Mr. PATMAN. Oh, no; that is not in the bill. That is the witness' suggestion. The bill does not require that, as I understand it.

That is my suggestion, Mr. Rains, that instead of taking his alternative, as to income, we just raise the interest rate and let them pay for it. I agree that we should not subsidize the middle-income group. They should pay their own way.

Mr. MCKINNON. Under title III as it is written now, it is 3 percent as against 5 percent.

Mr. RAINS. On page 45 of your statement, Mr. Foley, I was impressed with your alternative suggestion there as to how to handle it, in the light of what Mr. Patman has brought out, in which you suggest a borrowing corporation which would establish both a minimum and maximum rent schedule for the dwellings in a project. I would like you to explain a little more in detail as to how you think that would solve the question which apparently title III is aimed at. Mr. FOLEY. Let me go back, first. Apparently I had misunderstood in part Congressman Patman's questions.

First, when I said that the only remaining difference would be in the terms of years, I understood that you were trying to compare the financing of the mortgage between the two titles. Of course, there are other very definite and fundamental differences, one of them being the difference between private lending and direct lending.

Addressing myself to your question, Congressman Kains, what I sought to point out in my analysis of the bill as it stands is, among other things, first, that it would not under its terms and under the best estimates that we can make of probable savings, get you down into the lower half of the middle-income group, but rather in the upper ranges of that group, which, of course is its major objective, because in the upper half of the middle-income group, as I pointed out, we are beginning to get results privately and can hope for more rapid results in the future.

But I sought to point out that if the objective was to get still further down, then the only way you could do that additionally would be to have a lower interest rate still to start with. But my other point was this: That the bill aims to provide a means whereby through direct and very liberal financing, direct loans and very liberal financing terms, you would take care of persons in the middle-income group or desirably in the lower half of the middle-income group, because of their need.

Now, as I pointed out, the natural and usual development in a family situation, particularly in connection with the younger families, many of whom would be appealing to this act, is that their income. increases and in the course of a few years they quite possibly would no longer be in the income class which you were trying to serve in the first place with these very special aids. But under the terms proposed in this bill you would continue to give them those very special aids for the entire 40, 50, or 60 years of the mortgage. So the suggestion and it was only a suggestion-as an alternative that would better serve that purpose, if the Congress proposes to adopt this general matter, would be to have a flexibility and an adjustment annually with reference to their income, starting with a lower interest rate, and setting up a graduated scale as you went, so that you would approach a 4-percent interest rate, which would be normally, in this kind of a project, what you might expect from private financing.

That would serve a number of purposes, in our opinion.

We have offered it, of course, only as a matter for study in connection with proposals in the bill.

Mr. RAINS. Not as a positive recommendation?

Mr. FOLEY. No; as stated earlier in my testimony yesterday

Mr. RAINS. Do you favor, at this time, for the middle-income group, direct loans by the Government for housing?

Mr. FOLEY. Insofar as direct loans have been found to be in accord with the prog: m of the President, as I am authorized by the usual procedures to come up here and state, the direct loans contained in title I are all that at this time I can say to you have been found to be in accord with the program of the President.

Mr. MULTER. In other words, title III is not in accord with the program of the President.

Mr. FOLEY. It is more accurate to say that has not been found to be in accord with it. I have not been authorized to make any other statement with reference to the relationship of title III of the bill to the program of the President, other than-as I indicated in my prepared statement-that I had been advised by the Director of the Bureau of the Budget to advise that there was no objection to the presentation of our report on title III for your consideration.

Mr. GAMBLE. You stated that in the first part of your written statement.

Mr. FOLEY. Yes, sir; that is correct.

Mr. MULTER. Up to the present time, the policy set down is not for direct loans, except where the private lending market would not make them available?

Mr. FOLEY. If you will examine those provisions that we have recommended to the committee, you will find that direct lending is proposed on the same terms that we would ordinarily expect private lending to be done, and is to be made available in cases of need where private lending is not available. And made, of course, through the usual channels and subject to later sale into the private market.

Mr. MULTER. So far as I can see from my reading of it up to the present moment, there is nothing in here that says that these direct loans are to be made only in the event private capital is not available.

Mr. FOLEY. No; it does not so specify, and probably if it did, it would be a redundancy because in any present situation in the private financing field they could not meet those terms.

Mr. MUTLER. Well, do you know of any attempts by cooperatives or groups who wanted to put up cooperative housing who could not get financing for this type of construction?

Mr. COLE. They would all be glad to try it with a 100-percent financing and 60 years.

Mr. MULTER. There is no doubt they would all come in and try it if this were enacted into law. I would like to know what the statistics show as to attempts of cooperatives to try to get loans in the private market at the present time. What is the story? Have they been able to get loans?

Mr. FOLEY. I could not give you statistics, but I think I can give you a narrative of experience at this time.

We have been very much interested in the housing agency, both in the Office of the Administrator, and in the Federal Housing Administration, in the possibilities of the cooperative movements in housing which we think are very considerable.

We do know that there has been relatively little experience. A few cases have developed, some successfully and others not so successfully in the past.

One of the difficulties has been in getting private financing, and I have made a considerable investigation of that and have talked with a great many lenders who ordinarily would be interested in loans of the size and nature involved.

In general, the chief difficulty that I have encountered in those discussions has been the lack of experience with this type of an organization, some apprehension as to whether they may develop unfamiliar types of difficulty in the relation between the mortgagee and the mortgagor.

On the other hand, we have succeeded in getting some private financing in some number of cases of a similar type, particularly in the disposition of some of the war housing. I have felt strongly, and a number of lenders with whom I have talked, I think joined somewhat in this feeling, that it would be possible to develop the kind of cooperative set-ups, charters, bylaws, and so on, that will prove to be acceptable to private lenders. We believe that in section 213 as herein proposed, we have a means of broadening the activity of the Federal Housing Administration in connection with insured mortgages in this field, particularly in the provision which allows us to actively give assistance and technical advice in their formation.

Out of that we will be able to assist the development of the cooperative movement on a basis that would be attractive to private lending. But in the meantime, knowing that there is this reluctance on the part of private lenders, we propose in there the backing up of direct lending through the Federal National Mortgage Association, on the same terms that we would expect from private lenders and where private lenders cannot be found.

Mr. GAMBLE. Well, Commissioner Stinchman, of the New York State Housing Authority, has gone ahead on cooperative housing projects under the New York State law and been able to get private financing in New York City on a project in Queens County, I think. You will remember a bill passed in the 1948 special session in which we endeavored to add an amendment to aid that situation. I know of another cooperative project in Queens County, N. Y., not financed with Government money.

Mr. FOLEY. And some of those projects I understand have been proceeding successfully and the lenders are well pleased, which just adds to my point previously made, that what is needed is a growth of experience by lending institutions with this type of security, which experience rapidly becomes known throughout the financing field.

Mr. GAMBLE. The second project I spoke of as privately financed, there was some VA money in that too, I believe. It was a veterans' cooperative.

Mr. FOLEY. I would not know about that, Mr. Gamble.

Mr. O'HARA. Mr. Foley, I would like to get a realistic picture in my mind. You stated that in 1947, I believe, one-third of our people had incomes ranging from $2,500 to $4,000, and on page 42 of your statement you state that the plan we are now discussing would promise help only to the upper half in that bracket. Is there anything in this bill, Mr. Foley, in any part of it, that holds out any measure of hope for those in the lower half of that income bracket?

Mr. FOLEY. I would like first to qualify your repetition of my statement, Congressman. I did not make it quite exactly as you stated it. I would not say that it holds out only for the upper half. This is a variety of conditions throughout the country on costs and so forth.

Mr. O'HARA. I thought you should clarify that to prevent misunderstanding, as to any hopes that might not be realized.

Mr. FOLEY. As to the latter half of your question, as to whether there is anything in this bill that holds out any hopes for the gap space in between, I think we have to be entirely frank and realistic about it. That is the area in housing in which there will be the longer delay in the operations of those things that we have now or that we propose.

However, even that statement does not apply to all of that group. I think, for instance, in certain parts of the market-both as to type of housing required, and as to geography-the proposals made here for the new section 8 in the insured-mortgage system is a very significant proposal.

You will recall, Congressman, that proposes a new insuring operation with respect to what used to be FHA title I, class 3, housing, and covered loans up to $3,000 for small housing.

This is proposed to meet a range in the market, particularly in suburban and small town areas, where standards that are acceptable locally would not meet the same standards that we have to require for insured mortgages in regular urban areas. We can get built a lot of lower priced houses. There is a great deal of interest in the building industry, particularly in the retail lumber industry, and, as you know, in many of the smaller towns and suburban areas of the country, the retail lumber organization is an important factor in the production of housing.

That, while again not offered as a full answer and solution to that problem, is one of the things that we believe will begin to make an impact upon a part of that market. But in my mind, when you raise that question, I go back not to this, but to Public Law 171, which is the housing bill that was just recently passed by the Congress, and point to (1) the declaration of policy therein, and (2) the research provision. I have long been stating, and I am sure that this committee and the other committees of Congress have been equally aware of this fact. I do not believe that we are going to solve the housing problem of this country, in the main, until we have made it, by some means or other, possible to provide through the usual channels-possibly the improved and amended channels of private industry in a regular way-for the production of housing at much lower cost to the consumer than we have yet been able to do.

Now, that is going to be brought about, I am convinced, if we are to have any continuing faith in the resourcefulness of the institutions of this country, by a continued process of finding ways to reduce the cost of producing housing, both in the actual production of materials, the purveying of them, the transporting of them, the many services that are rendered in connection with producing a house, the development of the the designing of the house, the efficiency of labor, contingent items that, justified or unjustified, all of which, I think, together, e through which we will be able

the remov

have go furnish to brin

rice of how

and th sing de

rially.

Now, when we do that, and a part of that research program inevitably must concern itself with the means whereby we are going to stabilize the production of housing on a level high enough to avoid the fluctuations of the past which in themselves have added very much to the cost of housing, when we have done that, over a period of years, we will have established an inventory in housing which will bring into the market a great deal of existing used housing at a price more properly comparable with its depreciated value.

It is a mistake to proceed on the theory that we must provide all of our housing anew, because housing itself has a long economic life. If we can get proper balance into our inventory, then I think we will have to have, and will bring about quite naturally, a change in the attitude which has been developed by constant shortage of housing. That among all the articles that we produce and use, the only one which would never sell for less than the article started for is a house. I think the research provisions of Public Law 171 hold an extremely important position in the answer to the question you have put to me. Mr. O'HARA. Would it be a fair statement then to say, Mr. Foley, that it is your expectation that by furnishing new housing to those in the upper half of the $2,500 to $4,000 bracket it will operate to make available to those within the means of the lower bracket housing?

Mr. FOLEY. Not to the point of saying that that is the only thing that we should rely on. Not to the point of saying that the trickledown theory is the answer. What I was addressing myself to there was the sufficiency of the total inventory, and the means of bringing the total inventory into proper relationship to the income of the people.

Mr. O'HARA. Then, of course, the ultimate answer of the problem will come from the work of your research department.

Mr. FOLEY. I think that is highly important, sir.

Mr. O'HARA. Thank you.

Mr. GAMBLE. Mr. Foley, you spoke of the attitude of mind that many people have these days, that they have to live in a new house. They do not want to live in an old house. Have you ever lived in a new house? I am not saying it facetiously at all.

Mr. FOLEY. Congressman, I am afraid I am going to have to disappoint you. I have.

Mr. GAMBLE. Well, the reason I asked you-someone spoke to me. last year and said that he had gone back through the years in the history of his family, and that his father had owned three houses, and that this father had never lived in a new house, and following in his father's footsteps he bought, at intervals, three houses, but each of those houses was an old house and he had never lived in a new house. I think that is the history probably of the majority of the people in this country, that they have not lived in a new house. We are getting more new ones these days than we have had over the ages.

Mr. FOLEY. Yes. Of course, we have to continue to get a large volume of new ones for a good many years before we will get into a balance in inventory that will create a situation in which you are not relying upon the trickle-down theory to take care of the people.

Mr. GAMBLE. That is because we got so far behind during the war in large measure; is it not?

Mr. FOLEY. I think so, sir, that plus other fundamental things. The CHAIRMAN. Mr. Foley, do you think 20 percent is a fair estimate as to the part of family income that can be used for rent?

94397-49- -11