will be major problems in 1958. If present trends persist-and if builders, lenders, and home buyers conduct themselves with moderation and self-restraint under the favorable conditions which you gentlemen have provided-home building should be able to contribute to a sound economy to an extent some believed impossible a few short months ago. However, what happens to the home building industry will, in the end, be determined by the health of the overall economy. Home building by itself cannot lift or support a sagging economy. A breadwinner who fears he may soon lose his job is not a prospective home buyer. If the cheering outlook for an industry which I have described is to continue, appropriate action must be taken with respect to the entire economy in time to check any serious economic contraction. There are some legislative matters which should still be considered to improve further the ability of our industry to function with maximum effectiveness and with equal effect in all areas. Indeed, a time like this-free of pressures to relieve immediate housing emergencies -offers a real chance to devote attention to what might be called perfecting amendments to the complex housing legislation. Several such are proposed in legislation before you. I shall touch on some of particular significance. 1. Maximum mortgage amounts: For several years we have urged that the present FHA maximum mortgage of $20,000 for 1- or 2family dwellings be increased, consistent with the increase in price levels which has occurred throughout the economy. You will recall that the original FHA maximum limit was set in 1934 at $16,000. This represented a $20,000 home, which was fairly high-priced and available only to a family of quite substantial income, in terms of the 1934 economy. Not until 20 years later in 1954-was the $16,000 limit increased and then only to $20,000. This is the law. currently. A $25,000 house-at today's cost still in the moderate price bracket -requires a downpayment of $5,000, while the downpayment for a $30,000 house leaps to $10,000 in cash. The suggested raise in the maximum limit to $30,000 would require a reduced-but still substantial-downpayment. A $25,000 home would require a downpayment of $3,480 and a $30,000 home, $4,980. Attached to my statement is a comparative table showing the effect of the raise on the downpayment under various assumptions. I should like to have that made a part of the record. Senator SPARKMAN. That will be included. (The table referred to follows:) Comparative table-Required downpayments on FHA sec. 203 family homes 11958 Emergency Housing Act: 3 percent of 1st $13,500 of value, plus 15 percent of the next $2,500, plus 30 percent of the excess above $16,000. Maximum mortgage, $20,000. 3 percent of $13,500, plus 10 percent of next $6,500 of value, plus 25 percent of excess over $20,000. Maximum mortgage, $30,000. Mr. SEVERIN. Even among the most prosperous families and with conventional financing, few persons purchase homes with the amount of cash now required under the FHA downpayment for a home in the $25,000 to $30,000 bracket. The current limit is therefore denying the benefits of the insured mortgage system to an increasing number of home buyers formerly eligible in the early days of the act. We therefore favor section 101 (S. 3399), which would increase to $30,000 FHA's maximum mortgage ceilings for a 1-, 2-, or 3-family dwelling under section 203. 2. Aid to trade-ins: We strongly support section 102 (S. 3399) which would greatly help the owner of an existing home to use it as equity in buying a new home. A large and increasing portion of today's home purchases involve exchanges of this nature-in our business, as in the automobile business-called trade-ins. Because of the technicalities of existing law, such a transaction now involves 2 separate mortgages-the first when the builder takes the home in trade and the second when he resells it-and 2 sets of closing costs and financing expense. These costs may aggregate anywhere from $600 to $1,500, all of which must, in effect, be paid for either by the seller of the existing home on the trade-in (i. e., the purchaser of the new home) or by the ultimate purchaser of the traded-in home. Section 102 would save them this expense by eliminating one set of closing costs. It would do this by authorizing FHA to insure a loan on the traded-in house in the name of the builder in the full amount which now is available only to an owner-occupant. The difference between the full amount and the lesser amount now available to the builder as a nonowner-occupant borrower would be held in escrow until such time as the builder resold the traded-in home to an owner-occupant. If the home was not sold at the end of 18 months, the escrowed funds would be applied to reduce to the nonowner-occupant amount the mortgage on the trade-in house. Everyone benefits. The builder is given an 18-month opportunity to sell the house which he has taken in trade, and thus has every incentive to place the house in the hands of its ultimate owner in order to transfer the mortgage debt and to obtain the escrowed mortgage funds; the home buyer is saved a substantial sum in closing costs; yet there is no increased risk to the lender or the FHA. We believe this amendment, while purely technical, will have a far-reaching effect in helping owners to exchange their outgrown existing homes for the larger and improved homes that the expanding families of many of them demand. It is essential to make the trade-in program work. 3. FHA insurance authorization: Of course, we support the provision in section 106 of additional insurance authorization to FHA for use during each of the next 5 fiscal years. FHA, in its 24 years of operation, has become the keystone of residential mortgage finance in this country. We believe it is self-evident that a stable home building industry should be able, without question, from year to year to depend on the availability of FHA financing without interruption. 4. Rental housing for the elderly: We agree this type of housing should be the subject of a separate section of the bill. However, we do not believe that tenancy in projects built under such section should be institutionalized by exclusive provision for elderly persons. We therefore oppose the requirement of Section 103 of S. 3399 that entire projects be specially designed for, and limited to, occupancy by elderly persons. This, we believe, would create an unnatural environment which elderly persons do not want. Further, it is so inflexible as seriously to affect the economic soundness of these projects. The section should provide that a reasonable minimum (one-third of one-half of the living units in the project) be specially designed for occupancy by elderly persons. We also oppose the philosophy revealed by section 103 in limiting sponsorship to nonprofit organizations. This is the same theory contained in section 221; it simply will not result in the production of any significant number of projects. The planning and construction of buildings regardless of intended occupancy-is the business of the building industry. Our productive economy operates as a profit and loss system. Rental housing operations under this section should not be confined solely to nonprofit corporations-a type of organization unsuited to sponsor and develop or to invest in rental housing projects, Housing for the elderly should be open to the industry whose business it is to develop and build. 5. Rental Housing: Rental housing is one of the areas in which much still remains to be done legislatively. There is a marked and increasing demand for rental housing and interest by builders in constructing it. Moreover, the improvement in the mortgage market which I mentioned earlier has renewed lender interest in loans under section 207 and in some areas in loans on management-type cooperatives under section 213. S. 3399 proposes to increase the statutory maximum on the interest rate on these loans. In principle, we believe that such increase in statutory authority is correct; we believe it wrong in principle for the statutory ceiling to be set so far below section 203 that in times of tight money, which we have recently gone through, rental loans disappear from the market entirely. However, we do not believe that, given such authority, the Federal Housing Commissioner should increase the existing 42-percentinterest rate under sections 207 and 213. We therefore support section 104 of S. 3399 for possible use at some future time, when and if money conditions require. We believe that section 207 has a far greater potential to produce moderate rental housing than results to date would seem to indicate. We have said to this committee before that the fundamental requirement is a realization by FHA and other administrative agencies concerned of their appropriate roles as cooperating partners with the building industry and that legislative enactment would remain ineffective until some basic attitudes were changed. We are happy to report that a realization of this seems to be spreading and we believe that the prospects of increased rental housing production are very considerably improved. We believe it timely for the Congress to reconsider section 227 of the National Housing Act, which requires cost certification of rental housing under sections 207, 220 and other multifamily sections. This section tends to penalize the efficient builder by decreasing the loan insurable for him in contrast to the loan available to a builder who, at the end of his job, can show expenditures even though they do not necessarily improve the value or soundness of the project. The section is complicated and places rental housing sponsors at the administrative mercy of the FHA local office by leaving the final determination of the amount of the mortgage until completion of the job, at which time the builder-sponsor has his money at risk and is in an exposed and dangerous position, should the administrative determinations be arbitrary or unduly delayed. We urge that section 227 be restudied and, if its continuance be deemed necessary that at least it be revised to provided that the mortgage shall not exceed actual certified cost if lower than the mortgage originally agreed to be insured. Further than this, we believe that if it be desired to remove obstacles to rental housing investment, there must be carefully considered the impact of the tax laws. Today-as in all forms of investment-the investor evaluates the attractiveness of a rental housing project in terms of the return to him after taxes. In these terms, rental housing is unattractive compared to most other forms of investment. At our spring board of directors' meeting, which ended. yesterday, it was suggested that the requirement that FHA rental housing projects each be separately owned by a corporation conducting no other business deprived these projects of tax savings available to conventionally financed rental housing projects.. Accordingly, if it seems necessary-as it apparently is that these projects continue to be owned by separate, controlled corporations, the Congress might consider providing that the stockholders of such corporations could, at their option, treat such corporations taxwise as partnerships. This would enable the stockholders ratably to report income and expenses of, and capital gains or losses from a disposition of, such projects as tax items on their individual returns. 6. Urban renewal housing: We call the committee's attention to the amendment proposed by section 108 (b) of S. 3399. This, as we interpret it, would eliminate the 10-percent allowance to a buildersponsor. The arguments in support of this provision and in support of the provisions of section 108 (a) are to the effect that it will "eliminate discrimination against so-called investor-developers." It proposes to do so by reducing the loan available to a builder-developer and increasing the loan available to a sponsor who does not build for himself, but contracts the construction to others. In the view of this association, such a provision is highly undesirable and marks a retrogression from our goal of developing widespread builder interest in the urban redevelopment program. The proposed provision seems to us clearly to favor the very large promoter who in the arguments submitted in support of this section has been called an investor-developer. In the short history of the urban renewal program, such large organizations have had a distinct advantage in land acquisition and if given the additional advantage of the proposed chnge, preempt the urban renewal program. We do not believe this program can long be maintained if it is to be carried out by a very few large so-called investor-developers. We believe the urban renewal program can only be successful if it is participated in by and has the support of local builder organizations of more modest size. We therefore strongly oppose this provision. 7. Urban renewal relocation housing: Section 109 (S. 3399)_proposes several amendments which we have urged for some time. These. would (a) remove the prohibition against location of a section 221 program in a community which has not requested it; (b) raise the maximum permissible mortgage in high-cost areas; and (c) permit the construction of rental housing under section 221 by builders for profit, in addition to the current limitation of that section to nonprofit rental corporations. The first of these provisions would remove a needless restriction presently most burdensome in the very type of metropolitan area in which this section is intended to operate. Local communities have ample control over housing within their borders through zoning and building codes. It should be unnecessary to add the cumbersome and unique requirement now contained in the act. The second of these provisions raises the high-cost area limit to $12,000, recognizing realistically that a $10,000 top ceiling is entirely too restrictive in many areas at today's cost levels, particularly in the larger cities in which the program is intended to operate. Finally, the third amendment proposed by this section recognizes the point I have made previously in connection with housing for the elderly-that is, that the American industry operates as a profit and loss system. The increasing interest among builders in sponsoring relocation rental housing under this section has been frustrated by the requirement under the act that they first interest a charitable or other nonprofit corporation as sponsor or that they themselves organize a sort of civic corporation specifically for the purpose. Safeguards against overextension of this program are amply provided in the statutory requirements that it be confined to the number of units programed for each area by the Housing and Home Finance Agency and that occupancy priority be given to those families set forth in section 221. 8. Federal National Mortgage Association: We support section 201, which would increase to $20,000 the limit on the principal amount of |