first 10 from a real estate person who had assembled them for the usual restoration route. Once we had done that, then the other speculators on the block came in and offered theirs. Mrs. SULLIVAN. When you bought the original group did you go into the background of what the real estate company or developer company or whoever it was had to pay to acquire those? Mr. PHILLIPS. Yes, we did, and I think it was something like $8,500, if I recall correctly. Mrs. SULLIVAN. And they had done nothing only in transferring or selling it which had upped the price some $1,500? Mr. PHILLIPS. That is correct. This was about 2 years ago, or a little more than that which was at a time when you could not buy a house in Washington anywhere near this price and we were interested to implement the 221 (h) program so we bought them with that understanding. And, of course, prices have it may be possible to get houses that are lower now because of the pressures from code compliance and the like, but we think it was a legitimate investment. We felt that the real estate developer had a right to make some profit and we accepted the cost of $10,500. Mrs. SULLIVAN. But there was no question about it from FHA on the figures you gave them for the costs that went into the rehabilitation? Mr. PHILLIPS. Never any question. And that introduces another device-what they did after we conferred with them on this project, and they agreed to the $17,500 mortgage across the block. We did not get from them anything in writing, so we immediately sent them a letter telling them that it is our understanding by our conversation_and meeting, and so forth, and we listed all of these things. So they have a copy of that letter, and they have never replied to that. But that again is a device that is used as long as you don't put it in writing, then you can deny everything. Mrs. SULLIVAN. Are you able to get the financing for any of these now? Mr. PHILLIPS. We have the financing for all of them. Mrs. SULLIVAN. What rate do they have to pay? I know what rate the prospective owner pays, but what rate would the mortgage call for? Mr. PHILLIPS. The first six were done at I think 7.5. I am not sure or was it 6.75, the first six? They would have to be done this time at 8.5. Mrs. SULLIVAN. Eight and a half percent? Mr. PHILLIPS. That is correct. Mrs. SULLIVAN. An according then to their income they would pay 1 or 2 percent and the Government picks up the rest? Mr. PHILLIPS. That is correct. Mrs. SULLIVAN. Thank you very much. That is all, Mr. Chairman. Chairman PATMAN. The committee will stand in recess until 10 o'clock in the morning. Thank you very much, Mr. Phillips. Mr. PHILLIPS. Thank you very much. (Whereupon, at 12 noon, the committee recessed, to reconvene at 10 a.m., Thursday. February 5, 1970.) EMERGENCY HOME FINANCING THURSDAY, FEBRUARY 5, 1970 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The committee met, pursuant to recess, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Wright Patman (chairman) presiding. Present: Representatives Patman, Barrett, Sullivan, St Germain, Gettys, Bevill, Hanley, Chappell, Widnall, Halpern, Mize, and Brown. Chairman PATMAN. The committee will come to order, please. Mr. Eisner, we are glad to have you, gentlemen, at this time. Today's segment of the House Banking and Currency Committee's Emergency Housing Hearings will be devoted to the testimony to be presented by one of Rhode Island's commercial banking leaders and an outstanding economist from Northwestern University. Members of the committee will remember Mr. John Cummings, Jr., for his testimony last spring on one-bank holding company legislation. He appeared before the committee then as the president of Industrial Bancorp, Inc., and president of the corporation's major subsidiary, the Industrial National Bank of Rhode Island. Today, Mr. Cummings is wearing another hat, that of chairman of the Urban Housing Corp., of Rhode Island, a nonprofit organization designed to be a catalyst for projects providing low- and moderateincome housing for residents of that State. Welcome to the hearings, Mr. Cummings. I'm sure the committee members will be very interested to learn how you are trying to involve the commercial banks and other lending institutions of your State in efforts to provide low- and moderate-income families with housing. The committee will also hear the testimony of Professor Eisner of the economics department of Northwestern University. Dr. Eisner is a fellow of the Econometric Society, a staff member of the National Bureau of Economic Review and former member of the Board of Editors of the American Economic Review. He has testified many times before congressional committees. As you know, gentlemen, almost half of all the households in the United States are now priced out of the housing market, due largely to tight money, high interest rate conditions. This appalling condition demands that the Congress find ways of developing additional sources of mortgage funds at reasonable rates. I am sure your testimony will aid us in this effort. We will hear Mr. Cummings first and then Dr. Eisner. The hearing will then be open for questions to both witnesses. You may proceed as you wish, Mr. Cummings. STATEMENT OF JOHN J. CUMMINGS, JR., CHAIRMAN, URBAN HOUSING CORP.; ACCOMPANIED BY J. TERRENCE MURRAY, DIRECTOR, URBAN HOUSING CORP. Mr. CUMMINGS. Thank you, Mr. Chairman. I am accompanied by J. Terrance Murray, a director of the Urban Housing Corporation. Mr. Murray was instrumental in developing the concept of the corporation and he is also a vice president of Industrial Bancorp. Chairman PATMAN. Yes, sir. We are glad to have him to accompany you. Mr. CUMMINGS. I would also like to express our thanks to Representative St Germain, a member of your committee from Rhode Island, whose continuing interest in solving the Nation's housing problems facilitated our appearance here today. Mr. Chairman, the demands for housing in the 1960's created by an expanding number of Americans reaching maturity and developing families, has been and will continue in the 1970's to be a formidable problem in our society. Housing starts averaging 1.3 million per year over the past 4 years have been inadequate in a normal social and economic climate. The number of family units has continued to expand and housing is not being developed to accommodate this broadened market. In the latter part of the last decade two additional phenomena developed which have compounded and intensified housing problems. They were an increasing social consciousness of the shortage of new housing in America and a growing awareness that millions of existing dwellings are substandard and unfit for human inhabitation. In addition to these factors, the economy in the latter part of 1968 and during all of 1969 underwent a "money squeeze" which has hindered all effective efforts to alleviate the housing shortage. While the entire purchasing public has been affected by the squeeze, that part of society which has been most greatly affecting are the lower income families. The increased price of construction due to the rising cost of building materials, labor, and financing has made it difficult to build homes under a price of $20,000. The independent builder, whose profit margins have been squeezed from overall increased costs of land and construction, cannot build $15,000 homes on a conventional basis and earn an acceptable return on his efforts. Consequently, those who suffer the greatest are family units in the $5,000-$10,000 annual income range who need housing and cannot afford what is available. It is to these low- and moderate-income families that the Federal Government and many local nonprofit entities have directed their attention in the area of housing. In the State of Rhode Island there was created in 1969 a nonprofit entity named the Urban Housing Corp. This entity is a joint effort of every sector of the community. It is funded by the financial and business sectors of the State and has the support of labor, business, State and municipal governments, and many religious groups. The company fully utilizes the housing programs which the Federal Government has provided. It is intended that rent supplements, interest subsidies, guarantees, and tax incentives, all of which are forms of assistance provided by the Federal Government, will be utilized to some degree to supplement the efforts of the Rhode Island Urban Housing Corp. The corporation is active in the area of housing throughout the entire State. Its principal function is to promote and assist in the construction and rehabilitation of new housing in the blighted and slum neighborhoods of the State. The emphasis is on owner-occupied units. There have been a growing number of various ad hoc, neighborhood, and church groups formed in recent years whose purpose is to alleviate housing problems in poor areas. These groups have sound objectives and considerable enthusiasm but to varying degrees have been deficient in the area of capitalization, real estate expertise, and business management. It is felt that the Urban Housing Corp., does have these qualities and approaches the housing problem on a more professional basis. The corporation serves as a catalyst in the field of low- and moderateincome housing, generating new units for families in the marginal income range of $5,000 to $10,000. In order to achieve maximum effectiveness, the corporation is authorized to serve in a number of roles in the development of housing. These include: (1) Serving as interim developer of new or rehabilitated housing units until these units are conveyed to a sponsor or until the units are sold to individual homeowners. It is intended that new construction will be in the form of multifamily units which upon completion will be sold to individual families and be eligible for individual mortgages. That is a condominium type. Any construction or rehabilitation of rental housing would only be on an interim basis. Upon completion, the project and its management would be conveyed to a sponsor such as a church or civic group. It is the corporation's feeling that its efforts will be principally in owner-occupied dwellings. (2) Providing technical (consulting-processing) services to profit and nonprofit sponsors of housing construction or rehabilitation. These services could be in the area of design, economic feasibility, negotiating land purchased and contracts, and processing with various city and government agencies. Such services will be performed on a modest fee basis. (3) Providing short-term "seed money" and property acquisition. loans to sponsors of housing projects. These loans would be used by a sponsor who is assembling a parcel of real estate for the purpose of development. It is possible the corporation itself will purchase available sites for development. The corporation's policy regarding its various activities is flexible enough to allow it to take several roles in the development of housing. It is able to act as a developer, joint venturer, lender, investor in land, or a consultant. The corporation has the expertise to provide this assortment of services on a professional level. The first 6 months of operation is being largely devoted to analysis and planning for several projects. Several pilot projects, limited in 41-658-70-11 |