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January 16, 1976

COOPERATIVE SERVICES, INC., et al., Plaintiffs,

The opinion of the court was delivered by: WADDY

 WADDY, District Judge.

 This action was brought against the United States Department of Housing and Urban Development (HUD) and James T. Lynn, individually and in his capacity as Secretary of HUD, seeking declaratory and injunctive relief from HUD's alleged unlawful "impoundment" of the revolving loan fund created by Section 202 of the Housing Act of 1959.

 Plaintiffs are Cooperative Services, Inc. (CSI), a non-profit corporation and consumer cooperative chartered under the laws of the State of Michigan, and seven named plaintiffs. The action was conditionally certified by order of this Court as a Class Action under Fed.R.Civ.P. 23(b)(1)(A) and (b)(2), the class consisting of: (a) all persons on the waiting list for CSI Section 202 housing not yet built; and (b) all CSI members on the waiting list for CSI housing. Plaintiffs seek relief from HUD's general refusal to process, approve, implement and fund applications for Section 202 funding, and more particularly, as to those 202 applications CSI has previously submitted to HUD.

 Plaintiffs' claim is that the Section 202 program was terminated by HUD, not for acceptable program-related reasons, but rather because it was a direct loan program creating too heavy a burden on the Budget. Defendants deny the Section 202 funds were unlawfully impounded and argue that HUD terminated the program because it was consistent with Congress' intent; that the Section 236 program created by the Housing and Urban Development Act of 1968 was better able to make an immediate impact on housing needs; that the 202 program was an inefficient use of federal funds; and that the 236 program encouraged development of private financing with potentially greater resources.

 The case came on for trial and was heard by the Court sitting without a jury. Having considered the evidence adduced at trial, the stipulations of fact, the briefs submitted by the parties, the oral arguments of counsel and the entire record herein, the Court makes the following Findings of Fact and Conclusions of Law:


 1. The Section 202 program was created by Section 202 of the Housing Act of 1959, 73 Stat. 667, 12 U.S.C. § 1701q, which authorized HUD to make direct, low-interest, up to 50-year loans to nonprofit corporations to provide housing and related facilities for the elderly. Between 1959 and 1968, Congress made various changes in the program: in 1961 it added consumer cooperates to the class of eligible sponsors; in 1964 it specified that the program could be used for the permanently handicapped as well as the elderly; in 1965 it fixed the interest rate at not more than three percent per annum.

 2. The 202 program was initially designed as a supplement to two other programs for providing housing for the elderly; the low-rent public housing program and the FHA Section 231 "unsubsidized" program. Section 202, administered by the Community Facilities Administration of the Housing and Home Finance Agency, was to serve modest-income elderly families and individuals whose incomes were above the eligibility limits for low-rent public housing, but too low to enable them to afford the rents charged in elderly projects insured under the FHA program.

 3. Initially, in 1959, Congress authorized an appropriation of $50 million dollars for the Section 202 housing program. By fiscal year 1971, the cumulative authorization level for the program was $650 million dollars. By fiscal year 1971 Congress had appropriated a cumulative figure of $465 million dollars. *fn1"

 4. The Section 202 program was financed by means of a revolving loan fund. Congressional appropriations and receipts from the interest and principal on outstanding 202 loans were placed in the fund and made available for new 202 projects. Although Congress made no appropriations for Fiscal Years 1970, *fn2" 1972, 1973 and 1974, the unreserved balance in the Section 202 fund has steadily increased. *fn3"

 5. Under the Section 202 program, a qualified sponsor submitted an application to HUD for funding. The applicant was required to show that it was "unable to secure the necessary funds from other sources upon terms and conditions equally as favorable as the terms and conditions applicable to loans under [Section 202]." *fn4"

 6. The 202 program was popular with the elderly persons of modest income who were residents of the projects. There was no scandal associated with 202. The income group that the program served was the income group it was intended to serve. The program operated at low unit cost compared to public housing. In the entire history of the 202 program, only two projects have ever gone to foreclosure. It was considered one of the more effective of the housing assistance programs.

 7. The National Housing Goals as set forth in the Housing and Urban Development Act of 1968 declared as housing policy, the production of 26 million housing units over a ten-year period. In 1971 the White House Conference on Aging set the housing goal for the elderly at a minimum of 120,000 units per year.

 8. On two occasions, the Executive asked Congress not to fund the 202 program. In 1960, the Administrator asked that no appropriation be made, arguing the program was

unsound and unwise * * * because of its use of a hidden interest rate subsidy; because of the excessive mortgage term -- 50 years -- . . .; and because of its reliance on general tax funds to do this job, instead of developing and encouraging private financial support.

 Congress nevertheless appropriated $20 million for Section 202 in 1960. Again, in 1966, the Administration asked Congress to "phase-out" Section 202 in favor of rent supplements; Congress did not do so. *fn5" This request originated with the Bureau of the Budget which had a standing objection to the use of direct loan programs because of their annual budget impact. *fn6"

 9. The Housing and Urban Development Act of 1968 created the Section 236 interest reduction program, 12 U.S.C. § 1715z-1. Under Section 236, housing projects were constructed with private financing obtained at market rates. The Federal Government subsidized the payment of interest by the sponsor-mortgagor, thereby permitting tenants to pay reduced rentals. The interest rates could be reduced as low as one percent per annum. The Section 236 program was identified as

. . . intended to replace . . . the program of direct 3 percent loans for the elderly and handicapped authorized under section 202 of the Housing Act of 1959, but only after the new program is fully operational and fully funded. It will be better able to serve lower income tenants because of the rents attainable under it will be lower than those possible under the other two programs [Section 202 and Section ...

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