are very few people who have tried to specialize in that unique enterprise of taking abandoned houses and rebuilding them in a way that they are suitable to the neighborhoods they are in for people who can afford to live there. That is a very delicate enterprise and I really don't know of many people who do it as well and they are to be commended along with the East Oakland Housing Committee which has been growing all these many years.

I want to thank you all for taking the time-all of you to be here because with just a few more jobs and a little more money and a little more cooperation we could probably solve these problems in East Oakland. Thank you all.

Senator CRANSTON. Dr. Evans or Mr. Saladin, do you have further thoughts on how we induce private enterprise and financial institutions to get back into this field really effectively?

Mr. SALADIN. When we say "back into this field” I think we have been there but maybe not to the greatest extent possible.

One thing I would like to mention on insurance, and I am speaking for Great Western Savings now, we have not left private mortgage insurers alone. The loans we have been making in East Oakland, 90 percent we have been able to get profit mortgage insurers to go along with us on those loans. So I can't leave that sector out and I am sure they continue to go with us.

In ways to induce people, to repeat what I said earlier, I think inducement is knowing now that we have the support and we have a group that we can, as private lenders, people that we can really work with. The present inspection sale requirement is going to help us as lenders, if that is approved. There are things relative to the certificate of occupancy that we require now in certain areas that is going to be enhanced by developing, hopefully, a special department within the city and all of these things we feel now that we have some support and we can make loans with reasonable assurance.

We have the counseling center, Henrietta Scott, we are working with her. We have now a letter that the lenders can mail with their notices, their late notices, notices of default, referring that particular individual to the counseling agency. All these things help support us. Senator CRANSTON. Do you feel the assigned-risk approach that was suggested by Councilman Sutter could be made to work?

Mr. SALADIN. Yes, I think it is the same type of thing that is coming up as part of the proposal. Richard Ilgin's group, their part of the funding will be for an insurance for the private lenders.

As I say I don't think that is going-as we get into it I think the private mortgage insurers are going to go along with us to the extent those funds aren't going to be used to the extent other people think will be used.

I don't know if I am clear on that but I think the private mortgagors, they are going to go.

Dr. EVANS. Yes, I think those are good suggestions, particularly the absolute necessity of having the city cooperate so willingly in the things that are absolutely important that the city do and that banks can do, cooperation of building departments or whatever it is they may be called.

Senator CRANSTON. Do either of you have any figures on the amount of non-Federal-Government-owned property, not FHA, VA, that has been forclosured in Oakland?

Dr. EVANS. I am glad you brought that up. I was running over my time and I had a note. I suspect if we could figure some way to get data on that, we'd all be better off.

I know in my work I have on several occasions attempted to find out this datum without going to the trouble myself of checking it which is difficult to do and it isn't available as far as I know and I think we all need it.

Mr. SALADIN. I can only give you Great Western and we have on our list of foreclosed properties in a general confines, not exactly what you would call East Oakland, but basically East Oakland, 24 properties and we have approximately 1,200 loans in East Oakland, existing loans on our books.

So it is a very low percentage.

Senator CRANSTON. Dr. Evans, you have been involved with that Federal Home Loan Bank mortgage program run by Mary Wagner. Dr. EVANS. I am familiar with it. I am not involved in it but I have heard of it.

Senator CRANSTON. How is that working?

Dr. EVANS. Let's see. How shall I answer that? I think Oakland is much the better because of that program and other cities, too, which were utilizing it.

I think one of my concerns goes back to what I said a minute ago. I fear that there is simply not enough money in the hands of a lot of people to finance the loans.

If you make loans to people who cannot repay, that is just another word for subsidy. I don't say I am against it, I just say we ought to be clear with what we are doing and I think that may be one of the problems there. But they are excellent on counseling and they know their banking business.

Senator CRANSTON. Do either of you have comments on that?

Mr. ILGIN. I did have a comment on the inventory of abandoned houses.

The city of Oakland, since we have had the task force going, at least, and possibly some before then, has been keeping a running inventory of those houses. It comes out about once a month and they do research who are the parties in interest in the abandoned house as well as who the owner is who is defaulting. Also as far as Mary Wagner's program, we have talked to her recently also and, of course, she has an excellent program, works, generally speaking, with owner-occupant and not with abandoned houses and when we consulted with her recently, she was asking us about the abandoned housing in her area, which, of course, is also a very limited-size area because of her limited funds. And she is now going to try to contact private owners of abandoned houses in that area because she finds the same problem, that people who she is trying to help to keep their homes up are concerned because they will put so much money into their own home and they do not want to do that. Next door they may have one that's abandoned, boarded up, and something like we saw today.

Miss MATARRESE. I wanted to add a little something on this issue of homeownership versus renting.

In our dealing with the 235 program, we found that in almost every situation the families that we were putting in those houses had been paying more in rent for smaller units, for extremely dilapidated units than they were paying under the 235 program and the 235 program sets their housing payments at approximately 25 percent of their income so they are obviously paying too much to begin with. There are an awful lot of people out there who can cut the bucket so to speak in homeownership and simply don't have the opportunities and people who are presently paying an awful lot more in a far worse condition than they could in some kind-It might not have to be 235 program but some way of getting homeownership opportunities. It could even be some kind of cooperative, scattered-site program for single-family houses but unless you are really committed to making homeowners out of more people in communities like East Oakland, I think you are going to have a far greater recurrence of the kind of problems we have now.

Senator CRANSTON. I want to ask this of each of you or any of you who feel like responding but what do you feel about the preauction system? How does that work out?

Mr. ILGIN. The present what, auction system?

Senator CRANSTON. Yes.

Mr. ILGIN. What we had here with HUD in the past was that the auction would be on a Monday morning but first choice would go to speculators and investors and they would be able to bid on the house. This is HUD houses and I think if the house doesn't get sold the first week-Mr. Price will be able to explain it better than I can but if it didn't get sold the first week, then the 235 certificate holder would have his chance.

I believe that that has very recently been changed due to our urging so that 235 certificate holders and all others have an equal opportunity to bid on the first time the house is put up for sale.

Our position remains as it has been, that the 235 certificate holder should have prime choice.

Senator CRANSTON. What seems to happen to a property that is picked up by an investor or so-called speculator?

Mr. ILGIN. Past experience, and there have been abuses, and I am talking about abuses that have been such abuses in the past, that while the speculator was supposed to have come in and rehabilitate the house before it was put on the market or occupied, subsequent to inspection by someone from HUD, would reveal that someone had indeed moved into the house before anything was done to it.

I think Mr. Price could probably give you a much better picture of that.

Senator CRANSTON. Do you think HUD programs or disposition of these properties leads to abandonment?

Mr. ILGIN. If HUD properties are left for long periods of time, I am certain that abandonment is the final result and I think you address yourself to that problem, time element in the bill, and of course any kind of abuses of any program will lead to further abandonment.

There was one other concern that we have regarding the bill and was that the question is does it amount to something similar to 100 percent financing? Does it tend to bail out the city? That's our

concern.

Miss MATARRESE. I was just going to say I think it is a measure of the way the HUD is using the 235 program to sell their own property, but not allowing it to be used for any of the other abandoned properties. In many areas there simply is not the market for the properties.

In terms of bidding procedure itself, we have purchased a number of properties from the bidding procedure and I think there are probably more efficient ways of dealing with these properties. For example in the past there was a nonprofit organization used to be able to go into HUD and obtain these properties prior to going through the bidding procedure with the understanding that these were to be rehabilitated and resold to owner-occupants.

In some ways it is a more efficient procedure than having it go through HUD bureaucracy.

Senator CRANSTON. Does the present system where investors or so-called speculators get a hold of a piece of property, lead to more or less abandonment in the course of time?

Mr. ILGIN. That would be difficult for me to say but our past experience would indicate the presence of an overabundant-an overabundance of rentals which generally means speculators in your area is not good for a neighborhood where the residents are primarily interested in their single-family dwellings.

Senator CRANSTON. Thank you very, very much.

It has been very helpful of you to be with us. Thank you.

Our final panel now will consist of James Price, Area Director, San Francisco Area Office, U.S. Department of Housing and Urban Development and Fred Craig, Loan Guaranty Officer of the Veterans Administration.

If you could first of all lead off by commenting, Mr. Price, on the various statements that have been made by people that refer to you in your operation.

Mr. PRICE. Thank you, Senator. I was going to say rather than reading the statement you already have, I would be glad to respond to those and only use a little of the material in the statement. Senator CRANSTON. Fine. That would be very good.

STATEMENT OF JAMES PRICE, AREA DIRECTOR, SAN FRANCISCO AREA OFFICE, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Mr. PRICE. As a general opening remark, however, I would like to say that we are very pleased with the attention that is being received now on these kinds of programs. We can hardly underestimate or perhaps I should put it more positively, we can hardly expect enough attention to the problem and this type of hearing will help achieve that type of result.

We also are very pleased with the East Oakland Housing Committee and other organizations because they have focus on the problem. I am firmly convinced that to get action on these problems will take local community effort, that no agency of the Federal system or State system will actually solve these problems.

I woud like to comment on the house that we visited this morning because I think it is a significant example of the kinds of problems that exist.

At 6226 Bromley, a house that was built in about 1922 was most recently purchased by the immediate occupant in April of 1974. Foreclosure was started by the lender in February of 1975 and we received it on August 6 verifying that approximately 6 months' foreclosure

process.

By that time, of course, it had been abandoned and had been seriously damaged. However, another key point to this is that during the period from April of 1974 to the time of foreclosure, no payment was ever made on that property. The downpayment for the purchase price of about $19,000 was around $600 including closing costs.

The net effect was that the party who abandoned that home occupied it at a rate of less than $50 a month during that period of occupancy then left it without ever paying a nickel toward the mortgage.

Now, one problem is we have no way-we do not know now where that party is so we have no way of discovering what the circumstances were, and I will not make any judgment about why this happened.

Congressman STARK. Was there any indication how long the person lived in the house?

Mr. PRICE. There is no evidence as to the date that they actually moved out if that is what you mean.

Congressman STARK. What was the purchase price? Do you have any idea what the purchase price was?

Mr. PRICE. The purchase price was $19,000; the HUD loan, $18,600, is what HUD paid off to the lender. Our estimated repair cost on that property is $8.000 which is a little higher than average. You saw it was stripped of plumbing.

Congressman STARK. One of the things that occurs to me is that the real estate commission on selling that house had to be $1,140, with a $600 downpayment, if that wasn't in cash or was just a note, it just opens the way for a whole lot of chicanery to put in a dummy purchase with a $600 note, if that can be done by our underwritings, where the unscrupulous real estate broker puts $500 in his pocket and nobody lives there at all.

Mr. PRICE. We believe this is an act of practice, and it is difficult to track as you are aware.

We are very well aware of the practice of a speculator buying a property, maybe one of ours or maybe another property on which we will put a mortgage and they will say in writing they will be the owner-occupant and, therefore, they get the very low downpayment but, in fact, they never do occupy it.