assigned to the FHA at any time after 20 years in exchange for 10year fully guaranteed debentures.

Senator MAYBANK. Do you have to hold it for 20 years?

Mr. COLE. Yes.

Such debentures would bear interest at a rate equivalent to the yield on Government marketable obligations of comparable maturity at the time such debentures are issued. We are prepared to go even further to make it possible for private enterprise to meet more of this need. We are prepared to have FNMA agree in advance to buy any such loans from the lender upon default, thus permitting the private lender to obtain settlement in cash rather than in debentures. We are even prepared, if necessary, to have FNMA purchase a modest part of any such loan at the time of origination.

Senator MAYBANK. There again, FNMA can't buy those before 20 years?

Mr. COLE. On default, at any time.

Senator MAYBANK. That is what is worrying me. In other words, if a group of private mortgagees get together and accept a lot of this paper, they can go in default and FNMA will have to buy it? Mr. COLE. They can buy it under this authority.

Senator MAYBANK. We had so much trouble with FNMA, as you well know, in years gone by when the funds would run low. The bankers rushed in at the last moment when they heard they couldn't sell the portfolios from FNMA but had to hold all these mortgages. Is there any protection so that won't happen again?

Mr. COLE. I think when we prepare our statement with respect to FNMA you will find this is

Senator MAYBANK. I am reading ahead of you.

Mr. COLE. I want to say I believe we can say to the Senator that we have met that to the best of the program possible.

Senator MAYBANK. FHA authorization or FNMA authorization was about to expire or to be used up, for example. Every banker or insurance agent-not everyone, but large numbers-would telegraph the members of the committee to extend or authorize a billion dollars additional. We could be put in that same position with the private people. They can dump them all, according to that. They can go bankrupt, not that they would do that. I don't mean that, but they could. I mean if you go broke the Government bails you out. That is the substance of it.

Mr. COLE. I am saying that on default, on this section 221—
Senator MAYBANK. That is going broke.

Mr. COLE. That is going broke with respect to a particular mortgage loan.

Senator MAYBANK. What would stop some fellow from going broke? We have all kinds of people in the world. What would stop some fellow from taking an unreasonable chance, believing the Government would bail him out?

Mr. COLE. He would not be bailed out, in my opinion, individually. The Government would take the property and he would lose the property. The incentive, we hope, there is sufficient incentive here for private enterprise to see some means of profit and some method

Senator MAYBANK. I don't have to speak for private enterprise, but I wonder how far they could go.

Mr. COLE. I don't believe this would provide a bailing-out process. Senator MAYBANK. As a matter of fact, the other doesn't provide for a bailing-out process. We have different laws in every one of the 48 States as you so well know. When they would reach the limitation in FHA loans that is something else when they turn here for assistance and if the authorization had reached a peak, naturally they would dump them. What is to stop these people from doing the same thing? Mr. COLE. Beg pardon?

Senator MAYBANK. What is to stop private bankers from doing the same thing—I mean mortgage bankers?

Mr. COLE. Under the provision of the bill relating to FNMA, it is set up to have three principal but distinct function. First, what we call the true secondary credit facility. Second, the support program for such housing as the President may decide is required in the public interest. Third, management and liquidating functions with respect to the existing mortgage loan portfolio.

I think the bill provides the best possible to be devised, which will prevent the dumping process, but still provide support programs which are essential and necessary in the public interest. Senator, we can never, in my judgment, propose a plan or law which will be perfect which will prevent people from taking advantage of you.

Senator MAYBANK. I agree. I was hopeful that the law will stop unnecessary dumping. We will use that word.

Mr. COLE. I think it has considerable restrictions and limitations in that regard, Senator. We will be glad to discuss it with you when we get to that part.

I believe we ought to try the approach provided by section 221, because it is my belief and my hope that, in time, it could result in a substantial and vital source for the provision of adequate housing for families of lower income and could progressively reduce the pressure for public housing. In this connection I want to make it perfectly clear that we cognize, however, that until such alternate means of providing adequate housing for low-income families can be established on a practical and effective basis, federally assisted low-rent public housing provides the only present means that most cities have for rehousing the lowest-income families, and, as the

Senator MAYBANK. I am so glad to hear you say that. That is what I had in mind when we started this meeting. The President himself recommended 35,000 a year for 4 years. The President's committee, which has made such an able report, recommended 35,000 a year for 4 years, realizing two things: One, that a lot of communities had made arrangements to go along with public housing, and two, that until you got this cheap housing by private people, you had to have what we call an anchor to windward, limited.

Mr. COLE. I agree. As the President indicated in his special housing message, it is an integral and very necessary part of the administration's overall housing program.

Senator DOUGLAS. Mr. Chairman, I, too, want to congratulate Mr. Cole on this statement, but we have learned from bitter experience in this committee, as other committees have learned, that merely to pass an authorization does not at all mean the program is carried out. It has to be implemented with appropriations, and what has happened in public housing is that the Housing Act of 1949 has been from three

fourths to four-fifths stymied by the failure to appropriate, which is in the power of the Appropriations Committee. As I understand it, the House Subcommittee on Appropriations, which deals with the appropriations for independent offices, is shortly going to be considering the appropriation in your field. May I ask you if it is your intention to go down before that committee and ask for an appropriation for 35,000 units of public housing?

Mr. COLE. Yes, Senator, I have already appeared before the committee.

Senator DOUGLAS. You have appeared before the committee. Did you ask for 35,000 units?

Mr. COLE. I think I am permitted to answer it in this way, because they have you see, I was a former Member of this body, and I am a little cautious about executive sessions. The answer is "Yes," I did ask for the 35,000. I asked for the removal of the limitation on entering into contracts, so we can go ahead with the 4-year program of 35,000 units a year which the President recommended.

Senator DOUGLAS. Thank you very much.

Mr. COLE. I am returning now to the top of page 7 of the printed

statement.

Finally, as a further aid in financing needed home additions or improvements, the bill would authorize FHA insurance of advances to a mortgagor made pursuant to provisions in an open-end FHA-insured home mortgage. Open-end mortgages are mortgages which provide that the outstanding balance can be increased in order to advance additional loan funds to a mortgagor for improvement, alteration, or repair of the home covered by the mortgage without the necessity of executing a new mortgage. This would eliminate the expenses of title search and recordings. Also, it would permit the homeowner to borrow for the improvements at the low rate of interest prescribed in the mortgage and generally for a longer term than otherwise available. Senator BRICKER. How would that eliminate a title search?

Mr. COLE. In some States, Senator, it would not. It would depend upon the State law. The information I have is that in some States there are provisions which would permit the elimination of title search. The States whose laws I am personally familiar with would require title search.

The authority to insure open-end mortgages would apply only to insured mortgages covering dwellings for four families or less.

I regard this authorization as an important forward step. However, I want to add a word of caution.

The CHAIRMAN. Would you want to give an example of how this would work? It might be well to place it in the record at this time. Mr. COLE. Yes. Assume that I have a mortgage of $10,000 on my home. I have paid $5,000 on the mortgage. I want to rehabilitate or modernize my home. I go to my lender and say, "I want an additional $5,000 to that which was the original principal of the mortgage." He loans me the additional $5,000. It thus becomes a part of the debt secured by the original mortgage, and therefore I am not required to write or execute or record a new mortgage, saving considerable cost. The CHAIRMAN. And it might well be for a thousand or five hundred dollars.

Mr. COLE. Yes. I simply used the $5,000 figure as an illustration.

Senator BRICKER. Before that would become a prior lien on the property there would have to be a notation to search the record to see whether or not there were any intervening liens and a notation made upon the record at the courthouse.

Mr. COLE. Senator, I am going to comment on some of the problems involved. Mr. Hollyday will also comment on it. We want to apprise the committee of some of the difficulties involved in this proposal. We do think, however, that in those States where the law does permit it, that it is an important and excellent step. This does have some problems involved in it: I want to

Senator BEALL. If the mortgage is recorded for $10,000, there are no notations made for the record that it isn't still $10,000, is that correct? Mr. COLE. I think that is true in practically every State.

Senator BEALL. The only thing that would require a re-search would be if he borrowed more than the original sum.

Mr. COLE. Under this proposal he would not borrow more than the original sum.

The CHAIRMAN. Under this plan you likewise extend the maturity date of the terms, don't you?

Mr. COLE. No. The maturity date and terms remain the same. The CHAIRMAN. Payments would not be changed but the maturity date would be changed.

Mr. COLE. Payments would be increased over the amount that the borrower was then, at that time, paying.

The CHAIRMAN. Yes. Would the payments or terms be extended a number of months or years?

Mr. COLE. No. It would not be extended, Senator.

The CHAIRMAN. In other words, the only change is you simply add the amount of the improvements and divide them by the equal number of months that the mortgage still has to run, and add that to the monthly payments?

Mr. COLE. That is correct.

The CHAIRMAN. Plus the other interest charges?

Mr. COLE. Yes, sir.

Senator LEHMAN. As I understand it there is a limitation, based on the original amount of the mortgage?

Mr. COLE. That is right.

Senator LEHMAN. Supposing a man had a mortgage of $10,000 and paid it down to $2,000. He could come and ask for an additional loan of $8,000?

Mr. COLE. That is correct.

Senator LEHMAN. Which would be added to the value of the house but he still would be limited to the $10,000 face value?

Mr. COLE. Yes, sir. I want to add a word of caution. The mere enactment of such a provision will not automatically make it operate effectively. A great deal of work and study, both within and without the Government, must be done to assure that this provision does operate effectively and that housing consumers have an opportunity to obtain its full advantages. So far as the Housing and Home Finance Agency is concerned, I want to say that all of us will do everything possible to see that what is required of us to accomplish this will be done. I realize also that there are some real problems to be overcome, particularly, I expect, in connection with the lien laws of the various States. If the Congress enacts this provision of the bill, it is my inten

tion to request an appropriation sufficient to permit us to undertake a thorough examination of such problems and the development of model State legislation designed to eliminate such obstacles to the effective operation of the open-end mortgage provisions as are identified in the course of such examination.

The bill would consolidate into a single authorization all existing mortgage insurance authorizations with respect to all FHA programs, except the home modernization and improvement program under section 2 of title I. This would greatly simplify operations under the present several separate insurance authorizations, and establish at all times the amount of the current mortgage insurance authority for all programs. The bill provides that the total authorization shall not exceed the estimated amount of insurance in force and commitments outstanding as of July 1, 1954, plus $12 billion, except that with the approval of the President such total authorization could be increased by amounts up to a total of not to exceed $500 million.

Senator DOUGLAS. What is the present total amount of insurance in force?

Mr. COLE. About $17 billion.

Senator DOUGLAS. This would raise the total to $18.5 plus additions between now and the 1st of July?

Mr. COLE. Yes.

Senator DOUGLAS. What will be the total that you will have available if this becomes a law?

Mr. COLE. I will have Mr. Thornton answer that to clarify my statement, if I may, Senator.

Mr. THORNTON. There is also about $2 billion worth of outstanding commitments which would be added.

Senator DOUGLAS. Including what will be here by the 1st of July. Mr. THORNTON. We have a turnover of outstanding commitments within the insurance authorization which is used at any particular point in time so actually the total insurance authorization would run up to around $20 to $21 billion, which would include all of our outstanding insurance, the unpaid balances of the insured mortgages in force, and something like $2 billion to $22 billion worth of outstanding commitments to insure, and then

Senator DOUGLAS. It was the opinion of the House to be in addition to the $21 billion?

Mr. THORNTON. No; included within the $21 billion.

The CHAIRMAN. What will your total authorization be, if this bill becomes a law?

Mr. COLE. That is the $21 billion, is it not?

Mr. THORNTON. Yes; it would be between $20 and $21 billion as of July 1, 1954.

The CHAIRMAN. That is outstanding at the moment?

Mr. THORNTON. No; the combination of the three amounts, outstanding insured mortgages plus outstanding commitments plus the $2 billion that is provided by this proposed legislation.

Senator DOUGLAS. Mr. Cole, may I ask you another question? What are the reserves of FHA of which we have assets against some $21 billion of insurance guaranties?

Mr. COLE. I would like to have Mr. Hollyday answer that.

Mr. HOLLYDAY. Senator, they are somewhat in excess of $300 million. I do not feel qualified though to pursue that answer, by virtue of the