Banking Law

I know it's spring, but today I broke out the hockey skates, rang up The Devil, and went ice skating in Hell. I also agreed with the Editorial Board of The New York Times.

Alphonso Jackson, the Secretary of Housing and Urban Development, shocked an audience of business leaders two years ago when he told of denying a government contract solely because the head of the bidding company spoke ill of President Bush.

?Why should I reward someone who doesn?t like the president, so they can use funds to try to campaign against the president??? Mr. Jackson asked with bare-knuckled glee. After the ensuing controversy, he claimed his comments were merely ?anecdotal,? and insisted he did not believe in such punishment.

Funny thing: now Mr. Jackson stands accused of just these sorts of shenanigans. Specifically, he is the subject of investigations by Congress into allegations that he rewarded developer friends and abused political enemies in doling out taxpayers? funds.

And the calls have begun for his resignation.

The editorial runs through the recent allegations against Mr. Jackson, many of them mentioned in previous posts (just search this blog under the heading "HUD"). It ends with a scathing reference to last week's letter by Senator's Dodd and Murray to The Decider in Chief that called for Alphonso's head on a silver platter resignation.

A reporter called me last week and asked to interview me for comments on the recent federal district court decision out of Washington, D.C. that invalidated a regulation that HUD attempted to issue that would have put an end to the practice of homebuilders funneling downpayment assistance (DAP) to borrowers on FHA-insured loans through non-profit corporations. In my most recent post on the topic, written at the time that the same district court had issued a preliminary injunction against HUD's enforcement of the regulation, I expressed incredulity that HUD hadn't made a case  in support of its regulation that would survive a challenge under the Administrative Procedures Act. Obviously, I hadn't counted on the absolute arrogance, blazing incompetence, or both, of the powers that be at HUD.

Parsing the obviousness of the final opinion, it's absolutely astounding that HUD extracted from a GAO report, issued in 2005, that supported, with much data, the proposition that loans with DAP defaulted at much higher rates than loans without it, only some hearsay from unnamed Fannie Mae and Freddie Mac officials about the supposed effect of DAP on sales prices. It's even more astounding that the only "hard evidence" (after the court disregarded the "soft evidence") used by HUD to support the sole basis HUD stated in its proposed rule (i.e., that DAP causes higher sales prices and loan balances, which are bad for both borrowers and for HUD) was an internal HUD report that was cited in the final rule, but not in the proposed rule. The judge intimated in footnotes, but did not decide, that Alphonso Jackson prejudged the rule and wasn't going to let HUD seriously consider any evidence that supported a contrary opinion (based upon some fairly asinine public statements to that effect by Jackson). The judge also wryly commented upon the attempt of HUD's trial lawyers to build a case in support of the final rule by noting that the APA requires that the "case building" exercise be undertaken as part of the process of adopting the rule, not after the fact.

I humbly beg the pardon of the judge in this case. I just assumed from the evidence at hand that even Forrest Gump could have concocted a prima facie case for the rule and that the judge was misguided. My bad!

It takes a big man to admit he's wrong. It takes an even bigger man to sit there and cry like a little girl while other men laugh at him for being wrong. I am that bigger man.

There was also a decision by another federal district court judge in California, who not only prevented enforcement of the rule, but barred Alphonso from participating in the rule making process if and when HUD tries a "do-over." I haven't read that opinion, although I'm sure it's full of gems of equal worth. At this point, even Stevie Wonder could see that HUD under Jackson is staring to look like the gang that couldn't shoot straight.

As I noted in an update to my earlier post, when I was informed by one of HUD's opponents that HUD's failure was more one of not following the procedural requirements of the APA than it was the non-existence of factual support for the rule, this is one more reason why Alphonso has got to go.

P.S. DAP's still a scam and, if logic prevails and a rule is formulated by beings with opposable thumbs, it will eventually bite the dust.