Such

112, however, such expenditures are not eligible when made by such a State public authority although made for the same purpose of educational use. a distinction is one of form; not substance.

Section 4(e) (4) of S. 3509 would make such expenditures by any such State public authority eligible as a local grant-in-aid to the extent that they would be eligible under section 112 if they had been made directly by the educational institution.

Senator SPARKMAN. Any questions?

Senator CLARK. Yes. Mr. Levi, do I understand you correctly that you think a proper administrative interpretation of the present law would allow credit for these prior expenditures, but that you believe the urban renewal people have misinterpreted what we wrote into the law last year, and therefore, to make it abundantly clear, you want this amendment?

Mr. LEVI. Precisely. The situation is this, Senator: The law specifically provides that there is this 5-year lead time. Now, that was what the law said. Now, what the administration did in drawing the regulation was to provide that if you had begun new construction or rehabilitation before all the approvals had been in, even though they were in the 5-year period, you lose the benefit of the lead time. This is unsound, because it encourages the very kind of conduct that none of us want. We have got immediate educational needs. When these structures are acquired, new construction ought to begin or rehabilitation ought to begin as quickly as possible, in the national interest. What this interpretation would do would be simply to encourage fallow land lying around or to lose the credits, and in either case this would defeat the intention of the Congress. Senator CLARK. I hope we can get this clarifying amendment through for you. In the meantime, I personally will certainly urge the administration offices to change their interpretation. Perhaps they will not be willing to do it, but maybe some of that can be fixed next January.

Senator SPARKMAN. Thank you very much. We appreciate your

statement.

We have a letter sent us by Senator Johnson. It will go in the record.

(The letter referred to follows:)

Senator LYNDON B. JOHNSON,

Senate Office Building,

Washington, D.C.

HUNTSVILLE, TEX., May 6, 1960.

DEAR SENATOR: Unless the Federal Government continues to make loans for college housing, the small colleges of America will be forced to sell their bonds in the so-called open market at an interest rate-regardless of guarantees-that will likely increase room rent in these institutions at least one-third. Attached is a summary of the reasons for this statement.

Sincerely yours,

President, Sam Houston State Teachers College,

Memorandum to: Senator JOHNSON.
From: Harmon Lowman, a college president.

HARMON LOWMAN,

MAY 6, 1960.

Under the existing practices of the college housing authority, approximately two-thirds of the Nation's colleges have pledged with first and second liens the income from all existing housing and auxiliary campus enterprises. When this fact is coupled with the fact that due to parietal clauses in all bond agreementsstudents must rent rooms according to the chronological order of the bond is

sue3-it seems evident that the small colleges of America would be at a distinct disadvantage if they were now forced to sell their housing bonds in the present noncompetitive type of money market.

Senator SPARKMAN. Next is Mr. Charles Wood, a homebuilder of Dothan, Ala. We are glad to have Mr. Wood with us. I have known him for a long time, and I am glad to call him my good friend. We welcome you here this morning.

STATEMENT OF CHARLES WOOD, HOMEBUILDER, DOTHAN, ALA.

Mr. Wood. Thank you. Mr. Chairman, and members of the committee, I am a builder of small homes in southeast Alabama and would like to talk to you today about the disgrace of discounts.

I have been building homes for the past 12 years, and in my opinion these so-called loan discounts, which I and every other builder must pay on all homes we sell, in order to obtain FHA or VA financing, are seriously damaging the housing industry in the United States. It is particularly detrimental to small homebuilders in small towns. As you know, several years ago excessive discounts were outlawed. However, many devious methods were used to circumvent the law, one of the most common being the lending agency requiring the builder to pay them a real estate commission, whereas in actuality the builder sold his own homes.

In an effort to keep a profitable operation, most builders endeavor to pass along as much of this discount as possible to the home buyer. Since the FHA and VA will not allow discounts as an item of expense, most of us cut corners and do other things which we would prefer not to do. Also, we cannot pay our men the wages we would like to pay them.

In addition to the previously mentioned discounts, most lending institutions charge construction loan fees of one-half to 212 percent over and above their regular interest rate and appraisal fees. Since this is usually short-term money, the actual rate of interest often becomes usurious. It is my opinion that private lending sources have completely failed in providing financing for homes in this country. I have heard many times the cry to raise the interest rates and I have seen several raises, yet discounts stay with us. Just before the last interest rate increase, we were paying 6 percent discounts on average FHA loans and about three weeks after the interest rate was increased, we closed our first loan under the new rate-discount 6 percent. If the interest rates were raised to 10 percent, it is my belief that the money lenders would still charge excessive discounts. I think it would help to require all lending institutions to sign an affidavit on each Government-guaranteed loan as to the discount they will charge in other words, bring it out on top of the table, so to speak-also requiring the buyer to sign, showing that he is aware of the discount the builder is being forced to pay.

I believe this latter action would cause public opinion to demand relief. Gentlemen, in my opinion, some type of beefed-up Federal National Mortgage Association is the only permanent solution to this problem. Then, if the moneylender wants the guarantee of the U.S. Government behind his investment, let him be content with interest rates commensurate with this guarantee.

I thank you.

Senator SPARK MAN. Well, thank you.

How can we effectively control these discounts? As you know and as you included in your statement, we have tried. At one time, we passed an act in Congress outlawing them. As you say, they found methods of getting around that.

Then, we wrote a provision calling on FHA and the VA to write instructions or regulations that would control it. We found that to be cumbersome and unworkable.

I have always had a rebellious feeling toward discounts, discounts of any kind, particularly some of these that are unconscionably great. But how can we control them?

Mr. WOOD. Senator, as long as it is in the hands of the private lenders, I do not think there is any way because they will find some way or other to get around the law-as I mentioned, the real estate commission being the most common.

Senator SPARKMAN. By the way, are you familiar with the bill that Senator Capehart and I introduced just a few days ago, last week, S. 3541, that would seek to put into effect a central mortgage setup in keeping with the recommendation of the National Association of Home Builders and Mortgage Bankers Association and the National Real Estate Boards of the country? You know, of course, about the years of work that has been done looking toward that. I presume you are not familiar witth the terms of the bill.

Mr. WOOD. No, sir.

Senator SPARK MAN. It has long appeared to me that the only way we are ever going to do this is by insuring some means of having a ready mortgage market so that we will not have these violent fluctuations up and down. I am not going into detail in describing it now, but, in effect, it would extend the borrowing power of FNMA so that people could borrow 15 times instead of 10 times as much as is permitted now. It would seek to break into additional funds, pension funds and trust funds, and make it possible to market mortgages in such a way that those funds would be, we think, attracted. I am rather of the opinion that until we get some such a program as that where the mortgage market will be stabilized, we are simply not going to find a way around these discounts.

Mr. WOOD. I think you are 100 percent correct.

Senator SPARK MAN. I think you will find S. 3541 to be interesting. I suggest you check into it.

Mr. WOOD. Yes.

Senator SPARK MAN. Any questions, Senator Clark?

Senator CLARK. No.

Senator SPARKMAN. Senator Bush?

Senator BUSH. No.

Senator SPARKMAN. Senator Williams?

Senator WILLIAMS. No questions.

Senator SPARK MAN. Thank you.

Mr. WOOD. Thank you.

Senator SPARKMAN. Next, we have a panel of witnesses from Puerto Rico. I am sure it is going to be very interesting.

Will you gentlemen come around to the table?

Dr. Pico, I understand you are the chairman of the group, so to speak.

high-cost urban land for middle-income families. It offers the opportunity of retaining, or even reincorporating, as urban residents middleincome families which are forced to move to the outlying suburbs and suffer the hardships of daily commuting due to the lack of urban housing suited to their means.

A program for individually owned units in a multifamily structure represents a compromise which can meet the physical and psychological housing needs of a large number of those who desire the independence and satisfaction of individual homeownership and the advantage of residence in centrally located urban areas.

I would like to read excerpts from this statement and not the whole of it.

In 1951, Puerto Rico adopted the first enabling legislation to permit individual ownership of a one-family unit located in a multifamily structure. No project started, however, until 1955 when the Government Development Bank agreed to finance the purchase of 22 apartments in the first building of that type, the San Luis Apartment Condominium located in San Juan.

The bank recognized the significance of this kind of individual home ownership for the development and redevelopment of valuable, centrally located areas in the city of San Juan and other cities of Puerto Rico. It was felt, at that time, that this type of construction could well become the most important step in recent years toward providing home ownership within the urban zone for city dwellers of all economic levels of our society.

Unfortunately, only local financing has been available through conventional 10- to 20-year mortgage loans at a 7 percent or more interest and requiring a 40-percent downpayment. This initially high equity payment has precluded purchases by our middle-income families. Thus, only very high-priced luxury-type apartments have been built for families that are well off financially. It is not likely that the required downpayment will ever be reduced enough unless the mortgages become eligible for FHA insurance.

If an FHA mortgage insurance program could be provided, under the terms now in force for 213 and 203 mortgages under those sections, it would be an incentive for lending institutions to put funds into the construction of apartments within the moderate and lower priced brackets which can be purchased and owned by families in the middle and lower income levels. A vigorous program of construction of these apartments could result if this legislation is approved.

I thank you, Mr. Chairman and members of the committee. Senator CLARK. Mr. Francisco Fullana, could we hear from you, please? Excuse me if I do not pronounce your name right?

Mr. FULLANA. Mr. Chairman, members of the subcommittee, my name is Francisco Fullana, representing the Home Builders Association of Puerto Rico. I want to ask permission from the subcommittee to have Mr. Zalduondo read my statement for me. On account of a cold, I am hardly able to talk.

Senator CLARK. We would be very happy to have you do that, Mr. Zalduondo.

Mr. FULLANA. I would be ready to answer any questions afterwards. Senator CLARK. Would you please spell your name for the stenographer?

In addition, the owners of apartments have an ownership interest in the common area and facilities and community and commercial facilities, if any, which are associated with and which serve the apartment building in which their unit is located. Such rights of ownership to common property carry an obligation to support the proper maintenance and use of the common areas. This is established in detail in the statute governing condominium ownership in Puerto Rico and is established or would be established by the common law or a statutory law which would apply in any other jurisdiction.

The proposed amendments protect the interest of the public and of the Federal Housing Authority in insuring mortgages. This amendment would give the FHA Commissioner authority to prescribe rules and regulations appropriate to construction and ownership and provide that the insured mortgage shall include provisions protecting the rights of ownership, the maintenance of common areas and facilities, and other matters as the Commissioner may prescribe.

Other witnesses from Puerto Rico are present to give their views on the proposed legislation and I understand that their appearance has been scheduled. Dr. Pico. Thank you very much.

Senator SPARKMAN. We are delighted to have all of you gentlemen with us, and proceed in your own way.

Dr. Pico. Thank you.

Mr. Chairman and members of the committee, I am Rafael Pico. I am also president of the Inter-American Planning Society and a member of the council of the International Federation for Housing and Planning that will have its forthcoming meeting in Puerto Rico at the end of this month.

I would like to testify with reference to Senate bill 3502 that amends the FHA Act to add a new section to that act.

This

A study of the National Housing Act clearly reveals the legislative intent to provide as ample a coverage as possible to promote home ownership. The act, however, did not provide insurance for mortgages on individually owned units in a multifamily structure. form of ownership has been known for centuries and is well recognized by legal authorities in many European and Latin American countries. Since 1951 Puerto Rico adopted legislation making it possible for this type of apartment to be constructed on the island.

The stated purpose of S. 3502 introduced by the Honorable Senator James E. Murray aims through FHA mortgage insurance:

* to provide an additional means of increasing the supply of privately owned housing units where individual ownership of a one-family unit which is part of a multifamily structure is authorized under the laws of the State in which the property is located.

As president of the Government Development Bank for Puerto Rico, an institution that is charged with the responsibility of providing and promoting financing for projects that will further the development of the economy of the Commonwealth of Puerto Rico, I am wholeheartedly in favor of this bill. I believe it could do much to relieve Puerto Rico's acute housing problem aggravated by the paucity of adequate residential building sites in urban areas; the sprawl of population in metropolitan areas, and the lack of financial facilities to provide adequate housing for its people at prices and interest rates that meet their ability to pay. I am sure that this bill could do likewise for the cities of the continental United States.

The proposed bill provides for an FHA mortgage insurance program that will permit an additional means of increasing the supply of privately owned housing units. This type of housing is an efficient and economically practical method of developing centrally located