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While the concept of rebuilding and rehabilitating abandoned housing is a worthy one, the money expended in whatever three cities selected will not be sufficient to eliminate the nation's abandoned housing problem. For even if the program operated optimumly, it would have no impact on abandoned houses in other cities. More important it would have no impact on the abandonment process which would continue unabated throughout the country.

What is needed is a program to eliminate the issues of housing abandonment. First, eliminating the profit which some individuals and corporations make on abandoned housing would eliminate the reasons for misrepresentation of structural conditions on the one hand, or income and credit characteristics on the other.

Second, FHA and VA programs were set up to meet a real need, the need of low-income (but credit worthy) individuals to own their own homes. But these programs have failed. One of the major indicators of neighborhood decline is the presence of government-insured loans in an area. Once FHA- or VA-insured loans are granted in a given community, conventional money dwindles and then disappears altogether. Credit-worthy families are refused conventional loan dollars and are force to contend with government-insured loans-with all their restrictions and red-tape. Housing conditions and structural improvement are misrepresented to innocent buyers who take occupancy and are unable to pay the price to fix substandard conditions and deficiencies. In addition, credit characteristics of potential buyers are gerrymandered and and families who are financially incapable of supporting mortgage payments are given government loans and soon default on them.

The present FHA and VA programs are unfair both to families who could afford conventional loans (but are denied them) and to neighborhoods whose abandoned home result from unscrupulous lending policies.

Without setting up administrative standards to eliminate the abuses found in present HUD- and VA-insured programs the "Abandonment Disaster Demonstration Relief Act" will fail as the number of abandoned homes outsteps all attempts at rehabilitation and redevelopment.

In conjunction with a rethinking of government insurance programs, the "Abandonment Disaster Demonstration Relief Act" might sttand a chance for success. But the tendency of government programs is to superimpose on one faulty mechanism, a new "perfect" mechanism which will prove just as inadequate.

That National Task Force on Credit Policy and its constituent organization is working to destroy myths and build realistic programs for providing sound housing for consumers. The absence of a comprehensive credit program for mortgage lending has meant the failure of years of well-meaning plans such as HUD and VA insurance. So today, as a result, we find that we have not made a dent in our goal of supplying sound housing at a reasonable cost to all sectors of the economy.

It is within this context that we must develop mechanisms of allocating credit to those portions of the population now priced out of the housing market. We have suggested a number of recommendations to achieve greater access to mortgage credit by low- and moderate-income families. Most of these recommendations revolve around the same theme: financial institutions must become accountable to the public, for it is our deposits that are being used to determine housing policies.

First, there must be full disclosure from all financial institutions of the location of their deposits and loans, by census tract. Loans should be broken down by type and purpose and should include a breakdown of conventional vs. guaranteed loans and loans for owner-occupied vs. absentee-owned property. Such data must be publicly available by institution so that consumers can assess the responsiveness of each institution.

Each intitution should make public a periodic "statement of geographical investment pattern." Each should be required also to keep on file copies of all written loan requests for a period to two years, so that the public can assess the extent to which demand is being adequately met.

Second, branching and chartering requirements must be changed to give the public review of the performance of financial institutions. Each institution presently must file extensive information to obtain approval for charters or new branches. We are suggesting a mandatory five-year renewal of charters

of financial institutions, which would be subject to review of the institution's performance in meeting its Affirmative Action Plan. The public should be allowed to challenge both charter renewals and new branch applications on the grounds that "public convenience" has not been met.

Third, all agencies which regulate financial institutions should have at least one-half public representation, made up of individuals with not official or monetary connection with financial institutions.

Fourth, all agencies which regulate financial institutions would be enlisted to monitor and mediate complaints of credit discrimination. If patterns of discrimination were found, regulatory agencies would be authorized to apply sanctions-including: withdrawal of governmental funds, increasing of reserve requirements, levying fines or revocation of licenses.

Finally, the government must develop a conscious credit allocation program to channel mortgage credit into high-priority areas not being served by financial institutions. The exact form is one which required input from other public interest and community groups. We would be glad to supply a list of organization and individuals interested in working towards such a solution.

Senator CRANSTON. The two of you, if you would wait, please. I do want to hear from you, but there are witnesses that were scheduled and who I think may have other time demands on them. I want to ask just a couple of questions before I dismiss this panel.

Mr. Crissman, let me ask you: do you have any idea of how to shorten the vacancy period for HUD-VA acquisitions?

Mr. CRISSMAN. Senator, the private foreclosures conducted by a savings and loan, or in fact by a mortgage-banker in behalf of a principal, can take as little as 120 days. It can string out if you have service people and you can't get service or you can't discover the condition of their service record.

Any further delay in acquiring the property is, I would think, that access of process over process, and it can be shortened and it can be dropped. It seems to me inappropriate for HUD to acquire properties themselves. They ought to be acquired and handed on to the servicers who are qualified to dispose of the property and a loss reconciliation made with HUD later.

Senator CRANSTON. Let me ask you this-and any of you that want to comment, please do so-do you feel that the foreclosure period should be shortened?

Mr. RAPPAPORT. The problem is even really more complicated than it appears on the surface with the last corporate entity involved. There has been-and it's increasing the opportunity to go into bankruptcy courts and ask for a delay that can extend for 1 year, maybe 2 years; especially if there is a little bit of income, it can stretch on and on. There has to be some way some agency can step in immediately. We are talking about a matter of days, not the normal time, because the house can be ripped off in a matter of hours.

Senator CRANSTON. Yes. I think a principal problem that we face with this bill in relationship to the administration and its nonsupport presently or opposition is the creation of a new agency; there is concern about setting up new bodies.

Do any of you have any thoughts to express now, or could you submit to us in writing your thoughts, on how we might integrate this sort of a program into the present structure of HUD, and then at the same time allow for community decisionmaking and input in the process.

I'm afraid we're going to get into a deadlock unless we find some revision of that aspect of this bill, and we need action on this problem.

Mr. RAPPAPORT. Certainly not integrated with HUD.

Senator CRANSTON. Well, what should we do?

Mr. RAPPAPORT. HUD, as we've earlier expressed, is out of sympathy with it, and they couldn't do the job.

Senator CRANSTON. Well, then what about rehabilitation, how could that be intergrated with HUD? HUD has to be involved in it, obviously.

Mr. CRISSMAN. I wonder if there is not some piece of HOLC left around somewhere, or perhaps the Corporation for Housing Partnerships could be given the additional stimulus and the capital suggested here as a vehicle. They are quite good planners. They are associated with the National Institute for Housing and Management; they are the founders of it. They are highly respected, and they have been able to balance their own budget.

Senator CRANSTON. Would you give a bit of that information and submit it in writing to us? We do have a problem with the administration that we have to overcome.

Mr. Lowe. I would be unalterable as to having HUD's administration be over this corporation. My greatest fear is that if that were to happen, not only would it be subject to all the same corruption and all the inefficiency that HUD has gone through, but it would also be liable to become nothing more than a bailout agency for HUD and all of its massive mortgage portfolio that it's stuck with.

I don't want to see this corporation getting saddled with all of HUD's property and ending up literally bailing out HUD financially.

Senator CRANSTON. Thank you very, very much. I deeply appreciate the four of you testifying, and you have been very helpful. The two of you please wait and stay there while we continue with the other witnesses.

May we now have the final panel consisting of Prof. Frederick Case and Prof. Frank Mittelbach.

Let me say that if you could just briefly summarize your testimony, I'd greatly appreciate it.

STATEMENT OF FRED E. CASE, PROFESSOR, REAL ESTATE AND URBAN LAND ECONOMICS, GRADUATE SCHOOL OF MANAGEMENT, UNIVERSITY OF CALIFORNIA

Professor CASE. I'm Fred Case. I'm on the board of directors of a major savings and loan company that has an office in Compton. I'm on the city planning commission, and I've been on the building safety commission for code enforcement. I've been doing research at the university, and I also do consulting with private organizations who want to know what to do with property that's no longer in economic

use.

First, we have done a study of nine different cities, and I offer for your staff this book that I wrote in which we asked what worked in different kinds of cities. At the back we have summarized the thing

71-509-76-13

Professor CASE. Thank you, I'm sure. I think I've known you quite awhile.

Senator CRANSTON. Thank you.

[Complete statement follows:]

STATEMENT OF FRED E. CASE, PROFESSOR, REAL ESTATE AND URBAN LAND ECONOMICS, GRADUATE SCHOOL OF MANAGEMENT, UNIVERSITY OF CALIFORNIA

I am speaking as a private person although I was on the Los Angeles City Building and Safety Commission for 6 years, working on code enforcement and neighborhood rehabilitation. I have been a member of the Planning Commission for two years, one year as its President. Four more years are remaining in my present term. My emphasis has been on providing low-cost housing through effective landuse planning. I have been involved in research on housing for more than 20 years. I am submitting a research report with these comments representing more than three years of research in nine American cities for the purpose of determining what programs succeeded and what programs failed in providing better, lower-cost housing for inner-city families. (InnerCity Housing and Private Enterprise, Frederick E. Case, (ed.) Praeger Press, New York, 1972.) My testimony will reflect these experiences and studies.

1. THERE IS A NEED FOR HOUSING CONSERVATION, REHABILITATION AND IMPROVEMENT The intent of the bill is very much in tune with future directions in which the housing industry must move for the next decade at least. The prcie of new housing places it beyond the reach of all but about 30-40 percent of all American families. Each year, we lose from the market place through abandonment and other means about two percent of the existing inventory, or approximately 1,400,000 housing units. The resources needed to save even one-half of this number are considerably less than those needed to build an equivalent number. If modestly priced homes and rental units are to be made available, more attention must be paid to saving the existing units.

2. THERE IS A NEED FOR AN INDEPENDENT AGENCY

HUD, and particularly the FHA, is burdened with such a broad array of housing programs, some conflicting in purpose, that it should not be asked to supervise this program. More importantly, neither agency has demonstrated a capacity to deal with programs or concepts which are somewhat foreign to the basic purposes of either providing new subsidized housing to low-income families or insured home loans to middle- and upper-income families. Further. the manager and administrators of these agencies should not be asked to participate in the operation of the new agency, although they could undoubtedly give some useful advice on its operational policies.

The Neighborhood Protection Corporation (NPC) should be given goals and objectives which are precise, measurable and related to definite time periods. Annualy, the agency should be required to spell out its goals in terms of accomplishments, cost and manpower and, at the end of the year, report on the differences between what it planned to accomplish, what it failed to accomplish, and what it intents to do about it. One of the major weaknesses in the 1949 Statement of National Housing Policy is that the goals are so generalized and the programs supporting policy so indeterminate, that there is no way of getting a useful cost-effectiveness measure of the programs. This is not to say that the program should pay for themselves or necessarily be measured against some type of economic yardstick, but NPC should be held responsible for productivity according to the goals Congress has in mind when it creates the agency.

3. A POTENTIAL OF CONFLICTING OBJECTIVES COULD CREATE PROBLEMS

Rehabilitating abandoned housing now does not mean that this housing would be suitable for low-income families. Improving abandoned housing and the adjacent neighborhood can create a complex of expenses that would make the cost of the improved housing too high for any but middle-or upper-income

families. There is no reason why dealing with abandonment and providing low-cost housing could not be handled in one agency, but the two should not be tied together. Both needs exist- save the abandoned housing and provide centrally located housing for low-income families.

If providing housing for low-income families is the objective then subsidies, family counseling, flexible loan arrangements and a host of other things are needed which have little to do with recovering abandoned housing. One of the reasons for much abandoned housing is the failure to deal with the peopleproblems associated with providing the housing to low-income families.

On the other hand, saving abandoned housing when coupled with neighborhood rehabilitation and improvement of existing public facilities and programs can halt deterioration. Some subsidy is involved in this program but the housing should be made available to those who can afford it, particularly if the effort results in a better class neighborhood for the minority families earning $10,000 to $20,000 annually. Some would say this is gilding the lily, but the realities are that many neighborhoods with predominantly middleincome families, particularly minority families, could be saved with great benefit to the families involved. There are simply not enough older neighborhoods or housing at modest prices available to minority families. If NPC has to repay its Treasury debt, it cannot accept FHA-VA values. FHA-VA should be required to accept losses arising from inflated appraisal values. Perhaps FHA-VA should be asked to use their "insurance" resources to absorb their losses on abandoned property. In some ways the legislation has the aspects or urban removal.

4. WE SHOULD USE WHAT WE ALREADY KNOW ABOUT HOUSING ABANDONMENT, REHABILITATION, ETC.

Over the years, HUD has contracted for hundreds of studies about all kinds of housing problems. Some evidence of this is found in tne materials provided by Mr. Schechter for inclusion in the Congressional Records. There is no need for additional research or studies on the subjects of this legislation. Before the NPC begins operations it should be required to submit a full detailed analysis of all studies undertaken by HUD which relate to the subject. Further, it should list and evaluate all suggestions that have been made about rehabilitating housing and use them as a basis of developing their own operational policies, programs and goals. One of the persistent inabilities of federal housing agencies is to learn from all of the studies that they commission. Too frequently they use selective learning to hasten the failures of the programs they administer. Clear differentiation between individual abandoned units and areas of abandoned properties.

5. WHAT IS THE MARKET FOR THE HOUSING TO BE SAVED?

One of the sad facts about providing low-cost housing is that those for whom it is being provided are seldom asked what they want or need in housing. Any private corporation planning to undertake the kinds of activities envisioned for the new agency would first do an extensive market study to determine who would want the housing, what physical characteristics would they want in the housing-i.e., bedrooms, baths, privacy, neighborhoods, etc., how much can the families afford in price of rents, what kinds of financing terms would be needed, what kinds of other help would the families need to move into the housing.

Another market factor about the abandoned housing is that there is a lack of real understanding of why the housing was abandoned. Circumstances vary widely from community to community, so that the reasons for abandoned housing in Newark or New York, Memphis or Indianapolis or Atlanta or Los Angeles are not the same. In Los Angeles, for example, housing has been abandoned in Pacoima not because the families did not want the housing nor could not afford the payments, but because the housing was so remote from employment sources that the breadwinners could not afford the time and expenses of getting to their work. On the other hand, in south-central Los Angeles, experiments with rehabilitated housing indicated no one would buy the homes even at bargain prices because of the high crime rate in the surrounding area. Recently the Bank of America agreed to cooperate in helping

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