(The following was ordered inserted in the record :)

Mr. NORMAN P. MASON,

UNITED STATES SENATE,
March 4, 1957.

Commissioner, Federal Housing Administration,

Washington, D. C.

DEAR COMMISSIONER MASON: I have just received and read the Administration's proposal for liberalizing the terms of FHA-insured mortgages. I refer, of course, to those provisions which provide that the amount of the FHA-insured mortgage may be increased, with a consequent reduction in the required downpayment.

Practically every conversation I have had recently on the subject of housing has dealt with the inability of builders to secure financing, both temporary and permanent. There has been little or no discussion concerning the inability of builders to sell houses by reason of reduced demand. But my interpretation of the effect of liberalized FHA terms is that such liberalization would broaden the market and increase the demand for housing. Since the number of housing starts has been reduced substantially, wouldn't this increased demand press upon a reduced supply and, therefore, be inflationary?

In order to clarify my thinking on this point, can you inform me what the present policies of your respective FHA insuring offices are with respect to the issuance of commitments; that is, whether commitments are being issued without restrictions or, if there are restrictions, the nature of these restrictions. At the same time, could you furnish me with some analysis of the numbers and general locations of unsold houses presently on the market. Sincerely,

JOHN SPARKMAN.

Hon. JOHN SPARKMAN,

FEDERAL HOUSING ADMINISTRATION,
Washington, D. C., March 11, 1957.

Chairman, Subcommittee on Housing Committee оп Banking and
Currency, United States Senate, Washington, D. C.

DEAR SENATOR SPARKMAN: I was pleased to receive your letter of March 4 regarding the administration's proposal for liberalizing the terms of FHA-insured mortgages and have given serious consideration to the several questions in which you are interested.

We do not think the proposed increase in loan-value ratios will significantly increase the supply of mortgage funds. However, we do believe this action will enable FHA to better adapt its mortgage-insurance programs to serve the middleand lower-income families of our country and aid in providing a better distribution of available mortgage funds.

The increased loan-value ratios are intended for use when conditions in the economy and home-building industry warrant and to ease any adjustments whenever the Veterans' Administration loan-guaranty program may be terminated. Implementation of these proposals would be contemplated this year in the event prospective veteran borrowers are unable to obtain money at the current 41⁄2-percent maximum VA interest rate. This consideration would, of course, not be a factor in the event that Congress determines that an increase in the maximum VA rate would be desirable.

The trend in vacancies is declining. While we have no data on the actual number of units in the unsold inventory, the Census Bureau has recently reported a decline of 0.3 percent in vacancies during the fourth quarter of 1956. Their report shows a vacancy rate of 2.8 percent. Rental vacancies were 2.1 percent (down 0.1 percent from the third quarter), while vacancies in homes for sale were 0.4 percent (down 0.2 percent).

Each month we receive from each of our 75 insuring offices an opinion report on vacancies and unsold inventories of housing. These reports currently show only very scattered instances of advancing inventories. The number of offices reporting declining inventories definitely exceeds the number in this category a year ago. This is particularly true in the case of low-priced and moderate-priced homes. We have attached a table showing by insuring office the results of an actual vacancy survey we completed last March, a year ago, as well as the opinion reports of our insuring offices on the trends of vacancies on January 1, 1957,

in our insuring-office cities. As the table indicates, 3 out of 4 offices report stationary vacancies at near minimum levels, and of the remaining offices more report declining vacancy trends than rising trends.

Recent reports indicated only scattered instances of localities with surplus sales or rental housing and such instances as are reported are generally limited to relatively small localities or, in some cases, to particular segments of the housing market. A survey inquiry to our field offices in November showed a normal scattering of surplus problems, with perhaps fewer serious situations than were reported a year earlier.

Surplus situations are, of course, expected to develop in individual localities from time to time. FHA insuring office directors, as a part of their regular operating responsibilities, are expected to identify such problems as may develop within their jurisdictions and to take appropriate steps to restrict the volume of new commitments being issued until such time as the situation has corrected itself. These restrictions take the form of limitations on firm commitments to builders either with or without restricting issuances of conditional commitments. Restrictions on commitments for rental projects are also appropriate from time to time. Excepting the standards applied in normal review of applications, no restrictions are imposed on owner-occupant applications. Since these problems are generally local in nature, the insuring office directors are expected to initiate and terminate appropriate restrictive measures upon their own initiative. Washington headquarters does not attempt to maintain any continuing reporting on the number of areas which may be affected by restrictios at any particular time and as a general rule is familiar only with those areas in which particular problems have been referred to Washington by the insuring office director concerned. The lack of any uniform reporting procedure on this subject precludes the maintenance of any meaningful list of these areas by Washington headquarters.

We are in agreement with your judgment that the current demand for housing in the United States is not the cause of reductions in the volume of building. With adequate financing, an increased volume of starts could undoubtedly be satisfactorily marketed. The possibility that more liberal downpayment requirements might stimulate demand beyond supply potentialities would certainly be a major consideration in determining whether or not to reduce these requirements. It does seem desirable, however, to have discretionary authority requested so as to be best able to adjust the building industry to the operation and prospective termination of the VA home loan guaranty program.

Sincerely yours,

NORMAN P. MASON, Commissioner.