your 
office learned in our audit of HUD's hurricane/disaster 
recovery program?
    Mr. Montoya. Yes, ma'am. We had a number of lessons 
learned, most of which we have shared--I think all of them we 
have shared with the Department. Certainly, one of the lessons 
we learned was that there is a need, we think, to have money 
earmarked for certain timeframes so it is not just out there. I 
think we estimate something over $2 billion is still left out 
in Gulf Coast States for expenditure for the disaster, keeping 
in mind, though, that the disaster funds need to be used for 
necessary and reasonable needs. And so 8 years after the fact, 
we would question just how much necessity and need is still 
there for that $2 billion.
    Chairman McHenry. The gentlelady's time has expired. We 
will now recognize Mrs. Wagner of Missouri for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman, and I thank the 
Inspector General for being here.
    Inspector General Montoya, in your prepared testimony you 
describe how HUD IG audits of the FHA Single-Family Mortgage 
Insurance Program uncovered questioned cost totaling $325 
million and $800 million in funds that could be put to ``better 
use.'' Has HUD indicated to your office that it is taking the 
necessary steps to limit waste in the Single-Family Mortgage 
Insurance Program?
    Mr. Montoya. Yes, ma'am, and I think with the recent 
legislation and changes they have made, it appears to us that 
they are certainly making some headway into accepting our 
recommendations. Our concern has been the length of time it 
takes HUD to accept our recommendations.
    Mrs. Wagner. And what is the average length of time?
    Mr. Montoya. I think with regard to the seller-funded 
downpayment concern, that was 8 years. It took them 8 years.
    Mrs. Wagner. Eight years.
    Mr. Montoya. Yes. I think with regard to those loans, that 
will impact the Fund by something on the order of $15 billion.
    There is a little bit of a pattern of HUD not recognizing 
the good work of our audit staff, and even some of the 
recommendations of our investigative staff. And when we take--
when they take those kind of serious delays on what otherwise 
we think are good practices, it does have an impact.
    Mrs. Wagner. Should Congress expect more HUD IG reports 
documenting hundreds of millions of dollars of questioned costs 
and funds to be put to better use in the FHA program?
    Mr. Montoya. Yes, ma'am, I believe you will. I think with 
the series of civil reviews and investigations we are 
conducting of some of these larger lenders, we are hoping to 
have some settlements by the end of calendar year. I think you 
are going to see some very large dollars.
    Mrs. Wagner. What have the HUD IG internal audits of HUD's 
administration of FHA programs revealed about HUD's ability to 
responsibly manage FHA?
    Mr. Montoya. What I would say about both FHA and Ginnie Mae 
is in a lot of ways, they may very well lack the inherent 
experience they need to run financial markets like this. They 
do a fair amount of contracting, but I think, quite frankly, 
trying to keep good people in--components that you can compare 
to private sector organizations which operate in the 
marketplace is difficult on a Federal salary. And I have said 
it before--I think one recommendation I would make is some 
exemption or exception not to all of FHA or Ginnie Mae, but to 
portions of it to allow for higher salary to compete in the 
market with good people, good staff.
    Mrs. Wagner. The FHA program has a large inventory of 
foreclosed properties due to poor underwriting practices that 
we talked about here and declines in the housing market. In 
your view has FHA done a solid job in ensuring the maximum 
returns for its REO inventory?
    Mr. Montoya. No. In our view, they haven't done enough. 
Recently, there was a GAO audit which looked at how FHA 
compared to the GSEs, and I believe in certain cases they were 
far below what the GSEs were capable of doing. And I will give 
you one example. For 2011 alone, FHA's return on disposition 
timeframe had equaled those of the Enterprises--well, it had 
not. It could have increased its proceeds by as much as $400 
million and decreased its holding costs by up to $600 million. 
Overall, FHA would have reduced its REO losses by $1 billion if 
they had followed more of the practices of what you see in the 
GSEs.
    Mrs. Wagner. Thank you. I yield back my time, Mr. Chairman.
    Chairman McHenry. We will now recognize Mrs. Beatty for 5 
minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Mr. Ranking 
Member. Inspector General Montoya, I also thank you for being 
here, and giving testimony. I have had an opportunity to look 
through your testimony, and we have heard from some of my other 
colleagues as we talked about the disaster relief funds, and 
hopefully, you can help me have a better understanding.
    In your testimony on page 2, you talk about some of the 
difficulties, more specifically as it related to Sandy, which 
became somewhat contentious to us when we had to, as lawmakers, 
look at the dollars that we were going to allocate to it.
    Then further through the testimony, you talk about how it 
becomes more compounded and complex to figure out because of 
dollars given to HUD from various departments of how to monitor 
this.
    So since we don't control those things, we didn't expect 
Sandy, what can you say to me that would be helpful to me as a 
lawmaker as we look at funding disasters? I think about what we 
went through with Katrina and what we went through with Sandy. 
So now having the experience on doing the audits, allocating 
the dollars, can you share with me what really has not worked 
or what has worked that you are looking at, from your purview?
    Mr. Montoya. Yes, ma'am. Thank you for the question. It is 
an excellent question.
    I think one of the biggest things we can do is adjust the 
Stafford Act and the provisions of the Stafford Act with 
regards to data sharing and data matching. Frankly, it is quite 
cumbersome and quite time-consuming for agencies to try to 
enter agreements to share data, for example, HUD sharing data 
with FEMA, who is also sharing data with SBA, three of the 
primary deliverers of relief. And then it becomes even more 
concerning when IGs, folks in my oversight position, have to 
enter these agreements to share data.
    Really, this is borne by the Computer Matching Act that has 
these requirements for us to enter into these agreements. And 
what I would say is that the only effect that really has is 
making it more difficult for the government to use the 
information it already has. So I think if Congress could do 
anything, we would certainly support-- and I know that the 
Council of Inspectors General has sent to the OMB some 
legislative proposals to make those changes so that it is 
easier for us to share data. And it is certainly an oversight 
function for the IGs to share data between the various groups. 
That is about the only way we are going to be able to tell 
where all the money is going and whether it is going to the 
same individual, which also then gets to the duplicative 
payment sort of concern that we have in any disaster.
    Mrs. Beatty. Thank you.
    Speaking of payments, what are the expected spend-out rates 
for disaster funding, and how close are we to those rates?
    Mr. Montoya. I don't know that I could give you what the 
rates are, ma'am. I can tell you that the first round of 
allocations have gone out to the States and the City. I think 
the City of New York, just under $2 billion; New York State, 
just under $2 billion; same thing with New Jersey. I don't know 
what those spending rates are. I would have to get back to you 
on that, ma'am. But when you talk about a timeline of 2 years 
for expenditure, the rates are going to be pretty swift.
    Mrs. Beatty. Thank you. I yield back.
    Chairman McHenry. We now recognize Mr. Barr for 5 minutes.
    Mr. Barr. Thank you, Mr. Montoya, for your service.
    In reviewing the semiannual report from your office, you 
reported that during the last two 6-month cycles, the OIG 
issued 135 audits and other reviews, which resulted in more 
than $1.5 billion in funds put to better use, and nearly $2 
billion in questioned costs, and more than $1 billion in 
collections from audits. Your investigations led to $613 
million in recoveries, 579 indictments, and 555 convictions of 
criminals that impacted HUD programs.
    On the one hand, the taxpayers would be very heartened to 
hear about the hard work that your office is engaging in, in 
terms of rooting out waste, fraud, and abuse. On the other hand 
the underlying fraud that we are seeing would lead the 
taxpayers to be very, very concerned about the level of fraud 
that is taking place in these HUD programs. And I was 
particularly alarmed to read about the programs related to the 
Hurricane Katrina efforts on the home elevation issue and how 
the vast majority of the beneficiaries of these funds were not 
actually doing what was required of them in the grant 
agreement; namely, to elevate their homes so that the next time 
the hurricane comes, we won't see the same level of destruction 
and disaster.
    So my initial question to you is, what do these numbers 
tell us? Are these numbers telling us that you are getting at 
most of the fraud that is out there, and that you are just 
doing a lot of good work, or is what you are uncovering here 
just the tip of the iceberg?
    Mr. Montoya. I would have to say it is a little bit of the 
tip of the iceberg. And just to clarify what some of these 
numbers mean, when we say, ``funds put to better use,'' really 
what we are talking about are funds that could be better 
utilized if they followed our recommendations, for example, or 
monies that weren't spent in accordance with the requirements.
    So it is not necessarily money we would have saved. They 
very well could have spent that money anyway. It is just that 
they would have spent it the right way instead of the wrong 
way. Our review of that is it to ensure that the wrong way 
doesn't continue, because that is where you end up with 
potential fraud aspects.
    So just to clarify, with regards to our Office of 
Investigations, when we talk about recoveries in the $600 
millions, that does come back to the taxpayer. That comes back 
to the U.S. Treasury in the form of fines, penalties, and 
restitution. So I just wanted to clarify that.
    But when we talk about fraud in its various programs, it 
runs the gamut, not the least of which is the Home Elevation 
Incentive Program, to which you just referred. We would 
potentially consider that a fraud by the individuals because, 
as you said, they signed a contract agreement, they took 
$30,000, and they didn't do what they needed to with it.
    So while it is a little bit of the iceberg, I would keep in 
mind that HUD has many, many programs. It is a $40-billion-a-
year-plus disbursement organization. So on any financial 
transaction, you are going to see some level of fraud.
    Mr. Barr. I understand that, but your testimony that it 
could be just the tip of the iceberg is troubling, mainly 
because not only it is a waste of taxpayer dollars, but also 
because as these funds are diverted through fraud, they are 
diverted away from people who really need the assistance. And 
so I think from a fiscal responsibility standpoint, we can be 
concerned, but if this is the tip of the iceberg, we should 
also be concerned that disaster assistance is not getting to 
the people who really need it and is instead going to 
fraudulent transactions.
    Let me ask you about the undisbursed funds. It looks like 
there are quite a few appropriations that have not actually 
reached victims of disaster. It looks like 89 percent of the 
funds for Hurricanes Katrina, Rita, and Wilma have been 
allocated, but that remains--there is still 11 percent that has 
not. Only 39 percent of the funds have been made available for 
Hurricanes Ike, Gustav, and Dolly. And then for 9/11, it looks 
like only 83 percent of the funds have been disbursed.
    So of the funds that have not been disbursed, is that an 
indication that Congress is overappropriating, that Congress is 
actually appropriating funds in excess of the actual need?
    Mr. Montoya. That would be hard to say, sir, but what I 
would tell you is by putting time limits on these funds, like 
you did in Sandy, that would certainly give us a better sense 
of whether we are over- or underfunding.
    It is very hard to calculate, I think, in any disaster, 
especially with what happened in the Gulf Coast States. But, 
again, what I would say is that because these funds that are 
still outstanding in the Gulf Coast States are really meant for 
needs--necessary and reasonable needs that haven't been met, 
our question would be after 8 years just how many of those are 
there, and are there $2 billion worth?
    Mr. Barr. It looks like my time has expired, so I will 
yield back. Thank you.
    Chairman McHenry. Thank you for the self-policing.
    We will now recognize Mr. Heck for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman, Ranking Member Green. 
And, Mr. Montoya, thank you so much for being here, sir.
    Last month, my good friend Congressman Fitzpatrick and I 
had the distinct pleasure to see H.R. 2167 become Public Law 
113-29, otherwise known as the Reverse Mortgage Stabilization 
Act. Has your office had a chance to review that?
    Mr. Montoya. Yes, sir, we have.
    Mr. Heck. And accordingly, have you had a chance to compare 
the two mortgagee letters that HUD sent out last week to the 
intent and language of 113-29?
    Mr. Montoya. I personally have not. My audit staff has, and 
we believe it does comport with the intentions of Congress.
    Mr. Heck. Thank you.
    I note in your report that one of your findings was of a 
sample of 174 reverse mortgage borrowers, 37 were revealed to 
not meet the requirement that the home for which they were 
granted a reverse mortgage was their primary residence. My 
question, sir, is do you have an opinion one way or another on 
whether or not that percentage, which I think calculates out to 
be about 20 or 21 percent, is a true representative indication 
of the number systemwide?
    Mr. Montoya. Yes, sir. When we do our sampling, we use 
statistical modeling, and so we try to extrapolate the entire 
universe of those loans. So I would say--it would be safe to 
say that based on our statistical sampling modeling, probably 
20 percent of all loans you could argue have homeowners not 
living in them as their primary residences as is required by 
the program.
    Mr. Heck. And your office's finding is that constitutes 
legal default?
    Mr. Montoya. Yes, sir, that would be correct.
    Mr. Heck. You recommended that HUD ``direct the applicable 
lenders to verify and provide documentation of borrowers' 
compliance with residency and implement control policies or 
procedures to at least annually match information.'' What is 
the status of HUD's effort to do that?
    Mr. Montoya. With regards to the home issue and whether 
they are using it as their primary residence, it certainly 
wasn't one of the issues that they had addressed in the new 
mortgagee letters.
    I think it is always going to be a concern. It is honestly 
a difficult area for them to look at in one particular area 
where we have fraud, where you have people who will come out 
and take the elderly to use them as straw buyers, they are 
obviously never going to live in the home. So we have those 
type of issues we have to deal with, but it is an area we 
believe HUD needs to be strong in for a number of reasons, not 
the least of which is that it helps the elderly not being taken 
advantage of as straw buyers when it comes to these sorts of 
schemes.
    Mr. Heck. I guess the question is have they directed the 
applicable lenders to verify and provide documentation per your 
recommendation?
    Mr. Montoya. I don't know if they have, in fact, or not, 
but certainly the lenders involved in these programs should be 
familiar with the requirements of the program. But we can 
certainly ask HUD to do that and to ensure that they have.
    Mr. Heck. It would seem, given that not doing so yields a 
21 percent default rate, that it would be prudent to do so.
    My last question is related to VASH. Obviously, as somebody 
who represents the third largest military installation in 
America where a huge percentage of people choose to retire for 
their quality of life and remain, this is a program that is 
especially utilized. And given that there are two agencies that 
share jurisdiction over it, both HUD and the VA, which seems to 
me to be an occasional recipe for confusion and, therefore, 
noncompliance, perhaps you could talk to me a little bit about 
how the IG offices work together to ensure that those two 
agencies with overlapping jurisdiction get it right to the 
benefit of our veterans, sir.
    Mr. Montoya. Yes, sir. Thank you for the question.
    With regard to homeless veterans, it is certainly an area 
of concern for us, so much so that in November of this year, we 
will be conducting an oversight review of the VASH program, and 
how that is working, and whether these housing authorities are 
abiding by the program's rules and requirements to provide 
housing for veterans and their families, sir. So thank you for 
the question.
    With regard to our coordination, the housing IGs, for lack 
of a better term, have created a little work group, and that 
would be myself as HUD, the Federal Finance Housing Agency, the 
VA, and the Department of Agriculture, and we meet quite 
regularly in order to coordinate on these kinds of things. 
Again, the idea of force multipliers--I don't want to be 
looking at something the VA may be looking at and vice versa, 
because if we are all looking at something different, we 
provide, I think, better economies of scales to the taxpayers.
    So I can assure you that we are having daily discussions, 
and if we were to find something amiss, we would certainly 
involve the IG of the VA in this particular case to work with 
us on either an audit or an investigation if we felt it was 
needed.
    Mr. Heck. And, Mr. Chairman, could I sneak one tiny quick 
one in?
    Chairman McHenry. Yes, you have, but go right ahead.
    Mr. Heck. Thank you, sir.
    You indicated you would be doing a review of VASH in the 
fall. What is the estimated completion date of that effort?
    Mr. Montoya. We are shooting for prior to March 31st, sir, 
and we will be sure to get you a copy of that.
    Mr. Heck. Again, thank you, sir.
    Thank you, Mr. Chairman, for your indulgence.
    Chairman McHenry. Thank you for your line of questioning.
    And we will now recognize the ranking member for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Let me start with FIRREA. You have indicated that we have 
considerable monies that are recovered pursuant to this 
statute, and for edification purposes, that is the Financial 
Institutions Reform, Recovery, and Enforcement Act. And you 
make a recommendation with reference to these recoveries.
    First, give us some indication as to how you have used this 
to make the recoveries, and then, if you would, I would like 
for you to address the recommendation.
    Mr. Montoya. With regard to our civil oversight, using a 
number of different laws, the False Claims Act, FIRREA, to 
recover loans from these larger institutions, we are making 
headway in recoveries. We have done that previously on a number 
of cases, the largest for us being a settlement with Bank of 
America to the tune of about a billion dollars, some of that 
coming back to the FHA's mortgage fund. We have others that are 
in the pipeline in negotiations that we are still looking at; 
they have not been settled.
    With regard to our servicing, a national settlement that we 
had a year-and-a-half ago, the $25 billion, some of those funds 
came back to FHA's Mutual Mortgage Fund to help offset these 
losses. So I think these are certainly strong laws for us to 
use.
    The Department of Justice (DOJ), though, makes the decision 
on which one to proceed. When we are working our matters as 
fact finders, we will coordinate with DOJ and, working with 
them, we will make a decision whether a False Claims Act charge 
would be more appropriate than FIRREA or what other charge 
might be. So really it is up to DOJ not only to do that, but to 
negotiate what type of settlement would come out of these in 
conjunction with HUD as a partner in that.
    Mr. Green. Your recommendation is really what I want to get 
to. You have indicated that the funds, when you recover them, 
will go to the Treasury, and you have an alternative 
recommendation.
    Mr. Montoya. Yes, sir. My recommendation would be that more 
of these funds come back to the program that was impacted. In 
this case, it would be the MMI Fund of FHA.
    Mr. Green. And if you would, just go into the rationale for 
this, please. Why would you want the funds to come back to the 
program as opposed to Treasury?
    Mr. Montoya. On most civil settlements, the whole idea is 
you are trying to make the entity that suffered the loss whole, 
and to the extent that FHA's fund has suffered in the billions, 
my feeling as an overseer would be that some of those funds 
should come back to make that program whole. It is the one that 
suffered the losses. By making it whole through these 
settlements, it avoids them having to go the Treasury to make 
an appropriations draw sometime later this year. So it is 
actually a benefit to the taxpayer for FHA to be able to do 
that, and those are issues that we are in discussion with DOJ 
on when it comes to settlement agreements and where that money 
should go.
    Mr. Green. Now, one more thing. You have tried to put 
things in a proper perspective with reference to the fraud that 
you have called to our attention, and you have made the 
statement, ``you can expect to see some fraud.'' In terms of 
trying to put things in perspective, in all of the programs 
that we find that are huge--let us take the Department of 
Defense--we find that we have some fraud in the Department of 
Defense when properly audited. Is this a fair statement?
    Mr. Montoya. Yes, sir. And I would like to add to that. It 
is not just fraud; it is mismanagement.
    Mr. Green. Do you find some mismanagement when we audit the 
Department of Defense? You don't do--
    Mr. Montoya. Defense or HUD? Are you referring to--
    Mr. Green. No, I am speaking now of other programs, because 
you were trying to put it in perspective when you said you are 
going to see some fraud.
    Mr. Montoya. Right.
    Mr. Green. What I am trying to do is give you an 
opportunity to do this, because there are other programs, when 
you put them in perspective, they, too, have fraud, but it is 
your job to root out and find this fraud, call it to our 
attention so that we can eliminate it.
    Mr. Montoya. Absolutely, sir, and that is the role of all 
inspectors general.
    Mr. Green. So, with reference to your statement, ``we 
should expect to see some fraud,'' just elaborate briefly, 
please, because I think that it helps us to better understand 
that while we have some problems that we have to deal with, 
that HUD is not at the point of about to crash, and that these 
are not insurmountable problems.
    Mr. Montoya. Right. No, sir, HUD is certainly not about to 
crash, and what I would say is, yes, in all of these government 
agencies and programs, there are about 78 inspectors general, 
and in our discussions we all virtually see the same thing. 
There is a matter--there is an amount of fraud, there is an 
amount of mismanagement, waste, abuse. All of these things 
could have a financial impact on the agencies which we all 
oversee. HUD is no different than anyone else. It is just the 
nuances on where those mismanagements, frauds, and abuses 
occur.
    Mr. Green. And finally, in the private sector, you also 
have fraud, and it is uncovered, and hopefully we take 
appropriate action when we find it. Your point is that it 
happens, we want to eliminate it, and that your office is doing 
a good job. Is that a fair statement? And I assume you would 
agree that you are doing a good job?
    Mr. Montoya. I would agree with the entire statement, sir. 
Thank you.
    Mr. Green. Thank you.
    Chairman McHenry. With no further questions, this hearing 
entitled, ``Reducing Waste, Fraud, and Abuse in Housing 
Programs: Inspector General Perspectives'' now concludes. I 
would like to thank our witness for his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    This hearing is now adjourned.
    [Whereupon, at 11:08 a.m., the hearing was adjourned.]


                            A P P E N D I X



                           September 10, 2013


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