Table 6

Mr. MITCHELL. Mr. Waranch, you raise the question, "Why the tremendous emphasis on the shift to rehabilitation versus new housing?" I think that is related to the fact that you have not done very much in the cities.

Mr. WARANCH. I do not believe, Mr. Mitchell, we have raised any question at all on the subject of rehabilitation.

Mr. MITCHELL. I think that you did.

Go right ahead.

Mr. WARANCH. We consider rehabilitation to be the same as new housing when it is properly rehabilitated. Our comment was in fact to the contrary. We think the people have been exploited when all they get is a coat of paint and we are absolutely appalled that that takes place. We have not in any way, shape or form said that the housing should be not located in the cities; the question here is what do you mean by city?

Mr. MITCHELL. May I interrupt just a minute?

On page 11 of your testimony you state, "one of the most disturbing aspects about the subcommittee bill is its shift of emphasis under the Federal law, I assume, to low- and moderate-income housing from new to existing housing."

How does that square with what you just said?

Mr. COAN. Mr. Mitchell, under the FHA procedures, substantially rehabilitated housing is treated the same as new and we meant to include that at the same time in the same category.

We were talking about nonrehabilitated housing, housing which is standard or substandard, whatever its condition might be, which is not either rebuilt or not had some significant additions or modifications or improvements made to it.

Mr. WARANCH. Let me supplement by saying we encourage the use of the existing housing supply. What we do not encourage is use of the existing housing supply when it is not made decent and habitable for the family.

Mr. MITCHELL. Then I think that you would perhaps want to amend your testimony just a little to make that absolutely clear. Your present statement is subject to misinterpretation.

Mr. JACKSON. You mentioned that our industries had not expressed any concern. I believe you would agree that the HUD-insured, VAguaranteed loan is the principal vehicle by which these people may achieve homeownership of safe and sanitary housing.

Mr. MITCHELL. I am speaking specifically in terms of new housing in cities.

Mr. JACKSON. You mentioned that our organization had not shown a concern. I would like to submit that FHA is the principal vehicle through which lower income groups and minorities have been able to secure housing. It happens that our people make over two-thirds of all of the loans made through FHA.

Mr. MITCHELL. I will come back to you in just a moment if I have enough time.

I did want to answer or respond to the statement that you made, Mr. Zeiser, with reference to title 9. You indicated your disagreement with extending this protection to cover all housing.

I think we have a problem here that perhaps you are not familiar with, perhaps it is not typical of your region. It is typical of my dis

trict where one finds a proliferation of housing units in the city; apartment housing units, built on any little square of land, shoddily constructed. They might best be described as instant slums, and have been so described by our housing court. For as long as you get some builders who throw up these apartment units in any little nook and cranny of the city where there is some land space, and indeed often violate zoning codes that is all the more reason for insistence on the language of title 9 remaining just as it is.

I see the chairman is tapping for me and that means may time is up. The CHAIRMAN. The gentleman will have permission to ask questions to the panel if he desires and they will answer them when they look over their transcript.

(In response to Mr. Mitchell's request to comment on inner-city housing problems, the following letter was received from Mr. Jackson:)

Hon. PARREN J. MITCHELL,
House of Representatives,
Washington, D.C.

MORTGAGE BANKERS ASSOCIATION OF AMERICA,
Washington, D.C., June 15, 1972.

DEAR Mr. MITCHELL: During the June 8 Banking and Currency Committee hearings on the proposed 1972 housing legislation you posed several questions to the panel of witnesses which generally concerned inner-city housing problems. Your concern over the concentration of the poor and the black in the inner-city and urban centers is justified, in light of the random reports we all have been receiving from a number of totally unrelated sources. The limited information which the Mortgage Bankers Association of America gathered on this problem tends to confirm these reports.

Specific statistics concerning this concentration of the poor and blacks in the inner-city can best be obtained by comparing 1960 and 1970 Census tract data. We have not made or seen such an analysis. Typically, the early publication of data by the Census Bureau deals with Standard Metropolitan Statistical Areas vs. other areas. More detailed analyses are published later, if at all. I believe you would be in a much better position to request such a comparison than would anybody in the private sector.

A recent publication of the UCLA Real Estate Research Program, "Inner-city Housing and Private Enterprise, Based on Studies in Nine Cities," has been of some help. Dr. Oliver H. Jones, the Executive Vice President of the Mortgage Bankers Association of America, served on the National Advisory Committee for this study. He points out that during the period covered by these studies the concentration of poor families in city core areas was not ameliorated by existing housing programs. Despite the lack of statistics, it is safe to say that the bulk of new single-family construction and much of the apartment construction under the subsidized housing programs has not served the residents of the center city. Traditionally, mortgage bankers make two-thirds of all FHA loans, and a larger share of the subsidized loans. The mortgage banking industry has been responsive to the Congressional desire to finance more subsidized housing in the center city, largely through the use of existing properties. Quite frankly, there is little opportunity for new construction in older, built-up areas because there is little available land and its cost is usually very high. The use of existing properties for subsidized housing has experienced its share of problems, as I am sure you know.

Lenders find themselves on the horns of a dilemma. If they do not lend on inner-city properties in areas subject to or already undergoing deterioration in value, they are accused of failing to support the nation's efforts to house the poor. If they do lend in these areas, relying on present federal programs to protect their depositors and insurance holders, they are criticized, even castigated publicly, when it becomes necessary to foreclose or return the property to FHA. We must learn that housing the poor entails costs, substantial costs, and decide how much the nation is willing to pay to get the job done. For example. the newest subsidy programs, 235 and 236, have successfully housed thousands of poor families. However, by the very nature of the economic problems of the families being assisted, delinquencies and defaults should be expected to be

much higher than we have become accustomed to in the past. Congress must decide whether the five percent default rate is too high or too low. If it is too high, FHA and the lenders can tighten credit standards and, accordingly, make the subsidy more shallow. If it is too low, standards can be eased and the subsidy deepened.

This speaks to the question of economic soundness and credit underwriting, which may, in the judgment of Congress, require acceptance of still larger costs to get the job done. This does not speak to the question of abuses of the programs or program designs that make housing conditions in the cities worse instead of better. The present legislation as well as the new HUD regulations appropriately seeks to remove the abuses. We support these efforts. Unfortunately, the challenge of housing the poor is more difficult to meet than most of us have assumed and although it requires federal subsidy, it cannot be solved by money alone. The design and management of subsidy programs needs further and continued improvement as both the public and private sectors learn to deal with the very special task of housing the nation's poor.

All segments of the housing industry have been and are addressing themselves to the issue which you have raised. I sincerely feel that recognition of the problem is a short, but important step towards its resolution. Unfortunately, we appear to still have a long way to go before this situation is resolved.

Please feel free to call upon the Mortgage Bankers Association of America for any assistance that you think we can provide.

Sincerely,

The CHAIRMAN. Mr. Rousselot.

PHILIP C. JACKSON, Jr.,

Mr. ROUSSELOT. Thank you, Mr. Chairman.

President.

Gentlemen, we appreciate your testimony. We are sorry that all of you did not have adequate time to submit it in advance so that we could have a better chance. Everybody was not as speedy as the homebuilders.

Mr. Waranch, I was interested in your statement on page 4 that you say we think that the many steps taken by the Secretary over the past several months will be adequate to prevent recurrence of the abuses which have so disturbed all of us.

Could you specify for the record those areas where you think the Secretary has moved administratively?

I know some of them have been outlined to the committee, but I think it is interesting to have your point of view as to those areas where you think the Secretary did act responsibly to correct these abuses and was able to do it administratively, because I am sure you are aware of the article that appeared in Business Week and some of the others that intimate that these abuses are still very widespread in this program.

Mr. WARANCH. You mentioned Business Week and I might say in my briefcase I have a letter to the editor that I am in the process of sending because I think that is absolutely irresponsible reporting and that is not symptomatic as to what Business Week is known to do.

Mr. ROUSSELOT. Could you submit for us or your association those instances where you feel specifically the administration has acted responsibly to correct these abuses that were obvious.

Mr. WARANCH. We will be very happy to submit it.

(In response to the request of Mr. Rousselot, the following information was submitted for the record by Mr. Waranch:)

HUD ACTIONS TO IMPROVE OPERATION OF SECTION 235 AND 236 PROGRAMS

The following are actions which the Department has taken to improve the operation of the Section 235 and 236 subsidy programs. We received the list from HUD and endorse these many positive steps.

DEPARTMENT ACTIONS RELATING TO IMPROVED OPERATION OF THE SECTION 235 AND SECTION 236 PROGRAMS

I. DEPARTMENT ACTIONS RELATING TO IMPROVED OPERATION OF THE SECTION 235 PROGRAM

A. Actions Resulting From Office of Audit Report Fundings:

Finding 1-Improve Guidelines and Performance to Assure Satisfactory Appraisals:

1. Instructions have been issued to all Area and Insuring Offices reinforcing the need for emphasizing quality appraisal practices on behalf of all appraisers. Consistent with this emphasis on quality the instructions indicated that the volume of appraisals may have to be reduced to allow for quality processing. (Notice HPMC 70-103, 12/11/70, Circular HPMC 4035.6, 12/23/70, Circular HPMC 4005.18, 2/8/72).

2. Training sessions are being held in all Regions to ensure that all appraisers are familiar with, and fully understand, current Departmental directives in this area. (Notice HPMC 70-103, and Circular HPMC 4005.18).

3. To guard against speculator abuse in the program new procedures have been implemented which limit the amount that a speculator may profit in the resale of a property under the HUD programs. (Circular HPMC 4035.8, and Telegram to all Field Offices 3/15/72).

4. The 77 HUD field offices have been instructed to work actively with VA and USDA officials to encourage them to set up similar requirements and property standards for appraisals and inspections that now prevail at HUD. (Circular HPMC 4005.18).

5. Revised certifications required from tradesman on inspections of roofing, heating, electrical, plumbing and termite infestation have been put into circulation. These new forms include a warning of the penalties for fraudulent certification. (Circular HPMC 4035.1A, 1/27/72).

Finding 2-Need for Better Supervision and Review of Staff and Fee Appraisers:

1. Staffing patterns in the field offices are being re-examined, and steps are being taken to strengthen supervision in those field offices where this has been found necessary; as required by Circular HPMC 4005.18, 2/8/72.

2. Field reviews will continue to be used to evaluate the performance of staff and fee appraisers. Where weaknesses exist, continued training will be given, along with follow-up reviews.

3. Field offices have been instructed to seek inspection of properties by local authorities prior to endorsement. In cities with code enforcement or urban renewal projects, where a request for inspection is not honored, a report will be made to the Regional Administrator for his attention and follow-up. (Circular HPMC 4005.18, and Notice HPMC 72-2, 2/3/72.

Finding 3-Upgrade Minimum Property Standards:

1. HUD is revising and upgrading its Minimum Property Standards and publication is expected by June 1972. Review and monitoring procedures will be reexamined when the revised property standards are published.

2. The Department examined the question of whether too much money was being spent in repairing properties for subsequent resale, which were acquired by the Department, as a result of mortgagee foreclosures. The study concluded that the existing policy regarding repairs results in greater marketability of the properties thus permitting the Department to reduce its inventory more rapidly. Finding 4-More Aggressive Administrative Actions are Required on Violations or Irregularities:

1. Field office employees have been reminded that reports of all irrgularities are to be made without delay and without local screening, to the Office of Investigation in HUD Headquarters. Each field office director is to assure himself that each of his employees has received, reviewed and understood pertinent parts of the handbook on Audit and Investigation. When the irregularity results in financial loss to the Government, the question of reimbursement will be considered, including the possibility of action by the Civil Division of the Department of Justice.

2. In order to deal more effectively with matters involving alleged employee misconduct, the Department has created the Office of Inspector General and appointed a new head of that office.