Now, this, as I put forth this morning, is just another one of a series of incentives to private enterprise so they can help meet the need. Senator CAIN. I think the cooperative movement is a splendid thing, particularly for those who join in it and are to become a part of a cooperative.

But I am wondering to what extent and how far the Federal Government ought to go in putting a premium on the advantages of the cooperative movement. I am considering this bill, now. It would be one thing if this bill that is before us gave the choice to the American people of either getting into the cooperatives or getting into FHA or VA for their loans, if it gave them that choice of doing that or joining in a group system, if the net cost were to be the same both ways. That would be one thing. But I think that the individual has the freedom of choice. Here I maintain, until I am proven otherwise, that we are encouraging people to live in a group. I do not see how you can get away from that.

Mr. FOLEY. From one point of view and ignoring certain of the facts of the situation with respect to housing, you might be right, Senator. The fact of the matter is, however you are referring, of course, particularly to the advantage in the interest rate which might come about?

Senator CAIN. Well, I do not want you to oversimplify the question, but under the proposed cooperative movement as compared with the FHA and the VA rental structure, you are cutting that figure by approximately 25 percent.

In other words, we are saying to Americans, "If you want the cheapest possible housing, housing made available by the American Government, the Federal Government, join a cooperative." That is what I am talking about, Mr. Foley.

Mr. FOLEY. I understand.

Senator CAIN. And that is what I am concerned about. And I do not see how you can get away from that.

Mr. FOLEY. Well, our point of view with respect to that, Senatorand perhaps I may not make this as clear to you as it is to me is this: This bill does not propose giving these advantages, such as they may prove to be, to cooperatives just because they are cooperatives.

Rather, it recognizes first a need for and a shortage of housing within the reach of the group of people we are talking about, which has been fairly well demonstrated by the figures I have given you and which is not currently being met and for which we are trying to find answers, and for which we may eventually find other answers, particularly through our efforts toward the reduction of costs-efforts in our research program authorized last year.

This combination of such devices is designed in the hope of producing a volume of housing at a lower cost within the range of this group of people which is not now served and which presently does not have any immediate prospect of being served otherwise.

Now, if it were possible to combine the factors which give a special nature to the borrowing group involved in this proposal in some other form other than cooperatives, removing as this removes the profit motive and the opportunities for speculation and so on-and may I say here that speculation has not been the least of the factors that have caused a rise in the cost of housing in the past few years—then

I would say "yes," give that same type of incentive to this other group, but not because it goes by the name of a cooperative. I think that covers the point as far as your question goes at this time, Senator.

Senator CAIN. I have this question also. I am concerned about the advancement of funds for preliminary planning. It might be, I grant you, the only possible way to do it; but I see in there a vast encouragement to speculative developments. There are those who are smart and who know their way about in the housing and finance fields, and they might be able to get around these groups of people who want housing but know nothing whatsoever about these aspects but just want to go into a cooperative so they can get housing. I think that situation might come about through the willingness of the corporation to advance them the 5 percent.

Mr. FOLEY. Up to 5 percent.

Senator CAIN. Yes. Maybe my fear is not a proper one, but I cannot help but see that speculative aspect.

Mr. FOLEY. I cannot and would not say, Senator, that your fear could be called entirely groundless. We all know and have had a great deal of experience with these people you describe as knowing their way around in these mortgage operations.

But you are overlooking, perhaps and I think it is likely because you have not had sufficient time to go into all of it-certain other factors.

One of them is the technical-advice provision here which is designed to very largely and I believe it will almost entirely-remove the possibility of such groups you mention that know their way around in these fields getting to the cooperatives for the speculation you fear. Senator CAIN. What do you mean by "technical advice?"

Mr. FOLEY. Technical advice upon the setting up of the cooperative in the first place, and in the development of their preliminary plan for proceeding.

Now, actually, it is probably true that in the history of cooperatives in fields other than housing in the past that much of the failures that have taken place have been due to the fact that persons without knowledge and not knowing where to go and who had no place to go to have been exploited to some extent by these other people.

You are also, Senator, I think overlooking the fact that 5 percent is a maximum figure.

Senator CAIN. Yes; I know.

Mr. FOLEY. Also that the duty is upon the Administrator to see that regulations are put into effect which will, as far as possible-and I think the extent of that possibility is large-safeguard against that kind of exploitation.

One of the points that I pointed out in my testimony this morning is that this 5 or 3 percent or whatever is the percentage of advance decided on in individual cases is not simply made available in a lump sum to any of them.

Senator SPARKMAN. It is not automatic.

Mr. FOLEY. It is not automatic. These other steps have to take place ahead of it. May I say one further thing, Senator, and I will try to say it very briefly?

Senator SPARKMAN. Yes.

Mr. FOLEY. There has been, of course, considerable discussion of this specific proposal as there has been of all other proposals in the

past, and there have been fears expressed, some of them sincere-let me say many of them sincere, I have no doubt expressed by some with whom I have had a great deal of contact in my work in years past. For instance, it has been stated that this is a move to take over governmentally the whole of the middle third of the housing field.

Now, I submit that that comes with rather bad grace from a section of the industry that must know that we are here really before you today with a device to assist them still further in developing the field for themselves, and I submit it is against the declaration of policy by the Congress of the United States in the Housing Act of last year, in which it was made very clear that the intent and the purpose of all this is to give all the aid and incentive that is properly possible from governmental sources to assist private enterprise to broaden itself and to continue its effectiveness in the housing field.

I think I should say that in view of these statements that have been made.

Senator CAIN. Mr. Foley, if you will permit me just a few moments

more.

Mr. FOLEY. Yes, Senator.

Senator CAIN. I wondered if further consideration should not be given to the point of the equity in the proposal. It is, as I understand it, 7% percent and it extends over a 20-year period with a cash equity payment which amounts to 21⁄2 percent.

Now, we are proposing these houses not for the lower one-third of the American income families but for the middle one-third. I like to think that the families in the middle third in this great country are prepared on the average to put in something better than 2% cents on the dollar for a home in which they wish to live.

Mr. FOLEY. Well, I think it would be a mistake to assume from the language of the bill that the bill necessarily limits the initial investment by cooperatives to 22 percent of the face of the mortgage; that is, immediate and initial equity investment.

"Equity investment" is something of a misnomer there since the money is not in the usual sense a down payment but is by way of an incentive; it is available as a cash reserve; it is supplementary.

Senator CAIN. But it is a sum that to the individual, to him or to her, represent an equity payment.

Mr. FOLEY. Yes; but, as I say, it is a mistake to assume that the bill limits the initial investment to 2% percent. It specifies that as the amount that will be required to be paid in the purchase of stock before the mortgage is fully paid out, but the bill does not limit it to that. Neither does it specify that there shall not be any other down payment.

It does leave room for the requirement to have all or part of the necessary working capital through regulation, although the bill does specify that working capital may be included in the mortgage amount. As a matter of fact, what it does do is leave a degree of flexibility that perhaps is necessary and desirable in the early stages of developing a cooperative movement.

On the other hand, just as for instance I think I intimated at least in our discussion of the 100 percent veterans' loan today, I think it is not a considered policy of the Housing Agency-at least not as far as the FHA to encourage people not to pay down on houses; in other words, to encourage the maximum of debt, since the maximum of debt simply

means the maximum of debt retirement. Now, the question you are raising is whether against all of that background the bill should specify a larger initial investment?

Senator CAIN. Yes.

Mr. FOLEY. That I think is a matter that I have given my views on. Senator CAIN. And from your point of view, considering all the factors, you conclude that the 72-percent and the 21⁄2-percent down payment should be adequate?

Mr. FOLEY. If the bill were enacted that way?

Senator CAIN. Yes.

Mr. FOLEY. Well, I would not consider that the agency or administration would not, where the situation permitted and justified, encourage or possibly even require larger investment.

Senator CAIN. Would you require perhaps I have read the words

wrong:

* * * such stock subscriptions shall be paid for in cash at the time of application for the loan, or, at the election of the borrower, one-sixth of the total amount payable shall be paid at the time of application, one-sixth shall be paid prior to receipt of any proceeds of the loan from the Corporation, and the balance shall be paid in installments within twenty years thereafter.

Mr. FOLEY. When I made that statement, Senator, I was not confining myself to the equity in relation to the purchase of stock but was considering the other factors as well. There is nothing to prevent the enlarging of the equity, as much as he is able and willing to pay. Senator CAIN. One other question. You have, under the definition as you construe it to be in the proposed bill, 8,000,000 American families in the so-called middle-income group. Would you also interpret the bill to contemplate 8,000,000 families in the upper third in this country?

Mr. FOLEY. One-third above and about one-third below.

Senator CAIN. Meaning that when you get this housing legislation in full force and effect

Mr. FOLEY. Excuse me. We are speaking of urban.

Senator CAIN. Yes. When you get this legislation, it will mean that we have come to the day when 16 out of 24 million Americans, in order to have adequate housing, will get it through the assistance of the Federal Government.

Mr. FOLEY. No; that does not follow at all.

Senator CAIN. I wondered. I am raising the question.

Mr. FOLEY. No; I do not think that follows at all. A very great many families are presently acquiring homes without the aid of either the FHA or the VA.

Senator CAIN. Of the middle-income groups?

Mr. FOLEY. Yes. I think it is safe to say that, although I cannot give you figures at the moment. Actually if you include mortgage operations in new construction, I think it has reached a peak of about 35 percent, perhaps, in participation.

Mr. GREENE. That is right.

Mr. FOLEY. And they have reached 10 percent in VA, it is not larger than that in participation.

Actually, Senator, what these things do is to furnish incentive in other directions also; long-term amortized types of loans have come into being since they became an established success, and so on.

No; I think it would be totally wrong to say that because we provide vehicles and make them available to those who need them in certain elements of the population, that it follows that all or substantially all or even a majority will have to use them.

Senator CAIN. Senator Sparkman, I do want to repeat my appreciation for your indulgence extended me. I would like to conclude with one observation, if I might.

Senator SPARKMAN. Go ahead, Senator.

Senator CAIN. I am among those who are seriously concerned with what we are doing in the field of American housing, and concerned with where we are going.

Now, a year ago I had the opportunity to spend some 3 weeks in Dade County, Fla. How the facts are with reference to the rest of the country, of course, I do not know, but the facts were about as follows with reference to Dade County, Fla.

That county, which includes Miami and Miami Beach, was under rent control, and there was the insistence by everybody that there was a housing shortage. One or two of us as individuals took exception to that, but that is neither here nor there.

During the course of the year and because of the rent law that was written under the jurisdiction of Senator Sparkman, Dade County through its legislature was able to decontrol those rentals.

This Christmas I had an opportunity to go back for another look, to see whether all the horrible things that had been predicted by the Office of the Housing Expediter had come to pass. Well, I do not know what the reasons are in their entirety, but significantly there is no longer, in one short year, any housing shortage in Dade County. There is a housing surplus.

The result of that is that the business people and the propertied people of Dade County are collecting money so they can advertise more extensively in northern newspapers in the hopes of getting more people to come down there.

In housing one of the very unusual things which have resulted– and I wish I knew all of the reasons for it-is that the section 608 loans about which we have been talking so much today are beginning to run in the direction of serious trouble. With the rates of rent which the builders were permitted to charge under section 608-well, they could charge them but they could not get people to live in those accommodations, because that field of housing has been returned to the competitive situation.

Now, I have no antagonism against cooperatives, nor am I against a number of the Federal endeavors in the housing field. However, my first endeavor is that we be certain we are not going to some day face the fact that there may be a good many Dade Counties in this country; and I know the taxpayers are getting awfully worried about it down there. They would like to settle down for a while with the present obligations they have of the Federal Government, without having promptly to take on some mare.

With that, gentlemen, I will conclude and I will leave the committee for the moment with great personal distress, although I am happy I will have the opportunity to come again.

Senator SPARKMAN. You are welcome at any time.

Senator LONG. There has been mention of the fact the section 608 projects brought a high rental and, of course, at the present time the