Project Sec. 213, cooperative housing—Continued INSURED PROJECTS-SALES TYPE (181 PROJECTS)-Continued Location Name Num Amount of ber mortgage of units Scottsdale Housing Cooperative.. 123-30043 Maryvale Homes No. 3. 123-30044 Maryvale Homes No. 4. 123-30045 123-30046 ..do. Southern Housing Co-op No. 2. Lakewood Park Mutual Homes No. 1... 4,697, 100 501 4,718, 400 501 1,065, 400 113 1,895, 400 200 1,474, 550 156 1,742, 900 181 1, 345, 850 140 1,779, 050 185 2, 300, 800 242 2, 561.500 269 Project Sec. 213, cooperative housing—Continued INSURED PROJECTS-SALES TYPE (181 PROJECTS)-Continued Location Name Num Amount of ber mortgage of units Carson Park Mutual Homes No. 23. Fairlawn Properties, Inc.. Kentucky: 083-30003 Louisville. Community Homes, Inc.. 787,500 Louisiana: 059-30023 _do_ Parkway Subdivision No. 3. 96, 900 17 Michigan: Charleston Park Mutual Homes No. 1.. 2d Michigan Cooperative.. 2d Flint Cooperative... Ohio: 043-30004 Springfield Linden Heights Homes. 130, 700 Oklahoma: *117-30002 Perry. Perry Veterans Housing Corp. 168, 007 222222222222228 2 2229878823 19 19 19 19 659,900 Project Sec. 213, cooperative housing—Continued INSURED PROJECTS-SALES TYPE (181 PROJECTS)-Continued Willamette Heights. Frayser Homes, Inc.. NOTE.-Projects without asterisk are those initiated by builder-sponsor (267). Projects with 1 asterisk are those initiated by the consumers (19). Projects with 2 asterisks are those initiated jointly by consumers and builder-sponsor (6). A total of 292. Senator CAPEHART. I think the record will prove from our investigation-if I am wrong I want somebody to correct me and I want the record to be corrected-that it was just a scheme used by certain people to build under section 213, which has better terms, et cetera, than any of the other titles. That they made large profits which they themselves kept, and then the people to whom they sold these individual units were no better off than they would have been if they had bought them from some other contractor that built an apartment building or built individual houses. Mr. CAMPBELL. With this one exception: That is, that when they bought them, this became an owned project. It gave the people the ownership of this project on a reasonable basis. Senator CAPEHART. When they buy any house Mr. CAMPBELL. Well, they could not have bought these same units at that same price. Senator CAPEHART. That is the point. Mr. CAMPBELL. I am not here to defend the big Lakewood project out in Long Beach, Calif. It is one of the biggest projects that has been built. In our terms Senator CAPEHART. There was a case I think where they made a lot of windfall profit, and then the investors' syndicate in Minneapolis financed it and entered into an agreement with them. Mr. CAMPBELL. In this particular case we would not find a "cooperator"-in our terms-in a thousand out there. That is, anybody who went into it because they believed in the cooperative movement, so to speak. Senator CAPEHART. I am glad you are Mr. CAMPBELL. The builder there, under this particular program, as far as we can find out, was not a racketeer. He was a sharp, shrewd, hard-headed builder. He found that these terms were better for him than any other terms, and he built under this instead of building under 203 or 608 or something else. But the consumers in those homes got a better deal because of the 40-year amortization and the 41⁄44 percent interest. Senator CAPEHART. Yes; but under a true co-op there was no reason he should make all the profits he made. Mr. CAMPBELL. That is right. But anybody Senator CAPEHART. If we are going to have true co-ops, we do not want the things to happen that we discovered were happening. Mr. CAMPBELL. This may sound strange for me, but until the cooperative movement and until the consumer organizations, whether it be the labor organizations or the veterans' posts or whoever they are who sponsor these, can actually put together organizations to build these, we will have to turn to the building industry. Now, the building industry has some racketeers in it, but by and large it is a pretty good industry. Senator CAPEHART. Well, no builder is going Mr. CAMPBELL. Somebody is going to make some kind of a profit on this. We would prefer to see the FHA be able to control that profit, to get the cost certification at the closing of the project, to see that the project is built at what is termed in the industry as a reasonable cost, rather than not have these things done at all. None of these are as good as the consumer-sponsored ones, but they have been in the interest of the consumer. Senator CAPEHART. Mr. Chairman, I would like permission to place in the record at this point that section of our report on the FHA investigation that had to do with the misuse of section 213. Mr. CAMPBELL. I am perfectly aware of them. Senator CAPEHART. I know that. I want to put it in the record. Mr. CAMPBELL. I am perfectly happy to have you put it in. Senator CAPEHART. I am delighted that you are conscious of what is happening and what has happened in the past, and we ought to find some way to correct it if we can. Mr. CAMPBELL. That is right. Senator CAPEHART. What they were doing, Mr. Chairman, was this: The terms under section 213, the co-ops, were more liberal and the mortgages were longer. These fellows just were building under this tile, you see, rather than under another title, but their whole operation from the sales standpoint was under the other titles except that this enabled them to sell them faster, make more money, and made it easier for them. Is that not right? Mr. CAMPBELL. That is right. Senator MONRONEY. In my home State we had some very good luck with veterans' co-ops in which the cities would prepare the streets, put in the sewers. We got away from the exorbitantly high development cost in smaller towns where there was no developer or builder. One contractor could go in and build 15 or 20 houses in an area for these veterans and wind up with a house that normally would cost $8,000 or $9,000 perhaps for $6,000. Senator CAPEHART. That was the purpose of the bill. Senator MONRONEY. If we could get at a program like that some way, I think it would help the smaller communities where you do not have builders and no one to operate. You probably have need up in Maine for that type of house, Senator Payne. Certainly you cannot get at it by the changing of the estimated value for the estimated replacement cost, however, can you? Mr. CAMPBELL. Well, unless we get the change back or something else comparable done, we will not get anything, either consumersponsored or builder-sponsored or builder-sponsored co-ops, built. Senator CAPEHART. Without objection, Mr. Chairman, I would like to have placed into the record pages 41 partially through 43 entitled "Section E, Cooperative Program," from Senate Report No. 1, 84th Congress, on the FHA investigation. Senator MONRONEY. That is so ordered, without objection. (The section above referred to follows:) SECTION E. COOPERATIVE PROGRAM Section 213 of the Housing Act provides for FHA-insured mortgages on cooperative housing projects sponsored by nonprofit corporations or trusts. The committee's investigation of the housing program discloses virtually no instance in which a true cooperative utilized this section of the act. In almost every case the project was built by a promoter for profit utilizing this provision of the statute, with its maximum 95 percent of estimated-cost mortgages, because of its more profitable provisions. This is particularly true of the single-family sales houses, built under the cooperative housing section of the act, under which promoters not only obtained 95 percent mortgages but also had their construction advances insured by FHA (as distinguished from the conventional sale house program under section 203 in which FHA did not insure construction advances). The greatest number of cooperative multifamily projects constructed under this nonprofit section were in the New York area. The plan generally used was for the promoter to acquire land on which the project was to be built and lease that land to the cooperative project for a long term of years. The cooperative apartment owners were generally not aware of the fact that even after paying off the mortgage they would still not own the land. They never will own the land and are required forever to pay the ground rent or lose their building. As shown in the preceding section these leaseholds were most profitable for the promoter. The plan also called for the promoter to create and control the nonprofit cooperative corporation. That corporation was usually organized by nominees of the promoter. They in turn would enter into a contract with the promoter's construction company for the construction of the project. The same persons sat on both sides of the table in determining the terms and provisions of that construction contract, including the amount that the cooperative corporation must pay the construction company. More important, the contract generally provided that the final payment was to be made to the construction company when the project was approved by the cooperative corporation. The promoters were careful to retain control of the cooperative corporation until after they had approved their own work. Then they would permit the cooperators to elect their own board of directors. A most unusual use of the nonprofit cooperative section of the act for singlefamily sales houses was employed in the Los Angeles area by Ben Weingart and Louis Boyer in projects involving $62 million of FHA-insured mortgages. Weingart and Boyer promoted Carson Park Mutual Homes and Lakewood Park Mutual Homes as cooperative housing projects. Weingart made arrangements with Investors Diversified Services for the interim financing and thus avoided the necessity for the individuals to advance money to start the project. In return, Investors Diversified Services received roughly half the profits. Nominees of Weingart and Boyer were the incorporators of the so-called nonprofit corporations. Thousands of homes were built and the profits divided between the Weingart and Boyer group and Investors Diversified Services. In the Carson Park project, involving $32.1 million in FHA mortgages, the Weingart and Boyer group invested $65,000 and received profits of $1,417,321, including a profit of $118,485 on their sale of the land to the sponsoring corporation. For arranging the financing, Investors Diversified Services received profits of $1,056,981, in addition to normal interest on all of the funds it had advanced. |