4. Limit claim payments to 90 percent of unpaid balance (90-10 coinsurance). 5. Eliminate the Federal guaranty of debentures. II. Steps which can be taken immediately 1. Terminate participating dividends to borrowers. 2. Reduce loan terms to 80 percent, 20 years for existing houses and 95 percent of first $7,000 and 70 percent of excess for new houses for 25-year maturities. 3. Make a one-time charge to the borrower of 3 percent of the excess of loan over 60 percent of value, such charge to be added to the loan and amortized over the first 24 months. 4. Pay 100 percent of claims only to those lenders whose loss claims after effective date are less than 50 percent of premiums paid after effective date. Lenders exceeding this ratio would receive 95 percent of unpaid balance. (This is a modified 95-5 percent coinsurance). SUPPORTING MATERIAL ON FHA RECOMMENDATIONS General The United States Savings and Loan League believes that a sound FHA program can definitely make a contribution to housing. The benefits and advantages of the FHA plan were intended to result from the insurance principle of spreading the risk over a tremendous number of widely divergent loans and borrowers. Benefits were not intended by Congress to stem from Federal subsidy. In actual practice the insurance principle has been so badly diluted that the program is not self-sufficient and requires a heavy backstopping from the Treasury. The reserves of about 2 percent are grossly inadequate compared to private lenders with reserves of around 10 percent. If the risks assumed by the FHA are brought in line with the reserves, or vice versa, the program will become self-sufficient, will conform to congressional intent, and will be immune from legitimate criticism by private lenders. To do this requires that the risk be reduced and/or income and reserves increased. Group No. 1 of the recommendations reflects those changes required to put FHA on a proper basis. Group No. 2 of the recommendations provides for a more gradual transition and represents changes which are more feasible politically and would avoid the risk of any sudden effect on the economy. Brief Explanation of Recommendations I. Requirements for mutualization 1. Terminate the participating dividends to borrowers.-This is the quickest, easiest, and least painful way to increase FHA income and reserves. Up to 1953, $47 million had been returned to borrowers and another $60 million was earmarked for distribution to be repaid under the present program. This "windfall to mortgagors" (words used by Administrator Cole before Senate committee), plays an insignificant part in encouraging homeownership or popularizing FHA. It can be likened to the $160 interest gratuity for VA loans which was dropped by Congress practically unnoticed and unprotested. Actually, the insurance premium is collected to meet losses over a total cycle. Until there has been a total cycle there is no true basis for a refund. Under the present procedures all of the losses will have to be met out of one group of loans and the risk has not been truly prorated. The point is well summarized by Commissioner Hollyday before the Senate Banking Committee (Housing amendments of 1953): "I think the following is quite important, gentlemen: The anomaly of substantial dividends to mortgagors while the Treasury is exposed to appreciable expense on account of the system is a consequence of inadequate provision for spreading the burden of contingent cyclical losses throughout the entire system of group accounts." The President's Housing Advisory Committee, in recommending "major modification of the mortgage insurance system," had this to say: "The final major factor which has limited the accumulation of surpluses to meet future losses has been the extent of participating shares distributed to terminating mortgagors. This factor continues in effect although partially abated by the legislative action in the housing amendments of 1953, and constitutes the main objective of the specific proposals listed below for carrying out recommendation No. 12." 2. Set maximum terms at 80 percent, 20 years for existing homes and 90 percent, 25 years for new homes.-Until reserves are built up to a higher level some re Air pollution STATEMENT OF THOMAS H. KUCHEL, A UNITED STATES Senator KUCHEL. Mr. Chairman, I greatly appreciate your permitting me to testify briefly here as a coauthor with Senator Capehart of S. 1565. I might say that legislation of similar purport was introduced, Mr. Chairman, in the 83d Congress by Senator Capehart and me. It passed the Senate only to become lost in the House of Representatives. It deals with the subject of air pollution, one of growing importance to the people of the United States. Meanwhile, however, Mr. Chairman, at the conclusion of the 83d session of the Congress, Senator Capehart and I joined in requesting the President to appoint a committee, consisting of various members of the departments of the Federal Government, to inquire into the broad subject of air contamination and to determine what might be done by the Federal Government to assist the cities and counties and States of America in coping with that problem. I was glad to note that when the President addressed the Congress in January in his state of the Union message, he recognized the problem or air pollution or air contamination and suggested that the Federal Government could occupy a portion of the field designed to eliminate that pollution ultimately. I think, Mr. Chairman, I can say that there are two fields where the Federal Government might well operate in the fight against air contamination. It is true that the control of the problem through legislation should remain with local government, but it is also true that in the field of research the Federal Government might well perform a constructive service. It might, secondly, provide an incentive to industry in America through appropriate tax amortization legislation. Thirdly, and I address myself now to a portion of the bill before us, it might provide for loans to people in America who desire to install various types of air pollution control devices. That, Mr. Chairman, is the reason why I am particularly interested in those portions of the present legislation providing for loans by the Housing and Home Finance Agency. I think it is vital for the Federal Government, acting through that Agency, to provide such assistance in the installation of devices and apparatus which would cut the amount of air pollutants discharged into the atmosphere. To illustrate the need for such assistance on the part of the Federal Government, I wish to advise the committee that only recently the air pollution-control authorities in the city of Los Angeles have adopted an order outlawing the use of home incinerators. These rubbish burners are extremely numerous in that metropolitan area. Similar situations unquestionably exist in the large metropolitan areas across the Nation. The regulation prohibiting such gadgets was taken after long debate but is indicative of the lengths to which responsible local governmental agencies are going and will go in order to reduce smog and other pollutants. Therefore, with the suggestion that an important source of air contamination is the home and small industry or business heating plants, it is not inconceivable that control efforts will reach the point where major modifications of such installations are required. In addition, it has been suggested that the building codes should be strengthened so that future construction will be designed to hold air pollution to a minimum. Such steps would make necessary credit facilities for property owners, and I therefore urge the committee to approve particularly the loan provisions embodied in Senator Capehart's and my legislation. I particularly hope the legislation will contain authority for loans to individuals as well as to business enterprises. I was happy to join in sponsoring this legislation because I feel that production and the ultimate elimination of pollution in the air are imperative in connection with the efforts to solve the Nation's housing problem and wipe out slums. There is no doubt that contamination of the air is a strong factor in the deterioration of neighborhoods. Obnoxious fumes are known to damage physical properties. For these reasons, Mr. Chairman, I feel it is entirely logical for this committee to approve legislation amending the Housing Act so that resources of the Housing and Home Finance Agency may then be employed in a broad campaign against smog and all other types of air pollution. Thank you very much, Mr. Chairman. Senator SPARKMAN. Any questions? Thank you very much, Senator Kuchel. We are glad to have your statement. Senator SPARKMAN. The United States Savings and Loan League, Mr. Henry A. Bubb, chairman of the legislative committee. Mr. Bubb, you have heard what I have said about the necessities of time, and I wonder if you will cooperate with us in trying to condense or summarize your statement, if you will, in order that we may give a chance for all of them to be heard. Home loan bank STATEMENT OF HENRY A. BUBB, CHAIRMAN, LEGISLATIVE COMMITTEE, ACCOMPANIED BY STEPHEN SLIPHER, STAFF VICE PRESIDENT, UNITED STATES SAVINGS AND LOAN LEAGUE Mr. BUBB. Mr. Chairman, in order to expedite matters, I had already contemplated that, and I have cut out quite a little bit of my statement, which will be presented for the record. Mr. Chairman and Senators, I am Henry A. Bubb, of Topeka, Kans., president of the Capitol Federal Savings & Loan Association of Topeka, and chairman of the board of directors of the Federal Home Loan Bank of Topeka. I appear, however, as chairman of the legislative committee of the United States Savings and Loan League. I have Mr. Slipher with me, who is our Washington repre sentative. On behalf of the officers and members of the league, I wish to express my appreciation to the committee for the opportunity to state our views on legislation dealing with housing, and with the Federal statutes which affect our savings and loan institutions. Our membership consists of some 4,100 local savings and loan associations, cooperative banks, homestead associations, and building and loan associations. I am going to skip some of this paragraph. I am glad to report that we feel the Department of Justice and the Federal Housing Administration have been diligent in enforcing the provisions of section 513 which were enacted last year. However, this objectionable practice of transient rentals has not yet been completely stopped. But when three cases, now before the Federal courts, are decided, we hope that the pattern of procedure will have clearly emerged, and that the controls which the Congress established will begin to be effective. Even though this is a very serious business to the hotel industry, the preliminary litigation is not without its paradoxical angles. For example, the Commissioner of FHA ordered one apartment building to cease and desist from its practice of transient rentals, whereupon the FHA borrower brought action in Federal court to compel the Commissioner to desist from further harassment and annoyance in the operation of his property. But with the Department of Justice depending the case, I hope the Commissioner has not missed any sleep over that action. I would like very much to recite a few observations to your committee today, during the brief time that I will require for this statement. First, one of the points we stressed in our testimony last year was the fact that there are roughly 1 million hotel rooms throughout the country. Compared with this number, we understand that there are approximately 500,000 units in FHA projects which were financed under section 608 and section 207. These federally financed facilities could conceivably take over our entire business, if permitted generally to rent on a transient basis. However, Congress took care of that situation last year by forbidding such transient rentals, except under certain circumstances. But today there are already several bills before the 84th Congress today which would exempt certain FHA projects from section 513, and permit transient rentals by those certain properties. And even though it be said, in some cases, that the borrowers are in difficult financial straits, may I observe that the hotel industry, too, finds itself in difficulty. Nationally, our occupancy has been steadily downward ever since 1947. And we will not soon forget that in the decade of the 1930's, 82 percent of all hotels either went bankrupt or were obliged to refinance. And this happened, if you please, without competition from Government-financed properties which now represent a potential competitor with 50 percent of our total available space. Second, we note that Administrator Albert Cole recommended to your committee that the mortgage limitation on multifamily housing projects be raised from $5 million to $12,500,000. There probably are valid reasons why Mr. Cole lodged this recommendation with the Congress. But I should like to point out that there are probably no more than 25 hotels in all America, whose assessed valuation today would equal $12,500,000. You are, therefore, thinking in terms of building properties which generally surpass anything known in the hotel field. When you are dealing in sums of that size, gentlemen, I believe that a builder would find himself able, for the first time, to finance the construction of one of these properties in the Chicago Loop, or the very heart of the downtown business area in almost any American city. Thus could be created an establishment which could very simply be converted to hotel operation later and largely supplant a number of existing hotel properties. Congress might want to consider requiring that such properties be located only in areas zoned primarily for residential purposes. Or, it could be provided that only a certain percentage of the units in such giant structures could be designed for efficiency apartments which are easily convertible. Thus you could preserve the role of providing permanent housing, at the same time not permitting the construction of an apartment building designed for early conversion to hotel purposes. Third, normally, I believe it is the practice to extend for only 1 or 2 years the authorization for such bureaus as the Housing and Home Finance Agency. I notice that your committee is being urged this year to extend certain parts of the law for a period as long as 5 years. The AHA certainly does not want to object to this proposal, if there are compelling reasons why it should be done. But we do definitely feel that the hotel industry would have been in dire straits, if there had been no opportunity for us to point to the inequities which had inadvertently grown up within the Agency, as we did last year. Conceivably, other segments of the business economy in America might likewise encounter unexpected developments, from time to time, which they would need to bring to the attention of this committee. And if you were operating under a 5-year extension of authority, there might be grave pressures against holding hearings at regular intervals of 1 or 2 years. So, unless there are persuasive reasons for this long a period of extension, we would urge that you designate a somewhat shorter span of time. Fourth, Administrator Cole also discussed, at some length, a proposal to vest in the Department of Defense the responsibility for financing housing which might be constructed on or near military bases. And Senator Capehart has also come forward with an interesting proposal regarding construction which would be designed for the military. May we respectfully express the hope that some section comparable to 513 in the 1954 Housing Act be incorporated into any new legislation passed by this Congress dealing with the garden-type apartment developments built for the housing of military personnel. The uncertainty of the period of tenure of Armed Forces at any site does make it doubly difficult to finance an adequate supply of satisfactory housing. But there are numerous instances today where these garden-type apartments are serving as motels and motor courts, catering to the general public, because the services deactivated a military post, leaving those properties isolated. So we do appeal for some safeguards against such abuses. Fifth, the present housing legislation provides for Federal participation, with communities, in the redevelopment of blighted areas. A Federal grant is available from the Housing and Home Finance Agency with which to purchase the right-of-way, and to help raze all undesirable structures in the areas. Then the city is normally responsible for providing the new streets, sewers and gutters, schools, and so forth, to fit into the new concept. It is interesting to observe that at least three places known to us contemplate the construction of a hotel as one of the facilities which would be incorporated into the final plan for redevelopment. There seems to be no prohibition in the present language of the act which would prevent such a move. Under multifamily housing, the FHA will not loan money for the construction of a hotel building, but seemingly, under the broader 62736-55- -26 |