of financing for types of housing for which there is a special need including a priority for cooperative housing and housing for minority groups.

Let me comment briefly on two other points raised by this legislation.

(1) Cooperative housing: Section 213 of National Housing Act. The bill changes the basis for determining the maximum mortgage insurance amount from "replacement cost" to "value." Since FHA nearly always determines "value" at less than "replacement cost," this would place cooperative housing at a serious disadvantage. We also object to the explicit removal of an authorization for an assistant commissioner in the FHA for cooperative housing. We feel that such removal will further weaken the already understaffed FHA cooperative housing section.

(2) Protection of labor standards: The bill would remove the requirements that the Public Housing Administration determine minimum salaries to be paid to architects and other technical employees employed in the development of low-rent housing projects. This would be a backward step and we urge that this proposed change be removed from the bill.

In other words, we ask that the language at present in effect be put back into the legislation and this deletion removed.

Certainly the Federal Government should not make funds available for projects which involve substandard wages for any employees.

RECOMMENDATIONS AND CONCLUSION

In order to strengthen the legislation your committee is considering so that it will fully measure up to the housing needs of the Nation, the American Federation of Labor makes the following positive recommendations:

1. To make good housing at low cost available to low-income families, we ask the Congress to authorize construction of 600,000 lowrent public housing units within the next 3 years.

2. We urge a broadened urban redevelopment program providing necessary financial assistance to cities for slum clearance and rebuilding and replanning of metropolitan areas. Reliance on lesser methods such as rehabilitation and neighborhood conservation should be used only to the extent that such methods are economical and workable.

3. We ask for expanded Government assistance for middle-income housing. In particular we urge that interest rates for housing for middle-income families be reduced and if, and only if this is accomplished, maximum amortization periods lengthened. These aids should be made available for all housing meeting livability requirements at costs middle-income families can afford, but priority for such assistance should go to genuine cooperative and nonprofit housing since their costs are necessarily lower than those of speculative builders.

4. We request that home buyers under federally assisted programs be protected by two specific measures.

(a). Every builder of FHA-insured housing, or receiving other financial assistance under the program, should be required to sign a

builder's warranty against structural defects that may develop within the first 2 years after completion.

(b) Purchasers of homes under the FHA and VA programs should be given protection through a lapsed payments plan. This would establish a revolving fund out of which monthly payments could be maintained in the event a home buyer is forced to miss monthly payments by unemployment, illness, death in the family, or other emergency. The mortgager would be expected to make slightly higher monthly payments to make up for the lapsed time and reimburse the revolving fund.

5. We ask that housing built under the FHA and VA programs, as well as all other programs involving Federal financial assistance, be made subject to the requirement for the payment to all employees of wage rates prevailing in the locality, as determined by the Secretary of Labor.

In conclusion, I should like to emphasize to the members of this committee that the Nation's housing problems will not be solved until good housing is brought within the financial reach of all families at costs they can afford. Only when the housing placed on the market runs the gamut of all incomes will the country begin to obtain an adequate supply of housing.

The speed with which we meet these requirements is important not only because it will determine how soon we can achieve the goal of a good home for every family, but also because a high level of housing construction is urgently needed now so that housing could play its full part in maintaining prosperity and full employment.

We urge that your committee broaden the proposals in the present bill to include the recommendations we have made. Inclusion of these recommendations in the legislation enacted will help raise the level of housing construction, will help provide good homes for every American family, and will help sustain economic prosperity.

The CHAIRMAN. Thank you, Mr. Shishkin.

Are there questions of Mr. Shishkin?

We are very grateful to you, Mr. Shishkin, for this contribution. If you have any further ideas, and, as it should be generally understood, witnesses may revise and extend their remarks, and, without objec tion, it will be so ordered with respect to all witnesses, so you may do so, Mr. Shishkin, if you wish.

Mr. HAYS. I have a question, Mr. Chairman.

The CHAIRMAN. Mr. Hays.

Mr. HAYS. Mr. Shishkin, do you have any figures at hand to show how much interest would be paid on a home under this new section proposing a 40-year amortization in comparison to the cost of the home? Have you worked out anything on that?

Mr. SHISHKIN. Do you mean the total amount of interest charges that would be payable by a mortgagor?

Mr. HAYS. Yes. In other words, if this bill went through the way it is written here, we are going to lengthen the amortization period and probably increase the interest rate.

Mr. SHISHKIN. That is right.

Mr. HAYS. To give you an example, on, say, a $10,000 home, or if there is such a thing, an $8,000 home, I would like to know, in addition to the original cost of the home how much the interest is going to be? I haven't been able to get anyone who has worked out the figures.

Mr. SHISHKIN. Well, do you mean, Congressman, the increase in the interest rates, assuming the maximum permitted by this bill?

Mr. HAYS. I think it would be be interesting to know that, assuming that they would be set at the maximum. It does not necessarily follow that they will, but I would like to know how much it would cost if they were.

Mr. SHISHKIN. I don't have the figures with me now but we would be glad to submit to you the approximations that it is possible to establish under the maximum interest rates.

Mr. HAYS. I thought perhaps you didn't, but I thought you might be interested in including those with your remarks. I think they would be very illuminating.

Mr. SHISHKIN. We will be glad to submit a supplementary statement on that.

Mr. HAYS. That is all.

(The information is as follows:)

COST OF INTEREST CHARGES UNDER PROPOSED SECTION 221 PROGRAM

The maximum effective interest rate permissible under the proposed section 221 of the National Housing Act is approximately 6 percent.

H. R. 7839 gives the President authority to set maximum interest rates on FHA and VA loans up to 2% percent above the rate of long-term Government obligations. This rate is currently about 2% percent. This would mean a net interest rate of 5% percent or, since the maximum interest rate for FHA and VA loans is usually set at 4 percent intervals, 5 percent. In addition, there is the 1⁄2 percent FHA premium (under the law, FHA may establish the premium at a maximum of 1 percent, but in the past it has been held at 21⁄2 percent, and we are assuming that this rate would be continued in the future). Under the proposed section 221, the mortgagee is permitted to cent service charge in addition to the maximum interest rate. mum gross interest rate would be 2% percent plus 22 percent plus 2 percent (FHA premium) plus 21⁄2 percent (service charges) or 6% percent, which, rounded, is 6 percent.

charge a 1⁄2 perThus, the maxi

Mr. SHISHKIN. In that connection, Mr. Chairman, I would like to point out that one of the things that gives us most serious concern is this so-called flexible approach to the interest rates. Actually, it amounts to the allowance of higher interest rates than prevailed before. We feel that under the present impact of the economic trends this is unwarranted and dangerous. Although we in no way regard the situation in our economy as a cause for grave alarm, at the same time we feel that at this time, in relation to the trends in activity in the housing field, and comparing those trends over the past few years, it would be indeed a grave mistake to permit the continued tightening of credit terms and to establish the future projection of the housing program on high-credit terms instead of lower ones.

The CHAIRMAN. Are there further questions?

Mr. DEANE. Mr. Chairman, I have one question. Assuming, Mr. Shishkin, that these houses, for $7,000, with 40-year amortization, could be built, have you actuarially determined the amount of interest that would be paid, assuming some interest factor which you may have selected, what the interest rate might be?

Mr. SHISHKIN. We will prepare this statement on the effect, under the maximum rates allowable, on monthly charges, both as to interest and principal, if you would like to have it. I don't have the figures with me.

Mr. DEANE. I would like to have that.

There is one other question, Mr. Chairman, at the present time, FHA or VA, how long do they allow a mortgage to stay in a lapsed condition before they foreclose?

Mr. SHISHKIN. The practice has been changed somewhat. The old classic practice was, in the earlier period, anywhere between 3 and 5 months. As far as the current practice is concerned, I don't know, but I know that the action is up to the mortgage lender. Just how far the FHA allows the mortgage lender to let the home buyer go, without meeting the obligation, I cannot tell you at the present time, offhand.

Mr. DEANE. I am directing my question with reference to B in your recommendations. I don't quite understand what you mean there.

Mr. SHISHKIN. May I explain the proposal? It is a very simple proposal. We are simply proposing that a revolving fund be established, out of which any lapse of payments due to an emergency could be met. This means an emergency on the part of the home buyer, so that the eviction and loss of equity, as a result, would not take place in an emergency of this kind. Upon resumption of regular employment on the termination of the emergency, it should be possible for the mortgagor to resume his payments. If his payments are resumed they will be a few cents higher on the monthly basis in order to reimburse the fund. So the revolving fund would be replenished. We made some years ago a fairly careful study of the application of this, and the incidence of such emergencies that might present a problem of this kind. Of course, it would vary under different conditions. I mean if the length of unemployment were longer, of course, the incidence of such lapses would be greater and their term would be longer.

But in other emergencies, such as sickness, and things of that sort, the terms would be relatively low.

Mr. DEANE. Where would you get the funds from? From direct appropriations?

Mr. SHISHKIN. Well, in all probability it would be best to have it established by direct appropriation or from the available reserves, and administered by the National Housing Agency.

Mr. DEANE. That is all, Mr. Chairman.

Mr. O'HARA. Mr. Chairman.

The CHAIRMAN. Mr. O'Hara.

Mr. O'HARA. I take it from your testimony, Mr. Shishkin, that you do not see much hope in the proposed legislation?

Mr. SHISHKIN. Well, I would say this: There are many provisions here simply realigning and revising the existing procedures. Some of them are certainly the result of thorough study, and are well intended.

But if you take this 107-page bill as a whole, in terms of the realities of the present housing situation, we doubt very much that the stimulations intended are either directed properly or are sufficient to bring us anywhere near the volume of housing construction of 2 million units which our estimate, made last August, shows is necessary in order to meet the housing requirements this year, and in the coming years.

Mr. O'HARA. I agree with you in most of your recommendations, and I have been disheartened at the progress we have been making in housing.

However, we have now this realistic situation to face: The present administration will not do all that you and I believe that for the welfare of the country it should do. We have not the votes to put through the kind of housing legislation that we think would give greater promise to putting a decent roof over the heads of all American families.

Now, under the existing circumstances what can we do? What suggestion can we make to the administration which it may accept to the end that this housing bill, from our viewpoint, will be a better bill than otherwise it would be?

What would be your suggestion along that line?

Mr. SHISHKIN. Congressman, first let me say that I think that the kind of recommendations which have been made by the Housing Administrator, of course, are only indications and guides, and they were very largely in the light of the study of this advisory committee that has submitted them.

The responsibility of accomplishing the kind of a job that you are looking for is the responsibility of the Congress, and I think it is the responsibility of this committee to explore such proposals that would give us an increased volume and stimulate the market.

Let me divide my answer into two parts: First, it seems to me that recommendations we have stated here broadly could be very easily translated into specific legislative formulation-low-rent housing, aids to middle-income housing, and, thirdly, establishment of priorities for such housing as might be brought closer to the financial reach of the families and, of course, the other related recommendations for stimulating the market.

The second part, I think, relates to the fact that, as I have stated at the outset, our prospects in the United States of America are for very rapid growth. No matter what anyone says, if our economic forces are in balance there is no need, on the part of mortgage lenders, real-estate men, or anyone else, to worry about a rapidly developing, prosperous economy in which everyone can share. But the important thing is the balance. If we are dedicated solely to build primarily, for the well-to-do, to raise terms, and to create favorable conditions for those who are already largely in the position where they have the ability to pay, if we don't provide the safeguards against any possible decline for which we need to be prepared, if we don't provide a balanced program in which all of the population can share-and those who do not share in the housing market today are permitted to share— then we will have a measure which is a million-unit-a-year measure instead of a 2-million-unit-a-year measure, or to put it simply, a half measure, such as that which is before us today for the housing for the country.

That is only a point of departure. I think it can be developed into legislation and in very simple terms. We have had ample experience. This committee has studied these problems in great detail, and I think it can be accomplished by this Congress in this session.

Mr. O'HARA. You are speaking for the American Federation of Labor, are you not?

Mr. SHISHKIN. That is right.

Mr. O'HARA. Therefore you represent a great segment of our population. American labor, of course, is interested in the continuance of