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for such improvements, but it would involve an amendment in the Housing Act of 1949, section 110, title I (c), which states as follows:

The project may include acquisition of land which is predominantly open and which because of obsolete platting, diversity of ownership, deterioration of structure or site improvements or otherwise substantially impairs or arrests the sound growth of the community which is to be developed for predominantly residential uses.

That is the section. They propose to add the very simple phrase here which may have considerable implication. They want to add "or open land to be developed for commercial and industrial use."

That is the amendment suggested. Now, that may have implications. I would like to have the Administrator's reaction on it, if he is willing to give it to us. It is proposed that this land will be acquired by the Federal Government and resold for commercial or development purposes.

Mr. COLE. Mr. McVey, in this proposal we have dropped the predominantly residential requirement.

May we study the amendment and discuss it with you? It is possible that it might be covered; quite possible that it is already covered.

Mr. McVey. Thank you. I will be very glad to do that.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. O'Hara.

Mr. O'HARA. I am happy that Mr. McVey brought up the matter and presented it so ably. I had received a similar letter. I think the organization addressed it to both of us. I would appreciate it if you would give me a copy of your opinion on that, too, in order that I may be better informed when we go into executive session.

Mr. Cole. All right, Mr. O'Hara.

The CHAIRMAN. Are there further questions of Mr. Cole and his staff?

If not, Mr. Cole, we are very grateful to you for having been so patient with the committee, and for the very valuable contribution you have made to this study.

I assume that the committee can be assured that you will be available from time to time during our further hearings and discussions on this bill for such advice as we may desire.

Ir. COLE. Yes, sir. The CHAIRMAN. If there is no objection, your part of the proceedings will now be terminated and we will take

up

tomorrow the question of veterans' housing. We will have with us representatives from the Veterans Administration and from the armed services. If we have time, following that, we will take up some of the veterans' organizations.

So the committee will stand in recess until tomorrow morning at 10 o'clock.

(Whereupon, at 4:42 p. m., the committee adjourned to meet at 10 a. m., Friday, March 5, 1954.)

HOUSING ACT OF 1954

FRIDAY, MARCH 5, 1954

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met at 10 a. m., Hon. Jesse P. Wolcott (chairman) presiding.

Present: Chairman Wolcott (presiding), Messrs. Gamble, Talle, Kilburn, McDonough, Widnall, Betts, D'Ewart, Merrill, Oakman, Hiestand, Van Pelt, Spence, Brown, Patman, Deane, Dollinger, Bolling, Barrett, Hays, and O'Hara.

The CHAIRMAN. The committee will come to order.
We will resume hearings on H. R. 7839.
We have with us this

morning, Mr. King, Acting Assistant Deputy Administrator (Loan Guaranty), Department of Veterans' Benefits, Veterans' Administration.

Mr. King, we are very happy to have you with us this morning. You may proceed with your statement.

STATEMENT OF T. B. KING, ACTING ASSISTANT DEPUTY ADMINIS

TRATOR (LOAN GUARANTY), DEPARTMENT OF VETERANS' BENEFITS, VETERANS ADMINISTRATION, ACCOMPANIED BY JOHN M. DERVAN, LEGAL CONSULTANT IN THE LOCAL GUARANTY OFFICE OF THE VETERANS ADMINISTRATION

Mr. King. Mr. Chairman, I have with me Mr. John M. Dervan, legal consultant in the Loan Guaranty Office of the Veterans' Administration.

The CHAIRMAN. We are very glad to have you both here, Mr. King. Mr. King. I appreciate the privilege of appearing before this committee.

Before turning to my detailed comments which will be directed toward H. R. 7839, 83d Congress, a bill to aid in the provision and improvement of housing, the elimination and prevention of slums, and the conservation and development of urban communities, I wish to state that my remarks have been informally coordinated by the Deputy Administrator for Veterans' Benefits with the Administrator of Veterans Affairs and have his general approval. Of course, time has not permitted discussing any of this material with the Bureau of the Budget to determine its relation to the program of the President.

Our comment is confined to those provisions of the subject bill which have some direct or substantial although indirect effect on the loan guaranty and insurance programs. We have not considered it necessary to comment on those provisions of the bill which have little or no bearing on the GI loan program.

Sections 104 to 125 of the bill would amend title II of the National Housing Act. Some of these proposed amendments are of interest to the Veterans' Administration in that they have an indirect effect on the GI loan program. Sections 104 and 105 provide for an increase of the maximum insurable mortgage and an increase in the maximum permissible term of the mortgages insurable under section 203 of the National Housing Act. The maximum insurable mortgage would be increased from $16,000 to $20,000 in the case of 1- and 2-family residences, to $27,500 for a 3-family residence, and to $35,000 for a +family structure. The permissible 30-year maturity which heretofore was applicable only in the case of low-cost housing-mortgage amounts up to $6,650—would be applicable to any mortgage eligible for FHA insurance. Other liberalization would be effected under section 104 of the proposed bill by increasing substantially the maximum loan to value ratios heretofore authorized. The increases in loan to value ratios are set forth in the printed table on page 4 of the House committee's summary of the provisions of The Housing Act of 1954. The higher ratios thus proposed affect both existing and proposed housing, the increase over present limits being greater in the case of existing housing. Formerly the maximum loan on an existing unit was 80 percent of the FHA valuation, but under the bill the maximum loan could be as much as 95 percent of the valuation in the lower price ranges.

The proposed increases in loan to value ratios and the corollary reduction in the cash downpayments, together with the increase in the permissible term of the loan which will make lower monthly carrying charges possible, will make considerably more liberal financing terms possible for prospective home purchasers under the FHA program. This, of course, would tend to dilute or impair the preference which has been available to veterans obtaining GI financing, since the amendments would place nonveterans in virtually an equal position in respect to housing credit terms. The extent to which such dilution would take place depends, of course, upon whatever action may be taken by the President in exercising his authority under section 201 of the proposed bill. Under the bill the President must authorize the more liberal terms contemplated by the bill before they become applicable to the FHA program.

On the other hand, it is noted that the only action which the President would be enabled to take in respect to VA guaranteed home loans would be to make GI loan terms more restrictive. If the FHA program is liberalized as contemplated in the bill all eligible veterans, including recent veterans of the Korean conflict, will be deprived to a considerable degree of the preferred position they heretofore enjoyed in respect to housing credit. Inasmuch as it is not known to what extent the President would liberalize the FHA program the exact effect of the proposed legislation upon the preferred position of veterans in the housing market cannot be forecast.

Section 125 of the proposed bill would add two new sections, 223 and 224, to the National Housing Act. Section 223 would authorize insurance by FHA of advances to a mortgagor made pursuant to the provisions of a so-called open-end FHA insured home mortgage. The type of open-end mortgages this contemplates would provide that

loans or advances in addition to the original loan secured by the mortgage may be made to a mortgagor for improvement, alteration, or repair of the home covered by the mortgage without the necessity of executing a new mortgage. This authority would be granted FHA in connection with mortgages secured by property containing four family units or less.

FHA insurance formerly was not available to cover such advances made under the terms of an open-end mortgage. Such liberalization of the FHA insurance would have the effect of authorizing the insurance of advances which, generally speaking, are to protect or improve the security for the mortgage.

It may be noted that under VĂ supplemental loan procedure, open-end mortgage provisions may be utilized for such purposes but additional guaranty coverage of the advances made under open-end mortgages is available only to the extent that the veteran has unused guaranty entitlement available. The Congress, whether or not it gives favorable consideration to this provision of the bill, may wish to consider liberalizing the provisions of the Servicemen's Readjustment Act relative to such supplemental lending for purposes of repair or improvement of veterans' homes. As the law now provides, the Veterans' Administration cannot extend guaranty coverage comparable to the proposed FHA program without a change in the existing statute since the $7,500 entitlement currently available to veterans under section 501 (b) of the act is restricted to loans for the purchase or construction of residential property to be occupied by the veteran as his home. Consequently, additional entitlement for supplemental loans for the alteration or improvement of the veteran's home is available only if he used less than $4,000 of his entitlement in connection with the purchase or construction of his home. In recent years most veteran home purchasers have used at least $4,000 of their entitlement in connection with the original purchase of the home, and, accordingly, have no entitlement available for alteration or improvement advances. Naturally, lender interest in making such advances would be stimulated if some additional guaranty protection for such advances were obtainable.

Furthermore, the housing needs of a large segment of the 3 million families who have obtained homes with the assistance of GI financing have changed materially, due to increasing family size, and in many cases there has been an improvement in the economic status of these homeowners. It is to be borne in mind also that in many instances a substantial reduction in the mortgage debt has taken place since the home was purchased. Those veterans are now in a position to undertake the responsibility entailed in financing improvements and alterations to their homes.

It should be borne in mind further that these homes in many instances are some 8 or 9 years older than when the VA guaranteed the initial loan.

If a lender is willing to make a GI supplemental loan, the veteran obtains the advance on a low-cost, long-term repayment basis, and the primary loan is not jeopardized by the high carrying cost of shortterm improvement loans, which would be otherwise the sole thing available to the veteran for that purpose.

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