Mr. FOLEY. You mean residential loans?

The CHAIRMAN. Residential loans.

Mr. FOLEY. Are you referring now to those that carry Government insurance or guaranty or to the whole field?

The CHAIRMAN. Generally.

Mr. FOLEY. Generally, I would think that it would range between 42 and 5 percent if you take all types, privately made and what are called conventional unguaranteed loans.

The CHAIRMAN. Under this bill the cooperatives could receive a loan at 3 percent?

Mr. FOLEY. The bill does not state a rate. We have in We have in my statement, attempted to analyze what the rate probably would be and in our statement we assume that the present going rate, and with certain assumptions as to costs of operations, the reserve as set up in the bill, the rate would be approximately 3 percent. We have, however, furnished you with tabulations showing possible rental rates at 3, 34, and 32.

The CHAIRMAN. That would be for the period of amortization? It would be a great stimulation to the nonprofit organizations and cooperatives under H. R. 6618, wouldn't it?

Mr. FOLEY. Under this bill that would be one of the factors offered as an incentive to bring about the development of housing through nonprofit and cooperative organizations, Congressman. It is an incentive that would help to bring into play the other savings that apparently can result only from this type of operation, such as the savings in maintenance cost that I have outlined in my statement. It may bring into play a situation in which it would be possible to effect savings in construction costs, but you will not that in our statement we did not enter them as a factor in probably current savings, but rather as a potential of later development.

The CHAIRMAN. On these long-term loans the payment of interest in the aggregate is much greater than the payment of the principal, isn't that true?

Mr. FOLEY. The longer the period of amortization, of course, the greater the total of interest paid.

The CHAIRMAN. The primary objective is that it would be a great stimulation to these people to construct housing units under the provisions of this bill?

Mr. FOLEY. That is right, because it would reduce the amount of monthly charge comparable to rent or actually rent and bring the housing within their current means.

Mr. KILBURN. Mr. Chairman, on that line, I would like to ask you a question, as well as Mr. Foley.

Are these loans-can they be purchased by any private lending institution?

Mr. MULTER. The mortgage?

Mr. KILBURN. Yes.

Mr. FOLEY. Does your question contemplate their purchasing them from the

Mr. KILBURN. These rates of 3 and 312, can they be bought by a private lending institution by them?

Mr. FOLEY. Could a private lending institution purchase them from the mortgage corporation. I don't believe that the bill specifically

contemplates that, although does it prohibit. If the financing situation in the country reaches a point where they become attractive, I presume such sales could be made with according reduction of the outstanding debentures guaranteed as against such loans. There would be many factors, I think, factors that would have to be explored, such as, for example, the selling of the best seasoned loans, and thereby increasing the average risk. I certainly could not say it was a policy that should be encouraged but I would say that the bill does not prohibit it.

Mr. KILBURN. You contemplate that all the money will be furnished by the Government and not through any private loans?

Mr. FOLEY. Oh, no, no, no! I was apparently discussing a point different than you had in mind. The bill contemplates that the funds, outside of the initial capital of $100,000,000 be furnished by the Government shall come entirely from private investors through the sale of debentures. Also, as you will recall, my statement about the bill indicates that substitution of private investment capital by the borrowers from this mortgage corporation through their purchase of stock and with a system whereby their purchase of stock, as it accumulates, will retire the initial investment in stock by the Government. The initial capital of $100,000,000 supplied initially by the Government would be replaced by $150,000,000 of privately subscribed share capital.

Assuming that this program went onto the full two billion dollars that is authorized by the bill, the great bulk of that money that would be loaned on those mortages would come from private investors buying the debentures issued by the mortgage corporation.

Mr. KILBURN. Just on this point-I didn't mean to interrupt you, but what I am getting at is of course if the interest rate is down 3 percent, why, that isn't going to attract many private investors.

Mr. FOLEY. The debentures, you will recall, Congressman, are issued against the portfolio of stock and reserves of the corporation and are guaranteed. Such securities in the market will probably receive a rate of about equal to that of the average term of regular Government issues. We have checked on that with many authorities in that field and they indicate to us that the funds to be obtained by this mortgage corporation, through the sale privately of its debentures, will come into market at less than, or around, 22 percent. That would be attractive to investors.

Mr. GAMBLE. Mr. Chairman, may I ask a question there, following Mr. Kilburn?

The CHAIRMAN. Yes.

Mr. GAMBLE. Is there any provision here for the sale, which Mr. Kilburn is speaking of, the sale of the mortgage outright or otherwise? How about the sale of that mortgage to Fannie May under the provisions of the FHA bill?

Mr. FOLEY. There is no provision in this bill to sell to the Federal Mortgage Association; I will check with counsel. There is not. In the nature of things it shouldn't be necessary to contemplate it in the nature of this bill.

Mr. GAMBLE. It should not be necessary?

Mr. FOLEY. No. It should not.

Comparison of estimated gross monthly rental on an $8,000, 41⁄2-room unit financed under proposals for nonprofit and cooperative housing for families of moderate income and with a 90-percent mortgage insured by FHA under sec. 608 for a privately owned (for profit) project

1 Vavancy reserve of 3 percent used in view of cooperative feature and low rental rate. 2 Vacancy allowance of 7 percent.

3 Operating expenses, including all utilities and a reserve for replacement, of $24.40 per unit per month assuming same experience as on PHA low-rent housing assisted under USHA Act.

4 These figures for estimated operating expenses represent actual operating experience on large-scale rental housing projects insured by the FHA, adjusted to reflect what in the opinion of FHA represents a national average operating cost on a well-run project-including utilities used by the tenants.

5 Real-estate taxes at 1.6 percent annually on total cost.

6 Loan at $8,000 for 50 years on a level annuity basis.

7 Includes principal and interest payments on a $7,200 mortgage at 4 percent for 32 years, 7 months, on a level annuity basis.

8 Mortgage insurance premium of one-half of 1 percent of the outstanding balance.

9 Contingency reserve of 3 percent of taxes, operating expenses and debt service.

10 Funds available for income tax, reserves, and dividends.

Source: Housing and Home Finance Agency, Office of the Administrator, Economics and Statistics Branch, Jan. 5, 1950.

Estimated monthly gross and shelter rent and debt service for a nonprofit organization on a $7,000, $8,000, and $9,000 42-room dwelling unit with 100-percent financing, assuming project operating expenses as on FHA projects

1 Estimated on the basis of a special review of operating expenses in higher cost urban areas: Operating expenses, including all utilities and a reserve for replacement, of $24.40 per unit per month assuming same experience as on PHA low-rent public housing assisted under USHA Act; real estate taxes at 1.6 percent annually on total cost; contingency reserve of 3 percent of expenses; vacancy reserve, 3 percent; debt service as indicated.

2 Excluding all utilities-gas, electricity, water, fuel, and pay roll for heating. Estimates assume same experience on operating expenses as on PHA low-rent public housing assisted under USHA Act-operating expenses $24.40 per unit per month less $8 for aforementioned utilities.

3 Includes only interest and principal on level annuity basis.

Source: Housing and Home Finance Agency, Office of the Administrator, Economics and Statistics Branch, Jan. 9, 1950.