Multifamily housing mortgage limitation FHA MORTGAGE LIMITATION FOR MULTIFAMILY HOUSING I wish to call your particular attention to one clarifying amendment which would revise the present mortgage limitations in the National Housing Act with respect to multifamily projects. The act now makes a $5 million mortgage limitation generally applicable to all such projects with private sponsorship. Although the statute technically applies only to the maximum mortgage amount, it is not clear from the statute or legislative history whether the Congress intended that the limitation should be applied to the total of several mortgages where the mortgagor on each is the same. Nor is it clear how such a limitatation should be applied. The congressional intent has been variously interpreted by different persons or groups as making the limitation applicable (i) to each mortgage separately in all cases; (ii) to the total of all mortgages having the same mortgagor; (iii) to the total of such mortgages if they are in the same housing market area; and (iv) to the total of the mortgages if they are on property which can actually be managed as one project. I believe it is important that the limitation in the law be definite and firm, but realistic in terms of present costs and the type of project to be undertaken. I believe the revision of this limitation as provided in the bill would accomplish that purpose. The $5 million mortgage limitation would be increased to $12,500,000, to conform to estimated increases in building construction costs since the limitation was first imposed. On the other hand, the limitation would be applied both to each individual mortgage and to the total amount of commitments outstanding at any one time under each section of the act with respect to projects in the same housing market area which involve the same mortgagor (or mortgagors under substantially the same control). Senator LEHMAN. That would take care of the situation, you believe? Mr. COLE. We think so. Senator LEHMAN. Where a builder puts up two units immediately adjacent, he is limited to $5 million and now you would be permitted to put a $12.5 million mortgage on the properties? Mr. COLE. Yes, sir. Senator CAPEHART. Why do you need any limitation? Mr. COLE. Senator, we think that the Congress and the legislative history indicated that some limitation is necessary. Senator CAPEHART. Why? My question is: Why? I know they did it, but why? Mr. MASON. I am sure the reason it was done, Senator, was to prevent one builder from monopolizing a market. I think that is the very obvious reason why you gentlemen put this limitation in the bill. Senator CAPEHART. Čould you not control that much better than we in the law? There may be some places where it would be of advantage to the public and to you to have a $25 million project. Could you not control that yourself rather than have it done by law? Mr. MASON. It is never of advantage to the public to have one man control the housing in a community, and a man could build so much. that no other builder would want to come into that community. I am sure this was the thinking that engineered this. Senator CAPEHART. You could get completely around that under the $5 million limitation. What about Levinson up in New York and Philadelphia? Mr. COLE. That is a different situation, Senator. Mr. MASON. Not multifamily housing. Senator SPARKMAN. Those were individual homes. Senator CAPEHART. You said it was bad for the fellow to do all this. It is just as bad for him to do it on individual homes that he builds as for rentals. Mr. COLE. Senator, there. is quite a distinction between the man who goes into a competitive market to build individual units and one who would build high-priced multifamily units. Senator CAPEHART. My point is it seems to me like this limitation of $5 million-we found in our investigation of FHA last year-was just one of those gimmicks in there that caused people to do things that they would not otherwise have done. Mr. COLE. We think that is true. Senator CAPEHART. You get up to $5 million and you want to put in another $100,000 or $200,000, and should do it to make it a good project, and you cannot do it under the law. All you do then is try to find some way to get around the law in order to do a good job both for the public and FHA. This idea of putting a limit of $5 million or $12 million it seems to me could better be handled by you people by rules and regulations and the use of common horse sense. I happen to know of a project at the moment where it got up to $5 million, and they needed another $500,000. If it were handled by rules and regulations issued by you people, in that instance I think I would have recommended that they go to $5,500,000, but they could not do it under the law so they find other ways of doing it. Mr. MASON. I am sure that what we are trying to do in FHA is to find out what the Congress wants us to do. Senator CAPEHART. I do not want to labor the point, Mr. Chairman. It creates sort of a bad situation, because some places it might be better to do nothing rather than be limited to $5 million. Maybe it ought to be $6 million in this particular locality. Do you see what I mean? Mr. MASON. I could argue, Senator, on your side very capably, because while a $5 million mortgage in one city is too big, a $5 million mortgage in another city is not large enough. Senator CAPEHART. That is right. That is why I was just wondering why did we write it in the law in the first place. Mr. COLE. Senator, it was felt that it was needed to prevent monopoly and continue competitive markets. Senator CAPEHART. But they went right around it, so therefore it possibly was not a good thing. I do not want to labor the point, Mr. Chairman. Mr. COLE. In the case of mortgage insurance under section 220 of the Naitonal Housing Act for multifamily projects in urban renewal areas, the mortgage limitation would be $50 million. This is the same amount now provided in section 207 of the act (covering the regular FHA insurance for rental housing) where the mortgagor is a public body or subject to certain supervision under State or Federal law. The extension of this limitation to section 220 housing seems reasonable, as the locality is required to prepare and submit plans for the urban renewal undertakings where the project is located and the Housing Administrator must approve such plans before section 220 mortgage insurance can be made available. Military housing EXPIRATION OF MILITARY HOUSING PROGRAMS You will note that the bill does not extend the special title IX mortgage insurance for programmed defense housing in critical defense housing areas. Title IX was enacted to assist the provision of housing for defense workers and military personnel required as a result of the rapid expansion of defense industries and military installations after the beginning of the Korean war. This period of rapid expansion has ended. There has been almost no new programing activity under title IX during this fiscal year, and the title is not well suited for meeting the current family housing needs of the military as presented to us by the Department of Defense. The title VIII (Wherry Act) military housing program would be extended for only those projects which are undertaken pursuant to a certification by the Secretary of Defense prior to July 1, 1955, and a commitment to insure issued prior to July 1, 1956. This extension was requested by the Department of Defense so that existing title VIII operations could be concluded in an orderly manner. It is my understanding that the Department will furnish testimony to your committee concerning this matter. Your committee may also wish to consider the extension of title VIII in connection with our later discussion concerning S. 1501, the military housing bill introduced by Senator Capehart and other Senators. If agreeable, Mr. Chairman, Mr. Mason will present his statement. Senator SPARKMAN. All right, Mr. Mason. We are glad to have you, sir. Mr. MASON. Mr. Chairman, this statement of mine on S. 1800 will be a brief New England one, rather than the more detailed one that Mr. Cole has made. I appreciate the opportunity to discuss with you the portions of S. 1800 which pertain to FHA operations. The bill proposes an extension of the title I property improvement program. It also makes a few modifications in existing mortgage insurance programs, provides for the orderly conclusion of the title VII FHA military housing program, and terminates title IX FHA defense housing mortgage insur ance. All of the provisions are designed to enable FHA to serve the Nation more effectively in fulfilling its function of raising housing standards, and to carry out its responsibilities more efficiently. With the comprehensive housing bill which was passed last year the FHA programs have increased in effectiveness. The proposals in S. 1800 are in the nature of perfections based upon FHA experience in the last year. I shall discuss each of these changes very briefly. Mortgage insurance authorization INCREASE IN FHA MORTGAGE INSURANCE AUTHORIZATION The FHA general mortgage insurance authorization would be increased to authorize FHA mortgage insurance up to the aggregate of outstanding insurance liability and commitments on June 30, 1955, plus $4 billion. This new additional authorization will provide for the estimated amount of housing which will be assisted by FHA mortgage insurance during fiscal year 1956. Senator CAPEHART. What is the amount outstanding? Mr. MASON. Our present authorization is about $23 billion. Senator CAPEHART. In other words, this $4 billion must be added to the $23 billion? Mr. MASON. Yes, sir; after allowing for the elimination of unused authorization on June 30. Senator CAPEHART. I wondered why you put it as you did here"plus $4 billion." Mr. MASON. This has been the customary way, Senator, of taking the amount outstanding at the end of the fiscal year and adding the $4 billion. Senator CAPEHART. In other words, the amount outstanding at the moment is $23 billion? Mr. MASON. Yes, sir; the outstanding authority is about $23 billion. Senator CAPEHART. And then you are asking for $4 billion more? Mr. MASON. Yes, sir. Senator CAPEHART. Which will bring it up to $27 billion? Mr. MASON. After allowing for the expiration of unused authority on June 30, the total authorization will be about $26 billion. As Mr. Cole in his testimony related, the need will be greater than $4 billion, but that extra need, some almost $4 billion more, will be taken care of by amortization and payments that are made on existing mortgages. Home repair and modernization EXTENSION OF FHA TITLE I HOME REPAIR AND MODERNIZATION PROGRAM This section would extend the FHA home repair and modernization program for 5 years to July 1, 1960. The last time title I was extended was in 1950 for a similar 5-year period. The significance of this amendment is to maintain a high level of construction activity in improving indivdual homeowners' properties, to maintain homes in good repair, to stop blight before it starts, to make credit available to borrowers in smaller communities and to eligible borrowers in larger communities who might otherwise have difficulty in arranging loans except at exorbitant interest rates. This program will also be especially helpful in the repair and modernization of existing structures and the prevention of the spread of blight. As such it is a definite corollary and aid to the urban renewal program under sections 220 and 221. Title I makes it possible for the individual to build something of himself into the property he owns. We find that this is an added incentive in homeownership and community pride. For these reasons it is recommended that title I be extended in accordance with S. 1800. Senator CAPEHART. Mr. Chairman, I suspect it is going to come up, so would it be possible for Mr. Mason to furnish for the record the steps that you have actually taken to eliminate the irregularities that we found in the title I program a year or year and a half ago? Mr. MASON. Yes; it would. I can give it to you now or I can furnish it for the record and not take your time now. Senator CAPEHART. I think it would be just as well to furnish it for the record. What we have in mind is to tell us exactly the changes that you have made to eliminate the irregularities that were found. And then my next question is: Are you certain you have eliminated them? Mr. MASON. We have done an excellent job, according to our way of looking at it; yes, sir. Senator CAPEHART. Do you feel that you have eliminated all the abuses and irregularities that were uncovered? Mr. MASON. Sir, there will continue to be irregularities or abuses in any program of this kind as long as the program exists. Senator CAPEHART. But you have them under control? Mr. MASON. I think that is the answer. Senator CAPEHART. You feel that if they follow your rules and regulations and follow the law that you have eliminated all the abuses that we found? Mr. COLE. I can answer that. The answer is “Yes.” Senator CAPEHART. My question was: If everybody follows the rules and regulations that you have written and follows the laws, then you feel that you have eliminated it? Mr. MASON. Yes, sir; that is correct. Senator CAPEHART. That if there are violations going on at the moment it is simply because they are violating the law? Mr. MASON. Yes, sir. Senator CAPEHART. And knowing they are doing so? Mr. MASON. It is human beings who are violating the law knowingly, but there are far less. Senator CAPEHART. Would you put in the record exactly what you did to stop it? Mr. MASON. Yes; we will add that for the record. (The information referred to follows:) OPERATIONS UNDER THE FHA TITLE I HOME REPAIR AND IMPROVEMENT PROGRAM Since I became Commissioner of the Federal Housing Administration in midApril of 1954 we have taken a large number of organizational, administrative, and regulatory actions, all designed to strengthen materially this important phase of FHA operations and to prevent any recurrence of the abuse in this program which were revealed by the investigations of 1954. Among the major organizational changes, which have involved both Washington headquarters and the field organization, has been the expansion of field supervisory personnel in order to provide closer supervision over lending institutions, reviewing their title I operations with particular attention to dealer control and collection activity. The Dealer Control Unit in the Title I Division at Washington headquarters has been increased from 3 to 8 examiners in order to provide for closer review of all types of irregularities in dealer operations and to identify instances in which restrictive actions should be taken against dealers, contractors, or salesmen. A new procedure has been established whereby individuals, companies, or institutions may be barred entirely from further participation in the various housing programs. This procedure is embodied in section 512 of the National Housing Act, as amended, and has been the basis for 26 actions taken against title I |