The District government has failed to collect tens of millions of dollars on dozens of delinquent loans, most of them intended to boost the city’s stock of affordable housing, city records show.
The typical delinquent loan — among a list of 43 — is more than four years behind on mortgage payments, according to the records. And the number has swelled even as D.C. housing officials did little more than mail warning letters to loan holders. This was true even in cases when organizations and their executives failed to remit a single payment for more than a decade.
The documents point to a long-standing yet unacknowledged problem complicating the city’s efforts to address affordable housing. The delinquencies have depleted the District’s main funding source for affordable-housing projects, encumbering what advocates say was already a lack of money for what just about every elected official in the city has identified as one of the city’s most pernicious challenges.
The demand for more affordable housing is the dark side of the city’s recent burst of gentrification, in which the supply of low-income housing has been reduced by more than 50 percent since 2000. District statistics show an intractable problem, with 5,000 families on the brink of homelessness, doubled up on sofas or sleeping on the floors in relatives’ homes.
The dozens of delinquencies lingering on city books span multiple mayoral administrations and have accumulated over the years with little or no oversight from mayors or D.C. Council members. Two of the loans are held by groups with deep political connections in the city.
One loan is in the name of a corporation controlled by H.R. Crawford, a former D.C. Council member. Another loan was first issued more than 13 years ago to a nonprofit group when it was led by Mayor Vincent C. Gray’s current deputy mayor for health and human services. Not a single payment has been made on that loan. The note is 166 months past due, with outstanding principal and interest payments totalling more than $1.3 million.
Affordable housing has emerged as a major issue in the mayoral election, now just nine days away. All of the candidates have promised to address the issue. Council member Muriel E. Bowser (Ward 4), the Democratic nominee, has a bill pending that would make permanent a recent burst of spending on the city lending program that has produced most of the defaults, setting a base line of $100 million in annual lending. But the proposal makes no provisions for improving oversight of the loans.
Loan records detailing the delinquencies were obtained by The Washington Post under a series of Freedom of Information Act requests. They show that, across the District, 7 percent of more than 600 apartment buildings backed with city funds have defaulted on their loans.
Most of the loans were issued under the Housing Production Trust Fund, the city’s primary tool for financing the construction and preservation of affordable housing units. Funded with a portion of transfer and recordation taxes on each home sale in the city, the trust was depleted early in Gray’s term, slowing or halting construction of some affordable apartment buildings that advocates say otherwise might now be in use. Facing pressure on housing issues, Gray (D) over the past two years made the biggest infusion ever into the fund, and he set a goal of creating or preserving 10,000 affordable housing units citywide by 2020.
Across the District, 43 loans to purchase or renovate low-income apartment buildings or to build up nonprofits that serve the poor are in serious financial distress.
The outstanding loans have a combined principal balance of nearly $38 million; more than $7 million in payments are at least 90 days past due.
Yet, as of last week, Department of Housing and Community Development records show that 32 of the loan recipients were listed as having received no more than a warning letter about their defaults.
That includes two that have never once made a payment.
Marcus Williams, a DHCD spokesman, said that confronting delinquent loans became an agency priority in 2012 and that the city completed a review of all loans last year. The administration has since hired a contractor to set up payment plans for many, and records show that since the city began foreclosure proceedings in the spring against the owners of one high-profile delinquent property, Park Southern Apartments, many other borrowers have made their first payment in years.
Park Southern became a focus of city and federal scrutiny over the summer after a Washington Post report detailed its dilapidated condition and the owner’s default on a $3 million city-backed loan.
“It’s important to note that the list of multifamily delinquent loans date back many years and prior to this administration,” Williams said. “So the fact that we now have many of the critical systems, processes and administrative procedures in place is a tremendous feat. . . . We hope to soon have all of our loans in good standing.”
Bowser, who chairs the council committee that has oversight of housing issues, said the administration had never revealed figures on defaults to her committee. She said that if elected, she would make sure that the properties with outstanding loans remain viable as housing or other services to the poor, even if that means forgiving many of the unpaid loans.
“I think if the intention is not to collect, then they should probably be classified as [grants] or forgiven, and there should be some clear criteria for forgiveness,” Bowser said. “The bottom line is the government’s interest is in maintaining affordable housing . . . not in being a lender.”
Mayoral candidate and D.C. Council member David A. Catania (I-At Large) said that tenants of buildings with unpaid loans or co-ops should not get stuck with millions in overdue bills, but he added that companies and executives must be held accountable for loans that have gone unpaid.
He blasted Bowser’s oversight of housing issues for letting the problem fester, saying that if she had held a hearing on Park Southern Apartments, the larger number of defaults might have come to light earlier.
“She has been missing in action for the 18 months she has been running for mayor.”
Twenty-one of the properties on the list have been in default longer than Park Southern, the iconic towers along the District’s southern tip, which the Gray administration seized control of this past summer.
The nonprofit corporation that owns Park Southern was $630,000 and more than 36 months behind on its payments when the city took the rare step of initiating foreclosure proceedings in April. It was also run by politically connected Democrats in Ward 8 who had recently switched their allegiance from Gray to Bowser — and had helped draw out voters for Bowser for the April 1 primary, in which she defeated Gray.
Under Gray, the Department of Housing and Community Development had for months pressured the Park Southern Apartments board president, Rowena Joyce Scott, to improve management of the building.
But it was the timing of the District’s move against her and the board — the day after the Democratic primary — that prompted accusations of political vengeance.
“I know for a fact mine was political, tied to the race,” Scott, a longtime Gray supporter and a former chairman of the Ward 8 Democrats, said of the foreclosure. She recalled when Gray showed up at Park Southern the weekend before the primary: “When he was yelling at me, he wasn’t talking about ‘where’s the money, where’s the payment,’ he was talking about Bowser being in here the Saturday before.”
Gray has forcefully disputed any political motivation for the foreclosure.
Asked about the discrepancy between the action on Park Southern and the inaction on other delinquent loan holders, Christopher Murphy, the mayor’s chief of staff, said the city learned about the extent of the problems at Park Southern only because the housing agency had begun the hard work that no administration had tackled in more than a decade of bringing delinquent loan holders back into compliance.
Park Southern, he added, was found to be a unique case, demanding unique action. City officials had discovered by the spring that Scott’s board also owed more than $500,000 in delinquent utility bills; that $130,000 had gone missing from an account holding tenants’ security deposits and that residents were complaining about broken locks, leaking pipes, mold and rodent infestations.
According to Williams, the administration also said that for months, Scott did not reply to requests to work together to bring the loan into compliance.
Also delinquent is CentroNía, a nonprofit that runs a day care and manages a charter school in the Columbia Heights neighborhood. CentroNía obtained a $1.9 million loan to help finance construction of a four-story brick headquarters when the nonprofit was led by its founder and former executive director, Beatriz “B.B.” Otero.
Otero is now Gray’s deputy mayor for health and human services.
When the loan was issued, CentroNía was known as Calvary Bilingual Multicultural Learning Center. Records show that the organization has not made a single payment on the loan.
In an interview, Otero said she could not recall any request by the city to pay up.
“I remember it had something to do with whether you can afford, as long as you were doing the public good kind of thing — but don’t quote me, because this is really sketchy trying to remember,” Otero said. “I’ll have to go back and think about it. I don’t recall.”
Myrna Peralta, CentroNía’s current executive director, said she has had multiple meetings about the outstanding loan with DHCD officials since taking over the group in 2011.
Peralta agreed with Otero that the organization long expected the loan to be forgiven because of its public-service work. She said records predating her arrival show that CentroNía’s executives worked to get the loan forgiven. “I have a file with correspondence that goes way back before my time and shows that was always our intention, and it never happened,” Peralta said.
According to the most recent publicly available federal tax forms, CentroNía listed net assets of more than $8 million in 2012, but Peralta said CentroNía had to draw down reserves during the economic downturn and is working to rebuild them.
In its 2012 financial reports, CentroNía also disclosed that it had no intention of repaying the loan.
The organization’s independent auditor noted that CentroNía did not list the loan or interest payable as a liability because CentroNía “believes that this is convertible into a grant.”
“We serve the poorest of the poor,” Peralta said, adding that her conversations with city housing officials about repayment have been “very easy.” “I’ve been very appreciative that they haven’t come down heavy on this. They’ve been working with us,” Peralta said.
There are provisions in the program for loans to be forgiven, but according to Georgette Benson, DHCD’s portfolio asset manager for loans, the documents submitted by CentroNía did not meet the city’s criteria, including a requirement that loan holders be no more than 60 days behind on payments.
Yet there is a larger question of whether the city has practiced a de facto policy of loan forgiveness, given how weak its oversight and enforcement have been.
Jenny Reed, who studies housing issues for the D.C. Fiscal Policy Institute, an economic-justice think tank, said some defaults on DHCD loans are to be expected — but not excused or forgotten about entirely.
“You expect the default rate to be higher than the national average because they are lending to folks that the private sector won’t lend to. They’re trying to fulfill a need,” Reed said. “But that’s why you work harder and on a more regular basis to make sure they can keep it going and make good on those obligations.”
Several aides to the mayor said the delinquent loan held by Otero’s organization never surfaced as an issue in 2011 when she was vetted for the deputy mayor post. Gray said in a recent interview that other than Park Southern, he was unaware of the specifics of any of the other loans in default.
Crawford, who served three terms as a council member representing Ward 7 and has received millions in housing loans and grants to run Southeast Washington apartment buildings, disputed that Crawford Edgewood Managers owes the $61,000 listed as 104 months past due. Crawford said he, too, understood the money to be a grant.
City records show that Crawford Edgewood made a $600 payment on the delinquent note this spring. Benson said the former council member — who also was once involved in management of Park Southern Apartments — has been in discussions with the city about repayment.