rent could be substantially higher. Is there anything to prevent a cooperative from buying one of these section 608's and financing at a longer term at a lower rate?

Mr. FOLEY. I think the language of the bill, as I recall it, contemplates new housing construction.

Senator LONG. It would be new.

Mr. FOLEY. Just as section 608 itself applied to new construction. Senator LONG. So that could not apply to construction already built.

Mr. FOLEY. It does not.

Senator LONG. Now, as I understand, the authorization the first year is $300,000,000, and there will be over 2 billion for this program; is that the present contemplation?

Mr. FOLEY. That is right.

Senator LONG. The original authorization on section 608 projects was about $500,000,000, I believe. How much was it?

It was

Mr. FOLEY. It changed so frequently, Senator, that I cannot recall. Mr. GREENE. A very small amount in the beginning. $100,000,000.

Mr. FOLEY. You will recall, Senator, it was passed in what were called the defense days prior to the war.

Senator LONG. Yes.

Mrs. HART. I might remind the Senator that it started with $100,000,000 but that was limited to the insurance of mortgages on one- to four-family structures under section 603, not to rental projects under section 608.

Senator LONG. And about how many housing units do you estimate could be built for $300,000,000, which I understand is the amount for the first year?

Mr. FOLEY. By our calculation, taking as the average $8,000 per unit, about 35,000 units.

Senator LONG. Those are all my questions.

Senator SPARKMAN. Mr. Foley, one of the last questions Senator Cain asked was about Government aids to this particular class of people.

As a matter of fact, the Government is simply saying to these people that if they want to act on their own, then it will help them through the guaranty of the loans which private industry will make to their organization, is that not right?

Mr. FOLEY. That is right.

Senator SPARKMAN. The Government is not giving them anything, is it, more than it has given the other classes of housing? Mr. FOLEY. No.

Senator SPARKMAN. It is just a different way.

Mr. FOLEY. As I attempted to point out this morning, the services rendered here are comparable to the services rendered in housing and in other operations by the Government in the past, as far as technical aid. And I think by analogy in the rest of the provisions what is being said in essence is that, "If you are a group of cooperatives that have been qualified and are willing to accept the conditions applying to this type of housing, which will differ from the conditions applying to other aids, then these special aids will be made available."

Senator SPARKMAN. And the type of housing they will get underthis will be different from the other types of housing?

Mr. FOLEY. Yes.

Senator SPARKMAN. All right.

Senator CAIN. Different in what way, Senator Sparkman?

Senator SPARKMAN. Well, for one thing, perhaps they will not be as elaborate. There is a provision in the bill that provides they shall be of economic design.

Senator CAIN. I think that is in all of them.

Senator SPARKMAN. In the public housing; yes. And they are told that they will build this housing themselves or at least have it built on a nonprofit basis. And they are encouraged to set up some kind of a self-maintenance program. And they must show, is it not true, that they constitute a bona fide cooperative for the purpose of building residential units for moderate income families?

Mr. FOLEY. That is right. They forego, for instance, the right to any profit from the subsequent sale of that house.

Senator SPARKMAN. In other words, what we in effect are saying to these people is that if they want to do certain things, then we will help them get a certain type of housing.

Mr. FOLEY. That is right.

Senator SPARKMAN. Just as we have said that to other types of housing, other groups under title I or the title II program or the title VI program, to public housing; to every group, we have provided some kind of aid for a certain type of housing, have we not? And we are doing nothing different here. Is that not right?

Mr. FOLEY. It seems to me that we are doing nothing substantially different in principle.

Senator SPARKMAN. Now, one question of you, Mr. Foley, about the prepayment, the advance loans. I agree with Senator Cain that we certainly ought to be very careful about that part of it, in order to be certain that it is going to be used properly.

Is it your opinion that this legislation is so drawn as to safeguard those loans?

Mr. FOLEY. I think the legislation is so drawn as to give the necessary authority to set up regulations to so safeguard them.

Let me say this, however. I am sure you will agree that although we have made a very careful study of this, we cannot claim to be all-wise. Somebody may have a very good idea that would give further protection.

Senator SPARKMAN. But, of course, they must prove themselves to be a bona fide organization before there is an advance loan?

Mr. FOLEY. That is correct.

Senator SPARKMAN. And the advance loan is not given to any group that cannot prove that they constitute a bona fide organization. Mr. FOLEY. That is right.

Senator CAIN. I only hope that we can find some way to make that a practical fact. Every man and woman in this room knows the instances that can arise; the instances within the section 608 loans, for example, where there was entirely too much profit that has accrued because of carelessness in the matter of appraisals and carelessness on the part of the Federal Government, which has resulted in all of us, all of the people, paying that unwarranted and terrible bill, the sum total of which we probably never will have a proper accounting for.

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Mr. FOLEY. Well, at this time, of course, Senator, there are no losses under any title, section 603 or 608, that have resulted in claims upon the Treasury. Whether or not there may be some in future we cannot predict, although I think there are many safeguards in the set-up. But nobody, and I think I testified to that very frankly before this committee, nobody can estimate in advance as the bill requires as to what it will cost any builder to build any given project. As I have already pointed out, one builder in one community builds a project cheaper than the same project would be built by another builder in that community. So, you have that impossibility, and it should be recognized and it would be unwise for any of us in the housing agency to claim that it is not possible that claims will result on the Treasury.

Senator CAIN. No.

Mr. FOLEY. And as to whether or not there will eventually be losses so substantial that they would have to be claimed upon the Treasury and therefore upon the taxpayer-we cannot say it is not possible.

Senator CAIN. I have talked with people. There was one person from the Northwest that I spoke to months ago on this matter, and his opinion I respect very highly, and he contended that in one construction of 64 individual homes they have been so badly appraised that when they were sold they, in his considered opinion, sold for around 25 cents worth on the dollar.

Mr. FOLEY. That, of course, would not have been a section 608 project.

Senator CAIN. No.

Mr. FOLEY. Or VA.

Senator Cain. A lot of us dream that we will stay within the practicalities in this matter; and we have some hopes that our dreams will turn out to be facts.

Mr. FOLEY. That of course is the reason, one of the reasons, as I said last summer and again I will repeat today, that we do not want an extension of the section 608 type of operation. We think the necessity has passed. We will have to assume that Congress was wise in designing it and that we needed it at the time we had it.

Senator SPARKMAN. By the way, did we not have advance loans under section 608?

Mr. FOLEY. The advances are a different situation there, Senator. Senator SPARKMAN. Well, somewhat similar?

Mr. FOLEY. The insured advances made by the private loans for construction were somewhat different. I think it does not parallel. Senator SPARKMAN. But at any rate this idea of an advance loan is not something special or something entirely new in a housing program, is it?

Mr. FOLEY. We had a somewhat similar situation in the slumclearance program.

Senator SPARKMAN. Yes.

Senator CAIN. May I raise a question about this speculation angle. Now, suppose some people tell me they intend to be speculators and

Senator SPARKMAN. Well, they cannot be speculators in this housing, can they?

Mr. FOLEY. Well, conceivably, some people may dream up a scheme, but also conceivably some other people may head them off, too.

Senator LONG. May I ask how you expect this to work? I understand under the bill you do not anticipate permitting a person to make a speculative profit from an equity in a cooperative. Now, do you anticipate that every person who owns stock will be a resident in that housing project? Is that correct?

Mr. FOLEY. The stock of the cooperative will actually be owned by the cooperative association, not by the individual.

May I point out here, because I think I did not make it sufficiently clear this morning, that what this bill contemplates is a full, all-theway cooperative, from the beginning on to and until the mortgage is paid off. Of course, it refers in the language of the bill in two or three places, to ownership, the individual's ownership of his own home. Now, he can sell that, but it is subject to the right of the association to be the first purchaser in case of sale. The ownership referred to there is ownership in the sense of a continued possession and occupancy rather than the ownership as commonly manifested by a title, transferable fee. This provides in here, it contemplates that a cooperative shall remain a cooperative, and that a cooperator can dispose of his interest, in which case the association itself has the first purchase right to acquisition.

Mr. GREENE. And I think that would definitely prevent speculation. Senator LONG. As I understand, somewhere along the line individuals would actually own an interest in this, that cooperative, and that in turn would own the building?

Mr. FOLEY. You mean the individuals would individually own stock in the mortgage corporation. Well, now, the subscriptions are made by the association for the group, not in the names of individuals and paid out of the funds collected from the individuals in what is rental equivalent.

Senator LONG. Would not the individuals have shares in the cooperative?

Mr. FOLEY. They would have shares in the cooperative itself, but they would not individually hold shares in the stock of the corporation bank.

Senator LONG. What I had in mind is they would have shares in the cooperatives. Now, of course, in that distant date when the mortgage would be paid off on the property itself, the cooperative would own the buildings, would it not?

Mr. FOLEY. It would be then free to make such disposition of it in future as it wishes. Since it no longer has a debt, it would be a matter subject, I suppose, to the usual democratic process of deciding whether or not they want to continue the cooperative or otherwise. Senator SPARKMAN. And I suppose that it might vary from State to State, too.

Mr. FOLEY. Yes.

Senator SFARKMAN. That is, they would be governed under State laws.

Mr. FOLEY. That would have to be considered.

Senator LONG. Now, do you anticipate that the members in the cooperatives would be the same people that would live in the housing unit when constructed?

Mr. FOLEY. That is right.

Senator LONG. And you expect that everyone living there would own shares in the cooperative?

Mr. FOLEY. They would be participating members in the cooperative. Whether there would be actually shares held by them—there would be some evidence of membership.

Senator LONG. And as the cooperative acquired more and more equity in the property as it retired more and more of the mortgage, what would be your objection to the sale of shares in the cooperative by someone who might move from that cooperative, whatever his equity in that might be?

Mr. FOLEY. Well, there are I think many legal situations with respect to that, and I am not a lawyer. There are varying laws in different parts of the country and possibly legal counsel will discuss this further, if you wish to go into details.

But, let me step back to your previous question, Senator, which if I understand it correctly was to the effect: Was every occupant of a unit in a cooperative project necessarily a member of the cooperative? Well, I think there can be exceptions to that. For instance, if a cooperator has to move or leave for some reason, and the association purchases his interest in his home and does not immediately find someone who wants to become a cooperator. Then, of course, I think they could rent that to someone who is not a cooperator-but that is something that would be an unusual situation.

Does that answer your question?

Senator LONG. Yes. Now, what would be your objection to a person who had been living in an apartment for many years selling his equity in the cooperative itself? Suppose a person had lived, that is, in one of these apartments for 30 years and had owned shares in the cooperatives, let us say, 30 years, and it was obvious the building would last more than 50 years, if that was the term of the mortgage. What would your objection be to his selling whatever equity he might have by virtue of the principal that had been repaid on his particular unit?

Mr. FOLEY. I think that would involve some legal questions, Senator, that I think Mr. Fitzpatrick might better answer. I think that would involve substantially the same set of facts discussed in answer to your other question. Mr. Fitzpatrick?

Mr. FITZPATRICK. The cooperative would retain the right to repurchase that equity; it would have to retain control over the manner of disposition of the equity.

Mr. FOLEY. His interest in the cooperative is an equity interest in a living unit. I think that is the point of your question; is it not, Senator?

Senator LONG. As I understand it, it could be sold but it would have to be sold subject to the right of the cooperative to repurchase, Mr. FOLEY. That is right.

Mr. FITZPATRICK. If the cooperative retains the right to repurchase, it can in effect approve the resale of it to another member at the proper price of the equity. But it does not want to release control so that it could be sold in the open market as a commodity, but only in relationship to members going into the cooperative, or purchasing it itself until it got another member to come in to whom they could resell the equity.

Senator CAIN. Mr. Foley, on the assumption that the proposal passes as it is now before us, what number of personnel would be required to properly service the new Corporation? Would they be