Lapas attēli
PDF
ePub

HOUSING AMENDMENTS OF 1955

FRIDAY, JUNE 3, 1955

HOUSE OF REPRESENTATIVES,
Committee on Banking and Currency,

Washington, D. C.

The committee met at 10 a. m., Hon. Brent Spence (chairman) presiding.

President: Chairman Spence, and Messrs. Brown, Patman, O'Hara, Talle, Hiestand, and Nicholson.

The CHAIRMAN. The committee will come to order.

We will resume the hearings on the housing bill.

Mr. Fink, call the first witness.

Mr. FINK. Mr. Wallace J. Campbell, director of the Cooperative League of America.

The CHAIRMAN. You may proceed as you desire, Mr. Campbell. Mr. CAMPBELL. Mr. Chairman, I have a statement which I shall read.

The CHAIRMAN. Very well, you may proceed as you wish.

STATEMENT OF WALLACE J. CAMPBELL, DIRECTOR, WASHINGTON OFFICE, COOPERATIVE LEAGUE OF THE UNITED STATES OF AMERICA

Mr. CAMPBELL. My name is Wallace J. Campbell. I am director of the Washington office of the Cooperative League of the United States of America, a national federation of consumer, service, and purchasing cooperatives. The league serves regional and national cooperatives with a direct membership of 2 million farm and city families. We also include in membership the Credit Union National Association with 8 million members, and the National Rural Electric Cooperative Association with nearly 4 million family members.

The Cooperative League is, of course, vitally interested in the general housing bills which are before this committee. For us, however, there is one extremely significant situation which cries for immediate attention.

The cooperative housing program within FHA has come to a grinding halt. Many thousands of consumers will lose their only opportunity to become homeowners at a price they can afford. Many hundreds of thousands of dollars of investment are in danger of being lost. These are investments in both time and money by both veterans and nonveterans in consumer-sponsored cooperative housing projects. There are also substantia! investments made by builders who are sponsoring cooperative housing projects which are in danger of being lost if the law stands as it is today.

The crucial situation has arisen because of a slight change made in the Housing Act last year. You may remember that we and several other nongovernmental organizations appeared before the committee last year and warned of the effect if the procedure of using "estimated replacement cost" were knocked out of the act and "estimated value" substituted for it. The effect has been even more drastic than we had anticipated. As of 1 year later the program has been almost completely destroyed.

It is somewhat difficult to explain the effect of what appears to be a slight technical change. The formulas used by FHA to arrive at "estimated value" are based on the assumption that the housing project is a rental project, that is, that the dwellings were built by a speculator or real-estate operator who intends to rent the project to tenants to make a profit on his investment. There is nothing wrong with this procedure, but it does not fit the experience in the cooperative housing field.

The cooperative housing projects are built by their prospective owners to provide a maximum of livability with no concern on the part of the prospective owner-occupant for securing a profit on his investment. With the change in attitude the cooperative often seeks out-of-the-way locations in order to save money for the members. The members almost invariably want a larger number of bedrooms than a speculative builder would build, for the occupant is concerned with having room enough for a growing family. The members are concerned in turn for a modern approach to livability and are often willing to experiment with types of architecture which a profit operator would find too risky in terms of capital return.

Under the FHA procedure of arriving at "estimated value" the appraisers are instructed to disregard all of the factors in livability which are essential to the co-op, and make their appraisal strictly on the basis of what return on capital a similar project would bring to

an investor.

When the Congress created the FHA cooperative housing program, now known as section 213, just 5 years ago, it specified that mortgage ceilings should be based on "estimated replacement cost." In the 5 years which followed, 32,000 homes or apartments were built and projects were in the planning and development stage which would bring the program to 50,000 units with a mortgage value in excess of $500 million. While there have been some abuses of the program by builder-sponsors, there was no scandal involved in the program; and FHA had established safeguards to prevent any violation in its intent in the use of "estimated replacement cost." FHA procedures have been tightened even more by the cost certification requirement instituted about a year ago.

There were no compelling reasons for the change, and there are tremendous reasons for changing back to the original statute.

We would like to give you a few specific examples. The American Friends Service Committee in Philadelphia launched a rehabilitation project in the center of the city which had the support of city and civic authorities and great community support. Under this program an entire city block was to be rehabilitated. In order to make the project economically feasible it was divided into two sections. Friends, Service, Inc., rehabilitated 52 apartments. The mortgage on the project was $8,100 per unit, which is the ceiling. This repre

sented 90 percent of the cost of the completed units. That section of the job was carried forward very satisfactorily.

When Friends Service applied for mortgage insurance for the other half of the project FHA was forced under the law to use the "value" concept applied currently by FHA. The largest mortgage that could be offered was $4,500 per unit. It became obviously impossible to go forward with the project since each of the occupants would have had to put up $4,500 in cash as a down payment for their dwelling units.

Under the "estimated replacement cost" procedure, this project, as well as all of the other cooperative projects, could have gone forward. Unfortunately, under the "value" concept the FHA uses as its chief standard a capitalization of income on the projects. These projects are built to live in and not to bring financial return to the owneroccupants. Many factors in livability go into a co-op project which would not necessarily bring financial return to the owner of a rental project. Here is the crux of the problem.

In the case of the Philadelphia Friends project, these dwellings are in the heart of a slum area. The FHA appraiser pointed out that if these were in the well-to-do section of Philadelphia they obviously would have a higher value. He had to knock down his own appraisal of their value because of the slum area around them. That "value concept" has made it impossible to remove the rest of the slums in that immediate area.

The appraiser has looked at the slum area, and said "This is not a good place to get a return on the investment"; and down goes the value of the project.

Let me give you one other illustration from nearby Maryland. In the town of Greenbelt the residents got the Government out of the housing business by buying all of the dwelling units from the Public Housing Administration and operated them as private cooperative projects owned by the members. The Greenbelt Veterans Housing Corp purchased an additional 800 acres of land so that the Greenbelt families could build new housing and expand into homes with more adequate facilities for growing families. In June 1954, after a year of struggling with financial arrangements, the cooperative was ready to go with 150 units of detached three-bedroom homes in an FHÅ section 213 cooperative. The model house was built, financing and contracts cleared, and an FHA statement of eligibility obtained. The Housing Act of 1954 affected only one factor, the requirement of "estimated value" as a ceiling on mortgage insurance. FHA withdrew the statement of eligibility and reprocessed the case. After 4 months and $5,000 further expenditure on the part of the co-op members, FHA came up with a reevaluation which has made it impossible to go ahead with the project. The Greenbelt group has been forced to sell 700 acres of the land and has lost the chance of creating a large-scale home ownership project it had in mind.

The FHA has done everything in its power to try to make the new law work out to the satisfactory interest of the cooperative projects. Commissioner Mason has held meetings with representatives of the major consumer groups, including the labor organizations, veterans' organizations, National Housing Conference, cooperatives, and the church organizations. Further conferences were held with specialists in the appraisal field. At the request of the consumer groups, inde

pendent appraisals were made on certain selected projects. Three outstanding figures in the cooperative field were asked to make a report on this question to the Commissioner. Their report says in essence that there is not as yet a sufficient backlog of experience in cooperative housing to use as a basis for the established appraisal techniques. This applied to middle-income cooperative housing. There are, of course, many years of experience with expensive so-called cooperative apartments on the Gold Coast in Chicago and Park Avenue in New York. But we don't consider those as generally within cooperative projects. But these are projects where the amount of the downpayment did not matter.

The FHA's attempts to adjust to this situation have brought very little progress, and the basic problem still remains, that is the need to restore the "estimated replacement cost" as the basis of mortgage commitments.

Since preparing this testimony we have talked further with Commissioner Mason and FHA, and they have reported on the new independent appraisals brought in and in each case they are lower than the original FHA appraisal which would mean downpayments that would run 30 to 35 percent on cooperative housing projects, which certainly was not the intent of the Congress when the law was passed. Representative Wright Patman has introduced H. R. 5663 which is before your committee. We want to express our appreciation, Congressman, for your introduction of that bill.

The change recommended in that bill would restore the cooperative program to the status it had prior to the change in the law last year. In addition, Congressman Patman has included in his measure several amendments which would strengthen the cooperative housing program and give it the status which 5 years of experience indicate is warranted.

(1) The restoration of the post of assistant commissioner for cooperative housing, which was cut out by the Appropriations Committee two years ago. An effective, hardhitting program calls for a status within the FHA which would give adequate prestige, staff, and direct responsibility to the program. A steady decline in the cooperative housing activity and interest has been noted since the Congress eliminated the position of Assistant Commissioner. This action was unfortunately interpreted by some within and outside of the FHA as an indication of the Congress' disinterest in the measure.

(2) The Federal National Mortgage Association is already empowered to assist in certain types of important housing programs. This amendment would authorize FNMA to make advance commitments for up to $50 million worth of consumer-sponsored cooperative housing projects at any given time. Not more than $15 million, however, would be available in any one State. This would, in fact, be a revolving fund and would assure readily available financing for any project which might not be able to secure financing in the open market, either because of unfamiliarity with the program or an actual shortage of mortgage money.

(3) Another amendment would apply to the existing section 223 covering disposition of Government-owned housing projects. The amendment would make it possible for cooperative groups of tenants of those projects to use the cooperative mortgage provisions of the act to purchase the Government-owned projects on a cooperative basis.

« iepriekšējāTurpināt »