COMPETITION IN REAL ESTATE AND
MORTGAGE LENDING
HEARINGS
BEFORE THE
SUBCOMMinEE ON ANTITRUST AND MONOPOLY
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
NINETY-SECOND CONGRESS
SECOND SESSION
Pursuant to S. Res. 256
Section 4
Part 2B
NEW YORK
MAY 1, 3, 4, 5, 15, 16, 17, AND 18 AND JUNE 20, 21, 2?, AND 23, 1972
Printed for the use of the CJommittee on the Judiciary
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U.S. GOVERNMENT PRINTING OFFICE
83-703 O WASHINGTON : 1972
COMMITTEE ON THE JUDICIARY
JAMES O. EASTLAND, Mississippi, Chairman
JOHN L. McCLELLAN, Arkansas
SAM J. ERVIN, Jr., North Carolina
PHILIP A. HART, Michigan
EDWARD M. KENNEDY, Massachusetts
BIRCH BAYH, Indiana
QUENTIN N. BURDICK, North Dakota
ROBERT C. BYRD, West Virginia
JOHN TUNNEY, California
ROMAN L. HRUSKA, Nebraska
HIRAM L. FONG, Hawaii
HUGH SCOTT, Pennsylvania
STROM THURMOND, South Carolina
MARLOW W. COOK, Kentucky
CHARLES McC. MATHIAS, Jr., Maryland
EDWARD J. QURNEY, Florida
Subcommittee on Antitrust and Monopoly
PHILIP A. HART, Michigan, Chairman
JOHN L. McCLELLAN, Arkansas ROMAN L. HRUSKA. Nebraska
SAM J. ERVIN, Jr., North Carolina HIRAM L. FONG, Hawaii
EDWARD M. KENNEDY, Massachusetts STROM THURMOND, South Carolina
JOHN TUNNEY, CaUfornia EDWARD J. GURNEY, Florida
Howard E. O'Leart, Staff Director and Chief Counsel
(II)
COMPETITION IN REAL ESTATE AND MORTGAGE LEND-
ING AS IT AFFECTS THE HOUSING CRISIS— NEW YORK
CONTENTS
WITNESSES
Page
Beason, C. H., vice president, Jacksonville National Bank, Jacksonville,
Fla., accompanied by J. Corsello 769
Berwald, Kiva, solicitor, United Institutional Servicing Corp. ; accompanied
by Martin Schauni, Esq 485
Brennan, William, president, Harlem Savings Bank, New York, N. Y 1366
Canavan, Esq., Gerard, attorney with law firm of Katz, Wittenberg, Levine
& Silverman, accompanied bj^ Martin Schaum, Esq 475
Cheeseman, Frank E., vice president. City & County Savings Bank,
Albany, N.Y 1099
Cohen, Theodore P., vice president and counsel, Banco Popular de Puerto,
New York, N.Y 944
Colon, Joseph, president, Hogar Funding Corp., Queens, N.Y 898
Dalton, Bruce and Charles Friedman, New York, N.Y 1055
Duncan, Kenneth, regional vice president (northeast region). Federal
National ^Mortgage Association, accompanied by Oliver J. ^IcCarron,
assistant regional vice president, loan division, and John R. Reed,
regional counsel 523
Goddard, Samuel, Brooklyn, N.Y ^ 785
Gomberg, David, Brooklyn, N.Y 860
Haskell, John G., president, the Oneida Savings Bank, Oneida, N.Y 1092
Hessel, Allen, director, Laurelton Area Neighborhood Action Program, New
York, N.Y 80
Huebner, Carl H., senior vice president. Metropolitan Life Insurance Co.,
accompanied by Philip Blumenfeld, manager, special projects of the real
estate financing division, Mr. Leahy, vice president; and Frank Roegge,
vice president, investment counsel 1217
Hunter, Oakley, president and chairman of the board. Federal National
Mortgage Association 1 196
Javits, Jacob K., U.S. Senator, State of New York; accompanied by Mr.
Allee and Mr. Warren 251
Katz, I. Edwin, former chairman of the board. United Institutional Serv-
icing Corp., New York, N.Y 287
Kingman, Woodward, president. Government National Mortgage
Association 1281
Klopper, H.Stuart, New York, N.Y 892
Knab, Donald R., senior vice president, the Prudential Life Insurance Co.
of America, accompanied by Kenneth Jackson, vice president, real estate
investment department of 'Prudential, and Brian Strum, assistant
general counsel 1239
Lasurdo, Isidore, executive vice president, Green Point Savings Bank,
Brooklyn, N.Y., accompanied by Melvin Levy, Edq., counsel 753
Lazarus, Lester and B. Edward Jaffe, New York, N.Y 804
Light, Warren, United Institutional Servicing Corp., New York, N.Y 1056
Lomenzo, John P., secretary of state, State of New York, accompanied
by Mr. Patrick Cea, counsel to the Department of State of New York_ 185
Lyons, Donald and Garry Romer, Supervisory Auditors, U.S. General
Accounting Office, New York region 260
Marcus, Richard, vice president. Commonwealth Land Title Co. of
New York, New York, N.Y., accompanied by attorneys Franklin Poul
and Judith Cohn 974
Mayblum, Martin, New York, N.Y 884
Morales, John, El Sol Realty Co., New York, N.Y 449
(HI)
IV
National People's Action on Housins;, Walter S. Brooks, president, North-
east Community Organization, Baltimore, Md., Gail Cincotta, chairman,
National People's Action on Housing; Rev. Richard M. Dodero, chair-
man, Our Lady of Angels Real Estate Committee; George Gould, Esq.,
Community Legal Services, Inc. of Philadelphia; Carmel McCrudden,
chairman. Concerned 221^) (2) Homeowners of Philadelphia; Gloria
Lopez McKnight, president, Latin America Coordinating Counsel, Inc.;
James Sporleder, consultant to Great St. Louis Committee for Freedom Page
of Residence 4
Nosworthy, John, president, Bronx Savings Bank, New York, N.Y 1376
Orsi, G. R., Century Federal Savings & Loan Association, Cedarhurst,
N.Y : 1035
Ostrov, Hyman, Cherry Hill, N.J 860
Payne, Jr., John H., president and chief executive officer, Empire National
Bank, accompanied bv Mr. Frank Caruso and ^Nlr. Nichols 210
Ramsey, Robert W., Buffalo Savings Bank, Buffalo, N.Y 866
Roeder, Jr., George A., vice chairman of the board, the Chase Manhattan
Bank, New York, N.Y 1109
Roider, Irving, inspector, L^nited Institutional Servicing Corp.; accom-
panied bv Martin Schaum, Esq 500
Roth, Bernard, New York, N.Y 1054
Sharkey, Joseph T., president. Dime Savings Bank of Williamsburgh,
accompanied bj^ James S. Conwa}', law firm of Flood, Conway, Stahl
& Farrell, James F. Ujazdowski, executive vice president and senior
mortgage officer 1250
Sirote, Stanley, president, Inter-Island Mortgagee Corp., accompanied by
Richard Braunstein, Esq. and James Treanor, Esq 330
Thomas, Donald L., president, Anchor Savings Bank, Brooklyn, N.Y 1265
Thomas, Franklin, president, Bedford Stuvvesant Restoration Corp.,
New York, N.Y J .56
Vogel, John H., president, National Bank of North America, New York,
N.Y 1169
Walters, Gerard A., East New York Legal Services 111
Wendell, Morris, San Mateo, Calif 787
Yelenik, Esq., Ronald G., attorney m charge. East New York Legal
Services, Inc., accompanied by Gene Prosnitz, Esq., and Gerard 0.
Walter, Esq. of New' York Legal Services, Inc 104
EXHIBITS AND APPENDIX
Material relating to the testimony of the National People's Action on
Housing: Letter to Senate Antitrvist and Monopolv Subcommittee from
Denver Urban Renewal Authority dated :\Iay 26, "1972 49
Material relating to the testimony of Franklin Thomas : Loans Insured by
FHA under 203 and 221(d)(2) programs in Kings, Queens, and Nassau
Counties 78
Material relating to the testimony of Ronald G. Yelenik: Four photographs
of East New York Housing__l 108
Material relating to the testimony of Allen Hessel :
Exhibit 1 : New York Times article from real estate section of
October 24, 1971, "In Praise of Laurelton" 125
Exhibit 2: Classified ads from El Diario-LaPresna Newspaper of
New York 127
Exhibit 3: Correspondence between Mr. Hessel and Mr. Ed Raff,
concerning his foreclosed home 130
Exhibit 4: Report No. 1, CCHR Research Librarv, "New York
Citv's Racial Distribution," bv Harold Goldblatt 131
Exhibit 5: Research Report No. 7, CCHR Report, "The Cost and
Qualitv of Housing in White and Negro Areas of New
York City, 1960," New York City Commission on
Human Rights 146
Exhibit 6: Press release from office of the mayor of the city of New
York. "Text of an address by Mayor John V. Lindsay
before the Student Bodv Meeting of Yeshiva Univer-
.sity, Thursday, October' 30, 1969 157
Exhibit 7: "An Evaluation of the Laurelton Neighborhood Action
Program," bv Bover, Brawer, Deetjen, and Phillips,
April 1972. .1 '. 158
Material relating to the testimony of Allen Hessel — Continued
Exhibit 8: Department of State, State of New York public hearings
to declare East Flatbush, Crown Heights, Brooklj^n,
and Cambria Heights, Laurelton, Long Island non- Page
solicitation areas 179
Exhibit 9: Correspondence between the Subcommittee on Antitrust
and Monopoly and the Cambria Heights Civic Associa-
tion dated November 29, 1971, listing real estate
brokers on Linden Boulevard in Cambria Heights, N. Y. 180
Exhibit 10: Correspondence from Allen Hessel of the Laurelton
Neighborhood Action Program to Senator Hart asking
for an investigation of housing in Laurelton.. 181
Exhibit 11: Copy of advertisement for Public Equities Corp 182
Exhibit 12: Jewish Council of Southeast Queens state of policy —
September 14, 1971, concerning housing 182
Material relating to the testimony of John P. Lomenzo:
Exhibit 1: Listing of known New York real estate dealers 205
Exhibit 2: FHA circulars listing speculator dominated areas in
New York 206
Exhibit 3: Material relating to the FHA modified cost appraisal 207
Material relating to the testimony of John Payne:
Exhibit 1: Letter to Edwin Katz from John Payne, Jr., dated Jan-
uary 18, 1972 . J 241
Exhibit 2: Letter from Kenneth Duncan to Frank Caruso dated
February 10, 1972, and enclosures 242
Exhibit 3: Correspondence relating to the acquisition of Capital
Ventures, Inc. by Empire National Bank 247
Material relating to the testimony of Donald Lyons and Garry Roemer:
Chart I: I 1 ^ ". 262
Chart II: 263
Chart III: 276
Exhibit 1: Edward Gamble's employment verifications 268
Exhibit 2: Inter-Island memo attached to first verification 269
Exhibit 3 : Second employment verification 270
Exhibit 4: Inter-Island memo attached to second verification 271
Exhibit 5: Third employment verification 272
Exhibit 6: GNM A report form on pool No. 642 281
Exhibit 7: Excerpt from L'.S. News and World Report 284
Exhibit 8: Memorandum analyzing the sales of mortgages by United
to Inter-Island Mortgagee Corp 284
Material relating to the testimony of Edwin Katz:
Exhibit 1: Inter-Island Mortgagee Corp. commitments 291
Exhibit 2: Materials furnished by Mr. Katz in response to a subpena
dated March 6, 1972' 327
Material relating to the testimony of Stanley Sirote:
Exhibit 1: Documents relating to Inter-Island "Short Money
Lending' ' 331
Exhibit 2: Representative Inter-Island interim lending ledger sheets.
The remaining ledger may be found in the subcommittee
files - 3.").')
Exhibit 3: Correspondence relating to Inter-Island's warehousing
line of credit 362
Exhibit 4: Registration statement under the Securities Act — pre-
liminary prospectus dated October 13, 1971, for Inter-
Island Mortgagee Corp 364
Exhibit 5: Letter from Stanley Sirote to Donald Carroll dated May 8,
1972 402
Exhibit 6: The FN MA secondary market operation for FHA-insured
and VA-guaranteed home loans, by Dr. Henry B.
Schechter, the Library of Congress, Congressional Re-
search Service "103
Material relating to the testimony of John Morales: Documents furnished
by Celia Carrero of El Sol Realty Co 467
Material relating to the testimony of Gerard Canavan: Documents received
under subpena from Gerard danavan 481
Material relating to the testimony of Kiva Berwald: Documents furnished
by Kiva Berwald in response to subpena dated March 15, 1972 407
VI
Material relating to the testimony of Irving Roider:
Exhibit 1: Documents received from Irving Roider pursuant to Pag*"
subpena dated March 6, 1972 509
Exhibit 2: Material received from Jack Altabe under subpena showing
commissions received and gratuities paid 516
(additional materials may be found in subcommittee files)
Material relating to the testimony of Kenneth Duncan and Oakley Hunter:
Exhibit 1: Letter to Antitrust and Monopoly Subcommittee from
FN MA transmitting documents received under subpena
dated June 21, 1972 560
Exhibit 2: FNMA documents relating to the Dale Funding Co 562
Exhibit 3: FNMA documents relating to the Eastern Service Corp__ 573
Exhibit 4: FNMA documents relating to Inter-Island Mortgagee
Corp 589
Exhibit 5: FNMA documents relating to the Jacksonville National
Bank 628
Exhibit 6: FNMA documents relating to Springfield Equities, Ltd 640
Exhibit 7: FNMA documents relating to United Institutional Servicing
Corp 666
Exhibit 8: Listing of attorneys representing FNMA in foreclosure
actions 727
Exhibit 9: FNMA selling agreement (supplement) 751
Material relating to the testimony of C. H. Beason: List of rents collected
by persons other than the property owner provided by Charter Servicing
Corp 777
Material relating to the testimony of Lester A. Lazarus and B. Edward
Jaffe:
Exhibit 1: List of authorized signatures 825
Exhibit 2: Memorandum to Lester Lazarus from Edward Jaffe dated
March 22, 1968 825
Exhibit 3 : Projection of Wenhaven operations 826
Exhibit 4: Letter from Leonard L. Bellet to the Senate Antitrust
and Monopoly Subcommittee dated May 23, 1972 827
Exhibit 5: Letter to Lester Lazarus from Leonard Bellet dated
December 13, 1966 827
Exhibit 6: Wenhaven Corp. financial statement to December 31,
1966 828
Exhibit 7: Letter to Lester Lazarus from Leonard Bellet dated
January 27, 1964 833
Exhibit 8: Letter to Lester Lazarus from Leonard Bellet dated
March 3, 1967 833
Exhibit 9: Notice of meeting of Wenhaven Corp. dated March 9,
1967 834
Exhibit 10: Letter to Lester Lazarus from Leonard Bellet dated
March 15, 1967 834
Exhibit 11: Letter to Norman Greenspun from Leonard Bellet dated
March 25, 1967 834
Exhibit 12: Letter to Leonard Bellet from Norman Greenspun dated
March 27, 1967 835
Exhibit 13: Contract between Leonard Bellet and Excambio Manage-
ment dated January 19, 1967 835
Exhibit 14: Letter to Edward Jaflfe from Leonard Bellet dated
October 19, 1967 837
Exhibit 15: Notice to homeowners from Excambio Management
dated October 31, 1967 837
Exhibit 16: Letter to Leonard Bellet from Edward Jaflfe dated
December 8, 1967 838
Exhibit 17: Letter to Edward Jaflfe from Leonard Bellet dated
December 12, 1967 838
Exhibit 18: Letter from Excambio Management Corp. to home-
owners dated January 15, 1968 838
Exhibit 19: Letter to Leonard Bellet from Lester Lazarus dated
February 8, 1968 839
Exhibit 20: Letter from Leonard L. Bellet to Sol Oilman dated
February 24, 1968 839
Exhibit 21: Minutes of meeting of the Wenhaven and Wenrus Corp.
on March 7 and March 15, 1968 839
vn
Material relating to the testimony of Lester A. Lazarus and B. Edward
Jaffe — Continued
Exhibit 22: Letter to Leonard Bellet from Lester Lazarus dated Page
March 27, 1968 840
Exhibit 23: Deposition of Leonard Bellet dated March 1968 841
Exhibit 24: Minutes of April 5, 1968, meeting of Wenhaven Corp.
and Wenrus Corp 842
Exhibit 25: Letter from Excambio Management Corp. dated April 5,
1968 - 843
Exhibit 26: Letter to Sol Oilman from Leonard Bellet dated April 29,
1968 844
Exhibit 27: Letter to Leonard Bellet from Eastern Service Corp.
dated May 8, 1968 844
Exhibit 28: Letter to Leonard Bellet from Eastern Service Corp.
dated May 10, 1968 844
Exhibit 29: Letter to Joseph Ostrov from Leonard Bellet dated
May 24, 1968 845
Exhibit 30: Memorandum to S. & G. Contracting dated May 31,
1968 846
Exhibit 31: Letter to Leonard L. Bellet from Walter N. Read dated
June4, 1968 847
Exhibit 32: Letter from Nathan M. Roth, Esq. to Leonard Bellet
dated June 10, 1968 847
Exhibit 33: Letter to Joseph Ostrov from Leonard Bellet dated
June 12, 1968 848
Exhibit 34: Letter from Harry Sussman to Leonard Bellet dated
June 24, 1968 849
Exhibit 35: Letter to Leonard Bellet from Cardinal Realty Co.,
Inc. dated August 7, 1968 . 850
Exhibit 36: Memorandum to Leonard Bellet from Sol Oillman dated
Augusts, 1968 850
Exhibit 37: Letter to Leonard Bellet from Irving Slater, Esq. dated
August 12, 1968 and enclosure 851
Exhibit 38: Letter to Eastern Service Corp. from Irving Slater,
Esq. dated August 13, 1968 852
Exhibit 39: Letter to Leonard Bellet from Irving Slater, Esq. dated
August 13, 1968 853
Exhibit 40: Letter to Eastern Service Corp. from Irving Slater dated
August 13, 1968 853
Exhibit 41: Letter to Irving Slater, Esq. from Leonard Bellet dated
August 20, 1968 8.54
Exhibit 42: Letter to Irving Slater, Esq. from Leonard Bellet dated
August 21, 1968 854
Exhibit 43: Letter from Irving Slater, Esa. to FH A— Hempstead
dated September 26, 1968 85o
Exhibit 44: Stock sale plan for the Wenhaven Corp 85o
Exhibit 45: Letter to Irving Slater Esq. from Leonard L. Bellet
dated October 21, 1968 8o6
Exhibit 46: Letter to Leonard Bellet from Irving Slater dated
October 16, 1968 857
Exhibit 47: Letter to Leonard Bellet from Irving Slater, Esq. dated
November 23, 1968 8o7
Exhibit 48: Letter to Joseph Ostrov from Leonard Bellet dated
March 29, 1968 8o8
Exhibit 49: Letter to Eastern Service Corp. from Abraham Pruzan
dated February 7, 1969 - 8o8
Exhibit 50: Letter to Irving Slater, Esq. from Leonard Bellet dated
May 13, 1969 and enclosure 8o9
Material relating to the testimony of Robert W. Ramsey:
Exhibit 1: Letter to Senate Antitrust and Monopoly Subcommittee
from the Buffalo Savings Bank dated March 28, 1972. .. 883
Exhibit 2: Letter to Buffalo Savings Bank from Eastern Service
Corp. dated March 6, 1965 884
Material relating to the testimony of Martin Mavblum: Letter to H. Stuart
Klopper, Esq. from Martin J. Mayblum dated March 23, 1965 890
Material relating to the testimony of H. Stuart Klopper: Houses owned by
H. Stuart Klopper - ^^*
VIII
Material relating to the testimony of Joseph Colon: Pa&e
Exhibit 1: Documents relating to the Fehx Perez Case 910
Exhibit 2: Documents submitted with the testimony of Joseph Colon- 929
Exhibit 3: Letter to Senator PhiUp A. Hart from Joseph Colon dated
May 31, 1972 943
Exhibit 4: Hogar Funding Corp. delinquency ratios 944
Material relating to the testimony of Theodore Cohen:
Exhibit 1: Mortgages with a term of 1 j^ear or less originated by
Banco Popular de Puerto Rico 949
Exhibit 2: Line cf credit memos from Hogar Funding loan binder 960
Exhibit 3: Material relating to Hogar Funding Corp. received from
Banco Popular de Puerto Rico 952
Material relating to the testimony of Richard Marcus: Data furnished to
Banking Committee by Commonwealth Land Title and its parent
corporation 994
Material relating to the testimony of G. R. Orsi: Response of Century
Federal Savings & Loan Association to Antitrust Subcommittee Mortgage
questionnaire 10.51
Material relating to the testimony of Warren Light:
Exhibit 1: Delta Capital "short money" loan records 1068
Exhibit 2: Documents furnished by the Auburn Savings Bank 1082
Exhibit 3: Documents furnished bv Warren Light pursuant to
subpena dated March 7, 1972 1088
Material relating to the testimony of John G. Haskell: Miscellaneous
correspondence 1095
Material relating to the testimony of Frank E. Cheeseman: Letter from
Frank E. Cheeseman to Senate Antitrust and ^Monopoly Subcommittee
dated March 21, 1972 1107
Material relating to the testimony of George A. Roeder:
Exhibit 1: Letter from Chase Manhattan Bank to the Antitrust and
Monopoly Subcommittee dated February 24, 1972 1153
Exhibit 2: Letter from Chase Manhattan Bank to Eastern Service
Corp., dated February 21, 1963 1154
Exhibit 3: Appendix material to the Chase Manhattan Bank on the
outline of real estate urban lending program 1 154
Exhibit 4: Mortgage purchases by Chase Manhattan Bank from
Eastern Service Corp 1159
Exhibit 5: Foreclosures of Chase Manhattan Bank owned mortgages
serviced by United 1159
Exhibit 6: Foreclosures" on Chase Manhattan Bank owned mortgages
serviced by Eastern 1160
Exhibit 7: Corporate Resolutions of the Jet Warehouse Corp 1162
Exhibit 8: Chase line of credit to Eastern Service Corp 1164
Exhibit 9: Chase line of credit to Inter-Island Mortgagee Corp 1165
Exhibit 10: Chase line of credit to Springfield Equities 1166
Exhibit 11: Chase line of credit to Spartacus Securities, Inc 1166
Exhibit 12: Chase line of credit to United Institutional Servicing
Corp 1167
Exhibit 13: Chase line of credit to Brewster Reserve Corp 1168
Material relating to the testimony of John H. Vogel: Letter to National
Bank of North America from S. William Green, regional administrator.
Department of Housing and Urban Development, dated April 13, 1972. _ 1185
Material relating to the testimony of Woodward Kingman: Documents
received by the subcommittee pursuant to the testimony 1298
Material relating to the testimony of John Nosworthy:
Exhibit 1: Article entitled, '"'Taking tne Slums "Out of Housing," by
Henrv G. Waltemade, president. Dollar Savings Bank of
New "York 1379
Exhibit 2: Real estate weekly newspaper, dated Thursday, June 8,
1972, "If the Bronx is Abandoned, the Whole City May
Go Under" 1380
HOUSING HEARINGS
TUESDAY, MAY 16, 1972
U.S. Senate,
Subcommittee on Antitrust and Monopoly
OF THE Committee on the Judiciary,
Washington, D.C.
The Subcommittee on Antitrust and Monopoly convened in
room 6202, New Senate Office Building, at 10:30 a.m., the Honor-
able Edward Kennedy presiding.
Present: Senator Philip A. Hart and Senator Edward Kennedy.
Staff present: Howard O'Leary, Esq., chief majority counsel;
Jack Blum, Esq., majority counsel; Peter N. Chumbris, Esq., chief
minority counsel; Charles Kern, Esq., minority counsel; and Hastings
W3^man, Esq., minority counsel.
Senator Kennedy. The subcommittee will be in order.
The first witness this morning is Mr. Isidore J. Lasurdo, executive
vice president of the Green Point Savings Bank of Brooklyn, N.Y.
The procedure is to swear the witness.
Do you swear to tell the truth, the whole truth, and nothing but the
truth, so help you God?
STATEMENT OF ISIDORE J. LASURDO, EXECUTIVE VICE PRESIDENT,
GREEN POINT SAVINGS BANK, BROOKLYN, N.Y.; ACCOMPANIED
BY MELVIN LEVY, ESQ.. COUNSEL
Mr. Lasurdo. I do.
Senator Kennedy. You have a statement here. Would you like
to proceed with the statement?
Mr. Lasurdo. Thank you.
I never thought I would be nervous. Senator. You did it to me.
My name is Isidore J. Lasurdo and I am appearing in response
to the request contained in the letter forwarded to me under date of
April 26, 1972, by Senator Hart. I am employed by the Green Point
Savings Bank located in Brooklyn, N.Y. I serve as executive vice
president and mortgage loan officer of the bank, and have been in
its employ for the past 37 years.
The Green Point Savings Bank was chartered by the New York
State Legislature April 16, 1868, is a member of the Federal Deposit
Insurance Corporation, and has resources in excess of $670 million.
It maintains seven offices in Brooklyn, Queens, and Nassau counties
and has a staff of 325. The bulk of its assets are invested in mortgage
loans.
That the Green Point Savings Bank is a neighborhood savings
bank, is manifested in that more than 99 percent of its total mortgage
portfolio — 35,400 loans — of $529 milHon is invested locally, that is,
(753)
754
New York State, with less than 1 percent— 550 loans — out-of-State.
Most of our local mortgage investments are Avithin 15 miles of our
offices and none more than 50 miles distant.
VA and FHA guaranteed and insured mortgage home loans repre-
sent 58 percent of total portfolio. Our overall mortgage investments
on one- to four-family dwellings are approximately 90 percent of
total mortgage portfolio.
We have eight officers and 82 employees in our mortgage depart-
ment, which number is considerably higher than most banks of our
size in our area, the reason being our bank's concentration on individ-
ual home mortgage loans, which are for the most part approximately
95 percent originated directly.
Also, except for a handful of loans purchased with servicing, and
our 550 out-of-State loans, all are serviced directly by the bank.
The Green Point Savings Bank is one of the largest originators of
VA and FHA home mortgage loans in New York City metropolitan
area. In addition, as our need for loans requires, and failing the
origination of sufficient volume, VA and FHA home mortgage loans
are purchased by assignment from local funding companies — mortgage
brokers.
Our records indicate a higher incidence of delinquency and fore-
closure rates on those loans our bank purchased by assignment as
compared to our direct originations, even though inspection and
appraisal was accomplished by our bank in each instance.
Initially, our bank purchased more VA and FHA loans by assign-
ment than those we originated and processed directly. Ab tliC years
went on and we gained more expertise, we originated and processed
more VA and FHA loans than we purchased — but not without
problems.
We soon became acutely aware the FHA standards for evaluation
and credit underwriting were most restrictive and highly frustrating
for our bank, particularly when related to those we were given to
understand were applied to mortgage companies.
Many good loans originated in our bank consistently met with
difficulty in the FHA such as: (a) slow processmg and much delay;
(b) we were constantly getting "knock-downs," low FHA appraisals;
(c) FHA credit department was unduly restrictive; and (d) conditional
commitments imposed unreasonable and onerous requirements on
buyer and seller.
A thorough analysis of our FHA portfolio, comparing FHA home
loans purchased by assignment with those directly originated by us
produced persuasive evidence of a double standard in FHA processing.
An appointment was arranged — about 8 years ago — with the New
York State FHA director and the chief underwriter in an attempt to
clarify the reasons for a seemingly e^ddent double standard practice
then in vogue in the FHA.
At a morning meeting with these two FHA officials, at which time
I strongly indicated that while "favors" were apparently granted to
facilitate the processing of FHA loans originated by mortgage com-
panies, those loans originated by our bank were not receiving i)rompt
action and were hampered by low appraisals, harsh credit require-
ments, and a "litany" of burdensome and unfair prerequisites.
I was assured by the New York State director and the chief under-
writer that our bank would be treated fairly and that they were quite
aware of what was going on and "would look into it."
755
Bold words that sparked feeble action.
Peculiarly enough, they were not interested in the specific instances
of obvious "inconsistencies" in the files I had ^^ith me.
I clearly advised them that I was not seeking favors on behalf of
my bank, just fairness.
Following that interview, our bank had a little less difficulty in
processing loans, in that we had someone to bring our grievances to.
However, major problems still continued as home sales brokers would
advise :
(a) "While I like the way 3'ou do business at your bank, and I
particularly like your low closing costs, I cannot afford to give you all
my loans since you can only get the easy ones through the FHA, and
the mortgage companies not only 'guarantees' they will get all of my
loans through, but they do it faster and get more loan dollars."
Or (b) "I have six points on this deal and your bank is only charging
three ])oints. I can get the seller to ])ay you the six ])oints. Can you
kick back the three i)oints? If you cannot, 1 can get one of the mortgage
companies to handle this one."
Naturally, we could not.
Or (c) "I cannot give you this deal, since I must close it in 4 weeks,
and I will have to give it to a mortgage company. They can get it
'expedited' through far faster than your bank."
Or (d) "Have my FHA Conditional Copimitment assigned to the
Blank Mortgage Company, they ^^'ill have the case reopened and (1)
get me a higher appraisal" — FHA appraisal came in low;" (2) get the
credit approved" — our Bank's borrower was rejected by FHA;" (3)
have the repairs deleted" — our conditional had numerous repair items.
Or (e) "I am sorry, but I cannot give you any of my FHA deals,
since the mortgage company with whom I previously did business
with is made aware of this through their connections in FHA and my
deals are automatically killed."
These evident relationships that existed between FHA staff members
and most mortgage companies in our area served to hamstring and
frustrate our ability to originate such loans. It is not difficult to under-
stand why other institutions, who could be direct originators of FHA
and VA loans, are discouraged from entering this field.
My suggestions to remedy the existing situation are as follows:
One, institution of an accountable system of command and leader-
ship in the regional FHA offices to eliminate the influence exerted by
some mortgage companies which would tend to remove occasions for
temptation, and an independent department to be set up to investigate
and act on inquiries and complaints.
Two, all mortgage companies be licensed and regulated so they can
operate in a more responsive and responsible manner. Supervisory
authorities should regularly examine not only their records, but their
overall objectives and operations.
Three, eliminate all points on VA and FHA loans and institute, at
an early date, a flexible rate consistent with the money market and
more ])articularl3^, the national mortgage market.
Most banks, such as the Green Point, are seeking a market yield.
Discounts or points are only a vehicle employed to obtain a market
rate when an unrealistic and uneconomic rate is politically set.
In my opinion, most mortgage companies do not support a flexible
rate wathout points, and prefer to originate loans with "points" or
discounts — that is where the extra money is made.
756
It is my belief that Washington has been curtained off from the
truth and that bold action and a sweeping reorganization is required to
eliminate this corrosive situation. Not more regulations, but less
regulations, less paperwork, and less governmental redtape is needed.
Additional supervised and regulated lenders need to be encouraged
to participate in this excellent program.
While there would appear to be abundant evidence a deterioration
of sound evaluation and underwriting practices has crept into FHA
operations during recent years, it does not diminish the fundamental
soundness of this excellent program created to meet a vast catalog of
unfilled housing needs in our Nation and, more especially, in our hard
pressed cities.
I believe this program has not produced wanted and desired results
more recently because of inadequate accountability and inefficient
supervision in FHA regicmal offices. I believe the recent ugly dis-
closures represent only the visible top of a larger hidden iceberg of
ineptitude, favored treatment and flagrant disregard of tlie public in-
terest and the taxpayer's mone}'.
In my opinion, all that is required to properly and adequatel}^
operate this program for the benefit of all is courage and resolve at the
top leadership level supported by a staff of officials of high morality,
dedication and talent who will devote their energies and resources
toward aiding those in our Nation in need of shelter to obtain sound
housing at reasonable costs and terms, with minimum down payments.
That is the end of my statement.
Senator Kennedy. Thank you. Your statement and your comments
are extremely helpful.
Could you tell me who does this, the development of this trend and
this pattern and practice which you have identified here — who really
benefits from it? Is it the homeowner? Is it getting easier for people
to purchase homes?
Is it better for the mortgage companies? Is it better for the banks?
Who is reall}^ benefiting and \\ho is really suffering from these
patterns of practices which you have identified here?
Mr. Lasurdo. Well, of course, the home o^\^ler is suffering.
Senator Kennedy. Why do we not take one by one?
Mr. Lasurdo. You have asked a whole series of questions, Senator.
Senator Kennedy. Right, I am feeling my way along on this sub-
ject, and I rely on you and the staff to help.
Let us take the first one, the consumer. Tell me how his interests
would be either served or disadvantaged by the development of the
trend which you have outlined in 3"our testimony'".
Mr. Lasurdo. If we are talking about the development of the trend
where there are some interesting practices that have ileveloped in
recent years, where operators, and where I think it has been spelled
out before the committee, would buy houses in certain areas, say at a
price of $10,000, and the ultimate consumer would pay $20,000.
He has been done an injustice, imquestionably, where he will then
on a $20,000 price get an FHA loan in the area of $19,000 and pay the
interest payments that attaches to $19,000.
If he had come in directly to an institution and bought the house
directly from the owner and this example I have just given, say for
$10,000, he could have received a mortgage of say $9,000 and paid the
interest charges that are applicable to $9,000, which would be sub-
757
stantially less than half for the carrying charges as related to the
interest facet.
Senator Kennedy. So he is paying more, in effect, b}^ the examples
which, I understand, the markii|) being 100 percent on the $10,000
and this is not infrequent in certain communities or neighborhoods,
is it?
Mr Lasurdo. As you said, in certain communities and neighbor-
hoods. Our bank deals in many areas — in the areas we principally
deal in. Senator — this does not apply.
Senator Kennedy. Right.
Mr. Lasurdo. They come in directly to the bank, I think.
Senator Kennedy. So you got there, first of all, the enormous
amount of resources that the consumer is having to commit, to pay;
and then you have the interest carrying charges, so he has those two
burdens which he would not have had , is that right?
Mr. Lasurdo. In the illustration I have given. I do not want to
leave the impression that it goes on in all areas. It does not go on in
all the areas we deal with.
Senator Kennedy. That is right.
Mr. Lasurdo. But certain neighborhoods in the community in
New York City is where this practice does exist.
Senator Kennedy. And your point is further that if they purchased
these homes through thrift institutions, such as your bank, it would
have provided a savings for the consumer as well as significantly
reduced the amount of interest being paid.
Mr. Lasurdo. Yes. Well, we appraise each property. We inspect
each property, as I mentioned, whether we originate it directly or by
assignment.
We do not buy bulk loans by assignment. If the package is offered
to us, we entertain on one loan at a time. We do not issue a commit-
ment. We have an unusual operation. If we buy $1 million worth
of loans by assignment, as done in the past, and, say, they constitute
50 different loans. We will issue 50 different commitments, assuming
we take the 50. We may take just 25 or 30.
For whatever reason, if they do not appraise or whatever reason
we do not like something about any particular loan, that we look at,
we do not commit for it.
Senator, we only commit for those loans that satisfy our practices
as we understand them — evaluation and underwriting.
Senator Kennedy, With this increase, again limiting it to the
particular neighborhoods, who is benefiting from that increased
valuation and increased interest payments?
Mr. Lasurdo. Well, I guess there are several segments of any
particular transaction.
I could conjure up some, but I am not an expert in this field. This
is not our operation, but as I know and understand, it deals in the
general field where an operator would go in and purchase a property —
as I said — to make the ihustration more tangible — for $10,000.
Certainly, he benefits when he sells it for $20,000.
His appreciation is not necessarily 100 percent, because I do not
know what the discounts are— 10 or 20 points — that might be paid
to some mortgage company to process this loan and to put it through
FHA and get approval.
758
As you know, 20 points is 20 percent of $20,000— $4,000 would
disappear right there, I would assume.
So there aia two principals.
Senator Kennedy. Where does that disappear to? Is that the usual
course?
Mr. Lasurdo. If he paid $10,000 and sold it for $20,000, he does not
get the $10,000. If, in fact, he did have to pay 10 or 20 points
Senator Kennedy. Is that the usual amount that would be paid?
Mr. Lasurdo. This, I understand, happens in these distressed or
ghetto areas. It has been the practice in many areas.
Senator Kennedy. And so then the mortgage company, itself, how
do they benefit from this transaction?
Mr. Lasurdo. Well, the mortgage company would benefit. Let us
say they charge 10 points for the loans. They made a $20,000 loan.
That is $2,000.
Let us also assume they took the same loan and they sold it to a
bank or an insurance compan}^ as a permanent leader at the price of
96 or 98. That is a four or two point discount, and the difference
between 10 points they would charge and the two or four points
they would sell it for, this would accrue to the mortgage compan}^
for these services they render.
Senator Kennedy. How much of a risk are they taking with the
guarantee from FHA for this kind of transaction?
Mr. Lasurdo. I do not imagine they are running anj^ risk at all,
as far as I know, and I am aware the FHA makes good on the loans
that they insure.
Senator Kennedy. Now, do j^ou have any information from your
own experience of the number of "bailouts" that the FHA has to
participate in?
Mr. Lasurdo. No; I do not have that information.
Senator Kennedy. Can you tell us how many of the mortgagors
have been members of minority groups? Have there been many of
these mortgage companies that have been set up, first of all, that
are run by minorities?
Mr. Lasurdo. I understand they exist, but again his is not the field
I am an expert in.
Senator Kennedy. Well, I was just thinking within 3^our general
area of the community, do you have any impression? Are there any
of the mortgage companies that are run by minorities?
Mr. Lasurdo. Yes, I am aware of at least one, and I guess it is in
the Bedford Stuyvesant area. Spartacus would be the name.
Senator Kennedy. You mentioned the importance of establishing,
I guess. State regulations or guidelines for these companies. Is that
right?
Mr. Lasurdo. Yes. I think that would be a definite plus factor,
because the banks operating in our State are licensed and are regulated
and are supervised. We have the FDIC coming in. We have the State
bank examiners coming in. We have outside auditors emplojed, in
addition to our own auditors.
Senator Kennedy. Are they subject to an}' regulations now?
Mr. Lasurdo. As I understand it, mortgage companies in our area
are not subject to licensing and regulations.
Senator Kennedy. What do the}' do to get in business? Do they
just develop a corporation?
759
Mr. Lasurdo. They have to satisfy the requirements of FHA if
they are to obtain a so-called "eagle," although, 1 am not an expert
in that area either, Senator.
Senator Kennedy. How do you suggest that they eliminate the
points on VA and FHA loans?
Mr. Lasurdo. That is not too difficult. That could be done at the
Federal level, I believe.
Senator Kennedy. Is that just by regulation?
Mr. Lasurdo. That is by regulation. I think instead of imposing an
arbitrary, uneconomic contract rate which is not realistic and creates
one of the evils in the market by resorting to points, which is simply a
discount to get a market yield, I think realistically, that if periodically
or quarterly — let us say — a market rate was set on VA and'FHA loans
it would go a long way toward eliminating this practice, because, as I
mentioned in my prepared remarks, in these i)oints that are paid
there is room for some maneuvering to be done.
And the ultimate consumer, the purchaser of the house, indirectly
or directly ends up ])aying that additional price and it should not be a
burden that should be imposed upon him.
Senator Kennedy. You talk of "ugly disclosures," referring to
FHA practices. As 1 understand, this committee has heard examples
of abuses and kickbacks and payoffs.
Can you give us any feeling of how widespread that is?
Mr. Lasurdo. I would say it is very widespread in our metropolitan
area. I would say in the FHA level it ranges down from the clerk at the
desk to the man at the top, and it does not miss too many people except
maybe the maintenance people that come in and clean the building
at the end of the day.
Senator Kennedy. Is this why some peo])le have difficulty working
with FHA, if they refused to be involved in this?
Mr. Lasurdo. They are not exactly enthusiastic, I guess, in having
licensed and regulated lenders, such as savings banks, in this program
because we always have difficulties getting the same type of loan, and
I am not talking about a ghetto loan where high discounts are paid.
Even in good area, and, we feel, in many of the better areas out in
Long Island, we encounter difficulties. We deal with 750 brokers, and
throughout the years we have had bitter frustrations, as I mentioned,
getting good loans through in a good area with a minimum of difficulty
that apparently mortgage comi)anies are able to do.
We do not have any relationship with any official in the FHA other
than to get on the telephone and talk to him. We do not take him out
to lunch.
Senator Kennedy. Are you satisfied from the concept of the idea
of the FHA loan it can be useful and an important stimulant for hous-
ing with the appropriate guidelines and rates?
Is it something inherent within the system that makes it abusive
for the kind of abusives we have identified here?
Mr. Lasurdo. The program has al\va3^s worked and worked ex-
cellently, and has made a wonderful contribution to the housing stock
of this Nation and has put housing in the hands of people who could
not afford it.
It has also reduced the downpayments. It is only in recent years that
these other practices that have been alluded to many times in these
hearings have come into being.
760
It is a wonderful — a great program. It is needed now more than
ever.
The program is great. It is just some of the people who administer
it are not too great. If you do not have good leadership at the top, this
thing \vill go on.
There are people who will do things and are not aware they are
doing something they should not be doing.
When somebody hands them something, they take it in the nature
of a gratuity. It is not a bribe. It goes on day after day. They are
getting gratuities and, I think, that is the way many of them look at
it. However, it is not a gratuity, but they are getting paid for expedit-
ing and changing procedures.
Senator Kennedy. And that is happening as a routine matter of
business?
Mr. Lasurdo. In my opinion.
Senator Kennedy. In the past several months has FHA tightened
up on its lending standards?
Mr. Lasurdo. Yes; in the past several months it has been even
more frustrating or restrictive.
There is another new smorgasbord of regulations coming out daily
from the FHA, and there is no need for more regulations because
some people have done silly things and there is no need for people
who are doing a legitimate job in these areas to make it more restric-
tive for us than it is.
We are ready to throw our hands up. We do not know how to cope
with this. We have 90 people in our mortgage department. The largest
savings bank in the State of New York does not have any more people
in their mortgage department than we do in the Green Point Bank.
We wTestled with these regulations at this level and it takes a lot of
people and it is high-cost and expensive to process and service these
loans.
Senator Kennedy. How do you think you are going to be able to
do business with the FHA after coming down here and testifying before
this committee?
Mr. Lasurdo. I think I am going to have a lot of difficulty, more
than I have been having.
Senator Kennedy. And that is a lot, as I understand it.
Mr. Lasurdo. It is a hell of a lot. I hope there are no ladies around.
Senator Kennedy. I would like to have staff ask some questions.
Mr. O'Leary. Mr. Lasurdo, you were the only savings bank which
originates FHA insured loans in this area; is that correct?
Mr. Lasurdo. No; we are not the only savings bank. I say we are
one of the largest originators of FHA loans. There are others that
originate loans.
Mr. O'Leary. I am referring, primarily, to what might be termed
innercity neighborhoods in Queens and Brooklyn.
Mr. Lasurdo. You are asking, are we the only one. The answer to
that is "No."
Mr. O'Leary. Do other savings banks lend to any great extent in
those areas?
Mr. Lasurdo. I do not know as to the degree.
Mr. O'Leary. Our investigation has heard what we commonly
referred to during the course of the investigation that the Green Point
761
is primarily the only savings bank that lends in these areas to any
great degree.
If we are incorrect with respect to that information, please correct
us.
Mr. Lasurdo. Well, I believe we, as a matter of degree — others, 1
think, participate although not to the same extent and degree as the
Green Point.
Mr. O'Leary. Now, you do charge points with respect to the FHA
insured loans that you originate; do you not?
Mr. Lasurdo. Yes; we do.
Mr. O'Leary. Can you tell us what you charge?
Mr. Lasurdo. What the charge is?
Mr. O'Leary. Yes.
Mr. Lasurdo. You have to relate it to a point in time in connection
with the market at that time.
Mr. O'Leary. Well, let us take it now.
Mr. Lasurdo. Right now we are charging from one to two to
three to four points.
Mr. O'Leary. Now, we heard testimony on the first of May from
the Bedfoid-Stuyvesant Corp., that they had access to a pool of $65
million, and of that $65 million they had only been able to lend
approximately $13 million, and of that $13 million 75 percent of that
was for refinancing.
Does that surprise you; that is, of their inability to compete with
respect to these particular markets?
Mr. Lasurdo. Well, it was more than a surprise. It was kind of a
shock, because this money was made available to them as a pool by
the mutual savings banks in the State of New York, at par, with no
points or discounts, and it would appear it should have been gobbled
up; since there is a great demand for mortgage money in that area.
Mr. O'Leary. So whatever their ability, your experience in origi-
nating loans — they experienced a great deal moie difficulty.
Mr. Lasurdo. It would appear to be so.
Mr. O'Leary. With respect to your bank's foreclosures and the
delinquency, how is your experience? Is it good or bad or just what?
Mr. Lasurdo. Well, we do not have an onerous foreclosure or
delinquency rate. 1 would say we have a good rate.
Mr. O'Leary. So your experience tells us that when the FHA
programs are administered, according to the proper guidelines, they
can and will work, is that correct?
Mr. Lasurdo. It is our bank's feeling that is so.
Mr. O'Leary. In addition to the difficulties that you have
enumerated in your statement, we have had testimony from a real
estate dealer that the three major mortgage companies, namely
Eastern, United and Inter-Island all engaged in the practice of lending
short money to the real estate speculators.
Are you aware that
Mr. Lasurdo. Well,
operation.
Mr. O'Leary. Are you familiar with the term "short money"?
Mr. Lasurdo. Yes.
Mr. O'Leary. Namely, a sum of money is 2 percent per month.
83-703 O — 73— pt. 2t
111 cauciuc ^pc^^ul£lLwx .-5.
this practice is going on b}^ your competitors?
1, I've heard of it. I'm not familiar with the
762
Did you ever have any occasion when a broker would try and tell
you that he would take his business elsewhere because of the avail-
ability of short money from mortgage companies?
Mr. Lasurdo. Many times.
Mr. O'Leary. As I understand it, Mr. Lasurdo, in the past several
months FHA has tightened up on its recent lending standards, has
it not?
Mr. Lasurdo. Yes.
Mr. O'Leary. And can you tell us what the}^ have started to do now
that they did not do before?
Mr. Lasurdo. Well, I do not handle the details but they asked for
more affidavits; asked for proof of price paid by the previous seller and
you are required to produce the deed with the stamps affixed thereto.
I do not have all of this information in front of me. As I say, I do
not handle the details and processing in our operation but hardly a day
passes, more recently, when something does not come in from the FHA
where they are adding extra burden to the processing.
Mr. O'Leary. In your judgment, is this kind of approach the
answer?
Mr. Lasurdo. It discourages lenders like the Greenpoint to con-
tinue to participate in this.
Mr. O'Leary. Too much redtape?
Mr. Lasurdo. Unquestionably.
Mr. O'Leary. And if FHA continues in this direction, will we not be
back to the point where the FHA will abandon entire neighborhoods?
Mr. Lasurdo. Do what?
Mr. O'Leary. Redline neighborhoods themselves.
Mr. Lasurdo. I do not know what "readline" means. I thought I
knew everything.
Senator Hart. I am not in the business and I think I know what
"redlining" means.
Mr. Lasurdo. I would appreciate it if you would tell me.
Senator Hart. Lenders agree that we will not do any business
within a circle.
Mr. Lasurdo. Oh, we used to "black line" them, not redline.
Oh, is that it?
Mr. O'Leary. Do you relate these rule changes to the present
investigations?
Mr. Lasurdo. Absolutely.
Mr. O'Leary. You say you visited the FHA office about 8 years
ago to duscuss the problems your bank faced.
Were you ever contacted by investigators from the Agency's
Washington office as a result of this visit?
Mr. Lasurdo. Yes.
Mr. O'Leary. Can you tell us a little bit about that?
Mr. Lasurdo. You were there, Mr. O'Leary, and Mr. Blum.
Mr. Levy. He's talking about 8 years ago.
Mr. Lasurdo. Talking about 8 years ago?
Mr. O'Leary. Yes.
Mr. Lasurdo. No, sir, the first time I saw any officials from Wash-
ington was a couple of months ago when I saw you gentlemen.
Mr. O'Leary. My question is, after you had your meeting 8 years
ago, you were not contacted by HUD or FHA or anyone from
Washington?
763
Mr. Lasurdo. No, sir.
Mr. O'Leary. As I understand it, and correct me where I go
wrong, Mr. Lasurdo, prior to your meeting, you went out and bought
some mortgages on the secondary market from other lenders which
have been originated in these same neighborhoods, is that right?
IMr. Lasurdo. Yes, sir.
Mr. O'Leary. And you took these mortgages down to the FHA
and you said, in effect, if some mortgage company is able to make
loans such as these and I am not, what is the problem?
Mr. Lasurdo. That is correct.
Mr. O'Leary. Can you expand a little bit on the response you
got? Did the FHA official examine loans that you had rejected as
opposed to loans that you purchased on the secondary market?
Mr. Lasurdo. No , I had some similar loans that we had in similar
neighborhoods where we were turned down or got less money or had
other burdens imposed on them.
They did not look at the files. They told me they were aware of
the problem. If I had any troubles, they said to call them up and
they would try to help me with them.
Mr. O'Leary. There was no question that you had the loans that
were turned down and they were equal quality or of better quality?
Mr. Lasurdo. I thought all of them were of better quality.
Mr. O'Leary. And you did not get any dispute on that from the
FHA?
Mr. Lasurdo. Not at that meeting, no.
Mr. O'Leary. Were there other institutions similar to yours which
were forced to drop out of the market because of these problems?
Mr. Lasurdo. I'm not aware whether there were or not.
Mr. Blum. Does your bank have a relativel}^ large servicing de-
partment? Is that one of the things you specialize in?
Mr. Lasurdo. Yes.
Mr. Blum. When you buy loans on the secondar^^ market, do you
buy them with or -without servicing as a general rule?
Mr. Lasurdo. We buy with our bank servicing the loan.
Mr. Blum. You bu}^ them with your bank doing the servicing?
Mr. Lasurdo. Right.
Mr. Blum. Have j'ou been aware that the portfolio of United, that
they were selling, would you make a bid for it?
Mr. Lasurdo. We would have been interested in it.
Mr. Blum. That is a Fannie Mae portfolio.
Mr. Lasurdo. We still would have been interested in it.
Mr. Blum. Do you think that making conventiDual loan money
available in an area that is undergoing racial change or block-busting
helps to stabilize the area?
Is it a factor that helps that neighborhood?
Mr. Lasurdo. Yes, it does.
Mr. Blum. Can 30U explain a little bit about why it is important
that conventional money be available if the neighborhood is going to
be stabilized? Does it draw in potential white buj^ers who might
not otherwise buy there?
Mr. Lasurdo. Well, it keeps the neighborhood integrated. If con-
ventional mortgage money is not available white buyers don't come.
We have a specific instance in mind here. The Flatbush section of
Brooklyn is in a state of integration and there are forces there trying
764
to keep it a balanced community, not have it become an all black
community and our bank is making available conventional loans with
the knowledge that we are taking a risk, but we feel we have an obli-
gation to preserve the character of the community as our deposits
come from that source and we do make conventional available in all
areas where we have deposits.
Mr. Blum. There's no question in your mind if conventional loan
money were not available, if it were an FHA-only neighborhood, the
racial turnover would be much more rapid than it would be otherwise?
Mr. Lasurdo. It probably would be.
Mr. Blum. Yesterday, Mr. Duncan testified that 25 percent of these
Fannie Mae in New York City portfolio was in arrears or in fore-
closure.
As a mortgage officer, with an FHA portfolio of your own in the
same market, what do you think of that number?
Mr. Lasurdo. I would not have to think. I would be fired.
Mr. Blum. What do you think numbers like that say about the
quality of loan origination, generally? Is there a relationship between
foreclosure and arrearage and the quality of the loan when it is orig-
inated?
Mr. Lasurdo. Well, I can only speak for the Greenpoint Bank. We
originate all loans and we interview every borrower and then, at least,
we know we have a live one.
We send out our own credit applications. We close our own loans.
From time to time, we, too, get deceived.
At closing, our closer will come in and say, "Mr. Lasurdo, we see
another problem here." No cash appears to be passing hands and that
loan does not close.
From the time our appraiser looks at the premises and inspects it
he has a crack at it to see if it meets with our evaluating standards.
When they come in for an interview, we process the loan. We verify
employment and bank balances and then, again, we get another crack
at the closing because our closers are instructed to make sure not only
on the FHA and VA loans but on conventional closings to see if any-
thing arises that is unusual, and to report it.
Mr. Blum. You look at the house. You find out that the guy who is
borrowing the money is a real live guy who is there and understands
he is going to have to pay you every month, and when you do that,
your delinquency rate is well within the acceptable level.
In fact, it is perhaps even somewhat better than the national average
and that is even though you lend money to minority groups, and even
though you lend money in areas in which other people woidd say is
too risky, you still do it. Would that be a fair statement?
Mr. Lasurdo. Right. I will sa}- this so we keep the record straight.
Our delinquency, while low, is still higher in the minority group level .
Mr. Blum. It is 3 or 4 percent? We're not talking 15 percent, 20 per-
cent, or 25 percent.
Mr. Lasurdo. Right.
Mr. Blum. I think the historical foreclosure rate for FHA for all
time is 4 percent or 5 percent, somewhat within that range, and you
are within that range, is that correct?
Mr. Lasurdo. Yes, we are.
Mr. Blum. And that is simply by living up to the existing FHA
guidelines?
765
Mr. Lasurdo. Right.
Mr. Blu.m. There is one point I would like to go over with you, and
that is the question of how it is possible, on a quick foreclosure where
there is enough of a discount for somebody to make ciuito a bit of
money, might it be profitable for someone to originate a bad loan or
enough points to make money on the yield to maturity? Is that some-
thing you have heard of happening?
Mr. Lasurdo. Yes.
Mr. Blum. And the way that works is the quick recapture of the
discount. FHA pays off the loan at par and the loan is originated at
90 or 92, is that correct?
Mr. Lasurdo. That is the way it works.
Mr. Blum. Just one final line of questions. Does your bank make
available home improvement money? Is that one of the lines of
lending that you do?
Mr. Lasurdo. We have just started into the field, but we have not
been m it in the past for good and sufficient reasons.
Mr. Blum. Well, that program has been something less than
perfectly administered would 3^ou say?
Mr. Lasurdo. Well, the reason we remained away from it and now
we are getting into it is to render a service to our home mortgagors
because to make money on that program we have to do it on a volume
basis, and to do it on a volume basis you get involved with so-called
dealers and most dealers have an unsavory reputation and you get
other involvements.
The completion certificate is signed in man}^ instances before the
job is even started, let alone completed.
Mr. Blum. By "dealer," you mean a guy who deals in home
repairs. The siding man. The guy who comes along and offers to do
whatever work that he is in business to do and he will be doing it on
a volume basis?
Mr. Lasurdo. Correct.
Mr. Blum. Now, does the fact that there have been problems in
that program mean that minority group buyers have bought these
older houses and are cutoff from an important chance to fix them up
and keep them going?
Mr. Lasurdo. In all likelihood.
Mr. Blum. And perhaps that might be part of the explanation for
a couple of them walking away when they cannot borrow the money
to fix it and they have only put up a small down payment and it is
simply not worth them sticking to it. Would that be a fair statement?
Mr. Lasurdo. Yes, that would be a fair statement.
Mr. Blum. Thank you very much, Mr. Lasurdo.
Mr. Levy. Mr. Blum, I think Mr. Lasurdo wants to clarify one
statement.
Air. Lasurdo. I made a statement that the FHA people, they
might be doing silly things, and I just used it generally. In my opinion
there, when I said "froni the bottom to the top," I did not mean the
bottom or the top, I mean many people in there are involved. I'm not
trying to single out individuals. I have no concrete evidence of anybody
doing anything specifically.
Mr. Levy. As I understand it, he was referring to general reputa-
tion. It was a cross-section of the entire FHA that was involved,
without any specific person.
766
Mr. Blum. Thank you for the clarification.
Senator Hart. Mr. Chumbris?
Mr. Chumbris. Thank you, Mr. Chairman. I just have a few
questions.
The Hne of questioning by Mr. Bkini regarding the ratio of fore-
closures and failure to keep up payments on the loans, j^ou point out
that you had difficulty getting some of these loans in the area because
of the way the FHA operates. Is that correct?
Mr. Lasurdo. Difficulty in getting brokers to '6)me' into us, yes.
Mr. Chumbris. And because of that, you have what might be
termed a better opportunity to obtain loans that would be away from
the so-called ghetto area in New York. Would you have a less per-
centage of ghetto loans than the people that testified previously in
these hearings?
Mr. Lasurdo. I do not know what their percentages are.
Mr. Chumbris. Well, for example, Mr. Duncan testified yesterday
that in 1969, in September, there were a total of 9,169 loans, 752 in
arrears, 8.2 percent total loans in arrears.
In 1970, he had about 16,000 loans and in March it was 10 percent.
In September, it was 6.3 percent of the total loans in arrears.
In 1971 it went up to 17,300 and the percentage was 9.8 percent.
I asked him, although it was not on the record, while we were on a
brief recess, how many of those loans were actually in a ghetto area
and he pointed out about, say, 12,000 of 15,000, close to the 16,000
he had in his statement, which means about four-fifths — four-fifths of
the loans that he had recorded were ghetto loans.
Now, the loans that you have, would you say that four-fifths of the
loans that you've put out are in the ghetto area?
Mr. Lasurdo. It's substantially less than that.
Mr. Chumbris. What is the ratio of loss that you show?
Mr. Lasurdo. Substantially less than that. As I mentioned to Mr.
Blum here, we have a higher delinquency and/or foreclosure ratio in
ghetto areas, but nothing substantial and nothing approximating tb/^
figures that you mentioned.
It is a low percentage. I do not have the figures before me. We do
not have any substantial foreclosure problem in the Greenpoint
Savings Bank.
Mr. Chumbris. I do not know if it is relevant or not, but if 12,000
of the 15,000 loans are in the deep ghetto areas and the range is any-
where from an extreme high of 15.4 — which is only one instance —
and most of it, it was one at 1.2 percent and the last one at 8.1, then
maybe that ratio is not quite so bad if the intent of Congress was to
provide low income people with loans, with the ability to get loans to
buy houses, irrespective of the consequences that might result.
Now, if you deal in loans in an area where only one-fifth of your
loans were in ghetto and you had an average of 5-percent loss, and
the other man, the loans that he records here that 4 out of 5 are in the
ghetto area and they have an 8.1 percent, maybe that is not such a
bad record.
Now, I'm not trying to justify the record because in my questions
earlier, during the course of these hearings, we have gone into some
of these problems as to how we can improve the situation so that
Bedford -Stuyvesant, which has $65 million to play with, has only
been able to obtain loans in the amount of about $15 million or $10
767
million and the others they think they just cannot compete with the
system that operates in the area of the Bedford-Stuyvesant complex.
Wliat we are trying to get at is what can be done. What FHA,
Fannie Mae, the brokers, the mortgage companies can do to improve
the situation to meet the real intent of Congress in passing this law,
and that is to help the low income and moderate income people to
obtain housing.
Mr. Lasurdo. As I mentioned before, I think 3'ou'll have a higher
ratio of delinquencies there but it should never be as high as the
figures you have quoted. If you had a proper program going with
proper leadership and some accountability in that area, I do not
think you would reach the figures you are talking about.
I think those figures tell you a different story. I think the program
has not been properly operated. You have not had the proper leader-
ship and dedicated people in there. And many people, I think, have
overlooked too much in too many areas to get to those percentages.
Mr. Chumbris. There has been some indication in the record that
perhaps there has been pressure from those who are interested in
seeing the 1968 law carried to its fulfillment to ease the restrictions
so that these people can obtain loans. Would you say that that is
pretty close to the fact?
Mr. Lasurdo. There's nothing wrong. I am in favor of people of
moderate income acquiring property and getting ownership. I think
that will cure a lot of problems in these areas, but it is wrong when
these people are not earning the income that they appear to be earning
on the records.
Some of the problems are. No. 1 , the individual is not existent; No. 2,
the job is nonexistent.
Therein lies your problem. If you have a borderline case, I think
you should make the loan in the areas you are talking about, but if
j^'ou have something less than a borderline case and you know they
are not going to be able to meet their obligations, in fact, they do not
even make their fu'st payment, then it is wrong to get them started
in housing in this sense, because you have greater frustrations.
I think if the program ^vere pro])erly administered in the direction
you are talking about, more lenient in evaluating credit, it would
work, but I think there is something more amiss than what you are
saying.
Mr. Chuaibris. Well, perhaps I should not be asking you this
question because ma^'be it is not within your knowledge, but the
point I was trying to make is there have been indications in the
record that ])erhaps maybe from Congress itself or from the administra-
tion of the FHA program downtow^n, requests have been going to the
field offices and saying, "Look, I do not want you to be too strict on
denying a loan."
They say the object of this program is to help low income people
get a loan and what w^e realize is they did not have the type of job
that most peo]ile have in order to get the loan, or ma^^be they have
too big a family and therefore cannot afford to meet the payments,
but we want you to go as far as you can with as much safety as
possible but still, at the same time, carry out this program.
Maybe it's not fair to ask you whether you know of any instances
such as that, but there are indications in the record that some requests,
and rather strong requests, are coming from Washington to the field
768
offices that say do not be too strict and deny the person the right to
buy a home. That is the point I was trying to make.
Mr. Lasurdo. We are aware of that. We will allow a second job,
allow additional part-time work. We will take an extra credit risk in
these areas, but when you have done all of this, if they cannot meet
their monthly obligations, you could not or should not make this loan.
This is what I'm saying. If, after you have done all of this and have
stretched the rubber band as far as you can and they still cannot
meet the monthly requirement, then it is foolish to approve that loan
because thev cannot meet the first payment.
There is no sense in starting the loan off in trouble.
Mr. Chumbris. There is one other point you made in j^our state-
ment here, that you believe Washington was unaware of what was
going on in some of these field offices.
Have you ever contacted anybody in Washington to point out that
things are going on up here that perhaps we are to look into, whether
it is a Congressman or Senator or the Department itself downtown?
Mr. Lasurdo. Not in that specific area. We have contacted Wash-
ington a number of times on foreclosure regulations which seem to
have major inconsistencies.
In certain areas, Mr. Chumbris, they demand that we vacate the
house. If the}' do not know it in Washington, they certainly know in
the regional offices that, first, with rent control it is very difficult for
the courts to allow us to vacate the premises and after long and arduous
procedures you get someone out, you have no house left, not overnight,
but almost instantaneously.
We cannot understand that where there is a housing shortage we
must vacate a four-family house, when they know in advance, as soon
as you vacate the premises, there is no house left.
As a taxpayer, I object. We do not know and understand the reasons
for that and have written to them many times. But they say local
FHA offices want the house vacated, proceed to evict them.
I do not understand what is behind this because we have demon-
strated when that happens, there is no house left.
Mr. Chumbris. Yesterday, when Mr. Duncan was here, he indi-
cated that when asked about foreclosures that the organization comes
out about even or might even make a little profit and to put it on the
question, I asked him, "Wlio suffers the loss?" And he said, FHA
has to assume the loss because they guarantee the loan.
He also pointed out that that loss that FHA sustained would be
protected by the insurance that FHA purchases.
Well, somebody is paying for the premiums. Is the taxap3^er paying
for the premium?
Mr. Lasurdo. No, the borrower pays the one-half of 1 percent
premium per month in his monthly payment.
Mr. Chumbris. So it is the borrower who would assume that
portion of the loss.
Mr. Lasurdo. Yes.
Mr. Chumbris. There was something placed in the record earlier
in the hearings, I believe an article to indicate that FHA has lost
$500 million, if I remember correctly. Was that right? That $500
million, in some of these programs that had been going on in New
York and, Jack, you can correct me if I'm wrong?
769
Mr. Blum. The estimates in New York were $24 million. By the
U.S. attorney it is $200 million. The estimate by GAO in Detroit was
$500 million.'
Mr. Chumbris. I believe in big figures. I can only remember the
$500 million.
In that instance, that $500 million would not be something that
taxpayer would have to assume, is that correct?
Mr. Lasurdo. I do not know. From what I read, I am aware the
FHA is running out of insurance money. I think the taxpayer is
going to have to pay for this.
Mr. Chumbris. That is one thing we want to look into. Not to
place the burden on the taxpayer but when M. Thomas was here,
who was president of the Bedford-Stuyvesant Corp., his complaint
was similar to yours.
They had plenty of money to loan but when he thought he had a
customer someone else had grabbed him. A friend of the broker, and
the broker knew somebody in the mortgage business and they could
get the loan quicker and the first thiug he knew, he had lost a prospect
That is something that this subcommittee has been interested in, in
trying to get all the data on it and try to clear up as much as it possibly
can because it is the low income houseowner, if he maintains his loan
but is paying a high base loan and jjrobably a high interest rate, and
he is doing that over a long period of time. Would all of this be correct?
Mr. Lasurdo. Right.
Mr. Chumbris. Thank you very much, Mr. Chairman. Thank you,
sir.
Senator Hart. Any other questions?
Mr. Lasurdo. Thank you, gentlemen.
Senator Hart. Thank you. I'm in the middle of reading that par-
ticular statement. I apologize for getting in late, but I will continue to
read it.
I am grateful to Senator Kennedy that he was able to come in.
Our next witness is the vice president of the Jacksonville National
Bank, Jacksonville, Fla., Mr. C. H. Beason.
I think Mr. Corsello is with you, and if he would join us.
Gentlemen, if you would rise.
(Whereupon, the witnesses were sworn by the chairman.)
STATEMENT OF C. H. BEASON, VICE PRESIDENT, JACKSONVILLE
NATIONAL BANK, JACKSONVILLE, FLA., AND J. COESELO
Senator Hart. Mr. Beason, you have a very short statement and
we would welcome your reading it and if there is any additional foot-
note you care to make, feel free to do that also.
Mr. Beason. Thank you, sir.
This statement is in respect to a letter I received April 16 from you.
The Charter Co. is a publicly held Florida corporation, having its
principal place of business in Jacksonville, Fla. Charter, through
various subsidiary corporations, is engaged in mortgage and mortgage-
servicing business, among other businesses, and has been so engaged
for many years.
Through its subsidiaries, it services mortgages for over 100 investors,
consisting of mortgages on commercial properties, mortgages on single-
family dwellings, including FHA and VA insured mortgages.
770
Among the investors for which it services are Federal National Mort-
gage Association and Government National Mortgage Association.
Shortly prior to December 1970, officers of Charter were approached
by officers of Springfield Equities, Ltd., a New York corporation,
seeking to sell to Charter the servicing portfolio of Springfield.
Subsequently, an agreement was reached and Charter acquired the
mortgage servicing portfolio of Springfield on properties in New York
in December 1970.
This servicing portfolio consisted of approximately 1,800 mortgages
with a then outstanding princijial balance of approximately $25
million and included mortgages being serviced for Fannie Mae.
Shortly thereafter, officers of Charter were approached b}^ officers
of Fannie Mae, Philadelphia office, and asked by Fannie Mae to
consider the acquisition of the mortgage servicing portfolio of United
Institutional Servicing Corp., a New York corporation which was then
servicing mortgages in New York for Fannie Mae.
Charter was advised that Fannie Mae was dissatisfied with the
servicing performance of United and that Fannie Mae would like very
much to have Charter purchase the United portfolio and service
the Fannie Mae mortgages for Fannie Mae.
Charter has serviced for Fannie Mae for many years on a satisfac-
tory basis. The acquisition of the United portfolio was completed on
February 25, 1971.
The United Servicing portfolio consisted of slighly less than 7,000
mortgages, with a then outstanding principal balance of api)roximateh'
$112 million and included mortgages being serviced for Fannie Mae.
You asked that I include in this statement, in some detail, a sum-
mary of the problems experienced by Charter in the two New York
mortgage portfolios above described.
In summary, we found the following:
In the Springfield portfolio we found substantially normal delin-
quency ratio, very few problems which would not normalh^ exist, and
collection experience was not unusual.
In the United portfolio there was an extraordinarily high delin-
quency^ ratio, ai'yproximately 600 mortgages they in foreclosure and
an additional 300 to 400 mortgages which should have been in fore-
closure but were not. Very incomplete and inaccurate records and
severe problems with collections.
Shortly after Charter accpiired the United ]:)ortfolio, Fannie Mae
conducted an audit resulting in approximatelj-^ 20 exce])tions from the
required Fannie Mae servicing procedure.
Charter has cleared up substantially all of the excei)tions, employed
Peat, Marwick, Mitchell & Co., CPA's to audit and correct the servic-
ing records and has substantially reduced the delinquencies, cutting
the true delinquency ratio a])proximately in half.
We experienced a large number of complaints by borrowers with
respect to mortgage payments which they claimetl to have made but
which were not reflected on mortgage accounts.
Such complaints have been handled on an individual basis and the
necessary corrections made.
Charter exi)erienced, and still experiences, severe dolinquenc}' prob-
lems, problems in locating mortgagors, problems of houses piesently
being rented with mortgage ])ayments not being made out of the
rental payments.
771
However, such conditions have been greatly improved with stringent
service procedures, following closely the procedures set forth by
Fannie Mae's servicer's guide.
That is the end of my statement.
Senator Hart. Mr. Blum?
Mr. Blum. Mr. Beason, what is the relationship of the Charter
Corp. and the Jacksonville National Bank?
Mr. Beason. Charter Corp. is a parent company. Jacksonville
National Bank is a subsidiary company, along with Charter Mortgage
Co. and Charter Servicing Co.
Mr. Blum. What is the name of the Charter subsidiary which
handles mortgage servicing in New York?
Mr. Beason. Charter Servicing Co. of Jacksonville, Inc.
Mr. Blum. The mortgage servicing is done by a Charter subsidiary,
Charter Servicing of Jacksonville. Why does Fannie Mae refer to
Jacksonville National Bank as the servicing comi)an3'?
Mr. Beason. Jacksonville National Bank is the prime contractor
holding the servicing agreement.
Mr. Blum. I think you can appreciate why we are going through
this. It is somewhat confusing to someone who does not know.
Mr. Beason. Jacksonville National Bank is a Florida corporation,
cannot do business out of Florida because of branch banking laws,
and the Charter Co. formed these other companies in order to service
mortgages in different areas of the countr}-. In fact, all areas of the
country.
Mr. Blum. How large is the Charter Corp. as a servicer and what
is the size of its portfolio?
Mr. Beason. We are servicing approximately, today, $1.1 billion
and numbering about 66,000 mortgages.
Mr. Blum. Does that make you one of the larger servicers in the
country?
Mr. Beason. Yes.
Mr. Blum. Why would a Florida bank find entering the highly
competitive New York market an attractive proposition?
Mr. Beason. Expansion and growth. We had started acquisitions
approximately 2 years before. We had grown from around $300 million
to around $800 million by purchase of mortgage companies. We are
expanding nationwide. This was a chance to expand into the New
York area.
It was a chance to expand with existing portfolio rather than com-
ing in on a one-loan basis.
Mr. Blu:\i. And that would give you a base from which to build
other business?
Mr. Beason. To build servicing.
Mr. Blum. In your statement you indicated you were approached
by officials of Springfield and asked if you were interested in bu3'ing
their servicing.
Did Charter of Jacksonville have any relationship \\-ith Springfield
prior to that time?
Mr. Beason. No, sir; none whatsoever.
Mr. Blu^l Who else was Springfield servicing for at the time of
that transaction?
Mr. Beason. Total servicing was approximately 1,800 loans
consisting of approximately 1,000 Fannie Maes, the balance divided
772
among Equitable Life Insurance Co , Schenectady Savings Bank,
Dime Savings of Williamsburg, and Candy & Confectioners, Local
Union 452, representing a total of six or eight investors
Mr. Blum. That was the pension fund of the Union?
Mr. Beason. Yes.
Mr, Blum. In other words, a variety of holders of FHA and VA
mortgages?
Mr. Beason. Yes.
Mr. Blum. And what was the dollar size of that non-Fannie Mae
portion? Do you have any estimate?
Mr. Beason. Approximately $6 million.
Mr. Blum. Before you made the purchase, did you make any effort
to evaluate the quahty of the Springfield loans?
Mr. Beason. We visited Springfield. We became acquainted with
their officers, asked their servicing manager how he serviced
In this business, you are able to visit and get an idea of what goes on.
Mr. Blum. What are the guidelines used when you visit? Do you
look at the delinquency and foreclosure figures?
Mr. Beason. One of the basic guides of good servicing is the de-
linquency ratio.
Springfield, at the time of purchase, was running approximately,
between 3.5 percent to 4 percent.
Mr. Blu:m. What did the Charter Corp. pay for that Springfield
servicing?
Mr. Beason. We paid a formula based on the outstanding principal
balance. If I remember correctly, it was five-sixths of 1 percent of
the then existing balance up to $30 million, and one-third of 1 percent
over $30 million.
Mr. Blum. Was it your intention to use some of the Springfield
staff to service those loans once you got started in the New York
market, and take over their servicing department, so to speak?
Mr. Beason. We used the entire iSpringfield servicing staff. At the
time of takeover we tried to establish oui own company in the name
of Charter. We could not, and, therefore, we used the Springfield
Equities as an agent for the Jacksonville National Bank handhng
the servicing in New York City.
Mr. Blum. One more question about Springfield. Was there not a
point in time when Springfield was under suspension by Fannie Mae
because of delinquencies that it had accumulated?
Perhaps you can tell us w^hy that did not influence your decision to
purchase.
Mr. Beason. At one time, possibly a year and a half to 2 years
prior, they had been placed on probation because of a high delinquency
ratio.
Well, this condition improved. They were taken off of probation.
They were operating wdthin the standards set by Fannie Mae.
Mr. Bluai. Mr. Corsello, at that time were you with Springfield?
Mr. Corsello. I joined them 1 month after the suspension, I
believe.
Mr. Blum. What were the causes of that high delinquency ratio at
that time?
Mr. Corsello. Well, they were not really familiar mth good col-
lection procedures, and I immediately instituted them, and the ratio
skyrocketed down.
773
Mr. Blum. It went down very sharply?
Mr. CoRSELLo. It went down from 11 percent to 5 percent in 3
months after I joined them.
Mr. Blum. Do you think the principal problem was collection rather
than underwriting some of the collection procedures?
Mr. CoRSELLO. Well, generally I would say yes.
Mr. Blum. As you describe the situation in your statement, Fannie
Mae approached Charter and asked it to take on the United portfolio.
Perhaps you had better describe what happened between you and
Fannie Mae and Mr. Duncan in the purchases of that portfolio.
Mr. Beason. We had known Mr. Duncan for some time — 10 or 12
years — and we did know he had to approve the transfer of the servicing
for Springfield.
He did know we were in the area and were interested. He did call
and invite us to Philadelphia to take a look at United's portfolio.
We went.
He did advise us of the abnormal problems, some of the higher
delinquency, and so forth.
Well, we were still interested and he felt that with our organization,
and we are all familiar with Mr. Corsello and his staff here, between
the combination we could do something about the collections from the
standpoint of the collections of the loans.
We visited United. We did look at some files, Mr. Corsello and I,
and on our examination it was borne out that it was not a heck of a lot
of effort used to collect the loans. There were very few collection
attempts.
Mr. Blum. Did you make any effort to check United's credit
record or get references from other people with whom United did
business, do you recall?
Mr. Beason. I do not know that. I would say that the principals
in our corporation would have done this.
Mr. Blum. Would you mind, for the record, checking the files to
see if you have any references with reference to credit reports with
respect to United?
Mr. Beason. Yes, sir.
Mr. Blum. After 3^ou looked over the portfolio of United, how much
was in foreclosure?
Mr. Beason. Approximately $10 million was in foreclosure.
Mr. Blum. How much Avas in arrears?
Mr. Beason. In dollar figure I cannot say. It was approximately,
oh, between 900 and 1,000 loans in a year. These are 30-day, 60-day,
and 90-day accounts.
Mr. Plum. We are talking then about something like 20 or 25
percent of the portfolio that was in arrears.
Mr. Beason. The ratio at the time of takeover, Mr. Blum, was
approximately 18.5 percent.
Mr. Blum. 18.5 percent.
Mr. Beason. Right.
Mr. Blum. Did'vou discuss the number of mortgages and fore-
closures with Mr. Duncan, and here I am specifically referring to the
12 mortgages that United bought back. Did that come up m your
conversation?
774
Mr. Beason. Very briefly, when we decided that we would take the
transfer of servicing. Mr. Duncan said that he would not transfer the
12 loans, that he would have United buy these back.
That was the only conversation we had on this.
Mr. Blum. When you discussed it in your statement, the ])hrase
"substantially normal delinquency ratio," what does that generally
mean in the trade? What do you consider a normal delinquency ratio?
Mr. Beason. It depends on the area. New York, I would say 5
percent to 7 percent would be an excellent ratio.
Mr. Blum. Mr. Corsello, would you mind telling us a little bit
about your background prior to coming to Charter?
Mr. Corsello. Well, I joined wSpringfield Equities in August 1969,
and prior to that I had worked for three savings and loan associa-
tions which were North New York Savings and Loan Association,
Reliance Federal Savings and Loan Association and Washington
Heights Federal Savings and Loan Association.
I have spent 7 years — 5 years and 4 months going back and forth
with those organizations.
Then I joined Springfield Equities and that was a tremendous
challenge because it was immediately evident that the company
had gone into something ciuite unseen and was floundering badly,
and only the fact that the portfolio was small enough — it was less than
1,000 loans — in fact, it was somewhere around 600 loans — were we
able to fully audit the thing, and get the collection procedures down,
and get all the structures of a good servicing portfolio set up. We did
that.
Well, it took from about August of 1969 to about the end of that
year, and we had everything pretty well set up at that point.
Mr. Blum. When you began trying to straighten out the United
portfolio, what condition w^ere United's files in?
Mr. Corsello. Again, it was probably a mistake on our part. We
should have forced them to account for at least every servicing file
because the servicing file is vital to us. It enables j^ou to check the
loan.
Mr. Blum. What generally is the servicing file?
Mr. Corsello. Copies of certain origination documents, copies of
FHA documents leading up to the closing of the loan, and any restric-
tions that might have been set forth at that time are also there, and
any correspondence between the mortgagee and the mortgagor is
also there.
Mr. Blum. And that file will tell you wdiere to find the guy?
Mr. Corsello. Any transfers that have taken place should be
evident in that servicing file.
Mr. Blum. It will also tell you who the present mortgagor is?
Mr. Corsello. It shovdd, yes, if iu is properl}^ kept up.
Mr. Blum. Were many documents missing? I gather they were.
Mr. Corsello. I wouldn't say documents, but there were many
important pieces of information, especiall}^ transfers, ownership
transfers.
775
Mr. Blum. So we can be sure about that, that means if you had
a mortgage in the name of John Smith, you might discover that the
property had changed hands two, three, or four times, and that was
not recorded?
Mr. CoRSELLO. Right.
Mr. Blum. What sort of notification did you send to home owners
about the shift in servicing?
Mr. CoRSELLO. Well, they were billed monthly b}- an outside com-
puter service. They received monthly bills and statements, and we
made up a special announcement at the end of February 1971, which
was included with their bill for March.
We continued the same system for the next 2 months, so Jackson-
ville took all of that down to their offices.
There were two notices sent; one bv United, and one b}^ Springfield.
Mr. Blum. Were any of the ])eople who received the notices sur-
prised to learn of the transfer? Did they complain to you?
Mr. CoRSELLO. They were surprised, and they had a lot of questions.
They wanted to know what was going on, especially when 3 months
later to Jacksonville, they were really surprised, and then they really
started to ask questions.
Mr. Blum. Did many mortgagors come to your office to complain
about problems they had with their house or with their mortgages?
Mr. CoRSELLO. We got general complaints from hundreds and
hundreds of customers.
Mr. Blum. What kind of complaints did you get?
Mr. Corsello. Well, the most classic complaint was that we
would be asking someone to make mortgage payments as per their
contractual agreement, and they would fire back to us wh}' should
they make pa3^ments when they were defrauded, and the}^ knew they
were defrauded, and if we were not of the same caliber of people they
were dealing with before, we should come to their aid or do something
for them.
Mr. Blum. What kind of fraud were they talking about?
Mr. Corsello. Many said they had made payments to United
for which they never received credit. Others said, the main complaint
was that work was supposed to have been done, completed at the
properties as per FHA requirements, and the work was either not
completed or not done at all.
Mr. Blum. What happened when you started tracking down some
of those complaints?
Let us start with the complaint relating to the payments that were
made and were not credited.
Mr. Corsello. There were payments made during the 3'ear 1970,
especially, I believe, it would be the latter 6 months of 1970. And
many of these people, of course, were trying to take advantage of the
situation.
We had to look at each one the same way. In other words, if they
were just alluding to statements or remarks, we still had to go every
776
step of the way with them until we were able to determine the true
situation. In other words, were they telling the truth or just biding
time.
We did actually find at least a half dozen or more payments that
were made, you know. Receipts were shown from United, payments
were made, and they did not show up on the ledgers that were turned
over to us.
And after turning this information over to United, sending these
people to United with the information and their receipts, the people
came back with checks from United for these payments.
Mr. Blum. And the payments were then made and accounts were
straightened out?
Mr. CoRSELLO. Right. In fact, Fannie Mae, for the period of time
they were in our office, we brought to their attention at least three or
four of them that had been found by this time, and Fannie Mae
included them in their audit reports.
Mr. Blum. On the question of houses and proper repair, what
happened when people came into the office and said "they were
supposed to have fixed my house up, and now it is falling in."
What did you do to check that out?
Mr. CoRSELLO. W^ell, naturally, the first thing we do is go to the
file and if you are fortunate enough to find the file, you then tr}^ to
check back and see if there were actually agreements made between,
you know, the companies and the mortgagors to actually make
repairs.
And if you found a list of repairs that were required, we would ask
the mortgagor point by point, "Was this done?" "Was this done from
one to three, to number 10?" Whatever it was; and the mortgagor
would more than likely say, "Two minor repairs out of 10 required
were done, and then the contractor never showed up again."
More than likely, most times in the files, you would find a certifica-
tion letter appearing stating all repairs had been done and escrow
funds had been released.
Wliat we would have done, and what we did do in two cases, was to
get the money still being held by United and after a year or 2 years, of
you know, holding this money for reasons we cannot comprehend, we
actually got the money and had the contractors do the work. And the
l)eople were very, ver}^ surprised and hap])y when we did this.
Mr. Blum. Did you find many letters in the file that said the repair
work had been done?
Mr. CoRSELLO. Oh, yes. They were the ones that came to our at-
tention. We made no comj)lete canvass of the files.
Mr. Blum. Did you read the testimony of Mr. Katz when they ])ut
those letters in the file routinely? Was that a surprise to you?
Mr. CoRSELLO. Yes.
Mr. Blum. Were you shocked by that?
Mr. CoRSELLO. Yes.
777
Material Relating to the Testimony of
C. H. Reason
List of rents collected by persons other than the property owner provided by
Charter Service Corp.
Mortgage No. Owners and address Rent collected by—
213714.. George Cullen, 297 Hindsale St., Brooklyn, N.Y.. David Gomberg, 807 New Lots Ave., Brooklyn,
N.Y.
212888 Alfred Diaz, 717 LinwoodSt., Brooklyn, N.Y Do.
213056 Michael Sabella, 315 Wyona St., Brooklyn, N.Y. . Do.
215733 Gilbert Torres, 691 Linwood St., Brooklyn, N.Y. . Do.
215785 James Fields, 594 Barbey St., Brooklyn, N.Y Do.
210142 ... Ike Crutch, 366 Throop Ave., Brooklyn, N.Y Alonzo Smith, no address or phone.
214813 Hugh Hamilton 191 Buffalo Ave., Brooklyn, N.Y. Denis Pemberton, 424 E. 82nd St., New York,
N.Y., 876-1777.
216075 Leroy Brooks, 601 Baker Ave., Bronx, N.Y Do.
214944 Thomas Alston, 906 East 224th St., Bronx, N.Y. . Do.
215035 Richard L.Trudeau, 2980 Bainbridge Ave., Bronx, Do.
N.Y.
213305 Horace Holland, 98 Eldert St., Brooklyn, N.Y Do.
214163 Joseph Arnold, 2230 Light St., Bronx, N.Y Do.
214344 Gerald Weaver, 1762 Tremont Ave., Bronx, N.Y.. Do.
213015 Ceola Tucker, 633 Ashford St., Brooklyn, N.Y... Sam Goddard, 2712 Church Ave., Brooklyn, N.Y.
213125 Edgar Goddard, 464 Van Siclen Ave., Brooklyn, Do.
N.Y.
213251 Fonnie Elliott, 119 Vernon Ave., Brooklyn, N.Y.. Do.
216917.. Enilda Vasquez, 42 Tompkins Ave., Brooklyn, Do.
N.Y.
214258 Henry Norris, 184 Carlton Ave., Brooklyn, N.Y.. Do.
215567 Charles Campbell, 178 Carlton Ave., Brooklyn, Do. ,
N.Y.
216045 Robert Green, 119 Suydam SL, Brooklyn, N.Y... Do.
213342 Gerald Lord, 543 Lexington Ave., Brooklyn, N.Y. Frank Richardson (friend of Sam Goddard).
214333 Frank Weeks, 670 Sterling PI., Brooklyn, N.Y... Lee Lawson (friend of Sam Goddard).
Mr. Blum. That they were able to put a letter in the files, routinely?
\lr. CoRSELLo. It is inconceivable.
Mr. Blum. Did you try to back check to see who signed the in-
specition reports in many of these places?
Mr. CoRsaLLo. There were never any real inspection reports. They
were all simply a letter, a standard form letter to FHA, to the regional
office at FHA, signed by Canavan.
Mr. Blum. When you began servicing the portfolio, did you notice
that certain individuals were making monthly payments on more than
one mortgage?
Mr. CoRSELLo. Well, if you coLild rephrase that just a little bit.
Mr. Blum. Go ahead.
Mr. CoRSELLo. I would say certain individuals; yes. They were
making payments but practically as soon as we took over they stopped
making payments.
Mr. Blum. Were the}^ making payments on mortgages in their
names and mortgages in other peoples' names as well?
Mr. CoRSELLo. Yes.
Mr. Blum. When you took over the portfolio, did you call them in
and talk to them?
Mr. Corsello. We really never saw them. We got all of this in-
formation from tenants that we woLild interview at the various
S3-703 — 73 — ^pt.
778
buildings. The names would just continue to crop up until we more or
less would say, ''Gee, who is this fellow? He is certainly having a good
time out there with our properties."
Mr. Blum. Let us see how that worked. The building would be
delinquent in payment?
Mr. CoRSELLo. Right.
Mr, Blum. You would send somebody out to find out where the
guy was?
Mr. CoRSELLo. Everyone in the building, any building that goes
into arrears, if we cannot get to the customer or speak to the customer
by normal letter or phone calls, a visit is made and as many as three
or four visits are made until we get somebody to speak to that can
vouch for the property so we do not foreclose on a piece of property
where someone might be in deep hardship or something.
In interviewing tenants, they would say he did not live there, and
they were paying the rent to this one, or that one ever}^ month.
Mr. Blum. What were some of the names of these people that came
up in the course of that discovery?
Mr. CoRSELLo. The most prominent one was Dennis Pemberton,
Frank Richardson, and Al Smith.
Mr. Blum. These gentlemen all seem to be collecting rent and
operating the property as rental property. That was the intent,
anyway.
Mr. CoRSELLo. That is what they would have you believe.
Mr. Blum. Did you subsequently call any of those people in to
talk with them?
Mr. CoRSELLO. They came in. We never called them in. They came
in. Each one made a visit.
Mr. Blum. What occasioned that visit?
Mr. CoRSELLO. Because we were showing up at their property
and we were more or less ])utting a fly in the ointment, in other words.
Mr. Blum. Did you tell them to stop ])ayment?
Mr. Corsello. We did not tell them to stop payment. When you
tell a person in an FHA pro])erty that foreclosure is about to begin,
and that they will be evicted shortl}^, it does not take much for them
to leave or stop paying the rent.
Mr. Blum. And when the rent pa^anents stop, I guess the people
who had been collecting it came in to see why the source of money was
turned off.
Mr. Corsello. They were very offended.
Mr. Blum. Offended by the fact that 3'ou had suggested the money
stop coming?
Mr. Corsello. Yes.
Mr. Blum. Well, what did they tell you, what was the reason for
having collected the rents?
Mr. Corsello. They did not elaborate as to why. They said that
they had become the owners, and I realh'^ did not want to have any-
thing to do with them, to tell you the truth.
Mr. Blum. Did the names of Mr. Cory or Mr. Roth come u]) in
those conversations?
Mr. Corsello. They were mentioned at various times. But as far
as the degree tliat they were involved, I could not tell you.
Mr. Blum. Was any suggestion that the way this worked is, the
mortgage companies themselves, or officers of the mortgage com])anies,
779
that would be Mr. Cory or Mr. Roth, may have suooosted to them
tliat they were to become hiiidlortls and property managers on a
fairly wide scale?
Mr. CoRSELLO. I had heard that, yes.
Mr. Blum. To shift back to those letters saying that repairs had
been done, do 3^011 recall if any of those letters were dated, or whether
they were undated?
Mr. CoRSELLO. I believe most of them were dated. I believe they
were all dated.
Mr. Blum. All dated.
Have 3^ou encountered what is called the phantom mortgage
problem in that portfolio; that is a i)roperty for which there never
was a real mortgagor?
Mr. CoRSELLO. I w^ould assume that we had hundreds of them
probably in the United portfolio.
Mr. Blum. You would have no way of tracking that kind of guy
down?
Mr. Corsello. What we do, we go to the servicing file. Again, the
servicing file is opened and we look for a credit report and look for an
address, a prior address, which is shown on the mortgage bond, and
we track that down and visit every address.
We also call the mortgagors at their jobs. We ask them, ask on the
job, if the}^ have ever been there. Not every. place is acually as co-
oi)erative as the other, but we will ask, "Is this part}^ now in your
employ," and if they say no, we will ask, "Was he ever in your em-
plo}'^?" In some cases, they will not answer. But in other cases, we have
actualh' heard that he was not.
Mr. Blum. So any fact a^ou were discovering on those mortgages
you asked to service the verification of emplo} ment was simply invalid,
was ]:)honey?
Mr. Corsello. It would seem that way.
Mr. Blum. And the peo])le simply did not live u]) to what the
PHA form said they would. They had not worked in those })laces.
Mr. Corsello. Again, you are speaking to someone over the phone,
and you are not really pushing it any further. In other words, you are
not writing a letter to the president of the company to be 100 per-
cent sure.
Mr. Blum. That takes a tremendous amount of work, does it not,
to try to track that down? Each one of those forms has to be investi-
gated separately and try to develop what might be considered evidence,
and that requires an enormous amount of work.
Mr. Corsello. Right.
Mr. BlUxM. What have a^ou been getting in the way of a response
now that you have taken over the portfolio?
What have 3'ou been able to do to get these people back in line on
their payments?
Mr. Corsello. Well, they have to speak to us. Our attitude is the}-
are going to speak to us, and we are going to speak to them, and show
them that we are simj^ly interested in them making pa3Tiients as was
their original contractual agreement. We leave messages for them. We
go there.
We leave our own ]:)ersonal cards if it is necessary. It is not necessary
in all cases. We call the customer. We work nights to tr}- to get the
people at home.
780
Actually, we are just doing diligent collection work, work that
should have been done all along. I did it at Springfield and we were
successful there, and the United portfolio has responded even better
that I thought it would at this point.
Mr. Beason. We have had a complete turn around of many mort-
gagors coming in and complaining, now coming in and working with
us, and being able to work together and save their homes.
Mr. Blum. Did you find when you started to change things that
people did not trust financial institutions much and you had to
build up an atmosphere of trust?
Mr. Beason. This is true.
Mr. Blum. Wliat were some of the things that mortgagors said to
you about the people they dealt mth in the past?
Mr. CoRSELLO. We would ask, "Why are you coming to us with
these problems that were evident or in evidence 6 months or a year
ago?" They would say, "We would go to the oflSce of United, and we
would speak to someone and then never hear from them. We would
call them, and finall}^, we just gave up.
This story was given to us endless numbers of times. We have four
people who do nothing but interview cHents diu"ing the day.
Mr. Blum. And they were somewhat surprised to learn that jou
were ^villing to listen?
Mr. CoRSELLO. Well, at first they did not beheve we wanted to
listen, and we had to take quite a bit of verbal abuse in order to get
get people to just calm dowm.
Sometimes it would take as much as 20 minutes to a half hour to
get somebody calm enough to finally tell you what the problem was,
or where it stemmed from.
Mr. Blum. Were you able to identify any brokers who originated
those deals for United where 3^ou have a lot of trouble?
Are there any brokers' names that stood out, particularly in the
files?
Mr. CoRSELLO. We never researched the brokers. That was one
thing we never did with United files. We did it at Springfield. We did
not have time to do it wdth United files.
Mr. Blum. When you were at Springfield, did you notice there
were particular sources of brokers who were a great deal of trouble?
Air. Corsello. There were, and when it was called to the attention
of Springfield Equities, these brokers were no longer around at all.
Air. Blum. Did you run into similar kinds of problems, perhaps on
a smaller scale, in the Springfield portfolio?
Mr. Corsello. Well, we never ran into any of the complaints or
the hostility. In other words, the procedures currently in effect in our
office would have been possibly shined up or polished up quite a bit,
but they are basically the same that we used at Springfield.
In other words, a field trip is necessary to reall}^ clear your con-
science if you are going to foreclose a mortgage or take any serious
action against the mortgage, and this is exactly what we did at
Springfield and what we are doing now.
Air. Blum. Wliat do you do when you are about to foreclose a mort-
gage to protect the people living in the building against pacing
mone}'' to somebody who should not get it?
Air. Corsello. We cannot do a thing. All we can do is tell them
they are in a house under foreclosure and they will be evicted shorth\
781
We have no right and were told in one instance by FHA in Wash-
ington, that an individual had complained to FHA in Washington
to stop the rent payment.
Mr. Blum. What about trying to protect them from people who
turn up in the field and say, "I am the guy from Charter Servicing,
and I am here to collect your monthly payment."
Mr. CoRSELLO. It was tried and failed. Again, our initial visits,
people are told under no circumstances, no way, should they ever
pay any money to any representative.
Mr. Blum. But people did attempt to come around to the houses
you were servicing mortgages on, and say, "Pay us the mortgage
payment," do not send it to Charter.
Air. Beason. It was at the beginning of servicing.
Mr. Blum. At the time you took over the portfolio, this happened?
Mr. Beasox. I would say April, May, and June, somewhere around
that period.
Mr. Blum. Did you warn people to call your office before making
the payment and that practice stopped?
Mr. Beason. Yes.
Mr. Blum. You think whoever was doing it got wise to the fact
that your tenants knew better, or mortgagors knew better?
Mr. Beason. Our mortgagors were advised of this, so I assumed
they stopped.
This is a practice of the Charter Co. It is also a procedure of Fannie
Mae, no collections in the field.
Mr. Bluinl Do you have any idea who was trying to make those
collections? Were you ever able to determine it?
Mr. Beason. No.
Mr. Blum. We had some discussion of that â– \^^th Mr. Roiter of
United Avho claimed that sometimes people would get to his people
ahead of him and make the collection and leave a scribbled receipt,
and he simply avoided the problem by not permitting any field
personnel to collect any money.
Mr. CoRSELLo. We were offered money all the time, and they were
told the procedures of mailing the payments at the bank or come to
the office.
Mr. Blum. Mr. Beason, if you had to do it all over again, would
you go into that New York market?
Mr. Beason. Not ^vith the same knowledge I have now. We are
committed in New York, so we probably vdW stay.
Mr, Blum. You are there so you ^vill stay, but if you had to do it
over again, you probably would not jump in the way you did?
Mr. Beason. That is true.
Mr. Blum. An article in the New York Post that suggested that
Charter got a good deal of the United mortgages from Fannie Alae
because the business with the California activities associated with
President Nixon.
Do you have any comment on that, Mr. Beason?
Mr. Beason. Another quote in the Post by our general counsel,
Lloyd Smith, said it is purely coincidental.
It is completely untrue.
Mr. Blum. I gather from what you say you do not think that you
got a good deal.
Mr. Beason. I don't think so.
782
Mr. Blum. On balance, do you think you have come out ahead
financially or behind financially with this transaction?
Mr. Beason. Behind financially. It will take another year to really
know.
Mr. Blum. Mr. O'Leary, any questions?
Mr. O'Leary. I have no questions.
Senator Hart. Mr. Chumbris?
Mr. Chumbris. Thank you, Mr. Chairman.
My first question was going to be Mr. Blum's last one, so I will
scratch that.
In other words, you do not feel thus far you have done well on your
acquisition of United? Is that correct?
Mr. Beason. From the profit return, no.
Mr. Chumbris. You anticipate it will improve as you go along?
Mr. Beason. Yes, sir; 1 do.
Mr. Chumbris. Could you tell us what you plan to do that you
hope will bring that about?
Mr. Beason. This past year has been spent cleaning up the port-
folio, bringing the portfolio into a position that is profitable for serv-
icing, however we still have an outstanding number of foreclosures
and we will have for another 6 to .8 months. Hopefully, this year,
because of our procedures, and due to the lessened delinquency;
today we are at 10.5 percent.
We are, frankly, shooting from somewhere between 6 percent and
7 percent and this we can live with.
Another thing that helps us in New York is that our entire serv-
icing portfolio is not in New York. It is strictly a collection matter,
and because of numbers we have less cost per loan.
Mr. Chumbris. How about the Springfield acquisition financially?
How does that rate?
Mr. Beason. That would be a profitable one now.
Mr. Chumbris. Profitable?
Mr. Beason. Right. This was included in the total Fannie Mae
servicing in New York, so we have listed it all in one so here we have
not made a determination of exactly what portion is Springfield.
Mr. Chumbris. Now, perhaps you have answered this question,
actually, but are you in the mortgage market also in the New York
area?
Mr. Beason. Yes, sir, we purchased from Springfield last year
approximately $22 million. We are in the market today. It is a good
loan.
Mr. Chumbris. Now, getting back to the basic question that has
been asked throughout these hearings, and that is relating to the
testimony that was given by the previous witness — were you in the
audience?
Mr. Beason. Yes.
Mr. Chumbris. And, he was pointing out some of the difficulties
that he was having with FHA in getting some of the loans, and we
were discussing the percentage of foreclosures and arrears.
Now, when Franklin Thomas, president of the Bcdford-Stuyvesant
Kestoration Corp., testified, he gave an illustration which may be the
€rux of why we have so many foreclosures, and so much arrears in that
particuhir area.
783
He gives this example, and I will read from his testimony, and I
quote:
The following example is illustrated. A family desired to purchase an $18,000
home and would he required to pay $2000 as cash down payment. They would
then have to fiuauce the balance with two mortgages totalling $18,000 in face
value (But this managed to get them only $16,000) the first a $12,000 loan in 12
years and the second a $(5000 loan payable in five years.
Assuming an interest rate of six percent per annum on each of the two loans,
and recently it has been higher than six percent, the family would have to j)ay
$249 per month ior principal and interest alone.
In contrast, if you used the other route, a $16,000 loan for 2.") years available
in other communities, it would have to cost the homeowner $10o a month. Then
on top of that you have to pay taxes, heating, et cetera, but that would apply
whichever plan j^ou use.
Now, a person who is in a low-income category, and I don't even
know today what we refer to when we talk about "low-income cate-
gory," is it a man who makes $5,000 a year, or $7,500 a year? Anyway
$249 a month times 12 comes to over $2,500, and some dollars, and so
if he is only making $5,000, his payments on the home alone, not
counting real estate taxes and upkeep and food and taking care of his
family — 50 percent of his money is going to the payment of the loan,
whereas, if he has this other plan, which would have been what
Franklin Thomas would like to offer him, he would only be paying
$103 a month, which is quite a difference over $2,500 a year.
Mr. Beason. The $103 would only be the principal and interest.
Mr. Chumbris. I did not hear you.
Mr. Beason. The $103 would be only for principal and interest.
Payment shotdd also include the taxes.
Mr. Chumbris. Yes, both plans have to pay taxes.
Mr. Beason. We can be approaching a payment of $150.
Mr. Chumbris. In other words, you would have to pay from $103
to $249, a difference between the two he would be saving and so a low-
income family really has a problem under the system that has been
brought forth to this subcommittee over and over again — -bearing in
mind also that the house he has purchased may be 50 percent or 100
percent higher than what it is really worth, from what the testimony
we have received thus far indicates.
That might be a major reason why we are having these percentages
that I read from Mr. Duncan's statement — an}^ where from 15 percent
down to the lowest one, I think, was what? Six point some percent,
something, compared to what the previous witness stated for his tj'^pe
of loan that he has in the New York area.
I do not know how we are going to resolve the problem. You have
the testimony coming in from the brokers and the mortgagees who say
that these people want this home right away, they want the loan right
away, they cannot wait the 3 months. And whether FHA should take
steps to see why the}^ cannot give the loan to Bedford-Stuyvesant as
fast as they give it to the tj^pe of loans that are coining before this sub-
committee, I believe it would surely save these people, these low-
income people a lot of money. And let them pay $103 a month instead
of $249 a month.
Now, of course, if he pays the $249 a month, someone will say, "Well,
he will be able to pay off his loan faster."
In other words, he will pay off one loan in 10 years, and the other
loan will be paid off in 5; whereas, the $103 a month payment is going
to take him 25 years to pay off that loan.
784
If he cannot meet the $249 payment 2 years later, he has nothing,
and he has lost everything he has put into it.
Mr. Beason. The man still has a family to take care of.
Mr. Chumbris. I did not hear that. Would you mind talking into the
mike?
Mr. Beason. The man still has a family to take care of and support,
and this will come first.
I do not know what the answer is. I think probably better under-
writing regulations would help. I do not think that is the entire answer.
Various things have to be done — possibly some committees of dif-
ferent organizations set up to study these things.
The industry does have an organization called Mortgage Bankers of
America. This could be part of it. The savings banks have organiza-
tions in conjunction with the private organizations, with the FHA, the
VA, and Fannie Mae.
Mr. Chumbris. Now, the type of mortgages that you have in your
portfolio in the New York area, how did they arrange along the Unes
that we have seen? Are they the Bedford-Stuyvesant type, or are they
of the broker type?
Mr. Beason. We would have approximately 70 percent located in
the Bedford-Stuyvesant area.
Mr. Chumbris. Seventy percent of your loans in the Bedford-
Stuyvesant area?
Mr. Beason. In the New York area.
Mr. Chumbris. I mean of the Bedford-Stuyvesant type.
Mr. Beason. The low-income families; yes.
Mr. Blum. I think what Mr. Chumbris is referring to is refinance
as opposed to purchase. What percentage of your portfolio is re-
finance?
Mr. Beason. It would be a small percentage refinanced. It would
be a purchase type, what we call a spot-purchase type of loan.
Mr. Chumbris. I have no further questions, Mr. Chairman.
Thank you.
Senator Hart. Mr. Corsello, did you say that when you got into
the United portfolio, you went to collect and in hundreds of instances
you could not find the mortgagor, the fellow named on the paper?
Air. Corsello. True. I mean, they said the people who were their
tenants or whatever said they never heard of the person we were
looking for.
Senator Hart. Is it fair for us to conclude that when you pur-
chased United's servicings portfolio that you actually were bviying
the servicing on a great number of mortgages that had been procured
through fraud?
Mr. Corsello. It is true; naturally, this was not kno\^Ti.
Senator Hart. Yes, I did not mean to imply in my question any
criticism of your purchase procedure, but just what you got.
Mr. Corsello. Right.
Mr. Beason. We received something entirely different than what
we bargained for.
Senator Hart. You, in response to Mr. Chumbris, described or
suggested a series of committees jointly reviewing the problem.
Do you need any more than just commonsense and supervision?
Mr. Beason. No, sir. That is the criterion we have employed in
the last year, simple, basic procedures.
785
Mr. Chumbris. Mr. Chairman, may I ask ono question?
Senator Hart. Yes.
Mr. Chumbris. You told us the financial reward of the two servicing
contracts. How about the mortgages you bought into, how arc they
coming along financially?
Mr. Beasox. Entirely different. When you talk about the mortgage,
I assume the additional purchases from Springfield in the last year.
Mr. Chumbris. Yes, the ones you referred to in the third part of
the question I asked you. In other words, you said you were actually
in the mortgage market itself, besides servicing.
Mr. Beason. Yes; the entire area of our operations.
Mr. Chumbris. But I am referring now as to how are the mortgages
that you purchased in the New York area — are they financially re-
warding, sufficiently?
Mr. Beason. Yes; because we restrict the area that we are buying
under. We are strictly out in Long Island, Suffolk, and Nassau Coun-
ties, not in the areas where the existing loans are.
Mr. Chumbris. Thank you very much.
Senator Hart. Gentlemen, we thank you very much.
The committee will recess to resume at 2:15.
(Whereupon, at 12:35 p.m., the subcommittee recessed to resume
at 2:15 p.m., of the same day.)
afternoon session
STATEMENT OF SAMUEL GODDARD, BROOKLYN, N.Y.
Senator Hart. The committee will be in order. Our next Mitness is
Mr. Samuel Goddard. The record should reflect that Mr. Goddard is
appearing here today pursuant to a subpena.
(Mr. Goddard is sworn in by the chairman.)
Senator Hart. Mr. Goddard, since you are appearing here Anthout,
a lawj'Cr, it is only proper that 3^ou be advised of your rights.
You have the right to refuse to answer any questions that are made
that you may feel tend to incriminate you. Anything that 3^ou do say
can be used against you in any otlier i)roceeding.
You have the riglit to talk to a lawyer for advice before we can ask
you any questions, and can have him with you during questioning.
If you desire to answer questions now without a lawyer present, you
M-ill still have the right to stop answering at any time that you suggest
there may be a tendenc}^ to incriminate 3"ou.
I think that the record should also reflect that should you desire to
refuse to answer, or should you assert your rights, this subcommittee
Anil draw no adverse inference from that course of conduct, and I
might add, neither should anyone else.
Do you understand my explanation of your rights?
Mr. Goddard. I do. Senator, Your Honor.
Senator Hart. Mr. Goddard, would you state for the record your
name in full?
Mr. Goddard. Mv name in full is Samuel Frank Goddard. I hve
at 2719 Church Avenue, Brooklyn, N.Y.
Senator Hart. Wliere is your principal place of business?
Mr. Goddard. 2719 Church Avenue, BrookhTi, N.Y.
Senator Hart. What is your business?
786
Mr. GoDDARD. Real estate.
Senator Hart. Are you a licensed real estate broker?
Mr. GoDDARD. I am not, sir.
Senator Hart. Do you own interest in any real property in New
York?
Mr. GoDDARD. Senator, I would respectfully decline to answer that
question on the grounds that it may incriminate me.
Senator Hart. Mr. Goddard, is it your intention to invoke your
jBfth amendment privilege to any questions, and to all questions re-
lating to your involvement in the collection, or the business of collect-
ing rents or engaging in real estate activities in New York City?
Mr. Goddard. Currently, Senator, I do intend to decline to answer
any questions and to invoke my rights because I am not wdth counsel.
I would be happy to come back at any time you would wish me to
testify. I am mlling, ready, and able to testify, but I am afraid I
cannot testify at the present time because it might put my freedom
in jeopardy.
Senator Hart. The committee understands your answer, and we
respect it. You are excused.
Mr. Goddard. Thank 3'^ou.
Senator Hart. That completes the testimony for today. We Mill
adjourn to resume in room 457 of the Old Senate Office Building,
tomorrow^ morning at 9:30.
(Wliereupon, the hearing was adjourned for the day at 2:40 p.m.,
to reconvene at 9:30 a.m. on May 17, 1972.)
HOUSING HEARINGS
WEDNESDAY, MAY 17, 1972
U.S. Senate,
Subcommittee on Antitrust and Monopoly
OF THE Committee on the Judiciary,
Washington^ B.C.
The Svibcommittee on Antitrust and Monopoly convened in room
457, Old Senate Office Building, at 9:30 a.m., the Honorable Philip
A. Hart presiding.
Staff present : Howard O'Leary, Esq., chief majority counsel ; Jack
Blum, Esq., majority counsel ; Peter N. Chumbris, Esq., chief minority
counsel ; and Charles Kern, Esq., minority counsel.
Senator Hart. The committee will be in order. Today, our first
witness is Mr. David Gomberg. The record .should reflect that Mr.
Gomberg is appearing pursuant to a subpena.
Mr. Gomberg ?
(No response.)
Senator Hart. Apparently Mr. Gomberg has not arrived yet.
Our next witness then will be Mr. Morris Wendell. Mr. Wendell also
is appearing under subpena.
Mr. Wendell, if you will let me administer the oath.
(The witness was duly sworn by the chairman.)
STATEMENT OF MORRIS WENDELL, SAN MATEO, CALIF.
Senator Hart. Mr. Wendell, since you are appearing here without a
lawyer, I think it is obligatory to advise you of your rights.
You do have the right to refuse to answer any questions you think
may tend to incriminate you, and anything you say can be used against
you in any other proceeding.
You have a right to talk to a lawyer seeking advice, before we can
ask you any questions, or have with you a lawyer during questioning.
If you desire to answer questions now without a lawj^er present,
you will still have the right to stop answering the questions at any
time.
Also, you have the right to stop answering at any time until you
talk to a lawyer.
I think the record should show also that if you desire to refuse to
answer and assert your constitutional rights, this subcommittee will
draw no adverse inference from that course of conduct, nor should
anyone else.
Mr. Wendell, do you understand your rights ?
Mr. Wendell. Yes ; I do, sir.
(787)
Senator Hart. Are you willing to waive your rights and to answer
questions at this time ?
Mv. Wexdell. I do.
Mr. Blum. Mr. "Wendell, for the record, would you state your full
name ?
Mr. AVexdell,. Morris Wendell, M-o-r-r-i-s, "Wendell.
Mr. Blum. "What is your present address ?
Mr. "Wexdell. 252 West P>6th Avenue, San Mateo, Calif.
Mr. Blum. Until about 1968, were you associated with a corporation
called the Excambio Management Corp. ?
Mr. Wexdell. I was associated with them ; yes.
Mr. Blum. "What were the circumstances under which that associa-
tion ended ?
Mr. "Wexdell. It ended when I was in the hospital. I think it was
1968. 1 was operated on.
I had a prostate operation. I still had the bag. you know, that ac-
comjianies that ty]>e of operation.
Mr. Lazarus visited me at the hospital at that time, and told me that
I had no further comiection with them.
]\Ir. Blum. Are vou a licensed real estate broker?
]Mr. Wexdell. Xo. sir.
]Mr. Blum. You were in the real estate business during the time you
were associated with Excambio and the period before that, from about
1962 to 1 968 ? Would that be right ?
Mr. Wexdell. That is right.
Mr. Blum. What did you do before you went into the real estate
business in 1962?
Mr. Wexdell. Well, let's see. I was in the medical laboratories field.
Mr. Blum. Was that a n:iail-order medical laboratory business?
]\Ir. Wexdell. That is right,
]Mr. Blum. Can you tell us whether you were the principal owner of
a corporation called the Wenhaven Realty Corp. ?
^Mr. Wexdeli,. Yes.
]Mr. Blu3I. Were there other stockholders in it as well ?
INlr. Wexdell. No, sir.
Mr. Blum. Wlien was Wenhaven set up? Do you recall? Was that
about 1964?
M)'. Wexdell. Around that ])eriod.
Mr. Blum. Did you take a salary from Wenhaven ?
Mr. Wexdell. 'f hat is right, sir.
M]-. Blum. Hov.- much was that? Do you remember? Was it about
$12,000 a year?
]Mi-. Wexdell. That's approximately right.
Mr. Blum. Can you tell us what the nature of Wenhaven's luisiness
was ?
Mr. Wexdell. To buv and sell real estate.
:\fr. I^LUM. What was W. & G. Real Estate Co.? Was that another
company of yours ?
Mr. Wexdell. That was the one that was formed prior to Wenhaven.
Mr. Blum. I see. That was the predecessor of Wenhaven ?
]S[r. Wexdell. That's right.
Mr. Blum. Was that incorpoi-ated ?
]Mr. Wexdell. Yes ; I think it was incoi-poi-ated. Yes, sir.
789
Mr. Bli'M. Now yon ssiy that these corporations wore in the business
of l>uyin^ and selling property. How did you find houses to buy i
Mr. Wkxdkll. We went out and looked for them. 1 had astatl' of
jDeojdo, I had four or five men working for me.
Mr. Blum. What did they do? Did they knock on doors? Send out
fliei-s?
Mr. Wendell. They knocked on dooi-s, to begin witli, and oiiginally,
wlien we started, we used to go down to drugstores and solicit sales
from i)eople who would come into buy drugs.
Mr, Blum. Why did yon go to drugstores? What made those attiac-
tive places ?
Mr. Wexdell. Well, I nsed to sell to drugstoi'(\s when I was in the
hosiery business, and 1 had a wide acquaintance among drugstores. I
picked on the drugstores because I thouaht thev had jn-etty "ood
ti-affic. ^ *
Mr. Blu^f. They would tell people that your services were available
and that you were available to buy houses (
Mr. Wexdell. Well, they wouldn't tell them, sir. We would tell tliem.
We would liave signs up in the store, and our man would tell them.
Mr. F>Li-:\i. What would they say ? Would they ask if you were inter-
ested in selling? Would they say things about what was happening in
the neighborhood?
^Ir. Wexdell. Xo. They didn't know the neigliborhood because this
was far away. This was probably 10, 1:^, 15 miles from the area that we
sold liouses in.
We took them to the outskirts and sold them a house.
Mr. Blum. Let me go back down this. You had people. You had your
men buying the houses. Yon had your men going from door to door?
]Mr. Wexdell. Yes, sir.
Mr. Blum. The drugstore that you described was to find people who
were willing to buy houses from Wenhaven ? Is that correct?
Mr. Wex'dell. That's correct.
Mr. Blum. So you would have to go out on one end of this, banging
on the door, saying, '"Would you like to sell your house ?" Then, on the
other end, yon would have your salesmen spotting these drugstores say,
about 10 or 15 miles away.
I take it there would be drugstores in areas such as Harlem, and
other places, and tliey would say, "Are you interested in buying a
hoine." and you would sell the homes.
Is that right?
Mr. Wexdell. That is f|uite right.
Mr. l^LUM. Did you ever use an operation called the Peerless Listing-
Service to advertise the houses or to send out fliers ?
^Ir. AVexdell. I don't remember. I don't remember using that.
]Mr. Blu^i. Did you ever cii-culate fliers oifering a commission oi- a
finder's fee to people who found a house?
]Mr. Wexdelf.. I am not sure. I don't think I ever did that.
Mr. Blum. Mr. Chairman, I ask that the records of tlie Wenhaven
Corp. and the Wenrus Corp. and the Excambio ^Management Coi-jl
be made a part of the hearing record and retained in the subcom-
mittee files.
I also ask that where appropriate, upon consultation with minority
stafi", that such documents be determined to be printed in tlie record.
Senator Hart. They will be received.
790
Mr. Blum. One of the dociimeiifs that we have received is a hand-
written notebook showing entries of fe:ales of particular houses.
I have that notebook here. Do yon recognize this notebook?
Mr. Wendell. Yes, I do. ^
Mr. Blum, ^^^lat was it?
Mr. Wendell. It was a cash book.
Mr. Blum. "What did it show, the houses that you purchased and
sold, or the moneys you received ?
Mr. Wendell. The moneys we received plus the address of the
house.
Mr. Blum. Once Wenhaven or W. & G. found a piece of property
through the people who were working for you banging on the doors,
how did you finance the purchase? Where did you get the money to
buy the house ?
Mr. Wendell. Well, at the beginning it did not take very much
money because all we did is give somebody a deposit.
Mr. Blum. You would give them cash on a contract ?
Mr. Wendell. On a contract. Yes, that's right. At the contract. But
that would not be very much.
Mr. Blum. $500? $250?
Mr. Wendell. It would never be over $500. That was the maximum.
But it would, or could be as little as $50 or $100.
Mr. Blum. Later on, did you require additional financing? Did
you ever have to borrow a good bit of money ?
Mr. Wendelt>. Oh, yes. Later on we did.
Mr. Blum. Was your borrowing in the nature of a loan to get work-
ing capital?
Mr. Wendell. Yes, sir.
Mr. Blum. Who did you liorrow the money from? Do you
remember ?
Mi-. Wendell. Yes. It was through the Jet — something or other.
Mr. Blum. Jet Warehouse Corp. ?
Mr. Wendell. Yes, sir.
Mr. Blum. That was a subsidiary of the Eastern Service Corp. Is
that right?
Mr. Wendell. Yes. That is correct.
Mr. Blum. And the man you went to to make those loans was Harry
Bernstein of Eastern Service?
]Mr. Wendell. That's right.
Mr. Blum. A^Hiat was the interest rate on those loans ?
Mr. Wendell. I am not quite sure, but I think it was 2 percent a
month.
Mr. Blum. Do you recall roughly how much you borrowed from Jet
at different points?
]Mr. Wendell. I think it was in the area of around $30 — ^$25,000 to
$30,000. That was the maximum I ever borrowed.
Mr. Blum. Were those borrowings in the nature of demand notes ?
Mr. Wendell. Yes, they were.
Mr. Blum. Was there an understanding at the time that you bor-
rowed the money that you would bring all your mortgage business into
Eastern Service?
Mr. Wendell. I would say it was an unwritten understanding, but
no more than that. I kept my bargain.
791
Mr. Blum. Was there any conversation with Mr. Bernstein to the
effect that he expected you to bring the mortgage business into
Eastern ?
Mr. Wendell. Well, I can't remember that. I don't remember that.
I don't think so.
Mr. BLUivr. But vou understood that you "were to bring that business
in ?
Mr. Wendell. I was well aware of that.
Mr. Blum. Do you think that if you had gone elsewhere with your
mortgage business, he would have immediately asked payment on the
demand notes?
Mr. Wendell. Well. I am not in a position to tell what he would
have done. But if I had to take a guess at it, I would have to say yes.
Mr. Blum. I imagine that kept you from going to other mortgage
companies.
Mr. Wendell. No question about it.
Mr. Blum. The findings of records that we have received show that
W. & G. borrowed money from a number of individuals and institu-
tions in addition to Jet and Eastern vService Corp.
It showed loans of $8,500 from Chase INIanhattan Bank, and a loan
of $11,980 from Suburban.
Does Suburban mean anything to you? Can you identify it?
Mr. Wendell. Yes, it does.
Mr. Bltoi. What was that ?
Mr. Wendell. That was a mortgage company very similar to East-
ern. It was run by a person by the name of Bert Flax that we did
business with prior to doing business with Eastern.
Mr. Blum. I see. So this pattern of lending money by operatoi-s of
mortgage companies to provide working capital to real estate opera-
tions was not unique to Eastern.
Mr. Wendell. That is right.
Mr. Blum. Other companies did it ?
]\Ir. Wendell. Yes ; I am sure of that.
Mr. Blum. Were the interest rates that you paid Suburban similar
to the ones you paid Eastern ?
Mr. Wendell. Yes, sir.
Mr. Blum. Why did Eastern and these different mortgage compa-
nies provide financing to real estate operators ?
Mr. Wendell. Well, I imagine it was profitable.
Mr. Blum. Generally good business for them ?
Mr. Wendell. That's right.
Mr. Blum. Can you tell us who Mr. Kurt Bloom was?
Mr. Wendell. Kurt Bloom was the person I had working for me at
one time.
Mr. Blum. T^^lat was his job in connection with your operation?
^^Tiatdidhedo?
Mr. Wendell. He was a salesman.
Mr. Blum. A salesman? In 1964, the records show that W. & G.
Realty paid INIr. Lester Lazarus $8,170 in legal fees. Was Mr. Lazarus
your attorney for W. & G., and later on, Wenhaven and Excambio?
Mr. Wendell. Let's see. "WTiat year are you talking about ?
Mr. Blum. 1964.
792
]Mr. Wendell. Well, there is no question Mr. Lazarus was my attor-
ney, but I am not sure whether that was a legal fee or not. That is my
only problem.
Mr. Blum. Well, it is down on the books as legal fees. Does that
seem an appropriate
Mr. Wendell. Well, it would be because at that time I had a law-
suit. I don't know if that was the period, so it could very well be. I am
not sure about that.
Mr. Blum. At the time you began in this business, the spreads be-
tween the prices you paid for the house and the prices you sold the
house for were not very large ; were they ?
Mr. Wendell. The spreads ?
Mr. Blum. Yes. You were not making very much on each house;
were you ?
]Mr. Wendell. Well, I don't know what you consider very much.
Mr. Blum. What was it ?
Mr. Wendell. I would sav it would run anywhere from $3,500 to
$6,000.
yiv. BLu:\r. A liouse ?
Mr. Wendell. Per house : yes, sir.
]Mr. Blum. Was it possible that this would go as high as $10,000
or more ?
]Mr. Wendell. It is possible but that would have been unusual.
]\f r. Blu^f. That would have been unusual ?
Mr. Wendell. Yes. sir.
Mr. Ctiumrris. Is this before or after repairs, if any, to the building ?
yiv. Wendell. Well, I forget what the question was.
]Mr. Chumbrts. You said you had a spread between $3,500 and $fi.OO0.
It could go to $10,000. Is that with or without repairs to the building
aftei' you purchased it ?
Mr. Wendell. Well, you would huxe to make the repairs before you
could get the commitment.
Mr. CTiu:'.rnT^Ts. You have answered the question.
Mr. Blx^m. Mr. Wendell, when you bouglit these houses they would
then be sold subject to FHA mortgages, or were thev sometimes sold
subject to conventional moitgages ? Do you remember ?
Mr. Wendell. I foiget. What did you say ?
Ml'. BLU>r. Were the houses sold subject to FHA, federally insured
mortgages, or were the mortgages conventional ?
Mr. Wendell. Yes.
Ml-. Blum. FHA mortgages ?
Mr. Wendell. Yes, FHA.
Mr. Blum. Wlien did you first begin witli the idea of l)uying liouses
and selling them to investors and renting them to welfare tenants?
When did tliat start?
Mr. Wendell. Well, I think it started in 1966 or 1967. I am not quite
sure.
Mr. Blum. Possibly 1965?
]\f r. Wendell. It is possible. Yes ; it is.
Mr. Blum, Can you tell us how that worked? Can you exjilain it
for us ?
Mr. Wendell. Yes. l^ut first, what I would like to do is explain to
the court that my memory isn't too good.
71)3
^\v. T^i,TM. Yes; we uiuleistaiul that.
Mr. "WEXDErx, Did you explain to tlie court ? OK.
Mi-. Bli'm. Perlia[)S you would like to explain for the I'eoord. so that
we all here have an understandin<r. As I understand it, you ha\e had
some serious cii'culatoiy i)i'ol)lems.
Mr. "Wendell. That is right. The lel't side of my head couldn't he
repaired at all.
Mr. l)iA'M. You have suffered serious hrain damage as a lesult of
that^
]\[r. Wexdell. Yes. The I'ight side is — they were able to opeiate. so
it compensates.
^Fr. IiLr:\r. And you have had jii'oblems with your memory, and
lai)ses, and it has been difficult ?
Mr. "\Vendell. Some things I can remember as clearly as a bell. And
yet if you gave me a series of numbers — let's say a telephone number—
you gave me fi^•e numbers, I would be lucky to repeat one of them — if
you gave it to me fast, I couldn't remembei-.
Mr. Blum. With that understanding then, T think we can continue.
Can you tell us how that system of buying and selling houses
worked ? "\Yliat was the basic idea that you came up with ?
]Mr. Wexdell. Well, the basic idea was to make profit. Basically,
there was enough of a spread betw^een the rent and the upkee]). you
know, originall}'. I wasn't doing, you know, too many of them. There
was enough of a spread to keep the thing in fairly good repair, and to
make a profit — show a profit.
I did that with a few of them on my own, and I was shovring a
profit. I maybe had six, seven, eight, 10, or 12 of my own.
Then, when I got to know Mr. Lazarus, you know, he became ac-
quainted with my operation, and he told me that he would be able to
help me in some way, you know, with the whole operation.
]Mr. Blfm. Well, let me see if I can trace through with you how this
worked. You would buy the house in the name of what, Wenhaven ?
yh'. Wendell. Whichever corporation — whether it was W. & G. or
Weidiaven. One or the other.
]Mr. Blum. And then j^ou would take that house and you would ^oll
it to an investor ?
:Mr. Wendell. That's right.
Mr. Blum. And there was no real proldem about finding an investor
with good credit because typically the people who got into this were
fairly well to do?
:Mr. Wendell. That's right.
]Mr. Blum. And had excellent credit ?
Mr. Wendell. That is right.
]\rr. Blum. Then they would go to the closing with you ?
]Mr. Wendell. That's right.
Mr. Blum. They would not have an^i-hing else to do with th.e
pro])erty ?
]\rr. Wendell. Xo, sir.
Mr. Blum. They would put up the down payment and buv the house
for — let's sav if von bought it for $10,000, they might buv it f I'om vou
for $16,000. Would that be about right ?
]\rr. Wendell. Bought it for how much ?
:\rr. Blum. Well, if you purchased the house for $10.000
83-703— 73— pt. 2b-
794
Mr. Wendell. Yes, sir.
Mr. Blum. You might sell it to an investor for $16,000 ?
Mr. Wendell. Yes.
Mr. Blum. You would have made a profit on that sale ?
Mr. Wendell. Yes ; but that is not a clear profit.
Mr. Blum. That would have been the spread, but you had certain
expenses ?
Mr. Wendell. That is right.
Mr. Chumbris. Maybe you would like to point out in the record at
this point, what would your profit be ?
Mr. Wendell. Well, I would have to pay the points, you know, at
the closing, and whatever expenses were involved. But the closing, of
course, is the biggest expense.
But operating my office and paying the salesmen^ — the salesmen got
a commission, you know — ^and whatever is natural in the operation of
the business would have to come out of that.
Mr. Chumbris. What would the average be? What would your av-
erage profit on each one of those transactions be ?
Mr. Wendell. Well, in my instance, eventually it didn't show any.
Mr. Blum. Are you trying to say that your exjienses got so high they
exceeded the income ?
Mr. Wendell. That's right.
Mr. Blum. Well, let me go back. You would then manage the prop-
erties for the investor ?
Mr. Wendell. That's right.
Mr. Blum. That was what the Excambio Management Corp. did ?
Mr. Wendell. That is right.
Mr. Blum. They would collect the rents from the welfare tenants
and then make payments to the various investors at the end of each
month, after the expenses of running the property had been dealt
with?
Mr. Wendell. That is right. Well, they would not collect the rent.
We would collect the rent. Wenhaven would collect the rent.
Mr. Blum. Wenhaven would collect the rent?
Mr. Wendell. Yes, sir.
Mr. Blum. And then pay the money to Excambio ?
Mr. Wendell. Excambio.
Mr. Blum. And Excambio would pay Wenhaven a management fee ?
Is that how it worked ?
Mr. Wendell. You know, I am not sure about that.
Mr. Blum. I must confess that I have studied these records, and I
am not sure of that.
Let me get back to the time when you had the closings. You said you
did most of the closings at Eastern Service Corp. ; is that correct?
Mr. Wendell. That is correct.
Mr. Blum. I take it you pretty well knew that you had to do busi-
ness with Eastern because you owed Eastern money on demand notes,
and with that money — if the demand had been made, you could not
have met the payment on the spot ?
Mr. Wendell. That is right.
Mr. Blum. How did you negotiate with Eastern as to the number of
points you paid on a deal ?
795
Mr, Wendell. Well, to bo<>in with, we would orive him the house. He
would evidently take it to the FHA and study it, or whatever was re-
quired there. I don't know.
But then, in about 2 weeks, 3 weeks, or a month, he would give me
a rin<i;, or I'd see him in person, or one thing or another, and he would
say, "You know that house at 1224 Snediker?" I would say, "Yes."
He would say, "Well, that is going to cost you six points or eight
points," or whatever he was going to tell me.
There was no negotiation.
Mr. Blum. He would just tell vou flat out, "This is how many points
for this?"
Mr. Wendell. That is right.
Mr. Blum. Did the houses that you bought require repairs?
Mr. Wendell. Most of them did ; yes, sir.
Mr. Blum. What kind of repairs did you typically do before you
resold them to investors ?
Mr. Wendell. I would say mostly what we call cosmetic.
Mr. Blum. A paint job, and a quick touch-up ?
Mr. Wendell. Kough. That's right.
Mr. Blum. There was never any question about these cosmetic
repair jobs being approved by FHA, was there ?
Mr. Wendell. Well, there was always a question, but it was always
approved. I would say more often than not.
Mr. Blum. And all of that was done by Mr. Bernstein? In other
words, you would call him and say, "The house on Snediker — and he
Avould go out and look at it, and then he would take care of everything
involving FHA?
Mr, Wendell, Well, I am not too sure whether he did it, or one of
his men did it,
Mr. Blum. Who were some of the other people at Eastern that vou
dealt with ?
Mr. Wendell. You know, I do not remember their names.
Mr. Blum. Mr. Sharkey ?
INIr. Wendell. That's right. That's exactly right.
Mr. Blum. Was there ever a suggestion made to you by Mr. Bern-
stein that the FHA people were sort of in his pocket, and you didn't
have to worry about either the appraisals or repairs ?
]Mr. Wendell. No ; I don't think so.
Mr. Blum. Was that your imderstanding of the situation?
Mr. Wendell. It might have been my understanding, but I do not
think that he ever told me anything like that.
Mr. Blum. The records of Wenhaven indicated that in 1971, you
purchased for resale 51 houses. Does that sound like a fairly typical
year, 51 houses?
Mr. Wendell. That's 1971 ?
Mr. Blusi. 1967.
Mr. Wendell. Oh, 1967 : 51 houses ?
Mr. Blum. Does that sound about right?
Mr. Wendell. No ; that doesn't sound right to me.
Mr. Blum. Too big?
Mr. Wendell. Too many; yes. Let's see; 1967, 51 houses? No: no
such thing happened.
796
Mr. Blum. Well, tlie records indicate tlie purchase of that many
houses in 1967.
Mr. Wenoell. Maj-be you mean apartments. I don't know.
Mr. Blum. The records also show that about $500 a house went into-
renovation and repair. That was the cosmetic work that you are talking-
about ?
Mr. Wendell. Yes; that's right. That's a reasonable figure.
yh\ Blum. $500 is reasonable ?
Mr. Wendell. That's a reasonable figure ; yes.
Mr. Blum. The records also indicate that Wenhaven paid S4o,68T
in legal fees in 1967. Were most of those legal fees paid to Mr^
Lazarus?
Mr. Wendell. That is right.
Mr, Blum. And if there were 51 houses, you seemed to be payings
about double the amount of legal fees that you did in repairs.
Mr. Wendell. It would appear so ; yes.
Mr. Blum. What was the function of the Wenrus Corp. Do you-
remember ?
Mr. Wendell. You know, roughly I don't remember. But if you
could help me any on it.
Mr. Blu^i. Was Wenrus a sort of mortgage money — did they set
that up as a way of funneling money in? Do you remember?
]Mr. Wendell. I don't remember that. I am sorry, but I just don't
remember that at all. The name sounds familiar, and I know I had
some connection.
Mr. Blum. But you cannot remember the details ?
Mr. Wendell. That's right.
Mr. Blum. Do you have the impression that you were one of a large
number of people who engaged in similar business operations in
Brooklyn?
Mr. Wendell. No question about it,
Mr. Blum. Did ]Mr. Bernstein know tliat any — about any details of
the nature of j^our operation ?
Mr. Wendell. He knew in detail.
Mr. Blum. Didn't he really have to know because he was making all
the mortgage loans? He had to know what it was all about?
Mr. Wendell. No question about it.
Mr, Blum. Did he ever express the fear that perhaps because the
welfare tenants were being moved in, the houses would be destroyed,,
and you would not be able to keep making the j^ayments ?
Mr. Wendell. He never said anything.
Mr. Blum. He never said anything like that ?
]Mr, Wendell, No.
Mr. Blum. Did lie seem pleased at the amount of money, or the
number of mortgages that this operation, this business operation,
generated?
Mr. Wendell. Yes ; he did.
Mr. Blum. It was good business for him ?
Mr. Wendell. That is right.
Mr. Blum. Did he ever refer potential investors to you?
Mr. Wendell. No, sir.
Mr. Blum. The Excambio records show that at one point in time
or another, you had what appeared to be almost entire blocks of
houses, or groups of houses right next to each other.
797
For example, we have a whole <^roup of addresses on Atkins. I
believe it is Atkins Avenue.
The houses were at 355, 370, 372, 382, 385, 388, 389, 391, and 393.
I wonder, can you give us some idea of how it was possible for you
to a':-(iuire and then resell an entire group of houses like that ? AVhere
would that have come from I
]\Ir. Wexdell. "Well, to start with, Ave would buy one house, let's
say. at one given address on Atkins Avenue. Then, assuming that the
salesman was on his toes, he would be friendly with the neighbors,
and he would get tips from the neighbors about who wants to sell.
Mr. Blum. So what would happen would be that you would buy
the one house on the block, and you would perhaps get that started
and move the tenants in, and theii other houses on the block would
come up for sale, and if the salesman was on his toes, he would be able
to get those houses as listings, buy them, and you would resell them
and move more tenants in ? Is that right ?
]Mr. Wendell. That is right.
Mr. Blum. Did you personally have any dealings with the Xew
York City Welfare Department ?
Mr. Wendell. Did I, personally?
]Mr. Blum. Yes.
Mr. Wendell. Yes ; I did, from t ime to time.
]Mr. Blum. What were the nature of those? Do you remember?
Wliat did you do ?
Mr. Wendell. Well, we would call them and tell them that we had
an a])artment available, or apartments available, how much the rent
is. wliat the requirements are.
Mr. Blum. And they would furnish the tenants for you?
]\Ir. Wendell. They would furnish the tenants, and then we would
move the tenant in.
Mr. Blum. Did they ever check the apartments before they moved
the tenants in ?
Mr. Wendell. I tliink they would always check the apartments.
Mr. Blum. Would they check to see who the owner of the apartment
was?
Mr. Wendell. I don't think they would check that, but they always
checked the ai)artment itself.
Mr. Blum. They checked the condition ?
]\fr. Wendell. Right.
Mr. Blum. Were you aware that the welfare department was paying
â– commissions and finders fees ?
]\rr. Wendell. Yes ; I am — or I was.
Mr, Blum. Did you, to your recollection, collect any of those?
Mr. AVendell. Xo. Personally, I did not.
Mr. Blum. You did not Did Kurt Bloom ?
Mr. Wendell. Kurt Bloom did, but he did that after he quit working
for me.
!Mr. Blum. I see. AYas there anyone who was connected with your
operation who collected commissions received from the welfare de-
pa 7't men t?
Afr. Wendell, Not when they worked for me.
]Mr, Blum. Xot when they worked for you ?
Mr. Wendell. No, sir.
798
Mr. Blum. "WTien yoii left that began to happen? Is that your
undei'standing ?
Mr. Wendell. Well, not particularly when I left. I think that hap-
pened even when I was still with them because I don't think Kurt
Bloom was working for me any more.
Mr. Blum. I see.
Mr. Wendell. And I think, in trying to help him, you know, we
told him that he could do that if he wanted to. We would make him
our agent.
Mr. Blutvi. In effect. Bloom was operating as your agent and he
made a living out of the commissions and the finders fees ?
Mr. Wendell. Plus buying and selling houses on his own.
Mr. Blum. Was there any particular welfare center that you dealt
with that supplied the people ?
Mr. Wendell. I think we dealt with most of them.
Mr. Blum. You dealt with all the different centers around the city?
Mr. Wendell. That's right.
Mr. Blum. Would you say that almost all of the tenants that Ex-
cambio handled were welfare tenants ?
Mr. Wendell. I would say so.
Mr. Blum. "W^iat was the turnover, the average term of residence of a
welfare family in an apartment ? Would they stay long ? Would they
be there for a few months ?
Mr. Wendell. No. The length of stay was good.
Mr. Blum. Did it get worse as time went on ? Did you begin to dis-
cover that people stayed less time ?
Mr. Wendell. I don't think so, sir.
Mr. Blum. Do you have any idea of how many tenants, welfare
tenants, you handled in the years you operated in Brooklyn ?
Mr. Wendell. Overall ? I would just have to make a wild guess at it.
Mr. Blum. Would it be in the hundreds ?
Mr. Wendell. Oh, yes ; many hundreds.
Mr. Bluim. Wliat began to happen as you operated ? Did you run
into difficulties collecting rent ?
Mr. Wendell. Yes, sir.
Mr. Blum. Did you run into difficulties making repairs ?
Mr. Wendell. Yes, sir.
Mr. Blum. Could you tell us what some of the difficulties were?
"\'\'liat were the problems with the tenants that moved in ?
Mr. Wendell. Well, they became more demanding as time went
along. For the slightest little anything, they would withhold their
rent.
In other words, I remember clearly in one instance, one woman who
didn't pay, or wouldn't pay her rent because her toilet was stuffed up.
We took care of it, and the plumber found an ashtray down there.
Mr. Blum. That was why it had beeil stuffed up ?
Mr. Wendell. That is why it was stuffed up. It was clear that noth-
ing could haA^e happened excepting a child or somebody had to throw
the ashtray down there. And yet we were jienalized.
Mr. Blum. Were there other incidents like that ?
Mr. Wendell. Oh, yes; many, many instances. For the slightest
provocation, we couldn't collect our rent.
Mr. Blum. Was it hard to keep up with the demands for repaii-s?
799
Mr. Wexdell. It was not only hard, I would say that it was close to
impossible.
Mr. Blum. The houses began to deteriorate pretty rapidly?
Mr. Wendell. Very badly.
Mr. Blum. When they began deteriorating, did you have increasing
difliculty collecting the rent ?
Mr. Wendell. Yes, sir.
Mr. Blum. Was that when Excambio began to get into difficulty,
financial difficulty?
Mr. Wendell. Well, I am not quite sure where that started. I am not
quite sure. I would say, if I had to guess, I would say perhaps, yes.
Mr. Blum. Were there other causes of financial difficulty that Ex-
cambio had?
Mr. Wendell. Other what ?
Mr. Blum. Other causes ?
Mr. Wendell. I can't think of any.
Mr, Blum. Did it have a large payroll ? Were thei-e people who were
w^orking for the company who weren't doing their job ?
Mr. Wendell. Oh, that could have been, but that would have been
minor.
Mr. Blum. How many people did you have working on this opera-
tion at one point in time, when it was at its peak ?
Mr. Wendell. At its peak? I would say approximately seven or
eight.
Mr. Blum. Seven or eight ?
Mr. Wendell. Maybe 10.
Mr. Bluivi. Does that include the outside people who collected the
rent and did the repair work ?
Mr. Wendell. Yes, just about everybody.
Mr. Blum. And you would have been handling several hmidred
apartments like that ?
Mr. Wendell. That's right.
Mr. Blum. Do you have any recollection at all of how many build-
ings that would be ?
Mr. Wendell. No, but I am pretty sure it was over 150.
Mr. Blum. Could it be closer to 200 ?
Mr. Wendell. Yes ; I would say so.
Mr. Blum. Do you have any idea during the period of time that
you operated, how many houses passed through your hands?
Mr. Wendell. How many? I w^ould say 400, 500, or 600 — at least
that many.
Mr. Blum. Buying and selling, and some of them winding up in
rental operation?
Mr. Wendell. Right.
Mr. Blum. When a house got into difficulty, when the repairs be-
came extremely difficult to make, and there were serious problems with
them, what did you do? Did you let the mortgage go into foreclosure?
Mr. Wendell. I don't remember. As far as when I was involved,
I don't remember any going into foreclosure. There could have been
one or two, maybe, or three, but it escapes me at the moment. But no
large amounts.
Mr. Blum. No large amounts went into foreclosure?
Mr. Wendell. Xo ; not when I was there.
800
Mr. Chumbris. Mr. Blum, for clarification of the record, what
l)erio<:l of time are we talking about now? What year, what month?
3Ir. Wexdell. I would say up to about, say the period when I was
in the liospital.
Mr. Blum. 1968 ?
Mr. Wendell. Right, 1968.
Mr. Blum. So you were not in serious difficulty with this operation
up to, let's say 1968. and perhaps it was early in 1968?
Mr. Wexdell. Eight.
Mr. Blum. You don't know what happened then because you left?
Mr. Wexdell. Yes. That would be a fair conclusion.
Mr. Bluji. What did you do after you ceased your affiliation with
Excanilno? Did you contiiuie in tlie real estate business?
Mr. Wendell. Yes, sir; I did, in a different phase of it.
Mr. Blum. What did you do then ?
Mr. Wendell. I went into the same area, but instead of that type
of operation, I went into the rehabilitation business.
]Mr. BLU]\r. What did you do in the way of rehabilitation?
^Ir. Wendell. Well, in rehabilitation, we would buy a different type
of house. It would be a house that had perhaps 20 or 30 a])artments,
or more, but completely no good — torn clown, or something.
Xo, I don't mean torn down, but
Mr. Blum. Gutted, perhaps, or seriously damaged?
^Ir. Wendell. Seriously damaged. And then we would buy that
subject to us getting a loan from the city to reconstruct it and put it
in A-1 shape.
Mr. Blum. And you would use the city's money and put it back
into shape?
Mr. Wendeij.. That's right.
Mr. Blu^i. Was this a city loan program? A municipal loan pro-
gram, do you recall ?
Mr. Wendell. That's right.
Mr. Chumbrts. INIr. Blum, may I ask another question just for
clarification and putting in focus?
We have been talking about in the last 2 weeks of hearings, about
situations where loans were made by FHA for the purpose of helping
people in some of the low-income areas to purchase homes, and some
of the problems that these people faced. Someone buying a home for,
let's say ?;i 0,000, and beins sold to this person for $16,000 or $18,000,
and the interest rates and everything that accumulate.
There is difficulty in making the payments, and there is a fore-
closure.
But from what T gather in the testimony you have just given me,
you were buying homes for the purpose of renting them to tenants.
]\rr. Wendell. That's right.
Ml-. CHu:\rBRTs. Beai'in.q: that in mind, would you state for the record
whv we are going into this ?
!Mr. Blum. This is an FHA program for nonresident owners, and
what we are exploring here is the functioning of the market for
mortgage money, and the competition among mortgage companies,
and the way in which mortgage companies operate and generate real
estate business.
Tliis is another aspect of that same inquiry.
801
Mr. Chumbris. I just want to put this all in focus so when we read
the record, we will be able to compare from the previous testimony.
Mr. Bluisi. I think this is on the record.
You renovated these houses under the municipal loan program. Did
you then manage them ?
Mr. Wendell. Yes.
Mr. Blum. And collected rents ?
IMr. Wendell. That's right.
Mr. Blum. Were the tenants of those houses once again principally
welfare tenants?
Mr. Wendell. Well, peculiarly, I never finished any. I got stuck in
the middle of my program.
Mr. Blum. "\Vliat happened ?
Mr. Wendell. Well, to begin with, I had some domestic difficulties.
I had some medical difficulties, and I moved out to California,
I went to California, and I think it was January- of 1970. 1 am pretty
sure.
Mr. Blum. Were most of your operations, both in the rental proper-
ties you handled through Excambio, your real estate operations, and
then the renovation operation, all in east New York? Was that the
j)rincipal place ?
Mr. Wendell. Tliat is right. Well, Brownsville, too.
Mr. Blum. East New York and Brownsville?"
Mr. Wendell. Right.
Senator Hakt. Mr. Chumbris ?
jNIr. Chumbris. I have no questions other than the comments I have
made.
Senator Hart. Mr. Kern ?
Mr. Kern. I have no questions.
Senator Hart. Mr. O'Leary ?
]\Ir. O'Leary. Mr. Wendell, if I may, let me just cover a little of
this ground again.
With respect to your association with Excambio, I think you testi-
fied that those people bought houses from Wenhaven, they were in-
vestors. Businessmen, primarily ?
Mr. Wendell. Yes.
Mr. O'Leary. All right. Were you responsible for finding these peo-
ple, the businessmen to buy these properties, or was that somebody
else's responsibility ?
. Mr. Wendell. Well, it was a shared responsibility, I believe; because
of the larger fees we were paying Mr. Lazarus I think a certain of that
responsibility had to fall on his shoulder, too.
Mr. O'Leary. And part of the money that you paid to Mr. Lazarus,
was that in the nature of the commission for finding ?
]Mr. Wendell. As far as I'm concerned, yes ; but not as far as he is
concerned.
Mr. O'Leary. Right. But as far as you were concerned, it was a com-
mission for finding buyers ?
Mr. Wendell. That's right.
Mr. O'Leary. And these individuals, can you tell us where they came
from ; what sort of businessmen they were, primarily ?
Mr. Wendell. Well, most of them were in the garment center.
802
Mr, O'Leary. All right. Now as I understand it, there was an FHA
regulation that one could buy FHA insured j^roperties up to four prop-
erties ; is that correct ?
Mr. Wendell. That is right ; yes, sir.
Mr. O'Leary. Would these individuals buy up to four, or more
than four?
Mr, Wendell. Nobody had more than four.
Mr. O'Leary. Nobody had more than four?
Mr. Wendell. I would say that is the limit,
Mr. O'Leary. When you saw investors for these properties, you
did, I assume, try to encourage tliem to buy up to the limit?
Mr. Wendell. Well, yes. We would start with one, of course, and
then to go on to whatever we can.
Mr. O'Leary. Now when you indicated in your testiinony that this
was profitable as long as you took in a sufficient amount in rent, or
Excambio took in a sufficient amount in rent to meet the mortgage
payment and pay the other expenses ; is that correct ?
Mr. Wendell. Tliat is right, sir.
Mr. O'Leary. Who was responsible for the maintenance of these
buildings? Was it the businessmen who bought the buildings, or was
it Excambio?
Mr. Wendell. I think it was Excambio.
Mr. O'Leary. The businessmen would not want any part of that?
Mr. Wendell. No.
Mr. O'Leary, Is it fair to say that neither the businessmen nor
Excambio had any real incentive to make any major repairs?
Mr. Wendell. No. That would not be fair to say because Excambio
had an incentive because they needed the good will of this business-
man, or whatever he was.
Mr. O'Leary. As I understand it, the businessman wanted primarily
to get this building as a tax shelter, to be able to depreciate the build-
ing, and offset it ?
Mr. Wendell, That is right, sir,
Mr. O'Leary, These would generally would be relatively wealthy
individuals with incomes set off against this depreciation?
Mr, Wendell. That is right,
Mr. O'Leary. As I understand it, both the houses that you bought
and sold through the medium of Wenhaven Corp., and the houses
which were, as I understand it, from 1965 on, also bought and sold
through Wenhaven, were sold to Excambio investors, or people asso-
ciated with Excambio, mostlv went through the Eastern Service
Corp.?
Mr. Wendell. I think they all did.
]Mr. O'Leary. They all did ?
Mr. Wendell. Yes.
Mr. O'Leary. Now as I understand it also, when you went to the
closing for one of these transactions, whereby Wenhaven would sell,
sav to one of these businessmen, Mr. Bernstein would not be at that
closing.
Mr. Wendell. That is right.
Mr. O'Leary. There would be other representatives of Eastern Serv-
ice Corp. ?
Mr. Wendell. That is right, sir.
SOS
Mr. O'Lk ART. Now as I nnclerstand it also, and von indicated vour
P
rincipal expense was the numbci- of i)oints that yon paid.
^Ir. Wendell. That's rio-ht.
Mr. O'Leary. And this nnniber of points would vary anywhere f I'om
three to four points up to perhaps as much as seven or eight points?
Mr. Wexdell. That is rifrht.
Mr. O'Leary. Can you tell us why there was this variation in the
number of points? Was this dependent on the condition of the
building?
Mr. Wendell. That's right. It depended upon the condition of the
building.
]\Ir. O'Leary. The number of points you paid varied in order to get
that particular deal through the FHA ? '
Mr. Wendell. That is right.
Mr. O'Leary. If you had to pay seven or eight points, that meant
that the house was in bad condition and vou had to pay more money
and get that past the FHA ?
Mr. Wendei,l. That is right.
Mr. O'Leary. Now, as I understand it also, this negotiation about
the number of points to be paid would not take place at the closing.
]Mr. Wendell. That's right.
Mr. O'Leary. Sometime prior to the closing, you would have a con-
vei'sation with ]\Ir. Bernstein.
Mr. Wendell. That is right.
Mr. O'Leary. Can you give us an idea of how this conversation
would go ? Would you ever object ? I mean you were familiar with the
condition of the building.
Mr. Wendell. Well, I think I always objected, but I don't think
that it ever got me anyplace.
Mr. O'Leary. You would say something to the eiTer-t of. "Xow wait
a minute, Harry. I shouldn't have to pay eight points. The house is in
good shape."
Mr. Wendell. That's right.
Mr. O'Leary. Whatever he told you you had to pay was the number
of ])oints ?
Mr. Wendell. That was final.
Mr. O'Leary. You ended up paying?
Mr. Wendell. That is right.
Mr. O'Leary. With respect to deals that you ran through Eastern
Service Corp., present at closing would also be a lawyer for the title
company.
Mr. Wendell. That is right.
Mr. O'Leary. And would this generally be the same individual?
Mr. Wendell. More often than not.
Mr. O'Leary. This would be a lawver for the Inter-Countv Title
Co.?
Mr. Wendef.l. That is right.
Mr. O'Leary. Can you tell us, or are you aware of any relationship
between the Eastern Service Corp., and the Inter-County Title Co. ?
Mr. Wendell. No. I do not know what the relationship was, but I
know it was a close relationship. They gave them all their business, too,
I think, as far as I know.
804
Mr. O'Leary. Mr. Wendell, you have indicated there were lots of
people in the real estate business, such as yourself, in the east New
York and Brownsville area at this time ; is that correct ?
Mr. Wendell. Yes, sir.
Mr. O'Leary. What you are telling us here with respect to the num-
ber of points to be paid on a deal, and how it varied and the condition
of the building, that was common practice in this area at the time ?
Mr. Wendell. No question about it.
Mr. O'Leary. If you had a building, and it really was not up to snuff,
it just meant that you had to pay more points ?
Mr. Wendell. That is right.
Mr. O'Leary. As I understand it, this did not mean that you would
be paying a sum of money to Mr. Bernstein, or somebody else. It just
meant that less funds were disbursed to you out of the deal ?
Mr. Wendell. That is right.
Mr. O'Leary. Thank you, Mr. Chairman.
Senator Hart. Thank you very much.
Mr. Wendell. Thank you, gentlemen.
Senator Hart, Mr. David Gomberg, has he arrived ?
(No response.)
Senator Hart. Apparently he has not.
An explanation of what often happens here — there are at least two
other committees engaged in — in one case a hearing, and in the other a
bill, lined up that require me to interrupt.
I hope that we shall not have to. That is the reason we are attempt-
ing to organize the hearing schedule so as— in the event there is an
interruption, we will not inconvenience the people.
STATEMENTS OF LESTER A. LAZARUS AND B. EDWARD JAFFE
Senator Hart. Our next witnesses, then, would be Mr. Lester Laza-
rus and Mr. Edward Jaffe. Mr. Lazarus and Mr. Jaffe ? ("\Yhereupon,
the witnesses were duly sworn by the chairman.)
Senator Hart. First, Mr. Lazarus and Mr. Jaffe are here today pur-
suant to subpena and while it is my understanding that they are mem-
bers of the bar, inasmuch as they appear without counsel the cormiiit-
tee feels it proper that, for the record, a statement be made with
respect to their rights.
As I'm sure you know, you have the right to refuse to answer any
question you feel may tend to incriminate you. Anything you say
could be used against you in any other proceeding.
You have the right to talk to a lawyer before we can ask any ques-
tion, and you can have a lawyer with you during questioning.
If you desire to answer questions now without a lawyer present, you
still have the right to stop answermg at any time and you have the
right to stop answering at any time mitil you do talk to a lawyer.
Should you desire to refuse to answer or to assert your constitutional
rights, the subcommittee will draw no adverse inference from that
course of conduct, nor should anyone else.
Gentlemen, you do understand those rights ?
Mr. Lazarus. We do.
Mr. Jaffe. We do.
Senator Hart. Are you willing, at this time, to waive tliese rights
and to answer questions?
806
Mr. Lazarus. Yes, sir,
Mr. Blum. Mr. Lazarus, would you mind telling us, for the record,
your full name ?
Mr. Lazarus. Lester A. Lazarus, L-a-z-a-r-u-s.
Mr. Bluim. And your home address ?
Mr. Lazarus. 150 East 69th Street, New York City.
Mr, Blum. And are you engaged in the practice of law in New
York City?
Mr, Lazarus. I am.
Mr. Bluim. And what is the address of your office ?
Mr. Lazarus, 60 Park Avenue.
Mr. Blum. Mr. Jaffe, would you state your name for the record,
please ?
Mr. Jaffe. It's "B" as in boy, Edward Jaffe, J-a-f-f-e. My home
address is 2000 Linwood, L-i-n-w-o-o-d Avenue, Fort Lee, N,J,
Mr. Blum, And you are engaged in practice in New^ York in part-
nership with Mr, Lazarus ?
Mr, Jaffe, That is correct.
Mr. Blum, At the same address ?
Mr. Jaffe. That is correct.
Mr. Blum. How long have you both been associated in the practice
of law, Mr. Lazarus?
Mr, Lazarus. I think it is approximately 9 years,
Mr, Blum. How did you first meet Morris Wendell, Mr. Lazarus?
Mr. Lazarus. He was introduced to us and he had a case pending in
the Supreme Court in the State of New York, Bronx County, and I
was retained as trial attorney.
Mr. Blum. And you were representing him, I take it, in the matter
in dispute and that trial had nothing to do with real estate, is that
correct ?
Mr. Lazarus. That is correct.
Mr. Bluini. Did he approach you to deal with him in real estate mat-
ters after that trial ?
Mr. Lazarus. My recollection is that that happened as a matter of
an accident.
]\Ir. Bluim, Can j'ou tell us the circumstances under which you began
to do real estate work for Mr, Wendell ?
Mr, Lazarus, Yes. The trial of the action in which I was retained
took over 3 months and we saw each other continuously and became
friendly at that point.
And he explained to me the business that he was in which was the
real estate business. And he, in the course of those discussions, ex-
plained the fact that he owned a number of homes himself. Two family
houses. And that by purchasing the homes and renting them to the
welfare recipient he was making a profit at it.
Mr. Blum. And he described the way that operated,_and then did he
ask you to do legal work in connection with some of his purchases and
subsequent records of management operations ?
Mr. Lazarus. I don't remember how that started exactly. I remember
how the first house was sold to somebody that I was involved with for
the purpose of his managing the house.
Air. Bluim. Could you tell us about that ?
Mr. Lazarus. Yes. At or about the time lie explained this to me, a
client of mine had asked me whether I knew of an investment he could
make with a small amount of money.
806
I told him what Mr. Wendell had told me and he met Mr. Wendell
at that time, and decided to purchase a house or two and have Mr.
Wendell run the property for him.
Mr. Blum. And it was out of that encounter that the idea for subse-
quently enlarging the operation grew ?
Mr. Lazarus, That is true.
Mr. Blum. What sort of a return did that client of yours expect on
his investment ?
Mr. Lazarus. It looked like it would be between 15 and 20 percent
per year.
Mr. Blum. But that would be tax free, is that correct ? In fact, be-
cause of the depreciation ?
Mr. Lazarus. Because of the depreciation.
Mr. Blum. Wliat was the management fee that Mr. Wendell charged
for his properties, do you have any recollection ''(
Mr. Lazarus. I don't remember the initial fee but I think it wound
up, as more people bought houses for this purpose, that the manage-
ment fee was 9 percent. I am not sure of the exact figure but approxi-
mately 9 percent of the gross rent.
Mr. Blum. Did you handle most of the closings when Mr. Wendell
bought the houses from the individuals he acquired them from for
subsequent resale ?
Mr. Lazarus. After that point, yes.
Mr. Blum. After that point ?
Mr. Lazarus. Yes.
Mr. Blum. Was it typical in those closing situations to have what
is called in the trade a double closing, where the house would wind
up going from the original owner to the eventual investor in one step ?
Mr. Lazarus. At the beginning, yes.
Mr. Blum. You say at the beginning. "Wliat happened then?
Mr. Lazarus. Well, if my recollection in time serves me right, this
started in the year 1965. I believe in the year 1966 we had other people
who participated with Mr. Wendell in the entire venture and I believe
he raised — I'm not sure of the figure — about a quarter of a million
dollars in. capital, at which point he had the funds where a double
closing was not necessary.
Mr. Blum. Can you tell us how the double closing worked, roughly ?
Do you have a recollection of what steps were involved ?
Mr. Lazarus. Well, Mr. Jaffe handled the closings. It would be
better
Mr. Blum. Mr. Jaffe, would you mind elaborating on that for us?
When you are talking about a double closing, I would assume you
are talking about a simultaneous closing ?
Mr. Jaffe. Yes. Wenhaven would contract to buy a particular house.
Generally, after the house was under contract for purchase, they
would then contract to sell the house.
In the case of the FHA mortgages, this would result in a closing at
Eastern Service Corp., generally, or their attorney's office, where you
Avould have the— on the one hand, our contract to purchase, and our
contract to sell, all taking place simultaneously.
Mr. Blum. And what did the disbursement of moneys in a situation
like that look like? Would there be some money to the original owner
and some money to Mr. Wendell, the closing expenses, how would that
work?
807
Mr. Jaffe. Well, the ultimate purchaser, Weuhaven's purchaser,
would be paying the purchase price for the house. As a result of the
FHA reo^ulations, I believe it was. they had to put down a certain
percentajje of the FHA appraised value.
Mr. Blum. Under that program, I believe it is 20 percent, does that
sound right ?
Mr. Jafit>. I think you are probably right.
Mr. Blum. Something on that order ?
Mr. Jaffe. Yes. The money would then be disbursed to satisfy the
existing mortgage on the property, to pay the balance of the purchase
price due to the original seller, to pay the points, to pay the closing
costs, and to set up the reserves for future payments of taxes and
insurance.
Mr. Blum, You must liaAT, attended a fair number of closings in the
course of that period of operation. Do you have a recollection of the
number of conventional mortgages that were paid off in the course of
those closings that were satisfied. Were there many ?
Mr. Jaffe. I would say that in almost every case there was some
bal ance due on an existing mortgage.
Mr. Blum. Who w^ere the ow^ners of those existing mortgages in
most part ? Did you have any one bank or was it many ?
Mr. Jaffe. Oh, no; there would be no general rule. It was banks
throughout New York City.
Mr. Blum. Were some of them upstate banks or banks which were
serviced through them ?
Air. Jaffe. I wouldn't think so, sir: because most of those mortgages
had been placed on the property years and years before.
Mr. Blum. They were basically conventional, non-FIIA mortgages?
Mr. Jaffe. That is correct.
Mr. Blum. Mr. Lazarus, I wonder if you could tell us something
about the corporate structure of Excambio, Wenhaven, and Wenrus?
It is somewhat confusing. Perhaps you can shed some light on that.
What was the Excambio Management Corp. ?
Mr. Lazarus. That was a corporation that was organized for the
purpose of managing properties. It iieither bought nor did it sell.
Mr. Blum. Who were the principal officers of that corporation ?
Mr. Lazarus. I believe that I was and Mr. Jaffe.
Mr. Blum. I have a record here that indicates that you and ISIr. Jafie-
were the ones to sign the checks for that corporation.
Mr. Lazarlts. That's correct. Absolutely correct.
Mr. Blum. Would that refresh your recollection? And the Wen-
haven Realty Co., Inc., that was Mr. Wendell's corporation?
Mr. Lazarus. That was the corporation that was organized by Mr.
Wendell and I don't remember the exact year, but that was the corpo-
ration, I believe, that succeeded his ovrn private company W. & G.
Realty, which went into the business of the buying and selling for the
purpose of building a management corporation.
Mr. Blum. And there the records indicate that the bank signatories
were Morris Wendell, Cori-ine Wendell — who I assume was his wife —
and Kurt Bloom. Would that recall your recollection ?
Mr. Lazarus. That sounds about right ; yes.
Mr. Blum. On one of the accounts there was a signatory Sol Gold-
berg, do you recognize that name ?
808
Mr. Lazarus. Well, if I know, you have to distinguish. Wenhaven
Realty was a company that was owned solely by Mr. Wendell. At the
l^oint when Mr. Wendell brought in, or others came into the business
with him, a second corporation was organized called the Wenhaven
Corp., and then Mr. Goldberg was the signatory. Not on the initial
Wenhaveji Realty Corp.
Mr. Blum. That was a transfer from Wenhaven Realty to the Wen-
haven Corp. ?
Mr. Lazarus. That is correct.
Mr. Blum. And that occurred in about what, 1966?
ISIr. Lazarus. That is correct.
Mr. Blum. At that time you had a number of accounting statements
prepared, I believe, going into the holdings of and the financial posi-
tion of the Wenhaven Realty Corp. Do you recall that ?
Mr. Lazarus. Yes, sir.
Mr. Blum. What was the purpose of calling in the accountant to
prepare this detailed financial statement ? Or was that your routine ?
Mr. Lazarus. I think that was prepared by the firm of Friedman,
Albert & Green, and I have a feeling that was routine.
Mr. Blum. That was routine. One of the items in this financial
statement is an mventory of houses which were held by the corpora-
tion. I take it that these were houses held subject to later sales to
investors ?
Mr. Lazarus. That is correct.
IMr. Blum. The inventory shows roughly 40 houses that were held
at that point in time. Would that be an average of the number of
houses that were held at any point in time in inventory subject to
resale ?
Mr. Lazarus. I couldn't understand that,
I just don't remember how many houses were in inventory at any
one point.
Mr. Blum. But the practice was for Wenhaven Realty Corp. to
have an inventory of houses available and sell them off as investors
Tvere found to take them over ?
]\Ir. Lazarus. No. In tlie initial Wenhaven Realty, there weren't
sufficient funds, I don't believe, to hold that many houses in inventory.
^Vlien it became the Wenhaven Corp., which was the successor corpo-
ration, there was enough money to do that.
Mr. Blum. Where did the initial count come from ?
Mr. Lazarus. From businessmen who had originally bought houses,
who had met Mr. Wendell, and they wanted to go into business with
him.
Mr. Blum. I take it Mr. Wendell was most effective in his meetings
with them and in convincing them that he had a good investment
proposition ?
Mr. Lazarus. The answer to that is yes, and I participated in that.
I felt that way too, at that time.
Mr. Blum. What were the major selling points? If you had an in-
vestor and he was considering whether or not to go into it, what were
the major selling points in favor of his going into it ?
Mr. Lazarus. Well, we felt — and I think that started in July, 1966 —
we felt that the operation had been successful and there were other
rather sophisticated real estate people who came in with their account-
809
ants and their attorneys who agreed with us that Mr. Wendell's theory
of operating? the business was an extremely good one and that there
would be a profitable company.
Mr. Blum. Well, let's go through the points. The return would be
good, I take it?
Mr. Lazarus. Well, presumably.
Mr. Blum. They were talking about the 15- to 20-percent tax shelter ?
Mr. Lazarus. That was the selling point ; yes.
Mr. Blum. I take it a second point would be that the investor would
have nothing to do with the property ?
Mr. Lazarus. That is correct.
Mr. Blum. He would have no problems whatsoever about handling
tenants, management, rent collection, and so forth ?
Mr. Lazarus. It was so anticipated.
Mr. Blum. Did you promise them insulation from tenants com-
plaints ? Was there a kind of
Mr. Lazarus. There was no promise. It was a known fact that it was
agreed that Excambio would manage the propert}'.
Mr. Blum. So that a tenant would have no way of getting back to
and bothering the owner of the house in the event of it needing repairs
or whatever?
Mr. Lazarus. Well, he could, because the owner was a matter of rec-
ord. So, if it got to that stage, the tenant or whoever was complaining
could find him.
Mr. Blum. But he wouldn't have shown obviously to the tenant,
would he ?
Mr. Lazarus. Oh no ; no.
Mr. Blum. "Wliat was the Wenrus Corp. ?
Mr. Lazarus. That was a corporation that was organized for the
purpose of dealing in its own mortgages.
Mr. Blum. A mortgage company, in effect ?
Mr. Lazarus. Yes, that is_ right. What had happened, if I may ex-
plain, is that — if my memory serves me right — the amount of money
that Mr. Wendell was forced to pay to Eastern Service, which was
going higher and higher, was that oppressive that he felt, and we
agreed, that if he had sufficient funds to give his own mortgages and
then to sell a portfolio of mortgages to a bank, as Mr. Bernstein did,
he would not be subject to these tremendous charges.
Mr. Blum. Now, were the mortgages that were made by the Wenrus
CorjD. conventional mortgages or FHA mortgages ?
Mr. Lazarus. No ; conventional.
Mr. Blum. All conventional ?
Mr. Lazarus. Yes. It was also the desire, at that time, to try to go
away from dealing with houses that were FHA financed.
Mr. Blum. Well, what were the difficulties with houses that were
FHA financed?
Mr. Lazarus. Well, there were two. First of all, the amount of
money it cost to close a house with the FHA, which includes the
points that Eastern Service was getting; and, in addition, we were
being priced— if I remember correctly — we were being priced out of
the market in terms of buying homes.
Mr. Blum. Would you mind expanding on that a little?
83-703 O— 73— pt. 2b 5
810
Mr. Lazarus. Yes. The figures will show I think that if, when we
started, we were paying $15,000 or $16,000 for a house, within a year
or two the prices of those same houses were going up to $18,000,
$19,000, and $20,000, if they were FHA houses.
Now, part of the expense of running a house, in terms of the in-
vestor, the owner's yield, it was very important what the monthly pay-
ments were to the financial institution.
We could not, for example, buy a $50,000 house. It would not work,
because the payment to the bank would be too high. So that we had
to buy houses within a given price range.
Those houses which were conventionally financed cost us less, and
we sold them for less, than the houses that were FHA financed.
Mr. Blum. Where did you get the funds for the eventual financing?
Mr. Lazarus. From the people Avho agreed to participate with Mr.
Wendell and the whole operation.
Mr. Blum. So there were several categories of investors and the
people who bought the houses, putting up the down payment, and
subject to FHA mortgage. There were people who put up capital for
the Wenrus Corp. who participated and gave capital to Excambio;
am I correct ?
Mr. Lazarus. That's right. Originally, Mr. Wendell borrowed from
those people and then offered them an opportunity to come in with
him.
Mr. Blum. How many people would you say came into this as buyers
of houses and nothing more? How many different investors did you
have ?
Mr. Lazarus. I would only have to guess. That would be 70, 80, or 90.
Mr. Bluivi. How many people came in as capital participants, either
Wenrus or Excambio ?
Mr. Laz.arus. I would assume approximately a dozen.
Mr. Blum. A dozen ? Not more than that ?
Mr. Lazarus. I don't know exactly, but in that area.
Mr. Blum. To your knowledge, were there other companies operat-
ing that did similar kinds of things? Management with participating
interest to other investors ?
Mr. Lazarus. I do not think so. To my knowledge, at that time, this
was unique.
Mr. Blum. Did others develop later ?
Mr. Lazarus. I really don't know.
Mr. O'Leary. Can we have a moment, Mr. Chairman ?
Mr. Blum. '\^nien did Excambio Management begin to get into
trouble in terms of its receipts ?
Mr. Lazarus. I believe it was in the late fall of 1967.
Mr. Blum. "\^^iy did that trouble begin? What was going on and
what were the problems ?
Mr. Lazarus. Everything. First, we could no longer buy — well, Mr.
Wendell left in the summer of 1966, no, the summer of 1967 — and we
had the following problems :
We could not buy houses because the costs were too high; we had
insurance cancellations. The companies, the insurance companies,
would not insure these houses.
Mr. Blum. This is fire insurance ?
Mr. Lazarus. Fire insurance; yes. Basically, that's fire insurance.
Mr, Blum. And that puts the mortgage in default ?
811
Mr. Lazarus. That is right. And then when we could insure, the cost
of the insurance went way up.
Originally, based upon what I believe was Mr. AVendell's negotia-
tions with fuel oil companies, it was estimated that the two-family
houses — and most of them were brick — should not require heating bills
of more than $30 or $40 a month. But the heating bills went up to $70,
$80, and $90 a month.
The expenses of the repairs became tremendous. When an apartment
was vacant or when a house was vacant, the houses were vandalized so
that the cost of replacement of what had been taken was tremendous.
We stoi:)ped collecting rent. As a matter of fact, my office had to hire
an attorney solely for the purpose of handling the evictions for the
nonpayment. So that, in effect, the whole thing just fell apart.
We couldn't get mortgage money. I mean that was finished. On the
conventional houses that we originally went into, we obtained money
through the investors who came in. We went to, I would say, half a
dozen or more banks with our financial statements. That's not the one
that you see there, but that we later obtained the firm of Touche, Ross,
Niven, Bailey & Smart and we went to many, many banks. Initially,
they accepted our mortgages.
The Dime Savings Bank of Williamsburg, Mr. Sharkey, they took
a package of mortgages. They participated with us in conventionals.
But then we went to many other banks, J^ast New York Savings
Bank, Tremont Savings & Loan Association, the Chase Manhattan
Bank, and no one would give us mortgage money.
So then what happened was that the capital that Mr. Wendell and I
had brought into the company became frozen and the conventional
mortgages we could do nothing with.
Mr. Blum. So, in other words, you tried to do what you planned to
do and sell off the conventional mortgages and you couldn't find
buyei*s ?
Mr. Lazarus. Couldn't find a buyer.
Mr. Blum. And that, in effect, froze the capital ?
Mr. Lazarus. That is correct.
Mr. Blum. And made it impossible for you to continue in operation ?
Mr. Lazarus. That is correct.
Mr. Blum. I imagine, too, the impact of the loss of supply of fresh
houses meant that you lost whatever profits might have been gained
from the purchase and subsequent resale. Therefore, that profit dis-
appeared and then you were operating very close to the margin?
Mr. Lazarus. Tliat is right, and then we also found out — at least,
we felt we were never able to prove anything — ^that the merchants
that we were dealing with in East New York were taking tremendous
advantage of us in the cost of what they were selling us.
That includes the people we were buying hardware from ; includes
the people who were supplying the heat ; and it includes the people
who were supplying us with the boiler equipment.
I had more than one conference with what was then the local office
that the mayor had set up in that area on the question of the condi-
tion of the houses, and I remember that complaints were made that
heating systems were not satisfactory in a particular house. And we
found, among our bills, where we had paid for the readjustment of
that heating system. So that we Avere being taken advantage of there.
812
We could not get employees to work in that area. That became in-
creasingly difficult.
Mr. Blum. You mentioned that at the time Williamsburg took
conventional mortages from you
Mr. Lazarus. They participated with us.
Mr. Blum. They participated. MHiat do you mean by participated ?
Did they take partial interest in the mortgages ?
Mr. Lazarus. If the mortgage was, for example, $14,000, we would
jointly participate. They would advance us $10,000, we would par-
ticipate to the extent of $4,000, so that we were joint holders of the
mortgage. Of course, they had the priority in case of distribution or
a foreclosure.
Mr. Blum. Did they know the nature of Excambio's business?
Mr. Lazarus. Oh, yes ; very definitely.
Mr. Blum. At the time, who were you dealing with ?
Mr. Lazarus. Mr. Sharkey.
Mr. Blum. Mr. Sharkey ?
Mr. Lazarus. Yes.
Mr. Blum. He later went to work for Eastern Service?
Mr. Lazarus. I did not know that.
Mr. Blum. Or is that a different Mr. Sharkey ?
Mr. Jaffe. That is a different Mr. Sharkey.
Mr. Blum. Different Mr. Sharkey. Did the welfare department
know about this operation in any formal way or was it always
informal ?
Mr. Lazarus. No; they knew about it. As a matter of fact, Mr.
Wendell's memory fails him, but T seem to remember that he received
a letter of commendation from the welfare department for the service
that he was performing for the tenants.
Remember, he was taking tenants, he was taking welfare recipients
that the city had in hotels and other areas where they were paying
$300, $400, $500, and $600 a month for accommodations, which were
just completely inferior to the accommodations that we were provid-
ing and we were being paid welfare scale of $150 and $135.
So that, initially, they were extremely pleased with us. Later, we had
another problem with them in that we could not collect tlie rents and
they just could not or would not do anything about it.
Mr. Blum. What was the nature of that problem ? Was it that the
checks were made payable to the tenants rather than to the landlord ?
Mr. Lazarus. That was the problem.
Mr. Blum. What would happen ? The tenant would cash the check
and then not make the correct payment ?
Mr. Lazarus. Well, checks were cashed and rent payments were not
made. There were occasions where, if there were two families in a
house — and I suppose there always wore — one tenant would steal the
other tenant's check. They would use the money up for other purposes.
Now, initially — and my recollection is hazy — I think we talked to
the welfare department initially when we saAv we were growing. They
had indicated to us that if we had any trouble that they would make
out two-party checks naming both the recipient and Excambio man-
agement. But when the event did occur, we were never able to get two-
party checks.
Mr. Blum. Do you remember who, at the welfare department, you
dealt with ?
813
Mr. Lazarus. No ; sitting here today T don't.
Mr, Blum. Were there many contacts with them ? Was that one of
those places that you had to deal with on a regular basis in the course
of trying to clear up the aflairs of the corporation ?
Mr. Lazarus. Well, I didn't, but we had a bookkeeper who was in
charge of both keeping the books and collecting the rents and dealing
with the welfn vo department. She did almost on a daily basis.
Mr. Blum. Wliat was her name ?
Mr. Lazarus. Carline Graham, G-r-a-h-a-m.
Mr. Blum. Do you know where she is located now ?
Mr. Lazarus. I know she is emi)]oyed in Brooklyn.
Mr. Blum. In retrospect, do you think that the idea was a workable
one?
Mr. Lazarus. It should have worked, Mr. Blum, it should have
worked. At the time that we started it, it had everything going for it.
It was — as far as I was concerned, it should have been an extremely
successful venture.
It was providing welfare recipients with proper accommodations. It
was bringing in private capital into areas where private capital would
not normally be brought, and it was providing an investment return
for those people who were interested as investors.
Mr. Blum. When you were experiencing difficulty in finding mort-
gage money and the problems with Eastern, did you go to other mort-
gage companies? Did you have any deals with LTnited Institutional
Servicing ; do you remember?
Mr. Lazarus. I do not think we did.
Mr. Blum. I can perhaps refresh your recollection here. I have a
letter showing payments on 5'58 Scake Avenue in Brooklyn for United
Institutional and signed by Carline Graham, Excambio management.
Is it possible you had a few ?
Mr. Jaffe. I don't think, to the best of my recollection, that that
mortgage was originated with United. It might have been we might
have taken a property subject to that mortgage.
Mr. Blum. I see. Did you buy some property subject to existing
FHA mortgages?
Mr. Jaffe. It would have been very rare, but it is possible.
Mr. Blum. There are several other financial institutions whose names
crop up in the records. The Lawrence Cedarhurst Federal Savings
& Loan, do you recall dealing with them ?
Mr. Jaffe. Again, I am quite sure that we must have taken the prop-
erty subject to their mortgage. You see, if their original mortgage had
been high enough, then there would have been no compulsion to pay
off that original mortgage.
The new Wenhaven could have bought it, putting up sufficient cash
to then inventory that house.
Mr. Blum. Without refinancing it, in fact, and paying off those
points to Eastern.
Let me run several of the names past you. Colonial Realty Co., is that
one that — they seemed to be in the mortgage business too, as a servicer.
Mr. Jaffe. The name is familiar. As a matter of fact, it is even pos-
sible that Eastern gave some of the servicing to other institutions.
Mr. Blum. I see. We find the name of Arrow Savings & Loan Asso-
ciation in Newark, N.J., and the Barton Savings & Loan Association.
814
All correspondence relating to the mortgage payments due to those
institutions from Excambio. You have no recollection of how they
occurred ?
Mr. Jaffe. I am not familiar.
Mr. Blum. Can you tell us who Robarland Realty is?
Mr. Lazarus. They were a group of people that bought houses from
Mr. Wendell.
Mr. Blum. Did they buy them as a group ? Is that how that operation
worked ?
Mr. Lazarus. I think so ; yes.
Mr. Blum. Were those people who you had hung together ?
Mr. Lazarus. No, sir.
Mr. Blum. Had they been in business with a real estate company
prior to the dealings with Mr. Wendell?
Mr. Lazarus. My recollection is that the people who were part of the
Robarland group were sophisticated real estate investors.
Mr. Blum. Do you have any idea of who those individuals were?
Do you remember the names of any of them ?
Mr. Lazarus. There is a man by the name of — —
Mr. Jaffe. Bernie Lichtman.
Mr. Blum. Is he a real estate man ?
Mr. Lazarus. Well, I know he has a separate business. I did not meet
him before this, but I know that he was very much interested in real
estate.
Mr. Blum. What was his other business ?
Mr. Jaffe. I believe in the kitchen cabinet business.
Mr. Blum. I have, again from the files of the corporation, a memo-
randum dated March 22, 1968. It is to LAL — I assume that is Mr. Laz-
arus — from BE J, Mr. Jaffe, and I will read the text of it to you :
Harry Bernstein advises of the following mortgages must be brought up to
date by April 15. As I advised you, these are conventionals, and it is my feeling
he is pushing to get them to go FHA.
We then have underneath that, a listing of a number of ]:)roperties :
"479 Van Siclen, 403 Barbey, 175 Alabama, 416 Shepherd, 185 Ala-
bama, 1513 St. Marks, 17 Wyona, and 1701 Park Place." And there's
an indication that a carbon copy was sent to Carline Graham.
What led you to believe that Mr. Bernstein wanted you to go FHA
on those ? Did he say that ?
Mr. Jaffe. What was the date of that memo ?
Mr. Blum. March 22, 1968. Let me pass this down to you so that you
can look at it.
Mr. Jaffe. If my memory serves me correctly, there were a group of
houses that had been bought at the beginning of the Wenhaven opera-
tion, where Wenhaven was buying and getting financing from Eastern
on a conventional basis.
And then, I suppose, in March of 1968, when the mortgage payments
were behind, I think Eastern was looking for us to give them the deeds,
in effect, and let tliem have the property sold to new owners.
Mr. Blum. Let me see if I can take you tlirougli this. When you fell
behind in mortgage payments, botli with respect to FHA mortgages
and with respect to the conventional mortgages. Eastern wanted you
to assign the property to them, assign the deed in lieu of foreclosure ; is
that the procedure they were looking for ?
815
Mr. Lazarus. I do not know if they were looking for it but, you see,
the demise of the operation came in February and Marcli of 1968. That
is when we just could not meet our obligations. I mean there was just
no more funds to hire people for the maintenance and the management
broke up and other segments took over the management of those prop-
erties at that time.
We no more had the funds to even begin to, you know, to do anytliing
about it. So that in a few — in some instances, in any event, rather than
have a foreclosure, I think Mr. Jaffe would contact Eastern and tell
them — well, they knew the story — and tell them that — or negotiate
with them to take back a deed in lieu of foreclosure.
Mr. Blum. Is that your recollection ? The way it worked, Mr. JafFe ?
Mr. Jaffe. I would think so ; yes.
Mr. Blum. Would they take l3ack the deed in the name of Jet Ware-
house Corp., do you recall ?
Mr. Jaffe. I couldn't recall. With the FHA's, they might have even
gone direct to Fannie Mae or to the FHA.
Mr. Blum. Is it possible that Eastern took the houses that you as-
signed back to them in lieu of foreclosure and then resold them?
Farmed them out to brokers and resold them ?
Mr. Jaffe. I assume that that is what they would do ; yes.
Mr. Blum. You had no particular knowledge of that? It is your
assumpfion that what they did was take them back in lieu of fore-
closure, find a broker, and then resell them again, subject to an FHA
mortgage?
Mr. Jaffe. It was to the advantage of the owner of the property to
have the deed in lieu of foreclosure, rather than to have him go through
a foreclosure action.
Mr. Blum. Why was it to his advantage to do it that way? Cut his
expenses ?
Mr. Jaffe. I don't think any homeowner would want to be named as
a defendant in a foreclosure action if he could avoid it.
Mr. Blum. Well, he was not exactly in that position. It was more
like an investment. Was there some problem about that ? They simply
did not want to be named in a foreclosure action ? I am not quite clear
about that.
Mr. Lazarus. It is just that we felt that for those people, and it was
basically for our own clients who, incidentally formed — I mean as a
result of my recommendations or my thoughts at the time, who formed
the nucleus of this.
We felt that if it was going to end and money was going to be lost,
it would just be a cleaner way and a more definitive way of ending it by
giving the deed in lieu of the foreclosure procedures.
Mr. Blum. Back to Eastern.
Mr. Jaffe. As a matter of fact, if I recall correctly, on the conven-
tioiials. Eastern was willing to give a hundred or 200 dollars for a deed
in lieu of foreclosure.
Mr. Chumbris. It might be pointed out that dealing on credit
bureaus, the minute you become a defendant in a situation such as that,
you automatically have your credit standing affected, if you went to a
lawsuit rather than the procedure you people used.
Mr. Jaffe. I didn't want to have to grope for an answer but obvi-
ously it is best not to be a defendant in such a litigation.
816
Mr. Blum. You have no knowledge of what Eastern did with those
after? It is an assumption. Did you attempt to sell off any of the houses
yourselves? Did you call real estate people and say, "Gee, we are in
trouble. Could you resell this for us ?"
Mr. Lazakus. We asked Kurt Bloom if he could help us dispose of
some of the houses.
Mr. Blum. And was he successful in doing that ?
Mr. Lazarus. No. as a matter of fact, we constantly received calls
from brokers in that area offering to buy the houses at what we be-
lieved to be ridiculous prices.
Mr. Blum. And what did you tell the brokers ?
Mr. Lazarus. We just told them that unless they came up with a
proposition that was fair, we would not consider them on behalf of
our own clients.
Mr. Blutvi. Do you remember the names of any particular brokers
who contacted you?
Mr. Lazarus. No ; I do not.
Mr. Blum. Do you, Mr. Jaffe ?
Mr. Jaffe. No, sir.
Mr. Blum. What other alternatives were there in disposing of those
houses ? Did you abandon any of them ?
Mr. Lazarus. Yes, sir.
Mr. Blum. How many of them ? Do you have any idea ?
Mr. Lazarus. No; I could not name a number, but a number were
just abandoned. Now, after we fell on our face because we could not
perform as we promised, there were other peoj^le who took over the
management of these houses.
Mr. Blum. Who were the people who took over the management ?
Mr. Lazarus. Well, there was a man by the name of Sol Oilman, who
was in the maintenance business in East New York. He took over some,
I believe. I believe some of the people gave him their houses just to
get rid of them.
There was a man, or there is a man, by the name of Harry Sussman
who was one of the original owners and worked in that area, and he
took over the management, and is still managing some of those houses.
Mr. Blum. Now, did those people who took over the management
of the houses bring the mortgage payment current or did they simply
operate them as long as they could pending foreclosure ?
Mr. Lazarus. I think there was an honest effort at least on the part
of some of them to bring the payments to date, because in the last
month or 45 days or 60 days of our operation we were not current.
Mr. Blum. You were not current?
Mr. Lazarus. No, sir.
Mr. Blum. How far in arrears might some of those mortgages you
turned over to Mr. Oilman have been ? Three months, 4 months ?
Mr. Lazarus. It could have been as much as 3 to 4 months.
Mr. Blum. The correspondence and the records we have received
indicate that quite a number of your investors were very angry when
Excambio fell apart; is that a fair way of characterizing their re-
action ?
Mr. Lazarus. I think that is mild.
Mr. Blum. Wliat sort of things did they say ? Did they feel that they
had been taken or what was their response to the situation?
817
Mr. Lazarus. They were just disgusted. Some of them did feel as
though they had been "taken," there is no question about that.
Mr. Blum. Did many of them lose large sums of money?
Mr. Lazarus. Those who invested in the Wenhaven opei-ation, as the
principal operation, lost — some of them lost substantial sums of money ;
yes, sir.
Mr. Blum. And how much money arc we talking about; $50,000,
$100,000 ? What order of investment was lost ?
Mr. Lazarus. I really couldn't answer that. At least in the case of one
or two individuals, as much as $50,000 ; in other instances it was smaller
amounts, anywhere from $2,500 to $5,000 and $10,000, but that money
was a dead loss.
Mr. Blum. Mr. Jaffe, you said before that you attended the closings
on these deals. Who, in these situations, elected the title company ? Did
you, Mr. Jaffe ?
Mr. Jaffe. No ; Eastern did.
Mr. Blum. Eastern did. Were you ever paid any commission for title
insurance by either county
Mr. Jaffe. On the owner's fee insurance? Yes, we would get a
commission.
Mr. Blum. Would you buy an owner's title policy as a matter of
course for the investors ?
Mr. Jaffe. Yes, sir.
Mr. Blum. Would you get a commission on the mortgagee portion
of the title insurance policy ?
Mr. Jaffe. No, sir.
Mr. Blum. ^Ylio got that commission ?
Mr. Jaffe. I would not know if a commission was paid.
Mr. Blum. Do you know if there was an^^ consideration offered for
that business by Inter County ?
Mr. Lazarus. Not to us.
Mr. Jaffe. From Eastern ?
Mr. Blum. Do you know if there was any consideration from Inter
County to Eastern in exchange for using Inter County as the title
company ?
Mr. Jaffe. I wouldn't know.
Mr. Blum. You never heard discussion of that ? I would guess you
have not had any reason to.
Mr. Jaffe. No, sir.
Mr. Blum. How was it tliat you learned that Inter County was the
comj^any that would provide the title insurance? Would they simply
tell you when you came in, "Inter County is the person who does busi-
ness here"?
Mr. Jaffe. Well, in general, there are some institutions that allow the
attorney for the purchaser to order the title insurance ; there are some
institutions that, as a matter of course, order it themselves. Eastern
ordered it themselves, although there were occasions when I saw title
closings from other companies there.
Mr. Blum. Was it your practice to give gratuities to various people
at the closings ?
Mr. Jaffe. Yes, sir. Not various people, just the title closer,
Mr. Blum. Just the title closer?
Mr. Jaffe. (Nodding.)
818
Mr. Blum. We had earlier testimony that the closings in United, it
was not uncommon for the investor, the speculator, to give gratuities
to the title company as well as the closing attorney. That didn't happen
at Eastern, 1 take it ?
Mr. Jaffe. Absolutely not.
Mr. Blum. Mr. Lazarus, do you recall a meeting that convened in
1968 Tvith the various investors, United and Excambio to discuss the
matters that arose ?
Mr. Lazarus. Oh, yes.
Mr. Blum. Can you tell us roughly how many people attended the
meeting ?
Mr. Lazarus. Forty.
Mr. Blum. Forty.
Mr. Lazarus. I am guessing.
Mr. Blum. And what was the substance of the discussion, do you
recall ?
Mr. Lazarus. Yes. I just got up and I just explained to them that
we were completely over our head. We could not do it any longer and
that we would have to ask them to go to their own individual managing
agent, if they could find one. That we had absolutely no funds left.
Mr. Blum. And did a number of them say, "Look, we will take the
property back and figure out some way to handle this ourselves?"
Mr. Lazarus. I do not know how to answer the question. Some did.
Some were very angry with me, extremely angry. They felt I was
completely responsible.
You see, when Mr. Wendell left in July 1966, and it was not quite
as simple — and I know Mr. Wendell remembers part of it, but he had
been ill and it is the truth that I told him in the hospital that he was
no longer required.
There was a disagreement, at the time, between Mr. Wendell and his
coinvestors as to whether Mr. Wendell was performing the services
that he had agreed to perform. And it has always been a question in my
own mind, for the record, whether Mr. Wendell left of his own accord,
precipitated the events that occurred, or whether, in fact, the other —
his partners asked him to leave. I do not think anyone can give that
answer.
But I know that the investors then felt and, frankly, so did I, that
Mr. Jaffe and I, after having gone through this with Mr. Wendell for
a year and a half, could continue the operation.
We then found out, to our own chagrin, that we certainly could not.
Mr. Blum. There was no w^ay to keep this business afloat ?
Mr. Lazarus. There was no way out. We could not handle the main-
tenance ourselves. We hired a man by the name of Sol Eoehmer, who
had been introduced to us as somebody who would be expert in this,
and he could not do it.
One of the gentlemen, by the name' of Messenger, who owned about
a dozen houses, conventional houses, we signed a contract with him for
him to maintain the houses, and he walked away from it.
We discussed with Mr. Sol Gilman his taking over the maintenance.
All we wanted was for them to take over the maintenance on the basis
of the fact that our investor, our homeowner, could obtain the return
that we had promised or, at least, a part of that return.
819
But the expenses had increased so tremendously, and the problems in
that area so tremendously, that no one wanted to undertake that for us.
Mr, Blum. What percentage of the mortgages were involved in this
would you say were FHA and what percentage would you say were
conventional ?
Mr. Lazarus. I don't know. The majority were FHA, but that was
initially. But it was our desire to go away from the FHA.
Mr. Blum. I recall that you discussed that earlier. You were aware
of the limitation of four houses to a single investor ?
Mr. Lazarus. I have been so informed ; yes.
Mr. Blum. And that limitation you feel was respected by Excambio ?
Mr. Lazarus. To my knowledge, it was strictly adhered to.
Mr. Blum. Was it perhaps knocked around a bit by having other
members of a person's family take houses? Do you recall that? The
husband take four and the wife take four ?
Mr. Jafte. To my knowledge, I do not believe so ever.
Mr. Blum. If a joint tax return were filed by a husband and wife,
the tax shelter would be available to cover husband's income or wife's
income, wouldn't it ?
Mr. Lazarus. I am not a tax practitioner, but I do assume so.
Mr. Blum. Did it ever occur to you that the FHA rule of no more
than four to a customer may have been invoked or may have been
placed by FHA because FHA knew that you could not really handle
more than four of that kind of property reasonably ?
Mr. Lazarus. I really do not know, because this is the first time Mr.
Jaffe and I ever got involved in a real estate venture of any kind of
this size. So I have no idea wh}^ that restriction was placed.
Mr. Blum. What were the nature of the conversations that you had
with Mr. Bernstein ? Did you know Mr. Bernstein ?
Mr. Lazarus. I did.
Mr. Blum. What were the nature of your contacts with him ?
Mr. Lazarus. I believe that I had only one contact with Mr. Bern-
stein and that was — ^it must have been in July or August of 1966, when
we had the accounting firm of Touche-Ross take over our books.
They prepared an opening statement and in connection with the
banks we went to, we also went to Eastern Service, to see whether we
could borrow from him. Not just now borrowing on a house-to-house
basis, but if we showed a statement of a quarter of a million dollai"S,
and we were in business, and that it was a good record, that they would
advance, as a loan, an amount of capital.
Of course, they said before that we were unsuccessful, but we also
went to Mr. Bernstein to see whether he would do that, because we
understood that he was the largest on Long Island, and he refused.
Mr. Blum. He then, obviously, was fully aware of the nature of the
business. Did he feel he had a lock on Excambio's mortgage business
and would show no reason for him to invest further ?
Mr. Lazarus. An opinion I think, sir. As a matter of fact and, again,
forgive me, I am not that sophisticated nor was I at that time in the
financing area, but I had the feeling that Eastern Service was almost
the only service company you could go to.
I just had that feeling that he did that big a business. He was the
largest mortgage broker on Long Island and when Mr. JafFe was not
820
there on a few closings that I handled personally, if he had 10 closing
rooms, they were all full and all the people were waiting for the next
ones.
Mr. Blum. An enormous volume of business. Mr. Jaffe, did you have
any conversation with Mr. Bernstein ?
Mr. Jaffe. I was out at the Eastern office, you know, very often and
other than exchanging pleasantries, I cannot recall any specific meet-
ing with him ; no, sir.
Mr. Blum. And to go back to that memorandum, you have no further
recollection of specific discussion of FHA conversion and what have
you ?
Mr. Jaffe. No, sir ; I do not.
Mr. Lazarus. I may have had one other conversation with Mr. Wen-
dell, and that was over the points he was charging.
Mr. Blum. What was the substance of that ?
Mr. Lazarus. Pleading with him to reduce the points. They had be-
come — and I disagree with what Mr. Wendell said before. The number
of points that were paid, to my knowledge had nothing to do with the
quality of the house.
Mr. Wendell disagrees with me, but my recollection is the number of
points depended upon the money market at the time ; and when money
was tight, I seem to remember that he went up to as high as 14 points
on a mortgage.
So that if you had a mortgage at $16,000, you were paying Mr. Bern-
stein in points alone $2,000, and I think that on Mr. Wendell's behalf,
I went with Mr. Wendell to see Mr. Bernstein and we just could not
move him. That was it.
Mr. Blum. Did it ever occur to you to try to find some other mort-
gage company w^hich would not charge you as much points ?
Mr. Lazarus. From what I understand from Mr. Wendell, the
smaller mortgage companies were charging even more.
Mr. Blum. "VVlien some of the investors became very insistent, was
there any way of your satisfying them ? Were any of them ever paid
off to any degree ?
Mr. Lazarus. Well, yes. In a number of instances, there were moneys
due to the fuel company. In a number of instances, I personally paid
those fuel bills.
In addition to that, there were some people who had bought some
houses at the end, at the end of our operation, and they felt that it was
wrong of us — not unfair — but wrong of us to even sell them a house
at that stage of the operation, and they were not wrong.
Actually, they should not have been sold a house. The wish Avas
father to the thought. We thought we could do it. We could not.
I personally reimbursed them for the ^ost of the houses.
Mr. Blum. What was the effect of this whole affair on your law
practice and on your relationship with the clients that you had steered
into this?
Mr. Lazarus. Thank God I had some nice clients. Although they held
it against me, and I can't say that my practice was not affected, it was,
but not as badly as I thought it could have been.
If I may, I would like to clear one other thing up that Mr. Wendell
said. We never received a commission on the sale of the houses. A& a
matter of fact, if Mr. Wendell's memory would come back to him, on
the very first house that he sold to a client at my office, he offered us a
commission check which I tore up. I explained to him that I was in
821
the practice of the law, and I was not going to take any commissions on
any work that I did for him.
With respect to our compensation, though we received in 1967, if
that be the figure, $47,000, that is not a realistic figure.
Mr. Jaffe and I had occupied two small rooms in another attorney's
office. As this grew, and we really had faith in it, we took on a 3,000-
foot floor, and we furnished it ourselves at a substantial cost. If I re-
member, it was over $40,000.
We hired other attorneys because we were that active. So that was to
compensate us in part for what we were doing for the operation.
So I want it clear that we accepted no commissions at any time.
Mr. Blum. Do you feel that on balance you made or lost money in
your association with Mr. Wendell ?
Mr. Lazarus. I am sad to say that I think that on balance we lost
money, but that was not Mr. Wendell's fault. I do not want to leave
the committee with that idea.
I think that his thought was an exceptionally clever one, and it could
have worked to everybody's advantage.
In addition, Mr. Blum, if you will, when this thing started to grow,
I asked Mr. Wendell, Mr. Jaffe, and I, to charge us with the manage-
ment to protect the peojile that we were bringing into that.
He agreed to that. We asked him to get the best accounting firm he
could on the books because we wanted no problems, and that is how
Touche Koss got hired.
Mr. Blum. And those guarantees were obviously not adequate to
the situation?
Mr. Lazarus. No, sir; they just were not. That was an economic
circumstance.
Mr. Blum. Nowhere along the line did you have the feeling that you
were doing anything improper? Anything that evaded FHA regula-
tion, or anything tliat might have even remotely smacked of illegality ?
Mr. Lazarus. Absolutely not. In the beginning I had a qualm about
the entire operation. It just seemed too good to be true. It was working
that smoothly.
But at a given point, a number of people, and one in particular, a
gentleman who invested a substantial amount of money, came in with
his accountant and his attorneys and his accountant, I believe, did an
audit of our books.
He gave us, I suppose, a breakdown of mode of operation. I believe
you took that from us. He gave us a projection based upon our past
history.
And with men that I believed were sophisticated, as the Robar Land
group, and invested the moneys that they did, we felt that we were not
wrong: that this could have* been, or would have been a successful
operation.
Mr. Blum. But coming back to that FHA rule, that limitation of
four to a customer, did it ever occur to you that that limitation was to
prevent FHA programs from being uskl as a device to set people up
in the real estate business with a relatively limited amount of capital?
Mr. Lazarus. I do not understand your question. It is a long one.
Mr. Blum. Well. FHA says that\you can't have more than four
houses in which you don't live subject to Government insurance. The
basic intent of the Housing Act is to guarantee homeownership for
individuals, and perhaps in a case of that program, some additional
ownership where the individual himself is managing.
822
The entire thrust of this operation was to use this Government insur-
ance or guarantee program which expanded over many investors, and,
in effect, allowed one corporation to manage many, many properties.
Did you ever have the feeling that this was an evasion of the inten-
tion of the Federal housing program ?
Mr. Lazarus. No; because I frankly never understood why there
was the limitation. I understood why the downpayment was higher in
the case of a nonoccupant owner.
Mr. Blum. You have testified that the city welfare department was
aware of your operation ; that the Dime of Williamsburg was aware of
it, as were a number of other banks that you approached in an effort
to borrow money.
Do you think that FHA was aware of it because of the number of
houses you were closing ? Did you ever have any contact with them ?
Mr. Lazarus. We never had any contact with the FHA.
Mr. Blum. That was all Mr. Bernstein ?
Mr. Lazarus. That was all Mr. Bernstein.
Mr. Jafte. Wliat they did know, without any question, was that all
these houses were being bought by owner nonoccupants.
Mr. Blum. They knew that there was a large volume of owner non-
occupants coming from a particular neighborhood in Brooklyn ?
Mr. Jaffe. Right.
Mr. Blum. That would be the only clue to the operation that they
might have?
I have no further questions, Mr. Chairman.
Mr. O'Leary. Mr. Lazarus, perhaps you have already given testi-
mony on this point and I missed it. I was gone for a brief period.
Approximately how many properties did Excambio manage ?
Mr. Lazarus. I am not sure at this date. It could have been as much
as 150, but I think Mr. Wendell — his figure is all off.
That is within the ball park. Ten or To or 20, either which way. It is
in that area.
Mr. O^Leary. Excambio was in existence from when to when,
approximately ?
Mr. Lazarus. I am guessing — about two and a half years.
Mr. O'Leary. That would be somewhere from 1967 to 1969—1966
to-
Mr. Lazarus. No. It ended in the very early part of 1968. I think
we started it in 1965.
Mr. O'Leary. You indicated some very specific disagreement with
Mr. Wendell's testimony as to the reason points were paid, or one of
the reasons that points were paid.
Wasn't it common knowledge that mortgage companies competed
in that area for getting essentially bad deals through the FHA
Mr. Lazarus. I'm sorry. I didn't hear you.
Mr. O'Leary. Wasn't it common knowledge at the time that different
mortgage companies competed on the basis of getting bad deals through
the FHA?
Mr. Lazarus. Not to my knowledge.
Mr. O'Leary. Mr. Jaffe?
Mr. Jaffe. Not to my knowledge, sir.
Mr. O'Leary. The testimony of both of you is that Eastern did not
have such a reputation; namely, one tliat it could get practically any
deal through ? You never heard that in the course of two and a half
years ?
823
Mr. Jaffe. Not I, sir,
Mr. Lazarus. If I may, sir, that is pure conjecture. We knew that
they dealt with them as close as they did. My recollection is that the
FHA was in the same buildino;, so we assumed a relationship between
Eastern and the FHA.
Mr. O'Leary. One last question. Do you know how many Excambio
managed properties ended up in foreclosure?
Mr. Lazartjs. No ; that we don't.
Mr. Chtjmbris. I am not so sure that it will be clear in the record.
You started off with the premise that you handle conventional loans.
Is that correct ?
Mr. Lazarus. Yes.
Mr. Chumbris. As these questions went back and forth, the im-
pression in the record is going to be that you ended up with a lot of
FHA loans.
Mr. Lazarus. It started FHA.
Mr. Chumbris. You moved from FHA? I would like to get it clear
for the record because I am sure you gentlemen would want to be clear.
Mr. Jaffe. There were always some deals that were FHA, and some
deals that were conventional. There were always more FHA deals than
conventional deals.
There came a point in time when it was recognized that we would be
better off only on conventional deals if that could happen.
That is when the new corporation was formed. Substantial capital
was put in. Mortgages were originated by the Wenrus Corp., and then
they tried to sell at least a participation interest in those mortgages
to other institutions.
Throughout the entire period of time, they were doing FHA's.
Mr. Chumbris. Now, let's say the added venture of going — at first
you said that about 70 or 80 persons, investors, were in the buying of
the houses, and then Mr. Wendell thought that perhaps because of the
fact that Eastern was raising its fees, or their interest, or whatever
the case may be, he decided to go into his venture of creating his own
mortgages.
Is that right?
Mr. Jaffe. Eastern was only part of it. The other part was that
the price of the house that was FHA'able was always increasing
throughout this time.
Mr. Chumbris. Then you created the second corporation?
Mr. Lazarus. That's right. The Wenrus Corp.
Mr. Chumbris. You had about 12 people in that?
Mr. Lazarus. The 12 people were in Wenhaven. Wenhaven owned
all the stock in Wenrus and Excambio. So it was one unit under three
corporate entities doing three different things.
Mr. Chutvibris. Wimt I was trying to get at for the record, did this
move of trying to create a separate unit for the mortgages have any
impact on the failings as a result ?
Mr. Lazarus. It had an impact to the extent that we were able ini-
tially to sell our mortgages, the mortgages we took, to the banks on a
conventional basis.
It killed us when the bank stopped because then we thought — well.
for example, Mr. Sharkey at tlie bank — figures, now — I'm not sure, but
they initially took a package of four from us.
824
That meant they gave us $40,000. That was $40,000. At the second
meeting they took three more. So we now had $70,000 back out of the
moneys that we had laid ont to buy the houses all cash.
Now when they stojiped, we still had an inventory of houses which
were bought anticipating we could discount them with the Williams-
burg Bank and/or one of the other banks that we had approached.
But at that juncture, that is when the banks cut us off completely,
and they just would not give mortgage money, conventional mortgage
money, in the East New York area,
Mr. Chumbris. That is the point of my question. Let us assume that
you never once went into this facet of creating your own loans and
selling them to the banks. Would you have fallen into the difficulty
that you finally reached ?
Mr. Lazarus. Yes, we would have.
Mr. Chumbris. You would have ? So that did not enter into it ?
Mr. Lazarus. It hastened it.
Mr. Chumbris. Well, the only purpose of my getting into this area
is the testimony of Franklin Thomas who is the president of the Bed-
ford-Stuyvesant Restoration Corp.
He testified in his statement, and I would give you the page number,
but he did not number the pages. I will read it. It is about halfway
down.
However, prior to Restoration's involvement in tlie area of liome credit, mort-
gage loans on reasonable terms for small and medium sized residential properties
were not available in Bedford-Stuyvesant as they were in other areas.
The volume of FHA insured loans was very low. The area was red lined by
FHA and most banks. The mortgage loans that were available were obtainable
only at a very high effective interest rate.
The pattern of financing that emerged usually involved several concurrent mort-
gages on a single home, with very short pay back periods.
He goes on to point out that following — there is an illustrative ex-
ample. I will read that back into the record.
A family desired to purchase an eighteen thousand dollar home would be re-
quired to pay two thousand dollars as a cash down payment. They would then
have to finance the balance with two mortgages totalling eighteen thousand in
face value (But discounted to net them only sixteen thousand).
The first one, the twelve thousand dollar one payable in ten years, and the
second, the six thousand dollar loan, payable in five years.
It goes on.
Assuming the interest would amount to about $249 per family, whereas if you
went through a twenty-five year, — I assume he is talking about an FHA loan —
it would only be about $103 a month.
Now, the type of conventional loans that were obtained in your op-
eration, would that be similar to the example he has used here ?
Mr. Lazarus. Oh, no, sir.
Mr. Chumbris. It would not ?
Mr. Lazarus. Oh, no. Our conventional loans were straight mort-
gages. As a matter of fact, in addition Wenrus, was able to sell our
mortgages to private sources.
One of our stockholders, I believe, bought a series of about seven or
eight mortgages himself, but they were just single mortgage. There
was no double mortgaging, no purchase, no second mortgage, or any-
thing like that.
Mr. Chumbris. But you did point out in your statement earlier that
you felt, and I guess your partner, and Mr. Wendell felt that the op-
eration as it started initially was one that was needed for that partic-
825
iilar area, and one that could have been successfully operated had you
not run into the problems ?
[Testimony resumes on p. 859.]
Material Relating to the Testimony of Lester A.
Lazarus and B. Edward Jaffe
EXHIBIT 1
List of Authorized Signatures
Authorized Signator's on Corporate CHECKb
Excambio Management : Chase Manhattan Bank, 60 East 42nd Street : Lester
A. Lazarus, B. Edward Jaffe.
Security Savings Account, Federation Banlc & Trust Company : Lester A. Laza-
rus, B. Edward Jaffe.
Wenhaven Realty Corp., Cliase Manhattan Banlv : Morris Wendell, Corinne
Wendell, Kurt Bloom.
The Wenhaven Corp., Federation Bank & Trust : Morris Wendell, Kurt Bloom.
Corinne Wendell, Sol Goldberg.
The Wenhaven Corp., Payroll Account Federation Bank : Morris Wendell,
Marie Hey man.
The Wenrus Corp., Chase Manhattan Bank : Morris Wendell, Kurt Bloom,
Corinne Wendell.
(The memorandum referred to follows :)
(Material relating to testimony of Lester Lazarus and B. Edward Jaffe:)
Exhibit 2. — Memorandum to Lester Lazarus From Edward Jaffe Dated
March 22, 1968
Mach 22, J.968
TO: LAL
FROM: BE J
Harry Bernstein advises that the following mortgages must be brought
up to date by April 15th.
As I advised you, these are conventtonals and it is my feeling that
he is pushing to get them to go FHA. aULj
rUj^^'479 Van Siclen?^, W Vi f -- / r^
403 Barbey
175 Alabama
416 Shepherd
185 Alabama
1513 St. Marks vZ/t/^^
^^^^2^;^^_^-1701 Park Place
bej/ea
CC: CARLINE GRAHAM
83-703 O — 73— pt. 2b-
826
Projection of Wenhaven Operations
EXHIBIT 3
100 HOUSES PER YEAR-PROJECTION
THE WENHAVEN CORP. AND SUBSIDIARIES PROJECTION 1967
Total
Wenhaven
Wenrus
Excambio
$30, 000
15, 600
10, 400
9,100
6,500
71,600
500, 000
500, 000
71,600
2,020
48, 000
6,000
14, 400
3,745
600
21,912
2,400
2,400
10, 400
7, 020
6,500
4,680
6,500
2,600
37, 700
44, 388
16, 200
60, 588
Payroll:
Morris Wendell, president ($2,500 per month) $30,000
Kurt Bloom, supervisor ($300 per week) 15,600
Norman Greenspun, controller ($200 per \Neek) 10,400
Herman Horowitz, bookkeeper ($175 per week) 9, 100
Carline Graham, clerk ($125 per week) 6, 500
Frank Cooperman, supervisor ($200 per week) 10, 400
Harold Wagner, clerk ($135 per week)._ 7, 020
Sylvester Williams, maintenance-rent ($125 per week) 6, 500
William Lewis, maintenance-rent ($90 per week) 4,680
Roscoe Black, maintenance ($125 per week) 6, 500
Robert Black, maintenance ($50 per week) 2,600
Total payroll ($1,525 per week) 109,300
Income:
Excambio, 9 percent, 137 units ($27 per month) 44,388
Excambio 9 percent, 100 units ($13.50 per month) 16, 200
Wenhaven sales 100 unitsat 5,000. _._. 500,000
Total income. _ _ 560,588
Expenses:
Payroll, Above 109,300
Payroll taxes, NYUC 0.034 FUC .004 SS .044 4, 170
Lester Lazarus, legal ($4,000 per month) .._ 48,000
Audit ($500 per month) 6,000
Rent ($1,200 per month),. 14,400
Telephone ($100 per month) 1, 200
Auto rental ($312.04 per month) 3,745
Auto and truck expenses (incl. ins ) ($200 per month) 2, 400
Office supply and expenses ($100 per month) 1, 200
Interest expense ($1,826 per month). 21,912
Frank Cooperman expenses ($100 per week) 5,200
Repairs and maintenance materials ($1,000 per month) 12,000
Contractors and/or maintenance men $1,800 per month).. 21, 600
Travel and entertainment ($200 per month) 2,400
Directors' fees, 4 meetings (6 directors at $100) 2,400
Miscellaneous (insurance, contribution, extra legal, etc.)
Total expenses
Net profit or (loss)
Transfer Excambio Loss (2,244 House month at $10.37)
Net profit before taxes
Faxes Federal 22-26-28 City 5i^ State 5H --
Available for dividends $28.86 per share equal 28.86 percent
37, 700
2,150
1,200
2,400
600
5,200
12, 000
21, 600
7, 500
6,500
1,000
263, 427
179, 577
83, 850
297, 161
320, 423
(23, 262)
(23, 262)
23, 262
297, 161
152,861 ...
297,161 ...
144, 300 .
1 No provision for profit on mortgage points.
2 No provision for reduction of interest expenses after bank takes mortgages.
3 Assumed sale of 100 units at even rate during year.
* Each additional house sold will yield $5,000 profit plus $27 per month before taxes.
» No provision made for rehabilitation units project.
827
Rental Straight line 50 percent
cash depreciation bracket cash
flow 15yrs Taxable profit flow after tax
Annual amortization $14,000 15 years:
$588
$630_
$672
$714
$756
$798
$854
$910
$952
$1,022
$1,078...
$1,148
$1,218
$1,288
720
1,133
175
632
720
1,133
217
611
720
1,134
258
591
720
1,133
300
570
720
1,133
342
549
720
1,134
385
527
720
1,133
441
499
720
1,133
497
471
720
1,134
540
450
720
1,133
610
415
720
1,133
666
387
720
1,134
735
352
720
1,133
805
317
720
1,133
895
282
Note: Last year net cash return after taxes equal 6.26Ji percent based on $4,500 investment. Col. 1 plus col. 2 minus
col. 3 equal col. 4.
EXHIBIT 4
Letter from Leonard L. Bellet to the Senate Antitrust and Monopoly
Subcommittee dated May 23, 1972
Flair fob Fashion,
Richmond, Va., May 23, 1972.
Mr. Jack A. Blum,
Assistant Counsel, Antitrust and Monopoly Subcommittee,
Washington, D.C.
Dear Mr. Blum : Per your request and in a spirit of full cooperation, I am
enclosing the entire file with regard to the Wenhaven and Excambio matters.
A great deal of time has elapsed since I was completely familiar with those
problems. I apologize for not being able to give you more information than that
which is enclosed.
Since I am mo.st anxious to see justice done and also to recover, if possible, my
great losses please feel free to call on me when necessary.
After you have u.sed this information plea.se return it to me so that the memory
of a bad deal will be a warning for the futux-e.
I remain most cooperatively.
Sincerely yours,
liEONARU L. Bellet.
Letter to Lester Lazarus From Leonard Bellet Dated Dec. 13, 1966
EXHIBIT 5
Flair for Fashiox,
Richmond, Va., December 13, 1966.
Wenhaven Realty Corp.,
New York, N.Y.
(Attention of Mr. Lester A. Lazarus) .
Dear Lester : It was nice meeting with you last week. I was particularly im-
pressed with your operation, and I want to thank you for the courtesies extended
to me and for your patience and understanding I am most grateful.
After great consideration I have decided to purchase two units, the check.s for
which are enclosed herewith in the amount of $9000. Please see what you can do
and ask also Mr. Wendell to select two nice units.
I assume that the papers and agreements will be sent to me within a reasonable
time.
Please arrange to put the property in the name of Leonard L. Bellet and
Selma G. Bellet, 4706 Monument Avenue, Richmond, Virginia.
828
If there are any further questions or details on either of our parts I think it
would probably be wise to use the telephones.
I have also decided that I would like to purchase in that holding company an
amount of stock in the value of $5000. I am so advising Norman Greenspun today.
If this is available he will advise me as to whom to issue the check and that will
for the moment get us started.
It is my hope that this is the start of a very pleasant profitable and important
relationship between all of us and I shall look forward to meeting you soon again
and also to the prospect of acquiring additional units.
Most sincerely,
Leonard L. Bellet.
Enclosures.
EXHIBIT 6
Wenhaven Corp., financial statement to Dec. 31, 1966
The Wenhaven Corp. and Subsidiary Companies — Report on Examination of
Financial Statements and Additional Information for Period From July 1,
1966 (Inception) to December 31, 1966
ToucHE, Ross, Bailey & Smart,
Newark, N.J., February 28, 1967.
Board of Directors,
TJie Wenhaven Corp.,
New York, N.Y.
We have examined the accompanying consolidated balance sheet of The Wen-
haven Corp. and subsidiary companies as of December 31, 1966, and the related
consolidated statement of income and retained earnings for the period July 1, 1966
(date of inception) to December 31, 1966. We have assisted the Corporations by
summarizing transactions recorded by Company employees on its records and by
making appropriate adjustments.
Except that we have assisted in summarizing transactions and making ai>
propriate adjustments our examination was made in accordance with generally
accepted auditing standards, and accordingly included such tests of the account-
ing records and such other auditing procedures as we considered necessary in the
circumstances.
In our opinion, the financial statements referred to above present fairly the
consolidated financial position of The Wenhaven Corp. and subsidiary com-
panies at December 31, 1966 and the results of their consolidated operations for
the six months then ended, in conformity with generally accepted accounting
principles.
Touche, Ross, Bailey & Smart,
Certified Public Accountants.
Consolidated balance sheet, Dec. 31, 1966
ASSETS
Current assets :
Cash $100, 530
Receivables :
Rent arrearages 12, 597
Mortgages receivable, current installments 15,924
Other 9, 310
Property held for sale, at cost (collateralize mortgages payable)— 74, 344
Deposits on real properties (note 2) — .: 18,752
Total current assets 231,457
Mortgages receivable, of which $113,867 collateralize notes payable,
less current installments 348,472
Deferred renovation costs (note 1) 14,707
Rental property, at cost (collateralize mortgages payable) 35,301
Utility deposits 1-420
Organization expenses, less amortization of $425 3, 825
Total 635, 182
829
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities :
Notes payable, collateralized bj' mortgages receivable 82, 764
Mortgages payable — collateralized by property held for sale 64, 000
Due to property owners 19* 602
Customers' deposits (note 2) 75,500
Accounts payable, withheld taxes and accrued expenses 23^ 408
Escrow payable — real estate taxes 4J O4o
Dividend payable 9^ qqq
Due to Wenhaven Realty Corp 8^ 251
Federal income taxes payable 3] 086
Total current liabilities 290,251
Mortgages payable — collateralized by rental property 32^ 741
Tenants' security deposits 27,018
Deferred income (mortgage discounts) 3^940
Stockholders' equity :
Capital stock :
Authorized 5,000 shares, no par value
Issued 4,800 sliares (of which 2,300 shares have a preference
in liquidation of $100 per share), stated value 280, 000
Retained earnings ^ 1,232
Total 281, 232
635, 182
Consolidated statement of income and retained earnings for period from July 1,
1966 (inception) to Dec. SI, 1966
Sales of properties (includes $165,561 to stockholders) $438, 726
Cost of sales of property 360, 552
Total 78, 174
Management fees (of 130 properties managed, 33 were owned by
stockholders) 17, 031
Interest — mortgages 8, 575
Total 103, 780
Operating expenses (including interest of $6,398) 101, 127
Income before extraordinary items 2, 653
Extraordinary items (including $7,082 net proceeds of fire loss and
$4,165 commission income) 12,883
Income before taxes on income 15, 536
Federal, state and city taxes on income 4, 704
Net income 10, 832
Dividend declared on capital stock — ^$2.00 per share 9, 600
Retained earnings at end of year 1,232
NOTES TO FINANCIAL STATEMENTS
(1) The Company is engaged in the saie ana management of real properties.
The management of properties is performed under contracts, the terms of which
include an obligation to renovate and obtain tenants for such properties. Costs
of appliances and renovation are amortized over twenty-four months, the life of
the average lease.
(2) The Company accepts deposits from customer-inve.stors to be u.sed for the
purchase of real propertie.'^ for them. At December 31, 1966, a substantial number
of real properties on which the Company has placed deposits were for properties
against which sale commitments and deposits from investors were on hand.
830
accountants' report on additional information
In connection with our examination of the financial statements of The Wen-
haven Corp. ard subsidiary companies for the period July 1, 1966 (date of in-
ception) to December 31, 1966, we have reviewed the additional information
presented in the following pages which has been taken primarily from the ac-
counting and otlaer records of the companies, but which is not, in our opinion,
necessary for a fair presentation of its financial position or results of operations.
Our examination was intended primarily for the purpose of formulating an
opinion on the basic financial statements taken as a whole and was not such as
to enable us to express an opinion as to the fairness of all the details of the addi-
tional information. However, nothing came to our attention which, in our judg-
ment, would indicate that such additional information is not fairly presented.
ToucHE, Ross, Bailey & Smart,
Certified Public Accountants.
If
MORTGAGES RECEIVABLE, DEC. Sl,.1966
Mortgages
Receivable
Assigned as
collateral
to secure
notes payable
in amounts
of-
Property
Total
Due within
1 year
Due after
1 year
5-percent interest rate mortgages held by "Wenrus":
1907 Sterline _
$13, 658
11,621
13, 757
13,757
13,757
13,757
12,771
13,457
12,682
$615
740
609
609
609
609
361
627
571
$13,043 1
10,881
13,148
13,148
13, 148
13, 148
12,410
12,830
12,111
130
556
Fountain.
Hendrix.
y $46,917
87A
Somers
674
527
611
1094
555
Linwood
Van Siclen
Belmont
Sutter..
Schenck
9,313
8,707
9,120
8,707
132
Subtotal
Fountain.
Blake....
St. Marks
Scheck
Van Siclen
Linwood
Cleveland
Monfauk
Newport
Bradford
Jerome
New Jersey
Warwick
119,217
13,757
13,855
13, 855
13,855
13,854
13,952
13,952
13,952
13,952
13,951
14,000
14, 000
14,000
14,000
14, 000
14, 000
5,350
609
603
603
603
603
596
596
597
597
597
594
594
594
594
594
594
113,867
13, 148 .
13,252 .
13,252 .
13, 252 .
13,251 .
13,156 .
13,356 .
13 355 .
13,355 .
13,354 .
13,406 .
13, 406 .
13,406 .
13,406 .
13,406 .
13,406 .
82, 764
1093
1473
584
424
602
763
280
427
289
607
540
500
942
614
592
Ashford -.
Total
342, 152
14,918
327, 234
82,764
"Wenrus"
Savings
731
participation in mortgages held by Dime
Bank of Williamsburgh:
Sackman
2,230
2,322
3,292
3,341
3,095
4,745
3,119
104
105
147
146
144
217
143
2,226 .
2,217 .
3, 145 .
3, 195 .
2,951 .
4, 528 .
2,976 .
717
Sackman
585
1505
433
Logans
St. Marks
Warwick
Berriman
224
429
Warwick
Total
22, 244
1,006
21,238 .
Grand total
364, 396
15,924
348, 472
82, 764
831
PROPERTIES HELD FOR SALE, AT COST, AND MORTGAGES THEREON— DEC. 31, 1966
Cost
Mortgage
686— Hendrix..
586— Hinsdale.
520— Essex....
414— Jerome..
614— Williams.
Total...
$16,340
$14,000
12,828
11,500
16, 099
14,000
15,319
14,000
13, 758
10, 500
74, 344
64, 000
DEPOSITS ON PURCHASES/SALES OF PROPERTIES-DEC. 31, 1966
720— Cleveland
863— New Jersey
680— Schenck
636— Essex...
669— Hendrix...
683— Cleveland
453-Miller
554— Ashford... :
490— Ashford....
660— Schenck
352— Wyona
381— Bradford
550-Ashford.. _
477— Jerome
673— Hendrix... _
218— Montauk .'
265— Milford
570— Wyona
218— Montauk
534— New Jersey
615— Ashford...
601— Snediker
661— Williams
586— Hinsdale _
614— Williams
329— Jerome
677— Shepherd
520— Essex...
414 — Jerome
686— Hendrix
Total... _ 18,752
Purchases
Sales
$925
$1,000
750
4,500
2, 750
4,500
750
4,500
750
1,000
750
1,000
750
500
500
1,000
250
4,500
750
1,000
500
4,500
850
4,500
1,000
1,000
1, 000
4,500
750
4,500
1,000
4,500
750
1,000
1,000....
1,000....
1,000....
500 ....
239 ....
238 ....
4,500
4,500
4,000
1,000
4,500
4,500
4,500
75, 500
Accounts payable, withheld taxes, and accrued expenses, December 31, 1966
Accounts payable :
M. Levy, hardware, supplies, etc $3,380
M. Goldstein, roof repairs 315
Powell Lumber, lumber, glass, etc 342
St. Albans Appliances, stoves and refrigerators 1, 738
J. CoUucci, painting, plastering, repairs 566
Palladium Restaurant, entertainment 220
N. Greenspun, travel 281
L. A. La'-carus, legal (disbursements) 427
Touclie, Ross, Bailey & Smart, accounting fee 3, 500
Wechter Fuel, fuel oil and repairs 5, 738
'•- .-T,:., .•■,.■'■;■_._ 1,140
Total 17, 647
Payroll taxes withheld and accrued 2,402
Accrued interest 1, Tlo
Garnishee payable 25
New York State and New York City taxes on income 1, 619
Total 23. 408
832
THE WENHAVEN CORP. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DETAILED) FOR PERIOD FROM JULY 1, 1966
(INCEPTION) TO DEC. 31, 1966
Total
Property
sales and
mortgages Management
Sales of properties
Cost of sales:
Purchases— land and buildings
Mortgage placement costs— "Points'
Other closing costs
Legal f ees. _
Commissions
$438, 726
$438, 726
310,627
14, 654
12,946
13,750
8,575
310,627
14,654
12,946
13,750
8,575
Total, cost of sales.
Total
Management fees.
Interest
Total.
360, 552
360, 552
78, 174
78, 174
17,031
$17,031
8, 575
8,575 ...
103, 780
86, 749
17, 031
Salaries:
Officer
Office
Management of properties.
Other operating expenses
Total
Operating profit/(loss).
15,000
21, 565
9,489
55, 073
101,127
2,653
Extraordinary income:
Net proceeds of fire loss.
Commission on sale of 3 properties by Wenhaven Realty Corp.
Net rental income
Sundry other income
7,082
4,165
988
648
Total
Earnings before taxes on income
Federal, State, and city taxes on income
Net earnings
Dividend declared on capital stock— $2 per share.
Retained earnings at end of year
12,833
15,536
4,704
10,832
9,600
1,232
15,000
21,565
33, 846
70,411
16, 338
4,165
988
648
5,801
22, 139
4,704
17,435
9,600
7,835
9,489
21, 227
30,716
(13,685)
7,082
7,082
(6, 603)
'(6,'663)
(6,603)
SCHEDULE OF SALES AND COST OF SALES (BY PROPERTY) FOR PERIOD FROM JULY 1, 1966 (INCEPTION) TO
DEC. 31, 1966
Cost of property
Sales price
Property
Purchase
price
Points
Other closing
costs
Total costs
Gross spread
554 Schenck
$16,234
14,420
11,235
15,406
15,278...
$1,424
1,256
1,196
1,440
$1,188
1,076
1,089
1,149
$18, 846
16,752
13,520
17,995
15,278
11,098
10,205
11,873
12,071
17,218
15,234
17,745
11,337
15,577
15,791
11,400
16,817
17,507
9,959
10,269
8,159
11,695
10,324
10,730
10,827
$22, 000
19,900
19,450
22, 200
13, 226
14,750
14,750
14,750
14,750
19,450
18,150
20, 500
18,000
18,850
19,100
18,000
16,100
20, 300
18, 500
18,000
19,000
14,750
14, 750
14,750
14,750
$3, 154
359 Atkins
3,148
603 Williams
2034 Strauss
481 Hegaman.
5,930
4,205
(2,052)
731 Sackman
11,098
3,652
584 Schenck
10,205
4,545
1473 St. Marks
424 VanSiclen
11,873 ...
12,071 .
2,877
2,679
621 Hendrix
475Snediker
15,006
12,895
15,305
11,337 ...
13,405
12,980
1,346
1,256
1,395
1,292'
1,369
i,"459'
1,221
866
1,083
1,045
880"
1,442
â– " 1,072'
1,100
415
541
2,232
2,916
384 Atkins
2,755
540 New Jersey
682 Schenck.. .
6,663
3,273
597 Logan
3,309
500 Warwick
11,400 ...
6,600
329 Jerome
904 Stone
14,286
15,186
(717)
2,793
942 Dumont
614 Junius
9,544 ...
9,728 ...
8,541
7,731
592 Ashford
8,159 ...
10,841
608 Jerome
11,695 ...
10,324
3,055
280 Montauk
4,426
602 Linwood
10,730 ...
4,020
763 Cleveland
10,827
3,923
Total
310,627
14, 654
12,946
338, 227
438, 726
100,499
833
For period from July 1, 1966 (inception) to Dec. 31, 1966
Expenses applicable to management of properties :
Maintenance supplies $7, 793
Fuel 5, 878
Rental guarantees 1, 685
Amortization of renovation costs 1, 765
Auto expenses 270
Payroll taxes 903
Evictions, dispossess, etc 1,089
Advertising 302
Miscellaneous 1, 542
Total 21,227
Expenses applicable to property sales and mortgages :
Rent 3, 300
Telephone 1, 896
Office supplies and expenses 622
Auto expenses, travel, and entertainment 3, 475
Insurance 706
Payroll taxes 1, 018
Legal ^ 1, 916
Accounting 8, 500
Interest 6, 398
Contributions 250
Directors' expenses 600
Amortization of organization expenses 425
Sundry other expenses l 4, 740
Total 33,846
EXHIBIT 7
Letter to Lester Lazarus from Leonard Bellet dated Jan. 24, 1967
Flaie Inc.,
January 2If, 1967.
Mr. Lester A. Lazarus,
Care of Wenhaven Realty Corp.,
New York, N.Y.
Dear Lester : Enclosed is my check for $5,000 in full payment for the stock in
the management company.
It was nice visiting with you, although too short, last week. I am very anxious
to see good results now on both of these investments. And I hope you are keeping
both your eyes focused in this direction.
I send you my best wishes.
Very cordially,
Leonard L. Bellet.
EXHIBIT 8
Letter to Lester Lazarus from Leonard Bellet dated Mar. 3, 1967
March 3, 1967.
Mr. Lester Lazarus,
Care of Wenhaven Realty Corp.
Neiv York, N.Y.
Dear Lester: I under.stand that the meeting was iwstiioned becau.se of Mr.
Wendell's illness. I hope Mr. Wendell is getting along fine by now, and I would
appreciate you giving him my personal regards for a speedy recovery.
Is there now a new meeting being planned? If so, when? I plan to be in New
York during the week of April 2. But I might be available before that time for
only a day or so.
834
We just returned from our cruise in the Caribbean. It is just as though I was
never away, except by my cash-on-hand picture. And tliat leads me to my next
question, — when can I start realizing some of these heavy profits ?
I send you no .v my best regards.
Very cordially yours,
Leonard L. Bellet.
EXHIBIT 9
Notice of meeting of Wenhaven Corp. dated Mar. 9, 1972
The Wenhaven Cobp.,
^^ew York, A'.Y., March 9, 1967.
To the Stockholders and Directors of the Wenhaven Corp.:
Please be advised that there will be a joint meeting of Stockholders and Direc-
tors at the offices of the corporation, 475 Fifth Avenue, New York, New York on
Wednesday, March 22, 1967 at 11 :00 A.M. for the purpose of electing directors,
and such other business as may come before the meeting.
We contemplate a Breakfast Meeting and would therefore appreciate your
advising by return mail whether you will attend, so that we can make the
appropriate arrangements.
Very truly yours,
MoEBia Wendell, President.
EXHIBIT 10
Letter to Lester Lazarus from Leonard Bellet dated Mar. 15, 1967
March 15, 1967.
Mr. Lester Lazarus,
Care of Wenhaven Realty Co.,
New York, N.Y.
Dear Lester: Please don't cast this request aside. It is now more than three
months since I made my investments. My letters requesting information seems to
be unanswered.
If there is something wrong, I think I should he told ahout it. And if every-
thing is going as anticipated then I should get some information or some interest
on my money.
If this observation seems to be somewhat harsh. I think you should realize that
the distance and the normal anxiety regarding the status of my investment are
both the cause of this normal request.
I have bene advised that a stockholders' meeting is being held on March 22.
If I am not present, kindly accept this as the authority for Joe Ostrov to vote
in my behalf.
I w^ould like to know what results are made at that meeting. For your atten-
tion and interest I am most grateful.
Very cordially yours,
Leonard L. Bellet.
EXHIBIT 11
Letter to Norman Greenspun from Leonard Bellet dated Mar. 25, 1967
March 25, 1967.
Mr. Norman Greenspun,
Melrose Park, Pa.
iDear Norman : I have a copy of the financial reports of the Wenhaven Corpo-
ration, which was mailed to me by Lester Lazarus.
Since I presume you were present at the meeting of March 22, I am anxious
to hear your comments concerning both the statements and the meeting itself.
It would be of particular interest if you would simply give me some idea as
to your opinions, your current opinions, on the overall Wenhaven operation. And
I am rather curious as to whether your opinion today is the same as it was when
we first met and discussed it back in December.
I send you now my kind regards.
Very cordially yours,
Leonard L. Bellet.
835
EXHIBIT 12
Letter to Leonard Bellet from Norman Greenspun dated Mar. 27, 1967
Greenspun and Segal,
Melrose Park, Pa., March 21, 1967.
Mr. 'Leonard 'L. Bellet,
President, Flair For Fashion,
Richmond, Va.
Dear Len : As you can see from your copy of The Wenhaven Corp. statement
for the period ended December 31, 1966, operations were profitable and the finan-
cial condition looks good.
Since January 1st the complexion of the Assets has changed somewhat. As of
the meeting date the cash position was at the point where positive steps were
indicated in order to meet the existing obligations of unpaid bills and impending
settlements on conventional houses under contract.
This condition was brought about because of the prevalent tight money market
situation which made it necessary for us to handle a substantial number of con-
ventional mortgages on our own. Suffice it to say that arrangements are in process
for placing mortgages with various lending institutions on a particiiiating basis
wherein we will get approximately $10,000 on each $14,000 mortgage and be
credited with our share of the payments on principal and interest as collected.
We now have a new Board of Directors with the officers as indicated :
Sidney Evans, President
Edward Fernbach
Sol Goldberg, Secretary-Treasurer
Dick Kaufman
Lester Lazarus, Executive Vice-President ,
Alvin Lerner
iHyman Ostrov
Morris Wendell, Chairman of the Board
Overall operations are consistently being tightened and strengthened via con-
trols, procedures and personnel.
In the interest of economy, and merely as a temporary expedient until such
time as our cash position improves, Frank Cooperman (Repairs Supervisor)
and I are being furloughed effective April 1st. The decision to do this was initiated
by Lester Lazarus with approval of Sidney Evans, Sol Goldberg and Hyman
Ostrov. I shall, subject to the limits of my own business, make it into Xew York
from time to time to see first hand how things are going and to help out all I can.
Meanwhile, I am still of the opinion that this operation has a profitable poten-
tial for its stockholders and an equally profitable potential for investors in its
real estate.
Please feel completely at ease to call on me for whatever information I can
furnish you.
Best personal regards.
Cordially yours,
Norman H. Greenspun.
EXHIBIT 13
Contract between Leonard Bellet and Excambio Management dated Jan. 19, 1967
Management Agreement
Agreement made this 19th day of January, 1967, by and between LEONARD L.
BELLET and SELMA G. BELLET (hereinafter called the "Purchaser") and
EXCAMBIO MANAGEMENT CORPORATION (hereinafter referred to as
"Excambio"),
Whereas, the Purchaser is simultaneously herewith signing a contract to ac-
quire title to the premises known as 673 Hendrix St. and 477 Jerome St., Brook-
lyn, N.Y., and
Whereas, it is the desire of Excambio to manage and maintain said premises,
and
Whereas, it is the desire of the Purchaser to hire Excambio to manage and
maintain said premises.
836
It Is Hereby Agreed as Follows:
1. The Purchaser hereby appoints Excambio and Excambio hereby accepts
appointment on the terms and conditions hereinafter provided, as the exclusive
renting and managing agent of said premises.
2. Excambio hereby agrees that upon tlie conveyance of title of said premises
to the Purchaser, it will provide for occupancy of the apartments therein by
tenants who are welfare recipients of the City of New York, under a two-year
minimum lease for each apartment therein, for a total monthly rental of not
less than $285.00 per house. In the event of a subsequent vacancy, Excambio shall
utilize its best efforts to procure a new tenant, as afore.said.
3. Excambio warrants and represents to the Purchaser that all rentals and
security, if any, with respect to said premises shall have been paid up to date at
the time of acquisition of title by the Purchaser and the rental units and the
rentals will be, or will have been, as the case may be, approved by the New York
City Department of Welfare as proper rental and proper accommodations for its
welfare recipients.
4. In consideration for the services rendered and be rendered, as is herein set
forth, by Excambio to the Purchaser, the Purchaser agrees to pay to Excambio,
and Excambio agrees to accept a sum equal to nine (9%) per cent of the gross
rents collected.
5. At no cost to the Purchaser, except as is provided in Paragraph 4 above,
Excambio agrees that upon acquisition of title by the Purchaser, and at all times
thereafter during the life of this agreement :
a) Each apartment in said premises will be provided with a refrigerator, a gas
range and a sink, and all necessary toilet and heating facilities in good condition
and in good working order. Title to said items shall be in Purchaser free and
clear of all liens and encumbrances.
b) The heating installation at said premises shall be or shall have been, as the
case may be, converted to either oil or gas heat at the time of the acquisition of
title by Purchaser.
c) To paint said premises and apartments therein as necessary, and to make
all required repairs of any and every kind, both minor and major, structural as
well as non-structural, in and about said premises and in and about the apart-
ments, appurtenances and equipment including, but not limited to the sidewalks
adjacent thereto, and to further supply all equipment and parts necessary for
such repairs.
d) To collect rents.
e) To perform all janitorial services required to be performed ; and
f) To remove all violations which may be placed against the premises based
upon the present state of the law.
6. Excambio agrees to procure a contract for the Purchaser providing for heat,
fuel and furnace maintenance for said premises, at the prevailing rate for heat,
fuel and furnace maintenance in and about the City of New York for the tyi>e of
premises the Purchaser is herewith acquiring.
7. The Purchaser hereby authorizes Excambio, on behalf of the Purchaser, to
collect all rents and all other monies accruing to or to be paid to the Purchaser in
connection with the Purchaser's ownership of .said premises, such monies to be
held in trust by Excambio for the benefit of the Purchaser, in accordance with
the terms and conditions hereof, and further hereby authorizes Excambio to dis-
burse all monies in connection with said premises in accordance with the terms
of this Agreement.
8. Upon collection of the rents by Excambio there shall be paid, and the Pur-
cha.ser hereby authorizes Excambio to pay all charges in connection with the
ownership and management of the premises, including the following :
a) Mortgage payment, i.e., amortization, interest, taxes, fire insurances, sewer
charges and water charges ;
b) Premiums on liability insurance ; and
c) Fuel charges.
9. The Purchaser authorizes Excambio, out of the balance of the rents col-
lected, to deduct therefrom the monthly maintenance charge of Excambio, as
provided herein, and to remit the net balance to the Purchaser in not less than
quarter-annual installments.
110. (a) In the event of fire or other damage or loss covered by insurance,
Excambio agrees that during the period of time in which said house is being
repaired it will pay all of the expenses incurred in the management and repair
837
of the house or houses involved, including those charges set forth Paragraph 8
of the management agreement, and recovered hy Excamhio, pursuant to said
bonds, shall be held by Excambio in trust for the benefit of the Purchaser.
In witness whereof, the parties hereto have hereunto set their hands the day
first above written.
ExcAMBo Management Corp.
By Lester \A. Lazarus.
Leonard L. Bellet, Purchaser.
EXHIBIT 14
Letter to Edward Jalfe From Leonard Bellet Dated Oct. 19, 1967
Flair, Inc., October 19, 1967.
Mr. B. iEdward Jaffe,
New York, N.Y.
lyKAn Ed : I am probably under some misapprehension, but I was originally
told that I would receive 1% per month on my investment if nothing was con-
cluded within 90 days after my investment was made.
My records show that I paid my deposit on December 13, 1966. Since then I have
received two payments, one of $360 and one of $90. When I received your check
of $45 today, I tried to determine just what the correct amount should be.
According to my calculations, I should have received a total of seven iMiyments
through October 13th. If my first rental check is due on November 1st, I would
presume that as a half a month payment is due then I would be entitled to pay-
ments of 1% per month for seven and a half months.
In other words, as I see it, I should have received $675 and I have received $495.
If I am correct, will you please forward the difference and if I am wrong,
please explain why.
While I am asking for information I would be curious, at this point, to know
if there are going to be any dividend payments from the management company
prior to the end of the year.
I send you my sincere regards and I remain.
Very cordially yours,
Leonard L. Bellet, President-
EXHIBIT 15
Notice to Homeowners From Excambio Management Dated Oct. 31, 1967
Excambio Management Corp.,
New York, N.Y., October 31, 1967.
Gentlemen : We find it necessary to write you with respect to a delay in your
distribution.
On the evening of October 17, 1967, our Brooklyn Oflice was held up and all of
the rents collected for the second rent period, including the records thereof, were
stolen.
It is contemplated that we will suffer only a slight loss.
For your information, we are filing the necessary papers with our Insurance
company for reimbursement. At this point, we cannot tell you how long that will
take.
While a large amount of the collections were in cash, a substantial amount of
the collections were also by check issued by the Welfare Department. In these
instances, we have had to reconstruct the collections to advise Welfare, tenant
by tenant, of the stolen checks. Ultimately, we believe that the Welfare Depart-
ment will be able to stop the checks issued and issue new checks to us.
Needless to say, the Police Department has also been advised and is working
on the theft.
All of this takes time, however, and will result in a delay in our distribution.
We trust you will bear with us.
Very truly yours,
Lester A. Lazarus.
838
EXHIBIT 16
Letter to Leonard Bellet From Edward Jafife Dated Dec. 8, 1967
Lazarus & Jaffe,
counseillobs at law,
New York, N.Y., December 8, 1967.
Mr. Leonabd L. Bellet,
Fla4.r for Fashion,
Richmond, Va.
Dear Leonard : In reference to your inquiry as to interest due you from The
Wenhaven Corp., please note that their records indicate the following:
On the $9,000.00 deposited by you in March 1967 toward the purchase of the
above-captioned properties, you were to receive interest at the rate of 1% per
month until the time of closing.
In July, you did receive $360.00 which represented interest for the months of
April through July inclusive. In August, you received $90.00 representing that
month's interest payment. On October 2nd you received $45.00 representing in-
terest for the period September 1 to September 14 which was the date of closing.
If you have any further questions, please call me.
Kindest personal regards.
Cordially,
B. Edward Jaffe.
EXHIBIT 17
Letter to Edward Jafife From Leonard Bellet Dated Dec. 12, 1967
Flair, Inc.,
December 12, 1967.
Mr. B. Edward Jaffe,
New York, N.Y.
Dear Ed : At this busy time of the year I hasten to reply to yours of December
8th.
When my $9,000.00 deposit was made December 13, 1966, it was my impression
that I was to receive 1% per month until the rentals started. On this premise,
on the basis of 1%, I should have received for the period of March 13th through
October 13th a total of $630.00. As you explained, I received only $495.00. This
leaves, as I see it, a balance of $135.00 still due me.
It should be of interest to you to know that I have not received my December
rentals and I am most anxious to keep this situation on a current basis so that
all of this correspondence will not be necessary.
My sincere regards.
Very cordially yours,
Leonard L. Bellet.
EXHIBIT 18
Letter From Excambio Management Corp. to Homeowners Dated Jan. 15, 1968
The Wenhaven Corp.,
New York, N.Y., January 15, 196S.
Dear Sro: Our wholly owned subsidiary, Excambio Management Corporation,
has found it necessary to further delay its distributions to its home owners. The
delay is regretted but there is no alternative. â–
Needless to tell you, every attempt has been made to maintain the regular dis-
tribution but the cost of maintenance of the houses has been such that it has been
found necessary to expend the funds available in their upkeep and care. Because
the preservation of the houses is the most important factor in the maintenance
operation, the funds available have been first expended in that direction.
Every effort is being made by both the parent corporation and the management
corporation to reduce the maintenance cost to the degree necessary to again
effectuate, within a reasonable time, your regular distribution.
Very truly yours,
Sol Goldberg, President.
839
EXHIBIT 19
Letter to Leonard Bellet From Lester Lazarus Dated Feb. 8, 1968
Lazabus & Jaffe,
counsiellors at law,
New York, N.Y., February 8, 1968.
Mr. Leonard Bellet,
Flair for Fashion,
Richmond, Va.
Dear Leonard : Since speaking to you last, Hy Ostrov lias resigned as a direc-
tor of the company.
In addition, he has advised that he wishes to manage his own houses.
When I last spoke to you, you told me that you wanted to do whatever Hy did
and that is the reason I am writing this letter.
I assume you will speak to Hy and thereafter speak to me.
Cordially,
Lester A. Lazarus.
EXHIBIT 20
Letter From Leonard L. Bellet to Sol Oilman Dated Feb. 24, 1968
Flair, Inc.,
February 21,, 1968.
Mr. Sol Oilman,
Brooklyn, N.Y.
Dear Mr. Oilman : The Ostrovs were kind enough to discuss with you the situ-
ations regarding their problems and to include my properties in their discussions.
I own the premises 673 Hendrix St., Brooklyn and 477 Jerome St. also in
Brooklyn.
I am enclosing a supplemental letter that I wrote to Lester Lazarus which
sets forth my feelings.
If there are any forms or details you feel I should sign regarding your taking
over the management, maintenance and rent collection for these properties on
March 1st, will you kindly submit them to me. I understand that you will pro-
vide the heat and oil and a fee for maintaining the properties.
I am a little vague as to how we handle the mortgage payment, insurance, etc.
In any case, the Ostrovs seem to be favorably impressed with you and I look
forward to a very pleasant and mutually successful arrangement on the part of
both of us. I look forward to someday soon meeting you in person.
Very truly yours,
Leonard L. Bellet.
The Wenhaven Corp.,
New York, N.Y., March 19, 1968.
To the Stockholders and Directors of the Wenhaven Corp. and the Wenrus Corp.:
Enclosed are the proposed minutes in connection with the meetings held on
March 7th and March l'5th.
Please advise if there are any additions or corrections.
Cordially,
Lesteir lA. /Lazarus.
(Enclosures.)
EXHIBIT 21
Minutes of meeting of the Wenhaven and Wenrus Corporations on Mar. 7 and
Mar. 15, 1968
Joint Minutes of a Special Meeting of the Stockholders and Directors of
the Wenhaven Corp. and the Wenrus Corp.
Joint minutes of a Special Meeting of the Stockholders and Directors of The
Wenhaven Corp. and The Wenrus Corp. held at the ofBce of the corporations,
475 Fifth Avenue, Xew York on March 7, 1968.
Present were : Sol Goldberg, Eugene Schwartz, Charles Fenster, Alvin Lerner,
Hy Ostrov, Charles Lipnick, and Lester A. Lazarus.
840
Mr. Sol Goldberg acted as Chairman of the meeting. Mr. Lazarus acted as
Secretary of the meeting.
â– Mr. Goldberg then turned the floor over to Mr. Lazarus who explained the agree-
ments with Mr. Messinger and Mr. Fuller.
There was a complete discussion lasting several hours, after which Mr. Fuller
and Mr. Messinger entered the meeting and gave further explanation of their
intentions and program.
Upon motion duly made by Mr. Lipnick and seconded by Mr. Fenster, it was
unanimously
iR'ESOLV.DD that the agreements with Mr. Messinger be entered into and that
the officers of the corporation take all steps necessary to effectuate the agreement.
A further discussion was had as to contribution by the directors and stock-
holders to bring the houses into a better condition. For that purpose, Mr. Lazarus
was directed to call another meeting of stockholders and directors for Friday,
March 15, 1968.
The meeting was thereupon adjourned.
Lesteb 'A. Lazabus.
Joint Minutes of a Special Meeting of the Stockholders and Directors of
THE Wenhaven Corp. and the Wenrus Corp.
Joint minutes of a Special Meeting of the Stockholders and Directors of The
Wenhaven Corp. and The Wenrus Corp. held at the office of the corporations,
475 Fifth Avenue, New York, N.Y. on March 15, 1968.
Present were : Sol Goldberg, Charles Fenster, Dick Kaufman, Sidney H. Evans,
Charles Lipnick, Lester A. Lazarus.
Mr. Goldberg acted as Chairman of the meeting and Mr. Lazarus acted as Sec-
retary of the meeting.
Mr. Bert Messinger was invited into the meeting immediately to advise as to
the progress he was making.
There was a complete discussion as to the methods he was using and the re-
sults he was accomplishing, all of which satisfied the directors and stockholders.
There was, however, definitely a need for some additional money. It was there-
fore suggested that the stockholders or directors lend money to the corporation
with collateral given of a second lien on the mortgages the corporations were now
holding, the money to be repaid on the basis of 5% commencing with the 60th
day after the loan is made and for 6 consecutive months, and thereafter 10%
per month, until the loan had been paid.
On motion duly made by Mr. Lipnick and seconded by Mr. Fenster, it was
unanimously
RESOLVED, That the corporations be permitted to borrow money on the basis
set forth above.
There being no further business, the meeting was, at 12 :30 P.M., duly
adjourned.
Lester A. Lazarus.
EXHIBIT 22
Letter to Leonard Bellet From Lester Lazarus Dated Mar. 27, 1968
Lazarus and Jaffe,
Counsellors at Law,
New Yorh, N.Y., March 27, 1968.
Mr. Leonard Bellet,
Flair for Fashion,
Richmond, Va.
Dear Leonard : First, I understand you talked to Ed Jaffe in connection with
the actual purchase price of the houses and I understood from Eddie that all of
this information was previously given to you and that you do have it.
With respect to the payments you asked me for, I am enclosing herewith the
photostatic copies of two bills from Brooklyn Union Gas which show the date
of payment and our check number. This is on the gas heated house, 477 Jerome.
With respect to the Hendrix Street house, I can assure you that the monies
charged against you were actually paid to Madison Heat Corp. for January and
BVbruary. We pay them by one lump sum check. I am sure if you check with
841
Madison they will acknowledge receiving checks from us for your house in both
January and February.
With respect to the insurance, I am enclosing a photostatic copy of the bill
from the broker on 477 Jerome. Mrs. Graham informs me that this was paid on
July 19, 1967. Again, if you check with the broker, he can verify it.
With respect to the insurance on the other house, the insurance was taken out
before you took title and again, I am informed that it was paid. Mrs. Graham is
checking the records again to get the exact date. However, I am enclosing a copy
of the endorsement over to you.
Mrs. Graham is working on bringing your statements up to date and I am
supposed to have them in my hands no later than March 28th. As soon as I get
them, they will be forwarded to you.
With respect to bringing the payments to you up to date, I will speak to you
as soon as I get your final statement.
Cordially,
Lester A. Lazaetjs.
(Enclosures.)
EXHIBIT 23
Deposition of Leonard Ballet Dated March 1968
State of Virginia,
City of Richmond,
County of Henrico, ss.
Leonard L. Bellet, being duly sworn, deposes and says :
1. That he is a citizen of the United States, over the age of twenty-one years
and resides at 4706 Monument Avenue, Richmond, Virginia, and that he is the
owner of premises commonly known as 477 Jerome Street, Brooklyn, Kings
County, New York, which premises are subject to a certain mortgage made by
him to Eastern Service Corporation, in the amount of $17,300.00, dated Sep-
tember 20, 1967, recorded September 20, 1967 in Book 530 of Records, page 477,
which mortgage was duly assigned to Buffalo Savings Bank by assignment
dated September , 1967, recorded October , 1967 in Book of Records at page ,
the payments upon which bond and mortgage are now in default.
2. That the said premises have been owned and held by him since September 14,
1967 and that such ownership and possession has been uninterrupted and con-
tinuous, open, notorious, hostile and adverse to all others and exclusive of the right
or claim of any other person or persons.
3. That title to said premises has never been disputed or questioned to depo-
nents' knowledge and that no person has any contract for the purchase of, or claim
to, or against said premises for any reason whatsoever ; that there is no suit or
proceeding pending anywhere affecting said premises nor are there any pending
claims for accidents, personal injuries or otherwise with respect to said premises ;
that no warrant of attachment has been issued against said premises ; that all
bills and charges for work, labor and services rendered and materials furnished
in any improvement of said premises or any part thereof have been paid and that
no person or corporation has filed or has a right to file a mechanic's lien therefor ;
except mechanics lien now of record which will simultaneously be satisfied that
no conditional bills of sale have been filed against said premises or against any
fixtures or chattels attached to or used in connection with said premises ; that
deponent is and/or is the owner of all personal property, chattels and fixtures
attached to, appurtenant to or used in the operation of said premises and that
none of said personal property, chattels and fixtures aforesaid have been bought
under an agreement, conditional bill of sale or chattel mortgage whereby title to
any of them is not to vest until they are fully paid for ; that said premises are now
free and clear of all taxes, assessments, water charges, liens, mortgages, leases,
restrictive covenants, easement agreements, reservations, encumbrances or
charges of every description, except as set forth hereinabove.
4. That said premises are a two-family dewelling house and are presently
vacant.
5. That deponent has not executed as to any other property, any bonds, obli-
gations, mortgages, or extension agreements and has not executed or endorsed
any promissory notes and is not liable on any notes or endorsements, guarantees,
or oither contingent indebtedness except a mortgage I gave on premises 673
Hendrix Street, Brooklyn, N.Y. now satisfied.
83-7031 O — 73 — pt. 2b 7
842
6. That the premises are to he conveyed to G-EOBGE ROMNEY, Secretary of
Housing and Urban Development, his successors and assigns, Washington, D.C,
the 'guarantor of the holder of the first mortgage and that the said conveyance
will not render deponent insolvent ; that said deed is not given as a perference
against any other creditors of deponent and there are no other persons, firms or
corporations other than the grantee herein named interested either directly or
indirectly in said premises ; that deponent is solvent and has no other creditors
whose rights will he prejudiced by said conveyance.
7. That your deponent has agreed to convey the title to the grantee aibove
mentioned to avoid the continuance of the foreclosure of the mortgage guaranteed
by said grantee and that the deponent in offering to execute the said deed and
delivering the same is not acting under any duress, undue influence, misappre-
hension, or misrepresentation by the said grantee, or any of his employees, agents,
representatives or attorneys and that it is the intention of your deponents to
convey all right, title and interest absolutely in and to said premises and to all the
fixtures, i)ersonal property, equipment, appliances attached to or used in the
operation thereof.
8. That the reason for such conveyance is that in the opinion of deponent, the
encumbrances on said premises exceed the value of the property and that the
income therefrom and your deponent's income is insuflBcient to meet the expense
of carrying the same and that the said encumbrances exceed the value of the
property ; that the said conveyance by deponent is an absolute conveyance and is
not given as collateral security and there is no agreement, expressed or implied,
written or oral, between deponent and the said OEOROE ROMNEY wherein it
might be understood or agreed that the said premises are to be within any speci-
fied time or before any specified date at any time reconveyed to the deponent
or to any other person for the deponent's benefit. That deponent has tried to
effect a sale of said premises and has not been able to sell the same at any price.
9. That there are no tenants in occupancy of the premises.
10. That there are no judgments docketed against the deponent and any judg-
ments which may appear of record against the name of LEONARD L. BELLET
or any variation or derivative of the said name are not against your deponent
but are against some person or other persons having the same or any similar
name. That deponent does not know of any said judgment creditors and has never
been sued by any of them nor are there any judgments unsatisfied of record in
the Courts of this State or of the United States and that no proceedings in bank-
ruptcy has ever been instituted by or against your deponent.
11. That deponent has not since he acquired the title aforesaid, changed his
name or been known by any name other than that stated herein.
12. That the deponent has read the foregoing aflSdavit and knows of his own
knowledge that the facts herein stated are true, that there are no facts known to
deponent relating to the title to said premises which are not stated or disclosed
in this affidavit and this affidavit is made to induce GEORGE ROMNEY to
accept a deed to said premises knowing full well that he relies upon the truth of
the statements herein contained.
The Wenhaven Corp.,
Neio York, ¥.Y., April 15, 1968.
To the Stockholders and Directors of the Wenhaven Corp. and the Wenrus Corp.:
Enclosed are the proposed minutes in connection with the meeting held on
April 5, 1968.
If there are any additions or corrections, would you please advise.
Cordially,
Lester A. Lazarus.
(Enclosure.)
EXHIBIT 24
Minutes of April 5, 1968, Meeting of Wenhaven Corp. and Wenrus Corp.
Joint Minutes of a Special Meeting of the Stockholders and Directors of
THE Wenhaven Corp. and the Wenrus Corp.
Joint mimites of a Special Meeting of the Stockholders and Directors of The
Wenhaven Cor^p. and The Wenrus Corp. held at the office of the corporations,
475 Fifth Avenue, New York, N.Y. on April 5, 1968.
843
Present were: Sol Goldberg, Charles Fenster, Alvin Lerner, Hyman Ostrov,
Joseph Ostrov, Charles Lipnick, Lester A. Lazarus.
sNIr. Goldberg acted as Chairman of the meeting and Mr. Lazarus acted as
Secretary of the meeting.
The floor was turned over to Mr. Lazarus who brought the directors and stock-
holders up to date on the efforts of the company.
In the first place, Mr. Lazarus advised that letters had been written to the
I)eople from whom money had been borrowed for the mortgages asking that they
contact him so that some kind of a moratorium could he arranged on these pay-
ments. Mr. Lazarus advised that to the date of the meeting, no responses had
been forthcoming and no action had heen taken with respect to the company's
failure to meet its payment schedule.
Mr. Lazarus then advised that Mr. Messinger had withdrawn from his agree-
ment with respect to the maintenance and supervision of the houses in Brooklyn ;
that this withdrawal had created a number of problems for The Wenhaven Corp.
and its subsidairy, Excambio Management Cortp., the most important of which
was the fact that owners of 76 houses had withdrawn their houses from Ex-
camhio Management ; that there was substantial work to he done on the houses
and bills to be paid, for Avhich there were no funds.
There was then a complete discussion with respect to the efforts of the com-
pany, particularly reimbursement to the owners for the expenses that they were
incurring as a result of Excambio's inahility to maintain the houses.
After complete discussion, on the motion of Mr. Lerner and seconded by Mr.
Goldberg, it was unanimously
Resolved that all of the assets of Wenhaven and Wenrus be pledged for use
of the home owners to compensate them for the costs they were undergoing, as
a result of Excambio's inability to meet its expenses.
It was further directed that Mr. Lazarus write a letter to the home owners so
advising them and call a meeting of all the home owners as quickly as possible
to explain circumstances to them.
There heing no further business, the meeting was duly adjourned.
Respectfully submitted.
'Lester A. Lazarus.
EXHIBIT 25
Letter From Excambio Management Corp. Dated Apr. 5, 1968
Excambio Management Corp.,
2Ve?o York, N.Y., April 5, 1968.
Gentlemen : On Friday, April 5th, the directors and stockholders of The
Wenhaven Corp. and The Wenrus Corp. met.
At that meeting, there was a complete discussion of the pligiht of the home-
owners whose property was managed by Excambio Management Corp., a sub-
sidiary of Wenhaven.
The Board of Directors and Stockholders unanimously agreed to pledge all
of the assets of both companies for the use of the homeowners to compensate
for the problems presently presenting themselves.
While the assets of the parent companies are not presently liquid, a concerted
effort will be made to turn these assets into liquid cash, to be used as reimburse-
ment to the homeowners for. the expenses they are presently incurring in con-
nection with the repairs of their houses and the mortgage payments they are
making.
We are writing this letter to you Immediately as evidence of the fact that
none of the companies involved are walking away from the problems, but on the
contrary, are willing to pledge their assets for the benefit of the owners.
Within the immediate future, we are going to arrange a meeting at which we
would like to have present all of the homeowners, as well as the stockholders of
the parent company for the benefit of all.
Very truly yours,
Lester A. Lazarus.
844
EXHIBIT 26
Letter to Sol Gilman From Leonard Bellet Dated Apiv 29, 1968
Flaib, Inc.,
April 29, 1968.
Mr. Sol Oilman,
Brooklyn, N.Y.
Deab Tiny Tim : I can't describe how grateful I am to both you and Gloria
for your hospitality this past Friday. You are most generous and kind. Gloria is a
charming and delightful person and I look forward to seeing both of you again
real soon.
Needless to say, I am somewhat disturbed and confused about the status of
my homes, the payments that are due on them and just what disposition you
are making specifically on each of these 2 "estates". I know you are watching
over them. But, frankly, I don't know w^hat my income is nor do I know what
my expenses are and it would be interesting to note carefully just what direction
this thing is now taking.
I have asked my accountant, who is also my friend, Joe Levin, to contact you
from Washington to see if he can determine the status of things, I shall appre-
ciate whatever courtesty you can extend him.
In no small way am I treating this thing lightly. You know how much is at
stake and I shall be grateful for your constant attention and cooperation.
I send you sincere regards.
Very cordially,
Leonard L. Bellet.
EXHIBIT 27
Letter to Leonard Bellet From Eastern Service Corp. Dated May 8, 1968
Eastern Service Corp.,
Hempstead, N.Y., May 8, 1968.
Re mortgage No. 826514, 477 Jerome Street, Brooklyn, N.Y. ; arrears : February^
March, April, May $727.00 ; late charges, February, March, April $10.74 ; total
$737.74.
Mr. Leonard L. Bellet,
Richmond, Va.
Dear Sir : The above property recorded in your name is in arrears for four
months.
This letter is being forwarded to alert you as to the situation pending on this
mortgage.
This account must become current or we will be forced to institute a fore-
closure action.
Please remit in full. Thank you.
Very truly yours,
Thomas Reynolds,
Mortgage Administrator.
EXHIBIT 28
Letter to Leonard Bellet From Eastern Service Corp. Dated May 10, 1968
Eastern Service Corp.,
Hempstead, N.Y., May 10, 1968.
Re mortgage No. 826514 — 477 Jerome Street : arrears : February, March, April,
May $737.74.
Mr. Leonard L. Bellet,
Richmond, Va.
Dear Sir: It seems quite obvious to us that since we have not heard from you
regarding your arrears situation that you are now no longer able to carry your
home. Therefore, if there are no judgments filed against you, it may be possible
for us to consider accepting your deed.
84!5
Of course, you must realize that before this could be done a search would have
to be run and approval of our Mortgage Committee and the appropriate govern-
ment agency, if applicable, would have to be forthcoming.
We would suggest that if you wisli to proceed along these lines that you con-
tact us at once. It is imperative that you do not ignore this communication as
time is running out which could mean additional exi>enses for attorneys and
eventual loss of your home.
Very truly yours,
BELiiE Vaden,
Mortgage Servicing.
EXHIBIT 29
Letter to Joseph Ostrov from Leonard Bellet dated May 24, 1%8
May 24, 1968.
Mr. Joseph Osteov,
Haddenfield, N.J.
Dear Joe : I am enclosing what appear to be the deeds on the properties at 477
Jerome St. and 673 Hendrix St.
Since these deeds indicate no place for me to sign, let me now give you my
authorization or power of attorney on these 2 properties to sign the necessary
transfer of ownership of these in my behalf. If this then becomes too cumbersome,
I shall be glad to come in and sign on most any day convenient to you. Tuesday or
Wednesday would be cumbersome, but the holiday on Thursday would open up the
door for such a trip if necessary. It is not generally celebrated as a holiday in
this area.
I am enclosing, also, 2 copies of both FHA form 2210 and FHA form 2210-1.
As per our conversations, it appears as though you have made a reasonable
deal wuth Sol Gillman. However, since we are apparently agreed that we are
unloading a cumbersome piece of property, and we are aware that pouring more
money into this project would be futile, actually Sol is taking something trouble-
some off our hands. However, the words of caution from my accountant should
not be taken lightly. He warns us that we should make arrangements to dispose
of these properties completely without recourse. Remember that our names are
still on the FHA loans. The enclosed forms, if properly executed and approved
by FHA, will get us off the hook completely.
Now that I have said my piece, both by phone and herewith, I think it is fair to
admonish ourselves against making a hasty deal that could cause us untold agony
at some later date. Therefore, if your attorneys approve the necessary papers I
would assume that they have taken the precautions necessary to protect you. I
would then, naturally, be willing to go along with you. Remember that it is a
business decision that we are making to sell these properties and once they are
sold I am sure that neither you nor I want to hear anymore about them and it is
this protection that I feel that our attorneys have to provide for us.
We discussed the alternatives. They are leave things as they are, find another
manager or find another buyer. After analizing these alternatives, I feel that we
are making the right decision. But, it would be distressing to me and I am sure
it would be discomforting to yourself if we would not attempt to dispose of this
completely and not to remain secondarily liable.
Joe, I want to thank you for your interest. I appreciate the various phone calls
regarding this and naturally I expect that you will allow me to pay my fair share
of whatever attorney fees are necessary.
I send you my thanks and regards and with tongue in cheek and fingers crossed
a wish that this thing concludes itself without undue delay. Good luck.
Cordially,
Leonaed L. Bft.t.et.
846
EXHIBIT 30
Memoranda to Leonard Bellet from S & G Contracting dated May 31, 1968
S & G Ck)NTRACTING,
Brooklyn, N.Y., May 31, 1968.
Re 477 Jerome Avenue.
Mr. Leonabd Bellet :
Downstairs apt :
Replaced ceiling in kitchen $100
Fixed windows 50
Emergency leaks, as requested by emergency repair 70
Cleaned out rubbish from yard and basement, $55.00 per load, 2 loads 110
Fixed locks 55
Total $385
S & G Contracting,
Brooklyn, N.Y., May 31, 1968.
Re 673 Hendrix Street.
Leonard Bellet,
Patched roof 40. 00
Securing basement and interior doors ; fixed mail boxes, replaced locks 120. 00
Removed rubbish $55.00 per load, li/^ loads 82. 50
Cleaning and locking of boiler 110. 00
Plumbing Work : Replaced toilet, misc. plumbing, misc. carpentry 125. 00
Total 477. 50
Herman S. Gillman,
Brooklyn, N.Y., May 31, 1968.
Mr. Leonard Bellet:
Management fee : $95 per month per house per month :
2 houses 3 months :
477 Jerome Ave. ($95 per month) $285
673 Hendrix St. ($95 per month) $285
Total $570
Herman S. Gillman,
Brooklyn, N.Y., May 31, 1968.
Mr. Leonard Bellet,
Care of Flair Inc.,
Richmond, Va.
Rents collected :
March, April, May, 1968 :
673 Hendrix St.
477 Jerome Ave.
March
April
May
673 Hendrix St:
Jones 70
Johnson
Total _. 70
140
120
26C
140
120
260
477 Jerome Ave:
Georgia Evans: 140.00.
Rebecca Evans: 175.00.
Total, $315.00
Total Rents Received: $905.00.
847
S & G CONTRACTING
W^mc'-y I
FLAIR INC.
Grace b Fifth Sts
Richmond Virginia
MR. LEONARD BELLET
EXHIBIT 31
Letter to Leonard L. Bellet from Walter N. Read dated June 4, 1968
Archer, Greiner, Hunter & Read,
Camden, N.J., June 4, 1968.
Re Bellet to Selglo Realty, Brooklyn, N.Y.
Mr. Leonard L. Bellet,
Care of Flair for Fashion
Richmond, Va.
Dear Mr. Bellet: You undoubtedly know from Hy and Joe Ostrov about
the proposed conveyance to Selglo Realty Corp., for which we have prepared the
enclosed deed. This must be signed by you and your wife in the presence of a
notary public in Richmond who will then complete the acknowledgment form
on the last page; will also witness your signatures on the line to the left of your
names; and who will have to have attached to the deed also a County Clerk's
certificate showing the authority of the notary to act.
When all of this has been completed, will you return the deed directly to me
and we will see that delivery is made to Selglo, together with the similar deeds
we have prepared for the Ostrovs.
If you have any questions about any of this, please feel free to telephone me
directly at the above address.
Very truly yours,
Walter N. Reed.
EXHIBIT 32
Letter From Nathan M. Roth, Esq., to Leonard Bellet Dated June 10, 1968
Nathan M. Roth,
New York, N.Y., June 10, 1968.
Re 477 Jerome St., Brooklyn and 673 Hendrix St., Brooklyn.
Leonard Bellet,
Care of Flair,
Richmond, Va.
Dear Me. Bellet : I had someone go over to the above buildings to take a look
at them.
I am sorry to have to advise you that I am informed that buildings like the
above are a drudge on the market and can presently be purchased, free and
clear of all mortgages, from anywhere from $2,000 to $5,000 in cash.
I would, therefore, suggest to you that if there is any way that you can di.si>ose
of these properties and get yourself relieved of the liability on the mortgages
that you do so.
848
You had indicated to me that on the sale of the house the F.H.A. would relieve
you from your personal liability on the mortgages. I told you that I had never
heard of such a provision. However, if this is so, then I would suggest if you
cannot find a legitimate buyer for the house that you form corporations solely
for the purpose of transferring the title to the corporations to relieve yourself of
the personal liability on the mortgages. Again I repeat, I do not believe that a
sale of the property would relieve you of the personal liability. However, you have
indicated that you knew that this would be the result of a sale.
If I can be of any further help to you, please feel free to call.
Very truly yours,
Nathan iM. Roth.
EXHIBIT 33
Letter to Joseph Ostrov From Leonard Bellet Dated June 12, 1968
June 12, 1968.
Mr. Joseph Ostbov,
Cherry Hill, N.J.
Dear Joe : How could we possibly have gotten in deeper by entrusting our-
selves to Gillman? I am enclosing photostats of statements he sent me for my
two properties.
Note that according to his statement he has only collected for one month on
one property and on the other for two and a half months.
Note that he charges a management fee of $95 whether he collects or not.
Note his bills for expenses on these properties.
Note fixed windows $50, cleaned out rubbi-sh $55 per load, fixed locks $55i,
cleaning and locking boiler $110.
I know that it is unnecessary to mention these things to you. You can keep
these copies as a sample of what he has done to me. However, do you think it
makes any sense to turn over the deeds to these properties to someone such as
this? What assurance do you have that he will make the mortgage payments?
And why should he care about paying the insurance premiums? And according
to my information, insurance is unobtainable in that area' anyway.
Perhaps my accountant's attorney will be able to resolve this or at least help
us in some way when he reviews the matter this coming Monday.
At this point, however, this entire situation is assuming the proportions of a
big joke. I settled on my properties in September and I received a payment on
November 1st. I have received nothing since. I have personally made one mortgage
payment and I have spent untold amounts of time and expenses to attempt to
resolve this.
Frankly, I think the best advice that has been given us was to go to the United
States Attorney and to inform them about what is happening to FHA insured
loans. In that manner, it seems to me, we could have immediately been off the
hook. What price greed?
I send you kind regards. Also best wishes in the new house. I am beginning to
lose entirely too much sleep in this matter. I just feel like my bones have been
picked dry and I almost feel as though I can't get out of it.
Regards to Hy.
Cordially,
Leonard L. Bellet.
849
EXHIBIT 34
Letter from Harry Sussman to Leonard Bellet dated June 24, 1968
Jione 2l\., 1966
Leonar d Bellet:
1. If you wish me to maintain your tv;o houses, I will charge you $30.00
Per house, per month. Prom your rents you will be billed f or repairs
that ar e necessary, feul and exterminating services. It is my belief
that these houses can within a short time ^ ve you a monthly return and
the tax loss that owning the property allows you.
2. If you weren't Lester Lazerous's friend I would encourage you to
turn the property over to me. I would accept the property on a mort-
gage responsibility without liability basis. This means that thou
I would be the owner of the deed, you are still liable to F.H.A. if I
decided to dump the houses. This can be done by running them do'^m
by only collecting rents and not properly mainfeining the houses.
3. At this tine, I'd suggest you hold the houses and let me see how
soon I can start making these houses pay for you. If you v;ant me to
maintain jour houses, send me a lett er and copy to Lester. The
letter can just specify jour authorizinrr me to maintain your houses
at a ip30 per house monthly fee. I will have Lester draw a more formal
agreement.
i|. I will call you Friday morning.
Regards,
sr^(^/^^
Mr. Leonard Bellet
Flair Fashions
5th & Grace
Richmond, Va.
SPEOi/il GELIVERY
;' ft-, •
850
EXHIBIT 35
Letter to Leonard Bellet from Cardinal Realty Co., Inc., dated Aug. 7, 1968
Cardinal Realty Company, Inc.,
Brooklyn, N.Y., August 7, 1968.
Leonard Bellet,
Richmond, Va.
Dear Mb. Bellet : At the suggestion of your Attorney I am forwarding to you
Management Agreement on 477 Jerome Avenue and 673 Hendrix Street, Brook-
lyn, New York.
I am sending copy of tliis letter and Management Agreement to Mr. Irving
Slater.
If you will return signed copy of Agreement and see to it that we receive rental
information on both buildings, we will start collecting rent as of September 1st,
1968.
Very truly yours,
A. A. Cabdinale, President.
Management Agreement
The undersigned owner of premises 477 Jerome Avenue and 673 Hendrix Street,
Brooklyn, New York authorise PREFERRED MANAGEMENT CORPORATION,
% CARDINAL REALTY COMPANY, IXC, 531 Nostrand Avenue, Brooklyn, New
York to act as Managing Agent and agreed that they may collect all rents and
pay all expenses to maintain the property, and keep premises in proper repair.
The undersigned owner agrees to pay PREFERRED MANAGEMENT CORP.,
$50.00 (Fifty dollars) per month for each building.
This Agreement may be cancelled by either party on 30 days notice.
Leonard Bellet.
EXHIBIT 36
Memoranda to Leonard Bellet from Sol Gillman dated Aug. 8, 1968
Herman S. Gillman,
Brooklyn, N.Y., August 8, 1968.
Mr. Leonard Bellet,
Richmond, Va.
As of August 31, 1968, we will no longer manage, service or maintain your
buildings.
Kindly make arrangements to have someone service & manage your properties.
Very truly yours,
Herman S. Gillman.
Herman S. Gillman,
Brooklyn, N.Y., August 8, 1968.
Mr. Leonard Bellet,
Richmond, Va.
Total Rents Received $1, 835. 00
Management & Maintenance 775. 00
673 Hendrix St 486. 00
477 Jerome Ave 402.00
Subtotal 1, 663. 00
Total 172. 00
Paid Mr. L. Bellet 7/1/68 Check #1339 $1, 305. 00
Less 172. 00
Due Mr. H. S. Gillman 1, 133. 00
851
Herman S. Gillman,
Brooklyn, N.Y., August 8, 1968.
Mr. Leonard Bellet,
Care of Flair Inc.,
Richmond, Va.
Management & Maintenance 2 buildings at $95.00 per month : 2 @ 95.00 = 190.00
per montli.
Marcli, April, May, June, July : $950.00.
Less $35.00 per montli, (we are not going into the winter months.) : $35.00 X
5 months = $175.00.
Total: $775.00.
HERMAN S. Gillman.
Brooklyn, N.Y., August 8, 1968.
RE : 477 Jerome Ave.
Leonard Bellet,
Richmond, Va.
Downstairs Apt. :
Replaced ceiling in kitchen $100
Fixed Windows 50
Emergency Leaks, as requested by Emergency Repairs 70
Cleaned out rubbish from yard & basement 2 loads (55.00 per load) 110
Fixed locks . 55
Total 385
Sent Disposses both tenants 17
Total 402
S & G Contracting,
Brooklyn, N.Y., August 8, 1968.
Re: 673 Hendrix St.
Mr. Leonard Bellet,
Care of Flair Inc.,
Richmond, Va.
Patched Roof $40. 00
Securing Basement & Interior Doors, fixed Mail Boxes, replaced locks 120. 00
Removed Rubbish li/o loads, $55.00 per load 82. 50
Cleaning & Locking of boiler 110. 00
Plumbing Work: replaced toilet, misc. plumbing; misc. carpentry 125. 00
Total 477. 50
LEONARD BELLET-RENTS RECEIVED MARCH 1968 THROUGH AUG. 8, 1968
March April May June July Aug. 8
673 Hendrix St.:
Jones _. __. $70 $140
Johnson.... 120
477 Jerome Ave.:
Georgia Eva ns . _
Rihicca Eva ns •.
$140
120
$140
120
$140
120
$70
60
140
175 ...
140
140 ....
Total 70 260 575 400 400 130
EXHIBIT 37
Letter to Leonard Bellet from Irving Slater, Esq., dated Aug. 12, 1968, and
enclosure
Irving Slater,
Counselor at Law,
Neto York, N.Y., August 12, 1968.
Mr. Leonard Bellet,
Richmond, Va.
Dear Mr. Bellet : I am enclosing copy of my letter to Mr. Gillman and his
reply in the form of statements showing that you owe him $1,133.00. I retained
Xerox copies and I am mailing a set to Joe Levin.
I only now see how deeply you fell in.
852
I am not submitting to-day the offer to Eastern since it was my intention to
propose payment of liens and Gillman will probably record a lien for his $1,133.00.
Now I don't understand what was the talk about a gas bill for $800.00 — it seems
to me that he it. charging you for heat, hence it should cover the gas bill. Do you
know" anything about this.
I am asking Gillman for copies of the bills for the repairs and I don't expect
to get them.
It seems the only way to adjust all the mess is to see Gillman and Mr. Reynolds.
Please call me.
Very truly yours,
Irving Slater.
August 7, 1968.
Re : 477 Jerome Avenue, Brooklyn ; 673 Hendrix Street, Brooklyn.
Mr. Sol Gilman,
Brooklyn, N.Y.
Dear Sir : As per your conversation of yesterday with Mr. Leonard Bellet and
Mr. Joseph Levin, demand is hereby made upon you, as the managing agent of the
above properties, for an accounting of all receipts and disbursements to date,
pertaining to said properties.
Since you advised Mr. Levin that, as of the end of this month, you desire to
terminate your agency, may I, on behalf of Mr. Bellet, ask you for the return of
any and all documents pertaining to .said properties. Particularly Mr. Bellet de-
sires the following :
1. A statement of Income and Disbursements to this date showing the balance
due Mr. Bellet.
2. Names of tenants and the dates up to which rents have been paid, including
tenants in arrears.
3. What steps you have taken to collect the rents.
4. All bills pertaining to said properties paid and unpaid as of this date.
5. Any and all notices of the holder of the mortgage on said properties.
6. Insurance policies covering said premises.
7. Any tax bills you may have and all documents you may have affecting the
said properties.
Thanking you in advance, I remain
Very truly yours,
Irving Slater.
EXHIBIT 38
Letter to Eastern Service Corp. from Irving Slater, Esq., dated Aug. 13, 1968
August 13, 1968.
Re Leonard Bellet, 477 Jerome Avenue and 673 Hendrix Street.
Eastern Service Corp,
Hempstead, Long Island, N.Y.
(Attention Mr. T. Reynolds).
Dear Mr. Reynolds : I was present last week, when Mr. Joseph Levin of
Washington, D.C. on behalf of Mr. Bellet, indicated to you that a check in pay-
ment of all arrears, will be made. After returning to Richmond, Va., Mr. Bellet
called me to review the nnancial situation, and w^e came to the conclusion that
payment of arrears, bills and any liens that may be placed against the property
would entail a considerable outlay of cash and the losses in the future would
continue.
On behalf of my client, I am herewith offering a deed to your institution in
lieu of foreclosure and in consideration of releasing Mr. Bellet, he will clear up
and liens that will be in existence at the time of the delivery of the deed.
I trust that your institution will give this matter attention, and tliat I may
hear from you by return mail.
Very truly yours,
lEviNG Slater.
853
EXHIBIT 39
Letter to Leonard Bellet from Irving Slater, Esq., dated Aug. 13, 1968
iRvixa Slater,
COUNSELOB AT LAW,
New York, N.Y., August 13, 1968.
Mr. Leonard Bellet,
Richmond, Va.
Dear Mr. Bellet : Shortly after I spoke with you, I received the deed and
the Gillman statements. The $1,305 he mailed to you, is apparently the rent he
collected without deducting his expenses. I never heard of an agent not deduct-
ing his expenses first. There was some set up prepared for you.
But here I am concerned with the deed. Who is the Jet Warehouse Corp. at
175 Fulton Street, Hempstead, the same building where Eastern and FHA
offices are? Some combination! You apparently paid for Jerome Avenue $22,000
and for Hendriv Street $20,000. The documentary stamps indicate that, but
where are copies of the mortgage.s and mortgage bonds you gave? Please mail
all to me in order that I get a complete picture. Where does Lazarus come in?
I have just called him and want to ask him. He is to call me back.
Draft of letter to Eastern is enclosed.
Mr. Lazarus just called me back, and he explained who the Jet Warehouse
Corporation is. It seems that this last corporation is a corporation formed by
Eastern, who were advancing money to the sellers of the property and taking
the deeds as collateral in the name of Jet. I am now satisfied that all the parties
you have dealt with belong in the same pot. When I told Mr. Lazarus that you
cannot see yourself, nor do I approve of you laying out now approximately
$4,000, and then face continuous losses, his reply was very meek — "I cannot say
any more — ^I said all I wanted to". I then asked him on what basis he thought
that Eastern may accept a deed, and he replied that he had one case where
they rejected it, and then they asked to file an application. He also said that
"I cannot be in a worse condition by making the offer". I am, therefore, without
waiting for any additional papers, mailing a copy of the enclosed letter to Mr.
Reynolds of Eastern. I am sure you cannot be in a worse position than you are
now.
iSincerely yours,
Ievinq Slater.
EXHIBIT 40
Letter to Eastern Service Corp. from Irving Slater dated Aug. 13, 1968
August 13, 1968.
Re Leonard Bellet, 477 Jerome Avenue, 613 Hendrix Street.
Eastern Service Corp.,
Hempstead, Long Island, N.Y.
(Attention Mr. T. Reynolds).
Dear Mr. Reynolds : I was present last week, when Mr. Joseph Levin of
Washington, D.C. on behalf of Mr. Bellet, indicated to you that a check in pay-
ment of all arrears, will be made. After returning to Richmond, Va., Mr. Bellet
called me to review the financial situation, and we came to the conclusion that
payment of arrears, bills and any liens that may be placed against the property
would entail a considerable outlay of cash and the losses in the future would
continue.
On behalf of my client, I am herewith offering a deed to your institution in lieu
of foreclosure and in consideration of releasing Mr. Bellet, he will clear up any
liens that will be in existence at the time of the delivery of the deed.
I trust that your institution will give this matter attention, and that I may
hear from you by return mail.
Very truly yours,
Irving Slater.
854
EXHIBIT 41
Letter to Irving Slater, Esq., from Leonard Bellet dated Aug. 20, 1968
August 20, 1968.
Mr. Ieving Slater,
New York, N.Y.
Dear Irving : Since I have spoken with you a few times, I can't help notice how
conscientious you are about my problems. Naturally, I am grateful that my prob-
lems are in your hands. Unfortunately, we are not resolving these things at this
point. Let me give you the following facts. My original check for $9,000.00 for the
2 homes was made payable to Lester Lazarus on December 13, 1966. Sometime
in April, and I have the correspondence to back this up, I tried to get my deposit
back and Lester kept trying to convince me not to be apprehensive but to go
through with the fiasco. I procrastinated for several months, and you know that
we closed the properties September 14.
Mr. Jaflfe, who is associated with Mr. Lazarus, joined me at the closing and
gave me no indication at that time that the Excambio situation was in bad
shape. Instead, he was rather anxious to get this matter resolved since it had
been dragging since the prior December. Frankly, I believe that Lazarus and
Jaffe were aware that this thing was falling apart at that time and certainly
if they were acting in good faith they wouldn't try to bring another victim into
this situation. I believe I have already explained to you that I got one rental
payment on November 1st from Lester Lazarus's office. That was $150.00 for the
2 properties and I have received nothing since.
The purpose of this note is to indicate to you that somewhere along the line I
feel that I have been made a victim of a fraudulent situation. That to a great
extent, in order not to lose my deposit, I went ahead with the whole stupid mess
under duress although I was quite apprehensive.
If there is anything you can make of these facts, or if you are able to remove
my name from the bond or the ownership on the mortgage as a result of these
pertinent facts, please feel free to do so.
Lester Lazarus was making recovery from the City of New York on some
stolen checks. I called him today to see if he had received his money from the
City and he has not done so. He promised that I would receive my shares of that
money when he gets it. He also told me that Gillman is out of business and that
the new manager is this Sussman fellow whom Lester recommends.
Irving, I am in your hands and would like to be rid of this mess completely
forever. Your efforts in my behalf are vital.
Very cordially,
Leonard L. Bellet.
EXHIBIT 42
Letter to Irving Slater, Esq., From Leonard Bellet Dated Aug. 21, 1968
August 21, 1968.
Mr. Irving Slater,
New York, N.Y.
Dear Irving : I intended to call you tonight anyway and I am sorry I didn't
get into my office until after you had left yours.
I spoke with my brother-in-law today and he tells me that regardless of what
we think, he is off the hook and he gave his properties to Gillman and that
Gillman is now responsible for what were my brother-in-law's properties. He
claims that it is unfortunate that 1 didn't take advantage of the same offer.
He suggests, however, that since Lester Lazarus represented some 300 homes
and probably about 60 or 70 people, the people that raised hell the most and who
screamed at him the loudest were the people whom Lester pacified by either pay-
ing them off in one way or another or by taking their homes off their hands.
It seems to me that with information you have that enough hell can be raised
with Lester so that he can pull us out of this situation. It has just gotten to be
too time consuming and mentally depressing. Irving, please help.
Very cordially,
Leonard L. Bellet.
8o5
EXHIBIT 43
Letter from Irving Slater, Esq., to FHA— Hempstead dated Sept. 26, 1968
September 26, 1968.
Re Leonard L. Bellet — Properties — 477 .Terome Avenue, Brooklyn, X.Y. ; 673
Hendrix Street, Brooklyn, X.Y.
Dear Mr. Condon : Suppleuienting my conversation with you, I wish, on behalf
of Mr. Bellet to state the followins. Mr. Leonard L. Bellet, a permanent resident
of Richmond, Virginia, was introduced to Mr. Lester Lazarus, an attorney, of
475 Fifth Avenue, New York City, by his brother-in-law, Mr. Hyman Ostrov, a
resident of Cherry Hill, New Jersey.
Mr. Ostrov was negotiating with Mr. Lazarus for the purchase of several prop-
erties, and he wanted Mr. Bellet to join him in the venture. As a result of these
negotiations, Mr. Bellet, without seeing the properties, gave a check in the sum
of $9,000.00 to Mr. Lazarus on December 13, 1966, to his order, as a deposit on the
above mentioned properties.
Sometime in April 1967, Mr. Bellet tried to get his deposit back. However,
Mr. Lazarus finally convinced him to go through with the deal, and the closing
took place on September 14, 1967.
Mr. Bellet was informed by the sellers, who.se names are not known to him to
this date, although the property was deeded to him by Jet Warehouse Corp. of
175 Fulton Avenue, Hempstead, L.I., that the properties will be managed and the
mortgages serviced by the Exeambio Corporation.
Mr. Bellet is completely innocent in matters relating to real estate, and was not
even represented by an attorney, and only through mis-information and a promise
of a 20% return on this investment, he was induced to buy the properties, on
which the FHA guaranteed the mortgages in the amount of $17,300.00 on Jerome
Avenue, and $15,300.00 on Hendrix Street. Mr. Bellet received only $150.00 on
November 1st, 1967 from Mr. Lazarus' office, and sometime in'February 1968 was
informed that the Exeambio Corporation became in.solvent. Not knowing what
to do, Mr. Bellet turned the property over for management to Mr. Herman S.
Gilman of 602 New Lots Avenue, Brooklyn, X.Y. Mr. Bellet did not receive any
statement from Mr. Gillman until July 1st, 1968 when Mr. Gillman remitted to
him the sum of $1,305.00. Sub.sequently on August 8, 1968, Mr. Gillman submitted
a statement of rents collected since March to August 15th, in the sum of $1,835.00,
and a list of expenses in the sum of $1,663.00 claiming an amount due him from
Mr. Bellet of $1,133.00.
In the early part of August I contacted the Eastern Service Corporation and
stated that Mr. Bellet was willing to give a deed to the properties to the mort-
gagee in consideration of releasing Mr. Bellet. I followed this with a letter dated
August 13, 1968, to which I received no reply. Not until I spoke with you, did I
or Mr. Bellet, know that foreclosure had been started.
Since Mr. Bellet is a reputable merchant, who through mis-information and
over-selling, got into an unfortunate venture, and does not desire to be involved
in a foreclosure proceeding, the offer is here again made to execute a deed to the
property to the Federal Housing Administration, in consideration of releasing
him from the obligations under the bond and mortgage.
My client will convey title to the property, free of liens, and as an additional
consideration for releasing him is willing to pay a moderate sum, as evidence of
his good faith.
Very truly yours,
Irving Slater.
EXHIBIT 44
Stock Sale Plan for the Wenhaven Corp.
Plan to Offer Shares of Common Stock for Sale of the Wenhaven Corp.
Whereas the Board of Directors deem it advisable and in the best interests
of the corporation to offer for sale and issue shares of common stock in the
amount of not more than three hundred thousand dollars ($300,000) in a manner
such that in the hands of qualified stockholders such shares of stock will receive
the benefits of Section 1244 of the Internal Revenue Code of 1954, as amended, and
Whereas the corporation is a "small business corporation" as defined in Section
1244(c) 2, in that: ,
856
(A) the sum of the aggregate amount which may be offered under this plan,
plus the aggregate amount of money and other property received by the corpo-
ration after June 30, 1958, for shares of common stock as a contribution to capital
and as paid-in surplus, does not exceed $500,000, and
(B) the sum of the aggregate amount which may be offered under the plan,
pliLS the equity capital of the corporation, does not exceed $1,000,000 ; and
Whereas there is not now outstanding any prior offering of the corporation
to sell or issue any of its stock,
Now, therefore, it is hereiby resolved that the proper oflicers of the corporation
are hereby authorized and directed to offer, sell and issue as many shares of
common stock and at such prices; payable in cash or other property (other than
stock and securities) as from time to time they deem to be in the best interests
of the corporation, subject to the following :
(1) In no event shall the total amount of cash and the value of property,
received for shares of common stock, exceed three hundred thousand dollars
($300,000).
The Chairman presented to the meeting a form of plan to offer shares of
common stock for sale so that any loss sustained by a stockholder on the sale or
exchange of stock of the corporation may qualify for ordinary loss deduction
treatment on the stockholder's personal income tax return.
Upon motion duly made, seconded and carried, it was
Resolved,
Whereas, it is deemed advisable and in the best interests of the corporation
and its stockholders that the Board of Directors of the corporation approve and
adopt a plan to offer shares of common stock for sale so that in the hands of
qualified stockholders such shares of stock will receive the benefits of Section
1244 of the Internal Revenue Code of 1954, as amended, and
'Whereas, the corporation is a "small business corporation", as defined in Sec-
tion 1244(c) 2, and there is not now outstanding any prior offering of the corpo-
ration to sell and issue any of its stock,
Now, therefore, it is hereby resolved that the Board of Directors hereby
approve and adopt the plan to offer shares of common stock for sale in the form
of the plan presented to this meeting and the Board of Directors direct the
Secretary of this meeting to annex the copy of said plan to these minutes and
make them a part hereof, and
It is further resolved that the proper officers of the corporation hereby are
authorized and directed to sell and issue shares of common stock in the amount
of three hundred thousand dollars ($300,000) in such manner that they qualify
under the plan herein above adopted.
It is further resolved that such plan and such stock offer end not later than
two years after the date hereof.
EXHIBIT 45
Letter to Irving Slater, Esq., From Leonard L. Bellet Dated Oct. 21, 1968
October 21, 1968.
Mr. Irving Slater,
'New York, N.Y.
Dear Irving : I hasten to answer yours of the 16th.
First of all, I got a call from Lester Lazarus last week telling me that he was
informed by the FHA that they were going to release all of the people who were
on the FHA mortgages. He claimed that he had been working for sometime on it
and that I was the only one that he was calling. He felt that since I seem so
worried, he would relieve that anguished attitude.
In so far as any work done by any boiler, repair company, this letter that you
advised me of the fact is the first and only time that I had ever heard about it.
As you know, Excambio stopped representing me on or about the end of February.
I knew of nothing pertaining to this at that time. Later, when Gillman represented
me I had no inkling of any repair during that period. I know nothing about this
and certainly did not authorize Lester to represent me.
It seems to me that anybody can come along and put a lien on a property for
any reason and tliey can delay the works, and if we show we are willing to apply
a lesser amount than the amount of the lien tliey will accept it. Frankly, I had
idea that there was anything wrong with the boiler and I would deeply question
any amount of $900.00.
I send you kind regards.
Cordially, Leonard L. Bellet.
867
EXHIBIT 46
Letter to Leonard Bellet from Irving Slater dated Oct. 16, 1968
Ieving Slater,
counseloe at law,
New York, N.Y., October 16, 1968.
Mr. Leonard L. Belleit,
Care of Flair for Fashions,
Richmond, Va.
Dear Mr. Bellet : Since I received the summons and complaints served on you
I have been in contact with attorneys representing Buffalo Savings Bank. Only
today I was advised that temporarily the actions has been halted by FHA pending
investigation. By next week I should hear whether anything can be done to get
you released.
Secondly I was informed that there is a lien placed against the Jerome Avenue
property. The lien is for $913.50 which was placed against the property on May 13,
1968. The plaintiff in the action was New York Boiler Repair Company and the
defendants Excambio Corporation and Leonard Bellet. Lazariis and Jaffe ap-
peared for you as attorneys. What do you know about this bit of information. The
attorneys for the boiler company were Schwartz, Lorge & Schwartz. They in-
formed me that they have done $11,000.00 work for Excambio. Did you authorize
Lazarus to represent you.
In order to get you released if my offer is accepted the lien would have to be
removed. I made an offer subject to getting the release to satisfy the lien for
$500.00. The attorneys are willing to recommend the acceptance.
Please answer my questions and let me know what every bit information you
have.
Sincerely,
Irving Slater.
EXHIBIT 47
Letter to Leonard Bellet from Irving Slater, Esq., dated Nov. 23, 1968
Irving Slater,
Counselor at Law,
New York, N.Y., November 23, 1968.
Mr. Leonard L. Bellet,
Flair for Fashions,
Richmond, Va.
Dear Mr. Bellet: After speaking to you on Wednesday evening I continued
negotiations on Thursday and finally came to the conclusion that I can separate
the two buildings and get released from obligation under the mortgage on 673
Hendrix Street. To speed up matters I obligated myself to the attorney for the
Buffalo Bank for $50.00 and as you see from enclosures things are moving.
I am enclosing Deed to Secretary of Housing which you are to sign where your
name is typed. The notary is to sign as witness on same page and on second page
he is to sign and place his notarial seal.
There is also enclosed a long document called affidavit of title which you are
to sign on last page and notary to sign and place his notarial seal.
The notary's signature is to be authoricated which means a signature usually
by County Clerk that he is properly authorized to take an oath. The notary will
tell you how to obtain it. It is usually a slip of paiier clipped to the document
under County Seal.
Copy of letter from Mr. Greenhall the attorney who brought the foreclosure
proceedings.
I will probably be back in N.Y. the 3rd or 4th of December and hope to find
the signed documents waiting for me.
Very truly yours,
Irving Slater.
83-703 O — 73— pt. 2b
858
EXHIBIT 48
Letter to Joseph Ostrov from Leonard Bellet dated Mar. 27, 1968
Mabch 29, 1968.
Mr. Joseph Osteov,
Haddenfield, N.J.
Dear Joe : Naturally, I am very much disturbed about what has turned out to
be my own stupidity.
I want to reiterate what I discussed with you on the phone and bring you some-
what up to the minute. After speaking with you and Hy, I sent a collect telegram
to Lester warning him that I wasn't going to tolerate the kind of behavior that he
was giving me. When he received that wire, it apparently shook him loose and
he called me to explain in his words what had happened to the whole mess. I
treated him very brusquely, and I concluded to him that I was not interested
in excuses or stories but before I turned this matter over to the District Attorney,
both in Richmond and New York, I was giving him a fair chance to see that I
would not lose anything by this whole mess.
Now, I am sure I am just dreaming that I scared him but I am staying with
him regularly at what I think is his exijense and I don't think it would be wise
to let any more time elapse beyond your discussions with Oilman on Thursday,
insofar as pursuing Lester by every legal means.
As I see it now, your discussion with Oilman will not necessarily resolve
anything. I would prefer to take the loss now, without delay, and go on to some-
thing more exciting. So, if we can sensibly deal with Oilman on this basis, that
might save us a lot of aggravation and wind this thing up forthwith.
Let's do what we can, at least in my case, about getting out completely. Best
regards to all. Please remember to keep May 4th open.
Cordially,
Leonard L. Bellet.
EXHIBIT 49
Letter to Eastern Service Corp. from Abraham Pruzan dated Feb. 7, 1962
Abraham Pruzan,
Counselor at Law,
Brooklyn, N.Y., February 7, 1969.
Re : 477 Jerome St., Bklyn, N.Y.
Mr. Thomas Reynolds,
Care of Eastern Service Corp.,
Hempstead, Long Island, N.Y.
Dear Mr. Reynolds : I have been retained by Irving Slater, Esq., attorney for
Mr. Leonard L. Bellet, landlord of premi.ses 477 Jerome Street, Brooklyn, N.Y.,
to institute summary proceedings for possession of the above numbered premises
against Oeorgia Evans, occupying the first floor, and Rebecca Evans, occupying
the second floor, the above numbered premises being a 2 family house.
I contacted Mr. Melvin Oreenhall of 50 Court Street, Brooklyn, N.Y., the
attorney for the first mortgagee, who informed me that when and if I secure
possession of the demised premises, I was to inform you, so that you can proceed
and service the building.
I appeared at the said property for the purpose of serving the dispossess pro-
ceedings and I discovered that Oeorgia Evans, the tenant occupying the first fioor
apartment had already vacated.
I want to report to you that vandals have already been in this building and
they are .stripping it of everything that is capable of being removed from the
property, especially on the first floor. The tenant, Rebecca Evans, occupying the
2nd fioor, is a Welfare tenant, and is waiting for Welfare to re-locate her. In
the event AVelfare does not re-locate the tenant on or before February 17, 1969,
the Marshal will be instructed to evict the tenant and give us legal posses.sion.
Your attention is directed to this, so that you may proceed immediately to
prevent further destruction of the said premises.
Very truly yours,
Abraham Pruzan.
859
EXHIBIT 50
Letter to Irving Slater, Esq., from Leonard Bellet dated May 13, 1968, and
enclosure
May 13, 1969.
Mr. Irving Slater,
liew York, N.Y.
Dear Irving: I am enclosing a copy of the letter which I sent certified to
Mr. Lester Lazarus.
Will you liancUe the necessary details to follow this up .so that he doesn't get
away witli murder?
Obviously, anything that we can salvage from him will be worth it, unless you
feel that we are beating a dead hor.se. Please let me hear from you.
The balance of your fee should be mailed to you within the next few days.
I send you kind regards.
Cordially,
Leonard L. Bellet.
Mat 8, 1969.
Mr. Lester Lazarus,
Neiv York, N.Y.
Dear Mr. Lazarus : This is to advise you that I have disposed of the properties
you have induced to purchase by delivering Deeds to tlie Secretary of Housing
and Urban Administration the guarantors on the mortgages on the subject prop-
erties. FHA has satisfied the mortgages by payment to the Buffalo Bank and the
satisfactions were filed. As you know, I have lost my entire investment and in
addition had expenses of over $1,500.00
Since you induced me to enter into the venture with promises of a sure return
of 20% and even after demanding the return of my deposit, which you held from
December 1966 to September 1967, you still insisted that it is a safe investment
and practically and even outright guaranteed my investment. You represented me
as my attorney in this matter and I did not learn until recently that you were the
seller though ostensibly Eastern Service Corp. appears as the record owner of
the properties. This they now deny, stating that they held title to the houses to
protect their advances on the properties. At any rate, I now feel that you as an
interested party could not represent me. Furthermore, the Excambio Corp. was,
I am advised, of your creation and I am looking to you to make good to me any
losses by reason of their management.
I am waiting to hear from you before I will and am urged to take further steps.
My total investment in your behalf was $14,000.00 plus the above.
I shall expect restitution immediately, or we shall necessarily go to additional
expense to accomplish the end.
Very truly yours,
Leonard L. Bellet.
Mr. Lazarus. There is absolutely no question about that.
Mr. Chumbris. Thank you. No further questions.
Mr. O'Leart. I don't believe we got this for the record. Just to make
it complete, I think, Mr. Lazarus, you indicated that prior to your
meeting Mr. Wendell, you had not been involved in the real estate
business. Is that correct ?
Mr. Lazarus. At all.
Mr. O'Leary. I take it the same for you, Mr. Jaffe ?
Mr. Jaffe. I had only been practicing law for about a year or maybe
less when I met Mr. Wendell.
Mr. O'Leary. You indicated that you have been in j^ractice together
for a period of time. Could you give us an idea of what the general
nature of your practice is ?
Mr. Lazarus. Commercial practice within the soft goods industry.
Mr. O'Leary. Soft goods industry ? OK. Thank you, sir.
Mr. Lazarus. Thank you.
Senator Hart. Gentlemen, thank you very much.
860
STATEMENT OE DAVID GOMBERG, BROOKLYN, N.Y.
Senator Kart. Mr. David Gomberg ?
(Mr. Gomberg was duly sworn in by the chairman.)
Senator Hart. The record should reflect that Mr. Gomberg is appear-
ing here today pursuant to a subpena.
I understand, Mr. Gomberg, that you are represented by counsel,
and that he is present with you. For the record, would you state his
name?
Mr. Gomberg. Herbert J. Miller.
Mr. Miller. I am Herbert J. Miller, and I practice law at 12'5-26
Queens Boulevard in Kew Gardens, New York.
Senator Hart. I am sure that your counsel has advised you of your
rights, Mr. Gomberg, but it is the practice of this subcommittee to state
for the record our understanding of the rights of the witnesses.
'You have a right to refuse to answer any questions you feel may tend
to incriminate you. Anything you say here may be used against you
in any other proceeding.
You have the right to consult with your lawyer at any time before
answering any questions, and should you decide to answer questions
now, you have the right at any time to stop answering.
The record should reflect that should you desire to refuse to answer,
or assert your rights, this subcommittee will draw no adverse inference
from that course of conduct, nor should anyone else.
Do you understand your rights ?
Mr. Gomberg. I do.
Senator Hart. Are you willing to waive your rights and to answer
questions at this time ?
Mr. Gomberg. No.
Senator Hart. Mr. Gomberg, a subpena duces tecum was issued re-
questing the delivery to the subcommittee of certain documents. Are
you willing to respond to that ?
Mr. Gomberg. I stand on my constitutional rights under the fifth
amendment to remain silent.
Senator Hart. Mr. Gomberg, let me direct one question to you.
Have you collected, or attempted to collect, rents from tenants in
buildings which are in the process of being foreclosed, and which are
subject to federally insured mortgages?
Mr. Gomberg. I stand on my constitutional rights under the fifth
amendment to remain silent.
Senator Hart. For the record, is your intention to invoke your fifth
amendment privilege to any and all questions relating to your involve-
ment in the business of real estate, and specifically collecting ?
Mr. Gomberg. Yes.
Senator Hart. We excuse you. Thank you.
STATEMENT OF HYMAN OSTROV, CHERRY HILL, N.J.
Senator Hart. Mr. Hyman Ostrov.
(Mr. Ostrov was duly sworn in by the chairman.)
Senator Hart. The record should reflect that Mr. Ostrov is here pur-
suant to a subpena, and evidently without a lawyer.
861
Mr. Ostrov, you have the right at any time to refuse to answer any
questions you feel may tend to incriminate you. Anything you do say
can be used against you in any other proceeding.
You have the right to talk to a lawyer for advice before we can ask
you any questions, and have your lawyer with you during questions.
If you desire to answer questions now, without a lawyer present, you
will still have the right to stop answering at any time.
You also have the right to stop answering at any time until you talk
to a lawyer.
Should you desire to refuse to answer and assert your constitutional
rights, this subcommittee will draw no adverse inference from that
conduct, nor should anyone else.
Do you understand those rights, Mr. Ostrov ?
Mr. Ostrov. Yes; I do.
Senator Hart. Are you willing to waive your rights and answer
questions ?
Mr. Ostrov. Yes.
Mr. Blum. Mr. Ostrov, would you state your name in full for the
record ?
Mr. Ostrov. Hyman Ostrov — 0-s-t-r-o-v.
Mr. Blum. TYhat is your home address ?
Mr. Ostrov. 1610 Landmark 2
Senator Hart. Mr. Ostrov, would you speak a little louder, sir?
Mr. Ostrov. 1610 Landmark 2, Cherry Hill, N.J.
Mr. Blum. "\Yliat is your principal business?
Mr. Ostrov. I am a retailer.
Mr. Blum. Retailer ? What is it that you sell ?
Mr. Ostrov. Liquor.
Mr. Blum. Mr. Ostrov, you were an investor in the Excambio Man-
agement operation, is that correct ?
Mr. Ostrov. Yes, it is.
Mr. Blum. Would you mind telling us the history of your associa-
tion with Mr. Lazarus and Mr. Wendell, and your investment
operation ?
Mr. Ostrov. This came to my attention through my accountant, who
is also the accountant for another investor in this group.
He had gone over it, the facts and situation, for his other client,
and it appeared to be a good investment — purely investment — and as
such, I was very interested.
We went to New York and spoke to Mr. Wendell and Mr. Lazarus.
From the figures that we saw, and the result of our conversation,
we invested in the Wenlmven, buying a number of houses.
We also, as a result of various facts which were accumulated to
show that it would be a good investment, put a sum of money into the
Wenhaven Corp.
Mr. Blum. What were you told by Mr. Lazarus and Mr. Wendell
about that investment? Did they give you any indication as to the
percentage rate of return ?
Mr. Ostrov. As I recall, the percentage rate would be about 15 to
20 percent.
Mr. Blum. That would be tax sheltered, is that correct ?
Mr. Ostrov. That I cannot tell you. I think it was the overall. Of
course you would have depreciation, and so forth, which would help.
Mr. Blum. You do not recall precisely ?
862
Mr. OsTROv. No, I do not recall precisely.
Mr. Blum. Did they explain the full nature of the operation to you,
that they were renting houses to welfare families, and buying subject
to FH A mortgages ?
Mr. OsTROv. Yes. They did explain it to me, and it looked like some-
thing that was needed, and it was something I could participate in
successfully.
Mr. Bltim. Wliat did they tell you about the mortgages that you
would be getting on these houses, the FHA mortgages ? Did they tell
you anything about the rules relating to them ?
Mr. OsTRov. No. We were not told anything about the rules. The
price of the house was, at that time, if I recall it correctly, was based
on the mortgage, plus a certain sum of money.
In other words, we did not know what was paid for the house. It was
merely the mortgage plus a certain sum of money.
Mr. Blum. In fact you were told, "We have an inventory of houses
at these prices. Do you want to buy a house ?"
Mr. OsTROv. I don't recall whether it was presented to me in that
particular way.
Mr. Blum. Do you recall just how that presentation was made?
Mr. OsTROv. The houses would be available. Whether it was an in-
ventory or not, I did not know.
Mr. Blum. TVliere did you first meet them ? In Mr. Lazarus' office ?
Mr. OsTROv. In Mr. Lazarus' office. I went to New York and met
them in their office.
Mr. Blum. "Wliat is your recollection of the way that conversation
went ? Do you have any recollection ?
Mr. OsTROv. Not too much.
Mr. Blum. Did they introduce Mr. Wendell as a man of experience
in property?
Mr. OsTROv. Mr. Wendell presented himself as the main factor and
originator of the idea.
Mr. Blum. I imagine that he is rather persuasive.
Mr. OsTROV. Yes.
Mr. Blum. Did you ever see any of the houses that you purchased ?
Mr. OsTROv. Not when we purchased them.
Mr. Blum. Not at the time of purchase ?
Mr. OsTROv. No. Of course we did later. It was strictly from the
investor point of view, and I was not too much interested in the homes
themselves.
Mr. Blum. Let me get this straight for the record. After you met
Mr. Wendell and Mr. Lazarus, and you put up the money, your only
other participation at that point was going to a closing. Is that correct ?
Mr. OsTRov. Would you restate that, sir ?
Mr. Blum. After you put up the money, and after you met Mr. Laza-
rus and Mr. Wendell, going to the closnig was the only other thing that
you did in connection with the investment ? Is that correct ?
Mr. OsTROv. Well, I guess — actually, I didn't attend any closing. I
think that was taken care of by Mr. Jaffe.
Mr. Blum. In otlier words, you didn't even go to the closing?
Mr. OsTROv. It was only a matter of signatures.
Mr. Blum. You didn't have to go to the Eastern Service office? It
was all taken care of for you ?
863
Mr. OsTROv. That is correct.
Mr. Blum. When did you get to see the houses ?
Mr. OsTROv. I believe it was when we were aware of problems exist-
ing there, that there were repairs needed, et cetera, and they were not
being taken care of properly.
At that time I was introduced to the homes.
Mr. Blum. You went around and physically inspected the houses?
What kind of condition were they in ?
Mr. OsTROv. The homes were — well, it was actually pathetic. They
were not taken care of by the people that were there.
They had been very destructive. There was filth, dirt in the base-
ments which had been allowed to accumulate.
Even one or two families would seem to want to take care of the
homes, and they were prevented from doing so by the others that were
in the home, and in just the general area.
There were too many people.
Mr. Blum. Were you shocked by how bad the conditions were ?
Mr. OsTROv. Yes, I think you could say that.
Mr. Blum. Were you surprised by it ? Was that something you had
not quite anticipated when you invested ?
Mr. OsTROv. I had not quite anticipated that conditions would be as
bad. I knew they ^veren't good, but I had not quite anticipated condi-
tions as bad as they were when I went in to see the homes themselves,
and talked to a few of the people there.
Mr. Blum. When did you first get notice that there were problems
with Excambio, and that you were not going to be getting the money
that you had originally expected?
Mr. OsTROV. Unfortunately I was aware of it when the problems
first started. Again, because of the money which I had put in, I was
asked to serve on the board, and thinking at that time that I would
be in close contact, I consented.
As such, we met once a month, I believe it was, and we were presented
the facts which were available at that time. As such, I was aware of the
problems.
Having purchased the property somewhere around June 1967, 1 be-
lieve, I actually came in just shortly before Mr. Wendell left.
:Mr. Blum. Shortly before Mr. Wendell left?
INIr. OsTROv. Very shortly. And when the problems started.
Mr. Blum. How much money did you invest in the operation ?
INfr. OsTROv. My personal investment was probably, I believe — it was
five homes. It was about $22,500, $4,500 over the mortgage, and $25,000.
INIr. Blum. Did you invest more after that ?
Mr. OsTROv. No, not as an investment. I did later, when there was
a problem, take over a few mortgages, put some money into Wenhaven,
and that was for a short period of time. They were taken back after
it as per agreement.
Mr. Blum. How much money do you think you lost on this
operation ?
Mr. OsTROv. Everything that I put into it.
Mr. Blum. "Wliich would have been what, about $45,000?
Mr. OsTROv. About $47,500.
Mr. Blum. $47,500?
Mr. OsTROv. Yes.
864
Mr. Blum. Were other members of your family in this?
Mr. OsTROv. My brother was in it. He had about the same sum of
money involved.
Mr. Blum. Did you meet other people who had made similar invest-
ments in the course of your dealing with the company ?
Mr. OsTROv. Yes, I did.
Mr. Blum. Was it your impression that you were treated properly
and fairly all the way through this, or did you have the feeling that
you were being taken ?
Mr. OsTROv. I did not think I was being taken as far as Mr. Lazarus
and Mr. Jaffe were concerned. I think that Mr. Lazarus is a lawyer ; he
was not a businessman, and as such, it added to the predicament, and to
the problem, not perhaps being properly able to handle the problems
that came up.
But I do not believe it was done with any intent to do wrong.
Mr. Blum. And you would include in that Mr. Wendell?
Mr. OsTROV. No, I wouldn't include Mr. Wendell. My contact with
him was very brief.
Mr. Blum. Did you then take steps when Excambio collapsed to
take back the properties yourself, and manage them yourself?
Mr. OsTROV. Well, I certainly couldn't manage them myself. I con-
tacted Mr. Sol Oilman, who took them over. I was very unhappy with
the way that he handled it, and I finally just gave him the properties.
Mr. Chumbris. Mr. Blum, would you yield just for a moment. Just
so that the record doesn't remain blurred on the last point that you
made about Mr. Wendell, you said you had a very brief visit with him
so you have no opinion one way or the other as to his part in the
operation ? Is that what you are trying to say ?
You qualify your feelings toward Mr. Lazarus and Mr. Jaffe, but
you said that does not apply to Mr. Wendell.
A person reading the record could interpret that two ways. I would
like for the record to show what your impression of your relationship
with Mr. Wendell was.
That is what I am trying to get into.
Mr. OsTROV. Well, upon reflection, it could be that Mr. Wendell was
able to buy those properties not knowing what he paid for them.
I merely paid $4,500 over the FHA. Whatever he paid for them, I
don't know.
Mr. Chumbris. What I am trying to get to for the record, do you
feel that your relationship with Mr. Wendell was not appropriate, or
it was, or you have no comment whatsoever ?
Mr. OsTROV. I have no particular comment. I bought what he had to
sell. That was my own fault.
Mr. Chumbris. Well, then I will let you leave the record as you want
to leave it. I am trying to help the record. I just thought you might be
placing something in the record that you really didn't intend to say.
I will leave it up to you if you want to add anything further. That
is all I wanted.
Mr. Blum. I would like to pick up again, if I may, Mr. Chumbris.
Did you attend a meeting of lenders called by Mr. Lazarus in New
York City?
Mr. OsTRov. No ; I did not attend it.
Mr. Blum. Were you aware that that meeting was called ?
S&5
Mr. OsTROv. I was aware that the meeting was called; yes.
Mr. Blum. Did you feel at that point that it wasn't worth your time
to go ? There was nothing to salvage ?
Mr. OsTROv. I didn't think anything would be accomplished at a
meeting that would necessitate my attending it.
Mr. O'Leary. Mr. Ostrov, I believe you indicated that you invested,
or bought, five houses.
Mr. OsTROV. That is correct.
Mr. O'Leary. I think you also indicated that you paid $4,500 in ad-
dition to whatever the FHA
Mr. OsTROv. No, I did not say FHA. Over the mortgage. They were
not all FHA. There were one or two conventional loan mortgages in
there. The rest were FHA.
Mr. O'Leary. But as I understand it, your investment in those five
properties averaged out to approximately $4,500 per property ?
Mr. Ostrov. They were $4,500 per property.
Mr. O'Leary. That comes to $22,500 ? I think you mentioned a total
sum of $47,000, and that $47,500, an additional amount was a contribu-
tion in capital to the Wenrus Corp. ?
Mr. OsTROV. The Wenhaven Corp.
Mr. O'Leary. I'm sorry, the Wenhaven Corp.
Now, you mentioned that you became involved through your ac-
countant. Did you know how many houses he had invested in?
Mr. Ostrov. No, I do not.
Mr. O'Leary. I think you also indicated that your brother had ap-
proximately the same amount of money invested ?
Mr. OsTROV. That is correct.
Mr. O'Leary. Did he also have five properties to your knowledge,
sir?
Mr. OsTROV. Yes, he did.
Mr. O'Leary. All right. To your knowledge, did your brother ever
attend a meeting at the Eastern Services Corp.?
Mr. Ostrov. To my knowledge, he did not.
Mr. O'Leary. Did you know of other people who were involved —
friends, or other relatives, with respect to buying houses ?
Mr. Ostrov. Yes. My brother's brother-in-law had two houses.
Mr. O'Leary. Two houses? To your knowledge, did he attend a
closing ?
Mr. Ostrov. No ; I do not believe he did.
INIr. O'Leary. At the time you purchased these houses, were you
shown a picture of the houses?
As I understood your testimony, you did not go around and see them.
Mr. Ostrov. No ; I do not recollect that we were. I really don't re-
member. I think we had descriptions of them, but I do not recall
whether we saw pictures or not.
Mr. O'Leary. Do you recall what, if anything, was said to you by
either Mr. Lazarus or Mr. Wendell about the condition of these houses
at the time you bought them ?
Mr. Ostrov. That they would be brought up to the regulations and
specifications of the buil(iing codes.
Mr. O'Leary. Were these houses one- family units? Two-family
units ?
Mr. Ostrov. Two-family units.
866
Mr. O'Leary. As I understand it, you were told that the houses
would be rented to welfare recipients ?
Mr. OsTROv. That is correct.
We weren't told they would be restricted to welfare recipients, but
we understood that they were essentially rented to welfare recipients.
Mr. O'Leary. Can you give us an idea of your approximate income as
a liquor dealer, sir ?
Mr. OsTROv. $100,000 a year, or better.
Senator Hart. What was that answer, sir ?
Mr. OsTROv. $100,000 a year, or better.
Mr. O'Leary. I assume that you were interested in these houses as
a tax shelter, is that correct ?
Mr. OsTROv. As an investment.
Mr. O'Leary. Thank you, sir.
Mr. Chumbris. I have no questions.
Senator Hart. Thank you very much.
STATEMENT OF ROBERT W. RAMSEY, PRESIDENT, BUFFALO
SAVINGS BANK, BUFFALO, N.Y.
Senator Hart. Our next witness is Mr. Robert W. Ramsey, president
of the Buffalo Savings Bank.
Mr. Ramsey, if others plan to testify, we might just as well admin-
ister the oath jointly.
Mr. Ramsey. If I have a question that I can't handle, I may refer
it to my assistants.
(Mr. Robert Ramsey, Mr. Warren Emblidge, Jr., Mr. Evar J. Skoog,
and Mr. John T. Sapienza were duly sworn in by the chairman.)
Senator Hart. For the record, before we receive your statement, Mr.
Ramsey, will you permit me to ask you your full name and address?
Mr. Ramsey. Robert W. Ramsey, 200 Woodward Avenue, Buffalo,
N.Y.
Senator Hart. Would those who accompany you, for the record, state
their names and addresses ?
Mr. Emblidge. Warren Evans Emblidge, Jr., 538 Linwood Avenue,
apartment 7, Buffalo, N.Y.
Mr. Skoog. Evar J. Skoog, 946 Parkside Avenue, Buffalo.
Mr. Sapienza. My name is John T. Sapienza. I practice law in
Washington, D.C., at the law firm of Covington & Burling, address
at 888 16th Street NW., Washington, D.C.
Senator Hart. Thank you for the prepared statement. We will wel-
come your reading it, and as you go along, if there is any addition or
footnoting you care to do, feel free to do it.
It will be printed in the record in full.
(Document follows:)
Statement of Robert W. Ramsey, President, Buffalo Savings Bank,
Buffalo, N.Y.
Mr. Chairman and Members of the Subcommittee, my name is Robert W.
Ramsey and I am President of the Buffalo Savings Bank in Buffalo. New Yorlv.
Accompanying me are Warren E. Emblidge, Jr., one of our Vice Presidents, Evar
.T. Skoog, a retired Senior Vice President, and Mr. John T. Sapienza, one of our
counsel.
We appreciate this opportunity to testify on the problems of competition in
mortgage origination in the New York nietropoUtan area. Your staff is to be
867
complimented for the great amount of time and effort which has gone into the
preparing for tliese hearings. My statement covers four areas of interest to the
Subcommittee : a description of the Buffalo Savings Bank, a discussion of our
participation in the FHA/VA secondary marltet, a discussion of our relationship
with mortgage companies in the Xew York metropolitan area and a description
of the situation with respect to the Excamhio Management Corporation and tlie
discussions we had with Eastern Services Corporation about it.
A. The Buffalo Savings Bank
Buffalo Savings Bank is a mutual institution chartered in 1846 by a special
act of the legislature of the State of New York. As of January 1, 1972, the Bank
had approximately $1,220,000,000 in assets and is the eleventh largest mutual
savings bank in the Country. The Bank's assets are comprised primarily of $333
million in securities and $825 million in mortgage loans. There are 60,000 mort-
gagors. The deposit liability is $1,111 million. Buffalo Savings Bank has six
oflEices serving the Buffalo metropolitan area and employs 400 full-time persons.
The Bank has 382,000 personal account holders ; no corporate depositors are
permitted.
Our basic purpose, now formally defined, is to encourage financial responsibility
by providing a secure and profitable depository for savings, thereby accumulat-
ing capital for investments which will aid the advancement and growth of the
community.
The Bank is proud of its contributions to the community. The officers and
staff devote considerable time to various civic, philanthropic and social causes
in the city and suburbs. In addition the Bank supplies conventional, insured and
guaranteed financing to the housing market, so needed to replace deteriorating
houses and meet the increased demand caused by an expanding population
Buffalo Savings, since it first became an approved FHA lender in 1936, has
enjoyed excellent relations with the local FHA office. Working together we have
provided better housing to those who would not have been qualified buyers under
conventional financing methods. This became particularly important when we
responded to the National Housing Act of 1968 and originated $16 million in
Section 235 housing. As the largest lender in Western New York for this type of
housing, we recognize our responsibility to help lower income families acquire
adequate housing. By working closely with the local FHA office, and by exercising
close supervision over building contractors in Section 235 housing, the Buffalo
Savings Bank helped to meet low to moderate income housing demand. Our
experience has been very satisfactory. Of the $16 million invested we have not
had any foreclosures. However, one loan is in the process of foreclosure at this
time and we have one other that has been assigned to FHA. The Bank supports
programs of this type provided they are properly managed by all parties involved.
B. Buffalo Savings Bank's partioipation in the secondary market for FHA/VA
mortgages
Buffalo Savings Bank has great faith in the FHA/VA programs, and endorses
and supports the purpose and objective of the FHA secondary market. Western
New York is a capital surplus area ; that is to say, more funds are available for
investment than can be consumed at competitive rates. Thus, under certain market
conditions, Buffalo Savings supplies dollars to capital deficit areas. One of the
vehicles for accomplishing this transfer is the FHA/VA secondary market. Table
1 below illustrates what percent of total available funds were invested in the
secondary FHA/VA market.
TABLE 1.— BSB FUNDS INVESTED IN SECONDARY FHA/VA MARKET
[Dollar amounts in millions]
Funds FHAA/A Percent
available purchases invested
Year:
1965
1966.. ._
1967..
1968
1969 _ _
1970
1971.
J109. 4
$26.0
23.7
102.0
46.7
45.7
145.7
41.2
28.2
131.8
19.1
14.4
105.6
14.6
13.8
118.0
2.5
2.1
213.8
17.1
7.9
$21.4
$2.0
9.3
65.0
8.3
12.8
26.7
2.0
7. 5
24.0
3.0
12.5
7.0
2.0
28.6
868
The Bank, to facilitate its mortgage investments outside the Buffalo area,
works with mortgage hankers across the Country. These firms originate the loans,
and after selling them by assignment, perform the servicing function on our
behalf. Servicing generally means to collect and disburse funds and handle fore-
closures if necessary. Currently 63 mortgage bankers service approximately $260
million of FHA/VA loans for Buffalo Savings Bank.
The yield on FHA/VA investments is compared to other long term investment
opportunities, usually AA 30-year utility bonds and 20-year U.S. Treasury Bonds,
to determine if a contemplated purchase is sound considering the degree of risk,
the current time value of money and the liquidity of the investment. During the
period under consideration Buffalo Savings Bank made FHA/VA secondary
market purchases through many mortgage banking firms at yields in excess of
tlie utility and treasury bond rates.
Table 2 illustrates what percent of Buffalo Savings Bank total secondary
commitments were made to Eastern.
TABLE 2.— EASTERN COMMITMENTS AS A PERCENT OF TOTAL SECONDARY MARKET COMMITMENTS
(Dollar amounts in millionsj
Total FHA/VA Commitments
Commitments' to Eastern ' Percent
Year:
1965
1966
1967 â– ---
1968
1969..
1 FHA/VA commitments differ in amounts from FHA/VA purchases because a commitment may be made in 1 year and
the purchase may be made in the following year.
As can be seen above, these commitments did not represent a significant per-
cent of secondary market commitments. The coupon rate, or FHA/VA "interest
rate", was lower than the current market rate of interest at the time the commit-
ments were issued. Thus these loans were bought at discounts ranging from two
to nine points. The majority were made between five and seven points. However,
the yields earned on Eastern purchases do not vary significantly from yields
earned on other FHA/VA secondary mortgage market purchases made at the
time through other mortgage bankers, as Table 3 illustrates below.
TABLE 3.— EASTERN COMIVIITMENT YIELD RANGE COMPARED TO RANGE OF SECONDARY MARKET COMMITMENT
YIELDS
Eastern National
yield yield
range range
Year:
1965
1966-.
1%7....
1968....
1%9 -
Source: Commitment records of Buffalo Savings Bank.
C. A discussion of Buffalo Savings Bank's relation with Mortgage Companies in
the New York Metropolitan Area
In recent years Buffalo Savings has had FHA/VA purchasing and servicing
relationships with five mortgage banking firms in the New York Metropolitan
Area : Commercial Mortgage, Lawrence A. Epter Associates, Eastern Service
Corporation, Community Funding Corporation and Springfield Equities, Ltd.
Before a servicing contract is signed, it is standard practice to order a Ehin and
Bradstreet Report and obtain recommendations from financial institutions that
liave dealt with the mortgage banker. Additionally, an in.^i)ection of the serv-
icer's operation is made by Bank personnel.
5.125
5.090-5.125
6. 025-6. 845
6.020-6.915
6. 145-6. 160
5.760-6.555
7.055
6.860-7.055
7.965
6. 895-7. 96 5
86©
The Bank first purchased loans in the area in the 1940's in support of Con-
gressional sponsored FHA/VA programs in the post-war years to provide much
needed housing, and has continued this i)ractice ever since. The mortgages, all
purchased on a packaged basis, were either "tract loans" such as Levittown, or
"spot loans" that were scattered throughout the area.
There are two situations we wish to call to the Subcommittee's attention. The
first involved Eastern Service Corporation. Buffalo Savings committeed to pur-
chase through Eastern $12.3 million l-TIA/VA loans l)etween May, l!)0.j and
February, 1967. During that time no unusual servicing diflSculties were encoun-
tered. Payments were remitted promptly and Eastern, compared to all servicers,
ranked 29 out of 52 on the severity of delinquency ratio scale.
Between March, 1967 and July, 1968 no commitments to Eastern were issued.
This happened because prices could not be agreed upon and servicing diflSculties
increased. The delinquency ratio, during this period, increased until Eastern
ranked 49th of the Bank's 52 servicers. Numerous letters and telephone calls
were exchanged between Eastern and Buffalo Savings. An examination of the
letters between Buffalo and Eastern indicates that the increase in delinquencies
was attributed by Eastern to excessive personal spending, loss of salary due to
strikes in the New York metropolitan area, including a welfare department strike,
the low quality of the portfolio, lack of personal contact with the delinquent
mortgagor and management companies having diflBculty collecting rent from
welfare tenants. In March, 1968 the president of Eastern assured us that given
some time and increased efforts on their part to improve collections delinquencies
would decline. It was also during this period, April 3, 1968 that a telephone call
was received, indicating that Excambio Management was involved with some of
the Bank's mortgages.
The FHA Regulations were amended on August 1, 1968 to implement the Hous-
ing and Urban Development Act of 1968. Financial institutions were encouraged
by the Government to finance proiJerties in the core areas of our central cities.
Accordingly, Buffalo Savings invested an additional $3 million in FHA/VA
loans in August and September, 1968, through Eastern. The last purchase was
made in March, 1969.
Since August, 1968, servicing diflSculties have continued. Numerous letters were
exchanged, and Buffalo Savings Bank, attempting to understand and solve the
high delinquency problem, received plausible explanations from Eastern. For
example, in October, 1969 the Bank wanted to know why there was such a delay
in processing foreclosures. At the time, eighty-eight loans were in various stages
of foreclosure. Among the reasons given by Eastern were (a) owners leaving
the area, thus making title companies publication requirements diflScult to satisfy,
(b) delays attributed to court- appointed referees, attorneys, and court judges
not ordering evictions, (c) the FHA regulation requiring that a property be
vacant prior to conveyance, (d) welfare tenants not receiving checks and (e)
squatters occupying a property after the tenants were evicted.
The delinquency ratio of loans serviced by Eastern continued to be excessive.
In September, 1970 the Senior Vice President of Buffalo Savings and an Assistant
"Vice President in the National Mortgage Department met with the Executive
Secretary of Eastern in New York City to discuss sixteen accounting and twenty-
seven servicing problems. After that meeting two Eastern employees visited
Buffalo to resolve some of the problems. Since then reporting and servicing pro-
cedures have improved, and the delinquency ratio has decreased. Since the begin-
ning of 1972 the delinquency ratio on loans serviced by Eastern has averaged
13%. Although this is above normal, it is an improvement over the high of 26%
on Eastern loans in 1968. We are continuing our efforts to achieve further reduc-
tion in this delinquency ratio.
The second situation we wish to bring to your attention involves Springfield
Equities Ltd. The servicing agreement was .signed on March 17, 1967. During the
following three years it became increasingly diflBcult to ascertain the payment
and foreclosure status of the various mortgage loans. Part of the servicing func-
tion was subcontracted to another servicer. In our opinion, the servicing contract
was violated. It was accordingly terminated and transferred to Eastern Service
Corporation in April, 1970.
The servicing diflSculties dLscussed above were caused, we thought, by socio-
economic forces indigenous to the neighborhoods. It must be emphasized that at
no time did Buffalo Savings employees know or have any reason to believe that
there were any improprieties in the origination or servicing of the mortgage loans
in question.
870
D. A description of the situation with respect to Excambio Management and the
discussions Buffalo Savings had with Eastern about it.
It is difficult to describe the situation with respect to Excambio Management
because Buffalo Savings had no direct dealings with the firm. The standard pro-
cedure used in purchasing loans is as follows : the FHA approved mortgage
banker, after originating the loan, submits a complete set of FHA or VA docu-
ments, either insured or guaranteed by the appropriate agency, to the permanent
investor for approval and purchase by assignment. It is the mortgagor who is
identified in the submission. A management agent, if employed by a non-occupant
owner (approved by the FHA), would not come to the attention of the Bank.
Excambio Management became known to Buffalo Savings on April 3, 1968.
According to a memorandum in the Bank's files, a mortgagor's accountant called
regarding delinquencies in several mortgages. He said that the mortgagor lived
out of town and had Excambio manage his Brooklyn properties. He said further
that the rents were collected but that the mortgage payments were not made.
He also stated that a Mr. Sol Gelman would assume the management of these
properties on March 1, 1968. The next day, Tom Reynolds, an employee of
Eastern, called and said that due to many instances of the above Eastern forced
the management company to break up and turn all properties back to the owners
to handle. He added all should be straight or foreclosures started within three
months.
A review of the Bank's files of foreclosed loans serviced by Eastern reveals that
Excambio Management was referred to as "MA" (management agent) on twenty-
two Eastern ledger cards. Excambio Management was not referi-ed to in corre-
spondence originated by Eastern. Apparently there were further discussions
between Mr. Reynolds and Buffalo Savings employees in which he indicated that
Excambio and other management companies managed at least 50 properties
and foreclosures coiild be expected on many of them. Our files show that we fore-
closed thirteen loans on properties managed by Excambio and nine other prop-
erties managed by Excambio were deeded to FHA in lieu of foreclosure.
Mr. Eamsey. Thank you, Senator.
Mr. Chairman and members of the subcommittee, my name is
Robert W. Ramsey and I am president of the Buffalo Savings Bank
in Buffalo, N.Y. Accompanying me are Warren E. Emblidge, Jr.,
one of our vice presidents ; Evar J. Skoog, a retired senior vice presi-
dent ; and Mr. John T. Sapienza, one of our counsel.
We appreciate this opportunity to testify on the problems of compe-
tition in mortgage origination in the New York metropolitan area.
Your staff is to be complimented for the great amount of time and
effort which has gone into the preparing for these hearings.
My statement covers four areas of interest to the subcommittee : A
description of the Buffalo Savings Bank, a discussion of our partici-
pation in the FHA/VA secondary market, a discussion of our rela-
tionship with mortgage companies in the New York metropolitan area
and a description of the situation with respect to the Excambio Man-
agement Corp., and the discussions we had with Eastern Services
Corp. about it.
Buffalo Savings Bank is a mutual institution chartered in 1846 by a
special act of the Legislature of the State of New York. As of Janu-
ary 1, 1972, the bank had approximately $1,220 million in assets and is
the 11th largest mutual savings bank in the country.
The bank's assets are comprised primarily of $333 million in securi-
ties and $825 million in mortgage loans. There are 60,000 mortgagors.
The deposit liability is $1,111 million.
Buffalo Savings Bank has six offices serving the Buffalo metropoli-
tan area and employes 400 full-time persons. The bank has 382,000
personal account holders; no corporate depositors are permitted.
871
Our basic purpose, now formally defined, is to encourage financial
responsibility by providing a secure and profitable depository for sav-
ings, thereby accumulating capital for investments which will aid the
advancement and growth of the community.
The bank is proud of its contributions to the community. The officers
and staff devote considerable time to various civic, philanthropic, and
social causes in the city and suburbs.
In addition, the bank supplies conventional, insured, and guaran-
teed financing to the housing market, so needed to replace deteriorat-
ing houses and meet the increased demand caused by expanding
population.
Buffalo Savings, since it first became an approved FHA lender in
1936, has enjoyed excellent relations with the local FHA office.
Working together we have provided better housing to those who
would not have been qualified buyers under conventional financing
methods.
This became particularly important when we responded to the
National Housing Act of 1968 and originated $16 million in section
235 housing.
As the largest lender in western New York for this type of housing,
we recognize our responsibility to help lower income families acquire
adequate housing.
By working closely with the local FHA office, and by exercising
close supervision over building contractors in section 235 housing, the
Buffalo Savings Bank helped to meet low- to moderate-income housing
demand.
Our experience has been very satisfactory. Of the $16 million in-
vested, we have not had any foreclosures. However, one loan is in the
process of foreclosure at this time.
And here is an amendment to my statement. I add, and we have one
other that is in process of being assigned to FHA.
Then I read again :
The bank supports programs of this type provided they are properly
managed by all parties involved.
Buffalo Savings Bank has great faith in the FHA/VA ]n-ograms
and endorses and supports the purpose and objective of the FHA/VA
secondary market.
Western New York is a capital surplus area ; that is to say, more
funds are available for investment than can be consumed at competi-
tive rates.
Thus, under certain market conditions, Buffalo Savings Bank sup-
plies dollars to capital deficit areas.
One of the vehicles for accomplishing this transfer is the FHA/
VA secondary market.
Table 1 below illustrates what percent of total available funds were
invested in the secondary FHA/VA market.
Table 1 is before you*. I summarize it by referring to the far right-
hand column where it shows a percentage of total available invest-
ment funds invested in that market.
In 1965, we invested 23.7 percent. In 1966, we invested 45.7 percent.
In 1967, we invested 28.2 percent. In 1968, we invested 14.4 percent.
In 1969, 13.8 percent; 1970, 2.1 percent ; and 1971, 7.9 percent.
872
The bank, to facilitate its mortgage investments outside the Buffalo
area, works with mortgage bankers across the country.
These firms originate the loans, and after selling them by assign-
ment, perform a servicing function on our behalf. Servicing generally
means to collect and disburse funds and handle foreclosures, if neces-
sary.
Currently 63 mortgage banks service approximately $260 million of
FELA./VA loans for Buffalo Savings Bank.
The yield on FHA/VA investments is compared to other long-term
investment opportunities, usually a double A, 30-year utility bonds
and 20-year U.S. Treasury bonds, to determine if the contemplated
purchase is sound considering the degree of risk, the current time value
of money and the liquidity of the investment.
During the period under consideration Buffalo Savings Bank made
FHA/VA secondary market purchases through many mortgage bank-
ing firms at yields in excess of the utility and treasury bond rates.
Table 2 illustrates what percent of Buffalo Savings Bank's total sec-
ondary commitments were made to Eastern.
And again, I will summarize table 2 on page 6 by referring to the
far righthand column where it indicates in the year 1965, of all the
funds committed in the secondary market, Buffalo Savings Bank put
9.3 percent of available funds through Eastern Service Corp.
In 1966, 12.8 percent; 1967, 7.5 percent; and 1968, 12.5 percent. And
in 1969, 28.6 percent.
As can be seen above, these commitments did not represent a signifi-
cant percent of secondary market commitments.
The coupon rate, or FHA/VA "interest rate," was lower than the
current market rate of interest at the time the commitments were
issued.
Thus, these loans were bought at discounts ranging from two points
to nine points. The majority were made between five and seven points.
However, the yields earned on Eastern purchases do not var}^ sig-
nificantly from yields earned on other FHA/VA secondary mortgage
market purchases made at the time through other mortgage bankers,
as table 3 illustrates below.
I go to page 7, and again I summarize, and in this case I refer to the
chart indicating 1965. the Eastern range was a 5.125, and the national
range 5.090 to 5.125.
In 1966, Eastern range, 6.025 through 6.845, with a national range
of 6.020 to 6.915.
In 1967, 6.145 through 6.160, and the national range 5.760 to 6.555.
In 1968, Eastern, 7.055 ; national range 6.860 through 7.055.
And in 1969, Eastern range, 7.955; national range 7.895 through
7.965.
In recent years, Buffalo Savings Bank has had FHA/VA purchas-
ing and servicing relationships with five mortgage banking firms in
the New York metropolitan area : Commercial Mortgage, Lawrence A.
Epter Associates, Eastern Service Corp., Community Funding Corp.,
and Springfield Equities, Ltd.
Before a servicing contract is signed, it is standard practice to order
a Dun and Bradstreet report and obtain recommendations from finan-
cial institutions that have dealt with the mortgage banker.
Additionally, an inspection of the servicer's operation is made by
bank personnel.
873
The bank first purchased loans in the area in the 1940's in support
of cono^rossional sponsored FIIA/VA programs in the postwar years
to proAdde much needed housing, and has continued this practice ever
since.
The mortgages, all purchased on a packaged basis, were either
"tract loans" such as Levittown, or "spot loans" that were scattered
throughout the area.
There are two situations we wish to call to the subcommittee's atten-
tion. The first involved Eastern Service Corp.
Buffalo Savings committed to purchase through Eastern $12.3 mil-
lion FHA/VA loans between May 1965 and February 19(57. During
that time, no unusual servicing difficulties were encountered. Pay-
ments were remitted promptly and Eastern, compared to all servicer's,
ranked 29 out of 52 on the severity of the delinquency ratio scale.
Between March 1967 and July 1968, no commitments to Eastern
were issued. This hapi)ened because prices could not be agreed upon,
and servicing difficulties increased.
The delinquency ratio, during this period, increased until Eastern
ranked 49th of the bank's 52 services.
Numerous letters and telephone calls were exchanged between East-
ern and Buffalo Savings. An examination of the letters between
Buffalo and Eastern indicate that the increase in delinquencies were
attributed by Eastern to excessive personal spending, loss of salary
due to strikes in the New York metropolitan area, including a welfare
department strike, the low quality of portfolio, lack of personal con-
tact with the delinquent mortgagor, and management companies hav-
ing difficulty collecting rent from welfare tenants.
In March, 1968, the president of Eastern assured us that given some
time and increased efforts on their part to improve collections delin-
quencies would decline.
It was also during this period, April 3d, 1968, that a telephone call
was received, indicating that Excambio Management was involved
with some of the bank's mortgages.
The FHA regulations were amended on August 1, 1968 to imple-
ment the Housing and Urban Development Act of 1968. Financial
institutions were encouraged by the Government to finance property in
the core areas of our central cities.
Accordingly, Buffalo Savings Bank invested an additional $3 mil-
lion in FHA/VA loans in August and September, 1968, through
Eastern,
The last purchase was made in March, 1969.
Since August, 1968, servicing difficulties have continued. Numerous
letters were exchanged, and Buffalo Savings Bank, attempting to
understand and soh^e the high delinquency problem, received plausible
explanations from Eastern.
For example, in October 1969, the bank wanted to know why there
was such a delay in processing foreclosures. At the time, 88 loans were
in various stages of foreclosure.
Among the reasons given by Eastern were (a) owners leaving the
area, thus making title companies publication requirements difficult to
satisfy, (b) delays attributed to court appointed referees, attorneys,
and court judges not ordering evictions, (c) the FHA regulation re-
quiring that a property be vacant prior to conveyance, (d) welfare
83-703 O— 73— pt. 2b 9
874
tenants not receiving checks, and (e) squatters occupying a property
after the tenants were evicted.
The delinquency ratio of loans serviced by Eastern continued to be
excessive. In September 1970, the senior A^ce president of Buffalo Sav-
ings and an assistant vice president in the National Mortgage Depart-
ment met with the executive secretary of Eastern in New York City to
discuss 16 accounting and 27 servicing problems.
After that meeting two Eastern employees visited Buffalo to resolve
some of the problems. Since then reporting and servicing procedures
have improved, and the delinquency ratio has decreased.
Since the beginning of 1972, the delinquency ratio on loans serviced
by Eastern has averaged 13 percent. Although this is above normal, it
is an improvement over the high of 26 percent on Eastern loans in 1968.
We are continuing our efforts to achieve further reduction in the
delinquency ratio.
The second situation we wish to bring to your attention involves
Springfield Equities, Ltd. The servicing agreement w^as signed on
March 17, 1967. During the following 3 years, it became increasingly
difficult to ascertain the payment and foreclosure status on various
mortgage loans.
Part of the servicing function was subcontracted to another servicer.
In our opinion, the servicing agreement was violated. It was accord-
ingly terminated and transferred to Eastern Service Corp. in April
1970.
The servicing difficulties discussed above were caused, we thought,
by socioeconomic forces indigenous to the neighborhoods. It must be
emphasized that at no time did Buffalo Savings employees know or
have any reason to believe that there were any improprieties in the
origination or servicing of the mortgage loans in question.
(d) A description of the situation with respect to Excambio Man-
agement and the discussions Buffalo Savings Bank had with Eastern
about it.
It is difficult to describe the situation with respect to Excambio Man-
agement because Buffalo Savings had no direct dealings with the firm.
The standard procedure used in purchasing loans is as follows : The
FHA approved mortgage banker, after originating the loan, submits
a complete set of FHA or VA documents, either insured or guaranteed
by the appropriate agency, to the permanent investor for approval and
purchase by assignment.
It is the mortgagor who is identified in the submission. A manage-
ment agent, if employed by a nonoccupant owner (approved by the
FHA ) , would not come to the attention of the bank.
Excambio Management became known to Buffalo Savings on
April 3, 1968. According to a memorandum in the bank's files, a
mortgagor's accountant called regarding delinquencies in several
mortgages.
He said that the mortgagor lived out of town and had Excambio
manage his Brooklyn properties. He said further tliat the rents were
collected but tliat the mortgage payments were not made.
He also stated that a Mr. Sol Oilman would assume the management
of these properties on March 1, 1968. The next day, Tom Reynolds, an
em[)loyee of Eastern, called and said that due to many instances of the
above, Eastern forced the maiiagemont company to break up and tuin
all properties back to the owners to handle.
875
He added all should be straight or foreclosures started within 3
months.
And I direct your attention to the last paraffraph of my statement.
Wc revised it late yesterday afternoon, and I think there are a few
copies in circulation.
The amended statement is as I now read it.
A review of the bank's files of foreclosed loans serviced by Eastern
reveals that Excambio Management was referred to as "MA" (man-
agement agent) on 22 Eastern ledger cards.
Excambio Management was not referred to in correspondence origi-
nated by Eastern. Apparently there were further discussions between
Mr. Reynolds and Buffalo Savings Bank employees in which he indi-
cated that Excambio and other management companies managed at
least 50 pi'operties and foreclosures could be expected on many of them.
Our files show that we foreclosed 13 loans on properties managed by
Excambio and nine other properties managed by Excambio were as-
signed to FHA in lieu of foreclosure.
Senator Hart. Thank you, Mr. Ramsey. I know that the staff has
developed a number of questions, but let me ask you a somewhat gen-
eral one first for my own guidance.
In your testimony, you explained that Buffalo Savings had a very
satisfactory experience — I am paraphrasing, and correct me if I
am wrong — very satisfactory experience in connection with the 235
program.
Tell us what Buffalo Savings does to insure that the borrower will
be able to carry the obligation of the assumed money. Mechanically,
what occurs ? How do you make that judgment ?
Mr. Ramsey. We give the FHA 235 program much more surveil-
lance than we would normally give because we are doing business with
a different socioeconomic group that we recognize our social respon-
sibility to.
And we use very rigid underwriting standards before we send a case
to FHA. We satisfy ourselves that this applicant is entitled to live
in the house and has the ability to pay out through the term of the
loan.
Senator Hart. You have a rule of thumb that you use in that
connection ?
Mr. Ramsey. It is a difficult question. It is not an exact science.
We use, as a rule of thumb, 1 week's gross income should be equivalent
to 1 month's debt service, taxes and maintenance of the property.
That's a pretty standard ra,tio.
Now, you have to adjust that upward or downward by the size of
his family and his other installment debts. We want to make sure that
the 235 purchaser, after the Federal Government subsidy, can handle
that debt adequately.
Our people are very proficient on knowing the Buffalo market, and
they could identify distorted prices. We do not inspect or appraise
FHA loans, but we have senior people underwriting these loans
because we recognize there might be some undue risk.
We have had an excellent experience. Further, on new construction —
and this is where we did, primarily, most of our business — we sent
the application to our Appraisal Inspection Department to cost them
out and, further, we did not rely on FHA inspections alone, but we
sent our own inspectors out on the site to look at them and then, after
876
the fact, we also sent our inspection appraiser out and measured the
performance of the builders.
In some cases, we had to call builders in and talk to them about their
deficiencies based on our standards.
Senator Hart, Is it fair to conclude, then, that your judgment is
that FHA programs are sound or workable as long as the lending
institution does its fair share of commonsense and judgment and
super\dsion in connection both with underwriting and supervision ? Is
that a fair statement ?
Mr. Kamsey. If the Federal Government can afford to underwrite
the subsidy, I think it is an excellent program. But I also think that
the approved FHA mortgagee has to accept his responsibility very
seriously.
Senator Hart. Mr. Blum ?
Mr. Blum. Mr. Ramsey, in your statement you discussed the func-
tion of the secondary mortgage market, as you described Buffalo's role
in it. How important do you think the secondary market is to the
supply of housing in the United States? Does it serve an important
economic function?
Mr, Ramsey, In my mind, the lack of adequate housing for the
people of the United States is one of our most pressing domestic prob-
lems. I would not say the most, but one of the most. And if you want
to export capital from the capital-rich areas into the capital-deprived
areas, I think it is an excellent tool.
And over the years^and we have been in this market since 1940 —
we have had an excellent experience. I think that we are obliged to
support this program, and this is what the Federal Government is
encouraging the mortgage lenders to do.
Mr. Blum. And if there were no mortgage companies to originate
mortgages in particular local markets, then it would be virtually im-
possible for that market to function properly ; is that a fair statement ?
Mr. Ramsey. That is a fair statement.
Mr. Blum. Wliat do you think would happen to that surplus capital
if you could not invest it in mortgages ?
Mr. Ramsey. I think we would find it accruing to the benefit of the
corporate bond market, the Government bond market, or the equity
market.
Mr. Blum, So that you have no doubt in your mind that, if housing
programs are to work, mortgage originators and servicers and an easy
flow of capital is really needed ?
Mr. Ramsey. Absolutely, It is a situation where the bankers, the
brokers, and the Government have to work in unison.
Mr. Blum. Do you think the secondary market could work if you
were forced to, in effect, reunderwrire each loan, to go screen the loan
and inspect the house and do all of that ?
Mr, Ramsey. It would increase our costs to do that and our costs, as
you know, are borne by the ultimate consumer and you know where it
is going to be reflected — in the cost of financing. Either in tlie interest
rate or the closing fee.
Mr. Blum. And that would also mean that typically that competitive
yields on mortgages would have to be somewhat above the yield for,
say, triple A utility bonds to compensate, and this would just make
the spread that much higher?
877
Mr. Ramsey. Substantially diiferent. In our internal cost, there's a
four-tenths of 1 percent difference between mortgage and investment
accounts, that's bonds and stocks.
It costs us one-half of 1 percent on a mortgage account; and only
one-tenth of 1 to service a Government bond in a block of $5 or $10
million. So, we have the disadvantage of four-tenths of one point right
there.
Mr. Blum. So, if you added to the chore of inspecting and selecting
mortgages the spread would become even greater? You'd be talking
about at least a half a point or perhaps three-quarters of a point ?
Mr. Ramsey. Exactly, Mr. Blum.
Mr. Blum. There is a risk in the purchase of FHA and VA mort-
gages, isn't there ?
Mr. Ramsey. Yes, sir.
Mr. Blum. Is that eliminated when you purchase a mortgage at a
deep discount, pretty much ?
Mr. Ramsey. Some of it is eliminated, but not all of it. When we are
comparing our investment program to what is available, we want to
commit our money for the longest period of time, when appropriate,
and when we get a foreclosure, we have to take that money over in
today's market. It is a substantially lower rate that we reinvest than
when we put it out in 1970, when we had an FHA rate up around 8i/^
percent for most of the year.
Now, if we take the money on a foreclosure and reinvest at 7 per-
cent for another 30 years, you are not compensated to adjust for that
difference.
Mr. Blum. You indicated that you received a number of letters of
reference before you began doing business with Eastern Service.
Can you tell us who it was that wrote to you or who you made in-
quiry of about Eastern Service's qualification ?
Mr. Ramsey. May I ask assistance here ? I'm going to make a state-
ment here, and I want Mr. Emblidge to verify it.
I think the original approach was a letter to our president, Mr.
William H. Harder, from Eastern Service Coi'p., signed by Mr. Bern-
stein — I beg your pardon, I have to stand corrected on that.
It was addressed to Mr. William H. Harder, president, dated March
8, 1965, but it was signed bv a Mr. Frank A. Fay, vice president. We
then started investigating the feasibility of doing business with East-
ern Service Corp.
Mr. Blum. Can we have a copy of that for the record ?
Mr. Ramsey. You surely may.
Mr. Blum. And what were the other institutions that then sup-
ported, in effect, their qualification? Who said that they were OK?
Mr. Ramsey. At that time we got a Dun & Bradstreet report and
then we checked out recommendations from the Dry Dock, the Lincoln,
the Dollar, and Bankers Trust of New York. We received favorable
recommendations on Eastern.
And sometime, subsequent to that, we did go down and visit their
operation to observe the origination department and the people in
their servicing division.
Mr. Blum. Well, you did just about everything a reasonable man
could be expected to do to check them out. There is hardly anything
else one could think of.
878
Mr. Kamsey. We are of that opinion.
Mr. Blum. You indicate that you began doing business with Eastern
in 1968, the second time around, in response to the 1968 Housing Act.
At the time of that 1968 commitment, were you satisfied that Eastern
had pretty well cleaned up the earlier difficulties ?
Mr. Ramsey. The direction was in a favorable trend.
Mr. Blum. I gather that the 1968 discussions of Excambio Manage-
ment were down in the servicing department. It never came up to top
management attention at the executive level of the bank, did it ?
Mr. Ramsey. Well, that is right. We recognized the management
control system did identify that we had a servicing problem with East-
ern Service and then the girl in charge of that department, a Mrs. Lor-
raine Sandow, made a note on her record, and I will read it to you, if
Mr. Emblidge can hand it to me.
This is just a log or a history sheet and it is headed up :
Eastern. 8/26, 5 :15. Delinquent November. Mr. Lobein, an accountant for mort-
gagor, called 4/3/68 re delinquency. Several mortgages, owners live in Washing-
ton, D.C., has management company handling Brooklyn property, (Excambio
Management Company).
Money collected but not paid. Excambio, Edward Jaffe, Lester Lazarus, At-
torney in Manhattan.
I think it is —
and Morris Wendell. Management assumed by Sol Gilman, March 1st.
And that's the end of her statement and notes.
Mr. Blum. I should indicate for the record that the cooperation of
Mrs. Sandow and Mr. Emblidge made it possible for us to trace the
story which you have heard this morning.
We were able, then, to follow up and locate the various people who
were involved in this, and we are very grateful to the assistance that
you provided this subcommittee.
Does Buffalo Savings Bank buy mortgages with the right of selec-
tion ? Do you reserve the right to pick ?
Mr. Ramsey. All our commitments are subject to our being able to
review credits.
Mr. Blum. What do you look for when you are sifting through the
credit criteria ?
Mr. Ramsey. We look at their employment record and their ability
to service the debt.
Mr. Blum. You heard Mr. Ostrov testify this morning. I take it
that if you saw a credit report on Mr. Ostrov, you would have no
problem at all approving his FHA mortgage application?
Mr. Ramsey. Absolutely not.
Mr. Blum. Is it correct to say that making a separate appraisal of
the property would be a very costly proposition for you ; is it not ?
Mr. Ramsey. Yes, because we have so much mone}^ to put out and we
would have to go to remote areas and be familiar with those areas.
And I think our experience has proven that most mortgage bankers
have done a good job for us over the last 32 yeai*s. They vehicle for us,
to transfer large sums of money to other areas,
Mr. Blum. And at any given point in time, you might be investing
anywhere in the country. So it is not a matter of your establishing a
guy in each market to buy mortgages, then ?
Mr. Ramsey. That is right. I believe we are in 27 other States at
this point.
879
Mr. Blum. You indicate that Eastern has improved its servicing
record with you. Would that not have happened anyway because the
bad mortgages would have weeded themselves out over a period of
time, so that gradually the servicing portfolio would be doing better?
Mr. Ramsey. That would be a contributing factor, but I think they
have refined their servicing j)ractices. AVe wei-e advised at one time,
during our discussions, that they put outside contact men that could
talk in the native tongue of the mortgagor who was delinquent.
Mr, Blum. You indicated that you had difficulties with Springfield
Equities, which caused you to transfer Springfield's servicing to
Eastern. Do you recall what those problems were ?
Mr. Eamsey. I think, at this time, I would like to call on Mr. Skoog
who was in direct charge of tliat department.
Mr. Skoog. The principal difficulty was getting any information on
the foreclosed loans. We would write to them and they would not
respond to our correspondence. There also was one case where we stood
to lose $4,000 or $5,000. We could not get any information on it. They
also transferred the servicing to Manufacturers Hanover.
Mr. Blum. In addition to Eastern Service ?
Mr. Skoog. No. Springfield transferred.
Mr. Blum. I see.
Mr. Skoog. And we could not get any information out of Manu-
facturers Hanover, so we decided the best thing to do was to terminate
the contract.
Mr. Blum. And why did you pick Eastern to do the servicing?
Mr. Skoog. We talked about it at the bank and we decided we didn't
want to saddle ISC with the poor loans, and we felt that with Eastern's
experience, they would be able to handle it.
Mr. Blum. Is Eastern still servicing under contract with Buffalo
Savings Bank ?
Mr. Ramsey. Yes, sir.
Mr. Blum. Has the indictment, the recent indictment of Eastern,
caused any difficulties in the relationship ?
Mr. Ramsey. It caused considerable concern on our part and we have
reviewed the service contract. We are keeping very close touch with
the hearings before this committee, through the newspaper, and
through our National Association of Mutual Savings Banks.
They are living within the terms of their contract at this time.
Mr. Blum. In this statement you say that Mr. Reynolds indicated to
your bank that there w^ere other management companies besides Ex-
cambio, which were breaking up, and they accounted for other
foreclosures.
I should say, indicated to Mi*s. Sandow and perhaps others if there
were other management companies breaking up at the same time, and
that was part of the foreclosure problem, is that correct ?
Mr, Ramsey. I am going to have to call on Mr. Emblidge.
Mr. Emblige. There were no letters originated by Eastern that iden-
tified which management agents were involved. Through phone con-
versations, it was recognized that Excambio was one of the managing
agents, but we never had a specific indication of which other ones were
involved at the time.
Mr. Blum. Did it indicate that Excambio was one of a number of
operations of a similar variety ?
880
Mr. Ramsey. It did indicate that Excambio was one of a number of
similar operations, yes, that's correct.
Mr. Blum. What can a buyer in the secondary market do beyond
what you have ah-eady described for us, INIr. Ramsey ?
Mr. Ramsey. Be sure that he is dealing with a reputable originator.
Mr. Blum. Can you think of anything ?
Mr. Ramsey. That is a A'ery difficult question and I would have to
reflect on fhat. We are reexamining this whole situation, and we feel
as though we were very prudent in the manner in w^hich we qualified
Eastern as one of our servicers.
At no time did we suspect that there was anything wrong here, as far
as any criminal actions were concerned.
Mr. Blum. Were you surprised by the testimony this morning, by
the scope of the activity, to learn of what Excambio was doing and
how it worked ?
Mr. Ramsey. I will not say I was surprised. It was interesting. I've
been watching this case and I suspected that this was a developing
problem.
Mr. Blum. It certainly is clear that had you known you would not
have been doing business with Eastern, is that correct ?
j\Ir. Ramsey. That's right.
Mr. Blum. Are you not really dependent on FHA to do a good job
in screening the mortgage company ? Isn't that what it finally comes to ?
Mr. Ramsey. You have to rely on approved FHA mortgages as being
responsibly and reasonably o])erated.
Mr. Blum. Now, if FHA does not do the job right, would you wind
up on the wrong end of it ?
Mr. Ramsey. If there is an error in underwriting, yes; because it
increases our servicing costs. We do get our cash out of it, but we want
a long term investment. That is our primary objective.
Mr. BLu:Nr. One of your principal management control tools is the
monitoring of quality of servicing, is that correct ?
Mr. Ramsey. That is right.
Mr. Blum. So when you find trouble with servicing, you know there
is probably something wrong with that company, and you begin to
watch it very carefully ?
Mr. Ramsey. Exactly.
Mr. Blum. A^Hien you find you are having trouble with servicing, do
you report to FHA ? Do they ask you to report to them ?
Mr. Ramsey. Each month, one of our servicers within our own bank,
an employee, sends a list to FHA of items that are 30 days or more
past due, and that puts FHA on notice of the problem that might be
developing in Buffalo Savings Bank.
Now, these reports are not on serviced loans. That's the responsi-
bility of the servicer. We only report on the loans that we service di-
rectly through our own employees, and the form indicates that you
should not report sei'vicers. It is their responsibility.
Mr. Blum. So that you would never have had occasion to inform
FHA that something had happened at Eastern such as
Mr. Ramsey. But they wei-e making reports to FHA.
Mr. Blum. Eastern would be reporting itself to FHA. Do you get
reports from other servicers about the performance from other in-
vestors — the perfoi-mance of particular servicers? Would you see a
report from, say, Fannie Mac on servicing done for it by Eastern ?
881
Mr. Ramsey. I personally will answer no to that question. I am not
saying that it is not available, but I have not seen it.
We rely more on the ]\f ortgage Bankers Association and make a com-
parison on a quarterly basis and report to our board on our servicers'
performance against the Region 1 standards, Region 1 being New
York, the New England States, and Jersey.
Mr. Blum. Do you think that the consolidation of servicing reports
by the investors, on individual mortgage companies by FHA will pro-
vide FHA with an additional management control tool ?
Mr. Ramsey. I would think that would be a good tool.
Mr. Br.uM. Do you think FITA slionVl start doing it ?
Mr. Ramsey. I cannot speak for FHA. I think it would be a tool we
would be interested in. We like early warning signals of developing
problems.
Mr. Blum. You have been following these hearings, I take it, and
you have heard the range of problems that have arisen with mortgage
originators.
"\^^iat do you think the answer to this problem is ? Do you have any
ideas about what can be done to control those mortgage banking com-
panies, to do what some of them have been doing?
Mr. Ramsey. I am only speculating, but I wonder if more super-
vision of the approved FHA mortgagees would be appropriate.
Mr. Blum. I have no further questions. '
Mr. Chumbris. Yesterday, Mr. Lasurdo of the Greenpoint Savings
Bank in Brooklyn, testified that their bank has resources in excess of
$670 million, about half a billion dollars short of your resources, and
they pointed out that VA and FHA guarantees the insured home mort-
gage loans, represents 58 percent of their portfolio.
Thev pointed out that initiallv their bank ajiproved more VA/FHA
loans by assignment than those that they originated and processed
directly.
But as years went on, they obtained expertise in this area. The loans
that they originated were greater than those that they purchased in
the marketplace.
Now, if I read your statement correctly, one page 3 you point out
that 16 million of the originated — is that the figure that you have now ?
Mr, Ramsey. This is only on a 235.
Mr. Chumrris. Only on 235.
Mr. Ramsey. But we have some 203's and we might have a handful
of 221(d) (2) 's.
Mr. Chumbris. And liow much would that total ? I mean approxi-
mately ?
Mr. Ramsey. We have a little less. We have probably — oh, I have
the record. As of May 15, we had $15,525,000 in FHA 235's, out of
that original 16 million. Amortization brought it down.
Mr. Chumbris. Wiat I wanted was the loans that originated from
your bank on FHA and VA loans. 'Wliat would that amount to? I
want to compare that with your figure on page 5, when you say, "cur-
rently 63 mortgage bankers service approximately 260 million FHA/
VA loans from Buffalo Savings Bank."
"V^Hiat is your ratio of the ones that are being serviced and the ones
that you originate yourself ? Is there a distinction that you see ?
Mr. Ramsey. I think that I can get the answer in a minute and I
will have to refresh my memory. I can tell you offhand that 53 percent
882
of our portfolio is in FHA/VA, but I do not think that is the answer
you are looking for.
Mr. Chumbris. But that would not pass the 58 percent that the wit-
ness stated yesterday. Now, he stated that when he started, most of it
was by assignment and as they gained experience, they are originating
now more than they are buying at the market.
Now, how does your bank react in that way ?
Mr. Ramsey. Well, this year, we are going to put about $55 million
in local mortgages in the Buffalo area. Fortunately, I can break that
down, because 10 million of it will be in a big constin^iction, and 45
million will be in one- to four- family. I do not have the figure for the
allocation between FHA and conventionals, but I will say this :
That the majority of them are conventionals at this point because
we have a 7-percent rate.
Mr. Chumbris. Well, maybe I am not making my point clear. I was
not making my point clear. I was trying to make a comparison between
the witness yesterday, to show that he started off with less origination,
and today he has more, and how does that relate to your bank ?
Do you have more that you originate yourself, or do you have more
that you buy from the mortgage banker ?
Mr. Ramsey. It fluctuates substantially due to market conditions. A
lot of builders in the western New York area, are not going the FHA
route. They want conventional financing.
So when we have to supplement the supply of mortgage investment
opportunities, we have to go out in the national market, and it is
quicker to buy FHA or VA in a package. In the first quarter of this
year, we made substantial commitments in the FHA/VA secondary
market.
Mr. Chumbris. Now, that gets me to the second question that I
wanted to ask, which is the primary question, and that is, Mr. Lasurdo
stated, "We originated and processed more VA and FHA home loans
than we purchased, but not without problems," and that's what he
pointed up there.
He pointed out that he soon became acutely aware that "the FHA
standards for evaluation and credit underwriting were most restrictive
and highly frustrating for our bank. Particularly when related to
those we were given to understand were applied to mortgage
companies."
Indications are, and the hearings thus far have shown, that the
mortgage companies have been able to get FHA loans quicker than,
for instance, tlie Bedford-Stuyvesant Corp., which have had difficulty
in getting their loans processed immediately, and thereby losing busi-
ness to the mortgage bankers.
Do you find tliat problem in Buffalo ?
Mr. Ramsey. I do not find it so. We liave had an excellent experience
in our Buffalo office and I might point out that of the $16 million of
FHA 2H5, tliat we originated, we didn't pay any brokerage fees. We
did business directly with the r-ealtor or the builder. All originated
directly in Buffalo Savings Bank's office.
Mr. CHr:MBRis. Then if the head office in Wasliington of FHA and
HUD wanted to find out whether this is a national problem, they would
look to Buffalo and see that the working relationship between FHA
and your bank, or other banks, is excellent. Whereas, the situation of
the witness yesterday indicates that there are certain problems?
883
Mr. Ramsey. That is right. And I would like the opportunity to read
a letter to you. I have it here.
This is from the Department of Housing and Urban Development,
Regional Office, 26 Federal Plaza, New York, N.Y., dated May 2.
Mr. Robert J. Miller, Assistant Secretary, Buffalo Savings Bank, 545 Main
Street, Buffalo, Xew York. Subject : Buffalo Savings Bank report on audit. Sec-
tion 235 mortgages.
Dear Mr. Miller: I was delighted, on reviewing the recent audit of your Agen-
cy's book.s and records by our oflSce of audit to see that there were no adverse
audit findings.
I want to congratulate you on this and hope that you will pass on my con-
gratulations to members of the staff of your Agency. Sincerely, Grant Re.vnolds,
for S. William Green, Regional Administrator.
Mr. Chumbris. Thank you very much. Those are the only questions
that I have.
Senator Hart. Mr. Ramsey and gentlemen, thank you very much,
both for your testimony earlier, and your cooperation.
Materials Relating to the Testimony of
Robert W. Ramsey
(EXHIBIT 1)
Letter to Senate Antitrust Subcommittee From the BufiFalo Savings Bank Dated
March 28, 1972
BuFALLo Savings Bank,
Buffalo, N.Y., March 28, 1972.
Mr. Jack A. Blum,
Assistant Counsel to
Senator Philip A. Hart,
Chairman, Antitrust and Monopoly Subcommittee, U.S. Senate,
Washington, B.C.
Dear Mr. Blum : In response to your letter of March 24th, addressed to Mrs.
Sandow, and as a follow-up to your telephone conversations of March 21st and
23rd, we wi.sh to advise as follows :
1. Exeambio Management Corporation was located at 475 Fifth Avenue, New
York City at the time of our foreclosure problems ( 1968) .
2. The three principals, to the best of our knowledge, as advised by the Servicer
at the time, were : Mr. Edward Jaflfe, Manhattan attorney ; Mr. Lester Lazarus,
also an attorney ; Mr. Morris Wendell (who appai-ently disappeared at the time.)
Our first indication of the problem was a telephone call from a Mr. La Ben, who
was an accountant for one of the mortgagors ; and a follow-up call from a Mr.
Ostroff, attorney for the same mortgagor. These gentlemen were seeking informa-
tion on behalf of their client, Mr. Leonard L. Belief, who owned properties at
673 Hendrix Street and 477 Jerome Street in Brooklyn, New York, both of which
were managed by Exeambio. According to our records, these three gentlemen re-
sided in Washington, D.C.
Following these phone calls, we checked with our Servicing Contractor, Eastern
Service Corporation and found that on the same date they had become aware of
at least 75 cases involving Exeambio management. As explained on the telephone,
many of our files involved in this matter have been destroyed as a routine pro-
cedure, prescribed by our regular record retention schedule.
At no time did we have direct contact with Exeambio Management Corpora-
tion and all of our information relative to the matter was gained through tele-
phone conversations with our Servicer's representatives and various attorneys
handling the foreclosures. Therefore, we have no copies of correspondence to
forward. The above information was all obtained from "Information Sheets" in
our foreclosure files.
If you require any further information, please feel free to call on us.
Very truly yours,
Wabeen B Emblidge, Jr.,
Vice President.
884
(EXHIBIT 2)
Letter to Buffalo Savings Bank From Eastern Service Corp. Dated March 8, 1965
Eastern Service Corp.,
Hempsted, N.Y., March S, 1965.
Mr. William H. Harder,
President, Buffalo Savings Bank,
Buffalo, N.Y.
Dear Mr. Harder: We wish to introduce ourselves and apprise you of our
mortgage services.
Eastern Service Corporation, an approved FHA mortgagee and a member of
the Mortgage Banker's Association, is one of the principal mortgage financing
institutions in New York. Our mortgage financing covers the greater New York
area.
At present and for many past years, we have served a number of the Savings
Banks throughout New York.
We would be pleased to offer you any amount, whether large or small, of in-
sured FHA, guaranteed VA and Conventional mortgages for your consideration.
Incidentally, we are presently servicing over $40,000,000.00 in mortgage loans
for a number of banks at a modest fee and would be pleased to offer you the same
service on the loans you purchase from us.
For your information, we are enclosing our latest financial statement. If you
desire, we will be happy to furnish you with the names of the institutions which
we are serving. Our relationship with these Banks is such, that we would welcome
any inquiries you make to them.
In closing, please no not hesitate to call upon us for any questions you may
have. May we hear from you?
Very truly yours,
Frank A. Fey,
Vice President.
STATEMENT OF MARTIN MAYBLUM
Senator Hart. Our next witness is Mr. Martin Mayblum.
Mr. Mayblum?
(Whereupon, the witness was duly sworn by the chairman.)
Senator Hart. Mr. Mayblum is appearing here today subject to a
subpena. I believe that you appeared here without a lawyer.
Mr. Mayblum. I am an attorney, sir.
Senator Hart. Well, then, I am repeating what you know, but let
me repeat it for the record. You have the right to refuse to answer any
questions you may feel may intend to incriminate you. Anything that
you do say can be used against you in any other proceeding.
You have the right to talk to a lawyer for advice before we can ask
you any questions, and you may have a lawyer with you during the
questioning.
If you desire to answer questions now, without a lawyer present, you
still have the right to stop answering at any time. Also, you have the
right to stop answering at any time to talk to him.
Should you desire to refuse to answer, and assert your rights, this
subcommittee will draw no adverse inference from that coui*se of con-
duct, and nor should anyone else.
You do understand your rights ?
Mr. Mayblum. Yes : I do.
Senator Hart. And are you willing to waive your rights and answer
questions at this time ?
Mr. Mayblum. Yes, sir.
Mr. Blum. Mr. Mayblum, would you give us your home address for
the record, please ?
885
Mr. Mayblum. 6771 Yellowstone Boulevard, Forest Hills, N.Y.
Mr. Blum. And your personal occupation ?
Mr. Mayblum. I am an attorney.
Mr. Blum. And wliat is your business address, please ?
Mr. Mayblum. 89-64 163d Street, Jamaica, N.Y.
Mr. Blum. Would you identify Mayday Realty Corp. for us please?
Mr. Maybll'm. Yes ; Mayday Kealty Corp. was a licensed real estate
broker. I, together with a gentleman by the name of Howard Gordon,
were the principal owners.
Mr. Blum. When was it set up ?
Mr. Mayblum. It was originally set up in 1960. At that time, there
was a different — I had a law partner at that time who was also an
owner, and after we severed our relations I continued to hold the corpo-
ration, and eventually Mr. Gordon came in.
Mr. Blum, What was the nature of that corporation's real estate
business in the early 1960's ?
Mr. Mayblum. Well, in the early 1960's it really did nothing. It orig-
inated a few second mortgages, but that was about the size of it.
Mr. Blum. When did business activity begin to pick up for that
corj)oration ?
Mr. ]\Iayblum. I guess about 1964 I organized a regular real estate
brokerage firm with about two or three salesmen, but it also was rela-
tively small.
Shortly after that, I began to represent Mr. Wendell, Avho testified
earlier, and there came a period — I believe it was in early 1965 — when
Mr. Wendell had purchased eight houses in East New York area, in
Brooklyn and, basically, didn't know what to do with them, after he
had bought them.
And after some investigation, we found out about the owner-non-
occupant program, and we established what we hoped was a good pro-
gram. And those eight houses were sold to relatives and clients of mine.
Immediately after that, Mr. Wendell and I severed our relations and
having the eight houses and nowhere to go, I enlarged the operation
and I took on a staff.
Mr. Blum. After you and Mr. Wendell severed relations, I take it he
went and joined Mr. Lazarus in the operation described this morning?
Mr. Mayblum. That is right.
Mr. Blum. Then you began operations on your own ?
Mr. Mayblum. That is correct.
Mr. Blum. Was that operation similar to the one that was described
this morning by Mr. Wendell ?
Mr. Mayblum. Well, in many respects, except that Mr. Wendell
testified that his repairs were cosmetic, and I must tell you that ours
certainly were not.
Mr. Chumbris. I didn't get that. What was the difference between
the two?
Mr, Mayblum. Mr. Wendell said that his repairs were cosmetic in
nature. Our repairs were definitely anything but cosmetic. We had a
very large program, a very large repair program.
East New York was a rather old neighbohood. Most of these houses
were about 40 years of age, and most of the people who occupied them
were very old and took good care of the property.
886
But there were many problems with the houses. As a matter of course,
whenever we bought a house and closed it, we changed all of the plumb-
ing in the house.
We installed automatic feeds and automatic cutoflFs in the boiler
systems so that there would be no breakage there. There were many
instances where we had to put in new sewerage systems in the streets,
and sometimes we had to tear a house right out to the walls and build
new walls right back in.
We did a very extensive program. We had to hire attack dogs which
we kept on the premises during the course of repairs which sometimes
would take many months.
Mr. Blum. I take it that you did not make vei'y much profit on this
spread between the purchase price and the later sale price of the house
as the investor.
Mr. Matblum. No. I am always amazed when I hear the figures
that come out because we never had those kind of figures available to
us.
Mr. Blum. Because of the cost of doing the repair work?
Mr. Mayblum. Well, obviously we paid more to start with, and we
paid an average in the beginning of $12,000 or $13,000 a house, and
that rose to about $14,500 to $15,000 by the time we finished.
And there were closing costs that were involved, and the repairs,
which average us — I believe we had scheduled ourselves from about
$1,500 per house.
Mr. Blum. That is roughly three times the amount Mr. Wendell
testified he had ?
Mr. Mayblum. That is correct.
Mr. Blum. Was one of the reasons you severed your relationship
with Mr. Wendell your impression that he was not interested in doing
much rehabilitation ?
Mr. Mayblum. Yes. "Wlien we discussed the plan, we discussed it in
many phases. Part of the phase was concern for the investor.
Our original attitude was that we would keep these houses for a
period of 7 years, and then we would attempt to sell them to home-
owners.
The reason why we had established it originally at 7 years is be-
cause at that time, that was the IRS regulation concerning the de-
preciation without having to add it back in on a sales price.
Later that was changed to 10, and we adjusted our program to 10.
Mr. Wendell was already in his midsixties at the time, and he really
did not look forward to a 10-year operation, but I did.
Mr. Blum. You were hoping that would run on a longer term ?
Mr. Mayblum. Yes. I was bringing in people who were very close to
me — my father, my father-in-law, clients, and friends.
Mr. Blum. "Wliy did your plan not work? Your houses were much
better repaired.
Mr. Maybi,xtm. Well, in retrospect, there were lots of problems, but
one of the biggest problems, of course, is that wo were very snccessfid
in tlio beginning, and everybody started to do the same program.
We were very careful where we bought. We would not buy more
than two houses on a block. We would not go on a block that had an
apartment house because the greatest difficulties would occur in apart-
ment houses with vandalism and tenant problems.
887
We wanted to go on blocks that had established homeowner pro-
grams. But it became impossible because if we would buy two or three
houses on a block, within 6 months, 20 or 30 of the houses had been
bought up by somebody else, and it became a welfare block.
There were other problems in addition. There were constant prob-
lems. We once closed a house. We had inspected it in the afternoon the
day before.
We closed it in the morning. The repairmen went there at noon,
and the house was just a shell. So the damage was done either in the
morning or in the evening. It cost us $8,000 to repair the house.
Mr. Blum. You suffered tremendous losses, and you were con-
fronted with deterioration of the neighborhoods you operated in?
Mr. Mayblum. Well, that was the biggest initial problem. That was
the deterioration of the neighborhood. It was a multiple problem. Even
the tenants who originally were screened very carefully, and who
proved to be very substantial and very good tenants, were afraid to
stay in the neighborhood, and they moved out of the neighborhood.
It declined very, very rapidly. I think we saw it very quickly, and
we stopped buying very early. We continued to fill out the basic obli-
gations that we had, and we stopped our program.
Slowly, we tried to sell houses off and to get out of the situation. It
was impossible to do, but we did do part of it successfully.
Mr. Blum. You mentioned that you tried to sell the houses off. Did
you turn those liouses over to various real estate brokers in the East
New York area ?
Mr. Mayblum. Yes, we did.
Mr. Blum. Did you turn over houses to Celia Correro at El Sol
Realty?
Mr. Mayblum. Yes, we did.
Mr. Blum. Approximately how many houses did you turn over to
her for sale?
Mr. Mayblum. Well, we had given her a list for every house that we
had. We gave every broker a list of all the houses that we had.
Mr. Blum. This was approximately, what, 85 ?
Mr. MAYBLu^r. Yes ; somewhere in that area.
Mr. Blum. Was she successful in selling houses for you ?
Mr. Mayblum. She sold— well, she put into contract quite a few. She
closed about six or seven of them.
Mr. Bluim. Those were all subject to FHA mortgages ?
Mr. Mayblum. Well, originally. One was not closed that way, but
it was originally contracted to be sold that way.
Mr. Blum. I gather from what you said that at the time you were
selling these houses they were in pretty bad shape.
Mr. Mayblum. Well, we did repair all of the houses that we sold.
When we applied for an FHA commitment, we submitted with it a
repair statement of what we would do to the house, and when the house
was appraised, it was appraised on the basis of the repair statement
that was submitted, and we did do that work.
Mr. Bluivi. Were all of the FHA mortgages you obtained through
the Eastern Service Cor?\ ?
Mr. Mayblum. Yes. Those that we originated ourselves were ob-
tained through Eastern. We did have some that we bought subject to,
that were originated elsewhere.
888
Mr. Blum. 'What were some of the other companies ?
Mr. Mayelum. Well, I think we had two or three that were from
United, and we had, I believe, two which came from Suburban, which
went out of business and then it went directly to the bank. They were
two Jersey banks.
Mr. Blum. Arrow Savings & Loan ?
Mr. Mayblum. Yes, that was one, and Barton Savings & Loan was
the other.
Mr. Blum. Did you ever inquire as to how those two New Jersey
savings and loan associations wound up with those mortgages?
Mr. ]VL^.YBLUM. Well, I believe they were originally purchased while
Suburban had it, and when Suburban went out of business, we were
notified to make payments to them.
Mr. Blum. Li getting investors for your program, did you write to
them and lay out the terms ?
Mr. Mayblum. Yes, we did.
Mr. Blum. What was it that you promised the average investor?
Mr. Mayblum. Well, we thought that we could give a 25-percent
return. That was revised fairly early because then we doubled our
estimate on repairs. But it was still geared for 15 to 20 percent return.
Mr. Blum. How much of a management fee would Mayday Realty
stand to collect ?
Mr. Mayblum. Five percent.
Mr. Blum. Five percent ?
Mr. Mayblum. Right.
Mr. Blum. "WHiat was the monthly allowance per house for repairs ?
Mr. Mayblum. $25 per house.
Mr. Blum. That is general maintenance work ?
Mr. Mayblum. That was general maintenance work, yes. We used
it as a fund, the money from all the houses, and we had a staff
Mr. Blum. In other words, if one house required more, you would
put more into that house ?
Mr. Mayblum, That is right.
Mr. Blum. Did you ever collect finder's fees or commissions from
the welfare department in New York ?
Mr. Mayblum, No, sir.
Mr, Blum. Do you know if anyone who worked for you did ?
Mr. Mayblum. Not to my knowledge.
Mr. Blum. Did you handle the contacts with the welfare depart-
ment to get the tenants ?
Mr, Mayblum, Part of the time. We also had an outside broker who
did it,
Mr. Blum, Who was the outside broker?
Mr, Mayblum, I believe his name was James Colicchi.
Mr, Blum, Did you begin your operation dealing with any particu-
lar welfare center?
Mr, Mayblum, Yes. The original clients came to us, the tenants came
from the nonresident welfare center of the city of New York which
was — it dealt with people who are arriving in New York without any
housing, without any funds, and who wei-e going directly to the wel-
fare department.
Mr, Blum, And they had your number as a referral number for
housing?
889
Mr. Mayblum. Well, we really didn't deal with them. "\\Tiat hap-
pened was that each apartment was insi)ected by the welfare depart-
ment, and then there was a referral made by it, and Mr. Colicchi at
that time was doing the screening of the tenants, and the tenants that
were being referred by the welfare department were coming out of
this center.
Mr. Blum. Did you do screening of those tenants that came out ?
Mr. Mayblum. Yes. The original tenants were all screened.
Mr. Blum. Were you aware of the commissions ?
Mr. Mayblum. A brokerage fee ? Yes, certainly.
Mr. Blum. Were you aware of the finder's fee program ?
Mr. Mayblum. Yes, I was. Are you talking about tenants who are
in houses that are being taken over by the city ? Yes, we were.
Mr. Blum, I am curious. Why didn't you collect brokerage com-
missions and finder's fees ?
Mr. Mayblum. We really felt that the $750 was exorbitant, No. 1,
and No. 2, we were screening our tenants very carefully at that time
and we wanted to continue it that way.
It worked very, very well for almost 2 years.
Mr. Blum. Mr. Chairman, I ask that the letter from Mr. Mayblum
to Mr. Stuart Klopper, outlining this program, be made part of the
record at this point.
83-703 0—73 — pt. 2t
890
(The document follows :)
Material Relating to the Testimony of
Martin Mayblum
Letter to H. Stuart Klopper, Esq., From Martin J. Mayblum, Dated March 23, 1965
ATTORNEY AT LAW
II5--43 SUTPHIN BLVD.
JAMAICA 36, NEW YORK
JAMAICA 9-5800
March 23, 1965
H. Stuart Klopper, Esq.
90-04 161st Street
Jaiviaica , New York
i>ear ivir. Klopper:
In accordance with our conversation, the foilowing is a
breakdown on the homes we have available for investr^ient pur;ioses.
The prices vary slightly, the gross purchase price running
between 318,000.00 and i;i9,000.00. However, the down payr^ent
varies very slightly and the net return approximately the same.
The entire invest;jent runs between i;3,7G0.00 and i;4,C00.00. In no
event will the total cost exceed 34,000.00. This sum includes the
closing cost, adjustments and escrow.
The following figures are based on an actual house pres-
ently in operation:
Cost of house 318,500.00
Down payment 3,500.00
F.II.xV. Insured 25
year mortgage 15,000.00
Gross income per month S285.00
Less expenses:
Payment to bank includ-
ing amortization and
interest, taxes and fire
insurance 129.00
heat and heating policy
based on budget plan 30.00
ivlaintenance contract which
includes all i^epairs ex-
cept heating • 12.50
Exterminating service 1.00
Ivlanagement 14.75
Total expenses 1SG.75
Net Kental Income 3 23.25
891
II. Stuart Klopper, Esq.
?a„-e 2
:«arch 23, 1965
The above figures are based on actual operation. The
fire insurance policy in this particular case is Tor the su.;i of
*iS,000.00 and includes extended coverage, malicious, miscievous and
vandalism. The liability policy is for s) 25, 000. 00/^ 50, 000. 00. The
net rate on so:::e houses is actually in excess of iilOO.OO and â– che
n:ini;r.uni rate on any house in operation is ;'^S2.50. I'his variance is
due to the variation in 'cax roll and cost of insurance, otherwise,
ail other costs are fixed and once the cost on any particular house
is established, it reciains constant. The houses are all two fa..iily
brick and have been recently converted from coal to oil or gas heat,
iiepresentation is given in the contract that it is a legal two fainiiji
house, rent decontrolled and that the heating, plumbing and electri-
cal systems will be in good vvorKing order at the ti;r.e of the closing.
All necessary repairs to the preraises are made prior to closing. At
the time of renting a month's security is obtained and there has
never been a loss of rental income to any owner since this plan was
initiated over a year ago.
The property is managed by the Iviayday Uealty Corp. , of
which I ara president and a principal stockholder. I.'onthly state-
ments and cnecks are mailed to the investors. The tenants are
never advised who the actual owner is and the house is completely
managed by the above firm.
In addition to the exception return which is presently
being earned by other investors, there is also available large tax
savings savings making almost the entire income non-taxable. This
is due to the long term mortgage and a depreciation of approxi..^.ate-
ly S800.00 a year available on each house. In addition any gain
realized upon the sale of the house will be taxed as a long term
capital gain.
As the house is fully insured and maintained, it is a
virtual assurance that the house will be in the same condition at
the time of resale. This office is equipped to handle said resale.
In addition, our experience has proved that the value of these
houses increases over time, particularly in a fringe area where
we have established our operation.
Should you desire any additional information concerning
the above, please feel free to call me.
Very truly yoiirs,
J^IAiiTIN iJ. Wj:.'yBLUM
MJM/jhb
\ ' \ V
Senator Hart. Thank you.
Mr. Chumbris. I have no questions.
Senator Hart. Do you have any questions, Mr. O'Leary ?
Mr. O'Leary. No, Mr. Chairman.
Senator Hart. Thank you very much.
892
STATEMENT OF H. STUART KLOPPER
Senator Hart. Our next, and concluding witness today, is H. Stuart
Klopper.
(Mr. Klopper is duly sworn in by the chairman. )
Senator Hart. Mr. Klopper does appear pureuant to subpena, and
I believe without your lawyer.
Mr. Klopper. Yes, sir.
Senator Hart. For the record, let me assure that you are advised
of your rights.
You have the right to refuse to answer any questions you feel may
tend to incriminate you, and if you do answer, it can be used against
you in any other proceeding.
You have a right to talk to a lawyer who can advise you before we
ask you any questions, and you may have that lawyer here with you.
If you decide to answer questions now, without a lawyer present, you
still have the right to stop answering at any time. Also, you have the
right to stop answering at any time until you have talked to a lawyer.
The record should reflect that should you desire to assert your rights
and refuse to answer, this subcommittee will draw no adverse infer-
ence in that course of conduct, nor should anyone else.
Mr. Klopper, do you understand your rights ?
Mr. Ej^opper. Yes, I do.
Senator Hart. Are you willing now to waive your rights and answer
questions ?
Mr. Klopper. Yes, sir.
Senator Hart. Thank you.
Mr. Blum. For the record, would you state your home address ?
Mr. KLorPEij. 1901 Avenue P, Brooklyn, N.Y. 11229.
Mr. Blum. By profession you are an attorney, is that correct ?
Mr. Klopper. Yes, sir.
Mr. Blum. What is your office address ?
Mr. Klopper. 90-04'l61st Street, Jamaica, N.Y. 11432.
Mr. Blum. AVliat is the nature of your law practice ?
Mr. Klopper. I would say a general practice, mostly litigation,
specializing in litigation and appeals.
Mr. Blum. Did you purchase houses subject to the program de-
scribed by Mr. Mayblum ?
Mr. Klopper, Generally, yes.
Mr. Blum. Do you recall how many houses you purchased ?
Mr. Klopper. I would guess approximately 40 or so.
Mr. Blum. Were they all purchased in your name ?
Mr. Klopper. Mostly, yes, with some corporation names.
Mr. Blum. Were there some that were purchased in your wife's
name?
Mr. Klopper. No — excuse me. There may have been a transfer to her
name. That was maybe for estate tax purposes, or something like that.
_ Mr, Blum, Wore there any other members of your family making
similar pur-cliases of liouses ?
Mr, Klopper. Not of my immediate family, but I had a nephew
who I interested in this program as an investment, and he purchased,
but not in liis name — as a part of a corporation.
Ml". Blum, Were tliese liouses purchased subject to FHA-insured
mortgages ?
893
Mr. Klopper. Three or four of them were purchased with an FHA
mortgage. There may have been one or two purchased subject to a
mortgage. I am not sure of that. But three or four were bought actually
witli FHA financing.
Mr. Blum. And the balance would be purchased conventionally ?
Mr. Klopper. Conventionally, right.
Mr. Blum. AVho provided the mortgage financing?
Mr. Klopper. Various banks, I guess. But most of them came
through Eastern Service. I don't know what the bank was.
Mr. Blum. Did you attend closings at Eastern Service?
Mr. Klopper. Oh, yes, every one.
Mr. Blum. Did you see the houses before you bought them ?
Mr. Klopper. Oh, yes. I looked at every one.
Mr. Blum. When the payments stopped coming on these houses and
it was obvious that Mayday was in trouble, what steps did you take to
try to salvage your investment ?
Mr. Klopper. I spoke to Mr. Mayblum about it, and he told me they
were trying either to rehabilitate a house, if possible, or to sell it.
And then I virtually implored him to sell it at any cost. Just get
out, because it was a catastrophe as far as investments go.
Mr. Blum. Did you take back the management of those houses at
any point in time ?
i\Ir. Klopper. No, sir.
Mr. Blum. Did you attempt to hire any other manager ?
Mr. Klopper. Yes. There was another man by the name of Goldman,
but he just I think worked a few months and then washed his hands.
He said it was impossible, that he couldn't do anything.
Mr. Blum. Did you look at the houses at the end of the line when
they were no longer producing any rents? Did you go out to New
York?
Mr. Klopper. Yes, I visited a few but it made me so sick that I just
stopped it. I couldn't take it. It was a catastrophe. That's all I can say.
I mean from the investment point of view, too.
Mr. Blum. Could you describe for us what the neighborhood looked
like at the time the payments stopped coming in ?
Mr. Klopper. Well, the only way I can describe it is that it reminded
me of the pictures we saw of bombed out Germany, or Belgium during
the war. That's what it reminded me of. Like a bomb had hit.
Mr. Blum. Did it ever occur to you that the various programs you
heard described this morning contributed to that ?
Mr. Klopper. Well, it didn't occur to me that it was due to the
programs. I thought the program was good.
But the people that were involved in the program, I mean the ten-
ants, allowed these things to happen. But the program itself I had the
utmost confidence in it.
When Mr. Mayblum explained it to me, I thought it had two aspects.
One, as an investment it was excellent because the rent was guaranteed
by welfare. So that was fine.
But what I didn't count on was that the tenants themselves would
ruin the property. This was, I think, from what I could gather, from
what I was told — I had no firsthand knowledge — ^this was the big
problem.
The tenants themselves would just destroy the property.
Mr, Bltjm. Mr. Klopper, when I visited your office, you were kind
enough to provide me with a list of properties which have been sold or
disposed of.
Mr. Klopper. Yes, sir.
Mr. Blum. Mr. Chairman, I ask that these be made part of the
record at this point.
Senator Hart. Without objection.
(The documents follow :)
Material Relating to the Testimony of
H. Stuart Klopper
Houses Owned by H. Stuart Klopper
Address Date sold Purchaser Broker
493 Alabama Ave Nov. 25, 1968 Daniel Rivera, 506 Alabama Ave., Brooklyn, N.Y. None
265 Atkins Ave (Deed in Feb. 3,1970 JetWarehouse, 175 Fulton Ave., Hempstead, N.Y. Do.
lieu of foreclosure )
444AshfordSt Aug. 15,1969 Salcedo... Celia Cerrero
598 Ashford St do Gonzales Do.
609 Ashford St. ...do Francisco Gonzales Do.
1126 Blake Ave Jan. 23,1969 Robt. J. Washington, 188-47 lllon St., St. Albans. Name unknown
538 Bristol St May 13, 1970 Ellz. Scott & Carol & Enrique Lebron Clyde Woodson
275 HinsdaleSt Apr. 30,1969 L C Brov^m, 520 Christopher St., Brooklyn. Unknown.
546 Jerome St Apr. 30,1970 Eastern Service, in lieu of foreclosure None.
466JeromeSt. Aug. 11,1969 Green... Unknown.
533 Linwood St June 12, 1970 Chala Funding, in lieu of foreclosure... None.
89 Louisiana Ave... Aug. 27, 1968 Orrin White Do.
408 Marion St Oct. 8,1969 Robt. & Ruth Acker Jonathan Gabriel.
225MilfordSt Sept. 3,1969 Leon White Celia Cerrero, John
Morales, 410 New Lots
Ave., Brooklyn, N.Y.
142-44 129th Ave.. 1969 Jet Warehouse, Eastern Service, in lieu of fore- None.
closure.
491 Pennsylvania Ave Aug. 29, 1969 Juan & Guillemo Padilla El Sol.
1355 St. Marks Ave Aug. 22,1968
612 Saratoga Ave Feb. 3, 1969 John A. Forster, 130 Hertzl St., Brooklyn Otis Williams.
553 Schenck Ave.. June 27, 1969 Joe L. Evans Gordon
555 Schenck Ave Oct. 13,1970 Chester & Shirley Brown, 567 Nostand Ave Unknown.
575 Schenck Ave Aug. 7,1969 Peter Brown. Celia Crerero.
396 Shepherd Ave Mar. 14,1969 Stanley Jackson Otis Williams.
508 Shepherd Ave... May 15,1969 Avon Equities, in lieu of foreclosure None.
310Snediker Ave.. Dec. 16, 1969 Taker Celia Cerrero.
412 Van Sicien Ave. ..Oct. 8,1969 Banks.... Do.
503 Vermont Ave.... Aug. 11, 1969 Adams Do.
68 Williams Ave Sept. 9,1969 Robt. Brown Do.
578 Warwick St .Aug. 7,1969 Jet Warehouse, in lieu of foreclosure. None.
Mr. Blum. The list indicates that a number of properties were sold
by Celia Correro. Do you have any knowledge of whether those sales
were subject to FHA mortgages ?
Mr. Klopper. I couldn't say offhand.
Mr. Blum. Were those sales handled through Mayday, or the sales
handled by Mr. Mayblum ?
Mr. Klopper. I asked Mr. Mayblum to sell the properties. He ar-
ranged for the sales through Correro or any other broker. I didn't
have any contact with Correro. I didn't even know her.
Mr. Blum. Were the closings of the sale at Eastern ?
Mr. Klopper. Yes.
Mr. Blum. Did you attend those ?
Mr. Klopper. Yes ; I did.
Mr. Blum. I have no further questions.
Senator Hart. Mr. Chumbris?
895
Mr. Chumbris. Thank you, Mr. Chairman. I have no questions.
Senator Hart. Thank you.
Mr. Klopper. Thank you.
Mr. Jaffe. Mr. Chairman, if I may, when Mr. Ostrov testified here
today, he indicated that he did not appear at the closing at Eastern
Service Corp.
He had to leave, but out in the liall he acknowledj^od to Mr. Lazarus
that he was mistaken ; that he and his brother had been at the closing.
If we can, for the completeness of this record, I would like to submit
an affidavit f lom Mr. Ostrov to that eti'ect.
Senator Hart. We have on the record your statement of testimony
now, and the record will receive such an affidavit.
Mr. Jaffe. Thank you, sir.
Senator Hart. We adjourn to resume in this room tomorrow morn-
ing at 10.
(Whereupon, at 1 :30 o'clock p.m., the subcommittee adjourned to
reconvene at 10 a.m. on May 18, 1972.)
HOUSING HEARINGS
THURSDAY, MAY 18, 1972
U.S. Senate,
Subcommittee ox Antitrust axd Moxopolt
OF THE Committee on the Judiciary,
Washington., D.C.
The Subcommittee on Antitrust and Monopoly convened in room
457, Old Senate Office Building, at 10 a.m., Hon. Phillip A. Hart
(chairman) presiding.
Staff present: Howard O'Leary, Esq., chief majority counsel; Jack
Blum, Esq., majority counsel; Peter X. Chumbris, Esq., chief mi-
nority counsel ; and Charles Kern, Esq., minority counsel.
Senator Hart. The committee will be in order. Our first witness this
morning is Mr. Joseph Colon. Is Mr. Colon here ?
Mr. CoLOx. Yes, sir.
Senator Hart. Will you raise your right hand, please ?
(The witness was duly sworn by the chairman.)
Senator Hart. The record should reflect that Mr. Colon is appearing
today pursuant to subpena. And, particularly since you are not ac-
companied by a lawyer, the subcommittee wants to advise you on the
record of your rights.
You haVe the right to refuse to answer any question you feel may
tend to incriminate you. Anything you do say can be used against you
in any othei- proceeding. You have the right to talk to a lawyer for
advice before you answer any question, and to have him with you dur-
ing the questioning.
If you desire to ansAver questions now, without a lawyer present,
you will still have the right to stop answering at any time. And you
also have the right to stop answering at any time until you talk with a
lawyer.
If you desire to refuse to ansAver, or if you assert your constitutional
rights, this subcommittee Avill draw no adverse inference from that
course of conduct, nor should anyone else.
Do you understand your rights ?
Mr.' Colon. Yes, I do.
Senator Hart. Are you Avilling to Avaive your rights and answer
questions ?
JMr. CoLox. Yes, I do.
Senator Hart. Thank you, very much. Mr. Colon, you do have a
statement. If you'll just read it for us.
Mr. CoLOx. Yes
(897)
898
STATEMENT OF JOSEPH COLON, HOGAR FUNDING CORP.,
QUEENS, N.Y.
Mr. Colon, Mr. Chairman, members of the subcommittee, my name
is Joseph Colon, and I am the president and founder of Hogar
Funding Corp.
Hogar Funding Corp. is a New York corporation, owned and oper-
ated by members of the Puerto Kican community of the city of New
York."
It was organized in March of 1969 with total assets of $118,500,
which capital was raised with great difficulty from Puerto Rican in-
vestors closely acquainted with me.
On June 25, 1969, the company received its approval as an FHA
mortgagee and in August of the year began its operations. The ap-
proval of Hogar Funding Corp. and its entry into the mortgage-
finance business was a significant breakthrough for the Puerto Rican
community and as such, the event was welcomed with pride and
widely publicized by the Spanish media.
The story behind the establishment of a minority-owned and oper-
ated mortgage financing company is the story of an enormous strug-
gle, often full of disappointment by dozens of individuals trying to
overcome the resistance of established competitors and established
bureaucracy.
Prior to embarking on this venture, I had been in the mortgage and
real estate business for a period of over 13 years. I had also been in-
. volved with the community as a civic leader concerned in particular
with the problems of small homeowners, as president of the Puerto
Rican Home Owners Association of New York.
As such, I was in the unique position of understanding the busi-
ness of real estate and mortgage financing and was very conscious of
the needs of the minority groups for liberal financing to permit them
homeownership in the city of New York.
It was, therefore, not hard for me to become convinced of the fact
that only through homeownership the complete devastation of the
inner city could be halted.
Give the ghetto resident a stake in the ownership of the property
of the community in which he lives, and he will care for it and per-
form his own rehabilitation.
Due to the legislation enacted by Congress in 1968 to facilitate
decent homeownership by all Americans, the time was ripe in 1969
for the creation of a company such as Hogar, a company which could
operate within the ghetto community, speaking to the prospective
liomeowner in his own language and with a deep understanding of
his needs and his problems.
Insurance companies and other investors also declared their inter-
est to invest long-term mortgage funds in the glietto area, and this
factor also encouraged the formation of our corporation.
Because we Mere a new company with modest assets, it was diffi-
cult foi- our company to obtain warehousing and takeout commit-
ments. Our initial operations M-ere made j^ossible only throuah the
help of institutions such as Banco Popular de Puerto Rico, who gave
us our warehouse commitment; the Equitable Life Assurance Society
899
of the United States, who ^ave us our first takeout commitment ; the
Lincohi Savings Bank of New York ; and the Ponce de Leon Federal
Savings & Loan Association.
The Government agencies concerned, such as FHA, VA, and
FNMA, were extremely helpful during our initial organization; and
the Mortgage Bankers Association of America assumed a very lib-
eralized policy in admitting us to membership.
As chief executive officer of Hogar Funding Corp., I have, there-
fore, always felt a deep obligation to the Puerto Rican community
and to the several institutions, agencies, and individuals who made the
establishment of our company possible.
Because of limited working capital, our staff has always been small.
Each employee of our company has been required to assume two and
three different responsibilities. However, the spirit of our staff has
been maintained at a high level because of our constant awareness of
the fact that we are the first approved FHA lender owned and oper-
ated by Puerto Ricans in the LTnited States.
We have now been in operation for 21/^ years. We have made
mistakes, but each mistake has resulted in a learning experience. We
are proud to say that by limiting our expenses, particularly in the area
of salaries, we have managed to show an overall modest profit,
A great deal of initial efforts have gone into the organization and
into obtaining the required authorizations, approvals, and insurance.
The job of organizing such a corporation with the limited funds has
been immense, and the competition in the area of mortgage financing
has, of course, made our efforts that much harder.
It has always been our company's policy to comply with the highest
standards that are required of an FHA-approved mortgagee to pro-
tect the investors who buy our mortgages and to assure compliance
with FHA and VA regulations, not only within the letter of the regu-
lations, but within the spirit of those regulations, which we feel are
established to protect the investor and the mortgagor.
I have constantly advocated for Homeownership Counseling Serv-
ice as provided under sections 235 and 237. As president of the Puerto
Rican Homeowners Association, I submitted a proposal for a counsel-
ing program in November of 1970 to the Secretary of Housing and
Urban Development.
Such counseling programs as contemplated under existing legisla-
tion, if properly implemented, should result in the proper education
of prospective homeowners from the low-income groups.
The prospective homeowner, aided by a counseling service not inter-
ested in the outcome of tlie "deal," could be the best insurance against
the abuse by specuhitors and other middlemen of the existing liberal
mortgage financing laws.
Under disinterested guidance, the j^rospective home buyer would be
in a ])Osition to look behind the "deal'' and would be able to consider
his ability to meet future mortgage payments and other expenses.
The middleman would find it more difficult to take advantage of an
enlightened home buyer, and the benefits of the financing laws would
go to the low-income home buyer where it belongs.
T'nfortunately, existing legislation in this area has never been im-
plemented, due to the failure of Congress to appropriate funds. It is my
900
hope that this investigation has helped to reveal and to dramatize th
urgent need for the funding of homeownership counseling programs
Why not require certification by an approved counseling service be-
fore the issuance of a Government-insured mortgage commitment ?
During the past few months, this committee has made several re-
quests to examine the files of our corporation, and we have dutifully
cojnplied with every request. In addition thereto, your investigators
have been supplied with operations and our dealings with brokers and
others.
I am here today at your request and shall be glad to answer any
questions concerning my company and its operations which you may
feel may be helpful to your committee's investigation. Thank you.
In closing, there is also some other information wdiich I delivered
yesterday, and I thank you for giving the opportunity to me.
Senator Hart. We thank you.
Mr. Blum. Mr. Colon, let me begin by thanking you for cooperating
with us in providing documents and files to assist in the investigation.
I Avonder if we can begin by having you tell us a little bit about your
background in the real estate business? When did you start in the real
estate business ?
Mr. Colon. I started in real estate business in 19 — about 1954; I
think it was 1954.
Mr. Blum. You were working as a salesman then ?
Mr. Colon. Yes, I was working as a salesman.
Mr. Blum. And when did you go out on your own ?
Mr. Colon. I went out — I think it was in 1958, 1959, and opened an
office in Brooklyn in the Atlantic Avenue area. At that time, I didn't
have enough resources to really expand the office, so I came back with
the same company that I was working for before. In 1960, I went
and opened up on my own again.
Mr. Blum. You opened up on your own. Are you a licensed real
estate broker in the State of New York ?
Mr. Colon. Yes, I am. I'm a licensed real estate broker, right.
Mr. Blum. Can you tell us what it was like if you were Puerto
Rican in New York City, and in search of a mortgage loans in the
early 1960's?
If I were a Puerto Rican and living in New York and I wanted to
buy a home, could I get a mortgage on it ?
Mr. Colon. It was very very difficult. As a matter of fact, even when
having 20, 25 percent downpayment, you cannot get a conventional
loan in those areas that we're talking about, like Bushwick, East New
York, Brownsville, Bedford, Stuyvesant, and Williamsburg. Those
areas have always been difficult to get mortgages.
Mr. Blum. Was that true for both banks and mortgage companies
and everyone — when they saw a Puerto Rican, they didn't want to
have anything to do with him ?
Mr. Colon. Yes. In many instances, they don't want to do practi-
cally any business at all.
Mr. Blum. Were there any institutions then that would do business?
Where there a few ? What did you do when a Puerto Rican came into
your office and wanted to buy a home? How did you get financing
for him ?
901
Mr Colon. Well, we had Ponce de Leon Federal Savings & Loan
was one of the institutions that we were dealing with.
And sometimes we even got a loan from Lincoln Savings Bank.
And it was hard. In other words, you had to go in to fight six, seven
institutions before you really try and â €” even you have to try and sell
the customer. In other words, you show them the whole history and
everything else. And finally, if they decide to give you the mortgage,
the amount was not enough, so the person was compelled to take a
second mortgage.
Mr, Blum. He had to take a second mortgage ?
Mr. Colon. Right.
Mr Blum. To make the purchase price, is that correct ?
Mr Colon. Yes.
Mr. Blum. And what happened to those people when the second
mortgages became due ?
Mr. Colon. Well, in many cases, a lot of them lost their homes
because they used to give them a 5-year second mortgage. And also,
the house was in need of repairs, you know; they got involved with
a home improvement loan, and actually, they'd wind up paying first,
second, and third mortgages.
Mr. Blum. Can you tell us what was happening in the home improve-
ment loan market in Brooklyn in the mid-1960's?
Mr. Colon. Well, there was a lot of problem with these families
because the home improvement guys that used to go around, they used
to come in and they used to finish the basement or have a modern
kitchen done, or any kind of improvement whatsoever, and these peo-
ple used to pay double for those jobs. In other words, they use to, on
many occasions, they used to sign the papers blank, I mean tlie com-
pletion slip, which is when the papers they were supposed to sign when
the work is finished — it's supposed to be signed by the homeowner
indicating that he's satisfied with that work, and that the work was
completed to his satisfaction.
Mr. Blum. And they got people to sign those certifications of com-
pletion blank, at the beginning of the job ?
Mr. Colon. A lot of the times they signed them in blank.
Mr. Blum. The reason it happened was the forms were in English
and the people spoke only Spanish ?
Mr. Colon. Right.
Mr. Blum. What financial institutions made home improvement
loans principally in Brooklyn in that period ?
Mr. Colon. I think the major one that did most of that work was
the Prudential Savings Bank. It was one of the major home improve-
ment loan givers.
]\Ir. Blum. And later that bank merged with the West Side Federal
Savings & Loan Association ?
Mr. Colon. Yes. I think a couple of years ago, yes, West Side.
Mr. Blum. And quite a number of operators got into the business of
real estate first by setting up home improvement companies, is that
correct ?
Mr. Colon. Yes, a lot of them, they have home improvement com-
panies and gave them the opportunity in going around, what they
was probably knocking at doors, and finding out when the purchaser
was to buy a new home.
902
Mr. Blum. We have earlier testimony from Mr. Morales, and I be-
lieve he got into the business starting off with home improvements.
Do you think that's correct ?
Mr. Colon. I believe so ; yes, I think so.
Mr. Blum. "What got you to decide to go into the home mortgage
business ? "When did you decide to open ?
Mr. Colon. "Well, let me give you a little history.
You know, when I saw this thing back in 1968, you know, because
I was involved very closely with the Puerto Rican community in this
area, and I decided to organize the Homeowners Association, and
this is what really put me in knowing their problems, you know, and
knowing exactly what was happening with them. As a matter of fact,
I wrote many letters to "Washington. I think Secretary of — "Weaver, I
think, was at that time Secretary of Housing. And I told them these
areas needed FHA financing. And finally, I think it was in 1968
when they began passing the laws, I decided to open up my own
company because I felt like helping the people. And I think one of
the major areas was refinancing. And I tried to do them the favor and
try to help them out. And this is when I decided to
]\Ir. Blum. Let me back up for a minute. Those home improvement
loans we were talking about before, were they FHA home improve-
ment loans ?
Mr. Colon. Yes, they had FHA home improvement. I think they go
as high as 7 years.
Mr. Blum. Seven years. And you saw the opportunity in the new
housing programs in 1968, and decided to open your own mortgage
company, is that correct ?
Mr. Colon. Yes, I felt that this was a chance for us, especially my —
to try and get involved in this type of financing.
Mr. Blum. What do you have to do to open a mortgage company ?
Mr. Colon. It was rough, very I'ough. As a matter of fact
Mr. Blum. You have to raise capital, right?
Mr. Colon. You have to raise $100,000 cash and it has to be main-
tained at all times to be able to show the Government that you have
resources. You need your operating capital. It probably costs you — we
started with $118,000. And then you have to have warehousing line
and then you have to have a takeout line.
Mr. Blum. Well, let's go into the raising of the capital first. Who
did you approach, searching for some capital in the business?
Mr. Colon. Well, I approached a number of people. I think I ap-
proached a title company. The title company told me they were not
even allowed to get involved in the funding business.
And finally, after going around talking to people here and there, I
was able to raise the $100,000.
Mr. Blum. And those were basically individuals in the Puerto Rican
community in New York investing ?
Mr. Colon. Yes.
Mr. Blum. Now, you said you needed a warehousing line of credit.
What banks did you go to searching for that warehousing line of
credit ?
Mr. Colon. Well, I went to a mmiber of banks. I went to, I think it
was First City National Bank. I think I Avent to Chase. I think I went
to Manufacturers Trust Hanover, and other ones.
903
They all said you cannot, you're too young, you don't know the
business, so we can't do it.
JNIr. BLu:sr. Did any of them tell you they were doing business with
other people in Brooklyn, and they didn't have any money for you?
Mr. CoLox. Yes ; one of them did." I think it was Chase. I think it was
Chase or First Xational. They told us they were dealing with some,
so they couldn't help us out.
I^Ir.' Blum. And finally, where were you able to get the warehousing
credit ?
Mr. Colon. Well, finally, I went and convinced the Banco Popular
to work with us, which they have since worked with us very closely.
And then I had to go and get my permanent takeout. This was also
another goin^ around from door to door until I finally was able to
convince Equitable Life under that special program to give us the first
$500,000.
Mr. Blum. That is, by permanent takeout, you mean to buy the
mortgages ?
Mr. Colon. Buy the mortgages, yes.
Mr. Blum. And when Equitable undertook to buy it, where else
did you go looking for takeout commitments ?
Mr. Colon. A number of banks, savings and loans. As a matter of
fact
Mr. Blum. Well, you submitted for the record, a number of let-
ters
Mr. Colon. Right.
Mr. Blum. From the different institutions. Mr. Chairman, I ask
that these copies of those letters be part of our record.
( The documents begin on p. 929. )
Mr. Blum. And what did they tell you? They told you no, they
wouldn't buy it ?
Mr. Colon. No, they wouldn't buy it. The same question I got —
that the money's tight, to wait a few months, come back, and they gave
me their card, call me back — and finally, it came to a point that I got
tired of calling because
Mr. Blum, isn't there one letter in there from the Prudential In-
surance Co. that says that they were interested in doing business
in inner city areas, that they had a working relationship with Eastern
Service, and they couldn't spare any of the money for you ?
Mr. Colon. Eight.
Mr. Blum. ATere you required to get an insurance policy ?
Mr. Colon. Yes. This was another thing. Really, at that time, I just
felt like backing out, you know, and give up the hope of having a com-
pany of — because one of the requirements — we went to every — again —
to every life insurance company, and they didn't want to give us be-
cause the newness of the company and it was organized, and so they
figured right away they're going to take losses.
So, we finally approached to one of the brokers, Lloyds of London.
And Lloyds of London, one of the requirements that you be members
of Mortgage Bankers of America. So, in order to be members of
Mortgage Bankers of America, you have to be 5 years in business.
Mr. Blum. Now, let me get this straight. You needed a bond?
Mr. Colon. Right.
Mr. Blum. Before you were permitted to get into this business?
904
Mr. Colon. Eight.
Mr. Blum. You're trying to get a bond from insurance companies,
and they told you no, you were too much of a risk ?
Mr. CoLOx. Eight.
Mr. Blum. Then, you found out by going to the Mortgage Bankers
Association you could get insurance from Lloyds of London?
Mr. Colon. Eight.
Mr. Blum. And you found out that to become a member of that asso-
ciation you had to be in business 5 years?
Mr. Colon. Eight.
Mr. Blum. But you couldn't get into business without the insurance
policy, is that correct ?
Mr. Colon. Xo, and even to overcome the 5-year period, I have to
have tAvo people to cosign for us in order that we were good risks.
Mr. Blum. And these two people would be other mortgage bankers ?
Mr. Colon. Other mortgage bankers.
Mr, Blum. Who were your competitors ?
Mr. Colon. Eight. So, I finally wound up in Chicago with Dempsey
Travis, a black mortgage company that was one of the first known
members of j\IBA, and they finally cosigned for us.
And then I went to New Jersey with Larson Mortgage Co.
through one of our appraisers. And he also gave us a hard time be-
cause he said "Who are you ? ^YhJ should I help you ?" In other words,
"A^Tiy should I jeopardize my position?"
I said that if the opportunity was given to us, that we would not let
them down. And this is Avhat's happening.
Mr. Blum. So, you finally got the insurance bonding you needed to
go into business ?
Mr. Colon. Yes.
Then we ran into another problem, which was to become a seller
servicer for FNMA, and they also came down. They looked at our
headquarters and they inspected. They also told us no, you can't service
for us because you haven't got the experience, you haven't got the
facilities.
So, again, I went back again writing letters all over Washington
until I finally wrote a letter to the former President of FNINIA, Eay
Lapin.
And I told him to give us a chance and put us on a trial basis for a
period of 4 to 5 months and if they were not satisfied with our service,
they were free to choose whatever they want, and give the servicing to
any other of the mortgaging companies or banks.
Mr. Blum. And then you were approved, finally, as a seller-servicer,
and began doing some servicing for FNMA ?
Mr. Colon. Yes.
Mr. Blum. Let me go back to the warehousing line of credit you
got from Banco Popular. What were the terms on that? What kind
of interest rate were you charged for the warehousing line of credit?
Mr. Colon. In 1969, that's when the tight money market, so I think
was paying 8 or seven and a half, I don't recall.
Mr. Blum. Did it ever go up as high as 10 or ten and a half ?
Mr. Colon. Yes.
Mr. Blum. Yes. And you were required to maintain your escrow
accounts at Banco ?
905
Mr. Colon. Well, this is a customary element of the banking trans-
actions because — in other words, if you're dealing with — in other
words, communities you have all of your accounts in there, so you have
to put up with
Mr. Blum. Was there a compensating balance requirement with re-
spect to that line of credit ?
Mr. Colon. I don't think so. I don't think the bank never did ask
us, no, not at all.
jNIr. Blum. Did you run into a problem, once you were set up, get-
ting business from the brokers ?
Mr. Colon. Oh, yes. All of the brokerage companies that have mort-
gage solicitors. And the word spread around that Hogar has no money.
"Don't go to Hogar. Can't close your loans.''
Mr. Blum. Did you hire someone who had worked for Eastern, as
your salesman, a man named Jack O'Brien ?
]Mr. Colon. Yes. This was one of the guys that came with us when
we organized the company. We first had going through the — he had
his experience and knowing the brokers, and going through his ex-
periences very well.
Mr. Blum. He w^as a solicitor at the time for Eastern ?
Mr. Colon. Yes.
Mr. Blum. And he came to you to bring in some of those real estate
brokers as clients of Hogar ?
Mr. Colon. Yes.
Mr. Blum. In the time he worked for you, did he bring Mr. Morales
and Celia Correra in ?
Mr. Colon. Yes.
Mr. Blum. And did he bring in Ortrud Kapraki ?
Mr. Colon. Yes.
Mr. Blum. What kinds of problems did you have in convincing
brokers to come to you ? Did they ever suggest to you that you had to
provide short money for them ?
]Mr. Colon. One of the things used in this business — you have to
give them short-time money.
Mr. Blum. In other words, it you can't give them interim financing
to buy a house so that they could hold it subject to resale they wouldn't
want to do business with you ? They'd take it somewhere else ?
Mr. Colon. No, no.
Mr. Blum. How did you solve the problem ?
Mr. Colon. Well, I went in and asked Banco Popular to help me out.
In other words, we went in and closed a number of loans with them.
Mr. Blum. Interim loans to the real estate people ?
Mr. Colon. Eight.
Mr. Blum. So that they could then resell the house ?
(No response.)
Mr. Blum. Did you run into any other problems in terms of getting
brokers to do business with you? Did they ever say to you, "AVhy
should we do business with you ? Other people will be able to get loans
through FHA more quickly" ?
Mr. Colon. Well, this was the talk of every broker. In other words,
"Why should we come to you ? What can you do that any of the other
companies — you're a new company. You can't do anything for us."
Mr. Blum. Can you tell us what you did when a loan came in with
respect to getting it approved by FHA ?
83-703 O— 73— pt. 2b 11
906
Mr. Colon. Well, the normal procedure is when an application is
taken in, you send out for an FHA appraisal and you send out — you
type all the information regarding the address of the property, the
number of rooms, number of bathrooms, type of heating, so on and so
forth. That's sent to the FHA.
The FHA will process that application and they will send out an
appraiser. The appraiser will go down and look at the house.
Then, in a few days, about a week later, they will issue what is called
a conditional commitment. And in that conditional commitment, they'll
list the value of the property, they'll list the terms of the years, and
they'll list any repairs required by FHA.
Mr. Blum. And then you take the buyer's credit
Mr. Colon. Then we take the credit.
Mr. Blum. You take all the verifications ?
Mr. Colon. Then you go in another bunch of forms. There is, I be-
lieve it's the 2900 or
Mr. Blum. 2900?
Mr. Colon. 2900. You take the credit information, where he works,
where he lives, if there's less than 2 years prior employment, Avhere he's
got the bank accounts, if he's got any debts pending, what rent does he
pay. There's a number of questions that he's asked. In other words, all
that information has to be given.
Mr. Blum. Now, one of the things that FHA requires is a credit
report from a credit reporting agency, is that correct ?
Mr. Colon. Yes.
Mr. Blum. And wasn't it common practice in Brooklyn for those
credit reports to be simply a matter of picking up the phone and
giving them the information, and then they'd type it up and mail it
back?
Mr. Colon. Yes. In other words, they called it in, and they're sup-
posed to check the credit. But the amount — for $7.50, you can't get
a decent report.
Mr. Blum. Was $7.50 all they charged for a credit report? Nobody
did any checking, is that the situation?
Mr. Colon. Uh-huh.
Mr. Blum. So, the credit reports came back saying pretty mucli
what was on the application, and that was never a problem?
Mr. Colon. Yes.
Mr. Blum. What happened when there was a problem with the
FHA forms? Would you go out to the FHA office in Hempstead to
clear it up?
Mr. Colon. In regard to the appraisal or as far as credit is
concerned ?
Mr. Blum. Say FHA Avas holding up the form and there was some-
thing, a problem of credit, perhaps,- or whatever, something missing,
or there Avas a dispute over whether or not the person was qualified,
woukl you go out to talk to tlie FHA official?
Ml'. Colon. Yes, you have to go down there and find out what's
holding the case up. In other words, to find out whether there's any
additional information that they want, and so on and so forth.
Mr. Blum. Can you describe for the subcommittee what it was like
to go to the FHA office in Hempstead?
907
Mr. CoLox. Well, I used to oo down at 9 a.m. and give my case
number and sit around until tliey called my case.
Mr. Blum. Who else was waitine; in the interim?
Mr. CoLOX. All the other mortgage companies.
Mr. Blum. And they had their representatives there on a full-time
basis ?
Mr. Colon. Yes, yes.
Mr. Blum. And they would go in constantly with different cases
that they were trying to get through FHA?
Mr. CoLox. Uh-huh.
Mr. BLuar. Do you ever remember seeing people there from banks,
or was it just the mortgage companies?
Mr, CoLox. I think it was sometimes, there was banks thei'e, too.
Mr. Blltm. But it was principally mortgage company people?
Mr. Colox. Yes.
Mr. Blum. Waiting there to present an application ?
Mr. Colon. Eight.
Mr. Blum. What was the role of Mr. Ortiz in setting up Hogar
Funding ?
Mr. Colon. He was the attorney. In other words, he did all the legal
work.
Mr. Blu3i. And did he handle the closings for Hogar ?
Mr. Colon. Yes ; yes, he's the counsel for Hogar.
Mr. Blum. Was he paid a fee by Hogar for those closings ?
Mr. Colon. No, in FHA ifs paid by the purchaser.
Mr. BuTM. The purchaser paid him the legal fee on the closing?
Mr. Colon. Yes.
Mr. Bll'M. You mentioned before that refinancing was a major
problem for people in the Puerto Rican community, and that was be-
cause of the second mortgages ?
Mr. Colon. Yes.
Mr. Blum. Why aren't they able to easily convert those first and
seconds into FHA-insured mortgages ? What's the difficulty ?
Mr. Colon. First of all, the bank takes an attitude, especially that
if they want to refinance, especially where the money is low*-income
people.
(Sometimes they get late one payment or two payments. It's very
hard for them, especially if you have to make tAvo or three payments
and they have kids.
As far as refinancing in those areas, I would say that no one — for-
tunately now, we have several attempts to do it.
I received a case last week in my office where the people bought the
house at $25,000. They gave $10,000 down, and they have a balance
now, what the mortgage came to after 5 years, of $12,000.
And they went to a number of the local banks, but they would not
refinance it. So, now we have to — in other words, this is what I
Mr. Blum. And isn't there also a problem because the cost of the
refinancing — you have to pay so many points at the time of the clos-
ing on the FHA mortgage ?
Mr. Colon. Yes. When they come to refinancing, it's like making a
new mortgage. They have to go through the same procedure, title
policies, discounts
Mr. Blum. Even though they already own the house ?
908
Mr. Colon. Even though they own the house.
Mr. Blum. How much might it cost if I were to come in to you and
try to get a refinancing, and there would be, let's say, a $20,000 mort-
gage ? How much cash would I have to come up with ?
Mr. Colon. If you're going to refinance — in other words, place the
equity that you have in the house — they'll give you — they'll go and list
all of your debts, and say, on the $20,000 loan, takes the 3i/^ percent
discount plus your title fees. It's the whole thing, like starting a new
mortgage.
Mr. Blum. It would be more than $1,000 ?
Mr. Colon. Oh, yes.
Mr. Blum. To get a new loan ?
Mr. Colon. Eight.
Mr. Blum. A new FHA loan. And that is more cash than most peo-
ple who are trying to refinance have ?
Mr. Colon. [Nodding head.]
Mr. Blum. Can you tell us about your relationship with the title
companies? Who decides which title company to use at Hogar
Funding ?
Mr. Colon. Actually, our staff in the office. The girl in the servicing
department — I mean, in the processing department.
Mr. Blum. Simply picks the title company, pretty much ?
]Mr. Colon. Yes.
Mr. Blum. Did you contact the officials of Commonwealth Land
Title of New York around the time you went into business?
Mr. Colon. Yes, we did.
Mr. Blum. Did you ask them to make deposit in Banco Popular to
help you out ?
Mr. Colon. I asked them to w^ork wath us, yes.
Mr. Blum. Did they, in fact, make this deposit ?
Mr. Colon. Actually, the^" made a deposit.
Mr. Blum. You had a number of dealings Avith Ortrud Kapraki and
Celia Correra and a number of other brokers whose names have come
up here. I believe I've shown you a file involving Mr. Felix Perez. I
wonder if we can discuss that for a minute ?
Mr. Colon. Yes, sure.
Mr. Blum. As you'll recall, in looking at the file, Mr. Perez showed
a different home address on every document in it.
The credit report shows one home address. The bank check shows
another home address. The employment "dash" shows a third home ad-
dress, and verification of employments are missing on the file. How is
that possible ?
Mr. Colon. Well, when we process — sometimes, in a lot of these
cases, you know, the people have different addresses.
They move from one place to the othei". It's a common practice on
some of them, especially if they live in that area, in the Bushwick
area, from day to day they keep on changing around.
Mr. Blum. And you think that was just a clerical error?
Mr. Colon. I think, you know. I think that this is the case. In proc-
essing property, as far as we're concerned, there was nothing Avrong
with the case.
Mr. Blum. And isn't it true that when I asked you to produce the
servicing file for that case, there was a different man making the
909
monthly mortgage payments? The payments were no longer being
made by Mv. Perez ?
Mr. CoLox. Yes.
Mr. Blum. And don't you recall that INIr. Perez had only made the
payments for 1 month before the name shifted?
Mr. Colon. Yes.
Mr. Blum. Who was the man who began making the payments, do
you know ?
]\rr. Colon. I think lie took it over from Perez.
Mr. Bluivi. Did you get any documentation that he actually bought
the house from Perez ?
Mr. Colon. Xo; we can't have — in other words, if it's done, it's done
through their attorneys.
Mr. Blum. You don't require documentation? As long as somebody
comes in and makes the payments you're satisfied; is that right?
Mr, Colon. Well, actually, yes, this has been one of the practices.
]Mr. BLuar. That other people make the i)ayments for the guy who
was the original mortgagor ?
Mr. Colon. Yes.
Mr. Blum. Mr. Chairman. I ask that the documents I referred to
in the Perez case be made a part of the record.
Senator Hart. OK.
(The documents follow and the testimony resumes on p. 923.)
910
Documents Relating to the Felix Perez Case
Material relating to testimony of Joseph Colon
EXHIBIT 1
(uieiMo, 4-505178
THIS COMPANY CERTIFIES thot a good and marketable title to the premises described in Schedule A, subject to the
liens, incumbrances and other matters, if any, set forth in this certificate moy be conveyed ond/or mortgaged by:
CELAR OPERATING CORP . ,
Source of title Acquire(^ title by deed from Mildred C. Massarella,
dated lijdly 25, 1969 and recorded August 6, 1969 in
Reel
117.
ge i±/. i .
/M
']f}Mc'UA<^
forth the odditional matters which will oppear in our policy as exceptions from coverage,
disposed of to bur satisfaction prior to the closing or delivery of the policy.
Taxes, tax liens, tax sales, y/ater rates, sewer rents and assessments set forth herein.
lortqaqes returned herewith dnd'set forth herein. ( 17, )
^ ^ , , :^ 'â– , -- Insert Number
ghts of tenants or persons in possession, if any.
Proof is required that _! ,
has not been -known by any other name within the past ten years; otherwise, such other
name(s) must be revealed to the rCompany and the Office searches amended to cover.
The following covenants,' restrictions, conditions, easements, reservations ond other
instruments of record offect the use of the premises insured herein: None .
Possible unpaid franchise taxes due against Celar
Operating Corp.; report thereon awaited from State
Tax Commission.
Business Corporation Tax pursuant to Sec. R 46-10.0
of the Administrative Code against Celar Operating
Corp.
Proof required showing the time and place of death of
Angelina D'Atena, a former fee owner who acquired
title with her husband, Antonio D'Atena by deed
recorded 3/21/22 in Liber 4124 Cp 276. The next deed
out is by Antonio D'Atena recorded 7/7/67 in Liber 469
Rp 407 in which it is recited Angelina D'Atena died on
6/3/67.
-continued-
Tlie closing requirements set forth on the following poge ore a port of this cortificote and must be complied with.
A duplicate copy of the exceptions is furnished you with the thought you may wish to tronsmif, with or without any of the other
exceptions in the title report, to the ottorney for the owner of the property and thereby focilitote the clearing of the objections
prior to closing.
911
HOGAR FUNDING CORP.
971 Broadway, Brooklyn, New York 11221
Premises: 862 Belmont Avenue, Brooklyn, N.Y. Mortgagors: Felix Perez
KHA Case No. : 373-161844-303
IIOGAR FUNDING CORP. :
Reserve from Disclosure Statement '..... $ 178.04
Closing Costs:
Appraisal Fee $ 35.00
Credit Report $ 20.00
Origination $ 150.50
Less paid on account . . $
TOTAL DUE: $ 1W.50
OTHER Repair, escrow ;, $ 3,000.00
DISCOUNT - PAID BY SELLER
1.126.75
FRANK A. ORTIZ - LEGAL $ 150.50
TITLE COMPANY: Northeastern Insurance Company $ IyAI2oI0
Title No.: 4-505178
Judd Aasoclates Ltd. $ 250.00
John Iforales 5,000.00
Alvln Tahlor, Esq. $ 200.00
Abe FleiBchaian 100.00
Hogar Funding Corp. ( debt of seller ) . $ 1,080.00
City Collector S/l/lO 73.78
John Morales $ 152.00
Abe Fieischman 167.52
John Moralea $ 15.00
John Morales $ 20.00
John Morales $ 1.916.61
TOTAL: $ 15.050.00
INSURANCE INFORMATION
Company: American Home Assurance Co. Broker: Judd Associates
Policy No. : D 7567901 Amount: $16,000.00
Premium: $85.00 (2 months) Term: 7-15-70 — 9-15-70
FIRST TAX INSTALLMENT DUE:
Real Estate October 1, 1970 Water January 1, 1971
Sewer January 1. 1971 Other
The undersigned hereby approve above disbursements and acknowledge receipt of a copy of
this statement gn this 20th day of August , 19 70
Mortgagor
Mortgagor
912
Hoga» Fuadlns 5/28/?0 dolay of 5/23/10
FHA ST.'VNDARD FACTUAL
DATA REPORT
FACTSERVICE
Report in Duplicate
Correct name i- address
, . FACTU.4L DATA REPORT ON BORROWER
FOR FEDERAL HOUSING ADMINISTRATION
VETERANS ADMINISTRATION OR OFFICE OF EQUAL OPPORTUNITY
Kay £8«h
FEHEZf Fells
fSrookljCia BX
^72 Sew Jersey Aveiuw
or Mortgagee
or VA Lender
D
Credit report order from FHAF]
Credit report order from VA â–¡
Credit report order from EO â–¡
Credit report order received by contract agency
Credit report mailed to FHA â–¡ or FriA Mortgagee;^
Credit report mailed to VA â–¡ or VA Lender â–¡
Credit report mailed to EO P]
Date
FHA CASE inj;.3ER
EO CASE I'aj':>IBER_^
Property Addrg^ycnr^Q '
Dated
Datf S/JSSlJIO
tote"
Date"
Date
^^^
(Ho reference shall be made in this report to race, creed,
1-A.. Do name and address agree with infoiT-.ation shown
on request for report? If not, explain below
B. Approximate age of subject
C. Marital status - number of dependents
D. Length of time married
Dclor, or national origin)
L-A. yes
Dependents :
oidooer^none
2-A. Is his general reputation as to character good?
B. Di'd you learn of any domestic difficulties?
-JOB"
no
Qulsqullla Qr ooery stor
3 -A. Name of employer
E. Position held - length of present connection
C. Has his employment status changed within the
past two years?
.3-A
B. nj?"
C. S®8
6 mo
It-A. If his wife is employed, .give name of her employer -i-A.
B. Position she holds - approximate incqme B. Income -t
C. Approximate number of years she has been employed C_;
REMARKS: 1. Amplify his business history. (This report shall contain information
as to the subject.'s previous employment status, location and salary, if there has
been a change in employment status within the past two years . )
2. The reporting bureau certifies that: (a)npublic records have been
checked for suits, judgments, foreclosxires, garnishments, bankruptcies, and o^er
legal actions involving the subject with the results indicated below; or, (b)^
equivalent infoi-mation has been obtained through the use of a qualified public
records reporting service with the results indicated below. (Give details). (The
records of reBkliPt»t«^«M^srs which do not involve foreclosure may be excluded.)
3. The reporting bioreau certifies that the subject's credit record in the'
payment of bills and other obligations has been checked: (a)n through the credit
accounts extended by the larger department stores and larger consumer and un-
secured credit grantors of the omiraunity in which the subject resides with the
results indicated below; or, (bjij] through accumulated credit records of such
stores of th^^ommurutVyin»"'^i'^'^ the subject resides, with the results indicated
below. --^a »'
Kind of Selling High
I^^P^f no iS^»-or 2x££S^^l)t8, 2l^
^ ^ ^ Huttnap Funding Carp
^^P°^ 5°5' Paot oe CTlo o
Prepared by: ^__^.^
Past
Due
Monthly
Installments
Paying
Record
NX
fa
The information is not to be divulged to anyone other than the Federal Housing Admin-
istration, Veterans Adrfiinistration, or Office of Equal Opportunity.
TUMBLE OVER. WRITE FROM TOP DOWN.
913
ISr. rollx Pexrea la reparted to be ompioyed
with Qulaqullla Qrooev^ Store, located at 6X2
Hogoroan Avonua, Broolclvn* >nr* He Is reported to »
goxJ0S»al ciamBor# bore for 6 montha- We aokod for written
vorlfioatlon iTlth flra»s biielneoo eoal to verify employment
and Incona, to date wo have not poooivod this veriflcatlonj
Prior to this for 18 months with Blanohard Proaa, Oardcaa City,
LI vas tmabXe to give ps^ov employment*
subject has an estimated worth of 03#OOO inoludlngr
personal offects and eavlncs. Inoone re prted at 5lcO weekly
for 6 day x3q6}&$ hoTOVor w^bave not rooolved verification in
writing. •â–
He oax<z*ie8 no life Insurance*
Ho 8to& 8 or bonds* Sp obeficing with 1st
National Bcnk«
Ho is the owner of a 1961 Chevrolet* fully paid*
Subject did not serve in the U*S» Military.
PERSOWALl
' ' ^r.' Pores is UO years of ago, wldouor* no
dependants, living for 3 years at tho given looatloni,
572 Bew Jersey Avenue, "Broolslyn, KT i^jartmont ffz, rent is
$80 per no. Learn of no moral cr personal oritioiso*
6/1/70 CN
"'' " " ''' 17 GRANITlJ street" ':" , / ' . ';
CROQKCW, N. v.- â– ' ,. ^ . - . HQ/l
-_DOLLARS
; fi^% >JRSf "(fATldf-IAtCITY BANK-
V^'iy "" ', TiFlFTH AVC. ATOtH'ST,- ^•
i: D ? 40 "• Q b a_i: - s 9 s u o i ea "' "
uat per&ociany pkincb
time card coming tn
; oaL Failure to do
â– taken as proof t^t
not at work..' .
J^NCHARD ^£SS, Inc.
914
^^^ BtANCHARb i^RESS, -INC.' ■' ' • avoid^:accident^
■■' -' ■:, : ALWAYS ; -V ■,■•••<:
â– V'BE- â– / , â– â– \^}'' -"^[^
^-â– :\." .;â– , â– CAREFULv/'":';-'"'f"
EMPLOYEE NAME
FiPE'.RE Z
7 26 8 72 381 .95!6H ".4;2 1 /<â– 1 1|5 7 , Ijg â– / V : '3:0
-EXPLANATION OF !
' DEDUCTIONS-
1 .'
V. i-:
-rj 1 ..
â– V 13
- -I-' y-- 'â– ':'â– :' -^-^z i'/'
- .;,; 'V: - ..:â– 'â–
-..-,.
â– uryiON .
: i.-': "S"'""-
•.,c,..-| :..v-.cr, |isn,c,..-; 1 ; ...
â– .â– ..'â– M,s.r..w,.s-':. â–
$-
â– 7 Sp 4
- NET PAY 1
VACATION CREDITS -
:---- , ."; â– >.
j.^-7<l!-„r r: , - }< ^^|;£ ^^jD Tftx STATEMENT - COPY C-For^ employee's records - ' 1969
INCOWff TAX INFORMATION
STAie OR MUNICIPAL INFORMATION
/Wpgrv' paid Subject to , 1 Other tompentoli
Sel-t* '%-»8 4^,0^
â– yWW.fhheld -'" '^
Ty(J«o' Pom EMPLOYEE 5
Is ': -A^^^r^^'l,^! 3 36-31 6 i' '-â– â–
â– >..-t
915
Preadawj 662 Belnwnt Avenue, Brooklyn, K'ow Ybric
FHA Caao Ko«t 373-l6lGW,-303
Mortgagor! Felix Pere«
SErXEHS» CERTIFICATICN
The undonslpied, being the Bellore of the pr€cdee8 nontloned In tho
above affidavit, tlii« date conveyed ty thsa to the purchasers oontlonod
in the above affidavit do horohy acknouledgo receipt of pejoasnt In ftiU
of the amount stated In tho contract for the purchase of said prandeea^
end that they do further cortljy that the purchasore of said property
are in no %ray indebted to thea, and to the best of their knoi/ledga en<J
belief, said purchesere do not have outstanding any unpaid obllgaticns
oontractad in cor«noctlcn vlth the purehaao or construction of sald/pro-
perty other than the insured Eorti?ap:e executad concurrently haro|iith»
916
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
FEDERAL HOUSING ADMINISTRATION
MORTGAGEES ASSURANCE OF COMPLETION
373«161844«30S
FELIX veaax
Propvrtj Location
862 Beloonc Avemis
Brtwtrlyw Wan» Tarfa
HOGAB FUSDXSC COKF.
97L Broadaay
lecft appropriate bor) \
]FHA COMMITMENTS Dated -»^ .6*^*70
]fHAFORM20S1 )
AniouDt of e»
ll,U-70
» >»COO,00
TO THE FEDERAL HOUSING ADMINISTRATION: In consideration of your issuing a Mortgage Insurance Certificate in the above-
numbered case, the undersigned will see that the incomplete construction, alterations and repairs as set forth in the FHA Compli-
ance Report ot FHA Commitment for Insurance identified above are completed on or before the specified completion date. The
undersigned further agrees that at the time of completion it vnill certify to its personal inspection and the satisfactory completion
of all items. '
THE ITEMS TO BE COMPLETED ARE:
rire retard boiler
Zoacall tmr cAbixwt elnk in 2ad floor tdcefaon
Scrap* ail looss aoA peclios palnC cm «alls osS e*llli%9
Sapatr iralU and cgJltBg ' fiat Uttxsias 2 cqs£s painc -
BspLae* dffiaased cellar sash
Bapalr aad ££xi£sb £loor*
Taxmlta CertlffteatA
Haattng Carftfirattoa
A. CASH ESCROW : To secure completion of these improvements cm or before the specified completion date, the undersigned
agrees to hold the sum. of S j. O OO- O Q hereinafter referred to as the "Fund," and not to expend or disburse said Fund un-
til a representative of the undersigned has made a personal inspection of the work and found that all items have been satisfactori-
ly completed and there is evidence satisfactory to the undersign^ that there are no liens or possibilities of liens in connection
with said improvements on the premises covered by the above.
The undersigned further agrees, if It is an institution which is required by FHA regulations to segtegatfe mortgage escrow funds,
that it will hold said sum in a special custodial bank account separate and apart from its general assets.
B. COMMERCIAL LETTER OF CREDIT : To secure completion of these improvements on or before the specified completion dat^
the undersigned has accepted from ^__ ,^, builder, an irrevocable letter of credit drawn upon
, a commercial bank, dated , in the amount of $ , which letter will
ake available to the^undersigned $_
for the completion of these improvements, and the undersigned agrees to not
release the right to draw upon said letter of credit, hereinafter referred to as the "Fund", until a representative of the undersigned
has made a personal inspection of the work and found that all items have been satisfactorily completed and there is evidence sat-
isfactory to the undersigned that there are no liens or possibilities of liens in connection with said improvements on the premi'ses
covered by the above. The undersigned further engages and confirms, if a letter of credit constitutes the "Fund," that the issuing
bank will honor said letter of credit or that the undersigned will, itself, honor said letter of credit.
The .indersigned agrees to notify the insuring office when final disbursement is made, and further agrees that, in the event of of-
ering the credit and security instruments to the above-numbered case for sale or transfer prior to such final disbursement or re-
ease of the letter of credit, it will notify the prospective purchaser thereof in full detail. It is understood that the FHA will not
elease the original mortgagee from its responsibility unless the transferee assumes the responsibilities of the transferor either by
•xecution of a new form, or by making a proper endorsement on the existing form to the effect that it accepts the new agreement and
issumes the responsibility of the transferor.
The undersigned further agrees that as further consideration for issuance of a Mortgage Insurance Certificate in this case, this in-
irument shall constitute a primary obligation of the undersigned to complete these improvements in a manner satisfactory to com-
,. tly with the requirements of the Compliance Inspection Report or FHA Commitment For Insurance identified above regardless of
•< he adequacy for such completion of the "Fund".
917
f ' ,- .,,/.■•. ■■OCCIIfATION '•• ■•f'^i.. ti PI'*'.. . • •
t', .. «ES1DE«»2 VkV .Trr'^"V «>'"> ■^- ?t 1' • . :-^ •• ■J
r- «?»*- .!;*■» f>*.i. »i . y A^ xv» ■'»-,'•*• . »tr*.*sT^.r»iJ*i If • *.->-.^«j* • - --. — . "-I
f* V ^V\'The iubtetl't crroil fe«c-d ir "he po/meil of I
â– DATE CLBaHFO MF..1:ER SEUrNG SINCE H'SH CcrOIT
f
r
. â– - â– - -J
■.■• i
?, â– - . f
t: ,; ' - â– r
A
i
fe-'^. r* Jeportmcn* iJce*. It or.y, cr.d the princiral rc.erat »fo.Ci cf r! c o-Dm/niry (or rh^e^-rh occymWat-rf nevMt .r-cordt o( sac^ .C.-rcrij In whtrrt V
f. . Ihe lubie?? rcrHei. with the (oHo-lrg cosu: i: ^
i
i-^' I
.,;â– ,'- F.H. A. FILE REPORT -' ' {
■CREDtT REPORTS CREDIT EURl^AU OF GF'FATEI? N£V\' YORK. INC. ExrcurivE offices 4,
,\ 524-7010 S30Vy'r:Sr'j4lo ST., h'EV/YCRl-', H. Y. 10001. E24-MC0 f
918
Tel. 443-5323-4 >^!SB&V P.B.A. APPRO^'ED
443-5372-3 Af * JMk LBNDINU INSTITI'TIOK
HOGAR FUNDING CORP.
MORTGAGE FINANCING
971 BROADWAY
Brooklyn, N. Y. 11221
Mv 28, 1970
Federal Housing Administration
175 Fulton Avenue
Hempstead, New York 11550
Gentlemen:
Re: FHA Case No. ; 373-l6iaU/2Q3
Mortgagors: Fallx Pvret
Premises: 862 BalBoot Avamo, Brookl,'^, K«v T»^
We have been advised that the work to be performed pursuant to
the conditional commitment in the above case has been completed.
It is hereby requested that an inspection be made as soon as possible
to determine if the work has been performed to your satisfaction.
To gain access to the premises, please contact Hogir Ftodlag Oorp*
Your prompt attention to this request will be appreciated.
Very truly yours,
HOGAR FUNDING CORP.
By: Joseph Col6n, President
JC/orh
919
^^^^
t'lHte*" bf*l(CiPt-Ci
"«*•
COMPLIANCE INSPECTION aEPOR .'
RTCACEE-S ttAMt AND ADDRESS
I b. Hijho
^ t^ /X4^ /Z/y^^ /A^< {^ (^'j^/°-
I -COMPLIANCE INSPECTION OF 0N-SITj^MPR0VEMENT3 REVEALS:
7. 12<Cor.«lif" e>»«n
a Cn„„<. 1,„.
i r; FH4 opp.ovej.
■.1,, a Ho"" i«i"j. □ '
rib.d bslou-
'.d by n Com
:.p.cl.l.
>lomcH below. Di> nol
8. a C-.c.i.n
o. r; Will f«.
b. G Oo not
9. [;, No ooncorr
;o. GA'co,.^!.
11. DE......1-
„. \2 Vo.irlM
b. □ U»o„.
12. LI t—i" ■"
Ulol O'. ouplclrod b<lo
cd enb^bits. .'5ce /I'teloK.J
.:t6n. ,'jte ;i' fcc/.JU'.J
:0ptalilv cemplclcd •ubi«ct to tfccij'
section tc- aals sgtisfvcter/ complr.
ll-FIELfc INSHEi.'; 1&>- 01- OFF-SITE IM.'^ljVEHnij
„loiii'od bclo..
E IM.'^ljVEHrijVi «■VIThLS: ... „*"'m°"' """ '" *'"""
7. Od-Si.c } 3'A'".ptablvo, - .Jb, c.
^ lmpc..c...-. JGf^"^''^^'''^-
^"p±;;:;r^i,.d._ ;'17 ... 1 . .„ . i ]__ <^<rcc^Afo __
yi--- /7 ^^/ ^/^<; 0^i^i^ i J ._ \
fC/^-^cf PL^^f^'-f _^€'i^^'f SAA^ ,1..., - .- . '• ^
^' ^ujC.^^L.r^S.'^r /f^"'' fS .J. : â– - .
I d^eic.
Chief Mt9."Cr-. d-t E:/.
â– |i| o':'5:}-'l"'-I:ti!:r;].j ^ '"_
i-:'-" .D,.,,__sVh^<?
CHiof Architvct , " 0«1
rt«r^^iR inr.rtCTioN
COo("LIANlF INSPFCIION ' cPOI.-
920
U.S. DEPARTUENT OF HQ95ffis' A Nb\>R BAN oi Sttei
FEDERAL HOUSIMG ADMINISTRATION
Font Afsrowd * .
373-i^mfe-aia
MORTGAGEE'S APPLICATION FOR MORTGAGOR APPROVAL
AND COMMITMENT FOR MORTGAGE INSURANCE UNDER
THE NATIONAL HOUSING ACT
SD SEC. 203(b) OSEC.
S- MORTGAGEE - ».».. Add™.. & zip Cod. (PUase TypcJ
r > . n
Segue rmUBt Ceryf*
971 Bwadwf _.,
BndUjB* BoK Xosk IXZZZ
L
_l^
iPltast loci. ..<<<'<
3. PROPERTY ADDRESS
tta admst AvacBM
4. MORTGAGORS:
la*
4J_
Broaltlyn» ^L
>M|QQn|2L
MORTGAGE
APPLIED FOR •
II5.&50.00
gjji
3tO t»II»>73
PURPOSE Of LOAN:
Mortgagor will b.:. . .
â–¡ ""Own Li
K Occuponl
GBPu'cho" □£...!.
nLondlord â–¡ Build.
CE.
EMPLOYMENT
cu[iollonX>fTlii TlirilHIW —
im. 8. oddn
MONTHLY INCOME
Tg MQ
PREVIOUS MONTHLY HOUSING EXPENSE
Morigoge poym.nt i
aouo
PREVIOUS MONTHLY FIXED CHARGES
F.d.rol, Slol. & Locol incom. lox.. S XsSIS.
1. lor { Lil. In
Soclol S.curit, & R.tlr.m.1,1 Poym.!
lnslollm.nl account poym.nt.
Oparoting Expen.os, oth.r R.ol E.I
Oth.r (..ploin)
jCOO
gg«<iP
TOTAL « I00.0O
12. ASSETS FOR CLqSING
Co.h account, fiCAJ^SIISBAJ^t-
KT^
OTHER ASSETS
Cosh d.posit on purchoai
Olh.r (..plo.ntJ
(A) TOTAL i J8Z»SS
2000»00
LIABILITIES Monlhl, fhyr. 'Unpd. Bo
Automobil. ...»•• S JbBM^ 1 JmUA
D.bU, oth.r R.ol Ejlot. . ....... ^____^
L.f. In.u.oncs Loon - . ' ' '- .:
Nof.s poyobl. •'■vV ^— ^— -.v*~.
Crod.tUnii
R.t.il occt
(B) TOTAL $ 3,307«a9
TOTAL t
FUTURE MONTHLY PAYMENTS
15.
SETTLEMENT REQUIREMENTS
s_2I5«53_
fe.23_
I0>00
i-3'M
(o) Principol & Intttrol
(b) FHA Mortgogc Inluronc. Pi.mluin ....
(c) Ground r.nl (LMI.hold only!
(d) TOTAL DEBT $ERVICE(o+bl-c) I2I«59
(.) Fir. In.uronc
(0 To..., .p.c.ol o».>..n.nt. .
(O) TOTAL MTG.PAYT.(d+.+ 0. s, .. .
(h) Moint.nonc. ~
(i) H.ot&utilili..
TOTAL HSb. EXPENSE (g + h+l) . â– .
(k) Oth.r r.curring chorg.s (.uploin)
TOTAL FIXED PAYT.d t k)
WU<!8B«5WJ«.
20.0 )
ki'OO
-ZSImSS-
g3?.»
(o) Existing d.bl (R.llnan
(b) Sol. pric. (Rpolty only
(c) R.poirs & Improvoment
(d) Closing Cost.
(.) TOTAL (0+ I.+ c+ d)
(0 Mortgog. ombunt
(g) Mortgagor's r.quir.d inv.sfm.nt(.— f)
(h) Pr.|5a,obl. ..p.ns.s
(n Non-r.olty &oth.r it.m. . .,.
(!) TOTAL REQUIREMEHTS(» + K+I) .
(k) Amt.pd. |X]coshQOth.r(.«plo,n)
(!) Amt.tob. p<L(aC]coshQ10tbBr (explain)
(in')Tot''eniis avo.labl.lor closm9(12(Al) ,
700*00
<â– nrfM
UTP
'.-ar-i
alh.r
â–¡ "" Kn.
^t^,,..CJr'^ [»No Sal
Orig.Mlg.Amt. )
which hod on FHA Of VA mortgog.' â–¡ Yes ffiNo. H "Y.!" glv.
Did buyer intend to occupy QY®' i*]No. Property
Orig.Mlg.Amt. $ Unpd. Bol. when
improvement toon which resulted in lorec Insure, deed In lieu otloieclosure,
; Name & oddress ol Lender
trwl by the mortgage i s to he loi
17. MORTGAGOR'S CERTIFICATE - Hove yoi
FHA Cos. No , Buyer's Noi
old property within t
ludgment' [3 Y.s (^No. II '•yes"gii
r been obligated (
t: Property Addre
r group of rental propertit
II dwelling to be
ivolving .ight or more dv
ui.dund.iony title ol t
• is it a port of, odjQc.nt or cotttiguous to any pioiect subdi
iciol int.i.st ClYci ptJNo. II "Yes" give dehj.U. Do y.
(X]No. II ••Y..''jutU|;^"Jj^ttj^og^-^gaio«*»gJ|ijtoit|^
theNollonol Housing Act ondis true oiTJcompUleto thebcsV o! his knowledge ami beliol.VBifli motion maybe obtained Trom any souicS nom^ herein.
ol Housing Act' â–¡ Y.
IB. MORTGAGEE'S VCERTIFICATf -^k. tyflgogee <Srtllies that all inlom
16,
ITJJ?*
TO THE COMPTROtlER OF
THE STATE OF NEW YORK
PAYABLE THROUGH THE
STATE BANK OF ALBANY
Albany, N. Y
FILE NUMBER 30062291
TAX YEAR(S) 1969
PASIOBY
^0 IS ISSUED ON
921
No23461050
STATE OF NEW YORK
DEPARTMENT OF TAXATION AND FINANCfl. 12363 l6 J, ' 23'*6l050
INCOME TAX SPECIAL REFUND ACCOUNT
TO THE OBOEB Of
UAV
pereZ-felix
572-NEW 'JERSEY AvE
BROOKtYN NY
DOLLARS I CENTS
S51.08
KNOW fOUB ENOOBSEff
Ay-^r^^y<A '<â–
1 Of TAJIATION AND FINAHCe
II" 2 3l,E. 10 50&"" i:0 ? I3"<00 5 7i: ^ I'-O 3 Oii H»'
-703 O - 73 - 12 (Pt.2B)
922
Tel. 443-5?23-4 . F.H.A. APPROVED
443 5572-3 .i^^'^iw LEKDIWS INSTITDTIOIW
HOGAR FUNDING CORP.
MORTGAGE FINANCING
971 BROADWAY
Brooklyn, N. Y. 11221
Hfcy 15, 1970
QuiaqiMU* OrooBry Store
612 Etgukn ATBm»
Brooklyn, Vn York
Gentlemen:
R&:
572 Itaw Jersey AT«nie, Brooklyn, Bm Tezlai
We are processing an FHA mortgage application for the above person who is
employed by you.
The Federal Housing Administration requires that the employment be verified.
We are enclosing an original and two copies of request for verification of
employment, partially filled out on the basis of information supplied by your
employee.
Kindly complete the forms, sign original and one copy, and return same to us
in the self-addressed envelope enclosed herein for your convenience.
Your prompt reply and cooperation will be appreciated and will help to
expedite your employee's application
Very truly yours,
iOGAR FUNDING CC
MORTGAGE BANKERS
923
]\fr. Blum. I have no further questions.
Senator Hart. INfr. Chnmbris, do you have any questions ?
Mr. Chumbris. Yes. Thank you, ]\Ir. Chairman.
Mr Colon, first let me make a comment that you are pioneering in a
new project ; is that correct ?
Mr. Colon. Yes.
Senator Hart. Excuse me. We will recess for 5 minutes.
(A short recess was taken.)
Senator Hart. The committee will be in order. Mr. Chumbris, you
may continue.
Mr. Chumbris. Mr Colon, you had $118,000 in assets at the start of
your corporation ?
Mr CoLOx. Yes.
Mr. Chumbris. Is this still at the same figure, or are you increasing,
or what is the status at this time ?
Mr. Colon. About the same thing.
Mr. Chumbris. About the same ?
Mr. Colon. Yes.
Mr. Chumbris. Now, are you in a position to service as many houses
as real estate brokers may bring to your organization ?
Mr. Colon. If we — we're going to have a problem because, you
know, the biggest problem is to sell these loans.
Mr. Chumbris. To sell the loans ?
Mr. Colon. Yes.
Mr. Chumbris. Now, let's take it step by step. Let's assume that —
how many applicants would you get in the course of a day, or
about
Mr. Colon. About one, two.
Mr. Chumbris. Let's assume that for some reason, your name has
gained prestige in your community, or even outside, and you suddenly
were receiving five applications per day. Would you be able to negoti-
ate the sufficient loans, warehousing sufficiently, and being able to
service your community.
]Mr. Colon. Yes. Presently this is my — this is what I'm doing right
now at the present time. I'm trying to increase my warehousing line,
and I'm trying to put in an amount of money for working capital.
Mr. Chumbris. Now, for the clarification of the record, you may
know what warehousing means, and I may know w^hat warehousing
means, but let's explain it.
T\^iat would you do if you received five applications today ? "Wliat
steps would you take ?
Mr. Colon. In other Avords
Mr. Chumbris. AVho would you go to ?
Mr. Colon. In other words, let's sa}' once the loan is approved, and
the loan is closed, in other words, once our company closed the loan, in
other words, we have to — we put that loan in warehouse.
Warehouse means until I get the final insurance of that loan from
the FHA or from the VA, and normally that takes about 3>d. 35, 40
days sometimes, so that loan has got to I'emain in warehouse until I get
that insurance certificate, until I get my title policy, my papers recall-
ing the package, the loan, and be able to deliver the loan to final take-
out, which is the investor who buys the loan and reimburses us for the
money.
924
j\Ir. Chumbris. Now, you say it takes about 85 days ?
Mr. Colon. About 40 days. '
Mr, Chu.»ibris. About 40 days. Does that mean your company takes
40 days?
]Mr. Colon. No, no, no. In other words, once the loan is processed and
approyed, we don't need the money until — the loan is closed by our
company. Once the loan is closed by our company, then we haye to go
ahead and warehouse the loan until Ave get the balance of the docu-
mentation of the mortgage, record the mortgage, the assignment of
the title policy, and the certificate of insurance.
Those are tlie regular documentation that goes to the package to the
final takeout, which is the loan — the company that buys the loan.
]\Ir. CiiirMBRis. The reason why I'm asking you about the number of
days is because Ave'ye had Avitnesses testify at these hearings that one
of the reasons that a prospective buyer or a particular broker Avill not
go through one source of funds, and go to the other, say like Eastern,
is because Eastern has the reputation of closing the deal faster.
Mr. CoLOx. Oh, yes.
Mr. CiiiTMBRTS. Do you run into that problem also ?
Mr. CoLox. Oh, yes, it takes a little — Ave haA^e one — our cases liaA'e
taken longer than normal.
Mr. Chumbris. Longer?
INIr. CoLOx. In other Avords, to get the final appro A'al.
Mr. Chumbris. It takes longer than normal — one of the problems
you haye ?
:Mr. CoLOx. Yes.
Mr. Chumbris. And the other problem you have is getting sufficient
sources of funds to be able to negotiate your applications that are
made in your office ?
INIr. CoLox. Yes. You see. the loss is that AA'hen aa'c close a loan and
disburse moneys, Ave have to have the money in our bank account be-
fore Ave could disburse it.
So, that means tliat right noAV, Avith the present capitalization that
AA'e haye, Ave could only close maybe four loans at a time. In other
AA'ords, Ave haye to continue running around and close one loan, bring
it to the bank for approval, the bank Avill appro A^e — pay back, and in
other Avords, AA-e're looking A^ery, very tight right noAv.
Mr. Chumbris. And you have just anticipated a question I Avas going
to ask you. And that was, hoAv much money do you haye in your pool,
let's say, for negotiating the procedures that you just enumerated?
HoAv much money Avould you haA^e to be able to accommodate the appli-
cations — for example, and I want to use it as an example — we had be-
fore us Mr. Franklin Thomas, Avho is president of the Bedford-Stuy-
yesant Corp.. and he pointed out that he had a pool of $65 million
to loan to people in the Bedford-Stuyvesant area.
But his problem was that the brokers Avere not bringing the business
to him, but Avere taking the business to Eastern or United, and the
other companies that haye been mentioned during the course of these
hearings.
Do you have problems Avith the brokers bringing the business to you
or the brokers taking the business elseAvhere?
Mr. Colon. Well, practically, T Avould say that our present A'olinne
of business Avith brokers noAv, I don't think is more than 5, 0, 8 percent,
925
and I would say that 90 percent of our business now comes directly
from people — individuals.
Mr. Chumbris. Came directly from the people. You're not concerned
about the brokers ?
Mr. Colon. Well, not — as far as I'm concerned, my philosophy is
the company was formed to help the Puerto Ricans and to help the
people that want mortfrafres, especially refinancing.
I think refinancing is one of our biggest problems today in those
areas.
Mr. Chumbris. So, in your operation, actually, you bypass the broker
altogether because the buyer of the house comes straight to you rather
than go through the broker ?
Mr. Colon. Yes.
Mr. Chumbris. Mr. Thomas testified that their problem was such
that they were even considering establishing a system of real estate
brokers that would be within the line of operation with his corporation.
Then I asked him if he had anv problems with State law, and he felt
that there was nothing in the State law that would prohibit his cor-
poration to have either their own real estate brokers or a working
agreement, whichever the case may be.
But you have to worry about a tie-in arrangement in situations like
this. â– â– â–
Mr. Colon. I think he's got a good idea. As a matter of fact, I'd like
to elaborate on that. I'd like to go further on that.
As a matter of fact, I think a pool of money should be created.
Mr. Chumbris. We want you to elaborate as much as you can be-
cause you have a unique program and we want to hear anything that
3^ou have to tell us.
]\Ir. Colon. In other words, they should create a pool of moneys in
these areas.
Let's say I'm an oldtimer and I've lived in that area for 10, 15, 20
years, and I have my house already paid for.
If I'm a Puerto Rican — or I don't care what I am — black or some-
thing else — I live in that area, and I approach owner in my block that
that house is for sale, the guy will not sell it to me because I don't
have the cash to buy it to pay him for it.
So, this is why a lot of these people, they'd rather go through brokers,
because the brokers have been able to negotiate the transaction and get
him cash.
So, if a pool of money was established where these people could go
in and draw from that pool, and say, "I'm going to buy that house. I
can pay you all cash."
That means they could save probably between 3 to 4 or 5 thousand
dollars, because they don't have to use the middle man. This is what
I'm saying in my statement, to eliminate the middle man.
So, in other words, the people could go into that pool knowing that
they're going to have cash to purchase that house until their final
mortgage is processed.
IVIr. Chumbris. Thank you very much for being here today.
Senator Hart. Mr. O'Leary ?
Mr. O'Leary. I have no questions.
Senator Hart. Mr. Blum ?
Mr. Blum. Mr. Colon, can you tell us why Mr. O'Brien left your
employ ?
926
Mr. CoLox. Well, one of the reasons that I — Jack left our employ,
he was getting $15,000 a year. In other words his responsibility was
to go out and bring business and supervise the sales at the office.
And at times, he used to go aAvay a month on vacation, and became
a point that the company either had to close the doors — we could not
afford to pay him the salary.
Mr. Blum. Did you ever have conversation with him about the qual-
ity of business he was bringing in ?
Mr. CoLox. Oh, a number of times I used to — in other words, that
we wanted to make sure that each piece of business that was brought
into our office met the standards of the FHA and the ability of the
people to pay.
Mr. Blum. Did he ever call you "stupid" for not being willing to
take some of that business ?
Mr. Colox. a lot of times we had arguments.
Mr. Blum. And he was unhappy with you because you weren't will-
ing to take some of the business that he brought in ; is that correct ?
Mr. CoLox. There were arguments, a lot of arguments we had.
Mr. Blum. Had you heard, by reputation, of difficulties with any
of those brokers that he had dealings with, either Kapraki or Carrero ?
Mr. Colox. Well, one of our policies that we are trying to establish,
and we are going to be establishing very soon is that whenever we take
an application, and before the application be processed, in other words,
I just hired another person in the office that is going to go out and look
at the house, inspect the house first before we submit it for a condi-
tional commitment to the FHA or to the VA, and then, not only that,
we are going to insist that the person that is purchasing that house
come into contact with our office for a credit taking.
In other words, we're going to interview that person. And if we feel
that by interviewing that person, that they would not — that it's not
the type of house they would want, we would not make the loan.
I don't care whether the broker gets mad or not.
Mr. Blum. Now, in some of the documents you submitted to the sub-
committee, there is a sheet from a real estate broker. I believe I showed
you that sheet this morning. It gave a kind of credit rundown on the
individual.
Was that information from the 2900 form ?
Mr. CoLOx. I think that was information that was given to us, yes.
Yes, it had to be. In other words, we had to take the information so
that we could single out
Mr. Blum. That information was furnished by the broker to you,
rather than by the aj^plicant to you ; is that correct ?
Mr. CoLox. Yes, I think so. You see, a lot of the times when they go
into a contract, in other words, the r^iortgage company has the mort-
gage solicitor there the day of the contract.
And that information is taken on the contract most of tlie time.
Mr. Blum. Why was this on the letterhead of the real estate broker?
Do you think it Mas just a convenient piece of paper ?
Mr. CoLox. To tell you the truth, I think it was. In other words, we
must have asked for additional information, and probably this is what
they send it in.
Mr. Blum. Mr. Colon, do you feel that because you were new to the
business and a member of a minority group, you had a particularly
difficult time in gettin<2: started ?
927
Do you think it would have been any easier if you were not a mem-
ber of a minority group ?
Ml-. Colon. Well, the proof is there. I went to every bank, and I'm
still ijoiujir. You see the numbers of letters I send out trying to get
warehousing and takeout commitments, and the same story was such —
that money was tight.
And I still get— when I call institutions, I keep getting the same
story.
Mr. Blum. You said that one of the institutions that helped you out
was Equitable, and they did it under their $2 billion program for the
cities-
Can you tell us how many points Equitable asks for the loan ?
Mr. Colon. There is — the loan — a four-point discount that we
charged. The four-point is 1 percent that the company takes. It's
allowed to make a 3-percent discount — goes through
Mr. Blum. And that is better than the going market rate, isn't it ?
Mr. Colon. I think this is a competitive rate right now, yes. It's
more than competitive right now.
Mr. Blum. It's better than the going market rate ?
Mr. Colon. Yes.
Mr. Blum. But isn't the prime beneficiary of that a real estate
speculator ?
Mr. Colon. If the deal comes through-, and the deal comes from a
speculator, the speculator gets the benefit, naturally.
Mr. Blum. He gets the benefit, and not the home buyer because it's
the speculator who has to pay the ^^oints, is that correct ?
Mr. Colon. Right, yes.
Mr. Blum. So, the favor that Equitable is doing in providing low-
point money is going to help the real estate speculator and not going
to help the homeowners, is that correct ?
Mr. Colon. Yes.
Mr. Blum. I have no further questions.
Senator Hart. Mr. Chumbris ?
Mr. Chumbris. One further question on the line of questioning that
we had earlier, and the point that you have raised about the pool of
money that you may have available.
How much money would you say you'd have available immediately
for loans, or to buy a house directly ?
Mr. Colon. No, no, no. In other words, what I'm suggesting to this
committee is that they should try and make recommendations that a
pool of money should be created.
Mr. Chumbris. That's what I want to get to.
Now, that's what Franklin Thomas has. In other words, they've
created a nonprofit corporation in the State of New York, covering the
Bedford-Stuyvesant area. And they have a pool of money of $65 mil-
lion that w^as created by loans from — by the cooperation of 80 or 90
banks, and about nine insurance companies.
Now, I was wondering if your thought would be that you might go
in that same direction ?
Mr. Colon. I'm going further than him. I say that that pool, that
pool of money that he's got is only what is called for.
In other words, the loan has got to be ready to process and approve.
In other words, what I'm saying is that pool of money should be avail-
able to those people so when the guy is going to sell a house and he
928
says to the prospective purchaser — and the prospective purchaser has
got $2,000, and they want $17,000 or $19,000 for their house, tliat the
prospective purchaser should be able to say "I'm in a position to buy
the house, cash, from you."
For that, by buying it cash, by putting the 10 percent down, that
person could be able to go out and borrow the additional money — it
could be from a commercial bank — until the final loan is processed for
that person.
And then, when the loan is closed, the loan is payed back to that
pool. So, in other words, it would be like a revolving fund.
Mr. Chumbris. Do you think that should be done by the Federal
Government or by the State of New York, or you don't care which ?
Mr. Colon. I think — I don't care which. I think it's the responsibil-
ity of the State of New York — or whether it's Federal Government, I
think they're going to be able to help these people.
Mr. Chumbris. I suggest that you talk to Mr. Blum after the
hearing is over, and have him incorporate it in some kind of lan-
guage, and we'll shift it over to the Senate Banking Committee be-
cause they have jurisdiction over legislation effecting matters that
we've been discussing here today.
Thank you, very much.
Senator Hart. Mr. Kern ?
Mr. Kern. Mr. Colon, you suggested in your testimony that all the
mortgage companies were promising to get loans through the FHA
quicker than their competitors, and that this was the chief selling
point ?
Mr. Colon. Oh, yes.
Mr. Kern. Do you have any personal knowledge of why or how
some companies get expedited FHA service?
Mr. Colon. Gee, I don't know.
I guess probably they have been in business so much longer than we
wer; , maybe eventually they knew more people than we thought we
knew down there in FHA.
Mr. Kern. It's just a matter of knowing people and having a larger
volume ?
Mr. Colon. It's a matter of knowing people. I think it was the
reason. In other words, you get more service, I imagine.
Mr. Kern. Do you have any knowledge of any gratuities that might
be paid to expedite processing ?
Mr. Colon. I don't know, because we never attempt to do anything.
In other words, when we process a loan, we send it down in a way that
that loan met every standard.
As a matter of fact, I'd like to suggest that all of these mortgage
companies — legislation should be passed that they should be regulated ;
in other words, wliich will be regulated by — like the Banking De-
partment does.
In other words, we have to go away — they have got more money
than we do. We'd be able to compete in a fair way because they have
more money.
Mr. Kern. I think that's been suggested before. No further ques-
tions.
Senator Hart. Thank you very mucli. That's all.
(Exhibits follow. Testimony resumes at p. 944.)
929
Material Relating to the Testimony of
Joseph Colon
EXHIBIT 2
Documents Submitted With the Testimony of Joseph Colon
HoGAR Funding Corp.,
BrooJclyn, N.Y., Nov€mJ)er 7, 1969.
Mr. Raymond H. Lapin,
President, Federal Natiorml Mortgage Association,
Washington, D.C.
Dear Mr. Lapin : Our company was recently organized by a group of Puerto
Rican investors here in New York City and approved to do business by the
Federal Housing Administration on June 2.">, 1969.
We submitted an application to your Regional Office in Philadelphia a couple
of months ago for approval to sell and service mortgages to your Association and
after a visit to our office by Mr. Conway, the Field Officer, they turned us down
as a servicer because we did not have enough equipment for the service.
It is our belief that a small company like ours has to start not spending money,
and hiring personnel as the needs arises. At the beginning we could service loans
annually. Equitable Life has given us the opportunity to service for them and
we hope that your office will do the same.
At this point we are processing and ready to sell $300,000 ghetto loans for
low income families and we like to sell them to .your association. We need an
answer within 48 hours from your Office whether they will accept our bid and
let us service ; if not, our Company is not going to be able to accept applications
and in turn let them go to the other companies doing business in our areas, such
as United and Eastern.
We are willing to service these loans that we are planning to sell on a trial
basis and if for a period of time your association is not satisfied with our way of
servicing then you could assign them to any other company for service acceptable
to .vou.
Hoping that you will give us a fast answer and give us the opportunity to be
able to service and in turn I am sure that our compan.v will not let you down
for the trust that you will be placing on us. Again I have to emphasize to you
that we have loans to sell you and ready for delivery in 5 days and we are wait-
ing for a favorable answer to our request.
Thank you for your kind cooperation in this matter.
Sincerely yours,
Joseph Colon,
President.
State of New York,
Executive Chamber,
Albany, N.Y., Novem'ber 24, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : Governor Rockefeller has asked me to reply to your letter
of November seventh concerning your difficulty in obtaining commitments from
lenders to purchase mortgage loans made by your company.
At the Governor's request, inquiry was made. The Banking Department points
out that current pressures in the money markets are severe and that your in-
ability to obtain mortgage money is shared by many in the housing industry and
many home owners throughout the country. The Department advises that more
and more financial institutions in the State are feeling the effects of tight money,
with limited funds to lend in the fact of undiminished demand. ^Mutual savings
banks located in New York State, for example, are experiencing record with-
drawals by depositors who seek to invest their funds in securities offering yields
higher than those permitted by applicable interest rate ceilings set by Federal
agencies. The Department notes that similarly, to protect themselves if these
930
Federal rate ceilings on deposits are raised, many financial institutions have
felt obliged to maximize the return on their investments and to make loans only
at the highest possible return, frequently in excess of the State's usury ceiling
of Ty2 percent to individuals.
While the Governor is extremely interested in insuring a flow of funds into
the urban areas of the State, there is no public agency which is authorized to
grant credit to mortgage companies for the purpose of making mortgage loans.
The only immediate solution to the tight money problems which you face appears
to be the control of inflation on a national scale. The Banking Department sug-
gests that you may, however, wish to bring your problem to the attention of the
Savings Banks Association of New York State, 200 Park Avenue, New York
City, which has established a procedure for placing individual home owners
unable to obtain a mortgage in touch with a savings bank willing to make a
limited number of IMi percent mortgage loans.
Your thought in writing is appreciated and it is hoped that the situation soon
will be satisfactorily resolved.
Sincerely,
Alton G. Marshall.
John Hancock, Mutual Life Insurance Co.,
Boston, Mass., September 22, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : The John Hancock has oversubscribed the first life insurance
pledge and is now involved in the .second billion dollar pledge. However, we feel
that we have a civic responsibility here in Boston and are reserving what funds
are available under the program for our own community. We must therefore
decline your offer to assist us.
Should our situation change, we are represented throughout the country by
a group of correspondents who would be capable of generating and servicing our
investments.
Your truly,
James E. McGuire,
Assistant Treasurer.
Phoenix Mutual Life Insurance Co.,
Hartford, Conn., September 22, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, Tsl.Y.
Dear Mr. Colon : In reply to your letter of September 17 I am sorry to say
that it is doubtful we will be able to be of service to you in connection with your
attempt to locate mortgage funds. At the moment we are out of business because
of heavy forward commitments and the decrease in cash flow affecting the volume
of money that we have for investment.
Although this is what we hope a fairly temporary situation Phoenix is not in
the market for FHA-VA loans. As contrasted to the Equitable Life Assurance
Society we are not in the home mortgage market. We have restricted our
activities to larger income-producing projects. This includes our participation in
the urban problems program undertaken by the life insurance industry. By far
the larger part of our quota for the program has been filled wlith conventional
loans.
We are represented in the New York metropolitan area by the Urban Servicing
Company, 60 East 42nd Street, New York. All our loans in the area are negoti-
ated and recommended by them. Should you have occasion on any larger project
to think that we could be of service I would suggest that you contact Mr. John
Longua of that organization as he is entirely familiar witli our lending policies.
He would be in a position to advise you as to our interest.
Wishing you every success in your program, I am
Sincerely yours,
H. Archer Clark. Jr.
Vice President, Real Estate Investment.
931
The Prudential Insurance Company of America,
Vice President, Real Estate Investment.
Re Life insurance urban investment program.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, 'N.Y.
Dear Mr. Colon : During the past two years Prudential has made a consider-
able investment in the purchase of FHA loans on property situated in the Core
Areas of New York City. The Majority of the.se loans are concentrated in the
Bedford-Stuyvesant and East New York sections of Brooklyn.
We have been solicited by a number of companies to originate and service this
type of business. As a matter of policy it was decided to place these funds through
a single source, namely. Eastern Serviee Corporation. At the moment our allo-
cation has been exhausted, but if this oflSce is granted additional funds, place-
ment will be made through Eastern.
We appreciate your interest in writing us.
Very truly yours,
Edward G. Haldeman,
Investment Manager
New England Mutual Life Insurance Co.,
Boston, Mass., September 25, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : This will acknowledge your letter of September 17 to Mr.
Hamilton Coolidge concerning possible financing of loans under the urban affairs
program of the Life Insurance Association of America. We have read your gen-
eral information statement with much interest and appreciate the job you are
trying to accomplish.
As you know we are actively participating in this program along with many
other insurance companies and are continuously looking for good situations that
would qualify under the program. I would ask you to refer any type of financing
package to our correspondent in New York City which is the Manufacturers
Hanover Trust Co., 350 Park Avenue, Mr. Arthur C. Langsdorf, vice president
who is completely familiar with our financing arrangements and who would be
of help to you in these matters. Our philosophy under the program has been to
stress job creating faciliti*'S and business activity among the minority groups,
and though we have done some housing under the program we prefer the other
type of investment.
I should point out, however, that due to the market conditions, our policy loan
situation and our market cash flow at the present time we are unable to encour-
age any strong support for any type of loan at present. We can only look at one
individual case at a time on a mortgage basis and are not looking to participate
in the owner.ship of companies in general.
Thank you for your interest and should you have any questions please don't
hesitate to write.
Respectfully,
John F. Sweeney, Jr.,
Investment Analyst.
October 14, 1969.
Mr. Austin S. Murphy,
President, East River Savings Bank,
New York, N.Y.
Dear Mr. Murphy : Hogar Funding Corp., is a mortgage originating company
recently formed by a group of Puerto Rican Businessmen from the City of New
York. The company has been approved by the Federal Housing Administration
and the Federal National Mortgage Association.
We have warehousing facilities through Banco Popular of Puerto Rico for
$1,500,000 and are equipped to iirovide servicing where required.
The Equitable Life Assurance Society of the United States has been the first
company to contract for the purchase of our loans and their first commitment is
932
for the amount of $500,000. All of our loans are on one to four-family homes,
FHA or VA insured at 714% interest per annum.
The success of our company will depend upon our ability to obtain additional
take-out commitments.
We feel that our company is unique in the sense that although it is privately
owned, it represents one of the first major efforts of the Puerto Rican Com-
munity to participate in a large financial enterprise.
We feel that your institution is interested in helping to develop a minority
owned and operated business such as ours. The future of our City is largely in
the hands of forward-looking businessmen who do not close their eyes to reality.
Our company is concerned with helping enterprising Puerto Ricans and other
minority borrowers to obtain their own homes.
Home ownership, we feel, will result in improved neighborhoods, better citizens
and greater productivity and business activity.
If you are interested in investing in the type of loans that we offer, and in
helping in the development of this minority owned and operated business, please
communicate with the undersigned, so that a personal meeting can be arranged,
at which time we will be in a position to give you whatever additional informa-
tion you may require.
Very truly yours,
HoGAR Funding Corp.,
By Joseph Colon, President.
The Chase Manhattan Bank,
New York, N.Y., October 17, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : As the ofiicer in charge of home mortgages I have been asked
to reply to your letter of October 7th, addressed to Mr. Rockefeller.
Several years ago we discontinued purchases of mortgages in the secondary
market and have only been making home loans on a direct application basis.
Should the situation change please be assured that we will give consideration to
your organization.
I wish you success in your new enterprise.
Very truly yours,
Lester L. Nielsen,
Second Vice President.
Savings Banks Association of New York State,
New York, N.Y., December 8, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : Your letter addressed to me at the East River Savings Bank
was delayed reaching me since I am not yet at the East River and since I have
been travelling through much of the past month. Y'our letter asks whether our
bank would be interested in investing in 7i/^% FHA mortgages on one to four-
family homes to be offered to us in blocks on which you seek a commitment. At
pi-esent, the banking institutions are under going the serious pressures of a pro-
tracted monetary squeeze and I regret tha^ we cannot make commitments to the
extent that we would like to for the various mortgage originators who have
solicited this business.
To the extent that the mortgage loans are to be made in depressed areas to
promote home ownership for low-income families it may be that a suitable com-
mitment can be obtained from the state-wide urban nffairs program of the savings
banks. The matter is under study with the hope that a suitnble vehicle can be
established to purchase such mortgages centrally on behalf of the various par-
ticipating savings banks. I have referred your inquiry to the Savings Banks
933
Association of New York State with a request that they get in touch with yoii if
they are able to establish a suitable mortgage program of this type.
While we are interested in promoting a sound and viable mortgage origination
we must necessarily await a substantial change in money market conditions, and
I hope that this change will come before long. In the meantime, let me wish you
and yours the best for the holiday season for the coming new year.
Cordial regards.
Austin S. Murphy,
Executive Viee President.
Savings Banks Association of New York State,
New York, N.Y., December 10, 1969.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : Your letter and attached presentation offer an Interesting
program for financing home ownership under the FHA one to four family mort-
gage insurance program. While these are difficult times in the mortgage money
market because of the shortage of available funds and the fact that mortgage
rates are not competitive with money market rates generally, nevertheless, it may
be possible for us to work with your organization, along with other mortgage
originators, if we are able to establish a special mortgage funding operation for
New York City.
We are now exploring the possibility of such an operation in the hope that we
shall be able to buy sizable blocks of FHA insured home mortgages from origina-
tors and thereby provide a take-out to facilitate the financing of home ownership.
Our present plan is to offer such a service through an organization backed by
savings banks and aimed at providing mortgage money for home ownership in
depressed areas in New York State.
If we can work out the necessary details for such a program we will certainly
make it known through real estate and banking circles. Let me wish you good
luck in your undertaking.
Sincerely,
Lawrence U. Costiglio,
Vice President.
Federal National Mortgage Association,
Washington, B.C., January H, 1970.
Hon. Jacob K. Javits,
U.S. Senate,
Washington, B.C.
Dear Senator Javits : This is in reference to your January 7 inquiry and at-
tachments concerning Mr. Joseph Colon, Hogar Funding Corporation, Brooklyn,
New York.
Our records show that Mr. Colon's November 7 letter to Mr. Lapin, requesting
reconsideration of our Philadelphia Office's declination of Hogar's application to
become a FNMA Servicer, was answered on November 20. At that time, Mr.
Lapin advised Mr. Colon that he should resubmit the company's application with
additional supporting data to our Regional Office.
I am pleased to advise that Hogar Funding Corporation has since been ap-
proved as a full-fledged FNMA Servicer. As of this time, the company has not yet
sold its first loan to FNMA ; however, we expect they will do so in the very near
future.
I trust that this will satisfactorily resolve the matter. Y'our attachments are
returned as requested.
Sincerely,
William B. Ross,
Chairman of the Board of Directors.
934
Life Insitbance Association of America,
New York, N.Y., July 15, 1970.
Mr. Joseph Colon,
President and Chairman of the Board,
Hogan Funding Corp., Brooklyn, N.Y.
Dear Mr. Colon : Thank you for your letter of July 13. It was good to hear
from you again.
I understand the difficulty of selling FHA and VA loans in New York. I am
enclosing a more recent list of those life insurance companies which have ex-
pressed an interest in considering New York investments. Some of the life
insurance companies are interested only in new or rehabilitated housing and
are unwilling to finance existing housing under the Urban Investment Program.
Several mortgage brokers have considered the possibility of issuing mortgage-
backed securities guaranteed by GNMA. FHA and VA loans which qualify under
the Urban Investment Program could serve as a pool for such securities, and
then the purchase of these securities would qualify under the standards of the
Urban Investment Program. One company has made a commitment to purchase
securities backed by FHA mortgages on new construction under Section 235.
Naturally, however, it is difficult to sell such securities to those companies
which prefer the higher returns of direct mortgage lending.
Sincerely,
Ebio Stevenson,
Director of Urban Affairs.
The Manhattan Life Insurance Co.,
New York, N.Y., July 28, 1970.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : Thank you for your letter dated July 15th concerning the
possibility of our considering FHA and VA loans on one to four family homes
located in New Y^ork State.
Because of our large inventory of commitments still in warehousing banks
as well as an unusually high demand for policy loans, we have withdrawn from
the FHA and VA mortgage market and do not anticipate that we will reenter
this mortgage market in the foreseeable future. In addition, we liave not had
a very favorable experience with many of the two and three family residential
properties purchased under the FHA insurance program both as it relates to
the borrowers and the foreclosure procedure and requirements of the FHA.
Until we can resolve many problems which we have incurred with respect to
FHA foreclosures our Board does not feel that we should continue to participate
in future FHA programs.
We appreciate your writing to us and will keep you in mind if our policy
should change sometime in the future.
Very truly yours,
Frank J. Finan,
Senior Vice President, Investments.
Federal National Mortgage Association,
Office of the President,
Washington, B.C., February 16, 1972.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Ridgeicood, N.Y.
Dear Mr. Colon : We are in receipt of your letter of January 31, 1972, in which
you are requesting the opportunity to service a portion of Federal National Mort-
gage Association's multifamily mortgages placed with Servicers in our experi-
mental program.
As you probably know, FNMA does encourage and supix)rt economic expan-
sion of minority enterprises in the mortgage community. However, considering
the limited nature of the test program and our desire to experiment with com-
panies within each regional office city and also with companies having the facil-
935
ities and the expertise in servicing large projects, it would not be feasible at this
time to add other Servicers to the program.
After gathering sufficient information and evaluating the results, we will be
happy to discuss with you our considerations for future servicing. I hope you
can appreciate our position in this area.
Sincerely yours,
Oakley Hunter.
Department of Housing and Urban Development,
Federal Housing Administration,
Washington, D.O., January 18, 1971.
Mr. Joseph Colon,
President, Hogar Funding Corp.,
Brooklyn, N.Y.
Dear Mr. Colon : Secretary Romney has asked me to reply to your letter of
December 28, 1970, concerning your plans to establish a real estate trust for the
purpose of providing interim financing needed to bring about housing rehabilita-
tion.
We are pleased to know of your efforts, as this Department shares your con-
cern over the need to expand efforts in the area of housing rehabilitation. As you
may know, this Department is making a concerted effort to greatly expand the
volume of rehabilitation of lower income housing. A little over a year ago. Proj-
ect Reliab was launched for the purpose of generating a capacity for large scale
housing rehabilitation in fifteen cities, A goal of approximately 2,500 units per
city was set for fifteen cities. New York City is one of the cities selected for in-
clusion under this program. We hope to be able to expand Project Rehab to in-
clude more cities in the near future.
The efforts of those such as yourself wuU be helpful to this Department in its
goal of increasing the availability of rehabilitated housing for lower income fam-
ilies. We wish you well in your efforts.
Sincerely yours,
M. Carter McFarland,
Assistant Commissioner for Rehabilitation.
The Secretary of Housing and Urban Development,
Washington, D.G., March 2, 1971.
Mr. Nick Ortiz,
Deputy Assistant Administrator for Minority Enterprise, U.S. Government Small
Business Administration, Washington, D.G.
Dear Mr. Ortiz : I am replying to your letter of February 18, 1971, written on
behalf of Mr. Joseph Colon, President, Puerto Rican Home Owners Associa-
tion, Inc.
The Housing and Urban Development Act of 1968 contains a provisions author-
izing counseling for lower-income mortgagors whose mortgages are insured under
Section 235. However, Congress has not yet apupropriated any funds for such
counseling activities. In some communities volunteer organizations have agreed
to provide counseling in order that families might obtain mortgage insurance
under Section 237. A program of counseling for low- and moderate-income fami-
lies receiving assistance under the National Housing Act, has been authorized
by Section 903(a) (1) (iii) of the Housing and Urban Devlopment Act of 1970.
However, this program is not yet operational.
Mr. Colon has also received, this information.
Sincerely,
George Romney.
Department of Housing and Urban Development,
New York, N.Y., March 9, 1971.
Mr. Joseph Colon,
President, Puerto Rican Home Owners Association, Inc.,
Brooklyn, N.Y.
Dear Mr. Colon : As promised you in my letter dated February 26, 1971, our
staff reviewed your counseling proposal designed to be of assistance to low and
moderate income families in New York State to determine whether HUD funds
might be available to finance it.
936
While vour proposal contains many intersting and benficial features outright
grants of HUD funds cannot, under existing regulations, be used to finance the
overall operations of an organization established to provide counseling services,
no matter how beneficial they may be. ^ â– a^^AUr.r.ir
As set forth in our Low-Rent Housing Homeownership Programs Handbook,
a copy of which is herewith annexed, HUD's ability to render assistance to orga-
nizations providing counseling services is limited to funding through annual
contributions contracts to finance specific contracts between a particular local
housing authoritv and a contractor providing counseling services to tenants.
The fact that the counseling service is nonprofit in nature does not alter this
conclusion. . , ._ ., .„^ .^^
I regret that our Department is unable to provide you with the specific type
of funding which your organization is seeking.
Very truly yours, „ .^ „
S. William Green,
Regicmal Administrator.
Department of Housing and Urban Development,
Office of Housing Management,
Washington, D.C., March 15, 1971.
Mr. Joseph Colon,
President, Puerto Rican Home Owners Association, Inc.
Brooklyn, N.Y.
Dear Mr. Colon : This is to acknowledge receipt of the proposal of your or-
ganization to become an authorized counseling agency under the Section 237
Credit Assistance and Counseling Program. We shall communicate with you fur-
ther upon preliminary review and recommendation of this submission by the De-
partment of Housing and Urban Development Hempstead Insuring Office.
Sincerely,
Clifton P. Lander, Jr.,
Director, Counseling and Tenant Assistance Staff.
Department of Housing and Urban Development,
New York, N.Y., July 14, 1971.
Mr. Joseph Colon,
President, Puerto Rican Home Oicners Association, Inc.,
Brooklyn, N.Y.
Dear Mr. Colon : Thank you for your letter dated June 28, 1971, in which
you informed me that you learned that $3,000,000 will be appropriated for coun-
seling services similar to those to be provided by the Puerto Rican Home Owners
Association, Inc.
Section 237 of the National Housing Act authorizes budget, debt manage-
ment, and related counseling services to mortgagors whose mortgages are in-
sured under that section as the Secretary may determine to be necessary. The
law also authorizes counseling to other eligible families who lack sufficient funds
to supply a down payment to help them save the amount necessary. Counsel-
ing may also be provided to families who are eligible for assistance payments
under Section 235, and to families living in public housing units.
Up to the present time, however, no appropriations have been made for this
program. The House Committee on Appropriations has just included $3,000,000
in a bill to provide such counseling services on an experimental basis for eligible
low income families.
While I am hopeful that this bill will shortly receive final Congressional ap-
proval, our Department must await such approval before any portion of this
sum of .$3,000,000 can be allocated to your organization. Once such final approval
is made, there still remains to be determined whether these funds will be
allocated exclusively by the Central Office or whether portions thereof will be
allocated by the Central Office to the various Regional Offices for subsequent
distribution.
In either instance we shall certainly give every consideration to a demonstra-
tion counseling project to be conducted by the Puerto Rican Home Owners Asso-
ciation, Inc.
Very truly yours,
S. William Green,
Regional Administrator.
937
Proposal for a Homeownership Counseling Program To Be Administered by
Puerto Rican Homeowners Association in the New York City Metro-
politan Area
i. background
Pureto Rican Homeowners Association (PHRA) was organized on June 1st,
1967, to provide a media for Puerto Rican liomeowners in the New York Citj' area
to exchange information on problems associated with homeownership and to en-
gage in collective action directed at such problems. At its monthly meetings,
presentations are made by experts on mortgage finance, insurance, real estate,
and home improvement practices. Some of the PRHA's publications and other
material presented to its members is attached to this proposal as Exhibit 1.
At present PRHA has no paid staff. Its activities have been carried out by
Joe Colon, President and principal founder, and by its other officers. Such rela-
tively informal activities have effectively met the needs of the middle income
families who in the past have been able to become homeowners. Recognizing
the need to create homeownership opportunities and sound housing for low and
moderate income families — as well as to provide services to those who become
homeowner.s — PRHA is extending the scope of its activities. On March 10. 1968,
PRHA initiated, along with the Saint Ambrose Catholic Church, a project to
develop 120 units of moderate income housing under Section 221d3. PRHA is sub-
mitting this contract to HUD to make evaluations and recommendations on
mortgage credit applications of families who would not otherwise meet FHA's
underwriting requirements ("special credit risk cases"). The purpose of this
proposal is to present PRHA's contemplated programs and funding requirements
for establishing a professional organization to support low and moderate home-
ownership programs.
II. contemplated PROGRAMS
Homeownership counseling programs must have a defined scope in order to
be effective. To attempt to serve all low and moderate income families in New
York City who might conceivably become homeowners in the future would in-
sure the failure of such programs. A vast budget would be required to prepare
substantial numbers of families who have never owned a home for the responsi-
bilities of homeownership. Not only must such families be familiarized with
technical matters, such as mortgage finance and insurance, but training also is
required to change basic social attitudes developed over years of residence as
tenants in phy.sically dilapidated private housing or socially ineffective public
housing.
A realistic contraint on homeownership opportunities will be the extremely
small (relative to homeownership aspirations) number of housing units which
can be developed through rehabilitation and new construction techniques, with
appropriate housing assistance subsidies for low and moderate income families,
or for that matter, any families. Even if all families in New York had an income
sufficient to meet the unsubsidized housing expense pattern associated with
homeownership, several decades would be required imder present housing pro-
duction rates to construct and rehabilitate a sufficient number of standard units
for New York City's present population.
To focus its programs upon families with an imminent home ownership oppor-
tunity, PRHA will work : 1 ) through non-profit housing development corpora-
tions engaged in redeveloping blighted areas and 2) through community groups,
real estate brokers, mortgage companies, insurance agencies, and attorneys in-
volved in individual homeownership transactions in transitional areas. PHRA
will also initiate demonstration programs to assist over-income public housing
tenants and a limited number of welfare families in becoming homeowners. While
the emphasis of its programs will be upon the homeownership-related needs of the
individual family. PRHA will also be prepared to provide limited technical
assistance to non-profit housing development corporations regarding creating con-
dominium and cooperative organizations and making appropriate financing
arrangements. Efforts further will be made to train its personnel to identify other
(non-homeownership related) problems of individual families and to refer the
family to the appropriate agency dealing with such problems (i.e., "A gatekeep-
ing function").
Aside from special programs dealing with public housing and welfare programs,
the aid of PRHA's homeownership development programs will be to establish
an initial contact with a family when it has signed a contract to purchase a
home. The credit underwriting characteristics of the home purchase will be re-
83-703 O — 73— pt. 2b 13
938
viewed to determine if the purchaser should be processed under PRHA's special
program or through normal mortgage processing channels. The terms of purchase
will be check3d for unconscionable provisions and conditions. Where neces.sary,
purchasers will be referred to community legal service groups or private attor-
neys. A brief orientation will be given to the purchasing family regarding the
nature of the documents which will be executed at the closing, the obligations and
duties of a homeowner, and the nature of PRHA's activities and services.
Within two weeks after the orientation visit, a purchasing family will be
invited to an informal evening meeting of a small group of prospective home
owners in the area where that family is purchasing its home. In addition to a
staff member, that meeting will be attended by several families who already own
homes in the area. Each prospective homeowning family will be assigned to a
family already owning its home and with similar interests (age of family mem-
bers, etc.) on a type of "buddy system". The reactions of the prospective home-
owners to matters presented in the orientation talk and other questions of such
families wuU be discussed at this meeting.
The prospective homeowning family also will be visited at least once prior to
closing and once after closing by a field staff worker trained in home economics.
That field staff worker will attempt to determine in an informal, non-bureau-
cratic manner, any home-making and social problems the family might have.
The family will be referred to appropriate agencies and programs. The staff
home economist also will assist the family in preparing a budget including a
determination of the maximum installment indebtedness the family can incur on
furniture and other home furnishings.
After closing, the "buddy family" will encourage the new homeowning family
to join PRHA ; attend meetings of the appropriate chapter of PRHA ; and request
assistance from the office of PRHA on insurance, mortgage finance and other
homeownership related problems.
PRHA will notify financial institutions holding mortgages on families pro-
cessed through its homeownership development programs to notify it of any
delinquencies which arise on such mortgages. Upon being notified of such a delin-
quency a field investigation will be made to determine how the family might be
assisted in overcoming the conditions leading to the delinquency. It is contem-
plated that special financing assistance can be arranged with commercial banks
to assist families with temporary loss of income because of unemployment, sick-
ness, and other temporary conditions. Eventually, consumer credit unions might
be created under PRHA auspices to assist homeowners to meet such situations
and to make loans to prospective homeowners for furniture and basic appliances.
Where a family is unable to continue meeting its homeownership obligations,
PRHA will refer the family to real estate brokers who can assist it in disposing
of the imit, on a reasonable basis, to a family capable of meeting such obligations.
PRHA will also assist the defaulting family to obtain rental housing. It is fur-
ther contemplated that a fund will be established which will permit PRHA to
take over a unit for which an immediate purchaser cannot be found and to rent
such imit until a purchaser can be found. Through the above procedures PRHA
should be able to guarantee cooperative lenders that, luider normal circumstances
(barring major recessions, etc.) they will not be required to foreclose a mortgage
made to a PRHA assisted purchaser. The above programs will also minimize the
FHA underwriting risk on "special risk" cases recommended for insurance by
PRHA.
In the case of "special risk" moregage credit applications, PRHA's first resonsi-
bility will be to obtain full information regarding past conditions whch might
otherwse disqualify a prospective borrower and to document how such condi-
tions have changed. Inve.stigations will be made to determine if FHA should be
requested to waive restrictions, on the nature and length of employment, the re-
lationship of housing expense to income, and other basic underwriting require-
ments. Where applicants have present credit and social problems which normally
would disqualify them, a determination will be made whether the family can
obtain effective assistance to overcome such problems.
The results of staff investigations on "special risk" mortgage credit cases will
be submitted for final decision to evaluating committees containing both staff and
citizen members. Both the staff and citizen members of such committees will be
periodically rotated to prevent favoritism and other abuses. Any applicant will
have a right to personally appear before the evaluating committee. Since home-
ownership is more of a privilege than a right, tlie evaluating committees will be
939
equipped to make both absolute and conditional decisions — i.e., conditional, in
the sense of granting approval provided that the applicant meets certain reason-
able conditions, such as reducing installment indebtedness, etc. Moreover, re-
jected applicants will have an opportunity to make a new application within 60
or 90 days after being initially rejected.
An important aspect of the success of PRHA's "special risks" mortgage credit
program will be to insure that mortgage companies and real estate brokers refer
to it all credit applications of minority applicants rejected by the FHA. Recom-
mendations will be requested from the mortgage company or broker making such
referrals. PRHA personnel also will confidentially discuss the rejected case with
the FHA credit underwriter who handled it.
III. ORGANIZATIONAL AND FUNDING REQUIREMENTS
The organization required by PRHA to administer the contemplated home-
ownership development programs will consist of three district components: 1)
an Executive Director and Core Service Group; 2) a division for providing serv-
ices to organizations; and 3) a division for providing services directly to fami-
lies. An organizational chart and job descriptions are presented as Exhibit 2.
Through its Organizational Service Division, PRHA should be able to service
approximately 75 organizations ; and through its Family Service Division, it
should be equipped to service approxinjately 600 routine cases and 300 special
credit cases.
The Executive Director and the two Deputy Directors in the Core Service
Group will establish and maintain the relationships with both community and
private groups and individuals through which PRHA will offer its services.
They will also establish arrangements for referring non-homeownership prob-
lems to other organizations.
The Organizational Service Division will assist housing development corpora-
tions and other housing-related organizations in establishing appropriate units
for administering their own homeownership development programs. This PRHA
division will actually conduct training programs to equip community persons to
discharge the intake, investigations, and home-making functions performed by
its staff personnel in PRHA's own family service division. The Organizational
Service Agents will be assigned to service other specific groups or areas. They
also will serve as Executive Secretaries to the Chapters of the PRHA formed
in the areas they are servicing.
The Family Service Division of PRHA will primarily assist individual fami-
lies referred to PRHA by mortgage companies, real estate brokers, attorneys,
etc. The initial interview or intake function will be under the direct supervision
of a Case Analyst. Through appropriate training, the interviewers will be
equipped to spot cases which should be referred directly to the Special Credit
Department. Cases not requiring the special processing of that department will
be immediately serviced in the field by the Homemaking Department. Of course,
cases recommended for insurance by the Special Credit Department also will
receive field services from the Homemaking Department.
A budget for the PRHA Homeownership Counseling Program is presented in
Exhibit 3. The salary levels presented in that budget are based upon comparable
salaries paid by community organizations to personnel performing similar func-
tions. It is estimated that approximately 2400 square feet of office space will be
rented at a cost of $2.50 per square foot per year. Office equipment, consumable
supplies and the other administrative expenses also are based upon costs budg-
eted by other community organizations for similar operations. It is contemplated,
with the approval of the F.H.A. that a reputable consulting firm will be retained
on an annual basis to assist both the staff and directors of PRHA in program
development and execution including establi-shing relationships with both service
supportive and recipient organizations in preparation of program guidelines,
procedures, and forms, and in development of standards for evaluating program
effectiveness.
JOB DESCRIPTIONS
Executive Director
Responsibilities :
To serve as liason betw^een the Board of Directors, the staff, and the organiza-
tions being serviced by PRHA programs.
To make initial contacts, along with the appropriate Deputy Director, with
important community organizations and financial institutions involved in PRHA's
programs.
To supervise staff and establish appropriate personnel policies.
940
To represent PRHA in FHA and other government agencies.
To coordinate ttie development of systems and procedures tlirough wtiich home-
ownership training will be administered.
Required background:
Bacculaureate (and preferably Masters Degree) in Business Administration,
Social Work or Education ; or executive level experience in community action
programs or with financial institutions.
Demonstrated ability to motivate people and exercise effective administrative
leadership.
Deputy Director — Fincmcial Services
Responsibilities :
To establish relationships with financial institutions, real estate brokers, and
attorneys who might refer prospective homeowners to PRHA.
To develop and administer credit union and other consumer finance programs.
To develop and administer programs for meeting the lenders financial obliga-
tions on properties where the buyer defaults.
Required background:
Baccalaureate degree in liberal arts or business administration, or acceptable
work experience.
Demonstrated ability in a sales capacity, preferably with real estate operations.
Knowledge of mortgage finance practices and procedures.
Deputy Director — Social Services
Responsibilities:
To establish relationships with community organizations which can deal with
non-homeownei'ship related problems encountered through PRHA'S activities.
To train PRHA personnel and those of community organizations serviced by
PRHA in Social Service techniques.
Required background:
Baccalaureate degree in social work or acceptable work experience.
Knowledge of governmental and private programs to provide social services
and of organizations administering such programs.
Deputy Director — Organizational Services
Responsibilities :
To establish relationships with non-profit housing groups and other organiza-
tions invohed in housing development.
To develop programs to train the personnel of such groups and organizations
in the systems and procedures devised to administer homeownership training.
Required background:
Baccalaureate degree in education or acceptable work experience.
Denionstrnted leadership ability as a public school teacher or administrator or
as an official of a non-profit housing group.
Deputy Director — Family Services
Responsibilities :
To supervise the PRHA staff engaged in administering homeownership training
and assistance to individual families.
To establish the committees and evaluation procedures used to handle special
risk mortgage credit cases.
Required background:
Baccalaureate degree in social services or business administration or accept-
able work experience.
Knowledge of mortgage credit underwriting procedures.
941
Administrative Assistants
Responsibilities: To assist the Deputy Director to whom they are assigned in
dischai'ging his or her responsibilities.
Required background : Administrative experience in community action programs.
Organizational Service Agents
Responsibilities :
To maintain liaison with organizations being serviced by PRHA home-owner-
ship development programs.
To assist the staff of such client organizations in actually servicing prospective
and actual homeowning families.
To serve as the Executive Secretary of regional chapters of PRHA.
Required background: Experience as a volunteer leader of a community organiza-
tion or as an executive in a private or public organization.
Case Analyst
Responsibilities :
To supervise interviewers of families referred to PRHA and conduct such in-
terviews when necessary.
To review all applications being processed by PRHA in order to refer special
cases to other staff members of PRHA (i.e., to refer families with social prob-
lems to the Deputy Director Social Services, etc. )
Required background: Experience as a social worker or as a mortgage processing
oflScer.
Home Economist •
Responsibilities :
To conduct field interviews of individual families being assisted by PRHA.
To develop and administer training programs dealing with problems of home
management and repairs. Evaluation of building contracts.
Required background: Baccalaureate degree or acceptable work experience in
housing and community developjuent for over three years.
Manager — Special Credit Department
Responsibilities:
To diagnose the conditions leading to the case being classified as a special
credit case and to request appropriate investigations.
To make recommendations on the disposition of the case to the evaluating
committees.
Required background: Experience in mortgage or consumer credit underwriting.
Executive secretaries
Responsibilities :
To handle appointments and correspondence of the oflBcial to whom she is
assigned.
To assist in the preparation of management reports on the activities of the
department to which she is a,ssigned.
To supervise Clerk Typists assigned to her department.
Required background:
Excellent dictation and typing skills.
Demonstrated oflice management experience.
Clerk Typists
Responsibilities: To handle routine form preparation, typing and filing.
Required background: Completion of Stenography course or acceptable work
experience.
942
Bookkeeper
Responsibilities :
To maintain the general accounting records of the organization.
To prepare payroll and accounts payable checks.
Required background:
Completion of a Bookkeeping Course.
Experience as a bookkeeper in other organizations.
Interviewers, Investigators, Assistant Home Economists. — (Community people
who can be trained to discharge the duties of these positions
EXHIBIT 2
PRHA Homeownert p Develop! emt Program
Organizational Chart
"poa-h^ oj 'J)ire^iofs
Vepjry J>'RecToe
jAtiyiini PiSiT
B.EC. Sbcj.
fiSIMII' l\s.si
£j(f cfe/.
If ice. Sir /
, jci£(i< i^fn-n
i£f>uT y OiKecjoe.
1eȣ0 'Secy.
943
EXHIBIT 3
prha homeownership development program, budget — (ist year of
Operation
Personnel : ^^
Executive Director $15, 000
4 Deputy Directors @ $12,000 each 48, 000
2 Administrative Assistants @ $9,000 18, 000
5 Executive Secretaries @ $7,500 each of the Executive Director
$8,500 38, 500
5 Clerk Typists @ $5,200 each 26, 000
Bookkeeper 7, 500
3 Organizational Service Agents @ $9,000 27, 000
Case Analyst 9, 000
2 Interviewers @ $7,500 each 15, 000
Homemaker & Maintainer training 9, 000
2 Assistant Home-makers @ $7,500 15,000
Special Credit Manager 9, 000
2 Investigators @ $7,500 each 15, 000
Total salary 252, 000
Fringe benefits 36, 000
Total personnel costs 288, 000
Consulting 30, 000
Administrative :
Rent 6, 000
Travel . 9, 000
Consumable supplies 3, 000
Postage 3, 000
Office furniture 5, 000
Telephone 4, 000
Miscellaneous 3, 000
Total budget 351, 000
Letter to Senator Philip A. Hart from Joseph Colon dated May 31, 1972
EXHIBIT 3
Hogab Funding Corp.,
Ridffewood, N.Y., May 31, 1972.
Senator Philip A. Hart,
U.S. Senate, Senate Antitrust and Monopoly Subcommittee, Senate Annex,
Washington, D.O.
Hon. Philip A. Hart : Enclosed please find my corrected testimony as per
your instructions. The only correction that I could see is Item #5 in question
of Mr. Chumbris what part of our business came from local brokers. Please note
that same was received by me on Friday and today, Tuesday was the earliest that
I could send same out to you.
I hope that your office could pass legislation where financing would become
available on five families and over in the City of New York so that poor families
could buy same with 10% down payment.
I also hope that you could establish the pool of monies that I talked about
during my testimony. Rent control and taxes will soon kill this type of housing
plus the fact that there is no financing available in New York City.
I will be more than happy to cooperate with any government agency that
wants to develop a program to save this type of housing that is so much needed in
944
our city. There is not enough money to rebuild our cities and this type of housing
we should encourage our people to buy because this way we do not need any
subsidies, the rental will provide the extra income.
I am prepaied to help process these loans in cooperation with H.U.D. to show
us how it is done. In my letters that I submitted to you there is a proposal for the
same program including counseling that is so important. I will be willing to take
some time to prepare it if it means helping our people own this type of housing
which is out of there reach.
Thank you for the opportunity given to me and hope that we could help in
our housing problems so badly needed.
Very truly Yours,
Joseph Colon, President.
EXHIBIT 4
Hogar Funding Corporation Delinquency Ratios
HOGAR FUNDING CORP., RIDGEWOOD, N.Y., SERVICING DEPARTMENT-DELINQUENCY RATIO
Number
of Mort-
gages
Amount
Delinquent
Number Percent
Forbea
Number
ranee
Percent
Foreclosure
Number Percent
FNMA
Equitable
Hogar._ _.
169
71
16
$3,455,000
1,617,000
340, 000
7
1
1
4.1
1.4
.2
3
1
1.8
1.4
10
5.9
Total...
256
5,415,000
9
3.5
4
1.5
10
3.9
VA(26.2)
67
189
1,429,000
3, 986, 000
4
5
6.0
2.6
3
1
4.5
.5
6
4
9.0
FHA(73.8) .
2 1
) service) ..
Total...
256
5,415,000
9
3.5
4
1.5
10
3.9
Soldtobanks(n
Total in service
23
256
527, 000
5,415,000
9
3.5
4
1.5
10
3.9
mortgages
ted
Total
origina
279
5, 942, 000
9
3.2
4
1.4
10
3.5
Senator Hart. Do you swear the testimony you will give in this
proceeding shall be the truth and nothing but the truth, so help you
God?
Mr. Cohen. I do, sir.
Senator Hart. Mr. Cohen, I believe perhaps it might be helpful if
you read for the record the letter that you directed to the subcom-
mittee.
STATEMENT OF THEODORE P. COHEN, SECOND VICE PRESIDENT
AND COUNSEL, BANCO POPULAR DE PUERTO RICO
Mr. Cohen. I'll be happy to, sir.
Again, I would like to apologize for the delay in your receiving it,
but there was a m.ixup in the mails.
The Banco Popular de Puerto Rico is a full service commercial
bank chartered over 75 years ago under the laws of the Common-
wealth of Puerto Rico, and is duly licensed to do business in the State
of New York.
The bank is one of the top 100 banks in the Nation. In New York,
the bank has been operating for approximately 10 years, has seven
offices, and conducts all business normal to any commercial bank in the
city of New York.
The bank, because of its Latin origin, does deal extensively with the
Latin-Spanish-speaking community as well as the general public.
945
The president and chairman of the board of the bank is Rafael
Carrion, Jr., and in New York the bank is directly supervised by
Luis A. Abudo, as vice president of the bank.
In the course of the bank's dealings, the bank has developed a rela-
tionship with Hogar Funding Corp. and Mr. Joseph Colon. Mr. Colon
sits on the bank's advisory Ijoard in the city of New York, and has
been dealing with the bank for a number of years.
The bank was instrumental in helping Mr. Colon set up Hogar
Funding Corp., which was the first Spanish-speaking mortgage FHA-
approved funding company, and has lent ISIr. Colon assistance in this
regard since the date of the company's inception.
The bank has a line to Hogar Funding Corp. to warehouse its mort-
gages pending the permanent takeouts. JNIr. Colon, at times, in order
to compete with other companies, has requested the bank to make short-
term mortgage loans to owners of property for whom his company was
handling FHA mortgage applications; and the bank, in order to as-
sist INIr. Colon, went along with the request.
Mr. Colon and Hogar Funding Corp., with every such interim loan,
agreed with the bank to purchase said mortgage at its face value on its
due date, if the mortgage was not paid prior to said time. The terms
on said "interim mortgage financing" were directed by the going rates
for like financing in the community.
The bank has bank account relationships with Commonwealth Land
Title Co. of New York, and does some of its title business with said
company. These dealings arise out of the fact that some of the officers
and personnel of the bank are known to the title company and vice
versa.
It should be noted that the bank has account relationships with sev-
eral title companies in the New York area and offers general banking
services to all of them. As far as the bank is concerned, there is no rela-
tionship between Commonwealth Land Title Insurance Co. and Hogar
Funding Corp. business with the bank.
I trust this information will be of assistance, and I am here to
answer any questions you gentlemen may have.
Senator Hart. Thank you very much.
Mr. Blum. ]\Ir. Cohen, you said that the Banco Popular is chartered
under the laws of Puerto Rico, is that correct ?
Mr. Cohen. That is correct, sir.
Mr. Blum. Who regulates it ?
Mr. Cohen. We are regulated by the Commonwealth — the treasury
department of the Commonwealth of Puerto Rico ; in New York, the
bank is regulated by the State of New York Banking Department.
We are also a member of the FDIC ; and, as such, the FDIC exam-
iners also examine the bank ; so it's threefold.
Mr. Blum. How large is the bank ?
Mr. Cohen. Excuse me ?
Mr. Blum. How large is the bank ?
Mr. Cohen. In assets and size, the bank rates approximately 87th
in the Nation ; its assets run over three-quarters of a billion dollars.
Mr. Blum. And you say it has operated in New York City for ap-
proximately 10 years ?
Mr. Cohen. It's approximately 10 years. It just had its 10th anniver-
sary in New York.
946
Mr. Blum. Is it engaged in the FHA-VA mortgage business in
Puerto Kico ?
Mr. Cohen. Yes, it is, sir.
Mr. Blum. Rather extensively, is that not correct ?
Mr. Cohen. They have a large department down there; they are
one of the largest on the island.
Mr. Blum. And that bank does sell FHA and VA mortgages in the
secondary mortgage — operates as an originator and sells mortgages
is that correct ?
Mr. Cohen. It also sells — yes.
Mr. Blum. Does the bank originate home mortgages in New York.
FHA-VA?
Mr. Cohen. No, sir ; it does not.
Mr. Blum. Why not?
Mr. Cohen. Basically, because it does not have a department for
it in New York and it is not set up.
Mr. Blum. Have you ever considered setting up such a department ?
Mr. Cohen. Possibly in the future. At this point, the operation in
New York is fairly self-sufficient ; it has to be. The New York opera-
tion is governed by the New York State Banking Department. That
is the only part of the operation they oversee. And the New York
operation is not as large as the Puerto Rican operation, and, at this
point, that particular area of business has not been gone into.
Mr. Blum. Are there any specific reasons for not developing that
business ?
Mr. Cohen. Press of time and personnel at the moment ; none others.
Mr. Blum. Does Banco Popular provide warehousing lines of credit
to other mortgage companies besides Hogar ?
Mr. Cohen, They had a line of credit to another mortgage funding
company, yes. It was not utilized.
Mr. Blum. Do you recall who that was ?
Mr. Cohen. Yes, I do. It was Springfield Equities.
Mr. Blum. They had been doing business with Banco prior to the
Hogar warehousing?
Mr. Cohen. No, sir ; that would have been subsequent to it.
Mr. Blum. Subsequent ?
Mr. Cohen. They came in after Ho^ar. Hogar was the first com-
pany that the bank did warehousing for m New York.
Mr. Blum. What steps did you take to check Mr. Colon's refer-
ences prior to your doing business with him ?
Mr. Cohen. Well, Mr. Colon was known to Mr. Abudo; he has also
been known to numerous personnel of the bank in his position with the
Puerto Rican Homeowners Association ; and, as a matter of fact, Mr.
Colon has sat for several years on the bank advisory board in New
York.
Mr. Blum. So he was well known to you when he approached you
for this line of credit ?
Mr. Cohen. He was known. I was not there at the time, but I do
know he was known to individuals with the bank.
Mr. Blum. What are the risks to a commercial bank in granting a
warehousing line of credit ?
Mr. Cohen. You are taking a loan, literally at the moment it is
made. The documents are not in recorded form as yet. You have only
947
a notation that the loan has been closed ; you don't have the original
documents, you don't have the original commitments, you don't have
the original insurance/ It is really in the stage of packaging.
The risks should be minimal m the sense that, if everything is done
the way it should have been done, you can sell it to the Fannie Mae or
another one of the institutions that are purchasing or interested in pur-
chasing these loans.
However, when they take the mortgage, every document has to be
fully in order. Your risk is basically if there has been an error made.
Mr. Blum. But isn't that covered by the errors and omissions bond
held by the mortgage company ?
Mr. CoHEX. "\ATien we did this originally, there were no errors and
omissions bond. We were doing this before Joe had this.
Mr. Chumbris. Will you speak up ?
Mrr. Cohen. Yes, I am sorrry.
INIr. BLU]\r. Isn't it true that all of the loans which you warehouse
for Mr. Colon are under takeout commitment at the time he brings
them to you for warehousing?
Mr. CoHEX. Yes. He has a takeout in a sense from either a life in-
surance company, a savings bank, or his purchase funds under Fannie
Mae.
Mr. Blum. And those loans are subject to an FHA firm commit-
ment, is that correct ?
INIr. Cohen. They are subject to a commitment letter. We don't have
the certificate. VA or FHA.
Mr. Blum. You don't have any insurance certificate at that point,
but there is a firm commitment? Even lacking the certificate, there is
no question that the Federal Government will pay if they were in-
volved in that loan ?
Mr. CoHEx\ You need the final certificate.
Mr. Blum. But there is no question ?
Mr. Cohen. If it was issued, no.
Mr. Blum. So in effect you have a loan which is backed by federally
insured commercial paper, a form of federally insured commercial
paper on which the holder of that paper has a contract to sell it to
someone else, and that's firm. "\Aniat is the risk? I still don't see it.
Mr. Cohen. There have been occasions where Fannie Mae has re-
fused to accept mortgages because of errors in documentation. It must
be correct. And if there is an error, and possibly you cannot go back
and find these people to correct it, you are taking a risk.
Mr. Blum. Have you ever lost money on a warehousing line ?
Mr. Cohen. No, sir; we have not lost money on this warehousing
line.
Mr. Blum. Do you know of any commercial bank that has lost
money on a warehousing line?
Mr. Cohen. I believe that banks have taken a loss on warehousing
lines. I could not give you chapter and verse or cite it, but there are
potential
Mr. Blum. FHA-insured mortgages or
Mr. Cohen. Only whether the FHA insurance was in effect at that
point.
Mr. Blum. Is it very involved in terms of handling a warehousing
line of credit ? Does it "take much work on the part of the bank?
948
Mr. Cohen. Yes, sir ; it does. We check each and every document as
it comes in. We check for — we review all the documents, insurance,
the takeouts, and make sure that he has ample takeouts at any one
time.
Mr. Blum. Would you explain, again, where the danger is on the
warehousing loan ?
Mr. Cohen. If the documentation — if there is an error in documen-
tation and it is not accepted by the takeout bank or the takeout
institution.
Mr. Blum. But you mentioned something about the availability of
insurance. I thought I heard you.
Mr. Cohen. I am referring to — we require, for example, that the
property be covered by fire insurance There is a risk there. If the
building is not covered by fire insurance, and the property would burn,
they wouldn't accept the mortgage. These are highly unlikely things.
Mr. Blum. But the loan would never have been closed, would it?
Mr. Cohen. There have been occasions where we have found the
insurance was not in force.
Mr. Chumbris. The reason why I asked the question the other day,
Mr. Duncan referred to the fact that — if it wasn't Mr. Duncan, it
might have been another witness — that if the insurance runs out; in
other words, if the FHA losses are greater than the insurance they
have covering it — I was just wondering if you weren't alluding to that
at that point.
Mr. Cohen. No, sir ; no.
Mr. Blum. Do you know, Mr. Cohen, what the present rate of inter-
est on short-term Federal Treasury notes might be ? Would it be on
the order of 2l^ to 3i/^ percent ?
Mr. Cohen. I wouldn't know, sir.
Mr. Blum. Would you agree that, generally, short-term Federal
commercial paper bears a very low interest rate ? In relation to long-
term, short-term federally insured paper is generally
Mr. Cohen. I would take your word for it, sir; I am not an expert
in the field.
Mr. Blum. But what is your rate of interest to Mr. Colon on his
warehousing line of credit ?
Mr. Cohen. It's a product of the prime rate.
Mr. Blum. The principle plus 1 ?
Mr. Cohen. I think it's prime plus 11/2 or 2, 1 am not sure. This fluc-
tuates, also.
Mr. Blum. At times that interest rate, according to records we have
received from the bank, has gone as high as 10 and lOi/^ percent.
Mr. Cohen. When the prime rate was up to 81/^, I imagine it would
have been up there.
Mr. Blum. It was up to 101/2- We have received records from other
commercial banks with respect to other warehousing lines of credit,
and they usually charge prime, plus a quarter, or prime plus one-half.
You seem to be charging Mr. Colon a considerably greater amount.
Why?
Mr. Cohen. That was the rate that was set. This was at the start
of his operation. The rate has come down as he has gone further into
the business, and gains greater experience. This took an inordinate
amount of time on the part of personnel with the bank in lielping him
949
to get this set up. And the only Avay that a bank can be compensated
is through its interest rate.
Mr. Blum. The difference in interest rate was to compensate the
bank for the extra work it did in helpintj Mr. Colon <2:et started, is
that correct?
Mr. Cohen. I would say that is definitely one of the factors.
Mr. Blum. Mr. Cohen, who first approached you with respect to
the lending of interim funds to real estate brokers?
Mr. CoiiEx. Mr. Colon.
Mr. Blum. And what was his explanation to you for it at the time ?
Mr. CoiiEX. He said that he had to make these if he was to keep
the loan, the package.
Mr. Blum. And these loans were considered an accommodation to
Mr. Colon, is that correct ?
Mr. Cohen. Yes. As a matter of fact, the only way they would be
made was with an understanding that Hogar would take them back
out.
]Mr. Blum. Take them back out in the event they weren't paid of?
Mr. Cohen. Eight.
Mr. Blum. So he had to guarantee them before you would make
them ?
Mr. Cohen. Well, it wasn't a guarantee; it was a — he agreed to
purchase them.
Mr. Blum. He agreed to purchase them. "We received from you,
under subpena, documents relating to these short-term loans, and they
indicate that on the loans referred by Mr. Colon, Banco, as a general
rule, charged 21 percent annual interest. Is that an average kind of
interest rate for a Banco loan?
(The documents referred to follow:)
EXHIBIT 1
Mortgages With a Term of One Year or Less Originated by Banco Popular de
Puerto Rico
1. Name of mortgagor.
(a) Business address.
(ft) Principal officers.
2. Address of mortgaged property.
3. Date of mortgage.
(a) Due date.
(6) Date paid.
4. Rate of interest.
5. Amount of mortgage.
6. Discount at which mortgage was purchased, if any.
7. Amount of commission or finder's fee for procurement of mortgage.
Not Referred By Any Funding Company
1. Pampas Homes, Ltd.
a. 40-20 Junction Boulevard, Jackson Heights, Queens, N.Y.
b. Franklin Rand Weiss, Pres.
2. 111-47 43rd Avenue, Corona, Queens, N.Y.
3. November 30, 1970
a. March 1, 1971
b. January 3, 1972
4. 5^/4% per quarter
5. $25,000
6. None
7. None
950
1. Toro 33 Realty Corp.
a. 75-18 Broadway, Jackson Heights, Queens, N.Y.
b. Alfredo I. Piccone, Pres. ; Rene Cambert, Secretary
2. 31-12 93rd Street, Jackson Heights, N.Y.
3. February 19, 1971
a. May 20, 1971
b. April 27, 1971
4. 4y2% per quarter
5. $16,800
6. None
7. None
1. Total Operation for Neighborhood Environment, Inc.
a. 330 West 58th Street, New York, New York
b. Joe E. Hunt, Pres. ; Robert Bell, V.P. ; Rodolph Morgan, Sec'y
2. 24 Furman Avenue, Brooklyn, New York
3. February 17, 1971
a. February 17, 1972
b. Open
4. 9% per annum
5. $40,000
6. None
7. None
1. Alisha Estates Inc.
a. 40-20 Junction Boulevard, Corona, Queens, New York
b. Isabel D. R. Wood, Pres. ; Alfredo I. Piccone, Secretary
2. 90-25 24th Road, East Elmhurst, Queens, New York
3. December 30, 1971
a. March 30, 1972
b. Open
4. 51/4% per quarter
5. $25,200
6. None
7. None
Referred by Hogar Funding Corp.
1. Celar Operating Corp.
a. 410 New Lots Avenue, Brooklyn, New York
b. John Morales, Pres. ; Alvin Tahlor, Secretary
2. 862 Belmont Avenue, Brooklyn, New York
3. March 24, 1970
a. June 24, 1970
b. July 2, 1970
4. 51/4% per quarter
5. $5,000
6. None
7. None
1. Esperanza Properties Ltd.
a. 1732 Coney Island Avenue, Brooklyn, N.Y.
b. Eugene De Vries, Pres. ; Npios R. Soto, Secretary
2. 1433 36th Street, Brooklyn, New York
3. December 14, 1970
a. March 15, 1971
b. April 6, 1971
4. 514% per quarter
5. $12,500
6. None
7. None
1. Gilbo Properties Inc.
a. 2 Reid Avenue, Brooklyn, New York
b. Gilbert Martinez, Pres. ; Robert Perla, Asst. Secretary
2. 136 Coffey Street, Brooklyn, New York
3. May 1, 1970
a. July 31, 1970
951
b. June 1, 1970
4. 51/4% per quarter
5. $8,000
6. None
7. None
1. Koa Realty Corp.
a. 221 Fifth AA-enue, Brooklyn, New York
b. Ortrud A. Kapraki, Pres. ; Harold S. Keller, Secretary
2. 5420 6tli Avenue, Brooklyn, New York
710 6th Avenue, Brooklyn, New York
604 Carroll Street, Brooklyn, New York
3. April 3, 1970
a. July 2, 1970
b. 5420 6th Ave., Brooklyn, assigned to Hogar Funding Corp. 7-10-70
710 6th Ave., assigned to Koa Realty Corp. 6-1-70
604 Carroll Street, released to Koa Realty Corp. 7-10-70
4. 51/4 7o per quarter
5. $38,000 (5420 6th ave $7,000)
(710 6th Ave. 19,000)
(604 Carroll St. 12,000)
( 38,000)
6. None
7. None
1. Mardeb Enterprises, Inc.
a. 1128 Nostrand Avenue, Brooklyn, N.Y.
b. Milford Kashetsky, V.P. ; David Kay, Secretary
2. 281 Midwood Street, Brooklyn, New York
3. October 21, 1971
a. January 25, 1972
b. Open
4. 51/4% per quarter
5. $15,000
6. None
7. None
1. Suarez Properties, Inc.
a. 936 Manhattan Avenue, Brooklyn, New York
b. Carlos Suarez, Pres. ; Nathan V. Bertman, Asst. Secretary
2. 1636 Summerfield Street, Ridgewood, Queens, New York
i\. February 10, 1971
a. May 11, 1971
b. April 9, 1971
4. 4i/^%3 per quarter
5. $17,000
6. None
^. None
Mr. Cohen. No, sir ; it is not.
Mr. Blum. How come the interest rate was 21 percent?
Mr. Cohen. AVe asked ]\Ir. Colon and did some checking, and this
was the going rate for such loans in the community at that time.
Mr. Blum. Are you aware of any commercial banks in New York
State that charged 21 percent for construction lending?
ISIr. Cohen. I am not familiar with the market, sir. These loans were
short-term, sir; they Avere 3-month loans. There was a lot of work
involved in doing it, and it was a way of attaining compensation for
the short-term lending.
Mr. Blum. Do you make other short-term loans of this amount, and
charge similar rates?
Mr. Cohen. Yes ; there have been some made.
952
Mr. Blum. You furnished us with data of other loans of this nature,
which were not referred by anyone. Mr. Cohen, how did those come
to pass?
Sir. CoHEX. Again, these were by people who were customers with
the bank, who needed short-term interim money and
Mr. Blum. Were these real estate broker customers who came in and
said, "We need to borrow temporarily, and can you give us some
accommodation" ?
Mr. CoTiEN. It wasn't accommodation. I am not familiar whether all
\vere brokers, but I think all were connected with real estate opera-
tions.
Mr. Blum. Do you have any qualms about this kind of business ?
Mr. CoHEX. Well, it's not — it's a very hard question to answer "Yes"
or "No."
Mr. Blum. Did you have any feeling about the character of the
property or people who closed any of these loans ?
Mr, CoHEX. I did not see the property. We took appraisals that ]\Ir.
Colon would obtain for us, or FHA.
Mr. Blum. Where did those appraisals come from ? Were those the
FHA appraisals ?
Mr CoHEX. Generally, They were usually from the FHA or Mr.
Colon — we would ask Joe to look at the property. ]\Ir, Colon would
look at the property, and Ave've used Mr, Colon as an appraiser for
the bank to view the property, to check it out. His word is accepted.
]\Ir. Blum. You made these, and these were in the nature of first
mortgage loans, and you were relying on the FHA appraisal
Mr. CoHEX. No ; we were relying
Mr. Blum (continuing) . And Mr. Colon's appraisal ?
Mr. CoHEX (continuing). We Avere relying on Mv. Colon and his
evaluation of the property. And since he had agreed to purchase the
mortgage, that Avas sufficient for the bank,
Mr, Blum. And the interest rate was 21 percent?
]Mr. CoHEx. On some. On some it Avas 18 percent.
Mr. Blum. Noav, in your statement you said that there Avas no rela-
tionship betAveen INIr. Colon's business and the CommouAvealth Land
Title Co. and your bank, is that correct ?
EXHIBIT 3
Material Relating to Hogar Funding Corp. Received From Banco Popular de
Puerto Rico
Hogar Funding Corp.
general information
The corporation was organized for the purpose of engaging in the business of
originating, processing and servicing FHA and VA approved mortgages.
The idea originated with Mr. Joseph Colon, a real estate broker, who has
earned a fine reputation both in the business community and as a civic leader.
Mr. Colon has been actiA'e in the mortgage and real estate business for the
last elcA'en years in the City of New York, and is acquainted with the problems
of members of minority groups Avho seek home ownership, particularly, those of
the Puerto Rican and Spanish-speaking groups. Mr. Colon can well appreciate
the feasibility, need and potential of a facility of this type at this time.
An annual FHA volume of 150 million dollars is currently being generated by
four existing mortgage companies in the Brooklyn area. A new facility such as
Hogar Funding Corp., could conservatively generate over 20 million dollars of
953
loans per year, which based upon the net profit normally earned by mortgage
originators, would result in net profits to the company in excess of $200,000.00.
It is expected that the minority-owned and minority-managtHl mortgagee Cor-
poration will be superior to the existing facilites for the following reasons :
The present facilities have been charging the minority borrowers discount rates
of ten and twelve per cent when the FNMA discount rate has been approximately
four per cent. Hogar Funding Corp., will charge only reasonable discount rates
and will pass on to the borrower any savings below going rates that may be avail-
able due to special minority-oriented programs.
The existing facilities are located outside of the areas where the lending
transactions actually take place, and it is extremely inconvenient for the bor-
rowers to deal with them.
The new facility proposed will be minority oriented and will be located in the
immediate areas where the lending transaction take place. The company's oflBce
will be easily accessible to the borrower for continued counselling, aid, and
orientation.
Once the company is in operation to handle individual home sales to middle-
income purchasers, it could then provide mortgage financing and related services
for low-moderate-income families under Sections 235 and 236 and under other
Sections of the Housing Act of 1968.
The Certificate of Incorporation was filed with the Secretary of State on
March 6, 1969. The corporation is authorized to issue 1,000 shares preferred
stock at a par value of $100.00, and 500 shares of common stock at no par value.
The common stock has been subscribed for by Air. Joseph Colon and a group
which he represents for the amount of $50,000.00.
Under FHA regulations, the corporation is required to maintain a net worth of
$100,000.00 and must have an initial operating capital of $50,000.00 per oflBce.
Management is now in the process of raising the additional required capital so
that application for FHA approval can be made.
Warehousing lines for three million dollars have been established with Banco
Popular de Puerto Rico and the Chase Manhattan Bank.
Pending commitments for the same amounts for take-out are presently being
negotiated.
In evaluating the profit potential of the company, the following factors are of
vital importance :
A. Corporate policy will be to keep operating expenses at a minimum during the
initial stages of operation and to show the highest possible return on the initial
investment.
B. The corporation has submitted formal application to the Federal National
Mortgage Association to be designated as a Loan Correspondent under a recent
program announced by the Association, designed to create opportunities for
minority-owned businesses. This program Is in keeping with the announced
policy of the present administration to create business opportunities for minor-
ity groups. With such a designation by the Association, the corporation would
be able to dispense with warehousing expenses and would have a virtually un-
limited take-out commitment at the FNMA rates. In addition to those important
advantages, under the FNMA program the corporation would not be required
to maintain a permanent net worth of $100,000.00 but only of $5,000.00. If the
FNMA designation is obtained, it would virtually assure the success of the
company for the company would be in a position to undersell its competitors,
thus passing on to the borrower considerable savings in the discount charges.
MANAGEMENT
The corporation will be managed by its President and Chairman of the Board,
Mr. Joseph Colon, whose Resume is attached.
Personnel will be hired as the need arises and several applicants for the differ-
ent positions are being presently considered. The policy of the corporation will
be determined by its Board of Directors, which is constituted as follows :
1. JOSEPH COLON, real estate broker. Resume of experience attached.
2. HON. GILBERT RAMIREZ, attorney admitted to practice in the State of
New York, former member of the New York State Assembly, former Delegate
to the New York State Constitutional Convention of 1967 and presently a Judge
of the Family Court of the State of New York. First nousighted person elevated
to the Bench in the history of the State of New York.
3. CESAR H. QUINONES, attorney at law admitted to practice in the State
of New York since 1955, with extensive experience in real estate transactions.
83-703 O — 73— pt. 2b 14
954
He is also legal counsel for such organizations as Puerto Rican Community
Development Project, Consumer Action Program of Bedford-Stuyvesant, and
Vice-Chairman of Bedford-Stuyvesant Community Legal Services Corporation.
Mr. Quiiiones nas been recently appointed as Law Secretary to Supreme Court
Justice, Thomas H. Cullen.
4. NICK ORTIZ, banker by profession, is presently employed as Assistant
Vice-President of the Banco Popular de Puerto Rico, here in New York. Mr.
Ortiz is a highly regarded civic leader among the Puerto Rican community, and
was formerly an Assistant Commissioner in the Housing and Development Ad-
ministration of the City of New York, in charge of small business development.
5. ROBERT L. ORTIZ, an experienced accountant who has demonstrated pro-
ficiency in business administration in several successful business ventures. Mr.
Ortiz will personally participate in the management of the corporation.
6. LEGAL COUNSEL: Office of Frank A. Oritz, I48 Livingston Street, Brook-
lyn, New York. This is a firm of three attorneys, whose senior partner is Frank
A. Ortiz, graduated from City College and Harvard Law School. Mr. Ortiz was
admitted to practice in the State of New York in 1959.
The firm has had extensive experience in the real estate and mortgage area.
It is presently representing clients engaged in several projects which require
not only proficiency in the law, but also the ability to promote new business
among minority groups and the financing of construction and real estate projects
through the utilization of available federal resources such as the Small Business
Administration, Federal Housing Administration, and the new provisions of the
National Housing Act.
ESTIMATED OPERATING EXPENSES
Rent $3, 000. 00
Heat/utilities and maintenance 1, 000. 00
Depreciation office 500. 00
Mailing 1, 000. 00
Office phones 2, 500. 00
Advertising 3, 000. 00
2 girls processing 13,000.00
Mortgage solicitor 9, 000. 00
Bookkeeper servicing 8, 000. 00
Manager office 10,000. 00
Interest preferred stock 7, 000. 00
Miscellaneous expenses 2, 500. 00
Total 60, 500. 00
ESTIMATED PROJECTED INCOME
$8,000,000.00 per year {QV2% discount) $520,000.00
Origination fees (1%) 80, 000. 00
Projected income 600, 000. 00
Banks discounts
Permanent financing (takeouts) @ 4%) $320,000.00
Interest warehousing (@i%) 80,000.00
Additional bank expenses for disbursements (a contingency) 40, 000. 00
Total 440, 000. 00
Net projected income before operating expenses 160, 000. 00
Operating expenses 60, 500. 00
Net estimated income for first year 99, 500. 00
Payroll taxes 2, 300. 00
Estimated corporate taxes 24,300.00
Total taxes 20, 600. 00
Net estimated income after taxes 72,900.00
955
-cu--
(S?M?^ %te
EFFECTED-WITH UlSDERWRITERS AT
NO 32AL/aM/0682
(NOT INCORPORATED)
We confirm thit acting upon your insiniciions wc have effected ituurayce for youi acctmnt
with Undcrwiiteij it LLOYD'S, LONDON, each for his own part and not one for another, in
rhe form encbsed herewith.
Assured:
P.O. Aiidress:
Tern:
Coverage :
Limit:
Deductible:
Premluro:
State Tax:-
Conditions:
HOGAR FUNDING CORPORATION
971 Broadway, New York, N.Y.
August 2li, 1970 to August 24, 1971 Noon Standard Time
both dates
MORTGAGE BANKERS BLANKET BOND
76.57. of $150,000 each and every loss, but limited $10,000
for closing attorneys not full time
employees of the assured
$500. each and every loss
$1,500 for 1007. limits
Premium for 76.57. - $1U7.50
3.257. - $37.29
Mortgage Bankers Blanket Bond including Broad Form Errors &
Omissions
Service of Suit Clause NMA 772-Mendes & Mount
Cancellation Clause NMA 1331
Nuclear Clause NMA 1191
The insurance effected by this cover note is subject to 10 days canceUatioa clause.
This coi
or certificate
by delivery of policy or certificate o
DATED AT New York. N Y.
October 12, .
(Louis Vallack Corp.) gf
> all terms aod conditions of the policy
automatically terminated and voided
3ERSON, LTD.
956
^~^ RADIOACTIVE CONTAMINATION EXCLUSION CLAUSE--
^HYSICAL DAMAGE — DIRECT
(Apprited by Lloydl Vnderwr,(ert- fin and A'..n .\tar,„r *,.„.c,nl:;n-
Thii policy doe« not cover aoy !os» or rtamAK* •J'lsinj; directly or indircrlly from nucleai
reactioo nuclear rtdiacion or rAdioaclive coolamicaliou however Buch nuclear reaction nuclear
radiation or radioactive contaminatJon may have been cau« 1 ' NtVERTUELESS i( Kire is an
meured p»nl and a F^n arieea directly or indirectly (rotn nuclear reaction nuclear radiation
..r radioactive eoc tarninauon any loaa or damage ar.sing directly from that Fire ehall (subject
Ut the provisioovof tLis policy) be covered KXCLUDINO however all loss or damuije caused by
liuc'.ear reaction nucletr radiation oi radioactive contarninalioo arisinn dirpclly or indirrclly
.liom that Fire.
• Ntmt.— If Ftr» is not an insured peril under this policy the words from " NKVERTHE-
I j:8S " to the end of tb» clause do not apply asd should be disregarded.
Prlawd >t Ll07d'>, LoiulaB. RofUad
J/8/41
h.M.A. U»l
.^ -(.ip/jroifff-py mLyns T-Tracr "-riryrr nrr (nta ,>fln Jtormc ain^etaKont
NOTWITHSTANDING anj'thing ron-aincd in Ih.s Insurance to the -^""^'''y '';'',,'°on't''ract
S^gt^ he .L.ur;d or by o.a,l,ng't« the A.,ured, by registered, certified or other first cU« mail at
^l A6,ured'8 adrlresi as »hn«n ,n this In-urance, .ritt^n oMico stating when, not >*« than 10 days
thereaiter the cancfilation shall be effective. The mailing of such notice as aforesaid shall
be sufficient proof .'( "otice and thi^ Insurance shall terminate at the dat« and hour specified
'" 'Tt\h?s'"n.urance shall bo cancelled by the AMured the Underwriter, shall retain the
customary short rate <,ro^.rt,on of th". premium hereon, except that '' '"'• '°'"~°'» '."^^""/^
admstaMe basis the •Underuritcrs shall r.r.Mve the cat .e-l premium hereon or .'•'»• ':"««'r°»7
.^t\J r..„ nrnnnrlion of anr minimum premium iIium ated herein whichever is the greiflter.
"""^U ^hta 'neran^e shairb'o clnieiled by oâ„¢ on b.h.iH of tho Underwriter, the UnderwriUrs
shrOJ retain the pro rat* proportion of the premium hereon, except that il this 1°»H;»°" " °"
In adjustable basis the Underwriters ehall receive the cArned premium hereon or the pro rat*
orotxirtion of any mininium premium stipulated herem whichev«r la the gr«at«r.
^^ayment or Under of any unearned premium by the UnderwriUrs shaU not be a condition
precedent to the enectivcnres of Cancrllation but such payment shall be naade as soon as
'^'^Vf^the period of limitation relatinK to the giving of notice is prohibited or made void by
any iLw^ntriumg the construction thereof, such period shall be deemed U. be amended «,
aa to be equal to the minimum period of limitation permitted by such law.
-aicTTon unu'Uir matters orTsingTiereu'naer shall be determined in accordance with the law
and practice of such Court
It is further agreed that service of piocess in such suit may be made upon
MENDES h MOUNT
27 William Street
New York, New York
and that in any suit instituted against any one of them upon this contract, Underwrite-.-s
will abide by the final decision of auch Court or of any Appellate Court in the event of
an appeal.
The above-named are authorized and directed to accept service of process on be-
half of Underwriters in any such suit and/or upon the request of the insured (or reinsured)
to give a written undertaking to the insured (or reinsured) that they will enter a general
appearance upon Underwriters' behalf in the event such a suit shall be inptituted.
Further, pursuant to statute of any state, territory or district of the Uruted States
which makes provision tlierefor. Underwriters hereon hereby designate the Superintendent,
Commissioner or Director of Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as their true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding instituted by or
on behalf of the insured (or reinsured) or any beneficiary hereunder arising out of this
Contract of insurance (or reinsurance), and hereby designate the atKive-named as the per-
â– on to whom the said officer is authorized to mail such process or a true copy thereof.
957
Mr. Cohen. To my knowledge.
Mr. Blum. Mr. Chairman, we have received a number of documents
from Banco Popular under subpena. Among them is the loan binder
for the Hogar Funding Co. I ask that appropriate sections of this file
be made part of the record. I should like to read a segment of that
now.
Senator Hart. Xo objection.
Mr. Blum. It's at the end of the sheet.
The accounts carried, including aflBliated or influenced accounts, title Common-
wealth Land Title Insurance Company, SC Number 96-9-20311, $50,000.
Mr. Cohen. That is a savings certificate like a certificate of deposit.
I thought you were referring to demand deposit accounts with the
bank. I know Commonwealth has them. They are with the bank, I be-
lieve, in the Rockefeller Branch. And, I think I am correct in saying
that those accounts have no connection with it.
We do a lot of business Avith Commonwealth Land Title, and they
may have put a certificate of deposit in the bank at their request.
That's a savings certificate.
Mr. Blum. The deposits that you keep or that you have from Com-
monwealth relate to the business that you do with CommonMealth,
rather than the business that Hogar does with them ?
Mr. Cohen. T don't believe that they relate. We offer a general bank-
ing service to the community and Commonwealth takes advantage of
it. As I say. I know some of the people at Commonwealth. Other peo-
ple in the bank know people at Commonwealth. And they know our
bank, and we do banking business with them, and we do title business
with them,
Mr. Blum. And they offer a general service to the community, and
you take advantage of their general service to the community as well ?
Mr. Cohen. That is correct. I would also add. by the way, that
accounts have been solicited personally by me, from Commonwealth.
Every officer of the bank, people on the advisory committee, and
everyone who is friendfy to the bank is always interested in soliciting
accounts and in attempting to get business. This is how the bank has
grown in New York and this is how we hope the bank will continue
to grow in New York.
It is only increasing our deposits and obtaining new deposits that
we can offer services to the community.
Mr. Blum. I have no further questions.
Senator Hart. Mr. Chumbris?
Mr. Chumbris. Thank you. In your relationship with Mr. Colon,
how has your bank fared ? Have you had any problems ?
Mr. Cohen. Problems with Mr. Colon ? No, sir ; none at all.
Mr. Chumbris. I mean as far as any losses or
Mr. Cohen. No, sir.
Mr. Chumbris. Have you noticed an improvement in Mr. Colon's
operation since he first began, or since you started servicing his cor-
poration with the warehousing loans ?
Mr. Cohen. Do you mean as an operation, internal, or as a financial
improvement ?
Mr. Chumbris. I mean as a financial improvement. Is his business
a business that is moving forward, or at least holding its own for a
short operation ?
958
Mr. Cohen. He is holding his own. It could — the improvement has
been slow financially.
Mr. Chumbris. Now, both of you fellows are in the finance busi-
nes, and both of us up here are not. And you are discussing some
things that may shoot over our heads. We catch it maybe 2 days later.
You heard his answer to some of my questions toward the end about
pool of money. How could he be helped ? I mean, who would be in a
position in the community, whether it be a Federal bank, a State bank,
or a mortgage company, or whatever it may be, how could his cor-
poration be helped in carrying out the objectives of their particular
community of financing homes for the Puerto Rican people ?
Mr. Cohen. The community needs a fund of capital available. How
this fund is put out is obviously the problem.
Mr. Chumbris. Well, that is the question I am asking you.
Mr. Cohen. Right.
Mr. Chumbris. Who can help? I mean, many times you give us a
lot of technical information and what we really need is something
that really can look into the heart of the matter rather than just the
mind of the matter.
Mr. Cohen. I really have not studied it sufficiently so far as to make
a study as to how it could help. I do know this ; that the bank, itself, is
prepared and has spoken with Mr. Colon, about extending his ware-
housing line to the point — again, there are limits put on this very often
for the borrower's own protection.
For every dollar that he puts out, or puts in a mortgage, he does
need a certain amount of working capital. And his working capital,
his equity in the business, is limited. The more this would be increased,
the more business he would be able to handle.
His problem, I would think, is obtaining the permanent takeout.
The banks per se have limited capital. The Banco Popular in New
York does not do permanent mortgage financing on residential homes
as a practice. Even in Puerto Rico, where we are actively engaged, as
Mr. Blum pointed out, we also go into the secondary market and sell
these loans.
Otherwise, we also have limits — our basket would fill up rather
quickly. There has to be a source of funds where these mortgages can
be put. I think the Fannie Mae-Ginnie Mae operations have gone very
far in this regard, and quite possibly they could be expanded or
enlarged.
But I am not expert enough in the field.
Mr. Chumbris. I know you haven't had too much time to reflect on
this, but these hearings will be open for quite some time yet. We have
several other areas we are going to have hearings on, and if you have
some additional thoughts, we would appreciate a letter from you on
it for the record.
Mr. Cohen. It would be my pleasure, sir.
Mr. Chumbris. Thank you.
Senator Hart. Mr. O'Leary ?
Mr. O'Leary. Mr. Cohen, looking at the warehousing line of credit,
the last paragraph on this particular page— I think it's the third
page — reads as follows :
An excellent relationship was developed since the opening of this account.
Joseph Colon, President. And has referred many profitable and influential cus-
tomers to us.
959
I am just wondering, does this refer to the short money loans of
other brokers ? ^ . , ^ -,■^ ^ •*. ^.u ^■-R„f t
Mr Cohen. No, I wouldn't thnik so. I did not write that. But i
would not think so. Mr. Colon is on, as I explained, the advisory com-
mittee. Mr. Colon is well known in the community. And the bank holds
itself out to service the community and where he could help, he has
been very helpful to the bank.
Mr. O'Leary. Thank you.
Senator Hart. Thank you, sir.
Material Relating to the Testimony of
Theodore Cohen
960
EXHIBIT 2
Line of Credit memos from Hogar Funding Loan Binder
( ) K'FW.
^ Ml OF CREDIT
) GUIDANCE
- â–
(X
) REPORT
. < 3^ KNf WAt (g
â– ( X ) ADVISED ^B ( ) OFFERING
o«T. ''
8-12-71.
Delancey ,' 500.000.00
*->*r»^,._
s 300,000.00
8-31-71.
BORROWER
A60RESS
HOGAR FCNBI13G CORP.
971 Broadway. Brooklyn, B. T.
LINE OF BUSINESS
TENOR AND PURPOSE OF ADVANCES TO BE MADE UNDERLINE
tlnrtgage Bankers- PHA and V.A.
inaui.bd mortgages
Se« reoarks
VIE Of CREDIT
LINE LIMIT
INTEREST RATE
SERVICE CHARGE
CURRENT
PREVIOUS
CURRENT
PREVIOUS
SAVINGS CERTIFICATES OR ACCOUNTS
MAJUCfTAdLE SECURITIES
REAl ESTATE MORTGAGES
$500, 000. 0(
1% Over
Prima
8 1/2
35.00
25.00
250,470.00
CHAHEL MORTGAGES
ASSIGNMENT OF ACCOUNTS RECEIVA61E
WAREHOUSE RECEIPTS
FACTOR'S HEN
TWIST RECEIPTS
CROP HEN ON
IMONORiTinM OF . - ;
. - â– ^ f t%
ra :.j^
COSIGNERS OR GUARANTORS
OEAN
- . , -
OVERDRAFT
PAID t/C DRAFTS NOT REIMBURSED
X X X X X X X
X'X X X X X X
.,...^-
DISCOUNTED PAPER
UTTERS OF CREDIT â– T "â– -
.'â– :â– -â– -â– - ;--
-.r -',â– -
â– â– "',; 'irK:
&\^?---
v.- ,. M-
--
GUARANTIES TO CARRIERS
OTHER
'
TOTAl DIRECT llABIlirr
$500,000.0(1
. CO^ICNAIURES/GUARANTIES GIVEN
X X X X X X X
OTHER
X X X X X X X
, t? ,- .- - - ,
' '-
lOTAt CONTINGENT IIABIIIIY
ACCEPTOR OF DISCOUNTED DRAFTS
X X X X X X X
MAKER OF DISCOUNTED NOTES
XX X XX XX
35.00
TOTAL INDIRECT LIABILITY
GRAND TOTAL J
500,000.00
25.00
250.470.00
All approved FBA, conventional and V.A. first mortgages.
Sea rentarics
LAST FINANCIAL STATEMENT
LAST CLEAN UP
DIRECT DEBT LAST 13 MONTHS
( X ) AUDITED
( ; NON-AUOtTED
5467,130.0) Jslll.ljJ.OO
ACCOUNTS CARRIED, INCLUDING AFFILIATED OR INFLUENCED ACCOUNTS
AVERAGE BALANCES
96-01482-2
Hogar Funding Corp.
(See attached list)
$62,100.00 $42,4)16.00
Terms and conditionat This will be a revolving line 1 | """"'i
LAST NAME AND f
than an aggregate principal aaount of $75M of such !
first mortgages whore tha FHA iosurajjce certificate i
is niiGsinq. '
2) That ncgar will deliver to Eanco an original of '
the fiia consnitnent froQ a pencanent institutional I
lenr'er accpotnb.'.e to Banco which htn cr-. fitted itjiclf
to purchase from Hogar an aggregate principal assouat
A. Scar Loro uHh { -
!/_ /^ 6c/v,-N
CREDIT INFO. PEPT.
961
use this ccr^aitiaent from Federal Uaticnal MoTtgago Aaaociatioa for t'.-.a
purpose of obtaining wareh-^sing without first getting written penalssion ,S
froa Banco. --
A
V
3) That Hogar notify Fannie Mae in writing that Banco has the first claim
on the payments to be made by Fannie Mae under its cooanititent to Hogar and
farther agrees not to warehouse with any other bank While the coBmitment
with Banco is outstanding.
4) That Bogar will deliver to Banco all of the documents it is reijulred to
de I iver under the conanitment issued to Hogar by the permanent take out
Bortgag<>:.
5) Banco will ?>ot warehouse any mortgage or mortgages where in the opinion
of the Bank's counsel the papers do not meet either the requirements of the
FHA or the requirements of the permanent take out mortgage or the standards
â– et by Banco Popular de Puerto Rico or where the mortgiige is not acceptable
to the B^Ulk's counsel.
6) Each mortgage purchased by Banco Popular de Puerto Rico will be atl%% over
prime per annum and in no event shall the amount advanced exceed the amount
which the permanent take out mortgages has agreed to purcheise froa Hogar or
. from •■a- as the warehousing bank.
7) That each mortgage to be purchased by Banco Popular de Puerto Rico must
be eligible for purchase bytthe bank under the Banking Law of the Estate of
â– cm 7ozfc. â– '
8) That the interest rate on each loan shall be the maximum rate permitted
by the FHA, but in no event shall it be less than 7 per annum plus the
PBA insurance preolum.
9) That the purchase of each mortgage by the Bank shall be without cost to
the Bank zuid that Hogar will pay a bank services fee of 35.00 ^or each
mortgage reviewed plus the recording charges of the assignment and that Hogar
Also pay for the preparation of the asslgniaent froa Banco Popular de Puerto
Sico to the permanent take out mortgage plus the recording charges of that
assignment.
10) There are no other financings outstanding on Hogar except those speci-
fically set forth in writing and no filings under the Uniform Commercial
Code of Hew York without written approval by the Banco popular de Puerto Rico.
11) That eogar will service each mortgage for Banco during the interia
period of warAhousing without cost to the Bank and that aogar will remit
monthly within 3 days after receipt of Hogar the interest payment for the
period of ti::.a the Bank holds each mortgage. If the pcsyTMTt is not so
recci.v.=d within tha 5 cays frcn tha due cate of each instalteent, the E^nk
•hall charge Bogar this amount against the deposit maintained by Eogar with
BancOf and Cacco'a failure to so charge the account does not negate the
provision.
12) Any and all nortgagts held bytthe Bank for over days will bo bou-ht
by Hogar upon written deaand to include mortgages not acceptable by the Bank
within 5 days written demand. Upon Ho^.'.r ^^•i lure to repurrhssp the snr.-.o
wit-Mn the tisa specific-.' herein, the er~jnt cf czch r:ortg?."S not co rept?r-
fA^.-r^ shall 'b*' ch?"— -^ T-n^'r.st 9rrr sr.'? sil (J-r-oslts fi-t t*-.*^" ^^rrn vi\'^
on deposit with Banco c'opular de Puerto Rico.
13) if for any reason t>-e corrtnitr^ent for chs perr»n'?'«t t!»>s ort Tiort<^="^3 is
ccincsllf^^ cr rr'^ci'*^"'— oz r?.c-<lifi.£:i# th^ii this ccrt^^tr'.C'St 3>»1I. Cw^^ir.-'i*-
iiji.iJiitcJ.7 withiut notice t- U-Siv. U^gir v.ll i^tify the Sar^ in writing
on all changes in its oucstandiog take out csmuxtcents.
962
LINE OF CiaBDIT (8-12-71)- Hogar Funding Corp. (continuaclfin)
14) That no mor* than $75,000.00 of mortgage* ahall b« Insured by any one
title company and further that the title company used by Hogar will be
acceptable to the Bank's counsel.
15) Before this coBunitiaent becomes effective Hogar to deliver to the Bank's
couinsel a corporate resolution which shall be adopted at a meeting of the
board of directors and which shall ronain in effect until rescinded by notice
to Banco and which authorizes the president of Hogar to transfer by written
assignment to Banco each said mortgage »«rehousing and further that each
transaction is within the regular course of Hogar '• business and that such
transaction will not render Hogar Insolvent.
An excellent relationship has developed since the opening of this account.
Joseph Colon, President, has referred many profitable and influential
customers to us. The growth of the business and their average balances have
been more than satisfactory to warrant a renewal of the line. The latest
financial information reveals K/W 125.0|<> total assets 407. 2K» total
liabilities 282. 2K> Gross income 257. 6M> net' income before taxes 3.9M.
This accommodation has been fully discussed with Mr. Abudo who has approved
ACCOWJTS CARRIED INCLUDING AFFILIATED
OR INFLUENCED ACCOUNTS
Title Huniber P/B A/te •
Bogar Funding Corp.
(FHA Trust Acct.) 96-01534-9 9 5,591.95 $ 10,250.00
Bogar Funding Corp.
(Clearing Acct.) 96-01535-7 1,703.49 1,450.00
Ool6n Real Estate 96-01273-0 169.44 666.00
Joseph Coian 96-21112-1 187.48 183.00
Robert L. Ortiz 96-21331-0 1,112.41 2,166.00
Cosmonwealth Land
Title insurance Co. S/C 96-9-20311 50,000.00 —
963
â– HOGAR FUNDING CORP.
971 BROADWAY
BROOKLYN, N,Y.
We have received the unqualified Fiscal Audit for February 28, 1971,
prepared by Weeks ler, Cohen & Co. P.A's.
The overall picture is a good one.
We do not receive the volume figures. However, in this second year
of operations, the gross income increased 91%. Going from $135>1 to
$258M. And with discounts comparatively the same ($65M vs. ?63M) ,
income increased 169% ($193^ vs. $72}<) . The other mortgage expenses
tripled and principals increased their salaries from ?8M to $43M-
Resulting on a before Federal Tax profit of $4>< as compared to $5><
in 1970.
After an adjustment of $1>1, the balance was retained, thereby
increasing net worth to $125M.
Working capital, declined from $114M to $88M, primarily because of
increased investments in Fnma stock.
This ($25J<) investment is in truth a bid requirement of the Fnma
and represents deposits as well as being an indicator of future
business with them.
A balance sheet contra item "Trust Funds in escrow. These funds
held in BPPR for various home owners for the payment of their taxes
and insurance.
As such it is carried as a current liability offset as a current asset.
The tirue liability is practically nil, except for monies due to the
Bank ($223M vs. $350J<) which is secured by the mortgages.
14 mortgages at Feb. 1971 and 24 mortgages in Feb. 1970.
Mortgages placed with BPPR approximate $2>1)< per year.
-/ 7/—
*^ John Rugg^ri
Credit Administration
August 13, 1971
964
( ) NEW
.<4E OF CREDI1
1 GUIDANCE
( 2
L ) REPORT
-- fXlRENEWAl ■(XjAOViSeD ' 1 I 1 OFfE«INO
2-4-71
ornc
OEIAHCEY
'500.000.00
8-31-71
•500.000.00
2-27-71
•ONROWCR
ADDRESS
BOGAR FORDIHQ CORP. , '
971 Broadway, Brooldyn, B.T.
LINI OF BUSINESS
TENOR AMD FURPOSE OF ADVANCES TO BE MADE UNDEHI-INK
Mortgage Banlcers - FHA and V.A.
Insured nortgages
LINE LIMIT
INTEREST RATE
SERVICE CHARGE
CURRENT
PREVIOUS
CURRENT
PREVIOUS
SAVINc: CERTIFICATES OR ACCOUNTS
MARXETABLC (CCUIITIES ^-^ ;_,.
•EM ESTATE MORISAC.ES
CHAna MOMOAGES
iSOO, 000.00
3 over
prime
1054
• •
:;195.276.00
ASSIGNMENT OF ACCOUNTS ReCEIVABlE
WAtEHOUSE RKEIPTS
*â– '
fACTOR^ HEN
nusi RKEinS
CROP LIEN OH
PWMPIAIION OF . .-.^-,^>9^arr^r-
• 41 ■■-->» ,-.. , r .1
: - -f. »-i-_5
t -^
-^.•^.
CO-SIGNERS OR GUARANTORS
•a ■;- • '-
eUAN
''
OVERDRAFT
X X X X X X X
fAW l/C DRAFTS NOT REIMBURSED ''
X'X X X X X X
—
" â– '
DISCOUNTED PAPER
"
UTTEHS Of CREDIT " c ^^ttZrVi i--
r;^:^^ cise;
Lwi ,,;-5 ."
.- -. 3;«-
;wvi ;iJ---
â– 7. .
GUARANTIES TO CARRIERS
„ ^ _
_ , _ ^ ^
..-.,-
.onrat. .
â– . . :..
TOTAL DIRECT LIABILITY
iCOSIONATURES/OUARANTIES GIVEN
xxxxxxx
OTHER
X X X X X X X
â– : - c:
; -~'t. ;•
: , â– , â– â– â– TOTAL CONTINGENT LIABILITY
-
ACCEPTOR OF DISCOUNTED DRAFTS
xxxxxxx
MMB OF DISCOUNTED NOTES
xxxxxxx
TOTAL INDIRECT LIABILITY
\ â– ** â–
GRAND TOTAL
»
500.000.00
;195,276.00
All approved FHA, conventional and V.A. first mortgages.
See remarlcs
LAST FINANCIAL STATEMENT
LAST CLEAN UP
DIRECT DEBT LAST 12 MONTHS
tX } AUDITED
( ) NON-AUOIT£D
^93.^i?H-.00 :s,i,4|^.oo
ACCOUNTS CARRIED. INCLUDING AFFILIATED OR INFLUENCED ACCOUNTS
96-014&2-2
Bogar Funding Corp.
(See attached list)
$53,300.00 $35,560.00
Tenaa and conditionst This will be a revolving line
than an aggregate principal amount of $73>( of such
first mortgages where the FHA insurance certiricate
la missing.
2) ihac K0j3r will t'eliver to 3;inco an oriji.ial of
the firm coiiinii tatent frou apersiancnt institutional
lender acceptable to Banco which has couaiitted itself
to .;atchase frcn Oogar an aggregate principal a.;iounc
{>,i<UlS A. ACUdO lii^)
//
CREDIT INFO. DEPT.
965
oC snch moxtgagea of at ' aat $50C^ and that Hogar ' ye«s not to apply or
aae this cotmaitraent frou Federal national Mortgage Asaoclatlon for the
purfloae of c^talning warehousing without first getting written permission
fron Banco.
3) That Hogar notify Fannie Kae in writing that Banco has the firts claim
on the payments to be made by Fannie Mae under its ccEomitment to Hogar and
further agrees not to «nirehouse with any other bank while the coBBaitment
with Banco is outstanding.
4) That Hogar will deliver to Banco all of the docomenta it is required to
deliver under the coonitaent issued to Hogar by the permanent take out
mortgage.
5) Banco will not warehouse any mortgage or mortgages where in the opinion
of the Bank's counsel the papers do not meet either the requirements of the
FBA or the requirements of the permanent take out mortgage or the standards
â– et by Banco Popular de Puerto Rico or where the mortgage is aot acKzeptable
to the Bank's counsel.
6) Bach Bcrtgage purchased by Beuoco Popular de Puerto Rico will be at 3 over
priiae per annuo and in no 4vent shall the amount advanced exceed the amount
which the permanent take out mortgagee has agreed to purchase from Hogar or
£rcm us as the warehousing bank.
7) That each mortgage to be purchased by Banco Popular de Puerto Rico must
be eligible for purchase by the Bank under the Banking Iiaw of the Estate of
â– ew Tork.
8) That the interest rate on each loan shall be the maxlaww rate permitted
by the FBA, but in no event shall It be less than 7.5% per annum plus the
FBK insurance premium.
9) That the purchase of each mortgage by the Bank shall be without cost to
the Bank and that Bogar will pay a bank service fee of $2S.OO for each
â– nrtgage reviewed plus the recording cbatrges of the assignment and that Bogar
also pay for the preparation of the asslgnxent from Banco Popular de Puerto
Rico to the permanent talce oat mortgagee plus the recording charges of that
assignment.
10) There are no other financings outstanding on Bogar except those speci-
fically set forth in writing and no filings under the Uniform Ccoenerclal
Code of Bew York withiMit written approval by the Banco Popular de Puerto Rico.
11) That Bogar will service each mortgage for Banco during the interim
period of warehousing without cost to the Bank and that Ho^ar will reriit
monthly within 3 days after rsceiot of Ho^jar tha interest paycent fcr ths
period of tine the Bank holds each mortgage. If the payxsnt is not ao
received within the 3 days frcaa the due date of each Installment, the Bank
shall charge Bogar this amount against the deposit maintained by Hogar with
Banco, aivd Banco 's failure to ao charge the accc*uut uo«3 not ne^^ta t'.i^
provision.
12) Any and all mortgages held by the Bank for over 60 days will be b-:ught
by Bcgar upon written dsaand to include mortgages not acceptable by fhs Scjik
within 5 days written demand. Upon Hogar failure to repurchase the sarw
Sajico Po^uIjx a«» ^usrso Kico including ai-ji? reserve acccunts, that tncy lurther
grant to Banco a security interest arrf right of see off to all fuai2» j2 Uojak
on deposit with Banco Pornilar Oe Puerto Rico.
12) If for any reason the coKraitioent for the pcrrjanent taje ooc aortg-is i.3
cancalled or reaclnco-J or tnodifica, then tins cc:j= i c=ent shall temiauLd
i"ra»dlately without notice to Hogzu'. H->^=>t will notify the Bank in v-xiting
on all oh»jQ-,„3 j^jj j^^s out^tari-'in-j take a".t c-c?T~itn-?nts.
966
LINE OF CREDIT (2-4-71) Hogar Funding Corp. (continuation)
14) That no more than $75,000.^00 of mortgages shall be insured by any one
title company and further that the title company used by Hogar will be
acceptable to the Bank's counsel.
15) Before this commitment becomes effective Hogar to deliver to the Bank's
counsel a corporate resolution which shall be adopted at a meeting of the
board of directors and which shall remain in effect until rescinded by notice
to Banco and which authorizes the president of Hogar to transfer by written
assignment to Banco each said mortgage warehousing and further that each
transaction is within the regular course of Hogar 's business and that such
transaction will not render Hogar insolvent.
An excellent relationship has developed since the opening of this account,
joofeph Colon, President, has referred many profitable and influential
customers to ue. The growth of the business and their average balances have
been more than sztisfactory to warrant a renewal of the line. The latest
financial information reveals N/Vj $123>(, total assets ?535>^, total liabi-
lities $412^, gross income $41|(.
This accomodation has been fully discussed with Mr. Abudo who has approved
same.
ACCOONTS CARRIED INCLUDING AFFILIATED
OR INFLUENCED ACCOUNTS
P/B A/B
Hogar Funding Corp.
(FHA Trust Acct) 96-01534-9 $ 12,828.52 $ 14,864.00
Hogar Funding Corp.
(Clearing Acct) 96-01535-7 2,229.01 4,733.00
colon Real Estate 96-01273-0 1,331.15 1,433.00
Joseph Colon 96-21112-1 404.95 483.00
Robert L. Ortiz 96-21331-0 4,670.68 1,700.00
Commonwealth Land
Title Insurance Co. s/C 96-9-20311 50,000.00
LTE/sc
967
I GUIDANCE
iX ) ADVISJD
( I OHtllNC
-Bin
2-27-70
0EUNCB7
•500.000.00
8-27-70
* 500,000.
3-31-70
â– OHROWER
BOGAS ymmiaG oorp.
ADO.ESS 97X Broadway
..Brooklyn. H.T.
Mortgage Banker* - FHA (umI V.A.
insured mortgagea.
LINE LIMIT
INTEREST RATE
SERVICE CHARGE
TYPE OF OEOII
CURRENT
PREVIOUS
CURRENT
PREVIOUS
SAVINGS CERTIFICATES OB ACCOUNTS
MARKETAJIE SECUHITIES
«*l ESTATE MOtTGAGES
$500,000.00
XX % XX X X
XX X X X X X
lOK/2%
■••-V/rf*%!
$360,121.
ASSIGNMENT OF ACCOUNTS HECEIVAILE
WA.tK^.f. RECEIPTS
FACTOR'S UEN
•AK3.3«r*!r
»♦
TRUST RECEIPTS
.*^'
CROP LIEN ON
PIGNORATION OF
CO-SIGNERS OR GUARANTORS
CIEAN
PAID L/C DRAFTS NOT RE-IMIURSEO
DISCOUNTED PAPER
UTTERS OF CREDIT .1
GUARANTIES TO CARRIERS
OTHER
TOTAL DIRECT LIABILITY
CO^IGNATURES/GLJARANTIES GIVEN
XXXXXXX
XX XX XX X
„
• f--
lOIAl CONTINGENT IIASIUTT
>•-««*«.
ACCEPTOR OF DISCOUNTED DRAFTS
MAKIR OF DISCOUNTED NOTES
XXXXXXX
XXXXXXX
« ■SLWC-.n.
y .
TOTAL INDIRECT LIABILITY
GRAND TOTAL
s
500,000.00
10 V2*
10.«
♦350.12 7.
All approved F.B.A.
and V.A. First Mortgages
See reaarka
XL-'-
LAST FINANCIAL STATEMENT 1 LAST CLEAN UP
DIRECT DEBT LAST 12 MONTHS
e-»-69
( ) FISCAL YEAR ' (X ) AUDITED [ FROM
rr ) INTERIM ' ( ) NON.AUOITED 1 TO
S
S
ACCOUNTS CARRIED, INCLUDING AFFltiATEO OR INFLUE:^CED ACCOUNTS
AVERAGE BAUNCES
ACCT. NO,
AND NAME
See attac)
ted Bchedale.
TexiDS and conditioos:
—- Mt fr)- all
kv-rr'T^ir^n" (2
53)
. . _.-,.-:: . . : : 1 . ;t= c;i£Q en
aggregate principal aniount of ?1S0, 003.00 of such
first r:;crtJa-^ea vnere tl'.G FTIA ineiirarice certificate
2) v'/;at ii>-c,ar will lioliver to baaco an ori.-inal of â–
the firn ccit2u.tE"ent frca a :>err'2neTit institutional |
lender acceptablQ to Banco v.hich has coumittcd itself
to ;iurcna33 i*aa fiogar an ag-j-reja^e principal araoAnt
^f,.A. Abt^o (82)
°!
^U.E. Doivning (247)
968
of such wtgages in an amount o£ at least $500,000.00 and that Bogar agrees
r.ot '.J a.-^. Y OJ^ '1=° this camitEcnt frcn Fedaral Kstional Mortgage Association
£cr th-s p^st>ose of ebtaining wareltouairKj without first g<Bttin-3 written per-
7>; f^--': Fo^'pr notlfv Federal national Mortgage Association in writing that
r-.-,.,_- v-_ ^y,^ first clain c!i r?-fi ^svTv^nts to "oe narfe by Federal Hational
;-. :'--.:iZ' Associiticn un-'cr its ccct.-.itin2nt to Eogar and further agrees not to
varehouse vitli any other banJ; while the co^iciitiuent with Banco is outstanding.
^'. '.' - > w.rr-r vixi c'-li'T^r CO ^-'-'co all of the docc—r.ts it is re'^tiired to
5} ISanco vill not varehouse any sortgago or mortgages where in the opinion
of the banlc's counsel the papers do not meet either the remilrenients of the
FHA or the recuirenenta of the pemanent ta>te out mortgage or the standards
set by Banco Popular de Puerto Rico or where the Bsortgage is not acceptable
to the oank's counsel.
6) Each mortgage purchased by Banco will be at 10% per annoD and in no event
shall the aiount advaacsd exceed the amount which the permanent take out
ccrtcijca has agreed to porcdiase fron Hogar or from us as the wetfehousing bank.
7) That each Mortgage to be purchased hy Banco most be eligible for porcSiase
by the Bank under the Banking Law of the Batata of a«w York.
8) That the interest rate oa eac^ loan shall be the aaximun rata permitted
by the FHA. but In no event shall it be less than 7.5% per annua plus the
FHA insurance preninm.
9) That the purchase of eadi aiortgage by the bank shall be without cost to
the bank and that Hcgar will pay a bank service fee of $25.00 for each Dort-
gage reviewed p^s the recording charges of the assignment and that Bogar also
p^ for the preparation of the assigoDent from Banco to the permanent take
oa£ Bortgagee plus the recording charges of that asslgmsnt.
10) That there are no other fln2mcinga ootstaoding oa Bogar except those
specifically set forth in writing and no filings under the Onifom Cononerclal.
Code o£ Hew Tork without written ai^roval t^ the bank -Banco Popular de Puerto
Rico-.
11) That Bogar will service each Boftga^a for Banco during the inter la period
of warehousing without cost to the bank and that Bogar will remit monthly
within 3 days after receipt by Bogar the Interest payment for the period of
time the bank hold* each mortgage. If the payaant is not so received within
the 3 days froB the due date of each Inatallment, the bank shall charge Bogar
this amount against the deposit oalntainsd by Bogar with Banco. moA Banco'*
failure to *o charge the account does not negate the provision.
12] Any and all mortgages held by the Bank for over 60 days will be bought
by Hogar upon written demand to include mortgages not acceptable by the Bank.
Opon Bogar *s failure to repurchase the same within the time specified herein,
the aiaonnt of each mortgage not so repurchased sahall be charged against any
and all deposits that they have vMb Banco including aoy reserve accounts.
That they further grant to Banco a security interest and right of set off to
all funds of Bogar on deposit with Banco.
13) If for any reason the commitaent for the permanent take out mortgage i*
cancelled or rescitoded or raodified. then this coaniitaent shall terminate
iimaediately without notice to Hogar. Bogar will notify the Bank in writing
all changes in its outstanding teOce out coamitisents.
Cont'd
969
"bine of ccadit (2-27-70) Oogmr Funding Corp. >a<w
14) Thla coonitraant may also b« tarminatad by Beuieo for any raaaon on
writtan notlea to aogar by cartiflad or ragiatarad mall.
15) That no mora than $153,000.00 of nort'jagaa ahall ba insured b/ aay
ona title company --nd further that the title company used by aogar vill
be aeeeotable to the bank 'a counael.
16) Before thla consnitmbnt becomaa effective Bogar to deliver to the â–
Bank's ooiinsel a corporata resolution which shall be adopted at a meeting
of the board o< -Jlrectora and which shall remain in effect until rescinded
by notice to Banco and which authorizes the president of Bogar to transfer
by %fritten asvignment to Banco each said mortgage warehouaing and further
that each transaction is within the regular course of Hcgar'a business and
that such transaction will not render Uogar insolvent.
This acconmodation has been fully discussed with Mr. L.A. Abudo vtto ha*
approved sarae.
LTE/sc
970
LiM of Credit (2-27-70) ao4ar Funaiag Corp.
tsaa-J.
Accotmrs oJutzxD zaajaoiaa ArrzLXAtsD
Bbgar Funding Corp.
Bogar Funding Corp.
(FBA Trust Acet)
Bogar Funding Corp.
(CI«aring Acet)
Colon R«»l Satato
Joaaph Colon
Conoonwaalth Ziand
Vitla Znauranca Co.
S&-01482-2
96-01534-9
96-01535-7
96-01273-0
96-31113-1
8/C96-9-30311
â– orthaaatam Titla
Ooaranty Corporation 96-01625-6
$ 9,715.34
7,943.71
643.00
-10,617.55
370.88
50,000.00
10. OOP. 00
I 89.189.38
f 31,333.00
3,683.00
2.183.00
9,t33.00
183.00
10. OOP. 00
f 56.715.00
-jjy u.c tJ«xiaane«c caxe out
â– suajitr IB IIS a-fisviiiii.
971
D*M-n .., JLAK DE PUERTO RIG
( ) N£W
UN "^ ,«DIT
) CUlDANCe
â– -- '
iZ
) REPORT
( X ) lENEWAt ' ( X ) AOVIStD I 1 OffHING
8-27-70
DEiANcarr
'500.000.00
2-27-71
•500,000.00
8-27-70
â– ORROWCR
ADDRESS
HOGAR FUHDIHS CCRP.
971 Broadv^, BrooULya, V.T*
Iilortgage Bankers - FBA and V.A.
Incurea laartgages
â–
tINC LIMIT
INTEREST RATE
SERVICE CHARGE
CURRENT
PREVIOUS
CURRENT
PREVIOUS
SAVINGS C€«I., 'CAT'S 08 ACCOUNTS
MAHKETAftlE SECURITIES
WAl (STATE MOHTGAGES
$500,000.00
10-1/2X
10-1/2%
: ?385,H0.00
CHAHEL MORTGAGES
J-'- .'i:^ .
-
ASSIGNMENT OF ACCOUNTS HECEIVABIE
__j
■- •
.-!• ■...--v.
r.-CTC« HEN
TRUST RECEIPTS .^.-jw j„_mii rj: — ».
J^»^i.— _>^ —
. -
-1....
CROP LIEN ON
" '
■•;
CO-SIGNERS OR GUARANTORS
•
CUAN • -
'^'f" 7''C- ~ 'â–
â– X-
. : -r. â– ^
; .-' c . i>:
'wii-.i;.-- V
. ,. .
OVERORAET
xxxxxxx
PAID l/C DRAFTS NOT RE.IM5URSED . . ^ , ; . . -_:,
XX XXX XX ..
.-..'- ,..^
...
DISCOUNTED PAPER
UnERS OF CREDIT
~
â– -
GUARANTIES TO CARRIERS
-
....-â– .
-.^i.'~:x^
C(MIGNATURES/aUAIiANTIES GIVEN
xxxxxxx
-i ;-_
xxxxxxx
-â– ' -^
,..
ACCEPTOR OF DISCOUNTED DRAFTS
xxxxxxx
xxxxxxx
V- -'â–
•- ■--
TOTAL INDIRECT LIABILITY
GRAND TOTAL
S
SOO.000.00
>385.110.00
All approved FBA. conventional and V.A. first aortgages.
See renarks
LAST FINANCIAL STATEMENT
LAST CLEAN UP
DIRECT DEBT LAST 12 MONTHS
"" K ) FISCAL TEAR
2-28-70 ( ) INTERIM
g( ) AUDITED
( ) NON-AUOITEO
FROM _
TO
^00.000.00 ^5,000.09
ACCOUNTS CARRIED. INCLUDING AFFILIATED OR INFLUENCED ACCOUNTS
AVERAGE BALANCES
ACCT. NO.
AND NAME 36-01';32-2
Hogar Funding Corj
See attached list
>•â–
1) That at no tiiae shall Banco Populeur acmpt more
than an aqgrecrate principal aiac'-iiit of S3r5^^ of such
rirst nort-jagss vhera the iPUA insurance c:ertitioate
is missing.
2} That aogar will deliver to Banco an ortginol of the
fim coT^itEsnt frca a pcrrrsnent institutional lender
a^ : ; -^.lle to i,-jr.co ^.licii 'it<i.i coi-^.itcOi, itu;jiiJ to
purchsTc froQ Zlogor aa aggregate priscipsl xsssst o£
h 1 LAST NAME AND NUMBER
1 INITlAl 1
--- - --■' •
1; Luis A. Abodo (52)
lO
.< 1
1 - • ■i
i
â– r.,*.(f-
CREDIT INFO. DEPT.
972
- LINE OP CREDl (8-2 /-70) Pag* 2
BANCO POPULAR DE PUERTO RICO
13) If for any reason thtt commltjnent for the permanent take out mortgage
ia cancelled or rescinded or modified, then this commitment shall terminate
iomedlately without notice to Hogar. Hogar will notify the Bank in writtlng
on all changes in its outstanding take out coramltments.
14) That no more than $150,000.00 of mortgages shall be insured by any one
title company and further that the title ccanpany used by Hogar will be
•cc«ptabls to the Bank's counsel.
15) Before this canoaitment becoraes effective Hogar to deliver to the Bank's
counsel a corporate resolution which shall be adopted at a meeting of the
board of directors and w&ich shall remain in effect until rescinded by notice
to Banco and which authorizes t\i3 president of Hogar to transfer by written
assignment to Banco each said mortgage weirehousing and farther that each
transaction is within the regular course o£ Hogar *s business and that such
transaction will not render Hogar insolvent.
An excellent relationship has developed since the opening of this account.
Joseph Colon, President, has referred many profitable and influential
customers to us. The growth of the business and their average balemces have
been more than satisfactory to warrant a renewal of the line. The latest
financial information reveals hA $123)(. total assets $535)(. total liabilities
9412K, gross Income $41>(.
This accoranodation has been fully discussed with Mr. Abudo «^o has approved
OR/sc
P Y
973
'sach mortgages o£ a- ^ east $500^ and that Bogar -!>greea not to apply or
aso this commitmsnt . .cm Federal National Hortg. 3 Association for ttim
parpose of obtaining warehousing without first getting wrjttan permission
froa B2U1CO.
3) That Hogar notify Fannie M2m in writtlng that Banco has the first claia
on the payments to be made by Fannie Mae under its coonnitment to Bogar and
further agrees not to wiurehouse with any other bank while the coomitmsnt
with Banco is outstanding.
4) That Bogar vill deliver to Bimdai' all of the docoaents it is required to
deliver under tho coanitBant issu ed " to Hog«r by the permanent tajce out
mortgage. . ' r
5) Banco will not warehouse vny BKztgage or mortgagee where In the opinion
of cfca Bank's counsel the papers- do not raset either the reguireiaents of the
TBH or the requirements of the per&anent take out mortgage or the standards
set by Banco Popular de Puerto Rico or where the mortgage is not acceptable
. to the Bank's counsel.
6) Bad! mortage purchased by Banco Popular de Puerto Rico will be at 10-1^%
per »"""" and in nl event shall the amount advanced exceed the amount which
the pemansnt take out mortgagee has agreed to purchase froai Bogar or frca
OS as the wareh ou si n g bank.
7) That each mortgage to be purrhesed by Banco Popular de Piwrto Rico must
be eligible for purchase by the Bank under the Banking Iiaw of the Estate of
tUM York.
8) That the interest rate on each loan shall be the maTliiBiw rate permitted
by the FH&, but in no event shall it be less than 7.5K per annum plus the
FH& insurance premiisB.
TBat the purchase of eadtt mortgage by the Bank ahiill be without cost to
the Beuik ai>d that Hogar will pay a bank service fee of $25.00 for each
mortgage reviewed plus the recording hcarges of the assignment and that
Bogar also pay for the preparation of the assigiment from Banco Popular
de Puerto Sico to the permanent take oat martg^ee plus the recording
charges of that assigimsnt.
10) There are no other financings outstanding on Bogar except those speci-
fically set forth in writtlng and no filings under the Ozxiform Ccracercial
Code of Hew Tork without written approvetl by the Banco Popular de Puerto
Rico.
11) That Bogar will service each mortgage for Banco during the Interim
period of wcurahousing without cost to ths Bank aiid that Hogar vlll remit
monthly within 3 days after receipt of Hogar the interest paiiaent for the
periodc of time tho Bank holds each martgage. If the payment is not so
received within the 3 days frora the due data of each installment, the Bank
shall charge Hogar this amount against tlia deposit E^iotain^ivl by liogar witl^
Banco, and Banco's failure to so charge the account does not negate ths
provision.
12) Any and all mortgages held by the Saiui for over 60 days will bd bought
by Hogar upon written desand to ineloda iBort<yagea not acceptable by the
repurchasea shall be charged against any aud all deposits thsc z'.^ey iiave
with Banco Popular de Puerto Rico including any reserve accounts, that they
further grant co ,iinco a security inc^rest aad rigbt of sst oif to all
funds of Hogar on deposit with Banco Popular de Puerto Rico.
974
Senator Hart. Our next witness is Mr. Richard ]\Iarcus.
(The witness was duly sworn by the chairman.)
Senator Hart. Have a seat, Mr. ISIarcus.
You were kind enough to give us your statement in advance. If
you will read it and identify those accompanying you, and then after-
wards there may be questions.
STATEMENT OF RICHARD MARCUS, EXECUTIVE VICE PRESIDENT
OF COMMONWEALTH LAND TITLE INSURANCE CO. OF NEW YORK
Mr. Marcus. My name is Richard Marcus, M-a-r-c-u-s, executive
vice president of Commonwealth Land Title Insurance Co., of New
York. To my left are my attorneys —
Mr. PouL. Franklin Poul, P-o-u-1.
Miss CoHN. Judith Cohn, C-o-h-n.
Mr. Marcus. For the record, IVIr. Chairman, I w^ould like to state
that we Avere not subpenaed, that we came as a response to a letter
from you, and submit this statement.
Our main office is suite 4300, Chrsyler Building, 405 Lexington Ave.,
New York City.
Commonwealth Land Title Insurance Co. of New York is a wholly-
owned subsidiary of Commonwealth Land Title Insurance Co., the
main office of which is located in Philadelphia. Commonwealth Land
Title Insurance Co. is a subsidiary of Provident National Corp., the
principal office of which is also in Philadelphia.
Commonwealth Land Title Insurance Co. of New York was for-
merly known as Louisville Title Insurance Co. of New York. Its stock
was acquired by Commonwealth Land Title Insurance Co. on April 11,
1967, and shortly thereafter its present name was adopted.
I was not then with the company. For a number of years Robert J.
Klapper and I, both of us being lawyers, had operated an abstract
company and had also, as is customary, served as agents and officers
of Commonwealth Land Title Insurance Co. of New York on July 1,
1967, while continuing our oAvn independent abstract business. On
February 28, 1969, this business. Eastern Abstract Co., Inc., was sold
to Commonwealth Land Title Insurance Co., and on March 1, 1969,
we both became executive vice presidents of Commonwealth Land
Title Insurance Co. of New York, devoting full time to it.
The chairman of the board is James G. Schmidt and the president
is Fred B. Fromhold. They are also respectively chairman of the
board and president of Commonwealth Land Title Insurance Co..
the parent corporation, and their offices are in Philadelphia. Conse-
quently, the direction of the operations of the New York company is
in the hands of ^Nlr. Klapper and myself.
Our company transacts business through its main office in New York
City and through its branches in White Plains and Garden City. We
are in the process of opening an additional branch in Jamaica, N.Y.
In any real estate transaction involving a conveyance or mortgaging
of property some arrangement must be made to determine the title of
the seller oi- mortgagor, or any qualifications to that title such as ease-
ments, prior mortgages, tax liens and the like. In Metropolitan New
York this search is almost always done by a title insurance company
which then insures the title. The title company insures not only the
975
accuracy of the title search, but against risks which a search would
not reveal, such as the possibility of a forged instrument. The business
of supplying title insurance through corporations set up for that pur-
pose is closely regulated by the State of New York. N.Y. Insurance
Law, 430, et seq (McKinney, 1966).
Our company has a staff of about 60 employees to handle all phases
of title searching and underwriting. We also issue policies based on
the work of about 20 agents throughout the State upon whose exam-
ination of title we are willing to rely.
As part of the typical real estate transaction in New York, a repre-
sentative of the title company attends the closing which takes place
in the office of the seller's lawyer or in the office of the lending institu-
tion. Such attendance is necessary because the documentation at the
closing is one of the matters to be considered before a title policy can
be issued. Sometimes members of our full-time salaried staff act as
closers, but most closings are attended for us by independent lawyers
who work on a fee basis. We maintain a list of about 25 closers in our
main office and similar lists in the branch offices. We have an employee
in the office whose function is to assign closers to particular closings
based on their availability and location. There is an almost universal
custom in New York City whereby the lawyers involved in real estate
transactions give a gratuity to the closer. Most of our closers act for
other title companies in the same capacity, and it is our understanding
that most title companies work the same way.
Obviously, our only concern during a closing is those matters relat-
ing to title and liens, which may be covered in our insurance policy.
We employ only lawyers as closers because of their understanding of
the legal requirements as to title and also because a lawyer has a pro-
fessional stake in performing his functions properly. The closers are
expected, whenever a substantial issue arises, to check with the inter-
nal staff.
The selection of a particular title company is normally thought of
as the prerogative of the buyer's lawyer or broker or the lender who
will be depending on the policy. In any event, this is a matter decided
among the parties to the transaction.
In New York the payment of a commission to a licensed real estate
broker or lawyer who orders a title policy is specifically permitted by
statute and is required under rate filings approved by the superintend-
ent of insurance.
Commonwealth Land Title Insurance Co. of New York does a rela-
tively small amount of the title insurance business — under 31^ per-
cent — in the State as a whole, and in the New York City area. In 1971
we handled about 5,000 closings and had a total gross revenue of ap-
proximately $1,340,000. Rates are supervised by the superintendent of
insurance and consequently tend to remain uniform.
We get business on the basis of reputation, personal contacts, friend-
ships, and satisfactory performance of our services. Sometimes a par-
ticular title company is chosen to handle a transaction simply because
it insured the last conveyance in the chain of title, and some lawyers
consider it simpler to deal with the company which had issued the
prior policy.
We maintain a staff of eight full-time solicitors of business Avho are
paid on a salary basis to contact lawyers, brokers and lending institu-
976
tions. Sometimes banks and savings and loan institutions raise with
us the point that they prefer to do business with their own depositors.
It is our policy where practical to spread our deposits among finan-
cially stable banking customers and potential customers in order to
induce them to ask for our services, or at least to acquiesce cheerfully
in the use of our services when requested by another party to one of
their transactions.
On some occasions we are asked by a customer such as a mortgage
company to make a deposit in a particular bank. We understand, of
course, that the customer is thereby seeking to enhance his own good
will with that bank by pointing out that he caused the deposit to take
place. When we think the making of such a deposit will be useful to
our business, we do so. We understand that this custom is prevalent
among title companies in New York.
We handle transactions involving FHA insured and VA guaranteed
mortgages in exactly the same way that we handle transactions involv-
ing conventional mortgages. There is nothing in FHA or VA transac-
tions which affects the processing of title insurance. Consequently,
there is no practical way, short of a file by file search and count, to
oifer precise figures concerning the extent to which our title policies
relate to mortgages insured or guaranteed by the FHA or the VA.
We do know, however, that virtually all the business done with fund-
ing companies — companies who normally lend money on mortgages
and then assign them in bulk to permanent lenders — involve FHA or
VA mortgages. I submit herewith a list of the closings which were
held in the offices of such companies in the year 1971. This list includes
an identification of the companies and a breakdown of the closings by
company and by the office through which we handled the transactions.
You will note that since we had approximately 5,000 closings overall,
this list includes less than 40 percent of our closings.
As to transactions which do not involve funding companies, it is our
understanding that the majority of all mortgages on New York City
residential property are either FHA insured or VA guaranteed. On
property outside New York City, on the other hand, many mortgages
are conventional; that is, not insured or guarantee! by any govern-
mental agency. On this basis, we estimate that more than half of the
mortgages for which our company has issued title policies are insured
or guaranteed by FHA ar VA. Because of the small financial size of
our company and our relatively recent entry into the New York market
area, we find that we have been at a competitive disadvantage with re-
spect to the larger commercial transactions. Our sales efforts have been
effective primarily in the market relating to small residential housing,
a goodly proportion of which in the New York City area involves FHA
and VA mortgages.
If the committee wants any additional information about our busi-
ness, we shall do our best to supply it.
Senator Hart. Thank you, Mr. Marcus.
Mr. Blum. In your statement you indicate that title insurance in-
cludes the performance of a title search, is that correct ?
Mr. Marcus. That's right, sir.
Mr. Blum. For the record, Avould you mind telling the subcommittee
what a typical title search on a home in Brooklyn might involve ?
977
Mr. Marcus. Well, initially, it would require a 40- to 60-year search
in the county courthouse and hall of records and re<Tistration office to
follow the chain of title or lien incumbrances that have been created
against that title for that period of time. This includes things that not
only would normally come to mind, such as mortgages and judgments
and other usual type of liens, but there are easement problems which
attach to real property often going back over 100 years in Brooklyn.
In addition to this type of courthouse search, we also have the city
search its municipal records for items such as housing and building
violations, fire department violations, and emergency repair services
that the city performs.
We also check all courthouses where judgments, tax liens, might have
been docketed. When an item such as that is docketed, it becomes a lien
against any real property that person has owned within specific num-
bers of years prior thereto.
We also then check the city collector's office, a receiver of taxes'
office, for arrearages and other oustanding items, and w^ater, sewer, and
real estate taxes which do become liens and charges against real
property.
Mr. Blum. One of the things you do is order the search for liens
against the prospective mortgagor, is that correct ?
Mr. Marcus. That's an additional service. If there is a mortgage
policy requested in the application, then in addition to all these
searches we do run the purchaser, who w^ould be the mortgagor. When
we run a mortgagor, however, we only run him in the county clerk's
office.
Mr. Blum. For docketed judgments ?
Mr. Marcus. For docketed judgments. We do not turn up any other
judgments. That, a regular credit company would have to do. We are
not authorized to do that.
IMr. Blum. Does the search include a check with the city to determine
whether the property has been condemned ?
]Mr. Marcus. A check with the State ?
Mr. Blum. With the city, on condemnation.
Mr. Marcus. Yes. Yes ; we do check to see if there is any pending
condemnation by the city.
INIr. Blum. Do you have any particular problems in New York City
w^ith condemnation ?
Mr. Marcus. Yes ; we have. Actually, the only place you can be per-
fectly sure of getting a condemnation record is from the city register,
and that is a voluminous thing. What we try to do is — we are on a
mailing list of the board of estimate, wherein they discuss any kind of
possible future condemnation. In that way we try to "flag" or caveat as
to a possible condemnation.
Mr. Blum. Does your search include a check to determine whether
there are rent controls on apartments in the building, or what the
allowable rents are ?
Mr. Marcus. No, sir. We only check things that can conceivably go
to title.
Mr. Blum. And rent control would not go to title, so you don't
search it ?
Mr. Marcus. That's right.
Mr. Blum. What form is the work product of that search?
978
Mr. Marcus. In New York State, the title company delivers a cer-
tificate and report of title ; that's what we call it at our company. Some
title companies refer to it as a lawyer's certificate. It is also sometimes
referred to as a binder. It is a certificate made up of several pages,
each page being devoted to a different aspect of our search.
For instance, the first page would give the certified owner who we
would say the title is in, and then we would list all the objections we
find to that title. The next page would be a legal description of the
property. The third page would be the tax situation that affects that
property. I mean by that real estate taxes.
The next page would be covenants, easements, restrictions of rec-
ord, and so on.
Mr. Blum. Liens against the mortgagor, possibly ?
Mr. Marcus. That would be on the objections sheet, yes.
Mr. Blum. And each of those objections must be cleared at closing,
is that correct ?
Mr. Marcus. Yes ; or prior to that.
Mr. Blum. Who gets a copy of that work product ?
Mr. jNIarcus. We send one to the attorney for the lending institution,
one to the attorney for the purchaser.
Mr. Blum. On an FHA-insured mortgage, you don't send one to the
FHA insuring office, is that correct ?
Mr. Marcus. No, we have no dealings with the FHA.
Mr. Blum. How are questions raised in the course of a search
cleared ?
Mr. Marcus. Well, there is an additional copy of the objections
sheet that also goes out — instead of the whole report, just a copy of the
objections sheet goes out to the attorney for the seller. It is his obliga-
tion to remove those objections because he is the one wlio is conveying
the good title.
The only objection that would not be referred to the seller's attorney
would be in the case of a mortgage policy where we would list certain
judgments against a proposed mortgagor. That would have to be taken
care of by the mortgagee's attorney.
Mr. Blum. And who, in the closing, do you depend on to see to it
that that is done ?
Mr. Marcus. Our own closer.
Mr. Blum. Your own closer is charged with seeing to it that all of
the objections have been cleared before that closing?
Mr. Marcus. He is required to pick up moneys sufficient to satisfy
the liens or proofs that these liens do not affect our property or a par-
ticular individual.
Mr. Blum. Again, there is no copv of that file sheet that goes to the
FHA, is there?
Mr. Marcus. I wouldn't know that, Mr. Blum.
Mr. Blum. You don't send it to them ?
Mr. Marcus. Oh. no. no. It is on the basis of this marked up title
report that we pi'oduce our title policy which follows in a few weeks
after the closing. But it is my understanding that the title policy is sent
to the ultimate mortgagee.
Mr. Blum. The title policy would not list that which had been dis-
covered and cleared ?
Mr. Marcus. That's right. This only has objections that would still
remain after closing.
979
Mr. Blum. Is there any difference in the form of a mortgagee's title
policy written in connection with an FHA or VA guaranteed mort-
gage, as opposed to a conventional mortgage ?
Mr. INIarcus. There is only one difference, and that is in the verbiage,
as to the assured. Assuming that the assured was a bank — let's say, the
Green Point Savings Bank — assured interests would read, "As mort-
gagee. Green Point Savings Bank, and the Secretary of Housing and
Urban Development, as their interest may appear."
Mr. Blum. In your judgment, is the major portion of the fee for
title insurance, title policy, really a payment for legal services ren-
dered rather than a guarantee of risk against loss ?
Mr. Marcus. I wouldn't say legal services. I would say "search" serv-
ices ; yes, search and examination.
Mr. Blum. In your statement you indicate that you insure against
risks of loss which a search would not show, such as a forged deed.
^Vhat other risks of that nature are covered ?
Mr. Marcus. Improper parties at the closing — for instance, the
seller may not be the seller that is in the chain of ownership, which
the record does not disclose; unknown heirs after deaths; devolution
of title from unknown heirs. These things come up from time to time.
]\Ir. Blum. And what is your loss ratio against dollars or premium
for that?
Mr. Marcus. Approximately 4i^ percent.
Mr. Blum. That would be 414 cents on the dollar?
Mr. Marcus. That's right, sir.
Mr. Blum. Do you insure the identity of the parties at the closing?
Mr. Marcus. We insure the identity of the seller.
Mr. Blum. You don't insure the identity of the buyer ?
Mr. Marcus. No, sir ; we don't. We insure everything that happens
up to the conveyance, and including the conveyance. Then when we
insure a first valid mortgage lien on that conveyance, we are stating,
in effect, that the person who took title is the person who executed the
mortgage instruments.
Mr. Blum. You can have a taking of title by a phantom mortgagor,
that Ave have heard discussed here, and it will create a valid lien ; there-
fore, the fact that he is a phantom will not give rise to a complaint
against you ?
Mr. Marcus. I don't know exactly what you mean by "phantom,"
sir, but if he took title to that property and he signs that mortgage,
that's a valid first lien. That's my understanding of the real property
law of New York.
Mr. Blum. Does a buyer have to be physically present at closing to
take title, to have a free and valid lien ?
Mr. Marcus. A valid lien ? You mean the mortgage lien ?
Mr. Blum. The mortgage, yes.
Mr. Marcus. Yes, I think, to my recollection, that the mortgage
lender always requires the mortgagor to be there to sign the bond
and mortgage, which are two different instruments.
Mr. Blum. What happens if I send somebody to go to a closing in
my place ? Would that create a valid deed ?
Mr. Marcus. He'll sign his name on a mortgage and your name
would be on the deed. That would not be a valid lien, no.
Mr. Blum. And if he signs my name ?
980
Mr. Marcus. With a power of attorney it's done, yes.
Mr. Blum. But it would require a power of attorney ?
Mr. Marcus. Yes, it would.
Mr. Blum. Does the title company representative check the identity
of parties at closing physically ?
Mr. Marcus. Sometimes he does and sometimes he doesn't. If he is
at a closing, where he knows the attorney who represents the parties,
and has had prior dealings with him, he generally takes their word,
the word of the attorney.
Let me point out that on all deeds and mortgages that are executed
in New York, the attorney witnesses the signature before the closer
takes the notarization. So there are two other signatures on the instru-
ment other than that of the grantor or the mortgagor.
Mr. Blum. Do you have any sort of handbook or manual for the
closer, as to what steps he is to take to determine who is in the room
and the identity of the parties ?
Mr. Marcus. No. We have instructions to closers, but these would re-
late more to different taxing authorities and situations where there
are certificates required, things like that. In more substantial things,
we assume that the attorneys that are closing for us knoAv something.
They are lawyers.
Mr. Blum. What steps is a closer supposed to take ? Put yourself in
a closing now. What do you do in a closing I
Mr. Marcus. Well, first I would put down the name and address
of the lawyer's office or the lending institution in which the closing
is taking place, the date, the time, a list of everybody present, even if
have no realtionship to the closing and are just merely present, their
appearance is noted.
This is important for many reasons. In case a closing breaks up,
often the closing minutes are used in subsequent lawsuits.
I then would list all the instruments that are being offered for exe-
cution, my requirements as to proof and other affidavits in relationship
to title objections. I would then list all the charges and the taxes as-
signed to the transfer requirements. I would submit bills to the differ-
ent parties involved and I would then mark up my title report, mark-
ing off those objections that have been completed. I would then possibly
make out an escrow receipt for an escrow depositor, if there was still
an outstanding legal problem in which I would have to have subse-
quent performance.
I would then check the instruments. I would check the parties to
those instruments. I would make sure that the mortgagor was the
grantee. I would make sure that grantors were the same people that
the title company had certified as the certified owners in the title re-
port. I would then check the legal description, making sure that all of
the requirements the State requires are in there, plus that it is an ac-
curate and exact description of the property.
I would then see to execution, and subsequent to execution, there
would be notarization. I would then pick up the checks and go to my
next closing, hoping to get a gratuity first.
INIr. Blx^m. What you described really is a kind of policing of the
closing, a kind of supervision of the people, that the documents are
proper and are properly executed ?
981
Mr. Marcus. I wouldn't so designate it as a policing of the closing,
A title closer is not a judge. There are other lawyers present. He is
representing the title company to make sure that they are protected,
in that they won't suffer any loss. This is the prime objective
Mr. Blum. But he does need certain records of that closing and he
does create an environment in that what occurs is more or less com-
parable
Mr. Marcus. That's true.
Mr. Blum. Have you had any claims on title policies in the New
York metropolitan area on FHA or VA mortgages since 1968?
Mr. Marcus. Yes, we have.
Mr. Blum. How many, do you know ?
Mr. IMarcus. I couldn't tell you offhand.
Mr. Blum. Was it three, four, six ? Give me an order of magnitude.
Mr. Marcus. In the last year ?
Mr. Blum. Since 1968.
Mr. Marcus. I couldn't tell you. It would probably be in the neigh-
borhood of maybe a couple of dozen or more. I really couldn't tell you
exactly.
Mr. Blum. And how do those claims arise ? Who makes the claim
against you, FHA?
Mr. Marcus. No. Generally the original assured, be it a mortgage
company or a bank. I guess they get notice from the FHA that the
title has failed or is defective, or a tax item is still open that should
have been cleared up at closing. It eventually gets back to us, but it
gets back to us through the original lender.
Mr. Blum. What happens is FHA says to the lender, "You can't
look to us for insurance claim payment ; go back to the title company,"
is that in effect, what happens ?
Mr. Marcus. I don't follow that, sir.
Mr. Blum. Let me try that again.
Mr. Marcus. What do you mean by FHA ?
Mr. Blum. The FHA is considering whether or not to pay off on a
claim. They demand, as a condition of payment, that good title be
offered. They decide that there is no offer
Mr. Marcus. Let me interrupt, INIr. Blum. You are assuming that
these claims come to light when FHA has a claim against it under
default. That isn't necessarily the case. Claims often arise because a
notice could leave the city collector's office that the property is going
to be taken by the city "in rem'' for nonpayment of an old tax item
and they say, "Well, how can this be ? We have a title insurance policy.
Go back to your title company and tell them to pay the claim." It's not
necessarily a defaulted mortgage.
Mr. Bltjm. You say that your company has a staff of 60 employees
to handle all phases of title searching and underwriting. Do you main-
tain any sort of title plant ?
INIr. Marcus. Well, we keep all of our old files, surveys, items like
that. In New York State, that is considered, in the industry, a plant;
we don't have daily takeoffs as they do in other States.
When I say 60 employees, that does not include, of course, indepen-
dent closers, independent examiners, and other part-time personnel.
This 60 is a full-time payroll staff.
982
Mr. Blum. In your statement yon talked about the work done by
the independent lawyers who are closers for you. What is the typical
fee paid on closing of an FHA two-family house? What would your
closer make on that deal ?
Mr. Marcus. For the average closer, $15.
Mr. Blum. $15?
Mr. Marcus. This is assuming that it is a normal closing and it
doesn't take a very long time. You know, it is not adjourned or
et cetera.
Mr. Blum. If I were earning my living as a title company closer,
working principally for mortgage companies, how much would I earn
in a year for fees from you and other title companies ?
Mr. Marcus. Well, I would imagine that the closer who would be
sitting at a funding company, where the volume might be, say, 10 or
20 titles a day, and say he would be handling between four and six
of them a day, you could figure out about what we would pay him.
Mr. Blum. And he would be paid by more than one title company,
possibly ?
Mr. Marcus. Oh, sure. There are some banks and funding com-
panies that do like to have specific closers that they have good rapport
with. They like his quality of work and his accuracy, speed, prompt-
ness in getting there in the morning. These are all considerations.
Mr. Blum. And I take it some title closers are more identified with
one company than others ?
Mr. ]\Iarcus. Oh, yes.
Mr. Blum. Do some title closers base themselves at a particular
mortgage company?
Mr. Marcus. Not unless the compan}^ that is using tlieir services
places them there.
Mr. Blum. You indicated that there is a custom to pay gratuities
to the title company closer?
Mr. Marcus. That's true.
Mr. Blum. Do you have any feel for how large those gratuities
are, as a general rule ?
Mr. Marcus. Well, I would say they vary between $10 and $20 a
closing.
Mr. Blum. So in fact, the gratuities to the closer may be more than
the fee he gets from you for doing the closing; is that correct?
Mr. Marcus. That's very possible.
Mr. Blum. Isn't it true that one of the reasons title closers are paid
such a relatively small amount, is the fact that you assume they are
going to receive a gratuity ?
Mr. ]\Iarcus. I would imagine so. It has been the custom in our trade
for so many years, that it's almost a buijt-in situation.
Mr. Blum. And at the typical mortgage company closing, where you
have a pattern of a real estate dealer, isn't it true that the seller of the
property, dealer, is the one that pays the gratuity, as a rule ?
]\Ir. Marcus. I know that they do pay gratuities. I don't know that
I could cliaracterize it as a rule, however. INIany attorneys do like to
give the title closer a gratuity, and it is conceivable also that the title
closer gets more than one gratuity.
Mr. Blum. Isn't it true that if the title company closer raised objec-
tions at the closing, that the deal might fall through ?
983
Mr. Marcus. It is his obligation to raise those questions which must
be raised, even if it means the deal will be adjourned or, even worse,
broken up.
Mr. Blum. And if that deal is adjourned or broken up, a number of
people in the room stand to lose money ; is that not correct ?
Mv. Marcus. That's true.
Mr. Blum. And among those who stand to lose money are some of
the people who pay gratuities to your employee; is that correct?
Mr. jNIarcus. That's correct.
Mr. Blum. Isn't that a rather blatant conflict of interest?
Mr. Marcus. Well, I don't think so, ]\Ir. Blum, although it would
sound so at first blush.
First of all you have to take into consideration the longstanding
custom and usage in the ti-ade. In New York it is almost ritualistic.
Certainly the man is an attorney and of high moral character as set
forth by our State, and he has a license to protect and he has to do the
right thing. He is representing us.
I would say, if it was purely put on a pecuniary point of view, no
matter how many gratuities he picks up at a closing from any individ-
ual attorney, he gets to a closing because we send him there. Over the
year he is making much more money from us than he is from any at-
torney or speculator.
Mr. Blum. Any single attorney or speculator?
Mr. INIarcus. Probably any group. Not all together, naturally.
Mr. Blum. In effect, you're telling us that you i-ely on the fact that
the man is an attorney, and because he is an attorney he might be dis-
barred in disciplinary proceedings if he did anything improper at the
closing?
Mr. Marcus. Well, long before that would happen, if we found out
about anything like that, we would fire him.
Mr. Blum. And you would find out about it if there were claims
against you as a result of his work ; is that it ?
Mr. Marcus. You find out about it pretty quickly. The small things
start to show up, such as improper tax pickups and things like that.
Mr. Blum. From the course of his working the title closer, if he wit-
nessed an impropriety or illegal act, would he be bound to report it ?
Mr. Marcus. I really don't know if he would be bound to report it,
other than as a citizen.
Mr. Blum. Well, you're talking about a member of the bar. and dis-
ciplinary proceedings
Mr. Marcus. Well, as an officer of the court, I guess he would be;
yes. I didn't know if you meant report it to me or
Mr. Blum. No ; I mean in general to report it to some duly author-
ized authority who might do something about it.
Do you think the gratuity system decreases the possibility of his
living up to that honorable commitment?
Mr. Marcus. I would have to say. in accordance with your line of
questioning, that it is possible.
Mr. Blum. You had a closer working for you by the name of Mr.
Feder, didn't you?
Mr. ;Marcus. That's true.
Mr. Blum. And he undoubtedly sat in on many closings with Mr.
Canavan ?
984
Mr. Marcus. Yes, sir.
Mr. Blum. And Mr. Canavan last week testified that there were pay-
ments made to Mr. Roth as a condition of getting a mortgage through.
That testimony suggested illegalities had occurred at the closing.
How likely is it that Mr. Feder had reported this ?
Mr. Marcus. Well, I discussed this with Mr. Feder after hearing
of the testimony, and he did say to me that the two things that were
brought up, such as the visit to Mr. Roth's office, for the purposes of
point negotiation at the closing, seemed to have occurred on occasion
and there were times when some checks seemed to have been endorsed
over.
Now, let me
Mr. Blum. And those were not noted on the appearance sheets or
on the closing statements ?
Mr. Marcus. Well, let me complete my statement, Mr. Blum.
I asked him if those moneys had anything to do with the title com-
pany's charges or the amounts of the consideration, and he said they
didn't. Now, more than that, I don't know. I feel what I have iust said
is hearsay at best.
Mr. Blum. Do you think that that is really going as far as one might
in protecting your own closing process ? In effect, he is saying "I didn't
report this because your number was covered, so don't worry" ?
Mr. Marcus. Well, I really can't go into the full legality or mortality
of the issue, Mr. Blum. I hired him to represent my company and I
want him to do a good job in that regard. What his conscience or feel-
ings are on anything else, really, I am not at liberty to discuss.
Mr. Blum. Having heard that from Mr. Feder, are you uncomfort-
able about any of the business or policies with United ?
Mr. Marcus. Yes, sir.
Mr. Blum. What protection does the title company and the buyer
really have then against collusive activity between the real estate
speculator, mortgage company, and possibly title closer ?
Mr. Marcus. Well, I don't believe there would be any collusion be-
tween the title closer and the parties to the closing.
Mr. Blum. Even though he is being paid by those other parties?
Mr. Marcus. I repeat, we pay him. He receives a gratuity, which is
an optional thing, by the other parties. But I wouldn't consider that
payment.
Mr. Blum. Could your company change its system by itself, or is it
so widespread that it is simply the industry practice ?
Mr. Marcus. If we changed the system unilaterally, we couldn't get
a closer in the State of New York — or at least in the New York City
metropolitan area, where we do most of our business.
Mr. Blum. Do you think there ought to be some legal regulation of
the problem ? Do you think that would solve it ? ^
Mr. Marcus. I really don't know what would solve the problem, Mr.
Blum.
Mr. Blum. Would you mind furnishing to tlie committee 3'our
records of payments to Mr. Feder for the last 3 years, at your
convenience ?
Mr. Marcus. When you say "payments," you mean his W-2 forms?
Mr. Blum. Yes.
In your statement you indicated that the selection of the title insur-
ance company is up to the broker or the buyer's lawyer or the lender.
985
In earlier testimony we were told that the broker more than not, on an
FHA deal, selects the buyer's lawyer, so that, in effect, it must be the
broker and the mortgage company wlio are pivotal in deciding which
title company does it.
Is that fair ?
Mr. Marcus. I wouldn't say so. We get applications from all of those
people.
Mr. Blum. Who does the commission get paid to most frequently,
the lawyer or the broker ?
Mr. jMarcus. Well, the broker — you're referring, of course, to these
mortgage company deals?
Mr. Blum. Yes.
]\Ir. Marcus. The broker never gets the commission. I have no recol-
lection of him getting a commission, let me put it that way.
Mr. Blum. How much do you pay the lawyer as commission on a
typical insurance policy?
]Mr. Marcus. Would it be a a straight fee purchase?
Mr. Blum. Yes.
Mr. INIarcus. Then there Avould be no mortgage involved in the trans-
action at all?
Mr. Blum. No. iVn FHA mortgage of these typical two-family $20,-
000 FHA deals with United ?
Mr. ]Marcus. Well, a mortgage policy on an FHA mortgage of about
$20.CO0 would come to probably less than about $140. I could look it
up exactly if you Avant me to. On that we pay 15 percent. This is the
percentage that is set forth by the New York Board of Title Under-
writers rate filing.
ISIr. Blum. So that 15 percent bv arithmetic would be about what,
$20?
Mr. :Marcus. About $21.
Mr. Blum. And you indicate you are required to pay that commis-
sion under the State rate filing?
Mr. Marcus. That's right.
Mr. Blum. Are you permitted to pay a commission to the lending
institutions ?
Mr. ]\Iarcus. Yes, if they're licensed real estate brokers. If not, we
pay it to their attorney.
Mr. Blum. And are most of the mortgage companies in New York
licensed real estate brokers ?
Mv. Marcus. Yes, sir, they are.
Mr. Blum. You pay them a commission?
]\Ir. INIarcus. Some we pay commissions ; some we pay to their at-
torneys. It depends on the institution.
INIr. Blum. Have you paid commissions to United Institutional
Servicing Corp.?
Mr. INIarcus. Yes, we have.
I^Ir. Blum. Have vou paid commissions to Inter-Island Mortgagee
Corp. ?
]\Ir. INIarcus. Yes, we have.
INIr. Blum Have you paid commissions to almost every one of those
mortgage companies that vou do business with ?
Mr. Marcus. Yes, except on occasion they tell us to — they have
changed relationships with their attorney and in the future to please
pay it to their attorney.
83-703 O— 73 — pt. 2b 16
986
Mr. Blum. Pay it to their attorney ?
Mr. Marcus. Yes.
Mr. Blum. I gather from what you say that you do at least, in part,
depend a good deal on the lending institution for the business you get ;
is that correct ?
ISIr. Marcus. I would put it even more strongly than that.
Mr. Blum. If the lending institution and your company have a great
dispute, the odds are you would be doing very little business ?
Mr. Marcus. That's true.
Mr. Blum. According to earlier testimony we had from people like
Mr. Morales and Mr. Wendell, both of whom were quite active in the
mortgage company business — I mean in the real estate business, the
mortgage company pretty well told them what the title policy was
going to be.
Do you have any comment on that ?
Mr. Marcus. Well, I do know that that practice prevails, Mr. Blum,
but let me assure you that there are many lenders that we do not re-
ceive any business from. But when a lawyer or a broker who does give
us business has our report in his hand and goes down and makes ap-
plication for his mortgage, and gives my report, it is generally ac-
cepted by all lenders in the trade. They may prefer to order it them-
selves on some occasions, but it is very rare that they will say, "Well,
throw that one in the garbage," or "We'll pay your cancellation charge
and order a new one from our company."
]\Ir. Blum. Let me back up for a minute. Are you still paying com-
missions to United ?
Mr. INIarcus. Right now we are paying them to their attorneys, Wit-
tenburg & Katz — it's a long name.
Mr. Blum. Katz, Wittenburg & Katz.
And who directed you to pay to thpir attorneys rather than the
company ?
Mr. Marcus. I don't know, really. That would be in a different de-
partment. I just noticed the change when I signed the checks, that's all.
Mr. Blum. When did that change take place ?
Mr. Marcus. I don't recall exactly.
Mr. Blum. Could it have been about the time the company was sold
to the Empire National Bank, perhaps in September of 1971 ?
]Mr. Marcus. I don't think it was that long ago. No, it's more recent
than that.
Mr. Blum. You indicated that banks and savings and loans have told
you pretty much, that if you expected to get the title business from
them, they expect you to make deposits in their institutions; is that
correct ?
]\Ir. Marcus. Yes. They may not be as open or as blatant as that.
Mr. Blum. It's pretty well understood ?
Mr. Marcus. Yes, it's understood.
Mr. Blum. If you want a piece of the business, you had better put in
a deposit.
Are those deposits interest-bearing or noninterest bearing as a gen-
eral rule ?
Mr. Marcus. Some are interest bearing and some are not interest
bearing.
Mr. Blum. Why would you make non-interest-bearing deposits ?
987
Mr. Marcus. Well, for one thin^, we're required to, as far as our
escrow funds are concerned. The State of New York, through its in-
surance department, requires that the escrow funds be on demand de-
posit in commercial banks and they don't pay interest.
Mr. Blum. "WTien a mortgage company official or a — well, yes ; when
a mortgage company official designates a particular bank as the one in
which he wishes your deposit to be made, you described the benefit as
a benefit to him as good will in your statement; is that correct?
Mr. Marcus. That's right.
Mr. Blum. Aren't you aware that the bank credits your deposit to
the compensating balance that the mortgage company is required to
keep on its warehousing loan balance ?
Mr. Marcus. I assume that's what they do, but the deposit is credited
to our account. There was no change of title there.
Mr. Blum. But the account works against their compensating bal-
ance and there is no problem about that for you ?
Mr. Marcus. I don't know the workings actually.
Mr. Blum. Isn't that a specific measurable dollar benefit, not just
good will ?
Mr. Marcus. To the mortgage company ?
Mr. Blum. Yes.
Mr. Marcus. I really don't know. I know that it helps them get their
warehousing line.
Mr. Blum. You say the practice is industrywide. By that you mean
industrywide in New York, or nationwide ?
Mr. Marcus. I don't know the practice nationwide ; I know that it
is fairly prevalent in New York where I'm involved.
Mr. Blum. We have received from the parent company of Common-
wealth of New York, through the courtesy of Senator Proxmire, a
copy of the questionnaire which was sent out and indicates quite a
number of bank deposits.
( The questionnaire may be found at p. 994. )
Mr. Blum. Perhaps. ]\Ir. Poul, can you tell us if those bank deposits
indicate that the practice is nationwide ?
Mr. Poul. I don't think the statement that is submitted actually
shows it, but it does obviously indicate that the practice goes beyond
New York.
Mr. Blum. Are you aware of a number of recent antitrust cases relat-
ing to reciprocity ?
Mr. Marcus. Are you asking
Mr. Blum. Keciprocal dealings ?
Mr. Marcus. Are you questioning me now, sir?
Mr. Blum. Yes.
Mr. Marcus. No, I don't.
Mr. I^LUM, How about you, ]Mr. Poul ?
Mr. Poul. Yes; I ani certainly aware that there are such cases.
Mr. Blum. Do you feel that title insurance companies are exempt
from the antitrust laws insofar as reciprocity is concerned ?
Mr. Poul. Well, I don't accept the view that reciprocity, if you want
my legal opinion, that reciprocity, per se, violates the antitrust laws,
and I doubt that, in context of the reciprocity involved in doing busi-
ness with the bank and depositing there, you would have violation, even
if the title insurance company were covered.
988
You also have in mind, I'm sure, that to a great extent the title in-
surance companies are not subject to the antitrust laws.
]Mr. Blum. That would be principally with respect to their rate
practices as opposed to other business practices.
Mr. PouL. I'm afraid I don't agree with you, Mr. Blum.
Mr. Blum. What exception are you referring
Mr. PouL. The McCarren-Ferguson Act.
Mr. Blum. Clearly boycott or some other predatory practice would
be exempt
Mr. PouL. Oh, certainly. I mean, I think you meant to say that a
boycott or a predatory practice would not be exempt.
Mr. Blum. Right.
Mr. Poul. I certainly don't imagine that anyone has ever suggested
that a deposit in a bank, which is a customer of a title insurance com-
pany, is a boycott or a predatory practice.
Mr. Blum. No, but might not reciprocity be put in a similar legal
category ?
Mr. PouL. Frankly, I think that would be a distortion of the exist-
ing statute and would not be — would not make economic or antitrust
sense.
Mr. Blum. Mr. Marcus, have you ever been asked by a mortgage
company to extend a warehousing line of credit in exchange for title
business ?
Mr. ISIarcus. Yes, I have.
Mr. Blum. Who has asked you ?
Mr. Marcus. A number of the companies.
Mr. Blum. Are you aware of any title company that offers that kind
of credit ?
Mr. Marcus. I've heard of it in the trade ; I've never examined any
of the companies' books or records,
Mr. Blum. Have you ever been asked to provide takeout financing
from mortgage companies in exchange for title business ?
Mr. Marcus. No ; I don't think I was ever asked for that.
Mr. Blum. Have you ever heard of a title company that has done
that for a customer ?
Mr. Marcus. Takeout work ? I don't think so.
Mr. Blum. Do you spend a considerable amount of money entertain-
ing brokers and real estate lawyers ?
Mr. Marcus. I don't think so, Mr. Blum. It's an occasional ticket
to the bar association dinner or something like that. We're a pretty
cheap company.
Mr. Blum. Do you distribute Christmas gifts ?
Mr. Marcus. No, we don't ; no.
Mr. Blum. No?
Mr. Marcus. No ; we don't even send cards. One of our branch offices
does send cards and one of our branches does have a Christmas party,
but it's a small affair.
Mr. Blum. Isn't it true that the title policy, a mortgagee's type of
policy, is required by FHA regulations ?
Mr. Marcus. I don't know that that is a fact, Mr. Blum, but I've
always understood it to be so.
Mr. Blum. You are not aware of an FHA mortgage where there
was not mortgagee's title insurance, are you ?
989
Mr. Marcus. I've never seen one.
Mr. Blum. In answer to another question, you indicated that on an
FHA sale, FHA was also a beneficiary to the policy ; is that correct?
Mr. Marcus. That's true. They are named as coassureds.
Mr. Blum. In the event a property is foreclosed, is a title search re-
quired prior to conveyance to HUD ?
Mr. Marcus. Yes.
Mr. Blum. And who generally does that title search ?
Mr. Marcus. The title company that is picked by the attorney for
the foreclosing body, usually the mortgagee's attorney.
Mr. Blum. So in this case it might be the attorney representing
Fannie Mae
Mr. Marcus. That's right.
Mr. Blum (continuing). Who would be doing the foreclosure?
Mr. Marcus. In fact, on all of the takeouts that ended up with
Fannie Mae, their attorneys have been ordering the title policies.
Mr. Blum. And you pay them a commission for ordering that
search ?
Mr. Marcus. No. Those bills are netted. They request us to net those
bills.
Mr. Blum. Would you explain that ? I don't quite follow you.
Mr. Marcus. We deduct the 15 percent in advance, since the bill is
going directly to the attorney.
Mr. Blum. And who gets the 15 percent ?
Mr. Marcus. Nobody.
Mr. Blum. Nobody?
Mr. Marcus. There is no commission.
Mr. Blum. There is no commission, that's what you are saying?
Mr. Marcus. It's a net bill.
Mr. Blum. Is it usually the same company that made the search at
the time of the sale that makes it at the time of the conveyance to
Mr. Marcus. Some lawyers like to go back to the same company to
insure the mortgage, feeling that they couldn't possibly raise addi-
tional objections after clearing themselves. Other attorneys prefer to
use one or two specific title companies that they always use, because
they have a better rapport with the title readers, the clearance officers,
the legal staff, et cetera.
Mr. Blum. Let me go back to what you first said about the fore-
closing attorney feels that the title company won't raise objection
against himself. I take it that one of the things that might be turned
up in the search, prior to conveyance to HUD, would be a mistake that
the same title company made prior to the conveyance to the mort-
gagor ; is that correct ?
Mr. Marcus. That's true, that's true.
Mr. Blum. And there would be a fairly great incentive not to re-
port that, wouldn't there ?
Mr. Marcus. It wouldn't go to the issue, Mr. Blum, because the in-
surance would still be valid. Really, if I might digress for one moment,
attorneys who do feel this happen to be in error because, even if a
second company, a different company, does the second search and
turns up an error, he will then — the second company will then go to
the first company and say, "You made an error and we want you to
indemnify us for our loss on what was done."
990
And so the attorney, by the time he gets the finished product, he is
going to get the same product, you see.
Mr. Blum The disclosure of an error at that point in time might
lead to an immediate money claim, might it not, to the title company,
because the conveyance to HUD would not
Mr. Marcus. If it was that important an error or mistake, then the
indemnification would not go without a performance, so the error
would be rectified. Say it was a missed judgment on a judgment
docket. Well, then, if it was a judgment that we call, quote, "on the
head," unquote, performance would be required together with the
indemnification, so that error would be then removed from the record
and the payment would be made by the first title company.
Mr. Blum. Finally, isn't the real beneficiary of the title policy,
in an FHA-insured situation, the FHA ?
Mr. Marcus. If they are going to be the ones that ultimately hold
the mortgage, yes. But the actual beneficiary of any title policy, if it's
a mortgagee title policy, is the mortgagee. If FHA has a
Mr. Blum. Here's the Federal Government. It is insuring this mort-
gage, and if there is any default under that or any reason why that is
imperfect, well, the claim is against FHA and the effect is simply
FHA farming out the title work to a title company and buying title
insurance to protect its interest ?
Mr. Marcus. Yes; if they are ultimately going to end up with the
mortgage, which they would only end up with it if there was default.
Mr. Blum. But FHA, which is the ultimate beneficiary, never gets
to see the worksheet, that prepolicy worksheet, of yours; is that cor-
rect ? Is that your understanding ?
Mr. Marcus. I never knew that before you told me, but if it's so,
then they never get it. We just send it to the applicant and the appli-
cant's attorney.
Mr. Blum. And you did say that one of the actions you check for
is judgments against a mortgagor?
Mr. ^Marcus. That's right.
Mr. Blum. So that if FHA got your title search which showed judg-
ments against the mortgagor that didn't appear on the credit report,
they might not even underwrite that policy; is that correct?
Mr. Marcus. That's correct.
Mr. Blum. So that the title search would protect them against loss
in the inception of the insurance ?
Mr. Marcus. That's true. And let me repeat, I really didn't know
that they never saw our certificate and report of title.
Mr. Blum. And if they saw a search that disclosed that there were
many building code violations, wouldn't it be a dead giveaAvay the
appraisal was no good ?
Mr. Marcus. I don't know if that would be a dead giveaway that
the appraisal was no good, but I would imagine they M'ould want to
know if those violations were going to be dismissed prior to closing.
Mr. Blum. And wouldn't the title search also tell FHA whether
the building had passed through the hands of one or more speculators
or was a subject of one of these short money loans we've had?
Mr. Marcus. The certification sheet does show the last transaction,
yes.
991
IMr. Blum. But instead of getting the search done itself, it allows
all the parties to the transaction with an interest in making sure that
transaction goes through to pay the personnel involved in the closing
process gratuities, it does not insist on receiving useful information,
and it makes the homebuyer pay.
If the Government is the beneficiary of the policy, why shouldn't
it buy the type of policy directly and get a title search and check the
insurance application ?
Mr. INIarcus. I have no idea, Mr. Blum, and I repeat, I am sur-
prised to hear that they never get a certificate and report of title,
because everybody always relies on that certificate. As I told you in
detail, it is a booklet with many pages, each one going to another
aspect of title
Mr. Blum. And perhaps another way then of doing this would be
for the Government to have its own lawyers do the title search on
FHA insured mortgage transactions, and participate in the closing
to protect the buyer as well as the P"HA. What do you think of that
suggestion ?
Mr. Marcus. I don't think much of that suggestion at all, Mr. Blum.
Mr. Blum. I didn't think you would.
Mr. Marcus. "Well, I think that you are dealing now in an area that
I happen to know a lot about. I have examined titles myself and very
few lawyers can do that, Mr. Blum, at least in New York State, at
least downstate New York State, which is my area of competence.
This is a skill that we do not learn in law school ; it's a skill we never
learn after law school unless we specifically get involved in abstract-
ing titles, and there is no substitute for the actual experience. It takes
years to become a good title reader; it takes more years to become a
good title examiner.
And I think that, unless the Federal Government were willing to
embark on a massive legal program of education of its attorneys, that
they would be getting really, really third- and fourth-rate searches.
The interests of parties, the interests of easements, and technical things
on real property just do not lend themselves to the average attorney.
I think it would cost the Government, and ultimately the taxpayer
therefore, much more money to examine a title than a title insurance
company charges for a search and premium all inclusive.
The time that it would take a group of attorneys to examine titles
is a very expensive thing. Title companies have pinned it down to the
point where it is a fast-moving, accurate science.
We rely on certain of our plant information and map information,
survey information, all of which is a product of years and years of
development.
Mr. Blum. Mr. Marcus, I think as we sift through what remains of
East New York and of those many FHA mortgages that were made in
Brooklyn, and look at the physical destruction of the properties that
resulted in a large number of people who have lost everything in the
deals, the very sophisticated protection you are talking about seems
extraneous.
I have no further questions, Mr. Chairman.
Senator Hart. Mr. Chumbris ?
Mr, Chumbris. Thank you. I have no questions.
Senator Hart. Mr. O'Leary ?
992
Mr. O'Leary. I have no questions.
Senator Hart. Mr. Kern ?
Mr. Kern. Just one brief question.
I believe you testified to Mr. Blum that you paid fees for the reports
with reference to the service claim — rather for the insurance against
the risk involved. Since you only pay out four and a half cents on the
dollar, a dollar premium is collected ; hypothetically, if you are asked
to issue private insurance on any property on which you issued a policy
the year before, would you duplicate all of the search, going back 40,
60 years that you presumably made for the earlier policy ?
Mr. Marcus. My name is Mr. Marcus, sir, and I don't have your
name. You referred to me as Mr. Blum ; I'm Mr. Marcus.
Mr. Kern. I referred to your answer, I believe, to Mr. Blum.
Mr. Marcus. Oh, I'm sorry.
Mr. Kern. I believe to Mr. Blum you said that the major portion of
the fee
Mr. Marcus. Well, I think you have several questions in there.
Could I answer them one at a time ?
Mr. Kern. Sure.
Mr. Marcus. As far as how much of our premium charge is "pre-
mium" search charge, you have to understand that title insurance is
the only type of insurance that is not casualty or indemnity oriented.
There should be no claims in a perfect situation.
Title insurance is set up by different States than those that have it
as a noncasualty item, and they usually have a separate department to
run the title insurance in their State, and distinguished from the rest
of the insurers. That should answer part of the question as'regards the
low amount of dollar claim.
What was the last part ?
Mr. Kern. Well, my question is whether you would perform the
same service in the case of a property
Mr. Marcus. Oh, yes, yes. If we get a reissued title, we only go back
to our own search, naturally, if we were the company that was on it
before, because we have all of that search material in our files. Physi-
cally, when an abstractor takes up a chain of title, he actually abstracts
it. It comes to us in the form of a book, and each page of that book is
another instrument or another easement or a tax lien or something that
affects that parcel, and it goes all the way back.
So all we do is add new pages. In answer to your question if we
charge full premium the second-time around, the answer is, some-
times. The State says that if there is a change of ownership, then we
must conform to the manual charge. If it is a refinance situation, let's
say, well then they get a reduction by reason of earlier eligible in-
surance.
And all these rates are prescribed in our rate manual, which is filed,
of course, with the insurance department, and there is no variation
from that. In fact, I would like to clear the record as to something Mr.
Colon stated in his testimony.
He was being questioned about refinancing of a $20,000 mortgage,
and he testified that this costs about a thousand dollars, which includes
title. I'd like to say that a small part of that is title. It would be some-
what less than the $140 premium that I stated before would be for a
993
$20,000 mortgage, because there would be this reinsurance reduction
by reason of earlier eligible insurance.
Added on to that charge would be $250 which is the mortgage tax in
New York City of I14 percent, and that is picked up along with the
premium because the title company must pay that to the State when
it records the mortgage, along with, of course, the other charges : re-
cording fees, et cetera.
So it may look like a good part of a thousand dollars is going to
title charges. It isn't. And I would say that only about one-tenth of it
is.
Mr. Kern. The change of ownership, which would entitle you to
charge the full fee for the reinsurance, would this be the transfer of
title which took place at the time of your issuance of your own policy ?
Mr. Marcus. No; this would be subsequent — subsequent to our
policy. And you understand when any new individual comes in that
title, a full search must be run as to him. Maybe the full title doesn't
have to be run, but any liens that are personal that by law are attached
to real property must then be traced all the way back.
Mr. Kerx. How much of a discount would a person receive on this?
Mr. INIarcus. I really don't have the rate manual with me, sir, and I
was asked that question earlier today by my attorney. I just don't have
the rate manual. I don't do the actual billing myself.
Mr. Kern. No further questions.
Senator Hart. Thank you very much.
Mr. Marcus. Thank you.
Senator Hart. We are adjourned, subject to call, imtil our next time.
(Whereupon, the proceedings were adjourned at 12:45 p.m., subject
to the call of the Chair. Testimony resumes on p. 1035.)
Material Relating to the Testimony of
Richard Marcus
Data Furnished to Banking Committee by Commonwealth Ladn Title and its
Parent Corp.
994
June 14, 1971
\''.'i.iia:v. i-'roxiViire , \j , S. S.
Cliiir.nan
Sabco.Vii'iii'tee on Financial Institutions
U.iited States Senate
Washington, D. C. 20510
At\.ention: A/Cartin I-obel, Legislative Assistant
To: 3c;nator Proxinaire
'Z'r^'b following comnnents pertain to your request for information addressed to
.his Company under date of April 21, 1971. References are to individual schedules
or. the forms furnished by you.
Sxhibit A - Ooerating Statistics
This Conrxpany does not compile any figures concerning
the number of insurances involved in 1-4 family resi-
dences; iriformation is^ot available on which to base any
reasonable estimate as td the number of such properties
involved in our insurances for any given period of time.
Line 21 - Insurance in Force, Snd of Year - In our opinion,
it is not possible to compile figures indicating the total amoun^
of insurance in force at any given point. The amount of insur-
ance indicated by an individual title insurance policy is reduced
subsequent to its issuance by any reduction in the amount of the
lien which the policy insures.
Title insurance is generally in force only during the tenure of
the ownership, leasehold, or other estate insured. In none
of the above cases does the Company receive notices of the
reduction or termination of the insurance.
995
.â– .â– .j>..,:..<j, C. i. i>. Juk-.e 14, 1971
C^'.c.v.^vi, S^^-oco-nfriittas on Finarxcial Institutions
s-it'-.tsj^ Cy^i*i.cs Senti'ce
\7a5/..r.^tor., D. C.
In addition, the historicaL records indicating title insurance
written are not avaiLable in the case of certain companies ac-
quired by merger or acquisition, or for an extended period of
past time.
Zxhibit 3 - xjjrectors, 0-"ticers, etc. with Financial Institutions -
No comment on this schedule.
Exhibit C - Cash Balances in Financial Institutions -
No records are maintained to indicate premiums received from
policies in which these institutions were mortgagees.
Fxhibit D - Business with Affiliated Financial Institutions -
No records are maintained to indicate premiums received from any
institutions on the basis of its appearance as a mortgagee in
an insured transaction.
Exhibit E - Commissions and Outside Payments for Production Services -
Commissions paid to title insurance agents are indicated sepa-
rately. Generally, commissions are payable in the New York
area and a few other places to attorneys on the basis of fees
remitted.
Most of the commissions paid to attorneys are paid in accord-
ance with rates filed with the New York Board of Title Under-
writers. Commissions are generally not paid to other than
attorneys .
This Company does not break down payments for production
services in the categories indicated on Exhibit E.
Exhibit F - Title Insurance Charges -
Copies of rate schedules are attached.
LeRoy^F. King
Secretary and Treasurer
COMMONWKAI/I'H LAND TITI.!':
IN.SUKANCl'; COMl'ANY OF NiOW YOkK
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:.- : sz:c±ct^cr% ss of D3Cerbor 31. 1970
Cc----.-^:.- ?cc'r.-.'sl 2cvir<;-s arxl i;,05.n Association
:'r. -oo-:. 123^h S-ir'es-tj ^i;; rcrk^ ::.X« 1C027 OiC,OOO.GO
IV ..•■.•.i_-Cji:^v.ur:,t 7cd£.:"{-J. Savi-.-^i;
l-c'.-.c; c; 'con FcdaralL 2;,vir.33 arxl Locn Ar.Eccia"tion
>rl Soutr.-.-rr. BoLCcvird^ EronCj "a'.Y, I01;59 1^,CC':-, 00
.'â– ..>-;i''"-ii r\jdcrcl Sc..vir.;:;j and Loar. -csociatioii 12,000,00
_C ;0 l~:.'i.C:i;:i .'.vc.^ Carder, ^iv^^ ".V.
X..5 Jsi-o-j; Avor.ue, Brorj':, I?-., iClx? 15,000.00
^020 "..'ocdsidc; Avcr.uc^ \'oodsi.dc, '.'.ev; York 11377 2^pC0.C0
- T .coo. Scv-lrcs and Loaii Associatior.
2i/5l loA3 --^i-ch P.cad, OccariSide, iri, II572 2,500»0C
66,000.00
l^i' 02 -irriok Blvd." Ja.-.xica Ixv; Yorl: j2h3h 10,000.00
r :":;"^v.-'-';.ll.T.orc 7cdoral Savins and Loari Associatio;!
•V^03 ■Hou'ir. Orarj Aver-ue, Baldv.'ir., TZl.j 1152-G 8,000.00
';:.....â– .. d-y Sa-'/iv.;:;:; ar.d Loa.i AECOc:'.atio:i
.•:■I'ai-'J rii-st St, I'ourit Verno:-., ".r/.^ IC^^l 5,000.00
:,^Z â– /.... .-.i-ii..d Ayov.vx,j ;;alvorr3^ ITS.^ II565 2,00CvC0
-T'. J .:",V3 .^;diral >-a".'ir4;E ar.d Lear. Asscoi-a'oicn
llo-^". ..ccciVil-t Avo., "lushing, 'i'.e:i York 5,000.00
'd.-Ca.^ ?cdsi"al Savir.s^ ar.d Loan Associatior.
IJo r-.;l-^G,'. -.vo.j HiirrEtoadj :C. Y« 2,000.00
:.;-.20 :.<:,ci2:.vclx Av3., Jaolcco'.-. Hed2''-"Sj -- 1;,000,00
..;•;'.•. "a:: Yoi"!-: savings arx". Loan -^ccociation 9»C00.CO
2"J0 ..act -.'c;."or.t Ave,^ 3i-on::; 2.c-j Yorl:
-.c-..;-r Savlr.^5 Ar.d Loaji .'.sscoiatior.
1C12 Ca-;aa .'.vg., 3i-ooi:lyr.^ iCew York 11221 7,000.00
!.>.•...■■'.. -ho.-a Federal Savings ar.d Loan -Issociation
1210 Sv..-_'is& :-hr/., Jiissapeq-oa, ";?/., 11758 10,000.00
i uvr-i'ci rcdcrcl. Sai'lr.cs ard Loar. Association
312 Oc:-dLdr. St._; 7arrjLr.2dale, I,'o'.-i York 2,000«0O
a/ ?ideral Savings arji Loar. .'.r.sociation
:.o: :;.-.at 23rd street, ::cr,; York KY., 10010 ^,000.(y/
69,000.00
,oar. .IccouTito 137jCOO.OO
1000
iALT.; i.!:.'s, z:72::n i:;su;jv:;c2 co:::::.:f o? 12:.: yo?z
LS7 CO;.'.PA:'iY-
.D lO-ATJCri SIAIE IF
OPENSANKS OR TRUST CO.YPANIES
11 RtlNSUSAIiCE
Ci^y :i_n
t. New
Yo
-k
York,
Vet,
I York
York,
Kov
/ Yo-k
York,
Nsv
( York
ink i Trust Co., New Yorkli
Puerto Rico
^- ,,:.Ci,oriai. Ij.-.ak, Hait Islip, New York
i..u.i.- i^ ?utrtc. Sico, New York
ovular Co ?aerto Kico, New York
>y .\'itior.oi Sank & Trust Co., Richmond, N.
D;.y o: current year
-(8,845.02)
20,054.19
2,000.00
5,000.00
27,871.60
35,000.00
50,000.00
75,000.00
10,000.00
20,000.00
500.00
30,571.26
500.00
10,000.00
NONE
NONE
278,652.03
100,000.00
50,000.00
50,000.00,
no:g
200,000.00
5,000.00'
. ^3.6?g-Q3
50.000.00
7,506.01
36,984.64
19,356.13
'''
71. S3
50,000.00
25,400.00
4,442.67
50,000.00
25.000.00
261,255.27
7,506.01
'i 7.S05.01 _J;
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inOAu 0. C:-.;STN>jT STSESTS • ?. 0. GOX lo-ii, • PrilLADELPnlA, PA. IblOl • PriONt: (215) 585-5000
June 11, 1971
â– -'..e Korvorable WillieLrr. Proxir.ire
S'.wCo;"."u:ui"C'iiee on Financial Institutions
United States Senate
Washington, D.C. 20510
Atten-cion: y.artin Lobel
Legislative Assistant
DeajT S iir :
Provident National Corporation owns all the outstanding
s'cock of Conuvionv.'ealth Land Title Insurance Corripany which,
in turn, ov;ns all the srock of Louisville Title Insurance
Cor.pany. Enclosed please find responses to your question-
naire on title insurers fro:n:. Cor.r;.onwealth Land Title
Insurance Co;Tipany and Louisville Title Insurance Company.
You also sent a copy of your questionnaire to Corrjnonwealth 's
siTiall Islew York subsidiary, Co^iincnwealth Land Title Insurance
Co::.pany of New York. We have had a problerri obtaining the
information from New York, but are pursuing the matter
diligently and expecr to send you a copy of our response
promptly .
If you have any questions, please do not hesitate to call
or v;rite ne . I would appreciate it if you would funnel
any questions through me.
Very truly yours.
David 3. Robb, Jr.
Vice President & Counsel
D3R, Jr./f
Enclosures
1004
c c]y:^^ON w2Ai;rx A.ai\ d
TITLE INSURANCE SINCE 1876
1\
ISIO WALNUT STREET
PHILADELPHIA. PA. iSlOa
t2IS) WA3-O.COO
Junj 9. 1 371
,.' . . . * ^.v. /rcxiVi • re , o • S • S •
i^:.z:. vicco or; Fir.cncis] institutions
^:..:.^-~ iCw.i;cj icr.acc
..vw.". .i.".._wC/.'. , j.C. 20i'.0
.'.irtir. Lcbel
Lci.;s'.i.t;ve Assistant
"he fol 'owing co~-T.ints pertcin to your request for inf orr7.at ion addressed
:o t.n.'s ccr.pany under date o." k'^rW 21, 1371. References are to individual scnedules
â– jT: t.-.c fo.-.T.i furnished by you.
exhibit A - C^jrctinc Stct's-ics
"his cc.r.pany docs not ccT.piie any figures concerning
the nu.v.bcr of insurances Irivoived in 1 - h fa.r.ily resi-
dences; infonriation is not available on which to base any
reasonable estimate as to the nur.-.ber of such properties
involved in our insurances for any given period of time.
Line 21 - insurance in Force, End of Year - In cur opinion,
i; is not possible to compile figures indicating the total
c::iount of insurance in force at any given point. The ar.iount
of insu.-ance indicated by an individual title insurance pcl.cy
is reduced subsequent to Its issuance by any reduction in c'dc:
ar.iount of 'l'^.q. lien which the policy Insures.
Title insurance is generally in force only during tne tenure
of the ownership, leasehold, or other estate insured, in
none of z''ii^ above cases does tne cc>.T,pany receive notices of
the reduction or ter.Tiination of the insurance.
â– J-.-.' J.-A.,-ei ivailjblo in 37 slates. Iha Orilrict of Columbia and Puerto Rico, through this Company, its Subsidiaries. Agents and A;,^:ovea A;;&- >:;,â– â– ;
1005
..WiiALVH i-ANOTIVLii iNSuIiANCIL CO.v.?ANV Piigg 2
In addition, the historical records indicating title insurance
written are not available in the case of certain coenpanies ac-
quired by merger or acquisition, or for an extended period of
past ti.'vie.
n'rcctcrs. Officers, etc. v;;th Financial Institutions -
.\o ccn-»-enc on this schedule,
C'sh ,?cianccs It "in.tr.cial institutions -
Ko records z'ii r.^aintained to indicate premiums received from
po'. icics in which these institutions were mortagagees.
3i:s:r;css •.■-•ith Affi. Joted Finincicl Institutions -
\o recoros arc .v.a ; .",ta i r.ed to indicate premiums received frcM
any institutions on the basis of its appearance as a mortgaree
in an insurcci cransaCwi on •
. ica Pavmsnti for Production Sarvlces -
Ccr.-Tiissions paid to title insurance agjnts are indicated separately .
Generally, corr.missions are payable In the Philadelphia area and a
few other places to real estate brokers and attorneys on the basis
of fees remitted. Co.v.TiIssions paid to real estate brokers and
attorneys have b<:cr\ combined as one figure: no breakdown is maci
of commissions paid to persons in these two categories.
Xost of the co.T.-.iiis ions paid to real estate brokers anc attorneys
are paid in Eastern Pennsylvania in accordance with rates fi'.a^
with the PennsyWania Land Title Insurance Rating Bureau. Cc.v.v,;s^:c
arc generally not paid to otnor than real estate brokers ana actor....
Tnis company docs not break down payments for production services
in the categories indicated on Exhibit E.
Title !r,surc.-.Cc Chcrcss -
Cor.vnents are included In Schedule F
LeRoy ^. King
June 9, rj7'i
1006
y/
C O iv: iv: G N WE ALT H /LAN D
'.^.
/.
'. tuLuyLCUit^e^ K-^cryn^.
L
z^a-a-^^u
TITLE INSURANCE SINCE 1876
eroy f, king
September 15, 1971
I5IO WALNUT STREET
PHILADELPHIA. PA. IQ102
(215) WA3-OAOO
Wiliiar:. ?rox;iire, U.S.S.
Cr.airnian
Subcoisittea on Finar^cial Institutions
U-vlted States Senate
Uajhington, D.C. 205 10
Attention: Z'iartin Lobel
Legislative Assistcint
Deer Xr. Lobel:
In connection with the supplementary information v/hich you requested
froiii this Company, I am enclosing a breakdoT^m of "all other operating
L-xpenscs" included in bulk as I ten lA of Schedule A. We have included
personnel expenditures as the first item in the breakdox'/n; this repre-
scr»ts compensation paid to full and part-tine personnel.
You indicated an interest in our expense for staff involved in
rcoearcaing titles. I can not answer this question on a direct basis.
All of our expense distribution records are kept on a divisional or
l/ranch office basis. It would be necessary to analyze the entire expenses
for esci'i branch office, division, or other cost allocated unit in order
to detcraine eicoenses of persor.nel engaged in title searching activities.
A3 an additional problem, title information is obtained in various ways
depending on local practices and what we consider to be the most eco-
nomic raethod of producing this information. In some cases v;e use our
own personnel to perfona direct searching of titles. In other cases
most of our expenses in this regard are in connection with maintenance
of title plants. VJe may also on occasion use outside contractors or
services to furnish some of the required information. If information
in this category is material to your survey, I will attempt to make an
estimate of these expenses if you can elaborate on the expense classifi-
cations to be includea.
vCe have no personnel directly assigned to liason with the public
or financial institutions, "any of our sales staff and executive
personnel maintain such a liason on a part-time basis. We do not main-
tain any direct cost records of sales personnel expenses; as indicated
above, our expenses are accumulated oi. a divisional or branch office
ba:.is. In addition, many of our executive, legal, and other personnel
handle sales and public relations contracts on a part-time or itinerant
vjiiaoio in 37 elates, the Dislrict of Columbio and Puorto Rico. Ihrouch this Company, its Subsidiaries, Afonts ano Approved /â– ''
1007
:,.\\v'.;ai.v.-. LA>iu ViVi-i- iNSoAANC; company
-2-
bisis. X aiTi unable to make any xeasor.able allocation of personnel
£>^penses allocable to these activities.
V/e r.'.aintain a n-ur.;'.ier oif citla plants in various localities. We
..^v%i never attemptea to accurr.ulate expenses which v;ould include costs
of jhese planes other than on a co^iplete divisional or branch office
.<^:sis. I a.T. not sure \-Thaz you sean by costs specifically attributable
JO a title plane. This could include acquisicion costs, costs of
v.-.aintaining the plant, or costs of producing title evidence from these
plants.
I hope that che enclosed inforniation will supply you with some of
the fi3ures you require. If there is any further breakdown of these
f:..:,ures or any of the above information which we can supply please
j,e-t in touch with the undersigned or our counsel.
Sincerely,
lAsRoy'^F . King
1008
Ex::i3iT A - IT2>: lA
3REAKD0VJX OF OPERATING EXPENSES
1970 1969 1968
4,527,102 4,367,043 4,081,050
L Cihar Err.ployee 3er.efits 619,057 589,723 214,577
-.t Icerus 672,041 614,314 608,795
;3 Expevises 313,500 276,901 253,344
409,300 325,242 261,746
:.;; 150,671 121,510 103,523
Scationery 202,533 186,943 199,493
rclephonc , Express 215,303 206,114 195,696
::aintcr.ance & Depreciatioa 340,839 245,409 282,344
£3,169 94,769 65,463
idits 85,303 88,206 72,634
jous 163,878 1 49,73 110,033
I.ine 14 7,782,756 7,2'65,909 6,449,053
1009
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BAW iS A lAbLhl. WLSl;>IAKf. Off AihUAIC)
200,000.00
.-.L ;.i.Lio.iMi lionU. Piiilr.dolphiii, I'd.
.-.L ;'o,.lo;,al 7..-.nk, Oivin^G Cert. S-iiilo.
.. ?i--..:.i; C.(r..:uuv!, rrovjdcncn, KhoilK Icland -I 5,000.00'
.ioi.c-.L Uiii:;', Ma.i.l, rici-ida Ij 10,000.00
^^1<-...;1 ;;.;;ik of Oi-.-gon, Silea, Orefion i; 2,50'i.l5
.-. :;!...!:, I'iiLurcoii, iJcw Jcvjcy || 1,000.00
:-.: ;.«:il; 6 Vl-ust Co., ALinncic CiLy, ;;c« Jcrcgy 6,000.00
.-.c Vru.'.t Co., ?rpvitlenc?, Hhodn Icl.-.r.cl li 1,000.00
â– ,'.-j..t oi Ucw Jor.icy, l;ac'.;cnf..-.ck, N.J, i| A, 500. 00
.;-.;k or â– .;.-.-.;L;,o.-r.e, Ssvlr.js Cert. r..)wthorr.c;K.J. 1,500. 00
iLjcr:,:! r.ur.;-., ?.Ttc-£on, K.J.
t Vrust Co., Cert. o£ D^jpoDit,
Jcr:;cy
...'.1 La.-.'.;, Cert, of D^^^iot-it
4,000.00
10,000.00
1,000.00
/,,/i00.0O
10,000.00
2,000.00
4,280.00
^â– . â– .tr.-lo.-.il Ziuk of i>a., Chester, Po. ||
-.'. i Jo.-.-.ey ail:".: U 'i'i-jcu Co., ri:c;iliold, ;;.J|:
•',:■:',. Cojn-y i'lational U.ink, Freehold, N.J. i:
loi..;.'. "Ji.r.'.c or GiOrfiis, Atlcnts, Gooijla ji
iO.-..-.'; Co:....-.in; Ly Dar.I;, r.ut':criord, IJ.J. j
C..L;.io.;..i« ;^.-;.'.i;, LojAni-.cles, C.*iliro,:i-.iii I
.'Lu,.t Co. of Old Yorh Roa.-'., Willow Grove, Pil.
; i;.-..!;: «. y-.ri.3t Co., ?.-.tciT.on, N'.J. li
.,_..^; o.: :iiu:.ii iic^eii, liicu^ beaeh, Florida li
?c.-.ii :;ctlo.-.al aar.!;, i'hil^delphla, Ta. ll
1 J..rtk ii ;;jw York Vruct Coorpany, New York, U.Y-.
.â– .tcl i..-.n'; L Trust Co., I'o-riGtowri, Pa. , J
;.;:io.^:.i l:-.:w. of I-'jiryi^nd, SalLir.;?ve, Md. . i;
..tio.:£l 1;;:.,'.( of P.-.-sstic County, Clifton, N.J.
.-V. Vru.'.t Co.-.v£..iy, ?.-iil2delphia. To, ll
;--:.ion.'.l ilar.*: of Atlir.La, Georgia
*/u.'=t i;*'.;i!:, i'hilacelphia, Pa.
. .v.o 31.-. ti; i:.-:;v.. Saddle Irook, K.J.
;'j..ot Coi^.v-.iy, Kcv; Yorl: City, Mev." York
'..■::■.'.: of ..i.—.i, ;'.-;a.ii, Fl-irida
.:ry ria-..'.-. & I'ruit Coir.pany, Pascaic, N.J.
/ 3;atc )..-...k, P.-.-.'s^'j^aiiy, Ts'.J.
.:,.,; io.-..'.l r,.:i.k of V.aw Jer;ey, Caiiidon, W.J. '!
,:.-,.>y ;;;.; io.-..-.l '.iar.k, Cair.d.:n', N.J. j|
:t .:.^c;o:-...; l-ar.k of Pa., -Ihcster, Pa.
; oi. :;ew Jer.'jay, Ciir.dcn, lieu Jersey
. of V.c\t York, '.lev York C, ty, I.'cw York j
.. ::..v;r IVi'.sE Coroar.y, iiryn Mswr, .â– >( ij
.:;,;..; .:. ioiitkern iJational ijank, Atlanta, Ga;'
eli.y ;..-.nk, Philadelphia, Pa. j|
-- ;:.-,txOi.;.i iianK of V.Vtt Cheoter, Vest Chesier, Pa.
..c Vu.-.n.^yiv.-.niE Janklr.R & Trust Co., Phila. ,i ?a.
'^/.c'cill^hia "-tional '.tar.k, ?aiiadei,'hifl, Pa. ]
j.:.-t Oo:..-.j.-.ny of iiaryiand, Balticoro, Kd. |,
.',c.;ior,al Bank, Mi.-.r.il, Florida ||
i-'ic i'iri^t National Unnk, Cor£.l Gabies, Fia.
'.\j,.io.i.'. 1 r.ank. Coral Gables, Florida ||
d ;;:.tio.i;.l r.ar.k, Daiti:.-.ore, ::d. li
t;. lia.-.k of Miarr.i, Ilia;.-.!, l^lorida !
atior.nl jiank., I-har.ii, Fiorina '
.'.:r.ericaa i^ational Bank, Miawi, Florida ji
. ... i.C'c'.i .'ir^C Natioii.'ii iinnk, Miar.ii Leach, I'jlo.
;:t ;:.-.i,ion;'".l Bank of I'.iami, Miami, Florida I
-t £t.i:e r.ar.l: of y.\.r,;,L, :;io;ii, Florida Ij
c -.i.t.onal ;-.a.ik, Atlantic City, M.J. ||
ty ;..-.;. I: of "jcrr.cn Coiinty, Rochellc Park, X.J.
â– .jion.*l 1 nr.k of Absccon, Ab:;ccon, N.J. ';
-.'ll ;kiiiOnal Jank of ivhodc Iclaad, Providcac-a, 11. 1,
.la.w :.oj-i^..al Triu.t National ilank, provldci'ce, H.I,
d .iidio ICationui 2ank, Wood-Uidac, N.J. ^j
i r./.:;;'.s oa .iiuii Zi::.;-M;%
1$ A, 095, 289. B8
35,752.27
320,047.14
11,577.00
46,939.42
K:i;;$;j.v.'.cr
KlSiliVi iU.'Oi
^; 475, 076. 2b
5,000.00
10,000.00
1 1,010,640.92
40,000.00
30,000.00 !
8,149.00
110,000.00 1
50,000.00
150,000.00 1
35,000.00
35,000.00 1
200,000.00 1
10,000.00 |!
100,003.00 |l
15,000.00 Ij
50,000.00 il
100,000.00 j;
100,000.00 1
10,000.00 1
10,000.00 ;
60,000.00 \
10,000.00 1,
50,000.00 ;
50,000.00 |l
25,000.00 :
50,000.00 1
200,000.00 ;'
90,000.00 j
15,000.00 jl
150,000.00
70,000.00 !
25,000.00 li
26,145.00 f
60,362.52 li
1,150.55 il
2,500.00 ji
6,583.10 n
233.076.03 â–
20,018.14 ,,
153,97.9.70
96,467.72
423,-352.53 >
9.485.59 ij
10,000.00 I:
6,100.00 i:
5,500.00 j!
20,328.44 .1
206,066.77 '
250.00 1
7,639,124.65 . 490,076.:'
1020
'.utii:Af;ii!-!J r;;!:;:ii):! i:cs!^;;vi: i-u:;o
.\:.c'.:o.- Sovh-gs £• Lo?n Acioci ci; Ion • . $ 15,000. CO
A.:'. a.'". tic City, Kcw Jersey. •
..0S>^''-" Savln-jS t- Locn Association 5,500.00
3o.-o£a, Kav/ Jersey. . . ,'-..â– â– . 'â–
Ca.-tcrot Savings & Loan Association â– 5.500.00
iiuv/ark, Mew Jirsey.
Z'.'.'zor, Savings Z- Loan Association 5,000.00
C. i.'ton, .'icw Je.'scy.
â– '.i>! Icct Ivo Federal Savings & l.o.;n Association 15,000.00
Hgv; Hor;:>ar, Mev/ Jersey. - • ' •
.~2 '. 1 o'.-.T. ;-. I p Savings C Loan Association 5.000.00
^e.'genf I a I d, i'.ivi Jercey. . â– . ^
."Icellty i^.ctual Savings & Loan Association 2,000.00
03;..cen,- .">ow Jersey.
.^Irit Savings S- Loon Association or Fair Lawn 6.QCO.0C
.-air Lawn, liew Jersey.
rirs-t Federal Savings £• Loan Association ■8,000.00
!!a.'.,;r<5nton, Nev/ Jersey.
Can r.ocl< Savings £. Loan Association . . 2,500.00
Glen .aocI^, liov; Jersey. ^ â–
Guardian Savings C- Loan Association . ' 15,000.00
At last ic City, Kew Jersey.
.lackensack Mutual Savings £• Loan Association . ' ^1,000.00
..ackonsack. Mew Jersey.
i'iaddon Savings t Loan Association • . 2,000.00
.'iaddon Heights, New Jersey. -, - .
(1)
1021
:., S.-ivi [â– . '-, f. I.0.-..1 /.^ â– â– r^.^. i M Ion .-.'-. n i" Di ^rci .!i .m- ji. ]''>'/y
\:E \! JgRSr.Y - Co,-.l:ln;:c d
/. ". o/.incio .' ::o;.ii 1 .;o:i Sovir.'js £■Lo.-j.t AsiOcioLIon _ $ 5,000.00
o,' ;•",-. Li.- so.-, , Kev; Jci-sf/.
..f./.-.v-O.-cor. Scv)r.20 & Losn Associatior. 5,000.00
i.'£,v,-/3i-. Lon, ;;cw Jersey.
;.-. ccr-Soro Sevincs & lour, AssociOLion 2,000.00
l-cu.'oi S.i,-;r.{;s, ilcw Jersey.
.rv'iUj Scvir.gs & Loen Association • 3,000.00
.'ccrson, Kevj Jersey.
.'-.c-av/s;-! Sivi.-.cs o- Loan Association , . 1,500.00
.'.chwa;-,, New Jersey.
.'â– lanasquan Savings 6- Loan Association " _ 10,000.00
.'â– ia.-.f.squan, i'iev; Jersey.
Cicean City i-;orne Sayings £• Loon Association . 3,000.00
Ccea.-. City, t'.evi Jersey.
Crcr.c)u Sc.vings & Loan Association , ' 5,000.00
Oi-a-.ce, uc'.v Jersey.
.^oiiriy Savings S- Loon Association 3,000.00
..'iiUrcdcli Heights, ^;eâ– .v Jersey.
South Jersey Savings & Loan Association 2,000.00
Col ". ingsv.'ooci, t:ew Jersey
Sper.cer Savings & Loan Association 11,000.00
Garfield, Kcv; Jersey,
Spencer Savings £• Loan Association 3,000.00
-od i , lie\-i Jersey.
Jnion Federal Savings & Loan Association . 7.000.00
Ca.T.con, New Jersey.
o.-.;tcd Savings £■Loon Association 5,000.00
or ?a torso:-., New Jersey.
'..'yC'^of/ Savings £. Loan Association '' ' • 6.000.00
$ 162.000.00
(2)
1022
i/i' Ar,-.,oc i .~i;io:i
F.-<ir.k: in Sociuty Federal Savings •£■Lo^n Association • $ 3,500.00
Now York Cif/. ficw York.
Oackcye Federal Savings £■Loan Association 7,189.66
CoJL.-.tijs , Ohio
Citizens Federal Savings £. Loan Association ljjl/i/4.7)
o' C '.eve i one, Ol. io.
Citizens Savings & Loan Corr.pany 3,037.84
.^ainoivi lie, Cliio.
Tl-.e East Palestine Savings & Loan Association , 10,000.00
East Palestine, Oliio.
■';-,e Farrifflrs Savings £■Loan Co.T.pany 10,000.00
Canficid, Ohio.
.â– '^r-zt rcderai Savings 6- Loan Association , . . S!, 000. CO
o.' Akror., 0.-. io. ^- ' ' '
.-irst Federal Savings £• Loan Association 4,500.00
C/.' C level and, Oiiio.
Firs: Federal Savings £ Loan Association 5,500.00
o.' V/arrcr. , Ohio.
Fil-'i; Federal Savings & Loan Association ' 't, 100.00
of Wilioughby, Ohio.
First Federal Savings & Lean Association 7,500.00
o." Youngs toivn, Ohio.
Ge.v. City Savings Association • 5,23^.15
Cay ton, Ohio. .
ilo.ro Savings £• Loan Company ■■6 500.00
Youngs town, Ohio.
.lontcr Savings Association . .• . ' 3,880.65
Love land, Ohio.
Johr,stov;n federal Savings £ Loon Association 3,500.00
JohriS tov/n, Oiiio.
LM:c County redcrnl Savings J. Loon Association 2,575.73
of raii.esvi lie, Oliio.
(3)
1023
OHIO - Cotilinun'l
r*CiT.!;ji'.c;n â– ; ."od,";i'.ol Savings 6 Loon As'jOciotion
ov Akron. Ohio.
$ i),CGO.CO
Sccor.ij I'oc'oro! Savings t l.oon Associotion
o; CU:vo:c.no, Ohio.
'.â– .\.:..jj': i Savings o- Loan Co:i'.?any
V.'orro.-i, Onio.
ij.^OO.OO
5,500.00
LniLccl S^v;nc,5 Association of Cleveland,
J". eve ; ar.ci , Ohio.
13.7S0.61
'..b.-.-er, • i r^ec'cra; Savings £• Loan Associa'cion
Cieveiand, Onio.
2.5'i'i.83
$ 128.'i 0'{.28
PEI.flVOVAlMA
'.ctr.a Federal Savings & Loan Association
.â– /22 S. 3road St.. Pnila., Pa. igUtS.
$ 2,000.00
.■•.!:.-.Gnd Savings & Loan Association
i.i'.S r.ain St., P;-iila., Pa. 19127.
3,000.00
.•\!v!r. /rogrcssTve Federal Savings t Loan Association
â– .S03 S. Broad Street, Pliila., Pa. igUiS.
i. COO. 00
.■A.v.!:. ', c r Savings £ Loan Association
.yj Z. Sutler Avenue, Ambicr, Pa.
2,000.00
'.::v.-i i!/or,.estIc Savings & Loan Association
i.-oad £■Porter Streets, Piiila., Pa. 19145.
3,000.00
^aird Savings Associotion
io S. I8th Street, Phila., Pa. 19103.
9,000.00
Tioii Savings £■Loan Association
7253 Frankford Avenue, Phila., Pa. 19135.
2,000.00
Coroan Savings "& Loan Associotion
52 ;i. 52nd Street, Piiila., Pa. 19139.
2,000.00
Cayuga Federal Savings £• Loan Association of Phila.
S.:;. Cor. 13th £. Sansom Streets, Phila., Pa. 19!0'4.
4,000.00
CO
1024
p::;;:syi.va\i!A - Comi
Ci-.osc Si.vl.'is 5- Lor,,-, A',ooc;;ir. ion $ 2,000.00
703 W Ciro.'c; Aveni.'C, ?.-ii ]o. , Po. !9!23.
O.-.j". tclic.-.i "cc'croi Suvir.js 5 Loan Assoc Isc ion 3,000.00
^â– .25 .wSl.ig Si.iri Ave., Pliila., Pa. 19111.
ChesVor Cot.nty redca! Savings £, Loan Association 3,000.00
7 l.ic,:-. Street, West Clicster, Pa.
0'. e^.-.' ielc. i'crieral Savings £■Loan Association SiCOG.OO
y.-:S-i. .-.'o.-.ii.'o.'G Ave.-ue, Phi la., Pa. 19135.
Co". 1 ! ."..jdale "ederal Savings £• Loan Association ■1,000.00
'.3 Ches^v^r Pii<.e, Coi 1 ir.gdale , Pa.
Colonial ,-cdora! Savings £• Loan Association - 2,000.00
;20o C'.-.cs.nut St., Piiiia., ?c. .1S107.
Co.-.:."..onv;2ai til Federal Savings £• Loan Assn. of Worristov;n 9,000.00
'.OK \l. i'.ain Street, liorristown, Pa.
Co:ri:7un i ty redera! Savings & Loan Association ^ 7,000.00
Ccontz Ave. at V/asinington Ln . , Pl-.ila., Pa. 19150.
C:-.;.sl-ci-iOc:<cn .'^edcrol Savings 6 Loan Assn. 2,000.00
'â– j-y^lic St, at 2nd Ave., Consho.^'.ocken, Pa.
, Co.-.t.'nental Savings & Loan Association 2, SCO. CO
.12 S. o^li St., Phi la., Pa. 19103.
Cr^oodo.- Sr.vings & Loan Association • 3,000.00
jCuO icltL^-ore Ave., Phi la.. Pa. IS'43.
.1.'^; Clrarc Savings & Loan Association '(,000.00
7C-.i Cas.or Ave., Phila., Pa. 191^.9.
;;;...v.'00d r^edcral' Savings £• Loan Association '{,000.00
o'.za '..'.:.od 1 and Ave., Pl-.ila., Pa. 191^2.
.â– :ce;:;.y ."ede.-al Savings & Loan Association 2,000.00
C993 Vo.-rescaie Avenue, Pnila., i>a. 19135.
/V.-jl "cder-il Savings i. Loan Assn. of Chester, ?;., ' 2,000. CO
-i ii. iv.i Street, Cl-.estcr, Pa.
.'Irst .";;derai Savings &â– Loan Assn. of Lansdalo, ?a. ' , 2,000.00
-.12 '.;. .",.-ln Street, Lajisuale, Pa.
( 5 )
1025
plm;.'5yi.v,':: ia - Co.-^r. ; .vjccJ
.';rsi: .-c.-(Joro'i Sovinrjs f. Lo^.i Aisn. ol^ T'lii'o., Pa.
\yyi .â– 'oijii; Sreeze Ave., I'hilo., I'o. 19i'i6.
$ 9>5CG.OO
'â– v^.iv_.-<.i Sivi.-.^-j 6- Loo.i Associo'cion
..^. :o.-. 6;;-. & £;-ic Avvj., Piiilc. Pii. i912Ji
2, 000. CO
•';.; 0.-.:.iC .-ccirr.l Savlr.os £. Loar. Association
s.-.i.i.-.-. il. £. i'ir.c Roid, rox Cl-.ase, Pa. !91!I
2,00C.C0
r.jE.v.i.-. rrt.-.k'i i r. .-ccJcrol Savings i Loon Assn.,
.i^, 0,;cslr.ut Strce;;, Pliila., Pa. '- ;'15-103.
7,000.00
'.ii\-ii\ S av ; .••.<js i Loan As s n . ,
jy Avenue, Phi la., Pa. ' 'S'Oii.
5,000.00
o.or.s^cc .-ecerai Ssvinss & Loan Association
3, ceo. 00
.-.v.; '. '(.on-.".o . i incG Savings S- Loan Associa'cion
>5.3 Oo,"..,a;-.t0'.-.v, Avenue, Ph'i'.a., Pg. ISi'^''*.
15,000.00
•.ClOO.-o "e.-e.-a'. S5vinf;s £• Loan Association
22'. S. Vo.-k Pvoad, rialboro, Pa.
2,000.00
■': L.^iw'/ Savinc;s £. Loan Assoclar.ion
,i-;2 .-.-c,-,:<;ord Ave., p:ii!a., P.i. ;S12i».
5,000.00
;ra: Savings £• Loan Association
S Chestnut St.s., Phiia., Pa. I
'i, COO. 00
... ;<;rcounty iavincjs ^ Loan /issociatjon
io2 j" Ge .'r.ian ..ov;.'. Ave . , ?\: ! 1 a . , Pa . â– '. 2 1 ; 3 .
5^000.00
; an .'-.e.-cnants Savings £■Loan Association,
Cat.-.a.-:no St., Phiia., Pa. 19147.
2,000.00
.lintown-Atiington Federal Savings S Loan Associat
'..'est Avenue, Jen !< i n town , Pa.
3,000.00
.\i; Savln.js S Loan Association
.:':5 l/aln.. St.-eet, Pnila., Pa. 12103.
4,0C0.CC
.^.-â– /stone Savings (, Loan Association
l.OCO.OO
...•.nr.Jovine .■^ec'era] Savings t. Loan Association
3i: S. La.-.s^'cv.-ne .^ve., Lanscowne, Pa.
7.000.00
L.i.-.'r<.-nce Savin'-jS L Lo.'.n Association
i .. . c, ',.'.. ..no.-, ill.., Phi la.; Pa. I'jl'iu
3,000.00
( 5 )
1026
Pci'iiS'.'I.VMIIA - Conlliujoci
.â– â– cdcrol iciviiujo & i.'.-.^n Ajsoci .t t ion
i.-oacJ Si., ?,-.i\o., ?o. 13.02.
$ 7. 000. CO
i.-.coiri Fcilvirsl Sjvi:ic;5 £■Loon AssocioLlon
2.0C0.O0
.-,.-; "cidcral SavintjS & 1-oan Association
,o.-.cc3',.cr Ave., Arci.Torc, Pa.
6,000.00
."odcrel Savir.rs S- Loon AiSOciat(on'
K ;.-.£; S tree I, "julvern, ?o.
7,000.00
.:g7-
I ..7 .'â– â– ccicrai Savings i Loan Association
:j Mc'ir.^Z Street, Phila., Pa. 19!02.
i»,OO0.CO
'i-. i '. ode loi-. ia Mutual Savings & Loan Association
A:;ec;-,er.y Aver.ue, ?fiila., ?s. I'iU'-i.
1,000.00
:s c ."ederal Savincs £• Loan -Associ at ion
2. Aiicjhcny Ave^, Phi la.. Pa. \S\3^.
4,000.00
^ccorai Savings £• Loan Association
Vo-or Rosci, Pin i la.. Pa. 19128.
5,000.0c
3r.;e Savings S- Loan Asscciacion
Acnsl.'.gcon Ave., Piiila., Pa. 13125.
2,000.00
â– .^'-7-
Savings £• loon Ajsociat.on
-; Street, Pni la.. Pa. IS 103
4.000.00
:s ,-"ee'eral Savings & Loan Association of
\/a.ei, Pa., 115 S. Main St., ;lo.-th l/ales. Pa.
5,000.00
lie;.-/.. la rcileral Savings & Loan /"â– .ssoc j at ion
:.^estnut Street, Phila., ?a. 15103.
4,000.00
ixvl:le Feileral Savings £■Loan Association
4,000.00
Savings Association
.nu. Street, Pr.i la. , Pa. 1S104.
3,000.00
-.tial Savings Association
;.^e.,tn;,; Street, rhi'a.. Pa.
5,000.00
^aera; Savings o Loan Association
..-.^i Strcev, Piiila., Pa. I'jIO?.
5,000.00
( 7 )
1027
^Pi;;!r.VLV;M;iA - Cohtinuccl
/.c»:i'Orouc,h-,".o-ici-/u.n.''. Focier.-i! Scvinoo & Loon Assoclr.tion
i062 iUocc Ave, P.iilo., ?ii. 1912a.
7.cco.(;o
Ji. EC:Tar,d-i Scvin.jc & Lor.n Associotion
23i'. .".if;:;.-. S':., .".'lila., fo. li)Ui5.
l.OOO.CC
Sccor.cl FccIc.'Si Savings £• Loan Associiition
.727 Chestnut Street, f'hila.. Pa. I9IO3.
6,000.00
^,:r:o.-, C. Si.Ton Savings &*Loan Association
200'j \!. Pasiyunk Avo., Pliila., Pa. 191A5.
il.OOO.OO
^-,r'.r.-2^'.a\d Tov/ns.'iip Focicral Savings £■, Loan Assn.
o5 Saxc Avonuo, Springfield, Pa.
1,000.00
Vl^ird rodcral Savings & Loan Association
-.525 .'^rankfo.-cJ Avenue, Phi la.. Pa. 13!2'f.
5,000.00
V/evose Savings £. Loan Association
Street £. 3rownsvi;ie Roads, T.evose, Pa.
5,000.00
V.'ost rh i ". ado'p.hia ."^ederal Savings £■Loin Assn.
522; Chestnut Street, Piiila., p3. ;9139.
10,000.00
.!'. . io\; Grove l^ederai Savings & Loan Association
> Ziij'ior, P.ocd, l/illow Grove, i'a.
2,0C0.00
Vori-; .■'.oau .-cderal Savings €■Loan Assn. of Jen!<intO'//n, Pa.
.23 Vc.-.-; Roac, Jer.liintown, Pa.
2,000.00
S 272.!0''i.00
i''.etropol i tan Federal Savings & Loan Association
of Puerto Rico.
^ 10,000.;
VIRGIHIA
.â– 'erpetua'. Savings <> Loan Association
V.'aodjridge, Va.
$ 5,000.00
Virginia Savings £■Loan Association
Spr in.jf ie ! d, Va.
$ 10,000.00
$ IS. OOP . CO
Total Unearned Prcniiim Reserve Fund
$ 5oi.;.o;;.22
( 8 )
O .Ml
v!i
:^
1028
b 'M «J .
1.; O «
t-l 01 ^ r.J
;; >! w 01
J â– â– .â– â– v> >, c:
â– .,
M
.^
iJ
O
'â– i
o
m
o
'O
!-l
o
c^
•O t) -t
■J o ,"■•;.' '-s
1029
c-;:.::';Ai. !â– !.:::,)
g;;c;s;:ia.
â– L....-.-/:}^
A!.;Ot;.'
;c.v:.-.<jS £■uoon Ai,bocI ;/>: ion
$ iOjCOC.CC
.'. C.i.vi..9S 0- ^Oun Assoc; a'ci Om
iO.OOC.OO
; V . .'. j 3 i ^06r. As s oc . c 'i; , on
5,oc o.cc
^ 2S,i£;Cio._0Ci_
1030
1031
c,-:a.^G£S and ov:-.z:\ ckaj^ges
_;j; cr.,j c-,-rc.-.u p,-c.r.;u.T, charscs vor title Insurance and a!i other services pro-
\,''.<.^s. jy the Co.~po.Ty.
Cc....v.o."...ci. . t n Lar.ij Tit'c .ns;jrcr.c<; Ccr.-.pcny is licensed to do business in 31 states,
^.â– .- ^. -;.".-; G.' Co'. u.v.bio, Puerto ^ico i.'d the Ir.iuCv:. States Virgin Islands. in the
\^. .,.,.. ,'.^ .^ :;titci,, Puerto ,\ico c..'.d tnc United Stctas Virgin Islanos, tnc cc.'.",pany
-.-^.--:w^ ^J, <-'.-/ thrcuc,.-. oc;er.ts, sne coes not senerii'.y participate ir4 charges (nade
-7 -tj e'_,^.nts, otncr Jr.^r, in its portion or the charge for risk prcr.iiu;r.. Rates for
.-.o.v j.-^.'.iv..:-. cyp-'. icaoie to these states are indicated in Schedule i.
Co'.oredo ;\assachLi3etls Puerto Rico
:,:-., -re Kontcr.a South Carolina
Ceor-^.'a Nevcce Tennessee
.''. ir.ois N'ew IHarr.pshire Verr.ionc
.r.diana Xcw Xexico t!.S. Virgin Islands
Xair.e North Carolina Virginia
West Virginia
.\otv.s ;r. Scnedu'.e 1 are aiso usee in some other jurisdictions to indicate the
Ce...je.-.y •- participation In risi* pre.T.iu.r. collected by an Agent.
C.'..-.'„wS .'or titic services in chc re.Tioining jurisdictions in which the C&r.pany
.J '. .c^:.:,c^ C..-0 indicated as follows:
V X .- -.â– rr.' : - ."^atas for title insurance, includinc, examination of title, are
5e.rjr,ari2ed in Schedule 2. These are rates charged to the public
through an Agency Subisieary. Adcitionai rates for undorser.-.ents
and rr.isccl Isneous fees constitute a Su.all part of inc&v.e in this
state, "r.ii Co.v..jany also perfo.-.r.s escrow services, with rates es-
tablished according to local p.*actice.
'-,: z: ic- : - ,';atcs filed by the Connecticut ooerc of Title Underwriters are
inclcatcd in Scneeule 3. Tne Cc.pe.'.y operates through Agents end
Approved Attorneys, anc participates only in the risk premiur:, porcio.-
" -â– .'.:; c: Col v..>i~ - Rates for risk pre.,iiu.r. ere as Indicated in Schedule 1.
.â– \ates for exc.v.inat ion of title a.-.d closing services are indicatee
or. Sc.-ecule k-. So.".".e Gtner ".iscel Icneous services are perfor..,„e,
using rates whici' are custc«".".ary in the area.
.-' '.'".- â– - Rates for risk pre.'.iiu.r. anc exa.r.lnat ion of title ore indlcateo in
Schceele 3. These rates are usee on Cor.'.pany originatee inserancv,s.
Cnarges for, abstract and closing services, where applicable, are
.T.ede according to rales custcv.ary in the area where the insurance
On Insu."ances originated by Agents, the CaTipany participates only
in the risk pre.MJur. portion of the rate, in accorda.nce with th-
rates indicated In Sci'.edule 1, or v.ith the risk pre.Tiiu,".i port. an of
rates detcr.r.incd aecoreing to Schedule 5 or other rates i.'dig^ncus
to specific other county areas. Schedule 6 is a schedule ir.&Icatlr.g
ere ine'cat^d in Scheeules 7 and Z. T'no Ccnpany operates througn
agents in Louisiana and only participates in the risl< pre.-niu.- rates.
1032
- : - C.-,crc,os on Co.v.,j^.-.y or'.gi.-i.ii.d insurcnccs for r>rcT.'.c;r., c'.csir.o
ii.-.d Gjhcr scrvjcss ere ihc same as those in e/feci; for z'r.a
District of CoiL.tijIa (q.v.).
C.i ir.suranccs o.-jginated by Asenls, the Coxpcny participates
or.iy i.n ihe risk pretniur.i charcec, in accorda.icc vjiih rates in
loca'. use, or with tr.i prcAiLi.Ti rates indicated in Schedule '. .
Sc.-.cc^ics S ar.d !C indicate rates published locally by two
-.r. - The Co.r.pany par; icipstcs cr.iy in the rate for risk premium charced
by i.:s ac;ent. Schedule 11 indicates the agent's published rate.
;.;.:. - Scnceulc 12 inoicates rates filed with the Nebraska insurance
Cepart.v.ent . The Ccr.pany participates in the rates for risk "firii-
r.-.i^.v. only charged by its as>-nts.
-:,cv - ;^at_; for risk pre.v.iu.T; jener^lly charsed are as follows:
wp to roC.COO $5.00 per $l,OuC
Over 550,000 3.00 per $1,000
Or. Cc.v.pany originated insurances, an additional charge v.-nich
varies wich the locality, is r.-ade for exar.'.i nation of title.
On insurances originated by Agents or Approved Attorneys, cne
Company participates in the risk premium charged by the Agent
or Approved Attorney, generally in accordance with rates .n
Schedule 1 .
Risk prer.iiu." rates filed vjitr. c'ris State of Ohio insurance i;_;y:.rt-
r.-.e.-.t are Indicated in Schedule 13. The Co.T.pany part ici;;e.>.s
only in cV.q ris;< prerrilu.T. portion of charges made by its agents.
title, and guarantees of title as pubHsned by one of its agents.
Elates for title in.iurancc risk premium and escrow service a.'v-
indicated in Schedule 15. Tnesc rates have been filed by the
Oregon _and Title Insurance Rating Bureau. Other charges for
-Iscei laneous services are occasionally made according to local
practice.
' 1 v: n : a -A synopsis of rates charged in the three rating sections of
Pennsylvania is indicated In Schedule 16 through 18. All Pennsyl-
vania rates are filed by the Pennsylvania Land Title insurance
Rating Du.-eau. These rctes are generally inclusive of ris!; pre-
."iu.v,, e>;a.ninat ion of title, ana closing, on Company originat'-d
insurances, as indicated in Schedule 16. Schedules 17 ana Id
indicate the risk premium cnarged on insurances originated
with Agents ar.o Approved Attorneys. The Company does r.ci. partici-
pate in charges other than premium in tnesc latter cases.
island- Schedule 15 indicates rates for title insurance; these inclwce
risk premiuoij examination of title ^r^A settlement. Other mis-
cellaneous charges are occasionally made according to local
practice.
â– f. in - Schedule 20 indicates charges for title insurance published by
tne Wisconsin Title insurance Rate Service Organization ane fileo
with the V.'isconsin Department of Insurance.
vtent of the above sum.v.ary of rates in various areas has been to indicate
lie insurance and insurance related services. Rate schedules have 'c^m::>-\
i areas where the Company originates the insurance, and representative
1033
i 'jSj, '.ZuCC by I'sjtiinc; i.ge.'i;& have bce.T iriciudod whc.'a cvi I I-bio.
:o;,."iizcc tl'iCi rci'tcs, ir. i. r.u.Tiljcr o,' cises v;hcre there is r.o .irovisio.i
:h c_ovc/."..r.i,-iCoi cscr.cic:;, rr.iy vary fro.'.-, the scheduler, ez;j<^clc\\y in
■.c^i. Aisc, the •."CiLilc.-. of rs^cs for a nu.v.bar of typci of ;ni.,rc.r.cc
â– ^c-i-.-.v;'. y ;^sccl, ir.c for r.-.ricc! IoDccus services was r.oc considered wit.-..
B3-703 O - 73 - 19 (Pt.2B)
HOUSING HEARINGS
TUESDAY, JUNE 20, 1972
U.S. Senate,
SuBcoMMirrEE ON Antitrust and Monopoly,
Committee on the Judiciary,
Washington-, B.C.
The Subcommittee on Antitrust and Monopoly convened in room
2228, New Senate Office Building, at 9 :30 a.m.
Present: Senator Philip A. Hart (presiding).
Staff present : Howard O'Leary, Esq., chief majority counsel ; Jack
Blum, Esq., majority counsel ; Peter N. Chumbris, Esq., chief minority
counsel ; Charles Kern, Esq., minority counsel ; and Senator Hiram L.
Fong.
Senator Hart. The committee will be in order. We are resuming, this
week, our hearing on competitive aspects, lending practices on housing.
Our first witness this morning is Mr. G. R. Orsi, who is from Cen-
tury Federal Savings & Loan.
(Whereupon, the witness was duly sworn by the chairman.)
Mr. Orsi. Shall I proceed ?
Senator Hart. Yes.
STATEMENT OF G. R. ORSI, CENTURY FEDERAL SAVINGS & LOAN
ASSOCIATION, CEDARHURST, N.Y.
Mr. Orsi. Indentification of the witness : Gerard E. Orsi, president
of Century Federal Savings & Loan Association of Long Island (for-
merly Lawrence-Cedarhurst Federal Savings & Loan Association).
Century Federal Savings & Loan Association is a federally char-
tered savings and loan association with its main office in Cedarhurst,
Long Island, N.Y., and branches in Hewlett, Long Island, N.Y., and
Rockaway Park, New York City.
This association is in the process of opening two new branches in
North Woodmere and Brightwaters, Long Island, N.Y. Century Fed-
eral changed its name officially from Lawrence-Cedarhurst Federal on
December 10, 1971.
At this writing, our association has assets of approximately $275
million and has been an active lender in our local mortgage market.
We also have been active in the out-of-State secondary market.
This association had a growth in assets in 1971 of $50 million, which
was one of the highest in the Second Federal Home Loan Bank Dis-
trict based on its asset category.
The area surrounding Century Federal has been largely built up
and settled over the years. With the rapid growth of deposits of our
association, the mortgage originations of our local area did not keep
pace with the tremendous inflow of savings deposits.
(1035)
1036
It was, therefore, advisable to augment our regular local lending
program with out-of-State purchases of FHA and VA insured loans
which were serviced by FHA approved mortgage companies and/or
national and State chartered banks.
Century Federal did not become heavily involved in the secondary
market until 1966. In the years 1966 through May 31, 1972, the mort-
gages originated locally totaled $76,127,000. During these same years,
mortgages were purchased in the secondary market totaling $121,-
926,000.
In 1969, volume of local mortgages originated totaled $10,510,000
and we purchased in the secondary insured mortgage market the sum
of $12,341,000. In 1971, volume of local loans originated totaled $12,-
222,000 and those purchased in the secondary market, $39,775,000.
The reason for the purchases in the secondary market was due to
the tremendous cash inflow and the intense competition in the local
market for loans.
We have purchased in the secondary market from approximately 43
companies. There is a schedule attached of the 43 companies that we
do business with.
Our experience to date on foreclosures on FHA insured and VA
guaranteed mortgages has been less than 1 percent. Delinquencies have
been rather minimal. Some of our mortgage servicers arrange to sub-
stitute a mortgage that is current for a delinquent account. The asso-
ciation's experience has been that a delinquency is not significant until
it has reached at least 90 days.
In reference to companies mentioned in your letter of May 26, we
have had relationships with only two, to wit: United Institutional
Servicing Corp. and Inter-Island Mortgagee Corp.
At this writing. United Institutional Servicing Corp. is servicing
138 mortgages with an unpaid principal balance of $2,867,827.31 and
Inter-Island Mortgagee Corp. is servicing 52 mortgages with an un-
paid principal of $920,417.57.
As of May 31, 1972, the delinquency status of each servicer is as
follows :
United Institutional Servicing Corp., 2 months' delinquencies, two;
6 months' delinquencies, one ; and in foreclosure, one.
Inter-Island, 2 months' delinquencies, one; 3 months' delinquencies,
one ; in foreclosure, two.
Our relationship with both of these servicers has been adequate. A
major part of our portfolio they service is in the in-city areas where
specialized servicing is required, and we have found, up to this time,
they have performed their duties in an acceptable manner.
The FHA program, as it stands, offering insurance of mortgages
to the lending institution, is a strong inducement to the lender and,
at the same time, offers a marketable and workable mortgage for the
borrower who, in many cases, could not obtain home financing.
Our general experience shows, through our nationwide lending,
that this program aids the leveling off of the money supply with mort-
gage demand. Historically, the Northeast has more money than mort-
gages and the South, Southwest, and Far West have more mortgages
than money.
The FHA insurance and the VA guarantee offers assistance to the
buyers, security to the investors and housing facilities for the deserving
1037
citizen. When kept under control, it is an excellent program for nation-
wide lending and a definite asset to the Nation's housing program.
If we were to offer a constructive criticism, it would be for an effort
to be made by the FHA to process individual cases submitted by a
lender, such as us, more expeditiously rather than permitting the time
lapse which sometimes disrupts the original purchase of the property.
Serious consideration should be given to eliminate the rigidity of
interest rates. These rates should be flexible so that mortgage terms
will seek their own level depending on the supply and demand of mort-
gage money. This would minimize excessive originations costs, so-
called points, which indirectly are passed on to the borrower, and are,
in fact, inflationary.
Senator Hart. Thank you verv much.
Mr. Blum?
Mr. Blum. Mr. Orsi, thank you very much for your cooperation,
particularly with the scheduling problems we have encountered.
AVould you mind telling us how long you have been president of the
Century ?
Mr. Orsi. September 9 of 1968.
INIr. Blum. What was your banking experience before coming to
Century ?
Mr. Orsi. I Avas vice president of the Union Federal Savings in
Springfield, Mass., for 8 years. Prior to that, I was for 10 years with
the County Federal Savings in Rockville Center, as treasurer and
mortgage officer.
INIr. Blum. You had a good deal of experience and came to Century
with a long background in banking?
Mr. Orsi, Yes.
Mr. Blum. Mr. Chairman, Mr. Orsi has submitted a questionnaire
relating to his institution's mortgage activities in Brooklyn and
Queens.
I ask that that be a part of the record.
Senator Hart. It will be.
]\Ir. Blum. The figures you supplied showed the business you did in
Brooklyn and Queens declined steadily since 1968; is that correct?
Mr. Orsi. Declined, that's correct.
Mr. Blum. Would it be correct to say, most of that business was
conventional ?
Mr. Orsi. Yes.
Mr. Blum. You made principally conventional loans there ?
Mr. Orsi. Yes.
Mr. Blum. Do you attribute the declines in the situation you de-
scribed in your statement; that is, reduced demand, for mortgage
money in your area ? What would you attribute this to ?
Mr. Orsi. I would say that one of the reasons for the reduced vol-
ume in those areas was that there was a mounting situation with
delinquencies occurring in the area and it became more of a slower
loan area than an aggressive area.
Mr. Blum. So the area was not an attractive one ?
]Mr. Orsi. Right. We did put money into it but on the insured basis.
Mr. Blum. In fact, went in where you could under FHA ?
Mr. Orsi. Yes.
1038
Mr. Blum. The record indicates — ^the records you gave us indicate
that at the end of February, this year, Century owned 488 mortgages
worth approximately $5.3 million in Brooklyn ; is that about correct ?
Mr. Orsi. Yes.
Mr. Blum. Were those mortgages which Century originated ?
Mr. Orsi. It would be a combination of both.
Mr. Blum. Both, Century originated and purchased.
Mr. Orsi. Yes.
Mr. Blum. Wliere are those properties located, principally ?
Mr. Orsi. The five towns are located right on the New York City
line. Far Rockaway is actually a part of New York City. We had
developments in Far Eockaway, parts of Queens ; and that's all New
York City, so it is being thrown into the New York City type of loans.
Mr. Blum. I am talking particularly about the Brooklyn loans.
Mr. Orsi. Brooklyn, I would say, a good part of those came from
purchases of FHA loans.
Mr. Blum. We were talking about the conventionals.
Mr. Orsi. I see.
Mr. Blum. We will go back to that. Do you have any feel where, in
Brooklyn, those conventional loans were?
Mr. Orsi. I would say, we had one or two developments that ran
back, possibly, 7 or 8 years, and each one consists of 30 or 40 houses.
That would build your volume up there.
Mr. Blum. Going back to the point in time where you purchased
conventionals in Brooklyn, had those conventionals you purchased
caused the difficulties because of delinquencies ?
Mr. Orsi. Yes.
Mr. Blum. And were those delinquencies injurious principally be-
cause the neighborhoods were beginning to decline ? Is that your esti-
mation of what happened ?
Mr. Orsi. I would say, yes.
Mr. Blum. Who have you purchased those mortgages from ?
Mr. Orsi. They were purchased in the early part of 1960, before I
came, to the then Lawrence-Cedarhurst. They were principally bought
from two title companies; one was the Metropolitan Title Co., and the
Unisphere Corp.
Mr. Blum. Did they service them or did you ?
Mr. Orsi. We serviced them, but there was an arrangement if they
went delinquent, they would buy them back.
Mr. Blum. As the number of delinquencies increased, did they con-
tinue to honor their commitments ?
Mr. Orsi. No.
Mr. Blum. Did they simply say, "We can't do it, we don't have the
cash?"
Mr. Orsi. Exactly.
Mr. Blum. What did your institution do to handle the problem of
those mortgages ?
Mr. Orsi. Where they were difficult cases that we could not individu-
ally handle, we went to FHA lenders who specialized in this area and
asked them if they would buy these loans for us, and we in turn, would
buy five or six times the amount of that mortgage in FHA loans. We
would then, in effect, be working a swap.
1039
Mr. Blum. You worked a swap. You took the conventional mort-
gages, gave them to the FHA lender, and in exchange, bought five or
thereabouts, FHA mortgages?
Mr. Orsi. That is right.
Mr. Blum. Were those purchases, purchases of FHA mortgages at
par?
Mr. Orsi. Yes ; on the swaps, they generally were.
Mr. Blum. Par was something oetter than the average market price
at that time?
Mr. Orsi. Yes.
Mr. Blum. I take it the reason you were willing to take a lower yield
than you might have gotten elsewhere was because they were, in effect
cleaning up the situation for you ?
Mr. Orsi. That is right.
Mr. Blum. Which of the mortgage companies have you dealt with
on this ?
Mr. Orsi. United Institutional Servicing.
Mr. Blum. And Inter-Island, was that the other one?
Mr. Orsi. Inter-Island, I believe, bought commitments from people
we had committed to. In other words, an individual might come into
the office and buy a property from us using figures of $15,000. They
would obtain a $75,000 commitment. They could use that commitment
to market and sell it to someone.
I am not sure, but I do not remember direct large commitments to
Inter-Island.
Mr. Blum. From what you are saying, I take it you, personally,
did not handle the details of these transactions; is that correct?
Mr. Orsi. Not individually, no, but I was cognizant of most of them.
Mr. Blum. Who, at the bank, was responsible for working out the
details of the arrangement ?
Mr. Orsi. A vice president by the name of Donald Carroll.
Mr, Blum. Is he with the bank presently?
Mr. Orsi. No; he is director of the FHA right now in Hempstead.
Mr. Blum. He resigned. When Avas it ?
Mr. Orsi. October of 1971.
Mr. Blum. He became director of the FHA office in Hempstead
in October 1971?
Mr. Orsi. Yes.
]Mr. Blum. Let me go back into that swap again just for a minute.
What Avas the typical mortgage balance on one of those conventionals ?
Mr. Orsi. Approximately $13,000 to $15,000.
Mr. Blum. What was the face amount of the FHA you would be
buying back?
Mr. Orsi. I would say, about $19,000 to $20,000.
Mr. Blum. Do you recall what the range of interest rates on the
conventionals were ?
Mr. Orsi. Our conventional mortgages Avere 6 percent, but I just
checked back in our records, we were originating them through the
FHA at 81/2 percent market, then 7%, then 8.
I think I have a breakdown.
Mr. Blum. So the conventionals were 6 and the FHA's you took
back were 7i/^ and 8's, and 8i^'s.
1040
Mr. Orsi. They varied.
Mr. Blum. Depending upon the date the deal went through ?
Mr. Orsi. Yes.
Mr. Blum. In effect, you had a higher face amount and a higher
rate of interest?
Mr. Orsi. Not in all cases.
Mr. Blum. In most of the cases?
Mr. Orsi. At least half the cases.
Mr. CiiUMBRis. Excuse me. Why would you make that swap? What
would be the advantage to you or the other party for you giving up
a $13,000 face value loan at 6 percent and he giving you one back
for $19,000 for 7% and 8 percent ? Wlio would gain in the exchange
and why was it done?
Mr. Orsi. I know why we would gain. We were not equipped to han-
dle a slow loan situation in these areas as efficiently as somebody who
was a specialist or a professional in that area.
I think they gained in the sense that they were selling us loans at par
from what they originated them at, maybe 6 or 7 point discount.
Mr. Blum. From your statement, would it be fair to assume that
Century depends upon the presence of an active secondary market to be
able to place loans adequately ?
Mr. Orsi. I would say, now it does. Sometime past we were basically
originating from our local market but our deposits about stripped our
area, and our area has built up.
Mr. Blum. I take it as the area continues to grow and develop, you
are increasingly being in a position of capital surplus and relying on
that secondary market to place your funds profitably ?
Mr. Orsi. Yes.
Mr. Blum. Doesn't that secondary market rely very heavily on the
availability of FHA insured mortgages ?
Mr. Orsi. Yes.
Mr. Blum. Would it be fair to say you could not participate as fully
if there were not FHA insurance ?
Mr. Orsi. That is correct.
Mr. Blum. Because the FHA insurance gives you the flexibility, you
can buy a variety of locations, you can buy from a variety of origina-
tors with a degree of assurance you would not have otherwise?
Mr. Orsi. That is correct.
Mr. Blum. What is the nature of that present mortgage origination
business that you do? Is it multifamily, single family?
Mr. Orsi. I would say, it is still predominantly local one to four fam-
ilies and, out of State or secondary market FHA or VA, one to four
families.
Mr. Blum. Is that mostly conventional or FHA ?
Mr. Orsi. No. I would say, locally, it is conventional and, in the sec-
ondary market, it is all FHA or VA.
Mr. Blum. Do you do any FHA origination in your home office ?
Mr. Orsi. Yes.
Mr. Blum. But not very much, I take it.
Mr. Orsi. No. I think one of the big problems we had was the time
lag.
Mr. Blum. It was taking a lot of time to process the papers ?
Mr. Orsi. Right.
1041
Mr. Blum. I take it, the longer the time it takes the less profitable it
is for you and the more difficult it is for the people.
INIr. Orsi, Sometimes it kills the deal, the real estate deal.
]Mr. Blum. So the real estate broker is not very eager to come in?
Mr. Orsi. No, not at all.
Mr. Blum. The mortgage companies did not have this kind of prob-
lem with FHA?
Mr, ( )Rsr. It did not appear so. I do not know.
Mr. Blum. Then, the real estate agents prefer dealing with the
mortgage company because they can move a mortgage through FHA
much more quickly than the typical savings and loan or savings bank
or whatever?
Mr. Orsi. I think that is true. I would say, yes.
^Nlr. Blum. Do you do any construction lending?
Mr. Orsi. Yes.
"Sh: Blum. When you do construction lending, do you also do perma-
nent financing on the project ?
Mr. Orsi. Yes ; we do it in combination.
Mr. Blum. You put the package together?
Mr. Orsi. Yes.
Mr. Blum. Do you do that for both multifamily and tract develop-
ment ?
Mr. Orsi. Yes.
Mr. Blum. I wonder if we can explore for a minute how it works in
a typical tract development situation.
You lend the money to a broker on a construction loan; is that
correct ?
Mr. Orsi. Yes.
Mr. Blum. Then, the understanding is his customers wdll be coming
in to you for their permanent financing?
Mr. Orsi. That is right.
Mr. Blum. That either being conventional or FHA ?
:Mr. Orsi. That is right.
7 Mr. Blum. Depending upon whether the project has been an FHA
approved project ?
Mr. Orsi. That is right.
Mr. Blum. He may be able to bring them in and say, "Here, get an
FHA." There is no requirement that those people come in to make a
mortgage at your bank ; is there ? For example, if I wanted to buy a
house in a development, and I Avanted to go to another bank, I am not
forced to ?
Mr. Orsi. No.
Mr. Blum. By and large, the developer steers the customer in?
Mr. Orsi. Steers, that is right.
Mr. Blum. Do they frequently buy or make an arrangement where
the loans are originated at a discount so the face interest rate of the
loan they have available to prospective buyer was something be-
low the market ? For example, my builder, as an inducement, offers a
7-percent interest when the market is 7i/^.
Mr. Orsi. Sometimes there could be an arrangement on a large equity
downpayment. It is conceivable that there be a scale of 7 to 7^ and
71/4-percent loans available based upon the equity payment, also based
on the quality of the job, the record of the builder, et cetera.
1042
Mr. Bliim. 'What I was talking about was something a little differ-
ent ; that is, Avhere the builder is trying to offer an inducement to the
buyer; what he does, in effect, puts a higher purchase price on the
house and then originates the loan at a discount so he can offer a lower
than market face interest rate at the time he is selling the house.
Is that something that is done commonly ?
Mr, Orsi. a subdivision, such as you have illustrated, has to pass
muster as far as appraisal standards. We have an experience, the ap-
praisal crew, many times, they do not appraise up to the selling price
and you have to bring the builder in and come to some sensible ar-
rangement.
Mr. Blum. Now, you indicated, earlier, that you buy mortgages on
the secondary market from a number of different sources around the
country. What checks do you make with those originators and servicers
to be sure that they are OK ? ^
Mr. Orsi. We try, if possible, not to take a new servicers because we
have 43. That, in itself, is a job to keep control of. If we do, and we
have taken only a few in the last few years, and that is when the
volume of our buying came to the surface, we visit the office, speak to
these people, but visit the office and the areas that they lend in.
You do not, necessarily, and you are not able at that time to review
the individual loans because many commitments are made on the fu-
ture. You try to evaluate the company, you check with banks that they
service for and, in general, you try to research it as closely as you can.
INIr. Blum. Mr. Chairman, the subcommittee has received a number
of documents, including loans and foreclosures in St. Louis. I ask that
this be made part of the record.
Senator Hart. Without objection.
Mr. Blum. Do you recall anything in St. Louis that might have
caused the foreclosures ?
Mr. Orsi. No, I do not.
Mr. Blum. In your statement, you indicated you have a repurchase
arrangement. How does that work, typically ?
Mr. Orsi. Well, you can exercise it in what is known as the tight
money market. You can use it as moral suasion, I would say. An orga-
nization is willing to sell you $5 million worth of mortgages. The
yield might be comparable. He tells you that if any of his accounts go
90 days delinquent, he will substitute for that loan with a good loan
that is up to date.
This keeps our scheduled items down as a Federal association with
Federal requirements. This is attractive to us. Then, the market goes
the other way, then there is a perponderance of buyers. They have a
tendency to rescind — not rescind — but not become involved in any
buy back arrangement.
But the national and State banks are not permitted to sell a mort-
gage with recourse, so you do business with the private mortgage com-
panies, the FHA approved lenders. It has become more popular in the
last few years. Prior to that, it was not a popular means of negotiation
but it has become
Mr. Blum. It has certain obvious advantages from your point of view
because now when the bank examiners come in and they look at it, you
can show delinquency of 1 percent or less ?
104S
Mr. Orsi. Much less, that is right.
Mr. Blum. You do not have to get involved in foreclosure problems,
they go back to the mortgage company ?
Mr. Orsi. Yes.
Mr. Blum. And you are relieved of all the costs and burdens that
go with it?
Mr. Orsi. Right.
Mr. Blum. Of course, you forego the potential of increased yield
to maturity ?
Mr. Orsi. Right.
Mr. Blum. Because you sell it back at the same discount ?
Mr. Orsi. No, no. We sell it. We swap the dollar amount of the in-
crement for the dollar amount on the other
Mr. Blum. But you do lose the possibility of a high yield to matu-
rity, because you don't get the discount back on the foreclosure ?
Mr. Orsi. No. We do there, but where we lose, Mr. Blum, is if we
have a mortgage on our books for $10,000, we might have purchased
it for, say, $9,500, we will get another mortgage for $10,000, not 95, so
we have earned our discount.
However, the mortgage that he gave us at $10,000, we have originated
that, theoretically, at par.
Mr. Blum. I see. But he — that is, the mortgage company will be
able to pay the cost of foreclosure out of the difference between $9,500
and the $10,000?
]Mr. Orsi. Because he made the profit on the substituted mortgage ;
yes.
Mr. Blum. This is where the typical mortgage company has devel-
oped its system of financing mortgages and foreclosures, so-called
"foreclosure lines of credit" ?
Mr. Orsi. That is right.
Mr. Blum. Have you had any serious problems with servicers around
the country ?
Mr. Orsi. Not really. There have been cases where we had to call
them on the delinquency situation. We had instituted the repurchase
agreement as a settlement to our inquiry, and then they activated the
repurchase agreement and everything has been in order on our delin-
quencies. Right now, they are very good.
^Ir. Blum. Very good. From what area, what city would you identify
as the source of most of your trouble ?
Mr. Orsi. Our portfolio is throughout the country. I do not think
I could single out any individual area.
jNIr. Blum. When you buy these mortgages on the secondary market,
do you exercise any right of selection ?
Mr. Orsi. Yes.
ISIr. Blum. Do you screen them ?
ISIr. Orsi. Our premise is that we have the right of rejection of col-
lateral or credit ; collateral being the home itself. We are not individ-
ually, physically examining each property, but as the submissions
come in, we will pull out what we consider a substandard housing or
substandard buyers with bad credit rating, with criminal records,
something like that
Mr. Blum. In other words, you will screen these mortgages as they
come in and when you see something that looks particularly bad, you
send it back and say, "Sorry, we are not going to buy this" ?
1044
Mr, Orsi. We are not, in the terms of the business, "a strict paper
buyer."
Mr. Blum. There are some people who are strict paper buyers?
Mr. Orsi. I believe so.
Mr. Blum. Fannie ]Mae, for instance ?
Mr. Orsi. Well, no comment.
ISIr. Blum. They buy any FHA mortgage they are offered.
;Mr. Orsi. Yes.
Mr. Blum. You do exercise some right to selection ?
]\Ir. Orsi. Yes.
Mr. Blum. Going to that swap arrangement which you used to get
rid of those Brooklyn mortgages, when the company takes back the
conventional, what do they do with that conventional ? Do they turn
around and get an FHA on it and give you back the same one ?
]\Ir. Orsi. When they took the property back, it was usually 15 to 30
months delinquent, somewhere in that vein. They will either try to
make — usually, they are nonowner occupied. They would probably
foreclosure on it, rehabilitate the building, put it through FHA and
tvv to sell it.
If they sold it, they could conceivably come back to us for an FHA
loan. That was part of the swap arrangement. However, we did not
get
Mr. Blum. You did not get the same buildings back ?
Mr. Orsi. Not necessarily. In some cases, we did. We did not get a
very high percentage of them back.
Mr. Blum. Is not this thing we have been discussing, this swap ar-
rangement, known to the industry as "portfolio conversion"? Is not
that what is talked about in the business ?
Mr. Orsi. I never heard that term, but it is, in a way, a conversion.
It was, for us, from conventional to insured.
Mr. Blum. Is not what really happens in a portfolio conversion a
shifting of risk of loss from the bank or the savings and loan to the
FHA ? Is not that what is really happening ?
Mr. Orsi. Yes, I would say so.
Mr. Blum. The guy who worked this arrangement out is now the
FHA Director in Hempstead, right, Mr. Carroll?
Mr. Orsi. Yes.
Mr. Blum. Thank you. That is all.
Senator Hart. We are delighted that Senator Fong joined us.
I was listening to your testimony, developing the series of questions
with Mr. Blum.
Let me see if I get this straight now.
In the case of a fairly substantial volume of mortgage business,
you have had some conventional mortgages. Because of the changing
neighborhood or some other reason, those mortgages became shaky,
and you— I noted, you think they averaged about $13,000.
Do you, then — you then shift, in effect, that shaky mortgage into —
at 6 percent into an FHA insured mortgage at about $19,000 at 7i/^
or 8.
Now, I have no quarrel with you as a banker. That, I would think,
is a very sound management decision, but tliat sure was not the idea of
Congress when it created a Federal insurance program for mortgages.
1045
What went through your mind when you saw the house, that in your
own judgment was shaky at $13,000, turning up a little while later
with a $19,000 guaranteed mortgage?
Mr. Orsi. Well, first, Senator, I did not— when we sold the $13,000
loans, we were not, necessarily, sure we were ever going to make a
mortgage on that $13,000 house again. We just bought five times that
balance in FHA loans that were approved.
Senator Hart. Were not some of those the same properties ?
Mr. Orsi. Not in all cases. Until you got the programs right in the
beginning, they were not at all, and we had very few purchases or
repurchases of houses that we had sold. It was principally mortgages
they had originated in the market. It was the regular going loan of
the day.
Senator PIart. It would just seem to me that to the extent they
were identical properties; one with $13,000 at 6 percent, and later
$19,000 at 714 and 8 percent, the same house, you have to wonder why
that happened.
Mr. Orsi. I do not think that when you went into this program that
you ever visually thought that you would get the same property back.
In other words, you would have a delinquent mortgage of $13,000 on
a house, a conventional mortgage which is in deterioration, which has
absentee ownership, probably vandalized. It is worth very little on the
market.
We had no equipment, no specialized type of personnel that could
handle this. We would say to an organization, "Buy this property from
us and we will buy from you — from your portfolio, FHA mortgages."
That was the sum and substance of it.
The tail to it was that if you rehabilitate the house, if you do sell it,
and you do put it in shape and you obtain the proper FHA commit-
ment and papers on that individual house, we will buy it back, but we
did not get too many of those back, very few, in fact.
Senator Hart. Senator Fong, do you have some questions?
Senator Foxg. Yes.
May I ask. in your portfolio, how much money is in FHA and how
much money is conventional mortgage, VA, and FHA, as distinguished
from conventional ?
Mr. Orsi. We have approximately $118 million in conventional mort-
gages. We have approximately $114 million in FHA and VA mort-
gages. It's about a .50-50 split.
Senator Fong. You, as a lending institution, what would you rather
have, a conventional mortgage or an FHA and VA mortgage?
Mr. Orsi. If I were out-of-State or away from the general area of my
office, I would mucli prefer an FHA insured or VA guaranteed loan
because I would have some security in back of the normal bond and
note.
Senator Fong. Out-of-State ?
Mr. Orsi. Yes.
Senator Foxo. In other words. Avhere you were not able to inspect
yourself becmise then you would have a guarantee of a Federal loan?
]\rr. Orsi. Yes.
Senator Fong. If the property was in your State, you would have a
chance to speculate, you would rather go conventional ?
1046
Mr. Orsi. If the yield — ^then you go to the second question, the yield,
naturally.
Senator Foxg. Is it not more costly to go on FHA than conventional ?
Mr. Orst. It is more costly if you process an individual case, as a
lending institution, but most of our mortgages that we originate, are
purchased — all of our processing is done by the mortgage banker.
Senator Fong. You do not engage directly ?
Mr. Orsi. No. We are given a package of credit collateral. We read
through, examine the papers, look at the pictures of property, et
cetera, and approve the loan based on the FHA appraisal, et cetera.
Senator Fong. Do most of the savings and loan associations work in
that respect? In other words, just have mortgages indirectly, make
the loan to the mortgagee ?
Mr. Orsi. I think it is a matter of the situation of the institutions.
When we were in the $50 million size bracket, we practically originated
most of our loans. Our area now produces, at best, a million dollars a
month in mortgages, maybe a little better.
I think the most optimistic approach I have for this year, of local
originations, was $15 million or $18 million a year. But when you get
larger, you receive $24 million alone, just on mortgage repayments
aside from your deposit growth, so that with the deposit growth, we
have some $30 million we had last year, and add to that $25 or $30
million which, with mortgage repayment, you just cannot depend on
the local market.
Senator Fong. Is it because you are situated in a district which has
already grown up ?
Mr. Orsi. Yes, very much so.
Senator Fong. You are only talking in terms of the east and north-
east ?
Mr. Orsi. Yes.
Senator Fong. Where homes have been built and very few new
homes have been built ?
Mr. Orsi. Yes.
Senator Fong. Would you tell us as to what is the cost difference to
the individual in getting an FHA mortgage as differentiated from a
conventional mortgage ?
Mr. Orsi. I really — I do not know if I could answer that. Senator.
In other words, the cost of carrying it per month?
Senator Fong. If the cost to the individual — does he come out better
with an FHA or a conventional, looking at the whole package from the
standpoint of the cost, the cost to the developer, the cost of onsite, in-
site, offsite improvements, the regulations that specify as to what he
should do in a FHA or VA mortgage, the compliance he has to go
through. All in all, the purchaser — the consumer, after all, is the last
man, and he is the man who pays for it, how does the consumer finally
come out ?
Is it better under VA or FHA, or better under conventional ?
Mr. Orsi. The major advantage to the consumer under FHA and yA
is that there is a much lower downpayment. That is the most attractive
feature.
The building developments we have — just to give you an example —
are in the $50,000, $60,000, and $70,000 price range. These people would
not be applying for FHA loans. The builder does not build FHA loans,
so everything is down to a bare bone of cost.
1047
In other Avords, it is a situation where the people are putting up
30-40 percent of the purchase price as downpayment, so you have two
different types of purchases.
Senator Foxg. I am referrino^ to those who really seek FHA mort-
g^aofes, those that exceed the amount that FHA will insure.
Mr. Orsi. I do not have an FHA panel job right now, but just —
all of my developments are conventional.
Senator Foxg. All of your developments are conventional?
Mr. Orsi. Right. I do not have a FHA subdivision.
Senator Foxg. Is it because your limits for loaning is higher than
FHA limits?
Mv. Orsi. Not necessarily. It is just in our area, if you want an FHA
panel job, you would have to be well into Suffolk County. There are
not any around our area at all. We just carry our sphere of lending that
might go out as far as Nassau County, slightly into Suffolk County.
Senator Foxg. On FHA mortgages, there is a limitation on interest
rates, is that correct ?
Mr. Orsi. Yes.
Senator Foxg. As you relate that to the conventional mortgage, the
man who gets the loan, actually in the long run, comes out about the
same because under FHA, if he is limited, he asks for points?
Mr, Orsi. Right.
Senator Fox^g. That makes it up ?
Mr. Orsi. Right.
Senator Foxg. If it is conventional, then the points may be lower ?
Mr. Orsi. Right.
Senator Foxg. So, actually, from the standpoint of the consumer
coming out ahead in interest payments under FHA, it is not better?
Mr. Orsi. We can run to conventionally, technically, up to 7i/^ per-
cent in the State — wait a minute — in New York State — excuse me —
and your FHA rate is 7 percent and it is one-half percent insurance,
so it is about the same.
Senator Fox^g. The only advantage a man has to go through FHA
is he has longer terms, and having a longer term, he pays more
monthly charges ?
INIr. Orsi. Right, and he can get a higher percentage mortgage which
is very important, too.
Senator Foxg. Thank you.
Mr. Chumbris. Mr. Chairman ?
Senator Hart. Yes.
Mr. Chumbris. IMr. Orsi, from your testimony, you have an orga-
nization that has $275 million in assets.
Mr. Orsi. Yeff.
Mr. Chumbris. And you would consider your organization a fine
business, a reputable business, would you not ?
Mr. Orsi. Yes.
Mr. Chumbris. Now, the difficulty with some of the testimony that
has come into these hearings and the impressions the public may get
from articles written about it, that there is something wrong with this
setup, somehow or another.
For example, in the National Observer, which is dated June 24,
1972, and yesterday, Jack Anderson had a column regarding these
particular hearings, gives the impression that there is something vague
1048
about the operation of these mortgage lenders that go to reputable
firms and obtain money so that they can create the funds to have these
people in the ghetto areas buy a home through an FHA loan.
There has been talk about perhaps the FHA has not been as pru-
dent as possible evaluating the property, and so forth. We get down
to the question which Jack Blum is quoted as saying in the National
Observer, which may be the thrust. I am bringing it out so you, as a
reputable businessman, can respond, so the impression, if it is in error,
this impression should be corrected in the record.
This is the quote :
We want to find out, says Jack A. Blum, Subcommittee Counsel, and at the
hearings. Chief Investigator, "To what degree do banks exercise control, if any.
over the mortgage companies they lend money to and why, if banks consider it
too great a rislc to lend directly to poor ghetto dwellers, it is not a great risk,
lend to the mortgage companies?"
End of question.
How would you respond to that ?
Mr. Orsi. We do not lend money to a mortgage company, we buy
mortgages from them. Is that what you are referring to ?
Mr. Chumbris. This is the quote. You respond to it. Somebody is
going to read that quote. You have had an opportunity now to respond
to it in a wny that you would like to see the record put straight on that
particular issue. I will leave that up to you and your counsel how you
ansAver that question. I did not frame the question. The question was
framed in the article.
Mr. Onsi. Yes. I think — (conferring with counsel).
On that question, if I reinterpret it correctly. No. 1, we think the
FHA program, per se, and the Veterans' Administration program are
a needful and an excellent thing for the national housing program,
and is a necessary tool to the investment banks, such as us, because it
develops a flow of money to the right places.
If we were all up in the Northeast with all the money and no mort-
gages and the Far West was crying for money, there would be no
way to create this national market, which it has done.
As far as mortgage companies that originate, we have 43 across the
country — they are in all types of areas — and our experience with them
has been good ; in fact, very good. I guess every program has some sort
of shortcoming, but on the whole, we find it a form of sound investment
and service to the community.
I do not know whether I have answered your question properly, but
I think that is our feeling as to the program itself.
Mr. Chumbris. How much of your mortgages are related to ghetto
areas ?
Mr. Orsi. All of that would be on an FHA-VA basis. I would say,
that percentage of our loans was less than 1 percent. I would think so.
Mr. Chumbris. The reason why I used "ghetto area" was the 1968
law was passed to help the people in the very, very low income areas
to have the right to purchase homes which, perhaps, they did not have
under prior FHA loans or multi family loans ?
Mr. Orsi. No.
Mr. Chumbris. So, as far as your experience, only 1 percent would be
in that particular area. I bring this question out, not only for you, but
for the succeeding witnesses who will be coming on so that they may
have the opportunity to respond because this article starts off with the
1049
headline, which says, "Everyone is Cheating the Poor Buyer," with
another subtitle, "Housing Mess." We want to give the witnesses who
come before us the opportunity to be able to respond to the impression
that people may have of this particular program.
Thank you very much.
Senator Fong. May I ask you one question ?
What control do you have over people who buy the mortgage? Now,
do I understand, at the outset, these mortgage people are out in the
field giving mortgages to the lenders, then they have the mortgage,
then they sell it to you. Is that correct ?
Mr. Orsi. That is right.
Senator Fong. What control do you have over these people in the
manner of proceeding Avith the mortgage ?
Mr. Orsi. Well, once a mortgage company is an approved servicer
for your institution, the greatest yardstick is performance. In other
words, you measure the ability of the service by the number of de-
linquents it has, how it follows up on delinquents, its remittances, its
handling of general cases that come before them; I think, within 6
months, you have a pretty good self audit on — just by experience.
Senator Fong. In other words, if I were a mortgage broker and I
were in the field of giving mortgages, lending money, and I want to
sell you a mortgage, you would buy a few at a time to see how it works
out, is that correct ?
Mr. Orsi. I would go a little deeper than that. I think the first thing
we would do would be obtain financial statements from you to deter-
mine who you service. You would probably name five or six other
banks. We would call the banks and get an idea of how you operate, et
cetera. That is a strong endorsement if it is good. Then we would go
ahead with a commitment if all things were equal.
But you have an escape clause in your servicing agreement. In other
words, if you are completely dissatisfied and you have really — it is just
a matter of a feel of dissatisfaction, you would pay one point penalty
and have it taken off.
Senator Fong. If there is a default, you go back to the same man you
bought from and ask him to see what he could do?
]\Ir. Orsi. That goes back to the repurchase agreement. I think Sena-
tor Hart asked that.
If we have a repurchase agreement and this one mortgage has a de-
fault in it. they will normally foreclose for us. This is part of their
service, rather than carry that as a scheduled item, which is in our
rating, in our Federal examination audit. They might substitute a loan
for it if they have a repurchase agreement in their contract.
If they have not, then we have to wait until they foreclose, eventu-
ally, to get our money.
Senator Fong. In your conventional plan, what is usually the down-
payment in a loan ?
Mr. Orsi. Conventional, approximately 25 percent.
Senator Fong. In other words, if a house cost $10,000, you would add
75 on it ?
Mr. Orsi. Yes, but in our area
Senator Fong. I am just taking a figure. In differentiating from
FHA-VA loans, what would that $10,000 house require as downpay-
ment ?
83-703 O— 73-^pt. 2b 20
1050
Mr. Orsi. I believe it is 3 percent.
Senator Fong. In other words, $300 ? Would you say that because a
man only had $300 in that house as differentiated from a man who had
$3,000, 10 times more, if a man who had 10 times inore would not give
up the house as readily as the man who had $300 in it ?
Mr. Orsi. That is a matter of — yes — of consideration. If a person has
$3,000 invested in a property, he will fight harder than a person who
has $300.
Senator Fong. $300, he may just give it up if anything happens to
the house ?
Mr. Orsi. Yes, I think that is true.
Senator Foxg. Would you say that is one of the big reasons why this
article says, "George W. Romney owns 44,540 headaches" ?
Mr. Orsi. It could be. I do not have those type of statistics available
to analyze it.
Senator Fong. Yet you make it easier for a person to purchase a
home requiring a small downpayment. These are problems you have to
face.
Mr. Orsi. That is right.
Senator Fong. Whereas, the hardheaded businessman at your com-
pany Avould require 25 percent down rather than 3 percent.
Mr. Orsi. In a conventional market, yes.
Senator Fong. That is the lowest you can go down?
Mr. Orsi. No, no, we can go lower than that; we go to 20 percent
down. It has to be a newer type loan or something more marketable
because most of our mortgages are close to the $45,000 to $40,000
bracket. Most of the homes in our general area sell for approximately
$50,000-$60,000. You are dealing with a different
Senator Fong. Are you allowed to go down to 90 percent ?
Mr. Orsi. Yes.
Senator Fong. Does your company go down to 90 percent ?
Mr. Orsi. We do not have to because the 90 percent for the Federal
Home Loan Banks System had a top line of $33,500. That did not fit
into the price range. It meant nothing.
Senator Fong. Most of your conventional loans require the 25 per-
cent downpayment ?
Mr. Orsi. About that. It works out to about $45,000.
Senator Fong. What has been your loss ratio ?
Mr. Orsi. We have foreclosures — very slight foreclosures. We have a
board of directors meeting tomorrow. I do not have the exact figure
but out of all of our loans, we only had two conventionals that were
in the attorney's office for referral on delinquencies.
We must have — I will tell you how many loans we have. We have
5,143 conventional loans. We have four, referred to the attorneys. I
think, in total, over 2 months, we only have about two delinquencies.
Senator Fong. No loss ?
Mr. Orsi. That is right. It looks good.
Senator Fong. Pretty gilded edge.
Thank you.
Senator Hart. Mr. O'Leary ?
Mr. O'Leary. No questions.
Senator Hart. Mr. Blum ?
Mr. Blum. Nothing.
1051
Senator Hart. Mr. Kern ?
Mr. Kern. No. t-
Senator Hart. Thank you very much.
I repeat what Mr, Blum says, thank you for your cooperation in
furnishing these figures.
(Testimony resumes on p. 1054.)
Material Relating to Testimony of G. R. Or si:
Response of Century Federal Savings and Loan Association to Antitrust
Subcommittee Mortgage Questionnaire
I. SENATE ANTITRUST AND MONOPOLY SUBCOMMITTEE
NEW YORK MORTGAGE QUESTIONNAIRE
Note : Commercial banks should include their trust department ac-
tivities in answering this questionnaire.
1. Has your institution purchased conventional mortgages on prop-
erties in Kings and Queens Counties since 1960 ?
Yes.
2. If your answer to question (1) is yes, who sold them to you?
Metropolitan Title Co. and Unisphere.
3. Has your institution purchased second mortgages on properties in
Kings and Queens Counties since 1960 ?
No.
4. If yes, who sold them to you ?
Not applicable.
6. Is your institution willing to buy FHA or VA mortgages on
properties in Kings and Queens Counties at the present time ?
Yes.
6. If your answer to question ( 5 ) is no, why not ?
Not applicable.
7. Would your institution categorically refuse to purchase mort-
gages originated by individual mortgage companies approved
by FHA?
No.
8. If your answer to question (7) is yes, which companies and why?
Not applicable.
9. Does your institution originate any FHA or VA mortgages ?
Yes.
10. If the answer to question (9) is no, why not ?
Not applicable.
*11. Does your institution grant warehousing lines of credit to mort-
gage companies ?
Not applicable.
*12. If the answer to question (11) is yes, list the mortgage companies
which have borrowed money from your institution since Jan-
uary 1, 1960.
Not applicable.
♦To be answered by commercial banks only.
1052
II. ACQUISITIONS THROUGH PURCHASES OF FHA INSURED AND VA GUARANTEED MORTGAGES ON M FAMILY
RESIDENTIAL PROPERTIES LOCATED IN KINGS, QUEENS, NEW YORK, AND BRONX COUNTIES OF NEW YORK
DURING 1968, 1969, 1970, AND 1971. (FOR BULK PURCHASES IDENTIFY TRANSACTION RATHER THAN INDIVIDUAL
MORTGAGE)
Date of purchase
transaction
Types of
mortgages purchased
FHA
insured
sec. 203
FHA in-
sured sec.
221(dX2)
FHA
insured
sec. 235
FHA
insured
other
VA
guaranteed
Kings
Queens
New York
Bronx
Various, 196^71
_ do _
None. --
Various. 1969-71
46
22
None
4
11
2
None
3
None
None
None
None
12
None
None
None
14
12
None
2
MORTGAGES PURCHASED
Number
Aggregate
outstanding
balance
(at time of
purchase)
Price at
which
purchased
(e.g. 95,
90 etc.)
Face interest rate
Name and address
of institution,
company or
individual from
whom mortgages
were purchased
(if not originator,
who was?)
Kings
Queens
New York
83
39
$1, 763, 000
797, 000
Par
do
.. Various, 7 to 8J^ percent
do
(')
(')
Bronx
9
204, 000
Par
.. Various, 7 to i}4 percent
(â– )
^ Inter-Island Mortgage Corp., 172-23 Hillside Ave., Jamaica, N.Y.; United Institutional Servicing Corps, 370
Lexington Ave., New York, N.Y.; Spartacus Securities, 795 Eastern Parkway, Brooklyn, N.Y.; Pilgrim Funding,
211 West Hempstead Turnpike, West Hempstead, N.Y.; American Title Insurance Co., 50 Old Country Road
East, Mineola, N.Y.; Northeastern Title Guaranty Corp., 1501 Franklin Ave., Mineola, N.Y.; Inter-County Title
Corp., 170 Jericho Turnpike, Floral Park, N.Y.; Mid-Island Equities, 795 Eastern Parkway, Brooklyn, N.Y.
III. ORIGINATIONS! OF MORTGAGES ON 1-4 FAMILY RESIDENTIAL PROPERTIES LOCATED IN KINGS, QUEENS,
NEW YORK, AND BRONX COUNTIES OF NEW YORK DURING 1968, 1969, 1970, AND 1971.
Sec. 203
Period
Number
Amount
Sec. 221(D)(2)
Number
Amount
Sec. 235
Number
Amount
1968.
1969.
1970.
(Brooklyn) 1
(Brooklyn) 2
(Brooklyn) 1
$18,000
45, 300
32,500
1971
(Queens) 1 22,550
(Queens) 1 22,550
_
Other-FHA
VA— Guaranteed
Conventional
Period
Number Amount
Number Amount
Number Amount
1968.
1969 (Brooklyn) 2
1970
1971
$38, 000.
.- Queens 55
Brooklyn 8
Queens 40
Queens 18
_ Brooklyn 1
Queens 19
$1,360,355
191,500
1,092,800
518,000
21,000
578, 500
' Amount on date of origination. Round to nearest dollar (do not include cents). List by county.
IV. PORTFOLIO HOLDINGS OF MORTGAGES ON 1 TO 4 FAMILY RESIDENTIAL PROPERTIES LOCATED IN KINGs'
QUEENS, NEW YORK, AND BRONX COUNTIES OF NEW YORK ORfGINATED OR ACQUIRED PRIOR TO JAN. 1, 1968,
AS OF FEB. 29, 1972. (AMOUNTS SHOULD BE EXPRESSED IN TERMS OF OUTSTANDING BALANCES ON FEB. 29,
1972.)
Location
FHA insured, sec
203
Number
VA guaranteed
Conventional
FHA insured, other
Amount Number Amount Number Amount Number Amount
New York County.
Kings County
Queens County...
Bronx County
23 $233,000
1 $18, 400
34 492, 000
2 34. 000
488
935
83
$5, 272, 000
13, 470, 000
972. 000
1053
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22
1054
STATEMENT OF BERNARD ROTH
Senator Hai^t. My next witness is Mr. Bernard Eoth.
(Whereupon, the witness was duly sworn by the chairman.)
Senator Hart. The record should reflect Mr. Roth is appearing here
today pursuant to a subpena.
I understand, Mr. Roth, that you are represented by counsel. For
the record, would you state the counsel's name ?
Mr. Roth. Joseph L. LaRosa, 522 5th Avenue, New York.
Senator Hart. Mr. LaRosa, you do represent Mr. Roth ?
Mr. LaRosa. I do. Senator Hart.
Senator Hart. I am sure Mr. LaRosa has counseled you with re-
spect to your appearance. Since it is under subpena, I think the record
should reflect that you have been advised, on the record, of your rights,
specifically, that you have the right to refuse to answer any questions
you feel may tend to incriminate you.
Anything you do say may be used against you in any other proceed-
ing. You have the right to consult with your lawyer at any time before
and during any questions. If you decide to answer questions now, you
retain the right to decline to answer questions at any later time.
I think the record should also reflect, should you desire to refuse to
answer or assert your rights, this subcommittee will draw no adverse
inference from that course of conduct, nor should anyone else.
Do you understand these rights ?
Mr. Roth. Yes, sir.
Senator Hart. Would you please state your full name ?
Mr. Roth. Bernard S. Roth.
Senator Hart. Your present address ?
Mr. Roth. 149 East 39th Street, New York.
Senator Hart. While you were an officer of United Institutional
Servicing Corp., did you take payments from real estate operators to
close FHA and VA loans which did not meet Federal standards ?
Mr. Roth. On the advice of counsel, I respectfully decline to answer
on the grounds my answer may tend to incriminate me. I avail myself
of my rights against self-incrimination under the fifth amendment of
the Constitution of the United States.
Senator Hart. Mr. Roth, a subpena was issued to you calling for
the production of certain documents. In response to that subpena, may
we have those documents ?
Mr. Roth. On the advice of counsel, I respectfully decline to answer
on the grounds my answer may tend to incriminate me.
Senator Hart. Under those conditions, you are dismissed.
The committee must recess for a vote. It is occurring on the floor.
The full Committee on the Judiciary v/ill be meeting in executive ses-
sion and we will have to recess at the call of the Chair.
As soon as the executive committee concludes in this next room, we
will resume the hearing.
(Whereupon, the committee recessed to the call of the Chair at
10:45 a.m.)
1055
STATEMENTS OF BRUCE DALTON AND CHARLES FRIEDMAN
Senator Hart. Lot us proceed, now, to Bruce Dalton and Charles
Friedman.
(AVhereupon, the witnesses were duly sworn by the chairman.)
Senator Hart. It is my understanding that both Mr. Dalton and
Mr. Friedman are here today pursuant to a subpena and you are both
represented by counsel who is present. Would you kindly state his
name for the record?
Mr. Dalton. James M. LaRosa, 522 Fifth Avenue, New York City.
Senator Hart. I^Ir. LaRosa, do you represent both Mr. Dalton and
Mr. Friedman?
Mr. LaRosa. I do. Senator.
Senator Hart. I'm sure that you have advised both of the witnesses
with respect to their rights, but let this record reflect that their rights
have been stated to them on the record.
Gentlemen, you have the right to refuse to answer any questions
you feel may tend to incriminate you. Anything you do say may be
used against you in any other proceeding.
You have the right to consult with your lawyer at any time before
answering any questions. If you decide to answer the questions now,
you still have the right to stop answering questions at any time.
I think the record should also reflect that should you desire to refuse
to answer or assert your rights, you are assured that this subcommittee
will draw no adverse inference from that course of conduct, nor should
anyone else.
Mr. Dalton, would you state your full name and your present
address ?
Mr. Dalton. Bruce Dalton, 8412 96th Street, Woodhaven, New York
City.
Senator Hart. And Mr. Friedman, your full name and present
address ?
^Ir. Friedman. Charles Friedman. 2269 East 70th Street, Brooklyn,
N.Y.
Senator Hart. Let me address to both of our witnesses this ques-
tion : Is it part of your business to "milk buildings" ? By that I mean,
buy the mortgages, let the rents, stop paying taxes and making repairs,
and then abandon the buildings when the rent can no longer be
collected ?
Mr. Dalton. On the advice of counsel, I respectfully decline to
answer on the grounds that my answer may tend to incriminate me.
I avail myself to my rights against self-incrimination under the
fifth amendment of the Constitution of the United States.
Senator Hart. Mr. Friedman ?
Mr. Friedman. On advice of counsel, I respectfully decline to an-
swer on the grounds that my answer may tend to incriminate me. I
avail myself of my rights against self-incrimination under the fifth
amendment of the Constitution of the United States.
1056
Senator Hart. Gentlemen, the committee issued a subpena to both
of you calling for the production of certain documents. May we have
the documents ^
Mr. Dalton. On the advice of counsel, I respectfully decline to an-
SAver on the grounds that my answer may tend to incriminate me.
Mr. Friedman. On the advice of counsel, I respectfully decline to an-
swer on the grounds that my answer may tend to incriminate me.
Senator Hart. Gentlemen, in view of the invocation of those rights,
the subcommittee dismisses you.
Material relating to the testimony of
Bruce Dalton and Charles Friedman
Mail Solicitation for Real Estate Listings by Bruce Dalton
WE WILL
ALL C
1. WE GIVE THE BEST OFFER
2. WE ARE THE PRINCIPAL BUYERS - NO COAAMISSION
3. ANY CONDITION ACCEPTABLE
MR. BRUCE DALTON
Week Days & Saturday 10-6 P.M.
Call for Free Appraisal
788-6434 200 7th AVENUE
788-6493 BROOKLYN, N. Y. 11215
STATEMENT OF WARREN LIGHT, UNITED INSTITUTIONAL
SERVICING CORP.
Senator Hart. Mr. Warren Light.
(Whereupon the witness was duly sworn by the chairman.)
Senator Hart. Again, the record should reflect that Mr. Light ap-
pears pursuant to a subpena.
I under='tand you are represented by counsel who is present. Would
you state his name for the record.
Mr. Light. Harold Weinberger.
Senator Hart. Mr. Weinberger, you do represent Mr. Light ?
Mr. Weixbergp:r. Yes, sir.
Senator Hart. I'm sure Mr. Weinberger has advised you, INIr. Light,
but for the record, since you are appearing pursuant to a subpena, let
me summarize the rights available to you.
1057
They include the ri^ht to refuse to answer any que&tion you may
feel will tend to incriminate you. Anything you 'do say maj' be jiseS
against you in any other proceeding.
You have the right to consult with your lawyer at any time before
ans\yering any question. If you decide to answer questions now. you
retain the right to stop answering questions at any time in the future.
Also, if you decide to refuse to answer or assert the right, the sub-
committee will draw no adverse inference from that course of conduct;
neither should anyone else.
Are you willing to waive your rights and answer questions at this
time?
Mr. Light. I am. sir.
Senator Hart. Would you state your full name ?
Mr. Light. Warren M. Light.
Senator Hart. And vour present address ?
Mr. Light. 1180 Midland Avenue. Bronxville. N.Y.
Senator Hart. And what business are you engaged in ?
]Mr. Light. I am now working for a member of the Xew York
Stock Exhange.
Mr. Bluim. Mr. Light, when did you begin working for Capital
Ventures, Inc.. and related corporations?
Mr. Light. I believe the exact date is December 15. or 16, 1968.
Mr. Blum. What positions did you hold with those corporations?
What did you begin doing for them ?
Mr. Light. Titles or
]Mr. Blum. Titles and then
Mr. Light. I was an assistant vice president of United, and in years
to come became executive vice president for United.
I was a vice president, later to become senior vice president, chief
operating officer, of an affiliate of United, which was Delta Capital
Corp.. later named Embanque Capital Corp.
!Mr. Blu:m. And when did that term end ?
]Mr. Light. Formally. May 31, 1972.
Mr. Blum. 'NMiat have you done prior to working for those cor-
porations?
]Mr. Light. I worked — out of law school, I went to Manufacturers
Hanover Trust Co. and became a mortgage loan officer.
Mr. Blt^i. Are you a member of the Xew York bar?
;Mr. Light. Yes, I am, sir.
]Mr. Blu^i When were you placed in charge of keeping the interim
financing records of the Delta Capital Corp. ?
^Ir. Light. I believe it was some time earlv 1969. March or April,
1969.
Mr. Bltjm. Who gave you the assignment ?
Mr Light. Edwin Katz.
Mr. Blum. '\Mio had been keeping them prior to that time you began
keeping them?
Mr. Light. From what I gather, the only records kept, at that
time, were by Harold Fisher who is the treasurer of the company. I
don't know of any others that were kept.
Mr. Blum. Were the records in bad shape at the time, with prob-
lems?
1058
Mr. Light. I would not say bad shape, but I think mine were more
succinct.
Mr. Blum. A copy of the records which you kept were made part
of the record in an earlier set of hearino^s. I believe you have a copy
in front of you there. Is that a copy of the records which you kept for
Delta Capital Corp. ?
Mr. Light. Yes, it is.
Mr. Blum. I wonder if you would mind describinj^ to us what the
difference columns on this ledger sheet mean. "Why not run throuo^h
them from left to right ? First of all, what are the dates ?
Mr. Light. The date is the date that the loan was originated on or
closed. The borrowing took place on that date.
Mr. Blum. The borrowing corporation is the
Mr. Light. The borrowing corporation was the person or people,
principals of corporations who were borrowing and financing.
Mr. Blum. The loan number ?
Mr. Light. Just my way of keeping things in order. Nothing else
but I gave each loan a number in consecutive order
Mr. Blum. The property address is the property-
Mr. Light (continuing). On which the mortgage is made on.
Mr. Blum. "What is guarantee at 3 percent mean ?
Mr. Light. There were a few investors in Delta Capital Corp. who
chose to pay a fee to someone of financial responsibility in order to
make what they thought their investment a bit safer and still make
quite a return on their money.
Mr. Blum. Kind of an insurance on the loan ?
Mr. Light. It was sort of an insurance on top of the equity and
security that vou get from a first mortgage and bond,
Mr. Blum. "What do the initials BSR stand for ?
Mr. Light. The initials BSR are the initials of Bernard S. Roth.
Mr. Blum. On top of the first page there are the initials LL ?
Mr. Light. Well. I kept my records, at that time, in a funny way.
LL stands for Larry Levy who was an attorney who had money in-
vested in Delta. He is not a guarantor. Mr. Roth guaranteed his funds.
Mr. Blum. T see. And then there are check marks and there are lines
through them. What do those mean ?
Mr. Light. The check mark signifies that Mr. Roth had a guaran-
tee on the loan, and when I made the cross it meant that the loan had
been satisfied and the guarantee fulfilled.
Mr. Blum. The amount of the loan was the amount that was dis-
bursed ?
Mr. Light. Borrowed, right.
Mr. Blum. There were no discounts on these loans ?
Mr. Light. That's true.
Mr. Blum. It was the actual amount ?
Mr. Light. Right.
Mr. Blum. The column that says "Funds from," what does that
mean — refer to ?
Mr. Light, Again, Mr. Blum, this is my way of keeping records. In
the first few pages, you won't see anything really important there,
but on the second page it starts. In order to keep track of records for
all my investors, I put down Avhere the funds came from.
1059
In others words, when a loan was satisfied, I took the funds and,
upon tlie option of the investor, reinvested it in another loan. So I had
a cross-reference. I used the previous loan that the money came from
so that if my investor's records were a bit mixed up, I could backtrack
much easier.
Mr. BLuai. Now, on the first page there is something saying Astor
fund, what was that ?
IMr. Light. I really don't know what it was, but it was a fund in
existence prior to my employment and I was just told to use that term
and I did.
Mr. Blum. Further down, there is something, "Special deal." Do
you know what that was ?
ISIr. Light. Again, I had nothing to do with that, but Harold Fisher
had given me the records. This was a special loan that was quoted. It
had nothing to do with Delta Funds, it had nothing to do with me,
but they kept it in Delta records and I just copied Harold's records. I
don't know.
]Mr. Blum. And then on the later pages, you have got entries — we
will take the second page which stated a typical entry, HC. I'm now
reading on line 22 (Rico Realty Corp.) Delta Capital Corp., on num-
ber 247, and then we get across to the "Funds from," it says HC-DCC-
217. What would that be ?
INIr. Light. That was my way of keeping records. HC was the initials
of the invester, who is Harry Cooper. I)CC-217 is the loan that he
previously had, and those funds were put into this loan.
]\Ir. Blum. OK. Now, the column headed "Loan closes" refers to
what?
Mr. Light. That was the date the loan was satisfied.
Mr. Blum. The date the loan was satisfied. "Funds advanced," what
does that refer to ?
]\Ir. Light. "Funds advanced" refers to who the investor was and
how much he put up.
Mr. Blum. And the different names there are the identifications —
identifying the investors ; is that correct ?
Mr. Light. That's correct.
Mr. Blum. In some cases there are initials. Who was JFK ?
Mr. Light. JFK is Jerome F. Katz who is senior partner of the law
firm Katz, Wittenberg, Silverman & Levine.
Mr. Blum. Who was Bea Katz, B-e-a Katz ?
Mr. Light. Beatrice Katz is the mother of Robert Katz who is an
employee of the company and the sister-in-law of Edwin Katz.
Mr.BLUM.WhoisHK"?
Mr. Light. That beats — where is it ?
Mr. Blum. Page 2.
Mr. Light. Oh, I know.
Mr. Blum. Line 28.
Mr. Light. That's Hildreth Katz who was a sister of Edwin Katz.
Mr. Blum. In the main, who were the investors, basically? People
who worked for United or who were related to them, or were there
outsiders, too ?
Mr. Light. There were outsiders, too. I never broke down percent-
ages, per se, but there were investors that were employees, members of
1060
families of employees, and lawyers that knew the company and so
forth and so on.
It was all outside money that was used.
Mr. Blum. And the way this worked was that they would put up
the amount for the loan and there would kind of become a loan fund
which would be rolled over as new loans became available, is that
right?
Mr. Light. To their option, Mr. Blum. At the time, if they needed
the capital back, they were more than — well, you know, it was given
to them.
If they decided, when a loan was paid up, they didn't need the
capital and would rather have it reinvested, it was done. Their inter-
est was always given back.
Mr. Blum. AVere those loans satisfied at the final closing, when the
purchaser would have an FHA mortgage?
Mr. Light. Not always FHA mortgages, but always out of the per-
manent closing, yes. There are very rare instances where a loan was
paid off not out of a permanent closing.
Mr. Blum. There would be a closing, and at the closing, a check
would be drawn that would satisfy the Delta loan ?
Mr. Light. That's right.
Mr. Blum. Didn't this arrangement mean that if somebody had a
short-money investment in Delta, he would have a pretty good stake
in seeing to it that the eventual FHA loan was approved as he might
not get paid off ?
Mr. Light. Well, I don't agree with that. These were private inves-
tors that really had very little to do or say about what happened with
a permanent loan.
There are certain principals in here that were principals in the com-
pany that might have been able to aid in securing an FHA loan, but
more than not they were individuals from the outside.
Mr. Blum. But the outsiders had a guarantee of 3 percent from
Mr. Roth?
Mr. Light. No, I disagree with that. There were only a few in-
vestors that had a guarantee from Mr. Roth.
Mr, Blum. I see.
Mr. Light. The principal amounts invested here would far exceed
unguaranteed rather than guaranteed proportions.
Mr. Blum. But to the extent that they were guaranteed by Mr. Roth,
Mr. Roth had control and could get those loans approved ?
Mr. Light. I don't know that he could, but I'm sure that he could
attempt to.
Mr. Blum. When Empire began to put pressure on United to stop
doing business in certain areas and with certain people, did any of
the people inside United begin to complain? Do you recall conversa-
tions about, "Oh, gee, they shouldn't do this. We're going to get stuck
with some of these Delta loans ?"
Mr. Light. T was only present at two meetings Avhere this was dis-
cussed. The topic that you've mentioned specifically did come up at
one meeting, very generally, and the opinion was that it was not com-
pany funds, it was individual's funds. It was in the interest of the
company to stop doing business with certain individuals, and if they
1061
do have a Delta loan outstanding:, if it comes through in the normal
course of business and it is acceptable to the firm, it Avill close, and
if not, well, the investor has to worry about it.
Mr. Blum. Was there any mumbling from the various investors?
Any unhappiness indicated by the investors of not changing policy?
Mr. Light. I don't know how many investors really were aware of
the change in policy. But certain investors did become aware of Delta
loans being outstanding longer than normal and inquired why. But I
don't think they really were included in the policy.
Mr. Blum. Now, was part of your job at United, and as your posi-
tion grew, contact with banks that did business with United ? That's
takeout banks.
Mr. Light. When I first came to United, the first task I was given
was a portfolio — very loosely termed portfolio — of what they termed
corporate conventional loans, which were held mostly by upstate banks
of New York, in which I was asked to see if I could put in array what
was in complete disarray.
Mr. Blum. What was the situation with that portfolio ? How many
loans were in it at first ?
Mr. Light. As close as I can tell you — and I really don't know, be-
cause the only loans I was concerned with were loans in arrears, fore-
closure, or some sort of trouble — to the. best of my knowledge, I
couldn't tell you how^ many were current.
Overall, the loans that I was concerned with number approximately
500 after 3 months of sorting them out and finding out.
Mr. Blum. So you were talking about 500 conventional loans which
were in some degree of difficulty which you, then, had the responsi-
bility to try and somehow handle ?
Mr. Light. Not solely, but I certainly had part and parcel of the re-
sponsibility to try and clear up the arrears or whatever.
Mr. Blum. Now, these loans you describe as corporate loans. I take
it they were loans to corporations which owned property ?
Mr. Light. From what I gather, Mr. Blum — again, I wasn't there
then — but from what I've been told, these were loans made to
corporations.
Mr. Blum. \Vhere would the addresses of these properties be ? Where
were they located principally ?
Mr. Light. I believe they were all in Brooklyn.
Mr. Blum. All in Brooklyn?
Mr. Light. I think so.
Mr. Blum. East New York or Brownsville or a combination?
Mr. Light. I would say it's a very large area. Brooklyn is quite a
big area, but I would say they were in East New York, they were in
Brownsville, East Flatbush, they were in
Mr. Blum. They were scattered, in other words ?
Mr. Light. [Nodding.]
Mr. Blum. Now, what did you begin to do to clean things up ?
Mr. Light. Well, at first, I was given two cartons full of letters
that had been written and not answered.
Mr. Blum. These were letters from ?
Mr. Light. From banks and investors that wanted to know the
status as to why this, that, and the other thing was happening.
1062
Mr. Blum. In fact, why they hadn't gotten their money for that
conventional loan ?
Mr. Light. Why it wasn't being paid monthly or quarterly, depend-
ing upon the loan.
Mr. Blum. And what did you do ?
Mr. Light. I took the stuff home, and my wife and I organized a
card system which I had learned to do at Manufacturers and I had
found very successful. And I put everything down on cards. As much
information as I thought necessary. And then had an idea of at least
how many banks I was dealing with.
I had never met these people. And how many mortgages and so forth
and so on.
Mr. Blum. About how many banks were involved ?
Mr. Light. A total of 20, 25, something of that nature.
Mr. Blum. And each of them had a few loans. It was a matter of
scattered conventional loans ?
Mr. Light. That's true. And I really think it also depended upon the
size of the bank, from what I gather. The more the assets of the bank,
the more they had to put out in mortgages, the more they had.
Mr. Blum. So a very small bank might have five or six or three,
and a large bank might have 20 or 15 or whatever ?
Mr. Light. That's right.
Mr. Blum. Are these banks typically New York banks, or were any
of them outside of the State of New York ?
Mr. Light. The only ones I dealt with were in New York.
Mr. Blum. They were in New York ?
Mr. Light. Within New York State.
Mr. Blum. New York State?
Mr. Light. Yes.
Mr. Blum. Were they savings banks or savings and loans associa-
tions or combinations ?
Mr. Light. Both.
Mr. Blum. Both. Both savings banks and savings and loans ?
Mr. Light. Savings and loans. Federal and State.
Mr. Blum. Wliat did you begin to do with respect to those banks?
Mr. Light. Well, the first thing I did was to go to Mr. Katz and show
him what I had found to be in arrears. I wanted to make sure that I
wasn't barking up the wrong tree.
He scheduled a trip with me to the various upstate banks for me to
meet these people and discuss the problems intelligently and try to
resolve the method of clearing up these arrears as best as possible.
Mr. Blum. And then you went on this trip ?
Mr. Light. I went on this trip.
Mr. Blum. With Mr. Katz?
Mr. Light. With Edwin Katz, right, and the fellow that had had the
job prior to my employment.
Mr. Blum. Who was that ?
Mr. Light. William Klein — Bill Klein.
Mr. Blum. What was a typical conversation like at the banks you
visited ?
Mr. Light. Well, that varied in degrees. There were a number of the
upstate banks that had great contempt for the company because they
1063
thought that they were put into something that they should not have
been put into.
There were other banks that were extremely friendly and under-
stood the problem, that the mortgages that were made in 1964, 1965,
1966, and, I believe, even in 196T, were made and inspected by the
banks or appraisers independently hired by the banks, but Brooklyn
just took a bad turn and a lot of the properties that were quite habit-
able and lovely to look at in 1964 became near hovels in 1968.
And they were very understanding, but they were all interested in
trying to determine a policy to try to clear up these problems because
of the investigators. The Federal and State and so forth and so on
were getting on their backs for taxes unpaid and so forth and so on.
Mr. Blum. By that you mean the bank examiners were upset because
loans were becoming listed ?
Mr. LiCxHT. They were becoming listed. They were becoming fore-
closed, and the banks were becoming owners and the banks themselves
were concerned — they had substantial investments — and rightly so.
They wanted to know where to go.
Mr. Blum. Let me back up to the banks that treated your visit with
contempt. What were they accusing United of ? In fact, what were they
saying ?
Mr. Light. I never got — excuse me, I'm sorry ?
Mr. Blum. Did they say, "You guys pulled a fast one on us"?
Mr. Light. I never heard that said directly, but through my feel-
ings — and it was my first visit — I just noticed a difference in the greet-
ing that was given in certain banks as to other banks, and I realized
that certain people must have had the impression that they got a raw
deal, where others were willing to look at it that they went into it with
their eyes wide open and it was just an investment that didn't pan out
correctly.
Mr. Blum. "What were some of the solutions that were discussed at
these meetings ? What were the alternatives available to a bank which
held these different loans?
Mr. Light. Well, having some servicing experience, I thought the
first available suggestion was to try and service the loans properly ; and
if the loan was 4 or 5 months in arrears, I didn't think it should be
treated as a complete washout.
I think that the people had to be called in, they had to be interviewed.
If they were really desirous of maintaining the property, they had to
be spoken to. If they couldn't afford paying, you could realistically
establish some sort of a payment plan, with the bank's approval, and
that would be my first recommendation. That was my first recommen-
dation.
Mr. Blum. Was that approach successful with many of these loans ?
Mr. Light. In very many, a great number, I believe. Some 400.
Mr. Blum. What other proposals were on the table in those meetings ?
Mr. Light. There were many loans, when I was hired, that were in
the state of foreclosure and I was very much against the banks fore-
closing these properties.
Mr. Blum. What were the problems involved with the banks' fore-
closing ?
1064
Mr. Light. Aside from length of time, great expense, the liability of
the bank becoming an owner to a piece of property in Brooklyn I
thought was very risky for the bank to do because of the chance of
building violations being placed on premises.
Mr. Blum. They might become liable for repairing or correcting the
violations ; is that it ?
Mr. Light. They would become liable once they were the owner.
Mr. Blum. What happened to the building then? What was the
alternative ?
Mr. Chumbris. When you said, "length of time," what is the length
of time?
Mr. Light. For foreclosure in New York? I can give you a fair
estimate of anywhere from 6 to 20 months, dependent upon the owner
being located and serviceable for publication and so forth and so on.
Mr. Blum. What was the alternative available to the bank other
than foreclosure to the bank loan ?
Mr. Light. Assignment of the mortgage or sale of the mortgage
upon foreclosure at the foreclosure sale, not bid in the property, take
a writeoff, take a loss.
Mr. Blum. And then assign the mortgage to someone else who might
be willing to take the property ?
Mr. Light. Dependent upon what stage it was at. You can't assign
a deed until the property is permanently foreclosed. You could assign
a mortgage.
Mr, Blum. You could assign a mortgage ?
Mr. Light. You could assign a mortgage at any stage. It depended
on the bank's feelings, and being the first time I was talking to them
I was looking for their suggestions as well.
Mr. Blum. What other alternatives were available?
Mr. Light. Those were the only alternatives other than trying — if
the house was in good shape — to convert them to FHA's and VA's
which, again, the houses I was dealing with did not occur because
they were in arrears and so forth and so on and the FHA was not
going to
Mr. Blum. Let me go back to the question of assignment. From the
records you submitted to us it is clear that you have handled a number
of these transactions for the banks.
Where did you find people who were willing to take these proper-
ties at a discount ? Are there those people who bought them ?
Mr. Light. There are many of those people who would buy them
and by letters that were sent to the banks soliciting any mortgages
that they were desirous of selling, and the banks would forward those
to me and I would follow up on them.
Mr. Blum. Why would a guy want to buy property in that much
trouble ? Isn't he just buying grief ?
Mr, Light. Well, I really cannot answer it. I do not know the answer
to it. My OAvn opinion would be that they could buy for the right price.
Mr. Blum. Is it possible that they might want to get the property
to do what is known as "milking"? That is collecting rent, put in a
minimum amount, and get whatever they put in back in the form of
profit?
Mr. Light. That is all conjecture.
1065
Mv. Blum. Do you know what happened to any of those buildings
subsequent to the assignment? Do you know wliether they were aban-
doned or what became of them ?
Mr. Light. Any of them ? I know that approximately 10 percent of
the ones that I dealt with were converted to FHA loans and what
happened to the rest of them I really do not know.
Mr. Blum. How did the FHA conversion situation work? Would
you call the broker and say, "Here's a loan which we think is ripe for
conversion" ? What were the mechanics of it ?
Mr. Light. No, I never called the broker and had him do anything
with an FHA. I did call brokers in the Brooklyn, N.Y., area, telling
them that a bank was desirous of selling the following mortgages. They
could go out and make a bona fide offer, and I would forward it to the
bank for their approval or disapproval or whatever.
?dr. Blum. Now, let me back up here and go through — give me the
mechanics, if you will, of a conversion situation. I am a bank and I say
to you, "I've got this mortgage which is in trouble. Let's see if we
can't convert this to an FHA." What do you do ?
Mr. Light. AVlien a bank says, "Let's see if we can't convert that to
an FHA," I have very little to do Avith it altogether.
Mr. Blum. Who would have had to do with it ?
Mr. Light. The processing department' of United, which I have
nothing to do with.
^Ir. Blum. I see. So you would simply indicate that you would go
back to LTnited and somebody else would pick up the ball ?
i\Ir. Light. That's right. I'd have nothing. That was not my baili-
wick whatsoever.
Mr. Blum. Do you know if that was handled by Mr. Katz, Ed Katz ?
Mr. Light. Only to the extent that he was notified by certain banks
where his relationship with these banks was that they said, you know,
was it possible to FHA certain housing and he would send it out to
Hempsted, which is our processing office, and see what came back.
Mr. Blum. Was it your understanding that this problem we are dis-
cussing that arose as conventionals went bad, was widespread in
Brooklyn ?
Mr. Light. At the time I was doing it, I didn't even know there were
any other conventionals in existence in mortgage companies, and I still
don't really know what percentages there were.
I became aware of the problem at United but I really thought it
could be very well rectified.
Mr. Blum. How long did you stay on this particular job?
Mr. Light. A very short time. I was able to hire an assistant who
worked with me at Manufacturers and he took the job over for me once
the records were set up.
Mr. Blum. And who Avas the assistant that worked for you ?
]\[r. Light. Robert Brittain — Bob Brittain.
]\rr. Blum. Xow, you received a number of legal fees for handling
closings and the sale to some of the operators. I wonder of you could
identify for us more fully who those buyers who were solicited. Do you
recall offhand ?
Mr. Light. I could give you a list of names. I don't know them per
property, but I do know people. Who I sold them to.
83-703 O— 73-
1066
Mr. Blum. Yes. Would you mind giving us the names of some of the
people you sold property to ?
Mr. Light. I have a little notation here. Rocket Equities ; a lawyer
by the name of Emmanuel Brody ; Chala Funding ; Wohl Associates ;
and a Greek fellow by the name of Kopsechalos.
Mr. Blum. Can you identify who the principals were in Chala-
Funding '^
Mr. Light. Charlie Friedman.
Mr. Blum. Charlie Friedman?
Mr. Light. Right.
Mr. Blum. And there was another corporation that you mentioned
at the outset ? Rocket Equities ?
Mr, Light. Rocket Equities. The only one there I know is Hyman
Gaines.
]\Ir. Blum. Hyman Gaines ?
Mr. Light. Yes. Right.
Mr. Blum. Were all of these people brokers active in the FHA busi-
ness as well as being in the real estate business, generally ?
Mr. Light. I do not know about all of them, but I would say a good
percentage of them were, yes.
Mr. Bluim. And as you indicated before, you do not know what they
did with buildings after they bought them ?
INIr. Light. I do not, except that if it came to my attention that
United got an FHA on them, which was in a very rare instance.
Mr. Bi,UM. Then it would come back through the place with an
FHA?
Mr. Light. And then I would see it, right.
Mr. Blu.-m. When the banks talked about selling a building, did they
have any idea what the actual fate would be, or was their attention
focused on getting liquid assets in place of this defaulted mortgage?
Mr. Light. The opinions I received from mostly upstate banks, their
total effort was designed to rid themselves of Brooklyn conventional
mortgages, and that was their concern. We did not know what was
going to happen to it, and I do not really know if they cared.
Mr. Blum. And I imagine that they were in no position to try to
manage those properties or even be stuck with the risk of having to
make repairs on them ?
Mr. Light. Well, like I say, out of the 500 that I assume in the be-
ginning, approximately 350 to 400 were put in a state where they could
be managed, and that is what we did.
We were their servicer. The ones that could not be serviced were
foreclosed, by the time T was there, or anything else, they just did not
manage and therefore sold off or whatever.
Mr. Blum. Did you represent TTnited at a number of closings? Did
you sit in as a closing attorney for iTnited in many closings in your
career ?
Mr. Light. No. sir ; I did not.
Mr. Blum. In the documents you supplied us, there is an indication
you received gratuities from a number of brokers. What were those
gratuities paid in connection with?
Mr. Light. They were for closings for interim loans.
Mr. Blum. I see.
Mr. Light. Which I did close for Delta Capital Corp.
1067
Mr. Blum. Tn other words, yoii handle the closino: of interim loans
for Delta Capital, and the gratuities you listed were all for those in-
terim loans?
Mr. Light. That's it exactly.
Mr. Blum. Wlio was present at a typical interim closing?
Mr. Light. Present ?
Mr. Blum. Yes.
Mr. Light. Usually the people present were the seller of the house,
the buying corporation, an attorney for the buyer, title company,
closer, myself, or some representative of tlie lending corporation.
Mr. Blum. These were all non-FHA? This was all the interim
financing?
Mr. Light. This had nothing to do with the FHA.
Mr. Blum. I have no further questions.
Mr. CiiUMBRis. T have no questions either.
Mr. O'Leary. No.
My. Blum. Mr. Chairman, I ask that the materials submitted by Mr.
Light in response to the subcommittee's subpena be made a part of the
record.
Senator Hart. No objection.
(The documents follow and the testimony resumes on p. 1092.)
1068
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3 - 22 (Pt.2B)
1082
Documents Furnished by the Auburn Savings Bank
EXHIBIT 2:
Auburn Savings Bank,
Auhurn, N.Y., March 23, 1912.
Mr. Jack A. Blum,
Assistant Counsel, U.S. Senate, Subcommittee on Antitrust and Monopoly, Senate
Annex, Washington, B.C.
Deau Mk. Blum : Pursuant to our recent telephone conversation, enclosed
please find copies of our records covering transactions on or about the six dates
in 1969 and 1970 which you enumerated, in which Warren M. Light, as attorney,
was paid $200.00 by this Bank.
These transactions covered sales of properties acquired by us through fore-
closure.
If you have any further questions, please do not hesitate to contact the
undersigned.
Very truly yours,
F. Michael Stapleton, Mortgage Officer.
Wabben M. Light,
A^ew York, A^.Y., June 18, 1969.
Re 67 Lott Avenue, Brooklyn, N.Y.
Auburn Savings Bank,
70-74 Genesee Street,
Auburn, N.Y.
Legal fees for preparation of Contract of Sale, preparation of Deed and
attendance at closing $200.00
Closing Statement
Purchase price 1, 750.00
Debits due seller :
R/E taxes {V2 month) 14.25
Water (6i/^ months) 30.90
Sewer (i-^ month) .75
Total debit 1, 795.90
Credits due purchaser :
Money on contract 175. 00
Documentary stamps 2.20
177. 20
Net due Auburn Savings Bank 1, 618. 70
THIS INDENTURE, made the 12th day of June, nineteen hundred and sixtv-
nine BETWEEN AUBURN SAVINGS BANK, a New York banking corporation
having its principal office at No. 70-74 Genesee Street, Auburn, New York, party
of the first part, and FOTIOS KOPSACHILIS, residing at No. 1115 Dorchester
Road, Brooklyn, New York, party of the second part,
Witnesseth, that the party of the first part, in consideration of Ten Dollars
and other valuable consideration paid by the party of the second part, does
hereby grant and release unto the party of the second part, the heirs or suc-
cessors and assigns of the party of the second part forever,
All that certain plot, piece or parcel of land, with the buildings and improve-
ments thereon erected, situate, lying and being in the Borough of Brooklyn,
County of Kings, City and State of New York, bounded and described as follows :
Beginning at a point on the northerly side of Lott Avenue, distant 40 feet
easterly from the corner formed by the intersection of the northerly side of
Lott Avenue and the easterly side of Amboy Street ; thence northerly parallel
with Amboy Street, 100 feet 5Yj inches; thence westerly parallel with Lott
Avenue, 40 feet to the easterly side of Amboy Street ; thence .southerly along
the easterly side of Amboy Street, 10 feet 5V1' inches ; thence easterly parallel
with Lott Avenue, 20 feet ; thence again soiitherly part of the distance through
a party wall, 90 feet to the northerly side of Lott Avenue; thence easterly along
the northerly side of Lott Avenue, 20 feet to the point or place of beginning.
Premises being known as No. 67 Lott Avenue, Brooklyn, New York.
1083
Together with all right, title and interest, if any, of the party of the first part
in and to any streets and roads abutting the above described premises to the
center lines thereof; together with the appurtenances and all the estate and rights
of the party of the first part in and to said premises ; to have and to hold the
premises herein granted unto the party of the second part, the heirs or successors
and assigns of the party of the second part forever.
And the party of the first part, in compliance with Section 13 of the Lien Law,
covenants that the party of the first part will receive the consideration for this
conveyance and will hold the right to receive such consideration as a trust fund
to be applied first for the purpose of paying the cost of the improvement and
will apply the same first to the payment of the cost of the improvement before
using any part of the total of the same for any other purpose.
The word "party" shall be construed as if it read "parties" whenever the
sense of this indenture so requires.
In witness whereof, the party of the first part has duly executed this deed
the day and year first above written.
In presence of : .
Auburn Savings Bank,
By : .__
Re 528 Vermont Street, Brooklyn, N.Y.
Auburn Savings Bank,
70-74 Genesee Street,
Auburn, N.Y.
Legal fees for preparation of Contract of Sale, preparation of Deed
and attendance at closing $200. 00
Paid to Warren M. Light, Esq. on September 8, 1969 with check #095129.
Closing Statement
Debits :
Purchase Price 10, 000. 00
Water Tax 20. 00
Total Debits 10, 020. 00
Credits :
Money on Contract 1,500.00
Real Estate Taxes (1 month and 22 days) 63. 95
Insurance (7/15 to 8/15) 27. 85
Total Credits 1, 59L 80
Balance Due Auburn Savings Bank 8, 428. 20
This indenture, made the 13th day of August, nineteen hundred and sixty-nine
between Auburn Savings Bank, a New York banking corporation having
an ofiice at 70-74 Genesee Street, Auburn, New York, party of the first part, and
2036 Plainview Avenue, Inc., a New York corporation having its office at 2036
Plainview Avenue. Far Rockaway, New York, party of the second part,
Witnesseth, that the party of the first part, in consideration of Ten Dollars and
other valuable consideration paid by the party of the second part, does hereby
grant and release unto the party of the second part, the heirs or successors and
assigns of the party of the second part forever,
All that certain plot, piece or parcel of land, with the buildings and improve-
ments thereon erected, situate, lying and being in the Borough of Brooklyn,
County of Kings, City and State of New York, bounded and described as follows :
Beginning at a point on the westerly side of Vermont Street distant 100 feet
southerly from the corner formed by the intersection of the westerly side of
Vermont Street with the southerly side of Dumont Avenue ; running thence
westerly parallel with Dumont Avenue and part of the distance through a party
wall 100 feet ; thence southerly and parallel with Vermont Street 20 feet ; thence
easterly and parallel with Dumont Avenue and part of the distance through a
party wall 100 feet to the westerly side of Vermont Street ; thence northerly along
the said westerly side of Vermont Street 20 feet to the point or piace of
beginning.
Said premises being known as and by the street number 528 Vermont Street,
Brooklyn, New York.
1084
Together with all right, title and interest, if any, of the party of the first part
of, in and to any streets and roads abutting the above-described premises to the
center lines thereof ; together with the appurtenances and all the state and rights
of the party of the first part in and to said premises ; to have and to hold the
premises herein granted unto the party of the second part, the heirs or successors
and assigns of the party of the second i)art forever.
And the party of the first part, in compliance with Section 13 of the Lien Law,
covenants that the party of the first part will receive the consideration for this
conveyance and will hold the right to receive such consideration as a trust fund
to be applied first for the purpose of paying the cost of the improvement and will
apply the same first to the payment of the cost of the improvement before using
any part of the total of the same for any other purpose.
The word "party" shall be construed as if it read "parties" whenever the sense
of this indenture so reqiiires.
In witness whereof, the party of the first part has duly executed this deed the
day and year first above written.
In presence of : M. Stapleton.
Auburn Savings Bank,
By : William B. Newley, President.
New York, N.Y., July 11. 1969.
Re 317 Macon Street, Brooklyn, N.Y.
Auburn Savings Bank,
70-74 Genesee Street,
Auburn, N.Y.
Legal fees for preparation of Contract of Sale, preparation of Deed and
attendance at closing $200.00
Warren M. Light, Attorney at Law,
Neiv York, N.Y., July 17, 1969.
Re 317 Macon Street, Brooklyn, N.Y.
Mr. F. Michael Stapleton,
Auburn Savings Bank,
Genesee Street, Auburn, Isl.Y.
Dear Mike : Enclosed please find a copy of the closing statement for the above
captioned premises.
Please take note that the following adjustments were made :
The Bank received $27.50 for the adjustment on the water tax paid January
1st and expiring December 31st, the purchaser received credit for the folllowing :
$18.35 for real estate taxes due July 1st to today and also the purchaser re-
ceived $15.40 for documentary stamps which cost $1.10 per thousand dollars of
the purchase price.
The net figure due the Bank was $12,993.75 which I am enclosing in two checks,
a $12,000.00 certified check and a check for $993.75.
The insurance policy which the Bank paid for on June 5, 1969 was cancelled
today and a check for the unearned premium will be forwarded to you as .soon
as it is received.
I am also enclosing my bill for legal fees rendered in this case.
I trust that you will find all the enclosures in order.
Very truly yours,,
Warren M. Light.
Closing Statement
Purchase Price 14, 000. 00
Debits due Seller :
Water Tax 27. 50
14, 027. 50
Credits due Purchaser :
Money on Contract 1, 000. 00
Document Stamps 15.40
Real Estate Taxes 18.35
Total Credits 1, 033 .75
New due Auburn Savings Bank 12, 993. 75
1085
This indenture, made the 14th day of July, nineteen hundred and Sixty-
Nine between Auburn Savings Banlv, a New York corporation having an ofBce
at 70-74 Genesee Street, Auburn, New York, party of the first part, and Rocket
Equities Corp., a New York corporation having its principal office at 48 Ralph
Avenue, Brooklyn, New I'ork, party of the second part,
Witnesseth, that the party of the first part, in consideration of Ten Dollars
and other valuable consideration paid by the party of the second part, does hereby
grant and release unto the party of the second part, the heirs or successors and
assigns of the party of the second part forever.
All that certain plot, piece or parcel of land, with the buildings and improve-
ments thereon erected, situate, lying and being in the County of Kings, Borough
of Brooklyn, City and State of New York, bounded and described as follows:
Beginning at a point on the northerly side of Macon Street distant 212 feet
westerly from the Northwesterly corner of Macon Street and Sumner Avenue;
running thence Northerly parallel with Sumner Avenue and part of the distance
through a party wall, 100 feet; thence Westerly parallel with Macon Street 17
feet 8 inches ; thence Southerly parallel with Sumner Avenue and part of the
distance through a party wall 100 feet to the northerly side of Macon Street ; and
thence Easterly along the Northerly side of Macon Street, 17 feet 8 inches to the
point or place of Beginning.
Together, with all right, title and interest of, in and to any streets and roads
abutting the above described premises to the center line thereof.
Premises known as : and by the street number : 317 Macon Street, Brooklyn,
New York, Section G, Block 1847, Lot 53.
Together with all right, title and interest, if any, of the party of the first part
in and to any streets and roads abutting the above described premises to the
center lines thereof ; together with the appurtenances and all the estate and rights
of the party of the first part in and to said premises ; to have and to hold the
premises herein granted unto the party of the second part, the heirs or successors
and assigns of the party of the second part forever.
And the party of the first part, in compliance with Section 13 of the Lien Law,
covenants that the party of the first part will receive the consideration for this
conveyance and will hold the right to receive such consideration as a trust fund
to be applied first for the purpose of paying the cost of the improvement and will
apply the same first to the payment of the cost of the improvement before using
any part of the total of the same for any other purpose.
The word "party" shall be construed as if it read "parties" whenever the sense
of this indenture so requires.
In witness whereof, the party of the first part has duly executed this deed the
day and year first above written.
In presence of :
AuBXJRN Savings Bank,
By , President.
Re 563 Van Siclen Avenue, Brooklyn, N.Y.
Auburn Savings Bank,
70-74 Genesee Street,
Auburn, N.Y.
Legal fees for preparation of Contract of Sale, preparation of Deed and
attendance at closing $200.00
Closing Statement
Debits :
Purchase Price 7, 000. 00
Water Rent (adjusted for 9/19-12/31) 11. 00
Total Debits 7, Oil. 00
Credits :
Deposit on Contract 800. 00
Real Estate Taxes (adjusted for 7/1-9/19) 76. 45
Interest on Taxes Due 7/1 1- 75
Sewer Rent (from 7/1-9/19) 3. 00
Documentary Stamps on Deed 7. 70
Total Credits 888. 90
Balance due Auburn Savings Bank 6, 112. 10
1086
This indenture, made the 29th day of August, nineteen hundred and sixty-nine
between Auburn Savings Bank, a New Yorlv banlving corporation having an ofiice
at 70-74 Geneste Street, Auburn, New York, party of the first part, and the Mid-
way Investing Corporation, a New York corporation, having an oflSce at 1045 Rut-
land Road, Brooklyn, New York, party of the second part,
Witnesseth, that the party of the first part, in consideration of Ten Dollars and
other valuable consideration paid by the party of the second part, does hereby
grant and release unto the party of the second part, the heirs or successors and
assigns of the party of the second part forever.
All that certain plot, piece or parcel of land, with the buildings and improve-
ments thereon erected, situate, lying and being in the Borough of Brooklyn,
County of Kings, City and State of New York, bounded and described as follows :
Beginning at a point on the easterly side of Van Siclen Avenue, distant 40 feet
northerly from the corner formed by the intersection of the easterly side of Van
Siclen Avenue with the northerly side of Livonia Avenue ; running thence easterly
parallel with Livonia Avenue, and part of the distance through a party wall 50
feet ; thence northerly parallel with Van Siclen Avenue 20 feet ; thence westerly
again parallel with Livonia Avenue and part of the distance through another
party wall 50 feet to the easterly side of Van Siclen Avenue ; and thence southerly
along the easterly side of Van Siclen Avenue, 20 feet to the point or place of
Beginning.
Said premises being known as and by the street number 563 Van Siclen Avenue.
Together with all right, title and interest, if any, of the party of the first part
of, in and to any streets and roads abutting the above-described premises to the
center lines thereof; together with the appurtenances and all the estate and
rights of the party of the first part in and to said premises ; to have and to hold the
premises herein granted unto the party of the second part, the heirs or successors
and assigns of the party of the second part forever.
And the party of the first part, in compliance with Section 13 of the Lien
Law, convenants that the party of the first part will recive the consideration for
this conveyance and will hold the right to receive such consideration as a trust
fund to be applied first for the purpose of paying the cost of the improvement
and will apply the same first to the payment of the cost of the improvement
before using any part of the total of the same for any other purpose.
The word "party" shall be construed as if it read "parties" whenever the sense
of this indenture so requires.
In witness whereof, the party of the first part has duly executed this deed
the day and year first above written.
In presence of : Stapleton
Auburn Savings Bank,
Pierre L. Labourdette, Assistant Treasurer.
New York, N.Y.. July 2, 1910.
Re 652 Hendrix Street, Brooklyn, N.Y.
Axtburn Savings Bank,
Gencscc Street,
Atitum, "N.Y.
Legal fees for preparation of Contract of Sale, preparation of Deed and
attendance at closing $200. 00
Closing Statement
652 Hendrix Street, Brooklyn, N.Y.
Purchase Price L 5, 000. 00
Debits due Seller :
% year water adjustment 20. 00
Total debit 5, 020. 00
Credits :
Money on Contract 1,000.00
Documentary Stamps 5. 50
Total Credits 1, 005. 50
Net due Auburn Savings Bank 4,014.50
1087
This indenture, made the 15th day of June, nineteen hundred and seventy, be-
tween Auburn Savings Bank, a domestic banking corporation, having its prin-
cipal place of business at 70-74 Genesee Street, Auburn, New York, party of
the first part, and Chala Funding Corp., a New York corporation, having its
place of business at 200 7th Avenue, Brooklyn, New York, party of the second
part.
Witnesseth, that the party of the first part, in consideration of Ten Dollars
and other valuable consideration paid by the party of the second part, does
hereby grant and release unto the party of the second part, the heirs or successors
and assigns of the party of the second part forever,
All that certain plot, piece or parcel of land, with the buildings and improve-
ments thereon erected, situate, lying and being in the Borough of Brooklyn,
County of Kings, City and State of New York, bounded and described as
follows :
Beginning at a point on the westerly side of Hendrix Street, distant 40 feet
southerly from the corner formed by the intersection of the westerly side of
Hendrix Street and the southerly side of Livonia Avenue ; running thence westerly
parallel with Livonia Avenue and part of the way through a party wall, 50 feet ;
thence southerly parallel with Hendrix Street, 20 feet; thence easterly again
parallel with Livonia Avenue and part of the way through another party wall,
50 feet to the westerly side of Hendrix Street ; thence northerly along the west-
erly side of Hendrix Street, 20 feet to the point or place of beginning. Said
premises being known as and by street number 652 Hendrix Street, Brooklyn,
New York.
Together with all right, title and interest, if any, of the party of the first part
of, in and to any streets and roads abutting the above-described premises to the
center lines thereof; together with the appurtenances and all the estate and
rights of the party of the first part in and to said premises ; to have and to hold
the premises herein granted until the party of the second part, the heirs or
successors and assigns of the party of the second part forever.
And the party of the first part, in compliance with Section 13 of the Lien Law,
covenants that the party of the first part will receive the consideration for this
conveyance and will hold the right to receive such consideration as a trust fund
to be applied first for the purpose of paying the cost of the improvement and will
apply the same first to the payment of the cost of the improvement before using
any part of the total of the same for any other purpo.se.
The word "party" shall be construed as if it read "parties" whenever the sense
of this indenture so requires.
In witness whereof, the party of the first part has duly executed this deed the
day and year first above written.
In presence of :
Auburn Savings Bank,
, President.
New York, N.Y., June 23, 1912.
Re 447 ShetTield Avenue, Brooklyn, N.Y.
AuBiTRN Savings Bank,
70-74 Genesee Street,
Auburn, N.Y.
Legal fees for preparation of Contract of Sale, preparation of Deed
and attendance at closing $200. 00
Closing Statement
Debits :
Purchase Price 8,000.00
Credits :
Money deposited on contract 1, 600. 00
Adjusted Water Tax (5 months 3 weeks 1-1-70—12-3-70) 38. 39
Adjusted Sewer Tax (5 months 3 weeks) 26.44
Adjusted R/E Tax (3rd Quarter & 4th Quarter less 1 week) 359. 18
Penalties for Late Taxes 35.00
Title Charges (Documentary Stamps) 8.80
Total Credits — 2,068.31
Total due Auburn Savings Bank 5,931.69
1088
This indenture, made the 15th day of June, nineteen hundred and seventy be-
tween Auburn Savings Bank, a domestic bank corporation, having an office
at 70-74 Genesee Street, Auburn, New York, party of the first part, and Chala
Funding Corp., a domestic corporation, having its office at 200 7th Avenue, Brook-
lyn, New York, party of the second part,
Witnesseth, that the party of the first part, in consideration of Ten Dollars
and other valuable consideration paid by the party of the second part, does hereby
grant and release unto the party of the second part, the heirs or successors and
assigns of the party of the second part forever.
All that certain plot, piece or parcel of land, with the buildings and improve-
ments thereon erected, situate, lying and being in the Borough of Brooklyn,
County of Kings, City and State of New York, bounded and described as follows :
Beginning at a point on the easterly side of Sheffield Avenue distant 40 feet
southerly from the corner formed by the intersection of the easterly side of Shef-
field Avenue with the southerly side of Dumont Avenue ; running thence easterly
parallel with Dumont Avenue 95 feet; thence southerly parallel with Sheffield
Avenue 25 feet ; thence westerly and again parallel with Dumont Avenue and part
of the distance through a party wall 95 feet to the easterly side of Sheffield Ave-
nue ; and thence northerly along the said easterly side of Sheffield Avenue, 25 feet
to the point or place of beginning.
Said premises being known as and by street number 447 Sheffield Avenue,
Brooklyn, New York.
Together with all right, title and interest, if any, of the party of the first part
of, in and to any streets and roads abutting the above-described premises to the
center lines thereof ; together with the appurtenances anl all the estate and
rights of the party of the first part in and to said premises ; to have and to hold
the premises herein granted unto the party of the second part, the heirs or suc-
cessors and assigns of the party of the second part forever.
And the party of the first part, in compliance with Section 13 of the Lien
Law, covenants that the party of the first part will receive the consideration
for this conveyance and will hold the right to receive such consideration as a
trust fund to be applied fir.st for the purpose of payino- the cost of the improve-
ment and will apply the same first to the payment of the cost of the improve-
ment before using any part of the total of the same for any other purpose.
The word "party" shall be construed as if it read "parties" whenever the sense
of this indenture so requires.
In witness whereof, the party of the first part has duly executed this deed
the day and year first above written.
In presence of :
Auburn Savings Bank,
By: , President.
EXHIBIT 3
Documents Furnished by Warren Light Pursuant to Subpoena Dated March 7,
1972
Empbanque Capital Corp.,
^^ew York, N.Y., March 15, 1972.
Hon. Philip A. Hart,
Chairman, Subcommittee on Antitrust and Monopoly Committee on the Judiciary
of the Senate of the United States, 203 Senate Annex, Washington, B.C.
Dear Senator: As requested in your subpoena dated the 7th of March 1972
I herewith enclose schedules covering Items ] and 2.
As to Items 3 and 4 the answer is none.
I wish to call your attention to the fact that my employment with Delta
Capital Corp. and now Empbanque Capital Corp. began on December IG, 1968 and
therefore, for the period 1967 and 1968 I would have nothing pertaining to your
questions in my reports.
I trust this information will be sufficient to answer your que.stions.
Very truly yours,
Warren M. Light.
1089
SCHEDULE OFSTOCKS OWNED FROM JAN. 1, 1967 TO JAN. 1. 1972
Number of shares,
stock
Date bought
Price Date sold
Net
Price difference Officers
Divi-
dends
100— Gen Develop. Cp_ May 4, 1966 $783. 50
100-Pict. Prod May 21,1968 1,280.82
25- Extend. Cp Jan. 31,1968 200.00
100 U.S. Crown do 991.75
100 -U.S. Crown do 815.00
100-U.S. Crown June 1,1968 1,219.00
100- Clark Can Co Sept. 4,1968 1,000.00
25-T.V.Cp Nov. 14,1968 325.00
100— Leisure Tech Feb. 27,1969 1,300.00
300 Cryplex Ind July 2,1969 4,263.00
300 U.S. Crown July 15,1968 3,255.00
500- Arcs Indust Feb. 4,1971 2,953.75
300-lnt. Isl. Mtgd__.. Feb. 5,1971 1,539.00
March 7,1967
July 11, 1968...
Jan. 31,1968-..
Oct. 15,1968....
do...
....do
Oct. 7, 1968
Nov. 22, 1968.,
Mar. 28, 1969..
Dec. 17,1969...
Feb. 20 and
Mar. 4,1969.
Apr. 27, and
Aug. 17, 1971.
Aug. 17, 1971..
$870.50
1,555.84
414.81
1,103.00
1,103.00
1,103.00
955.75
433.37
1,474.25
3, 606. 18
2,595.00
+$87.00 L
+275.02 ..
+214.81
+111.25 ..
+288.00 ..
-116.00 ..
-44.25 ..
+108.37 ..
+ 174.25 ..
-656.82 ..
-660.00 ..
nknown.
...do...
...do...
..-do...
...do...
...do...
...do...
...do...
...do...
...do...
...do...
None.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
1,000-Omega Alpha.. Aug. 25, 1971 5,500.00 Still holding.
4,092.86 +1,139.11 Jos. Robbins,
Dave Rabbach
2,369.61 +830.61 Stanley Sirote, Do.
Kath Koury.
James Ling Do.
DELTA INVESTMENTS FOR WARREN LIGHT 1970-71 (NONE PRIOR TO)
Date
Amount of
capital Who loaned to
When
satisfied
Amount
retained
Interest
earned
Jan. 20, 1970
$7, 500
Mar. 31,1970 ...
7,500
May 8, 1970 .
5,000
Aug. 13,1970
5.000
Sept. 24,1970
5,000
Oct. 5,1970
7,500
Oct 15, 1970
5,000
Nov. 2,1970
5,000
Nov. 20,1970 ..
7,500
Jan. 21,1971
7,500
Feb. 16,1971. ..
7,500
Mar. 18,1971
10,000
Apr. 1,1971
7,500
Covert Holding Corp
Grove Holding Corp
Angelique Enterprises, Inc.
Michelle Enterprises, Inc..
Prima Realty Corp
Albissa Realty Corp
Prima Realty Corp.
Albion Realty Corp
O'Drago Realty Corp
Fridal Enterprises, Inc
Prima Realty Corp
Tinton Avenue Corp.
Concord Holding Corp
Mar. 26, 1970
$7, 500
$247. 50
Sept. 30, 1970
7,500
678.75
Aug. 10,1970
5,000
230.00
Sept. 24, 1970
5,000
95.50
Oct. 6,1970
5,000
37.50
Nov. 20,1970
7,500
168.75
Nov. 10,1970
5,000
67.50
Mar. 15,1971
5,000
315.00
Mar. 16,1971
7,500
435,00
Feb. 18, 1971
7,500
112.50
Mar. 31, 1971
7,500
165.00
May 11,1971
10,000
265.00
Apr. 28,1971
7,500
112.50
Total interest earned.
2,930.00
ADDITIONAL INCOME EARNED BETWEEN JAN. ]
i, 1967-JAN. 1, 1972 LEGAL FEES
Date
Source of income
Amount Reason for fee
May 20, 1969..
June 18,1969..
July 19, 1969..
Aug. 19,1959..
Aug. 22,1969..
Sept. 10, 1969.
Sept. 19, 1969.
Nov. 12,1969..
Nov. 28, 1969..
Jan. 14, 1970..
Feb. 5, 1970...
Feb. 9, 1970...
Mar. 20,1970..
June 23, 1970..
July 2, 1970...
Aug. 13, 1970..
Sept. 9, 1970..
Feb. 11, 1971..
Calskill Savings Bank
Auburn Savings Bank
do
City and County Savings Bank
Auburn Savings Bank
Mechanics Exchange Savings Bank.
Auburn Savings Bank
City and County Savings Bank
Joel Sparaga.
Amsterdam Savings Bank
do
The Rome Savings Bank
Maria Ortiz
Auburn Savings Bank
do
City and County Savings Bank
do.. _
do
$200
Attorney at title closing.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
200
Do.
500
Do.
200
Do.
200
Do.
150
Do.
200
Do.
200
Do.
1090
SCHEDULE OF CLOSING GRATUITIES RECEIVED IN 1969
Date
Source of Income
Amount What reason for Income
Jan. 23, 1969. _ Prima Realty Corp.
Feb. 11, 1969.
Do
Mar. 18,1969.
Mar. 25, 1969.
Apr. 2,1969...
Apr. 8, 1969..
Do
Do
Apr. 17, 1969..
Apr. 18,1969..
May 1, 1969 .
May 13,1969..
May 26, 1969..
June 12, 1969.
July 17, 1969..
July 29, 1969..
July 31, 1969..
Aug. 5, 1969-.
Aug. 12,1969..
Aug. 19, 1969..
Aug. 25, 1969..
Sept. 4,1969..
Sept. 5, 1969..
Sept. 12,1969.
Sept. 18, 1969.
Sept. 25, 1969.
Oct. 2,1969...
Oct. 16,1969..
Nov. 6,1969...
Dec. 2,1969...
Do
Dec. 16, 1969..
Dec. 23,1969..
do
do._
do
do..._ _
Daniel Macklin, Inc
Prima Realty Corp _
do
do.
Roma Remodeling Corp..
Mel Norris, Inc
Michelle Enterprises, Inc.
Prima Realty Corp
Romero Properties Inc...
Michelle Enterprises, Inc.
Dean Street Associates..
Grove Holding Corp
do.
Prima Realty Corp
Freedom Realty Corp
Rico Realty Corp
Minturn Co., Inc..
Prima Realty Corp.
Chala Funding Corp
Mel Norris Inc
Prima Realty Corp
Roma Remodeling Corp..
Harbor View Associates. .
Grove Holding Corp
Covert Holding Corp
Prima Realty Corp
do
Grove Holding Corp
Tiger Realty Corp
$20 Gratuity for closing attorney
(mortgage closing).
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
50 Do.
50 Do.
20 Do.
25 Do.
50 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
50 Do.
20 Do.
25 Do.
50 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
20 Do.
SCHEDULE OF CLOSING GRATUITIES RECEIVED IN 1970
Sept. 2, 1970 West Brighton Village, Inc.
Sept. 9, 1970..
Sept. 24, 1970.
Oct. 5, 1970...
Oct. 8, 1970...
Oct. 15, 1970..
Oct. 20, 1970..
Oct. 21, 1970..
Oct. 30. 1970..
Nov. 10, 1970..
Nov. 16, 1970..
Nov. 30, 1970..
Dec. 2, 1970 .
Dec. 14, 1970 .
Dec. 18, 1970 .
Dec. 23, 1970..
Prima Realty Corp
do
Albissa Realty Corp
Instant Buyer, Inc
Prima Realty Corp
Grove Holding Corp
Covert Holding Corp
O'Drago Realty Corp
Covert Holding Corp
Concord Holding Corp
West Brighton Village, Inc...
Chala Funding Corp
Instant Buyer, Inc
Fridal Enterprises, Inc
1071 Nostrand Avenue Corp.
$25 Gratuity for closing attorney
(Mortgage closing.)
20 Do.
20 Do.
15 Do.
25 Do.
20 Do.
40 Do.
20 Do.
15 Do.
20 Do.
20 Do.
20 Do.
25 Do.
25 Do.
25 Do.
20 Do.
1091
CLOSING GRATUITIES EARNED IN 1971
Date
Source of income
Amount Reason for gratuity
Jan. 6, 1971 Chay Associates, Inc.
Jan. 18, 1971.
Jan. ki, 1971.
Feb. 2,1971..
Feb. 9, 1971..
Feb. 23, 1971.
Mar. 1,1971..
Mar. 3,1971..
Mar. 19,1971.
Apr. 2,1971..
Apr. 6,9171..
Apr. 22,1971.
May 12,1971.
May 20, 1971.
June 11,1971.
June 24, 1971.
July 1, 1971..
July 28, 1971.
Aug. 19,9171.
Aug. 27, 1971.
Sept. 2,1971.
Oci. 6,1971..
Oct. 13,1971.
Oct. 14,1971.
Nov. 3,1971..
Nov. 22,1971.
Dec. 6, 1971..
Dec. 8, 1971..
Dec. 13, 1971.
Ice Truck Realty Corp
Ablissa Realty Corp
Wilfred Quails, Inc
Grove Holding Corp..
Prima Realty Corp
West Brighton Village
Romero Properties, Inc
Masill Realty, Inc..
Sonco Equities, Inc
Instant Buyer, Inc
Malru Homes, Inc.
Mardeb Enterprises, Inc...
Romero Properties, Inc
Albissa Realty Corp
Mardeb Enterprises, Inc...
Better-Nassau Corp
West Brighton Village, Inc.
Concord Holding Corp
do
Better-Nassua Corp
Trotta Realty Corp
Jaclyn Enterprises, Inc
Concord Holding Corp
LaBella Realty Corp..
Better-Nassau Corp
Jefferson Equity Corp
Better-Nassua Corp
Concord Holding Corp
$40
Gratuity for closing attorney.
(Mortgage closing).
20
Do.
20
Do.
20
Do.
20
Do.
20
Do.
25
Do.
25
Do.
15
Do.
30
Do.
50
Do.
40
Do.
25
Do.
25
Do.
20
Do.
25
Do.
20
Do.
25
Do.
25
Do.
25
Do.
20
Do.
20
Do.
20
Do.
20
Do.
30
Do.
20
Do.
25
Do.
20
Do.
25
Do.
CLOSING GRATUITIES EARNED IN 1970
Jan. 15, 1970 Michelle Enterprises.
Jan. 19,1970..
Jan. 27, 1970.
Jan. 29, 1970.
Feb. 5,1970..
Do
Feb. 6,1970..
Feb. 17,1970.
Do
Feb. 19, 1970.
Do.
Feb. 26,1970.
Feb. 27, 1970.
Do
Mar. 3,1970...
Mar. 11, 1970.
Mar. 18,1970.
Mar. 26, 1970.
Apr. 3,1970..
Apr. 16,1970.
Apr. 21, 1970.
May 5, 1970
May 8, 1970 .
May 26, 1970
June 3, 1970..
June 16, 1970.
June 23, 1970.
Do
June 29, 1970.
July 2, 1970..
July 9, 1970..
July 20, 1970.
July 27, 1970.
Aug. 11,1970.
Aug. 17, 1970.
Aug. 28, 1970.
Romero Properties, Inc
Harbor View Associates
Prima Realty Corp
Chala Funding Corp
Rico Realty Corp.
Mardeb Enterprises, Inc
& H Investors
Grove Holding Corp
Duma Realty Corp
Prima Realty Corp
do
Chala Funding Corp
Ridgewood Holding
Grove Holding Corp
Leroux Homes, Inc
Chala Funding Corp
Prima Realty Corp...
777 Nostrand Avenue Corp.
Covert Holding Corp
Prima Realty Corp
Chala Funding Corp
Harbor View Associates
Jaclyn Enterprises, Inc
Better-Nassau Corp
Mardeb Enterprises, Inc
Prima Realty Corp
Chala Funding Corp
Meredith Funding Corp
Chala Funding Corp..
Mardeb Enterprises, Inc
Macal Realty Corp
How Bar Realty Corp.
Mardeb Enetrprises, Inc
Brevoort Holding Corp
Prima Realty Corp...
$50
Gratuity for closing attorney
(Mortgage closing.)
25
Do.
25
Do.
20
Do.
25
Do.
20
Do.
25
Do.
20
Do.
20
Do.
20
Do.
20
Do.
20
Do.
50
Do.
25
Do.
20
Do.
15
Do.
25
Do.
40
Do.
25
Do.
20
Do.
20
Do.
25
Do.
20
Do.
20
Do.
15
Do.
15
Do.
20
Do.
25
Do.
20
Do.
25
Do.
50
Do.
20
Do.
25
Do.
25
Do.
20
Do.
20
Do.
1092
Mr. Chumbris. Mr. Chairman, one thing for clarification. The list
of witnesses that we put out on June 15th has you listed, Mr. Light, as
United Institutional Servicing Corp. Are you still with United
Institutional ?
Mr. Light. No, sir.
Mr. Chumbris. When did you divorce yourself from it? What date?
Mr. Light. Formally, May 31, 1972.
Mr. Chumbris. Thank you, sir.
Senator Hart. Mr. Light, thank you very much.
STATEMENT OF JOHN G. HASKELL, PRESIDENT, THE ONEIDA
SAVINGS BANK, ONEIDA, N.Y.
Mr. Haskell. My name is John G. Haskell and I am president of
the Oneida Savings Bank, Oneida, N.Y. Accompanying me is Verne L.
Wlialen, one of our attorneys.
I will complete 36 years of continuous service with our bank this
year, interrupted only by my duty during World War II in the Naval
Air Force. I have now been president of the bank for 10 years.
The Oneida Savings Bank is a mutual institution, chartered in 1866
by the New York Legislature. We are an upstate small bank with the
total assets of some $56 million. Mortgage loans comprise approxi-
mately 80 percent of our total assets.
At the present time we have $22,872,000 in conventional mortgage
loans, $9,978,000 in VA guaranteed mortgages, and $8,810,000 in FHA
insured mortgage loans.
When deposits exceed the local demand for mortgages, we go into
the secondary market for FHA and VA mortgages. We have these
insured and guaranteed mortgages in various parts of New York State
and throughout the country.
For the protection of our depositors and to be able to offer them a
fair return on their deposits, we have always been a backer of FHA
and VA programs since their inception.
We have contracts with eight different mortgage servicing agencies,
which service 1,009 mortgages which we have acquired during the
years in the secondary mortgage market, with a total principal balance
of $11,575,000. This amounts to 26 percent of our total mortgage
portfolio.
We have been doing business with United Institutional Servicing
Corp. or with its predecessor company for about 35 years. At the
present time we hold 28 conventional mortgages with United Institu-
tional Servicing Corp. services for us which are located in the New
York metropolitan area, one of which is in serious default.
Over the past few years we have converted five conventional mort-
gages to FHA, one of which has been satisfied, one is current, and
three have been or are in foreclosure. We hold 242 FHA and/or VA
mortgages, of which nine are in default for 30 days, one is in default
for 60 daj^s, none for 90 da^^s, and three are in foreclosure.
Foreclosures are frequently delayed due to the requirements of the
Federal Housing Administration tJiat all properties be unoccupied at
the time of transfer of title to them.
Normally, we receive proceeds from the Federal Housing Adminis-
tration at the completion of the foreclosure and the conveyance of the
property to FHA.
1093
However, in the city of New York, we have found that it is more
difficult to obtain possession of the property where there are tenants,
since we have been advised that the courts are prone to grant stays, so
that it frequently takes as much as 1 or 2 years to convey title and to
receive our depositors" money from the FHA.
It is our suggestion that the FHA take a more flexible attitude to-
ward the eviction of tenants on foreclosure, perhaps by taking the
property subject to the rights of the tenants.
At the present time, for the reason mentioned above, we would be
hesitant to invest our depositors' money in the New York metropolitan
area if such funds were available. We have noted from our experi-
ences that, in our own area, this problem does not seem to exist with
FHA mortgages.
I would also like to state that our relations with FHA in our home
territory have always been excellent.
Senator Hart. Mr. Haskell, thank you very much.
Before asking Mr. Blum to develop the questions, let me thank you
and your institution for the cooperation you have given this commit-
tee in every respect.
Mr. Blum. Mr. Haskell, you indicated that United is presently serv-
icing 28 conventional mortgages for you in New York City.
How old are those mortgages ^
Mr. Haskell. They originally were taken out, I believe, in 1964,
1965, maybe back to 1963 ; probably 8 or 9 years old.
Mr. Blum. What was the prevailing interest rate at the time the
mortgages were originated, do you recall ?
Mr. Haskell. They were 6 percent.
Mr. Blum. Were the mortgages fully amortizing?
INIr. Haskell. A\'ere they amortizing at that time ?
Mr. Blum. Yes. Were they such that the principal would have been
paid by the time the mortgage was fully paid off ?
Mr. Haskell. I believe most of them are on a 15-year amortization.
Mr. Blum. Fifteen-year amortization, and that was a 15-year mort-
gage?
Mr. Haskell. That's right.
Mr. Blu3h. Were they purchased at discounts ?
Mr. Haskell. Yes, they were.
]Mr. Blum. How deep was your typical discount ?
Mr. Haskell. I think we bought as low as 92, but most of them
around 95.
Mr. Blum. 92 to 95?
Mr, Haskell. I think more were at 95 than there were at 92, but I
think maybe there was one at 92, a couple.
Mr. Blum. What were the procedures you followed in terms of, first
of all, appraising of property? This is a conventional that it being
originatecl by what procedures which followed the appraisal?
jNIr. Haskell. We were supplied with an AIA appraisal.
Mr. Blum. Wliich is standard.
Mr. Haskell. In every case we did have one of our trustees go down
and examine the propeity.
Mr. Blum. So you had a double barrelled kind of check. First you
had an AIA appraiser, and then you had one of your own trustees
physically check the property itself?
1094
Mr. Haskell. Thats, right.
Mr. Blum. What was the loan evahiation that was typical?
Mr. Haskell. They're almost all in two-thirds ratio.
Mr. Blum. Two-thirds?
Were you aware of second and third mortgages on these properties, or
would that have been something brought to your attention?
Mr. Haskell. No, no ; there were some second mortgages, not on all
of them. But there were some seconds.
INIr. Blum. There were some seconds ?
Mr. Haskell. That is right.
Mr. Blum. When did the conventional mortgages that you do not
hold anymore begin to become troublesome ? What was the rough date ?
When did you start having trouble with those conventional?
Mr. Haskell. I would say 1968, about 4 years afterward.
Mr. Blum. Did you have conversations with people in United?
Were you one of the people visited on that circuit wdiich Mr. Light
described ?
Mr. Haskell. Yes, we were.
Mr. Blum. Who came ? Was it that trio he referred to ?
Mr. Haskell. It was the same three, I imagine. I do not remember
Mr. Klein was there. I know that Mr. Light came, Mr. Light and Mr.
Katz.
Mr. Blum. Mr. Light and Mr. Katz ?
Mr. Haskell. They might have been referred to.
Mr. Blum. What was the gist of the conversation with you ?
Mr. Haskell. Well, at that time we did not have too many that were
in distress. We were not too concerned at that point in the ballgame.
We did have some that were.
Mr. Blum. Your bank, of course, is a very small bank, relatively.
You only have very few mortgages; even though the bank is small,
this respesents a very minute proportion of your portfolio, right?
Mr. Haskell. That is right.
Mr. Blum. So with that understanding what was the gist of the con-
versation you had with them ?
Mr. Haskell. We had some that were maybe 3 or 4 months in
arrears. Mr. Light stated that they were going to work on them, and
see if they could not get them in a condition where they would be pay-
ing the principal and interest per month.
Mr. Blum. Did he suggest you might be able to convert some of them
toFHA?
Mr. Haskell. I do not think at that point he did, because I do not
think we were in that condition that we were looking for it at that
time.
Mr. Blum. When did the question of FHA — converting some of
those conventionals to FHA first arise? W^hen did that first come to
you? Is that something that ITnited called up and said, "We have an
FHA buyer for these things" ?
Mr. Haskell. It was all originated from the United people. They
would say that they had a conversion — not a conversion, maybe a buyer
for this loan, which was a corporate loan, where we pay back an FHA
loan of X amount, which we always had so much money invested in.
1095
Mr. Blum. Well, of course, you would not be opposed to that, given
the fact that you would much rather have that FHA than the conven-
tional under the circumstances,
Mr, Haskell. Absolutely,
Mr. Blum. Well, of course, you would not be opposed to that. You
have given the subcommittee copies of correspondence between the
Oneida Savings Bank and United Institutional Servicing, relating to
the mortgages which were converted from conventional to FHA.
I ask that these be made part of the record.
Senator Hart. No objection.
(The document follows :)
Materials Relating to the Testimony of
John G. Haskell
MISCELLANEOUS CORRESPONDENCE
The Oneida SA\^NGS Bank,
Oneida, N.Y., April 18, 1972.
Re mortgages in the Brooklyn Area.
Mr. Jack Bltim,
Senate Antitrust Subcommittee,
Senate Annex, Washington, D.C.
Dear Mr. Blum : With reference to our telephone conversation of the latter
part of last week, I am pleased to advise that the purchaser for our conventional
loan which was located at 351-53 E. 98th Street, was Amshak Corp., of 1821
Pelham Avenue, Brooklyn, attention of Shakespeare Newson. We had approxi-
mately $20,000 invested in the building which we sold to the Amshak Corp.
for $100.
With reference to the conversion of a few of our conventional mortgage
loans in the Brooklyn area to new F.H.A. mortgages, I am enclosing photocopies
of the letters which I think to be pertinent involving these transactions.
If I can be of any further help, do not hesitate to contact me.
Very truly yours,
John G. Ha.kell, President.
United Institutional Servicing Corp,
New York, N.Y., July 1, 1970.
Re Loan No. 2265-8004. Premises :
229 Cornelia Street, Brooklyn, N.Y.
Mortgage : $19,800.00.
Mr. John G. Haskell,
President, The Oneida Savings Bank,
Oneida, N.Y.
Dear Mr. Haskell : We are forwarding herewith an exhibit on the above
captioned case which is offered to your institution as an FHA to replace the
conventional mortgage presently held. It is understood that the interest on the
FHA mortgage will be the highest prevailing rate at the time of the closing of
said loan.
The balance of the present mortgage is $10,641.30. Therefore, the sum of
$457.94, representing a discount of 5% differential between the present balance
the new amount of the FHA mortgage, will be deducted by you when remitting
tlie proceeds of the loan upon the delivery of documents to your institution.
Yours truly,
Bernard S. Roth, President.
1096
The Oneida Savings Bank,
Oneida, N.Y., July 19, 1968.
Re 1246 Blake iivenue, Brooklyn, N.T.
Mr. Bernard Roth,
United Institutional Servicing Corp., 25 West 43d Street,
New York, N.Y.
Dear Mr. Roth : We are enclosing our draft for $21,200 for the purchase of
a new F.H.A. mortgage on the above-mentioned property.
It is understood and agreed that you are to send us at the closing an amount
to satisfy our loan which includes principal, interest and an escrow account of
$1,101.25 for back taxes and that all legal fees will be paid to Dent & Witschieben
and to our attorneys. We are also to receive a check for $399.21 which is the
discount now on the difference between our principal balance and the new F.H.A.
mortgage.
Very truly yours,
John G. Haskell, President.
April 29, 1968.
Re Loan #2265-6942, 626 Barbey Street, Brooklyn, N.Y.
Mortgage : $14,000.00.
Mr. Edwin Katz,
Chairman of the Board, United Institutional Servicing Corp., 25 West 43d Street,
New York, N.Y.
Dear Ed : With reference to your letter of April 25 concerning the above-
mentioned mortgage, we agree to the terms of your letter converting this con-
ventional loan to an F.H.A. at the price of 92.
With best regards, I am,
Sincerely yours,
Jack, President.
UI&I Funding Corp.,
April 25, 1968.
Re Loan #02265-6942.
Address : 626 Barbey Street, Brooklyn, N.Y.
Mortgage : $14,000.00
Mr. John G. Haskell,
President, The Oneida Savings Bank,
Oneida, N.Y.
Dear Jack : Another of the conventional mortgages has come up for conver
sion to FHA. We should like to handle this in the same manner as we did the
previous one and sell it to you at a price of 92 as the differential between the
present principal and the new principal, and par for the present principal.
Sincerely,
Chairman of the Board.
United Institutional Servicing Corp.,
New York, N.Y., May 7, 1969.
Re. Loan No. 2265-6982.
Premises : 1185 Greene Avenue, Brooklyn, N.Y.
Mortgage : $18,200.00.
Mr. John Haskell,
President, The Oneida Savings Bank,
Oneida, N.Y.
Dear Mr. Haskell : We are forwarding herewith an exhibit on the above cap-
tioned case which is offered to your institution as an FHA to replace the con-
ventional mortgage presently held. It is understood that the interest on the FHA
mortgage will be the highest prevailing rate at the time of the closing of said loan.
The balance of the present mortgage is $11,286.95. Therefore, the sum of
.$345.65 representing a di.scount of 5% differential between the present balance and
the new amount of the FHA mortgage, will be deducted by you when remitting
the proceeds of the loan upon the delivery of documents to your institution.
Yours truly,
Bernard S. Roth,
Executive Vice President.
1097
August 12, 1968.
lie Loan No. 2265-7046.
1107 Jefferson Avenue. Brooklyn, N.Y.
Mr. John G. Haskell,
President. The Oneida Savings Rank,
Oneida, New York.
Dkak Mr. Haskell : We are in receipt of your check for $18,500 as principal
disbursement on the above property.
The new morttrage is one for .$18,500 and the principal balance on the old loan
was .$10,009.63 : therefore the differential between the two amounts was $8,490.37.
At the mortgage discount of 6% the amount due your institution is .$509.42. A
check to your order is enclosed herewith.
The documents on the loan will be forwarded to you as soon as the file can
be properly collated.
Yours truly,
Bernard S. Roth,
Executive Vice President.
Mr. Blum. What was your imderstanding of the process involved in
that conversion? They simply call up and say, "We have ornt a buyer
Avho wants an FHA mortgage on this property"; is that it? "We are
goino; to satisfy the conventional" ?
INIr. Haskell. They would say, "We have a mortgage." Most of these
were corporate mortgages, corporate conventional. "You have a mort-
gage with this XYZ Conij^any. It is to he sold to Johnny Jones. Would
yon take an FHA loan of x dollars?"
Mr. Blum. What was the arrangements on the typical transactions?
Would they satisfy the loan in call, including principal, interest,
arrears ?
Mr. Haskell. It was complete satisfaction of the conventional loan,
and then we would receive the ]:)apers with the FHA commitment, and
the guarantee certificate ; or, if it is an FHA, the insurance certificate.
3Ir. Blum. What would be the price that you would pay for the FHA
loan ?
Mr. Haskell. Most of them were 95. That would be just between the
difference of the principal we had under the conventional and the
amount we were going to pay to fund the FHA.
^Ir. Blum. Was that because the conventional w\as being satisfied ; in
effect, as far as you were concerned, was all right, and you treat that as
par?
Mr. Haskell. That is right.
It was just — say, for instance, we have a $12,000 loan. We have given
them $17,000. FHA will only give them $5,000 on new money, and we
get a discount on that difference.
Mr. Blum. The discount was on the $5,000 new monev, not the total
loan?
Mr. Haskell. That is right. That was the current discount at that
time.
Mr. Blum. In one case you had a property which was in deep trouble.
You \yrote to us and told us about that. It was 35153 East 98th Street.
You liquidated that.
Could you tell us something about what happened there?
Mr. Haskell. This was the one conventional loan we did foreclose in
our name.
After having it in our name and o\vning it for a period of time, we
received violation notices from the city of New York that it had to be
roof repaired, painted, various violations which we were worried about.
83-703 — 73 — pt. 2b 23
1098
We properly called or wrote to the United people to give us a buyer,
at any price. We sold the property for $100, which we had about $20,000
in.
Mr. Blum. The problems foreclosure m New York are so enormoas
it just doesn't pay to play with them.
Mr. Haskell. Our experience has been that foreclosures take a period
of maybe from 9 months to 2 years, and more locally, we do it much
faster and automatic.
Mr. Blum. What is the typical time lapse in, say, the town of
Oneida on foreclosure ?
Mr. Haskell. We would probably complete a foreclosure in 3
months,
Mr. Blum. To complete from beginning to end ?
Mr. Haskell. From beginning to end.
Mr. Blum. And what kind of protection do you get on the property
which is in the process of foreclosure? What are you able to do to
protect the property so that, when one is finally foreclosed, you will
get an intact property, worth the amount you expected it to be worth ?
Mr. Haskell. We check the property immediately and, if it is occu-
pied, the people stay until, probably, the end of the foreclosure. And
we make sure that, if it is in the winter time, it is winterized.
Mr. Blum. So there is a vast difference between the situation of a
foreclosure in the town of Oneida and a foreclosure in the city of
New York ?
Mr. Haskell. That is right.
Mr. Blum. Given j'^our experiences on conventional mortgages in
New York City, if you could do it over again you would not have be-
come involved ; is that correct ?
Mr. Haskell. You are absolutely right.
Mr. Blum. I gather, too, from what you say, you favor the FHA
programs and you think they can work well, because they do work
well in Oneida.
]Mr. Haskell. Yes, they do.
Mr. Blum. Do you think the key advantage to these programs is the
degree of care which FHA uses in checking the potential buyer ?
What do you think the secret of the success of FHA programs in,
say, Oneida, is as compared to the lack of success in Hempstead ?
Mr. Haskell. Well, locally, of course, we obtain the papers. We
know our people, and, of course, you cannot know the people who
were eventually going to have mortgages in the Brooklyn area.
Mr. Blum. Oneida is a capital surplus community : is it not ?
Mr. Haskell. Generally, at the moment it is not. We have more
demand — we have about as much demand as we take care of.
Mr. Blum. When you are in a capital surplus situation, you really
have to go to a secondary mortgage market to buy mortgages ; is that
correct ?
Mr. Haskell. Yes, we do.
Mr. Blum. And you depend on the fairness and the propriety of
that mortgage under the FHA guarantee and the VA guarantee; is
that correct ?
Mr. Haskell. Yes.
]\Ir. Blum. So if FHA or VA fall down on the job, you have a great
difficulty in placing mortgages easily and securely. Would that be
correct ?
Mr. Haskell. We would probably have to go to the market.
1099
Mr. Bmisr. So the money you would normally have for housing
•would be shifted to other sources ?
Mr. Haskell. To securities, bonds.
Mr. Blum. And that is especially true for a bank of your size, which
cannot really do much supervision of servicers or do much of its own
policinc. Is that correct ?
Mr. Haskell. I would say so, yes.
Mr. Blum. I would like to thank you very much for your coopera-
tion and your patience. And I believe you have to catch a plane.
Thank you very much.
Senator Hart. Mr. Chumbris ?
Mr. Chumbris. I have no questions.
Senator Hart. Thank you very much.
STATEMENT OF FEANK E. CHEESEMAN, VICE PRESIDENT, CITY &
COUNTY SAVINGS BANK, ALBANY, N.Y.
Senator Hart. The next witness is Mr. Frank E. Cheeseman, the
vice president of the City & County Savings Bank of Albany, N.Y.
Mr. Casey. Mr. Chairman, I suggest that you may wish to swear
in Mr. Berry, senior vice president, who is here. I am sure he will be
g] ad to be of any assistance.
(Whereupon, the witnesses were duly sworn by the chairman.)
Senator Hart. Counsel, I apologize. I did not get your name.
Mr. Casey. My name is Casey, sir. C-a-s-e-y.
Mr. Cheeseman. ]\Ir. Chairman, members of the subcommittee, I
am Frank E. Cheeseman, vice president of City & County Savings
Bank, and have been emplo^^ed by this bank for 32 years.
Our bank was founded in 1850 as a mutual savings bank under the
laws of the State of Xew York, and is a member of the Federal Deposit
Insurance Corporation.
As of January 1, 1972, City & County Savings Bank had total assets
of $202 million, operating from three offices located in Albany County
in the State of New York.
Primarily a mortgage lender in the one and two- family home cate-
gory, the bank holcls approximately 13,000 mortgages on properties
in New York State and in other States.
City & Count}^ Savings Bank operates with approximately 65 staff
members, has 48,000 depositors with total deposits, as of January 1,
1972, in the amount of $186 million. Our mortgage investments, total-
ing in excess of $143 million, constitutes 73 percent of the investment
portfolio with 32 percent in conventional mortgages, 36 percent in
FHA insured mortgages, and 30 percent in GI guaranteed mortgages.
Ginny Mae guaranteed securities account for approximately 2 per-
cent of the mortgage portfolio. U.S. Government and agency securi-
ties, utility bonds and corporate stocks represent the major portion
of the remaining 27 percent of our investments.
Passbook loans, home improvement loans and student loans com-
plete the investment portfolio.
Our banlv has had a very satisfactory relationship with the Albanv
regional office of the Federal Housing Administration for over 25
years. We have originated in excess of $25 million in FHA loans in
our area through that office, without noteworthy problems. They have
always been most cooperative, and have offered their guidance on
origination and servicing questions willingly.
1100
Our relationship with U.I. & I. Funding Corp., the predecessor to
United Institutional Servicing Corp., started on April 28. 1964, when
we signed a servicing agreement with them. That servicing agreement
was entered into after an investigation which was similar to those we
made before approving our other 25 mortgage servicing companies.
These investigations consist generally of consultation with other
banks using their services at that time, and reviewing the financial
status of the mortgage servicing company.
Such investigation indicated that U.I. & I. Funding Corp. would
meet our requirements as a mortgage originator and servicer.
We had no investments in New York City real estate prior to our
initial purchase of mortgages from U.I. & I. Funding Corp. Since
that time, however, we have participated in several real estate mort-
gage investments with other New York banks through Institutional
Securities Corp., a corporation wholly owned by the savings banks
of New York State.
In 1964, 1965, 1966, and 1967, we acquired 147 conventional mort-
gage loans on dwellings, mostly one- to four-family units, in Brook-
lyn, X.Y, All loans were purchased from United Institutional Servic-
ing Corp., or its predecessor company. Our total investment approxi-
mated $1,800,000.
Starting in 1967, delinquencies, abandonments and vandalism, which
vandalism in many cases seriously depleted the security of the loan,
if not in fact completely destroyed the security, made clear to us the
necessity for the liquidation of our Brooklyn loans, wherever prac-
ticable, and with the least possible loss.
The monthly amortization from those making payments was and is
a reasonably stead}^ source of liquidation. Seven properties have been
foreclosed by us and subsequently sold through United Institutional
Servicing Corp.
In 23 cases, the mortgaged properties were sold, our conventional
mortgages were satisfied and the new purchasers obtained Federal
Housing Administration insured mortgages.
The apj)lications were processed by United Institutional Servicing
Corp., and the Federal Housing Administration insurance was obtained
by United Institutional Servicing Corp., and after insurance, the loans
were purchased by us from United International Servicing Corp.
In 14 cases, we assigned, through United Institutional Servicing
Corp., mortgages in serious default, to individuals or corporations at
varying amounts of discount.
In 11 cases, we have charged off the mortgages completely, retain-
ing them as contingent assets.
The result of these 5 years of liquidation procedures is the reduction
in our conventional mortgage portfolio in the Brooklyn area to 73
loans with total balances of $694,000 and 18 Federal Housing Adminis-
tration insured loans with total balances of $320,000.
The servi<'ing of these mortgages has recently been assigned to Enip-
banque Capital Corp., a subsidiary of Empire National Bank of New-
burgh, N.Y.
Senator Hart. Thank you, sir.
Mr. Blum. Mr. (yheeseman, who first approached City and County
with the suggestion that you buy mortgages from United? Do you
recall who the individual was ?
1101
Mr. Cheeseman. I believe it was Mr. Katz, and I do not know who
was with him at that particular time.
Mr. Blum. Was United the only New York City mortgage company
who approached yon with this proposition ?
Mr. Cheeseman. To my knowledge ; yes, sir.
Mr. Blum. Did United offer both conventional and FHA's or was
it just conventional ?
Mr. CiiEESEMAN. Not at that time. In the first instance, it was con-
ventional only.
Mr. Blum. You indicated that you purchased one to four-family
conventional loans in Brooklyn. Were they in a particular neighbor-
hood, or were they scattered ?
Mr. Cheeseman. I would say they were in the Bedford-Stuyvesant
area,, Bush wick, East New York, and Brownsville.
Mr. Blum. Were these particularly corporate landlords rather than
individual owners ?
Mr. Cheeseman. In the first instance, they were corporate land-
lords ; yes.
Mr. Blum. What were the typical terms ? Fifteen years ?
Mr. Cheeseman. Fifteen years.
Mr. Blum. Fully amortized ?
Mr. Cheeseman. Fully amortized for 15 years.
Mr. Blum. Do jou recall the interest rate ?
]\Ir, Cheeseman. Six percent.
ISIr. Blum. And discount ?
Mr. Cheeseman. We purchased these loans at 9 percent or six per-
cent discount.
Mr. Blum. What steps did j^ou take to appraise the house ?
Mr. Cheeseman. An SRA appraisal was made. A standard appraisal
was made at that particular time.
Mr. Blum. Each of those particular times met your standards for a
loan ?
Mr. Cheeseman. That is correct. We inspected each individual
house.
Mr. Blum. So j'ou had a double inspection ?
]\Ir. Cheeseman. That is right. The bank went down and looked at
each individual house at that time.
Mr. Blum. What was the loan value ratio ?
!Mr. Cheeseman. About two-thirds.
]\Ir. Blum. Were second mortgages involved ?
Mr, Cheeseman. There were second mortgages involved; yes, sir.
Mr. Blum. You dealt with a two-thirds loan value ratio to be
completely secure?
Mr. Cheeseman. Yes, sir.
Mr. Blum. Now, when these started going bad, did you question
United about the soundness of the loans ? Did you ask them ? Have you
traced this ?
Mr. Cheeseman. No. We were more concerned with what was hap-
pening and what we were going to do to correct the situation. And we
questioned them because we were getting delinquents, and we put some
questions of just what was being done to correct this situation.
INIr. Blum. I take it the delinquency reports you were getting out
of New York were very different from the kind of experience you
had elsewhere in your conventional portfolio ?
1102
Mr. Cheeseman. Yes, very much so.
Mr. Blum. What would delinquencies run, as a matter of curiosity,
on those you originate or arrange ?
Mr. Cheeseman. Delinquencies, I would say, less than 1 percent,
less than 1 percent.
Mr. Blum. Less than 1 percent, which is almost insignificant in
terms of the total. Here, I take it, there were quite a number of
delinquencies ?
Mr. Cheeseman. Quite a number, sir.
Mr. Blum. It looked pretty bad. When you were, I take it, visited
by the same traveling entourage that was described earlier — Mr. Katz,
Mr. Light — was there anyone else ?
Mr. Cheeseman. No, sir ; not to my knowledge at that time.
Mr. Blum. What was the substance of your conversations with them
when they visited you ? Do you recall ?
Mr. Cheeseman. Well, Mr. Light, at that particular time, was just
coming into the picture, and he was telling us just wliat he was going
to do, wliich meant contacting the people who owned the properties
and trying to get them to clear up the delinquencies, nothing much
more than that.
After that, we did start receiving a more detailed report on jvist what
they were doing to clear up the individual delinquencies.
Mr. Blum. And what was the substance of those reports? Was it
that some of the buildings were simply foreclosed?
jMr. Cheeseman. When it got to that point. In the very beginning, it
was not that way. He would take each individual loan and say just
what he had done with it — whether he had written letters, whether he
had entered into a repayment plan with each owner.
Then, of course, as it got worse, we came to realize that some of them
just were not going to make it.
Mr. Blum. "Wlien did the proposal or the suggestions of FHA con-
version come up, converting those to FHA loans ?
Mr. Cheeseman. That came at a later date. That was probably
within a year after.
Mr. Blum. Did they suggest that to you as a reasonable way out of
the situation ?
Mr. Cheeseman. Yes, they did.
INIr. Bluji. Was this problem thev were discussing, the problem of a
bad conventional loan in New York City ? It's a pretty common one.
Anybody who was out in New York City and had a conventional in
one of these areas was facing the same problem you were. Is that
correct ?
Mr. Cheeseman. That I would not Imow. We were facing this
problem.
Mr. BLUTvr. When these loans began to be converted to FHA, did you
get the feeling that they were doing the proper job at the FHA?
Did you inspect the loans M^hen you got them back to see what qual-
ity they were ?
Mr. Cheeseman. No. we did not ; we did not inspect thom when the
FHA loan was made. But we did have, in our files, original appraisals
and, in addition to that, we received the FHA appraisals so we could
check one against the other. In all cases
1103
Mr. Blum. Typically, the FHA loan that you took, that was at a
much higher value than the loan you were being satisfied on, conven-
tional ?
Mr. Cheeseman. The amount of it was ; yes, sir.
jNIr. Blf^f. So that you might have a conventional for about 10, you
would be taking back an FHA for 19 ?
jMr. CiTEESEMAN. That is correct.
]Mr. Beum. Or 19-5 ?
INIr. Cheeseiman. That is correct.
Mr. Bi.uisr. What about the credit of the people who took those
FHA's? Did you inspect that?
Mr. CHEESE:\rA]^. We did examine the credit, too.
INIr. Blum. How did the quality look to you ?
Mr. Gheeseman. It looked very good. It looked all right; yes, sir.
IMr. Blum. What was the subsequent history of those FHA's, were
many of tliose subsequently foreclosed ?
jNIr. Cheeseman. Some of them were foreclosed. I believe five of them
were foreclosed.
IVIr. Blum. Five were foreclosed ?
INIr. Cheeseman. Either foreclosed or are under foreclosure at this
time.
IMr. Blum. "When you bought back the FHA's, what price did you
pay ? Were they par with your discount ?
iyir. CiiEESE]MAi«r. On some of them we paid par, and on a few of
them we paid 96.
JMr. Blum. Was that something better than the market price ?
IMr. Cheeseman. Yes, sir; it was.
IMr. Blum. In effect, the effect was that they had converted the loan
and relieved you of the loss? So you could have a conventional at 6,
which is shal^, and then would you have an FHA at 8, at TV2 or 8,
and that was now sound because the Government guaranteed it ?
IMr. Cheeseman. Yes, sir.
IMr. Blum. "When you buy mortgages on the secondary market, gen-
erally, do you inspect the mortgages issued prior with the right of
selection ?
IMr. Cheeseman. Do we select ?
Mr. Blum. ^Vhen you buy FHA mortgages, I take it you buy them
from all over the country as a secondary market participant. "When you
commit, do you say, "We reserve the right to select or reject any mort-
gages in the package" ?
Mr. Cheeseman. Yes, sir.
IMr. Blum. "What sort of criteria do you use to determine what you
are not going to take ?
IMr. Cheeseman. We look at the credit reports, look at the pictures
of the property.
IMr. Blum. And when they look particularly bad, you send it back?
Mr. Cheeseman. We would send it back.
Mr. Blum. You would say, "Sorry, fellows."
Mr. Cheeseman. This is right.
Mr. Blum. I gather from what you say that you feel a secondary
market could not function properly without FHA and without that
kind of Government guarantee ?
Mr. Cheeseman. That is correct, sir.
1104
Mr. Blum. After your experience in New York, you will not want
to be doing much in the way of out-of-town conventional lending, I
gather ?
Mr. Cheeseman. Not at this time.
Mr. Blum. So if the Government program should be seriously cur-
tailed, it would very much impair the ability of your bank to place
capital in the housing market. You would have to turn to alternatives,
the stock market, or whatever else you could.
Mr. Cheeseman. Yes, sir.
Mr. Blum. And to the extent that FHA does not do its job, you
suffer ?
Mr. Cheeseman. That is correct.
Mr. Blum. On the properties that you charged off, simply wrote off
as a loss were those properties simply abandoned ? What happened to
them, what became of tliem ?
Mr. Cheeseman. Mostly they were abandoned, their payments
would drop back, maybe, 2 years, w^e would actually go down and
inspect these properties. And it would be our decision to charge them
off, because, from what we could see, we just felt there was no way of
recapturing our investment.
Mr. Blum. Would it be fair to describe them as having actually
negative value because it would cost you money to hold them ?
Mr. Cheeseman. Yes, sir.
Mr. Blum. There was just absolutely no way of disposing of them,
so you simply write it off' ?
Mr. Cheeseman. Yes, sir.
Mr. Blum. Let me ask about something else here.
What about the responsibility of the holder of the first mortgage
for the care and upkeep of the property ? Let's go back to some of those
conventionals. assuming you have a first mortgage on one of those con-
ventionals in Brooklyn, and the guy who runs it is just milking it to
the ground — he is current in his mortgage payments — is there any-
thing you can do to protect your security ?
Mr. Cheeseman. Well, the only thing we could do, sir, is to write
him and ask him to repair the property.
Mr. Blum. And if he says no ?
Mr. Cheeseman. Then we could threaten foreclosure, and go ahead
with the foreclosure.
But if the property is in that kind of repair, we probably would not
want to foreclose because of the problems we would run into,
Mr. Blum, And I take it — perhaps counsel coidd be helpful here —
I take it in New York there is no action against a first mortgage holder
for waste.
Mr. Casey. Yes; if you can establish waste. In the usual — I sliould
not say this — in the usual formal mortgage, it provides that you may
foreclose if you can establish waste.
But as Mr. Cheeseman points out, this may be turning over the waste
to the bank.
Mr. Blum. In other words, you get the remains.
Mr. Casey. You get the remains.
Mr. Blum. You would have no way of going to court and forcing the'
guy to make the repairs. You would have to take what was left. •
1105
Mr. Cheesemax. Because of the waste, the building will be turned
over to the bank. ,
Mr. Blum. The point of which is when waste has occurred you do
not want it ?
Mr. Cheeseman. Right.
Mr. Blum. To what degree would saddling the financial institution
which holds the first mortgage witli the responsibility for either main-
taining or looking after the property impair the ability of the institu-
tion to buy in the secondary market ?
Obviously, if you had to maintain the property, you would not be
-either the buyer or party to the mortgage ; would you ?
Mr. Cheeseman. I should say not, sir.
' Mr. Blum. What you are looking for is an investment as closely
resembling, say, the responsibilities of the utility bond that you can get
if it is an out-of-town situation.
Mr. Cheeseman. Yes, sir.
Mr. Blum. So if we look at these conventional mortgages that you
had in Brooklyn, there were three alternatives : They could either be
brought up toVlate through very tough servicing activity; converted
to an FTIA mortgage, which would, in fact, shift the loss ; or, finally, if
you could not do anything else, the property simply had to be written
off, abandoned or whatever.
Mr. Cheesemax. That is correct, sir.
Mr. Chumbris. Thank you, Mr. Chairman.
I would like to get back to the question I had this morning. I think
you were in the audience.
I was reading a question that Mr. Blum was quoted as saying in the
paper, that this subcommittee — "We want to find out to what degree do
banks exercise control, if any, over the mortgage companies they lend
money to ; and why, if banks consider it too great a risk to lend directly
to poor ghetto dwellers, is it not a great risk to lend to mortgage
companies?"
How would you answer that ?
Mr. Cheeseman. We do not lend to mortgage companies.
Mr. Chumbris. You do not lend to mortgage companies ?
Mr. Cheeseman. We do not lend to mortgage companies. We lend to
individuals. We buy mortgages from a mortgage company, but in effect,
we are loaning the individual.
Mr. Chumbris. So you would not come within the confines of this
question ?
Mr. Cheeseman. No, sir, we would not.
Mr. Chumbris. Thank you.
Senator Hart. You gentlemen heard me inquire of an earlier wit-
ness. Century Federal of Long Island, and I would like to ask the
same question of you.
On page 4 of the staement there — do I read it correctly ? That you
had conventional mortgages on 23 properties, which were FHA fi-
nanced, which mortgages you purchased back, and they were the
same 23 properties on which you had the conventionals. Is that right?
Mr. Cheeseman. Yes, sir ; these were 23 properties on which we had
originally conventional loans. Those loans were satisfied by the USIC.
Now, some of these loans were not seriously delinquent. Some of
them could even be current, but they were now going FHA.
1106
So we did put the FHA loans on these in this area.
Senator Hart. Some of them were in good shape ?
Mr. Cheeseman. That is correct, Senator.
Senator Hart. Others were giving you worry, in other words ?
Mr. Cheeseman. That is correct. They could have been delinquent.
Senator Hart. And when you saw them the second time, so to speak,
when they came back as FHA, was the mortgage — were the mortgages
on the properties originally giving you cause for concern in amounts
substantially larger than the mortgages under your conventional ?
Mr. Cheeseman. Yes, sir, they were.
Senator Hart. Would it not seem funny to you that a conventional
mortgage in a lesser amount, about which you were beginning to worry,
is now FHA at a higher figure ?
Mr. Cheeseman. The laws of the State of New York — under the laws
of the State of New York, we could not loan as much on a conven-
tional loan, and we kept it within two-thirds. On the FHA we could
loan a higher amount. Now, as I previously mentioned, when we put
our conventional loans on these, we did make appraisals.
The SRA made an appraisal and we went down and physically
looked at the property, and in checking the FHA appraisals that came
out, when we were making the FHA loans, these appraisals were less
than our appraisals that we made under the conventional.
Senator Hart. Well, why would that not suggest to you the machine
was off the rails somehow ?
You say that you made an appraisal before you placed the con-
ventional on it. Talking now, about those conventional s that were
giving you reason to worry, you say that under the New York laws
you have been denied the right to loan a figure higher, I take it, than
the one which your conventional carried.
The FHA one comes back at a higher figure, and yet the FHA
appraisal shows the property at a lesser amount. Now, you are having
trouble, under your more conservative loan, and now the FHA comes
back with a much higher figure.
Mr. Cheeseman. It was not significantly lower. It was not like
$5,000 lower or $3,000 lower. It was within reason.
Mr. Berry. If I might say something. Senator, we thought the
FHA loans were more economically sound from the standpoint that
the existing conventional, as has already been brought out, had second
mortgages against them; and the individual owner would have two
mortgage payments to make.
Under the FHA, we will be getting a new borrower. We would not
have a corporate lender, and we felt we had a sounder mortgagor.
Unfortunately, it did not work out quite that way.
Senator Hart. Run through that again. Why did you think you
were getting a better mortgagor?
Mr. Berry. A better mortgagor because he was an individual pur-
chasing, and he was going to be an owner-occupant. This is one of
the FHA regulations. We thought that the party that was buying
under FHA and living in the property would be a better mortgagor.
We also felt that he would have the one monthly payment to make;
whereas, the previous conventional mortgage holders would have two
payments to make. And our understanding was, on the second mort-
gages, that the repayment plans would be written for about 5 years
1107
so it would be a burdensome thine: for the existinfj conventional mort-
trjifror. It might be a better situation, an easier payment plan for an
FHA mortfjagor.
Senator Hart. Did I understand you to say that you examined,
not only the FHA appraisal, but supporting data in connection with
those ?
Mr. Berry. Absolutely, credit reports, verifications of deposits,
verifications of employment on each of those FHA loans. And I
might say that we were rather pleased with them.
Senator Hart. In a substantial percentage of these transactions, if
the FHA had not picked them up, you would have been stuck with
them. Is that right ?
Mr. Berry. I cannot really say. I mean, that would be conjecturing.
There were a few of the loans, as that part of the FHA deal would be
requirement of certain repairs.
Now, in some instances, we had bills to substantiate these improve-
ments, which had to be made to the property between the time we
transferred it from a conventional over to an FHA mortgage.
Senator Hart. Mr. O'Leary ?
Mr. O'Leary. No questions, Mr. Chairman.
Mr. Blum. Mr. Chairman, if there is no objection I would like to
have placed in the record at this point records the subcommittee has
received from other banks in Ncav York indicating similar transac-
tions to the ones which have been discussed here today, both in the form
of sale of the property or loss on mortgages, as well as the conversion
to FHA mortgages.
Senator Hart. No objections.
(The document follows:)
Material Relating to the Testimony of
Frank E. Cheeseman
Letter from Frank E. Cheeseman to Senate Antitrust Subcommittee dated
March 21, 1972
City and County Savings Bank,
Allany, N.Y., March 21, 1972.
Mr. Jack Blum,
Senate Antitrust and Monopoly Suhcommittee,
Senate Annex, Washington, B.C.
Dear Mr. Blum : In accordance with your telephone request to our Mr. Fred-
erick W. Stolz regarding certain properties in the Broolilyn area on wliich we
have previously held mortgages and which were serviced by the United Institu-
tional Servicing Corp., the following information is submitted :
Cost of
preparation of
contract, deed
and attending
closing— Paid
Acquired by to Warren
Property foreclosure Sold to— Date sold Light
217 Jefftrson St., Brooklyn, N.Y June 26, 1968 Rocket Equities Corp Aug. 19, 1969 $200
712A Union St., Brooklyn, N.Y Oct. 20, 1969 Fotios Kop?achilis... Nov. 12, 1969 200
256 Legion St., Brooklyn, N.Y Apr. 2, 1968 Chala Funding Corp Aug. 9, 1970 150
561 Jerome St. Brooklyn, N.Y Aug. 20, 1970 do_ Sept. 9, 1970 200
192A Lexington Ave., Brooklyn, N.Y...- May 28, 1970 Fridal Enterprises, I nc Feb. 11, 1971 200
1108
We trust that this is the desired information. However, if we can be of any
further service, do not hesitate to contact the writer.
Very truly yours,
Frank E. Cheeseman, Vice President.
Senator Hart. Thank you, gentlemen, thank you very much.
Our original hearing notice indicates that we will resume these
hearings at 10 :30 tomorrow, but Senator Hruska has agreed to take
the chair at 9 :30 in order that we can move more quickly.
So we are adjourning to assume at 9 :30 in this room in the morning.
(Whereupon, at 1 :50 p.m., the subcommittee adjourned to recon-
vene at 9 :30 a.m. the following day.)
HOUSING HEARINGS
WEDNESDAY, JUNE 21, 1972
U.S. Senate,
Subcommittee on Antitrust and Monopoly
OF THE Committee on the Judiciary,
Washington^ D.C.
The Subcommittee on Antitrust and Monopoly convened in room
2228, New Senate Office Building, at 9 :30 a.m.
Present: Senator Philip A. Hart (presiding) ; Senator Roman L.
Hruska and Senator Edward J. Gurney (alternately presiding) and
Senator Strom Thurmond.
Staff present : Howard O'Leary, Esq., chief majoritj'^ counsel ; Jack
Blum, Esq.. majority counsel ; Peter N. Chumbris, Esq., chief minority
counsel ; Charles Kern, Esq., minority counsel.
Senator Hruska. The subcommittee is called to order. The chair-
man of the subcommittee is engaged in other official business, and he
has asked me to preside for a little while before he comes, or before
other relief presents itself.
We will resume the hearings on financing of housing in the area of
New York.
Our first witness is George A. Boeder, Jr.
Pursuant to custom, we are going to swear the witness. Will you
please rise, ]Mr. Eoeder ?
(Whereupon, the witness was duly sworn by the acting chairman.)
Senator Hruska. You have filed a statement, Mr. Roeder. It will be
placed in tJie i-ecord in its entirety, and you may proceed in your own
way to either highlight it, or to read it.
(Documents follow:)
STATEMENT OF GEORGE A. ROEDER, JR., VICE CHAIRMAN OF THE
BOARD, THE CHASE MANHATTAN BANK
Mr. RoEDKR. Thank you. Senator.
Mr. Chairman and members of the subcommittee, my name is
George A. Roeder. Jr., and I am vice chairman of tlie board of the
Chase Manhattan Bank, N.A. of New York.
Accompanying me, on my right is Raymond T. O'Keefe, executive
vice president of the bank with responsibility for the real estate and
mortgOG-e loan department, as well as several other associates with ex-
pertise in your iii'oa of interest.
On my far right, Mr. James Nacos. On my far left, Mr. Joseph
Quinn. On mv left, our counsel, Rov Haberkern, of :Milbank, Tweed,
Hadley & McCloy.
(1109)
1110
We appreciate this opportunity to participate in your exploration of
possible means to improve the Nation's housing programs. This is a
matter of great urgency to our institution and to the economic and so-
cial environment on which we depend.
In reviewing the work of your subcommittee in the housing area,
I have been impressed by your efforts to move beyond simple criticism
to the harder job of hopefully finding constructive answers.
The fact is, of course, that national programs to spur low- and mod-
erate-income housing production have become enormously complex.
Indeed, this very complexity is itself a major challenge — to the banker
who desires to provide funding, to the Government official who desires
to assure effective and proper undertakings, and to the man on the
street who desires results or just an understanding of what is
happening.
Because of this complexity, I will attempt as briefly and as simply as
possible to do four things : first, to clarify the nature of the relation-
ship between commercial banks and mortgage banking companies;
second, to explain how we as commercial bankers view the role of FHA
in the financing of housing; third, to outline some of the special steps
Vv^e have taken to reinforce our own direct housing lending in com-
munities in New York City; and fourth, to draw from our experience
those points that we believe are most important for successful inner-
city lending.
Before proceeding to these points, it might be helpful to give some
idea of Chase's overall involvement with long-term financing of hous-
ing in the New York metropolitan area. The bank's total one- to four-
family residential mortgage portfolio in this area at the end of March
was some $500 million, of which about $460 million represented mort-
gages we originated ourselves.
We are now originating for our own portfolio residential mort-
gages in the New York metropolitan area at the rnte of approximately
$125 million each year, including a special program to originate $25
million annually in long-term loans primarily for homes, but also for
supportive community facilities in higher risk, inner-city neighbor-
hoods. These figures do not, of course, include shorter term construc-
tion financing for housing and related community facilities.
In the low- and moderate-income areas alone, for instance, we have
allocated $150 million on a revolving basis for such loans in New York.
Nor do these loan figures include many other efforts by Chase to
spur community development and the achievement of the Housing
Act of 1949's long overdue and much quoted goal of a "decent home
and suitable living environment for every American family."
We have, for example, committed $1 million to the National Corpora-
tion for Housing Partnerships, and my associate, ]\Ir O'Keefe, serves
on the board of that organization. We are actively involved with a
numl)er of nonprofit organizations in housing-related activities, includ-
ing the National Urban Coalition, the New York Urban Coalition, the
Bedford-Stuyvesant Kestoration Corp., and the National Committee
Against Discrimination in Housing.
Beyond this, we have launched, in cooperation with other pulilic
and private agencies, our own program for community revitaliy.ni-v .«>
w^hich I will describe later.
nil
Turning now to the mortgage banker, we have historically viewed
his role, and our financing of some of his efforts, as yet another way
to meet the urgent housing needs of the Nation.
In 1970, the last year for which we have comprehensive statistics,
mortgage bankers originated about $13 billion in new mortgages, of
which nearly 70 percent were FHA or VA guaranteed residential
mortgages. Out of the total of $8.1 billion in FHA one- to four-family
mortgages made in 1970, mortgage bankers originated $5.5 billion or
68 percent.
From these figures, it is clear that the successful financing of hous-
ing under Government-insured mortgage programs has been very
heavily dependent on the work of mortgage bankers.
To clarify the role of the commercial bank with the mortgage bank-
ers, it may first be useful to review quickly the basic functions of the
mortgage banker with respect to residential loans.
As 3^ou know, the mortgage banker is essentially a middleman who
originates and packages individual loans so that they can be sold to
long-term institutional investors.
As such, he does two things. He searches out, often through brokers
or builders, opportunities for loans in what might be called the "pri-
mary" market of individuals seeking to buy homes. He then seeksto
sell packages of these loans to larger institutional investors who desire
them for their long-term investment portfolio.
These investors constitute a "secondary" market which includes in-
surance companies, savings banks, savings and loan institutions, com-
mercial banks, pension funds, and various public agencies.
When loans are placed in the secondary market, the mortgage
banker also often handles subsequent relations between the long-term
investor and the individual homeowner such as collecting and trans-
mitting payments of principal and interest, and collecting sums due
for taxes and insurance.
He may also deal with delinquencies if they occur, and. if n.eecl be,
carry out the foreclosure process. This is known as "servicing."
Within this process, the relationship between a commercial bank
and a mortgage banker takes three basic forms. The commercial bank
can first, purchase packages of mortgages from the mortgage bankers
for its own investment portfolio or for managed fiduciary accounts;
second, employ the mortgage banker in handling the day-to-day
servicing of these mortgages ; or, third, extend credit, traditionally in
the form of "warehousing" lines, to the mortgage banker.
A warehousing line of credit simply means provision of the interim
financing required by the mortgage banker for the short period neces-
sary to carry mortgages pending their sale in the secondary market.
Your subcommittee has subpenaed the records of our relationships
with six mortgage companies : Eastern Service Corp., United Institu-
tional Servicing Corp., Inter-Island jMortgage Corp., Springfield
Equities, Ltd., Brewster Reserve Corp., and Spartacus Securities Inc.
These six companies represent a small portion of some 50 mortgage
bankers to which Chase extended $630 million in warehousing loans
during 1971.
As I am sure you noticed from the records, our primary relationship
with these companies has involved the provision of warehousing lines
1112
of credit to help the mortgaafe banker cover the short period between
the closing of individual mortgages and their delivery to the ultimate
investors.
At the beginning of this year, we had some $33 million in lines of
credit available to the six companies in question, of which $20 million
was a line of credit to Eastern Service and Brewster Reserve.
We now have some $11,500,000 outstanding in loans to all six com-
panies. It is important to note in this regard that the usage of the lines
of credit has varied greatly on a day-to-day basis. In 1971, for ex-
ample, the amount outstanding to Eastern ranged between $8.5 mil-
lion and $16 million, and the amount outstanding to Brewster ranged
from $212,000 to $2 million.
Our relations with mortgage bankers with respect to servicing has
steadily decreased since we have not purcliased mortgages from mort-
gage bankers for our owai portfolio since 1966.
At that time, we decided to place a priority on badly needed home
financing in the New York metropolitan area, and thus concentrated
our resources in loans we originated ourselves.
Because of this, I feel it would be useful if I focused on the aspect of
warehousing lines of credit, especially with regard to FHA-insured
loans. Moreover, since the records you have are very detailed, I would
like to concentrate on the principles and standards that have guided
our relationships with mortgage bankers. Of coui-se, my associates and
I will also be pleased to answer any questions on specific points.
There are three fundamental criteria under which commercial banks,
or at least Chase Manhattan, have provided warehousing credit to
mortgage bankers.
The first of these is the overall financial stability of the company.
In this connection, it is important to note that warehousing lines of
credit to mortgage bankers present a special case.
Each loan is secured by the note and mortgage of the individual
homeowner. By the time we are asked to grant a loan to a mortgage
banker under a specific warehousing line, we have received an FHA
valuation of the property involved, an FPIA approval of the credit of
the homeowner, and a title policy or binder.
In substantially all cases, we also have a commitment of the perma-
nent investor to acquire mortgages having the qualilications evidenced
by the documents I have mentioned plus an FHA insurance certificate.
With such collateral, borrowings are often quite large compared to,
the net worth of the mortgage banking companies. Similar situations'
exist in certain otlier industries where we are also lending against
marketable collateral such as government bonds, higli grade corporate
bonds or listed stocks. However, we also require current financial state-
ments of the borrowers certified by independent accountants. Of course,
the audit of a mortgage banker does not include an examination of each
loan he makes. This requires tlie type of checking implicit in tlie FHA
approval of the mortgage banker as a mortgagee and the FHA ap-
praisal and credit approval.
The second criterion is our confidence in management. By this I mean
our faith in management's ability to carry out the conipany's busi-
ness activities in an elFective and honest manner over time. The ma-
jority of onr i-elationships with mortgage bankers have been of a long-
term nature with clear demonstration of historical viabilitv in these
1113
regards. Confidence is, however, necessarily a somewhat subjective
factor, and, until we achieve omniscience, I am frank to admit that it
can be misplaced.
The tliird criterion is the goodness of the collateral that secures the
interim financing we are providing.
To understand this question, it is important to recognize that we, as
commercial bankers, b}' the time we receive the mortgage collateral
have had the advantage of the prior judgments of both the mortgage
banker and the FHA as to its quality. In most cases, we also rely
on the commitment and professional judgment of the permanent in-
vestor who has agreed to purchase mortgages from the moitgage
banker. It is additionally important to keep in mind that the mort-
gages we have as collateral are in our possession only a short time —
about 60 days on the average. jMoi'eover, under the terms of our ware-
housing lines of credit, these loans may not remain in pledge with us
more than a maximum of 6 months. Considering these assurances and
tlie time element, we feel that additional checking by us of individual
mortgages would be both impractical and redundant.
AVith this background, we huve been very active in the field of mort-
gage warehousing credit. From 1964 through 1071, for instance, we
had average annual advances under these lines of $450 million without
sustaining a single default bj- a mortgage banking borrower. Using
an average of $20,000 for each loan, these advances, which aggregated
ov^er $3.6 billion during the 8-year period, repiesent more than 180,000
resideiices financed through the warehousing vehicle by our bank
alone.
This brings me to the second subject I would like to cover quickly —
the importance of the role of FHA in creating a nationwide mortgage
market valued by permanent investors and thus facilitating the suc-
cessful flow of housing fiiuince.
One of the most vital reasons for having a secondary market in any
area is to create a freer flow of funds for a given purpose. In terms of
housing, both FHA in 1934 and the Federal Xational Mortgage Asso-
ciation (Fanny ]Mae) in 1938 were specifically directed toward this
end.
Yet no secondary market can exist without confidence, and this is
where the insurance of FHA is so crucial. Lenders, whether they be
commercial banks on an interim basis or long-term investors on a more
permanent basis, must be able to accept secondary market paper at
fare value if it is to enjoy a ready and free market.
This is especially true when we talk about FHA insurance which
has had a tradition of reliability for over three decades and has con-
tributed so much to housing financing. If a commercial bank or long-
term investor cannot accept such insurance at face value, the flow of
funds into^ housing will almost certainly be severely curtailed.
The major problem, of course, as many have pointed out in retro-
spect, is that the scope of the Federal housing program changed more
drastically than was realized in 1968. The housing act of that year
directed FHA to rnoye into an entirely new environment, described
then as "older, declining urban areas" where it was chargecl with pro-
viding "adequate housing for low- and moderate-income families.*'
Though unquestionably a worthy cause, this directive had many
ramifications unappreciated at the time. Wlrile the mission was
83-703—73-
1114
changed, the operating ground rules were not. The result has not
only been confusion and the potential of failure, but also a critical
undermining of faith in the overall FHA program.
Recent disclosures of abuses have been dismayincf to all, especially
to those who have been earnestly involved in providing better housing
at lower income levels and who have seen the many historic contribu-
tions of the FHA program. However, as others have stated, I think it
is important that we do not allow immediate shortcomings to obscure
more tangible contributions. Rather, we should search diligently for
better approaches.
The third subject I would like to touch on involves some new ap-
proaches that we at Chase Manhattan have been taking toward neigh-
borhood revitalization.
About 2 years ago, to supplement our then ongoing activities, we
set up a specially designed inner cities real estate lending program to
buttress our overall urban efforts. This was started with an initial allo-
cation of $100 million for construction and long-term financing in the
New York metropolitan area of low- and moderate-income housing and
related community facilities such as day care — an allocation that has
been raised to S175 million tliis j^ear. Residential one- to four-family
housing and community facilities account for $25 million of this total.
From our experience in other projects such as helping disadvan-
taged businessmen and suppoiting community organizations, we felt
that several principles were essential to success.
First, we saw a need to increase impact by concentrating on well-
defined geographic areas, rather than relying on a "shotgun" approach.
In addition, we believed that housing must be treated as part of a
larger system and not as an isolated need. Thus, working very closely
with the community and public agencies, we have marshaled a series of
bank resources to tackle related problems of small business develop-
ment, job creation, day care, the buttressing of community services,
and the improvement of basic public infrastructures.
We also recognized at the beginning that we would be dealing in a
field of higher than normal risk. To oft'set some of this risk, we have
taken a number of steps including the training of community person-
nel in mortgage processing, the setting up of community counseling
and processing centers, and the establishment of very close working
ing arrangements with the FHA and other governmental agencies.
Through these supportive systems and the contacts of our community
workers, we hope to be able to keep delinquencies and foreclosures to a
minimum.
So far, the delinquency rate, defined as payments over 1 month past
due, on some 900 one- to four-family residential loans we have been
tracking in our inner-city program has been 6.2 percent or almost
double the rate on our entire portfolio. There have as yet been no fore-
closures on these loans which are 57 percent FHA or VA guaranteed
and 43 percent conventional. Of course, it must be noted that this is
still an "unseasoned" portfolio and that a tremendous amount of extra
energy is required to maintain it. Further detail on our real estate
urban lending program is contained in the appendix which accom-
panies my statement.
Even with our limited experience, however, I hope we have learned
some lessons that might contribute to my final area of concern — im-
proving and augmenting existing mechanisms to better meet new con-
1115
ditions. How can we balance the need for credit a^'ailability in dis-
advantaged areas with the threat of credit abuse? How can we develop
incentives alluring enough to spur private involvement and yet
stringent enough to discourage windfall profits?
While I have no panaceas, I would like to put forth six suggestions :
First, the fundamental answer is to improve the execution of FPIiV's
available supervisory authority over the mortgage banking business.
I do not mean by this the creation of yet another set of complex regula-
tory mechanisms, but I do believe that an independent FHA sliould
be given the resources and mandate to fulfill its latent supervisory
potential.
Second, all the institutions, public and private, that are involved in
this type of financing must coordinate their efforts far more closely
vrith specific plans and objectives for development of the communities
tliey serve. Unless there is more open dialogue, mutual cooperation
and forceful coordination, it is virtually impossible to avoid having
programs M'orking at cross purposes or not at all.
Third, FHA operations aimed at disadvantaged areas should not
be viewed as simple variations or extensions of regular operations.
Both the public and private sectors must realize they are in a totally
new ball park and must therefore create appropriate support and
follow-up mechanisms that will assure success. Similarly, we must re-
evaluate standards. A higher delinquency rate is probably unavoid-
able. The harder question is keeping the delinquencies from becoming
foreclosures and a^'oiding overextensions of credit with resulting
losses to hard-pressed families.
Fourtli, efforts should be strengthened at once to push ahead with
the development of a comprehensive national growth policy to give a
meaningful context to individual programs such as those of FHA
and also to hit at the vital problem of cutting the cost of housing. If
land, labor and other factors continue to inflate as they have over the
past few vears, we estimate that the average U.S. home in the year
2000 will cost some $120,000.
Fifth, as we move closer to a broader understanding and strategy,
1 believe we must also strive to simplify the morass of housing and
urban development programs. I personally fear that just adding more
and more statutes and restrictions will be counterproductive. With
clearer general understanding and less cumbersome processes, we could
not only greatly increase productivity but possibly also help avoid
some of the problems concerning this subcommittee.
Sixth and finally, it seems to me that the job required of the private
sector is much larger than any one or several private institutions could
or should undertake on an individual basis. The coordinated effort of
private financing institutions in each community will be necessary to
provide needed funds, to develop improved mass methods of proc-
essing loans, to search out new approaches to financing, and to assist in
obtaining funds for less viable projects with appropriate sharing of
risks.
Such a coordinated effort would, I understand, raise antitrust ques-
tions under existing laws. Perhaps, you would be willing to consider
this point and the relief that might be granted. If it is not forthcom-
ing, it may be that the contribution from the private sector will be
limited to the individual efforts of only those institutions w hich for
1116
one reason or another are disposed to tackle a lower yield, higher risk
community project as complex as urban housing.
As a large commercial bank, we feel a great responsibility to assist
in the creation of adequate housing at all income levels. We believe
these suggestions would help create a better overall environment for
the financing of housing in which we could do a better job.
Again, I want to thank you for this opportunity to outline our
views, and we vr ould be happy to answer any questions.
Senator Hruska. Thank you, Mr. Roeder. We have been joined by
the Senator from Florida, Mr. Gurney.
Mr. Gurney, have you any questions of the witness?
Senator Gurnet. Thank you, INIr. Chairman. I have one or two
here.
First of all, let me compliment Mr. Roeder on a very full and ex-
tensive statement. I think it will help us in our search for the truth
here.
Turning to page 5, with regard to these companies, these six mort-
gage companies, how much line of credit do they have now ?
Mv. EoEDER. We have not terminated our lines of credit, Mr. Gurney,
but we are refusing to make any additional advances under them to
those companies that have been suspended by FHA.
The credits themselves have not, however, been terminated formally.
Senator Gurnet. How much of that is outstanding?
Mr. Roeder. I believe we have $11.5 million outstanding to the group
of companies, these six companies, whose records you have subpenaed.
I believe it is $11.5 million outstanding at the last count.
Senator Gurnet. I see. That was in the statement, but I thought
that was earlier in the year. That is the current status ?
Mr. Roeder. Yes, that's right. We now have some $11.5 million out-
standing in loans to all six companies.
Senator Gurnet. Are these being phased out ?
Mr. Roeder. Yes. As those mortgages which are in under the ware-
housing lines, as they are packaged and sold to the institutional in-
vestors, we receive the proceeds of those sales from the institutional
investors, and the loan from the Chase Manhattan Bank is automati-
cally reduced.
So, all other things being equal, OA^er a period of time, all of those
loans will be paid off, as has been the historical pattern, as the mort-
gages are sold out of the warehouse to the individual investors.
Senator Gurnet. I think you say that this is normally a period of
fiO days to 6 months. So I take it in 6 months, the loans will probably
be closed out for this company. Is that right?
Mr. Roeder. Well, the average for the total warehousing operation,
I say hcT'e in my statement is GO days. In some cases, mortgages are in
our hands for only a very few days.
The f)-month aspect of it is that any mortgage tliat is with us for
6 months, our understanding with the mortgage banker is that, at that
point of time, he would repurchase the mortgage from us. That is the
final limit. This is what causes the average to come out to about 60 days.
Senator Gurnet. But in any event, in the course of a few months
they will all be closed u}) with these six companies. Is that right?
1117
Mr. Boeder. Theoretically, yes. Again, that is an average of 60 days,
Senator, so it can take longer in individual instances with individual
mortgage companies.
Senatoi- Gurney. As I understand it, your practice with these com-
panies is probably pretty much the standard practice throughout the
industry; that is,'tlie relationships that you have with mortgage banks
or bankers. Is that right ?
Mr. RoEDER. I'm sorry, Senator. I missed that.
Senator Gurxey. I say insofar as these companies are concerned,
as I understand it, your relationships with them were pretty much
the same as any commercial bank would have with a mortgage banker.
Mr. Roeder. Yes.
Senator Gi^rxey. That is the standard practice ?
]Mr. Roeder. Yes.
Senator Gurney. Well, in view of the unfortunate experience with
some of these people, are you going to revise any of your standard
operating procedures in this area ?
:Mr. Roeder. This might well be. Senator. I think the last thing
that we would want to do would be to go out of the mortgage ware-
housing business. AVe feel mortgage warehousing lines have been very
constructive financing vehicles.
Our attempt has been, since some of the testimony that has been
taken by your subcommittee, has been to go back over the records and
see if there are areas where we should be strengthening our internal
pi-ocedures.
Hopefully, in all cases, whether we are dealing with mortgage
bankers or dealing with any other type of customer, we hope to learn
by experience. It might very well be that the experiences here will
lead us to change some of our procedures. I would certainly hope,
however, as I say, that we still stay in the warehousing lines of credit
business because we think it is good business for the bank, and it is
good for the housing industry.
Senator Gurney. I think most would agree with you that obviously
this sort of vehicle is necessary, or something like it, in order to meet
the housing demands throughout the country. I do not think that
anybody will deny that.
I think it is also a fair statement to say that the prime responsi-
bility is probably the Government's. If they had done their job a
little bit better, we probably wouldn't be having these hearings, and
I understand that.
I also understand that the Government is not the most efficient, or
sometimes the most effective operator in any field. I suppose this is
because of its huge size — well, there are many reasons that we won't
go into here, but it seems to me that the private sector, understanding
that there are errors and mistakes made in big Government operations,
can sort of help in surveillance and checking. That is really the ques-
tion I am asking.
What could your bank, and other banks throughout the country, do
in order to help avoid problems like we have here ?
Mr. Roeder. On the mortgage banking operation itself, Senator, I
think the ideal answer to your question would be that when a commer-
1118
cial bank made a loan under a warehousing line, it would go out and do
its own independent inspection and appraisal and so forth on any mort-
gage that is coming into the warehouse.
Ideally, that would be the situation. This obviously is what we do
when we make our own conventional loans, and originate them
ourselves.
In reality, it is an impossibility. We do business with mortgage ware-
housing companies, not only in the New York area, but throughout
the country. Obviously if we are extending credit to a mortgage banker
in California, the facilities just do not exist to do that.
Second, the time element would be so great that I would be fearful
the mortgage loan would probably never be made because you are
again going through something that somebody has already done
before.
Ideally, this is the way to check up on somebody else. But practi-
cally, I'm sure it just could not work in the day-to-day making of
mortgage loans.
Senator Gurney. I think any reasonable person would agree with
that.
Mr. RoEDER. I think the key aspect— it really is the confidence factor.
Senator Gurney. Excuse me ?
Mr. RoEDER. The confidence — the confidence factor. We commercial
bankers have a responsibility to know our customers. We think that we
do know our customers. We do not deal with them unless we have con-
fidence in them.
That confidence could be misplaced. Now, are there wavs — and these
are things we will be looking for — are there ways in which we should
detect that our confidence in an individual organization or manage-
ment should be deteriorating. Are there things that come to our atten-
tion that should lead us to believe that we should no longer do business
with this company ?
We may not have been perfect in this instance, but we have not been
perfect in other instance?. I would guess that a vast majority of losses
that commercial banks take regardless of the form of lending that they
are engaged in, is the result of misplaced confidence in the manage-
ment of an organization.
In each case you hope you learn something from it. but I think that
it all goes back to that confidence, and whether you have placed it in
the right place or not.
How do you learn something from your experience that will help
you to better evaluate that management and ownership the second
time around ?
Senator Gurney. Well, let us take the example of these mortgage
bankers and brokers here — Eastern Service Corp. and some of these
others.
Isn't that one way that a financial institution can help get on top of
this thinff, by checking thoroughly into the ownership and manage-
ment of these mortgage bankers ?
Mr. Roeder. In virtually all of these cases they were relationsliips
that had gone back over a period of years.
I think that the one with Eastern Service was first established with
the bank in 1958. We had lonff associations with that organization. War
had occasion to visit their headquarters in Hempstead."
1119
"VVe put confidence in the fact that they had been approved as FHA
mortgage originators by the FHA. They were, likewise, supplying
mortgages to important institutional investors, including Fannie Mae.
The experience that we had wath them under the warehousing ar-
rangement gave us no reason to think that we should not have confi-
dence in them.
We checked periodically with other banks with whom Eastern Serv-
ice, and the other companies mentioned in the testimony, do business.
In all cases, we received satisfactory replies from them, viz-a-viz their
experience.
Our question that we raised with ourselves, should we have been
doing more in a different way to try to find out if our confidence should
have been going down. We did not come to that point.
Senator Gurney. Let me interrupt there, and ask you what happened
to Eastern. Was there a change in management ? Did it just get crooked
overnight ? What were their problems ?
Mr. RoEDER. To the best of my knowledge, there were no changes in.
management — to the extent they may have changed their operation,
and changed it in a fashion that we did not realize ; this could have
happened.
This is one of the things that I think we should do with all of our
mortgage banking companies — go back and try to check further. Has
there been a change in their method of operation that we have not be-
come aware of?
But we were not familiar with any one or series of things that oc-
curred with Eastern Service, or the other companies that are mentioned
in the testimony.
Senator Gurnet. Let me ask this. In their putting together packages
of mortgages— and I am really not familiar with the area at all, so I am
groping here for facts — would they get together a package of mort-
gages from, say, Hempstead, Long Island, or someplace like that, that
were all in one area, or were they scattered all over?
Mr. EoEDER. They were scattered out. Eastern Service handled a
fairly large section, not only of Xew York, but going into upstate
New York.
I mentioned Hempstead only because that is where their head-
quarters happened to be located.
But in the mortgages that we bought for our own portfolio back in
the early 1960's, they covered a much broader area than just this
particular segment of Brooklyn that has been the focus of your
investigation.
They went out into Queens and upstate New York.
Senator Gurn-ey. Well, I am thinking, of course, now of the problem
that we have here.
Mr. RoEDER. As of now, I guess the majority — I would like to ask
Ray OTveefe to supplement this. The majority "would be in the inner-
city area. Is that right, Ray ?
Mr. O'Keefe. The inner city area and Long Island.
Senator Gurn-et. So in this operation that we are talking about now,
they were concentrated in small areas. Is that right ?
Mr. RoEDER. Relatively small geographic areas.
Senator Gurney. Would there be a method of spot checking ? I tliink
one of the problems, as I understand it, were false appraisals that were
way over value, or in considerable excess of the value of the property.
1120
Is that right ?
Mr. RoKDER. Yes.
Senator Gurney. How about a spot check from time to time of some
of these mortgage companies? If the mortgages come from a certain
area — wouldn't that be one way, perhaps, of finding out if something
went wrong?
Mr. RoEDER. It is certainly another possibility, Senator. I would
wonder again, and it could be done in the New York metropolitan
area where we happen to be located, but if we are buying a mortgage
from a California mortgage banker, or Chicago, why, it would not
then be feasible to do it.
Spot checking in certain instances is a possibility when it is done
locally. I guess it comes back to the fact that hopefully the FHA knows
the area in which they are working far better than we would know the
area in which they are working, and we again are relying on the fact
that the FHA has done the job.
Spot checking could be done. It would make the overall w- arehousing
processing more expensive. It would make the time element between
the point at which the mortgage is applied for and is ultimately ap-
proved longer, and this is one of the complaints that we continually
have in mortgage lending, that it takes too long to get a mortgage
closed.
So there would be a disadvantage to it. But it is a possibility ; yes.
Senator Gurnet. Well, I was not thinking so much of spot checking
individual loans as they were being made, although I think that might
be possible. I do not know enough about your business, but it does seem
as though spot checking could be done in these big volume mortgage
banker operations, especially within your own area.
I mean you must have appraisers, and people like that, that take care
of your own portfolio ; don't you ?
Mr. Roeder. Yes, we do. But again, they do not necessarily overlap
in areas, Senator.
The inner city mortgage program that I referred to here that the
bank has started, happens to be in the Crown Heights section of Brook-
lyn ; in the Fort Green section of Brooklyn ; and in Jamaica, in Queens.
They are not areas which overlap with what happens to be the East
New York section that we are talking about here. So that the areas to
which our appraisers are going in conjunction with our own lending
may not necessarily be the same areas that the mortgage banker is deal-
ing with in what is called the East New York area.
We would not have the same familiarity Avith that area as we would
with Fort Green, where we have our own inner city program going,
and we have our people out in the field dealing with the community
agency and our appraiser out there for the purpose of making loans to
disadvantaged areas.
Senator Gurney. How many mortgage bankers or brokers would you
be dealing with from time to time in this FHA field ?
Mr. Roeder. I believe all 50 of the mortgage bankers that we provide
warehousing lines to, all 50 of them would generate FHA's, VA's, and
conventional mortgages and bring them into our warehouse.
Senator Gurney. Your dealings are with about 50 ?
Mr. Roeder. Fifty in total. Yes, sir.
1121
Senator Gurxey. I suppose as far as the other hirger New York
banks are concerned, it woukl be figures somewhere hirger than that?
Mr. EoEDER. I would not be sure that the other major banks have been
as active in the overall held of mortgage warehousing as we have, Sen-
ator. We like to think we have had, over a period of years, a very aggres-
sive real estate department in all areas of lending.
My guess would be — although to the best of my knowledge there are
no competitive statistics available — my guess would be that we might
be more active in the total warehousing line facilities than the other
major banks in New Yoi'k.
In the other areas of the country, Chicago and Detroit, certainly they
would be very active wdth mortgage bankers in their own area, but
again, I am not sure that they cover the country to the same extent that
Ave do with some 50 mortgage bankers that we lend to.
Senator Gueney. One thought occurs to me. As a practical way here
perhaps to help the situation out, what would the result be if the banks
themselves got together and pooled their resources to some extent in
the New York area? I am sure you have banks in California, which
would be a big area.
It seems as though it could perhaps be a modus operandi here ; that
it would at least permit some spot checking from time to time.
Mr. Roeder. I think that ties in somewhat with those six sugges-
tions, Senator. As you well know, any attempt of organizations to get
together to — no matter how good the purpose may be — can be so con-
strued as a violation of the Antitrust Act, and I refer to this in the
sixth point.
We do feel that there has to be more coordination among financial
institutions that are interested in financing housing than we have had
up to now.
We have made some attempts to do this, just, for instance, through
the New York Clearing House. The major banks in New York that
belong to the New York Clearing House, have run across — counsel
could expand on this a little bit if you like, too — antitrust problems
that might be created just by the New York Clearing House banks
trying to get together to pool their resources to do more in the inner
city area, much less being able to go outside the New York area and
work with banks on the west coast or in the Midwest.
Senator Gurney. Well, I think it would help some.
Mr. RoEDER. Roy, would you like to comment on your experience?
Mr. Haberkern. I think. Senator, that we really have two areas.
One of them is would it be any kind of conspiracy, allocation of terri-
tories or customers, and that kind of thing.
I assume that we could get a business review letter from the Depart-
ment of Justice that would deal with the intent and the purpose of the
program, and they might grant some relief.
But of course the Department of Justice would give no relief from
any element of boycott.
i think counsel has been concerned that if say 10 or 12 banks were
to get together and form a committee to work with conimunity groups,
and were to decide which houses were capable of rehabilitation in their
judgment; provide financing, provide sharing the risk, that there
would be an element of boycott that could be alleged by someone whose
house was not chosen for rehabilitation, or some claim of boycott by
1122
some other lenders who might protest that their area of lending had
been superseded by this cooperative effort.
It is that kind of an area, Senator, that is of concern, and hence, the
sixth point that Mr. Boeder mentioned.
Senator Gurney. Do you think the suggestion I made would be of
concern to you as far as violating antitrust laws? That in effect co-
operating together to spot check some of these operations ?
Mr. Haberkerx. Well, sir, I do not believe banks would be per-
mitted to get together under the present laws, certainly to discuss
whom they would do business with, or whom they would not do busi-
ness with, or what the terms of the lending might be, or the areas in
which particular banks might take a primary lead.
I do not believe that any of that is possible for us, sir.
Senator Gurnet. I am not sure that my suggestion touches on that.
Mr. Haberkern. Well, sir ; suppose that one were to say that bank A
in California was to do spot checking of potential borrower for all other
banks in the United States who might be doing business in California,
and bank xY would decide that a certain individual method of operation
was not appropriate.
I daresay that has some serious implications.
Senator Gurnet. Well, I think as you pointed out, I would tend to
agree, but I am not thinking of it in that area. I am thinking of it with
relation to some of these companies that you have been doing business
with for a number of years.
I am speaking now of your particular bank, and other banks that
would be somewhat similar. I do not think there is a question there of
banks pooling information to decide whether they will lend or not. It
is really the pooling of information to try and find out if the operation
is being conducted all right.
Certainly within a community of bankers, I know a little bit about
it as I am on two bank boards myself, to know that a lot of exchange
of information goes on in a community about people who are doing
business, and whether they are good risks, poor risks, potential trouble-
makers — all kinds of things.
That doesn't have anything to do with antitrust business, that just
has to do with good, sound, prudent business practice. That is all that
I am trying to get at here.
Mr. Haberkern. I daresay the kind of credit information which I
believe you are discussing, that is the experience of the individual bank
with an individual customer, has been the kind of thing that has been
going on, and is ordinary, routine banking practice.
But I thought that your view was that had not been sufficient, and
that it had to be more particular and more detailed, and in greater
depth than that which raises other kinds of questions.
In any event, sir, it is just a subject that I do believe and have sug-
gested to the bank, would have to be explored in order to permit better
coordination of effort among private sectors.
Senator Gurnet. Well, it seems to me that there are really two
problems here as I see it. If there are others, I wish you would point
thom out to me.
As I understand this thing, and this is my first experience with it this
morning, so again, I am grasping for facts, but one is an oyer evalua-
tion of a property so an operator can get a much larger commitment and
put some of that change in his pocket.
1123
ISTow, that is one of the problems ; is it not ?
yir. Haberkerx. That has been alleged, sir; yes.
Senator Gurnet. And the other problem is probably a very poor
contractor who throws together a house, and cuts corners, and cheats
in the construction part of it.
These seem to be the two problems. I must say that it would seem
as though some spot checking could turn up both of those problems in
a heck of a hurry if this is going on in any considerable volume.
This is the suggestion that I am making. Actually, there are not that
many operators here. Well, you have, what is it, the largest bank in the
country ?
Mr. Haberkern. No, sir ; the third largest.
Senator Gurnet. Well, anyway, it is a big bank, and yet there were
only 50 customers involved here, and I expect probably when you limit
that to the New York area, there are a whole lot less involved.
Some of these customers are probably in Florida, California, and
other places.
All I am suggesting then is that as far as this New York situation,
the New York operators are concerned, it does seem to me that it could
be that some checking is done here, and that is all I am suggesting.
Do you have a practical way of coming up with — tightening up this
operation ?
Mr. Roeder. Yes. I think I will be able to get a little closer to your
specific point. Senator.
I had best go in a little bit more into the extension of credit under
the warehousing line as such. "When these mortgages come in, it has
not been our practice to say, "Is this particular piece of property
at such and such a location on such and such a street in such and such
a section of Brooklyn ?"
We can't, when another one comes in 3 days later, try to track back
and see if it is only two blocks away from the first, and one that comes
in a few days later, as part of the package that is being built up, to try
and trace that one back.
We have not had a procedure in lending against these individual
mortgasres to try to see where each one of them was. Again, only be-
cause of the mass involved.
If we go on the assumption that each one of these mortgages has an
average value of $20,000. whether that be a good or a bad figure, and
that most of the packairps that nre built up by the mortgage banker are
one-, two-, and three-million-dollar packages, they are coming in large
volume. So we are not in the position, just because of the tremendous
number of individual mortsra fires, of tracking each one and coming to
a realization that in this package the properties are concentrated in,
let's say. a four-block area.
Now certainly, again, it could be done, and this would be part of the
review we would be making of our overall operation. Whether it
would turn out to be feasible to actually map out in any one sreo-
praphical area, whether it be in New York or some segment of Cali-
fornia, or some segment of Florida, to actually do that and realize
what the concentration is of the package that you happen to be build-
in^r up. I am not sure.
Theoretically you can do it, and certainlv we will be looking at all
of these areas. Practically again, I am not 100 percent sure the methods
under which the warehousing lines operates.
1124
Senator Gurney. Well, I am certainly not either, and all I am say-
ing is that I do strongly suggest that you put one of your brilliant
young minds to work on'that particular problem because maybe some-
thing will turn up that is a practical way to supervise this business,
and catch up with some of these areas we are talking about here.
I must say that I have always thought that banks and bankers have
a community obligation of some sort. After all, it is a monopoly in a
way, and after all, the assets and money of a great many citizens of a
community are in a bank.
The banker uses the money. He makes profits on it. There is nothing
wrong with that. That is the way our society works, and that is the
way it ought to be.
i)Ut I do think there also is a community obligation to make sure
that the money of the citizens is invested in a socially responsible wayfl
Perhaps that may be more in a community like I live in, a smaller
community perhaps than yours.
But the way the money is used, or misused, has a great deal of effect,
I think, upon the way a community grows. I remember when I first
moved to Florida, in the town I lived in we only had one bank, and you
either did business their way or you didn't do business their way.
Then another bank was started, and I am connected with the other
bank. Things then changed drastically because you put some competi-
tion in the field and made the other Ijank do much more, be more re-
sponsible and community minded.
Well, perhaps in this FHA financing there could be some practical
ways, perhaps at not too prohibitive costs, to help improve the situa-
tion.
I make that statement realizing that it is not your responsibility. I
understand that. It really is the Government's responsibility. They
made the error, and I know that. too.
But I do think that within our society at some times, citizens have
to check up on other citizens, and other operations. When we do that,
we sometimes have a better community, a better society.
Mr. RoEDER. I agree with you completely on that. Senator. We hope
that our record on community responsibility and social responsibility
is quite good. We hope to be able to do more, and there may be ways
in which we can improve it.
We certainly agree with your basic point of view.
Senator Gitrney. I was not suggesting that you didn't have that at
all. I did not intend to suggest that. I was really thinking of the
situations at home, not in New York.
On page 9, where you had mentioned the drastic change in the
Federal housing programs that began in 1968, that whole paragraph
there about FHA being directed to move into declining urban areas.
Then your statement says that there are many ramifications un-
appreciated at the time.
T Avonder if you can amplify on that a little bit?
In other words, I take it from the statement that perhaps this is
one of the reasons why you are having some problems with this FHA
operation, and why the subcommittee is holding these hearings.
I wonder if you could amplify on that and help us out.
1125
Mr. RoEDER. I think prior to 19C)8, Senator, the FHA's primcary
emphasis had not been on inner city lending in declining areas. It had
been in other areas of housing finance,
Tlien in 106H, the FIT A was given the specific mandate to move
much more actively into older, declining urban areas, and to provide
adequate housing for low- and moderate-income f:\milies.
Our own experience has been that when you switcli from lending
in Scarsdale, N.Y., to lending in Fort Green, Brooklyn, you have to
set up a new kind of procedure.
You have to. in many cases, have an entirely different kind of per-
sonnel. This is the reason why when we decided to move aggressively
into the inner-city areas, we assigned a s[)ecific officer of the bank,
]Mr. Quinn, to spend all his time on just that because we knew we
couldn't take people who had been appraising houses and approving
credit risks in Scarsdale, N.Y., one of the wealtliier communities in
the New York area, and expect him to be able to do the same thing
in the inner city areas.
The approach has to be different. The controls that you have to put
on the situation must be entirely different. You have to do far more
counseling with the in.dividual borrower in the event that loan should
become delinquent. How do 3'ou keep it from l^ecoming a foreclosure?
Can you help him in other ways, rather than just lending him the
money for the house ? Can you do something more for the neighbor-
hood? Does he have problems because his wife can't keep her job,
and she has to have a day care center for the children ?
I'm afraid that in 1968, when the FHA was directed to move into
this inner-city area, that it wasn't rceog-nized that an entirely dilfei-ent
approach had to be taken, and the business as usual method of lending
outside the inner-city area was carried over into the inner-city area.
In our view, that just won't work. It takes a different kind of talent.
It takes a dift'erent kind of policing, and probably most importantly,
as I mentioned in the testimony, you cannot just look at the houses.
You have to look at the things that surround the housing. What else
can you do with the community ?
If it is going to be successful, you have to get the community leaders
working with you. They have to want to improve their community as
a community and not just as a local piece of property that happens to
be located there.
So, we try to make small loans to many small businessmen to get
them started in that community. We have our so-called community vol-
unteers, of which we have some 300 in the bank who do this on a part-
time basis, whom we send in to help set up pla^' streets; to see if we
can work with the school authorities on the school structure ; to see if
we can go in and help with remedial reading in the evening because
sometimes the schools aren't very good.
These are things that obviously the FHA was not in a position to
do. They were not, as far I know, directed to do them so they were
carrying over the old method of doing business into an entirely new
area that they were just not able to cope with, in my opinion.
Senator Gurnet. Would one of the problems perhaps Tbe that people
buying the homes perhaps were not knowledgeable enough to realize
that they were beiix;^ taken ?
1126
Mr. RoEDEB. Yes, sir. From time to time we would be criticized at
the Chase IManhattan Bank for not making certain mortgage loans,
but we would prefer not to make a mortgage loan just for the sake of
allowing an individual to buy a house.
We want to be satisfied, being as flexible as we can, giving as much
help as we can, that he is going to be able to retain ownership of that
house and make payments.
We think we do him a disservice if we make the loan to him wlien
we feel in our own mind that he may not be able to keep the property.
I think in many cases people do not realize exactly what they are
getting into. We try to keep them from finding themselves in that
position.
Senator Gurney. I certainly would agree. I think probably too, in
the overall economic health of a large city, it is extremely important to
the entire city, as well as the entire institutions in it, that these projects
work so that the economic health of the city is improved.
One other question here. On page 12, this point one, where you say
at the ending of that sentence, "I do believe an independent FHA
should be giv^n resources and mandate to fulfill its latent supervisory
potential."
Does the adjective "independent" mean anything there ? That is my
question.
Mr. Roeder. No, sir. The word independent was not put in to indi-
cate that they should be operating under a different jurisdiction than it
now is. Rather, FHA, because it is in the kind of business that it was
directed to in 1968, and because the ground rules have to be changed
if, in our opinion, it is to be successful, it should be assured that it
has the funds, has the manpower, and has set up its ovv-n proceedings in
a way that it can do the job, and that it can do the supervisory work
with the mortgage banking industry.
My understanding of the law is that within the FHA legislation as
presently constituted, the potential for having supervisory authority
over mortgage banking companies exists.
I feel that if the FHA had the ability to carry out that supervisory
authority it can do it. I would prefer this to the course suggested by
some that we have a separate policing body of some kind for the mort-
gage banking industry that would move in with another new set of reg-
ulations, and so forth.
Our feeling is that the potential exists. It is a matter of being car-
ried out by the existing agency rather than bringing in new bodies.
Senator Gueney. Thank you. And I want to thank you for your full
and comprehensive answers. If you will submit to the subcommittee
perhaps any concrete suggestions with regard to these subjects that we
have been talking about, I would appreciate it, if you think you can
arrive at a procedure of spot checking, you might approve of the
operations.
I see the chairman of the committee has now arrived. Senator Hart,
Mr. Chairman, I have finished my questioning.
Senator Hart. First, before apologizing to our witness, I want to
thank Senator Gurney for taking the hearing this morning, and then
apologize to you gentlemen for having been late. I will read the
statement.
Mr. Blum?
1127
Mr. Blum. First, I would like to thank all of you personally for
the great cooperation you have given the subcommittee in terms of the
information you have provided, and the time j'ou have taken to as-
semble the information. I know it has been very difficult and time con-
suming. Thank you very much.
Mr. RoEDER. You are welcome.
Mr. Blum. Before we move into details of some of the things that
happened in New York, perhaps it would be best to follow up a little
more completely the role the bank plays, and the ^^arent company plays
in the real estate business.
As I understand it, the parent corporation of the bank owns two
mortgage companies. Is that correct ?
Mr. RoEDER. We own two mortgage companies : Housing Investment
Corp. in Puerto Rico — I believe that is a subsidiary of the bank — and
Dovenmuehle, Inc., in Chicago, which is a subsidiary of the holding
company.
Mr. Blum. Would you mind describing for the record something of
the nature of their business ? What do they do ?
Mr. RoEDER. Mr. O'Keefe is a director of both of those companies,
]Mr. Blum, if he can answer that.
Mr, O'Keefe. Housing Investment Corp. in Puerto Rico engages
primarily in the financing of single family homes, mostly new homes,
in Puerto Rico, having a significant portion of the market.
They are responsible now for servicing some $600 million in mort-
gages, but their expertise is in the area of originating FHA loans for
builders and homeowners on new properties, in most instances, in
Puerto Rico.
Dovenmuehle, Inc., on the other hand, in Chicago, the overwhelming
proportion of business is financing multif amily construction, primarily
in the Chicago area.
Mr. Blum. In connection with the operation of the company in
Puerto Rico, do you find that you are able to make monej^ on the under-
writing of FHA loans '? That is, is the point that FHA allow^s its origi-
nation fee sufficient to cover the cost of originating FHA loans there ?
Mr. O'Keefe. Well, the financing handled by HlC in Puerto Rico
does not depend solely on fees coming from FHA. We get in at the
very start, do the financing of the land, do the financing of construc-
tion, and finally make the permanent loan, and sell it in the secondary
market.
So, I would say a large proportion of their profits would come from
the rates and fees in the, land development, and on the construction
loans.
Mr. Blum. What I was getting at was something else. That is I was
trying to find out whether or not the cost of underwriting — that is the
expense you go to in sitting down with a buyer, filling out the forms —
is allowed for in the FHA fee schedule, and whether that fee schedule
is adequate ?
I am trying to get a feel for it from the experience you have had
with housing investment.
Mr. O'Keefe. I would say the fee covers the cost. In som.e instances,
depending on the circumstances, maybe there is a little profit or a little
loss, but the mortgage company looks down the road to the servicing
fee that it will receive during the life of that morto-ao-e.
1128
Mr. Blum. You do feel that the origination fee is adequate to allo"w
you to do a good origination job ? That is really the point.
]Mr. O'IIeefe. Yes.
Mr. Blum. When did you get into those mortgage businesses, by
the way?
INIr. CKeefe. We bought Housing Investment Corp. in January
1960. We bought Douvenmuehle late in 1969.
Mr. Blum. Did both of them maintain warehousing lines with the
bank?
Mr. O'Keefe. AVith our bank ?
]\Ir. BLLn\r. Yes.
]Mr. O'Keefe. Douvenmuehle does not. It is iiot permitted, except
under certain circumstances, and it would not be practical for it to
have lines from Chase.
In the case of Housing In'S'estment Corp., it is a subsidiary corpora-
tion authorized under the Federal Eeserve Act, and our bank can make
loans to it.
Mr. Blum. Does the bank act as an adviser to real estate investment
trusts ?
]Mr. O'Keefe. Yes. it does.
ISIr. Blum. "NAHiat is tliat trust? What is the nature of that trust in
its operation?
]Mr O'Keefe. The Chase INIanhattan ^Mortgage & Eealty Trust is
based in Boston, and in our capacity as advisor, we recommend loans
to it. The types of loans are mostly large short-term construction loans
which at the present time constitute about 75 percent of the portfolio,
with the remaining 25 percent in longer term loans and efjuity
interests.
The financing of single-family housing, except occasionally through
the construction mediimi, is not a part of the present investment
policy.
Mr. Blum. A recent news story in the financial section of the New
York Times suggested that the parent corporation of Chase w^as in-
terested in acquiring a savings and loan association.
Was that report correct ?
]Mr. EoEDER. As a matter of fact, we Avere in touch, ]Mr. Blum, and
have learned that all of the facts stated in that New York Times
article regarding an investigation by the Federal Eeserve were net
accurate.
We were told, and we understand it was on the Dow Jones ticker
yesterday afternoon, that the Federal Eeserve does not have plans to
make any sort of investigation along the lines of the New York Times'
storv.
Mr. Bi.xjM. OK. I thought I had clarified that. Let me try agam.
I was talkino: about a large piece in the Sunday financial section
that talked about the bank's overall activitios, and particularly the
aggressive real estate operation, and the discussion there of a potential
for acquiring a savings and loan becaiise you thought very highly of
the potential in the housing field, the real estate lending field.
I wonder whether that report was substantially correct.
Mr. Boeder. We do not have any present plans to acquire a savings
and loan association. It would be Very, very questionable, Mr. Blum,
under the terms of the bank holding company, whether the Federal
1129
Reserve would allow a commercial bank to buy a savings and loan
corporation.
It is a vehicle, but I am not at all sure we could do it, and We
have no present plans for so doing.
Mr. Blum. To what extent does the bank's activity in the manage-
ment of trust funds make it the purchaser or mortgages, and real
estate related interests? Is that something else that you do?
Mr. O'Keefe. Yes. We work in a staff capacity with the trust de-
partment and recommend real estate investments to it. They have, in
past years, particularly in the 1960's, invested in FHA and VA loans,
and made conventional loans on income-producing property.
Mr. Blum. So the purchases would be coordinated with the real
estate department ? Somebody from the trust department would check
with the real estate department and say, "What do you think of the
real estate market?"
Mr. O'Keefe. That is right.
Mr. Blum. Am I correct in saying that the bank has roughly 160
branches in New York, and by my count, 37 in Brooklyn? Does that
sound right?
Mr. RoEDER. We have 26 in Brooklyn, Mr. Blum. A total of 172
l)ranches, of which 26 are in Brooklyn.
Mr. Blum. Thank you. Were the mortgages you originated in New
York done in branch offices or are they handled by the main office real
estate department? How do you handle the origination of FHA in
New York ?
INIr. O'Keefe. The applications normally flow through the individ-
ual bank branches, and are referred to the real estate department, and
the real estate department is responsible for processing, and respon-
sible for the quality, and responsible for the servicing.
INIr. Blum. In effect, the branch manager accepts the application,
forwards it to the central office, and then you decide what to do or
not do?
]\Ir. O'Iveefe. Right. The sole function of the branch office is this :
If a customer of the particular branch w^as involved, he would give
the details of the relationship, and his rating of the credit worthiness
of the particular individual.
Mr. Blum. Returning for a minute to the warehousing lines of
credit you maintain — Senator Gurney explored this in detail, the 50
different mortgage bankers you deal with, and the extent of the
business.
I wonder if those mortgage bankers are of varying type. There are
some specialists in tract development; other specialists in spot loans.
Do you specialize in one type of mortgage banker? What is the
characteristic.
Mr. O'Keefe. No ; they run the gamut. It depends on the charac-
teristics of the particular locality that they are operating in.
Some are in tract business; some are in spot business; some are pri-
marily in commercial lending; some are in multifamily.
Mr! Blum. Do mortgage bankers generally get a reputation as being
in the spot business or in the tract business, or w^hatever?
]\Ir. O'Keefe. I don't think I understand your question.
]Mr. Blum. Well, might a mortgage banker of a large mortgage bank-
ing house, or a mortgage banker in a particular area become known as
a specialist in tract development, or a specialist in spot FHA loans?
83-703 — 73-
1130
Is there that kind of reputation ?
Mr. O'Keefe. I think that most in this day and age are engaged
both in tract and spot, but there are mortgage banking institutions
or companies that specialize in spot alone.
Mr. Bi.uM. In the warehousing lending that you do, is any of it done
on a group basis ? That is where a corresponding bank originates it,
and then a number of banks share the risk 'i
Mr. CKeefe. Yes. There are lines that are handled by the bank in
the locality of the mortgage banker, and banks in the money centers
of the country will participate in that line because it could not be
handled totally by the local bank. The local bank would be responsible
for hauling all the collateral shipments, and so forth.
Mr. Blum. In other words, the local bank takes the responsibility
for supervising the mortgage company in detail, and what you do is
apply a portion of that line of credit as it is demanded in the loan
situation ?
Mr. O'Keefe. Yes; but we would underwrite the credit.
Mr. Blum. That is the credit of the company, but you would not
be looking at all at the papers underlying the security ?
Mr. O'Keefe. The papers would be flowing through the local bank.
Mr. Blum. Are any of the mortgage companies to which you extend
warehousing lines, subsidiaries of banks ?
Mr. O'Keefe. Yes.
INIr. Blum. To what degree is there a trend or bank ownership with
mortgage companies? Is that something accelerating?
Mr. O'Keefe. I would say that it has been the dominant trend in
the past 5 years, it is accelerating.
Mr. KoEDER. If I may expand just a bit, ]\Ir. Blum, on the point of
mortgage banking firms being owned by commeicial banks. They may
also be owned by other kinds of enterprises. I think you will find
mortgage banking companies owned, for instance, by certain manu-
facturing companies.
Mr. Blum. Why would a commercial bank want to own a mortgage
company ? What are the opportunities that ownership offers that makes
it attractive ?
]Mr. O'Keefe. Well, if we look ahead to the next decade, all predic-
tioiis are that there is going to be a tremendous demand for houses
and there would be a short fall between the supply of funds available
and the demand.
Under those circumstances, because the business is closely related
to banking, most banks, I think, want to get more deeply into real
estate finance now and perform an essential banking service.
Mr. Blum. In other words, it is a very good vehicle for participat-
ing in a growing market and providing an essential service related to
the banks' basic function ?
Mr. O'Keefe. Eight.
Mr. RoEDER. It goes a little further than that, too, Mr. Blum.
x\s you know, for instance, in New York we are only able to have
brandies within the five boroughs and in Nassau and W^estchester
Counties, and are now limited to affiliated banks in upstate New York.
But we are precluded by law from opei'ating branches or banks out-
side of the State. So, having an interest in a mortgage banking com-
pany, for instance, as we do in Chicago, spreads our geographical
ability to operate throughout the country.
1131
And we would lio])o, as time p-oes on. there will be moi'e oeo<iTaphic{il
spread amon<jst commercial banks, primarily thronirh bank holdinc:
companies, rather than bein<i limited to what are basically geographi-
cal areas set up many years ago that really do not make too much sense
any more.
^[r. Blum. YHien a supervised bank buys a mortgage company, does
that mortgage companj^ come under the supervision of the bank regu-
lators authorities?
For example, is your bank-owned mortgage company examined by
bank examiners, or checked by bank examiners ?
Mr. O'Keefk. No.
Mr. Haberkern. Mr. Blum, under the National Bank Act, the
Comptroller of the Currency, in the case of a national bank, has
complete supervisory authority over any bank affiliate.
So. the Com])tro11er of the Currency has complete powers of exami-
nation and supervision over these affiliates.
I recently had occasion to discuss with the Comptrollei- what kinds
of supervisory authority he would exercise, and it is perfectly apparent
that he believes his authority is coterminous with that over the bank
itself.
Also, sir, under the Bank Holding Company Act, the Federal Re-
serve Board has supervisory authority over the bankholding company
and its affiliates.
Just how the two jurisdictions, overlapping, are going to decide
whicli does what, I don't knoAv, sir. But I understand, now, that is a
matter for discussion among the interbank agencies.
My. Blum. Is it your understanding that plans are in the works
to have the bank regulatory agencies become more active in the super-
vision of bank-owned mortgage companies?
Mr. Haberkern. I understand — I cannot say mortgage companies
as such, sir, but I do understand it is planned to have a program
worked out for supervision over all bank affiliates.
Mr. Blum. To improve our understanding a bit, I would like to
express some of the mechanics of the warehousing line of credit.
First, it is correct to say that the typical mortgage company oper-
ates Avith a rather thin capital base in relation to volume of business?
Mr. O'Keefe. Well, the term "thin" is relative. I think ^Ir Boeder
explained m his testimony that they do have a hiffh multiple of net
worth to any credit available to them because of'^tlie nature of tlie
collateral that is placed to secure each loan made to them.
So, the leverage is greater than in many other tvpes of business
but not greater than it is in other types of business where we lend
on collateral that is comparable.
Mr. Blum. Is it correct to say that because the bank limits its ware-
housing lines ol credit to a loan secured by mortgages, which are FH \
insured and whicli are subject to take-out commitment, both, there is
very little risk? '
Your loans on that warehousing line are secured bv FHA insured
mortgages. Am I correct? And those mortgages, at the time you make
the loan, are subject to, m a typical situation, an agreement by someone
else to buy it m a stated period of time, at a certain price
Will you make a loan on a mortgage that is not subject to a take-out
1132
Mv. O'Kf^EFE. Yes; and we set the inarji:in, the amount we would
lend on that particular mortgage, for a company that we have eon-
sidiMable confidence in, at a price that relates to the market, at a
price at which the mortgage could be sold.
Mr. Blum. In other words, the loan value ratio might differ some-
wliat from a mortgage under which there is no takeout commitment ?
]Mr. O'Keefe. Not the loan value ratio. It would be a certain percent
of the principal of the loan.
Mr. Beum. I see.
What is the normal percent of the principal of the mortgage that
you would give a warehousing line on ?
INIr. O'Keefe. That depends on what the market conditions are at
that particular time. It can vary anywhere from 90 to 100.
Mr. Blum, Depending on whether it is selling at a discount or a
premium ?
Mr. O'Keefe. That is right.
Mr. Blum. Do you give the full market price, or is it something less
than full market price ?
Mr. O'Kep^fe. Well, it would vary with the company and its financial
strength.
Mr. Blum. In other words, the stronger the company, the more you
are likely to lend?
Mr, O'Keefe. Usually it is a point or two, under the market.
Mr. Blum. A condition of accepting a mortgage company for a
warehousing line, is that it carry an errors and omissions bond. Am I
correct ?
Mr, O'Keefe. Yes,
Mr. Blum. And that would mean that if there were a material
failure in the mortgage that would affect the validity of the FIIA
insurance j^ou would go against the bonding company.
Mr. O'Keefe. Well, I think we rely really on the financial standing
of the company that it would have the ability to redeem that particu-
lar mortgage.
Considering the huge volume of loans going through our warehous-
ing activities, some $600 million last year. It is amazing that there have
been very, very few problems with FHA insurance or documenta-
tion that does not permit ultimate j)urchase.
I might correct one impression that I feel you might have. We also
warehouse conventional loans in addition to FHA loans.
Mr, Blum. In addition to the FHA loans. WHiat differences are there
in the way you warehouse — in the way you handle the warehousing
of conventionals ? Do you treat them differently ?
Mr. O'Keefe. The procedure is the same,
Mr, Blum, Do you lend less? Do you go the full value, or nearly the
full value of the loan ?
Mr, O'Keefe, It would depend on the interest rate on the particular
mortgage. Normally, in our conventional warehousing there is a take-
out, we would be lending the takeout amount.
]Mr. Blum. So that the takeout is your protection in that situation.
As part of the FHA package and, I presume, as part of the con-
ventional package, is fire insurance and title insurance required so
that those risks are covered as well ; am I correct ?
1133
Mr. O'Keefe. Yes.
Mr. Blum. Finally, as you have indicated in your statement, the
mortgage is collateral for a very limited amount of time; tops is 6
montlis, so that limits the risk of exposure on any one mortgage very
considerably ; is that correct ?
I\Ir. O'Keefe. They move through with great rapidity and, in many
instances, the papers are shipped within 2 weeks and we are paid
within 60 days.
Mr. Blum. Is my impression correct — that as long as you have been
in the business, you have not suffered a loss on a warehousing line ?
Mr. O'Keefe. I think our statement is limited to the last 5 years.
Mr. RoEDER. I think that 1964 to 1971 is the 8-year period, that I
recall, we covered, and I say that during that period of time, having
financed what we think are 180,000 residences, we have had no de-
faults by mortgage bankers.
Mr. Blum. And that makes this extremely risk free.
Is there any risk at all to the bank in that warehousing business?
Mr. O'Keefe. Yes. Mr. Roeder mentioned misplaced confidence in
an individual could happen. The only bad experiences we have had
have been such situations and, fortunately, they were very minor.
Mr. Blum. Well, what I am getting at is even where the confidence
in the individual has been misplaced, that has not necessarily re-
sulted in loss on a loan.
]\Ir. O'Keefe. That is right.
Mr. Roeder. But, Mr. Blum, you could have circumstances, certainly,
where you could take a loss. The mortgages are in the warehouse, and
let us assume they are conventionals for the moment, and the perma-
nent investor who has committed to take those mortgages out of your
warehouse, for one reason or another was unable to perform. We
would, then, have those moitgages and we would have the risk of those
mortgages at that point of time.
It wonld then be a matter of trying to find another long-term in-
vestor, the ability of the moi'tgage banker to take them out of the
warehouse for another investor. But that type of risk does exist with
warehousing of conventionals.
Mr. Blum. Is that risk there with the FTIA insured as well ; they
might be reneging on a commitment?
Mr. Roeder. You could have an inability to perform on tlie part of
the institution investing. Hopefully, at that point of time, you would
be able to sell them to Fannie Mae, but you still have the same inability
to ])erform on the part of some institutional investor. It is the same risk
with FHA.
Mr. Blum. Do yon, when a loan comes in, for warehousing credit,
check the file to be sure the papers are all there ?
Mr. O'Keefe. Yes.
Mr. Blum. Do you take the responsibility for shipping the mortgage
documents to the permanent investor ?
]Mr. O'Keefe. Yes.
Mr. Blum. Do you check on the servicing of the loan during the
period the loan itself is collateral ?
Mr. O'Keefe. No.
Mr. Blum. You do not ?
Mr. O'Keefe. No.
1134
Mr. Blum. So it is possible that you would be shipping a loan which
is not current as to principal and interest ?
Mr. O'Keefe. It is possible, and normally, the institutional investor
will not purchase it if it goes in default. That is the normal require-
ment.
Mr. Blum. Normally, what happens? Is it up to the institutional in-
vestor who receives it to spot the delinquency which arose during the
wareliousing period ?
We had testimony in the course of these hearings about a number of
loans — I have no idea where they were warehoused, originated at
United Institutional Servicing — which went into foreclosure without
a single payment being made. And I take it this is something, given
your procedures, you would have had no way of knowing about even
if they had been in the warehouse 3 months.
Mr. O'Keefe. That is right.
Mr. l^LUM. Do the records received for the bank indicate the price
at which the loan was originated; that is, the number of points
involved ?
Mr. Nacos. I would say, not, Mr. Blum. When we get it, we get a
completed package; we state the full amount of the mortgage and we
have no idea what the mortgage banker has originated.
Mr. Blum. Do 3'ou think if you were to require, on the warehousing
line, that somewhere in the package there be a statement of the num-
ber of points involved in the origination and perhaps somewhere on
the FHA form, that a statement of the previous sale price of the
house and the date be required, you would be very quickly able to
screen the mortgages that looked funny ?
In other words, you would be able to look down at that package and
say, "This guy's originating at 12 points and we know the market, and
this is way, way over the market; something funny is going on.'' You
will be able to look down at that form and say the house was sold last
year at $10,000 and selling this year at $19,000. That would be an im-
mediate giveaway that further checking was required. Would that be
something you could do as a Avarehousing bank, but would not inhibit
your ability to function ? It is almost a kind of a paper check that I am
suggesting, a simple one.
Mr. O'Keefe. Well, it would add a lot of clerical functions, and a
procedure would require a lot of paperwork and length of time. It could
be done. I would think if that information were available, it would be
done more on a spot-check kind of basis than having it done on each
and (^very package.
I think it would be done if you had some other indications that
would sort of tell you that you should be looking at a particular
situation.
Ml'. Blum. What I am searching for here, really, are simple pieces
of information which might somehow be hung out as possible liooks
for you to get a handle on a bad situation.
"Sir. Nacos, Right. Let me say this : I think that FHA revised its
r(\gulation that i-ecjuired certain certifications when a home has been
puichased, within ( he last 2 years, to state what the purchase price was,
what repairs had been maclo, and I think they limit the resale to a
reasonable return on that investment.
1135
I think tliat FITA has already instituted procedures in this regard
at this particidar time.
Mr. Bn3r. What 1 wondered about is do you get those certifications
as part of the paclvage ?
Mr. Nacos. I am not sure. I think it is something that is submitted to
FHA. Once it is insured by FHA, the lenders, generally, do not look
behind the insurance. We place our faith in FHA, that they process
these papers properly. What a lender looks at is the credit informa-
tion, the permanent lender, the credit information submitted by the
mortgage banker to the permanent investor.
They are interested, basically, in the credit reports — and 1 think it is
the FHA form 2900 — to see whether the borrower has the ability to
carry a loan.
Mr. Blum. Turning to the checks you make of a mortgage company
befoie you begin warehousing lending with that company, you say that
you check its financial statements; is that correct ? That is a beginning
step, is it not ?
Mr. OTvi':ErE. That is right.
]Mr. Blum. And I assume, too, you run a routine credit check with
whatever credit checking agency you might employ ; is that correct ?
ISIr. O'Keefe. We would check with banks that are presently extend-
ing credit. We would also check Avith investors to whom they are selling
mortgages.
Mr. Blum. You do check, then, with a permanent investor ?
Mr. O'Keefe. A sample.
Mr. Blum. A sample? And you would try to find out something
about the quality of servicing, in general ?
Mr. O'Keefe. Eight. And part of the information submitted is a
list of the investors. It is part of the procedures of the institutional
investors to investigate the mortgage bankers they deal with. That
gives you a pretty good idea of the quality of the company, because
a mortgage banker to these investors and insurance companies, in
many instances, is really an extension of the real estate department of
that particular institution, in the particular area that they serve.
Mr. Blum. Well, let's take a situation similar to the one you are
talking about, where, perhaps, a large life insurance company has a
longstanding loan correspondent, which is a mortgage company.
I take it, that to you is an indication that that mortgage company
is a good one, because of its longstanding relationship with a large life
insurance company. Would that be one way you might analyze it ?
Mr. O'Keefe. That is one way. We would want to know if there was
a continuing relationship, and that is why we want to check it.
Mr. Blum. Is it possible that some of the difficulties that arose here,
because some excellent investors began to do business with people,
under special programs, and that then created a presumption about
the character of the people they were doing business with, which was
not necessarily correct.
Mr. O'Keefe. Well, I don't know whether I could say yes to that,
or not.
Mr. EoEDER. I think it is possible. I do not think I would be about
to answer it yes or no. It is a possibility, Mr. Blum.
Mr. Blum. Do you check with the Federal National ISIortgage Asso-
ciation as a matter of routine ?
1136
Mr. O'Keefe. Xot as a matter of routine. Normally, the check is
with the institutional investors.
Mr. Blum. Would you be aware of suspensions, probations and
other problems that your mortgage companies are involved in with
Fannie Mae ?
Mr. O'Keefe. Yes.
Mr. Nacos. No ; let me answer that, Mr. Blum.
I think if you are referring to any published list of suspensions or
anything like that, I do not know- of any being distributed.
The way you generally receive this information is through the
newspapers or maybe a trade publication tiiat something like this is
happening.
Recentl}^, with the suspension of Eastern, and I guess, at one time,
it was Springfield Equities, we picked that up through the press. But,
as far as I know, this information is not published.
Mr. Blum. It is not routinely given to everyone in the banking com-
munities, would you say ?
Mr. Nacos. Not as far as I know. I know of nowhere where this is
published.
Mr. Blum. To what degree do you think it ought to be made public ?
Mr, Nacos. Well, that raises certain other problems. A suspension is
a very serious matter, and it might be a temporary suspension while
FHA is checking out the possible irregularities, or not.
I think a premature disclosure — premature disclosure of a suspen-
sion could hurt a company in cei'tain instances where it was unwar-
ranted, where they were later reinstated. The stigma would be there,
and I am not sure whether this is something that we should broadcast
to the world until there has been some sort of an investigation on it.
Mr. Blum. Well, let me go back at this from the point of view of a
bank that is extending quite a sizable line of warehousing credit. Would
you not like to know about it ?
Mr. Nacos. Yes; we would like to know about it.
Mr. Blum. Do you think that perhaps if you had been aware of the
number of suspensions and probations and various other steps that had
been taken by Fannie Mae, in the New York market, as early as 1968,
you might have taken a closer look at the situation ?
Mr. Nacos. Well, let me say, the suspension may be some warning
signals to you. In that light, a suspension is — notice of a suspension is
useful.
Mr. Blum. Well, what I am looking for again are warning lights and
the signals that might have been there, or might have been put up, to
warn people of the problem so we could have captured this before this
happened, rather than at the end of the road.
Mr, RoEDER, I would think it would be useful if Fannie Mae were in
a position to advise the bankers, about the mortgage bankers — not pub-
lish it to the world, but rather make it known to interested parties so
it could be discussed. The interested parties could then find out what
the reasons were behind it and make their own evaluation of it. That
would be very useful.
Senator Gurnet. Let me pose a question here, if I may, on the same
subject.
We recently had some hearings on health insurance, before this com-
mittee, and the insurance industry has a clearinghouse, which they
evidently call it now, but anyway, a medical information bureau.
1137
Mr. X applies to the X insurance company to o-et himself insured,
and jMetropolitan will routinely check with the medical information
service to make sure he didn't apply before and get turned down, be-
cause he had a lieait attack the year before.
It is a confidential medical information service. As far as I know
it is perfectly legal. Has the banking industry ever thought of this one.
For example, in this particular field where you were dealing with
FHA people, this is nothing new. I can remember this kind of hocus-
pocus was going on in FPIxA. 20 years ago, or when it first came into
being.
What would be wrong with banks having a clearinghouse for in-
formation about mortgage bankers that were shady characters ?
j\Ir. RoEDER. Possibly it could be done with the Mortgage Bankers
Association, Mr. O'Keefe is a member of that. We have an American
Bankers Association and Mortgage Bankers Association. It might
come more closely to their activities. Do you think so, Ray?
Mr. O'Keefe. Well. I think they would only go as far as the suspen-
sion for breach of ethics. But I don't think they would set up a clear-
inghouse for this kind of information in the association.
They are pretty meticulous as to how they screen members, and
there are no secrets in this business. If anyone has gone bad — anyone
gone wrong, I think it is broadcast and picked .up.
I think with mortgage bankers, we have the ability to talk with
the permanent investors. You can check through them, and you can
check through the banks what they are doing. Mortgage bankers pub-
lish delinquency reports as to what is happening with loans they are
servicing. So you have a prettv good reading as to the character of the
firm that you are dealing with ; and the firms that are giving us any
trouble, they have been very, very minor and very far and long be-
tween.
j\Ir. RoEDER. Any such clearinghouse, too. Senator, undoubtedly
would have to embrace all aspects of the industry, all of the different
kinds of permanent investors that you have.
These savings and loan associations, savings banks, commercial
banks, all of the elements of the industry would have to be a part of
it if you were going to have a complete interchange of information,
bocauFc all of these elements, at one time or another, are playing a part
in holding the individual mortgage.
So, it would have to be a very broad based clearinghouse.
Senator Gurney. Well, I think it probably would be, but perhaps it
is an idea you would all explore.
Credit information bureaus, of course, can give you this kind of in-
formation on very small borrowers. I think the idea is a new one.
Right here, of course, we have the opportunity^ of wholesale thiev-
ery that goes into millions of dollars, and just say that is, perhaps,
something they might explore.
Thank you.
Mr. Blum. Returning to the nature of the investigation of the
mortgage company, prior to giving the warehousing line. Is one of
the types of checks you make the areas in which the company does
business? Do you ask them, "Where do you concentrate your loans,'' or
""\^^^at neighborhoods are you in? Are you in a city, or what?"
1138
Mr. OlvEEFE. That information is provided in the material that
we have, and we make periodic visitations to our mortgage bankers.
Our loan officers sit down with their officers and discuss the nature of
the business, and we would pick that information up.
Mr, Blum. Do you attempt to screen the companies which say they
specialize in inner city properties any differently than you would the
companies which specialize in suburban tract ?
Mr. O'Keefe. We take into consideration the geographical loca-
tion and the type of business they are doing.
Again, as I said before, we rely a great deal on the fact that the
FHA is doing its job in appraising the property and appraising the
credit worthiness of the borrower, and then we look to where these
loans are going. And we have a pretty good idea of the requirements
of the particular investors, and we feel that is a good view.
Mr. Blum. Do most mortgage companies, in addition to the wai-e-
housing lines of credit they maintain, also maintain a foreclosure line
of credit ?
Mr. O'Keefe. Not most of them.
Mr. Blum. Is it a large percentage — some of them, a few of them ?
Mr. O'Keefe. Well, this might give you some indication. On some
$200 million plus of warehousing lines, the foreclosure lines that we
have are under $2 million.
Mr. Blum. Were those concentrated with a few companies — one or
two companies ^
Mr. O'Keefe. I believe it was four companies.
Mr. Blum. For the record, how did those foreclosure lines of credit
work ?
Mr. O'Keefe. Well, as I said before, the mortgage companies do a
large volume of business with the amount of capital they have.
There are investors who like FHA investing, but do not like all the
paperwork involved in following it through in the event of fore-
closure. So they ask, as part of the servicing that is given by the mort-
gage banker, that they handle foreclosures.
So, in a few instances, we have set up lines. We set them up so that
they would take these mortgages in and hold them during the fore-
closure period. Sometimes it is quite protracted, depending on the
area, and we take them in at, let us say, 10 percent under their face
value.
We are holding the documents, except when they are released on
trust receipt for processing, until the point that the FHA insurance is
paid, and that provides the payment of our loan.
But this is a facility that we do not give except in a very few
instances.
Mr. Blttm. You mentioned that you gave the lines to four companies.
Would you mind identifying them for us ?
Mr. O'Keefe. Roy, from the viewpoint of customer relationships, do
you think that I should ?
Mr. Haberkern". If he wants the testimony', he is entitled to it. But
I think vou should explain the confidential relationship.
Mr. O'Keefe. Countrywide Funding in Los Angeles. Percy Wilson
in Chicago, Eastern Service, and TTnited Institutional Service in New
York.
Mr. Blum. Thank vou.
1139
Do you monitor the foreclosure lines of credit for unusual activity ?
Mr,'0'Ki:EFK. Only to the extent, I would say, as to the time taken
to comi^lete the foreclosure and remove it from the line.
Mr. Blum. In your statement you indicated that the bank lias, on oc-
casion, purchased mortgages for its own investment portfolio and on
behalf of trust accounts.
What steps do you take to supervise the servicing of those lines?
Mr. O'Keefe. Well, we receive reports which are standard in the
mortgage banking industrv.
â– Mr. Beum. Delin([uency reports?
]Mr. O'Keefe, Delinquency reports. Usually they are on a single debit
system, and tlioy report in bulk, and you know what you are entitled
to on that particular block, and then they break out those in arrears
and give reports on those in arrears.
We visit the companies from time to time, and, for many years, we
had annual audits ])erformed by a certified public accountant.
Mr. Blum. In addition to the Avarehousing foreclosure lines, is it
common for mortgage companies to establish a general line of credit,
using Fannie Mae stock as collateral ?
Mr. O'Keefe. It is not general. I would say it is the exception.
Mr. Blum. Would it be fair to characterize a mortgage banker as an
ideal bank customer, because he is offering a large volume of relatively
risk-free line business on interest rates which are somewhat over
prime— a little bit over prime — and the loans require, relatively speak-
ing, not too much attention, and they are short term ?
Mr. O'Keefe. It is very attractive banking business with one correc-
tion. There is considerably more paperwork involved in handling the
warehousing line than there would be in other types of prime bank
lending.
Mr. Blum. In addition to the interest, is it not customary to require
mortgage bankers to maintain compensating balances for their lines
of credit?
Mr. O'Keefe. It is not a condition of lending, nor is it an event of
default. We do expect that they will keep balances that will compen-
sate us for the work that we have on the line in relation to the charges.
Mr. Blum. And typically to the mortgage business, these are the
escrow accounts of the mortgage company? They would be the real
estate taxes and the insurance money that the mortgage bankers col-
lected on behalf of the individual homeowners; is that right?
Mr. O'Keefe. Typically, yes.
ISIr, Blum. According to your 1971 annual report, the assets at the
bank, at the close of 1971, were $24.5 billion. Is that roughly correct?
Mr. Roeder. Approximately so.
Mr. Blum. Of that amount, $14.3 billion is in loans and mortgages,
and of that, about $1.2 billion is in real estate mortgages. Do those
numbers sound right ?
ISIr. O'Iveefe. Yes.
Mr. Blum. Can you give us an idea of how much of that is in long-
term residential real estate ?
Mr. O'Keefe. I think, in our report, we indicated, roughly, $500
million.
Mr. Roeder. That $500 million, Mr. Blum, I think it says in the
1140
testimony, approximately $500 million in the New York metropolitan
area.
In addition to that we have approximately $100 million that repre-
sents mortgages that we purchased again back in the early 1960's that
are still on our books.
So, the total residential mortgage portfolio, one to four-family hous-
ing portfolio, at the bank would run about $600 million, the extra
$100 million being outside the New York area.
Mr. Blum. We are talking somewhere in the neighborhood of 2 to
3 percent of your assets.
Mr. O'Keefe. Yes.
Mr. Blum. On the backup sheet, you indicate that your urban pro-
gram has $45 million outstanding real estate loans in New York city.
Is that correct ? How does that mesh with the $500 million figure ? I
was reading that and I was a little confused.
If you go to the supplementary sheet — perhaps I misread this. If
you look at the total amount you have outstanding in New York City,
and you add the construction and the permanent, I come up with,
roughly, $45 million.
How does that square with the $500 million number ?
Mr. QuiNN. Mr. Blum, $24 million of that would be in construction-
rehabilitation short term; $21 million and some 900-odd thousand
would be permanent.
Mr. Blum. "Well, what I wondered was how does that square with
the $500 million that you have in the portfolio ?
Mr. Nacos. Excuse me. This just refers to the bank's urban pro-
gram, a special program which it has initiated.
Mr, RoEDER. The $500 million, Mr. Blum, is in the New York metro-
politan area, which would include loans in all boroughs of the city of
New York, Staten Island, Westchester, parts of New Jersey that we
service, parts of Connecticut that we service, upper New York State
that we service.
We service the whole New York metropolitan area, not just in the
city.
Mr. Blum. Right, and the $45 million is a special inner-city
program ?
Mr. RoEDEK. Yes.
Mr. Blum. Thank you.
Turning for a minute to the specifics of the relationship you have
with Eastern Service, in your statement you indicate that you had a
$20 million line of warehousing credit with the Eastern Service Corp.
Is that correct?
]Mr. Boeder. That is correct.
Mr. Blum. There was a $2 million line of credit to Brewster Re-
serve. Is that in addition to or is that part of the $20 million ?
Mr. RoEDER. That was usage, Mr. Blum. The $20 million was for
Brewster and/or Eastern, and I think we broke it down in the testi-
mony to show the difference between the borrowing ]-)atterns of the
two companies, rather than differentiating between the lines.
If I may make a correction at this point, since we are on it again,
I think Senator Gurney asked a question regarding these lines of
credit — whether we had terminated any of them or not. And I am
reminded that my answer may not have been technically' correct. -
1141
Those companies whose facilities liave been suspended by the FHA,
Ave suspended those lines. We ^\i\\ make no more loans under them.
I just wanted to correct it for the record. We have tied it in with
the FHA activities in conjunction with them.
Mr. Blum. That would be Eastern, at this time, and I am not really
sure of the status of Inter-Island. Possibly Inter-Island.
Mr. Nacos. It also covers Inter-Island and Brewster.
Mr. Blum. You also had a line of credit to the Jet Wareliouse Corp. ;
is that correct ?
]\Ir. EoEDER. Yes. sir.
Mr. Blum. And you purchased mortgages from Eastern for your
own accounts ?
Mr. RoEDER. Back in the early 1960's.
Mr. Blum. Mr. Chairman, I ask that the records obtained by the
subcommittee for the bank under subpena relating to mortgages which
were purchased be made part of the record.
Senator Hart. Without objection.
Mr. Blum. According to my calculations, Chase purchased exactly
1,298 conventional mortgages^^in the principal amount of $21,482,710
from Eastern in the period of 1958 to 1965.
Is that correct ?
Mr. Nacos. I would say that is correct. I have not totaled them all.
Mr. Blum. Where were those located ; do you know ?
Mr. Nacos. Well, those conventionals were located in and around the
New York metropolitan area. I would not say that they were concen-
trated in any specific area.
Mr. Blum. They were scattered ?
Mr. Nacos. Right. Some were in Nassau, some were in Suffolk, some
were in the city itself, and even in Westchester County.
Mr. Blum. Do you know if they were basically individual or cor-
porate loans ?
Mr. Nacos. No : these were basically individual loans.
Mr. Blum. Do you know if there were second mortgages in connec-
tion with an}^ of them ?
Mr. Nacos. No ; these were all first liens.
Mr. Blum. No ; what I mean is in addition to the first lien there was
a second lien at the time ?
Mr. Nacos. We would have no way of knowing that.
Mr. Blum. Do you laiow on these conventionals what the loan value
ratio was ?
Mr. Nacos. Well, I would say at the time we purchased those, we
were a State bank, and the maximum would have been 80 percent of
value.
Mr. Blum. What type of appraisal do you obtain when you pur-
chase a conventional ?
]Mr. Nacos. Well, I believe the procedure was for our appraisal de-
partment to approve a set of outside appraisers and they would
check into their qualifications, and sometimes spot-check their work.
And on the basis of that, they would accept outside appraisal. These
were not appraised in our shop.
]Mr. Blum. Have you had any difficulty with these conventionals that-
Eastern furnished ?
1142
Mr. Nacos. I would not say any unusual difficulties.
Mr. Blum. I should — given the testimony we have had — ask you to
be a little more specific when you use the word "unusual."
Mr. Nacos. Well, somebody has the statistics on foreclosures com-
pleted. Under the conventional program with Eastern, out of the
1,290 loans we had on our books, w^e had six foreclosures comj^leted
in 1969 ; four foreclosures completed in 1970 ; and three in 1971 ; which
makes a total of 13.
Mr. Blum. Out of 1,300?
Mr. Nacos. Yes, 13.
Mr. Blum. How many of those loans are still on the books, do you
know that?
Mr. Nacos. I do not understand the question.
Mr. Blum. How many of those loans, those 1,200-odd, are still owned
by the bank at this point? How many have been satisfied or otherwise?
Mr. Nacos. I have no statistics on that, Mr. Blum. I have not de-
veloped any.
Mr. Blum. AVouIcl you mind furnishing that for us for the record
if you can ?
i\lr. Nacos. We could try and develop those statistics for you.
Mr. Blum. We would appreciate it.
Earlier in the testimony, you indicated that the bank has a number
of branches in Brooklyn. One that I recall specifically was on Rutland
Road, directly across the street from the office of one of the real estate
people I had occasion to visit, R. & W. Associates, which furnished
United Institutional Servicing with some 700 deals a year in a 3-year
period.
You do have a number of branches in the territory of Brooklyn that
we have had under discussion. Is that correct ?
Mr, RoEDER, I would not say a number, INIr. Blum. I think there
arc two of them, close to the area — none in the area itself, but two of
them in reasonable proximity to it.
Mr. Blum. And the bank has, because of its concern for the com-
munity, placed a great emphasis on originating loans in the inner city
area. You have done a bit of origination in the area of Brooklyn. Is
that correct ?
Mr. RoEDER. But, again, as we have indicated, they have been j)ri-
marily in what we refer to as impact areas, the Crown Heights section
of Brooklyn, Fort Green, and in Jamaica, Queens.
So the area that you have been particularly looking at has not been
one of our impact areas.
Mr. Blum. In 1970 you set up a special inner city real estate lending
program.
Mr. RoEDER. Yes, sir. That is under Mr, Quinn's jurisdiction.
Mr. Blum. And I assume, under that program, you have been mak-
ing loans at par, not a discount. Is that correct?
Mr, QuiNN. Yes, Mr. Blum, that is correct.
Mr. Blum. Have you wondered why, despite the fact you were
originating at par, much of the loan business still goes to mortgage
companies? After all, you have the cheapest money available. "\Vliy
would a guy not go to you ?
Mr. QuiNN. I have no reason to think we have lost any loans to
anyone else.
1143
Mr. Blum. Well. I am lookinir at tlic overall market for mortgage
money. It is very difficult to pinpoint, but my guess is that your
originations were perhaps 1 percent of the total FHA volume in
Brooklyn, or less. The others for the most part went through mortgage
companies.
Now, why would you think that to be the case if you were offering
the cheapest money in town ?
Mr. RoEDER. Surprisingly enough, Mr. Blum, if I can draw a com-
parison for you, people don't always seem to want the cheapest money
in town.
Another industry that is a very good customer of the commercial
banking system are small loan companies, and if an individual bor-
rows froni a small loan company, he pays a considerably higher rate
of iiiterest than if he borrows from the Chase Manhattan Bank, but
a great many people borrow from small loan companies, and we whole-
sale the money to them so that they can retail it out.
So that I am not sure it is just a matter of the cheapest money avail-
able. Again, I do not think there is any question that our loan stand-
ards in our mortgage originations are somewhat tighter than other
lending organizations may have.
This is true also in the small loan business viz-a-viz commercial
banks making small loans. So that you have a combination of things.
I don't think just the price of the money is necessarily the determinant.
Mr. Blum. Well, in the small loan business, part of it is the credit
standard. The small loan company is likely to take a somewhat greater
risk in making a loan. It is the difference in the underwriting.
But here, aren't we talking about FPIA, and after all, we have said
before, again and again, an FHA insured mortgage is an FHA insured
mortgage is an FHA insured mortgage.
If the miderwriting standards at the branch of Chase are one thing,
and the underwriting standards at the mortgage company are some-
thing else, then an FHA insured mortgage is not an FHA insured
mortgage.
What goes?
Mr. EoEDER. Our contention would be again, Mr. Blum., that we do
not want to put money out simply for the sake of putting the money
out.
We want to be as convinced as we can be in our own mind when we
make a mortgage loan that that home buyer is going to be able to meet
the payments ; that he is not going to wind up in a situation where the
FHA has to perform under the insurance.
Possibly other lenders don't look at it in that way, but we would
just as soon not make a loan at all, rather than make a loan that is
going to result in the homeowner having to default under it.
In that sense, even though the FHA insurance may be available,
we would turn loans away, if, in our own judgment, under I\Ir. Quinn's
program, m our own judgment, this home buyer should not be buving
this particular home under the income pattern that he has.
All lenders may not feel the same way, but it is a standard that we
have set for ourselves.
^i^' ^J^^i^^' ^^^^^^ ^^^^ ^^^'^ ®^ ^^^^ problem in Brooklyn that some
lenders did not feel that way, and that indeed they were putting out
1144
loans that did not meet reasonable underwriting standards, and that is
the source of most of our grief 'i
Mr. RoEDER. The possibility certainly exists that it is along those
lines, Mr. Blum.
^Ir. Blum. And that perhaps one of the answers would be to end that
type of situation where there are several sets of standards for FHA
loans.
Perhaps we ought to adopt one standard for it, and one level of
underwriting.
Mr. RoEDER. "Well, it would depend on what that standard is. I
would guess that you would not want to go to an inflexible standard,
because again, if you deal closely enough w^ith the individual bor-
rower, if you can give him the right kind of counseling, if you can
give him the right kind of help, you may be able to have flexibility
in your standards, and in one case do one thing, and in another case,
do anotlier.
So I think that we should be careful of rigid standards that you
would not be able to deviate from.
Mr. Blum. Certainly, but I assume that when you are working in
this inner city program, a large measure of that counseling goes with
the loan underwriting.
Part of what you are offering out there on the street is telling
people, "Look, you're going to have to fix the roof. You're going to
have to pay taxes. New^ York City tax doubles every year," or what-
ever it happens to be.
And you are telling them, in effect, what they can and cannot afford.
It is that underwriting that will later protect the loan, and in fact
protect the community. To the extent that somebody else can go
around the corner and avoid that underAvriting piocess, and get a loan
approved, no questions asked, in 24 hours. The community then suf-
fers the consequences.
Mr. RoEDER. To the extent that happens, it certainly does.
i\Ir. Chumbris. j\Ir. Blum, would you yield on this point ?
Mr. Blum. Certainly.
]Mr. Chumbris. j\Ir. Roeder, in your paper, on page 3, you point out
that mortgage bankers originate about $13 billion in new mortgages
and point out that $8.1 billion in FHA, one- to four-family mortgages,
were made in 19T0; the mortgage bankers originated $5.5 billion, or
68 percent.
INIr. RoEDER. Yes, sir.
Mr. Chumbris. Now, in the Jack Anderson column of ^Monday, it
refers to our hearings that we are holding, and it points out some of
the Nation's most prestigious banks and insurance companies who
have been j^utting out money for shady mortgages.
It goes on to say they are helping finance mortgage rackets which
is blighting our cities and defrauding the ghetto dwellers, giving an in-
ference that there is something that is not perfectly OK between the
money that is going from the banks to the mortgage bankers.
But let us assume in lieu of the question that Mr. Blum asked that
mortgage lenders would be phased out of the maiket completely. There
were no mortgage lenders.
jNIr. RoEDER. Mortgage bankers ?
1145
. ]\Ir. CiiuMBRis. jMortfjaojc baiikors. Tlicy would come directly to yon,
or whatever source they have. What would that do to the whole op-
eration oi the FHA program ?
Mr. RoEDER. You would have a very, very severe curtailment of hous-
infj finance throughout the country. We feel that over the years,
the mortgage bankers have done a very, very constructive job.
If shortcomings should come up, they sliould try to be corrected, but
if you take away the A'olume of mortgage finance over the years, that
the mortgage bankers have generated in conjunction with the FIIA,
you are going to have a very, vei-y severe curtailment of mortgage
lending.
What the mortgage banker does is serve as a middleman. He pro-
vides the facility that as of today is not available in any other way.
If. for one reason or another, the Chase Manhattan Bank wants to
invest in mortgages in Arizona or Texas, or any State that you chose.
we have absolutely no facilities for generating mortgages in those
areas because we only have our operation in New York City.
The only vehicle we have to get mortgages in those areas if we want
to invest on a nationwide basis is through that mortgage banker.
This I think you will find is the position that the long-teim investor,
the institutional investor, finds his organization in. If he wants to
finance homes, and he wants to do it on a nationwide basis, to spread
his risk geographically, the only way he is able to do that is to work
with a series of mortgage bankers who can generate these individual
loans from individual home buyers, put them together, and sell them
to the large insurance companies in New York, or Hartford, or pen-
sion funds, or whoever it may be.
It is a very important middleman function, in our view, that the
mortgage banker performs.
Mr. Chumbris. If this is true for the general FHA loans, it would
have even a greater impact on the 1068 law which was geared to help-
ing the inner-city, or the low-income person, in buying a home.
It would be that much more difficult to go directly to a bank.
Now let us assume that this operation throughout the country — that
all banks are not ones that have $24 million in assets — what a problem
people around the country, especially in smaller areas, people would
have if there were no mortgage bankers to be the middleman, to be
able to carry out the program that the FHA has. Is that so ?
Mr. RoEDER. There is no question about that. Not only on the FHA
programs, Mr. Chumbris, but also on the Veteran's Administration
programs because the mortgage bankers also orignate VA mortgages.
So to the extent you take the mortgage banker out, you are also
hurting the VA programs, as well as the FHA and the conventional.
Mr. Chumbris. Well, we had one witness before us, Mr. Colon, who
is a Puerto Rican. He started a little program in the New York area,
and his capitalization was just, I think, about $125,000.
But he could only service about four loans a day. We asked him if
he could increase it. and he said, "Yes, but I cant get the financnig."
And the middleman he uses, the mortgage banker, all he uses is the
banks to be able to get the money so he can carry out that particular
program.
He would be wiped out in this particular program.
83-703-
1146
Mr. RoEDER. I would think that would probably be the case.
Mr. Chuiitbris. I think the subcommittee was sort of impressed with
what he was trying to do because he did avoid — it was a direct ap-
proacli. In otheV words, if I were to go directly to him, rather than
go through the broker, therefore the broker was protected in that
instance.
Thank you for yielding.
Mr. Blum. I think the point that Mr. Chumbris is getting at, and
the point that I am getting at, is not that the remedy is to put mort-
gage bankers out of business, but the remedy may be to figure out
what we could do to get them to apply the under writing standards
that you are applying to the inner-city program to the people they do
business with.
How do we get them to provide that kind of underwriting ?
Mr. EoEDER. I do not think you are going to have that, Mr. Blum,
as long as housing is looked at housing as such.
I do not mean to be repetitious, but we feel very strongly that hous-
ing is only one element in trying to work in the inner-city, and that if
you do not do all of the other kinds of things that we are trying to do,
and we are probably going to find more and more as we go on, but in
financing the day care center, in trying to send our own employees
out in the evenings to do some remedial reading work, in trying to
work with the drug addicts in the area, and sending volunteers out
over the weekend to play with the kids in the play streets — in trying
to get a community spirit that the community wants to build their
area, you are never going to do it just by making home mortgage
loans.
I think that this is one of the very real problems that you have in
saying, "Can you set the standards for FHA ?" It has to be'bigger than
that. It has to be bigger than that, and that is where you have to have
real cooperative effort.
Mr. Blum. I fully appreciate what you said having walked the
streets of those neighborhoods.
But I come back to the simple step you can take. You can tell a guy,
"You are going to have to pay taxes, and they are likely going to go
up. You are going to have to make repairs, and you ought to allow X."
Even this simple step apparently was not being taken. The question
is how to get mortgage companies to take that step.
Mr. RoEDER. As long as we recognize it as one step, I certainly agree
with you completely.
Senator Hart. As a latecomer, I may be repetitious. Let me follow
that up and ask if you, in fact, walked the streets of Bedford-Stuy-
vesant and learned that some of the money that you warehoused to
some of those mortgage brokers actually was the instrument which
produced the disaster in Bedford-Stuvvesant what would vou do about
it?
Mr, RoEDER. The fact is that we did not have that recognition. If we
had h 
