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Senator BENNETT. The second question you have already discussed is this matter of duplicate inspection.

The third question:“A wide variance in the application of minimum property or construction requirements."

Now that, I guess, has already been discussed, also, in the question on inspection.

Mr. King. I would say again as to that we have endeavored to encourage wider use of local builders' groups to iron out those difficulties, both with VA and FHA offices.

For example, and this is a homely example that I have given before, in row housing in the District of Columbia the requirement of the FHA MPR booklet used by both VA and FHA was that beam ends should not abut. Where you have abutting beam ends, you have additional fire hazards. Builders were constantly abutting beam ends. VA was disallowing those units or at least penalizing them. VA threatened to disallow them. Builders did not want to face the added cust of staggering beam ends. As a result of one of these committee actions, both groups stated what they had to have and it was found that VÁ could permit the abutting of beam ends if you put insulation between them, or a slate insert, concreted or cemented in.

Now, that is a homely example of how both sides, the builder and the VA-and the FHA—it was the FHA standard we were discussing—have a point they must gain. But by sitting down on a local basis—and we can't do this for the whole country, nationally, in the central office—we don't have that many people—sitting down locally and both being reasonable, most of the things that occasioned this point No. 3 you have read from can be eliminated.

Senator BENNETT. No. 4 suggests a difference in determination of improved lot values, and construction cost estimates. In other words, that goes to the question of different levels or varieties of appraisals.

Mr. King. Well, I do not want to downplay the significance of that No. 4, there, Mr. Chairman, but basically, that simply means that VA is not allowing high enough reasonable value for the proposed building. We have many appeals coming into Washington, from such valuations. We find in very few cases that our field office has undervalued property as to which the complaint is made. There may be some cases—there would be bound to be some cases, because we are dealing in the realm of judgment, here.

We do have a cost system which we have had in effect some 3 or 4 years, in which we keep current on every element of local building costs. We do endeavor to fix lot values in line with comparative current values in a given locality.

Senator BENNETT. Does VA and FHA, do each of the agencies independently attempt to keep a complete schedule of costs in all the localities of the United States?

Mr. King. I believe they do, Mr. Chairman, independently, but our offices have been instructed to coordinate those insofar as possible with the local FHA office. In other words, we don't like to visualize the two local agencies both working with blinders on.

We ask our office to effect as much coordination as they can with the local FHA office, with reference to their cost estimates.

Senator BENNETT. Doesn't that represent a tremendous necessary duplication of pencilwork, week in and week out, to change the records as local costs change? It seems to me that, offhand, that would


suggest an area where one determination should be satisfactory for both agencies.

Mr. King. I don't think the paperwork involved is that great, Mr. Chairman. However, there is a duplication of effort, to a considerable degree, in the gathering of cost data by the respective agencies.

Mr. HOPKINS. There is not necessarily duplication.

In other words, FHA may get their information from 3 or 4 sources, and the VA get their information from 3 or 4 other sources. Therefore, between the two of us, we have that many more sources of information upon which to base our judgment and our conclusions.

Senator BENNETT. In that kind of a case, do you then reconcile the different answers you may get, and adopt the standard, identical answer, or do you continue to operate on the information your sources give you, while FHA operates on a different set of figures, because they got it from a different source?

Mr. King. I would say, subject to Mr. Hopkins' correction, that basically, we operate upon our own findings.

Senator BENNETT. The clerk has reported that we have just had the second quorum call from the floor of the Senate, which requires our physical attendance, so we will be in recess until we can return.

(A short recess was taken.)
Senator BENNETT. The hearing will be in order.

Mr. King. Mr. Chairman, I have taken advantage of your necessary absence here to look at some excerpts from VA records which I would like to put in the record, here.

Senator BENNETT. Very well.

Mr. King. For example, in TB 4-A-127, dated December 4, 1952, a general directive to its field offices, VA states in paragraph 4:

It is the policy of VA that there shall be full cooperation with the Federal Housing Administration in respect to loan guaranty activities. Insofar as VA is concerned, there shall be a free exchange of all information pertinent to the common objective of the two agencies of guaranteeing and insuring loans of houses constructed in a sound and workmanlike manner, and in accordance with approved plans and specifications.

Then, in paragraph 5, it says: In any occasion where it is necessary for the FHA to determine the basis on which VA predicated a VA form 4-1843, Certificate of Reasonable Value, the Loan Guaranty Division, in the particular regional office shall afford FHA representatives the opportunity of examining the plans and specifications, if such examination is germane to the operations of the FHA. Similar courtesy has been afforded by FHA to VA.

That was based on an understanding that we had with the Washington office of the FHA.

Senator BENNETT. What is the date of that directive!
Mr. King. December 4, 1952.

In a letter of March 1953, to all VA offices, we furnished them with a supplement of the latest FHA publication issued as a supplement to their field operating manual.

In fact, that distribution was effected through an earlier letter of October 23, 1952. We go on, in this March 31, 1953, letter, which I would like to put in the record, urging that our offices meet-citing a number of successful instances of such meetings with the local FHA people, for a thorough discussion of the interpretation and application of the minimum property requirements with the objective of resolving any difference of opinion regarding formulation of re



quirements with respect to interpretive items, meaning items in which the printed requirements expressly vest discretion as to the use of material or methods in the local office.

Senator BENNETT. We will accept the full letter. Is it a directive?
Mr. King. It has that significance.
Senator BENNETT. We will accept it for the record at this point.
(The letter referred to follows:)


Wushington 25, D. C., March 31, 1953. To: Managers, All VA regional offices. Attention: Loan guaranty officers. Subject: Coordination of VA-FHA processing in field offices.

1. In June 1952 the FHA issued a supplement to their Field Operating Manual This publication entitled "Construction Complaint Handbook" was distributed to all VA regional offices by our letter of Octuber 23, 1952.

2. Paragraphs 1527, 1528, and 1529 of the Construction Complaint Handbook expressed the FHA policy regarding cooperation with the VA. An expression of this same policy by the VA is contained in T'B 4A-127.

3. In reviewing the above mentioned paragraphs in the FHA publication you will note that cooperation is expressed as extending to the free exchange of all information pertinent to the common objective of insuring or guaranteeing loans secured by housing constructed in a sound and workmanlike manner and in compliance with approved plans and specifications. Such an exchange of information is not intended to be limited to complaint cases but rather is intended to provide for exchange of information in any case where such mutual assistance is calculated to better the operation of either agency.

4. Recent reports indicate that in a number of instances very successful meetings between VA regional offices and FHA insuring offices have been held for the purpose of attaining the foregoing objective. These meetings typically have been attended by the FHA State director, chief underwriter, chief architect, chief valuator and other staff personnel engaged in valuation and architectural work. The VA personnel in attendance has included the loan guaranty officer, chief appraisal section, construction analysts and other staff personnel. In such a meeting the first order of business has been a thorough discussion of the interpretation and application of the MPR's with the objective of resolving any difference of opinion regarding formulation of the requireinents with respect to interpretive items. Other matters included arrangement for exchange of information regarding land planning analysis, construction cost estimating and valuations. In respect to all these matters the objectives of the tuo agencies are very nearly alike and therefore the findings of one always constitute good reference material to the other. In some instances a mutual agreement has been reached to the effect that insofar as practical each agency would refrain from issuing any verbal commitments to builders with respect to subdivision requirements until sole study had been made of the project and where feasible to do so, the agency approached would contact the other agency to obtain the benefit of the thinking of the officials in that agency.

5. It is our belief that meetings of this nature are essential to the VA operation and in the event that your office has not already undertaken such cooperation with the FHA it is recommended that immediate arrangements be made to do so and the result reported to this office without delay. It is, of course, recognized that in some instances the VA regional offices and the FIA insuring offices are in different localities and travel will be necessary in order to arrange to hold the meetings. In these cases it is recognized that difficulty may be encountered and more than likely any meeting which can be arranged would be necessarily limited to fewer individuals than in the case where both offices are in the same locality If it is impossible to arrange a meeting, then it is recommended that an effort be made to attain the same objectives through the medium of correspondence.


Director, Loan Guaranty Service. Senator BENNETT. We have now covered question 4 in the survey.

Question 5, again, goes to the question of final inspections which I discussed at 'considerable length earlier in your testimony. Unless



you feel it is wise to repeat any of that material, we will assume you have already answered question 5.

I imagine question 6 arises out of the technical difference between the approach of the two agencies to the problem, in that VA is attempting to serve a particular individual veteran and, therefore, would require individual escrows, while FHA can stretch its service over to a whole housing project.

Mr. King. Basically, that is true, Mr. Chairman. We are a little more restrictive in what we allow in the way of escrow practice, and we do require, where there is postponement of improvements, a letter from the veteran seeking to occupy before final completion, that he would like to have VA recognize or accept the escrow procedure. We don't require individual breakdown of escrows where the nature of the work to be done under the escrow affects a subdivision like the installation of roadways, sidewalks, and so forth. We permit a single escrow for that.

Senator BENNETT. This is a rather minor comment, I would imagine, isn't it? This doesn't affect too many of your loans ?

Mr. KING. I would think that is true, Mr. Chairman.

Senator BENNETT. Question No. 7 is a tabulation of complaints or reports or comments received, apparently, from a number of respondents to whom questionnaires were sent, which indicates a belief that the VA methods represent a more costly method of servicing the loan than the FHA method. There is a breakdown indicating the relative number of respondents in each of an arbitrary number of cost variations.

I wouldn't think that

Mr. King. Mr. Chairman, I understand that tabulation is based on replies received from 226 of 400 builders selected for the sending of the questionnaire. As of June 30, 1953, there were 15,437 builders participating in the VA guarantee program, so that these replies were received from less than 1.5 percent of the total.

In a percentage of cases, going back, again, to that series of percentage factors that I read earlier, as to cases which are processed by VA concurrent with FHA action, there is some duplication of cost. For example, where FHA is inspecting, they charge a builder $45 per unit. If the permanent loan is insured under FHA, the builder is refunded $25 of that fee. If the property is sold to a veteran under GI loan, the builder does not get a refund of that fee, so in those instances, there is an added cost to the builder.

Senator BENNETT. Is the reason for not giving the builder the refund under VA, that VA, itself, is under some inspection expense?

Mr. King. No, sir. I believe the reason is that FHA considers that its service costs $45 and it will refund only if the business comes to FHA and results in their collecting a one-half point premium through the years from the purchase of the property.

Now, I would think that it would be pretty hard to find occasions in which, unavoidably, the added costs ran up into these high figures of $100 and $200. I note out of the total that only 11 report that it is $200 or more, and only 18 report it is from : 100 to $200—pardon me, those are percentages, the 18 and 11.

Senator BENNETT. This table covers approximately one-half of the people who responded to the questionnaire. I think you said there were some 200.

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Mr. King. Yes, sir; 226 out of 400, which is 11/2 percent of the VA builders.

Senator BENNETT. The table is based on 100 percent, so you can just about double these figures, here, and say there were approximately 25 out of the 226 who said there was $200 or more, and so on down.

Mr. King. Yes, sir. That rapid calculation of yours exceeded my own mathematical abilities.

Senator BENNETT. Don't depend on mine.

Mr. King. Now, I would imagine you would find some of those instances were instances in which we required this extra engineering report, because we thought the local situation demanded that we have that extra assurance.

The statement made on February 17, 1953, when this type of assertion was advanced at an American Legion meeting here in Washington was that the net cost in all cases was $200, so I am a little relieved to find out that the $200 cost has narrowed itself down to some relatively few people.

Senator BENNETT. The clerk calls my attention to the fact that it is now 11:45. I have delayed you considerably this morning and undoubtedly you will want to go into other extended testimony before you get through with your reference to the big bill, S. 2938.

I wonder if you would permit us to discontinue your testimony at this point and let us hear the ODM and the Federal Civil Defense Administration witnesses, whose testimony is very short, so that they would not have to come back this afternoon? You would more or less have to come back, in any event.

Mr. King. I would be very pleased to subscribe to their convenience.

Senator BENNETT. We will meet at 2 o'clock this afternoon in the Interstate and Foreign Commerce hearing room, G-16, the room in which we met yesterday afternoon.

Is there anyone in the room who does not identify the location of this new room? It is on the gallery floor of the Senate wing of the Capitol, immediately behind the Democratic side of the Senate.

We will meet there at 2 o'clock and continue with Mr. King's testimony. Thank you very much for making way for me at this point, Mr. King. Your testimony in the printed record will not show this interruption, but will be continued, completely.

Mr. KING. Thank you.

(The remainder of Mr. King's testimony, taken in the first part of the afternoon session, follows:)

Mr. King. Passing along to S. 2938, the proposed Housing Act of 1954, my comment will be purposed to call the attention of the committee to those features of the bill which either directly or substantially affect the GI loan program administered by the VA.

Now, I think you are just being polite in suggesting I read through this, since I now have a written statement.

Senator BENNETT. You can do anything you want with it.

Mr. King. I think, perhaps, that I should brief it off the record and submit it for the record.

Senator BENNETT. Let's brief it on the record, and also submit it for the record, because your brief may call forth some questions, and they can't be related to anything except the conversation that provokes them.

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