those whose stability is so precarious that a few further abandonments, or a few further rehabilitations can tip the scale of economic balance within the neighborhood. Financing institutions should realize that the bulk of their business and probably the bulk of their present real estate investments lie within these on-the-edge neighborhoods of unfortunately, laws against red-lining, or for green-lining will not really change lenders' practices. The Neighborhood Protection Corporation offers the opportunity to tip the balance in the right way in a number of neighborhoods and to demonstrate to financial institutions that age of housing is not the most important indicator of economic health; that adherence to the manners and styles of the television situation comedies are not the "style" of all healthy nighborhoods. III. OTHER AGENCIES ARE NOT ORGANIZED TO DEAL WITH ABANDONMENT HUD has not been the vehicle to achieve the small scale but pervasive sort of neighborhood restorations which the Neighborhood Protection Corporation could achieve, (and some have even criticized the scale at which HUD has operated.) The National Corporation for Housing Partnership had a different mandate than neighborhood stabilization, and while they have developed and own something like 23,000 housing units financed under various HUD Insurance programs, their impact in any one city is minimal. They have been a contributing force for good in low-cost housing, and I am delighted for this success. They would be an appropriate partner for the NPC from time to time, but not a substitute body. The old Action Programs recommended that housing corporations of the type proposed here be created, but it was assumed that private companies would be the funding bodies. Action programs were not taken up by the private corporation, and with the pressure upon them to stabilize their profits and cope with manufacturing problems, I think it is unlikely that they can diversify to the extent required to be effective catalysts of neighborhood regeneration. Savings and Loan Associations have been permitted to have service corporations and a few of them have done quite interesting things along the line of rehabilitation; these institutions would be severely criticized, were they to concentrate their assets in the fashion required to solve NPC abandonment problems on any useful scale. In fact, there could be a substantial risk to the savings depositors by the kind of liquidity and lack of income which the development of NPC programs will involve. In fact, no financial institution, as the real estate investment trusts have learned so recently, can afford to be without income during the development period of a large project. Only an agency especially designed to take on such a task, of the character of the NPC, can really be effective. Neighborhood Housing Services organizations, a plan for which is advanced by the Federal Homeloan Bank Board, are a brilliant and effective idea. They, however, would operate at the citizens support level, which adjaincts to NPC rather than substitutes. Neighborhood Housing Services can create the citizen pressure which would cause cities to enforce their codes and keep neighborhood services up to appropriate levels. Further, Neighborhood Housing Services cannot raise the capital necessary to develop neighborhoods in the same way as NPC could. Thus, I conclude, that it is not possible for any of the existing agencies, public or private, to make exactly the contribution which the NPC is chartered to make. IV. NPC NEED NOT BE JUST ANOTHER BUREAUCRACY Many objections will be raised to the creation of "yet another federal agency." Senator Hart, in his introduction of this legislation, referred to the success of the Homeowner's Loan Corporation in the 1930's and drew a parallel between this proposal and HOLC. If I were a better scholar, I would have tried to find out in advance of today's hearing whether the staff of HOLC were dedicated to their task or concerned with the protection of their personnel files. If it was the latter, it would surprise me that they succeeded. If it was the former dedication to the task of stabilizing the housing market then the success explains itself. The staffing of the Neighborhood Protection Corporation seems to me to be the vital ingredient as to whether it will succeed or not. Bear with me, please, if I appear to digress into a philosophical area. My belief is that most institutions of any size become process-oriented. That is to say that they devote the bulk of their man hours and money to systems, self-examination, procedural matters, internal balances and checking, and to the terribly important matter of protecting one's personnel file from adverse comment. Successful organizations, and these are all too rare in terms of total output, are product-oriented; that is the bulk of the organizations' time and money is spent on the output of the thing for which the organization was chartered . . . be it wiglets, or housing. In a product-oriented housing organization, the management and staff will have as their principal concern things like: the number of rooms developed at a price; and the number of persons who are paying rent or mortgage payments, and success will be measured against a matrix of time/money. Thus, Senator Cranston, it is my recommendation that however the agency is staffed, it be staffed with persons whose objective is the product of restored housing, restored tax base, and therefore restored communities. There are plenty of people available at modest salaries who can keep track of the process and keep the organization from getting into the sorts of trouble which would vitiate its good work or in fact cause it to be terminated . . . but those are not the kind of people who ought to be in charge. ... Some have said that HUD is process-oriented, rather than product-oriented; I think that is probably the reason that they have been criticized. The NPC should not be organized that way. The corporate President must be a man of several disciplines. The merchant builder will have had little experience in rehabilitation and the social consequences of a project the bureaucrat has (perhaps) little experience with "product orientation," the city planner will be new to financial management, and the banker new to this program. The ideal president will be knowledgeable in all these fields. V. USE THE DEBT INSTRUMENTS OF NPC FOR PROPERTY ACQUISITION The debt instruments to be issued under this law seem destined for issuance through regular federal agency underwriting techniques. These are uncertain times when, it seems to me, our most basic economic issue is the restoration of the long-term capital markets; a new issue of an untried agency seems a perilous expectation. I expect the use of Second Liberty Bond moneys by the Treasury to acquire the NPC debt is intended to ease the marketing problem. A further ease would be to require HUD or other Federal agencies to accept NPC bonds in full settlement of the purchase price of houses acquired. Institutions insured by FDIC or FSLIC should be authorized to hold NPC bonds acquired in exchange for abandoned housing in the same accounting classifications as the houses sold . . that is, primarily, as though they were "home loans" as the regulations define them, rather than as non-conforming investments, or permitted long-term obligations within the definitions of liquidity. Both of these steps, using bonds to pay HUD for houses, and the freedom of regulated institutions to accept bonds for houses, will conserve the $35,000,000 of capital allowed to begin the agency. VI. WHY MY SUPPORT OF S-1988 IS THAT OF AN "EXPERT" It may help you to know that I arrive at these conclusions after a fairly long experience in a number of housing situations. I have been the managing officer of a large savings and loan. My present field is mortgage banking, and I serve on the task force of the Mortgage Banker's Associations for Redlining. In addition, I have worked with the Potomac Institute on their recent study on inclusionary zoning practices, at foreclosed sites which could then only be cleared into vacant lots. I am the Chairman of the Planning Commission in Pasadena. My experiences in Pasadena, which is 120,000 people, about as assorted as any group one might find in the United States, and a microcosm of all the municipal problems anybody has ever seen. The nice thing about Pasadena is that we are small enough that, in our careful way, we are able to deal with our problems on a pretty human basis. From that experience I learn that it is the human basis of dealing with urban problems that makes the solutions, and that is a further element in the Neighborhood Protection Corporation which appeals very strongly to me as a reason for its probable success. Recently, I have made a number of talks for the National Trust for Historic Preservation. I speak on the various ways of financing, adaptive uses of old buildings, and in the restoration of an aged and interesting, but not necessarily historic, housing stock. A modest man would not stand before you and mention these qualifications but I want to be as loud as possible in saying that I am a qualified judge of what will work in restoring cities, and this is one of the desperately needed tools to make them go. I congratulate you upon the legislation and would be pleased to do anything possible to urge the Congress to its final enactment. ADDENDUM TO COMMENTS OF RICHARD CRISSMAN RE S. 1988. Here is the basis for my model of a Los Angeles project: A. Project definition.-2,000 abandoned units comprising 1/5th of the housing stock in 5 census tracts where 24,000 persons presently occupy 4/5 of the dwellings, and retail/commercial activities comprise 20% of the land uses. B. Objective. A healthy, but modest, neighborhood restored at the least possible cost. C. Program and development.-Most abandoned units are repaired for resale, and those replaced are equal in number to those demolished. Vacant/ abandoned commercial structures are demolished to the extent they inhibit the health of occupied premises; small landscaped areas and parking for occupied stores is created by most demolitions. Key structures are an old movie theatre, a tabernacle, several churches, and a large abandoned public building; these are rehabilitated, a mail order firm occupies the public building; and a triple cinema the theatre. Local public stores, (parks utilities, amusements, and so on) are modestly landscaped, and street tress, curbs, sidewalks, and streets are put back into as-built condition jointly by the city and NPC. D. Features.-Neighborhood Housing Service organization (per FHLBB) is funded with the income from $200,000 provided 1,000 families join. E. Project costs.-NPC share: 2,000 units of abandoned housing acquired 2,000 units of abandoned housing replaced or repaired Commercial and key structures acquired and "treated" Street improvements $16,000,000 16,000,000 6,000,000 2,000,000 40,000,000 12,000,000 52,000,000 40,000,000 2,000,000 10,000,000 Net long term holding of commercial landscape, parking, and key structures G. Project annual revenues to Los Angeles: 1. Direct benefits of increased real estate tax revenues, annually: 2,000 dwelling units assessed at 25% taxed at $12 per hundred... $1,300, 000. 00 All other taxable NPC properties, whether sold or held, 300, 000. 00 500, 000. 00 8,000 dwellings existing whose tax yield increases 10% as Commercial structures existing whose tax yield increases Total--- 2.a Subventions for 6,000 new residents in project area: Gas tax. Motor vehicles. 2.b Subventions for 24,000 continuing residents who redirect 20% Total subventions_ 1 Multiplied by 6,000 equals $327,000. 262, 000. 00 589, 000. 00 H. Summary of project.—The $42,000,000.00 of project sales either represents recapture of cash invested by NPC or, more likely, includes first mortgages, insured and uninsured, taken back to finance sales. The remaining $10,000,000.00 of project cost is for long-term capital investment, probably at a low yield, and possibly recoverable over and through inflation and values. A case may be made that if 90% of the sales were carried back in mortgages yielding fair and current rates, the net cash flow from interest (say 2% above debenture costs) might allow write-off of the $10 million in 14 years. The real beneficiary in this project is the host city . . . where the new cash flow to this project area is almost $3,200,000.00 annually. Senator CRANSTON. Mr. Lowe, will you proceed, please. STATEMENT OF CARY D. LOWE, ATTORNEY, COMMUNITY Mr. Lowe. Thank you, Senator. Let me say that I'm speaking from the prospective of being an attorney with some experience in housing research and consulting. My organization, the community information project, has been involved in approximately a 6-month study of low-cost housing market problems in the Los Angeles area, including not only redlining and other related mortgage market phenomenon, but also the process of speculation of housing and the resulting abandonment of low-cost housing. It seems to me, based on my experience in this research, that the problem of abandonment of housing is really inseparable from the problem of speculation in inner-city and low-cost housing. In the Los Angeles area where we have traced abandoned properties in various communities as to their previous ownership, we have found that across the board over half of the abandoned properties had just previously been owned by housing speculators that could be identified as repeating speculators over and over again in the same neighborhoods. By speculators, I mean either realtors or other individuals who have bought up properties either through hard bulk sales or through low-cash payment purchases from individuals who were fleeing the neighborhood, doing cosmetic rehab on those properties, and then reselling them to incoming individuals at very inflated prices on FHA or VA mortgages. Now, if our calculations are correct, then in fact those kinds of properties represent over half of the abandonments in the Los Angeles area, and then speculators really merit a lot more attention than they are getting at this point. I'd like to add one other qualification at this point, and that is that I think that the abandonment problem in the Los Angeles area is greater than anyone here has recognized so far. I say that because most of the statistics that have been provided relate primarily to the city of Los Angeles per se. Doris Davis is from Compton and was here earlier and did talk about the problems of her community, but there are many other areas periperhal to the city of Los Angeleslike Pasadena, Altadena, Lynwood, and other outlying communities in which there are massive abandonments going on and which are not counted by FHA or VA or by any other Government agency normally in their tallies of abandoned properties in Los Angeles. I can't give you an accurate assessment of just how many there are, but there are a lot more than any of your lists show. I think there is also to a certain extent in this understanding of what the problem is that we are discussing. I think your legislation does direct itself pretty well to the problem, but I think a lot of input you're getting is not. The problem is not what to do with the abandoned housing once they are abandoned; the problem is how to keep them from being abandoned in the first place, and that goes partly, as Mike Salzman and other previous speakers suggested, to making sure that the people who buy those houses are qualified buyers in the first place and who can keep up with the payments on the loan. I think much more importantly it goes to what the quality of that housing is going to be at the time the property is bought by those people, whether it's from a Government agency, from an individual seller, or whoever. The problem is that we need to give people individual single-family homes that are in good condition on mortgages that they can afford so that they are not going to be stuck with oversized mortgage payments; they are not going to be stuck with properties that are beyond the scope of their financial ability to rehabilitate, and this has to be done on a constant neighborhood-wide basis, which I think your legislation contemplates, so that you're not going to have random abandonments throughout an area and depressing property values and lowering the desirability of that neighborhood generally. Now, it seems to me that if we can judge anything from the past itself that the private sector, the financial community, has proven itself unwilling or unable to cope with this situation. I say that because we can look not only at what happened in the years before HUD and FHA came into existence, but what has happened to FHA mortgage programs in the last 7 or 8 years, during which time we have had fantastic abutting of inner-city communities, which I regard as being an overt conspiracy among mortgage lenders, realtors, rehabilitation contractors, and all other individuals involved in the housing mortgage market. I don't use that term lightly. I mean to say that these people all have vested interests in seeing that HUD and FHA was a miserable failure. They have profiteered on it consistently. They have made hundreds of millions of dollars around the country and left innercities like Los Angeles in a ruinous condition. Let me give you a typical example of what happens to a property that is speculated upon and off of which a number of people profiteer: say that in a given neighborhood, a beginning transition neighborhood, like a previously largely white community abutting the black community of south-central Los Angeles, is identified as one that is right for speculation. Through devices as crude as blockbustingand others that are considerably more sophisticated-existing current owner-occupants are led to believe that their community is on its way |