HUD Official’s No-Bid Contract Awards Trigger Probe : Ethics: Kemp aides say friendships between consultants and a housing agency’s embattled director may have violated federal regulations.

WASHINGTON —  Housing Secretary Jack Kemp ordered an investigation of a top official he selected to run a new housing finance agency after she awarded three consulting contracts to personal friends, his top aides said Friday.

Kemp also restricted the contracting authority of Mary K. Bush, director of the Federal Housing Finance Board, after the no-bid contracts came to light.

“While there is no evidence of impropriety, the appearance is unacceptable and the secretary (Kemp) won’t tolerate it,” said Francis Keating, general counsel of the Department of Housing and Urban Development.

“The secretary is insistent that under his administration that there would be no friendship contracts or no-bid contracts,” Keating added.

Kemp discussed the issue with Bush at length on Thursday and is awaiting a report next week on the contracts from HUD Inspector General Paul A. Adams on whether her actions violated federal regulations.

The episode seemed to dim her chances of being named permanently to head the new agency even if she is cleared of any impropriety. The agency, which will handle hundreds of millions of dollars in housing subsidies, is financed by profits generated by 12 regional federal home loan banks.

Bush was not available for comment Friday. But in an interview with the trade publication American Banker, she said she awarded the contracts to people she knew because she had to get the agency started from scratch. “I had a job to do,” she was quoted as saying. “I went to people who had experience in the things that I needed.”

One contract for $49,000 went to Margery Waxman, an attorney who got to know Bush when both were at the Treasury Department. Waxman later represented Charles H. Keating Jr., head of the bankrupt Lincoln Savings & Loan Assn. of Irvine, and once claimed she had put “pressure” on M. Danny Wall, a former federal regulator, to do what Keating wanted.

Another contract for $37,000 was awarded to Wendell Gunn, former chief of staff to Kemp, and a third award for $110,000 went to the Atlanta office of McKinsey & Co. Kevin Coyne, a partner with the management consulting firm, also knew Bush at Treasury.

Bush acknowledged that there was no competition for the consulting contracts but said the Housing Finance Board, as an agency that does not receive funds from Congress, is not bound by federal bidding regulations. In the past, however, the predecessor agency, the Federal Home Loan Bank Board, followed these regulations anyway, HUD officials said.

Bush, 42, who is no relation to President Bush, came to the newly created agency last September with the hope of heading its five-member board, but the President has not filled any of the four vacancies in the seven intervening months.

Kemp, as HUD secretary, automatically is a member of the Housing Finance Board and, since he is the only board member, has been acting as chairman.

Bush previously was vice president for international finance at the Federal National Mortgage Assn. and served as U.S. alternative executive director of the International Monetary Fund by appointment of President Ronald Reagan.