Janet Ahmad, HOBB President Testimony on Affordable Housing
Affordable Housing promotions promised hope and opportunity for the American Dream to families for a brighter future.  Unfortunately, the ever-opportunistic building industry saw it as a promise for mega profits that has left a landscape of decline in home quality and values throughout new communities due to shoddy construction and widespread mortgage schemes that ensnared naive buyers... Before launching anymore affordable housing programs, members of this subcommittee should consider the unprecedented failed federally funded public housing programs, failures to build homes that will last, and the abuses of sub-prime, zero-down payment assistance scams...The economy that thrived through frequent greed of selling affordable houses, no matter the price, now threatens our entire economy.

As founder and president of Home Owners for Better Building ( HOBB ) for the past ten years our organization has followed the evolution of the building industry’s ‘Affordable Housing’ program.  Affordable Housing promotions promised hope and opportunity for the American Dream to families for a brighter future.  Unfortunately, the ever-opportunistic building industry saw it as a promise for mega profits that has left a landscape of decline in home quality and values throughout new communities due to shoddy construction and widespread mortgage schemes that ensnared naive buyers.

The most notable example of so-called affordable housing began in 2000 when KB Home started construction on a HUD HOPE VI lease-to-purchase program in San Antonio, known as Mirasol, to provide homeownership to those in need.  Today, that once highly-acclaimed HUD HOPE VI program no longer exists, and the $21 million Mirasol houses built by KB Home have become the most discredited HUD Affordable Housing project scandal ever perpetrated on those that could least afford it.

Families paid a portion of their monthly rent toward the down payment.  Many, however were disabled and on fixed incomes and were never actually qualified to purchase these homes under the HOPE VI lease-to-purchase plan.  Families built up cash accumulation escrow accounts, some as high as $30,000, but were shuffled in and out of the program and their escrow accounts were forfeited to the San Antonio Housing Authority (SAHA).  Records confirm the public testimonial accounts by individuals claiming that if they complained about the seriously defective KB homes, such as high water bills attributed to plumbing leaks in the foundation, or mold contamination due to leaks in the roofs, windows, or walls, they would be evicted. 

A HUD Office of Inspector General report requested by Congressman Charles Gonzalez and many subsequent reports confirmed non-compliance with specification, chronic construction defects that continue to plague the homes that were built without back doors and windows.

Before launching anymore affordable housing programs, members of this subcommittee should consider the unprecedented failed federally funded public housing programs, failures to build homes that will last, and the abuses of sub-prime, zero-down payment assistance scams.

The basic problem in most states, particularly Texas , is that there is little if any oversight of builders, most of whom are unregulated.  Compounding the problem is the widespread use of binding mandatory arbitration (BMA).  In the private sector of ‘affordable housing,’ builders nationwide insert binding mandatory arbitration (BMA) clauses in the purchase contracts that deny homeowners the right to hold builders accountable in a court of law.

Because of repeat business from builders, records show only a very few homeowners have ever won against builders in BMA.  For most families, BMA is the 800-pound-gorilla that deters them from holding builders accountable for shoddy homebuilding.

The following examples provide confirmation of unethical behavior that contributed to the phenomenal success of the industry’s affordable housing programs and its ability to limit liability.

CBS 60 Minutes and ABC's 20/20 reported that KB Home built houses on a bombing range in Arlington Texas . The cleanup cost taxpayers $1.9 million.  That was affordable housing.  

Recently, Lennar Homes followed the KB example and built houses in Florida on an old military bombing range.

On May 24, 2000, a House Committee on Banking and Financial Services held hearings on the problems of fraudulent lending practices. Today, nearly seven years later, the housing mortgage crisis and foreclosures rivals the daily Iraq war headlines.

In August 2007 BusinessWeek published Bonfire of the Builders, the first report detailing the magnitude of the building industry’s involvement in mortgage fraud.  They described how the industry helped fuel the housing crisis by rushing into the mortgage business. Now they’re hurting—and so is Wall Street and millions of families.

The homebuilding industry showed incredible creativity when it came to qualifying people for mortgages that many families could not afford.  Builders mortgage companies created what we call ‘pulse loans.’  If a person had a pulse, the builder had a loan to fit their needs and a house would be thrown up in a few days.

This was, and still is, the affordable housing market.

This crisis and these scams were contrived and implemented by big builders that focused on affordable housing that continued to artificially drive up housing prices.  Utilizing slick marketing skills and easy one-stop-shopping financing, they sold houses to nearly anyone who walked in the door.  The results: 

KB Home, Beazer Pulte Homes, Meritage Homes, the Ryland Group, Technical Olympic USA, and Stewart Title have already admitted to their part in the fraud, but the penalties are an insult and only encourage more innovative fraud.

Headlines Read:       .

  ·   Stewart Title Reaches $1 Million Settlement on Kickback Charges.

Despite fines, builders made hundreds of billions in profits. Whether the fines Beazer eventually pays are $15 million or $150 million.  For the homebuilding industry this crisis is merely a downturn in the market and investors will continue to rally to get in on the profits. Unfortunately, millions of families will be devastated and will never recover.

When Countrywide announced recently that it was starting a $16 billion program to help borrowers keep their homes it landed with a thud on Wall Street.  Shares slid 4.0%, to $15.05 on Tuesday afternoon; however, by Friday it rallied to $17.30. .

Despite the scandals, Countrywide Mortgage commercials continue to air and boasts: “Countrywide can do things other lenders can’t.”

Visions of Enron come to mind; losses to shareholders were estimated at $60 billion to $80 billion. But all the fines and settlements for the fraud came to less than $10 billion.

As for building industry fines, the fines won't do anything to help home buyers who either lost or are about to lose their homes to foreclosure. Nationally, the number of foreclosures hit 223,538 in September, a jump of almost 100% from September 2006.

Vast numbers of vacant homes stand empty due to loans that defaulted within the first 3-6 months of origination.  Now, with more than $350 billion of adjustable-rate mortgages due to reset at higher interest rates in the next 18 months, the problem is only getting bigger.

The economy that thrived through frequent greed of selling affordable houses, no matter the price, now threatens our entire economy.

Affordable housing at what price?  We urge this committee to call for further investigations.  Before funding any more affordable housing, what is needed is to fix the wide range of serious problems, through sweeping reforms, oversight and regulation of an industry that sets its own values and flagrantly disregards the law.

Respectfully submitted,

Janet Ahmad, President

Home Owners for Better Building ( HOBB ) is a national not-for-profit organization established to support meaningful solutions to the growing problems of substandard homebuilding throughout the nation. To ban mandatory arbitration clauses in consumer contracts which deny homebuyers basic constitutional rights and restore consumer protection on the local, state and national levels through the passage of a Home Lemon Law.