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Senator WHERRY. Mr. Foley, I wish you would—I do not want to say "yes" or "no"; that is not it-all I am trying to do is find out on which there is total agreement, so I want to renew the question once again. Outside of the 90-percent amendment, if we adopt the rest of the amendments which you have offered, would you then agree that the bill would effectively accomplish the purpose? See what I mean? Leave the 90 percent out for now.

Mr. FOLEY. All right. Let me state it again. I will try to do it briefly. If you pass this bill with the amendments we have suggested and except the 90-percent amendment, and leave it at 95 percent, it would be as effective insofar as building sponsors are concerned, but in my opinion would not be as effective insofar as lenders are concerned.

Senator WHERRY. I appreciate your answer. Mr. FOLEY. And the lenders are an essential part of the picture. Senator WHERRY. That is still not the question I have asked you, Mr. Foley. I do not want to be impatient about it. I do not want to irritate you.

Mr. FOLEY. Will you state it again, sir?

Senator WHERRY. Yes, sir. If we adopt all the amendments you have offered but the 90-percent amendment, take them at face value, is there any question but what those amendments that you offer in the bill would make this an effective program? That is, accomplish the purpose? Exclusive of the one amendment we will have to go into?

Mr. FOLEY. I have to ask you then a question, Senator.
Senator WHERRY. All right.

Mr. FOLEY. Does your question contemplate that I shall answer with respect to a bill which would then have 95 percent?

Senator WHERRY. No; I am leaving that out.

Mr. FOLEY. Then, leaving that for further discussion, my answer would be "Yes."

Senator WHERRY. That is it. So, there is no other problem to accomplish the purpose except this one, which, of course, is vital to you and is vital to the proposed legislation ?

Mr. FOLEY. That is assuming, of course, the committee is going to accept our other proposals.

The CHAIRMAN. As I understand it, the only real other amendment is the $8,100 amendment.

Senator WHERRY. Well, the amortization amendment, and one or two others that I think are not vital, that I think we can agree on.

The CHAIRMAN. But Mr. Foley has answered that the 95 percent would accomplish, in his opinion, a satisfactory agreement, but that the 95 percent would be more attractive to the builders. Am I wrong?

Mr. FOLEY. I do not think it would be necessarily more attractive to the builders. It certainly would not detract, as far as they are concerned.

The CHAIRMAN. You said it would do no harm.

Mr. FOLEY. May I help the committee with a further observation on that question out of the experience we have had ?

The CHAIRMAN. Yes.

Mr. Foley. There is also a tendency, a mistaken tendency, to regard these ceiling figures of ratios as being exact, that they can be exactly determined. Now, if you will reread the language of the bill which follows the language of previous bills of this sort, it is 90 percent or

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95 percent of the Commissioner's estimate of what will be the replacement costs of this project.

Now, take against that the fact that this bill proposes only 1 year of authorization; we propose in our amendments 2 years. And here is the situation that you confront.

Senator Cain. I beg your pardon. To what do you refer in connection with the 1 and 2 years?

Mr. FOLEY. The bill sets a date in 1950 as a termination for this authorization, and we propose 1951.

Senator Cain. Thank you.

Mr. FOLEY. There is no system of cost estimation that has ever been devised, and I think we have as good a one in the FHA as has been devised' for its particular purposes, by which anybody can be exactly sure in advance what it is going to cost a given builder to build a given project yet to be constructed.

In the first place, to operate as the FHA must you have to arrive at what is called typical cost. Otherwise, you would have an utterly unending and impossible task of making the advance commitments which are essential to the operation. Nobody will contend that it is possible to exactly determine what the costs are in advance.

Now, then, if you set a 90 percent limit, which we have in our basic legislation which this bill adapts, we know and everyone who is realistic knows that 90 percent is only the best estimate the Administrator, with a lot of expert help and constant gathering of data, can arrive at. In a time of rising costs the probability is that the cost finally as experienced will be greater than was estimated in the first place. You can take care of a builder in that situation so long as you do not exceed the dollar ceilings of the law, because under our system you can reestimate and make further allowances on mortgage amounts for completion.

But in a time of falling costs, which we have at present and will probably continue for at least the period you are proposing for the bill, when you estimate 90 percent you may well be at 95 percent of the actual cost, but we have not yet devised a way to adjust downward

Senator Cain. You are concerned with 95 percent which is likely to be 100-plus?

Mr. Foley. It could be, if costs dropped materially.

The CHAIRMAN. I am glad to hear you say “period of falling costs," because on everything produced down home it is going down, down, down. You testified here earlier this year it was being reflected throughout the United States.

Mr. FOLEY. Yes. I testified that for some time. The CHAIRMAN. Yes, you have. Mr. FOLEY. And the serious problem FHA has in trying to administer its responsibilities in keeping track of that in advance commitments.

The CHAIRMAN. You think it is still falling?
Mr. FOLEY. Every evidence is it is still falling somewhat.

Senator WHERRY. I want to ask a few questions before my 15 minutes are up. I have got to leave at 11:30. I would like to ask two or three more questions.

Mr. FOLEY. I am here to try to give any information you need.
Senator WHERRY. I understand that. I appreciate that.

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Do you think there is a difference between providing houses out on these military installations—you heard all the testimony I gave, rather that Secretary Symington gave and these other witnesses-dó you think there is a difference in the risk or a difference in any other way in providing the housing out on a military installation as compared to housing generally about which you have just spoken?

Mr. FOLEY. A difference in the risk to whom?

Senator WHERRY. Everybody. Is there a difference? Risk to everybody-risk to get the man to go out and do the job, risk to the man who is the banker—the money risk to everybody. Is there a difference between providing housing on a military base or near a military base or providing housing in any area in Washington or metropolitan centers, and so forth?

Mr. FOLEY. There is always a difference, Senator, in different situations.

Senator WHERRY. If you will just give me some short answers, because I have got 12 more minutes.

Mr. FOLEY. There is a difference, and there is a difference both ways. There is a difference of risk in the proposals in this bill, and there is this greater risk for the Government and for the lending institutions

Senator WHERRY. Then, Mr. FOLEY. To some extent. Senator WHERRY. That is fine; I appreciate that. Mr. Foley. Wait a minute; I am answering all your question. There is greater risk for the sponsors in recovering their investment or possibly deferred profit in cases such as I have mentioned, and balanced against it there are some advantages proposed in this bill.

Senator WHERRY. Let's let the advantages wait. Let's take the risks. You

You say there is a difference in the risk to the proponents of the projects. If there is, is it a greater risk? Is it more difficult to get them? Mr. FOLEY. I am not sure what

you mean. Senator WHERRY. Well, a promoter, developer, or contractor. Is there a greater risk to get them to go in on a military installation than there is in the other places?

Mr. FOLEY. As far as I can judge from past discussions under the old bill, I would say that there would not be much greater difficulty in getting enough sponsors, if that is what you mean, under this bill as we propose it.

Senator WHERRY. Do you mean to tell the committee that you have just as many builders who are just as anxious to go out and build a military installation 7 miles from Omaha, as you would to build them right in the heart of Omaha or in the residential district ? Do you mean to tell this committee that?

Mr. FOLEY. No, sir, and I have not told this committee that.

Senator WHERRY. All right, then, there is a greater risk, is there not?

Mr. FOLEY. Not necessarily. It does not follow because there are not as many builders who want to build one project as another that it is because of a greater risk. There is a greater uncertainty, and if the Senator will let me explain what I mean I will be glad to, and that is

Senator WHERRY. Before you explain, let me put this question in and you can explain both together. There is a greater risk because you cannot get the mortgage insurance today on that kind of a risk, can you?

Mr. FOLEY. You were talking about the builder.
Senator WHERRY. I am talking about both of them.
Mr. FOLEY. Now you are talking about the builder and the lender?

Senator WHERRY. First you cannot get a builder to go out because the risk is different than in a diversified community. Secondly the mortgage cannot be guaranteed because of the very nature of the risk itself. Now you can answer both of them.

Mr. FOLEY. Well, I have already answered that in my previous testimony. Namely, I have stated we have had difficulty in getting lenders to go in under the old bill and that this bill seeks to take care of that question, because the chief reason for that was given as the leasehold question.

As far as the builder is concerned, a project of this type will not be attractive to all builders, regardless of what you put in the law, but I have stated I believe the incentive furnished with the amendments we have proposed will be sufficient to get adequate builders to undertake these projects, with the investment ordinarily required under a 90-percent provision.

Senator WHERRY. Well, I am convinced that the answers you gave show there is an added risk, and in order to get the added risks, then the provisions of the bill require additional inducements. That is why it is 95 percent.

The CHAIRMAN. He said added risks, but on the other hand, added attractions.

Mr. FOLEY. The Senator has not permitted me to explain the added attractions, which I would like to do, because they are important.

Senator WHERRY. We are coming to the added attractions now. We just got through with the risks. What attractions are there on a military base that make it more profitable or less of a risk, not only to the builder but to the banker?

Mr. FOLEY. The chief one, in my opinion, Senator, is the fact that we probably will not continue indefinitely in our normal communities, to have a housing shortage, and therefore we will not always have what we call a seller's market in rental housing. We will have growing in the communities as we succeed in our housing program vacancy ratios, which have to be considered as a risk both for the seller and for the lender and builder.

Senator Cain. In a sense are we not getting away from the seller's market?

Mr. FOLEY. Very slowly in rental housing, only in a very few housing units. What we are anticipating in this bill and what is inherent in it is a ready-made market there, determined beforehand, since in the best judgment of the military the installation is to be a permanent one, and enough tenants in the various salary grades or allowances, or whatever determines that, to make use, over an undetermined and probably indefinite time in the future of the full facilities. The risk, therefore, of having an undue vacancy, which is one of the risks that a sponsor takes when he goes in under other conditions, is substantially removed. That is a balancing factor against the other.

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Senator WHERRY, Mr. Foley, if that is the case, do you think we could get the loans the banker makes without the provision that the military installation be made permanent ? Here you are going to have a military establishment that will be filled every day in the year. Then if that is the case why do you want this extra, this inducement of insurance of a permanent military installation. That is the thing we have been fighting for all these years. I would like to ask you another question. You can answer that. I think myself you will agree as a mortgage, attractive mortgage investment, that with a guarantee that it is to be permanent, that that is what changes the situation entirely.

Mr. FOLEY. I have not said a guarantee to be permanent. The certificate would say, in effect, to their best knowledge and belief it will be permanent. Senator WHERRY. Now, let me ask you this question. You say on

: More importantly, however, mortgage insurance up to 95 percent of the cost of rental housing would add to the Government's liability without materially assisting the provision of housing.

Do you feel that this is a housing problem completely, or do you feel that there is anything in it that merits appropriations on the theory that it is also in the interest of national defense? Do you see anything in that at all ?

Mr. FOLEY. To the extent, Senator, that there are losses under this fund, I think they would be given additional justification by the fact that the housing is serving the military.

Senator WHERRY. Well, the fact that we make these appropriations in the Appropriations Committee to do the very thing

Mr. FOLEY. If I felt builders would not invest, and 95 percent or 100 percent was necessary to accomplish the purpose, then I would not be arguing against it. Senator WHERRY. Would it not be a less loss to do it this way

and get the military installations on those bases than to do it the way we are doing it now?

Mr. FOLEY. Yes; certainly it would.

Senator WHERRY. So in the final analysis instead of it being a greater Government liability it becomes less of a liability, does it not? I do not mean a liability on the bonds. I mean a liability as far as the cost is concerned.

Mr. FOLEY. If it were necessary to assume it, yes.

Senator WHERRY. That is right. Now, I appreciate that, because I think that is a vital thing.

Mr. FOLEY. Where we differ is I do not think it is necessary to do it. Senator WHERRY. Of course I do.

The CHAIRMAN. You mean you do not think it necessary to have 95 percent. You have not differed on the 90 percent. .

Mr. FOLEY. I do not think it is necessary to go to 95 percent at this time. I think enough builders will be willing to risk the larger equity investment.

The CHAIRMAN. Yes.

Senator WHERRY. Let me ask you another question, Mr. Foley. You say further:

This would result primarily from the fact

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