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Now I think you have got to recognize the fact that the section 102 program which got transferred to us was somewhat in the nature of an experimental program, and perhaps it was necessary to take more risks in connection with development than are contemplated in the authorization in the present act.

Mr. YATES. In other words, you assume they would be more careful in extending the loans than may have been true in the past?

Mr. FITZPATRICK. I think that is reflected in the statement, that of the applications that might be expected not more than about half of them would qualify.

Mr. YATES. I think that is all, Mr. Chairman.

Mr. FITZPATRICK. I would like to add one other thing in connection with prefabs with reference to the fact that 18 people may seem a sizable staff. I think that that really leads to false economy. For example, we have the General Panel case which is now in litigation in California. It is handled by the United States attorney. He has no knowledge of this loan. He is not familiar with the background of the documents. The only way that we can work with him is to make a man from our office available to him on an almost full-time basis. We do not have anybody for that. We haven't room within our present authorization to get another man. At the moment I am

operating on the basis of temporarily borrowing from the RFC a man who used to know something about it. I pull our agency manager for the FNMA from Los Angeles in on it occasionally, but he has a full-time job to do besides that.

So we are inadequately dealing with a claim of $4 million. One more man at a salary of six or seven thousand dollars might result in a more adequate handling of that claim in the courts and the subsequent recovery to the Government of what otherwise may be dissipated for inattention in handling.

PRIVATE CAPITAL IN FHA INSURED PROJECTS

Mr. YATES. Just one more question. In connection with the housing that has occurred under the FHA program, and I assume will also occur under this one, is there any risk capital that is going to be put into the program in addition to the loan on 90 percent of value when a project is completed?

Mr. FITZPATRICK. I think Mr. Richards is probably more experienced on that than I am.

Mr. RICHARDS. Well, valuation and cost estimating are not mathematically precise operations, and they vary according to the builder. And in reaching a cost estimate of a project you go out into the field and get information with respect to cost, with respect to productive capacity and labor, and reach your conclusions. Now it is recognized that those conclusions are based upon typical operations. Some builders may not be typically good, and other builders may be from an efficiency standpoint far superior to the typical builder. So that we recognize that when we get into the ratio of 90 percent loan to value of cost we are getting up very high, and that the builder's overhead and profit should probably approximate 10 percent. Mr. YATES. The minimum is 10 percent ordinarily? Mr. RICHARDS. Ordinarily. And what I am talking about is recognized profit, not what they might be able to sell on. So that assum

ing that is correct and the 90 percent is cost, and assuming that cost in the normal period might be properly considered value or value of cost, then the entrepreneur would be leaving in the project his overhead and profit in the deal, which is a minimum amount of actual risk capital.

Now of course all of the mortgages are not 90-percent loans, or ratio of loan to the cost or value. Many of them are a lower ratio. And the higher ratio of loan to value or cost, necessarily the less risk capital goes into it.

PREFABRICATED HOUSING

Mr. PHILLIPS. On the bottom of page 38 you say in a footnote that 250 of your demountables erected at Oak Ridge are being moved to Paducah. Who will use them there?

Mr. FRANTZ. As a matter of fact, Mr. Phillips, those are not ours. That is cited merely as an instance of the kind of use such units may have. Those are being moved to the Paducah properties of the Atomic Energy Commission from Oak Ridge.

Mr. PHILLIPS. And they are owned by Atomic Energy?

Mr. FRANTZ. That is my understanding of it.

Mr. PHILLIPS. Do you have any in Savannah of the same type? Mr. FRANTZ. I believe we do not.

ABSORPTION OF DEFENSE COSTS FROM REGULAR FUNDS

Mr. PHILLIPS. This morning, Mr. Fitzpatrick, you said this in connection with your preliminary statement, and it has to do with the fact that you want a certain amount of money, and if you don't get a certain amount of money you would have to limit your activities. And I quote: "We would have to disrupt our domestic, our defense activities." It seems to me that as between defense activities and other activities you would have said "We will have to disrupt our domestic activities."

Mr. FITZPATRICK. I didn't mean to imply that we would disrupt all our defense activities, but I meant that neither could we disrupt all of our statutory responsibilities. It would mean that both would have to be sharply curtailed so sharply curtailed that they would not function effectively.

Mr. PHILLIPS. I was intrigued by it, because you are not the first representative of an agency who has implied that they cannot continue all of their defense activities, come hell or high water, unless we give them more money to spend for domestic activities.

Mr. FITZPATRICK. I didn't mean to imply that, Mr. Phillips. I merely meant to illustrate that our general reduction after Korea and the reduction made in our 1952 estimates had pressed us in carrying out our activities-that we would have to cut them so sharply, along with defense, that we would not really function effectively at all.

Mr. FRANTZ. Mr. Fitzpatrick, I don't think that full sentence got in the record this morning. What it really says is that our statutory programs that have already been cut would have to be cut still further in order to avoid having to disrupt the defense activities.

Mr. PHILLIPS. You said a moment ago in talking about the number of contracts as between individual contracts with veterans and group

contracts, that you would consider all of the veterans contracts as one group so as to reduce the number. I understand what you mean, but I ask you this: Isn't it true that with veterans contracts there is no overlapping responsibility—it isn't a group responsibility, it is merely that in your office they are all approximately the same type and will probably require the same handling?

Mr. FITZPATRICK. And essentially involved in a single loan trans

action.

Mr. PHILLIPS. That is what I mean.

HOUSING IN DISASTER AREAS

Mr. COTTON. You mention on page 22 that—

The substantial increase in long range responsibility of the legal personnel under the general counsel, resulting from the new advance commitment procedure ($200,000,000) and from the earmarked funds ($600,000,000) for defense and atomic energy housing, military housing and disaster (Kansas flood) housing, cannot be discharged except with additional legal personnel.

What funds do you have earmarked for the Kansas flood disaster housing?

Mr. BAUGHMAN. Fifty million set aside.

Mr. FITZPATRICK. Our set-aside for the disaster housing is 50 million of the advance commitment authority.

Mr. COTTON. You mean set-aside of your funds you now have in your possession?

Mr. FITZPATRICK. Of our present FNMA authorization, 50 million dollars has been set aside for aid in the Kansas flood disaster area. Of the advance commitment authority which amounts to 200 million dollars, 25 million has been so set aside.

Mr. COTTON. So you are devoting a total of 75 million to that project?

Mr. FITZPATRICK. That is correct.

Mr. BAUGHMAN. Fifty million is set aside, and that 25 million comes out of that 50 million set-aside.

Mr. COTTON. The total is 50 million. And that has no reference to any special funds that might be appropriated for the Kansas flood? Mr. FITZPATRICK. No, sir. That is entirely under our present statutory authorization.

Mr. COTTON. And is the administration of that particular project requiring additional personnel?

Mr. FITZPATRICK. In terms of what is required for the total setasides and the total commitment authority; yes, sir.

Mr. COTTON. You are adding some special employees to take care of this flood project; is that right?

Mr. FITZPATRICK. Yes.

Mr. COTTON. How many?

Mr. FITZPATRICK. Could you break that down?

Mr. BAUGHMAN. I wouldn't break it down. We work out of our Chicago office. It wouldn't take very many. In connection with the Kansas flood situation the Housing Home Finance Administrator has programed 2,400 housing units out there for sale, and we stand ready to buy those mortgages once the houses are produced, and also issue commitments on them up to the extent of 25 million.

And

then again we have been through our set-aside, and we prefer to send the mortgages on any existing new housing beyond the program up in that area. As far as our personnel is concerned in the purchase of mortgage and the issuance of commitments, I don't know whether it will probably take five or six or seven people, somewhere around there, once the volume gets rolling.

Mr. COTTON. I am serving at the present time on another subcommittee dealing with the Kansas flood situation and dealing with the special funds requested by the President of the United States for that purpose. Are some of those new funds requested to be for your department for your use?

Mr. FITZPATRICK. Which funds are you referring to?

Mr. COTTON. I am referring to the special funds that the President has requested for the Kansas disaster for various activities. Foley has been testifying on that.

Mr.

Mr. FITZPATRICK. I would say the general statement that went up there had an amount included for housing loans.

Do you recall the figure, Pere?

Mr. SEWARD. In the statement that I saw on it, Mr. Cotton, I think it was $75 million in one place and $95 million in another. Which was the one that was correct I am not sure.

Mr. PHILLIPS. Will you be reimbursed from this separate appropriation?

Mr. FITZPATRICK. Mr. Phillips, I think that the way in which that was set up, it indicated that existing agencies would be used in respect to loans, but that insofar as there were indemnification features in the bill there was a question as to whether a new agency would be set up or whether they would try to fragment that among various agencies. But I think it contemplated as to housing-they would simply transfer that function to us.

Mr. COTTON. But as to any additional funds that might be appropriated as a result of the President's request and handled by you, they would be transmitted to you in addition to this 50 million you have now set aside?

Mr. FITZPATRICK. Yes; that is correct.

Mr. COTTON. And if you administer it you would need some more personnel then?

Mr. FITZPATRICK. I assume that that is the case, sir.

Mr. COTTON. That personnel would be temporary while this particular situation continued?

Mr. FITZPATRICK. Yes, sir. I think they would be temporary in the sense that you reach a peak in making loans. But if you are in the business of making loans you wind up with a period of administering and servicing those loans. And that would mean, I assume, some continuing personnel between the time when you get the peak of your loan-making function out of the way.

Mr. COTTON. So that it is possible that you may be asking immediately for some more personnel, should you receive those responsibilities?

Mr. FITZPATRICK. If that is the case. If it is assigned to someone else I think the same would be true of them.

Mr. COTTON. That is all.

Mr. THOMAS. That is all, gentlemen. Thank you.

SUBCOMMITTEE ON LABOR-FEDERAL SECURITY APPROPRIATIONS

JOHN E. FOGARTY, Rhode Island, Chairman

E. H. HEDRICK, West Virginia
CHRISTOPHER C. MCGRATH, New
York

WINFIELD K. DENTON, Indiana

GEORGE B. SCHWABE, Oklahoma
LOWELL STOCKMAN, Oregon
FRED E. BUSBEY, Illinois
BEN F. JENSEN, Iowa 1

H. CARL ANDERSEN, Minnesota 1

1 Temporarily assigned.

FRIDAY, SEPTEMBER 28, 1951.

FEDERAL SECURITY AGENCY

WITNESSES

RUFUS MILES, ASSISTANT ADMINISTRATOR FOR DEFENSE ACTIVITIES

DEAN SNYDER, CHIEF, DEFENSE-COMMUNITY SERVICES

DR. W. PALMER DEARING, ACTING SURGEON GENERAL, PUBLIC HEALTH SERVICE

M. ALLEN POND, ASSISTANT CHIEF SANITARY ENGINEERING OFFICER, PUBLIC HEALTH SERVICE

DR. MARTHA ELIOT, CHIEF, CHILDREN'S BUREAU, SOCIAL SECURITY ADMINISTRATION

MISS MILDRED ARNOLD, DIRECTOR OF DIVISION OF SOCIAL SERVICES, OFFICE OF COMMISSIONER FOR SOCIAL SECURITY ROBERT W. BROWN, ACTING BUDGET OFFICER, FEDERAL SECURITY AGENCY

SUPPLEMENTAL ESTIMATES, COMMUNITY FACILITIES AND SERVICES Mr. FOGARTY. The committee will come to order.

The committee will begin hearings on supplemental estimates for fiscal year 1952 for the Federal Security Agency, which the full committee has referred to the subcommittee for consideration.

For the record, the amounts, totaling $25,500,000, are included in House Document 242 of September 24, 1951. I think we might first include in the record the text of the two appropriation requests for the Agency, and also the brief accompanying statement of the budget as to the necessity for these items. Also, at the outset, let me say that these items stem from Public Law 139, approved September 1, 1951, and referred to as the Defense Housing and Community Facilities and Services Act of 1951. Supplemental estimates are also before another subcommittee for other features of the act administered by the Housing and Home Finance Agency.

(The appropriation texts and accompanying statement are as follows:)

FEDERAL SECURITY AGENCY

DEFENSE COMMUNITY FACILITIES AND SERVICES

For the provision of defense community facilities and services, including loans and grants therefor, in accordance with title III of the Defense Housing and Community Facilities and Services Act of 1951, including administrative expenses in connection with the construction of such facilities, $25,000,000, to remain available until expended.

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