Elderly housing overview - HUD's inaction


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Elderly housing overview - HUD's inaction
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United States -- Congress. -- House. -- Select Committee on Aging. -- Subcommittee on Housing and Consumer Interests
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Table of Contents
    Front Cover
        Page i
        Page ii
        Page iii
        Page iv
    Table of Contents
        Page v
        Page vi
        Page 1
    Section 8: Housing assistance payments program
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
    Section 202: Housing for the elderly and handicapped
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
    Additional comments: Representative Don Bonker
        Page 25
    Back Cover
        Page 26
Full Text











MARCH 1976 *

Printed for the use of the Select Committee on Aging


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WM. RANDALL, Missouri, Chairman

EDWARD R. ROYBAL, California
FRED B. ROONEY, Pennsylvania
IKE F. ANDREWS, North Carolina
JOHN L. BURTON, California
EDWARD P. BEARD, Rhode Island
DON BONKER, Washington
HAROLD E. FORD, Tennessee

BOB WILSON, California
H. JOHN HEINZ III, Pennsylvania
RONALD A. SARASIN, Connecticut

ROBERT MN. HORNER, Staff Director
ALBERT H. SOLOMON, Jr., Professional Staff Assistant
MARTHA JANE MALONEY, Professional Staff Assistant
V. BERNICE KING, Financial Secretary

(WM. J. RANDALL, Missouri, Chairman of the full committee, and BOB WILSON,
California, Ranking Minority Member, are members of all subcommittees, ex officio.)

WM. J. RANDALL, Missouri, Chairman

JOHN L. BURTON, California
'DON BONKER, Washington


MICHAEL W. MURRAY, Majority Staff
NANCY E. HOBBS, Minority Staff

CLAUDE PEPPER, Florida, Chairman
IKE F. ANDRIO* S, Nortlt lajrolina H. JOHN HEINZ III, Pennsylvania
-: R ~n~ WEINER, Majority Staff
.E14=4 STERN, Minority Staff
EDWAAt1 OROYBAL, California, Chairman
JIM JOSE S. GARZA, Majority Staff
JAMES H. PETERSEN, Minority Staff

SPARK M. MATSUNAGA, Hawaii, Chairman


BOB WILSON, California
RONALD A. SARASIN, Connecticut

EDWARD F. HOWARD, Majority Staff


The subcommittee, through field hearings, discovered that many of
the elderly, small nonprofit groups, and developers did not understand
section 8 and section 202. A frequent request was made for a simplified
explanation of the two programs. Others who understood the pro-
grams provided us with information on the inadequacies of both sec-
tion 8 and section 202. For these reasons, and because of the newness
of the two housing programs, we were compelled to conduct a descrip-
tive study.
The report describes the operations and functions of section 8 and
section 202 and the Department of Housing and Urban Development's
efforts in implementing them. In addition, the data collected was ana-
lyzed and used to evaluate both programs. Further, the report pre-
sents recommendations for improving each of these housing programs.
This report is a tool to explain the programs to laymen, to point out
the programs deficiencies, and to establish a foundation for the sub-
committee's continuing oversight of the Department of Housing and
Urban Development.
Chairman, Subcommittee on Housing and Consumer Interests,
Select Committee on Aging.



Foreword ---------------------------------------------------------III
Introduction ------------------------------------------------------- 1
Section 8: Housing assistance payments program ----------------------- 2
Background ----------------------------------------------------2
The mechanics of the section 8 program --------------------------- 3
Evaluation and findings ----------------------------------------- 5
Statistical analysis ------------------------------------------5
Regulations and program administration ---------------------- 6
The financial community's response ---------------------------- 9
Summary -------------------------------------------------11
Recommendations ----------------------------------------------12
Section 202: Housing for the elderly and handicapped ------------------ 14
Background ---------------------------------------------------14
Section 202's reinstatement -------------------------------------- 14
Purpose and eligibility -----------------------------------------15
Funding requirements ------------------------------------------15
Fund reservation request ------------------------------------15
Development and submission of preliminary proposal ------------16
Final proposal --------------------------------------------- 17
Completion of the project ------------------------------------18
Allocations ------------------------------------------------18
Preliminary application screening ---------------------------------
Regional and State applications and units-Table I ---------------- 19
Tentative allocations of section 202-Table II ----------------------- 21
Criteria for allocations --------------------------------------
Evaluation committee ---------------------------------------
Formal selection committee -------------------------------------- 22
Evaluation and findings ----------------------------------------23
Recommendations ----------------------------------------------24
Additional comments: Representative Don Bonker ---------------------25

Digitized by the Internet Archive
in 2013


The issue of housing for older people is more than providing a roof
over their heads. We need to address the concept of home. The details
of what constitutes a home are different for each person. The place
where one lives, however, is closely associated with who one is and
how one expresses this sense of self. Quick judgments about what
home means to people and what kinds of housing would be appro-
priate cannot be made.' The Older Americans Act of 1965 states that
older people are entitled to suitable housing independently selected,
designed and located with reference to their special needs, and avail-
able at costs they can afford. Particularly for the elderly, housing is
more than shelter alone.
The following questions need to be considered when attempting to
meet the challenges of providing a decent physical structure which the
elderly can afford:
First. How can housing choices be provided to meet individual
Second. What can be done to help the elderly remain in their homes
if they wish to and are able to do so?
Third. When should a move be considered?
Fourth. Who makes the decision?
Fifth. What if the older person refuses to move?
According to the 1970 census, there were 27,495,602 people 60 years
of age or older living in the United States, representing 14 percent of
the total population. These older Americans represent 27 percent of
all the households in the country.
Sixty-nine percent of all older Americans own their homes. How-
ever, 54 percent of these homes were built before 1940. indicating that
they are at least 36 years old. The median value of these homes is
$13,400 for all older Americans. However, the median value of older
black homes is $8,000 and those of older Spanish-speaking families
are valued at $10,700. These figures can be misleading since 13 percent
of the elderly homeowners have a net equity of between $1,000 and
$4,999; 26 percent have between $5,000 and $9,999, and altogether,
48 percent have a net equity of less than $25,000.2
The elderly are handicapped by limited and usually fixed incomes.
While the median income for all American families of all ages was
$9,867 in 1970, the median income for families over 65 was $5,053.
Black older families showed an annual income of only $3,282. and
the figure was $3,756 for older Spanish-speaking families. It should
be understood that these are median figures. Realistically, approxi-
mately 50 percent of the elderly are poor, having annual incomes of
Robert N. Butler, M.D., "Why Siirvive? Being Old in America," 102 (1975).
2 See "Why Survive?" supra at 109.

less than $3,000, and half of these support families on less than $1,000
a year.
Home ownership for the elderly does not assure them of the privi-
leges associated with owning a home; that is, low housing costs in rela-
tion to income, substantial equity, and monetary resources if they
desire to move to a new location. In addition, it does not assure them
of living in safe and adequate housing. The 1970 census did not col-
lect data on substandard housing. The 1960 census statistics, however,
can be used to make projections for 1976. The 1960 census showed
that about 30 percent of the elderly lived in substandard housing.
Therefore, if the 30-percent estimate is retained., it can be calculated
that in 1976 there will be about 8.3 million elderly people living in
approximately 3.7 million housing units which are dilapidated, deteri-
orating, or lacking some facilities.
The elderly person's home was purchased 36-40 years ago and has
usually physically deteriorated. The costs for repairs, maintenance,
and utilities have risen so dramatically that the older person cannot
pay for them. In addition, the property tax as a percent of a family
income is a little over twice as high for the elderly household than for
the typical household.4 Many of the elderly are trapped in their homes,
unable to find available or alternative living arrangements at reason-
able prices in a suitable locale.
The elderly renter is faced with steadily rising rents. The accepted
proportion of 25 percent of the total income for rent is not holding for
the older person. Elderly renters are paying anywhere from 35 to 75
percent of their income for rent. "Many of the elderly spend consider-
ably more than the accepted proportion of 25 percent of total income
for rent; in many cases, upward of 35 percent." A survey conducted
in Nevada shows that some of the elderly in that State are having
to spend as much as 50 to 75 percent of their income for rent. Some
elderly people in south-central Los Angeles on fixed incomes of $250 a
month are paying $125 to $150 a month for rent. These outrageous
rents are the standard for the elderly throu ouhout the country.
The White House Conference on Aging has recognized that: "Ade-
quate housing is essential to the happiness, health and welfare of
the aging citizen, and, hence to the welfare of the Nation as a whole."
The alternatives and the number of housing units available to the
elderly at a reasonable cost remain scant. Two Federal housing pro-
grams which could conceivably begin meeting some of the need are
section 8 and section 202. This report describes, examines, and evaluates
these two programs.

The section 8 program of housing assistance payments was author-
ized on August 22, 1974, as part of the Housing and Community De-
3 National Center for Housing Management, Inc., "The Onsite Housing Managers
Resource Book-Housing for the Elderly," 2-2 (1974).
4 See p. 3 of hearing, "Problems of the Elderly in Los Angeles, Calif." held before the
Subcommittee on Housing and Consumer Interests of the House Select Committee on
Aging. Oct. 24-25, 1975.
5 See "Problems of the Elderly in Los Angeles, Calif.," supra at 129.

velopment Act of 1974 to assist lower income families in obtaining and
paying for decent, safe, and sanitary housing.
The program attempts, in part, to fill the void in federally assisted
housing created by the housing moratorium of January 1973. It differs
from the section 202 program in that it provides no direct funding to
the developer. Instead, it offers a means of paying the monthly rent
of lower income families, thus, hopefully, inducing or encouraging
developers, builders, and lending institutions to work together to pro-
vide decent housing for needy families through the medium of guaran-
teed monthly rental payments.
The Department of Housing and Urban Development (HUD),
which administers the program, has hailed it as the primary solution
to the housing needs of lower income families, particularly the elderly,
as well as a stimulant to the almost dormant homebuilding industry.
According to HUD, "the problems of aging and particularly the
housing needs of the elderly are continual concerns of the department.
The new section 8 program provides assistance to encourage the con-
struction of new units, the substantial rehabilitation of substandard
housing and the use of standard existing units. It encourages the par-
ticipation of both private developers and housing agencies." 6
Thus, HUD's intent in developing the program is made abundantly
clear. The interest on the part of developers of elderly housing is mani-
fested by the number of applications submitted to HUD. Out of a total
of 207,057 section 8 applications received by HUD, 86539 were for
units for the elderly.7

The basic concept of the program is that HUD will provide housing
assistance payments on behalf of eligible lower income families-that
is, families whose income does not exceed 80 percent of median income
for the locality-occupying newly constructed, substantially rehabili-
tated, or existing housing. This payment will make up the difference
between the approved rent for the unit and 25 percent of the family's
adjusted monthly income. In the case of very low income families-
that is, families whose income does not exceed 50 percent of median
income for the locality-the family's contribution is 15 percent of its
adjusted monthly income.
Housing projects may be owned by private parties, both profit-
motivated and nonprofit and by public housing agencies. Owners sub-
mit development proposals in response to HUD published invitations.
If both the preliminary and final proposals are acceptable to HUD,
the agency will enter into an agreement that upon completion of the
project, it will enter into a housing assistance payments contract with
the owner for a specified term. Under the agreement, HUD will make
housing assistance payments with respect to units occupied by eligible
families. The maximum term of the contract is 20 years except in
the case of a project owned by, or financed by, a loan, or a loan
guarantee from a State or local housing agency, in which case the
term may be up to 40 years.
6 See p. 3 of hearing "HUD's Response to the Housing Needs of Senior Citizens," held
before the Subcommittee on Housing and Consumer Interests of the House Select Committee
on Aging, Sept. 25, 1975.
7 See p. 2 of the information bulletin, "Summarv Activity Status (Region and U.S.) by
Selected Development Stages," prepared by HUD, Dec. 26, 1975.
69-662-76- 2

Aly type of financing may be used including HUD-Federal Hous-
ing Administration (HUD-FHA) mortgage insurance programs, con-
ventional financing and tax-exempt bonds or other obligations. If the
housing assistance payment contract is pledged as security for any
loan or obligation, the financing must be approved by I-IUD.
The rents approved under the contract may not exceed the HUD
established fair market rents (FAIR) for new construction for the
housing market area in which the project will be located and must be
reasonable in relation to the quality, location, amenities, methods and
terms of financing, and the management and maintenance services of
the project. The HUD field office director may determine that special
circumstances warrant an increase of up to 10 percent above FMR,
and the assistant secretary for housing production and mortgage
credit may authorize that the FMR be increased up to 20 percent if
special circumstances so warrant in his judgment.
The assistance contract provides for annual adjustments in the
FMR to reflect changes in fair market rentals for similar type housing
units in the same market area. Special additional adjustments may be
approved to reflect the actual expenses of owning and maintaining
the project which have resulted from substantial general increases
in real property taxes, utility rates, or similar costs, but only to the
extent that such general increases are not compensated for in the
regular annual adjustments.
The owner is responsible for the performance of all maintenance
and management functions, inclug taking applications, selection
of families, collection of rents. termination of tenancies, reexamination
of family income, and compliance with equal opportunity require-
ments. In connection with the selection of families, the owner is re-
sponsible for leasing at least 30 percent of the subsidized units to very
low-income families.
The owner may contract with another party to perform these man-
agement services, but in doing so he is still responsible. Ihowever,
no entity which is responsible for administering the contract, such as
a Public Housing Authority (PHA) in the case of a private owner/
PHA project, may contract to perform such services.
Private owners of existing housing may also participate in the
section S program by leasing existing decent, safe, and sanitary hous-
ing to lower income families. Under this program, a family which is
determined to be eligible by the PHA will be given a certificate of
family participation. The family may find a suitable unit anywhere
within the operational jurisdiction of the PHA. If the owner of the
unit is willing to lease it, and it is determined to be in decent, safe. and
sanitary condition and if the rent is within the FMR established by
UIID for existing housing, a lease may be executed between the owner
and the family. Then a housing assistance payments contract will be
executed between the owner and the PHA. This contract will cuar-
antee a monthly payment to the owner to make up the difference
between the rent payable by the family and the FMIR for the unit.
A separate set of regulations has been developed for State housing
finance agencies (HFA's) now operating in 32 States. Most of these
HFA's provide low interest rate financing to private developers of

low- and moderate-income housing. These regulations permit qualified
HFA's to receive "set asides"-earmarkings of section 8 contract
authority which the HFA is permitted to allocate according to its
own housing program. Agencies which provide financing without
Federal mortgage insurance are permitted greater freedom in admin-
istering their particular program. The section 8 subsidy payments,
with respect to an HFA financed project, are computed and dispensed
in the same manner as the basic program. As previously stated, the
term of the housing assistance payments contract for an HFA financed
project is 40 years.
There is a provision in the program for HUD to subsidize section 8
units which are unoccupied for a period not to exceed 60 days at
80 percent of the established rent.
Another provision states that proposed housing projects setting
aside only 20 percent of the total number of units for section 8 occu-
pancy will receive priority over projects setting aside a larger pro-
portion of section 8 units. Housing projects for the elderly will receive
equal priority with the 20 percent section 8 projects even if the elderly
projects anticipate 100 percent occupancy by section 8 tenants.
The preceding has been a description of the way the program works,
and as a member of the HUD Boston regional office has stated, it is
"the most complicated program that HUD has ever invented." 8

The greatest single difficulty in attempting to evaluate the effective-
ness of the section 8 program has been the virtual vacuum of statisti-
cal data eminating from HUD.
On November 14, 1975, a member of the subcommittee staff wrote
to the Director of Management Information Systems of HUD re-
questing a list of counties, cities, or standard metropolitan statistical
areas that had section 8 units under construction
After waiting over a month for a reply, the subcommittee con-
tacted the HUD official by telephone and was told that the letter had
been misplaced. Information was provided the following day indicat-
ing that 216 units had broken gTound in Wisconsin; 50 in Maine-
11.8 in Tennessee; 195 in Ohio and 523 in Illinois, for a total of
1,102 units.
The subcommittee then contacted the appropriate HUD area offices
to get the names of the developers of each project so they could be
contacted for a status report. Only in Maine and in Tennessee did
the area office even know the name of the developers, and the subcom-
mittee could only confirm that 168 units were, in fact, under
On January 21, 1976, a member of the staff wrote to the assistant
secretary, Programs for the Elderly and Handicapped of HUD. re-
questing a list of section 8 projects in the country including their
8 Lee Dennison, as quoted In the November-December issue of The Older American,
Boston, Mass.
9 Letter from Jose S. Garza to Donald Demitros, Director, Management Systems of HUD,
dated Nov. 14, 1975.

addresses, as well as any other information HUID could provide that
would help in the preparation of this report.10
On February 10, 1976, the assistant secretary was contacted by
telephone and reported that she had not received the letter. A copy of
the letter was sent to her the same day. On February 18, 1976, the
subcommittee finally received statistical data on the status of the
section S program as of December 26, 1975.
The report indicated that while applications for 207,057 units had
been received, only 1,471 units were under construction. This figure
included both new and substantially rehabilitated units. A "good
many" of the units under construction were conversions of former
section 23 units which had been formally approved for that phased-
out program and had simply been shifted to section 8.11 Thus, a sub-
stantial number of units listed as being under construction were not
generated by the new section 8 program but were merely a vestige of
the old section 23 plan.
The data also revealed that there were only two projects in the
Nation, containing an aggregate of 279 units, which were completed
and ready for habitation. Both were rehabilitation projects, and not
new construction. The larger of the two projects (249 units) was a
conversion from section 23. Thus, in the entire country only 30
"pure" section 8 units have been completed and are ready to be
The report received represented a fairly complete analysis of the
section 8 program by regions. Hopefully, this is an indication that
1IUD will be making information more readily available. It did not,
owe-er, give any indication of the number of existing units occupied
by section 8 applicants.
The major thrust of the program as originally conceived was in the
direction of newly constructed or substantially rehabilitated units. If
the program is operable at all, it may be in the area of existing units,
but the subcommittee was unable to verify this fact.
To reiterate, as of December 26, 1975, applications had been received
for 207,3O7 units to be built or substantially rehabilitated. Of this
number only 1,471 units were under construction and merely 279 com-
pleted. The number of completed units had not changed as of Febru-
ary 1, 1976.
The section S program hailed by HUD as the principal mechanism
for providing decent housing for lower income Americans, as well as
a means of stimulating the dormant home building industry, has done
neither. The program, as presently conceived and administered, is not
working. it is not producing enough new or substantially rehabilitated
units. In addition, it does not provide a mechanism to assist the elderly
in shopping for existing units which will meet HUD standards of
Due to limited mobility, many older people find it difficult to locate
existing housing on their own. After locating an acceptable unit, they
10Letter from Jose S. Garza to Helen F. Holt, assistant secretary, Programs for the
Elderly and Handicapped, HUD. dated Jan. 21, 1976.
Telephone interview with Fred Dow, branch chief, Public Housing Systems, HUD,
Washington, D.C., Feb. 18, 1976.

must convince the landlord to accept a two-part payment-part from
the tenant and part from the local housing authority. Prospective land-
lords, weary of the paper work involved and being reluctant to rent
to low-income people, frequently rent the unit to someone else. Also,
experience has indicated that fair market rentals have been set so low
that landlords refuse to rent the unit for the established ceiling.
An additional problem facing the elderly in need of decent housing
is the insufficient number of units allocated to each area. In Los
Angeles, for example, with approximately 30,000 eligible elderly ap-
plicants, only 1,120 units have been specifically set aside for older
persons. 12
In addition, the authorized section 8 funds were divided evenly
between the 15 councilmanic districts without regard to the needs of
each district.
In Nevada, only $157,000 were allocated for the entire State and
all of these moneys are to be used to rent existing structures. There
are presently 64,500 older people living in the State, 7,000 of whom
would probably admit to not having enough money to live 011.13 Di-
viding 7,000 needy older people into $157,000 yields a per person
allowance of less than $23 per year which would hardly be enough
to pay the utility bill for 1 month. It must be remembered, however,
that Nevada's allocation must be used for all low-income families-
not just the elderly. Even these limited funds will probably not be used
in Nevada, due to a shortage of existing housing which will meet
HUD's minimal standards.
One witness testified in the Carson City, Nev., hearing of this sub-
committee that some older Nevadans were living in "chicken coops
with dirt floors" due to the shortage of acceptable and affordable
On the surface, it would appear that existing housing would supply
the most immediate solution to the elderly seeking relief under tile
provisions of the section 8 program, but existing acceptable hous-
ing is in very short supply. As a result, landlords pick. and choose
tenants and they give preference to those not using section 8 assist-
ance. Even with all of its problems, traveling the "existing housing"
route probably offers a more viable alternative to older Americans in
need of housing than waiting for new or substantially rehabilitated
housing units to appear.
As the previously cited statistics indicate, the section 8 pipeline is
bulging at one end with over 200,000 applications for new or sub-
stantially rehabilitated housing units, but it is reduced to less than
a trickle at the other end with less than 300 units ready for habita-
tion, only 30 of which resulted from the new section 8 program.
In searching for the causes for the lack of building activity in re-
sponse to the Government's offer of guaranteed rental assistance pay-
ments, the subcommittee interviewed developers, members of State
HFA's and HUD field and area representatives, as well as HTUD
staff in Washington.
1 See "Problems of the Elderly in Los Angeles, Calif.," supra at 3.
13 See p. 3 of hearing, "Problems of the Elderly in Nevada: Part I," held before the.
Subcommittee on Housing and Consumer Interests of the House Select Committee on
Aging, Oct. 10, 1975.
'A See "Problems of the Elderly in Nevada: Part I," supra at 30.

There appears to be a general consensus that the regulations and
application and approval processes are far too cumbersome to com-
prehend and administer. This view is held not only by developers
and builders, but is shared by representatives of HUD as well.
The subcommittee was advised by a HUD representative in New
Hampshire that regulations are far too difficult for the smaller de-
veloper to understand.15 He also stated that the amount of paperwork
required of the HUD field offices is monumental. In prior housing
programs, local housing authorities processed the applications. This
is now done by the field offices and they simply do not have the per-
son-power to keep up with the demand.
This opinion was reinforced by an architect from Long Island,
N.Y., who told the subcommittee that in August 1975, as required,
lie submitted the final proposal for a section 8 project. Other devel-
opers in the area also submitted proposals. As of February 1, 1976,
not one developer had received word on its application. Such delays
in the HUD field offices are not uncommon.
The regulations themselves also cause delays and discourage pros-
pective developers. "The requirement for public advertising is caus-
ing long delays in many communities, as the area offices grapple with
the problem of determining appropriate markets and of scheduling
dates for advertising in localities throughout their area. Part of the
delay in scheduling of the advertising arises from the area offices
i )ostponing advertising until a housing assistance plan is received
from a community. The whole concept of housing assistance plans
should, in our judgment, be reevaluated to determine whether it is a
relevant planning tool or just a bureaucratic impediment which is
preventing builders from meeting the legitimate housing needs of a
community." 16
The section 8 regulations require adherence to the Davis-Bacon
Act. The Department of Labor's interpretation of this act is causing
problems for builders and developers. The regulations state that "not
less than the wages prevailing in the locality as predetermined by the
Secretary of Labor pursuant to the Davis-Bacon Act shall be paid to
all laborers and mechanics employed in the development of the proj-
ect involired." 17
Prevailing wages should always be paid, but the interpretation of
"prevailing wages" seems to be creating problems.
There is evidence that several sponsors of section 8 housing proj-
ects for the elderly have been assigned rates under the Davis-Bacon
Act which are excessive compared to wages being paid for non-
federally assisted projects in the immediate vicinity.
A sponsor of a religiously affiliated section 8 project for the elderly
in suburban Washington, D.C. reported that the Davis-Bacon rate
assigned t6 him for laborers was $7.2" an hour. A survey revealed that
five similar nonfederally assisted projects withiirthe same county were
paying an average of onlv $4 an hour for laborers. His construction
costs are $500,000 higher than they would have been had he been free
15 Telephone interview with Paul Stewart, Multi-Family Housing Representative, HUD
area office, Manchester, N.H., Feb. 17. 1976.
'( see p. 11 of hearing, "Oversight of Section 8 Housing Assistance Program," before
the Subcommittee on Housing and Community Development of the House Committee on
Bhnlking, Currency and Housing. Oct. 22, 1975.
17 Section 12 of Housing and Community Development Act of 1974, 42 U.S.C. 5301.

of the Davis-Bacon Act or if the act had been implemented or inter-
preted properly. He appealed his assignment of wages and while some
of his wages were reduced, the delay caused by the appeal con-
sumed any savings that may have been effected by it.18
A representative of the Maine State Housing Authority reported
that wages assigned under the Davis-Bacon Act for four projects in
the State of Maine were far in excess of the rates paid by nonfederally
assisted projects in the same vicinity. For example, carpenters were
being paid from $3.50-$4.50 per hour locally. He, however, was re-
quired to pay $7.60 an hour because of the way the Davis-Bacon clause
was implemented. For Iaborers, he was assigned a rate of $6.20 an hour
as opposed to local rates of $3.50 per hour; for plumbers, he was re-
quired to pay $8.70 when the local rate was $4.75; he had to pay $8.05
an hour for masons while other local masons were earning $4.00 an
hour. His projects in rural Maine were assigned rates that were being
paid in Metropolitan Boston.19
In addition to the inequity in rates suffered due to the improper
interpretation of the Davis-Bacon Act, there is the further burden of
excessive amounts of paperwork.
Small builders have neither the manpower nor the expertise to deal
with all of the administrative minutia required in the Davis-Bacon
By offering only rental assistance payments, Section 8 was designed
to work in the open marketplace. Unreasonable impediments, however,
such as the unfair interpretation and implementation of the Davis-
Bacon Act, cause builders and developers undue hardships, particu-
larly in the non-metropolitan areas.
If Section 8 was conceived to offer an incentive to private and non-
profit sponsors to create new housing units for the poor and elderly,
then the program must have room to breathe. The unreasonable im-
plementation of reasonable regulations can be just as much a prob-
lem as overly restrictive regulations.


The financial community has shown very little interest in financing
section 8 projects. The program offers little incentive to lending or-
ganizations because the only security offered the lender is a guaranteed
monthly payment in an amount equal to the difference between 25 per-
cent of the family's monthly income and the fair market rent estab-
lished for the unit for a period not to exceed 20 years, as long as the
owner is diligent in keeping the unit occupied by an approved appli-
cant. Should the unit, for any reason, become vacant, HUD will pay
only 80 percent of the rent for only 60 days.
It will also be recalled that projects which include only 20 percent
of the units for section S occupancy will receive a higher priority than
developments planning a higher percentage of section 8 units. [Hous-
ing for the elderly is exempted from this priority system.] As a result,
13 Telephone interview with Samuel Roberts, executive director, Hebrew Home of Greater
Washington, Mar. 19, 1976.
19 Telephone interview with Bruce Rothenberg, Maine State Housing Authority, Mar. 15.

the most security a lender can receive under the program, according
to the established priorities, is a 60-day guarantee of 80 percent of the
rent for 20 percent of the total units. Even if the landlord keeps his
section 8 units occupied at all times, the maximum term of his contract
is 20 years unless he is financed by a State HFA. Most mortgages,
however, run for 40 years.
One obvious solution to this dilemma would be for the prospective
developer to go to his local State HFA and let it finance the project.
The problem is that the State agencies are having as much difficulty
with their financing as the independent developer.
John M. McCoy, Jr., executive director of the Pennsylvania Housing
Finance Agency, testified in behalf of 35 State HFA's before the Sub-
committee on Housing and Community Development of the House
Committee on Banking, Currency and Housing as follows:
I must report today that most of our member agencies have grave
doubts at this time whether we can raise, in today's market, the $2.5
billion necessary to finance the 100,000 contemplated State agency
funded units. The reason is very simple Lenders, in our case, the insti-
tutional and individual purchasers of municipal bonds, are concerned
over the lack of security behind the instruments that finance the sec-
tion 8 projects. This fear, coupled with the general turmoil of the
municipal bond market, has virtually closed our financing channels.20
There are several steps which HUD can take to open up these
financing channels. The 60-day subsidy on unoccupied units could be
extended beyond that period in an amount sufficient to amortize the
principal and pay the interest on the unit, so long as the owner is acting
in good faith to rent the unit. This, in part would help allay the fear
of lenders that there is no security behind their loan to a section 8
project because of the lack of an assured income stream on vacant
units covering principal and interest.
Payment of only that portion of the rent to serve the debt on un-
occupied units would hardly provide sufficient incentive for the owner
to allow the unit to remain vacant instead of searching diligently for a
new section 8 tenant. With waiting periods of 18 to 24 months for
decent housing the norm, his search for a suitable tenant should be
relatively brief; in all probability, it would not exceed 60 days.
This change in the regulations would make the program much more
acceptable to lenders and would probably not involve any more ex-
pense to the government as it does not provide an incentive to the
owner to keep the unit vacant. Why would he be content receiving 50
percent of the established rent (the approximate amount required to
serve the debt) from the government when he can rent the unit for
100 percent of the established rent by simply finding a tenant?
Another step that could be taken to encourage lenders to provide
loans to private developers and nonprofit sponsors would be the ex-
tension of the housing assistance payments contracts from 20 to 40
years. The 20-year limitation places a heavy burden on the individual
developer who tries to finance his project independently, rather than
through a State HFA. The present regulations give the HFA's an un-
fair advantage over private entrepreneurs and nonprofit organizations
by granting 40-year contracts to the former and only 20-year contracts
to the latter.
20 See "Oversight of Section 8 Housing Assistance Program," supra, at 30.

In an attempt to provide further security to lending agencies, some
state HFA's and other lenders are exploring the possibility of utilizing
the coinsurance authority set forth in section 244 of the Housing and
Community Development Act of 1974. The coinsurance could be shared
by the Federal Government, state HFA's and private nortgagees.2'
There may also be a role for private mortgage insurors in assuming
a portion of the risk on behalf of the state agency or private mort-
gagee. What is called for is creativity and flexibility in designing
Federal-State-private risk sharing packages designed to meet the
requirements of each particular situation.22
Section 244 contains a restriction that no more than 20 percent of
the multifamily insurance written annually by HUD can be under
the coinsurance program. The reason for this limitation was to prevent
HUD from imposing coinsurance on mortgage lenders who were not
willing to participate in the program. Assuming successful use of
section 244 coinsurance for section 8 projects, it will probably be
necessary to eliminate the present restriction of 20 percent of all FHA-
insured multifamily mortgages originated each year. This should be
fairly simple for HUD to accomplish and would offer a great deal of
encouragement to lenders.
Under the coinsurance program, state agencies and the private sec-
tor as well as HUD-FHA, would bear the risk on any insured loan
that defaulted. Since insurance premiums would be paid to the Fed-
eral Housing Administration, we do not envision this program as one
costing Federal dollars.
Congress has recognized that long-term financing is critically short
in rural areas and has permitted the Farmers Home Administration-
FmHA-section 515 rural rental program to be used as a long-term
financing vehicle for the section 8 program. Twenty percent of section
8 funds have been set aside for nonmetropolitan areas, generating a
great deal of interest on the part of rural Americans in having these
two programs work together. The use of section 515 in combination
with section 8, however, is moving very slowly.
As of February 17, 1976, applications for approximately 70 projects
under section 515 and section 8 had been submitted for FmI{A and
HUD approval. Fourteen of these projects had been approved by
FmHA field offices and were waiting for a firm rental agreement from
HUD. FmHA and HUD have discussed bringing in a task force of
FmHA field people and staff from HUD's issuing offices to determine
why HUD approvals were taking so long.23

The following excerpt from a letter to the chairman of the subcom-
mittee sums up the problems with the program:
The first months of experience under the new construction
program (section 8) have clearly demonstrated that the pres-
ent regulations make it infeasible except in the most unusual
circumstances unless it is tied to 202, 515, or FHA financing.
Unfortunately the revised 202 program is extremely small,
2 See "Oversight of Housing Assistance Program," supra, at 3.
22 See "Oversight of Housing Assistance Program," supra, at 8.
2 Telephone interview with George Daellenbach. loan specialist, FmHA, Washington,
D.C., Feb. 17, 1976.

the 515 program is not yet actually working in tandem with
section 8, and the HFA's problem with bonding dictates an
extremely conservative course. Without additional sources of
financing, there is no program to evaluate.
The inadequacy of fair market rents in several jurisdic-
tions is undoubtedly well known to you and your committee.
They compound the difficulty of developing feasible projects
and must be corrected if the program is to move.
We are also very concerned about the advertising and bid-
ding procedure and its effect on nonprofits. The procedure
discriminates against nonprofits and favors major developers
for it gives little time and no resources to bidders, effectively
limiting participation to sponsors who have site control, a
development team, plans, financial analyses, and financing in
hand at the time of advertising. Very few, if any, nonprofits
are sufficiently prepared to move quickly to submit a bid
under the present procedures.
We are delighted that your committee has taken the lead
in examining the section 8 program more carefully.24
Section 8 can become a viable force in housing older Americans,
but this will require considerable flexibility and creativity on the part
of HUD and all other interested parties from the public and private
In order to make the program work, the following recommendations
should be implemented:
First. A task force should be created, composed of HUD officials
and staff, developers, builders, representatives of the building indus-
try, nonprofit sponsors, Farmers Home Administration staff, state
HFA's, the financial community and elderly advocate groups to re-
view, evaluate and ultimately improve section 8.
Second. The present 60-day limitation of the subsidy on unoccupied
section 8 units should be extended to cover only the debt service
(principal and interest) accruing to that particular unit. The present
60-day limitation of the subsidy on unoccupied units does not provide
sufficient incentive or security to the lender.
Third. A program of coinsurance should be developed which would
include state HFA's and private interests as well as the Federal Gov-
ernment. At the very least, the present 20-percent limitation on coin-
surance, as defined in section 244 of the Housing and Community
Development Act of 1974, should be removed.
Fourth. Consideration should be given to the further implementa-
tion of the Federal guarantees outlined in section 802 of the Housing
and Community Development Act of 1974, and to the formulation of
new guarantees which would encourage lending agencies while holding
Federal exposure to risk and expense to a minimum.
Fifth. The term of the housing assistance payments contract should
be extended from 20 to 40 years for private and nonprofit developers.
24Letter to Hon. Edward R. Roybal from Andrew H. Mott, vice president, Center for
Community Change, Dec. 11, 1975.

This longer term is already permitted for projects owned by, financed,
or guaranteed by State FHAs. The present regulations put the private
and nonprofit developers at a serious disadvantage in attempting to
obtain financing as most mortgages run for 40 years.
Sixth. A memorandum of understanding should be prepared jointly
and signed by UD and FmHA, outlining the respective obligations
and responsibilities of each in an effort to combine the section 8 and
section 515 programs. In addition to providing a means of financing
new rural housing by a blending of the two programs, such a merger
might well reduce the amount of administrative detail involved. This
could be accomplished by HUD setting aside a number of section 8
units to be administered bv FmHA in rural areas. FmHA, being
closer to the scene than HfUD regional or area offices, could more
easily process applications and conduct inspections of units under
construction or completed.
Seventh. Congress should insure that the Secretary of Labor imple-
ment the Davis-Bacon Act more realistically and equitably so as to
reflect actual wages prevailing in the immediate area of the project
Eighth. A reevaluation of fair market rentals should be undertaken.
The ceilings established in some areas have made existing housing un-
available to older people in need and have discouraged developers of
new units, who fear that the FMR will not be sufficient to support
the projects' operating costs and debt service.
Ninth. Congress should hold iHUD responsible for informing Con-
gress of the specific remedies it plans to effect to render the section
8 program more operable.
Tenth. Congress should insist on the development of a more current
and complete reporting system within HUD so that it can more effec-
tively monitor the section 8 program. Until very recently it has been
virtually impossible to receive any statistical data on the status of the
program from anyone in HUD, and the data presently available is in-
The great need for the section 8 program is manifested by the ap-
plications already received for 207,057 units; the ineffectiveness of the
present program is indicated by the 279 units completed, 249 of which
were initiated under another program.
Congress, therefore, has a responsibility to lower-income older
Americans in search of decent, safe, and sanitary housing. It can
best discharge this responsibility by closely monitoring the section
8 program and insisting that changes be effected in the administration
of the program which will result in the delivery of reasonably priced
decent housing to the elderly poor.
The section 8 program, as it is now structured and administered, is
not working. HUD and Congress have a joint responsibility to make
it work. If HIUD officials cannot, through the means suggested in this
report and by whatever other means they may develop working
together with other interested parties, effect the necessary changes in
the regulations and administration of the program, then Congress
must bring about those changes through legislative action.

The Housing Act of 1959 enacted a program that promoted the de-
velopment of housing for the elderly. Section 202 provided direct
3-percent Federal loans to nonprofit sponsors to provide rental housing
for the elderly, through new construction or rehabilitation of exist-
ing structures. In addition, the property could include dining halls,
community rooms, infirmaries, and other essential service facilities.
A loan term could not be more than 50 years, nor could it exceed 98
percent of the total development cost "and the interest rate was limited
to the higher of 23/4 percent or a rate derived by adding 1/4 of 1 per-
cent to the average annual interest rate on all interest bearing obliga-
tions forming a part of the Federal debt." 25
This program was very successful, producing more than 45,000 units
with only one foreclosure in a 10-year period. The program, however,
was phased out by administration decision in 1969 because the ad-
ministration felt that the requirement of direct appropriations for
the full amount of the loan was having an adverse effect on the Federal
Second, the administration felt the section 236 26 subsidy program
could effectively replace section 202. Section 236 was frozen by the
housing moratorium of January 1973. From that date until the Sum-
mer of 1975, there was no viable program to assist nonprofit sponsors
in developing housing for the elderly.

The 1974 Housing and Community Development Act revived the
section 202 program when it was signed into law in August of 1974. In
the fall of the same year, Congress passed a Supplemental Appropria-
tions Act approving a borrowing level of $215 million for the 202 pro-
gram in fiscal year 1975.
HUD delayed the issuance of implementing regulations for approx-
imately a year. When the final regulations were issued on August 20,
1975, they did not provide for permanent financing and, as such, vio-
lated the intent of Congress. Further, they did not establish a work-
able program. Due to this delay, the appropriation was not utilized,
and, because it did not have a carryover provision, the administra-
tion's action in effect resulted in an impoundment without congres-
sional approval.
The General Accounting Office (GAO) considered this a violation
of the Congressional Budget and Impoundment Control Act. It sug-
gested that Congress set the fiscal year 1976 loan level at a high
amount to absorb the $215 million.
Congress, in its HUD-Independent Agencies Appropriation Act,
fiscal year 1976, stipulated that permanent long-term financing be
25See pp. 206-207 of the report, "Evolution of Role of the Federal Government in
Housing and Community Development-A Chronology of Legislative and Selected Execu-
tive Actions, 1892-1974," prepared by the Subcommittee on Housing and Community
Development of the House Committee on Banking, Currency and Housing, Oct. 17, 1975.
Under the 236 program payments were made to the mortgagee to reduce the rents
required by interest costs on a market rate FHA-insured project mortgage. To qualify.
the mortgagor must be a nonprofit organization, a cooperative, or a limited-dividend
individual entity.

provided to nonprofit sponsors. The bill authorizing a borrowing level
of $375 million was signed on October 17, 1975. HUD's August 20,
1975, regulations limited 202 loans to construction financing only. In
addition, on September 24, 1975, a HUD invitation was published in
the Federal Register requesting applications for section 202. In ac-
cordance with the act, HUD however issued new proposed regulations
to provide a program of both construction and long-term financing for
section 202 projects. Final regulations were published February 25,
The purpose of section 202 of the Housing Act of 1959, as amended
by the Housing and Community Development Act of 1974, is to pro-
vide direct Federal construction and permanent mortgage loans for
housing projects to serve elderly and handicapped families and indi-
viduals. The housing projects should provide a wide range of neces-
sary services including health, continuing education, welfare, infor-
mational, recreational, homemaker, counseling, and referral services,
as well as transportation where necessary.
Only private nonprofit corporations and consumer cooperatives are
eligible for section 202 loans. No member of the applicant (sponsoring)
or borrower (mortgagor) corporation may profit either directly or in-
directly from the project. The borrower may also be the applicant.
Loans are to be made at an interest rate based upon the averaf'e mar-
ket yield on U.S. obligations with comparable maturity periods, plus
an allowance to cover administrative costs and probable losses under
the program, which has been determined to be 1 percent during the
construction period and one-half percent thereafter.
An applicant is limited to a maximum of 300 units per invitation
within a single region.7
At the time section 202 funds are approved by HUD for a successful
applicant, section 8 funds will be set aside separate from section 8
funds already allocated to the field offices. Participation in the section
8 program is required and approval of the section 202 construction loan
is subject to the feasibility of a proposal under the section 8 program.
Sponsors of section 202 housing will know when to apply for loans
through the publication of invitations in the Federal Register. The
Assistant Secretary for Housing Production and Mortgage Credit,
HUD, will from time to time as funds become available, issue invita-
tions for requests by applicants to receive reservations of section 202
loan authority. The first such advertising occurred on September 16,
1975, and sponsors had until December 15, 1975, to submit applications.

In order to qualify, an applicant must submit a number of data. Six
items, however, are the most important. First, the applicant must pro-
vide evidence of prior housing experience. It must demonstrate its
capacity to carry through to completion a project for housing and re-
2' There are 10 standard Federal regions, with regional offices located in: Region I-
Boston, "Mass.; II-New York, N.Y.; III-Philadelphia, Pa.; IV-Atlanta, Ga.: V-
Chicago, Ill.; VI-Dallas-Fort Worth, Tex..; VII-Kansas City, Mo.; VIII-Denver, Colo.;
IX-San Francisco, Calif.; and X-Seattle, Wash.

lated facilities. In addition, evidence of long-term operation of a proj-
ect, preferably ten years, must be submitted, but information for less
than 10 years is acceptable if the applicant proves such information is
not available for the past 10 years. Second, the applicant must provide
evidence of its financial capability to organize, plan, and complete
the construction or rehabilitation of a project. Third, the applicant
must show the capability to sponsor, develop, own, manage or provide
special services in connection. with housing for the elderly or handi-
capped. It should also include any special capability in serving the
needs of lower income elderly, handicapped, and members of minority
groups. Fourth, it should indicate the state in which the project or
projects would be located and whether it would be in a metropolitan or
nonmetropolitan area. Fifth, it must show by state, the number of units
to be developed. Finally, the applicant must state the amount of section
202 loan funds requested to be reserved. If a project has not started
construction or rehabilitation work within 18 months following the
issuance of the notice of fund reservations, it will be canceled by HUD.
A six month extension, however, can be requested and, if justified, it
will be granted.
Upon HUD's approval of the fund reservation request, the applicant
must contact the appropriate field office to provide it with more de-
tailed information-for example, location within State, type of hous-
ing, utilities-to enable the field office to prepare a special section
202/section 8 Developers' Packet.
After receiving the Developers' Packet, the applicant must submit
a preliminary proposal. This preliminary proposal must provide the
more detailed information requested in the guidelines of the packet.
It is at this stage that the applicant must:
First: Identify the proposed site, including a map showing the loca-
tion, sketch of site plan, dimensions, and zoning.
Second: Show evidence that he has effective control of the site or
property to be rehabilitated.
Third: Describe the project including the number and type of struc-
tures, nvmnber of stories, number of units, special amenities, et cetera.
Fourth: State the rent per unit.
Fifth: Provide a description of the equipment to be included in the
contract rent.
Sixth: Furnish a description of the utilities and services to be in-
cluded in the contract rent, as well as those not included, and an esti-
mate of the average monthly cost to the occupant during the first year
for those items not included.
Seventh: Provide a statement identifying the borrower and devel-
oper and,if known, the builder and architect, including the qualifica-
tions and experience of each; the names of officials and principal
members, and shareholders and investors, if any, and any other parties
having substantial interest, and the previous participation of each of
the preceding individuals in HUD programs.
Eighth: Provide a statement indicating whether the project will
displace site occupants. If so, a feasible plan for relocation should be

Once the preliminary proposal is developed, it must be submitted
to the field office. This office will then review the proposal to deter-
mine that it is complete and eligible for further processing. The
proposal must have included all the information discussed in the
preceding paragraph plus all the other elements required in the
developers' packet. In case a preliminary proposal is found deficient,
the field office will give the applicant a reasonable time to correct it.
After the field office is satisfied that the preliminary proposal is
satisfactory and if it is subject to A-95 '8 clearance, a copy of the
proposal is sent to the appropriate clearinghouse for review. The
clearinghouse is given 34 days from the date of the letter transmitting
the proposal to respond. Ten days after the field office approves the
preliminary proposal. it must submit a copy of it to the chief executive
officer of the local unit of government where the project is to be located.
The chief executive is invited to respond within 30 days from the date
the copy of the proposal is received.
The field office then begins its evaluation of the preliminary pro-
posal. The proposal will be evaluated on the basis of all the infor-
mation requested by the developers' packet including the comments
from the A-95 clearinghouse and the local unit of government. If the
preliminary proposal meets HUDs approval, the applicant will be
notified and requested to submit a final proposal.

Upon the submission of the final proposal, the applicant must sub-
mit a request for section 202 direct loan financing. This is done on
forms prescribed by the HUD field office serving the area in which
the project will be located. The main element that the applicant must
provide is evidence that it has the legal authority to finance, construct.
or rehabilitate and maintain the project. In addition, it must prove
that it meets the requirement as to corporate organization and that it
has the authority to enter into contract obligations and execute secu-
rity instruments as HUD may require.
The HUD field office will review the financing request and the
information requested in the developers" packet. The field office will
then approve or disapprove. If the request is disapproved, the appli-
cant is given time to correct the deficiencies.
Once the request for financing is approved, the applicant must meet
certain requirements prior to the initial disbursement of the loan.
The following are some of the major documents that may have to
be provided to the field office:
First: An agreement to enter into housing assistance payments
Second: A certification of incorporation of the nonprofit borrowers.
or consumer cooperative, as required by applicable State or local law.
Third: A mortgagor's attorney's opinion rewarding the validity and
legality of the mortgagor permit. the legality of the building permit,
and compliance with applicable zoning' laws and requirements.
Fourth: Title evidence that the mortgage constitutes a first lien on
the property, as of the date the mortgage is filed for record.
2S In this case. the elearinghoise is the local homzin authority which reviews the plans
to insturp A-95 eomnlianoe. A-95 is a Federal reouirement that nronosed projects must fall
within the developmental scheme and wil not have an adverse irmpact on the environment.

Fifth: A construction or substantial rehabilitation contract between
the borrower and general contractor.
When these requirements are met, the disbursements of the loan
funds will be made directly to the borrower by HUD. They can be
made, however, through an approved lender, mortgage servicer, title
insurance company, or other agents satisfactory to the borrower and
HUD. Disbursements will be made on a periodic basis not to exceed
HUD-approved portion of work completed and in place, less retainage.
Upon completion of the project, the applicant (borrower) in its final
requisition for loan funds must submit to the field office the following:
First: A borrower's/mortgagor's certificate showing the actual costs
to the mortgagor of the cost plus construction contract, including
builder's fee actually paid and approved by HUD, architectural, legal,
organizational, offsite costs and other items of expenses approved by
the field office.
Second: A verification of the certificate of actual cost of an inde-
pendent certified public accountant or independent public accountant
in a manner acceptable to HUD.
Third: A certification of the general contractor as to actual costs
paid for labor, materials, and subcontract work under the general
As previously stated, HUD was authorized to lend up to $375
million in fiscal year 1976 to sponsors for the construction or substan-
tial rehabilitation of units for the elderly and the handicapped. Spon-
sors may borrow up to 100 percent of the total development costs of
their projects directly from HUD through a long-term 40-year loan.
An invitation to submit applications for these loans was published
in the Federal Register September 28, 1975, with a December 15
closing date. Over 1,500 applications for projects were received, re-
questing the financing of over 230,000 units.

HUD staff has initially screened each application for completeness
and consistency. The most common obstacle at this stage of review
has been the lack of previous participation in developing or manag-
ing housing projects. HUD, however, is permitting nonprofit sponsors
10 days to correct these deficiencies. Letters of acknowledgement have
been sent to all applicants.
In the preliminary screening, HUD sorted out the ineligible appli-
cants such as public housing authorities and cities. This preliminary
screening resulted in tentative allocations. The following tables show
the number of applicants and units requested by States within regions
and HUD's tentative allocation of section 202 projects.29 Final allo-
cations to sponsors will probably be made by mid-April 1976, follow-
ing further evaluations.
0 See p. 207 of the Information bulletin, "Section 202 Loans for Housing for the
Elderly and Handicapped," prepared by Housing Production and Mortgage Credit, U.S.
Department of Housing and Urban Development, January 1976.


Regional and State Applications and Units

No. of No. of30
Applications Units

Region I
Connecticut 19 3,175
Maine 7 1,288
Massachusetts 72 9,403
New Hampshi re s 590
Rhode Island 11 1,441
Vermont 3 102

Total 117 15,999

Region II
New Jersey 82 13,039
New York 168 26,233
Puerto Rico 6 1,394

Total 256 40,666

Region III
Delaware 3 687
Washington, D.C. 9 1,540
Maryland 24 3,843
Pennsylvania 75 12,306
Virginia 26 3,947
West Virginia 9 986

Total 146 23,309

Region IV
Alabama 20 3,250
Florida 63 12,013
Georgia 32 S,073
Kentucky 15 1,640
Mississippi 1i 1,505
North Carolina 23 3,201
South Carolina 6 742
Tennessee 29 52071

Total 199 32,495

30HUD's addition in this colum is incorrect. Even after discussing the
figures with Joe Ventrone, Housing Production and Mortgage Credit, HIJD's additional
total was incorrect. The Subcomittee has taken the liberty of correcting HUD's


No. of No. of
Aplications Units

Region V. 69 11,386
Illinois 21 2,901
Indiana 59 9,851
Michigan 26 2,920
Minnesota 85 15,158
Ohio 30 3,015
290 45,231

Region VI.
Arkansas 10 1,674
Louisiana 26 3,818
New Mexico 13 1,574
Oklahoma 16 2,380
Texas 49 8i793

Total 114 18,239

Region VII
Iowa 12 1,185
Kansas 11 1,104
Missouri 37 6,255
Nebraska 19 1,710

Total .79 10,254

Region VIII
Colorado 19 3,258
Montana 11 1,413
North Dakota 6 871
South Dakota 7 703
Utah 8 782
Wyoming 6 363

Total 57 7,390

Region IX
Arizona 22 2,895
California 161 ZS,748
Hawaii 8 1,485
Nevada 5 650
Guam 1 50
197" 300,88

Region X
Alaska 3 228
Idaho 5 522
Oregon 22 2,098
Washington 42 5,215




Tentative Allocations of Section 202 by HUD Region Compared to Application/Project Cdunt Received by. Total Units-

Estimated Units

Count Received (Estimate)

Total Units

Region I

Region II

Region III

Region IV

Region V

Region VI

Region VII

Region VIII

Region IX

Region X



New York







San Francisco
































- _8,063


The section 202/8 allocations were made in accordance with section
213 of the Housing and Community Development Act of 1974, based
upon a fair-share-needs formula. This fair-share system used calcula-
tions of national percentages of numbers of:
(1) Households with head or spouse age 62 or older
(2) Such households which,lacked one or more plumbing facilities;
(3) Such households with incomes less than the regionally adjusted
poverty level; and
(4) Adjustment by average cost factors within a loan region for
production of prototype costs for public housing units.31

After the initial screening and all deficiencies have been corrected
by the applicants, a HUD Central Office evaluation committee, com-
posed of representatives of Housing Production and Mortgage Credit
Housing Management, and the Office of General Counsel, will review
the applications. Each private nonprofit applicant will be evaluated
in terms of his/her capacity and experience to construct and manage
elderly and handicapped projects. Specifically the evaluation commit-
tee will consider the following:
First: The applicants' capacity and ability to carry through to com-
pletion and to successful long-term operation a project for housing
and related facilities.
Second: The overall financial capacity, including the financial his-
tory and stability of the applicant group.
Third: Evidence of sufficient working capital.
Fourth: Evidence of management capability and expertise.
Fifth: Special capabilities to provide services to the elderly and
Sixth: Previous participation, experience, and qualifications of the
The evaluation committee's recommendations will be forwarded to
the official select committee for committee final determination
The official selection committee should convene at a meeting with
the secretary sometime near the end of February 1976. The committee
will take approximately a week to analyze the evaluations committee
recommendations and to make the final selection. The selection corn-
mittee will be comprised of three regional administrators; the Office
of Equal Opportunity; the deputy assistant secretary for manage-
ment; director, Office of Policy and Program Analysis; assistant to
the secretary for Problems of the Elderly and Handicapped, Office of
the General Counsel, and the assistant to the assistant secretary for
Housing Production and Mortgage Credit.33
31 See "Section 202 for Loans for Housing for the Elderly and Handicapped," supra at 4.
32 See "Section 202 for Loans for Housing for the Elderly and Handicapped," supra at at-
tachment C.
33 See p. 2 of the Ad Hoc's Coalition for Housing for the Elderly, "Summary of Jan. 5,
1976, Meeting," Jan. 14, 1976.


HUD anticipates that fund reservation approvals will be announced
on or about April 15, 1976. HUD will retain on file a reserve group of
the most highly ranked 100 applications which did not receive initial
fund reservation for future consideration in case selected applicants
fail to reach section 8 processing approval stage in the field office or
subsequent future loan authority is made available.
Presently, the section 202 program is at the startup stages. How-
ever, it can easily be projected that the $375 million will only fund
11,000 to 14,000 units.
Since the program has just been initiated, it is impossible to evalu-
ate its response in meeting the housing needs of the elderly. At this
stage, however, a number of observations can be made and by draw-
ing upon them, recommendations for improvement of the program
can be proposed.
Originally HUD did not follow the congressional mandate of pro-
viding long-term financing to nonprofit sponsors. In addition, it took
a year to issue guidelines and implementing regulations. This resulted
in long delays in implementing a much needed housing program. It
has taken a year and 10 months to select eligible sponsors. This, of
course, is just the first stage of the program. It will now take any-
where from 2 to 3 years before any units are made available to the
Second, the mechanism that a nonprofit sponsor (applicant) must
follow to obtain fund reservations is too complicated and extremely
bureaucratic. The applicant must go through five stages before receiv-
ing any funds. The first stage is the submission of an application to be
used to approve reservations. After approval of the fund reservation,
the sponsor develops a preliminary proposal, followed by a final pro-
posal, followed by a written request for direct loan financing and
finally, followed with the provision of documents before disbursements
of funds.
Third, the selection criteria calling for longevity, accumulated con-
struction and management experience, plus a strong financial capacity,
tends to discriminate against developers who at the present time may
have the expertise and resources to develop section 202 housing but do
not have a proven track record. This, of course, discriminates against
minority sponsors who have not had the opportunity to accumulate
the experience HUD is requiring.
Fourth, the allocation for fiscal year 1976 does not begin to meet
the need or demand. The elderly population continues to grow at a
faster rate than the general population. In 1970, 1 in every 10 persons
was over 65-approximately 20.1 million elderly people. At this rate,
in 30 years there will be 30 million elderly persons in this country,
out of a population of 310 million34 Therefore, more housing units
for the elderly are needed and the need will continue to grow. The
White House Conference in 1971 qualified this need by calling for
120,000 new units a year. This goal has never been reached nor even
"The On-Site Housing Managers Resources Book-Housing for the Elderly," supra
at 2-1.


HUD received 1,500 applications in a 3-month period ending De-
cember 15, 1975, requesting financing for 230,000 units. The total cost
for these units is well over $6 billion.
The $375 million allocated for fiscal year 1976 will only allow 80 to
100 of the 1,500 applications to be funded. They will in turn only
develop 11,000 to 14,000 units. There is, however, an additional com-
plication. The Cooperative Services, Incorporated (CSI) of Michi-
gan in 1974 filed a lawsuit that challenged the fiscal year 1975 im-
poundment of the funds. The Federal District Court for the District
of Columbia ruled on January 16, 1976, that the impoundment was
unlawful and ordered that the withheld section 202 funds be made
available to CSI. The funds subject to the Court order total $115 mil-
lion and are part of $375 million in the fiscal year 1976 appropria-
tions bill. HUD has appealed the decision; thus the matter will be in
abeyance for a few months. If the decision is not reversed, the ques-
tion of where the funds will come from remains. They could pos-
sibly have to be taken from the fiscal year 1976 $375 million. It is
clear that section 202 funding is extremely inadequate and will not
meet the housing needs of the elderly.
In order to improve the section 202 program and HUD's response
to the needs of older Americans:
First. Congress should stipulate that a Federal agency must de-
velop and publish guidelines and implementing regulations within 90
days after the passage of a public law.
Second. HUD should streamline the section 202 funding applica-
tion process.
This would speed the processing of applications, and would provide
a more equitable method for screening and evaluating applications.
The initial application could be combined with the preliminary pro-
posal, i.e., instead of submitting an application to obtain reserva-
tion approval, the preliminary proposal should be required as the
application. This action would not only reduce the time element
involved, but would provide HUD with more data to realistically
evaluate the applicant.
Third. The interest rates for the long-term section 202 loan should
be lowered.
This could be done by providing for an interest rate based upon
the average interest rate of all Treasury obligations, or by determin-
ing a guaranteed fixed percentage.
Fourth. Finally, and most importantly, Congress needs to provide
more funds for section 202.
The fiscal year 1977 appropriations for section 202 should be sub-
stantially, increased over prior allocations. In addition, Congress
should pass a new authorization for section 202 to increase the aggre-
gate level up to $2.5 billion in fiscal year 1977 and the years there-

DON BONKER (3d Dist., Wash.)
The subcommittee's report, "Elderly Housing Overview: HUD's
Inaction," is timely and its recommendations deserve serious attention.
What I find so disheartening is~that we see evidence of urgent and
desperate need of housing for our senior citizens, yet bureaucratic
delays and inefficiency prevent this program from helping those in
For example, in my district, the city of Longview is an old farming
town which is becoming a suburb. Today it has a dearth of decent
housing available to the elderly. Let me quote from one letter I
One particular segment of the public in Cowlitz County
that is suffering from a lack of decent housing are the low-
income elderly. There are a significant number of citizens
residing in and around LongView, who retired from the wood
products industry prior to the era of substantial union pen-
sions. These folks rely primarily on social security for their
subsistence and are unfortunately relegated into the category
of the low-income elderly.
A desperate need exists for housing for the low-income
elderly presently located in and around the Longview area. I
have attended meetings of local builders and developers who
have repeatedly stated that they could not afford to build
housing for the geriatric category and, in fact, encouraged
any nonprofit agency capable of obtaining financing to build
such facilities, which would not present any competition to
them for the more affluent tenants.
Also in my district, Mason County has 25.6 percent of its housing
in substandard condition. Another constituent explains:
"Together with the economic problems of matching fixed incomes
to rapidly rising housing costs, our elderly persons are facing an acute
shortage of safe and sanitary housing facilities."
Our senior citizens need and deserve decent housing, and they should
not be forced to wait out bureaucratic delays in substandard housing
which can only contribute to their discomfort and disillusionment. We
have an obligation to do everything in our power as a committee to
expedite the housing programs and see that Congress' will is not
Congress made its commitment to senior citizens, and appropriated
funds for creation of better housing. This report documents HUD's
delay in implementing the will of Congress and that raises serious
questions about the administration's concern for senior citizens. Con-
gress' intent is unequivocal, and we hope that HUD will not delay
awarding grants so that construction of section 202 projects will begin.