Mr. Chairman, I thank you for the opportunity to discuss this proposed legislation. I regret that this report is a little longer than I had hoped it would be, but it seemed impossible to shorten it.

The CHAIRMAN. Thank you.

Mr. COLE. Mr. Chairman, that completes our comments with respect to the FHA provisions of the bill. We are ready to answer questions on those provisions at this time, Mr. Chairman.

The CHAIRMAN. Are there any questions with respect to the statements which have already been made with respect to FHA?

Mr. SPENCE. I would like to know how the open-end mortgage operates.

Mr. HOLLYDAY. Well, sir, you ask a very difficult question because it will have to operate differently in each one of the States.

There has been a request, for some time, from persons who felt that the use of title I, which has been a 3-year loan for repair of properties, places a rather heavy burden on people who wish to borrow, and that if, as is the case in certain States, an advance could be made by the existing mortgagee to the borrower, and have that amount included in the existing mortgage, in many cases it would simplify the procedures and save funds.

By virtue of the varying laws in different States, as indicated in both Mr. Cole's report and mine, it is going to take quite a bit of study for the FHA to adjust itself to the requirements of the different States.

Mr. SPENCE. That is in the legislative authority of the States, is it? Mr. HOLLYDAY. Yes, sir, it is, and by cooperating, and making it as simple as possible, there would be and should be many cases where a borrower could help repair his own home without going to a shorter and more expensive term of financing.

Mr. SPENCE. How many States have authorized the open-end mortgage?

Mr. COLE. Mr. Chairman, it is my understanding that we do not have up-to-date information about that at the present time. There are some States, though, that do permit open-end mortgages. We are quite interested in this proposal, and are very hopeful that can be made a workable program to assist people to rehabilitate and modernize their houses.

Mr. SPENCE. It looks to me as though it would be a very good device, if they don't trap the subsequent mortgagee or lien holder.

Mr. COLE. Yes, as Commissioner Hollyday indicated, there are many problems involved in setting up the program, but we are quite interested in the program.

Mr. HIESTAND. Mr. Chairman.

The CHAIRMAN. Mr. Hiestand.

Mr. HIESTAND. Mr. Hollyday, you cite the discontinuance of the new insuring activity under title IX, defense housing program. Is that an inactive operation at present?

Mr. HOLLYDAY. I think in that particular title, which originates with programing by the Housing and Home Finance Agency, there have been such few requests for programs that it was deemed desirable to have the program terminate because, for all practical purposes, we can handle the problem under our regular title II programs.

Mr. HIESTAND. Does that apply to the present discussion that we have had recently, with respect to the Antelope Valley, in California? That was under title IX, was it not, or proposed to be?

Mr. HOLLYDAY. Yes, sir, I think we were referring, in the California case, to a title IX operation.

Mr. HIESTAND. If this passed, then that would terminate any chance of the extension of that little operation?

Mr. HOLLYDAY. No, sir, because that had been initiated before the Bill would be in effect. And any operation initiated such as that would be taken care of.

Mr. HIESTAND. Thank you very much.

Mr. GEORGE. Mr. Chairman.

The CHAIRMAN. Mr. George.

Mr. GEORGE. The bill provides that one of the functions of the Housing Administration is to support the new title I of this FHA for 100 percent on 40-year loans. Assuming for the sake of argument that these loans would not be acceptable in the ordinary mortgage market, is it sound proposal to provide that the new associations to support this program, that is not acceptable to the ordinary lender? In other words, will you not with this provision go beyond the needs for a new secondary market?

The CHAIRMAN. Mr. George, may I suggest that we haven't taken that up yet.

Mr. GEORGE. Section 221 was mentioned.

Mr. COLE. Section 221 was mentioned, the part of my testimony just presented; but we do prefer that this type of question come up under discussion of FNMA, since it does have to do with the support of section 221 mortgages.

The CHAIRMAN. Is that agreeable, Mr. George?

Mr. GEORGE. That is agreeable.

The CHAIRMAN. Are there any further questions on these provisions?

Mr. MUMMA. Mr. Chairman.

The CHAIRMAN. Mr. Mumma.

Mr. MUMMA. The Administrator spoke of the necessity of doing away with title searches. Certainly if a man had liens put against him from the time of the original mortgage, he certainly couldn't put a secondary mortgage on, or an extension without giving him consideration.

Mr. HOLLYDAY. I think you put your finger, sir, on one item in the Administrator's report that does need clarification. In many casesin fact, I think in almost most cases-for the protection of the mortgagee, who is going to give back, in case of default, a good title to us, a search will have to be instituted.

Mr. BETTS. From now on, the provisions would be taken care of in the original mortgage?

Mr. HOLLYDAY. Well, it will vary with the different States. If it is taken care of, then, of course, there may be cases where a search would not have to be made, but in most cases, even where special provision is made in the mortgage, in order to make sure that, contrary to the provision in the mortgage, liens have not been put against the property, a search will be required. Otherwise there would be no protection.

Mr. COLE. May we add one more thing to that: It also would depend upon the various and individual State laws, Mr. Betts. Some State laws would take care of that situation. Others would not. But it does depend upon the State laws.

Mr. STRINGFELLOW. Mr. Chairman.

The CHAIRMAN. Mr. Stringfellow.

Mr. STRINGFELLOW. I have just one question regarding section 221, Mr. Hollyday. In my community the Public Housing Authority is programing the disposition some of the Lanham projects created during the war. Certainly they are substandard in every respect, and families living in these units are low-income families.

Now, will section 221 apply in such communities where they are going to close many of these projects, and where people will have to go out and find adequate housing?

Mr. HOLLYDAY. There is no relationship between present existing Lanham Act housing and the approval of a community in which FHA can operate with section 220 and section 221, provided the city will do the things that will be necessary to correct the blight conditions in the community. The mere existence of a Lanham Act house or housing operation has no direct relationship at all to the creation of an area in which section 221 can operate. Sections 220 and 221 can operate only in a city where the city has set up a program which the Administrator deems desirable and satisfactory, and I think the term in the law is "workable."

Where there is such a program in effect in a city, then FHA can come in and take an individual area, and say that in that particular area, if the city will do thus and so, and spell out an amplification of the nine points that I have just read, then we can operate in that area. There is no relationship, per se, between public housing, and a new area, which is going to be delineated and created by the new law. Mr. STRINGFELLOW. I noted your limitation in the third paragraph on page 5 of your statement, and I appreciate your clarification. Mr. DEANE. Mr. Chairman.

The CHAIRMAN. Mr. Deane.

Mr. DEANE. I am sure that I speak for all of the members of our committee and especially for the minority in expressing our gratitude at having Mr. Cole, our former colleague, with us and in amplifying off the record his statement of a moment ago to the effect that he could understand the need for a staff sitting behind with him, with the length of these bills and exhibits; we feel that we need your staff sitting behind us, almost.

I wanted to direct my first question to page 2 of your statement, Mr. Hollyday, and I address this to you and Mr. Cole.

Have you made any spot checks of the areas of the country where you feel that these urban renewal programs would work, and where these areas would cooperate?

Mr. HOLLYDAY. It is very gratifying to be able to report, Mr. Deane, that throughout the entire country there is great and ever-increasing interest on the part of the cities to do something about their dwindling real estate values and the increasing inability to get sufficient taxation therefrom to operate city hall. Cities such as

Mr. DEANE. I understand from that statement that the areas involved are so blighted, and the tax arrears, and the overall appearance are such that it is more or less a financial liability to city hall?

Mr. HOLLYDAY. In the average older metropolitan community, in the areas that we have under consideration, 45 cents out of each dollar goes into the blighted areas of the community, and about 6 cents comes out of these areas, and a realization of that rather striking and very vital statistic is being appreciated all over the country.

There are such cities as Chicago, Detroit, New Orelans-just to mention a few-where the importance of making that correction is almost paramount in the minds of the mayors of those three great communities.

Mr. DEANE. Have you surveyed those areas? Have you had conferences with those people in those particular areas on the approach to the problem as outlined in your statement?

Mr. HOLLYDAY. Yes, sir; the FHA has designated Detroit and New Orleans as pilot cities for special study, and we have delegated men to work with the citizens' committees and the mayors, in a study of ways and means of correcting those conditions, and for the first time in the history of FHA we will be given a tool-if section 220 becomes law-with which to hold out to these different cities real assistance in the form of private capital if the city will do thus and so, and we will be able to hold out, with a very considerable degree of assurance, the determination that if they will do what we would like to have them do, that the blight conditions can and will be corrected.

Mr. DEANE. What power do you give to the city officials in your bill that would give them the right to move in and condemn, and take over these blighted areas to do something about it?

Mr. HOLLYDAY. All we can do is hold out the reward. It will be up to the cities that do not have to have a sufficient enabling act to go to their legislature and get an enabling act to permit them to do that which FHA would require before private capital would be justified in coming into the particular community.

Mr. DEANE. You say on page 4: "It should be emphasized, however, that the effectiveness of the program depends fundamentally on local initiative and participation."

Mr. HOLLYDAY. Yes, sir.

Mr. DEANE. In other words, there is nothing in the bill giving the right of condemnation?

Mr. HOLLYDAY. As I said, we have no right at all.

Mr. DEANE. That is what I mean.

Mr. HOLLYDAY. Insofar as section 220 is concerned, that is, to take any such steps.

Mr. DEANE. You mentioned these larger cities.

Mr. COLE. Mr. Deane, may I interrupt you? Mr. Hollyday's answer was correct, that in section 220 there is nothing to give the right of condemnation. I think you asked, however, was there a right in the bill.

Mr. DEANE. That is right.

Mr. COLE. We do not want to mislead you. The urban renewal redevelopment and slum clearance program as contemplated by this bill does contemplate that cities exercise the police power and the condemnation power. This bill, of course, does not and cannot, confer any such powers upon cities. Their powers are derived from the State legislatures.

Mr. DEANE. Well, now, you mentioned these large cities, Mr. Hollyday, I am interested in smaller communities of 10,000 people because they have blighted areas, too. How are you going to approach the problem there?

Mr. HOLLYDAY. Fortunately, it is a little easier. It is the same germ that causes the same disease.

I was in Midland, Tex., a few months ago, and it never occurred to me that they would have a first class slum right within the city limits. But they have, and the correction of such a condition is the same, although simpler than on a larger scale.

The conditions arise by virtue of neglect, primarily on the part of city hall, and abetted by the indifference of the citizens to the conditions, and the fact that heretofore no group of business people has taken the time and trouble to go into the slums and make a specific recommendation.

The least that this section could possibly do would be to point the way to a situation and tell how it can be corrected.

Mr. DEANE. In other words, unless the property owners, the city officials, really come to grips with the problem there is not very much chance of eliminating these slums?

Mr. COLE. May I interrupt a moment, Mr. Hollyday?

We are now talking about section 220, and section 221, in the FHA procedures. Mr. Deane, I think you will be very much interested in the sections which will follow, in the urban renewal slum clearance and redevelopment, which will in our judgment contemplate some of the things to which you are directing your attention. In other words, we do expect cities to accomplish more than merely voluntary action; we do expect them to exercise their police powers to enforce local codes and regulations relating to housing.

The approach, as Mr. Hollyday has indicated, is primarily the voluntary approach, giving to the localities the responsibility and stimulating within the localities and the communities a desire to do the job.

In addition thereto, however, you will find in the bill, if Congress approves it, authority which contemplates that the cities will go into an urban renewal area and exercise their legal, authority, under their State law, to enforce certain actions. Mr. Hollyday is talking about

Mr. DEANE. And those other sections would have the force and effect of entering into this revised section, of this section 220?

Mr. COLE. Yes, sir; in other words, section 220, under FHA, can cooperate with and be part of the renewal area, which is set up under the authority of the renewal program, and which is contained in the later authorizations.

Mr. DEANE. Are both sections so cohesive as to allow working together?

Mr. COLE. We think there is no question but that it not only would permit it, but would require it.

The provisions in the law would require coordinated action. It requires that a workable plan be presented to the Administrator for his determination, so that all the tools provided for in this legislation may be and will be used in a given city to accomplish this objective.