October 3, 1973 Mr. Chairman and members of the Subcommittee, my name is Kennon V. Rothchild. I am Chairman of the Board of H. & Val J. Rothschild, Inc., St. Paul, Minnesota, and Chairman of the Mortgage Bankers Washington Committee. Legislative Counsel. Accompanying me is Mr. Lee Holmes, MBA We appreciate the opportunity to present our views today on S. 2507, the "Housing Act of 1973" the Administration's long awaited housing bill. Perhaps before any intelligent discussion can be had of the Administration's proposal of what HUD should be, we should spend a few moments discussing what it is today. Fortunately, final agreement on FHA's insuring authority was reached on the eve of its expiration this past Monday. The fact that FHA is in business until October 1, 1974, is particularly heartening in view of the credit crunch which the principal home mortgage lenders are undergoing. Although there are states with reasonable usury statutes and there are areas in the country where the restriction of mortgage credit is not so severe, the urban areas of the country and their environs are experiencing a severe shortage of lendable mortgage funds. The FHA 203(b) program (together with the VA loan program) is all that is available in these areas because it is generally exempt from usury statutes and mortgage bankers have been successful in obtaining commitments to purchase these loans during these recent difficult weeks. The realistic maintenance of the FHA rate has encouraged investors to return to the FHA market to such an extent that there are more than adequate funds for these loans today. The national market has truly come into its own. The repeated trial by fire which FHA undergoes each time its authorities to operate expire seems to us totally unnecessary, and, in a situation such as the mortgage market is now experiencing, totally irresponsible. While it is true that the average price of a new house in the United States today exceeds the present $33,000 limit which FHA can insure, it is not true that there are no houses available at that price and below and it is this market which FHA has traditionally served. This is not a subsidized market and it is not a small market. A great number of credit-worthy Americans of moderate means suffer each time FHA undergoes the legislative gyrations that surround the extension of its insuring authorities. Certainly, if the Congress does nothing else, it should assure that these authorities are made permanent in any legislation which it passes. One additional point should be made relative to FHA's single family unsubsidized loan program. To be truly effective to today's market the basic 203(b) program must be able to serve an even broader range of people that it now can. Prompt Congressional attention should be given to increasing FHA's maximum loan ceiling and altering its loan-to-value ratio on the 203(b) program in order to enable it to better assist the beleaguered conventional lenders in serving the public. All housing proposals before the Congress envision an increased FHA single family mortgage ceiling, therefore, this recommendation is merely an interim measure to accomodate the present market difficulties until final passage of a major housing bill. In testimony two years ago, the MBA urged consideration of a broadened housing allowance program. Since that time there have been a variety of HUD programs testing this concept across the country. Since final results are not yet available, and will not be for some time, it is difficult for the Association to have any more specific comments as to the success of this program than does HUD. We do support an experimental housing allowance program, however, we very strongly recommend that it be accompanied by a comprehensive counseling program that will help the uninformed, low-income family find adequate housing. The housing allowance program, or direct cash assistance program, cannot, in our view, hope for success without this additional ingredient. one of The great cost of the Section 235 program is offered as the principal reasons for its suspension. We believe it must be assumed that the proposed direct cash assistance program will also require massive outlays of federal funds if it is expanded to encompass a broad range of truly low-income people. All of us must acknowledge the necessity of the high cost of sheltering a large number of low-income families and be prepared to pay the bill. We believe that housing the poor will require a range of subsidy programs designed to meet different requirements of the low-income family, programs which may well go far beyond the Administration's direct cash assistance proposal. For example, direct cash assistance will be troublesome in areas where vacancies are low and more workable where they are high. In order to not simply push up housing prices, some housing production may need to be subsidized in areas where vacancies are low. This suggests that a limited and adequately monitored subsidized program should probably be continued, even past the time when the direct cash assistance program might be adopted. The revisions proposed to the National Housing Act are in many cases sweeping and deserve more detailed response than we are presently able to provide the Committee. Given time, we would have hoped to carefully analyze each provision and its impact on the affected industries and individuals. We hope that no injustice is done by our brief analysis and response. It is unclear what is meant by "experimental financing" in Section 101 of the Revised National Housing Act. We cannot criticize experimenting with novel approaches to financing housing and would like to see more detail concerning the proposal so that we can intelligently comment. The success of private mortgage insurance in the marketplace has been most welcome, and it would appear that this success has been carefully studied by HUD with regard to the provision found in Section 102 which deals with a variety of FHA insuring concepts. A number of insuring approaches are suggested in Section 102(b) which would indicate that the Secretary could establish any degree |