HOUSING AND HOME FINANCE AGENCY, Re S. 3276, 86th Congress. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in further reply to your March 28 request for our views on S. 3276, a bill to amend and extend the veterans' direct home loan program. This bill would extend from July 25, 1960, to February 1, 1965, the termination date of the Veterans' Administration direct home loan program for eligible veterans of World War II or the Korean conflict. This program is limited to veterans in rural areas and small cities and towns where VA-guaranteed home loans may not be generally available. While S. 3276 would extend the direct home loan program, it makes no provision for extension of the guaranteed loan program for World War II veterans, which is also due to terminate on July 25, 1960. Since the law stipulates that direct loans shall be available only where private capital is not generally available for the financing of guaranteed loans, S. 3276 is apparently intended to be enacted along with separate legislation to extend the VA-guaranteed loan program. We believe that there would be no need for extending the VA direct loan program, which requires sizable direct expenditures of Federal funds, if the interest rate on VA-guaranteed home loans were raised to a competitive market level. If that were done, our voluntary home mortgage credit program would be able to meet the special home financing needs of veterans in small and remote areas. Through its nationwide referral system, applications for VAguaranteed loans could be referred to investors in other areas who indicated that they were willing to make such loans. In order to make this system effective, the statutory maximum interest rate on VA guaranteed home loans should be increased from 54 percent to 6 percent, and discretionary authority provided to establish the actual maximum rate from time to time within this ceiling, after taking into consideration competitive market conditions. This would provide the same authority to the Veterans Administration as is now provided the FHA Commissioner with respect to interest rates on FHA insured mortgages. We have been informed by the Bureau of the Budget that this report is without objection insofar as the Bureau is concerned, and that the enactment of S. 3276 would not be in accord with the program of the President. Sincerely yours, NORMAN P. MASON, Administrator. TREASURY DEPARTMENT, May 10, 1960. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, MY DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 3276, "to amend and extend the veterans' direct home-loan program." The proposed legislation would extend the veterans' direct loan program from July 25, 1960, to January 30, 1965. The President in his budget message for the fiscal year 1961 took the position that there was no longer a justification for the continuation of the veterans' direct loan program beyond its scheduled expiration date of July 25, 1960. The Department is completely in accord with this position and we would be opposed to the enactment of the bill. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee and that enactment of the proposed legislation would not be in accord with the program of the President. Very truly yours, JULIAN B. BAIRD, Acting Secretary of the Treasury. VETERANS' ADMINISTRATION, May 11, 1960. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR SENATOR ROBERTSON: The following comments are submitted in response to your request for a report by the Veterans' Administration on S. 3276, 86th Congress. This bill's purpose is to extend the direct loan program for veterans of World War II and the Korean conflict from July 25, 1960, to February 1, 1965. The Administrator could close direct loans subsequent to January 31, 1965, on the basis of commitments issued before that date. The bill would also authorize an additional $150 million annually (but not more than $50 million per quarter) for direct loans during this period. The direct lending authority was originally established to supplement the loan guarantee program so as to provide loan assistance to veterans in rural and semirural areas where private lending sources had not adequately made guaranteed loans available. The loan guarantee program for World War II veterans is schedulel to terminate on July 25, 1960. S. 3276 would therefore continue the supplemental direct loan program after the principal program for World War II veterans has ended. We note in this connection that the bill raises certain technical questions. Although purporting to extend the World War II direct loan authority beyond the World War II loan guarantee deadline, it leaves standing certain basic provisions. by which the availability and the amount of the direct loan to the particular veteran depend upon the existence and amount of his loan guarantee entitlement. The basic law (38 U.S.C. 1811 (c) (1)) is to the effect that a direct loan will not be made unless it is shown that the veteran is unable to obtain from a private lender in the shortage area, at an interest rate not in excess of the rate authorized for guaranteed home loans, a loan "for which he is qualified" under the pertinent provisions relating to the guarantee of home loans. It also provides (38 U.S.C. 1811(d) (2)) that the principal amount of a direct loan shall not exceed an amount which bears the same ratio to $13,500 as the amount of guarantee "to which the veteran is entitled," at the time the loan is made, bears to $7,500. Absent clarification, problems of interpretation will arise in attempting to apply these requirements in World War II cases under the extended direct loan program after the end of the World War II loan guarantee program. We feel strongly that the GI loan program for World War II veterans should not be further extended, since the period of time during which these benefits have been available has been ample to satisfy the readjustment concept on which they were based. In his budget message to the Congress on January 18, 1960, the President stated that there is no longer justification for continuing the re adjustment program of direct housing loans to veterans and that there is no need for further extension of the World War II loan guarantee benefits. The loan guarantee program for Korean conflict veterans will continue through January 31, 1965. Extension of the direct loan program for this group would offer partial assistance in the designated shortage areas but would leave untouched the basic interest rate problem which impedes the primary loan guarantee program in all areas. It is our belief that the initial concept of the program of loan assistance for veterans should be retained by inducing private investment capital to satisfy their financing needs. The direct loan program has always been considered a temporary supplement to the guarantee program. The basic concept best may be preserved by authorizing flexibility in fixing interest rates at competitive levels in keeping with current market conditions. The proposed extension of the direct loan program for both World War II and Korean conflict veterans would involve, over the proposed period of approximately 4 years, an expenditure on a lending basis of around $1 billion. Of this sum, $750 million would represent additional Treasury advances and $250 million would be repayments of principal on loans previously made. It is estimated that the direct loan funds which would become available under the bill would be enough for about 90,000 loans at an estimated administrative cost of about $500 per loan ($100 origination cost, plus service charge of $400 based on one-fourth of 1 percent of unpaid balance during 15-year life of the loan). This would amount to $45 million for 90,000 loans. This cost, however, would be offset by any savings which would accrue from the difference between interest collections on direct loans and the interest payable to the Treasury on advances to the direct loan revolving fund, less any cost in connection with the foreclosure of direct loans. In addition, the fees charged the borrower for origination costs and the 2 percent commitment fees from builders would also provide funds to offset origination costs and the costs of administration. Incidentally, the proposed revision of section 1823 (c) to change from June 30, 1961 to "January 31, 1965" the deadline date by which the Administrator shall deposit direct loan funds into miscellaneous receipts of the Treasury appears to be erroneous. The present law provides approximately a year for making such deposit of funds. It is believed that the date intended in the bill for this purpose is "January 31, 1966." In view of the foregoing considerations, we recommend against favorable consideration of S. 3276 by your committee. Advice has been received from the Bureau of the Budget that there is no objection to the presentation of this report to the committee and that enactment of the proposed legislation would not be in accord with the program of the President. Sincerely, SUMNER G. WHITTIER, [S. 3278, 86th Cong., 2d sess.] MR. WILLIAMS OF NEW JERSEY AND OTHERS A BILL To amend section 701 of the Housing Act of 1954 (relating to urban planning grants), and title II of the Housing Amendments of 1955 (relating to public facility loans), to assist State and local governments and their public instrumentalities in improving mass transportation services in metropolitan areas Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, POLICY AND PURPOSE SECTION 1. It is the declared policy of the Congress to assist wherever possible the States and their political subdivisions to provide the services and facilities essential to the health and welfare of the people of the United States. The Congress finds that among the most serious problems confronting metropolitan areas are the lack of adequate and coordinated mass-transportation facilities and services, and a lack of comprehensive and interrelated transportation and metropolitan area planning and development. The Congress further finds that the economic welfare of our major metropolitan centers is a matter of critical national concern and that such welfare is threatened by inadequate mass transportation services. It is the purpose of this Act to assist and encourage the States and local governments, and their public instrumentalities, to undertake the necessary studies and planning, along with other urban planning activities presently assisted by the Federal Goverment (1) to determine the total transportation needs of metropolitan areas, (2) to formulate a program for the most efficient and economical coordination, integration, and joint use of existing mass-transportation facilities, and (3) to study the interrelationship between metropolitan area growth and the establishment of various transportation systems for such areas in order to promote the most comprehensive planning and development of both. It is further the purpose of this Act to broaden the public facility loan program to specifically authorize financial assistance to the States and local governments, and their public instrumentalities, to provide facilities and equipment for use in mass-transit or commuter service in urban areas, and to integrate and coordinate highway, bus, surface-rail, underground, and other mass-transportation systems in such areas. URBAN PLANNING GRANTS SEC. 2. (a) Section 701 (a) of the Housing Act of 1954 is amended by striking out the matter preceding paragraph (1) and inserting in lieu thereof the following: "SEC. 701. (a) In order to assist State and local governments in solving plan. ning problems resulting from the increasing concentration of population in metropolitan and other urban areas, including smaller communities, to facilitate comprehensive planning on a continuing basis by State and local governments for urban development and the coordination of transportation systems in urban areas, and to encourage State and local governments to establish and develop planning staffs, the Administrator is authorized to make planning grants to-". (b) Section 701 of the Housing Act of 1954 is further amended by redesignating subsections (d) and (e) and (f), respectively, and by inserting after subsection (c) a new subsection as follows: "(d) The Administrator shall encourage (1) planning to determine transportation needs and to coordinate and integrate the various elements of mass-transportation systems in metropolitan areas, (2) the coordination of all planning activities of the public bodies or agencies responsible for regulating or providing mass-transportation services in such areas, and (3) the carrying out of studies concerning the interrelationship of transportation and urban development, including the impact of land use and metropolitan growth on the total transportation needs of such areas." PUBLIC FACILITY LOANS SEC. 3. (a) Section 202 (a) of the Housing Amendments of 1955 is amended to read as follows: "SEC. 202. (a) The Housing and Home Finance Administrator, acting through the Community Facilities Administration, is authorized to purchase the securities and obligations of, or make loans to, States, counties, municipalities, and other political subdivisions of States, public agencies, and instrumentalities of one or more States, municipalities, and political subdivisions of States, and public corporations, boards, and commissions established under the laws of any State"(1) to finance specific public projects under State or municipal law: Provided, That no such purchase or loan shall be made for payment of ordinary governmental or nonproject operating expenses; and “(2) to finance the acquisition, construction, reconstruction, maintenance, and improvement of facilities and equipment for use, by operation or lease or otherwise, in mass-transit or commuter service in urban areas, and to integrate and coordinate highway, bus, surface-rail, underground, and other mass-transportation systems in such areas: Provided, That the total amount of purchases and loans which are outstanding at any one time under this clause (2) shall not exceed $100,000,000. As used in this clause (2), facilities shall be construed to include land, excluding public highways, and any other real or personal property necessary for use in mass transportation." (b) Subsection (b) of section 202 of the Housing Amendments of 1955 is amended (i) by striking out "reasonable terms" in paragraph (1) and inserting in lieu thereof “equally favorable”, and (ii) by adding at the end of such subsection a new paragraph as follows: "(3) Interest shall be charged on loans made under this section at a rate determined by the Administrator which shall not be more than the total of onequarter of 1 per centum per annum added to the rate of interest paid by the Administrator on funds obtained from the Secretary of the Treasury as provided in section 203 of this title." (c) Section 202(c) of the Housing Amendments of 1955 is amended (1) by striking out "this section" in the first sentence and inserting in lieu thereof "subsection (a)(1) of this section", and (2) by inserting immediately after the first sentence a new sentence as follows: "In the processing of applications for financial assistance under subsection (a) (2) of this section the Administrator shall give priority to the applications of those eligible applicants which he determines (1) have the most workable plans for the development of a coordinated mass transportation system and (2) have the most pressing need for such assistance." (d) Section 203 (a) of the Housing Amendments of 1955 is amended (1) by striking out the first sentence and inserting in lieu thereof the following: "In order to finance activities under this title, the Administrator is authorized and empowered to issue to the Secretary of the Treasury, from time to time and to have outstanding at any one time, notes and other obligations in an amount not exceeding $ : Provided, That of the funds obtained through the issuance of such notes and other obligation not less than $100,000,000 shall be available for purchases and loans under section 202 (a) (2) of this title."; and (2) by striking out the third sentence and inserting in lieu thereof the following: "Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury which shall not be more than the average annual interest rate on all interest-bearing obligations of the United States then forming a part of the public debt as computed at the end of the fiscal year next preceding the issuance by the Administrator of such notes or other obligations, and adjusted to the nearest one-eighth of 1 per centum." S. 3278 DIGEST OF BILL Section 1.-Declares it to be a policy of the Congress to encourage State and local governments to undertake studies and planning activities pertaining to total public transportation needs in metropolitan areas, and to provide financial assistance for meeting these needs. Section 2.-(a) Amends section 701 (a) of the Housing Act of 1954 to authorize Federal grants for the planning of transportation system in metropolitan areas. (b) Adds a new subsection to section 701 of the Housing Act of 1954 directing the Administrator of the HHFA to encourage: (1) Planning to determine transportation needs and to coordinate and integrate mass-transportation systems in metropolitan areas, (2) Coordination of all planning activities of public bodies or agencies responsible for regulating or providing mass-transportation services, and (3) Studies concerning the interrelationship of transportation and urban development. Section 3.-(a) Amends the public facility loan program in order to make such loans available for the financing, acquisition, construction, reconstruction, maintenance, and improvement of facilities and equipment for use, by operation, or lease, or otherwise, in mass-transit or commuter service in urban areas. Authorizes $100 million for loans under this amendment. (b) Amends the public facility loan program to provide that loans may be made after a showing that such funds are not otherwise available on "equally favorable" terms rather than on a "reasonable term" basis provided by present law. Also amends the program so that the interest rate to the borrower shall not exceed the total of one-quarter of 1 percent per annum added to the rate paid by the Administrator to obtain funds from the Secretary of the Treasury. (c) Directs the Administrator to give priority to applicants, for mass-transportation loans, that have (1) the most workable plans for the development of a coordinated system, and (2) have the most pressiing need for such assistance. (d) Changes the formula for determining the interest rate charged by the Treasury on public facility loan funds so that the interest rate shall be not more than the average annual interest rate on "all" interest-bearing obligations of the United States adjusted to the nearest one-eighth of 1 percent. Under existing law, the rate paid to the Treasury is determined by the Secretary, taking into consideration the current average rate of U.S. marketable obligations of "comparable maturities." HOUSING AND HOME FINANCE AGENCY, Re. S. 3278, 86th Congress. Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: This is in further reply to your letter of March 30 requesting the views of this Agency on S. 3278, a bill to amend section 701 of the Housing Act of 1954 (relating to urban planning grants), and title II of the Housing Amendments of 1955 (relating to public facility loans) to assist State |