Mr. SMITH. So that you wish to inform the committee that you are not familiar with the operations of Lustron Corp. and whether or not Lustron might be entitled to a loan under this particular section we are discussing?

Mr. FOLEY. I am afraid I did not get all of your question. Do you mind repeating it, sir?

Mr. SMITH. Lustron is a prefabricated housing concern

Mr. PATMAN. Will you pardon me, Mr. Smith. Will you tell us something about it-where it is located, and so forth?

Mr. SMITH. It is located in Columbus, Ohio. It is headed by a man by the name of Strandlund. It went into operation, I believe, in 1946. It developed through 1947 and 1948 and is of course still in existence, if you can call it that.

Mr. PATMAN. What kind of materials do they use in making their houses?

Mr. SMITH. Steel. It is all steel.

Now, Mr. Foley, what other prefabricated housing manufacturers might be interested in this provision besides Lustron?

Mr. FOLEY. Well, any other prefabricator might be interested, and some of them no doubt are. While I am not familiar with all of the operations of the Reconstruction Finance Corporation, it is my understanding that other prefabricators have had financial assistance under the previous authorization.

Mr. SMITH. Do you know anything about the contract or agreement that is made between the RFC and the prefabricated bousing manufacturer?

Mr. FOLEY. Do I know anything about any such agreement?

Mr. SMITH. Do you know the nature of the contract made between the RFC and prefabricated housing manufacturers?

Mr. FOLEY. Only in general, sir. As to details, you would have to ask the RFC.

Mr. SMITH. You do not know the detail of it?

Mr. FOLEY. No.

The CHAIRMAN. I suggest we go into that when we get the best evidence. We will bring in the RFC.

Mr. SMITH. There is a little peculiarity about this Lustron Corp., Mr. Chairman.

The CHAIRMAN. It is not within the jurisdiction of the Housing and Home Finance Agency.

Mr. SMITH. Well, now, we have already brought out here the fact that the witness himself does not care to say that he did not recommend, or that he does not have any sympathy expressed toward Lustron for the Lustron-RFC transaction, and we want to follow that through and see where it ultimately leads us, Mr. Chairman. I think it has great importance.

That is all for the present.

Mr. RAINS. Mr. Chairman, I would like to ask a question of Mr. Foley.

The CHAIRMAN. Mr. Rains.

Mr. RAINS. Mr. Foley, I was not here at the beginning, and I do not know whether you have discussed the proposition of Lanham Act housing or not.

Mr. FOLEY. Congressman, that is title II of this bill, and, with the consent of the Chairman, we were proceeding with the reading of our statement title by title.

Mr. RAINS. All right. Before we get to that, then, I would like to inquire of Mr. Richards a little about what, as I understand it, seems to be a corporate set-up for FHA. Is that correct?

Mr. RICHARDS. We come under the Corporation Control Act because of the passage of Public Law No. 901. We are asking for a type of flexibility in our budget that is consistent with that approved for other business-type agencies.

Mr. RAINS. Is it true that some time in August or September of this year you must make your estimates to the Budget as to what the business will be for the next year?

Mr. RICHARDS. That is right.

Mr. RAINS. Just how would this change in the statute affect that situation?

Mr. RICHARDS. It would set up administrative and nonadministrative expenses, and the budget would apply to the administrative expenses of the agency. There would be no budget set up for the nonadministrative expenses, and it is generally agreed that the nonadministrative activities of the agency would encompass our field offices. That is particularly where this fluctuation in the volume of business affects us, by receiving an increased volume of applications due to changing economic conditions or changes in the law subsequent to the time the budget is established. A larger volume of business may come into the field offices and, as a result, it requires additional processors architects, valuators, mortgage credit people, inspectors and others to handle that volume of business; and particularly is it important where new construction is involved and seasonal building situations are present.

Mr. RAINS. Would you be able, under the proposed change, to operate out of the profits of FHA?

Mr. RICHARDS. Yes. All of the expenses are, of course, paid from the income of the agency. We ask for no appropriations. But we ask for latitude in the use of our income in our field offices, those activities being classified as nonadministrative activities.

Mr. RAINS. What other agency of the Government, in addition to the TVA, which I know has such a set-up, has a similar set-up?

Mr. RICHARDS. I think the Reconstruction Finance Corporation; the Federal Deposit Insurance Corporation, and possibly several others have a similar set-up.

Mr. NICHOLSON. Mr. Chairman.

The CHAIRMAN. Mr. Nicholson.

Mr. NICHOLSON. Now much money will this involve?

Mr. RICHARDS. What do you refer to, Congressman?

Mr. NICHOLSON. The whole bill.

Mr. RICHARDS. We would have to take it section by section in order to answer that question. Actually, as a matter of fact, there is no direct obligation in connection with

Mr. NICHOLSON. How much do we authorize under this bill? You do not have to call them obligations; just call it money.

Mr. RICHARDS. Well, actually, you authorize us to insure more mortgages than otherwise would be insurable. In other words, the limits of the insured liability are increased in several sections. Mr. NICHOLSON. How much?

Mr. RICHARDS. Under title I we now have a particular type of limit which is complicated, but at the present time we have outstanding

about $865,000,000 worth of title I insured loans. The new limit would be a maximum of $1,250,000,000.

In connection with title II the maximum authorization at the present time, or the largest amount of outstandings that we could have at any one time, amounts to $5,500,000,000, and this bill would increase the maximum outstanding insured loans to $7,000,000,000. Under title VI, at the present time the maximum liability is $6,150,000,000, and that is raised to $6,650,000,000.

Mr. NICHOLSON. So that is about $4,000,000,000 in addition?

Mr. FOLEY. The Congressman must remember, of course, that that is authority to insure and that the legislation also authorizes the collection of insurance premiums to establish reserves against which to pay any losses that might occur.

Mr. NICHOLSON. Yes, I understand.

Mr. RICHARDS. This means that we would have authority to insure more loans, and, as Mr. Foley indicated, whenever we insure loans we take in examination fees and premiums for assuming such liability. As was indicated previously in answer to a question from the chairman, last year our income exceeded our expense by approximately $48,000,000.

Mr. NICHOLSON. Do you expect to have more of those loans during a period when 5 or 6 million people are out of work?

Mr. RICHARDS. That gives me an opportunity to answer the question with reference to our volume in 1946, which Congressman Buchanan asked. I find that the percentage of our volume to total privately financial starts in 1946 was 10 percent and this year approximately a third, and that is about what it was before the war. Our volume of business has increased very materially this year, and it increased last year. Last year was the largest year we had experienced in our operations-that is, since 1934-and this year, thus far, is exceeding last year by a considerable amount.

Mr. NICHOLSON. Is that not because you give them more money and less chance of losing it--a higher percentage of the loan?

Mr. RICHARDS. No, I think that is the result of a number of things which have occurred, not the least of which is the passage of the Housing Act of 1948, which was passed by the special session of Congress last year.

Mr. BROWN. Mr. Nicholson, will you yield for one question?
Mr. NICHOLSON. I will yield, Mr. Brown.

Mr. BROWN. Has the Director of the Budget approved this bill? Mr. RICHARDS. Yes, title I of this bill, which I am speaking to, has been approved by the Director of the Budget.

Mr. BROWN. What about the other titles?

Mr. FOLEY. I stated in the opening part of my statement, Congressman Brown, the relation of the various parts of the bill to the program of the President, so far as they had had a determination-titles I and II. Legislation similar to the proposals in those titles would be in accord with the program of the President.

Mr. RAINS. Mr. Richards, I note that you testified that there is a great increase, I assume, in the demand for FHA financing over the country. Is that correct?

Mr. RICHARDS. Yes; our volume has increased very much.

Mr. RAINS. And that is the basis for the request for the increased authorization?

Mr. RICHARDS. That is correct.

Mr. RAINS. Well, as you know, I have a little worry in my mind this morning as to a situation down in the State of Alabama which I want you to enlighten me on. Why is it, if there is an increased demand for FHA commitments, that there is a moratorium in effect on FHA commitments in the cities of Birmingham and Montgomery, Ala.?

Mr. RICHARDS. I think you have reference more to the 608 commitments of the rental housing program.

Mr. RAINS. That is right.

Mr. RICHARDS. The State of Alabama has been extremely active in the rental housing program and, as a result, we believe that the saturation point is being reached in the higher rental range. That is not unusual in Montgomery or in Birmingham. As a matter of fact in most areas of the country, since the early part of this year, we have been carefully analyzing the demand-current demand and probable demand-for rental units in these higher rental ranges, and likewise the sales market in the higher sales ranges.

There has been evident, for some time, a softening of demand or market for higher-priced rental units and higher-priced sales units.

In addition to the units that are already on the market, there are a very large volume of units which have been committed and which are either under construction or to be started. We have not put a moratorium on rentals or sales housing in any area, but we have placed rental and sales ceilings in connection with proposed projects. Therefore, you may say that we have a moratorium on units in the higher rental ranges in many areas of the country.

Mr. RAINS. Throughout the State I am getting the complaint-and I do not know whether it is correct or not-that even those veterans who seek FHA commitments or nonveterans, for that matter—on private homes are being denied.

Mr. RICHARDS. I do not think that is correct. This ceiling only applies to operative builders that are building for the sale and rental market. However, I will be glad to look into it.

Mr. RAINS. Does that situation exist in any other section of the country?

Mr. RICHARDS. Oh, yes; definitely. However, I will be glad to look into the Alabama situation for you.

Mr. RAINS. Is it your idea, then, that the increased authorization which you request here will be used for the construction of rental property for the lower-income group?

Mr. RICHARDS. Almost entirely for the lower ranges at least in the areas in which the demand for the higher rentals has been met. Mr. SMITH. Will the gentleman yield?

Mr. RAINS. Yes.

Mr. SMITH. I wonder what the range of rents is in those housing units?

Mr. RICHARDS. Congressman, we have insured mortgages under section 608-the rental-housing program-providing for rents as low as $31.50 a month, and the highest would be something over $100 per month.

Now, the average would possibly run around $80 a month. But we have a considerable volume below that figure and a considerable volume above it.

Mr. SMITH. That covers what size houses?

Mr. RICHARDS. They run from efficiency units, one bedroom, up to three bedrooms. So they would be from an efficiency or one-bedroom unit up to a six-room dwelling.

Mr. SMITH. What is the average profit, gross profit, made on those rentals?

Mr. RICHARDS. We set rents on all rental projects on a basis that will yield a 61⁄2-percent net return on the cost of the project. Mr. SMITH. Gross return?

Mr. RICHARDS. Net return.

Mr. RAINS. Mr. Richards, what do you think of the cooperativehousing-insurance feature of this bill?

Mr. RICHARDS. The cooperative provisions here are changed some from the cooperative provisions that were in the Housing Act of 1948, and they were also taken out of section 207 and put into a new section

213.

I believe that there should be an effective means of producing housing for those interested in cooperating as a group, and I think it is drawn in such a way as to give sufficient latitude so that it will be an effective means of producing considerable housing. As Mr. Foley indicated, it is a new type of approach and there is much to be done in the way of educating the lenders and also working with those who want to go into it. I think we have made considerable progress in the last year, since the Housing Act of 1948. As I see the provisions of this bill, I think we can make further progress. Mr. RAINS. As I understand it, the Housing Administration did not request that. Now do I understand you to say that you do not oppose it?

Mr. RICHARDS. Are you talking about section 213?

Mr. RAINS. Yes.

Mr. FOLEY. We favor that, sir.

Mr. RAINS. You favor 213?

Mr. FOLEY. Yes.

Mr. RICHARDS. That, in effect, is a rewrite of the present law. Mr. RAINS. Let me ask you about the other section. Maybe it is title III.

Mr. FOLEY. As I indicated previously, we have filed a detailed report on that and we will enter into considerable discussion with relation to title III when we come to it.

Mr. RAINS. All right.

That is all, Mr. Chairman.

Mr. KUNKEL. May I ask a question?
The CHAIRMAN. Mr. Kunkel.

Mr. KUNKEL. Mr. Richards, these cooperatives have no taxexemption feature, do they?

Mr. RICHARDS. Not unless they come under a State statute that would offer such an exemption.

Mr. KUNKEL. I mean, if they are tax-exempt, it is a tax exemption granted by the State?

Mr. RICHARDS. That is right.

(The matter referred to is as follows:)