Feds Diverted Millions to ‘Slush Fund’ That Fuels Liberal Activist Groups, Says Congressman

By Richard Pollock Published on May 21, 2016

Department of Justice officials diverted millions of dollars slated for victims of the 2008 housing meltdown to politically favored third parties, including “left-wing radical groups,” according to the chairman of a House of Representatives oversight subcommittee.

Rep. Sean Duffy, a Wisconsin Republican and chairman of the House Financial Services oversight and investigations subcommittee, said Friday the officials “skimmed” off three percent from mortgage-related bank settlements. This created what he called a $500 million “slush fund” that could be steered toward favored groups.

“The first objective of a settlement is to make sure that we have victims who are made whole,” Duffy said, referring to millions of Americans who lost their homes during the meltdown that led to the Great Recession of 2009. “If you’re diverting money away from victims and sending it to third-party activist groups, you have victims who are being harmed not just once, but a second time.”

Justice officials were long able to “skim 3 percent of any settlement money into their own account to, for the most part, spend it the way they see fit,” Duffy told participants in the media briefing hosted by the Cause of Action Institute, a nonprofit legal watchdog group that seeks improved government transparency and accountability.

“Many of us in Congress were alarmed when we found out about the bank settlements and the fact that money was not just going to victims and to the Treasury, but there was a setup for settlement dollars to go to third-party groups,” he said.

Cause of Action has questioned the legality of the diversion of settlement funds to activists groups, but says it has been repeatedly rebuffed by officials at the Department of Housing and Urban Development and the Justice Department. Duffy also believes the diversions are illegal and unconstitutional.

The Senate Homeland Security and Governmental Affairs committee released a report Thursday showing a major year-to-year increase in the size of the three percent funds, going from $158 million in 2013 to $526 million in 2014.

Duffy charged that Justice and HUD officials “at a high level” cooperated in shutting out conservative housing and community organizations from access to federal funds set aside for housing assistance.

Under terms set by the Justice Department, Duffy said he could read documents about the bank settlement disbursements but could not reproduce them for public dissemination.

“It became clear to us that as this deal was structured, there was a keen eye to make sure that conservative groups could not access any money through these settlements,” he said.

Among the political activist groups favored favored by the settlements is La Raza, the nation’s largest Hispanic activist organization that routinely supports Democratic candidates and causes. Cecilia Munoz, a La Raza senior vice president, was appointed by Obama in 2012 to head the White House Domestic Policy Council.

La Raza is flush with money, reporting in 2013 to the IRS assets of $55 million. Janet Murguia, the group’s president and CEO was paid $417,000 that year, according to the group’s IRS tax return. Even so, La Raza is slated to receive at least $1 million from the Bank of America settlement and $500,000 from the Citigroup settlement.

Lisa Navarrete, a spokeswoman for La Raza, told The Daily Caller News Foundation that the group is one of 37 certified housing counseling agencies approved by HUD since 1998 during the Clinton administration. She said La Raza would pocket about 10 percent of the funds and the balance will go to local groups affiliated with La Raza to provide counseling for distressed Hispanic homeowners.

The Chicano Student Movement of Aztlan (MEChA) is also slated to receive $50,000 from the Bank of America settlement, according to Cause of Action.

In an oversight committee hearing held Thursday, Duffy said Justice officials in 2013 did not require mandatory donations to third party groups when it announced a record $13 billion mortgage bank settlement with J.P. Morgan Chase.

The rules apparently changed in July 2014, because as part of a $7 billion settlement with Citigroup, Justice officials “required a minimum of $10 million in donations to HUD-approved housing counseling agencies,” Duffy said.

A February 2016 independent monitor report about a Bank of America settlement, obtained by TheDCNF, showed that $125 million had been “donated” by the bank in 2014 to 147 “community” groups and “housing counseling agencies.”

To “incentivize” the donations to third party groups, federal officials permitted the banks to receive a two-dollar tax credit for every dollar they gave to community groups, twice as much as was credited for “principal forgiveness” for homeowners hardest hit by the economic collapse.

Cause of Action President and CEO Alfred J. Lechner Jr. said his group has filed a petition for rule-making with Justice and Treasury Departments concerning “whether the DOJ discretionary disbursements unlawfully directed settlement funds outside of the Treasury and unconstitutionally allocates taxpayer dollars.”

Lechner, who was appointed in 1986 to a federal judgeship, said the rule-making petition addressed “whether political cronyism motivated the terms of these residential mortgage-backed security settlements.”

“We’re looking at how routing of third-party settlement money to third-party groups without congressional authorization violates the power of Congress to appropriate funds. It appears this money would be better spent, better used for the victims of this mortgage crisis at the time,” he said.

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