mental action in such communities. It is intended for use in those situations where there is an insufficient supply of suitable housing available from other sources to take care of such displaced families.

The maximum mortgage under section 221 would be $7,000 per unit. This limit is designed to insure provision of housing within the financial means of a substantial portion of the modest-income families being displaced from urban renewal areas. The maximum term would be 40 years and the mortgage insured by FHA could be as high as 100 percent of value. The properties covered by the insured mortgages under section 221 could be single family homes for sale to eligible displaced families or may be projects of 10 or more units to be rehabilitated by nonprofit organizations for rent to such families. Mortgage financing is also available for single family homes built for sale in amounts not to exceed 85 percent of value, to assist in the construction and provide financing pending subsequent sale to a qualified owner-occupant.

To encourage private funds for section 221 projects, one of the terms of the insurance contract would provide that if the mortgage is in good standing, the mortgagee would have the option at the end of 20 years to assign the mortgage to FHA and receive in exchange debentures for the unpaid principal balance of the mortgage.

As in the case of section 220, FHA processing of applications and standards of eligibility under section 221 will generally parallel the respective procedures of section 203 and 207.

MODIFICATIONS OF PRESENT FHA PROGRAMS

Changes in the terms of mortgage insurance under various outstanding FHA programs are provided for in a number of individual sections of title I of H. R. 7839. Section 101 modifies the property improvement loan insurance program of title I by increasing the general maximum insurable loan from $2,500 to $3,000 and increasing the maximum permissible loan term from 3 to 5 years.

The same section also raises the present $10,000 maximum insurable loan for multifamily structures to $10,000 or $1,500 per unit, whichever is higher, with an accompanying increase in maximum term from 7 to 10 years.

All of these changes are intended to make the Title I program more effective in financing modernization and improvement of existing residential structures. The expanded insurance program for multifamily projects is expected to be operated in a conservative fashion principally as a substitute for insured mortgage financing under other programs in those instances where existing indebtdness precludes use of the regular mortgage insurance programs.

Section 104 authorizes a simplified system of maximum mortgage amounts for section 203, raising the limits for 1- to 2-family structures to $20,000 from the present limit of $16,000 which was first established in 1934 and raising the maxima for 3- and 4-family structures to $27,500 and $35,000, respectively, from present limits of $20,500 and $25,000.

For both new and existing structures with 1- to 4-dwelling units, this section proposes as a single formula that maximum mortgage amounts be limited to 95 percent of the first $8,000 of value plus 75 percent of value in excess of $8,000. This single formula would re

place a very complex series of maximum mortgage standards applicable under the present law to a variety of types of structures, sizes of units, and construction status of structures. The single formula would also remove the present disadvantage of mortgage terms for existing construction. As between properties of equal value, there appears to be no sound reason for differing mortgage limits. Perhaps I can best illustrate this point by one or two examples.

Take a case where 2 houses-1 a newly constructed house and 1 an older house-are both appraised at $8,000. The newly constructed house may be a 2-bedroom house; the older house may be a 3-bedroom house. Under the existing law, the FHA may insure a loan of $7,350 on the newly constructed house, so that a family could purchase it with a downpayment of $650. However, on the older house, even though the appraised value is the same, the FHA could not insure a loan of more than $6,400. The family purchasing the older house would have to make a downpayment of $1,600-$950 more than would be required to purchase a new house with the same value. In such a case, it could well be that the older house with 3 bedrooms would better meet the needs of a particular family than the newly constructed 2-bedroom house, but solely because of the much larger downpayment required, the family might choose to purchase the new 2-bedroom house.

Again, take the case of an existing house valued at $6,000 which with the addition of a bedroom and the modernization of the kitchen would be worth $8,000. Since FHA presently could not insure a loan of more than $6,400, a family purchasing the house and making the additions and improvements would have a cash outlay of $1,600 as compared to $650 for the purchase of a new house of the same value.

The proposed maximum mortgage limits are also intended to provide a more consistent schedule of mortgage amounts. For example, a new home with a value of $11,000 is now eligible for a mortgage of $9,450, or 85.9 percent. Another new house of $11,800 would be eligible only for that same maximum mortgage amount, or 80 percent of value, and a house of $12,000 value is eligible for a mortgage of only $9,600, or $150 more mortgage than is available to the first unit worth $1,000 less. More favorable mortgage terms for existing home mortgages would also be effective in helping to sustain the marketability of new homes and the volume of new construction.

Section 105 proposes a single maximum mortgage term of 30 years for application to all section 203 mortgages, replacing present varying limits ranging from 20 to 30 years.

Section 106 simplifies the maximum interest rate provisions of section 203 and permits the Commissioner to allow in connection with section 203 mortgages, a continuing monthly service charge such as has been applicable under section 8.

Each of the changes proposed in sections 104, 105, and 106 can become effective only upon action of the President in keeping with the terms of these sections and of section 201 of this bill.

Section 112 proposes that the terms of debentures issued under section 203 and section 213 be established at 10 years instead of the present terms of 20 years for section 213 and 3 years after maturity of related mortgage for section 203. This would make the debenture terms con

sistent for all FHA programs and would improve the availability of funds for insured mortgage financing.

Section 114 modifies the mutual mortgage insurance system in order to increase the strength of the fund as a protection against the contingent possibility of payment of debentures by the Treasury. Fundamentally, the changes proposed would combine the independent resources of the 192 individual active group accounts in the present system into a single reserve system consisting of a general surplus account and a participating reserve account from which dividends would be paid.

Under the present system, only the resources of the general reinsurance account stand between a deficit in liquidation of insurance for a single year's mortgages in a particular group account and a call upon the Treasury for redemption of debentures issued. The present proposal would make all of the resources of the entire system available for redemption of maturing debentures before a call to the treasury would be necessary.

It should be noted that the risk of loss to FHA is most substantial at all times with respect to the mortgages most recently insured. The declining risk of loss with passing years reflects both the reduction in indebtedness through amortization of the insured mortgages and the accumulation of resources in the insurance system from premiums and interest on investments. The simultaneous accumulation of resources and decline in required reserves against losses in group accounts under the present system causes the individual group accounts to move rapidly from heavy deficits in reserves to a condition of credit balances in excess of required reserves during a short period in the life of the mortgages between about the fourth and eighth years. Under the present system, these credit balances in older group accounts can in no way be used to support the system's losses with respect to more recent group accounts.

Further aspects of the proposed revision are that management of the system can be accomplished at somewhat lower administrative cost if the group account system is abolished and that dividend distributions can be held to a minimum during the period of accumulation of adequate reserves.

It is perhaps unnecessary to mention that the concept of required reserves for such an insurance system as mortgage insurance must always be based on an assumption that a real estate depression could start in the immediate future. In that event, heavy losses would always be expected with respect to recently insured mortgages. The reserve concept does not involve a forecast of a depression at any particular time, but rather is designed to have the system able to endure a depression whenever it may occur. To the extent that a real estate depression is delayed or mitigated, the insurance reserves will prove to be more than adequate and the excess will properly be available for return to the appropriate mortgagors in the form of participating dividends.

Section 115 of H. R. 7839 modifies the section 207 program of FHA in several respects; first, by extending the program to cover mortgages for rehabilitation of existing structures in blighted areas; second, by making section 207 mortgage insurance available in Guam on the same basis as applies in Alaska; and third, by revising the maximum mort

gage amount provisions to remove the present $10,000 ceiling and to allow mortgage amounts as high as $2,400 per room, or $7,500 per unit in projects with less than four rooms per unit, in projects of elevator structures if FHA determines that construction cost levels require such mortgage amounts.

The elevator structure increases are proposed in the light of the higher costs generally inherent in the fireproof or fire-resistant qualities of construction required for these structures and the higher land costs typical of central city locations where these structures are provided, including slum clearance sites. It may be noted that these last changes do not alter the basic limitation of these mortgages to 80 percent of FHA's appraised value.

Section 119 proposes to amend the maximum mortgage limits of the section 213 program, that is, cooperative housing, in several regards: first, mortgages up to $25,000,000 would be insurable for mortgagors publicly regulated or supervised as to rents, charges, and methods of operation; secondly, increases are provided in maximum mortgage amounts on a per room and per unit basis (to $2,250 per room, or $8,100 per unit for projects averaging less than four rooms per unit, with proportional further increases for veterans' cooperatives); third, additional increases in maximum mortgage amounts are provided with respect to elevator structures (to $2,700 per room, or $8,400 per unit in projects with less than four rooms per unit, with related further increases for veterans' cooperatives), such further increases to be dependent upon the necessities of higher cost levels; fourth, mortgage limits are based upon appraised values of properties instead of replacement cost, as formerly; and fifth, veterans' preferential mortgage limits are made available only to projects having 65 percent of the membership composed of veterans.

The increases in mortgage amounts bring the section 213 maxima into balance with section 207 maxima after allowance for the differences between the maximum permitted loan to value ratios. As in the case of section 207, higher mortgage ceilings are proposed for elevator structures. Basing mortgage limits on appraised values instead of replacement costs would increase the protection of the insurance fund and would encourage elimination of any elements of cost which do not contribute to value.

The change in the formula for determining additional mortgage amounts for veterans' benefits is proposed as a means of simplifying the present complicated formula for determining maximum mortgage amounts for these projects.

Section 121 of the bill amends section 217 of the National Housing Act to consolidate all FHA mortgage insurance authorizations into a single limitation. With the increasing number of separate insurance programs and separate insurance authorizations, it becomes increasingly difficult to forecast with reasonable accuracy the authorization requirements of the individual programs. Consolidation of these authorizations is therefore proposed as a means of reducing administrative workload and minimizing the necessary total amount of insurance authorization. It may be noted that the proposed language provides only sufficient authorization for operation of all FHA programs through mid-year in 1955.

Section 125 of HR 7839 authorizes the Commissioner to insure additions to outstanding insured mortgages for purposes of additions or other property improvement, pursuant to so-called "open-end" provisions in the mortgages. In administering this authority, FHA will perform whatever appraisal, credit analysis, and property inspections may be necessary to assure the adequacy of the security to sustain the increased insurance liability. Charges for use of the open-end provision will be computed to cover both processing cost and insurance risk, and it is contemplated that the most effective form of charge may be a single charge at time of insurance.

It is to be noted that the use of open-end provisions in insured mortgages would in no way alter the responsibility of the mortgagee, in the event of foreclosure, to make available to FHA a satisfactory title in exchange for debentures. FHA will tackle the development of the open-end mortgage with determination. We recognize, however, that there will be many problems and that time and patience will be required to make it a really effective tool in the housing program.

Section 128 extends the section 803 military housing program to June 30, 1955.

A further modification of the operation of the FHA insurance programs is provided in section 201 of H. R. 7839 where authority is given to the President to establish interest rates and financing charges for various FHA programs. That section permits maximum interest rates for FHA-insured mortgages to be established within a limit of 211⁄2 percent above the estimated average yield on outstanding government bonds with maturities of 15 years or more.

This is a maximum limitation which would have been adequate for all FHA operations in the past. A chart has been distributed to the members of the Committee showing the relation of this limitation to the actual maxima in effect under section 203 over a period of 10 years. The same chart also indicates that a similar maximum based on a 2-percent spread above the yield on long-term Government bonds would not have been adequate for much of the period from 1945 to 1950 to have allowed the actual limits to have been in effect.

Transfers and consolidations of insurance programs:

In order to simplify and improve the effectiveness of FHA operations, several consolidations of insurance programs are proposed by H. R. 7839. In none of these cases is it intended to alter the character of the insurance programs consolidated. In the specific case of section 8, which is proposed to be absorbed by section 203, it is expected that the program will be improved by virtue of increased availability of mortgage money as a consequence of the consolidation.

Section 8 is to be absorbed substantially intact into section 203. It is our intent and conviction that the program will be even more effective if it is an integral part of our title II operations.

The CHAIRMAN. I don't think the schedule of rates to which you referred has been inserted in the record. Without objection it will be inserted in the record.

(The information is as follows:)