money on which it will be paying interest. So on a cumulative basis Senator CAPEHART. What do you mean they will be borrowing money on which they will be paying interest? Mr. KANE. The assumption of the bill is that the mortgage will be paid on an amortized basis, with interest. Senator CAPEHART. Will be paid from the rents. Mr. KANE. Will be paid from the rents, but where does the rent come from? It comes from quarters allowance. And quarters allowance will be appropriated funds financed by Treasury borrowings. Senator CAPEHART. You can use the same argument if the serviceman goes out and buys an individual home. You can use the same argument. Mr. KANE. That is true. Senator CAPEHART. You can say I am getting $22,500 from the Government in its appropriated funds, so every time I spend $22,500 each year it comes out of appropriated funds, does it not? Mr. KANE. That is true, Senator, but let's get back to the repayment on the mortgage. The Government in theory will have to borrow the money just the same as it will on an appropriation basis. Senator CAPEHART. Are you going on the basis that we are going to reduce the amount of the rent allowance that we are going to give to the service people? Mr. KANE. No, Senator. The rental allowance comes from appropriations and will be paid by the Government to the mortgagee. Senator CAPEHART. And, of course, their salaries come from appropriations. Mr. KANE. That is correct, but we are comparing here the interest of $40,000 say on $1 million, and Senator CAPEHART. The same thing is exactly true of appropriated money. The Government likewise is paying Mr. KANE. That is right; but it is only 3 percent. Senator SPARKMAN. The point that you are trying to make is that that is a straight bookkeeping matter, whereas this is not? Mr. KANE. That is correct, Senator. It is cheaper. Now, from the figures we have Senator CAPEHART. Who is going to get the benefit of it? At the moment, as a result of no housing, the poor service people are being gouged. They are the ones who are suffering at the moment. Mr. KANE. You are absolutely correct, Senator. Senator CAPEHART. As I said here yesterday in my remarks on this bill, these poor people are moved from camp to camp, and they spend all their savings living in motels and any old way they can before they get into a permanent house. It is costing them a lot, and they can ill afford the cost. Mr. KANE. Senator, you are absolutely right. The issue is there. It has got to be faced, either with appropriations or an insurance program. Senator CAPEHART. In other words, you are just being good auditors and pointing out the facts? Mr. KANE. That is right. Senator CAPEHART. I know that. I appreciate that. Senator CAPEHART. You are just like the auditors in my business. The auditors and the sales manager get into a fight over the expense accounts. Mr. KANE. As I say, I certainly do not like to be in a position where I am disagreeing with you. Senator CAPEHART. I am delighted to get your viewpoint here on FHA versus the military doing their own insuring. Mr. KANE. Well, we feel that would be better, Senator. Mr. NEWMAN. What we feel is that FHA Senator CAPEHART. I am inclined to see some merit to it, just as I see some merit to going this route rather than appropriations, because they will operate it as a business then. They have got to pay it off out of the rents, out of the allowances, and it will be operated as a business. Mr. KANE. If you agree to putting the responsibility in the Department of Defense, then you do not need an insuring fund. You can do it with just an outright guaranty by the military. Senator CAPEHART. I do not think we ought to get away from the theory possibly of insured mortgages. Mr. KANE. Well, Senator, you are coming very close to a leasepurchase agreement. Senator PAYNE. I was just going to ask that: If there is too much difference between the two of them? Mr. KANE. There is only one major difference under the existing base-purchase programs in the Government. In the lease-purchase agreement at the present time there is a cancellation clause so the Government can get out. The lease-purchase agreement under this program might need a cancellation clause, but I do not know how it would affect the sale of the mortgages. Senator PAYNE. It would affect it probably because of the fact that many of these projects would be on military installations and by their very nature would be removed from some of the more densely populated areas. Mr. KANE. That is correct. Senator CAPEHART. I have just one interest. That is getting over the next several years about 300,000 good housing units for the military. If we can get them by direct appropriations, fine. I do not think we can do it. This I think we can do. I think we ought to do it. But I am not stiff necked on how we do it as long as we get them and we get them on a practical, sane, sound basis so that they are there to eliminate what I call this terrible situation in respect of housing. Mr. KANE. We concur in that. Our investigators and auditors who come back from the military installations always comment on what the situation is. Senator PAYNE. Incidentally, during the course of those inspections, have they ever brought in a detailed analysis as to what they consider the features of the so-called Wherry housing are as against the socalled appropriated housing? Have you heard them discuss that? Mr. NEWMAN. We can make that comparison for you. Senator PAYNE. I am talking now about the suitability of the housing as between appropriated and the so-called Wherry projects. I admit I have not seen too many of the Wherry projects. I have seen a lot of the appropriated housing. 62736-55-13 Mr. NEWMAN. You mean the accommodations? Senator PAYNE. I mean the accommodations and I mean also the cost. Mr. NEWMAN. We can get the cost. Senator PAYNE. What does the cost show? Let's take the Loring Air Force Base at Limestone. Mr. KANE. I have some figures here, Senator, on that. We prepared it pursuant to another congressional request. These figures are based on information furnished us by the military department itself. On the present Wherry housing projects, for a unit, on a 50-year basis, it costs with interest and operating costs $95,000, whereas under appropriated-fund housing it is $64,000. That is the comparison from a financial standpoint. And those are equalized as to accommodations and space. Senator PAYNE. Let me ask you this: In computing those figures, are you positive that the military has given you under the appropriated housing comparison all of the factors of cost that entered into the construction of the project? Mr. KANE. I cannot guarantee that, Senator. Senator PAYNE. The reason I ask it is this: I think you will findI am not positive of this, but I think you will find that they give you the cost of the buildings themselves that are constructed. But I question whether they are bringing in the work that is done by the Corps of Engineers in constructing the sidewalks, in the landscaping, in the street-improvement work, and the other facilities, all of which are covered under Wherry and become a part of the total cost. Senator CAPEHART. May I say this to the Senator: Of course, you understand on all the Wherry projects the military, depending on whether it is the Air Corps or Army or Navy, made all the specifications and awarded the contract to the contractor. Senator PAYNE. That is right, but it is a lump sum. Senator PAYNE. It includes the improvements, it includes the landscaping, the street work, the sidewalks. Senator CAPEHART. That is right. Under this new bill the same thing will happen. They will handle it exactly on the same basis. Mr. KANE. That was one of the things that our people wanted to check immediately with respect to the off-site costs, and they did throw a figure in for that of about $200 a unit, which appears to be reasonable. That was one of the first things we asked our people to watch out for, to be sure to get all the costs in. We are not positive they have all costs, but they have a figure in there that appears reasonable to us for cost-comparison purposes. Senator PAYNE. I would question the $200 a unit. Mr. KANE. Well, it seems to me it sounds a little low, but, on the other hand Senator PAYNE. It might be in some locations, but it would not be in others. Mr. KANE. These figures are based on an average of 24 projects we examined. Shall I continue, Mr. Chairman? Senator SPARKMAN. Let me make this suggestion. Senator Capehart has to leave, and I have an appointment in just 5 minutes. I have glanced ahead in your statement, and I assume the other Senators have too. Senator CAPEHART. I have. Senator SPARKMAN. Suppose we let the statement go into the record as it is. Mr. KANE. That will be fine. (The balance of the prepared statement of Mr. Kane follows:) The statement and memorandum in explanation of S. 1501, beginning at page 2660 of the Congressional Record for March 18, 1955, indicate that certain steps will be followed by the military departments and the builder with respect to creation of a corporation, the subsequent transfer of the stock to the secretary of the department concerned, and other features to be governed by administrative regulations. The rights of parties involved in this procedure are of such legal import that they should be specified in the law to eliminate conflicts of interpretation and possible misunderstandings. Another bill being considered in these hearings is S. 1524, which would be cited as the Public Facilities Loan Act of 1955. It provides for the creation of a Government-owned corporation for the purpose of purchasing securities and obligations of, or making loans to, municipalities and other political subdivisions of States, for the purpose of financing specific public projects under State or local laws. The Corporation, to be known as the Public Facilities Credit Corporation, would be financed by the issuance of capital stock of $100 million subscribed to by the United States, plus authority to sell its obligations to the Secretary of the Treasury in an amount not exceeding $500 million outstanding at any one time. Neither category of funds would be made available through the appropriation procedure. The Secretary of the Treasury would be authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, for the purpose of purchasing the capital stock and obligations of the Corporation. I will not go into the details of this corporate proposal except to state that the General Accounting Office is strongly opposed to the creation of Government corporations except for the most compelling reasons. Likewise, we believe that, as a matter of sound fiscal policy, programs of the nature contemplated by this bill should be financed with appropriation funds. Experience has proved that this method retains in the Congress more effective control of the program than public debt financing through the back door of the Treasury. Senator SPARKMAN. There is one question I want to ask you for the benefit of the record. Reverting to page 2 where you discuss the certificates of claim, suppose you pay those certificates off in cash as you recommend and the Government fails to recoup the foreclosure costs. Where are you? Mr. KANE. That is already provided for in this bill-that they may make settlement at the time of taking over the property. I mean when they sell the property. In their judgment they say, "This looks like a good loan, a good case, and instead of having all the bookkeeping we are going to pay off in cash." Senator SPARKMAN. I realize it is carried in the bill and you recommend it, but I say Mr. KANE. There may be occasions when the Government takes a loss. It is a matter of judgment again. Senator SPARKMAN. You mean that would be absorbed out of the reserve fund? Mr. KANE. That would be an expense Mr. NEWMAN. In other words, the expense of administering they feel would be less than the losses you would take. Senator SPARKMAN. Well, then, why not provide that the debentures themselves include the costs of foreclosure so as not to have both a certificate of claim and debentures? Mr. NEWMAN. Well, you could. I understand what you mean. Right now there is a little variance of paid in cash Senator SPARKMAN. You mean it is separated now because the debentures constitute a definite and certain claim that the Government must pay and the certificate of claim is contingent upon recoupment being made? Mr. NEWMAN. That is right. Senator SPARKMAN. If you are going to remove the contingency and make it a certain claim too, there is no reason why it should not be included in the debentures. Mr. NEWMAN. It could. Senator SPARKMAN. You might give some thought to that, and if you have a further suggestion on it let us have it. Senator PAYNE. I think it would further simplify it. Mr. NEWMAN. Also we can understand the position of the Federal Housing Administration on it. They would like to keep the debenture process going in case something happens. They do not want to come along and say to the banker, "I am sorry. We are off the cash basis." Senator SPARKMAN. And your debentures are callable anyhow. Mr. NEWMAN. That is right. At the moment we are spinning our wheels. As fast as we write debentures we turn around and redeem, and we are going through Treasury costs and administration costs. Whether we should do that to keep debentures on the market-in other words, so if we do have a time arise when we want to extend them for 180 days or Senator SPARKMAN. Well, having the debenture system certainly keeps it flexible. Mr. NEWMAN. That is right. Senator SPARKMAN. You give some thought about that. If you are going to make the foreclosure costs a definite charge on the Government rather than a contingent charge, then you give consideration to their being included in the debentures along with the other and let us have some note.on it. Mr. NEWMAN. We will be glad to. Mr. KANE. We will. Senator SPARKMAN. It will be inserted in the record at this point. (The following was submitted in response to the above:) Certificates of claim GAO COMMENT ON FHA DEBENTURE Generally, all mortgagees are required to foreclose properties before FHA will issue debentures for the outstanding balance of the mortgage and accept a certificate of claim for the foreclosure costs. FHA sells the property and if the amount realized is in excess of FHA costs the balance is used to pay the certificate of claim and the mortgagor. Since June 30, 1934, only 39 percent of the total amounts of the certificate of claims filed have been paid. The percentage will vary in different localities. Because of this condition, it would not be advisable to include the full amount of the certificate of claim in the debentures or to pay the claim in cash at the time of settling the insurance contract with mortgagee. However, after FHA has had more experience in disposing of acquired properties it may be advisable to permit the Commissioner to make immediate settlements of the certificate of claim, either by including the amount in the debentures or payment in cash, at less than the full amount based on FHA's disposal experience over a period of years. Mr. KANE. I would like to emphasize that the authority to pay cash is not in the present bill. |