COOPERATIVE HOUSING

TUESDAY, JANUARY 31, 1950

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., the Honorable Brent Spence (chairman) presiding.

Present: Messrs. Spence, Patman, Rains, Buchanan, Multer, Deane, O'Brien, Mrs. Woodhouse, Messrs. McKinnon, Addonizio, Mitchell, O'Hara, Gamble, Kunkel, Talle, McMillen, Kilburn, Hull, and Nicholson.

The CHAIRMAN. The committee will be in order.

We will hear, now, from Mr. Richards on H. R. 6742.

Mr. NICHOLSON. May I ask Mr. Foley a question?

The CHAIRMAN. Mr. Richards will complete his statement, and Mr. Foley will then return to the stand. Will that be acceptable? Mr. NICHOLSON. Yes; that is all right.

STATEMENT OF FRANKLIN D. RICHARDS, COMMISSIONER, FEDERAL HOUSING ADMINISTRATION

Mr. RICHARDS. Mr. Chairman and members of the committee, I am Franklin D. Richards, Commissioner of the Federal Housing Administration. I am grateful for the opportunity to appear before this committee in order to present my comments on H. R. 6742. These remarks will be made in the order in which amendments to the National Housing Act are presented in the bill.

Section 1 proposes amending the National Housing Act by removing the expiration date for the insurance of loans under title I. This title, which authorizes the Commissioner to insure qualified lending institutions against loss on small loans made to finance the alteration, repair, improvement, or conversion of existing structures, expires March 1, 1950. Since the approval of the original National Housing Act of 1934, the authority to insure these repair loans has been extended or renewed 13 times. On each occasion there was considerable inconvenience and delay caused home owners as well as disruption in the operating procedure of insured lending institutions, local dealers, wholesalers, and suppliers.

Our experience of last summer, when title I expired on June 30, was renewed for 60 days, renewed a second time on September 1 for another 60 days, then again nearly expired on November 1, but was extended at the last minute to March 1 of this year, brought a plea from members of industry as well as the lending institutions in the

interest of the consumer to place future operations on a permanent basis.

In establishing title I on a permanent basis, it is desirable that a provision be made whereby the insured lending institutions are not credited with excessive protection against loss. This is accomplished in the proposed amendment by authorizing the Commissioner to cut back the accumulated insurance protection by 20 percent each 6 months.

Section 2 would increase the title II revolving fund authorization from $6,750,000,000 to $9,500,000,000. One and one-quarter billion of this increase would be made available directly to FHA upon passage of this bill and the remainder of one and one-half billion would be subject to the approval of the President. This proposed increase is expected to be ample for anticipated insurance operations under title II until the end of the fiscal year 1951. The authorization of $6,750,000,000 now available will be exhausted by late February-about 3 to 4 weeks hence.

The size of the increase requested is based generally on a continuance of recent levels of applications under section 203 and on an expansion of rental housing operations under this title following the expiration of section 608 on March 1, 1950.

I would like to call your particular attention to the language recommended under section 3 which amends section 207 (b) of the National Housing Act. This is the section that sets out the eligibility requirements for mortgages on rental housing projects. In addition to requiring a mortgagor to certify that in the selection of tenants he will not discriminate against any family by reason of the fact that there are children in the family, it is further proposed that the Commissioner be authorized and directed in the administration of this section by regulation or otherwise to direct the benefits of mortgage insurance hereunder primarily to those projects which make adequate provision for families with children and to make every effort to provide such accommodations at moderate rental charges. These provisions clearly point out the intended direction of the 207 program, namely, providing adequate accommodations for families with children and to provide such accommodations at rents which better meet the abilities of families of moderate income.

In line with this objective, section 4 provides a sliding scale of ratio of loan to value somewhat similar to the pattern presently established under section 203 for single-family owner-occupied homes. These new provisions would permit a ratio of loan to value of 90 percent on that portion of the total value represented by $7,000 per unit and 60 percent on that portion of the value in excess of $7,000 per unit and not in excess of $10,000 per unit. This provision, we believe, will be very effective in encouraging sponsors to provide greater numbers of moderate rental accommodations.

To further implement the objectives set forth above, we are recommending that the maximum mortgage per unit of $8,100 be applicable only in those cases where the average number of rooms per unit in a given project is four and one-half or more. In those cases where the average number of rooms per unit is less than four and one-half, we recommend that the maximum loan per unit be reduced to $7,500.

Throughout our extensive operations under section 608, we found that in order to give proper examination to applications for rental properties and to make adequate inspection thereon, we were required to charge an appraisal and inspection fee in connection with such cases of at least eight-tenths of 1 percent. Section 207 currently limits such fee to one-half of 1 percent, and we are accordingly recommending that this be changed to 1 percent, as provided in section 5.

To facilitate working out defaulted cases and avoid foreclosure wherever possible, we are recommending appropriate amendments contained in sections 6, 7, and 8 to provide that debentures issued under section 207 be issued as of the date of default, as has been the case in section 608, instead of issuing such debentures as of the date foreclosure proceedings commenced.

Net commitments issued.

Terminations by type:

1 In the case of the Veterans' emergency housing program, excludes correction cancellations: 6 projects for $762,900 and 113 units.