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Essentially there is no difference between the Treasury issuing bonds, the proceeds of which are used to make direct Federal loans, and the proposal here to use 100-percent Government-guaranteed debentures issued by a Government corporation. In neither instance would the Government lending agency be paying regular taxes. The ultimate liability is the same; the control by Government is the same; the inducement to purchase by the investing public at a lower rate of interest is the same. This is not private enterprise any more than raising Treasury funds by the sale of savings bonds is private enterprise. It is completely misleading to compare such financing with the FHA-insured mortgage system wherein the mortgage funds never pass through governmental hands at all and the loans are made by private lenders directly to private individuals.

Beyond this, the bill is a threat to the millions of policyholders in insurance companies, depositors in banks, savings banks, and building and loan companies, who rely upon the established mortgage lending pattern for security and earnings on their life savings.

2. It is discriminatory.

It provides federally controlled cooperatives with a more favorable form of financing than is otherwise available or is available to other individuals who must attempt to compete with such cooperatives. Thus not only would cooperatives enjoy certain tax advantages under State and Federal laws, but they would enjoy loans based on 100 percent of their costs for approximately 3 percent and for unheard of length of terms of from 50 to 60 years.

None of these benefits are available to other persons or forms of enterprise in this field. Advocates of this measure, by omission of cost limits, in effect concede that all or the greater part of the saving in financing costs effected by assumption by Government of the private mortgage lenders' functions will be dissipated in higher construction costs for these projects; otherwise they would have included at least the same limitations as are placed on other projects financed under FHA.

It is significant that the legislation contains no limitation whatsoever on construction costs of these projects except the conscience of the Administrator. Thus, we have progressed even one step beyond the public housing legislation passed last year which limited costs to the exorbitant maximum of $2,500 per room-excluding land, which would be an additional $200 to $500 per room-compared to an effective limit of $1,800 a room for private builders.

Certain additional advantages not available to individual families are:

(a) Preliminary direct Federal loans for planning at a very low interest. And what assurance is there that if the project goes ahead those loans can be repaid or will be repaid? The bill makes no such provision to take care of such an event.

(b) What roughly corresponds to an equity or down payment is limited to 21/2 percent; and in addition another 5 percent is payable over 20 years to provide a total of 712 percent over a 20-year period;

(c) Government tax-supported planning and technical assistance (services of this kind by FHA are paid for out of premiums paid by borrowers, and are not tax supported.

may have.

(d) The Federal lending corporation is free from regular Federal and local taxes except as to any tangible real or personal property it

(e) The local cooperative, of course, enjoys such tax exemptions as are accorded such organizations in its jurisdiction, that is, such tax exemptions as State or local governments make available by their laws.

The proposal discriminates against such persons as may not desire to join in a cooperative with all of the admitted difficulties and uncertainties of such an organization by forcing them to seek private or FHA or VA financing for their individual homes at a higher rate of interest and for shorter and, therefore, less-favorable terms.

Further, those persons whose incomes are too low or too high to be eligible to enter such a cooperative, if they so choose, perhaps by only a few dollars a year, would be unable to avail themselves of these benefits.

If this line of reasoning suggests making the program available to all persons and classes, or to a gradual broadening of the program in years to come, then a further point is made against starting such a scheme in the first place.

There are some in this country who are willing to see the Government take over, build, or finance and allocate all housing; however, we are sure that no members of this committee would urge such a drastic and far-reaching step. At the same time, the serious question must be raised : Is not this proposal, added to the recently enacted federally subsidized public-housing program, a substantial step in just that direction?

3. It would undermine the present FHA and VA programs in housing

By offering a substantially lower interest rate and amortization periods of more than twice the present FHA and VA provisions, this proposal would compete with and undermine the present governmental program in housing-of insurance and guaranty of home loans under FHA and VA.

What inducement would there be for a so-called middle-income family, veterans or nonveterans, to use FHA or VA? Or private financing sources? Would they not be impelled to seek out a cooperative or urge their Congressmen to vote for a greater authorization or a broader coverage as to income groups so that they can get the same benefits that this so-called middle-income group would be accorded ?

If this proposal is enacted and succeeds as its proponents maintain it will, it is our opinion that FHA and VA will be seriously and adversely affected as to volume and importance as well as to longterm security of the obligations which they guarantee. Certainly it is a risk which this committee and the Members of Congress should ponder carefully.

4. It is not necessary as a means of housing the middle-income third. I refer you back again to the exhibit which I introduced a few moments ago, showing, as it does, that even in our largest metropolitan areas the middle-income family is getting much more than its share-its one-third share of the housing production.

Whatever merit Members of Congress may have felt justified the passage of the Public Housing Act to help the lower-income third certainly cannot be used to justify this further extension of Government's

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direct participation in providing shelter. The reason is simple: The group defined for you by Administrator Foley as being the middleincome families, whose incomes range from $2,800 to $4,400, on a national average, are already being served by private industry both with and without the assistance of FHA and VA. You have been told that in cities of a million and more this range is from $3,135 to $4,841, while in smaller communities the range is $2,451 to $3,929. We do not have the practically unlimited personnel for research which the Government agency espousing this measure has at its disposal. We have to depend upon published data of the FHA, Bureau of Census, and BLS—and our own practical knowledge of what is going on in the housing market today.

By the Government's own statistics it is clearly shown that families in these income brackets can and are buying the new, as well as used, homes on today's market. Average characteristics by mortgagor's monthly income (based on FH A-insured

mortgages secured by new and existing single-family, owner-occupied homes, sec. 203, 1948)

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1 All expenses including taxes, loan principal and interest, utilities and maintenance.
2 “Shelter rent" defined by HHFA as total paid less utilities, estimtaed as $8.50 monthly.
Source: Fifteenth Annual Report of the Federal Housing Administration for 1948, p. 59.

The latest published FHA figures cover the year 1948. Complete statistics for 1949 have not yet been made available. Data appearing on page 59 of the FHA's Fifteenth Annual Report (1948) shows that 50 percent of the purchasers of new homes in 1948, under section 203, had incomes of less than $4,000 a year. Sixty-five percent had incomes of less than $4,800 a year. We asked FHA for any aavilable data on 1949 and were advised that for the first 6 months of last year 68 percent of the purchasers had incomes of under $4,800.

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That $4,800 figure is said to be the dividing line at the upper limit of the middle

one-third of American families, and that 68-percent figure certainly shows that, on the national average, the lower 67 percent of American families are getting 68 percent of the housing. As pointed out earlier, 76 percent of veterans buying under combination FHA-VA loans had incomes of less than $4,000; over half, less than $3,500. This indicates that, partially as a result of the economy home program, the industry is serving a large and increasing percentage of the middle-income group. With respect to the purchasers of existing homes in 1948, FHA statistics show-this is used housing now—that 69.6 percent had incomes of less than $4,800. It should never be overlooked that the used housing constitutes a high percentage of the supply for all income groups and always will. The new home is only a part of the total national inventory of available shelter. I think we forget about the some 36 or 37 million existing dwellings that we have.

This is also true of the rental housing situation. The rental figures quoted for you on new construction give an entirely distorted picture of the rents paid by the vast majority of American tenant families.

In his statement before your committee Mr. Foley suggested that housing for middle-income groups should be available at shelter rents ranging from $47 to $73, exclusive of an estimated $8.50 per month for utilities. FHA, in its underwriting procedure, pays careful attention to the ability of the purchaser to carry the monthly payments and if, in its judgment, the payment is in excess of his reasonable ability to carry, the prospective purchaser is rejected, and his application is rejected.

Nevertheless, the FHA statistics above referred to show that the persons

with incomes of $4,800 and less bought new homes, the monthly housing expense of which, including utilities, maintenance, payment on principal, and payment on secondary loan, if any, ranged from $14.71 to $82.95 per month. To make these figures comparable to Mr. Foley's shelter-rent figures in support of this bill ($47 to $73), it is necessary to subtract the $8.50 per month for utilities. This would give a present new housing expense range of $36.21 to $75.45 per month for that group.

For persons in this under-$4,800 income group who purchased existing homes—that is, used homes—the top of the range in monthly housing expense was somewhat less, i. e., $14.73 to $75.84, which, allowing for the same utilities deduction, suggested by Mr. Foley, gives a top shelter-rent figure of $67.34. These are official FHA figures for homes financed under the FHA plan during the year 1948.

The following quotation from page 43 of the Fifteenth Annual Report of FHA is significant:

About 60 percent of the 1948 buyers of new single-family dwellings who financed their purchases with section 203 insured mortgages contracted to. repay their loans at the rate of $45 to $69.99 per month, including the payment to principal, interest, FHA-insurance premium, hazard-insurance premiums, taxes and special assessments, and miscellaneous items, including ground rent, if any. Reflecting a typical mortgage term differential of more than 4 years, the section 603 payment distribution is concentrated within a somewhat lower range, with more than 72 percent of the payments reported between $45 and $59.99 even though the section 603 median mortgage was more than $350 above that for section 203.

In previous testimony before this committee we pointed out that if the subsidized public housing program were launched with the Government stepping in to house the lower one-third of the population, it would only be a matter of time before further efforts would be made in the direction of direct participation by Government in housing additional economic groups. At the time we sounded this warning we had no idea that such efforts would be made at this early date. It will be argued that the $12,320,000,000 public-housing program and this $2,000,000,000 middle-income family cooperative plan do not undertake to house the entire two-thirds of American families. Only the present financial limits in the existing legislation and this proposed legislation confine the programs. If this bill is enacted into law it may be reasonably expected that persistent demands will be made for further expansions of it in due course. So let us proceed with this thing with our eyes open. It is our considered judgment that the extension of direct Federal aid of this kind must be stopped now if we are to maintain a stable economy and continue to obtain the necessary flow of revenue to the Federal Government that will permit us to avoid further increases in the national debt.

Mr. MULTER. You mean you are willing to end the entire FHAguaranteed mortgage program now?

Mr. LOCKWOOD. I am talking about the cooperative housing program.

Mr. MULTER. You want just this part of it stopped, not the rest of the building program as outlined by Congress? The program as now in the law-do you want all of that stopped, or just this part of it stopped!

Mr. LOCKWOOD. I am saying that the cooperative housing program, once it is launched, would not be just a $2,000,000,000 program. It would continue to expand and expand, and now is the time to stop it, before it is started.

Mr. MULTER. I am referring to your statement that it is your considered judgment that direct Federal aid must be stopped now. You are just referring to this one program and not the other programs that are now law ?

Mr. LOCKWOOD. That is right. I am saying that we should sto? gong any further with this matter of direct Federal subsidies.

Mr. MULTER. I just wanted to get that clear.

Mr. LOCKWOOD. It should be pointed out that the fostering of partially tax-exempt cooperatives reduces the tax base upon which local, State, and Federal Governments depend for the raising of revenues. The cooperative system in housing has not proved that it possesses any peculiar method of reducing construction costs nor, to our knowledge, any substantial reductions in operating costs. The only obvious advantages, cost wise or rentwise, which cooperatives would have under this amendment are those provided by Government in the form of reduced interest rates, increased amortization periods and tax waivers...

If it is the desire of Government to experiment with coperatives in the hope of developing sound economies, then it seems reasonable to foster them under the provisions of section 207, title II, of the National Housing Act, which already contains a cooperative housing provision. Veterans' cooperatives, in fact, enjoy a 4 percent interest rate with insurance up to 95 percent of replacement costs and a loan amortization up to 40 years.

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