so, we run up against legislative or administrative obstacles that often prevent a property owner from doing what is necessary. We are confronted by insufficient resources, by reluctant lenders, or by FHA procedures that strangle 3 out of 4 attempts to utilize one of these fine sounding housing programs. We see code violations that remained unheeded, condemned properties that await demolition; ignorant and overburdened families that live in squalor and despair unable to make needed improvements, and we notice with troubled concern how too many of our urban residential neighborhoods are shrinking in size and slipping in quality. To remedy these conditions takes more than private initiative, civic campaigns or code enforcement-although these are and should remain contributing factors in a program for recovery. What we need most of all, and on a considerable legislative scale, is removal of the obstacles in existing laws and regulations as well as new and better tools to upgrade millions of substandard homes. We can see there a definitive relationship between this need and the President's announced "war on poverty" because it is the home where poverty strikes hardest and roots heaviest. However much we may try, through conferences, committees, and commiserations, to wage this war, there is little chance for success unless we find the means and mechanics for making homes decent and manageable for those who cannot, under their own power, obtain and maintain such conditions in the open market.

Once every 3 or 4 years, Congress approaches this challenge through changes in the National Housing Act; some of these changes were brave attempts to deal squarely with the issue: slum clearance, public housing, relocation, housing for the elderly, community planning, open space programs, community facility projects, and others. The largest part of the proposed legislative package before us, however, does not deal with the dilemma of the inventory: it is aimed at objectives favoring generations yet unborn, and at programs to suit the more affluent segment of our urban and, especially, suburban population groups. There is no denying the relative significance of those measures, but we should not lose perspective with regards to their urgency.

It seems that the crucial problem in our search for healthier housing and better use of the inventory is to find the right scope and method for those on the fringes of age or opportunity. This cannot be done by private enterprise aloneit calls for Government help. The present package offers too much Government and not enough help. This may best be illustrated by three observations: 1. Out of 59 individual topics in S. 2468, only 5 deal in essence with the existing housing inventory: sections 102, 205, 404, 804, and in part, 805.

2. Most of the assistance-type privileges and benefits of this legislation are designed for urban-renewal projects-but substandard housing and submarginal families are found in almost every city, township, and county, regardless of size or location. By the end of 1963 we had about 750 localities with urban-renewal projects; almost 800 more had been started at one time or another but had to give up. Compared to the total number of localities where housing is in need of help, 750 is a small fraction; it becomes even less significant when we realize that only 125 localities have projects with section 220 or 221 activities suitable for, but not always including, rehabilitation and conservation. Thus, the bulk of defective housing-perhaps 97 percent of it-is located outside urban-renewal project areas or in localities which do not even have a workable program. Most of the provisions pertaining to rehabilitation will miss their mark since they would only apply to the 3 percent of the inventory located within a project area. 3. The most noticeable proposals with respect to the existing inventory are designed for the benefit of the elderly. As a concept, this is most important; as to practical application, many of those provisions are unworkable, as I will later explain. Moreover, no liberalization or assistance is proposed for millions of property owners under 62 who right now cannot manage to maintain decent, safe and sanitary housing.

I would like to briefly comment on these three observations.

Section 102, in its first part, would amend the 220 (h) loan program designed for owner-occupants in urban renewal projects. This program was created in 1961 and has, up to January 1 of this year, produced a total of four FHA insured cases. It is now proposed to extend its use to single individuals over 62 who can pass the mortgage credit scrutiny of FHA. As a method of easing loan terms, this proposal is truly revolutionary and highly desirable for the intended purpose; namely, assistance to a whole category of handicapped recipients. Unfortunately, it will not work-mostly for the very same reasons the old program did not come alive. This 220 (h) program simply does not meet the stark realities of substandard properties and marginal owner-occupants

although it pretends to be designed for both of them. On today's average "gray area market," most single family homes, in deteriorated condition, will be worth from $7,500 to $12,500 and chances are that they are encumbered to the hilt: one or two trusts, sometimes a third, property improvement loan balances, perhaps an occasional lien or judgment. More often than not, it is the pressure from this very same financial overload that caused the deterioration of the property. Under such conditions, the credit risk picture of an applicant will never qualify him for eligibility under FHA regulations, regardless of what loan program may be used, even if the new loan would defer all payments. In exceptional cases, where such an applicant would qualify, a proviso in the new version would kill his chances of getting deferred amortization, because the cost of upgrading a property to project standards (a mandatory prerequisite to this provision), when added to the outstanding indebtedness, would not likely be less than 75 percent of FHA's appraisal value but considerably more. This same consideration will render the second part of this proposed section 102, related to 220 mortgages, impractical. It is a matter of statistical and practical experience that, in marginal residential neighborhoods, the percentage of residual encumbrances increases as the property value decreases: while a property, conservatively appraised by FHA at $20,000 "as is," may carry a $10,000 to $12,000 mortgage balance (or less), a dwelling appraised around $8.000 will usually have an indebtedness between $6,500 and $7,000 (or more). The high debt balance plus the cost of obtaining project standards will invariably exceed 75 percent of FHA's conservative appraisal and, thereby, prevent deferred amortization of the loan. To put it differently, the "poorer" the applicant and his property, the lesser the chances of ever using the proposed loan or mortgage provisions.

Now, all this is not wild guesswork or an attempt to discredit the good intentions of the sponsors of this legislation; it is an illustration based on the facts of life and intended to demonstrate that those who wrote these proposals must have ignored the fact that FHA, under present statute and regulations, could not underwrite those marginal risks to begin with, let alone when the borrowers' financial condition is impaired by (1) lower income, (2) higher age bracket and, (3) considerable rehabilitation requirements of his property. I should point out in all fairness that the proposed mortgage provision under section 220 would be workable if the property in question had a low encumbrance or none, if the elderly owner would pass FHA mortgage credit scrutiny, and if the cost of refinancing plus rehabilitation would not exceed $10,000.

However, if and when an elderly property owner (in or outside an urban renewal project) would meet these prerequisites, he could undoubtedly go to the nearest bank and get the needed funds at 6 percent within 48 or 72 hours; it is true that his payments and rate of interest would be higher than under the proposed bill, but his interest load would run only 5 instead of 20 years and his loan would not have to be backed up by a Government guarantee.

Section 205 of S. 3468 proposes a revision of another ailing innovation of 1961the 203k loan provisions. There is a plan which was doomed to failure from the outset, not so much because of its legislative makerp, which was promising, but because of the regulatory complications and obstacles added to it by FHA; as a result, the last 2 years have produced a grand total of approximately 1,200 insured loans-and that figure needs no comment. The proposed change, in essence, merely widens the range of acceptable locations. In FHA language, acceptable risk refers to the acceptability of the property, not to the eligibility of the borrower or to the cumulative mortgage restrictions now in force. The proposed revision does not touch on the real causes for failure of this program because it does not ease the complex procedure, or lift the regulatory restrictions imposed on the use of these loans.

Section 804 of the proposed bill could improve rehabilitation financing under section 220 of the Housing Act and seems a workable improvement over existing stipulations.

Section 805 incorporates a most important characteristic now missing from mortgage patterns designed to assist in marginal situations: the idea that a mortgagor in need of decent housing could sometimes happen to be a single individual. You would find this particularly frequent among displaced people-although relocation financing has, so far, not admitted them as eligible applicants (under sec. 221). The proposed revision would make single individuals eligible for low- or moderate-income housing if they are over 62 years old. This is a most welcome and needed innovation in section 221 procedure-but it seems inconceivable that single displacees or owners of property in distress 30-944-64-43

because of Government action should be denied this same privilege only because they are 61 or younger. We urge you to extend the benefits of section 221such as they are now in existence to all single applicants. This would eliminate many of the hardships now experienced by single certificate holders under this program.

This brings us to section 404 and its concern with scattered site acquisition and subsidized rentals for public housing operations. There is considerably more significance to this provision than meets the eye. If enacted, this part of the bill would officially admit and encourage two new types of operations that should be considered highly important supplements to our present public housing shortage while, if properly formulated, it could serve as a constructive stimulant to the upgrading of substandard properties.

Subsidized rentals, which have hitherto been used only in a few cities as a highly successful experiment, would be made a permanent feature of our public housing program. The new provision should carry a stipulation that landlords under contract with a local public housing agency must restore and maintain minimum code standards during the leasing period. Since a rent subsidy agreement assures the property owner of a fair and secure rental income freed from the hazards of the open market, he should be obligated to play his part in the maintenance of a sound neighborhood. In addition, such a stipulation should also counter the contention that this new device would furnish a bonzana for substandard "white elephants" on the local real estate market.

Permission to acquire existing dwellings on scattered sites for public housing could produce a much needed addition to the short low-rent supply, especially in major cities. However, mere "acquisition" or "acquisition and rehabilitation" would not necessarily produce the most desirable results, especially not with respect to the surrounding properties. In order to make this phase of public housing a true success, several prerequisites should be incorporated:

1. Sites acquired should be located in marginal neighborhoods only; 2. Preference should be given to buildings in substandard condition; this would lower the cost of acquisition and assure competent and complete rehabilitation that could turn the property into an asset to its surroundings; 3. Tenants for scattered site dwellings should be carefully selected and, after a reasonable period of satisfactory occupancy, given the option to buy the property. This would increase the number of rehabilitated properties in the area; at the same time, it would enable some families to graduate from public housing and to make room for others still on the waiting list. Obviously, it would also enable the local authority to acquire other sites in substitution without adding to the actual number of units in the community while, in fact, reducing the size of the defective inventory.

It seems only logical that we should try to overcome much of the present opposition to public housing by changing its image from a bulk storage facility for substandard human beings to a modern establishment for the improvement of family management and social skills. If we can combine this change with certain features that will contribute to the upgrading of slipping neighborhoods, the opponents of public housing might soon be hard up for arguments.

I would also like to briefly comment on some of the proposals in S. 2031 introduced by Senator Clark last August, because it contains some provisions that would be very helpful in assisting our efforts to improve part of the existing inventory. We specifically welcome section 104 of that bill which would allow the Small Business Administration to help in the rehabilitation of business properties in renewal project areas. We wholeheartedly support section 108 which increases the allowance for rehabilitation demonstration units in project areas and section 110 that would assist communities in enforcing code compliance in such areas. I am also quite impressed with section 206 which would incorporate the recent experiment in "concerted services" as an integral part of public housing management. Finally, we would welcome the suggestion in section 302 (a) that would allow a 220h applicant to cover his share of public improvements out of the proceeds from such a loan; this would be particularly effective if a revised form of section 109 of this bill were enacted because it would extend this benefit to properties outside renewal projects.

We contractors consider ourselves the-but not the only-"guardians of the inventory." We and local housing officials are the only professions in constant contact with the problems of existing housing. We know, better than anybody else, how hard it is for countless owners to maintain decent standards, to comply with codes and regulations, to keep neighborhoods safe and decent, and to cope with the hardships that are brought about by time and the weather, by lack of

opportunity, education, or urban renewal activities. We see the urgent need for certain reforms and revisions in our National Housing Act—and very few of these needed changes are evident in the present legislative proposals. I, therefore, submit to you in closing a carefully prepared list of the changes that we feel are necessary in order to enable property owners, contractors, lenders and housing officials to properly take care of our existing housing inventory.

1. Authorization for public housing should be extended to include communities or counties without a "workable program." In thousands of localities, attempts at rehabilitation, modernization, neighborhood upgrading, better streets, schools, hospitals or playgrounds, code enforcement, etc., are stymied because no facilities for relocation of lower income families are available. Originally, public housing was tied in with urban renewal because of the anticipated displacement from slum clearance. Today, displacement from other government actions is equal or greater than that from redevelopment projects; moreover, displacees in a little village should have the some privileges as those in a metropolis. Naturally, the objection will be raised that public housing without close controls is unthinkable-but there is no reason why the enabling authorization could not contain sufficient administrative safeguards that would equal the controls prevailing under the present machinery.

2. In urban renewal, the principles governing residential conservation projects should be substantially changed because they are urealistic and unworkable. They have, in too many cases, prevented or delayed rather than stimulated or accomplished conservation and upgrading; some shining exceptions (under exceptional circumstances) notwithstanding.

3. Among the present FHA programs, title I provisions should be changed to allow for property improvement loans up to $5,000 with a maximum repayment period of 7 years. 4. Section 221(d)(2) relocation mortgage provisions should be revised as follows:

(a) The mortgage ceiling should be set at $15,000 without discrimination as to cost areas;

(b) Benefits of this section should be made available to single individuals; (c) Certificates of eligibility should be acceptable anywhere within the United States;

(d) Mortgages for certificate holders should be automatically acceptable to FNMA;

(e) Certificate holders should be entitled to a "conditional mortgagor's qualification" that would establish their eligibility ceiling subject to an acceptable property;

(f) Credit eligibility rules for certificate holders should be substantially revised to make allowance for families and individuals "on their way up" without having "past performances" hamper their present and future social progress.

5. Congress should establish a Federal program that would offer municipalities and counties risk guarantee against certain mortgages, perhaps similar to section 221-d-2, to be insured by the local government. Such a "municipally insured mortgage" could be furnished by local lenders for purposes of assisting defective properties or displacees; the locality could pool insurance premiums large enough to cover potential losses, and the Federal Government could provide recourse or compensation for excess losses not covered by the accumulated insurance funds. Such a system could supplant a large part of FHA operations, and would be much quicker and more widely applicable than present FHA mortgages. It would also provide the local government with more influence and incentive to push property rehabilitation and neighborhood upgrading, with a minimum of complicated time and money-consuming programs.

6. The Federal Government should train and make available "Federal housing agents"-as a parallel to the "agricultural county agent"-to communities or areas with a population of 25,000 or over. These agents should be familiar with all problems of housing-defects, codes, financing, local and Federal programsand should be ready to help present or would-be property owners free of charge with competent advice and practical assistance. They could guide homeowners under code enforcement or condemnation; help displacees and public housing tenants ready to graduate into the open market; advise landlords as to the best use for their holdings. These agents could assist families in trade or financial problems, could inform and guide them in the maze of private, conventional, State, or Federal financing methods and sources and, thus, become a rallying

point for all facilities and procedures that are designed to make our existing inventory decent, safe, and sanitary for every family, regardless of age, size, means, race, or creed. The request for such aid should come from the locality which would have to make a reasonable contribution-perhaps in facilities and services toward the cost of such a function. It may even be practical to incorporate such a program within the responsibilities of the Community Facilities Administration, as long as it were not restricted to localities with existing workable (or other Federal) programs.

During the last 10 years, since the introduction of section 221, we have seen much promise and progress in housing legislation. Some of it was directed at the needs of specific groups, some at specific programs of planning for the future. These steps were necessary and helpful but, during the same 10 years, we have seen few attempts to treat housing decay and, if there were any, their wellintended purpose was soon defeated by ill-designed or clumsy administration. The present bills, with the exception of Senator Clark's S. 2031, seem to be heading toward the same pattern.

Our recommendations are intended to suggest some form of assistance to owners, or buyers of existing structures, who cannot reach necessary housing objectives under their own power within the framework and facilities of the open market. We do not live in the jungle era of "survival of the fittest"; if and when the open market and free enterprise cannot satisfy the needs of certain individuals or families, society must step in and provide reasonable aid—to sustain them or, preferably, guide them back and up to a self-sustaining level of existence. This, we believe, should be one of the major functions of a good housing act. It is up to the Congress to establish and maintain that function, and we hope that at least some of our thoughts in this matter might help toward reaching that important objective.

Senator MUSKIE. Mrs. Barbara Reach, Community Service Society of New York. We are glad to welcome you.

Mrs. REACH. Thank you, Senator. I must first convey the apologies of Prof. Norman Redlich, who was to appear before you. Unfortunately, he could not do it; so I am here.

Senator MUSKIE. I am delighted to have you.

Mrs. REACH. Thank you. That is very kind of you.

STATEMENT OF MRS. BARBARA REACH, COMMUNITY SERVICE SOCIETY OF NEW YORK, COMMITTEE ON HOUSING AND URBAN DEVELOPMENT

Mrs. REACH. My name is Barbara Reach, and I am here for the Committee on Housing and Urban Development of the Community Service Society of New York.

The Community Service Society, founded in 1848, is a nonsectarian body devoted to the preservation and improvement of family and community life. It is the oldest and largest voluntary family agency in the country and, unlike many other agencies, it has always combined a broad program of social action with its services to troubled families and individuals. Almost from the beginning, its members recognized that poor-quality housing can break a family, and tried to improve the appalling conditions they found among the poor of New York City.

The committee on housing and urban development as a formal entity dates from 1898; it is thus the oldest citizens housing organization in the country, and a pioneer in many respects. In New York City, it has successfully promoted the establishment and enforcement of housing standards, improved zoning and city planning, programs to enlarge the supply of decent housing for families of low and middle income, and the adoption of improved practices in relocation.