VOLUNTARY HOME MORTGAGE CREDIT PROGRAM The voluntary home mortgage credit program has provided a source of funds from private lending institutions for home mortgages in areas where there has been a shortage of funds for FHA or VA mortgages. This program expires this year unless extended. We urge this committee to amend H.R. 6028 extending this program. One serious concern we have concerning the pending bill is that it follows a trend toward the use of the Federal Housing Administration as a vehicle to promote certain "welfare" programs which, when accompanied by increased funds for the purchase by FNMA of special assistance mortgages, amounts, for all practical purposes, to direct lending by the government. We do not subscribe to the idea of disguising direct loan programs by placing them under FHA. The section 203 mortgage insurance program of FHA has proven to be sound and nothing should be done to jeopardize the soundness of this excellent program which has not only paid its own way but has built up a sizable reserve for future contingencies. NATIONAL LEAGUE OF INSURED SAVINGS ASSOCIATIONS, Hon. ALBERT RAINS, DEAR MR. CHAIRMAN: Attached hereto is a statement of our position relative to certain of the proposals in the Housing Act of 1961. We shall appreciate your incorporating this statement in the hearing record. We regret that it was not possible for Mr. Wellman to testify personally before your committee. With kind regards, I am, BRYCE CURRY, General Counsel. STATEMENT BY CHARLES A. WELLMAN, CHAIRMAN, FEDERAL LEGISLATION COMMITTEE, NATIONAL LEAGUE OF INSURED SAVINGS ASSOCIATIONS Housing policy, whether in the form of statute, administrative regulation, or executive action must be governed by the climate and the prevailing conditions in the housing market at the time such determinations are made. There is no question the character and nature of our Nation's housing problems have undergone significant changes in the past years. The most crucial of these major changes are: 1. The private housing sector is extremely unlikely to respond favorably during the next 4 years to reductions in interest rates and downpayments, or a lengthening of the term of repayment or some combination, on the scale experienced in the postwar years. There is a large complex of facts behind this shift. Primarily these are: (a) The price level for housing has risen faster than either the general price level or the level of personal income. Also, American families are today committing a smaller portion of their annual income on housing expenditures than in the past. (b) The present age distribution of the population has a dampening effect on the rate of increase in family formation and will continue to have until the second half of the sixties. (c) The large number of private residential units produced in the postwar years. (d) The fact that 62 percent of all American families now own their homes. (e) A rising level of vacancies and the fact private housing construction in the current recession is displaying considerably less sensitivity to easier conditions in the capital markets. 2. This first change means an equally enormous change in the strategy of the Federal Government in the current recession. In each recession in the postwar period, private residential expenditures furnished critical leadership in the recovery phase of the cycle. If there is, however, no longer a backlog of effective demand for new private housing at present prices and income levels, comparable in scale and size to that of previous years, the private housing sector will not make the same contribution to recovery as it did in the past. This is no claim there is not a strong and sound demand for new private housing nor a claim that fluctuations in the volume of private residential construction, particularly in response to a general easing in credit, have been erased. Fluctuations will always be with us. This, however, is a contention that until the so-called war baby population progresses to the status of newly formed family households, the potency of private residential construction as an anticyclical device will be markedly less. The importance in the past of demand back logged because of a lack in available long-term credit can be seen in the following figures: In 1955, after the 1953-54 recession, housing starts reached 1,329,000, dropped to 1,118,000 in 1956, and continued to drop to a low of 1,042,000 units in 1957. Then in the recession of 1957-58, housing starts rose to 1,209,000 in 1958 and then to 1,379,000 in 1959. In addition to the general market change, the above data is of special importance in that it underscores the fact the recession of 1960-61 is coming on the heels of a large volume, not a curtailed volume of residential construction, as occurred in 1954 and 1958. Despite these important and significant changes in our current housing problems, however, it is still clear that a dismally high proportion of our existing housing stock is still markedly substandard and that certain definable segments of our society are especially disadvantaged in their current housing accommodations. In terms of policy, I think it can be concluded, therefore, that the easy phase of Federal housing policy has come to an end, the cream has been taken from the top of the bottle, the day is over when differences between liberals and conservatives over housing policy can be defined solely in terms of the size of Federal appropriations. In housing, as in many other areas of our national life, the time is now for all to be both perceptive of our problems and inventive in our answers. In the main, I believe that the proposed housing legislation before this comrittee is totally consistent with and fully cognizant of the foregoing analysis of current conditions in the housing market, that its main emphasis is to marginal areas in the housing market which have to date proved stubbornly unresponsive to mere liberalization of credit. The bill makes two new programs aimed at those economically disadvantaged families for whom the market has not afforded appropriate housing accommodations. The principal underlying instrument for these programs is a major expansion in section 221 of the National Housing Act. These new programs based on an expansion of section 221 are: (1) Forty-year, no-downpayment housing to serve moderate income families as well as displaced families under its current provisions; (2) A program of low interest rate, FHA-insured loans for non-profit rental and cooperative housing for families of lower income contained in section (d) (3) of a revised section 221. The 40-year, no-downpayment program would be expanded in that the statutory limitations on the mortgage amounts would be increased, as well as an expansion of the eligibility of borrowers. Moreover, there would be substantial changes in the present statutory limits on rental housing for profit. These programs, in our opinion, raise two fundamental questions, namely: (1) Are they an appropriate type of transaction for a mortgage insurance operation? and (2) Is the special assistance program of the Federal National Mortgage Association a proper mechanism for making funds available to finance such programs? It is our considered opinion that both issues should be answered in the negative. FHA mortgage insurance programs were principally and properly designed to encourage private lenders to extend private funds to creditworthy private borrowers including private cooperatives. The moment a mortgage insurance program is created specifically to meet the pressing need of an especially economically disadvantaged group, the objectives of the mortgage insurance program are frustrated. True a clear distinction must be made between mortgage insurance programs designed to overcome the innate conservatism of private lenders to attempt the novel and mortgage insurance programs possessed of builtin subsidies conceived in a laudable spirit of equity and public welfare, yet when a mortgage insurance program is created for the latter purpose, it becomes inescapably necessary, as this bill recognizes. to provide for another Government agency, namely, FNMA, to purchase such mortgages insured by the FHA utilizing Federal funds to effect such a pur 69408-61- 55 chase. In our opinion, this is an unnecessary and circuitous device to achieve what may well be an entirely legitimate function of Government. Such a device often conceals the real impact on the Federal budget and frequently prevents that control over expenditures which all responsible governments should rigidly maintain. It is proper and fitting for Government to openly and directly assume certain financial burdens associated with certain socially and economically disadvantaged groups; but this burden should not be concealed under the involved process of so-called insurance and indirect primary Government purchase of such loans. We believe that if such financing aids are needed, the Government should engage in a direct program to fulfill that need and not distort the concept of insurance of risk, not conceal the size and impact of Federal expenditure by the indirect route of insurance against risk and FNMA purchases with Federal funds. We favor the principle of the direct VA loan program openly employed for those groups whose housing needs are clear, rather than to distort both the functions of FHA and FNMA. This distinction is not merely academic, for we believe that Federal housing programs must be aimed at specific substantial and distinguishable areas of need. These areas in our opinion are: (1) The private housing sector which currently comprises the vast bulk of residential housing expenditure which must be primarily market oriented and which is served by FHA, VA, the secondary market operations of FNMA, and the Federal Home Loan Bank System; (2) The welfare housing sector, an area of great need and past neglect which must be primarily oriented to the needs of the recipient, and for which need special clear, cleancut Government programs must be developed; and (3) The metropolitan sector which encompasses the enormous range of problems arising from the growth of metropolitan areas in our society and which must be oriented to local governments in a spirit of aid and cooperation. Each of these sectors has specific and economic characteristics and both the programs and the governmental structure administering such programs must be clear. There are two other aspects of the proposed housing bill on which we would like to make comment. One is the proposed program contained in title II, namely, home improvement and rehabilitation, and, two, the supplemental housing mortgage insurance program, contained in section 301 of title III. In principle we are in favor of the provision of section 202 of title II of the bill respecting home improvement loans outside of urban renewal areas, and certainly favor the denial of FNMA special assistance for such programs. We recognize that preservation and modernization of our existing housing stock must be a major objective of Federal housing programs. It is obvious, deterioration of that existing stock is and has been proceeding at a much greater rate than any urban renewal program, whatever its fiscal dimensions, can match. However we recognize that the existing title I property improvement program confined to small amounts has been primarily oriented to the single-family suburban home. A successful insurance program in major private housing rehabilitation outside urban renewal areas can well minimize the enormous burden of delayed urban renewal. Our principal concerns with the program are three: 1. The maximum range of permissible maturity, namely 25 years. 2. The maximum amount permitted, namely, $10,000 per family unit or the estimated cost of the improvement, whichever is the smaller, and 3. Fixing an interest rate ceiling at not in excess of 6 percent. This program is frankly experimental. What is sought is the development of a credit instrument which will serve an area of need not now fully covered but which will be acceptable to both private lenders and creditworthy private borrowers. If the program is established on too broad and too liberal a base initially, we can well thwart our objectives. We would prefer to see the terms shortened to, say, 10 or 15 years, the amounts limited to a maximum of $7,500 per family unit, and we would like to see no ceiling on the interest rate established initially, certainly in a rate no greater than that currently permitted the Administrator of the single-family residential program of section 203 of FHA. With respect to section 301 of title III, we wish to commend the administration for its beginning efforts to develop a program of supplemental mortgage insurance. We sincerely hope appropriations will be sought and granted for a vastly expanded and long-range program of direct research by the agency, and we also sincerely hope that the Administrator will lend the power and the prestige of his Office to encourage State and local governments, as well as the wide range of private groups involved in the housing industry and its financing to inaugurate and sustain a long-term program designed to lower the cost of housing. No responsible lender seeks high long-term interest rates, yet all responsible lenders must caution against the efforts of many to treat the cost of money as the sole cost factor in housing susceptible to reduction. In sum, our underlying position is that a clear-cut delineation should be drawnbetween the general private housing sector and the welfare housing sector; that different and dissimilar policies and programs are required for each; that because of current conditions in the housing market, our major welfare areas of need in the next 4 years will be concentrated primarily in the welfare sector, apart from programs in such selected areas as home improvement and rehabilitation; and that a responsible government should openly, energetically, and courageously face its responsibility and assume its proper role in welfare housing; and finally, with vigor and open-mindedness, the housing agencies should seek to break the unhappy circle of housing and land costs which have continuously increased the cost of housing at a rate faster than the increase in the income levels of American families. STATEMENT BY PHILIP WILL, JR., FAIA, PRESIDENT, THE AMERICAN INSTITUTE OF ARCHITECTS The American Institute of Architects with 14,000 members is the national architectural professional society and represents the majority of registered architects in the United States. In a recent poll of our 135 cnapters located throughout the Nation, we found that approximately half have been or are now engaged in some form of large-scale design activity on behalf of their communities. Our competence lies in the design and building of the manmade environment. The focal point at which these skills are applied today is the urban community. The design of the community as a whole, its neighborhoods, and the structures and facilities they contain is today's architecture. It is not a design problem which is solved in lonely isolation by an individual. The architect is a key member of the building team and works in close collaboration with planners, engineers, developers, and builders. The client of this team is the community. The community, in turn, can only achieve its needs with the help of government at all levels. The Federal Government accepted its responsibility for this task in a series of housing and renewal acts dating back nearly 30 years. The Nation's architects are pleased to note the recognition of this responsibility in the bill before this committee. I single out for attention those provisions of the measure which recognize that (1) we must do more than we have done in the past to accomplish the orderly building and redevelopment of urban America, (2) we must do it in a less wasteful and fragmentary fashion, (3) we must apply Federal mortgage insurance programs in the cities as well as in suburban areas, and (4) we must develop our urban areas on a regional or metropolitan area basis which often cuts across municipal and State boundaries. The importance of these principles cannot be overstated and the AIA enthusiastically supports them. In carrying out these principles, however, we must keep in mind always that our efforts should lead to creating a livable and beautiful environment which will fulfill America's spiritual aspirations and highest ideals of the dignity of man. This is not luxury, but a matter of sound and sensible economic and social policy. We limit our specific comment to those portions of the bill which relate to design and construction and thus fall within the competence of the professional architect, as follows: TITLE I-HOUSING FOR MODERATE INCOME FAMILIES The language of this title recognizes that the orderly development of the metropolitan area depends on effective distributions of families of various levels of income throughout the area. Past mortgage insurance programs have not advanced the value of urban renewal but rather have served to consign middleincome residents to suburbia for lack of decent, moderate-priced housing in the city. This mass exodus of middle-income families from the city has encouraged urban sprawl and accelerated the disorderly growth of the suburbs, simultaneously increasing the high cost of suburban services and depriving the city of the vitality and tax base it must have to survive. This measure would fill the gap between low- and high-income residents living in the city by making it attractive once again for private enterprise to build residential quarters, particularly multifamily units, within the city. Our only argument with this title, if you can call it argument, is that it does not go far enough. The experience of the past two decades has made it quite clear that unplanned, indiscriminate application of mortgage insurance programs has created problems which neither these nor other programs can solve. Specifically, we recommend that mortgage insurance programs relate only to areas with workable programs for orderly and comprehensive development. We believe emphatically that such grants should be denied to neighborhoods which have no part in an overall plan; which lack the financial resources needed to provide the public services that new housing will demand; which are blighted by heavy traffic, and which suffer from poor land use. To do otherwise, in our opinion, is to encourage sprawl at the same time that we try to stop it. We consider this to be an extremely important point. We must recognize that we will fall short of all we are trying to accomplish if we do not aim all Federal planning assistance programs at the same target. Acceptance of this principle would eventually enable us to restore our cities to health and develop our suburban areas-not as disorderly, monotonous, and expensive bedroom communities-but as largely self-contained satellite towns with the many kinds of building types and services which will attract people of all ages, interests, and economic circumstances. The British call such a cominunity a "new town." They now have 14 of them. It is a most interesting concept and one which we will be happy to explain further in a supplemental report if the committee so desires. TITLE II—HOME IMPROVEMENT AND REHABILITATION Until now, FHA funds have not been available for major rehabilitation of dwellings. Provision of 25-year rehabilitation loans through sections 201 and 202 of this title would encourage a home or apartment owner to do his own part in halting urban blight by restoring and improving his own dwelling. We support this measure as a potentially effective tool particularly in areas that have conservation value. This is a program which appeals to individual initiative. TITLE III—EXPERIMENTAL HOUSING AND APARTMENT UNIT MORTGAGE INSURANCE Section 301, authorizing mortgage insurance on residential structures using new materials and methods and involved in neighborhood property standard experiments, has been sought by the profession and the building industry for many years. Experimentation is vitally needed in building. We cannot and must not cling to archaic methods and laws which deprive us of the benefits of modern design and technology. This provision would be an important stimulus to improvement of housing standards. We remind the committee that it is clearly consistent with the declaration of policy of the housing act of 1949. This act called for “* * * use of new designs, materials, techniques, and methods in residential construction ***" It also called for "* * * related community development and endorsed "*** the development of well-planned, integrated residential neighborhoods and the development and redevelopment of communities." These declarations have not been translated into action. We need the leadership, financing, and authority of the Federal Government to support valid experiments leading to residential design which fit today's living patterns and habits and not those of a century ago. We need research in the better use of materials, building methods and the more efficient use of space. We should like to see actual field trials which test the results of the research and development undertaken by the building industry, by manufacturers and by private institutes engaged in housing research. Such an experimental program should lead to reduced cost and greater efficiency in building. We particularly need experiments in community development and design, and we strongly request that this be included in this program. Nothing of an experimental nature leading to better community development has been attempted since the very useful greenbelt town developments of several decades ago. Section |