This program fails to assure a high enough volume of construction to meet minimum housing requirements, and it does not provide housing at costs most families can afford. To make matters worse, the existing arrangements for financing housing construction under it add to rather than mitigate the excessively high costs home buyers must bear. H. R. 10157-A STEP IN THE RIGHT DIRECTION There are a number of important features of H. R. 10157 which represent a distinct advance over the legislation now in effect. These include its provisions with respect to the following programs: 1. Financing home improvement. 2. Cooperative housing. 3. Secondary mortgage market. H. R. 10157 is certainly far superior to the administration bill (H. R. 9537) in every respect and especially with regard to the programs I have specifically mentioned. Let me briefly then state our views on the provisions of H. R. 10157 with respect to these four programs. 1. Financing home improvement H. R. 10157 would increase the maximum loan amount for an FHA title I home improvement loan from $2,500 to $3,500 and the maximum amortization period from 3 to 5 years. In addition, it would reduce the maximum discount from $5 to $4 for that portion of any loan which is above $1,000. We can see no objection to the proposed increase in the maximum loan amount and extension of the maximum amortization period. It should be recognized, however, that while extension of the amortization period will reduce the monthly cost to the borrower, unless the interest rate, which in the FHA title I program is the discount rate, is reduced, the total cost to the borrower would be increased. While the proposed reduction in the maximum discount to $4 for that portion of any loan which is above $1,000 is a step in the right direction, it does not go far enough. Since most loans under FHA title I are below $1,000, the cost to most borrowers through such loans would remain unchanged under H. R. 10157. A $5 discount represents an effective interest rate for the life of the loan of about 9 percent, or if allowance is made for payment of the FHA insurance premium by the lender, of at least 8 percent. This is certainly an excessive rate, especially in view of the small risk which the lender bears, such risk being only 10 percent of the total amount outstanding at the time of default. While it has been claimed that lenders would refuse to make FHA title I loans if the present excessive discount rate were reduced to a reasonable level, it seems unlikely that lenders would resort to uninsured loans as long as the security they enjoy under the FHA title I program is available to them. On the basis of all of these considerations, we believe there is ample justification for reducing the maximum discount amount to $4 for all FHA title I loans. 2. Cooperative housing H. R. 10157 contains a number of provisions which would help to make the FHA 213 cooperative housing program more effective. Since the committee has already heard from other witnesses on this subject, I will not take up your time with detailed comments on these provisions. Let me merely state that we feel that the adoption of the provisions in H. R. 10157 covering cooperative housing would strengthen the important cooperative housing program. 3. Secondary mortgage market H. R. 10157 would liberalize the operations of the Federal National Mortgage Association in a number of important respects. We favor all of the provisions in this bill affecting FNMA, but wish to emphasize the desirability of two particular provisions which would strengthen the special assistance functions of FNMA. These provisions would require FNMA to pay par for special assistance mortgages and would increase the advance commitment funds available for special assistance operations from $200 million to $400 million. The increase in the special assistance funds combined with the requirement that FNMA pay par for such mortgages would help to provide financing which is now lacking for minority housing, cooperative housing and housing in so-called urban renewal areas. By authorizing FNMA special assistance functions for these areas, Congress has made it clear that financing for these special types of housing should have a high priority. Yet, FNMA, with the apparent knowledge and in some instances support of the Housing and Home Finance Agency and the present administration, has evidently made no serious effort to carry out the congressional mandate with regard to these programs. May I refer to the FNMA as "Fannie May." I think in Washington that is the accepted term. At least that is a little easier. Mr. RAINS. That is what everybody calls it. Mr. SHISHKIN. For example, despite the clear directive to Fannie May by the Congress, after nearly 2 years there has been no recommendation by the HHFA Administrator, and therefore no finding by the President, that Fannie May should make financing available for minority housing. The result is that none of the Fannie May special assistance authorization has been utilized to finance minority housing. Despite the clear intent of Congress that every possible financial roadblock to the cooperative housing program should be removed, Fannie May, after many months of delay, proposed to purchase mortgages for cooperative housing under terms which would have required excessively high financial charges. Cooperative housing groups which were eager to get much-needed cooperative housing underway have been unable to proceed because their members could not bear the excessive charges proposed by Fannie May. The provisions of H. R. 10157 affecting the special assistance functions of Fannie May would so clarify congressional intent that it is simply inconceivable that the present failure to perform the special assistance functions of Fannie May would continue. We therefore strongly urge enactment of these provisions. H. R. 10157 would also establish a new secondary market support program for GI loans. Under section 202 of this bill, the Secretary of the Treasury could invest up to 10 percent of the reserves of the national service life insurance funds by purchasing VA-guaranteed loans in geographic areas where discounts on GI loans are heaviest. It is estimated that some $550 million might be available for this purpose. This authorization would make more funds available for housing for veterans and their families on relatively favorable terms. While the beneficial effects of the enactment of this authorization would probably be modest, the potentialities of this proposal ought certainly be explored. Any avenue which would make more housing available to families at a lower financial cost deserves earnest exploration. 4. Housing for the elderly An important feature of the resolution on housing unanimously adopted by the AFL-CIO convention last December--that was our constitutional convention, founding the AFL-CIO-was a section calling for an effective program of housing for the aging. We are gratified that a number of bills have been introduced to make available more housing meeting the special requirements of the aging. H. R. 10157 would facilitate the provision of housing for the elderly through two new programs. Title V of this bill would authorize construction of 10,000 units of low-rent public housing specifically designed for elderly persons during each of the next 3 years. In view of the urgent need of low-income elderly couples and single individuals for decent housing, it is certainly desirable that a sizable number of low-rent public housing units over and above the regular public housing program be allocated for the need of this group. While the authorization for public housing for the aging in H. R. 10157 represents a forward step, we feel that it is far too small. We recommend that at least 20,000 low-rent housing units and possibly more be made available for the needs of low-income elderly couples and single individuals. For the elderly who are not eligible for public housing, title III of H. R. 10157 would authorize the Housing Administrator to make loans to nonprofit corporations. These loans would have a maximum interest rate of 32 percent for an amortization period up to 50 years. While the loans authorized would be available to only a particular group, the elderly, the basic principle is, in many respects, similar to the provisions in H. R. 9517 and II. R. 10296 for low-cost loans for middle-income housing which I will discuss in some detail in a moment. The AFL-CIO favors enactment of legislation which would provide low-cost financing for housing which would be made available for the entire middle-income group. However, we recognize that title III of H. R. 10157 would represent a distinct contribution to the Nation's housing program and we therefore urge the committee to act favorably on this title of the bill. HOUSING FOR LOW-INCOME FAMILIES As we have already indicated, H. R. 10157 contains a number of worthwhile provisions which we hope this committee will recommend to the Congress for enactment. Unfortunately, however, H. R. 10157 falls short in two most important areas-housing for low-income and middle-income families. Title V of H. R. 10157 would authorize construction of 50,000 low-rent public-housing units annually for the next 3 years. While this is somewhat more than the 2-year 35,000 units a year authorization in H. R. 9537, the administration bill, it falls far short of meeting even the minimum requirements for housing for low-income families. A recent report published by the Subcommittee on Low-Income Families of the Joint Committee on the Economic Report reveals the disturbing fact that, after allowance for changes in the purchasing power of the dollar, just about as many families had incomes under $2,000 in 1954 as in 1948. These are the families who can afford at most $30 to $35 a month to pay for their housing. Many of these families live in the slum areas which must be cleared if the blight which is eroding our urban communities is to be eradicated. Those slums cannot be torn down or even rehabilitated and urban redevelopment cannot go forward unless the families which are displaced have available to them decent housing within their means. But whether or not they now occupy slum dwellings slated for clearance, low-income families no less than any other families have the right to obtain decent housing in good neighborhoods. Only low-rent public housing provides a time-tested formula for meeting the housing needs of low-income families. Private builders have not built and will not build decent housing at costs low-income families can afford. All one has to do is examine the shoddy record of the so-called FHA 221 low-cost private-housing program to realize how unlikely it is that even a fraction of the houses needed by low-income families might be provided by private home builders. In 1954, when Congress was considering the Administration's request for authorization for the FHA 221 program. Administrator Cole expressed the hope that this program would "relieve the pressure upon the need for the public-housing program." Since the FHA itself estimated that monthly payments under the program would be $62.90, or about twice as much as low-income families can afford to pay, it seems doubtful that even if houses had been built under the FIA 221 program, they would have been available at costs low-income families could afford. But the fact is that not a single house has been built under this program. Now the Administration is recommending that the maximum sales price under this program be increased in an obvious effort to attract speculative builders to take advantage of its provisions. But all this would mean is that housing charges under this program which are already too high for low-income families would be raised even more. Anyway, it is extremely doubtful that any appreciable number of houses would be built even if the changes requested by the Administration were made. Thus there can be no doubt that the FHA 221 program has not and will not relieve the need for the public-housing program. In view of the insignificant trickle of public housing permitted in recent years, the AFL-CIO strongly believes that the program contemplated in the Housing Act of 1949 should be authorized and completed as rapidly as possible. The 200,000 units for each of the next 3 years authorized by H. R. 9517 and H. R. 10296 constitutes a rockbottom minimum. We urge prompt and full authorization of this program. This we regard as extremely important. HOUSING FOR MIDDLE-INCOME FAMILIES The extent to which middle-income families are priced out of today's housing market has already been indicated. Most moderateincome families are simply unable to purchase or rent houses or apartments at costs they can afford. The high prices which many middleincome families have had to pay for housing has forced many of them, particularly families of veterans and others in the younger age group, to stint on food, medical care, clothing, and other necessary items in the family budget. America needs a housing program that can, without subsidy, assure an opportunity for middle-income families to obtain good homes within their means. Unfortunately, neither H. R. 10157 nor H. R. 9537 contain any provision for middle-income housing. Of the bills which have been introduced, only H. R. 9517 and H. R. 10296 would make a real start toward meeting the urgent need of middle-income families for housing within their ability to pay. Title II of H. R. 9517 and H. R. 10296, following the principle first developed in the Sparkman-Spence bill of 1950, would establish a National Mortgage Corporation with authority to make loans for cooperative, sales, and nonprofit rental housing for moderate-income families. Such housing would have to meet adequate standards of construction, space, and availability of community facilities and service. It would be an entirely unsubsidized operation. The Corporation would make loans at a rate based on the cost to the Corporation of capital investment and borrowings from the private market, plus onehalf percent to cover the Corporation's overhead, administrative expenses, and reserves. Assuming the Corporation were to invest its funds in long-term Federal securities (30-40 year issues), the rate could be expected to be 312 percent or less. Mortgage loans made by the Corporation could be amortized over a period up to 40 years. At the low interest rate made possible under this program, long-term amortization would be desirable since it would not unfairly burden the consumer with high total costs and would permit a considerable reduction in monthly housing charges as compared with terms involving a higher interest rate and a shorter amortization period. For example, the monthly charge on a $10,000 mortgage financed at the current 5 percent effective FHA interest rate for a 25-year amortization period is $58.50, while the same mortgage financed at 312 percent for a 40-year period would involve a monthly charge of $38.70, a difference of nearly $20. The total monthly housing costs (including taxes, insurance, and maintenance costs) would be $91 and $71, respectively. It would require an annual income of $5,460 to carry the 5 percent, 25-year financing, but only $4,260 for meeting the costs involved in the 312 percent, 40-year financing. It can be seen, therefore, that by reducing the financial charges, it would be possible |