that housing costs vary from region to region sufficiently to justify divergent construction cost limits in the bill, so is it also true that other costs of living vary tremendously. It does not follow from this that all of the incomes of people living in these areas vary in direct proportion to the cost of living. On the contrary, in a city like New York where the cost of living is extremely high, there are still many people employed, particularly in service jobs, whose ratio of income to cost of living is deplorably low. It is for this reason, and not because of any unique sentimentality that we in New York City and State legislation have traditionally provided that people pay less than 20 per cent of their income as rent in government-assisted housing accommodations. We feel very strongly that flexibility in establishing rent to income ratios in assisted housing should be provided in the bill and that New York Cty and State should be allowed to continue their present income rent ratios. Any significant change would work a tremendous hardship on the people involved. Yours very truly, ROGER STARR, Executive Director. CITY OF HELENA, Mont., July 13, 1970. HOUSING AND URBAN AFFAIRS SUBCOMMITTEE, U.S. Capitol, Washington, D.C. GENTLEMEN: It is my pleasure as the Director of the Helena Model City Agency to offer two suggestions that I think will substantially assist in the development of greater volumes of housing units financed under various FHA loan programs. First, we find that many leaders in the interior areas of the country, and particularly in the West, are not familiar with the processes and most recent changes made within Fannie Mae, Federal National Mortgage Association, and the newly-created Gennie Mae, Government National Mortgage Association. That problem is further compounded by the fact that the nearest Fannie MaeGennie Mae staff is approximately 1500 miles away, and the representative can hardly spend much, if any, time assisting public agencies such as Model Cities, redevelopment agencies, housing authorities and various other city, county or state agencies in convincing lenders to participate in Section 235 and 236 FHA loan programs. While we propose no lew legislation to solve this problem, we feel additional field offices or staffing will contribute to more lender acceptance of these housing loan programs. We would also like to see more Fannie Mae/Gennie Mae rapport with federally-funded agencies such as ours so that we may convince our local lenders as to the workings of FNMA/GNMA. Secondly, we submit a summary of a possible new piece of major legislation that would involve all of the country's lenders and their enormous deposits available for the first time to assist in the financing of low and moderate-income families. Our housing consultant drafted the proposal using his experience in the fields of banking (Wells Fargo Bank), savings and loan (Great Western Savings), mortgage (Executive Vice President, City Mortgage Co.), and Alternate Chief of Real Estate, HUD, San Francisco and HUD, Washington, D.C., to involve conventional lenders making conventional loans. There exists a draft bill already amended to reflect FHA criticisms and to structure a workable agreement between the federal government and private lenders, which I will forward if you desire to explore this future. Following is a statement prepared by our consultant, Milt H. Rambaud, President, Urban Services and Housing Development Company, Fox Plaza, Suite 908, San Francisco, California, 94102, phone (415) 376-3586. "This statement concerns a totally new method of financing housing for low and moderate income families through use of conventional loans. "First, let me explain the need for this legislation. Based upon either FHA's figures or the census bureau of the National Association of Home Builders or the Federal Reserve Board, depending on whom you are talking to, all agree that FHA loans finance approximately 16-17% of the entire shelter industry. Secondly, of those FHA-insured loans, approximately half of the units insured are apartments. Out of that remaining half, or 8%, three of every four FHAinsured loans are for refinancing. Thus, only approximately 3 of the 8% or 3% are for new single-family dwellings. This says that approximately 97% of all new homes built in this country are financed with conventional (non-FHA) loans. "If the Senate is to take its housing goals seriously, you obviously must involve the conventional lenders that presently do not or will not make FHA loans. As you can see, this is the bulk of the single-family mortgage market. "I am afriad that the Congress has tended to let itself become bureaucratic in the sense that it has developed a wide-ranging and far-reaching spectrum of FHA loan programs covering any and all residential areas. Therefore, both Houses have assumed that they did all they could; 'now let those sponsors and lenders take advantage of our wonderful programs.' "You have often learned with regret that any given program, such as 221 D (3). has not fulfilled its glowing promise that the hearings foretold. You consequently draft a new bill such as Section 235 and 236 that will correct the problems of old. "It is well past the time to stop the treadmill and take a fresh look at the fundamentals of real estate financing. In spite of all of the FHA programs, 84% of all residential loans are non-FHA; 97% of all new single-family loans are nonFHA insured. "In many areas of the country less than 20% of the local lenders of all categories will even consider FHA loans. Most savings and loans, for example, need only a staff appraisal, a loan application and a credit report. All of these items are frequently obtained by one man with the loan papers and the check is in escrow by the next day. The cost of loan origination is therefore a fraction of the time, paperwork and processing required for an FHA-insured loan. Also, the lender loans his money at market rate interest rather than the fixed FHA rate of interest, which generally causes points or discounts to both the buyer and seller. These points are mostly eliminated on conventional loans. Thus, when the market rate goes up or down, conventional lenders stay competitive while FHA lenders generally find the cost of points to the seller-builders cause a sharp drop in construction starts. This causes a concurrent increase in unemployment in the building trades industry as well as allied industries, lumber, appliances and building material products. "We must involve banks, savings and loans, insurance companies and mortgage companies in making conventional (non-FHA) loans to the low and moderate income group. If we can do this, we will tap a multibillion dollar source of mortgage money that presently is not available for this type of housing. "How do we attract some of that 97% of the mortgage money market into loans for the low and moderate income group? "This will be the subject of my proposed legislation. If you will bear with me, I will explain how it works rather than go into the legislation itself, as it is far from finalized at the present time. "First, it will work accordingly : "A family of five, for example, making $4,500 per year with a fair credit history, will normally quality for a loan of $13,000 to $13,500 depending upon the policies of the lender, real estate taxes and the insurance rates in the area of his choice. If there are no homes for sale at that price, he consequently must either live in public housing or rent an apartment. All too frequently, that apartment he lives in is in a blighted area or what is more commonly known as a slum. "The same family under this program will obtain the loan they qualify for from a local lender in accordance with their policies and (non-FHA) procedures as well as obtain a government-issued second loan in an amount up to the sales price of the property less a 2% down payment. "For example, the family has purchased a home priced at $18,900. The lender deposits the $13,500 loan in escrow with a HUD second loan of $5,022 (balance of purchase price less 2%). Thus the seller receives his full price and the escrow closes. The first lender received his normal payment without any government involvement or subsidy. At this point, however, the buyer cannot afford the payments on the second loan. The HUD second loan will waive payments for the first 60 months depending upon the income level of the owner. The interest on the loan for those months will probably be the only cost to the government. The owner will have the obligation to begin payments on the HUD second loan at the beginning of the six year. These payments will be on a graduated scale-approximately $8 a month 60th month, $15 a month 100th month, and so on. If the homeowner has not increased his income in the five years, he may refinance his first loan to repay part of his government loan obligation. There are several options open at this point to enable the owner to satisfy this obligation which can be vered later. The funds for this program will be obtained by selling bonds backed by mortThus, the private money market under Federal Government guarantee plus the security of the mortgages should produce all the monies needed at prime interest rates. These HUD seconds would in turn be placed on properties at 4 of 1% over the cost rate. Therefore, the only cost to the government is the loss on the interest for the number of months (not to exceed 60 months) payments are not made on the loan. This represents only a fraction of the same costs on public housing or other low or moderate income housing costs, wherein the tenant also has only rent receipts to show for our subsidies." If you desire further information or a draft of the proposed bill, please contact the Helena Model Cities office or Urban Services and Housing Development Company, San Francisco. Thank you very much for the opportunity to present this statement for your consideration. Sincerely, (Mrs.) JUDITH H. CARLSON, Model City Director. COMMUNITY SERVICE SOCIETY, Hon. JOHN SPARKMAN, Washington, D.C. DEAR MR. SPARKMAN: We are writing to you at this time in connection with the proposed Housing and Urban Development Act of 1970, Sen. 3639. You may recall that the Community Service Society is the largest non-sectarian family agency in the nation and its Committee on Housing and Urban Development, a unit of the Department of Public Affairs, is a citizens' organization that has been working since 1898 for better housing for families of low and middle income. We have studied the bill with some care and while we are thoroughly in accord with the idea of simplifying housing programs, the proposed legislation creates a number of major problems, two of which particularly concern us. The proposed Act would require a family in low-rent public housing to pay as rent 20% of the first $3,500 of income and 25% of all income above that figure. To set an arbitrary ratio is extremely retrogressive; we were pleased when a somewhat similar method was abolished in 1959 and to reinstitute it now would be regrettable. We believe that recognition should be given to the fact that family size makes an enormous difference in the proportion of income that can reasonably be paid for rent; to require a large family to pay the proposed proportion of its income for rent would vitiate much of the benefit of public housing by depriving the family of enough money to pay for even minimum necessities such as food and clothing. The expenses of a two person middle-aged family differ substantially from a family with four growing children, despite identical incomes. A successful public housing program requires more than four walls and adequate plumbing; to benefit the community it should facilitate an enriched and healthful way of life for its residents. An especially damaging feature of this legislation is the sudden, substantial increases it would impose on families least able to afford them. Particularly during this period of inflation and fluctuating employment, it seems to us most unfortunate and unwise. We would favor a method of relating rent to income, taking into consideration family size, provided rents for admission were set so that very low income families could be admitted along with those of somewhat higher incomes, thus achieving a tenancy with as broad a range of incomes as possible. The second point we wish to make concerns the proposed income limits for admission to the FHA subsidized program. Under the bill, the income of 80% of the families cannot exceed 80% of the median income for the area, and the income of the remaining 20% of the families cannot exceed the median income for the area. No one is sure precisely how "area" will be defined, thus creating fear, uncertainty and potential complications, which will defeat the efforts to simplify the program and facilitate production. The gap between the maximum income allowed for 80% of the tenants and the figure at which unaided private enterprise is able to build will leave a large segment of lower middle and middle income families without adequate housing and will further segregate families by income and, incidentally, by race. At present, admission is limited to families whose incomes do not exceed 135% of the admission limits to public housing: a simple amendment to this provision setting the upper limit at 135% of the continued occupancy limit would go much further to simplifying the program and consequently increasing production. We very much hope you will reexamine these portions of the Act and amend them so they will adequately serve families of modest means. Sincerely yours, EARLE K. Moore, Chairman, Subcommittee on Low-Income Housing. STATEMENT OF SAMUEL A. WEEMS ON BEHALF OF FEDERATION OF AMERICAN HOSPITALS Mr. Chairman, as Director of the Legislative Bureau, Federation of American Hospitals, I am urging the consideration by the Senate Banking and Currency Committee of an amendment to section 503 (a) of S. 3639, the Housing and Urban Development Act of 1970, to include investor-owned (proprietary) facilities in the definition of "hospital." I make this proposal on behalf of the approximately 500 proprietary hospitals in the United States represented directly or through affiliated state organizations by the Federation of American Hospitals. INVESTOR-OWNED HOSPITALS There are more than 1,000 acute short term proprietary hospitals in the United States, representing approximately 20 percent of the non-governmental hospitals. In some areas of the nation however, investor-owned hospitals represent up to 100 percent of the hospitals. These facilities have filled a gap in construction of hospitals in both those communities which were too poor to finance tax-exempt hospitals or in those new towns which grew so rapidly that the area could not keep up with exploding populations. SERVICE AND PLANNING The investor-owned hospitals of America are committed to providing quality health care at reasonable cost and we believe the free enterprise sector of the hospital field can make a significant contribution in the development of a more efficient, more effective delivery system. This can be done by stimulating competition and providing alternatives to the consumers of health care-all within the framework of a single coordinated system. In this regard, investor-owned hospitals support a health system rooted in planning in order to avoid the unnecessary expenditure of health dollars and the duplication of costly equipment or facilities. We hold that it is the obligation of all hospitals, irrespective of their ownership or sponsorship to provide a full range of services consistent with principles of comprehensive health planning. We believe that capital expenditures by hospitals should be consistent with priorities for meeting overall community health needs. Investor-owner hospitals do in fact provide emergency, maternity, pediatrics and other specialized services, often as the only hospitals in their area providing such services and often without recouping the full cost of such services. Under section 503 (C) of H.R. 16643, The Secretary of Housing and Urban Development "shall not insure a mortgage. . . unless . . . the Secretary shall have received. from the State agency designated in accordance with section 604(a)(1) of the Public Health Service Act for the State in which the hospital would be located (i) a certification that there is a need for such hospital, and there are in force ... reasonable minimum standards of licensing and for methods of operations for hospitals . . ." We support this kind of control over the capital expenditures insured under the proposed legislation. FINANCING Experts in the health field agree that the capital requirements of hospitals in this country cannot be met in the next decade by traditional methods of financ ing (philanthropy and government funds). Other sources must be looked to. The private sector, and within that sector, investor-owned hospitals, must play a major role in both meeting the financial requirements and improving the efficiency of the delivery system. Investor sources certainly should be encouraged to provide capital to build and modernize hospitals. The Department of Health, Education and Welfare estimates that there is an immediate need for approximately 85,000 new acute care hospital beds and 164,000 long term beds in the United States. H.E.W. officials estimate a need for modernization of more than 455,000 additional beds. The total cost of meeting this need exceeds $11 billion dollars. No hospital is debt financed 100%. To the degree that hospitals are not financed by loans, capital of investor owners can help meet future capital requirements. Consistent with normal business practices it should not be expected that investorowned hospitals will be built completely for cash of the investor owners. Borrowed sums will be required. For the many investor-owned hospitals presently in need of expansion or modernization or yet to be built by investors, assistance is required in obtaining loans. The hospital is a single purpose building, often little understood by the financial institutions from whom the loan is sought. This is one of the major reasons that government guarantee programs have been adopted for proprietary or investor-owned convalescent facilities and for the non-profit hospital. The situation is no different for the investor-owned acute general hospital. It is to the best interest of the Federal Government and to the citizens it serves to provide a mortgage insurance program for investor-owned hospitals to stimulate this method of providing capital for the development and maintenance of hospitals in the United States in the future. We urge the consideration of the Committee of our request to amend the legislation now before the Committee, to permit investor-owned hospitals to participate in the mortgage insurance program. We believe this recognition of the vital role of investor-owned hospitals will be in the public interest and will help to prevent a serious health crisis in this decade. Thank you for considering this recommendation. On behalf of the Federation of American Hospitals, I respectfully ask that this statement be made a part of the records of the hearings of the Senate Banking and Currency Committee on the Housing and Urban Development Act amendments of 1970. STATEMENT OF ARTHUR J. GOLDBLATT I am an attorney in practice in Norwalk, a city in Fairfield County, Connecticut, having a population of approximately 80,000. My practice includes representation of several non-profit corporations which are attempting to grapple with the serious housing situation in this city. This statement relates to that portion of the 1970 Housing and Urban Development legislation which concerns the provision of low and moderate income housing outside the already crowded central city neighborhoods, i.e. the provision of moderate-income housing in the suburbs. I. For many years there has been a shortage of housing here for families making less than $10.000 a year, and a critical shortage of such housing for minoritygroup families in its income range. Moderate-income housing must be multifamily housing because of the exigencies of economics. The shortage of multifamily housing in this area basically reflects a shortage of land and of money. Land is in scarce supply largely because of the artificial shortage of fund for multi-family housing ordained by zoning restrictions. It is a problem of money in that building costs, land costs and the cost of borrowing have risen so sharply in recent years. A major source of difficulty is that the areas which are properly zoned for multi-family housing are generally in the central city. The central city has two drawbacks for new lower-income construction: 1. The central city already has a disproportionate concentration of poorer persons and minority-group families; 2. The price of land in the central city is so high that its cost exceeds the limits of the F.H.A. for insurable mortgages. For these and other reasons, I believe that Federal legislation should aim to have new moderate-income housing scattered in suburban areas where employment is growing and where land costs make large-scale construction more feasible. Present legislation and proposed legislation do not seem to me capable of |