statement. I suppose that Mr. Slusser will comment on that when his turn comes, is that correct? Mr. MASON. Yes, sir, we will ask him to, Senator. We would have had those comments in our statement, excepting that your bill, if I am not mistaken, was relatively recent, is that true? Senator CLARK. About the same day as the Sparkman bill. But I yeild to seniority and to greater experience. I am sure you were wise in commenting on Senator Sparkman's bill at greater length than on mine, in view of the practical situation which confronts us. Mr. Mason, I am nearly through, but I wish you would tell me how you think you can go ahead with urban renewal with the present provision that you must supply safe and sanitary relocation housing, if you don't have any more public housing units? Mr. MASON. The relocation program under section 221 is growing and expanding, and is taking care of a part of this need. Senator CLARK. A very small part, is that not correct? Senator CLARK. Can you tell us how many units have to date been authorized under section 221? Mr. MASON. I don't have the figure here, but I think my staff can get it. Senator CLARK. But not very many and practically none for north of Ohio and east of Mississippi. Mr. MASON. We will have the figure for you in just a minute. On top of this, we have a large number of units, public housing units, that are now under construction and under contract which will be there when we do our relocation. What we are talking about in new obligations for public housing would be, as we point out earlier, for the future, and not for our immediate needs. Senator CLARK. I am suggesting to you for such rebuttal as you care to make, or Mr. Slusser would like to make later on, that the administration program will result in an ending of urban renewal because there will not be available relocation housing for those displaced, not only by urban renewal, but by the highway program, and by other governmental action, at prices families which have to be relocated can afford to pay. That in the end, the whole program will break down because you don't have a relocation program which is effective. I would be very happy if you would ask Mr. Slusser to direct some attention to that point when his time comes to defend. Mr. MASON. I will be very happy to do so. Senator CLARK. I have no further questions at this point. Senator SPARKMAN. Senator Proxmire. Senator PROXMIRE. No questions. Senator FULBRIGHT. Senator Byrd. Senator BYRD. I have no questions. Senator SPARKMAN. Senator Williams. By the way, this is the first time you have met with our committee; in the absence of the chairman of the full committee, I want to welcome you to the committee. Senator WILLIAMS. Thank you very much, Senator Sparkman. Mr. Beverley Mason, I believe, is next; is that right? Senator SPARKMAN. Mr. Mason, suppose you come around and give your statement. I think we can run until about 12:15. Is 12:15 satisfactory? Some have told me they have 12:30 engagements. We will try to run not later than 12:15. Senator DOUGLAS. Mr. Chairman, in a desire to be helpful to the administration, I would like to give them another personal copy of the President's budget. Mr. MASON. Senator Douglas, may I return your copy? Senator BENNETT. May I ask my colleague from Illinois who gave him the copy of the budget? Senator DOUGLAS. I had one marked up. I had thought they were available for all Members of the Senate. I may have misunderstood the policy of distribution followed by the administration. Senator SPARKMAN. Senator Robertson. Senator ROBERTSON. The junior Senator from Virginia, would like to indicate, so far as he is concerned, that the fact that the witness is a George Mason Virginian is no handicap. Mr. W. BEVERLEY MASON, JR. Thank you, Senator. Senator SPARKMAN. Mr. Mason, we are glad to have you with us, and you proceed with your statement. Let me get this straight, as I understand, you are appearing in behalf of the FHA, is that correct? STATEMENT OF W. BEVERLEY MASON, JR., ACTING DEPUTY COMMISSIONER, FEDERAL HOUSING ADMINISTRATION Mr. W. BEVERLEY MASON, JR. Mr. Chairman, I am W. Beverley Mason, Jr., Acting Deputy Commissioner, Federal Housing Administration. Mr. Chairman and members of the committee, it is a privilege to appear before you today to testify concerning the provisions of pending legislation which pertain to Federal Housing Administration programs. The Administration has proposed a number of important modifications of existing FHA insurance programs. I shall comment on them with reference to section numbers in S. 612. At appropriate points, I shall also comment on various provisions of S. 57 and S. 195 pertaining to FHA programs. Title I extension: Section 101 of S. 612 provides an indefinite extension of the FHA title I program for insurance of property improvement loans by removing from the statute the present terminal date of September 30, 1959. Statutory and administrative modifications of this program since 1954, particularly the provision for 10 percent coinsurance participation of the lender in each loss and the improved standards for lender and dealer operations, assure that this program will operate on a financially sound basis with proper responsibility. As you know, this program of insurance for home improvement loans is helpful to the maintenance and improvement of housing quality in the Nation's inventory of existing housing and to the progress of urban renewal efforts throughout our urban areas. In order that builders, dealers, and lenders as well as individual homeowners may feel confident of the continuing availability of this program of insurance for property improvement loans, the practice of periodic extensions for this program should be discontinued and the program should be given the same kind of indefinite extension which the National Housing Act provides for home and project mortgage insurance programs under title II. This would make possible long-range property improvement programs. Removal of insurance volume limitations: The Administrator has already discussed the importance and desirability of removing the statutory limitations on FHA insurance volume as provided by sec tion 102. Technical amendments: Section 103 makes a number of technical amendments to various FHA home mortgage insurance programs. These are described in detail in the section-by-section analysis which has been made available to the committee members. Section 203 maximum mortgage amount: Section 104 increases the maximum insurable mortgage amount for one- and two- family properties under section 203 from $20,000 to $25,000. This maximum is only 56 percent above that established in 1934 for such properties despite the fact that construction costs have about trebled in the meanwhile. The new maximum provides for maximum ratio loans on properties valued up to $30,000 compared with maximum loans on values up to $20,000 under the 1934 statute. About one-fifth of the new homes in metropolitan areas are priced too high for the present maximum ratio FHA-insured loans. This recommended action would make FHA insurance of loans available to a slightly larger section of the home-buying public. The bulk of FHA operations will naturally continue in the field of low- and medium-priced homes. S. 57 also provides increases in section 203 mortgage amounts, but with a less satisfactory increase for one-family homes (only up to $22,500) and with an unnecessary increase for three-family structures to $30,000. We believe the proposals of S. 612 are both more simple and more desirable. The second amendment of section 203 would make the trade-in house program more effective by providing that a nonoccupant-owner in the case of section 203 existing single-family homes may receive the same maximum mortgage amount as an owner-occupant, with the requirement that the nonoccupant-owner must place in escrow 15 percent of the mortgage amount until such time as he sells the property to an owner-occupant. If prior to the 18th monthly amortization payment, the property has not been sold to an owner-occupant, the 15 percent held in escrow would be applied to a reduction in the mortgage amount. In the residential housing market today a substantial part of new home purchasers already own a home and wish to acquire larger or improved accommodations to meet growing family needs. Most of them need to use the equity in the existing home as part of the downpayment on a new home. Thus, builders and realtors are increasingly finding it necessary to accept trade-in houses on new house sales. The proposed amendment will aid the existing home owner by placing a mortgage on the old house suitable for an occupant mortgagor when a purchaser for the house has been found. It provides the builder up to 18 months to resell the trade-in house and transfer the mortgage to the new purchaser and thus eliminate some of one set of closing costs. In the case of lower price properties, this saving can be equal to the FHA required downpayment. As soon as the builder resells the trade-in house to an owner-occupant, the 15 percent held in escrow in released to him. Debenture payment for home-property transfer costs: Section 105 authorizes FHA to reimburse mortgagees for expenses which they incur in transferring home properties to FHA (deed preparation, notary fees, title evidence, etc.) to the same extent that their foreclosure expenses are reimbursed. Thus coinsurance is retained for these expenses in the same proportion as for foreclosure costs. This authority will materially assist in expediting the issuance of debentures. The dollar amount of such costs in typical home mortgage cases is small. Section 207 amendments: Section 106 makes several modifications of section 207. References to elderly housing are removed, consistent with a proposal in section 115 for a new and expanded program in this field. The maximum permissible interest rate is increased from 42 to 512 percent in order that the Commissioner may set the upper limit on interest rates at levels which allow these rental projects mortgages to be financed without operation of discounts. S. 57 makes no provision for this necessary flexibility of interest rates. Since these projects are developed and financed by well-informed businessmen, financing costs will be negotiated at minimum levels. By including the entire cost of the money in interest charges, FHA project analysis is simplified by avoiding consideration of discounts, sponsors of rental projects are relieved of uncertainty about the recoverability of these financing costs, and the possibility of interest saving through subsequent renegotiation is retained. Under conditions like those of recent years, the necessity for discount payments in lieu of interest adjustments can well be sufficient to discourage desirable rental developments. At the beginning of January, FHA field offices reported typical discounts on section 207 mortgages ranging from 3 to 8 points, with 5 to 7 points as the most common discounts. On these 412 percent mortgages, a 6-point discount is equivalent to one-half of 1 percent in interest earnings. The final amendment in section 106 authorizes collection of a service charge by FHA equal to the mortgage insurance premium for those project mortgages under all programs which are assigned to FHA in exchange for debentures. Presently, project sponsors might voluntarily default in the hope that the mortgage will be assigned to FHA and thus relieve the project of the cost of mortgage insurance. S. 57 proposes upward adjustments in maximum mortgage amounts under section 207, with similar changes for management-type projects under section 213 and rental projects under section 220. I do not believe these mortgage increases are desirable and urge that they not be made. The present limitations, including the permitted high cost area adjustment, are adequate under present cost conditions. Increases in the statutory limits always act as an attraction to sponsors to seek the higher limits, irrespective of market demands or cost considerations. Prevailing wage requirement: Section 107 extends the FHA rental program prevailing wage requirement to rental projects for profit built for elderly persons or for families displaced by governmental action, as provided in subsequent sections of this bill. Cooperative housing amendments: Section 108 provides two amendments for the cooperative housing program of section 213. The first adjusts the statutory limitations on interest rates under section 213 so that the management-type project mortgages would be the same as the proposed section 207 rate and individual home mortgages would have the section 203 statutory limits. The second amendment authorizes inclusion of commercial and community facilities in investor-sponsored projects in the same manner as in management-type projects, since upon completion the objective is to convert the investor-sponsored project to a managementtype project. S. 57 liberalizes mortgage limits for cooperative housing. As in the case of section 207, we do not consider these liberalizations necessary to the successful functioning of the program. Mortgage ceilings in Alaska, Guam, and Hawaii: Section 109 clarifies section 214 of the National Housing Act to remove uncertainty about FHA authority to extend to the new State of Alaska, and to Hawaii and Guam, maximum mortgage limits up to 50 percent above the high cost area limits for other areas. Repeal of section 218: Section 110 removes an authority to convert section 608 commitments to section 207 without additional fee payments. Since there are no more section 608 commitments, this authority no longer has any meaning. Urban renewal amendments: In section 111 of the administration bill, the first two amendments of section 220 provide mortgage amount increases for one- and two-family properties and trade-in homes comparable to those established in section 104 for the section 203 program. In addition, residential properties with 3 to 11 units are released from statutory mortgage amount ceilings and left to FHA control under the loan-value or loan-cost ratio limitations. This latter change is a recognition of the variety of structures and construction qualities which may be encountered in urban renewal areas and plans. With respect to rental projects developed under section 220, several improvements in the operation of the program are accomplished by eliminating statutory reference to a 10 percent builder's profit for these projects and making a compensating change in the basis for computing maximum insurable mortgage amounts. By limiting these mortgage amounts for new projects to 100 percent of replacement cost exclusive of builder's and sponsor's profit and general overhead, mortgage amounts are controlled for builder-sponsored projects without the troublesome factor of establishing or limiting the builder's charges for overhead and profit. Three desirable changes are accomplished: First, comparable mortgage amounts (rather than amounts differing by 4 to 6 percent) will be computed in a specific proposal whether the sponsor be an investor or a builder. This change should significantly broaden interest in competing for urban renewal opportunities. Second, cost certification terminology and procedures can be beneficially simplified with respect to profit and overhead entries, without loss of administrative controls. And third, desirable flexibility in profit allowances on rehabilitation projects will be restored to the program with the removal of the rigid statutory ceiling. 85482-59 -8 |