not to subsidized housing for a few. A 3 percent per year inflation will currently erode the purchasing power of the income of the elderly by about $635 million per year. Loans of $50 million to corporations will not solve a $635 million problem of the elderly.

Both the public and private aspects of the problems of the elderly involve two factors health and finances. The advance of senility-like all debility at whatever age calls for special care which is related not only to housing, but to food and clothing and to the many other matters involved in individual well-being. Inadequate income of the elderly, and of persons of all ages, is not a housing problem but a general welfare problem.

For these reasons the national chamber urges that this proposal for direct Government loans to corporations buildings units to rent to the elderly, be rejected.

Loans to corporations and agencies to build housing to rent or sell to moderateincome families (H.R. 6028, title I)

Title I of H.R. 6028 would provide for a new program of central government direct mortgage loans with 40-year maturities, requiring no downpayments, and made at nonmarket interest rates, for rental and cooperative housing for moderate-income families.

Congress should encourage the functioning of competitive enterprise housing and finance markets by making no additional authorizations for housing units under the low-rent public housing program and refraining from establishing other programs which would provide for National Government participation in the ownership, operation or financing of public nonwelfare housing.

This legislative proposal, to provide differential treatment to a few in the population at the expense of the many, should be rejected.

On the surface, this proposal seems to be directed toward providing housing for the moderate-income group in the population, but actually it could provide housing for only a limited number of families in this vast group. If all of the additional FNMA special assistance direct loan authorization requested in H.R. 6028 were used solely to implement this program, about 75,000 rental or cooperative units could be constructed and added costs would be levied on the 13 million other families who rent and on the additional millions of families who own their homes.

Further, this proposal would do nothing to speed the utilization of new fruits of housing research or to facilitate the smooth functioning of housing markets, both vital to making better housing available to all.

Finally, the term "moderate income" implies a population group above the lowrent public housing level, while the program proposed sets up housing value limits below those employed in the public housing program.

In this connection, it is particularly fitting to explore the relationship between moderate-income families and those families occupying public housing. Facts on family incomes in the United States lead to some startling conclusions. For example, the Census Bureau's January 1961, published data on 1959 family incomes show that (assuming 1960 incomes to approximate those of 1959) about 10 percent of all four-person families in the Nation could qualify, on the basis on income, for continued occupancy of public housing in any project in the United States-and about 49 percent of all four-person families in the country could qualify, on the basis of income, for continued occupancy in some public housing in the United States.

These considerations lead to the conclusion that this bill, if enacted, would not promote the best interests of all American families, but would on the contrary, work to benefit only a relatively small group who (conceivably because of residence in or proximity to big city areas where organizations are already established or could soon be set up) would be best prepared to take speedy advantage of such legislation.

The national chamber, for the reasons cited above, recommends that this proposal to provide loans to corporations and agencies to build rental and sales housing be rejected.

Direct Government purchase of mortgages through FNMA special assistance functions (H.R. 6028, title IV)

Title IV of H.R. 6028 provides for authorizations for additional direct Government purchases, through FNMA special assistance functions of $750 million of mortgages.

Congress should encourage the functioning of competitive enterprise housing and finance markets by providing no further authorization for Federal National Mortgage Association special assistance functions.

FNMA special assistance would generate more governmental-induced rigidity which tends to impair the efficient functioning of competitive enterprise housing and finance markets.

FNMA special assistance functions have resulted in a host of direct lending operations which reach into many sectors of housing markets, including housing in urban renewal areas, housing for the elderly, housing in Alaska, Guam, and disaster areas, armed services housing, cooperative housing, and low-income housing.

In each case, specific amounts of funds, supported by public debt transactions, and beyond the annual review process of congressional appropriations committees, are set aside for mortgage purchases at nonmarket rates. This is, in substance, an arbitrary, nonmarket rationing process resulting in differential benefits to those projects or persons whose mortgages are taken up within the limits of the program and differential disada vntages to those who are not.

Further, these special assistance operations can, in some cases, put the Federal Government in the strange position of moving, at one time, in opposite directions in the mortgage market. This anomaly, of course, occurs when FNMA buys certain mortgage paper under its special assistance functions while, during the same time period, it sells the same types of mortgage paper under its secondary market operations.

For these reasons the national chamber recommends that this proposal for additional direct Government purchase of mortgages be rejected. We recommend that the National Government should encourage private institutions to develop facilities for secondary markets for mortgages, should enact measures to otherwise facilitate the flow of savings into private investment, and should restrict its own operations in this field so that they wil not, under any circumstances, become in effect direct lending operations. Such direct lending places the National Government in competition with private sources of funds, disrupt the functioning of capital markets and tends to impair the competitive efficiency of the homebuilding industry.

Governmental purchases of housing obligations of colleges and hospitals (H.R. 5300)

This bill would authorize additional funds in the amount of $1.35 billion over 5-plus years for direct Government purchases of college housing and hospital housing obligations. Further, this bill would (among other provisions) substitute a 121⁄2 percent limitation in place of an existing 10 percent limitation on the amount of funds which could be used to purchase obligations of institutions within any one State.

The program, generally termed the college housing loan program, with which this bill deals is one in which funds borrowed by the Treasury from the public (public debt transactions) are used to purchase institutional housing obligations at less than market rates of interest.

Consequently, this program constitutes a system of rationing subsidy funds (in the amount of the difference between the administered interest rate and the market interest rate) to institutions by means of direct government purchase of obligations. Further, this direct purchase method generates additional costs and subsidies since the operation of the program entails approval of applications, determinations of eligibility and feasibility of projects, agency reviews and portfolio management.

This nonmarket lending operation places the Federal Government in direct competition with private sources of funds, results in the unjustified increase in the size of the Federal Government, contributes to the imbalance of the budget, and furthers a program which is not subject to annual review by the Congress. The proposal that loans made to institutions in one State could aggregate 122 percent of all available funds (rather than the 10 percent in current law) points up the rationing aspects inherent in nonmarket financial operations of this type. Although at the present time it appears that institutions in but one State, New York, would benefit from this proposal, it is certainly to be anticipated that institutions in other States could be benefitted by changes in other passages

of law or changes in regulations. Typically, the multitude of statutory requirements and administrative regulations that are set up to administer such rationing programs (in effect, to simulate some hypothetical market) come under increasingly heavy pressure for change as the growth of the program brings in more and more cases which, although tractable in terms of established markets, are almost intractable in terms of rigid Government rationing programs.

For these reasons, the national chamber recommends that the college housing loan program expansion proposed in H.R. 5300 be rejected.

MEASURES TO FACILITATE THE FUNCTIONING OF HOUSING MARKETS

Mortgage insurance for individually owned units in multifamily structures— (H.R. 6028, title III)

Title III of H.R. 6028 provides (among other matters) for FHA insurance coverage of mortgages on individually owned housing units in multifamily structures.

Congress should encourage private ownership of (with title in fee to) singlefamily residential units in multifamily housing structures.

In recent years, the proportion of middle-income families living in central cities has decreased and the proportion in suburban areas has increased.

To some extent this flight to the suburbs by middle-income families has taken place because opportunities to purchase residential units in cities (where high land values dictate multiunit structures or other structures economizing on land use) have largely been limited to purchases in cooperative housing projects. Such purchases give the buyer a share in a project (plus a share of project problems) rather than title to a home.

That mortgage insurance on cooperative housing is not solving central city housing problems is apparent from review of FHA statistics. For example, it is estimated that by the close of fiscal 1961, 26,300 homes in 632 cooperative projects will be covered by FHA insurance. This is small indeed, both in terms of the continuing migration to urban centers and terms of the anticipated 2,808,077 insurance contracts in force (1961 estimate) under the FHA section 203 1- to 4-family unit program.

A new approach will help solve urban housing problems. If the additional choice (ownership of a single-family residential unit in a multifamily structure) is made available to prospective home purchasers, increased numbers of desirable middle-income families might take up residence in central cities.

For these reasons, the national chamber recommends that this proposal to provide FHA insurance coverage of mortgages on individually owned housing units in multifamily structures be adopted.

Federal Housing Administration mortgage insurance authorization (H.R. 6028, title IV)

Title IV of H.R. 6028 would provide (among other matters) that the general authorization for the FHA to insure mortgages on various types of dwellings, and bearing interest at not to exceed 6 percent be extended to October 1, 1965, and that the dollar limitation on such authorization be removed. The FHA title I property improvement loan program would be continued for 2 years.

Congress should enact legislation to remove ceilings on interest rates on FHAinsured mortgages.

The 6 percent mortgage interest rate limit should be deleted from law in the interest of bringing greater stability to housing markets and in the interest of a home-buying public.

The statutory interest rate limit on FHA insured mortgages (like that of VA guaranteed mortgages) has been a major force toward instability in housing markets. Frequently, statutory limits on interest rates prevent FHA and VA mortgages from competing successfully for savings when rates on conventional mortgages and yields on other alternate investments move upward.

69408-61-51

The substantial fluctuations in FHA and VA market sectors are shown by the following data on dollar amounts of mortgage recordings under $20,000 for the years 1946 to 1959:

Dollar amount (in millions) of nonfarm mortgage recordings of $20,000 or less

This table shows the substantial fluctuations of the FHA and VA market sectors-which were subject to statutory interest rate limitations-in contrast to the stable and strong growth of the conventional mortgage sector. During the years shown in the table the dollar amount of FHA mortgage recordings (of $20,000 or less) increased over the preceding year on nine occasions and decreased on four occasions. The dollar amounts of VA recordings increased on seven occasions and decreased on six occasions. In contrast, conventional mortgage rates increased on 11 occasions and decreased on but 2.

Eliminating the Government-induced rigidity-the statutory interest rate limitation-would work to smooth the flow of savings into mortgage investment and would, therefore, temper fluctuations in homebuilding and home construction employment.

Many prospective home buyers, too, would benefit if the statutory interest rate limitation were removed. At times when market rates are above the statutory limit, many prospective home buyers believe, erroneously, that the statutory limit is an indication of the full borrowing costs-unaware that the difference between the limit and the market rate will be reflected in the terms of the transaction. Although premiums and discounts will, to some degree, doubtless continue to exist (in order to equate market conditions in different geographic regions, to compensate for variations in mortgage servicing costs and to reflect other factors) there can be no justification for continuation of the statutory interest rate limitation. The fixed interest rate can result in deliberate manipulation of home construction and employment, of savings patterns of millions of individuals, and of the market beliefs of prospective home buyers.

Mortgage interest rates should reflect the market.

The National Government should adopt a policy of flexible interest rates for FHA-insured and VA-guaranteed mortgages in order to assure the regular availability of adequate investment funds to finance needed housing and in order to give prospective home buyers clear information on borrowing costs. Mortgage insurance for major improvement and rehabilitation of existing housing (H.R. 6028, title II)

Under the provisions of title II, H.R. 6028, the Federal Housing Administration would be given the authority to insure, in the case of home improvements, second mortgages or other junior liens in amounts up to $10,000, for terms of up to 25 years, and at interest rates of up to 6 percent. Further, insurance claims could be paid in cash, and FNMA special assistance funds would be authorized in the case of renewal area housing.

Large numbers of homes have been added to the housing inventory of the Nation during recent decades. An overwhelming majority of this housing is of basically sound structure and is located in good neighborhoods. Prudent use of our resources dictates that such housing should be improved and preserved in order that the greatest betterment of living standards may accrue to all. This proposed expansion of the FHA authority to insure home improvement loans will, if enacted, facilitate the functioning of home improvement and rehabilitation markets. On the other hand. the full contribution of market mechanisms to improved living standards will be denied to some if rigidities (such as

the proposed 6 percent interest rate limitation and the proposed direct Government financing through FNMA) are introduced into the program.

For these reasons the national chamber recommends approval of the proposal for a program of mortgage insurance for major improvement and rehabilitation of existing housing and further recommends the elimination of those portions (interest rate limitation and direct lending) of the proposal which would impede optimum progress toward housing improvement.

CENTRAL GOVERNMENT INTERVENTION IN THE DEVELOPMENT OF LOCAL COMMUNITY FACILITIES

Direct National Government loans to local governmental agencies for the construction of public facilities (H.R. 6028, title VII)

Title VII of H.R. 6028 would authorize an additional $50 million in direct loans to local governmental agencies for the construction of public facilities. Congress should encourage local governmental responsibility for community development by making no additional funds available under public facilities loan programs, and by providing for the reduction of the Federal portfolio of public facilities loans.

Federal intervention in the planning and execution of local community facilities projects weakens local governments. Federal public facilities loans programs involve Government intervention in lending, use of administratively determined interest rates and public debt transactions which interfere with the normal operation of capital markets. Inflationary pressures are generated by such Central Government intervention.

Federal public facilities loans programs, which operate through revolving funds, tend to weaken congressional and public control of Federal spending.

For these reasons, the national chamber recommends that the proposed legislative measure be rejected.

Central Government grants and loans to localities for acquisition of open land (H.R. 6423)

H.R. 6423 would, if enacted, set up a $200 million program of Federal grants and loans to localities to acquire title to, or interest in, open land. Grants would be in the amount of 30 percent of total land costs, in the case of a regional agency, and 20 percent of total costs, in the case of an agency having a less than regional scope of operation.

Carefully planned acquisition of land for future public use could potentially alleviate many community growth problems.

Local governments should be encouraged to develop realistic appraisals for the potential growth and change of their areas and to take measures to be prepared to meet public needs as they arise. Further, local governments should be encouraged to prepare flexible plans to meet future needs and to shun rigid programs which would commit the Government to holdings which might not be warranted when growth patterns (which are notoriously unpredictable) fail to conform to planners' preconceptions.

The provisions of H.R. 6423 would create inflexibilities which would hamper optimum community development. Further, H.R. 6423 might well set up a system of incentives which would result in unwise investment of local public funds and in unwarranted profits to some speculators and landholders. For example, H.R. 6423 would require prior Federal approval, by the Housing and Home Finance Administrator, before land purchased under the provisions of this act could be converted to other uses. In practice, this could mean that, in perpetuity, the Federal Government could control a substantial share of the public land development of local governments. Again, H.R. 6423, a money-rationing measure, could set up incentives for rapid purchase of land which well might be made at peak prices whereas delays, potentially to times when subsidy funds might be unavailable, might result in occasions when land could be acquired at considerably less than peak prices.

Two other potential price consequences of this program: First, injecting large amounts of new purchase money into the land market would, in all likelihood, result in a further rise in land prices. Second, acquisition of public open land would result in rapid changes in prices of tracts adjoining the public acquisition. Because of the considerations mentioned above, the national chamber recommends that the proposals contained in H.R. 6423 be rejected and that further