Here, again, the new statutory mortgage limits under section 207 (c) (3) would not be put into effect except by Presidential direction.

FHA section 213, "Cooperative housing": Section 119 of this bill would make certain amendments to the present law governing the insurance of cooperative housing mortgages. In the first place, the insurable maximum would be raised to $25 million in amount if the mortgagor is regulated by Federal or State law as to rents, charges, and methods of operation.

In the nonveteran cooperative projects, the per-room limitation would be raised to $2,250 and the per-family unit limitation of $8,100 would be applicable only if the number of rooms is less than 4. A 65percent veteran membership in the project would permit the mortgage to involve a $2,375 per-room limitation or an $8,550 per-family limitation, if the number of rooms does not equal or exceed 4 per unit. Here, also, additional allowances are made if the projects are of the elevator type.

Our association believes that the provision which would base mortgage limits on appraised values, instead of replacement costs as presently provided under section 213, is decidedly a forward step toward providing for relatively sound cooperative housing.

We are, however, not at all certain that section 213 should provide for higher basic mortgage limits than those provided under section 207. While in theory it may seem advisable to make provision for higher limits on cooperative projects than on rental projects, such higher limits might, in effect, lead to the promotion of unsound cooperatives under the sponsorship of speculative developers.

A basic principle in this legislation involves whether its purpose is to encourage true cooperatives, or merely to enable promoters, whose motive is one of profit, to capitalize upon such development in the guise of helping the eventual cooperative owners.

Under the section 213 promotional-type of cooperative, the capital, risk, and, I might add, the promoter's profit, to the extent that the traffic will permit, are all borne by the mortgagee and the cooperative owners. Experience has proved that the benefits of cooperative ownership are illusionary unless the sponsorship of these projects is such that the profit motive is subordinated to a point where the cooperative owners benefit in the purchase of the land, the construction of the buildings, and later, the mangement of the project.

We trust that in the future administration of section 213, considerable emphasis will be put upon providing for strong sponsorship of such projects.

The new sections 220 and 221 of the National Housing Act-section 123 would add two brand new mortgage programs to FHA functions. They are special-purpose mortgage programs. They could only be brought into use where the Housing and Home Finance Administrator has received from the locality a workable program for slum elimination and slum prevention and the rehabilitation or redevelopment of the blighted areas. The Administrator must certify to FHA that either one or both of these new insurance programs could be available in the development community.

The section 220 program would authorize mortgage loans on both new and reconditioned one- to four-family units, with the same limits proposed for application for one- to four-family dwellings

under section 203. This new section 220 also contemplates an insurance program for multifamily housing with maximum mortgage limits of $2,250 per room-or $7,200 per family unit when the number of rooms does not equal or exceed four per family unit. Here again, recognition is given to the higher cost incident to the construction of elevator-type projects.

While we believe that the maximum mortgage limits provided under this section should not exceed those provided for rental housing under section 207, we would not raise objection to the higher limits in the interest of promoting the rehabilitation or redevelopment of blighted areas.

The maximum ratio of loan-to-value would be 90 percent of value, but mortgages insured under the new section 220, with respect to sales or rental housing, would be subject to the section 203 or 207 mortgageamount limitations unless the President authorizes the higher amount. Thirty years is the maximum maturity date, and even this could only be reached by Presidental direction. A special insurance fund of $1 million would be set up as a revolving fund with the new section 220 program.

Of course, we cannot be sure that this is going to be an effective program, but we believe it has promise and we think that it should be attempted as one of the instruments to combat the spread of blighted areas. Properly administered, and we believe it will be, this might be of special assistance in some of our large, crowded cities.

Also set up under section 123 of this bill is another new FHA program which would be added by section 221 to the National Housing Act. This program is especially designed to provide low-cost housing for families displaced in urban redevelopment areas, and would only be available upon local certification and upon approval by the Housing Administrator.

In this program, the maximum mortgage amount would be $7,000, but it would be 100 percent mortgage insurance for a single family dwelling where the mortgagor is the owner and occupant; $200 would be required of the mortgagor to cover initial expenses; 85 percent builder's insurance would be available; the maturity would be a maximum of 40 years; and a service charge would be permitted.

The new section 221 would also provide for the insurance of loans for the repair or rehabilitation of dwellings where 10 or more families are accommodated. If the mortgagor is a nonprofit corporation, association, or organization subject to control as to rents, charges, and methods of operation, here, too, the maximum mortgage would be $7,000 per family unit and not in excess of 100 percent of value, with a maximum term of 40 years.

A 40-year mortgage, especially of this type, would probably not have geenral acceptably among mortgage investors, including savings banks, but the added provision in this section to the effect that the mortgagee could assign the mortgage to the Federal Housing Commissioner after 20 years, if the loan is not in default, and receive 10-year debentures equal to the unpaid balance, might create a market for this special type of insured mortgage.

In the interests of promoting the basic objectives of this section, our association would recommend its support on a trial basis.

Miscellaneous provisions under title I of the bill: Under section 124 of the bill, some of the remnants of old FHA programs are gathered

together and brought under section 203 or 207, as the case may be. This is all to the good in cleaning up the National Housing Act, and should be of assistance to those that have the duty of administering it. Section 125 of the bill, authorizing FHA insurance of additional advances under an "open-end" FHA-insured mortgage, gives recognition to a growing move, and we believe a good move, among mortgagees to use this type of instrument. State laws will, of necessity, limit the use of this insurance in some places, but State laws can be amended if the public wishes.

Under sections 126 and 127, certain old insurance programs would be terminated. It is our understanding that there is no activity under these programs, and here, again, we believe it wise to tidy up the National Housing Act.

Section 128 provides for a 1-year extension of the military housing insurance authority-title VIII-and section 129 would stop new commitments for defense housing insurance-title IX-as of the expiration date, July 1, 1954.

Presidential authority with regard to interest rates, terms, and charges: A good bit of flexibility would be written into the FHA and VA programs by the enactment of section 201 of this bill. The President would be authorized to establish maximum rates of interest on insured or guaranteed mortgages. These interest rates might differ as to different classes of mortgages, but the maximums could not exceed the average market yields of Federal bonds having a remaining maturity of 15 years or longer, plus 22 percent.

This section also gives the President the power to adjust interest rates on FHA debentures, limits on fees and charges in connection with Government-aided mortgage loans, maximum maturities, and ratios of loan-to-value. Within the statutory limitations, he could establish maximum dollar limitations per room or per family unit under the National Housing Act. Here, again, this flexibility in the operations of the FHA programs and the VA program should go far in helping to iron out any unusual inflationary or deflationary tendencies in the housing business.

Secondary mortgage market facility: Section 301 is a complete rewriting of the charter statute of the Federal National Mortgage Association. Briefly stated, the rechartered association would have three purposes: (1) To provide a degree of liquidity for existing mortgage investments, and thereby facilitate the distribution of mortgage money; (2) to provide special assistance, when needed, for financ ing special housing programs and to be used as a means of retarding any serious decline in mortgage lending and home building; and (3) to act as liquidating agency of the existing FNMA mortgage portfolio. Mortgages purchased by the association would not exceed $12,500 per family unit. The Secretary of the Treasury would subscribe the original capital stock of the new association, which has been estimated by the authors of this bill to be at about $70 million. The plan seems to be to displace gradually this Government capital by the nonrefundable contributions payable by the users of the new mortgage association. This nonrefundable contribution, of not less than 3 percent of the amount of the mortgages sold, would be involved only in the regular secondary market operations of the new association. The statute seems to contemplate that eventually these nonrefundable con

tributions will be converted into stock, and that the President shall recommend to Congress necessary legislation to turn over the control and management to private owners.

The new association could purchase FHA- and VA-insured mortgages at or below the market price and could establish fees and charges for its services, and apparently is intended to be self-supporting. The 1-for-1 program would be continued as a part of the regular secondary market operations.

The new association could issue debentures not to exceed 10 times the sum of its capital, capital surplus, general surplus, reserves, and undistributed earnings. The debentures would not be guaranteed by the United States. The Secretary of the Treasury could purchase these debentures in his discretion.

There is very little doubt that the past expansion of FNMA's operations, particularly since 1947, were influenced primarily by the retention of an inflexible and unrealistic interest rate on Government-insured and guaranteed loans until the middle of 1953. If a flexible interest rate pattern, such as proposed in this bill, had been available, and had been put into effect as the situation required, the need for a secondary mortgage market facility would have been materially minimized.

We have never believed in the philosophy of using a secondary market facility to peg an unrealistic interest rate. We believe this bill recognizes the importance of a realistic and competitive interest rate on mortgage investments. If future mortgage interest rates are set on a basis whereby the yields obtainable are truly competitive in the capital market, the need for a secondary market for mortgages would, for all practical purposes, be obviated.

Regardless of these factors, our association voices no objection to the supplementary secondary mortgage market plan, as proposed in this bill, based upon the belief that such plan could be of some benefit in directing mortgage funds to areas of scarcity and in relieving temporary situations of lack of liquidity.

Perhaps the authors of this bill have come up with the most feasible scheme for establishing a secondary mortgage facility which ultimately could stand upon its own feet, without Government investment. We do not think that it is the sole cure-all for fluctuations in the mortgage market. Of equal, and perhaps greater, assistance in maintaining a fairly steady mortgage market will be the judicious exercise of the flexible-interest-rate authority which this bill would give to the

President.

The other purposes of the new association will call for very prudent management. We do not particularly like to see the reinstitution of a program, even a special-assistance program, of Government purchases of mortgages at par. This can lend itself to abuses. We do not oppose this provision for special-assistance authority, for we believe that the administrators of this program will profit by the past mistakes that resulted principally from unwise use of commitment authority for special-purpose programs. The liquidation of the FNMA portfolio is to be desired, but the administrators of this program must, and we feel sure that they will, exercise care in not adversely affecting the whole housing structure.

Slum clearance and urban renewal: This part of the bill seems to aim at broadening the concept of slum clearance and urban renewal

by redefining some of the important terms used in the statute to include plans and actions for rehabilitation and conservation, as well as the actual clearance of the blighted land and its preparation for reuse. We assume that this contemplates the coordinated use of the new insurance sections, 220 and 221, in conjunction with new projects. Another change is the broadened concept which would include the clearance of commercial or industrial properties, even though the cleared area will not be developed for predominantly residential properties, if the clearing of the commercial area serves a sound community objective. There appears to be reemphasis in the bill of local responsibility for the initiation and preparation of urban renewal plans.

We believe that this added emphasis on local responsibility is wise, as a safeguard aganst unnecessary projects, resulting in waste of much-needed public funds, both Federal and local. The changes in the concept of urban renewal plans to permit the inclusion of voluntary repair and rehabilitation work; construction of streets, utilities, playgrounds, parks, and other improvements, is probably a realistic adoption of the authorities' experience in this field.

We make no attempt to comment on the low-rent public housing features of the bill, other than to state the long-held position of the National Association of Mutual Savings Banks on this matter, which is: Public housing, although needed in some areas and to some degree, should be strictly confined because of the latent danger that it might destroy the initiative of families to acquire their own homes and because of the potential abuse resulting from families' continuing to avail themselves of public housing after improvement in their economic status should deprive them of this Government subsidy.

The President has recommended a 4-year program of public housing construction at the rate of 35,000 units per year. We do not oppose this proposal, but we urge that particular care be taken in the administration of the program to insure that initial admissions and continued occupancy be strictly policed in order that public housing units be available for the class of persons for which they were intended.

Thank you, sir.

The CHAIRMAN. Any questions, Senator Bennett?

Senator BENNETT. No.

The CHAIRMAN. Senator Lehman?

Senator LEHMAN. No.

The CHAIRMAN. Senator Frear?

Senator FREAR. NO.

The CHAIRMAN. You feel this FNMA association, as set up in the bill, will work?

Mr. HELD. I think it will work a lot better than the old one will. I think boiling it down to a point where you have one segment devoted to the assistance of special projects, and creating a secondary market under another portion of the bill, is a sound basis.

We have always felt that in a secondary market it should be hard to get the mortgages in and easy to get them out. Keep a revolving fund.

The CHAIRMAN. I believe you testified you are in favor of giving the President the flexibility to set interest rates and downpayments and yearly payments?