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financial institutions. These regulations would set up boards of inquiry to review lending procedures and hear customer complaints. They would require the State-chartered savings and loan assocations, among other things, to tell customers that they could file a written loan application to which the savings and loan must respond in writing within a 21-day period.

The savings and loans must inform customers how they can have their rejected application reconsidered and referred to this new board of inquiry.

I think some such procedure as that is also needed by the federally chartered savings and loan associations and banks.

In addition to that it seems to me some regulatory change is needed with respect to the practices of bank examiners.

We often hear the complaint of savings and loan officials and bank officials that they are not making loans in difficult areas because the books had to look good when the bank examiner comes around.

I don't know if that's real or if that is an excuse or an accommodation of both. I suspect it is not entirely an excuse.

Let's hope—there is an additional risk on the part of a financial institution to make loans in some areas like East Oakland but that is a risk that must be taken for the public good and that's a risk that must be part of the privilege of operating a financial institution which is granted by the issuance of a permit by the State or by the Federal Government.

In addition to these kinds of regulations, it seeme to me approach, which is worthy of further study and on which I have personally supported although I recognize it is in controversy, is an assigned-risk concept where banks and savings and loan associations are assigned loans in risky areas so that all of them are required to provide loans on the same basis that loans are provided elsewhere and in that way provide the same kind of benefits of loans to people in areas like East Oakland as exist elsewhere.

Finally on the matter of regulatory changes which could make a difference and help us in this question of the 16-month cycle Mr. Chastain referred to.

If the people for one reason or another cannot maintain their houses and sometimes the reasons are not entirely financial, there may be divorce, whatever reason, people move out—they give up and meanwhile a lot of legal procedures are pending and the house just sits there vacant and that is an invitation to vandalism.

It seems to me a number of things could be done. One is to obviously give some financial help to those people who can stay and your bill addresses that problem. Another is to provide caretakers. FHA and VA do not put caretakers in these buildings. If a building is occupied. it is much less likely to be vandalized and become further rundown. Also the whole period of process it would seem to me could be speeded up. There are many other things that could be done but I have just tried to stress a few where your help would be most useful to the city. Thank you.

Senator CRANSTON. Thank you very much. I appreciate very much your very constructive and concise statements.

We have some questions to ask of you now. Some will be directed at an individual, some at the panel, and if others of you wish to comment on another's response or contradict anything said or expand on it or bring in another factor, please feel perfectly free to do so.

John, you referred to people coming in on a temporary basis as a caretaker when a house is abandoned. What did you have in mind ? How would that work?

Mr. SUTTER. Let's take the situation where a family is facing the possibility of foreclosure. It seems to me a couple of things we should do. We should try to help that family if it is at all possible to stay in the house but if for some reason they decide no, they are going to move out, that they don't want the house or they don't want the neighborhood or whatever it is, they are just going to move out of the house, then there should be some procedure where we will—say HUD could have a list of people who would want to live in houses at low rents or perhaps even rent-free, agreeing however to move out on very short notice and that those people would be able to reside in the house and their mere residing in the house would prevent a lot of property damage. Kids don't go around and vandalize houses that are occupied.

Senator CRANSTON. That is interesting and useful comment.
Pete, feel free to come in any time you want to ask a question.

Congressman STARK. I want to see if I can understand the redlining problem and also to see if perhaps the mayor, Mr. Chastain, or John could clear up this point for me: I think I saw in the Trib that about $412 million-round figures of the $12 million that Oakland should get in its HUD community development funds going into a revolving loan fund. The mayor is nodding. That's about correct?

Mayor READING. Yes.

Congressman Stark. Is that a revolving loan fund that is designed to put that money in the bank so the banks and savings and loans will be encouraged to make loans in neighborhoods and act as a guaranty fund!

Mayor READING. Mr. Chastain has been involved in setting that up. I am going to let him answer your question.

Mr. CHASTAIN. The actual revolving loan fund has not yet been set up. The proposal that the staff of the agency had made is that there be three basic types of loans made available; first an emergency-type loan to speak to the needs of people who have an immediate problem, a leaking roof, a deteriorating plumbing situation and that those loans be made available directly from a loan fund which would be a city-controlled operation. It could be administered either by a city, a city directly or by a private lending institution on a contract.

Second, the loan would simply be a rehabilitation loan available to low- and moderate-income people to resolve, at least in part, the .absence of other facilities to fix up homes and even through private lenders. Let's say there was no such thing as redlining. There is still the problem of cost. There are many people who in East Oakland cannot afford a second mortgage on top of an existing mortgage at the going rates for short-term improvement loans which are in the neighborhood of 12-or-more percent now.

So the revolving loan fund would be based on an interest rate that would accommodate the needs of the family, loan payments would be based on an interest rate that would not bring the payment in, total payment for housing expenses in excess of 25 percent of the family's income.

The third category of use suggested is for a loan guaranty fund which could guarantee loans to be made by private lenders.

Congressman STARK. Thank you. We all question what redlining is and where it does and doesn't exist. There is now sufficient information available to tell us where State savings and loans make all their loans, and there are areas where installment loans are just not available. Most appliance dealers will tell you that the major purchaser of installment contracts wouldn't take installment contracts below East 14th Street. You call in one of them and they will tell you that is simply the reason for it, and unfortunately that is not against the law. Is there any discussion coming from the council or mayor's office on how we might direct those funds into those areas where there is no credit, call it redlining or lack of credit? It sounds to me like you come up with a very workable solution here in Oakland if you take that fourth ingredient and find a way to really limit the extension of credit only to those areas where the banks and savings and loans and credit unions are not now going, whether it is because of high risk or because of lack of funds or whatever.

Mr. SUTTER. Could I comment on that?

The recommendation—I don't think that it matters, when Mr. Chastain's outline has been finalized, and I think he explained that, that this is still at a working state so to speak. The East Oakland Housing Committee, East Oakland Housing Task Force had long discussions on this problem. Their recommendation was to make a division essentially but to give a substantial priority to those parts of the city, namely East Oakland, where we have the problem of housing abandonment but not to completely exclude problems elsewhere in the city. So there would have to be a formula which would give weight to the area where we have this problem.

Senator CRANSTON. How much Federal funding is actually available for abandoned housing in this community presently?

Mr. COOPER. Well, it depends on what you mean by "abandoned housing." I talked to San Francisco HUD over a year ago about a program in the sense that if they were willing to turn the home over to the city or housing authority at a low figure, below their appraised value, something could be done and we kicked it around and finally they decided they couldn't do it and similarly when you talk about 235 loans or guarantys, that's what they are mainly in business for. But you first had to find somebody willing to make the loan. But in terms of subsidies, I think Mr. Price will tell you they haven't had that. Urban homesteading program is designed for that.

Senator CRANSTON. There is nothing really adequate in terms of Federal assistance presently, is that correct? Is there nothing available that is really adequate in terms of amount?

Mr. SUTTER. I would disagree in that part of the problem. You had to look at the economic problem. If a bank, for example, says, “We are only going to lend to people who are earning $40,000 a year or more" then their loans are going to occur in Montclair because people with that income

Senator CRANSTON. What were you disagreeing with!

Mr. SUTTER. I am saying if you found somebody who wanted to buy a home below $40,000, he could get a Federal mortgage.

Senator CRANSTON. How likely is that situation?

Mr. COOPER. I am saying that is not possible so you are dealing with people making $7,000, $8,000 a year and banks won't lend too much even with family guarantee.

Mr. CHASTAIN. The average currently is something like $10,500 and there's currently no program that really serves that income level. The closest approach is a 312 loan which has been available only on an extremely limited basis. HUD is proposing to make them available along with homesteading to those cities for homesteading purposes but there is no Federal program that really speaks to the needs of low-income homebuyers at the present time.

Senator CRANSTON. We have pretty good statistics through HUD and the VA on the number of FHA and VA foreclosed homes but we don't have adequate figures on those that had, a conventional mortgage on them.

Has the League of California Cities, Mayor Reading, developed any statistics on that?

Mayor READING. Not to my knowledge but we have a representative on the staff that is suppose to be here. Yes.

Senator CRANSTON. Do you have any statistics on that particular point ?

Would you identify yourself for the record, please.
Mr. YOUNG. My name is Stephen Young.
Senator CRANSTON. You are with the League of California Cities?

Mr. Young. Yes. Actually I work for the Institute for Local SelfGovernment but I am appearing today on behalf of the League of California Cities and the County Supervisors Association of California. We were requested to do a report for the league on housing abandonment and we found it very difficult to get figures from private lenders on the number of foreclosed units.

What we did find was basically through the cooperation of HUD, and I think they are the same figures that you have in your statement.

Senator CRANSTON. What figures do you have or do you have figures on the number of homes that have been acquired by cities because of the failure to pay property taxes?

Mr. Young. I do not have figures on that.

Senator CRANSTON. Does the league have any plan to get any such figures!

Mr. Young. The community development committee has forwarded this policy to the board and any policy direction or further word will be forthcoming from the board. I have no instructions to that.

Councilman SUTTER. Senator, I can give you some figures for Oakland.

The East Oakland Housing Committee made a survey of East Oakland—being roughly the area, if I recall correctly, east of 23d Avenue and below MacArthur Boulevard. This survey is now about 1 year old. At that time there were 1,200 abandoned houses. Of those 1,200 abandoned houses, approximately one-third were foreclosure by FHA and VA and the balance private.

Senator CRANSTON. What does the city do when it acquires such homes?

Councilman SUTTER. The city does not acquire such homes under California law. If there is a delinquency by reason of failure to pay taxes, the house would become the property of the State of California.

Senator CRANSTON. Then what happens ?

Councilman SUTTER. And that rarely happens as a matter of fact. There aren't very many of these homes that fall in that category because you have to be delinquent for 5 years before that happens.

Senator CRANSTON. What happens during the 5-year period normally?

Councilman SUTTER. Well, the house just sits there and there's a big lien on the house for unpaid taxes.

Mr. COOPER. Well, the county is responsible for this, county tax collector, and if the taxes aren't paid for 5 years then a sale is made pursuant to regulation by the State but

Senator CRANSTON. Is that an auction?

Mr. COOPER. Yes; and we have on occasion reduced minimum bid price in order to make sure an abandoned property was sold but those things occur rarely because of the fact most houses have mortgages on them and the mortgage holder will foreclose long before the taxes become 5 years due. The mortgagee requires the taxes to be paid and if the taxes aren't paid-most mortgage payments include the taxes so that the mortgagee is either paying the taxes or payments aren't being made.

Senator CRANSTON. What does a typical mortgagor do when he acquires a home under those circumstances and it is battered and vandalized ?

Mr. COOPER, A number of them are vacant in east Oakland because the usual thing is you sell at a foreclosure sale and what usually happens is the mortgagor bids him out of the mortgage then if any. body wants to bid a higher amount, they will. But by bidding the amount due on his mortgage he will be sure to be paid off. But in areas where there is a market for housing, they will get the bid in the Oakland hills, Alameda and so on.

Senator CRANSTON. Most of those we have seen today in the neighborhood we were in and others that are in that 5-year period will something happen to them before 5 years?

Mr. COOPER. Oh, yes. Well, most of the homes that have been foreclosed and are vacant are foreclosed after 6 months or 8 months of delinquency and so the tax matter would come up only if they are delinquent 5 years and no mortgage holder is going to wait 5 years of delinquency before foreclosure.

Occasionally you will have a situation where there was no mortgage and the property gets run down and the people decide "well we have got 5 years before the county can foreclose on us so we'll just milk whatever we can in the way of rent and then just walk away” but that's rare because most houses have mortgages on them.

Senator CRANSTON. What plans is there now in the city and the county for general areas that are showing very early signs of decay

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