Fha Investigation
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84TH CONGRESS { EPORT st Session SENATE No. FHA INVESTIGATION REPORT OF THE SENATE COMMITTEE ON BANKING AND CURRENCY EIGHTY-FOURTH CONGRESS FIRST SESSION PURSUANT TO S. Res. 229 JANUARY 6, 1955.-Ordered to be printed with an illustration UNITED STATES GOVERNMENT PRINTING OFFICE 56167 WASHINGTON : 1955 COMMITTEE ON BANKING AND CURRENCY HOMER E. CAPEHART, Indiana, Chairman JOHN W. BRICKER, Ohio J. WILLIAM FULBRIGHT, Arkansas IRVING M. IVES, New York A. WILLIS ROBERTSON; Virginia WALLACE F. BENNETT, Utah JOHN SPARKMAN, Alabama PRESCOTT BUSH, Connecticut J. ALLEN FREAR, Ja., Delaware J. GLENN BEALL, Maryland PAUL H. DOUGLAS, Illinois FREDI)ERICK G. PAYNE, Maine hIiERBERT H. LEHMAN, New York BARRY GOLDWATER, Arizona JOHN R. HANCOCK, Chief Clerk RAY S. DONALDSON, Staff Director A. LEE PARSONS, Assistant Clerk DONALD L. ROOERS, Staff Assistant FHA INVESTIGATION UNDER SENATE RESOLUTION 229 WILLIAM SIMON,"7'cneral Counsel 11 CONTENTS Page Index of names of individuals and projects------.---------131 Part I. Introduction and summary--------------------------------- 1 Part II. Statute: The National Housing Act ------------------------ 8 History of- Setion 08----------------------------------------------- 8 Section 603----------------------------------------------- 9 Section 203 -----------------------------------------.. 10 Section 207 ---------------------------------------------- 11 Sctoo2l3--_-. ............12 Section 803 -------------------------------- ----------- 13 Section 903 ....----------......- .. ----------------.. 13 Title I -------------------------------------------------- 14 Slum clearance---- ------------------_ 15 Part III. Resp)ofisi)llities under the hlouiig program - - 16 Section A. Coigressiorial responsibility ------10 Section B. Administrative responsibility of FIIA --------------- 18 Integrity of FHA personnel- -------------------------------- 18 FHA nonfeasance-- --------- -- ----------- 26 FHA de ve d Congress ...................-----------------................. ---------- ---- 29 Section C. Industry responsibility. ---------------------- 31, Building indlustryo)pos ivestlation -------------------- 31 Congress was mnisledby tli industry -------- 33 Part IV; The fraiidsahiid'FIIA maladministration ------------------- 35 Section A. Applications iori4FHA commitment -------.--- 35 Section1B. Appraisals by FHAA -------- --...-- --- 38 Section C. FHA!sales and promotion --------------------- 39 Section D.l* easehld'o'inrtga-ges -------------------.-- 40 Sectin. Cooeratie program- --------------------------- 41 Section F. r he $5 mrlonIec ilig- --------..--- ----------.. 43 Section'(:. Hotels under section 608 ----------------------44 Section H. Disregard of wage-rate requirements ------------------ 45 Part V. Ecohnorhic'ihiact 6ontenani-ts------------------------------ 47 Rental increases on windfall projects'(public hearings only), table- 48 Project moirtg'ais' with insurance in force tinder section 608, chart-. 51 Part VI. The h6omT repair improvement program --------------- 52 Property improvement loans insured under title I, by years 1934- 53, chart ----------------------------- 60 Part VII. General finil'digs from the inquiry ------------------------ 61 Section'A,. Incime-tax implications in FHA frauds ---------------- 61 Glie'iOaks Village- ..----------------------..62 W\illiaml;.J. and Alfred S. Levitt; Levittown ------------------- 62 Shelbv Construction Co. and Warner-Kanter Cos ------------ 63 Saul ilberman-------------64 Morris Cafritz ------------------------------------------- 65 Section B. Distribution by time and area of section 608 mortgages- 66 Summary of committee's investigation of section 608 projects- 66 Time distribution of windfalls ------- ------------ 67 Mortgage defaults ------------------------ 68 III IV CON'ENTS Page Part VII. General fidigfis from the inquiry--Continued Section B. Distribution by time and area of section 608 mort- gages-Continued Project mortgages insured under section 608, by States: Percentage distribution based on dwelling units, chart------ 70 Percentage distribution based on amount of mortgage, chart- 71 Number and amount of loans insured, premiums received, and mortgages foreclosed, chart 72 Dollar amount-..--------------------......................of mortgage distributed by years, table- 73 Summary of section 608 projects investigated on which data were available, table-------------------------------------- 75 Summary of section 608 projects investigated on which total mortgage exceeded total costs, table----------------------- 77 Disposition of section 608' projects in default, table------------ 79 Section C. The military housing program------------------------- 81 Section D. Lawyers appearing before the committee--------------- 81 Section E. The conduct of the inquiiry rules of procedure----------- 86 Part VIII. Specific cases illustrative'of this inquiry ------------------- 88 Section A. Ian Woodner properties ---------------------------- 88 Section B. Shirley-Diike Apartments-.--------------------------- 91 Section C. Parkchcster-Kapelow --- ---------------------- 92 Sectioi D. Farragut Gardens-Kavy-Hirsch--------------------- 93 Secti6onE. Page Manor-Muss, Winston, e.t al-------------------- 94 Section F. Linwobd Park-Sidney Sarner------------------------ 96 Seco1G. Charles Glueok--Mid-City Investment Co-------------- 97 Section' H. Investors DIlve iified Services ------------------------- 98 Section' I. Dr. Dapil G ison --------------------------------- 99 SectiontJ. StoneRliver?'t.'mes-Edward A. Carmack-------------- 99 Seti6nK. Samuiel Rodan---------------------------------- 100 Section . Alley Park Homes ----------------------------100 Section M. Ldewis Gardens-Frankhin Trice ------------------- 100 Section N. Arlington Towers-Walter P. McFarland -------------- 101 Section O. Mainhattantown project-New York . 101 Summary.of money received by interested principals for services rendered: to maintain, demolish existing property,. and erect ManhaRlAantown, Inc., table ......--------------------------- 104 Part IX. Con-clusions and recommendations-------------------------- 107 Part X. Tabulations---------------------------------------------- 108 Section 608 and 803 projects ........--------------------------- 108 Appendix: Overall statistics of FHA housing program, 1934 to June 30, 1954--- 127 FBI investigation report on Clyde L. Powell 127 84TH CONGIE8S ) SENATE ( REPORT 1st Session f No. 1 REPORT OF FHA INVESTIGATION JANUARY 6, 1955.-Ordered to be printed with an illustration Mr. CAPEHART, from the Committee on Banking and Currency, submitted the following REPORT PART I. INTRODUCTION AND SUMMARY STATEMENT To stimulate the national economy, the Congress in 1934 passed the National Housing Act, giving Govermnent financing assistanceito residential construction and home repair programs. Subsequently, Congress amended the act to encourage the construction of badly needed rental housing units. But a few greedy, and sometimes dishonest, builders and repairmen-and incompetent, lax, and some- times dishonest FHA officials, used the act as a vehicle to enable a few to reap fortunes at the expense of the American people. This investigation originated :in 'the action taken by the President of the United States on April 12, 1954, when he directed the Admin- istrator of the Housing and Home Finance Agency to take into custody the records of the Federal Housing Administration. This action by the President resulted from a report by the Commissioner of Internal Revenue,- T. Coleman Andrews, :showing large windfall profits in 1,149 rental housing projects disclosed by the income-tax returns of the corporations sponsoring those projects and by a report of the Federal Bureau of Investigation which we understand disclosed widespread frauds and irregularities under the title I home repair and improvement program; There was then pending before this committee the bill which subsequently became the Housing Act of 1954. Preliminary hearings on the charges inherent in the President's announcement were held by this committee April 19-29, 1954, in connection with the pending legislation, as a result of which the committee added safeguards to the law to prevent the'-then known abuses. The magnitude of the irregularities involved made necessary a more comprehensive'investigation of FHA. This committee unanimously approved, and the Senate unanimously adopted, Senate Resolution 229 providing funds for this committee's investigation of the ad- 2 2FHA INVESTIGATION ministration of the National Housing Act by the Federal Housing Admiiiistratidn.. ' . , . Forty-thiree days of public hearings in this incjuiry wereheold :duing the period from June 28, 1954, through' October'8, 1954, in Washing- ton, New York, Los Angeles, New Orleans, Chicago, Indianapolis, and Detroit. The committee heard 372 witnesses mi public hearings and recorded 7,754 pages of testimony. All witnesses appearing before the committee' at public hearings other than public witnesses had previously testified din executive session. The testimony of the 671 witnesses who appeared in executive session ran to 18,044 type- written pages. From these executive hearings a determination was made of the witnesses to be heard in public. The committee 'heard pDublic testimony'with respe'ct''to 543 (7,7 percent) of the 7,045 projects insured under section 608 of the Na- tional Housing Act. The total FHA insured mortgages on these 543 projects were $738.5 million. The statute provided for FHA insured mortgages not in excess of 90 percent