Senator SPARKMAN. They are guaranteed to the extent that the Federal Government contracts with the cities to help them out in the event they have to be helped in the rents. In other words, the Federal Government subsidizes the rent.

Mr. WALTEMADE. It is true the Federal Government doesn't own them, but the city wouldn't own them if the Federal Government doesn't subsidize them.

Senator LEHMAN. Well, the State subsidizes them very, very substantially; not exclusively.

Senator SPARKMAN. It is a cooperative movement among the city, State, and Federal Government.

Senator LEHMAN. My observation is that it has worked out very well.

Senator SPARKMAN. I wish we could devote a long time to this discussion, but I just think in fairness to these others, we have spent now an hour and 20 minutes-well, an hour on this, less the time that Senator Kuchel was on the stand. We have 40 minutes in which to hear 4 others. We will put your whole statement, with the appendixes, in the record at the end of your remarks.

Mr. WALTEMADE. Mr. Chairman, I would like to submit this threesheet document dated May 16, 1955, in connection with the Asheville, N. C. Housing Authority, in addition into the record.

Senator SPARKMAN. Yes, we will be very glad to have it. Give it to the reporter, would you, to come in under the other exhibits as an additional exhibit.

Mr. WALTEMADE. Yes.

Senator SPARKMAN. I am sorry. I wish we had the time, but I believe you appreciate what we are up against.

Mr. WALTEMADE. Senator Sparkman and members of the committee, on behalf of the association we appreciate the opportunity of appearing before you here. We certainly would, of course, welcome the opportunity to discuss what we believe is one of the things that affects so vitally our American way of life and that is public housing. However, we recognize that time is of the essence and that you gentlemen are very busy and that others must be heard, too.

Again we appreciate this opportunity and all the courtesy always extended to our association.

Senator SPARKMAN. We are certainly glad to have you, and the whole matter will go into the record, and you can be assured it will receive our careful consideration.

Senator CAPEHART. It is a very good statement.

Senator SPARKMAN. It is an excellent job, I will say that.

Mr. WALTEMADE. Mr. Chairman, if you would care to, we would be happy to rewrite the bill for you and introduce it for you. Senator SPARKMAN. Do what?

Mr. WALTEMADE. We would be very happy to rewrite the bill and introduce it.

Senator SPARKMAN. We have the suggested amendments, and we will be glad to have amendments from you at any time.

Mr. WALTEMADE. Thank you.

(The Public Housing submitted replies to some of the statements contained in Mr. Waltemade's remarks and prepared statement. They will be found beginning on p. 345.)

(The prepared statement and appendix of Mr. Waltemade follow :)

STATEMENT OF HENRY G. WALTEMADE, PRESIDENT, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS

Mr. Chairman and members of the committee, I am Henry G. Waltemade, president of the National Association of Real Estate Boards. I am president of Henry Waltemade, Inc., New York City, a trustee of the Dollar Savings Bank of the City of New York, the fifth largest savings bank in the country, a director of the Manhattan Life Insurance Co., also a member of the real estate mortgage committees of both institutions, and a member of the real estate and mortgage advisory committee of the Manufacturers' Trust Co. of New York. I have been actively engaged in all phases of the real estate industry for more than 30 years. The National Association of Real Estate Boards consists of more than 54,000 realtors in 1,191 local real estate boards throughout the 48 States, District of Columbia, Hawaii, Puerto Rico, and Alaska.

We are most appreciative of this opportunity to present the views of our association with respect to housing legislation now before you. Most of the subjects covered in the bill have been considered from time to time by the national conventions of our association, and the views to be expressed and amendments proposed herein have been under study for several years.

My testimony will proceed in the order in which the subjects appear in bill, S. 1800.

Home repair and modernization

FEDERAL HOUSING ADMINISTRATION-REHABILITATION AND MODERNIZATION OF HOMES

The bill proposes a 5-year extension of the FHA Title I program, so essential to conservation of our neighborhoods and the improvement and maintenance of our inventory of existing housing. We urge the favorable consideration of this amendment by the committee. Last year we shared with the Congress and the public the concern over evidence of widespread abuses in the title I program. However, administrative regulations issued by FHA in the fall of 1953, coupled with the changes in the law approved by the Congress last year, have succeeded, we believe, in preventing abuses in this valuable program and have restored it to its rightful place as an effective weapon in the nationwide attack against the spread of blight and decay.

We do recommend that the committee give favorable consideration to the recommendations of the President's Advisory Committee on Housing' with respect to strengthening the title I program by increasing the maximum amount of such loans from $2,500 to $3,000 and the term from 3 years to 5 years. Also, with respect to repair and modernization of multifamily structures we recommend a maximum of $10,000 per structure or $1,500 per unit, whichever is greater, and a maximum of 10 years instead of the 7 years as provided in the present law. We believe that such changes would encourage the improvement of much of our housing inventory and would assist in restoring many neighborhoods to sound, healthy condition. Federal loans and grants at best can deal effectively with only a fraction of the Nation's total slum and blight problem. It is equally as important to prevent the decay of housing as it is to remove slums. Only through a many-pronged effort will the Nation successfully meet the challenge expressed so dramatically by the President's Advisory Committee that at the 1953 rate of slum clearance and demolition the job of eliminating slums will take over 200 years.2

We urge the extension and expansion of the title I program as one of the major weapons in the nationwide effort to improve family living conditions in our neighborhoods and our cities.

Multifamily housing mortgage limitation

MAXIMUM MORTGAGE AMOUNTS FOR MULTIFAMILY PROGRAMS

We endorse the provisions of the bill increasing the maximum mortgage amounts for the FHA multifamily programs from $5 million to $12.5 million and the limitation on the latter to the aggregate amount of any commitment or commit

1 P. 24, Report of the President's Advisory Committee on Housing Policies and Programs, December 1953. 2 P. 111, ibid.

ments issued and outstanding under the particular section at any time with respect to a project or projects in the same housing market area and involving the same mortgagor.

SECTION 220 (REHABILITATION)

We also endorse the increase in the maximum mortgage amount under section 220 (rehabilitation) for private mortgagors from the present $5 million to the $50 million limitation which is applicable now only to publicly supervised mortgagors. The basis for this change is that the control exercised by FHA over private mortgagors makes unnecessary the difference in mortgage amounts as between private and public mortgagors.

Before leaving the section 220 program, we want to express our confidence in the ultimate success of this program which, as the committee knows, is designed to make mortgage insurance available for rehabilitation of existing properties and new construction in older areas undergoing urban renewal treatment, federally assisted, under the Housing Act of 1954. The program did not get off to a quick start, and this is understandable realizing that the philosophy underlying the program is one of greater acceptance by local governments of their responsibility for housing code enforcement. Many communities have had to appeal to their legislatures for authority to promulgate the proper housing codes; others have dragged their feet not sure of just how taut the purse strings were on the Federal grants for urban renewal. However, we want to express one word of caution over increasing the maximum mortgage amount on section 220 loans to $50 million. We trust that this will not be construed as congressional sanction of the mass demolition approach to urban renewal. Such blockbuster methods unduly emphasize new construction as the principal or major objective of the section 220 program. Instead, we hope the Congress will underscore the primary role of the section 220 program as the rehabilitation of existing properties within a defined urban renewal area. We have urged the FHA to show a greater appreciation of the tremendous potentiality of this section in accomplishing the objectives of urban renewal through rehabilitation, rather than to concentrate on demolition and new construction as its primary objective. Conservation and rehabiliation are the basic objectives of the build America better program of our national association, which is meeting with success in many parts of the country.

Mortgage insurance authorization

FHA AUTHORIZATION

We endorse the recommendation in the bill that the maximum authorization for the FHA mortgage insurance system be increased by an aditional $4 billion for the fiscal year beginning July 1, 1955. In connection with this recommendation our association desires to express its confidence in the existing fundamental structure of the Federal Housing Administration. We so express ourselves realizing that the Congress, the President, and the public have been bombarded during the past several months with various proposals designed to change radically this mortgage insurance system which has made so tremendous a contribution to the principle of homeownership, the home building industry, and the national economy.

In our opinion, the FHA mortgage insurance system as presently constituted is a sound one that has resulted in vast benefit to the American people without subsidy or expense to the taxpaying public.

Military housing

WHERRY MILITARY HOUSING (TITLE VIII)

Section 9 of the bill provides for the termination of the Wherry military housing program on June 30 except for commitments to insure issued on or before that date. We believe that this recommendation is unfortunate. Despite some recent reports of abuses in this program, we have yet to note any facts unearthed by a congressional investigating committee in substantiation of such that could not be cured by proper administrative measures. The Wherry program has had an anti-mortgaging-out provision written into the statute since

its inception. The program has provided 78,800 completed units 3 of family housing (with an additional 19,180 in various stages of processing) for the armed services at average rentals less than the average quarters allowances received by the servicemen-occupants. We recognize that Wherry Housing is limited to permanent installations and that it may have other limitations. However, to the extent that it has been used to date the Congress has assisted in providing housing for more than 78,000 service families and has been spared the direct appropriation of approximately $1 billion since 1949 in doing so.

On March 2, 1954, Mr. John M. Ferry, Special Assistant for Installations to the Secretary of the Air Force, testifying before the House Banking and Currency Committee on behalf of the Department of Defense, urged an extension of the Wherry Act for another year. Upon direct questioning as to whether the provisions of title VIII were satisfactory, he replied: "Yes, sir. We are very, very pleased with it."'

Later, upon being questioned by Congressmen Deane and Spence (the latter being the present chairman of that committee), the Defense Department witness reemphasized this satisfaction with the Wherry program and the Department's desire for its extension. However, 2 months later, before the House Armed Services Committee considering authorization for direct public construction of family quarters, Assistant Secretary of Defense for Properties and Installations, Franklin G. Floete, proved most articulate on the subject of the disadvantages or limitations of Wherry housing.'

In February of this year, before the Air Force Subcommittee of the House Appropriations Committee, Under Secretary of the Air Force Douglas made his position very clear with this statement: "Our position is perfectly clear. We like Wherry housing. It is one way to get acceptable housing". It is significant that the Air Force is by far the major utilizer of the Wherry program and well qualified to speak on the subject.

We urge the committee to assert its jurisdiction over the subject of family housing for the military by extending the Wherry program for an additional year. Surely the action is justified on the basis of Under Secretary Douglas' statement before the House Appropriations Committee.

Cooperative housing

The section 213 cooperative housing program of the FHA was created more than 5 years ago. Under it 292 cooperative projects have been completed involving 32,666 units. In August 1954, 294 cases were in various stages of processing and therefore subject to the amendments to the cooperative program contained in the Housing Act of 1954. Of these 294 cases, 147 have since been withdrawn, expired, or rejected. 117 remain in the active state and commitments have been issued on only 27. These latter 27 are of the "sales" type of cooperative and threfore not affected by the change from replacement cost to estimated value as a basis for valuation. Also, only three applications have been received since August 2, 1954.

We believe that the 147 withdrawals and rejections and the sharp drop in applications are attributable to the amendment which the Congress approved last year changing the valuation approach to cooperatives from replacement cost to estimated value. This change was proposed prior to the congressional disclosures over section 608 and we were never quite able to understand the basis for the HHFA's recommendation on this point. We repeat our opposition to this change and urge the committee to restore replacement cost as the basis for appraisal of cooperatives. Estimated value as a basis for appraisal involves the capitalization of income as a principal criterion. An attempt to capitalize income of a cooperative neutralizes the effect of the peculiar amenities which make the cooperative less expensive to the participant, and increases his minimum cash outlay.

Appraised value

Before leaving the subject of FHA we respectfully invite the committee's attention to FHA section 226, added by the Housing Act of 1954. This section requires

3 Testimony of Franklin G. Floete, Assistant Secretary of Defense, before Senate Armed Services Subcommittee on Real Estate and Military Construction, May 9, 1955.

P. 259, House Banking and Currency Committee hearings on H. R. 7839, March 8, 1954. 5 P. 255, ibid.

• Ibid.

7P. 5261, House Armed Services Committee hearings on H. R. 9463. May 18, 1954.

8 P. 97, hearings, House Appropriations Subcommittee on Air Force Appropriations, February 9, 1955.

that the seller or builder of a house, on which the FHA is requested to insure a mortgage, deliver to the purchaser a written statement setting forth the appraised value prior to sale or prior to the execution of a binding sales contract. On the surface the requirement appears to be a reasonable one. However, the section has resulted in serious obstacles to the sale of housing. Should the purchaser desire FHA financing, the seller is forced to take the home off the market and will not know until receipt of the report of the FHA staff appraisersome 3 to 5 weeks later-whether he has a binding sales contract. Then when the purchaser receives the appraisal he has the option of withdrawing from the contract if the appraisal is less than a previously stipulated amount which is supposed to represent the seller's reasonable estimate of what the appraisal will be. Also, this stipulated amount, to prevent its being too low, is required to be large enough to support the amount of the mortgage requested in the application for insurance. This tortuous formula for administering section 226 is the FHA's answer to the tremendous administrative difficulties resulting from its original and more literal application of the statutory requirement.

Section 226 not only works a hardship on the seller but often forces the purchaser to make a larger downpayment. For example: Suppose an existing house has a market price of $12,000. If it is subsequently appraised by the FHA at $12,000 the purchaser would be entitled to an insured mortgage of $10,350 (90 percent of the first $9,000 of appraised value plus 75 percent of the excess). However, the seller in order to make sure of obtaining a binding sales contract will estimate a low figure to avoid the chances of the FHA appraisal a month or more later being less than the estimate and thereby risking nullification of the contract. Consequently, in the example the seller retains the $12,000 sales price but estimates the appraisal to be $10,000 or $11,000. This then necessitates a lowering of the mortgage insurance requested in the application to $8,850 or $9,600, respectively. The seller has no other choice. (In the case of an existing house he is more than likely selling in order to purchase a larger home, he can't afford to enter into a sales contract which may not prove binding on the purchaser a month or two later.) When the appraisal is returned with a higher FHA appraisal of $12,000 the purchaser is still bound to the lower mortgage insurance and a resultant higher downpayment. Section 226 therefore operates to defeat the more liberal terms of the Housing Act of 1954.

The question is frequently asked as to why the sales price is higher than the FHA appraised value. One of the reasons is that the FHA mortgage insurance system was never intended to fix sales price. The FHA appraisal is based on long-term economic value for mortgage-insurance purposes, and is not a device for influencing market price. The FHA would be the first to agree that its approach to value often results in a figure lower than the price." The veterans' home loan guaranty program, on the other hand, requires that the veteran pay no more than the VA estimate of reasonable value of the house. This is an appraisal that purposely reflects market price. That is why in many areas of the country the VA appraisal is higher than the FHA appraisal.

Section 226 has the effect of making the FHA appraisal influence the sales price, although the FHA disclaims any attempt to fix a price ceiling. This conflict can only be resolved by repealing section 226 of the National Housing Act. Slum clearance and urban renewal

In regard to the proposed amendment authorizing an additional $500 million in grants to local communities for slum clearance and urban renewal, we reemphasize the position we took last year that local communities must accept positive responsibility for enforcement of housing codes and ordinances to prevent the further spread of blight and decay. The "workable program" which Congress put into the Housing Act of 1954 as a prerequisite to financial assistance is no better than its enforcement. We urge the Congress to emphasize this requirement as a further guide to the Federal agencies concerned that the workable program requirement is one of action and not merely one of promise.

We recommend an amendment to the urban renewal provisions of the act (appendix A) which would authorize the Housing and Home Finance Administrator to insure neighborhood conservation benefit assessment bonds of local communities issued to finance public improvements and other urban-renewal costs in certified urban-renewal areas.

Under this plan a delineated urban-renewal area would also be a benefit assessment district. Urban-renewal costs would be assesed (under State-enacted

Secs. 1009, 1011, 1025, FHA Underwriting Manual, revised January 1952.