sioner for Multifamily Housing. Accordingly, with respect to all non-identity of interest cases which, at the time of receipt of this letter have not be scheduled for review pursuant to the provisions of MF-45, dated September 30, Field Office Directors will mail one copy of each of the following to the office designated above to complete the review for their areas:

1. Form 3378

2. Accountant's Opinion

3. Statement(s) from mortgagor/sponsor affirming or reaffirming nonidentity of interest.

4. A memorandum from the Field Office will also be required, covering all of the following points:

(a) Director's statement that, in his opinion, all certifications regarding non-identities of interest are true and acceptable.

(b) Amount of construction contract.

(c) Cumulative effect in dollars as estimated by FHA of all approved construction changes.

(d) Amount approved in advance by Field Office for payment of (1) financing charge and (2) discount (both from Form 2434).

(e) Opinion as to reasonableness of (1) interest during construction; (2) taxes during construction; (3) title and recording expense; and (4) property insurance during construction; all supported by brief statements as to the method used in arriving at the opinion expressed.

(Examples: written or telephone check with mortgagee, etc.; computation of interest on drawn balances from 2451; overall reasonableness of insurance costs based on 2445 amounts and local rates.)

(f) Any special comments as to reasonableness or unreasonableness of specific items, with particular reference to Legal and Organization expenses in excess of FHA estimates.

(g) Statement of income and expense as required by 63609 of the Manual.

(h) Date of initial endorsement, or start of construction if commitment is to insure upon completion, and date on which Chief Underwriter signed Final Inspection Report.

The review of cost certifications on projects involving identity of interests will continue to be performed in the local Insuring Offices in accordance with MF-45 by personnel assigned by Washington. With respect to these cases, it is expected that any required supplementary information, comments or certifications bearing on all items through 4(g) above will have been obtained or prepared and that full Field Office processing including Architectural, Mortgage Credit and Chief Underwriter's comments will have been completed, up to but not including issuance of Form 2580, before the arrival of the reviewer.

Review of Field Office processing of cost certifications is not required unless the mortgage amount is over $200,000.

EXHIBIT G

[Operations Letter No. 447]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, FEDERAL HOUSING ADMINISTRATION

To: Insuring office directors.
Subject: Manpower utilization-Property disposition; mortgage servicing.

PROPERTY DISPOSITION AND MORTGAGE SERVICING

With the reduction in applications for commitments, the insuring offices of the Federal Housing Administration have an exceptional opportunity at the present time to use available staff to put all of its acquired properties in marketable condition, to assure that the inventory is properly maintained, that property repairs, lawn maintenance, and related activities are performed as efficiently and rapidly as possible, and that properties are promptly appraised, repaired. and put on the market for immediate sale. Experienced appraisers, inspectors, construction analysts, and credit examiners should be placed on this work imme

diately to make sure that every property in our inventory that has any possibility of being sold this summer is in marketable condition and listed in time to take full advantage of the peak market prior to the opening of school. Our acquired properties are available with liberal financing, which gives them an added advantage in the present tight money market. Our manpower resources, effectively utilized, should enhance our sale of acquired properties in the months ahead.

The following specific steps should be taken:

1. Appraisers should be assigned to the appraisal and pricing of acquired properties immediately upon acceptance by FHA. Appraisers should also be assigned to reviewing prices of properties that have been on the market for a substantial period of time with little or no indication of purchaser interest. During the present period when our manpower is adequate to handle the work, we should price the properties and perform related work through our own appraisal staff instead of calling upon the brokers on a fee basis to complete Form 493 and 477. Bench mark appraisal files should be established where this procedure has not yet been fully implemented and updated as needed to expedite future operations.

In

2. Construction analysts and inspectors should be assigned to developing a repair program for properties immediately upon acquisition, preparing the specifications, and issuing purchase orders to repair contractors for the work. spection of the work in progress is the responsibility of the area management broker, but our inspection staff should maintain surveillance over progress of construction and, working with the broker, utilize their best efforts to assure prompt and efficient completion of the work.

3. Mortgage credit examiners will be available to process the credit and financing arrangements on the increased sales volume, which should be generated this summer.

4. Annual physical inspections of multifamily projects should be brought current. Construction analysts and inspectors can be assigned to this work.

5. Annual financial statements of insured project mortgages should be analyzed on a current basis and appropriate servicing action taken wherever a deficiency is disclosed or a problem appears to be developing either in the physical maintenance of the property, occupancy rate, or financial results of operation.

6. All multifamily housing projects owned by the Federal Housing Adminis tration, or on which FHA has been assigned the mortgage, should be thoroughly reviewed in depth during this period to determine what steps can be taken to improve occupancy and financial results of operation, to place the properties in marketable condition, and to cure defaults in assigned mortgages.

In a few offices, the volume of applications continues at high levels at the present time, and staff may not be immediately available for these special assignments. Permission may be secured from the Zone Operations Commissioner for temporary deferment of this work or, where appropriate, assignment of staff from other locations.

Each office should report by letter to the Zone Operations Commissioner, by August 8, the steps taken to carry out these instructions.

Senator HARRIS. Are there any portions of the attachments that you want to refer to further before we have questions?

Mr. BROWNSTEIN. No, sir.

Senator HARRIS. Very well. They have all been made part of the record.

First, I want to ask you about Barrington Plaza, itself. We indicated earlier, after we have gone into the evidence here, I am certain that we will want to talk with representatives of FHA again.

I wonder if you could state whether or not you were aware that on the first application for Barrington Plaza by the B. C. Deane sponsor, at the $12 million stage, the appraisers in the local FHA office stated that this project was unsound economically and that they advised against the granting of a mortgage even on the basis of $12.5 million for the initial application?

Mr. BROWNSTEIN. Yes, sir. I know that the file shows that some of the technical people in the insuring offices did not agree that this would be a feasible project.

Senator HARRIS. Were those local FHA office people overruled in Washington?

Mr. BROWNSTEIN. The record is not clear on what the then director thought about this project, but the fact of the matter is that the project was reviewed in Washington, and that the local people were advised that the project should proceed.

Senator HARRIS. That was an overruling, then?

Mr. BROWNSTEIN. It was an overruling of some of the technical people. As I said earlier, Mr. Chairman, I do not know what the position of the director of the office was. He was the one, really, who was responsible for the operation of the office.

Senator HARRIS. Would your files reflect that?

Mr. BROWNSTEIN. They do not, or leastwise, I have not been able to ascertain this.

Senator HARRIS. Then on subsequent applications on Barrington Plaza to increase the mortgage to $15 or $16 million, are you aware that the same position was taken by the local FHA office appraisers, that such a commitment should not be given at that stage?

Mr. BROWNSTEIN. The file continues to show that some of the technical people continued to have the same reservations.

Senator HARRIS. Not just the reservations. They actually recommended against the approval of the $15 or $16 million level application, isn't that correct?

Mr. BROWNSTEIN. They recommended against the project.
Senator HARRIS. That is right.

Of the two, the local FHA office people and the Washington office people, which would you say would be more familiar with the Los Angeles area and conditions as regards multifamily housing there?

Mr. BROWNSTEIN. Well, again, I can't tell you what the position was of the director who was the responsible officer in the office for this kind of activity.

Senator HARRIS. Which director are we talking about?

Mr. BROWNSTEIN. In the Los Angeles office.

Let me address myself to the problem in general, if I may, Mr. Chairman.

Senator HARRIS. Is it your testimony that the Washington office overruled the objections of these appraisers without knowing what the Los Angeles director thought?

Mr. BROWNSTEIN. It is my testimony that advice went from Washington to the Los Angeles insuring office telling them to proceed.

It is my further testimony that this file lacks the kind of documentation that I would like to see which would support that kind of a decision.

Senator HARRIS. Is it a fair statement that the only documentation you have of the views of those in the Los Angeles office indicates that they were opposed to the application being approved?

Mr. BROWNSTEIN. The documentation that I have shows that the technical people in that office did not believe the project should be approved.

Senator HARRIS. Does your documentation indicate that anybody in the Los Angeles office thought it ought to be approved?

Mr. CALLAHAN. May I speak to this, Mr. Chairman?
Senator HARRIS. Yes.

Mr. CALLAHAN. I assume, sir, you are now speaking of the increased amount at the time it went to $15 million, approximately?

Senator HARRIS. At any stage along here.

Mr. CALLAHAN. Speaking to that stage only, if I may, at that time there was a review committee in the local office that was considering the increase up to $15 million, approximately. The local office review committee did favorably recommend the $15 million amount.

I am speaking to your question, sir, as to whether the local office did in any way endorse the project.

Senator HARRIS. What about the $18 million amount? The final commitment, I believe, was $18,600,000 or so.

Mr. CALLAHAN. I am sorry, sir, at this time I am not able to speak to the $18 million. I was speaking solely to the point of processing to the $15 million sum.

Senator HARRIS. You don't know whether the Los Angeles office thought that was a good deal or not?

Mr. CALLAHAN. Senator Harris, I am sorry. This is a complex case. I would have to refer to my notes before I could answer you yes

or no.

Senator HARRIS. Do that, and be prepared later in this hearing, in the next day or so, to give us that information.

Who was the director of the Los Angeles office during this time? Mr. BROWNSTEIN. Norman M. Lyon was the director until July 21, 1961.

Senator HARRIS. That was during all of this period up until the final commitment?

Mr. BROWNSTEIN. Up until July 21, 1961, which was beyond the date of the commitment.

Senator HARRIS. And where is he now?

Mr. BROWNSTEIN. He retired on that date, sir.

Senator HARRIS. Have you made any effort to talk to him about this case?

Mr. BROWNSTEIN. No, sir.

Senator HARRIS. Do you think that that is indicated?

Mr. BROWNSTEIN. There has been no indication that there was any impropriety in this approval, Senator Harris. It was, as best we can determine, a judgmental decision, based on what was believed to be the legislative intent of promoting and encouraging and sponsoring

Senator HARRIS. I make no implication either about impropriety, but what I am trying to do is find out who made that judgmental decision.

So far, you have not told me.

Mr. BROWNSTEIN. I have told you that the Washington office told the Los Angeles office to proceed with processing.

Senator HARRIS. The Washington office, I presume, means some person or people. That is what I want to know.

Mr. BROWNSTEIN. The initial one was an Assistant Commissioner by the name of W. Beverley Mason.

Senator HARRIS. What position did he occupy?

Mr. BROWNSTEIN. He was Assistant Commissioner of Technical Standards.

Senator HARRIS. Here in Washington?

Mr. BROWNSTEIN. Yes, sir.

Senator HARRIS. What is he doing now?

Mr. BROWNSTEIN. I believe he is still in Washington. I can't tell you precisely what he is doing.

Senator HARRIS. I will hand you what I have marked as "Staff Exhibit 14-B," exhibit No. 6 of this record. I will ask you if you or your associates can identify that as a document in the FHA records? (The document was handed to the witness.)

Mr. BROWNSTEIN. We will check the records and see if it is there, sir.

Senator HARRIS. You are not able to testify to that.

Very well, would you return it, please?

(The document was returned to the committee.)

Senator HARRIS. Mr. Calabrese, would you be sworn?

You do solemnly swear that the testimony you are about to give before this subcommittee will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. CALABRESE. I do.

TESTIMONY OF ALPHONSE F. CALABRESE

Senator HARRIS. State your name and position.

Mr. CALABRESE. Alphonse F. Calabrese, and I am an investigator for the subcommittee.

Senator HARRIS. Did you, at the direction of the subcommittee, make an investigation concerning the FHA insuring of the Barrington Plaza multifamily housing project?

Mr. CALABRESE. I did.

Senator HARRIS. And in the course of that, did you examine various records and documents of the Federal Housing Administration? Mr. CALABRESE. I did.

Senator HARRIS. I hand you what has been marked "Staff Exhibit 14B" and ask you if you can identify that?

(The document was handed to the witness.)

Mr. CALABRESE. I do.

Senator HARRIS. Is it a correct and accurate copy of a record to be found in FHA's files?

This

Mr. CALABRESE. It is a record that came from the FHA files. was obtained through the General Accounting Office. GAO obtained a copy of this.

Senator HARRIS. And that is a true and correct copy?

Mr. CALABRESE. Yes, it is.

?

Senator HARRIS. Without objection, it will be admitted into the record as exhibit 6.

(Document referred to marked "Exhibit No. 6" for reference and may be found in the files of the subcommittee.)

TESTIMONY OF PHILIP N. BROWNSTEIN; ACCOMPANIED BY A. M. PROTHRO AND EDWIN G. CALLAHAN-Resumed

Senator HARRIS. I will read it to you, Mr. Brownstein. It is signed. by E. D. Roe, chief appraiser, November 13, 1959, in regard to Barrington Plaza. It says: