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to 60% of homeownership expense tends to be considerably less than a subsidy limited to full capital cost and is not likely to exceed a full capital cost subsidy under any immediately foreseeable conditions. However, the additional ceiling may prove useful at a future time, nor does the limit add undue complexity since it is arithmetically determined initially.

Question 16: Mr. Secretary, under the proposed Sec. 402 rehabilitation prorisions the same program as now authorized under Sec. 235(j) nonprofit rehabilitation authority is continued. But the proposed legislation provides for rehabilitation to be carried out under the Sec. 502 rental program, with moncy reserved under Sec. 402 so that these units could then be sold to home buyers instead of rented. This seems to be a very complicated and complicating way to simplify existing legislation-why bother?

Answer: the subsection you mention-235 (j)--contains in its formal structure of 8 paragraphs, 10 subparagraphs, and 7 clauses a relatively narrow program of numerous limitations and exceptions to these limitations, which can only grow to meet new situations through layer upon layer of amendments. We have, in S. 3639, replaced this and many other special-purpose provisions with general provisions which are broad and flexible enough to provide the statutory authority to do what can be done now under special-purpose programs while permitting us to meet new situations and needs. The statutory authorities you cite as replacements of 235(j) do serve that purpose, but they also serve numerous other functions and would have to be provided whether or not the 235(j) objec tives were also to be continued. That is 235(j) is replaced without the necessity of providing even one new statutory word whose sole function is to replace 235 (J). Further our proposal would not result in a two-stage program in place of a onestage program. Whatever the statutory citation, the present 235 (j) program in volves a two-stage transaction; namely, a multifamily or blanket mortgage (with one mortgagor) as stage one, and individual mortgages to home buyers as stage two.

Question 17: Mr. Secretary, the proposed legislation would eliminate the Sec. 312 direct loan program and the argument is made that the burden would be assumed under the Sec. 402 program. This would give the government more "leverage" than under a direct loan system, but would put the financing responsibility in the private sector. Since in these concentrated code enforcement, urban renewal, and certified areas private money has not been forthcoming to date, why do you feel that it will be forthcoming to date, why do you feel that it will be forthcoming now?

Answer: The section 312 rehabilitation loan program is not eliminated by S. 3639. You are correct, however, in stating that S. 3639 would broaden the homeownership assistance program to provide subsidy to owner-occupants who rehabilitate their homes in areas eligible for 312 direct loans. In such cases, the homeowners could receive a larger subsidy than would be available under the 312 program. Multifamily projects in such areas could also be rehabilitated and assisted under the rental assistance program (sec. 502). We would expect that if investors are unwilling to hold FHA-insured mortgages covering property in such areas, that FNMA would provide adequate support of such mortgages through its purchase commitments.

Section 305 of S. 3639 does amend the 312 loan program extensively; but these loans would continue to be available where needed. The major change made by section 305 of the bill would be to gear the subsidized loan rate more closely to the needs of the recipient. Under current law, the maximum interest rate on the rehabilitation loan is 3 percent for all borrowers. S. 3639 would require the interest on the loan to be at a "market" rate-equal to the maximum rate for FHA-insured and subsidized home mortgages-but this rate could be reduced to as low as 3 percent for owner-occupants of residential property to the extent necessary to keep their total housing expense from exceeding 25 percent of income. A somewhat similar objective was sought under the existing statutory preference for low and moderate income borrowers-that is, 3 percent loans should not be made to borrowers who could afford higher rate loans. Since this objective would be more effectively realized under the proposed charges, the statutory income preference would be eliminated. Nonowner-occupants of residential property and commercial property owners would qualify for only the market rate loan. Other amendments to the 312 loan program would increase the maximum term of the loan from 20 to 30 years, would remove restrictions on

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refinancing, and would provide for higher loan amounts, generally, by tying the maximum rehabilitation loan amount to the maximum dollar limit on subsidized home mortgages insured by FHA in the area.

Question 18: Mr. Secretary, I have some grave reservations about the special "deeper" subsidy proposed for part of the Sec. 502 program. Its maximum subsidy provisions is to pay down to operating expenses (and, where there exist excess payments from other tenants who do not require the full subsidy, a bit further). The old Sec. 236 program, combined with Rent Supplement, could pay down to 30 percent of the fair market rent of the unit. My understanding is that according to present cost levels, the special "deeper" subsidy will in fact pay only down to (at maximum) about 50 percent of the fair market rent. How would you answer a charge, Mr. Secretary, that your proposed “deeper" subsidy really represents a retreat of 20 percent in the maximum allowable subsidy?

Answer: The explanatory materials we have submitted to the Committee indicate that the special rental subsidy would reduce rentals by up to 60-62 percent and by some additional indeterminate amount in the many cases where "aggregation" would be involved. Under the rent supplement program, the maximum available subsidy for most units would reduce rentals only by up to 60 percent. In up to 25 percent of the rent supplemented units in any project the maximum subsidy could reduce rentals by up to 70 percent. Thus, our proposal achieves the approximate objectives of the existing law without the need to "piggy back" separate programs.

Question 19: Mr. Secretary, I notice also that the special “deeper" subsidy would only apply to 36 percent of the residents of Sec. 502 projects-all of the tenants in 20 percent of the units, and 20 percent of the tenants in the other 80 percent of the units. The present Rent Supplement Program provides its deep subsidy to 40 percent of all units, without economically segregating out the very poor. How would you explain this retreat in funding level and contravention of economic integration policy?

Answer: Under section 502, 20 percent of the units in any standard project can receive the special subsidy. This is certainly economic integration. There are no separate income limits, cost limits, or other limitations applicable to special projects and an economic mix in these projects is possible. Section 502 is designed to encourage the kind of economic integration which, under existing law, is possible on paper but not in reality. This is so because existing law contemplates combinations of 236 and rent supplements, a procedure which is likely to result in only a small proportion of 236 projects containing rent supplemented units because of the restrictions on the location, amenities, and eligible tenants under the rent supplement program which are not applicable to the rental assistance program.

Because "deep subsidy" units require more subsidy per unit than do "standard" units, the 36 percent of all units which can receive "deep subsidy" will utilize 42 percent of all the available subsidy funds.

Question 20: Sir, if the additional average subsidy, for Sec. 502 projects, is to be available to a tenant of a project only to the extent that other tenants in the same project do not require the full subsidy, it is easy to foresee that suburban projects, with greater economic integration, would actually be able to house people with lower incomes than those in the central cities, where the overall need is greatest. How does this situation square with the social goal of meeting the needs of the very poor in the urban core, Mr. Secretary?

Answer: On weighing all the conjectural factors involved with respect to the future location of subsidized housing and migration within metropolitan areas, we are unable to determine whether there will be more economic integration in one area or the other. However, if your assumptions prove correct, we see some real advantage in enabling more lower income persons to find homes in the suburbs near newer and better job opportunities.

Question 21: Mr. Secretary, the proposed Sec. 502 provisions would not allowe initial occupancy of persons whose incomes exceed the income limits, although this is now possible under Sec. 236. Why is this measure, which clearly hampers economic integration, proposed?

Answer: We intend with the provisions of the proposed section 502 to allow initial occupancy of persons whose income exceed the income limits as is now ossible under section 236. While the statutory language of the proposed section

502 is not explant in this point, neither is the statutory language now coutained in serrica 2K The National Housing Conference Ire, and others have proposed language to make this explicit and we have no céjection re brečuding such language in section (A

Question 22: Mr. Szeretory, in dreng un this wee Ngistit on, has the Viw96 istration made a policy judgment as to the extent to which rehabilitation, som be encouraged? Does the mer coat determination mechanism, încheie #1, cORTHP out of rehch prototypes? Do you believe it is practicul to cost-pu$ @ $0-cuˆÈ "standard" rehabilitation prototype? How will marimum moriyage amounis be determined for rehab projects?

Answer: Rehabilitation of suitable existing structures will be encouraged. The proposed cost limit procedure would not involve the costing-out of a rehabilitation project. Accordingly, the maximum dollar mortgage limit for a rehabilitation project would be the same as for a newly constructed project.

Question 23: Mr. Secretary, eligibility limits will de tied to the area's medium income under the new bill. What evidence do you have that those who would have been eligible under the existing law, who will no longer be qualified, con find housing on the private market? How will the new limits compare wi£ h existing limits under sces, 236 and 221 (@) (3)?

Answer: The criteria for determining eligibility for existing assistance programs have as I indicated in my testimony--resulted in highly inequitable limits in certain areas of the country. To remedy this defect median income was selected as a benchmark for all assisted programs because, in general, it is both a reliable and equitable measure of need in most areas.

The proposed income limits based on median income for an area would result in no significant change in the income levels eligible under the revised programs compared to income levels possible under section 236 or 221(d) (3), but any change would probably be in the direction of an increase rather than a decrease in income limits. Charts accompanying our explanatory statement provide a detailed comparison of the proposed income limits with the section 286 limits. The impact of the proposed income limits will vary from area to area. In some areas more families will be eligible for assistance and in other areas fewer familiies will be eligible for assistance than under existing limits. At least 80 million families will be eligible for assistance under the proposed income limits at any given time. Only a relatively small proportion of these eligible families can be assisted, just as only a small proportion of families eligible under existing law can be assisted. Thus, under both the proposed and existing law, income limits tend to direct housing on a basis of relative extent of need without in fact serving all of the need even among those eligible.

QUESTIONS BY SENATOR GOODELL

Question 1: New York City housing officials report that construction costs have increased over 20% in the last year. As a result, an increase of 20% for construe tion limits for public housing and FHA-subsidized low and moderate income housing will be needed this year to insure continued construction,

What have been the cost increases in other major metropolitan areas which would necessitate increases in the construction limits for continued construction? Answer: Construction costs in the larger metropolitan areas have increased on a composite basis, about 8.5 percent from 1968 to 1969, according to the Boeckh Index.

The substantial increases in public housing room cost limits and in the dollar limits applicable to FHA-insured mortgages which went into effect Inte in December of 1969 have generally been adequate to accommodate continued netivity under these programs. If construction costs continue to rise, these limits miny become obsolete on a case-by-case and city-by-city basis. This is a problem we have recognized and dealt with in our proposed housing bill for 1970, M. 8639. The current cost situation varies in each area of the country and the rate of change varies. We have proposed to eliminate statutory dollar cost limits which are applicable on a nationwide basis in favor of administrative determinations of cost factors in each housing market area. These administratively established cost limits could then be updated by area as costs changed without the need for frequent statutory amendments.

Question 2: At current, HUD has a backlog of $3 billion in applications for urban renewal funds. Would you please indicate the backlog, both in HUD Washington and the Regional Offices, of feasibility applications for Section 236 funds which have been submitted. I would like this figure, both in number and funding requests, broken down on a State-by-State and regional basis.

Answer: The following table shows the backlog of Section 236 applications which have not been approved for funding:

State

BACKLOG OF SEC. 236 APPLICATIONS BY STATE, AS OF JULY 24, 1970

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Question 3: In 1969 Congress passed a provision which allowed up to 40% rent supplement payments in a Section 236 project. As of June 1970, the regulation implementing this provision had not been issued. What is the full text and status of this regulation?

Answer: Section 112 of the Housing and Urban Development Act of 1969, enacted on December 24, 1969, authorized the Secretary of HUD to increase the maximum percentage of units in a section 236 program which could receive rent supplement benefits from 20 to 40 percent where the Secretary determined that such increase was necessary and desirable in order to provide additional housing for persons eligible for rent supplement benefits. The regulation implementing this provision was issued on December 24, 1969, and may be found in part (c) of the following regulation:

$5.40 Maximum annual project payments under contract. The rent supple. ment contract shall state the maximum dollar amount of the rent supplement payments for any 1 year based on the Commissioner's estimate of probable ef fective demand and distribution of tenant income, including a 10-percent contingency allowance. At the end of such period of time as the Commissioner may prescribe for the rental of the dwelling units, appropriate adjustment shall be made in the maximum rental payments, including a 10-percent contingency allowance, to reflect the actual requirements of the tenants. Payments shall not be made with erspect to more than 20 percent of the number of dwelling units in any project which is assisted under:

(a) Section 202 of the Housing Act of 1959, if the loan agreement under that section was entered into on or before August 10, 1965; or

(b) Section 231(c)(3) of the National Housing Act, if the mortgage was finally endorsed for insurance under that section after August 10, 1965, pursuant to a commitment issued on or before such date; or

(c) Section 236 of the National Housing Act, except that the Commissioner may increase to 40 percent the limitation on the number of dwelling units in any section 236 project eligible for rent supplement payments, where he determines that such increase is necessary to provide additional housing for lower income families.

Question 4: The problem of housing abandonment threatens to become the most serious problem in many of the Nation's major metropolitan areas. Abandonment is followed on its heels by neighborhood blight and decline. In view of this crisis, I find it most difficult to understand why the Department has been strangely silent about the problem. Your concentration of new construction is understandable but the buildings being abandoned are often structurally sound and the only housing units available to inner city residents.

(a) What is the Department's long-range plan to deal with the abandonment problem?

(b) In order to get at the root causes of abandonment, does the Department have any ongoing research on this problem?

Question 5: I understand that the lack of efficient and economic housing management often causes the landlord to disinvest himself of a building in the inner city. I know the Department has an extensive series of pamphlets which it gives to local housing authorities on the management of public housing. Has any similar technique been tried with private housing? Is the Department conducting any research on new methods of management, particularly low and moderate income property management?

Question 6: Some cities, such as New York and Chicago, have receivership programs which allow them to take over abandoned properties, restore them and sell them back to the owner or other groups. The problem has been, however, the cities do not have the funds to make these programs work on a large scale basis. Can HUD participate in these programs, either by funding or technical services, under existing law? Would you favor a grant program or low intereset loan program to subsidize the operations of these receivership programs?

Answer (Questions 4-6): This Department has noted these problems and has focused its attention on the root causes of which abandonment is an important symptom. Much of our research in the fields of urban renewal, rehabilitation, and property maintenance is clearly related to the root causes of abandonment even when not specifically addressed to abandonment, HUD research contracts specifically dealing with abandonment and housing management are listed in an attachment.

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