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If it is the judgment of Congress to discontinue section 608 multiple rental housing insurance—as is proposed from a reading of the provisions of H. R. 6724—it is our recommendation that section 207, which is the permanent vehicle for providing an incentive for the production of rental housing, be modernized to take its place.

Mr. BUCHANAN. You think 608 should be discontinued ?

Mr. LOCKWOOD. Not unless a suitable substitute is provided under section 207.

Mr. BUCHANAN. You would like to see the present 608 continued

Mr. LOCKWOOD. As far as we are concerned, it does not matter whether it is continued as is under section 608 or a suitable substitute provided. We think there is still a need for more rental housing to be

a built and that there ought to be a vehicle in the National Housing Act which is practical and realistic for the purpose.

Mr. GAMBLE. Section 207, if modernized, would, in your opinion, be a suitable substitute?

Mr. LOCKWOOD. That is right.

Any revision of section 207 must be done with a view to making it work and not to unduly restrict its usefulness in stimulating rental housing for which there is a definite need in many areas. The proposal to limit the 90 percent insurance to the first $7,000 of value is restrictive as is the limitation to $7,500 per unit mortgage amount where the project average does not equal or exceed 41/2 rooms per unit.

I should like to say that, in reading the testimony that was given here by Mr. Foley before this committee a short time ago, he commented upon the fact that the trend in the last year has been toward smaller units of rental housing. I might say that that trend has been the direct result of proposals made by the Housing and Home Finance Agency, and previously enacted by the Congress, which set room limits or unit limits, rather, which forced a tendency toward smaller-sized units which were not suitable for larger families. This proposal of setting the maximum limit on 90 percent loans at $7,000 will have the same effect, only a more serious trend will probably develop, if that were enacted in that form, toward smaller units.

It is interesting to note that this bill contains both a limit on mortgage amount and value, but no similar limitation is provided in the bill on cooperative housing.

Certainly, if the housing bill were enacted it would be open to the introduction of a great many abuses on that account.

We would like to submit here for the record—and I think you all have a copy-an exhibit entitled "Average Characteristics by Mortgagor's Monthly Income."

The right-hand column, entitled "Equivalent 'Shelter Rent,'” was added by us to relate the FHA figures to shelter rent as defined in Mr. Foley's testimony. It is arrived at by simply substracting $8.50

$ monthly for utilities from the total monthly housing expense.

I should like to point this out, further: That, inasmuch as these houses financed under section 203 are owner-occupied, actually the equivalent shelter rent in practice is somewhat lower than is shown here because the owner-occupant does a great part, if not all, of his own maintenance, and this shelter-rent equivalent includes a substantial sum monthly for maintenance; so that actually the shelter rent to the owner-occupant who performs his own maintenance to a large

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extent is substantially lower than that reflected in the right-hand column of this exhibit.

Drawing your attention to the “New Homes” section, incomes ranging from $200 per month up to $399.99, you will note that the equivalent shelter rent in that bracket, which is the so-called middle-income group, ranges from $45.95 to $74.45, which is within $1, approximately, and therefore practically the equivalent of the objective which Mr. Foley says he proposes to achieve.

This chart shows clearly that those objectives of providing housing at a monthly shelter rent of $53 to $74 per month are already being realized, and to say that a cooperative-housing bill is necessary in order to accomplish that objective is to ignore the facts published by an agency of the United States Government.

The CHAIRMAN. If we concede that there is a housing shortage, would you still be opposed to this manner of financing? You do not think it could be justified under any circumstances; do you?

Mr. LoCKWOOD. I do not see how you can justify this cooperativehousing program in view of the fact that it is discriminatory. It injects the Federal Government into a field which, according to the statement of policy enunciated in the Housing Act of 1949, was not to be invaded. This even deviates from the policy statement contained in the so-called Public Housing Act-Act 171 of the Eighty-first Congress.

The CHAIRMAN. Wasn't the Home Owners' Loan Corporation discriminatory?

Mr. LOCKWOOD. It was not a permanent device by which new housing was to be constructed. It was a device for bailing out properties and families who were in a distressed position, and it did not involve any subsidy of any kind.

The CHAIRMAN. What is the difference between "bailing out" a family and allowing them to maintain a home and the effort to give them a home?

Mr. LOCKWOOD. I see a vast difference.
The CHAIRMAN. I do not see that there is any great difference.

Mr. LOCKWOOD. I see all the difference there between socialism and free enterprise.

Mr. MULTER. I think the chairman's question was: Was it not discriminatory to help the home owners when you were not helping the other people of the country. It is discriminatory to the extent that you are going to help out only the home owners.

Mr. LOCKWOOD. Under the Home Owners Loan Corporation, anyone in the United States, regardless of his income bracket, regardless of whether he was organized as a cooperative or an individual, was eligible to receive the assistance of HOLC.

Mr. MULTER. If he had a home that was mortgaged, he was eligible. Mr. LOCKWOOD. That is right.

Mr. MULTER. But if my home did not have a mortgage I could get no help under HOLC. That is the point the chairman is making.

Mr. COLE. Mr. Lockwood, if it had been only to help cooperatives. your position would be that it was discriminatory, and that is what this bill does.

Mr. LOCKWOOD. That is right. Or if it had been only to help the middle-income group it would be discriminatory.

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Mr. MULTER. The Home Owners Loan Corporation was discriminatory to the same extent; it was only to help homes that had mortgages threatened with default or in default.

Mr. LOCKWOOD. But it applied to every citizen, regardless of his income group.

Mr. MULTER. Only those in default or threatened with default.

Mr. LOCKWOOD. I want to make one point about Home Owners Loan Corporation. There was no Government subsidy involved in it as there is in this program. It was a loan, period.

Mr. BUCHANAN. Let us go into this question of subsidy.

This bill provides one-eighth of 1 percent reserve. Would you say that this is a reserve or just a gesture?

Mr. LOCKWOOD. I said over in the Senate that it was just a gesture, and I still say that.

Mr. BUCHANAN. All right.

Under FHA the Government risk is negligible, of course. Just what is the reserve there?

Mr. LOCKWOOD. One-half of 1 percent is the premium.
Mr. BUCHANAN. Would you say that that is adequate?

Mr. LOCKWOOD. I would say that one-half of 1 percent is adequate, on the basis of 15 years' experience of the FHA.

Mr. BUCHANAN. Of course, there is no subsidy there.
Mr. Lockwood. Because the risks are paid for by those premiums.
Mr. BUCHANAN. All right.

Under this bill the administrative expenses of the Corporation are - not paid out of the one-eighth of 1 percent, but they are under FHA.

Mr. LOCKWOOD. Right.
Mr. BUCHANAN. There is a separate item, of course, for administra-

, tive expenses in this bill which is included in the interest rate on loans charged to borrowers. Suppose we change the one-eighth of 1 percent to one-fourth of 1 percent, so that it would be like FHA. Would that satisfy you?

Mr. LoCKWOOD. It would be a more adequate reserve. I would hesitate to say whether it is sufficient, in view of the fact that you are making 100-percent loans here. Remember, the FHA loans are not 100-percent loans. When you go into 100-percent loans you need a higher reserve. There is a smaller loss on 80-percent loans than 90- or 100-percent loans.

Mr. BUCHANAN. That gets us into the question of the relation of the cushion to outstanding liability. On title II loans there are about $4,200,000,000 outstanding in contingent liability at the present time, as against $4,100,000,000 in reserves. The ratio of the cushion for losses in relation to outstanding liability is 31/3 percent.

Mr. LOCKWOOD. I am not familiar with those figures. The last time I saw them it was $200,000,000.

Mr. BUCHANAN. There are presently $4,100,000,000 in reserves, as against $4,200,000,000 for title II loans. Now, the ratio of the cushion for losses in relation to outstanding liability on title VI loans is 112 percent. In other words, there is 65 million in reserves outstanding against 41/2 billion dollars contingent liabilities there. The question is. Mr. Lockwood, did you not state that the one-eighth of 1 percent premium charge for losses was just a gesture. You said that wasn't any reserve; that it was just a gesture. What reserves would be built

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up out of one-eighth of 1 percent at, say, 10 or 20 years after the loans were made ?

Mr. LOCKWOOD. One thing I think you should take into account, when you are talking about FHA reserves, is that they have paid out a great deal more in dividends to the mutual mortgage-insurance participants than they have in their reserves. Do not forget that.

Mr. BUCHANAN. Let us figure it on this basis: One-eighth of 1 percent would be about $28,000,000. At the end of the twentieth year they would run up around $49,000,000 under this present bill.

Mr. LOCKWOOD. That is assuming you do not take any losses.
Mr. BUCHANAN. That is right.

Mr. LOCKWOOD. That is not a reasonable assumption, though; is it? If you could count on not taking any losses then you would not need any reserve at all, not even 1/8 of 1 percent.

Mr. BUCHANAN. Well, we are taking a calculated risk here the same as under title II and title VI. Mr. LOCKWOOD. Except that it is a much higher risk.

a Mr. BUCHANAN. At the end of the whole program you would have reserves built up of some $80,000,000.

Mr. LOCKWOOD. Assuming you took no losses.
Mr. BUCHANAN. That is right.
Mr. LOCKWOOD. You mean after 50 years?
Mr. BUCHANAN. That is right.

Mr. LOCKWOOD. That is a long time to project oneself into the future.

Mr. BUCHANAN. You have had some experience under FHA title II and title VI.

Mr. LOCKWOOD. I submit that if you could go 50 years without having any losses

Mr. BUCHANAN. Let us use the 10-year figure. If you did not know what amount of reserve would be built up with a one-eighth of 1 percent charge, you really do not know whether or not that would be an idle gesture or a reserve.

Mr. LOCKWOOD. It seems significant to me that evidently the Congress considers that one-half of 1 percent is a minimum safe reserve for FHA loans on an 80- or 90-percent basis; and, therefore, it is highly inconsistent for you to say that one-eighth of 1 percent is a sufficient reserve for loans on a 100-percent basis. If one-eighth of 1 percent is sufficient for loans on a 100-percent basis for cooperatives, you ought to introduce legislation reducing the Federal reserve to something less than one-eighth—at least to be consistent.

Mr. BUCHANAN. Follow me carefully on this: Under this bill, at the end of the 20-year period, after the loans are made, you would also have private-share capital paid in by borrowers in the amount of $150,000,000.

Mr. LOCKWOOD. A very insignificant sum compared to the size of the program at that time. It assumes again that every cooperator would meet his obligations over a period of 20 years.

Mr. BUCHANAN. But you would have $150,000,000 paid in also to the reserve. You would also have the $49,000,000 in premiums. That makes a total reserve, supplied by the borrowers, of $199,000,000; so, taking into consideration the curtailment of about $500,000,000 made on the $2,000,000,000 loan, the ratio of the cushion to liability, under

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this bill, would be about 1212 to 13 percent, as against an average of about 212 percent under FHA.

Mr. LOCKWOOD. At the end of what term?
Mr. BUCHANAN. At the end of the 20-year period.
Mr. LOCKWOOD. Assuming no losses ?

Mr. BUCHANAN. Assuming no losses. As compared to the 11/2 percent on title VI, or to the 31/2 percent under FHA, title II, on an average of about 212 percent under FHA-would you say that those reserves, under this

bill, would be adequate, assuming no losses ? Mr. LOCKWOOD. If you could

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20 years with no losses—which, of course, is an unrealistic assumption-and accumulate all of that, from that time on, at least, they would be adequate reserves, with that backlog of reserve to start with.

Mr. BUCHANAN. We have had a 13-year experience under title II—is that not a fact?—and no significant losses.

Mr. LOCKWOOD. We have had losses.

Mr. BUCHANAN. Yes, but not in terms of the reserves being unable to meet those losses.

Mr. LOCKWOOD. That is right.

Mr. BUCHANAN. What I want to point out is that the ratio of the relation of the cushion of reserves to the total outstanding liabilities under this bill is much greater-in fact, about 5 times as great as the present FHA program-assuming that the losses would be no greater than at the present time. Do you agree that one-eighth-of-1-percent reserve is still only a gesture?

Mr. LOCKWOOD. I agree that the projection is correct; but I do not think that the assumptions you have to make in order to arrive at it are justified.

Mr. BUCHANAN. Only time, of course, can bear that out.

Mr. LOCKWOOD. There are several other matters here pertaining to housing legislation that will be considered in the near future that I would like to touch on before I close.

First, the provision already passed by the House in H. R. 6070, abolishing home loans to veterans under section 505 (a) of the Servicemen's Readjustment Act, I believe, requires serious reconsideration. Many thousands of veterans who desire to buy homes costing more than $10,000 will raise a vigorous storm of protect, I am sure, when they find out that they are unable to obtain financing to purchase a home under the Servicemen's Readjustment Act because of the abolition of that section. In my travels around the country this

year as president of the National Association of Home Builders, I have questioned mortgage lenders in all parts of the country and they have, without exception, told me that the provisions of ħ. R. 6070 amending section 501 to increase the amount of the guaranty on such loans to $7,500 will not constitute a secure substitute suitable for the investment of trust funds for the fully guaranteed and insured FHA-VA combination loan.

With respect to middle- and higher-cost housing, veterans whose incomes will permit them to enjoy better housing are not going to be able to understand the justification for denying them the benefits accorded to other veterans up until this time under section 505 (a).

I want to predict here that you are going to hear a lot of protests if section 505 (a) is abolished.

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