is no economic soundness requirement as a prerequisite for insurance of an eligible mortgage. The FHA section 220 program for housing in urban renewal areas would also be amended by the Administration bill, and the same liberalization would be made as in section 221 for mortgages financing repair and rehabilitation. Like section 221, no economic soundness requirement is applicable to this program. In addition, the Administration bill would authorize a new FHA program of insurance of home improvement loans. These loans would be particularly helpful to home owners who have outstanding mortgages on their homes. under the provisions in the bill, in appropriate cases, they could obtain a home improvement loan up to $10,000 in amount per dwelling unit in the property, and having a maturity up to 25 years, without the costs of refinancing their mortgages. The home could be eitner in or outside of an urban renewal area. In the case of a home improvement loan in an urban renewal area, FNMA special assistance would be permitted. The other loans are eligible for purchase by FMA in its secondary market operations. The urban renewal area need not be in connection with a Federally-aided project. It may be a non-aided project in a so-called "gray area" where the city merely sponsors a concerted effort of code encorcement and voluntary improvements. Absent such an effort, the Federal aid could well be wasted in the individual case. The Housing Agency is streamlining its procedures for approving non-assisted urban renewal areas so that there would be no delay in making the FHA aids freely available in such areas. In view of these provisions in the Administration bill, the Housing Agency believes that the purposes of the Reuss bill would be fully accomplished without additional legislative provisions. You requested our comments on an amendment which has been proposed to the Housing Bill of 1961 (H. R. 6028) and which is listed as item 8(b) in your Subcommittee Print of April 20, entitled "Possible Amendments to H. R. 6028". Under this amendment, a separate FHA insurance fund would be established for section 213 cooperative housing and would be placed on a mutual basis. This would provide for participation payments to section 213 mortgagors similar to those made under the FHA's regular section 203 sales housing mortgage insurance program. The Housing Agency recommends against the adoption of this proposal. The participation payments which are made to homeowners under the mutuality provisions applicable to one- to four-family homes insured under section 203 are in some respects similar to policy holders' dividends paid by private mutual insurance companies. In effect they amount to a rebate of insurance premiums on the basis that the insurance loss experience has been favorable and that present reserves are adequate. Although mutual participation payments were authorized for the section 203 program in the original National Housing Act approved in 1934, the first dividends were in fact not paid until about 10 years later when reserves had become adequate to justify the payments on a fiscally sound basis. It appears clear from a recent FHA study of its insurance funds that the resources available in each of the non-mutual funds, except the War Housing Insurance Fund, are significantly less than currently estimated reserve requirements. In the case of the War Housing Insurance Fund, when it became clear that a surplus would be available, the Congress enacted section 219 of the National Housing Act, making the resources of that fund available for assisting other funds where the insurance experience was less fortunate. One of the funds which may benefit from this change is the Housing Insurance Fund. Originally only project mortgages insured under section 207, which authorizes the regular FHA rental housing program, were assigned to this fund. At later times, the fund was extended to cover both project-type and sales-type cooperative housing projects assisted under section 213, rental housing for the elderly assisted under section 231, and nursing homes assisted under section 232. Although the Housing Insurance Fund is a comparatively old fund, its comparative reserve position shows a growing reserve deficiency. As of the end of 1955, the actual insurance reserves in this fund were almost $19 million below estimated reserve requirements. By the end of 1957, this figure had risen to $21.7 million and by the end of 1959, to $29.4 million. The explanation for this development is that for a considerable part of the fund's history, comparatively little insurance was written under it, with most of the insurance being written in recent years. Consequently, the fund has not had the opportunity to accumulate the insurance reserves necessary to match its reserve requirements. The income and expense figures for this fund show that a comparatively small proportion of the total income is left to build up insurance reserves. As of June 30, 1960, cumulative net income of the fund amounted to less than one-fifth of the rund's total income, as contrasted with 59 percent for the Mutual Mortgage Insurance Fund and 50 percent for the War Housing Insurance Fund. Although the cooperative housing program standing alone has had relatively favorable experience and may very well achieve, within the foreseeable future, a favorable reserve position which could support participation payments, such payments are not as yet warranted on an actuarially sound basis. In the meantime, a question has been raised as to whether persons who build or own their homes cooperatively ought not, as a matter of principle, receive the same type of participation payments as persons who own their homes individually. The Housing Agency believes that there is no element of inequity involved in failing to extend mutuality to the cooperative housing program. Quite apart from the issue of actuarial soundness which has been discussed above, it should be noted that no discrimination will be suffered by members of housing cooperatives if mutuality benefits are not extended to them. This is so because of the special and substantial advantages which the cooperative housing program does receive as compared with the regular FHA sales housing program. These include lower downpayments with respect to higher priced housing, longer loan maturities, and FEMA special assistance which generally results in a substantial cash reduction in the cost of financing. While we believe that these advantages are fully warranted, they should nevertheless be taken into consideration in determining whether the section 213 program is, on balance, unduly disadvantaged by the absence of mutuality. Finally, it should be noted that the Housing Bill of 1961 proposes new and broadened FHA insurance programs which contemplate material additional insurance risks. Proposals are also pending under which the Federal Housing Commissioner would be given discretionary authority to establish the FHA premium rate at less than the present one-half percent statutory minimum. Until additional experience has been gained under these proposals if enacted, we believe that it would not be desirable to extend mutuality benefits to any additional programs. Sincerely yours, Rent. Wear Robert C. Weaver Statement of Housing and Home Finance Agency on Need to Better the Housing Conditions 5/4/61 The Housing Agency has been asked to comment on the statement that census statistics (1956 National Housing Inventory) show that the condition of housing for families in the $4,000 to $6,000 income group is better than the national average and that the unmet housing needs of these middle income families have been over-stated. These conclusions are apparently based on a fallacious interpretation of some 1956 census figures and on a failure to take into consideration other available census figures. 1. Fallacious Use of Census Data. The statement that the condition of housing for the income group earning between $4,000 and $6,000 was better in 1956 than that of the United States average is literally true only because the 1956 national figures included more than 4 million dilapidated units. Most of these were of course occupied by lower income families, but this in no way bears on the needs of the very many middle income families who also occupy housing which does not meet even minimum standards of acceptability. Those needs are real and urgent. Thus, the inclusion of this substandard stock in the comparison is misleading and has apparently resulted in a fallacious conclusion that nothing much need be done. For the comparison to be meaningful as a basis for establishing housing standards for American families we should certainly not accept in our base the units which the census figures reveal to be so seriously substandard that many of them should be torn down while all the rest are in need of major repairs or plumbing or both. 2. One and One-Half Million Middle Income Families in Substandard Units. Any statement which utilizes 1956 census figures as a basis for implying that the housing needs of middle income families are being adequately met must have overlooked some of the 1956 census figures which are directly relevant to this issue. According to the 1956 National Housing Inventory, there were than close to 1-1/2 million families in the $4,000 to $6,000 income group who were living in dilapidated units or in units lacking adequate plumbing. These families, who were living in housing that was clearly below the national average and clearly below acceptable standards, constituted about 12 percent of all the families in that income group. While 12 percent is not a very high percentage, it is a significant one which should not be overlooked. No one can deny that an urgent problem exists in the middle income group when as |