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is analogous both to premium assessments in FHA and down payment requirements on FHA-insured mortgages.

I believe the bill represents the development of a proposal which would facilitate the financing of soundly conceived cooperative housing projects for middle-income families within their ability to pay. At the same time, it would provide reasonably adequate protection to the initial stock investment of the Government and the contingent liability which it undertakes.

On the basis of the best analyses we have been able to make on the rent schedules which could be accomplished on projects built under the proposed bill, giving full consideration to the nonprofit and cooperative character of the project, a substantial degree of tenant maintenance in view of the ownership characteristics of a project of this sort, and the terms of financing, we estimate that an $8,000 412-room unit in such a project could rent at a monthly gross figure of $64.67. This figure should be sufficient to cover operating expenses (including all utilities and a reserve for replacement) estimated at $24.40 per month. This estimate is based on the actual operating experience of the Public Housing Administration in the low-rent public housing program. The gross rent figure also includes real-estate taxes computed at 1.6 percent annually, a contingency reserve of 3 percent, a vacancy reserve of 3 percent, and debt service of $25.83 per month which is adequate to retire the loan at 3 percent over a 50-year period. As shown on the tables which have been furnished to your committee, the comparable rent for a similar unit financed under section 608 of the National Housing Act would be $90.32, as contrasted with $64.67. This higher figure is, of course, the result of a shorter-term loan, a higher interest rate, owner's profits, substantially higher operating expenses due to the type of services customarily required when a rental project is operated for profit, and necessarily higher allowance for reserves for vacancy and collection losses. If our computations and estimates are reasonable, and we believe they are, a project constructed under the bill would come substantially closer to meeting the rent-paying ability of middle-income families than is possible under existing programs.

The computations, with respect to rental projects, are all based on a large body of actual experience. With respect to cooperative housing, they are necessarily based in part on estimates. While these estimates represent our best judgment, actual results can only be learned in the course of actual operations under the proposed program. I am confident that all our estimates are conservative and reasonable. For example, one assumption involved in our computation of the monthly cost of cooperative housing is that 3 percent is an adequate allowance for vacancy and collection losses for this type of housing. The experience obtained in over 1,000 units of private cooperative housing in New York City which are operated pursuaut to New York State limited dividend legislation shows a vacancy and collection loss ratio, from the inception of the projects through August 31, 1947, of only 2.64 percent.

It should be noted that most of these units were completed between 1927 and 1932, so that the period covered by the experience is not

limited to a single phase of the economic cycle, nor is it limited to a period of housing shortage. The even more extensive experience available with respect to limited dividend housing further supports the conclusion that an allowance for vacancy and collection losses of 3 percent is adequate. The explanation of these results may be found not only in the nature of cooperative housing ownership or other nonspeculative housing, but also in the fact that vacancy losses always tend to be much lower-particularly in time of depression-in moderate-cost housing than in higher-cost housing.

The assumption which we have made with respect to operating costs in cooperative housing projects is, as I have indicated, based on a large volume of actual experience which the Public Housing Administration has had with low-rent public housing. The actual experience showed an average monthly operating expense of $20.50 per unit per month. Our estimate has nevertheless allowed $24.40 per unit per month. This estimate is in accord with the experience gained in New York City in the private cooperative housing projects which are operated under New York State limited-dividend legislation. The average operating expense in these projects allocated to a 42-room apartment for the 12 months ending August 31, 1949, was $25.33 per month. It should, of course, be noted that New York City is a highcost locality.

These estimates concerning operating costs are also consistent with the very reasonable expectation that certain of the operating and maintenance functions in cooperative housing can and will be performed by the occupants on a self-help basis. This is particularly true of painting and redecorating. Finally, it is certainly reasonable to assume that the families living in cooperative housing will, as a matter of common prudence, as well as because of natural pride of ownership, take the best possible care of the housing in which they live and which they themselves own.

In order to give your committee some idea as to the effect of varying interest rates and loan terms under this proposal, we have prepared and submitted to your committee a detailed analysis showing estimated achievable monthly shelter and gross rents under three assumed financing schedules ranging from 3 percent for 50 years to 32 percent for 50 years. There is also included in this analysis a comparison of the rents achieved at each of these interest rates with the comparable rents now being achieved on a section 608 rental project at the same unit cost assumptions.

There is one further provision of the bill which I wish to call to your attention. A cooperative, borrowing funds for a housing project under the bill, would be required to have a priority for the purchase of the interest of each of its members in his dwelling in the event of the sale of that interest. Each member of the cooperative would have an equity in his dwelling which would increase as the outstanding obligations of the cooperative are reduced. This equity would represent not only his rights in the dwelling itself but his proportionate share of the reserves accumulated by the cooperative and the stock of the National Mortgage Corporation held by the cooperative. These rights, including the right to occupancy of the dwellings, would, of

course, have a market value similar to that of an individually owned home. The bill would permit any member to sell his interests in the dwelling but requires the cooperative to retain the right to repurchase such interests, if it wishes, on such terms as prescribed in the cooperative agreements approved, at the outset, by the National Mortgage Corporation. This would give the cooperative the right to choose its members and thus protect itself financially without unduly restricting the ownership rights of the members.

Mr. BUCHANAN. At this point, are these organizations tax-exempt? Mr. FOLEY. Would they be?

Mr. BUCHANAN. Are they now?

Mr. FOLEY. Under certain special legislation in New York housing projects of cooperatives could become tax exempt.

Mr. MULTER. Today they are.

Mr. FOLEY. I understand that is right, under the special New York


In concluding this discussion of the middle-income housing proposal which we strongly support, I should like to make this general statement to the committee. We believe that this program, if enacted substantially in the form of the bill, will be successful in attaining good additional housing for families of moderate income. We do not propose it as the single answer to all of the housing problems of people in this income category. There is already in existence the insured mortgage program which has provided and will continue to provide suitable housing for many people of moderate income, and we are recommending other financial incentives in connection with that program. The proposal here presented, we feel, is a much needed and desirable addition to the present housing programs of the Federal Government. It will, in short, round out our efforts to encourage and assist in obtaining volume production of good housing at costs within. the paying ability of the middle-income third of American families. This in an area of activity where we are at present least well-equipped. In my judgment, it is also an area of great and urgent housing need. The volume which can be expected under the proposal is difficult to measure, particularly at the outset of such a program. This will depend to a large degree upon the speed and ability with which private individuals are found willing and able to join in well-organized housing cooperatives. Much hard work and much sincere and honest desire to succeed on the part of such groups themselves is essential before a program of this type can move ahead in volume. I hope that the Congress and the public will take this proposal for what it is intended to be, a vigorous program for support of a relatively new private enterprise housing endeavor designed better to meet the needs of more of our middle-income families. In this connection, I should like to call the committee's attention to the President's summary of this proposal in his recent budget message. In that statement he said: Because of the limited American experience with housing cooperatives, this program initially must be viewed as experimental, and cannot be expected to attain a large volume in 1951. With proper Federal leadership and assistance, however, it offers real promise that middle-income families will be able to help themselves obtain good housing at costs within their means.

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I am confident that substantial success can and will be achieved under the program contemplated by this bill, when enacted, and assure the Congress that the Housing Agency will spare no effort to accomplish the objective toward which it is directed.

My statement now proceeds with H. R. 6742, the FHA amendments. At this time, I wish to refer briefly to H. R. 6742 containing amendments to title I and section 207 of the National Housing Act.

The amendments to title I would extend on a permanent basis, the FHA program for insurance of modernization and repair loans. Up to the present time, this program, which has been self-sustaining since July 1, 1939, has been kept in existence, except for one short period between April 1, 1937, and February 3, 1938, continuously over the past 15 years through a series of extensions and renewals by the Congress of the expiration date of this title. The present authority under title I expires on March 1, 1950. The proposed amendments to title I would place that program on a permanent basis. The proposed amendments would provide for periodic adjustments in the amount of the Government's maximum fiability to each lending institution, and thus prevent the Government from assuming a disproportionate amount of risk with respect to the title I loans of that institution.

The amendments to section 207 of the National Housing Act relate to the regular FHA permanent mortgage insurance program for rental housing, as distinguished from the emergency temporary program for rental housing under section 608, which is due to expire on March 1 of this year. These amendments have the twofold objective of facilitating the production of rental accommodations of adequate size suitable for family living, and the production of such accommodations within the means of families of moderate income. To assist in meeting these objectives, the amendments would provide special mortgageinsurance benefits for rental units of lower cost and of adequate size for families with children.

Mr. Franklin D. Richards, the Federal Housing Commissioner, is prepared to explain these amendments in more detail and to discuss with you the FHA operations under them.

I strongly recommend these proposed amendments, and I have been authorized by the Director of the Bureau of the Budget to advise that their enactment would be in accord with the program of the President.

Before concluding my testimony, I would like to bring to your attention one further legislative proposal relating generally to the housing programs of the Federal Government under existing and additional legislation. In connection with proposals affecting particular housing programs, questions have been raised as to whether statutory maximum amounts for the housing loans authorized to be made, insured, or guaranteed by the Federal Government may not prove to be too high in the event of changed economic conditions. It has been suggested that the legislation affecting these programs require lower maximum amounts under prescribed conditions. The objectives of these suggestions are desirable.

I believe that the housing credit aids provided by the Federal Government, which affect such a large portion of our national economy should be closely geared to changes in economic conditions and to the

Government's general economic and fiscal policies. It seem clear that legislation designed to accomplish this purpose through the curtailment of housing credit would be very ineffective, however, if it is applicable only to a portion of the housing programs of the Government.

As administrative decisions under such legislation would necessarily require individual judgment and the weighing of various economic factors, it is essential, for the purposes of uniformity, that one official be made responsible for all such decisions. Since not all of the Government's housing programs are administered by one agency, it would appear most logical to place any such control of housing credit in the President. This is also desirable because the exercise of such control involves judgment and decisions on over-all fiscal and economic policies beyond the scope of the functions of the agencies administering housing programs. Of course, the President would have the benefit of the advice and assistance of various agencies of the Government having an interest in such decisions.

I therefore recommend for your consideration legislation which would authorize the President to reduce at any time the maximum authorized amounts or maximum maturities of any type of loans for housing which may be made, insured, or guaranteed by any department, independent establishment, or agency in the executive branch, or by any wholly owned Government corporation, or by any mixedownership Government corporation, as defined in the Government Corporation Control Act. This action should be authorized upon the President's determination that it is necessary or desirable in order to coordinate the housing functions and activities of the Federal Government with its general economic and fiscal policies, taking into consideration the effect it would have on conditions in the building industry and upon the national economy.

I have a draft of a proposed amendment to H. R. 6742 for consideration by your committee, which would give this proposed authority to the President. I have been authorized by the Director of the Bureau of the Budget to advise that the enactment of this recommended amendment would be in accord with the program of the President.

I have also been authorized by the Director of the Bureau of the Budget to advise that there is no objection to the presentation of this statement for consideration by your committee.

(The proposed amendment and other matter referred to herein is as follows:)


Add the following new section at the end of H. R. 6742:

"SEC. 9. The President may, at any time or times, reduce, for such period as he shall specify, the maximum authorized principal amounts, ratios of loan to value or cost, or maximum maturities of any type or types of loans for housing which thereafter may be made, insured, or guaranteed by any department, independent establishment or agency in the executive branch, or by any wholly owned Government corporation or by any mixed-ownership Government corporation as defined in the Government Corporation Control Act, upon a determination, after taking into consideration the effect thereof upon conditions in the building industry, and upon the national economy, that such action is necessary or desirable to coordinate the housing functions and activities of the Federal Government with its general economic and fiscal policies."

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