I think it is important to-in taking a look at this pending workload-to see how it is distributed throughout the country. I don't want to bore you with statistics of the 1,282 cases but 392 of them are in 14 cities which have 10 or more cases in each city.

For instance, Detroit leads the list. We have 80 pending investigations, we and the FBI, in Detroit. New York is second. There are 53 pending investigative matters in New York.

Philadelphia has 48. You go down this list of 14: Boston is at the bottom, with 10 in Boston. This leaves a balance of 890 other cases. These 890 other pending investigative matters spread throughout several hundred cities, none of which has more than nine in any one city.

Mr. STILL. Is there a correlation between the cities that the Secretary listed as having the most severe problems with foreclosures?

Mr. HAYNES. Yes, they are related, not an exact correlation, but up at the top of the list is Detroit. New York, Philadelphia. Chicago appears seventh on the list. These are among the cities that we have most concern about.

Now, you asked the question: what kind of cases are these? What kind of violations? We don't have a breakdown of the pending cases by violations. Our statistics don't show this as to pending cases. We would have to look at each one. However, I have a breakdown on cases opened in the recent fiscal years, and I think the pending matters are pretty closely related to those.

In 1969, we opened 1.237 cases. This is both our own and the ones we referred to the Justice Department.

In 1970, 1,218; and in 1971, 1,567; and in the first 9 months of 1972, 1,519.

Now, these involve a variety of possible violations, the most frequent being the category of false statements or false certifications. In 1971, almost half of the cases that we opened involved false statements of one kind or another. I think it is interesting to note that the FHA title I cases have shown a steady decline.

In 1969, for instance, there were 563 cases opened in the title I program. In 1971, this had dropped to 293. This reflects less use of the title I programs by homeowners.

The other cases have stayed fairly constant and they include such things as administrative matters. These would be violations of the agency standards of conduct regulations which are not criminal in nature. They also include possible wage violations-the construction workers not being paid the proper wage levels-personnel matters that we investigate from time to time, theft of Government property, et cetera. Other investigative matters are spread over a variety of lesser kinds.

Mr. STILL. Wage violations. Do you have a breakdown of that?
Mr. HAYNES. Yes, I do.

Mr. STILL. These are Davis Bacon prevailing wage cases?

Mr. HAYNES. Yes; they don't amount to a great number. In 1959, there were 53 investigative matters; in 1970, there were 53; and in 1971, there were 62; and in the first 9 months of this year, there are 48. Mr. STILL. Is the actual investigative work performed by HUD personnel or Department of Labor personnel?

Mr. HAYNES. The investigations are made by HUD personnel. The Labor Department has jurisdiction but they request that the agency conduct the investigations and they adjudicate them.

Mr. STILL. Could I ask a question about Detroit-if you have knowledge of the situation there? I believe you mentioned that Detroit leads the list in terms of pending cases opened in HUD.

Mr. HAYNES. Yes, sir.

Mr. STILL. Have you received a report on the failure of the Government to obtain a conviction in the case that came on for trial in February in Detroit?

Mr. HAYNES. Sir?

Mr. STILL. I am particularly interested in the report that we received. The case was dismissed at the conclusion of the Government's case, on motion, because of the inability to establish a chain of custody of evidence. This opens up the evidence problem possibly involved in FHA forms and procedures.

Mr. HAYNES. I don't have personal knowledge of it.

We would be glad to furnish comments on that.

Mr. STILL. This is of interest to the committee. The chairman and Congressman Brown and others began to open up the possibility of civil remedies in cases of this kind when Mr. Petersen testified. There may be some merit in evaluating this case to determine whether forms can be improved and civil remedies considered.

Mr. HAYNES. I will be sure to look into it.

Mr. STILL. Continue, please.

Mr. HAYNES. I think one other point that I might make in connection with this statistical information on cases-and I don't want to minimize the problems that do exist-when we talk about opening about 1,200 cases a year, investigative matters, I think it is of interest to relate that figure to some extent to the total volume of business that HUD does.

For instance, in the title I cases, I think I mentioned that in title I in 1971, we opened 273 investigative matters. There were 313,000 title I loans insured during 1971, so we are, frankly, talking about a fraction of 1 percent of the total transactions handled, in which it is indicated that might have been false certifications.

Under section 235 programs, new applications in 1971 totaled 157,000, and during 1971 we opened about 400-300, I am sorry-about 300 investigative matters involving section 235. So, again, we are talking about a fraction of 1 percent.

Mr. STILL. National statistics create one picture. I think the significant thing here is the number of cases in the larger cities, or the cities that you mentioned earlier that have far more than 10 violations.

In Detroit, we have received testimony concerning questionable practices by rehab builders. I think this might be part of the frustration that Mr. Petersen was expressing. If he receives a case standing by itself, it seems to be low priority. If cross indexing of some sort could be done, we could have patterns of conduct by certain individual contractors in any given city.

This could reflect on an area office and your own personnel, as well as on private sector practices in that city. At least this was the feeling I had in listening to Mr. Petersen. Would you comment on that?

Mr. HAYNES. I think it is certainly true that the case binders which are maintained by FHA on these kinds of cases are not indexed to clearly point out or pinpoint which particular builders or realtors might crop up in a number of cases. As I understand the case binders, they are filed by a number which really relates to the owner of the property rather than the seller, the person that does the reconstruction, the realtor, or the mortgagee.

I think we have to give some study as to whether or not this would be feasible, perhaps to do some cross indexing of these binders to pinpoint the realtors and others. We have to consider the cost of this, the manpower requirements, and the ultimate value, either from a program or prosecutive standpoint.

Mr. MAXWELL. I think you might-also, you might want to ask Mr. Gulledge about those FHA files and how they are maintained.

Mr. ST GERMAIN. In recent hearings on military procurement DOD stated that it has adopted the system that Mr. Still refers to, where you keep a file of complaints against the contractors and the realtors, as well as files on the individual complaints.

I am going to bring this to Mr. Gulledge's attention, and-take, for example, a case in point. I have talked to the Secretary. It has gone to the GAO, and there is one thing that bothers me, and that is that the builders come in with a 235 complex, 60 or 70 homes, and they approve an out-of-State operator, and give him the reservations. These 60 or 70 homes are financed by one bank, an out-of-State bank.

One law firm handles all the settlements. Also, we are considering settlement costs in this year's housing bill, as you know. There were no stakes put in to divide the property lines. The point is, I have heard from five different buyers, with many, many complaints.

The thing that bothers me is that there should be a file on the contractor or developer, definitely. It just so happens that in this instance, they are writing to the same Member of Congress. So I can maintain this file if necessary.

But, second, I am concerned that when there are many longestablished, contractors in the area, why bring an unknown in from out-of-State. Why use out-of-State banks exclusively for the financing. I do want to go along with Mr. Still on this idea of maintaining a file on the developers, or builders.

Mr. MAXWELL. I agree with this, Mr. St Germain, as far as the maintenance of files on complaints. There doesn't seem to be any reason why they can't be cross indexed and kept accordingly together with the contractor and every other party involved in the project concerned.

On the second point, you will have to ask Mr. Gulledge, I don't know how that works.

Mr. ST GERMAIN (presiding). I think this becomes more meaningful when you consider the fact that you have developers coming in and contractors and developers coming from out-of-State. They are crossing State lines, going across country, and they are building-one developer can build something in Massachusetts and go to Illinois for the next, and to New Mexico for the next.

Unless this file is kept, we have a tough time correcting this problem. Mr. MAXWELL. Well, we do maintain various kinds of files on the people who have made use of our programs, who have not performed

satisfactorily, and these lists are made available to all of our offices throughout the country. So in the event it is determined that a particular contractor or builder or mortgagee or any other party has misbehaved, that should show up on the list we maintain.

Mr. ST GERMAIN. Is this to be the responsibility of your regional office, to collect the list of the contractor complaints? That is, firms who have had a bad experience with HUD or when the reservation comes into Washington, a notification is made of the same. Is that the responsibility of the Washington office to check matters in relation to the master list, and determined if this individual is among those who have not performed satisfactorily?

Mr. MAXWELL. This should be checked in the office where the contractor makes application. For instance, this would be for mortgage insurance, or whatever, and it wouldn't do very much good to have it checked only in the central office in Washington. The decision as to whether to give the mortgage insurance is made at the local level. The lists are made available to all the local offices and they have an obligation to check the applicant against those lists, and Mr. Haynes also maintains a list.

Mr. ST GERMAIN. Well, one more item. Does this list give the name of the firm, like Holiday Homes, or give the name of the principals, since Holiday Homes can become Heritage Homes, and in the next State it can be Happy Living Homes.

Mr. MAXWELL. Well, we have a form, called a 2530, which has to be filled out by a firm which is applying to us. And in that form they must list the principals of the firm and the extent to which they have been involved, precisely with which projects they have been involved in the past, FHA programs, and so forth, which we are concerned with.

Mr. HAYNES. We maintain in the office of the Inspector General what we call our previous participation investigation files. Now, on all investigative matters which have been referred to the Inspector General anywhere in the country; these are centrally indexed in Washington.

We also maintain a list of companies that have been debarred-or put on an undesirable list by reason of the work they have done with HUD. We maintain a list of people and companies debarred by any of the Federal Government agencies. The various area and insuring offices doing business with the companies send in a request for any prior information we have concerning that company, and this includes the names of the principals in the company. This is in the file and the application.

Mr. STILL. Is any of that computerized?

Mr. HAYNES. No.

Mr. STILL. How is information retrieved?

Mr. HAYNES. We card index it, and we receive 45,000 to 50,000 requests a year, which are processed through the central file room to determine whether or not there is any unfavorable information.

Mr. ST GERMAIN. Does this file include complaints made and the determinations that this firm, in effect, should no longer operate or be awarded any contracts, or does it include the firm that has, let us say, a history of just about going as far as they can go, trying to cut corners wherever possible.

Mr. HAYNES. Our files in the office of the Inspector General include, as I mentioned, only those with which there has been a determination either to suspend them or not to do business with them.

Mr. ST GERMAIN. But not a history of complaints?

Mr. HAYNES. It would also include the complaints relating to investigative matters bordering on possible criminal action. It would not include complaints relating to just the quality of work.

However, Mr. Gulledge's Office of Housing Production and Mortgage Credit maintains a set of files relating to quality of work and you may want to ask him about that later this morning.

Mr. BROWN. One conclusion I have reached in the course of these hearings is that the extent of improper practice that has occurred could have only occurred through some participation by IUD employees, either active participation or certainly a closing of eyes, everywhere from malfeasance to nonfeasance.

I thought that this would be the area to which the Inspector General would direct his attention primarily, or at least to a great extent. In that regard, what have you done at HUD to have periodic investigations of field offices to see that the forms are actually being completed correctly, that certifications are being made where they should be, and my further question: to what extent have you followed up about possible in-house malfeasance or nonfeasance, which has, in effect contributed to the losses that have occurred?

Mr. HAYNES. Of course, you are right, Mr. Brown. There have been some cases where HUD employees have not performed their duties properly. HUD employees and former employees have been indicted in connection with this.

When I came on board 2 or 3 months ago, we took several positive actions. First, I am convinced that the integrity of an organization depends first, on the quality of the people you hire. I think the agency needs to take a close look at applicants. We need to take a close look at the selection procedures in the hiring of employees.

Secondly, I think the employees will do pretty much what is expected of them. An organization develops a culture. I think it is important that the Department of Housing and Urban Development make it clear that they expect the highest standard from its employees. The Secretary has done this.

Just recently, he issued a memorandum to all employees, and it received quite a bit of play in the press. It states in plain language what he expects of them by way of conduct. On March 1, 1972, we initiated a series of seminars throughout the country. Our inspectors have gone out and visited area and insuring offices, to discuss with employees what the requirements are and what is expected of them in the way of standards of conduct. We have talked to over 4,300 employees in the last 2 months and given them an opportunity to ask questions about standards of conduct.

Another major element in the Office of the Inspector General is our Office of Audit. We conduct 2,000-plus audits a year. Most of these are on project grants or contracts, but a considerable number of audits. are done dealing with the internal operations of the agency. We review the quality of work being performed in the insuring, area, and regional offices and recommendations are made for improvements.