There's only one way to stop the fraud and inefficiencies that have afflicted the Department of Housing and Urban Development, a recent Harvard University study says: Shut the agency down.
"Abuse of the program has plagued HUD almost from the start," said Howard Husock, director of case studies in public policy at Kennedy School of Government and author of The Inherent Flaws of HUD. "It just keeps on keeping on."
Mr. Husock's study follows a rough year for the agency. Predatory lending practices surfaced in HUD's reverse mortgage program, and internal fraud was discovered in its contracting division.
In addition, former HUD secretary Henry Cisneros and two other HUD employees were indicted for lying to the Federal Bureau of Investigation, and mortgage lenders criticized the agency for its inability to finalize compensation legislation.
Mr. Husock's study argues that HUD's problems are rooted in its very premise: Fraud occurs at the agency because its lending program is backed by guarantees and artificially seeks to invest capital where it wouldn't normally go.
Instead, inner cities should be allowed to run their natural course, Mr. Husock said. "Neighborhoods will come back of their own accord," he said. Although eliminating housing subsidies may hurt some individuals in the short run, that should not be factored into the bigger picture, he said.
"We're spending $8 billion a year on federal housing subsidies," Mr. Husock said. "That's a lot of money."
Mr. Husock favors eliminating the Community Reinvestment Act and the Low Income Tax Credit entirely. "Bankers are caught in a vortex" that puts them at an unfair business advantage, he said.
The Inherent Flaws of HUD is being publicized by the Cato Institute, a conservative think tank.
Mr. Husock is not without supporters on Capitol Hill. Several congressmen have been longtime proponents of shutting down HUD. They include Sen. Lauch Faircloth (R-N.C.), who praised the study.
"I fully agree with Mr. Husock's findings," Sen. Faircloth said. "Our American cities are no better than they were 30 years ago when the department was created."
Sen. Faircloth said that he will continue to push to shut the agency down.
But mortgage bankers stand by the department.
"The Mortgage Bankers Association strongly supports the public policy mission at HUD," said Steve O'Connor, agency relations for the association. The MBA must examine the study before it can comment further on Mr. Husock's theories, he said.
Nonprofit agencies also adamantly oppose eliminating HUD. Mr. Husock's conclusions are "a mistake," said Francine Justa, executive director of New York's Neighborhood Housing Services.
"Limited subsidies, in conjunction with local government, allow buildings to be built," she said. "I've seen it work over and over."
Subsidies, such as those provided by HUD, are more of a catalyst than a Band-Aid, Ms. Justa said. For example, Neighborhood Housing Services focused on the Windsor Terrace neighborhood in Brooklyn, and the area has become self-reliant, she said.
A HUD spokesman said the agency could not comment on the study until its officials had read it.