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FHA MORTGAGE INSURANCE

We have been concerned for some time that the various FHA mortgage insurance programs and, to some extent, their administration, have not kept pace with the changing characteristics of the housing markets which they were designed to serve. We are especially gratified, therefore, by the legislative proposals in the committee print and certain of the proposals in the administration bill respecting these programs.

Coupled with administrative policies giving greater recognition to FHA's primary responsibility to the consumer and a better balance between urban and suburban housing needs, these proposals, if enacted into law, will correct many of the existing deficiencies in the FHA programs.

Rental housing

The proposed increase in maximum mortgage limitations under section 207 and for multifamily housing under section 220 contained in the committee print is an essential first step in encouraging the production in quantity of much needed rental housing in our communities.

In addition, the Congress should give consideration to substituting estimated replacement cost or actual certified cost (whichever is lower) for value, as the basis for computing the mortgage amount under section 207.

Section 220

We favor the proposal contained in both the committee print and the Administration bill for equalizing equity requirements for builder-sponsors and investor-sponsors under the section 220 urban renewal mortgage insurance program. By permitting the insurable mortgage to be based on 100 percent of estimated replacement cost or actual certified cost (whichever is lower), excluding builder's general overhead and profit, the Congress will facilitate disposition of land and construction of rental housing in urban renewal project areas.

NAHRO also urges the Congress to give consideration to transferring to the URA responsibility for determining architectural standards, appraisal procedures, and mortgage risk criteria under the section 220 program. This would place operational responsibility for all types of Federal assistance for urban renewal projects in the same agency and should be instrumental in assuring uniformity of approach and an consistency in policy.

Section 221

NAHRO supports the provisions in the committee print designed to (1) increase the maximum insurable loan under the section 221 relocation housing program from $9,000 to $10,000 in normal cost areas and from $10,000 to $12,000 in high-cost areas; (2) substitute replacement cost for value as the basis for the insurable mortgage for new construction under the nonprofit rental housing portion of the section 221 program; and (3) make section 221 mortgage insurance available for the construction for profit of rental housing for displaced families on the basis of estimated replacement cost or actual certified cost (whichever is lower).

The proposal in the committee print for extending eligibility under section 221 to families displaced by governmental action from the environs or general market area of a community having an approved workable program, should be modified to define the terms "environs" and "general market area" and should be coupled with the provision in the administration bill removing the requirment that the locality or community in which the housing is to be located must request that the section 221 program be made available. It seems to us entirely inconsistent to extend eligibility for section 221 housing to families displaced in a locality, while at the same time permitting the locality to prevent the construction of section 221 housing therein.

Housing for the elderly

At the beginning of this statement we cited the need for the production of a substantial amount of housing designed to meet the special needs of the increasing number of older people in our population. This need has received recognition in the proposals in both the committee print and the administration bill for a separate FHA mortgage insurance program of rental housing for elderly persons. Of the two proposals, NAHRO supports that contained in the committee print as likely to result in the production of a greater volume of housing for the elderly than the administration proposal.

MIDDLE INCOME HOUSING

The policy and program resolution adopted at NAHRO's 24th annual meeting in St. Louis last October identified an adequate supply of "middle income” housing as the most serious gap in our housing inventory today. Middle income housing was generally defined as standard housing within the means of that sector of our population whose income is above the maximum for public housing occupancy and below the level for which a volume supply of private housing is being produced through FHA, VA, and conventional financing.

Recognizing the inability of the private homebuilding industry to meet the tremendous housing needs of the middle income segment of our population under existing construction cost and mortgage financing mechanisms, we advocate: 1. An adequate and continuing Federal program of housing research designed to identify the characteristics of the middle income market and develop construction techniques and building materials that will bring a substantial supply of new housing within the financial reach of middle income families. Such a research program should be financed from reserve funds for the various FHA mortgage insurance programs and a portion of the FHA general mortgage insurance authorization should be set aside to facilitate the financing of housing construction under techniques and with materials developed through the research program.

2. An intensive study of new sources and methods of encouraging a larger and continuing supply of funds for the residential mortgage market. We suggest that this committee examine particularly the feasibility of legislation for:

(a) Encouraging the investment of more pension funds for mortgage purposes;

(b) Providing tax "conduit" treatment for residential mortgage investment trusts;

(c) Establishing a central mortgage discount bank; and

(d) Chartering of mutual savings banks and/or savings and loan associations by the Home Loan Bank Board particularly in areas with a chronic shortage of mortgage funds.

3. Consideration of a direct Federal mortgage loan program for the construction of rental housing at costs within the means of middle income families as defined above. Housing could be made available in substantial quantity for such families by lower monthly rentals resulting from a 50-year amortization period and an interest rate based on the current average yields of all outstanding marketable obligations of the United States (currently about 3 percent). Such a program might provide preferences for families displaced by governmental action, families living in public housing whose incomes are above the limits for continued occupancy, and families living in substandard or overcrowded housing.

CONCLUSION

We have presented in this statement certain legislative recommendations which, if adopted, will, we feel, insure a continuing and effective urban-renewal program, a revitalization of the low-rent public housing program, and a substantial start toward meeting the housing needs of middle income families.

But any program is only as effective as its administration. In this connection, we commented earlier in the statement concerning what we regard as certain deficiencies in the administration of the public housing program.

With respect to urban renewal, we desire to record the fine relationships which exist between the Federal agency and local public agencies. The HHFA Administrator and the Urban Renewal Commissioner and his staff have been generally responsive to the needs and concerns of the localities in their policy determinations and have sought to simplify and expedite the urban-renewal process. This positive approach to administration of the program has been reflected in its substantial growth and progress during the past year.

LEGISLATIVE RECOMMENDATIONS

URBAN RENEWAL

1. An increase in capital grant obligational authority in the amount of $600 million each year for 10 years, with an "acceleration clause" that would permit the Administrator to contract to make capital grants in excess of $600 million in any 1 year, provided that the total amount of capital grants contracted for in the 10-year period does not exceed $6 billion.

2. An increase in the Federal share of net project cost from two-thirds to 80 percent.

3. Establish eligibility as noncash local grants-in-aid of public improvements and supporting facilities commenced not more than 5 years prior to the authorization by the Administrator of a contract for financial assistance for the urban renewal project to which such public improvements and supporting facilities are related.

4. Elimination of the predominantly residential requirement.

5. Simplification of the required contents of an urban renewal plan.

6. Local certifications, supported by conslusive findings, with respect to documentation in support of applications and reports.

7. Authority for the making of temporary loans, in advance of the capital grant, for project execution activities which are not dependent on the existence of an urban renewal plan.

8. Financial assistance for the preparation or completion of community renewal programs.

9. Extend eligibility for relocation payments to all individuals, families, and businesses displaced from an urban renewal area pursuant to an urban renewal plan.

10. Interest rates for loans and advances:

(a) Establish uniform data for determination of interest rate.

(b) Establish definite loan interest rate at the time of loan and grant contract.

(c) Establish definitive loan interest rate on basis of average yields of United States obligations of comparable maturities.

PUBLIC HOUSING

1. NAHRO endorses the proposals respecting low-rent public housing contained in the committee print, except as follows:

(a) A 10 percent "gap" in lieu of the 20 percent "gap" contained in section 302 of the committee print.

(b) Change in income-to-rent ratio from 5-to-1 to 7-to-1.

(c) A revision of section 303 of the committee print to provide for the use of proceeds from the sale of units for replacement public housing units. (d) A revision of section 307 of the committee print to provide for disposition of public housing sits in urban renewal areas at prices equal to fair value for use in accordance with the urban renewal plan.

2. Make available the full authorization for annual contributions contained in the Housing Act of 1949.

3. Repeal of restrictive provisions in the Housing Act of 1937, as amended, including provisions for self-liquidation and termination of projects pursuant to certain local requests.

4. Standardize cooperation agreements to permit uniform payment for public services and facilities provided by the municipality.

FHA MORTGAGE INSURANCE

1. NAHRO generally supports the proposals contained in the committee print respecting the various FHA mortgage insurance programs, except as follows:

(a) The proposal for extending eligibility under section 221 to families position of public housing sites in urban renewal areas at prices equal to fair community should be coupled with removal of requirement for approval by locality in which section 221 housing is to be located.

(b) The terms "environs" and "general market area" should be defined. 2. In addition, substitute cost for value as basis for computing mortgage amount under section 207.

3. Transfer to URA responsibility for determining architectural standards, appraisal procedures, and mortgage-risk criteria under the section 220 program.

MIDDLE-INCOME HOUSING

1. A Federal housing research program to identify middle-income market and develop new construction techniques and building materials.

2. A direct Federal mortgage-loan program for rental housing for families whose income is above the maximum for public housing and below the level for which a volume supply of housing is currently being produced.

Senator SPARKMAN. At this point I wish to place in the record a statement by Senator J. Glenn Beall, of Maryland.

(The statement of Senator Beall follows:)

STATEMENT BY J. GLENN BEALL, A UNITED STATES SENATOR FROM THE STATE OF MARYLAND

Mr. Chairman, I am constantly disturbed each time we consider housing legislation about the inclusion of home furnishings, appliances, and even wall-to-wall carpeting in FHA guaranteed loans.

It is specious at best to present to a prospective purchaser of a new home the opportunity to pay interest on money over a great number of years for so relatively perishable commodity as carpets and appliances which obviously will have depreciated beyond salvage long before the maturity date of the loan involved. It seems to me very wrong for the Government to participate in such a program, whether or not it is discretionary with the executive. I feel very strongly that we should write into our housing bill specific, mandatory provisions which will leave no doubt as to the intent of Congress in this matter. It is, therefore, my recommendation that we include in this bill statutory prohibition against the inclusion of items such as I have alluded to in any mortgages which may be guaranteed by the Federal Government.

Senator SPARKMAN. Mr. R. E. Carter, of Baltimore, Md., representing the National Retail Furniture Association, is next.

Mr. Carter, we will be very glad for you to come around. We have a copy of your prepared statement. It will be printed in full in the record. You proceed as you see fit, and for the benefit of the record present your associate.

STATEMENT OF ROBERT E. CARTER, REGIONAL VICE PRESIDENT AND CHAIRMAN, GOVERNMENTAL AFFAIRS COMMITTEE, NATIONAL RETAIL FURNITURE ASSOCIATION, ACCOMPANIED BY DERRICK BROOKS

Mr. CARTER. This is Mr. Derrick Brooks, staff man for National Retail Furniture Association.

Senator SPARKMAN. Thank you. We are glad to have both of you here.

Mr. CARTER. My name is Robert E. Carter. I operate Hub Furniture Co. in Baltimore and Carter's Furniture Co. in Towson, Md. I am chairman of the governmental affairs committee of the National Retail Furniture Association.

Of course, as you said, Senator, we will appreciate the full statement being incorporated in the record.

During the past 3 months our members have found it necessary to protect themselves from the consequences of proposals made to the Federal Housing Administration by carpet manufacturers and builders. These were that FHA should include carpet in the homemortgage security.

Fortunately, FHA has now made a firm decision not to include carpet. We applaud that decision. Nevertheless, the fact that FHA again gave serious consideration to the possibility of accepting carpet has for the second time in 2 years caused our members considerable expense and used much of their time and energy in protecting their reasonable interests.

In 1956 similar proposals to include carpet were put forward. As a matter of self-protection, this association also was obliged at that time to come before this committee. Our members felt bound in 1956

and again in 1958 to appeal to Congress for protection because title II of the National Housing Act provides no clear policy guidance to FHA on the intent of Congress in relation to proposals that items of personal property be included in the mortgage security. Nor does it provide any guidance as to the rights of interested parties that should be taken into account when such proposals are considered.

NRFA has given this question serious study. We respectfully submit for consideration by the committee amendments to section 203 (b) of the act:

1. Avoiding alteration of established patterns of distribution of goods to the consumer.

It has been our experience on items which FHA has approved for inclusion in the mortgage security that a shift in the distribution channels of these items usually occurs.

Retail merchants feel that their business interests can in the long run be profoundly affected in this way. The effect is to shift the business away from them and to put it in the hands of builders.

Under conditions of normal competition without Government intervention there could be no objection. But under FHA the effect is to set up unfair Government-supported competition. The builder is enabled to offer the item on what appears to the consumer to be more attractive terms with Federal insurance against loss. Retailers are powerless to meet such unfair Government-supported competition.

In helping the home buyer, FHA can severely damage the interests of another segment of the public, the retailers of America and the job security of their employees.

Retailers of America want the opportunity to compete freely on equal terms without Government intervention. They feel Congress should place a responsibility on FHA to consider the effect on their business interests and the jobs of their employees before accepting as FHA mortgage security an item traditionally sold to the consumer through retail distribution channels.

Retailers understand well that each manufacturer has to seek the largest possible profitable distribution for his product. They know that some would choose retail stores exclusively. Others would sell through contractors. Under these circumstances the free play of competitive forces would determine what is best according to the way the consumer decides to buy. But the influence of the Government mortgage insurance should not be thrown behind any segment of business where open market competitive forces are at work.

We propose that the National Housing Act require FHA to take into account the effect on existing channels of distribution of accepting as mortgage security items traditionally sold through retail stores, and to consult the interested parties.

This can be accomplished, in our opinion, by amendment to section 203 (b) of the National Housing Act as follows:

To be eligible for insurance under this section a mortgage shall not include as mortgage security items not presently acceptable for inclusion in the area, which, if included will tend unnecessarily to alter, weaken, or disrupt established patterns of distribution of such items to the consumer.

Point No. 2: Excluding items of doubtful real estate status from the mortgage security.

Under the pressure of competition between builders, mortgage lenders and installment finance companies, abuses of sound lending

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