STATEMENT OF ROBERT THARPE, MORTGAGE BANKERS ASSOCIATION OF AMERICA Mr. Chairman and members of the committee, my name is Robert Tharpe. I am president of Tharpe & Brooks, mortgage bankers of Atlanta, Ga. I am chairman of the legislative committee of the Mortgage Bankers Association of America. With me is Mr. Samuel E. Neel of Washington, D. C., who is our general counsel.

We are very happy to appear before you and participate in the discussions of your committee which are being held to consider various bills affecting housing.

Most of the proposals incorporated in the various bills before your committee have, in one form or another, been considered by the association in the past. Rather than discuss each bill today, and the association's position on each legislative proposal, I would like to refer the committee to a statement of policy on legislation affecting real estate financing which was published by the association on March 15 of this year. I have brought copies of this statement for each member of the committee. This policy statement sets forth the suggestions of the association on various legislative proposals and subjects for legislation. The committee will find that most of the subjects covered by the bills now before the committee, or at least most of the proposals embodied in the bills, are discussed in this policy statement. Since the statement contains the recommendations of the association on all these matters I would like to refer the committee, if I may, to that statement for a complete analysis of the various subjects discussed, and I would like to ask that it be incorporated in the record of this hearing.

There is, however, one proposal before the committee which I would like to discuss briefly.

This relates to the proposal involved in S. 2791 to create a home loan guaranty corporation. We have discussed this proposal with various officials of the savings and loan industry from time to time in the past and we have pointed out to those officials first that the Mortgage Bankers Association of America questions whether any new system is needed at the present time, and second that we do not believe any new home loan guaranty system should be established unless it is available to all segments of the financing industry on an equal basis. The proposed plan as embodied in S. 2791 does not meet these requirements. In every instance the new program would benefit savings and loan associations far more than any other type of lending institution. For example, the net worth requirement for nonmembers of the Home Loan Bank System are unduly high. While a minimum of $100,000 capital may, under some circumstances, be undesirably low for a system that places all responsibility on the originating and servicing institution, many competent and responsible mortgage companies have a net worth of less than 1 percent of the amount of mortgages serviced. Thus, under the proposal almost all mortgage companies would be eliminated in qualifying for the benefits of the system.

Further, the stock purchase requirements of the bill would operate so as to exclude most nonmembers of the Home Loan Bank System. Any stock purchase requirements in our opinion should be related to the volume of mortgages insured under the System rather than to the capital structure or servicing account of the participant.

Also, all participants, whether or not they are members of the Home Loan Bank System,should be required to purchase stock in relation to the volume of mortgages insured. Under the present proposal savings and loan associations would not be required to purchase stock. If all participants purchased stock as mortgages were insured the initial subscription by the home loan banks could be in the nature of preferred stock which could be retired as the operations of the System became profitable.

Until, or unless, the proposal is revised so that it is useable by all segments of the industry, the Mortgage Bankers Association of America believes that it would be a mistake for the Congress to pass this legislation.

Finally, the association wishes to suggest to the committee that it consider another proposal which is related to, but so far not a part of, the various bills now before the committee.

Very recently the Federal Housing Administration has put into effect a program known as the certified agency program. Under this program, which this association is enthusiatically supporting, mortgage companies, which are FHA approved mortgagees, and which have a net worth of at least $100,000, may, after application and investigation with the approval of the FHA, be designated

as "certified agents" of the FHA for the purpose of initiating and processing loans which are to be insured by that Administration.

Although this program is just beginning, it could very well turn out to be the most important advance that the FHA has made in many years, because it enables properly qualified and supervised mortgage companies to render much better service to borrowers and it avoids much of the processing delays which now take place before a loan can be insured by the FHA.

The FHA is carefully supervising this program and to date the operations under it have been completely satisfactory. However, the benefits of this kind of operation (where the mortgage company initiates the loan, does all processing, issues a commitment in the name of the FHA) are not available to veteran borrowers who wish to do business through mortgage companies, since the provisions under which a veteran's home loan can be automatically guaranteed limit the institutions which can use that system to companies which are "supervised" by a Federal agency or by a State agency. (Mortgage companies are not considered to be so "supervised.")

It is our belief that service which can now be rendered by certified agents of the FHA to nonveteran borrowers should be made available to veteran borrowers. This can be done if section 500 (d) of the Servicemen's Readjustment Act of 1944, as amended, is amended by adding at the end of the first sentence of that paragraph the following:

"or by any FHA approved mortgagees designated by the FHA as a 'certified agent' and which is acceptable to the Administrator of Veterans' Affairs." The complete section of 500 (d) as amended would read as follows:

"Loans guaranteed hereunder may be made (1) by any Federal land bank, national bank, State bank, private bank, building and loan association, insurance company, credit union, or mortgage and loan company, that is subject to examination and supervision by an agency of the United States or of any State or Territory, including the District of Columbia, or (2) by any State, or (3) by any FHA approved mortgage designated by the FHA as a 'certified agent' and which is acceptable to the Administrator of Veterans' Affairs."

We believe this proposal will be acceptable to the Veterans Administration and will be very useful to veterans. The Veterans Administration would, of course, always be in a position to determine which mortgage companies they were willing to approve for closing loans on an automatic basis, and they would be in a position to continue to supervise the operations of any company once approved.

Senator SPARKMAN. Mr. Earl N. Parker was due to testify this morning. He is simply inserting a statement because he is unable to be here at this time. He has asked that his statement be inserted in the record and that will be done at this point.

(The statement referred to follows:)

STATEMENT OF EARL N. Parker, on BEHALF OF THE FAMILY SERVICE ASSOCIATION

OF AMERICA

My name is Earl N. Parker. I serve as consultant to the standing committee of the Family Service Association of America on public issues. The Family Service Association of America is a membership federation of 274 of the principal agencies located in most of the cities throughout the United States which render counseling and other services to families. Because of its close knowledge of the problems of families throughout the country including the severe problems faced in finding decent housing, the association has had a long-time concern with this subject.

Attached to this statement is a Policy Statement on Housing which was adopted by our association in December 1954. I shall not read that statement but should like to refer briefly to two paragraphs as follows:

"To the extent that it is practical and possible, the housing needs of American families should be met by private industry. Where severe shortages exist as at present, Government should cffer encouragement in the form of appropriate credit facilities and other guaranties to encourage private builders to meet the needs.

"In the opinion of qualified experts, more Government participation is required, however, to meet the need of housing for people with low incomes,

wherever these needs cannot be met by private industry. A special need exists for Government-sponsored programs for low-income people to provide for construction of a certain number of units each year. Rents (the largest item), tax exemptions, and Government subsidies together provide for the maintenance of such housing.

RECOMMENDATION TO MEMBERS

"The fact that several million families, including many in their own communities, are presently compelled to live in housing which falls far short of minimum standards, is a major concern to every family service agency. Along with their national association, we urge that they be active in State and local efforts to make decent housing available to all families in their respective communities."

In line with this policy statement, the Family Service Association of America has had a continuing and increasing concern over the failures to realize the hopes and the promises that we believed we were going to see fulfilled.

Why have we steadily retrogressed in the effort to attain a minimum of decent housing for every family? There are many reasons. A major one, we believe, has been a complete lack of conviction on the part of the Housing Administration. The process of meeting all the involved time-consuming requirements for securing approval of public housing projects has so discouraged municipalities that most of them have given up in despair. Then the Housing Administration points to the fact that only a fraction of the pitifully small number of units which might have been processed have been processed, thereby apparently proving that there is little or no need or demand for public housing; this in the face of the fact that both the Senate and the House committees have been steadily collecting evidence of the desperate need for low rental housing and the miserable plight of millions of families forced to live in quarters unfit for human habitation.

The public housing program developed in the United States, limited as it has been, presents very real problems not easy of solution.

In the larger cities for some time, the usual pattern of public-housing development has been that of large units of high-rise buildings. Experience has shown that the tenents eligible for occupancy have been in many instance, unused to city life, and to a considerable extent, unused to acceptable standards of housekeeping, child training, and the kind of communal living into which they have suddenly come.

This has resulted in very difficult management problems. Many of the new tenants have come from entirely different cultural and racial backgrounds. Their children have found it harder to adapt to acceptable patterns of life, and this in turn has resulted in vandalism and conditions which have bewildered and discouraged the majority of families which desired to live and bring up their children in a decent, good environment. As a result of such conditions, many of the "better" families have moved out even though they may have been forced into much less desirable housing. This in turn resulted in a sort of spiral of deterioration.

This condition as found in some of the large, public-housing projects in New York City was graphically pointed out by Mr. Harrison E. Salisbury in a series of articles which were published in the New York Times in March 1958.

A new look is being given to the type of public housing as a result of this kind of experience. Low-rent projects are being proposed in a number of cities on the basis of smaller units, decentralized so that the occupants will be less stigmatized, and the concentration of so-called problem families will be reduced.

Social agencies of various types are becoming increasingly aware of the problems of families in these large, urban developments. They recognize the need for counseling, for help in housekeeping and child training, for better planned recreational opportunities and for vocational help. Efforts to this end are being made in spite of difficulties of many sorts.

Many of these families who need help badly have no realization of any such need, are unwilling to ask for it, and are resistant when it is offered to them. They are apt to present a multiplicity of problems which require patient, longtime effort which the overloaded, understaffed agencies can give only with the greatest difficulty.

This brief presentation has been largely confined to the need for public housing. This is because our knowledge and experience relates primarily to the desperate need of low-income families which can be met only by that program.

We are nevertheless interested in urban renewal and redevelopment as well as the rehabilitation of housing which has deteriorated but is still capable of being improved and used.

Senator SPARKMAN. That concludes the list of witnesses this morning.

If there is anyone who is scheduled for this afternoon that would like to come on now, we can go ahead for 15 or 20 minutes more. About 15 minutes more.

Mr. McLain, would you like to testify now?

Mr. McLAIN. I would appreciate it very much.

Senator SPARKMAN. You come right ahead.

Mr. George McLain, president of the National Institute of Social Welfare.

You have some associates with you. Will you identify them for the record, please.

We have your statement and, as you know, the full statement will be printed in the record.

You proceed as you wish.

STATEMENT OF GEORGE MCLAIN, PRESIDENT; ACCOMPANIED BY FRANKIE CHILDERS, LEGISLATIVE ASSISTANT; ROBERT BROWN, HOUSING DIRECTOR; AND RICHARD LOUGHEAD, NATIONAL INSTITUTE OF SOCIAL WELFARE

Mr. McLAIN. I have with me on my left Frankie Childers, my legislative assistant; and immediately on my right, Robert Brown, our housing director. The next gentleman is Mr. Richard Loughead, who is a builder, a real estate developer in California.

Senator SPARKMAN. All right, sir.

Mr. McLAIN. Mr. Chairman, members of the committee, my name is George McLain. I am president of the National Institute of Social Welfare, located at 200 C Street, SE., Washington, D. C., with main headquarters at 1031 South Grand Avenue, Los Angeles 15, Calif.

Our interest in the housing field revolves solely around programs for the elderly and so, naturally, our remarks will be confined to that category.

To make this presentation as informative as possible, two gentlemen have flown here from California to join me today. Both have for many months been actively working on plans and specifications for lowrent housing projects for low-income elderly people.

Mr. Robert Brown, for many years a staff member of the Federal Housing Authority in Los Angeles, is now our housing director. Mr. Richard Loughead is a real estate developer in California's central valley area and has been of great benefit as our contractor in a proposed 502-unit development in Fresno, Calif.

I believe their practical field experience in working with elderly housing laws will be of special benefit to the committee and so I have made my prepared statement as brief as possible and specifically aimed at two bills, the committee print, which we received from the chairman, Mr. Sparkman, and the administration's proposals as embodied in S. 3399 by Senator Capehart.

We heartily endorse the provision in both bills which would set up a separate section, 229, to encourage the building of rental housing for elderly people.

We are generally in favor of the administration's proposals as far as they go with the exception of the recommended increase in interest rates to 512 percent. Under no circumstances do we feel the interest rate should be increased above its present level. In fact, we are here to propose that it be decreased.

I will go into that a little more fully later on, but first I want to comment on section 105 of the committee print bill, which adds a new section, 229, to the National Housing Act.

We endorse all of the provisions included therein, and most particularly the provision which would permit insurance on mortgages up to 100 percent of replacement cost for nonprofit organizations.

Enthusiastic as we are about the committee print recommendations, we do not feel that they go far enough in enabling nonprofit organizations to build low-rent units for low-income elderly people.

I emphasize "low-income" elderly people because this is the large group most in need of decent housing within their ability to pay and these are the people we are particularly interested in.

First, may I suggest an amendment to section 229, and then I will briefly explain why we think the addition of these provisions so necessary to an effective elderly housing program. Our suggested amendment would embody the following principle:

Nonprofit organizations with a background of interest in assisting the aged, who seek to construct low-rent living units for the low-income elderly, shall be given added encouragement by the commissioner who shall judiciously expedite these proposals and be empowered to

(a) extend the amortization period within such term not exceeding 50 years as the mortgagor may specify or such longer term as the commissioner may prescribe; and

(b) approve interest at not to exceed 31⁄2 percent per annum on the amount of the principal obligations outstanding at any time; and

(c) establish such regulations as to rents and charges as the commissioner deems necessary to assure continuation of the agreed low-rent principle. The provision to insure mortgages up to 100 percent of replacement cost for nonprofit organizations we believe is a very sound one, both from the standpoint of the Federal Government and the elderly people. Certainly no question can still exist in anyone's mind even faintly familiar with the facts that there does exist an acute shortage of suitable housing for elderly people. And if the rule of "supply and demand" is put to work here, we must realize that the "demand" will continue to be far greater than the "supply" for several years to come, even under the most concentrated effort. Therefore, we fail to see that FHA would be taking any appreciable risk in 100 percent financing. On the other hand, we find the present 10 percent equity requirement almost prohibitive so far as nonprofit organizations are concerned. This, when added to the interest rates and discounts on loans now being charged, increases the equity requirement to over 15 percent.

Further, FHA requires the setting aside of a high reserve fund for repairs and replacements plus the establishment of a trust fund for amortization to guarantee the soundness of the mortgage. We must also purchase furnishings and equipment.

Obviously a nonprofit corporation-although it may be perfectly sound financially and stable from the standpoint of supplying the necessary administrative know-how and continuity of operation-by its very nonprofit nature is not in the position to make such a large cash outlay.