gage to value, or of the ability of the borrower to meet the contemplated payments. You had rather in a great many situations a pyramiding of mortgage indebtedness or such vague title evidence as land contracts. The mortgage is frequently first, second, and third and not on an amortized basis but renewable, falling due in lump sums. You did not have, for instance, the very wise provision for taking care in monthly payments of accumulating tax bills and insurance bills, so that frequently a mortgage which had been by a great effort, kept in good standing, was upon a house that went through a tax wringer. We have to a very large extent, through these acts of Congress in past years, interposed through these systems provisions which certainly would mitigate, if not entirely prevent, the impact that you speak of.

Mr. TALLE. Here is a problem that distresses me. I want as many people as possible to own their own homes. There are some that can't; that all of us know. Let us say that the interest rate is so low, when the money is furnished by the Federal Government or by the State government that private industry cannot compete with the rate. Then owners, existing owners of houses will, can, and do sell their homes and move into quarters built by public money, because it is cheaper to do that than to own one's own home. Insofar as that does occur, and I know the conditions exists now, in part, we would be encouraging not ownership of homes, but just the opposite.

Mr. FOLEY. I might go into great discussion on that, Congressman, and I know that time doesn't permit nor do you at this time invite it. However, I don't interpret proposals in this bill as the building of houses with public funds. It is destined to bring private enterprise in and as, in fact, as I pointed out in my statement, the substitute for proposals made last year for financing through direct Government lending. Whether or not a large number of people, having established free-standing ownership in their own names would feel tempted to dispose of those houses in order to move into the type of housing, with the type of financing involved here, is, of course, a question for the future, but my opinion is that there probably would not. For one thing, it must be remembered that the type of housing which can be built under this bill is closely geared to a certain income group, because the Administrator and the Mortgage Corporation must find under the terms of the bill that the first cooperative association is made up substantially of people in those groups, as determined by the income levels in that locality and the housing, itself, must be such as could be produced to be within their means, so it is not the whole wide range of the possible housing market that is to be served by this bill.

In the second place, persons who join a cooperative must do so in recognition of the fact that they are assuming certain responsibilities there that they do not assume if they are the owner of their own freestanding house and they are giving up certain rights, such as the one that I mentioned, of the possibilities of making speculative profit.

I heard the other day, I think it was in testimony in the Senate by an opponent of the bill, the statement that, if this bill were enacted, many veterans, and others, would immediately give up continuing payments on their properties, would allow them to be foreclosed, would

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surrender them and would enter such association. Except in some extremely exceptional cases that I could envision, such a performance would probably bar such a person from being accepted as a member of such an association, because it would give an evidence of a lack of credit worthiness, a lack of faith, of good faith in the undertaking of obligations. I don't envision any great difficulty on that score. Mr. MULTER. Will the gentleman yield on that point? Mr. TALLE. Yes. Briefly, I have one other point.

Mr. MULTER. On this very point, I think even if a person wanted to do what you suggest, I doubt whether he could save as much as 2 percent on his interest by going into the cooperative venture that is contemplated by this bill, as against owning the home that he already has. If you just take paper and pencil you will find that he cannot possibly save the amount of equity that he already has in the building he owns, as against the possible future saving of difference in the interest rate. You must bear in mind that the person we are talking about here is one who can afford a unit of $8,000 or possibly a onefamily house that might cost him $10,000. He couldn't save enough money on the saving of interest that would warrant his giving up the equity that he already has in his one-family home.

Mr. TALLE. I will say in reply to that, that the situation I have in mind is an actual one. It is not hypothetical. There are instances where people sell their homes and double up with friends or members of the family, live there for 6 months, qualify for application in public housing and find that they save money. Now I realize that there will come a point where that wouldn't pay because if many people offer their homes for sale, the price of homes will go down and there will come a point where it is just as economical to own one's own home as to seek refuge in public housing. But havoc is going to be raised in the local tax situation, because certainly the assessor of property will have to take into account the market value of a home and if that has been knocked down, then certainly the tax payment should go down too. There is a very important tax problem involved in this situation.

Mr. FOLEY. Of course that would envision a great many people being willing to sell the homes they have now at a sacrifice, at a loss, but, as the Congressman has pointed out, I don't think it would be reasonably expected as a result of this bill.

Mr. TALLE. I would not say that the situation I have talked of would apply so much to this bill as to public housing generally.

Mr. FOLEY. In that case, of course, reverting to the public housing picture again, they would have to be persons of such low income as to qualify under the income standards set up on public housing, lowrent public housing, in which case it might well be-it probably is the fact that they couldn't sustain the debt on a decent, privately owned house anyway.

The CHAIRMAN. There is a roll call in the House, will you be able to return tomorrow?

Mr. FOLEY. We are at your service, Mr. Chairman.

The CHAIRMAN. Thank you for your very comprehensive and able statement and we will meet tomorrow morning at 10 o'clock.

(Whereupon, at 12:05 p. m., the committee adjourned, to reconvene at 10 a. m., Tuesday, January 31, 1950.)

SECTION-BY-SECTION SUMMARY OF H. R. 6742, ▲ BILL TO AMEND TITLES I AND II OF THE NATIONAL HOUSING ACT1

(As introduced by Congressman Spence on January 12, 1950)

AMENDMENTS TO TITLE I OF THE NATIONAL HOUSING ACT (EXTENSION OF INSURANCE PROGRAM FOR MODERNIZATION AND REPAIR LOANS)

Section 1 would extend on a permanent basis the program for insurance of modernization and repair loans under title I of the National Housing Act. Up to the present time, this program has operated on the basis of a series of extensions by the Congress, and under existing law would expire on March 1, 1950. Under the title I program, the individual loans are not insured but the lending institution is insured against loss up to 10 percent of the original amounts of all its eligible title I loans. This 10 percent (referred to as the title I insurance reserve of the institution) increases, of course, in dollar amounts as additional title I loans are made. As the bill would make the title I program permanent, provisions would be made for periodic adjustments in the dollar amount of each reserve in order to prevent it from becoming too large in relation to the outstanding balance of the loans as they are repaid. One-fifth of such reserve would be cut back at the expiration of each 6-month period, beginning January 1, 1953. For administrative convenience, reserve cut-backs would be made on July 1 and January 1 of each year. After March 1, 1950, the reserve would be based on loans made after that date.

AMENDMENTS TO TITLE II OF THE NATIONAL HOUSING ACT (INCREASED AUTHORIZATION AND RENTAL-HOUSING AMENDMENTS)

Section 2 would increase the mortgage-insurance authorization under title II of the National Housing Act by $1,250,000,000 immediately, and by an additional $1,500,000,000 upon the approval of the President. Title II provides the regular, permanent FHA mortgage insurance for sales and rental housing, and this title II authorization provides for a permanent revolving fund related to the outstanding obligations of insured mortgages.

Sections 3 and 4 would make certain changes in section 207 of title II of the National Housing Act in order to provide a better method for the insurance of mortgages on rental-housing projects on the basis of permanent legislative authorization, as distinguished from the emergency temporary rental-housing authorization under section 608, which, under existing law, would expire on March 1, 1950.

Section 3 would state expressly that the insurance of mortgages under section 207 is intended to facilitate particularly the production of rental accommodations of design and size suitable for family living and at rents within the means of families of moderate income. The Federal Housing Commissioner would be directed to take action which would make the benefits of mortgage insurance under section 207 available primarily to projects making adequate provision for families with children and in which every effort has been made to achieve moderate rental charges. Section 3 of the bill would impose penalty provisions (similar to those applicable to sec. 608 housing) for discriminating against families with children in the selection of tenants.

At the present time, the amount of a rental-housing mortgage insured under section 207 may not exceed 80 percent of the value of the property, and such mortgage may not exceed $8,100 per family unit, except that in the case of certain mortgages on housing of cooperatives this dollar limitation may be $1,800 per room. Section 4 of the bill would substitute the following schedule of ratios of maximum loan-to-value: Not to exceed the sum of 90 percent of the first $7,000 value per family unit and 60 percent of the value between $7,000 and $10,000 per family unit. In addition, the maximum mortgage amount would be limited, as at present, to $8,100 per family unit with respect to projects averaging 42 or more rooms per family unit. However, for projects with fewer rooms per family unit this limit would be reduced to $7,500. This variable limitation is designed to encourage the production of rental accommodations of adequate size for families with children. (These maximums in sec. 207 may be compared to the mortgage ceilings of $8,100 per family unit and 90 percent of necessary current cost under sec. 608.) Special mortgage-insurance ceilings would be pro

1 Similar provisions are contained in Senator Maybank's proposed amendments of January 11, 1950, to S. 2246.

vided for Alaska in view of the higher costs and other conditions peculiar to that Territory.

Section 5 would change section 207 (d) of the National Housing Act to increase the maximum FHA charges for appraisal and inspection fees under section 207 from one-half of 1 percent to 1 percent.

Sections 6, 7, and 8 would make certain technical changes in section 207 with respect to foreclosure in the event of mortgage default.

SECTION-BY-SECTION SUMMARY OF H. R. 6618, COOPERATIVE HOUSING BILL1

(As introduced by Congressman Spence on January 6, 1950)

SECTION 1-SHORT TITLE

This section would provide that this act could be cited as the "Cooperative Housing Act."

This section sets forth the major purpose of the act to provide a means whereby good housing can be produced and made available for families of moderate income by furnishing technical and other assistance to cooperative-ownership housing corporations or other nonprofit corporations authorized to provide housing and by facilitating investment of private capital in such housing.

TITLE I-FEDERAL AID TO HOUSING COOPERATIVES

SECTION 101-TECHNICAL AID TO COOPERATIVES

This section would authorize and direct the Housing and Home Finance Administrator to furnish technical advice and assistance in the organization of nonprofit cooperative-ownership housing corporations and other nonprofit corporations authorized to provide housing, in the development and management of housing projects by such corporations, and in the development and use of practical means for members of cooperatives to acquire cooperative ownership of their individual dwellings.

SECTION 102-PRELIMINARY ADVANCES OF FUNDS

This section would authorize the Administrator to make preliminary advances of funds to nonprofit cooperative-ownership housing corporations and other nonprofit corporations authorized to provide housing, for planning and performing work preliminary to construction on proposed housing projects eligible for mortgage loans under this act. Such advances would be limited to the amounts required for necessary work preliminary to construction and in no event could exceed 5 percent of the development cost of the projects, would bear interest at the going Federal rate plus one-half of 1 percent, and would be repaid out of any subsequent loans for the projects.

Subsection (a)

SECTION 103-PROVISION OF FUNDS

This subsection would authorize the Administrator, with the approval of the President, to obtain funds for preliminary advances by issuing notes and other obligations for purchase by the Secretary of the Treasury. The outstanding amount of such obligations could not exceed at any one time $25,000,000. Subsection (b)

This subsection would provide that the form, denominations, maturities, and terms and conditions of the notes or other obligations to be purchased by the Secretary of the Treasury shall be determined by the Administrator with the approval of the Secretary of the Treasury. The interest on such obligations would be at a rate determined by the Secretary of the Treasury taking into consideration the then current average rate on obligations of the United States. Funds would be secured by the Secretary for such purchases by using, as a

1 Similar provisions are contained in Senator Maybank's proposed amendments of January 6, 1950, to title III of S. 2246.

public-debt transaction, the proceeds from the sale of securities issued under the Second Liberty Bond Act, as amended.

Subsection (c)

This subsection would provide the methods to be used by the Administrator in handling funds made available to him under this act, and would authorize appropriations of funds for administrative expenses necessary for carrying out his functions and duties under the act.

SECTION 104-POWERS OF THE ADMINISTRATOR

This section would make the Housing and Home Finance Administrator responsible for the administration of this act and for the supervision of the National Mortgage Corporation for Housing Cooperatives created by the act. The Board of Directors of such Corporation would act as an advisory board to the Administrator in his performance of such responsibilities. This section would also set forth the general powers and duties of the Administrator in performing the functions which would be vested in him under the act. Among these would be the appointment of a Director to exercise the Administrator's powers, functions, and duties under this act subject to his direction and supervision, such Director to receive the same compensation as that established for the heads of the constituent agencies of the Housing and Home Finance Agency. TITLE II-NATIONAL MORTGAGE CORPORATION FOR HOUSING

Subsection (a)

COOPERATIVES

SECTION 201-CREATION AND POWERS OF CORPORATION

This subsection would provide for the creation of the National Mortgage Corporation for Housing Cooperatives, a mixed-ownership corporation, to make and service mortgage loans, to issue its obligations, and to exercise its other powers and duties under this act, and would give the Corporation the technical powers necessary for the performance of its functions and duties.

Subsection (b)

This subsection would give the Corporation power, with the approval of the Administrator, to select its officers and employees without regard to civil service and other laws covering officers or employees of the United States although rates of compensation would be comparable to those prescribed in the Classification Act of 1949. The Corporation would not be entitled to free use of the mails. The Corporation would be authorized to determine the necessity for and character of its obligations and expenditures, subject to the provisions of this act, provisions of law relating specifically to mixed-ownership Government corporations, and to the rules and regulations of the Administrator.

Subsection (a)

SECTION 202-CAPITAL STOCK

This subsection would provide for the issuance of preferred capital stock of the Corporation for purchase by the Secretary of the Treasury in an amount not exceeding at any one time $100,000,000. Appropriation of funds for such purchases would be authorized. This stock would be entitled to cumulative dividends at a rate determined each year by the Secretary of the Treasury taking into consideration the probable term of the stock investment and the then current average rate received on outstanding marketable obligations of the United States.

Subsection (b)

This subsection requires that each nonprofit cooperative-ownership housing corporation or nonprofit corporation obtaining a mortgage loan under the act subscribe to capital stock of the Corporation. To assure direct participation by such nonprofit corporations, each corporation would be required, before securing a mortgage loan, to subscribe for such stock in an amount equal to 7%1⁄2 percent of the loan to be made. The method of payment for the stock so subscribed would be provided. Such stock would be required to be held by such borrower until the unpaid balance of the loan is reduced to an amount equal to the value of such stock.