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The size of the increase requested is based generally on a continuance of recent levels of applications under section 203 and on an expansion of rental housing operations under this title following the expiration of section 608 on March 1, 1950, or the date of enactment of this bill, whichever date is earlier.
I would like to call your particular attention to the language recommended under section 106 of S. 2246 which amends section 207 (b) of the National Housing Act. In addition to requiring a mortgagor to certify that in the selection of tenants he will not discriminate against any family by reason of the fact that there are children in the family, it is further proposed that the Commissioner be authorized and directed in the administration of this section, by regulation or otherwise, to direct the benefits of mortgage insurance hereunder primarily to those projects which make adequate provision for families with children and to make every effort to provide such accommodations at moderate rental charges. These provisions clearly point out the intended direction of the 207 program; namely, providing adequate accommodations for families with children and to provide such accommodations at rents which better meet the abilities of families of moderate income..
In line with this objective we are recommending a sliding scale of ratio of loan to value somewhat similar to the pattern presently established under section 203 for single-family owner-occupied homes. These new provisions would permit a ratio of loan to value of 90 percent on that portion of the total value represented by $7,000 per unit and 60 percent on that portion of the value in excess of $7,000 per unit and not in excess of $10,000 per unit. This provision, we believe, will be very effective in encouraging sponsors to provide greater numbers of moderate-rental accommodations.
To further implement the objectives set forth above, we are recommending that the maximum mortgage per unit of $8,100 be applicable only in those cases where the average number of rooms per unit in a given project is 4.5 or more. In those cases where the average number of rooms per unit is less than 4.5, we recommend that the maximum loan per unit be reduced to $7,500.
Throughout our extensive operations under section 608, we found that, in order to give proper examination to applications for rental properties and to make adequate inspection thereon, we were required to charge an appraisal and inspection fee in connection with such cases of at least eight-tenths of 1 percent. Section 207 currently limits such fee to one-half of 1 percent, and we are accordingly recommending that this be changed to 1 percent.
To facilitate working out defaulted cases and avoid foreclosure wherever possible, we are recommending an appropriate amendment to provide that debentures issued under section 207 be issued as of the date of default, as has been the case in section 608, instead of issuing such debentures as of the date foreclosure proceedings commenced.
Senator SPARKMAN. Mr. Greene, all of that relates to the proposed amending of section 207, does it not?
Mr. GREENE. Yes, sir.
Senator SPARKMAN. We don't seem to have the amendments available yet.
Mr. GREENE. Title I and section 207?
Senator SPARKMAN. What is that?
Mr. GREENE. Title I and 207?
Senator SPARKMAN. Yes; and the purpose in amending title I is to lend permanence to that program?
Mr. GREENE. Yes.
Senator SPARKMAN. The purpose in amending section 207 is to liberalize the features. It is anticipating the discontinuance of section 608?
Mr. GREENE. Yes; and incorporating an incentive to build in the lower price range-the same incentive we have in the sliding scale un le section 203.
Senator SPARKMAN. Yes. I used the term "liberalize." It really changes some of the provisions of section 207 so as to make possible these larger family units.
Mr. GREENE. That is right.
Senator SPARKMAN. In rental properties.
Mr. GREENE. That is correct.
Senator SPARKMAN. Such as have been built generally under section 608?
Mr. GREENE. Yes.
Senator SPARKMAN. But the basic features of 207 are retained? Mr. GREENE. They are retained; yes, sir.
Senator SPARKMAN. Now, Mr. Foley, Senator Maybank was going to ask you some questions with reference to S. 2570, the bill that Senator Anderson is proposing.
You recall in the very beginning of the hearing he was eager to have those on the record. I suppose he will be in soon. Do you care
to comment on that now, however?
Mr. FOLEY. I will be glad to, Senator.
As I understand it, the question arises out of the submission of a special bill, S. 2570, with respect to transfer of a temporary-housing project. The questions were, as I understand it, first, whether the disposition provisions in S. 2246 would give the necessary authority to handle that situation, and the answer to that is "Yes."
you will permit me to do so I would like to read to you from the letter we have written on the subject:
The proposed general legislation contained in S. 2246, which is now pending on the Senate Calendar, would care for such situations and provide for the disposition of all war and veterans' housing in a consistent manner without discrimination among localities in like circumstances.
This proposed legislation would permit the village to secure transfer of this project upon payment of the cost to the Government of the underlying land if the village represents that it does not propose to dispose of the property for housing use except to another public agency or educational institution. It would also permit the village to purchase the project at its fair market value and subsequently to dispose of it in any manner in which it determined.
In the alternative, after a conditional or unconditional determination by resolution of the governing body of the village that the housing is satisfactory for permanent housing or nonhousing use in the community, the Housing and Home Finance Administrator could sell it to others at its fair market value without assuming any responsibility with respect to compliance with conditions contained in the resolution. The Administrator could, however, afford the village an opportunity to make arrangements with the prospective purchaser or purchasers as to compliance with conditions of the village concerning the use or physical characteristics of the housing. As you know, the enactment of disposition provisions such as those contained in S. 2246 would be in accord with the program of the President.
The second question, as I understand it, is whether under S. 2246, if the village should decide to offer fair value for the land and improvements, wouldn't the present physical condition of the improvements and the Federal Government's present obligation to remove them play an important part in determining the fair value of the Federal Government's interest in the premises? The answer is, "Yes; it certainly would."
Senator BRICKER. Where is this project?
Mr. FOLEY. In Deming, N. Mex.
Senator MAYBANK. Did you get the letter Senator Anderson wrote? Mr. FOLEY. Yes.
Senator MAYBANK. I would like to have the record show Senator Anderson's interest in these matters.
I would like for the committee, Mr. Chairman, properly to advise Senator Anderson that Mr. Foley states that the present legislation and the amendments pending will cover that situation.
Senator SPARKMAN. We will see that he is given notice of the statement Mr. Foley made here today. I recall that you suggested this to Mr. Foley at the beginning of the hearing this morning, and I knew you wanted it as a matter of record, and I thought now would be the proper time to receive the testimony.
Senator MAYBANK. I appreciate it. I would like for Senator Anderson to be notified of the situation.
Senator SPARKMAN. Mr. Foley, I want to ask just one other question:
I suppose this is as good a time as any to ask it. You said something this morning, in answer to a question by Senator Douglas, that a careful study was going to be made, or had to be made, of the Federal National Mortgage Association, looking toward needed changes, perhaps. Did I understand you correctly?
Mr. FOLEY. Yes. Substantially that. Do you mind if I expand on that?
Senator SPARKMAN. No. I particularly wanted to ask if you mean by that that there may be legislation later affecting FNMA?
Mr. FOLEY. There will be, I think, with particular reference to the matter of authorization. A question raised by Senator Douglas this morning had to do, as I understood it, with the general effect of the operation of the Federal National Mortgage Association in the present mortgage market; and undoubtedly he was concerned, as I believe, with the volume of operation, the volume of call upon the public to finance a secondary market.
The nature of the Federal National Mortgage Association as originally established was that it would be a stand-by, secondary avenue of liquidity, and a general aid in establishment of a private national mortgage market. There has been some concern expressed, in and out of Government, over the present volume of offerings, particularly of offerings under the Veterans' Administration homeloan-guaranty program, and wherein the secondary market privately financed will absorb them at the rate of speed that will give the desirable turn-over in this authorization without further impact in a budgetary manner. Those matters, of course, have always been under observation and are presently under particular study.
I am not at this time in a position to say when possible legislative suggestions would come forward.
Senator MAYBANK. Following up the question of the so-called FNMA mortgage: it is now continuing?
Mr. FOLEY. Yes.
Senator MAYBANK. For how long?
Mr. FOLEY. As long as the authorization granted by Congress in the last session should continue-which, according to present estimates, would last until approximately the end of the fiscal year, if the volume of commitments and offerings, which was evidenced as recently as November, should continue.
Senator MAYBANK. I asked that because when we continued it, it was rather excessive at the time, and we were told at that time the necessity for continuing it, and if we did, and the people were certain that it was the law, that there wouldn't be so many that the Government would have to take up.
Am I right in that?
Mr. FOLEY. I think you are right in the general expression. The point now in mind, no doubt, is as to what is the evidence with respect to that at this time?
Senator MAYBANK. Yes.
Mr. FOLEY. I don't have-and there are not yet available figures for operations during December; figures for November are indicated, but I am sorry that I can't remember the exact figures.
Senator MAYBANK. Will you supply them?
(The material appears in the tables on p. 50.)
Mr. FOLEY. It represents a considerable falling off in the amount of commitment purchases, but an increase in the purchases resulting from previous commitments.
One of the chief questions now to be considered is whether the falling off is a trend resulting from the very factors that you cite as having been quoted in the previous session.
Senator MAYBANK. In general, I was led to believe at the time that if we continued this there would be quite a considerable decline in the Government's necessity for taking up the mortgages, because it was the fear of the bankers and the people at that time that the expiration of the law was at the back door, and they rushed in.
Has there been that decline?
Mr. FOLEY. There has been a decline in commitments as of the month of November. Whether it has continued in December, I do not have the figures on that, and I do not know.
Senator MAYBANK. Wouldn't there be more houses built in November?
Mr. FOLEY. It wouldn't necessarily follow.
It is true whenever we are confronted with a dead-line date, whether in insurance authorization or something else, we do get a piling-up in advance of that.
Senator MAYBANK. There has been no appreciable decline in the Government's necessity for buying these Fanny May mortgages?
Mr. FOLEY. No, sir. One month's experience, I submit, is too little. There is also, and was, I think, advanced by some, in other hearings or formal discussions with members of the committee in the last session, the belief on the part of some private lenders that there would be a greater activity in the privately financed secondary market.
Senator MAYBANK. Yes. My information is that up until November there hadn't been any decline in the Government's necessity for buying those mortgages.
Mr. FOLEY. Yes.
Senator BRICKER. Do you have any figures on the amount of secondary market available through private money? Has that been increasing?
Mr. FOLEY. I do not have figures available at the moment. I think we could have some.
(The material appears in the tables on p. 50.)
Whether they would be sufficiently comprehensive, I don't know. The major problem, it seems, is not presently in FHA mortgages, but in the GI loans.
Senator BRICKER. How much money is yet available in "Fanny May" of the last authorization?
Mr. FOLEY. As of the end of November, my recollection is $960,000,000; something in that neighborhood.
Senator MAYBANK. Let me ask this question:
Do you know exactly the number of mortgages the banks put in; the amount?
Mr. FOLEY. As distinguished from other types of lending institutions?
Senator MAYBANK. Yes.
Mr. FOLEY. I do not have that break-down. I have asked for it through our relationship with the RFC, and they are attempting to give that break-down to us.
Senator MAYBANK. I asked that question to see whether or not the banks are gaining confidence in these mortgages.
Mr. FOLEY. The question is a good one, Senator, because of the differing motives that actuate lenders. Those who lend for maintenance of the mortgages in their portfolio have, of course, a different motive and guiding policy than that type of mortgagee which is not buying for his portfolio, such as the mortgage company, which makes them to sell.
Among the facts we need to know is the break-down of percentage of the sale of mortgages to the public secondary market by types of lending institutions.
All of that information is information which we are seeking to obtain. Senator BRICKER. What is the servicing charge?
Mr. FOLEY. I think it continues at a half. I think so, Senator. Senator MAYBANK. Is it your understanding that when the Government makes a direct loan to veterans it is predicated upon what the Amercian Legion put in the record; that the veteran has exhausted any opportunity to have a private loan? Loans are not made if a bank would be willing to make them; are they?
Mr. FOLEY. You are referring to the provisions of S. 2246? Senator MAYBANK. Yes; on which the American Legion testified that they want to protect whatever private banks there were.
They wanted to use those loans where there was no possibility for the veteran getting a loan privately.
Mr. FOLEY. That is my understanding of the provisions of the bill. Senator MAYBANK. The American Legion, the VFW, and these other organizations asked for loans only upon the condition that a