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20 years of charter that there is every good reason why title I should be made permanent. It is actually not in conflict with the banking interests. Theaverage banker will tell you that he is heartily in favor of it. Even the 1,300 who have their own modernization plan, we have found from experience are actually using it as a standby plan only in the event that FHA is not extended. Actually, the banks generally throughout the country, from our own practical operating experience, have heartily endorsed FHA title I in every respect, and we believe that the program should be continued on a permanent basis.

Senator MONRONEY. Is is also a fact that the customers feel a little more secure in that this is a nationwide program and they know that it must have been satisfactory to have worked out on a large scale for so long a period ?

Mr. Staal. Yes; it has been our experience that customers generally know about FHA, know its benefits and its protections, and I would say in most cases, possibly as many as 9 out of 10, where there is any preference indicated it has always been for FHA title I.

Mr. HEITMANN. It has a ready acceptance.
Senator SPARKMAN. Any questions, Senator Douglas?
Senator DOUGLAS. No.

Senator SPARKMAN. Thank you very much. I assure you we are interested in title I. Let me ask you this. Do you believe that the scandals that were attached to it which came out in the hearings last year have been pretty well checked and cleaned up?

Mr. HEITMANN. I think the remedial steps taken were in order, and I think in aggregate the scandals appeared to be in a greater number of places than they actually were. This has been a long program. It has been a good program, and we have to consider the many, many thousands of homeowners who have made these loans and are well satisfied with them. I think the situation is in order at the present time.

Mr. NICHOLS. May I say one word?
Senator SPARKMAN. Mr. Nichols.

Mr. NICHOLS. I think I have come closer to that than anyone else, because I represent the fellows who were the culprits. We hated them as badly as anyone, and I can say to you very sincerely, Mr. Chairman, that conditions in the home improvement business, as far as ethics is concerned, are so much different than they have been in the past several years that you would hardly recognize the business. Practically all of the dynamiters have been eliminated. That is partly due to the FHA precautionary list. They placed 1,700 of those dynamiters on the precautionary list, and they do not receive financing. So I would say to you, and also if you will check with FHA itself, you will find that their complaints are at a minimum now. That is the best evidence that they are doing something and what Congress did is having good results.

Senator SPARKMAN. One reason I asked that question is that one of the things we wrote into the law as a precautionary measure was this 6 months provision, and yet both Mr. Nichols and you gentlemen have recommended that we change that.

Mr. NICHOLS. I tried to point out that that is again the dynamiter. Senator SPARKMAN. I wanted to see what these gentlemen had

to say.

Mr. NICHOLS. And he cannot do that under FHA title I.

Senator SPARKMAN. Do you agree with Mr. Nichols that the net result of the 6 months provisions has been to perhaps weaken the program or drive the borrower, as one of you gentlemen stated, into alternative sources of borrowing at higher rates of interest?

Mr. STAAL. Yes, and the benefits that have been obtained through the corrective measures—the greater benefit has been not from the 6 months occupancy but the fact that the lender must now absorb 10 percent of every individual loss, which makes him discharge his responsibility with greater effort. It makes for thoroughness, because he must now face his board of directors with a 10 percent loss on every account that


bad. Senator SPARKMAN. Of course, I can see how a person buying a new home might have the greatest desire to have the improvements made right at the time he bought it, and perhaps even before he moved into it.

Mr. HEITMANN. If we lenders and dealers and FHA follow out the provisions of title I, we are not permitted even under the old provisions to make a home-improvement loan unless it is a completed house, a liveable house. Your 6 months requirement was an attempt to correct the condition where a man got a shell and then it will be completed on the inside with all the essential things. Title I was never meant for that and should not be.

Senator SPARKMAN. In other words, you think FHA can handle the part that this was really intended to protect by regulations?

Mr. HEITMANN. Yes, sir, with a proper investigative staff. Senator SPARKMAN. Now you have touched on something that I I have felt all along was the weakness, and I think it is still the weakness, and that is the proper investigative staff. It seems to me that there ought to be closer following up on this work than FHA has ever been able to give to it.

Mr. HEITMANN. It works so good and it was neglected by all of us-FHA, the Congress, and the lenders—and we all have a responsibility.

Senator SPARKMAN. Thank you very much, gentlemen.

(Mr. Staal's prepared statement follows:) Home repair and modernization


MICH., AND MEMBER OF FHA TITLE I INDUSTRY AND ADVISORY COMMITTEE During the lifetime of the Federal Housing Administration, our company has financed, as a retailer under FHA title I, property improvement and repair loans for å total in excess of $280 million.

We heartily endorse the administration's bill S. 1800 for extension and clarification of housing laws and in particular we endorse FHA title I. We also strongly advocate permanent status for this section of the Housing Act and certain other amendments which go further than that recommended by the administration.

The following, if adopted, should continue to stimulate and help maintain the American economy at its present levels of employment and production. Our company alone employs many thousands of workers whose families will be benefited by these amendments. Throughout the industry this can be multiplied into hundreds of thousands of families who will be kept gåinfully employed.

We recommend the following based on direct working experience with over 700 banks and finance companies covering 41 States :

1. Make Title I permanent

Reason: This would eliminate the uncertainty facing industry and lenders about continuation or renewal of the title I act as heretofore experienced and it would also make title I conform to other FHA insuring programs. 2. Eliminate the 6-months occupancy limitation

Reason: This would remove discrimination against the new homeowner in financing needed improvements, alterations, or additions where the credit aspects justify the extension of such improvement loan credit. New home buyers, because of this statutory limitation, are forced to go into other methods of financing to obtain alterations or improvements needed within the 6 months term and almost always at a considerably higher price to the homeowner than would be the expense if financed under title I. 3. Increase the term for single-family home loans from 36 months to 60 months

and raise the maximum permissible loan from $2,500 to $3,500 Reason: $2,500 maximum loan was established in 1934. Current economic conditions warrant an increase to $3,500 and a 60-month term to provide the single family home owner with adequate financing facilities for needed repairs and desired improvements or modernization.

Also to cover the large need for expansion of homes to provide for family growth.

In addition, this increase in term and loan amount would provide more effective means for elimination and prevention of blight or slum areas. 4. Increase the $10,000 limitation for Class 1 (0) loans to $15,000, the present

maximum maturity of a years and 32 days and the present $2,500 per unit

limitation to remain unchanged Reason: To expand the benefits of the FHA financing plan to the rehabilitation of multiple family dwellings, to prevent extension of blight areas and to bring houses up to acceptable living standards and building code requirements.

We make the above recommendations based on the following experiences within our own company and as a member of the industry advisory committee to title No. 1:

I. National needs for home improvement and modernization.-Over 25 million homes throughout the Nation are over 25 years old. Millions of American families living in those homes are able to obtain vital necessities made available through title I financing. The absence of such financing arrangements would deprive them of necessities presently available.

Even with the benefits of FHA title I many needs in the home improvement field are not being met. As an exemple, it is estimated that over a million homes annually need replacement and modernization of existing heating equipment for safe and efficient operation. Only a part of that need is being filled. The average American homeowner should be encouraged and aided in his efforts to continue to improve his standard of living. Under FHA financing he can continue to amortize the cost of such improvements over a period of years.

II. Universal benefits to all American families.-Title I has made installment loan financing available for home improvement and modernization in most every city and hamlet throughout the Nation. This has filled a need not met by private lending institutions generally prior to FHA. In recent years, as a result of FHA pioneering, lending institutions have initiated non-FHA financing plans in a limited number of instances. These have been successful and the lending institutions are to be complimented, but they are wholly inadequate from a standpoint of national coverage.

Title I's continued existence is justified for its influence in continuing to encourage lenders, through favorable FHA experience, to establish nationwide programs of non-FHA financing. As stated, this is far from an accomplished fact today. For example, of 7,651 banks engaged in consumer credit, according to the American Bankers Association, only 1,333 presently offer dealer modernization financing plans that are non-FHA in character. A number of these, we have been advised, have been formed for standby purposes only, but are not actively in use as FHA is preferred by them.

III. Low cost financing vs. higher rates.-FHA title I has been a substantial factor in lowering and stabilizing for the American public the carrying charges on property improvement loans. In the same manner other FHA programs have had the same effect.


The title I program protects the homeowners against exhorbitant finance charges. The maximum $5 discount rate alone on title I loans is substantially lower than the rates offered on most of the uninsured plans with which we have become familiar through our nationwide chain of branches.

IV. Past criticism of FHA title 1.- No doubt some of the criticism of title No. 1 has been warranted. However it is time that we also take a realistic look at the accomplishments under this section of the Housing Act. Over 18 million individual consumer loans have been guaranteed under title I and contrary to many Government services has been accomplished on a complete self-supporting basis. Certain weaknesses were uncovered, which have now been corrected, but even these represent but a minute fraction of the total number of negotiated loans.

We have every reason to believe that most of the abuses under title I have now been eliminated. Therefore with the new system of dealer controls, which each insured lender is required to maintain, permanent extension of title I should provide continued protection to all American families against unscrupulous or fraudulent dealers and/or negligent lending institutions.

V. Confidence of the American public.-Government insurance of loans in the home modernization field has long ago evolved into an accepted instrument in which tremendous confidence has been placed by American families, lending institutions and industry. As a result, all of these groups have been encouraged to work hand in hand to raise the standard of living for millions of American families through improved housing and continued full employment. Government insurance of such loans has provided the same undertone of confidence as prevails in our national banking system by virtue of the Federal Deposit Insurance Corporation.

We sincerely believe that the Federal Housing Administration under title I has done an excellent job generally in the past. We also believe that the present administration, through certain corrections already in effect, is in a favorable position to continue the known benefits under the Housing Act.

We believe that this is the proper time for all Government leaders to give FHA, and in particular title I, a solid vote of confidence through the adoption of points 1 to 4, inclusive. These benefits will accrue to all segments of the American economy, but especially to our American families who may then continue to have available to them low cost and supervised financing of home improvements in all areas of our great country.

Senator SPARKMAN. We have one more witness, Mr. Herbert N. Levy, representing the National Fire Alarm Association. May I suggest that you present your statement for inclusion in the record and summarize it for us?

Mr. LEVY. Mr. Chairman, I believe that I can summarize it quicker by reading it. It will not take more than 5 minutes.

Senator SPARKMAN. All right. Home repair and moderization



Mr. LEVY. The Automatic Fire Alarm Association was organized in 1953, with the following purpose, as quoted from the association bylaws:

“To foster and improve the standards in the industry and the relationships between manufacturers, sellers, installers, and users of the products, and the bureaus and other agencies regulating the standards of the automatic fire-alarm industry.

Full membership in the association is open to anyone actively engaged in any phase of automatic fire-alarm work. Many types of firealarm operations are represented. In the specific field of interest to the committee, namely, home fire-detection and alarm systems, it is estimated that our member companies represent about 50 percent of all the home-alarm business done in the United States.

The need for proper fire detection and alarm systems in the home is unquestionable. Just pick up your local paper and read about the family that was burned to death yesterday. It is a grim and terrible matter of record that easily 75 percent of all deaths from fire occur in the home. Statistics show that more than 420,000 homes burn annually in the United States. We who are experienced in fire-protection problems know beyond a shadow of a doubt that most of the deaths and many of the serious injuries from fire can be avoided by a prompt warning of a fire condition through automatic fire-detection and alarm service.

The home fire-alarm industry is unique. There is nothing else like it under the sun. We are in the business of saving lives, and we deserve every bit of support that any public agency can give us at the present time. We do have the solid support of everyone who is properly acquainted with the problems involved, that is, fire chiefs, fire marshals, insurance authorities, protection engineers, and the National Fire Protection Association.

In Senate Report 1472, 83d Congress, 2d session, on the Housing Act of 1954, a directive was stated that your committe is of the opinion that the commissioners have no discretion but to take such action as will exclude such items as tennis courts, swimming pools, barbecue pits, kennels, fire-alarm systems.

Accordingly, on July 14, 1954, the Federal Housing Commissioner, pursuant to the Senate committee's directive, issued regulation 7A which declared fire-alarm systems, among other items, to be ineligible for title I financing.

It should be pointed out that the members of our industry were not represented at the hearings conducted on the subject. While the hearings were public, we had no actual knowledge that questions regarding home fire-alarm systems were going to be discussed at the hearings so as to enable us to dispute certain matters brought forth in the hearings or to present arguments and facts supporting the merits of our

Now, nearly a year after the Federal Housing Administration has discontinued the financing of home fire-alarm systems, we have found the following results. Immediately after financing was stopped, most of the dealers who had been doing a conscientious job of selling and installing these home fire-alarm systems found themselves out of busines. They found that they were unable to get financing from their bank, or other banks, and they were told, “If the system is not good enough for FHA financing, it certainly is not good enough for us." This took place in spite of the fact that on the national average the proven ratio of losses on fire-alarm loans was less than the average on most of the home-improvement loans. This figure has been substantiated by the Federal Housing Administration.

As a matter of fact, the Federal Housing Administration's action in denying the financing of home alarm systems has had a peculiar repercussion which certainly was never intended. A large number of fire-alarm companies were forced out of business. This left many of the unethical operators still in business who were allowed to continue and fluorish because the normal competition at normal prices had gone. These unethical operators are still operating through finance companies and mortgage brokers who charge a fantastically high


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