Church groups, as you know, have been vigorous in their support of public housing and an adequate program for rural housing, including agriculture labor. These are indispensible to a comprehensive housing program, but about 40 percent of American families, the middle-class group, actually include more of the constituency of our Protestant Churches. They have had no organized spokesman until recently. Now veterans' organizations, women's organizations, and churches, whose memberships cut across all classes, including many middle-class families, have taken up the cause of these neglected families.

The council strongly supports legislation along the lines of H. R. 6618, to provide a means whereby good housing and well-planned, integrated neighborhoods, could be made available to families of moderate income. This would be achieved by furnishing technical and financial assistance to cooperative ownership and other nonprofit corporations.

The technical assistance would aid in planning of projects qualified under the program and perform a consultative function on financing, development, construction, operation, and management. This assistance would also include the development of practical means for members of cooperatives to acquire ownership of their individual dwellings. Financial assistance to encourage cooperative housing should consist of, first, authorization for preliminary advances of funds to qualify projects for purposes of planning and performing work preliminary to construction. These advances would not exceed 5 percent of the total cost of the development and would bear interest not in excess of the going Federal rate plus one-half of 1 percent; $25,000,000 could be issued for this purpose. Second, creation of a national mortgage corporation for housing cooperatives to make and service mortgage loans for this project. For this long-term financing of cooperative housing the Secretary of the Treasury would be authorized to purchase stock in the corporation up to $100,000,000. These mortgage loans for periods up to 50 years would bear an interest computed on a special formula of approximately 3 percent.

The Council for Social Action believes that such a program would provide a real stimulus to the morale of the middle-income, middleclass groups in the United States. If given sympathetic and intelligent leadership in the administration of the Housing and Home Finance Agency, it would reach into communities across the land and provide them with encouragement to move forward.

The Council for Social Action has carried on a vigorous educational program to secure the interest and support for this program among church people. Among other things this effort includes an issue of the council's magazine entitled "Social Action," devoted to housing for the middle class. We believe that many of our church people would benefit from and take advantage of the kind of program recommended in H. R. 6618.

Thank you, Mr. Chairman.

The CHAIRMAN. We thank you very much.

Mr. NICHOLSON. You say this is a Congregational Church that is endorsing this?

Mr. KETCHAM. This is the Council for Social Action, an agency of the Congregational Christian Churches.

Mr. NICHOLSON. What do you mean, "Congregational Christian Churches?" Is the Congregational Church a Christian church or not.

Mr. KETCHAM. The proper legal name of the Congregational Church is the "Congregational Christian Church."

Mr. NICHOLSON. I never understood it that way. I always understood it as the Congregational Church.

Mr. KETCHAM. In different parts of the country some of the churches just use the word "Congregational" and omit the Christian part. Mr. NICHOLSON. And they have gone on record in favor of this bill on behalf of the Congregational Church in the United States?

Mr. KETCHAM. Through the Council for Social Action, which is an agency of the Congregational Christian churches.

Mr. NICHOLSON. How are they formed, the council?

Mr. KETCHAM. It's members are elected by the General Council of the Congregational Christian Churches.

Mr. NICHOLSON. Where do they usually meet?

Mr. KETCHAM. In Cleveland and New York City.

Mr. NICHOLSON. That is all.

Mr. DEANE. Mr. Ketcham, does your organization subscribe to any policy of taxes on the cooperative?

Mr. KETCHAM. No, sir.

Mr. DEANE. What do you think the position of your council would be if they were to take formal action?

Mr. KETCHAM. I would be inclined to believe that the Council for Social Action would be opposed to tax exemption for certain cooperatives.

Mr. DEANE. What is your opinion on it?

Mr. KETCHAM. That is my opinion.

Mr. MITCHELL. Mr. Ketcham, I wonder if the council has taken any action with regard to the constituent agency to handle the cooperative angle of the housing program as opposed to a division as endorsed by Mr. Foley before the committee?

Mr. KETCHAM. I don't know that. The Reverend Keehn has been devoting his time to the housing program and I am just sort of pinchhitting for him, and I don't know.

Mr. MITCHELL. You do not know what his personal opinion would be on that point?

Mr. KETCHAM. I could very easily check it for you.

Mr. MITCHELL. If you could and inform the committee, I think it would be worth while.

The CHAIRMAN. I think we would be interested in having that information.

Mr. KETCHAM. In 1620, when the Congregational Christian Church was formed in this country, they all had to build their own houses, but I don't think it is very practical any more.

The CHAIRMAN. If there are no further questions, you may retire.
Mr. Krooth, you may identify yourself and proceed.
Mr. KROOTH. My name is David L. Krooth.

STATEMENT OF DAVID L. KROOTH, NATIONAL HOUSING
CONFERENCE, INC.

Mr. KROOTH. Mr. Chairman and members of the committee, I am appearing for the National Housing Conference. The conference is a nonprofit organization, which, for almost 20 years, has been a spokesman for the public interest in housing. Its objective is the achieve

ment of a housing program that will be comprehensive and balanced and will meet the needs of the people.

We are appearing in support of Congressman Spence's bill, H. R. 6618, which would provide housing through cooperatives and other nonprofit corporations.

NEED FOR HOUSING LEGISLATION COVERING MIDDLE-INCOME FAMILIES

To save the time of the committee, we will not go into any broad statement of the economic and social justification for this legislation. These matters were covered in our testimony before the committee last July relating to title III of H. R. 5631. Moreover, in the past couple of days the Housing and Home Finance Administrator has made a complete and detailed statement before this committee which indicates the need for this legislation. We agree with the Administrator that there is a serious need for additional housing among families in the middle-income group.

Truthfully, these families are caught in the middle. They are not eligible for public housing because their incomes are too high. They can't afford new housing that is being built for rent or sale, nor is there an adequate supply of existing houses available to them at prices they can afford. Therefore, these families must look to additional production of housing to meet their needs.

The legislation embodied in H. R. 6618 provides a start in the solution of the housing problem of these middle-income families. It is a private enterprise solution. It involves the combination of good old American principles of initiative and self-help, with the economies of large-scale development and better private financing.

Our statement today will be concerned solely with Congressman Spence's substitute for the original title III of H. R. 5631. This substitute is contained in H. R. 6618 and we feel it is a great improvement over the provisions of last year's bill in a number of respects. In one respect, we feel the substitute requires amendment to bring it into conformity with a better provision of the predecessor bill.

The first feature of this bill which represents a substantial improvement over last year's bill is its use of private capital financing methods to accomplish the same objectives.

Last year's bill proposed a direct Federal lending program. This bill does not, except for an interim program of $25,000,000 of preliminary loans to be made on a basis of not to exceed 5 percent of the cost of projects, which will be repaid out of permanent loan proceeds. All of the permanent loans will be made by a National Mortgage Association for Housing Cooperatives. This will be a mixed ownership corporation similar to farm financing cooperatives and the Federal home-loan banks, which have been operating since 1933 and 1932.

Parenthetically, I would like to point out that in the operations of both of those banks they have always been regarded as using private financing methods in accomplishing the objective. Thus, the Central Bank for Cooperatives made about a half billion dollars of farm loans in the year 1948 and the Federal home-loan banks, according to their last fiscal statement for 1947 have made loans to their member banks in the amount of $435,000,000. Both of those banks are set up in precisely the same way as the National Mortgage Association for

Housing Cooperatives, namely, by having the Government subscribe to part of the stock and having the borrowers buy stock in the corporation. In both those cases, as in this case, the borrowers' purchase of stock ultimately will retire the Government's interest.

In the case of the Federal home-loan banks, while originally the subscription of the Federal Government was $125,000,000, the individual savings and loan associations have been subscribing to stock in the banks, so as of this time the Government's participation in the bank has been reduced to $75,000,000. It has been reduced from $125,000,000 to $75,000,000 and it is expected that it will not be long before the Government's entire stock holdings in the bank would be retired.

Mr. BUCHANAN. What was that figure on the farm financing cooperatives? How much?

Mr. KROOTH. The amount of the loans that had been made was a half billion dollars. The amount of the Federal Government's subscription to stock in the Central Bank for Cooperatives-I will give you that figure, sir. I hadn't mentioned it-the total amount that the Federal Government has invested in stock in the farm cooperative banks is $178,500,000.

Mr. BUCHANAN. $178,000,000.

Mr. KROOTH. $178,500,000. The system with the farm banks is that when a farmer wants to borrow from the bank he has to buy stock equal to 5 percent of the amount of the loan for operating capital or a physical facility. Under the Home Loan Bank System, when a savings and loan institution wants to borrow, they have to subscribe to stock equal to one-twelfth of the amount of the loan, or about 83 percent. Under this bill the amount that the housing cooperative borrowing from the National Mortgage Association would put up is 712 percent, although it is not all put up at one time, as you know.

Mr. BUCHANAN. The figure cited for the Federal home-loan banks was $435,000,000?

Mr. KROOTH. That is the amount of loans outstanding. That is right.

Under this bill the Federal Government would initially subscribe for $100,000,000 of stock in the Mortgage Association, and each borrower would be required to subscribe to stock in an amount equal to 712 percent of the loan requested. The private stock subscriptions would gradually retire the preferred stock purchased by the Federal Government so that all of the stock would ultimately be privately owned. Besides lending the money obtained from stock subscriptions, the Mortgage Association would be authorized to borrow money through normal private channels by issuing its bonds against the mortgages in its portfolio, securing its loans under this bill. The bonds of the Mortgage Association would be guaranteed by the Government similar to the present FHA guaranties and other guaranties of private housing financing. The only difference between the guaranty on the bonds of the Mortgage Association and the FHA guaranty, is the point at which the guaranty attaches. In the case of FHA, when default occurs guaranteed debentures are issued and the Government is liable on those. In the case of the Mortgage Association, the bonds are guaranteed at the time of issuance, but in both cases the Government has the same type of liability in the case of default, either under the FHA system or under this bill.

61731-50-12

The second feature in which this bill is superior, in our judgment, to last year's title III is that it contains additional provisions which insure that the program will involve no cost to the Government. Both the new and the old bill contemplated that the program to make housing available to middle-income families would involve no subsidy. However, the new bill contains additional provisions which eliminate the likelihood of the Government being called upon for any contingent liabilities. Thus, the interest rate at which the money is to be loaned to cooperatives and other nonprofit corporations is to represent the cost of the money to the Mortgage Association on its own borrowings, plus one-half of 1 percent to cover the cost of administration and one-eighth of 1 percent as a reserve against losses. It should be noted that, in addition to this one-eighth of 1 percent reserve against losses, there is the further protection resulting from the required stock investments by borrowers equaling 72 percent of each loan. These stock investments in the Mortgage Association will add to the capital of the Association and provide an additional cushion to absorb any losses on loans. Actually, with housing to be provided at the moderate monthly cost contemplated by this bill and with the vast need for this housing among moderate-income families, it is highly unlikely that there would be losses on the mortgage loans made under this program. Third. The new bill involves greater recognition of the cooperative principle by not only providing for stock subscriptions in the Mortgage Association by borrowers, but also providing that two of the five directors of the Association are to be selected from among representatives of cooperatives. This is a sound provision which will assure more realistic administration and the accomplishment of the basic purposes of the legislation.

Fourth. The new bill would encourage home ownership among families of moderate income. Thus cooperatives could obtain assistance for the building of individual, free-standing dwellings, the title to which could be acquired by the individual families purchasing the homes. These individual families would acquire their homes subject to the obligation to make mortgage payments to the cooperatives. There would not be individual mortgages placed on each house with the additional servicing costs this would involve. Instead there would be a blanket mortgage covering all of the houses in a particular community development with a cooperative collecting payments from each home owner.

The cooperative, in turn, would continue to make payments on its loan from the National Mortgage Association. It would also have the right to repurchase the individual dwellings from the families if they decided to move at a later date. Incidentally, this right of repurchase will assure that the housing continues to meet its purpose of serving moderate-income families and also will protect against speculative resales. A person buying a home through a cooperative gets the benefit of the lower interest rate due to the improved method of private financing under this bill. However, it should be recognized that he foregoes the right to speculative profits on his house and that the cost of the house must be sufficiently low to qualify for his moderate income under the terms of the bill.

Fifth. The new bill sets up the program on a longer range basis, with a total authorization of $2,000,000,000, which would make it pos