2. The amendment is discriminatory. It provides Federally controlled cooperatives with a more favorable form of financing than is otherwise available or is available to other forms of business enterprise which must attempt to compete with such cooperatives. Thus not only would cooperatives enjoy certain tax advantages under State and Federal laws, but they would enjoy loans based on 100 percent of their costs, for approximately 3 percent interest and from 50 to 60 years, a term twice as long as is available to individual citizens. None of these benefits are available to other forms of enterprise in this field.

Certain advantages not available to others are (a) preliminary direct Federal loans for planning at very low interest; (b) what roughly corresponds to an equity or down payment is limited to 212 percent with the balance of the 712 percent payable over 20 years; (c) Government tax-supported planning and technical assistance (services of this kind by FHA are paid for out of premiums paid by purchaser and are not tax-supported); (d) the Federal lending corporation is free from regular Federal and local taxes except as to any tangible real or personal property it may have; and (e) the local cooperative, of course, enjoys those tax exemptions which are accorded such organizations in its jurisdiction.

In one sense, the proposal discriminates against such persons as may not desire to join in a cooperative with all of the admitted difficulties and uncertainties of such an organization by forcing them to seek private or FHA or VA financing for their individual homes at a higher rate of interest. Further, those persons whose incomes are too low or too high to be eligible to enter such a cooperative, if they so choose, perhaps by only a few dollars a year would be unable to avail themselves of these benefits.

If this line of reasoning suggests making the program available to all persons and classes, or to a gradual broadening of the program in years to come, then a further point is made against starting such a scheme. There are some in this country who are willing to see the Government take over, build, or finance and allocate all housing; however, we are sure that no members of this committee would urge such a drastic step. At the same time the serious question must be raised: Is not this proposal-added to the recently enacted federally subsidized public-housing act-a substantial step in just that direction?

3. The amendment would conflict with the present FHA and VA program in housing. By offering a substantially lower interest rate and amortization periods of more than twice the present FHA and VA provisions, which were set up intended to serve the middle-income group, this proposal would compete with and undermine the present governmental program in housing. What inducement would there be for a so-called middle-income family, veteran or nonveteran, to use FHA or VA? Or private financing sources? Would he not be impelled to seek out a cooperative or urge his Congressman to vote for a greater authorization or a broader coverage as to income groups?

If this proposal is enacted and succeeds as its proponents maintain it will, it is our opinion that FHA and VA will be seriously and adversely affected as to volume and importance as well as to the longterm security of the obligations which they have guaranteed. Cer

tainly it is a risk which this committee and the Members of Congress should ponder carefully.

4. The amendment is not necessary as a means of housing the middle-income third and I think this is the crux of our opposition to this amendment. Whatever merit Members of Congress may have felt justified the passage of the public-housing act to help the lower-income third certainly cannot be used to justify this further extension of Government's direct participation in providing shelter.__ The reason is simple-the group defined for you by Administrator Foley as being the middle-income families-whose incomes range from $2,700 to $4,400 on a Nation-wide average-we believe, and we know, are already being served by private industry both with and without the assistance of FHA and VA. You have been told that in cities of a million and more this range is from $3,135 to $4,841 while in smaller communities the range is $2,451 to $3,929.

By the Government's own statistics it is clearly shown that families in these income brackets can and are buying and moving into the new-as well as used-homes on today's market.

The latest published FHA figures cover the year 1948. Complete statistics for 1949 have not yet been made available. Data appearing on page 59 of the FHA's fifteenth annual report (1948) shows that 50 percent of the purchasers of new homes in 1948 under section 203 had incomes of less than $4,000 a year, as may be noted in a table which I have here and which I would like to leave with the committee. Senator SPARKMAN. That may be inserted in the record at the end your statement.

of

Mr. LOCKWOOD. Thank you, sir.

Sixty-five percent had incomes of less than $4,800 a year. We asked FHA for any available data on 1949 and were advised that for the first 6 months of last year 68 percent of the purchasers had incomes of under $4,800. As pointed out earlier in our statement, 76 percent of veterans buying under combination FHA-VA loans had incomes of less than $4,000; and over half of them had incomes of less than $3,500. This indicates that, partially as a result of the economy home program, the industry is serving a large and increasing percentage of the middle-income group. With respect to the purchasers of existing homes in 1948, FHA statistics show that 69.6 percent had incomes of less than $4,800. It should never be overlooked, as I think sometimes it is, that the used housing constitutes a high percentage of the supply for all income groups and always will. The new home is only a part of the total national inventory of available shelter.

In his statement before your committee, Mr. Foley suggested that housing for middle-income groups should be available at shelter rents ranging from $45 to $73, exclusive of an estimated $8.50 per month for utilities. That was the target that he established. FHA, in its underwriting procedure, pays careful attention to the ability of the purchaser to carry the monthly payments and if, in its judgment, the payment is in excess of his reasonable ability to carry, the prospective purchaser is rejected.

Nevertheless, the FHA statistics above referred to show that the persons with incomes of $4,800 and less bought new homes the monthly housing expense of which, including utilities, maintenance, payment on principal, and payment on secondary loan, if any, ranged from $44.71 to $82.95 per month. For persons in this under $4,800 income

group who purchased existing homes, the range in monthly housing expense was $44.73 to $75.84. For purposes of comparison, these figures should have been subtracted from them the $8.50 allotted to utility payments by Mr. Foley.

The following quotation from page 43 of the fifteenth annual report of FHA is significant:

About 60 percent of the 1948 buyers of new single-family dwellings who financed their purchases with section 203 insure mortgages and contracted to repay their loans at the rate of $45.00 to $69.99 per month, including the payment to principal, interest, FHA insurance premium, hazard insurance premiums, taxes and special assessments, and miscellaneous items, including ground rent, if any. Reflecting a typical mortgage term differential of more than 4 years, the section 603 payment distribution is concentrated within a somewhat lower range, with more than 72 percent of the payments reported between $45.00 and $59.99-even though the section 603 median mortgage was more than $350 above that for section 203.

In previous testimony before this committee, we pointed out that if the subsidized public housing program were launched with the Government stepping in to house the lower one-third of the population, it would only be a matter of time before further efforts would be made in the direction of direct participation by Government in housing additional economic groups. At the time we sounded this warning we had no idea that such efforts would be made at this early date. It will be argued that the $12,320,000,000 public housing program and this $2,000,000,000-middle-income-family cooperative plan do not undertake to house the entire two-thirds of American families. But only the present financial limits in the existing legislation and this proposed legislation confine the programs. I think it is utterly unrealistic, however, to believe that strong efforts will not be made through political pressure to expand the benefits. Already responsible persons are urging an increase in the public housing program. If this amendment is enacted into law it may be reasonably expected that persistent demands will be made for further expansions of it in due course. It is our considered judgment that the extension of direct Federal aid of this kind must be stopped now if we are to maintain a stable economy. I don't believe there is anyone so naive as to believe we can continue to sponsor indefinitely these subsidized programs.

It should be pointed out that the fostering of partially tax-exempt cooperatives reduces the tax base upon which local, State, and Federal Governments depend for the raising of revenues. The cooperative system in housing has not proved that it possesses any peculiar method of reducing construction costs nor to our knowledge any substantial reductions in operating costs. The only obvious advantages cost-wise which cooperatives would have under this amendment are those provided by government in the form of reduced interest rates, increased amortization periods and tax waivers.

If it is the desire of Government to experiment with cooperatives in the hope of developing sound economies, then it seems reasonable to foster them under the provisions of section 207, title II, of the National Housing Act. Veterans cooperatives, in fact, enjoy a 4 percent interest rate with insurance up to 95 percent of replacement costs and a loan amortization up to 40 years, all three of which features are more favorable than any other type of FHA loan.

As to the proposed amendment to section 207, National Housing Act, if it is the judgment of Congress to discontinue section 608 multiple-rental-housing insurance, it is our recommendation that section 207 be modernized to take its place. Any revision of section 207 must be done with a view to making it practical and not to unduly restrict its usefulness in stimulating rental housing for which there is a definite need in many areas. The proposal to limit the 90 percent insurance to the first $7,000 of value, which is contained in this amendment to section 207, is restrictive as is the limitation to $7,500 per unit mortgage amount where the project average does not equal or exceed 412 rooms per unit.

It is interesting to note that this amendment contains both a limit on mortgage amount and on value, but no similar limitation is provided in the amendment on cooperative housing.

(The table referred to follows:)

Average characteristics by mortgagor's monthly income based on FHA-insured mortgages secured by new and existing single-family, owner-occupied homes, sec. 203, 1948

Source: Fifteenth Annual Report of the Federal Housing Administration for 1948, p. 59.

So far as section 207 is concerned, I think the fact ought to be brought out that the requirement that the maximum amount of loan shall not exceed 90 percent of value of the first $7,000 and 60 percent of the excess over that, will have the practical effect of limiting the housing production. It will have the undesirable effect, I am afraid, of restricting the number of units that will be started, that are designed to accommodate large families. I would recommend some other formula be developed that would not have that undesirable effect.

There are a couple of other things that I would like to touch upon briefly. Title I of the National Housing Act is to be set up on a permanent basis, rather than on a constantly expiring deadline and renewals basis. Among amendments to title I enacted by the House of Representatives last year, and which are now pending before the Senate, is a provision for doing away with section 3 of title I, to encourage the production of very low-cost housing, and substituting a new vehicle which we endorse: section 8 of title I.

In the process there is no provision made for overlapping, and those who have projects of this very low-cost housing under construction, which is not completed, and the mortgage loan recorded and ready for insurance, under section 3, will have no vehicle with which to complete those projects and to put the housing in the hands of the people, unless you extend title I for, say, 3 or 4 months after March 1, giving time to clean up that work already under construction under that title.

Conceivably, the section 8 housing procedure will be different, some of the housing may not be eligible under it because it envisages a different kind of property standards, so I recommend, in substituting this new section 8, that title I be given a new lease of life for 3 or 4 months, to permit the orderly liquidation of that work already under construction.

Senator SPARKMAN. Mr. Lockwood, the reference you make there is to the House amendment?

Mr. LOCKWOOD. Yes.

Senator SPARKMAN. Isn't that taken care of in the Maybank amendment?

Mr. LOCKWOOD. No. It is not covered in any of the new amendments introduced, or in the bill which you had hearings on last year, and which you sent to the floor for action in the Senate. There is no provision. We overlooked it previously. It is a point that will cause a great deal of upheaval, and consternation if it isn't covered.

Senator SPARKMAN. I am glad to have you call our attention to that. Of course, we don't want that lapse to occur. I was under the impression that under the proposed amendment introduced 2 days ago by Senator Maybank that it was taken care of. We will check into that. Mr. LOCKWOOD. There is one other suggestion I should like to make at this time:

In all of the country we are concentrating on a program of slum clearance, trying to get municipalities interested in slum-clearance programs, in which the land will be cleared and redeveloped by private persons.

One of the devices that we counted on heavily to provide low-cost residential housing is, of course, something similar to 608 or 207 insured loans. I am wondering whether it would not be advisable to provide in this housing bill a special section designed to serve the needs for rental housing projects in slum-clearance areas only, having in view the fact that since slum clearance is an entirely new venture, that the FHA underwriting may need some congressional support for undertaking to underwrite rental housing projects in these redeveloped areas.

Senator SPARKMAN. How would you suggest that be done?

Mr. LOCKWOOD. I would suggest that a section be established under title II, a section entitled "Rental Housing Assistance for Slum-Clear