work. This is my point. It is beginning to work. When it is beginning to work, let's not tamper with it. Let it go and get the facilities constructed that we need. We are not putting a burden on anybody. This isn't a gift. This is a loan operation, dedicated to the improvement of American educational facilities. It is a sound business arrangement. The interest rate is low enough to repay the Treasury, in terms of the average rate on its borrowing. While we have got this thing moving, let's not tamper with it. That is our only point, really.

Mr. BETTS. I think there is one situation where a public-supported educational institution might have an advantage over a private institution. That is in planning the college housing. The public-supported college, like a State university, could probably use public funds to initiate the planning, and then turn that over to the Government housing authorities and say "Here is what we want". Whereas, the private college would be at a loss for funds to even do that.

As I understand it, there is some provision in some of this pending legislation which would permit advances for that purpose. Mr. ANDERSON. That is correct.

Mr. BETTS. Do you have any views on that?

Mr. ANDERSON. We think that is a very desirable addition.
Mr. BETTS. You would be in favor of that?

Mr. ANDERSON. Yes.

Mr. BETTS. That would be putting it on equal footing.

Mr. ANDERSON. We think that is an improvement.

Mr. BETTS. That is all. Thank you.

Mr. BROWN. Are there any other questions, gentlemen?

(No response.)

Mr. BROWN. Thank you, Doctor, for testifying. We appreciate your views very much.

Mr. ANDERSON. Thank you very much.

Mr. BROWN. Are there any other questions, Mr. Betts?

Mr. BETTS. I have no further questions.

Mr. BROWN. Call the next witness, Mr. Clerk.

Mr. CARDON. Mr. Chairman, the next witness is Mr. Wallace J. Campbell, director of the Washington office, Cooperative League of the United States of America.

STATEMENT OF WALLACE J. CAMPBELL, DIRECTOR, WASHINGTON
OFFICE, COOPERATIVE LEAGUE OF UNITED STATES OF AMERICA

Mr. BROWN. All right, Mr. Campbell, you may proceed.
Mr. CAMPBELL. Thank you very much.

Mr. Chairman, and members of the committee, my name is Wallace J. Campbell. I am a director of the Washington office of the Cooperative League of the United States of America.

The cooperative league is very pleased to have an opportunity to present its views on the proposed housing act of 1956. We feel this is an area of very great need and one in which we feel this committee can provide able and constructive leadership.

The cooperative league, is a national federation of consumer, supply and service cooperatives, including cooperative housing associations. Its affiliated member organizations include in their member

ship approximately 13 million different families who own cooperative businesses of various kinds through which they obtain farm supplies, insurance, consumer goods, electric power, savings and credit, health services, housing and other needs. These 13 million families represent a very large group of American taxpayers who have a general public interest as well as a specific interest in cooperatives as such. For that reason, we are in support of many of the general provisions of the bills which are before you, because these provisions are in the public interest. As taxpayers we expect to carry our portion of the load of any of the costs of programs of slum clearance, public housing, and other developments in this field which make for better cities and a better nation.

To speak first in very general terms, the cooperative league believes that for part of the American population it will be necessary to subsidize housing for those who cannot afford decent housing under present-day circumstances. The Housing Act of 1949 made a great stride toward achieving that goal by authorizing what we believe to be an adequate program of public housing and slum clearance. Unfortunately, the provisions of that act have not been carried out. They provide the kind of target for which we should aid in this year's legislation.

I am happy to point out the Senate, in approving its bill yesterday, approved that formula in the public housing field.

Measures to implement that act are included in the bill introduced by Senator Lehman and seven of his colleagues in the Senate, and are embodied in House bills H. R. 10296 and H. R. 9517, introduced by Congressmen Davidson, of New York, and Thompson of New Jersey. There are a large number of provisions in these measures which we would urge this committee to give careful consideration.

The bill now before your committee, H. R. 10157, introduced by Congressman Rains, of Alabama, is a very practical and effective piece of legislation to meet the immediate needs ahead of us. We are happy to give this our sincere endorsement.

We feel, as do many other of the organizations which will appear before you, that middle-income housing is still the greatest unmet need and that a great deal of constructive work needs to be done in that field. An adequate, effective program could make it possible for hundreds of thousands of people to acquire their own homes and to achieve the measure of independence that comes with such ownership without any subsidy of any kind on the part of the Government. Our most urgent appeal, therefore, is that this committee find a way to set up a program for housing for middle-income families and elderly persons through a mortgage corporation which could facilitate the work of cooperatives and other nonprofit organizations in bringing homeownership to more people. It would be possible to do this by cutting out the direct loan program for individual families. which is contained in the middle-income sections of the Lehman, Davidson, and Thompson bills, omitting that, and enact the remainder of that section as it is now drafted.

In simple terms, such a program would make it possible for the Government to make a comparatively small investment in a mortgage corporation. Additional investment could be secured from tradeunion pension funds, retirement programs, and other sources of capital which cannot now tie up their funds for long periods of time such

as are required for FHA cooperative 40-year mortgages. Those funds would buy the debentures of a mortgage corporation. Such debentures could be issued in shorter terms, providing a greater flexibility in investment for the unions and other funds. This would tap the largest single unused source of investment capital for housing. It would also make it possible for trade unions, through directed investment, to enable their members to acquire homes of their own through the cooperative housing program.

This program would apply to housing for middle-income families the principles involved in the rural electrification program with which you are also familiar.

It would, however, take one further step in securing the capital involved from outside sources instead of depending upon direct loans from Government capital, which is the case with REA.

May we now turn our attention to several of the important elements of the Rains bills. First, we feel that the program of housing for elderly persons under title III uses the best elements of the college housing program which has proved itself to be so effective in meeting an established need. We commend this program, but request one point of clarification. The bill provides that loans be made to any corporation as defined in section 304 (2). That definition, in our judgment, is intended to include cooperatives as well as other nonprofit corporations. We believe, however, that to assure the right of nonprofit cooperatives to participate in the program, that this should be spelled out in the legislation or in the legislative history so there will be no misunderstanding on the part of those who administer the law.

Before turning to the section 213 program, to which the rest of my testimony is devoted I would like to bring you up to date on that program. The cooperative housing program in FHA was enacted in 1950, and completed its first 6 years on the 20th of April. In that period, there had been insured 311 projects. These projects provided 33,000 dwelling units. Those are both in apartments and in individual free-standing homes.

The mortgage value of those projects was $313 mililon. This is a substantial operation. It provides in 33,000 families the equivalent of a housing for a town of 100,000 people, so that the accomplishment is very substantial. We certainly appreciate the job that has been done in that field.

Some of the defects in the program, and there are always defects in any program, are pointed out in report No. 2 of your Subcommittee on Housing, submitted under the chairmanship of Congressman Rains.

It might be important for you to know that the section 213 cooperative program of FHA, has produced $8 million in income in fees and insurance. The losses to date under that program have been a little less than $2,000. The costs of operation have been very small compared to the $8 million income to the Government. Actually Uncle Sam is ahead substantially on this program to date.

Section 104 of the bill before you makes several important changes in the cooperative housing section. One would increase the dollar limitations on cooperative housing mortgages in high cost areas by an amount not to exceed $1,000 per room. The actual amount of that increase would depend upon the discretion of the FHA Commissioner.

There has been some fear expressed by FHA that such a new ceiling in high-cost areas would permit luxury housing under section 213. Actually, to apply such a provision to a 5-room dwelling in an apartment project in a high-cost area would provide a maximum of $18,500, which compares with a $20,000 maximum under section 203 of FHA. A 5-room apartment is a large apartment in a high-cost area, particularly where fireproof, high-rise, elevator-type apartments are involved. The cooperative league is certainly not urging the development of luxury housing, but we do feel the ceiling on mortgage insurance should be adequate to meet the need and should be comparable with the ceilings applicable to individual homes insured by FHA.

Another part of section 104 would allow a builder who certifies to FHA that his project will be sold to a nonprofit cooperative to begin construction with mortgage insurance not exceeding 85 percent of the replacement cost of the property. On completion the builder would sell the project to a cooperative under the presently operating terms of section 213. The object of this amendment would be to permit construction much earlier than is possible now under the long waiting periods involved in the organization of a cooperative. Under the present act this runs as high as 18 months to 2 years.

The amendment provides safeguards to assure that the dwellings constructed would fit the standards now used in section 213 cooperative housing and would authorize controls to prevent any windfalls or any undue advantage to the builder under this section.

The FHA has proposed instead that a builder be allowed to start construction under section 207 and sell the project under section 213 on completion. This has substantial disadvantages, for it would require the project to be built as a rental project with value rather than replacement cost as the basis for a mortgage ceiling. Rental housing traditionally provides smaller rooms, fewer bedrooms, and other factors which make for good investment as rental housing, but which do not make good livability and desirable homeownership, which is the central feature of the cooperative program.

The Rains bill, in title II, sections 304 and 305, would correct a serious defect in the current program. The Federal National Mortgage Association has ruled arbitrarily that cooperative housing mortgages can be purchased only at a discount of 2 percent of the face of the mortgage.

FNMA immediately imposed a 2-percent discount for such cooperative mortgages. This 2-percent penalty plus the other fees involved have made it impossible for cooperative project to use the $50 million of advance commitment authorization, which was provided to FNMA in that legislation. The Rains bill would direct FNMA to purchase mortgages under the special assistance program at 100 percent of the unpaid principal amount of the mortgage. This would apply to cooperative housing as well as other sections of the special assistance

program.

During the last few weeks, FNMA has changed its rates from 98 percent to 99 percent for special assistance projects. This cuts the penalty to 1 percent. This is a step in the right direction. If, however, FNMA was right in its reasoning when it established the 2 percent penalty-that the action was required in order to keep it in line with other housing costs-this is less justified than it was under that

type of reasoning. We can't help but wonder whether this change of 1 percent was not made to forestall action on the part of the Congress, which would, under the Rains bill, direct the Federal National Mortgage Association to make the purchases at par.

The Rains committee declared in its recent report that it was the intent of the Congress to furnish such mortgages at par. Up to April 26, of this year, not 1 dime of the $50 million authorization had been used. On the 26th, and 27th, of April, however, four projects were taken by the Federal National Mortgage Association. This is such a recent bit of information that it doesn't appear in my written testimony. The projects are in Reno, Nev., Merced, Calif., and New York, and they amount to about $42 million, or less than 10 percent of the authorization which was made to the Federal National Mortgage Association last year.

Section 305 (c) of the Rains bill would also direct FNMA to treat the $5 million State limitation as a revolving fund rather than a static ceiling. The background for this and the other problems involved with FNMA are treated in detail in our testimony before your subcommittee February 17.

We are very happy that the committee has recommended and the legislation includes a directive to treat this as a revolving fund which was quite obviously the intent of the Congress when the law was passed last year.

In order to make the current cooperative housing legislation comparable with other sections of the Housing Act, we urge that the committee change the percentage of veterans required in a cooperative housing project from 65 percent to 50 percent. As you know, the law now requires a 65 percent veterans membership in order for the project to qualify for higher mortgage insurance than is available to a completely nonveteran project. This proposal has the support of FHA and has been approved by the subcommittee in the Senate, as well as by your own subcommittee.

The provision would also authorize including veterans of World War I along with World War II in making the calculation of eligible veterans for a cooperative project.

As your subcommittee on housing revealed in its studies, the urban renewal program is moving very slowly. We believe it would speed the building of homes for people in these areas if the following change could be made in the urban renewal section. We propose that the FHA 213 program be used in such areas with a provision which would permit 100 percent mortgages on cooperative projects. We believe firmly that the participants should have equity in such a project. The FHA 213 program automatically calls for a 2 percent payment toward a working capital fund.

This payment, together with the payment in cash for closing costs, would mean that the co-op members would have a reasonable equity in the project.

The effect is to give the equivalent of a downpayment and the resultant psychological effect of ownership in the initial stages of the project, while opening the market in urban renewal cents which otherwise would be closed to families with lower incomes.

There are one or two other miscellaneous matters which we would like to bring to the attention of the committee. First, we understand