Concerns Over Lawsuits Hold Up FHA Nomination
Wednesday, April 29, 2009
A Senate Banking Committee vote to confirm David H. Stevens as head of the Federal Housing Administration was postponed yesterday after concerns were raised about lawsuits involving Long & Foster, the Washington-area real estate brokerage where Stevens has been president for seven months.
The federal lawsuits allege that Long & Foster violated federal anti-kickback laws through its lending arm, Prosperity Mortgage.
Stevens was not named as a defendant in the lawsuits. But in an affidavit signed last weekend, one of the plaintiff's attorneys alleged that Prosperity, a joint venture between Long & Foster and Wells Fargo, was a "long running scheme." Lawyer Cyril Smith wrote that Long & Foster put pressure on its agents to use Prosperity so it could get a kickback.
The affidavit cites a November 2007 Washington Post article about an e-mail sent by P. Wesley Foster Jr. chastising his real estate agents for using other lenders to fund mortgages instead of Prosperity.
At the time, the e-mail was criticized by some Long & Foster agents and consumer advocates, who raised concerns about whether the executives were trying to profit at the expense of clients.
Yesterday, the Department of Housing and Urban Development said in a statement that it reviewed the memo and determined that it did not violate federal laws.
In the affidavit, Smith wrote that when he tried to depose Foster about the e-mail, he was told by a Long & Foster lawyer that Stevens wrote the memo and "Mr. Foster simply put his name on it."
When the Senate Banking Committee learned of the legal proceedings yesterday, Chairman Christopher J. Dodd (D.-Conn.) and Sen. Richard C. Shelby of Alabama, the committee's senior Republican, decided that they needed "to gather more information," committee spokeswoman Justine Sessions said.
Business arrangements between brokerages and lenders are common. They are illegal only if the agents or office managers receive kickbacks or fees for doing nothing more than referring services.
When the e-mail was circulated in 2007, Foster said his company did not pay fees for Prosperity referrals.
Yesterday, a company statement said that Stevens drafted the memo and that Foster reviewed, approved and signed it. The memo complied with federal law, the statement said. "There is nothing wrong with asking our agents to use our joint venture partnership as long as we don't require or pay them to use it. We are within our rights to promote legitimate businesses to our agents."
Howard Glaser, a former HUD official and a Stevens supporter, said he suspects that ulterior motives are behind the timing of the affidavit. "This appears to be a trial lawyer trying to use the Senate Banking Committee as leverage in pursuing a settlement," he said.
Smith said he did not know about Stevens's nomination until Friday. "I wanted to make sure that whoever was going to be looking closely at the nomination got something in writing so that they know what the facts are."