Mr. CAMPBELL. In a letter dated February 3, 1954, Commissioner Hollyday wrote Jerry Voorhis, executive director of the Cooperative League:

As you will recall, the First Independent Offices Appropriation Act of 1954 (Public Law 176, 83d Cong.) contained a provision specifically stating that the position of Assistant Commissioner, Cooperative, Housing, was no longer authorized. It would seem, therefore, that the retention of language in the 213 statute which would make it mandatory for such a position to be established would create confusion, and that a clarification in this respect would in effect represent compliance with a directive from the Congress. Such an action does not have any relation to my views on the recommendations of the President's Advisory Committee that a much fuller staff should be provided for the service of the cooperative-housing program.

Administrator Cole wrote Jerry Voorhis on February 12, 1954:

I believe Mr. Hollyday has already written to you indicating our reluctance to submit a legislative proposal on this question which was contrary to the specific provisions of the First Independent Offices Appropriation Act of 1954. However, I want to make it clear to you that this in no way changes my agree ment with the Advisory Committee's recommendations affecting section 213. Specifically, I believe the FHA should have adequate personnel available to provide to cooperative sponsors all necessary assistance in organization and operation. This, I feel sure, can be accomplished without reestablishing the position of Assistant Commissioner for Cooperative Housing.

It would provide the status which the program has grown to deserve, however, if the Congress would restore that position.

Earlier in this testimony, we pointed out that a great number of minority projects were unable to secure advance commitments from FNMA. There were also a large number of builder-sponsored and consumer-sponsored projects in 26 States which could not secure mortgage commitments.

Senator MAYBANK. That was generally true about everybody, wasn't it?

Mr. CAMPBELL. That is right. It would require fund extensions of FNMA commitments for approximately $60 million to take care of the applications which met FHA's requirements both as to time and technical qualifications when the legislation was adopted. To take care of all of these projects, many of which have become hardship projects, would also require lifting the statewide limitation from $3.5 million to $10 million. If such an authorization is made, and we would highly recommend it, we would also suggest that in making advance commitments, FNMA give priority to bona fide consumersponsored cooperatives which are these in which the board of directors of the cooperative and the project sponsor consist of persons who purchase memberships in the cooperative and will eventually reside in the project, or who are representatives of consumer organizations or other nonprofit organizations formed to assist cooperative housing. Among the builder-sponsored projects, priority should be given for such mortgages as have the greatest difficulty in securing financing due to occupancy of the housing by minority racial groups.

It has been suggested to your committee that you authorize dual commitments under sections 207 and 213 of FHA to facilitate the mortgage procedure. We would approve of this if there are adequate safeguards to see that the procedure is not used merely for increasing the profits on a speculative project.

One of the important features which could be added to the new housing act would be a safeguard which, in our opinion, could take

care of several of the dangers which have been raised by ourselves and other witnesses.

The

follows:

FHA Cooperative Section already requires safeguards as

As a matter of administrative policy and practice, the Federal Housing Administration in all section 213 cases requires that there be presented to the Director prior to the closing of the loan the following:

1. Signed statement showing the total cost of land from purchase contract or option.

2. Certified copy of contract for architectural services.

3. Certified copy of contract for offsite improvements. 4. Certified copy of contract for onsite improvements.

5. Signed statement of the total amount of legal and organization expenses (not to exceed FHA's estimate thereof on the project analysis).

6. Signed statement of the total amount of carrying charges and financing (not to exceed FHA's estimate thereof on the project analysis).

If the total of the foregoing items, which constitutes the total actual cost of the project, is less than the amount of mortgage covered by the commitment, the mortgage is reduced to the lesser amount and the monthly payment provisions and other instruments are adjusted to accord therewith.

The above documents are carefully checked by the FHA closing officials prior to the endorsement of the note for insurance.

We would suggest that there be added to the legislation before you a paragraph which would serve as an antikickback amendment. Such an amendment was adopted by the Congress relating to tittle IX of the Defense Housing and Community Facilities and Services Act of 1951. This amendment was submitted by Senators Bennett and Douglas, and approved by the Senate by voice vote. It was modified slightly in conference between the House and Senate, and adopted.

We would be happy to provide suggested language. In laymen's terms, what would be provided is that the mortgagor agree to certify upon completion of the physical improvements on the mortgaged property that the actual cost of the physical improvements equaled or exceeded the proceeds of the mortgage loan. In other words, the builder would not be paid more for the project in a mortgage than it actually cost for the physical properties. This would safeguard against the use of the housing agency to insure a "gravy train."

Such an amendment could prevent misuse of dual commitments such as we have suggested. It would also prevent any exploitation of the replacement value in the development of FHA section 213 cooperative projects.

Such an antikickback amendment would be particularly valuable in preventing misuse of section 221 and 220 in the new legislation. If the 213 program is as effective as we believe it to be, we feel the Congress should extend the mortgage insurance available under section 213 to herabilitation of existing housing where ample safeguards are applied, and to the disposition of Government-owned housing which can be sold to cooperative associations of tenants now living in such projects.

The President's Advisory Committee on Housing also recommended that the Housing and Home Finance Agency give serious study to a proposal for the formation of a Housing Cooperative Mortgage Corporation which could pool the FHA-insured mortgages on cooperative housing projects and issue debentures against such a portfolio. This would make it possible for retirement funds and other similar sources of finance to participate directly in the cooperative housing program, often making it possible for union funds to be used for housing for union members.

Present financial requirements make that difficult, and such a mortgage corporation would facilitate increased selfhelp on the part of such groups in meeting their own housing needs. We would appreciate the liberty to insert in the record a proposal which we have made to Administrator Cole for his further study in this regard. It is a 6-page proposal, which we presented to Mr. Cole a couple of months ago.

The CHAIRMAN. Without objection, it will be placed in the record. (The proposal referred to follows:)

Mr. WALLACE J. CAMPBELL,

KROOTH AND Altman, Washington, D. C., January 7, 1954.

Cooperative League of the United States of America,

Washington, D. C.

DEAR MR. CAMPBELL: I am sending this letter to you to accompany the submission which you are making to Mr. Albert M. Cole, Administrator of the Housing and Home Finance Agency. This letter deals with the proposal of various public-interest groups for a Housing Cooperative Mortgage Corporation. It includes the revisions which we have made in our proposal since the issuance of the President's Advisory Committee Report on Government Housing Policies and Programs.

A. Need for cooperative housing and a Housing Cooperative Mortgage Corporation

The report of the Advisory Committee states that the Housing and Home Finance Administrator should "study proposals for the establishment of a Cooperative Housing Mortgage Corporation to assist in the production and financing of cooperative housing projects" (p. 13, item V-5).

The report of the subcommittee on FHA and VA programs states that

(1) The fundamental principles of cooperative housing are workable. By banding together, families in need of housing can often obtain such housing at relatively low cost not only in suburban areas, but also in the concentrated areas of our larger cities (p. 42).

(2) We have found that there is only a restricted market today outside of FNMA for the mortgage paper arising out of section 213 financing (p. 41). (3) The subcommittee listened to witnesses who argued for the establishment of a Cooperative Housing Mortgage Corporation to make housing loans to cooperatives. In the time available to the subcommittee, it was not possible to study this proposal in detail. We therefore suggest that the Administrator should make a careful study of this matter (p. 42). The purpose of this letter is to submit to the Housing and Home Finance Administrator our current proposal for the establishment of a Housing Cooperative Mortgage Corporation so that he may study it as recommended. We hope that on the basis of the modified proposal which we are now making, the Administrator will recommend that the proposed Housing Cooperative Mortgage Corporation be included as part of the legislative program for the coming season.

To the extent that cooperative housing achieves lower monthly costs and makes it possible to serve families of moderate incomes who cannot be reached through other types of private building operations, it represents a private-enterprise solution to the problem of providing homes for such families of moderate income and helps fill the gap between other private building operations and subsidized public housing. The widespread interest in the cooperative housing program confirms the demand and support for it. Such a program should not be denied

further progress and expansion by reason of the lack of a market for mortgages on cooperative housing-a condition confirmed by the President's Advisory Committee; rather the solution lies in finding a sound way to provide such mortgage financing. This can be done through the establishment of a Housing Cooperative Mortgage Corporation.

B. How our proposed Housing Cooperative Mortgage Corporation would operate We have modified the proposal which we submitted to the FHA subcommittee of the President's Advisory Committee by limiting its function to the purchase of FHA mortgages under section 213 of the National Housing Act, as amended. The Mortgage Corporation which we are now proposing would merely provide a market for mortgages insured by FHA under section 213 and in this way it would make that program operative and effective. FHA would continue to process the applications, insure the mortgages, and inspect the construction. -. Following the successful pattern established by the Federal home loan banks and the Central Bank for Cooperatives which makes farm loans, the Housing Cooperative Mortgage Corporation would be created and operate in the following

manner:

1. Legislation would be enacted to create the Housing Cooperative Mortgage Corporation to operate within the Housing and Home Finance Agency. Initially, the Federal National Mortgage Association would subscribe to capital stock of the Corporation aggregating $50 million. This stock would be retired from earnings of the Mortgage Corporation and from the proceeds of the sale of stock to housing cooperatives, who would be required to subscribe to such stock concurrently with the purehose of their mortgages by the Mortgage Corporation. In this manner, the stock purchased by FNMA would gradually be retired and the Mortgage Corporation would become privately owned by the housing cooperatives. This is the same procedure followed with the Federal home loan banks in which all of the federally owned stock has now been retired. The $50 million to be initially subscribed is the same amount of subscription which has been recommended by the President's Advisory Committee for the National Mortgage Marketing Corporation. As a matter of procedure, it is proposed that when the amount of earnings and capital paid into the Housing Cooperative Mortgage Corporation by housing cooperatives equals $50 million, the Mortgage Corporation would be required to apply any subsequent earnings or collections from subscriptions to its stock to the retirement of the stock issued to FNMA.

2. When the FHA-insured mortgage of a housing cooperative is purchased by the Mortgage Corporation, the housing cooperative would be required to subscribe to capital stock in the Mortgage Corporation in an amount equal to some prescribed percentage of the mortgage purchased. With respect to the National Mortgage Marketing Corporation, the President's Advisory Committee recommends that the amount of stock to be purchased by institutions selling mortgages to the corporation to be maintained at not more than 4 percent of the unpaid balance of such mortgages held by that corporation, while there is a minority of the Committee which recommends that the requirement be 2 percent. Whatever percentage figure is finally established for the National Mortgage Marketing Corporation (which we believe should be 2 percent rather than 4 percent) should likewise be applicable to the House Cooperative Mortgage Corporation. However, the requirement would be that the housing cooperative (rather than a financial institution) purchase the stock in the Housing Cooperative Mortgage Corporation. It is recommended that the housing cooperatives be permitted to make payment for their stock subscriptions in installments over a period of 10 years.

3. The Mortgage Corporation should be authorized to issue an advance commitment to the financial institution handling the FHA application of a housing cooperative, with the housing cooperative being required to subscribe to stock in the Mortgage Corporation at the time of issuance on this advance commitment. The first payments on the stock subscription should be made at the time of the delivery of the FHA-insured mortgage to the Mortgage Corporation pursuant to its purchase commitment. It is necessary that such advance commitments be issued in order to enable construction financing to be obtained from banks and other private institutions on the basis of a takeout through permament financing.

4. The Mortgage Corporation would purchase FHA-insured mortgages on housing cooperative projects, using its initial capital to purchase the initial mortgages. When the Mortgage Corporation had purchased a number of mortgages, it would be authorized to issue debentures in an amount equal to the unpaid

principal of the mortgages held by it. As in the case of the Committee's recommendation of the National Mortgage Marketing Association, the Housing Cooperative Mortgage Corporation would be authorized to issue debentures on the private market up to 12 times the amount of its stock and surplus, but in no event in an amount exceeding the unpaid balance of FHA-insured mortgages which it holds.

5. As was done initially with the Federal home loan banks, and with the Central Bank for Cooperatives on farm loans, these debentures should be guaranteed by the United States. Since the portfolio of the Mortgage Corporation would consist entirely of mortgages insured by FHA under section 213 in a dollar amount at least equal to the debentures issued, the basic underlying security behind the debentures of the Mortgage Corporation would include the right to have Government guaranteed debentures issued in case of a default on any of these mortgages. Consequently, the Government guaranty of the debentures issued by the Mortgage Corporation would involve no new or additional contingent liability on the part of the United States. It would merely place the guaranty on the debenture which is to be marketed so that it will command a lower interest rate and a better and wider market. Since the underlying security in the portfolio already includes the contingent liability of the Government, it would be most unwise to sacrifice the lower interest rates and better market by not having the Government guaranty appear on the face of the debentures of the Mortgage Corporation.

6. The Government would be protected against losses on its guaranty of the debentures of the Mortgage Corporation because the debentures would only be issued against FHA-insured mortgages held by the Mortgage Corporation on which insurance premiums are paid. Such premiums provide the same protection against loss which is characteristic of the entire program of FHA insurance.

7. The primary objective of the Mortgage Corporation would be to assure the availability of mortgage money for cooperative housing projects financed under section 213. The program does not involve any cost to the Federal Government or any subsidies. Servicing fees would be charged to cover the cost of administration of the Mortgage Corporation. The Mortgage Corporation would operate on a self-supporting basis and require no appropriation for its administrative expenses.

8. The Mortgage Corporation would be managed by a Board of five directors appointed by the President. As the Mortgage Corporation would be a mixed ownership corporation, with partial private ownership as soon as it makes its first mortgage purchase, there should be representation on that Board for the housing cooperatives. At least two of the directors should be appointed from among the members of the stockholding housing cooperatives or other persons representative of housing cooperatives.

9. When all the stock owned by FNMA is retired and the housing cooperatives own all the stock of the Mortgage Corporation, all of the directors should be appointed by the President from among such housing cooperatives or their representatives.

10. As part of its servicing of the FHA-insured mortgages which it purchases. the Mortgage Corporation would provide the assistance and supervision required to assure that cooperative housing projects are soundly operated with all necessary protections. It is recognized that cooperative housing projects require such additional assistance. The Mortgage Corporation dealing solely with housing cooperatives can gear its operations to meeting these problems. In this way, it can help develop an ever-growing strength and confidence in the cooperative housing program.

11. The debentures of the Mortgage Corporation would represent an attractive investment as they could carry a Government guaranty reflecting the guaranty underlying the portfolio of FHA-insured mortgages on cooperative housing projects. Purchasers of these debentures would not have the problems involved in owning or servicing the mortgages, but would merely clip coupons to collect interest on the debentures. We believe labor unions and other institutions interested in cooperat ve housing (who have been unable to purchase mortgages on cooperative housing projects) would be prepared to invest large sums in the debentures of the Mortgage Corporation because of the absence of servicing burdens and the shorter maturities of debentures. Consequently, the debentures would tap new and large sources of investment for cooperative housing which are not now available. Thus, at the same time that the Mortgage Corporation would provide an assured source of financing for cooperative housing projects, it would provide the means for securing the investment funds to be used for this purpose, through the sale of debentures.