Evening star., 1954-04-19
FILA Finds No Defenders;
Veil of Secrecy Spurs Probes

DulIUCTS.
One builder might go broke
on the same kind of a job on
which a more efficient competi-
tor could well make a handsome
profit.
Was FILA to figure costs on
the basis of the typical builders
experience. or only on that of
the most efficient, biggest builder
who had access to mass-pur-
chase prices and other economies
available to the big operator?
Few Know Details.
Whoever is to blame, aside
from any collusion or fraud
which may turn up. the rental
housing program did provide a
bonanza both to builders and
lenders. In spite of considerable
discussion of big profits on rental
housing, and of abuses in the
home repair program, few per-
sons know in detail how the
profits were made or just what
the home-repair abuses con-
SiSt of.
Here is one hypothetical
example of how the law and
FHA rules allowed big profits to
be made legally by an efficient
builder. The simplified example
was given by a Government
housing official not connected
with FILA. 1t follows:
Lets suppose an established
construction firm decides to go
ahead with one Of these projects.
The owners of the construction
firm set up a separate corpora
ton that will own the building.
This owning corporation en-
ployes an architect to prepare
plans and specifications.
''Plans are taken to FILA for
an informal opinion. After
study FILA gives informal. pre-
liminary approval.
plans are then taken to a
lender. This lender agrees to
finance the job for 81 million
if FILA agrees to insure 80 per
cent Of the loan against loss.
The lender applies to FILA for
loan insurance.
"At this point FILA examines
the plans and specifications, goes
over them thoroughly, finds them
satisfactory. estimates construc-
tion costs at 100000 and agrees
to insure a loan for 80 per cent
of 81 million, the land being
valued at 100000 for loan pur-
poses.
"The officers of the owning
corporation then enter into a
contract with themselves as
owners Of the construction firm
to build the project for 5000, 1000.
Being efficient, and fortunate,
they build the job for 100000.
thus making 100000 in profit.
Besides this, they get a
builders fee of S per cent, or
$45,000.
I'm addition, they make 4 per
cent clear on the architects fee
by employing an architect for
per cent instead of for the 5
per cent allowed. This profit
amounts to $4,000.
Besides. they finish the job
within a year and aren't obliged
to. begin paying interest or prin-
cipal on the loan until 18 months
have expired. This allows them
to collect rents and make a
profit of we'll say $4,000 above
the costs of operation.
Adding it all up, the con-
Struction firms owners have
made gross profit of $311 900.
and also have ownership of the
property.
Since the raw land they
owned actually was worth $25,-
900. their net profit on the oper-
alton would be $311, 900 less the
$25, 900 for the land-or $286, 900.
Increases Equity in Property.
I'm addition, FILA has valued
the land at its developer value.
which turns out to be $4,000
more than it was worth as raw
land. This $4,000 additional
profit does not go to the owners
in cash, but increases their equity
in the property"
The official said this example
offered undoubtedly an extreme
hypothetical case. He empha-
sized, also, that the steps out
lined were oversimplified. He
said that to his knowledge many
builders made much smaller
profits or none at all.
Some people, in fact, lost
their Shirts" he said.
AS for abuses in the home
repair field. they have taken
many forms, housing officials said
last night.
Better Business Bureaus, news
papers, magazines and law en-
forcement officials have called
attention to many types.
One type of racket in this
field has been operated by high
pressure statesmen sometimes re-
ferred to as "dynamiters."
Teams of such individuals
working in different parts of the