HOUSING AMENDMENTS OF 1955 THURSDAY, JUNE 9, 1955 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10 a. m., the Honorable Brent Spence, chairman, presiding. Present: Chairman Spence, and Messrs. Brown, Patman, Multer, O'Hara, Mrs. Buchanan, Mrs. Sullivan, Fountain, Reuss, Mrs. Griffiths, Vanik, Bell, Wolcott, Talle, Kilburn, Betts, and McVey. The CHAIRMAN. The committee will be in order. I hope we can expedite the hearings because the committee will adjourn at 12 o'clock. We have something coming up in the House at that time. Mr. Clerk, call the first witness. Mr. HALLAHAN. The first witness is the Honorable Franklin G. Floete, Assistant Secretary of Defense for Properties and Installations. The CHAIRMAN. Mr. Secretary, we are very glad to have the benefit of your views. You may proceed as you desire with your statement. You will not be interrogated until you conclude, or you can proceed just as you desire. Secretary FLOETE. I will proceed, then, sir, to read the statement and certain comments that we have in addition to the recommended amendments to section 4 of this bill. STATEMENT OF HON. FRANKLIN G. FLOETE, ASSISTANT SECRETARY OF DEFENSE FOR PROPERTIES AND INSTALLATIONS Secretary FLOETE. Mr. Chairman and members of the committee, I appreciate this opportunity of again appearing before your committee on a matter of great importance to the Department of Defense. That is the matter of providing adequate housing for our servicemen and their dependents. Subsequent to my last appearance before this committee, S. 2126 was passed by the Senate and referred to this committee. Title IV of S. 2126 would substantially amend title VIII of the National Housing Act for the purpose of providing supplementary authority for the acquisition of housing units. The Department of Defense offers certain amendments to title IV for your consideration at this time. However, actual experience under this new provision may require certain additional amendments in the future in order to make it fully effective and a valuable supplement to appropriated fund housing. The amendments recommended by the Department of Defense, in the order in which they would be inserted in S. 2126, as reported in the Senate, are as follows: 1. On page 39, lines 18 and 19, delete "(including the United States acting through the Secretary of Defense or his designee, and his assigns)." In order to retain the concept of a corporate mortgage insured by the FHA, the corporation which would be the original borrower under a mortgage or its corporate successor or assign would be continued in existence and remain as the mortgagor although it is contemplated that the United States may become the sole stockholder of the mortgagor corporation. The United States itself would never become a true mortgagor. For that reason, the parenthetical phrase is unnecessary and misleading. 2. On page 40, lines 4 and 5, delete "personnel of the". This phrase appears to be redundant. 3. On page 42, line 8, after the word "Secretary," insert "or his designee". This amendment will make this provision consistent with other references in the bill to the Secretary or his designee. 4. On page 42, line 9, after the word "to," insert "substantially". This amendment will conform the text more closely to that of Title VIII in its present form and recognize that minor adjustments in station complements will occur from time to time. 5. Page 42, line 16, delete "otherwise" and insert in lieu thereof "readily". Unless this amendment is adopted, Title IV could be utilized only as a last resort after other methods of providing housing have failed. The substitution of the word "readily" retains the basic purpose of the parenthetical limitation but allows sufficient flexibility to make it workable. 6. On page 43, lines 18 to 20, delete ": Provided, That the replacement cost of the property or project as determined by the Commissioner" and in lines 24 to 25 delete ", shall not exceed an average of $13,500 per family unit". This amendment would clarify the language of the bill and remove the confusion resulting from the reference to replacement costs, already covered by paragraph (A), in a paragraph that otherwise deals with actual costs on an average basis. 7. On page 45, at the end of line 16, add the following: "The Commissioner may reduce the payment of premiums provided for herein.' This amendment would eliminate the mandatory aspect of the premium requirement and authorize it to be reduced when the Secretary of Defense guarantees the Armed Services Housing Mortgage Insurance Fund or when the full premium is not required to maintain the solvency of the fund. 8. On page 53, after the period in line 21, insert the following: Any such contract shall provide that each housing unit as completed be placed under the control of the Secretary of Defense or his designee. This amendment would provide for the transfer of control over individual housing units at the earliest practicable time so that the housing may be assigned immediately to military personnel and so as to avoid a possible windfall to the builder prior to the completion of the whole of the project. Those are the only amendments, Mr. Chairman, that we suggest. However, we would like to comment on two other points. In addition to the foregoing specific amendments to S. 2126, the Department of Defense feels that it must call to your attention two aspects of the bill which are quite likely to create administrative difficulties and make the bill less attractive from an investment standpoint. In the first place, the mortgages must be amortized over a period not to exceed 30 years, but the total payments on such mortgages, including 4 percent interest and premium charges, and for the cost of maintenance and operation, are limited to an average of $90 a month for each housing unit. The present cost experience of the Department of Defense for maintaining and operating public quarters is $346 a year, or slightly less than $30 a month. It is reasonable to assume that the cost of maintenance and operation of these housing units will be the same as are general public quarters. The approximately $60 a month remaining after payment of the cost of maintenance and operation will not amortize the mortgage within the authorized 30year period but, rather, will require an amortization period of 40 years. While the Department of Defense will strive, within the foregoing requirements, to utilize this authority to supplement its program for appropriated fund housing, this Department is confident that the actual cost experience of maintaining and operating these housing facilities will demonstrate the need for amending those provisions. Other difficulties of administration may arise in connection with the corporations envisioned by title IV. A corporate mortgagor must be kept in existence during the life of the mortgage. However, the acquisition of the corporation itself by the Government would create problems similar to those which led the Congress to enact the Government Corporation Control Act. Time has not permitted a complete analysis of this problem, but it may become desirable to seek amendatory legislation at a later date. Subject to consideration of these recommendations and observations, the Department of Defense favors the enactment of title IV of S. 2126 as a supplement to, but not as a substitute for, this Department's program for appropriated fund housing. The Bureau of the Budget advises that there is no objection to the presentation of this statement to your committee. I thank you for this opportunity to discuss this program for the furnishing of additional urgently needed housing for our servicemen. The CHAIRMAN. The amendments you suggest are to the Senate bill, as passed by the Senate. We are considering the House bill, and your amendments will be considered here. Do you favor direct construction by the Government of these houses? Do you feel there should be an appropriation? Do you believe there ought to be an appropriation by the Appropriations Committee? Secretary FLOETE. Yes, sir; we are asking for authorization, sir, in the public works bill, of $255 million for constructing houses by that method. We will also ask an appropriation of $365 million, which will include the $255 million new authorization, plus $110 million remaining from the authorization of last year in Public Law 765. That has been the position of the Department of Defense since we believe that is the cheapest and best method, but we also realize that we are not certain that we will get that money this year nor next year, and we believe the urgency of the requirement is so great that some supplemental method should be considered. The CHAIRMAN. Isn't there a supplemental method provided in the bill, wherein Fannie May is authorized to make prior commitments? Wouldn't that obviate the necessity for an appropriation? Secretary FLOETE. I don't believe that would act as a substitute for direct appropriations. The CHAIRMAN. I think you might, in effect, pass an appropriation by that method, don't you think so? If Fannie May can make a prior commitment to purchase the mortgage, you might. Secretary FLOETE. Under this present bill? The CHAIRMAN. Yes. Secretary FLOETE. Of course there is a provision that it may be used in the event the other method fails. The CHAIRMAN. Wouldn't that really obviate the necessity for an appropriation? Would there be any difficulty in obtaining funds under that procedure? I don't see that there would. There would be absolute security for the mortgagor or the mortgagee. Secretary FLOETE. We have really never considered just that angle of it. I would rather reserve and give you a statement on it. The CHAIRMAN. We would be glad to have that, Mr. Secretary. The amendments you suggest will be considered for the purpose of the House bill if we report it. Are there any further questions? Mr. BETTS. Mr. Chairman. The CHAIRMAN. Mr. Betts. Mr. BETTS. Were the questions that the chairman directed to you covered in section 402 of the Senate bill? Is that the reference, or is that the section the chairman questioned you about? I think it is on page 52 of the Senate bill. Secretary FLOETE. I assume so. Mr. BETTS. In other words, that is the subject matter the chairman was questioning you about? Secretary FLOETE. That is my understanding of it; yes, sir. Mr. BETTS. You are going to submit a statement to the committee as to whether or not that is a bypassing appropriation request, so to speak, and let us know whether or not it is a means of securing money without showing up in the Federal debt? Secretary FLOETE. As I understand, that is the question. Mr. BETTS. And you will submit a statement on that effect to the committee? Secretary FLOETE. Yes, sir. Mr. BETTS. Do you know whether or not the Budget Bureau has approved of that section? That is, 402 of the Senate bill? Secretary FLOETE. We will get it clear with the members of the staff and give the answer. I am not quite certain yet what is desired. Mr. BETTS. That will all be submitted later? Secretary FLOETE. Yes, sir. Mr. BETTS. That is all, Mr. Chairman. The CHAIRMAN. The question is whether or not it is necessary to have an appropriation if we pass this bill. We would like to have your opinion on that, Mr. Secretary. Secretary FLOETE. All right, sir. (The following letter was submitted to the committee:) Hon. BRENT SPENCE, ASSISTANT SECRETARY OF DEFENSE, Chairman, Committee on Banking and Currency, House of Representatives. DEAR MR. CHAIRMAN: In connection with my testimony on June 9, 1955, before your committee on title IV of S. 2126, you asked whether the authorization in that bill for FNMA to make prior commitments with respect to mortgages under the revision of title VIII of the National Housing Act would obviate a need for appropriations for the housing contemplated by the bill. Title IV of S. 2126 would authorize the providing of additional housing units for servicemen through the payment over a period of years of the amounts that would otherwise be appropriated and paid to the servicemen by way of quarters allowances. It is the understanding of the Department of Defense that the capital required for such a program would be provided by private investors who would be secured by mortgages guaranteed by the Federal Housing Administration. The revised title VIII is a method of inducing the participation of private capital in this program, which will supplement the program of appropriated fund housing in connection with the military public-works bill. The authority with respect to FNMA under section 402 of the bill would provide for a secondary mortgage market as a further inducement to the participation of private capital in the program. While FNMA is not viewed as a source of deriving funds for this program, a provision of this type appears essential in order to eliminate any unnecessary delays in the prosecution of this housing program by not having available a secondary assured mortgage market for interim financing until such time as private capital is acquired. Its desirability has been demonstrated in connection with the present title VIII. Mortgages totaling $658,384,000 covering 81,866 units have been insured under the present title VIII. We are advised by FNMA that up to April 30, 1955, FNMA had purchased or had entered into commitments o purchase 115 housing projects, $271 million. Of that amount, FNMA had on hand on that date mortgages covering 26 projects totaling $52 million and had purchased and sold mortgages on 25 additional projects totaling $72 million. Commitments to purchase 34 additional projects totaling $79 million were outstanding, and additional commitments with respect to 30 projects totaling $68 million had been canceled. Thus, the total of the mortgages held or under active commitment by FNMA on April 30, 1955, was $131 million or approximately 20 percent of the total of the mortgages insured under title VIII. The actual investment by FNMA was $52 million, or less than 10 percent of the value of the outstanding mortgages. To that extent the financing of the housing would be done, in effect, through the use of public funds originally appropriated to FNMA. However, those figures show a substantial participation by private capital which, it is believed, would continue under the revised title VIII. Without a substantial participation by private capital, this Department would not rely upon title VIII to supplement its present program for direct appropriated fund housing. As you know, my testimony with resect to S. 2126 related to that bill in the form in which it was reported by the Senate Committee on Banking and Currency. There has been called to my attention that a new section 403 (d) was added to the reported bill by an amendment on the floor of the Senate. While the Department of Defense concurs with the stated objectives of that amendment, the Department believes that the amendment in its present form may produce certain administrative problems in connection with the housing inspections by the Federal Housing Commissioner and the Department of Defense. For that reason, we recommend that you consider the advisability of substituting language in substantially the following form: "(d) The Secretary of Defense or his designee may not acquire or operate any housing under authority of this section until the housing is inspected by the Commisisoner (in conjunction with the Secretary of Defense or his designee) |