Mr. PATMAN. Mr. Cole, title I, I notice you state, and Mr. Mason stated, too, was extended last in 1950.. Are you not mistaken about that? Wasn't that extended 2 years ago?

Mr. COLE. Mr. Patman, it has been amended, but the extension, the last extension, my understanding is, was authorized by Congress in 1950.

Mr. PATMAN. What has been the experience of the past year under the modernization loans? Have there been any losses to amount to anything?

Mr. MASON. We have had an excellent record, Mr. Patman. As you know, the provisions of the Housing Act of 1954 went into effect on the 1st of October, and since that time we have had 15 claims, as against 247,000 loans. In other words, we have insured 247,000 loans and had 16 losses for a total of something like $6,007.

Mr. PATMAN. The banks handle those loans principally, do they not, Mr. Mason?

Mr. MASON. Yes, they do.

Mr. PATMAN. Do the banks suffer any losses?

Mr. MASON. Under the new provisions of the Housing Act of 1954, the bank is a co-insurer for 10 percent; yes, sir.

Mr. PATMAN. Have they actually suffered any losses so far?
Mr. MASON. Ten percent on fifteen claims.

Mr. COLE. The loss to the banks has been negligible, Mr. Patman. Mr. MASON. Mr. Patman, under the 16 claims there would have been about $600 of this loss suffered by the banks, and the other $5,400 by the Government.

Mr. PATMAN. In other words, it is practically a riskless loan, isn't it?

Mr. MASON. Yes, but not so riskless as it was before the 1954 act was put into effect.

Mr. PATMAN. But it is practically riskless now, is it not, Mr. Mason? Mr. MASON. There is a 10 percent co-insurance.

Mr. PATMAN. Which makes it very small, as evidenced by the records since October.

Now, these loans are at 9.7 percent interest. Don't you think that is pretty high for a practically riskless loan?

Mr. MASON. The experience is that where banks themselves embark on such a program without Government insurance the rate is higher than this.

Mr. PATMAN. The rate is higher? Do you mean more than 10 percent? That is usury.

Mr. MASON. This rate is figured at a 5 percent discount and banks customarily discount their own paper at 6 and 7 percent where there is no Government insurance.

Mr. PATMAN. Regardless of how you figure it, the borrower pays 9.7 percent interest, does he not?

Mr. MASON. That is correct, Mr. Patman, if the loan runs for the full period of time.

Mr. PATMAN. Mr. Cole, how would you feel about an amendment making that a maximum of 6 percent?

Mr. COLE. I don't believe we would be in favor of it, Mr. Patman. I would be glad to look at it, but I doubt if we would favor it.

Mr. PATMAN. Well, there is no looking at it. It is just 6 percent. You are either for or against it.

Mr. COLE. If I would be required to give an answer now, I would say we would not favor it.

Mr. PATMAN. It occurs to me it is an awfully high rate of interest, 9.7 percent, on Government guaranteed paper, practically. There is practically no risk involved. I hope you will consider that.

Mr. COLE. Mr. Patman, may I comment that the amount of servicing of a small loan is quite high-the cost of servicing. That is the reason that lending institutions find that their charges for the use of the money are comparably higher than on a long-term large mortgage. Mr. PATMAN. I realize that. Have you seen my bill on cooperative housing?

Mr. COLE. Yes.

Mr. PATMAN. How do you feel about it? Would you be in favor of cooperative housing as set up in that bill?

Mr. COLE. Mr. Patman, we are anxious to do everything we can to assist the cooperative housing program. That is H. R. 5883, is it not? Mr. PATMAN. Yes, sir; it is.

Mr. MASON. While Mr. Cole is finding his notes on this, Mr. Patman, I would say that section 1 of your bill provides for an increase in mortgage ceiling from $5 million to $30 million.

Mr. PATMAN. That is right.

Mr. MASON. And while I have no real objection to this because I am very much in favor of getting some of these cooperative housing projects built, I feel that it would be more desirable all around if all programs have the same ceiling. I see no reason why

Mr. PATMAN. How much is other ceiling?

Mr. MASON. At the present time, it is $5 million, but we are recommending a $1211⁄2 million limitation. It seems only expedient to have these the same in all cases.

Mr. PATMAN. Of course, that is one side of it. Would it be acceptable if that were changed?

Mr. MASON. I have just 2 or 3 other comments here, Mr. Patman, on the bill.

Section 2 of the bill would change the basis of calculating the mortgage insurance from an estimate of value, as at present, to an estimate of replacement cost, which was in the bill before the Housing Act of 1954 was passed.

It is my feeling that this provision for estimated value, rather than replacement cost, is to the advantage of the cooperator. We have many of these projects built-as I am sure the committee knowsby builders who would be pleased with the replacement cost factor, but the cooperator himself is more sure of having a good investment if the value is used. This means that the project has to be built whereif this cooperator, who is enthusiastic at the start, subsequently has to get out of the project-he can market his share of that cooperative more easily.

We do have a problem, however, which has arisen, because a great many of the projects were under consideration when the new housing bill came into effect. Some of these people had gone quite a way to arrange financing under the terms of the old bill. They had drawn plans, and had gone to quite a lot of work and expense, and when the bill was changed, because of locations that were chosen, and so on, they were unable to go through with it, and I think there are about 200 of these projects, comprising about 13,500 units, and about $121

million worth of construction, and it might be possible for us-for you, I am sorry to consider, in your legislation, a provision to help these projects which had been started through to completion on the same provisions as were true before the Housing Act of 1954 was passed.

Do I make myself clear at all? It is quite an involved problem. Mr. PATMAN. Yes, I am not acquainted with that, but if you have any suggestion to offer in the form of an amendment to take care of the proposition, it would be appreciated.

Mr. MASON. I am sure, Mr. Patman, that my staff would be happy to work with your staff on this at any time.

Mr. PATMAN. All right, sir.

Now, Mr. Cole, are you ready to commit yourself on it?

Mr. COLE. Mr. Patman, if you are asking do we approve the bill as a whole, the answer is "No."

Mr. MASON. I have one other suggestion.

Mr. PATMAN. What is that?

Mr. MASON. I have one other thing I would like to say: The bill provides for the restoration of the position of assistant commissioner for cooperative housing. It isn't titles that will do the job, but the proper legislation to do it with, that gets things done in Government, in my estimation.

The thing I object to is too many chiefs and not enough Indians. I like to have people who are working rather than too many heads of departments. If I had an assistant commissioner for cooperative housing I should also have an assistant commissioner for rental housing, assistant commissioner for servicemen's housing, and assistant commisioner for urban renewal, assistant commissioner for open-end mortgages, assistant commissioner for single-family housing.

I believe that under our present procedure, where we have the actual handling of these mortgages done in the regular multifamily division, but a separate man, or a separate division-it is more than a man-whose job it is to try to iron out difficulties, to work with people who are interested in cooperatives, and see that they get their questions answered. See that where we have an inquiry on one of these projects that that inquiry receives intelligent appraisal by our staff. This, I believe, will work out very well.

We do have this system now.

Mr. COLE. Mr. Patman, while I said that we could not approve the proposed legislation, I want to make it perfectly clear that we are not satisfied with the cooperative housing situation as it exists today. We would like to do what we can to assist in making it a vigorous program, and some of the suggestions contained in your bill are worth a great deal of favorable consideration.

For instance, in the bill you have mentioned the support of FNMA for cooperative housing. Present legislation, or the present authorization under the present statute, provides for that, through the machinery of the President's approval of a certain amount for cooperative housing.

There are other sections of the bill, for instance the section with. respect to veterans preference, which is really not a matter for our consideration. I think we could live with it very satisfactorily if it were enacted.

We would favor your section 5. We have no objection to that.

In other words, there are sections in the bill which we think could be acceptable. Some of them we have some doubt about.

Mr. PATMAN. Thank you very much.

The CHAIRMAN. Mr. Wolcott.

Mr. WOLCOTT. I will pass

for now.

The CHAIRMAN. Mr. Rains.

Mr. RAINS. Mr. Cole, I assume we will have the chief of the Federal Mortgage Association available to answer questions? Otherwise, I would want to ask you some questions about it. I don't care to do it right now if he is going to be available.

Mr. COLE. Yes, he is going to be available.

Mr. RAINS. Let me address a question to Mr. Mason.

Mr. Mason, I hear and read in the papers, and hear rumors, that in certain sections of the country FHA has reached the saturation point, and that no more commitments for FHA insurance are being granted.

That is correct?

Mr. MASON. Mr. Rains, this condition is almost always existing, and it exists in more or less degree. FHA is set up in such a way that the director of the insuring office, before he issues a firm commitment for any new large project, sits down and studies that area to see whether the project is a feasible one in his estimation, and if he is troubled in his mind and can't arrive at this decision himself he has available to him, through FHA's overall staff, market analysts who will come into his market, study the need for housing, and give him advice on whether he should issue this new commitment or not.

But FHA has been set up, and is supposed to operate, on a basis where, in an area where there is already enough housing, that it does not further complicate this by issuing more commitments for it. This is not a condition which goes on forever, however. I mean, the market absorbs the housing, and then firm commitments are issued again. Mr. RAINS. What you are telling me, of course, is that there are certain areas in which you have the authority to decide

Mr. MASON. Cities, sir, generally.

Mr. RAINS. That certain cities are overbuilt, and no more firm commitments will be issued; is that correct?

Mr. MASON. That is correct.

Mr. RAINS. I am not going to ask for the specific places, but are there a good many areas throughout the country where that is true? Mr. MASON. Within a month we have made a study and there were 26 such places.

Mr. RAINS. I noted Mr. Brown's question with reference to the Wherry Act housing. As I understand, you are asking it to be continued for this year in order to have the orderly abandonment of the program; is that correct?

Mr. MASON. That is correct.

Mr. RAINS. Is it true that we have a number of Wherry Act projects over the country which are standing empty today?

Mr. COLE. Do you mean entire projects?

Mr. RAINS. I had understood there were certain projects located at certain establishments that were completely white elephants; is that true?

Mr. MASON. My staff advises me we have one such project which we have acquired, and we have two others that are in trouble.

Mr. RAINS. That has been brought about by the moving away of military establishments; is that correct?

Mr. MASON. That is correct.

Mr. RAINS. I have to move hurriedly because we are limited to 5 minutes on the first go-round.

I noted also that you said that you thought that the military housing is restricted to the military. Now, the FHA does the insuring?

Mr. COLE. It is strictly the problem of the military to house military people, in my judgment. However, we think that the impact of the military housing, in some instances, should be considered. In other words, the impact of the housing upon the normal private market in the area.

We think that that is a part of the consideration that Congress may want to give to the problem.

Mr. RAINS. Under the present military housing program is FHA called on for insurance commitments?

Mr. MASON. Yes, it is.

Mr. RAINS. Well, I understand that you don't have much to say about whether or not you issue those insurance commitments; is that right?

Mr. COLE. You are speaking of Wherry Act?

Mr. RAINS. Yes. That the military hands it out to you, and about all you have left open is to go ahead and do what they say; is that correct?

Mr. MASON. That is not exactly correct, sir. We generally don't get a request from the military without a good reason back of it, but we do sit down on each one of these cases and discuss the size of the project, and in many cases we end up with a smaller project than the military originally asked for. This has happened at least during the past year.

Mr. RAINS. Mr. Mason, with the FHA doing the insuring of the mortgage, do you have sufficient authority in dealing with the military to accept or disapprove these Wherry projects?

Mr. MASON. Under the present law?

Mr. RAINS. Yes.

Mr. MASON. Yes, I think we have the authority to talk with the military on this.

Mr. COLE. Mr. Rains, when the statute was enacted by Congress the idea was that the authority of FHA should be strictly limited, that the military should have the primary responsibility to determine how many houses were needed, and it left FHA with the responsibility of discussing with, or, shall I say, arguing with, the military, if FHA felt it was too great.

Mr. RAINS. Do you have the authority to turn down if you don't like it?

Mr. COLE. I don't believe we do.

Mr. RAINS. You have no veto power?

Mr. COLE. I don't think we have a real veto power.

Mr. RAINS. Of course, since that type of housing is handled by the Armed Services Committee, I don't think this committee has much to do with it, yet you in FHA are required to insure the mortgages, of course?

Mr. COLE. Yes.