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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. SAIZMAN. 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. Dorson. 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 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.
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
it possible for them to assume some of the risks and some of the role that has to be done. I don't think the Government can do it by itself. I think the professional builder has to have a roll here; and again, it's a profitable role. The projects have to be large enough to warrant the professional builder's coming in.
Now, I understand very, very clearly the term "sweet equity” that was used here. Obviously, there has to be some position for someone who will come in and who will live in that house and who will rebuild it.
There is a man in the audience here, a fellow by the name of Dick Davis. Dick and I have worked together for now 25 years. He lives in south Los Angeles, and he is what one might call a slum landlord. He owns five houses that he fixed up by himself and rents for a profit. By working on weekends and in evening, he's put these together, and he rents them. Now, I suggest he knows a little bit more about how to fix up some of these houses than most of the people that purport to represent major efforts in this area. He's done it himself; and if time permits, I'd like the Senator and the panel to be able to ask him some pertinent questions on how to do it and why he does it. I did ask him why he didn't continue. He said, "There is no profit. It's worthless doing.”
Thank you. I hope you can implement some of these efforts and make this program work, because it's needed badly.
Senator CRANSTON. Thank you very, very much.
If we have an opportunity and time permits, I certainly would like to speak with him.
[Complete statement follows:]
STATEMENT OF HERMAN H. RAPPAPORT, BEVERLY HILLS, CALIF. I recently checked an existing housing project in Compton. A few years ago there were 500 homes. Today, a third of these have been torn down, another third is boarded up. Only one third is presently occupied. The obvious solution to reduce the cash drain, is to tear it all down.
But the possibilities I saw in this one 62-acre tract led me to some thoughts that bear on Senate Bill 1988. The objectives of the bill are excellent. How it's carried out is the question.
The federal government has poured millions in South Los Angeles housing in the last 10 years. Most is in foreclosure. Private housing is being boarded up or torn down every day. Watts is worse off today, by every standard, than it was 10 years ago. Government programs, by themselves, do not work. For Rehab programs we need experienced builders and private capital, as well as local leaders and government. Unless some new force can bring all these together, housing rehab won't work. Senate Bill 1988 proposes to spend millions of dollars to put abandoned housing back on the market; a drop in the bucket compared to what is needed. On the other hand, it can be more than necessary if we use common sense. In fact, maybe what we need is a Clearing House of Common Sense.
You see, today's experts have displaced common sense. We're told that urban problems are so complex that only specialists can handle them. Unfortunately, each expert only sees his own small specialty and there's no one to put things together; no one with enough experience to separate facts from double talk.
Facts can be simple to recognize. Los Angeles has 10,000 board-up houses; half of its construction workers are unemployed; there is a desperate need for low-cost housing; and, last, there are dozens of government programs that might apply, from HUD to D.O.T., from MESBIC to SBA, you name it. Yet experienced builders and private capital won't get involved. The risks outweight the potential profit. Even government agencies like HUD and FNMA won't get involved. This bill, as far as I know, is the first focus by Washington on rehab housing. But rehab housing needs total commitment,
Just about every government program that I've seen consists of two elements-government and local leaders. Each program seems designed to drive out the private sector, the mortgage lender, the builder--and that's where the experience is.
There is a man sitting in the audience—he has been a friend of mine and worked with me for 25 years. Dick Davis lives in South Los Angeles. He is an investor in Watts, and a landlord. Mr. Davis bought several substandard houses, fixed them up, and he rents them out for profit. When I asked Mr. Davis why he didn't buy more he said tnat he didn't like to lose money! Any rehab program that doesn't offer an experienced man like Dick Davis any incentive to invest his time and money, just can't work.
Anyone who has tried to make a living fixing up old houses will tell you it is one of the most risky construction jobs that there is. It takes know-how. The one-house-at-a-time carpenter has a tough time bringing costs down. There just aren't too many Dick Davis' around. You can't gear up to do a proper job without volume and, of course, 10,000 boarded-up houses can't be put back 5 or 10 at a time; and when the government sells houses a few at a time, for token amounts to 'neighborhood non-profit foundations, that is probably the most inefficient way to rehab housing that I can imagine. I'm told one government-owned company that bought houses for $8,000 or so each, spent $3,000 in improvement costs, and is losing money at a sales price of $22,000. I wonder how much each house really cost the government? So much for experience.
Proper management has to bring back the conventional lender as well, and end redlining. This decision not to lend in areas with bad loans means economic and social death.
Senate Bill 1988 is directed primarily to government expošure loans and insurance. Ignoring private distress, housing will reinfect any neighborhood. Why can't we help free up loans on foreclosed housing in redlined districts by insisting that such funds be reinvested in the same districts ?
I'm sure that Savings and Loans representatives can speak much more eloquently of their industry, just as the local leaders can of their needs, but I'd like to add a few words.
Local leadership is today's catch phrase. If it has experience, is creative and can influence the private sector, fine. If it is a political expedient-not so fine. I can't speak about other fields, but in urban redeveloping and rehab housing, local leadership needs help.
If I were real sick, I'd call in the best doctor I could afford—white, black or green. And I certainly wouldn't let a beginner learn anatomy on me.
One man-one vote may be a great political slogan, but small inexperienced neighbornood groups haven't been able to do very much in rebuilding programs. The problem is especially important in Los Angeles County which is a collection of small neighborhoods and independent towns. Rehab programs can't allow each city to be in a business for itself. Los Angeles has one regional agency, Urban Affairs, geared to work out rehab programs. Any demonstration program should be through Urban Affairs. The cost of momma and poppa agencies is prohibitive.
Senate Bill 1988 calls abandonment a contagious disease an excellent analogy. We can't leave neighborhood pocket sores to fester and reinfect the entire system.
I know that “abandoned housing” is the subject of this hearing. But housing, considered by itself, is shortsighted. People need jobs to pay the rent or mortgage; they need transportation; they need family security, etc. Only a creative partnership of the private sector with government will solve the total problem. Los Angeles just can't afford another 10 years of sliding downhill. Senator CRANSTON. Mr. Crissman, will you give us your statement? Mr. CRISSMAN. Thank you, Senator Cranston.
STATEMENT OF RICHARD CRISSMAN
S. 1988 looks like a practical piece of business to me. I made an economic model of a pilot project using Los Angeles County data and numbers. My project had about $52 million of total investment