Mr. MASON. Could I add, Mr. Cole, that the problem is not only one of big projects, but getting industry interested in doing the smaller work that goes along with it, and we really expect a big upturn in that part of the program very quickly. Mr. MULTER. Surely in those areas where new dwelling construction is about caught up with the demand, there you can expect that there will be more modernization of older buildings? Mr. MASON. That is what I was speaking of, Mr. Multer. Mr. MULTER. I notice with reference to section 221 you suggest the elimination of the cost certification requirement. Mr. MASON. On single-family houses. Mr. MULTER. While we might not have the situation today, don't you foresee that a situation may develop where a particular area may get overbuilt with multifamily and one-family homes, and there if you don't have that cost certification you may find yourself in a situation in a falling market in a particular area of taking the appraised value and giving a mortgage on that basis, where the house is actually selling for less? We may run into a smaller scale of this so-called mortgaging out business again, where a seller may actually be able to place a mortgage in excess of the actual resale price. Don't we want to keep in this law some such limitation so that under no circumstances, no matter what the appraisal or cost may be, you will also have your mortgage within either of the amounts, whichever is the lesser? Mr. MASON. Mr. Multer, as you know the FHA mortgage is based on the lower of 3 concepts, and 1 of those is the value of the house the market value so the mortgage in a single-family house cannot be greater than the sales price. If we had just cost, replacement cost, it could be higher, but we have all three. Mr. MULTER. The problem that bothers me is one which, as lawyers, we run across very frequently in the trial of a case where the court will say in regard to real property, the sale price is not proof of value. Your value may be $20,000. What you sell it to me for does not affect the value because there are so many things that enter into it. At the same time, if you are going to sell that house to me valued at $20,000 at a purchase price of $15,000, certainly you don't want a $16,000 mortgage on it. Mr. MASON. We would not, but the FHA value is based on the replacement cost or the sales price-the market price or where the value is capitalized, a capitalized return, which is not so applicable on a single-family house but can be used, and it is based on the lower of these three, so that if this house costs $20,000, and would only bring $15,000, the mortgage couldn't be more than based on that $15,000 valuation. Mr. COLE. Mr. Multer, I think it has worked very satisfactorily because none of the other single-family programs-single-family forsale programs contain the cost certification. This brings it in line with all of the rest of FHA's single-family sale houses. Mr. MULTER. Take the reverse of the incident I just gave you: Where your cost was $15,000, but because of the demand in the community you can actually sell it for $20,000. Mr. MASON. This is a situation in which we are damned by people who get a very high appraisal, which is based, as you know, I am sure, on the sales price, but we ourselves cannot reflect the sales price if that cost is lower, and people are very unhappy about it, but it is a good, sound practice. Mr. MULTER. And you don't believe that taking that sentence out of the law is going to have an adverse effect at some later time or hamstring the agency in what it is doing? Mr. MASON. I do not, sir. I feel it will save cost in building the house because cost certification costs money. Mr. MULTER. Just one other problem with reference to FHA that occurs to me. That is referred to on your statement, Mr. Mason, on page 3, with reference to section 5. Where you talk about a single mortgagor, a limitation on a single mortgagor, or mortgage corporation. Multifamily housing projects presently are limited to $5 million, and you suggest it be increased to $12.5 million, where the mortgagor is a private corporation. How would that work where you have the same builder or group of builders, individuals, who form a series of private corporations? Would each new private corporation be entitled to the maximum? Mr. MASON. Mr. Multer, this is the problem which we now face under the present law. We have a $5 million limitation, and we have varying interpretations of what that means. We have searched the records of Congress to try to arrive at what it means, and we are not sure. We hope that as a result of this committee's deliberations we will be warned, if you will, as to what the Congress wants us to do. It is not my opinion that the present law meant that there could be a series of people—that is, people could form 4 corporations and build 4 projects adjacent to each other in the same market-and thereby have a $20 million project. I hope to get clarification from this legislation now, whereby the test would be based on commitments outstanding held by the same people at any one time in the same housing market area. Mr. MULTER. I am inclined to agree with your interpretation. I also agree that it needs clarification, and the Congress should clarify it for you so you can apply the standards that should be set. Mr. MASON. The $12.5 million, sir, was simply taking the $5 million in 1934 and increasing it by the costs, which have gone up since that date. Mr. MULTER. Thank you, Mr. Mason. Thank you, Mr. Chairman. Mr. BROWN. Any other questions of Mr. Mason? Mr. MCDONOUGH. Mr. Chairman. This section 5, Mr. Mason, or Mr. Cole—it is your statement, page 3, the third paragraph under that section 5 Limitation on FHA mortgages financing multifamily houses, slum clearance, or urban renewal areas, under 220, would increase to 50 million, where the mortgagor is a private corporation. Would that mean that a private corporation on an urban redevelopment program could obtain the $50 million? Mr. MASON. Yes, sir. It is intended that way. My feeling in making this recommendation is that under the rules of the statutes and regulations a public body can have a $50 million loan now. This private individual is under so much restraint-that is, he has to go through Mr. Cole's office and get all that approval, etc., that he is in effect acting not too differently than the public body, and that the businessman should have the same privilege as the public body. I think you understand that this is intended for large areas, like Chicago and New York City, San Francisco, Los Angeles, places of that kind, where there is a need to develop an area in a pattern and let that private individual have the same right to develop it in that pattern as the Federal Government, or any other Government agency would have. Mr. MCDONOUGH. You presume an area in a town where a $50 million rehabilitation or urban development program will take place? You wouldn't say Chicago, Philadelphia, New York, or Los Angeles that this would occur, but in some cities of a smaller area than that, or smaller population, where such project might monopolize the housing situation in that area. Take Indianapolis, for instance. Mr. MASON. It could, sir, without the Government requirements that are on this. You see, in the first place, of course, this is an upper limit, and the Housing and Home Finance Agency Administrator must approve this and, therefore, we felt, and I am sure that the safeguards were there, because I am opposed to monopoly in this as much as this committee is, I am sure. I think that that is the reason for a limit, instead of asking for no limit, to prevent any one person from monopolizing a housing market. Mr. MCDONOUGH. If the loan were granted to a corporation in a large city, would the $50 million be used for the disposal of some of the unsanitary, unlivable homes in order to rehabilitate the area, as well as to lay out a new subdivision and new plans? Mr. MASON. The answer to your question comes under the urban renewal program. FHA only insures loans on new construction that is planned and put in place. Mr. COLE. In other words, this $50 million limitation is solely for the instance of new or rehabilitated housing in this area. You understand, prior to that the Federal Government may or may not have entered into a loan and grant program for the clearance of the land under the urban renewal program. Mr. MCDONOUGH. The $50 million would be used for building of new or rehabilitated housing in that area? Mr. MASON. And the land on which it stands. Mr. MCDONOUGH. It wouldn't necessarily mean, if the maximum were granted, would you grant for instance the maximum for one project, or for more than one project in the area? Mr. MASON. Well, sir, there will be more loans less than $5 million than there will be large ones, like this. Mr. MCDONOUGH. That is all, Mr. Chairman. Mr. O'HARA. Mr. Chairman. Mr. Mason, I would like to come back for a moment to the property improvement loans under FHA title I. I am very much interested in that phase because I have seen a first-class neighborhood deteriorate to a second-class neighborhood because homes were not kept in repair. In obtaining an improvement loan is there any age qualification? Mr. MASON. Mr. O'Hara, they tell me there is no age qualification excepting this one written into the law by the last Congress, that the man must have lived in the house for six months. Mr. O'HARA. That is the only qualification he has to meet? I have in mind cases where homes are owned by aging people with limited. incomes. Is it possible for people in that category to get these property loans? Mr. MASON. Yes, it is. It is pointed out to me that while the law itself imposes no restriction, Mr. O'Hara, the lending institution has a latitude in this. The lending institution can make its credit restrictions differently than-I mean one than the other-but the law itself does not provide this. Mr. O'HARA. Thank you. That is the area that I desired to get into. As a matter of practice, isn't it very difficult for an aged couple, without any large income, to get a loan? Mr. MASON. I would say that I haven't a lot of complaints on this score, sir, and I do get, when things don't go right in our program— as I am sure you know-I mean we get told about it. I am aware that I think you are bringing this up is because you certainly come from an area where if anybody has seen deterioration of property you have seen it. I think it happens more rapidly in your area than in almost any other area in the country. Mr. O'HARA. All my life I have seen it. When I went to St. Louis as a young man, from the University of Missouri, I lived for a while in a cheap boarding house, $5 a week, room and board. What struck me was that this house, then rundown and used as an inexpensive boarding house, only a few years before had been a millionaire's home. Later I went to Chicago and saw the building up and going down of neighborhoods. It comes about because people build their homes, the years go on, money for one reason or another is not put into improvements and the neighborhoods start running down. If the head of a household builds a home for his family in his prime and then when he is getting older cannot obtain a loan for improving the property the home easily can get run down and the neighborhood suffers. I am interested deeply in housing for the aged. This has some relationship. Under the present set up as regards improvement loans is it more difficult for a man past the prime of life to get an improvement loan than one who is younger in years? Mr. MASON. Yes. I would say that lenders do use an element of discretion, certainly, in making their loans, but customarily if lenders are being unreasonable in their requirements constituents write to Congressmen who in turn take FHA over the coals and say "What are you doing?" and in that way we find out many of the things that are going wrong in our program, and we have not had much of thisvery little, if any-of this sort of letter. Maybe I will get them now. Mr. O'HARA. Mr. Cole, I am sure, knows, from his own distinguished service in the Congress, the nature of congressional correspondence and the earnestness of Members in giving it attention. Thank you very much. Mr. BROWN. Any further questions of Mr. Mason? Mr. BETTS. I have no questions. acting not too differently than the public body, and that the businessman should have the same privilege as the public body. I think you understand that this is intended for large areas, like Chicago and New York City, San Francisco, Los Angeles, places of that kind, where there is a need to develop an area in a pattern and let that private individual have the same right to develop it in that pattern as the Federal Government, or any other Government agency would have. Mr. MCDONOUGH. You presume an area in a town where a $50 million rehabilitation or urban development program will take place? You wouldn't say Chicago, Philadelphia, New York, or Los Angeles that this would occur, but in some cities of a smaller area than that, or smaller population, where such project might monopolize the housing situation in that area. Take Indianapolis, for instance. Mr. MASON. It could, sir, without the Government requirements that are on this. You see, in the first place, of course, this is an upper limit, and the Housing and Home Finance Agency Administrator must approve this and, therefore, we felt, and I am sure that the safeguards were there, because I am opposed to monopoly in this as much as this committee is, I am sure. I think that that is the reason for a limit, instead of asking for no limit, to prevent any one person from monopolizing a housing market. Mr. MCDONOUGH. If the loan were granted to a corporation in a large city, would the $50 million be used for the disposal of some of the unsanitary, unlivable homes in order to rehabilitate the area, as well as to lay out a new subdivision and new plans? Mr. MASON. The answer to your question comes under the urban renewal program. FHA only insures loans on new construction that is planned and put in place. Mr. COLE. In other words, this $50 million limitation is solely for the instance of new or rehabilitated housing in this area. You understand, prior to that the Federal Government may or may not have entered into a loan and grant program for the clearance of the land under the urban renewal program. Mr. MCDONOUGH. The $50 million would be used for building of new or rehabilitated housing in that area? Mr. MASON. And the land on which it stands. Mr. MCDONOUGH. It wouldn't necessarily mean, if the maximum were granted, would you grant for instance the maximum for one project, or for more than one project in the area? Mr. MASON. Well, sir, there will be more loans less than $5 million than there will be large ones, like this. Mr. MCDONOUGH. That is all, Mr. Chairman. Mr. O'HARA. Mr. Chairman. Mr. Mason, I would like to come back for a moment to the property improvement loans under FHA title I. I am very much interested in that phase because I have seen a first-class neighborhood deteriorate to a second-class neighborhood because homes were not kept in repair. In obtaining an improvement loan is there any age qualification? Mr. MASON. Mr. O'Hara, they tell me there is no age qualification excepting this one written into the law by the last Congress, that the man must have lived in the house for six months. |