building and marketing industry our association believes that the objectives of the bill would be better served by making the date of enactment the effective date of these new limits. More will be said on this point in our review of title II.

With respect to cooperative projects under section 213, we suggest that the FHA could materially assist this program by permitting developers to start construction pursuant to firm commitments under section 207 and later change the commitments to section 213. We believe this is desirable because probably the greatest obstacle to getting started on a 213 project is the impracticability of bringing 90 percent of the members of the proposed cooperative into agreement while the project is in the planning stage. We feel this could be accomplished administratively, and respectfully suggest that an expression on this point might well be inserted in the committee report.

I might say we know that the requirements of section 207 are stricter than those of 213. Permitting construction under 207 first, and later changing to 213 as the project is completed, would in no way harm the loan, because the building would be of a better type than if originally constructed under 213 requirements. There is a great deal of difficulty in getting the number of prospective purchasers to sign up in the planning stage before they can see the actual building. This led to quite a few abuses that are well known in the industry.

We recommend that mortgage commitments under section 213 continue to be based upon percentage "of the amount which the Commissioner estimates will be the replacement cost of the property or project when the proposed improvements are completed.' In the proposed amendments the criterion would be changed to "estimated value" which, because of the establishment of FHA valuation regulations, would lead to confusion and possible impediment of cooperative housing projects. That is quite evident because we know in a cooperative project, income cannot be capitalized. Therefore the valuation should be the replacement cost of the project.

The proposed section 220 is essential to the success of the urban renewal provisions of the bill. We cannot overemphasize the importance of its enactment to the fulfillment of the broad objectives of this bill. Mr. Fritz Burns, chairman of our Build America Better Council, will discuss section 220 further in his testimony on the urban renewal provisions of the bill.

We are pleased to add our endorsement to section 221 which provides for 100 percent mortgage insurance with 40-year maturities for housing persons "displaced by governmental action" such as slum demolition, urban renewal, condemnation for reasons of health, and so forth. However, we believe that the $7,000 mortgage limit may very likely preclude the use of this section in many of the urban areas where the need is greatest. We recommend, therefore, that the limits be increased to $7,600 with authority for the FHA commissioner to increase the limit by an additional $1,000 in high-cost areas. We respectfully invite the committee's attention to the recommendations of the President's Advisory Committee, which sets forth these suggested limits.

We see in section 221 for the first time a recognition by Government of this device for meeting the housing needs of very low-income people by helping them to become homeowners. We believe it is better to

assist these families to own their homes than to try to make them tenants of subsidized Government-owned housing.

Homes acquired under this section may carry a mortgage with a maturity period as long as 40 years. These homes will also be paying full local taxes for that 40 years, unlike public housing for which the Federal Government is pledged to pay subsidies for 40 years, and which housing during that period does not pay local taxes.

I might just deviate for a moment, Mr. Chairman, to say that much has been said in the press and in discussions of this section of the bill, that it could not apply to the metropolitan areas of our country. I would like to say that, speaking with knowledge of New York City particularly, that this could apply in New York City. True, it would not apply in the East Sixties and East Eighties. It is not meant to apply there. But certainly it could apply to the northeast sections of the Bronx, Staten Island, and certain sections of Queens. Only a few weeks ago the housing authority proposed a project known as the Kingsland Houses, in that section of the northeast Bronx in the two-fare zone along the old Boston & Westchester Railroad cut, where the land is 16 to 40 cents a square foot assessed valuation. It had passed the city planning commission, but was then going to go before the Board of Estimate. Because the owners in that area banded together, 700 or 800 in number, in a small area, the housing authority withdrew the proposal.

Only last week the Castle Hill Houses, a section on that was formerly temporarily improved with quonset huts for veterans, where the average value of the land was about 40 cents per square foot-and I know that because I made the original appraisal for the housing authority for that particular plat-they proposed a public-housing project. The owners in the entire area objected to it. After testimony of 4 hours, with only 4 people for it, in 4 minutes the Planning Commission approved it. It is now before the Board of Estimate and was to be acted upon the following day but because of the objections the Board of Estimate adjourned it for 2 weeks.

These are two areas where section 221 definitely could apply because the land is anywhere from 16 cents to 50 cents per square foot assessed value. The environment is that of 1- and 2-family houses, no apartment houses in the area, and I say these would be ideal locations for the operation of section 221. I am speaking specifically of the Bronx, but the same would apply to certain sections of Queens and Staten Island.

So I believe that this section could be operative. It is not just theory. We definitely believe that it has a place and could also operate in urban communities.

Public housing we know goes up in the air 12 or 15 stories. Under section 221 we would be giving these people an opportunity to do things that they haven't been able to do in public housing. In public housing everything is done for the tenants. The children who have some mechanical aptitudes, or like to go out and plant some grass, or have a pet in the backyard, or cut the grass, can't do that because everything is done for them. Most of the people living there are mechanically inclined, and yet they have no opportunity of using their skills in public housing. In a section 221 home they could improve their own property. Maintenance could be practically nil because they

could maintain it themselves. They would be building up for themselves not only a small equity, financial equity, but greater than that they would be building up a moral equity.

You hear a great deal about juvenile delinquency. I want to say from firsthand knowledge that we know the New York City Housing Authority has requested, and has had to request, additional policing for the projects which were said to eliminate slums and improve conditions so as to stamp out juvenile delinquency.

My brother, up until the time he went on the bench, the first of the year, was in the district attorney's office. I therefore, have some little firsthand knowledge of what is happening in the public housing projects, and I am specifically familiar with those in the Bronx.

At the same time we mustn't lose sight of the fact that under this section we would be obtaining full normal taxes, and it would go a long way toward preventing municipal insolvency which under the trend of public housing will certainly lead to that.

Mr. SUMMER. In addition to that we feel that under section 221 there should be a provision which makes the mortgage payable in case of resale. The entire purpose of 221 is to take care of those requiring relocation. It is not meant as a stimulus to the home-building industry at all, but, rather, to provide a full local taxpaying facility for those who are being relocated, and who cannot pay an economic rent or buy a home under the normal methods of financing.

It is designed also to provide housing for minority groups who do not often have an opportunity to go out in the suburbs or rent wherever they would like to rent.

The moral equity that Mr. Waltemade mentioned, I think is a very important thing. When a man plants a tree and a woman plants some shrubs, they won't easily give that up. They wont' walk away from something they have created themselves.

Similarly, a man who builds his own workbench and an outdoor fireplace with his own hands, won't walk away from it. But the important point is this, gentlemen: Under public housing those who are being helped, have everything supplied the decorating done for them, the grass cut for them, and there is absolutely nothing they can do to help themselves. It is all done for them.

And if the man happens to have children who have mechanical aptitudes, those kids just can't do anything. They can't even go out and cut the grass. Home ownership provides an incentive for human relations that is so important, and not merely a cold, mechanical method of helping people help themselves. Let us never forget there are many people in minority groups who are not in need of assistance as such, but in need of opportunity, many of them economically being able to pay the freight, but do not have the opportunity.

That is why we recommend, in the case of a resale, to prevent abuses, and rackets, in this thing, that the mortgage become payable, and that any purchaser thereafter must arrange his own financing through established methods, whether it be title II, conventional mortgages or otherwise.

If that were not done this would be used as a subterfuge to use those people who need help merely as a tool. I don't want to take up any more time because Mr. Waltemade will testify further.

Mr. WALTEMADE. I might say there is also an objection raised to section 221 asserting that it is not going to take care of the very low income group. I want to say that public housing, of course, was never intended for that purpose, because those making such a low income that they are practically on relief are, I know in New York City, not admitted to public housing.

I don't think it was ever the intent of Congress that it be so. I just want to refer to a statement in the Congressional Record of April 19, 1949, made by Senator Sparkman, who said :

This does not, however, mean that public housing should be used as a program of monetary relief for families who have no income or incomes that are far below the level of bare subsistence. There is a function of welfare and relief agencies to provide such families with the bare minimum of subsistence.

So I think public housing, or any other type of housing, was never meant to take the place of welfare, because we are always going to have those in the country who require, temporarily if not permanently, welfare assistance.

In section 220, at the bottom of page 18 of the bill, up to the top of page 20, we see a possible loophole, whereby the public housing authorities might borrow up to $50 million for a housing project, which would be then tax free and operated as a housing authority development. Under section 221 it applies up to about $5 million, and that portion of the bill is on page 27.

I think those sections should be deleted or revised so as to prevent such abuse of these two sections.

Our association is pleased to note that provision for the open-end mortgage is contained in the bill. With sympathetic administration of this section we are confident that considerable dividends will be apparent in future years in rehabilitation, modernization, and expansion of existing housing. However, in reading this section we note that there is no limit to the amount of the advance, unless it is to be fixed by regulation.

We recommend, therefore, that the proposed section 224 be amended so as to limit the advance or advances to an amount which, when added to the unpaid principal balance due on the mortgage at the time of application, would not exceed the original principal obligation of the mortgage.

Before leaving the FHA part of this bill, our association respectfully invites the committee's attention to recommendations No. 11 and No. 12 of the President's Advisory Committee on Housing. They

are:

11. An objective and independent long-range study of prospective foreclosure and loss experience of the Federal Housing Administration's insurance programs should be made.

12. An objective and independent long-range study of probable losses on Veterans' Administration guarnteead loans should be made.

We urge that such long-range studies be undertaken and that appropriate authority and direction for these be contained in the bill.

Title II of the bill might best be divided into two parts for the purpose of this presentation. First, the title would place in the President authority to adjust the interest rates on FHA-insured and VA-guaranteed mortgages. The maximum rates would be established from time to time to reflect market conditions, thereby assuring a

better flow of mortgage money throughout the country. The interest rates would be established by the President at different levels for different classes of mortgages, and such levels could not exceed the average market yields on Federal marketable bonds having a remaining maturity of 15 years or longer by more than 21 percent. The market yield for such Government obligations at present is running in the area of 212 percent.

We applaud the objectives sought in this part of title II, but respectfully recommend that the committee substitute the recommendations of the President's Advisory Committee on Housing, which called for the creation of a committee empowered and directed to review constantly the demand and supply of funds for home mortgages in all parts of the country and, from time to time, to confirm or revise by majority vote the maximum interest rates on FHA and VA mortgage loans not to exceed the formula set forth in this bill.

This committee would consist of (1) the Administrator of the Housing and Home Finance Agency, who shall be the chairman, (2) the Chairman of the Home Loan Bank Board, (3) the Commissioner of the Federal Housing Administration, (4) the Assistant Deputy Administrator for Loan Guaranty of the Veterans' Administration, (5) the Chairman of the Board of Governors of the Federal Reserve System, and (6) the Secretary of the Treasury.

We sincerely believe this to be a far more effective method for accomplishing the necessary flexibility. At the same time it would avoid the directing of pressure toward the President or any single Government official to whom might be delegated the task of reaching a decision.

We believe that approval of this amendment will give the FHA and VA systems the desired flexibility to insure the maximum effectiveness of these two housing programs. Another advantage flowing from the proposed flexibility would be to minimize unfortunate discount practices with their resultant hidden costs to veterans and other home purchasers. It is important also to bear in mind that such a committee would be an instrument through which interest rates could be lowered as well as raised, depending on market conditions.

This proposed committee should also be given the authority to revise the charges that may be made for the expense of originating FHA and VA mortgages, and the rate of interest on debentures issued by FHA in settlement of foreclosure claims.

There is probably no other phase of our national housing programs which has been the subject of so much misunderstanding as the interest rate problem relating to FHA and VA loans, particularly the latter. Interest rate levels are determined not by individual lenders or groups of lenders, but by the competitive nature of our economy which finds home purchases, business, and Government competing in the money market. Competition creates fluctuations in the supply of money at any given time, and in the final analysis it is the price which determines its availability for any given purpose. We sincerely believe that the flexible formula recommended here will prove of immeasurable benefit in attracting investment funds into the FHA and VA market. We commend it to your favorable consideration.

The second part of this title would give the President authority to adjust maximum mortgage maturities, mortgage limits, and ratios of