After all that, we tried to negotiate with the FHA, number one, as vice chairman of the NAACP to try to get the FHA to lift the redline from our community. Well, that didn't happen. We tried to get the FHA to let us be under any kind of program that FHA may have had, which we know of no programs they did have.

I remember once we submitted the 235J program to the Santa Ana FHA office. After months of negotiating with that office, they told us we were in the wrong office. They sent us to the Los Angeles HUD office. After months of negotiating with the Los Angeles office, we were told we were in the wrong office, and they sent us to another. Before we could complete the negotiations there, the President put a moratorium on all 235 programs. The only thing I'm saying is about the frustrations that we have been through to reach this point.

I have read your bill just briefly. I just found out about it last night. I haven't had an opportunity to prepare a statement. But in reading the bill, the one problem I find with it is that you expect organizations such as us-I hope you have us in mind when you talk about neigborhood organizations-to take on this large responsibility and then somewhere down the line become self-supporting. I would hope at the time the telephone bill comes through is the time you expect us to become self-supporting. I don't know how we can do that; that's number one.

No. 2, you talk about Carla Hill. I'm sorry that she's a woman. She's the Director of HUD. I've seen no changes in HUD or FHA since she has taken charge, and you say she will be president of this corporation. Regardless of all the revisions within that bill, I don't see it working. I don't see it working if FHA or HUD has anything whatsoever to do with it.

I live in a community now that is a result of a bulk sales program. I'm living with those results. At least before the bulk sale, the houses were boarded up. We raised enough cane to get them boarded up; but as a result of the bulk sale, they are all unboarded. They purchased the houses. It was 147 houses in our community from two- to four-bedroom houses, for a total of $296,000 from FHA; but then within 15 minutes' time that guy that bought those houses for $296,000 turned right around and sold that for $472,000. He made approximately $176,000. My understanding is he paid FHA $29,000 for the option. He collected the money for the future sale from the new buyers and he used that money to pay FHA off, so he never had any more than $29,000 involved in a sale at any one given time, and he made $176,000.

We had the city of San Bernardino offer to purchase the houses from FHA, to give the city of San Bernardino under the Housing Community Development Act of 1974, a block grant, an opportunity with the city and the community working together to develop those houses so that they would be retained for low- and moderate-cost homeowners. This is one of the problems that we have. Sure, there is housing all over, but we can't afford it. We can't qualify. The houses they can qualify for are the kind of houses that are going to fall apart as soon as we get in.

I run a program right now that develops housing for low-income people; it's under the Veterans Administration. We can get little or

no cooperation out of FHA; only the VA would help us. It took $20,000 to develp that contract. Where did that money come from? It came from all kinds of grants, to get to the point where we could implement the program.

We are developing houses where what we call a Spanish stucco— we've color coded the exterior-is guaranteed to last from 10 to 15 years. We guarantee the roof for 5 years. We guarantee the house for 1 year. It's a three-bedroom house, fenced yard, carpeting and builtins. A three-bedroom house in southern California will go for $10,000, $15,000. A two-bedroom house is $9,200. House payments on a twobedroom house is $92. House payment on a three-bedroom house is $102.

In the area that I'm talking about just one street north of where we are working now in Dillman Heights, we are selling houses there. We have the same housing owned by the Veterans' Administration. We rehab them. They put them back on the market for $8,200 for a three-bedroom house, $82 a month. The sale buyer has the same house. He's charging $17,500 for it. The same house we sell for $8,200; I mean on the same block. What I'm saying is that I agree with whichever one of the gentlemen talked before that you need to come into the communities.

Senator Cranston, I've been in your office many times in Washington. I've talked to your office many times in Los Angeles. I've appeared before you several times, but I have yet to be able to sit down and talk to the person who calls up those bills about what our problems are; I've yet to be given that opportunty. College professors give all these statistics and suggestions, but how can they really know what the problems are? I'm a living witness, and I bet you I've got the experience. I've lived the research, and I do it daily.

We use manpower money to pay the people in the community to rehabilitate those houses. After they've gone through a minimum of 6 months to a year training with us, then they are ready for entrylevel apprenticeship programs. We find we have 68 percent now and placement is very good, and many times we find this the best way to accomplish what needs to be done, but I employ the people from the community. You talked about vandalism. I've been running this Housing Development Corp. developing housing for 18 months, and my vandalism is running at a cost of $500 out of those 18 months because the people that live there are developing the houses. We don't have somebody coming in from Orange County in an air-conditioned limousine checking out our work. We check it out, and we do it. Thank you for your time.

Senator CRANSTON. I want to thank you very, very much. You are very straightforward and very constructive, and I appreciate it very, very much. Carolyn Jordan and Jerry Buckley would like to meet with you and talk with you and some others now about some of the particular things you haven't had a chance to express in detail and ask you some questions, and maybe you have some questions to ask them. They are going to be working on this bill trying to revise it in the light of these hearings into something that we can pass and any more information that you can furnish us with would be of great

help, so if you don't have to run off, you can have such a conversation with them.

[The complete statement of Mr. Lehrer-Graiwer and additional material follows:]

STATEMENT OF JONATHAN LEHRER-GRAIWER, WESTERN CENTER ON
LAW AND POVERTY, INC.

ABANDONMENT: DELMANN HEIGHTS, A CASE IN POINT

For the past month and a half the Western Center on Law and Poverty, Inc., has been involved in a federal lawsuit aimed at preventing the Department of Housng and Urban Development ("HUD") from abandoning to property speculators the 147 vacant nouses its owns in the Delmann Heights area of the City of San Bernardino. Among the plaintiffs to that suit is the San Berardino West Side Community Development Corporation, headed by its Executive Director, Valerie Pope. This non-profit community-based corporation is dedicated to improving and stabilizing the community in and around Delmann Heights. The problem of abandoned and foreclosed housing owned by HUD and the Veterans Administration is starkly outlined by the communities of Delmann Heights and California Gardens located on the west side of San Bernardino. Attached as Exhibit 1 to this presentation are the introductory pages to the Delmann Heights/California Gardens Revitalization Study which was commissioned by the California Youth Authority and which describes in some detail the social tragedy which has occurred in the two subject communities. Out of a total of approximately 650 dwelling units in Delmann Heights, over 300 units are vacant, 133 of which are currently owned by the VA and 147 units have been recently sold by HUD in a bulk "as is" sale to a private speculator.

Although some of the causes of the high degree of abandonment in Delmann Heights and California Gardens were the result of economic and social forces beyond the control of government agencies involved in those areas, it is clear that the continued deterioration of the Delmann Heights area, in particular, can be ascribed to a failure in programs instituted by HUD. This can be seen in tracing attempts by HUD over the past three years to dispose of its inventory of abandoned and foreclosed housing.

In 1972 HUD entered into an agreement with a private developer for the purchase, rehabilitation and resale of HUD-owned vacant properties under the then existing practice by HUD of requiring the repair of units it sold. That first Ideal did not come to fruition and was abandoned sometime in late 1974. Then armed with new bulk sale regulations contained in the Property Disposition Handbook no. 4310.5 §§330, et seq., HUD decided to sell the 147 abandoned and foreclosed properties in a bulk "as is" sale, with absolutely no requirements that the purchaser develop and rehabilitate properties for sale to owneroccupants. The result was the conclusion of such a bulk "as is" sale on June 27, 1975 for $295,000 ($2,000 per house) to a company which simultaneously resold the properties at a profit of $125,000 to three speculators. These speculators, in turn, set up a public auction of those same properties for July 27, 1975. As indicated by Exhibit 2, the newspaper advertisement for the auction, the houses were again to be sold "as is" at prices ranging between $4,500 and $7,000, which again represented a substantial potential profit from the less than $3,000 paid to the first buyer and the $2,000 initially paid to HUD.

Fortunately, as a result of the suit instituted by the Western Center on Law & Poverty against HUD and the subsequent purchasers, and as a result of an ill conceived "get rich" scheme, in general, the auction failed. The plaintiffs to that suit have now been successful in at least temporarily averting the total deterioration of Delmann Heights as a result of a speculative and potentially fraudulent venture by obtaining a federal court order setting some standards of development for the current owners.

However, the lesson is clear that HUD has embarked upon a policy of abandoning the units it has acquired to some of the lowest and basest real estate speculation. This general policy by HUD to make bulk "as is" sales without any rehabilitation requirements or supervision would appear to be in conflict with a variety of national housing policies as set forth in 42 U.S.C. $1701t, 42 U.S.C. §1444, 42 U.S.C. §1441a, 42 U.S.C. §5301 and 42 U.S.C. §1437

and with HUD's own regulations contained in the Property Disposition Handbook No. 4310.5, Chapter 10. However, aided by an internal conflict within the law, between the policies of safeguarding and improving the quality of low and moderate income housing, in particular, and of safeguarding the mortgage insurance fund, HUD has been able to issue internal directions and notices specifying that the primary objective of the property disposition program is to "Reduce the inventory of acquired property in such a manner as to insure the maximum return to the mortgage insurance funds". (Notice HM 74-57, September 11, 1974.) The previous emphasis on rehabilitation requirements seems to be a dead letter. This policy which implies a complete disavowal of any responsibility by HUD to assure the rehabilitation of dwelling units it acquires and the continued vitality of neighborhoods in which these units are found underlines the critical need for a separate development corporation as proposed in the Abandonment Disaster Demonstration Relief Act-a corporation whose primary function would be to rehabilitate, as quickly as possible, and otherwise develop abandoned housing and to sell such housing to owner residents.

I am including for the committee's information several pages from an affidavit of Ms. Valerie Pope submitted to the district court in Los Angeles and outlining some of the basic causes for the cycle of sale, abandonment, foreclosure, reacquisition by HUD or VA, rehabilitation and resale which has occurred in the Delmann Heights area as many as three and even four times.

COMMENTS AND CRITIQUE OF PROPOSED

On the basis of the experience gained from the Delmann Heights and California Gardens communities the following comments are advanced in an effort to increase the likelihood that the proposed act will spawn an effective program for redeveloping and revitalizing abandoned properties. Initially, let me state that the elements which I have concluded are essential to any effective program are (a) that community groups in affected areas participate in the planning and exection of developments: (b) that the corporation assure that the development and/or rehabilitation is substantial, as opposed to cosmetic, and is executed in a workmanlike manner; (c) that the burden of rectifying or suffering the consequences of inadequate rehabilitation be removed from resident owners of properties sold by the corporation; and (d) that sufficient buyer screening and counseling be implemented.

1. In regard to the active participation by community groups, the proposed act does require the corporation to "consult, on a continuing basis, with local officials and affected residents of a selected area with respect to matters of mutual interest and concern". (Section 5(a)) I believe that this does not go far enough and that the act should strongly encourage the active participation by community groups and residents in the planning and execution of the development and/or rehabilitation of a selected area. If a particular area has a community organization in existence which can demonstrate community support, a commitment to safeguard and revitalize the area and the knowledge and skill necessary to undertake a part or all of the proposed development, it seems that such a group should be given careful consideration in helping the corporation to execute its plans. I stress this point because the existing HUD regulations (Handbook no. 4310.5, $330 (b)) actually mandate a preference for profitmotivated developers in the purchase of bulk sales and require a specific finding by the Director that a bulk sale program cannot be successfully concluded with a profit-motivated sponsor before concluding an agreement with a non-profit sponsor. The advantages to the corporation of working as closely as possible with existing community groups are manifest and include (a) the ability to galvanize community support; (b) access to information about the community's desires and needs; (c) access to information about prospective buyers and their qualifications and commitments to maintaining the properties which they buy; and (d) access to information about local contractors and their reliability.

2. The Act should include a specific requirement that sales and rentals of units by the corporation should be to individuals who will actually reside on the premises which they purchase. Additionally, to deter speculation, restrictions should be placed in deeds that any subsequent sale of properties must also be to resident owners. In the case of the sale of a multi-family dwelling, the corporation may be allowed to sell the property to a non-profit group with adequate restrictions on resale.

3. The Act does not deal with the corporation's responsibility to adequately check the credit and assess individual prospective buyers for likelihood of their success as homeowners. As indicated by Ms. Pope on pages 5 and 6 of Exhibit 3, inadequate screening of buyers by HUD has been, to a significant extent, responsible for the abandonment cycle which has occurred in Delmann Heights and elsewhere. The problem is particularly acute in the case of HUD and VAinsured loans where the private lender has little incentive to adequately screen buyers since his investment is completely insured. The object of proper screening is to insure, as much as feasible, that the prospective buyer has some chance of meeting the payments required by home ownership and that the prospective buyer does not have a history of purchasing and abandoning homes or defaulting on mortgages. As stated by Ms. Pope, the people who bear the burden of unqualified buyers and subsequent abandonment are the remaining residents who are left with the vandalized remains of the vacated homes.

4. A concomitant to adequate credit screening is adequate counseling which the Act does mandate in §6(i). However, I believe that the corporation should also be given authority for ongoing counseling where necessary. It is clear that home ownership, in particular, often necessitates a significant change in social and budgetary management by a family-a change which may well require ongoing counseling beyond the initial purchase of the property.

5. The Act provides the corporation with authority to compensate a purchaser for structural or other defects if three specified conditions are met [§6(g)]. I believe that this is inadequate and that the corporation should be held specifically responsible for the quality of the rehabilitation and/or development conducted upon properties it sells. This responsibility should not be dependent upon the second part of the third condition that the defect be one that proper inspection could reasonably be expected to disclose. One of the critical elements for a successful program is assuring, to the maximum extent, that low and moderate income buyers of the dwelling units sold by the corporation are able to maintain their properties and continue to have the desire and incentive to maintain payments on the properties. To this end, every reasonable step must be taken to eliminate unnecessary burdens on low and moderate income home buyers. A burden which has often led to abondment involves defects in the rehabilitation which are discovered some time after purchase. The corporation is in a good position toe xtract quality warranties from rehabilitation contractors and developers and is in a much better position than low and moderate incme buyers to pursue actions against such contractors in the case of improper work. Placing the responsibility on a low and moderate income buyer to collect for improper work would increase substantially the danger of the abandonment as a result of the increased cost on the owner. Consequently, the responsibility of the corporation for rectifying improper work should extend to all defective work without limitation as to whether the defect is one "that a proper inspection could reasonably be expected to disclose".

6: The proposed Act provides in §6(h) and §7(a) (3) for authority to extend the time for payment of any installment by any mortgagor. I believe that the Act should set some standard under which the corporation would be required to grant an extension of up to three months upon a good cause showing temporary inability to make payments, as a result of illness or some other unforeseen circumstances. Possibly, the Act should allow a mortgagor a one-month payment extension every two or three years if the extension is brought up to date within one year, except where there exists evidnce that the mortgagor is committing waste on the property.

7. Section 7(a) (5) specifies that the operation of the corporation shall be fully self-supporting. I question whether the cost of counseling, if meaningfully implemented, should be included in this self-supporting requirement.

I fear that the managers of the corporation will readily discard the counseling requirement or severely limit its application at the first sign of a budgetary problem. This would be tragic in the sense of undercutting one of the most critical elements necessary for a decrease in the abandonment rate. The counseling program should be independently and generously funded from some other source such as general revenues so that competing budgetary demands do not lead to its demise.