Low-income housing in danger of default Taxpayers face bailout of HUD projects

July 25, 1993|By JoAnna Daemmrich and Melody Simmons | JoAnna Daemmrich and Melody Simmons,Staff Writers

An article in Sunday's Sun about troubled HUD projects incorrectly identified the location of Hyde Park Apartments, which is in Hagerstown. Also, Stephen's Square in Baltimore has been identified as troubled, not Steven's Forest in Columbia.

The Sun regrets the errors.

Coming home is scary for Toinette Bostic.

Even on a peaceful summer afternoon, the 23-year-old mother of four feels unsafe walking into the dim, austere lobby of her apartment building that was once an abandoned school on Baltimore's North Avenue at Broadway.

The lights are out in the hall. She's been mugged. She's been offered drugs. She's rushed her children past vandals spray-painting obscene graffiti and addicts smoking crack cocaine.


Only seven years after it was refurbished with federal money, the former Samuel Gompers Vocational School is dilapidated and in financial trouble. The developers who converted it into Ashley Apartments in 1986 have defaulted on a $1.65 million state-held mortgage insured by the U.S. Department of Housing and Urban Development.

That means taxpayers could be forced to bail out the blighted low-income apartment building, one of an estimated 15,000 projects across the nation that are in financial straits.

A recent audit of HUD's mortgage guarantee program caused alarm when it revealed that the department expects to lose as much as $11.9 billion in insurance claims as building owners default on their loans.

More than a quarter of a sampling of HUD-insured mortgages totaling about $43 billion nationwide were found to be at risk of default, Coopers & Lybrand auditors disclosed in April.

Many factors contributed to the fiasco. Years of neglectful real-estate management, abuse by tenants, HUD's tendency to measure success by sheer numbers of properties, understaffing HUD that prevented proper oversight and the soft rental market all were to blame.

In Maryland, local housing officials say the problem is acute.

From Cecil County to Columbia, the federal government has insured mortgages on 355 privately owned, multifamily housing developments with an unpaid balance of $1.46 billion. Already, 43 of the projects are in trouble. The number is expected to grow because the Coopers & Lybrand study found a higher ratio of troubled properties in its Maryland sample, HUD officials acknowledged last week.

"It can be a bad cycle," says Larry Hatcher, deputy director of the Baltimore HUD office. "If the owner doesn't keep the property up, you lose your curb appeal and less people come in. Then you generate less money for maintenance and that affects your occupancy again."

In their review, the auditors found 16 of 59 Maryland projects selected at random were at risk of default -- a bigger proportion than the local office had realized. The troubled properties could cost taxpayers a potential $151 million.

Most are similar to Ashley Apartments: inner-city properties that have been eroded by drug dealing, high vacancies, vandalism and little routine upkeep.

"A lot of the stuff is simply a system that doesn't work," says Tom Schatz, president of Citizens Against Government Waste, a watchdog group in Washington.

"When you look at the history of HUD, it is that it's a financial institution with a social mission," he said. "A lot of times it forgets the financial part, and just concentrates on the social part."

Most apartments were built under programs created during the 1960s and 1970s to boost the nation's stock of affordable housing -- and are financially solvent.

Many need help

Yet Ashley Apartments is just one of many properties that need a massive infusion of capital and 11th-hour negotiations with HUD to survive. Twenty-six projects in Maryland are now in default -- 13 of them on multimillion-dollars loans by HUD. Among those struggling to survive:

* Cecil Woods, a new mobile home park in a shady grove off Route 40 in Cecil County. It's insured at $2.3 million and likely to end up in the hands of HUD because the project was stopped amid a wetlands problem. Only eight of 137 trailers have been installed, and the owners owe $3,000 in back taxes.

* Bay Ridge Gardens, a condemned 198-unit complex in Annapolis that is besieged by hundreds of housing code violations, open-air drug markets and shoddy living conditions. But the collection of brick apartment buildings has a chance at a second life -- a Rhode Island company is buying it and plans to spend $12 million on a complete overhaul.

* Eutaw Gardens, a once-proud Baltimore community that has fallen into disrepair. A new management company recently took over the complex insured at $2.7 million.

* Hyde Park Apartments, a 132-unit complex that was developed for moderate-income families in Essex. When the owner decided not to keep 25 subsidized apartments for low-income residents in 1990, the vacancy rate grew. The owner is now delinquent on a $4.1 million loan.

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