communities when occupancy is not limited to those receiving Federal assistance. Amendment Three will do this. IV. DISPOSITION OF LOW RENT PUBLIC HOUSING TO ITS RESIDENTS- NHC strongly supports the proposed legislation authorizing the disposition by local public housing authorities of newly developed or acquired housing as well as existing projects to the residents and other low income families. Upon such disposition of public housing, we also support the proposal for continuing the annual contributions to enable the achievement of monthly charges which the low income residents can afford. However, we believe that there are serious problems in the proposed legislation. An amendment is needed to provide for necessary repairs and improvements in existing public housing before its disposition. Low income families should not take over housing which needs such repairs and improvements to make it suitable for their ownership. Loans should be available to provide for this additional work together with the cost involved in achieving home ownership of low income families. Currently, the proposed legislation contemplates only the need to include closing costs and prepaid expenses. Therefore, it is necessary to add a provision allowing supplemental annual contributions to be authorized to cover the debt service on such loans from the Secretary or others required to make such repairs and improvements, cover conversion expenses and other closing costs and prepaid expenses. In addition, the proposed legislation provides that the price charged by the local housing authority is: (1) the portion of the unpaid balance on the public housing agencies principal debt on the project at the time of sale, in the case of housing built specifically for immediate resale to tenants and other low income families or (2) the appraised value at the time of the sale, in the case of existing projects. In addition, there are provisions for mutual self help projects which provide for the eventual purchase of the units. The interest rate to be charged in any event is either the maximum rate applicable to mortgagees insured under Section 402 or the rate on the public housing principal debt on the project, whatever is greater. These provisions should be amended to provide that the sale price should be no more than the amount of the outstanding bond indebtedness including any supplemental loans to cover necessary repairs, costs of cooperative conversion. closing costs and other prepaid expenses. Accordingly, the legislation should make clear that the annual contributions would continue to cover the outstanding bond indebtedness including the additional debt incurred for such repairs and other expenses. Likewise, an amendment is needed to make clear that the interest rate will in no case exceed the rate on the public housing agency's outstanding obligation relating to the project. Amendment Four would implement these recommendations. V. NECESSARY CONTINUANCES OF EXISTING LAWS AND EQUAL TREATMENT FOR COOPERATIVES-AMENDMENTS FIVE TO NINE There are several Amendments required to retain provisions in existing law which were found necessary as a result of past experience. There are real distinctions between programs which result from their essential differences and needs. Where existing laws recognize the need for special provisions adapted to the unique requirements of a program, these provisions should be continued. The following examples are cited in the field of cooperatives: (a) Amendment Five is necessary to continue the two types of cooperatives which have always existed under the cooperative program: namely, one which is a management-type project where permanent occupancy is restricted to members of the cooperative; and the second which is a salestype cooperative where the individual units are to be sold to purchasers eligible for mortgage insurance and assistance. However, in the latter case. certain special safeguards are provided, including the requirement for consumer-oriented sponsorship of the cooperative and for community facilities which the cooperative would continue to provide for the owners of the individual dwelling units. (b) The provisions of existing law should be retained which allow a project to be initiated by an investor sponsor for sale to a cooperative pursuant to a dual commitment which provides for a 90% mortgage to the investor sponsor and the higher allowable mortgage to the cooperative upon its acquisition of title. This is covered by Amendment Six which requires that the Secretary impose such requirements on investor sponsors as are necessary to assure that the consumer interest is protected. (c) Likewise, in the proposed legislation, it is necessary to assure that there is at least equal treatment for cooperative homeownership as compared with individual ownership. Thus, in the case of single family homes under Section 401, there can be 100% mortgages when the amount does not exceed $20,000 per unit. The same privilege should be accorded to cooperatives under Section 501 when the average housing cost does not exceed $20,000 per unit. In the case of mortgages which exceed $20,000, the mortgage would be limited to 97 percentum of such excess. As to this replacement cost in excess of $20,000, the mortgage amount of 97 percentum of such cost retains the long-standing provisions of existing law that provide for this percentage on cooperative mortgages. This is covered by Amendment Seven. (d) For more than ten years—and again in the 1969 Act-Congress has recognized that while the normal formula of appraised value is appropriate on existing properties operated as profit-making rental projects, it is entirely inappropriate and unworkable for existing projects to be owned and operated on a nonprofit basis. In the case of a profiting-making rental project, is is feasible to have an appraisal formula which includes a capitalization of net income. However, there is no net income on a nonprofit or cooperative ownership project where the charges reflect the nonprofit objective. Congress recognized this and other differences in the factors involved in nonprofit projects and cooperatives, so it prescribed a workable appraisal formula for existing projects being acquired for cooperative or other nonprofit ownership. This formula has been tried and tested, and it should be retained. The last clause in Amendment Seven accomplishes this objective. (e) The 1968 Housing and Urban Development Act included cooperatives under both Sections 236 for rental and cooperative housing and Section 235 for homeownership for lower-income families; also, Section 213 covers both management-type and sales-type cooperatives. However, in the proposed 1971 housing bill, cooperatives are limited to the management-type under Title V. It is important for cooperatives to continue to have statutory authorizations under both Titles IV and V to cover both types of cooperative programs. In the case of condominiums, a project can obtain mortgage insurance under Section 501, with purchasers of the housing obtaining mortgage insurance and assistance under Sections 401 and 402. In Amendment Eight, we are recommending the same program for sales-type cooperatives where the individual dwellings sold to purchasers would get mortgage insurance and assistance under Sections 401 and 402. As explained above, the sales-type program would be limited to cooperatives with consumer-oriented sponsorship and with community facilities to be provided by the cooperative. VI. NECESSITY OF RETAINING TEN PERCENT PROFIT AND RISK ALLOWANCES AMENDMENT NINE The proposed Bill should be amended to continue on all eligible projects a profit and risk allowance of 10% of estimated projected costs except the value of land or property prior to construction or rehabilitation-on multifamily housing construction where the mortgage amount does not exceed 90 percentum of replacement cost. As proposed, the Bill would only allow a profit and risk allowance of ten percentum of estimated project cost on Section 502 projects and would only allow a "profit and risk allowance" of no specified percentage for other eligible multifamily projects. Since 1956, the housing laws have directed that FHA include such an allowance in its estimate of replacement cost on certain multifamily housing and to achieve the objectives of the National Housing Partnership. There is a proviso in existing legislation that FHA could adopt a regulation prescribing a lesser percentage if it determined and certified that this ten percent allowance was unreasonable. However, no such determination has been Inade during the past 14 years. Moreover, Congress has five times re-enacted and extended the 1956 provisions to cover other multifamily housing programs where communities when occupancy is not limited to those receiving Federal assistance. Amendment Three will do this. IV. DISPOSITION OF LOW RENT PUBLIC HOUSING TO ITS RESIDENTS- NHC strongly supports the proposed legislation authorizing the disposition by local public housing authorities of newly developed or acquired housing as well as existing projects to the residents and other low income families. Upon such disposition of public housing, we also support the proposal for continuing the annual contributions to enable the achievement of monthly charges which the low income residents can afford. However, we believe that there are serious problems in the proposed legislation. An amendment is needed to provide for necessary repairs and improvements in existing public housing before its disposition. Low income families should not take over housing which needs such repairs and improvements to make it suitable for their ownership. Loans should be available to provide for this additional work together with the cost involved in achieving home ownership of low income families. Currently, the proposed legislation contemplates only the need to include closing costs and prepaid expenses. Therefore, it is necessary to add a provision allowing supplemental annual contributions to be authorized to cover the debt service on such loans from the Secretary or others required to make such repairs and improvements, cover conversion expenses and other closing costs and prepaid expenses. In addition, the proposed legislation provides that the price charged by the local housing authority is: (1) the portion of the unpaid balance on the public housing agencies principal debt on the project at the time of sale, in the case of housing built specifically for immediate resale to tenants and other low income families or (2) the appraised value at the time of the sale, in the case of existing projects. In addition, there are provisions for mutual self help projects which provide for the eventual purchase of the units. The interest rate to be charged in any event is either the maximum rate applicable to mortgagees insured under Section 402 or the rate on the public housing principal debt on the project, whatever is greater. These provisions should be amended to provide that the sale price should be no more than the amount of the outstanding bond indebtedness including any supplemental loans to cover necessary repairs, costs of cooperative conversion. closing costs and other prepaid expenses. Accordingly, the legislation should make clear that the annual contributions would continue to cover the outstanding bond indebtedness including the additional debt incurred for such repairs and other expenses. Likewise, an amendment is needed to make clear that the interest rate will in no case exceed the rate on the public housing agency's outstanding obligation relating to the project. Amendment Four would implement these recommendations. V. NECESSARY CONTINUANCES OF EXISTING LAWS AND EQUAL TREATMENT FOR COOPERATIVES-AMENDMENTS FIVE TO NINE There are several Amendments required to retain provisions in existing law which were found necessary as a result of past experience. There are real distinctions between programs which result from their essential differences and needs. Where existing laws recognize the need for special provisions adapted to the unique requirements of a program, these provisions should be continued. The following examples are cited in the field of cooperatives: (a) Amendment Five is necessary to continue the two types of cooperatives which have always existed under the cooperative program: namely, one which is a management-type project where permanent occupancy is restricted to members of the cooperative; and the second which is a salestype cooperative where the individual units are to be sold to purchasers eligible for mortgage insurance and assistance. However, in the latter case, certain special safeguards are provided, including the requirement for consumer-oriented sponsorship of the cooperative and for community facilities which the cooperative would continue to provide for the owners of the individual dwelling units. (b) The provisions of existing law should be retained which allow a project to be initiated by an investor sponsor for sale to a cooperative pursuant to a dual commitment which provides for a 90% mortgage to the investor sponsor and the higher allowable mortgage to the cooperative upon its acquisition of title. This is covered by Amendment Six which requires that the Secretary impose such requirements on investor sponsors as are necessary to assure that the consumer interest is protected. (c) Likewise, in the proposed legislation, it is necessary to assure that there is at least equal treatment for cooperative homeownership as compared with individual ownership. Thus, in the case of single family homes under Section 401, there can be 100% mortgages when the amount does not exceed $20,000 per unit. The same privilege should be accorded to cooperatives under Section 501 when the average housing cost does not exceed $20,000 per unit. In the case of mortgages which exceed $20,000, the mortgage would be limited to 97 percentum of such excess. As to this replacement cost in excess of $20,000, the mortgage amount of 97 percentum of such cost retains the long-standing provisions of existing law that provide for this percentage on cooperative mortgages. This is covered by Amendment Seven. (d) For more than ten years—and again in the 1969 Act-Congress has recognized that while the normal formula of appraised value is appropriate on existing properties operated as profit-making rental projects, it is entirely inappropriate and unworkable for existing projects to be owned and operated on a nonprofit basis. In the case of a profiting-making rental project, is is feasible to have an appraisal formula which includes a capitalization of net income. However, there is no net income on a nonprofit or cooperative ownership project where the charges reflect the nonprofit objective. Congress recognized this and other differences in the factors involved in nonprofit projects and cooperatives, so it prescribed a workable appraisal formula for existing projects being acquired for cooperative or other nonprofit ownership. This formula has been tried and tested, and it should be retained. The last clause in Amendment Seven accomplishes this objective. (e) The 1968 Housing and Urban Development Act included cooperatives under both Sections 236 for rental and cooperative housing and Section 235 for homeownership for lower-income families; also, Section 213 covers both management-type and sales-type cooperatives. However, in the proposed 1971 housing bill, cooperatives are limited to the management-type under Title V. It is important for cooperatives to continue to have statutory authorizations under both Titles IV and V to cover both types of cooperative programs. In the case of condominiums, a project can obtain mortgage insurance under Section 501, with purchasers of the housing obtaining mortgage insurance and assistance under Sections 401 and 402. In Amendment Eight, we are recommending the same program for sales-type cooperatives where the individual dwellings sold to purchasers would get mortgage insurance and assistance under Sections 401 and 402. As explained above, the sales-type program would be limited to cooperatives with consumer-oriented sponsorship and with community facilities to be provided by the cooperative. VI. NECESSITY OF RETAINING TEN PERCENT PROFIT AND RISK ALLOWANCES— AMENDMENT NINE The proposed Bill should be amended to continue on all eligible projects a profit and risk allowance of 10% of estimated projected costs except the value of land or property prior to construction or rehabilitation-on multifamily housing construction where the mortgage amount does not exceed 90 percentum of replacement cost. As proposed, the Bill would only allow a profit and risk allowance of ten percentum of estimated project cost on Section 502 projects and would only allow a "profit and risk allowance" of no specified percentage for other eligible multifamily projects. Since 1956, the housing laws have directed that FHA include such an allowance in its estimate of replacement cost on certain multifamily housing and to achieve the objectives of the National Housing Partnership. There is a proviso in existing legislation that FHA could adopt a regulation prescribing a lesser percentage if it determined and certified that this ten percent allowance was unreasonable. However, no such determination has been made during the past 14 years. Moreover, Congress has five times re-enacted and extended the 1956 provisions to cover other multifamily housing programs where the mortgage amounts are based on replacement cost. Thus, there has been a continuing Congressional recognition of the need for such a uniform allowance in these multifamly housing programs. This profit and risk allowance would be retainted by Amendment Nine, which we are recommending. In projects involving cooperatives and other nonprofit mortgagors, Amendment Nine provides that the Secretary shall include in replacement cost an amount for the developer's profit and risk which will be fair and uniform as compared with the amount allowed in projects involving profit mortgagors. This is necessary to avoid discouraging or discriminating against the construction of cooperative and other nonprofit projects. The proposed amendment would provide a reasonable profit and necessary protection to the developer against the price increases and risks that generally occur during the period of 12 to 18 months until a project is completed after the issuance of an FHA commitment which fixes the replacement cost and mortgage amount. In the case of consumer cooperatives where there is no identity of interest with the developers, the profit and risk allowance in the replacement cost becomes a part of the lump-sum construction price and covers risks imposed on the developer to protect the purchasing-cooperative members against any increase that occurs in development costs after the member has purchased his unit. VII. COST CERTIFICATION AND INDUSTRALIZED HOUSING An amendment is necessary in the cost certification provisions to cover cases where prefabricated houses or major housing components are furnished by a subcontractor or supplier having an identity of interest with the mortgagor or builder. In such cases, it is not feasible to have a certification relating to the costs involved in the factory production of such houses or housing components. Accordingly, the cost certification should provide for an allowance representing the Secretary's estimate at the time of the issuance of the commitment-of the value of such prefabricated housing or major housing components. This is accomplished by Amendment Ten which will help achieve the objectives of Operation Breakthrough. Amendments are also necessary to Sections 501 and 506, in order to retain provisions of existing law regarding cost certification. There has been successful experience and effective administration under these provisions for many years. It is necessary to continue these provisions and avoid uncertainties regarding the manner in which cost certification is handled. We are opposed to repealing well established statutory rules and granting broad administrative discretion which will create doubts and uncertainties that could adversely effect housing production. The last sentence of Section 506 is deleted by Amendment Ten because the allowance for profit and risk is covered under Amendment Ten in Section 501 (a) (2). VIII. REGULATION OF SETTLEMENT COSTS-AMENDMENT ELEVEN Last year's proposed Bill contained a provision authorizing the Secretary to regulate settlement copies. NHC recommends that this provision not be deleted. IX. CONTINUITY OF PROGRAM UNDER STATE AND FEDERAL LAWS- Many state laws provide for higher ration loans by banks and financial insti tutions when a mortgage is insured by FHA under the National Housing Act. We recommend Amendment Twelve that would assure that loans insured under the 1971 Act would be regarded as loans insured by FHA under the National Housing Act so they will continue to be eligible for the higher ration loans under state law. The Tax Reform Act of 1969 provides certain tax incentives relating to the construction and sale of limited-distribution projects under Sections 221 (d) (3) and 236. Amendment Twelve would assure that comparable projects under the 1971 Act would be eligible for these tax incentives. Amendment Twelve would make other changes in Federal statutory references which identify FHA programs by numbers which will no longer be a part of the 1971 Act. |