Mr. CAMPBELL. Under the broad language of the legislative proposal it is conceivable that an existing nonprofit organization which, created under State charter, had authority in other fields might also undertake and apply for assistance under this proposal.

However, certainly insofar as the grant program goes, the grant portion of it, that would all have to show up in the construction of the housing for the domestic farm labor.

I think that is a subject which the Administrator would probably want to define further by regulations. Certainly we would not want any of this housing grant money to get in the general funds of a nonprofit organization which had for its major purpose some other activity.

Senator TOWER. No, I understand that. But then the answer would be "Yes," that a union of agricultural workers organized, say, primarily for the purpose of securing better wages or working standards, and so forth, could conceivably qualify under this?

Mr. CAMPBELL. Under the broad language of the act. I am reserving, however, the right of the Administrator to further qualify the eligibility standards when he gets the program into operation. If he found some difficulties in the area which you are suggesting perhaps the eligibility requirements under regulations might be narrower than that.

Senator WILLIAMS. It is probably anticipated that most of these nonprofit organizations would be grower associations, farm bureau, as they are now organized.

Mr. BERTSCH. All of it associations. This is simply an expansion of legislation which we are now administering, the expansion being the addition of the grant feature to it. We have made about 16 loans to associations to construct housing for domestic farm laborers to this point, about $750,000 total. It is a small start, a modest start. These loans without exception have been made to associations of growers or to individual growers who had a large enough operation to make it economically feasible to construct housing for their farm laborers. Senator WILLIAMS. You have 16 of those in operation?

Mr. BERTSCH. Yes. Let me check.

Senator WILLIAMS. The last time we were together I think there was one in Idaho.

Mr. BERTSCH. That was our first one.

I am wrong by one. As of December 31—and I am referring now to my statement on page 6-as of December 31, 1963, 15 loans totaling $769,750 had been made to farmers or organizations to finance better housing for farm laborers. We estimate that through this vehicle better housing had been provided for 180 families and an additional 400 single persons.

Senator WILLIAMS. What are the insured loan rates?

Mr. BERTSCH. The insured loans carry an interest rate to the borrower of 5 percent.

Senator WILLIAMS. What would the grant formula be under the proposed bill?

Mr. BERTSCH. Of course, the grant would be a construction grant, a one-shot grant, and it by the statute could not exceed two-thirds of the total construction cost. The actual amount would be determined on the basis of an operating statement submitted by the applicant

showing the amount of the total construction cost which the operations of the facility could reasonably be expected to retire from rentals, rentals being established at a rate which domestic farm laborers could afford to pay. The difference then between the debt-paying ability of the applicant and the cost of the facility would be accounted for in the amount of the grant.

Senator WILLIAMS. Was this program developed in response to the fact that the insured loan program did not have many takers?

Mr. BERTSCH. Well, this is still an insured loan program. It was developed in response, I suspect, to the fact that a great many growers due to the short occupancy period of farm labor housing, 4 months during the year, 5 months during the year, and the balance of the year being idle, and due to the cost price squeeze in agriculture with which growers were confronted and the relatively narrow profit margins they were enjoying, many growers found it impossible to economically justify the construction of adequate housing for their farm labor.

Senator WILLIAMS. You said as you opened that last remark these are insured loans.

Mr. BERTSCH. Yes.

Senator WILLIAMS. I thought it was a grant, a one-shot grant.

Mr. BERTSCH. That portion of the loan which is made is insured. That portion of the construction cost which is granted which may not exceed two-thirds of the total cost of construction would be a direct grant.

Senator WILLIAMS. I see. Then you could have a two-thirds grant and a one-third insured loan?

Mr. BERTSCH. Right.

Senator WILLIAMS. I see.

Anything else on this area, Senator Tower?

Senator Tower. No.

Senator WILLIAMS. I wanted to raise another problem here, Mr. Bertsch. I have a letter from our friend in Jackson, N.J., Mr. Sprinkle, and I would like to put his complete letter in the record at this point, without objection.

(The letter from Mr. Sprinkle follows:)

Hon. HARRISON WILLIAMS,
Senator, State of New Jersey,

Senate Office Building,

Washington, D.C.

JACKSON, N.J., February 11, 1964.

DEAR SENATOR WILLIAMS: Under the Housing Act of 1949, section 5, broadened in the fall of 1962, the rural section, administered by the Farmers Home Administration, was authorized to make direct and insured loans to provide rental housing in rural areas for senior citizens, 62 years of age or older.

By the terms of this legislation, I secured an insured loan of $100,000 for such a project in June of 1963. It was built in Jackson Township, N.J., and consists of 20 apartment units. As a matter of fact, you Senator attended the dedication ceremonies.

My initial operation here is successful to the extent that I have more applicants than I have apartments available. I have, therefore, sought additional insured funds through Farmers Home Administration to add more units to my present group. This application, however, has been denied.

I have received tentative approval for another $100,000 insured loan to build a series of apartments at a location 2 miles away from my present units. But I am told that due to policy being followed by the Administration, I cannot be approved for additional insured funds to construct more units at my present location.

This policy places a hardship on individuals such as myself, who wish to provide housing for the elderly under this program. The loan limitation places undue hardship on the investor, and restricts his ability to provide the extra features that would make this type of housing even more attractive and desirable.

A larger insured loan, or additional loans approved for the same or adjoining site, would make it possible for us to complete a self-contained apartment grouping. We would be able to provide recreational facilities of a varied nature for the enjoyment of the tenants. With more apartments located in the same general area, costs of maintenance, utilities, etc., could be kept on a proportionately lower basis, thereby helping to stabilize rental costs to tenants. Larger groups of tenants in the same area would induce local merchants and businessment to offer improved shopping services and facilities to them.

Thus in not permitting a second project to be approved adjacent to my existing project, but approving one which is at a separate location apart from the existing site, will severely restrict me in developing a more complete and rounded program for retired citizens who occupy my rental units.

It seems senseless to me that I, a a builder, owner, can be approved for a series of $100,000 loans, as long as they are at various scattered locations, but I cannot be approved for more than the above amount at an adjacent location.

I do not know whether these restrictions are actually based on Federal statutory requirements or if this is just policy being followed by the Farmers Home Administration. I do feel, however, in order to do justice to this program, a clarification of the requirements should be made.

Possibly amending the Housing Act to cover a larger initial loan of this type or to permit additional loans extending a project already started, would be a step in the right direction.

I might point out that our local farm home administrator and the State farm home administrator are in favor of permitting larger insured loans at the same location.

I bring these facts to you in the hope that you will be able to give this problem some thought. Within a couple of weeks I would like to have an appointment with you at your offices. Possibly, at the same time, we could meet with Mr. Bertsch of the Farm Home Offices in Washington and your legal staff, if necessary, to discuss possible changes in the Federal legislation. I am quite frankly interested in seeking proper permission to transfer my second tentatively approved $100,000 loan from a location 2 miles from here to my present location, which would permit me to enlarge and improve my present location.

Yours very truly,

CLARENCE SPRINKLE.

Senator WILLIAMS. He describes his situation. You know his program: low rent for elderly persons. He had a loan of $100,000 and did a remarkable job with it. I have seen this housing development, full occupancy and many on the waiting list.

It is his hope that he could expand this community with a second loan of $100,000, and he ran into what is either a legislative or administrative roadblock when he was told that he could not expand this community but he could get a loan for another development miles

away.

It was his thought that it could be a better community if his expansion came in adjoining land that he evidently owns, with the possibility perhaps that commercial or other interests might find this attractive and bring services closer to his elderly tenants.

I wonder if it is an administrative block or a legislative block. Mr. BERTSCH. I am familiar with the problem of Mr. Sprinkle. The statute, the Senior Citizens Housing Act of 1962 under which this loan was insured provides in the statute a $100,000 limitation on any one project. Quoting from the statute, the provision is that no such loan shall exceed $100,000 or the development cost or the value of the security, whichever is less.

As you have pointed out, Senator Williams, we insured a loan made by the Asbury Park National Bank in the amount of $100,000 in this instance.

When Mr. Sprinkle subsequently applied for a second loan we had the sensitive problem of determining what the intent of this legislation was and to avoid any contravention of the legislative limitation. It did not limit the number of loans which we might make to a single applicant, you see, but did limit the size of the loan.

We advised with legal counsel on this question, and it seemed to us that the only proper and appropriate answer we could give was that making a succession of $100,000 loans to build and then expand the same project would clearly be in contravention of the intent of the statute. So we said to Mr. Sprinkle "we are not statutorily limited to making you only one loan, but we must rule that any second development which takes place with the second loan must be a clearly distinct and distinguishable separate development."

Senator WILLIAMS. Would you agree that there is a certain wisdom in Mr. Sprinkle's suggestion that if he could expand a very successful development such as he has it might have other attractions that would make it move livable for the senior citizens there?

Mr. BERTSCH. Yes, Senator, I would. We have studied the legislative history of this statute. We find no deep consideration given to this issue. We believe the reason that the Congress fixed the $100,000 limitation and which in my judgment was a wise limitationprobably had two reasons.

Senator WILLIAMS. At that time it was wise.

Mr. BERTSCH. At that time I think it was wise. We were entering into a new field without experience in the field. Rural housing for senior citizens, rental housing, obviously serves a more sparsely settled community than does urban rental housing for senior citizens. This was a control that would prevent overbuilding with relation to the demand.

We have another program to nonprofit associations for senior citizen rental housing which is a direct loan program, and strangely enough, there was no statutory limitation on the size of those loans. Senator WILLIAMS. I missed that. I was looking back at the letter. What program?

Mr. BERTSCH. We have a direct loan program made from revolving funds to nonprofit associations at more favorable interest rates. Senator WILLIAMS. Is that a rural oriented program?

Mr. BERTSCH. For rural residents.

Senator WILLIAMS. Well, how is that working out?

Mr. BERTSCH. That was not funded until late in last fiscal year, and we have just now approved our first such loan under that authorization. But we fixed an administrative limit of $200,000 with respect to that program for this same reason, to avoid overbuilding with respect to the concentraion of potential users. It seemed to us that $200,000 was a sane and sensible administrative limit at that time.

Senator WILLIAMS. Well, I believe you are probably right. Two years ago it was felt a new and untried program should be started conservatively to see how it develops and see whether it will be useful protection against overbuilding.

What has been the experience under this program? Has it met a need and do you find it effective?

Mr. BERTSCH. It is a very effective program, and there is a need. We have insured 6 projects, including 46 units. We have 38 additional applications under active consideration. The average cost of the housing units under this program has been kept to $6,000, which we think is a remarkably efficient construction figure.

We are enthusiastic about the potential that this program holds. Senator WILLIAMS. Well, just one further observation. Mr. Sprinkle advises me that you have looked favorably on a second $100,000 loan with the requirement that it has to be a couple of miles from the existing housing that he is renting.

Mr. BERTSCH. He acquired a second site, and our requirement was only that it be a distinctly different project. He acquired a second site and made application for a second loan for construction.

Senator WILLIAMS. It is really close to the same community, is it not?

Mr. BERTSCH. It is in the same county, yes. I do not know how close it is to the same project.

Senator WILLIAMS. I would think that would be evidence of your conclusion that his proposal would not contribute to overhousing the community but there is a need for the housing existing within that community.

Mr. BERTSCH. Yes, I think that is correct. At least in that county. Senator WILLIAMS. Well, I think we will probably go further with this and examine it and perhaps try to improve the present situation, which I think as it has developed is an unwise limitation.

Mr. BERTSCH. I made no undertaking to clear an administration point of view on the wisdom of this $100,000 limitation, but any research I have been able to do has not indicated that there should be any administration objection to increasing it.

Senator WILLIAMS. Fine. That is very good news.

I have nothing further.

Senator TOWER. I have nothing.

Senator WILLIAMS. The time is running out on us. Mr. Dervan from the Veterans' Administration is our next listed witness.

We certainly appreciate that fine statement, Mr. Bertsch.

Mr. BERTSCH. Thank you, Senator.

Senator WILLIAMS. It was clear, precise, and very helpful.

STATEMENT OF JOHN M. DERVAN, DIRECTOR, LOAN GUARANTY SERVICES, DEPARTMENT OF VETERANS' BENEFITS, VETERANS' ADMINISTRATION

Senator WILLIAMS. Mr. Dervan, we have your statement. Would you like to summarize your statement and put it completely in the record?

Mr. DERVAN. Mr. Chairman, the bill S. 2470 is simply a counterpart of the provisions which are included in the Housing and Community Development Act of 1964 relative to the Federal Housing Administration and which would authorize the taking of corrective action where structural or other major defects are discovered in newly constructed homes purchased by veterans with GI financing.