Mr. COLE. Mr. Chairman, may Mr. Hollyday make another comment on section 203, for the record?

The CHAIRMAN. Mr. Hollyday.

Mr. HOLLYDAY. A great deal of interest has been created by the program known as title I, section 8. Assistance was given to this program last spring, but the assistance came a little bit too late by virtue of the tight money market that existed at the time.

We now find that there is, as I am glad to report, an ever-increasing interest in the financing of those lower-cost homes. Actually, I think, in 212 months since December 1, 1953, we have done more business and have had more applications than we had in the entire year before. Some concern has been expressed as to whether or not the absorption of title I, section 8, into title II might be harmful to the program. The purpose of the absorption is to assist title I, section 8, financing. By putting it into title II, that should make the mortgages more acceptable, and the program is one on which we feel there will be very real activity during the coming year.

Mr. BROWN. Mr. Chairman.

The CHAIRMAN. Mr. Brown.

Mr. BROWN. Mr. Cole, I want to congratulate you on the fine cooperation existing between your office and the Members of Congress. I am sure the members of your old committee have full confidence in your ability and your integrity.

Mr. COLE. Thank you very much, Mr. Brown.

Mr. PATMAN. I want to associate myself with the statement just made by Mr. Brown. I agree with him 100 percent.

Mr. ČOLE. Thank you, Mr. Patman.

Mr. BARRETT. Mr. Chairman.

The CHAIRMAN. Mr. Barrett.

Mr. BARRETT. What effect is this going to have, Mr. Cole, this bill, on the redevelopment authority contained in the Housing Act of 1949? Mr. COLE. May I reserve that question until we get to the redevelopment?

Mr. BARRETT. I think your bill provides for aid provisions for the elimination and prevention of slums. I understand the act of 1949 provides for redevelopment, in which there were $500 million provided for that purpose.

Mr. COLE. Yes, sir.

Mr. BARRETT. Wouldn't this be somewhat overlapping? How would that he handled in your bill?

Mr. COLE. Mr. Barrett, we cover that in our statement, but may I say to you generally, before we arrive at that point in the statement, that it is my judgment it will not be overlapping, but will be complementary to the present urban redevelopment program.

Mr. BARRETT. What portion of the $500 million has been used as of this date? Are you able to tell us that?

Mr. COLE. We can supply it for you. We will supply that information for you.

The CHAIRMAN. Mr. Multer.

Mr. MULTER. I think I have already expressed to our former colleague, Mr. Cole, how happy I am to see the wonderful job he is doing and to welcome him back. I am also glad to see by good friend, Commissioner Hollyday, here.

Mr. Cole, I am wondering whether or not the policy of our Government is going to be to make this FHA program a permanent part of our statutes? If I recall correctly, we started this program as an emergency program to stimulate and help the building industry get on its feet, and also to supply the very real need for housing which has not yet been completely supplied.

I am wondering whether or not the program which is now being submitted isn't going to put this Government insurance program on a permanent basis and keep it permanently in Government instead of trying to have private enterprise take it back where it belongs?

Mr. COLE. Mr. Multer, FHA is permanent legislation. The agency is a permanent agency which, in my judgment, has done a very fine, remarkable job.

Mr. MULTER. I agree heartily.

Mr. COLE. Let me follow through: I think Commissioner Hollyday and I are both in agreement on this one thing. If it becomes possible in the future, in an economic situation and in a political situation, that FHA or these other Government tools could be eliminated, we would say "Yes."

I personally see no way, in any even distant future, that we are going to be able to eliminate FHA, or that Congress or the people want an elimination of the programs which are provided under FHA. I just don't see it.

Mr. MULTER. I don't want the program eliminated. I want private enterprise to take over the doing of it. You and I, when you were up here, were in agreement on that, I think.

Mr. COLE. Certainly.

Mr. MULTER. Private enterprise should do the job wherever possible. Why can't the insurance companies and the lending fraternity get together and take over this insurance program on their own?

Mr. COLE. That is very true and Mr. Hollyday and I would both agree with you that that objective is a fine objective. It could not be better. I would like to have him comment on it.

Mr. HOLLYDAY. I don't believe, in a new industry-and I think that is what FHA insurance is; I do not believe that the assumption of the risk by private capital, without the Government holding the hand of private capital, will be possible until this departure has been really tested.

It is possible that you may be able to get the Bureau of Standards to investigate the record of what we have done, with their electronic brain, and be able to say that when the reserves of FHA are thus and so in proportion to the risk that has been assumed, it will then be salable to the insurance companies, Mr. Multer, and I think FHA ought also be run on the basis that the time will come when, with the experience that we have in the business, the accumulation of reserves to protect the Government, that the time will come, as in the Federal Deposit Insurance Corporation, when you would have a situation. where the people who are experienced in the business would say "Well, there are sufficient funds there to protect the Government."

Mr. MULTER. That is precisely what I have in mind. We established the program, backed with Government money and Government insurance. It is a very profitable program. Your loss experience ratio is less than that of credit insurance. We demonstrated already that it is time to start building up to where the private industry can get us out of it.

Mr. HOLLYDAY. Well, we are doing it. Our $319,000,000 reserve is desirable, and the fact that within the next 10 days I will be able to give to the Treasury a sum which will repay all Treasury advances up to date as to both principal and interest, is desirable, but I don't think I could sell you, we will say, as a representative of the Metropolitan Life Insurance people, and others, on buying out the insurance operation when during the almost entire 20 years of operation we have had a very remarkable, let us say, unusual rise in the real estate market so that we actually have not met the test. Until we have met the test then I do not think a conservative investor would want to put the funds of someone he was representing into an agency of this kind. Mr. MULTER. That is getting close to this so-called gloom philosophy. We should not wait to go through a depression to show that this is a good program. If this country continues to need a million and a half new housing units a year, and we will need that for at least the next 10 years, and there is no possibility at least in the immediate future of building that many a year I think your own program only contemplates a million a year-and we know that we cannot catch up in the next 10 years if we build as much as a million and a half, why should we contemplate that anything can go wrong in this industry?

Mr. HOLLYDAY. I just don't believe it is possible to sell a new, untried industry, and that is what FHA is, to you as a hard-headed businessman. I think you are not going to buy it. I don't think you have yet had enough of a test where you are dealing with the risk involved in mortgage insurance, when you look at the losses that have occurred in the real estate cycle.

Mr. MULTER. I was hopeful that you and Commissioner Cole would tell me that you were going to try to sell that to the insurance and lending fraternity, but you have given me the same answer they give

me.

Mr. McVEY. Mr. Chairman, I should like to second what my colleague from New York has said. I think our aim should be to transfer this situation to the lending agencies as rapidly as we can.

We do have in Chicago a project that is being constructed by the New York Life Insurance Co. It is a pretty large-sized project, for

clearing slums in Chicago. I think we should create a desire to do that sort of thing on the part of insurance companies.

Mr. COLE. We certainly agree with you, Mr. McVey.

Mr. MULTER. May I pursue another topic for a moment or two.

I notice that you are trying to give us a substitute for the public housing program.

The CHAIRMAN. Mr. Multer, before you came in, I believe, we decided that to proceed in an orderly fashion we would take up one subject at a time.

Mr. MULTER. I will try to adhere to that, Mr. Chairman.

The CHAIRMAN. Of course, that question might be contained in this subject, but I have in mind this: To proceed as we have with these different subjects, in order to avoid confusion. Then when we are all through taking them up one at a time, we can go back and tie the whole thing together.

Mr. MULTER. I think that is a good method of procedure, Mr. Chairman. I was going to direct myself to section 221.

Would you rather I do that when we talk about public housing?
The CHAIRMAN. No, we have discussed section 221, I believe.
Mr. COLE. Oh, yes.

I would like, Mr. Multer, if in discussing section 221 you are going into the philosophy of it and the support of it by the Government, through the secondary credit facility, I would like to make my statement on that, first.

Mr. MULTER. I do not intend to get into that phase of it at this time. What I was going to do was this-and, again, if you think we should wait until you have made your statement on that subject I will withdraw the question-I was going to address myself for a moment to the provisions of section 221 for housing, the $7,000 family units.

Mr. COLE. That is a proper question at this time.

Mr. MULTER. Do you think we should pursue that now?

Mr. COLE. Yes, sir.

Mr. MULTER. Í think you project a possible monthly charge of $62.92 as the cost of interest and amortization and insurance. Mr. COLE. All costs.

Mr. MULTER. Including utilities.

Mr. COLE. Including utilities everything that the householder would pay.

Mr. MULTER. That would give a person a $7,000 house at a cost of $62.92 per month?

Mr. COLE. Yes, sir.

Mr. MULTER. What income group do you contemplate will be able to purchase that house?

Mr. COLE. That would be approximately the $3,000 to $4,000 income group.

Mr. MULTER. Then that would not touch the lowest income group! Mr. COLE. Oh, no.

Mr. MULTER. I am mistaken in thinking that section 221 is urged to take the place of public housing.

Mr. COLE. It is not suggested as a substitute for those measures intended to take care of the lowest income people. May I add this one thing, Mr. Multer

The CHAIRMAN. Mr. Multer, the lowest income people cannot qualify for public housing now.

Mr. MULTER. Unfortunately that is right. There is a limitation, which is just under $2,000 annual earnings per family to qualify for public housing, and if it was intended to take care of that group I was going to suggest this would not do that.

Mr. COLE. That is correct. May I add one more thing, Mr. Multer: If my memory serves me correctly, 16 percent of the present occupants of public housing pay more than $50 per month.

Now, they are the higher income occupants of public housing. It is not our suggestion that section 221 can substitute, again, for the lowest income people, or can be a substitute.

Mr. MULTER. Then it might be more nearly accurate, assuming you could build this $7,000 house, that this might take care of some of the middle income group?

Mr. COLE. Yes, sir.

Mr. MULTER. The lowest part of the middle income group.

Mr. COLE. Also that is what it means in my statement, when I say relieve the pressure on public housing.

Mr. MULTER. Would this be the proper time to comment upon your program for financing of old homes, under FHA?

Mr. COLE. Yes.

Mr. MULTER. Tell me, has your agency gathered any statistics on how many old homes cannot at present be refinanced, and therefore need FHA refinancing or financing?

Mr. HOLLYDAY. Mr. Multer, to answer specifically, I have to say no, but I think I could give you a reasonably good answer by saying that about 30 percent of all the FHA business is on older homes. So that we have a day-to-day experience, and we have no fear at all of our ability to rate, and, therefore, to insure, older properties that have been built, just as well as we commit on the plans and specifications of properties to be built.

Mr. MULTER. You say that presently 30 percent of your financing is on older houses?

Mr. HOLLYDAY. About one-third of our 1- to 4-family business, our big title II operation is on houses that have already been built.

Mr. MULTER. Are we talking about the same thing? Are we talking about older houses which started out with FHA financing and are being refinanced?

Mr. HOLLYDAY. No, the great bulk of those houses, in the existing home classification, are properties which were never valued or insured heretofore by FHA.

Mr. MULTER. Well, if 30 percent of your loans have been on older homes, then you do not need authority in this bill to do that. You already have the authority.

Mr. HOLLYDAY. We have the authority, but the penalty on the man who has a moderate downpayment is great. We have been in effect forcing him to buy a new home with, let us say, maybe 800 square feet, where the man actually needs 1,200 square feet, which he could obtain in an older house. We would like to have the downpayment in relation to the value and the risk irrespective of whether the house is old or new.