Mr. COHEN. Thank you, Senator.

Senator SPARKMAN. Mr. E. T. Butler, vice president, Investors Syndicate Credit Corp., Minn., for the National Home Improvement Council Lenders Committee.

Mr. Butler, we are glad to have you with us. pared statement?

Do you have a pre

STATEMENT OF E. T. BUTLER, VICE PRESIDENT, INVESTORS SYNDICATE CREDIT CORP., MINNEAPOLIS, MINN., ON BEHALF OF THE NATIONAL HOME IMPROVEMENT COUNCIL LENDERS COMMITTEE

Mr. BUTLER. I gave 50 copies to the clerk.

Senator SPARKMAN. Yes. It had not been distributed yet.

We have a copy of the statement, Mr. Butler, and it will be printed in full in the record. You proceed as you see fit.

Mr. BUTLER. Thank you, sir.

Mr. Chairman and members of the committee, I am E. T. Butler, vice president of Investors Syndicate Credit Corp., Minneapolis, Minn., and I am speaking for the lenders committee of the National Home Improvement Council.

WHY PUBLIC INTEREST WILL BE SERVED BY AMENDING TITLE I OF FHA PROGRAM

Banks, savings and loan associations, and other financial institutions have made more than 28 million home improvement loans under the FHA program. Thirty years of experience leaves undebatable the positive benefit to the social and economic welfare of our country of this particular Government-sponsored program. For those 30 years title I has been the standard against which all other home improvement financing plans have been measured.

Title I, however, has failed to keep pace with changing economic conditions. The cost to the borrower is the same as that set by law in 1934, and during this interim the cost of living and the cost of doing business has increased many fold.

For 10 years there have been no changes in title I in the maximum amount of loan available or the maximum term of the loan and the rapidly declining use of title I is shown in the following table: Installment credit extended in repair and modernization loans

The lenders committee of the National Home Improvement Council is convinced that unless changes in title I are effected then the demise of title I is inevitable. Already its effectiveness has diminished to the detriment of the consuming public, as indicated by the above table.

The lenders committee recommends and urges adoption of administration-supported amendment S. 2978 as it relates to property improvement loans, and further recommends that title I be put on a sound competitive basis by increasing the maximum amount from $3,500 to $5,000 and extending the maximum term from 60 months to 84 months.

During the last year the Federal Home Home Loan Bank Board saw fit to authorize Federal savings and loan associations to increase their limit on home improvement loans to $5,000 and 8 years' maturity. This step by the Federal Home Loan Bank Board is in recognition of the fact that the cost of home improvements has steadily risen during the past decade. Today, the consumer needs loans for amounts greater than the statutory limit of $3,500, and the consumer also needs a greater period of time to repay these loans than the statutory limit of 60 months. Thus, a steadily growing number of consumers are learning that their needs cannot be met under the title I home improvement program.

The FHA, an unusually knowledgeable and, insofar as title I is concerned, a supporting agency, is undoubtedly aware of what is going on in the money market today. The consumer is the one who suffers at any diminution of title I, because title I has not been up-dated to meet economic changes. The dealers and contractors, who control the financing of the majority of home improvement transactions, have turned to other than title İ.

These sources meet the requirement for larger amounts and longer terms. However, the cost to the consumer is immeasurably greater. And what is more important, these conventional plans do not have the protective devices afforded the consumer by title I. In many of them:

The consumer is the victim of shady, deceptive, and costly practices;

He may be led into refinancing the mortgage on his home with the inclusion of auto loans, doctor and hospital bills and all manner of obligations which he would be well advised to retire more promptly;

Much too frequently he is the victim of excessive finance charges which often skyrocket to as high as 20 percent, kickbacks to dealers, payment of points for refinancing, brokerage fees, and other hidden costs.

Generally overlooked is this significant fact-that not only is the homeowner suffering because of these unconscionable charges, but if these additional costs could be channeled into legitimate production there would be much additional business for suppliers, more honest profits for dealers, and more work for artisans.

Our present-day economy cannot long withstand the drain which appeases these demands in the consumer credit field. A revitalized title I program is a good solution.

Under some conventional sources of home improvement financing the homeowner is often the victim of improper selling practices:

Such as sales inducements wherein the consumer is promised his improved home will be used as a model for advertising or other purposes;

Debt consolidation, inflating the cost of the improvement so that a loan may be obtained which covers the actual job and other debts as well;

Promises of rebates, bonuses, commissions, et cetera, that are dangled before the consumer as an inducement to improve his home;

False guarantees and misrepresentation of products; and

Representation that the purchase is on a trial basis.

Under a revitalized title I program the consumer would be given protection against such improper selling practices. Information from better business bureaus clearly indicates that complaints are minimal under title I, but have increased immeasurably since there has been a lessening of the use of title I and a great use of some of the unconventional forms of financing. This means that where the protective devices of title I are not required and the financing is done under some of the conventional plans, the consuming public is the loser.

The recent interest in consumer protection legislation introduced by many of the individual State legislatures is clearly indicative of this trend.

Title I regulations have afforded protective measures for the consumer where the contractor arranges the loan for the consumer. The FHA requires:

That the lending institution send an advance notice to the borrower prior to disbursal of the proceeds, setting out the terms of the proposed obligation, and informing the borrower that if he has any question regarding the transaction, he should notify the lending institution. In no event can the disbursal of the proceeds be made until at least 6 days have elapsed after the notice has been sent;

The contractor must sign a statement that all bills in connection with the home improvement have been paid or will be paid within 60 days, and this increases the borrower's protection should any claim by a subcontractor arise;

That the lending institution provide safeguards for the control of dealers, in the form of proper investigation of the dealer, spotcheck procedures, statistical information, the number and nature of workmanship complaints and their disposition, et cetera: and

Since contractors know that failure to take care of complaints that are legitimate might cause FHA to restrict their participation in the title I program, title I is a persuasive force in influencing good workmanship and consumer satisfaction.

In addition to this, title I loans are the most economical for the consumer in today's money market.

I might mention that I personally asked the branch managers of my company to obtain for me rate charts of conventional plans in their particular territories. and I received charts that ranged from 6 percent to 12 percent discount which means that the true interest rate would be somewhere from 10 percent to better than 20 percent in simple interest.

Mr. Chairman and members of the committee, I would like to emphasize another point which I believe to be very pertinent to your consideration of the legislation which we seek. There have been state

ments to the effect that the operation of the title I program has lent itself to abuses, such as complaints and irregularities. I respectfully submit that such cases are minimal, and that the facts simply do not bear out these allegations.

I call the attention of the committee to statistics which support my contention that these cases are minimal, as witnessed by the fact that of all the cases filed for claim under title I only 1 percent are caused by complaints. When we consider that of all title I volume, less than 2 percent is filed for claim, then we are talking about 1/100 of the less than 2 percent of the volume. This to me is indicative of the control features that are protecting the public interest as against other finance plans which such controls do not exist.

Is it any wonder why we feel that title I should be updated to be on a competitive basis with other finance plans? It is indeed a matter of public interest.

It is quite apparent that unless Congress acts to change title I to meet today's needs, the consumer will continue to suffer. Adoption of these recemmonded changes will be a realistic adjustment by Congress of the FHA home improvement program to meet present conditions.

The proposed amendments will increase the protection to the public by a revitalization of what has proved to be a workable and acceptable program, which makes possible the upgrading and improvement of the homes of the Nation at the lowest possible level of cost to the

consumer.

Thank you.

You are not recommending amend

Senator SPARKMAN. Thank you, Mr. Butler. Let me see if I get it straight. ments of your own, are you?

Mr. BUTLER. Yes, sir. We are. The administration proposal under S. 2978, as far as title I is concerned, relates to the passing on of the insurance fee which the lending institutions have always paid since 1934, to put it in line with the mortgage program where the consumer pays that one-half of 1 percent.

Senator SPARKMAN. Well, you have not submitted language for the amendment, have you?

Mr. BUTLER. No, sir. We are only recommending that the technical changes of the increase in amount from $3,500 to $5,000 and the term from 60 months to 84 months be put into the program.

Senator SPARKMAN. I see.

Does your company do a good bit of business in this field?

Mr. BUTLER. Yes, sir. We have outstandings of approximately, oh, I would say $80 million.

Senator SPARKMAN. How much?

Mr. BUTLER. $80 million.

Senator SPARKMAN. $80 million?

Mr. BUTLER. Yes, sir.

Senator SPARK MAN. In title I?

Mr. BUTLER. In title I. We have 18 branches, and we operate right in the middle part of the United States, the Midwest and Southwest.

But the time is coming when we are no longer competitive because of all of these other programs. And I might mention there are some

200 members of the lenders committee of the National Home Improvement Council which is composed of the major building materials manufacturers and the lenders who feel the same way and who support this because unless title I is competitive in so far as term and amount are concerned, then the dealers, of course, go to programs which offer longer terms and larger amounts and which are higher than title I.

Senator SPARKMAN. Well, I am not sure that I get the full import of your statement. Is it your contention that other agencies are making these loans or comparable loans but it is not as good an arrangement as FHA has?

Mr. BUTLER. Well, certainly the rate is higher in most instances, and certainly they are making them, because title I has diminished from 52 percent of the market down to 29 percent. And yet the number of loans is still there.

Senator SPARKMAN. Well, I want to find out if you feel that FHA should be interested in maintaining a high level of business in this field-in other words, if it should regard itself as competitive in the field.

Mr. BUTLER. I would think personally that it should be interested from this standpoint: That it is a standard and has been for some 30 years. It is a nationally accepted program.

When you mention FHA to people, they understand what you are talking about. It has probably done more good than any other program, and it has been self-supporting I might say.

Senator SPARK MAN. In other words, your contention is that the consumer is given greater protection under the FHA plan than is true generally under other programs?

Mr. BUTLER. Yes, sir, by far. The protective devices protect the

consumer.

Senator SPARKMAN. Well, thank you very much, Mr. Butler. I assure you that we will give full consideration to the matter. Now Professor Davidoff and Mr. Cohen.

STATEMENT OF PAUL DAVIDOFF, DIRECTOR, URBAN RESEARCH CENTER, AND PROFESSOR OF URBAN PLANNING, CHAIRMAN OF GRADUATE URBAN PLANNING PROGRAM, HUNTER COLLEGE, NEW YORK, N.Y., ON BEHALF OF AMERICANS FOR DEMOCRATIC ACTION; ACCOMPANIED BY DAVID COHEN, LEGISLATIVE REPRESENTATIVE

Mr. DAVIDOFF. Thank you, Mr. Chairman.

Senator SPARKMAN. We are glad to have you gentlemen with us. You proceed in your own way. We have a copy of your statement. It will be printed in full in the record.

Mr. DAVIDOFF. Thank you, Mr. Chairman. It is a very great privilege and honor for me to appear before your subcommittee today, and I appreciate greatly, under trying circumstances, your permitting me to change the order of testimony this morning.

My name is Paul Davidoff and I am director of the Urban Research Center and Professor of Urban Planning, and chairman of the new