FHA/VA INTEREST RATE CEILING

3. Question. Mr. Secretary, letters from homebuilders in my State relate their experiences with discounts reaching upwards of 10 points. Many cannot continue to build and absorb such a financial obligation off the front-end of their operation, yet the number of housing starts continues to climb. S & L's are experiencing an unprecedented influx of deposits, yet find investments other than FHA mortgages more appealing.

Obviously, the mortgage market is most unsettled. I would appreciate your thoughts concerning the current situation and your assessment of the present 7% FHA ceiling.

Answer. We are conscious of the recent upward trend in the amount of discounts being collected in connection with the financing of housing. The recent expansion of the GNMA Tandem Plan to include the purchase of a wide variety of unsubsidized mortgages is aimed at combating this trend and at reducing the cost of housing. The President has authorized the use of Special Assistance Funds to be used by GNMA in making these additional purchases. $800 million will be allocated for the purchase, primarily, of unsubsidized FHA multifamily mortgages under Sections 207, 213, 221(d) (4) and 220 at a price of 96 percent of par; $1.2 billion for the purchase of unsubsidized FHA or VA single family mortgages under Sections 203 and 221 (d) (2) at a price of 96 percent of par on new construction and 95 percent on existing homes; and $30 million for the purchase of mortgages on low income housing rehabilitated under Section 235(j) at a price of 100 percent of par.

It is anticipated that this expanded GNMA program will reduce the discount points on mortgages purchased under the program from the present range of 8 to 10 points to a range of from zero to 5 points.

We believe that this expansion of the GNMA program is preferable to permitting an increase in the FHA maximum interest rate in that it will result in holding down the cost of housing for an estimated one million familes. We will continue to do all that we can to keep interest rates down.

PROJECT SELECTION CRITERIA

4. Question. Mr. Secretary, shortly after the President released his statement concerning equal housing opportunity, your Department distributed project selection criteria for public housing, rent supplement, and Section 235, 236. I am greatly concerned about the proposed implementation of these requirements as written. According to builders in my State, the site selection requirement that eliminates any project where the subsidized share is over 25% of the total housing units in a neighborhood, defined as not over 1⁄2 mile radius from the site of a proposed project, will virtually bring the construction of 235 housing to a standstill. Are these criteria now in effect? If not, assuming they are adopted, do the area HUD offices have sufficient personnel to administer them? The offices in my State are already sorely understaffed and are facing tremendous backlogs of applications for each of the programs your Department administers. Answer. The project selection criteria have not been developed in their final form.

The instructions for the project selection criteria were published for public comment in the Proposed Rule Making Section of the Federal Register on June 24, 1971. Numerous comments and suggestions have been received from members of the housing industry, from civil rights groups, and from HUD field offices. These comments are now being reviewed and evaluated for the purpose of determining what changes should be made. The questions that you indicate have been raised by builders in your State are among those being given careful consideration.

We do not anticipate that the use of the project selection criteria will result in any significant increase in workload for HUD field offices, although some additional work will be involved. We are taking steps to obtain the needed additional personnel.

MODEL CITIES

Question. Mr. Secretary, I was quite pleased this past week to learn that two cities in Texas, Waco and Houston, were selected by your department to receive additional Model Cities allocations under your newly instituted program of "Planned Variations." Waco received $4.6 million and Houston, $0.5 million. I

believe that eighteen other cities from across the nation were also selected to participate in this program. In announcing these grants, you indicated that it will be "a logical way to demonstrate the effectiveness of revenue sharing." Please enlighten us concerning "Planned Variations." The origin of the program and its purposes.

Answer. The new Planned Variations program has been developed as a way to convert a portion of present Model Cities grants into a demonstration of what can be achieved under the revenue sharing approach to intergovernmental relations. It is an intensive effort to show what local governments can accomplish in solving urban problems when given more authority to develop their own solutions, more resources to implement those solutions, and less direction from Washington. The well documented decay of America's central cities during the past several decades has been a major concern within the Federal Government. In the past 25 years, over 400 separate categorical programs have been acted by Congresseach intended to deal with a specific aspect of the overall urban crisis. While most of these programs are essentially sound, taken together they have usurped the initiative away from local government without stemming the tide of decay. In 1966 the Congress enacted the Demonstration Cities and Metropolitan Development Act creating the Model Cities Program. This program was to be a demonstration of what cities could accomplish by approaching the problems of slums and blight in a comprehensive manner with minimum Federal direction. By providing cities with flexible funds to mount a coordinated attack on social, economic, and physical problems, the Congress recognized that the various aspects of urban life are not separable-they must be treated together-and that the interrelated problems of cities can best be defined and addressed by local officials.

The experience of the approximately 150 cities participating in the Model Cities Program during the past three years bears out the accuracy of these observations. However, certain of the procedures for the operation of the program have limited the effectiveness of this demonstration. Therefore, in 1970 the President directed the Domestic Council to review the program and to develop recommendations for overcoming these limitations in at least some of the Model Cities. Following an intensive analysis over several months the Domestic Council submitted a proposal to the President for undertaking variations in the Model Cities Program in a limited number of cities. Each of these variations addresses a specific problem identified in the Model Cities Program.

Twenty cities will participate in the program. The variations selected include the following proposals:

(1) Mayor Review and Comment. All twenty cities will receive funds to build up the planning and management capacity of local chief executives through the establishment of procedures for their review and comment concerning major Federal program activities in their communities. This variation will enable the local chief executive to relate applications for Federal aid affecting his community to the priorities among needs determined by the local resource allocation system. By comparing individual applications to such priorities, the local chief executive will be able to supply Federal decisionmakers with a better understanding of the relevance of such applications to the broader development of the community.

(2) City-Wide Program. Sixteen of the cities will develop Model Cities plans to cover slum and blighted areas throughout the cities rather than in limited neighborhoods. Projects and activities to be undertaken will be determined by local general purpose government-based on an analysis of local needs and priorities.

(3) Reduction of Federal Review. The sixteen cities selected for citywide programs will be permitted greater discretion in the use of funds. This variation is designed to demonstrate the capacity of local general purpose government to utilize funds efficiently and effectively without the usual delays and constraints imposed by administrative regulations. HUD is currently in the process of minimizing administrative requirements for all its Community Development programs for all cities. Cities in the Planned Variations demonstration will participate earlier and more extensively in these simplification efforts.

Each of these variations is intended to strengthen the role of local general purpose government in meeting the needs of its citizens. Taken together, they are expected to provide a good demonstration of what local general purpose government can accomplish when given the opportunity to make its own decisions with minimal Federal review direction.

Planned Variations will also provide an opportunity to demonstrate the ability of Federal and State agencies to respond to local general purpose government's assessment of city needs and priorities promptly and effectively. As part of our effort, we will be working with other Federal Departments and Agencies to reduce to the fullest extent possible all review and regulations concerning the use of Federal funds. We are also encouraging Governors and local chief executives to consider establishing State/city task forces to develop and implement improved procedures for applying State funds to urban needs and technical assistance from the State to the city.

Through the many aspects of Planned Variations, there will be demonstrated the validity of the principle that when local governments are given the opportunity and resources, they can and will manage their affairs effectively and in a way which is responsive to the needs of all their citizens.

Senator TOWER. I am grateful that you came here this morning. I have an apology particularly to you that I must go because there is an ox in the ditch that must be extracted.

Secretary ROMNEY. I will take your word for it.

Senator TOWER. And, therefore, I hope the next time that you are before the committee, I will have a chance to sit and listen. I wish I could today; accept my apology. Thank you for being here.

Secretary ROMNEY. It's a pleasure.

The CHAIRMAN. Mr. Secretary, we are very glad to have you here, and if you will, for the record, give the names of your colleagues who are with you, we would appreciate it. You may proceed with your statement as you see fit. You know, of course, the whole thing will be printed in the record.

STATEMENT OF GEORGE ROMNEY, SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY EUGENE A. GULLEDGE, ASSISTANT SECRETARY FOR HOUSING PRODUCTION AND MORTGAGE CREDIT; FHA COMMISSIONER; FLOYD H. HYDE, ASSISTANT SECRETARY FOR COMMUNITY DEVELOPMENT; AND DAVID O. MAXWELL, GENERAL COUNSEL

Secretary ROMNEY. Thank you.

I have with me on my right, Eugene Gulledge, Assistant Secretary in charge of Housing Production and FHA Commissioner; and on my immediate right, Mr. David Maxwell, our General Counsel. On my left is Assistant Secretary Hyde, who is responsible for our community development activities. We very much appreciate the opportunity to appear at this hearing, because as the chairman has indicated, and Senator Tower has indicated, we urgently need legislation that is before the committee. We expect to discuss this morning the revenuesharing measure and also the housing consolidation and simplification measure. The administration's related proposal to strengthen the overall planning of State and local governments was one of the subjects of your July 12 hearing.

In that connection, Mr. Chairman, I want to thank you and the committee for your prompt action on Senate Joint Resolution 52, which provides additional fund authorization for the existing comprehensive planning program. We are hopeful that the House may now take similar action, thus enabling us to accelerate our assistance to State and local planning and management efforts.

Another important proposal-for community development grants and related loans-has been introduced by your chairman for study and consideration, and as you already indicated, Mr. Chairman, its underlying purposes are similar to those of the administration's special revenue-sharing program, although there are some significant differences in the approach taken, and I will comment on those differ ences later.

Taken together, the administration's proposals now before your committee would transform the basic activities of our Department. Yet each change would be solidly grounded in the lessons of experience. The special revenue-sharing proposal has evolved from more than two decades of legislation which saw narrow programs of slum clearance and public works gradually broadened to encompass urban renewal, large-scale neighborhood development, planned metropolitan development, and the Model City unified approach to interrelated physical and social problems.

Similarly, the proposed program of aid for State and local planning and management builds upon the comprehensive planning aid program that was first enacted in 1954, and then steadily broadened.

Finally, the recommended housing law revisions carry forward the most productive of the existing programs, but would drastically simplify the confusing patchwork of special programs which have accumulated over the past 35 years.

Now, these are extremely important reforms, yet they become even more significant when considered within the context of the President's overall program for a revolutionary restructuring of our Federal Government within a revitalized Federal system. And, as you know, he has submitted a very broad program, including other programs of special revenue sharing, welfare reform, and reorganization of the executive branch.

Now, I find in the current legislative picture many sources of encouragement. There has been almost universal recognition that these various proposals are addressed to serious defects that have gradually developed over many years in the workings of the Federal Government. The very broad scope of the reforms has inevitably resulted in extensive debate, alternative proposals, and many areas of disagree

ment.

But the differences of opinion by and large have arisen over means and not goals.

Now, the major administration reforms before your committee are embodied in S. 1618, the Community Development Act of 1971, and S. 2049, the Housing Consolidation and Simplification Act of 1971.

Turning first to S. 1618, it contains the administration's proposals for urban community development special revenue sharing. Before describing the proposal and the categorical programs it would replace, it might be well to summarize briefly why we feel that these programs should be replaced so that their underlying purposes may be better

served.

Intrinsic to a system composed of scores of categorical aid programs, is the need to establish for each program its underlying purpose; the nature and extent of the aid to be given; who shall receive it; and when and under what conditions it should be received. This need gives