corporations and separate managements on properties separately undertaken in the same area as part of a larger program. Section 2(9). The FHA would be authorized and directed to establish two mutual mortgage funds for housing cooperatives, paralleling the mutual mortgage fund now covering section 203 housing. One fund would cover the management type, or continuing consumer cooperatives. The other would be for sales type cooperatives where the mortgages become the property of individual owners. It is anticipated that there would be a different rate of savings in the management type, or continuing cooperative, as compared with the sales type cooperative. FHA now returns to the mortgage holder the savings made on the insurance of mortgages for single-family homes under section 203. The failure to establish similar provisions covering cooperative housing actually discriminates against cooperative housing because the consumer is not eligible for refunds from savings made possible through the successful operation of the mortgage program and the absence of losses on cooperative mortgages. Section 3. This amendment would include in estimated replacement cost an amount for financing costs equal to the amount of financing costs and fees charged by FNMA on the permanent financing. This would be in addition to the amount now allowed by FHA for construction financing and the services of the mortgagee. These charges on the permanent financing are established by a sister Federal agency and should be recognized by FHA as legitimate costs. Where the mortgage is not sold to FNMA, even though higher fees and discounts are paid on the permanent financing, only the amount which FNMA would have charged would be recognized as part of FHA's estimate of replacement cost. II. AMENDMENTS RELATING ΤΟ FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) Section 4(1). FNMA would be authorized to purchase mortgages of cooperatives on section 213 housing in urban renewal areas in an amount per unit equal to the mortgage insured by FHA, just as FNMA does on mortgages covering section 220 rental projects located in urban renewal areas. Section 4(2). This amendment would correct a technical defect in the present FNMA law. Apart from certain specially excepted types of mortgages, FNMA may not purchase any mortgage which exceeds $17,500 for each such family residence or dwelling unit covered by the mortgage. Under FHA provisions for insurance of mortgages for multifamily housing, the dollar limitations which apply to the maximum amount of the mortgage relate to the part of the project “as may be attributable to dwelling use." Thus, to the extent that the project includes community facilities or other nondwelling items as may be required to serve the needs of the occupants, such facilities are outside the applicable dollar limitations for purposes of FHA insurance. However, they are now included within the FNMA dollar limit. This amendment would treat such facilities on exactly the same basis for the purpose of the FNMA applicable dollar limitation as they are treated on applicable FHA dollar limitations. Section 4 (3). For a period of 1 year, the Federal National Mortgage Association would be authorized and directed to purchase mortgages under its special assistance program at par instead of at discounts. Also, during that period, the FNMA charges would be reduced from 11⁄2 percent to 1 percent of the mortgage amount, with the initial payment upon commitment being one-fourth of 1 percent instead of one-half of 1 percent. Section 4(4). This amendment would provide an additional authorization to FNMA to make commitments and purchases on cooperative housing projects under the special assistance fund of $50 million per year. These funds would be reserved for mortgages insured under section 213 of FHA where the project is to be undertaken or acquired by a consumer cooperative. The applications now pending with FHA or in the FHA pipelines will use up the entire balance of the current FNMA authorization for housing projects involving consumer cooperatives. In addition, projects are now in process or preparation which would absorb all of the proposed additional $50 million authorization for FNMA purchase of mortgages on projects involving consumer cooperatives. The continued development of these and other projects for consumer cooperatives is dependent upon a firm indication that FNMA will have adequate funds to make advance commitments to purchase such mortgages. Otherwise, there will be no assurance of a market for the mortgages by the time the projects are ready. If there is no such assurance, sponsors will not initiate or continue with projects for consumer cooperatives because of the large costs involved in bringing such projects to a point where they are eligible for a FNMA commitment. By its previous authorization to FNMA for cooperatives, Congress has made possible a program which is bringing better housing to many thousands of American families at costs which average 20 percent below the monthly carrying charges for rental housing insured by FHA. Section 4 (5a). Section 213 (a) (3) of the act provides that the investor-sponsor shall have a period of 2 years after completion of a project to make a sale to a cooperative. The investor-sponsor must secure interim financing to cover this period, but such financing cannot be obtained without a takeout commitment from FNMA covering a like period. The past practice of FNMA has been to issue commitments for a period of 2 years. This amendment provides that the FNMA commitments for the purchase of mortgages under section 213 (a) (3) shall extend for the same period contemplated by the FHA statute, namely, 2 years after completion of the project rather than 2 years after the date of the FNMA commitment. That is the only way the special assistance function will fulfill its objective of implementing this FHA cooperative housing program. Section 4(5b). This amendment provides for a FNMA reservation of funds for a 213 project where a statement of feasibility has been issued by FHA. This provides a necessary assurance that funds will still be available for the mortgage financing by the time the FHA mortgage insurance commitment is issued. Mr. TOWNSEND. In addition I want to make these observations: (1) Cooperative housing provides another form of home ownership. (2) The section 213 program has been successful in FHA. Losses are negligible under the cooperative housing program and much less than rental housing. FHA's losses on section 213 portion of the housing insurance fund is four one-thousandths of 1 percent of the insurance premiums collected. Senator CLARK. That is covered by the reserves? Mr. TOWNSEND. Right. (3) Cooperative housing produces monthly charges which are 20 percent less than rents for comparable housing. This is due to the savings inherent in the cooperative approach under section 213. (4) Through group action, a cooperative makes housing available to people who cannot acquire it when acting alone as individuals. (5) Cooperative housing enables its members to accumulate an equity, at the same time that monthly charges are less than rents paid by tenants. (6) Cooperatives discourage speculation and encourage production and sale of housing in a manner which protects the consumer. While the various amendments are explained in this attached digest, we believe special emphasis should be placed on several provisions that will be helpful to the program and to the fullest utilization of section 213. Senator CLARK. Mr. Townsend, does your testimony refer to sales cooperative housing or just the management cooperative housing? Mr. TOWNSEND. My testimony almost completely is directed toward consumer cooperatives of the management type, which are reflected in a statement I have a little further on. An additional authorization of $50 million should be provided for FNMA to buy mortgages on projects involving consumer cooperatives. The limitation to consumer cooperatives is in keeping with present congressional sentiment, as we observe it. Attached to my statement is a list of section 213 projects in various stages of organization. Mr. Chairman, at this point, I would like to ask permission to have this list included and made a part of the record. Senator CLARK. That may be done. (The list of section 213 projects follows:) SEC. 213 PROJECTS OF CONSUMER COOPERATIVES OUTSTANDING NOT YET COMMITTED BY FNMA A. For FNMA special assistance under program 6 (nonrenewal areas) 1. PROJECTS ON WHICH APPLICATIONS HAVE BEEN FILED AND FEES PAID TO 2. ADDITIONAL PROJECTS ON WHICH FHA STATEMENT OF FEASIBILITY HAS 3. PARTIAL LIST OF ADDITIONAL PROJECTS ON WHICH APPLICATION FOR FHA Total pending consumer cooperative projects under program 6 (nonrenewal areas). 105, 187, 800 Demov and Morris. Chalet Gardens. B. For FNMA special assistance under program 3 (renewal areas) 1. PROJECTS ON WHICH APPLICATIONS HAVE BEEN FILED AND FEES PAID TO FHA 2. ADDITIONAL PROJECTS ON WHICH FHA STATEMENT OF FEASIBILITY HAS BEEN ISSUED OR REQUESTED 3. PARTIAL LIST OF ADDITIONAL PROJECTS ON WHICH APPLICATIONS FOR fha STATEMENT OF FEASIBILITY IS IN PREPARATION Total pending consumer cooperative projects under program 3 (renewal areas) SUMMARY 39,077, 500 A. Pending consumer cooperative projects under program 6 (renewal areas). DETAILED EXPLANATION OF COOPERATIVE HOUSING $105, 187, 800 39,077, 500 144, 265, 300 To strengthen and make more effective the cooperative housing program as an important resource in the Nation's housing supply and give it the attention it so richly deserves, it is recommended that the following be included in appropriate legislative provisions : (a) When FHA receives a request from a local public agency or consumer cooperative to purchase a project acquired by FHA as a result of default, the Commissioner should give first preference to the sale of the project to the local public agency or consumer cooperative, at a price representing the fair market value of the property as determined by FHA. As a practical matter, competitive bidding procedures have precluded such sales. For the FHA to give such a first preference to the sale of projects to local public agencies or consumer cooperatives will accomplish the sound objective of providing housing at lower costs through nonprofit operations; in the case of cooperative purchases, it will enable residents to become cooperative homeowners. The proposed dispositions will better assure the future success of projects which have previously failed as rental properties. (b) Section 227 provides for cost certification by the investor-sponsor upon the completion of the physical improvements on the mortgaged property and prior to final endorsement of the investor's mortgage. However, in the completion of the contemplated transaction under section 213, there is a second transaction involving the sale of the project to the cooperative. The Housing Act now limits the price to certified cost, but does not provide for a second cost certification by the investor-sponsor as of the date of the sale to the cooperative. A clarifying amendment is proposed which provides for such a cost certification at the time of the sale to the cooperative. (c) There are communities where there will be a market for a cooperative project because it will serve families of more moderate incomes; yet, in the same community, there may not be a market for the same project at the higher charges required by rental operation for profit. Nevertheless, where investor-sponsors propose to build a project for sale to a cooperative, we find that FHA offices are frequently determining the feasibility of such a project on the basis of whether there is a market for it at the higher rents which would be charged as a rental project rather than the lower monthly charges of a cooperative. Since the project is being undertaken with a statutory requirement for sale to a cooperative by the investor within 2 years after project completion, this is the only purpose and market which should be considered in processing the project. A clarifying amendment is proposed which provides that the sole test of the feasibility of such a project should be the need for it at the monthly charges applicable under its continued use as a cooperative. (d) As a matter of sound and effective administration, it is necessary to restore the position of Assistant Commissioner for Cooperative Housing. In recognition of the public interest involved in this program and its need for special attention and assistance. Congress established this position by law. It later repealed this mandatory provision with the understanding that, without it, the administration of the program would continue to be encouraged and assisted. From past experience it is clear that the program received better assistance and support during the period when it was handled by someone with the status and responsibility of an Assistant Commissioner. An amendment is proposed which would restore that position. (e) An amendment is proposed to authorize the FHA Commissioner to refuse, for such period as he deems appropriate, to insure any additional 213 investorsponsor mortgages where any of the stockholders were identified with a project which failed to become a cooperative. This amendment is more fair and workable than the present provisions. (f) Cooperative projects which are undertaken separately should be permitted to be combined in one cooperative with the same mortgagor. This will avoid the expense and problems of separate cooperative corporations and separate managements on properties separately undertaken in the same area as part of a larger program. (g) The FHA would be authorized and directed to establish two mutual mortgage funds for housing cooperatives, paralleling the mutual mortgage fund now covering section 203 housing. One fund would cover the management type, or continuing consumer cooperatives. The other would be for sales type cooperatives where the mortgages become the property of individual owners. It is anticipated that there would be a different rate of savings in the management type, or continuing cooperative, as compared with the sales type cooperative. FHA now returns to the mortgage holder the savings made on the insurance of mortgages for single family homes under section 203. The failure to establish similar provisions covering cooperative housing actually discriminates against cooperative housing because the consumer is not eligible for refunds made possible through the successful operation of the mortgage program and the absence of losses on cooperative mortgages. (h) In estimated replacement cost an amount for financing costs equal to 12 percent is now allowed; the amount of financing fees charged by FNMA should also be included. These charges are established by FHA as legitimate costs. Where the mortgage is not sold to FNMA, even though higher fees and discounts are paid, only the amount which FNMA would have charged would be recognized as part of FHA's estimate of replacement cost. (i) Interest and taxes should be included in the FHA estimate of replacement cost, not merely during an allowed construction period, but also a period until occupancy and cooperative sales reach a break-even point. In addition, it is necessary to include certain other costs to be paid by the cooperative at the time it acquires title, such as mortgage and hazard insurances for 1 year and the tax escrow. Mr. TOWNSEND. Over $42 million of projects are in the immediate future. A total of $105 million for 7,135 units are involved in all stages that should have special assistance under FNMA program No. 6. This more than absorbs the balance of special assistance funds available for consumer cooperatives plus the additional $50 million proposed in the Williams bill. |