percent of the family's annual income up to, but not exceeding, the maximum rents, whichever of the above were the greater. There would also be a requirement for annual reexamination of tenant incomes and annual adjustments in rents in accordance with changed family income on the basis of the above formula.

On a dwelling unit costing $9,000, the minimum gross rent would be approximately $63 a month, with a possible range in achievable rents from about $50 per month in the lowest cost areas to about $75 per month in the highest cost areas. At the same time, the rents charged families with incomes above the level justifying the minimum rent would be correspondingly higher. Furthermore, as average family incomes in a project should rise over a period of years, the revenues of the project would move toward a fully self-sustaining basis, on a basis of comparison with private financing, and the refinancing of the loan in the private market would be facilitated. In my opinion, such terms would represent a considerable improvement over the present provisions of title III from the standpoint of assuring that the special financing benefits of such a program would be reserved for middle-income families and that the program would become selfsupporting to the extent that tenant incomes permitted.

In my opinion, both the provisions of this title of the bill and these alternative suggestions call for complete and careful study.

Mr. PATMAN. On that point, I would like to ask this question. Instead of having that 3 percent interest rate, with all these things to be done, including a review of the incomes of the tenants every year, suppose we made the interest rate 4 percent and left all those alternatives out. Would that be satisfactory, Mr. Foley?

Mr. FOLEY. Well, of course, you would then have a situation not particularly different from what we are already proposing in section 213, except that you would contemplate perhaps a longer term of mortgage.

Mr. PATMAN. 213 is a 40-year term?

Mr. FOLEY. Yes, sir, of course we are supporting the proposals in title 1.

Mr. PATMAN. That is 40 years, is it not?

Mr. FOLEY. Yes, sir.

Mr. PATMAN. What is the rate of interest on that?

Mr. FOLEY. Four percent.

Mr. PATMAN. If we made this 4 percent, there would not be a great Ideal of difference?

Mr. FOLEY. The major difference as far as financing terms are concerned, would then be that under section 213 the maximum maturity would be 40 years, whereas under title III the maximum maturity would be 60 years.

Mr. PATMAN. Why not have a higher interest rate and not have these reviews? I think that would be objectionable, myself.

Mr. FOLEY. In that case, you would have, insofar as your financing terms are concerned, insofar as you have stated them, only the difference in the amortization period from 40 to 60 years. The term proposed in section 213 is 40 years. However, you would have other differences that I would like to comment on and I have commented on them here briefly.

I would also like to comment briefly on the administrative arrangements proposed in title III, involving the establishment of a new

Cooperative Housing Administration as a separate constituent agency in the Housing and Home Finance Agency. Having in mind that such a program, if it were enacted by the Congress, would clearly be of an experimental nature, I believe there is serious question as to the advisability of establising a new and separate organization for its administration, particularly before the effectiveness of the program had been tested by actual experience.

The committee will recall that in recently authorizing the new program of slum clearance and urban redevelopment under title I of the Housing Act of 1949, the Congress did not establish a separate constituent agency for the administration of that new program but rather authorized the Housing and Home Finance Administrator to appoint a director and staff to operate the program under his direction and supervision. I believe that such an arrangement would be preferable in this case if the Congress should decide to proceed with such a program.

Mr. PATMAN. I am inclined to agree with you on that. At first I did not, but in view of what I have learned about it since, I believe I do.

Mr. FOLEY. Well, that covers substantially my written statement on title III, Mr. Chairman. I will be glad to answer any questions or proceed to the brief discussion of the remaining titles, or if you wish, to place the remainder of the statement in the record.

Mr. PATMAN. How much difference would there be in this section 213 (a) in title III, if we made the interest rate the same, 4 percent? Mr. FOLEY. The chief difference that I remember offhand-I have to stop and remember many provisions of these bills-would be in the terms, 60 years.

Mr. PATMAN. One is 40 years and the other is 60 years.

Mr. FOLEY. That is correct.

Mr. GAMBLE. This is 40 years?

Mr. FOLEY. Title III proposes up to 60 years.

Mr. GAMBLE. Up to 60 years?

Mr. FOLEY. Yes; a 60 year maximum limit and section 213 of title I to which Congressman Patman is referring, has a 40-year limitation.

Mr. PATMAN. Why could we not compromise and make it about 50 years and 4 percent?

Mr. FOLEY. That would, of course, be a matter for the committee to consider, sir. I think in connection with that you would probably like to have us present you with some break-down of what might be the effects of such a change.

Mr. PATMAN. Yes, sir.

Mr. FOLEY. And we will be glad to do that.

Mr. PATMAN. Suppose you break it down on the basis of 40, 50, and 60 percent.

Mr. FOLEY. I will be glad to.

(The information referred to is as follows:)

For a nonprofit cooperative, the estimated gross rents on a 42-room unit costing $9,000 are presented in the table below. Gross rent includes all utilities and services. Operating expenses included in rent were assumed to be the same as on a rental housing project whose mortgage was insured by FHA under section 608 of the National Housing Act. Rents may be reduced below these estimates to the extent that over-all construction costs are reduced below the $9,000 assumed, and economies in operation are achieved which will result in lower operat

ing expenses as compared with those for section 608 projects. Estimated gross rents are as follows:

Term of mortgage in years

90-percent mortgage..

100-percent mortgage (all-veteran membership).

401

$88.85
93. 32

1 Sec. 111 of H. R. 5631 with respect to sec. 213 of the National Housing Act.

Mr. RAINS. Of course, there are other provisions which are entirely different in 213 (a).

Mr. FOLEY. Oh, yes.

Mr. PATMAN. You mean about research?

Mr. RAINS. Review, escalator clauses, and so forth.

Mr. FOLEY. If I understood Congressman Patman correctly he was asking me, if we put 50 years in section 213; would there be any difference.

Mr. RAINS. As I read it I do not see even the same philosophy of the Government program for housing in title III that I see in section 213.

Mr. FOLEY. I agree with you, as I have tried to point out in my

statement.

Mr. RAINS. That strikes me that we are moving into completely new and unexplored territory in the housing program with title III, and without too much study, because most of the bills, it appears to me, were introduced into this session of the Congress and even though you have moved up the interest rates it has an entirely different philosophy because there are more direct loans.

Mr. FOLEY. Yes; I may have misunderstood Congressman Patman's question. I understood that he was asking me, if 213 were changed, what would be the major difference in the terms of the mortgage. Now, as you point out, there are many fundamental differences in the approach as between 213 and title III. I do not want to leave any confusion as to my answer on that.

Mr. PATMAN. Title III provides for redevelopment projects, where you can have stores, movie houses, and everything else, does it not? Mr. FOLEY. I do not recall exactly.

Mr. PATMAN. Does 213 (a) go that far?

Mr. FOLEY. Other community facilities necessary to the project. shall be included, I believe.

Mr. PATMAN. Under section 213 (a)?

Mr. FOLEY. Yes.

Mr. PATMAN. Then there is not a great deal of difference, is there? Mr. FOLEY. Not on that point, but I think Congressman Rains' position is correct that there is a fundamental difference in the approach.

Mr. RAINS. As I see the difference, in this particular section, it appears to me we decide that those in the middle-income group are entitled to the same kind of Covernment aid for housing-not subsidy that we have declared to be the policy of the Government with reference to the extreme low-income group. It appears to me that we are moving up the ladder, step by step.

Mr. PATMAN. Oh, no; that is not in the bill. That is the witness' suggestion. The bill does not require that, as I understand it.

That is my suggestion, Mr. Rains, that instead of taking his alternative, as to income, we just raise the interest rate and let them pay for it. I agree that we should not subsidize the middle-income group. They should pay their own way.

Mr. MCKINNON. Under title III as it is written now, it is 3 percent as against 5 percent.

Mr. RAINS. On page 45 of your statement, Mr. Foley, I was impressed with your alternative suggestion there as to how to handle it, in the light of what Mr. Patman has brought out, in which you suggest a borrowing corporation which would establish both a minimum and maximum rent schedule for the dwellings in a project. I would like you to explain a little more in detail as to how you think that would solve the question which apparently title III is aimed at. Mr. FOLEY. Let me go back, first. Apparently I had misunderstood in part Congressman Patman's questions.

First, when I said that the only remaining difference would be in the terms of years, I understood that you were trying to compare the financing of the mortgage between the two titles. Of course, there are other very definite and fundamental differences, one of them being the difference between private lending and direct lending.

Addressing myself to your question, Congressman Rains, what I sought to point out in my analysis of the bill as it stands is, among other things, first, that it would not under its terms and under the best estimates that we can make of probable savings, get you down into the lower half of the middle-income group, but rather in the upper ranges of that group, which, of course is its major objective, because in the upper half of the middle-income group, as I pointed out, we are beginning to get results privately and can hope for more rapid results in the future.

But I sought to point out that if the objective was to get still further down, then the only way you could do that additionally would be to have a lower interest rate still to start with. But my other point was this: That the bill aims to provide a means whereby through direct and very liberal financing, direct loans and very liberal financing terms, you would take care of persons in the middle-income group or desirably in the lower half of the middle-income group, because of their need.

Now, as I pointed out, the natural and usual development in a family situation, particularly in connection with the younger families, many of whom would be appealing to this act, is that their income increases and in the course of a few years they quite possibly would no longer be in the income class which you were trying to serve in the first place with these very special aids. But under the terms proposed in this bill you would continue to give them those very special aids for the entire 40, 50, or 60 years of the mortgage. So the suggestion-and it was only a suggestion-as an alternative that would better serve that purpose, if the Congress proposes to adopt this general matter, would be to have a flexibility and an adjustment annually with reference to their income, starting with a lower interest rate, and setting up a graduated scale as you went, so that you would approach a 4-percent interest rate, which would be normally, in this kind of a project, what you might expect from private financing.

That would serve a number of purposes, in our opinion.

We have offered it, of course, only as a matter for study in connection with proposals in the bill.

Mr. RAINS. Not as a positive recommendation?

Mr. FOLEY. No; as stated earlier in my testimony yesterday

Mr. RAINS. Do you favor, at this time, for the middle-income group, direct loans by the Government for housing?

Mr. FOLEY. Insofar as direct loans have been found to be in accord with the progm of the President, as I am authorized by the usual procedures to come up here and state, the direct loans contained in title I are all that at this time I can say to you have been found to be in accord with the program of the President.

Mr. MULTER. In other words, title III is not in accord with the program of the President.

Mr. FOLEY. It is more accurate to say that has not been found to be in accord with it. I have not been authorized to make any other statement with reference to the relationship of title III of the bill to the program of the President, other than as I indicated in my prepared statement-that I had been advised by the Director of the Bureau of the Budget to advise that there was no objection to the presentation of our report on title III for your consideration.

Mr. GAMBLE. You stated that in the first part of your written

statement.

Mr. FOLEY. Yes, sir; that is correct.

Mr. MULTER. Up to the present time, the policy set down is not for direct loans, except where the private lending market would not make them available?

Mr. FOLEY. If you will examine those provisions that we have recommended to the committee, you will find that direct lending is proposed on the same terms that we would ordinarily expect private lending to be done, and is to be made available in cases of need where private lending is not available. And made, of course, through the usual channels and subject to later sale into the private market.

Mr. MULTER. So far as I can see from my reading of it up to the present moment, there is nothing in here that says that these direct loans are to be made only in the event private capital is not available.

Mr. FOLEY. No; it does not so specify, and probably if it did, it would be a redundancy because in any present situation in the private financing field they could not meet those terms.

Mr. MUTLER. Well, do you know of any attempts by cooperatives or groups who wanted to put up cooperative housing who could not get financing for this type of construction?

Mr. COLE. They would all be glad to try it with a 100-percent financing and 60 years.

Mr. MULTER. There is no doubt they would all come in and try it if this were enacted into law. I would like to know what the statistics show as to attempts of cooperatives to try to get loans in the private market at the present time. What is the story? Have they been able to get loans?

Mr. FOLEY. I could not give you statistics, but I think I can give you a narrative of experience at this time.

We have been very much interested in the housing agency, both in the Office of the Administrator, and in the Federal Housing Administration, in the possibilities of the cooperative movements in housing which we think are very considerable.