housing authority is approved, and then advertisements are given, much as in the turnkey method, to the community to have developers bid to do the job, and to supply the units for a certain rent. If it is done on an FHA basis, there will be the normal FHA insurance cost analysis.

If it is not on an FHA basis, it will be similar to the turnkey basis, in which case the developer agrees to build for a certain rental, and the difference is his profit or loss.

SECTION 23 MANAGEMENT COSTS

Mr. BOLAND. How will housing management costs be covered for the revised section 23 program?

Mr. KEARNEY. The management costs of the local housing authority will be on the basis of an administrative fee that we will soon be publishing in the Federal Register, based on 3 percent of the rent roll. The housing management costs of the central office, insofar as they involve the FHA insurance programs, will again come out of the FHA funds, or if they are not involved in FHA programs, they will be out of salaries and expenses appropriation.

Mr. BOLAND. What is in the 1975 budget for management costs of the section 23 program, either directly or indirectly?

Mr. KEARNEY. I would turn to Mr. Crawford.

Mr. CRAWFORD. We are requesting an additional 105 positions for housing management for assistance in dealing with the section 23

program.

PAYMENT OF MANAGEMENT FEE

Mr. BOLAND. Will an allowance be made to the owner for management, and to the local housing authority in the annual contribution

contract?

Mr. KEARNEY. The owner's compensation for management will be included in the rent. The LHA, as I say, gets a separate fee. That is included in the annual contributions contract.

JUSTIFICATION MATERIAL

Mr. BOLAND. We will now turn to the program explanations for HPMC, which begin on page C-1. We will place the appropriate summary tables, pages C-1 through I-17 of part 1, and pages B-1 through B-12 of the budget amendment justification in the record at this point.

[The material follows:]

Unit application receipts under all categories of programs are projected to increase by a net total of 169,000 in fiscal year 1975 compared to fiscal year 1974. This reflects an anticipated reversal of the downward trend in applications which began in fiscal year 1972 and is based upon anticipated improved market conditions.

Unsubsidized Mortgage and Loan Insurance Programs

The number of loans insured under Title I is expected to increase by 70,000 in 1975, and the total amount of loans insured during the year will increase proportionately by $370 million. It is expected that the mobile home insurance activity will increase from 30,000 in 1974 to 60,000 units in 1975, and Property Improvement activity from 360,000 in 1974 to 400,000 units in 1975.

It

The estimates are based on the assumption that legislation will be enacted raising current mortgage limitations and giving the Secretary the authority to set the Title I home improvement loan interest rate. They reflect, also, his authority to set interest rates for mobile homes as extended in P. L. 93-234. is expected that these changes will increase the volume of unsubsidized insurance applications as well as the volume of Title I loans, although the number and amount of such loans will depend on the interest rate actually set.

EXPLANATION OF APPLICATION RECEIPT ACTIVITY

1. One-to-Four Family Home Programs. Unfavorable market conditions which began to develop in early 1972 have had their greatest quantitative impact on the unsubsidized home programs. Unit application receipts decreased by 51 percent from 778,284 in 1972 to 394,619 in fiscal year 1973.

It is anticipated, however, that the changes now evident in mortgage market conditions will increase the demand for FHA insurance, and administrative and legislative constraints will be alleviated late in this year. This is expected to result in a rise in unit application receipts from a level of 378,700 in fiscal year 1974 to 555,000 in fiscal year 1975.

The mitigation of the problem with respect to home programs is expected to come as a result of both legislative and administrative actions. The first positive step, the administrative setting of the interest rate ceiling at 8 1/4 percent has already been effected. This will make FHA more attractive to borrowers and increase the portion of the housing market able to afford housing at current prices.

As a second positive step, it has been proposed that the Congress increase the mortgage limits and adjust the loan to value ratio formula to correspond to the higher mortgage limits; this is expected to occur in the last quarter of fiscal year 1974.

Rising home prices have affected both new and existing housing, precluding the FHA from a large portion of even the moderate cost housing market. As a result of the inflexible mortgage limits and loan/value ratio formula, downpayment requirements have increased significantly over the past several years as indicated in the following table.

a/ Represents all new units sold, conventional as well as Federally insured.

Unsubsidized Mortgage and Loan Insurance Program

The detailed estimates of 1975 home program activity are given below:

a.

Home Mortgage Insurance, Section 203(b). The Basic Home Mortgage Insurance Program, Section 203(b), constitutes the bulk of all FHA unsubsidized mortgage insurance application receipt activity. This section was written in 1934 to facilitate homeownership and the construction and financing of housing, to generally upgrade the stock of housing in the country and to improve mortgage lending practices.

Under terms of the basic homes program, an individual can obtain an FHA insured mortgage loan at a private financial institution (for up to 97 percent of the property value and for terms of 30 years) to purchase a one-to-four family property.

Total unit application receipts under the program were 877,121 in 1971, 685,621 in 1972 and 347,652 in fiscal year 1973. For the reasons discussed above, applications are expected to decrease to about 340,765 in 1974 and rise to 499,235 in 1975.

b. Home Mortgage Insurance, Section 221(d) (2). Under the Section 221(d) (2) Program, families of modest means may purchase a home with as little as a $200 cash outlay and a mortgage term of 30 years which can be extended five to ten years when necessary to lower a home buyer's monthly payment.

During the past three fiscal years, applications for mortgage insurance under the Section 221(d) (2) Program increased substantially as a result of the Housing and Urban Development Acts of 1968 and 1969 which raised maximum mortgage amounts and provided for waiver of property eligibility requirements to permit the insurance of a mortgage that formerly would have been considered an unacceptable risk.

For

As with Section 203(b), applications declined from the fiscal year 1971 and 1972 levels of 123,159 and 82,065 to the past year level of 41,417 and are expected to continue to show a decrease to 32,500 in fiscal year 1974. the same basic reasons as stated above, receipts in fiscal year 1975 are expected to increase to 45,000.

c.

Other One-to-Four Family Programs. There are 11 other unsubsidized one-to-four family programs. Included are programs for home improvement under Sections 203(k) and 220 (h), outside and inside urban renewal areas, respectively; Section 203 (m), a vacation home program; the Section 220 Urban Renewal Home Program; the Sections 213 Cooperative and 234 Condominium Programs; the Section 222 Program which allows a serviceman on active duty to purchase a home with payment of mortgage insurance premium assumed by his service; the Section 233 Experimental Program; the Section 237 Credit Assistance Program for families purchasing homes with credit counseling but without subsidy; the Section 240 Program of mortgage insurance to buy title to land on which homes are located; and the Section 809 Armed Services Civilian Program.

Unsubsidized Mortgage and Loan Insurance Program

Total unit application receipts under these programs were 5,550 in fiscal year 1973 and are estimated at 5,435 and 10,765 in fiscal years 1974 and 1975, respectively.

2. Multifamily Housing. Unit applications for mortgage insurance under FHA's basic, including cooperative, condominium and moderate income multifamily housing programs totaled 52,227 in 1973 and are expected to decrease to about 23,150 receipts in 1974. It is anticipated that unit applications will increase to about 32,000 in fiscal year 1975.

a. Rental Housing, Section 207. Applications under the Section 207 Basic Multifamily Housing Program are expected to decrease, from about 2,900 in 1973 to a The estimates are level of about 1,500 in 1974, and increase to 2,500 in 1975. predicated on the impact of recommended legislative modifications including increased mortgage limits.

Under

Since projects insured under this section bring a lower mortgage valuation to the sponsor than, for example, those insured under the Section 221(d) (4) Moderate Income Program discussed below, business has leveled off. Section 207, the loan to value ratio is generally 90 percent of the estimated or appraised value of the project while under Section 221(d)(4), the loan is 90 percent of estimated replacement costs. However, the substantial increases in the young, mobile, moderate income section of the housing market expected over the next several years should bolster demand for multifamily rental accommodations of this type.

b. Multifamily Cooperative Housing, Section 213. Under the Section 213 Cooperative Housing Program, those living in a project share in the ownership of the entire project. Unit application receipts totaled 463 in fiscal year 1973. With the advent of condominium housing this type of homeownership has waned in popularity and little or no activity is anticipated for this program in fiscal year 1974 or 1975.

c. Condominiums, Section 234. In a Section 234 Condominium, there is individual ownership of living units. Due to increased interest in this type of housing, not only on the part of young families seeking their first home, but also elderly households seeking to reduce the size of their accommodations, minimize maintenance burdens, but maintain tax and other benefits associated with homeownership, application receipts are expected to increase from 4,800 in 1974 to 7,800 in 1975.

d.

Rental Housing, Section 221(d)(3) and (4) Market Interest Rate Programs. The Section 221 (d) (3) (Cooperative, nonprofit or limited dividend sponsors) and the Section 221(d) (4) (profit motivated sponsors) programs are designed to meet the needs of low and moderate income families, as well as families displaced from urban renewal areas or as a result of governmental