STATEMENT OF JOHN SUTTER, CITY COUNCILMAN, OAKLAND, AND REPRESENTATIVE TO THE EAST OAKLAND HOUSING TASK FORCE

Mr. SUTTER. About a year ago the citizen group which you have referred to, I think, Senator, in our walking tour of the East Oakland Housing Committee, brought to the attention of the community the serious problem of housing abandonment in Oakland. I suggested that the council sponsor an official body, the East Oakland Housing Task Force and that has been done.

I think that our studies indicate that this is really an emergency situation. The city council has passed a motion to that effect. As a matter of fact unless action is taken and taken rapidly, the situation deteriorates.

Anyone who lives on a street such as the one we toured today and sees around him abandoned houses becomes pretty demoralized. There is little incentive to maintain your own property when you see other properties around you deteriorating and deteriorating rapidly.

So there is an effect of more abandonment once you have one or two abandoned houses on the street. So we need whatever assistance may be available.

There is no one answer. I think the bill which we are discussing here today is one approach which will be useful and helpful.

I would hope that if this bill is passed, that Oakland is designated as one of the cities, and I would hope that the hearing here is some indication that that is what is in the back of our Senators' and Congressmen's mind.

It would be one approach that would be helpful for the reasons of which Mr. Chastain has mentioned.

I think there are a number of other things that can be done and which we need your help on. One of them requires appropriations. The others require some regulatory or administrative changes.

The one that requires appropriations is help with our public housing program.

One factor which is often overlooked in the abandoned housing problem is that it extends to public housing, not only in Oakland but in other communities. We have the phenomenon of some very new public housing, some of which was only built 5 or 6 years ago with abandoned units.

The reason the units are abandoned is that the Housing Authority does not have enough money to do the modernization or the repairs that are required in order to get those units rehabilitated and re-rented.

The Federal Government has decided to cut back on modernization grants and in general to try to reduce the cost of public housing in this country and we see one of the effects of that. One of the effects of that is that we have a substantial number of abandoned units and that's a very depressing situation for the other tenants who reside in public housing and for the people who reside in the neighborhood and that's a particularly serious problem for neighborhoods in Oakland because we have scattered-site public housing in East Oakland.

We have triplexes, four-plexes, six-plexes in neighborhoods which are primarily single-family areas and those multiple buildings in those cases are public units, public housing buildings with abandoned

units in them.

The other items which I think can be attacked by administrative regulation or direction, one of them-or three. One relates to urban homesteading; another to redlining; and the third to the whole process of the 16-month cycle which Mr. Chastain referred to when there are foreclosures.

With respect to urban homesteading, as you have been informed, an application has been filed by the city of Oakland. I know that you gentlemen have been helping us. We need your help, your continuing help and continuing support so that Oakland can be designated one of the cities for the urban homesteading program.

I think we have to face reality. The program which has been suggested by HUD is a $5 million program nationwide. That is a very small program. I understand they are going to select a few cities, perhaps 10 or so nationwide. For those few cities it could be a substantial help. I think that Oakland is in an excellent position to be one of those cities. We have the citizen organization which has been working on this problem, the East Oakland Housing Committee. We have the unanimous support of the mayor and the city council to try to resolve this problem. We have dedicated a substantial portion of our public funds to the East Oakland area.

So we have the local support. We have designated a substantial amount of our community development funds for this problem. So we feel we merit support and we hope that you can help us become one of those cities for the urban homesteading program.

Second, with respect to the redlining, I really don't agree with what Supervisor Cooper has just got through saying. Redlining is a serious problem. There is redlining in East Oakland and there has been for many years and the studies of the East Oakland Housing Committee show this very conclusively.

I don't know if they brought their map but they have a map where they checked all the recorded sales and loans over a period of several years in East Oakland, and you see a lot of dots in hill areas, Piedmont, in the more affluent areas of Oakland. And you see very few dots representing loans made in East Oakland and when you examine those dots they are usually where there is some kind of 100 percent guarantee so the bankers and loaners can't lose a dime. It is a problem.

We are now living with a problem that has existed over many years. One of the reasons that some single-family dwellings are hard to sell is because they are not in good condition and they are not in good condition because one could not get a loan for the purpose of rehabilitation.

I would like to call to your attention an item which appeared in yesterday's newspaper on the approach that's been taken by the State of California. Our business and transportation director, Mr. Donald Burns, had promulgated a number of regulations which would outlaw or which would prohibit the practice of redlining by State-chartered

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financial institutions. These regulations would set up boards of inquiry to review lending procedures and hear customer complaints. They would require the State-chartered savings and loan assocations, among other things, to tell customers that they could file a written loan application to which the savings and loan must respond in writing within a 21-day period.

The savings and loans must inform customers how they can have their rejected application reconsidered and referred to this new board of inquiry.

I think some such procedure as that is also needed by the federally chartered savings and loan associations and banks.

In addition to that it seems to me some regulatory change is needed with respect to the practices of bank examiners.

We often hear the complaint of savings and loan officials and bank officials that they are not making loans in difficult areas because the books had to look good when the bank examiner comes around.

I don't know if that's real or if that is an excuse or an accommodation of both. I suspect it is not entirely an excuse.

Let's hope there is an additional risk on the part of a financial institution to make loans in some areas like East Oakland but that is a risk that must be taken for the public good and that's a risk that must be part of the privilege of operating a financial institution which is granted by the issuance of a permit by the State or by the Federal Government.

In addition to these kinds of regulations, it seeme to me an approach, which is worthy of further study and on which I have personally supported although I recognize it is in controversy, is an assigned-risk concept where banks and savings and loan associations are assigned loans in risky areas so that all of them are required to provide loans on the same basis that loans are provided elsewhere and in that way provide the same kind of benefits of loans to people in areas like East Oakland as exist elsewhere.

Finally on the matter of regulatory changes which could make a difference and help us in this question of the 16-month cycle Mr. Chastain referred to.

If the people for one reason or another cannot maintain their houses and sometimes the reasons are not entirely financial, there may be divorce, whatever reason, people move out-they give up and meanwhile a lot of legal procedures are pending and the house just sits there vacant and that is an invitation to vandalism.

It seems to me a number of things could be done. One is to obviously give some financial help to those people who can stay and your bill addresses that problem. Another is to provide caretakers. FHA and VA do not put caretakers in these buildings. If a building is occupied. it is much less likely to be vandalized and become further rundown. Also the whole period of process it would seem to me could be speeded up. There are many other things that could be done but I have just tried to stress a few where your help would be most useful to the city. Thank you.

Senator CRANSTON. Thank you very much. I appreciate very much your very constructive and concise statements.

We have some questions to ask of you now. Some will be directed at an individual, some at the panel, and if others of you wish to comment on another's response or contradict anything said or expand on it or bring in another factor, please feel perfectly free to do so. John, you referred to people coming in on a temporary basis as a caretaker when a house is abandoned. What did you have in mind? How would that work?

Mr. SUTTER. Let's take the situation where a family is facing the possibility of foreclosure. It seems to me a couple of things we should do. We should try to help that family if it is at all possible to stay in the house but if for some reason they decide no, they are going to move out, that they don't want the house or they don't want the neighborhood or whatever it is, they are just going to move out of the house, then there should be some procedure where we will-say HUD could have a list of people who would want to live in houses at low rents or perhaps even rent-free, agreeing however to move out on very short notice and that those people would be able to reside in the house and their mere residing in the house would prevent a lot of property damage. Kids don't go around and vandalize houses that are occupied.

Senator CRANSTON. That is interesting and useful comment.

Pete, feel free to come in any time you want to ask a question. Congressman STARK. I want to see if I can understand the redlining problem and also to see if perhaps the mayor, Mr. Chastain, or John could clear up this point for me: I think I saw in the Trib that about $42 million-round figures-of the $12 million that Oakland should get in its HUD community development funds going into a revolving loan fund. The mayor is nodding. That's about correct?

Mayor READING. Yes.

Congressman STARK. Is that a revolving loan fund that is designed to put that money in the bank so the banks and savings and loans will be encouraged to make loans in neighborhoods and act as a guaranty fund?

Mayor READING. Mr. Chastain has been involved in setting that up. I am going to let him answer your question.

Mr. CHASTAIN. The actual revolving loan fund has not yet been set up. The proposal that the staff of the agency had made is that there be three basic types of loans made available; first an emergency-type loan to speak to the needs of people who have an immediate problem, a leaking roof, a deteriorating plumbing situation and that those loans be made available directly from a loan fund which would be a city-controlled operation. It could be administered either by a city, a city directly or by a private lending institution on a contract.

Second, the loan would simply be a rehabilitation loan available to low- and moderate-income people to resolve, at least in part, the absence of other facilities to fix up homes and even through private lenders. Let's say there was no such thing as redlining. There is still the problem of cost. There are many people who in East Oakland cannot afford a second mortgage on top of an existing mortgage at the going rates for short-term improvement loans which are in the neighborhood of 12-or-more percent now.

So the revolving loan fund would be based on an interest rate that would accommodate the needs of the family, loan payments would be based on an interest rate that would not bring the payment in, total payment for housing expenses in excess of 25 percent of the family's income.

The third category of use suggested is for a loan guaranty fund which could guarantee loans to be made by private lenders.

Congressman STARK. Thank you. We all question what redlining is and where it does and doesn't exist. There is now sufficient information available to tell us where State savings and loans make all their loans, and there are areas where installment loans are just not available. Most appliance dealers will tell you that the major purchaser of installment contracts wouldn't take installment contracts below East 14th Street. You call in one of them and they will tell you that is simply the reason for it, and unfortunately that is not against the law. Is there any discussion coming from the council or mayor's office on how we might direct those funds into those areas where there is no credit, call it redlining or lack of credit? It sounds to me like you come up with a very workable solution here in Oakland if you take that fourth ingredient and find a way to really limit the extension of credit only to those areas where the banks and savings and loans and credit unions are not now going, whether it is because of high risk or because of lack of funds or whatever.

Mr. SUTTER. Could I comment on that?

The recommendation-I don't think that it matters, when Mr. Chastain's outline has been finalized, and I think he explained that, that this is still at a working state so to speak. The East Oakland Housing Committee, East Oakland Housing Task Force had long discussions on this problem. Their recommendation was to make a division essentially but to give a substantial priority to those parts of the city, namely East Oakland, where we have the problem of housing abandonment but not to completely exclude problems elsewhere in the city. So there would have to be a formula which would give weight to the area where we have this problem.

Senator CRANSTON. How much Federal funding is actually available for abandoned housing in this community presently?

Mr. COOPER. Well, it depends on what you mean by "abandoned housing." I talked to San Francisco HUD over a year ago about a program in the sense that if they were willing to turn the home over to the city or housing authority at a low figure, below their appraised value, something could be done and we kicked it around and finally they decided they couldn't do it and similarly when you talk about 235 loans or guarantys, that's what they are mainly in business for. But you first had to find somebody willing to make the loan. But in terms of subsidies, I think Mr. Price will tell you they haven't had that. Urban homesteading program is designed for that.

Senator CRANSTON. There is nothing really adequate in terms of Federal assistance presently, is that correct? Is there nothing available that is really adequate in terms of amount?

Mr. SUTTER. I would disagree in that part of the problem. You had to look at the economic problem. If a bank, for example, says, "We are only going to lend to people who are earning $40,000 a year or more"