nized by its omission from the Rankin bill which is now under consideration by the Congress.

This association does not recommend the elimination of the plan now available to veterans under section 501, but it does most strongly recommend that in addition thereto, FHA financing be made available to veterans at a total cost of 4 percent per annum, thus permitting them to take advantage of the protections afforded by the FHA when they so elect, without extra cost. The large credit resources not now available to them would be thereby released and a broad op portunity for borrowing assured.

Senator MITCHELL. Do you suggest there an amendment to the housing bill now under consideration?

Mr. MAHAN. I am going to ask Mr. Hill to discuss that very briefly. Mr. HILL. That probably could be accomplished more quickly by an amendment to the Present National Housing Act. That would be a very simple amendment. The difficulty is that most of the States have authorized insurance companies, banks, et cetera, to invest in mortgages insured or permitted to be insured by the FHA. They have not been authorized, except in seven or eight States, I understand, to make investments in mortgages guaranteed under the Servicemen's Readjustment Act. So you would bring them in line legally if you would make a simple amendment to the present act, which would probably take less time than to attempt to amend this act.

Mr. MAHAN. We are not all in accord on this, but we do not subscribe to the investment of trust funds in permanent real estate investments. However, we realize that there may be some local situations and certain life insurance or other companies which may be qualified and in a position to administer this type of investment. But in the main, we do not believe that this investment policy should be encouraged universally, and in speaking of trust funds, we refer to those funds which are held by life insurance companies, savings and loan associations, fraternal organizations, trust companies, and the like. This principle is a long established and prudent investment policy.

Senator MITCHELL. I take it, then, that you would oppose the amendment suggested this morning by Mr. Schwulst. Did you hear that?

Mr. MAHAN. Yes, sir. It is a very difficult problem, but from our experience and observation of seeing the failure of so many insurance companies and others growing out of speculative ventures on their part, I think the insurance companies and other trust funds should be encouraged to keep away from speculative ventures.

While the large insurance companies, many of them, are well qualified and well equipped to take advantage of direct ownerships, and to properly supervise them, there are many, many companies that are not. And yet there is a great amount of investment in those smaller companies which should be protected for the policyholders, or the beneficiaries whom they represent.

TITLE III. AMENDMENTS TO EXISTING AIDS TO PRIVATELY FINANCED HOUSING

We believe that the following provisions of title III are satisfactory, but do not require an omnibus bill for their enactment:

Section 307, FHA title I home improvement loans are permitted to have 5-year maturities. Insurance is provided for maximum

loans of $10,000 with 7-year maturities for improvements to other than single family properties.

Section 308. All restrictions in respect to the proportion of total FHA insurance that may be written on existing property and to the period during which such insurance may be written, are removed.

Section 309a. The permissible maturity for all FHA mortgages is increased to 25 years.

Section 310. Where any title II or title VI FHA mortgage is paid in full prior to maturity, prepaid insurance premiums are to be refunded in such proportion as is equitable, irrespective of whether the payment of the mortgage is by refinancing with an FHA mortgage, or otherwise.

Section 311. Where the borrower under an insured mortgage is a veteran, provision is made for extending the maturity of the mortgage for a period equal to the veteran's period of military service.

This provision facilitates the veteran in exercising rights already granted to him under the Soldiers' and Sailors' Civil Relief Act. Section 313: The authority to include in FHA debentures an allowance for foreclosure costs is extended indefinitely.

Section 316: The maximum examination fee for rental housing mortgages is raised to 1 percent of the mortgage amount.

Section 317: Any profits from the sale by the Administrator of foreclosed rental property go to the benefit of the housing insurance fund rather than of the mortgagor.

We are in disagreement with the following sections of title III: Section 309 (b): Every insured mortgage may, in the discretion of the Administrator, contain provisions permitting payments for both interest and amortization to be lapsed because of hardship, and permitting the amortization period to be extended sufficiently to make up for the lapse, provided no single extension is for more than 1 year or total extensions more than 3 years.

Section 312: In all cases hereafter where mortgages are insured on new construction, the "principal contractor" will be required to provide a warranty for 1 year against the defects in materials and workmanship and against

any violation or breach of, or noncompliance with, any specifications, covenants, or conditions set forth in any of the construction contracts, or any technical standards of construction and design prescribed or approved by the Administrator.

Section 315: Insurance is made available on rental housing loans. up to $50,000,000 where the mortgagor is subject to regulation under a State housing law. Taxes and interest during construction are permitted to be included in the appraisal of cost. The loan limit on a per room basis is raised to $1,500.

TITLE IV. PRIVATELY FINANCED HOUSING FOR FAMILIES OF LOWER INCOME

Section 401 (reading):

This title is not designed to supplant or alter any of the existing systems of mortgage insurance under the National Housing Act, but rather to supplement them with special systems of mortgage insurance for families of lower income who require more favorable terms than such existing systems offer.

Section 402: Proceeding on this declaration, provision is made for the insurance of 95 percent mortgages to home owners and 85 percent

mortgages to builders where the principal amount does not exceed $5,000. Such mortgages may not carry an interest rate in excess of 4 percent and may have a maturity of 32 years.

Section 403: On transfer of the property to the Administrator after default and foreclosure, the mortgagee is to receive debentures covering an amount equivalent to what he would have received had the mortgage been paid in full plus reimbursement for foreclosure and conveyancing costs, less an amount equivalent to one-half percent of the unpaid principal at the time of default.

Losses are to be covered by the mutual mortgage insurance fund. Section 404: Where the Administrator finds that there is need for lower rental housing than can be provided under the existing terms of section 207 of the National Housing Act, insurance is provided for mortgages on rental property up to 90 percent (instead of 80 percent) of value. Insurance of mortgages up to 95 percent of value is provided for properties owned by mutual ownership corporations, nonprofit corporations, Federal or local instrumentalities, or limited dividend corporations regulated under Federal or State housing laws.

We believe the limit of loan should be 90 percent rather than 95 percent, as provided and the term of mortgage should be limited to 25 years, at the most. The rate of interest should be sufficient to induce investment funds.

Section 405: The interest rate on such mortgages may not exceed 32 percent and maturity may not exceed 40 years. The maturities of such mortgages may be extended for three additional years to prevent foreclosure due to decline in income because of adverse economic conditions. In case of continued default, after such extension, the mortgage may be transferred to the Administrator in return for debentures, covering the full amount outstanding on the mortgageincluding any lapse dinterest payments-less one-half percent of the unpaid principal amount outstanding.

Losses are chargeable against the housing fund set up under present section 207.

Section 406. The authority of national mortgage associations to make loans insured under the existing section 207 of the National Housing Act-rental housing-is extended to cover all types of mortgages provided for in this title of the new act.

We believe the terms and interest rates stated in these sections are not satisfactory.

The provisions of these sections are an experiment and we would not like to see the plan tried. In our opinion, direct private investment is a better approach to the problem of producing rental housing for the lower income group than a reduction of equity requirements, and we do not believe they should be tried at this time.

Senator MITCHELL. But we still have an argument unsettled there. Mr. MAHAN. That is right. I will come back to it. The responsibility of the owner is essential to the success of the project.

TITLE V. DIRECT PRIVATE INVESTMENT IN HOUSING FOR FAMILIES OF MODERATE INCOME (YIELD INSURANCE)

Section 501-701: Under a title title VII-added to the National Housing Act, the Administrator is, in cases of wholly debt-free investment in rental properties, authorized-up to a maximum liability of

$1,000,000,000-to insure to the investor a minimum yield of 234 percent of the outstanding amount of the investment plus a maximum annual amortization of 2 percent of the original amount of the invest

ment.

The insurance remains in force until 90 percent of the investment has been amortized.

Section 501-703: A premium of one-half percent per annum of the outstanding investment is provided for. If the income of the property, after operating costs and taxes, is not sufficient to pay the premium, the unearned portion of the premium is waived for that year, to be made up later from excess earnings, if any. An initial examination fee up to one-half percent of the estimated investment is allowed.

Section 501-704. Rents on insured properties are established-or may subsequently be readjusted-by agreement at an amount not lower than necessary to cover all operating expenses-including property taxes and investment insurance premiums-amortization, and an annular return of 34 percent on the outstanding investment and— not higher than necessary to meet the need for new dwellings for families of the incomes proposed to be served.

Section 501-705. Earnings above 314 percent are to be allocated on a 50-50 basis to additional yield and additional amortization until the yield reaches 4 percent, after which all excess earnings go to amortization.

Section 501-706. The investor is required to submit to the Admin-. istrator an annual financial statement covering the operation of the property.

Section 501-707. Claims against the insurance are payable in cash at the end of any operating year during which earnings have not been sufficient to pay the insured yield of 234 percent after amortization, operating expense, and taxes.

Section 501-708. Whenever the claims paid equal 15 percent of the original investment, the Administrator has the right to take over the property on payment of debentures-at not over 2344 percent interest or 40-year maturity-in the amount equal to 90 percent of the outstanding investment. In any case where operating losses-not covered by the insurance-equals 5 percent of the original investment, the investor has the right to turn the property over to the Administrator and to receive debentures on the basis just stated.

Section 501-709. The insurance contract may be otherwise terminated at the option of the investor on payment of a penalty to be prescribed by regulation by the Administrator. The Administrator on his own part may terminate the insurance for cause as determined by regulation.

Section 501-710. A new housing investment fund of $10,000,000 is provided to cover losses under this title. If the fund is insufficient, claims will be paid by the Treasury, as is the case with the other FHA funds.

The association has not had sufficient time to canvass its membership on the very important provisions of title V. These constitute an entirely new line of thought, and before committing our membership, we would like to give them an opportunity of expressing their ideas and opinions.

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I am trying to say that we have tried in the limited length of time given to us, to analyze section 5 and to gain the opinion of our membership as much as we can, and the association has not had sufficient time to canvass its membership on its attitude toward title V.

We can say, however, that we believe any step which will encourage private investment in homes for the families of moderate incomes is far preferable to government ownership and it is evidently the intent of the bill to encourage this idea.

We must not overlook, however, that much has been done in recent years, and particularly in the operation of the Federal Housing Administration, to better the housing conditions of families of moderate income. This was thoroughly covered in the testimony of Mr. Raymond M. Foley, Commissioner of the Federal Housing Administration, and his testimony was supported with considerable data, which we have read and subscribed to for the most part.

TITLE VI-LAND ASSEMBLY FOR PARTICIPATION BY PRIVATE ENTERPRISE TO DEVELOPMENT OF REDEVELOPMENT PROGRAMS

Section 602: A redevelopment project may be carried out in (a) an area comprising existing slum housing, in which case the proposed redevelopment may involve any appropriate use of the land, or (b)

any

deteriorated or deteriorating area or open urban land which because of obsolete platting or otherwise, impairs the sound growth of the community or open suburban land essential to the locality for sound community growth—

provided in this case that the area so acquired is redeveloped primarily with new housing.

A redevelopment project includes the acquisition of land, demolition of buildings, and all work necessary to prepare the land for its designated future use. It does not include

the construction of the buildings contemplated by the redevelopment plan.

Sections 603 and 604: Every project must have local initiation. conform to a comprehensive local plan, and be approved by the local governing body or by an agency designated by the local government. Maximum opportunity is to be given to privately financed redevelopment. Purchasers of reclaimed land must agree to devote the land to purposes specified in the redevelopment plan, to begin operations within a reasonable period of time, and to give families displaced by the project first claim on new housing providing they are able to pay the rents charged. Before any project is undertaken there must be a showing that sufficient decent, safe, and sanitary housing is available to take care of displaced families.

Section 605: Federal loans are made available for interim financing, up to 5 years, and for long-term financing-45 years-where the reclaimed land is leased rather than sold. Loans of $500,000,000 for interim financing and $50,000,000 a year for each of the next 5 years for long-term financing are authorized.

Sections 606, 608 (a): Any difference between the total cost of the projects in any locality-including acquisition, demolition, and land preparation-and the proceeds from sale-including the capitalized value of leased land-is borne two-thirds by the Federal Government and one-third by the locality. The Federal Government's part