1955. It also provides that all FHA commitments to insure these projects must be made during the following year. I recommend this extension which was requested by the Secretary of Defense.

Section 10 would terminate FHA insurance authority under title IX defense housing.

This program has been on a standby basis for the last year. It is recommended that FHA defense housing insurance be made available for any outstanding commitments on July 1, 1955, and that otherwise title IX expire on that date as the program has fulfilled its purpose. Title IX, as you know, is so-called defense housing built for occupancy by workers in defense plants and to some degree for families of men in the Armed Forces.

Mr. COLE. Mr. Chairman, that completes our statement on FHA. Now, if the chairman and the members desire, Mr. Mason and I will submit ourselves to questions on FHA, or if you prefer

Mr. PATMAN. I would like to ask some questions.

The CHAIRMAN. How do you prefer to present your case?

Mr. COLE. It works satisfactorily to submit ourselves to questions on FHA. Of course, Mr. Mason and the rest of us will be around after we have completed, for additional questioning.

The CHAIRMAN. I would think we would pursue the method we have been pursuing. We will call the committee members for interrogation, and each one will be limited to 5 minutes on the first round. Then they can pursue the interrogation further later.

Mr. Brown.

Mr. BROWN. I understand you are callilng for extension of the bill. What about the Wherry Act bill?

Mr. MASON. Just for those projects which are currently provided for by the end of June.

Mr. BROWN. It costs a great deal to build those houses, does it not? Mr. MASON. I didn't get the question.

Mr. BROWN. The costs are rather high for Wherry houses, are they not?

Mr. MASON. There is a limitation, Mr. Brown, on the cost of Wherry Act housing.

Mr. BROWN. For what reason do you wish that amendment?

Mr. COLE. Mr. Brown, the Agency feels that the Wherry Act pro gram has served its purpose. We know of no reason, from our point of view, why it should be continued. We realize that housing for families in the military services is very poor. We think that is primarily a responsibility of the military. Therefore, we do know that the military, the Department of Defense, will be testifying, but from the point of view of the Housing Agency we see no reason for the continuation of the Wherry Act program.

It has been progressively going down in its use.

Mr. BROWN. I think the housing built under the Wherry Act is very expensive. I just wanted to get your views on the matter.

Thank you.

Mr. MASON. Mr. Brown, the limitation under the Wherry Act was $8,100 for apartments, and $9,000 for single-family houses. This was the most that could be spent for that type of accommodation. The CHAIRMAN. Mr. McDonough.

Mr. MCDONOUGH. Mr. Chairman, I will pass for the present.
The CHAIRMAN. Mr. Patman.

Mr. PATMAN. Mr. Cole, title I, I notice you state, and Mr. Mason stated, too, was extended last in 1950. Are you not mistaken about that? Wasn't that extended 2 years ago?

Mr. COLE. Mr. Patman, it has been amended, but the extension, the last extension, my understanding is, was authorized by Congress in

1950.

Mr. PATMAN. What has been the experience of the past year under the modernization loans? Have there been any losses to amount to anything?

Mr. MASON. We have had an excellent record, Mr. Patman. As you know, the provisions of the Housing Act of 1954 went into effect on the 1st of October, and since that time we have had 15 claims, as against 247,000 loans. In other words, we have insured 247,000 loans and had 16 losses for a total of something like $6,007.

Mr. PATMAN. The banks handle those loans principally, do they not, Mr. Mason?

Mr. MASON. Yes, they do.

Mr. PATMAN. Do the banks suffer any losses?

Mr. MASON. Under the new provisions of the Housing Act of 1954, the bank is a co-insurer for 10 percent; yes, sir.

Mr. PATMAN. Have they actually suffered any losses so far?
Mr. MASON. Ten percent on fifteen claims.

Mr. COLE. The loss to the banks has been negligible, Mr. Patman. Mr. MASON. Mr. Patman, under the 16 claims there would have been about $600 of this loss suffered by the banks, and the other $5,400 by the Government.

Mr. PATMAN. In other words, it is practically a riskless loan, isn't it?

Mr. MASON. Yes, but not so riskless as it was before the 1954 act was put into effect.

Mr. PATMAN. But it is practically riskless now, is it not, Mr. Mason? Mr. MASON. There is a 10 percent co-insurance.

Mr. PATMAN. Which makes it very small, as evidenced by the records since October.

Now, these loans are at 9.7 percent interest. Don't you think that is pretty high for a practically riskless loan?

Mr. MASON. The experience is that where banks themselves embark on such a program without Government insurance the rate is higher than this.

Mr. PATMAN. The rate is higher? Do you mean more than 10 percent? That is usury.

Mr. MASON. This rate is figured at a 5 percent discount and banks customarily discount their own paper at 6 and 7 percent where there is no Government insurance.

Mr. PATMAN. Regardless of how you figure it, the borrower pays 9.7 percent interest, does he not?

Mr. MASON. That is correct, Mr. Patman, if the loan runs for the full period of time.

Mr. PATMAN. Mr. Cole, how would you feel about an amendment making that a maximum of 6 percent?

Mr. COLE. I don't believe we would be in favor of it, Mr. Patman. I would be glad to look at it, but I doubt if we would favor it.

Mr. PATMAN. Well, there is no looking at it. It is just 6 percent. You are either for or against it.

very satisfactorily, and then we can submit to questions at the completion of each agency's statement.

For instance, I have with me here now Mr. Norman Mason, Commissioner of FHA, and the first part of my statement is on the FHA amendments.

The CHAIRMAN. We will be glad to comply with your request.

Mr. COLE. Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee, and to present the views of the Housing Agency on H. R. 5827, the "Housing Amend

ments of 1955."

The Federal Housing Commissioner, the Public Housing Commissioner, and the Chairman of the Home Loan Bank Board also have statements on the provisions of the bill relating to their respective operations. If it is agreeable to your committee, Mr. Chairman, I suggest that each of them be permitted to present his statement at the conclusion of the portion of my testimony relating to the operations of his constituent agency. We could then proceed with questions on that part of the bill before I proceed with testimony on other parts.

The CHAIRMAN. We will allow you to make your statement without interruption, if you so desire.

Mr. COLE. Very well.

The provisions of H. R. 5827 would furnish the legislation necessary for the continuation of several major programs of the Housing and Home Finance Agency. It would also make a number of essential changes in existing laws which would enable us to carry out, or carry out more effectively, the objectives of the Congress in present legislation. The bill would not provide for the undertaking of any new programs, which is very different, of course, from the legislation considered by this committee last year and enacted as the Housing Act of 1954. Current operations of our agency are directed toward putting into effect the several basic changes and new programs authorized in that comprehensive and major enactment of the Congress. As I will explain, our experience in connection with these operations has revealed the need for the corrective or supplemental provisions contained in the bill. However, I wish to emphasize that our experience under the Housing Act of 1954 gives every indication that it is sound, constructive legislation for carrying out its objectives, the provisions and improvement of housing, the elimination and prevention of slums, and the conservation and development of urban communities throughout the Nation. No need exists for changing the basic approaches taken to accomplish those objectives.

As the bill contains provisions relating to some of the more technical aspects of our program, I have furnished your committee with copies of a section-by-section analysis.

HOME LOAN INSURANCE

I should like, first, to comment briefly on the principal features of the bill relating to the operations of the FHA.

GENERAL MORTGAGE INSURANCE AUTHORIZATION

Earlier this year your committee recommended, and the Congress enacted, legislation increasing the FHA general mortgage insurance authorization by $12 billion. The report of your committee on that

legislation, House Joint Resolution 202, indicated that such increase was recommended to permit continuation of FHA mortgage insurance operations on a temporary basis until the Congress has an opportunity to consider an increase in sufficient amount to cover operations for the next fiscal year. H. R. 5827 would provide that increase. It would authorize FHA mortgage insurance up to the aggregate of outstanding insurance liability and commitments on June 30, 1955, plus $4 billion. The amount of unused authorization under existing legislation remaining on June 30, 1955, would be merged with the new additional authorization. As it is estimated that such unused amount will be over $600 millon, the actual increase in authorization provided by the bill would not exceed $3,400,000,000. This increase, plus the $112 billion increase granted earlier this year, would be within the amount prescribed for this purpose in the budget submitted by the President to the Congress in January.

Estimates of mortgage insurance operations during the 1956 fiscal year indicate a gross use of insurance authorization totaling about $7,400,000,000. After allowance for return of authorization through expiration of commitments, scheduled repayments on insured mortgages, and prepayments of such mortgages, the net use of insurance authorization for FHA mortgage insurance programs during that fiscal year is estimated at approximately $4 billion. I strongly urge your committee to make available that amount of insurance authorization.

EXTENSION OF FHA TITLE I HOME REPAIR AND MODERNIZATION

Title I of the National Housing Act, authorizing the FHA repair and modernization program, would expire under existing law on June 30 of this year. The bill would extend title I for 5 years, which is similar to the most recent extension of the title from March 1, 1950, to July 1, 1955.

The title I program of insurance for modernization and repair loans constitutes an integral part of the urban renewal program for neighborhood conservation and improvement which was adopted in the Housing Act of 1954. The continuation of the title I program is also important to the maintenance of a high level of general construction activity, improvement of individual properties in need of modernization or repair, and proper maintenance of the existing housing inventory of the Nation. All are vitally affected by the availability of adequate consumer credit for modernization and repair loans and the title I program has contributed significantly toward assuring that supply of credit.

Availability of FHA insurance for this type of credit encourages lenders to make the loans available to borrowers in smaller communities and to eligible borrowers in larger communities who might otherwise have difficulty in arranging loans. It should be recognized that, without such insurance, credit for home repair purposes would not be as readily available as consumer credit for other consumer durable goods, such as automobiles and appliances. In other fields, the dealer frequently receives credit support from the manufacturer. In the case of home repair loans, however, manufacturers of building products are each likely to have a relatively small financial interest in the repair or improvement job done by the local firm. Naturally, the manufacturer

or wholesale supplier is thus rarely interested in backing up credit for a repair or improvement job, especially when the largest cost item is labor at the site. Also consumer items can normally be made subject to a chattel mortgage and can be repossessed, while items financed under title I become part of the house and cannot be repossessed. Neither is it generally practical in the case of a repair loan to go through the expense of obtaining real property mortgage security. For these reasons home repair or improvement loans, in the absence of title I aids, would be unavailable to many borrowers, or else be available at exorbitant interest rates or fees.

FHA MORTGAGE LIMITATION FOR MULTIFAMILY HOUSING

I wish to call your particular attention to one clarifying amendment which would revise the present mortgage limitations in the National Housing Act with respect to multifamily projects. The act now makes a $5 million mortgage limitation generally applicable to all such projects with private sponsorship. Although the statute technically applies only to the maximum mortgage amount, it is not clear from the statute or legislative history whether the Congress intended that the limitation should be applied to the total of several mortgages where the mortgagor on each is the same. Nor is it clear how such a limitation should be applied. The congressional intent has been variously interpreted by different persons or groups as making the limitation applicable (i) to each mortgage separately in all cases, (ii) to the total of all mortgages having the same mortgagor, (iii) to the total of such mortgages if they are in the same housing market area, and (iv) to the total of the mortgages if they are on property which can actually be managed as one project.

I believe it is important that the limitation in the law be definite and firm, but realistic in terms of present costs and the type of project to be undertaken. I believe the revision of this limitation as provided in the bill would accomplish that purpose. The $5 million mortgage limitation would be increased to $12,500,000 to conform to estimated increases in building construction costs since the limitation was first imposed. On the other hand, the limitation would be applied both to each individual mortgage and to the total amount of commitments outstanding at any one time under each section of the act with respect to projects in the same housing market area which involve the same mortgagor, or mortgagors under substantially the same control.

In the case of mortgage insurance under section 220 of the National Housing Act for multifamily projects in urban renewal areas, the mortgage limitation would be $50 million. This is the same amount now provided in section 207 of the act, covering the regular FHA insurance for rental housing, where the mortgagor is a public body or subject to certain supervision under State or Federal law. The extension of this limitation to section 220 housing seems reasonable, as the locality is required to prepare and submit plans for the urban renewal undertakings where the project is located and the Housing Administrator must approve such plans before section 220 mortgage insurance can be made available.