hazards of employment. Therefore, while it is desirable, of course, to have a small downpayment to take care of those who do not have large amounts of cash for a downpayment, the percentage of the loan is not the important factor. The most important item to consider when these loans are being negotiated is "How much will it cost for housing per month?" In this area, it would appear that $40 is the correct amount; in other sections of the country it will have to be from $10 to $15 per month more. This should include:

Interest; amortization; FHA insurance fee

Service charge, if any; hazard insurance; taxes

Sewer charge; water

The consideration of this program must be on a national basis. The reasons for some of the lower housing expenses in Florida are:

1. SAVINGS IN COST OF FUEL

There is a great saving in the cost of fuel to keep the house comfortable. Florida Sun Deck Homes Co. takes violent exception with those organizations and people who claim you do not need heat. In all our houses we put in a walltype vented gas heater so that if the occupants need heat, they can have it. It is very true that there are winters after winters in which no heat is ever required; but then again there are days, occasionally, when the temperature takes a drop and heat should be available.

Florida Sun Deck Homes took the position that they were trying to do something for people who have reached that age in life where their resistance is not so great, and that they should, therefore, remove, or at least cut down the chances for contracting severe colds by living in a house that for 2 or 3 days might be cold. In a winter where we have the most severe cold spell of record, the cost of heating one of these houses will run about $12. This, of course, is a great monly saving over those sections of the United States which require some kind of heat from October until the middle of April.

2. REAL-ESTATE TAXES

Another thing which is to the advantage of those people who come to Florida is the fact that the State constitution provides for homestead exemption to everyone who will apply for it up to $5,000 of the assessed valuation. Out of the 600 houses which we have built or are constructing in this development, those retired people who applied for homestead exemption in Leisure City paid no real-estate tax. Of course, it must also be stated that if the homeowner does not apply for homestead exemption, he then has to pay taxes; and these will run approximately $95 a year.

8. CLOTHING

In many sections of the country the climate demands several changes of wearing apparel. This can be little or of great deal, but in our end of the United States there is little call for heavy clothing.

4. HEALTH

Mr. Frank A. Vellanti, president, and Mr. Thomas F. Palmer, secretary, of the Florida Sun Deck Homes Co., took the position that the most favorable climate throughout the year should be selected for the location of a retired village. The reason for this was that they knew such a climate would substantially reduce the budget of people making Leisure City their home. They further realized that such healthy climates lessen the burdens on all health facilities, both public and private.

Florida Sun Deck Homes Co. also found that people who are growing much older prefer to live in a house which is free from the dangers of fire and hurricanes. Therefore, they continued to build their solid concrete house reinforced with steel, which has the lowest insurance rate of any building in south Florida. It must be borne in mind that the question of providing houses for those people who are to retire either willingly or unwillingly, presents a very serious challenge to the entire housing program of the United States. A check by the committee with the Department of Labor will verify the fact that the many pension plans inaugurated in the 1930's will turn out an astonishing number of retirees, beginning in 1954. When the committee adds that to the increasing number who

will become eligible for social-security benefits; and also takes into consideration the increase in life span in the country due to medical advancements as well as more favorable working conditions; it becomes very apparent that housing for the aged is more than ever a major problem.

Since we pioneered this particular type of housing, and since we have built and are building more than any other builder or developer in the United States, we want to present to the Congress some very definite thoughts for legislation which will be applicable anywhere in the 48 States and which we believe to be the soundest approach to this problem.

We feel that a very good job was done in starting this development with the limitations then in effect under the National Housing Act. At that time the only financial tool we had to operate with was a title I mortgage in the sum of $4,750, and we were allowed 25 dual commitments carrying an insured loan to the builder of $4,150. With this miserable amount of money available, we had to engineer the entire project, cut streets, put up bonds that the streets would be finished, provide a water system, and hope that the first 25 houses built would be sold. Believe us, those hardy individuals who purchased the first 25 houses were indeed pioneers in the true sense of the word. When we look back, we marvel at what was done with so little. We would never undertake such a program again, even in spite of the experience we have obtained under title I, section 8, of the National Housing Act. Such limited financial backing is not enough. This is not a single-shot operation where a few commitments can be obtained, and to start such a program is fraught with danger both to the builder and the home buyer.

Some system similar to that which is now done under the defense housing law, should be worked out whereby the developer could lay out a master plan, go forward with his water and sewage system, plan roads and build a sufficient number of homes, assured that his project will be a success. We cannot think of anything more discouraging than to get 25 or 50 people into a retirement area where they have had sound and good reasons to believe that eventually hundreds of people of their age group would form a community, only to have it abandoned because the developer could not withstand the teriffic initial expenses. Therefore, we feel that legislation should be enacted into a law setting up

1. An insured mortgage of not less than 2 million and not more than 5 million; and not in excess of $6,300 per family unit; the mortgage to run for 12 years; the amortization on the unpaid balance to start not later than 24 months from the date of recording; the mortgage to carry release clauses and shall provide for the insuring of individual mortgages for 40 years at 41⁄2 percent to applicants that are approved by the FHA as to credit.

2. Such a mortgage should provide for the construction of all the off-site requirements where they are needed, such as (a) streets; (b) sidewalks; (c) gutters; (d) water; (e) sewage-disposal system; (f) a sheltered "community gathering place" of not less than 2,000 square feet for the first 100 families, and additional 1,000 square feet for each additional 100 families.

3. The mortgage should be only available to a developer when he can furnish to the insuring office a valid lease from merchants who will assure that the area will have the following minimum places of business: (a) A grocery store; (b) a place to buy meats; (c) a drug store; (d) a lease from some doctor or physician setting forth that he will open an office.

It is also felt that definite means of transportation from any project to the nearest town where more general shopping is available and to churches and places of amusement, is required.

The regulations should also stipulate that the developer had to assure that there would be gas, electricity, telephones, mail service, street lights, in the development.

In some cases, the developer, or sponsor, may have to install a sewer system and water system. Since the cost of these will come from the proposed mortgage, the question of who will own and operate these items can, it appears, he best answered by causing each property owner to belong to a nonprofit, cooperative association that will hold title to and maintain the community meeting place, the water system, if any, and the sewage system, if any.

It is further felt that in the rating of these mortgage applications, greater allowance should be given to those units which are designed to withstand the hazards of nature and man. In other words, if the builder makes the houses safer for those people who are not as able to take care of themselves in case of

fire, earthquake, hurricanes and such contingencies, as is the very much younger generation, he should be given a better mortgage.

The mortgage should also provide such system of allowing the person who is to retire within 10 years from now to be purchasing the property while he or she is still gainfully employed and allowing the rents obtained from such a property to reduce the principal. The present mortgage pattern of the Federal Housing Administration sets up no procedure for the reduction of the amount of monthly payments due to the fact that the mortgage has been reduced.

We have received probably 10,000 letters from people who want to have such a system worked out. While this would call for a complete new system of accounting on the part of the Federal Housing Administration, we know very definitely that there are a great many people in the United States who are very thrifty and would like to have some sort of an insured mortgage worked out whereby for the several years prior to retirement they can purchase their future living unit, rent it out, pay a little each month over and above the rent so that when the day comes for them to retire, the amount of money they must pay each month will be of a less amount.

For example, let us take a house that has the $6,300 mortgage on it. The total carrying charges in our area would be around $40 per month. Such accommodations are renting by the year for $60 per month. Assume that the buyer pays an additional $20 per month on the carrying charges of the house. At the end of 5 years, to amortize the mortgage out in the balance of the 40 years at 4 percent, his monthly payment would drop to $36 from $40. If he paid for 7 years, the monthly carrying charges would be reduced from $40 to $29.50. If he paid for 10 years the monthly carrying charges would be 70 cents per day. This is one feature which we cannot urge too strongly, and we do trust that the professional staff of your committee and the Accounting Division of the Federal Housing Administration can work out a declining monthly balance payment to be available to retired people.

While this presentation has been based on retired people, it should be very definitely remembered that any community of three or four hundred people who are all retired is not a desirable condition. There should be some younger blood in the community. Therefore, we feel that the legislation should set forth a policy that while this section is set up primarily for, it is not limited to, those people who are retired and are receiving a fixed income from investments, pensions, annuities and/or social security benefits.

Any project such as outlined above calls for considerable attention and thought about recreation facilities-activities that will occupy the mindpossibly part-time work on income producing hobbies-adult educational programs.

The reduction of the tremendous pressures being built up for increases under both social security and retirement benefits in private industry, resulting from a changed economy can be accomplished if, through FHA underwriting, sufficient mortgage moneys can be made available for a developer undertaking a retirement village. It can then be shown that adequate housing can be provided for retiring people at a price they can presently afford.

When a disgruntled citizen who says he cannot survive on the $130 to $140 per month can be directed to places in the country where he can live on that amount-and in a new house or apartment-you have eliminated a part of his reasons for complaint, and he can face the declining years still retaining that basic requirement of good citizenship, namely, he is paying his own way.

STATEMENT OF H. B. FOSTER, MANAGER, BRICK AND TILE SERVICE, INC., GREENSBORO, N. C.

My name is H. B. Foster. I serve as general manager of an association of North Carolina clay-products manufacturers known as Brick and Tile Service, Inc., with headquarters in Greensboro, N. C.

Since North Carolina produces approximately one-twelfth of all the brick in the United States, and since a large part of this production goes into residential construction, we naturally have a big interest in housing and are closely associated with the home-building industry. Because of this close association we have made a few observations which we hope are worthy of consideration in connection with the proposed changes in the terms of financing homes.

First, I should like to make it clear that these comments are not intended as criticism of the Wolcott bill. Rather, they are offered in a sincere effort to help this bill correct certain situations which already exist as the result of what might be termed the changing times.

Two notable changes have occurred in the housing field since the original governmental long-term mortgage insurance. First and most obvious is the great increase in total building cost and land values; second is the shift of construction volume from the individually tailored home to the mass-produced speculative house constructed to sell, too often on a let-the-buyer-beware basis.

Net result of these changes has been a drastic lowering of the sights on what constitutes low-cost housing. Formerly a man could build a home worthy of pride and worthy of the responsibility of a long-term mortgage at a price considered by the FHA commitment schedule to be low-cost housing: i. e., in the minimum-downpayment bracket. Now he must accept whatever is offered him by the builder who caters to that price bracket unless he can find more cash for the higher downpayment of a more desirable house.

In our talks with speculative builders in the low-cost market we have developed the definite impression that the amount of cash required of the customer is the dominating force behind their planning. Some of these builders admit privately that they would like to incorporate more quality into the minimum house, but by so doing they would put the house in a bracket where the downpayment requirement would be proportionately much higher and too much of the added cost would have to be paid for in cash.

This brings up our major recommendation regarding the Wolcott bill. Though this bill generally reduces all downpayment, with which we take no issue, we do not think that the percentage of downpayment should jump drastically at $8,000, so that for every thousand dollars above that figure the buyer must have 5 times as much cash as for each thousand below that arbitrary line of demarcation. Certainly no one can expect much of a home below $8,000 at today's prices. Yet unless the formula is changed thousands will be built and sold to those who would assume the mortgage responsibility of a more desirable home but cannot pay down the 25 percent cash required for that extra desirability. In short, people will continue to be forced to buy below their needs, their tastes, and their future earning power because of this arbitrary quintupling of the downpayment percentage at $8,000.

Of course, the answer in your mind right now may well be that any such customer should not let his tastes exceed his pocketbook. Certainly that would be true in talking about purchasing an automobile or a television set which is subject to trading in a year or two. But a home sold on 20-to-30-year Government-guaranteed mortgage is a bad risk if the purchaser is dissatisfied to the extent that he regards his long-term agreement as a temporary expedient to be bettered as soon as possible. And I'll assure you that many purchasers of the cracker boxes built since World War II do not delude themselves into thinking that they now live in the home they expect their grandchildren to visit.

Therefore, it is recommended that the minimum down payment percentagewhatever is finally agreed upon-not be limited to $8,000 but continue to a more reasonable value such as perhaps $12,000 or even $15,000 which is still far from the luxury class at current prices. This should encourage a better quality of housing * which is a better investment for the purchaser; a better asset for the communities involved; and a far better mortgage risk for the Government than the future slums now being created for those who are short on cash but may be long on credit reliability.

Some of the foregoing relates to our second thought concerning the proposed change in length of mortgage life to 30 years, or more.

I recall quite well the sound arguments which brought about the then radical long-term mortgage of 25 years. General tenor of them was that a house is still a house after 25 years, so why expect the purchaser to pay it off in a fraction of that time.

I wonder if the same argument could be applied to some of the houses built in the last 7 or 8 years. Are they good mortgage risks for 30 years?

In order to preclude the ridiculousness of a 30-year mortgage on a 10-year structure I suggest that the maximum mortgage life be reserved for those homes which have a reasonable chance to outlive the mortgage, based upon ample consideration for the construction methods and materials used. This means a

different set of construction criteria more stringent than present FHA minimum property requirements for structures qualifying for maximum amortization time.

In summary, the time for stimulating housing of just any kind has passed Slight modifications to the bill under consideration can foster better housing conditions by encouraging quality of construction, and can better protect the public liability represented by long-term mortgage insurance.

STATEMENT OF EFREM A. KAHN, JAMAICA, N. Y.

Mr. Chairman and members of the committee, it is a privilege and an honor to appear before you today to discuss certain portions of H. R. 7839 before you for consideration, particularly those sections which deal with cooperative housing, generally known as section 213 of the proposed Housing Act of 1954.

I wish to state that I have been actively identified with the 213 cooperative program since its inception and, together with my associates, have completed during the last 2 years over 4,000 multiple-dwelling units under said program in the county of Queen, city of New York, aggregating insured loans in excess of $35 million.

I also happen to be the chairman of the labor-management group of the electrical industry of the city of New York, which group has sponsored and is now in the process of completing a 2,000-unit multiple-family project in the county of Queens under the limited-dividend corporate laws of the State of New York.

Presently I am engaged as a builder-sponsor in processing a 213 project to be located in Queens County on approximately 140 acres, which site has been assembled over a period of the last 14 months and which project it is anticipated will accommodate approximately 2.700 families of the middle-income group. It is also anticipated in connection with this project that the FHA-insured loans will approximate $27 million.

The proposed legislation, particularly in regard to increases in maximum insurable loans, as provided in section 119 of the proposed amendments amending section 213, is a step forward and commendable and no doubt will encourage the initiation of cooperative projects. The 213 program is a worthwhile endeavor in that the much-needed housing accommodations for the middle-income group is furnished at less cost than any other comparable FHA program except public housing. The increased maximum insurable mortgage limits, if granted, would make possible for the middle-income group to acquire their dwelling accommodations at a cost within their means.

The proposed bill authorizes the President to establish, pursuant to section 201, the greater maximum amount as provided in the proposed amendment. This is not satisfactory as this discretionary power would create a serious problem in the planning of any large-scale cooperative project. It is essential for the proper planning and financing of such a project to have determined in advance the amount of the FHA-insured loan. It would be to the advantage of the program that the maximum insurable loans be established in the present proposed bill without the necessity of obtaining the authorization of an increase from the President.

Section 119 of the proposed act, dealing with cooperative housing, provides that the insurable loan shall be based on the estimated value of the property or project instead of, as formerly provided, on the replacement cost.

Insofar as this change pertains to section 213, cooperative housing, I believe it to be inpracticable, unless there is a definite provision that replacement cost and valuation are one and the same. Under the existing criteria used by the FHA in determining value under section 207 (if the same basis of computation is to be used under section 213), there is a difference between valuation and replacement costs. This comes about because, in addition to the replacement cost analysis, a criteria based on capitalization is used. As all cooperative housing under section 213 is erected on a nonprofit basis, it would be impossible to create value under the existing tables of capitalization. For the same reason value could not be based on comparability. It seems to me that the only basis of computation, to determine the maximum insurable loan, is by replacement cost as provided in the exiting law since a nonprofit cooperative corporation does not lend itself to basing mortgages on a valuation basis as there is no profit motive.

In the proposed amendment allowing for increases for veteran membership, there is eliminated increases based on the percentage of veteran membership.