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quite bewildering in the way it is thrown at us. Would you say on what types of housing do you increase the mortgage authorization, on what types of housing do you decrease it, and on what types do you keep it the same?

Mr. COLE. Yes. I think that is very important, Senator. I would like Commissioner Hollyday to comment and Mr. Thornton.

Mr. THORNTON. Your observation about the bewildering nature of the list of maximum mortgages is illustrative of one of the main reasons for suggesting the change in the maximum mortgage terms, because section 203 now contains a total of, I think, 8 or 9 different bases for determining maximum mortgage amounts for various kinds of properties, for new construction as against existing construction, on the basis of various characteristics of the property, so the intent of the present proposal is to make a single formula for computing maximum mortgage amount, which would be the same formula for all kinds of structures, and for all valuations.

Senator Douglas. That is for repaired structures, as well as for new structures?

Mr. THORNTON. For new or existing, yes, and repaired structures, if the repairs are financed with mortgage financing insured under section 203, yes. The principal—it is difficult, of course, to summarize briefly the changes that result from the new formula, but the principal change is accomplished within the price range of $10,000 to $15,000 or $16,000 in value; below that point, the differences in maximum mortgage amounts would be slight, as between the new construction mortgages under the old formula and under the new formula. The new formula would provide a smoother transition of mortgage amounts between the lower ratios of loan to value at the high levels and the higher ratios in lower value levels, than is possible under the present legislation.

Now, for all properties that are existing construction, the maximum ratios of loan to value under the proposed legislation would become the same as would be possible for new construction.

Senator DOUGLAS. Am I correct in inferring that for homes over $10,000, that the new percentage is higher than the present percentage?

Mr. THORNTON. The maximum permitted by the proposed legislation would be higher. Now, what the actual permitted ratio of loan to value would be, that would be dependent upon Presidential action, after the legislation is passed.

Senator DOUGLAS. You are assuming the action would result in a higher guaranty in the upper priced homes? Mr. THORNTON. Yes.

Senator DOUGLAS. Well, we have been proceeding on the assumption, I thought, that primary aid should be given to the lower priced homes, on the gorund that those with homes, say, of $25,000 value presumably could only be limited by $10,000 a year, that they would not need as much governmental assistance as the $50 a week or $70 a week or $80 a week clerk or mechanic.

I would like to get some argument on this point, as to why you think governmental guaranties are specially needed for this upper income group. Is there not a danger that you may undermine the initiative and enterprise of these people by the extra protection which

you give them? May you not be destroying something precious in their moral character?

Mr. HOLLYDAY. Senator, the philosophy here, I think, is that the change proposed is really moderate, in that you have in FHA an insuring agency that has operated since 1934 with a ceiling of $16,000. We are only asking for an increase of from $16,000 to $20,000. The changes, frankly, are not primarily to get a moderately increased maximum amount, but to straighten out the very irregular curves in the series of mortgage amounts that you called attention to.

FHA, in 1932, did only 2 percent of its business above $12,000. So that we are really talking about, I think, a very moderate amount of our business, and I don't believe there would be the danger that you mentioned.

Senator BRICKER. You mean 1952, instead of 1932, don't you?

Mr. HOLLYDAY. Actually I was quoting 1952, because I happen to know those figures.

The CHAIRMAN. You said 1932. Mr. HOLLYDAY. I'm sorry. I meant 1952. Mr. Douglas. Everybody wants to protect somebody else's character. I notice people in the $12,000 range are anxious to protect the character of the low income groups from subsidization by the Government. I think they ought to be interested in their own character, that it is not undermined by this undue amount of governmental assistance which can dry up the initiative upon which the American system is properly based.

Mr. COLE. We think, Senator, that the experience of FHA indicates very clearly that it really will provide the assistance for the lower income people, as a practical operation.

The bill would also place in the President authority to establish the maximum rates of interest on home mortgage loans insured or guaranteed by the Federal Housing Administration or Veteran's Administration. The bill provides that such maximum interest rates would be established by the President from time to time, on the basis of reviews to be made at his request by appropriate officials of the Federal Government. Such reviews would be required to cover conditions affecting the mortgage investment market, and to take into consideration conditions in the building industry and the national economy generally. The maximum interest rate could in no event be established at a rate exceeding the average market yield on marketable Government bonds having a remaining maturity of 15 years or longer, plus 21/2 percent.

I want to call particular attention to the fact that this latter provision is not a formula, which requires the interest rate to be set at 21/2 points above the average yield. It is a ceiling limitation permitting, within that limitation, the essential flexibility required for appropriate adjustment of the interest rate to changing economic conditions.

This provision for administering interest rates is in substantial conformity with the recommendations of the President's Advisory Committee. I should like also to emphasize that the Committee was of the opinion that no change was needed at this time in present maximum interest rates. I agree with this position and would not recommend any change in interest rates under present market conditions.

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If agreeable with the committee, I should like to suggest that Mr. Hollyday now present his statement. Mr. Hollyday brings to the. position of FHA Commissioner an enviable record of successful mortgage banking experience. He has also done an outstanding job of pioneering in the field of rehabilitation and neighborhood conservation—a field in which the pending bill would give important new responsibilities to the FHA.

The CHAIRMAX. You may proceed, Mr. Hollyday. Mr. HOLLYDAY. Mr. Chairman and members of the committee, in my report, which I regret has to cover some 18 and a fraction pages, I found it impossible, or at least unwise, to cut out anything that I have in here.

The gentlemen of the committee will note that in 1 or 2 instances. there will be repetition with what the Administrator has said. That repetition seems to me to be desirable, in that it covers sections 220 and 221, which are new.

It is a privilege to appear today to discuss with you the portions of S. 2938 which pertain to FHA operations. The bill proposes two new FHA mortgage insurance programs. It also makes a number of modifications in existing programs, consolidates existing insurance programs in several instances, and terminates some programs which either are inactive or are no longer justified. It also includes several technical amendments to refine, clarify, or simplify existing programs.

All of the provisions are designed to enable FHA to serve the Nation more effectively in raising housing standards and conditions or to enable FHA to perform its functions more effectively.

The new mortgage insurance programs are provided for in section 123 of the bill, which adds section 220 and section 221 to the National Housing Act. Each of these programs has a specific and important role to play in neighborhood rehabilitation and urban renewal.

The new section 220 program is designed to provide private financing under insured mortgages for housing in the specific areas undergoing rehabilitation.

Before section 220 can become operative as to any community, the community must have developed a comprehensive and practical plan to attack its problem of urban blight and slums, the Administrator of the Housing and Home Finance Agency must have examined this plan and have certified it to be a workable plan. Pursuant to this . plan, certain areas will be designated and approved by the Administrator of the Housing and Home Finance Agency as urban renewal areas. Within such areas mortgage insurance for rehabilitation and construction of individual homes or projects may be made available by FHA under section 220.

Before issuing any commitments to insure mortgages under section 220, the Federal Housing Commissioner must be satisfied that there is a specific program of rehabilitation and conservation for the delineated area which will be effective in restoring the quality of that area to a condition which would justify mortgage insurance, and that there exists the necessary authority and financial capacity in the community to carry out the established program. In short, FHA must be satisfied that action will be taken which will restore satisfactory living conditions, property values, and economic strength to the , area which will endure throughout the life of the insured mortgage. FHA requirements will relate to public facilities, public services, and I

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public areas such as streets, schools, parks, and playgrounds within the delineated areas, as well as to land uses and conditions of privately owned property.

It should be borne in mind that many of the areas under which FHA would be authorized to insure mortgages under section 220 would be areas which would be rejected by FHA in the absence of the local community's action under its urban renewal plan. It is the action of the community under its urban renewal plan which would warrant well, therefore, to enumerate briefly some of the basic elements in such a community plan:

1. Continuing official general planning activity to supply the base upon which renewal programs are predicated.

2. Suitable facilities for studying the condition of city areas and planning renewal programs.

3. Adequate legislative authority to support regulatory measures.

4. Sufficiency of local codes and ordinances and adequacy of their enforcement.

5. Authoritative administrative machinery for carrying out entire program.

6. Financial ability to support city's expenditures for administrative functions and for public improvements.

7. Feasible means of relocating persons displaced by all renewal program.

8. Citizen participation and public education, both citywide and on specific programs.

9. Followup program to sustain upgrading of renewed areas.

Maximum mortgage insurance terms will generally be consistent with section 203 for small properties and with section 207 for projects of 12 or more units, with 2 exceptions. In order to provide a full range of coverage for the various types and sizes of properties likely to be found in such areas, home mortgage terms will be available for structures with from 1 to 11 dwelling units, instead of the section 203 limitation to 1- to 4-family units. Multifamily project mortgages will be limited to 90 percent of value.

It is anticipated that FHA processing of section 220 applications will generally parallel the processing of section 203 and section 207 applications, with essentially similar eligibility standards.

It is our opinion that the section 220 program can be an important aid to local communities which are interested in eliminating urban blight and restoring deteriorated neighborhoods while placing primary dependence upon private ownership and private financing. It should be emphasized, however, that the effectiveness of the program depends fundamentally on local initiative and participation.

It is our further opinion that mortgage insurance for such undertakings can be as successful with proper underwriting as it is in the types of activity to which other title II programs apply.

Senator Douglas. Mr. Hollyday, would it disconcert you if I asked you a question now?

Mr. HOLLYDAY. I think it might be better if you asked it now, sir.
Senator DOUGLAS. Thank you.

Is your program primarily designed to remove slums or to prevent neighborhoods on the edge of slums from deteriorating further?

Mr. HOLLYDAY. Section 220 is very definitely not a program to remove slums. We are the doctor, and the patient has a very bad arm. And that arm is going to get worse. We say, "Now, we can't

cure you, but, Mr. Patient, if you will do thus and so"-and I spelled out nine prescriptions that he should take—“this will prevent further deterioration and will help a great deal.” Because as his arm gets better, so will his shoulder and the rest of his body.

Senator Douglas. Is this a means of preventing slums from spreading, or is it a means of eliminating slums that already exist ?

Mr. HOLLYDAY. Well, in some cases the man has to have his arm cut off. His case is hopeless. You can't restore an arm that ought to be cut off. But there are other parts of the body that would be affected, and section 220 will help a great deal in not only preventing slums but in holding out a reward to cities for helping this present blighted area. They will start studying their physical condition. Those prescriptions that I mention are very hard to fulfill.

Senator Douglas. May I say, Mr. Hollyday, I have great respect for your good will and for your intelligence and your devotion to the public.

Mr. HOLLYDAY. Thank you, sir.

Senator Douglas. This problem is not an academic one for me because I live in a community which formerly was an upper-middleclass community and is now on the verge of a slum, which is deteriorating, and naturally we want to preserve it.

But if you deal with the central source of infection—the slum itselfI am not satisfied that your program copes with that because of this reason: That when you get a city slum which spreads over a number of square miles, to try to rehabilitate it house by house, or even block by block, is a very difficult procedure. has always seemed to me that the slums in some of our cities have progressed so far that they are in effect cancers and that major operations are badly needed. That is why we use the term in the 1949 bíll“slum clearance and urban redevelopment.

I notice you avoid the term "slum clearance” and you use the term “urban renewal,” and so forth, apparently with the idea that you are not merely protecting the areas on the verge of the slums, but that you feel that this could be a development within the slum itself.

I would not object to your program as part of an overall program. Mr. HOLLYDAY. It is.

Senator DOUGLAS. But I would warn you not to be too optimistic about the central cancer itself.

Mr. HOLLYDAY. Senator, anybody that has worked for 7 or 8 years in slums, I think, would take to heart that warning very carefully. I am speaking specifically to one section of this bill, and the Administrator, I think, will cover the larger picture. I am very anxious not to overdo what I think can be done.

Senator DOUGLAS. As long as you do not try to—and I am sure you, as an honorable man, would not—as long as you do not try to sell this to the American public as a means of curing slums, well and good. As long as it is merely a part of a program to prevent or reduce the danger of slums spreading, that is fine. But please don't let the American public get the idea that that is a cure for the cancers which lie at the heart of most of our great cities.

Mr. HOLLYDAY. I wouldn't dare do it.

Senator DOUGLAS. That is fine. As long as the record is clear on that point, it is excellent.

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