on-site housing without running the grave risk of building ghost cities, and excess home facilities, whenever a military base is deactivated, or the personnel substantially reduced.

Out in a western State, adjoining an airfield, much of the military housing which has been built several years ago lies idle. This followed the transfer of troops to other locations. Subsequently, the defense housing involved in the project attempted to rent transiently. When the FHA called their attention to the fact that such practices were barred, they appealed to their Senator, claiming that a selfish. group, the hotel industry, was pushing them to the wall. Their Senator introduced a bill, proposing to approve transient rental practices on the part of any FHA establishment which was found to have rented transiently prior to May 28, 1954. And we were regarded, by some members of the committee, as being terribly unfair when we pointed out that such action would serve to reward those FHA borrowers who had been violating the statute and the regulations prior to May 28,

1954.

Similarly, your committee has been faced, in the past, with comparable proposals. One of these advocated that any defense housing, on or near military bases, could be rented transiently, if the claim could be made that there was no demand for permanent housing in that area.

May we call the attention of your committee to the fact that the report, accompanying S. 3855, released by the Senate Banking Committee, carries a clear-cut warning against too great an expansion of this military housing, fearful that this oversupply of housing facilities might become widespread.

2. Housing for elderly persons: A very laudable innovation has been advocated by the Senate committee in the form of specially built housing, of an economic character, which can be rented to elderly persons. Here again, the public interest might easily be served, to a substantial extent, by authorizing construction of this type. We will be earnestly cheering such a proposal, hopeful that it may succeed. But we want to point out one aspect of the program which gives us considerable concern. May I describe the situation we have in mind.

It seems to us that the citizen who has considerable means will expect to provide his own housing through his declining years. It seems, therefore, that it is the person of relatively lesser means who would be the primary prospect for this new program. In his case, a modest rental would undoubtedly be essential. The most economical type of housing, for the elderly couple, would probably be an efficiency apartment. This would provide all the space needed for a man and his wife. But a building containing a large percentage of efficiency apartments could easily be converted overnight to transient occupancy. And to guard against such eventuality, we think that section 513 (e) should be amended to include a prohibition against transient rental of such housing as might be built for elderly persons, which, in the bill before you, is section 229. That section already prohibits transient rental in housing built under sections 207, 213, 220, 608, 803, and so forth.

3. Urban renewal projects: This is the third category of housing which we would like to discuss. Section 220 involves the provision of housing accommodations in distressed sections of our American

cities. And, without doubt, such an objective is very much in the public interest. However, we want to tell you of the fear that we have regarding the possibility of miscarriage of justice as this type of program develops in a community. The FHA's responsibility for these projects is largely limited to the acquisition of real estate, the approval of municipal bond issues, and so forth. But before the construction actually begins, the local political subdivision takes over.

In a number of cities, to our knowledge, it is now being advocated that a new hotel be set up as one of the units in this type of project. In one case in particular, the hotels of that community came to the public hearing, and presented sworn financial statements, revealing the fact that they had been actually losing money during the past number of years. This is typical of similar situations involving surburban areas surrounding larger population centers. But in their understandable zeal to improve and brighten their city, local city officials ignored this type of testimony, and stood pat on their recommendations. They wanted a new hotel. As we understand it, there is nothing that the FHA can do to restrain a local community from indulging in this type of development.

We suggest one simple device. In the light of the fact that the Housing Act does not now permit the FHA to finance the construction of new hotels, and inasmuch as the act is primarily concerned with the provision of permanent housing, we feel that the agency might properly stop, look and listen before it had any part to play in inspiring construction of new hotel properties.

Fortunately, there are numerous technical organizations whose services are available today, at a moderate cost, which are equipped to come into a community and run a survey regarding the potential revenues that a new hotel might be expected to enjoy. Some of these firms have functioned for years, and have developed an enviable record for accurately forecasting the communities where a new hotel would be feasible, and in turning thumbs down on those centers where it is found that a new hotel would probably not pay off. We respectfully suggest that it would not be too much to ask that the FHA require that such a survey be made, in order to determine whether a hotel or other nonresidential unit should be included in the program. Inasmuch as local tax funds will be involved, over a longer period of years, it would seem that this would be only good business.

4. Saturation point for housing generally: I do not pose as an expert in the various fields of housing. But as a businessman, I am moved to raise the question as to what safeguards are being employed to prevent the construction of housing beyond the saturation point in many communities. I can well understand the pressures that are upon the Congress, and upon the FHA, to continue the construction of housing at the highest desirable levels, for that is one of the main props under the country's booming economy. But I am afraid that construction beyond a certain safe point cannot fail to usher in a widespread wave of foreclosures. That would be tragic for everyone, not only our hotels, but the taxpayers of the country as well. We fear the results of overbuilding in the field of multiple-unit apartment buildings, garden-type projects, defense housing, urban renewal projects, and so forth. In all of these categories, it is possible for structures to qualify for Federal mortgage insurance, and to end up providing hotel or motel service for overnight guests.

I tell you frankly that we feel badly over the fact that we must appear in the role of complaining witnesses, on some occasions. But let me give you an illustration of how unfair some of the operators of these FHA properties can be. A bill was introduced in Congress a year ago, specifically naming one of these projects in a great southern city, proposing that that project be singled out for special approval of transient rentals. We opposed giving any one project rights and privileges which were denied to other comparable establishments. Thereafter, the owner of that project visited us, and told us that we were extremely unfair in preventing him from providing a service which he claims is badly needed in his city.

We made extensive inquiry, in his behalf, and subsequently gave him the names of 3 or 4 insurance companies, and mortgage companies, which were in position to refinance his property, if he saw fit to do so. We told him that if the FHA mortgages were paid off, we would thereafter have no single objection to his operating the property in any way he saw fit. But if he investigated this possibility at all, he must have discovered that the interest rates involved would be substantially greater, and a more rapid amortization program required. In any event, the project has never been refinanced, and the bill is still pending before the 84th Congress.

We honestly feel that congressional intent is clear, and that, by and large, the FHA regulations are adequate. There is little reason for anyone to mistake the attitude of legislative and executive departments of our Federal Government, which have definitely circumscribed any diversion of these permanent housing facilities into transient occupancy. Let me quickly refresh your member as to what has transpired heretofore, in the form of guideposts and boundaries of rental practices.

I would like to just use a sentence or two to describe each of these exhibits, and then have them placed in the record to supplement my verbal statement.

Mr. Chairman, may I have your permission to file these exhibits? Mr. BROWN. That may be inserted in the record.

(The exhibits follow :)

EXHIBIT I

MODEL FORM OF CERTIFICATE OF INCORPORATION1 FOR USE UNDER SECTION 608

all being of full legal age, do, under and by virtue of the general laws of the State of Maryland, authorizing the formation of corporations, associate ourselves with the intention of forming a corporation.

Second. That the name of the corporation is

Third. The purpose for which the corporation is formed and the business and objects to be carried on and promoted by it are as follows:

1 Based on Maryland form of charter. Should be drawn so as to conform to laws of Jurisdiction in which filed.

(a) To create a private corporation to provide housing for rent or sale, and to acquire any real estate or interest or rights therein or appurtenant thereto and any and all personal property in connection therewith.

(b) To improve and operate, and to sell, convey, assign, mortgage, or lease any real estate and any personal property.

(c) To borrow money and issue evidences of indebtedness in furtherance of any or all of the objects of its business; to secure the same by mortgage, deed of trust, pledge, or other lien.

(d) To apply for and obtain or cause to be obtained from the Federal Housing Commissioner (hereinafter called the Commissioner) a contract or contracts of mortgage insurance pursuant to the provisions of the National Housing Act, as amended, covering bonds, notes, and other evidences of indebtedness issued by this corporation and any indenture of mortgage or deed of trust securing the same. So long as any property of this corporation is encumbered by a mortgage or deed of trust insured by the Commissioner it shall engage in no business other than the construction and operation of a rental housing project or projects.

(e) To enter into, perform, and carry out contracts of any kind necessary to, or in connection with, or incidental to the accomplishment of any one or more of the purposes of the corporation.

Fourth. The post office address of the place at which the principal office of the corporation in this State will be located is The resident agent of the corporation is I whose post office address is Fifth. The corporation shall have three directors, and --

and

shall act as such until the first annual meeting or until their successors are duly chosen and qualified. Sixth. The total amount of the authorized capital stock of the corporation is shares of which 100 shares having a par value of $1 per share shall be designated "preferred stock" and shares shall be designated "common stock,” which shares of capital stock shall have the preferences and restrictions as follows:

3

(a) The holders of the preferred stock shall be entitled to receive, when and as declared by the board of directors, noncumulative dividends at the rate of 5 cents per share per annum, before any sum or sums shall be set apart for or applied to the purchase or redemption of the preferred stock and before any dividends or other distribution shall be declared, set apart, paid, or made in respect of the common stock.

(b) The net earnings of the corporation, after providing therefrom dividends on preferred stock and all reserves hereinafter required, may be applied each year in payment of dividends to stockholders.

(c) The preferred stock at any time outstanding may be redeemed by the corporation at par and dividends declared thereon, but unpaid to the date of such redemption: Provided, however, That such stock shall be so redeemed, upon, but in no event before, the termination of any contract of mortgage insurance covering any indebtedness of the corporation without obligation upon the Commissioner to issue debentures as a result of such termination. Preferred stock so redeemed shall be retired and canceled.

(d) Anything to the contrary herein notwithstanding, no dividends shall be paid upon any of the capital stock of the corporation (except with the consent of the holders of a majority of the shares of each class of stock than outstanding) until all amortization payments due under the mortgage insured by the Commissioner have been paid, and until a reserve fund for replacements is first established and maintained by the allocation to such reserve fund in a separate account with the mortgagee (or in the case of a deed of trust with the beneficiary) or in a safe and responsible depository designated by the mortgagee commencing on the date of the first payment toward amortization of the principal of the mortgage insured by the Commissioner unless a later date is approved in writing by the holders of the preferred stock, of an amount equal to ($_________)

and a like amount monthly thereafter. Such fund whether in the form of a cash

Any convenient odd number of directors may be provided.

3 This stock must be registered in the name of Federal Housing Administration; it must be par stock; the value and number of shares (not less than 5) may vary from that designated herein, but the consideration paid for it will always be $100. The certificate should contain a statement of the rights, privileges, and restrictions pertaining to this stock. Dividends shall be at the rate of 5 percent per annum.

The "common stock" may be par or no par, be divided into one or more classes, provide for such preferences as are deemed appropriate, and may be designated otherwise.

deposit or invested in obligations of, or fully guaranteed as to principal and interest by the United States of America shall at all times be under the control of the mortgagee. Disbursements from such funds, whether for the purpose of effecting replacements of structural elements, furnishings, and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the holders of the preferred stock.

(e) In the event of any default by the corporation, as hereinafter defined, and during the period of such default, the holders of the preferred stock, voting as a class, shall be entitled to remove all existing directors of the corporation, and to elect new directors in their stead: Provided, however, That one of said directors shall be the owner or holder of one or more shares of common stock. When such default or defaults shall have been cured, the right to elect directors shall again vest in the holders of the common stock.

(f) Except as otherwise provided by law or as set forth elsewhere in this certificate of incorporation, all voting rights of the stockholders shall be vested exclusively in the holders of the common stock.

(g) In case of any liquidation, dissolution, or winding up of the affairs of the corporation, whether voluntary or involuntary, and after payment of all debts of the corporation (including payment in full of any mortgage insured by the Commissioner) and after redemption of the preferred stock, the net assets of the corporation shall be distributed among the holders of the common stock, share and share alike.

Seventh. The corporation shall not without prior approval of the holders of a majority of the shares of preferred stock, given either in writing or by vote at a meeting of the preferred stockholders called for that purpose (a) assign, transfer, dispose of, or encumber any real or personal property, including rents, except as specifically permitted by the terms of the mortgage; (b) remodel, reconstruct, demolish, or subtract from the premises constituting the project and subject to such mortgage; (c) permit the occupancy of any of the dwelling accommodations of the corporation except at or below the rents fixed by the schedule of rentals provided hereinafter; (d) require as a condition to the occupancy or leasing of any unit in the project the purchase of any corporation stock either from the corporation or any stockholder or the payments of any consideration other than the reasonable rental provided for in the schedule of rentals to be filed with and approved by the holders of the preferred stock as provided hereinafter; (e) consolidate or merge the corporation into or with any other corporation; go into voluntary liquidation; carry into effect any plan of reorganization of the corporation; redeem, cancel or purchase any of its shares of preferred or common or other stock of any class, or effect any changes whatsoever in its capital stock; alter or amend the certificate of incorporation or fail to establish and maintain reserves as set forth in this certificate of incorporation; (f) require as a condition to the occupancy or leasing of any unit in the project the payment to or deposit with the corporation, or any person or persons, of any amount other than the payment of the first month's rent plus a security deposit in an amount not in excess of 1 month's rent to guarantee the performance of the covenants of the lease; (g) execute or file for record any instrument which imposes a restriction upon the sale, leasing or occupancy of the project or any part thereof on the basis of race, color or creed.

Eighth. (a) The happening of any of the following events shall constitute a default within the meaning of that word as used in this certificate: (1) The failure of the corporation to have dismissed within 30 days after commencement, any receivership, bankruptcy, or other form of liquidation instituted by or against the corporation; (2) the failure of the corporation to pay the principal, interest, or any other payment due on any note, bond, or other obligation executed by it, as called for by the terms of such instrument; (3) the failure of the corporation to establish and maintain the reserve fund for replacements provided for in article sixth, section (d) hereof or the use of such fund except as permitted in said section; (4) the failure of the corporation, continuing for a period of 15 days, to perform any of the covenants, conditions, or provisions required by it to be performed by this certificate, the bylaws of the corporation, the mortgage, or any contract to which the corporation and the Commissioner shall be parties, or fail to carry out in full the terms of any agreement whereby the loan covered by the insured mortgage is to be advanced or the project is to be constructed and operated.

(b) In the event the mortgagor is in default under the terms of this certificate of incorporation or has failed to perform the covenants required by it to be performed under the terms of this certificate or by any mortgage insured by the