meet the needs of our colleges. This will be explained in the statement of the Community Facilities Commissioner.

The last section of H. R. 9537 would specifically authorize the Housing and Home Finance Administrator to undertake such surveys and studies of statistical data as he determines to be necessary in the exercise of his responsibilities, including his responsibilities to appraise and to carry our national housing policies and programs. In discharging this proposed function the Administrator would be authorized to utilize the facilities of other departments and agencies. This section would clarify congressional intent with respect to these functions.

There is a growing recognition of the very real need for more adequate and timely information relating to many aspects of housing. It is essential to the most effective administration of the Housing Agency. It is of major importance to the Congress and the executive branch in making decisions not only on housing legislation but on other matters affecting the general economy.

The most urgent need in this regard is information which will indicate prospective trends in market demands in housing. The characteristics of the existing housing market must be better known-the volume of sales, the terms of financing, the trends in prices, and the physical types and sizes of recently completed units.

It is also necessary to have much more accurate information regarding the availability of housing credit under various conditions in the housing market and regarding the effect of housing credit on volume of construction.

As H. R. 9537 contains provisions relating to some of the more technical aspects of our program, I have furnished your committee with copies of a section-by-section analysis of the bill which explains the reasons for each provision.

I have also furnished to your committee copies of a detailed analysis by our Agency of each of the three reports issued by your Subcommittee on Housing. Because the reports and our analysis deal with board policy questions which relate to many of the detailed legislative amendments under consideration in today's hearings, I believe it would be helpful if our analysis were to be printed in the record of the record.

With your permission, Mr. Norman Mason will now present his statement on provisions in the pending legislation relating to the Federal Housing Administration.

At this time, Mr. Chairman, I ask to have included in the record the items I have just referred to.

The CHAIRMAN. Without objection, they will be included in the record.

(The information referred to is as follows:)

HOUSING AND HOME FINANCE AGENCY

ANALYSIS OF REPORTS Nos. 1, 2, AND 3 OF THE SUBCOMMITTEE ON HOUSING of the HOUSE COMMITTEE ON BANKING AND CURRENCY, 84TH CONGRESS, 2D SESSION

No. 1. Slum Clearance and Urban Renewal.

No. 2. Mortgage Credit and FHA Multifamily Housing.

No. 3. Military Housing.

ANALYSIS OF REPORT NO. 1, 84TH CONGRESS, OF HOUSING SUBCOMMITTEE OF HOUSE COMMITTEE ON BANKING AND CURRENCY

A. SLUM CLEARANCE AND URBAN RENEWAL

(1) The workable program requirement (pp. 5–6 of Rains subcommittee report) The report mentions, but does not concur in, a complaint by one city that the workable program requirement is a "pro forma" exercise involving needless reporting and delay since the city has long been meeting the substance of the requirement anyway. While the subcommittee apparently recognizes that voluntary previous action by some cities is not a good reason for eliminating a general requirement which applies to all cities, the report “strongly urges the administrative officials concerned to review the workable program requirement, particularly from the standpoint of the smaller communities, to determine what steps can be taken to minimize the workload burden as well as the degree of Federal interference and paternalism.”

From the inception of the requirement, Housing Agency policy has stated that there is no justification for Federal assistance except to cities which will themselves face up to the whole process of urban decay and will undertake sensible long-range programs. Otherwise the Federal aid is likely to be wasted. At the same time, our policy, from its very inception, recognized that—

(1) We should take full account of varying local situations;

(2) We should recognize the varying capacities of smaller and larger cities;

(3) We should expect less from the cities just beginning to fight urban blight than from those that have already come a long way; and

(4) It is local effort to develop a workable program that we are requiring and not a federally dictated program.

It seems clear that our policy is neither parternalistic nor unduly burdensome. If there has been any instance of departure from our policy, it would be helpful for the specific complaint to be called to our attention. Indeed, perhaps the strictest Federal requirement which we have is the one dealing with the relocation of displaced families. Even with respect to this element, it is not applied as a strict requirement at the workable program stage, but only at the title I project stage when relocation does become a matter of strict compliance with an express provision contained in that title.

As of April 13, 1956, a total of 95 communities have approved workable programs. About half of these communities have populations of less than 50,000. More than 40 percent have populations of less than 25,000. Twenty percent have populations of less than 10,000 and 5 communities have populations of less than 5,000. Three have populations of less than 2,500 and 2 of these have populations of less than 2,000.

(2) Family relocation (pp. 6-8 of report)

The subcommittee states that "a bolder and more imaginative approach to the family-relocation problem is essential"; that "an expanded public housing program can provide the answer to housing the estimated 40 to 50 percent of dispossessed families in the very low income groups"; that "the housing problem of the remaining (dispossessed) families is somewhat more complicated"; and that housing displaced minority families is a particularly difficult problem. The subcommittee also states that in some cases uprooted families have relocated themselves with no systematic followup by local officials to insure a successful solution to their housing problem, and that some families have been forced to move to dwellings inferior to those vacated. The subcommittee "urges that the Federal authorities charged with overseeing relocation responsibilities exercise increased vigilance to make sure that the municipalities are in fact doing an effective and humane job in this area."

The Housing Agency agrees that the relocation problem is without question one of the most difficult problems in the urban renewal program. Unless adequate relocation housing is provided, this problem will become more acute as the urban renewal program gains momentum. However, on the whole, local communities have performed an admirable job in the relocation of displaced families. Although the relocation job is basically one which the local community must perform itself, the Urban Renewal Administration will not approve an urban renewal project unless adequate relocation housing is being provided under the community's plan. An additional 2-year low-rent housing program is

being recommended by the administration in order to help fill part of the relocation need and liberalizations are being recommended in FHA's section 221 legislation in order to help fill another part of the need. Still another part of the need can be filled by turnover in existing public housing. Local expenditures designed to help families find decent new or existing relocation housing and local expenditures to give followup assistance to families which relocate themselves are both approvable as part of title I gross project costs. The Housing Agency recognizes that the relocation job, particularly in the case of minority groups, requires the very best efforts of Federal and local officials.

(3) Small business relocation A (pp. 8–9 of report)

The subcommittee states that small businesses displaced by urban renewal projects receive no financial aid in connection with moving expenses and often have difficulty in obtaining credit needed to resume business in another location. The subcommittee plans "to explore possible remedies" for this problem.

The Housing Agency welcomes such a study. We have opposed legislation which would, as a condition to Federal urban renewal aid, require the local community to make certain that each small business is satisfactorily relocated. To determine that a displaced family has moved into a decent home involves the application of fairly definite standards. However, it is too complicated a matter for a city to decide that the many complex factors which enter into the satisfactory relocation of a business have each successfully been dealt with. Different types and sizes of business concerns each have different requirements as to location. Our objection to one legislative proposal, however, does not mean that we oppose seeking some feasible means of helping displaced small businesses to relocate.

(4) FHA-Delays in section 220 (pp. 9-11 of report)

The subcommittee report states that slowness in the 220 program resulted from a "negative attitude" by Government officials; "burdensome red tape"; and an "overly cautious and timid" attitude. The report states that "it is our hope that this report, by highlighting the administrative problems and by suggesting and recommending more workable policies, can help restore a more positive and courageous philosophy."

The report also makes reference to such matters as "the time consuming activities which are a prerequisite" to putting a slum clearance project and an FHA section 220 project together. The only practical way to evaluate the subcommittee's conclusions is by examining each of the specific problems to which the report refers and by evaluating the recommendations made by the subcommittee for dealing with each specific problem. The report lists and discusses the following specific problems: (a) equity investment, (b) profit allowance, (c) land cost, (d) over and above money, (e) loan maturity, (f) amortization plan, (g) cost certification, and (h) rehabilitation aspect of section 220. Each of these items is discussed below.

(5) The problem of equity investment in rental housing and of "over and above" money (pp. 12–13 and 15–16 of report)

The subcommittee states that "there is no disagreement on the evils of windfalls of the 608 variety. But it is another thing entirely when one considers realistically the problem of attracting private sponsors into the building of multifamily rental housing, whether in urban renewal areas or not." The subcommittee thereby raises a question as to whether the FHA is requiring too much equity investment in rental housing under section 220.

The fact is that the FHA mortgage may equal 90 percent of the cost, and that the cost contains an allowance for builder's profit which may vary from 5 to 10 percent of construction costs (exclusive of land). Since the builder's profit is not actually an out-of-pocket cost, the cash equity put up by the builder where the allowance for the profit is between 6 and 7 percent could come out to only about 5 percent. Secondly, in order to permit the redeveloper to recover his capital investment in a reasonable period of time, the FHA permits the sponsor corporation to borrow funds on a nonnegotiable note up to 70 percent of the difference between mortgage proceeds and total project costs, including working capital. This makes possible a substantial reduction in the nonborrowed cash investment. Since the nonborrowed cash investment may (as a result of these two combined factors) prove to be very small, the policy is extremely liberal and is made possible only by the protection afforded through cost certification. The subcommittee does not make any suggestion (specific or general) for further liberalization of the FHA policy on equity investment.

(6) The problem of a proper profit allowance (pp. 13–15 of report)

The subcommittee correctly states: "It is obvious *** that the amount allowed for builder's profit can be crucial. If the profit allowance is set at a very low figure, the actual cash investment by the builder is greatly increased." The subcommittee does not conclude that the Housing Agency's position on this matter is unduly conservative. Instead, the report states that "there is considerable evidence that" the FHA has taken an overly conservative position. The report concedes that "it is difficult for the subcommittee to recommend a specific profit-margin figure which would be attractive enough to stimulate sponsor incentive and yet not be unduly liberal," but adds: "The weight of the testimony heard by the subcommittee indicates that the FHA's policy toward profit allowance is overly conservative." The subcommittee also states (without expressly concurring in the conclusion) that "it seems to be generally considered in the building trade that a 10-percent profit allowance would be proper." The result of these and similar statements is simply to raise a question concerning the Housing Agency's policy. Thus, "the subcommittee recognizes that the Congress cannot properly legislate a fixed-profit factor. It recognizes also that the proper profit allowance is necessarily a controversial subject as between the sponsor who understandably is interested in the highest allowance possible and the FHA with its administrative responsibilities." Accordingly, the subcommittee "strongly urges the FHA to reexamine its policy in this field to make certain that its policies are realistic and reasonable."

The facts are as follows: The FHA will generally allow the sponsor who acts as his own general contractor a builder's profit of not less than 5 percent nor more than 10 percent, depending on the custom in the locality governing arms-length construction contracts with respect to projects of similar size and involving similar construction. As the subcommittee notes, the upper 10-percent limit was suggested by the Senate Banking and Currency Committee in connection with the 1954 legislation. As the subcommittee also notes, the choice of an actual percentage tends to become a matter for controversy between a sponsor who is interested in obtaining the highest allowance possible and the FHA with its administrative responsibiilties. No one has ever suggested a better test than the one applied by the FHA, which merely follows the custom of builders and general contractors in the community. It is obvious that a general contractor bidding on a very large project will accept a smaller profit allowance than one bidding on a small project where the contractor's overhead is greater in relationship to the size of the job.

The subcommittee makes one specific recommendation. It states that the percentage allowance for builder's profit should be applied to a base consisting not only of the total construction cost but the total project cost, including even land. The subcommittee correctly points out that "this method would raise the allowance for builder's profit and correspondingly reduce the cash equity investment required of the bulider." Thus, if a 10-percent builder's profit were applied to construction cost plus architect's fee, plus cost of land, plus project overhead, the profit allowance would be much larger.

The only reason why the Congress permitted any allowance at all for a builder's profit was so as not to discriminate against a sponsor who acts as his own general contractor. When a sponsor retains a separate company to act as general contractor, that separate company will actually collect a percentage of its costs as its profit. When the sponsor acts as his own general contractor, the Congress intended that he receive a similar allowance. The construction costs which the general contractor, were there one, would have been responsible for are the only ones which can properly form the base for the general contractor's profit allowance when he prepares his bid. It is, therefore, completely illogical, in the light of this legislative history, to apply the builder's profit to such items as architect's fees, land, project overhead, and real property taxes during construction, all of which are paid for by the sponsor and not the general contractor. The subcommittee is correct in stating that an item such as landscaping costs should (when the sponsor does the landscaping himself) be included in the base to which the builder's profit allowance is applied. This the FHA does do. Similarly, overhead items (such as on-the-job supervision) that building contractors pay for do enter into FHA cost allowances and the 5- to 10-percent profit allowance is applied to these items of cost.

(7) Land cost (p. 15 of report)

The report, under this heading, does not discuss the merits of any Housing Agency policy. Reference is merely made to an isolated case where it appeared

to subcommittee staff that contradictory information was supplied to the subcommittee by FHA staff members. FHA states that the contradiction was only apparent and not real. The partciular case is not important. However, the subcommittee report concludes that the FHA has too many specialists and not enough officials who understand the section 220 program as a whole. Naturally, as a new and complex program is first developed, rank and file employees cannot hope to have the same familiarity with the program as the few top officials who are still in the process of making or reexamining policy decisions. However informational materials and training programs are both being utilized to familiarize employees with new policies and programs.

(8) Maximum mortgage maturity (pp. 16-17 of report); FHA liberalized rules on this and other matters should apply to all applicants (p. 25 of report) The subcommittee stated that the maximum maturity permitted by the FHA for section 220 mortgages is slightly under 40 years. The subcommittee then recited arguments which had been presented to it that a 50-year maturity was not unrealistic for tall, fireproof buildings built according to FHA minimum standards. The subcommittee did not concur in these arguments but rather stated "that this is not an easy problem from the point of view of the FHA". The subcommittee stated that "too long a maturity might restrict principal repayments in the earlier years to too low a level with a consequent possible threat to the solvency of the project." In conclusion, the subcommittee stated that it "hesitates therefore to recommend unequivocally that FHA permit a maturity in excess of 39 years and 5 months, but it strongly urges the FHA to restudy the problem carefully."

The subcommittee's statement of the problem is concurred in by the Housing Agency. Its statement of fact, however, while generally correct, is mistaken in one respect. On April 18, 1955, the FHA publicly announced that "in special cases consideration will be given to a longer term provided such an arrangement is absolutely necessary to permit the financing of a worthy project."

On page 25 of the subcommittee report, the subcommittee states that it has learned of several liberalizing changes by FHA to facilitate individual cases. The nature of the changes is not stated. The subcommittee admonishes the FHA by stating that "such a practice if continued could develop favoritism. The subcommittee hopes that this word of warning will cause the administering officials to desist from this practice and to disseminate policy changes to all by regulatory amendment, or, where appropriate, by a general field letter to all mortgagees and others interested in the program." This position would give the Housing Agency no freedom to work out liberalizations on the basis of experience in processing early pilot projects. The Housing Agency feels that FHA policy is justified because all the pilot negotiations are difficult; are pioneering; and are being carried out openly. The decisions are each being closely studied by top Agency officials, congressional committees, and nationwide associations of local redevelopment officials and of industry groups concerned. We do agree that policies once established should be published, and the April 18, 1955, public announcement was one of the steps in this direction.

(9) Amortization plan (p. 17 of report)

The subcommittee discussed the relative merits of a more liberal level-annuity amortization plan as against the regular FHA declining-annuity plan. The subcommittee's presentation parallels its discussion of "maximum loan maturity." (Smaller initial mortgage repayments are easier, but the risk of later default is greater.) Here again the subcommittee's discussion appears to us to be valid, but it has overlooked the public announcement by FHA on April 18, 1955. The announcement stated that while level-annuity payments are generally looked upon by FHA as being undesirable for multifamily housing financing, in special cases consideration will be given to level-annuity payments provided such arrangement is absolutely necessary to permit the financing of a worthy project. (10) Cost certification (pp. 17-19 of report)

The subcommittee makes two recommendations with respect to cost certification. One recommendation is "that the Banking and Currency Committee consider the possibility of amending the language of section 227 to include a provision which would limit FHA's post audit of certified costs to a restricted period and which would bestow immunity to the review of such costs after the review period has expired." A similar proposal was perfected by this Agency and submitted to the Bureau of the Budget early in January. It has been approved by