only of third parties having a genuine humanitarian interest in the welfare of the prospective owner and occupant.

This subsection is not intended to permit the evils of the old "company town." The owner of each home will be its owner-occupant, not the guarantor of the mortgage. The guarantor has money at stake in this program as well as the owner-occupant; and must make good the payments on the mortgage should the owner-occupant fail to make them. In the old company town, the tenant-worker was the debtor and his company-employer had no responsibility for payment of that debt. The company was his creditor, not his guarantor. The program authorized under this subsection does not place the employer in the dominant financial position enjoyed by the companyemployer with relation to tenants in company towns.

BUILDERS COST CERTIFICATION

During your committee's deliberation on this bill an alleged scandal with respect to the administration and operation of certain FHA programs was made public by the administration. The World War II housing program of multifamily rental housing, section 608, along with the title I FHA home-repair and improvement program, discussed in a previous section of this report, were given prominent attention. While your committee had over the years been concerned about the possibility for abuse in the operation of this program, it had no idea of the size of so-called windfall profits that were made in a number of cases. Expert witnesses in response to interrogation by members of your committee during the years this program was operating testified that it was impossible for a builder to build a rental project at anything like 20 to 30 percent below the mortgage amount which FHA insured. In spite of such testimony your committee, nevertheless, recommended restricting amendments and cautioned the agency with respect to its administration of the program. Perhaps your committee's concern over the years has resulted in the abuses being less than they otherwise would have been, but unless the preliminary investigation your committee has thus far undertaken has exaggerated the true extent of the abuses, there were far too many.

Of course, it is only fair to point out that there were some seven thousand "608" projects and, at the present time, your committee has evidence that approximately 1,100 of these cases were examined by the Bureau of Internal Revenue, and that out of these 1,100 or so cases there were windfalls in some 252 cases. While 252 is too many and some of the windfalls indicated are unbelievable, and while further investigation may reveal more cases and other kinds of abuses in the operation of this program and other programs, your committee does not now have any evidence with respect to the other 5,900 section 608 projects, which, apparently have not been investigated. Your committee does not wish, in accordance with our established constitutional principles and sacred traditions, to express, or does it mean to infer, any judgment on the guilt of the people involved in these cases until a much more thorough and comprehensive investigation is undertaken. Your committee at the same time wishes to acknowledge that much good was accomplished by this program in providing desperately needed rental housing for our war workers and our returning veterans. Many of the projects your committee

has seen about the country are excellent rental developments. In the absence of facts which already show that there was irregularity with respect to such projects, your committee wishes to cast no reflection upon the sponsors and operators of them. But the dishonest and unethical builders, sponsors and FHA officials must be ferreted out and prevented from ever taking similar advantage of our Government and our people. And the laws we pass with respect to these programs must prevent any similar abuses or irregularities from ever occurring again.

Very

In the Defense Housing and Community Facilities Act of 1951 your committee, reflecting back upon the 608 program and anxious to prevent any possible windfalls in connection with new defense rental housing program, first developed and recommended to the body what has now become fairly well known as the builders' cost certification amendment. It added this amendment, in spite of considerable protest from the industry, to the defense rental housing section 908 and the military rental housing section 803. briefly, it provided that a builder certify the cost of the physical improvements involved in his project and in the event the certified cost was less than the mortgage amount which the FHA insured, the mortgage amount had to be reduced to the certified cost. In other words, a builder could get an insured mortgage in an amount not exceeding 100 percent of the cost of his physical improvements. The effect was that a builder only had to invest his land, time, overhead, and know-how.

Your committee in the light of the recent scandal now recommends a more restrictive cost-certificate amendment. It applies to all FHA mortgage insurance for new or rehabilitated multifamily housing (secs. 207, 213 (management type), 220, 221, 803, 903, and 908). To prevent any proceeds of an insured mortgage loan from being used to provide excessive profits to the builder, the section would, in effect, require that the amount of the mortgage be reduced, after actual costs of the project are known, to an amount conforming to the percentage of estimated value or replacement cost which had been used in establishing the FHA commitment for the mortgage. For example, where the FHA makes a commitment before construction to insure a mortgage on a rental housing project for 80 percent of its estimated value of $1 million, and the subsequent construction and other costs of the project actually are $900,000, the amount of the mortgage would be reduced to 80 percent of $900,000. This would assure that the builder could not obtain an FHA insured mortgage loan in excess of the percentage of actual costs specified by Congress in the law.

All appropriate expenditures, could be included in the actual costs. which are certified by the mortgagor under this section. These would include the actual cost to the mortgagor of construction, including amounts paid for labor, materials, construction contracts, off-site public utilities, streets, organizational and legal expenses, and other items of expense approved by the Federal Housing Commissioner, including a reasonable allowance for builder's profit if the mortgagor is also the builder as defined by the Commissioner. As a guide to the Commissioner in establishing this allowance, your committee

wishes to express the view that this amount should not exceed 10 percent of the other costs of the job. The certified actual cost could also include the Federal Housing Commissioner's estimate of the fair market value of the land (prior to the construction of the improvements built as a part of the project) in the project owned by the mortgagor in fee. This means that any streets and utilities in the land prior to the construction of the project may enter into the value of the land, but if the project is built on raw and unimproved land, the land value must be on that basis and not on the basis of value when proposed improvements are completed. In case the mortgagor builds on leased land, the certified actual costs could include any amount actually paid prior to the certification for the acquisition of the leasehold, but not in excess of its fair market value.

As this section applies to mortgage insurance for the rehabilitation, as well as the new construction of multifamily housing, there are special provisions with respect to the costs which the mortgagor may include in the certification with respect to rehabilitation. In addition to the items of expense other than land referred to above, the actual cost in these cases could include certain other amounts. Thus, if the mortgagor is purchasing the property to be rehabilitated and such purchase is being financed with the proceeds of the insured mortgage, the certified actual cost could include the purchase price of such property (but not beyond its estimated fair market value). On the other hand, if the mortgagor is rehabilitating his own property on which he has an outstanding indebtedness that he must refinance from the proceeds of the mortgage, his certified cost could include the amount of that indebtedness. As it would be necessary for the mortgagor in such case to refinance 100 percent of the amount of the outstanding indebtedness, the amount of this item of cost (unlike all others included in actual cost of the project) would not be reduced to the percentage referred to above. Of course, the amount of the indebtedness so included could in no event exceed the above percentage of the estimated fair market value of the property prior to the proposed rehabilitation.

Your committee also wishes to express its opinion that no existing FHA mortgage insurance commitments should be extended for mortgages insured under the above sections and title unless the mortgagor agree that the new cost certification will be provided.

MULTIFAMILY RENTAL HOUSING

Your committee modified the regular FHA multifamily rental housing program (sec. 207 mortgage amount limited to 80 percent of estimated value) in the light of high construction costs in many of the larger cities where such projects are usually undertaken. The maximum mortgage amount is now $2,000 per room but the total mortgage amount is limited to a $10,000 ceiling. This ceiling is removed and mortgage amounts as high as $2,400 per room (or $7,500 per unit in projects with less than 4-room units) are allowed in projects of elevator type.

The builders' cost certification discussed in other sections of the report is made applicable to this section.

COOPERATIVE HOUSING

The basis for determining the mortgage amounts is changed from "estimated replacement cost" to what your committee is informed is a much more conservative method, i. e., "estimated value."

A provision would be added to permit FHA-insured cooperative housing mortgages to be as high as $50 million in amount if the mortgagor cooperative is regulated by Federal or State law as to rents, charges, and methods of operation. The section would also change, with respect to nonveteran projects the present per family or per room mortgage amount limitations for $8,100 per family unit of $1,800 per room, to $2,250 per room and with a per family unit limitation of $8,100 applicable only if number of rooms is less than 4. In addition, it would change the basis for allowing increases for veteran membership so that in all cases such increases would be made only if 50 percent of members are veterans, instead of making such increases on basis of percentage allowances for each 1 percent of veteran membership. This latter change would simplify computations, and experience has shown substantially all projects to date have had over 50 percent veteran membership. Also an increase would be authorized to the per room and per family mortgage amount limitation for elevator-type structures in both veteran and nonveteran projects. FHA would also be authorized, by regulation, to increase the dollar amount limits on mortgages covering elevator-type structures by an additional $1,000 per room for housing projects in urban redevelopment or urban renewal areas located in an area where the Commissioner finds that cost levels require the higher mortgage amount.

The intent of the sponsors of section 213 was to encourage the provision of housing by genuine cooperatives consisting of members who banded together initially to construct housing for their own use as savings to them. Your committee recognizes that because of the special incentives given in section 213 and because the provisions of the section permitted such a result as a technical matter, operative builders have used the section as a means of gaining speculative profits which were not intended by the Congress. Your committee feels that the actions taken by it in amending section 213 as provided in the bill as reported should do much to prevent this misuse. The cost certification requirement and the change from estimated cost to value should help serve this purpose. Notwithstanding these tightening provisions, however, the FHA is instructed to administer the mortgage insurance program under that section so that, where the cooperative is in effect sponsored by a builder, such additional controls will be imposed by the FHA as it deems necessary to assure that the primary benefit to be served is reduced costs to the consumer.

REHABILITATION AND NEIGHBORHOOD CONSERVATION HOUSING

A new section 220 is added by the bill to the National Housing Act to assist in financing the rehabilitation of existing dwellings as well as the construction of new dwellings in connection with slum clearance and urban renewal undertakings contemplated by title III. Your committee believes this an integral part of any program that has as its objective the elimination and prevention of slums and the rehabilitation of our cities. The program was fully and unanimously endorsed by the many witnesses who discussed it before your committee.

The property assisted must be located in (1) an urban renewal area in a community which has a workable program (which has been approved by the Housing Administrator) to eliminate and prevent the spread of slums and urban blight, or (2) the area of an existing slum clearance or urban redevelopment project. The Housing Administrator must certify to the Federal Housing Commissioner that section 220 mortgage insurance assistance may be made available in the community. In addition, the governing body of the locality must have approved a redevelopment plan or urban renewal plan for the redevelopment project or urban renewal project involved. The Housing Administrator would be required to approve the respective plan and to certify to the Federal Housing Commissioner that the plan conforms to a general plan for the locality as a whole and that there exist the necessary authority and financial capacity to assure the completion of the redevelopment or urban renewal plan. The housing property would have to meet such standards and conditions as the Federal Housing Commissioner prescribes to establish the acceptability of the property for mortgage insurance under section

220.

The mortgage insurance under the new section 220 would cover existing construction, as well as new construction, and thus include assistance for rehabilitation as well as redevelopment. The mortgage limits covering 1- to 4-family dwelling would be the same as those proposed in section 104 of this bill for section 203 mortgages. However, this new section 220 would also permit mortgage insurance covering more than 4-family dwellings (the number in excess of 4 to be specified by the Commissioner) to take care of those structures which may contain more than 4 units but less than the number which could be covered under multifamily mortgage insurance. The mortgage limits in such cases would be $30,000 plus not to exceed $6,000 for each additional family unit in excess of four.

Provision is also made for multifamily housing mortgage insurance with maximum mortgage limits of $2,250 per room (or $8,100 per family unit if the number of rooms in the project is less than four per family unit). Where a project consists of elevator-type structures, the Commissioner would be authorized to increase these dollar maximum mortgage amounts to $2,700 per room and $8,400 per family unit, respectively. These mortgage amounts (per room and per family unit) on elevator-type structures could, by regulation of the Federal Housing Commissioner, be increased by an additional $1,000 per room in any geographical area where he finds that cost levels so require.

Maturities of the section 220 mortgages would be as prescribed by the Federal Housing Commissioner except that the maturities of mortgages covering sales housing (1- to 4-plus family units) would not be permitted to exceed the maximum maturity prescribed by the bill for section 203 sales housing mortgages (in no event in excess of 30 years).

RELOCATION HOUSING

A new section 221 is added to the National Housing Act which is designed to assist in financing low-cost housing for families displaced as the result of slum clearance or other governmental action. The locality must have requested that this program be made available in the community. The total number of dwelling units in properties