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to the figures and accounting, and so forth, on this table which you placed in the record a few minutes ago which is to show that the Government

Senator CAPEHART. By the way, that was made up by the Staff.

Senator SPARKMAN. Yes. Remember, though, that there is an offsetting figure to be taken into account which I am rather of the opinion will equalize the two sides. That is, the fact that these payments are not made out of the pockets of the occupants and the builders. You simply apply the rental allowance on the left hand and you do exactly the same thing on the right hand.

In other words, when that occupant lives in the quarters, regardless of whether it is built under this bill or by direct appropriation, he gives up his rental allowance. Therefore, the rental allowance goes into both sides, and it seems to me it probably would offset the advantage you suggest. I do not know. I may be wrong.

Senator CAPEHART. It is a moot question, of course, as to what they would have to do. The purpose of that chart is to show that if the Government had a direct appropriation, and let us say they are going to build a $100 million project, they would sell $100 million worth of bonds. If they sold them over a period of 25 years they would make 25-year bonds out of them and it would cost possibly 4 percent today.

4 But if they sold them on short terms of 90 days, or a year, or 2, or 3, or 4 years, they could get the interest rate down to 3 percent. Once they sold them on that basis, though, unless they made them serial bonds where they reduced them each year, that chart works out all


However, under the mortgage plan, the advantage of that over the other is that you know it is going to be 4 percent for 25 years. Period. That is all. You have done business in a businesslike way and know exactly what the cost will be for 25 years-4 percent.

Under the direct appropriation route, in selling Government bonds, you do not know what the Government will be paying for its money 5, or 10, or 15, or 20 years from now. There is no question but what it can get, I guess, but you do not know what it will be paying.

Another argument here was that the bill should include cost certification. We talked about that. I do not know what they were talking about when they put that in there.

The bill should require performance bonds. There is no question about that.

Provision to prohibit windfalls to sponsors from excessive tax cost estimates should be included in the bill. I do not know what they mean by that.

The bill should set the maximum the Government can pay sponsors to acquire completed projects by lease or otherwise. I think that is right possibly, but I thought it was understood it would be paid under rules and regulations and be paid on the bid price, but it will be written into the bill.

Another one is, no check on volume of construction since the armed services could pledge quarters allowances. In the bill I think we limited it to a billion dollars, I think, or a billion three hundred fifty million, which is 150,000 units. Maybe that is too many, and I want to find out. But Congress controls that in the bill, exactly as we now control the amount of mortgages FHA can guarantee, by the amount. So that is not a legitimate reason.

No independent analysis of housing need is provided for, is another objection. Well, we will listen to the armed services in that respect. They will have to be the judge of that.

Dual guaranty by FHA and armed services is unwarranted, is the next criticism. Maybe that is true. I think we ought to get into that. Maybe we ought to take FHA completely out of this. I do not think so, because I think the purpose of Mr. Cole's office was to coordinate all housing. I think in this instance he ought to be in on this because of his responsibility for the coordination of all the housing in the United States.

Then here is one from another gentleman who says the 4 percent interest rate on mortgages is higher than the interest rate on bonds the Government would float to build direct appropriation housing. We have talked about that at some length.

Another one says this results in extra interest costs to the Government. I was under the impression that the servicemen are going to pay for this.

Let me say this to you: If you do not do this and do not get housing, these poor servicemen are going to be paying a lot more than the difference between 3 percent interest and 4 percent interest. I will assure you of that. They are doing it now. In fact, it is breaking their hearts, and particularly the hearts of their wives and families.

You ought to go out and check it and see just what these poor fellows go through when they are moved from one point to another, that is, these married fellows with a wife and children. It is pathetic. They go and live in these motels which charge them excessive amounts. They stay there a week or 10 days, or 2 weeks, or a month, and it is just pathetic, because most of them have families with them. Here is another objection. If the Government assumes the obliga

. tion on the mortgage, by the time the project is constructed, FHA insurance is unnecessary. We got into that partially.

Here is another one. New military housing projects should take into consideration the existence of available housing financed conventionally, or with FHA or VA assistance. I can agree with that. I said a moment ago we ought to be very careful that this is operated in a practical way,

I have many other things I could say about this bill, Mr. Chairman, and possibly will as time goes on. I appreciate very much being heard. I am just so thoroughly convinced that the best interests of the United States and the military, as well as the best interests of the boys in the service and the best interests of all of us lie in adopting some such measure as this and doing it quickly. I am convinced of the need of putting the matter of military housing on a sound basis, and having a plan and a policy so that over the next 10 years we can do the job and thereby improve the morale of these boys in the service.

I think if we will create proper housing you will find a big percentage of these boys who are now in the service will remain there for many years. I think honestly we would be amazed at the amount of money we would save in training new people.

Above that possibility, we will get a professional army of really trained and experienced fellows who will work like a fire department. You know how they are. They are highly trained men sitting there with the finest fire fighting equipment ready to go and do a job in a hurry.


What we need is a professional Army of that type. If what we understand might happen, does happen, we might someday get bombed, if not here then some other place. Then we will need that professional army that can hit and hit fast. You are not going to be able to do it with new boys. It is going to take boys who are in the service and have been there 3, 4, 5, 6, 8 and 10 years and longer. I say that because the Army today is made up of highly technical things like radar, and electronics, and tanks and these airplanes. If you get inside one of them someday and take a look at all of the gadgets in there you would be amazed.

It is really an Army of technicians today, and you do not train technicians in 6 months. It takes years.

Thank you, Mr. Chairman.

Senator SPARKMAN. Thank you. You have been most helpful, Senator. I would like to call the attention of the audience to the distinguished visitors we have with us today-Dr. and Mrs. S. S. Nehru. Dr. Nehru is a close kinsman of the Premier of India. We are very happy to have them with us. [Applause.]

Our next witness will be Mr. Albert M. Cole, Administrator, Housing and Home Finance Agency. Mr. Cole, do you intend for the others to come up at the same time, or will each one have his own separate statement ?




Mr. COLE. Each will have his own separate statement.

Senator SPARKMAN. It was suggested to me by someone that you wanted to finish your testimony today so that you could make a speech tomorrow. Is that right?

Mr. COLE. I can be here a while in the morning. I think it would be well for FHA to come up, because we will start with them first.

Senator SPARKMAN. All right, Mr. Cole.

Mr. COLE. Mr. Chairman and members of the committee, I appreciate this opportunity to extend to you such assistance as I can in your consideration of S. 1800, a bill to extend and clarify laws relating to the provision and improvement of housing, the elimination and prevention of slums, and the conservation and development of urban communities.

The bill would provide the legislation necessary for the continuation of several major programs of the Housing and Home Finance Agency. It would also make a number of essential changes in existing laws which would enable us to carry out, or carry out more effectively, the objectives of the Congress in present legislation, as I understand them. The bill would not provide for the undertaking of any new programs, which, as you know, is in marked contrast to the legislation considered by this committee last year and enacted as the Housing Act of 1954. Current operations of our Agency are directed toward putting into effect the several basic changes and new programs authorized in that comprehensive and major enactment of the Congress. As I will explain, our experience in connection with these operations has revealed the need for the corrective or supplemental provisions contained in the bill. However, as I have previously indicated to your committee, our experience under the Housing Act of 1954 gives every indication that it is sound, constructive legislation which will greatly further the provision and improvement of housing, the elimination and

prevention of slums, and the conservation and development of urban communities throughout the Nation. No need exists for changing the basic approaches taken to accomplish those objetives.

As S. 1800 contains provisions relating to some of the more technical aspects of our programs, I have furnished your committee with copies of a section-by-section analysis of the bill.

I should like first to comment briefly on the principal features of the bill relating to the operations of the FHA. The Federal Housing Commissioner, Norman Mason, is here with me and has a more detailed statement covering the provisions of the bill relating to FHA.

Mr. Chairman, if it is agreeable to your committee, it might be helpful if Commissioner Mason were permitted to present his statement to you at the conclusion of the portion of my statement on the FHA provisions of the bill. We could then proceed with questions on this phase of the bill before I proceed with the remainder of my testimony.

Senator SPARKMAN. Very well. Mortgage insurance authorization

Mr. COLE. Earlier this year, your committee recommended and the Congress enacted legislation increasing the FHA general mortgage insurance authorization by one and a half billion dollars. The report of your committee on that legislation (Senate Joint Resolution 42) indicated that such increase was recommended to permit continuation of FHA mortgage insurance operations on a temporary basis until the Congress has an opportunity to consider an increase in sufficient amount to cover operations for the next fiscal year. S. 1800 would provide that increase. It would authorize the FHA mortgage insurance up to the aggregate of outstanding insurance liability and commitments on June 30, 1955, plus $4 billion.

The amount of unused authorization under existing legislation remaining on June 30, 1955, would be merged with the new additional authorization. As it is estimated that such unused amount will be over $600 million, the actual increase in authorization provided by the bill would not exceed $3,400 million. This increase, plus the one and a half billion dollar increase granted earlier this year, would be within the amount prescribed for this purpose in the budget submitted by the President to the Congress in January.

Mr. Mason's estimates of mortgage insurance operations during the 1956 fiscal


indicated a gross use of insurance authorization total

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ing about $7,400 million. After allowance for return of authorization through expiration of commitments, scheduled repayments on insured mortgages, and prepayments of such mortgages, the net use of insurance authorization for FHA mortgage insurance programs during that fiscal year is estimated at approximately $4 billion. I strongly urge your committee to make available that amount of insurance authorization. Home repair and modernization


Title I of the National Housing Act, authorizing the FHA repair and modernization program, would expire under existing law on June 30 of this year. The bill would extend title I for 5 years, which is similar to the most recent extension of the title from March 1, 1950, to July 1, 1955.

The bill would make no other amendment to title I. The provisions of the Housing Act of 1954 developed by your committee to assist in preventing frauds and abuses in title I operations seem adequate for that purpose.

The Title I program of insurance for modernization and repair loans constitutes an integral part of the urban program for neighborhood conservation and improvement which was adopted in the Housing Act of 1954. The continuation of the title I program is also important to the maintenance of a high level of general construction, activity, improvement of individual properties in need of modernization or repair, and proper maintenance of the existing housing inventory of the Nation. All are vitally affected by the availability of adequate consumer credit for modernization and repair loans and the title I program has contributed significantly toward assuring that supply of credit.

Availability of FHA insurance for this type of credit encourages lenders to make the loans available to borrowers in smaller communities and to eligible borrowers in larger communities who might otherwise have difficulty in arranging loans. It should be recognized that, without such insurance, credit for home repair purposes would not be as readily available as consumer credit for other consumer durable goods, such as automobiles and appliances. In other fields, the dealer frequently receives credit support from the manufacturer. In the case of home repair loans, however, manufacturers of building products are each likely to have a relatively small financial interest in the repair or improvement job done by the local firm. Naturally, the manufacturer or wholesale supplier is thus rarely interested in backing up credit for a repair or improvement job, especially when the largest cost item is labor at the site.

Also, consumer items can normally be made subject to a chattel mortgage and can be repossessed, while items financed under title I become part of the house and cannot be repossessed. Neither is it generally practical in the case of a repair loan to go through the expense of obtaining real-property mortgage security. For these reasons home repair or improvement loans, in the absence of title I aids, would be unavailable to many borrowers, or else be available at exorbitant interest rates or fees.


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