Just to put it very simply: HUD had units which were acquired because the property had been foreclosed.

Mr. SALZMAN. It foreclosed.

Mr. BUCKLEY. And they would sell those units to the Housing Authority?

Mr. SALZMAN. No. We had put up-what we did, we reviewed these units that were available. Most of them we picked up were in the south-central part of the city.

We didn't pick them up. We cosponsored a program with HUD whereby these units, in packages of 25 single-family homes on scattered sites, were offered to developers, contractors, anyone that wanted to bid to buy them from HUD, but linked to it was that they would also have to bid on what they would lease it to the housing authority for after they had rehabilitated those homes in accordance with the specifications that the Housing Authority had developed. Mr. BUCKLEY. Now, would it be possible under the new section 8 leasing program for HUD to sell the unit to the housing authority and for the housing authority to lease it?

Mr. SALZMAN. Well, there are other problems. For instance, in the State of California for the housing authority to take title to homes for families or for elderly, we have to have a referendum.

Now, we have had a successful referendum in this city, but only so far as for senior citizen homes, but we couldn't take title. Mr. BUCKLEY. With a nonprofit organization

Mr. SALZMAN. We can do it with a nonprofit organization.

Mr. BUCKLEY. Could you do it with a nonprofit organization which would take responsibility? If you had a list of people who are eligible for public housing, they would be able to lease units from the nonprofit organization, and HUD would pay the difference between 25 percent of their income and the costs of maintaining that unit; that would be possible, wouldn't it?

Mr. SALZMAN. Yes, provided you also threw into the mechanism. the ability to put these homes and make them decent, safe, and sanitary.

Mr. BUCKLEY. That means that they have to find some kind of financing?

Mr. SALZMAN. That's right.

Mr. BUCKLEY. Your State Housing Financing Agency might provide one form of that financing?

Mr. SALZMAN. Yes, possibly, but I don't think in the near future. Mr. BUCKLEY. What I'm trying to get at is that use of the public housing leasing program is still a possible way to rehabilitate and reoccupy foreclosed FHA-insured properties.

Mr. SLZMAN. It's still a mechanism. In fact, if a set-aside for substantially rehabilitated units in section 8 were available, that is all it takes.

Mr. BUCKLEY. You're suggesting that in administering this section 8 leasing program that isn't getting off the ground, HUD should set aside money specifically for the purpose of helping dispose the inventory of acquired properties. This would prevent the blight that these houses cause their neighborhoods. Could this be given a high priority in your opinion?

Mr. SALZMAN. Yes, but I wouldn't propose that HUD finance them up, because we have found that that doesn't work. The purchaser of the housing authority would get title to it; or through the means of a nonprofit organization, they could fix it up; in other words, the rentals, the fair market rents on section 8 are adequate to be able to finance and put them into good repair.

Mr. BUCKLEY. Was any study done on this program?

When you used the old section 23 leasing program, was any evaluation of the program done by HUD?

Mr. SALZMAN. I would assume so, because at the very beginning, at the bid opening in HUD, HUD people from Washington came out from the region to see how it was going, and we have done 5 packages that way, or 125 homes.

Mr. BUCKLEY. And are any of those properties that went through that process now abandoned, or are they all occupied and in good condition?

Mr. SALZMAN. Of the 125, all are occupied except 2.

Mr. BUCKLEY. And they are all in relatively good condition?

Mr. SALZMAN. Relatively. The problem is that, first, to get them from HUD, they had to pay too much for them. There are problems attached to it, obviously, because if it isn't economic to really repair it-if I were doing it, especially for the age of the homes that we do get under that program, in many of them the total plumbing should have been replaced completely, rather than only partially, but the money economic feasibility was so tied to what did you have to pay HUD to get possession of it or the ownership of it.

Mr. KORPSAK. Senator, the question Jerry has presented is a good point. We had the same experience with about a hundred units under section 23 where we basically took the ones that were currently abandoned and substandard and brought them up to rehab code under section 23.

Mr. BUCKLEY. I always thought this might be a good way to solve the problem, and I had heard that in Los Angeles this was being tried on an experimental basis.

Mr. KORPSAK. You can add Pomona to it.

Mr. BUCKLEY. And Pomona.

If this could be tested, I think we might have a mechanism here for providing the money needed to help repair and reoccupy some of these abandoned FHA properties. What would you say?

Mr. SALZMAN. Well, we have tried now for many months to get a set-aside on either due or substantial rehabilitation under section 8. We got as far as HUD recognizing it so that when they put out the regulations for the State Housing Finance Agencies, they indicated they were thinking about a set-aside for local housing agencies or for demonstrations, but that is as far as it's gone.

Mr. BUCKLEY. When I go back to Washington, I'll try to get HUD to give us a report on what is happening with that proposal of the set-aside.

Mr. SALZMAN. Because we had another interest in the set-aside, because the city of Los Angeles has a 15 percent ordinance on any new construction of 5 units or more. 15 percent of the units must be set aside for low- and moderate-income families, but that cannot be implemented unless there is a set-aside to it.

Senator CRANSTON. Do you have any figures on what percentage of the abandoned homes that exist in your communities that were insured under 221D2, 223D2, 235 and 236; if not, could you submit those for the record?

Mr. SALZMAN. I don't have it, but I would guess as far as most of those in the city of Los Angeles of single-family homes that were repossessed by FHA or HUD, were not constructed under any of those programs or were much older housing.

Senator CRANSTON. Mark, do you have any questions?

Congressman HANNAFORD. Briefly, Mr. Salzman, you said in answering Senator Cranston's question, that most of the expense of rehabing was not because of vandalism.

Mr. SALZMAN. That's correct.

Congressman HANNAFORD. A lot of them I haven't seen, for one thing, because those I have seen have been vandalized enormously. It also suggests that perhaps the code is the cause of the abandonment, that one might want to sell the home; but because of the inability to meet code standards, he is precluded; is that right?

Mr. SALZMAN. No, I wouldn't say that, either, at least in our experience; and true, it's limited, because we were working with HUD to take really the oldest properties that they were not able to sell so those properties they sold didn't take as much money to put it into good repair, and many of those were just due to age of the structure. There was some vandalism attached to it, but not that much.

Congressman HANNAFORD. Mr. Dotson, you said that you had a process whereby the owner was required to board up an abandoned house.

Isn't it a problem that most of the time you can't find the owner? Mr. DOTSON. This is one of the problems, and the city of Compton has sort of gone to this thing where the owner cannot be located and the house is abandoned, and it stays abandoned over a given period of time, then the city of Compton will board it up, cut the weeds from around the property, and charge it to the property owner. This hasn't been always successful, but it has been one of the ways of getting to the problem.

Congressman HANNAFORD. In one of your recommendations you said that a mechanism by which Government redtape could be cutis this Government redtape the delay between abandonment and the foreclosure?

Mr. DOTSON. This is what I had reference to.

Congressman HANNAFORD. Mr. Korpsak, you said that cooperation from the lenders would sometimes enable us to avoid this long ago. Isn't that the major problem, the State foreclosure laws?

Mr. KORPSAK. It is. There is a legal time that has to be given to the owner to relieve and then time to revert to HUD. The combination takes anywhere from 6 months, and we have uncovered houses lost by HUD vacant for 4 years.

Congressman HANNAFORD. Sounds like maybe we should be in communication with Sacramento to solve some of these problems. Thank you very much.

Senator CRANSTON. Thank you all very much. You've all been very helpful. I appreciate it.

STATEMENT OF VALARE PORTER

Mr. PORTER. Senator, before they leave, I'm Valare Porter, and I would like to say that no one has mentioned that in this area alone we have vandalism and burnt-out property. Your land value of your California land is a predominant situation.

I would like for you to answer, if it's permissible, is there something that is going on within the southeast Compton and Florence and Watts area, a slum? Does the Government or the people that are like HUD want this to be a decomposed area so that they can build, because not only is there a lot of redtape, it takes so long.

You have an eyesore. Now, we have this community development coming up. You have eyesores. This is the living proof; Watts is the living proof in 1975. I've seen right here all of this land; and even when they build these brand new homes over here, they dump all those bricks and everything. They let the weeds grow up and everything.

We are isolated. The seniors don't have anything. They have nothing to live for.

Already the code enforcement is very bad, very poor. The people that would like to come, ordinary people like me, they would like to come and complain to the realtors and all; but you know what, they have code enforcement so if they have cracks in the ceilings, if they have porches that are defective, if they have electrical wiring with no money, then they just stay mute.

When I have a problem myself in Compton, why, they have wall to wall; they wrote all over my property. We have put in windows, and they break out the windows. They stripped everything that I had in the house. They took all my plumbing and everything. Well, the house is really too old to even try to get a rehabilitation loan, and I notice there are several like this.

I would like to know what can be done about that. If some of you gentlemen on the panel can tell me what specific percentage of people who have burnt-out homes-they burned them up. When they board them up, they are not boarding them up; they are burning them, and they're burning the people out, and they leave this stuff there, and it takes about a year or so to get a demolition to get the job removed. Community beautification goes all the way down, you know, and an ordinary land person don't want to assume the responsibility of having to pay extra taxes because when that home goes down, and no other occupier or homeowner don't come in, then, look, the taxes go up and up and up, and that is what I would like you to answer.

Senator CRANSTON. Well, Valare, we are here because we know of those conditions, and we are determined to try to deal with them. We do have two more panels that we've scheduled, and we have to go ahead with them. If any members of the next panel can respond to the questions that Valare asked, I'd appreciate it very much.

The next panel consist of Richard Crissman, Cary Lowe, Ellen Kastel, and Herman Rappaport.

We have one more panel, and we have to complete our work by 12 o'clock, so if you can each briefly summarize whatever prepared statement you have and submit those prepared statements for the record, which would leave us more time for the questions of the committee, it would be appreciated.

Could you identify yourselves for this side [indicating], beginning with Herman Rappaport starting so for the record we know who you are.

STATEMENT OF HERMAN H. RAPPAPORT, EXECUTIVE, VENTURE CAPITAL CO., BEVERLY HILLS, CALIF.

Mr. RAPPAPORT. My name is Herman Rappaport, Executive Venture Capital Co.

Mr. CRISSMAN. I'm Richard Crissman of Ralph Sutro Co.

Mr. Lowe. I'm Cary Lowe of the community information project. Ms. KASTEL. I'm Ellen Kastel from the Center for New Corporate Priorities.

Senator CRANSTON. Mr. Rappaport, will you begin, please.

Mr. RAPPAPORT. My name is Herman Rappaport. I'm a private citizen. I am a management engineer by training, turned investor in real estate. I know that is an unpopular word here today.

I was for 5 years a member of the President's Advisory Council on Transportation.

I also was a builder for many years. I might say, with the exception of the gentleman who is a real estate broker who spoke from the audience, I possibly am the only man here who has made a living in building houses, pouring concrete, and putting my own personal signature to find a bank loan to put a deposit.

Senator CRANSTON. May I add that I've done that, too, before I was in the Senate.

Mr. RAPPAPORT. Very good. We have all seen Watts go in the last 10 years from an impossible situation to something a lot worse, and I would like to address myself to what I think is an almost incestuous relationship between the Government and the Government agencies and local leadership with the total inclusion of the private

sector.

The rehab of housing is an extremely difficult task, and it's probably the least profitable and I know that is a dirty word, again-it's the least profitable and the highest risk of any building program. I've heard figures of 7,000, 8,000, 9,000 houses in, let's say. Los Angeles County that are boarded up. We also have a construction industry that has up to 50-percent unemployment. It's in desperate need for housing, and certainly the private sector is interested in profits; and yet, no one seems to want to jump in and take advantage of the situation, and there has to be a very good reason for it.

I'm very much in favor of the bill, let me say, to start with. There is a desperate need for something like this, but I have very grave reservations at the implementation of that bill. I think the implementation is where all of these congressional agencies and Government forces have fallen flat.

We've seen at lot of headlines about redlining of savings and loans. I hold no creed for the savings and loans. I do not want to speak for them. I don't have any stock in them. I have no interest in them.

I would like to suggest that there are some very more important sources of money and private money, the pension funds. I think the pension funds have a responsibility and a role to play here in providing private capital. I think insurance companies have mortgage money that they can put to work, and I think this bill should make