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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 71/2 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

OFFICE, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 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 712 monthsstill too long. We have attempted to

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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,

San Francisco, Calif., August 22, 1975. Mayor John READING, City Hall, 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.

(HM Mortgagee Letter 74–14]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT,
OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING MANAGEMENT,

Washington, D.C., December 13, 1974.
To: All approved mortgagees.
Subject: Forbearance relief-hardship and temporary loss of income resulting
from rent economic conditions.

Many mortgagors are experiencing serious problems in making timely mortgage payments due to the nationwide increase in unemployment and the temporary lay-offs occasioned in some industries. This curtailment of income and reduction in working hours has affected many mortgagors with HUD-insured mortgages.

In an effort to assist those families who are experiencing temporary hardship, the Department of Housing and Urban Development is again strongly encouraging mortgagees to render whatever assistance is possible to help these mortgagors.

Procedures contained in HUD Handbook 4191.1 "Administration of Insured Home Mortgages”, Chapter 2, paragraphs 121-128, fully describe relief measures available to mortgagors under these circumstances. These include:

1. Voluntary withholding of foreclosure by the mortgagee.-The mortgagee may wait as long as one year from the date of default before starting action to acquire the property. During this period, the mortgagee can assist the mortgagor by accepting reduced payments or by carrying the account in a default status. All funds remitted by the mortgagor during this period shall be applied in accordance with the terms of the mortgage. Since, by definition, the date of the default is thirty days after the mortgagor's failure to meet a requirement of the mortgage, the account can be carried in default indefinitely if the mortgagor makes payments during the period of default. Thus, partial payments, when applied, will advance the date of the default.

2. Special forbearance relief.The mortgagee may enter into a formal forbearance agreement with the mortgagor. When this is done, the mortgagee will receive, as part of its insurance settlement, unpaid mortgage interest, including all amounts accrued prior to the execution of the forbearance agreement, computed to the earliest of the applicable dates described in HUD Handbook 4110.2, The Mortgagee's Guide, Home Mortgage Insurance, Fiscal Instructions, Chapter 12, paragraph 12-5a.

A formal forbearance agreement cannot extend beyond 18 months without prior HUD approval.

3. Recasting of mortgages in default.-A mortgage in default may be recast to: (1) increase the unpaid principal balance of the mortgage to include all sums due and payable except late charges; and (2) extend the term of the mortgage for not more than ten years. While it is recognized that recasting generally is not used by mortgagees, in this period of national concern HUD hopes mortgagees will be willing to extend this form of relief to a greater degree than has been customary. Recasting of a mortgage could prove of greater henefit to a mortgagor than the granting of special forbearance. On the other hand, use of special forbearance together with the recasting procedure might be more beneficial to some mortgagors.

Mortgagees should ascertain that their employees are fully familiar with all available forbearance procedures and that they make appropriate use of these procedures. Local HUD Area and Insuring Offices should be contacted for further information on these matters. Sincerely,

H. R. CRAWFORD, Assistant Secretary for Housing Management.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT,

OFFICE OF THE AREA DIRECTOR,

San Francisco, Calif., September 16, 1975. Mr. JERRY BUCKLEY, Minority Counsel, U.S. Senate Subcommittee on Housing, Washington, D.C.

DEAR MR. BUCKLEY: Enclosed is the San Francisco Area Office's response to the questions raised at the Subcommittee hearings in Oakland August 28. We have also included for your information an excerpt from current 518(b) instructions indicating that homes insured under the Sec. 235 program longer than one year ago are not eligible for assistance. (Note: HUD acquired properties sold with Sec. 235 subsidy are covered by HUD's one year warranty rather than 518(b)). Sincerely,

JAMES H. PRICE,

Area Director. Attachment.

Question 1. How many single family homes has the area office insured since 1968 in the San Francisco area? How many multifamily?

Answer.

A. SINGLE FAMILY

Total number single family homes insured
Year:

1968.
1969.
1970.
1971.
1972.
1973.
1974.
1975 thru August.

Number insured

20, 857 20, 841 20, 225 24, 717 23, 322 10, 720

8, 330 12, 346

Total.

141, 358 This total includes 7,878 properties insured under the Sec. 235 programHomeownership for Low and Moderate Income Families.

B. MULTIFAMILY

Since 1968, this Office has insured 419 projects containing 45,011 units.

Question 2. What is the present inventory of acquired properties in (Oakland) area?

Question 3. What HUD programs were most of these abandoned homes insured under? i.e. 221 (d) (2), 223(e), 235, 236. Do you have figures on percentages under each program for this area?

Answer. As of September 2, 1975, the inventory of acquired properties in the City of Oakland consisted of 171 properties. 96 (56%) were insured under Sec. 203(b); 6 homes (638%) under Sec. 221(d) (2); 10 (6%) under Sec. 235.

Question 4. What has been the impact of these special risk programs (i.e. 221(d) (2), 223(e), 235) in this area ? Have they contributed primarily to the abandonment problem?

Answer. The special risk programs have had no favorable impact on Oakland in general. They are attempts to enable low and moderate income families to attain homeownership which they could not afford in the private mortgage market.

Properties designated to be insured pursuant to Sec. 223(e) at the time of appraisal are located in declining urban areas. This section of the housing act waives economic soundness and economic life requirements with respect to location and mortgage term.

The default rate for mortgages insured pursuant to this section is higher than the Sec. 203(b) program: the overall default rate is about 1.65%; the 223(e) rate is about 4%.

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