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Mrs. WOODHOUSE. I would appreciate it if you would.

Mr. FOLEY. I think we might as well frankly recognize at the beginning of the discussion why a separate constituent agency is proposed by at least some of those you mention. They feel, I gather from testimony they have given, that a more sympathetic handling of the cooperative movement could be expected through a constituent agency. Personally, I don't agree with that. I think it need not be the case with any future Administrator of the Housing and Home Finance Agency. Certainly, I know it would not be the case under the present Housing Administrator

Mr. GAMBLE. You are not prejudiced, are you?
Mrs. WOODHOUSE. But Mr. Foley is for the bill.

Mr. FOLEY. I am sure Congressman Gamble did not mean I was prejudiced against cooperatives; he meant that I was not prejudiced against Mr. Foley. Sometimes I think I am, Congressman,

but not usually.

Mr. GAMBLE. Neither are we.

Mr. FOLEY. I think actually that that objective can probably be more certainly obtained through the establishment of a division than through the establishment of a separate constituent. For one reasonand I think very properly this is the case—the authority given by the Congress to the Administrator and Housing and Nome Finance Agency is a limited one. You will recall that he is given with respect to constituent agencies the right only to supervise and coordinate extremely important functions which have not yet been very specifically defined for him, whereas he is given in a division direct authority, as he does have over the slum-clearance program, set up as a division only last year, and over the research program. The task of coordinating is an extremely important one. If this bill is enacted by Congress, I don't think the Congress is justified in simply ignoring and brushing aside what are probably extremely sincere positions of opposition taken by some. It is going to be extremely important in serving the housing needs of the country and for the whole public interest that this operation, if established, be so coordinated into the total of housing operations that the purpose of Congress, as outlined in the national housing policy, which I was privileged to read in part to you yesterday, be carried out. We have had, I believe, a surprisingly great degree of success in our coordinating operations thus far, yet they are of separate statutory responsibilities. With a new thing of this kind, with its potentialities for success or failure, with its potentialities for unnecessary or perhaps unwarranted intrusion into other fields which causes the concern which is expressed here, I think it is highly important that it be placed as a division rather than as a separate statutory authority. I am sorry to take so much time.

Mrs. WOODHOUSE. I agree with you very definitely and particularly, because I should hope that since these cooperative groups would in many instances be made up of highly intelligent people, that your Research Division could work with your Cooperative Division very, very closely and out of these cooperatives we might well find new methods, new technics that would be of use to all sections.

I have just one other question to which I know the answer but I have had a number of letters from people who obviously don't. Will your technical advice in any way take away local initiative? There

will be no control by Washington, specifically on the choice of site or the details as to type of building? That will all be worked out with the people, the members of the cooperative, will it not?

Mr. FOLEY. That is correct. It would have to be so and the advice would be just what it says, advice. You would reach a point, Congresswoman, in this situation, as you reach in connection with the insurance of mortgages, however, where you might have to say with respect to a given project, with the plan proposed, with the location proposed, it will not be eligible for a mortgage loan. The advice given and the technical assistance given will in many cases prevent a cooperative from moving to a point where it has a project which it can't get financed.

Mrs. WOODHOUSE. Yes. That is exactly what I meant, but that would be exactly the relationship that VA would have a building project.

Mr. FOLEY. Exactly and exactly the relationship that FHA has.
Mrs. WOODHOUSE. Thank you, Mr. Chairman, .
Mr. GAMBLE. May I ask one or two questions?
The CHAIRMAN. You certainly may.
Mr. GAMBLE. If one of these cooperative projects does go sour,

the foreclosure, I assume would be made by the over-all corporation ?

Mr. FOLEY. By the corporation and not by the Administrator.

Mr. GAMBLE. And you would take that over and have a right under the bill to operate, I assume? Mr. FOLEY. The corporation would

take it over and operate it. Mr. GAMBLE. Then may I ask Mr. Richards a question, Mr. Spence?

On page 3 of your statements, sir, on the amount per unit it is $8,100 now, I believe, and you recommend here that it be increased in the first paragraph and decreased in the second. I am just wondering if that old question which I have raised a number of times, whether under those price limitations you are going to be able to build anything up in Westchester County with their present cost or are they going to be stymied ?

Mr. RICHARDS. Congressman, I would think that we could in the New York area as a whole. We have a tremendous number of applications in our office now under the $8,100 ceiling. Many of those, however, are not the 4%-room units which are required under the new bill, if it passes, and, therefore, some of those that we have now would be limited to a $7,500 ceiling. I personally believe that it is and will be possible to produce in the New York area a substantial volume of satisfactory rental housing under the terms of the amendments.

Mr. GAMBLE. We did have 1 year that we had a sliding scale, not $8,100, but you would have the right to increase that if, in your judgment, it should be.

Mr. RICHARDS. As I recall-
Mr. GAMBLE. That was first applied to mortgages, as I remember it.
Mr. RICHARDS. That is correct.
Mr. GAMBLE. That was 4 or 5 years ago.

Mr. RICHARDS. As I recall, the maximum then was $8,100, but permitting the Commissioner to place a lower maximum than $8,100, and we did so in many areas. The history was that over a period of time when we were in a rising price and cost period we did come close to the maximum in most of the areas throughout the country.

Mr. GAMBLE. This $10,000 per unit that you speak of, that has to do with the mortgage, too, does it not?

Mr. RICHARDS. That has to do with the value. The proposal is 90 percent of the first $7,000 of value and 60 percent of the difference between the $7,000 value and a $10,000 value. The reason we put the $10,000 in was that with the 90 percent of the $7,000 and 60 percent of the remaining $3,000, you have $8,100. Regardless of how much value in excess of $10,000 you might find in a particular unit, the maximum mortgage could not exceed $8,100. In

many instances in the New York area, we have found, when we were operating under the $1,800 room maximum, that the actual value may have been $2,400, but still the maximum mortgage was $1,800.

Likewise here, undoubtedly you would find some instances where you might have a value in excess of $10,000, but the maximum mortgage would be limited to $8,100.

Mr. GAMBLE. You give up the value per room and put it on the unit, the $1,800 limitation I mean?

Mr. RICHARDS. The $1,800 valuation per room limitation has been out of the act for about a year and a half, as I recall, with the exception of one or two sections of the act having to do with cooperatives.

Mr. GAMBLE. I know we only discussed that room or unit limitation in connection with your low-cost housing last year.

Mr. RICHARDS. We believe that the same application of the theory of giving a higher ratio loan to a property that is valued at a lower figure is an incentive for the building industry to produce more lower cost units of properties than they otherwise would do. It has been effective in all of the years under section 203 and I am quite convinced in my mind it will be effective in the rental housing program as well.

Mr. GAMBLE. That is all.

Mr. McKINNON. Mr. Foley, I do not know if you have any more energy left or not, for you have done a very good job up to now and I hate to burden you further this morning, but I would like to make a couple of observations with regard to this bill.

I think we are all in agreement that we want to build homes: cheaper, good homes but ones on a more economic basis. We need to get our rents and payments down to where the average income person can afford to pay them. I cannot help objecting to the discrimination that we find in this bill. This bill applies, in effect, to 1 percent of our middle income group. To these we are going to give certain special favor and attention while to the other 99 percent of our middle income group we are going to continue the old-fashioned vehicle, known as our present FHA machine. It is unfair to compare the savings of this cooperative title over the costs of section 608. We know there have been building speculative profits in 608. For instance, I had a man come to me sometime ago with a commitment. He offered to put up a big apartment building for me. If I would advance the 10 percent down, he guaranteed to return my 10 percent advance money and give me title to the apartment house, free and clear, and there is nothing unusual about this in Washington with these high speculative building profits. If we take such 608 operations and compare them with what we can do with a cooperative type operation, there is bound to be a big savings between the two, one with a lot of fat in it and one with all the fat squeezed out. My feeling on the matter is simply this:

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The main causes of building cost today aren't so much in interest rates as in the matter of building profits and speculating profits that the FHA does not squeeze out on the individual loan that it intends to squeeze out on the cooperative loan. I say that we should take the other 99 percent of our population in the middle income group, and give them the same kind of break by squeezing the fat out of the speculative profits in individual buildings. This would be equal treatment for the 99 percent that the 1 percent, or the 250,000 units, as promised under this program. Now don't you think that the big group of people are entitled to what this little group is going to get?

Mr. FOLEY. We entered into quite a detailed discussion on that point. You approach it from a little different angle. I suppose you do not want me to repeat all I said on the reasons why a 3 percent or approximately 3

Mr. McKINNON. I am skipping the interest rate and getting down to the real nub of costs.

Mr. FOLEY. You are not speaking of the interest rate.

Mr. McKinnon. I am not speaking of that directly. That is a factor.

Mr. FOLEY. Let me approach it this way: Let us say just on the interest-rate question, since I have mentioned it, that if this organization is set up, if this is enacted, if this whole procedure goes forward, the individual, myself, yourself, Elmer Zilch, the great mass of people who might want to borrow, and let us say that they were authorized to borrow from it for their mortgage purposes, could not get the lowest rate. They could not get the three or the three and a quarter or whatever this contemplates that would be available to the large operation because of the added expense of handling their loan, which would have to be incurred by this corporation just as it has to be incurred by any other lending institution, so just admitting the individual borrower to this type of institution would not produce a lower interest rate. It might produce a somewhat lower interest rate than would be otherwise available.

But getting to the cost question which is apparently what you have in mind, as I said, there is nothing inherent in this proposal which reduces cost of construction except as it gives an opportunity that has not previously existed for the cooperative effort to be established and to effectuate itself and it, conceivably, can bring about reduction of actual cost. What it does do is remove the profit incentive of the entrepreneur. It does not take up the proper fee of a contractor, which you may call a profit, but is a service fee, unless, of course, you had a situation, which will be rare, in which the group, themselves, act as their own contractor because they have the know-how.

The reference that you make, if I understood it correctly, to the problem of costs contained in the 608 operation is not inherent in our inability to calculate the costs any more closely there than we can in other operations. It is rather inherent in the fact that Congress said “As an emergency matter you may base the maximum of your mortgage on the cost rather than on the value."

We are proposing not what you refer to as a return to an oldfashioned operation; we are proposing in this same legislation before you today a rather new-fashioned application of things we have learned through the operation of our system for 15 years, one, that

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value in the best base—that is old—for the gearing of your mortgage ratio and, two, that we need more incentive still for getting the kind of housing that middle-income families with children need and can buy, and so we are offering a new incentive, proposing a new incentive for bringing down the price of housing which can only be done by a concerted effort in bringing down the cost.

Mr. McKINNON. Are you referring to 6618 or 6742, on bringing down the cost ?

Mr. FOLEY. I forget the numbers. I am referring to 6742.

Mr. McKINNON. In 6742 you present a different financing rate to the individual than you present to the cooperative builder in 6618.

Mr. FOLEY. Are you speaking now of interest rate?

Mr. McKINNON. No; I am speaking about terms and percentages. In other words, on our 6618 cooperative housing

Mr. FOLEY. Are you referring, Congressman, to the term of amortization ?

Mr. McKINNON. I am referring to the amount of down payment, and the length of amortization. The interest rate bothers me not any more than some of the other things.

Mr. FOLEY. I think I have discussed the interest rate fully, as fully as I can from my knowledge and I think I have given you our reasons in connection with it. On the matter of the amortization term, which in the cooperative bill proposes 50 years and under certain conditions an extension beyond that as related to 40, 30, and 25 in various phases of the FHA operation, you are speaking of the single individual borrower. Now there you have the difference between an individual and a corporate structure. The long term, 50 years, proposed in the cooperative bill is with reference to a corporate borrower with continuing life, whereas the individual cannot borrow on that basis.

Mr. McKinnon. Regarding cooperatives, there is a mortgage upon the building, the physical plant that that corporation put up; is it not true?

Mr. FOLEY. You mean the useful life of the property!

Mr. McKINNON. Your primary collateral is based upon the plant that is put up.

Mr. FOLEY. That is right.

Mr. McKINNON. So it does not matter whether it is a corporation, cooperative, or individual; your collateral is based upon the building, itself, that is put up.

Mr. FOLEY. Insofar as the physical security is concerned, we will assume that the house built for the individual under the FHA or the rental program would have as long a useful life as the property proposed to be built under the cooperative bill. The point, however, is not only the physical security; it is the borrower, also, and the borrower, when you are going to a 50-year term, needs to be a corporate set-up with continuing life. That is much more than the expected active earning period of any individual.

Mr. McKINNON. In that regard, would you not say that the experience that you have had in FHA of the individual has been very satisfactory? Mr. FOLEY. Oh yes.

Mr. McKINNON. And wouldn't you say, in fact, that if you compared the experience from the many millions of individuals that you have

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