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This, of course, is easier said than done but for the federally controlled lenders, perhaps a little urging from those Federal agencies to do the job right would help.

The city should put more muscle into policing sensitive areas. If there are no policemen on the streets, if there's no way for people to report to some local place in the city government and the house looks as though it is being abandoned, the lenders don't know. They can't be out there walking the streets all the time.

I think that the suggestion that HUD and VA should provide caretakers is a good one and I'd like to suggest that consideration also of their making temporary grants and I emphasize "temporary". I don't want the cities becoming dependent on the Federal Government for police protection but simply grants to the cities to help in this area by way of redress.

The second item is how to take care of them once they are in the hands of let us say the person who repossesses.

I think that we should give a little bit more careful attention to selling these houses. Either renovated or under firm arrangements that they will be renovated, sell them to cities, to public groups, to private groups, to these nonprofit organizations that someone earlier mentioned.

I don't see why HUD and VA can't use good judgment. In fact I think they already are. I suspect there is not too much of a problem in East Oakland on that score but expanding it to the rest of the country. Why didn't they use good judgment in putting these houses at very modest prices into the hands of people who will renovate and resell?

The price that HUD and VA should sell should be low enough to make these houses saleable under good market prices when they are renovated. It is very costly to renovate and there have been a number of examples I think in East Oakland where the prices of houses have been run up and somebody ultimately, as they say, takes a bath on that.

We have got to somehow get around that.

Third, on selling arrangements, now here comes the banker's viewpoint out loud and clear but we really should face this. On the sale they must be sold to good credit principals under State law. No one mentioned here the antideficiency judgment aspect of California law which forbid a lender to acquire anything more than the property. He can't go against the individual with $40,000. That aside from sound credit principals are necessary or we are going to get back in the same old problem again, if you lend to people who cannot keep up the payments and cannot maintain it, we are going to have abandoned houses. That's another matter to find out what are the credit arrangements and certainly it does involve such good things as Federal insurance.

Speaking of Federal insurance, of course if you have 100 percent insurance, there is no incentive, very little except from the part of view of their interest and the public good, there is little incentive on the part of the lender to watch that loan closely and to counsel and to get in there in a hurry before the house is abandoned or before the default grows serious.

Why not consider, as has been proposed now and then, co-insurance between FHA, VA on the one hand and the lender on the other hand. That gives the lender a little bit of incentive and in my opinion the lender would be willing to consider such a thing.

The Government insurance, of course, is necessary, as we all know, in order to try to push the interest rate down to a considerable extent. Now, I want to point out to you, if you haven't already perceived it, that what I have suggested does not envision selling to those who can't pay and there are lots and lots of people in East Oakland according to the data that I have heard today and seen before who cannot afford under what I am calling sound credit principles, to take out a loan for a house. Moreover they can't maintain it once they have obtained it.

That says I fear that there are many people in this counry of ours that cannot afford to buy houses.

I propose to you we make a mistake if we encourage them to own. I know homeownership is a good thing but you are going to cause more trouble in the end. Maybe it's a bad thing.

All right. What to do with that. Certainly it is one thing to believe, and I believe it in the 1970's that we should see that people have a place to live, good housing.

I suggest to you that again we refer ourselves to Great Britain which is certainly no model of a country which has its books in the black, but it has had a lot of experience on owning housing and leasing and renting to people who are not able to find housing or not able to buy it.

I think in the end the State or city is going to have to own apartments, own single family houses, are going to have to maintain them and are going to have to carefully oversee the rental and lease to people who cannot qualify for home loans.

Finally the suggestions that I have heard today about the working of the private lenders with the local citizen organizations and with the cities and Federal agencies strike me as being very good. I suspect there is shortly down the road a way, if you will, nonprofit corporations become involved with this, with the lenders' money in it to get these homes back in the hands of people who can buy them and who can maintain them.

Thank you very much for your attention and this opportunity to talk to you.

[The complete statement of Dr. Evans follows:]

STATEMENT OF MARJORIE W. EVANS, DANAHER, GUNN & KLYNN, PALO ALTO, CALIF. Thank you for your inivitation to appear before this Senate subcommittee at its hearing on S. 1988, the Abandonment Disaster Relief Act.

My name is Marjorie W. Evans. I practice law in Palo Alto, California. I am before you because of my long-standing interest in finding ways which are both financially and socially sound to revitalize the old cities and downtowns of California. I have served as adviser in this area to businesses and to citizens, and have helped design programs to this end. I was the representative of the Bank of America on the California Land Use Task Force sponsored by the Planning and Conservation Foundation, which group has recently published its report called The California Land: Planning for People.1 I commend that

1 Obtainable from Planning and Conservation Foundation, 1225 8th St., Suite 310, Sacramento, Calif.

report to your attention in your attempt to deal with the problem of declining cities.

I. A SERIOUS PROBLEM EXISTS

I agree with S. 1988 and the remarks of Mr. Hart inserted in the Congressional Record of March 6, 1974 to the effect that the problem of abandoned houses which have been repossessed by the federal Department of Housing and Urban Development (HUD) and the Veterans' Administration (VA) is an extremely serious one. I agree that federal agencies bear heavy responsibility as creators of the problem. And I agree on the necessity for the renovation of these buildings and their restoration to our housing stock, because they contribute heavily to the deterioration of the communities they stand in, because they represent a shocking waste of material resources, and because they are needed to house people.

II. I OPPOSE S. 1988

Despite my agreement as outlined above, and my appreciation both of the good will and desire to help of the authors, and of the great benefit of holding these hearings, I oppose S. 1988 for the following reasons:

A. The creation of a new Federal agency is inadvisable

1. The Federal Government Should Not Be a Residence Landlord or Owner.S. 1988 puts the federal government into the housing business as a landlord and owner, a constitutionally inappropriate role. Under the U.S. Constitution health and welfare are part of the Police Power which is reserved to the states. This separation of roles has been broken down from time to time, but such breaking down should always be suspect and inspected with a very critical eye before it is indulged in. The situation under scrutiny at this hearing is not one in which it is necessary or wise to permit federal intervention in the Police Power area.

The statement in §2(a) (1) that the abandonment brings the situation under the shelter of the Interstate Commerce Clause artificially inflates that venerable clause, a practice which is rampant and which I deplore. If this keeps up, the Interstate Commerce Clause will swallow the Constitution whole.

2. Local Control and Decision Making are Necessary.-Local control and decision making is much to be preferred over paternalistic direction and control from Washington. Federally financed urban restoration and renewal programs have not been unqualified successes. See, for example, p. 33 et seq. Cities, of The California Land referenced above. The imposition of inappropriate and unwanted plans upon the people of a city has the effect of alienating them from their communities. It drains them of energy to act upon their own. It weakens the sense of responsibility, for one's own destiny and for other's welfare, of citizens, city officials, and state officials. Therein lies much of our trouble.

3. There Is Now a Superfluity of Federal Agencies.-S. 1988 would create one more federal agency in a dense rank mat of federal agencies which overlays and smothers the country. Each new agency seems to be created to cure the failures of a predecessor. Each becomes a permanent barnacle which Congress cannot bring itself to destroy long after its usefulness has been outlived. Each adds to the strain and confusion of citizens and officials who try to deal with the federal government. Each interferes through pointless and obstructive regulations with the ability of localities and citizens to solve their own problems. This bill leaves intact, unchanged, and unchastened departments and agencies (and people) which (as set forth in the Congressional Record) have not been doing their job right. If, as is there asserted, the agencies do not have the confidence of the people they serve, it is the worst kind of answer to create yet another agency. The answer is for HUD and VA to conduct themselves henceforth in such a way as to rebuild that confidence.

4. The Bill Unwisely Extends the Condemnation Power.-S. 1988 seriously extends the condemnation power, a power which should be used with great caution, beyond the boundaries which we have become accustomed to under earlier redevelopment legislation, and which frequently had disastrous results. In effect, it authorizes checkerboard condemnation.

5. The States' Authority in Debtor-Creditor Arrangements Should Not Be Undermined. This bill circumvents and undermines the states' historical and constitutional authority to control the rights of debtor and creditor, and to erect safeguards for the protection of both.

B. A better solution is for Congress and existing local, State and Federal agencies to do their jobs properly

1. HUD and VA Should Promptly Dispose of the Homes to Responsible Private and Public Groups.-Congress should direct the people in the agencies already created by it and being supported by taxes paid by people living in these cities, specifically HUD and VA, to promptly get these repossessed abandoned homes into the hands of private or public local groups who can in a financially sound way rehabilitate, sell, and rent the dwellings. HUD and VA should do that under their existing authority and within existing state laws. If the houses were originally or have become overpriced such that HUD and VA will take a loss, such loss should be accepted. I see no disadvantage and possible advantage to disposing at a nominal price if sales are to responsible groups and if HUD and VA monitor the results.

2. HUD and VA Should Help Finance on a Temporary Basis Neighborhood Protection and Maintenance Services.-Congress should direct HUD and VA to start working immediately with existing agencies, cities, and communities to help solve the problem of inadequate policing which exposes empty houses to vandalism, and of poorly maintained city services. Direct contribution of HUD and VA funds to cities for these purposes is appropriate on a temporary basis by way of redress. It should not become a permanent arrangement, such that cities become dependent upon federal funds for police and other city services. 3. HUD and VA Should Insure Home Loans on Renovated Houses but Under Rules of Sound Credit Practice.-Congress should direct HUD and VA henceforth to insure mortgages on the rehabilitated homes but to insure only soundly financed properties. The possibility should be squarely faced that such sound financing will make it impossible under present economic conditions for many persons of low and moderate income to become owners of these homes. Nothing but harm is done by refusing to face this problem directly and by indulging in unsound financing to gloss over the problem. Other sensible ways of assuring that these people are well-housed must be found. It is not appropriate for the federal government to be landlord, but it may very well be appropriate for state or local agencies to be landlord, i.e. to own housing and to rent and maintain the properties. Such an arrangement would doubtless necessitate subsidies, and it is time to give thought as to whether these subsidies should come from federal or state tax revenues.

People who have the means to finance the home purchases should be welcomed and encouraged to become home owners in the affected areas. Their re-entry will improve the neighborhoods' stability and forestall a repetition of the foreclosure/abandonment cycle.

4. Congress Must Reduce the Federal Tax Bite so that Cities Can Tax to Maintain Themselves.-Congress should begin drastically paring down federal government activities which drain tax dollars to Washington. This must be done for citizens to be able to pay the local taxes needed to maintain the state and city services which give vitality to cities and make them pleasant to live in. This hearing is not the arena for setting up a list of wasteful, duplicative, unnecessary, and just plain harmful activities being carried out by legislative and executive branches of the federal government. It extends far beyond the agencies of concern to us today. Nevertheless, bloated federal spending is a major cause of the weakened condition of cities, and it is time Washington faced the fact.

5. Cities Must Once Again Assume Responsibility For Their Own Vitality.— Cities must recognize that they must take old-fashioned responsibility for the health and welfare of their citizens, and must not remain in a demeaning dependency on the federal government. Police services, maintenance, improvement, addition of trees, parks, and pleasant public places need attention now— by the cities. If the cities feel they are understaffed they must (a) re-order priorities, (b) find good ways to use volunteer help, (c) pressure the federal government into reducing its spending so that the cities can realistically hope to tax their own citizens more. Finally they must work with other public agencies and with interested private industry in such a willing and active way that they contribute their share to the work to turn around these blighted neighborhoods.

III. SUMMARY

There are five steps to returning these abandoned houses to the housing stock and to beginning restoration of the neighborhoods blighted by them. They are: (a) Protect the houses from vandalism; (b) place possession and ownership in

appropriate hands; (c) renovate; (d) rent or sell wisely to home occupiers; (e) continue to maintain, protect, and nourish the neighborhoods, houses, and people after occupation.

The proposed bill S. 1988 takes into consideration only steps B and C. Each is vital. Each is best done by the city with help from the state as the state finds appropriate, and with willing and helpful cooperation of HUD and VA. The role of the federal government should be to cooperate with existing agencies and groups, to provide temporary grant funds for purposes of housing and neighborhood protection and services, and to guarantee soundly based loans. Thank you for this opportunity to appear before you.

Senator CRANSTON. Thank you very much, Marjorie.

While you have your concerns about the Federal Government getting mixed up further in this, do you feel there is a need for some Federal financial backing in one way or another, either by coinsurance or underwriting?

Dr. EVANS. I think the insurance-I think that's a good place for the Federal Government to be. I think the FHA and VA insurance program and others of this nature are fine. I think also that when I spoke of people who have less than a certain income having to live in city- or State-owned housing, someone is going to have to subsidize that, of course, and I think a national debate should begin on whether it should be the Federal Government or State and cities.

I don't have any terrible objection to the Federal Government subsidizing it. I think that might be an appropriate place.

Senator CRANSTON. HUD already has launched a coinsurance program.

Dr. EVANS. I had that in mind when I spoke of that.

Senator CRANSTON. Can you tell us a wee bit more about this squatter's license procedure in London?

Dr. EVANS. Yes. It is said-I was there about 3 weeks ago and it was told me by people in the housing bureaus in some of the bureaus of London that there is a 10-to-1 ratio of vacant housing to people who need housing in Great Britain. That sounds extraordinarily high to me but it was said to me.

There is also a crying need for housing. People are screaming over there. They are breaking into houses that are locked up for a month. They can't be dispossessed by the sheriff because they wire the bedsteads with electricity. It is a problem. London has an innovative and good way to handle this. The people who come in and say they haven't got housing, all right, we will give you a license to stay in house X on Y Street until we are ready to take it over to renovate it and put it into our council stock or until we are ready to level it for redevelopment.

It seems to work all right. There have also been licensed squatters who just move in.

Senator CRANSTON. Pete, do you have any questions at this time? Congressman STARK. Senator, I would just like to commend these panelists who I have worked with in the past; Dr. Evans, for her work really on behalf of the Bank of America, whether or not she is representing them or not now in this area; and Oak Center Better Housing, who I rather suspect some time ago made one of the very first loans in this area. It is an excellent group of people who have struggled through a lot of learning processes. To my knowledge there

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