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. STATEMENT OF BARD SALADIN, REGIONAL MANAGER, GREAT WESTERN SAVINGS AND LOAN ASSOCIATION, EAST OAKLAND HOUSING TASK FORCE 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. While we fully support the intent of this measure as a demonstration project, we want to make it perfectly clear that we regard the only sound approach to the entire problem of low-income housing to be one which involves the entire spectrum of Government and the private sector. Enlarging the Nation's stock of shelter units and improving its overall quality will not be successfully accomplished by devising new mortgage schemes, or new subsidies, or any other effort which fails to deal with the root cause of this problem. The problem to be solved is not only a housing problem, it is a social problem and involves all aspects of urban life today, including employment, transportation, education, recreation, safety, sanitation and others. Certainly, housing is a part of this overall problem but it is not the cause. *** We commend you, Mr. Chairman, for your efforts to deal with one effect of the social deprivation to which so many of our citizens are subject, but we urge that this measure be but the first step toward a more comprehensive and integrated partnership by both Government and business to deal with the cause of the problem and not its effect. Thank you. [The attachment to Mr. Saladin's statement follows:] SUPPLEMENT TO STATEMENT OF BARD SALADIN 1. Section 3, Paragraph (3), Subparagraph (b) defines "abandonment" relative to a non-owner occupied property. The terms "substantially reduced" and "adequate level" are used in such a manner as to be vague and subject to differing interpretations. Some effort should be made to expand on that definition so that mortgagors, as well as lenders, will have a better idea of the intent. 2. Section 6, Paragraph (B) Subparagraph (1), provides that the Corporation may have itself appointed receiver where it has probable cause to believe that a residential property is abandoned. There is no provision requiring that an owner or other party in interest be given notice of the Corporation's intent to have itself appointed receiver. The Act should provide that notice in writing be given to the owner as well as the lender and other parties in interest so as to alert those persons to their right to be heard at the receivership hearing. 3. Section 6, Paragraph (B), Subparagraph (3) provides that at the hearing on a forfeiture, the value of the interest of persons claiming an interest in the property will be determined. This section should provide that parties will be paid the value of their interest based upon the priority of their particular interest, which priority will be determined in accordance with state law and the recording statutes and laws adhered to in the particular state. Further, that same section should provide that a party with an interest in the particular property being forfeited not receive an amount less than (1) the balance of its existing encumbrance, including earned and unpaid interest, late charges, as well as accrued fees such as attorneys' fees and/or trustee's fees, if any, or (2) the value of the property as determined at the hearing on the forfeiture. Additionally, Section 6 should provide that the costs to a party in interest in appearing in the District Court, i.e., attorneys' fees and appraisal fees, may be added to the amount of the particular party's encumbrance for purposes of determining the value of their interest. 4. In order to clarify the status of a lender with regard to its relationship with the Corporation, Section 6 of the act should specifically state that when a state court appoints a receiver to manage a particular property during the pendency of the foreclosure action, the Corporation shall not seek to have itself appointed receiver and will respect the possession of the state court appointed receiver. 5. Section 6, Paragraph (b), Subparagraph (4) appears to place a duty upon a lender to protect a property; however, the scope of this duty is not adequately defined. It merely indicates that a lender will be deemed to have "failed to protect the interest of the United States if it knowingly permits the continued 71-509-766 deterioration of an abandoned property in which it has an interest while having the authority under law or contract to prevent such continuation". Under most deeds of trust in use in California, the beneficiary has the right to seek an injunction for waste as well as the right to seek the appointment of a state court receiver in order to gain possession of a particular property. It is very costly to take either course of action. It has certainly never been the practice of a lender to obtain the appointment of a receiver on a single-family residence or, for that matter, small multi-family residential properties, where there are insufficient rentals to be derived to make the cost justifiable. 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 non-compliance should be clearly specified. Senator CRANSTON. Thank you very, very much. STATEMENT OF DR. MARJORIE EVANS Dr. EVANS. Good morning. My name is Marjorie Evans. I am an attorney in Santa Clara County and I am speaking here this morning as an individual. I am here because I have had a long interest in devising financially and socially sound methods for coping with the problem of housing, problems of this nature. I was invited, I believe, because among other things, I am a consultant for the Bank of America in this particular role and have worked with these East Oakland housing committees and will continue to do so. However, the record should be perfectly clear that I speak for myself and in no way for Bank of America. I believe I am the pepper in the salt in this matter today. I truly believe that the abandoned housing and associated problems are severe and must have the attention of all of us. Also I should say that I appreciate the thought and concern of our Federal legislators in trying to help us out. While thanking you however I believe that we will all be better off if we have less Federal involvement in these problems than is proposed and perhaps less than we already have, and I will try to explain why, then go on to say what I think is a better way to do it. The general thrust of this bill, of course, is to permit the foreshortening of the foreclosure and the taking possession procedures. It seems to me from a lawyer's point of view that it is inappropriate for the Federal Government to be a residence owner or residence landlord. It tramples on the police power which in the constitution is reserved to the States. It is a matter of health and welfare. Of course we know that for many years the Federal Government has been involved in that to some extent but in my opinion each instance ought to be examined very carefully and should not just be lightly jumped into. Local control and decisionmaking is absolutely necessary. Many Federal experiments in this field have been unsuccessful. Maybe sometimes one can use the word "distrust". Why is not for us to discuss today but the fact of the matter is that those people agree that local control, local judgment is vital, absolutely vital. Moreover, in my opinion, local responsibility has got to come if we are to solve these problems and the debilitating intrusion of the Federal Government into so many aspects of this has in my opinion debilitated local, State and city governments. There are too many Federal agents already. They are overlapping, wasteful, interfere by regulation and last of all they are indestructible. There seems to be no way to self-destruct or have Congress destroy one. I would far prefer instead of this agency, which is proposed in the bill, to have Congress to suggest rather strongly to the present Federal agencies that they get with it, start cooperating as they already are, of course, but I am trying to be very strong, start cooperating, cooperate better, let's say, more firmly with an assurance of congressional urging with the cities, with the State and with the citizens' organizations of which the East Oakland housing committee is a marvelous example and with the private lenders. I should comment just in passing that the bill seems to extend the condemnation power and what we are calling checkerboard condemnation. Of course that is the power of government but it is one that should be lightly wielded and if it is not necessary, I don't think we should engage in it. Finally, and my objections, it interferes with the historical State control, the State control of debtor and creditor relationships. If we must have, and perhaps we must have some way of foreshortening the foreclosure proceedings, getting people in houses, I would prefer to see this come out from the State legislation rather than Federal legislation. Well, that is all very well to say but what to do is another matter entirely, of course. First of all I would like to associate myself with the analysis, though not necessarily with the recommendations, of Mr. Ilgin who obviously knows what he is talking about. He's clearly been in there fighting the good fight. I think it is time to urge you, all of us, to face the facts, however unpalatable they may be, about how this housing business works in Oakland. I will limit myself to that. In the first place it is clear that houses have got to be protected when they become vacant and preferably we should prevent them from becoming vacant. A couple of good suggestions have been made here. Mayor Reading asked for an early warning system. Someone, I think, on this panel suggested the caretaker concept which has good things to be said for it in many ways. It gives housing to people and protects the area. I might say this reminds me to some extent of the so-called squatters' licenses in London where the Bureau Council gives licenses to people who formerly were called squatters and now called licensed squatters to get in the house and occupy it and use it as housing until it is ready to be taken over by the city for whatever purpose there may be. Lenders should watch the payment performance closely to determine abandonment early. |