Mr. WALTEMADE. In order to maintain stability in the home-building market we urge an amendment whereby outstanding FHA commitments on the day of enactment of this bill would be able to take advantage of the changes in the maximum limits, permissible terms, and ratios of loan to value provided in this legislation.

I might say, Mr. Chairman, that I would like to be most emphatic about this portion of the recommendation. At the present time there is somewhat of a standstill in construction jobs. Everyone is waiting the outcome of this new housing bill, fearful of signing up under the present limits of the existing housing bill.

The CHAIRMAN. For fear they would get better terms later, you mean?

Mr. WALTEMADE. That's correct. And one way of creating a building depression is something like this, where they know they have to wait. And it is the inability to know what is going to come in the new bill, whereby, if they know that, if they go ahead now, if there are any favorable changes in the new bill, they will be favored with those changes, and that will prevent them from standing by and waiting until the new prices are adopted.

The CHAIRMAN. Well, I think it makes sense to me that if we are going to do it, even if anyone at the moment is figuring on buying a house at the same terms as someone may get it 60 days from now. Mr. WALTEMADE. That is our feeling, Mr. Chairman.

The CHAIRMAN. I think it makes sense. The taxpayers of the United States ought to have that advantage.

Mr. WALTEMADE. Before leaving sections 203 and 207 it is noted that the proposed maximum mortgage limits and ratios of loan to value will go into effect not upon enactment of this bill but upon the exercise of discretionary authority by the President. Such authority, even when exercised, may not result in the increase in these mortgage amounts to their maximum limits. In the interest of long-range stability for the home building and marketing industry our association believes that the objectives of the bill would be better served by making the date of enactment the effective date of these new limits. And that, too, is somewhat answered by my previous explanations of the previous paragraph. There, too, the builders would be waiting always for more favorable terms and the possibility of the President declaring additional limits effective. Where the Congress intends to give FHA the opportunity of increasing these let us do it upon the enactment of the bill and not keep the thing in such an unstable and unsteady situation.

With respect to cooperative projects under section 213 we suggest that the FHA could materially assist this program by permitting developers to start construction pursuant to firm commitments under section 207 and later change the commitments to section 213. We believe this is desirable because probably the greatest obstacle to getting started on a section 213 project is the impracticability of bringing 90 percent of the members of the proposed cooperative into agreement while the project is in the planning stage. We feel this could be accomplished administratively, and respectfully suggest that an expression on this point might well be inserted in the committee report.

I might say here that we all know that some abuses have developed in the attempt to get the 90 percent of the proposed purchasers signed

up, because we know there are no commitments inside this section 213 unless 90 percent have been signed up on the planning stage. The type of people, the small-income people, with small resources, are rather reluctant to sign up for something in the planning stage. They like to see the finished product. The FHA and the lending institutions that finally make this loan, it would not be put at a disadvantage, because commencing under section 207, the minimum property requirements are higher standards than the section 213, so that if they converted to section 213

The CHAIRMAN. What is there against it? Why shouldn't it be that way? What good reason is there for not being that way?

Mr. WALTEMADE. The FHA just refuses to do it.

The CHAIRMAN. I know they do. But what good reason is there for it?

Mr. WALTEMADE. We can't see it, because it was the other way along, yes, there would be a good reason, because section 213, the minimum property requirements and standards are less than section 207's. I can see that, because you build a section 213 and try to switch to section 207, but in reverse

The CHAIRMAN. We'll find out from FHA why their regulation reads as it does. There must be some reason for it.

(The information requested follows:)

MORTGAGE INSURANCE UNDER SECTION 213 FOR HOUSING WITH SECTION 207 COMMITMENTS

A proposal has been submitted to the Banking and Currency Committee which would permit a builder of a multifamily rental project having a mortgageinsurance commitment under section 207, to sell the project after start of construction or after completion to a nonprofit cooperative corporation, and to finance such sale with the benefit of mortgage insurance under section 213. This proposal is unsound.

At present, a mortgage to finance the construction of multifamily rental project, insured under section 207 of the National Housing Act, is limited (except as to special situations) to an amount not to exceed 80 percent of the estimated value of the project. In contrast, section 213, which authorizes the insurance of mortgages to finance the construction of cooperative housing projects has more liberal provisions with regard to maximum mortgage amounts. It permits mortgages up to 90 percent of the estimated value of the property, and in the case of a cooperative to be predominantly occupied by veterans, a 95-percent mortgage is permissible. This more liberal maximum mortgage amount was enacted to encourage the construction of dwellings for middle-income families acting cooperatively to reduce some of the builder's profits arising from some of the risks inherent in a project to be rented after completion. To assure that a cooperative project would be financially feasible through being fully occupied upon completion, the FHA requires the applicants for section 213 mortgage insurance to show by executed agreements, prior to construction, that there are sufficient prospective participants to occupy 90 percent of the planned units before the issuance of any firm commitment by the FHA. This requirement also results in the development of plans for sufficiently desirable units to interest enough persons in the cooperative venture. It is doubtful whether the proposal under consideration would result either in a reduction of building costs or in more desirable dwelling units.

Also, operative builders who under a section 207 mortgage had a substantial equity interest and who were therefore interested in building a better-thanminimum structure would no longer have this incentive if it were possible to obtain after the start of construction or after completion the return of their entire investment.

More important, however, is the fact that the concept of section 213 was to encourage nonprofit cooperative groups to construct desirable dwellings at a reduced cost by eliminating some of the construction costs and profits. The sale by the operative builder to a nonprofit corporation after the start of construc

tion or after completion of the structure or structures, would result in the Government assuming a greater risk without encouraging the desirable savings to the home tenant or purchaser.

Senator LEHMAN. Would you put any time limit on the authority to make the change from sections 207 to 213?

Mr. WALTEMADE. I don't think it would be necessary, Senator Lehman, for the reason that it would have to be done immediately upon completion of the project, because they would want the financing, so they would have to elect whether they are going to continue under section 207 or revert to section 213. So, I think the time limit would be unnecessary, because it would be just for the duration of the construction of the project.

We recommend that mortgage commitments under section 213 continue to be based upon percentage "of the amount which the Commissioner estimates will be the replacement cost of the property or project when the proposed improvements are completed." In the proposed amendments the criterion would be changed to "estimated value" which, because of the establishment of FHA valuation regulations, would lead to confusion and possible impediment of cooperative housing projects.

I might say there is no other way as we see it, of evaluating a cooperative project, other than by the replacement cost, because certainly you can't capitalize the value of a cooperative, unlike an incomeproducing property under section 207, because the changes per month are based upon the actual costs of the cooperative project. So, really, I don't see how it could be workable, other than accepted value of replacement cost.

The proposed section 220 is essential to the success of the urban renewal provisions of the bill. We cannot overemphasize the importance of its enactment to the fulfillment of the broad objectives of this bill. Mr. Fritz Burns, chairman of our Build America Better Council, will discuss section 220 further in his testimony on the urban renewal provisions of the bill.

We are pleased to add our endorsement to section 221 which provides for 100-percent mortgage insurance with 40-year maturities for housing persons "displaced by governmental action" such as slum demolition, urban renewal, condemnation for reasons of health, et cetera. However, we believe that the $7,000 mortgage limit may very likely preclude the use of this section in many of the urban areas where the need is greatest. We recommend, therefore, that the limits be increased to $7,600 with authority for the FHA Commissioner to increase the limit up to an additional $1,000 in high-cost areas. We respectfully invite the committee's attention to the recommendations of the President's Advisory Committee which sets forth these suggested limits.

We see in section 221 for the first time a recognition by Government of this device for meeting the housing needs of low-income people by helping them to become howeowners. We believe it is better to assist these families to own their homes than to try to make them tenants of subsidized Government-owned housing.

Homes acquired under this section may carry a mortgage with a maturity period as long as 40 years. These homes will also be paying full local taxes for that 40 years, unlike public housing for which

the Federal Government is pledged to pay subsidies for 40 years and which housing during that period does not pay normal local taxes.

In this connection, Mr. Chairman, I would like to say that that much has been said in the press and publicly, that this section could not apply in the areas such as Senator Lehman and I are familiar with in New York City and other metropolitan areas. I say it could under our recommendation, where the FHA Commissioner would be permitted to go up to $8,600. And I am thinking now particularly of the northeast Bronx, where I come from, in a project that was proposed by the New York City Housing Authority, Kingsland Houses, and there the land value, and the land value varied between 16 and 40 cents per square foot. This project has been withdrawn because of the overwhelming objection of the property owners and the tenants in that particular area. It is a small-home community. There is a location where this section 221 could definitely be constructed.

Another section is now before the board of estimate, the Castle Hill Houses, and there, too, is a private-home community, where the city housing authority is proposing the so-called Castle Hill Houses. There it is the nearly unanimous-as a matter of fact, in a hearing before the planning commission only 4 witnesses testified on behalf of it, and 450 people opposed it. Nevertheless, the planning commission, after 4 minutes, unanimously approved the Castle Hill Houses. The next day it was before the board of estimate, but because of the almost unanimous objection, they put it over for 2 weeks. And there, too, because this location was originally a quonset-hut development for veterans there, the average land costs about 40 cents, and I am familiar with that, because I appraised that for the New York Housing Authority at that time.

We see here an opportunity for the small individual to build not only a small financial equity, but to give him a moral equity.

In public housing, as we know, everything is done for the people who live in public housing. Here they would be in row houses. They would have a little garden, a place in the back, they could cut their own grass and plant their own flowers. They have children, and probably they would be thrown on the street and gradually become juvenile delinquents, where we are suffering from that to a great extent in New York City right now, unfortunately. They could have chores to do. They would have pets, which they can't have in large projects. They have a place to sit outside. Most all of these people are mechanically inclined. They can take care of the necessary maintenance of a home. Today, in a public housing authority project they are not permitted to do that. Mr. Summer cited a case yesterday in the House hearing where a tenant in the public-housing authority was prohibited from papering the wall, because they weren't allowed to paper the wall, although he could do it and was going to pay for his own paper.

Home owners have the opportunity of using their own hands, and they have a stake in America, and above all, I think, too, this must be considered, because a lot of our municipalities are facing municipal insolvency if this thing is going to continue

The CHAIRMAN. If you will yield a moment, I agree 100 percent. I have been recommending this for a long time and have been talking about it, and I think it is the proper thing. Just one big question

mark is in my mind. I would like to ask you this question: Do you think if we put this in the law that the builders and the mortgage buyers will do the job?

Mr. WALTEMADE. Mr. Chairman

The CHAIRMAN. Or do you think it will just be an empty gesture on the part of the Government and nobody will build the houses and nobody will buy the mortgages?

Mr. WALTEMADE. Mr. Chairman, we definitely believe that it would work. We know the builders will build it because builders will build anything that there is a market to build, and if there is no market, and we are getting to the saturation point of the top-level apartments, they are going to build where there is a market for it. If we did not believe this would work, we wouldn't come in and recommend it.

The CHAIRMAN. That is the point. I don't want to be a party to an empty gesture, writing this in the bill. I am a great booster of this idea, and in fact I have been talking about it for 2 or 3 years. There is nothing new, in my mind, about it. But the question is, Will the builders build the houses, and will the mortgage buyers buy them? Can we have any assurance of that? Is there any way we can make sure it is not just an empty gesture?

Mr. WALTEMADE. Before I ask Mr. Burns, who is a builder of lowcost housing on the west coast and has built them by the thousands, I might say this: There is nothing wrong with 100-percent mortgages. There is no reason in the world if these houses are built that the institutions won't finance them with FHA guaranties, because they are buying a Government guaranty, what they have been doing right along with FHA and the GI mortgage. So, irrespective of what others say to the contrary, I am of the firm belief that institutions will buy these mortgages when they are available. And I say one depends upon the other. The builders will build them, the financing will be there, and certainly if the financing is there

The CHAIRMAN. Mr. Waltemade, if this becomes a law-I am certainly going to vote for it, because I have been boosting it for a long while I think it is one of the answers to public housing. I think it is much better than public housing.

Your face is going to be awfully red a couple of years from now if it doesn't work out.

Mr. WALTEMADE. We will take our chances, Mr. Chairman.

The CHAIRMAN. I am going to vote for it, too, and I will take your word for it, that we will really get the job done.

Some people have said this is purely a gesture, that nothing will happen, that it will just be a nice thing written into the law and nobody will buy the mortgages and nobody will build the houses. Now we have your assurance, and we are going to have the assurance of others, other witnesses here, that are in a position to give it. We will really put our shoulders to the wheel and get the job done.

Mr. WALTEMADE. Both of my associates here would like to speak to it. I am going to ask Mr. Burns to answer that question of whether a builder would go into that.

Mr. BURNS. Mr. Chairman and gentlemen of the committee, it has been my observation-of course, I might be a little bit overconcentrated with a California complex, but I don't believe so, because I have gotten around the country a good deal in the last 12 or 14 months. The emphasis in the building right now, among the build