The Department of Housing paid exorbitant fees to a lender administrating the Shoreline Resiliency Loan Fund, part of Gov. Dannel Malloy’s Shore Up CT program created in 2014 to give homeowners and businesses low interest loans to upgrade their properties to withstand coastal storms in the wake of Superstorm Sandy.
According to an audit for the years of 2016 and 2017, the fund provided $700,000 in administrative fees to the lender, who only secured 12 loans totaling $2,026,900, amounting to $58,333 per loan.
“DOH paid unreasonable and excessive administrative fees to its lending partner to launch and operate the Shoreline Resiliency Loan Fund,” the auditors wrote. “In addition to the administrative fees, the lending partner retained approximately $18,000 of loan interest and received $20,269 from a 1% origination fee from borrowers.”
DOH says that the high administrative fees are due to start-up costs and much lower than expected use of the program.
DOH estimated the fund would provide 204 loans, but only procured 12 loans with a total of $1.7 million outstanding, according to the auditors.
“The initial projected number of borrowers in this program was significantly higher than actual,” the DOH responded. “The total administrative costs associated with this program, however, were in line with the proposed initial budget and, as such, were reasonable, based on the original projected number of loans to be serviced by this lending partner.”
The Shore Up CT program was initially funded with $5 million in state bonds and Malloy secured authorization for another $25 million in bonded funds from the legislature in 2014, part of a $933 million bond authorization act.
Additionally, the auditors noted DOH was not sufficiently monitoring the loans provided through the Shoreline Resiliency Fund, noting the department did not obtain or review independent audits of the lending partners.
DOH responded that it was not cost effective to implement internal controls for the program, but “regularly reviews the monthly financial activity supported by annual audited financials” that are backed up with “third party documentation.”
DOH also noted that the Department of Economic and Community Development is responsible for reviewing independent reports for lending partners.
“During the audit period, DECD lacked the resources to perform this work,” DOH wrote in its response. “DECD has hired additional staff and is now current with its review.”