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 ■\^^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
■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
■" 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. ■
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.
■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 ■---
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 ■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 — 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, )
^ ^ , , :^ '■ , -- 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 □
Credit report order from EO □
Credit report order received by contract agency
Credit report mailed to FHA □ or FriA Mortgagee;^
Credit report mailed to VA □ or VA Lender □
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. •■
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.- ■ ' ,. ^ . - . 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
■ taken as proof t^t
not at work..' .
J^NCHARD ^£SS, Inc.
914
^^^ BtANCHARb i^RESS, -INC.' ■ ' ' • avoid^:accident^
■ ■ ' -' ■ :, : ALWAYS ; -V ■,■•••<:
■ V'BE- ■ / , ■■\^}'' -"^[^
^-■:\." .;■, ■CAREFULv/'":';-'"'f"
EMPLOYEE NAME
FiPE'.RE Z
7 26 8 72 381 .95!6H ".4;2 1 /<■ 1 1|5 7 , Ijg ■/ V : '3:0
-EXPLANATION OF !
' DEDUCTIONS-
1 .'
V. i-:
-rj 1 ..
■ V 13
- -I-' y-- '■':'■:' -^-^z i'/'
- .;,; 'V: - ..:■ '■
-..-,.
■ uryiON .
: i.-': "S"'""-
•.,c,..-| :..v-.cr, |isn,c,..-; 1 ; ...
■ .■..'■ M,s.r..w,.s-':. ■
$-
■ 7 Sp 4
- NET PAY 1
VACATION CREDITS -
:---- , ."; ■ >.
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^
■yWW.fhheld -'" '^
Ty(J«o' Pom EMPLOYEE 5
Is ': -A^^^r^^'l,^! 3 36-31 6 i' '-■■
■>..-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
■ DATE CLBaHFO MF..1:ER SEUrNG SINCE H'SH CcrOIT
f
r
. ■- ■- -J
■.■• i
?, ■ - . f
t: ,; ' - ■ 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
.,;■,'- 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. : ■- .
I d^eic.
Chief Mt9."Cr-. d-t E:/.
■ |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.:. . .
□ ""Own Li
K Occuponl
GBPu'cho" □£...!.
nLondlord □ 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) . ■ .
(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
<■ nrfM
UTP
'.-ar-i
alh.r
□ "" Kn.
^t^,,..CJr'^ [»No Sal
Orig.Mlg.Amt. )
which hod on FHA Of VA mortgog.' □ 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' □ 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 '<■
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. ■ ■ ■
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 t 
