the draft legislation to the Congress for its consideration, and that its enactment would be in accord with the program of the President.

Sincerely yours,

ROWLAND HUGHES,

Deputy Director.

Mr. COLE. I should like to comment briefly on 3 or 4 of the principal features of the bill relating to the operations of the FHA. Federal Housing Commissioner Guy Hollyday is here with me and has a more detailed statement covering the provisions of the bill relating to the FHA. If it is agreeable to your committee it might be helpful if Commissioner Hollyday were permitted to present his statement to you at the conclusion of the portion of my statement on the FHA provisions of the bill. We could then proceed with questions on this phase of the bill before I proceed with the remainder of my testimony on the secondary mortgage credit facility and the other titles of the bill.

IMPROVEMENT AND CONSERVATION OF EXISTING HOUSING

In my judgment, one of the most important features of this bill is represented by various provisions which are designed to assist in the improvement and conservation of our supply of existing housing. Because of the housing shortages which developed during the depression and war years much of the Federal housing legislationparticularly in recent years-has been directed primarily toward increasing the volume of new housing construction. This bill likewise contains a number of important provisions designed further to assist in achieving and maintaining a high annual volume of new housing construction. At the same time it recognizes that we need to direct more specific attention to the fact that in our existing homes we have a tremendous asset. It also recognizes that by assisting families in their efforts to keep their homes in good repair and to bring them up to modern standards of comfort and convenience we can make an important contribution to the raising of national housing standards. Several provisions of the bill are directed toward this important objective. With respect to the home repair loan program under title I of the National Housing Act, the bill increases the maximum loan from $2,500 to $3,000 and the maximum maturity from 3 to 5 years. The latter provision would reduce the monthly charges required to carry such loans by about 35 percent. For example, the monthly charge required to carry a $1,000 loan having a 5-year maturity would be about $21, as compared with about $32 in the case of a 3-year maturity.

Certain changes would also be made with respect to title I loans to finance the improvement or conversion of existing structures used or to be used as dwellings for two or more families. The present maximum of $10,000 for this type of loan would be changed to $1,500 per family unit, or $10,000, whichever is the greater, and the maximum maturity would be increased from 7 to 10 years.

It is recognized, of course, that the FHA title I home modernization and repair loan program has inherent limitations. Because they are usually unsecured "character" loans and the insurance of loans meeting the specified standards must be more or less automatic, the title I modernization and repair loans must be small and of short term.

The result, of course, is that the title I home modernization and repair loan program, while most useful and helpful in financing relatively less costly home repairs and improvements, is of limited assistance to families of modest income who need to finance major home improvements or modernization work. Assistance for such work therefore must be on a relatively long-term mortgage loan basis which permits lower monthly carrying charges.

Several other provisions of the bill are designed to help in better maintenance and fuller utilization of existing housing. The bill would eliminate the existing statutory disadvantages in the maximum loan to value ratios which now apply to FHA insured loans on existing housing as compared with newly constructed housing.

In his statement Commissioner Hollyday will furnish two examples which clearly illustrate the desirability of this provision of the bill. The bill would aso eliminate the present statutory disadvantage in the maximum maturity which now applies to FHA insured loans on existing housing regardless of its physical condition or durability. The FHA, of course, would not permit a maturity in connection with an existing house which was longer than warranted by the physical condition and the expected economic life of the particular house involved. I believe that these provisions of the bill would be of material assistance to families who desire to purchase good existing homes well suited to their particular needs, and also to families who wish to enlarge or modernize existing homes.

The new FHA section 220 and section 221 programs proposed in the bill would also assist in the improvement and conservation of our existing housing supply. These sections would authorize mortgage insurance to assist in financing the rehabilitation of existing dwellings as well as the construction of new dwellings in connection with slum clearance and urban renewal undertakings as contemplated by title IV of the bill. Both of these new FHA insurance programs are directly related to the broader effort to rehabilitate and restore whole neighborhoods, and I will discuss them further in the later portion of my testimony dealing with title IV.

As an aid to the elimination and prevention of the spread of slums and blight in urban renewal areas, new mortgage insurance provisions are included in the proposed legislation by adding section 220 to the National Housing Act. It is expected that the provisions of section 220 will provide a stimulus to local community action and encourage the support of builders, lenders, and others in the rehabilitation of blighted areas and the conservation of residential values.

The proposed section 221 FHA program should be particularly helpful in facilitating urban renewal programs in many communities by providing housing for many of the families displaced from their homes as a result of urban renewal activities. The enforcement of local housing codes to reduce overoccupancy, the rehabilitation of housing, the clearance of slum areas, and other renewal activities generate needs for housing for relocation purposes. The relocation needs of the low-income families, particularly the minority group, are particularly acute and require special provisions.

The section 221 program would make mortgage insurance available on very favorable terms so that displaced low-income families could buy these homes or acquire them on lease-and-purchase options. The

maximum mortgage amount would be $7,000 and not in excess of 100 percent of value for a single-family dwelling where the mortgagor is the owner-occupant. A minimum cash outlay of $200 would be required. Builders would be permitted to obtain 85 percent loans to facilitate construction and financing pending subsequent sale to qualified owner-occupant purchasers under purchase contract or lease-option agreements. The maximum term is fixed at 40 years.

Mortgage insurance would also be provided under this section for the repair or rehabilitation of dwellings for use by ten or more families as rental accommodations for qualified displaced families where the mortgagor is a nonprofit corporation, association, or organization, public or private, which is regulated under Federal or State laws as to rents, charges, and methods of operation. The maximum mortgage would be $7,000 per family unit and not in excess of 100 percent of value, with a maximum term of 40 years.

There is one other matter about the section 221 program to which I want to call particular attention. It should be recognized frankly as an experimental program. Recognizing it as such, I am strongly of the opinion that it is very necessary and a very worthwhile program. The development of a better supply of adequate housing for families of low income is one of our most important and pressing problems. The urban renewal program contemplated by this bill necessarily will displace many families of low income from the unsatisfactory dwellings in which they are now living. I do not propose to turn my back on this important problem. That is why I fee! so strongly that this section 221 program ought to be tried.

It is an effort to develop a practical means for making it possible to meet more of this particular need through private enterprise. But, to me, private enterprise means not only that the housing is built by private builders and owned and operated by individual families or private business organizations. It means also that it is financed by private long-term mortgage credit supplied by private lenders who obtain the necessary funds from private sources-not from the Federal Government. Section 221 offers every inducement to make this possible. It provides a means under which lenders can invest funds in such loans without risk of loss. It provides a means under which the income hazards of long investment at a fixed rate of return are minimized by permitting any such loan in good standing to be assigned to the FHA at any time after 20 years in exchange for 10-year fully guaranteed debentures. Such debentures would bear interest at a rate equivalent to the yield on Government marketable obligations of comparable maturity at the time such debentures are issued. We are prepared to go even further to make it possible for private. enterprise to meet more of this need. We are prepared to have FNMA agree in advance to buy any such loans from the lender upon default, thus permitting the private lender to obtain settlement in cash rather than in debentures. We are even prepared, if necessary, to have FNMA purchase a modest part of any such loan at the time of origination.

I believe we ought to try the approach provided by section 221, because it is my belief and my hope that, in time, it could result in a substantial and vital source for the provision of adequate housing for families of lower income and could progressively reduce the pres

sure for public housing. In this connection I want to make it perfectly clear that we recognize, however, that until such alternate means of providing adequate housing for low-income families can be established on a practical and effective basis, federally assisted low-rent public housing provides the only present means that most cities have for rehousing the lowest-income families and, as the President indicated in his special housing message, it is an integral and very necessary part of the administration's overall housing program. Finally, as a further aid in financing needed home additions or improvements, the bill would authorize FHA insurance of advances to a mortgagor made pursuant to provisions in an open end FHA insured home mortgage. Open-end mortgages are mortgages which provide that the outstanding balance can be increased in order to advance additional loan funds to a mortgagor for improvement, alteration, or repair of the home covered by the mortgage without the necessity of executing a new mortgage. This would eliminate the expenses of title search and recordings. Also, it would permit the homeowner to borrow for the improvements at the low rate of interest prescribed in the mortgage and generally for a longer term than otherwise available. The authority to insure open end mortgages would apply only to insured mortgages covering dwellings for four families or less.

I regard this authorization as an important forward step. However, I want to add a word of caution. The mere enactment of such a provision will not automatically make it operate effectively. A great deal of work and study, both within an without the Government, must be done to assure that this provision does operate effectively and that housing consumers have an opportunity to obtain its full advantages. So far as the Housing and Home Finance Agency is concerned, I want to say that all of us will do everything possible to see that what is required of us to accomplish this will be done. I realize also that there are some real problems to be overcome, particularly, I expect, in connection with the lien laws of the various States. If the Congress enacts this provision of the bill it is my intention to request an appropriation sufficient to permit us to undertake a thorough examination of such problems and the development of model State legislation designed to eliminate such obstacles to the effective operation of the open end mortgage provisions as are identified in the course of such examination.

INSURANCE AUTHORIZATION

The bill would consolidate into a single authorization all existing mortgage insurance authorizations with respect to all FHA programs, except the home modernization and improvement program under section 2 of title I. This would greatly simplify operations under the present several separate insurance authorizations, and esablish at all times the amount of the current mortgage insurance authority for all programs. The bill provides that the total authorization shall not exceed the estimated amount of insurance in force and commitments outstanding as of July 1, 1954, plus $1 billion, except that with the approval of the President such total authorization could be increased by amounts up to a total of not to exceed $500 million.

There are some very important aspects bearing upon the necessity for an adequate insurance authorization which I want to emphasize. To be an effective aid in housing and home financing, the FHA requires a considerable degree of flexibility in its operations. It should not be in the position of having to close down insurance operations because of the exhaustion of its insurance authorization. There is always a high degree of uncertainty over the volume of applications which will be submitted by home builders and mortgagees. For this reason it is impossible to forecast with precise accuracy the dollar amount of insurance authorization which will be required in a given period of time, because the volume can vary substantially and rapidly with changing conditions.

I understand there have been eight or ten occasions during recent years when the exhaustion of an insurance authorization has required that insuring operations under one or more of the active programs either be suspended or placed under direct daily control of the Washington office. This is a very expensive process-both from the standpoint of the FHA and from the standpoint of the builders and the lenders who rely upon the FHA. The FHA is intended to be a stabilizing influence on homebuilding, but when its operations are cut off entirely by reason of insufficient insurance authorization it seriously disrupts the home-building and home-financing industry.

No one recognizes and appreciates more fully than I do the right, and the desirability, of the Congress to control the insurance liability to be underwritten by the FHA. I earnestly recommend to your committee that the FHA be granted sufficient authorization to carry out its operations without interruption until the Congress has adequate opportunity and time to again review the situation and to provide for such additional insurance authorization as it deems desirable until the next succeeding period of congressional review and action. According to Commissioner Hollyday's best estimate, the $2 billion provided for in this bill would be sufficient, with a reasonable margin of safety, to permit FHA to continue its operations without interruption until June 30 next year. I strongly urge your committee to provide sufficient insurance authorization to accomplish that purpose.

MORTGAGE LOAN AMOUNTS

There is a very real need for some adjustment and simplification of the various provisions of the National Housing Act governing the determination of the maximum amounts of mortgage loans which may be insured by the FHA. This is particularly true with respect to the FHA section 203 program relating to the insurance of mortgages on 1- to 4-family homes. Also since FHA or VA insured or guaranteed home mortgage loans represent a large segment of the home mortgage market and, therefore, exert a strong influence on the level of construction activity, it is vitally important to permit the terms of such Government-guaranteed or insured home mortgage credit to be fully responsive to changing economic conditions. The bill seeks to meet both of these important problems.

For example, in connection with the section 203 program on 1- to 4-family homes, the bill would provide that the maximum amount of a mortgage which may be insured by FHA could not exceed the sum of 95 percent of the first $8,000 of value and 75 percent of the