1971 Housing and Urban Development Legislation, Hearings Before the Subcommittee on Housing and Urban Affairs ..., 92:1- ....

HOUSING CONSOLIDATION AND SIMPLIFICATION

The other major Administration proposal before the Committee, S. 2049, would consolidate, simplify and improve the numerous mortgage insurance and private subsidy programs. It would also make important modifications in the low-rent public housing program.

Mortgage Insurance and Private Subsidy Programs

Over a year ago, I called to the attention of this Committee the number and complexity of our existing statutory authorities, and the maze of regulations, circulars, forms and processing procedures that have grown out of them. I pointed out the frustration, the cost, the red tape and the delay occasioned by this program hodgepodge. I urged enactment of a simpler statutory framework as a means of facilitating more effective participation by builders, lenders and sponsers; as a means of improving administration of the programs by Federal personnel; as a means of enabling more effective Congressional oversight; and, most important, as a big step toward meeting the great need for better housing for American families.

In my testimony a year ago I detailed the inconsistencies, conflicts and complexities of the present program authorities, and discussed many of their shortcomings. The experience of the intervening year has strengthened my conviction that without major program simplification we are headed for trouble. Earlier this year before the Senate and House Appropriations Committees, I stressed that housing programs are so numerous and so complex that they are almost impossible to administer soundly. Before the Senate Committee I said: "I cannot overemphasize this too much. We have so many programs and so many different requirements, that it is impossible for people to keep them all in mind and do an effective administrative job."

Before the House Appropriations Committee I stressed that complexity is in creased because we have to protect many interests.

"[We] are in a position where we have to protect the consumer, we have to protect the government, we have to protect this whole situation under circumstances that make it far more difficult to protect the basic interest than I have ever had to contend with before in any field I have ever been in.”

I cannot state the matter any more clearly or emphatically than that. The multiplicity of specialized and often inconsistent programs has not only resulted in predictable red tape and delay, but has compounded the difficulty of accommodating enormous production increases with very modest increases in staff. We need your help in simplifying these programs, and we need it now.

Our proposal last year to consolidate about half a hundred FHA programs into a new Mortgage Credit Assistance Act, to be effective six months after enactment, was, I realize, somewhat startling to the many people who had become accustomed to dealing piecemeal with the provisions of the National Housing Act. Also, some argued-persuasively-that six months were too short a period in which to implement a complete overhaul of a statute as complex as the National Housing Act.

We have tried, in this year's resubmission, to achieve as smooth a transition as possible between the old and the new Act. The proposed Act would be entitled the "Revised National Housing Act" in view of the continuity of basic substantive provisions. Its effective date would be established by the Secretary of HUD after he was satisfied that all necessary steps had been taken to assure that program actively would not be interrupted.

We have been aided by the many helpful suggestions that came out of the bearings and other discussions on last year's draft, and we have incorporated them in the bill now before the Committee. I know that a consolidation proposal such as this one cannot please everyone in every detail. But, I believe we have reached a point where our proposals have been analyzed at great length and where there is a consensus that they are sound, and that they are important to carrying out national housing policy.

The Revised National Housing Act would reduce many separate existing programs, each with its detailed terms and narrow applicability, into a few broad flexible insuring authorities. Most of the existing programs would be consolidated into four basic programs-two involving subsidies as well as mortgage insurance and two involving only mortgage insurance.

One- to four-family units would be covered under one subsidized and one unsubsidized program, and multifamily and cooperative projects with five or more

units would be covered under the other two programs. The remaining miscellaneous existing authorities would be grouped under four other categories: health facilities, land development, home improvement and mobile home loans, and multifamily improvement loans.

In addition, we are proposing to modify or eliminate many of the rigid limitations in FHA operations that have developed over the years, whose main effect now seems to be to frustrate the public in its use of the programs. For example, the National Housing Act contains numerous flat dollar limits on the overall size of a mortgage on multifamily housing or on the various types of health facilities. These limits on project size have obstructed the development of desirable and feasible projects or have led to the wasteful use of multiple mortgages. Your Committee is familiar with other examples, such as mortgage maturities that differ for different programs and per-unit mortgage limits that soon become obsolete or that are too high or too low, depending on cost levels that vary across the Nation.

Each year, members of Congress receive numerous requests to modify this or that statutory limitation so that a project can proceed to development. Often, legislative relief is too late to help. We have tried to make the revised statute more responsive to the legitimate demands of the public, rather than a repository of detailed and often obsolete specifications.

I know the consolidation will assist us in administering the FHA operations and in streamlining the multitude of procedures now in effect. I am also confident that the Congress will find its oversight duties less frustrating and far more fruitful. Most important, we will be in a better position to ease the heavy burden the private sector bears when it participates in the FHA programs. The ultimate beneficiaries will be the low and moderate income people who look to our programs to meet their housing needs.

I do not intend to go into the details of our FHA consolidation and simplification package. Many of these details were brought out during last year's hearings. In addition, we submitted extensive descriptive and explanatory materials to the Committee several weeks ago, and these are also being submitted, if the Chairman wishes, for the hearing record. I will discuss briefly, however, the three major changes we are proposing this year with respect to our private subsidy programs to enable them to function more efficiently, more rationally, and more equitably

(1) the establishment of income limits for initial occupancy which are based on median family income levels of the area;

(2) the establishment of maximum mortgage limits by the Secretary based on prototype costs for each housing market area; and

(3) the replacement of a separate rent supplement program by an integral component of the basic rental assistance program.

The existing income limits for the private subsidy programs are essentially determined on the basis of income limits established by thousands of local housing agencies for purposes of the public housing program. For a variety of reasons, there is a wide discrepancy in the income ranges local agencies choose to assist in their public housing programs. But the use of public housing income limits as a base for the private programs results in a haphazard and unfair distribution of subsidy benefits around the country. In some areas a much wider range of families are eligible for assistance than in others, merely because of decisions made with respect to the public housing program for reasons peculiar to that program. What this means is that in some areas of the country the private programs are operational in only a very limited way, as to the types and locations of assisted projects.

Our proposal to base income limits in the private programs on the median income in the area, with adjustments upward or downward if unusual local conditions warrant a variation, should provide the needed flexibility to serve all geographic areas equitably.

Our proposal to replace the statutory dollar limits on mortgage amounts with administratively determined limits based on prototype cost estimates seeks a more equitable operation of FHA programs. This procedure would permit the establishment of mortgage limits by geographic areas on the basis of prevailing cost levels in each area. It would also permit the timely updating of the limits on the basis of changes in land or construction costs. With this flexibility, we could not only accommodate the very high cost areas where nationwide statutory limits have tended to be too low, but we could assure that cost limits are not unnecessarily and wastefully high in other areas.

We are pleased that a prototype provision was enacted in the 1970 Housing and Urban Development Act with respect to the public housing program. The prototype provision we are recommending this year for the FHA program is modeled after the public housing provisions, and we expect that the administrative procedures used in determining cost limits for both sets of programs can be closely coordinated.

Finally, we propose to fold in the rent supplement program as a component of each project assisted under the rental assistance program. At least as much subsidy could be provided in up to 20 percent of the units in any project as can now be provided in rent supplemented units in a current section 236 project. This consolidation would permit us to provide a wider variety of economically integrated and sound projects than we can achieve at present in the fact of varying and sometimes conflicting requirements of the two separate programs. Naturally, we do not consider this housing consolidation legislation the last word on our subsidized housing programs. The President's Third Annual Housing Goals Report discusses several problems that go to the heart of our present programs. These include their long run costs, as well as the inequity involved in giving housing assistance to some low- and moderate-income families and not giving it to others in the same circumstances.

We must continue to give these issues very serious study. Meanwhile, we should improve and make more workable the programs we have through prompt enactment of the consolidation package we have proposed.

Public Housing Assistance

Needed improvements would also be made in the public housing statute. The subsidy structure would be overhauled to provide a more effective statutory framework for the new operating subsidy authorizations enacted by the Congress in 1969 and 1970.

Under present law, the Federal annual subsidy to a public housing project is in an aggregate amount which makes no distinction between the need to pay financing costs-amortization and interest-and the need to provide operating subsidies in those cases where rental income is not enough to pay for maintenance and operation. The aggregate annual subsidy is determined by taking a percentage of the project's development cost. This percentage consists of the going Federal interest rate plus two percentage points. The formula has a definite relationship to project construction and financing costs, but it is only remotely related to the amount of subsidy which is needed for running the project. The amount available for operating subsidies is whatever is left over from debt service and this is an irrational way of determining operating subsidies.

This is not said in criticism of the Congerss. At the time that the formula was devised, the Federal subsidy was not available to pay operating expenses. Now that it is available for paying operating expenses, we propose to gear the amount to need, rather than to how much is left over after paying debt service.

Our proposal would eliminate the present limitation on the aggregate amount of annual subsidy which may be paid to a local housing authority. Subsidy for project development cost could be paid in an amount not to exceed annual amortization and interest payable on the obligations issued by the local housing authority to finance construction of the project. No more is needed for this purpose.

Consistent with the amendments enacted in the 1970 Act, we will provide operating subsidies in amounts needed to assure the basic low-income character of the project and to achieve adequate operating and maintenance services. This change will improve our subsidy program in two ways. First, there is the obvious benefit of gearing operating subsidy to need. Second, it will help clarify the shared responsibilities of the Federal Government and the thousands of local public housing authorities for the efficient and economical expenditure of the operating subsidy funds.

In exercising our share of this divided responsibility, we intend to see to it that the operating funds are fairly allocated to the local public housing agencies on the basis of need. Beyond that, in approving their proposed annual budgets and in our post-audits, we intend to assure ourselves that these funds are prudently spent for the purposes intended by the Congress.

Of the aggregate annual contract authority, up to $200 million would be earmarked specifically for the payment of operating subsidies. The $200 million would cover the $150 million provided in 1969 and 1970 for operating subsidy payments plus an additional amount to cover authority heretofore utilized for

units would be covered under the other two programs. The remaining miscellaneous existing authorities would be grouped under four other categories: health facilities, land development, home improvement and mobile home loans, and multifamily improvement loans.

In addition, we are proposing to modify or eliminate many of the rigid limitations in FHA operations that have developed over the years, whose main effect now seems to be to frustrate the public in its use of the programs. For example, the National Housing Act contains numerous flat dollar limits on the overall size of a mortgage on multifamily housing or on the various types of health facilities. These limits on project size have obstructed the development of desirable and feasible projects or have led to the wasteful use of multiple mortgages. Your Committee is familiar with other examples, such as mortgage maturities that differ for different programs and per-unit mortgage limits that soon become obsolete or that are too high or too low, depending on cost levels that vary across the Nation.

Each year, members of Congress receive numerous requests to modify this or that statutory limitation so that a project can proceed to development. Often, legislative relief is too late to help. We have tried to make the revised statute more responsive to the legitimate demands of the public, rather than a repository of detailed and often obsolete specifications.

I know the consolidation will assist us in administering the FHA operations and in streamlining the multitude of procedures now in effect. I am also confident that the Congress will find its oversight duties less frustrating and far more fruitful. Most important, we will be in a better position to ease the heavy burden the private sector bears when it participates in the FHA programs. The ultimate beneficiaries will be the low and moderate income people who look to our programs to meet their housing needs.

I do not intend to go into the details of our FHA consolidation and simplification package. Many of these details were brought out during last year's hearings. In addition, we submitted extensive descriptive and explanatory materials to the Committee several weeks ago, and these are also being submitted, if the Chairman wishes, for the hearing record. I will discuss briefly, however, the three major changes we are proposing this year with respect to our private subsidy programs to enable them to function more efficiently, more rationally, and more equitably—