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gether top leaders in business and labor, trade, civic and religious organizations. (Appendix 2, Recommendation 12.)

10. The Committee urges that this private national organization encourage inquiries into the ownership and operation of slum property and the failure of cities to compel compliance with their health and housing codes. Such inquiries into the nature of the slum problem and some of its principal causes can be important first steps in activating public opinion in support of effective slum prevention and urban renewal programs. (Appendix 2, Recommendation 13.)

III. RECOMMENDATIONS DESIGNED TO MAINTAIN AND IMPROVE THE EXISTING HOUSING SUPPLY

1. The minimum downpayments and maximum amortization periods recommended elsewhere in the report for Section 203 of the National Housing Act should be made available to both existing and new homes. The adoption of this recommendation will put good used housing within the financial reach of more families. (Appendix 1, Recommendation 5.)

2. Title I of the National Housing Act should be amended to permit Class I (a) loans to finance the modernization or repair of existing structures up to a maximum amount of $3,000 with a maximum term of 5 years. This recommendation is designed to permit somewhat larger character loans for a longer amortization period to encourage the modernization of single-family homes. (Appendix 1,

Recommendation 1.)

3. With respect to the insurance of Class I (b) loans for the modernization, repair, or conversion of residential structures which is now authorized under Title I of the National Housing Act, the Committee recommends two changes. First, for those structures which are designed for the use of 2 to 4 families, the present $10,000 loan limitation should be retained but the maximum term of the loan should be increased to 10 years. Second, for the rehabilitation of larger properties designed to accommodate more than four families, it is recommended that insurance of loans be authorized up to a maximum of $10,000 per structure or $1,500 per unit, whichever is greater, and have a maximum term of 10 years. (Appendix 1, Recommendation 2.)

4. The Federal Housing Administration should utilize every available administrative control to assure that homeowners are protected against possible losses from irresponsible parties utilizing the modernization program under Title I of the National Housing Act. (Appendix 1, Recommendation 3.)

5. The National Housing Act should be amended to permit the Federal Housing Administration to include an open-end clause in its insurance contracts. Although it is recognized that there are some legal difficulties in this recommendation, it is the opinion of the Committee that wherever State laws permit, the Federal Housing Administration should authorize open-end mortgages, provided advances of funds under such mortgages are used exclusively for repairs, improvements, enlargements, modernization, or permanent additions to the realty. (Appendix 1, Recommendation 25.)

6. Appropriate administrative steps should be taken by the Federal Housing Commission to permit wider use of the trade-in house program as a means of upgrading the existing inventory of housing. (Appendix 1, Recommendation 28.)

IV. RECOMMENDATIONS DESIGNED TO ENCOURAGE PRIVATE BUILDING ACTIVITY

1. Section 203 of the National Housing Act should be amended to provide Federal Housing Administration insurance of mortgage loans on 1- to 4-family homes of 95 percent of the first $8,000 of the value and 75 percent of the excess with an increase in mortgage ceilings to $20,000 for 1- and 2-family dwellings, $27,500 for 3-family dwellings, and $35,000 for 4-family dwellings. (Appendix 1, Recommendation 6.)

2. The maximum term for all home mortgages insured under Section 203 of the National Housing Act should be increased to 30 years. (Appendix 1, Recommendation 7.)

3. For multifamily rental housing under Section 207 of the National Housing Act the upper mortgage limit of $10,000 per unit should be removed and the maximum mortgage should be determined by applying $2,000 per room or 80 percent of value, whichever is less, with $2,400 per room for fire resistant or fireproof elevator structures. For projects having an average of less than four rooms the $7,200 maximum mortgage should be retained. (Appendix 1, Recommendation 13.)

4. Section 207 of the National Housing Act should be amended to clarify the authority of the Federal Housing Administration to insure loans up to 90 percent of value but not in excess of $7,200 on projects where the average number of bedrooms is not less than two per unit. (Appendix 1, Recommendation 14.) 5. Mortgage ceilings for cooperative housing projects under Section 213 of the National Housing Act should be modified to provide $2,250 per room if there are 4 or more rooms per unit; $2,700 per room for fire resistant or fireproof elevator structures; $8,100 per unit for projects averaging less than 4 rooms per unit. But in no case should these amounts be in excess of 90 percent of cost. For projects with more than 50 percent veteran participation the mortgage ceilings should be increased appropriately to allow for the 95 percent mortgage which is available to them. (Appendix 1, Recommendation 15.)

6. The term of all Federal Housing Administration debentures issued in settlement of foreclosure claims should be 10 years from date of issue. (Appendix 1, Recommendation 23.)

7. The privilege of using Federal Housing Administration debentures in payment of insurance premiums should be continued without change. (Appendix 1, Recommendation 24.)

8. Title I, Section 8 of the National Housing Act, should be repealed and a similar program should be set up in Section 203. The maximum insurable mortgage should be increased from $5,700 to $6,000. In addition, the Federal Housing Commissioner should be authorized to permit a service charge on such loans. (Appendix 1, Recommendations 4 and 8.)

9. The Federal Housing Administration should be provided with a single, revolving insurance authorization to cover all mortgage insurance operations. During any fiscal year the total authorization should not exceed the sum of outstanding balances of insured mortgages in force and outstanding commitments as of the beginning of the fiscal year plus $3 billion. (Appendix 1, Recommendation 26.)

10. The group accounts now maintained under the mutual mortgage insurance system under Section 203 of the National Housing Act should be merged into a single insurance fund. (Appendix 1, Recommendation 12.)

11. An objective and independent long range study of prospective foreclosure and loss experience of the Federal Housing Administration's insurance programs should be made. (Appendix 4, Recommendation 4; Appendix 1, page 40.)

12. An objective and independent long range study of probable losses on Veterans' Administration guaranteed loans should be made. (Appendix 1, Recommendation 32; and Appendix 4, Recommendation 5.)

13. The Federal Housing Administration and the Veterans' Administration should consider providing special assistance to mortgagees in small communities in the preparation of applications for the insurance or guaranty of loans. (Appendix 1, Recommendation 30.)

14. The Veterans' Administration should seek advice of lending institutions in revising and simplifying its regulations, and committees of lenders should be formed to place applications for Veterans' Administration direct loans with private lenders wherever practicable. (Appendix 4, Recommendation 3.)

15. Congress and the Appropriations Committees should be urged to return to the principles of Public Law 387, 81st Congress, or to develop another formula designed to achieve the objective of flexibility in the operating expense budget of the Federal Housing Administration. The Federal Housing Administration would be able to operate much more efficiently if the annual amounts it was authorized to spend for administrative expenses were based on a percentage of income rather than a fixed dollar ceiling. (Appendix 1, Recommendation 27.) 16. The Federal Housing Administration insurance contracts should be standardized to provide for an allowance to the mortgagee of $75 or two-thirds of actual approved foreclosure costs, whichever is the greater. (Appendix 1, Recommendation 22.)

17. The Committee recommends against the adoption of a mandatory builder's warranty in connection with Government insured or guaranteed home mortgage financing. This conclusion was reached after thorough review of the present positive procedures of the Federal Housing Administration and the Veterans' Administration which, in the opinion of the Committee, are now effectively handling justified complaints of homeowners who have acquired defective housing. The Committee believes that the objective of the mandatory builder's warranty, with which it is in full accord, can be better attained under the present administrative procedures of the two agencies rather than through a mandatory require

ment.

A minority of the Committee disagreed with this conclusion. dix 1, Recommendation 29.)

(Appen

18. The Treasury Department and the appropriate Congressional Committees should be requested to study whether there are tax inequities which deter private investment in rental housing, and, based on such findings, appropriate action should be taken. The Committee is impressed with the need for such an inquiry. However, since the Committee had neither the time nor the competence to carry out a study of this kind, it recommends that it be undertaken by the Treasury Department. (Appendix 2, Recommendation 17.)

19. A close relationship should be established between housing and defense officials and when defense criteria affecting urban vulnerability are established studies should be made of all housing programs to insure conformance. Additional legislation should be proposed if necessary. (Appendix 2, Recommendation 18.)

V. RECOMMENDATIONS DESIGNED TO FACILITATE THE FREE OPERATION OF THE MORTGAGE MARKET AND TO MAKE SAVINGS AVAILABLE FOR HOME FINANCING IN ALL PARTS OF THE COUNTRY AND FOR ALL TYPES OF HOUSING

1. Legislation should be enacted to create a secondary mortgage market facility to be known as the National Mortgage Marketing Corporation. The Committee recommends that such a corporation be federally chartered, with its initial stock of $50 million to be subscribed by lenders eligible to use its facilities. At the end of 90 days the Federal Home Loan Banks will subscribe an amount necessary to achieve an aggregate subscription of $50 million. The initial stock would be retired from earnings and the sale of stock to participating institutions. The Corporation would be authorized to issue debentures on the private market and without a governmental guaranty up to 12 times the amount of its stock and surplus but in no event in an amount exceeding the unpaid balance of FHAinsured and VA-guaranteed mortgages which it holds. It is expected that the Corporation would purchase and sell only those mortgages for which a normal market exists. Institutions selling mortgages to the Corporation would be required to maintain at all times stock of not more than 4 percent of the unpaid balance of their mortgages held by the Corporation. It is believed that a corporation of this type can be successfully established without Government funds and Government guaranties, that it can successfully raise its own funds in the private market, and that it can fulfill an unmet need by facilitating the flow of long-term savings into sound programs and areas of the country where such investment funds are not available in adequate supply. It is further recommended that the Home Loan Bank Board be abolished and that a broadly representative five-man board be created to supervise the Federal Home Loan Bank System, the Federal Savings and Loan Insurance Corporation, and the National Mortgage Marketing Corporation. (Appendix 4, Recommendation 2.)

A substantial minority of the Committee has disagreed with certain aspects of the National Mortgage Marketing Corporation as recommended by the majority. Those who differ with the proposal believe that the Treasury should have authority to guarantee limited amounts of the debentures of the Corporation, as necessary, to enable the Corporation to support the proposed new programs for insurance of mortgages in urban renewal areas and for the insurance of long term, small down payment loans to low-income families. They believe, also, that the Corporation should not be capitalized with funds subscribed by the Federal Home Loan Banks but rather by the temporary utilization of funds to be transferred from the Federal National Mortgage Association and thereafter retired from the proceeds of stock subscription purchased by participating institutions. In addition, the Corporation should be authorized to make loans on the security of insured and guaranteed mortgages. Although the majority report did not prohibit the granting of advance commitments by the Corporation, the minority desired to have this authority made explicit. The minority also believed that the minimum stock investment of financial institutions selling mortgages to the Corporation should be 2 percent of the unpaid balances of mortgages held by the Corporation rather than the 4 percent figure contemplated by the majority. The minority, moreover, did not believe that the new National Mortgage Marketing Corporation should be administered by the same board which would also be in charge of supervising the Federal Home Loan Bank System. (Attachment to Appendix 4.)

2. Legislation should be enacted to create a Committee of informed Government officials to review and set from time to time the ceiling interest rate on

FHA-insured and VA-guaranteed mortgage loans. This Committee would also be responsible for establishing the permissible charges which may be made for the expense of originating FHA-insured and VA-guaranteed mortgages and the rate of interest on debentures issued by the FHA in settlement of foreclosure claims. The interest rate on the debentures would be set at the time the mortgage is insured and at a rate not higher than the current average yield on all outstanding marketable obligations of the United States Government having a remaining maturity of 15 years or more. The established ceiling interest rates on FHA-insured and VA-guaranteed loans, referred to above, should not exceed by more than 21⁄2 percentage points the current average yield on obligations of the United States Government having a remaining maturity of 15 years or more. (Appendix 4, Recommendation 1.)

3. The regulations of the Federal Housing Administration and the Veterans' Administration should be amended to permit and encourage lenders to participate in the origination and purchase of individual mortgages. Appropriate amendments should also be made to Federal and State laws to permit purchase of such participations by financial institutions. If these changes are made there will be a considerable increase in the flow of mortgage funds to small communities where it is now difficult to sell mortgages to large investment institutions. (Appendix 4, Recommendation 6; Appendix 1, page 62.)

4. The Federal Housing Commissioner should be authorized to permit a service charge to compensate lenders for the additional cost of making and servicing loans in small communities. This recommendation is designed to facilitate the flow of mortgage funds to small communities. (Appendix 1, Recommendation 9.)

5. The Housing and Home Finance Administrator should study proposals for the establishment of a cooperative housing mortgage corporation to assist in the production and financing of cooperative housing projects. (Appendix 1. page 42.)

VI. RECOMMENDATIONS DESIGNED TO PROVIDE HOUSING FOR LOW-INCOME FAMILIES

1. For an experimental period of 2 years the Federal Housing Administration should be authorized to insure 40-year, 100-percent loans up to $7,600 per dwelling unit or up to $8,600 per dwelling unit in high-cost areas as determined by the Federal Housing Commissioner. This special mortgage insurance program, proposed as a new Section 221 of the National Housing Act, is designed to meet the housing requirements of low-income families as determined by the Federal Housing Commissioner. Purchasers under this program should be required to make a minimum cash payment of $200 including amounts to cover settlement costs and initial payments for taxes, hazard insurance, and similar prepaid expenses. The Federal Housing Administration should be authorized to issue commitments to builders, or owners of rental houses, up to 85 percent of value with provision for the conversion of the temporary loan into a permanent loan up to 100 percent of value upon sale to qualified owner-occupant purchasers. It is expected that with this authority it will be possible for sponsors to construct, purchase, or rehabilitate modest houses of the type contemplated in this recommendation, to be rented under a lease-purchase contract to low-income families who are not able to qualify under Federal Housing Administration credit standards. Such families should be given an opportunity to purchase their homes when their incomes increase sufficiently to enable them to meet normal credit standards. In the administration of this program, preference should be given to extending these liberal terms to families displaced by public housing, urban renewal, or various demolition programs. A separate insurance fund should be established for the protection of mortgages insured under Section 221 with a proviso that there may be no transfer of assets between this fund and other FHA mortgage insurance funds. (Appendix 1, Recommendation 17.)

A substantial minority on the Committee disagreed with certain aspects of the proposed program of home ownership under the new Section 221. Some members disagreed with such an extension of insured mortgage lending. Members of the Subcommittee on Housing for Low-Income Families differed with the recomendation and would have preferred to see the Federal Housing Administration authorized to insure mortgages up to 95 percent of value and for a term up to 40 years without limitation as to economic status of borrower and with a requirement for monthly maintenance payments equivalent to 10 percent of debt service to be held in trust by the mortgagee. They also suggested that in the operation of such a program the estimated total annual housing expense to

the home purchaser (as defined by the Federal Housing Administration) should not exceed 20 percent of the mortgagor's annual income (as defined by the Federal Housing Administration). They recommended that in event of default Federal Housing Administration debentures should be for the same term as the unexpired term of the mortgage and should bear interest at the time of issuance at a rate equivalent to the current rate on Government bonds. It was further suggested that the Federal National Mortgage Association or some similar Government-sponsored corporation be placed in readiness to purchase mortgages, within appropriate limits, for the purpose of inaugurating and testing such a program. (Appendix 3, Recommendation 2.)

The Subcommittee on FHA and VA Housing Programs and Operations originally recommended that loans insured under Section 221 could, at the option of the mortgagee, be assigned to the Federal Housing Administration at the end of 20 years in exchange for debentures equivalent in amount to the scheduled outstanding principal balance. They proposed that these debentures, as well as those issued in event of default, should bear an interest rate determined at time of issuance equivalent to the current yield of Government bonds of comparable term and that lenders should be covered completely against any loss by reason of foreclosure expenses. These recommendations were not accepted by the Advisory Committee. (Appendix 1, Exhibit 15.)

2. To meet the continuing housing needs of low-income families, and pending "demonstrated progress of other programs recommended by the Committee designed to stimulate through Federal Housing Administration mortgage insurance the private production of housing for low-income families and the rehabilitation of obsolete structures in decaying neighborhoods, the Committee recommends a continuation of the public housing program as contained in the Housing Act of 1949, with certain amendments summarized below. The Committee believes that determinations as to the size of the program and the method of financing it are responsibilities of the Administration and the Congress. The Committee is unanimous in its belief in the objectivity of a more effective operation of the private housing market so as to steadily lessen the need for direct subsidies. (Appendix 3, Recommendation 3; Attachment to Appendix 3.)

3. The Housing Act of 1949 should be amended to provide that the presently authorized payments in lieu of taxes, by local housing authorities to local governments, up to 10 percent of shelter rents be made mandatory. Provision should further be made by statute that the local contribution to the operation of public housing projects through the method of tax exemption should equal at least 20 percent of the Federal contribution. The Committee also recommends that where state law permits, and the localities so desire, public housing for lowincome families may be subject to full taxation provided the locality agrees to pay in cash the difference between full taxation and 10 percent of the shelter rents so long as there is a Federal annual contribution. Where the local contribution is made through tax exemption the amount of full taxes that would have been charged if the housing were privately owned and the payment in lieu of taxes received should be made matters of public record. Lastly, where local contributions are made in the form of either tax exemption or cash, estimates of such amounts should be made a matter of public record prior to the conclusion of a contract between the Federal Government and a local housing authority for annual Federal contributions. (Appendix 3, Recommendation 7; Attachment to Appendix 3.)

4. Preference for occupancy in public housing among eligible families is now given to families of veterans and families displaced by slum clearance. This preference should be extended also to eligible families displaced by other public improvements. (Appendix 3, Recommendation 6.)

5. Wherever feasible, public housing should be built at lower densities, and the design of public housing projects should conform more closely to local dwelling patterns and construction practices. This recommendation is designed to avoid the institutionalized character of public housing and to facilitate the sale of public housing when no longer needed for low-income families. (Appendix 3, Recommendations 9 and 11.)

6. After the capital cost of a public housing project has been amortized, net revenues from operation or proceeds from sale should be returned to the Federal Government and to the local community in proportion to their respective contributions. (Appendix 3, Recommendation 4.)

7. Where feasible, existing sound structures, rehabilitated if necessary, should be used for public housing. (Appendix 3, Recommendation 8; Appendix 2, Recommendation 15.)

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