As pointed out earlier, this is the field where little has been done. There is an urgent need for more housing in rural communities and this will tend to open a broad field. There is a tremendous market in this field and if this type of program is adopted we will be able to meet the requirements of the very low-income groups and the housing needs in small communities. I really believe that we can even give public housing a run for its money. According to my calculations, even if you use a full subsidy on public housing you are going to have to charge the tenants, on the average, better than $30 a month. These homes will sell for around $37 a month payment and it may not be too far off before we can build it below that figure. Under the terms of the amortization schedule as set out by the Federal Housing Administration, the average loan payment upon a $5,700 loan will be approximately $32.11 per month. Since a large percent of all the houses built under the provisions of section 8 would be in those areas where the tax burden would be small, the sum needed to defray insurance and taxes would be approximately $5 per month, making an over-all monthly payment of approximately $37. This brings home ownership for these people down to a basis which they can afford to pay and by comparison I am sure that there are not any facilities available anywhere that will be new that would be of the size and the class that we are presenting here to you today for anywhere near this amount of monthly rental, and, looking to the future, it is doubtful that they would be able to secure any better facilities than this for rentals at a lower figure. We do not believe that direct financing by the Government is good nor do we believe that FNMA should be used as an indirect method of direct financing. We do believe, however, that FNMA should be set up as a "back-stop" in the event currency gets tight and the lending institutions are required to liquidate some of their paper. One of the present difficulties, under title I, class 3 construction, is that loans made on this type of FHA guarantee, the bank is always stuck with the paper in the event they want to liquidate some of their holdings. If the financial institutions could be assured that there was always a market available in the event of economic strain, they would be encouraged to extend credit to this type of housing. I want to congratulate the chairman for suggesting that these loans should be eligible for purchase by the FNMA and I hope that this feature of the bill will be enacted. It may be that in some areas where the climatic conditions are more severe, especially in those areas where people are wedded to the idea of a basement, this home cannot be constructed for $6,000; however, we do not recommend that Congress increase the amount of mortgage for FHA guaranty beyond $5,700 because in some areas the problem can be solved by a larger down payment. The difference in the down payment would probably only be the difference between $300 and $800. On page 11 of the bill I note the $6,650 limitations on mortgages acceptable for insurance on urban dwellings. The reasons for our recommendations for an increase in title I, section 8 limitations has equal application to this proposed amendment to title II. As I have pointed out, even the minimum home which we are constructing in Oklahoma City is built to sell for $7,500. The $6,650 limitation for single-family urban dwellings is too restrictive, even in our case. We recommend that those be increased to allow for the construction of at least an $8,000 house. This would permit a spread of approximately $2,000 between title I and title II. This is approximately the spread that is allowed for in the present language, namely, $4,750 for rural housing as against $6,650 for urban housing. In many areas, of course, the urban dwellings will be built for less than $8,000, but I would like to again point out that it is false economy to squeeze the mortgage limitation down so far that you produce inadequate housing. If the members of the committee have any questions, I should be pleased to answer them. Mr. MONRONEY. Do you have any figures as to what that $6,000 house could be built for in various areas around the country? Mr. BRODERSON. You mean country-wide? In other words, across the United States. Mr. MONRONEY. Yes. Mr. BRODERSON. No, sir; I do not. Mr. MONRONEY. I think FHA has weighted construction averages which I thought might be applied to that in a subsequent statement. Mr. Multer was interested in that in regard to the New York area. He wondered if that could be put in the record. Mr. BRODERSON. Of course these costs will vary in different sections of the country, based upon labor costs and other things that have to be taken into consideration, but I think in a good many areas of the country, so far as the costs we have, they would be applicable. Mr. MONRONEY. The $6,000 figure would be generally an average? Mr. BRODERSON. Yes. Mr. KUNKEL. It would be a mean average, I think. Oklahoma is about a mean average on climatic conditions. It would probably range 5,000 to 7,000 across the country. The CHAIRMAN. Mr. Broderson, I may say that your district is very fortunate in having a very able and conscientious representative here, Mr. Monroney, who looks after the interests of that district with his usual ability and industry. Mr. BRODERSON. Thank you, sir. We are very proud of Congressman Monroney and are glad he is here representing us. Mr. COLE. I want to say that he has come forward with a very practical proposal which I think the committee could and will consider very seriously. Mr. BRODERSON. Thank you, sir. Mr. COLE. I think you have done a very good job. Mr. MONRONEY. I think the very important part of Mr. Broderson's testimony is the fact that it is designed to try and get us housing in the suburban areas which we cannot reach under the normal FHA title but could reach under this extension of title I. I know that in my own district, and in a great many others, I think, the FHA neighborhood standards under title II forestall any housing development in smaller communities, and yet that is where some of the most urgent housing needs are at the present time. The CHAIRMAN. What are cost trends at the present time, down or up? Mr. BRODERSON. Insofar as materials are concerned, they have been down. Insofar as cost of labor, and one thing and another, they have been practically stationary, except that the trend is this: that there is an attitude, on the part of those who are in the construction industry, to render a better type of service, which means, of course, ultimately, less cost in construction. Mr. TALLE. In other words, the efficiency of labor is going up? Mr. BRODERSON. Yes. The CHAIRMAN. If there are no further questions, you may stand aside. I am informed there is an automatic roll call in the House. The CHAIRMAN. There are three witnesses here and I would like very much to get through with them this morning, but it seems impossible under the circumstances. We will recess for 30 minutes to see what can be done. I imagine there will be other roll calls in the House. (Whereupon the committee recessed from 12:10 p. m. until 12:40 p. m.) The CHAIRMAN. We will come to order. Mr. Clark, will you take the stand? We will try to proceed and see if we can't get ourselves on schedule. STATEMENT OF WILLIAM A. CLARK, ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA Mr. CLARK. Mr. Chairman, my name is William A. Clark, of Philadelphia. I am president of the W. A. Clark Mortgage Co., and am appearing here for the Mortgage Bankers Association of America. I am a member of the board of directors of that association. I do not at the moment have mimeographed copies of my statement here, but they are being mimeographed and they will be here sometime late this afternoon. The Mortgage Bankers Association appreciates the opportunity of testifying on H. R. 5631. The Mortgage Bankers Association is composed of 1,200 members, consisting of mortgage companies, lifeinsurance companies, savings banks, and, I think it is safe to say, represents the majority of substantial lenders in the United States. As far as my testimony is concerned, I will divide it into two parts. First, as to those parts of the bill to which we have no objection. With regard to sections 101 and 104, these sections would extend title I of FHA, provide for a new type of insurance program under title I, increase the insurance authorizations under title II, and increase the maximum mortgage amounts under section 203. To these proposals we have no objection. Of these proposed amendments, we consider the type of insurance under title I is especially desirable and recomment that that be carried through. Section 112: We do not object to this portion of the section which would limit "Fannie Mae" commitments fees and which would require lenders selling VA loans to certify that the houses meet VA minimum construction standards. That is the only portion of that, however, that we do approve of. Sections 113 and 114 we approve. As to section 116, we will not bother with giving you the details because you are familiar with them. Section 118 and section 120 are other sections we would like to stress. That is the one which would allow FHA's field expenses to be payable from income rather than requiring annual authorizations. The experience of all of us in the business has been that on many occasions FHA has been very much handicapped in its work by reason of sticking to certain budget income, and we feel that that would be very helpful in the operations. The suggested proposals that we oppose are (a) Section 109. This section authorizes FHA to issue regulations permitting deferment of monthly payments in hardship cases up to 3 years' extension from maturity and, in the discretion of the FHA Commissioner, he may require such provisions. We believe such a provision in the FHA mortgages will have an adverse effect upon the entire FHA program. Many mortgagees may be fearful of this requirement and thus that will reduce the market for FHA-insured mortgages. It is our opinion that forbearance should be left to the lender, who has knowledge of the borrower's situation, and that the Federal Housing Commissioner should be given specific authority to approve an extension on an FHA-insured mortgage whenever the holder of the mortgage and the mortgagor have entered into an extension agreement. We have no objection to extensions or forbearance in troublesome cases, but we think that it should originate, in each case, with the holder of the mortgage. (b) We oppose section 110, prevailing wage provisions that are made applicable to yield insurance projects. Our opposition to this is that yield insurance, as presently provided in existing law, has not had sufficient time to get started and any additional restrictions would hamper the insurance. (c) Section 111 adds a new section 213 to FHA legislation for housing cooperatives. We oppose any change from the present legislation involving cooperative housing. The present law requires a 10percent equity, except in the case of a cooperative where membership consists primarily of veterans of World War II, in which case the equity requirement is reduced to 5 percent. Our opposition to any change that would further liberalize equity requirements is based on the fact that cooperative ownership of apartments in this country has not had a good experience. Many cooperative owners have lost their equity through no fault of their own because some of the members of the cooperatives have defaulted in payments they are required to make. Mr. RAINS. Are you talking about title III? Mr. CLARK. No; I am talking about FHA section 213. A comparatively small number of defaults will put the entire project in jeopardy for those cooperators who continue to pay. We have seen a great many illustrations, in Philadelphia and other cities, of cooperatives that simply fail because comparatively few of the people defaulted at times when you could not get someone else to take their place, and the entire equity is wiped out. Cooperatives have not been successful, on the whole, throughout the United States. In addition to the equity provisions, we are opposed to cooperatives having terms of loans, as proposed, of 40 years, and that vary from the terms provided for other owners of rental housing. There is no reason why rents in apartments owned by a single investor should be materially higher than those of a cooperative apartment house because the investor is required to amortize his mortgage at a faster rate than the cooperative owner. The end result could only be to make rental housing unattractive to the private investor and thus retard new housing activity. We would like it to be understood that we are not opposed to cooperatives, but we feel cooperatives should operate under identically the same rules and regulations and the same operations as any other type of housing activity. (d) I shall take two different sections of 5631 which we oppose because the reasons are the same. The two sections are, one, section 112, which removes the present 50-percent limit on "Fannie Mae" purchases of VA loans up to $10,000 and for new FHA 213 and for section 611, and so forth, in addition to that, this section authorizes "Fannie Mae" to make direct loans under 207, 608, or 213. We also bulk in that same group section 4, title IV, section 401, which provides for VA making direct loans to veterans up to $10,000 if the veterans cannot get private loans at 4 percent; liberalizes the present loan guaranty to 60 percent if the loan is not in excess of $7,500; and authorizes $300,000,000 for direct loans and repeals section 505 (a). We oppose the items listed because either (a) for the first time it is proposed that the Government enter the field of housing as a direct lender in competition with the established mortgage investors of the country, or (b) because "Fannie Mae's" ability to purchase mortgages is so liberalized that to all intents and purposes it is almost the same as direct lending. Direct mortgage lending by the Government would mean that it was embarking on a program that would directly affect millions of people in the country-holders of lifeinsurance policies, depositors in savings banks and savings and loan associations. The consequences of this proposal must not be considered lightly. In any proposal of this kind one should first consider why it is that direct lending is suggested. To date, private finance has been able to do an adequate job of supplying the housing industry with mortgage funds. Why, then, should it now be necessary for the Government to get into the direct lending or mortgage money? Any investor in mortgage loans will quickly give the answer. The interest rate as set by the Government-namely, 4 percent-is too low to be attractive. I will expand on this point. The Federal Housing Administration has had little difficulty having private investors purchase its papers secured by individual dwellings where the mortgage carries a 42-percent rate. These loans are attractive in that they are fully insured. I believe it is reasonable to assume that if FHA considered that its paper would be marketable at a lower rate than 4%1⁄2 percent the rate would be so reduced. On the other hand, the VA continues to hold to a 4-percent rate. It has the authority to go to 41⁄2 for a mortgage which is not as attractive as an FHA-insured mortgage. The reason it is not as attractive is that the VA is practically for 100-percent value as against a general maximum of 90 percent in the case of FHA. The mortgage, in addition, is only partially guaranteed-not over 50 percent and if over $8,000 in total |