preferred stock, and is authorized to obtain additional capital by issuing and selling in the investment market its obligations guaranteed by the United States in an aggregate amount of $300,000,000, which, with Presidential approval, may be increased by additional amounts aggregating not more than $1,700,000,000.

It is contended that by the offering of the obligations of the National Mortgage Corporation for Housing Cooperatives in the investment market private capital funds will, in effect, be utilized in making the proposed mortgage loans to the cooperative associations.

Actually the investor in these obligations would purchase them on the basis of the United States Government guaranty and the Government would be making direct mortgage loans with such funds through the National Mortgage Corporation for Housing Cooperatives.

From a practical standpoint we believe it is immaterial whether the funds used in making the loans are secured by means of direct Treasury borrowing or by what is, in effect, the endorsement by the Government of the obligations of the National Mortgage Corporation for Housing Cooperatives.

Either action has the same basic impact upon the bond-investment market supplying needed Government funds, and on the mortgageJoan market through direct competitive lending.

We oppose as unsound and unwarranted the principle of direct competitive Government lending for mortgages on residential property, and it is our further opinion that the objections to this substitute amendment to title III of S. 2246 go far beyond the objection on the basis of principle.

As we have pointed out in previous statements before this committee on S. 2246 and also S. 712, we sincerely believe that section 207 (c) of the National Housing Act makes adequate provision for loans to cooperatives, and that, under the provisions of such section, soundly conceived cooperatives can be, and are being, financed by the FHA. We further believe that the maximum term of 40 years for mortgages on cooperatives on a 95-percent of value basis as provided by FHA represents the utmost in liberal financing which should be available consistent with safety.

I noticed in Dr. Silk's testimony just previous to mine that under the Swedish plan the total amount of mortgages, as I understood it, did not exceed 95 percent of the total cost of the project, first, second, and third mortgages.

Senator SPARKMAN. That is true in many cases, but there is another element which Dr. Silk did not touch, that in many of these cases the Government puts on a fourth mortgage upon which no interest is charged for 10 years, and no period of amortization is given, provided the property is well maintained over that 10 years.

Of course after the 10 years is out, it becomes in effect a subsidy. I started to check him on his statement that this legislation was more liberal than the Swedish legislation. As a matter of fact, it is not a liberal as the Swedish loan arrangements.

Of course, other things enter into it which we will not go into here. Sweden, for instance, has done something, as all Scandinavian countries have done. They have worked out, purposely, a program to compensate against what might otherwise have been rising rents, or to compensate against increased costs of home building.

Many things enter into the picture, and I do not think we can compare the Swedish system with this system on any basis and be certain that the comparison is completely correct.

Mr. HELD. Not even a mortgage basis?

Senator SPARKMAN. No; I doubt that. In other words, it is not a pattern that we can simply apply here.

Mr. HELD. My own bank has financed one completed cooperative under FHA section 207 (c), for 800 veteran families, in the amount of $7,222,000.

I might mention that the last veteran's family moved in on December 31, 1949.

We have also issued a commitment for a further cooperative based upon an FHA section 207 (c) commitment for $5,000,000, and are awaiting the issuance of an additional commitment for $3,000,000 for a third cooperative unit. This additional $8,000,000 will provide cooperative units for an additional 850 veteran families.

Senator SPARKMAN. Are all of those under FHA?

Mr. HELD. All under FHA; yes, sir.

Senator SPARKMAN. What size units are they?

Mr. HELD. I have pamphlets which I would be glad to let you gentlemen look over.

Senator SPARKMAN. We will be very glad to have them.

Mr. HELD. The units run three and a half, four and a half, five, and six. The three-and-a-half's and four-and-a-half's are sold quickly, and the fives and sixes are sold on a much slower basis.

Senator SPARKMAN. I assume they are apartments?

Mr. HELD. Yes, sir.

Senator SPARKMAN. You show $65.21 monthly charge. Is that the total charge?

Mr. HELD. It includes everything, decorating, heat, and everything that the occupant has to pay. That pays off that mortgage, not in 40 years but in 34 years and 6 months.

Senator SPARKMAN. Of course, New York State and New York City have done some things to help out in this, too, have they not?

Mr. HELD. We definitely have. We have a redevelopment law. I noticed Walter Reuther mentioned the Thomas Gardens this morning. That was done under the original limited-dividend law that was passed in New York State in 1924. Amalgamated came right after that.

Senator SPARKMAN. What are the special benefits the State and the city gave?

Mr. HELD. Under the limited-dividend law, the Corporation is limited to 6 percent return on its dividend. That is maximum. Under the original law, tax exemption was mandatory upon the municipality. Today it is optional. The municipality has to pass on it. Senator SPARKMAN. New York City has granted tax exemption; has it not?

Mr. HELD. Yes, on Bell Park Gardens and on this. There are four other projects that are presently up before the board of estimate, the Amalgamated Meat Cutters Union of the American Federation of Labor, which will create 288 units in Brooklyn.

The Amalgamated Clothing Workers Union in the Bronx has created 750 units.

60838-50----22

There is a very large project of 2,000 units in Flushing, Hillcrest, by the International Brotherhood of Electrical Workers of the A. F. of L., which we anticipate will receive tax exemption and will also be financed under 207.

Senator SPARKMAN. Do I understand correctly, then, that the tax exemption is not automatic? Each case is passed on separately?

Mr. HELD. Each case is passed on its individual merits.

Senator SPARKMAN. Is there an ordinance which provides that if it meets certain requirements it will be exempt?

Mr. HELD. No, sir. In Mount Vernon they have granted one for a veterans' cooperative under the same plan, and it had to go before their city council. It is completely discretionary and optional. They can give full or half tax exemption or anything that will make it work. Senator SPARKMAN. Is there any county tax exemption, or does not the county levy taxes?

Mr. HELD. The county does not levy taxes.

Senator SPARKMAN. What about the State itself?

Mr. HELD. There are no State taxes.

Senator SPARKMAN. The city is the taxing unit in the State of New York; is that it?

Mr. HELD. What has been done, the land remains taxable at its assessed value.

Senator SPARKMAN. Unimproved?

Mr. HELD. As if unimproved. The improvements have been_taxexempted for a period of 30 years. That is actually what they have done.

Senator SPARKMAN. Suppose they had to pay that tax. How much would that add to the cost?

Mr. HELD. It would add $4 per room per month.

Senator SPARKMAN. So, a 42-room apartment would be $18 a month more?

Mr. HELD. Yes, sir.

Senator SPARKMAN. Which would run that to $38, approximately? Mr. HELD. That is right; and our public-housing units, incidentally, are running at $18 a month.

Senator SPARKMAN. You mean the economic rent. All right.
Did you want to ask any questions at that point, Mr. Long?
Senator LONG. Not at this point.

Senator SPARKMAN. Go ahead. That is very interesting. I am glad to have it.

Mr. HELD. We have further expressed preliminary approval of approximately $64,000,000 of loans to limited-dividend corporations under New York State law, which loans are to be made within the framework and upon issuance of a Federal Housing Act, section 207 (c), commitment. These loans in themselves will provide housing units for 6,800 families. These are pure rental units and are not cooperatives.

The monthly rental or carrying charges do not and will not, in any of the above cases, exceed $15 per room, including all maintenance, mortgage charges, and setting up of replacement reserves.

We feel that these are soundly conceived cooperative and limiteddividend projects, and believe that there has been a demonstrated ability, at least in New York State, to meet the middle-income market with privately financed projects such as those mentioned.

On the other hand, we are of the opinion that this substitute amendment to title III of S. 2246 will encourage a procession of promoters to submit to the director appointed by the Housing and Home Finance Administrator in charge of the National Mortgage Corporation for Housing Cooperatives propositions that look good on paper but which have no basic practicality.

Under the liberal terms of this legislation, such promoters would have no trouble in forming a group of cooperators with no investment required of them, and, I might add, that no investment would be required of the promoters.

It must be recognized that normally after completion of the project the promoter's job is finished. If erroneous estimates have been made of the cost of carrying the project, the promoter does not suffer, but the cooperative owner would be faced with a higher monthly carrying charge than originally represented.

That might be brought about very easily by underestimating future tax assessments. It might also be brought about very easily by underestimating actual maintenance charges.

In other words, if they estimated actual maintenance charges on the basis of $15 a room and at the end of 2 or 3 years they went up to $20 a room, then the cooperator has without question an additional $5 bill per room added onto his rent. There is no one else to pay it.

That cooperative housing is a highly specialized and highly technical field was recognized in the statement in the President's budget message that because of the limited American experience with housing cooperatives, this program initially must be viewed as experimental. No finer treatise on mutual housing has ever been published than that prepared and published in December 1946 by the National Housing Agency under the title "Mutual Housing-A Veteran's Guide."

Part 4A of this publication, under "Financing," outlines sound principles on which cooperatives should be financed, yet a comparison of the proposed legislation with the sound principles contained in this publication shows a complete violation of almost every sound principle recommended.

The purpose of this bill is to provide housing for the middle-income group. It is our opinion that there is no need for this legislation. The private housing industry is allotting the largest part of its output to meet the housing needs of the middle-income group.

Based on figures in the Insured Mortgage Portfolio for the third quarter of 1949, 69.2 percent of the FHA mortgages secured by new single-family homes during 1948 under section 203 had an average property valuation of from less than $4,000 to $9,389.

The average property valuation for all of the 29,300 newly constructed dwelling units in 1948 under Federal Housing Act section 203 was $8,965.

As the economy house program got well under way in 1949, I am certain that this average for 1949 will be much lower.

One of our Brooklyn savings banks has reported that since midsummer 1949 it has made 630 FHA-insured title-I, class-3 loans-with a loan limit of $4,500-in the total amount of $2,686,470, and that in addition it has commitments for 2,013 more loans aggregating $9,716,000.

My own institution closed almost 2,500 loans in Levittown on properties selling at $7,990 fully equipped with electric range, electric refrigerator, and washing machine.

I cite these as typical examples of the progress which has been made by the private home-building industry in bringing housing to the middle-income group. Rentals in several Federal Housing Act 608 projects are also scaled lower than at any time since the end of the

war.

I firmly believe that enactment of this legislation would not be in the best public interest. It would create an unsound principle of direct Government lending, is unnecessary because of the progress of the private residential-building industry in providing lower-cost houses and a lower-rental market, and would at best produce housing of doubtful value from every standpoint, most of all from the standpoint of the tenant owners whom such legislation is proposed to help. We will be most appreciative of your committee's careful consideration of these views.

Senator SPARKMAN. Thank you very much, Mr. Held. Any questions, Senator Long?

Senator LONG. Your statement does not relate at all to the other amendments; for example, those dealing with loans for rental property to private investors.

Mr. HELD. No, sir; we covered that in our previous testimony, and we kept this to just the amendment.

Senator LONG. In other words, your amendment relates only to the cooperative-housing phases of this bill?

Mr. HELD. To the Maybank amendment.

Senator LONG. What is your attitude with regard to the other amendments on rental housing, the 90-percent loan, and the January11 amendment?

Mr. HELD. The FHA increases in amounts up to 95 percent?

Senator LONG. Ninety percent up to $7,000, and I think a 60-percent loan thereafter.

Mr. HELD. That is right, and additional amounts as you add additional bedrooms, and so forth. Is that the one you are referring to? Senator LONG. That is right.

Mr. HELD. We are in favor of that.

Senator LONG. I have had some doubts about that principle of lending on this ground: that most of the people building these projects for rental were the contractors themselves-in otherwords, the contractor building the project was also going to be the landlord.

From my own personal knowledge, I know that under 608 in many cases the 90-percent loan, although theoretically it was a 90-percent loan, actually amounted to a loan in excess of the cost of construction of the project.

Mr. HELD. The same thing may happen in connection with this bill. Obviously, if you predict today and set up your plans, specifications, and so forth, for your whole project, and you bring down a cost estimate, down to $1,000,000 as of today, the project may not get started for 3 months. Then it may take 18 months to complete. You have a 21-month period involved.

With a million-dollar figure on which you base your loan of $900,000, we will say, or 90 percent, depending upon the labor market and depending upon material and depending upon weather, and a great