Really, gentlemen, the situation is quite grave to us because as of January 31, 1954, according to FHA, there were 60,375 apartment units which have been financed under section 207, and 463,730 units built under section 608. This makes a total of 524,105 living units in apartment buildings. This is well over one-third of the total number of guestrooms in the entire hotel industry. So your housing program has created a potential successor to the hotels of the Nation.

Within the past 30 days we have learned, from unimpeachable authority, that as much as 5 or 6 years ago mortgagors, with the knowledge of FHA staff people, were intentionally designing section 608 apartment buildings with the view to enabling rapid conversion to hotels when and if needed. So, apparently, the difficulties we are encountering today are not something which have come about unwittingly, but are the product of exploitation of apparent loopholes in the housing program.

This year Congress is being requested to liberalize the mortgage insurance program, as we have known it to date. It is argued that you will need to increase the allowance per room, or per family unit, because of the fact that the actual real-estate costs for properties adjacent to business areas in individual cities are so great. Instead of a $10,000 ceiling, for a 5-room living unit, under section 207 heretofore, we understand that the measure now before you would permit the construction of a 5-room suite whose total cost could run to $12,500. The program has long since passed that point where the average valuation of the units financed bears any resemblance to the low-cost housing which we had always understood was the primary objective of your program.

The very fact that the emphasis is being placed on downtown business location multiplies the impact upon us. As the projects are paid out, under the provisions of the program now before you, the owners, a decade hence, could quickly convert to the hotel business if they chose. Thus there would spring up everywhere a new housing facility, which could supplant the Nation's hotels. Conversion from an apartment building to a hotel is not too difficult. Actually, there are two very popular hotels in Washington, D. C., right now which were designed originally to provide permanent living quarters, with only 20 or 25 transient rooms. But today both of these properties have converted almost 100 percent to transient overnight rentals.

Until this month, we thought that all our troubles under this housing program would probably stem from sections 608 and 207 properties. However, we now learn that we have potential competition from some of the other forms of housing built under the Housing Act. For instance, under title IX, some veterans' housing was built near a naval base 2 years ago. That base has subsequently been deactivated, and the service personnel has gone. So we are told by FHA officials that one of the projects has already converted into a motel.

As I mentioned before, we have tried for 4 or 5 years to achieve an administrative solution to this problem. Officials of FHA have generally been quite sympathetic. Section 1743 (b) (1), in connection with section 608 properties, gave the Administrator authority to regulate rents, charges, and methods of operation. But counsel for the FHA has viewed narrowly this authorization. He contends that it does not confer power upon the agency to impose regulations after the eligibility of the mortgagor has been approved. At the outset, the

agency always required approval of all rent schedules. And these were normally expressed in monthly rentals. But FHA counsel now takes the position that if one of these apartment buildings rents a room overnight for not more than one-thirtieth of the approved monthly rental, the agency has no basis for prohibiting the operator from maintaining such practice.

most certainly want to give credit where credit is due. The Commissioner did move to partially meet our problem when, on January 3, 1952, the agency issued letter No. 20 to all field offices. This required that any borrower who was applying for permission to install furniture in certain units in section 608 properties would be asked to pledge that he would not rent units transiently. But even this move had two inherent weaknesses. First, it did not in any way prevent the structures which already had furnished units from continuing to rent transiently. And the agency itself contends that it does not have the staff to police the existing properties and to compel violators to refrain from such overnight rentals.

In some instances, these projects are openly and publicly soliciting transient business. There is one project right here in the District of Columbia, which is known as the largest apartment building in the world. It was built with mortgage insurance provided by FHA. But it is also operating 200 rooms as a transient hotel. As we understand it, this is what happened. After construction was under way, and the architect had provided for some ground-floor rentals, including a restaurant, cocktail lounge, drugstore, and so forth, it developed that zoning ordinances on that particular street would not permit such ground-floor rentals in an apartment building. But the ordinances would permit such facilities in a hotel. The mortgagor and the FHA jointly appeared before the appropriate city officials and asked for a variance, which would permit some slight deviation from the strict zoning requirements.

The Commissioners rejected their plea and told them that they should simply resort to the expediency of calling the property a hotel. This they could do by providing a certain percentage of transient rooms. So we witness a situation under which governing bodies are compelling mortgagors, even against their will, to set up hotel facilities.

The owner of this particular property told one of our FHA officials recently that he was only running 42 percent occupancy in the transient rooms which he is maintaining. This represents a heavy monthly loss, substantially impairing the repayment ability of the borrower. He would like to abandon all transient rentals, but is prohibited from doing so. Accordingly, the establishment has just engaged a sales manager, whose duties will be to develop public luncheon, banquet, and convention business. We ask your committee earnestly if that type of activities is to be permitted in FHA properties. Yesterday's paper, by the way, carries a notice and a picture of a large luncheon that was held in this particular hotel. This is undoubtedly a product of that sales program.

As we have always understood it, this national-housing program was designed to serve the low-income families of America. But the low-income families certainly do not want, or need, transient rooms and banquet facilities. And I am sure they do not need convention

space.

Now, gentlemen, may I give your committee specific examples of the manner in which this problem is manifesting itself today.

The FHA has on file from the owner of a large apartment building in a southern city a letter in which he stated clearly that his property was not accepting transient rentals, and that he was instructing all members of his staff not to accept any overnight guests. But within the past 2 weeks, for the third or fourth consecutive time, we brought to FHA officials photostatic copies of receipts showing where transient rentals had again been accepted. These receipts showed daily charges for a single person ranging from $5 to $5.50. But the FHA replies, "Well, this particular property possessed approved monthly rentals on certain units totaling as much as $180. So, on the basis of a daily charge equaling one-thirtieth of the monthly rent, they might legally be charging as much as $6 per day." Accordingly we submit that the hotel industry has no protection, nor apparent administrative relief. As evidence of the duplicity which mortgagors are employing in their dealings with the agency, let me tell you something more about this particular owner whom I just mentioned. He is the man who wrote FHA, stating that he had instructed his staff to refuse transient business. This same man has just renewed, for 1954, the city hotel license covering a group of rooms which are held for transient guests. And this man has signed away all control over employees by leasing the establishment to a third party who engages all staff people.

Incidentally, we contend that it is a clear violation of the statute for FHA to permit subleases on insured properties. We cannot understand why the agency tolerates such schemes which enable mortgagors to get around the letter and the intent of the law.

So, having failed completely to secure administrative relief, we earnestly ask your committee to consider two things. First, it is imperative that a way be found to incorporate definite safeguards into the language of the statute, to insure the fact that FHA will not tolerate transient rentals in any rental housing so long as the mortgage runs to the Government.

I have in my files proposed specific language under which the act could be amended.

We can, if your committee wishes, propose specific language under which the act could be amended to achieve this purpose.

Or, as a possible substitute, we hope that the committee will incorporate into the report accompanying your bill a clear-cut statement that this Government-financed housing is intended to furnish shelter housing only, for low-income families, and that it is not in line with congressional intent for such facilities to be operated transiently, or to provide hotel and banquet and convention facilities.

Thank you very much.

The CHAIRMAN. Do you say you have amendments prepared?
Mr. PACKARD. Yes, we have.

The CHAIRMAN. Without objection, we will make them a part of the record at this point.

Mr. PACKARD. Yes, sir.

The CHAIRMAN. Are they short?

Mr. PACKARD. Just 2 or 3 pages.

(The amendments referred to follow:)

INJUNCTIVE PROCESS

As I have pointed out, FHA has indicated a reluctance to take any effective steps to enforce the provision against transient occupancy in its contracts with borrowers under sections 608 and 207. Probably the best way of correcting this situation is to amend the act to require FHA to file a petition for an injunction in a Federal district court within 30 days after it has received written notice of the breach of contract. If FHA fails to act within the 30-day period, the law should permit any property owner to petition the Federal district court for an injunction.

I won't attempt to suggest any language for this purpose because I realize it may require an amendment to the judicial code and the Administrative Procedures Act, as well as to the FHA Act.

In addition, the law should require FHA to issue regulations to prohibit transient occupancy. I have here some language which your committee might want to consider as a specific amendment to the bill. The section numbers on the language we offer for your consideration refer to the United States Code, and not to the bill you are now considering.

AMENDMENTS TO NATIONAL HOUSING ACT

1. Section 1713 (a) (1): Amend subparagraph (a) (1) so as to read as follows: "The term 'mortgage' means a first mortgage on real estate in fee simple, or on the interest of either the lessor or lessee thereof (A) under a lease for not less than ninety-nine years which is renewable or (B) under a lease having a period of not less than fifty years to run from the date the mortgage was executed, upon which there is located or upon which there is to be constructed a building or buildings designed principally for permanent residential use; ** *."

2. Amend section 1713 (a) by adding a new subparagraph, reading as follows: "(8) The term 'permanent residential use' shall mean occupancies for a term of a least one month and in no case shall occupancies or rental agreements be made for a lesser period."

3. Amend section 1715 (b), to read as follows:

"The Commissioner is authorized and directed to make such rules and regulations as may be necessary to carry out the provisions of this subchapter and shall make and enforce rules and regulations which will insure that the rental housing is not used for other than permanent residential purposes."

4. Amend section 1743 (b) (2) by adding the following at the end thereof: "It is the intent of this Act that the mortgaged property shall be designed and used only for permanent residential purposes and shall not be rented for periods of less than one month."

5. Amend section 1742, to read as follows:

"The Commissioner is authorized and directed to make such rules and regulations as may be necessary to carry out the provisions of this subchapter and shall make and enforce rules and regulations which will insure that the rental housing is not used for other than permanent residential purposes."

6. Amend section 1750 b (a) so that the following is added at the end of the the fourth proviso: “and preventing the rental of such properties for periods of less than one month."

7. Amend section 1750 f, to read as follows:

"The Commissioner is authorized and directed to make such rules and regulations as may be necessary to carry out the provisions of this subchapter and shall make and enforce rules and regulations which will insure that the rental housing is not used for other than permanent residential purposes."

The CHAIRMAN. Any questions, Senator Payne?

Senator PAYNE. No.

The CHAIRMAN. Senator Sparkman.

Senator SPARK MAN. I don't believe I have any. I might say this: I have run into this problem at different times. In fact, when you mentioned a southern city you probably were referring to one down. in my State.

Mr. PACKARD. That is right, one with which you are familiar, Sen

ator.

Senator SPARKMAN. I was rather under the impression that it had been worked out. You know more about it than I do. I haven't heard from any of them at any time recently.

Mr. PACKARD. The southern city mentioned-the photostatic copies were from your city.

Senator SPARKMAN. Birmingham, that is right. We had that up 2 or 3 times, and I was under the impression it had been worked out. Mr. PACKARD. It settles down for 2 or 3 weeks, and every time you catch your breath, they give you the business again.

The CHAIRMAN. Either you haven't been on the job or I haven't been on the job, because this is the first time I have heard about it. You said you talked to eight Senators on this committee. Who are they? Nobody ever said a word to me about it.

Senator SPARKMAN. The case in Birmingham is the only one that was ever called to my attention.

Mr. PACKARD. That was taken up with you, Senator, a number of times. I, of course, have talked with Senator Bricker at various times. Who else have we been in touch with?

Mr. RYAN. Senator Capehart, I am personally responsible for that statement. I have discussed the problem with numerous members of your committee.

Mr. PACKARD. May I present, Mr. Ryan, Senator, who is our representative here in Washington.

The CHAIRMAN. I don't believe it has been called to my attention. We have had one bill here by Senator Johnson which would have permitted section 608 to rent transiently.

Mr. RYAN. Mr. Chairman, we understand that Frank Pope discussed it with you.

Senator SPARKMAN. Maybe he had the same situation that I did, except mine developed to the point where a delegation of people came to Washington, and talked it over with the housing officials, but that must have been a year or year and a half ago. They have not taken it up with me since then.

Mr. PACKARD. We have had the same thing come out of Louisiana. As a matter of fact, to be perfectly honest, for instance in Mount Vernon, my own home town, we don't have that problem, but it bobs up in various cities and various sections of the country.

Senator SPARKMAN. That is particularly true where those establishments are downtown. From time to time, I assume they do serve to take care of overflow crowds. I wonder if that comes into it.

You do mention one point there that gives me a little concern, and that is about the conversion of title IX housing in one place into a motel.

Mr. PACKARD. Yes.

Senator SPARKMAN. Of course, title IX housing wasn't supposed to have been built there, except on the assurance that that was a permanent military installation.

If FHA goes in and helps build housing at a place that the Defense Department has certified as a permanent installation, and later the Defense Department deactivates that as a military installation, FHA, of course, is left-and all of those who put any money in it-in pretty bad shape. Naturally, they are going to try to get their money out of it any way that they can. So I don't quite see how it would be objec