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ment for a rental project, but not necessarily valid for a cooperative housing project where liability is the chief aim of the owner-occupant. It is quite obvious that an apartment consisting of a large number of small units provides a higher potential income for the owner and, therefore, a higher value under FHA language than an apartment containing a lesser number of larger units. This factor has tended to stimulate the production of a very large number of rental projects with a high concentration on efficiency units, and with a smaller number of bedrooms than growing families desire. Monsignor O'Grady of the National Catholic Counsel, has described efficiencies as genocide housing, as it has a tendency to cut down on family size and discourage occupancy by larger family units.

A characteristic of cooperative housing has been its emphasis on family living and the development of a larger number of bedrooms per unit. This is often at a cost to the member owner which would not be justified as an investment on the part of a building owner who must make a judgment on the basis of income on investment.

Restated in other terms, the major emphasis of a cooperative housing project must be its attempt to achieve long-range livability rather than the production of income.

The 19th annual report of the FHA reveals that during the year 1952 rental housing projects constructed under section 207, where the mortgage was calculated on an estimate of value, the average unit consisted of 4.3 rooms. Projects developed under section 213, using a basis of replacement cost, contained units with an average of 5.1 rooms. The difference is even more graphically seen in the following table showing the percentage breakdown of smaller and larger units.

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It is our feeling that the present legislation, changing the basis from replacement cost to value, will nullify to a large extent the family livability which has been encouraged as a part of the cooperative housing program.

We, therefore, recommend that the present procedure of insuring mortgages on cooperative projects be continued on a replacement cost basis, which has proven to be an effective and valuable ingredient of the cooperative housing program.

One very unfortunate change is recommended in this legislation in section 120 which eliminates the position of assistant commissioner for cooperative housing in FHA. This deletion was made in the Appropriations Act of 1954, and the bill before you would make that permanent. There apparently was misunderstanding on the part of the Appropriations Committee as to the size and importance of the cooperative housing program. The post was stricken, apparently in the interest of economy, even though that position, and, in fact, all of the cooperative housing program, has more than paid its own way out of fees paid by the cooperative housing projects.

The President's Advisory Committee on Housing Policy made a strong recommendation that the personnel responsible for section 213 be increased to meet the needs in that field. Unfortunately, through a series of resignations, the cooperative housing staff was cut from 8 executives a little over a year ago to 2 executives today. These two men, with a small clerical staff, are trying to keep pace with the present load which has been extremely heavy, and which kept the previous staff at full workload. What has actually happened is that the fieldwork and supervision essential in carrying forward this program have been cut out almost completely. The builder-sponsored projects can get along with a minimum of technical assistance from FHA if they are never to become true cooperatives. Consumer-sponsored projects initiated by veterans' posts, teachers, trade unions, co-ops, and other organizations, need help, and need it badly if they are to be sound and sustaining. We feel that the elimination of the post of assistant commissioner downgrades a very important section of FHA's program, and that the cutback in staff hampers it severely.

Fortunately, we have letters from both Commissioner Guy T. O. Hollyday and Administrator Albert M. Cole, which assure us that steps will be taken under the present legislative situation to try to correct this unfortunate shortage of personnel.

In a letter dated February 3, 1954, Commissioner Hollyday wrote Jerry Voorhis, executive director of the Cooperative League-who was formerly a member of this body, as follows:

As you will recall, the First Independent Offices Appropriation Act of 1954 (Public Law 176, 83d Cong.) contained a provision specifically stating that the position of Assistant Commissioner, Cooperative Housing, was no longer authorized. It would seem, therefore, that the retention of language in the 213 statute which would make it mandatory for such a position to be established would create confusion, and that a clarification in this respect would in effect represent compliance with a directive from the Congress. Such an action does not have any relation to my views on the recommendations of the President's Advisory Committee that a much fuller staff should be provided for the service of the cooperative-housing program.

Administrator Cole wrote Jerry Voorhis on February 12, 1954:

I believe Mr. Hollyday has already written to you indicating our reluctance to submit a legislative proposal on this question which was contrary to the specific provisions of the First Independent Offices Appropriation Act of 1954. However, I want to make it clear to you that this in no way changes my agreement with the Advisory Committee's recommendations affecting section 213. Specifically, I believe the FHA should have adequate personnel available to provide to cooperative sponsors all necessary assistance in organization and operation. This, I feel sure, can be accomplished without reestablishing the position of Assistant Commisioner for Cooperative Housing.

It would provide the status which the program has grown to deserve, however, if the Congress would restore that position.

Earlier in this testimony we pointed out that a great number of minority projects were unable to secure advance commitments from FNMA. There were also a large number of builder-sponsored and consumer-sponsored projects in 26 States which could not secure mortgage commitments, even though they had met all requirements of FNMA and FHA. It would require fund extension of FNMA's advance commitments for approximately $60 million to take care of the applications which met FHA's requirements, both as to time and technical qualifications when the legislation was adopted. To take care of all of these

projects, many of which have become hardship projects, would also require lifting the statewide limitation from $3.5 million to $10 million. If such an authorization is made, and we would highly recommend it, we would also suggest in making advance commitments FNMA give priority to bona fide consumer-sponsored cooperatives which are those in which the board of directors of the cooperative and the project sponsor consist of persons who purchase memberships in the cooperative and will eventually reside in the project, or who are representatives of consumer organizations or other nonprofit organizations formed to assist cooperative housing.

Among the builder-sponsored cooperatives, priority should be given for such mortgages as have the greatest difficulty in securing financing due to occupancy of the housing by minority racial groups.

It has been suggested to your committee that you authorize dual commitments under sections 207 and 213 of FHA to facilitate the mortgage procedure. We would approve of this if there are adequate safeguards to see that the procedure is not used merely for increasing the profits on a speculative project.

If the 213 program is as effective as we believe it to be, we feel that Congress should extend the mortgage insurance available under section 213 to rehabilitation of existing housing where ample safeguards are applied, and to the disposition of Government-owned housing which can be sold to cooperative associations of tenants now living in such projects.

The President's Advisory Committee on Housing also recommended that the Housing and Home Finance Agency give serious study to a proposal for the formation of a housing cooperative mortgage corporation which could pool the FHA-insured mortgages on a cooperative housing projects and issue debentures against such a portfolio. This would make it possible for retirement funds and other similar sources of finance to participate directly in the cooperative housing program, often making it possible for union pension funds and retirement funds to be used for housing for union members. Present financial requirements make that difficult, and such a mortgage corporation would facilitate increased self-help on the part of such groups in meeting their own housing needs. We would appreciate the liberty to insert in the record a proposal which we have made to Administrator Cole for his further study in this regard.

Thank you very much.

The CHAIRMAN. How voluminous is the study you refer to?
Mr. CAMPBELL. The study is six pages.

The CHAIRMAN. Without objection, that may be included and also the table attached to the prepared statement. (The material referred to is as follows:)


KROOTH & ALTMAN, Washington, D. C., January 7, 1954.

Cooperative League of the United States of America,

Washington, D. C.

DEAR Mr. CAMPBELL: I am sending this letter to you to accompany the submission which you are making to Mr. Albert M. Cole, Administrator of the Housing and Home Finance Agency. This letter deals with the proposal of various public interest groups for a Housing Cooperative Mortgage Corporation. It includes the revisions which we have made in our proposal since the issuance

of the President's Advisory Committee Report on Government Housing Policies and Programs.


The report of the Advisory Committee states that the Housing and Home Finance Administrator should "study proposals for the establishment of a cooperative housing mortgage corporation to assist in the production and financing of cooperative housing projects" (p. 13, item V-5).

The report of the Subcommittee on FHA and VA Programs states that:

(1) "The fundamental principles of cooperative housing are workable. By banding together, families in need of housing can often obtain such housing at relatively low cost not only in suburban areas, but also in the concentrated areas of our larger cities" (p. 42).

(2) "We have found that there is only a resricted market today outside of FNMA for the mortgage paper arising out of section 213 financing" (p. 41).

(3) The subcommittee "listened to witnesses who argued for the establishment of a cooperative housing mortgage corporation to make housing loans to cooperatives. In the time available to the subcommittee, it was not possible to study this proposal in detail. We therefore suggest that the Administrator should make a careful study of this matter" (p. 42).

The purpose of this letter is to submit to the Housing and Home Finance Administrator our current proposal for the establishment of a Housing Cooperative Mortgage Corporation so that he may study it as recommended. We hope that on the basis of the modified proposal which we are now making, the Administrator will recommend that the proposed Housing Cooperative Mortgage Corporation be included as part of the legislative program for the coming session.

To the extent that coooperative housing achieves lower monthly costs and makes it possible to serve families of moderate incomes who cannot be reached through other types of private building operations, it represents a private enterprise solution to the problem of providing homes for such families of moderate income and helps fill the gap between other private building operations and subsidized public housing. The widespread interest in the cooperative housing program confirms the demand and support for it. Such a program should not be denied further progress and expansion by reason of the lack of a market for mortgages on cooperative housing-a condition confirmed by the President's Advisory Committee; rather the solution lies in finding a sound way to provide such mortgage financing. This can be done through the establishment of a Housing Cooperative Mortgage Corporation.

B. HOW OUR PROPOSED HOUSING COOPERATIVE MORTGAGE CORPORATION WOULD OPERATE We have modified the proposal which we submitted to the FHA Subcommittee of the President's Advisory Committee by limiting its function to the purchase of FHA mortgages under section 213 of the National Housing Act, as amended. The mortgage corporation which we are now proposing would merely provide a market for mortgages insured by FHA under section 213 and in this way it would make that program operative and effective. FHA would continue to process the applications, insure the mortgages, and inspect the construction.

Following the successful pattern established by the Federal home loan banks and the Central Bank for Cooperatives which makes farm loans, the Housing Cooperative Mortgage Corporation would be created and operate in the following


1. Legislation would be enacted to create the Housing Cooperative Mortgage Corporation to operate within the Housing and Home Finance Agency. Initially, the Federal National Mortgage Association would subscribe to capital stock of the corporation aggregating $50 million. This stock would be retired from earnings of the mortgage corporation and from the proceeds of the sale of stock to housing cooperatives who would be required to subscribe to such stock concurrently with the purchase of their mortgages by the mortgage corporation. In this manner, the stock purchased by FNMA would gradually be retired and the mortgage corporation would become privately owned by the housing cooperatives. This is the same procedure followed with the Federal home loan banks in which all of the federally owned stock has now been retired. The $50 million to be initially subscribed is the same amount of subscription which has been

recommended by the President's Advisory Committee for the National Mortgage Marketing Corporation. As a matter of procedure, it is proposed that when the amount of earnings and capital paid into the Housing Cooperative Mortgage Corporation by housing cooperatives equals $50 million, the mortgage corporatin would be required to apply any subsequent earnings or collections from subscriptions to its stock to the retirement of the stock issued to FNMA.

2. When the FHA-insured mortgage of a housing cooperative is purchased by the Mortgage Corporation, the housing cooperative would be required to subscribe to capital stock in the Mortgage Corporation in an amount equal to some prescribed percentage of the mortgage purchased. With respect to the National Mortgage Marketing Corporation, the President's Advisory Committee recommends that the amount of stock to be purchased by institutions selling mortgages to the corporation to be maintained at not more than 4 percent of the unpaid balance of such morgages held by that Corporation, while there is a minority of the Committee which recommends that the requirement be 2 percent. Whatever percentage figure is finally established for the National Mortgage Marketing Corporation (which we believe should be 2 percent rather than 4 percent) should likewise be applicable to the Housing Cooperative Mortgage Corporation. However, the requirement would be that the housing cooperative (rather than a financial institution) purchase the stock in the Housing Cooperative Mortgage Corporation. It is recommended that the housing cooperatives be permitted to make payment for their stock subscriptions in installments over a period of 10 years.

3. The Mortgage Corporation should be authorized to issue an advance commitment to the financial institution handling the FHA application of a housing cooperative, with the housing cooperative being required to subscribe to stock in the Mortgage Corporation at the time of issuance on this advance commitment. The first payments on the stock subscription should be made at the time of the delivery of the FHA-insured mortgage to the Mortgage Corporation pursuant to its purchase commitment. It is necessary that such advance commitments be issued in order to enable construction financing to be obtained from banks and other private institutions on the basis of a take-out through permanent financing. 4. The Mortgage Corporation would purchase FHA-insured mortgages on housing cooperatives projects, using its initial capital to purchase the initial mortgages. When the Mortgage Corporation had purchased a number of mortgages, it would be authorized to issue debentures in an amount equal to the unpaid principal of the mortgages held by it. As in the case of the Committee's recommendation of the National Mortgage Marketing Association, the Housing Cooperative Mortgage Corporation would be authorized to issue debentures on the private market up to 12 times the amount of its stock and surplus, but in no event in an amount exceeding the unpaid balance of FHA-insured mortgages which it holds.

5. As was done initially with the Federal home loan banks, and with the Central Bank for Cooperatives on farm loans, these debentures should be guaranteed by the United States. Since the portfolio of the Mortgage Corporation would consist entirely of mortgages insured by FHA under section 213 in a dollar amount at least equal to the debentures issued, the basic underlying security behind the debentures of the Mortgage Corporation would include the right to have Government-guaranteed debentures issued in case of a default on any of these mortgages. Consequently, the Government guaranty of the debentures issued by the Mortgage Corporation would involve no new or additional contingent liability on the part of the United States. It would merely place the guaranty on the debenture which is to be marketed so that it will command a lower interest rate and a better and wider market. Since the underlying security in the portfolio already includes the contingent liability of the Government, it would be most unwise to sacrifice the lower interest rates and better market by not having the Government guaranty appear on the face of the debentures of the Mortgage Corporation.

6. The Government would be protected against losses on its guaranty of the debentures of the Mortgage Corporation because the debentures would only be issued against FHA-insured mortgages held by the Mortgage Corporation on which insurance premiums are paid. Such premiums provide the same protection against loss which is characteristic of the entire program of FHA insurance. 7. The primary objective of the Mortgage Corporation would be to assure the availability of mortgage money for cooperative housing projects financed under section 213. The program does not involve any cost to the Federal Government

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