MAY 28 (legislative day, MAY 13), 1954.-Ordered to be printed

Mr. CAPEHART, from the Committee on Banking and Currency, submitted the following

REPORT

Together with the

SEPARATE VIEWS OF MR. LEHMAN

[To accompany H. R. 7839]

The Committee on Banking and Currency, to whom was referred the bill (H. R. 7839) to aid in the provision and improvement of housing, the elimination and prevention of slums, and the conservation and development of urban communities, having considered the same, report favorably thereon with an amendment in the nature of a substitute and recommend that the bill as amended do pass.

INTRODUCTION

The President, in his message to Congress on Housing on January 25, 1954, eloquently stated the purpose and laid the groundwork for your committee actions on the bill it now recommends be enacted. Your committee fully endorses President Eisenhower's statement that:

The development of conditions under which every American family can obtain good housing is a major objective of national policy. It is important for two reasons. First, good housing in good neighborhoods is necessary for good citizenship and good health among our people. Second, a high level of housing construction and vigorous community development are essential to the economic and social well-being of our country. It is, therefore, properly a concern of this Government to insure that opportunities are provided every American family to acquire a good home. In reporting the Housing Act of 1953 a year ago, your committee expressed the almost identical objective and reasoning when we stated: An opportunity for every American to enjoy a decent home is a goal toward which much progress has been made. It is essential that this progress not be interrupted but accelerated. Not only is better housing a requisite for an improved standard of living in America; it is a basic factor in our ability to maintain a healthy and expanding economy.

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This is still your committee's view. It believes that this bill provides a practicable and effective means of greatly accelerating our progress toward the aforementioned goal.

Your committee believes that this bill fully meets the criteria, in the words of the President

that needed progress can best be made by full and effective utilization of our competitive economy with its vast resources for building and financing homes for our people.

The bill should facilitate and encourage the construction of more and better homes in our cities, suburbs, and farm areas for the moderate and low-income groups who are most in need of better housing.

It should quicken our attack upon our slums in the cities and towns of our Nation, and for the first time provide an organized and intelligent method of preventing the spread of blight and slums.

It establishes an organized method of pooling the initiative, the resources, and responsibilities of our major mortgage investment institutions for the purpose of providing a more even flow of housing funds, especially in areas which are unable to provide such funds from local sources.

It should encourage effective planning for better neighborhoods in our towns and smaller cities, and the preparation of blueprints for local public works so as to maintain a continuing and adequate reserve of planned public works.

It provides for the first time a Federal program which will stimulate and encourage a coordinate attack by local, State, and Federal governments upon the smoke and air-pollution problem.

It modernizes, strengthens, and eliminates defects and avenues of probable abuse in connection with existing and new housing programs.

BACKGROUND FOR COMMITTEE ACTION

In considering the bill your committee had the benefit of the President's Advisory Committee's Report on Housing, which committee made an intensive study of the overall housing problem and many of the detailed questions and programs with which the bill deals. Your committee also held extensive hearings over the course of 5 weeks (2,029 pages of hearings) and heard testimony from experts in the field of housing and mortgage finance and numerous other people and groups affected by the various provisions in this bill. During your committee's deliberation on the bill, the widely publicized alleged scandal connected with the administration of the housing program was announced. Your committee immediately undertook an investigation to determine in a general way the extent and type of abuses and irregularities that existed, with a view to tightening and revising existing law so as to prevent their reoccurrence and to provide the proper safeguards against any similar abuses or irregularities in the new legislation which your committee now recommends.

While no allegations were made to your committee about any abuses or irregularities connected with the administration or the operation of several other housing programs in the Housing and Home Finance Agency, your committee as a precautionary measure, before it took action on this bill, requested the Division of Slum Clearance and Urban Redevelopment, the Public Housing Administration, the

Home Loan Bank Board, the Federal National Mortgage Association, and the Division of Community Facilities and Special Operations to review, and advise your committee with respect to, the safeguards in existing law, in the agency regulations and in their administration of the laws and regulations which are intended to protect their programs against possible abuses and irregularities. It was also requested that they bring to your committee's attention any serious abuse or irregularities that had developed or were existing and the action that had or was being taken with respect to them. In the light of their review, it was also requested that your committee desired to be informed of any amendments to existing law which might be helpful in protecting against any possible abuse or irregularities in the administration of these various programs. Preliminary memoranda were received from each of the agencies and divisions with reference to our request. While there has not been sufficient time to study the memoranda thoroughly, all, with one exception, indicate that existing law and regulations are adequate. The Home Loan Bank Board suggested one statutory change, in addition to those already provided in the bill as introduced, and which is now included in the bill giving the Federal Savings and Loan Insurance Corporation authority which the Federal Deposit Insurance Corporation now has to terminate the insured status of institutions continuing unsafe and unsound practices in conducting its business. Your committee, of course, will continue to study the operation and administration of these agencies during its investigation of the housing program.

Your committee is satisfied that it has provided against all the loopholes in the various housing laws and their administration that have thus far come to your committee's attention. However, your committee is undertaking an extensive and comprehensive investigation of the administration of the various housing acts and it may well be that it will discover other abuses and irregularities which may require further changes in the law and its administration. At the same time your committee will cooperate in every way with the Housing and Home Finance Administrator and the various agency heads who are concerned with the fair and honest administration of the housing laws in seeing to it, that insofar as it is humanly possible, no new abuses or irregularities will be allowed to develop.

PREVENTION OF ABUSES

A number of tightening amendments have been included in this bill to safeguard against the known abuses and irregularities, which are discussed in greater detail in the later sections of this report:

1. The FHA property improvement and repair loan program (title I of National Housing Act) was changed from a system of insuring a lending institution against 10 percent of its losses on the aggregate amount of its loans, which for all practical purposes affords the lender 100-percent protection against any loss, to an insurance system which requires the lender to bear 20 percent of any loss on each individual loan. The type of eligible loans for improvements are, by this bill, limited to those which substantially protect or improve the basic livability or utility of the property. In addition to these basic changes in this title, a number of other strengthening and consumer

protective amendments, along with good administration, should eliminate the abuses that are known to exist in connection with the program.

2. Cost certification"amendments were added to all the sections of the Housing Act which appeared susceptible to the abuse of taking windfall 'profits out of the proceeds of the mortgage loan which is insured by the FHA, for example, sections 207, 213, 220, 221, 803, 903, and 908. The new cost certification amendment is tighter than the one that is presently provided in the defense housing section 908 and the military housing section 803, since it requires that the mortgage amount be a designated percentage of the cost, which depending on the section, is 80 to 95 percent, rather than (as under present law) no greater than the cost of the completed improvements.

3. In section 213 (cooperative housing), the basis for insurance is changed from "estimated replacement cost" in existing law to "estimated value," a much more conservative method of determining the mortgage amount which FHA will insure.

4. Provision is made for a certification by a builder or seller of an FHA or VA insured or guaranteed single family, 2-, 3-, or 4-family residence, that the dwelling was constructed in conformity with plans and specifications.

5. Provisions are included to strengthen the Criminal Code to prevent the improper use of "FHA" in advertising.

6. Provisions are included to permit the FHA Commissioner to suspend any insured lender or borrower, or a builder, contractor, or dealer, or others who abuse the FHA or VA program.

7. The bill restores the position of FHA Assistant Commissioner in Charge of Cooperative Housing, whose responsibility it will be, among other things, to see that the cooperative housing program is administered in accordance with the intent of providing aid and assistance to genuine cooperative groups rather than for the benefit of the operative builders who used it as a means of gaining speculative profits.

8. The bill grants to the Federal Savings and Loan Insurance Corporation the authority to terminate the insured status of an institution continuing unsafe and unsound practices in the conduct of its business.

THE PROTECTION OF THE CONSUMER

While your committee has included a number of tightening amendments and safeguards against possible abuses and irregularities in the administration of the various housing programs, it feels that there is a need for a change in the approach or philosophy of administration that the Federal Housing Administration appears to have manifested thus far. While naturally and properly the FHA should be concerned with protecting its insurance fund, the builder and the mortgagee against loss and encouraging profitable programs of construction, and while your committee fully appreciates, as it has stated in the opening paragraphs of this report, the importance of maintaining a high level of housing production, these objectives should not obscure the fact that the first responsibility of Congress, and that of any

agency administering part or all of the housing program, is to protect and preserve the public interest, in general, and the rights of homeowners, in particular. It is your committee's considered opinion, and unless contrary views are expressed or amendments are offered, that it is the intent of Congress that the HHFA and its constituent agencies in their administration of the program which they are authorized to carry out shall at all times regard as a primary responsibility their duty to act in the interest of the individual home purchaser and in so doing to protect his interest to the extent feasible.

BRIEF SUMMARY OF BILL

FHA IMPROVEMENT AND REPAIR LOANS

1. Continues existing terms and maturities, rather than increasing the maximum loan as the House bill did from $2,500 to $3,000, and the maturity from 3 years, 32 days to 5 years, 32 days; and on multifamily loans an increase beyond the maximum of $10,000 by allowing $1,500 per unit or $10,000, whichever is greater, and increase in term from 7 years, 32 days to 10 years, 32 days.

2. Provides an insurance of 80 percent on each individual loan, rather than as in existing law and in the House bill-an insurance of an institution against 10 percent of its losses on the aggregate amount of its loans-in effect, 100 percent protection against loss.

3. Limits type of loans to improvements which substantially protect or improve the basic livability or utility of the property.

4. Makes a number of strengthening and borrower-protecting amendments.

5. Permits loans to be insured for the purchase of trailer coach mobile dwellings where the loan is not more than $6,000, matures in not to exceed 6 years, and the borrower has paid in cash at least 20 percent of the purchase price. On these loans, however, the insurance is limited to 75 percent of the amount of any loss.

FHA SALES HOUSING PROGRAM

1. Consolidates and simplifies present provisions on downpayments and maturities.

2. Liberalizes present terms by allowing maximum ratio of loan to value not to exceed 95 percent of first $8,000, and 75 percent in excess of $8,000. Extends maturities up to 30 years. (House provided 95 percent on first $10,000.)

3. Increases present maximum loans on individual and 2-family houses from $16,000 to $18,000; 3-family from $20,500 to $24,000; 4-family from $25,000 to $30,000. (House provided $20,000, $27,500, and $35,000, respectively.)

4. Retains existing loan to value ratios on existing housing and reduces the maximum maturity on existing houses by 1 year for each year during the first 10 years following the completion of the dwelling. The House bill provided the same terms for existing houses as for new

ones.

5. The new terms are to be effective on enactment rather than at the discretion of the President as provided in House bill.