The provision in the bill for continuing general insurance authorization for FHA is a decided improvement over the limited extensions of FHA's life during the past years. However, we question the desirability of any statutory termination date. Certainly the Congress does not need a termination date in order to keep the program under review.

We also endorse the change in FHA section 207, permitting individuals and partnerships to be mortgagors, instead of requiring incorporation.

MIDDLE-INCOME HOUSING

Beginning in 1949, following the enactment of the new public housing law, the public has been subjected to a continual barrage of allegations that the middle-income groups of the country are stranded-unhoused between public housing and the private market and therefore need some Federal subsidy.

In 1950 the Congress rejected the first middle-income housing bill, but the issue has been revived every year since. It appears now in the pending bill.

Let us examine closely the housing conditions of those in the $4,000– $6,000 income group.

A comparison between the percentages for the whole United States and those for the $4,000-$6,000 income group clearly shows that the condition of housing for the middle-income group is better than that of the U.S. average. Taking owner-occupied units, we note that the percentage of U.S. totals is as follows: 96.33 percent for the not dilapidated and 3.66 percent 2 for dilapidated units. Compare this with 97.7 percent 2 and 2.29 percent 2 for the middle-income group. For renter-occupied units the differences are even greater. The U.S. averages are 89.75 percent 3 for the not dilapidated units, 10.24 percent for the dilapidated. For the $4,000-$6,000 income group the percentages are 95.92 percent for not dilapidated, 4.07 percent for the dilapidated.

3

3

4

Now as to the role of FHA in the $4,000-$6,000 income market. The breakdown for the year 1960 shows that 17.2 percent of the FHA owner-occupied one-family new homes and 22 percent of FHA existing homes were purchased by the $4,000-$6,000 income group. This certainly rebuts the contentions made that the FHA does not serve this market. Also, we must couple this with the report of the NAHB economics department that more than 25 percent of new construction in 1961 will be in the price category below $12,000, compared with 18 percent in 1960.

The percentages were prepared by NAREB Department of Research based on figures of the Bureau of the Census, U.S. Department of Commerce, 1956 National Housing Inventory, vol. III, pt. I. p. 35. If we break down the "not dilapidated" units into those "with all facilities" and those "lacking facilities" we get a further picture of the condition of middle-income families. Of the 96.33 percent for the total not dilapidated units, 83.63 percent were equipped with all facilities and 12.70 percent lacked facilities. Compare this with 97.70 percent of the middle-income group for the not dilapidated units, which can be broken down into 90.11 percent for those with all facilities and 7.59 percent for those which lacked facilities.

3 Percentages based on Bureau of the Census, U.S. Department of Commerce, 1956 National Housing Inventory, vol. III, pt. I. p. 35. Breaking down the 89.75 percent total renter-occupied not-dilapidated units, we find that 71.45 percent have all facilities and 18.29 percent lacked facilities, while in the $4,000 to $6,000 income group of the 95.92 percent not dilapidated units, 84.43 percent were equipped with all facilities and 11.49 percent lacked facilities.

Federal Housing Administration, Division of Research and Statistics, Statistics Section, Quarterly Report on FHA Trends, 4th quarter, 1960, pp. 1 and 3.

5 National Association of Home Builders, National Housing Center, News Bulletin, Code 965, Mar. 1, 1961, p. 4.

In 1960 the median sales price of FHA new construction was $14,324, and the median sales price on existing construction was $12,975. As these are median amounts, half of the new and existing homes sold were below these amounts, and well into the $4,000-$6,000 income group. Certainly this rebuts the contentions that this income group is a "forgotten" home buying group.

However, confining a study of home purchases to the FHA component of the market is unrealistic. In 1960 only 16 percent of the homes acquired with a mortgage used FHA-insured loans, while 77 percent were purchased with conventional financing and 7 percent 7 with VA-guaranteed mortgages.

7

The most recent data available (1956 National Housing Inventory) indicate that families in the $4,000-$6,000 income group have frequently purchased with conventional or VA financing. Although there is no published correlation of income by method of mortgage financing at the time of acquisition, there is information on mortgage status by income categories. The breakdown in the $4,000-$6,000 group is as follows:

(a) 1,819,4858 had a conventional mortgage;

(b) 1,188,547 had a VA mortgage;

(c) 698,570 had an FHA mortgage.

There are some 211⁄2 million families in the $4,000-$6,000 income group who purchased with a mortgage but who held free and clear at the time of the 1956 inventory of housing. In addition, many acquired their homes without a mortgage. There are over 1 million in this category.

As to the condition of these nonmortgaged properties, 93 percent 10 of these occupied by the $4,000-$6,000 income group were not dilapidated.

Let us weigh carefully this data and not accept 10 years of allegations based on faulty premises as incontrovertible fact that this income group requires a Federal subsidy and a Government landlord. We have taken the liberty after hearing all of the talk about how illhoused the people in this income group are, of asking the metropolitan real estate boards throughout the country which have multiple listing systems, to submit a group of homes in the $10,000-$14,000 category which are on the market today. We have those on boards which we will submit for your consideration and perusal at the conclusion of the testimony.

It is in the light of these facts that we must deny that the housing conditions of the middle-income groups justify the extreme measure

Federal Housing Administration. Division of Research and Statistics, Statistics Section, Quarterly Report on FHA Trends, 4th quarter, 1960. pp. 2 and 4.

Housing and Home Finance Agency. Housing Statistics, February 1961, p. 51.

Bureau of the Census, U.S. Department of Commerce, 1956 National Housing Inventory, vol. II. pp. 32 and 34.

The estimate was prepared by NAREB Department of Research. It based its calculation on Bureau of the Census, U.S. Department of Commerce, 1956 National Housing Inventory, vol. III. pt. I, p. 35. for the following:

7.119.515 owner-occupied units of the $4,000 to $6,000 income group and on the 1956 National Housing Inventory, vol. II, pp. 32-35 for 3.706.602 nonfarm onedwelling owner-occupied units of the $4,000 to $6.000 income group holding a mortgage at the time of the 1956 inventory of housing; 1.120,006 nonfarm one-dwelling owner-occupied units of the $4,000 to $6,000 income group acquired without a mortgage.

In our calculation of some 21⁄2 million we disregarded the minor number of family farm properties, since the farm definition is practically meaningless today and farms are less frequently mortgaged than urban properties.

36 The percentage was prepared by NAREB Research Department on figures of the Bureau of the Census. U.S. Department of Commerce, 1956 National Housing Inventory, vol. II, p. 35, for units acquired without a mortgage.

advocated by the administration to empower local public housing authorities to engage in the construction, operation, and management of rental housing for the great American middle class.

This is exactly the meaning of that part of title I of H.R. 6028 which rewrites the section 221 rental housing program to permit local public bodies to obtain financing for rental housing at approximately 3-percent interest rates and discretionary waiver of the insurance premium. Treasury money would be used to buy these mortgages at par, considerably in excess of their value.

This is nothing less than direct lending of Government money at subsidized rates. The manner in which the proposal involves FHA and FNMA is ingenious, yet so fragile a facade that we wonder why the administration went to all that bother.

This provision would extend a new form of public housing to middle-income families. Under the terms of the bill, a local public housing authority would be eligible as a borrower and mortgagor of this Treasury money at 3 percent or 3% percent.

It would in essence own the project and determine, within guidelines set up by FHA, who would live in the project. The difference between such an activity by a local public housing authority and its present activity is only in the manner of the subsidy which helps finance the project and the income groups who are to be subsidized.

If the Congress wants local public housing authorities to become the principal media for the provision of housing in Governmentowned shelter for millions of American families whose incomes may be classed as moderate, then this is the correct vehicle.

However, it ought not to be dressed up in language which seemingly harnesses the sound FHA system to another method of insuring privately financed mortgages for rental housing. Shorn of these trappings, the proposal launches the Federal Government on a new adventure in public housing for the American middle class which makes the 1937 and 1949 public housing statutes pale by comparison. We urge that the subcommittee reject this proposal.

FORTY-YEAR NO-DOWNPAYMENT LOANS

We now address ourselves to the new section 221 program for sales housing.

Our association has always championed the cause of home ownership. We supported and championed the section 221 program for displaced families. However, extending the section 221 program to all families of moderate income involves the great risk that this will supplant the economically sound section 203 program. We derive little comfort from the proviso that this is a 2-year experimental program. With the exception of war housing programs, all temporary housing programs are now permanent.

We are concerned over what the program would do to the individual homeowner and the whole concept of homeownership. We deal here with a program that holds out an illusory promise of "easy" homeownership to 4 million American families in the moderate income group who are today not homeowners.

I want to insert for the record an analysis by Roy Wenzlick of the Roy Wenzlick Research Corp. on the 40-year no-downpayment loan. You have a copy of this report, I believe, on your desk.

(The document referred to is as follows:)

Volume XXX

As

H

The Real Estate

ANALYST

I see

40-YEAR, NO-DOWNPAYMENT LOANS

MARCH 17 1961

Number 10

OW safe would a 40-year, no-downpayment loan be on a $13,500 residence? The recommendation of the administration for 40-year loans of this type has brought requests to us for some charts on the subject. If we assume that replacement costs will hold at their present level, the $13,500 house would not be worth on the market the amount still owed on the mortgage until after the twentieth year. This is shown by the insert chart on page 113. The blue curve on this chart shows the amount still owed on the mortgage in any year from the time the mortgage is made until it is paid off entirely at the end of 40 years.

The red line on the chart shows the average value of a $13,500 house of any age from one year old to 40 years old. This line is based on column (5) in the table on page 112, which shows the depreciated value in dollars of present purchasing power for a $13,500 house for each year for the next 40 years. The figures for all years in this column in which the depreciated value is below the amount outstanding on the mortgage are shown in red. The figures in this column are based on a study of thousands of appraisals in our files, which appeared on page 56 in a study in The Real Estate Analyst published February 11, 1955. This line includes not only the building but the lot, sidewalks, driveways, planting, etc. The pink shaded area on this chart shows the period in which the property would not be worth the amount still owed against it.

In most areas at the present time the standard sales commission is 6 percent. Six percent of $13,500 amounts to $810. During the initial period of this mortgage it pays off so slowly that it would take 7 years and 1 month to pay off an amount on the mortgage equivalent to the sales commission. is shown by the figures in column (3) in the table.

This

The

The large chart on page 113 shows this transaction in another light. blue portion of the chart at the bottom represents the total amount paid off on the loan, and if it be assumed that depreciation does not exist, this would represent the amount of equity being built up. The upper line on the chart, shown in red, shows the total amount paid at the end of any given year in interest and principal payments. The pink area below this line represents the cumulative interest paid at the end of each year, which at the end of 40 years amounts to approximately $19,883. This interest alone amounts to approximately 47 percent more than the purchase price of the house.

(cont. on page 114)

by ROY WENZLICK RESEARCH CORP., 1961