Page images
PDF
EPUB

a better deal because of the 40-year amortization and the 41⁄44 percent interest.

Senator CAPEHART. Yes; but under a true co-op there was no reason he should make all the profits he made.

Mr. CAMPBELL. That is right. But anybody

Senator CAPEHART. If we are going to have true co-ops, we do not want the things to happen that we discovered were happening.

Mr. CAMPBELL. This may sound strange for me, but until the cooperative movement and until the consumer organizations, whether it be the labor organizations or the veterans' posts or whoever they are who sponsor these, can actually put together organizations to build these, we will have to turn to the building industry. Now, the building industry has some racketeers in it, but by and large it ́is a pretty good industry.

Senator CAPEHART. Well, no builder is going

Mr. CAMPBELL. Somebody is going to make some kind of a profit on this. We would prefer to see the FHA be able to control that profit, to get the cost certification at the closing of the project, to see that the project is built at what is termed in the industry as a reasonable cost, rather than not have these things done at all. None of these are as good as the consumer-sponsored ones, but they have been in the interest of the consumer.

Senator CAPEHART. Mr. Chairman, I would like permission to place in the record at this point that section of our report on the FHA investigation that had to do with the misuse of section 213.

Mr. CAMPBELL. I am perfectly aware of them.

Senator CAPEHART. I know that. I want to put it in the record. Mr. CAMPBELL. I am perfectly happy to have you put it in.

Senator CAPEHART. I am delighted that you are conscious of what is happening and what has happened in the past, and we ought to find some way to correct it if we can.

Mr. CAMPBELL. That is right.

Senator CAPEHART. What they were doing, Mr. Chairman, was this: The terms under section 213, the co-ops, were more liberal and the mortgages were longer. These fellows just were building under this tile, you see, rather than under another title, but their whole operation from the sales standpoint was under the other titles except that this enabled them to sell them faster, make more money, and made it easier for them. Is that not right?

Mr. CAMPBELL. That is right.

Senator MONRONEY. In my home State we had some very good luck with veterans' co-ops in which the cities would prepare the streets, put in the sewers. We got away from the exorbitantly high development cost in smaller towns where there was no developer or builder. One contractor could go in and build 15 or 20 houses in an area for these veterans and wind up with a house that normally would cost $8,000 or $9,000 perhaps for $6,000.

Senator CAPEHART. That was the purpose of the bill.

Senator MONRONEY. If we could get at a program like that some way, I think it would help the smaller communities where you do not have builders and no one to operate. You probably have need up in Maine for that type of house, Senator Payne. Certainly you

cannot get at it by the changing of the estimated value for the estimated replacement cost, however, can you?

Mr. CAMPBELL. Well, unless we get the change back or something else comparable done, we will not get anything, either consumersponsored or builder-sponsored or builder-sponsored co-ops, built.

Senator CAPEHART. Without objection, Mr. Chairman, I would like to have placed into the record pages 41 partially through 43 entitled "Section E, Cooperative Program," from Senate Report No. 1, 84th Congress, on the FHA investigation.

Senator MONRONEY. That is so ordered, without objection. (The section above referred to follows:)

SECTION E. COOPERATIVE PROGRAM

Section 213 of the Housing Act provides for FHA-insured mortgages on cooperative housing projects sponsored by nonprofit corporations or trusts. The committee's investigation of the housing program discloses virtually no instance in which a true cooperative utilized this section of the act. In almost every

case the project was built by a promoter for profit utilizing this provision of the statute, with its maximum 95 percent of estimated-cost mortgages, because of its more profitable provisions. This is particularly true of the single-family sales houses, built under the cooperative housing section of the act, under which promoters not only obtained 95 percent mortgages but also had their construction advances insured by FHA (as distinguished from the conventional sale house program under section 203 in which FHA did not insure construction advances). The greatest number of cooperative multifamily projects constructed under this nonprofit section were in the New York area. The plan generally used was for the promoter to acquire land on which the project was to be built and lease that land to the cooperative project for a long term of years. The cooperative apartment owners were generally not aware of the fact that even after paying off the mortgage they would still not own the land. They never will own the land and are required forever to pay the ground rent or lose their building. As shown in the preceding section these leaseholds were most profitable for the promoter.

The plan also called for the promoter to create and control the nonprofit cooperative corporation. That corporation was usually organized by nominees of the promoter. They in turn would enter into a contract with the promoter's construction company for the construction of the project. The same persons sat on both sides of the table in determining the terms and provisions of that construction contract, including the amount that the cooperative corporation must pay the construction company. More important, the contract generally provided that the final payment was to be made to the construction company when the project was approved by the cooperative corporation. The promoters were careful to retain control of the cooperative corporation until after they had approved their own work. Then they would permit the cooperators to elect their own board of directors.

A most unusual use of the nonprofit cooperative section of the act for singlefamily sales houses was employed in the Los Angeles area by Ben Weingart and Louis Boyer in projects involving $62 million of FHA-insured mortgages. Weingart and Boyer promoted Carson Park Mutual Homes and Lakewood Park Mutual Homes as cooperative housing projects. Weingart made arrangements with Investors Diversified Services for the interim financing and thus avoided the necessity for the individuals to advance money to start the project. In return. Investors Diversified Services received roughly half the profits. Nominees of Weingart and Boyer were the incorporators of the so-called nonprofit corporations. Thousands of homes were built and the profits divided between the Weingart and Boyer group and Investors Diversified Services. In the Carson Park project, involving $32.1 million in FHA mortgages, the Weingart and Boyer group invested $65,000 and received profits of $1,417,321, including a profit of $118,485 on their sale of the land to the sponsoring corporation. For arranging the financing, Investors Diversified Services received profits of $1,056,981, in addition to normal interest on all of the funds it had advanced.

In the Lakewood Park project, involving $30.2 million of FHA mortgages, the Weingart-Boyer group and Investors Diversified Services conducted a similarly profitable operation.

The Weingart-Boyer group received commitments from the Long Beach (adjacent to Los Angeles) FHA office for 6,663 units to be constructed under section 213. The only other section 213 commitment ever issued by that office was a project of 50 units.

The committee heard testimony that the section 213 program was used in Arizona to sell houses without any downpayment on a for profit sales program. Hyman Rubenstein testified that a construction company he owned built single-family houses which it sold to a nonprofit corporation he controlled for the amount of the FHA mortgage. That mortgage was 95 percent of FHA's estimate of the cost. The nonprofit corporation then sold the houses without any downpayment. Rubenstein testified that these houses were thus sold for approximately $8,000, with a profit to him of $1,000 on each house. If FHA's estimates were in line with Rubenstein's actual costs, FHA was allowing him a 17-percent profit in a program in which FHA insured construction advances and virtually insured the builder against loss.

Senator MONRONEY. Taking out the administrative section for cooperative housing did not help any to get genuine cooperatives going; did it?

Mr. CAMPBELL. That is right. At the inception of the program there were eight men plus secretarial help working on it. Today there is a cooperative adviser and his secretary as all that is left of that section, plus one of the prior members of the staff who is now working under the multifamily housing projects, working in that capacity. But it means 2 or 3 people doing what 8 were doing before and the possibility of policing these and preventing abuses is almost impossible.

Senator MONRONEY. Senator Payne, did you have any questions? Senator PAYNE. No. The only thing I have is the observation that from what I know of it Senator Capehart has stated that the will of the Congress was pretty plain that they wanted this to be a provision to permit true cooperative housing.

Mr. CAMPBELL. That is right.

Senator PAYNE. The will of the Congress was circumvented because perhaps the law did not spell it out clearly enough. It certainly was circumvented so that the true cooperative was not what we were getting. We got something where some fellows figured some ways around it so as to be able to carry out just exactly what Senator Capehart has explained here.

So, if it is going to be a true cooperative in line with your testimony here, it is going to require some pretty careful drafting of the law to pin it down to that type of housing and to eliminate any chance for somebody else to come in and use that as a medium to get around it and make some real money on it.

Senator CAPEHART. A true co-op is one where, if there are a thousand cooperators, each gets exactly the same in profit, the same in benefit. We found in many cases, you see, where the five incorporators would take just using figures now-a million or two million or three million in windfall profits, and then those to whom they sold the apartments, the units, maybe a hundred or two hunudred or a thousand, paid about the same as anybody else would pay for a comparable house. They did get some benefit in that they got longer terms, because that was a part of the title, part of the law.

Mr. CAMPBELL. In a couple of these places you would be very proud of the way these people are maintaining their projects. You get the homeownership factors that are awfully important in these things.

Senator PAYNE. You would say it was a pretty poor record if only approximately 25, as I understood you to say, are true consumer cooperatives out the two hundred-some-odd that were built?

Mr. CAMPBELL. What I would say is that the 25 were consumersponsored and were cooperative from the beginning.

Senator CAPEHART. They were true co-ops?

Mr. CAMPBELL. True co-ops.

Senator CAPEHART. The others were promoters who promoted under the co-op section, section 213, of the law.

Mr. CAMPBELL. That is right. Now, a number of others have become true cooperatives, and they are ones we are very proud of, because the people, after they found themselves in this situation, got together, pooled their knowledge and initiative, and have done an important job.

Senator CAPEHART. That is right.

Mr. CAMPBELL. And we hate to see some of those knocked in the head.

Senator CAPEHART. Another feature of section 213 is that the Government is obligated to loan construction money as they go along building. The Government is obligated to do it. Under other titles they have got to go out and find their own money and their own credit.

Senator MONRONEY. Any more questions?

Thank you very much, Mr. Campbell. We appreciate your testi

mony.

Mr. Clarence H. Olson. Mr. Olson, will you come forward? I believe you would like to introduce our next witness. We are glad to have you here, Mr. Olson.

Mr. OLSON. Thank you very much. Mr. Chairman and gentlemen of the committee, my name is C. H. Olson. I am the assistant director of the legislative program of the American Legion, and we appreciate the opportunity to come before you this morning to support the principles of S. 1501 which I think is under consideration this morning, the Armed Services Housing Insurance Act of 1955.

I have with me the chairman of our national aeronautics committee, as we call it, which is a subdivision of our national security commission. Mr. Evans is a volunteer, one of the many who worked with us in our wide program.

Our statement is not of a technical nature, and I am sure it is not going to take very long.

In view of the fact that Mr. Evans is mixed up in the aeronautical business, his statement points more to the Air Force than other arms of the service, but that in no way is to detract from our general support of the measure for the benefit of the other services as well. Senator CAPEHART. The Navy and the Army?

Mr. OLSON. Yes, sir.

Mr. Jack Evans, gentlemen.

Senator MONRONEY. Thank you very much, Mr. Olson.

Mr. Evans, we are glad to have you before the committee and would appreciate it if you would just proceed in your own way.

Military housing

STATEMENT OF JOHN K. EVANS, CHAIRMAN, NATIONAL AERONAUTICS COMMITTEE, NATIONAL SECURITY COMMISSION, ACCOMPANIED BY CLARENCE H. OLSON, ASSISTANT DIRECTOR, LEGISLATIVE PROGRAM, THE AMERICAN LEGION

Mr. EVANS. Mr. Chairman and gentlemen of the committee, thank you for extending to me the opportunity of presenting the following

statement.

Despite the increasing degree of mechanization in modern warfare, I think we have all come to realize that our military personnel make up our most important military resource. In approving the recent pay raise for military personnel, Congress recognized the importance of attracting and retaining capable and experienced people in the Armed Services.

There is another item, equal in importance to that of pay, that affects the welfare of military personnel. It is the question of proper and adequate housing. This problem of living conditions and the welfare of our service personnel is the responsibility of every American citizen. If we try to avoid or limit this responsibility, we only ignore the fact that the peace of the world and the safety of our country depends on the quality and dedicated spirit of our soldiers, sailors, and airmen.

Above all, our security depends upon the skill of these men responsible for the operation and maintenance of atomic-age equipment. Any disregard for those human values which our military, the same as you and I, as Americans, have come to expect and accept can only lead to a continuing and costly turnover of personnel.

I, along with other members of the American Legion, have personally inspected the facilities at many of our bases and stations. We have found the lack of adequate housing to be a disgrace and a problem of concern to all of the armed services. It is especially critical for the Air Force because it is a new and expanding service. For this reason, I would like to place particular emphasis on the Air Force's housing needs.

The expansion of existing Air Force facilities and the construction of new bases have created a serious shortage of family quarters for our Air Force officers and airmen. It is true that some progress has been made by the Air Force in reducing this shortage, but a still greater effort is needed in the immediate future. The majority of Air Force families are not fortunate enough to get Government-furnished quarters. These families must depend on community housing. In most instances, such housing is either not available, is too expensive, or is too far from existing airbases. In those instances where it is available, community housing is either flimsy or so expensive that quarters allowances fail to cover the cost of rent.

Today there are about 445,000 men in the Air Force who must have housing for their dependents. To meet this need the Air Force can count on only 134,000 adequate family units.

Thus, there are 311,000 men in the Air Force today who do not have adequate housing for their families. Is it any wonder that the Air Force is faced with a serious reenlistment problem?

« PreviousContinue »