month for the owner-occupant is $8.68 per unit per month lower than the rental on the house in a 608 project, but $7.14 per month higher than the house in a cooperative or nonprofit project.

The mortgage loan for the owner-occupant was assumed to be 95 percent of value for 30 years at 42-percent interest plus one-half of 1 percent mortgageinsurance premium; for the 608 rental project, 90 percent of value for 32 years 7 months at 4-percent interest plus one-half of 1 percent mortgage-insurance premium; and for the cooperative, 100 percent of value for 50 years at 3 percent interest.

Mr. FOLEY. However, may I make this further comment on the question, as it has been developed here. I think because of the preponderance in recent times of attention being called to cooperative apartments, that there may be some misconception of the scope of the proposal here. It is not limited to multifamily types of projects. It is true that in areas of high-cost land, and so on, the tendency may well be toward that type of project, but in the areas, such as are mentioned in the South, or elsewhere in the country where land is available at a relatively low price, that tendency or trend toward going into multifamily apartment structures will not have the same pressure. Those families who want to live in free standing, or duplexes, or possibly as much as four-family units, will find it feasible, and, consequently, they can get the advantages available through this bill and still have the kind of housing environment that perhaps they seek.

I wonder if that isn't what you had in mind when you said that only one cooperative would be possible?

Mr. RAINS. I don't think we want to be provincial in our attitude. I know certainly I don't. The housing problem is a Nation-wide problem and should be looked at from that angle, but it appears that this program is going to center in the metropolitan areas of the country and not be set to meet the need in small communities of the country.

Mr. FOLEY. It was pointed out in my statement very carefully yesterday, Congressman, that this is not being proposed as a single solution to the varying types of needs for housing of the middle-income group, or any other group. It is not our conception of it, that it will be a substitute for or even appeal generally as a substitude for the other avenues of assisting in provision of housing for people of middle income. As a matter of fact, we are here before you today proposing other devices, particularly with respect to rental housing, and there are pending before the Congress still others with respect to for-sale housing that we are still strongly recommending.

No; I would not want to give the idea that we are suggesting this proposal as one that will generally be used everywhere. It is, again, as I pointed out, to provide a means of filling a gap that exists within the middle-income field, not the whole field.

Mr. DEANE. Mr. Foley, in the statement that you will prepare will you cover, insofar as you can, the comparative costs of developing, say, a small cooperative project in some southern area, its cost as comparable with a larger project in some other section of the country? That is, the administrative costs detailing the problems entering into setting up such a project? Will you be able to do that?

Mr. FOLEY. I think we can, although I don't know how exhaustive we can make it, but I think we can make it indicative.

Mr. DEANE. One other question in which Mr. Multer expressed an interest, when you mentioned the word "cooperative" you so frequently think of something tax-exempt, which isn't always true. Of course,

we cannot control the position different States may take in the matter, and, as I understand, there are certain tax-exempt features on cooperatives in the State of New York.

Do you think that the passage of this cooperative housing bill will tend to encourage other States to set up tax-exempt programs for housing?

Mr. FOLEY. My personal opinion, Congressman, would be this-that it would have the opposite effect. Actually, the tax-exemption provisions in the State of New York were proposed as a device to assist in providing housing in this direction, not with special reference to cooperatives, as I understand it.

It seems to me that the advantage to be had through this type of operation in that problem part of the middle-income area, when applied in other parts of the country would probably lead to a reduction of possible future demands for tax exemptions to accomplish the same purpose.

Mr. DEANE. Is that the philosophy that you think is developing in New York State?

Mr. FOLEY. I don't know.

Mr. MULTER. I want to make clear that there was nothing in this proposed bill that grants tax exemption to these cooperatives. It is entirely a matter for local disposition in each State or locality as to whether they will or will not grant any tax exemption.

I also want to refer to Mr. Foley's original statement. In setting up his computations, and indicating what the rental will be for these projects, he has made allowance for real-estate taxes in each instance, so that if there should be any local tax-exemption there will a further reduction in the rent in those particular communities that grant taxexemption.

In New York State, at the present time, as Mr. Foley indicated, tax exemption has been granted as an incentive to create more buildings, and the tax exemption is granted only to certain forms of development, or developments, the form of which will limit the profit to those who manage it, whether it be a cooperative or private venture.

It must come within those provisions of the law which limit the profits that the owner of the building may take out of it in order to be sure that they come within the lower rent groups of dwellings, so as to accomplish the purpose of getting as much additional new building for renters as is possible with that kind of incentive.

Does that answer your question?

Mr. DEANE. Yes.

Mr. NICHOLSON. Do I understand by that, if there is a cooperative building, and there are 1,000 people who want to take advantage of it, and they all have one child, that somebody in that community is going to pay for those thousand children, besides everything else that goes with it?

Mr. MULTER. If you are thinking are subsidies-

Mr. NICHOLSON. This is tax-exemption I am talking of now.

Mr. MULTER. The tax-exemption is not on that basis at all. Exemption from the real-estate taxes is not based on the number of children in the family. It is based on the limitation made in advance by agreement to limit the extent of the profit that the owner will try to take out of the venture.

In other words, it provides as an incentive to the proposed builder or owner of the building venture, that if he will give up some of his profit the State will give up some of its taxes in order to make these accommodations available as quickly as possible to those who need it. Mr. RAINS. Mr. Foley, let me ask you one other question, and then I am going to drop out of the picture.

The thing that worries me about this bill is: How are we going to explain to the people in this country giving 3-percent interest on cooperative housing to middle-income groups, 4-percent interest to veterans, 412-percent interest to the FHA?

The hard question we are going to have to face-and I know I am going to have it with my veterans-is, why can't I have a 3-percent interest if the middle-income class has it who are possibly not veterans? What basis is there for making that differential?

Mr. FOLEY. May I make a comment on one point of your discussion, first?

Mr. RAINS. Yes.

Mr. FOLEY. That is with respect to the rent-control argument.

I do not share the view of those whom you have quoted as saying that everybody can now get rental properties and at proper rent, and that the supply is adequate.

With that comment, I will go on to the other. The whole question of interest rate, of course, is a constantly perplexing question, particularly with reference to the types of activity in which there are governmental aids. It is one that we have constantly under study. The housing agencies of the Government, Congressman, have no predilection for any given rate of interest. They are concerned only with having a situation in which a rate of interest that is authorized as a maximum is adequate and sufficient to maintain the flow of capital necessary to maintain the high production of housing, which we think is the No. 1 prime necessity if we are going to meet our problems. Mr. KILBURN. The flow of capital from the Government, or from private?

Mr. FOLEY. Private. All of the capital flowing in those operations is private capital, Congressman, and the rate of permitted interest charge, if they are to use the vehicles that the Government has provided, is, of course, a key to that flow, whether it is adequate or inadequate, other things being equal.

The differential in interest rate as between, for instance, the FHA and the VA operation is a perplexing and troublesome thing. It is very difficult to ascertain from any studies we can make just what is a sufficiently high interest rate to maintain the flow.

As brought out in a part of the discussion earlier, it is necessary that lending institutions have an average return upon the funds that they invest, sufficiently high so that they can meet their operating expenses and pay what is a sufficiently adequate return to depositors to maintain the flow of deposits, of savings which provide these funds. It is not an easy question to answer. As has been brought out publicly in the last few weeks, it is closely under study, particularly with reference to FHA and VA rates.

Mr. RAINS. Suppose we make this 4 percent instead of 3, would we still get cooperative housing?

Mr. FOLEY. If you made it 4 instead of 3--and let me point out again that the bill does not fix an interest rate.

Mr. RAINS. I understand that.

Mr. FOLEY. We have pointed out that according to the best present judgment of rates, charges, and so on, it would be approximately 3. Mr. RAINS. Yes, I understand.

Mr. FOLEY. But it could go higher. It could conceivably go to 4 in the future, depending on what it costs to get the money in to operate, but if you went to 4 the more the interest rate rises the less the reduction in rent, or equivalent charge, to the home owner in the cooperative would be in this proposal which, again, let me say, is needed to meet a particular gap in a broad field and not the whole of the field.

The effort to obtain an operation in which there could be an advantage of interest rate was not for the purpose of gaining an advantage in interest rate only. It is directed, as you see, only to a particular type of operation, a cooperative or nonprofit.

The significant thing about that is that the profit motive is removed, both from the consideration of what would otherwise be the profit sponsor or entrepreneur, and from the consideration of the participant.

Elmer Zilch, the owner of a detached house, under the regular operation, a fee simple title, has rather characteristically, so far in the history of this housing movement, particularly in this century, expected, if he disposes of his house, to do it at a profit, or at least to do it at no loss from depreciation, and that has been characteristically the experience with certain exceptions. That is foregone by the participants in a cooperative operation such as this one here contemplated. Mr. RAINS. How is it foregone?

Mr. FOLEY. Because he does not have fee simple title which he can transfer at will and at any price that the market might pay.

Under these provisions the cooperative organization, itself, has first claim upon the repurchase and upon conditions fixed in advance. You are addressing the interest rate contemplated here, and the amount of the advantage only experience will tell, as a further incentive and as one of the means of bringing into play a different type of private operation and probably a type of operation which, while it will be broadly used, I do not concede will become the major vehicle in the middle-income field, or any other field in this country.

Mr. RAINS. How much appropriation is this going to take out of the Federal Treasury?

Mr. FOLEY. As I pointed out, the appropriation from the Treasury for the initial capitalization is authorized to be not to exceed $100,000,000, and in this year's budget record-and correct me if I am wrong in reading these figures-is set up at $35,000,000 as the initial.

There is one other point that I didn't cover in your question. The individual, free standing house deal, on which there is a single mortgage on a single house, or a small project of three or four, as distinguished from the type of operation contemplated here, involves much more expense in the handling, in the making, initiating of the loan, and the servicing, and so on. It is an item of expense which is reflected in the rate of 4, 42, or 5 percent or whatever else that may be the private rate or charge. There is a differential between that type of lending and the type of lending contemplated here.

Fundamentally, the funds, which under this plan would be made available from private sources for lending by this corporation, would

cost this corporation about as much as the loans now loaned by a savings bank or a savings and loan or other private lending institution at a 4 or 412 percent rate on single house cases.

It costs that institution the interest rate paid, so that the differential between rates is really represented by the probable differential in cost of doing business.

Mr. RAINS. Is that a service charge you are talking about by the financial institution who makes the loan? Is that the reason for the increased rate on the small unit?

Mr. FOLEY. It is the cost of the operation of the institution.

Mr. RAINS. You are saying a financial institution could make a loan for a cooperative for about the same over-all expense of handling the loan as they could to one individual for a small place? Is that correct?

Mr. FOLEY. The private lending institution if it made a loan, a large loan, took a single project, a single mortgage, cooperative or otherwise, can afford to make it for a less interest charge than it can afford to make an interest charge which is on a single, small home. That, of course, is inherent in the whole lending experience.

If lending institutions generally throughout the country were prepared, willing, and able to make freely the kind of loans to the kind of cooperative corporations herein contemplated, it is probable that they could make them at a lower interest rate than they do to Elmer Zilch on his individual house. If that were the case then probably there would be less of a pressing necessity for this kind of legislation. Mr. RAINS. Let me ask one other question: Take the private lending institutions. If you have the assurance or the belief that they will finance this kind of proposition at, we will say, 3 percent with Government guarantee, what is to prevent them financing FHA or veterans' loans at 32 or 3 percent with Government guaranties?

Mr. FOLEY. I am afraid you misunderstood me, Congressman. I did not indicate that I believed that private lending institutions can or will make this type of loan at 3 percent. I am only contemplating in our testimony that this mortgage corporation, set up for this and this purpose only, and without any necessity for earning profits, itself, can make them at 3 percent, or thereabouts.

Mr. RAINS. I misunderstood you. I thought you said that private institutions

Mr. FOLEY. NO; I said, if they could. I did say that they could make such a loan at a lesser rate than they could make a loan to a single-family home owner on a single-family mortgage.

Mr. RAINS. Would the loans that are made by this mortgage corporation be a charge against the budget?

Mr. FOLEY. The loans made by the corporation, would they be charged against the budget?

Mr. RAINS. Yes.

Mr. FOLEY. No, not in the broad sense I think you mean. The Budget impact would be reflected only by the amount required to purchase the initial capital stock and smaller items for the advance, preliminary, planning loans that are contemplated, and the administrative expense in the office of the administrator, not in the mortgage corporation.

Mr. RAINS. Going back to the rent situation, of course you are not the Housing Expediter, I am well aware of that, but judging from the