Senator SPARKMAN. From whom are you obtaining the money? I don't mean individually. From private lenders, or FHA, or whom?

Mr. MONSON. We have now set up under the Cooperative Act that was passed by the Eightieth Congress; that provides that we must ask roughly 12.5 percent equivalent down payment which is the share capital as to each member. We have all of that for our first group paid in now. We are ready to go on that. We having under that act a mortgage insurance from the FHA and we have our bank of deposit, which has agreed to process the loan, to take both the shortterm building money and to handle the loan. That is the system we now have.

Senator SPARKMAN. Did you have any difficulty in arranging your financing under the FHA program?

Mr. MONSON. Yes; when we first began, this was before the Eightieth Congress, we applied as a section 608.

Senator SPARKMAN. I mean since that time; since the adoption of the Housing Act of 1948 when the cooperative feature that you mentioned was included.

Mr. MONSON. It took us about a year to clear that to the point where the FHA was going along and seeing to it that this would work. Up to that time we had difficulty in getting the people to understand what we were talking about.

Senator SPARKMAN. Did you have any difficulty in getting local financing?

Mr. MONSON. Well

Senator SPARKMAN. With the understanding that it was to be insured under the FHA program?

Mr. MONSON. Well, sir

Senator SPARKMAN. Are you getting your financing from local banks?

Mr. MONSON. Yes.

Senator SPARKMAN. Or insurance company, or what?

Mr. MONSON. We are getting our financing from a local bank. However, if for instance a local bank can buy mortgages of various types with FHA insurance, it obviously is not interested in any mortgages written, say, up to 90 percent of cost, which are not FHA insured. We found it necessary to clear with FHA to get a mortgage commitment from FHA, which we have. Once we had that, we had no difficulty. However, the point I wanted to raise in regard to this cooperative, and the reason why the group asked me to come and testify in favor of this bill is that under the present provisions we can take up only the upper levels of the middle-income group. The people who need these houses and whom we really want to serve and who are the vast majority of the membership of the unions are somewhat lower than the incomes of this first group there.

Senator SPARKMAN. That applies both to the amount they will have to pay and the initial payment, 12.5 percent?

Mr. MONSON. Yes.

Senator SPARKMAN. In other words, the lower middle-income family, having to pay $90 a month rent, can't squeeze any additional savings? Mr. MONSON. That is right. May I run through what the bill would do for us, as we understand it, on the one bedroom unit? We would save on the monthly charges about $19.30 on the one-bedroom apartment. On the two-bedroom apartment, we would save $22.50.

On the three-bedroom interior apartments, we would save $25.20. Four bedrooms would be about the same. Now, that would apply to bring our total housing costs for most down on a monthly basis, which includes utilities, reading across, about $55.70 for a one-bedroom unit, our lowest two-bedroom units would be about $63.45. The threebedroom about $71.80. Four bedrooms would be $82.50. I want to point out this is not shelter rent. It includes all utilities. The complete landscaping, paving of the streets. These include houses which are of the following size: Our one-bedroom apartments have 760 square feet; two bedrooms, middle, will be 1,000; our two-bedroom terraces have 1,040 square feet; our three-bedrooms have 1,200 and our four bedrooms have about 1,500 square feet at the ends. We believe these are about the sizes of housing, dwelling units, which are necessary for adequate family life.

When you have four children you cannot cram them into a small living room and try to operate a kitchen which does not have room to serve the children.

We found that through the cooperative we can do those things to bring our costs down. We have made a comparison between a typical two-bedroom terrace and a typical two-bedroom house, which was published and advertised in the Detroit News of June 6, 1949. If I may, I will run through that to show how we stack up against the best that the builder has to offer in Detroit.

Senator SPARKMAN. May I ask this: You refer to apartments and terraces. By terrace, do you mean the two or three-family individual units, or a one-family house?

Mr. MONSON. Well, a terrace in Detroit is an attached house. It is a completely separate house. You have no group living of any kind. You have a piece of land on which the house sits. It is the common form of middle class housing in the city of Washington, and if as the previous witness said, we are advocating group socialized living, the city of Washington is already socialized.

Senator SPARKMAN. In Washington they are called "row houses." Mr. MONSON. That is right. Our apartments are two-story units. They have the same stairway. Each with its own individual basement. There are no common facilities, except the entrance, the walk to the apartments, but in the row houses, it is a completely individual unit. The only thing is they are attached.

We use this form

Senator BRICKER. Something like we used to call "flats.”

Mr. MONSON. They are called "row houses" here. In Detroit they are terraces. Practically all of the Detroit production is by private builders under section 608, and they are putting up terraces. So we are not introducing any new, untried form of housing.

This is quite common, and the builders and the mortgage bankers have found them quite acceptable and desirable units.

Senator SPARKMAN. Of course, all the row houses put up in Washington were put up by private builders.

Mr. MONSON. Yes.

We believe we have improved this form. We have made the house more shallow. Every room has light. We have made them wider. We have made them much lighter. We are giving everything that the builder has, plus a lot of things he leaves out. For instance, our house, two-bedroom attached, is one thousand square feet, and the

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comparable builders' house is only 900. Both are brick veneer. Our price

Senator SPARKMAN. Where are you reading from in your memo? Mr. MONSON. It follows page 8. It would normally be page 9. Senator BRICKER. May I ask-the individual puts in 12.5 percent? Then he pays rent, which pays so much into his equity?

Mr. MONSON. Yes.

Senator BRICKER. If he wants to move or should die and the family would not desire to keep the unit, he has to offer that unit back to the cooperative, but he has to offer it under the rules back to the cooperative, at just what he has in it, 12.5 percent plus the rental he has paid in, less the operating costs?

Mr. MONSON. That is right.

There is a formula which goes this way:

He offers back to the cooperative his total equity, which includes, as you mentioned, the share capital, or equivalent down payment plus equity built up, less depreciation. In our particular group we are figuring that on an outside appraiser. He says whatever the value of the property is worth, and the seller would pay that depreciation. The total resulting figure from that will be multiplied by a figure based upon what the cost of building at that time is as compared to when the buildings are built.

Senator BRICKER. Do you pay interest on the amount of original shares?

Mr.. MONSON. No, sir. It is set up in a way that the share capital does not bear interest. That is voting stock in our corporation. One family gets one vote. In effect, each unit has one vote. To vote, you must occupy and be a shareholder in the corporation.

Senator BRICKER. The only profit he would be allowed if he wanted to sell his share would be the increment in the value of the property according to building costs as of the time?

Mr. MONSON. Yes.

That isn't, strictly speaking, a profit, because he would then perhaps have to go to another city and buy a house.

Senator BRICKER. But he is allowed the increment?

Mr. MONSON. Yes, but it may go down.

Senator BRICKER. Yes.

Mr. MONSON. That is part of the agreement that he signs with us. We are careful to make certain everyone understands that.

We have our price, including $100 membership fee, which takes care of the cost of organization, at $9,800, and the builder's price was quoted as $9,900. Our equivalent down payment was $1,200. The builder asked in the paper for $1,700. However, we have the following items included in our cost which are not included in the cost to the builder; so that is it.

There are mortgage costs of $275. For landscaping we have allotted $165. We have a gas-fired, automatic furnace, $250; screens all around, $75; insulated glass, or Thermopane; we have a garbage disposal in every kitchen sink. We have an incinerator in the basement to burn up the rest of the trash. If you add these factors together, the disposal unit is $85, Thermopane $75, it comes to about $950, which is missing from the best of the builders' houses there. Our down payment remains at $9,800. His comes to $10,850. The floor area, which is the measurement of the actual cost of a house, is repre

sented in ours at $9.90 per square foot. The typical builders' house comes to $12.05. Our down payment is still $1,200. His actual comes to $2,650 if you put in these things he forgot to add. That is the best of the FHA houses that were offered at that time, and since that time there has been quite a bit of shuffling of figures. But the differential remains in our favor.

Senator BRICKER. What was your difficulty? I don't question the figures. What was the difficulty in selling the proposition to the

FHA?

Mr. MONSON. The FHA obviously has been set up to process speculative building in the typical single-house manner, or 608's. When this cooperative came in they looked at us and said "We never saw this before." Principally, it was the FHA's difficulty, as set up in the field, of understanding just what this was. They tried to use their administrative procedures under the old systems. Obviously, they didn't work.

Senator BRICKER. Tried to adjust and couldn't.

Mr. MONSON. As a result, a long argument took place, and we found then that the laws of setting up a cooperative had to be worked out, and the FHA hadn't seen those laws before. There was considerable reading of law books.

Senator BRICKER. You would not have that trouble again?

Mr. MONSON. Under the present bill, with this, a separate agency set up as part of the

Senator BRICKER. I mean, without this bill. You wouldn't have the difficulty you had in the first place in a second proposition? Mr. MONSON. We wouldn't have the difficulty in time lag. Senator BRICKER. That is what I meant.

Mr. MONSON. We would still have to pay the 12.5 percent. is the best the FHA is legally empowered to give us.

That

If I may read on down: Payments required-the cash required is $1,000 for a one-bedroom unit up to $1,400 for a two-bedroom unit; $1,600 for a three-bedroom unit. That is more than the group we wish to serve will really find ready. Many of our people have had difficulty in financing that down payment. One of the things the bill will give us will be to permit us to lower these necessary down payments from 12.5 to-well, the bill, I gather, carries 100 percent financing-but the cooperative will ask as much as it can. In our area we would expect to operate at about 5 percent, that 5 percent would go into a reserve which is a prepayment for mortgages, so that in case of unemployment we could let at least the principal and interest on the mortgage ride for a few months, which will give additional security to these people, which security they sorely need. Under the present system in FHA you stand in danger of foreclosure, of course, as soon as you miss a payment. We want to avoid that. We have one other additional factor here which we feel will give great security to our members; that is that we think included in the prices we are now quoting we are going to have a 3-year term insurance on the life of the breadwinner of each family. We are working it out so that the survivor will have an option, if the wife wishes to leave, she takes the equity, plus the term insurance, and the cooperative secures another member.

If she elects to stay, this term insurance will pay the equivalent of her monthly charges on the house for 3 years, giving her a chance to adjust to the changed family circumstances.

That, of course, is not open to holders of free-standing houses. After all, the bank deals with each individual, and each individual has to deal with the bank. We are a group, we can write such term insurance.

We feel that all of these factors give us a possibility of really lowering costs.

Senator SPARKMAN. Before you leave those cost items, Mr. Monson, those additional values-before you leave them, let me suggest that the purchaser of one of the typical houses would not have to pay, except the mortgage cost. The others are optional?

Mr. MONSON. Yes, but

Senator SPARKMAN. They are advantages in your house, but not absolutely essential?

Mr. MONSON. That is true. You can live without taking the clay piles off the front of your yard, which is the usual way a working class family finds a house. To have a lawn they must get rid of the clay. Senator SPARKMAN. I had in mind the gas-fired automatic furnace. I assume these other houses have some kind of furnace in them?

Mr. MONSON. At the present time gas heat in Detroit is competitive with coal. There is a booming business in all classes of taking out of the coal furnace and putting in gas, simply because of the added convenience.

Senator SPARKMAN. The point I make is that that $950 or the items to the total of $950 represent attractive features on your house which are not essential in every instance or in every other house. If the person wanted to do without them, that could be done.

Mr. MONSON. That is true.

Senator SPARKMAN. Except for the item of mortgage costs.

Mr. MONSON. Strictly speaking, that is true. However, we feel these are not luxury items, but items which will make a livable place. Senator SPARKMAN. It is like the hundred square feet of additional space. They are an advantage, and well worth the $950.

Mr. MONSON. That is right.

Senator SPARKMAN. I did not want the record to stand as showing that that was an item that the purchaser of the other house would have to pay in addition.

Mr. MONSON. No.

Senator SPARKMAN. He would have to pay it if he got it.

Mr. MONSON. Yes. However, these are the things which attract people who become members.

Senator SPARKMAN. That is right.

Mr. MONSON. And I might say this is not something which is sold as an advantage of the cooperative living. Our members come in on a hard-headed business venture. They go to the open market and investigate. They come back to us. This is particularly true of the higher-income aspects. We had no intention of having fourbedroom units when they started. People came in and said "Can't, you put in a four-bedroom unit?" It was on the insistence of our members that the architect designed and worked out the four-bedroom unit. We have now 10 in our 54 units which are a higher percentage, in terms of any other project. In fact, there are no four-bedroom units on the market that I know of generally in Detroit, particularly for rental. There is this factor: Why should we get things lower? Why not to everyone? We think this: that the cooperative form has