ance of mortgages insured by private mortgage insurance in secondary markets.

The President also promised in his message to submit to the Congress a proposal for a mortgage interest tax credit of up to 32 percent on interest earnings to financial institutions which invest a certain percentage of their investment portfolio in residential mortgages. I expect that this proposal will be submitted to the Congress shortly.

I turn now to titles I and III of S. 2507, which are directed to the other major challenge addressed by the President-the needs of our low-income families who still live in substandard housing.

S. 2182 would continue, basically unchanged, the current programs of new construction for low and moderate income families found in sections 235 and 236. In contrast, the Revised National Housing Act of the administration contains no such authority.

If there is one point that the housing study made abundantly clear it is that the principal root cause of families living in substandard housing is-plainly and simply-lack of income to afford standard units, either newly constructed or existing. And the fundamental issue between the philosophy of S. 2182 and that spelled out in the President's message is whether it is preferable to continue the emphasis on new construction for lower income families or whether it is desirable. to shift emphasis to providing cash assistance directly to these families to assist them in obtaining housing in safe and sanitary units.

S. 2182 would continue in force the goal of building 6 million new or substantially rehabilitated units over a 10-year period to provide for the needs of low-income families. In contrast, title I of S. 2507 would amend that goal in calling for "maximum use of the Nation's existing housing stock."

The study found the existing subsidized housing programs wanting in many respects:

They restrict freedom-of-choice and mobility, concentrate people in projects and disrupt neighborhoods.

They are inordinately costly, $65 to $85 billion having already been spent or committed to be paid over 30 to 40 years to provide approximately 2.7 million units.

They have served, even at such cost, only about 1 family in 15 eligible under the law.

They serve primarily those with incomes well above the low-income level of $4,275 a median income level in 1972 of $6,750 in the case of Section 235, and $5,450 in the case of Section 236 projects.

They will result in foreclosures over the next decade estimated at 19 percent of Section 235 housing and 20 percent for Section 236 projects.

They require the Government to pay 15 to 40 percent more for the additional housing provided by the subsidy than the people themselves would have paid if they had acquired a comparable improvement in housing in the private market. They have resulted in many Section 236 projects which simply do not worktenant rents plus interest and tax subsidy produce cash flow that can neither service debt nor provide adequate services for the tenants.

In surveying this situation, the President has turned from any hope that these programs can, at acceptable costs, achieve decent housing for substantially all our low-income families to consideration of a more promising principal focus.

"Right now, in my judgment," said the President, "our principal efforts should be directed toward determining whether a policy of direct cash assistance-with first priority for the elderly poor-can be put into practical operation."

By providing qualified recipients with an appropriate housing payment, instead of providing a place to live, direct cash assistance has the advantages of allowing families the freedom to select their own housing without the stigma of living in a "project" and at the same time permitting maximum utilization of existing housing, which involves substantially lower costs than the costs of new construction.

This last point-lower costs-is worth emphasizing. To provide housing for all eligible families under existing construction-oriented programs would cost the Federal taxpayers, according to our estimates, $34 billion annually. But by placing families in existing safe and sanitary housing where available, the costs are estimated to be in the range of $8 to $11 billion annually.

There is no question but that we have built some good subsidized housing for lower income families across the Nation over the last 4 years. But in the midst of the hundreds of ribbon cuttings, project namings, and shovel turnings that take place every year for shiny new projects, the long waiting lists for units in subsidized housing projects-many good and some bad-offer a silent reminder of the vast number of families whose needs are not being met at all. And, I would submit, these needs simply cannot be met, at realistic budget levels, under any program that emphasizes the highest cost approachnew construction. As the President said, we need a "policy that will work-not a policy where success will always be a mirage."

Accordingly, in title I of S. 2507 we are requesting authority to broaden our testing program now underway to formulate and evaluate different operational approaches to cash assistance to see whether any are practical and authority to put in place the mechanisms necessary to determine the costs of obtaining safe and sanitary housing in various market areas.

It is true that we do currently have authority for an experimental housing allowance program. However, in order to focus "our principal efforts determining whether a policy of direct cash assistance" is appropriate, we believe that we need the elimination of certain restrictions contained both in the current experimental program and in the section 23 leasing program which is used in the experiments. With the basic information from a broadened experimental program in hand, we would expect to be in a position to report to the Congress the specifics and final evaluation of an operational program by late 1974 or early 1975. Accordingly, we are suggesting that authority under title III related to low income housing expire on December 31, 1975.

During the period in which a new approach is being developed, there will be a need for a limited construction program, for in some areas of the country there will simply not be a sufficient supply of safe and sanitary housing for the foreseeable future.

Accordingly, in section 8(g) of the U.S. Housing Act of 1937, as amended in title III of S. 2507 we are proposing a new approach to construction which would offer developers the opportunity to make newly constructed units available at special rents for low-income fam-, ilies, and the Government in turn would pay the developer the difference between such rents and fair market rents, perhaps with a premium where that appears justified. Only with a true shift in responsibility. from the Federal Government to private builders can we expect to. provide any incentive for cost savings in construction or for longer

term viability of projects. We seek to replace an investor mentality of "take your tax deductions and run" with a focus on "longer term availability of cash flow and an appreciation of value" and to replace a current lender mentality of "the Federal Government will bail me out-totally" with a feeling that "I have got the principal stake in this project." We do not plan to build each year as many projects as we did, for example, in 1971. But we are going to be a part of far fewer white elephants which, as they slide into foreclosure, hurt tenants who become increasingly subject to deteriorating services and undermine the confidence of the public in the Federal Government to discharge its housing responsibilities without scandal and waste.

For the present, we shall complete the job of honoring bona fide commitments for new construction under the existing programs. Beyond that, we intend to use the existing section 23 construction-forleasing program for new construction in a way which carries out some of the principles of direct cash assistance and can provide valuable information on this new approach. In doing so, we shall be attempting to eliminate abuses from the program.

For the remainder of the fiscal year 1974 we would intend to process applications for an additional 200,000 units, 150,000 units of which would be new construction. This will be more than adequate to take care of all the bona fide commitments I have mentioned. Moreover, this is the maximum number of units for which the Department could give quality processing during this fiscal year. In addition, 50,000 existing units would be available under the section 23 leasing program, and we would intend to administer the program in a way that maximizes freedom of choice.

Title III also contains recommended changes concerning public housing. The President directed me in his message to give particular attention to three problem areas.

First, the President has asked me to give attention to the problem of rent income ratios-now subject to a ceiling of 25 percent but not a floor-and to the present definition of income-which in certain respects is unrealistic.

Our response to this problem is contained in title III of S. 2507 and in most respects does not differ materially from S. 2182.

Both contain the idea that all tenants in public housing should pay some rent and both eliminate unrealistic, double deductions from the income definitions.

Of particular concern to me, and I am sure to this subcommittee, is the manner in which tenant rent increases are implemented. Following S. 2182 we have provided for a phase-in of these increases but I am not yet satisfied that this phase-in deals adequately with very large increases which the changed formula may visit on some families nor that it realistically imposes relatively small increases soon enough.

I have instructed the Assistant Secretary for Housing Management promptly to provide me with all obtainable data on this issue so that we may work with the subcommittee in devising a phase-in formula which is equitable.

Second, the President has asked me to investigate ways of improving management and efficiency of public housing projects. This will involve not only a reevaluation of the formula by which operating

subsidies are now distributed, but also an investigation of the extent to which localities can be given incentives for improved management.

At present, the local housing authority is responsible for management of public housing projects while the Federal Government is responsible for project deficits, including those due to poor management, and the local authority has little incentive to improve management standards. "One of our goals," the President stated in his message, "will be to achieve a more equitable sharing of responsibility among the Federal Government, local communities, and residents."

Third, the President requested, and I am conducting an inquiry as to whether the current level of operating subsidies, even with improved management and a more realistic approach to rents, is sufficient for continued operation, including deferred maintenance and modernization of the projects. In particular, I propose to conduct an extensive but very rapid examination of local housing authority owned projects to determine what and where their needs are. I shall report the findings of this examination to the President together with any recommendations that may be appropriate as to the adjustment of the current level of support.

On May 14, 1973, I testified before the Senate Appropriations Subcommittee as to what I considered my four major objectives for the Department. The third of these objectives was improvement of internal operations within the Department, especially with respect to departmental management. One of our most serious problems is the very long time and substantial expense involved in acquiring title under defaulted FHA mortgages. At present, the Department is subject to the variations of the laws in 50 States which result in delays as long as 2 years between the time of any abandonment to the time title is received. The consequences of these delays have become all too common. Homes and buildings which are vandalized, become fire and health hazards, and havens for criminal conduct, to say nothing of drastic decrease in value. And for the period of the delay, FHA pays debenture or mortgage interest on the insured mortgage.

Accordingly, we have included in our proposed bill a title IVa proposed Federal Mortgage Foreclosure Act. This act would provide for the foreclosure of mortgages made, owned, insured or guaranteed in whole or in part by a Department, Agency or wholly owned Corporation of the United States.

The bill would create a Federal foreclosure procedure by nonjudicial power of sale with respect to such mortgages. It would cut substantially the cost and time of mortgage foreclosure while at the same time containing proper protection for mortgagors-indeed providing for more rights than mortgagors presently have in a number of States. The bill has the support of all interested executive departments and agencies, including the Department of Justice, and I urge the subcommittee to give its provisions the most serious consideration.

In addition, the President's Message included a number of proposals covering neighborhood preservation, the relationship between housing and living environment and assuring equal opportunity, in particular prohibiting lenders from discriminating on the basis of sex or marital status.

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I will not take up the time of the subcommittee by detailing each of these proposals. However, I think I should conclude by mentioning the Responsive Governments Act.

In his March community development message, the President noted that:

For nearly 20 years the Federal Government has provided assistance to State and local governments in order to strengthen their planning and management capabilities.

The President also noted two major flaws in the comprehensive planning assistance 701 program under which the assistance has been provided. First, it has tended to stress one aspect of public administration; planning; without adequately recognizing other essential features such as budgeting, management, personnel administration, and information gathering. Second, State and local governments have also found it difficult to coordinate their planning because of the fragmented way in which 701 funds have been sent from Washington.

The Responsive Governments Act, builds upon the experience of the comprehensive planning assistance program. It is designed to sustain the achievements of the 701 program, correct its deficiencies, and introduce new features that are appropriate to the needs of America's communities in the 1970's.

Among the important characteristics of the Responsive Governments Act are:

Its emphasis on improving the overall capacity of State and local governments to plan and manage their efforts comprehensively;

Its acknowledgement that planning and management are integrally linked and that both are necessary to effective governmental decisionmaking;

Its support for planning and management at all levels-State, areawide, county, and municipal-as well as Indian reservations;

Its flexibility which allows the Secretary of Housing and Urban Development, with the advice of the Congress, to adjust the program to changing needs and conditions;

Its recognition that State and local officials are well aware that effective planning and management is a necessary governmental activity, and that the Federal Government need not rely on extensive requirements to insure that program objectives are met.

Experience has shown that an effective planning and management process in American communities provides the best insurance that Federal funds, as well as local resources, will be wisely invested there.

The Responsive Governments Act is designed to improve the processes now in place. This assistance will be even more important as States and local governments are freed from the restraints of narrow, categorical programs and assume their full role in addressing community development issues.

Thank you.

The CHAIRMAN. Thank you, Mr. Secretary. Senator Proxmire? Senator PROXMIRE. Mr. Lynn, if after reviewing all the data and after these hearings

The CHAIRMAN. May I say before we start, we will have the 10minute rule in effect.

Senator PROXMIRE. If after this, the Congress disagrees with the almost exclusive reliance on the housing allowance, and mandates the