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Mr. Boyar. Yes, I will be glad to give you the facts. I didn't know I was coming here until 12 o'clock, and then I didn't know I had to prepare a statement.

The CHAIRMAN. Substitute "estimate value” for “replacement cost”.

Mr. Boyar. If you leave in "estimated value” what you really have done is said, “Here's another section 203." I see no sense of even having section 213 if you leave it in as "estimated value.” Then you are back where you started. You have section 203 with another number, with the possibility of making a 40-year loan which can't be received anyway because the banks won't give it to you.

The CHAIRMAN. Thank you very much. We appreciate your testimony. (A supplementary statement submitted by Mr. Boyar follows:)

SUPPLEMENTARY STATEMENT OF LOUIS H. BOYAR Mr. Chairman and members of the committee, gentlemen, at the request of your hairman, I am clarifying some of the testimony I gave yesterday, and I also want to correct one of my statements.

I believe that the difference between the phrase "replacement cost" and the phrase "estimated value” can best be explained by the following actual case. I im quoting from FHA case No. 170_30033, Long Beach, Calif., and all figures ised in this testimony are the figures arrived at by FHA.

This case covers 73 single-family homes, and, as in all 213 cases, is first figures inder section 203, under which the mortgage is based on estimated value, and hen figured under section 213, under which the mortgage is based on replacement cost, and under the present law, the highest of these two figures must be used.

The following chart shows the actual average per house difference between iguring under estimated value and replacement cost : Under "estimated value" : Estimated value_

$10, 435 Mortgage

9, 900 Sales price.

11, 520 Down payment

1, 620 Under “replacement cost" : Replacement cost.

11, 850 Mortgage

11, 030 Sales price

11, 520 Down payment.

490 The difference in cash that each and every purchaser would need under ‘Estimated value” would be $1,130 more than he would need under "Replacement "ost."

Why is there a difference between replacement cost and estimated value? Because under replacement cost in this FHA case, the following items and actual amounts were not considered in computing estimated value under FHA's manual: Construction bond

$126 additional FHA fees.

110 Financing fees --

165 Additional title fees.

43 Legal and organization.


A total (for each and every home)-

795 None of these items are figured in estimated value or are they required under section 203, but are figured in and are required under section 213. In addition, under section 213, we are obliged to pay the prevailing wage scale that is approved and set by the Department of Labor, and in most cases creates higher replacement cost. That is recognized under replacement cost but is not recognized in estimated value.

The cost of many of the items listed heretofore actually exist in the purchase of new homes to be constructed, but the purchasers, if they use normal FHA financing, must be prepared to pay for them in cash over and abore their normal down payments.

Under FHA, estimated value, is the lowest of the following three things: (1) comparative sale prices; (2) replacement cost; (3) capitalization value ofer a long-term period.

Replacement cost is simply actual replacement cost.

That estimated value is lower than replacement cost is established clearly in the latest publication by FHA for use of their field offices entitled “19th Anocal Report of Federal Housing Administration” dated December 31, 1952 09 page 116 it says, “(1) The maximum mortgage amount under this section is limited by statute to a proportion of FHA estimated value of the project rather than replacement cost (which invariably average higher than value)."

The original act creating cooperaitve housing called for replacement cost which requires the use of the highest of all figures in reaching the mortgaze amounts.

Under estimated value the lowest of all figures is used in reaching mortgage amounts.

Yesterday before actual figures from my office were available to me, I testified that I believed this change of wording would not affect our operations or the operations of any large builder. Today, I want to correct that statement and emphatically say to you that the proposed change of wording from replacement cost to estimated value makes the cooperative section 213 program unworkable for all, whether large-scale operators, small builders, legion posts, teachers unions, associations, etc., and our city of Lakewood, Calif., would not have buik one cooperative home under the new proposed law.

If the purpose of section 213 cooperative housing was to aid middle-inde groups to purchase good housing with small downpayments, that aim bas * accomplished by the present law.

I came here originally to aid civic groups who wanted and needed a workalle sertion 213 program, and now find that I am fighting for my economic busid life.

The CHAIRMAN. We will recess until 10 o'clock tomorrow morning and we will have seven witnesses, starting with the National Associa. tion of Mutual Savings Banks, the American Federation of Labor, the Cooperative League, the American Association of Social Workers, the Associated Builders of Greater New York, the Jewish War Veterans and the Federation of Businessmen's Association of Washington.

That will end the hearings, after we have listened to those witnesses, excepting possibly 10 days from now we will have 3 days of hearings on an amendment that I will offer to this bill, on smog and smoke abatement.

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

(Whereupon, at 3:45 p. m., the committee recessed, to reconvene at 10 a. m., Thursday, March 25, 1954.)

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Washington, D.C. The committee met, pursuant to recess, in room 301, Senate Office Building, at 10:05 a. m., Senator Homer E. Capehart (chairman) presiding.

Present: Senators Capehart, Bennett, Maybank, Robertson, Frear, and Lehman.

The CHAIRMAN. The committee will please come to order.

Our first witness this morning will be Mr. Harry Held, of the National Association of Mutual Savings Banks.

Mr. Held, do you prefer to read your statement ?



Mr. HELD. I believe I would prefer to read it.

My name is Harry Held, and I am vice president of the Bowery Savings Bank, New York City. I am appearing here today on behalf of the National Association of Mutual Savings Banks in support of S. 2938, the Housing Act of 1954.

As of January 1, 1954, there were 528 mutual savings banks, all State chartered. These mutual savings banks are nonprofit organizations, without stockholders. They are operated solely for the benefit of their depositors, who receive all the earnings after the payment of necessary expenses and the setting aside of protective surpluses and reserves.

As of the first of this year, these mutual savings banks had assets of $27,199 million and deposits of $24,400 million. As of the same date, these mutual savings banks held $12,792 million in mortgages which represent 47 percent of their assets, and 52.5 percent of deposits. During the year 1953, these savings banks added, in round figures, $1.6 billion to their holdings in mortgages, in contrast to $1.5 billion in 1952.

Looking at the bill, S. 2938, as a whole, we believe that it is a good measure and, if enacted, should be helpful to the prospective homeowner, the home builder, and the mortgage banker. The housing industry is recognized as one of the important factors in the Nation's economy. The encouragements to home financing contained in S. 2938 should help the housing industry to maintain a reasonably high rate of activity for the year.


In its slum clearance and urban renewal sections, the authors of S. 2938 have taken a fresh and vigorous approach. To what degree the new programs designed to combat urban blight will succeed it is hard to predict, but the problem is immediate and is difficult of solution. Certainly, the effort should be made. In view of the proportions of S. 2938, we shall endeavor to be brief in our remarks and to confine them to the sections of major interest to savings banks.

Sections 203 and 207, "Insurance": The simplification of the various mortgage insurance programs under section 203 of the National Housing Act, and the consolidation of the present title I, section 8. "Insurance," into the section 203 framework should be helpful to both the Federal Housing Administration and to mortgage lenders generalls.

The various subsections, with their different provisions, have been confusing, and this simplification should work for a better understanding of the FHA programs and a quicker processing of mortgage loans.

New maximum mortgage amounts would be established for FHA insurance under section 203, with a $20,000 limit for a 1- or 2-family residence, $27,000 for a 3-family residence, or $35,000 in the case of s 4-family residence. The FHẢ insurance under this amended program would not exceed 95 percent of the first $8,000 of value and is percent of the value in excess of $8,000.

These present ceilings are $16,000, $20,500, and $25,000, respectively, That is in section 104 of the bill. The power to raise these maximum mortgage limits within the new limits would be vested in the President under this bill. That is found in section 201 of the bill.

This would give the President a handy instrument for assisting in the stabilization of the housing industry, in that he could raise or lower the maximum mortgage amounts, depending upon whether the country was faced with a deflationary or an inflationary condition

What I have just said as to the benefit that may come from the new limits of insurable mortgages is true, also, with respect to the new general limits of 30 years on maturities and 6-percent interst on FHA loans. These are in sections 105 and 106 of the bill.

Maturities could be adjusted up or down within the new limit, and the interest rates could even go beyond the new 6-percent limit at the direction of the President, as provided in section 201 of the bill.

This sort of flexibility has been needed for some time with regard to FHA and VA mortgages, in order for them to meet changing cunditions of the money market and to compete better with other investments,

The amendments contained in this bill to FHA section 207, “Rental bousing insurance," likewise have our endorsement. This is section 115 of the bill. The important part of this amendment, as far as we are concerned, is the amendment to paragraph 3 of 207 (c), which would retain the present mortgage amount limits of $2,000 per room or $7,200 per family unit-less than 4 rooms—but would remove the $10,000-per-family-unit limitation.

Permissible, also, under this amendment, would be an increase it. the limitation of $2,100 per room and $7,500 per family unit for elevator-type multiple housing. This is a realistic change, as elerator rental properties are in demand in high-cost and crowded land areas and recognition should be given to the added expense of building them. Here, again, the new statutory mortgage limits under section 207 (c) (3) would not be put into effect except by Presidential direction.

FHA section 213, “Cooperative housing”: Section 119 of this bill would make certain amendments to the present law governing the insurance of cooperative housing mortgages. In the first place, the insurable maximum would be raised to $25 million in amount if the mortgagor is regulated by Federal or State law as to rents, charges, and methods of operation.

In the nonveteran cooperative projects, the per-room limitation would be raised to $2,250 and the per-family unit limitation of $8,100 would be applicable only if the number of rooms is less than 4. A 65percent veteran membership in the project would permit the mortgage to involve a $2,375 per-room limitation or an $8,550 per-family limitation, if the number of rooms does not equal or exceed 4 per unit. Here, also, additional allowances are made if the projects are of the elevator type.

Our association believes that the provision which would base mortgage limits on appraised values, instead of replacement costs as presently provided under section 213, is decidedly a forward step toward providing for relatively sound cooperative housing.

We are, however, not at all certain that section 213 should provide for higher basic mortgage limits than those provided under section 207. While in theory it may seem advisable to make provision for higher limits on cooperative projects than on rental projects, such higher limits might, in effect, lead to the promotion of unsound cooperatives under the sponsorship of speculative developers.

A basic principle in this legislation involves whether its purpose is to encourage true cooperatives, or merely to enable promoters, whose motive is oire of profit, to capitalize upon such development in the guise of helping the eventual cooperative owners.

Under the section 213 promotional-type of cooperative, the capital, risk, and, I might add, the promoter's profit, to the extent that the traffic will permit, are all borne by the mortgagee and the cooperative owners. Experience has proved that the benefits of cooperative ownership are illusionary unless the sponsorship of these projects is such that the profit motive is subordinated to a point where the cooperative owners benefit in the purchase of the land, the construction of the buildings, and later, the mangement of the project.

We trust that in the future administration of section 213, considerable emphasis will be put upon providing for strong sponsorship of such projects.

The new sections 220 and 221 of the National Housing Act-section 123 would add two brand new mortgage programs to FHA functions. They are special-purpose mortgage programs. They could only be brought into use where the Ilousing and Home Finance Administrator has received from the locality a workable program for slum elimination and slum prevention and the rehabilitation or redevelopment of the blighted areas. The Administrator must certify to FHA that either one or both of these new insurance programs could be available in the development community.

The section 220 program would authorize mortgage loans on both new and reconditioned one- to four-family units, with the same limits proposed for application for one- to four-family dwellings

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