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The situation developing there, while it does involve the interest rate, a differential interest rate, probably involves as well a number of other factors, such as, for instance, the ratio of loan and the preponderance of 100 percent loans, and standards applied, and so on. It is all rather complicated, but I agree with you that it is very pertinent at this time.

Shall I go on?

Senator SPARKMAN. May I just ask a question at this point? As I understand it, the 2% percent rate, more or less, is simply something that you wish for or that you expect. The Government does not seek in this legislation to set any rate of interest.

Mr. FOLEY. That is right, and that is pointed out.

Senator SPARKMAN. And it is to be determined entirely by the market, by the open competitive market, by the private competitive market, by what that market provides.

Mr. FOLEY. As pointed out in some detail in my statement, no interest rate that shall be charged by this mortgage corporation to its cooperative or nonprofit borrowers is fixed in the bill. It provides a formula for an interest rate to be arrived at, on the basis of, first, what it has to pay for its funds; second, the administrative cost of doing business; and, third, the required reserves. But we have,

, again I say, very carefully noted that this does not fix an interest rate of 22 or 3 percent or any other rate. We pointed that out carefully, Senator.

Senator Cain. Mr. Foley, what you are telling us here is that in your considered judgment it will be somewhere around 24 percent.

Mr. FOLEY. As against the best estimates that we have been able to get, and the best advice we could secure on this point, the cost of money to the Corporation currently should not be more than that. It could be less. This should mean that the rate of interest to be charged by the Corporation on the mortgage loans it makes should be about 3 percent.

Senator SPARKMAN. You may proceed, Mr. Foley.

Mr. FOLEY. It is our view on the basis of studies and consultations that the present financing proposal well meets these two objectives.

On the basis of the best analyses we have been able to make on the rent schedules which could be attained on projects built under the proposed amendment, giving full consideration to the nonprofit and cooperative character of the project, a substantial degree of tenant maintenance in view of the ownership characteristics of a project of this sort, and the terms of financing, we estimate that an $8,000 4%-room unit in such a project could rent at an estimated monthly gross figure of $64.67. This figure should be sufficient to cover operating expenses (including all utilities and a reserve for replacement) estimated at $24.40 per month and based on the actual operating experience of the Public Housing Administration in the low-rent public housing program. The gross rent figure also includes realestate taxes computed at 1.6 percent annually, a contingency reserve of 3 percent, a vacancy reserve of 3 percent, and debt service of $25.83 per month which is adequate to retire the loan at 3 percent over a 50-year period.

Senator BRICKER. I have one question at that point. Concerning the real estate tax, could you say whether that 1.6 figure is an average, the general average?

Mr. Foley. That is based on a general study, it is not based on a single project.

Senator BRICKER. But the rate could be higher, could it not, on a particular project than 1.6 percent? Some cities are running as high as 5 percent.

Mr. Foley. The tax rate itself. Of course, you have the factor there also of ascertaining what ratio of the cash value the assessment is. We find very wide variances in that ratio. This is not put forth as a figure applying in all cases, but it is based on a study to arrive at an average.

Senator BRICKER. The 1.6 percent is based, of course, upon the cost value?

Mr. FOLEY. That is right.

Senator BRICKER. Some States require real estate to be appraised at its actual value, or true value in money is the term generally used, I think. Of course, we know that is not generally done.

Mr. FOLEY. There is a wide variance, as you know.
Senator BRICKER. Yes, a wide variance, between 50 and 75 percent.
Mr. FOLEY. That is right.

Senator BRICKER. And you think this 1.6 percent would bring it down to the actual?

Mr. FOLEY. Well, for the purposes of this kind of study, which is not intended to be exact as to the dollars but generally indicative, I think, yes.

Senator BRICKER. And if the property runs, let us say, 50 percent of value, that would make it about 3.2 percent.

Mr. FOLEY. It could be higher; yes. Does that cover the subject?
Senator BRICKER. Yes, that is all.
Şenator SPARKMAN. And you may proceed.

Mr. FOLEY. As shown on the tables which have been furnished to your subcommittee, the comparable rent for a similar unit financed under section 608 of the National Housing Act would be $90.32, as contrasted with $64.67. This higher figure is, of course, the result of a shorter term loan, a higher interest rate, owner's profits, substantially higher operating expenses due to the type of services customarily required when a rental project is operated for profit, and necessarily higher allowance for vacancy reserves. If our computations and estimates are reasonable, and we believe they are, a project constructed under the amendment to S. 2246 would come substantially closer to meeting the rent-paying ability of middle-income families than is possible under existing programs.

(The tables referred to will be found on p. 37.)

These computations are estimates. While they represent our best judgment, actual results can only be learned in the course of actual operations. Obviously, such results may vary somewhat from estimates. For example, if the Corporation's debentures bear somewhat higher interest rates than have been estimated, the final rental equivalent would be increased somewhat over the figure presented in the estimate.

In order to give your subcommittee some idea as to the effects of varying interest rates and loan terms under this proposal, we have prepared and submitted to your subcommittee a detailed analysis showing estimated achievable monthly shelter and gross rents under three assumed financing schedules ranging from 3 percent for 50

years to 3% percent for 50 years. There is also included in this analysis a comparison of the rents achieved at each of these interest rates with the comparable rentals now being achieved on a section 608 rental project at the same unit cost assumptions.

In conclusion of this general discussion of this middle-income housing proposal which we strongly support, I should like to make this general statement to the committee. We believe that this program, if enacted substantially in the form of the amendment, will be successful in attaining good additional housing for families of moderate income. We do not propose it as the final and complete answer to all of the housing problems of people in this income category. There is already in existence the insured mortgage program which has provided and will continue to provide suitable housing for many people of moderate income, and we are recommending other financial incentives in connection with it. The proposal here presented, we feel, is a much needed and desirable addition to the present housing programs of the Federal Government. It will, in short, round out our programs in the area where to date we are least well equipped to encourage and assist in obtaining volume production of good housing at costs within the paying ability of the middle-income third of American families, an area, in my judgment, of great and urgent housing need.

The volume which can be expected under the proposal is difficult to measure, particularly at the outset of such a program.

Senator CAIN. Will you permit a question?
Mr. FOLEY. Yes.

Senator Cain. What is our liability under section 608 loans, what is the total liability outstanding?

Mr. FOLEY. Senator, I am going to have to ask for that, I cannot carry those figures in my mind. Mr. Greene is here and he can probably tell the total outstanding—you mean mortgage value?

Senator Cain. Yes; under section 608.
Mr. FOLEY. Do you have the figures there, Mr. Greene?

Senator Cain. Well, may I venture what I think is a reasonably accurate guess? Is it about $2,000,000,000. A little less than $2,000,000,000?

Senator CAIN. A little less than $2,000,000,000.

Now, Mr. Foley, if we go on the assumption that this cooperative system becomes, if this should be approved, as successful and I am sure we would all want it to be successful if this is passed—what is likely to happen to the Government's $2,000,000,000 of liability under section 608? Are we on the way here of attempting to create an unfair competitor to what the Government has already established?

Mr. FOLEY. We gave a good deal of thought to that, Senator, and it is my opinion, for what it is worth, as against the fact, of course, that no one can predict the future certainly, that it does not represent any considerable factor of danger. For one reason, while $2,000,000,000 is a lot of money and represents a lot of credit and a lot of risk, still when it comes to building houses, it does not represent a very large number of units as against the total inventory. And it is widely

: scattered throughout the country, which is one of the aims we had in promoting the 608 rental housing program, which I suppose is what you are chiefly concerned with.

Senator Cain. I am just concerned with where we are really going here, and I know you are just as concerned as I am, Mr. Foley.

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Mr. FOLEY. That is right, and we studied this very seriously. As I stated, this program if enacted, I think cannot be expected to spring swiftly into a large volume, for reasons I have outlined already. It will be gradual. If for instance the $300,000,000 of initial authorization has to be placed in housing at the $8,000 figure of cost, then it would result in about 35,000 units. Now, those will be coming into a market that is as broad as this Nation over a period of 1 or 2 or 3 years, depending on the speed of the program, and it could or should not be any material threat to the existing housing operations.

Senator Cain. No; but I think still we should be concerned in terms of where we are heading in future by the adoption of this program. I am not saying that it is not a proper thing to do, but we should seriously consider the future. We are thinking here of a longrange 50-year program.

Mr. FOLEY. That is right, of course, and in that time you will be amortizing. And since the date involved in section 608 is a relatively shorter period, I do not think you will reach the situation where if the projects were completed in a given community there would be any difficulty. You will probably by that time reach a situation where you can recast your indebtedness and modify if necessary the carrying charges.

Senator Cain. You are encountering some trouble in section 608's, are you not?

Mr. Holey. In some, yes; but not to an alarming degree, Senator. I think we would have to be honest and realistic, and, yes, we do expect some, I think it would be inevitable, but I think and I am sure the Commissioner of FHA agrees, there is nothing that appears alarming.

Senator CAIN. I was just told we have two-hundred-and-eightythousand-odd units constructed under section 608, which brings my question into a sharp focus.

Mr. FOLEY. And which you will agree is a relatively small fraction of the total housing supply; as against the needed housing it is also small.

Senator Cain. Thank you.
Senator SPARKMAN. Go ahead.

Mr. Foley. This will depend to a large degree upon the speed and ability with which private individuals are found willing and able to join in well organized housing cooperatives. Much hard work and much sincere and honest desire to succeed on the part of such groups themselves is essential before a program of this type can move ahead in volume. I hope that the Congress and the public will take this proposal for what it is intended--a vigorous program for support of a relatively new private enterprise housing endeavor designed better to meet the needs of our middle-income families. In this connection, I should like to call the committee's attention to the President's summary of this proposal in his recent budget message. In that statement he said,

Because of the limited American experience with housing cooperatives, this program initially must be viewed as experimental, and cannot be expected to attain a large volume in 1951. With proper Federal leadership and assistance, however, it offers real promise that middle-income families will be able to help themselves obtain good housing at costs within their means.

I am confident that substantial success can and will be achieved under the program contemplated by this amendment, when enacted, and assure the Congress the Housing Agency will spare no effort to accomplish the objective toward which it is directed.

Senator SPARKMAN. Let me stop you at that point, Mr. Foley. Can you come back this afternoon?

Mr. FOLEY. At your service, Senator.

Senator SPARKMAN. Is it agreeable with the members of the subcommittee for us to sit this afternoon?

Senator Cain. Yes.

Senator SPARKMAN. There is available for our use, if we want it, room 39 in the Capitol. It is one of the Appropriations Committee rooms on the first floor of the Capitol. If there is no objection, we will meet there at 2 o'clock.

Mr. FOLEY. Senator, may I refer back to the question asked by Senator Long about the statistics about income in the beginning? I misinformed him on what was covered by the table. I find on referring to it that it shows total nonfarm as well as urban.

Senator SPARKMAN. Thank you. We will recess until 2 o'clock this afternoon.

(Thereupon, the subcommittee recessed at 12:35 p. m., until 2 p, m. of the same day.)

AFTERNOON SESSION

Senator SPARKMAN. I think we had better get started. Other members will be here later.

There is a quorum call going on in the Senate, and some will probably be detained for that.

Mr. Foley, if you will resume the statement, take up on page 25 where you were ready to discuss the amendments to section 207 of the National Housing Act?

Mr. FOLEY. Thank you, sir.

At this time I wish to refer briefly to the amendments to S. 2246 relative to title I and section 207 of the National Housing Act.

The amendments to title I would extend on a permanent basis the FHA program for insurance of modernization and repair loans. Up to the present time this program, which has been self-sustaining since July 1, 1939, has been kept in existence, except for one short period between April 1, 1937, and February 3, 1938, continuously over the past 15 years, through a series of extensions and renewals by Congress of the expiration date of this title. The present authority under title I expires on March 1, 1950.

The amendments to title I recommend that the program be placed on a permanent basis. The amendments would provide for periodic adjustments in the amount of the Government's maximum liability to each lending institution, and thus prevent the Government from assuming a disproportionate amount of risk with respect to the title I loans of the institution.

The amendments to section 207 of the National Housing Act relate to the regular FHA permanent mortgage insurance program for rental housing, as distinguished from the emergency temporary program for rental housing under section 608, which is due to expire on March 1 of this year. The amendments have the twofold objective of facilitating the production of rental accommodations of adequate size suitable for

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