Under section 213-I think it is form 3203-we fill out that form and tell you how much downpayment the cooperator has put in and how much saving he has effected through joining the co-op. I think that is form 3203. That is never even seen, as rule, by the purchaser of the stock, who eventually becomes the purchaser of an apartment or a home. It is done through the co-op organizer.

In our particular case, instead of putting down $800 savings, if there is a $300 difference in valuation, we will give them a $500 saving. That is simply, as far as we are concerned, what amount we put down on the typewriter to fill out the figures. In all large operations it wouldn't make any difference, none at all.

The difference it does make to myself and others is that we want to make section 213 nationally acceptable to all lending institutions. The only way it is going to be acceptable to all lending institutions is by a demand for it. We want everybody to get into the act, so to speak-the cooperator, the American Legion, the teachers association, the union, as well as all other builders. We want to make this a popular idea.

We have spent $1.5 million in southern California selling this idea. It has sold probably equal to all the other homes combined in the area in which we operate, in the southeast section of Los Angeles. It is a family byword in our particular section. But when I go to New York and talk to the bankers and lending institutions-and I may state that Prudential is the one exception-they throw up their hands and won't even let me finish. "Oh, it is some kind of co-op," and they are afraid of it. They don't read it, and they don't know what it is about.

If their own people will get behind this thing, it makes it easier for us. That is the only selfish interest we have. But this much is sure: The cooperator, the eventual owner of the home, buys it from 5 percent to 8 percent cheaper than he can buy anywhere else, due to the simple fact that our homes are sold before they start; the speculative provision is gone; the maximum financing cost is established, which is 12 percent. It is a good thing, and the fact we are allowed to pay it causes others to pay it.

This way it wasn't paid, and the saving went to the cooperator, and that is why it was so readily accepted.

The CHAIRMAN. You are just offering one change in the bill, and that is to change this language of "estimated value" for "replacement cost."

Mr. BOYAR. And possibly the reestablishment of an FHA directive to give this impetus. It seems to have gotten lost since the directive has gone.

The CHAIRMAN. That is the only change you are recommending? Mr. BOYAR. That, plus the reestablishment of the Assistant Commissioner. Since he has gone there is nothing mailed out, and there is no effort to popularize. They don't have the money, the personnel, or the time.

The CHAIRMAN. I think you should give us something more on this estimated value and replacement cost.

Mr. BOYAR. I think Mr. McMurray is well versed on that.

The CHAIRMAN. I don't believe we have the record clear on that yet.

Mr. BOYAR. Yes, I will be glad to give you the facts. I didn't know I was coming here until 12 o'clock, and then I didn't know I had to prepare a statement.

The CHAIRMAN. Substitute "estimate value" for "replacement cost"

Mr. BOYAR. If you leave in "estimated value" what you really have 'done is said, "Here's another section 203." I see no sense of even having section 213 if you leave it in as "estimated value." Then you are back where you started. You have section 203 with another number, with the possibility of making a 40-year loan which can't be received anyway because the banks won't give it to you.

The CHAIRMAN. Thank you very much. We appreciate your testi

mony.

(A supplementary statement submitted by Mr. Boyar follows:)

SUPPLEMENTARY STATEMENT OF LOUIS H BOYAR

Mr. Chairman and members of the committee, gentlemen, at the request of your chairman, I am clarifying some of the testimony I gave yesterday, and I also want to correct one of my statements.

I believe that the difference between the phrase "replacement cost" and the phrase "estimated value" can best be explained by the following actual case. I am quoting from FHA case No. 170-30033, Long Beach, Calif., and all figures used in this testimony are the figures arrived at by FHA.

This case covers 73 single-family homes, and, as in all 213 cases, is first figures under section 203, under which the mortgage is based on estimated value, and then figured under section 213, under which the mortgage is based on replacement cost, and under the present law, the highest of these two figures must be used. The following chart shows the actual average per house difference between figuring under estimated value and replacement cost:

The difference in cash that each and every purchaser would need under "Estimated value" would be $1,130 more than he would need under "Replacement cost."

Why is there a difference between replacement cost and estimated value? Because under replacement cost in this FHA case, the following items and actual amounts were not considered in computing estimated value under FHA's manual: Construction bond

Additional FHA fees

Financing fees-

Additional title fees.

Legal and organization_.

A total (for each and every home)

$126

110

165

43

351

795

None of these items are figured in estimated value or are they required under section 203, but are figured in and are required under section 213. In addition, under section 213, we are obliged to pay the prevailing wage scale that is approved and set by the Department of Labor, and in most cases creates higher replacement cost. That is recognized under replacement cost but is not recognized in estimated value.

The cost of many of the items listed heretofore actually exist in the purchase of new homes to be constructed, but the purchasers, if they use normal

FHA financing, must be prepared to pay for them in cash over and above their normal down payments.

Under FHA, estimated value, is the lowest of the following three things: (1) comparative sale prices; (2) replacement cost; (3) capitalization value over a long-term period.

Replacement cost is simply actual replacement cost.

That estimated value is lower than replacement cost is established clearly in the latest publication by FHA for use of their field offices entitled "19th Annual Report of Federal Housing Administration" dated December 31, 1952. On page 116 it says, "(1) The maximum mortgage amount under this section is limited by statute to a proportion of FHA estimated value of the project rather than replacement cost (which invariably average higher than value)."

The original act creating cooperaitve housing called for replacement cost which requires the use of the highest of all figures in reaching the mortgage amounts.

Under estimated value the lowest of all figures is used in reaching mortgage

amounts.

Yesterday before actual figures from my office were available to me, I testified that I believed this change of wording would not affect our operations or the operations of any large builder. Today, I want to correct that statement and emphatically say to you that the proposed change of wording from replacement cost to estimated value makes the cooperative section 213 program unworkable for all, whether large-scale operators, small builders, legion posts, teachers, unions, associations, etc., and our city of Lakewood, Calif., would not have built one cooperative home under the new proposed law.

If the purpose of section 213 cooperative housing was to aid middle-income groups to purchase good housing with small downpayments, that aim has been accomplished by the present law.

I came here originally to aid civic groups who wanted and needed a workable section 213 program, and now find that I am fighting for my economic business life.

The CHAIRMAN. We will recess until 10 o'clock tomorrow morning and we will have seven witnesses, starting with the National Association of Mutual Savings Banks, the American Federation of Labor, the Cooperative League, the American Association of Social Workers, the Associated Builders of Greater New York, the Jewish War Veterans, and the Federation of Businessmen's Association of Washington.

That will end the hearings, after we have listened to those witnesses, excepting possibly 10 days from now we will have 3 days of hearings on an amendment that I will offer to this bill, on smog and smoke abatement.

We will stand in recess until 10 o'clock tomorrow morning.

(Whereupon, at 3: 45 p. m., the committee recessed, to reconvene at 10 a. m., Thursday, March 25, 1954.)

HOUSING ACT OF 1954

THURSDAY, MARCH 25, 1954

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The committee met, pursuant to recess, in room 301, Senate Office Building, at 10:05 a. m., Senator Homer E. Capehart (chairman) presiding.

Present: Senators Capehart, Bennett, Maybank, Robertson, Frear, and Lehman.

The CHAIRMAN. The committee will please come to order.

Our first witness this morning will be Mr. Harry Held, of the National Association of Mutual Savings Banks.

Mr. Held, do you prefer to read your statement?

STATEMENT OF HARRY HELD, NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS

Mr. HELD. I believe I would prefer to read it.

My name is Harry Held, and I am vice president of the Bowery Savings Bank, New York City. I am appearing here today on behalf of the National Association of Mutual Savings Banks in support of S. 2938, the Housing Act of 1954.

As of January 1, 1954, there were 528 mutual savings banks, all State chartered. These mutual savings banks are nonprofit organizations, without stockholders. They are operated solely for the benefit of their depositors, who receive all the earnings after the payment of necessary expenses and the setting aside of protective surpluses and reserves.

As of the first of this year, these mutual savings banks had assets of $27,199 million and deposits of $24,400 million. As of the same date, these mutual savings banks held $12,792 million in mortgages which represent 47 percent of their assets, and 52.5 percent of deposits. During the year 1953, these savings banks added, in round figures, $1.6 billion to their holdings in mortgages, in contrast to $1.5 billion in

1952.

Looking at the bill, S. 2938, as a whole, we believe that it is a good measure and, if enacted, should be helpful to the prospective homeowner, the home builder, and the mortgage banker. The housing industry is recognized as one of the important factors in the Nation's economy. The encouragements to home financing contained in S. 2938 should help the housing industry to maintain a reasonably high rate of activity for the year.

In its slum clearance and urban renewal sections, the authors of S. 2938 have taken a fresh and vigorous approach. To what degree the new programs designed to combat urban blight will succeed it is hard to predict, but the problem is immediate and is difficult of solution. Certainly, the effort should be made. In view of the proportions of S. 2938, we shall endeavor to be brief in our remarks and to confine them to the sections of major interest to savings banks.

Sections 203 and 207, "Insurance": The simplification of the various mortgage insurance programs under section 203 of the National Housing Act, and the consolidation of the present title I, section 8, "Insurance," into the section 203 framework should be helpful to both the Federal Housing Administration and to mortgage lenders generally. The various subsections, with their different provisions, have been confusing, and this simplification should work for a better understanding of the FHA programs and a quicker processing of mortgage loans.

New maximum mortgage amounts would be established for FHA insurance under section 203, with a $20,000 limit for a 1- or 2-family residence, $27,000 for a 3-family residence, or $35,000 in the case of a 4-family residence. The FHA insurance under this amended program would not exceed 95 percent of the first $8,000 of value and 75 percent of the value in excess of $8,000.

These present ceilings are $16,000, $20,500, and $25,000, respectively. That is in section 104 of the bill. The power to raise these maximum mortgage limits within the new limits would be vested in the President under this bill. That is found in section 201 of the bill.

This would give the President a handy instrument for assisting in the stabilization of the housing industry, in that he could raise or lower the maximum mortgage amounts, depending upon whether the country was faced with a deflationary or an inflationary condition. What I have just said as to the benefit that may come from the new limits of insurable mortgages is true, also, with respect to the new general limits of 30 years on maturities and 6-percent interest on FHA loans. These are in sections 105 and 106 of the bill.

Maturities could be adjusted up or down within the new limit, and the interest rates could even go beyond the new 6-percent limit at the direction of the President, as provided in section 201 of the bill.

This sort of flexibility has been needed for some time with regard to FHA and VA mortgages, in order for them to meet changing conditions of the money market and to compete better with other in

vestments.

The amendments contained in this bill to FHA section 207, "Rental housing insurance," likewise have our endorsement. This is section 115 of the bill. The important part of this amendment, as far as we are concerned, is the amendment to paragraph 3 of 207 (c), which would retain the present mortgage amount limits of $2,000 per room or $7,200 per family unit-less than 4 rooms-but would remove the $10,000-per-family-unit limitation.

Permissible, also, under this amendment, would be an increase in the limitation of $2.400 per room and $7,500 per family unit for elevator-type multiple housing. This is a realistic change, as elevator rental properties are in demand in high-cost and crowded land areas and recognition should be given to the added expense of building them.