a majority disaster without regard to the fact that the community's population is 25,000 or greater.

Section 403 the urban planning grant authorization would be increased from $5 million to $10 million.

Section 404 would extend to private nonprofit educational institutions of higher learning the same privilege with respect to Government construction planning advances, as that now enjoyed by tax-supported educational institutions of higher learning. Both such types of educational institutions receive equal consideration under provisions of the college hosing loans programs, and this change would place them on a parity with respect to planning advances.

TITLE V-PUBLIC HOUSING

Section 501 would provide 50,000 low-rent public housing units annually for a 3-year period beginning August 1, 1956. Provision is made for carrying over to subsequent years any unused portion of the annual quota.

Section 502 would make low-rent public housing available to elderly persons (65 years or over) —

(1) By making elderly single persons eligible.

(2) By authorizing the construction of units specifically designed for elderly persons. The section provides 10,000 units annually for a 3-year period beginning July 1, 1956.

(3) By increasing the permissible per room cost for units for elderly persons to $2,250 (present ceiling, $1,750).

Section 503. The Public Housing Administration would be directed to transfer farm labor camps without monetary consideration to local public housing agencies in the areas of the camps if requested within 12 months after enactment of the bill and the local public housing agencies certifies as to the low-rent need for the project and that preferences will be given, first, to low-income agricultural workers, and second, to other low-income persons and families.

Section 504 would authorize the sale under prescribed conditions of two Government-owned projects, the Chinquapin Village housing projects in Alexandria, Va., and the Techwood Dormitory in Atlanta, Ga.

TITLE VI-FARM HOUSING

Section 601 amends title V of the Housing Act of 1949 to provide the following additional authorizations for loans and contributions to farm housing:

(1) $100 million in the amount of loan funds which can be obtained from the Treasury;

(2) $2 million per annum in the amount of annual contribution commitments for housing on potentially adequate farms; and

(3) $10 million in the amount of appropriations authorized for loans and grants for improvements and repairs of farm housing.

TITLE VIII-COLLEGE HOUSING

Section 701 would increase loan funds for college housing by $250 million, bringing the total authorized for such purpose to $750 million.

TITLE VIII-MILITARY HOUSING

Section 801 would extend and liberalize the title VIII military housing program by

(1) Extending the program until September 1959 (under present law the program would expire September 30, 1956).

(2) Permitting an average cost per dwelling unit of $15,000 (presently $13.500) and up to $16,500 in high-cost areas as determined by the Secretary of Defense. The aggregate total of mortgage insurance authorized would be increased correspondingly.

(3) Permitting the FHA Commissioner to waive or reduce the FHA insurance premium.

(4) Prescribing maximum floor area limitations for various ranks and grades with a special allowance for quarters outside the United States and for the quarters of commanding officers,

(5) Extending eligibility for military housing insurance to the Canal Zone.

STATEMENT OF NORMAN P. MASON, COMMISSIONER, FEDERAL HOUSING ADMINISTRATION

Mr. MASON. Mr. Chairman and members of the committee, my name is Norman Mason. I am Commissioner of the Federal Housing Administration.

I am glad to have the opportunity to discuss with you proposals for housing legislation contained in H. R. 10156 which relate to Federal Housing Administration operations. The Administration's housing proposals are contained in H. R. 9537, also pending before this committee.

FHA HOME REPAIR AND IMPROVEMENT PROGRAM

Section 101 of H. R. 10157 provides amendments of the title I home repair and improvement program for FHA insurance of qualified lending institutions against loss on loans for alterations, repairs, and improvements of existing structures and the building of new nonresidential structures. Similar provisions are contained in H. R. 9537. The Agency favors the increase in the maximum amount of title I loans from $2,500 to $3,500 for the regular repair and improvement loans, and from $10,000 to $15,000 for loans to improve multifamily structures. These increases in maximum loan amounts provide the first up-dating of loan limits for one-family homes since 1939 and would permit title I financing of more extensive repairs and rehabilitation than is possible under the present law.

The Agency also favors the increase in maximum term of regular title I loans from 3 years up to 5 years. Lengthening the terms of home improvement loans would tend to reduce the borrowers monthly payments.

These new title I terms would be of real benefit to families financing substantial improvements to their homes, making it practical for many more of our citizens to do substantial modernization and thus backing the urban renewal programs being undertaken by cities throughout the country.

FHA's authority to insure property improvement loans expires September 30, 1956. H. R. 10157 provides for a 2-year extension of the program to September 30, 1958. The Agency favors an indefinite extension of the program as proposed in H. R. 9537, which could be accomplished by removing from the legislation any reference to a terminal date for the program, as is the case with all mortgage insurance operations under title II.

20 years of operation has established the soundness of the title I home improvement program. More than 19 million loans amounting to over $9 billion have been insured with net losses of only 1 percent of loans insured. As your committee knows, even this loss and all our operating expenses are more than covered by premium income. Making this program permanent would avoid the confusion and expense to both FHA and participating institutions which have been occasioned in the past each time title I neared its expiration date. Subsection (c) of section 101 of H. R. 10157 proposes for the first time a statutory limitation to the financing charges to be permitted in the title I program, namely, $5 discount per $100 for the first $1,000

of the obligation and $4 discount per $100 for the remainder of the obligation. The Agency does not favor this proposed amendment.

Under present regulations, FHA permits a maximum charge equivalent to a $5 discount per $100 of face amount on a 1-year note for loans with net proceeds of $2,500 or less. For larger loans, a $4 maximum discount is permitted; and for loans with durations in excess of 7 years, a $3.50 maximum discount is permitted. The $5 maximum discount per $100 permitted by FHA is equivalent to a 9.3 percent charge on the outstanding balances of the lender's initial outlay for a 3-year loan. After deducting the FHA premium, which the lender pays on the title I loan, the charge is reduced to 8 percent on the outstanding balances of the initial outlay.

We have given considerable thought to the question of appropriate maximum discounts and have obtained from participating lending institutions throughout the country cost data to enable us to determine the net yield to the lender on the typical title I loan.

On a loan of $450 for 36 monhs, which is about the typical title I loan amount at present, the lender receives a finance charge of $67.41. Out of this amount must be paid the FHA insurance premium of $8.77, leaving $58.64 to cover acquisition and servicing costs.

Lenders tell us that initial acquisition cost averages approximately $16 and that the monthly servicing cost runs about 35 cents per payment, of $12.60 for a 36-month transaction. Thus, the net return to the lender is reduced to $30.04, equal to a net return of approximately 4.06 percent on the outstanding balances of the lender's initial outlay.

Furthermore, many of the lenders in this field, other than commercial banks, are paying 3 to 4 percent for money used to make title I loans, and it is these lending institutions in many cases that provide funds for title I loans in areas and regions inadequately served by banks. Since initiation and servicing costs do not increase in proportion as loans amounts rise, the net earnings of title I lenders are somewhat higher on the larger loans.

Lending institutions rely upon the relatively small number of larger loans with these higher net earnings to compensate for the low return on the great volume of smaller loans. It seems to us to be a reasonable conclusion that the $5 maximum discount now permitted on this type of loan up to $2,500 is not excessive when all factors are considered, including the 10 percent coinsurance exposure on each loan, and the larger number of smaller loans. Unless the return to the lender is sufficient to cover out-of-pocket costs, overhead and a reasonable profit, funds under this program will not be available in all communities. In many communities, particularly the smaller ones, this would result in much higher interest costs under uninsured loan plans.

Also, there are certain administrative complications involved in a statutory limitation on the maximum discount. It appears desirable to retain flexibility of administrative authority to cover the numerous instances of minor inadvertent overcharges. Presently such errors, usually amounting only from a few cents to a dollar, can be dealt with by a waiver of the Commissioner's regulations and a correction for the amount of the overcharge.

In the event of a statutory limitation which does not provide such waiver authority, claims involving these minor errors of computation

would necessarily be rejected as uninsured loans, and this puts the Agency in a bad position.

If maximum discounts are to be set by statute, it would be essential, we believe, in order to minimize rejections of claim applications because of errors in computation of financing charges, that there be a proviso at the end of the amendment as follows:

Provided further, That such charges correctly based on tables of calculations issued by the Commissioner or adjusted to eliminate minor errors in computation in accordance with requirements of the Commissioner shall be deemed to comply with the preceding proviso:.

I would also direct your attention to two other serious difficulties involved in the proposed wording of subsection (c). The present wording makes this limitation of financing charges effective as of the date of enactment of the legislation. Since the program involves dealer originations of notes which are subsequently acquired by the insured lender, it would be desirable that there be a lead time of about 60 days in such an amendment so that new regulations could be issued by FÍA and institutions' operating instructions could be adjusted in a manner which would minimize confusion and avoid a lapse in insuring operations.

Secondly, the present amendment applies the $5 discount to that portion of the obligation (that is, the face amount of the note), up to $1,000. Because the net proceeds per $1,000 of the face amount of the obligation vary according to the term of the note, there appears considerable danger of confusion and error in lending institution computations of financing charges on loans with face amounts exceeding $1,000.

In order to keep such errors to a practicable minimum, we recommend that, if such a provision is to be enacted, "net proceeds" be substituted for "obligation" in the wording of lines 16 and 20 of page 2 of H. R. 10157.

FHA SELF-INSURANCE AGAINST HAZARDS TO ACQUIRED PROPERTIES

Section 102 provides that the Federal Housing Commissioner is authorized to establish a fire and hazard loss fund for self-insurance against hazards to FHA-acquired properties. The Agency favors this amendment. A similar provision is contained in H. R. 9537. From late in 1937 until September 30, 1955, FHA spent nearly $1,700,000 in premiums for hazard insurance on its properties. During the same period, claims aggregating less than $162,000 were paid under these insurance arrangements, or 9.5 percent of the amount of premium paid.

During the 5 years and 10 months ending September 30, 1955, FHA hazard premium payments totaled $1,442,000 and losses paid aggregated $111,000-a loss ratio of under 8 percent. FHA might be expected to accomplish a significant saving in insurance expenses if we were authorized to establish a self-insurance program in lieu of purchasing commercial insurance against fire and hazard losses.

It is preferable that the Commissioner's authority be permissive since it may be more desirable to use commercial insurance for certain risks, covering either primary risks or reinsurance.

RENTAL HOUSING INSURANCE

Section 103 provides for increasing the maximum loan-to-value ratio under the FHA regular multifamily rental-housing program (section 207) from 80 percent to 90 percent for all types of projects with corresponding increases in the dollar amount limitations per room and per unit. The same section also provides authority for the Commissioner to increase the per room limitations by $1,000 in areas where construction costs require such an increase.

The Agency has no objection to some high-cost-area differential for section 207 since the economic soundness requirements of this section can be relied upon to minimize dangers of excessive mortgage amounts. However, a full $1,000 increase would have the effect of authorizing mortgage insurance for projects involving such high rentals that the accommodations would necessarily have to be of a luxury type.

If a high-cost area provision is adopted for section 207, it would be desirable for purposes of consistency to have legislative history or an amendment which would allow FHA to interpret the comparable section 220 provision as applying to nonelevator structures. The present legislative history limits the high-cost area provision of section 220 to elevator projects.

The increase in the loan-value ratio limitation appears to be an unwarranted liberalization of section 207, more or less assuring that sponsor's equities would consist entirely of builder's profit, land profit, and organization expenses. While such liberalization can be justified for the section 220 urban renewal program by the public need for elimination of blight, no such comparable justification can be claimed for section 207 operations.

COOPERATIVE HOUSING INSURANCE

Section 104 proposes for section 213 that projects be insured up to 85 percent of certified cost for builder-sponsor mortgagors with the intent that projects shall be sold at the certified cost figure within 2 years to cooperatives, which would be eligible for the higher loanvalue ratios set forth in the present statute.

If no satisfactory sale is effected within 2 years, the sponsor would continue to operate the project as an insured rental project, but no further commitments for this kind of transaction would be permitted to that sponsor.

If the Congress desires this method to be employed in initiating cooperative projects, we believe that provision for speculative construction of apartments for subsequent sale to cooperatives might better be handled under section 207, applying section 207 tests of both value and economic soundness, with conversion of the project to section 213 upon sale to a cooperative.

This procedure would assure that any projects not successfully sold to cooperatives would be administered under the rental housing Standards and procedures of FHA and would have passed the tests of economic soundness for such rental projects.

While present statutory authority conceivably might be interpreted to allow this method of joint use of sections 207 and 213, we feel that there should be legislative expression of intent on this subject.