This is a rush transcript from "Hannity," September 7, 2011. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: It is the case of big government overreach that has local officials in one county in New York protesting. Now it's their right about local governance as the Obama administration officials fight to impose their vision of so-called diversity. Our very own Ainsley Earhardt has this story.

AINSLEY EARHARDT, FOX NEWS CORRESPONDENT: Thank you, Sean. We are in suburbs of Manhattan. This is Westchester County, New York, where county officials are in an all out brawl with the Obama administration's Department of Housing and Urban Development otherwise known as HUD.

Back in 2009, the county officials here agreed to build 750 affordable housing units that looked just like these. The construction is still ongoing, a year ahead of schedule. However, county officials are now upset saying they are getting a litany of outrageous demands from D.C.


EARHARDT (voice-over): For HUD Westchester County is too white and the houses are too expensive. In a May 13th letter, HUD ordered county officials to quote "explain and analyze Westchester's long history of segregation" and fix it. Westchester County is mostly Caucasian, but segregation has never been legal.

KEVIN PLUNKETT, DEPUBTY COUNTRY EXECUTIVE: What HUD is trying to do is create this aura of segregation.

EARHARDT: Administration officials assume segregation is to blame for Westchester's racial composition, but county officials see other factors that work.

PLUNKETT: I categorically reject the fact that it is race that has driven the formation of the neighborhoods. People live in areas driven by economic reality, driven by family ties.

EARHARDT: And the Obama administration itself is not shy about its belief that the feds know best when it comes to building local communities.

RON SIMS, FORMER HUD DEPUTY SECRETARY: Today, we've taken an important step toward building what we call geography of opportunity.

EARHARDT: Perhaps most troubling are some of the administration's prescriptions for Westchester's so-called problem. HUD officials John Transdinia and Mercedes Marquez are demanding that the county urge banks to relax their lending standards, a policy instrumental in causing America's financial meltdown.

UNIDENTIFIED MALE: Some people took out mortgages they can't possibly afford.

EARHARDT: This isn't the first time the officials behind HUD's have been the subject of controversy. Ron Sims, the former number two at HUD, illegally withheld documents from a constituent when he served as executive of Kings County, Washington. Last year the state Supreme Court fined Sims' office more that $370,000.

And back in 2007, HUD assistant secretary Mercedes Marqez came under fire for almost paying $30,000 tax dollars to a Zen Buddhist priest for so-called management training when she worked for the city of Los Angeles.

Worst still, these officials are vowing to take their plan for Westchester County national.

SIMS: At HUD, we believe this approach to equitable development can serve as a model for building strong, inclusive substanable communities across the entire United States.

EARHARDT: Officials here in Westchester County are vowing to stand their ground. Meanwhile, the Obama administration has made it perfectly clear that the outcome of this battle will resonate across the country. Now back to you, Sean.


HANNITY: That's our own Ainsley Earhardt.

Joining me now the man leading the fight against HUD, and that is Westchester County executive, Robert Astorino. By the way, you have a web site set up for this. You put up a lot of --

ROBERT ASTORINO, WESTCHESTER COUNTY EXECUTIVE: Well, robastorino.com, it is where we have the letter that HUD wrote to the county basically making all of these crazy demands that are outside the scope of the settlement.

This is government gone wild. It is social engineering at its worse. This is the model that they want to move around the country to every county and every town.

It started with when any county took money from the federal government, this case HUD, you had to certify documents. And the county settled with the federal government saying they didn't certify certain things, which lead to a housing settlement, which now HUD is calling an integration order.

HANNITY: As I look this, first of all, this is the highest taxed county, property taxed county in America and you want to lower it by the way.

ASTORINO: Yes, I do.

HANNITY: I know because I live in the number two county, which is nearby Nassau County. All right, they are giving this money to build housing. If somebody applies and they can meet the mortgage, in other words, standards, they can get the loan. These are very inexpensive housing compared to the neighborhood, right?


HANNITY: Anybody of any race, any religion, any color, any creed, can get one of these units. There's no discrimination.

ASTORINO: None, whatsoever and --

HANNITY: So what are they demanding here? Banks lower standards? Isn't that what happened with Fannie and Freddie?

ASTORINO: HUD is trying to change the rules of the agreement in the middle of the game. We are building housing. As part of the settlement the county has to build 750 units of affordable housing in 31 eligible communities. Eligible meaning white communities based on the census, seven percent or less Hispanic, three percent or less African-American.

We are complying with the settlement. We are actually finding locations, working with communities and building housing. In the middle of the game, we get a letter from HUD saying not good enough. We want you to do x,y and z including we want to find out how you are going to combat local opposition, to me. What are you going to do combat opposition. Like tear gas, I don't know, all these crazy things, loan modifications.

We don't do that. We are the fourth most diverse county in New York State. We are as diverse as Manhattan. And yet, Westchester is being singled out as a test case by HUD to take this around the nation.

They are trying to make us do things that are not in the agreement and we are not standing for it. They are trying to bankrupt our county. The original agreement was $51 million to build 750 units. They are basically making this cost go to over $100 million by making us or wanting us to put three bedroom units in our communities. So there's a lot of things --

HANNITY: They are changing the rules. What are they trying to do here? Is this the equivalent of you know, I guess affirmative action, forcing you know -- I guess demographically it has to be a perfect way regardless of people's ability to pay or get a loan. What are they trying to do?

ASTORINO: They are trying to say that Westchester has a pattern of segregation, discrimination in its housing policies. We don't do that. The facts have said --

HANNITY: Has any African-American, has any Hispanic-American been denied access to your housing?

ASTORINO: None that I know of, but, look, does racism, discrimination exist in this world? Of course it does. But they are saying, their thesis is Westchester is segregated, has been segregated and continues to be. The facts don't bear that out. It's economically based.

HANNITY: You are saying it is one of the most diverse county --

ASTORINO: One of. In New York state.

HANNITY: With the highest property taxes in the country.

ASTORINO: That's right.

HANNITY: And what are you planning to do?

ASTORINO: We are holding firm. We are not going to allow HUD to bankrupt our county. They want us to sue our municipalities to rip up local zoning. We are not going to stand for that. If this is the test case for the rest of America, we are going to hold firm and make sure they don't succeed.

HANNITY: Rob Astorino. We worked together by the way in radio years ago.

ASTORINO: We did. Congratulations on 10 years.

HANNITY: Thank you very much.

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