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CHAPTER 5. COMMUNITY DEVELOPMENT

5-1. SCOPE OF INSTRUCTIONS. These instructions define

underwriting functions and responsibilities in connection

with the planning and execution of urban renewal projects

promulgated by Local Public Agencies where the use of

mortgage insurance is contemplated.

5-2. ELIGIBILITY FOR MORTGAGE INSURANCE. Section 220 is

specifically designed for use in urban renewal areas and

Section 117 concentrated code enforcement areas. However,

financing under other applicable Sections of the Act is also

available and may be more suitable for attaining the

objectives of the Urban Renewal Plan. The Field Office will

base its conclusions as to eligibility, values, and other

underwriting considerations on the assumption that the Urban

Renewal Plan will be successfully executed and its

objectives will be attained.

5-3. STATUS OF URBAN RENEWAL PROJECTS. Mortgage insurance under

Section 220 is designed for use in urban renewal areas that

may involve either Assisted or Non-Assisted type projects.

Federally-assisted urban renewal projects entail a Federal

capital grant and may involve condemnation of properties,

demolition of slum structures, redevelopment of land with

new construction, rehabilitation of existing structures, or

any combination thereof. Non-Assisted urban renewal

projects are those in which no Federal grants are requested.

Public improvements to be made are financed entirely with

local funds. These projects generally will depend on

preservation and stabilization of the neighborhood through

rehabilitation and conservation of existing structures,

supported, as in Assisted projects, by effective programs of

zoning, code enforcement, and neighborhood improvement. In

either type project, the DO/CU must develop the underwriting

program and requirements needed to stabilize value and make

possible the use of mortgage insurance, if such use appears

feasible.

5-4. COLLABORATION WITH COMMUNITY DEVELOPMENT AND LPA. The

problems inherent in urban renewal are so complex and far-reaching

in their significance that only close collaboration

by the Field Office, the LPA, and Area/Regional Office

Community Development Representatives can assure successful

operation. The DO/CU must participate as early as possible

in identifying these problems and establishing the basis for

mortgage insurance. The essential underwriting

determinations should be worked out so there will be no

misinterpreta-

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tation of the Field Office position. The DO/CU should

strive for complete understanding without compromising his

best judgment but bearing in mind the objectives of the

urban renewal program and Department policy.

5-5. WORKABLE PROGRAM FOR COMMUNITY IMPROVEMENT. Contracts for

Federal assistance for new projects cannot be entered into

nor the special insurance aids under Section 220 be made

available for urban renewal areas unless the locality has

secured certification of a Workable Program by the

Secretary. This program provides for appropriate private

and public resources to eliminate and prevent the

development or spread of slums and urban blight, to

encourage needed urban rehabilitation, and to provide

redevelopment of blighted, deteriorated, or slum areas.

The Area Office has primary responsibility for processing

workable program applications. The Insuring Office will

participate in this processing only when requested to

furnish assistance.

5-6. THE URBAN RENEWAL PLAN. Before mortgage insurance benefits

under Section 220 can be made available in an urban renewal

area, the governing body of the locality must approve an

Urban Renewal Plan for a specific area. This plan is

submitted by the locality to the Area Office Director for

approval. If approved, the Director will advise that

applications for mortgage insurance under Section 220 may be

accepted for processing. There are many important

differences between an Urban Renewal Plan and a Workable

Program, including the fact that the former pertains to a

specific delineated neighborhood, whereas a Workable Program

applies to the entire community. \"Urban Renewal Plan\" means

a plan for an urban renewal project; which plan:

a\. Conforms to the general plan for the locality as a

whole and to the Workable Program and is consistent

with definite local objectives respecting appropriate

land uses, improved traffic, public transportation,

public utilities, recreational and community

facilities, and other public improvements; and

b\. Is sufficiently complete to indicate such land

acquisition, demolition and removal of structures,

redevelopment, improvements, and rehabilitation as may

be proposed to be carried out in the urban renewal

area, zoning and planning changes, if any, land uses,

maximum densities, and building requirements.

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5-7. URBAN RENEWAL PROJECT. \"Urban Renewal Project\" may include

undertakings and activities of a LPA in an urban renewal

area to eliminate slums and blight or prevent their

development or spread, and may involve slum clearance and

redevelopment, rehabilitation or conservation, or any

combination thereof, in accordance with the urban renewal

plan. Such undertakings and activities may include:

a\. Acquisition of a slum area, a deteriorated or

deteriorating area, or land which is predominantly open

and which, because of obsolete platting, diversity of

ownership, deterioration of structures or site

improvements, substantially impairs or arrests the

sound growth of the community, or open land necessary

for sound community growth which is to be developed for

predominantly residential uses; provided, that the

requirement that the area be a slum or a blighted,

deteriorated, or deteriorating area, shall not be

applicable in the case of an open land project.

b\. Demolition and removal of buildings and improvements.

c\. Installation, construction, or reconstruction of

streets, utilities, parks, playgrounds and other

improvements necessary for carrying out in the urban

renewal area the objectives of Title I of the Housing

Act of 1949 in accordance with the Urban Renewal Plan.

d\. Disposition of any property acquired in the urban

renewal area (including sale, leasing or retention by

the LPA itself) at its fair value for uses in

accordance with the Urban Renewal Plan, or for low rent

public housing or housing for moderate income families.

e\. Carrying out plans for a program of voluntary repair

and rehabilitation of buildings or other improvements

in accordance with the Urban Renewal Plan.

f\. Acquisition of any other real property in the urban

renewal area where necessary to eliminate unhealthful,

unsanitary, or unsafe conditions, lessen density,

eliminate obsolescence or uses detrimental to the

public welfare, or otherwise to remove blight or

prevent the spread of blight or deterioration, or to

provide land for needed public facilities.

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g . Acquisition, and repair or rehabilitation for

demonstration purposes and resale by the LPA, of a

limited number of structures which are located in the

urban renewal area and which, under the Urban Renewal

Plan, are to be repaired or rehabilitated for dwelling

use or related facilities.

5-8. OBJECTIVES IN URBAN RENEWAL PLANNING. Where mortgage

insurance is contemplated, the Field Office is vitally

interested in the specific Urban Renewal Plan because of the

important effect such plan may have upon underwriting

judgments. For this reason, the DO/CU and such technical

staff as he may designate are expected to participate in

discussions with the LPA. However, it will be the

community\'s responsibility to initiate urban renewal

proposals, and to establish the general character and extent

of the proposed renewal operation. It is the responsibility

of the Area Office to initiate consultations with the

Insuring Office when and if necessary.

a\. The objective of the consultation during the

preparation of an Urban Renewal Plan is the creation of

a neighborhood containing decent, safe, and sanitary

dwellings with stability of values which can be

expected to endure through the life of the proposed

insured mortgages. The processing of individual

applications will be carried out within the perspective

of this objective. Accomplishment of this objective

will be dependent on the elimination of the present

blighting influences, the ultimate existence of

suitable community facilities and services properly

adapted to the character of the neighborhood, adequate

protection of the neighborhood from adverse influences,

and elimination of specific nonconforming uses which

may have a deleterious effect on individual property

values.

b\. The Field Office\'s advice during all stages of

development and execution of the Urban Renewal Plan

should be confined to factors directly relating to the

economic and financial feasibility of residential

redevelopment and to mortgage insurance. In giving its

advice, the Field Office should be aware of the primary

responsibility of the city for establishing its

redevelopment objectives and of the dignity and

importance attached to an Urban Renewal Plan as an

official expression of local will. Once adopted, an

Urban Renewal Plan has the full force of law.

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c\. In one way, the analysis of urban renewal plans and

projects by the Field Office may be compared to the

analysis of new subdivision proposals. In both

instances, the staff must project its thinking into the

future and must visualize areas as they will appear at

this future time when certain mandatory requirements

have been fulfilled. To accomplish substantial

upgrading of a neighborhood, the Urban Renewal Plan

must go deep enough to affect the attitudes of the

people toward their neighborhood and to give them

greatly increased pride in their homes or other type

living units.

5-9. UNDERWRITING CONSIDERATIONS IN URBAN RENEWAL AREAS. Poorly

maintained structures lacking adequate sanitary facilities

ordinarily characterize blighted areas; the degree of blight

being in direct proportion to the number of dwellings

exhibiting these conditions. Over-occupancy of structures

in relation to the sanitary and cooking facilities available

creates a situation which releases a chain of related

reactions that combine to condemn the neighborhood to a

pattern which will inevitably result in a slum area.

Related conditions ordinarily found characterizing blighted

neighborhoods are the mixed uses of structures and land;

that is, mixed residential and non-residential uses;

inadequate city services, such as garbage and trash removal

facilities; deficiencies in recreational and community

facilities; and congested, unsafe, unlighted, or otherwise

deficient streets and alleys. Many of the above blighting,

value-destroying influences are, by their nature,

deficiencies which can only be eliminated or corrected

through public action. Their elimination is essential to

the recreation of a neighborhood if values are to be

sustained or restored.

a\. It is a responsibility of the Field Office to give

constructive advice to which the locality should give

consideration. Merely cataloguing the deficiencies is

not enough, and positive suggestions to remedy the

situation should be made.

b\. It is evident that blighted areas cannot be restored

unless the causes of blight are identified and offset

or eliminated through the provisions of an Urban

Renewal Plan. The problems in blighted areas are much

more extensive and acute than in neighborhoods eligible

under a regular program such as Section 203(b). In the

latter, deficiencies in individual properties submitted

as security for insured loans can generally be

corrected through requirements normally placed on

individual commitments; and, thus, this aspect of the

problem is largely within HUD\'s control. However, in

urban

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renewal areas, it should be evident that simply taking

care of the physical needs of the individual properties

would be a superficial approach and a wasted effort if

not preceded by the steps previously outlined to

remove, or reduce to an acceptable degree, the

underlying causes of blight which affect all the

properties in the area.

c\. Those elements which create and sustain real estate

values must outnumber and outweigh those elements which

destroy values. In other words, it is the recognition

of the presence and extent of these opposing elements

which must be analyzed in making a determination as to

the degree of mortgage risk. The ability to isolate

and identify the value-destroying influences in a given

neighborhood, and to present them clearly to the LPA,

should bring about a mutual understanding of problems

common to the local agency and the Field Office.

d\. The improvement of housing standards and conditions is

an objective of the National Housing Act. Improvement

of housing standards and conditions is a relative

matter. The degree to which it can be accomplished in

the case of existing properties and neighborhoods

varies widely, depending upon the level of quality of

existing housing supply in different localities.

Bringing an unacceptable neighborhood to an acceptable

status, through elimination of causes creating the

unacceptable conditions, definitely improves housing

standards and conditions in that neighborhood. The

status to which it is brought may be barely acceptable,

but it represents positive improvement over former

conditions and thus meets the above-mentioned objective

of the Act. Fair neighborhoods can be brought to the

status of good neighborhood, again resulting in

improved housing standards and conditions.

5-10. REHABILITATION STANDARDS. Reference 11 of the Foreword

serves as a guide for the development of specific standards

for the Urban Renewal Plan. When the Urban Renewal Plan has

been adopted, the standards therein become HUD-FHA standards

for rehabilitation within the urban renewal area.

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a\. Improvement in housing standards and conditions is

measured by relating the condition that will exist

after causes of blight and deterioration have been

removed to currently existing conditions in the

neighborhood. Improvement is not measured by

comparison of the rehabilitated neighborhood with

superior neighborhoods. Broadly speaking, when HUD is

successful in achieving conditions which reduce the

mortgage risk in a given area to a degree which makes

it acceptable for mortgage insurance, HUD has, for

practical purposes, met the purpose and intent of

Reference 11 of the Foreword.

b\. The needs and desires of the market must be given full

consideration in determining whether or not the

objectives of the rehabilitation standards have been

achieved. It is of the utmost importance that-this

approach and interpretation be fully understood and

adopted in all offices, and that the public be made

aware of HUD\'s attitude in this regard.

5-11. DEVELOPMFNT OF URBAN RENEWAL PLANS. The DO/CU is

responsible for carrying out the requirements for

coordination with the LPA. Authority to coordinate the

conclusions of the underwriting staff and to make decisions

should be delegated when possible to one person. This

person may be any available member of the staff capable of

dealing with the problems peculiar to urban renewal.

5-12. CONCURRENCE IN LAND PRICE. Instructions require that

agreement be reached between the Field Office and the LPA

concerning the minimum price of land to be sold in urban

renewal areas for private residential development. Every

effort should be made to reconcile any differences at the

local level before the LPA requests concurrence by the HUD

Area Office in the proposed price. In order to provide a

degree of flexibility and to expedite agreement, the DO/CU

is authorized to increase by up to 5% the estimated land

value as determined by the Valuation Section. The increase

must be appropriate based on review of market data, and it

must be given to assist the LPA in arriving at an acceptable

land disposition price for recommendation to HUD.

5-13. FEASIBILITY OF REHABILITATION. If the Urban Renewal

Plan includes rehabilitation of residential properties, the

Field Office will be requested at the completion of the

planning stage to furnish its conclusions as to the

feasibility of rehabilitation. Also, opinions as to the

market demand for rehabilitated residential properties and

the adequacy of the Rehabilitation Standards established by

the LPA should be determined.

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5-14. PROCESSING OF TYPICAL PROPERTIES. Typical properties

intended for rehabilitation under the Urban Renewal Plan

will be selected to test the feasibility of rehabilitation.

The properties selected must be mutually agreed on by HUD-FHA

and the LPA. Since they will serve as prototypes for

the area, proper selection and analysis will have a

predominant bearing on the tests for feasibility. They

should represent the main structural classes and use and

occupancy patterns. The condition of the properties should

represent typical deterioration rather than extremes.

a\. Selection of the most suitable financing program is a

key element in the feasibility determination. Where

the objective of urban renewal is to provide housing

for the present occupants of the area or other low and

moderate income families, one of the HUD-FHA financing

programs involving interest or rent subsidies should be

chosen for the feasibility test.

b\. The \"ability to pay\" is the key element of feasibility.

In single units to be rehabilitated, the test is the

ability of occupant mortgagors to pay the housing

expense under the available financing programs. In

rental properties, the test is the ability of the

property to generate net income sufficient to support

the maximum HUD-FHA mortgage based on total cost.

Feasibility will be determined on each selected

property or group of properties in the same manner as

if a sponsor had submitted the proposal to rehabilitate

up to the Rehabilitation Standards established by the

LPA. The cost of rehabilitation must be estimated by

the Field Office.

c\. If the typical properties contain a small number of

units, it will probably be necessary to group the

individual properties in order to create economically

feasible projects for the feasibility tests.

d\. The economics of rehabilitation will be compared to the

alternative of demolition and redevelopment if it is

evident that the cost of rehabilitation per unit is

approaching that of new construction. Rehabilitation

will not be considered infeasible solely on the basis

of comparison of costs with new construction unless the

Urban Renewal Plan can provide suitable relocation

housing for the present tenants. Borderline situations

involving the economics of redevelopment vs.

rehabilitation should be referred to the Regional

Administrator.

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(5-14) e. When it is concluded that rehabilitation is

feasible only with financing involving interest or rent

subsidies, this fact should be noted and the

availability of financing conditioned on the

availability of funds for such purpose.

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