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S. 2333

COMMUNITY DEVELOPMENT ASSISTANCE ACT OF 1971

To establish a Block-Grant Program in order to improve the Federal system for aiding local community development activities

Major changes proposed

1. Consolidates 5 HUD categorical programs (urban renewal, open space land, community facilities, public works planning, and public facility loans) and simplifies the application process.

2. Increases Federal assistance to 90 percent of program costs.

3. Authorizes Federal obligations of $8.8 billion for a 3 year period, with spending limited to $2.5 billion in 1972, $2.9 billion in 1973, and $3.4 billion in 1974.

4. Provides greater assurances for localities by authorizing a 2 year contract for community development assistance; a system for regular contract renewals; and a basic community entitlement to funding.

5. Broadens local authority in using Federal funds by expanding the list of assisted activities; eliminating precise geographical boundary requirements; enabling localities to link renewal and housing production and rehabilitation activities.

Significant provisions

1. Authorizes grant and loan assistance to Community Development Agencies authorized by local governing bodies.

2. Requires an annual application which must include (with exceptions for certain smaller communities)

(a) a summary 3 year plan for community development, with specifics for (1) meeting housing needs, and (2) eliminating neighborhood blight. (b) a program budget for the first 2 years.

(c) a yearly statement of performance.

3. Provides for annual review by the Secretary of HUD to determine that the locality has

(a) a serious need and a program to eliminate slums, revitalize neighborhoods and increase housing opportunities, particularly for low and moderate income families.

(b) capacity to carry out its proposal, particularly with respect to relocation and code enforcement activities.

(c) satisfied procedural requirements, such as approval by the local governing body and required public hearings.

4. Requires the Secretary of HUD to

(a) allocate 75 percent of the authorized funds to localities which now have development programs, and to retain 25 percent for communities which will initiate development programs under this act.

(b) establish for each community an annual entitlement to development funds based on (1) its prior recent participation in programs consolidated under the act, and (2) an annual increment of 15 percent.

(c) request future authorizations for the program in a timely manner; recommend changes in procedures for establishing community entitlements and allocating funds; and report annually to the Congress.

5. Provides for orderly transition by continuing Federal assistance under the Community Facilities Title for 2 years and the Urban Renewal Title for 3 years; and by providing for the liquidations of commitments under the Urban Renewal Program.

The CHAIRMAN. Senator Tower.

Senator TOWER. Mr. Chairman, the legislation pending before the subcommittee is great both in volume and importance. Community development, revenue sharing, consolidation of the housing laws, and many other measures demand extensive hearings and considerable examination. The pressing need for congressional action in the area of housing and urban affairs is most apparent, and I am confident that that need will be vividly outlined for us in detail by those who appear to offer statements during the course of these hearings.

Our cities and counties face monumental financial problems which cripple their developmental efforts. Housing is being built at record rates with annual starts projecting at 2.1 million. However, certain questions are being asked by many concerning our present programs for housing, particularly our programs of production subsidy. The need for housing is great and will continue to grow; yet it should be our intent to meet that need with a minimum of federalization.

It is my purpose, and I believe the other members of the committee share my sentiment, that we report a housing bill to the Senate as soon as possible and certainly prior to the close of the calendar year.

Mr. Chairman, due to the pending business on the floor, I am not going to detain the committee. I do have certain questions that I would like to put forth. I will submit these. If I could have an answer in writing for the record, Mr. Secretary I would appreciate it. Secretary ROMNEY. Very good. Glad to do it.

(The following information was received for the record :)

ANSWERS TO QUESTIONS OF SENATOR TOWER

SECTION 235 PROGRAM

1. Question-Mr. Secretary, I receive numerous letters each week from constituents who express in no uncertain words their intense displeasure with the 235 Homeownership Program. For the most part, these are individuals who are just barely above the income limits. They do not like the idea of subsidizing their neighbor's home, especially when the neighbor enjoys wall-to-wall carpeting, central air conditioning, dishwashers, and other amenities, which they themselves cannot afford. How would you answer these letters? I would appreciate hearing your assessment of the 235 program.

Answer. The objective of the Section 235 program is to provide decent, safe and sanitary housing for lower income families who would not otherwise be able to afford such housing. Specific instructions have been given the FHA Area and Insuring Offices that the dwellings purchased with Section 235 assistance should be of modest but adequate design and construction quality, to meet the housing needs of the families acquiring them. These instructions contain the following statement: "It is clear that the Congress did not intend that assistance payments should be made for the purchase of housing which is extravagent in design appointments or equipment."

The FHA permits the inclusion in new housing financed under Section 235 of the types of equipment and amenities commonly accepted in the particular area where the housing is being built as appropriate for low-cost housing. Wallto-wall carpeting is being used today in new housing of all prices in lieu of hardwood flooring and the FHA minimum property standards were recently changed to permit this substitution. Central air conditioning is becoming accepted as essential equipment in new housing built in the southern regions of the country where there are unbearably high temperatures in the summertime.

It is true that some of the amenities being placed in the new housing are not found in the existing houses which may be located adjacent to where the new housing is being built. However, builders usually include the same types of equipment in all new housing of a certain price range in any particular area of the country. They are building the low-cost housing for homeowners who will use a variety of means for financing the purchase. Some will use the Section 235 program, others will use the unsubsidized Section 203(b) or 221(d)(2) programs and others will finance with a VA or conventional mortgage.

It is difficult to establish an equitable means of determining which families should be afforded the benefits of this subsidy program. Regardless of what income limits are established there will always be families excluded from participation in the program because of income slightly higher than the established limit.

The present income limits in the Section 235 program are computed on the basis of 135 percent of the locally determined income limits for public housing. The wide variation in public housing income limits and the fact that these

limits tend to be unreasonably low in some localities have resulted in unrealistic income limits for the Section 235 program in some areas. For this reason, we have proposed in S. 2049, the Housing Consolidation and Simplification Act of 1971, that the income limits on the new homeownership assistance program which would replace Section 235 be established on the basis of the medium income for each area. We believe that this new formula for establishing income limits will result in a more equitable administration of the homeownership assistance program.

There are two other subsidized homeownership programs, in addition to the Section 235 program, presently authorized. The Housing Opportunity Allowance Program. administered by the Federal Home Loan Bank Board, is designed to assist moderate income families in the annual income range of $7,000 to $12,000 in achieving homeownership. Under this program the family receives a monthly mortgage reduction subsidy for a period of up to five years. HOAP assistance is available through federally insured savings and loan associations in connection with conventional, but not FHA or VA, home loans.

The Section 243 program, added by the Emergency Home Finance Act of 1970, provides for a subsidy for middle income families on the portion of the interest rate in excess of 7 percent with the mortgages to be held by FNMA or FHLMC. This program has not been placed in operation because the present FHA maximum interest rate is 7 percent, but the program is available for use in assisting middle income families in the event the FHA maximum rate is increased above the 7 percent level. Mortgage payments by the homeowner would be made on the basis of the monthly payments required if the mortgage were to bear interest at 7 percent or on the basis of 20 percent of the mortgagor's income, whichever amount is the greater.

2. Question. Among those eligible for federal assistance within our income limitations, are we not assisting more and morc of those at the top to the exclusion of those of lowest means? Should not those of least means be assisted first and have first priority? The 235 program is not becoming a luxury program is it?

Answer. The statistics collected by the Department with respect to the Section 235 program tend to refute the suggestion that the program is assisting a large percentage of persons near the top of the income limits.

Attached is a report prepared by the Department which shows the characteristics of home mortgage transactions insured by FHA under Section 235 (i) for the first quarter of 1971. Table 1 of this report indicates that the medium income of the homeowners assisted under the program is $6,150 and establishes that 46.2 percent of the homeowners had annual incomes of less than $5,999 and 50.7 percent of the homeowners had annual incomes ranging between $5,000 and $6,999.

CHARACTERISTICS OF HOME MORTGAGE TRANSACTIONS
INSURED BY FHA UNDER SECTION 235(i)
FIRST QUARTER, 1971

Subsidized homes under the Section 235 (i) home ownership program have become a significant factor in the housing market. In a span of less than three years since the enactment of the Housing Act of 1968, this program has grown to the extent that the volume of insurance currently being written on new home mortgages under Section 235 is second only to that under Section 203. During the first quarter of 1971 about 37,400 units were insured, of which 33, 200 were new home transactions. As a whole, the number of units insured under the Section 235 assistance program during this quarter approximated the number reported in the previous quarter, but nearly doubled in volume as compared to the first quarter of 1970. Insurance written amounted .to about $679 million, up $43 million over the preceding quarter, and about $376 million above that reported during the first quarter of 1970.

The median total acquisition cost of a home insured under this program was $17,808, up 1 percent from the previous quarter ($17,632), and considerably above that ($15, 371) reported during the first quarter a year ago. The overall price for Section 235 homes levelled off, as observed in the last three successive quarters. Also shown in chart 1, the increment in purchase price for new homes, which account for nine out of ten sales under the program,

Chor: 1- HOME PRICES (TAC), Quarterly (1970-1971)

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shows a marked decline in the rate of change from the preceding two periods.
A typical new home purchased for $17,894 was about $1,300 over the median
price for existing home purchases ($16,592). In general, new home prices
ranged between $16,000 and $19,000 (55 percent), with significant clustering in
the $20,000 or more category. The "kink" at the $20,000 to $22,999 price
range can be attributed to regulatory changes in the maximum allowable mort-
gage limits which enabled families in high cost areas to acquire homes $3,000
to $6,000 beyond the regular statutory limit of $18,000; and also the fact
that many areas were reporting mortgages close to the regulatory limits.

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By contrast, existing home purchases, comprising a small portion of the Section 235 assistance program, were typically acquired for $16,592. This represents a slight increase (2 percent) over the previous quarter, although it rose 21.7 percent compared to the first quarter a year ago ($13,639). Characteristic of the existing price level is the generally more even distribution throughout all price ranges, and reflecting a relatively large proportion of lower priced homes. Thus, in the under $10,000 category, about 5 percent were acquired, compared to less than 1 percent of those reported among new home purchases. For price levels in excess of $18,000, on the other hand, about 35 percent of existing sales fell into this category, as opposed to 48 percent of new home acquisitions.

Table A presents a demographic and financial profile of the assisted households under Section 235 (i) during the first quarter of 1971. The family structure remains essentially unchanged from the preceding four quarters. Sales typically have been to a 4-person household headed by a male about 29 years old. Husband-wife families constituted over three-fourths (78.4 percent) of all households, while most of the remainder have been households headed by females. Incomes from wages and salaries continue to account for the highest proportion (92.5 percent) of the primary source of income reported. Practically all of the remaining 7.5 percent of the families reported primary sources of incone as disability and other retirement benefits, or welfare assistance (AFDC). Welfare recipients, in particular, have been reported to a significant degree (18.1 percent) among the..e purchasing existing homes, although over-ail the proportion has been declining in the last three quarters.

Three- and four-person households were reported most frequently (46.1 percent), with about 26 percent of the household: reporting six or more persons. Also, the Section 235 (i) assistance program appears to be reaching younger couples in increasing numbers, so that, with a median age of 29 years, approximately 29 percent were reported under 25 years of age up 8.5 percent over the first quarter of 1970. Furthermore, the proportion of the heads of household 55 years of age or more declined to 3.9 percent of the total, in contrast to 5 percent reported in this age category during the first quarter of 1970.

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With respect to the financial aspects of the interest subsidy program, the typical mortgage transaction required a total monthly mortgage payment of $171 -- a minimal increase over the previous quarter but up considerably (22.1 percent) over the amount ($140) reported during the first quarter of 1970. Specifically, the median monthly mortgage payment for a new home required a monthly mortgage payment of $172, $91 of which a family was obligated to pay each month, with the remaining $81 subsidized through an interest reduction payment. Two-thirds of the assisted families received subsidies ranging from $60 to $89. A typical monthly mortgage payment for an existing home, on the other hand, was $164, of which $75 constituted the assistance portion. The typical assistance to existing home purchasers increased considerably to $75 from $51 for the corresponding period a year ago, although it represented a relatively smaller increase over the previous quarter ($72).

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