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equity of cooperatives will amount to only 21,2 percent of the mortgage loan at the time the loan is made. In the case of nonprofit corporations, the entire 742 percent equity is payable in installments over a 20-year period. To all intents and purposes therefore, loans to cooperatives under the amendment are 9712 percent loans. Beyond that, the loans are to be amortized over a 50-year period with the possibility of extension, at the discretion of the Housing and Home Finance Administrator, to 60 years. The net result is that the National Mortgage Corporation for Housing Cooperatives, employing a full Government guaranty of interest and principal payments on its obligations, along with a partial tax exemption of these obligations, and a very long period of amortization of its loans, will presumably be in a position to provide loans to cooperatives and nonprofit corporations at a 3-percent interest rate. Added to this, the Housing and Home Finance Administrator, in order to encourage the planning and starting of housing cooperatives, is empowered to make preliminary advances for developmental purposes of up to 5 percent of the cost of each project. It is our view that the terms on which mortgage loans are to be made to cooperatives under this proposal are unrealistically liberal.

The exceedingly liberal financing provided for in the proposal leads to the third major objection, namely, that this cooperative housing program will serve largely to stimulate another round in the inflationary spiral in the housing field. The amounts involved are large, calling for the issuance of a maximum of $300,000,000 of notes and obligations of the National Mortgage Corporation for Housing Cooperatives in the first year of operation, and an additional 1.7 billion dollars thereafter. This program is another step designed to produce housing more cheaply by reducing financing costs. It is our view that the series of steps which have been taken in the postwar period to reduce financing costs have played a large part in the inflationary process which has occurred in the housing field, and that this cooperative housing program will merely serve to carry the process further. The root of high costs in the housing field lies in high-building costs and not in high-financing costs. Efforts to reduce over-all housing costs should be directed to the root of the difficulty ; namely, high-building costs.

It is now over 4 years since the end of the war, and it is our view that if Government would stop pumping funds into the housing field by means of devices designed to reduce financing costs the way would be paved for an adjustment downward of building costs, and the problem of providing housing for middleincome groups would soon be solved by private builders and lenders.

Finally, this proposal is directed toward providing housing for the so-called middle third of income receivers in any given locality. It is stated by Government officials that the public-housing program has taken care of families in the lower third of income receivers, and that this amendment to S. 2246 is needed to take care of providing housing for the middle third of income families. The life-insurance business is greatly concerned over the tendency on the part of Congress to try to take care of the American people. Where does this process of Government taking care of the housing needs of our people come to an end ? It is our view that such measures come in serious conflict with our traditional system of free initiative and private enterprise.

In summary, we oppose the cooperative housing program as set forth in the amendment to title III of S. 2246 on the grounds that

(1) It actually establishes a strictly governmental program for housing cooperatives and provides a minimum opportunity for private incentives;

(2) Loans under the program are to be made on an unrealistically liberal basis;

(3) The program will serve largely to create additional force to the inflationary spiral in the housing field; and

(4) It sets forth more class legislation which we believe to be inimical to the functioning of a free initiative and private enterprise economy.

This does not necessarily mean that the life-insurance business opposes cooperative housing in principle. If a way can be found to establish a cooperative housing program which provides for genuine private participation on a sound basis and which avoids the objections which have been made to Senator Maybank's proposal, the life-insurance companies will certainly give serious consideration to its support.


The American Institute of Architects is the only national organization representing the profession of architecture in the United States. Comprising 94.

chapters and a membership of 8,400, which includes the great majority of practicing architects in the country, it is well qualified to voice the opinion of architects in this country.

We have carefully considered the provisions of S. 2246, known as the Sparkman bill, and the Maybank amendments to title III of this bill. We should like to register some observations pertaining to these amendments.

While the American Institute of Architects has generally supported previous Federal housing legislation and is of the opinion that the broad objectives of this bill, if soundly administered in the public interest, will result in physically satisfactory dwellings, we are primarily concerned (aside from the effect this legislation may have on the national economy and our free-enterprise system) with two main provisions of the Maybank amendments :

(1) The AIA is not convinced that ample financing facilities do not now exist which, given a favorable opportunity, will essentially provide the needed housing for the so-called middle-income group. In other words, is the measure necessary?

(2) The AIA is of the opinion that the measure, in its endeavors to secure economical construction, maintenance, and operation, as now written, may place in the hands of an Administrator arbitrary power in establishing technical criteria, standards of design, and livability in dwellings, which impinges on the customary role of the profession in private practice. 1. Is the measure necessary?

There is no conclusive argument supporting the contention that the Government needs to establish additional Federal-financed lending facilities to provide middle-income housing. The great bulk of the over 4,000,000 new dwelling units provided since the end of the war have been in fact occupied by those families having up to $4,000 annual income in smaller communities (and $4,900 annual income in the larger cities). We feel that the present outlook is clearly for an even greater market interest in lower- and middle-income housing than in the past. The trend to the production emphasis on lower-priced housing is continuing from last year; and, with interest rates generally as low as they have been at any time since 1946 and 1947, there is no factor that does not presage a steady enlargement of the market. A constant improvement in the quality of design could likewise be obtained even under existing legislation if discretionary power in matters of design decision were to be placed in the hands of the professionals in private practice. 2. Too much discretionary power given to an Administrator in establishing design

criteria The AIA is gratified to learn that the public interest is assured of being properly served through the inclusion of architectural service in the measure. We feel, however, that the determination of technical criteria and advice and the standards of design and livability by the Administrator may not allow the architect sufficient professional discretion to enable the architect to attain designs to insure maximum economy and livability. The language of the bill stipulates that the Administrator will furnish technical advice and that he is to determine what are standards of design, construction, livability, and size of dwellings for adequate family life. The American Institute of Architects maintains that such technical advice and problems are properly within the province of the practitioner to evaluate and to solve in order to insure adequate family life and economies in construction and operation, as well as future salability.

The American Institute of Architects would propose to change the wording of these amendments to the effect that the Administrator would be empowered to set a figure for each dwelling unit cost, leaving to the professional discretion of the architect the determination of a proper design to meet this figure. We are confident that the architects in this country can meet such a challenge.


Washington, D. C., January 19, 1950. Hon. BURNET R. MAYBANK, Chairman, Committee on Banking and Currency,

United States Senate, Washington, D. C. MY DEAR SENATOR: The 25,000 retail lumber dealers of the United States are not only the suppliers of all types of building materials going into home construction but to a larger degree than any other group they are directly or indirectly the builders of the largest percentage of most of the individual homes constructed in the United States. Witnesses appearing before your committee on previous occasions have pointed out that the lumber dealer not only builds bimself but also finances the small builder, provides architectural services to the respective home owners and arranges for the financing of the home.

For many years one of the principal activities of the National Retail Lumber Dealers Association has been to sponsor programs designed to lower the cost of home construction and the cost of home ownership. Looking at the housing problem from a selfish viewpoint, the lumber dealer is interested in creating the broadest possible market for his products. Lower cost house construction and lower cost of home ownership not only benefit the lumber dealer but also improve the economic well-being of all of the people of the United States.

RECOMMENDATIONS ON TITLE I OF 8. 2246 Except for two particulars, we recommend to the committee that it adopt the proposed amendments contained in title I of S. 2246. The two exceptions to our recommendation are:

(1) We believe the mortgage limitation of $4,750 as the proposed new section 8 to title I should be raised to $5,700 and;

(2) Title III of the National Housing Act dealing with the Federal National Mortgage Association should be amended to authorize the chartering of the national mortgage associations to be operated with funds supplied by private financial institutions.

1. Recommended change in the proposed new section 8 to title I.-W recommend that title I be made permanent and avoid the necessity of periodic extension. For years our industry has advocated the revision of the FHA title I, class 3 program so as to stimulate the construction of adequate low-cost housing in the suburban and rural areas. The provisions of Senator Sparkman's bill (S. 2246) proposing a new section 8 to title I is the first congressional recognition of what we, for years, have insisted should be done.

I wish to call your attention, however, to the fact that in our testimony last year on Senator Sparkman's bill, S. 720, which is now designated as S. 2246, we pointed out that the limitation of $4,750 on the title I, section 8 mortgage is too ictive in those areas where climatic conditions necessitate a different type of construction than is required in most of the southern part of the country. One of the most important factors that has to be taken into consideraion is that housing should be adequate and not too small in size. The size of homes that could be built in the northern regions under the $4,750 limitation would be inadequate. Taking the area around Oklahoma City as an average for the country a home containing not less than 700 square feet soundly built will cost around $6,000. Such a home could not be made available to the lower-income groups with a $4,750 mortgage unless the prospective home owner had over $1,200 as a down payment. A lumber dealer from Oklahoma City in testifying before the House Banking and Currency Committee last year pointed out that to build a two-bedroom house with a living room and kitchen dinette or a kitchen and dinette living room and attached garage would cost approximately $6,000. This home would consist of dry wall construction, standard materials, and structural requirements to meet FHA standards, insulated, hardwood flooring, plumbing and adequate heating facilities. He also pointed out that if Congress would authorize a $5,700 limitation on the mortgage, the prospective home owner, after making a $300 down payment could amortize the mortgage and pay the taxes and insurance for a total cost of not more than $37 a month.

We again urge the committee to seriously consider our recommendations in this matter and again point out that the $1,000 difference between the $4,750 limitation in S. 2246 and our proposal may, mean the difference between either soundly built homes on the one hand or inadequate or no homes on the other hand.

The committee may wonder whether a $5,700 limitation on the mortgage might become a floor and the builders would tend to press up to this figure. We can assure you that the housing market is getting highly competitive and in those aeas where a home of this size can be built for less it will certainly be done. Even if you give us the $5,700 limitation we can assure you that the market will force us to build a house of this size for less than $6,000 if it can be done.

2. Recommended change in title III of the National Housing Act.—Prior to 1948 the Administrator was authorized to provide for the establishment of national mortgage associations to act as secondary markets for loans made on real estate. Although associations were not created under that legislation we are advised that if the legislation were reenacted such associations would now be

created. We strongly recommend the reenactment of that legislation and hope that such associations, if created, would eventually replace the present Federal National Mortgage Association,


With respect to the provisions of title II of the bill (S. 2246) we again renew our objections to the disposal of certain Lanham Act permanent housing to local public housing authorities. To dispose of any of the permanent Lanham Act housing in this manner not only violates the original intent of Congress but also circumvents the 810,000 limitation contained in the public housing provisions of the legislation passed last year. To the extent that any of the Lanham Act permanent housing is transferred to local public housing authorities an equivalent amount should be deducted from the 810,000 limitation.


With respect to your proposed amendments to title III dealing with cooperative housing it is strongly urged that the financing of cooperative housing should be on the same footing as any other type of housing. If there are any advantages to be derived from cooperative ownership then the cooperatives should rely upon those advantages. The growth of cooperatives either through tax benefits or Government assistance is already resulting in the loss of revenue not only to the Federal Government but to the State and local governments as well. Every cooperative that exists replaces a tax-paying unit. We have no argument with the cooperative as such, provided cooperative enterprises meet the same tax obligations as competing individuals or enterprises paying their share of the operation of Government.

The present proposal, however, even goes further than any previous cooperative proposal and now makes financing of the project less costly by the Government underwriting low interest long-term debentures not marketable by other homeowners.

To call this proposal private enterprise is a deception because the Federal Government in underwriting these debentures for such a long period of time and at such a low interest rate will require Federal intervention to see that the property is kept up. If the Federal Government is to avoid contingent liabilities under this program it will have to invade the privacy of the home. Whether this invasion of the privacy of the home is undertaken directly by the Federal Government or through the instrumentalities of the management of the cooperative makes little difference.

After millions of people, including hundreds of thousands of veterans have invested their money in existing properties this proposal now offers an economic advantage to those who are willing to wait for Government subsidies at the expense of millions who have already invested.

Proposals such as this stem from the fallacious argument that private industry has failed to produce housing that can be afforded by the lower or middleincome groups. We would like to remind the committee that immediately after the war this industry cautioned both Congress and the executive branch against any program calling for the construction of more houses than could be built with the available material and labor. In spite of our recommendation the Congress has repeatedly passed legislation to encourage a greater demand for housing than could be supplied by available material and labor. This has resulted in a demand which has been in excess of the supply and naturally resulted in competition for material and labor which in turn has supported the current costs of construction. Although the material situation has kept pace with the amount that could be consumed by labor, the labor force has not been supplemented to the point where it could consume all the material that could be made available or satisfy the artifically created economic demand. If the present costs of construction are high the fault lies with Congress and not with the industry, yet this fallacious assumption of industry's failure serves as the jumping off place for such proposals as the one contained in your proposed amendment.

We recommend that assistance to cooperatives should be limited to the present provisions of the National Housing Act except as it may be necessary to amend those provisions from time to time to bring them in line with other changes in title II and that the committee do not adopt your proposed amendment.



We recommend the adoption of the proposed amendments to the Servicemen's Readjustment Act as contained in title IV of S. 2246 with two exceptions. First we are opposed to the proposed repeal of section 505 of the Servicemen's Readjustment Act. The proposed repeal, we assume, is because the mortgage limitation in section 500 is increased from $4,000 to $7,500. The effect of repealing section 505 would be to limit mortgages on homes to $7,500. There may be occasions when there will be need for section 505 but in the event the proposed changes in section 500 take care of the veteran's problem section 505 could be repealed later. At this time we recommend that it remain in effect.

We also are opposed to the provisions of title IV authorizing the Veterans' Administration to make direct loans to veterans at 4 percent. As we pointed out to the committee last year such a threat on the part of the Federal Government will only tend to drive capital away from the mortgage market. Once the Government embarks on such a program and private capital starts to withdraw the Government will have to step in to fill the new void. It will only result in the Federal Government ending up as the banker for all veterans. Once this occurs the veterans will insist that Congress reduce the interest rate further. Since the veterans now constitute one of the largest segments of our population the Government will ultimately end up as the principal primary lender in the mortgage field.


We oppose direct Government loans to educational institutions and point out to the committee the principal reason why educational institutions may now think they need assistance is because of the Federal Government's action in depressing interest rates, which in turn reduces the income of educational institutions on their investments. It appears that we have proposals to assist about every segment in our economy except those most in need. The persons who have invested their life savings directly or indirectly in real estate now find that the property and income must be highly taxed to subsidize other groups. At the same time their own income has been reduced by rent control and Goyernment manipulation of the interest rates. The largest portion of this de pressed group are made up of low-income families, many of whom are widows living on direct or indirect income derived from real estate. Interest rates

I wish also to call attention to what we consider one of the most disrupting influences in the mortgage market. We now have FHA guaranteed financing in most instances at 412 percent and financing under the Servicemen's Readjustment Act at 4 percent. In addition this bill with your amendments would provide financing to cooperatives at from 212 to 3 percent, direct loans to the veteran at 4 percent, and direct loans to the educational institutions at 212 percent. These legislative adjustments of interest rates are highly discriminatory, are discouraging to private investors and to our mind have little bearing on the individual's ability to pay-certainly the amortization schedule is the most important factor in this respect. The interest rates on Government guaranteed loans whether under FHA or the GI bill should be identical and have a realistic relationship to the current rate required to produce capital. Savings on interest because of one-half of 1 percent is really small and we believe that if the interest rate were permitted to fluctuate in relationship to the prevailing rate the fluctuation would not be more than one-half of 1 percent. Only about onethird of the mortgages being issued in this country are guaranteed by the Government, the other two-thirds are without Government guaranty and for years the rate has fluctuated between 4 and 412 percent; therefore, we recommend that the committee adopt a common interest rate which has relationship to the current rate required to produce capital and adjust it from time to time as circumstances require. It would be appreciated if this statement were made a part of the record. Sincerely,

H. R. NORTHUP, Executive Vice President.

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