"not exceed 90 percent of the estimated value of the property or project." Similar wording appears in other sections of the bills. Under the original section 213 of the Housing Act, the mortgage insurance was based upon replacement cost of the project. The change is an important and fundamental change in underwriting policy.

Many of the existing cooperative housing projects would not have been built if value had been the criteria rather than the replacement cost, for under present FHA practices, this would provide a penalty on location, design, and increased number of rooms.

In estimating the value of a property, location is often taken into account as a factor in the salability of a property or in rental of such property. In a section 213 cooperative project, the housing units are sold in advance of construction and are the use-property of the ocu pant, so that the fact of organization and construction of the project itself indicates the value of the location, whereas the value of other properties cannot be determined until consumer acceptance is estab lished. Often a new location may be downgraded if it has to be meas ured in terms of estimated value at time of completion.

The question of design is also a matter in which a cooperative may suffer a penalty. The tendency in cooperative projects has been to use comparatively modern design, often ahead of general acceptance of that design in a given locality. Snow Village Cooperative, i: Cleveland, is an outstanding example of modern design in multiple family housing. The use of replacement costs makes it possible for the mortgage to be insured up to 90 percent of actual cost of the project. while estimated value leaves the question of the total insurable value up to the judgment of the FHA official, who must be conservative in his judgment of eventual resale value of a given project. That resale value is of very great importance in a rental or speculative sales project, whereas in a cooperative the units are sold in advance of cor struction and occupancy.

The FHA underwriting procedures provide that the estimate of value is the lower of (1) estimate of replacement cost, (2) estimate of available market price, or (3) estimate of capitalized income. Since the estimate of replacement cost is also described as a top limit of value, it can be seen that the proposed change can only result in a lowering of the mortgage amount for a cooperative housing project.

Almost invariably, the underwriting estimate of value is determined on the basis of capitalization of income. This is a valid basis of judgment for a rental project, but not necessarily valid for a cooperative housing project where livability is the chief aim of the owner-occupant. It is quite obvious that an apartment consisting of a large number of small units provides a higher potential income for the owner, and, therefore, a higher value than an apartment containing a lesser number of larger units. This factor has tended to stimulate the produc tion of a very large number of rental projects with a high concentration on efficiency units and with a smaller number of bedrooms tha growing families desire. Monsignor O'Grady, of the National Cath olic Charities, has descirbed efficiencies as "genocide housing," as it has a tendency to cut down on family size and discourage occupancy by larger family units.

A characteristic of cooperative housing has been its emphasis on family living and the development of a larger number of bedrooms per unit. This is often at a cost to the member owner which would not

be justified as an investment on the part of a building owner who must make a judgment on the basis of income on investment.

Restated in other terms, the major emphasis of a coperative housing project must be its attempt to achieve long-range livability, rather than the production of income.

The 19th annual report of the FHA reveals that during the year 1952, rental housing projects constructed under section 207, where the mortgage was calculated on an estimate of value, the average unit consisted of 4.3 rooms. Projects developed under section 213, using a basis of replacement cost, contained units with an average of 5.1 rooms. The difference is even more graphically seen in the following table showing the percentage breakdown of smaller and larger

It is our feeling that the present legislation, changing the basis from replacement cost to value, will nullify, to a large extent, the family livability which has been encouraged as a part of the cooperative-housing program.

We, therefore, recommend that the present procedure of insuring mortgages on cooperative projects be continued on a replacement-cost basis, which has proven to be an effective and valuable ingredient of the cooperative-housing program.

One very unfortunate change is recommended in this legislation in section 120, which eliminates the position of Assistant Commissioner for Cooperative Housing in FHA. This deletion was made in the Appropriations Act of 1954, and the bill before you would make that permanent. There apparently was misunderstanding on the part of the Appropriations Committee as to the size and importance of the cooperative-housing program.

The post was stricken, apparently, in the interest of economy, even though that position, and, in fact, all of the cooperative-housing program, has more than paid its own way out of fees paid by the cooperative housing projects. The President's Advisory Committee on Housing Policy made a strong recommendation that the personnel responsible for section 213 be increased to meet the needs in that field. Unfortunately, through a series of resignations, the cooperative housing staff was cut from 8 executives a little over a year ago, to 2 executives today. These two men, with a small clerical staff, are trying to keep pace with the present load which has been extremely heavy and which kept the previous staff at full workload. What has actu ally happened is that the field work and supervision essential in carrying forward this program have been cut out almost completely. The builder-sponsored projects can get along with a minimum of technical assistance from FHA if they are never to become true cooperatives. Consumer-sponsored projects, however, initiated by veterans posts, teachers, trade unions, co-ops and other organizations,

need help and need it badly if they are to be sound and sustaining. We feel that the eliminating of the post of Assistant Commissioner downgrades a very important section of FHA's program, and that the cutback in staff hampers it severely.

Fortunately, we have letters from both Commissioner Guy T. 0). Hollyday and Administrator Albert M. Cole which assure us that steps will be taken under the present legislative situation to try to correct this unfortunate shortage of personnel.

Senator MAYBANK. The chairman asked me about this, and I might say that was done in the House. I tried, as the ranking Democrat in the Senate on the subcommittee to have the job reinstated, but we were unable to do so.

You have said a lot about the necessity of it, but you haven't said anything specific about it. How about filing something for the record. because this is the last day of hearing, something specific about the workload, so I might have it when the bill comes over this year from the House side. I don't know what the chairman's idea is, whether he expects to put it back or not, but I feel as you do. I don't know whether the House will put it back or not.

Mr. CAMPBELL. Yes, sir. It is true it was put back in the bill, ani in conference it was stricken out. We will be very happy to supply that information for the record.

(The information requested follows:)

Senator HOMER E. CAPEHART,

The COOPERATIVE LEAGUE OF THE U. S. A.,
Washington 5, D. C., April 2, 1954

Chairman, Senate Banking and Currency Committee,

Washington 25, D. C.

DEAR SENATOR CAPEHART: During the hearings on the Housing Act of 1954 you asked me to provide you with specific information about the workload carried by the cooperative housing section (213) of the Federal Housing Administration. I had pointed out in my testimony that in spite of the growing importance of cooperative housing, the staff has been cut back through a series of resignations to the point where 2 executives are now carrying the same load carried by 8 previously.

The effect of this is that the technical assistance so badly needed by consumersponsored projects such as those initiated by veterans' organizations, teachers groups, trade unions, cooperatives, and others, is no longer available.

This situation was complicated by the action of the House Appropriations Committee last year which knocked out the position of Assistant Commissioner for Cooperative Housing. The Senate, as you will remember, restored this position, but it was lost again in conference. I am sure it is the intent of the Senate and a substantial membership in the House that this program should have the fullest possible support.

We have participated in a series of meetings during the last 3 years with staff of the cooperative housing section through a cooperative advisory con mittee made up of representatives of veterans' organizations, education, labor. religious, cooperative, and housing groups. I have supplemented the information which was currently available with other information secured by questions to the staff. The following can be confirmed by direct questions to FHA if you wish The attached schedule compares the workload of the Cooperative Housing Division on January 30, 1952, at which time there was a staff of 13 engaged in this work, with the workload of January 31, 1954, at which time the staff consisted of only 7 employees. These include clerical staff.

It is interesting to note that despite constant and gradual reductions in per sonnel over the 2-year period, the workload, in terms of the number of projects has more than doubled. At the present time, with 153 projects insured and $2 in various stages leading to insurance, it is impossible for the 2 officials charged with the responsibility of this program to discharge adequately their responsi bilities in connection with the rendering of advice and assistance to sponsoring groups and cooperative mortgagor corporations.

Only sponsoring groups who are able to come to Washington can obtain the benefit of expert guidance in the formation of cooperative corporations, the solicitation of members, and the other problems inherent in the development of a cooperative housing project.

The majority of FHA field offices have not had the benefit of personal contact with representatives of the Cooperative Housing Section for a very necessary discussion of the concepts, policies, and procedures governing the program.

It is interesting to note that since the passage of the act in 1950, 335 cases comprising 26,582 units for a total dollar volume of $256,945,898, were withdrawn after application, or expired. While there may be many reasons for this loss of insured projects under section 213, it is reasonable to assume that much of it can be traced directly to the lack of the availability of advice and assistance to sponsoring groups during the critical period covering the formation of the cooperative corporation, the solicitation of members, the securing of financing,

etc.

Of more than passing interest is the total of 153 insured projects, many of which are now completed and occupied. Many difficulties now being encountered by cooperative corporations in the early stages of their management activities could have been prevented had adequate personnel been made available to render to them the guidance they need in setting up a sound management program. The bill before you cuts out the position of Assistant Commissioner for Cooperative Housing in spite of the fact that the President's Advisory Committee on Housing suggested an increase of personnel in the Division. This could be remedied by simply striking out section 120 of the bill. Sincerely yours,

WALLACE J. CAMPBELL.

Mr. CAMPBELL. In a letter dated February 3, 1954, Commissioner Hollyday wrote Jerry Voorhis, executive director of the Cooperative League:

As you will recall, the First Independent Offices Appropriation Act of 1954 (Public Law 176, 83d Cong.) contained a provision specifically stating that the position of Assistant Commissioner, Cooperative Housing, was no longer authorized. It would seem, therefore, that the retention of language in the 213 statute which would make it mandatory for such a position to be established would create confusion, and that a clarification in this respect would in effect represent compliance with a directive from the Congress. Such an action does not have any relation to my views on the recommendations of the President's Advisory Committee that a much fuller staff should be provided for the service of the cooperative-housing program.

Administrator Cole wrote Jerry Voorhis on February 12, 1954:

I believe Mr. Hollyday has already written to you indicating our reluctance to submit a legislative proposal on this question which was contrary to the specific provisions of the First Independent Offices Appropriation Act of 1954. However, I want to make it clear to you that this in no way changes my agreement with the Advisory Committee's recommendations affecting section 213. Specifically, I believe the FHA should have adequate personnel available to provide to cooperative sponsors all necessary assistance in organization and operation. This, I feel sure, can be accomplished without reestablishing the position of Assistant Commissioner for Cooperative Housing.

It would provide the status which the program has grown to deserve, however, if the Congress would restore that position.

Earlier in this testimony, we pointed out that a great number of minority projects were unable to secure advance commitments from FNMA. There were also a large number of builder-sponsored and consumer-sponsored projects in 26 States which could not secure mortgage commitments.

Senator MAYBANK. That was generally true about everybody, wasn't it?

Mr. CAMPBELL. That is right. It would require fund extensions of FNMA commitments for approximately $60 million to take care of the applications which met FHA's requirements both as to time and technical qualifications when the legislation was adopted. To take care of all of these projects, many of which have become hardship projects, would also require lifting the statewide limitation from $3.5 million to $10 million. If such an authorization is made, and we would highly recommend it, we would also suggest that in making advance commitments, FNMA give priority to bona fide consumersponsored cooperatives which are these in which the board of directors of the cooperative and the project sponsor consist of persons who purchase memberships in the cooperative and will eventually reside in the project, or who are representatives of consumer organizations or other nonprofit organizations formed to assist cooperative housing. Among the builder-sponsored projects, priority should be given for such mortgages as have the greatest difficulty in securing financing due to occupancy of the housing by minority racial groups.

It has been suggested to your committee that you authorize dual commitments under sections 207 and 213 of FHA to facilitate the mortgage procedure. We would approve of this if there are adequate safeguards to see that the procedure is not used merely for increasing the profits on a speculative project.

One of the important features which could be added to the new housing act would be a safeguard which, in our opinion, could take