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While the concept of rebuilding and rehabilitating abandoned housing is a worthy one, the money expended in whatever three cities selected will not be sufficient to eliminate the nation's abandoned housing problem. For even if the program operated optimumly, it would have no impact on abandoned houses in other cities. More important it would have no impact on the abandonment process which would continue unabated throughout the country.

What is needed is a program to eliminate the issues of housing abandonment. First, eliminating the profit which some individuals and corporations make on abandoned housing would eliminate the reasons for misrepresentation of structural conditions on the one hand, or income and credit characteristics on the other.

Second, FHA and VA programs were set up to meet a real need, the need of low-income (but credit worthy) individuals to own their own homes. But these programs have failed. One of the major indicators of neighborhood decline is the presence of government-insured loans in an area. Once FHA- or VA-insured loans are granted in a given community, conventional money dwindles and then disappears altogether. Credit-worthy families are refused conventional loan dollars and are force to contend with government-insured loans—with all their restrictions and red-tape. Housing conditions and structural improvement are misrepresented to innocent buyers who take occupancy and are unable to pay the price to fix substandard conditions and deficiencies. In addition, credit characteristics of potential buyers are gerrymandered and and families who are financially incapable of supporting mortgage payments are given government loans and soon default on them.

The present FHA and VA programs are unfair both to families who could afford conventional loans (but are denied them) and to neighborhoods whose abandoned home result from unscrupulous lending policies.

Without setting up administrative standards to eliminate the abuses found in present HUD- and VA-insured programs the "Abandonment Disaster Demonstration Relief Act" will fail as the number of abandoned homes outsteps all attempts at rehabilitation and redevelopment.

In conjunction with a rethinking of government insurance programs, the "Abandonment Disaster Demonstration Relief Act" might sttand a chance for success. But the tendency of government programs is to superimpose on one faulty mechanism, a new “perfect” mechanism which will prove just as inadequate.

That National Task Force on Credit Policy and its constituent organization is working to destroy myths and build realistic programs for providing sound housing for consumers. The absence of a comprehensive credit program for mortgage lending has meant the failure of years of well-meaning plans such as HUD and VA insurance. So today, as a result, we find that we have not made a dent in our goal of supplying sound housing at a reasonable cost to all sectors of the economy.

It is within this context that w must develop mechanisms of allocating credit to those portions of the population now priced out of the housing market. We have suggested a number of recommendations to achieve greater access to mortgage credit by low- and moderate-income families. Most of these recommendations revolve around the same theme: financial institutions must become accountable to the public, for it is our deposits that are being used to determine housing policies.

First, there must be full disclosure from all financial institutions of the location of their deposits and loans, by census tract. Loans should be broken down by type and purpose and should include a breakdown of conventional vs. guaranteed loans and loans for owner-occupied vs. absentee-owned property. Such data must be publicly available by institution so that consumers can assess the responsiveness of each institution,

Each intitution should make public a periodic "statement of geographical investment pattern." Each should be required also to keep on file copies of all written loan requests for a period to two years, so that the public can assess the extent to which demand is being adequately met.

Second, branching and chartering requirements must be changed to give the public review of the performance of financial institutions. Each institution presently must file extensive information to obtain approval for charters or new branches. We are suggesting a mandatory five-year renewal of charters of financial institutions, which would be subject to review of the institution's performance in meeting its Affirmative Action Plan. The publiç should be allowed to challenge both charter renewals and new branch applications on the grounds that "public convenience” has not been met.

Third, all agencies which regulate financial institutions should have at least one-half public representation, made up of individuals with not official or monetary connection with financial institutions.

Fourth, all agencies which regulate financial institutions would be enlisted to monitor and mediate complaints of credit discrimination. If patterns of discrimination were found, regulatory agencies would be authorized to apply sanctions—including: withdrawal of governmental funds, increasing of reserve requirements, levying fines or revocation of licenses.

Finally, the government must develop a conscious credit allocation program to channel mortgage credit into high-priority areas not being served by financial institutions. The exact form is one which required input from other public interest and community groups. We would be glad to supply a list of organization and individuals interested in working towards such a solution.

Senator CRANSTON. The two of you, if you would wait, please. I do want to hear from you, but there are witnesses that were scheduled and who I think may have other time demands on them. I want to ask just a couple of questions before I dismiss this panel.

Mr. Crissman, let me ask you: do you have any idea of how to shorten the vacancy period for HUD-VA acquisitions ?

Mr. CRISSMAN. Senator, the private foreclosures conducted by a savings and loan, or in fact by a mortgage-banker in behalf of a principal, can take as little as 120 days. It can string out if you

have service people and you can't get service or you can't discover the condition of their service record.

Any further delay in acquiring the property is, I would think, that access of process over process, and it can be shortened and it can be dropped. It seems to me inappropriate for HUD to acquire properties themselves. They ought to be acquired and handed on to the servicers who are qualified to dispose of the property and a loss reconciliation made with HUD later. Senator CRANSTON. Let ask

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that want to comment, please do so—do you feel that the foreclosure period should be shortened?

Mr. RAPPAPORT. The problem is even really more complicated than it appears on the surface with the last corporate entity involved. There has been--and it's increasing—the opportunity to go into bankruptcy courts and ask for a delay that can extend for 1 year, maybe 2 years; especially if there is a little bit of income, it can stretch on and on. There has to be some way some agency can step in immediately. We are talking about a matter of days, not the normal time, because the house can be ripped off in a matter of hours.

Senator CRANSTON. Yes. I think a principal problem that we face with this bill in relationship to the administration and its nonsupport presently or opposition is the creation of a new agency; there is concern about setting up new bodies.

Do any of you have any thoughts to express now, or could you submit to us in writing your thoughts, on how we might integrate this sort of a program into the present structure of HUD, and then at the same time allow for community decisionmaking and input in the process.

me

I'm afraid we're going to get into a deadlock unless we find some revision of that aspect of this bill, and we need action on this problem.

Mr. RAPPAPORT. Certainly not integrated with HUD.
Senator CRANSTON. Well, what should we do?

Mr. RAPPAPORT. HUD, as we've earlier expressed, is out of sympathy with it, and they couldn't do the job.

Senator CRANSTON. Well, then what about rehabilitation, how could that be intergrated with HUD! HUD has to be involved in it, obviously.

Mr. CRISSMAN. I wonder if there is not some piece of HOLC left around somewhere, or perhaps the Corporation for Housing Partnerships could be given the additional stimulus and the capital suggested here as a vehicle. They are quite good planners. They are associated with the National Institute for Housing and Management; they are the founders of it. They are highly respected, and they have been able to balance their own budget.

Senator CRANSTON. Would you give a bit of that information and submit it in writing to us? We do have a problem with the administration that we have to overcome.

Mr. LowE. I would be unalterable as to having HUD's administration be over this corporation. My greatest fear is that if that were to happen, not only would it be subject to all the same corruption and all the inefficiency that HUD has gone through, but it would also be liable to become nothing more than a bailout agency for HUD and all of its massive mortgage portfolio that it's stuck with.

I don't want to see this corporation getting saddled with all of HUD's property and ending up literally bailing out HUD financially.

Senator CRANSTON. Thank you very, very much. I deeply appreciate the four of you testifying, and you have been very helpful. The two of you please wait and stay there while we continue with the other witnesses.

May we now have the final panel consisting of Prof. Frederick Case and Prof. Frank Mittelbach.

Let me say that if you could just briefly summarize your testimony, I'd greatly appreciate it.

STATEMENT OF FRED E. CASE, PROFESSOR, REAL ESTATE AND

URBAN LAND ECONOMICS, GRADUATE SCHOOL OF MANAGEMENT, UNIVERSITY OF CALIFORNIA

Professor CASE. I'm Fred Case. I'm on the board of directors of a major savings and loan company that has an office in Compton. I'm on the city planning commission, and I've been on the building safety commission for code enforcement. I've been doing research at the university, and I also do consulting with private organizations who want to know what to do with property that's no longer in economic

First, we have done a study of nine different cities, and I offer for your staff this book that I wrote in which we asked what worked in different kinds of cities. At the back we have summarized the thing

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in about three pages where we list all the things that need to be done to provide housing in the inner city. We compare that with solutions to these problems, and then we relate that to the various Federal problems that will give you an idea of the gaps.

Let me just say something that I hope can be brief, and I won't offend too many people—I don't mean to be offensive, but I suggest, Senator, that I've watched these kinds of hearings. Normally, I refuse to come to them.

My experience in the city says that what's occurring here is that you have identified a white elephant, and what you're getting is a bunch of blind men telling you what the white elephant looks like from their perspective; in other words, when you get an expert in here, if you listen, each one says it's a rope or it's a pillar or it's something else.

I would suggest that maybe at this point you might want to turn the hearings around. There is no need to talk to any more experts. HUD, FHA, the National Science Foundation, and other agencies have examined this problem of experts for years. There are hundreds of studies available so that if you want help on what can be done, we'd be very happy in our research program to give you an annotative bibliography. You don't need any more expert testimony. The thing that I find in looking at this is that no one talks to people who are going to have something done to them. I would suggest that if you could create a pragmatic agency which you or people sponsoring the agency would say, “We are going to take a personal interest in this, and you're going to be personally responsible for reporting to ús on doing what we want done.” Then if you would say very specifically what you want done—“We want 10,000 abandoned houses rehabilitated, and we want 10,000 times”-in other words, set your objectives very specifically.

Then talk to the people to whom you want to provide this housing. Talk to the people who are living in the rehabilitated housing. Come down in to Watts and walk around and talk to the man on the street and find out what the problem is; let them tell you what the problem is, and then turn to the agency and say, "Here's the problem. You go solve it."

I think what you're trying to do is necessary, but I'm very concerned that if you let HUD or FHA get near it, you can document it, and they are going to ruin it. It's going to turn into profiteering.

I think you're doing the wrong thing. I think you're listening to the wrong people. I'm very much in favor of citizen's participation. In our planning commission we approve citizens' participation, and we find if we allow the people who have the problem to tell us what the problem is, then we turn to them and say, “Here, solve it." Don't solve the problem that you're defining, don't solve what you can solve, but here's the problem.

Now, I want you to use whatever is available, and I would suggest that this is what your agency really ought to be defined as: One that will use any agency in the Government, any study, any program, any private group that it can to get done what has to be done, that is all.

Senator CRANSTON. Have you or people, working with you talked to the people that you are referring to, those living in these communities?

Professor CASE. Yes, sir.
Senator CRANSTON. What do they say needs to be done?

Professor Case. Well, a lot of things, and I hate to speak for them—and I apologize for the people who are in the audience.

(1) The problem of crime and police harrassment; (2) Schools that are inadequate; (3) Lenders that give them the runaround; (4) City bureaucrats that push them around from one agency to another until they get discouraged and can't do anything: for example, having hearings and things that are going to affect them at times when they can't come to those hearings; (5) Making everything center downtown where there ought to be somebody out here; and (6) Going to the FHA and finding total indifference. People can't answer questions or won't help them, saying this is not our problem.

For example, next week I'm going to talk about an area called “Village Green.” One-third of that area is in a constant state of eviction, and the other two-thirds are thinking of leaving. What can you do for a property area like that? Well, we are going down in there, and we have talked to them. We think probably the best thing is to just clear out the whole area and put in light manufacturing and provide employment because the basic problem of evictions is that people lose their jobs, and then they can't afford to pay the balances.

We've looked at the Pacoima area and the boarded-up houses there and talked to the people there asking them, “Why did you leave ?" And the answer is, “Well, gee, you give me a nice house and Pacoima is a great place to live, but I have to have a car to get work, and I can't afford a car." The family now has to have two cars. Well, you go on down through the whole area.

Senator CRANSTON. Well, if you clean up housing in Pacoima, what effect would that have ?

Professor CASE. Well, it's not housing. The problem in Los Angeles is that there isn't a lack of good housing. There is a sufficient supply of good housing. It's the price of the housing and the ability to buy the housing so that in Los Angeles if you aren't earning at least $20,000 a year, you're not going to be able to afford a house.

In the Village Green area there is a lot of good housing around there. What we would be taking out is so insignificant in terms of what is still available and what it would do for the capacity of the people to pay for the housing and stay there and to buy more housing, will be so great that the net cost benefit is all in favor of doing this. The neighborhood is constantly changing because it's a source of crime and vandalism, which have our gangs living in there that every once in awhile swoop out of the area and go over Baldwin Hills and raid Baldwin Hills and rip it off, or they get out into the Village Green area, if you know where I mean. If you clean up the area, at least you stop that sort of vandalism and crime.

It's the same way in the south Los Angeles area. There are some very fine neighborhoods in here, and the neighbors have to band together to protect themselves. If you can take 5 minutes, drive around some of these streets and ask yourself, "Why should a modest

low-cost housing have all this iron grilling over everything in the 'house?” That is one of your answers.

Senator CRANSTOx. Well, thank you very much. I appreciate your frankness. I accept your criticisms, and I agree with virtually all of them.

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