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

that in several of the measures which are now before you, housing for the elderly is written with mortgage insurance based on "value" rather than "replacement cost." The recent history of the cooperative housing program when saddled with the "value" concept should make the committee aware that the use of the same concept in housing for the elderly would make it impossible for such a program to get any housing built.

We feel very strongly on that issue. Our experience has indicated that that program calculated for a speculative investment program just will not work for this type of program.

In the present urban renewal program, public housing is required to pay the entire cost of land acquisition, including slum demolition. Speculative housing, on the other hand, gets land for housing at a cost written down by Federal and local subsidies. We believe these two programs should be put on a comparable basis. This would be achieved by providing that public housing may take into account a waiver of taxes by a local community as the required capital contribution by the city or local community toward the cost of land.

We commend section 108 of the Rains bill for the provision authorizing the Commissioner of FHA to approve a mortgagor's certification. Such certification shall be final and incontestable except for fraud or material misrepresentation on the part of the mortgagor. This provision will make it possible for a builder or an organization to know that his undertaking is completed upon certification by the Commissioner unless he has willfully defrauded the Government.

We wish to compliment Congressman O'Hara for his measure, H. R. 9351, which would authorize the Small Business Administration to make low-cost loans to small business organizations forced to relocate due to slum clearance or urban renewal undertakings.

Last year the Congress authorized the use of cooperative section 213 of FHA in the acquisition of properties purchased by the residents from the Government, thereby making it possible for the Government to get out of the housing business through the sale of projects to tenants. We would like to see this provision extended to allow residents in a project to purchase that project from private ownership if such an undertaking meets the approval of the FHA Commissioner. This would make it possible for people to achieve home ownership of housing built in earlier periods at lower cost.

The Federal National Mortgage Association, under the law, has a ceiling of $15,000 per dwelling unit on any projects whose mortgages it purchases. The Administration has recommended lifting his ceiling under certain conditions. We feel such a change should apply also to cooperative housing units of more than three bedrooms, where larger families are involved.

This would encourage adequate housing for larger families and would substitute the regular FHA ceiling on such mortgages for the arbitrary $15,000 ceiling now required by FNMA.

We believe this committee has before it legislation which, if adopted at this session, could begin the process of providing proper shelter for millions of our people. We commend you for the work you are undertaking, in this highly important field.

Mr. BROWN. Mr. Campbell, what do you think of the proposal in the Rains bill to make 50-year loans at 32 percent interest available to nonprofit organizations?

Mr. CAMPBELL. We feel that is a very commendable thing. Obviously, there is a very great need for housing for the elderly. This need will not be met if you have to build houses and sell them to people who have only a few years left. The formula used in the Rains bill, since it has worked so well in college housing, might very well be adapted to housing for the elderly.

Mr. BROWN. It is my understanding that Fannie May has very recently increased its price in sections 202 and 203 from 98 to 99 percent. Do you think this goes far enough?

Mr. CAMPBELL. It is a step in the right direction, but it does not meet the recommendation made by your subcommittee, that the mortgages be purchased at par. We feel that it was the intent of Congress that they should be purchased at par. We see no reason at all for any discount. One of the prime functions of a cooperative housing project is to eliminate speculation in the financing of homes. When you have to buy at a discount or a premium, depending on the market, this tends to put speculative financing into cooperative housing, and since the FNMA loans pay their own way, both through fees and insurance, we see no reasons why there should be any penalty at all.

Mr. BROWN. What do you think of the part of the Rains bill which has a new proposal as regards commitments, with respect to section 213 cooperatives. What do you think about this device?

Mr. CAMPBELL. Well, the primary reason for that device is to make it possible to get started earlier on construction than you can under the present formula.

I was involved in a project which we tried to get started along in 1951 and 1952. It took us about 18 months to get organized. We had 24 families involved and when the mortgage market got particularly tight in June 1953, it wasn't possible to ge construction funds any place for love or money. Our project had to fail, with $200 loss to each of the 24 families involved. I could stand it because I had sold a house and was holding the income I got from the house. That is, literally, in terms of transferring my ownership from one house to the other, but some of the families couldn't afford to lose $200.

The loss was due primarily to the long process of organization. This technique proposed now would make it possible for a builder to certify that he would sell to a cooperative on completion of the dwelling, would use the same specifications in building the homes, that is, larger rooms, more bedrooms, in the projects, and so forth. Then sell it at cost as certified to FHA, to the cooperative upon completion. We feel that is a satisfactory thing to do and that there are ample safeguards in the FHA setup to see that there would be no exploitation of that procedure, so we are in hearty accord with the proposal.

Mr. BROWN. I have heard of a proposal to permit a smaller FHA insurance premium for section 213 co-ops, for example, one-fourth of 1 percent, instead of the usual one-half of 1 percent. What justification would there be for that?

Mr. CAMPBELL. Our organization hasn't taken a position on that proposal yet so I am not at liberty to speak about it. I would think