The CHAIRMAN. I agree with you, if there is a need for it, and the farmers want it, and it is a part of the law, they should have it. I agree with you we ought not to discriminate in favor of the city fellow.

Beyond that, I don't know the answer as to why they want to discontinue it, why they haven't used it.

Mr. GRANTHAM. Would you suggest that we have these people go ahead and send it in?

The CHAIRMAN. Well, they haven't said there isn't any need for it. They simply said there have been no applications.

Mr. GRANTHAM. That is the reason-no applications. Because I have had numbers and numbers of people and I have talked to the FHA, and they say, "We can't make it." And Memphis FHA. the same thing. They don't even have the applications, Senator. It is an impossible situation, and it is unfortunate.

The CHAIRMAN. Why do they say they can't make them?
Mr. GRANTHAM. Nobody will guarantee them.

The CHAIRMAN. You mean they can't sell the mortgages?

Mr. GRANTHAM. That is right. The banks and the insurance com panies, down in our country

The CHAIRMAN. In other words, you are not blaming the FHA: you're blaming the fact that the private lending institutions wi not buy the mortgages; is that it?

Mr. GRANTHAM. Yes, sir. That is what I said here; they have to have some incentive. You take a GI loan. I would say there are 25 States in the Union that probably haven't had 100 GI loans direct on farms. It is impossible to get them, even from the insurance companies.

I'll tell you this: This farm situation, as far as financing goes. is in a bad fix, a very bad fix. If they get this financing, in my opinion we won't have to spend so much money on other things such as crop supports, price supports, and so forth. If the farmers could secure long-term mortgage money, they could manage the financial problems with less of the Government supports.

The CHAIRMAN. Do you know whether the FHA has done anything to encourage or discourage the situation?

Mr. GRANTHAM. Senator, I would think they discouraged it. I don't have anything to go on. But, frankly, I think the FHA in tow just doesn't have the setup to go ahead and cover the rural territory. I don't think they want to go out and take the trouble to make the loans and appraise the farms and all that. They just don't have the setup to do that.

The CHAIRMAN. We will get the FHA's story and find out as much as we can about it. Maybe we better leave it in the law.

me.

Mr. GRANTHAM. I will be glad to come back and bring others with

The CHAIRMAN. I wish you would get statements from them an get them mailed in here.

What about the Bankhead-Jones Act?

Mr. GRANTHAM. That is the Farmers' Home Administration, as I explained in there. You cannot get credit from any bank or ar lending institution. What it is, you have to be broke and sure enoug broke before you can get a loan.

L

The CHAIRMAN. You have to be broke before you can get a loan? Mr. GRANTHAM. Sure enough broke.

I have found in my part of the country, or in any part you go to, as a general rule, that the best qualifications are if you have lost everything, and have been a financial failure, you get a much better hearing. If a farmer owns a foot of land he is ineligible for a loan under Farmers' Home Administration. The Farmers' Home Administration only serve a minute part of the farmers in this country. They have done some good work but are restricted too much to really help the farmers of this country.

The CHAIRMAN. My experience has been when I didn't need a loan, then I could get one.

Mr. GRANTHAM. Thank you, sir.

The CHAIRMAN. Thank you.

Our next witness is Mr. Boyar, of Los Angeles. I believe you wanted to testify?

Mr. BOYAR. Yes, sir.

The CHAIRMAN. We are running you in here specially this afternoon. Do you have a prepared statement?

Mr. BOYAR. Yes, sir. I would like to read it, if I may.

The CHAIRMAN. All right, you may proceed.

STATEMENT OF LOUIS H. BOYAR, BUILDER, LOS ANGELES, CALIF.

Mr. BOYAR. Mr. Chairman and gentlemen: I appreciate the opportunity of appearing before you. My name is Louis H. Boyar, of Los Angeles, Calif. I am a builder. My testimony is going to be very brief and at its conclusion I will welcome any questions.

It has been my good fortune during the past 4 years to head the firms that constructed more than 20,000 single-family homes and established a community of some 105,000 people in an area known as Lakewood, Calif. It, by the way, in the last 2 weeks, has become incorporated into a new city, and the 16th largest in the State of California.

The CHAIRMAN. Where is it located?

Mr. BOYAR. East and south of Los Angeles, practically contiguous to part of Los Angeles. And east of Long Beach, Calif.

Approximately over 7,000 of these homes were built in the last 22 years with mortgages totaling about $80 million, insured by the Federal Housing Administration pursuant to section 213 of title II of the National Housing Act, as amended. These homes were erected under the provisions for sales type cooperative housing and are now occupied and individually owned by more than 7,000 families. In addition, 1,400 individual homes are presently sold to individuals and are now under construction. Also, 1,700 additional units are awaiting FHA eligibility statements.

Had it not been for this particularly wise provision of the act, the provision of these needed homes for many thousands of families would have been impossible. The size, quality, price, and terms of sale could not have been made available under any other method of financing. While I take great pride in this thriving, new American community, it has been my good fortune to help build and create and it is cited here merely to give some basis of experience for the statement I am about to make.

Reference is made to S. 2938, on page 13, section 119, line 10, in which these words appear "not to exceed 90 percent of the estimated value of the property or project.'

The effect of this language is to substitute "estimated value" for "replacement cost" in estimating the maximum mortgage amount which FHA would be authorized to insure. This very inconspicuous change of language from the Housing Act of 1950 really involves a fundamental change in underwriting concept. Where the builder is a large operator, thoroughly skilled and amply financed, the mere fact that he produces whole communities or segments of communities in a very short time makes possible economies resulting in sales prices that are readily established as value for insurance purposes.

Ordinarily, this cannot be counted on to result from a small opera tion. On the other hand, it is equally obvious that the small builder and cooperative housing group, acting independently, would find itself subject to costs that would make it quite impossible for them to build at all if the mortgage amount is limited by a value assumption considerably less than cost.

It is altogether probable that my building operations will not be affected by the change now pending. Thus, it should be clear that I am not speaking for myself, but in the hope that an unbiased testimony and whatever contribution I can make may help prevent the resulting hardships such wording would impose on others perhaps less fortunate than myself.

Of course, it is true that if lending institutions will readily give mortgage commitments under section 213, then I am helped. Up to date, most lending institutions, in fact nearly all lending institutions, shy away from this type of financing simply because they know so little about it. I know of no lending institution who will even now give the borrower the full, generous terms of the present act.

May I add my voice to any others who have urged that you remove from S. 2938 the provision eliminating the Assistant Commissioner of Cooperative Housing, thus carrying out the original intent of section

213.

It may interest you to know that my own operations under coopera tive housing have involved the payment of fees to FHA to date in excess of $1 million. This $1 million is way in excess of the total cost of the operation of the local FHA office, including all types of mort gage insurance that they have issued, whether to us or to others, and I dare say it has not only paid the entire costs of our local FHA office 213 division, but could also pay the entire cost of Washington's Cooperative Housing Division of FHA over the same period of time. The record and performance of cooperative housing in its brief history thus far is worthy of unstinted support from all concerned. and some form of financing should be made available through FNMA for those who are unable to receive ready mortgage money through

other sources.

I may add that I would not need that sort of help.

I would like to touch upon one other matter, and give you my version why it is obvious that the feeling about the so-called private FNMA

is so diversified.

1. The builder does not want it because he has to pay for it and gets nothing in exchange.

2. The insurance companies do not want it for the same reasons that they do not want the present FNMA, which in the main they have never used.

3. The banks want it because if it works, then in later years they will have valuable stock that costs them nothing because they used the money given up by the builders.

Thank you sincerely for your attention, and I again would be pleased to answer any questions.

The CHAIRMAN. Well, sir, I don't have sufficient facts here. I don't believe I understand what you are talking about. Maybe I should. You will excuse me.

Mr. BOYAR. I thought from the previous testimony, you would be well versed

The CHAIRMAN. Can you make it more clear now? You are objecting here to this "estimated value"

Mr. BOYAR. Yes, sir, simply because through estimated value you would put a premium on the small, one-bedroom efficiency type buildings.

The CHAIRMAN. What is the difference between "estimated value" and "replacement cost"?

Mr. BOYAR. The estimated value is the value that the FHA underwriting section believes it will have through resale, or over a period of time, in the locality in which it is built. Your cost is your cost at the present time, of the building.

The CHAIRMAN. Which is higher, estimated value or replacement cost?

Mr. BOYAR. Always replacement cost, because FHA penalizes things that are not sold. This is sold prior to construction.

Under section 213, the builder that has gone into it has gone into it as a safety factor. It has been our history that builders keep on building until they go broke. That has been the history of the builders. They keep on going. Under section 213 it is impossible. You can't start building until the entire project is sold to somebody. That in itself establishes value. The fact that you are able to sell 200 or 500 or a thousand houses to a group of people

The CHAIRMAN. In other words, you can't begin to construct

until

Mr. BOYAR, Until 100 percent are sold.

The CHAIRMAN. We have had testimony here, wanting to change that. Are you in favor of that?

Mr. BOYAR. Yes, that is for speculative builders that feel they should have

The CHAIRMAN. You recommend us changing the law?

Mr. BOYAR. No, sir. I don't believe it should be started until it is sold. Otherwise, if they want to speculate, they have it under section 203. You surely wouldn't have speculation on a cooperative project, if the members of the cooperative were not members. Once they are members, each own a share which in effect is a home.

The CHAIRMAN. Let's get back to this: Who will benefit or who will get hurt on the substitution of the estimated value for replacement cost?

Mr. BOYAR. The small builder and the cooperator are going to get hurt.

Under section 213-I think it is form 3203—we fill out that for: and tell you how much downpayment the cooperator has put in and how much saving he has effected through joining the co-op. I think that is form 3203. That is never even seen, as a rule, by the purchaser of the stock, who eventually becomes the purchaser of an apartment or a home. It is done through the co-op organizer.

In our particular case, instead of putting down $800 savings, if there is a $300 difference in valuation, we will give them a $500 saving. That is simply, as far as we are concerned, what amount we put down on the typewriter to fill out the figures. In all large operations it wouldn't make any difference, none at all.

The difference it does make to myself and others is that we want to make section 213 nationally acceptable to all lending institutions. The only way it is going to be acceptable to all lending institutions is by a demand for it. We want everybody to get into the act, so to speak-the cooperator, the American Legion, the teachers association, the union, as well as all other builders. We want to make this a popular idea.

We have spent $1.5 million in southern California selling this idea It has sold probably equal to all the other homes combined in the area in which we operate, in the southeast section of Los Angeles. It is a family byword in our particular section. But when I go to New York and talk to the bankers and lending institutions-and I may state that Prudential is the one exception-they throw up their hands and won't even let me finish. "Oh, it is some kind of co-op," and they are afraid of it. They don't read it, and they don't know what it is about.

If their own people will get behind this thing, it makes it easier for us. That is the only selfish interest we have. But this much is sure: The cooperator, the eventual owner of the home, buys it from 5 percent to 8 percent cheaper than he can buy anywhere else, due to the simple fact that our homes are sold before they start; the specu lative provision is gone; the maximum financing cost is established which is 12 percent. It is a good thing, and the fact we are allowed to pay it causes others to pay it.

This way it wasn't paid, and the saving went to the cooperator. and that is why it was so readily accepted.

The CHAIRMAN. You are just offering one change in the bill, and that is to change this language of "estimated value” for “replace ment cost."

Mr. BOYAR. And possibly the reestablishment of an FHA directive to give this impetus. It seems to have gotten lost since the directive has gone.

The CHAIRMAN. That is the only change you are recommending? Mr. BOYAR. That, plus the reestablishment of the Assistant Comissioner. Since he has gone there is nothing mailed out, and there no effort to popularize. They don't have the money, the personnel, or the time.

The CHAIRMAN. I think you should give us something more on ti estimated value and replacement cost.

Mr. BOYAR. I think Mr. McMurray is well versed on that.

The CHAIRMAN. I don't believe we have the record clear on that ye