2d Session

HOUSING ACT OF 1948

No. 202

AUGUST 7 (legislative day, AUGUST 5), 1948.-Ordered to be printed

Mr. McCARTHY of Wisconsin, from a Special Subcommittee on H. R. 6959, submitted the following

REPORT

To the COMMITTEE ON BANKING AND CURRENCY:

A special subcommittee, consisting of Senators Buck, of Delaware, Bricker, of Ohio, and McCarthy, of Wisconsin was appointed by the chairman of the Senate Banking and Currency Committee to confer with other Members of both branches of the Congress, with a view to drafting housing legislation for passage by the special session of the Congress. The subcommittee was confronted by the situation in which the Senate had passed the Taft-Ellender-Wagner bill which failed to gain the approval of the House. The subcommittee found that practically every Member of both Houses that it consulted very strongly favored passage of legislation to relieve the housing shortage as much as possible.

The feeling was general that in view of the scarcity of certain building materials every effort should be made to induce builders to concentrate on lower-cost homes. Many felt that the bill should also contain a long-range slum-clearance and public-housing program. Both the proponents and opponents of public housing agreed, however, that the passage of a public housing program at this time, such as contained in the TEW bill, would not produce any living units within he next year. In fact, the earliest date at which plans could be completed and construction commenced on the public housing units inder the program set forth in the TEW bill would be in the late pring or summer of 1949, which would mean that the dwellings would ot be ready for occupancy for a very considerable period of time after hat date.

Under the slum-clearance plan of the TEW bill, no money would be wailable for the acquisition of land, etc., until after July 1, 1949. The consensus of opinion of those Members of both Houses conacted was that in view of the fact that a public housing program encted at this time would not produce any dwelling units for approxinately a year and a half; and because of the fact the House had twice ejected a plan for public housing, such as contained in the TEW ill, it would be unwise to include this feature in the bill to be subnitted to the Congress. In fact, the subcommittee was convinced

that the inclusion of public housing in the bill which it was drafting would preclude the passage of the many other badly needed and noncontroversial features of the bill. In submitting the substitute bill for H. R. 6959, the subcommittee recommends that a slum clearance and public housing program be submitted to the Eighty-first Congress, to be considered and acted upon on its own merits.

The subcommittee feels that before the submission of such a public housing program there should be thoroughly explored the possibility of accomplishing the desired results by a combination of Federal and State aid to the municipality in need of such housing, so as to place the control of such housing units more directly under the local municipality. In this connection some of the Members of both Houses called the committee's attention to the following statement in the Republican Party's 1948 platform:

We recommend Federal aid to the States for local slum-clearance and lowrental housing programs only where there is a need that cannot be met either by private enterprise or by the States and localities.

In drafting this legislation the committee had three principal objectives in mind:

1. To make credit more easily available to the veterans and others who desire to build or purchase the lower-cost homes, and to tighten up, to some extent, credit on the more expensive homes. It was felt that by so doing the scarce materials would be channelized into the lower-cost homes for those people who are suffering the greatest hardship from the housing shortage.

2. To liberalize the loans on the lower-cost rural and semirural homes which presently do not qualify for a loan under title II or VI of the National Housing Act.

3. To accomplish the standardization of building codes and measurements in the building industry. The committee feels that if there is general adoption of performance building codes which do no more and no less than protect the public health and safety, and if, in addition, building measurements are standardized, this will ultimately result in very materially reducing home-building costs.

The following provisions are contained in the substitute bill proposed by the committee:

1. Reenactment of section 608 of title VI, with a provision for an additional $800,000,000 authorization for insurance of loans on largescale rental units, with a maximum cost limitation per unit of $9,000. 2. Reenactment and amendment of section 609 of title VI to make loans more easily available for the manufacture of prefabricated housing.

3. The addition of section 611 to title VI, which provides for construction loans of 80 percent on homes with a value of $7,500 or less, where at least 25 homes are being built in the same project.

4. Title II of the National Housing Act is amended largely in line with the amendments contained in the Taft-Ellender-Wagner bill, with the exception that 95 percent buyers' loans are authorized on homes costing $6,300 and 85 percent construction loans authorized in such cases.

5. Enactment of section 207 of title II, which authorizes the FHA to guarantee loans for States or municipalities and nonprofit corporations which are building rental housing.

6. Reenactment of the provisions for veterans' cooperatives provided in the recently passed housing bill, and increases the cost limitation from $1,350 per room to $8,100 per unit, except where the size of families, etc., makes the per room limitation of $1,800 more desirable. The valuation is based upon current costs rather than long-term value.

(In order to make this veterans' cooperative section of value it will be necessary for the H and HFA to furnish considerable technical advice to the co-op members.)

Provision is also made for 90 percent guaranteed loans on nonveterans' cooperatives.

7. Title I, class 3, loans, which are principally for construction in rural and semirural areas, are increased from $3,000 to $4,500. There is also an increase in the construction covered by these loans in the amount of $350,000,000.

8. The recently passed secondary market for GI home loans and FHA-insured mortgages is increased from 25 to 50 percent of mortgages acquired subsequent to April 30, 1948.

9. There is established within the H and HFA a division, the sole function of which shall be to work toward the standardization of building codes and measurements.

10. A yield-insurance program which guarantees the equity investor 2% percent annual income on his money on condition that rents are set to yield no more than approximately 3%1⁄2 percent annual income on the investment.

11. Provision for the orderly eviction of overincome families from the present public housing units.

12. The salary of the H and HFA Administrator is increased to $16,500 and the heads of the constituent agencies to $15,000.

One of the principal objectives of this bill is to channelize building naterial into the building of lower-cost homes.

The following is a section-by-section analysis of the committee's substitute bill:

Paragraph (1) increases the title VI mortgage-insurance authorizaion by $800,000,000, of which $400,000,000 would be available immeliately, and the additional $400,000,000 only with the approval of the President.

Paragraph (2) eliminates the authority to insure mortgages on ne-to-four-family houses under section 603 of title VI and extends he section 608, title VI, mortgage-insurance program for large-scale ental housing from April 30, 1948, to March 31, 1949.

Subsection (b)

This subsection recognizes that, while the urgent need for rental ousing makes it necessary to retain for the next year the present itle VI "necessary current cost" basis for insuring mortgage loans n large-scale rental projects, there should be adequate safeguard to revent this liberalized form of mortgage insurance from giving upport to further cost increases. This subsection would therefore

provide an additional limitation to the effect that the amount of the mortgage loan shall not exceed 90 percent of the estimated replacement cost of the project on the basis of the costs prevailing at the end of 1947 in the locality for rental properties of comparable quality. Subsection (c)

This subsection has the effect of deleting the present cost limitations of $1,500 per room (with discretionary power in the FHA to approve up to $1,800 per room where cost levels so require), and substituting in lieu thereof a cost limitaion of $8,100 per family unit. Experience has indicated a dwelling unit limitation to be more satisfactory and realistic for FHA's programs, and it avoids any tendency to distort design so as to increase room count and obtain thereby higher mortgage insurance commitments.

Subsection (d)

This subsection is designed to perfect FHA's section 609 program in aid of manufacturers of housing in several basic respects.

Paragraph (1) would do so as follows:

Under section 609, as now in effect, a loan for the manufacture of houses can be insured only if at the time the purchase contracts are executed the purchaser has acquired the land and has the cash for the purchase price or has completed his mortgage financing. This has created an extremely difficult situation. Builders generally are unwilling to undertake the cost and the expense of getting developments prepared to a point where they can get co mitments for regular mortgage financing before they know definitely that they can get the houses delivered. At the same time, the manufacturer is unable to secure the loan to finance the manufacture of the houses because, under the present requirements of section 609, the contracts are not eligible for section 609 financing.

The amendment would permit the purchase contracts to provide for payment of the manufactured house to be made after the house leaves the plant if: (a) The purchase price is payable in cash not later than 30 days after delivery, or (b) not less than 20 percent of the purchase price is paid in cash on or before the date of delivery and a promissory note for the balance of the purchase price is accepted and discounted by the section 609 lender (pursuant to par. (d) of this subsection), in which case the balance of the purchase price must be paid in cash not in excess of 180 days after the date of delivery.

Paragraph (2): Section 609 (b) (4) requires that the loan be secured by an assignment of the purchase contracts "and all of sums payable under such purchase contracts". This requires the manufacturer to turn over to the lender the down payments received on account of the houses manufactured and to borrow an amount equivalent to the down payments.

The change made by this paragraph would permit the down payments to be retained by the manufacturer and used as working capital. with an equivalent reduction in the amount of the section 609 loan.

Paragraph (3) is a clarifying amendment to make it clear that the incontestability provisions under FHA's title VI program are applicable to contracts of insurance made pursuant to section 609.

Paragraph (4) would authorize the FHA to insure the section 609 lender, under such terms and conditions and subject to such limitations as the FHA may prescribe, against losses it may sustain as a result