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(d) The mortgage would include all existing indebtedness plus the cost of rehabilitation.

(e) Financial unfeasibility (total mortgage indebtedness beyond the fairmarket value of the property) as well as mortgage credit deficiencies would be waived.

(f) Monthly payments under the proposed mortgage would not exceed 20 to 25 percent of gross monthly income. The term of the mortgage would be flexible; in a few cases, it might extend beyond the present 40-year limitation on FHA section 220 and 221 loans.

(g) In cases of extreme hardship, where a house is owned without indebtedness and the owner has no income from which to pay for rehabilitation, the cost of rehabilitation would be paid by the LPA and would become a lien on the property, subject to payment on the death of the owner or transfer of title. Such liens would be noninterest bearing.

(h) Normal foreclosure procedures would prevail. (There is no reason to soft pedal the question of foreclosure: these loans would be made at a favorable rate to owners with no other avenue for financing, and in many cases, would offer them their only opportunity for standard housing at monthly payments they can afford. By living in an urban renewal area, they would have been given an otherwise unavailable opportunity and failure to take advantage of it would be their responsibility alone.) Upon foreclosure, the property would be resold as a normal real estate transaction, either directly by the LPA or on open listing. In the case of foreclosure of a property with an existing indebtedness above its fair market value, the net loss would be absorbed by the urban renewal project.

(3) Prior to the certification of the completion of the urban renewal project, the mortgages and liens held by the LPA would be sold on a bid basis. (The LPA's servicing and foreclosure policies would be binding on any purchaser.)

LEGISLATION NEEDED

Obviously, this proposal would require new Federal legislation. To obtain this legislation, housing officials as well as Federal and local authorities must be persuaded of the need for such a program. In particular, its "radical" elements (the waiving of financial feasibility and mortgage credit requirements) must be set against its conservative features. This proposal is conservative in not competing with private lenders, in conserving existing houses, in reducing the number of urban renewal displacees, and in protecting real estate value by enabling neighborhood rehabilitation to become 100 percent effective. Above all, it is conservative in providing for a net savings of tax dollars.

At present, there are few alternatives in the case of these hard-core problem cases to eventual acquisition of the property. This is especially true in view of the fact that one other alternative, condemnation under the housing code, is a politically and socially dangerous weapon in urban renewal areas. The wholesale usage of condemnation powers-not just in cases of irresponsible and noncooperating owners, but also in cases where the owner wants to comply but is not able-can undermine a community's acceptance of urban renewal.

DOLLARS AND SENSE

To appreciate the dollar savings possible under the proposed program, let us compare the net project cost in a case typical of those we encounter in Nashville. Suppose a substandard property has a present fair market value of $7,500 and is mortgaged 100 percent. The cost of rehabilitation is $3,500 and the total mortgage loan required is therefore $11,000. However, after rehabilitation, the property has a fair market value of only $9,000. If the mortgage is made and if the owner defaults immediately on the mortgage (which is the worst thing that could happen), the net loss to the project following resale of the property is $2,000.

The same property, if there were no way to rehabilitate it, would be acquired as a project cost at $7,500. Excluding items of overhead, the structure may be cleared and the land resold for $1,500. In this case the net cost of this property to the projects is $6,000, or three times the maximum cost of the proposed alternative. Of course, it is reasonable to assume that a large number of these mortgage loans would be paid off and result in no loss whatsoever.

Apart from the purely financial reasons for advocating this program, it would have great public and political appeal. Local authorities are particularly sensi

tive to the creation of undue hardship through urban renewal. Under this proposal, every homeowner in an urban renewal rehabilitation area would be given the opportunity to retain a structurally sound home on financial terms that he could meet. This would significantly reduce the displacement caused by urban renewal, assure the success of neighborhood rehabilitation, and raise the morale of project residents. It would pay great dividends in popular acceptance of urban renewal throughout a community.

A final consideration applies mainly to those of us charged with the execution of urban renewal projects: it is that this proposal would provide us with the tools to do the job. By including the cost of the difference between making rehabilitation 80 percent or 90 percent effective and making it 100 percent effective in the gross cost of an urban renewal project, rehabilitation can become a fully productive member of the urban renewal family.

Mr. MOORHEAD. Our next witness is Mr. Dwight D. Townsend of the Cooperative League of the United States of America.

Mr. Townsend, will you come around?

We will attempt to finish up your testimony in chief today. If we cannot finish the questioning today, would you be available to come back tomorrow?

Mr. TOWNSEND. Yes, I would be glad to.
Mr. MOORHEAD. You may proceed.

STATEMENT OF DWIGHT D. TOWNSEND, DIRECTOR, WASHINGTON
OFFICE, COOPERATIVE LEAGUE OF THE U.S.A.; ACCOMPANIED
BY DAVID W. ANGEVINE, AND SHELBY SOUTHARD, OF THE CO-
OPERATIVE LEAGUE OF THE U.S.A.

Mr. TOWNSEND. I am Dwight D. Townsend, director of the Washington office of the Cooperative League and I have with me our director of public relations, Mr. David W. Angevine, and the assistant director, Mr. Shelby Southard.

We are pleased to present the views of the Cooperative League of the U.S.A. as its support relates to housing legislation now under consideration. The Cooperative League has consistently supported legislation introduced by the chairman for cooperative housing and is well pleased with the achievements to date.

I would like to say that we are concerned with the announced retirement of Albert Rains. We think this is kind of bad for middle-income and low-income people in this country and we sure know that we all owe him a debt of gratitude for the services he has rendered in this important field.

Mr. MOORHEAD. Your sentiments are felt very strongly by all members of the committee.

Mr. TOWNSEND. In addition to cooperative housing that is conventionally financed through labor unions and pension funds, the Federal programs administered by FHA, section 213 of the National Housing Act, have made it possible to provide housing for middle and low income people. Under FHA, cooperatives have 14 successful years, during which time $1,140 million of mortgage insurance has been provided. This FHA program has made available homeownership through cooperative techniques for nearly 100,000 families.

The Cooperative League is particularly interested in the management-type cooperative which provides for continuing cooperative ownership of the housing community. The members of these cooperatives are a part of the 15 million total membership in the Cooperative

League, which engages in other consumer cooperative activities to provide mutual self-help in credit, health, home supplies, various services as well as housing.

We want to associate our testimony with that of the National Housing Conference on H.R. 9751. Without elaborating here on the specifics within this proposed legislation, we feel that the bill needs several FHA amendments relating to sections 213 and 221(d) (3) and FNMA. Realizing that the chairman was largely instrumental in initiating the program under section 221 (d) (3), we want to commend his wisdom as shown by the accomplishments of that program. I speak particularly of the cooperative housing developed for moderate-income families under this program. Through cooperatives obtaining FHAinsured loans at the cost of money to the Government, it has been possible to provide housing for families displaced by urban renewal and other Government programs as well as to serve other families who could not otherwise afford decent homes. Besides being nonprofit organizations, cooperatives give people an opportunity for mutual homeownership, which produces better communities with a greater sense of personal responsibility among the residents.

There is one amendment which is needed in section 221 (d) (3). We believe through inadvertency that this section is now limited to providing housing only for families. It excludes single persons, unlike any other provision in FHA legislation. The pending bill would partially correct this by permitting single persons to occupy such housing but only if they are elderly. We oppose this restriction in the amendment. Certainly where single persons are being displaced from urban renewal or other areas, they should be eligible for 221 (d) (3) housing. We recommend that the pending bill be amended to eliminate this limitation, so that 221(d) (3) will be consistent with other FHA legislation by permitting occupancy of eligible single persons. As a consumer organization we are pleased with the provisions of the bill which recognize the right of the consumer to obtain a home which is free from structural or other major defects. In buying homes with FHA insurance, purchases rely upon the protections afforded by FHA construction standards and inspections, just as mortgagees rely upon the protection of FHA insurance of their mortgage. We think it is most important that this bill provide affirmative measures which will enable FHA to correct these defects and relieve homeowners of the burden of acquiring a home which may prove to be uninhabitable and unfit for occupancy. Since cooperatives are a form of homeownership, the cooperative purchasers are entitled to the same kind of protection as other homeowners. Like other homeowners, cooperative purchasers are making an investment and acquiring a home in reliance on FHA construction standards and inspections. The bill should be amended to extend to cooperative housing the same FHA protections against structural and other major defects.

In 1961, by adding subsection (J) to section 213, Congress wisely amended the cooperative housing provisions to permit supplementary financing in order to provide for necessary improvements in cooperative housing so that it can keep pace with requirements of modernization; also to permit the addition of community facilities when experience demonstrated their need. However, that legislation included a limitation that the supplementary financing could only be provided

to the extent that the original loan had been reduced through principal amortization. We have found this legislation unworkable. The cost of necessary improvements and community facilities require financing in a larger amount than would be available with the present ceiling that supplementary loans cannot increase the project mortgage above the original mortgage. Since these additional facilities will add to the value of the property beyond what was covered by the original mortgage, it is reasonable and proper that the mortgage be increased in recognition of the increased cost levels and values involved in the new improvements and betterments. Accordingly, we recommend the removal of the present unworkable ceiling statutory limitation on the amount of a supplementary loan.

Another amendment is necessary in FHA and FNMA as a result of the success of section 213. As a 213 management-type cooperative matures, and members' equities increase as the mortgage is paid off, a problem arises when a member must move away from this cooperative and sell his equity. A new member acceptable to the board of directors should be permitted to join the cooperative with a reasona reasonable downpayment just as new homeowners can purchase equity of the departing member.

In other words, a successful cooperative housing project automatically develops a financial problem because it is successful. New members should be able to purchase into an existing cooperative with a reasonable downpayment just as new homeowners can purchase existing single family houses.

Financing for this purpose can be made available through an amendment to section 213 (J) relating to supplementary financing for cooperatives. To the extent that the mortgage has been reduced through principal payments, we propose that the cooperative be authorized to obtain a supplemental loan which could be used to assist new members in purchasing the units of withdrawing members. The new members would continue to pay their 3 percent downpayment plus their share of working capital. However, they may be unable to pay the amount of equity accumulated by withdrawing members evidenced by reductions in the cooperative mortgage. The cooperative should be able to accept such new purchasers with the same downpayments as the original purchasers and to permit them to pay the increased price, representing equity accumulation, through reasonable monthly payments over a period of years. The cooperative has an option to repurchase on a nonspeculative basis, so that this method of financing would continue to observe the principle of nonprofit operation with financing at a reasonable cost. At the same time, we recognize that FHA may condition such supplementary loans upon a determination that the present value of the property justifies the supplementary loan. We would expect this to be true in all cases, particularly when we take into account the rise in cost levels and in the values of cooperative communities.

Where a rental housing project has been acquired by FHA, which a consumer cooperative desires to convert to successful operation, an amendment should be included that would authorize FHA to make a negotiated sale to the cooperative at a price fixed by FHA representing its fair value. The reasons for this are obvious. Terants living in a multifamily housing project could very well pay FHA the fair market

value of property which they would operate for their own use on a nonprofit basis. This is a good way to encourage homeownership and to help FHA dispose of acquired properties at their full market value. An amendment to the FNMA legislation is necessary so it will parallel FHA in the statutory limits on cooperative mortgages eligible for purchase under the special assistance program. Cooperative mortgages have been purchased under the FNMA special assistance program and the record shows that this has been a successful program.

We again urge the committee to include a mutual mortgage insurance fund for cooperative homeownership under section 213, the same as now enjoyed by individual homeowners under 203. Mutuality in mortgage insurance funds have been applied successfully to homeownership in one category. They should not be denied to cooperatives which is another category of homeownership. In fact, mutuality is the essence of our cooperative housing program that has made it so successful with patronage refunds covering receipts in excess of money needed for operations. The mutual feature of an insurance fund permits refund to homeowners where experience demonstrates that the premiums collected exceed the losses and costs incurred. This is well proven in section 213 and the housing insurance fund should now show many millions of dollars of accumulated mortgage insurance funds in excess of any present or future need. We believe a mutual mortgage insurance fund for cooperatives is necessary as a matter of equity in order to treat all homeowners alike.

Cooperative housing has performed a key role in the developed countries of the world. The most successful of these are the Scandinavian countries where it has been necessary to build "up" with high-rise structures, instead of "out." In the United States of America we are being told that in another 6 years, when our population is expected to be 214 million, we will have nearly three-quarters of our people living in 184 metropolitan areas. Housing problems are sure to mount within the next few years. We should avail ourselves more fully of the successful cooperative techniques to meet these growing needs.

In connection with the pending sharp rise in population, we will be faced with other areas of community development as part of our expanding economy. We look with favor on the President's recommendation for a Department of Housing and Community Development that will be needed in fulfilling the Federal responsibility for community development and in dealing with the complexities that arise as we must expand commensurate with our expected 214 million people.

Mr. Chairman, that is the conclusion of my prepared testimony. I am prepared to answer any questions. If you want me to come back tomorrow, I will be glad to.

Mr. MOORHEAD. Thank you. We can proceed a little bit longer, anyway.

I have one question. There is a provision in this bill which would permit investor-sponsored cooperatives to convert to the condominium plan. As you know, we excluded this from the 1961 act. Now, what do you think of this provision in this bill?

Mr. TOWNSEND. First of all, I would rather speak for cooperatives. as against condominiums. They are not the same thing. A lot of people are using these terms in the same connotation as though they were

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