NAHRO is another method that has Commissioner Since the publication of the first installment of NAHRO's "Six Goals for a Low-Income Housing Program" in the No. 5 JOURNAL, Public Housing Administration Marie C. McGuire has suggested that perhaps another goal would be appropriate one that would express need for a new depth of understanding and cooperation between federal and local housing officials in the pur. suit of their common objective of good housing for low-income families. What Mrs. McGuire seems to be after here is: morale, as defined above. So a new goal under that heading has been added to NAHRO's proposed new low-income housing program. Achievement of this goal will require a number of important develop. ments, as specified below. Professional Association What's needed first, perhaps, are opportunities for professional association among federal and local housing officials, over and above their routine contacts. If a true spirit of cooperation is to permeate the lowincome housing effort, definite opportunities must be provided for housing officials to know each other on a personal basis and to explore together knowledge, experience, and progress in program activity. Only part of this exposure is achieved in day-to-day agency contacts; in these relationships, official roles of responsibility are always present. Professional association among federal and local housing officials might be accomplished through opportunities to undertake advanced training together and to exchange tours of experience at all levels of program responsibility. Participation and association through Training Another way to reach Goal 7 is through in-service training for both federal and local housing officials. There is an urgent need for a formalized, disciplined in-service training program to spread present areas of knowledge and to evolve new knowledge out of program experience. Such training should be scheduled on an almost continuous basis. A factor underlining the need for more formalized in-service training is that housing administrators come from a variety of backgrounds (law, engineering, planning, business administration, building construction, social welfare); there is a need for a training plan that will cover pertinent knowledge in all important areas related to the low-income housing operation. Both NAHRO and PHA have been engaged in educational and training efforts for some time through conferences, workshops and preparation of training materials. The latest NAHRO effort is on training for management of public housing for the elderly. However, these efforts are small in relation to the need. Particularly is this true in view of the more than 300 new local authorities that have been created over the past two years. Recruitment Still a third route to Goal 7 is an aggressive recruiting campaign The among college and university students. The important and challeng ing employment opportunities available in the low-income housing program must be made known. attractions of this program as a career possibility on the domestic scene have never been dramatized. Except for the glamour of a foreign assignment, the appeal of the lowincome program can be made as powerful as the appeal of the Peace Corps to young people who want to be involved in a social service program. Not only does the housing program provide an opportunity to utilize an exciting array of talents and skills, but there is also the chance to be a part of a program that is at the very heart of perhaps the most demanding challenge facing the United States in mid-centurythe rebuilding and revitalization of America's urban centers. If enthusiasm and talent are to be transformed into knowledge and know-how, interested students will need university courses in lowincome housing administration. Today, scarcely a handful of univer sities offer such courses. Colleges and universities must also be made aware of their responsibility in training for the low-income housing field. Concentrating attention on these three components of what it takes to build morale into the low-income housing program should make the concept of "federal-local relations" obsolete. A "one-program" concept should be the goal with the emphasis on the personal competence and dedication of the individual housing official in whatever type of agency he assumes responsibility. "PROBLEM" REHABILITATION FINANCING CAN BE SOLVED BY USING URA FUNDS for LOANS, SUBSIDIES (By James E. Rumsey, public relations officer, the Nashville Housing Authority) Before assuming his pubic relations job, Mr. Rumsey, for 3 years, worked on rehabilitation and code enforcement in New Haven, Conn., as well as in Nashville. Out of this experience, he has concluded that neighborhood rehabilitation will not work unless some new financing method is found to help out the 5 to 10 percent of property owners in conservation areas who cannot, on their own, finance required improvements. Mr. Rumsey proposes that these costs become a part of gross project cost, under the title I URA formula. Mr. Rumsey notes that his proposal is a personal one and does not reflect the policy of the Nashville authority. Rehabilitation may no longer be regarded as the orphan of urban renewal. It has become a member of the family. However, it is currently a retarded child: its parents are making apologies for it, while they anxiously seek to guide it into a useful role in life. Reports of problems and proposed solutions in rehabilitation are coming in from cities all over the country. In the face of mounting criticism, the Federal Housing Administration is laboring valiantly to get its 203k and 220h programs off the ground. And rehabilitation demonstration programs are being undertaken under the expanded opportunities provided by the Housing Act of 1961. Nevertheless, while cities like Nashville with renewal projects involving large rehabilitation areas may point with pride to growing numbers of properties that have been successfully brought up to standard condition, those same cities also have a backlog of apparently insoluble rehabilitation "problem cases." Although these may constitute as little as 5 to 10 percent of the overall workload, they are enough to jeopardize seriously a program that proposes the complete rehabilitation of entire neighborhoods. THREE PROBLEM TYPES Rehabilitation problem cases fall into three general categories. First, there are homeowners whose credit rating and/or low income prevents them from obtaining rehabilitation financing. This circumstance should not surprise anyone in the type of area selected for comprehensive rehabilitation, "solid gold" credit ratings do not abound. A second type of problem is the overmortgaged house. We find frequently that the total mortgage indebtedness on a property, plus the cost of rehabilitating it, exceed its eventual value after rehabilitation; in other words, the structure is financially (as carefully distinguished from structurally) unfeasible for rehabilitation. The third category of problem case is in the form of the old bugaboo that crops up in so many governmental programs: the widow and the aged, the lame, the halt, and the blind. Often these handicapped people own outright a house in seriously bad condition that requires several thousand dollars worth of repairs, for which they have no possible means of paying. Many cities have introduced programs to handle a few of these problems. Fight Blight, Inc., of Baltimore is perhaps the most famous and successful device to have been created. However, no scheme has been set up to date that can possibly be expected to handle the volume of cases that will occur if we take seriously the conclusion that rehabilitation, rather than clearance, is the only financially feasible way of dealing with the vast "gray areas" in every American city. Until a viable solution to the problem of rehabilitation of financing is discovered, the potentialities of this major technique of urban renewal will not be realized. FHA ROLE FHA continues to wrestle with the task of getting its 220h program moving in urban renewal areas. Its intensive efforts in the Harlem Park project in Baltimore proved that, by flooding an area with Urban Renewal Administration and FHA technicians, a number of financially feasible rehabilitation mortgages could be processed more speedily. The Harlem Park experiment did not indicate that FHA has a solution for the type of problem cases listed above. Moreover, there is serious question of whether FHA can or should attempt to solve these problems. Its current drive to tighten up mortgage credit requirements, for example, makes rehabilitation loans much more difficult to obtain. Then, too, FHA has established its reputation by insuring financially sound housing ventures. Already criticism is being heard, as in a recent quarterly report of the Mortgage Bankers Association, the FHA is jeopardizing this reputation and dangerously burdening its administrative responsibilities by its involvement with special programs, such as urban renewal and rehabilitation. The rehabilitation problem cases remain. Until a solution is found for them, they threaten the overall success of rehabilitation in neighborhoods that might otherwise meet the goals of urban renewal. If our only solution is to acquire them, either as "demonstration programs" or through amending our urban renewal plans, then we must expect, in any given project involving rehabilitation, greatly increased financial costs-and, in addition, relocation workloads that can be handled only with great difficulty and hardship. NEW APPROACH PROPOSED We believe these problems will not be solved until the Urban Renewal Administration invests its money as well as its concern in rehabilitation. The proposal outlined below is based on the presupposition that URA must recognize that problem cases will exist in any area worth rehabilitating and that the financial solution to these problems is as legitimate a project expense as the acquisition of land or the provision of site improvements. Quite simply, the proposal calls for direct rehabilitation mortgage loans to be made from urban renewal project funds. The following is a summary of this new approach to rehabilitation financing. 1. As a part of the survey and planning work involved in the preparations of an urban renewal plan, an estimate would be made of the total amount of money that would be required to provide mortgage loans for rehabilitation problem cases. (These loans would include both existing indebtedness on property and the cost of rehabilitation.) This amount would then be incorporated in the plan as one item of the estimated gross project cost. 2. Provision of the proposed mortgage loan program: (a) An owner would become eligible for this special loan only upon proof of failure to obtain either conventional or FHA financing. (b) Mortgage loans would be made directly from project funds, at an interest rate of 4-5 percent. The rate would be flexible and would equal the contract interest rate of the Federal loan for the particular urban renewal project, plus a service fee of one-half of 1 percent to cover overhead expenses of the I.P.A. Larger LPA's should have sufficient staff to handle the servicing of these loans; smaller LPA's might possibly contract for it. (If an additional subsidy for the mortgagee is considered desirable, the servicing fee could be eliminated.) Since no private or secondary market for these mortgages would be involved, the need for mortgage insurance, FHA or other, would be eliminated. (c) Rehabilitation personnel of the LPA would inspect the properties involved, supervise the preparation of rehabilitation plans, and assure the achievement of project standards. (d) The mortgage would include all existing indebtedness plus the costof rehabilitation. (e) Financial unfeasibility (total mortgage indebtedness beyond the fair market value of the property) as well as mortgage credit deficiencies would be waived. (f) Monthly payments under the proposed mortgage would not exceed 20-25 percent of gross monthly income. The term of the mortgage would be flexible, in a few cases, it might extend beyond the present 40-year limitation on FHA section 220 and 221 loans. (g) In cases of extreme hardship, where a house is owned without indebtedness and the owner has no income from which to pay for rehabilitation, the cost of rehabilitation would be paid by the LPA and would become a lien on the property, subject to payment on the death of the owner or transfer of title. Such liens would be noninterest bearing. (h) Normal foreclosure procedures would prevail. (There is no reason to soft-pedal the question of foreclosure; these loans would be made at a favorable rate to owners with no other avenue for financing, and in many cases, would offer them their only opportunity for standard housing at monthly payments they can afford. By living in an urban renewal area, they would have been given an otherwise unavailable opportunity and failure to take advantage of it would be their responsibility alone.) Upon foreclosure, the property would be resold as a normal real estate transaction, either directly by the LPA or on open listing. In the case of foreclosure of a property with an existing indebtedness above its fair market value, the net loss would be absorbed by the urban renewal project. 3. Prior to the certification of the completion of the urban renewal project, the mortgages and liens held by the LPA would be sold on a bid basis. (The LPA's servicing and foreclosure policies would be binding on any purchaser.) LEGISLATION NEEDED Obviously, this proposal would require new Federal legislation. To obtain this legislation, housing officials as well as Federal and local authorities must be persuaded of the need for such a program. In particular, its "radical" elements (the waiving of financial feasibility and mortgage credit requirements) must be set against its conservative features. This proposal is conservative in not competing with private lenders, in conserving existing houses, in reducing the number of urban renewal displacees, and in protecting real estate value by enabling neighborhood rehabilitation to become 100 percent effective. Above all, it is conservative in providing for a net savings of tax dollars. At present, there are few alternatives in the case of these hard-core problem cases to eventual acquisition of the property. This is especially true in view of the fact that one other alternative, condemnation under the housing code, is a politically and socially dangerous weapon in urban renewal areas. The wholesale usage of condemnation powers-not just in cases of irresponsible and noncooperating owners, but also in cases where the owner wants to comply but is not able-can undermine a community's acceptance of urban renewal. DOLLARS AND SENSE To appreciate the dollar savings possible under the proposed program let us compare the net project cost in a case typical of those we encounter in Nashville. Suppose a substandard property has a present fair market value of $7,500 and is mortgaged 100 percent. The cost of rehabilitation is $3,500 and the total mortgage loan required is therefore $11,000. However, after rehabilitation, the property has a fair market value of ony $9,000. If the mortgage is made and if the owner defaults immediately on the mortage (which is the worst thing that could happen), the net loss to the project following resale of the property is $2,000. The same property, if there were no way to rehabilitate it, would be acquired as a project cost at $7,500. Excluding items of overhead, the structure may be cleared and the land resold for $1,500. In this case the net cost of this property to the projects is $6,000, or three times the maximum cost of the proposed alternative. Of course, it is reasonable to assume that a large number of these mortgage loans would be paid off and result in no loss whatsoever. Apart from the purely financial reasons for advocating this program, it would have great public and political appeal. Local authorities are particularly sensitive to the creation of undue hardship through urban renewal. Under this proposal, every homeowner in an urban renewal rehabilitation area would be given the opportunity to retain a structurally sound home on financial terms that he could meet. This would significantly reduce the displacement caused by urban renewal, assure the success of neighborhood rehabilitation, and raise the morale of project residents. It would pay great dividends in popular acceptance of urban renewal throughout a community. A final consideration applies mainly to those of us charged with the execution of urban renewal projects: it is that this proposal would provide us with the tools to do the job. By including the cost of the difference between making rehabilitation 80 percent or 90 percent effective and making it 100 percent effective in the gross cost of an urban renewal project, rehabilitation can become a fully productive member of the urban renewal family. Senator SPARKMAN. Now we will have Mayor Wagner come forward, please. Mr. Mayor, we are delighted to have you come before us again. We have had the pleasure of having you many times. I must say that when this housing program really got its start I was a member of the committee under the chairmanship of your dis 30-94464--35 tinguished father who, of course, was the original sponsor of the Housing Act of 1949, which although not the original act, was the most significant housing act of all. I think it was a great milestone in the housing field. We welcome you here this morning. You may proceed as you see fit. Senator JAVITS. Mr. Chairman, if I may just say a word, it is too little known, I think, that the first thing I did here in the Congress and the first thing I thing our beloved and departed President Kennedy did here in the Congress was to get together the National Veterans Housing Conference of 1947, and our associates in that venture were Robert F. Wagner, Jr., and Franklin D. Roosevelt, Jr. It was quite a team, and had a lot to do, I think, with getting the TaftEllender-Wagner bill enacted, which I had the honor of sponsoring in the House of Representatives. Glad to see you, Mr. Mayor. Senator SPARKMAN. Mayor Wagner, will you please identify, for the record, the three gentlemen sitting with you? STATEMENT OF ROBERT F. WAGNER, MAYOR OF NEW YORK CITY, ACCOMPANIED BY MILTON MOLLEN, CHAIRMAN, HOUSING AND REDEVELOPMENT BOARD, NEW YORK CITY, JULIUS C. C. EDELSTEIN, EXECUTIVE ASSISTANT TO THE MAYOR, AND IRA S. ROBBINS, MEMBER OF THE NEW YORK CITY HOUSING AUTHORITY Mr. WAGNER. Mr. Milton Mollen, the chairman of our Housing and Redevelopment Board in New York City; Mr. Julius C. C. Edelstein, the executive assistant to the mayor in charge of policy who represents me on the housing policy board; and Mr. Ira S. Robbins, who is now at my side as vice chairman of the New York City Housing Authority. Senator SPARKMAN. He is wearing two hats today; is he not? Mr. WAGNER. Yes, sir. Senator Sparkman, Senator Javits, Senator Bennett, I certainly consider it a distinct honor as well as my duty to appear before this committee today. I feel at home by heritage, as Senator Sparkman has already mentioned, as well as by the connection between the subject matter of these hearings and my responsibility as chief executive and public spokesman of the 8 million inhabitants of New York City. I am here to testify on the critical need of the people of the city of New York, and I believe of all cities, for the essential assistance in the fields of housing and urban renewal which is extended through the provisions of the legislation before you. I am referring, of course, to the bill recommended by President Johnson and introduced and sponsored in the Senate by that friend and champion of sound housing legislation the distinguished chairman, Senator John Sparkman. I know he does not come lately to the subject of governmental aid to housing, nor do many of the other members of this distinguished committee. And, of course, I refer, too, to the senior Senator from New York, my good friend Senator Javits, who, as he said, did work a good many years ago with veterans groups for the support of housing legislation, together with Franklin Roosevelt, John Kennedy, and myself. |