these sales are deposited into the same fund. If the VA is to receive long-term debt obligations of the corporation in exchange for its acquired properties conveyed to the corporation, a serious impact upon the liquidity of the fund can be seen. The lack of an adequate cash flow might well leave the VA with no alternative but to seek additional appropriations in order that it might meet its obligations on outstanding guarantees.

In those instances where the mortgage covering the abandoned property is insured or guaranteed by an agency of the United States there is provision, as previously indicated, for the seizing and forfeiture of the property with payment of just compensation to the parties in interest. If such payment is to be made to the holder of a mortgage at or shortly after the forfeiture of the property to the corporation, it leaves unclear the position of the guaranty issued by the VA to the lender. Normally the claim under the guaranty would be presented to the VA subsequent to the liquidation of the security and application of the proceeds of the sale to the outstanding indebtedness. Obviously if the holder of the mortgage has been paid in full by the corporation, insofar as the mortgagee is concerned, there no longer is any outstanding indebtedness unless the corporation becomes the holder of the mortgage by assignment. In this event it appears the corporation would then be in a position to file the claim under the guaranty with the VA Since the corporation would retain title to the property the VA would be in no position to recoup its payment by means of resale of the property, thus further endangering the revolving fund. It is our feeling that the bill shouid specifically clarify the potential liability of other federal agencies that have guaranteed or insured mortgages in the demonstration areas.

Section 6(d) provides for the corporation to acquire from the Administrator of Veterans Affairs properties to which he holds title, the consideration for the conveyance of the property to be its fair market value. However, the fair market value may not exceed the unpaid balance of the mortgage. Properties held by the Administrator are not usually subject to a mortgage obligation. Therefore, a strict interpretation of this section could result in a requirement that the Administrator convey the properties to the corporation without compensation.

Additionally, the VA may sell a property on an installment contract. Technically, an installment contract is not a mortgage and until such contract is paid in full title remains in the Administrator. It is unclear whether the term "mortgage" at the end of said subsection (d) is intended to be applied in the narrow technical sense. If it is, once again there would be no unpaid balance on the "mortgage." Additionally, this section makes no allowance for the payment of management and foreclosure expenses or for the reimbursement to the VA of monies expended in improving such property prior to its acquisition by the corporation.

As a final note, Section 3 (1) of the bill narrowly defines the term "residential property" for the purpose of S. 1988 to include only those properties which are subject to mortgages which are insured or guaranteed by an agency of the United States or which are subject to mortgages held by a "federally related financial institution." In addition to guaranteeing and insuring loans, the VA also makes direct loans under certain circumstances. When VA acquires a property, we often resell it on credit (i.e. on an installment contract, or for a note and deed of trust or note and mortgage). The definition in Section 3(1) would not apply to these latter cases. This distinction is especially important in Section 6(d) which refers to "residential properties to which title is held by... the Administrator of Veterans Affairs." Where the Administrator holds title, as noted above, there may be no outstanding mortgage or other debt, or. if there is, the loan would have been made, but not insured or guaranteed, by the Administrator.

I have attempted to point out some specific objections without attempting to be all-inclusive.

The Department of Housing and Urban Development has prepared a report to the Committee on S. 1988 strongly opposing enactment of the bill and noting a number of major difficulties that the bill would create. Briefly summarized, the major difficulties include:

The bill would duplicate what can already be accomplished by local governments with Federal assistance under title 1 of the Housing and Community Development Act of 1974, and would duplicate HUD's property disposition function.

The bill would create a new Federal Neighborhood Protection Corporation as an agency of the United States, and inject it into problems better solved by local governments and local citizens.

The bill would impose a major burden on the Federal courts.

The corporation's losses would have to be subsidized by the Federal Government. Furthermore, the bill would provide for backdoor financing which is inconsistent with the Congressional Budget Act, and would provide an exemption from budget control.

The corporation's authority to apply properties on a mandatory basis from FHA and other Government agencies would operate to deprive the insurance fund of cash flow that would be realized in property dispositions, and would, in some cases, preclude recoveries that might have been obtained covering full

losses.

We urge the Committee to carefully consider the Department of Housing and Urban Development's strong objection to S. 1988.

I thank you for this opportunity to testify and will be glad to answer any questions that you may have.

Senator CRANSTON. Thank you very very much. I appreciate that. In light of the criticisms that have been voiced and I think they are pretty widely recognized that the as-is sales program, should that be modified, can it be made into a workable program, should it be abandoned or what, do you have any view on that?

Mr. CRAIG. Senator it would be my feeling that the way we are now doing the as-is program in Oakland is probably workable and safe. We have been doing this now for about 4 months and some experience will help us answer the question more precisely.

The interesting thing is there used to be community pressure to sell them rapidly and sell them as is because it did permit someone, presumably with a very small investment, to buy a property.

It is true that resulted in homes being occupied on various substandard basis. Hopefully now we have stopped that.

Senator CRANSTON. What percentage of as-is sales are to brokers and absentee landlords?

Mr. CRAIG. Most of them.

Senator CRANSTON. Most of them are?

Mr. CRAIG. When you say "brokers," I would enlarge that. Small contractors are heavy investors in the program because they have a small work force that they can put to work on it so it would be brokers plus contractors.

Senator CRANSTON. What programs or procedures do you have to monitor abandoned, boarded up homes to try to reduce the vandalism and destruction that occurs?

Mr. CRAIG. Senator, first the vandalism has taken place generally before HUD has title to the property. The renter is supposed to board the property up as soon as they are aware that it has been abandoned and they are supposed to supervise that property until the day it comes into our ownership.

When we receive notice of the foreclosure, it is immediately turned over to an area manager. Mr. Hicks is in the audience today and is an area manager in Oakland. His office secures the property, makes sure that the boards are on or if they aren't that they are put on and we also have a full-time, round-the-clock watchman's service which rotates around Oakland. This has reduced vandalism on our properties though it doesn't totally prevent it.

Senator CRANSTON. Is it often the case the family just moves out and nobody is aware of it?

Mr. CRAIG. More likely for most before somebody is aware of it. The procedures for payment on a house, particularly such as in most cases since they are recognized do not recognize the vacancy until sometime after a payment was due because there is a routine followup notice sent.

Some lenders inspect their properties on a fairly regular basis in an area like this and they probably would spot abandonment sooner. Senator CRANSTON. Couldn't the system be worked out where perhaps the neighbors themselves in a block would advise HUD of a empty home?

Mr. CRAIG. Surprisingly one of our more serious abandonment problems is in some new construction in Santa Clara County. The planned unit development where the cost was so low to get in that when people have an option to go elsewhere for employment, they find they can't resell their house and pay a commission and come out on it so they just stop payments.

We have made arrangements with the homeowners' associations in those areas to watch the property and in exchange for that we do not put the boards up, which of course announces its availability for vandalism.

We would like to work something like that in Oakland if there were a cohesive neighborhood arrangement to do it.

Senator CRANSTON. Fran, would that be something your organization could do or have you attempted to have any warning system where people on the block notify you or HUD when there is a home that is suddenly empty?

Miss MATARRESE. I think we would like to discuss that.

Senator CRANSTON. Why don't you do that. It seems to me that might be one fruitful step.

Mr. CRAIG. It would seem to me, Senator, that it would need to be a citywide agreement since our inventory represents a fraction of the total abandonment problem in Oakland. Obviously we would be anxious to cooperate with them.

Senator CRANSTON. Do you have to start everything so big you can't ever start yet or can you start in one given area and see how it works and when you have an organization like the effective one in East Oakland, I should think you might try something there and see if it could be tried some places.

Mr. CRAIG. Our green-lining proposal to Mayor Reading is we pick out a target area and do everything possible to reserve that area.

Senator CRANSTON. What about the proposals or the suggestions of a caretaker program or the variation of London licensed squatters? Mr. CRAIG. There is nothing in our regulation that would prevent that from being done now. The lender does have to deliver the property to us unoccupied but they could occupy it during the vacant period and actually we could make arrangements to accept continued occupancy on a short-term rental basis. However if there has been a period of time when it has been abandoned between that occupancy and the time that it is abandoned, the vandalism itself brings the house lower than healthful occupancy standards.

We have weighed the idea of an interim tenant at very small cost

or no cost but, in fact, when we have the house inspected it is not habitable and wouldn't work.

Senator CRANSTON. Is the acquisition rate for houses insured under the various programs still climbing?

Mr. CRAIG, No. It has been reduced for the last year in our area and we are now at the lowest we have been in many years.

Senator CRANSTON. Did the 1974 moratorium on HUD foreclosures artificially decrease the foreclosure rate?

Mr. CRAIG, The

Senator CRANSTON. Wasn't there a moratorium
Mr. CRAIG. On multifamily?

Senator CRANSTON. Yes. Only on multifamily.

Mr. CRAIG. Yes.

Senator CRANSTON. Did that affect your rate, the rate you just referred to that is down?

Mr. CRAIG. When I referred to that rate I was talking about single family and there was no moratorium on single families.

We have urged lenders to forebear on foreclosure and most of the lenders in connection with the FHA in fact are cooperating with that. We have a serious multifamily default in northern California. However in Oakland at this time there is only one multifamily projeet in HUD ownership.

Senator CRANSTON, Fran, do you have any people in your organization or the community that might fit into a caretaker type program? Do you think your organization could help work with HUD to work out such a procedure?

Miss MATARRESE. I think we would prefer to discuss that in committee before I make a statement here but we could bring that up and also discussing

Senator CRANSTON. I have some other questions that I would like to submit for written answers from you, some requiring some statistics. You may not have it at your fingertips.

I thank you very, very much for your presence.
Pete, do you have any questions?

Congressman STARK. I just wanted to comment, Senator, to Mr. Price and to a less extent to Mr. Craig. They have been extremely most helpful to my office and I know the other offices in the bay area for all kinds of constituent assistance, not just foreclosed homes, and Jim has a unique feature, among those in government service, of being able to make a mistake every once in a while and do something about correcting it. That's very refreshing.

Senator CRANSTON. That's incredible.

Mr. PRICE. I would add my thanks to an agency with which we deal so often and happily and which works very well together with us. Senator CRANSTON. You have been most cooperative with us also and we deeply appreciate it.

I thank you for your presence here and your concern. This hearing will now recess. We are going to have another hearing like this in Los Angeles tomorrow on the same topic and then we are going to get to work on the bill, program in Washington.

Thank you very much.

[Whereupon, the subcommittee recessed, to reconvene on Friday, August 29, 1975.]

[Additional material submitted for the record follows:]

[From Bank of America News]

UNIQUE BANK PROGRAM TO AID BLIGHTED AREAS OF THREE CITIES

SAN FRANCISCO, February 17, 1976.-Bank of America today announced it has signed contracts with the cities of San Diego, Torrance and Menlo Park as the first participants in a key element of its unique City Improvement and Restoration Program.

Conceived by the bank's Social Policy Department in late 1973, the program is designed to pull together and coordinate the bank's efforts to improve the quality of California housing and older downtown commercial property. It provides for low-interest loans, bond purchases and financial expertise. Loans or bond purchases may be made for the rehabilitation of residences or commercial buildings, purchase of older homes, construction of low-cost and senior citizen housing, physical improvement of downtown areas and acquisition of park and recreation facilities.

A bank-wide committee spent much of 1974 researching the needs of California's cities by analyzing eight communities to determine their needs and explore ways which the bank could help to meet them. That committee's report near the end of 1974 resulted in the design of the City Improvement and Restoration Program. The program is aimed at four obvious problem areas in California cities: rehabilitation needed to preserve existing housing, the need for additional low-cost and senior citizen housing, the need to revive older downtown neighborhoods and the needs of city administrators in the areas of financial expertise that the bank's staff can offer.

Following study and contact work throughout 1975, the bank committee began to approve individual projects generated largely at the community level. Each project demands a carefully tailored program, one taking full advantage of available state and federal assistance so that the best possible terms can be created for the borrower.

Kyhl S. Smeby, a Bank of America senior vice president in Los Angeles, chairs the City Improvement committee. Commenting on the contract signings, Smeby pointed out that the 1974 Housing and Community Development Block Grant Act essentially casts cities in the role of lenders dispersing federal revenue sharing funds for housing rehabilitation. "We realize that cities are not usually in a position to act in that capacity, and are offering California communities our expertise to expedite the channeling of those funds," he said.

Smeby noted that the bank has an obligation to aid California cities in this rehabilitation effort. "In response," he said, "we have developed a proposal which allows those funds to be loaned, at below-market rates, to qualified residents designated by the city." To make this proposal available state-wide, the bank committed a staff which has made the presentations to more than 80 California cities and counties.

San Diego, Torrance and Menlo Park are the first cities to sign contracts as participants in the program. Many other cities and counties have indicated that they are seriously considering the bank's program as a means of implementing their housing rehabilitation projects.

"We feel that this program has great potential and fills a need which has been largely unmet in recent years," Smeby said. "Its flexible guidelines will support a number of useful projects and will have the effect of revitalizing older areas of California's cities and providing additional housing for its citizens."

[Report: Special Issue, Advisory Council 1 On Historic Preservation, Washington, D.C., December 1975, Vol. III, No. 8]

HISTORIC PRESERVATION LEGISLATION IN THE 94TH CONGRESS

(By Gary Messinger, Office of Intergovernmental Programs and Planning) The National Historic Preservation Act of 1966 instructs the Advisory Council on Historic Preservation to advise the President and the Congress on historic

1 The Council is an independent unit of the Executive Branch of the Federal Government charged by the Act of October 15, 1966, to advise the President and Congress in the field of Historic Preservation.