home ownership. We are, therefore, wholly in sympathy with the purposes sought to be attained by this bill, S. 2246.

We have hesitated to testify in its behalf, however, because we believe it violates a sound principle of credit and a sound principle of cooperation, and thereby might bring disaster upon many who might become members of a cooperative project under its terms and might carry on their share of the enterprise in good faith. It would be unfortunate to have cooperatives started with more than an even chance of failure. It would bring great discredit on the whole principle of cooperative housing and it would bring inexcusable loss to many who had done their part but who became involved in a financial disaster.

The true and successful cooperative depends upon members who are willing to take the good with the bad and meet their share of the losses along with sharing the gains. It is almost axiomatic that those who contribute nothing toward carrying on the venture are the first to abandon it in days of difficulty. This bill would permit a member to join with practically no down payment. It would permit the occupancy of the property with a down payment of 21⁄2 percent and would extend the payments on principal over so long a term that before the member acquired a scanty 10-percent equity, the natural wear and tear on a well-kept property would probably exceed the 10-percent investment. With a slight falling off in building costs, which we all hope for and have reason to expect, similar structures are sure to be built and sold at not more than the member paid for his cooperative project. Unless all the members are imbued with unusual cooperative spirit, many will abandon the project with the first opportunity to get something new for less cost, unless they have some equity and moral obligation to tie them to the original investment. Property owners will testify that it is necessary to have some financial penalty to keep purchasers or tenants from leaving their house as soon as the newness is worn off, and other living quarters are available at no increased cost. In the case of a cooperatively owned project, those who have put up their money, kept their place in repair, and carried on in good faith, soon find themselves as a part owner in a project with many vacancies, or facing the necessity of making expensive renovations, and possibly selling at a discount, or even renting. The committee should not be carried away with reports of unusually successful housing projects of the past 15 years. It should realize that 15 years ago prices were extremely low; houses were becoming very scarce because of the long period of building inactivity; demand was beginning to pick up with the improvement in the unemployment situation; and there was only one way for prices and demand to go. Both were inevitably headed up. It was difficult to lose in such a situation if any judgment at all were used in the original investment. However, there must come an end to this continual increase which has made failure almost impossible. If we are to examine the soundness of the credit features of the proposed bill, we should not confine our examination to the last 15 years, but should go to the history of mortgaged property over the span of two or three cycles to determine just what happens.

Over a long period of years money cannot be safely loaned on housing projects of any kind without a much more substantial equity than 21⁄2 percent down payment. Depending on the nature of the structure, the location, and other factors, a minimum down payment ranging from 25 to 50 percent would normally be required to make safe loans and meet the losses which occur from abuse of property, bad credit risks, fluctuations of income, and other factors which cannot be ignored. If we were wise enough to know when we were at the bottom of economic swings we could safely lend on a 10-percent margin, but if we should happen to be near the top of a high-priced and high-demand cycle, we would do well if we prevented loss in many cases with a 40- or 50-percent margin. A conservative approach to make possible a reasonable chance of success would seem to require a margin of possibly 30 or 35 percent.

We realize that a measure requiring a 35-percent margin would not serve the purpose of bringing the housing relief to the class of people who need it, most of whom would make a reasonable effort to carry on under the terms of their contract. Because they have little, these people are willing to take a larger measure of the risk if they can get a chance for a start, and we would not deny them such a chance so long as there was a fair prospect of success, but we would throw as many safeguards as possible around their investment by making it unprofitable for the quitter to abandon his investment and "run out" on his fellow members as soon as he found something that looked a bit more attractive.

The most effective penalty to prevent such abuses is a substantial down payment. For those who cannot make a substantial cash payment means should be provided for giving a note for part of such payment secured by whatever security might be available which was not judgment proof. The principle should be accepted that when the member signs the note he makes a firm and solemn agreement to pay, and thereby enters into a contract, with his fellow member that he is going to do his full part. The agreement to pay should not be taken lightly. We have had so many laws aimed at proventing abuse by creditors that we have come to think of the nonrecourse loan as a normal type of credit, and the promise to pay as an empty obligation. This attitude has robbed the honest man of his ability to obtain credit on his integrity and earning power, and it is just that type of credit which is necessary to make a success of a cooperative project among people of small means who cannot dig up the cash for a substantial down payment.

We do not have definite language of an amendment to suggest, but we believe that if members of a cooperative are to have anything like reasonable protection there should be a minimum down payment of not less than 15 percent with somewhat heavier payments during the first few years of occupancy to care for the depreciation as the newness is worn off. We then would recommend either

as a part of this legislation, or supplemental legislation, some method to assist the deserving member in financing his down payment from some source which will retire such down payment with reasonable promptness. The kind of people who will participate in a cooperative apartment and stay with it to make a success will find some means to tighten their belts and make the month-bymonth sacrifices to meet the terms of a down payment adequate to provide reasonable chance of success. In these times of good income it is not doing the purchaser any favor to hold his payments down too low. On the contrary, it is an admirable time to help retire his debt.

We have one more suggestion. It should be actuarily possible to set up an insurance rate to cover the additional risk of loss in the case of those who can make no substantial down payment; and add this insurance premium to the monthly payments. As equity is acquired the insurance premium can be lowered. In case of default, the proceeds of the insurance would be available to restore the property to salable condition and meet the depreciation arising from having worn off the newness. In this manner those who carry through with their bargain would have reasonable protection.

We realize that the criticism will be made that this will not meet the needs of people who have no resources. Our answer is that people who have no resources and have no desire or ability to create resources through sacrifice are not the people whom we should assist to become members of a cooperative housing project, and thereby throw the danger of loss on those who are willing to make the sacrifices necessary for success. Their problem should be met in some other way, but the facilities of a cooperative housing project should be provided for those who are willing and able to make the sacrifices and accumulate the equities necessary to see such a project through the good years and bad years which will follow during the period in which the debt must be retired. We do not believe that the committee should approach this matter from the standpoint of sentiment and subject honest folks to the probability of loss, but should approach it from the standpoint of sound, honest credit and cooperative principles. In submitting this statement, we do not wish to go on record as saying that we believe a 15-percent down payment is safe. It would not be safe in the face of falling markets and unemployment. We only saw that it might be a reasonable risk to take on the part of a group of people who are determined to make the sacrifices necessary for the success of such a project.