designed to serve as an incentive to the home-building industry to do a better job of reducing costs without sacrifice of quality, size, or livability. When I say "home-building industry," I mean not only operative builders, but also subcontractors, labor, suppliers, land developers, sales organizations, and financing agents and institutions. In this connection, attention is called to the fact that, when the present section 203 (b) (2) (D) was under consideration by the Congress last year, many contended that the $6,000 mortgage ceiling against a property valued at $6,300 was too low. Nevertheless, since this section became available, on August 10, 1948, the FHA has issued over 33,000 commitments with a total dollar amount of about $185,000,000. During June of this year, there were about 6,200 commitments with a total dollar amount of about $35,000,000, and section 203 (b) (2) (D) now constitutes about 17 percent of FHA's business in connection with 1- to 4-family homes under section 203 from September 1, 1948, to June 30, 1949. Even more convincing is the average dollar amount, per dwelling, of all insured mortgages on new owner-occupancy housing. The commitments for such mortgages in October of last year averaged over $7,400. In May of this year the average had dropped to $6,973.

In the second place, these proposals to further increase the maximum mortgage amount fail to recognize that, under title I of the bill, insured mortgage terms would be made gradually, not severely, less liberal as the value of the property increases. For example, what is still very substantial assistance, although less liberal on a graduated scale, is also provided for by this title of the bill for higher-priced properties. Thus, on properties with appraised value up to $11,000, title I of the bill would authorize the maximum percentage loan to be 95 percent of the first $7,000 of appraised value and 70 percent of the balance, and the mortgage could have a 25-year term. This contrasts with the present provisions of section 203 (b) (2) (D) of the act which provides for a maximum percentage loan to be 90 percent of the first $7,000 and 80 percent of the balance up to $11,000.

We have prepared and made available to your committee a chart which shows the maximum mortgage amounts, the percentage ratio of loan to value, and monthly payments for new single-family, owneroccupied houses at appraised values ranging from $6,000 to $20,000 under the provisions of title I of the bill. It is to be noted that, as the value of the property increases above $7,000, the ratio of loan to value decreases gradually (under the formula of section 203 (b) (2) (C)).

The dollar amount limitations under the proposed section 203 (b) (2) (D) are designed to encourage cost reductions. Increasing the mortgage ceilings above these limitations would give support to higher prices in many areas and would thereby weaken the incentives to the building industry now in the bill to concentrate its efforts on reducing costs and producing low-priced housing in all areas.

It is true that the lower ceiling will not currently permit full operation on the most liberal terms in all parts of all areas. We believe, however, that it will do so in most parts of most areas, and in some parts of all areas. To raise the ceiling to permit the most liberal application in all parts of all areas would reduce the cost-cutting incentives in most parts of most areas.

It is strongly recommended, therefore, that the mortgage ceiling provided by the bill not be revised upward.

A further provision of the bill would give the President authority to increase the total mortgage-insurance authorization under title II of the National Housing Act by 11⁄2 billion dollars. As you know, this title provides for the regular, permanent mortgage-insurance program of the FHA for both sales and rental housing, as distinguished from title VI, which, until last year, provided for mortgage insurance on the liberal war-housing terms based on necessary current cost.

Unlike the periodic authorizations under title VI, this title II authorization provides for a permanent revolving fund related to the outstanding obligations of insured mortgages. This authorization was intended to be sufficiently large to permit the insurance of all eligible mortgages offered for insurance under title II, so that lending institutions and the building industry could plan their operations at any time with the assurance that this assistance would remain available.

The authorization remained adequate for this purpose from 1941, when it was last increased, until recently, because title VI insurance was available for sales housing until April 30, 1948. For a number of years prior to that date, most of the mortgage insurance for new sales housing was under title VI. However, because title VI insurance is no longer available for sales housing, because construction costs greatly increased after 1941, and because the volume of home construction has greatly increased, the title II authorization became almost exhausted. An increase of $500,000,000 was recently authorized by the Housing Act of 1949 to cover a temporary period. This increase will permit operations for only a few months, as the authorization is being used up at the average monthly rate of about $145,000,000. To further encourage the construction of lower-cost housing, priced within the purchasing power of lower-income families, section 102 of the bill would provide a new mortgage-insurance authorization for very modest homes, particularly in small communities on the margin of cities, and in other outlying areas. This housing presents special problems because it is not generally practicable to obtain, in outlying areas, conformity with many of the requirements (such as property-location standards) which are essential to mortgage insurance on housing in built-up urban areas.

Title I of the National Housing Act now authorizes the insurance of loans for the construction of new homes where the amount of loan does not exceed $4,500. The loan is not processed or insured, but the lending institution is insured against loss up to 10 percent of the net amount it advances on all eligible title I loans, which include various types of improvement loans for housing and other construction. No FHA processing is required, and there is no inspection or appraisal by the FHA. The volume of these loans for new housing, known as title I, class 3 loans, has been disappointing, primarily because of the very limited private secondary market for such loans and the absence of a Government secondary market for them.

To establish an effective FHA insurance program to encourage the construction of these urgently needed homes, section 102 of the bill would provide, in place of the class 3 loans, a new mortgage-insurance authorization, independent of the present title I insurance system. This authorization would be patterned after existing mortgage-insurance provisions applicable to low-cost sales housing.

Thus, the mortgage itself rather than a percentage of an aggregate portfolio would be insured. The application would be processed by

FHA; there would be FHA inspection during construction and FHA appraisal, and the Government's secondary market would be made applicable to such insured mortgages. However, the mortgage could not exceed $4,750 where the mortgagor is the owner-occupant or $4,250 where the mortgagor is the operative builder. This would permit an appraised value of $5,000 where the mortgage represents the maximum 95 percent of value.

Also, in place of the usual requirement that the Federal Housing Commissioner find the project to be "economically sound," the bill would require him to find the project to be an acceptable risk, giving consideration to the need for providing adequate housing for families of low and moderate income, particularly in suburban and outlying nonfarm and rural areas. This would permit the insurance of mortgages in such areas where standards of location, site, neighborhood, and community facilities are quite different from those in built-up city areas without sacrifice of sound standards for housing appropriate to such areas.

I believe that this section of the bill would result in substantially increasing the volume of moderately priced homes in suburban and outlying nonfarm and rural areas with the aid of FHA insurance. Because of the improvements which the bill would make possible with respect to the type of loan involved, I also believe it will become acceptable to the private secondary market, and that, therefore, the application of the Federal Government's secondary market to such loins (on the same basis as other Government-insured loans) is warranted.

Now, as to veterans' housing cooperatives, I wish to emphasize the importance I attach to the provisions of title I relating to housing cooperatives.

Although experience with housing cooperatives is not widespread in this country, I believe that the application of the cooperative principle to housing should be strongly encouraged and assisted by the Federal Government as an important part of its housing program. Through the assistance of the Federal Government, cooperatives in other fields, particularly farm cooperatives, have been notably successful.

Housing cooperatives offer similar promise as a means of reducing costs of producing housing, through volume purchase of materials, mass construction methods, elimination speculative profits, and savings in maintenance and repair in the case of housing built by cooperatives for the occupancy of their members. Veterans and others who desire to use the housing cooperative to take advantage of these savings should be given every opportunity to do so.

In recognition of the importance of cooperatives in the FHA mortgage-insurance program, section 111 of the bill would establish a new section 213 of the National Housing Act relating exclusively to housing cooperatives. This new section would provide a number of additional aids to cooperatives, and includes provisions for special aid to members of cooperatives who are veterans of World War II. Under present law, an insured mortgage on housing of a cooperative cannot exceed 90 percent of the estimated value of the property, except in the case of an ownership cooperative whose membership consists primarily of veterans of World War II. In that case, the mortgage may be 95 percent of the replacement cost based on cost

prevailing on December 31, 1947. Under the amendment made by section 111 of the bill, where all of the members of the cooperative are veterans of World War II, it could obtain the benefits of insurance on a 40-year mortgage up to a maximum amount of 100 percent of the current replacement cost of the property.

This percentage would be gradually lower for cooperatives having a smaller proportion of members who are veterans of World War II. If none of the members are veterans, the mortgage could not exceed 90 percent of replacement cost.

I understand that these provisions of the bill are specifically designed to meet the desire of the American Legion that special aids to enable veterans who did not have an equal opportunity to accumulate savings during the war-to obtain housing, without cash-down payments, should be available to the veteran as an individual. This, of course, would be entirely consistent with previous actions of the Congress with reference to aids for individual home purchases by veterans of World War II. This objective has the full support and endorsement of the Housing and Home Finance Agency.

It is our belief that these provisions would operate without any practical difficulty in the case of cooperatives constructing singlefamily homes for sale to the members of the corporation. However, in order to be certain that there will be adequate provision for special aids to veterans' cooperatives constructing rental-type housing for occupancy by their members, we believe it would also be desirable to include, in the new section 213, provisions whereby special aid could be made available in the case of such a cooperative if at least 75 percent of its members are veterans of World War II.

We will include in our letter to the committee the language for such an amendment for the consideration of your committee.

Because cooperatives are comparatively new in the housing field and have unique problems in their organization and financing, I believe it very important that during the present early stage of their development the Federal Government should actively assist and guide them by furnishing technical and other advice and assistance. The bill would specifically authorize the FHA to furnish technical advice and assistance to housing cooperatives in their organization and in the planning, construction, and operation of their projects; and, in rendering this service, a trained staff of specialists would, of course, be necessary.

The bill would also provide for the appointment of an FHA Assistant Commissioner to assist in administering the provisions of the new section 213. I believe it is desirable and helpful for the Congress to provide for the appointment of such an Assistant Commissioner and support such a provision, although, because of the administrative problems which would be created by the salary provision in the proposed subsection (f), I am convinced that the basic rate of compensation for the position of Assistant Commissioner established by the bill should be the same as the basic rate of compensation for other FHA Assistant Commissioners.

I believe this kind of technical assistance and the establishment of an adequate staff for this purpose are important to the sound development of cooperatives and should contribute substantial impetus to the development of housing cooperatives in this country on an increasing scale. In this connection, I wish to call the attention of the

committee to the record of farm cooperatives in recent years. Undoubtedly, the able and energetic activities of the Department of Agriculture in assisting and advising farm cooperatives, as specifically authorized in that Department's basic legislation, has been largely responsible for the record of their growth and public service.

Under the new section 213, a cooperative building homes for transfer to its members would, in addition, be given the advantage of an insured mortgage equal to the total amount of the mortgages which the members could have insured under the National Housing Act if each member were building his home separately. This would permit the insured mortgage to cover 95 percent of the value of the property in the case of low-cost homes in comparison to the present 90 percent.

The new section 213 would also permit the insured mortgage of such a cooperative to be replaced with individual insured mortgages on the dwellings in the project after their construction. This would make it unnecessary in such cases for the veterans or other members of the cooperatives to have the individual mortgage on their homes processed under section 203 of the act, in addition to the processing of the cooperative's mortgage.

I believe provisions of the proposed new section 213 which would afford special aids to veterans and to veterans' cooperatives are fully justified in terms of the need and the resulting benefits.

Even with these FHA insurance aids, however, there would undoubtedly be cases where the sponsors of desirable cooperative ownership housing projects would be unable, in many cases, to obtain the necessary loans from private sources. Because of the relatively limited experience in connection with financing housing cooperatives, many lenders are reluctant to make such loans. They are naturally inclined to prefer investments in other types of home financing where experience has been extensive and where mortgage insurance is also available.

This has been one of the principal obstacles, I believe, to the development of housing cooperatives. It is therefore essential that, during the early stage of their development, the Federal Government have the necessary funds for desirable projects where private financing is not available. These loans, which should be made in contemplation of their eventual sale to private purchasers, should be eligible for mortgage insurance under the National Housing Act.

For this purpose, title I of the bill would authorize the Federal National Mortgage Association to make direct real-estate loans which are accepted for insurance or insured under the new section 213 relating to housing cooperatives. The authority to make these loans would be similar to the general authority which the Federal National Mortgage Association had prior to July 1, 1948, to make realestate loans on rental housing projects with mortgage insurance. Although that authority was used in only a few instances to finance rental projects, it served the useful purpose of demonstrating to lenders the practicality and profitability of insured mortgage lending in the rental field. There is every reason to believe that it will serve the same useful purpose in the cooperative housing field.

I wish to emphasize that the direct lending authority provided in this title of the bill is not intended to take the place of private investment in cooperative housing. On the contrary, it is intended