Congressman STARK. Do you prosecute those cases when they come to your attention? Mr. PRICE. We give that information to the U.S. Justice Department which rarely prosecutes because they claim you cannot prove that the party didn't really mean to live there then just changed their mind. It is a ripoff, Congressman, and we have expressed strong concern about this to our central office. To continue on that house bill, we estimate, $8,000 repair. Our holding operation during this will cost about $1,000 when we sell it. When you add to that what we will pay by way of commission, closing costs after the rehabilitation, we will have in the house-by "we" I am talking about the people of this country-$29,150. We estimate that house will sell on the market for $18,150 leaving a net loss to the insurance fund of $11,000. Now, this was insured under the inner-city program which is funded by Congress in a special risk fund so it is that fund which will lose the $11,000. Now since we got it on August 6, the city has inspected it per our agreement with the city. There is a long list of repair items, termite inspection and so forth and a sale recommendation has been prepared by our area manager, and we received that today. We are prepared now to proceed with that house. The recommendation is to repair it. Our option is to sell it as is, and I understand that is of interest to the committee and I do have some other things we wanted mentioned but if you want to get into the as-is comment, I will be glad to get into that. A comment was made by Mrs. Matarrese regarding our sales. I would like to exchange with her a correction and an apology. She referred to a press release which I sent out about the 518 repair program and said it included a statement 235 would be included in that program. She is correct. My press release did say that. I was wrong. It is not included. That is a legislative matter and as much as I am interested in the Federal system, I seldom want to take on the burden of being a legislator so that is not in the legislature and I apologize, Fran. I apologize. That was a serious error on that press release. On the other hand, Mrs. Matarrese Senator CRANSTON. Could we interrupt. Let counsel read one portion of the law on this point so there is no misunderstanding. Mr. PRICE. If you are going to tell me what I just said is not true, that's extremely interesting because I am repeating what my central office has told me and I would be very happy to put 235, if you can tell me Mr. BUCKLEY. I shall read to you the language of section 518 (b) that was enacted as the part of the House Development Act of 1974. It says: "The Secretary is authorized to make expenditures to correct, or reimburse the owner for the correction of, structural or other major defects which so seriously affect use and liveability as to create a serious danger to the life or safety of the inhabitants of any one or two family dwellings which is covered by a mortgage insured under Section 235 of this Act or which is located in an older, declining urban area and is covered by a mortgage insured under Section 203 or 221 . . ." et cetera. It seems from what I have read that the legislation does include section 235. Mr. PRICE. We have just accomplished something. I have already invited the East Oakland Housing Committee to send me cases where they feel the 235 buyer should receive this assistance so I can in turn go to our central office and advocate the program be expanded. I would guess the Department's position is related to the fact that the 518 was acted for 235, we feel we adequately serviced that in this area. However it would certainly not be fair for me to say that we covered everybody who should have gotten it by the deadline and I would be glad to expand it. Another comment was made by Mrs. Matarrese that I think should be responded to. When we saw our property at the Monday morning auction, our first priority is to a proposed owner-occupant and that is stated in our ad. Our second priority is to a proposed owner-occupant with 235. However that program is now suspended or terminated by somebody in Washington. Now, I wouldn't try to say who but at any rate we are no longer offering 235's at this time but when we were, they did have priority. The speculator, so called, was the third priority and only received the property if we were not able to sell it to the first two priorities. One of the comments that I make in my statement is that because of our strong concern about the whole insuring program the rehabilitation program, we have sent this week to Mayor Reading a formal invitation to participate with us in a greenlining program. We are prepared to make an agreement with the city and community organizations and lenders which will be backed up with an agreement that we will provide mortgage insurance in so-called marginal areas. At the same time the city will take on certain programs to help further insure the safety and the benefit of that neighborhood and we, of course, will ask the lender to cooperate. Because of the activities of the east Oakland housing committee, we believe that that may be successful. Another concern that we have is the cost of buying a home. This has already been referred to but I would like to give you a specific figure based on a fairly typical sales price in east Oakland of $17,500. The FHA formula on income would require an $11,000 annual income whereas the Oakland average income is well under that. So that a present of a home in east Oakland on an average would not be eligible for an FHA loan on their own house at this time at the present interest rate. Another subject that has come up a number of times is the number of homes that are actually foreclosed, and so forth. There is a statement released by your office, Senator, which inadvertently contains a misstatement to the number of homes that are owned by HUD. Fortunately our inventory has been decreasing. We have decreased the number of defaults for a number of reasons and the number of foreclosures is down. Our sale program is very successful at this time. Today in Oakland we have 181 properties in the inventory and about 40 of those have been sold and are awaiting closing. Each month we receive about 20 properties and we sell about 30 properties. Therefore the curve would indicate relatively modest inventory in the future if circumstances remain as they are. The reason I point this out, I have already mentioned to your staff, is because some of the press here may pick this up here and repeat it. It does say 1,880 HUD-owned properties in Oakland. The figure is 10 percent of that at this time. Another reference has been made to the time of acquisition and I think this is one of the more serious problems we have. It is true that it takes 6 months to a year to foreclose and it is very likely that the property has already been abandoned by the time that process is completed. There are very few evictions. People leave. The HUD process has taken far too long in the past and it has been as many as 15 months. We are now down to an average of 72 months. We are attempting to bring that down to 3 or 4 months total ownership as an average. This would average the short-term ownership on an as-is sale, with long-term ownership on rehab, but we are extremely aware of this time factor and are very anxious not only for our own inventory benefit but for the communities affected to decrease that. The default rate in this area has dropped substantially for reasons that are a little hard to pin down. We now have a default rate which is 1.65 percent. That is that percentage of our total inventory of about 240,000 single family mortgage insurance cases are in default. Now, in Oakland all default notices are sent to the city of Oakland for the counseling service and that has had a favorable impact in either arrangements with the lender or actually moving the property from default and therefore, as I told you, the foreclosure rate now in Oakland is now around 20 properties per month for FHA purposes. There is no need, Senator, for me to read further on the statements that you have. I would be pleased to respond to questions. Perhaps I should further comment on as-is sales. We have consulted with our communities about this and I have seen the statement that Mayor Reading read a while ago from the League of Cities. I would suggest that the genesis of that statement was from the neighboring area over which I am delighted not to have jurisdiction called southern California where there is a substantial number of properties and where the as-is program is the principal method of selling. We are now selling about 20 percent of our properties as is. It is departmental policy that we should be selling more than that. I personally have not advocated this because I feel it has problems in the community. However it is true that it expedites the sale. I am aware of the comments that are made that it just opens itself to speculators and so forth. We are trying to watch that. As Mrs. Matarrese said, in the city of Oakland we are now dealing directly with the city and they are helping to monitor it. Somewhere I am sure instances can be cited in the past where speculation has been adverse to the community. We believe we now have a system in operation which would minimize that potential. Senator CRANSTON. Thank you very much. Very helpful of you to respond to some of these matters. Could you submit for the record the instructions you received from the central office excluding 235B. [The complete statement of Mr. Price, with attachments, follows:] STATEMENT OF JAMES H. PRICE, AREA DIRECTOR, SAN FRANCISCO AREA The Department of Housing and Urban Development is seriously concerned over housing abandonment and the neighborhood deterioration which may result. It is a multifaceted problem which cannot be solved without the close and intense cooperation of Federal, State and local authorities as well as local lending institutions and the community. HUD has supported and encouraged local government efforts at neighborhood preservation and we are pleased to note that many block grant cities have elected to undertake rehab programs. The attached letter to Mayor John Reading of Oakland is a formal invitation to begin a "greenlining" program which we have been discussing and contemplating for some time. It is a positive step in the direction of improving specific neighborhoods in Oakland using the combined benefits of the City talent, HUD mortgage insurance and cooperation of local lenders. We look forward to achieving positive results through this cooperation, especially in view of community involvement. The East Oakland Housing Committee is to be commended for generating attention and provoking action on the problems of foreclosure and abandonment in general and as they relate specifically to the City of Oakland. This office has been represented at the community meetings they have sponsored on the subject of neighborhood preservation, rejuvenation and housing conservation. We have discussed with them and city officials the information we have at hand about housing conservation and preservation of neighborhoods. We have explained our operations with respect to HUD acquired properties, the repair programs in connection with their eventual resale and other repair programs currently available as well as HUD's criteria for mortgage insurance. HUD will not insure where there is serious blight, adjacent industrial or adverse commercial use, or where deterioration is a real trend. This last qualification can be overcome where local government and community interests are implementing improvement plans. Adequate buyer income is also very important. Some of our data indicate that under our current requirements, many present East Oakland residents would not qualify to buy the home they already have with HUD/FHA mortgage insurance. Based on a hypothetical sales price of $17,500, an annual income of almost $11,000 is needed to support an FHA-insured mortgage. Median income in East Oakland is approximately $8,900. I would like to share the San Francisco Area Office's information on its inventory of acquired properties, our efforts to repair and resell them and our attempts to prevent homes from becoming part of this inventory through foreclosure in the first place. At the present time, this Department owns 600 single family homes in the San Francisco Bay Area (about 200 of these are sold, but the transactions are not yet completed). Approximately 170 of the homes are located within Oakland city limits. The total inventory has been reduced nearly every month from the January 1974 high of 1,577 properties. This reduction can be attributed both to a downward trend in property acquisitions and efforts on the part of the Department to accelerate its resale transactions of the homes. Our office set up and accomplished a series of goals aimed at reducing the amount of time that the properties are unoccupied and thus subject to vandalism, with minimum disruption to the neighborhood. Since January 1974, the turnover rate (acquisition to sales closing) has been lowered from 15 months to less than 72 months-still too long. We have attempted to 71-509-76-7 minimize loss of Federal dollars in the repair and resale of the acquired houses, however our figures show an average loss of $8,550 per property. To the average cost of paying off the mortgage ($18,450) we add repairs running approximately $6,500 for a total investment of $24,950. Resale of the homes generally brings in $16,400; the $8,550 balance represents the net financial loss on each home. Selling "as is" does not significantly affect this loss since the property brings a sale price still well under the paid off mortgage. The outlook for sustaining the current low inventory level is good-the default and foreclosure rates are back to the level recorded during the mid1960's. Currently, the SFAO is experiencing a 1.65% default rate in the mortgages in force in its jurisdiction, some 230,000. The rate represents a slight improvement over the previous quarter's record. This can be attributed partly to the stepped up mortgage servicing practices employed by HUD and mortgage lenders. Please note the attached letter sent to all mortgages encouraging forebearance when practical and possible when servicing a delinquent mortgage. In the event this positive trend is reversed, the Department stands ready to implement provisions of the Emergency Housing Act passed this summer to use co-insurance or mortgage relief payments to preclude a sharp rise in mortgage foreclosures. We cannot afford to be complacent about the statistics as they are now, no matter how encouraging. Proposals favoring neighborhood preservation and conservation have our wholehearted support. The SFAO will cooperate with local governments and citizen groups to help achieve their housing goals. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, SAN FRANCISCO AREA OFFICE, Mayor JOHN READING, Oakland, Calif. Subject: East Oakland. DEAR MAYOR READING: The San Francisco HUD Office often is charged with "red-lining" certain areas in Oakland. While we do not blank out large areas, we do reject numerous individual properties in portions of declining neighborhoods where extremely high risk conditions exist. It is understandable that affected parties perceive this as red-lining. In more marginal situations where we do accept applications, it has been our experience that our programs are ineffective in assisting to improve and stabilize neighborhood conditions. We would propose to work with the City in "green-lining" some selected project areas where HUD can have significant impact through full and unrestricted mortgage insurance approval. This can be accomplished by joint agreement on neighborhood rehabilitation project areas and then developing standards and programs for systematic code inspections, dwelling rehabilitation, open space, street and drainage improvements, landscaping including tree planting, and neighborhood utilities and services. It appears that this would be a most opportune time to accomplish these objectives in view of the Community Development Block Grant Program under which you have set aside a substantial amount for residential rehabilitation, plus the possibility of additional funding from the State through their recently enacted Housing Program. It could also be tied in to the City's proposed Urban Homesteading application. We would be happy to participate in a preliminary discussion meeting on this subject at your earliest convenience. Sincerely, JAMES H. PRICE, Area Director. |