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crisis is the result of the residents, the East Oakland Housing Committee, and the East Oakland Housing Task Force taking initiative. What has happened is a response to the residents by lenders, realtors, labor, contractors, and Government. The initiative has been with the residents, but your bill, Senator Cranston, signals the type of initiative that we as East Oakland residents have been asking for and that urban centers throughout our State and country need. We hope others follow your lead.

Senator CRANSTON. Thank you very much and I hope that others will follow your lead also.



Mr. Ilgin. Senator Cranston, Congressman Stark and fellow people, I was very intrigued when I first saw this bill because the Neighborhood Protection Corp. that is to be set up under this bill is in many ways very similar to the organization that I have been working for for the past few years.

I work for Oak Center Greater Housing Corp. and we started out as a neighborhood organization operating in the Oakland center neighborhood which is West Oakland. That is a redevelopment agency project there and we were set up to rehabilitate properties and provide home ownership opportunity for low and moderate income families.

Since that time when we first started out we have expanded and most of the houses we have done are in East Oakland and throughout our entire history we have done virtually all aspects of this operation, everything from acquiring properties to packaging loans, the architectural work, the selling of the properties and the rehabilitation of the properties using our own crews.

So this involves virtually all aspects of the abandonment and reoccupancy problems.

Now, our observations in the abandonment problem would be as follows: The abandonment itself is a very complex situation, as you well know, and there is no single factor that you can point to as really the cause of housing abandonment but I would like to list some factors which I think contribute greatly to the abandonment.

First of all the inability of people who live in this area of high abandonment or people who potentially would like to live in this area to be able to afford the housing cost.

People referred to the studies that have been done by the East Oakland Housing Committee and so on in terms of the income people have in these areas, and it is fairly obvious that few of the people can even afford the housing costs they are paying now, let alone to try to buy houses at current interest rates and the way current construction costs are going

The second part would be the lack of a positive well-coordinated program by Government for assisting in the revitalization of these areas of high abandonment.

We are seeing the format of this program through community effort in Oakland now, but to date there has been in East Oakland zero effort on anybody's part to really put together some kind of a program which is really going to solve this abandonment problem. It not only involves Government but involves bringing private enterprise back in to provide additional funding because Government simply cannot do the job alone.

This $4.6 million that is coming from community developing for housing rehabilitation, that is merely going to scratch the surface if that.

The third item is redlining not only by lending institutions but by insurers, meaning mainly the private mortgage insurance people who the conventional leaders depend on for insuring a large portion of the loans and when the private mortgage insurance people back out, the lenders will only go up to let's say 80 percent on loans and a great majority of the people who want to live in these areas and want to buy homes, it is almost impossible to meet a 20 percent downpayment plus closing costs, and also I have found the Government has been doing redlining and hasn't just been FHA either. I notice some redlining from the cal vet program too and also from VA.

I think these problems need to be dealt with because if Government is going to redline, if Government is not going to go into these areas, how can you expect private enterprise to?

The fourth item which makes rehabilitation financially impossible is the declining market value of many of these areas which have been declining so rapidly because of the abandonment and because of many other factors. Their value would not even be up to the value of the cost of rehabilitation even if the properties were given away free.

What do you do with these properties? Do you tear them down? It is financially even more unfeasible to build a new house on that location and I think we have seen the experience of what large number of apartment houses and particularly those turnkey units have done in the areas of East Oakland. So it is not particularly feasible to build multiple units in a lot of these lots.

I think many of the East Oakland people simply do not want more multiple units because of the pressure it is going to put on the community and schools and everything else.

In fact, we have done some studies on rehabilitation of housing versus new construction and on one house, in particular, just recently torn down, we estimated it would take about $24,000 to rehabilitate that house. It had about 2,500 square feet in it. To build a new house on that lot with approximately half that square footage would cost about $28,000 and the older is much better quality house than can be built today.

Another item is structural deterioration or obsolescence which makes houses physically impossible to rehabilitate. Many have deteriorated through lack of maintenance, vandalism or simply wear and tear on the house to the point where it is almost impossible to rehabilitate them. In other situations code requirements of FHA, minimum property standards or what have you have made these properties impossible to rehabilitate because they have made then obsolescent. That is, for example, in many areas houses were build with brick foundations which are perhaps perfectly good foundations, will last many, many years but because of new requirements they had to be replaced. It is impossible to rehabilitate when you are talking about $6,000 or $7,000 in redoing the foundation.

The last item I have on here would be the lack of adequate programs or measures to abate foreclosures. This would include home ownership counseling, liberal forebearance programs and some kind of emergency loans to enable people to either make the mortgage payments during periods when their income has been cut off or to help them make emergency repairs, if that is what it takes to keep them in those houses.

What essentially happens is that you have got a situation where once a house has been foreclosed on, because you haven't had really the programs to deal with the foreclosure process, it is extremely difficult to rehabilitate the house and even if it can be rehabilitated, there are little opportunity for home ownership for people to come in and purchase these homes and live in them because of the redlining and because of the lack of an adequate low-income housing program.

So, on that basis, I would like to make the following recommendations: First, go to Roger Hills—tell Mr. Ford, his boss, that he not be Associate Justice of the Supreme Court unless there is a 235 program back on the books. This is necessary, not simply to get an additional market for these homes, because we used to work with the 235 program exclusively. We have seen the market for our homes drop off drastically because over half of that market has been cut out. We have been operating primarily in those areas where there is some fairly high abandonment, or it's been difficult to rehabilitate houses. I think you are aware of the benefits of homeownership not only to the family, but neighborhoods. It brings more stability to the neighborhoods and it would prevent some of these kinds of abandonment problems in the future. In addition low-income people very rarely have the opportunity to own anything and this whole tax structure is oriented toward ownership. Renters get absolutely nothing out of this tax structure and if you can create more homeowners out of low-income families, I think you are going to find a lot of your property problems are not going to be solved but at least you are going to find something to be done about those problems.

Second, would be enact the bill that you represented today but provide more local autonomy than is presently in the bill. I think local situations vary so much from community to community that you really need to have a great deal of local autonomy to deal with these problems. For example, Oakland's problem is primarily single family dwellings. A lot of people have abandonment problems. But they are in multiple structure which is a totally different animal to deal with.

Also the whole context of working in East Oakland as opposed to working anywhere else where there are abandonment problems, you have a whole totally different set of parameters that you are working for.

So what you should have basically is a monitoring agency but that's about it.

Let the local communities deal with the problems and make sure that those efforts are combined with whatever community develonment efforts, whatever other efforts are going on in the cities. It would be almost a waste of money to have this program enacted in an area where there's nothing else going on.

So try, if at all possible, to combine that effort with community development and other areas, get strong legislation against redlining and if necessary require lenders, insurers, and governmental participation in these abandonment areas.

I realize the problems for lenders in going into this but I also feel they have a responsibility. In theory they are making money partly because there is some kind of risk. Well, maybe a little higher risk but if we can bring in all these programs together, I think you are going to cut down substantially that risk.

Continue with emergency loan programs for mortgage payments and emergency repairs and counseling. Counseling is the real key here. We have tried for a number of years to get counseling going in Oakland. It has finally got going under the auspices of the redevelopment agency but could have got going a hell of a lot sooner if there had been money coming from the Federal Government.

I think in the long run counseling is going to save the Federal Government a lot of money in abating foreclosures and definitely feel that there should be money coming together from Federal Government for counseling. You should not depend on community development for counseling money.

The last item is institute an insurance program, federally funded insurance program which would not insure lenders against loss but rather would insure the homeowner. I think the thrust of the present insurance program has been in the wrong direction presently. There is really little incentive, for example, for lenders to not foreclose on property because they are going to get paid back in full and I think that what you have got to do is redirect the whole insurance effort so that you are keeping, you are trying to make the effort to keep people in those houses and I think that if you do that, you not only are going to cut down on your foreclosures, it is probably going to be less expensive in the long run for the Federal Government to institute this kind of insurance program.

In addition if you keep people in those houses, even if it is costing a lot of money, it is going to cost you a lot less to keep people in these houses than to have the houses vacated, vandalized and again creating this abandonment problem that you have got.

So I think you could also include some kind of relief for emergency repairs if that is what is necessary but it should be relatively flexible so if there is a loss of job, someone gets ill, this insurance will kind of take care of at least a portion of those payments and maybe even be able to set it up like a 235 program or something coming in after the family already purchased the house, already paid off part of that mortgage, you know, and you could just subsidize part of the payments for a time.

I think it makes a lot more sense than simply insuring lenders and finding houses vacated.

I think that's basically what I have to say.

Senator CRANSTON. Thank you very much for your very forceful and helpful statement.

Mr. Saladin.



Mr. SALADIN. Mr. Chairman, my name is Bard Saladin and I am vice president of Great Western Savings and Loan

Senator CRANSTON. Speak directly into the microphone.

Mr. SALADIN. We are a State chartered institution with 90 branch offices throughout California.

I am here to comment on S. 1988 which proposes certain actions on behalf of the United States and local public bodies concerning abandoned housing.

Senator CRANSTON. A little louder, please.

Mr. SALADIN. Great Western Savings has long been interested in the phenomenon of abandoned housing, both because we have substantial investment in neighborhoods throughout California where housing has been abandoned or is in danger of being abandoned and because we are concerned with the health and living standards of all the communities where we do business.

We support and urge adoption of S. 1988 as an experiment or test to determine the efficacy of Government assistance in alleviating the blight of deteriorating and abandoned housing.

We urge that one test city be chosen which has an aggressive and viable program to handle rehabilitation of abandoned as well as occupied premises. The Corporation's program to purchase abandoned properties could then be integrated with the local community's active, ongoing rehabilitation program and the efficacy of the combined effort could be compared with the results obtained in a city which does not have an aggressive rehabilitation program.

We think there are some aspects of the proposed legislation which need further clarification. For example, under section 6, paragraph B, subparagraph 1, we would recommend that when the Corporation commences the initial abandonment proceeding, the act would provide that notice in writing be given the owner, lender, and other parties of interest to allow them an opportunity to be heard at such a hearing. In addition, under section6, paragraph 3, subparagraph 3, when the Corporation makes a payoff on an abandoned property, the relationship between the first trust deed or first mortgage holder and the holders of any junior financing or other liens should be clearly expressed and the prior position of the first holder should be fully protected.

Also, under section 6, paragraph B, subparagraph 4, we do not believe that a lender should bear the burden of protecting a property until such time as it becomes the owner through a foreclosure proceeding. Nevertheless, if it is the decision of Congress to impose such a burden, it is essential that section 6(B)(4) be expanded to state the specific steps a lender or other party in interest must undertake so as not to be in violation of this act. Further, the penalties for noncompliance should be clearly specified. Attached-exhibit A—to my written statement is a more detailed analysis of the provisions of S. 1988.

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