committee continues to receive testimony and complaints about FHA in the cities. Most of them still charge FHA accepts unsound loans which feed a pattern of neighborhood instability. In some places, however, critics charge the local FHA offices overreacted to tightened regulations by FHA and have gone back to redlining urban neighborhoods and have denied FHA loans.

Have you taken stock of this situation? Does HUD have a clearcut central office set of standards and policies on urban lending or are the area offices fairly autonomous?

Mr. SIMONS. The problem of urban lending is not one where one central principal will solve the urban situation throughout the United States. One of the major problems we face in housing in this country is that there is no single universal solution. Each city, each neighborhood, each area presents its own particular situation. We have instructed the area offices to look at these in a sound practical way. We are lending in the city. Over 60 percent of our loans are within the city and you will find because of situations from place to place different criticisms and different suggestions as to doing or not doing the job. We are continuously trying to monitor these to make sure our presence is felt wherever it should be and wherever it's needed and like any program with this complex nature, nothing can be perfect.

The CHAIRMAN. You say you're lending in the cities. Nobody would deny that. The question is whether or not there is any pattern at all of at least implicit or partial redlining of urban neighborhoods on the grounds they are unsound, and you just have to be more careful about FHA guarantees in the future than you have been in the past.

Mr. SIMONS. This is a "damned if you do" and "damned if you don't" situation.

The CHAIRMAN. That's right. It's tough, very tough.
Mr. SIMONS. It's a very difficult one.

The CHAIRMAN. I'm not saying you should follow a policy of making loans everywhere under all circumstances to any borrower, but I'm just trying to find out what the standards are you have developed.

Mr. SIMONS. The problem is that we are criticized for coming into many areas where conventional lenders have withdrawn, when, in fact, the only opportunity for people to have homeownership is through the FHA insurance at that point. Our average mortgage amount is under $28,000 which indicates we are serving the low- and moderate-income market that the conventional lenders have more or less rejected. It's our responsibility to be there.

Now what happens in some instances, as we come into an area, the neighborhood immediately considers this as redlining that area because the FHA is there. The problem is not FHA's. We have a responsibility to the public as a sound underwriter to be providing the insurance. But we do find a problem where the private lenders have withdrawn and we are banking upon, and hope to gain, the encouragement and cooperation in these types of areas from the private lenders. There are many things being looked at, There are many plans being examined to keep them in these areas.

The CHAIRMAN. We'd like to know what those are if you will tell us for the record, that you're doing to overcome this lack of credibility, this feeling--and you're so right, that when FHA moves in, you feel it is kind of a signal that the neighborhood has gone downhill so far that

FHA has to move in and the others should forget it. Anything you can tell us about what you're doing to overcome that would be very helpful.

Mr. SIMONS. We would hope that the increased mortgage limits would help us serve a wider range within the city. This would help destigmatize heavy FHA lending in any one area.

The CHAIRMAN. You say that FHA is increasingly serving mortgage bankers who originate loans for sale in the secondary market rather than their own portfolios. This has happened because many S. & L.'s and banks won't work with FHA. Many community leaders have argued that a healthy real estate market requires a full range of lending opportunities. What are you doing to attract S. & L.'s and banks to FHA so FHA doesn't back exclusively an instrument of mortgage bankers who have no community deposits, no real risks, and no real stake in the community?

Mr. SIMONS. The best thing we can do to encourage S. & L.'s and bankers is to get our processing down to a minimum of redtape and a minimum of trouble, which we are doing. We are faced with the question-again, it's the question you just asked-conventional lendersthe S. & L.'s, where they have loans which do not need the insurance, or the private mortgage insurance would be sufficient-go that route. If the lender feels that the loan has a slight risk to it, or a higher risk than he would normally be looking at or has an option to take, then he would turn to the Federal insurance. It's back to the first question. What we have done is we are trying to perform as well as possible to eliminate their processing problems, so that they will use FHA for better loans as well.

The CHAIRMAN. Senator Schmitt.

Senator SCHMITT. Thank you, Mr. Chairman.

Mr. Simons, I welcome you again to our committee.

Mr. SIMONS. Thank you, Senator.

Senator SCHMITT. I hope in the course of our past and present and future discussions you will continue because I do have great respect for your personal abilities and for the abilities of the Department which you represent and I know, having been in a bureaucracy before, the difficulties in making a bureaucracy work.

Mr. SIMONS. That's right.

Senator SCHMITT. And I think I see insight in some of the answers you gave because of that experience. I hope so. But I'm afraid I do have to assume that when a reorganization is announced, whether it's at HUD or NASA or anywhere else, that the Agency or Department would be ready to justify that reorganization.

Last week before this committee you told us that you would respond to my question on the justification for downgrading the HUD office in Albuquerque two levels. I know there are other Senators who are concerned about the effect of the reorganization on their own State activities besides myself.

Your people in HUD subsequently promised my staff a written explanation or reason for lack of such written explanation for justification by the end of last week and to date we have received neither of these.

As you know, the people in New Mexico I hope you realize now are presently very unhappy about the apparent reduction in services that they are about to sustain. I think it's very important that as rapidly

as possible the Department of Housing and Urban Development provide a central written justification for this major action which because of the delay I'm coming to believe is not possibly in the public interest, at least not in New Mexico's interest.

I have joined Senator McIntyre in cosponsoring Senate Resolution 302 which was introduced yesterday-I was very happy to do that— as did many other Senators, and this resolution would express the feeling of the Senate that the reorganization should be delayed until Congress can look at the reasons for the move and the impact it will have on local communities and States. I hope that the lack of response from HUD to my questions of last week has not demonstrated there is a lack of justification for the reorganization and that it is not based on sound management grounds.

Now in your testimony today you made a number of statements with which I agree wholeheartedly. In your statement you say:

The Task Force concluded that too much attention has been focused upon the failures of the subsidized programs, and that the true test of the programs was the substantial record of successes they produced.

As I indicated last week, we think the Albuquerque area and New Mexico in general and really the Southwest is an example of success. However, the reorganization does apparently not recognize that in that it is moving away from the proven pattern of success in that area. In your prepared statement "Well conceived and well managed programs can and have delivered good housing." I agree they have in the example of New Mexico which I'm most familiar with.

In your prepared statement, you say, "To give the housing industry the opportunity to gear up and produce, we must have continuity and predictability." Well, you have gone directly in the face of that in the case of Albuquerque and in some other areas as witnessed by the reaction of many Senators in sponsoring Senate Resolution 302.

Again, you refer to reducing operating costs which I certainly would agree with, but it's not clear that when the management of programs are moved from the field area where the houses are being built and where the detail of local problems exists are placed 700 miles away that this is in fact going to reduce operating costs. It may reduce operating costs for HUD because they won't have to treat as many problems, but it's going to definitely increase the total cost to the community in having to deal with a more remote bureaucracy than they had access to in the past.

There are other examples in the statement where, again, your philosophy I agree with completely, but I fail to see how the reorganization effort so far is based on that same philosophy and I'm hoping to get that justification.

Finally, you say, "The reorganization calls for a strengthening of assistant secretaries' authority and accountability for the operation of their programs in the field." Well, I certainly think that assistant secretaries should have authority and accountability, but it's not clear to me in the case of HUD-and I guess this is what I would like to hear you comment on first-how something that is so intimately tied to the local need for housing and the local environment relative to housing-how a concentration of authority in a few regional offices, and even more so in Washington, is really going to solve the problems that HUD and FHA are faced with.

I would have to disagree with the statement I just read if it means that the management has moved from the field where the problems exist.

Now maybe somewhere in this reorganization there is justification for all of this but I'm sorry to say that I at least have not seen that. Mr. SIMONS. Senator, please let me apologize for your not having received the letter. It will be delivered to you within 48 hours. I apologize for that. I did make that commitment to you and it was not kept. To respond to your last comment, I think the important thing in directing the Federal housing programs so they are meaningfully delivered is management at the local level. But also there must be a clear-cut defined policy so that management knows what's expected. The reorganization is designed to bring to the headquarters the ability to have the policy clearly stated and implemented by all offices in a uniform way-the objectives and priorities and the operating procedures.

This is what the reorganization structure was designed to do and we believe will do. As far as management in the field, those things must be delivered out in the field.

Senator SCHMITT. Would you tell me how this reorganization takes into account the local situations when the local situation in New Mexico, whether rural or urban, is not the local situation in New York and Chicago? And I agree with what you said up to this point, that the policies have to be clear, but the local policies are those policies that have to allow for flexibility that relates to the local environment, financial and personal, and any other aspects of the environment that relate to the quality of housing, the nature of housing which is required in that area.

Mr. SIMONS. I can't disagree with that, but we are down to the point now where we are deciding how many local offices there should be, how many do we need to deliver the programs effectively. As I understand the situation with respect to New Mexico, a single-family housing presence would be strengthened there, if anything. When we look at the multifamily housing, which is really the question you're raising, we have a problem of delivering multifamily housing throughout the country with a scarce number of qualified, skilled personnel. To create a multifamily office requires a minimum number of people to do all the tasks associated with multifamily housing regardless of the workload of that office.

As I understand it-and this is part of the response that will be coming to you-an analysis will be sent to you showing how we analyzed all the offices on the multifamily side with respect to the workload against what it was costing us to do it. As I understand it, the Albuquerque office rated way down on the places and this is what led to the decision to move the multifamily housing from that office.

The total objective of that part of the reorganization was to deliver our program in a more efficient way to all the people in this country and we did what we felt was best in making the allocation of the scarce resources which we have. We are not a department with people running all over the place. We did it that way and we hope and expect to see it work.

We're having problems. We are now prepared to handle those problems either through the area or regional offices out there or even from the central office. We have that type of backup. We have the personnel

available to be shifted into these areas for solving these problems. We hope we are able to give New Mexico better service as a result of this reorganization.

Senator SCHMITT. Well, I'm afraid that-let me say that I will look at your letter with great interest. I'm not sure that I will be able to justify the reorganization on hope because on paper it looks as if in the area of multifamily housing in New Mexico, particularly rural New Mexico is going to suffer because of just distance. Seven hundred miles is a long way for people to communicate, in spite of the great advances in telecommunications in this country. We still very much depend on face-to-face discussions.

I remember in NASA we went to a great effort, probably with more success than anybody has, to develop telecommunications to where major meetings could be held using the telephone, voice boxes and even in some cases we used a video system to transmit vugraphs and so forth, but still when you came down to the final set of decisions, everybody wanted to be there so they could touch and they could see, and I think that's just human nature and I think it's required in order to come to some very basic decisions in our society.

And New Mexicans are tremendously concerned that in the area of multifamily housing suddenly they are not going to be able to do that, whether they are contractors or beneficiaries of the housing. So I will wait until we see your letter and I hope that there is the kind of justification that I can use to clarify this for my constituents in the State of New Mexico.

I'm not alone in being concerned here. I think the list of cosponsors of Senator McIntyre's resolution is quite long and obviously you touched some raw nerves in various parts of this country and particularly in the rural portions of this country, the nerves that were abraded a little bit in the most recent housing legislation which tended to, we're afraid, discriminate against rural America, particularly Western United States, toward major urban centers. That's not to say that we don't have tremendous problems in urban centers, but we can't ignore the problems of the rural areas either.

Thank you. I think my 10 minutes are up. That's what that note said and I will wait for the next round.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Sparkman?

Senator SPARKMAN. Thank you, Mr. Chairman.

Let me ask you this question first. I understand that a General Accounting Office study on section 236 programs showed that it provided good quality housing at low rents, particularly for moderate income families not being served by other programs.

Is this your view? Do you think section 8 can do the same job?

Mr. SIMONS. I agree wholeheartedly with the preliminary findings of the GAO report. Section 236 was a successful program and I thought it served a need. It did have a programmatic defect which we discussed last week which was that in those instances where the tenant's incomes did not rise as rapidly as the operating expenses these projects did get into trouble.

Section 8 is not addressing the same areas as section 236. Section 8 limits are at 80 percent of median income, while by a pragmatic evaluation of the program, the use of the program is by people just