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S.L. APARTMENT BUILDING LINKED TO SCANDAL INVOLVING HUD FUNDS
MORTGAGE FIRM ACCUSED OF OVERESTIMATING RENTAL VALUE

SHARE S.L. APARTMENT BUILDING LINKED TO SCANDAL INVOLVING HUD FUNDS
MORTGAGE FIRM ACCUSED OF OVERESTIMATING RENTAL VALUE

The scandal involving abuse of tens of millions of dollars governed by the U.S. Department of Housing and Urban Development has ties to a mortgage company that financed a Salt Lake low-income housing project.

HUD's auditor office and the General Accounting Office, the research arm of Congress, are investigating Benton Mortgage Co., which was co-insurer for the Trenton Apartments, 544 E. First South, officials said Tuesday.The Trenton Apartments, owned by PSC Development Co. and J. Michael Queenan, is one of 14 low-income housing projects across the nation that have enjoyed millions of dollars from HUD's moderate rehabilitation program.

The moderate rehabilitation program provides incentive for developers to build low-income housing units by providing low-income tenants with rental subsidies to pay for the cost of renting from developers.

HUD auditor Chris Greer said the mortgage company cost HUD $22,000 yearly since 1984 because Benton overestimated the rental value of Trenton Apartments by $51 a month from what similar units rent for in the city.

A Benton representative speaking from the company's Knoxville, Tenn., office on Wednesday said Benton President Tom Ford is "absolutely not" speaking with the press in response to the HUD investigation.

HUD subsidizes rent paid by low-income tenants to the developer. Tenants pay a percentage of their income as rent, but the balance, determined by appraised rental values, is paid by HUD to the developer. The balance could be higher if rental values are inflated.

Altogether, the 14 projects cost HUD $2.4 million in excess costs, the HUD audit said.

Benton is now on HUD probation, and sanctions against the company are being reviewed by HUD officials, Greer said.

Peter Cooke, of PSC Development, said he was told by Benton that the company was exonerated by HUD and that his involvement with the Trenton project is legitimate.

"It was a regular deal," he said.

HUD did not audit PSC or the Salt Lake City Housing Authority, which administers HUD money at the local level, Greer said.

Craig Peterson, city development services director and vice chairman of the Housing Authority Board, said HUD always has provided rental rate figures used by Benton. Therefore, there was little the Housing Authority could do to prevent the inflated rental rates.

"In the past, we've relied solely on the federal government (for regional rental rates) and that will be reviewed by the Housing Authority Board," he said.

Information gathered in the HUD investigation is being used by Congress' GAO in a separate review of the 14 projects, including Trenton Apartments, said John Olf, housing development issues director for the GAO.

The GAO was asked by Sen. Donald Riegle Jr., D-Mich, chairman of the Senate Committee on Banking, Housing and Urban Affairs, to review the projects.

Money for low-income housing projects "may have been squandered through mismanagement by the Department of Housing and Urban Development," Riegle wrote in a letter to the GAO.

"We are not interested in identifying developers that got a lot of money," Olf said. "Our intent is to look at why the law allows this kind of profit to be made when it (low-income housing) was not intended to be a massive profitmaking endeavor."

Cooke said, however, that his project barely breaks even. "You don't make money off low-income housing," he said.

The GAO office will report back on the moderate rehabilitation program to Riegle at a Banking and Housing Committee meeting scheduled for July 24. The GAO could recommend HUD implement tighter internal controls over the program, Olf said.

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(Additional information)

Rental subsidies

The federal government subsidizes rent paid by low-income tenants in some housing projects. Tenants pay a percentage of their income as rent; the balance is paid by the Department of Housing and Urban Development. If the developer charges above-market-level rent, he receives more money from HUD than he should.