Frankly, I think that our tendency to shortchange these displaced people and economize at their expense may prove to be the most costly mistake we have ever made in the field of urban development.

The administration bill makes some very welcome proposals to make up for past inadequacies. If we go a little further, however, I believe that we will develop a more adequate relocation philosophy. No program or group of programs is going to compensate every citizen for every loss he suffers, but I think it is our obvious duty to minimize the impact and offer equal assistance to every person who must move. Senator SPARKMAN. Mr. Dwight Townsend, director of the Washington office, Cooperative League of the USA.

We are glad to have you with us, Mr. Townsend.

STATEMENT OF DWIGHT D. TOWNSEND, DIRECTOR, WASHINGTON OFFICE, COOPERATIVE LEAGUE OF THE USA

Mr. TOWNSEND. Thank you.

Senator SPARKMAN. We have your paper. Proceed in your own

way.

Mr. TOWNSEND. Mr. Chairman, for the record my name is Dwight Townsend, director of the Washington office of the Cooperative League of the USA. I am here to present testimony in support of the President's housing message and certain cooperative sections that we think need to be amended.

We are glad to have this opportunity to put before your committee the support of the Cooperative League of the USA relating to S. 2468. The Cooperative League has consistently supported legislation and was active in the first cooperative housing bill originating with this committee in April 1950. I am sure the chairman remembers this with a great deal of interest.

Senator SPARKMAN. I certainly do.

Mr. TOWNSEND. In addition to cooperative housing that is conventionally financed through labor unions and pension funds, the Federal programs administered by FHA, section 213 of the National Housing Act, have made it possible to provide housing for middle- and lower-income people. Under FHA, we have had 14 successful years of cooperative housing development. Mortgage insurance for $1,140 million has been provided making homeownership available through this cooperative technique for nearly 100,000 families.

The Cooperative League is particularly interested in the management-type cooperative which provides for continuing cooperative ownership of the housing community. The members of these cooperatives are a part of the 15 million total membership in the Cooperative League, which engages in other consumer cooperative activities to provide mutual self-help in credit, health, home supplies, various services as well as housing. Campus cooperatives, too, have rendered valuable service to their student members for housing during college years.

We want to associate our testimony with that of the National Housing Conference on S. 2468. Without elaborating here on the specifics within this proposed legislation, we feel that the bill needs several FHA amendments relating to sections 213 and 221 (d) (3) and FNMA.

We want to commend the wisdom of Congress for making section 221(d) (3) available for moderate income families, and particularly

we have appreciated the availability of the cooperative section under this program. Through cooperatives obtaining FHA-insured loans at the cost of money to the Government, it has been possible to provide housing for families displaced by urban renewal and other Government programs as well as to serve other families who could not otherwise afford decent homes.

Besides being nonprofit organizations, cooperatives give people an opportunity for mutual homeownership, which produces better communities with a greater sense of personal responsibility among the residents.

There is one amendment which is needed in section 221 (d) (3). We believe through inadvertency that this section is now limited to providing housing only for families. It excludes single persons, unlike any other provision in FHA legislation. The pending bill would partially correct this by permitting single persons to occupy such housing but only if they are elderly. We oppose this restriction in the amendment. Certainly where single persons are being displaced from urban renewal or other areas, they should be eligible for 221(d) (3) housing.

We recommend that the pending bill be amended to eliminate this limitation, so that 221 (d) (3) will be consistent with other FHA legislation by permitting occupancy of eligible single persons.

As a consumer organization, we were glad to comment on the Gruening proposal, S. 1200, which is also provided in this bill and which recognizes the right of the consumer to obtain a home which is free from structural or other major defects.

In buying homes with FHA insurance, purchasers rely upon the protections afforded by FHA construction standards and inspections, just as mortgagees rely upon the protection of FHA insurance of their mortgages. We think it is most important that this bill provide affirmative measures which will enable FHA to correct these defects and relieve homeowners of the burden of acquiring a home which may prove to be uninhabitable and unfit for occupancy.

Since cooperatives are a form of homeownership, the cooperative purchasers are entitled to the same kind of protection as other home

owners.

Like other homeowners, cooperative purchasers are making an investment and acquiring a home in reliance on FHA construction standards and inspections. The bill should be amended to extend to cooperative housing the same FHA protections against structural and other major defects.

In 1961, by adding subsection (J) to section 213, Congress wisely amended the cooperative housing provisions to permit supplementary financing in order to provide for necessary improvements in cooperative housing so that it can keep pace with requirements of modernization; also to permit the addition of community facilities when experience demonstrated their need.

However, that legislation included a limitation that the supplementary financing could only be provided to the extent that the original loan had been reduced through principal amortization.

We have found this legislation unworkable. The cost of necessary improvements and community facilities require financing in a larger amount than would be available with the present ceiling that

supplementary loans cannot increase the project mortgage above the original mortgage.

Since these additional facilities will add to the value of the property beyond what was covered by the original mortgage, it is reasonable and proper that the mortgage be increased in recognition of the increased cost levels and values involved in the new improvements and betterments.

Accordingly, we recommend the removal of the present unworkable ceiling statutory limitation on the amount of a supplementary loan.

Another amendment is necessary in FHA and FNMA as a result of the success with section 213. As a 213 management-type cooperative matures, and members' equities increase as the mortgage is paid off, a problem arises when a member must move away from this cooperative and sell his equity. A new member acceptable to the board of directors should be permitted to join the cooperative with a reasonable downpayment and with access to credit, sufficient to purchase the equity of the departing member.

In other words, a successful cooperative housing project automatically develops a financial problem because it is successful. New members should be able to purchase into an existing cooperative with a reasonable downpayment just as new homeowners can purchase existing single-family houses.

Financing for this purpose can be made available through an amendment to section 213 (J) relating to supplementary financing for cooperatives. To the extent that the mortgage has been reduced through principal payments, we propose that the cooperative be authorized to obtain a supplemental loan which could be used to assist new members in purchasing the units of withdrawing members.

The new members would continue to pay their 3 percent downpayment plus their share of working capital. However, they may be unable to pay the amount of equity accumulated by withdrawing members evidenced by reductions in the cooperative mortgage. The cooperative should be able to accept such new purchasers with the same downpayments as the original purchasers and to permit them to pay the increased price, representing equity accumulation, through reasonable monthly payments over a period of years.

The cooperative has an option to repurchase on a nonspeculative basis, so that this method of financing would continue to observe the principle of nonprofit operation with financing at a reasonable cost.

At the same time, we recognize that the FHA may condition such supplementary loans upon a determination that the present value of the property justifies the supplementary loan. We would expect this to be true in all cases, particularly when we take into account the rise in cost levels and in the values of cooperative communities.

Where a rental housing project has been acquired by FHA, which a consumer cooperative desires to convert to successful operation, an amendment should be included that would authorize FHA to make a negotiated sale to the cooperative at a price fixed by FHA representing its fair value.

The reasons for this are obvious. Tenants living in a multifamily housing project could very well pay FHA the fair market value of property which they would operate for their own use on a nonprofit

basis. This is a good way to encourage homeownership and to help FHA dispose of acquired properties at their full market value,

An amendment to the FNMA legislation is necessary so it will parallel FHA in the statutory limits on cooperative mortgages eligible for purchase under the special assistance program. Cooperative mortgages have been purchased under the FNMA special assistance program and the record shows that this has been a very successful program.

We again urge the committee to include a mutual mortgage insurance fund for 213 for cooperative homeownership, the same as now enjoyed by individual homeowners under 203. Mutuality in mortgage insurance funds has been applied successfully to homeownership in one category. It should not be denied to cooperatives which is another category of homeownership.

In fact, mutuality is the essence of our cooperative housing program that has made it so successful with patronage refunds covering receipts in excess of money needed for operations.

The mutual feature of an insurance fund permits refund to homeowners where experience demonstrates that the premiums collected exceed the losses and costs incurred. This is well proven in section 213 and the housing insurance fund should now show many millions of dollars of accumulated mortgage insurance funds in excess of any present or future need.

We believe a mutual mortgage insurance fund for cooperatives is necessary as a matter of equity in order to treat all homeowners alike. Cooperative housing has performed key role in the developed countries of the world. The most successful of these are the Scandinavian countries, where it has been necessary to build "up" with high-rise structures, instead of "out."

In the United States we are being told that, in another 6 years, when our population is expected to be 214 million, we will have nearly three-quarters of our people living in 184 metropolitan areas. Housing problems are sure to mount within the next few years. We should avail ourselves more fully of the successful cooperative techniques to meet these growing needs.

In connection with the pending sharp rise in population, we will be faced with other areas of community development as part of our expanding economy. We look with favor on the President's recommendation for a Department of Housing and Community Development that will be needed in fulfilling the Federal responsibility for community development and in dealing with the complexities that arise as we must expand commensurate with our expected 214 million people.

Mr. Chairman, that concludes my testimony, and I will be glad to answer any questions.

Senator SPARKMAN. Thank you, Mr. Townsend. You have given us a very fine explanation of the cooperative program.

There is a good bit of technical material in it, but I assure you we will study it most carefully in connection with the writing up of our

measure.

Mr. TOWNSEND. Thank you, sir.

Senator SPARKMAN. Thank you very much.

Before the committee goes into recess, let me announce that hearings will be extended to Tuesday, March 4, in order to have the administration witnesses before us again.

Members of the subcommittee will have an opportunity of exploring with the administration spokesmen questions raised by witnesses during the hearings.

We expect to close out the hearings next Tuesday, and we hope to have the hearings printed reasonably soon thereafter.

The committee will stand in recess until 10 o'clock tomorrow morning.

(Whereupon, at 12:45 p.m., the subcommittee recessed, to reconvene at 10 a.m., Friday, February 28, 1964.)