HUD Scandals

Section 608

HUD's first major scandal erupted over Section 608 rental housing, which allowed developers to make enormous profits at government expense. Section[Page 404] 608 of the National Housing Act of 1942, which had been created to provide rental housing for defense workers during World War II, was later extended to include housing for war veterans. The public's first inkling of the Section 608 scandal occurred on April 11, 1954, when the White House announced that the Commissioner of the Federal Housing Administration (FHA), Guy Hollyday, was resigning. The following day, President Dwight D. Eisenhower ordered federal agents to impound all FHA records dealing with the Section 608 program. The president acted in response to reports from the commissioner of the Internal Revenue Service (IRS) that a number of corporations which sponsored 608 rental housing were reporting large windfall profits from hundreds of projects negotiated by the FHA. The Federal Bureau of Investigation (FBI) had also notified the Eisenhower administration that a large number of American property owners had been victimized by dishonest dealers and salespersons who contracted for home improvement loans through HUD.

Investigators learned that throughout the history of Section 608, FHA employees at all levels had received gifts from developers seeking lucrative government contracts. At Christmas, developers had presented male field officers with liquor, fruit, cigars, turkeys, and neckties. Females had received nylons, scarves, candy, and fruit. Gifts for selected high-ranking FHA officials had included wristwatches, portable radios, and television sets. One developer in New Mexico hosted a ground-breaking celebration for an FHA official, then charged the construction project $500 for the services of three “party girls.”

Investigators learned that no effort had been made to avoid conflicts of interest, and many FHA employees held interests in companies that contracted with HUD. The Special Investigation Office of the Housing and Home Finance Agency (HHFA) that had been appointed by Eisenhower to investigate the FHA scandal identified at least 1,410 projects in which proceeds from mortgages were higher than reported costs, with a total in excess of $110 million.

Sections 235 and 236

During the 1960s, as part of President Lyndon Johnson's War on Poverty, new emphasis was placed on providing housing for poor Americans. FHA was assigned the responsibility of providing subsidized homeownership under Section 235 of the housing act and to support subsidized rental housing under Section 236. While concentrated attempts were made to curtail opportunities for scandal, a December 1970 staff report to the House Committee on Banking and Currency documented various scandals within the housing agency. In response, each field office director, chief underwriter, and chief appraiser was ordered to visit at least five inner-city projects. Results were reported at a meeting with HUD Secretary George Remney, leading to the suspension of the Section 235 home mortgage program until an investigation could be completed.

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