"LIFE EXPECTANCY" OF FHA HOME MORTGAGES Number of mortgages surviving from on initial group of 100,000 Mr. SEVERIN. This material shows, among other things, that a 40year loan at 5 percent can be carried for $4.83 a month per $1,000 of mortgage in contrast to $5.85 for a 25-year term. As another example, a 30-year FHA loan in the amount of $13,500 requires monthly payments to principal, interest, and FHA insurance premium of $80.25. If this loan were made for a 40-year term, the monthly payments to principal, interest, and FHA insurance premium would be reduced to about $73 ($72.96)-a reduction of a little over $7 a month. Translated into income terms, this would mean that a buyer could qualify for this loan with about $30 a month less income on a 40-year term than if he is required to carry the cost of a 30-year term. The difference would enable thousands of good credit risks to buy and pay for their own homes. We realize, of course, that the same expressions of concern will greet this proposal from the same quarters as professed horror when the term of loan was extended by FHA and VA legislation from 20 to 25 years and, subsequently, to the existing 30-year maximum. For that matter, I recall that somewhat the same headshaking greeted the original FHA legislation which lengthened to 20 years the then customary 10, 12, or, at most, 14-year loan. Each of these steps was radical in its day, but the result of these progressive extensions has been highly beneficial to home buyers and to our economy. We believe a further extension of term is again indicated at this time, particularly since it must be recognized that lenders will be slow to go to the maximum 40 years (if enacted), but may then willingly accept the 30-year mortgage, which they now regard as extreme. Thirdly, in the field of rental housing, you will recall that we suggested reenactment of old section 210 of the National Housing Act to permit insurance of rental-housing mortgages up to $500,000 in principal amount at the same ratio of loan to value and the same maximum mortgage per unit as in section 207, but without the type of corporate control and Government intervention in corporate affairs imposed upon large projects by section 207. This suggestion is aimed at releasing the large potential of rental-housing construction in smaller cities. We believe that section 207, except for the cost-certification formula to which I have already referred, needs little legislative correction to make it effective for large-scale projects. Rather, it needs sympathetic and efficient administration, which would recognize that FHA insurance is intended as a means of assistance and cooperation in the construction of moderate-rental housing and not as a disciplinary or police measure. The suggestion for legislation aimed at smaller projects would work to this end. The need for a device to finance smaller rental projects could, we firmly believe, also be met administratively by FHA if it would revoke its unreasonable restrictions on the use of 2, 3, or 4-family structures in rental groups. Traditionally, a very large part of rental-housing production has been of this type. Its restriction by FHA deprives the market of just the type of financing device which is badly needed and which is not supplied by the more cumbersome and elaborate section 207. At this time I want, also, to present to the subcommittee the vigorous opposition of the National Association of Home Builders to the attempt being made by a small group to amend the National Housing Act to tie the FHA Commissioner's hands in determining which items of household equipment are acceptable for inclusion under an FHA-insured mortgage. Under date of January 4, 1957, the Federal Housing Commissioner, at the request of this committee, submitted an exhaustive and carefully documented report on this subject. We do not believe the best interests of home buyers are served by the current attempt to force a return to outmoded and uneconomic practices in equipping a home with those items which have come to be regarded as an integral part of the modern home. We believe FHA's procedures are correct and in the interest of the home-buying public. Any limitation of the Commissioner's discretion in this regard would be a serious backward step. HOME LOAN GUARANTEE CORPORATION ACT Finally, I am instructed by the executive committee of our association to convey to you our views on the so-called Home Loan Guarantee Corporation Act (S. 2791). In general, of course, the National Association of Home Builders favors any sound plan which would increase the effectiveness of widely used conventional lending. We are convinced that the typical home buyer cannot afford to supply in cash the 33-percent equity required over and above a conventional loan and, hence, usually must resort to second-mortgage financing. We believe, also, that FHA and VA financing should not preempt the whole market, but should accompany and supplement a thriving, effective, conventional lending system. I, therefore, regret we cannot support the Home Loan Guarantee Corporation proposal because, in its present form, it is confined exclusively to a single class of lender. Mortgage bankers, who constitute a large part of the national mortgage system and the main source of mortgage lending for new construction in some areas; insurance companies, and savings banks are, in effect, precluded from operating under the bill. In the form in which S. 2791 was introduced, there are provisions which require a lender to buy and maintain ownership of stock equivalent to one-seventh of 1 percent of the loans owned and the loans serviced by it, and which limit eligible lenders to institutions or organizations with a net worth of 1 percent of the total of home mortgages owned and serviced by them. These provisions will effectively bar lenders other than savings and loan associations. Moreover, within the last day or two, I have seen a draft of a proposal by the United States Savings & Loan League which in so many words requires that a lender be a member of the Home Loan Bank System in order to qualify for guaranty under the bill. We cannot support such a limited approach to the solution of the problem to which this legislation is addressed. These seem to us to be the high points in the voluminous legislative proposals now before you. I shall of course be glad to discuss any other item on which the subcommittee would like to have the views of NAHB. Also, I should like to ask permission of the subcommittee to submit any additional views which the association may have on matters arising during the hearings and which we have not had an opportunity to study prior to presenting our testimony. In accordance with the wishes of the subcommittee staff, we have appended a brief itemized list of the specific recommendations and positions of NAHB, which I have explained in detail in the course of my testimony. Thank you very much for your courtesy and attention and for the opportunity to present the views of the home-building industry. Senator SPARKMAN. Your list of specific recommendations will be made a part of the record at this point. (The document referred to follows:) NATIONAL ASSOCIATION OF HOME BUILDERS SPECIFIC RECOMMENDATIONS I. We favor the following sections of S. 3399: 104, 106, 109, 201. II. We support the following: (1) Partnership tax treatment for section 207 rental housing corporations; (2) Revision of FHA downpayment schedule to provide 10 percent of value between $13,500 and $20,000 and 25 percent in excess of $20,000; (3) Forty-year term for all FHA-insured and VA-guaranteed home loans; (4) Enactment of simplified rental housing provision patterned after former section 210 of the National Housing Act, with same ratio of loan to value and same maximum mortgage per unit as in section 207 with $500,000 maximum principal amount. III. We oppose sections 108 (b) and 202. IV. We cannot support S. 2791 (unless broadened to extend its operations to lenders other than savings and loan institutions). V. We oppose legislation to restrict FHA's discretion in including under its mortgage equipment items customarily included in the locality. VI. We recommend: (1) Revision of section 227. (2) A special section of the act to cover projects in which a reasonable minimum (one-third to one-half of living units) are especially designed for occupancy by elderly persons to be available to private builder-developer corporations regulated by FHA (as in sec. 221). (3) Study and future action to convert FNMA into a central mortgage reserve facility. Senator SPARKMAN. Thank you, Mr. Severin, for your very fine and comprehensive statement. By the way, have you had occasion to see the committee print which is before us? Mr. SEVERIN. I have not, sir. That is what I refer to in my final paragraph. I have not had a chance to, nor has any of our staff had a chance to look at that and we should like to reserve the right and request the privilege of coming back again. (The following was received for the record :) SUPPLEMENTAL STATEMENT WITH REFERENCE TO COMMITTEE PRINT AND S. 3399 This statement is filed by way of supplemental views in addition to those presented in NAHB testimony before the committee on May 14. At that time we had not had the opportunity to study the committee print containing further proposed amendments to the National Housing Act. The committee print contains a number of suggestions with which this association is in hearty accord and to which we give our full support. In brief, therefore, we would first wish to make clear that on behalf of the home building indusry we very much favor enactment of the following provisions in the committee print: (A) FNMA purchase at par.-We firmly believe that the provision in section 401 of the committee print should be given the approval of Congress. This amendment would make permanent the requirement that FNMA buy mortgages at par under its special assistance programs. Certainly the support which is now being given to the mortgage market would not be as effective if special assistance purchases were authorized at discounts, tending to further depress the mortgage market. The use of the FNMA special assistance function is in itself an indication that there is a need for special aid to a specific class or category of mortgages. An overriding public interest distinguishes the character of this FNMA assistance from that generally offered under the secondary mortgage market function. Special assistance funds authorized by the administration or by Congress to be used for particular categories of mortgages are derived from Treasury financing not from private investment sources. Certainly no discrimination should be permitted in their use through discounts in the FNMA purchase prices. (B) Urban renewal funds.-This association supports a continuing high rate of capital grant funds for the Federal urban renewal programs. While we defer to the judgment of Congress in determining the exact amount of money which 25834-58-17 should be approved and the time-period for future continuation of the capital grant program, we are firmly of the opinion that it would be a mistake at this time to curtail Federal assistance. In large measure, the urban renewal and slum clearance programs have begun to function locally only recently and their future rests upon a firm and continuing support by Congress and the administration. This "seed money" will be returned manyfold to the communities and to the Federal Government as the slum properties are replaced with new, tax revenue-producing housing, commercial, and industrial projects. (C) Elderly family housing.-We very much favor the changes made by section 105 of the committee print in the elderly family housing provisions of the National Housing Act. A new section 229, removing the provisions covering housing for the elderly from the sometimes restrictive thinking under section 207, is most desirable. In addition, we fully believe that a limitation of 50 percent of such living units specially designed for the use and occupancy of elderly persons will make the section a much more workable vehicle for mortgage financing and general use. This would in no way prevent projects from being completely designed for elderly family occupancy. For the first time, however, this amendment would permit projects to be designed for elderly families desiring to live in an atmosphere integrated with other families of different age groups and sizes. Certainly it is clear that not all elderly families wish to be segregated into projects which are wholly institutionalized. In our testimony presented on May 14, we emphasized that we very much favor the amendment which is also in section 105 of the committee print to make it possible for the section 229 elderly family program to be used by a mortgagor which is not a nonprofit organization. It is our view that there is no basic reason to limit this program to nonprofit organizations as has been done in previous legislation. Clearly there are opportunities in many areas of the country for profit organizations to become mortgagors of projects designed wholly or in part for elderly family occupancy. Moreover, in such cases and even where projects may ultimately become owned and operated by nonprofit organizations, it is desirable for the program to provide a means under which these projects may be organized and constructed by profit organizations. With FHA supervision and control over rents, priorities, etc., the basic purpose of the program will always be completely protected. We approve also of the provisions in the committee print which raise the maximum mortgage amounts and loan-to-value ratios for elderly family housing. The requirement for obtaining substantial equity investment from nonprofit organizations is decidedly an impediment to the current program. The increase in loan-to-value ratios for nonprofit organizations and the requirement for minimum equity investment by profit organizations, therefore, should prove a real incentive for production of more housing for the elderly. Since these are by definition projects requiring special design, planning, and construction, the increased mortgage limitations are warranted for the program. PROVISIONS OF COMMITTEE PRINT TO WHICH NAHB HAS STRONG RESERVATION OR OBJECTIONS In addition to the matters mentioned above in which this association supports proposals in the committee print, we must register also strong reservation and objections to the following proposals to which our views are outlined below: (A) Cost certification changes.-The committee print in section 104 contains proposals similar to those in the administration's bill, S. 3399. Our testimony submitted on May 14 contained in some measure our reasons for objecting to the proposed changes in cost certification together with our recommendations for changes which we feel would improve section 227 of the act. Essentially we object to the results which would be effected by the changes proposed in the committee print and the administration's bill. Their net effect is to substantially improve the position of the large-scale redeveloper to the disadvantage of the local builders who may wish also to participate in an urban renewal program in their community but who do not have the resources of the large-scale promoter. In response to questioning during the course of our testimony we have since filed an additional explanation of our views on cost certification. This will appear with our basic testimony during these hearings. A copy is attached to this supplemental statement. |