My final comments are on title VI of the act, which respects the problem of conservatorship of the Home Loan Bank System. For many years the Home Loan Bank Board has been in the difficult position of having only a law of high treason. It has not had a law of misdemeanor or even a law of minor felonies. Either the Federal home-loan bank has been compelled to appoint a conservator if the individual association was not performing its functions properly, or it has had to ignore the problem. Through the very kind offices of Congressman McDonough and several of the Government staff and representatives of the industry we have worked on this problem here for many, many years and both of the National Savings and Loan Leagues have worked on this problem, and I personally want to congratulate the committee and Government for putting this section of the bill in, dealing with this matter where it gives to the Government adequate power to enforce its supervisory responsibilities, and yet at the same time puts, by writing limitations into the statute, limitation on the capricious use of that power. This title VI is in my opinion a splendid example of how problems of this type can be resolved in terms of constructive and affirmative attitudes on the part of all parties concerned.

I think it represents a real step forward for the savings-and-loan business and also for the Government.

Thank you very much.

The CHAIRMAN. Thank you, Mr. Wellman.

Are there questions of Mr. Wellman?

(No response.)

The CHAIRMAN. We are very glad to have had you.

Mr. WELLMAN. Thank you.

The CHAIRMAN. Monsignor O'Grady, I don't think we are justified in asking you to wait any longer, and so far as the committee is concerned you are at liberty to go at your will, but we want you to stay around as long as you would like.

We have with us Mr. Wallace J. Campbell, director of the Washington office of the Cooperative League of the United States of America.

Mr. Campbell, we are very glad to have you with us.
Mr. CAMPBELL. Thank you, Mr. Chairman.

STATEMENT OF WALLACE J. CAMPBELL, DIRECTOR, WASHINGTON OFFICE OF THE COOPERATIVE LEAGUE OF THE UNITED STATES OF AMERICA

Mr. CAMPBELL. My name is Wallace J. Campbell. I am director of the Washington office of the Cooperative League of the United States of America, which, as you know, is a federation of consumer and purchasing and service cooperatives. Our organization has a membership of 2 million direct dues-paying members, 2 million families, and, in addition, we have 9 million families associated with the League through the National Rural Electric Cooperative Association, both of which are full members of the cooperative league.

We have worked very closely with the Federal Housing Administration, the Housing and Home Finance Agency, and the Public Housing Administration on housing problems as they affect the hous

ing needs of our general membership. We have also had specific interests in the cooperative housing sections of FHA, which was created under the Housing Act of 1950.

We are here today supporting the general terms of the Housing Act of 1954, H. R. 7839, even though we feel the severe housing shortage which still faces America should call for a more aggressive housing program. Your committee, however, has had so much testimony presented to it in the last few weeks on general aspects of the legislation before you that I would like to direct your attention for a few minutes to the cooperative section, generally known as section 213, which is treated in the bill before you in section 119.

The cooperative housing program of FHA might well be referred to as the stepchild of the Federal Government's housing program. Perhaps the simile of the ugly duckling would be even more appropriate. The legislation was adopted as a compromise following the campaign to secure adoption of a middle-income housing program in 1950. It was expected that the cooperative housing program, as adopted, would eventually provide for something in the neighborhood of $50 million worth of cooperative housing. The response to the program surprised both the Federal Government's housing officials and the original sponsors of the program. As of February 28, 1954, the FHA had insured mortgages on 164 projects with a total number of family units providing housing for 26,930 families. The dollar volume of these mortgages insured totaled $255,015,883.

The commitments, statements of eligibility, and applications in process, all classified as "active case workload," brings the number of projects to 493, the units to 56,000, and the dollar volume to $520 million. A table containing these statistics is attached to this statement. For purposes of comparison with other parts of the Government's overall housing program, it should be of interest to this committee to know that in the years 1951, 1952, and 1953 the number of units processed by the Rental Housing Division of FHA under section 207 totaled 18,108 housing units for a mortgage amount of $128,883,000. In contrast, the cooperative housing section, 213, processed 25,633 units for insured mortgage value of $242,192,000.

As you will see, the amount of housing being built under cooperative housing is substantially greater already than under the 207 rental housing section, which has been on the books for many, many years.

It is difficult to compare these with the public housing program of the same period; but during those 3 years PHA built 126,718 lowrent public housing units. A year-by-year tabulation of these figures is also attached.

I presume this only to show you in perspective the relative size of the programs under consideration.

During the last year the mortgage market for cooperative housing has been particularly tight, and even as the market has eased somewhat the available capital for cooperative projects has been hampered sharply by some unfortunate experiences on the financing of some builder-sponsored projects in New York City which have prejudiced some lending institutions against any of the 213 projects, whether builder-sponsored or those initiated by consumer or public interest groups. Your committee last week heard Harry Held, vice president

of the Bowery Savings Bank, say very pointedly that the purpose the present act should be

of

to encourage true cooperatives *** not merely to enable promoters whose motive is profit to capitalize on such development in the guise of helping the eventual cooperative owners.

The Bowery Savings Bank has had a long history of very successful and satisfactory financing of cooperative housing projects. Mr. Held is very proud of his bank's record in that field.

In spite of the shortage of mortgage money, the cooperative section of FHA has completed commitments on mortgage insurance for 24 new projects since January 1, 1954. These totaled 877 units, with a total mortgage value of in the neighborhood of $8 million. The projects were in New York, New Jersey, Louisiana, Oklahoma, Arizona, and Nevada.

There has been a great deal of criticism of the role of the buildersponsor in the FHA 213 cooperative housing program. I would like to take a moment or two to try to clarify this situation. The cooperative league is not here to justify or defend the builder-sponsored cooperative projects, but we should point out that an energetic and aggressive builder, meeting the legal requirements of the cooperative section of FHA, has just as much right to build cooperative housing projects as do the consumer-sponsored organizations. While there are shortcomings to such sponsorship, it has proved to be almost universally true that the product created by these builder-sponsors has been as good or better than the average FHA-insured project. The downpayments to consumers have been lower, on the average, and because of the financing arrangements the monthly payments have been lower than for any other part of the FHA program.

In other words, even though these are not consumer-sponsored, they have turned out to be a better buy for the consumer than other forms of housing. The two most important factors responsible for this result in the builder-sponsored co-op have been the comparatively low interest rate, from 4.25 percent on management-type projects, and 4.5 percent on sales type-and 40-year amortization of mortgages, which is considerably longer than any other part of the FHA mortgage repayment program.

The impression has been given quite generally that there are no genuine consumer-sponsored projects under the 213 program. The percentage has been comparatively small, and those of us in publicinterest organizations cannot be proud of our accomplishment to date; but I think some of our organizations are beginning to take advantage of the financing available under section 213.

Let me give you a few illustrations: In Oklahoma the American Legion took the initiative in sponsoring 12 cooperative housing projects under which more than 350 homes have been built in sections where cooperative housing had been unknown before. Another Legion post in New York City, FDA Post 1284, sponsored a project with 348 dwelling units, and the Jewish War Veterans in New York City have built a project in Brooklyn with 264 units.

The butchers' union in New York City sponsored the Harry Silver project, which now takes care of 288 families. In Ohio a young war veteran took the initiative in building 2 units of cooperative housing

as a public service undertaking, with about 80 families in the 2 projects. In Maryland employees of the Naval Ordnance Laboratory are well on their way toward construction of a housing project. In Fresno, Calif., a prominent builder and a local cooperative group initiated projects at the same time. They decided to unite their forces on one undertaking, and the Kavanaugh Manor project there has 124 very fine units. Another illustration is that initiated by the American Friends Service Committee in Philadelphia, which used section 213 financing to rehabilitate 52 housing units as a cooperative project. Perhaps the most interesting and surprising development under 213 has been the growth of minority housing. The action of the Congress extending authorization of the Federal National Mortgage Association to make advance commitments for cooperative mortgages with a measure of priority for minority projects stimulated this new development. At the end of the last year 45 projects, designed primarily for Negro families, secured mortgages through FHA and FNMA totaling $11.1 million. These will provide housing for 1,575 Negro families.

Unfortunately, the applications for prior commitments far exceeded the funds so earmarked under the legislation. When the funds were exhausted 32 projects planned for occupancy by minority groups were unable to secure commitments. These were designed to take care of an additional 1,892 families with insured mortgage amounts of $15 million.

Here, again, I would like to give you some specific illustrations with four projects. The Dorey Miller project in New York City was built for occupancy by minority groups. It has 300 dwelling units, with the average mortgage running $9,000. Downpayments averaged $383 per dwelling unit, and the monthly carrying charges are $19 per room, including utilities. The Merrick Park Gardens also in New York has 116 units. Mortgages average $8,968, downpayments were $889, and the monthly carrying charges averaged $20 per room. These were extremely interesting proof that good housing with reasonable downpayments and reasonable monthly carrying charges can be made available to minority groups under this program.

Even better illustrations are the Booker T project in Maryland, just outside the District. These are single-family homes averaging $10,000 mortgages with downpayments of $456, and monthly payments of $69.26 per month for the complete dwelling unit. That is per unit per month-for a complete dwelling unit. When you go into a lowercost area you find another fine example in Kendall Homes at West Memphis, Ark. These 67 units had an average mortgage of $6,450 with downpayments of $150 and monthly carrying charges of $48.50. Now, specifically to the legislation: We are very happy to support the recommendations of the President's Advisory Committee and the legislation following it, raising the mortgage limitations from $1,800 per room to $2,250 per room, and applying the $8,100 per family-unit ceiling only to units which have 4 rooms or less. This change will make it possible to build in higher-cost areas where fireproof construction is essential, and also to meet some of the other higher-cost area requirements. We are depending on FHA to see to it that the builders do not automatically raise their sights to this new level without providing dollar value.

Another change recommended in section 119 of the bill permits the Commissioner to raise the amount per cooperative housing project to as high as $25 million if the mortgagor cooperative is regulated by Federal or State laws as to rents, charges, and methods of operation. We are critical of and firmly opposed to the change from "replacement cost" to "estimated value" as set forth in the bill before you.

One of the important changes in the legislation affecting the cooperative housing program administered by the Federal Housing Administration under section 213 of the Housing Act of 1950 is a proposal made in both the Senate bill S. 2938, and the House bill H. R. 7839, now before Banking and Currency Committees of the

House and Senate.

The change appears in S. 2938 on page 13, section 119, line 10, which provides that the mortgage for a cooperative housing project shall "not exceed 90 percent of the estimated value of the property or project." Similar wording appears in other sections of the bills.

Under the original section 213 of the Housing Act, the mortgage insurance was based upon replacement cost of the project. The change is an important and fundamental change in underwriting policy.

Many of the existing cooperative housing projects would not. have been built if value had been the criteria rather than the replacement cost; for under present FHA practices this would provide a penalty on location, design, and increased number of rooms per unit.

In estimating the value of a property, location is often taken into account as a factor in the salability of a property or in rental of such property. In a 213 cooperative project the housing units are sold in advance of construction and are the use-property of the occupant, so that the fact of organization and construction of the project itself indicates the value of the location, whereas the value of other properties cannot be determined until consumer acceptance is established. Often a new location may be downgraded if it has to be measured in terms of estimated value at time of completion.

The question of design is also a matter in which a cooperative may suffer penalty. The tendency in cooperative projects has been to use comparatively modern design, often ahead of general acceptance of that design in a given locality. Snow Village Cooperative in Cleveland is an outsanding example of modern design in multiple family housing; the use of replacement costs makes it possible for the mortgages to be insured up to 90 percent of actual cost of the project, while estimated value leaves the question of the total insurable value up to the judgment of the FHA official who must be conservative in his judgment of eventual resale value of a given project. That resale value is of very great importance in a rental or speculative sales project, whereas in a cooperative the units are sold in advance of construction and occupancy.

The FHA underwriting procedures provide that the estimate of value is the lower of (1) estimate of replacement cost, (2) estimate of available market price, or (3) estimate of capitalized income. Since the estimate of replacement cost is also described as a top limit of value it can be seen that the proposed change can only result in a lowering of the mortgage amount for a cooperative housing project. Almost invariably the underwriting estimate of value is determined on the basis of capitalization of income. This is a valid basis of judg