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 of 1 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, ROBERT C. WEAVER, Administrator. STATEMENT OF U.S. SAVINGS & LOAN LEAGUE This statement is filed in behalf of the U.S. Savings and Loan League, a nationwide trade association whose 4,800 member savings and loan associations represent 95 percent of the total savings and loan business in the country. The U.S. Savings and Loan League recognizes that urban renewal is admittedly one of the most difficult and important problems facing the Nation and our housing programs. For this reason, the U.S. League has set up an urbanrenewal department. The U.S. League further feels that savings and loan associations, which finance the major share of all housing, cannot overlook the need and necessity for participating in urban-renewal financing. The revitalization of our cities and slum areas is both necessary and desirable from the standpoint of maintaining a healthy economy and present real estate values, and is further necessary to improve the housing needs of American citizens. C. Elwood Knapp, president of the U.S. Savings and Loan League, has, in many speeches throughout the country, indicated his interest and the interest of the U.S. League in encouraging savings and loan associations to participate in slum-clearance and urban-renewal programs. For these reasons, the U.S. League endorses the principle of H.R. 5126 introduced by Representative Rains. Since this bill was introduced, the League has continued to study the problem with congressional staff personnel, Government agencies, and other private interested groups. We feel that there are desirable changes that should be made in the original bill. For example, under H.R. 5126, it was theoretically possible for savings and loan associations to own and develop the urban-renewal project. While this may be desirable, it was not intended that savings and loan associations would own and sponsor such projects, and for this reason, we are suggesting an amended draft which would eliminate this theoretical possibility. In addition, there are safeguards which are spelled out in our amended version of the bill which were not included in the original draft, such as clearer authority for the Federal Home Loan Bank Board to issue rules and regulations governing the investment trusts and a clear requirement that the Federal Home Loan Bank Board must approve such trusts. There follows an amended version of the bill, along with an explanatory comment: "A BILL To amend the Home Owners' Loan Act of 1933, as amended, to broaden the investment powers of Federal savings and loan associations to include the specific power to invest in certificates of beneficial interest issued by Urban Renewal Investment Trusts “Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Federal Savings and Loan Association Urban Renewal Act of 1961". SEC. 2. Section 5(c) of the Home Owners' Loan Act of 1933 is amended by adding at the end thereof the following new paragraph: "Without regard to any other provision of this subsection, any such association is authorized to invest not more than 5 per centum of its assets in certificates of beneficial interest issued by any urban renewal investment trust. For the purposes of this subsection the term "urban renewal investment trust" means an unincorporated trust established by written agreement between the authorized officers of two or more savings institutions the savings or share accounts of which are insured by an agency of the Federal Government, which agreement— "(1) expressly limits the purposes of the trust and the investment powers of the trustees to the elimination or prevention of the spread of slums and blighted or deteriorated or deteriorating areas and the redevelopment, renewal, rehabilitation, or conservation of such areas by private enterprise through financing the purchase or rehabilitation of real property, or the construction of improvements thereon, designed or usable for industrial, commercial, or housing purposes within the confines of an urban renewal area (as defined in section 110 of the Housing Act of 1949); 66 4 '(2) expressly limits the beneficial ownership of the trust to savings and loan associations or banks the savings or share accounts of which are insured by an agency of the Federal Government; "(3) provides that such beneficial ownership be evidenced by certificates of beneficial interest, which certificates shall have first claim at all times on the assets of the trust without preference between the holders thereof, and shall be fully transferable and assignable between any such banks and savings and loan associations at all times; and “(4) expressly provides that it shall be effective and binding between the parties thereto only upon being approved by the board. "Any association chartered under the provisions of this section may become a party to any urban renewal investment trust. The Federal Home Loan Bank Board shall prescribe such rules and regulations, not inconsistent with the provisions of this paragraph, as it may deem necessary for the proper establishment of urban renewal investment trusts, for the effective operation thereof, and the participation in such operations of eligible institutions either as parties, as trustees, or as the holders of certificates of beneficial interest.'" EXPLANATORY COMMENT This bill would enable Federal savings and loan associations to supply substantial assistance toward financing the rebuilding of urban-renewal areas. The tested and flexible device of an unincorporated trust arrangement is authorized for the purpose. The trust would issue certificates of beneficial interest having a face value equal to the amount of the investment of the individual participants. To be eligible a beneficiary must be a savings institution or bank the savings or share accounts of which are insured by a Federal agency. The bill contemplates that two or more savings institutions would set up a trust arrangement for their mutual benefit. This agreement would authorize designated individuals, presumably certain of the named trustees or officers of some or all of the participating institutions, to commit the trust to make, or to make, loans on property within selected urban-renewal areas. Such investments would be limited to loans for the purchase or rehabilitation of real property, or the construction of improvements thereon, for either industrial, commercial, or housing purposes. Consistent with the terms of the particular trust, participants would advance funds to cover their agreed or assigned shares in each successive loan made by the trust. Each participant would share in like ratio in the risk and returns from the operations of the trust. A group of savings and loan associations could thus be enabled to invest indirectly in financing urban-renewal developments in projects or in areas with respect to which they have no such detailed acquaintance as would make it advisable for them to invest directly. The group would also be enabled by this proposed legislation to undertake together a project which they could not undertake alone. Diversification of risk would also be an attractive inducement to investment by individual associations in these urban-renewal trusts. The terms of the bill are flexible enough to permit institutions that are eligible as beneficiaries to buy or sell the participation certificates which are initially issued to the primary participants in the individual trust agreement. The imposition of any necessary safeguards is assured by the requirement that the Federal Home Loan Bank Board shall approve the terms of each urban renewal investment trust agreement. The Board is also expressly to supplement the provisions of the bill by any necessary rules and regulations. The overall limit to 5 percent of the assets of any individual Federal association is itself quite restrictive. State law may have to be enacted in some instances to enable State chartered institutions to invest in the certificates of these trusts, or to join as participants in the trust agreements the bill would authorize for federally chartered associations. The U.S. Savings and Loan League also endorses and recommends passage of H.R. 5125 introduced by Representative Rains. This bill would aid savings and loans to finance housing specifically designed for aging citizens. Congress has recognized that a special problem exists in financing homes for this special group of citizens, and the U.S. League feels that it is proper and necessary that savings and loan associations contribute to a solution. The bill has built-in safeguards and limitations concerning the amount of such loans and the overall amount a savings and loan association could invest in such loans. The bill would declare the intent of Congress that a part of the resources available for conventional loans should be encouraged to make loans for the construction or purchase of special-type accommodations for the Nation's elderly or aging citizens. It specifically mentions, in addition to regular family living type accommodations designed for aging persons, rest homes or nursing homes for those to whose changing needs or abilities a more normal type of living accommodation is no longer suitable. The basic restrictions on the lending powers of Federal savings and loan associations are expressly carried along into this new category of financing-the location of the property must be within 50 miles of the home office of the lender, and the loan must be secured on a first lien basis. The bill would allow an individual association to invest up to 5 percent of its assets in loans on this type of living accommodations for the aging. This extends the present 20 percent of assets limitation of section 5(c) of the statute by adding a new category of loans for the specified purposes outside of the $35,000 per loan limitation and the requirement that the security be a "home." The bill subjects this new category to two new limits; viz, these loans may be made up to 90 percent of value and up to 30-year maturities. These limits are in fact more liberal than any lending so far authorized for Federal associations under existing regulations, but are thought to be minimal if housing for the aging is to be given any substantial support by conventional lending sources. One of the major sources for the sale of new residential housing is the number of families who are upgrading their present housing accommodations. Their ability to take such a step is usually dependent on their ability to trade in their equity in the lesser house they own. The chief problem in that regard has been the lack of financing available to bridge the period between the purchase of the new house and the successful sale of the older unit to a homebuyer. For these reasons, the U.S. Savings and Loan League endorses and recommends passage of H.R. 5124. This bill would enlist a part of the resources and know-how of the sources of conventional home financing to aid in overcoming this problem. It would permit each Federal savings and loan association to invest up to 5 percent of its assets in loans of this type, subject to the restrictions that no such loan may exceed $35,000 or may be placed on a home outside the association's regular 50-mile lending radius. On the liberalizing side, it will permit these loans on trade-in housing to be made for up to 18 months on a nonamortized basis, and up to an 80-percent ratio of loan to value. The bill also expressly allows these loans to be made on the security of certificates of beneficial ownership in a trust which owns or has the equivalent of a first lien interest in the traded-in property. This provision is purposed to save part of the succession costs and complications otherwise attendant upon the transfer of housing from owner to new owner. Hon. ALBERT RAINS, NATIONAL RETAIL LUMBER DEALERS ASSOCIATION, Housing Subcommittee, House Banking and Currency Committee, New House Office Building, Washington, D.C. DEAR SIR: Enclosed is a statement on behalf of the National Retail Lumber Dealers Association on H.R. 6028. It would be appreciated if you would have the enclosed statement inserted in the record of bearings on the housing bill. Yours very truly, JOHN H. ELSE, Counsel. STATEMENT ON BEHALF OF NATIONAL RETAIL LUMBER DEALERS ASSOCIATION Mr. Chairman and members of the subcommittee, my name is John H. Else and I am legislative counsel for the National Retail Lumber Dealers Association. Lumber and building material dealers are, of course, interested in seeing a high level of construction and the upgrading of older homes in all areas of the country. There are a number of bills and proposed amendments pending before the subcommittee affecting the financing of homes and urban renewal programs. The following comments are limited to certain provisions of the administration's housing bill H.R. 6028. Some of the provisions of H.R. 6028 would initiate new programs. Others would continue and expand existing programs. ADDITIONAL INSURANCE AUTHORITY OF FHA The administration is to be commended for proposing the removal of the dollar limitation on the general insurance authorization of FHA. However, the bill extends the insuring authority only until 1965. We suggest that no time limitation be placed on this authority of FHA. We also recommend that the committee consider the removal of the interest ceiling on FHA and VA loans to permit them to follow the fluctuations of the market. PROPERTY IMPROVEMENT LOANS The bill continues the title I property improvement loan insurance program of FHA for a period of 2 years only. We heartily endorse the continuation of the excellent program. We regret, however, that the bill does not provide for making this program permanent. This program has proven its value and is self supporting at no cost to the Government. We also recommend that the maximum limitation of $3,500 and the term of the loan be increased to permit larger and longer term loans for home improvements, under title I. The bill would establish a new FHA program for insuring loans for home improvements up to $10,000 and up to a maximum term of 25 years. There is a definite need for a program to finance major home improvements which are too costly to be financed under the title I FHA program and similar programs of private lending institutions. The committee may wish to place certain requirements in the law relating to the security for this type of loan to make certain that the program will not be abused. We question the advisability of providing that upon default of these homeimprovement loans in urban renewal areas, the lending institution would be paid in cash instead of debentures. This provision is found in other sections of the bill also. Although under the terms of the bill this is within the discretion of the FHA Commissioner we believe that the Government should be protected in this bill against heavy losses which might occur in a depression by payment in any manner other than by debentures. FHA PROGRAM FOR MODERATE-INCOME FAMILIES The bill would broaden the present FHA program for displaced persons to include homes for families of moderate incomes who do not qualify as displaced families. These loans would, within limits, be for a term of 40 years with no downpayment and would be limited to $9,000 for single-family dwellings ($15,000 in high-cost areas). We are opposed to this proposal. With practically no equity in the house for nearly two decades after purchase, there is little incentive for the occupant to properly maintain the property. Such a purchase is little more than a rental of the property, with FHA carrying the risk. Furthermore it is conceivable that the term of the loan would extend beyond the life of the property or the life of the mortgagor or both. To provide for a 40-year loan would, of course, reduce the monthly payments slightly, but would add considerably to the cost of financing the home. We do not believe such a program would be in the best interest of those for whom it is intended. MIDDLE-INCOME RENTAL HOUSING Title I of the bill would also create a new middle-income rental program by expanding the present section 221 permitting long-term, low-interest rate, 100percent loans for rental and cooperative housing projects with five or more units. The interest rate would be approximately 3.5 percent based on the average yield of outstanding marketable obligations of the Treasury. The loans would be financed by FNMA and processed and insured by FHA. We urge the subcommittee to reject this proposal as being unsound and nothing more than a direct loan from the Government. To provide such loans at an uneconomic rate of interest would jeopardize the soundness of FNMA and would result in FNMA holding these mortgages which could not be sold on the market. DIRECT LOANS FOR HOUSING FOR THE ELDERLY The provisions of the bill providing for expansion of the direct Government loans for housing for the elderly is, in our opinion, unwarranted and unwise and should be rejected at least until an investigation or study can be conducted to determine the need for such an expanded program and a determination that private industry is not adequately meeting this need. CONDOMINIUM HOUSING A provision of the bill provides for a new program to authorize FHA to insure mortgages on a family unit in a multifamily structure. This proposal appears to have considerable merit and deserves careful consideration by the subcommittee. PUBLIC HOUSING H.R. 6028 would authorize an additional 100,000 units of public housing, would provide for an experimental program of public housing, and would give local housing agencies greater discretion in the management and occupancy of such units. We have consistently opposed public housing and we renew our opposition to any additional authorization, and the other provisions mentioned. URBAN RENEWAL The bill would increase the obligational authority for urban renewal grants from $2 billion to $4.5 billion, an increase of $2.5 billion. This increase, according to the proponents of the bill, would permit the maintenance, over a period of approximately 4 years, of a reasonable level of program activity. More consideration should be given to reducing the Federal contributions and responsibility in the urban renewal program and placing more responsibility on the localities benefitting from slum clearance and urban renewal. To provide for a long-term program of Federal activity in this area is a step in the wrong direction and one which will place the Federal Government further into the affairs of local communities. Testimony of a mayor of one of our larger cities has criticized the bill because it does not go far enough. He proposes that the Federal contribution should be 80 percent of the cost. This points up the fact that many cities will not be satisfied until the Federal Government bears the entire cost of urban renewal and other costs which should be borne by the cities. PLANNING GRANTS Section 608 would increase the Federal share of costs of community planning from one-half to two-thirds and increase the authorization from $20 million to $100 million. This proposal should be rejected for the reasons stated above. If the committee votes to continue this program then it should materially reduce the authorization requested in the bill, which we believe to be excessive. As long as the Federal Government is willing to share this cost, few metropolitan areas are going to reject the Federal contribution and defray this cost by themselves. |