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RURAL HOUSING ACT OF 1977
HEARINGS
SUUCOMMlTt'EK ON fiUHAL HOlISINii
COMMJTfEE ON
BA WfVG. HOCSING, AND UEBAN AFT^urN
UNITED STATES SENATE
; Y-flFTII '
& USD
SALT lAKE crrY, rtAT!. Jirv^ t- wa
A^tilii-
tl,*^
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IRAL HOUSING ACT OF 1977
HEARINGS
BIT' ry - or
SUBOOMMlTfEK w:S HUUAL UOIJSlKd
ir- ''■'■- m ON
BMKIW, H0U8LNG, KM) URBAN A»^»^\»«fS
ONJTED BTATES SENATE
SALT LVITE Cmr. T!TAB, JFXK I. im
f|,U. OtJJUHUU i. ^ INI» K ItllT/
(.^•iiiiULiil h «
'f**flii Am»iii
t\<h!
COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS
WILLIAM PROXMIBB, Wisconsin* Chairman
JOHN SPARKMAN, Alabama EDWARD W. BROOKE, Massachusetts
HARRISON A WILLIAMS, Jr., New Jersey JOHN TOWER, Texas
THOMAS J. McINTYRE, New Hampshire JAKE OARN, Utah
ALAN CRANSTON, CalifornU H. JOHN HEINZ III, Pennsylvania
ADLAI E. STEVENSON, lUinoU RICHARD G. LUGAR, Indiana
ROBERT MORGAN, North Carolina HARRISON SCHMITT, New Mexico
DONALD W. RIEGLB, Jr., Michigan
PAUL S. SARBANES, Maryland
Krnnrth a. McLkan, 8taS Director
Jerrmiah S. Bucklkt, Minority Stag Director
Subcommittee on Rural Housino
ROBERT morgan, North Carolina, Chairman
JOHN SPARKMAN, Alabama JAKE GARN, Utah
ROBBRT R. LocKLiN, Caun%el
Dannt Wall, Minority Professional Staff Member
(II)
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RURAL HOUSING ACT OF 1977
HEARINGS
suBcoMMi'mK ON BUBAL Hoasuva
' !\!1TTEE ON
BANOiXG, HOUSING, 4>1> ^^RBAN VJ^^vntS
UNITED STATES SENATk
s, urn
11 l*J:'* IM1_*
SAl/r LXKE CITY. rfTAE, HTffE t, UTT
■ ■ " K
■i^MlHiUlii'^
p\miir*i
RURAL HOUSING ACT OF 1977
HEARINGS
BBFORB THB
SUBCOMMIHEE ON EUEAL HOUSING
COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-FIFTH CONGBESS
FIRST SESSION
ON
S. 1150
TO AMEND TITLE V OT THE HOUSING ACT OP 1949 TO INCREASE
AND EXTEND AUTHORITIES THEREUNDEB, AND FOR OTHER
PURPOSES
SALT LAKE CTTT, XJTAH, JUNE 1, 1977
RALEICa N.C» JUNE 20^ 1977
WASHINGTON, D.O, OCTOBER 4, 5, AND 6, 1977
Printed for the use of the
Committee on Banking, Housing, and Urban Affairs
U.S. GOVERNMENT PRINTING OFFICE
M-Oll WASHINGTON : 1977
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COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS
WILLIAM PROXMIRB, Wisconsin, Chairman
JOHN SPARKMAN, Alabama EDWARD W. BROOKE, Massachusetts
HARRISON A. WILLIAMS, JR., New Jersey JOHN TOWER, Texas
THOMAS J. McINTYRE, New Hampshire JAKE OARN, Utah
ALAN CRANSTON, CalifornU H. JOHN HEINZ III, Pennsylvania
ADLAI E. STEVENSON, Illinois RICHARD G. LUOAR, Indiana
ROBERT MORGAN, North Carolina HARRISON SCHMITT, New Mexico
DONALD W. RIEGLE, Jr., Michigan
PAUL S. SARBANES, Maryland
Kbnnbth a. McLean, 8taS Director
Jeremiah S. Buckley, Minority Staff Director
Subcommittee on Rural Housino
ROBERT MORGAN, North Carolina, Chairman
JOHN SPARKMAN, Alabama JAKE GARN, Utah
ROBERT R. LOCKLIN, Coun9€l
Dannt Wall, Minority Professional Staff Member
(II)
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CONTENTS
S. 1150 - - 80
LIST OF WITNESSES
Salt Lake City, Utah, Juwb 1, 1977
Opening statement of Senator Gam 1
Opening statement of Senator Morgan ^— — 2
Gary Jones, assistant director, Utah Department of Community Affairs — 3
Marvin Mackey, director. Housing Development Division, Utah Department
of Community Affairs ^ '^^ 9
Kimball Harward, rural housing specialist and multiple housing coordi-
nator, Utah State OiBce FtaiHA 9
Gene Hafen, chairman, Advocates for Utah Handicapped : — .—.» 13
Kenneth W. Flint, past president, Weber Basin Home Builders Associ-
ation 16
John E. Smith, State representative and contractor, Grantsville, Utah 20
John J. Nielsen, contractor. Price, Utah 23
Garry Godwin, Farmers Home Administration, assisted homeowner, West
Jordan, Utah - - -— 26
J. Grant Nielson, contractor, Springville, Utah 29
Bolf Aase, contractor. Salt Lake City, Utah :, 32
Alfred Hansen, contractor. Salt Lake City, Utah 34
L. C. Romney, director, Salt Lake City FHA Insuring Office - 35
Bay Willie, senior vice president. First Security Bank of Utah, Salt Lake
City, Utah 1__— —- . 40
Dallin Gardner, realtor/contractor. Cedar City, Utah 45
Kent Ekstrom, vice president, Lundell Homes, Inc., Murray, Utah — 63
James Thorley, president, Washington County Board of Realtors, St
George, Utah — 68
Gayle Neilson, senior vice president, Security Title Co^ Salt Lake City,
Utah 71
Stephen Featherstone, executive vice president. Home Builders Associa-
tion of Greater Salt Lake *. 73
BiU Slaugh, realtor. Vernal, Utah . _. -. 76
Raleigh, N.C, June 20
Opening statement of Senator Morgan 105
Opening statement of Senator Gam 107
Governor Hunt of North Carolina -. - 108
H. A. Smith, Deputy Secretary, North Carolina Department of Natural
Resources -, — , 112
Taylor McMillan, Deputy Commissioner of Labor, State of North Caro-
lina-..- J - 118
. Herb Wentworth, North Carolina Savings A Loan League 121
\f. B. Floyd, Planter's National Bank 122
Paul Trollinger, builder, Asheboro, N.C 129
David Evans, builder, Greenville, N.C .— 130
Ibfarvin Gentry, builder, Stokes County, N.C - 133
'William R. Pursell, Director of Rural Housing, Low Income Housing De-
velopment Corp 138
Charles Daye, chairman. Triangle Housing Development Corp 147
Commissioner Graham, Agriculture Department 161
Henry Precise, Faison 162
Hobert Lovell, Mount Airy l^e&
John Prevatte, county planner, Beaufort County ^^^
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IV
Washington, D.C.
tuesday, october 4
Pag*
Opening statement of Senator Morgan 167
William D. Hathaway, U.S. Senator from the State of Maine 169
Gordon Gavanaugh, administrator, Farmers Home Administration, accom-
panied by Leonard Yaxighan and Richard Bisea 172
Harold O. Wilson, executive director, Housing Assistance Council, accom-
panied by L. D. Elwell, assistant administrator 191
,Lee P. Reno, executive committee inember. National Rural Housing Coali-
tion 294
William "J. Cobb, attorney, Georgia Legal Services Program - 301
WEDNESDAY, OCTOBER 6
Opening istatement of Senator Morgan 309
Vondal S. Gravlee, vice president and treasurer. National Association of
Home Builders, accompanied by J. Denis O'Toole, legislative counsel 310
Walter L. Benning, president, Manufactured Housing Institute, accom-
panied by R. JoBh Laniei*, director of public affairs, and Raymond J.
Weatherly, director of legislative affairs 376
Gerald Sinclair, executive vice president, Salem National Bank, Salem,
Illinois, and member government relations council, American Bankers
: Association ^-, :. 382
TmiBSDAY, OCTOBEB 6
statement of Senator Robert Morgan ^ 391
Statement of Senator Hubert H. Humphjrey-^- ; ,» 302
Earl D. OThompson, chairman, Chatham County Board of Commissioners,
North Carolina National Associatipi^ of Counties ; accompanied by Robert
McNichols, county administrator, Pulaski County, Vir^nia ; and Elliott
Alman, le^lative representative, NACo-, , • 997
Henry B. Schechter, director, Departmient of Urban Affairs, AFL-CIO 405
William B. Murray, legislative representative for rural area development.
National Rural Electric Cobperativeis Association 412
Eam Hemian, associate director for bousing. Rural America, Incor-
porated « . __--_—_- 419
Joseph^. Marlnich, executive director, Council of State Community Aifoirs
Agencies _ 4^
AbbiTioKAL Statements and Data ,
Cedar Real Estfite Co., letter to Dallin Gardner from Steve Corry — : 58
Del Rich Building Corp., letter to Dallin Gardner from Gordon D. Smith,
sales manager : 06
Department of Agriculture, letter to GO Real Estate, Inc., from Elmer F.
Cox, county supervisor 59
Department of Agriculture, letter to Senator Morgan from Reed J. Page,
acting state director 103
Department of Human Resources, State of North Carolina, letter to Senator
Morgan from Edward L. Terrell, R.S., staff assistant !— . 117
FmHA, letters from borrowers _« 303
Frontier Realty, letter to Dallin Gardner from Robert G. Price, branch
manager 61
GO Real Estate, Inc.:
Letter to Senator Gam from William Gardner 51
Letter to Dallin Gardner from Joe Stott ^ . 54
Interoffice memo to Dallin Gardner from Bev 57
Housing Assistance Council, Inc., outline of testimony of Harold O. Wilson,
executive director . i$6
John Nielson & Associates, letter to Senator Gam from John Nielson,
contractor _ 102
Mountain View Rtol Estate, Inc., letter to Senator Gam from Steven M.
Sevy 62
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V
National Association of Home Builders: ^••'
Galcnlatde indexes and some guidelines for 33 cities, Ckstober 1977 323
Discussion of National guidelines 363
Thermal performance guidelines for one- and two-family dwellings.. 357
Appendix 364
Pressley, Bobby and Mary, letter to Durwood Stephenson, dated June 19,
1977 166
Stephenson, M. Durwood, builder and developer, prepared statement for the
record 164
TJnited States League of Savings Associations, letter to Senator Morgan,
from Lee B. Holmes, staff vice president, and Arthur B. Edgeworth,
director, Washington operations 434
List of Tables
IFarmers Home Administration, rural housing loans made in Utah,
1973-76 8
IBanks' investment in housing 383
^Dhanges in components of overall homeownership costs, median-price new
homes, 1970-76 385
:3lural Development Act, water and waste disposal grants and loans, waiting
list as of September 1, 1977 403
miedian incomes of AFL-GIO member, owner and renter households, by
location of residence, 1975 409
-IMn crease in fuel and utility cost 423
_^tiousing units in rural areas without complete plumbing, 1970, by numbers,
percentage, and race 424
^UTotal rural housing units without complete plumbing, ranking of States,
1970 425
.^^Percentage of units without complete plumbing, by State 425
^ ost of increase in maximum grants, and numbers grants to water projects,
grant limitation 426
^^E^blaximum grant at 50 percent, communities benefiting from rule changes
at 75 percent . 426
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RURAL HOUSING ACT OF 1977
WEDNESDAY, JUNE 1, 1977
U.S. Senate,
Committee on Banking, Housing, and Urban Ajppairs,
subcx)mmittee on rural housing,
Salt Lake City^ Utah.
Senator Robert Morgan, chairman of the subcommittee, presiding.
Present : Senators Morgan and Gam.
OFENIHO STATEMENT OF SENATOR OARN
Senator Garn. I'll call the hearing to order, and I'll apologize for
the delay. First, let me just briefly outline what the purpose of the
hearing is. But before I do that I would like to say a few words about
my colleague. Senator Robert Morgan, from North Carolina. He re-
placed in 1974 Sam Irwin, who, as you all know, is rather famous from
Watergate days. Bob and I were elected to the Senate at the same time
and are members of the freshman class of 1974. And, interestingly
enough, our careers in the Senate have paralleled each other almost
identically. We serve on all of the same committees together. We're on
Armed Services together and on the Select Committee on Intelligence,
and on Banking, Housing and Urban Affairs. I would say that,
although Senator Morgan is a Democrat, he's such a ^ood Democrat
that there are a few Republicans that I'd like to trade him for, because
you'll find that our voting records are not very much different. As a
matter of fact, I may be telling things out of school, but Senator
Proxmire occasionally gets irritated on the Banking Committee, be-
cause Senator Morgan will often give me his proxy when he can't be
at the Banking Committee meetings. I guess that's heresy with the
chairman, giving a proxy to a Repiiblican, but Bob and I feel so much
alike about many of the issues that we usually know how the other one
is going to vote. What I'm really saying is that Bob is not only a fine
Senator, but despite the fact that we're of different political parties,
he's a very close personal friend of mine. We've had the opportunity,
as I say, on three different committees to work together. We served for
'2 years as chairman and ranking minority member respectively of
the Small Business Subcommittee of the Banking Committee.
Then this year, primarily at Senator Morgan's insistence, also com-
ing from a State like Utah that has a lot of small towns and small
population counties this subcommittee is new this year. Senator Morgan
is the chairman. I'm the ranking minority member. A great deal of
attention has been given for a long time to the housing problems and
needs of suburban and the metroj^olitan areas, the big cities of the
country, with very little attention given to the rural areas where there's
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a lot of substandard housing. Particularly low- and moderate-income
people have not had access and opportunity to get into some of the
housing programs that have existed in the city areas. We felt very
strongly that this was a subcommittee that could do some real fine
thin^ m the rural housing area, and the fact that we both were from
relatively rural States it would be appropriate that we headed up that
subcommittee. We'll be holding this hearing today and also hold one
in North Carolina on the 20th of Jime to hear how some of the people
in Senator Morgan's State feel about the particular legislation on
which we're interested in receiving input. There will be further hear-
ings held before us as a subcommittee in Washington on dates that have
not yet been scheduled. Hopefully, we'll be able to come up before the
of this year during this 1st session of the 95th Congress with some
legislation that will be helpful to the Farmers Home Administration
and to the people needing housing in the rural areas of the country.
One other thing, Senator Moi^gan was the attorney general of North
Carolina prior to being elected to the Senate, so with that introduction
and brief overview of what we hope to accomplish today in receiving
input, I'd like my good friend. Senator Morgan, to make any com-
ments he would like to make.
OFENINO STATEMENT OF SENATOR MOBOAN
Senator Morgan. Thank you. Senator Garn. After Senator Garn's
very kind and generous remarks, I would probably do well not to say
anything, but I would like to say that he and I have had a very fine
working relationship on the various committees that we both serve
on. And I like to thiiik that one of the reasons for that is that we both
came up in politics or in government service, if you will, somewhat
along the same route. We came up from local government I began
many years ago as a countv clerk, then as a country rural practicing
attorney and a member of the State senate. I learned many of the prob-
lems of State governments and county governments, then from there to
the attorney general's office. Ju3t as Senator Garn learned while serv-
ing as water commissioner of Salt Lake City, mayor of Salt Lake City.
I think we understand that people back home have far more answers
to the many problems that confront us than do many of our colleagues
in Washington who take little time to leave the Capital City to come
back and hear what the people back home have to say.
Jake, if I could take 1 minute and relate Bob Packwood's very
subtle story, but I think it's a very telling story. Senator Packwood
one day was on the floor of the Senate debating Senator Mondale with
regard to the day care licensing bill. And Senator Packwood was ques-
tioning Senator Mondale as to why he thought the people in Washing-
ton knew better what was good for the children in the State of Oregon
than the people in Oregon knew about their children, and why he
thought that the people m Washington were more concerned about the
children in Oregon than the people in Oregon. And it reminded him
somewhat of the Presbyterian minister and the Catholic priest in his
hometown. He said the minister was very staid and wore his high
collar and you saw him Sunday morning in the pulpit, but you didn't
see him very much more during the week, because he was in quiet med-
itation with the Lord and so on. But the priest was a gregarious, out-
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going fellow. He was in the midst of the little league football team. He
was with the civic club. If there was anything going on in the com-
munity, he was in the midst of it. So one day they met on the street,
according to Bob, and the priest slapped the ^Presbyterian minister on
the shoulder and said, "Well, you know. Reverend, we belong to diflFer-
ent faiths but," he said, "we can still do things our own way and be
friends, can't we?" He said the minister sort of cleared his throat and
said, "Yes, Father, you do things your way and I'll do things His."
That's sort of a subtle story illustrating what so many of our col-
leagues in TTashington think that their way is the best way, and with-
out some input from people like you, I think sometimes we miss the
point. So I welcome this opportunity of coming to Utah, and I'm
appreciative of Senator Gram's willingness to go with me down to
North Carolina and to some other States to try to find out as much as
we can or as many facts as we can before we try to pass legislation
wliich is going to affect all of you.
If you come to Washington to testify, you might very well prepare
for a week or two in advance, travel the distance from here to Washing-
ton, D.C., prepare to testify only to find that when you get there there's
only one Senator or no Senators present to hear you because of some
rollcall votes or other measures. So we're trying to take part of our
recess to get around the country to get from the grassroots as much
information as we can.
Senator Garn, since tliis is your home area, let me turn it back to
you.
Senator Garn. Thank you. Bob.
Governor Matheson is in New York today on a bond issue or he would
have been here. Right through that door is his office. Beside being a
good democrat, he's an old iratemity brother of mine. But we'd like
to get started now, and who is representing the State department of
community affairs?
Mr. Jones. Right here^ Senator.
Senator Garn. That will be fine right there,
STATEMENT OF GARY JONES, STATE DEPAETMENT OF
COMMUNITT AFFAIES
ilr. Jones. Mr. Chairman and Senator Morgan, it's a pleasure to
welcome you to Utah. Aly name is Gary Jones. I'm assistant director
of the State department of community affairs, and, as you've men-
tioned, Senator Garn, the Governor is in New York, ironically, dis-
cussing with our bond counselors the forthcoming issuance of our
housing bonds. Utah has created within the last year a housing finance
authority, and we are preparing the way for the advance sale of those
bonds. So the commitment to Utah, although we are latecomers in the
housing field at the State level, we are going in with both feet and we
are committed to helping the rural urban areas of our State in housing.
For this reason, we are appreciative of your attendance here in Utah
this day to solicit testimony on behalf of the States. We have limited
our remarks, I think, pretty much to the bill. Senate bill 1150, so it
will be pertinent to your specific interest, and I have a prepared state-
ment, and if there are questions that we can elaborate on, we'd be glad
to do so. I have with me Marvin Mex^key who is the director of our
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housing development division involved with the technical aspects, and
if there are any questions, he's also a resource here today as well.
The Rural Housing Act of 1977, S. 1150, is an important bill for the
State of Utah, as well as all rural areas of the country. Traditionally
the Farmers Home Administration has played a crucial role in pro-
viding housing and community development resources to our State.
Ruralareas in Utah have depended heavily on the Farmers Home Ad-
ministration for mortgage credit. Loan volume for single-family loans
increased from 845 loans in 1973 to over 2,048 loans in fiscal year 1976.
Significant events are occurring both within the Famers Home Ad-
ministration and the State which will drastically affect their future
operations. First, Fanners Home Administration is phasing out its
activities on the urban Wasatch Front areas which contain the bulk
of the State's population. I believe the estimates are nearly 80 percent
of the State's residents are from the five-county Wasatch Front.
Second, significant economic events are occurring in the State's rural
areas causing a rapid growth over a large area of our State's rural
regions. Thus, the rural areas that have been stable or even declining
in population or economic base are now drastically increasing in popu-
lation. Some areas of the State are growing so rapidly that it's hard
for housing production to keep pace. These rural areas will need more
resources from both private and public sectors to accommodate this
increased growth.
This brings us to the first issue we would like to discuss concerning
the Rural Housing Act of 1977. Heretofore, the Farmers Home Ad-
ministration has had to rely on the Department of Housing and Urban
Development as the principal source for information concerning hous-
ing needs in the State because Farmers Home Administration has not
had within its own shop research and planning capabilities. We are
presently engaged in the housing element as part of the HUD 701
application. This is the first time that the State has had resources
available to begin to get a profile on the State's housing need. We feel
it is the first blush approach, and we feel like there's significantly more
research that needs to be done in evaluating our overall housing needs,
but, to date, Farmers Home has not been able to be a viable resource
in helping us prepare our overall State assessment. We urge the in-
clusion for funding pursuant to section 4(d) of S. 1150 in which the
Farmers Home Administration may determine housing needs of its
constituents. Also, there is a need to develop innovations in housing
construction techniques for rural areas specifically. For example, in
Utah, only the larger urban areas are serviced with natural gas for
home heating fuels. The rural areas of the State predominately have
had to rely on coal or fuel oil for their home heatmg. However, since
1970, new homes in the rural areas are becoming more and more de-
pendent on electrical heat as well as many existing homes being con-
verted to electrical heating systems. Thus, electric heating is replacing
coal and fuel oil as the primary source of heating in the rural areas.
This situation makes for an expensive utility burden on rural areas
and rural residents. We feel that certain alternatives to this situation
could be found through possible research and demonstrations projects
sponsored by the Farmers Home Administration, or not limited to
them but possibly through the Federal Energy Administration or
some other Federal agency dealing with the increasing burden placed
on rural residents for heating fuels.
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The second issue we would like to discuss is the appeals procedure,
specifically section 7. We feel an appeals procedure lor loan and grant
applicants is absolutely necessary to prevent arbitrary denial of assist-
ance for loans. However, the structure proposed for the appeals process
appears much like a court proceeding. While such an appeals process
may be appropriate and needed in some cases, we feel most appeals
should follow a more informal course not involving presence of coun-
sel, cross-examining of witnesses, et cetera, which in most cases would
be a more elaborate procedure than we feel is necessary.
We would suggest that legislative language as guidance to the draft-
ing of rules and re^ilations be inserted to mdicate a less formal pro-
cedure be allowed if formal proceedings are not necessary. On this
subject, in our dealings with the Farmers Home Administration, we
have found them to be under a great deal of pressure because of a large
volume of loan processing and in Utah at least a lack of staff to hanme
this large volume.
Another related problem is the lack of perhaps knowledge of all
Farmers Home housing programs by the respective county agents.
This is in no way intended as a slight at the Farmers Home Admin-
istration agents, because we know they have a very important job, but
we feel that many people who go to them for services are referred
somewhere else because of the lack of specific technical knowledge on
the part of some of the agents throughout the counties. Since this
situation defeats the great advantage of the coimty office system which
is closest to the people, we would urge that the situation could be
greatly improved if the Farmers Home employees had some sort of a
training budget that they could become knowledgeable and trained in
some of the specific technical aspects of the housing programs. We feel
like they have so many programs that they are responsible for, that
housing sometimes takes a lower priority than some of the other agri-
cultural programs that they also provide services for. So we would
strongly recommend some kind of a training program throughout the
Farmers Home ^stem for county representatives, if possible. It's our
understanding, there is no budget allowances for this sort of training
at this time.
In regard to section 11 of the bill providing that 60 percent of the
insured rural housing loans go to low-income families m the sections
602 and 615 loan programs, this provision in the authorizing legisla-
tion is needed to clarify the intent of Congress that these programs
serve those in need of Farmers Home Administration programs.
One of the problems we have observed is the underutilization of the
sections 616 rural rental and 604 home rehabilitation programs in
Utah. There have only been an average of five loans a year from 1973
to 1976 under the rural rental section 616 program and less than four
loans a year during the same period for the home rehab section 604
program as opposed to 3,821 subsidized plus 1,794 unsubsidized section
602 single-family loans since 1973. We feel like the bulk of the utiliza-
tion of the program has been in single- family areas and we feel there
is a need in the State for the multif amily programs as well to be fur-
ther utilized. We would certainly like to see a greater utilization of the
604 and 616 programs in Utah. The Department of Commimity Affairs
has focused its efforts into areas in desperate need of housing in the
State. One of these areas has been San Juan County which is in the
extreme southeastern portion of the State. We have attempted to get
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6
two 615 projects built in that county but have been successful in getting
only 16 units funded to date. We hope we will be more successful with
some of the amendments that are proposed in S. 1150.
In June 1976 the Saint Christopher's Development Corp. submitted
an application to Farmers Home to build eight units of housing on
land owned by the Episcopal Church 2 miles from Blu ff, U tah. The cor-
S oration had already applied for and received a HUD community
evelopment block grant to install the water and sewer system on
the land. It was intended that the eight units would house Navajo
Indian families who are presently living in the area in severely sub-
standard housing. However, the application to Farmers Home was
denied on the basis that the area was too far away from community
services. Even though Saint Christopher's Development Coi-p. re-
sponded by indicating that limited community services are available
not only in the town of Bluff but on the property itself, it was denied
a second time. Now, it seems quite contradictory that HUD would
found the project with a community development block grant for
the sewer and water while Farmers Home Administration would deny
the same project application because it does not fit the definition of
a community. So I think what we're saying, there seems to be some
inconsistencies between Federal agencies in terms of really getting at
the heart of the problem and finding a solution rather than being ar-
bitrary about some of the program details. If a rural area does not
qualify for a "Rural Rental Housing Loan" on the basis that they are
"too rural," where do they, in fact, turn? We felt that the definition
of a rural area created a "paradox" situation between not rural enough
and "too rural."
In January 1975, in another example, we assisted a San Juan Coun-
ty investor, a local physician, who observed the critical housing needs
and wanted to do something about it. He enlisted a developer who sub-
mitted an application for 50 units of subsidized rental apartments un-
der section 515. For over 6 months his application was in a state of
limbo. The Department of Community Affairs continued to persist to
assist the developer to identify over 100 eligible renters who wanted to
occupy the project within the immediate area. To make a long story
short, only 16 units were subsequently approved 2 years later in Feb-
ruary 1977. We think this is far too long and indicates some need for
some administrative clarification in the program, at least as it operates
in Utah. We hope for a better record for these programs in the future.
In regard to section 12, which relates to the monthly allocation of
funds to regulate commitments, we have found the allocation system
was presenting the timely processing of applications for both the 502
and the 515 programs. Fortunately, the allocation system was dropped
for the 515 program. It also needs to be dropped for the 502 program,
in our opinion. This monthly allocation system was intended to pro-
vide a timely means of committing Farmers Home Administration
funds throughout the year. However, it has, in fact, resulted in a long
waiting list for applicants and no way for builders with completed
units to gain timely processing of applications for their x>ermanent
take out loans. We feel the entire allocation system is unnecessary from
the secretary, and that an allocation system out of the State office
would be more effective.
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In section 13 of the act we a^^roe that the piaranteed loan program
should 'be operated separately from the insured loan program with
no intermingling of those funds. Howerer, we would like to point out
that the guarantee program would work very well with our newly
created housing finance agency mortgage purchase program if the
guarantee program was availal)le to the moderate-income category as
armers Home defines it. The definitions for moderate income of
Farmers Home and the Utah State Housing Finance Agency are com-
plementary. LfOans made possible b^' the Utah Housing Finance Agen-
cy' must have mortgage insurance which the Farmere Home Admin-
istration guarantee would provide. Therefore, we opj[)ose the amend-
ment in section 517, subsection 0, "'I^ans guarnnteed under this sec-
tion should be made only in the case of |)ei-sons with above moderate
incomes."
Finally, we would like to urge tliat the proposed funding levels for
water and sewer grants be maintained at their i)ropost»d levels. Water
and sewer facilities are badly needed in all rural areas of the State of
Utah. In Utah a majority of the rural aivas have inadequate water
systems which are presently outdated. Most of them were built Imck
in the 1930's and they are all wearing out at the same time. We found
from our exj^rience with the local public works applications that was
generated on title 1 and ttile 2 funds last year that we had only $10
million available, and the number of applications gt»nerated for water
and sewer predominately exceeded $150 million. But we think we can
absorb all of the money we can possibly get in this State for water and
sewer improvements over the next several years without any trouble
at all. The eastern part of the State in paiticular is affected by lack
of water and sewer facilities. Xow, this is the area that is undergoing
rapid energy related development and growth at tliis time. Because of
this, the situation is critical. Building moratoriums are not uncommon
in many of our communities throughout the State because of the lack
of water and sewer facilities. Large percentages of rural housing lack
a connection to a water system and m many areas soil conditions ai-e
adverse to septic tank systems as well. Large areas in Utah's Uintah
Basin; in the eastern part of the State; the southeast, as I've men-
tioned, and also the extreme southwest areas of the State will be unable
to accommodate additional growth, as we project it, until adeauate
sewer and water facilities can be provided. And we feel Fanners Home
could make a substantial commitment to meeting these needs over tlie
next few years.
Mr. Cmtirman, this is the essence of our testimony. To sum up, we
would like to say that we are in favor of most of tlie intent of the
amendments of the Rural Housing Act of 1977. We feel it is a very
positive program, and we feel like it is badly needed in a State like
tJtah where we do have a major housing shortage particularly in our
rural areas. I'd be glad to respond to any questions on any of the sec-
tions or be available at any time during the day inasmuch as you
nmninglate.
Senator Garx. Thank you. We will include the last sheet of your
testimony on these figures on the housing loans made in Utah in the
record. We appreciate your testimony verj- much and I think that we
probably will proceed rather rapidlj- because we ai-e l)ehind schedule.
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I'm sure you'd be willing to respond to questions not only — as we will
be holding more hearings, the total hearing record will be open for
sometime and I would expect that not on^ with you but with the
other witnesses, as the hearing record develops, we would probably like
to submit some questions in writing on specifics as we build the testi-
mony on the bill itself.
[The table referred to above follows :]
FARMERS HOME ADMINISTRATION— RURAL HOUSING LOANS MADE IN UTAH, 1973-76
Rural housing loan program by year
Subsidized
Loans Loan amount
Nonsubsidized
Loans Loan amount
Single family 502:
Fiscal year 1973
Fiscal year 1974......
Fiscal year 1975.:
Fiscal year 1976
Multifamily rental 515:
Fiscal year 1973
Fiscal year 1974
Fiscal year 1975
Fiscal year 1976
Home improvement 504:
Fiscal year 1973
Fiscal year 1974
Fiscal year 1975
Fiscal year 1976
319 $5,643,000 517 $7,552,000
701 13,000,000 744 15,974,000
1,185 27,764,000 533 10,883,000
1,616 42,735,000 427 10,869,000
4 235,000
2 238,000 _..
7 985,870 2 699,800
3 720,000 1 262,390
5 12,000
4 4,000 _.
5 10,000
I 1,000
Senator Garn. Senator Morgan, do you have any questions ?
Senator Morgan. Senator Gam, only one comment. I was interested
in your comment on the appeals procedure. This section, too, struck
me as being a little cumbersome and too oriented toward court pro-
cedure with legal counsel. I'd be interested after maybe some thought
or reflection if you could submit for the record some suggested ideas
as to how we could offer some relief to those who feel like they have
been arbitrarily denied assistance and yet without bogging down the
complete program.
Mr. Jones. Thank y6u. We'd be happy to give that additional
thought and submit something to you in the near future.
Senator Garn. I think the way it's written now it sort of becomes
a minicourt system, and I think a lot of people could be intimidated by
it. Wherie you're setting up an appeals process to help someone who
feels they've been mistreated, and if it becomes so legalistic they don't
want to get involved in that. They'd like to ^o in and make a com-
plaint, be heard, find out why they were denied and so on. I think
Senator Morgan has made a good point. If we could have some sug-
gestions — we don't want to create an appeals process to solve a problem
mat actually deters people from bemg willing to come in. I think
that happens, particularly with low- and moderate-income people.
They're often scared by the system. It just looks too big for them to
handle.
Mr. Jones. We'd be happy to give that additional thought, Senator,
Senator Morgan. One other t^ing I might ask you to comment on.
Section 6, as I understand it, provides in no event may foreclosure or
a transfer action be initiated against any borrower unless the provi-
sions of 505 on the availability of the moratorium of payments under
the section have been pursued. That gives me concern from a legal
standpoint as to how would a lawyer certifying a title know whether
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STATEMENT OF MABVIN MACEET, DIRECTOR, HOUSINO DEVELOP-
MENT DIVISION, UTAH DEPARTMENT OF COMMUNITY AFFAIRS
Mr. Mackey. Yes; I think what we need in this case, Senator
Morgan, is some kind of line of record for an attorney to follow. I'm
not sure — I'm prepared right at this moment to recommend that, that
line of record, but I think some kind of recording seems to me is what
we need.
Senator Morgan. I wish you'd give some thought to it and give us
your ideas for the record on that because it seems to me that without
some line of record a title may never be clear to a home that has been
foreclosed with a Farmers Home Administration loan on it.
Mr. Mackey. That needs some legal research on that point.
Senator Garn. Thank you very much. Mr. Harward. The next
witness is Kimball Harward who is with the Rural Housing State
Office of FmHA. Go right ahead, and if you want to summarize your
statement in any way, or however you'd like to handle it is fine, and we
can include anything you'd like m the record. Just proceed as you
would like to.
STATEMENT OF KIMBALL HARWABD, SPECIALIST, BUBAL
HOUSINO STATE OFFICE FMHA
Mr. Harward. Thank you. To begin with, I'd like to say that my
name is Kimball C. Harward. I'm a rural housing special and multiple
housing coordinator with the Utah State Office of the Farmers Home
Administration. What I say today, Senator, does not represent the
views of the agency necessarily. This represents our local views and
problems as we foresee them here in the Utah area.
We were asked to comment on two areas. First of all, some of the
problems that we encounter in the administration of the Farmers
Home Administration housing programs in the State, and to make
some comments on the proposed Senate bill 1160.
Some of the problems that we encounter, of course, are obvious.
The major problems are the increase in building costs that we see, and
the increased land costs, and the availability of adequate building
sites. The costs of land and building and the availability of sites seri-
ously affect the cost of the dwelling dnd the repayment that the
borrower has to sustain. Increased living costs are also a factor because
with the increased living costs it takes more of a homeowner's income
to live and less available income to meet mortgage payments and other
payments that he has to meet.
Another problem that we have encountered is in this area that's
already been mentioned in defining rural areas. The way the regula-
tion is written now, it isn't right specific as to what areas are eligible
and those ares that are not eligible. Any area that is closely associated
with a larger urban area is not eligible and, as was mentioned in the
previous testimony, we have discontinued our activities in some areas
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along the Wasatch Front here where they are not longer considered
rural under that definition.
Another problem that we see, and this is a problem that is addressed
in the bill, and that's the availability of credit to families above the
$15,600 limit. Primarily these are families with incomes between
$15,600 and $25,000.
Another problem that I would like to mention is the volume of
work that our county office j>eople are expected to perform, and this
has also been mentioned previously. Farmers Home Administration is
operating right close to 30 different loaning programs. Now, some of
these programs are not particularly well known or popular, maybe
they are not popular because they haven't become well known. But our
county supervisors are not capable of maintaining the expertise in all
of these programs that they need. The more loans we make — the
volume of work last year was heavy. Tlie more loans we make, the
more servicing is required; and the more servicing that is required,
the less time our county sujpervisor people have to spend in the pro-
duction of new loans. Servicing can be a big thing especially with
heavy interest credit volume. Interest credit renewals come up for
each borrower every 2 years, and this takes a lot of time in addition
to the transfers and other legal actions that might be necessary in
some cases. We recognize the need that we need more specialization
both at the county and the district levels. We need additional train-
ing. We need additional trained personnel.
Another problem that we have, and this relates to the sendcing of
our interest credit loans primarily, and that's that occasionally we
find that there is some false or incorrect information provided by
certain applicants or borrowers in either attempting to get the interest
credit when the initial loan is made, or in attempting to stay on
interest credit after they've been on it for a 2-year period. This creates
some problems for us in administering the program.
The next point that I would just liKe to mention may not necessarily
be a problem, but it is a very prevalent thing and that's tliat in our
area here in the Utah area we see a lot of folks that will come in and
obtain a loan to build a home and they will receive the interest credit,
and then after inflation has increased the value substantially theyll
sell it and take a very substantial profit after the Government has sub-
sidized their interest rate for several years. We think that something
could be done with that, and I notice in the bill that there is a recap-
ture clause included in this bill which we certainly agree with.
Senator Morgan. May I interrupt you to ask would that person ever
be eligible for another Farmers Home Administration loan ?
Mr. Harward. Yes, he would, under the present regulations.
Senator Morgan. In other words, he could do it again?
Mr. Harward. Yes, he could do it again and some do.
Senator Morgan. I was going to ask you if you've had instances of
that.
Mr. Harward. Just a few comments now on the bill itself. In sec-
tion 3 we, and as I say, we're speaking from our own point of view and
this is not national office viewpoint, but we agree with the escrowing of
insurance and taxes. We do not believe, however, that we should handle
it in the same way that, say. Federal Housing has handled theirs where
a separate account is set up for the funds to be escrowed. We would
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rather see an arrangement where the applicant or the borrower would
simply inci-ease his monthly payments by an amoimt sufficient to pay
one-twelfth of the annual insurance premium and the taxes. That goes
into our account which it would actually pay the account ahead for
that year, and then we would simply pay the taxes and insurance from
the Kural Housing account.
On section 4 concerning research, I notice that most of the new pro-
visions within the bill, as I'm sure they are within the act itself, are
assigned to the Secretary. Now, we haven't been in a position to pro-
vide any research of any kind. We'd suggest that if it could be worked
out, that the research responsibilities Ito assigned within the Depart-
ment to some other agency which is capable and qualified to carry on
research activities such as the EOS or the ARS.
Concerning section 5, compensation for defects, personally we dis-
agree with this and we think it would be almost impossible to admin-
ister. We feel that as an alternative, the building industry should sort
of police their own industry and see that defects that come in as a
result of the contractor's oversight or negligence are corrected and
policed within the industry rather than have the Government come
along and make compensation to the homeowner.
On section 6 something there may be necessary on foreclosure pre-
vention. I'd just like to say that we do have an appeals procedure and
we do try to hold our foreclosures to a minimum. 1 think we would all
recognize there are times when foreclosure is necessarjj^, but we do have
regulations and procedures in the field which require us to give a
borrower every opportunity.
Senator Morgan. What is your foreclosure rate in Utah?
Mr. Harward. It's very small. I don't know numberwise or per-
centagewise. We have no houses in inventory in this State. That's
someming that's not true with some other States. Some other States
have several hundred in inventory. We have none.
Senator Morgan. None in inventory, you mean those that have been
foreclosed?
Mr. Harward. Yes, sir.
Senator Morgan. Mine has several thousand.
Mr. Harward. Pardon ?
Senator Morgan. I understand my State has several thousand.
Mr. Harward. We have none in Utah. Our experience has been that
when the borrower is far enough down financially, he recognizes the
!)roblem the same as we do, and it's been our expeiience that he will, if
iquidation is necessary, he usually will do it voluntarily on his own.
Concerning section 7 in the appeals^ there are already in the field
regulations which provide appeals procedure with several reviews in-
volved. That's not to say that perhaps we shouldn't make a greater
effort to make the appeals procedure available. I know that there have
been some arbitrary things done. We are trying to avoid those as best
we can.
Senator Garn. While you're on this point, though, would you agree
with previous testimony that what is suggested in the bill is too
formal?
Mr. Harward. I do. Senator. T think it's way too formal, and, in my
opinion, it would tend to put the borrower on the spot. He would avoici
94-911—77 2
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that kind of appeals procedure, I believe, and as a result, it would be
less effective than the procedure we have now.
Concerning section 10 and the labor housing, we feel that some dis-
cretion should be left to the Department with respect to the priorities.
I think that section is an attempt to eliminate the priorities that we
have set. As they're are set right now, public bodies and housing au-
thorities are to receive priorities in funding under section 516 of the
act.
Concerning section 11 which would require that 60 percent of the
funds be used for low income, I just might state that in Utah our per-
centage to the low income far exceed that at the present time. I'm
sure — I don't know in exact figures. Senator, but I'm sure that it
would be in excess of 75 percent. As far as our 515 program is con-
cerned, nearly all of the applications that we receive are for low
income.
Section 13 of the bill, a negotiated interest rate would certainly give
stimulation to the guaranteed loan program, and we feel that the
guaranteed loan program should not only be made available to those
with what we'd define as above-moderate incomes but also those be-
tween 10,000 and 15,000 to be used wherever it's applicable. The guar-
anteed loan program, in my judgment, simply has not got off the
ground simply because the interest rate is not negotiated.
Concerning section 14, I commented briefly on this a few minutes
ago, but we agree with the recapture clause that's in there. However,
we think that maybe it doesn't go quite far enough in that some limita-
tions should be spelled out in the bill as to how much recapture should
be taken and when it should be taken. For example, if a homeowner
who has received interest credit for 5 years — ^let's say for 3 years, he
elects to sell that home at a substantial profit at the end of that time,
we feel that some of that interest credit should be recaptured.
In the 50 grant program, in the grant agreement there is now a re-
capture clause which says that if the grant recipient sells the home im-
proved with 504 grants within 3 years after receiving the grant, that
the Government will be reimbursed to the extent of the amount of the
grant.
We also agree with section 18 that we should be authorized to close
loans where there are remote claims against the property. Tliis would
not be a provision that would be extensively used because we don't
have many occasions to close a loan where there is a remote claim. But
occasionally we come across a situation where we do have a remote
claim, and the possibility of any party or individual making any claim
against that property is so remote as to really be nil, and yet we can't
close the loan until something is done with that title defect so we cer-
tainly agree with that provision.
That's all I have to say. Senator, and thank you. If there are any
questions, I'll be glad to take them.
Senator Garn. Any questions ?
Senator Morgan, f don't believe so.
Senator Garn. Thank you very much. We appreciate your testi-
mony. Is Kent Stilson here ?
Mr. Natlor. Gene Hafen would like to fill in at this point.
Senator Garn. OK.
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STATEMENT OF GEHE HAFEN, CHAIEMAH, ADVOCATE FOE UTAH
HANDICAPPED
Mr. Hafen. The thing I'm concerned about, I represent the Advo-
cates for Utah Handicapped. I'm the chairman of this organization,
and one of the real problems for the handicapped people is housing.
Unf ortimately, most people don't really realize the numbers of handi-
capped people there are in our country. Now, let me give you an ex-
ample. In the State of Utah one out of five people m the State of
Utah are handicapped. Now, of course, not all of these people are
motor handicapped, but there are a great number of handicapped
people. The problem with being handicapped, of course, depend— and
I'll talk about the thing I'm most familiar with, the motor handi-
capped—the cost of living that's involved. For instance, being handi-
capped, my cost of living, for instance, with transportation costs me
a little over $400 a monm. You take into consideration your wheel-
chair and all the other things that you have to deal with, when you're
working for a living, that doesn't leave an awful lot left to buy hous-
ing with. Unfortunately, the different agencies, the loaning facilities,
I guess, realize this and it's rather difficult to obtain loans unless you
have a tremendously high income for a handicapped individual.
Now, the thing that concerns me again is there's a lot of Government
moneys available that spell out both the elderly and handicapped in
their appropriation or in the bills, but the handicapped really are not
able to obtam tihe service and the help they need to obtain the moneys
they need to buy their homes.
One of the problems again is just finding a facility that a handi-
capped person can live in; a motor handicapped, for instance. It took
me a little over 3 months of looking to find a residence that I could
function in on a rental basis. One of the members of our committee
looked for over 30 days, his wife, all day long every day, to find a
place that they could live in. There are just no facilities available for
us, and one of the biggest problems again is being able to buy a home.
The things that we need altered are not really expensive if done in
the construction stage; another one of the problems is footage. This
is where the cost comes in. We can't function in a normal— well, let's
say a 1,000-square-f oot home. A person in a wheelchair has a very dif-
ficult time functioning in this size of residence if they plan on having
any furniture in their house. If they want to strip it, why, of course,
they can manage fine.
So what we would like to see happen, and by no means, don't get me
wrong, we do not want a dole system. We don't want a gift. We want
f undmg made available to us possibly similar to the veterans situation
on a no-downpayment program that would help this group of people
who are really determined. They want to make their own way, but
they're unable to get the moneys put together with their cost of living
to make the downpayment that is necessary for homes and, as^ain, tiie
size of homes that they're forced to sret into. Possibly we could get into
an area where there would be a little less interest rate for this group
of people initially until they could, you know overcome this front-end
load on the purchasing of a home, I would like to see some direction
come down from Washington giving the different housing authori-
ties—the FHA, the HUD, and this group of people (FmHA)— some
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direction to give some special assistance to the handicapped people*
This is something we're not receiving. We're getting a lot of up-front
lipservice, but that's as far as it goes.
Senator Garn. Do you have any idea — we've already discussed that
the definition of "rural" is rather hard to define. Do you have any idea
in Utah what the percentage is or a rough percentage or a "guessti-
mate" of handicapped living in so-called rural areas versus Salt Lake
and Ogden, Provo, that type of situation ?
Mr. Hafex. Wlien you're talking about the rural area, are you talk-
ing about the Salt Lake County as rural ?
Senator Garn. No; I'm really not. I know the definition includes
some of that as rural, but I'm really looking at some of the areas that
we're trying to address as rural. Generally there seems to be a tendency
for the handicapped to concentrate more in cities. I'm just wondering
what the need is for housing in the more rural areas, and I know you
don't have specific answers, but I'm just wondering if you have any ball-
park figures or estimates.
Mr. Hafex. In the State, there's about 115,000 of the handicapped
population on the Wasatch Front. So taking into consideration the
majority of the rural areas are oflF of the Wasatch Front, that does not
leave a great number. How many of those would fall into the category
where thejr would have problems of access to their housing would prob-
ably be fairly small. But, again, we have to take into consideration a
lot of the handicapped problems. Even though they are not a motor
handicapped, still they have the same finance problems as an individual
who has a visible handicap. But we look at — well, I don't know. Would
Hynim or South Jordan or these areas be considered rural ?
Senator Garn. Well, yes. Certainly Hyrum would and some parts of
Salt Lake County. I was just trying to address myself more to what
kind of need there was for the things that you talk about because I
understand the problem. I know what you mean and the difficulty. I
was trying to determine really what the need is compared to other
programs like normal FHA, VA loans, and other housing programs
that are available and that are not specifically addressing themselves
to rural areas.
Mr. Hafen. Well, for instance, with myself, and I don't know how
many other handicaps are in this category, but I would personally
like to live in a place like Heber or Logan. Salt Lake has outgrown
me. But one of the main reasons
Senator Garn. Well, if you'd move to Washington for a while, you'd
come back, and Salt Lake is just a little comfortable country town.
Mr. Hafex. Oh, is it? Well, maybe I'll have to go. But a lot of the
reasons the people are in the population areas is the services are avail-
able to them. Transportation. There's a lot of services available to the
handicapped in a city situation that's not available in a rural area.
Housing, again, is one of the areas that's available. I honestly couldn't
answer that question. I just do not know.
Senator Garx. Well, I didn't expect you to know exactly. I was just
trying to get a broad general feelmg or guesstimate. My assumption
has been, it's just been a feeling, that the majority of the handicapped
would live in the more metropolitan populated areas because of the
services and availability of housing.
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Mr. Hafen. If youTC talking about the rural areas, I jruess as they
define them, taking in consideration South Jordan, West Jordan, Hy-
rum, Hunter, this area, I think you'd find a great number of handi-
capped moving into those areas and, for a fact, are moving in there
right now because this is the only place there's any property left to
build, the only place they can build a home even close within reach of
their financial ability.
Senator Garn. Senator Morgan, do you have anything?
Senator Morgax. Gene, you mentioned VA. Has your experience
been that the VA is more attentive to the problems of the handicapped
than the other agencies?
Mr. Hafen. Oh, yes, I'll say. Yes.
Senator Morgan. Let me say that many of the questions that we
raise here, we don't expect you to have the answer for them, but if we
raise a question for the record, the staff will help us to find the answers.
What I'm hearing in my travels around the country is that the VA
has the most effective housing program of all the programs and, of
course, one of the reasons I think that's so is because thej have a very
active advocacy on the part of the veterans organizations, and I'm
pleased that you and others in the handicapped area are beginning to
be more active.
Do you have a code for the handicapped in the State of Utah with
regai-d to architectural barriers requiring that so many homes in an
apartment complex be built for the handicapped?
Mr. Hafen. We do have — in fact, it's Utah Code Annotated, sec-
tion 26-27 — 1 through 4 (1953), that docs deal with barriers but does
not specifically spell out numbers as far as ixisidences. It does not spell
out that residences will be available. It deals ]>rimarily with sidewalks,
curbings, access to the public facilities, both State and private owned,
sidewalks, just about all the carrier systems. It's not being enforced at
the present time. Hopefully, we can see that this is brought about;
but no, we don't have a code like that.
Senator Moroax. It's just been enforced in the last 2 months around
the Capitol. Succeeding Senator Ervin, I have to throw a few North
Carolina illustrations. We do have one in Xorth Carolina and we
worked it out with the builders, and we designed a system whereby a
certain percentage of apartments, for instance, would be equipped for
the handicapped, wide doors with low counters, with accessible areas.
And I think you brought out a very good point here. Some time ago I
had to dedicate a chapel at a crippled children's camp sponsored by the
Easter Seals Society, and I asked one of my good friends who has C.P.
and who cannot speak but does write a column, syndicated column, for
the handicapped, to write me a speech and to say in that speech exactly
what he would say if he were going to deliver it, and I would deliver it
exactly the way he wrote it. Joid I'll never forget the closing lines. He
said this: If we in America — if the headlines in America should de-
clare tomorrow morning that some great natural resource such as oil
or gold had been discovered in a given area, we would have no difficulty
in finding the money and the resources to develop and market that re-
source. And he said we have the same kind of resources in our handi-
capped if we're just willing to devote the money and the resources to
utilize and capitalize on their resources. And I think you render a real
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service in coming up this morning because it is an area that could have
very well have been overlooked.
Mr. Hafen. Well, I personally concur with you, Senator, that the
handicapped population is probably one of the greatest untapped re-
sources we have in our Nation today. Of course, the only way we're
going to tap this resource is to make living facilities and meet the basic
needs that all human beings have in this country, and of course, housing
is one of those needs, and when this is met, this resource will be more
available to the general population. By so doing, by making this hous-
ing available to the people in this category, we're going to help bring
a lot of people off from the tax dole and back into taxpayers.
Senator Morgan. Thank you. Gene. I'll tell Gene Hafen back in
North Carolina there's a good advocate back here, too.
Mr. Hafen. Thank you for your time, gentlemen.
Senator Garn. Thank you. Gene. Appreciate your testimony very
much. Ken Flint.
STATEMENT OF KENNETH W. ELINT, PAST PRESIDENT, WEBER
BASIN HOME BUILDERS ASSOCIATION
Mr. Flint. Senator, appreciate the opportunity to meet with you
and discuss today mainly the problems of the builder. I represent the
builders, I guess, in the area. I'll make mine brief and to the point. Like
I say, I represent the builders, and I live and work in the Davis and
Weber County areas.
Senator Garn. Excuse me just a minute. Ken. Senator Morgan was
just asking me where Weber was. We have some very strange speak-
ing — almost as strange as North Carolina sometimes, and it happens
to be Weber even though it isn't spelled that way. The next witness is
going to be Eepresentative John Smith who is from out in the Tooele-
Grantsville area, and if you saw Tooele you wouldn't pronounce it
Tooele either. But, anyway, Weber or Webber is just north of us.
There's Salt I^ke County, Davis County, and then Weber County —
Ogden which is the second largest city in Utah is located in Weber
County.
Senator Morgan. After our new President, you will soon learn to
speak the correct dialect. [Laughter.]
Mr. FiJNT. So you know where I'm from then. I don't want to take
a lot of time on the Senate bill. I think Mr. Harward studied this very
well, and I was very impressed with his remarks. I think as far as the
builders, I could pretty well say amen to everything he's said per-
taining to the Senate bill and so I'd like to direct most of my remarks
to the problems that the builders would experience in trying to work
with the Farmers Home Administration.
I would like to touch on one thing that he mentioned and then get
right into the builders' problems. But to give you an example, I built a
Farmers Home Administration assisted house 4 years ago. That house
and lot was sold for $19,000. It was just sold this last week for $35,000,
so this gives him then a $16,000 profit in 4 years time, and he's had
interest credit on this during those 4 years. So I feel that he's really
got a lot out of it.
Now, I really think it's inequitable for him to keep all that money or
for him to turn right around and get another rural housing loan. I
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think there should be either that he can't get another rural housing
loan, or there should be some recapture in that amount of equity that
he's built up in a short 4-year period. Other than that, I really don't
have any other comments on the bill, but there's a few things that I'd
like to bring to your attention representing mainly just the builders.
During the years 1972 through 1975 I was engaged 100 percent in
the builmng in the Farmers Home Administration-assisted homes. At
the present time I think that probably less than 20 percent of our
production is Farmers Home Administration and I'll tell you the
reasons for that. But so you'll know where I stand, I'm not a big
volimie builder and I don't think a big volume builder can make a go
in the Farmers Home Administration programs. I think it's a program
designed for small volume builders with low overhead. The Farmers
Home Administration, I think, expect more from their housing
in the quality and the quantity and size than does FHA or VA. So
that's the reason I think that the small volume builder with low over-
head would do a good iob in the Farmers Home Administration pro-
grams, but the large volume builders can't make a go of it.
But getting back to 1972 and 1976, 1 was workmg Farmers Home
100 percent. Then about that time there came a problem in their
organization, and I think there was so much i^roduction they didn't
have adequate staff to process them, and there were many builders with
what they call conditional commitments which means you go ahead
and start the house and during construction sometime or by the end of
construction you get a qualified buyer in. Supposedly — ^there's no
gjarantee — ^you should have money available to close out that house,
ut I think about 1975, if I remember correctly, they kind of over-
estimated their ability in funds and staff and they were so backlog^sfed
that there were many builders in the area that were really caught high
and dry with completed houses and not enough funds to go ahead and
close out the houses. You can agree, I'm sure, that this would bo a
problem for a builder to have very many houses complete and not the
funds to close them out. So at that time we had to diversify and get
into other programs like FHA, VA and conventional, and that's the
reason today we're only about 20 percent Farmers Home-assisted now.
Here in tjfie State of Utah now there definitely is a very, very large
need for Farmers Home financing. During the years that I was build-
ing Farmers Home, I became familiar with the people in the area that
I was working and still today I get §o many phone calls from people
who need this housing that it's getting to the point that it's almost
impossible to continue business because there's so many people that
need this program and are calling all the time to try to acquire
financing.
Now, during those years, I really feel that the Farmers Home Ad-
ministration, and I don't know what other Government agencies, tried
to find ways to cut down on the volume of their business. One of the
ways that they did which was really quite effective was to relocate
their boundaries. At that time in my area they moved the boundaries
west to 2,000 west, and anything east of that area wouldn't qualify,
then, for Farmers Home.
Now, what this did to the builders was inflate the cost of building
because it pushed us west down into the area where subdividing is
almost unheard of becatise of the unavailability of utilities^ ^^A^Jc^fo
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cities in those areas want to keep those areas do\vn. They're completely
rural, and they don't want subdividing, so, consequently, the cost of
producing rural housing now west of their present boundary has really
inflated the price of the housing.
Of course, they set a maximum price on their housing, and it's just
nearly impossible in our area to put together a package within the
price that they're quoting to build. So I'd like to really see them do
something different on these boundaries and define rural areas, I un-
derstand, in most cases, it to be 20,000 and under would be considered
rural.
Now, as Mr. Harward indicated, in this area if we're close to a
metropolitan area, they don't like to loan in those areas, and that's
kind of what we're caught in clear across the Wasatch Front here.
It's almost one continuous city. But when they force the builders too
far to the w^est, it creates some problems for us down there.
So that's the main reason that my production is 20 percent or less
right now for those reasons. I think the builders would just be more
than happy to get back in the Farmers Home programs. Now, I don't
know the statistics, but from what I observe, I think the Farmers
Home building, in general, throughout the State, is much less this
year than it has been in previous years. Would that be right, Mr.
Harward ?
Mr. Harward. That's true.
Mr. Flint. So I think that would be the answer to the reason why
it's so much less now than it has been in the past, the builder woulii
definitely like to get into the program and whenever there's financing
available and there's utilities available, and the builder can build and
make a reasonable profit, he's going to produce housing. I think you
can pretty well count on that.
Tliat's really basically about all I wanted to discuss. If you have any
questions, I'd be happy to answer any of those questions.
Senator Morgan. Let me just ask one question. You mentioned the
problems of subdivisions in some of your rural areas where city water
and sewer is not available. Have you done any of that in Utah?
Mr. Flint. Have we done any
Senator Morgan. Subdivisions and subdevelopments where you use
sewer and septic tanks — or septic tanks and wells ?
Mr. Flint. Septic tanks without sewer?
Senator Morgan. Yes.
Mr. Flint. Yes. But you get in an area like that and it would re-
quire much larger lot sizes. I think you'd probably run into problems
if yon tried to utilize septic tanks on anything less than possibly a
half arre.
Senator Morgan. In a niral area should you really build on less
than a half an acre?
Afr. Flint. That kind of depends on the local authorities, and most
of ihom pay definitely not, and a lot of them insist on an acre and a
half in their rural areas. So here again, like I already stated, it's
^incr to cost you more to build on an acre and a half than it is to
build on a subdivision size lot which would probably be in the area of
a quarter of an acre further east.
Senator Garn. That's the problem you get into, this definition that
something is still rural and yet it's really around the cities where the
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land values are jacked up and you really aren't going to build low or
moderate income housing and nave an acre or an acre and a half to
do it. It's just impossible because it's rural by definition, but from a
practical sense it isnt rural anymore.
Mr. Fmnt. That's true.
Senator Morgan. Senator, I mention this for your benefit and for the
record because you'll find that when we get into North Carolina that
many developers will go right out into the middle of wide open spaces
where there's plenty of land, plenty of water, the soil is fit for septic
tanks, but they built small houses right beside the other. They put
the wells in the front yard and the septic tanks in the back, and many
of them have already been condemned by the health authorities. In
other words, what I'm saying is they really built slums to begin with.
It just seems to me that where there is adequate land available and the
soil is fit for the use of septic tanks, that it's just ridiculous to go out
and build anything on less than a half an acre if not an acre or an
acre and a half if there's room available. I just raise that question, and
when we get into North Carolina I hope I can show you some of those
areas. That's why we have so many vacancies in North Carolina.
Mr. Flint. We're really proud of our Farmers Home houses here in
the State of Utah. I think they're exceptionally well done, and I feel
we really do the people a service to get into these houses, and there's
a definite need for tnem. The only suggestion I'd have, if they can
some way open up the area to where it was before so we could get in
and get some less expensive lots and not be forced out like in a Jot of
areas west of Two Thousand West through West Point and the
Syracuse area, it drops off the bluff and you're right on the brink of
the lake. Of course, you can't build a house down in those swamp areas
and try to utilize septic tanks. They do require a lot of fill and usually
bridges and everything, and it just inflates the cost of rural housing to
force us too far to the west.
Senator Mokoan. When you say too far to the west, where do you
mean?
Mr. Flint. Well, their boundary, like I say, right in the area where
I live is Two Thousand West, and west of that. Of course, that doesn't
mean a thing to you except, like I say, you're getting pretty dam close
to the lake and down in swampy wet areas. In most of the area down
there there isn't sewer available, where east of that pretty near all of
it has sewer availability. We can subdivide and get smaller lots and
we can work the program to our advantage and to the people's advan-
tage, where if we're forced too far out, it doesn't work. On the other
hand, I know they don't like to compete with FHA and VA where
there's financing available under those programs. Yet, on the other
hand, there is money available and I feel that that money isn't going
to be used under their present requirements for locality.
Senator Garn. Just briefly for Senator Morgan's benefit, this entire
area used to be a lake bed. We're about, well, at this point maybe four
or five hundred feet under water a few thousand years ago or hundreds
of thousands of years ago, so you've got a situation the closer you get
to the mountains the more stable the soil is, and the closer you get to
the lake the more swampy it is. If you'd come in the airplane in the
daylight not as we did last night you'd know what I mean. Up near
where he's talking about the lake comes around and comftj& \xv ^'si^:sx
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closer than it is h^re in the Salt Lake area. Very high water table,
marshy, swampy lands, that's what he's talking about. As he gets
forced further west up in Weber County, it just becomes more and
more dilEcult to build. The more desirable building sites all along the
lakefront are farther to the east because of the stability. But the
Salt Lake airport is built on that kind of ground, the stabifization for
the runways and all sorts of things are problems. Not quite the prob-
lem we have with the airport in Tooele, but, nevertheless, that's an in-
house story. Bob, on that airport.
Mr. Font. I think one of the reservations for a builder to go out
in those areas and build, no matter how good a package you give the
people that buy them, the first time that the septic tank backs up and
gets in their basement, they're going to be mad. And I don't blame
them. I would be, too. And I think you do an injustice to the people to
go out there in some of those areas and put them in those predicaments.
Senator Garx. Thank you very much. Representative Smith.
STATiaiENT or JOHN E. SMITH, STATE LEGISLATOE AND
CONTRACTOE
Mr. SMmi. Senator Garn and Senator Morgan, I'm pleased with
the opportunity of being here. May I say, too, that the name Tooele
County, the correct pronunciation is speculated to the same extent as
the origin of the name. It hasn't been determined, the origin of the
name, but it is a very interesting name.
I am a general building contractor in addition to a State legislator,
and I've been in the general building contracting business for some
30 years. I've been involved with the rural area financing program
for I think almost 20 years. I think it fills a very distinct and vital need
here in the State of Utah particularly in the rural areas where it's
impact is felt on residential housing. I think we have something quite
unique here, and as indicated by one of our other builders, there's a
great demand for this type of financing. It's just a matter for certain
segments of our people whether or not they're going to get a housing
loan as to whether or not they can get a rural area loan.
It's interesting that people are willing to move out from the urban
areas to the rural areas if they can qualify for this type of financing.
So I think presently we do have, at least in the Tooele County area,
the moneys are reasonably available for this type of program. How-
ever, the building contractors are finding an increasingly difficult time
building under this program. I guess part of the problem is felt in
other areas of the housing market. But essentially we have the ceil-
ing appraisal market value for construction, and it has a very difficult
time keeping up with the inflationary rate, and so, you see, we have a
time schedule that for the most part lags behind the inflationary rate.
If wo get a precommitment on thf* rural area loan financins: and then
realize our return back, we're talking something like, at least in my
experience it has been something like 8 months, so you can appreciate
what this does. I mean, with the skyrocketing costs of the inflation
we have in the building industry.
I think I can say with some confidence that there's less redtape in-
volved in the Farmers Home Administration program as opposed to
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other, the VA and FHA. I ceased buUding under FHA some years
ago. Life is just too short.
Senator Morgan. Most builders have.
Mr. Smfth. Yes; the VA still nins, as you indicated, a pretty good
ship. I've built under their program some.
Seems like the increasing FHA building regulations that we have
to contend with, thev skyrocket, of course, the construction costs.
They're sometimes suDJect to change to the extent that even the ad-
ministrators of the program don't really know what the regulations
are. It depends on what's in the latest afternoon mail that they might
find out, of course, this makes it difficult for the administrators and
makes it difficult for the general contractors to keep abreast of these
regulations and some of them are just not realistic. They don't provide
a better quality home. They don't provide better quality service for
the applicants. In fact, they sometimes encumber the entire program,
and I don't have to say this to Senator Garn because he has spent
hours of his time as a Senator in trying to delineate some of these
cumbersome regulations we have in Federal housing and other areas.
It's been mentioned here, and I would like to bear testimony, too, as
Senator Garn knows, I have served for a number of years in various
programs for and in behalf of the handicapped. I was the author of
the legislation that was referred to here. Unfortunately, Utah has not
been a lead State in programs for the handicapped. We're recognized
in many areas of service, but in this area it is unfortunately not quite
true. It's only recently in 1969 when the legislature did, iii fact, pass
legislation which was the removal of architectural barriers in publicly
owned buildings. And, of course, this is working quite well. We're
seeing many educational opportunities in the university that are avail-
able now that weren't just a few years ago. But as there's need for
special transportation accommodations for the handicapped, there's
also a need in the housing area. It would appear to me that a model
building plan could be developed very easily that would accommodate
some of the basic needs of the handicappeci. The Farmers Home Ad-
ministration could adopt or accept this model plan and either make it
available directly or indirectly to the builder and then could designate
or earmark a certain amount of the moneys, as you indicated, that
would go into this type of a program. As it was mentioned here, if it
is incorporated in the initial building stage, the amount of money is
quite modest that would be required to accommodate the handicapped
need. On the other hand, when they go into the alterations, as we all
know, they're very costly, and if the handicapped are fortunate enough
to be able to purchase one of these homes and then they have to make
the alterations to accommodate their basic needs, it can be very costly.
So I certainly laud and endorse your comment. Senator Morgan, in
this area and hope that we can provide some special provision for the
handicapped.
I think the energy saving progrram, efficient building products and
so forth, has been more recently incorporated in the Federal housing
programs, I think they're good provisions. They're, for the most part,
not very costly, but will certainly bring back a return in a short pe-
riod of time, and I'm speaking primarily of our insulation require-
ments, double glass windows and this sort of thing.
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There's iust generally not enough rural area moneys available, as
I indicatea. I've seen the time when the builders just nad a very dif-^
ficult time who tried to say within this program, you see, and have
enough loans available that they could provide a meaningful program.
This more recently, I think, has been alleviated some, at least m the
areas that I serve. So I think we have a situation here now, we have
a great demand of people coming in trying to get in on this program,
and there's just not — for the most part, I think the qualification stand-
ards has been within reason, but I think maybe there should be some
accommodations there and some adjustments and changes. Particular-
ly for the elderly and the handicapped there should be more oppor-
tunity made available to them.
I think that probably covers my notes that I have here. If there's
any questions, I would be very pleased to answer them if I can.
Senator Garn. I might just explain for Senator Morgan's benefit,
Tooele County is west of us. It's on the southern tip of Great Salt Lake
and it's an extremely large county. It runs all the way to the Nevada
border and, as a matter of fact, it's definitely rural in geographical
area. It's bigger than the State of Rhode Island, this one county. Most
of the population is concentrated in the east part of the county in the
Tooele and Grantsville area, extremely large in geographical area. It
goes out and includes the Salt Flats and a Tot of places where nobody
could live even if they wanted to. Do you have any questions?
Senator Morgan. 1 was just going to ask you, has most of your
building under the Farmers Home been on an individual home basis
or has it been at the development stage ?
Mr. Smith. For the most part, it has been individual homes built
on individual lots. Now, I have gone into three or four lot purchases,
you know, and provided buildings in these areas. But, for the most
part, I don't go into a large subdivision sort of concept because you're
priced out of the program to begin with. The building lots, you just
can't get that much back if you're trying to put in any kind of im-
provements along with it. I think the Farmers home program discour-
ages that, anyway, because it's a modest type financing. Those who
can afford the more deluxe should be able to go to the open market
for the money.
Senator Morgan. I think you're always delighted when you hear
an answer that agrees with your own thinking, but, by the same token,
I could be wrong. Through the years that I practiced law up until
1969 in North Carolina, this was basically the Farmers Home program
and it was a program that I thought was so very meaningful to the
people of our State. But it seems in the last 8 or 9 years that some of
your big developers — and I was interested in hearing the comment
earlier by the builder that it was not really designed for big devel-
opers — ^but some of them got into these subdevelopments, would run
a street down the middle of a field and build the kind of houses that
I described to you. And the foreclosures, were as much as 12 months
past due. They would foreclose and then go over into another county
and the same person who had his house foreclosed under the Farmer
Home in one county would buy iii another. Now, I don't know what
happened in my State, Jake, whether it just got out of hand or what,
but the program as you've described it was a program that I knew
as a very meaningful program. And that's not to say that I'm right
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and that it can't be made a more meaningful pi*ogram in largio develop-
ments, but I think we have to be cautious when we move into that
area.
Mr. Smpth. I think for the most pail, I've found that those who
are in the administration and staff oi the rural area program here in
Utah, they've been very helpful. They've performed a very distinct
service. I've never heard of any scandal that's been involved in their
program such as we have heard about in some of the other Federal
pro-ams. As to your response, Senator Morgan, on the larger lots,
I thmk you'll find in the rural area that you get your growing cities
and they're trying to urbanize some as far as their services are con-
cerned, and so they take more of a dim view on a larger lot because
of the additional costs it places on the utilities to provide the services
the people want so they try to consolidate in the cities some. As Jake
indicated, we have lots of ground in Tooele County and it's available
at a fairly reasonable price, but there again, unless a person can utilize
that ground, sometimes it's a burden to him and the community too.
It just grows up in weeds and it's very difficult to take care of , it's a
fire hazard in many cases. I think the city officials, for the most part,
like to see the building lot held down to like to a quarter of an acre.
Senator Garn. Thank you very much. We appreciate your coming
in. John Nielson. While Mr. Nielson is coming up, he is from Price.
Price is in Carbon County to the southeast of us. Carbon County is
the center of our great coal developments, with vast amounts of coal.
Carbon and Emery Coimties have had some particularly difficult
growth problems, housing, water, and sewer because of energy develop-
ment. Both counties just have vast amounts of good low sulfur coal.
Go ahead.
STATEMENT OF JOHN J. NIELSON, CONTBACTOB, PBICE, UTAH
Mr. Nielson. My name is John Nielson. I'm from the Carbon County
area and do Farmers Home building in that area, plus I happen to be
a member of the Price River Wateir Improvement District. Board of
Trustees, and we're enjoying a very beneficial experience using Farm
Home money right now to develop a oounty-wide water project to
satisfy the needs for housing in the energy area. Had it not been for
this assistance, the area would really be in trouble so we appreciate
this, speaking for the board of trustees. I might say that if the other
agenices of government would have functioned as well as Farmers
Home did, we would have saved another million dollars. But because
of the bureaucracy problems and other agencies that are helping to
fund our project, we were held up 1 year and it cost an additioiml
million dollars in inflationary cost. So if you'd carry that world back
to your colleagues, we'd appreciate that.
Seventy-five percent of my building is Farmers Home work in the
area where I build. Twenty-five percent is conventional. I do a small
amount of commercial work. Farmers Home Administration is one
of the few bureaucracies that hasn't been contaminated yet by the
Government. You were talking a few minutes ago about bringing
other things into it, and this is a dan^r, moving into a dangerous area,
because as you increase its size and its responsibility, it will become a
cumbersome bureaucracy too. I have moved out of VA and Federal
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housing building myself because of the problems of time and infla-
tion while you're waiting for answei-s, demands, et cetera from these
agencies, and find a real workable relationship with Farmers Home. I
have no complaints in that regard. The one man mentioned that he had
to move out of it. I find the profit margin in building with Farmers
Home isn't as lucrative as conventional building, but the demand for
the housing is such that you can move a volume of houses and so it's
not — ^we're still eating at home with the program. We work well with it.
Just a few points here about this one of — about the FmHA may
require the seller or the contractor to reimburse Farmers Home for
money they pay to bring houses up to standard. It seems one problem
we're having with governmental agencies in building is that every
time someone has a dream, it's on paper the next day and on its way
to some agency. We are constantly faced with the problem of increased
costs because of little things that someone just inserts into the building
program that sometimes aren't necessary, such as this item. We would
immediately have to cover ourselves with a cost figure and so nat-
urally it would inflate the cost of the home.
Senator Morgan. Just off the top of your head, are there Farmers
Home requirements that could be eliminated in construction of a home
for items which may be desirable but yet not absolutely necessary, for
a good livable home ?
Mr. NiELSON. No. In fact, they're always telling us that we should
hold to moderate housing. We get our ownselves m trouble trying to
satisfy the needs of a customer who wants the formica just a little
higher on the back of a cabinet and some of these things, you know*
So it's much easier for us to do these homes on a conditional commit-
ment where we just build them and then have them on the market for
sale through Farmers Home and then we don't run into this customer
problem of trying to please and so forth.
Senator Morgan. I believe you said you're not doing FHA?
Mr. NiBLsoN. No.
Senator Morgan. I was in some hearings in Atlanta, and the number
of items that were required were just astounding, such as plugs on the
outside of the house, grounded here, and many things that maybe were
desirable, but are not in the home that I live in or that I grew up in*
But I had understood that VA and Farmers Home didn't have a lot
of these stringent requirements.
Mr. NiELsoN. Well, VA, for instance, on a conditional commitment
type of building, they would want to inspect the building all the way
through, and if you'd started the building then they won't fund it.
Like their footers in our area have to be standard 36 inches by 12, and
it's just not necessary in some places in our area down there. The soil
conditions are such that we can get by with a 30-inch footer or a
24-inch footer. The particular area has been tested and Farmers Home
works well with us in this.
Senator Morgan. They take into consideration the local area and
the circumstances ?
Mr. NnsLsoN. Right. It works good. This other one about discrimina-
tion, I think that this gets to be overplayed sometime. The Grovemment
encourages people at uie national level to think about suing somebody
Iftll the time, and you shouldn't do this. We have enough of a norma!
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problem without the Congress manufacturing problems that we have
to contend with later on. As for help in moving projects along, we
don't have too much problem now. Tne conditional commitment ^s-
tem is the best if we're just allowed to build and move ahead building
while we're getting clients ready to buy the homes, you know. They
work quite well with us on this. But we need to watch the adjusted
income figures so that it moves along with the inflation. In our area
they just moved it up to where the coal miners now can meet the
Fanners Home criteria, $15,800 adjusted, and they're about in the
$16,000 to $17,000 bracket, but they can't get housing any other way.
Until this is moved up, why, we were in a real problem right there but
now it's loosened up. We're in pretty good shape down there.
Another problem that needs to be looked at is maybe this figure is
just a little too low because we have some of the lazy who are living
"Cadillac" and some of the ambitious who are living "Volkswagen" in
our country. In other words, once you hit that $15,800 figure you're
discriminated against. We think that the housing ought to be opened
up there because none of these young kids have a down payment any-
more and we just have to face that in this country now. They just
don't have it. We n^ed to leave it open-ended enough so they can all
get in.
Another area is with the increased cost of land and housing that
some of the initial payment on conditional commitments, for instance,
should be allowed to be subsidized by relatives. In other words, if the
house cost $36,000 in the better area and you can do it for 36 and the
Farmers Home limitation is $32,000, then relatives should be allowed
to put that $4,000 in. We live in a fairly affluent area because the
miners make good money and they've saved well, the fathers, and
many of the women work and so forth and they have a kitty. They're
glad to give it to their kids to get them started in this program. But
if they go to the bank and get involved in points and other things like
this, it gobbles up that kitty that they would give to them. So there
should he a system that a subsidy should be allowed of some sort to be
funneled in there however it can. Nothing wrong with a relative help-
ing a family member get started, and there's a lot of them willing to
do it.
Senator Garx. There sure shouldn't be anything wrong with it.
Senator Morgan. I see what you're saying. A relative can help
enough, but if they've got to go the conventional route, what little they
have is going to be eaten up by points et cetera and then they're
right back where they started.
Mr. NiELSOX. That's right. So you should consider this. I think
we're at a time where some sort of a subsidy has to happen in housing
in America right now to get the young people started, and if it can
happen this way, that's the better way to have it happen.
Senator Garn. I sure couldn't agree with you more on that, if we
can get private subsidy where it's voluntary. I guarantee you Sena-
tor Morgan won't disagree with that either.
Mr. NiELSOx. I have one right now where the father, and it was a
handicapped person that was getting a Farmers Home house ; I'm do-
ing the house right now, and they didn't have income enough to qualify
to meet the standards. But the father came in with $5,000, gave it to
them, put it in the Farmers Home kitty and it made the right amount
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so they could get going. He felt good about.it and it made the family
relationship good, so we need to consider this, though, and not make
it a little immoral to do it.
Then we need to — ^this gentleman from up in the Weber area was
discussing this area to the west. We have the same problem surround-
ing us that we need to move out of price a little bit with some develop-
ment. We need some help on sewer and water development where we
as contractors could maybe borrow money on a temporary basis to
develop sewer and water instead of going i^eptic tank and wells and
then pay it back when the project is completed. I think you need to
look at this because there's a lot of ground available for this kind of
development where we could move if some moneys could be lent to its
on a temporary basis if we're developing a large tract. Then as each
lot was paid for, we would pay a proportionate share of that money
for sewer and w^,ter development back to Farmer Home. That's all I
have. I enjoy workinqr in the program. I fe6l very comfortable in it.
Senator Morgan. That's very encouraging. .
Mr. NiELSON. Just don't overload it.
Senator Morgan. One of the best books I've read recently is written
by a British economist Schumacher called "Small is Beautiful," and
he's saying about what you said about the progmm about the whole
economy. It's a best seller now.
Mr. NiELSON*. Now, see, when we l^alk into a Farmers Home office
we Ivalk into a homey atmosiphere, and if you keep enlarging the bu-
reau, or whatever you call it, -v^e're not going to feel that same feeling,
and so, you know
Senator Garn. I agree. The pr<:)blem of it is when we find one that's
doing a good job, yoii hope that S(Mne day you can have them expand
and contmue to do a good job. Maybe it's unpossible. I don't know. But
it tends to happen and I see what you mean. The evoluti(mary process
then when you do iSnd a Federal ag^cy, and they're hard to find,
that's doing a good job, you'd like to tiinnel more to them so they could
continue to provide that good service.
Mr. NiELSON. Well, possibly you shouldn't do that. Possibly you
should throttle the other ones down and move them backward a little
bit.
Senator Garn. I guarantee you it isn't because Senator Morgan and
I don't try. We're just not a majority on the Banking Committee yet.
Senator Morgan. We belong to a very definite minority. Have you
had any dealings with HUD t '■
Mr. NiELSON. No.
Senator Garn. You're lucky.
Senator Morgan. I was going to ask you if you'd ever had any satis-
factory dealings with them.
Mr. jTielson. No.
Senator Garn. Thank you very much. Garry Godwin.
STATEMENT OF OAXBT GOBWDT, HOMEOWNEB,
WEST JORDAN, UTAH
Senator Morgan. That sounds like a North Carolina name.
Mr. Godwin. It's an Alabama name. About 3% years ago I got a
loan under Farmers Home Administration to get our home out in
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West Jordan, tl^tt'a on thjB pouthwest side. Without this loan, I
wouldn't have beien able tq get ^ house tiiid for that reason I think it^s a
real good program, Th^ hpuse tHat we got hae been a good house. It
wasnx like some of the previous programs where you can look at the
house and tell the difference* As far as I know, some of the other homes
in the same project were sold with conventional loans, but ours was
financed through the Fanners Home Administration. There's nothing
big and fancy about it, but it's a good home that could be added to as
I have the financial means to do so.
I heard some of the builders previouslv mentioning something to
the effect of somebody selling one of these homes that's financed under
the Farmei-s Home Administration and then getting another one
under the same program. Now, certainly that doesn't seem very fair,
but at the same time it wouldn't seem fair if I reached the point where
I wias financially able to move into a better home with the equity that
has accumulated in this home if Farmers Home Administration says,
well, no, you can't have it, that's got to go back to us because the home
was subsidized in the first place. So, certainly, there needs to be some
breakdown here, some difference in the way these things are financed.
I can't think of any problem that we've had in any way with the
Farmers Home Administration and our house. Probiably about IV^
years or so after it was financed we had some problems, ourselves, fi-
nancially which were handled, we feel, as well as anything could have
been by the Farmers Home Administration. We didn't run into any
high pressure problems from them. Certainly they expected their
money, and we felt that that was right, and they worked with us to
make sure that we could make this loan good to the best of our ability
which is what has been done. So we're very happy with the program,
and we know lots of other people who have had the same situation that
we have where it's been nothingbut a good deal.
^ Senator Garn. Thank you. The major point on this matter of get-
ting a second loan is not that you don't want people to upgrade them-
selves. We talk about that all the time. We hope people can upgrade
and move to better homes. The problem of it is when we have a limited
amount of money available, that if someone gets a second and a third
chanceo^ou're dwnring someone maybe from that first chance.
Mr. Godwin*. Tliat^ right
Senator Morgan. Womd you think, Garry, that assuming that you
move up and reach a point where you could move up to a better home,
and you could sell your first house with enough equity to make the
down payment, that then you should go conventional ? Would you ex-
pect Fanners Home to help yon move up to a larsnor home?
Mr. GcmriN. Well, I think the purpose of the Farmers Home Ad-
ministration is to help those who can't do it on their own. That was my
understanding of it which certainlv seems like a good thing.
Senator Mohoax. Once vou've developed an equity in a house that
would enable you to pay the down payment and seek conventional fi-
nancing, then you wouldn't expect Farmers Home to assist you?
Mr. Godwin. No, I don't think that would be right at alL
Senator Morgan. What is your occupation?
Mr. Godwin. Via a printer.
Senator Morgan. How did you find out about Farmers Hcnnel
94-911—78 8
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Mr. Godwin. Well, as I mentioned, that's an Alabama name, and I
lived in the country for a long time down there so, you know, I kind of
grew up with Farmers Home Administration around.
Senator Morgan. So when you got here you had no problem ?
Mr. Godwin. When I got here, I looked them up.
Senator Morgan. Did you go directly to the Farmers Home or did
you buy through the builder who had dealt with Farmers Home ?
Mr. Gk)DwiN. We bought through a builder who had dealt with
Farmers Home Administration. We first applied for a conventional
loan, which was rejected and then it was processed through Farmers
Home Administration.
Senator Morgan. In other words, the house had already been built ?
Mr. Godwin. Yes.
Senator Morgan. You went to a conyentional institution and then
you were turned down and then you went to Farmers Home Admin-
istration?
Mr- Godwin. Yes.
Senator Morgan. During the period that you were having financial
difficulties, as we all dp from time to time, were the payments deferred
or reduced or how was that handled ?
Mr. Godwin. What happened, at first was that we got, I believe, two
payments behind. We signed an additiooial payment contract as sopn
as our financial situation wag corrected so that we were paying our
normal payment plus the percentage of those that had riot been paid.
Senator Morgan. And that worked out satisfactorily ?
Mr. GcH)wiN. Yes.
Senator Morgan. Do you have an escrow account or do you pay your
own taxes?
Mr. Godwin. I pay my own taxes and my insurance. That's another
thing thflt I'm not too excited about. It seems like it would be a lot
simpler for people who do have a low income where they're kind of
fighting the situation in the beginning if this was all included in one
payment. You know, I go along OK until the end of the year, and all
of a sudden it's Christmas time and tax time and insurance time all in
the same month and that makes it a little bit difficult. The taxes on my
house last year, I believe, were $260 which to some people might not be
a lot of money, but if you qualify for Farmers Home Administration,
$260 is a pretty big pile of money, not to mention the insurance besides
that.
Senator Morgan. Mr. Chairman, all I can say is its encouraging to
hear some good reports of some of the governmental agencies.
Senator Garn. I w|ts going to, say in the 214 year» I've been in the
Congress I've never heaird so many good comments ab^ut any Federal
agency like this before
Senator Morgan. I've been in a number of bearings around tJjie coun-
tfy'and;this is thp most encouraging tl>at I've heard,!
Senator Gari^.. I'll tell you ope thing, though, Bob, that's a very
biased statement f ^m an e^f-m^yior and an elected representative of
the State of Utah, but I think it would be borne out that you'll find
that as critical as I am of a lot of Federal programs, and you know
how I vote, that almost all of them run much better in Utah than the
vast majority of the States in this country. It doesn't matter which
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ones they are. Even ones we think are bad, out here they are much more
efficient and a lot better serviced. We just haven't had the FHA prob-
lems here, even though there's some discontent with it, not like some
of the other areas of the country. You'll find that vour community
development block grants, water and sewer grants for cities, all the
way down the line (fealing with local government, and this is a biased
chamber of commerce-type statement, out I really think I could prove,
what I just said.
Senator Moroan. I'm sure you could, and you can't get two poli-
ticians together without them philosophizing a little bit, but I think
this is the point Senator Gam and I have been trying to make on the
2^ years on the Banking and Housing Committee is that the type of
regulations and the type of programs they have to have in the urban.
States like New York and New Jersey are not heeded in States like
Utah and North Carolina, but yet sometimes we're hamstrung with
the same regulations. Thank you very much.
Senator Garx. Thank you. We very much appreciate your coining,
Garry.
Now well get to the Springvdlle Nielson. Springville is a city in
Utah County which is the next county south of Salt Lake County
about 55 miles from here.
STATEMENT OF J. OKAirT lOELSOnr, CONTBACTOB,
SPEIHGVILLE, UTAH
Mr. Nielson. My name is J. Grant Nielson and I've been a builder
since World War 11. I'd like to go back a little bit and reiterate what
the situation was at that time. At the end of World War II there was an
imaginary line beween Provo and Springville beyond which lenders
would hardly loan. It was virtually impossible to get any kind of
financing in the small communities. Financing was readily available
in Salt Lake City and Provo and Ogden and these areas. And it wasn't
until about 1955 or 1956 that we started getting some FHA, and some
VA and very little conventional. Farther south in the county another
12 miles was a city called Payson, and they sat dormant from 1932
when the banks went broke until about 1967 or 1968 and then there was
a little bit of building, a few apartment houses, and very few residences.
These small communities needed to grow. They had people who wanted
to live in these communities and yet they just could not get. a loan.
Financing was a problem.
Then Farmers Home Administration came in, and as late as 1970
it was required that the buyer of a Farmers Home at that time had to
own his own lot and that it couldn't be more than $1,000 or you
couldnt pay more than $1,000 for it. Then shortly after they didn't
have to own a lot ; you could go buy one and you had to.own it lor some
period of time. That released a lot of funds for Farmers Home^ and in
1970 I built, not my first Farmers Home because I'd built out in the
rural areas prior, but I built the first one of what I now call my project
We built a 1,040-square-foot house with a full basement on $1,000 lot
in Payson. We. paid $500 for the sewer and water connection and tihat
was it. We sold that house for $16,000 profitably. Well, then: as time
has gone on now we're selling our houses m Payson a few years iW«fr for
$30,500 with about the same profit, not the same percentage,:' but: <U
same dollar margin. We're building the same house, but were puflBll
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in TDohd ili6Hlftti(m; WeV^ putting doiAile windows in the bftsrahent as
well as 4<bil>le' windows up. Theres been some new requiremenis. These
no-fanlt cirouitbreakerd that the cities aire requiring^^ and &re (smolce)
alarm systems and this sort of thing. Now we're c(»ning to the point
where our single binest problem is finding land to b«iild on in Ut^
County and ttet's what I'U speak to.
Something that has happened in Utah County recently we Ve had the
land use planners move in and against the will of the people, h<mesUy,
against the will of the people the county commission saw fit to eliminate
all the rural county from building. Now« in most areas if you are
allowed to build^ you have to have approximately 57 acres to Imild on.
You have to be a bona fide farmer midnng a living
Senator Moimak. That's a bi^rer lot than I have.
Mr. NnsLsoN. And making a living from the farm to qualify to get a
building permit Now« that's what^s happened. Then they went to the
cities and they said« OK« we want all the building in the cities. We
don^ want any oat in the counties. There' s too much problem. We dont
want it like Salt Lake. Of course. I met on a lot of tlrose meetings, but,
anyway« they passed this ordinance so now the cities are the only
place you can live in — or build in. The cities can^ keep up with the
sewer demands^ the water demands, and so cm. They ■ ve done such things
as added impact fees* impound fees to add to the cost. Lots in Payson
today — I talked to one ouilder who had hunted steadily for 2 solid
weeb$ to buy a building lot and hadn\ been able to buy one. They're
going $7,000, $8*000. Then youVe got the additional cost of sewer and
water which rtuis about $1«500 now so you're talking about from $8^500
to $9,000 and up for building lots to put in the Farmers Home program.
Xow. we ha>-e a project that were just recording and ready to start
producing Farmers Home houses on. It will be 36 units. That project
has been sold out for at least 90 days. It was sold in 30 daysL They're all
prKaokt. and weUl be able to buiUl those^ and our lots, bv subdividing.
will cost us around $7,000 to $7,500 and well sell them for $30,500. But
now we^re out of land. We're |ust out of business, and we can't go out
in the county. There s land with wells that are available tor cuUnaiy
on the side hilK voii know where West Mountain is. Senator Gam.
There's land available with wells, but we can^ subdivide that under
the comilv ordinances now« I don't know whether we could meet the
crilerta o\ sewer and costSw But« nevertheless^ we're »Mied out.
Vow. people in Springville and Payson and all these communities
haTi» this land that's alnMidy been de;^gnated where we can build for
the next d& veiirs. Now. if you had a ptoK^ of land that you knew was
scKiur to douShle in vmloe in 5 or 6 yea is. you certainly wouldn't sell it so
thB> SukI is net available. Even though it's designated, it's not available
for hniidinr hecmose pM>ple wont ;ml it. Thc^n^ s Terr little land avail-
able 3 1 ^tah Coont y. ne ha ve a t remendoos lot shortage and no way to
get oflC fnaa onder it.
I wiil say ikis above Farmers Honie Administratkn. and like the
cchets Taa nnaaimoaB^ it's the Wast complioatevi of anv Government
rVe deah with. FW deah with HIT> and FW done a k>t of
i TA. VA ««$ reasvmable^ and FH A was all righ t, but it was
<■ g— Tltt diAwMK^ reallv— Fd buiM FHA ri^ now
. tlub «Be ho«» ihat I sell fiw^ SaiX^^X under the Faji^
, has to adl Cotr $SSX!0 to make the same profit
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Senator Morgan. Why ?
Mr. NiELSON. Because of the points and disoounts and service
charges. So with Farmers Home, we take $200 down — ^this mif^ht in-
terest you — ^and out of that we pay all the closinf^ costs. That's not a
downpayment, and that's what we do. It usually runs us a little over
$200. Then up until now the people have been paying; their payments
while we build the house, so I've had no finance costs that I've had to
add onto the price. The people have paid it.
The new pro-am is that they don't have to start their payments
until the house is done, but it goes for another 3 or 4 months, whatever,
and that's made it easier for the buyers. As far as demands by the
Farmers Home Administration for items that run the costs up that
arent necessary, I'd say they have none. The demands that we receive
are from the communities. For example, I did a 62 unit subdivision all
Farmers Home in Lehi. After I had half of them sold, the city came in
and said now, we're going to charge you an extra $1,000 impound fee
for each lot and they got away with it So that, you see — and, of coui*se,
we had to immediately raise the price to cover that, but we got stuck
with about $25,000. So the problems are not in the Farmers Home Ad-
ministration for getting houses. The problems are local. If Farmers
Home is going to finance houses in the areas that they loan in, it's a
matter of keeping up with inflation, I presume, because as lots go to
$10,000, Farmers Home will have to follow through and they have done
that pretty welL But it's really, really difiicult to build a moderate
priced house for people now, really difficult.
There's only one thing that I could wonder about, and there could
be — and I understand that there is not now any provision for building
anything but single- family dwellings. We're not maybe quite ready for
tovmhouses, but I think we're right next to where a lot of our people,
particularly the elderly and maybe the yoimg married, we could maybe
fulfill a need in townhouses in our smaller communities for some of
these people. Hopefully, that you could sell a townhouse for 20 to 25
percent less money than you could a single-family dwelling. I think
that one of the problems as I have investigated, we're getting so many
people from the Federal Government down telling the local mayors —
and you'd know more about this than I would — telling the local mayors
and the city council how to run their city. Telling them they're not
going to get any grants unless they have a land use planning situation.
Like most people, we overreact. If somebody hits me, I overreact, and
I suspect that in our communities that we're overreacting to zoning.
To give you another good example, I have a lumber yard that in-
volves an old sugar factory that was built about 1910. Both sides of me
are either commercial or industrial businesses. Xlnbeknownst to me,
they apparently moved in and zoned this property agricultural. My
manager went over to get a building pei-mit to add on to the office yes-
terday, and thev informed him that all this indnstrial property now
was a^culttiral and that we could do nothing with it. We couldn't add
on. We could just sit there. This is the kind of planning and zoning
we're getting, and I suspect that some of it's coming from the Moun-
tain Lands Association, the Federal people that are in telling those
people what to do.
Senator Gars. Well, it's the old "club". As you know I'm totally in
favor of local land use planning and not Federal. But Uie point of it is
£hat they do constantly use the threat of a national land use planning
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bill, or that if you don't comply with the flood plain^ weT<tould go on
and on with all these different things, then you're not going to get your
Federal grants. In many cases — ^well, to show you how far the flood
tiling goes, the local government having to respond, at one point they
defined the flood plain in Salt Lake City while I was mayor to include
the whole town, everything. They drew those boundaries so that every-
thing within the town was within the flood plain and then you had to
meet all those requirements and if you didn't there would be no FHA
funding, no VA, no nothing. So in defense of local officials, not that
they all do the job the way they should all the time, the Feds have some
awfully big clubs.
Mr. NiELSON. Yes ; I know they do. This is one of the problems and
the reason I mention it is you people may have some influence. But this
Erogram of Farmers Home, as far as I'm concerned, has done more to
elp develop our smaller communities than any other program that
ever happened in the history of Utah, and these people are realistic.
They demand that you build a good product, and they inspect them
thoroughly. As far as I can tell, they treat the buyers in good shape,
and I ^ess we've built 200 or 300 of them so we've had a lot of experi-
ence with them.
Senator Garn. Well, good. Thank you. We appreciate your testi-
mony very much.
STATEMENT OF BOLF AASE, CONTBACTOE, SALT LAKE CITY, UTAH
Mr. Aase. a lot of the comments that I had I will skip because it's
been already said, and I was a little late so I may repeat some that I
didn't hear before. But, basically, I would say that Farmers Home Ad-
ministration is the best program within the Government programs, at
least to my liking. They're easier to work with and less paper work.
Senator Garn. I think we need to have some congressional hearings
on how they're doing such a good job so we can tell some of the others
to follow suit.
Mr. Aase. Well, I would still prefer conventional loans, but Farm-
ers would be next and at the way bottom of the list would be FHA.
Now, not for criticism, but maybe for a few points to help us out, I
would say that if we could have a little closer communication on new
regulations or update of regulations to the builders because we go
along what we know and what we're used to, and then it hits us
pretty hard at times when we have new things ahead. Possibly a little
closer ties. I came over from the State office and the coimty office
where I found — ^you know, I realize that the county supervisor has
certain freedoms to make certain decisions, but yet it's a little con-
fusing to the builder like ourselves where we are building under the
Farm Home Program in several counties. Another example, I talked
to Mr. Orr 2 years ago at the Home Builders Convention in Dallas and
he said the Farmers Home Administration at that time had planned
to change the limit and the way they set the payments on interest
credit. Right now it's $10,000 adjusted income and you will qualify
on the interest credit. If you are at30ve then you pay full payment. At
that time he said they were working on a graduated scale which I
would think would be more fair because, as an example, I had one
fftmily only a, week or so ago that the adjusted income w^as $10,040.
.Liiit ''::•. '^. .••.. -• • ^ ■■•/■''■.. . o>:: -.;•■{ : ^ ■ j ■.■■■ ■ •
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They had no debts but they could still not make the $220 apprcwii-
mately payment per month with their family as large as il was, but
the $40 put them outside the program. They could not qualify for
housing, and their income was too low to go to regular payments, so
they were caught in the squeeze. Tliere s a lot of people in this par-
ticular income bracket that just can't make it either way. So with a
graduated scale of repayment, I thuik it would help rather than a
strict cut-ojff.
Now, we build under dijfferent programs, and we build about 60
custom homes or homes a year. At this time in Grantsville City, Mr.
Smith is also from Grantsville, and I think he didn't hear all of this,
but right now we have a real demand out there. I talked to Mr.
Harward yesterday on the phone, and this could possibly be worked
out. But there is a regulation saying tliat we can only have 10 commit-
ments, and I've got 10 commitments and they are all sold and gone.
But right now I've got seven families that are calling me almost
daily: When can we start our house? I cannot start a house because
we have this limit of 10 commitments. The other programs, they have
take too much time, like the contract method of package commitments
and so on. They have to wait 2 or 3 or 4 months before they can get
approved so, again, this is because they are bogged down or haven't
got enough help in the county office. I don't know which. Well, the
customer moves away in 4 months, inflation brings the contract amount
up too far so you can't project that far ahead so it's hard to give a
price on a home with everything going up. In Grantsville City, for
instance, April 1 without really any notice, water connecting fee went
up $600 in one jump, and, you know, we can't anticipate these things.
Well, anywajr, this is about all I have on this except to say again that
the program' itself is probably the best one there is.
Senator Morgan. That's very reassuring, very reassuring !
Senator Garn. It will be interesting to see the kind of response we
get in North Carolina and from other witnesses around the country,
whether it's a national situation. I hope so.
Senator Morgan. I suspect in North Carolina we're going to get the
same comments that it's the best program to work under, but we're
also going to find more criticisms or more abuses than you've had
here. And I was going to ask Mr. Harward if, for the record, if you
would mind submitting to us a list of the most prevalent abuses of the
program as you've seen it in your administration. I'm not asking that
you give us any names or specifics, but you're in a position to see
areas of abuse and relate them to us so that maybe we can do some-
thing about improving them. But unless you do relate them to us, we
may never know it. You've brouflrht out one very vividly, so in your
position with the Farmers Home I'd like to have access to it.
Mr. Aase. I have one more, if I could. It's hard enousrh for builders
with inflation going as rampant as it is to keep up with costs and, of
course, I assiune with Farmers Home Administration it is even worse
because they are right in it. But this has been one small problem
that the appraisal has been somewhat below what we can build for,
and this would be helpful if they could possibly stay more on top
of the costing basis so the appraisal would be in line with the real cost.
Senator Morgan. What is the prevailing interest rate on conven-
tional loans in Utah ?
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lUr, Aasb. Nine percent right now. It's pretty well jumped up from
S%.
Senator Morgan. In your opinion, how much interest can the
average wage earner afford to pay and ever expect to accumulate much
equity in his home ?
Mr. Aase. Six percent. I had one more item, if I may. I found my
little note here. You had one program that possibly in theory would be
great to help people get a loan if you could pick the right families,
those that had the initiative and the go to do it and to work under the
self-help program. But I was called in after this program had been
in operation a few years and tired to finish up some of the homes that
simply had fallen by the wayside. A terrible waste. I would certainly
hope that the Government would not go on with that program any
more. These people could go on the regular program if tney wanted a
house. They womdn't have to go on self-help because that was nothing
but waste and lost money in time and effort.
Senator Morgan. Youtc talking about where they helped build
it themselves?
Mr. Aase. Where they had so-called supervisors out on a job who
showed the people how to build their own home. Well, they just gave
up and they were sitting and sitting and sitting.
Senator Morgan. As a savings and loan director for many years, a
long time ago I decided I would not vote to approve any loan where
the man was going to build it himself. He would always leave the
carport unfinished or the front porch was not quite done, and it was
just enough to ruin the real value of the house,
STATEMENT OF ALFRED HANSEN, CONTEACTOE, SALT LAKE CITT
Mr. Hansen. I'm Alfred Hansen. I'm Rolf Aase's partner. I wonder
if I could just make one comment, if it's OK.
Senator Garn. Certainly.
Mr. Hansen. We have in the past also — you know, here in Utah,
and I'm sure Senator Gam knows that it's a way of life here in Utah,
that we have big families. All the young people they kind of project
that they're going to have three or four or five or six children. Then
they come into us, for instance, with one child, and Farmers Home
says all they need right now is a two-bedroom house, but they'd really
like to have a three-bedroom house because in anotiher year the^^'re
going to have another child. I don't know if it's a Federal regulation
or State regulation or what it is, but it doesn't seem to me that it's
quite fair because in a few years they grow out of the house. They
might want to stay there for several years, then they have to turn
around and sell it or finish the basement or things like that. I don't
know whether this is a valid pdiht.
Senator Morgan. It's a valid point to be raised and one for the
record.
Senator Garn. It's a valid point, and we do have a peculiar problem
in Utah with the higher birth rate than most any State in the country.
Senator Morgan. Except Mexico where we just came from.
Senator Garn, Well,. I said in oxtr coimtry. We were in Mexico over
the weekend and they expect 100 million people in Mexico by the year
2000 and 30 million of them in Mexico City. . ' i . • . ^
Well, we thank all of you and we'll reconvene at 2 p.m.
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Aftenoon Sessiox
Senator Garn. I^et me just briefly, without repeating everything I've
said this morning, for those of you who weren't here this morning tell
you how pleased I am to have Senator Morgan here with me. He was
elected to the Senate in 1974 at the same time that I was. A former
attorney general of North Carolina, a State senator with all sorts of
local and State government experience. We happen to serve together
on the same three committees, the Select Committee on Intelligence,
the Armed Services Committee and the Banking, Housing and Urban
Affairs Committee. So we have worked very closely together for 21/^
years on a lot of projects in addition to this particular subcommittee
which is new, so Tm very pleased to have him in the State. Kennie, if
I can still call you that, if you'll come up. Mr. L. C. Romney, common-
ly known as Rennie, a city commissioner for many yeai*s. Kennie, if
you'd like to sit over there.
STATEMENT OF L. C. BOMNEY, BIEECTOB, SALT LASX CITY
FEDEBAL HOUSING ADHINISTBATION INBVBINO OFFICE
Mr. RoMXEY. It's so good to see you and it's nice to have you home,
Senator Gam and it's nice to know you, sir. You're traveling in very
fine company. I guess you've learned that.
Senator Morgan. And it's a very beautiful city. Some of you city
commissioners have done a good job through the yeavs.
Mr. RoMNET. Thank you. And the former mayor of Salt Lake City
did an excellent job, as you know.
I do appreciate the opportunity to be here, and I know there won't
be a great deal of new information given to you people because the
Farmers Home has done an excellent job in serving the rural ai^eas
of our State, and I'm sure they've told you the story vei-y effectively
this morning.
Senator Garx. Rennie, if I might interrupt you here just a minute,
we've been very impressed with — well, unanimously all the witnesses
have said that this has been the best program of all to work with of
all the Federal housing programs, the least redtape, the most flexi-
bility. Not that they agreed with every thing that had been done, but
they really thought it had done a fine job in the State.
Mr. RoMNET. Are you speaking of r
Senator Garn. Federal.
Mr. Romney. Oh, the Federal programs. Oli, thank you. You're very
kind. Excuse me. That shows how shocked I am when I hear some-
thing nice. Thank you^. i
Senator Garx. We were, too/ We've never heard so many good com-
ments about a Federal agency before.
Mr*; IIomnby; Well, thank you very, t*ery.much. I appreciate that
I think we hi^ve to assume immediately, of course, that there are great
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housinfi: needs in the rural areas of Utah. They are extensive and they
do need attention.
I mi^ht first just say a few words about the census of Utah and what
is happening with our people. In Utah we have 1,200,000 approxi-
mately, and an amazing thing has happened. I think it's generally un-
derstood that there is a movement from the rural areas into the highly
populated areas, at least that was my impression. In checking the
recent figures of 1975, and some in 1976, we find this is not true. The
rural areas in Utah have remained about the same populationwise.
There has not been a loss of population. Of 166 cities outside of the
metro area, the Wasatch Front area, only 26 of them have actually lost
population, but generally they have increased in growth at the same
rate that the State has, which is 2.7 percent in recent years. So our
small towns have remained somewhat viable at least from a population
viewpoint, so housing has not become available in our small towns as a
result of an outward movement of the population which has occurred
in some areas, I underhand, of the country. The growth of metro-
politan areas have varied a great deal in tjtah. TUie population of
growth in Salt Lake County can be, oh, 6 percent in the last 4 or 5
years, while in Weber County, our No. 2 county, it's been about 1 per-
cent. But throughout the State if would have a growth of about 2.7
including the small communities, and this healthy growth is projected
to continue indefinitely. The State of Uta/h is in good shape at the
present time.
There's a great need for water and sewer programs in the outlying
areas and, of course, the houses can't be built without these facilities.
Here the Farmers Home has done an excellent job of providing a pro-
gram of the grants within the limitations of their funds.
The block grant program administered by the Department of Hous-
insr and Urban Development has not been too ejffective in a State like
Utah because the discretionary funds are so very, very short. Some
$800,000 or $900,000 this fiscal year of which about $300,000 went to
the Indian reservations so only five or six towns will get some help on
their water and sewer problems. It will be very, very limited, very
small. So we're merely scratching the surface, so I might suggest, if I
may, that any moneys that you make available to the Farmers Home
under this bill 1150 certainly it would be most helpful to the small
communities of our State.
If housing needs are being met or will be met in the rural area, we
have to acknowledge that the incomes are very, very low. Certainly in
Utah in the rural areas there is a great deal of substandard housing in
the small communities. The present programs, of course, are excellent,
but should be adequately funded. As an example, the 515/S program,
which I'm sure you're acquainted with, the Farmers Home and the
HUD program. It's administered by the Farmers Home with some
help from HUD certainly on a, subsidy basis on the section 8 program
in the State of Utah, we only had I think it's 60 or 62 units authorized
for our State which is merely scratching the surface of an enormous
need with a very excellent program. Although with the 60 units, we
will get one fine project of 50 units in a small town, Price, Utah, which
will be most helpful to us. The 515/8 program should be increased a
great deal. Certamly as a result of this low income situation we face, if
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we're going to recognize and meet the housing needs, it's going to take
assist^ housing to do 80. .
The Farmers Home Administration 502 program, from our observa-
tion, is most successful in Utah. They've done an excellent job of ad-
ministering it. Then, of course, the big problem is running out of
money too early. Without question, the mechanism to deliver assisted
housing through your Veterans' Administration, through the "Farmers
Home, and I believe through the HUD-FHA operation, is available.
It has been done efficiently and it can be done efficiently if the program
is expanded to allow us to better meet the needs that we all
acknowledge.
The housing needs of the Indians, if I can just touch on that, they're
certainly in the rural areas, are being met reasonably well by our De-
partment. That's being done I think exclusively by the Department of
Housing and Urban Development along with felA ana the other
Indian organizations. The homes are being built satisfactorily. They
have been well fimded, reasonably well funded. You can project that
next year you're going to have so many units so the people interested
in constructing these homes can anticipate what will happen the fol-
lowing year, which is a great asset to a builder.
Let me just say, there's great difficulty in getting builders to build
in the rural areas and that's due to several reasons. First of all, it's
more difficult to get your supplies. The labor situation is very difficult.
One of the major problems is the fact that the builder-sponsor doesn't
know what's going to happen next year. If there was some kind of
stability as to the numbers of dollars that would be made available
each year for assisted housing in the nonmetro areas, I think that the
builders then could program their work and at least know that they'll
have a chance to bid on a project in this or that area so they can better
anticipate what the demands on them will be. I know it's difficult to
consistently ^propriate so many dollars each year, but it would be of
great help if it could be done.
I think also to get the sponsors, it might be necessary to develop some
new inducements for them to build in the outlying areas. As housing
costs increase, it appears — and you gentlemen forgive me for this —
but it appears that Congress has got to make the decision as the costs
of housmg increase it is becoming virtually impossible for the average
income person. I'm wondering if it isn't going to be necessary soon if
we contmue to provide housing for all of our people with those that do
not need to be assisted, but those who are struggling and trying to ac-
quire a home with an income that doesn't reach any more due to the
enormous increased cost of homes, an average home is well over $50,-
000 today. Still in Utah it's much less than that, thank goodness. I'm
wondering if it's not going to be necessary one day if these people are
going to own a home, to develop some kind of a grant or subsidy or
some kind of an innovative financing procedure to help these people.
This, of course, causes us all to shudder a bit, but I'm sure many people
are not going to be able to buy a home soon and this is occurring in
Utah. Our average income is relatively low here. I think we're about
the 20th from the bottom, are we not. Senator? Yet our homes each
month are increasing at a cost of about 1 percent, not only in the rural
areas, but throughout the State of Utah, and I'm sure this is hUppening
all over the country. But with the average income of perhaps $15,000
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or $18/)00, it makes you wonder ho^ people can pay $400, $500, $600, a
month for a home which a few years ago was consideiped a very, very
modest home.
If I can answer questions, I'll be very happy to try.
Senator Garn. I might just say that this morning one thing that
bothered me is the number of people who testified that they get along
very well with Farmers Home, but because o.f FHA restrictions, red-
tape, rules, regulations, delays, they don't work with them anymore.
Just don't want to build FHA homes, and it costs more to build an
FHA home than a Farmers Home. I don't know what the answer is
there, how we get the redtape cut. I sponsored an amendment which is
really kind of a band aid situation for the Banking Committee to up the
loan limits for FHA, which all the home builders and financial institu-
tion were very pleased with and so on. Get it up to sixty thousand or
so but that still doesn't solve the problem of not wanting to work with
FHA. It makes it available to a few more people. The thing that's
curious to me, why can we have one Federal program relatively flex-
ible, relatively free of arbitrary rules and regulations, and another one
designed to put people into homes that is simply not dioiiig the job?
Mr. RoMNEY. You know, it's interesting Senator Gam, that people
will say that about the FHA. Let me give vou jiist jwme fast fisr^ires
that will just take a moment. The Salt Lake^CityHUD-FHA office is
producing through its program through the 203B projerram, its mort-
gage insurance program, 4 percent of all the housing built in the United
States under the FHA projcrram. We are building over 20 percent — we
are particij)ating in the building of over 20 percent of all the housing
being built in Utah. The national average for FHA is about 10 percent.
But when I say we're building 4 percent of all the houses last year that
only amounts to three or four hundred homes in Utah that participate
in FHA, but there were less than 13,000 single-family homes built in
Utah conventionally, VA, Farmers Home and FHA. So when I say
we built 4 percent of all houses in America with only 85,000 built under
FHA, we did just that, and we only have i/^ of 1 percent of the popula-
tion. We have the most productive office in the Nation in production
of FHA homes today.
Senator Garn. I told Senator Morgan this morning that no matter
how bad or difficult a Federal program was, we did it better in Utah
than any other place.
Mr. KOMNEY. Certainly, because our Senator demands it of us. you
see. But we have an excellent HUD-FHA operation in Utah, not nec-
essarily because I'm identified with it. But we also have an excellent
VA program doing a remarkable job, and the Farmers Home. I think
last year we had about thirteen hundred 502's which is unheard of in
Utah. So between the three Federal agencies, we're covering that would
be we're producing about 50 percent of all the housing that's built in
Utah, and this is an tmrealistic figure if you compare it with the
Nation, truly. It's because we do have a happy relationship with the
builder. We do have a happy relationship with the lender. We are
interested in the consumer. '
Senator Garn. Most of them rated them in order of ease of working
with : Farmers Home, VA^ a^d FHA.
Mr. RoMNEY.' Well, pierhaps we— no. If we follow regulations, of
cours&y ite sure they da.
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Senator GAsif« Well^ yoU'have to.
Mr, EoMNBT. Certainly we do. We do follow the equal opportunity
regulations very, very religiously. We, of obursd, pay attention to
Davis-Bacon and the other requirements.
Senator Gakn. Vtxi not saymg the problem; is he^ Don't misunder-
stand me. Senator Morgan and I know wljere th^ jTroblem originates.
Mr. BoMXBT. Sure.
Senator MoBOAN. Mr. Bomney, what you Ve said with regard to FHA
is in stark contrast with what IVe been hearing in Atlanta, for in-
stance, and other places where we've had public hearings. And after
listening to ^ou, I think I can understand, and one of the reasons was
a difference in attitude. Someone this morning expressed the feeling
with regard to Farmers Home tliat there was a warm, friendlv, co-
operative feeling with Farmers Home here in Utah. Now, we heard
that with regard to the Veterans' Administration in Atlanta, but we
heard the direct opposite with regard to FHA. And apparently from
what you're saying, when you here in Utali produce 2% percent of all
FHA homes in America
Mr. RoMNEY. Four percent, almost four percent.
S^iator MoROAN. And you only constitute what percent of the
population?
Mr. KoMNST. One-half of one perc»it
Senator Morgan. That's a clear indication to me, Jake, that you've
got an effective office that is service oriented. It feels like it's here to
run a service. I think that's why so many, many builders across the
Nation have just quit building FHA homea I commend you for that.
I think that's commendable.
Mr. RoMXBY. We have a excellent i^ff , good people !
Senator Morgan. So many people that I have round in public life,
not only in Federal Government, but in State and local governments,
usually too often look for reasons why they can't help someone rather
than seeking to find a way in which they can help them, and apparently
you have the latter attitude.
Mr. EoMKET. Well, we certainly try very, very hard to do that We
think we've done it successfully. We issue abcmt $2 millicm dollars
worth of insurance each week in our office, and we have a relatively
small office.
Senator Morgan. Well, no matter how cumbersome or burdensome
the regulations may be. Senator G«m^t seems to me that if they can
do it here, it oould be dxmB elsewhere. That doesn't mean we shouldn't
lighten some of the burdens or rembve some of the regulations, but at
the same time, you're dealing with them effectively.
Mr. BoMNET. Certainly. They are not impossible. Sure, they should
be improved. All government regulations should be reduced, but I
think we've all been around long enou^ to know that there have to be
reglations whether you're runnrnj^ the city, or the county, or the Fed-
eral Government, but they are not impossiDle by any means.
Senator Morgan. Well, that's good to hear.
Mr. BoMNET. But if you cut in half, we'd be most grateful to you,
sir.
Senator Morgan. Well, if Senator Gam and I have our way, we'll
cut them in about four parts.
Mr. BoMNKT. WonderfuL
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Senator Garn. Thank you very much. We appreciate your time.
Mr. BoMNET. Thankyou, sir.
Senator Garn. Ray Willie.
STATEHEHT OF BAT WILLIE^ SQEINIOR VICE FBESIDENT, HO&TOAOE
BEPABTMENT, 7IBST SECTTBITT BANE
' Mr. WiLUE. Senator Gam, Senator Morgim, I know yoii gentlenien
didn't invite me here to defend FHA, but listening to Rennie, I almost
felt compelled to do so for one specific reason: It is that our relation-
ship with the rural areas in, Utah do inyolve to some ejstent FHA and
FJHA procedures. I^et me say this to begin with, I am senior vice presi-
dent and mortgage loan officer for First Security Bank of Utah.
Senator Garx. I might just tell Senator Morgan, thkt's one of our
small local banks here.
Mr. WiLME. Locftl.bank in Utah and Idaho. We do have three
mortgage companies 'also that are involved to some extent. We have
34 branches in Utah in the rural areas. That's aside from our main
offices in the metropolitan areas. So we are obligated not only as a
member of that, community and a citizen in ^ all the smaller towns,
Cedar City, Spanish Fork, Roosevelt, take your choice, ^nd thie sur-
rounding area, we are obligate to take care of thfe' people in those
communities whether they live in the large or small towns or out in the
farm areas or in anything that may be defined as rural areas. We do
our best to take care of them, of course, but funds available for that
purpose are not infinite, even though Ti^e have several ways of obtaining
these funds.
But we have foimd over many years, And we are not exactly un-
familiar with FHA and FHA's progra[ms or most of the Government
programs, we do try to work with them for oniB simple reason: Not
only these customers and citiiiens out in these small towns, they're all
our customers. If we don't take care of them, we might as well close
the branch because there's no reason for us being there. Our profit is
dependent entirely' upon their mode of life, their profits, their ability
to create income, and also on the ability of the town to increase in
population andimprove. So we have allof this at stake, and we really
take this seriously when we open up a branch in a small town or one
where wehie the only branch in the town that we lean over backwards
;to take cdnre of the people in that town.'
. Now,' I've been away from the mechanics of govenunent loans for
quite some tii^e except in overall supervisory authority, but I try to
read everything that's possible inithis respect. I have found over many
years, and it does go over a few years because I started making FHA
loans in 1937, and we made VA loans after I got back from the Army
■in 11>46, and we have been heavily involved in those two programs.
Our rural areasthave made loans insured and guaranteed % the
Farmers Home Administraticm* .But the reaction I get in the smaller
towns and particularly from Mr* Roy Hansen who. is senior vice presi-
dent of the southern division and involved directly in most of these
branches in the smaller towns, is that the delays and the red tape be^
comes so inejffectivethat th^'re almost iinpossible to work with, at
least as far as the borrower is concerned, and the. customer. In. short,
he's looking for probably an easier and a better route- . >. '^
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Now, we get back to the involvement of private enterprise with the
Government. Almost since I became involved in FHA oack in 1937,
I have been of the firm opinion that there certainly is a place in
America for FHA and organizations of its type. At one time I was a
little bit — I was against creating a new program for YA because I
thought the FHA at that particular time m 1946 had the backmound
and experience to do the job for both. I could see no reason why the
Grovemment should be wasteful of money to the extent that they
created two separate organizations which, in ejffect, went down the
same trail. Of coure, the VA program took care of a different group
of citizens, and I know at that particular time there was a consider-
able amount of jealousy between authority from the veterans organi-
zations and the authoritjr from other Government agencies, and it's
worked out. I have no objection to it at this particular time, and I'm
sure FHA has worked along very well with it. But as long as we can
work together — and Rennie's figures of 4 percent are considerably
less than what they should be in this particular area. I don't think
red tape is the answer to the whole thing at all. I think the attitude
of the local FHA office in creating some degree of cooperation with
the builders and the sellers and the Tenders has been partially responsi-
ble for what success we've had out here.
But I have noticed over many years that the only thing really kills
the FHA program is not the technicalities. As long as you can avoid
the delays, you're going to have an FHA program and this is the only
thing you have to do tecause learning technicalities is just as easy as
learning other procedures. Any mortgage loan that you make, you're
dealing with a complicated piece of realestate and laws that are long
ago outdated, title insurance, etc. You're dealing with many things.
iSiese things you have to learn, and when you put a few more reqire-
ments on a Farmers Home Administration loan or a VA loan or an
FHA loan, you're really not adding that much as long as you can
avoid delays in creating this program.
The two things that kill the program are delays, as I have men-
tioned, and deep discounts. And probably one other : The limitations
on amount. Xow, if your recommendation. Senator Garn, goes through
and you increase the maximum loan to $60,000, and if — well, and fe-
cause yesterday or Friday Secretary Harris increased the rate to 8i/^
percent, which is getting fairly realistic, with about a 1 or 21^ dis-
count i)oints. My understanding today is it's ranging along in that
area. As long as we can keep the discounts around to li^ to 21^, then
you will find that the people who are buying houses, builders and sellers
will flock back to FHA. This has been the key ever since I have been
in the business and, as I mentioned, it's been quite some time that I've
been watching it.
I might add that we were selling homes to Federal National Mort-
gage Association in 1989. I might also add that we were heavily in-
volved in the title 6 program during' the war and for returning
veterans right after the war. I might also add that we financed several
subdivisions, some in Tooele, some in Ely, Nev., under title 9 which was
the Korean war situation. We've made loans over the years under sec-
tions 231, 232, 234, and, of course, have always been involved in 203. 1
think we were the first to jump into the 235 program, and we have
made loans under 286, so our organization has not been without ex-
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|>«^*ienct\ I w-ould like to eippUasizi? thJ^t.'we,dojieed.a program that
will he otfoctjvo and take pa,it.Qf .tj^!& risk pff.private enterprise ; and if
you create that ^ituatioru then you'll b^ve an effective^rogram
Vhether it be a combination of tlio FHA and the Farmers Home Ad-
ministration or the Fanners Home Administration by itself. But de-
lays cannot be tolerated because sellers will not wait; buyers will not
\>*ait. and most of the time they can't wait. They've found a house
they'd like to live in: they want to do business with the seller; the
seller either has to make a contract to build the house for them or create
a home for them* They say the delay is too jrreat : the costs will run up
too much; Til have to forget the whole thing. We'll have to go into
another program.
Now, I have no objection to the bilL I read it when Mr. Young of
Senator Gam^s staff sent me a copy of this bill* and I admit that I have
not been too familiar with the original Farmers Home Administration
bilL I did think that 90 percent guarantee program was not effective
simply because if— 90 percent doesn't help much at all, you're in this
bi^mess not to lose money^ and we have created a situation where the
risk is excessive. It doesn^ help any because somebody takes 90 percent
of tliat risk. It's still a loss. It's the same attitude we take with SB A
loans, Thev are 90 percent guaranteed* true ; but if you make a million-
iloUar SBA loan, you have 10 percent of that liability or $100^.
Xow^ if the thing is a bad loan from the very beginning, and I mi^t
add a ffood many are po(Nrly underwritten and ill conceived and end
up in substantial losses, it doesn't help any to say that I onl v lost $50,000
out of the $100,000 where I could have lost $500,000 out of $1 mil-
lioiu This isn\ what most lenders are in business for. Actually, if we
want to help people out and create an excessive risk, I have no injec-
tion, I think there's a proper place for Government. I think private
industry will do its best to do its share, but it should not be asked to
take the cxce^ive risks that are necessary in some of these pn^rrams.
I think the handicapped, the elderly, and the rural pejmle have to
be helped, and we will do our share administratively. Well do the
proces^ng. We don't mind redtape« We do dislike delays, and we do
not like to work excessi^-elr on a loan that should be put* to bed in 2 or
weeks, and we do not like to take unnecessary risk&
Xow, I think if we create legislation that will solve these proUems.
1 think w^^'ve got something we can work with in the rural aieia& We've
also got to have a secondarv market somewhere akmg the line like
Fedend National Mortgage Associati<Mi. Xow, we do sefl a lot of loans
fnit of the smaller towns to Federal National Mortgage Asaociation,
Imi thev cannot accommodate the people that yoa'i^ tryingto gel to
and hefp with this Farmers Home Administration b£ll. Tbats my
S'peech.
Senator Mokiax. When^ is the delay coming froou Mr. Willie I
Mr. WuxiK. Thev tell me in our southern division that it's coming
fiom the Fanners Home Administratioii's lack of processing person-
Bel that is now second nature to FHA. Any time you get a large vol-
ume involved in any type of a progranu yoaW soing to ran into
piohlenis fram time' to tune, and FHA has done Uiis, too. But ovyt
mairr yeaxs I have noticed that the FHA has tried its best to ovetvome
ihb mckK^. In T*ai^ gone by they're gone to the extent, well, you can-
unt call thcai on the telephone except maybe becw^e«n :^ and 3 in the
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afternoon so that they're not always answering questions and taking
this away from processing time. They've hired extra help. They've con-
tracted some of the appraisal work out. They've gone to many different
procedures in order to accommodate the marketplace that's out there,
and done their best to take care of it and have done an excellent job.
And I would like to congratulate Rennie. I've liked him for many
years, but I have to say the FHA has been a tremendously successful
program in the State of Utah.
Senator Garn. Wouldn't you think that redtape, though, is the pri-
mary cause of delay ? It seems to me, Ray, that rather than saying that,
well, we need more stuff to process, that's one answer, whether it's this
program or most of the Federal programs that I dealt with as mayor,
yes, I can always say : Well, I could hire more staff. I could hire more
Skip Glines to process our grants and all of those things. But rather
Uian me hiring more people on the city payroll when I was there, I
would have preferred to have less rules and regulations to take less
time so my existing staff could handle it. I hear that from a lot of the
people who are processing them. The very rules and regulations that
they have to deal with are many times excessive, unnecessary, and im-
pede the homebuilding process. And I'll disagree with what you're
saying. I agree completely with regard to delay. I just might take ex-
ception witti the fact that rather than just saying, well, we can put up
with the redtape, we can handle it, I agree, you can, and you can hire
more people in your mortgage department to deal with Federal rules
and regulations. But it seems to me I'd like to work at it from the other
way, cut back to reasonable rules and regulations that Rennie says we
have to have, and I agree with him. You've got to have some. I'll give
you an example. I'm constantly fighting on the Banking Committee
when we're looking at building codes and so on for performance stand-
ards rather than absolutes. This business of if you have so many inches
of this insulation, what difference does it make. If there's some product
you can use that's only a half-inch thick and only so much heat trans-
fers, so what? We're constantly fighting that battle from just drawing
out absolute standards to impose on all the buildings in this country on
the basis of black and white rather than performance standards. Some-
thing that will meet those standards. So I would hope that we could
approach the problem of delay from the standpoint of reducing un-
necessary regulation rather than seeking an appropriation for more
personnel for Farmers Home Administration or FHA or for anyone
else.
Mr. WnxiE. Senator, I agree with you to a point, and yet I have
always been impressed with the FHA, and I think it's a matter of at-
titude with that particular Government agency, and I suppose the at-
titude, if property taken, can be somewhat overcome.
Let me give you an example. I have heard some of the personnel
under Rennie Romney, and even before Rennie was there, express the
ojpinion in FHA that rules were a guide, and as long as they use them
that way, are an objective to arrive at a proper conclusion. I see nothing
wrong with rules which we work under. When you have to fit into a
particular mold created by those rules, then you've got problems, and
you probably never will like that situation.
Let me give you an example right now that we are having some kind
of a problem with. Back to our rural area and back txi o\a ^cMl^Kt
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towns. You have certain requirements for a purchase of a loan by
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation. More specifically, we sell more loans to Federal
National Mortgage Corporation than we do to Federal Home Loan
Mortgage, but they have certain requirements on their appraisal and
they're rather involved in appraisals, but everything on that appraisal
probably should be, and it's a little bit time consuming. Our branch
managers have never been trained in detail, and it's just about impos-
sible to spend that much time training them to document a loan ex-
actly the way Federal National Mortgage Association wants it. And
yet, once they learn the procedure of documenting that loan, it is
doubtful that there will be any more delay or any more time consumed
to document that loan and complete that file than it would be in their
old way. They're just used to their way, and this is the way they want
to do it because they know how to do it that way. Sign up a note and
mortgage, get the signature in the right place, write a letter of ap-
praisal and say I've known this house, I've been in this town all my life
and that house is sitting there, it sold last year to X, and it sold a
year before to Y. It's worth blank number of dollars today, and I feel
comfortable with that loan, and it's probably a very safe loan, but it
will not be salable to FNMA. I have no objection to the procedures
that create a proper file or the thing that creates a proper loan. I think
basically when we talk about some rules, this is what we're really talk-
ing about, I don't object to them, and I don't think they create delays
once they are property handled and as long as the Government agency
learns to use those rules as a guide and not as a criteria of black and
white, as you say. Senator.
Senator Morgan. You make very clearly and very vividly the point
that my business friends, big business friends, make to me back home all
the time. They say we can live with any rule or regulation that you
put out because we're big enough to put enough people on our staff
to understand it, to interpret it. But we're talking about the little man
out in the rural areas, the one-horse banker so to speak, the country
banker that you're talking about who doesn't have the time to under-
stand all the rules of FNMA and to fit everything that he says down
into their particular forms. And I think, Senator Gam, some pointed
out this morning here, not as a criticism of the Farmers Home but as
a suggestion, that maybe there was some 36 different programs in
the Farmers Home Administration, and that there were no training
programs or no training grants to train the administrators in the vari-
ous technicalities of these programs. So I think pulling the two to-
gether is a real problem. I've never thought that Government regula-
tions or redtape were any real problems for the Chase Manhattan Bank
in New York or the Wachovia in the Southeastern United States, but
they are a problem for the small town man who has to deal with them.
Mr. WiixiE. I agree with you.
Senator Morgan. I think that's where we need to find a happy
medium. In that same connection, in this housing bill that's coming up
Monday, there is incorporated by a vote of 9 to 8, I believe, in our
housing committee, is a r
Senator Garn. Eight to seven.
Senator Morgan. Eight to seven, a Community Reinvestment Act,
which I'm not sure whether your familiar with it or not,
Mr. Willie. I'm not.
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Senator Morgan. Well, it's the first step toward allocation of credit.
It would require every lending institution and every regulatory agency
in their examinations and otherwise to assure the regulatory body
that you are meeting satisfactorily the credit needs of the area in
which you serve which would put the Federal bank examiners in a
position of having to know what the real estate needs were, the values
are, and Senator Gam and I are sponsoring an amendment to delete it.
Senator Garn. Well, it goes to the extent of charters. They will take
a look if you want a new branch bank and someone will say, hey, we
don't think you've been putting enough money in Central City, Salt
Lake City, therefore, we're not going to grant you another branch. It's
scarry. They deny that it's credit allocation or rationing of money.
Call it Community Reinvestment Act or whatever you want, but it's
a good step toward just telling you where to loan.
Senator Morgax. The Chairman of the Federal Reserve System is
opposed to it, the Home Loan Bank Board, the FDIC and what have
you, and yet our chairman, Senator Proxmire, sponsors it. But the
trouble is' we don't have to preach to you and the pex)ple in Utah
because^our two Senators are opposed to it and the two of us from
North Carolina, but we can't seem to reach some of those in some of
the other areas.
Mr. Willie. We misfht mention, the way they allocated the GNMA
subsidized funds in July of 1974, that was a disaster as far as the
allocation was concerned.
Senator Morgan. When you come to allocating credit, that's going
a long ways toward, destroying the real system that makes it work.
We're going to do our best IVIonday afternoon to knock it out, but I'm
not sure we can.
Mr. Willie. It will work if we give it a chance to work. The people
in Cedar City will be taken care of, the people in Roosevelt, the people
in Logan, take your choice. We'll see that they're taken care of one
way or another, but there's a limit to how far we can go.
Senator Morgax. That's exactly right, and some people don't seem
to realize it. Thank you very mucli.
Senator Garn. Thank you. Dallin Gardner ?
STATEHEHT OF SALIIN OAEDNEK, BEALTOR/DEVELOPEB,
CEDAR CITT, UTAH
Mr. Gardner. Senator Gam, Senator Morgan, thank you for the
opportunity of representing the far south in Utah. I'm from Cedar
City representing the Iron County Board of Realtors and the South-
em Utah Home Builders Association. I'm also a real estate broker,
contractor, with offices in Sevier County and Beaver County, as well
as Iron County.
We have b^n a capital-poor area for many years. Up until about 4
year ago Cedar City did not have a savings and loan institution that
would make any mortgage loans. Ijooking back over the past 6 years,
we see a tremendous impact and growth in all of southem Utah be-
cause of the construction of Interstate 70, Interstate 15, and more re-
cently the coal developments that are now hitting Sevier County, Sen-
ator, as well as Carbon County, with tremendous impact on housing.
Senator Gark. That's my home county. I was born in Sevier Go^\ifcs| .
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Mr. Gardner. We find, however, as contractors, that the financial
institutions are reluctant to get involved in the governmental pro-
grams. I'm going to challenge the man from First Security. Less than
3 weeks ago a representative of his bank came into my office, and said :
We'd like a share of your business. I said : Fine, we'd be delighted to
give you a share of our business. We need some financing for sjjec
homes and other purposes. We're having some success with the 235
program, and that's the last I saw of the gentleman so you have some
work to do in Cedar City.
Mr. Willie. I was talking policy, not about the managers.
Mr. Gardner. I'm talking about the results.
Senator Morgan. If I could interject at this point, would that be
an illustration of where some of your branch people don't have the
time to comprehend and understand the regulations that you here in
the home office do ?
Mr. Willie. I'm sure you're right, Senator.
Mr. Gardner. They're afraid of the regulations. That's our prob-
lem, I think, in the rural communities.
I'm not going to be as complimentary of Farmers Home as some of
those who spoke this morning. In fact, I'm going to be rather critical.
Senator Garn. We do need both sides because anything that's that
one-sided I was wondering about what conclusions that could be
drawn.
Mr. Gardner. Let me say, however, that I would certainly concur
and would speak in behalf of the other brokers and contractors in our
area that the Farmers Home program is a good program. If we were
to take the Farmers Plome program as administered in Richfield, your
hometown. Senator, and that as administered in Cedar City, you would
not recognize them as being the same agency. Richfield's is first class.
I'm sure that's a matter of personnel. It's a matter of training. It's
a matter of attitude, and we need badly some improvements in our
area.
For example, it's our understanding that in our local Farmers Home
office, the personnel there are reluctant to lend up to the limits that
they are authorized to lend to. They're very conservative. Valuations,
for example, last year loan amounts in the Farmers Home program in
our areas increased by about 11 percent. Construction costs exclusive
of land went up by 15 percent ; therefore, we have a 4-percent lag in
our ability to provide housing under this program. They're not keep-
ing up with inflation. We have yet to find a time when we can construct
a home for an individual without some outside assistance to meet the
limitations that we're working under. And this, I might say, is in
some cases with lots that are available in the county at about $8,500 in
(Contrast to some who spoke this morning whose lots cost as high as
^ i ,OCK).
The problem that we're encountering, in our opinion, is that with
these local practices of keeping the loan amounts just as low as they
possibly can, we're running the risk and in some cases actually getting
substandard housing or shortcuts that are not providing the finished
home that we think should be representative under this program. Time
delays are a serious problem for us. The local office in our situation will
not allow construction to start until the application has been made, the
appraisal has been made, the check has been ordered and the money
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in the bank and the lot paid for. This runs a great length of time and
we're getting price increases 3, 4, 5, 6 percent during that period of
time which then we have to go back and start over again in some
instances.
We're experiencing 10 to 12 weeks on some occasions for appraisals.
When we get them, they may be too low. A customer won't wait, as has
been already indicated. Maybe he can't wait. Maybe there are other
problems that develop in the meantime and, as a result, we have to
start over. One of the things that I would be cost critical of is that
there is not a universal acceptance, and that may not be exactly the
right term, but it seems to me there ought to be some common ac-
ceptance of appraisals between FHA, VA, and Farmers Home, which
there is not. We think this is very time consuming and very costly
when, in fact, it might be possible to shift a party needing housing
from 235 to Farmers Home or the other way and shorten the time lag
for getting them into their housing.
A^nother problem that we run into is the policy under Farmers
Home where we must have the homeowner or the lot owner, in the
case of new construction, sign an option which is a fairly lengthy
procedure, and we have one developer who simply refuses to sign an
option for any Farmers Home construction in his subdivision, because,
he says: I can't tie my lots up that long; I'm going to lose too much
money in the process. We're experiencing 4 months to a year in some
instances for loan approvals.
I've already commented on the length of time it takes to get ap-
praisals. It seems to me that if we're having a problem because of an
excessive workload on the staff of the local office, we ought to be able
to go into the private sector and get some help with appraisers. That's
something that has yet to be done in our locality, yet we do have ap-
praisers who are competent and working in the conventional market
all the time who are probably more knowledgeable than the FHA
people as to home values.
We have, and I'll comment on a letter from the Farmers Home here
in a moment, but we do have the problem with appraisals as well as
inspections. We find inconsistency in the inspections from the Farmers
Home offices. Recently, less than 10 days ago, we concluded a loan
which had been 3 weeks getting a final inspection, and each time we
had an inspection and the items done which had been outlined pre-
viously, ther0 were new items that came up. There was not a written
inspection form as we have with FHA for us to comply with. And we
went 3 weeks beyond the intended closing time of that loan, because of
what we feel is an inordinate requirement by local inspection and in
some cases by people who are not qualified to do inspection; people who
have had little training and who are expected to be able to inspect a
home with the full knowled^ of a builder or a construction person
without having the proper training and background.
I think we have something to learn from the private sector. We
have, for example, and I realize that Farmers Home has other things
to do as well, but in the local office where there were 69 loans process^!
by the staff there, in one of our private lending institutions one in-
dividual processed 120 loans in the same time period. I think that's
indicative of what we can do if we can streamline this Ivoft %xA ^g^
the program moving without the redtape and t\v^ Aft\K^^*
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We also find that when it comes time to close and it's time to pay
all the subcontractors and get the transaction concluded, that we again
run into delays, encountered or caused by personnel overloads and
various other interferences. So, in summary, our problems with
Farmers Home, Senator, are inconsistent standards on inspection.
Sometimes we have been aware that clients we are working with,
customers we are working with^ have been referred to other builders
by Farmers Home. We think that should be a no-no. We have had
occasions where we have had builders criticized in front of their
customers by Farmers Home in what we feel is not an appropriate
fashion. And, basically, we feel that some of the more untrained
personnel are afraid of the program or they're afraid of being criti-
cized if they make a mistake, and I think this is an attitude that
needs to be corrected.
Some of the solutions perhaps are interchangeable appraisals, inter-
changeable inspections. We have an FHA inspector there now, Mr.
Romney, I suppose, in the last 6 months. We now have a local inspector
in Cedar City. I see no reason why we couldn't find a way for that man
who is experienced to assist Farmers Home with some of these inspec-
tions. Maybe that's also a no-no between Government agencies, but
why ? We feel we definitely need better training of those personnel. As
I said before, we need to learn some lessons from the private sector
and to clarify in the minds of the applicants as well as the contractors
what the loan application requirements really are going to be. We go
through, with some applicants, three and four stages of getting one
more piece of paper. We get that one and then there's another one
we've got to get and so on. It's really not clear cut to the inexperienced
person going to Farmers Home to make an application. Obviously, we
do not feel the Farmers Home program is being used in any way to its
fullest extent in our area.
Let me comment now, if I may, from a letter which was written to
me by the local Farmers Home supervisor indicating some of his prob-
lems. I'll quote a couple of items. "As more housing loans are approved,
more time is required in inspections and servicing. Also, we have many
other programs to administer which require considerable time. As you
are aware, our personnel is limited." He also says, "One thing," and
this is Farmers Home speaking, "One thing that would be helpful for
Farmers Home Administration would be a concise and to-the-point
set of minimum property standards. The MPS we have refers to so
many other things which we do not have that it is hard to keep abreast
of building codes and requirements." There's a good source of redtape
to be eliminated.
We also comment on the policy that Farmers Home has with regard
to septic tanks in subdivisions. We are not in an area where we can
readily fund new and large sewer systems. We have a very successful
subdivision now in our area which is going: into an additional phase.
Farmers Home has the policy that it will not allow more than 25
septic tanks in any one subdivision. We could start a new subdivision
next to the one that's already underway and flret 25 lots approved for
septic tanks. We think this is inconsistent. We think that some local
attention be griven to the practicality of septic tanks. In Pome areas,
obviouslv, we shouldn't have septic tanks, but on half -acre lots and
the kind of soil conditions that we have, the State health department
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says they're fine. FHA sa^s they're fine. Farmers Home says they're
not. So today we are practically out of lots on which Farmers Homes
can be bailt because of this restriction, unless we're in the city and
then we arc back up to $7,000 lots which puts us out of the market
costwise.
So much for Farmers Home. Let me comment about FHA. We've
had greater success with the 235 program under FHA than we have
with the Farmers Home program. That's at variance with what was
stated this morning. I think we've had reasonably good cooperation
from the State office, but our principal problem in working with FHA
is one of distance. We're 250 miles away. Appraisals take a consider-
able amounts of time to have accomplished, and in many cases the ap-
praisals do not reflect the cost factors that we're dealing with in our
area. We think it's because the people who are doing the appraisals
are familiar with what's happening on the Wasatch Front, the metro-
politan areas, and not with what we're confronted with in Cedar City.
We're concerned about inspections. Although we do have a local in-
spector, the case files are shuffled, if I can use that word, back and forth
by mail to that inspector, and we incur delays that we think are some-
times almost intolerable. I've had discussions with Mr. Romney on
one instance where we waited 3 weeks for a final inspection waiting to
close a loan.
The distance creates a problem of poor communications and,
frankly, we aren't able to meet face to face the people we have to deal
with often enough to really feel like we know them and have that
warm, homey feeling that was referred to once before. We think in
some instances that's partly because we may have an inspector who is
not fullv trained, very capable, but we think in some instances he's un-
reasonably stringent in some of the requirements that he makes.
Our recommendation would be that we look at the possibility of
having an office of FHA established somewhere in the southern part
of the State. We think the time spent on travel, per diem allowances,
other costs could justify the beginning of an office there, and I be-
lieve would substantially enlarge the penetration of FHA participa-
tion in lending in the southern part of the State. I'd be interested to
know from Mr. Romney's figures how much of that 4 percent of the na-
tional FHA numbers was outside of the Wasatch Front. Our subject
here is reallv rural housing, and I don't have a feel for that. I'm not
sufiTgesting that we didn't get our share, but as far as I know, in Cedar
City we are the only builders who are building under FHA because of
the problems we've just alluded to.
We do have a problem in our area in some instances with the under-
ground power. I'm not sure that I fullv understand the policies of
either Farmers Home or FHA on that subject. We have one mimicipal-
ity that has its own power svstem that refuses to put power lines
underground. We're going: to be asking: for subdivision approval on a
subdivision in that city shortly and it will be interesting: to discover
what we run up against in terms of local and FHA philosophies in
that regard.
We're looking: forward in our area with some great anticipation to
the program that the State of TTfph has started. We think that is
rather a unique program, one which ^ets the interest rate down to
where we feel a lot more people will be able to afford ho\isi\v^.^«:iv4L^^"^
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hoping that that program does not become encumbered with a lot of
redtape.
We do have growth problems in our area. We need these programs,
and although my comments are certainly critical, I do want to say that
the programs are important to us, they're valuable. We would like to
see the redtape cut, the personnel better trained, and have a smoother
relationship with those agencies from here on out. I submit as part of
my presentation input from several other parties who have contributed.
[The information referred to follows :]
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Real Estate, Inc.
June 1, 1977
THE BONOKABLE JAKE 6ARM
UNITED STATES SENATE
Re: Rurel Houelng
Deer Senetor Gem:
The etteched documente repreeent Input fron pertlee who
were eeked to provide Inforaetlon for the verbel preeentetlon
which I ehell meke et the heerlng on June 1, 1977 In Belt Leke
City, Uteh.
Theee documente ere eubmltted for Induelon In the alnutee of the
heerlng. In eddltlon to the orel preeentetlon which will be
eubaltted eeperetely.
I truet thet theee cnnwunte from Reel Eetete people. Government
egendee end other Intereeted pertlee will be helpful In outlining
for you the prdbleme pertelnlng to rurel houelng In Southern Uteh.
Thenk you for the opportunity to preeent thle Informetlon.
W. Dellln Gerdner
On behelf of:
The Iron County Boerd of Reeltore
The Southern Uteh Aeeocletlon of Home Bulldere
Go Reel Eetete, Inc.
W. Dellln Gerdner, Pereonelly.
rauiCBRLT UTAH PBoramu or CBDAR cnr, UK,
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Mounts View Red Estate Ina
arftoiMMia%ii>iMMi<M«ai»uwi nxxMmnv Mno/aaMm
May 26. 1977
The Honorable Jake Gam, Senator
United States Senate
c/o W. Dallln Gardner
Re: Problems In Rural Houaiog
Dear Senator Gam:
Pursuant to your field hearing concerning problems in rural
hoiising I will explain a few of the problems we are confronted
with in the Cedar City and Southern Utah area.
The biggest problem in our area is the timetables involved in
closing a Farm Hoiise Administration loan and to some extent
the timetables involved in closing a Federal Hoiising Admin-
istration or VA loan, due to our remote distance from the
Salt Lake offices.
Government participation in home financing should allow for
interchangeabilities of appraisals, inspections and ect.,
related to FHA, VA, and RnHA financing. The VA allows for
an FHA appraisal and for HIA inspections to be substituted
for their own. niA allows them the same considerations and
substitutions. However, the FnHA will accept neither an
FHA appraisal or a" certificate of reasonable value (CRV)
used in VA financing. This creates a problem as the RnHA does
all their own appraisals, and in my experience, the average
time is ten to twelve weeks from the time the option papers
required by FooHA are started in process. This time-frame
inconveniences all parties involved, especially if the loan
is declined or the property appraises too low, as the seller
is required to take his home off the market as long as the
option is in force.- Substitution of a CRV or FHA appraisal
used in other federal hoiising programs would eliminate this
problem.
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I also feel that loaii officers Involved In federal housing
programs such as the FMiA loan officers in Cedar City, should
be evaliiated from time to time by an efficiency expert, per-
ferrably someone with broad experience in the home loan field,
and money market. An efficiency expert of this type could
make many good, practical recomiendations for solutiims to
rural housing finance problems through following practical
guidelines and techniques established by bankers and loan
officers in the private sector
I also feel that some publications should be provided for
Realtors and home builders itemizing requirements and doc-
umentation needed by lenders. Realtors could then work
with the lender more closely as he would understand each
document and requirement needed in FHA, FdHA, and VA financing
and could help expedite things. A critical path method of
processing could be established and coordinated with Realtor
Builder and Lender to expidite prompt execution of all docu-
ments involved.
I hope these suggestions will be well taken.
Sincerely yours,
Steven M. Sevy
SS/ps
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Real Estate, Inc.
■iWlCH OmCEa«80UTH KWM nCMTBD. UTAH 8470t
1EL9NONE(a01)8IMa80
GARDNER 0PERATI0N8
May 25, 1977
Mr. Dallln Gardner
Go Real Estate
P.O. Box 901
Cedar City, Utah
Re: Rural Housing in Southern Utah
Dear Dal 1 in:
This is in answer to your letter dated May 21, 1977. I
feel that the following points should be brought before the
hearing. Some of the problems we are having may be unique,
however, they are of great concern to us.
1. While FmHA has increased loans by 11% over last
year. Building cp^pts have risen by 15%. This
leaving a gap of 4%.
2. The cost of lots have increased from $4,000
(unimproved) to $6,400, showing an increase of
60%. Improved lotfe were $5,300 now are $7,500,
showing an increase of 41%.
I feel the lending cunount should be increased to $34,000
in order to stay even with inflation. Looking at the families
in the low income bracket and inflation as it is, it will
soon be impossible for these feunilies to purchase a home.
One suggestion that I have is to loan an amount that the
borrower is able to pay back. An exsunple follows:
INCOME LOAN PAYMENT
$15,000 $7^7^00 $307.00
10,000 28,000 208.00
With interest credit applying to mortgages of $34,000 or less.
3. Consistency in lending practices.
4. Shorter processing time. At the present it is taking
four months to one year to process a loan. If a
builder bids out a home that takes a year to process
FORMERLY UTAH PROPERTIES OF CEDAR CITY. INC
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Nay 25, 1977
he will loose 10 to 15 per-oent.
5. FHA- we have not had too many problems in this area,
other than homes being under-appraised. The lending
aunount seems to be adequate.
Cordially yours.
"^
isU stott i4 >^^
Go Real Estate
246 South Main
Richfield, Utah 84701
JS:mt
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DEL RICH
BUILDING CORP.
CENTER AND MAIN • CEDAR CITY, UTAH • PHONE (801) 586-9922
May 26, 1977
W. Da 11 in Gardner
GO REAL ESTATE, INC.
99 North Main Street
P.O. Box 901
Cedar City, UT 84720
Dear Dallln,
Congratulations on your invitation to contribute to the inquiry
on rural housing. I would like to thank you for this opportunity to
comment .
Being relatively new to this business, my observations may or
may not be of value. However, it does concern me that the direct
contact with Farm Home loan officers with customers, I have sold
and sent there, has been disturbing.
I have had reports that customers %9ere being counciled to con-
tinue shopping for lower prices sonewfaere else. Different area or
larger homes are often referred to, by the loan officers, as being
available elsewhere. Could the personnel of these government agen-
cies be counciled to refrain from giving advise, other than the
applicants own budget needs?
The amount of time it takes to process through Farm Home is
excessive. Where demand is high for Farm Home loans, additional
personnel should be transferred or temporarily moved to the active
area.
Thank you.
Sincerely yourj
Gordon D. Smith ^
Sales Manager ^
GDS/rb
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itlter"' qffice memo
TO: DALLIN GARDNER DATE: ^T 26, 1977
FROM: REV ' SUBJECT: FARM HOME, FHA, VA
FARM HOME does not appraise property taking Into consideration any construction
interest, but when you try to get the final inspection they do not list all iteas
that need to be corrected, so you end up having 3 or 4 inspections wherein the
builder is having to pay interest. This also could be stressed in the fact
that FHA Inspections take so long to get that it does cost a builder
in Southern Utah more money for construction because of the extra interest
that is paid.
I believe that Farmers Hone puts to much personal requirements into there
requirements and inspections. Any FHA/VA inspection will tell you that
you cannot expect perfection in any building like (Bob) Farme Home does.
We would like to build homes under Farm Home inspection, but in order to
do so you have to request a conditional commitment and it is necessary
for the builder to have the property it his name, ie own the property,
it would be advantages to be able to build with a Farm Home commitment
with Just having the lot optioned. FHA/VA does' not require builder
to have property in there name to issue a commitment (conditional) .
We really as builders, real estate agents, want to work with these
governmental groups to learn tiieir^ requirements and be able to help them
along with buyers for a smooth transaction, * when every time you
have a new case you have new rules or a different interpertation of
the rule it makes all parties very frustrated.
Real Estate, Inc.
MAIN OTFICC m NORTH MAM P O BOX 901 CCOAR DTY. UTAH 64^20
TELEPHONE (801) 586-4406
GARDNER OPERATIONS
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CBDAR BBAL ESTATE COMPANY
' REM. eSIAlE SALES- LOANS
S6 WMv BAnnro ▲▼■inni
May 23, 1977
Go Real Estate
ATTEh: W. Dallen Gardner
99 North Main
P.O. Box 901
Cedar City, UT 8U720
Dear Dallen:
In response to your memo of May 21, 1977, we would appreciate it
if you would include in your comments to Senator Gam the problem
we have experienced as Realtors concerning timeliness in aporoving
and processing Farmers Home Loans. Timeliness is extremely imoor-
tant in the Real Fstate business. An example is a home we recently
sold to a couple from the mid-west and one week after closing,
they decided to return to their former home. This hone was sold
conventionally but had it been a Farmers Home Loan, the seller
would have been hurt unjustifiably as there is little doubt the
buyers would have backed out of the purchase. Of course, as
realtors we risk all our efforts during a waiting period of any
kind.
Another problem which arises due to this inordinate waiting period
is that often a house remains empty for a period of tine or a rental
agreement must be entered into between buyer and seller until the
time of loan approval. While rental agreements are a conveniet
tool, this t3rpe of arrangement can end up in misunderstanding and
if for some reason the loan is turned down, we have a shuffling of
peoole and houses again with no satisfaction obtained. I am sure
you can elaborate on many other ramifications of an excessive
waiting period. I have only mentioned two problems I have been
concerned about recently.
It would be interesting to krow if all of the Farmers Home offices
throughout the state have similar administrative problems to the
one in our area, ^erhaps the Senator could use his influence to
instigate some cpprective action.
3teve Corry
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UNITED STATES DEPARTMENT OF AGRICULTURE
PARMCRS HOME AOMtMSTRATtON
P. 0. Box 1006, Otdar Oit/, Vtah 8U720
1IV2U, 1977
flOH— 1 IKsUt Xw«
JBURilJit V. BbIUb OKB&mr
99 >»rth Ihin StzMft
tMUtr City, Vtah 8U720
Smt Mr. Qavdatrt
lb SMpona* to Tour latter of Ifigr 21, 1977 v* viah to wko a f«v no— nt»
liiioh maj bo of vso to joa as joa aako jour praaaotation In tha haarlxig
1, 1977.
Iml tha aarl7 jaaxa of thia aipnoj tha oonatxnotion of hoaaa naa oonaldarad
tar f azaara only. Sarazal jaaza a^ thia i flpp g r aa naa axpandad to allov
loana to zozal pa^a. Sixioa that tlaa tha pzograa haa grown zapidly to
tha point lAiaza houalag ia a larga part of our pzograa. Wt have appraoiatad
nonrtrlng with joa, and with othar daalara, and vhila va raaliaa tha faot that
tfaara ara liaitationa, wa faal that thia houaiag pzograa ia a Taz7 g9od
pirograa* A lot of Toang f aadliaa would not hara ho a a a today ««ra it not
for thia pzograa*
it tha p ra a an t tiaa wa have houaing loana with 375 faailiaa. During tha
flzst part of tha laat 12 aontte, wa had liaitad Aada tat wa waza atill
ahla to ap ppyva 69 houaing loana for a total aaount of |l,65bf520«00«
8oaa aaqpraaaion haa baan aada oonoazning tha langth of tiaa it takaa to
pzooaaa tha loana. ^lita oft«i wa ara dalajad baoanaa tha applioant faila
to ftaniah all of tha raqnizad infozaation. floaatiaaa th^ ara undaoidad
aa to tha t7P« of houaing thay want or naad. Am aora houaing loana ara
a j pzoTod, aora t iaa ia raqnizad in ioipjaotlona and aarrioing. ilao, wa
ha^ aanar tftBir pzogcaaa to adainiatar whioh raqjoira oonaidasabla tiaa.
Am joa ara awara, our paraonnal ia liaitad.
In raaponaa to yoor paunltiaata pazagn^, wa wiah to aiplaln that WtBk
doaa aooapt aaptio taidca in now aubdiTialona. It haa baan tha oaaa in
aavazal aubdiTialona to thia point. SubdlTialona of aoza than 25 building
aitaa whaza tha Stata Dizaotor datazalnaa that indiTidoal watar aya ta aa
and/or sawaga diapoaal ayvtaaa ara tha only faaaabla aolution, Bational
Off ioa ^npzoral ia raqnizad. WaBA haa woskad with d«vtt.qpara in thia ragudi
dafolopara hava not ohoaoi to ooqply aithar for IBi or IWi.
Pantun Hom€ AdmMttntkm is m Equd Opportunity Lender.
Co mphiHt s ofdiMcrlmbmHon ha$td on ract, sex, rtUgkm,
rmtUmd origin or moritd stthu Actdd ht tent to:
S§cntmy ofAgrieultur; Wathington, D. C. 20250
94-911 O - 78 - 5 Digitized by
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60
Qm thing that vonld be htlpfol tar IkBi vonld be a ooosiaa and to tba
podLnt set of inlnlimm j t i ro p r ty atandaxda. Tba MPS wa hara xafaca to ao
naoy other thlzi0B whlOh wa do aot hara that it la hard to kaap ateaaat
of handing oodaa and zaqnlxMMota*
It la hoped that thia Infoaation vill be helpful.
Sincerely,
fe^^^^-ev^d^^
J. cox
Goonty S upervi aor
oos Bead Page, IkBi
Salt Lake City, Utah
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162 North AAain - C€DAR CITY. UTAH 84720 - Phon« 5«6-9986
UIOYP.JUOO.lMlwr
May 25-. 1977
Dear Dal 1 in,
In response to your letter of Bfeiy 21 I have
the following comment.
With the continuing inflationary trends it
is getting increasingly difficult for the low
income families to qiialify for loans, even
under the specific government programs that
are aimed at this group.
One solution that I feel should be given
serious consideration is extending the life
of home loans from the present 25 to 30 years
to as high as ^5 to 50 years. The initiative
in making this change would have to be with
the Federal Government agencies concerned with
home construction and finance.
Sincerely vptnrs,
Robert G. Price
Branch Manager
RGPtplb
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Senator Garn. We'd be happy to include that in the record. I have
just one question, Dallin. These problems that you state in your testi-
mony, do you feel they're peculiar to Cedar City and you're not ex-
periencing the same ones in Eichfield ? ^ ^
Mr. Gabdner. Largely so, yes. We have some of them in Richfield as
well. It's my opinion that the Cedar City office is overburdened or
grossly untrained or both.
Senator Garn. Well, I'd like you to know if Richfield is that good. I
can't take credit for it. I left there when I was 4 so I really cant take
any credit because it was my home town, or no favoritism because itti
my home town. Do you have any questions ?
Senator Morgan. Senator, I think you've described a typical situa-
tion that we have m any government, but especially in the Federal
Government because it's so big and because of big business. We heard
described this morning a Farmers Home office that apparently is very
concerned, very interested, wanting to get the job done. On the other
hand, if I understand you correctly, taking into consideration the
number of loans closed in the year in comparison to conventional
loans, I would assume that your Farmers Home Administration office
is about like the one in my home town. My home town I called one day
about 2 o'clock and I asked for the director and he wasn't there.
And I asked if he knew where I could reach him, and I was told I
could call out to his farm. The last two Farmers Home Administra-
tors we've had in my county also became farmers after they got to my
county. And I think it demonstrates a problem you have in any busi-
ness, banks, government or what not. It's personnel. And I think some-
times if I had my waj I'd abolish civil service in public schools and
colleges because this is what happens. We've got this young man in
our area and he's going to be there unless somebody takes the trouble
to build about a 2-year case against him to remove him, and as a re-
sult, the people in the area are going to be deprived of what could be
some very fine programs. So it goes back agam to what we were say-
ing: It's the quality and concern of the personnel running many of
these offices as well as some of the redtape.
Mr. Gardner. Obviously, in the private sector the people involved
have to make a profit. That motivation is not present in these agen-
cies and so it takes an unusual individual and an unusual program and
an unusual amount of training, in my opinion, to have them see what
their obligation is to the people who pay their salaries.
Senator Morgan. Let me pursue one other question. You said at
times maybe the Farmers Home Administrator has even suggested an-
other contract. Have you also had him suggest other attorneys or have
to use certain attorneys to do their customers work ?
Mr. Gardner. Yes.
Senator Morgan. This is a problem we've had in our area where
only two attorneys out of about 60 in the county were on the approved
list. And if a man had a regular client who was a developer or builder
or if he's lust a homeowner and he finally got a home approved by the
Farmers Home Administration, he had to go to one of these two at-
torneys to get the work done even thousrh his own attorney had al-
ready done the title search and could certify it in a matter of moments.
I think maybe this can be corrected but it's been a problem.
Mr. Gardner. Thank you.
Senator Garn. Thank you very much. Next witness, Kent Ekstrom.
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STATEHEHT OF KENT EKSTBOM, LTTIIDELL HOMES, INC.
Senator Morgan. Lundell Homes, where are they ?
Mr. Ekstrom. Well, we build along the Wasatch Front primarily,
Utah and Salt Lake Counties. We're going north a little ways also. We
are one of the larger builders in the State, I suspect.
Senator Morgan. I might explain to you, while all of this is for the
enlightenment of Senator Gam and I, the bigger part of it is for the
record because the committee's staff when we get back to Washington
will go through this record very carefully and pursue the questions and
suggesticMis and answers and tnen come back to us, so even though we
don't always hear every word, it's still a great deal of help to us.
Mr. Ekstrom. Well, we appreciate the opportunity. I called Senator
Gam's office a couple of weeks ago to ask some questions and got in-
vited here today and was pleased for the opportunity.
Something that Mr. Romney said, I think, stmck some bells with
me. We particularly have a need in this State for some help in the local
governments with developing water and sewer systems. I'm not sure
what you could do to help us with that, but that's a real crying need
here. Many of the areas in which I build, which is in virtually every
governmental entity along this area of the Wasatch Front, at least
from time to time we've been held back because of water availability or
sewer availability.
One of the bigger problems that we have run into in building —
Farmers Home — now we build Farmers Home, FHA, conventional and
VA, and we have built around 170 Farmers Home in the last 3 years
or so. We run into a lot of resistance from the local governments. They
do not want your programs in their communities. My personal feeling
on that is that they don't want that type of housing. My further feel-
ing on this is that those people have forgotten a great deal about
what it's like to start out in the world and what it takes to get into a
home when you're trying to raise a family and many other things. We
have been able to get our subdivisions through and what not, but it's
not always been an easy thing. There's a great deal of resistance to
Farmers Home in the areas where I have built.
One of the things that's been a thorn in our side and which got us
out of building Farmers Home, we have not built in that program now
for almost a year and a half, is that we had a great deal of trouble with
funding. The two programs that were available to us at that time and
I understand are still available were either building under what was
called the commitment program or taking the loan direct. If you go
commitment, we could not get more than 10 commitments at a time,
and we had to have those homes built out before we could get anymore.
We start 6 homes a week, so 10 homes isn't — it's not worth trying to
get into Farmers Home for 10 homes so we took the direct route and
we ran into the same problem the gentlemen from Cedar City was talk-
ing about. We have experienced typically 90 to 120 days to get people
approved, and the greatest difficulty that we had in that was trying to
get what we call that pipeline full.
You have a lot of front-end costs in building anytime you get into it,
and you've got a lot of money sitting out there waiting and, as a result
of that, we have trouble getting the banker such as First Security
Bank or any other bank to go with us to give us the development money
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to do a subdivision's front-end improvements so we can build houses
even though we get the money for the houses from the Farmers Home
program.
On the other side of the coin, one of the things that we have decided
to get back into Farmers Home for is that the Department of Agricul-
ture seems to have money, and we have seen when the banks would
quote us a rate but we're sorry we can't make you any loans. Now, we
have seen Farmers Home do the same thing because they took many
more commitments or approved many more loans than they had the
money to fund and we thought that was most unfortunate. We'd be
in a great deal of trouble if we did that in our business. But at the
same time when things get tight, when money is simply not available
at any price. Farmers Home has money. And that helps us as a hedge
to be able to continue our building program, to be able to keep our
people working, which is the backbone of being able to build housing.
One of the things that we also like about your program is that we
can still offer a home at a reasonable price. For one reason or another,
and we're sure that many of these costs are legitimate, but if I sell a
home on FHA or VA or conventional, particularly VA or FHA,
about 9 to 10 percent of the total cost of that home goes for loan costs of
one type or another, discounts on the front end of the loan, discounts
on the back end of the loan. The interest is reasonable, but there are
many, many costs that are associated with that that sometimes run
$35, $36, $37 hundred on a $35 to $36 thousand house.
We're builders. We're not bankers. We try not to be developers. We
only develop ground where we have to and when we have to. We would
rather buy fully developed lots. We have done Farmers Home on
$6,500 lots before and been able to make a living doing it. It is not an
easy thing to do, but it can be done under the direct pro-am. But we
have noticed that there is a very great reluctance to appraise the houses
at anywhere, even near market value. We do not know, but we were led
to believe at one time that somebody was keeping track of the amounts
of loans per house, the actual appraised value that was given out. And
although they had the authority to go to a higher limit, that it was
some kind of a feather in the cap of the local supervisor of Farmers
Home if his loans were at one rate rather than at another rate and so
they try to keep down below their authorized limit to lend.
We believe that Farmers Home of all the Government programs
available is by far the best for the builder and the buyer. We be-
lieve that because we, the builder and the buyer, do not have those
direct loan costs. Those are borne under that direct subsidy and the
money coming, you know, directly out of, in our case I believe it is St.
Ijouis. We don't have those loan costs, and, therefore, we don't have to
add those costs into the price of that house, and we think that that's
beneficial, of course, to the buyer.
Under Farmers Home a lot of builders — we have our local head of
the Home Builders Association here and I think he's here to testify and
you might get some information from him, but most builders-^per-
naps not most — ^but a great many of them never got out of college. A
lot of them never went, and some went and quit. The Grovemment regu-
lations do scare them. We've had many builders tell us why we build
FHA, and we tell them because they've got the only ballgame in town
and we want to play ball and that's why we're there, and we've spent a
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lot of time working with this regulation and what not. But a lot of
men I know in the building business who are fine builders feel it just is
too frustrating for them to try. It's not that they're not capable. It's
that they don't know how. The people in any agency are, of course,
busy and maybe some people do more work than others, but everybody
who has a job kind of tends to fill up the day with the workload he's
got So when somebody comes in and asks questions, he's pretty easy
to get shoved around and we've seen that happen with a lot of builders
pemaps to the detriment of your program and the general Govern-
ment housing programs as they are run.
One of the problems that we do have when we try to build volume,
and that's the only business that my particular firm is in, is building
volume, is that we cannot draw — if we go commitment and work with
the banks, there's not enough profit left in it for us because the banks
really don't want to do it because they don't get that mortgage on
the end which is what they're in business for. They don't really want
to loan money for development costs or anything else. They want those
mortgages. If we go with them, then, we're cut back on profits and we
have trouble getting the loans. So if we're going to build volume under
your programs, under the Farmers Home programs, then we have to
go direct, and when we do we're not allowed to draw enough of that
money down to build those homes. Consequently, we go through that
buildmg phase just pushing it as hard as we can and robbing Peter to
pay Paul and borrowing money under every imaginable way we can in
order to pay for those homes until we can get that loan closed. That
last check is a real sweetheart. We love it, but there just isn't enough
there to build that home if you run into any problems at all. And that
is a great difficulty for us.
On the other hand, the banks will allow us to draw 75, 80 percent
and that's with a subordination on the lot, so we have a lot more money
to work with, and for most builders, they tend to be undercapitalized
and they're not as lucky as some. They need to have that cooperation
from the lender, whoever he is, in order to be able to deliver that home.
Now, most builders, I believe, are honest, and I believe most builders
are in it to supply a service, not just to make a buck. Most of the build-
ers I know are trying to build a house that the public wants, not
necessarily the house we'd like to build. We'd all like to build, you
know, cathedrals to our name, and build $500,000 houses, but the
market is not there. Consequently, we try to build as good a home as
we can at the price that somebody will pay us for it, and that's where
the competitive edge comes in and basic economics.
But if we do not get the money we need to build the homes under
one program or another, we have to make a profit, obviously, we can-
not be in business if we do not. If the moneys are not there to build the
homes under one program or another, then we either have to shift pro-
grams — ^and there's a lot of that — or we have to start cutting some-
where on the quality of that house. I don't care who the inspector is,
I don't care what the codes say, there's 5,000 ways to cheat on a house
and they're all very common. They're very easy to do, and there's not
an inspector in the world that can keep up with it unless you make us
inspect every nail and everything. And, unfortunately, one of
the things that has hurt the 235 program, one of the things that's
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hurt Farmers Home, one of the things that's hurt any kind of a sub-
sidized home program is that the regulations have made the darned
thing so tight that a lot of builders have gone in and done that, cut
2x4 m half and little things like that. And 16 inch^ on center becomes
18 inches on center, and on and on and on — 5V^ bags concrete becomes
5 bags concrete, 41^ bags concrete, and you can't tell. It happens and
it's unfortunate, and it's not in our best interest and it certamly isn't
in yours, and it certainly is not in the best interest of that home buyer.
There's a big tradeoff that you get into between building regula-
tions, the codes that we have to build by and the costs. One of the things
that the local counties have gone to, and we've seen it come and go
and now it's back again, is requiring, we think, unreasonable amounts
of basement window space, 10 percent of the total floor area. Now,
you can get around that by writing the whole thing off as storage area.
Basements become storage and, therefore, you don't have to have any
windows at all. But then that poor homeowner goes to get a building
permit and some nice man at the county says : "Great, where are you
going to put the windows?" And the guy says: "What window?"
And he says : "My house hasn't got a basement window." So he calls
up a concrete cutting specialist and pays $350 to get a hole cut in his
wall. Then he's got to dig out and put an area well on it and a half-
dozen other things. Now, if we're going to put in 10 percent windows,
we come up with a tremendous heat loss in our area because we're not
required to put in thermal pane, and even when you have to, you
still — ^you leak more hot air through a window than anything else, and
that's just one example. There's a dozen things in those building regu-
lations that, you know, sound great and look great, but they're either
not practical or they're so costly that they defeat the ends which they're
set up to meet.
Smoke detectors came in, and we were glad to have smoke detectors.
That was marvelous. If there was a fire, then the thing goes off and you
can hear it. Then they thought, well, as long as we're going to have a
smoke detector that's going to awaken people so that we don't have
any danger of people sleeping through the fire, that was great, so then
they lowered window heights and we had to go to larger windows so
an 82-year-old woman could crawl up over the windowsill and get out
of her window. And that's marvelous, too. But somewhere along the
line it's got to stop. Next maybe we put ladders in there so they can
climb over the windowsills. Somewhere in time there's got to be some
logical stop to some of this somewhere. Again, as builders we'll comply
and we'll go ahead and we'll do it, but that cost keeps getting passed
on to that guy out there, and I'm just scared to death that some day
we're going to price ourselves out of business.
Senator Morgan. Every time it goes up, you price another group out
of the market.
Mr. Ekstrom. That's right. That's really true.
Senator Morgan. I was in on another housing hearing with Senator
Nunn on this very point. Some of the requirements we've alluded to
this morning, Jake. And, you know, how do you argue against putting
in a fire detector in a home. But I've lived 51 years in a home without
a fire detector, but it's hard to make a public argument against it
How do you argue against lowering the windows so they can get out?
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And, as I say, where do you draw the line, because every time you add
a little more cost, you've eliminated somebody from the marketplace.
Senator Garn. We don't have them in the Senate Chambers because
the hot air would set them off. [Laughter.]
Senator Morgan. From his side of the aisle. [Laughter.]
Mr. Ekstrom. It's an awfully complicated problem. One program
comes out that fights another program. A lot of people in the State are
very excited about the Utah Housing Authority money that's coming
out. It's really great. It's marvelous for the builders and the bankers
like it too, and everybody is excited about it. But the homeowner will
take a 235 loan over it anytime he can get it because it costs him less
money to get into the house and it has a lower interest rate probably
for him right now, although it can go up, but it's got a lower down
payment and that's what these people are looking at. And under 235
we can qualify people for an FHA home who make $650 a month, and
there are a lot of people out there looking for houses so it's an ex-
tremely complicated area. You know, we like it. It's a good business
for us. It's a big business for us. Our sales are about $10 million an-
nually. We like it and we make a good living at it. But it frightens me
to see some of the things we do to ourselves and we do to each other,
and anything you can do to cut out some of those regulations, we would
just love.
When we were in the Farmers Home business, and we're going
back in again, I've bought 71 lots out in Grantsville. I remember Louise
down in the office that I was at, she had to fill out 14 forms on every-
one of those applications I brought in and then she could get started.
And so if I were bringing in 5 or 6 a week, and sometimes it was 10
a week, you know, they would just sit on her desk and each week I
would go in there and there would go the pile. Now, we were finally
able to work out some things where we took some of those home our-
selves and brought them back in and she would go through and audit
them and find out that they were, you know, all right, but a lot of
people weren't able to do that because they wouldn't let them do it.
Now, we know a lot of people — we've found Farmers Home to be very
flexible. We've had some homes inspected from cars, but we've also
found them to be pretty flexible in a lot of ways and we've enjoyed
that. It is the easiest program to work under. It has become more
strict since FHA started approving their subdivisions, and FHA has
got some very strict requirements, most of which I think are excellent.
I only question a few of them. I think they have the expertise where
Farmers Home did not. But you've got so many agencies working with
so many other agencies that it's difficult for the builders, it's difficult
for the bankers, it's difficult for the developers, and the home buyer
doesn't know what's happening at all out there. It's just all Greek to
him.
Senator Garn. But he's paying the bill. That's the thing that Sena-
tor Morgan and I are constantly talking about in the Banking Com-
mittee, that all of this cumbersome legislation is great, but the con-
sumer is the one who's going to pay for it because if you don't make
a profit you're going to quit building homes so it's irot to be passed on.
That's the only disagreement I have with Ray Willie. First Security
and others, sure, they can learn to live with the regulations and pass
it on. Anybody can. You can learn to live with anything if you have
to, but I prefer the other point of view of cxxUmg, ^lqwr..
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Mr. Ekstrom. We also deal with one of Mr. Ray Willie's organiza-
tions, not directly First Security Bank much anymore, but one of his
mortgage companies and we had a large commitment with them and
we started turning 235's in to them and they just said, hey, we don*t
want them. So we took them someplace else, and after we had moved
83 of them they then called in and said, hey, we'd like them back and
by then it was a little late so nobody is going to keep up with the reg-
ulation if they don't have to.
Senator Garn. I would like to say it sounds rather self serving, but
cutting regulations, at least attempts to cut them, you won't find a
pair of Senators who try harder to do that than Senator Morgan and
I. Sections of the Real Estate Settlement Procedures Act, we were
fortunate there in being able to remove some of them for once. Occa-
sionally we do get some small victories over the bureaucracy.
Senator Morgan. But generally we lose.
Mr. Ekstrom. Senator Morgan, one thing you brought up, I don't
know if it's worth mentioning or not, but in our Farmers Home experi-
ence, we try to stay away from attorneys. We try to work with title
companies. Now, they're very large out here. They do a very fine job
for us and they're extremely cooperative. We like them. But we found
that when we work with an attorney, that our clients end up having to
pay a larger settlement cost because all the attorney did was call the
title company and ask for the work to be done. The work would be
sent over to his office, he would tack on his fee, have the people sign
it, and then send it back to the title company for recordation but the
title company would do all that without his fee, so we have, you know,
in this area, worked a lot more with title companies where and when
we could.
Senator Morgan. To whom did the title company, issue the policy,
to the Farmers Home Administration or to the property owner?
Mr. Ekstrom. The property owner.
Senator Morgan. That is not permissible in many States. That's one
of the difficulties.
Senator Garn. Thank you, Kent, very much. Jim Thorley.
STATEMENT OF 7AHES THOBLET, PSESIDEHT, WASHINGTOir
COUNTT BOARD OF BEALTOBS, ST. GEOBGE, UTAH
Mr. Thorley. I'm from the southern most county in this State, at
least on the west side of the State.
Senator Garn. He's from Utah's Dixie.
Mr. Thorley. That's right. In fact, I've tried to cultivate that
accent. I appreciate what I've learned from you so far.
Senator Morgan. I'm afraid you haven't learned very much.
[Laughter.]
Mr. Thorley. I apologize not havins: been in on all of the hearing.
Perhaps a couple of the points I'd like to make have already been
made. 1 have no prepared speech or dissertation, but there are a couple
of points that are very evident.
Senator Garn. May I interrupt you just at that point Senator Mor-
gan and I were talking at lunch about the difference betwe^i this
hearing and the hearings we sit in on daily, sometimes three or four of
them. We get a little bit sick of the professional witnesses ccmiing in
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and reading their prepared statements and submitting 30 copies. The
testimony today, the mformality, the opportunity to talk back and
forth is very refreshing so don't apologize to us for not having a pre-
pared statement because I don't know who writes their prepared state-
ments but most of the witnesses don't.
Mr. Thorley. Well, I appreciate that then. That makes me feel a
little less pressured.
Some of the comments were made by Dallin Gardner from Cedar
City about the Farmers Home office that I heard earlier, and he says
are perhaps unique to him. They're not. We have a good many of the
same problems. We've seen people turned down there because of pure
personality problems. A gal that goes in that is divorced with three or
four kids, if anybody needs some help, she does, and she's turned
down because she's divorced and things like this. You know, again,
we're woridnjj with people and you are, and I don't know how you can
solve those kmd of things, but some of the criticisms he has we have to
agree with.
I'd have to say that FHA and, to a lesser extent. Farmers Home, is
almost insignificant in our area anymore. FHA is virtually out of the
picture. We're 800 miles away, and we have a difficult time — I've de-
veloped some subdivisions myself and, frankly, it is just not worth the
hassle. We have to have inspections from 300 miles awav. Mr. Komney,
I wish he were here. You loiow, they can say that, oh, we can solve
that ; we have people going down all the time. But you may have one
inspector one week, another inspector another week, and they pick up
diflferent things. You don't know how to work with them. So we're
virtually too far away. That and the redtape. But I think rural people,
at least the rural people in my area, are fairly self-reliant and conserv-
ative and they just don't want to work with the Federal Government
unless they have to.
Senator Morgan. How do you finance your homes ?
Mr. Thoblet. Almost all conventional and the secondary market.
The savings and loans and banks sell them with a PMI and then sell
them on the secondary market.
Senator Moboan. What interest rates do you have ?
Mr. Thorlet. Nine percent.
Senator Moroan. Is money available now t
Mr. Thorlet. Yes.
Senator Morgan. Can your customers afford to pay 9 percent?
Mr. Thorlet. No, but can they anywhere? The people who are out
of it, and this is one of the two points I wanted to establish, you know,
the working people, people making $700, $800, $900 a month are out of
the home purchase business in our area.
Senator Morgan. They are out of it and they're out of it all over
America, and they're out of it in Washington, iD.C, Jake, and weVe
seen the disaster that's happened there. When the city became a city
of tenants, then it became a city where people had no pride in it, a city
of crime. I think it's a crime that the Federal Government and the State
governments can't somehow solve these problems.
Mr. Thorlet. Yes. Of course, I don't know. State government and
Federal Government, perhaps it's the thing that the Federal Govern-
ment ought to get into. But Fm not sure, and again, maybe I'm an
ultra conservative, but this State program that the State h»a., wwL "L
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don't know how much aware you are of that program, where the State
is bonding and they commit to us that they'll be around 7, 8 percent,
and right now this first time out they're doing it on FHA approved
subdivisions. But this is beautiful. This is going to solve a lot of our
problems, and we feel better about working with the State than we
do FHA.
Senator Morgan. I think that's one of the answers to it, and I'm
glad to hear that 16 States, according to my staff member who's been
working on this, have done it. And I think if we just took HUD and
abolished administrative cost of HUD and divided it among the States,
I think we might do far better.
Mr. Thorley. Yes, in the West you would. Maybe the East has a
different attitude, but the West, I think they're pretty straight and I
think it could be administered better on a local basis, if possible.
Two points, in the rural area, I think — and my experience comes
from having lived in Salt Lake City and having lived in Orange
County, I'd say that the average person makes less money. Now, I don't
have any statistics to back that up, but I believe with some amount of
time I could. But the average person makes less money and yet build-
ing costs are higher. We have people coming in from Los Angeles or
Salt Lake City saying: Gee, this is the country. How come things cost
so much ? Well, everything has to be freighted in. All materials cost
more. Labor is less, but all materials cost more and considerably more
so that the homebuyer is caught in a two-way bind. The average home-
buyer makes less money, and the average home costs more money.
Senator Morgan. And he has to pay higher interest.
Mr. Thorley. And he has to pay a little higher interest.
Senator Garn. Another added aspect of the cost is the winters in
Utah. Now, not in St. George, but compared to Orange County, in-
sulation, building, the whole thing, you put a home together like they
do in California and you freeze to death all winter up here.
Mr. Thorley. That's right. There's very little insulation and ther-
mal pane windows in the kind of things they're doing. But this is the
two-sided — that's the problem. What the solution is, I don't know.
Senator Morgan. What can we do to help make Farmers Home more
effective in your area ?
Mr. Thorley. Well, Farmers Home, as you know, must go into an
approved FHA subdivision in our area on a new home. So maybe that's
involved with FHA, and we're having a difficult time worting with
FHA. You can't go out and develop — right now the price I think
they'll go up to something like $27,000 or $28,000 or something in our
area. Now, I had a man come through from Idaho who said he got a
Farmers Home Loan on a $45,000 house. Now, that's amazing. I don't
know if it's true. I've had one man say that. Someone who's familiar
with Farmers Home in other areas, do thev go much higher? But
for $27,000 they're out of the market down there. You can't buy lots.
We've had a fairly good growing area. You can't buy lots. Dallin
Gardner said $7,000. I'll tell you, $7,000 is a good buy on a lot, an im-
proved lot that is FHA approved with curb and gutter and so forth.
That would be an excellent buy on a lot in St. George, You take a
$27,000 loan and put $7,000 of it in a lot and you can't build a home for
what's left. I don't know, maybe the limits need to be increased. If
building costs are higher and income is lower, then I'd say in the rural
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area maybe building costs — ^you should be allowed more because there
are higher building costs.
Senator Morgan. Where is the nearest Farmers Home Administra-
tion office to your county ?
Mr. Thorley. In St George, the county seat.
Senator Morgan. How many people are in that office, do you know ?
Mr. Thorley. Four that I know of. There could be more than that,
four or five.
Senator Morgan. But you say they're not a real force ?
Mr. Thorley. They're not much of a force. Now, you know, I have a
brokerage, a real estate brokerage business, as well as do a little build-
ing and they purposely steer the people away from a broker. They
don't feel that the people can affora to deal with a broker because they
feel he pays more or something like that. I don't agree with that, but
we've had them — when he talks about steering them awaj from an at-
torney or to a certain attorney or something like that, if they get in
that office before they get into mine they don't come back and deal
with me which, you know, sometimes — for $27,000, I'll admit, there
isn't much that we can do in there.
But that's the two points I would like to make and I don't know
the solution is the higner building costs in rural areas. In our area I
cwi speak, in higher building costs and I'd say on an average, at least
with the people I'm familiar with, and where I have lived, there is a
lower earning — the average person reallv makes much less money so
he's caught tetween a rock and a hard place when it comes to buying
a home. And the higher interest rates.
Senator Garn. Thank you very much. Gayle Neilson, the third Neil-
son today.
STATEMENT OF GATLE NEUSOIT, SECUBITT TITLE CO.
Mr. Neilson. I'm also pleased where you made your remark about
being unprepared because I have just two or three points and I might
almost get you back on your time schedule with my testimony. But I'm
one of those title companies. I'm Gayle Neilson, senior vice president
of Security Title Co. and have been for 30 years. My testimony is in
two areas, and I was pleased to read, and I hope I read the end of your
new bill. We close quite a few of these loans, and we have had in our
office Farmers Home people and we found them very nice to work with.
I might add also. I wish Rennie was here. He's one of the gnf*catest
guys I've ever known. His office there, the cooperation with title com-
panies, not only my title company but other title companies, has been
just tops. Farmers Home, the local office here, the Salt Lake office, when
we close these loans we've got so many problems. First of all, now, 111
say I'm pleased to see you built into this where the taxes, reserves, and
so forth are made part of the mortgage payment* We find that after
we close one of these transactions, maybe the people refinance or resell
it a year later and the taxes aren't paid. Very frankly, you throw out a
$400 tab November 30 in each year — ^they're due and payable on
November 30, the taxes — throw a $400 tab at these people, thev just
don't have the money. So I'm pleased, and I hope that is what I read
into the new bill where the taxes and reserves can be escrowed with
whoever services the loan. I don't know if you're going to service the
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loan internally within your own operation or not, but that's a very
nice part of it because I can show you that 60 to 70 percent of the
taxes are not paid on time. Thejr go delinquent, go to tax sales on these
type of loans where it's not held in reserve.
I might add, I heard someone speak, and I guess they left. We didn't
have any trouble with Farmers Home Administration. The local office
got permission from Denver where the builder, of course, in many
cases — I can speak of one of our largest builders or group of builders —
we wrote a letter from the title company indicating go ahead and start
construction while all this processing is taking place, and they accepted
that. In other words, we gave them insurance against the bills that had
been paid, and I think that they were talking about the lien period and
priority on their loans is probably the problem that they were having.
But the local office did allow us here in Salt Lake County to write the
letter and let them start construction so there was some time saved
there. However, on the closings, to get their money there was a big
delay in that area.
I might say that I noticed on page 19 of the bill, loans on land
subject to remote claims, the Secretary may make loans on land where
the title is otherwise uninsurable by private insurance companies be-
cause of remote claims or encumbrances. Now, we do have some prob-
lems with this. The Federal Land Bank of Berkley many years ago,
and I'm sure in all counties of the State of Utah, did take over quite a
few properties and foreclosed or took deed in lieu. Even here in Salt
Lake County we had quite a bit of acreage which is now being sub-
divided. The Federal land bank when the contract was paid out when
they conveyed back to the buyers, the farmer, they retained one-half
interest in the minerals. And, frankly, I call that a remote claim. Now,
FHA won't accept that. We did have one recently where Mexican-
American people are putting together a subdivision in Riverton, and
the Federal land bank did have this one-half interest in mineral
claims and they would't buy these particular loans, where I feel that it
is such a remote claim. So the developer of the subdivision, he did
write the Federal Land Bank of Berkley and for a 40-acre parcel they
wanted $20,000 for their interest, and yet they never received — it was
never held back from them when they took title to these properties,
foreclosed and otherwise. But when they conveyed in many cases back
to the same party that they foreclosed after they paid out their con-
tract, they did retain. I'm hoping I read into this some of these remote
claims of FHA. Now, we will take an indemnity when we insure it
FHA in some cases. If we know the developer we, frankly, provide the
title insurance. We take an indemnity and we will insure over this par-
ticular claim. I hope I read into that that very thing. I think reading
through the bill, frankly and honestly, I think there's some very good
things, but these two areas is the only place that I can probably help
you. Any questions, gentlemen ?
Senator Morgan. I'm familiar with the remote claims that you're
talking about, and it does present a problem. In the area I live in, 100
years ago there were coal mines and they really weren't very produc-
tive, but some big coal company took the coal rights and they still
maintain them and it's almost impossible to clear a title. And yet every-
body knows that they're never coming back to mine those mines. I
follow your problem there.
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Mr. Neilson. That's riffht. When the United States of America re-
serve^ or the State of Utah in their patents, of course, we have got some
counsel on this and we always give affirmative insurance because there's
a Federal Supreme Court ruling to the effect that the surface holder, of
course, must oe completely reimbursed so there can't be any damages
or any claims of damages. Gentlemen, I almost got you back on time.
Senator Garn. Thank you very much. We appreciate it. Stephen
Featherstone?
STATEHEHT OF STEPHEN lEATHEBSTONE, HOHE BTTILDEBS
ASSOCIATIOlf OF GBEATEB SALT LAKE
Mr. Featherstone. Senator Gam, Senator Morgan, we appreciate
the opportunity to speak to you. I'm Steve Featherstone, executive vice
president of the Home Builders Association of Greater Salt Lake. We
have, of course, a grave concern in anything that has to do with hous-
ing because that^s our business. It's our industry that we feel is a very
important part of America. I think that to preface the comments that
I have — ^and I do have some prepared notes. It isn't a speech, but it's
scratch notes that will help me to bring out some key points.
Senator Gam knows. Senator Morgan, we are very strong advo-
cates of a free enterprise system of economics. We believe that govern-
ment programs should be designed to benefit and not to control lives,
and one of the things that we see happening regularly is over-regula-
tion which has an extreme impact on the home building industry in
the form of increasing the cost of housing. We do feel that there are
some benefits, of course, from government programs and they must
be available to those who need subsidies, need support and assistance to
get into the housing situation because of the high costs of housing due
to inflation. We feel that inflation is one of our worst enemies, and that
certainly ties into governmental activities. We feel that regulation is
very exx)ensive to us. The "Minimum Properties Standards" that FHA
publishes, I'm sure you're familiar with, I wouldn't even try to go
through them. We did form a small committee and National Home
Builders formed a committee and reviewed those and made recom-
mendations on some that should be eliminated. Through a very close
cooperative effort. I believe that over 64 MPS were deleted at a sav-
ings of approximately $1,000 per unit average on a nationwide basis.
TMs is the type of program that we feel is very beneficial where there
can be a communicative link between Federal agencies and the private
sector, the industries that are related and involved.
If I could just digress for a moment on a point of humor, when I
commanded an aviation battalion in Vietnam, one of the first things
that happened, the operations officer very proudly came in and and
handed me the SOP's, the operating procedures, et cetera, that you
use. One of those was a policy file, and there were some 60-odd policy
statements, everything from a couple of short sentences to fairly long
paragraphs. As I read through those I noted that everyone of them
were covered in Army regulations or in the operating procedure or in
training manuals so I published a policy that said there will be no
further policies in this battalian, and all preceding 64 policies are re-
scinded and then we'll refer to the appropriate regulation, technical
manual, training manual, et cetera.
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The point, I think, is that, as has been referred to here and prob-
ably been directly brought out, the programs become so technically
and administratively burdensome that they're very difficult to ad-
minister. They bexiome costly and they become time consuming. That
time consumption becomes a critical factor to the builders and to the
buyers in the form of costs because of interest payments that have to be
paid. We feel that the proposal of the program that is outlined here
should be beneficial. There are two or three things that I'd also like to
take advantage of at this forum to point out is that in order for the
Western States, which we feel is where we're primarily dealing with
rural areas, the agricultural areas. The Western States programs in
order to be successful require the ability to grow and to expand and to
provide housing. That requires water resource, and I'm not going to
try to convince you that the central Utah water project is essential or
the 19 projects of the Western States other than to say that they do
directly affect, and to us water is as important as oil is to our country.
We have a fairly heavy agricultural area and, of course, the ruiul
areas are important to us because of the fast increases in prices of
land. And so the lower cost housing becomes available where land is
cheaper, and this market is important to us.
One of the points that we'd like to make for you is that last year
the average Farmers Home loan was around $24,000, and you and I
know that that basically will not buy a house. I just don't see how that
could be, I can hardly believe that figure. We couldn't do that out
here. We can't build houses for $24,000 and yet we're considerably
below the national average. I just read a report yesterday that showed
the national average at $52,000 plus. Our average is $38,600, which is
high but we do have a lot of homes in the thousand square foot and
less which is your two and three bedroom small home, carport, one
bathroom, kind of a beginning type family home.
We feel that an increase in the budget for this program would be
extremely beneficial. We feel that 'because the Farmers Home loan pro-
gram is directly and specifically interested in housing. The FHA pro-
grams which we enjoy and appreciate and have learned how to use
extremely well in Utah, I think you'd find with quick research and pos-
sibly an examination that the 235 program of 6 years ago that was im-
plemented was probably most successful in Utah over any other place
in the country. The homes that were built for $15,800 to $16,500 at
that time are now selling for $32,000 and $33,000, not so much because
of inflation alone, but because the people have taken pride and enjoyed
their homes and have improved their homes by landscaping and small
additions that have helped make the program very, very successful.
And none of them, to my knowledge, have ever turned into what we
would call an unsatisfactory housing area or a ghetto area. They've
all very attractive, and some of those are very desirable places to live
for people at this time.
The $3.6 billion that has been approved or is being considered, I
believe, if that's the proper amount, represents just about 100,000
units. We feel that that is probably less than 5 perecnt of the total con-
struction industry effort for 1 year. A doubling of that figure would
be very realistic to get the Farmers Home loan and the rural programs
up to about 10 percent of the housing. We know that at least that
many people live in rural areas so it seems that we should tie in the
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population factors to the amount of housing that would be made avail-
able in rural areas. We feel that 180,000 units which will probably
come close to $614 billion under normal standards, would be very realis-
tic figure to work with. I know the difficulties in getting additional
funds approved, but it's something perhaps that could be looked at as
a goal for this effort. We feel that the Agency should be maintained
separately because under HUD, FHA occasionally 'becomes frag-
mented or fractured in their efforts, whereas the Farmers Home loan
program by the national statistics that we have from NationalAsso-
ciation of Home Builders shows it to be very successful. The percent-
age of start rates against requests and applications is very good and
has proven it to be a very successful program. There is, of course, a
little less bureaucracy in Farmers Home because you don't have the
parent HUD unit, but we have extremely high regard for our FHA
office here. Mr. Romney and his people have been very helpful to us
in the Salt Lake Valley. I'm sure it's a more difficult problem in the
outlying areas primarily because of communications and the beneficial
relationship wnen you're closer together and you can have an almost
day to day contact.
We have had some difficulty with appraisals, the values of land, I
think the key there is that anyone dealmg in programs of this type
must be completely aware and alert that housing as well as all other
costs change regularly and often rapidly because of the changes in our
cost-of-living index. As they're announced, we see a sudden jump in
the cost of materials. We see a sudden jump in the cost of labor and
so forth, so those things should be considered as we consider these
programs. Rather than have to go through a debating period and a
loss of time and money trying to decide what's the value of this prop-
erty. A person is thinking of yesterday's market versus what's happen-
ing today and tomorrow, and in 3 months when the house will be
finished and ready to move into, and of course, that's very imx>ortaht
to us.
We do have representation in Washington through the National As-
sociation of Home Builders, and I'm sure you've had contact or they've
had contact with you. I talked to them today, and they would be most
happy to provide any additional information. They do support, as we
do, the Farmers Home loan program. We feel tliat it can be better
and more successful by being expanded, by being given more em-
phasis, and perhaps even a little more publicity on what the program
is, how to go about it. And perhaps even on our part some training,
as has been indicated here earlier, perhaps we should with those agen-
cies hold some forums in which we can advise our builders how to do
this program and have some simple how-to-do-it manuals or proce-
dures implemented.
Senator Morgan. Public awareness is a big problem.
Mr. Fbatherstoxe. I think that's the key, Senator, We do appre-
ciate it. We're positive minded. We have enjoyed an extremely good
program in the Greater Salt Lake area and in Utah. Right now we're
enjoying a 34-percent increase in housing over last year. A great
amount of that housing is in the lower markets, and we're not feeling
the pinch on inventories. We have a multif amily increase which we
think is very healthy. This would be my final point I'm not an expert
in Farmers Home loan, but one of the solutions to costs might be an
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increase, especially where we're dealing with the elderly and handicap-
ped families, to have perhaps a program of multifamily units that
could be made available in the rural-urban areas that would reduce
certainly the cost per unit on that type basis, and perhaps they could
be allocated somewhat similiar to the success and the involvwnent of
States and areas in the past.
We appreciate what is being done. We seek always to lead ourselves
back to free enterprise, but perhaps that's a dream world, but I'll al-
ways have that dream myself, and many of our builders will have. We
do say that we have a few people, as Mr. Ekstrom pointed out, who
may violate it, but basically our people are abiding by the ethics and
the standards of the Home Builders Association, which is to provide
the best possible quality in housing for the best possible prices. That's
why we feel that we're enjoying a very strong economic market at this
time in comparison perhaps to other parts of the country. Do you
have any questions, sirs?
Senator Morgan. I don't think so.
Senator Garn. Thank you very much, Steve. We appreciate it. Bill
Slaugh?
STATEMENT OF BILL SLATTOH, VERNAL REALTOR
Mr. Slaugh. Fortunately, I was scheduled toward the end, and most
of my questions have been answered. I'm a real estate broker from
Vernal. That's the land of the dinosaur and many, many wonderful
people I
Senator Garn. I might just point out that Vernal is in the far east-
em part of the State south of the Uintah Mountains. We have a big
energy, boom in that area out in the Vernal. Duchesne, Roosevelt area,
a lot of oil at the present time, deep oil. It's expensive to drill for it
It's many thousands of feet down and also very close to large oil shale
deposits if they're ever developed. So the whole Uintah Basin area has
growing pains.
Mr. Slaugh. Yes; we are growing. We are growing fast, but we are
growing solid. What I mean, we're growing — not building shanties
and such. We're building nice homes.
Now, as it came up this morning, someone was saying, you sell a
home, say, a two-bedroom home to a family, and pretty soon they have
outgrown it, and they don't know what to do. They're got to sell it or
something. We have worked that program out pretty well up to now.
We build what we call a split- foyer type with two finished bedrooms
upstairs on the main floor. Then we insulate, heat and light the other
floor with utilities connections and everything down there, so as the
need arises, they can very easily finish up two or more bedrooms, so
that takes care of that need.
Now, the problem is, we started out — it's in the subdivision and we
pave the streets, build the sidewalks, and everything— we started out
building nice brick homes with one-car garage. Then it got to the
point that we couldn't do all that po we chansred the one-car parage
to a carport. Then we had to take off part of the brick. We bricked up
to the window sills. Then as prices went up, our commitments didn't
come up, so then we had to take oft the brick entirely and just use
siding. So I don't know where we're going to go from here. We're
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getting about $31^00 on that type house, and we're just not going to
make anymore money. That's all. We're got to get our commitments
up or we can't build that type of house.
Senator Garn. This whole thing staggers me. At lunch today I drove
Senator Mokgax by my former home on Laird Avenue, five biedrooms,
a family room, total brick construction, bar tile roof, double garage,
14th East and Laird Avenue. In 1963 I paid $25,900 for it, 30 years
from now it will still be a good solid total brick home where you can't
hear the cars go bv outside, and even though I deal with it every day
on the Banking (Committee, I'm not capable of dealing with $30,000
homes where you can't put a brick on them.
Senator Morgan. Let me ask you a question, Mr. Slaugh. You talked
about reducing the brick down the side all half-waj and then all the
way to siding. How many companies can you buy siding from today ?
Mr. Slauoh. I don't faaow. Several
Senator Moroax. As many as half a dozen ?
Mr. Slauoh. I imagine.
Senator Morgan. How about paneling? Wyerhauser and (Jeorgia
Pacific? How many companies manufacture paneling in this country
that are really in tne market ?
Mr. Slaugh. I really wouldn't know. A lot of the lumber that
comes into our area is Wyerhauser.
Senator Morgan. I don't know the answer to it except that I
Mr. Slaugh. Well, I think we get as good a price as possible because
I have some contractors now who arel)uilding in western Colorado,
through that area in there, and they're building a lot for me here
and they buy large amounts all the time. They build a good house and
are nice people to deal with.
Senator Morgan. My point is that it's nationwide. You know, back
during the recession instead of prices coming down, I suspect — in
fact, one of their own trade journals decided they'd reduce their pro-
duction. Back in 1963 when Senator Gam's house was bein^ built,
if you had had that situation you could have gone to a dossen different
lumber plants in the area.
Senator Garn. That wasn't when mine was built. It was built in
1937 for $10,100.
Senator Morgan. They could have gone directly to a number of
sawmills, lumber mills and if the price didn't suit them, they could
have gone over there. Now, we talk about the free enterpirse system
and I'm for it, and if it's ever destroyed. Federal regulations are going
to be a part of why. But avarice and greed of those in it is going to be
a big part of it, monopolies, lack of competition, the failure to compete
with one another, conspiracies in restraint of trade. And I think, Jake,
that's real conservative philosophy. Teddy Roosevelt thought that, and
Fve been watching the prices of home building materials, and even
during the midst of the 1973-74 recession when they iust floated ri^rht
on up, I don't know the answer to it. I think it may be that probably
it's so far out of hand that antitrust laws are no longer effective or can
be made effective.
Mr. Slauoh. I think higher wages* higher living costs and thinsfs
like that brine the prices of those thinsrs up. They have to. But the
houses T built 12 years apro, nice three bedroom, two-bath brick homes
that sold for around, oh, $19,000 to $21,000 are brin^tv^ ^\$^^
$42,000 right now.
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Senator Garn. How many square feet in these homes that you're
building, the "splits," includmg the unfinished area that you're leaving
for future completion ?
Mr. Slaitgh. Well, there's 1,050 on the main floor, and the other is
the same size, of course.
Senator Garn. So you could probably get^ if you took your furnace
room out and things like that, you can probably get 1,500, 1,600
square feet of finished space?
Mr. Slaugh. Yes. They're real good homes, well built homes. But
we're growing out there quite fast for a small town and we do need
housing. FHA or Farmers Home out there has been very nice to
deal with. I have no complaints whatsoever. The only complaint I
have today is VA. I have these veterans come in an say : I want a home
and I want a VA loan and I'm entitled to it. They don't want to pay
discounts and I don't blame them. I got one case now where I got a
call, day before yesterday, from the VA. They said, we can close your
loan the first of the week, 4 percent discount. This particular home
happened to be one that was bought by Home Equity, an Eastern
company that buys homes for oil companies, you know, for their em-
ployees. They said we won't pay for it. It's cheaper for us to carry the
loan 2 more months. Now, that's fine. But here this fellow has got
somebody to take the load off his hands, he's been transferred over into
Wyoming. But supposing a man gets transferred who doesn't have
somebody to take the load off and he waits 4 months for a man to
get a loan so that he can buy a home someplace else. That's a big
problem. Where does this money come from for these veterans? Do
they have to have a secondary market? Those people have been
promised when they were in the service that they were entitled to a
home. Where does it come from ? Do they have to sell it to a secondary
market?
Senator Morgan. I don't think so. I see someone shaking his head
yes. That doesn't even come under the Housing Committee, does it,
Jake ? It comes under the Veterans' Committee.
Senator Garn. Well, that's some of our own bureaucracy.
Mr. Gardner. You know, the VA just guarantees the loan. They
don't own it. They don't buy it. There's certain areas that there's di-
rect VA and there's certain other areas where the loaning institutions
have to initiate them.
Mr. Slaugh. Well, I'm aware of that.
Senator Morgan. In my area they're direct loans.
Mr. Slaugh. Thev come in and say I've fought through the war.
I'm entitled to that. I want it.
Senator Morgan. Well, I don't have the answer, but I'll tell you
what, we will promise you we will look into it.
Senator Garn. Well, the thing of it is, the big problems with VA
loans is the discount, because even when I was back in Washington
buying a home, I've been out of the service now for 17 years and I've
never used my VA loan privilege. I've checked out every time I've
bought a house and every time I've looked at the discount rate I said
the heck with it. So I still am entitled to my VA home.
Mr. Slaugh. That's right.
Senator Garn. And I probably will never buy with it.
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Mr. Slaugh. Well, I've almost dropped them entirely, because you
just can't — but those veterans are entitled to it and insist on using it.
Senator Morgan. That's an interesting observation, because earlier
in these hearings the VA was the most highly praised organization,
so well follow through.
Mr. Slaugh. I'd appreciate it. Is there any way that I could get a
copy of these proceedings ?
Senator Garn. Certainly. It may take a while to get them printed.
We can't do anything fast m Washington.
Mr. Slaugh. Well, I certainly appreciate the opportunity of being
here.
Senator Morgan. Thank you for coming and waiting all day for us.
Senator Garn. Reed Palmer, is Reed Palmer here? I don't see him.
Well, if Mr. Palmer is not here, that completes the witnesses that we
had scheduled. Ai'e there any other comments that anyone would like
to make before we adjourn the hearing? I'd just like to conclude by
reiterating what I said earlier today, how refreshing it is to get away
from Washington to hold hearings and talk to real people instead of
the professional robots that are sent to testify before us and read their
proiessionally prepared text. So to those of you who are still here and
all of the other witnesses, we appreciate veiy much your time today. I
especially appreciate Senator Morgan taking the time to come. He's
got a busier schedule this week than I have. We are going to visit a
Farmers Home-assisted project in Porh City if anyone would care to
join us.
r Whereupon this hearing was concluded.]
[Copy of S. 1150 and communications received for the record sub-
sequent to the close of the hearing follow :]
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95th congress
1st Session
S.1150
IN THE SENATE OF THE UNITED STATES
March 28 (log^islativc day, February 21), 1977
^fr. ITrMPiiREY (for himself, 'Sir. Aboitiezk, Mr. Anderson, Mr. Bath, Mr.
Brooke, Mr. Cranston, ^fr. Hathaway, Mr. Heinz, Mr. Kennedy, Mr.
Le.\iiy, Mr. Mc-GovERN, Mr. Matiiias, Mr. Metcvlf, Mr. Sarbanes, Mr.
SPARK3tAN, and ^Ir. Williams) introiluced the following bill; which was
read twice and referred to the Coiniiiillee on Banking, Housing, and Urban
Affaii's
A BILL
To amend title V of the Housing Act of 1949 to increase and
extend authorities thereunder, and for other purposes.
1 Be it enacted by the Senate and House of Representa-
2 fires of the United States of America in Conr/ress assembled^
3 That this Act may be cited as the **Eural Housing Act of
4 1977''.
5 nOITSTXO ¥OJl THE ELDERT.Y AND HANDICAPPED
6 Sec. 2. (a) Title V of the Housing Act of 1949 is
7 amended ))y striking out "elderly persons" and "elderly per-
8 sons or elderly families" wherever they appear and insert-
ing in lieu thereof "elderly or handicapped families".
II
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1 (b) Seetk)ii 501 (b) (3) is amended to read as follows:
2 " (3) For the purposes (»f (his title, the tenii Vlderly or
3 handicapped families' means families which consist of two
4 or more persons, the head of which (or his or her spouse) is
5 at least sixty-two years of age or is handicapped. Such tenu
6 also means a single person who is at least sixty-two years
7 of age or is handicapped. A person shall be ( onsidered handi-
8 capped if such person is detennined, j)ursuant to regulations
9 issued by the Secretar}', to have an impairment which (A)
10 is expected to be of long-continued and indefinite duration,
11 (B) substantially impedes his ability to live independently,
12 and (C) is of such a nature that such a))ility could be im-
13 proved by more suitable housing conditions, or if such pei-son
14 is a developmentally disabled individual as defined in section
15 102 (a) (o) of the Developmental Disabilities Serv^ices and
15 Facilities Construction Amendments of 1970. The Secretary
17 shall prescribe such regulations as may be necessary to pre-
18 vent abuses in detennining, under the definitions contained
■^g in this paragraph; thte eligibility of families and persons for
2Q admission to and occupancy of housing constructed with
21 assistance under this title. Notwithstanding the preceding
22 provisions of this paragraph, the term 'elderly or handi-
23 capped families' includes two or more elderly (sixty-two years
24 of age or over) or handicapped persons living together, one
25 or more such, persons living with another person who is de-
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3
1 termhied (under regulations prescribed by the Secretary) to
2 l>e essential to the care or well-being of such pei*sons, and
3 the siu'viving meni))er or members of any family described
4 m the first sentence of this paragraph who were living, in a
5 unit assisted under this title, with the deceased member of
6 the family at the time of his or her death.".
7 ESCIJOW ACCOl'NTS FOR I'AYMENTS OF TAXES, INSURANCE
8 AND OrnER EXPENSES
9 Sec. 3. The first sentence of section 501 (e) of the
10 Housing Act of 1949 is amended by striking out "may" the
11 first place such word appears and inserting in lieu thereof
12 "shall",
13 RURAL HOUSING RESEARCH
14 Sec. 4. (a) Section 506 (b), (c), and (d) of the
15 ITousing Act of 1949 is amended to read as follows:
16 " (b) The Secretary is further authorized and directed
17 to conduct research, technical studies, and demonstrations
18 relating to the mission and progi-ams of the Faimere Home
19 Administration and the national housing goals defined in sec-
20 ti(m 2 of this Act. In connection with such activities, the
21 Secretary shall seek to promote the construction of adequate
22 farm and other rural housing, with particular attention to the
23 housing needs of the elderly, handicapped, migrant and sea-
24 sonal farmworkers, Indians, and other identifiable groups
25 with special needs, for the purpose of stimulating construc-
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4
1 tioiiy improving the axchitectural design and utility of such
2 dwellings and buildings^ and utilizmg new and native mate-
3 rials, economies in materials and construction methods, and
4 new methods of production, enei^ conservation, distri-
5 btttion, assembly, and construction, with a view to reducing
6 the cost of such dwellings and buildings and adapting and
7 developing fixtures and appurtenances for more efficient and
8 economical farm and other rural housing use.
9 " (c) The Secretary is further authorized to carry out a
10 program of research, study, and analysis of rural housing
11 in the United States for the purpose of developing data and
12 information onr—
13 "(1) the adequacy of existing rural housing;
14 " (2) the nature and extent of current and prospec-
15 tive needs for mral housing, including needs for financ-
16 ing, subsidies, improved design, utihty, comfort^ and
17 the best methods of meeting such needs;
18 "(3) the adequacy of the rural housing stock to
19 meet the special needs of the elderly, the handicapped,
20 ' farmworkers and Indians and the best methods of meet-
21 ing such needs;
22 "(4) problems faced by rural people, including
23 farmers, eligible under section 501 in purchasing, con-
24 structing, improving, altering, repairing, and replacing
25 their housing;
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6
1 " (5) ruml growth patterns and the interrelation of
2 rural housing problems and the problems of housing in
3 urban and suburban areas ;
4 " (6) the status of community facilities and services
5 in rural areas, problems resulting from inadequate facil-
6 ities and services and recommendations to alleviate any
7 problems found; and
8 " (7) any other matters bearing upon the provision
9 of adeciuate rm-al housing and related community
10 facilities.
11 "(d) Li order to cany out this section, the Secretaiy
12 shall establish a research division within the Farmers Home
13 Administration which shall have authority to undertake, or
14 to contract with any public or private body to undertake,
15 research authorized by this section.".
16 (b) Section 506 of such Act is fm'ther amended by
17 adding at the end thereof a new subsection as follows:
18 "(f) The Secretaiy shall conduct a study of the loca-i
19 tion, numbers, quality, condition, and cost to occupants, of
20 migrant farm labor housing nnits, and report the results of
21 such study to the Congress within one year after the date of
22 enactment of the Rural Housing Act of 1977, togedier with
23 recommendations for conceding any deficiencies discovered
24 in location, numbers, or condition of the honsmg available
25 for migrant farm laborers, and the extent to which existing
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6
1 authority has been utilized aud the need for auy uew
2 authority.'*.
3 . COMPENSATION FOB CONSTBVCTION DEFECTS; AND
4 LIMITATIONS ON ADMINISTKATIVB AUTHOBITY
5 Sec. 5. Section 509 of the Housing Aot of 1949 is
6 amended by addhig at the end thereof the followuig new
7 tsubsections:
8 " (c) The Secretary is authorized, with respect to any
9 dwelling or other structure built or purchased (but not pre-
10 viously occupied) with financial assistance authorized by
11 this title which he finds to have structural or other condi-
12 tions not in confomumce with such standards as he has pre-
13 scribed under subsection (a) , to make exj)enditurcs for (1)
14 correcthig such defects, (2) paying the claims of the owner
15 of the property arising from such defects, or (3) acquiring
16 title to the property, if such assistance is requested ))y the
17 owner of the property withm three yeai^ after financial
18 assistance under this title is rendered to the owner of the
19 property or, in the case of property with resi)ect to which
20 assistance was made available more tlian three years prior to
21 the date of enactment of the Knral Housing Act of 1977,
22 withhi eighteen months after such date of enactment.
23 " (d) The Secretaiy is authorized, Avith respect t(» any
24 previously occupied dwelling or other structure purchased
25 with financial assistance authorized )iy this title which he
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7
1 finds to have stmctural or other conditions not in conform-
2 ance with such standards as he has presmbed under su)j-
3 section (a), to make expenditures for (1) correcting such
4 defects, (2) paying the claims of the owiier of the property
5 arising from such defects, or (3) acquiring title to the proj)-
6 erty, if such assistance is requested by the owner of the prop-
7 erty witliin eighteen months after financial assistance undei*
8 this title is rendered or, in the case of property with respect
9 to which assistance was made available more than eighteen
10 months prior to the date of enactment of the Em-al Housing
11 Act of 1977, within eighteen months after the date of enact-
12 ment of such Act.
13 "(e) The Secretary shall make any expenditures au-
14 thorized by subsections (c) and (d) after finding that stnic-
15 tuftil or other conditions are not in conformance with such
16 standards as he prescribed under subsection (a) . If the Seo-
17 retary subsequently establishes that the defect is one that did
18 not exist, or was not caused by a condition that existed, on
19 the date that financial assistance under this title was rendered
20 and is not such a defect that a proper inspection of the prop-
21 erty, or the plans and specifications for construction, could
22 reasonably be expected to disclose, the Secretary may con-
23 vert the assistance provided into a loan in accordance with
24 section 502. Alternatively, the owner may request that the
25 Secretary make his deteimination concerning the defect prior
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8
1 to makiug oxpeiidituios for tlie pui'posc of rcpuiriug the de-
2 feet. lu the case of pi*opei*ty Avhich is subject to subsection
3 (c) aud which was acquired more Ihan thiee years before
4 the date of euactmeut of the Kural Housing Act of 1977 or
5 property which is subject to subsection (d) and which was
6 acquired more than two years before the date of enactment
7 of such Act, the Secretary is authorized to withhold assist-
8 ance if the appUcant for assistance does not estabUsh tliat the
9 defect is one that existed, or was caused by a condition that
10 existed on the date the financial assistance under this title
11 was rendered and is such a defect that a proper inspection of
12 the property or the plans and specifications for construc-
13 tion, could reasonably be expected to disclose. The Secretary
14 may require fix)m the seller of, or contiactor for, any proj)-
15 erty receiving financial assistance under this title an agiee-
16 ment to reimburse the Secretaiy for any payments made
17 with respect to any such property under either subsection
18 (c) or (d) . Expenditui'es pursuant to subsection (c) or (d)
19 may be pcdd from the lUiml Housing Insmance Fund
20 created by section 517*
21 " (f ) The Secretary shall issue rules and regulations for
22 the orderly processing of applications for assistance under
23 subsections (c) and (d) and rules and regulations providing
24 for due process review of any detennination made by the
25 Secretary denying assistance under subsection (e) . The Sec-
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9
1 retary shall alsx) maintain records at a single location of all
2 requests for assistance filed and the disposition of the
3 requests.
4 "(g) Nothing m this section shall be construed as pre-
5 eluding judicial review of any decision of the Secretary deny-
6 ing assistance under this section or as precluding any owner
7 from seeking remedies under any other provision of kw.
8 " (h) Notwithstanding any other provision of law, the
9 Secretaiy shall implement tiie provisions of this title so that
10 agriculture and forest lands are preserved and protected to
11 the maximum extent practicable and shall not preclude the
12 implementation of the provisions of this title in any place
13 exclusively on the basis of actual or projected population.".
14 FOBECLOSUBB PBBVENTION
15 Sec. 6. Section 510(d) of the Housmg Act of 1949 is
16 amended by addmg at the end therecrf the following: "In no
17 event may foreclosure or transfer action be initiated against
18 any borrower Unless such borrower has been given prior
19 notice and consideration of the provisions of section 505 on
20 the availability of the moratorium on payments under such
21 section.".
22 APPEALS PROCEDURE
23 Sec. 7. Section 510 of the Housing Act of 1949 is fur-
24 ther amended by redesignating paragraphs (g) , (h) , and
25 (i) as paragraphs (h), (i), and (j), respectively, and by
S. 1150 2
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10
1 inserting after subsection (f) a new paragraph (g) as
2 follows:
3 '-'(g) issue rules and regulations protecting the
4 . rights of all persons and organizations applying for or
5 receiving assistance under any of the sections of this title
6 over which the Secretary has authority. Such rules and
7 regulations shall provide that, whenever any person or
8 organisation has applied for assistance under this tide
9 and such assistance is denied for reasons other than the
10 availability of funds, or whenever a decision has been
11 made to terminate or reduce assistance under this tide
12 to any person or organization which is already receiving
13 such assistance, such person or organization will be
14 given —
15 ''(1) adequate written notice of the reasons
16 why assistance was denied, reduced, or terminated;
17 '' (2) adequate written notice that such person
18 or organization has a right to appeal the decision at
19 a hearing held in accordance with the provisions of
20 this section;
21 "(8) an opportunity to appeal atiy decision
22 denymg, reducing, or terminating such assistance to
23 an impartial offidal who has the authority to reverse
24 such a decision after having conducted a hearing
25 within a reasonable time after it has been requested
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1 by the person or organization affected by the adverse
2 decision, at which hearing the appellant shaU have
3 the ri^t to (A) present evidence through witnesses
4 or otherwise, (B) inspect records and data in the
5 possession of the Secretary which pertain to die
5 appeal, (C) cross-examine witnesses, (D) berepre-
7 sented by counsel, and (E) have the hearing offi-
g cer make the decision on the record, in writing,
9 stating the reasons for the decision ;
20 " (^) ftn opportunity to have the decision of
11 the hearing officer reviewed by the Secretar}-.
12 Sudi rules and regulations shall also provide that, when-
13 ever any person or organization has had assistance re-
14 duced or terminated and, as a result of an appeal or
15 otherwise, it is subsequently determined that such assist-
16 ance was erroneously or improperly withheld, such per-
17 8(m or organization shall be entitled to receive all bene-
Ig fits and assistance diat have been withheld as a result of
19 the original decision to reduce or terminate such
20 assistance;".
21 ASSISTANCE AUTHORIZATIONS
22 Ssc, 8. (a) Clause (b) of section 513 of the Housing
23 Act of 1949 is amended to read " (b) not to exceed $100,-
24 000,000 during the period beginning October 1, 1977, and
25 ending September 30, 1980;".
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12
1 (b) Clause (c) of such section is amended to read
2 ** (c) not to exceed $100,000,000 during the period begin-
3 ning October 1, 1977, and ending September 30, 1980;".
4 (c) Clause (d) of such section is amended by striking
5 out the semicolon at the end of such clause and inserting in
6 lieu thereof a comma and the following: "and not to exceed
7 "$10,000,000 for each fiscal year beginning after September
8 30, 1977, and ending September 30, 1980 ;".
9 (d) Section 514(d) of such Act is amended by striking
10 $26,000,000" and inserting in lieu thereof "$50,000,000".
U (e) Sections 515(b) (5) and 517(a) (1) of such Act
12 are each amended by striking "June 30, 1977" and inserting
13 in lieu thereof "September 30, 1980".
14 (f ) Section 523 (f ) of such Act is amended by inserting
15 "and for each fiscal year beginning after September 30,
16 1977, and ending September 30, 1980, such sums, not in
17 excess of $20,000,000 for any such fiscal year," immediately
18 after "$10,000,000 for any such fiscal year," m the first
19 sentence; and by striking out "June 30, 1977" and inserting
20 in lieu thereof "September 30, 1980" in the second sentence.
21 (g) Section 523 (g) of such Act is amended by striking
22 out the period at the end of the first sentence and inserting in
23 lieu thereof a conmaa and the following: "and not to exceed
24 $5,000,000 for each fiscal year beginning after September
26 30, 1977, and ending September 30, 1980.".
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IS
1 (h) Section 525 (c) is amended by inserting after the
2 first sentence the followmg sentence : ''There are also aallior-
3 ized to be appropriated for each of the fiscal years ending
4 September 30, 1978, September 30, 1079, and September
5 30, 1980, not to exceed $10,000,000 for the purposes of
6 subsection (a) and not to exceed $10,000,000 for the piir-
7 poses of subsection (b) .".
8 GONGBEGATB HOUSING FOB BLDBBLT AND
9 HANDICAPPED FAHILIBS
10 Sec. 9. (a) Section 515 (c) of the Housmg Act of 1949
11 is amended by adding at the end thereof a new sentence as
12 follows : "However, specifically designed eqaipment required
13 by elderly or handicapped families shall not be considered
14 elaborate or extravagant.".
15 (b) Section 515(d) (1) of such^ Act is amended by
16 adding at the end thereof the following: "and such term also
17 means congregate housing facilities for elderly or handi-
18 capped families who require some supervision and central
19 services, but are other\nse able to care for themselves. Such
20 housing for the handicapped may be utilized in conjunction
21 with educational and training facilities.".
22 (c) Section 515 (d) {^} of such Act is amended to read
23 as follows:
24 " (3) The term 'congregate housing' means housing
25 in which (A) some of the units may not have kitchen
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14
2 facilities, (B) there is a central dining facility to pro-
2 vide -wholesome and economic meals for elderly and
3 handicapped families, and (O) provision is made for
4 supervisory assistance personnel, including living quar-
5 ters for a limited number of such personnel.".
g FINANCIAL A88IBTAN0B TO PEOVIDB LOW-BENT HOUSING
7 FOB DOMESTIC FABH LABOB
8 Sec. 10. Section 516 (e) of the Housing Act of 1949 is
9 amended by adding at the end thereof a new sentence as
10 follows: **The Secretary shall not give priority for funding
11 under diis section to any one of the groups over the others
12 lifted in subsection (a) .".
13 PBOVIDTNG FOB A DIVISION OF INSUBBD BUBAL HOUSING
14 LOANS
15 Sec. 11. Section 517 of the Housing Act of 1949 is
16 amended by adding at llie end thereof a new subsection as
17 follows:
18 " (n) At least 60 per centum of the loans made pur-
19 suant to section 502 and at least 60 per centum of the loans
20 made pursuant to section 515 shall benefit persons of low
21 income.''.
22 THE USB OF AUTHOBIZBD BUBAL HOUSING FUNDS
23 Sbo. 12. Section 517 (c) of the Housmg Act of 1949
24 is amended by adding at the end thereof a new sentence as
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1 follows: ''The Secretary shall utilize such funds in a manner
2 that will assure their maximuin availability and use during
3 peak constructi<m periods.".
4 CHANGES IN THE GUABANTfS^D HOUSING LOAN PBOGIBAH
5 Sec. 13. (a) Section 517 of the Housmg Act of 1949
6 is further amended by adduig after subsection (n) , as added
7 by section 11 of this Act, a new subsection as follows:
8 '' (o) Loans guaranteed under this section shall be made
9 only in the case of persons with above-moderate incomes.".
10 (b) Section 517 (e) of such Act is amended by insert-
11 ing after the first sentence a new sentence as follows: ''The
12 guaranteed loan program under this title shall be operated
13 separately from the insured loan program operated under this
14 title and no funds designated for one program may be trans-
15 f«rred to another program/'.
16 (c) Section 310 (C) (a) (2) of the Consolidated Rural
17 Farm and Development Act is amended by inserting
18 ''^which the Secretary has determined to be without ad&-
19 quate credit resources) " after the word "areas".
20 (d) Clause (3) of section 310(C) (a) of such Act is
21 amended by striking out all after the word "shall" and
22 inserting in lieu thereof the following: "be processed only
23 by the State offices of the Farmers Home Administration or
24 such other regional offices as may be designated.".
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16
1 HOHBOWNEBSHIP STJB8IDT FOB LOW- AND MODEBATE-
2 INOOMB PEE80NS
3 Seg. 14. (a) Section 521 (a) (1) of the Housing Act
4 of 1949 is amended by inserting after the phrase *% rate
5 determined annually/' the phrase "or more often when war-
6 ranted and requested by the Secretary".
7 (b) Section 621 (a) (1) of the Housing Act of 1949 is
8 amended by adding at the end thereof the following: "The
9 Secretary shall make available to persons of low income who
10 cannot otherwise afford to repay a loan under section 502
11 and this section the difference between an amount equal to
12 the sum of the mortgage payments, including principal and
18 interest, taxes, insurance, utihties, and maintenance and an
14 amount equal to 15 per centum of gross annual income. In
15 any case in which assistance is made available under the
16 preceding sentence, the Secretary shall place in escrow
17 amounts paid for taxes and insurance and shall mstitute pro-
18 cedures to recapture payments made by him under sack
19 preceding sentence in the event of a profitable sale of the
20 property, but the amount of the pajonents recaptured shall
21 not, as determined by the Secretary, prevent the borrower
22 from having the resources needed to relocate.".
23 BUBAL BBNTAL A8SISTAK0B
24 Sbc. 15. (a) Section 521 (a) (2) (A) of the Housing
25 Act of 1949 is amended by strikmg out "may" wherever it
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17
1 appears, except in clause (i), and inserting in IWu diereof
2 "shall".
3 (b) Section 521 (a) (2) (A) of such Act is further
4 amended by inserting after "rental" the f^econd time «udi
5 term appeal's in the first sentence a comma and "congregate,
6 or cooperative".
7 (c) Section 521(a) (2) (A) of such Act is fm-thei-
8 amended by striking out "income" after "25 per centum of"
9 and inserting in lieu thereof "adjusted annual income (as
10 heretofore defined by the Secretary for purposes of determin-
11 ing eligibility for housing financed under sections 502 and
12 515).".
13 (d) Section .521 (a) (2) (A) is further amended by
14 strikmg the number "20" where it appears twice and insert-
15 ing m lieu thereof the number "30".
16 (e) Section 521 (a) (2) (A) (i) is further amended by
17 inserting "or by a loan under section 514" after "section 516
18 for elderly housing" and before "or by a loan under secticm
19 514 and grant under section 516.".
20 (f)' Section 521 (a) (2) (A) (ii) is redesignated as sec*
21 tion 521(a) (2) (A) (iii) and a new section 521(a) (2)
22 (A) (ii) is added to read as follows:
23 "(ii) when market conditions indicate that a sub-
24 stantial need exists for suljsidized family howling that
25 amnot be met without a greater percent of rental assist-
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18
1 ance, the Secretan^ shall make such paymeiHs without
2 respect to the 30 per centum limitation, and".
3 Ml'TUAL AXD SELF-HELP HOUSING
4 Sec. 16. Section 523(b) (1) (A) of the Housing Act
5 of 1&49 is amended ))y insertmg "or land" after "options".
6 SITE LOAN CHANGES
7 Sec. 17. (a) Section 524(a) of the Housing Act of
8 1949 is amended by striking out m the second sentence
9 beginning wifli "prescribed" all down through "1 per
10 centum," and inserting in lieu thereof "of 3 per centum".
11 (h) Section 52'4 (a) of such Act is further amended by
12 adding at the end thereof the following: "The Secretary
13 may guarantee loans made by banks and other public and
14 private lendmg institutions to limited profit developers at the
15 market rate. The authority for loans guaranteed under this
16 section shall be separate from the authority for insured loans
17 under this section. Making and servicing of such guaranteed
18 loans may be conducted only by the State office of the Farm-
19 ers Home Administration. At least 50 per centum of the
20 sites developed under the guarantee site loan progi-am shall
21 be used to sei^ve needs of persons of low income.".
22 "loans on LAND SUBJECT TO REMOTE CLAIMS
23 Skc. 18. (a) TIic Housing Act of 1949 h amended by
24 adding at the end of ti>tle V a new section to read as follows:
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1 "loans on land subject to kbmotb claims
2 "Sec. 528. The Secrekiy may make loans on land
3 where the title is otlierwise unintjiirable by private insurance
4 companies because of remote claims or encmnbrances to
5 enable otherwise eligible pei'sons holding such land to benefit
6 from assistance mider this title. In die event of a court deci-
7 sion adverse to the title claim of any pei*son holding any
8 such loan after assistance has been made available to such
9 person under this title, the Secretary may use the funds of
10 the Eural Housing Insurance Fund to pay the holder of such
11 remote claim or encumbrance and any funds so expended
12 shall be reimbursed by annual appropriations.".
13 (b) Section 517 (j) (3) of such Act is amended by
14 inserting "mcludmg payments under section 528," after
15 "Fund,".
16 (c) Section 521(a) (1) of such Act is fimended by
17 strikmg out "and 515'' and inserting in lieu thereof a comma
18 and "515, and 528".
19 assistant secret aby foe equal opportunity
20 Sec. 19. (a) In addition to the Assistant Secretaries of
21 Agriculture now provided for by law, there shall be an
22 additional Assistant Secretary of Agriculture for Equal Op-
23 portunity who shall be appointed by the President, by and
24 with the advice and consent of the Senate.
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20
1 (b) Section 5315 (11) of title 5, United States Code,
2 is amended to read as follows :
3 "(11) Assistant Secretaries of Agriculture (6) .".
4 WATER AND SEWER GRANTS
5 Sec. 20. (a) Section 306(a) (2) of the Consolidated
6 Farm and Kural Development Act is amended to read as
7 follows :
8 "(2) The Secretary is authorized to make grants aggre-
9 gating not to exceed $500,000,000 in the fiscal year begin-
10 ning October 1, 1976, $750,000,000 in the fiscal year be-
ll ginning October 1, 1977, and $1,000,000,000 in any fiscal
12 year thereafter to such associations to finance specific proj-
13 ects for works for the development, storage, treatment, puri-
14 fication, or distribution of water or the collection, treatment,
15 or disposal of waste in rural areas. Grants made under the
16 authority of this paragi-aph may range from 25 to 75 per
17 centum of the development cost of the project depending on
18 the need of the community as defined by the Secretary. The
19 Secretary, as a goal, shall direct at least one-third of the
20 funds under this authority to communities on a 75 per
21 centum grant basis with at least an additional third provided
22 on a 50 per centum grant basis. If an association receives a
23 26 per centum grant from other sources, a project's economic
24 feasibility shall be based exclusively on the association's abil-
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21
1 ity to meet normal operation and maintenance costs of the
2 proposed system/'.
3 BNBKQY OONSBBVATTON
4 Sec. 21. The Housing Act of 1949 is amended by add-
5 ing after section 528, as added by section 19 of this Act, a
6 new section to read as follows :
7 "energy conservation
8 "Sec. 529. (a) The Secretary is directed to withhold
9 a^rsistance authorized under sections 502, 514, 515, and 516
10 of this Act from any otherwise eligible borrower who, after
11 January 1, 1978, fails to incorporate into any structure com-
12 menced by such borrower after that date such energy con-
13 serving construction techniques, design features, and mate-
14 rials as may be necessary to substantially reduce energy con-
15 sumption. The additional costs such constmction may entail
16 to reduce energy consumption may not exceed the estunated
17 cost of the energy savings over a ten-year period. The Secre-
18 taiy shall take the long-term energy savings into account in
19 determining eligibility under sections 502, 514, 515, and
20 51 G and shall not deny assistance as a result of any increased
21 construction costs due to energy saving devices or techniques
22 that are to be included in the structure.
23 ''(b) The Secretary is directed to encourage the inclu-
24 sion in all housing constructed with assistance under this Act,
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UNITED STATES DEPARTMENT OF AGRICULTURE
FARMERS HOME ADMINISTRATION
Room 5311, Federal Building
Salt Lake City, Utah 84138
Senator Robert Morgan mj m ^y,
Lillington, North Carolina 27546 •'**• *' W^'
Dear Senator Morgan:
The following is a list of items considered to be some abuses of the
Section 502 Rural Housing Program in the State of Utah. At the recent
fub-cotmnittee Hearing on Rural Housing held in Salt Lake City, you re-
Quoated that Mr. Nsrwerd of our office provide you with such a list.
We are sorry for the delay in getting the list to you, however, we re-
quested soae input fron our County Supervisors.
1. Borrowers failing to give complete and accurate information e^x>ut
family income. This may hsppen both at the tine df the initial
eq;>plication and at the tiine of renewal of Interest credit. This
abuse nay at one time or another b« either intentional or unin-
tentional on the part of the applicant/borrower. This abuse most
frequently Involvea incoroe earned by the wife, overtime pay, or
income from tempcr^ry ot part-time employment. In addition, we
have heard of cases where the wife in the family has quit work so
that the family may qualify for a loan and receive interest credit
based on the husband's income. Then, after the loan is closed, the
wife returns to work and the family fails to report the additional
income to the County Supervisor.
2. We know of some cases where a family qualifies for interest credit
obtains the loan, receives the interest credit and after a relatively
short period of time, such as up to five years, sells the home and
takes a large equity profit. It is possible for this family under-
certain circumstances to re-apply and qualify for a second loan,
where they may do the same thing again.
3. There are cases where applicants who have some knowledge of the pro-
gram, have contacted local banks and requested rejection letters so
that they might qualify for a FmHA Housing loan when in fact they
should be able to obtain the credit from private sources. Similarly,
we have heard of cases wbare applicants or borrowers have requested
eiiiployere to falsify income verification and reports so that they
might qualify for interest credit.
4. In some cases we have heard of contractors and/or realtors, especially
those who are quite familiar with the program, having coached appli-
cants on how to report income, costs, values, etc., so that the
eq;>plicant might take undue advantage of the program to benefit himself
Farmers Home Administration is an Equal Opportunity Lender.
Compkdnts of discrimination based on race, sex, religion,
nationcA origin or marital status should be sent to:
Secretary of Agriculture, Washington, D. C. 20250
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ROUTE 1 • HELPER. UTAH 84526 • (801) 472-3246
Jiint 23, 1977
Ssiuitor Jakt Gftm "^^
'laO^ DirskMi Stnatt Of fict
United States Stoat* ro
Waahington, D.C. 20510 K 7^,
— o ii "
Oaar Stnator Qam: ^ ^
llhaiik you ao mich for your latter in ragard to tha U.S. Sanataltnral
Houaing SubcooDitttt.
Thare ia ona itam idiara we are davaloping ruraLJtiouaing and haVa tha
opportunity to aubdivida undar Farmera' Homa program that neada to ba changed,
day raquira tha aana atandarda for aubdiyidlng aa federal houaing and %dien
we are in the country aubdividing, a little piece of aidevalk ia like a roae
in the deaert.
Zhia naeda to be loolced into aa moat county ordinanoea only aak for a
black- top with rolled curb.
Theae type of demanda will eventually eliminate thia program if they are
not controlled.
Sincerely,
John NiexBDpl Contractor
JJH/rr.
V
•Qi
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UNITED STATES DEPARTMENT OF AGRICULTURE
FARMERS HOME ADMINISTRATION
Room 5311, Federal Building
Salt Lake City, Utah 84138
"senator Robert Morgan jU * ^y,
Lillington, North Carolina 27546 •**• ^ *^»
Dear Senator Morgan:
The following is a list of items considered to be some abuses of the
Section 502 Rural Housing Program in the State of Utah. At the recent
^ub-cormnlttee Hearing on Rural Housing held in Salt Lake City, you re-
quested that Mr. Harward of oar office provide you with such a list.
We are sorry for the delay in getting the list to you, however, we re-
quested soae input fron our County Supervisors.
1. Borrowers failing to give complete and accurate information about
family income. This may happen both at the time of the initial
application and at the time of renewal of interest credit. This
abuse nay at one time or another be either intentional or unin-
tentional on the part of the applicant/borrower This abuse most
ft*equently involves income earned by the wife, overtirae pay or
income fr(»i temporary or part-time employment. In additlon» we
have heard of cases where the wife in the family has quit work so
that the family may qualify for a loan and receive interest credit
based on the husband's income. Then, after the loan is closed, the
wife returns to work and the family fails to report the additional
income to the County Supervisor.
2. We know of some cases where a family qualifies for interest credit
obtains the loan, receives the interest credit and after a relatively
short period of time, such as up to five years, sells the home and
takes a large equity profit. It is possible for this family under-
certain circumstances to re-apply and qualify for a second loan,
where they may do the same thing again.
3. There are cases where applicants who have some knowledge of the pro-
gram, have contacted local banks and requested rejection letters so
that they might qualify for a FmHA Housing loan when in fact they
should be able to obtain the credit from private sources. Similarly,
we have heard of cases where applicants or borrowers have requested
employers to falsify income verification and reports so that they
might qualify for interest credit.
4. In some cases we have heard of contractors and/or realtors, especially
those who are quite familiar with the program, having coached appli-
cants on how to report income, costs, values, etc., so that the
eq;>plicant might take undue euivantage of the program to benefit himself
Farmen Home Adminittratkm is an Equal Opportunity Lender.
Complaints of discrimination hosed on race, sex, religion,
national origin or marital status should be sent to:
Secretary of Agriculture, WaMtgton, D. C. 20250
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and the contractor or realtor. In line with this, occasionally a
realtor or contractor could peu! or falsify a price or cost which is
reported to FmHA, then make a side agreement with the applicant or
borrower for additional money.
There has been an eULlegation in one area \^ere FmHA is a major
supplier of housing credit, that contractors have associated together
to fix prices.
5. There are some attempts by borrower's contractors and realtors to
circumvent the intent of the program to build housing that is modest
in size, design and cost. This abuse will usually be associated
with the abuse mentioned above where a side agreement for euiditional
payment by the borrower is involved.
6. Failure of the borrower to keep the account current while receiving
interest credit. This is associated with the abuse that some borrowers
while receiving interest credit, eu:^ able to finance for themselves
other expensive or additional items; such as expensive second cars,
escpensive boats, pickups, etc.
7. Real estate agents, or contractors, intentionally or unintentionally
giving applicants false or misleeuling information about the Rural
Housing Program in order to sell their product.
8. Borrower sometimes will have a Rural Housing loan, either with or
without interest credit, move out of the house, either temporarily
or permanently, without reporting to the County Supervisor. They
will usually rent the home and continue to receive the benefits of
this program until the problem is brought to the attention of the
County Supervisor.
9. It has been reported to us that some title companies have occasion-
ally engaged in the practice of selling the borrower/applicant at
the time of loan closing, a Mortgagee's Policy of Title Insurance
knd an Owner's Policy without explaining the difference to the
applicant/borrower and explaining that the Owner's Policy may not
be necessary. In connection with this, there have been some title
insurance agents who have been quite aggressive in trying to mono-
polize FmHA business where more than one title insurance company is
designated for use in the community.
Sincerely
Acting
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RURAL HOUSING ACT OF 1977
MONDAY, JUKE 20, 1977
U.S. Senate,
COMICTTTEE ON BANKING, HOUSINO, AND UrBAN AjTAIRS,
SUBCX)MMITTEE ON BuRAL HoUSINO,
BcUeigh^ N.C.
Senator Bobert Morgan, chairman of the suibcotnmittee, preeiding.
Present : Senators Morgan and Gram.
OPENIN& STATEMENT OF SENATOR HOB&AN
Senator Morgan. We'll call the hearing to order. This is a hearing
called ibjr the Bural Housing Subcommittee of the Senate Committee
on Banking, Housing, and Ui4>an Affaifrs.
Senator Gam from Utah is on my right. Senator Gum is the rank-
ins minority member of the Bxvral Housing Subcommittee, and we're
deligbted to have you down here, Jake. He was also the ranking
minority member when I served as chairman of the Small Business
Administration Suboommittee so he and I have been working to-
gether closely since we have both been in the Senate. We might
mention, Jak&, that we had our hearing here aibou/t 1 year or ly^
years ago on small ^business, and as a reeult of that hearing and the
work of our office staff here, we are having a seminar here Friday
for businessmen all across North Carolina who are interested in
dealing with the Govemm^it through the Small Business Adminis-
tration. So at least, it's had one good result
I want to thank all of you for coming this morning. I have a biief
statement that I'd like to read, and we'll hear from Senator Gam,
and then well be delighted to hear from our Governor.
The Bural Housing Subcommittee, of which I am chairman, was
created during this session of Congress in order to give more
emiphasis to the housing needs of ruml America. Although the spe-
cific bill which we are now addresainc— S. 1150 introduce by Sena^
tor Humphrey, is before us, I sincerdy hope that our witnesses will
not limit their comments to that paitioular piece of legislation, if
you direct them at all, but we hope that you will offer your views
and comments on the whole spectrum of rural housing, a subject
wfaidi we tliink has been too long neglected by the Federal Govern-
ment.
I think I state the real purpose of Senator Gam and myself when
I say that what we really want is some new impressions about the
needs of rural housing in America. About 2 or 3 weeks ago we were
in his home State of Utah listening to people talk there, and we will
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be having some other piiiblic hearings in different sections of the
country.
Statistics furnished me bjr one of the national rural housing
groups indicate that one family out of five in rural America must
now walk to an outdoor privy, or if the house had indoor plumbing,
it has too many people living in the same house.
In one of our neighboring States, ahnost one out of every three
rural households lives in conditions like these. But the pro»blem is
national in scope. In certain counties in Weet Virginia, abnoet one
out of every two houses is primitive, and in some counties in Min-
nesota, the rate is even more deplorable; over 60 percent. There are
still situations where whole oommainiities drink polluted water, where
human and industrial waste are dumped diredly into rivers and
creeks.
I am sure that many of our witnesses here today will agree with
me that many of the rural commimities here in North Carolina are
faced with problems of housing and water and sewage, but as North
Carolinas, we tend to view these problems realistically and then seeik
viable solutions for them.
But these problems exist throughout our country. For instance,
there are Indians living on reservations with as much as 75 percent
of the housing substandard.
There are blacks throughout small towns across the South who
have historically suffered the worst kind of poverty. There are Ap-
Ealachian whites, many of whom are forcea to live in inadequate
ousing, even though they had adequate incomes, and as I have
stated, there are rural farmers here in our home State of North
Carolina who are unable to build adequate housing due to limited
private financial capacity in rural areas.
The Federal Government committed itself to provdding a decent
home and a suitable living environment for every American family
hack in 1949. Yet this goal is still substantially unmet f<M: a large
percentage of rural Americans.
The Fa;rmers Home Administration was created in response to the
needs of rural Americans. However, as recently as 1960 the Farmers
Home Administration still was conceimed almost entirely with its
original mission as a supervised credit acency for low-income farm-
ers with a loan volume of only $300 million a year. The 1960's and
1970's have seen Farmers Home transferred into a multifaceted
credit arm for rural development. About $61/^ million a year now
flows through Farmers Home Administration channels into rami
America, serving a wide variety of needs fundamental to a better
way of life in rural communities.
tJnfortunately^ the increase in scope and rea»h of the Farmers
Home programs have created sedous staffing and administrative
problems within the Farmers Home Administration, both on a
national and local level. The increased workloads thrust upon the
staff has often resulted in burdensome delays and frustration for the
rural Americans.
I, for one, feel that if we in Conarees see the need for <ihe pro-
grams as we have done, then we must be willinsr to increase the staff
at the Farmers Home in order to adequately deal with these prob-
lems.
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In conclusion, I would onoe a^ain like to reaffirm my conumitment.
to the purpoees of this committee and em|>ha8ize what I feel is one
of the most deploraJble housing situations in Ajmefrioa, and that is the
Btfbstandard housing conditions of rural America.
Senator Gam, we welcome you to North Carolina and hope that
the hospitality here will be as good as that you extended to me when
we were in your State.
OPENIN& STATEMENT OF SENATOR OABN
Senatoor Garn. Thank you, Bob. It's a pleasure for me to be here,
and I will not take long because in the 2V^ years I have been in the
Senate, I have gone to so many hearings when all I heard was
Senators talking: I have the strong, old-fashioned idea that hear-
ings were to be held to listen to witnesses come and testify. But
oron we hear more of our own colleagues speak than the witnesses.
The witnesses are told to confine themselves to 3 or 4 minutes so we
can filibuster, I suppose.
But I do think that tliis is a very im>portant subcommittee. Sena-
tor Morgan and I both felt very strongly that there was a great deal
of em^phaais on housing within cities, and I am a former mayor of
Salt Lake City, so I am very well aware of how much interest there
lias been, how much involvement there has been in looking at hous*
ing in cities, and iby comparison, tlie interest and the direction to-
w^:xl rural housing has been almost nonexistent, relatively speaking.
Noith Carolina and Utah do not have the massive, big cities, and
so I think it's appropriate that he and I are on the subcommittee
because of the rural nature of our States and where theire is a very
significant proiblem in <rural housing^ so that's what we're attempting
to f oous on and bring to the attention of Congress more foreafuUy
than has ibeen done before; that there are sulbstcmdard housing prob-
lems and there is need for adequate housiAg outside of the big cities.
I think there is. It would be unfair to say that thetre has bsen an
overemphasis on the cities, but certainly, I think it's fair to say that
there has ibeen a greater underemp^hasis on the needs of ruiral Amer-
ica for adeqiiate housing.
I ftm very inter^ted in the te^imony today. I would just, on a
personal note, say it has been a pleasure for me to work with your
Senator th^ last 2V^ years. Although we are of different political
parties, we very rarefy have differences of opinion on issues. Our
political philosophies are similar. We have, not by det^ign, but inter-
estingly enough, besides this suboommittee, all of our other com-
mittee assignments aro the same. We s^rve on Armed Services, on
Banking, and on the Intelligence Committee together, and I, again
interestingly, have ^probably a doeer rdationahip on a day-to^ay
•basis with Bob than I have with any of my Bqpuiblican oolleagues.
So we don't worry too much about .party. We are interested in
solving some p«x>blem8 in rural America in this housing field, and
so, Bdb, it's a pleasure to be in your State, and I thank you for the
opportunity.
Senator Morgan. Thank you, Jake. We are delighted to have you.
I might say parenthetically that in Washington Senator Gam is
94-»ll— 77 8
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known as ultraoonservative, I guess, or conservative, but when we
were out in Salt Lake City earlier, I think I found that he was
known almost as an ultraliberal — if you could see Salt Lake City
€wid see what he had done there as mayor with regard to housing,
land use planning, and many other thmgs, you would know what
I'm talking about. But I think that's sort of syirtbolic of his 'beliefs.
He believes that the local government. State and ©ity, and county
governments, should do all that they can and leave the Federal
(jrovemment to the larger areas.
Governor Hiuit, we're honored that you have taken the time to
come down this morning. We know of your interest in housing in
North Carolina, and we are delighted to hear some of the ideas and
things that you have in mind and we'd like to hear from you this
moming.
STATEMENT OF JAMES B. HUNT, OOVERNOB, STATE OF NOBTH
CABOLINA
Governor Hunt. Thank you, Senator.
Senator Morgan, Senator Gam, we are so pleased to have you in
North Carolina. You come from a very beautiful State and we think
ours is a beautiful State, and we're just pleased to have you and
appreciate all the leadership that Senator Morgan has talked ajbout
and the things that you are doing together.
I thank you for the opportunity to let me offer some comments
on the farmers home rural program. There will <be others from our
administration, notably Mr. Jack Smith, Deputy Secretary of our
Natural Eesources and Local Development Department who will be
testifying perhaps at greater length today.
And Senator Morgan, I want to, as Governor of this State, and
as your friend, take this opportunity to congratulate you on your
appointment as chairman odf the Rural Housing Suibcoinmittee. We
are proud of a lot of things that you do in Washington, 'but this is
one of the things that we are proudest of, and I Imow of the just
great energy that you are putting into this whole area, and we are
very grateful, and as I said, very proud as a State.
SeSator Morgan. I'm glad the Governor came down this morning.
Governor Hunt. The Farmers Home Administration's major
housing programs are an integral part of North Carolina's housing
thrust During the period from 1969 to 1975, this State led the Na-
tion in Farmer Home Administration housinjg production, and^it's
easy to sit in a hearing like this and give statistics that seem a little
bit cold and maybe sterile, but I live on a farm in eastern North
Carolina albout 40 miles from here. It's where I grew up, and to me,
they aren't statistics, because I know the people that live in the
houses. I know the people who have been tenants on our farms
through many, many yea^rs, who now live in nice brick homes that
they own and that they fix up, and I have seen what's happened to
the children of these families in large measure because they have
more pride and they have something of their own. I have seen them
as individuals, particularly the children in schools, develop a new
pride and a new sense of who they are and what they a/re and what
they can be, and I don't think it would have ever come about if it
hadn't been for the FHA homes that they live in.
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^ Now, while this rankin-^ and wliat we liave done in North Caro-
lina in terms of inoreased building of homes is commendable, and
it's certainly attributable to the FHA staff and we have wonderful
people working in it throughout this Sta4>e, we still have a tremen-
dous need for tSditional dwelling imits.
Consider, for example, that while we were leading the Nation in
production, only five States in America had more suibstajidard hous-
ing units in farmer home service areas than North Carolina had.
1 would also ask that you take note of the fact that according to
census data for North Carolina, and I might say to you, Senator
Gram — and Senator Morgan knows this — ^we are now the eleventh
largest State in America in population. By 1980 we are expected to
pass Massachusetts and then oe the tenth largest State, and all these
people live in rural areas, or the great, ^reat majority of them.
Two out of every tliree nonmetropolitan housing units were in-
adequate in this State; two out of every three. Two out of every
five nonmetropolitan rental units were inadequate. Three out of every
four nonmetropolitan rental units occupied by blacks were inade-
quate.
As ithe figures indicate, we in North Carolina are faced with an
arduous task in providing our rural population with adequate hous-
ing. Again, and when we say that, we are not talking about a small
amount of our State's population; we're talking about the great
majority of them.
We, of course, face many of the same problems in our cities, and
I appreciate what you all have said tliis morning in terms of the
fact that we don't begrudge the attention to the cities and tiie hous-
ing there* We simply think we need to focus more on it in rural
areas because in a real sense, it's sort of like unemployment and
imder-employment in rural areas. It's hidden to a great extent. It's
not very visible. It's not all jumbled up together. You don't go in
and see a great big ghetto area or even some housing units that have
been abandoned or what-have^you.
There are down-roa^s and up-paths and what-have-you, and yet,
they're there and they are there in great numbers.
Now, we are seeking in our State through a housing finance agency
that I worked very hard to get as Lieutenant Grovemor of this State;
we have put $4 million as a reserve fund to stand behind the bonds
that we are selling. We have tried very hard to help address our
problems, and yet, of course, that can only be a small supplemental
kind of effort.
. We need the help of this Federal program, and we need it to be
expanded.
In the 5 months that I have served as. Governor, my administra-
tion has sought to begin a broad thrust toward trying to im.prove
the quality of Hfe for all North Carolinians. What we are really
about is the development of human beings. We are after trying to
help every North Carolinian fulfill his or her full potential.
We had a great Grovemor of this State at the turn of the century
who came from the area that Senart;or Morgan and I are from who
talked about the importance of every North Carolinian having the
opportunity to burgeon out all that is within him and that's really
what we're after and government both at the local and the State
tod the national level ought to be helping us do that job.
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We are concerned about education; we are concerned aixwit eco-
nomic development, people having good jobs. We are concerned with
crime pt^evention and health care and our mental health etforts. We
are conoei^ied about transportation and all of these things really tie
together.
We are looking to the development of the whole person, and we'll
3te putting much of our emphasis on the development and preserva-
tion df i^od communities, good places to live and to wora; places
tfiat provide aii enjoyable life and the kinds of economic ana edu-
cational and social and cultural opportunitiies that promise a good
future ko those who live there.
I hapf^en to believe very strongly tihat we are seeing some changes
6i America. Increasingly, -We value not just itiaterial goods, although
those are important and drucial ; increasingly, We are valuing what
las been called the dufility of life.
We tire concerned about where we live and what that community
» like and what it's like to raise our chUdl^en there and provide
cpportuiiities and are we happy? That's what we're really concerned
aibout.
Now, we have in this State, as I indicated to you earlier, a Depart-
ment of Natural Resources and Community Development and that
is — ^heretof ore, it was called the Natural Resources and Economic De-
velopment, and we are putting the Economic Development into oiXr
Department of Commerce and making this local or community de-
velopment a full partner with our Natural Resources, indicating our
concern that we do all that we can to support communities and to
give them the kinds of leadership and help they need. A vital part
of that community development department, or part of that de-
partment is going to be housing. The kind of physical environment
that a child grows up in, I am absolutely convinced, has perhajjs
more to do with the kind of person he becomes than all other experi-
ence. It is not just a matter of space. It's not just a matter of having
some privacy and a child maybe having a room or maybe with a
brother or a girl sister, rather than just all being jumbled together.
It's a matter of how Mama and Daddy feel about it. We know that
Jparents have the greatest influence over children, but if parents take
pride and if parents are working, and the other, in particular, is
working in a condition where she's apt to have more patience and
tolerance and, again, pride, that's going to be reflected in those
•hildren.
The wrong kind of environment can stump and cripi)le. We have
Been that happen so much in America, and the right kind can help
to develop the whole person, and we know our proiblems in rural
housing and you all, of course, know them so wdl tliroughout this
country.
We are one of the most rural States in the Nation, as I have
indicated. We are retaining that character, and we — ^years ago, we
didn't appreciate it. You know, we thought we just wanted to in-
Aistrialize and we wanted to, you know, mayibe to have our cities
get great big. But we have changed our attitude. We still want to
Save more good jobs. We still want to have more good industry. But
Aow we are seeking to retain that rural character, conastent with
infne increased growth and industrialization and udbandzatioia in
Mrtain parts.
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In this State, about half of our citizens live in mral areas. Witk
our scattered population of smaJl dtiee and towns and ooonmuni*
ties, and only five of our cdties have over 100,000 people, we have a
great deal at stake in North Carolina in U.S. Senate bills 1050
and 1S59.
The Bural Housing Act of 1977 has the i)otential to significantly
affect housing in this State. We endorse Senator Humphrey's bill,
S. 1150, and encourage its passage, and we are veij happy to see
the increased appropriations from $80 mdllion to $105 miUion iA
your amendments, Senator Morgan.
I want to atroi^ly endorse the provisions of the act that establisk
a Sesearch Division. I would recommend that the B^earch Division
concentrate on developing energy conservation through design fea-
tuires and materials and construction techniques.
My administration and our State are deeply committed to ener^
conservation, and by and large, bringing that about, paiticularly m
homes, it's going to have to come alx)ut by efforts within the State
and within locaTgovemment, and we are going to have a very strong
effort in that re^rd.
We have an Enei^ Conservation Act of 1977 that I hope wil
pjass the General Assembly this week. We are going to have a mas-
sive effort with our extension people working on it, and all other
kinds of groups, and my administration will be giving this strong
leadership.
I believe that strict energy-efficient guidelines should be developed
and implemented in all FI^ housing units.
Again, Senator Morgan, Senator Gam; we appreciate your being
with us here in North CSarolina. We appreciate the opportanity t^
present testimony on behalf of the people of this State. I look for-
ward to working with the Farmers Home Administration to increase
housing production and effioiency in development and to provide
better Hving conditions for the people of this State.
I know wiat we have much m common with your State, Senator
Gbum, and as you go alon^ and as you hear the testimony in tha
other parts of the country, if we here in North Carolina can present
any further testimony, more particularly on certain points that you
wish to have either here or in Washington, I would say to both of
you that we would be very ha{>py to ao sa We know that you all
woork hard for us. There are a lot of times tiiat we are frustrated by
what happens at the Federal level. There are many times we are
pleased, and we take great pride in it, and we see you focusing on
these great and pressing needs of our peoi)le. We are very glad and
we are grateful for th£^ It renews our faith in our country and im
our Fe(&al Government
Senator Mobgan. Governor, thank you very much for your very
informative presentation, and we appreciate your interest and hope
we can make it more of a joint project between the State and thm
Fanners' Home. And I believe 111 yield to my colleague.
I have alwajrs wanted a chance to cross-examine you but I won^
do it this morning.
Senator Garn. Well, I'm just pleased. Governor, with the sig-
nificance of your coming personally to testify, and it shows you'ro
interested in the problem. My own Governor, who is also a Demo^
cr^, whom you may have met. Governor Matheson
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Governor Hunt. Not only that; I gave him a ride over to the
White House for a reception at the Govemoirs' Ckmference the other
evening.
Senator Garx. He wanted to come to the Salt Lake City hearing
but interestingly enough, he was in New York to work on the bond
issue for the State for the Housing Authority. We felt it was more
important that he be back there actually arranging some money for
doing what we were talking about than being at the hearing, but I
do very much appreciaite your personal interest in being willing to
appear here.
Governor Hunt. If I may just say this; that you have reminded
me of — ^and Senator Morgan; with our State Housing Finance
Agency, and it's going to have a very strong and aggressive leader-
ship. Now, we welcome you. You know, you look at Siat along with
ours or FHA whole oreaniasations has resources to help us carry out
these kinds of things that you're going to see are necessary for this
couiKtry.
This division and split that we have sometimes had between Fed-
eral and State agencies, we ought to try to end. We ought to work
together as cooperatively as we can, and I pledge to you and this
Stete we will try to set an example for the Naition.
Senator Morgan. We're going to try to do the same thing in our
committee. Thank you, Governor.
Governor Hunt. Thank you, Senator. I appreciate you letting me
come. Good to be with you.
Senator Morgan. Again, those of you who had not arrived when
we began, we are delighted to have you at the hearing this morning.
We are going to run sort of a tight schedule so we're going to try
to proceed as fast as we can.
Our next witness this morning is Mr. Jack Smith, who is the
deputy secretary of North Carolina's Department of Natural Be-
souTces. We're glad to have you. Jack.
STATEMENT OP H. A. SMITH, DEPUTY SECEETAEY, HOETH
CAROLINA DEPARTMENT OP NATUEAL EESOUKCES
Mr. SMrrH. Thank you. Senator. It's an honor to have the oppor-
tunity to come to make remarks before your committee, and let me
add my congratulations to those of the Governor to you on being
appointed as chairman of this very important subcommittee.
And Senator Gam, we're certainly delighted to have you in North
Carolina, and we're delighted at the interest that both of you are
showing in this very, very important area of rural housing.
Back in fiscal year 1974, the Farmers Home Administration made
four very significant changes in its rural housing program. These
changes mcluded the expansion of the service areas up to the larger
cities of 20,000 persons, a new proigTam of rental assistance pay-
ments for low- and fixed-income lamilies, amendments to section 515
of the act allowing for public agency sponsorship, and an extended
repayment jjeriod under the section 504 program.
Tlie administration of these changes should have made 1974 a
banner year for rural housing, not only in North Carolina, but in
our Nation. But imfortunately, that is not what happened; 1978-74
turned out to be a disaster instead of being a banner sort of year.
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The funds were froosen; there was PrBsidential moratariuim ai
holding beck of ttiese ezpenditiires has been estimated and translate
into 20,000 fewer housing units which could have been built in ruw
ansas in 4hat year. Since that experience, the Farmers Home Ad
ministration production level has risen and has gotten up to a fairlj
even level today so we feel Hke that that program is back on it£
feet and ready to move.
The provision of Senator Humphrey's bill, some of the outstand-
ing features of that, we think, will help to move it even fusther.
Some of those provisions from our perspective, we think, are out-
standing and imx)ortant are the autihorization to provide financial
assistance, to correct construction defects in housing units ptior to
or after they are occupied. And heretofore, as we understand it, the
occupant has had the total responsibility for these repairs. Now in
many cases, it's proved to be a iburden to the occupant to the extent
tliat he either lost the property through default or to older people
on fixed incomies and poorer people, it^ just a burden that they can-
not I leair. They just- neglect the repairs, you might say.
Through the provisions of this new bill, the occupant now has
groteotion and he has an avenue for restitution if there is found to
B poor workmanship in the construction of the property that is
built under FHA auspices.
Furthermore, if the dwelling had been occupied beyond the war-
ranty section, section 502 has been expanded to jyrovide loan funds
for repairing those homes, and we're talking about a quality of life
in this whole program, so we want the housing tliat is provided to
be of substantial and reasonable quality. ^
We like also section 4 of the bill relating to research as an area of
particular interest in North Carolina. Tlie Governor has already
stressed this but we would just endorse that stress that he added
to it.
We are engaged in some similar activity in rehabilitation of hous-
ing and in promoting energy efficiency.
We believe that the estaiblishment of the Division of Research in
FHA would be appropriate and would be of real value to the total
of the rural housing industry. It is very important to know about
the dynamics of the housing market when we think about this. We
are not talking about just housing. We are talking about community
facilities. We are talking about water and sewer. We're talking
about recreation and the other aspects that all tie into the dwelling
house itself. They should be integrated into a unified program.
Research on how to oixihestrate these services in order to achieve
the maximum benefits from them, we think, is highly imperative.
We endorse the service that works toward that concept. In looking
at the total housing picture, one of the elements that's been sug-
gested for research is the determination of the adequacy of existing
housing.
The 1970 census deals with plumbing facilities and deals with
overcrowding, but it does not touch upon structural conditions.
At this point, we have no meaningful measure to judge the adequacy
of some of the existing rural housing.
Beeeaoich into how our rural housing stock fares under these
conditions would be very valuable to this State. We would be able
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to determine where our moet serious needs are, and of couree, that
would allow us to devote some of our attention to those moet
serious needs.
We would also be able to measure progress as a result of the
attention that is paid to rectifying those housing proibleans on a
regular or periodic basis. There is, without question in our mind,
a need for research and more eflfeotive financial mechanisms for
the low-income rural family.
In some oases where substantial subsidies are necessary to readi
households on a fixed income, housing is so expensive at this point
in history that nearly all of it provided through the private sector
is totally inaccessible to the low-income, middle-income family, and
to many of those who are on fixed incomes.
We are very happy to see the recent emphasis on securing ade-
quate housing for the handicapped and elderly. They do have special
problems requiring special treatment.
In our rehabilitation activities, we have made special provisions
for the elderly and handicapped. Recently, our department ap-
plied for some Federal funds in conjunction with the Division of
Vocational Eehabilitation of the North Carolina Department of
Human Besources to rehaJbdlitate some dwellings that are occupied
by handicapped persons.
The Farmers Home Administration's recently-developed program
of grants for rehabilitation to persons over the age of 62 will be
of a great deal of assistance to the elderly homeowners.
Some sLttention might be paid also to the conditions of the handi-
capped. The new provisions for subsidies under section 521 permit
the Secretary to make available funds to a low-income person to
make up the difference between the monthly payments to include
not only the principal and interest, but taxes, insurance, utilities,
and maintenance that come to more than fifteen percent of his
gross income.
Previously, a low-income person was required to spend the first
25 percent of his gross income for this housing expense.
The important aspect, we think, of some of these provisions is
the inclusion of the monthly utility expense as one of the deter-
mining factors because we have gotten into the situation now where
we see at times the utility escpense ibeing OTeater than the basic
housing expense itself, and this may have been doubly magnified
in some of the low-income housing where the houses were not well
insulated when we had such serious energy problems last ye^r,
and I am sure that there were many, many cases where the utility
payment exceeded tiie rent payment*
feuit the new approach for it techndcally ensures fewer defaults
and increases the disposable income of the poorer rural citizens
in our State and in other states.
We are also interested in the economy of local governments
and their plight to supply decent housing to our citizenry accom-
panied by tlie adequate services and facilities. We have been faced
m recent years here in North Carolina with the phenomenon of
strict rural housing development along our major nighways lead-
ing out of our amaller communities and in isolat^ strips far
from the urban concentration. I know you have seen tJiis many,
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many timee, Senator, as yoa have traveled acro6& oar fair State.
We realize that this type of urban sprawl is not eoonoraical and
is not oondncive to free traffic flow, and it also puts a burden on our
local governments to discourage tJiis type of growth as far as it
can through the use of well formulated land use plans and related
zoning and subdivision design regulations.
Wiwi the help of Farmers Home Administration, local units of
government in the State could deal effectively with some of these
land iLse types of problems. We need encouragement find .backing
from FHA to promote responsible patterns of residenitial develop-
ment; patterns which promote the efficient use of the services, not
only the roads but the fire and police protection and the use of
energy, as well as the utilities. Some research into how thas phe-
nomenon can be dealt with without telling somebody he cant use
his land like he wants to at a very early date is an important con-
sideration we think, Senator, as research is delved into.
Waste treatment certainly is a highly important con£dderation in
determining where and how many units will be developed in rural
areas.
The increased appropriations as outlined in your amendment,
Senator Morgan, will stimulate the construction oSf the larger num-
ber of units. Along with the units, we need efficient wster and
efficient waste treatment facilities, and these could be, we think,
the subject of research activities under your proposed Division
of Research.
Now we have covered a number of the aspects relating to Senator
Humphrey's bill, certainly not all of them. You have already heard
Governor Hunt refer to the uniaue situation we have population-
wise in North Carolina. We do have this high population, but it
is spread over a large area and I am reminded of several years ago
when the land use planning expert appeared in this State to talk
about our situation and he came from the densely populated North-
east, and he said to us in a tone of great seriousness, "Gentlemen,
you still have time to plan and to plan wisely for a high quality
of life"; said, "some of us have gone beyond tfie point of no return
and we can't do that."
We do sit in a uninue i)osition in this State and I gather in your
fine State, Senator, wnere we do liave time to deal with the i)opula^
tions that are broadcast in a wide distribution pattern throughout
our rural areas. At least half of our people in this State live in
rural areas. This is a very, very significant fact^
North Carolina could stand to 'benefit and to benefit greatly from
the provisions of the bill, and we support those provisions in our
testimony here today.
It's been a distinct privilege and an honor, Senator Morgan, to
have the opportunity to testifv before your subcommittee. We
thank you, and we thank you, Senator Gam, for the interest that
vou both display in this very, very vital element in helping: us to
build a quality of life that we thiiik the citizens of North Carolina
and of the United States deserve.
Senator Morgan. Thank you, Jack. The department is to be com-
mended for its insight into many of the problems. I am sure you
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know, or those here might be inter^ted to know, that some of the
problems you referred to such as oonstruction defects, rural re-
search and special assistance for the handicapped were dealt with
in the amendment that Senator Gam and I offered which has now
passed the Senate.
I would like to comment on one other thing, which I am glad
you alluded to and that is responsible patterns of development.
One of the things that has concerned me about Farmers Home
in this State has been eome of the patterns of development. I am
afraid in some areas we have built in slums to begin with.
In Utah it was alluded to the fact that the larger the lots for
single family dwellings, the more costly the homes or the project.
But on the other hand, where we have so much space available as
we do in this State with very few water problems. Jack, I wonder if
it's wise to build a development as we have in a number of areas
in this State where you put them on very small lots and where
you put the well in the front yard and the septic tank in the back,
and where we know that we're building in problems now, and in
a number of areas, we have done it with wide open spaces, plenty
of land available. And I just wonder if additional cost for land,
wouldn't be justified. I'm glad you're looking into and you're studying
this problem.
Mr. Smith. We think it's highly important and there are so many
conditions that affect the choices in this.
From the very beginning the conditions of your soil limit some-
times to having a large lot if you're using a septic tank and also
whether or not it's gomg to be private facilities or public facilities
provided, too, will determine the responsible patterns that are
utilized and we think it's very highly important.
Senator Morgan. Senator Gam.
Senator Garn. In Utah we heard a great deal aibout the relation-
ship between local and State government and builders and the FHA
offices. Wbat kind of experience do you have here in North Carolina
in working with the Federal people as far as cooperation while
working on these problems that you outlined ?
Mr. SMrm. The experiences that I have had with the Farmers
Home Administration, and let me preface that. Senator, by saying
that my experiences with them were primarily the time that I
was in the local government, rather than in the State government,
have been very, very favorable. They were most cooperative and
and helpful to us.
But we have said in our Department, and the Governor has said,
too, that the thing we want to nave within the State is a responsible
working relationship, a close partnership between the State and
the local government, and as we deal with Federal agencies, we
want to have just exactly that type of experience here, a strong^
working relationship, ana I have been fortunate in knowing the
leadership, not only in the FHA, but a^ain, the other USDA
agencies, and they have been most cooperativeu
Senator Morgan. Thank you very much, Jack.
Mr. Smtth. Thank you for the opportunity of appearing
[The following letter was received later for the record :]
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State or Nobth CUBOLurA
Department of Human Resouboes,
Division of Health Services,
Raleigh, N.C., July 8. 1977.
Hon. ROBEBT MOBQAHt
U,8, Senate.
WatMtHfUm, D.O.
Deab Senatob Moboan: This past June 20, 1977, I attended your hearing
on Rnral Housing in the Century Post OfElce's old Federal Ck>nTt Room, Raleigh,
North Carolina. In closing the public hearing yon indicated you would wd«
come any additional comments regarding Rural Housing. I am taking this op-
portunity to express to you some of my thoughts.
First, for numerous years our local health departments through the publie
health sanitarians have been inspecting migrant labor camps with ten or more
people. In addition, these past few years they have begun to work with the Em-
ployment Security Commission and the Department of Labor in inspecting
places with fewer than 10 migrants as there has been a renewed interest ia
mi^nnants by other agencies. Our local public health sanitarians have checked for
water supplies, rat harborage, mosquito breeding, sewage dis^KNsal, and other
envircmmental health concerns. This past year there were 2.187 privy inspec-
tions, 122 s^>tic tank inspections, and 1,194 well inspectiona Indicating that con-
siderable use of outdoor toilets continues in rural North Carolina, especially
in migrant housing. We feel that any assistance that can be given to the
farmers in helping them to provide better housing to migrants would be bene-
ficial to all North Carolinians. In addition, rehabilitation of housing and monies
to provide pr<^)erly constructed wells and sewage disposal systems would serve
North Carolina's interest. Other thoughts along these lines would be plumbing
fixtures that reduce water usage and insulation that would save natural re-
sources and reduce energy consumption.
Second, there were numerous comments regarding the use of septic tanks
in North Carolina. Septic tank systems are an economical and effective method
of sewage disposal in adequate soils of North Carolina ; however, such systems
were originally intended for use in rural areas/farms where there was sufficient
land to expand or repair a failing system. Our State rules permit the installa-
tion of septic tank systems in provisionally suitable soils that are marginal.
Most of our septic tank complaints still come from the individual who has
purchased a house in a subdivision where systems have been installed in
unsuitable soils. Usually there is no room to repair the septic tank system
and because of the number of houses with failing systems the problem is
compounded. The individuals who find themselves living in a subdivision of
this kind face serious environmental health problems. They cannot get city
sewer and there is no room to repair their system and probably the easiest
thing to do is to walk off and leave the property abandoned. In some cases they
have been financed by Farmers Home and the government ends up paying the
bill. Some thoughts on ways to prevent this type of subdivision from develop-
ing and being financed by Farmers Home Administration are as follows:
1. Require detail soils map of subdivision lot by lot and require the soil to
be classified by the Soil Conservation Servicea Generally, soils that are eval-
uated by the Soil Conservation Service as having slight limitations for on-
site sewage disposal are considered some of our best soil for high density
septic tank usage.
2. Provide enough land that in the event of a septic tank failure a competely
new system can be installed without polluting any on-site water (well) supply.
3. C<mimunity water systems are also recommended. Think of the complexity
of ^vironm«ital health hazards that may occur in a subdivision with 100
houses on y^ acre lots eadi with their individual septic tank and on-site water
(well) supply.
There are some other areas which should be addressed. We need more re-
search on new treatment systems for on-site sewage disposal. Soil scientists at
N. C. State are now experimenting with alternate wastewater treatment systems
for severly limited sites. In addition, research is needed on water fixtures that
reduce water consumption in our homes. Perhaps investigating recycling water
in the home would be beneficial.
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in the State. But we had— we have risen in the past 10 years from
abotut 10 p^-PCtot now. I just wanted to point that out.
Senator Morgan. One of the things I mentioned earlier, ccmcems
a i^tfaliion whto I was practicing law in my hometown over 20
years ago; thfere was nowhere you could get a loan to huild a home
except from an insurance company and then you had to have about
60 ^ejTcent of the cost of the h<Mne, or from the Farmers Home Ad-
ministiution which wasn't making manjr loans at that time, and once
in a while, Mr. Floyd, a bank, but primaHly, the bankers weren't
interested in tesidential loans, so we were stymieid.
But the savings and loan have filled a real void there.
Mr. Floyd, wonder if you have any opening comments and then
we'd like to come iback to this joint program.
STAtEMENT OP W. B. JLO YD, REPEESEHTINO PLAHTEE'S NATIONAL
BANE
Mr. Floyd. Senator Morgan and Senator Gam, it's a pleasure
to be here. First of all, I'd like to commend the Senate for establish
ing a Rural Housing Subcommittee, and especially to congratulate
you for being the chairman of this Rural Housing Subcommittee.
Having grown up in the State of North Carolina, and having
grown up on a farm and spent the first 18 years of my life in what
was pernaps ceHainly today would be classified as substand-
ard housing, I can certainly appreciate the need for rural housing
improvement in all areas of the country.
Just as a general comment, I think that the rural housing prob-
lem in North Carolina has come a long way in tiie 15 years that I
have been in the mortgaj^e lending business. Development of rural
housing has been rather significant during that period of time with
financing from a numlber of sources, and I think if you ride through
the countryside of North Carolina, you see some awfully nice rural
homes scattered throughout the entire State.
This is not to say that the problem ds totally alleviated or elimi-
nated in the State, because there is an awfiil lot of substandard
houfiing left in rural areas as well.
But I do think a particularly significant amount of progress
has been made in the State of North Carolina and I comanend you
for holding your hearings on rural housing problems in your own
home State.
Senator Morgan. That's solely because, Mr. Floyd, that we know
more about our home States. It wouldn't be for any political pur-
poses at all.
Does your bank do business of any programs jointly with the
Farmers Home?
Mr. Floyd. Basically, no, Senator. We have attempted a time or
two to participate in the loan guaranty program ; the Farmers Home
loan guaranty program, I believe, has been in existence for three
or four years as a release to the commercial and industrial type
loans, and only since about January as relates to residential mort-
gage loans.
We were invited to participate in a seminar put on fby the county
supervisor of the Farmers Home Administration in my home county
back in January, in whddi all interested private lenders in the area
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out aJbout a fiiend down the road with substanda^id houabog who
was (making no corpections and getting away with it.
As I have already stated, all camps will be inspected, and fairness
will be guaranteed to all. In addition, our consultant service will
continue to provide advice to growers as they attempt to improvB
old housing and set up new camps.
Many farmeans are interested in improving housing, and I thiiik
some would even build new houring if money were readily available
in the form of loans at attractive in^rest rates.
This brings me to Senate bill 1150, referred to as the Eural
Housinj^ Act of 1977. Under section 4 of the bill, provisions are
made 'ror the establishment of a Besearch Division within the
Farmers Home A(bninistration. Through this Division, or any other
group with which the FHA contracts, an attempt will be made to
evaluate the quality and condition of migrant labor housing units.
As a result of the research and study, recoflnMnendations will be
made to correct any deficiencies discovered in the condition of
housing.
Also, this Besearch Division can evaluate the job the FHA has
done to improve substandard migrant housing and the present au-
tbointv« With this information, suggestions can be made as to .tb0»
need for any new enabling legislation.
I believe that research and evaluation in the area addressed Isy
Senate bill 1150 is necessary if we are to solve the migrant housing
problem in this State and throughout the country.
Based upon the information which I have been able to obtain,
the present authority granted to the Farmers Home Administration
has had minor effect upon the truly migrant housing. Specifically^
section 514 of the Housing Act of 1949 establishes an insured loan
program for farmowners wishing to improve existing housing
or to build new structures. Farmers are aware of the attractive 1
percent repayment rate provided under section 614. But since Octo-
ber of 1976, only one farmer from a three-county area, which pos-
sesses the lai^gest numiber of migrant labor camps in the S4ate, has
fvpplied for such a loan. In these three counties-— Johnston, Sampsoa.
and Duplin— only two camps have been built with assistance from
section 514 loans. These statistics imply that farmers are unwilling
to provide adequate housing, even wnen programs are available to
aid in tiiis effort.
We have found that this is not tiie case. Many farmers are willing
to improve migrant housing, but the section 514 program is more
imaginary than real. -It does not adequately address the needs of the
fEirmer for improving the livin^g conditions of migrant labor.
If we are reallv interested in improving housing for migrant
labor, we should begin a thorough evaluation of the present au-
thority granted to the FHA in the area of housing and work toward
a new plan that would help to solve our liousing problems.
I applaud the approach of S. 1150 and believe that there are
many improvements that may flow from its passage. Some of the
solutions to our problems are obvious. Consistent funding from CJon-
gress must be assured for these loan programs. This year only 10
million was authorized for the entire country. In some years fiind-
ing has not been authorized at all. The level of funding should be
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increased oonsidera-bly, with the money being distributed fairly
among the States.
Presently, the money is authorized nationwide on a first-come
first-served (basis, until all the money has been allocated.
An effort also should be made to streamline the loan process and
to eliminate needless bureaucratic red tape. It now takes at least 6
months to process any application to the point of beginning construc-
tion. This time could ;be rednoed if the loans were approved at the
county level instead of requiring action from the State diTeotor,
and in the case of larger loans, approval all the way from Wash-
ington.
Under other FHA loan programs, county supervisoris do au-
thorize approval. The redtape and needless paper work, in many
instances, discourages the farmer and also frustrates FHA officials
who are anxious to see some results.
Finally, and most important, the loan should be availaible to all
interested farmowners, regardless of financial status, or whether
the loans are available through private lending sources. Presently,
to be eligible for a loan, a larmowner must be unable to provide
the necessary housing from his own resouirces and be \mable to ob-
tain credit from any other source under terms and conditions that
he can fulfill. This requirement eliminates a large number of farmers
from consideration. A disqualification does not necessarily affect the
farmer adversely, but it does prove detrimental to the migrant.
If we want to help migrants, we should not let any objections we
might have in giving easy money to farmers get in the way of
this goal.
Unless the Federal Government is prepared to build houses, the
migrants must rely upon the farmers, and the Federal Government
mjust make it possible for farmers to get the loans. Many may argue
that by eliminating the section 514: conditions, we are placing the
FHA in competition with the banking community. I disagree. I
do not feel that this would be the type of loan that banks vTmild
generally be interested in making, even if asked. The elimination of
this requirement should be unique to this particular loan program
and should not constitute a precedent for other FHA-administered
loans.
These are a few of my suggestions which should give some indi-
cation as to the work that needs to be done in the area of migrant
housing. I am hopeful that S. 1150 will be received favorably by
Congress so that the work can begin.
Senator Morgan Thank you, Taylor, and express our apprecia-
tion to the Commissioner. Senator Garn, I don't laiow whether the
State of Utah administers the OSHA program or not, but
Senator Garn. We tnr.
Senator Morgan. Well, we try, too, and I think I'm grateful that
we do, when I hear the complaints from some of our colleagues
where it's administered by tlie Federal Government, and I think
we're doing a good job.
Taylor, there is one question I might ask if you have an opinion
on. The Department of Agriculture wants the Research Division —
Besearch Department to be in the regular Research Division of the
Department of Agriculture, rather tlian in the Fa.rmers Home Ad-
ministration. In the amendment to the bill that Senator Gam and
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I submitted to this committee, it was set up as a separate division.
I wonder if you discussed this in the office or if you have any
opinixm.
Mr. McMillan. We frankly have not discussed that, and I would
be hesitant to speak about it, not knowing what the various issues
are.
Senator Morgan. Don't we also administer the Mine Safety Act!
Mr. McMillan. That's correct.
Senator Morgan. We hope we can eet some support from Senator
Gam on that. Senator Gam is going beck to Wasihington this after-
noon because that's coming up and as I stated, he is very interested
in mines, so, Jake if it comes up before I get back, I hope they
won't tsike that right away from us. There is some discussion.
Mr. McMillan. We appreciate that.
Senator Garn. Just a comment that we feel very strongly about
it, and I think the State is the place to administer it. We're entirely
opposed to turning it over to the Department of Labor.
mr. McMillan. I agree 100 percent.
Senaitor Morgan. Thank you very much, Taylor.
Mr. McMillan. Good to see you.
Senator Morgan. Next we have a panel; Mr. Herb Wentworth
and Mr. W. B. Floyd from the Planters National Bank, so if you
gentlemen would come up.
Mr. Wentworth is the executive vice president or executive officer
of the North Carolina Sayings and Loan League, and Mr Floyd is
with the oldest bank in this State, I believe one of the oldest, in the
eastern part of the State, about 78 offices, Mr. Floyd?
Mr. Flotd. Not quite that large, sir.
Senator Morgan. I'm trying to build you up.
Mr. Floyd. We're close but not quite that large.
Senator Morgan. Good to have you gentlemen with us and we
appreciate your taking the time to come. We know that you both
are very interested in housing. I have had the pleasure of working
with Herb through the Savings and Loan Association for many
years, and I have to plug the savings and loans in this State. Thej
do a great job in making money available to many people in this
State. I expect most homes are financed in this Sbate by Savings
and Loan, aren't they, Herb?
STATEMENT OF HEBB WENTWORTH, EXECUTIVE VICE FBESIDENT,
NOBTH CABOUNA SAVINGS AND LOAN LEAGUE
Mr. Wentworth. That's right. Senator, and I do appreciate the
opportunity to come before this committee; you, Senator Morgan,
and Senator Gam. We have in this State 179 Savings and Loan
Associations. We have them in all counties except 12 out of the 100
counties. We have 136 that are State-chartered, 43 Federal char-
ters, and we have over the State 244 branches at the present time
Total assets of the savings and loan business presently are $8.1
billion in North Carolina, which is a substantial amount.
I noticed in some of the figuires that were in a report made by
a professor of real estate in South Carolina that presently the
savings and loans are making about 35 percent of the rural logins
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in the State. But we had — ^we have risen in the past 10 years from
about 10 ptt-cent ncm. I just wanted to point that ooit.
Senator Morgan. One of the things I mentioned earlier, concerns
a i^tfation when I was practicing law in my hometown over 20
years aigo; th^re was nowhere you could get a loan to huild a home
except from an insurance company and then you had to have about
60 percent of the cost of the home, or from the Farmers Home Ad-
ministration which wasn't making many loans at that time, and once
in a while, Mr. Floyd, a bank, but prima/rily, the bankers weren't
interested in residential loans, so we were stymieid.
But the savings and loan have filled a real void there.
Mr. Floyd, wonder if you have any opening comments and then
we'd 'like to come back to this joint program.
STAtEMENT OE W. B. IXO YD, EEPEESENTINO PLANTEE'S NATIONAI
BANE
Mr. Floyd. Senator Morgan and Senator Gam, it's a pleasure
to be here. First of all, I'd like to commend the Senate for establish
ing a Eural Housing Subcommittee, and especially to congratulate
you for being the cnairman of this Rural Housing Subcommittee.
Having grown up in the State of North Carolina, and having
grown up on a farm and spent the first 18 years of my life in what
was perhaps certainly today would be classified as substand-
ard housing, I can certainly appreciate the need for rural housing
improvement in all areas of the country.
Just as a general comment, I think that the rural housing prob-
lem in North Carolina has come a long way in the 15 years that I
have been in the mortgage lending business. Development of rural
housing has been rather significant during that ijeriod of time with
financing from a numlber o3 sources, and I think if you ride through
the countryside of North Carolina, you see some awfully nice rural
homes scattered throughout the entire State.
This is not to say that the problem is totally alleviated or elimi-
nated in the State, because there is an awfiil lot of substandard
houeing left in rural areas as well.
But I do think a particularly significant amount of progress
has been made in the State of North Carolina and I commend you
for holding your hearings on rural housing problems in your own
home State.
Senator Morgan. That's solely because, Mr. Floyd, that we know
more about our home States. It wouldn't be for any political pur-
poses at all.
Does your bank do business of any programs jointly with the
Farmers Home?
Mr. Floyd. Basically, no, Senator. We have attempted a time or
two to participate in the loan guaranty program ; the Farmers Home
loan guaranty program, I believe, has been in existence for three
or four years as a release to the commercial and industrial type
loans, and only since about January as relates to residential mort-
gage loans.
We were invited to participate in a seminar put on 'by the county
supervisor of the Farmers Home Administration in my home county
back in January, in which all interested private lenders in the area
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were invked to learn about the guaraBteed home loan program of
the FannerB Home Adminiatratdon, which at that time was totcdly
new. Quite frankly, I have some negative feelings about the work-
ability of the guaranteed home loan program as it relates specifi-
cally to our general area in the State of North Carolina. While it
may be a workable program in the midwestem areas or in Senator
Gam's home area, I r^illy don't see it as a workable program in
North Carolina, and I would — I don't know specifically if any such
loans have 'been guaranteed today in this State, but would seriously
douibt that they nave.
We as a commercial bank operate principally as a mortgage
banking firm, as I think do most commercial oanks in the State of
North Carolina who are in the home lending business in any fashion
whatsoever, and as a mortgage banker, of course, we are originating
loans for sale in the secondary mariset and not tying up our own
capikal with long-4ierm type investments As relates specifically to
the Farmers H(Mne Administration home loan guaranty program^
an awful lot of responsibility is placed on the lender that is not
placed upon the leiuier in the Veteran's Administration programs
or the HtlD programs, for example, and I'm speaking specifically
of responsiibility for appraisals and responsibility for inspections
during the course of construction in new dwelling units.
Most lenders, of course, do not have sufficient staff with technical
cocpertise, certainly, to be proficient in the area of making inspec-
tions to determine that construction ccmforms witli plans and speci-
fications and conforms with minimum property standards as set up
by the Farmers Home Administration, and this, I think, makes
eotry into the guaranteed program very difficult for most private
lenders.
There are a number of other things that I think make it difficulty
not one — ^not the least of which in our case is the fact that although
we are permitted to sell the guaranteed portion of such a loan, we
cannot '"except through participation'' sell the unguaranteed portion^
which means that we have to retain at least a minimum of 10 per-
cent participation in any loan that we make under this program.
While this would iperhaps be feasible for us as a commercial bank^
for moet small mortgage bankers in the State, it would certainly not
be feasible due to the limited amount of capital that they have for
them to attempt to caiTy ungiuiranteed poitions of loans for their
life, whatever it might be.
Those are basically my comments. There are a number of other
minor technical reasons that I feel that this program is not at the
moment a workable one fix)m our standpoint, which I will not at-
tempt to go into at this point in time.
Senator Morgan. Before I forget, did I understand you to say
that under the program you cannot sell the piaranteed portion of
ihe loan — the 10 percent that you must retain tliat —
Mr. Floyd. That's right. You can sell, as I understand a participa-
iieta interest in that 10 percent, but as the originating lender, you
have 'to retain at least some interest and you have to retain the note
and all security instruments relate<l to the loan and have to remain
in service enga^^ing for the loan whatever the life might be.
Now, quite iranKly, it would be — it would be totally impossible
to sell a participation in a 10 percent interest in the first place.
94-911—77 9
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Senator Moroax. Now, you commented that under VA, tJiat th^y
carry on some of the requirements that Farmers Home requires
the lender to have, such as the appraisal. When you participate
-with VA, do you have to do anything during the building and con-
struction stage?
Mr. FiiOYD. No, sir.
Senator Morgan. But under the Farmers' Home program you
would have to do that?
Mr. Floyd. [Nods affirmatively.]
Senator Morgan. Is your bank equipped to do that sort of thing?
Mr. Floyd. Not witii our own staff, no, sir.
Senator Morgan. Henb, what's been your experience in this?
Mr. Wentworth. Senator, we work basically with conventional
loans; have very few VA loans, very few FHA loans and few
Fanners Home loans. This isn't entirely to our liking, particularly
in the rural loans. We feel that on many occasions in the past,
particularly, the loans have been made 'before a chance has been
given to the financial institutions in the State to make these loans.
We had a meeting — the housing industry in the State had $, meet-
ing several years ago with the Farmers Home officials, and we
ironed out most of these difficulties and have had referrals since
then.
I have had a number of complaints, not only in the home loan
section but also in the ccmimereial area that loans — ^some of the
savings and loans would have been very happy in a community to
make that type loan but were not given the chance. One in par-
ticular — ^this happened to be a oommercaal loan in a small com-
mimity, about $1V^ million and the savings and loan in that par-
ticular community was willing to make that loan and they had no
opportunity to make it. When they brought it up before the agent
there, he said that, "Well, you wouldn't have made that loan, any-
how. You wouldn't have made it at the rate of the loan."
I don't recall what the rate was, but it was somewhere in the
vicinity of 8 to 8^ percent, and he said, "Well, they would have
made it at that time." He said, "Well, then, you wouldn't— you
couldn't have made it for 50 years." Which was true.
Now, I don't — that's one instance We have had a number of other
instances in home loans where my attention has been called to in
some counties, particoilarly where they would make them and have
not been able to because there was no referral, no indication that
anybody wanted to borrow that money.
Senator Morgan. I have had a number of complaints similar to
this one. Do you think there should be some kind of limitation that
the Farmers Home should assure themselves that the loan could not
be by conventional methods before they get involved so that this
money could be saved for those who couldn't find mortgage money
available elsewhere?
Mt. Wentworth. I would feel this way. I'm looking at a table
now. Farmers Home Administration table, and it's incomes of
families acquiring homes through section 502 fiscal years 1973, 1974,
1975 and 1976, and in the $10,000-and-over family mcomes, in 1973,
it was 10.3; 1974, 24.5. These were the years they were making
loans; 1975, 30 percent; 1976, 35.9 percent. Now that seems to me
when you go into the lower level, we just taie a mid-point there;
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the $6,000, $7,000; in 1973 they were maiing 16 percent; 1974, 14
percent; 1975, 12.3; and 1976, 10.1.
I don't know really what those figures indicate, but in looking
at them, certainly they indicate that the tendency is to disregard
the lower-income homes, or lower-income families and go to the
higher ones, and we feel that very strongly in this State, as we are
a rural State, that basically, we would make loans, I would say,
with incomes of $12,000 to $15,000 in many instances that they are
made on a subsidized basis by Farmers Home.
Senator Morqax. One of the things I continually hear is that you
have to have an $18,000-eaming in order to qualify for the average
loan, a loan for the average home. What you're saying is that you
do make many loans for people whose income is considerably less
than that.
Mr. Wbntwokth. We make — ^yes; in this State we make a lot of
loans. I would say our average loan would come out pretty close
to running in the neighborhood of $20,000; $20,0000 to ^5,000,
wlidoh means if you make consideraible over that and we make con-
siderable under that.
Swiator Morgan. What — ^let me ask you one other question. Do
vou know if any of your savings and loans throughout the State
have paiticipate<l in the Farmers Home loan guaranty program ?
Mr. Wentworth. To my knowledge, they haven't. I talked to 10
or 15 of them and asked them why, and this has nothing to do with
the Farmer Home program, but it does have a bearing on the over-
all subject It's ^tting so complicated now with all of the paper
work that there is, proliferation of it in Grovemment, for financial
institutions to stay m the business of lending.
To give you an indication, and again, this is off the subject, too,
a little bit. Senator; we have two bills right now in the State leg-
islature; one in the House and one in the Senate; that would re-
quire a reporting form of savings and loans in the State, and the
report's already made; perhaps not as extensively as they would
like to have made, but either one of those programs would cost
the associations in the State presently from $300,000 to $500,000.
Now, that could make a lot of loans.
That's one indicatdon. The rest — on a national level, there is an-
other. In this particular — in North Carolina, to my knowledge,
I have heard no complaints and liave seen none registered, that we
are in any way not—and I'm talking albout savings and loans —
making loans in a citv where loans were of substance. I don't think
that we need to — ^I don't think that type law has to be extended
over the whole country to take care of situations in Chicago and
St. Louis, when we don't have it here.
Now, if we have it here, I certainly think that we ought to be
included.
Senator Morgan. I might tell you that Senator Gam was very
largely responsible for modifying it. It was his ability to muster
the Eepublican strength in the Senate that helped us get it by. But
let me go back to the redtape with the joint loan guaranty program.
We heard in Salt Lake City from the executive vice president of
one of the larger banks in the State, who testified that the regula-
tions were not burdensome and that they — could cope with them.
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U^ially with a large bank — regulations don't tother you as much
because you can put on an extra man to do it. But it was right in-
teresting that the next homeibuilder testiiGied and sadd that one of
his branch managers came into his building business and wanted
to handle some of the loans. He told him, "Fine," and then when
he asked hijn to participate and he got into the procedural aspect of
it, he said it was just too complicated for him to understand.
So, while the home office might have understood, the branch
banks didn't, and I assume this is part of the thing you're talking
about.
Mr. FiiOTD. Well, from a complicity standpoint, not the oom.pli-
oated nature of it as such that's prohibitive To me, it's really a
duplication, ouite frankly, of the HUD Federal Housing Admin-
istration 203-B program for the most respects, except you're talking
aibout a guarantee rather than assurances as the Federal Housing
Axkndnistration calls it. But otherwise, it's basically duplication oi
programs to me. We have been making FHA 203-B loans for a
number of years.
Senator Morgan. In the rural areas?
Mr. Floyd. In the rural areas. And admittedly, it used to be a
problem in rural areas with FHA in terms of appraisal being in-
adequate and their being reluctant to insure loans in rural areas,
but I think this is a thing of the past and we get FHA loans ap-
proved in rural areas as readily as we do in the inner city.
Senator McmoAN. One of the things that Senator Gam and I
have heard in these hearings has been that FHA in recent years,
and since it became a part of HUD, has not been as workable and
hasn't participated in as many loans, whereas before when it was
basically an insurance program, that they handled — about 60 per-
cent of the loans, somewhere in that area?
Mr. FiiOYD. I don't know that the percentages were ever tliat
high. I know from specific experience with us that percentage of mix
of FHA loans as opposed to conventional and VA, guarantee comes
down each successive year, principally due to additional redtape
that's imposed every time we turn around by HUD. That's really —
well, it's a deterrent as far as a sponsor or realtor or builder is
concerned, the cost of processing, time required due to delays and
more delays in the FHA field OTices.
Senator Morgan. What aibout VA? What was your experience?
Mr. Fix)YD. Experience has been quite good, quite good, generally.
Sena/tor Mooran Would you agree with that, Herb?
Mr. Wentworth. We don't handle any VA's or FHA's under
the private mortgage insurance companies with the services of the
private mortgage insurance companies. We find that we can handle
with a lot less redtape conventicmal loans and we can procses them
more quickly and we can take care of the situation very adequately.
Senator Morgan. Well, going back to the VA question, we have
also heard all across the country that VA is the easiest agency to
deal with. I would suggest that one of the reasons for that is be-
cause they have a big constituency. They have the American Ijegion
and the VFW who are constantly looking out for the rights of
the veterans for h<Mne loans and trying to make it more workable,
whereas the rural poor or the other poor don't have that organized
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constitaeii^ and that's one of the reaaons yoa can deal more easily
with the VA. Jake, do yon have
Senator Garn. Mr. Floyd, you recommended — ^you have some
technical recommendations. I would appreciate if you could suibmit
those in writing for the recotrd and ror the staff to review^
You mentions this 10 percent on the guaranteed program again.
We heard the same thing in Utah in the hearings there; that es-
sentially it doesn't make any difference if you nave got a loan.
This is not as secure as some others you could make« particularly
for smaller banks and savings and loans and so on, out why risk
10 peroent; and you would rather put your money into one that
is more secure. So that's the same thing weheard there.
It appears to be a deterrent to imiking loans that you're going
to put up 10 percent as a risk. You don't want to lose the 10 per-
cent either, or 5 or 15 or; whatever it is.
Mr. Wentworth. You have a built-in loss there if you do happen
to f oredoee.
Mr. Floyd. The risk element is not really the program. It's an
inability to market that 10 percent in the secondary market that
creates the t)roblems for us.
Senator Gark. A combination of the two. Both of you are with
<x)mmercial banks and the savings and loans I would assume that
almost all of your mortgage loans are made with an escrow account
for taxes, insurance and all of that Do you make any loans vrith-
<wit escrow accoimt?
Mr. Wentworth. Yes, we do; more and more, frankly.
Senator Garn. Do you have any more difficulties with those with
the people not making monthly pajrments having to come up with
the taxes at the end of the vear ?
Mr. Wentworth. You have some more difficulties, but not — ^it's
not that significant
Senator Garn. You don't feel then tliat with Farmers Home not
having escrow accounts or with the centralized office in St. Louis
these IS any real problem, particularly for low-income people?
Mr. WENTW(mTH. I thmk probaJbly they should nave the op-
portunity to pay any if they need to tJeoause a lot of people in that
income range are just not going to save for taxes and insurance,
and they just — it's like your taking out income taxes from weekly
or montiily wages. People are so used to having it taken out, they
just apply the rest of it as their salary and tliat's gone somewhere
else and they don't see it. If they have to come up at the end of
the year and pay those taxes, they^ be in great trouble and so would
the "Government trying to collect taxes.
Senator Garn. I couldn't agree with you more and this is off the
subject — ^if we could do away with withholding and everyone had
the money placed in their pockets and then had to pay it back, we
would see a screeohing halt to the spending in Washington so
rapidly.
Senator Morgan. It might be more of us in jail for not being
able to pay it
Mr. Wentworth. I a^ree with you, Senator.
Senator Garn. That's the one thing that could turn around the
bureaucracy and redtape and things we're talking aibout more rapidly
than anytlung else 'because you're right; the average person thinks
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in terms of what is their take-home pay and if they find out how
much they're paying to support Bob and I and others in Wash-
in^^Um, they would soon turn it around.
Mr. Wentworth. I a^ree with you, and I think that, unfortu-
nately, the same thing is proliferating in the social security, but
that's another subject, too.
Senator Garn. I think with the lower income groups, I think an
escrow account is very helpful.
Mr. Wentworth. I believe it would be.
Senator Garn. It should be helpful to the loan institutions, too,
because if they get in trouble financially as far as meeting the taxes
and insurance at the end of the year, it endangers the loan as well.
Mr. Wentworth. One of the biggest problems there with the
escrow account, I think, is that the average person thinks that the
financial institutions are making so much money from them, which
is not the case You take the average taxes built up over the year,
you're only collecting them for abwit half the year because you're
collecting them a month at a time and then you're paying them
out. Some of them are paid out in advance, so that there is a dis-
count in some of the counties or cities, so that the actual fund that's
there, while it's a potentially substantial — over 40,000 loans in an
institution, to the individual, it's not that substantial and to the
individual to have to pay an interest on that would be— 4:here'd
be so much — ^you might call it redtape or so much bookwork that it
can cause the institutions a consideraible loss of money and waste of
time.
And that's the same thing on insurance. I mean, basically, the
insurance premiums over the average are very small. So when you're
talking in terms of perhaps an average of $300 or less, in areas
that we're speaking of much less than $300 probably, in rural areas,
and to have to figure the interest on all of these and then make
checks out and so forth, it just — it would cost more than you would
pay out.
Senator Morgan. I believe under our bill, didn't we say that if
at the end of the year the homeowner was not able to pay it that
the Secretary would advance him the money and then add it to the
next payment so in tliat case we wouldn't be paying interest. He
would be entitled to it. He'd be paying us interest. Anything else?
Senator Garx. No.
Senator Morgan. Gentlemen, we appreciate yoiir taking the time
to come up here. You could help us in trying to make the loan
guaranty program more workable if you could give us some addi-
tional thoughts on how you think the pi*ogram might be made more
workable, and Herb, if you have any of your members that have
participated in this prc^ram — I know you had some training semi-
nars at the meeting in Miami, it would be interesting to know what
their thoughts have been or ways in which you think or your mem-
mers think dt could be made workable. The complaints we had at
that meeting, I recall, was that it was just so complex that many
Savings and Loans, especially where the branches are operated by
just, two or three people, they just didn't have the time to work
with you. If you could submit any thoughts to us, then when the
staff gets ready to study all these hearings and the information we
luM^'We^inij^hit.be able to come up with a more workable bill.
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Mr. Wbntwokth. Senatois, I appreciate very much being able to
1)6 heard.
[Discussion off the record.]
Senator Morgan. Thank you very much.
Mr. FiiOTD. Thank you, sir
Senator Morgan. And if you would send it to us, we'll make your
statements a part of the record.
Mr. Floyd. Thank you.
Mr. Wentworth. Thank you.
Senator Morgan. We have Mr. Paul Trollinger, from Asheboro,
who is a builder, and we have Mr. David Evans from Greenville,
who is a 'builder, and Marvin Gentry who is a builder, from Stokes
County, and we propose, if it's agreeable with you, gentlemen, to
hear you as a panel. So if you would come forward.
Gentlemen, we are glad to have all of you here and we appreciate
your taking the time to come down and meet with us, because it's
only from people like yourself that we are able to find out some
of the problems. I have talked with some of you before and I know
some of the problems, so we'll be glad to hear from any of you and
we'll let either one of you who would like to lead off. Would you
identid^ yourself for the record ?
STATEMENT OF PAUL TBOLUNOEB, ASHEBOBO, N.C.
Mr. Trom^inger. I am Paul Trollinger from Asheboro. Senator
Morgan and Senator Gam, thank you for the opportunity to make
a very brief comment relative to the problems facing Farmers Home
Administration's rural housing program. For the past 3 years I have
served on tlie North Carolina Home Builders' Association's Low In-
come Housing Committee. During this time we have held quarterly
meetings with the State officials of the Farmers Home in all sections
of the State of North Carolina. These joint meetings have been well
attended by builder members of our Association and officials of Farm-
ers Home.
We have found that tlie problems for the builder and home buyers
in western North Carolina are no different than those who live in
the coastal plains.
Initially, the concern centered around coimty supervisors and our
builders, in some instances, threw up their hands in desperation over
the program because of personal conflicts and low appraisal at the
county level. It was felt that many supervisors were unwilling to see
a builder make a profit and thei-e were discrepancies in appraisals
across the State. We realize that appraising is no exact science, and
through these joint meetings, we believe that not only the 'builder
has come to imderstand more of the mechanics of the program, but
the county supervisor has a new respect for our mutual concern to
provide decent, safe and sanitary housing to the persons who live
m rural areas at an affordable price.
It's becoming more and more difficult to make suitable housing
affordable to purchase and affordable to inliaJbit. The old story of
inflationary building costs and skyrocketiiig land and development
costs are tne culprits yet, and there is a void in the 520 program
that we believe can never be filled the way the program is presently
structured.
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Families just above the maximum adjusted income for low-income
families, which is $10,000 in North Carolina, cannot qualify for nerw
construction. There is an approximate $2,000 gap, and we believe
that a possible solution to alleviate this inequity would be a grant
or su'bsidy to the purchaser that would be recovera^ble by the gov-
ernment when the property is resold or when the indebtedness is
reduced to a level, that the property <be refinanced by Farmers Home
or a conventional lender.
Now to clarify that statement, that we have people coming into
our office that have family incomes adjusted of $10,500, $10,200,
$10,800, $11,200, that cannot qualify for housing at today's costs,
and so they are just turned away and there is no way to help them.
We believe that there could be a workable program that these folks
might be afforded housing. Realizing that the total availability of
comimmity sewer systems and services to rural America is many
years away, we are confronted with an immediate, and many times,
nearly insurmountable prcyblem in workable sewage disposal systems
on an individual ibasis.
A research grant to an institution such as North Carolina State
University to develop a workable individual sewage disposal system
would be beneficial. Over the State of North Carolina, over 50 percent
of our land would not accommodate available systems. A break-through
in this area would open up literally thousands of already-developed
lots to the Farmers Home program.
We believe that S. 1150 would authorize such research. We believe
that there is no shortage of program in the Farmers Home Admin-
istration. We do believe that there is a shortage of implementation
of the program.
As more of the workload of county supervisors is in the housing
field, we would suggest that new personnel have backgrounds in
training and construction fields than in the agricultural skills. Many
county oflSces are under-staffed and occupy cramped and undesir-
able office space. There is a general need for areas in county offices
where applicants can disclose their financial situations in privacy
rather than an open office for the comimunity to hear.
In closing, we appreciate the Farmers Home Kural Housing Com-
mittee. The North Carolina Home Builders' Association desares to
continue a close relationship with this agency so tliat these m^utual
goals may ;be attained and that the people of North Carolina and
America may be adequately housed.
Thank you, sir.
Senator Morgan. Thank you very much, Paul. Mr. Evans, why
don't we hear from you next and then we'll come ^back and carry on
a dialog.
STATEMENT OP DAVID A. EVANS, JR., GREENVILLE, N.C.
Mr. Evans. My name is David A. Evans, Jr., a builder and de-
veloper from Greenville, Pitt County, N.C, and a member of the
North Carolina Home Builders' Association.
North Carolina has many families with low to moderate income
who can only obtain housing through the Farmers Home Adminis-
tration programs and more particularly, the interest credit program.
The programs in theory are very excellent and should be workable.
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They provide for no down pajrment financing for low to moderate
income families ; with low closing costs and financial assistance in the
case of low income families; through interest subsidies. Making home
ownership available for many families who would otherwise te with-
out ade()uate and decent housing.
Leaving tliecMry and going into the nitty-gritty, builders in North
Carolina find many insurmountable obstacles in dealing with the
Fanners Home Administration. These problems could te classified
as follows: personnel problems within the agencj^ appraisal pro-
cedures which result in depriving the builder of motivation or, in
other words, the ability to make a profit and to a lesser degree,
certain regulations.
The personnel problem has come about through the changing mix
of programs which the Farmers Home Administration now ad-
ministers. The agency, originally being a finance agency for farmers,
was staffed to handle farm loans. In its shift to a housing lending
agency, the personnel have remained by regulations agriculturally-
oriented and not adequately trained to i^minister housing pro-
grams. Just as a typical builder or architect does not know how to
make a soil analjrsis for the determination of the type of fertilizer
to be used in a given tobacco field, the typical Farmers Home Ad-
ministration supervisor, while having a thorough knowledge of
agricultural science, lacks the knowledge to administer a housing
program.
iSiis is also true on both State, local and regional levels, causing
many better quality builders to pull out of the program leaving, in
many cases, marginal builders who compound the problems of
Fanners Home Administration by refusing to take care of required
waaranty items, leaving this burden to Farmers Home Administra-
tion which results in some cases in foreclosures.
Other personnel problems which exist are as follows : ^
Local rules inconsistent with Farmera Home Administration's
objectives and policies; inconsistent about the type of acceptable
housing. There have been instances of people required to have three
bedrooms who want only two 'bedrooms; people who want three
bedrooms have to settle for two, and peoT>le who haxl to have carports
who dont want oarports and people who want carports sometimes
can't have carports.
There is a reluctance to follow the packaging procedure which
was designed to alleviate the workload problems. They have^ specifi-
caticHi requirements which are inoonsisteat with the minimum prop-
erty standards. In some instances, there is inconsistencies in the
underwriting criteria. Their income requirements are too high, and
I'll give you an example. Most Savings and Loans will allow 25
pepoeht of totafl family income toward monthly housing payments,
whereas the Fawners Home Administration will only allow 20 per-
cent of their adjusted total income toward monthly payments. This
could be translated in some instances to 17 to 18 percent of the total
income, but this would vary accordiog to the size of the family and
the adjustment process.
Heme laans Ivre placed on a low priority in most Farmers Home
offices. For instance, during the summer and fall montlis, agri-
cultural loans are placed ahead of housing loans. Of course, these
aire the best times to build houses.
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There is a bad morale problem within the agency caused by a
lack of proper leadership. The State office claims that it needs to
increase its staff l^ 25 percent. Perhaps additicmal staff members
are needed. However, with the replacem^it of inefficient personnel
with more efficient employees and new leader^p, it is my opinion
that this requirement for additional personnel could be reducea from
that 25-percent figure.
The emfphasis on appraisals seems to be how cheaply a house can
be built without regard to a builder's profit. When I was doing
appraisals, which I did a few years ago, it was considered unac-
ceptaible for me to use the houses which I had previously appraised
or houses built by my company as comparable; yet the Farmers
Home Administration justifies its low appraisals on its previously
low appraisals even though their manual states that comparables
should not be limited to Farmers H<Mne properties.
Furthermore, their manual states that aviulable cost data shall
l)e used. Historically, they have had no cost data. More recently,
they have subscribed to Marshall & Swift Residential Cost Hand-
book. However, their agriculturally oriented personnel apparently
do not know how to use this manual as I have seen no evidence <rf
its use in appraisals. Their staff does not know how to adjust for
increased cost of labor and materials in a rising market such as we
have had in the past 5 years. Therefore, they are always behind
the current cost level except in a period of price stability.
Through appraisal criteria, they have encouraged builders to build
houses at a price less than could be built, allowing for an adequate
Erofit for the builder to remain in business, resulting in financial
ardships and in some cases^ bankruptcy among builders who were
led to believe by Farmers Home Administration personnel that an
adequate profit could be made at their substandard a)>praisals.
Adequate adjustments are not made by Farmers Home Admin-
istration personnel for differences in land cost from county to county.
Package home amounts which include houses and lots in Pitt County
are compared with package loan amounts in other counties with
lower land cost, resulting in an inequity to builders in areas of high
land or lot cost. There appears to be a contest among county super-
visors to have the lowest average loan without regani to variations
in houses or lot cost. In many cases, county supervisors reduce their
workload by lowering appraisals in order to avoid houses being
built.
It is now impossible for a developer to buy and develop a piece
of land into a Farmers Home approved subdivision in Pitt County
and sell lots at prices allowed by the Farmers Hwne Adminis-
tration.
Certain regulations should be changed to help both the builders
and the Farmers Home Administration personnel. Builders should
be provided with copies of Farmers Home Administration's instruc-
tions and administrative letters so that the builder would know
wliat the criteria was at the time, as is the case with HUD-FHA
or the Veterans' Administration.
The regulations should be changed so that the Farmers Home
Administration people who operate the mortgage lending aspect
should be people with a mortgage lending background and not
agricultural specialists.
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All new personnel that are brought into the organization at this
time should be of that type until a proper balance is achieved. Emu-
lations should be changed to allow tor the easy removal of inefficient
or marg|inal employees.
Certain subdivision standards now required by the Farmers Home
Administration are excessive and should be changed. For example,
it is not always feasible to install a sewer system in the country
where you have 25 to 30 houses; yet, according to current regulations
and/or interpretations, a sewer system would he required.
While it IS desirable to have local variations, these variations
should not be changed discriminately on a case-by-case basis as it
is now being done. Therefore, local county supervisors should be
required to puiblish all local variations to national and State policy.
In conclusion, the Farmers Home Administration has the potential
to solve manjr of the housing problems of our Nation. With the
proper administration and funding, significant progress could be
made in this direction.
Thank you, sir.
Senator Morgan. Thank you very much, Mr. Evans. You brought
some important problems to our attention.
Mr. Grentnr, you are from the other side of the State, in the west-
em part and a builder, and have 'built Farmers Home homes. We'd
be interested in your observations as to the effectiveness and ways
of improving the program.
STATEMENT OF MARVIN GENTEY, PEESIDENT, PORTIS CORP.,
STOKES COUNTY, N.C.
Mr. Gentry. Thank you. Senator. My name is Marvin Gentry. I
am president of Fortis Corp. in King, N.C. Since 1970, my com-
pany has ^been building under the Farmers Home Admini^ration
program ; 100 percent in subdivision-type work and not in individual
situations.
I don't have a prepared statement. I have got three points that
I'd like to make concerning subdivisions. But before I make these
points, I'd like to say that I believed in the beginning, and I be-
lieve now, that the Farmers Home Administration is the way to
house rural America and rural North Carolina, in particular.
The point of the personnel Senator Morgan mentioned in his
opening remarks. It has been mentioned since. When the push came
to build houses under the Farmers Home Administration, the load
was placed on the county supervisor who had many, many other
t3rpes of loans to make.
Senator Morgan. Marvin, when did that push come ?
Mr. Gentry. As I remem'ber, it was in 1970 when the word came
out in North Carolina that we wanted more housing under the
Farmers Home Administration. That's when we got into the pro-
gram after going to some meetings.
The personnel at that point were not adequately staffed, and I'm
speaking of county supervisors. As one supervisor told me, says, "I
have virtually the same paper work to finance a chainsaw as I do
a home." And this has been one of the problems and remains one
of the problems.
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So I would simply submit for your consideration that as you
pursue ways to make housing available to rural North Carolina
and rural America that yooi're working on, that you consider help-
ing these people by providing some more professional people, and
I'm speaking of appraisers.
The VA uses a fee appraiser. This would be very helpful for
inspectors and appraisers. A central office that would serve several
counties in underwriting loans from a credit standpoint and in
getting the loans closed would definitely help a builder.
Senator Morgan. You mean rather than the county office?
Mr. Gentry. Right. I think it would jbe more efficient from a
Farmers Home AcEninistration standpoint. I think it would give
the builder much better service, as has been mentioned in the past,,
and we could get loans closed, you know, two to three weeks, where
now you can hear any figure of time up to 4 months and maybe
more.
I tliink a centralized office to handle — and I'm speaking of sub-
divisions, not individual rural homes, where the farmer wants to
build the home or the son wants to build a home on hds farm; that
this would be a tremendous help.
I would also suggest that the Farmers Home Administration
consider smaller suWivisions.
Now, when you do this, it becomes an economic fact that some of
the requirements that are placed on Farmers Home subdivisions
would have to be relaxed and I'm speaking of curbs and streets,
central sewer, and various things of this nature that recfuires that
a developer and a builder have a large number of lots in a tract of
land in order that he can produce lots at the lower cost that has
been mentioned just before me.
It became a requirement that if you had any subdivision of any
size; I believe it's 25 lots, you had to have central sewer. North
Carolina does not abound with sewer pipes, and so this places the
developer in the position of having to be fortunate enough to find
a small municipality tliat could accept the sewer from the sub-
division or install his own sewage treatment plant, and this becomes
economically unfeasible for the developer.
Smaller subdivisions would solve some of the problems that we
have had, but the cost is what has made a lot of us go to the larger
subdivision.
I would make one more point, that from a subdivision standpoint,
that in screening loans, underwriting loans, and that the credit for
interest credit applicants he screened very carefully, that these
people be given an opportunity, but that it be a very somid appli-
cant that would be granted an interest credit type loan.
Now, I have been involved in building aoproximately a thousand
Farmers Home houses in North and South Carolina, and I know of
some cases where the person has ^received interest credit, and it's
made a very good citizen out of him. I can carry you to their home
and show you what they have done. But on the other hand, some
of the problems that have been mentioned here have come about
through maybe being a little too lenient in that particular .point.
And I thank you for the opportunity to make these points.
Senator Morgan. Mr. Gentry, we appreciate your driving down
here, and Mr. Evans and Mr. Trollinger, too.
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On the questicm of credit, Senator Garn, if I could pursue that
just a minute; I have seen some of the su'bdi visions in your county
and the adjoining counties there, and on occasion that I had to visit
them I saw a gSod many vacant houses that had been vacated. Is
that one of the problems that results from credit?
Mr. Gentry. I think the vacant houses that we have in our area
are the result of hig'her cost of utilities, higher cost of living with-
out an increase in wages to compensate for ^at, and gave the people
the helpless feeling and they foimd it much easier iust to pack up
and move than to try to find the answer to the problem.
Senator Moroax. Have you found some of those same people in
Farmers Home houses in other areas? In other words, are there
situations where they vacate one place and then have another one
financed by Farmers Home?
Mr. Gentry. I do know of times when that has happened, yes.
Senator Morgan. Senator, you want to start the questioning?
Senator Garn. I'm concerned about some of the comments you
made about the problems with the administration. We heard a great
deal of that in Utah, although it was rather central to one articu-
lar office, rather than the State office. Out there the State office ap-
parently was working well, and their major criticism was with one
particular office and maybe involved some x>ersonalities and distances
involved in getting service from Farmers Home. But in your com-
ments, you Ve referring to the State office here it's difficult
Mr. Evans. I ^believe the problem lies in the State office. In scmie
cases, the county supervisors are — in some cases, cannot function
as they would like to 'because the directors are from the State office.
This IS my opinion, and also the district people, I believe, in some
cases, hinder the county supervisors from performing as they should.
That is an opinion. I mean I dont have anything to back it up.
Senator Garn. Any of the three of you can answer this question.
If you deal with VA or FHA, do you find differences? Is the service
better or worse, the redtape longer or shorter with Farmers Home
than it is with the other two?
Mr. Evans. Baocally, with FHA you have a situation that tlier e
is certainly nothing to set an example to go by. But with HtJD-
FHA if you have an equitable situation, they usually come up with
an answer for it.
The Farmers Home, if you have an equitable situation, sometimes
they don't use the logic, whereas with HUD if you give a very logical
final determination, sometimes you get harassment with paperwodc,
but the final outcome with HITD is OK.
Senator Garn. Mr. Gentry?
Mr. Gentry. I'd like to comment on that. We do right much with
VA, very little with HUD-FHA. We do find that the VA is very
consistent with their appraisals, with their underwriting and inspec-
tions, where the Farmers Home is prone to be inconsistent from
county to county.
Senator Garn. You know, the answers to these questions are
interesting to me because I tnink it makes the points that Senator
Morgan and I talk about all the time. The differences from State to
State and yet we continue to try and address problems at a national
imif orm level.
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Out in Utah we heard consistently that Farmers Home was the
best Federal agency with which they had ever dealt. It may not
be good but it was far, far better than VA and FHA. In fact, I had
never before heard such good comments about a Federal agency.
We remarked aibout dt several times, and yet^ here that doesn't seem
to be true and that is why I asked the question. I wonder if it's the
local situation in Utah ; the Farmers Home there has a unique situ-
ation where they do an extra good job or not ?
Mr. Trollinger. You know, Senator Gam, Fanners Home is
tjrpically a grassroots program, and I personally do not feel as
strongly as some of the Ixiilders. Of course, we are not a large
volume builder. The rapport with the local county supervisor is the
thing, is where it all starts, and there a^in, personality conflicts
come in, and if you don't gee-haw with the man on the local level,
you don't gee-haw with the program.
Fortunately, we have always had a very favorable relationship
with Farmers Home. They have not always done what we have
wanted. We think a lot of things are antiquated that they do, but
we have our good points here in North Carolina, as you do in Utah.
Senator Morgan. I just want to follow up on that. What kind of
appeal procedure do you have if your local Farmers Home super-
visor makes a negative decision or an adverse decision?
Mr. Trollinger. Well, Senator Morgan, there is a mystery to the
Farmers Home program, and we have sometimes felt that by intent
that we. have not m&a kept abreast of the working of the program
and that we are isolated over here and what you don't know won't
hurt you.
So through the. local State association, we have made efforts to
establish rapport with the district personnel and with the State
office, and we — ^the way that we have been able to, and sometimes
the answers we get are not what we want and sometimes they don't
come as fast as we would like to have them.
But there has been to us, and this may vary from person to per-
son, an open door policy in Raleigh for us.
SHenator Morgan. Have you usot it? I mean, does
Mr. Trollinger. Individually, yes, sir.
Senator Morgan. How about you, Dave ?
Mr. Evans. Yes, sir.
Senator Morgan. The reason I'm asking this question, in this bill
that these hearings are on, there is an appeal procedure whereby if
an applicant is denied a loan, then he is entitled to a hearing, plus an
attorney and all sorts of appeals. I just wonder if there aren't ade-
quate appeal j)rovisions now in the law that are available.
I'm amtid if we get into this l^al business where we have to
appoint attorneys for every applicant that we'll bog down the pro-
gram so that it will never function.
Mr. Gentry. I'd like to comment on the open door policy. The
State office in Raleigh has always been most receptive to me or my
company as a builder when we have had problems and wanted to
discuss them. There are some particular situations in this and I will
say primarily the problems that started developing when the hous-
ing recession started about 8 years ago, that I felt that we discussed
very fittnkly and were received, and some action was agreed upon.
It never dia get down to the county level, but the people at the
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State office have always been very cooperative and had an open door
for us.
[Discussion oflF the record.]
Senator Morgan. We have two more scheduled witnesses and I
know there are some others who would like to be heard because I
spoke to a couple of you this morning about migrant housing when
we came in so well try to expedite as fast as we can so everyone
will have an opportunity to be heard. Senator Gam, did you have
any other questions?
Senator Garn. No; just a comment on this appeals procedure;
that everyone, without exception, we talked to in Utah from the
Department of Community Affairs to builders disagreed with the
format of the procedure being set up in this bill; that it would
intimidate people. It would be a mini-court system, and really, cause
some problems, so I personally hope that it*s something that we can
modify. But I like Senator Morgan, who was just kidding, I'm sure;
I^ not interested in creating more business for the attorneys. I am
one of the few in the Senate who is not an attorney, member of a
rare breed.
So we want to set up some kind of appeals procedure but in my
opdnion the evidence I have he^rd so lar is not in favor of as
formal and legalistic a one as m this bill.
Senator Morgan. For the record. Senator Gam, I might hone in
on a point that all three of these gentlemen made which illustrates
a problem that we have had. As one of them pointed out, until about
1970, the real push was not on housing in North Carolina, but it
was a housing and farming operation. Now, of course, when housing
came to play a more prominent role, there was this problem with
'jsupervisors having been oriented toward farming and that same
problem has affected the farmers.
" I have had farm suppliers, implement dealers and farm supply
merchants come to see me, and in the past, the Farmers Home Ad-
ministration would make a farmer a loan, an operating loan, but in
the earlier days, they also kept some rein on them. The mere fact
that he needecl the lielp of the Farmers Home Administration was
some indication that he also needed some kind of assistance in man-
. agement, and back when I was practicing law, they didn't deal out
all the money to them in the beginning, but they worked with them
throughout the farm year and as a result many farm supply mer-
chants were willing to work with it, but as they got more involved in
housing, they didn't have time to give this supervision and then
many of the people who got the farm loans were not able to prop-
erly manage them.
i know, David (Evans), in your area, for instance, I had one
complaint that Farmers Home made a loan for $240,000 for bulk
tobacco curers and didn't provide any operating expenses.
So I think you point up a problem that we probably need to look
into as some division of responsibility between housing and farm
operations or farm loans.
We thank you very much. You have brought up some very cogent
points.
Senator, we have Mr. William Pursell, who is Director of Rural
Housing, Low Income Housing Development Corp., and then Mr.
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Charles Daye, Chairman of the Triangle Hoiising Development Corp.
Mr. Daye, if we could, we'd like to operate as a panel, on this one.
We welcome both of you and thank you for taking the time to
come to the hearing and listen to the other witnesses, as well as
bring us your own views.
STATEMEKT OF WILLIAM B. FUBSELL, DIBECTOB OF B7BAL
HOUSINO, LOW IRCOME HOUSING DEYELOFMENT COBF.
Mr. PuRSELL. Senator, thank you. One of the fears <Mie has when
they sit in a room like tliis and hear testimony is that somebocty
will steal their thunder 'before they get up there. Fortunately, this
has not totally happened this morning.
We do have several things I feel like I'd like to say to yosu. To
identify myself, I am Bill JPursell, Director of the Rural Housing
Program of the Low Income Housing Development Corp.
SSmtor MoROAN. Could you tell us. Bill, what this Corporation is?
Mr. PuRSEix. Surely. I won't even have to deviate from my text.
Senator Morgan. OKay.
Mr. PtTRSELL. The company for which I work is a statewide non-
profit corporation which receives its primary sapport from the Cc»n-
munity Service Administration and is charged simply with the
responsilHHtjr of working on the myriad of problems in hodsingt
faced by low income families in our State.
In fulfillment of the charge, our corporation has been instru-
mental in the construction of 1,357 multifamily units throughout
the State, primarily in the unban areas, and 109 single family units
and the repair of in excess of 800 existing homes.
Senator, to answer you more specifically, we are technically a
housing producer, by use of local housing contraotoTS or other people
involvSi in the ^building trades. We also do a lot of research sort
of work to try to keep abreast of housing programs that funnel in
as much as we possibly can for the State for &e rural poor at this
particular stage.
We have done a lot of work in research in attempting to adapt
energy conservation methods in the housing that we construct, and
because of what we have been doing we do an awful lot of teaching,
particularly around the southeast on how to go about utilizing cBi-
ferent Federal resources to assist in new development of ruril
housing.
Our company has attempted to utilize any and all housing pro-
grams available from any source. However, the primary sources that
we are now utilizing are those administered by the Farmers Home
Administration. Among those programs we have mads ther most use
of is the section 504 for the repair of existing homes and the section
502 interest credit prognun for the construction of new single family
homes.
We attempt to keep abreast of and knowledgeable of all of the
programs of the administration, even if such programs cannot be
implemented immediately by our agency.
Because of the limited time this morning, and my primary inter-
est, I would like to limit my 6ral testimony to those areas about
which we know the most.
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Senator Morgan. We'll make your written statement in its entirety
part of the record if you have no objection.
Mr. Purselia. I'd like for you to. I'd like to talk first about the
Farmers Home Administration itself; then about 504 and then about
502, interest credit. Through the years, we have worked directly or
indirectly with many Federal agencies who have a direct or indirect
interest m housing. While recognizing that I am running the risk
oi alienating some of these agencies, I must state publicly, with the
exception of the Community Service Administration, the Fanners
Home Administration does stand head and shoulders above all of
them in two particular areas.
One of them is in the area of their commitment to working on
housing. The other is in their flexibility, that is given in all levels,
paarticmarly the local level, to deal with the proibleans. Now, recog-
nizing the difficulties that the ^ntleman spoke of before, and I
recognize the fact that in certam sections of this State, we have
county supervisors that are not only personally but p>hilo6ophically
opposed to what their job calls for them to do, my feeling is that
somehow or another, this sort of person should not be allowed to
survive within the agency.
On the other hand, however, we have some county supervisors
out there who are committed, who know their programs, who work
vary diligently to try to help bring housdng into their area, and the
reason I say that is I would like to impress upon you two that it
would be extremely bad to cut back the flexibility, and that some of
these good agents have in an atempt to ^ to those who are not
doing the type of job that they are being paid to do.
In dealing with the Farmers Home Administration, the person
with whom we come in contact most often at the most important
level is the county supervisor. He has been given this flexibility,
and as a result if he is doing his job correctly, there need be no
lengthy waiting periods and/or mounds of paper to get a decision
out of him regarding a mecific project They can respond ; in most
cases, our experience says that they do respond.
This is said to get across the one point, and that is something
that we feel very strongly aJbout, and that is that the committee and
the Congress are to be ever on guard against taking away that ele-
ment that makes the Farmers Home Administration responsive to
the local housing needs.
We do not need a myriad of Federal regulations that make every-
thing have to fit in exactly a specific little line to get housing built
in the rural areas. We understand that you do have under consid-
eration legislation; that is, S. 1150, which contains a section estab-
lishing a formal appeals procedure within the Farmers Home
Administration.
I agree wholeheartedly with what you said a while ago. The
structure of it is not as it should be. However, there neeSa to be
definitely a formal appeals procedure. Developers like ourselves
which are in the quasi-public area, private developers, we can find
tihe way to go through uiaL We can know people on the State level.
The average person, however, out there who is trying to g^ a loan
to huild a ncHise on his land does not know anyilxxly in JRaleigh to
calL He needs to know that there is a way that he himself can have
his tif^ts protected and can get hds h<»ne built
04-011 0-78-10
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OK, let's look now for a minute at the two housing programs. The
most useful pn^ram that FHA lias at its disposal for solving the
rural problem is the secti<m 504 program itself. As you are aware,
this program makes it possible to improve the living conditions of
tiie poor^ of the poor who own their own homes.
It is the only housing program now in existence which will deal
eflfectively with this population group. One of the best features of
the section 604 program is newly created, newly implemented grant
program for the elderly poor.
Historically, one of the problems that we have faced has been the
difficulty of finding resources to deal with the housing conditions
of the elderly poor. However, there are a couple of problems con-
nected witli the grant program which ousrht to be investigated and
alterations made to nieet specific needs. The grant programs should
be expanded to include not only the elderly but also the permanently
disabled who absolutely have no resources to turn to now for tlie
improvement of their homes.
Senator Morgan. I believe that was in the Senate bill that Senator
Gram and I introduced and has passed the Senate so that may be
taken care of.
Mr. PuRSELL. Second, the administrative guidelines of the grant
program do not work to the advantage of the elderly poor who re-
ceive a combined loan and grant to repair their homes. Under these
guidelines, the county supervisor has to make two primary de-
terminations. He must decide the amount of money needed to repair
the home. In addition, he must decide the amount the family is able
to repay toward the total amount. TTie amount that a family is able
to repay becomes a loan and the remainder of the amount needed
for the repairs is the amount of the grant.
Now, the concept of a family repaying the part of the package
which they are able to repay is good. And it should remain a part
of the program. However, it's the administrative jEfuidelines that
cause us concern. Once the two determinations referred to above
have been made, the county supervisor is required to utilize the
repayment schedule as if the total amount involved were a loan, not
a repayment schedule based upon the actual amount of the loan
itself.
The result of this is that the famaly's indebtedness is increased
beyond the amount of the actual loan. As an example, suppose the
amount needed to repair a home is $4,000, and the coimty supervisor
has determined that the family can afford to repay at the rate of $10
per month. The regulations in effect call for the term of the loan
to be the same as if the entire $4,000 were a loan, for 20 years. As a
result, the family receives a grant in the amount of $1,830, and a
loan in the amount of $2,170. However, if the schedule for 10 years
were used, the loan would be reduced to $1,140, and the grant in-
creased to $2,860.
As you can readily see, the difference in the size of the grant
ranges from $1,830 to $2,860, a span of $1,030, or about one- fourth
of the total amount of the loan needed to repair the home.
We do not believe that such an interpretation is consistent with
the original intent of the Congress in establishing the program. To
deal with the problem, we would recommend that a formula be
changed and the maximtun repayment peroent, since we aro dealing
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141
with the elderly for a loan which is coupled with the grant, be set
at a term not to exceed 5 years; that the family repay the portion
that they can repay in this period of time but make the remainder
of it a grant to the family.
Now, let's turn to section 602, interest credit program. This, too,
16 a very useful program in dealing with the problems of sub-
standard housing in rural areas. For the lower income rural family,
this program is of tremendous value. For the builder-developer, the
market 9iat it opens up would be nonexistent without the program.
The major difficulty with this program is that it does not make
homeownership a possibility for the truly low income family. It
simply cannot be aone. Even for those families who can utilize it,
the program has a built-in fault which was certainly not anticipated
when it was first instituted. This fault results in penalizing the
purchasing family for buying a house which costs less than other
available houses. This is true, since the amount paid monthly by the
family is not based upon the cost of the house, but solely upon the
income of the family. The only adequate way that I can explain it
is by illustratdon.
A family earning an adjusted income of $4,600 per year is re-
ouiired under this 602 interest credit program to pay $76 a month
for their home. This means that the family can buy a house that
costs as little as $10,000, theoretically, on which they would pay 8
percent interest on their loan ; or a house that cost $25,600, on which
they would pay 1 percent interest On either house, the family would
pay $75 per month, for exactly the same period of time; 88 years.
Well, needless to say, a knowledgeable homeowner is going to buy
the $26,600 house.
We'd like to propose for your consideration that the program be
altered in the way that we feel would be advantageous to iboth the
buyer and the Government.
We propose that a schedule of interest rates be developed that is
set at a fixed rate by income categories.
Suppose that the family mentioned above with an adjusted in-
come of $4,600 per year was told that -this interest rate would be 1
percent, regardless of the cost of the house purchased, as long as
the house did not exceed a maximum dollar figure. That family sub-
sequently conducts a house search and found a house which sold for
$20,000 rather than the $26,600. On the $20,000 house, the family's
payment would amount to $69 instead of $76 and a savings of $16
per month and $6,000-and-some-odd over the life of the mortga^.
At the same time, the Government would subsidize the family m
the amount of $86 per month, rather than $118, a savings to the
Gtevemment of $23 per month, and in excess of $9,000 over the life
of the mortgage. In our opinion, such a plan would be a vast im-
provement over the present system, which encourages families to
purchase more expensive homes.
Now, another problem that we find inherent within the program
is, again, admimstrative guidelines which says that regardless of
what the law says, no family will be considered for an interest
credit loan if their income falls below $6,000. As we understand it,
of course, the law says as long as 20 percent will equal a 1 percent
interest rate. Yet, in our State, $6,000 is the minimum amount that
afamily can be considered for an interest credit Icmxl.
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Mentioning the family above, even if they found a house for
$10,000, or if they found a house for $25,500; makes no difference,
since they would not be considered since their adjusted income is
only $6,000.
While we recognize that there are some practical ramifications of
that, we also feel that the Farmers Home Administration is thwart-
ing the intent of the legislation by not making them more flexible
themselves with the interpretations placed upon that laiw and with
the administration of it.
These are the things that we have intimate knowledge of. S. 1150
contains a lot of good things in it. Some OK, 'but some very good.
We feel that escrow accounts are absolutely essential, or at least
some form of a way for a family to put aside payments on a
monthly basis. We feel it would greatly decrease the number of
people who either aibandon their houses or have those houses fore-
closed on them.
The compensation for construction defects in excess of 12 months
is very important. However, let's make sure that such payments for
those defects are borne by the Government since the problwns ought
to be caught during the inspection period.
Insured rural housing loans should be limited to those houses for
sale to aibove moderate income families.
You mentioned a while ago the farmer and the relationship of the
Farmers Home. Maybe the same sort of relationship needs to exist
between the farmer and the Farmer Home county supervisors.
Energy conservation must be a part and is to 'be considered. Sorry
if I went on so terribly long, Senators, but I had so much to say.
Senator Morgan. Well, thank you very much, Mr. Pursell, and
we'll make your entire statement, with your permission, a part of
the record.
Mr. Pursell. Yes, sir.
[Complete statement of Mr. Pursell follows:]
Prepared Statement of William R. Pursell, Director, Rural Housing
Program, Low Income Housing Corporation of North Carolina
Senator Morgan, Senator Garn, my nam© is WiUiam R. PurseH. I am the
Director of the Rural Housing Program of the Low Income Housing Develop-
ment Corporation of North Carolina (LIHDC).
At the outset, we would like to congratulate the Senate for establishing
this sub-committee on Rural Housing. Such a committee has been needed for
a long time and its work will prove of inestimable value to those of us in the
private and quasi-private arena who are attempting to expedite the produc-
tion of housing in the rural areas. We are especially proud of the fact that
our Senator from North Carolina is chairing this sub-committee.
LIHDC is a statewide, non-profit corporation which receives its primary
support from the Community Services Administration (CSA) and is charged
with the responsibility of working on the problems of housing faced by the
low-income families in our state. Our organization, which has been in existence
since 1966, was originally organized to produce housing in the urban centers
and, as a result, has produced or caused to be produced 1.357 multi-family
units in those centers utilizing the programs of the Federal Housing Adminis-
tration. In 1969 the corporation expanded its concern to include the rural areas
of the state, that is, those areas serviced by the Farmers Home Administration
(FMHA). This expansion was made iKWsible by an additional grant from the
O.B.O. (now C.S.A.). To fulfill the charge of that original and all sub-
sequent rural grants, LIHDC has attempted to utilize any and all programs
available from any source such as the Community Development program and the
Section 8 program. However, the primary resources that we have utilized have
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been tliose administered by the Farmers Home Administration. Among those
programs, we have made the most use of the Section 504 program for the
repair/renovation of existing homes, and the Section 502 Interest Credit Pro-
gram for the construction of new single-family homes in rural areas. Under
our home repair program we have caused to be repaired in excess of 800 units.
In addition, our single-family production stands at 109 houses completed to
date with an additional 10 presently under construction. We are now working
with the State Farmers Home Administration office in an attempt to develop
32 multi-family units by coupling the Section 515 program with the Section 8
program. LIHDO constantly attempts to keep abreast of and knowledgeable
d all programs of the Farmers Home Administration even if such programs
cannot be immediately implemented by our company.
In spite of this attempt to keep abreast of all of the housing programs avail-
able for the rural poor in North Carolina and because of the limited time avail-
able this morning, I would like to limit my formal testimony to those areas
about which iwe at LIHDC know the most — the Farmers Home Administra-
tion itself, its Section 504 program for home repair and its Section 502 Inter-
est Credit Program for the construction of new single-family homes.
THE FABMEBS HOME ADMINISTRATION
Through the year? LIHDC has worked directly or indirectly with many
Federal agencies which have a direct or indirect interest in the housing prob-
lems of the poor. Included among those agencies are the Department of
Housing and Urban Development, the Community Services Administration, the
Department of Labor, the Department of Health, Education and Welfare, and
the Farmers Home Administration. While recognizing that I am running the
risk of alienating some of these agencies, I must state publiclv that, with
the exception of the Community Services Administration, the Farmers Home
Administration stands head-and-shoulders above all of them when consideration
is given to their commitment and flexibility in getting housing conditions im-
proved in the rural areas of our state. Of course, their area of responsibility is
rural America but the emphasis must be put upon the words "commitment"
and "flexibility." One of the very unique features of the Farmers Home Ad-
ministration is the flexibility that is given at all levels of the Administration.
In dealing with the Farmers Home Administration, the person with whom we
come in contact most often and at the most important level is the County Su-
pervisor. Under the Farmers Home Administration this man has been granted
more flexibility than has any other federal bureaucrat with whom we have had
dealingrs. In most instances he, within his authority, can make decisions
promptly which greatly expedites the development process. On those occasions
when he is uncomfortable with a situation, he can receive direction promptly
from his superiors. There need be no lengthy waiting period and/or mounds
of paper to get a decision. They can respond and, in most cases, they do respond.
Of course, there are exceptions. There are those county supervisors who dis-
agree philosophically with the federal programs and, as a result, can and do
delay the production of housing to death. There are times when LIHDC has
had to call Mr. Buchanan, Mr. Burnet te or other state level personnel to ex-
pedite the conditional commitment process or to insist upon the rights of a
local client. When we have had to contact them, these men have responded and
when we have had a family that is obviously qualified, they do insist upon the
rights of those individuals. On the other hand, when they feel that we are
wrong, they do not hesitate to disagree with us. Such promptness and the
ability to respond is of vital importance to anyone engaged in the housing
development field. However, on a day-by-day basis, the most important people
for a developer are those county people like Clarence Sink, Marvin Parks, Ricky
Young, Bill Case, Bill Poindexter and Jerry Batten to name a few in the
State of North Carolina who do an excellent job.
All of the above is said to get across one point about which LIHDC feels
very strongly. This committee and the Congress ought to be ever on the guard
against taking away that element that makes the Farmers Home Administra-
tion responsive to the local housing needs. From our viewpoint it is unique
and we urge you to guard this flexibility and the direct involvement of the
Farmers Home Administration in the production of housing diligently.
We understand that you have under consideration legislation which is num-
bered S. 1160 which contains a section establishing a formal v^qraX^ ^^t^^^:^
dure within the Farmers Home AdministraUoii. ^\ie\i «l vk*^^^"^ ^ ^«tX»6a^
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needed and we heartily sapport it. However, we urg^e you to support tbis sec-
tion in such a way that it does not infringe on the flexibility of the County
Supervisors. Do not make it a destructive tool ; make it a constructive tool that
will assist not only the developer and the buyer but also assist the County Su-
pervisor in those cases about which he has questions and needs direction and
assistance. At the same time, we would suggest that some provision be con-
sidered that would make it impossible for a County Supervisor who is not in
philosophical agreement with the programs of the Farmers Home Administration
to survive within the agency. His job is to do what the Congress has charged
the Farmers Home Administration to do. If he cannot do so, he should not
be allowed to stand in the way of people receiving the services that are pro-
vided for their benefit.
And now, let us look at two of the Farmers Home Administration housing
programs. The first is the
SECTION 604 HOME REPAIB/BEHABILITATION PROGRAM
The most useful program that LIHDC has at its disposal for serving the
rural poor, is the Farmers Home Administration Section 504 Home Repair
program. As you are aware, this program makes it possible to improve the liv-
ing conditions of the poorest of the poor who own their homes. It is the only
housing program now in existence which rwill deal effectively with this popu-
lation group. Although this program is sometimes referred to as "the sUMidk
program," when one becomes acutely aware of the squalor in which some of
our citizens are forced to live, the usefulness of the program bec(Mnes obvious.
LIHDC has put together a combination of resources under its home repair
program. Utilizing the monies supplied by the Community Services Adminis-
tration, our corporation has contracted with seven local Community Action
agencies to repair homes of the rural poor in fourteen counties in the state.
These CAAs have secured work crews which are paid for by the Comprehensive
Employment and Training Act and other manpower training programs ad-
ministered by the Department of Labor to do the actual construction work on
the houses. The permanent financing of the repair work is paid for by the
Section 504 program, and is used primarily to pay for the construction materials
used to repair their homes. The advantages to such an approach are clear : the
Farmers Home Administration is put in the position of supplying approximately
one-half of the monies necessary to repair each home; the low-income family
receives repairs on their home for which they have to pay approximately one-
half of the cost ; and meaningful training in the construction fields is provided
for the enroUees in the CETA program.
One of the best features of tiie Section 504 program is the newly implemented
grant program for the elderly i)oor. Historically, one of the problems that
LIHDC has faced has been the diflBculty of finding resources to deal with the
housing problems of the elderly poor. In most cases, these people live on very
low incomes and have very high living costs. Due to the fixed incomes and
^iralling infiation their good credit ratings have been put in jeopardy. They
simply could not get nor could they afford a loan even at a reduced interest
rate.
However, there are a couple of problems which ought to be investigated and
alterations made in the program to meet special needs. The grant program
should be expanded to include not only the elderly but also the permanently
disabled. There are numbers of disabled citizens of our state who are living
in squalor, whose incomes are too low to afford a Section 504 loan and whose
credit is too bad (for reasons beyond their control) to make it possible for
them to be approved for a loan. These are the blind, the lame, the mentally
retarded, etc. Their need is great. There is no program which will deal with
their unique problems.
In addition, the administrative guidelines of the grant program do not
work to the advantage of the families which do receive a Section 504 grant
to repair their homes. Under these guidelines, the Farmers H(Mne Adminis-
tration County Supervisor has to make two primary detenninations. He must
decide the amount of money needed to repair the home. In addition, he must
decide the amount a family is able to repay toward that total amount. The
amount that a family is able to repay becomes a loan and the remainder of
tlie amount needed for repairs is the amount of the grant The concept of a
fftmily repaying the part of the package which they are able to repay is good
and flhoold remain a part ol the progranL However, it ia the administratlTe
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direction for implementation that causes us concern. Once the two determina-
tions referred to above have been made, the County Supervisor is required to
utilize the repayment schedule as if the total amount involved were a loan,
not a repayment schedule based upon the actual amount of the loan. The result
of this is that the family's indebtedness is increased t)eyond the amount of the
actual loan. As an example, suppose the amount needed to repair a home is
$4,000.00. The family can afford to repay at the rate of $10.00 per month.
The regulations in effect call for the term of the loan to be the same as if the
entire $4,000.00 were a loan — twenty years. As a result, the family receives a
grant of $1,830.00 and a loan of $2,170.00. However, if the schedule of repay-
m«it for fifteen years were used, the loan would be for $1,670.00 and the grant
amount would be $2,330.00. If the schedule for ten years were used, the loan
would amount to $1,140.00 and the grant would amount to $2,800.00. As you
can readily see, the differences range from $1,830.00 to $2,860.00, a span of
$1,030.00 or one-fourth of the total amount needed to repair the home. We do
not believe that such interpretation is consistent with the original intent of the
Congress in establishing the program. Gentlemen, let us remember that this
program is for the elderly poor who own their homes and are living, in most
cases, on fixed incomes which are inadequate in this day of spiralling infiation.
To deal with the problem, we would recommend that the formula be changed
and the maximum repayment period for a loan which is coupled with a grant
be set not to exceed five years. I^et the family repay that amount that can be
repaid in this period of time and make the remainder a grant
And now, let us turn to the
SECTION 602 INTEREST CBEDIT HOME^WNERSHIP PROGBAM
Another very useful program for dealing with the problems of substandard
housing in the rural areas of the nation is the Farmers Home Administration
Section 602 Interest Credit program. For the lower-income rural families, this
program is of tremendous value. For the builder/developer the market that it
opens up would be non-existent without the program. The major difficulty with
this program is that it does not make homeownership a possibility for the
truly low-income families.
Utilizing this program, LIHDC has constructed and sold homes to lowers
income families in three sections of the State. Our organization averages pro-
ducing between fifteen and twenty homes per year and, if the investment capital
were available, could double, if not triple that nun^ber. Utilizing monies made
available in 1969 by the then Office of Economic Opportunity, IjIHDC purchases
land, ccmtracts with local builders, electricians, building material suppliers, and
other construction craftsmen to build homes. LIHDC then sells these hcnnes
under the Farmers Home Administration Section 602 Interest Credit program.
The families to whom the houses are sold pay interest rates on their permanent
mcHTtgages ranging from one percent to eight percent depending upon their
annual adjusted family incomes. Our houses (which contain the latest energy
conservation measures available) sell for around $23,600. They contain approxi-
mately 1,000 square feet of living area, are brick and have three bedrooms
and one or one and one-half baths. They are located on lots which range in
size up to about one-half acre and have paved streets in front of them. They
are sold to families at exactly the cost of construction. Five years ago we sold
similar houses for $17,600 and in urban areas of our state today, comparable
houses sell for $29,000 to $33,000.
This program, though good, has a built-in fault which was certainly not
anticipated when the program was first instituted. This fault results in pena-
lizing the purchasing family for buying a house which costs less than other
available houses, l^is is true since the amount paid monthly by the family is
not based upcm the cost of the house but upon the income of the family. The
only adequate way that I can explain this is by illustration. By way of example,
a family earning an adjusted income of $4,600.00 per year is required under the
Section 502 Interest Credit program to pay $75.00 per month for their home.
Ttda means that this family can buy a house that cost as little as $10,000.00
on whidi they would pay ^ght percent interest on their loan or a house that
costs $25,000.00 on which they would pay one percent interest. On either house,
the family would pay $76.00 per month for exactly the same period of time —
83 yean! Needless to say, a knowledgeable home buyer is going to buy the
$26,600.00 boose.
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We would like to propose for your consideration that the program be altered
in a way that we feel would be advantageous to both the buyer and the gov-
ernment. We propose that a scale of interest rates be developed that is set at
a fixed rate by income categories. Suppose that the family mentioned above
with an adjusted family income of $4,500 per year were told that their interest
rate would be one percent regardless of the cost of the house purchased so
long as the house cost did not exceed a maximum dollar figure. That family
subsequently conducted a house search and found a house which sold for
$20,000.00 rather than the $25,500.00 mentioned above. On the $20,000.00 house,
the family's payment would amount to $59.00 rather than $75.00 per month,
a savings of $16.00 per month and $6,336.00 over the life of the mortgage. At the
same time, the government would subsidize the family in the amount of $85.00
per month rather than $108.00, a savings to the government of $23.00 per month
and $9,108.00 over the life of the mortgage. In our opinion, such a plan
would be a vast improvement over the present program which encourages
families to purchase more expensive homes. However, it needs to be recognized
that such a plan would be effective only in those areas where there are exist-
ing houses which can be bought for less money and which, at the same time,
are or can be made to meet the high but very good standards of the Farmers
Home Administration.
Another problem faced by those who are engaged in housing production
under the Section 502 Interest Credit program is one caused by administrative
direction within the Farmers Home Administration. The results of this problem
are felt by the producers of housing in that it limits the market for the houses
severely and by the low-income potential home buyer in that it makes it im-
possible for him to secure a loan. In the state of North Carolina, no applica-
tion will be considered for an Interest Credit loan if the adjusted annual
income of the applicant family falls below $6,000.00. As we understand it, the
law states that families can be approved for Interest Credit loans as long as
twenty percent of their adjusted annual income will support the mortgage pay-
ments at a one percent interest rate. Technically, a family whose annual, ad-
justed income amounts to no more than $3,500.00 can qualify for a $20,000.00
house at an interest rate of one percent. However, even if a house at this
price is available, the family will not be approved for a loan since the Farmers
Home Administration will not consider a family whose annual adjusted income
is less than $6,000.00. When the administrative guidelines are strictly fol-
lowed, the family mentioned above whose annual adjusted income amounted to
$4,500.00 would not be approved for a house which costs $25,500.00 or even
a house that costs $10,000.00 since their income is less than $6,000.00. It is ob-
vious that the Congressional intent when the program was established was
that low-income families were to be put in a position of buying homes. Ad-
ministrative policy is thwarting that intent.
Gentlemen, these are the programs about which we have intimate knowledge
because of our involvement on a day-by-day basis. The impression that I
would like to get across to you today is that they are good programs and should
remain in effect. However, in spite of their goodness, they can be improved.
They can be improved in ways that will increase the production of good hous-
ing in our rural areas and, at the same time, work to the good of the families
which are in desperate need of decent, safe, and sanitary housing. With im-
provements, all will profit — the builders, the government, the consumers, and
last, but not least, society as a whole.
Now, in my few remaining minutes, I would like to mention a few items
which I understand you have under consideration in Senate Bill 1150, the
Rural Housing Act of 1977, which we wholeheartedly support and which I have
not made reference heretofore :
Escrow accounts for the payment of taxes and/or insurance or some such
method of assisting borrowers under the Farmers Home Administration are ab-
solutely essential. Such will decrease delinquencies and foreclosures.
Provision for comi)ensation for construction defects in excess of the twelve
months now in effect is extremely important. However, such regulations ^ould
be carefully drawn so that they will not unduly drive up the cost of housing
units. The cost of such corrections should be borne by the government since
such defects should be uncovered via the inspection (s) during the construc-
tion period.
' Incpured rural housing loans isdiould be limited to those houses for sale to above
moderate-income families. One of the strengths of the Farmers Home Adminis-
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147
tration has always been in the fact that the agency has direct personal con-
tact with the people whom it serves. This needs to be jealously guarded.
Energy conservation methods are absolutely essential in new construction
especially for those units to be occupied by low-income families. However, it
is also essential that the Farmers Home Administration recognize the fact
that such measures cost money and that cost must be reflected in their condi-
ticmal commitments and loans.
Gentlemen, I deeply appreciate the oiH>ortunity of appearing before you this
morning and hope that what I have had to say will be of some assistance to
you in fulfilling the responsibilities of your subcommittee.
Senator Morgan. And Mr. Daye, we'll be delighted to hear from
you. You may want to abbreviate it some, if you can, so we won't
knock Senator Gam out of the plane.
Mr. Daye. I'll see if we can get him on it.
Senator Morgan. We'll make your whole statement part of the
record, too.
Mr. Daye. Thank you. I would request, however, that Lane Sarver,
who is associate director of Triangle Housing Development Corp.,
accompany me here. He wants to speak a minute or so about ad-
ministrative problems that we have had.
Senator Morgan. We'll be glad to hear from you.
STATEMENT OF CHAELES DATE, CHAIEMAN, TEIANOLE HOnSDTO
DEVELOPMENT COEP.
Mr. Daye. I must take this opportunity to thank you for this
chance to make a statement at these close-to-home hearings. Gen-
erally, Triangle Housing Development Corp. favors S. 1150, and I
think I forgot to introduce myself. I am the chairman of Triangle
Housing Development Corp. Also with me is Mrs. Ruth Mayes, who
is the director of the Council of Government Housing staff.
Triangle Housing Development Corp. was created by the Council
of Grovemments ana local community leaders, and it serves in a six-
oounty re^on; region J in North Carolina.
^ Two-thjrds of the people in our area live in the larger communi-
ties but most of the others occupy substandard housing in the rural
areas. About 16,000 units we have identified, or 6ut research staff
has identified as sulbstandard. The combined housing programs of
the Council of Governments and the Triangle Housing Development
Corp. is the co-action arm consists in planning, research, technical
assistance, development and operations of, and rehabilitation of
owner-occupied low income owned homes, largely in rural areas for
the elderly.
Our corporation was formally incorporated in 1973 and since that
time we have been working. I would point out that our primary
thrust today is in rehabilitation of owner-occupied units for low
income people in run^al areas, although we have used section 515 of
the Farmers Home Administration and we have two projects, small
projects; one in Clayton, N.C., and one in Sanford, N.C.
In part, our shift in thrust was mandated, as you know, by 1973
because of the freeze that was occurring in many of the programs.
As of last week, we were repairing or had repaired almost 400
houses and we had 19 work crews consisting of three or four labor-
ers and a crew leader engaged in this process. I do have with me
a fact sheet which I will submit for the record and not siimaawwcviib
at this time.
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Returning to the legislation, we aire in favor of the reeearch-
direoted approach which commands the Secretary to engage in re-
search and technical assistance and demonstrations relative to ad-
ministration and programs of the Farmers Home Administration.
We think, however, that the amount of money that we believe is
allocated — ^$1 million for that activity is probably insufficient in
•relation to the problem that ought to be addressed, so that might
need increasing.
Now, this is important to us because research and demonstration
activity could go a long way in monitoring the regular program
undertaken and accomplishments in relation to the need at the na-
tional. State and sub-State regional level.
There could be and should be publication of the results and evalu-
ation as well as an exchange of information mechanism. For ex-
ample, we are so busy just doing the day-to-day woirk that we sel-
dom have an opportunity to take stock of what we're doing or to
share our information with others, and we believe there are other
people who may be similarly situated from whom we could learn
some things.
With reference to section c(3) (f), section 4, we want to endorse
research related to the adequacy of the rural housing prognun to
meet the special needs of the elderly.
In our experience, this particular aspect of the problem deserves
emphasis and it means the developing of an adequate existing stock
and adapting that stock to enable older people to remain in their
homes as long as. possible. Staying in their homes except where
health or other needs require institutionalization should be provided
in our programs as an alternative to institutionalization.
Our people should not have to — older people should not have to
leave their homes to take advantage of the programs. They should
not have to leave their family environs to move to specially-built
and designed units in the cities and towns.
What is needed is not only the development of techniques for
adopting the stock and methods for securing implementation of these
techniques, but also documentation of ongoing work as that being
done by the THDC which would make it possible for others to
benefit from our experiences.
We support the appeals procedure or some form of an appeals
procedure, and I think one can have a disagreement about the de-
gree of formality that ought to be required. But we think the «-
istence of an appeals procedure is in itself beneficial because it will
likely improve the process of decisionmaking by regularizing and
standardizing that procedure.
Also, to have an internal corrective mechanism may well avoid
problems of lawsuits and constitutional problems as you try to deal
with an agency from an outside vantage point.
We also support section 18, land subiect to rebate claims. We have
had some problem with that in North Carolina in some of our areas.
There is, of course, some uncertainty regarding the magnitude of
this problem and the risks involved, and in this view, consideration
need to be given to having a limited duration^ experimental pro-
gram while we work out the magnitude of the risk to see how they
should look over the long run.
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Sural water and sewer grants as provided in section 20 are aJbeo-
lutoly essential. In our experiences, the absence of water and sewer
fadlities has a major and fundamental impact and adverse impact
on rural housing development. In virtually all instances, it is im-
possible to construct even very small multifamily units without
water and sewer hookups. Indeed, Farmers Home requires water
and sewer hookups in their 515 program.
A majorproblem in rural areas is the absence of water and sewer
facilities. Even for single family dwellings, there are many prob-
lems with sanitary septic tanks, as you know in North CJarolina,
because some of our soil does not accommodate well septic tanks,
so water and sewer provisions are critical.
We also are informed that section 20 would bring Farmers Home
activities in this area up to the same level as EPA, and we think
that would be wise in a sense of consistency.
Let me now turn to section 14 quickly, which is likely to be the
most controversial part of S. 1150. That deals with a proposed
homeownership suibsidj^ for low- and moderate-income persons. I
think the principal objections to such a program would fall into
two broad cate^ries.
One is that it is simply ill-advised in policy terms to attempt to
provide homeownership opportunities for low-income persons or
persons who would neeii a deep subsidy. The second is that such a
program is likely to prove unduly or excessively costly.
Let me address the last objection first. No one can deny thi^ it
would cost some money, perhaps a great deal, but there is no way to
reckon the cost of sudi a program in the abstract. Costs must be
evaluated in light of the goal we are attempting to accompliah and
the policy objectives that we are pursuing. Before we can determine
its success, we then have to look at is it worthwhile.
First of all, I think we ought to just recognize a value in award-
ing the depletion of rural areas of talent of persons, young people
who must migrate to cities to find housing they can afford. What-
ever the reason, we must admit that rental housing in most rural
areas is simply not available in adequate quantities. Single family
rental housing is not being built in any real quantity in many rural
areas, and there are prcwbably two reasons. Single family rental
housing in the low-income range may not be economically feasible.
Second, it may be too spread out to be managed effectively.
Multifamily living arrangements very frequently are not suited to
sparse living patterns in rural areas. So the consequence is that we
don't have much rental stock in rural areas.
Second, a fair measure of today's substandard rural housing is
owner-occupied where the housing cannot be rehabilitated. The fact
is that under present programs, there is no way we can assist the
homeowner where he is. To be assisted, that homeowner must move
to the city or — and accept, in most instances, rental housing.
Shouldn't we have a program where rural people who need honinng
can stay on the land and continue to be self-reliant? Why should we
neglect that person or require him to move to an urban area where
generally housing will cost more because urban land costs more,
where genendly that homeowner will have-^hat person will have
higher out-of-pocket living expenses because he can no longer grow
a XKUtion of his food on the farm and mayb^ c«cl ot \?cs«»'S^-
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TTiird, shouldn't we make a provision for the mral homeowner
who lives in a sobstandard house but does not have a hi^ enough
income to qualify for Farmers Homes 502 l-percent interest pro-
gram.
Fourth, it is generally thought, and I think this is true, that
rural people, by and large, are verv capable, given adequate sup-
port, to engage in homeownership. There are those, generally speak-
mg, who iiiow how to work with their hands and can do modest
upkeep and work around the house, and in my view, it's far better
to provide some help to rural poor people where they are, not to
have th^n drain off to the cities, drain the rural areas of talent and
become crowded and consrested and where children have no room
to grow or play or even ride their bikes.
A rural homeownership program wou ld not be the same as the
somewhat discredited 235 program that HUD initially had. First,
manv of the failures that were attributable to the 235 program were
attributable to the 1-percent interest requirement and that led some
people into default.
Second, many, many — and I think probably the vast majority of
the abuses that occurred in the 235 program occurred in connection
with substantially rehabilitated housing, where q>eculators in core
city areas boardra up— took boarded-up shacks and papered them
over and really hoodwinked HUD and the consumers.
The third thing about that is section 235 would not be like
Farmers Home becEtuse Farmers Home is decentralized and it works
at the county level, and I don't think those local county agents
would be susceptible to being hoodwinked as some of the HUD
central city administratorrs were. _^,^
And finally. Farmers Home, unlike HUD. deals directly, in many
instances, arid it's at the local level and the local homeowner does
not deal through a bank or any middle bank, but would go directly
to the county supervisor and I thin k tha t would be a distinction
between that proposed procram and HUD's section 235.
So then, if it would work, and if it would work better than 235,
and if its worthwhile objective is to warrant allocation of a sub-
stantial amount of money and I do not propose a budget figure
for thaL
Now, I would iust ask T-rane if he would speak very quitily about
some of the problems we have had in connection with the adminis-
tration in Farmers Home Administration.
Mr. Sarver. Q^iitlemen, I'd like to take one minute to edio in
some ways what Bill Pursell said about the flexibility in the 502
praorram and to repeat that.
Section 515, rental housing programs, we are building houses.
Senator; dedicated our first structure in Sanford. We are trying to
build them in the rural areas, keep the development small, but we
tut^ having a great deal of difficulty because the flexibility that is
inheirent in the Farmers Home program sometimes gets admin-
istered out in the r^ulations, when the regulations come through.
WeM just like to urge consideration, tha t «515 be allowed to be
moit^ flexible, particularly in woridng with HUD section 8 subsidy
profpnan. The situation now is that only by using these very sinall
FtefMTS Home set aside by section 8 can these subsidies be used.
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Fan ners Homes has 515 funds not being used in certain areas.
HUD has other subsidy funds not being used, whereas the small
combined program is exhausted.
Flexibility to use rental housing for single family. As Charles
mentioned, the predominant housing pattern is single family; 515
does not allow single family rental projects to be built. I think tliat
Farmers Home in its inherent flexibility, in its local consideration,
should be allowed to meet local considerations, and I think it can,
better than any other propum.
[Complete statement follows:]
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STATEMENT
In behalf of
. TRIANGLE J CODNCIL OF GOVESNKENTS
and
TRIANGLE HOUSING DEVELOPMENT CORPORATION
Research Triangle Park, North Carolina
at
Field Hearings of Rural Housing Comittee, Comittee on Banking, Housing and
Urban Affairs, United States Senate, Raleigh, North Carolina, June 20, 1977
Introduction
I am Charles Daye, Chairman, Triangle Housing Development Corporation
(THDC) . Also I am an Associate Professor of Law at the University of North
Carolina in Chapel Hill. I am appearing today for both the Triangle J Council
of Governments (COG) and the Housing Corporation.
First let me thank you for the opportunity to present this statement and
express my gratitude at the holding of these "close-to-home" hearings on the
important question of housing for rural Americans. We generally favor the
proposed Rural Housing Act of 1977 (S. 1150) on which our connents were requested.
I will limit my remarks to the provisions of the Bill of special Interest to
us and respond to any questions you may have. Accompanying me here today is
Mrs. Ruth Mace, Director of the COG*s Housing Staff.
Background on THDC and Rural Need
Both the THDC and the Council of Governments serve a six-county region
with a population of more .than 1/2 million centered around the capitol of North
Carolina. Two-thirds of the people in our area live in its larger comminities ,
but most of the occupied substandard housing is situated in snail towns and
rural areas. We have about 25,000 occupied substandard dwellings in this region.
More than 16,000 of these dwellings are in rural areas, so we have a very great
interest in rural housing programs and your hearings on the proposed Rural
Housing Act of 1977.
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TiM coabinad houaiog prograa* of the Council of GovemaMits and the
Hooaing Davalopaent Corporation (the COG'a action arm) conalat of planning,
raaaarch, tachnlcal aaalatance, dairelopaent and operation of aaalated houalng,
rehabilitation of the hoaea of low-lncoae owner occupanta (largely rural
elderly), and the adainiatratlon of a Section 8 Houalng Aaalatance Payaanta
Prograa (Bxlating Houalng). The Council* a Conaunity Developaant activities —
providing technical aaalatance and prograa planning — are other najor rea-
ponaibllitlea of the houalng ataff .
THDC waa created by the COG and local conmnlty leadera to deal directly
with the houalng needs not being addreaaed by other agendea that the C06*s
research and planning ef forte were identifying. One of the najor probleaa high-
lighted by the COG waa the akewed diatrlbution of the snail aaount of houalng
aaalatance coaing into the region. Two-thirda of the problem (in tena of
nmbera of occupied below-par dwellinga) waa outaide the major dtlea; but two-
thlrda of the aolutlon (in tena of houalng aaalatance) waa going into the
larger cities.
The THDC waa fomally Incorporated late in 1973 after aoae four yeara of
prelinlnary atudy, organisational and developmental work. The pre-lncorporation
efforta Included a feaaibility study financed In part by a special project grant
under the 701 program from the Department of Houalng and Urban Development (HDD).
Since THDC haa been operational we have worked primarily In our rural areas
where the needs are greateat and the delivery mechaniama aparaeat. We have
worked «xtenalvely with houalng aaaistance programs of the Farmers Home Ad-
mlniatratioa (FWA) %ihlch are the concern of the proposed legialation.
While we have developed new housing for the elderly using Section 515
financing in Sanford and Clayton, our recent major emphaals has been in rural
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housing rehabilitation for low-inc(Miie owner occupants, mostly elderly. As of
last week we had repaired (or were repairing) alaost 400 houses and w« had 19
work crews (consisting of a crew leader and three or four laborers) engaged in
this process. I have brought a suanary fact sheet on the progress of this
program (as of June 15, 1977) with me for your information, which I will submit
with this statement for the record.
Rural Housing Research and Demonstration
Turning to the proposed legislation, I call your attention to Section 4
(b), page 3, lines 16 through 19, where the Secretary of Agriculture is " directed
to conduct research, technical studies, and demonstrations relating to the
missions and programs of the Farmers Home Administration and national housing
goals..." We applaud the mandating of goal-related research and demonstration,
and we strongly urge that adequate funding be provided to implement this mandate.
We understand that an appropriation of $1 million is proposed for this activity.
This seems to be a minuscule amount in relation to the size of the task, and we
think serious consideration should be given to increasing that amount signi-
ficantly.
This research and demonstration activity should include regular monitoring
of program undertakings and accomplishments in relation to the need at a national,
state, and sub-state regional levels. Also there should be publication of the
results as a continuing performance evaluation and information exchange mechanism.
The need for such monitoring is illustrated by remarks in a 1968 publica-
tion of the North Carolina State Department of Administration (Toward Good
Housing for All North Carolinians , p. 41). It was observed there that at the
1966 activity rates it might take as long as 2,500 years to repair and replace
substandard rural housing in North Carolina, if sole reliance were placed on
Farmers Home Administration assistance. It was also noted that Farmers Home
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Adainlstratlon rural hoiMilng assistance «ms very variable across North
Caroliaa related more to the degree of interest of individual county super-
visors in housing a88istazu:e progress than to the need for such assistance.
I understand this situation still prevails. Faraers Hose Administration clearly
needs to place increased eaphasis on its rural housing activities. Indeed, ve
think there aey be strong reasons to mandate an outreach effort in many counties.
With reference to (c) 3 of Section 4, page 4 lines 10 and 19, we wish to
endorse research, and the support of research, related to "the adequacy of the
rural bowsing stock to meet the special needs of the elderly.** In our ex-
perience, the particular aspect of this problem which deserves emphasis is that
of developing a means for adapting the existing stock to enable older people
to remain in their own homes as long as possible. Staying in thair homes,
exc^t where health or other needs require instltutioiuilKatilaTt, should be pro-
vided in our programs as an alternative to instltutlonalLzatlon. Older people
should not have to leave their homes and their familiar environment and move to
specdLally designed new housing for the elderly in cities and towns away from
their own coamunities to be assisted under our programs. What is needed is not
only the development of techniques for adapting the stock and methods for se-
curing implementation of these techniques, but also documentation of on-going
work such as that being done by THDC to make it possible for others to benefit
from this experience. With our limited sesources, it is as much as we can do
to continue with the work itself. Documentation and publication of what we are
doing frequently must be neglected. We believe other agencies doing similar work
are in the same situation of being so consumied with getting the job done, that
there is no time left to prepare full dpcuaentation of how we do what we do
and the measure of our accomplishments. As a result, we and others, are not
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able to mutually benefit from the sharing of knowledge about techniques and
methods, and how problens are encountered and solved.
FnHA Appeals Procedure
We support the appeals procedure provided in Section 7 (pp. 9-11), because
it has substantial merit. It serves a paramount objective of providing the
appearance of fairness and ensures that if arbitrary or erroneous decisions
are made internal mechanisms are available whereby they may be reviewed and
corrected. The very existence of such procedures will likely go a long way
toward inqproving the process of decisionmaking by regularising and standardis-
ing procedures throughout Farmers Hone AdoilniAt ration's highly decentralised
channels. Also, by providing an internal corrective mechanism, outside channels,
such as law suits and constitutional objections, will be unnecessary. This will
avoid such delays and costs to applicants thereby making the entire program
more satisfactory.
Loans on Lands Subject to Remote Claims
We endorse Section 18 (pp. 18-19) dealing with loans to persons whose
titles may be subject to remote claims or incumbrances. Such a program should
prove relatively inexpensive compared to the need for it and its potential for
removing one of the problems standing in the way of making loans to rural
persons. There is, of course, some uncertainty regarding the magnitude of the
risks involved. In view of this, consideration nay need to be given to making
the program of limited duration on an experimental basis. This has the virtue
of permitting a trial period, without committing ourselves to a program with
unknown dimensions over the long term. Obviously study and monitoring would be
necessary during the experimental period to determine how the program would look
in the long run.
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Rural Water md Smnr Grants
SactioB 20 (pp. 20-21) providing for Hater and Sewer Grants is a nost
wortfawhlle provision. In our experiences, the absence of water and sewer
facilities has a aajor and fundaaental lapact on rural housing iaprovcaents .
In virtually all instances it is iaposslble to construct even very simII
■ultif aaily units without water and sewer hook-ups (indeed Fansrs Boas
AdAiiLlBtratlfni requires water and sewer hookups in its 515 program), ttir
activities cannot reach their mtIiw potential without such a program as out-
lined in Section 20. A major problem in rural areas and small towns in North
Carolins generally is the absence of sanitary water and sewer facilities. As
you know, even for single-family dwellings, there are many problems with sani-
tary septic tanks, because many counties have soil that does not accomodate
spetlc tanks. So we think the provision of water and sewer facilities is
crucial to any rural housing activities. Thus Section 20' s provision could go
a long way to helping us meet needs in rural and small town areas. We are
informed that the Section 20 grant formula will bring Farmers Home Administration
public facilities grants to the same level as those of EPA which should argue
for the r«4eioiubLeQeafi of this proposal.
IttlT'*! Homeowner 3 hip FroEram
Now let me turn to Section 14 (p. 16) of the proposed Rural Botising Act.
This section would enact a Homeownership Subsidy for Low- and - Moderate Income
Persmw. Candidly, this proposal is likely to be the most controversial of the
provisions in the bill. I think the principle objections will fall into two
broad areas:
(1) that homeownership for persons requiring a deep subsidy is, in itself,
ill-advised and
(2) that a homeownership program of this sort Is likely to prove excessively
costly.
Let me address the last objection first. No one would contend that such a
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program won't cost money and a good deal, at that. But there Is no way to
reckon the costs of such a program in the abstract. Cost must be evaluated
In light o£ what is achieved and what policy objectives are sought to be
attained. Accordingly, before we can determine whether the cost would be
"excessive," we must look at the question posed by the first objection, i.e.,
Is the policy objective of aiding rural persona to achieve homeownership
worthwhile"?
We must recognize a value in avoiding the depletion of rural areas of
talent because rural young people must migrate to cities to find housing th^
can afford. Whatever the reason, we must also admit that rental housing, in
most rural areas, is si]q>ly not available. Single family rental housing is
not being built in any real quantity in rural areas. There are probably at
least two reasons . First, single family rental housing in the low-income range
is not economically feasible. Second, it is too spread«out to be managed
effectively. Multlfamily living arrangements are simply not suitable in sparsely
populated rural areas. So the consequence is that tural areas do not have sub-
stantial stocks of safe, sanitary and decent rental housing.
Second, a fair measure of substandard rural housing today is owner
occupied. Where that housing cannot be rehabilitated, the fact is that under
present programs, there is no way any of our present programs can assist that
homeowner where he is . To be assisted he must (a) move to a city area and
(b) accept. In most instances, rental housing. * Shouldn't we have a program
that can assist rural people who need housing to stay on their land and to be
self-reliant? Why should we either neglect that person, or require him to move
to an urban area, - where generally housing will cost more, because urban land
costs more; - where generally he will have higher out-of-pocket expenses because
he can no longer raise a portion of his food on the land and can and freeze it?
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Third, should we not sake some provision for a rural hoaeowner who lives
In a substandard house, but does not have a high enough Incone to qualify for
the Faraers Hone Administration's section 502 IZ Interest prograa? We should
not fall to have soae program which can serve that rural person without making
him leave the land and become a renter.
Fourth, It Is generally thought, and I think this Is true, that rural
people, by-and-large, are very capable, given adequate support, to engage In
homeownershlp . They are people, generally speaking, who can do modest upkeep
and work with their hands. And, In my view. It Is far better to provide some
help to them where they are, thus stopping the drain of people and talent from
rural areas to urban areas, where people are conjested and crowded, and children
have no room to grow and play or ride their bikes.
Fifth, a rural homeoimershlp program would not be the same as the somewhat
discredited section 235 program that HUD Initially had. First. many of the
failures of that program are traceable to the fact that the IZ Interest program
did not provide enough subsidy. So unable to meet their payments homeowners
went Into default. That would not be true of the proposed program because the
subsidy would be matched to Individual needs and circumstances and not limited
to an arbitrary IZ Interest formula. Also, many of the abuses In section 235
occurred because urban speculators took advantage of HUD and the consumer In
the "substantial rehab" part of section 235. That should not happen with a rural
program because Farmers Home Administration Is organized on a county-by-county
basis, with knowledgeable local people running Its programs, and because there
are no wide stocks of existing housing which could be used In any rehab program.
I think given the overall and Important policy objectives such a rural
homeownershlp program would serve. Its costs would be Justified, although I
admit they would be significant. In short, a rural homeownershlp program would
be worth the money.
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********
Again I want to express appreciation to you and your subcoHBlttae
for this opportunity to present our views in this area on the iaportant
question of rural housing.
Thank you.
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Senator Moroan. Thank you very much., gen^UeiineiL We might
say we went out in Utah to see some 515 housing, and it would
compare fairly favorably with ours in SanforcLThey had some
Tery fine housmg out there.
(jentlemen, we thank you very much for coming. There are a
lot of things we'd like to pursue but time won't permit us, and
let me say to you and to all of you, that we apologize for the hur-
ried schedule, but if we are going to get hearings on this bill this
year, we had to try to work Qiem in on Monday l)ecau8e the Senate
IS meeting — well, it met every night last week except Friday, and
so we just had to work them m as quickly as we could, and Senator
Gam's staff assistant and the Banking Committee staff assistant and I
are going to look at some projects this afternoon, so it doesn't give
us as much time for hearing as we'd really like to have. Thank you.
Senator Gam, we have with us — I saw him as he came in the door,
our Commissioner of Agriculture, and if he looks sort of tired
this morning, it's mainly because he presided over the national
hollering contest, which you'll probably oe hearing about on CBS.
C(»nmissioner Graham, we'd be delighted to hear from you but
I ought to warn you before you give the donkey bray that Senator
Gram is a Bepumican. He does that for our Democratic Conven-
ticms.
STATEMENT OF COMMISSIONEE GRAHAM
Commissioner Graham. I don't care what he is; just don't vote
for no tobacco tax.
Senator Morgan. I might tell you that Senator Gam is a Momion
^and they don't use tobacco, but I'm working on him.
Commissioner Graham. Well, salt ain't good for you, either.
Senator, we're glad to welcome you to North Carolina, and I
shall be specific, Senator Morgan, and I commend you for calling
this very timely hearing on a very important matter.
I won't go into detail except as Commissioner of Agriculture,
we are concerned, as I know you are, Senator, and our Grovernor,
on rural housing in North Carolina. All I want to say is one thing;
that the Farmers Home Administration is the place, in my opinion,
for rural housing. Something's wrong. I don't know what it is, but
I don't know what's been discussed, Imt I would hope that you could
try to have the kind of house for rural houses be whatever it is
that fits with that individual's income. There's been too many added
burdens in it plus the bureaucratic costs of the lawyers there are to
getting the loans out there.
I would say that some tightening needs to be done somewhere.
Senator, and I think that's one of the real problems as you ride
down the highways of North Carolina and see empty houses over
' there where somebody's having to pay for that. Someone's^ absorb-
ing that, Senator, 'but there is nothing any moire attractive to a
oommunity than to have good rural housing.
We welcome you to NortJi Carolina. Thank you for coming with
our distinguiriied Senator, and I hope you enjoy your stay here in
North Carolina. But it is very timely, t do say this; that it should
stOT in the — ^under the Faraiers Home Administration.
SecretaiT Bergland told me he was jgoing to pick a man not in
hoQsiiig. I know he selected an administrator as authocatY yclKcmssoss^
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in Philadelphia. Please don't let him forget about rural honing;
not ur^ban housing.
Senator Morgan. Th-at's our purpose, Commissioner. I wonder if
there are others here who would like to subanit statements for the
record. Come right up.
Senator Garn. While he's coming up, I would just say to the
Commissioner that although I don't buy any of your tobacco prod-
ucts, I buy quite a bit of furniture from North Carolina.
Commissioner Graham. I knew he showed good judgment. I
know a lot of other things.
Voice. I'm here as a friend of the migrants.
Senator Morgan. For the rec5ord, would you identify yourself?
STATEMENT OF HENBT PRECISE
Mr. Precise. Henry Precise.
Senator Morgan. And give your address.
Mr. Precise. Box 325, Faison. I don't think that there is anytiiing
that could be done to help the migrants more than getting this 1
percent loan. I talk to migrants every day. They are not blaming
the growers for the below-standard housing. They are blaming the
Federal Government. Now, we have got a lot of people that daim
to be helping migrants and they are so against the farmer that they
mig-M get this 1 percent interest.
They said here that it was 400 labor camps in North Carolina.
I didn't know about this meeting until Friday morning. I got 67
farmers imder this petition that says tihey are willing to build new
labor camps if we can get this 1 percent loan through that a farmer
can get it without the redtape, that if he is willing to build a
labor camp he can get a 1 percent loon and the State of North
Carolina, m 3 years, 75 percent of all the labor camps will be new.
Senator Morgan. Do you know anybody that has received one of
these loans?
Mr. Precise. Yes, sir. There's been one camp built in the State
of North Carolina, and I understand there is one under construc-
tion.
I know the FHA in North Carolina has been to Washington two
times personally to try to get these loons. I know one loan that was
prcxjessed all the way to Washington and it was turned down be-
cause it wouldn't be built in the city limits.
Now, that's ridiculous. All they have done is ke^t 20 or 30 peo-
ple from having better housing. Now, if we are telling these people
we're going to help them with better housing, it's time that we
helped with better housing. Now, if the Gfovemment, Fedentl Gov-
ernment doesnt want to let the farmer have the 1 percent interest,
it's time we got out there and build better housing ourselves and
let the migrants rent the house from them and in turn, let the
farmer pay them. There's nothing that we can do to help migrants
better than get a 1 percent loan for farmers, and if you will get
the 1 percent loan, in 3 years North Carolina will have 76 percent
new labor camps.
Those 67 names I got in 1 day. They're all farmers.
Senator Morgan. We appreciate your taking the time to do that
and bringing it to our attention, and I'm personally glad that the
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Commissioner su'hmitted his statement because it brings a probl^n
to my mind very forcefully that, quite frankly, I wasn't aware of
in tlie Farmers Home Administration.
Thant you very much. Do you have any questions?
Senatoir Gahn. No.
Senator Morgan. Anyone else?
STATEMENT OF ROBEBT LOVELL, MOTJlTr AIRT
Mr. LovELi^. I'd like to say one word. I'm Robert Lovell from
Mount Airy and I have been building approximately 75 percent
under Farmers Home Administration. I have been thoroughly sat-
isfied with it and they have been, I think, very, very reasonaJ>le.
But the one thing that's going to happen to the Farmers Home
Administration in our part of North Carolina, the Appalachian
ai^ if you have to have water and sewer, I'm goin^ to be out of
business. Of course, I'm old enough to be out of business anyway,
but I don't want to be forced out, and that's absurd.
There's no place I can build in. I'm going to be completely out of
business soon as I build up the lots that have been approved. I
cannot get water and sewer. It's not practical. It's not economically
practical, and if it's Farmers Home, why do you have to put it in
town ? I can't buy any land in town. Hell, they haven't extended the
city limits. They haven't done a darned thing and there's not too
many places in all of Surry County I can build. They used to say
that you can't build within 5 miles of Mount Airy. They made a
180-degree turn; said you got to be in Moimt Airy. Well, I know
Mr. Buchanan didn't do it and he got the idea from some person
that's hipped on sewer and water, but I tell you the housing busi-
ness is going to take one beating if it does. Because I guarantee
you after I build my houses there, and I been the big bSilder up
in that section, just that little section ; I built that nmnv and there's
never been one of my houses in foreclosure either, and I built those,
but that water and sewer; that's insanity.
Senator Morgan. Well, I think I know what vou're talking about.
Back in the days when I practiced law, the Farmers Home dealt
primarily with single situations.
I don't even know of any that had water and sewer. They used
septic tanks and large lots and so forth.
Mr. LovELL. We don't have to have it up there and they want
to pull us right in the city with it. They just did me a 180 — ^but
I'd just like to say that. I didn't want to take up your time.
Senator Morgan. Thank you very much for coming down. Does
anyone else have any suggestions?
STATEMENT OF JOHN PREVATTE, COUNTY PLANNEK, BEAUFORT
COUNTY
Mr. Prevatte. I have primarOy a question. My name's John
Prevatte, county planner, Beaufort County, and in doing just a
little research into rural housing, which we are undergoing a study
on right now, we have approximately 1,000 — excuse me; 11,000
households in the county. Out of that we have got approximately
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1,000 of those overcrowded conditions, and this gives a round figure
of around 13,000 homes that we need to have.
Now, we have only got 9,000 substandard, or standardized homes,
which leaves us 3,000 that aren't. What we have got now is 3,000
homes that coiUd be rehabilitated hut we're still lacking in Beau-
fort County, a rural county, 1,000 homes that need to be built, and
I don't know anybody that can build these things with the price
of houses right now, regardless of how you go about it.
My Question now is what can be done with these people that are
in the low- to moderate-income group with the FmHA and maybe
foing to the route of mobile homes? Now, as I understand it, dou-
le-wides and modular homes are already covered. What I'm won-
dering is if something could be done and look into mobile homes
being picked up, that the people could afford these things, and the
same FmHA standards would apply to that, and you know, this is
just 36,000 people and we neea 1,000 homes just to come up to
snuff.
Senator Morgan. John, I can't give you an answer right now,
but I appreciate your raising the question, and when we get all
our hearings completed and the staff begins to study the record,
we will have the problem in the record and we'll begin to look into
it
I have added an amendment to a number of the housing bills
which brought some mobile homes under the housing bills but not the
f airmers' are«u
Mr. Prevatte. I would like to prepare a statement and submit it
to you.
Senator Morgan. If anyone would care to submit a written state-
ment later on any matters raised this morning, we'd be delighted to
receive it and make it a part of the record, and it would be helpful
to us if you raise meaningful questions.
Anyone else care to be heard? If not, we again thank you for
cojming, and I am indebted to Senator Gam for coming on such
an important day, especially for his State. Jake, we're glad to have
you in North Carolina and we want you to come back when we'll
have more time.
I see many of you here that I know and I hope youll speak to
Senator Gram before we leave, and this afternoon we're going to
visit some projects.
[Whereupon the hearing was concluded.]
[Additional statements received for the record follow:]
Pbepabed Statement of M. Dubwood Stephensoit, Builoeb aud Dbvelopeb
Prior to the offering of any constructive criticism, I wish to acclaim the es-
tabUshment of the Farmers Home Administration as the greatest legislation
ever drafted by Congress. The ^rect ben^ts accming to the citizenry of the
United States is without equal with the possible exception of Social Security.
The advent of rural home loans has been a tremendous boost in improving
the quality of life in rural America.
My interest in the rural housing programs within the Farmers Home Admin-
istration is as a builder, a concerned citizen, and as a taxpayer. A genuine
belief in the principles and philosophies that led to the estabUshment of these
programs has led me to serious concern for the administration of the program,
lliere are, admittedly, minor problems within the mechanics of the program.
Bowever. in my association with the Farmers Home Administration, I have
f jmrere and Jnagnitable adminiatration problems. I recognise that yoar
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roles as Senators are generally limited to legislative mechanics, with adminis-
tration being the primary responsibility of the Secretary of Agriculture. Never-
theless, I believe that your interest extends into the area of administration
and may, if necessary, become a target for revision.
I am enclosing a copy of a letter submitted to me by loan applicant, Mary
B. Pressley. It is typical of complaints received by my office from loan appli-
cants! indifferent attitudes, needless delays, and general discourtesy. Hie
problem cases are too numerous to detail but the problems are similar. One
of the most prevalent problems is the long delay in providing housing for needy
applicants. For example, H. Bryan Hobbs, Jr. submitted a loan application in
January, 1977. He was approved in February, 1977 and his home was com-
pleted in March, 1977. However, the loan has not been closed at the writing of
this letter.
As you are aware, there are generally two methods of acquiring a home fi-
nanced by Farmers Home Administration. The applicant may (1) buy an exist-
ing home after approval or (2) he may employ a builder after approval. As-
suming a six months delay (average) in loan closing, the builder will incur
an additional $1,200. to $1,500. for an average priced home under method (1)
or the applicant will be required to make several months of payments prior
to obtaining possession of the dwelling under method (2). Builders are con-
tinuing to withdraw from this market because of long delays and poor ad-
ministration which mean diminishing profits. If the program is to continue,
administration must improve.
I applaud the approach of S. 1150 and believe that there are many improve-
ments that may fiow from its passage. In an effort to improve the operation
and substance of the housing program, I submit the following recommendations
for your consideration :
(1) GRADUATED SUBSIDY
At the present time, applicants with incomes of $10,000. or less qualify for
an interest subsidy with payments based on a 20 percent income formula. Under
this system, an individual qualifying for a subsidy may purchase a home with-
out regard to price for a low monthly payment while an applicant earning
Just a few dollars more xiould purchase a cheaper home but pay considerably
larger payments.
(2) INCREASE LOAN AMOUNTS
At the present time, the limit for a dwelling in our area is $25,000. with air
conditioning, showers and favorable amenities not allowed regardless of income
earnings or budget allowances. A home built without central air conditioning
is functionally obsolete by most standards and is difficult to finance through
conventional sources thus reducing future marketability. Applicants not sub-
ject to subsidy should be allowed to build adequate housing with desired
amenitiee.
(8) SURETY OR GO-SIGN AUTHORITY
Statistics have indicated that home financing institutions have a low fore-
closure rate indicating that homeowners take home mortgages seriouidy. How-
ever, low and middle income apf>licants generally served by Farmers Home
Administration tend to have less desirable credit records. In view of the low
foreclosure experience, I suggest that applicants with a borderline credit his-
tory be allowed to obtain a loan if a suitable, economically stable co-signer
89iall be engaged to execute with applicant. The co-signer could be released after
two or three years of favorable credit experience with applicant
(4) EMPLOYMENT OF INDEPENDENT FEE APPRAISERS
In-house appraisals by Farmers Home Administration are promulgating low
and non typical market reflections thus encouraging construction of low quality
residences. Appraisals by professional appraisers as utilized by Y. A. and
F. H. A. should be adopted.
(6) EMPLOYMENT OF INDIVIDUALS TRAINED IN HOUSING MARKET
At the present time. Farmers Home Administration employees are generally
trained in areas of agriculture but offices are without services of individuals
with expertise in constmcti(m or housing.
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(6) APPEAL PBOCEDXJBE REVISED
I am opposed to a lengthy, expensive procedure for appeals. The appeal pro-
cedure should be simple and accessible to average applicant. Personal interview
with local county boards may be feasible.
I look forward to passage of Senate Bill 1150 and trust that in its final
draft, it will be responsive to the needs and wishes of rural America.
Bobby and Mart Pbbsslet,
Kenly, N.C, June 19, 1977.
Mr. DuBwooD Stephenson,
SmithfleU, N.C.
Deab Sib : Bobby and I went to the FHA oiBoe in Smithfield on Friday, June
17, 1977, to talk with Mr. Bob Moore.
Mr. Moore turned down the lot due to the fact that it was a "Potential Sub-
division." I believe he acted before he knew all the facts. The map we had^
the lot showed other lots and other owns as well it showed Mr. Nasson's lots>
The owner of the lot we wanted.
We have made several trips to the FHA oflSce. Bobby works and an em-
ployer doesn't mind getting off once in a while. So when we were notified to
call for an appointment with Mr. Ross, I explain that Bobby was working and
if I could come alone would this be alright Mr. Ross agreed to this and under-
stood that Bobby was making our living. He was very nice and did his best to
explain all in detail to me. He made me feel that I was a person and my want-
ing a home was important and seeing we got the help we were seeking was also
Important. He did not rush through any thing to get through with the meeting.
Well, on Friday, June 17, 1977, when we went back to FHA to meet with
Mr. Moore, he made us feel he was doing us a favor just being there.
My husband left his job early for the appointment with Mr. Moore. He was
very dirty due to his job. I explained this to Mr. Moore, on the phone, when
I made the appointment, that Bobby would be dirty, for he would leave work
and come straight to Smithfield. This is what we did.
We arrived at the FHA oflice at 3:35 p.m. Our appointment was at 8:45
p.m. We waited until 4 :15 p.m. Mr. Moore called us in his "Office." During this
time I counted (8) eight employees in the office of the FHA. Only (4) four were
actually working. They were Mr. Ross, Mrs. Grumpier, a man named Jackie and
a young glrL A young boy was fioundering around like he was lost as well as
another lady. A Betsy someone was planning a party over the phone and
worrying if the bike would be put together by 2 :00 Saturday. And if the pea-
nuts had been bought and was the party on the other end at their Mothers?
I feel that we were not even human enough to be in the office. My husband
works for a living. He is not a rich or well educated man. He does earn an hon-
est living and always tries to never make a person feel lower than himself. Mr.
Moore made us feel this way. He had a very bad attitude. If I'm right, I be-
lieve the taxpayers are paying his salary. I don't like thinking someone thats
there to help you has an attitude like Mr. Moors. I also feel that there were
enough people in that office to take care of more than two offices. Mr. Moore
had to go move his car. Some of the women were trying to figure out if on a
certain day did Mr. Someone or Mrs. Someone took sick time or annual leave.
Betsy wanted annual time for she needs to build her sick time back up. Mrs.
Someone, wasn't sure so give her annual time.
After that trip to FHA. I'm not sure if we're even acceptable as people to
receiving the help from FHA. So if you would please, advise me if we shoald
go on and try to find another lot.
Mabt B. Pbesslet.
P.S. We were the only people in the office other than employees.
Also the bid runs out July 24, 1977. Mr. Moore said there would be no way
he could get back to us before July 24th, 1977. It would be after that date
l)efore he could even see us again. So what do we do?
Mas. Pbesslet.
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RURAL HOUSING ACT OF 1977
TUESDAY, OCTOBEB 4, 1977
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Rural Housing,
Washington^ D.O.
The subcommittee met at 10:02 a.m. in room 6226 of the Dirksen
Senate Office Building, Senator Robert Morgan (chairman of the sub-
committee) presiding.
Present : Senators Morgan, Sparkman, Brooke, and Garn.
OPENING STATEMENT OF SENATOB HOBOAN
Senator Morgan. We will call our meeting to order this morning.
Not everyone is here, but the time for the meeting has already passed.
So we will go ahead, especially in light of the fact that the Senate
will get on to the natural gas bill at 11 :00 o'clock this morning.
Our first witness just came in. We will begin shortly.
Let me say, this is the first of 3 daj^ of hearings that we are to con-
duct here in Washington, on the need for rural housing for America.
The primary focus of these hearings, of course, will be S. 1160, intro-
duced by Senator Hathaway and Senator Humphrey and others, as
well as Senator Sparkman.
[See p. 80 for reprint of S. 1150.]
This subcommittee held hearings in April of this year on S. 1359,
a bill extending authorizations for the housing programs that are ad-
ministered by the Farmers Home Administration.
Unfortunately, I was not able to be here at the time because of ill-
ness, but my good friend and my colleague Senator Sparkman, who has
done so much for housing, both rural and urban, over the years, chaired
that hearing.
At the time we invited the witnesses to broaden their statements be-
yond the bill that was pending, S. 1359, and to comment on the provi-
sions of the present bill before us, S. 1150.
The response was gratifying.
A great deal of useful testimony was received.
As a result, the subcommittee recommended to the full committee
that many of the provisions of S. 1150 be included in the housing bill
which was to be marked up in May.
The full committee accepted our recommendations and those provi-
sions were in the housing bill which passed the Senate on Jime 7.
With very few changes, our recommendations were approved by the
conference committee, which reached the final agreement on the 26th,
and which were adopted by the Senate last Saturday afternoon.
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As a result of this subcommittee, we will have a revised program for
the Farmers Home Administration guarantees of loans made by
private lenders.
I have great hopes that this program will attract private capital
into the area of rural housing in terms that are fair and equitable to
the rural home borrower.
We provided a means by which borrowers from the Farmers Home
Administration can be compensated for structural defects that should
have been discovered in the inspection processes. '
We made provisions for handicapped persons and families.
We provided for prepayment of taxes and insurance by Farmers
Home borrowers, and we made some other improvements, we think,
in the program.
Frankly, I am pleased with what the subcommittee has accomplished
in the short time that it has existed. We don't intend to stop now.
The need is too great.
We want to move ahead with some new approaches to rural
problems.
The subcommittee is convinced that many of the social and economic
problems of our rural areas stem from the tragedy of totally inade-
quate shelter.
We are dedicated to trying to do something about that.
As I said, many provisions of S. 1150 are soon to become law. Other
provisions remain to be addressed. And the primary purpose of these
hearings today is to address these matters.
However, I would want the witnesses to feel free to wander afield
from S. 1150 and give us the benefit of their knowledge and expertise
in the broad areas of rural housing.
We welcome any and all suggestions for solving these very serious
problems.
I have felt for a long time that rural problems are treated too much
like the stepchild of American concerns, tucked away in the hills and
hollows of our countryside ; far away from the mobile TV units, they
continue to be unnoticed in the media or in the society in which we live.
This is a situation that cannot and should not be allowed to continue.
Too few urbanites in America today realize the extent to which
their urban problems are aggravated by what I like to call the despera-
tion migration of rural f ol& to our cities.
I won't take the time to amplify that, but I just want to say again
that this subcommittee is dedicated to taking the desperation out of
the migration.
We look forward to the day when the quality of life in the hills and
byways and back areas of this country will be like a magnet holding
our youn^ people there against the attraction and often false glitter
of the cities, at the same time providing the comforts and amenities
of the good life for those whose lives are already settled there.
Senator Morgan. This morning we are pleased to have the distin-
guished Senator from Maine, who was one of the introducers of this
bill. He is honoring us with his presence and willingness to come down
and give us his views.
Senator, we will hear from you.
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STATEHENT OF WIUIAH D. HATHAWAT, U.S. SENATOB FROM THE
STATE OF MAINE
Senator Hathaway. Thank you very much for giving me the op-
portimity to testify before this subcommittee.
As you know, Mr. Chairman, I used to be a member of this committee
and was very much interested in rural housing; and held rural housing
hearings in 1974.
My mterest in rural housing has continued and I was happy to join
Senator Humphrey when he introduced S. 1150 which, as you men-
tioned, is the focus of the hearings here today.
There are many facts and figures regarding the housing needs of
our rural areas. In 1973, the Joint Center for Urban Studies of
Harvard-MIT established that there were 13.1 million households suf-
fering from "housing deprivation" and of these, more than 5 million,
or 38 percent were nonmetropolitan.
In 1974, the ratio of substandard housing to public housing was 5
to 1 for urban counties and 17 to 1 for rural counties.
The incidence of substandard housing in nonmetropolitan areas was
S^times that in metropolitan areas in 1974.
The significance of comprehensive and strong rural housing pro-
grams in a State such as Maine is apparent. Regrettably, figures from
the Maine State Planning Office indicate that 60 percent of all of New
England's substandard rural housing is in the nonmetropolitan coun-
ties of Maine. In these counties of Maine, there were 54,200 substandard
units. In the other New England States, there were 67,300 substandard
units in the nonmetropolitan counties.
S. 1160 was a recognition of the need to have stronger rural housing
programs. Only in the past 10 to 15 years has there been significant
strengthening of our rural housing programs. While the Farmers
Home Administration has been of great assistance in States such as
my own, we have yet to see much progress in meeting the housing needs
of the rural poor.
S. 1160 speaks to this issue and several others of interest to me. More
particularly, I am interested in the provisions relating to Farmers
Home loan on land with remote title claims, the energy conservation
provisions and the section 14 proposal for a subsidy for the rural low-
and moderate-income f amiiles.
The section of the bill relating to remote title claims stipulates that
the Secretary of Agriculture shall continue to make loans for construc-
tion on lands which might otherwise be uninsurable as a result of such
remote title claims.
When this bill was introduced last March, the Maine Indian land
claim to as much as 12 million acres and $30 billion was just beginning
to attract national attention. Now similar land claims are being filed
in the Eastern States where until recently the precepts of western
Indian law had not been thought to apply.
While the outcome of litigation of any of these claims is still in the
distant future, the economic consequences of the mere filing of these
claims have been felt. Title to land is clouded and State and local bond
sales have been prevented.
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So far, despite the pending court cast, Farmers Home has continued
to approve housing on lands potentially affected by this suit. What,
of course, will be incorporated into the law is what the Farmers Home
Administration is doing administratively at the present time.
I think it is important to emphasize that this provision has broader
applicability than just in the State of Maine. My understanding is that
there is particular relevance to parts of the Southwest and South-
eastern United States, to Alaska, and to Appalachia, all of which have
some incidence of remote title claims.
Another provision of particular interest to the State of Maine is
the section dealing with energy conservation.
This section would mandate that the Secretary of Agriculture incor-
porate energy conservation construction techniques into all housing
financed by FmHA, without being constrained by current standards or
regulations.
This language is necessary because current regulations paradoxically
discourage and inhibit energy conservation.
For example, I have heard from a number of constituents in Maine
who have informed me that they have been barred from including a
fireplace in their FmHA home. FmHA officials respond that the reg-
ulations are drafted on a nationwide basis and that their research con-
cludes that in many parts of the country, fireplaces do not represent a
sound energy investment — due to cost of wood and energy losses
through the chimnej when the fireplace is not being utilized. But in
Maine, where wood is readily available in quantity these arguments do
not seem to hold any weight and it is time that the FmHA regulations
recognized these critical reg;ional differences.
To be sure, if you leave a flue open, you are going to lose heat. Most
people are sensible enough to close the flue.
This section would correct these difficulties by directing the Secre-
tary to encourage, rather than discourage, the utilization of alternative
locally available heating systems.
In addition, this section would alter the way housing costs are cur-
rently viewed by Farmers Home, and would require it to consider the
long-term, life-cycle cost of the house and its associated energy costs.
It would allow the Secretary to extend loan assistance in larger
amounts for initial construction costs, if those costs are matched by as-
sociated energy savings in subsequent years.
I would note here that Farmers Home in Maine has put out a set of
energy-saving recommendations which include specific insulation rec-
ommendations, recognition of life costing, and a recommendation for
installation of a masonry chimney with receivers for a wood stove in
the living areas.
At present, an estimated 25 percent of the homes in Maine use wood
as their primary fuel source and it is the single largest secondary fuel
used to heat homes in the State. Encouragmg conservation and the
use of local sources of fuel rather than oil and gas through our Federal
housing programs is both in the national interest and the interest of
the individual consumer.
I know lignite is used to some extent in the South, in Louisiana,
particularly. Peat can be used in Alaska. Of course, there are probably
other forms of fossil fuels indigenous to various areas that would be
benefited by this change in the law.
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Finally, section 14 of S. 1150 provides a subsidy program for low-
and moderate-income home ownership. Congress has long intended
that Farmers Home programs serve the lower-income levels. But such
programs have not been successfully implemented. The rural rent sup-
plement program is finallv underway after a court order and a change
in administration. ^ .
Section 14 of the bill authorizes Farmers Home to subsidize the dif-
ference between 15 percent of gross annual income of a very low-income
household and the costs of principal and interest, property taxes, in-
surance, utilities and maintenance. This is similar to the HuD section
8 rental program. A provision is added here whereby the Government
would recapture some or all of this subsidy in the event the home were
sold at a profit at a later date.
This is an innovative idea for low-income housing and one which I
feel deserves full explanation. I understand you will be receiving a
detailed i)roposaI from the Housing Assistance Ckmncil as to how this
section might be implemented. While I will leave it to them to explain
their proposal, it does have elements which I find of great interest,
such as permitting the home owner to build equity in his house while
still allowing substantial recapture by the Government upon a sale.
While the implementation of this provision would not be simple,
it is an idea which I hope might be pursued. It could be started oa a
limited or demonstration basis to see what the response might be to
the idea and to permit some actual experience with resale of the prop-
erty and recapture of the subsidy. Depending upon the results, it could
be applicable to other housing programs.
Mr. Chairman, I would Ime to thank you for this opportunity to
present these thoughts on the rural housing programs. I kiiow that the
npcoming testimony is going to go into detailed recommendations on
implementation of these and other areas, and I hope that this commit-
tee will be able to present a rural housing bill to the Senate in the near
future.
I am particularly interested in the insulation provision in this bill.
I think it's a better one than allowing tax credits across the board for
the individual for insulation.
It seems to me to be a waste of money to give tax credits for those
people who can afford to put storm windows on their homes, insula-
tion in their attic especially when they have a guaranteed return. They
know, regardless of what type of fuel they are using, they will save
fuel and get the costs of the windows or insulation back over a short
period of time.
It's to those people who cannot afford the initial costs of putting in
the insulation that we ought to direct our attention. We ought to make
sure that homes that are financed by Farmers Home has Uiat insula-
tion in them initially.
Thank you very much.
I would be happy to try to answer questions that you have.
Senator Morgan. Thank you. Bill, for a very helpful statement. I
couldn't a^gree with you more on the types of credit for insulation. We
keep on giving tax credits, there's not going to be any taxes left to help
the rural poor.
Senator Hathawat. That's right.
94-»ll— 77 12
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Senator MoBciAN. If people need tax credit, they can afford' it,
generally.
On the title situation, how did the Farmers Home handle the prob^
km in Maine, administratively ?
Senator Hathaway^ On the title situation? They have gone ahead
and loaned the money even though the title has a cloud with the Indian
claims over it.
Senator Moroan. Do you think in light of the willingness of Fanners
Home to go ahead and handle these matters that we ought to write it
into law? r
' Senator Hathawatw I think we should^ The Jndia,n claims through-
t)ut the country — ^theris may be- other remote claims, as well, but the
Indian claims are the only ones we know of— they could go on for
many, many years. In the State of Maine^ the agreement recommended
by tfudge Gunther, if it takes effecti, will minimize the impact con-
siderably because he recommends the payment of $25 million by the
Federal Government and the allotmeiht of 100,000 acres presumably
from the public lands in the State of Maine, but not necessarily. The
$25 million by tiie Federal Gbvemment would be compensation for
the claims the Indians have acainst the private lands^ That hasn't been
passed by Confess. Should the original Indian cjaim to 60 percent of
the land area m the State be litigated a considerable number of titles
would be jeopardized and it would take probably 10 years before it
would be resolved finalljr by the Supreme Court or by CongresB.
That's a long time for individuals to wait to have their title cleared
for borrowing purposes.
Senator Morgan. Yes.
Senator HAtHAWAT. I think you have problems in South Carolina,
as well. I think in both North and South Carolina there are Indian
claims.
Senator Morgan. Those in North Carolina are thinking about giving
South Carolina back. That's perfectly affreeable with us.
Bill, thank you very much. I think uie bill you introduced had an
awful lot of merit. As you mentioned, a lot of it has already been
passed. The provisions that have not, I think, we will be able to work
with. We will be working with your staff and with you.
Anything that comes to your mind, let us know about it. Thank you
very much, Senator.
Senator Hathaway. Thank you.
Senator Morgan. Mr. Cavanaugh, are you ready to go?
STATiBKEirr OF OOKDON CAVANATTOH, ADMINISTKATOS, FARH-
EBS HOM£ ADHIKISTRATION; ACCOMFANIEI) BT L. D. ELWELL,
ASSISTAirr ABMnnSTSATOR
Mr. Cavanaugh. Thank you, Senator.
Good morning.
.Senator McwioAN. We are glad to have you with us. I was going to
say to vou that if we get involved in Farmers Home as quickly and
expeditiously as w^ got your statement, we would never have the prob-
lem solved.
Since it wasn't your fault, I don't suppose I can hold you responsible.
We do appreciate your coming back m an official capacity tnis time.
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Mr. Cavanaugh. The difficulty of gettinff our statwient to you
timely is somewhat representative of the problems in the Government
of moving as quicldy as we would like to.
Senator Moboak. You have more of an understanding of those prob-
lems now than when you were on the other side.
[Laughter.]
Mr. (S^vANAUGH. I am learning. Sometimes I think they are teaching
me.
With me this morning is L. D. Elwell, assistant administrator at
Farmers Home for rural housing.
Mr. Chairman, I appreciate the opportunity to appear before you
and your committee to discuss our housing problems and actions that
might be taken to enable us to serve those who live under the worst
housing conditions.
The bill before us, S. 1150, emanates from a philosophy in which
you, Mr. Chairman, your committee and the Farmers Home Adminis-
tration share with the bill's honored and distinguished sponsor, Hu-
bert Humphrey and the cosponsoring Senators.
We have worked with Senator Hathaway in the paf5t on these amend-
ments. We are looking for ways to best serve people in resolving their
problems. The Farmers Home Administration has adopted the doc-
trine that our first obligation is to the citizens in greatest need. We will
look into the problem and its urgency before we evaluate the risk of
trymg to help resolve it.
. W^ have been citing for some years a situation in rural housing that
remains unrelieve*d. Kiiral areas nave twice as much substandard hous-
ingper capita as urban areas of the United States.
Tiie newest studies show one out of every 10 houses in nonmetropoli-
.tan areas to be substandard — ^more than 1.9 million rural houses that
need to be upgraded or replaced.
Seventv-nve percent of these houses are occupied by families with
incomes less than $7,000 a year, with 75 percent of the occupants over
age 40. In 2 million rental households, families are overburdened with
paying more than 25 percent of their limited incomes as rent.
These are indications of the deficit in decent quality housing for a
large, less-advantaged number of the people in towns and countryside
across the rural United States.
There is also a shortage of mortgage credit in many rural places for
homeowners at a variety of income levels. The stifling effect of such
a credit shortage on progress and improvement is felt throughout the
community.
The Farmers Home Administration has broad responsibilities to
help rural people who are unable to obtain adequate credit at accept-
able rates irom conventional sources. The Administration takes that
responsibility seriously.
We recognize that we have a duty of outreach ; to make a genuine
effort to assure that people in even the remotest rural areas know what
services they are entitled to expect from the Farmers Home Adminis-
tration; to provide consultation and sympathetic understanding of
the needs and problems brought to us by families we are intended to
serve^
There is an obligation among Federal departments and other public
agencies to cooperate with each other, so that the services of govem-
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ment at large will be applied with fiill, comprehensive effect. In agri-
culture, we can improve outreach, education, and counseling through
channels such as the rural development and extension services.
Mr. Chairman, the Housing and Commimity Development Act of
1977 will move forward the ability of the Farmers Home Administra-
tion to serve rural needs. The act contains new tools for workinj^ with
these problems. Some were originally incorporated into the bill we
are referring to you today — S. 1150.
With the committee's permission, I can comment for the Administra-
tion on those parts of S. 1150 that have been passed in the other legis-
lation, and provisions of this bill that remain under consideration.
Our guaranteed housing progi'am will be revised to serve only the
above-moderate income families, who have incomes in excess ox our
present $15,600 moderate-income level. A $20,000 ceiling on the in-
come of a guaranteed borrower will be intially set.
These loans will be made by private lenders, with FmHA guaran-
teeing the private lender's loan. The legislation permits a negotiated
interest rate between private lender and the applicant. There will be no
graduation-to-other-credit requirement on the guaranteed borrower.^
Insured loans of FmHA will continue to be reviewed,^ and families
will continue to graduate when they have the income, equity and credit
availability to do so.
Our budget authority for fiscal year 1978 makes $900 million avail-
able for the guaranteed housing loan program. With the ehanf::es that
have been authorized, we believe this program will be heavily util-
ized — ^helpin^ the rural family that has income above the FmHA
moderate ceiling.
Faults in the program as previously applied to moderate-income
borrowers, which resulted in very little interest on the part of the lend-
ers, such as restriction to submarket interest rates, are removed under
the new authority.
As Assistant Secretary Alex Mercure has testified, we endorse other
provisions of S. 1150. Among them are the authority I referred to
earlier.
We have recommendations for revisions of some sections of S. 1150
that remain open for consideration.
Among them is the question of a homeownership deep subsidy pro-
gram — section 14. The Department is now completing a comprehensive
rural housing policy study, working with OMB and HUD, to deter-
mine the most effective ways to target housing programs to families
with the greatest housing needs. This study will consider such alterna-
tives as a deep subsidy homeownership program. We are reviewing sev-
eral modes that that might take.
The basic thrust is to come with some system of financing and sub-
sidizing homeownership that will reach those people at income levels
Jbelow the reach of our present interest credit program.
Inasmuch as the study is still in process, we would like to defer
t6'mment for the present on this type of program. But I assure the
chairman and the committee that we will be coming back to Congress
with specific request in order to meet these needs and propose a deeper
subsidy program for homeowners in the rural areas.
Concerning authorizations of FmHA to have a research capacity,
provided in section 4, we would prefer to see the Secretaiy granted the
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authority to carry out this function in such agencies of this Department
as he sees best.
We believe that some research can be done by FmHA. But other
USDA agencies have well-established capacity, resources, and exper-
tise to conduct the research functions contemplated in the bill.
These resources can be made available to Farmers Home.
Moreover, under the proposed organizational changes at FmHA,
a policy planning and evaluation unit will be established, and this
unit will respond in part to the concerns which lead to the proposal
for a research capacity in our agency.
We believe that the approach we suggest would give the Secretary
a flexibility need for the rural housing research function to be most
effective.
Concerning certain other sections of S. 1150, the Department does
not recommend action for the reason that their objectives can be at-
tained under our present authorities.
We now have authority for appeal procedure as proposed in section
7 to assure that applicants, borrowers, and tenants are given fair and
equitable treatment by FmHA.
We are not satisfied with the agency's past record on equity of service
to all minorities, nor their equal opportunity for employment. But
we share a strong commitment with the administration to reorganize
and strengthen FmHA performance in the field of equal opportunity.
We have plans to revise our appeals procedure to assure the equality
of treatment called for in section 7, and we have engaged a representa-
tive of a public interest group to help us develop fair and equitable
procedures, as well as involving our own Office of General Counsel in
creating such a process.
We do not believe it is necessary to provide for an Assistant Secre-
tary for equal opportunity within the Department. We have an Office
for Equal Opportunity which, under the concerned leadership of Sec-
retary Bergland, can carry out the important responsibilities of this
issue.
On the question of expanding eligibility for site loan authorities,
addressed by section 17 of the bill, we would prefer first to look for
administrative remedies to more fully utilize this authority.
Later we will report to the committee our recommendations for legis-
lative changes. We would also like to study further the need for change
in authority to make loans in areas where insurable land titles are
difficult to obtain — the subject of section 18 of the bill.
As Senator Hathaway indicated in his testimony this morning, we
have tried to deal equitably with the question of titles through our ad-
ministrative processes. In the short time that I have been there, the
issue has arisen on a number of occasions. I think the Department's
lawyers have addressed it thoughtfully and liberally in an effort to
continue insuring loans in areas that might otherwise be questionable.
I think, personally, what we need is a better review of the situations
in which we may be turning down loans on the basis of questionable
titles. I would commit myself to see that FmHA does in fact gather
more comprehensive data on the issue so that we can come to you with
a better description of the problem and ways that we plan to handle it.
Section 21 concerns energy conservation. On MarcK^lol^ics.^^^'axi^
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J'mHA published in the Federal Register extensive revisions of our
thermal insulation r^uirements. We have received more than 500 com-
ments on these published standards, which have beeni carefully con-
sidered in developing final regulations.
These regulations will be issued after the middle of October. We
strongly feel that these new requirements are necessary, not only to aid
the President's energy conservation efforts, but also to protect our
toodest income borrowers from the mounting costs of heating.
Past experience shows that utility bills are one of the major reasons
why low-mcome borrowers are becoming delinquent and, in many
cases, losing their homes. We do not believe the enactment of the pro-
visions in section 21 is necessary. The administrative steps that are
being taken will accomplish its purposes ; present authority is sufficient
to let us develop and adopt the necessary energy conservation measures.
We share the concern expressed in section 6 of the bill for prevention
of unnecessary foreclosure on borrowers who are in temporary fi-
nancial difficulty. We are in the process of developing new regulations
that will respond to this problem and assure that borrowers know of
our f orebearance authority.
We have every expectation that the regulations will be in the Fed-
eral Register within the next week to 10 days. Among other things,
they will provide that all FmHA borrowers told of their rights for
foriebearance at the time they apply for a loan, at the time any collec-
tion notice is sent for the loan, as well as before any foreclosure action
is instituted.
You may be interested in a report on the water and waste disposal
program for rural areas under the Consolidated Farm Home and
jRural Development Act.
We are working to orient the program more effectively toward the
service of low-income rural people.
I think the record is one in which we can take some satisfaction.
Some 60 percent of the assistance is going to communities where
family median incomes are less than $6,000 a year. We are currently,
evaluating the effectiveness of the existing programs in order to ascer-
tain whether changes are appropriate in order to assist those most in
need.
Among the factors being assessed are : The 50-percent statutory grant
limitation and the 1-percent rule. We fully expect to develop a set of
legislative proposals for the next session of the Congress which will
reflect this and other evaluations of FmHA programs.
Consequently, we cannot support enactment of section 20 at this time.
Pending this study, we can do much to improve this program under
existing administrative authority , although the present ceiling on a
grant — 50 percent of project cost — ^is statutory.
I can also report to the chairman and the committee that FmHA
plans to fully implement the rural rental assistance program by No-
vember 15. We published in the Federal Register on September 15 the
regulations for this program and will receive comments from the public
until October 15.
Thereafter, we will review and incorporate these comments in the
final regulations that will be issued. We have already made plans for
training our staff. We expect to be fully operational in late November
with the program.
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This pro^rram and introduction of above-moderate guaranteed loans
are the principal new program services on the immediate future agenda
of the rural housing pn^jjam.
These are services that will bring much needed benefits both to low-
income people, and to rural families of slightly more than moderate
means who have not been adequately served by the private mortgage
credit market.
Mr. Chairman, this concludes my comments. I will be glad to answer
ani^ questions from you and members of the committee.
Senator Moroan. Thank you, Mr. Cavanaugh.
We are glad to have Senator Brooke join us.
Senator Brooke. Thank you, Mr. Chairman.
I am very pleased to attend. I am sorry; because of other hearings
I have to leave. I appreciate vour courtesy in allowing me to ask a
question or so of Mr, Cavanaugh.
Let me first say, Mr. Cavanaugh, I am glad to see you here. I feel
more secure with you in this position. I am glad that you have noted
tJiat you are not satisfied with what has l^n accomplished in the
field of equal opportunity. I was a little concerned that you don't
feel it is necessary to have an Assistant Secretary for equal oppor-
tunity, but I will certainly be satisfied with that decision until it's
proved otherwise.
You say in your statement that you believe that with the Equal
Opportunity Office, in the Department of Agriculture, and with Sec-
retary Bergland's commitment you will be able to improve that rec-
ord. It is not a good record, as you and I know. I am very pleased that
you will focus on that particular matter.
One of the matters I am very concerned about is in my own Com-
monwealth of Massachusetts. As you know, a lot of people believe we
have an urban State and therefore no rural residents in the State of
Massachusetts. The fact is otherwise. We have more rural residents in
the State of Massachusetts than the States of North Dakota, Okla-
homa, and Maine. And we have fewer people on the staff of Farmers
Home as you are aware. On several occasions in the last several years,
I have asked that the Department of Agriculture provide adequate
Farmers Home services in Massachusetts.
My discussion with the former Secretary Earl Butz in 1975 led to
the opening of a Farmers Home district office in Amherst, Mass., in
addition to county offices in Bourne, Acton, and Gardner.
In addition, the authorized Farmers Home staff was increased to 23
permanent full-time employees in fiscal 1976. That has resulted in
some improvement, Mr. Cavanaugh, but there is still a great backlog
as you are well aware. I had thought that the opening of that office
in Amherst was just a forerunner of a State office. I hope that you
will look very, very closely at our needs.
As I have said, we do have great needs. We^ do have many rural
residents. I can go on with some of the statistics that I have given
you. I have recently written a letter to Bob Bergland, the Secretary
of Agriculture, pomting out some of these matters to him and im-
ploring him to look at this very closely and see if you can't get some
results up there.
You are well aware of the problem, are you not, Mr. Cavanaugh?
Mr. Cavanaugh. Yes, Senator Brooke. Personallv, I think many of
us who have been concerned about rural housmg rac^^Xs^^iv ^gc^^fe^s^
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for the support that you have given the program broadly as well as
your concerns that the services be expanded in Massachusetts. We are
currently reviewing various workloads and multistate arrangements
in Farmers Home throughout the country. We are going to look at
the New England arrangement to see whether or not there is a better
way we can organize ourselves to serve people more effectively.
Senator Brooke. Thank you. I want the chairman to know tluit I
have been a strong supporter of rural housing and have done every-
thing I possibly can to cooperate with rural housing. I think it is
important not only in Massachusetts, obviously, but across the coun-
try. It does need more attention. I am glad to know you are looking
for expansion nationwide, because I think there is a great need for it.
Mr. Chairman, one further indulgence. I wanted to introduce an old
friend who will be addressing you very shortly, and to welcome Hal
Wilson, the new executive director of tne Housing Assistance Council,
who is going to testify before this committee this morning.
For the past 7 years, Hal has been the executive director of rural
housing improvement in Winchendon, Mass. Under his leadership
RHI has substantially increased the use of Farmers Home pro-
grams, has provided technical assistance services to local communi-
ties, and has expanded the use of public housing programs in rural
Massachusetts.
I know from firsthand experience how successful this organization
has been in the rural areas of my State. In fact, back in December of
1975, Hal may remember that he and I toured housing being developed
by RHI in the snow, as I recall, under the Faiiners Home program.
I was tremendously impressed by the work being done by Hal
Wilson and his organization. I was impressed with that work. I was
impressed with the individual. I think we should be grateful to have
such an experienced and articulate spokesman for rural housing in-
terests leading the Housing Assistance Council. I am certaintly grati-
fied by this, and I think many others are.
Of course, he is replacing another very distinguished representative
of the rural housing position, Gordon Cavanaugh, whom I have al-
ready mentioned, who has already testified before you. I just want to
congratulate both Gordon Cavanaugh and Hal Wilson. Mainly I want
to congratulate those who had the wisdom to appoint them.
I wish you both well in your positions. I just came over to say that
I look forward to working with both of you. You are tops in my book.
I look forward to certaintly more able, more dedicated, more com-
mitted, and more successful leadership in rural housing imder your
leadership.
TTiank yon very much, Mr. Chairman.
Senator Morgax. Thank you. Senator Brooke, for taking the time
to come by this morning and giving us the benefit of your thoughts
on the problems in Massachusetts ana for introducing Harold Wilson.
Mr. Cavanaugh, inasmuch as I really haven't had the opportunity
to discuss your statement, or study your statement, I may have some
further questions a little later on, but I do have a number of questions
now. First of all, let's talk about the water and sewer grants that
you have discussed. Is it true that with the 50-percent limitation that
we now have, that many low-income residents of needy communities
crn^t affp]p4 the user charges and, as a result, because they can't afford
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them, many of the communities' needs are immet, and if that is a
problem, is there anything we can do about it !
Mr. Cavanauoh. I think that there are some small communities
frequently of low income where they are faced with costly installations
that cannot meet the financial charges of reasonable user charges
without a higher level grant. We are looking at that now, Senator.
We are trying to proceed carefully so that we can adequately define
for ourselves and for the Congress the circmnstances under which a
higher srant amount ought to ^ available.
I mi^t say, in the meantime, that administratively we can — we are
reviewmg the 1-percent rule to see whether we might be able to alter
that in some way to scale it according to the median income levels
of the communities involved.
Senator Morgan. Is this going to be a part of the study you are
now working on ?
Mr. Cavanauoh. Yes, sir. I think with respect to the grant level ^
that that will be covered in the Department's legislative package that
will be presented for the beginning of next year. It will be with
respect to the 1-percent rule, that is something that is bein«: reviewed
currently to see if there are adjiLstmonts possible here that would
make it more equitable and usable by low-income people.
Senator Morgan. We may come back to that a little later on.
We are delighted to have our distinguished former chairman with
ns. He has probably done as much in housing as anyone in the Senate.
Mr. Chairman, we are delighted to have you and glad to hear any
statements you have to make.
Senator Sparkman. Well, thank you. I wish I might have been
here for all of the hearings. I am mired up in the Panama Canal
right now. [Laughter.]
I Just took off for a few minutes to come down here. I am pleased
that these hearings are going on. I want to congratulate and compli-
ment yoii on setting them up, hearing them in the very effective
manner in which you conduct your hearings. I have been interested
in rural housing throughout the years. As a matter of fact, I intro-
duced the first niral housing program in the Housing Act of 1049.
I inserted an article there which provided for rural housing and for
the Government to make loans.
Actually, the first Dart, that T had in connection with rural housing
was when I was a Member of the House of Representatives. Withii;
just 2 or 3 weeks after T became a Member of the House, in January
of 1937, we had up a bill— and by the way, it was the first bill I ever
made a talk on. That was to provide Government loans, make them
available to farm tenants who desired to become farm owners. I spoke
on that bill, as I say, the first remarks I ever made in the House of
Representatives.
I was very strongly in favor of that bill. It did f^et things started,
and later on, in 1949, after we were able to put in the broad rural
housing program, and at other times, in 1074 we made additions, pri-
marily on community development and providing — defining a rural
area.
But anyhow, it would be a long story. I just want to say that T am
glad to be here and to participate in these hearings that you are hold-
ing. Although I shall not be able to remain throughout the hearing,,
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I have reviewed some of the statements. I found them to be innovative,
interesting. The subcommittee program for low-income families will
need some refinements. .
The cost of the program will be a major obstacle, and the lack of
personnel in FmHA is a problem, I feel, that must be solved before
we add new programs to the workload.
I am hopeful that as a result of these hearings and the other studies
that are being made that all of this shall be worked out.
Again, I say I commend you for the gr^at job you have been doing
as chairman oif this subcommittee.
I wish I could stay here throughout the hearings.
I must go back to my own hearings.
Senator Morgan. Thank you, Mr. Chairman.
You protect the canal and I will look out for rural housing.
Senator Sparkman. I'm up to my neck.
[Laughter.]
Senator Morgan. Mr. Cavanaugh, you mentioned in your testimony
that the Farmers Home Administration was going to try to follow a
doctrine of providing or fulfilling the obligation to the citizen that is
in the great^t need.
Now, one of the figures that I have seen or heard, and you might
have alluded to it — 1 don't know who did, but it was in some of the
statements — disturbs me. I am not quite sure I undeiistand it.
That is that in 1970, as I recall, about half, or 49 percent of all of
the loans went to families with incomes of under $6,000; but now in
1975 that had dropped down to 9 percent.
I know that there is some inflation involved in it, but I would be
interested to know what is the percentage now going to families with
$6,000 or less income and why has there been such a change...
Is it a change in philosophy, or is it all .accountable for inflation?
Mr. Cavanaugh. Senator, it is clear that the number of people of
low income that are being served by thje Farmers Home program has
dropped drastically over the past decade.
A good deal of that is due to the ;fact that costs of all elements that
go into producing a house, land, construction, have risen sharply and
have really risen faster than people's incomes have.
As a consequence, within the present program, subsidy programs
that Farmers Home has for homeownership, the subsidy just does not
in most areas of the country reach what most of us would consider to
be low-income people. That varies dramatically as you move through
the country in the areas where utility and real estate taxes might be
higher. So the costs are a factor.
Second, the failure to revamp subsidy to recognize the fact that costs
for housing are rising more quickly than are incomes.
In addition, I do believe that in some quarters, in the field of Farm-
ers Home, there has been a conservative approach toward lending.
Some of that perhaps reflects a different set of national policies iSan
prevailed in the past.
Some of it, I think, reflects the ease of making loans to people whose
incomes are higher and a tendency to go to those loans because of the
very heavy workload the staff has been carrying throughout the
<x)untry.
I think currently our own concerns are — jand I think they are shared
broadly by the acuninistration — that we really have got to somehow
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shift our assistance to those who need it more essentially than others
mi^ht.
It has been a long goal in the country to remove substandard housing
and it is one the country has worked at for some time now and made
some progress, but certainly not the level of progress that we would
like.
We know that most people who occupy substandard housing in this
<K)untry are also those in low income brackets.
Somehow, if we are to address that problem, we have really got to
be able to have programs that reach the low incomes if we are to be
honest to our commitment of eliminating substandard housing.
I think in Farmers Home for the first time we have found a method
for addressing at least a portion of those problems in the rural popu-
lation through the rental assistance program where we can now reach
incomes below those that we have served m the past.
In addition, as I have indicated, we are examining various forms of
deeper home ownership subsidy for people for whom rental assistance
mav not be available. I think that we can make progress in that.
ISenator Morgan. You think maybe the deeper subsidy program
miffht help alleviate some of this ?
Mr. Cavanaugh. Yes, sir, I think that what we are trying to find is
a program that both will serve some lower incomes and yet recognizes
that there are limitations on how much money can be spent in those
programs.
I think basic to the concept that we are pursuing is a form of re-
capturing the subsidy to as great a degree as possible from later profit-
able sale or devising a profit.
Senator Morgan. It seems to me if you have to balance the need foi
very low-income housing with how much money you have available
for loans, you have to give some careful thought and study as to how
you can best utilize your resources even though it might sometimes be
detrimental to the very lowest -income group.
It seems to me you have a problem if you have someone in a low-
income bracket who is not going to be able to successfully utilize the
subsidies or the home or maintain it and pay for it, maybie you might
have to give thought to shifting the emphasis at that point.
^ Mr. Cavanaugh. Well, I think that what we should be in the posi-
tion of doing is to approach people in the lower-income levels with
both rental and home ownersnip programs and use whatever seems
appropriate in the circumstances.
Now, for the first time, we have a rental assistance program, and
for the first time we are beginning to think about the deeper subsidy
home ownership program.
We share your concerns that we wouldn't want to be running any
kind of program that was not a responsible one.
Senator Morgan. Do you have anything in your program whereby
you render assistance to home buyers in the maintenance and upkeep
and care of the home ?
In my State there has been quite a bit of criticism of late because
developers went in with Farmers Home money, built relatively small
homes on small lots, what I called built slums to begin with. Tf'hen, in
order to find the purchaser, they have been willing to put anyone in.
Those people did not maintain them and did not fc^i^ t\v^\xv\i;:^*^\^'^wb^
brought a lot of discredit on the home program*
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Is there anything at all in Farmers Home where you try to play a
role in teaching a homeowner or encouraging a homeowner to do a
better job in maintaining his property once he has gotten into that
home ?
Mr. Cavanaugh. I think at the outset, with the county supervisor
and county staff, they attempt to advise the new home buyer what are
basically — how the house operates, how it should be taken care of.
Beyond that, I don't thmk we provide very extensive services in
home ownership counseling.
Counseling will occur for some families in the course of servicing
their home; out we don't have, in my view, an organized counseling
program with homeowners.
In some areas of the country we are taking advantage of local non-
profit or^nizations that provide such a service. They are assisting
our families in those cases.
As far as renovating properties, it was referred to at the outset of
the question that we do have several programs for very low-income
homeowners.
We have the 504 home repair program. If they happen to be elderly
homeowners, we can also provide a grant. That program has been
quite successful this year.
We ran through the moneys in the first 6 or 7 months of operating it*
In addition, under the normal financing, Senator, under 502, we
can provide moneys for the renovation of the property.
Senator Morgan. Well, back when I knew Farmers Home in an in-
dividual capacity, which was about 10 years ago, I think the county
supervisor did give a lot of attention, personal attention to almost
every loan.
Here again, I go back to what I have been harping on^— the devel-
opers who I think made a fast buck out of it.
What do you do if you put somebody in a home and it is perfectly
obvious to you from the very beginning after the first 3 or 4 months
that, unless something is done, that this home in a very short period
of time will not be worth anywhere near the indebtedness on it because
of the manner in which it is being used and abused ?
Are you bound to sit there and let it be abused and destroyed to the
point that it couldn't be sold for the indebtedness ?
Mr. Cavanaugh. No; I don't think we have to stand by and watch
that.
We hope that particularly in the early stages of homeownership that
our county office keeps in close contact with the family.
Partially we want to be sure that they assimie their payment re-
sponsibilities early and get the proper habits of making payments
promptly.
In addition, it is an opportunity for us to observe whether or not
the property is being maintained and also an opportunity for us to
give guidance to the family that may be facing problems that we can
give advice on.
Before they ever enter the house, Senator, they are interviewed and
their responsibilities are explained to them.
Senator Morgak. Later on When we have more time I would like
to explore the idea of either finding some way of providing guidance
and also explore the pofisibility of -where you find one who absolutely
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is destroying a home, maybe even if they are making their payments,
you know that ultimately you are going to lose it; we should provide
some mechanism for either helping them or eliminating the problem.
I think we do oar program more liarm. I have seen some homes per-
manently damaged.
Mr. Cavanaugh. I have ur^ed that generally the staflf of Farmers
Home in the field give more tune to supervising our loans so that we
can really return to the basic idea of Farmers Home which is not just
lending money, but providing assistance to a borrower that is appro-
priate to his or her needs.
Senator Morgan. I think you put your finger on one problem that
concerns me.
Let me ask you one other question on something you mentioned.
I may be a little off the subject, but that is the prerogative of the
chairman as long as there are no other Senators present.
Rising home costs disturb me. It disturbs me because I don't see
anything being done about it.
I thiiX one of the real reasons for the exorbitant costs of homes is
the concentration of economic power in the homebuilding industries.
For instance, I am told that if you want to buy a lock for the doors
that go in the house, you have to buy them primarily from five or
six companies.
If you want to buy roofing, there are seven or eight companies that
are in the business.
Is the Department doing anything at all to look into the area of
monopolies in homebuilding ?
Maybe if it did, this might be something that new research group
we gave you, whicfh you didn't necessarily want, might look into.
Mr. Cavanatjoh. 1*o my knowledge, the Department of Agriculture
is not doing any review in terms of possible monopolistic practices
among^ building suppliers.
I think we all share that concern that costs are mounting quickly
and that often is associated with monopolistic practices.
Senator Morgan. I think somewhere along the way we should.
Back during the recession there was no real decline in the prices
of a lot of the Duilding supplies. I read in one journal, a trade journal,
where much to my surprise they acknowledged that they had decided
to reduce production rather than reduce price and stimulate more use.
This is a clear violation of the antitrust law to me.
Nobody ever seems to be able to get to these people. I think we
ought to at least let them know we are watching them.
Let me go on. Have you had an opportunity to review the home-
ownership proposal that has been or will be proposed to us today by
the Housing Assistance Council
Mr. Cavanaugh. I am generally familiar with it
Senator Morgan. Are you considering that or will that be
considered?
Mr. Cavanaugtt. Yes, sir. We will review that proposal.
As I say, I think we are apt to take as our assumption, which I
think their proposal does as well, there has to be some form of recap-
turing the subsidy upon a subsequent profitable sale.
We also have to look at it with the constraints on the subsidy
budget for housing in Farmers Home.
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We will give very careful consideration to it. I think it contains
many of the basic ideas that onght to be in the subsidy piogram. And
when we report back to you on the Department's recommendations,
we will give you such comments as you would like on other forms
of deep ovmership subsidy.
Senator Morgan. We will come back to that later on.
Do you concur in the belief that a tremendous need exists for ex-
panded research efforts in the area of rural problems, particularly
ruralhoiising?
Mr. Cavanaugh. One of the main concerns that I had before coming^
to this post, and still have,= is that FmHA does not have sufficient
capacity to do policy and program analysis to insure that we are de-
ploying the resources of FaTmers Home and its programs to those
income levels where they are most needed and not sjmply to those who-
have received them the mostrin the past; On that score, we are ti^ng
positive steps to give us a stronger capacity to deal with those issues.
In rural housing research, I do think thiere are a number^ of things
that need exploring.
We at Farmers Home don't have any demonstration capacity, for^
example, to experiment with lower cost housing. Whether we da that
directly or ask other elements of the Department to do that, I don't
think is too important. I think mainly it should be recognized that
Farmers Home does need to be able to -carry out mote research and in-
vestigations than it has done in the past. ./ .
Senator, I think pa[rbof thsit is ah attitude of whoever might occupy
the Administrator's seat and also the attitudjB of the SeqrjBtary qf ther
Department of what resources will be mafie available. ,, .
Mr. Bergland has indicated that he would like to see the other re-
search elements in the department of Agriculture make themselyes
available to Farmers Home to some degree to do this. :
Senator Morgan. I think that was one of the concerns of the com-
mittee when they mandated this research facility in Faimers Home in
the bill that was just passed. Do you think we would get that kind
of allocation of resources if we were to go along with the request that
we let it be done by the Department of Research, rather than having
a special research element in Farmers Home ?
Mr. Cavanaugh. I think the Secretary has committed himself in the-
testimony I read this morning, that wa^ reviewed with him, to see that
we do have available to us research capacities in: the Department of
Agriculture. .
In addition, the Department of Housing and Urban Development
has indicated a. willingness to perform some rural research that we are
working out with them. Whether or not that turns out to be adequate
is something that I think is too early to judge. It is certainly something,
I think, we ought to proceed with and make the best use of it. .
Senator Morgan. I won't put you on the spot by asking you, but I
just simply would say to you that I think it might work as long .as wet
have present occupants in position, directors such as yourself and- the
Secretary. I think the committee is. a little concerned. aJbout whether
the proper or necessary interest will be given down the road when some-
body else occupies these chairs, wh^n other persons occupy these posi-
tions. That's one of the things ^e are going to be looking at.
I am told most of the units built under your rental program have^
only one bedroom and that very seldom do tliey have more than two..
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Can you tell me if 'this is true; and if it is true, do you think it is a
good policy?
Mr. Cavanaugh. Senator, we can finance up to four or more bed-
rooms, depending on the market demand in the area where the housing
is located. I womd have to get you the numerical breakdown of how
that is taking place. I think Farmers Home has done better than most
programs in families. I would say that only approximately a third of
Farmers Home financed units are going to the elderly; not that the
elderly's needs arent sharp, or two-thirds is necessarily the right pro-
portion for other families. That's a higher proportion of famines than
I believe is true of most federally assisted rental projects.
Senator Morgan. Another thine, a problem that staff and I are inter-
ested in, is that it's our understanding if a family chooses to move awaj^
from the town or city, and move out in the country that he is not eligi-
ble under the rental assistance program. I believe that the present law
requires that country areas be included in your agency's area. Would
you tell us why a family that lives out in the country away from the
town, away from the city is not eligible for rental assistance?
Mr. Cavanaugh. Rural rental projects financed by FmHA must be
located in a rural area. Our renta;l assistance is available only in a
Farmers Home financed project ; but anyone living in a Farmers Home
project, regardless of where they moved from would get rental assist-
ance if their income qualifies them for that type subsidy and FmHA
has the funding allocation for the project.
Senator Morgax. You say your rental assistance is not available ex-
cept in a Farmers Home-financed project?
Mr. Cavantahioh. Yes, sir; FmHA rental assistance is available onlv
on FmHA-finani^ed projects. There is, however, rental assistance avail-
able under the HUD section 8 program for housing financed by others
and on rental housing^not located in rural areas.
Senator Morgan. Suppose that project is out in the country where
they don't have water, sewer, that sort of thing.
Mr. Cavaxaugh. If it*s Tiot financed by us, we can not provide rental
assistance funds for it.
However, a family may very well be able to get other types of
rental — another type of rental assistance from the HUD section 8 pro-
gram. I don't know whether that answers the question you are raising
or not.
Senator Morgan. I itnderstand your answer, but I am not sure I
agree with the program.
Let me ask you another question. It has been bothering me. Suppose
I want to build a project for elderly low-income people and maybe I
am planning it for section 8 rent subsidy. Am I eligible to go to Farm-
ers Home to get money to build that project ?
Mr. Cavaxattgh. Yes, sir. The FmHA can finance rental housing
projects in rural areas that are assisted under either the FmHA rental
assistance program or the HUD section 8 program. There is a memo-
randum of understahding between HUD and USDA authorizing the
FmHA to process loans for rental projects under the HUD section 8
program.
Senator Morgan-. What would be the requirement, the prerequisite ?
Mr . Cavaxauoh. If you wanted to finance the project tnrough
Fanhers Home, you would bring the project proposal to the county
office and begin a preliminary application process. You wo\iWL\sstf5ji.\Ri
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see that the site was suitable and that the project otherwise was goinff
to meet our standards. At that point if it was shown that you need
or wanted to use section 8 rental assistance, and. there are set-aside
units under HUD section 8 in the area, they would be made available
to you and FmHA would finance the project. If the FmHA did not
have section 8 units set-aside, then you would have to go have some
special dealings with HUD to get other section 8 moneys that might be
in the HUD area office.
Senator Morgan. Suppose the money is there and available, the set-
aside is there ; but you feel that I could get money elsewhere. Is there
a requirement that I go elsewhere to get that money ?
Mr. Cavaxaugh. You mean the financing or the subsidies ?
Senator Morgan. The financing.
Mr. Cavanaugh. All of our housing loans are authorized only if
credit is not available elsewhere.
Senator Morgan. If I have to pay more money for it, a higher in-
terest rate, more interest, then either the subsidy has got to be deQpejr
or else it is not going to really meet the needs of these low-income peo-
ple. What do you say to that ?
Mr. Cavanaugh. I think Farmers Home is really a credit source
that by law is not to be competitive with private credit. If a borrower
in any of our housing programs is able to obtain and can afford pri-
vate credit, that's where they should go get it. It may have the conse-
quences you have suggested in terms of them needing something
deeper in the way of a smxsidy.
I don't think Farmers Home should be in competition with private
credit sources. We have more work than we can handle trying to deal
with those sponsors who need our assistance and who need our fi-
nancing to make a project feasible.
Senator Morgan. I am not sure I disagree with you. I am just trying
to give you an argument and a rational that has been handed to me.
I can see if they have to pay more money, then the rent is going to
be higher. HUD's subsidy has to be more or people are going to be
eliminated. I don't know the answer, but I just raise the question.
Another one : have you had an opportunity to calculate the poten-
tial need for a homeownership subsidy program such as that proposed
in 1150?
I think what I am trying to get is a ball park figure on the number
of potential borrowers ana the expected cost of such a program.
Mr. Cavanaugh. I don't have such a figure. We do know that of the
approximately 2 million substandard houses that are in rural areas,
that about 75 percent of those people are at income levels of below
$7,000.
We also know that our program in many sections of the country
does not serve people with such income levels. We could, I believe,
calculate out what it might cost to serve all those people in substand-
ard housing. I think perhaps it is more realistic to try to design a
reasonable size pro-am — ^because we know we are not going to have
programs at unlimited levels. The administration and Congress are
going to regulate the level at which we operate.
I think it is more important to compare what our various ways of
tackling the low-income homeownership problem are, and then we
can decide how many units we want to provide in the way we think is
the best form for doing the job.
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Senator Morgan. I am going to come back to you for some estimates
on that.
With your permission, we will let the staflF work with your staff on
that point.
Mr. Cavanauoh. Fine, sir.
Senator Morgan. One final comment on the appeals procedure ; like
you, I am not satisfied with the appeals procedure that we had. I
haven't been through the years. My only concern about waiting and
letting you develop them is here again I am worried about who your
successor might be. I guess I am not going to ask you a question. I
won't ask you to comment.
My own personal opinion is I would like for us to take a look at
what you are doing and perhaps maybe write it into the law. You
mention that you had asked a public interest group to help you de-
vise, come up with some procedures.
Mr. Cavanauoh. We have asked a lawyer who is associated for a
substantial part of his career with a public interest group that has,
among other things, paid attention to Farmers Home programs, to
assist us in this.
Senator Morgan. Would you mind telling us which public interest
group?
Mr. Cavanauoh. The person with whom we are contracting to do
this was with the housing law project formerly at the University of
California at Berkeley.
Senator Morgan. Mr. Cavanaugh, we have some other areas, but we
do have a new proposal coming up on the floor of the Senate with
regard to natural gas sometime this morning. I will need to get down
there.
One final question. When are we going to get around to getting our
new Directors in place?
Mr. Cai^naugh. Well, I think we have an excellent person desig-
nated for the State of North Carolina. The Civil Service clearance
process takes 6 to 8 weeks. I would think that in that gentleman's case,
it would be completed within the next several weeks. I can report to
you later in the day the exact status.
I might say, Senator, that we have 42 State offices and I believe that
the State director has been designated in at least 38 or 39 of them.
Many of them are now fully cleared and have been sworn in and are
operating programs. All of them have been given orientation training
by the Department, pending the announcement of their appointments.
Most of them have l^en brought to several national meetings with the
Farmers Home staflf.
Senator Morgan. In other words, they are already actively involved
in getting oriented?
Mr. Cavanaugh. Yes, sir.
Senator Morgan. Well, I can understand the problem. We have
many problems in Government and they are compounded by the time
they" get to us.
Thank you, Mr. Cavanaugh.
Mr. Cavanaugh. Thank you, sir.
Senator Morgan. We are going to be submitting to you other ques-
tions for the record when we try to complete our record.
[Prepared statement of Mr. Cavanaugh follows:]
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Statement of 6oiu)on Cavanaugh, Administrator, Farmers Home
Administration, Department of Agriculture
Mr. Chairman, I appreciate the opportunity to appear before you and your
CJommittee to discuss our housing problems and actions that might be taken
to enable us to serve those who live under the vtrorst housing conditions.
The bill before us, S. 1150, emanates from a philosophy in vtrhich you, Mr.
Cliairman, your Committee and the Farmers Home Administration share with
the bill's honored and distinguished sponsor, Hubert Humphrey and the co-
sponsoring Senators.
We are looking for ways to best serve people in resolving their problems.
The Farmers Home Administration has adopted the doctrine that our first
obligation is to the citizen in greatest need. We will look into the problem and
its urgency before we evaluate the risk of trying to help resolve it.
We have been citing for some years a situation in rural housing that remains
unrelieved. Rural areas have twice as much substandard housing per capita as
urban areas of the United States.
That newest studies show one out of every 10 houses in nonmetropolitan areas
to be substandard — more than 1.9 million rural houses that need to be upgraded
or replaced. 75 percent of these houses are occupied by families with incomes
less than $7,000 a year, with 75 percent of the occupants over age 40. More than
one million rural households suffer overcrowding. In 2 million rental house-
holds, families are overburdened with paying more than 25 percent of their
limited incomes as rent. In substandard housing that lacks plumbing, 45 percent
of the occupants are people past 60 years of age.
These are indications of the deficit in decent quality housing for a large, less
advantaged number of the people in towns and countryside across the rural
United States.
And there is a shortage of mortgage credit in many rural places for home-
owners at a variety of income levels. The stifiing effect of such a credit shortage
on progress and improvement is felt throughout the community.
The Farmers Home Administration has broad responsibilities to help rural
people who are unable to obtain adequate credit at acceptable rates from
conventional sources. The Administration takes that responsibility seriously.
We recognize that we have a duty of outreach ; to make a genuine effort to
assure that people in even the remotest rural areas know what services they
are entitled to expect from the Farmers Home Administration; to provide
consultation and sympathetic understanding of the needs and problems brought
to us by families we are intended to serve.
There is an obligation among Federal departments and other public agencies
to cooperate with each other, so that the services of government at large will be
applied vrith full, comprehensive effect. In Agriculture, we can improve outreach,
education and counseling through channels such as the Rural Deyelopment and
Extension Services.
Mr. Chairman, the Housing and Community Development Act of 1977 will
move forward the ability of the Farmers Home Administration to serve rural
needs. The Act contains new tools for working vrith these problems. Some were
originally incorporated into the bill we are referring to you today — S. 1150.
The Act contains :
The proposal of Section 2 of this bill that the handicapped as well as elderly
be served through the rural housing program ;
The provision of Section 5 that Department funds may be used to repair con-
struction defects coming to light in new homes financed through rural housing
credit.
Section 8's extension of rural housing authorizations ;
Section 9*s provisions that congregate facilities for the accomodation of elderly
and handicapped persons may be included in rental or cooperative housing fi-
nanced through the Section 515 rental housing program ;
Section II's stipulation that at least 60 percent of loans made under our single-
family (Section 502) and multi-family rental (Section 515) programs benefit
person of low income ;
And Section 13's conversion of our guaranteed loan program to the service only
of above-moderate income families.
With the Committee's permission, I can comment for the Administration on
those parts of S. 1150 that have been passed in the other legislation, and pro-
visions of this bill that remain under consideration.
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Our guaranteed housing program will be revised to serve only the above-
moderate income families, who have incomes in excess of our present $15,600
moderate-income level. A $20,000 ceiling on the income of a guaranteed borrower
will be initially set These loans will be made by private lenders, with FmHA
guaranteeing the private lender's loan. The legislation permits a negotiated in-
terest rate between private lender and the applicant. There will be no graduation-
to-other-credit requirement on the guaranteed borrower. However, insured loans
of FmHA will continue to be reviewed, and families will ccmtinue to graduate
when they have the income, equity and credit availability to do so.
Our budget authority for Fiscal Year 1978 makes $900 million available for the
guaranteed housing loan program. With the changes that have been authorized,
we believe this program will be heavily utilized — ^hel];^ng the rural family that
has income above the FmHA moderate ceiling. Faults in the program as pre-
viously ai^lied to moderate income borrowers with very little interest on tlie
part of the lenders, such as the restriction to sub-market interest rates to lenders,
are removed under the new authority.
As Secretary Mercure has testified, we endorse other provisions of S. 1150.
Among them are the authority to provide central dining and other facilities in
multi-family housing needed by elderly and handicapped people who are self-
sufficimt, but who will benefit from certain special accommodations ; the assur-
ance that needs of the handicapped can be served ; and the authority to make
good on faults in new housing that plague Home homebuyers who have relied on
a service identified with the Government.
We have recommended for revision of some sections of S. 1150 that remain
open for consideration.
Among them is the question of a home ownership deep subsidy program —
Section 14. The Department is now completing a comprehensive niral housing
policy study, working with OMB and HUD, to determine the most effective ways
to target housing programs to families with the greatest housing needs. This
study will consider such alternatives as a deep subsidy home ownership pro-
igram. Inasmuch as the study is still in process, we would like to defer further
comment for the present on this type of program. But I assure the Chairman and
the Committee that we will be coming back to Congress with specific request in
order to meet these needs.
Concerning authorizations of FmHA to have a research capacity, provided in
Section 4, we would prefer to see the Secretary carry out this authority and place
responsibility in the various agencies of his department as he sees best. We
believe that some research can be done by FmHA. But other USDA agencies
have well established this capacity, resources, and expertise to conduct research
functions contemplated in the bill. Moreover, under proposed organizational
changes at FmHA, a policy planning and evaluation unit will be established, and
this unit will respond in part to the concerns which lead to the proposal for a
research capacity in our agency. We believe that the approach we suggest would
give the Secretary a fiexibility needed for the rural housing research function
to be most effective.
Concerning certain other sections of S. 1150, the Department does not recom-
mend action for the reason that their objectives can be attained under our
present authorities.
We now have authority for appeal procedure as proposed in Section 7 to assure
that applicants, borrowers and tenants are given fair and equitable treatment by
FmHA. We are not satisfied with the agency's past record on equity of service to
all minorities, nor their equal opportunity for employment. But we share a
strong commitment with the Administration to reorganize and strengthen FmHA
performance in the field of equal opportunity. We have plans to revise our ap-
peals procedure to assure the equality of treatment called for in Section 7, and
we have engaged a representative of a public interest group to help us develop
fair and equitable procedures. We do not believe it is necessary to provide for an
Assistant Secretary for Equal Opportunity within the Department. We have an
Office for Equal Opportunity which, under the concerned leadership of Secretary
Bergland, can carry out the important responsibilities of this issue.
On the question of expanding eligibility for site loan authorities, addressed by
Section 17 of the bill, we would prefer first to look for administrative remedies
to more fully utilize this authority. Later we will report to the Committee our
recommendations for legislative changes. We would also like to study further
the need for change in authority to make loans in areas where insurable land
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titles are difficult to obtain — the subject of Section 18 of the bill. We are pre-
paring an administrative remedy to provide equality to all types of eligible
farm labor housing grant sponsors, and we believe this obviates the need for
adoption of Section 10 of the bill.
Section 21 concerns energy conservation. On March 21 of this year, FmHA pub-
lished in the Federal Register extensive revisions of our thermal insulation re-
quirements. We have received more than 500 comments on these published
standards, which have been carefully considered in developing final regulations.
These regulations will be Issued after the middle of October. We strongly feel
that these new requirements are necessary, not only to aid the President's energy
conservation efforts, but also to protect our modest income borrowers from the
mounting costs of heating. Past experience shows that utility bills are one of the
major reasons why low-income borrowers are becoming delinquent and, in many
cases, losing their homes. We do not believe the enactment of the provisions in
Section 21 is necessary. The Administrative steps that are being taken will accom-
plish its purpose ; present authority is sufficient to let us develop and adopt the
necessary energy conservation measures.
We share the concern expressed in Section 6 of the bill for prevention of un-
necessary foreclosure on borrowers who are in temporary financial difficulty. We
are in the process of developing new regulations that will respond to this prob-
lem and assure that borrowers know of our forebearance authority. We are being
assisted by the Department's Office of General Counsel in this effort to assure
protection of borrowers against any arbitrary decisions being taken by the
agency. Appropriate regulations will be issued shortly.
You may be interested in a report on the water and waste disposal program
for rural areas under the Consolidated Farm Home and Rural Development Act.
We are working to orient the program more effectively toward the service of low-
income rural people. The record is not bad ; some 60 percent of the assistance
is going to communities where family median incomes are less than $6,000 a
year. We are currently evaluating the effectiveness of the existing programs in
order to ascertain whether changes are appropriate in order to assist those most
in need. Among the factors being assessed are: the 50-percent statutory grant
limitation and the ''one percent rule." We fully expect to develop a set of legisla-
tive proposals for the next session of the Congress which will reflect this and
other evaluations of FmHA programs. Consequently, we cannot support enact-
ment of section 20 at this time. Pending this study, we can do much to improve
this program under existing administrative authority, although the present ceil-
ing on a grant — 50 percent of project cost — is statutory.
I can also report to the Chairman and the Committee that FmHA plans to fully
implement the rural rental assistance program by November 15. We published in
the Federal Register on September 15 the regulations for this program and will
receive comments from the public until October 15. Between the 15th of October
and the 15th of November, we plan to review and incori)orate these comm^its
into final regulations. After the regulations are published in final, we plan to
provide training to our State Office staffs so that this program can be fully opera-
tional in late November.
This program and introduction of above-moderate guaranteed loans are the
principal new program services on the immediate future agenda of the rural
housing program. These are services that will bring much needed benefits both
to low-income people, and to rural families of slightly more than moderate means
who have not been adequately served by the private mortgage credit market.
Mr. Chairman, this concludes my comments. I will be glad to answer any ques-
tions from you and members of the Committee.
Senator Moroan. We will take about a 3-minute recess.
[Recess.]
Senator Morgan. For the record, we are now about to hear from
Mr. Harold Wilson, executive director of the Housing Assistance
Council. Mr. Wilson has already been introduced by the distinguidied
Senator from Massachusetts, Mr. Brooke.
I wonder, Mr. Wilson, for our benefit would you identify those
who accompany you this morning ?
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STATEMENT OF HABOLD 0. WILSOIT, EZECXTTIVE DIRECTOR,
HOUSING ASSISTANCE COUNCIL, ACCOMPANIED BT LEONARD
VATTGHAN AND RICHARD EISEN
Mr. Wilson. On my right is Mr. Leonard Vaughan, on my left,
Mr. Richard Eisen, both staff with the Housing Assistance Council
here in Washington.
I would like to thank Senator Brooke for his very kind comments
earlier and I would also like to thank vou, Mr. Chairman, and others
on the full Banking Committee for the establishment of this Rural
Housing Subcommittee. For a long time, we have felt that rural
housing problems in America have not received the proper attention
that they deserve, and we are very gratified that this committee will
assist in bringing the attention to the rural housing problems that
tiiey need and that they deserve.
Also I would like to express our appreciation and our deep feelings
of gratitude to Senator Sparkman for the very creative work that he
has done over the years in rural housing efforts and problems.
I am the executive director of the Housing Assistance Council, but
I have not begun on a full-time basis those duties and I am still
juggling another organization up in Massachusetts. I have come down
today in order to present an overview on this testimony.
Senator Morgan. Could I interrupt you at this point and ask you
to tell me what the Housing Assistance Council is ? I understand the
Gtovemment does appropriate or finance it to some extent. Could you
tell me who is on the council ? Tell me a little bit about it.
Mr. Wilson. Yes, sir.
The Housing Assistance Council is a private nonprofit corporation
working to provide decent housing for low-income people in the rural
areas of our Nation. In addition to providing: technical assistance in
the delivery of rural housing, we also administer a $3 million revolv-
ing loan fund. With this fund, we loan what are commonly referred
to as front end moneys to nonprofit rural housing groups for the
production of low-income housing in specific communities. Moneys
are used to option land, to pay pre-engineering expenses, architec-
tural expenses, and so forth.
We are funded basically, as you are aware, through the Depart-
ment of Housing and Urban Development, and provide assistance
in rural housing matters to the Department.
Senator Morgan. Could you give me an example of a nonprofit
rural housing group that you would make front end money available
to?
Mr. Wilson. I can give you a very good example since I am presently
the executive director of one such corporation in Massachusetts.
As Senator Brooke previously stated. Rural Housing Improvement,
Inc. is a regionallv based nonprofit corporation in Massachusetts. We
receive our basic fundinor from the Community Services Administra-
tion to provide housing for low-income families in Massachusetts.
RHI also receives a grant from the Farmers Home Administration
to administer a mutual self-help housing program and a number of
other programs.
We borrowed, as an example, money from the Housin^r Asip\9.t^\NSL^
Council to option two multifamily buildiiv^ ?^\\.e^ m ^ cLcycKKvxffc^-si '^^
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Massachusetts. Having optioned the property, we then filed preappli-
cations for rural rental housing with the Farmers Home Administra-
tion and are in the process now of developing those applications to
completion. Construction will soon begin on the projects that will com-
bine HUD section 8 assistance with the FmHA mortgage.
Senator Morgax. That gives me a little idea of the situation. Thank
you very much.
Mr. Wilson. As I indicated, we support the entire bill, S. 1150; but
for my comments today, I would like to center on one provision of the
bill, and that is the subsidy provision for low-income homeowners.
As you are well aware, Mr. Chairman, to own one's home is part of
the American dream, but as has been ably testified to this morning,
that dream is becoming more and more of an elusive reality for many
low-income families. Families simply cannot afford — low-income fam-
ilies particularly — the requirements of homeownership.
We have seen construction costs go up dramatically over the last
few years, and I think the chart here on the right demonstrates the
rising costs of single-family homes.
In 1970, the Farmers Home Administration loaned $11,504 for its
average loan. And then in the transition quarter, the amount was
$21,450. It's projected to be over $24,000 in fiscal 1978.
As a practical matter, I can substantiate that with our own self-help
program in Massachusetts. Even though we are saving approximately
$3,000 over the cost of the house through the sweat equity of the
family, we now project that the cost of the house we used to build for
$18,000, then $21,000, will be up close to $25,000 to $27,000 in the next
few years.
Also as has been testified, operating costs are going up considerably.
From 1971 to 1975, our indications are that approximately a 70-percent
increase has been sustained. As a result of this, there are somewhere
around 6 million families in nonmetropolitan areas who cannot aflford
to own a home. In the South, where indications are that the minimum
income for homeownership with a deep subsidy program is approxi-
mately $4,000 of income, there are some 2 million families who receive
and earn under $4,000 and as a result are unable to own a FmHA home.
In addition, many people who do not fit in this category but who
could afford the basic principal and interest payments through an
agency like the Farmers Home Administration are now paying up to
40 percent of their income for shelter costs simply because of the in-
crease in operating and maintenance and utility expenses.
As Gordon Cavanaugh substantiated earlier, the net effect is that the
Farmers Home Administration is now serving a much higher income
clientele than they ever served in the past. The chart that you see is a
graph indicating the dramatic switch in the income levels that are
served by the section 502 program through Farmers Home.
The concern we have is that for those families who cannot afford
to own a home, other programs also do not meet their needs. The first
reason being that the multif amily programs have a limited number of
deep subsidy units available. Our research indicates that to serve these
6 million families, there are going to be something like 30,000 units
available through all of the rural housing subsidy programs in the
next year. But even if there were the numbers to serve the families
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under the multifamily pro-am, rural areas simply do not have the
delivery mechanisms necessary to produce multifamily housing.
As an example, there are some 30 million people who live in coun-
ties that are not served by local housing authorities. One of the primary
mechanisms for serving low-income families is a local housing author-
ity or a county wide housing authority. This is certainly true even in
an urbanized State like Massachusetts. We have 215 rural towns out
of the 351 cities and towns in our State. Most of those rural towns have
no local housing authority to provide public housing assistance.
There is also in rural areas substantial absence of sewer and water
facilities, mentioned earlier, that are often needed to support multi-
family development.
Finally, rental units are often unable to meet the requirements of
certain types of families. As an example, in the South, there are
sparsely populated areas where the people want to continue to live.
It is impossible to find any kind of economies of scale that would
warrant the development of multifamily units in this type of area.
HUD, I think, indicates these economies of scale are reached at
around 150 units. In some sparsely populated areas, we would be talk-
ing about eight units, five units.
In addition, there are people in rural areas who own their own land
and want to remain on that land. They don't want to be rooted out and
have to give up their land and move to the cities. There is no program
other than a deep subsidy homeownership program that could serve
those families.
Finally, there are people who do not own land but simply prefer to
remain in rural communities. They don't want to become part of the
inner city statistics that they read about or see on television.
I thought your comment was extremely appropriate, Mr. Chairman,
because many of our programs force what you called a desperation
migration. Our feeling is that the only way to help stem that in many
rural areas will be through the development of some form of home-
ownership program that provides a subsidy deep enough to help these
individual families.
As Senator Hathaway stated, HAG has desired, in response to
the biU, S. 1150, a mechanism that we think might be appropriate
for meeting the need I have outlined. An overview of that program
would look something like this. It is a program designed to aid
individual low-income families who cannot aflFord homeownership
under the current programs, by providing assistance in meeting total
dielter costs. This means that for the first time, a homeownership
program would take into account total shelter cost and not just prin-
cipal and interest payments and taxes and insurance.
In addition, another feature of the program is a recapture mech-
anism designed to return a portion of the subsidy in order that the
program will cost in the long run no more than the present Farmers
Home 502 interest credit program.
Basically, the way the program would operate is that the total
shelter cost of the family would be calculated. These calculations
would include the elements that you see listed there — mortgaere, taxes,
insurance — and what might be called new items, even though they are
not very new, a replacement reserve — and a utilities-and-maintenance
expense item.
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Basically, what would happen would be that the family would pay
no more than 25 percent of their adjusted family income for the total
shelter cost that we calculated, and the difference between the family's
adiusted family income and the total shelter cost would be the amount
of ^subsidy that would be provided by the Farmers Home Admin-
istration.
As you can see, if we project a family with an income of around
$5,700, their contribution would be 25 percent of that, which would
be $1,438. If you subtract that from the total yearly shelter cost of
the family, the Federal subsidy would be $1,962 for the year for that
family. Now, if we took the Farmers Home Administration's existing
interest credit program, first of all, if one based eligibility on 20
percent of adjusted family income, the family earning $5,700 would
not be eligible at all and would be turned away at the door. The
income needed at 20 percent of adjusted family income to support
that $24,500 loan would be $7,060; and the Farmers Home subsidy
over the year, under the interest credit program, would be $1,241.
The second provision of the program, as I indicated to you, is a
recapture provision. The mathematicians at HAC went to work and
developed a recapture formula. The recapture formula is an extremely
complicated formula ; and I am sure if the committee Staff is inter-
ested in getting into the philosophical and mathematical principles
of that formula, HAC would be more than pleased to do that.
Suffice it to say that the formula as developed indicates that the
Grovemment can recapture a constant percent of its subsidy regard-
less of the area of the country in which the loan is made.
In addition, the factor also assures that the family will receive some
form of equity at the time that the property is sold. I think that is very
important. You were mentioning before, the incentive factor. I think
it is very important that the family realize that there will be, regard-
less of recapture, some equity that will remain when the property is
sold.
Finally, the formula does not penalize a family whose income might
go up during the ownership period by insuring a rising percent of
equity that the family would receive.
We ran some numbers on what we think the cost of the program
might be ; and in comparison with other programs, our numbers indi-
cate that even without the recapture provisions being in place, the pro-
gram should cost approximately one-half of the cost of the section 8
program on a per unit base. As you can see on the chart, our numbers
indicate that the proposed S. 1150 homeownership program would
have an immediate cost of around $895 which represents the average
in costs ranging from $690 to $1,100 per year per unit.
Indications from HUD are that the section 8 new construction pro-
gram is going to cost around $3,700 per unit, per year.
With recapture, our runout costs seem to indicate that the program
will cost as much as the Farmers Home interest credit program and
about one-fourth of the cost of the section 8 program.
In terms of total cost, we projected out a 15-year period. The Farm-
ers Home Administration loans around $3 billion a year, under its 502
program. If we used $100 million of the $3 billion for the S. 1150 pro-
gram, the costs would run around $8 million in subsidy costs each
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year. Over the 15-year period this obviously would amount to around
$120 million.
The calculations indicate that the recapture rate at the end of that
15-year period would be between 46 percent and 64 percent. As a
result the costs would run approximately $55-$77 million to the Gov-
ernment over a 15-year period.
Our calculations again indicate that the section 8 program for a
similar amount of investment would cost around $232 million over that
15-year period.
Just to conclude my verbal remarks, Mr. Chairman, I think that this
pro^ppain, even though it might sound like a cliche, is certainly an idea
whose time has come. I understand that the Farmers Home Admin-
istration is now looking into some kind of deeper homeownership sub-
sidized program. I understand that the Department of Housing and
Urban Development is now finally considering the section 8 program
as a deep subsidy-type of homeownership program; and certainly, it
is time that we allowed low-income working families and others to par-
ticipate in some kind of equity accrual mechanism through a home-
ownership effort.
I would like to urge that your committee would report the bill out
as soon as possible.
[Complete statement of Mr. Wilson follows :]
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HAC
HoiMia<AwlitMMtOomMflliDo.»iaa6LatmtW.wauito6(W HMMn<tei,D.tt aoO06 • (SOt) 0n n eto
TBSTINQNY OF
HAKOLD 0. VILSON, EXBCtlTIVE DIRBCTOR
HOUSING ASSISTANCB COUNCIL, INC.
BBFORB THE
SUBCOItllTTBB ON SURAL HOUSING
OF THE
SBNATB COItllTTBE
ON
BANKING, HOUSING AND URBAN AFFAIRS
HEARINGS ON
RURAL HOUSING ACT OF 1977, SllSO
OCTOBER 4, 1977
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ooTLzm or tistziioiit
PAOB
Backgrwmd — ™™ — —~ — — — -™™« — ———— ■»■■»■■»— «-2
BONBOWnnSHIP 8DB8Z0T POR LOW AMD NODEIATB
ZMOOm PMIZLIBS (8ICTI0II 14)—— — — 4
Mttttd Por A New Uosnsown«rflhip Prograra^-
FttHA Incapacity to Assist the Lol* -Income-'—-—— 4
Hental AlternatlvftB and Problems 8-
Tha HCM»BOwnershlp option— —*—-*——'—*-—— -—10
Overvicir of Progrwn — — * — 13
P«iily payment and FmHA Subsidy-' .— ^,^ . ,^ , - , ^-^-«i3
lU^lapBiuBnt Reserve- - — - — — ———"'— «>.*-.,^.*«.«.^-^— ^i 5
Program Cost s——— — - **.-^— ^— — — ~— ^ --.*-.™— .«.-- 1 (
Detailed Dieoueeion of Prograa structure™*™— -——17
Co«t« ^——^ — ^ *-^ 17
Poflii ly Paytxient— — "—- ~ — - _««_ _—«___ - -.««— ^— «- 1 q
FmHA Subaidy — ■> -IB
t4e t Qa in 1 S
Esc apt lire—— -^-^-«™^— —————— -,^- -^-. *- 1 f
Total Coet of the Program-^ — — — ,*— ^-* 22
Co»t ZAcludijig Subsidy Hecepture- -^— — -5i
APPEALS PMOC»DKB (SBCTZOM 7)-— ^-28
The Existing 'Appeals Procass" - ■ ._- ■ ..-- ■- -. -2>
Reaaorts For Expanded Appeals Process-— ■" — — - — -32
HASTBR AMD SENBR GRANTS (SECTION 20) ^- 35
RURAL HOUSING RESEARCH (SECTION 4) 39
OQMPENSATIOM POR CONSTRUCTION DEPBCTS (SECTION 5) -* ^—41
RURAL RENTAL ASSISTANCE (SECTION 15) t 43
MUTUAL AND SELP-HELP HOUSING (SECTION 16) -^— ^--I4
SITE LOAN CHANGES (SECTION 17)^ — 4S
TITLE INSURAKCE FOR RSHOTF CLAIMS OR EKCUHBKANCES
(8BCTZ0M IB) — —-46
ASSISTANT SECRETARY POR EQUAL OPPQRT^HITY (SECTION 19)<?— — 46
ENERGY CONSERVATION (SECTION 21) ■ 49
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198
Mr. Chalnun and dlstlngulslMd SMiters of thm Bvtoaemmlttmm.
Hf immm ia Harold 0« Nilaon and I aa axaoutlvo dlrootor of tha
Bousing Aaalataaoo Council. On bahalf of tha Council Z want to
thank tha conmittaa for ita invitation to praaant our Tiawa on
S 1150, tha Rural Bouaing Act of 1977. Bafora doing thia Z juat
want to indicata our appraciation to you, Sanator Morgan, and
othara on tha full Banking Coamittao for your foraaight in
aatabliahing tha Rural Bouaing Subconndttae. Too of tan in tha
paat wa hava aaan rural housing iaauaa givan only liaitod or
virtually no attantion. This Stsboouulttaa, undar your laadar*
■hip, will inaura that tha uniqua and critical housing prOblasui
facad by rural Amarica will racaiva adaquato attantion and
considaration •
As you nay know, tha Bouaing Assistanoa Council is a
. fadarally fundad national organisation idiioh worka oxclusivaiy
on tha housing problana of tha rural poor* BAC ■» in tains a
ravolving loan fund to assist local housing organ Ixations,
providaa tachnical aasistanca, conducta training confaranoas,
and praparas raaaarch and lagialativa analysaa on houaing
issuas of concam to tha rural poor.
Na saluta Sanator Buaqphray and his 17 cosponsors of 8 1150
for introducing a major initiativa in rural houaing. BAC
strongly andorsas tha antira bill. Na wara vary gratifiad to
saa major sactions of it adoptad in tha Bousing and Ccsmninity
Davalopnant Act of 1977. Our coonanta will ba diractad, thara-
fora, at tha many proviaions of tha bill which hava not yat
baan actad upon.
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-2-
Sttotlon 14 of S 1150 ifould establish a major nair boaaownar-
shlp program for tba rural poor. Wa conaldar thla tba moat
important and far raaching provision in tha bill. Bacausa of
this, a major section of our testimony will be addressed to the
need for enactment of this program and a detailed description of
hoif the program oould be structured.
We also will discuss in soma detail Sections 7 and 20 which
would make major changes in the FmHA appeals process and in the
provision of federal resources to meet water and aewer problems.
The remainder of the statement will then address the need for
passage of each of the other sections. They will be discussed
in the order they appear in the bill.
Background *
While repetition may tend to dull the senses, some ejqposi-
tion of the housing problems in rural America is needed to provide
a framework in which the provisions of S 1150 can' make some sense.
In 1949 Congress established, as a national goal, the
provision of "a decent home in a suitable environment for. every .
American^i? In 1968, Congress quantified this with yearly ■ ^
production goals for subsidized and other housing. While there
has been progress in removing substand£u:d housing, we are still
far' away from meeting the goals set- in 1968.0 /This is especially
true with" regard to the rural poor* Despite: the over%rhelming
publicity ^^iven to the housing problems 'Of' the cities— and these-
are «6rl(MiB>*^iiiost o<' the- substandard housing is in the rural
areas ^6f our - country . A disproportionate . shtre of the ^ nation ' s .
poverty is 'also borne by rural areas. The i smaller a community.
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-3-
tlM BOS* IilMly.it is to havtt high Isirsls of p o vrty and sob-
■tandard housing, and, in ganaral, tho lass oapabia it is of
daaling with thasa problaaui* Thasa aaaa nn— iinltias ara alao
plagoad with inadaquata public facilitiaa.
In ordar to daal with tha uniqua problaaw of rural Aaarioat
tha raraars Bosm Adainistration was aatablishad and providad
with authority to adainistar a full ranga of housing and
o oi wn ity faoility prograaa. TO aaat tha spacial n aad a of
rural pacpla, diraot sarvioa is providad froai local officas by
FaHA aaployaas who hava loan and grant aaking authority* Zn
tha main, tha FaHA systam has provan to ba aost rasponsiTa
to tha naads of rural paopla* Bowavai, it haa not baan without
problaas, as our taatiaony will indioata.
Ovar tha past faw yaars it haa bacosM incraaaingly difficult
to aasit tha naads of low-income paopla with tha existing
authorities • Inflation, tremendous increases in energy, taxes
and conatruction coats have made decent houaing for low^inooaa
people alaoat impossible to provide. In the paat tha FaHA faced
this problem by redefining "low- income." This is an obvious
evaaion of responsibility and totally unacceptable*
If the FmBA is to be able to- serve the needs of low-inccaa
people, then changes in the current law are needed. Paaaaga of
8 1150 would help accomplish this goal. That is why we atrongly
support the bill.
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-4-
BOMEOmiSRSHIP SUBSIDY FOR LOW AND HODERATB INCOME FAMILIES (SECTION 14)
Need For A New Homeownership Program
^ The'cbver of 4 recent' Tine Nagasine pictured a* middle olaaa
faiily ' standing on the ground, looking skyward towards their dream
hoiM whioh i^as floating out of their reach. The article pointed but
that the U.S. is experiencing a homebuilding boon, but the boom is
acobiApanied by tremendous inflation in housing and related costs.
Neverthel^lks , mortgage money is available to middle class i^^imilies,
particularly those with both spouses working and willing- to forego
vacationi'^ hew furniture and otiher normal benefits Of sdddle iiicoiae
life.-' ''■■'■
WhAt the article did not address and what is seldom raised in
the national discussion on the homeownership crisis, is the tkct that
ownership ' of the mCst modest of homes is becoming a fading dr slam for
an ever increasing portion of the rural poipulation^ Even the FmBA
Section 502 interest credit homeownership program, with a loan at a
rate as low as 1« ; is fast becoming too expensive for millions of
rural Americans, Yet these are the very people who suffer the worst
housing conditions. Families under $6000. jmnual income, those %rho
generally oannot afford even a It loan, occupy 75% of the rural sub-
standard housing!
«
TABLE A: SUBSTANDARD' RURAL HOUSING: INCOME RANGE OF OCCUPANTS
1975 (TotAl Nmnber of Occupants Equals 99% •)-) ^
INCbMfi
Un^er $4000
$4,000 - 5,999
$6,000 - 7,999
$8,000 - 9,999
$10,000 and
over
xxxxxxxxxxxyxTXTrxxxxYxx54%
xxxxxxxxxxx 2 1 %
xxxxxxxl4%
xxxx9%
xl%
" To 55 30 40 50 60 70 80 90 lOO"
Percent of Occupants in Income Range
SOURCE: Economic Rese£u:ch Service; USDA, 25 Years of Housing
Progress in Rural America (USDA: wash. l).C. , 1977 —
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-5-
Farmrorkers r whofl« annual income averages less than $3»000»
represent a dlaproportionately high share of the families vhcai ^
TmBA caxinot assist. Even in California, where farmworkers are
relatively well off, over 77% of them are too poor to qualify for
existing FmHA programs. Many farmworker families have saved a little
at a time and have proven that they can undertake the responsibilities
of homeowner ship. All they need is a little help to ensure that their
dream does not end up in a shack. However, the trend of FmHA homeowner-
ship loan activity has been toward higher and higher incomes, making
homeownershlp for the rural poor, like f anmrorkers , a virtual
impossibility.
FmHA Incapacity to Assist the Low Income
In 1970, 49% of all FmHA loans went to the lowest Income portion
of the rural population - those under $6,000 annual income. Tet, in
a short 5 year period, that percentage fell precipitously to 9% of the
502 loans in 1975. At the other end of the eligible income spectrum,
.those from $8000 to the maximum (currently $15,600) , the percentage of
502 loans rose dramatically from 4.5% in 1970 to 63% in 19752
Table Bs
mCONB
Under
$4000
4,000
5,999
6,000
7,999
8,000
9,999
10,000
I1IC0MB8 OF fMA fBCTZOM 502 LQW-IliCONB RURAL BOMBOIfHIR-
8HIP LOAM BORRONSRS SHOIfZIIO CHAMOB BBTIfBBH 1970 AMD 1975
YEAR
1970
xxxxxxyv*^ !SU
1975
1970
1975
1970
1975
..2%
xxxxxxxxxxxxxx 28%
7%
xxxxxxxxxxxxxxxxxxxxxx 42%
27%
1970
1975
XX 3.5%
1970
1975
K 1%
35%
10
20 30
40
50 60
70
80 90 100
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-6-
Tlie r«asons for this disturbing shift in saphasis , txam those at
the lower end of the spectrum in the greatest need to those at the
hi^est end of the speotruM, are not hard to find. First and foreaost
is double digit inflation which has hanpered the oonstruotion industry
over the last several years. The average 502 loan nearly doubled in
prioe between 1970 and 1976, when it rose frosi $U,504 to $21,450.
By 1978, undoubtedly the 1970 average loan will, in faot, have doubled.
CRMnrC: AVBRA6B COST OF SALES AND RENTAL HOUSING UNITS IN
THE FAItHBES BONE ADNINI8TRATI0N SECTION 502 AND
SECTION 515 PROGRAMS FOR FISCAL YEARS 1970*-1976
•73 '74 '75
Fiscal Year
Source t FMHA Reports of Loan and Grant Obligations for
Fiscal Years 1970 through 1976.
04^11 O - 7« • 14
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-7-
PaBA'fl own regulations have contributed to these price increases.
For exaaplev stringent site requirsments # including esqphasis on locations
with central water and sewer facilities r have brought about a narked
increase in the cost of lots. While this site policy was originally
formulated to protect coominities and individual residents # its unintend?-
ed effect has been to generate higher costs through additional pro-
cessing tlne^ Biore expensive land purchase, nore costly site isqprove-
ment, such as curbs and gutters, and other similar costs. Often,
these extra costs effectively preclude purchase by borderline low-incosM
faiilies.
The increased cost of a new hooie has not bee n the only factor
in the declining service to low incosM families. Other related costs
have also leaped upwards. From 1971 to 1975, property taxes and
utilities each increased over 70% on a national basis, while maintenance
and r^air went up over 100%. The national average for all housing
related costs outside of principal and interest, that is, taxes,
utilities, insurance and maintenance, was $148 per month in 1975,
an increase of 69.6% over the 1971 cost. Even assuming that the costs
for a lower priced FrnHA 502 financed house would be less, it can
easily be seen why there has been such a decided shift upwards in the
incosM levels served.
TABI£ D : CHANOBS IN HOMBOWNBHSHZP COSTS 1971 - 1975
(National average monthly outlays for
selected items)
1971 1975 Percent Change
1971-1975
^property Taxes $37.89 $6i|.98 71.5$
Heat ft Utilities 26.27 46.21 75.9$
Maintenance ft Repair 13.20 26.45 100.3$
Insurance 10.09 10.68 5.8$
TOTAL $87.45 1148.32 69.6$
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To the extent that the PmHA interest credit program has served
low Incone families in the recent past, its success has been highly
regionalised. Because of the generally lower construction and related
costs in the South, PmUA's program has served a lower Income clientele
there than in other parts of the country, particularly New England,
m facft, 64% of the PmHA loans made to families under $7000 annual •
incoiM - and 80% of the loans to those under $5000 income - were made
in the South in 1975. Of all of the FmHA loans in the South, 40% went
to families under $7000 income. In comparison, only 12% of the PnHA
loans in the Northeast were made to borrowers at this low-incosM level.
Rental Alternatives and Problems
What has- clearly been. needed is a mechanism to provide decent
housing for the at least 1.8 million rural hous^olds who are too
poor to qualify for present FmHA programs. In the last year, decent
new rental housing has become a possibility for some of these households
at the lowest incone level through the use of HUD Section 8 subsidies
in FmHA rental projects. However, only 10,000 new units were set-aside
in FY 77, with only an additional 10,000 for FY 78. Another 5000 new
units will be made available in FY 78 through the implementation of the
FmHA rent supplement program, which represents a major step forward in
FtfBA's efforts to house the rural poor. And some 15,000 units of public
housing should go into nonroetro communities, though not necessarily
rural ones.
While we loudly applaud these efforts to increase rental
opportunities for the rural poor, they are too few and. too limiting.
They are too few In that only 15,000 new units will be built in FY 78
tkrougli both 515/8 and rent supplements. This is a pi ttcmce compared
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with FiiiH^*s production in 1977, in the neighborhood of 125,000
homeoimerahip and rental units, which mostly benefit moderate ineome
people.
Bven if the rental programs were significantly .expanded, many
of the rural poor would still fall between the oracles. Many small
communities are unserved by public housing authorities - over 30
million people live in counties without public housing. Over €1% of
the people in thinly populated rural areas live in csounties with no
public housing. Many more rural people live in communities where therm
is an absence of rental housing sponsors or developers - poblio or
private. As a result, the existence of rental housing programs is of
no use to these millions of people.
TABLE $ : PERCENT OP POPULATION LIVINQ IN COUNTIES WITHOUT
.OCCUPIED PUBLIC HOUSINQ, BY CLASSIFICATION OP
•COUNTIES: 1975
59.01C
AdJacent^22entAdJacent^22e^AdJacent^2!*.,rt
[ UrbanJged | Less Urbanleed [ Thinly Populated [
MgTROPOLlTAW tiONMgTllDPnLlTAM
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A faidly which chooses not to llvs in an "established place or
toim" is not even eligible for rental assistance tinder PoHA regulations.
Many rural people siaply prefer to live in open country, away frcn
established towns and places. PoHA authorising legislation specifically
includes "open country* in PaHA*s mandated service area. Tet, without
a deeper subeidy hosieow n e r ship option, those poor families who choose
not to live in towns are precluded from obtaining decent housing.
FaBli*s rental prograai has seldcn included units larger than two
bedroosM. In fact, most are only one bedrooai. This practice on
PaHA*s part tends to make it very difficult for very low income large
f aadlies to be benefitted by Fmak> rental programs.
Last, but certainly not least, ho me own e r ship has always been
a source of pride and a goal of American f aadlies. Zn rural America,
ho me own e r ship has been placed at an even higher level of esteem.
Providing very low income f aadlies with the opportunity for homeowner-
ship aots as an effective incentive for them to maintain their homes.
A natural human emotion is to take greater pride in maintaining a home
which is owned than one which is rented. In this way, homeownership
can substitute for the absence of rental management capacity in many
rural cgamninities.
The Homeownership Option
The Senate recognised this problam in 1974, when it passed an
experimental deferred principal payment plan as one type of deep subsidy
homeownership program. Unfortunately, after the Senate-Bouse conference
the demonstration program was not included in the Housing and C o— un ity
Development Act of 1974. We urge this Committee to act again, con-
sidering that FmHA assistance to low income families has signiif ioantly .
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deteriorated since 1974.
Last year, the federal government provided $14 billion in tax -
subsidies primarily through special depreciation rules for private
rental units and income tax deductions for middle income homeowners !
As a result of this federal largess, middle and high income people also
obtadLn increasing equity in rental £uid ' homeovmership property. If
these expenditures can be justified as good public policy, then surely
we should be willing to provide assistance to homeowners who cannot
otherwise obtain decent shelter.
As will be cleau: from the description of HAC's concept of how
the program should operate, there would be provisions to recapture
subsidy dollars in case of a profitable sale by the borrower. Our
calculations show that hom^ownership Ccui be made available to very
low income families at a long run cost which doea not exceed the costs
of the present interest credit program and is dramatically less expensive
than the HUD Section 8 program.
A homeownership program also serves to generate more new units
than a rental program, even with comparable subsidy capabilities. For
example, when a Section 8 new construction contract is executed for
30 or 40 years, it guarantees that a low income household c2Ln be
assisted if it lives in that unit. Over the life of the contract « many
households may be assisted in that one unit. As one family's income
rises ^d it moves to £uiother unit, another low income family can
move in. .-
With a homeownership progreua, on the other hand, when a family
graduates from subsidy, the same subsidy dollars can then be transferred
to another family for use in a new unit. Thus, the same four or five
or six families who live in the Section 8 unit, one after emother.
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ooald haw all b««n subsidised in their own bcsMs over that 30 or
40 year period, for the saae cost to the govemaent. Instead of one
new unit, there could be four or five.
For all of these reasons, then, we strongly urge the cosMfttee
to adopt Section 14 of S1150, to establish a hosieownership option for
rural fasU.lies who are too poor to benefit fron TmBK*m present Section 502
interest credit program. In the next section of the teetiaony, tie will
describe how the program could be structured so that it would benefit
those irho cannot be reached with present prograaw, but at no or limited
increase in the expense to the federal government.
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Overvietf of Program
Section 14 of S1150 would •stablish ft new FwBh honacwiwrship
program for thosa rural familias which are too low inooaM to qualify
for the preaent Section 502 intereat credit hOBMOwnesahip program.
Under S1150, the family would pay 15% .of groaa income towarda principal
and intereat, property taxea, inaurance, utilitiea and maintenanoe -
the baaic ooeta aaaociated with homeownerahip. nah would pay the
difference between the family payment and the total houaiag ooata* If
the houae were aold at a profit, FwBK could recapture up to 100% of
ita aubaidy outlaya from the proceeda of the aale, aa long aa the family
recovered at leaat enough to move into a new hone. BhC atrongly endoraea
thia approach to meeting the deaperate needa deacribed in the previoua
aection.
HAC haa a number of reconmendationa to asqplify the aketcH^
proviaiona in Section 14 of S1150. Aa HAC enviaiona the program^ it
could totally replace the preaent intereat credit program with one inte-
.grated approach for all low and moderate income borrowera, that ia,
all thoae below a deaignated maximum (currently $15,600 APX^) . While
it cott^ aerve thia broad fundtion, thia teatiaony will aaaume that
the program outlined below would initially be reatricted to thoae who
are too poor to qualify for a loan even at a 1% intereat rate. For
thoae idio have enough income, the preaent program would be continued.
Family Paymjant aag^ PMffl Stlbaidy
Okider either the broader or narrower program, the intereat rate
cbdrgad would be a conatant market rate (currently 8%) . The family
woirld pay 25% of adjueted income (rather than 15% of groaa i nc ome,
1 Adjuaied family Income
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as in 81190^) tovarda prinoipal and intwrast* property tttMs^
lnnurano«r raplno«m«nt rsaerva^, auiint«nanc« and utilitias.
Tbn faally vould make two typaa of payaanta vhioh would aqual,
in total # 25% AFX. Ona payment woald be for utilltiea and Baintananoa*
idiioh the faally would pay directly. A monthly utility and maintenance
allovanoe (MDHA) would be eatabliahed for each geographic area. Xf
the -fiiilY^a 'iwtaal utility and maintenance ooeta exceeded WOKk, the
family would have to abaorb the exoeaa. Coonreraaly* if the actual coata
were leaa tliaa IIDNA» the differenoe would be a aaviaga tothe <family.
Ihia method would aot aa an incentive to the family to oonaerve energy
and^lewer ita maintenance coata.
The other payment would equal the differenoe between NONA and
25% of the family 'e ATI. Thia payment would be directed to principal
and intereatr taxear inaurance and replacement reaerve. Principal
and intereat paymanta, if any, would be credited directly to PMA.
The ethar «wuata would be placed in eacrow for the family. PMA
.would aubaidisa all inaurance, 'tax and replacement reaerve coata
not met by tha family payment.
> = Zf -25% AFl were leaa than MOMftv that ia, if the family could
not afford utilitiea and maintenance # FnBA would «Mke a aupplamantal
pwfmukt to*^ thm family to enable it to meet ita utility and maintenance
axl^ahaea. Ihia i^ the principle followed in tha ROD Section 8 and PMA
rent auppleiMntprograma.
Aa an axaapla of the propoaed ay stem, 'if the -family 'a 'AFX were
$9000 attd MOMA for the whole year (12^X NONA) Were $600,, then the
faid.iy lioold pay $600 for maintenance and utility ooeta and $650-
(25% ^f $5000 - $600) to niBAto cover 'the other coata^ ^yMHAwodld
1 — 251 of Afl accounta for large familiea better than grdie ino diia
by deducting 5% of groaa income and $300 for each minor dependent.
3 Replacement reaerve is diacuased under the next heading.
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pay the dlf f erenqe l^etween the family payment of . $€50 9fn± the total
'■'■.-:■*. :i- > '-.yf-' *.>.'i''. ■•••'■■• ■■ ■
of principal and interest (at market rate)^ taxes, insurance and- -
replacsMent resjerve.. ._. ...,.,.•.'. .
Replacement Reserve
The pyurpo^ of a replacement reserve would >>e to. cover
extraordinary, maintenance costs, beyond the normal day to day costs
covered by MD^. Extr^prdin^ury. cp^ts^would .inclixle veplacement 'Of a-,
furnace, refrigerator ^ r^uige, etc. ,^e .idea of a replacement reset^e-
is to make small incrementaf^ ,^|^c^y9ent^ 'SO, that. the.. funds <will be there-
when needed. The .re|p.lacc|i9f(nt :peserve:W9\ild, a^so b^ Available for : *> •:
FwHH to use in case the family did. not prop^ly maintAln the oni'^tt ^-'--^
The replacement reserve. ^is aimed ;at eli^zui^ng one of t£he problems > -
encountered by borrowers, under the 9QP .235 .program, Whiehi was -^tbe'i
*^pji Sj'.v ^.^vi '.' i 'P >•• ■''T' «. .
inabili^ of borrowers to meet the^e ext];ao^4inary expenditurer>v •'' "
because all of. their ayaj^^^^^, income was alrctady cosmtlvted'tobaisiMiv -
This prevented .them from making the necessary. ,3c>epaira cuid JflttplaccieTitsV
pu •■•. ..<♦ •- .: /.•■•■
Recapture ... ^ .-..*.• >.,,■•...■>- •'.'• = .■;■■••.■.••-•:•:•: .■•-•.••■•
If. the fa^ly wer^.to sell its hpuse a«t(9r«^rp|it,7 AM^otmulw •''•'''' "
J i .:: .'■•••' • '
would be applied to determine how much of the net gain (essentially"- ~' =
equi^plus appriftciated vf[ilue) jfou.ld be graated't.to fiherCamlly -aiidi'/'
how much woul4 ^back tp .FmHIV^f^s partial ,,pr epmpleteosubsidy>reeapiiir^j;
All recapti3^ed funds woi)l^ gp. ,]^a^c|^ .to, the-^RwraL Hpusing Insurance 'FWidi '
A proposed formula and, how it,.wf.s,49veloB^Yare.i<U.»pusfled<> in other
sections of this testimony. . >oip'^ *
If the recapture were calisulated on a basis such as the HAC. '<
formula, a ny|!BU^.^.q|je .advaaiti;^^ ^Wasetv-in'.alJBbiit ewry
case (exqept^ ifj^ere.^. hi^ xe5?apt>i?i.fh^|;jj<^ .^i!!acet;U9«d in. a "high^ cd*t
area) tihferjB «;)j^^d bf.. sp^w^ (B9[^it low thilr
income.
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A Gorollary feature would be that as the family incone Increasad
and the FnBA aubaidy coats correapondingly decreaaed, the oBount of
VmBA recapture also would deoreaae. Thua the faally which contributed
■ore would receive a greater ahare of equity.
These two featurea would act aa incentivea for the f M|ily to
properly auiintain the houae beoauae it knew it would receive aaae
significant portion of the appreoi^ted value* Zt would also act aa
an incentive to atay in the unit, because the longer the faaily lived
there> the greater the as^unt of the payments which would be
oontributed to equity inatead of intereat. Since equity is totalled
into net gain, and the faadLly'a recovery is beeed on net gain, thia
aspect itauld act aa yet another incentive to remain in the unit.
The formula also would allow TaBK to recapture a greater percentage
of net gain in higher cost areas than in lower coat areas. This is
logical ainoe PmBA'a aubaidy coata would be higher in higher coat
areas and imSA should recapture higher Mounts idiere it is paying
more. Howe v e r , the relative ahare of aubaidy costs, aa oppoaed to
percentage of net gain,, would remain oonatant. Thia ia alao aa it
should bm«
Another advantage of the HAC propoeed formula ia that the formula
itaelf is very aimple. All that the already overworked FmBA county
supervisor would have to do would be to plug in the isppropriate
nnribers which would be easily ascertained and to do aaae eisy multi-
plication and diviaion.
Priagrain Coats
THE PnOVO0BD PB06RMI, IVBM NlTliOOT IttCAPTUSK , KKniimnB
A szofzyzcMnLT Lias bxfbmzvi apfhoacb to aoinzMG vnf Lcin zm^omi
FKIPXJI TBMI TBB PnSBMT HOD 81CTZ0II 8 MM OOHST Rl lCTZOIt RSMTXAl. PROGRAM.
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IN PACT, THE PROPOSED PB06RAM CODLD BE HALF AS EXPENSIVE.' With
recapture, the savings would be increased even nore dramatically.
In addition, a honeoimerBhip program would create more new units with
the same dollars than a rental program. All of these claims will
be described in much greater detail below.
Detailed Discussion of Program Structure
In order to demonstrate how the proposed program would operate
and how the benefits discussed above would be realised, BAG has
developed a series of charjbs which dea»nstrate a whole series of
examples, which incorporate different circumstances from around the
country.
Costs
Six examples of local cost variations for principal and interest,
property taxes, insurance and replacement reserve are ehown in Chart A^.
They are presented in dollars of cost per year , per thousand dollars
'Of mortgage. In each case, principal and interest are based on 9%
per annum interest rate. The replacement reserve is calculated at
•€% of the mortgage (this is based on HDD's replaosment reserve factor).
The examples of cost variations range from a minimum where there- is
no property tax and no insurance %o a maximum where insurance is 1/2
of 1% of mortgage and real estate taxes are 5% of the mortgage, which
is more than is likely to be found in any state. There are four
examples between the extremes.
As an example # to calculate the carrying costs for a $21,000 -
mortgage in the "typical" coet area, ,11428 is multiplied by |21r000
to obtain total yearly carrying costs of $2,400. This $2,400 would
1 Chart A is Appendix Ai Chart B is Appendix Bi etc.
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Yearly
Monthly
$1,812
nsi.oo
378
3i.rt
84
7.00
126
10.50
216
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break doim as folloirs:
Principal and Interest
.Propsirty Taxes
Property Insurance
Replacement Reserve
TOTAL $2,400 $200.00
Family Payent
Family payments in total, for utilities and maintenance, and to
*
FmBA, are shoim in columns 3, 4, and 5, respectively, on Chart B. For
the purposes of this chart, family payment is always based on 25% API.
Whisre 25% API is less than MUMA, the payment to FmHAis shoim as a
negative number, representing a supplemental payment from FmHA.
PmHA Subsidy
The PmHA subsidy, which represents the difference between the
family payment to FmHA (Column 5) and the total costs exclusive of
MONA (Column 2) plus the supplemental payment, if any, is shown in
Column 6 of Chart B. '
The total costs <md corresponding FmHA subsidy for the same four
families buying the same priced house are shown for each of the six
cost area examples demonstrated in Chart A. Chart B runs from highest
cost area at the top to lowest at the bottcm. Charts Bj^, B2 and B3
show the same information for a $24,500, $28,000 and $35,000 mortgage.
An exaaple from Chart B would be that a family with $5000 API with a
$21,000 mortgage in the "typical" (.11428) cost area would receive
$1750 per yealr in PmHA subsidies.
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Net Gain ^
The net gain represents equity build up based on amortization at
2U1 8% per annua interest rate plus total increase in value through
appreciation. Net gain should also include any prepaid taxes and
insurance, initial downpayment and closing costs. However, for the
purpose of this analysis, these costs are considered to be zero. In
fact, it is unlikely that most of the families assisted through this
program irould have the resources to make a downpayment and no downpayment
would be required.
Charts C and C^ show the net gain for a variety of cosmion
situations including initial mortgages of $21,000, $24,500, $28,000 and
$35,000; simple rates of annual appreciation in sales value of 6%,
8%, and 10%; and for periods of 5, 10, 15, 20, 25 and 33 years. While
these all assume that all factors are held constant,, in reality any
variations would be taken into account.
An example from Chart C, in which there is a $21,000 mortgage
which appreciated at 6% per year for 10 yeaurs , would result in a net
gain of $14,587. Net gain is calculated without any reference to the
income of the family and the level of costs in the area, other than
sales price.
Recapture
BAC developed a formula which can accomplish all of the goals
set out in the overview. It would allow the family to almost always
obtain some equity. The more the family contributed, the greater its
share of the net gain. Were FmHA to recover 100% of the subsidy, up
to the total net gain, there would be no incentive to maintain the
unit, since the family would not share in the appreciated value.
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tbm f ooula would •qualii* for dlfforont cost aroas - thm hlghor
tho cost aroa, tho groatar rmak'm mbmrm of tha nat gain, and vioa-varaa.
But rmSUL'm paroaat of raoaptu«a of tha total aubaldy would Ttmrnln
oonataat for tha aaaa inoona faaily and tha aaaa pr£oad houaa In
diffarant ooat araaa.
Tha foraulaS la aa followat
Subaidv Racaotura « Raoaptura Paroantaga ^ Total Subaidv Ooata * Nat
»uo>xay inmcmpjMj:m f^^ctot * Jlortgagan oFyra. * Gain
Tha kay to tha fonnila ia tha raoaptura paroantaga faotor* Tha hlghar
tha factor, tha graatar tha paroantaga of nat gain raoapturad hy 9mBk»
Convaraaly, tha lowar tha paroantaga faotor, tha lowar tha paroantaga
of rao^tttra hy tmSUL.
It ahottld alao ba kapt in aind that tha auhaidy raoaptura ia
haaad on a paroantaga of nat gain . That ia, thara can ba auhaidy
racaptura aaasntially to tha axtant that tha hpuaa appraoiataa in valua.
If it ataya tha aaaa or dapraoiataa, obvioualy thara ia no aurplua fron
'whiofa subaidy dollar a oan ba raoapturad in axoaaa of aquity build up*
An axairpla ahould ba halpful in aaaing how tha foraula oparataa*
AaauBa a $21,000 aortgaga, whioh appraoaitaa at 6% par annua ovar
10 yaara. Aaauaa furthar a oonatant $5000 AFX in a "typioal" ooat
araa and a raoaptura paroantaga factor of 6. Chart B ahova that a
faaily witdi a 15000 API with a $21,000 aortgaga in a typioal ooat
araa raaulta in an annual TtBh auhaidy of $1750. Ovar 10 yaara thia
would ba $17«$00 in total aubaldy. Tha nat gain oan ha found on
Chart C •* a $21,000 aortgaga appraciating at 6% par yaar ovar 10 yaara
5 8aa Appaniix B for davalopaant of tha HAG f oraula
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results in $14,587 iMt gain. Filling in th«s« numbers, tbm forwala
then looks as follows t
Subsidy Rsospturs « 21 66J^x^iO ^ ^«'5>7 « $7,293
Thus ths government would recapture $7,293 of the $14,587 net gain
and the family would receive the rest, which in this case is $7,294.
The $7,293 represents 41.7% recapture of the total PmBU subsidy of
$17,500. Thus the total cost to FmBA would be $10,207.
Under the present interest credit program, the family in this
example would not even qualify for a loan. A family would need at>lesiit
a $6050 AFX to qualify. At the end of 10 years, the FmBA subsidy would
be $10,630, with no recapture. Thus a family with more than $1000 less
income could be subsidised for a lower cost to the government under the
proposed program than under the present interest credit program.
Charts B, B^, Bj and B3 can be used to quickly calculate recapture
for a large variety of situations, for the purpose of seeing. how the
formula operates in different circumstances, without having to go
through the formula calculations. The- last four columns listed
#
under Factors represent racapture amounts using different factors.
As noted, the higher the factor, the higher the percentage recaptured
by FmHA. To find the recapture amount for a particular example,
simply find the appropriate AFI , cost area and recapture factor.
For exasqple, the row of $5000 AFI, "typical" cost area and recapture
factor 6 leads to 50%. This means that under the specified oirouifestanoes ,
50% of the net gain would be recaptured by FmHA. The net gain, as
noted earlier, is found in Chart C or C^ depending on the mortgage
amount, rate of appreciation and nuiia>er of years of payment by the
borrower .
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Based on •xaaplsa frcm Charts B, B. , B and B^, a pattern can
ba discamed from conparlng the recapture percentage factors for the
saitt InoosM level in each different cost area. The pattern is# as
notad previously, the higher the cost area, the higher the percen t age
of net gain recaptured by FnUK and, conversely, the lower the cost
area, the lower the FHHA percentage of recapture.
For ekaaple, with a $2000 AFI family in the highest cost
area, FmHA would recapture between 76% and 100% of net gain, depending
on the factor. In the next highest cost area, the percentage would
be down to 70% to 100%. In the lowest cost area, it wou^ range
from 49% to 78%.
• However, in ea^ case, the percentage of the subsidy which
the recapture represents would be the sane. IThile this pattern is
not easily discer n ed from the charts, a few examples should dssKsnstrate
what happens. Assume the sasie $2000 AFI family with a $21,000 mortgage
Appreciating at 61 per year for 10 years, for a net gain of $14,587
(from Chart C) • In the highest cost area, the recapture would be between
$11,086 and $14,587, depending on the factor. In the next highest cost
area, reciqpture irould be between $10,211 and $14,587 and in the lowest
cost area between $7148 and $10,377. At the highest cost level, the
10 year subsidy total would be $31,930, at the next cost level $29,620
and at the lowest $20,380. In each case, as long as the same recapture
factor is applied, the recapture represents a constant percent of
total subsidy.*
Total CQBt of the Program
It is extremely difficult to estimate how much the proposed
hooMOwnership program would cost the treasury in both the short term
and long term. The coats would vary according to the level of
appropriations, the level of income eligibility, the actual sales
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prioes and ralatad costa and tha rata of appraolation in houaa
valua .
Bowavar, wa can danonatrata approxinata rangaa of ooat to tha
govajmaant, making cartain aaauaptiona. If wa aaauma that tha avaraga
mortgaga amount par unit would' ba $24,500 (tha PY 76 avaraga loan
waa 121,450) , than aaoh million dollar a in loan authority for tha
propoaad program would provida 40.8 loana.
For borrowara with a $2,000 AFI in a typical coat araa, tha
FnBA aubaidy would ba $2,900/yr. It ia not likaly that many famiUaa
with incomap balow $2,000 AFX would participata, particularly in a
limitad aisa program. And furthar, the additional aubaidy would not
ba much. Thua it ia raaaonabla to aaauma that $2,900/yr. ia cloaa to
a maximum aubaidy laval.
On tha other hand, tha minimum aubaidy can ba aatimatad from tha
amount naoaaaary for a family with an $8000 AFI. Ganarally, any family
with more than $8000 AFI would qualify under the preaent intareat oredit
program and would not have to participAte in the propoaed program
(of course, aa noted earlier, the propoaed program could eventually
replace the entire intereat credit program) • Tha annual aubaidy for
an $8000 AFX family in a typical coat area would be $1400. Thua, tha
range of annual aubaidy would be, conaarvatively , between $1400 and
$2900 per unit.
There are approximately 7.6 million rural houaaholda with
annual incomes below $8000. Of these, 14.7% are below $2000 AFI,
44.7% are between $2000 and $5000 AFI and 40.6% are between $5000
and $8000 AFI. Therefore, to calculate the total cost of the program,
it would be reasonable to assume a similar braalcdown of participation -
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221
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40% at $8000 API, 45% at $5000 AFI and 15% at $2000 API. In other,
words, 40% of the unita %fOuId average annual subsidy of $1400, 45%
would be $2150 and 15% would be $2900.
Am noted, a million dollars in loan funds %fould produce 40.8 units,
which would be 16.3 units at $1400 per unit per year; 18.4 units at
$2150 per year; and 6.1 units at $2900/year. Thur a million dollars
in 3^ans would cost approximately $80,070 in subsidies (see Chart D) .
A hundred million dollars in loans would then produce 4080 units at
an estii mated annual subsidy cost of $8 million.
Thim is probably a conservative cost figure because 'it assumes
all of the houses would be newly constructed at an average of $24f500/unit.
To the extent that the individual houses cost less because the program
is directed to purchase of existing houses, then the total subsidy
costs %K>uld be correspondingly lower. It seens reasonable, therefore,
to estimate that each $100 million in loans would cost FmHA in the
neif^iborhood of $8 million in annual subsidies.
BUD ESTIMATES THAT SECTION 8 NEW CONSTRUCTION ASSISTANCE COSTS
ABOUT $3800/UNIT/YR SUBSIDY, SO THAT A COMPARABLE 4080 UNITS WOULD
RUN ABOUT $15.5 MILLION - ALMOST TWICE AS MUCH!
Coat Including 5\ibsidy Recapture
Taking into account the subsidy recapture, the comparison becomes
even more dramatically favorable to the proposed program. Though
estimating is very difficult, it is possible to make rough estimates
on how much of the estimated $8 million per year in subsidies would
be recaptured. Making certain' assumptions which will be described
below, at least 46% of the subsidy dollars should be recaptured.
THIS WOULD CUT THE COST TO $2.8 TO $4.3 MILLION PER YEAR FOR $100 MILLION
IN LOANS - ABOUT 1/4 OF THE COMPARABLE SECTION 8 NEW CONSTRUCTION COST!
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Chart D shows ths oalculations which Isad to ths oonoltasion that
at least 46% oould be recaptured. In order to make a conservative
estimate, it was assumed that none of the 4080 borrowers who received
the first $100 million in loans increased their i nc ome over a 15 year
period, an assumption which significantly drives up the total subsidy
costs. Because it is, in fact, vary unlikely that none of the 4080
inoooMS would increase in 15 years, all of the total subsidy estimates
are .inflated. It was also assumed that each house would appreciate
at a sinqple 8% per annum rate. This is consistent with Fmm's estimates
of the appreciation rate in FmHA 502 houses. Finally, percentage
recapture factors of 5, <, and 7 were applied to obtain a renge of.
•■time tee depending on the recapture percentage factor chosen.
B8sed on thble assumptions, the original $100 million in loans
would require $120.1 million in subsidies over a 15 yelu: period, of whioh
$55.2 to $77.r million would be recaptured. Thus, the total 15 year
subsidy cost i^buld range from $42.8 to $64.9 million, dn a yelurly
basis, this represents only $2.8 to $4.3 million or $686 to $1054
per uhlt.
The 15 year period was chosen on the basis of FfflBA's estimate
that the average interest credit borrower graduates in 7 years. Consi-
dering that the participants in the proposed program would be very much
lower income, the assumption is that they would hold on to the house
for a longer period, since their options would be more . limited . The
longer the period, obviously the greater the total subsidy cost.
However, the longer the period, the greater the percentage of the
subsidy which would be recaptured through use of the formula.
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Por exaapla, if all of the loans were turned over in 5 years
instead of 15, the total subsidy would only be $40 million of which • ^
$17.5 to $24.6 million or 43.8% to 61.3%, would be recaptured by ruBh*' '
In this case, the annual subsidy would be $3.1 to $4.5 million per year
or $760 to $1103 per unit.
Zt should be emphasized that subsidy recapture has actually been
underestimated because appreciation has been calculated on a simple
rather than compound basis. For example, a $24,500 house appreeiating
at a simple 8% per annum rate over 10 years would be worth $44,i00.'
At 8% compounded that same house would be worth $52,894»* Obviously>
compounding the rate of appreciation would necessarily result in much
higher recapture amounts and thus a lower total subsidy cost*
BASED ON ALL OP THESE CALCULATIONS, IT IS REASONABLE TO ASSONB
THAT THE PROPOSED BONBOWNERSHIP PROGRAM COST IfOOLD RANGE FROM$686
TO$U03 PER UNIT - ABOUT 1/3 TO 1/5 OF THE SECTION 8 NBN CONSTRDCTIOjH.
COSTS AMD ABOUT THE SAME AS THE PRESENT SECTION 502 INTEREST CREDIT COST.
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Table F i
FEDERAL GOVERNMENT COST OF SUBSIDIZED HOUSING PROGRAMS
(1976 figures; estinates provided by various sources)
Average Annual Cost Per Recipient Household
$1000 $2000 $3000 14000
Prograa
Traditional
Public Housing
Section 8
New Construction
Section 236 with
Rent^ Supple-
nent^
Section 2 35
FnHA Section
502 with Interest
Credit
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx I340S
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx $3770
13160
xxxxxxxxxxxxxxxx $1330
xxxxxxxxxx $970
ESTIMATED COST
PROPOSED
DEEP SUBSIDY .
HOMEOWNERSHIP^
xxxxxxxxx $895
^236 subsidy estimated at $1340; Rent Supplement Subsidy estimated at
$1820.
^Figure cited is an average. It is expected that subsidies will range
from $690 to $1180. Figure also accounts for recapture of subsidies
upbn sale of bouse.
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APPEALS PROCEDURB ( SECTION 7)
• ; '.iv • • •• • i
8«otlbo 7 of 8 1150 requires PaBA to adopt a due process
ai^peala procedure so that all persons and organisations applying
for and/or - reeeiving assistance under Title V of the Housing Act
have an opportunity to appeal the refusal or termination of that
assistanee.
The need for a due process appeals procedure to govern VmB^
housing prograaa has existed since their inception. Yet despite
nuaerous court decisions iq^lding those procedural rights for
heneficiaries of federal assistance r including those under FbHA
prograaa, and despite Congressional efforts requiring the sani,
PhBA has failed to adopt regulations which would assure a fair
process to review the denial or tendnation of assistanee to
eligible recipiente.
Reacting to the lack of PnHA's appeals procedures in 1972,
Congressauui Edwards of California was highly critical of the
unending authority of FnHA's county coradttees, irtiich then had
the right to approve all housing loans. He saw that the county
conmittee. "can be ap> arbitrary as it wants to be because nobody
stands over than to say that 'if you are arbitrary, if you are
unfair, we are going to overrule you, '... Congress did not
intend to set up fiefdoms all over the United States."
^, While the county conmittee no longer approves housing loans,
and while Congressman Edwards and his civil rights subconnittee
were able to goad PmHA into adopting regulations for its 502
single family homeownership and 504 repair program which allowed
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for soM revittWr thm nmmd for a dam procaaa appaala prooadura
continuaa to axlat.
Tha aaaanca of thia procadura ia tha right of an individual
to know tha apacifio raaaona why banafita wara daniad» raduoad,
or tarminatadi tha right to hava tha daciaion raviawad by an
iapartial official; tha right to praaant oral avidanca at an
evidantiary haaringi and tha right to hava a daciaion aada in a
tiaaly faahion by an impartial official baaad on tha raoord of
tha haaring. FbHA faila to anaura that any of thaaa alananta
ia providad to racipianta of ita aarvicaa.
PABA'a county auparviaor, with whom noat paraona a a ak i ng
FmHA aaaiatanca coma into contact r haa almoat unfattarad
diacration in procaaaing applic#tiona. Without any apacifio
guidalinaa or ragulationa* tha county auparviaor datarminaa on
a aubjactiva baaia whathar an applicant haa auffioiant inooa»#
atabla aaployaiint, and ia otharwiaa cradit-worthy to qualify for
a loan from tha aganoy. If ha makaa an advaraa daciaion on an
application, tha raaaona for tha daciaion ara uaually c i o a muni catad
to tha applicant in a ganaraliiad mannar which ia Iniuf Eiciant
to inform tha applicant of tha apacifio raaaona for tha advaraa
action. Wbraa yat, tha county auparviaor 'a datarmination oaaaot
ba raviawad againat a aat of objaotiva atandarda baoauaa auoh
atandarda do not axiat.
Tha Bxiatinq "Appaala Procaaa*
Bvan undar tha 502 and 504 programa, whara limitad appaala
proviaiona hava baan adoptad# tha applicant doaa not laam of tha
apacific raaaona for tha advaraa action until and unlaaa ha
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arranges' a naeting with the county supervisor, who then orally ■,
coBsnmicates the specific reasons for the adverse action. The-^^
applicant has no access to the only place where these specific
reasons are in writing - the so-called "running record" maintained
by the county supervisor.
Thus the applicant is shouldered with a double bur^tent . -first
(s)he has to re-review the adverse decision with the very saae '
official who nade the adverse deteminationi and second, .<s) he mey
not even be informed of this right to a higher appeal if the -
supervisor does not mention it in the meeting* and fat).s to follow
iqp with the required notice. HAC is constantly made aware of
these "oversights."
Should an applicant decide to appeal, (s)he will find a paper
process involving persons whose impartiality is questionable and
a review based upon information compiled without the benefit of
challenge by the adverse parties.
Specifically, the appeal is made to the PnHA state director
who normally asks the FmHA district director to reint^rview the
applicant to determine if the rejection/termination was on proper
grounds. The district director happens to be the immediate
superior of the county supervisor with whom an ongoing profes-
sional relationship exists. The closeness of the relationship
of the county and district personnel hardly makes the district
director an impartial official. More importantly, however, to
the extent that the various county offices within a diktriot may
have poor loan making records, this review is a reflection on the
district director and hardly encourages the district director to
make a decision contrary to that of the coiinty supervisor.
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Tha applicant for WmBK aarvlcaa is n«v«r provided an opportu-
nity to praaant, ravimr or challanga avidanca which ia in tha
handa of a FmBK official. Thua tha applicant can only rafuta
infomation which haa baan provided orally without banaf it of
written conf irnmtion and without an oppottiuilty to review the
county auperviaor'a filea. Moreover^ if an iqpplicant aeeka aaaiat-
anoe f ron an outaide repr«B«ntativar that peraon ia hanpered by
inadequate aooeaa to information and an inability to objectively
evaluate the caae. Considering the fact that FbHA houaing pro-
graaa are directed to the rural poor, many of whom lack formal
education, aome of whom only apeak Bngliah aa a aecond language,
and that many if not all the county supervisora are college
trained, the very starting point for review of a deciaion ia
weighted againat the applicant.
Once the diatrict director completea the review, it ia for-
warded to the atate director for a deciaion, and if that ia
adverae, the applicant may appe^al to the Admin iatrator of WwBA
in writing. Both the atate director' a and Administrator 'a
deciaiona are made on the record developed by the county auper-
viaor and any information that the applicant providea indepen-
dently without review of the district or atate directora' re-
ports or deciaiona.
Becauae there are not time limita in which FmBA muat act to
reivew appeala of applicanta, the agency haa been known to drag
out ita review proceas from 6 to 9 montha. While thia period
puta no adverae burden on FmBA, it often haa extremely aerious
effects on applicanta. They must endure continued residence in
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subfltandaxd housing, and/or must continue to pay for sholtor at
•aoossiv* ratoa, straining thair budgets and adversely effecting
their entire liires. in addition, such a prolonged appeals period
usually is sufficient to bring about new circunstanoes idiioh pre-
clude the family from qualifying for assistance even if the
origiaal FmHA action was unjustifiedl victory is pyrrhic.
Reasons for Expanded Appeals Process
Why, it nay be asked, does FmHA need such an extensive
appeals process as is prescribed in S 11507 There are a number
of oompelling answers.
First, the right to due process appeals procedure has been
judicially recognised for most federal programs since before 1970
and should be extended to the FmSA programs without having to
have the judiciary impose them. Second, common fairness dictates
that PnHA be required to have a substantive process by which to
evaluate its application and review process. FmHA receives nearly
300,000 applications for housing assistance alone each year.
Over 60% of those applications are either rejected or withdrawn
for a variety of reasons. Considering the amount of discretion
that inherently exists in the programs, it is very likely that
some abuses are taking place which a more adequate review process
would illuminate. Moreover, a review of the patterns
of funding in various states, particularly the incomes of persons
served and the number of applications that are rejected in that
state, suggests that conscious differentiations and distinctions
are being made in programs that should have relatively uniform
national standards. A mandated appeals process is likely to
bring that type of abuse to the forefront.
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Tliirdy tbm appMils proo«sfl irtiioh haa baan dascribad abova
•siflts only for applloants for MBA 502 and 504 loana. MBA haa
not adoptad an^f appaala prooaaa to protaot tha iAtaraata of
Tarlona individnala and otganii&tionfl nndar tha 515 rantal» tha
514-516 fara labor, tha 523 aalf halp houaing and tha alta loan
prograaa* Haithar haa it adoptad any dna prooaaa appaala pro-
oadura to protaot paraona who ara alraady raoaivlng MBA banaf ita
anoh aa intaraat oradit. Aa ton 1 shingly, MBA oontinuaa to oaa
nonjttdloial foraoloaura without avan rudla a nta r y dua prooaaa
protaotiona aa ita aoat ooanon aaana of tronifairrin^ proparty
whan a borrowar faila to aaintain hia/har loan obllgatlona*
MBA doaa not avan raviair nhathar a hardahip aiciata for tha
faaily for whioh it ahonld hava baan of farad a ■oratorliai on
payaanta raliaf •
Moraovarr in MBA rantal prograaa, tananta hava no protaotiona
again«t tha ownara of MBA houaing avan though tha tananta aara.
intandad aa tha priaa b«ii«£icj.Ai-iaa of MBA' a houaing prograaa.
Tha aganoy haa no prooadura to raviair tha tanant aalaotion prooaaa #
whioh of tan ia discrimlnatDcy, no protaction againat avictiona,
rant inoraaaaa» or othar arbitr;«ry practioaa audh aa unoonaoion-
abla laaaa olauaaa*
Ironically whila MHA haa failad to provida any aubatantial
dua prooaaa protaotiona to thoaa paraona that it ia priaarily
intandad to aarva— low and aodarata inooaw rural raaidanta in
naad of aafa daoant and aanitary houaing— it haa adoptad vary
astanaiva dua prooaaa prooaduraa to protaot oontraotora who
oonatruot houaing undar MBA prograaa and whom MBA propoaaa to
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•xclute f rqp future participation in tha progri^ii k>aaad on thair
past parfomanca.
Tha naad for tha protaotiona anunaratad fn 8 1150 is turthar
aupportad.liy FaHA'a paat inability to racogniia what conatitutaa
a dva prooaaa appaals procadure. In 1974, mm part of tha Houaing
and Coanninity Davalopnant Act of that yaar, Congraaa iia n datad
*'y*mt WmBh iMoarolaa and ragulationa for tha ordarly procaaaing
and raviair of applications undar tha salf halp housing program
Section 52 3 r "including rulas and ragulationa protacting tha
rights of grantaas in tha avant tha Sacratary datarainas to and
grant asaiatanca prior to ^ha tarminatiojii of any grant »gra — n t,"
TmBA'a raaponaa to . thia . statutory nandata was to proposa rulaa ^ r
which allowad tha grantaa to writa tha Adainiatrator^and raquaat..
A raviair of any advarsa daciaion to tarminata a aalf halp
taehnical asaiatanca grant. Nhila it ia known that FbHA is
praaantly conBlderlzig tha ravision p^ thia pr^osad rula and
is likaly to axpand tha appaals rights of grantaas r it is un-
likaly that MBA will propoaa ragulationa irtUch aaaura aalf
halp grantaaa adaquata dua procasa appaala procedura. Thaaa
basic Constitutional protactions ahould not ba laft to. phanging
Adntinistratorm. All avidanoa indicates that Congrass muat
accapt raaponsibility for thair provision*
raHA*s failura to adopt, rulaa and ragulationa which, protact
tha rights of thosa individuals and organizations it ia diractad .
to sarvar avan aftar Congraaa and tha Judiciary hava apacif-
ically criticisad the agancy'a practicas, makaa Saction 7 of
8 1150 a ^mry important part of mural houaing lagislation. ito
urga that thii saction ba paaaad, to help aaaura that FiflA fairly
aarvas thosa paraons that Congrass intended it to aarve.
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NMFBR AND SBNBR GRMTTS (SICTXOII 20)
OiM out of ovory four rural porsona^ drinks oont— inatad
watarl ito nould aoo«pt this •tatiatio as "nonMl" for an undar-
davalopad oountry, but how can it ba trua of tha Onitad Stataa?
With both taehnology and govamaantal apparatua in plaoa, it
doaa not appaar that our rural watar and vaata traataant problaaa
ara insuraountablar but why haa ao littla prograaa oc curr a d ?
Tha Faraara Boa» JUlninlatraUon haa tha atruotura and aooaaa
to bachno logical knoir-how to iaprova watar quality and p ra vnt
waatawatar pollution, but it haa naithar tha funda nor tha
f laxibiUty in ita watar and aawar grant prograa to do ao. In
FY 76 and tha Tranaition Quartar, fwBK aarvad approxiMtaly 1675
00— unitiaa undar ita watar and aawar loan and grant prograaa,
againat ita own aatiaata that 30,000 uu aa uni tiaa n aa d ad ita
aaaiatanoa for raaaona of haalth and for tha araa'a aconoaio
lifa* That nuabar, paranthaticflly, did not includa tho
thouaanda of croaaroada ooaannitiaa which n aa d ad iaprovad non>
oantral ayataaa.
Tha diaparity batwaan raBA*a aaaiatanoa and rural naad a i«
alaraing itaalf and attaata to th# nation' a chilling ignorattda
of rural oonditiona. Woraa yat, juat raiaing tha laval of j
authorisationa to ooa billion dollara ovar a thraa-yaiar pariod,
aa propoaad in S 1150, ia unfortunataly inauffieianty Ooogkifaa
'- Thia data inoludaa paopla in raBA'a aarvioa araa for ita
Ooaannity Faoilitiaa Prograa, i.a., ooaannitiaa of 10,000
population and undar.
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mamt also allow VwBA to •stand its watar and aawar grants up to
75% of aligibla projact eoata to raduoa ummr ehargaa to raaaonabla
lavala.
A fair asaaplaa why thaaa lagialativa ohaagas ara naa d ad
ahoold ha halpfal. First, rmBk is trappad by ovrraat lagislation.
On tha cna haad# for. raasons of aqnity, tha aganey has datarainad
to Jamm its grant pr og ra m to sarva tha *finanoially naadiast
m— mIMss," tat tha 50% grant liidtation pravants it froa
doing so. In faot, 5i.5% of all of nBA's natar and aawar grant-
assistsd projaets in wn^ - that is, all tha paopla in 935 SHall
toMns - had to pay tmraasooably high xmmr ohargas by PABA'a oim
standards baoanaa of tha 50% grant liaitation. And tha lowaat
inooBW ooiviinitlat vara hit h a r da at of all, aspaoially undar
'a sawar program* :^ft FY 76, PABA did not fund any sawar
in towns with awdisn inooaas balow $3000 and awardad
only 4% of ita total watar and sawar grant dollars to towns balow
$4000 aadian inooaw. Vhta'was not baoanaa low i noowa towns did
not hava oontaainatad watar suppliaa - on tha oontrary, both
oansas statistics and IPA studiaa show that tha SHSllar tha
cioBwunity, tha aora likaly it is to ba low inoosw and to hava
substantial watar pollution pcoblaaa, PSBA did not aarva thosa
SBsU oosHsnitias baoauaa thay wara too poory thay oould not
afford tha dabt burdan. whioh rnBA would hava had to iapoaa
baoaaaa of its inability to pcovida tha naoaasary grants to
astablish raaaonabla usar ohargas.
Saooad, frosi tha point of viaw of national policy, mBA's
50% grant liaitation.iji.diaoriBinatory. BPA, which pl ao aa tha
bulk of its nonay in larga urban araas to iaprova tha quality
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of wmmtmitmx trmmtmukt, mtmx6m ma atttc— tio 79% grant, xmui,
tlM wttAlthy «Qlnu^ as w«U as tha aeoaoadoally atr^ppad iaaar
city both gat a 75% graiit to claaa up urban vaatawatar pollation,
but tha rural ooamnity ooadng to fwBK for halp oan only gat «
50% grant in tha baat of tiaaa, or ahall Z aay, in tha baat of
Mniniatrationa. It ia trua that pravioua Mainiatrationa
thirartad Oongraaaional intant by raatrioting rank* a 50% grant
program through iapoundaanta^ raaoiaaiona* and unapokan ralaa of
thunb. Thoaa tiaaa hava ohangad# or at laaat ara ahanging* vith
tha naw Jhdminiatratioa'a gvidaliaaa aboliahiag tha old oirewar
vantiona. Tha point to atraaa hara ia that avan vhan PnUk fully
inplaannta ita grant progran# tha rural paopla it aarvaa eanaet
gat tha nana typa of financial raliaf availabla to thair urban
obiintarparta.
Zn aunMary# lat aa ratum to tha quaationa of faimaaa and
tha naad for adaquata lavala of funding. S 1150 providaa that
TmMK grahta will ba apportionad.aecording to ooaannity naad« with
approxisataly ona-third of aligibla applioanta raoaiving 2S«r
50% » and 75% granta« raapactivaly. Vhia anauraa that
r'ri—iHittiaa will not hava to pay a diaproportionataly highar
paroantaga of thair aaminga for aaf a natar and aanitary waata-
watar diapoaal than waalthiar aomunitiaa ara aakad to do.
thia *f laxibla grant proviaion addraaaaa tha quaation of aqnity
Tha inoraaaa in authoriiatlon lavala raoogniaaa tHO faota
of lifa in rural araaat ganarally highar par capita ooata
baoauaa of low population danaitiaa, and incraaaing watar
pollution problana. Tha firat, "fact" ia partioularly avidant
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in mmt%tiom toe flpattMnid^ cural. populAtl^ns vt»q«», vf« of ■hallow
}ml2Mf in i^articftlacv^prQdttoos higher ra^^ o^f ,6r,ixikinq vator
oontaHitistijon than found in areas with oen,tra3v WjHter purif ica- .
tion. Bo o a oae - of the -acowerdenaitie^ in these ^^aaa, per capita
ootfta mre higher for the dtayelopnent.and diatrihutipn of safe ..
water and the treatment of wastes, often even when non-oentral ^ ^
alternatives such as cluster wells and ooHson soil abporption ,
^ The -s^oood condition now being recognised is that in aany^
rural growth centers, as well as in. older .saa,ll towns,, the nuadber
of inadegoate water and sewer facilities is increasing * fi^ce
existing sources, of niater and systeais. f or the treatment ^pf both
water and wastes are either vnon^ out or canno|b handle srrawthr
agriculture and aining run-off s, and other sources of pollution.
f.n Delayiin improving thaae 'ba«io. rural con4^tions.^will of
course aehn that the nation will pay .dearly lat«:. - not inerely
in dollars, but in the lives of millions of rwral people and ,
the ebonqsdc vitality of the plapes they liv;f^» ,
B4^il O'TS-ie
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lanUOi H00SIM6 RESSARCH (SBCTZOM 4)
Dttspittt its role ctf t!i« major sourctt of rural or«dit» FMBIk
has had to dapand, almoat axcluaivalyr on othar USDA aganoiod
(MS, C8B8, JSBS, P8) to oonduct raaaaroh. Thasa aganciaa hava
ganarally grantad acant attantion to rural bousing problasMi.
Conqpounding this soattaradr odninal, and uncoordlnatad approaoh
is Iha awarding of ras%arch contracts to land grant oollagas«
whidh just lika U8DA, hava ganarally baan ill-equippfld to daal
with housing issues. ?urth«rtriore, tha faw rural housing
danonatrations which hava baan or ara baing conduotad ara
jointly fundad with othar organisationsr sinca TwBk has no
dsMonatration aonay or capability of its own.
As a rasult of this lack of rasaaroh and avaluation oapaeitj*
and tha fact that FbHA is not in charga of what nininal work is
produoadr tha data available to tha agency ara extresMly liaited.
In order to adequately evaluate ,its prograas MBA anst hava
available to it research that seeks to analyse its prbgrasM axid
to measure the impact of those programa in light of the needs
and conditions in FmBA service areas. In shor^ it must have its
own research, deoanstr at ion and program evaluation capacity or
at least to give specific direction to rural housing resear^
conducted by other agencies or by contract. For eicsmple« FMBA
must be able to identify the racial and econoadc oomposition as
well as the housing conditions of the cossninities served by iti
housing and ccBsmnity facilities programa in order to be able
to assess the impact of the programa in these cosmunities.
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Tlitt praaant lack of rasaarch and avaluatlon capacity maana that
daciaiona affecting the livea of thouaanda of rural citisana
are often made without adequate information, undermining PmHA'a
own credibility and ita ability to plan ayatematically and to
examine carefully rural houaing and connunity development problema.
The purpoae of thia amendment waa to reverae thia long-term
neglect .by requiring an in-houae reaearch, demonatration, and
evaluation capacity within FmHA. Thia much waa adopted in the
Houaing and Conmunity Development Act of 1977. The remainder
of the previa ion would direct PmHA houadlng reaearch toward the
houaing needa of the elderly, handicapped, farmworkera, and
Indiana! the impact of rural growth pattemai and the proviaion
of eoonoedcally and environmentally aound rural community
facilitiea (water and waate diapoaal, moat notably) .
Second, the amendment would increaae the authoriiation for
FmHA rural houaing reaearch from $1 million to $10 million
annually - a very modeat amount compared to HUD 'a $50 to $60
million reaearch budget, very little of which goea into rural
houaing iaauea. . .
Finally, the amendment would require the Secretary to examine
the unique houaing problema of migrant farm laborera, whoae
difficultiea in aacuring decent ahelter have received acant
attention at federal, atate, and local levela of government.
The atudy wo^ld be intended to aee if exiatdlng programa can be
made flexible enough to handle abort- term occupanciea or if new
approachea are neceaaary.
Without theae additiona to the FmHA reaearch capacity, the
nation 'a major rural houaing and coomunity development agency
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will not have thm basic planning and avaluation tools it nooda to
guida fadaral rural housing policy.
CONPBNSATIOM FOR COMSTROCTION DBFBCT8 (81CTZ0II 5)
Tha problaa of dafaotiva atructuraa in axiating and nawly
oonatructad FaBA unita ia aignificant, though ita full nagnituda
cannot ba ascartainad bacauaa FaBA doaa not kaap raoords o£
conplainta about conatruotion dafacta. Monathalaaa , purq|iasars
of unita with dafacta ahould ba protected •
Congress agreed with thia poaition and adopted a provision in
the Housing and Community Developnant Act of 1977 to permit
cofflpenaation for defects in the caae of newly oonatructad houses*
The proviaion adopted waa leaa oomprehenaive than 8 1150 bacauaa
it limited the def ecta to thoae which are atructural in nature and
alao precluded any judicial review of the Secretary 'a decisions*
Both of these limitations operate to the detriment of the hosM-
buyer. However, we are pleased that tha program will be initiatad«
finally » for it la long over due.
Still remaining to be enacted la subsection (d) which would pro-
vide relief to buyers of PmHA-financed existing houses. Subsection
(d) for existing housing has certain siniliaritiea to the HUD/FHA
aaction 518(b) program, but with aeveral significant differences*
Subsection (d) of S 1150 would authorise the Secretary to pro-
vide compenaation to borrowers who purchaaed axiating unite and
requested assistance within 1 1/2 years after the loan for purchase
waa made. This ia a half year longer than the comparable provision
for HOD/FHA borrowers.
Section 518(b) limits recovery on HOD/PHA existing houses to
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caM99 ythmtethm drntmot "so saripusly aff«ots the usW and llveabillty
as to oraate a sarloua danger to the life and safety of inhabitants."
The language has been onitted from the proposed existing housing
provision (Section 509 (d) ) , as it is inappropriate i^ien applied to
n«A. unlike HUD/FHJ^'s legislation, n«A*s legislation has always
required that, in addition to providing FaBA purchasers with decent,
safer And sanitary housing by construction financing, FaBA was to
provide Its borrowers with "technical services such as building
plans, specif lea tlona, construction supervision and inspection" ,
(Section 506 of the Housing Act of 1949) . Thus the law assusied that
the PABA purchaser would not have the abilit]|^ to assure that (s)he
could obtain decent, safer and sanitary housing, independently r for
WmBU was given authority to provide that assistance. (See also
TmBA regulations at 7 CFR 1802.2)
It iSr therefore, totally inconsistent to require FnHA to assist
its borrowers in obtaining decent, safe, and sanitary housing, but
then to liait the family's ability to insist on housing to meet
those standards, by only allowing recovery when the defect creates
a serious danger to life or safety* In addition, the standard is^
arbitrary, and is likely to be applied very inconsistently by the
sore than 1,750 offices of FnHA (unlike FHAr which probably has .
not nore than 100 persons administering Section 51S.- nationwide) •
In many ways, the need for protection against defective exist-
ing housing is more critical than for new construction, in thai
many conditions are cnly apparent to the -eye of the expert. ■ In ^
addition, it is more likely for lower income r families to purchase
existing housing as the cost of hew construction continues to sky'!-
rocket. These families are victimized more than others* Passage
of the remainder of Sectibn 5 would offer needed protection.
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WJMKL RSMTAL ASSISTANCE (SBCTZOM 15)
Several parts of Saction 15 wara incorporatad ia tlia HoaaiJig
and Co— unity Davalopaant Act of 1977, noat notably tha ra^oira-
•ant that tha Rural Kantal Aaalatanca Prograa ba inplaaantad.
Tha praviooa Adainiatration loat Ita fight in court to Igaora
tha program and tha Car tar Admlniatratioii haa jaat piibliahad
ragulationa for tha program' a Implaniantation, wa ahoiild nota
that Congraaa alao paaaad an amandmant authorising tha ^»mm of
Rural Rantal Aaaiatanoa Program for houaing for haadieappad
paraona*
Daapita thaaa gaina, savaral important proviaions ramaln to
ba conaidarad. Tha firat ia Saction 15(c), which ia poraly
tachnibal in natura. It would clarify tha intant of Congraaa
that tha paraona aidad by tha Rsntal Assistanca Program would
pay no mora than 25% of adjuatad incoma j conforming to tha way
tha 515 program ia preaantly oparatad for all othar familiaa*
Saction 15(d) would incraasa tha parcantaga of family units
which could ba aidad by tha Rantal Asaistanoa Program from tha
praaant 20% to 30%. Bacausa in many placaa tha nuabar of poor
familiaa in a community graatly axcaada 20% of tha population,
raBA ahould hava mora f laxibility to aarva tha markat which
axiata. Low-incoaa familiaa, moraovar, ara thosa who oftafi
naad FmBA'a housing resourcaa moat daaparataly.
Saction 15(a) ia alao a technical amandmant which would
parmit tha Rantal Asaiatanca Program to ba uaad in all tha uaita
financad aolaly with FmHA Saction 514 farm labor houaing loaaa*
Praaantly thaaa projacta ara limitad to asaiatanca for only 20%
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of thm units. Thm Saction 514 loan program already producaa
units too ooetly for most faraworkerSf a condition that this
ammadmnt would reaady. Not only do wa baliava that this is
olaarly what Oongrass intandad in PL 93-383, the Housing and
Coamnity Davalopoiant of 1974, but as this Subcoaaiittea knows,
faraworkars are anong tha Boat ill-hoiUMd Anaricans. This
aaMndaant would parmit a vary small loan program which is now
sarving tham inadaquataly, to do a batter job.
Section 15(f) would instruct the FmHA to use more than the 30%
rental assistance in a project if market conditions indicate a
substantial need for family housing. While the Rural Rental
Assistance Program has yet to begin, the changes in S 1150 would
aid it to perform its mandated tasks more effectively and also
make clear the Congressional intent that the program be started
iiMediately.
NDTOAL AND SELF-HELP HOUSING (SECTION 16)
^e FmHA presently administers the Section 523 Mutual and
Self-Help Housing Program designed to bring honeownership to
families ifho help build their own homes. Securing land, a rather
crucial element, has always been a problon for self-help families,
who can only use Section 523 funds to option land, not buy it.
This amendment would authorize the Secretary to make a loan
to Section 523 grantees to acquire land as well as option it.
There are several reasons for the proposed change. First, many
sellers simply insist on outright purchase. Second, for reasons
of efficiency, the expeditious use of technical assistance grant
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fund* to •elf-help eponeore Is dependent upon a ready supply of
available land for families to construct dwellings under the self-
help method. When the process is sloired because land cannot be
purchased, the grant cost per unit rises, a cost iihich the families
and the government can avoid by this amendment.
8ITB LOAN CHAN6B8 (SBCTION 17) .
Acquiring and developing sites for housing construction at
reasonable costs has become a major problem in rural areas and Is
now a major problem in most areas of the country. Rising land
costs, environmental restrictions, health regulations and
increased construction costs all contribute to the problem.
Section 524 was enacted by Congress as a means for nonprofit
developers to provide such sites. Loans are provided at market
rate for a two year period to purchase and develop sites for
subsidised housing. Unfortunately, this program has yet to
be used to its potential. This is due to the way the program
has been administered in the past. Besides administrative
problems, there is still a serious problem in keeping the costs
of acquisition and development as' low as possible. The proposed
amendment is meant to provide a small cost savings to the
eventual homebuyer by reducing the interest rate of the non-
profit developer from 9 percent to 3 percent. The developer
would then be required to pass that savings on to the loir-incone
homebuyer.
The amendment in section (b) is to provide access to capital
for limited profit developers in rural areas in order to allow them
to acquire desperately needed improved building sites. This would
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b« dona by extending the guarantee authority to tho alte davalop-
■ant program. It la liopad that private Xandara would ba anoouragad
to provide capital for thla purpoae becauaa of the Incentive of
guaranteea. The anandaent apeclflea that aarvlclng for auoh
loana would be aade froai the atate FnHA office to be aure that
the aaln attention of the county of flcea oontlnuea to be focuaed
on the direct loan prograaa, which aarve the lower In o oaw faalllea.
At leaat 50% of the altaa would be aet aalde for low
TITLI ZmURAIiCB FOR REMOTE CLAIMS OR BMCUNBRANCE8 (8ECTI0H18)
Thla aaandaant would authorise the Secretary to make loana on
land where private Inauranca conpanlea will not provide title
Inauranoe aolely becauaa of raaote outstanding clalsHi or encusi-
branoea on title.
The revlalon has particular algnlflcance In the following
situations s (1) aouthwestem United States where ranote land
clalaar Including some title clouds Involving Spanlah land granta.
Interfere with title clearance and prevent participation In the
rmBA housing programai (2) so^tliQastem U.S., where remote heir-
title problema are coamon among land owned by lower Income
famlllea. Including lands passed from generation to generation
without benefit of title recordation and where family saveranoea
have occurred without benefit of formal structure, and the where-
abouts of "legal" helra has become unJcnowni (3) Alaaka, where for
certain landa Included In the Alaaka-Matlve Land Clalma Settlement
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Jkot, it aay ba yaxm hetov thm govwnuMat will haw ooaplctsd
all staps naoaasary to inaure tha uaa of privata titla iaaturaaoa,
aa raqnirad by TmBKt (4) in Naina, vhara litigation by AaarioaB
Indiana haa oloudad titla to a larga aaonnt of land, aoaM of
vhioh ia noxaally involvad in tha PnHA bouaing prograai and
(5) othar araaa, inoluding Appalaohia, vhara oartain raaota and
quaationabla minaral righta raaarvationa inhibit olaar titla and
Mortgaging.
Ondar tha aaandaant, applicanta and borrowara utiliiing aiioh
landa would not ba raquirad to pay for privata titla inanranoa
polioiaa. Tha oonaunar would pay no titla inifuranoa faai (a)ba
would ba liabla only for noraal lagal faaa raquirad to aaoartain
*a poaition of land titla, whioh inoluda but ara not liaitad to
a titla aaaroh.
Mo foraal uaa of tha SHIP would ba aada axo^t in tha eaaa of
an advaraa titla finding through tha oourta. It ia antioipatad
that auoh findinga would ba llMitad. Thara ia praoadant in tha
oparation of tha PaHA Saotion 504 program, whara landa with auoh
raaota titla problaaa ara routinaly utiliiad aa par 7 CTB 1822
Subpart B 1822.28.
Thia aaandaant is a oaloulatad riak for tha fadaral govara-
•ant to taka in an af fort to aaat tha houaing naada of low-inoona
rural paopla. Wa do not baliava that if anaotad it would ba
uaad oaprioioualy, but would ba judicioualy appliad to a vary
apaoifio ooncam. Riaka would ba limitad by adopting p rooadnraa
guarantaaing tha ranotanaaa of olaina againat any titla.
A foraar ohiaf of Rural Bouaing for PaHA in Maw Ma»ioo pro-
Yidad an affiraativa raaponaa to thia propoaal, noting it oould
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bring about an incraaaad uca of the Saction 502 program in that
•tata* Tha Indapandant Bankara Aaaociation haa alao andoraad
the Idaa in tha paat.
jidoption of thi* provialon would opan up tha houaing poaai-
bllitlaa for aany rural paopla ifho ourrantly cum thair cum laud
but ara unable to aecure financing because of title problena.
ASSISTAMT SECBBTARY FOR EQUAL OPPOKTUNITY (SECTION 19)
The U»8.L Department of Agriculture, generally, and the Farmara
Home Adminiatration, apecif ioally, are responsible for adminiatar-
ing meny programs of direct aervice to low-income people in
rural araaa... The record of both USOA and FmHA in aervice to
minorities and minority hiring practices leaves ouch to be
desired, to say the leaat.
Tha USDA record on minority hiring is one of the worat among
federal agencies. While minoritiea constitute approximately
^0% of the total federal work fore 3, minoritiea make up only
10.8 percent of the USOA* a permanent staff and FmHA has only 7.5%
minority staff. These statistics present a bleak picture which
will only change through affirmative action by the Department.
The Farmers Borne Administration's record on .9ivil rights is
inexcusable. .Minorities are receiving a disproportionately
smaller share (12.9% of all loans) of the benefits provided by
the FmHA 'a housing programs when evaluated in terms of the
proportion of minority families (39.1%) living in substandard
housing and,^al80, when measured by the number who are income
mligible (31;.0%). Furthermore, minorities bore the full weight
of the decline in the number of FmHA loans between 1971 and 1976.
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The equal opportunity regulation* of PbHA lack ef faotlva prooadorea
for uncovarlng dlaorlalnatory praotloaa and polloias, oorreoting
auch praotloaa and pollclea If found, providing raaMdlaa fbr
tha vlotlaw of blaa, and Inaurlng that tho FnBA prograas ara
admlnlatarad In a manner to affirmatively proeota the national
houalng pollclea.
Leaderahlp In the ef forta to realise the goala of equal oppor-
tunity within US0A programa nuat come from the hlgheat poaalble
admin iatrative levela. The aitabXlMhrnant of an Aaalatant
Secretary for Equal Opportunity with the full authority from the
Secretary to review, evaluate and enforce equal opportunity and
civil rlghta provlalona within every program and aapeot of the
work of XJSDh would provide auch leadership.
In support of the need for an Assistant Secretary for Iqual
Opportunity, HAC la aubmlttlng two documanta which are compelllBg
teatlmony on the need for Immediate changea In the USOIi. They
'can be found In Appendlcoa F and G.
ENBRGY CONSBRVATION (SBCTIOH 21)
In recent years, few matters have affected low-lnoone people
and their shelter problems as have the problems aurreundlng
energy. The source costs of all fuel have focuaaed attention on
energy conservation. It la clear that there la not yet a national
energy policy. Nhlle we wait, confualon seems to reign. Section
21 attampta to provide direction to the FmBA on energy conservation
laauea affecting houalng for low- Income people. All houalng
financed by the FmBA would be required to Incorporate energy
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conservation techniques in future construction. At the same timer
the FmHA ifould be cautioned that low- income - people should not be
excluded from purchase of such housing due to increased costs of
construction. The FmHA %fou^ have to find ways to balance the
additional construction costs with the cost savings which would
be generated over time.
At a time tirhen many of the traditional sources for heating
such as electricity, oil and natural gas have become uneconomic
for sost families, it is urgent that we not exclude potential
alternate sources of energy. Many communities possess such
resourses which include coal, wood and winds. This section
would permit the inclusion of systems using these materials or
combinations of such systems in housing financed by the FmHA.
At the present time the minimum . property standards do not allow
most of these alternatives to be used.
\
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APPENDIX E
Development of HAC Formula
The proposed recapture of subsidy plan is based on a sharing,
between FmHA and the borrower, of the net gain which is the
incremental increase in the value of the property as a result of
appreciation and loan principal amortization. Therefore, it was
first necessary to devise a formula to relate the percentage of
net gain to be recaptured to the relationship of the FmHA subsidy
and the base value of the property.
Secondly, in order to allow for the subsidizing of homeowner-
ship to very low income people it was necessary to assume the
federal subsidy would not be recaptured in full. Current estimates
indicate that the value of property would increase an average
of 6 - 91 annually and that full payment of principal and interest,
real estate taxes, insurance and replacement reserves would re-
quire subsidies up to. 14. 81 of value per annum. (See Chart A.)
Assuming a 9t incremental increase in property value and a 14.8%
rate of subsidy, the federal recapture potential would only be
approximately 611 (91 -^ 14.81) of actual subsidy cost. Assuming
that FmHA would recapture less than 1001 of the net gain so
that the family could acquire some equity, it would receive even
less than 611.
A reasonable standard for determining th6' level of FmHA
subsidy under the proposed program would be the level of subsidy
under the present interest credit program. Therefore, the
formula was developed so that, given certain circumstances, a
factoTi could be developed which would guarantee that the program
\
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258
would cost no more than the present program under the same
circumstances. A higher factor would then mean even lower costs
to FmHA and, conversely, a lower factor would mean. higher costs
to FmHA, with correspondingly greater equity for the family.
Currently, FmHA is subsidizing mortgages at a macimum rate of
5.0641 per annum. (See Chart A: .08628 minus .03564.)
A recent FmHA report indicates that the value of property
financed with a 502 loan was increasing at a rate of 6 to 81 per annum.
Therefore, a conservative estimate for the proposed program would
be 61. A 61 compounded rate plus the accrued principal amortisa-
tion would yield an average annual incremental increase in equity
value of 8.91 during the first 10 years, 10.51 average for the
first 15 years. Assuming the low income family would sell or
otherwise graduate from the subsidy program between the 10th and
15th year*, an average increment of 9.71 (halfway between 8.91
and 10.51) could be reasonably assumed.
If FmHA were to recapture 1001 of this incremental increase,
without increasing its rate of subsidy under the present intex'est
credit program, it could subsidize up to a rate of 14.7641
(9.71 * 5.0641) in the highest co^t area. In other words, at
this rate of subsidy, following recapture FmHA*s subsidy outlay
would be no higher than it is currently.
Thirdly, the formula had to equalize benefits between
borrowers in high and low cost property tax and insurance areas.
"The average interest credit borrower graduates in 7 years.
These lower income borrowers would probably need a longer period.
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259
-3-
In order to do so, it was necessary to devise ft constant which
related the percentage of net gain recaptured to the fixed costs
of principal and interest and replacement reserve. That is, the
percentage factor constant allows for recapture of the saae
percentage of subsidy, when the mortgage is the same but the
other related costs are different.
The formula, as demonstrated in the body of the testimony,
is as follows c .
Recapture Percentage ^ Total Subsidy Costs ^ Net
Subsidy Recapture • Factor * Mortgage X f of yrs. * Gain
For the program to continue at the current cost level, it was
necessary to develop a constant which would generate a recapture
amount equivalent to the maximum subsidy minus the current subsidy
or 14.7281 - 5.0641 • 9.6641. Assuming an annual incremental
increase of 9.71, the constant would equal:
Recapture or « 09664 . 6.765
l^^/x Net.G.~ -tp^ X .097
Therefore, at a rate of 61 appreciation, a recapture per-
cehtage factor of 6.765 would guarantee that the level of cost
after subsidy recapture would always approximately equal the
current costs under the interest credit program for the same
circumstances. A factor higher than 6.765 would increase the
FmHA recapture and, conversely, a lower factor would decrease
FmHA recapture while increasing the borrower's equity.
An example with a $2,000 AFX family in the highest cost
area, with a $24,500 mortgage sold in one year will show how
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2QU
-4-
the 6.765 factor guArantees no increase in subsidy costs over
the current costs. The calculations are as follows:
1. $24,500 X 14.7281 - |3»60a maxiaua subsidy*
2. $24»500 X 9.71 • |2»377 net gain
3. $24,500 X 5.0641 - |1»240 maximua subsidy under interest
99.621 "•^i^
4. i- ' — T
6.765 X 360$ X 2377 -$2368 subsidy recapture
24,509 X 1
5. $3,608 — $2,368 - $1,240
(aaxiaua subsidy) (subsidy recapture) (aaxiaua subsidy
under interest
credit)
This does not reflect any suppleaental payments for utilities
and aaintenance.
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261
Appendix F
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262
Implementing Federal Nondiscrimination Policies In the Department
of Agriculture. 1964-1976
By umiam C. Payne» Jr. *
The primary concern of this volume Is agricultural po11cyr-the process
by which It Is made and Its effect upon. people. ^ paper looks at this
question from the perspective of Federal civil rights policies and their
Implementation In the Department of Agriculture In the period 1964-1976.
My examination of this subject must begin with the fact of overt
discrimination against minority groups living In rural areas fhNR the
colonial period to the recent past. From expansionist wars against Nat1v»
Americans to the enslavement of Blacks, from the annulment of Spanish land
grants In the Southwest to the Internment of Japanese Americans In World
Uar n» the history of minority relations In this country Included ties to
the land and therefore to agricultural policy.
One of the singular phenomenons of the social history of the Uhlted
States has been the tide of Black migration away from the rural South. In
1920» there were over 900.000 nonwhite farm operators In the region. By
1969* that figure had dropped to Just over 85*000. Preliminary Indications
from the 1974 Census of Agriculture suggest that this figure Is now
below SO.OOO. In 1910, Blacks owned IS million acres of land In the Uhlted
States. By 1969* that figure had dropped to less than 6 million acres.
*Prepa r«4 f o r pre senta 1 1 on at the Agricultural Policy Symposium of the
Pi)licy Studies Organint Ion,. Washington, D.C. , July 26, t977 Hr. Payne
U Deputy Chfef« Progrim Planning and Evaluation Division Office of
Equal Opportunity, U.S. Department of Agriculture. The opinions
expressed are those of the author and do not represent an official
position of the Department of Agriculture.
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263
2
This vfrtiiai'dlsftppear'ance bif;tte Black fanner has' been a rei^iilt
of an agricultural policy that was rooted In slavery and» later, a social
and economic structure that denied equality of opportunity to minorities.
In general » minorities have been 'bypassed by the revolutions in agricultural
technology, mechanization, pUnt and seed biology, pesticides,- fertlllzi^rs,
conservation practices, communications and this benefits of knowledge pf6v1d(id
through the land grartt college system! Minorities haVe'been denied' e^l'
access to education, to credit, to' Infohnation, and even to' food, shel tier
and medical treatment. Blacks among- the rural minorities have been triat^
unfairly, first as slaves, th^lii siiarecroppers and tenants. Many of '
those fortunate enough to own land at times have been defrauded or other-
wise foi^^ to give up' their land by circumstances beyond their conirol.
In short, minority persons In rural areas have been victimized by an ' ''*'
agricultural policy whose effects, If not Intent, have been to ^exiy minorities
the alternatives that were and are available to ndnmlnorlVlies alfid to preclude
minorl ties 'frbiii the control that noif*!lnor1tl6s have over tlie forces tha't"**^^"^
Influence and shape their lives! khyf Fdr one thing, agricultural polfcy'^'^
Is controlled by Interests whose tr^Wn't of v^ral ntlnorlties has helped ' -
create such conditions. For anotNef^T^h acquiescent Federal goverraiient Kas^
permitted the effects of such po1id)i& l!o continue without enforcing- tHc^
nondiscrimination provisions of tW law. ' ' ^'
While It Is Idle to speculate what might have been the history of
this country had discrimination against rural minorities not occurred.
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264
It Is a tnilsii that neither agricultural history nor agriculture Itself ceir
be portrayed accurately without considering the pronlnant role played kjf
rural minority group people.
Civil Rights Enforcement Hechanlsws In USDA
Title VI of the Civil Rights Act of 1964 established a policy of non-
discrimination In Federal programs. Regulations Implementing the Uti Mirt
published In the Department of AgHculture In late 1964. Formal efforts
to Implement the law began In February 1965 with the appointment of an
Assistant to the SecreUry of Agriculture for Civil Rights and a small
staff. Lending support to these efforts was the publication In the same
month of a year-long study of discrimination In agriculture programs In the
South by the U.S. Commission on Civil Rights. The Cosnlsslon's report
concluded:
As th« ^roup lAost depressed ecc»ioni1cAlly» mst deprived educatfonitlyp
and iTTOst oppressed socially, Kegroes hive been consistently denied
access to many services, provided wfth Inferior services when served »
and segregated in federally financed agricultural programs whose very
task was to raise their standard of living. Ttw Comal sslon's analysis
of four major l).S. Department of Agrlcylture programs has clearly
Indicated that the Department has generally failed to assume r«ipons1-^
blHty for assuring equal opportunity and equal treatment to all those
entUled to benefit from its programs. Instead, the prevailing practic*
has been to follow tocal patterns of racial segregation and dlscrlml^
nation In providing assistance paid for by Federal funds*
President Johnson provided an air of executive-level concern b^ per-
sonally writing Secretary Orvllle Freeman and requesting e report of actions
taken to correct abuses revealed In the Cosnlsslon report. This Inltlel
impetus MBS Instrumental In making the Department-^n o1d» decentrallnd
end highly bureaucratic agency— one of the most active Federal agencies
In civil rights matters in the mid and late 60* s whether it wanted to be
or not. Because Title VI of the Civil Rights Act of 1964 covered only
those federally-assisted programs that passed through SUte and county
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265
entitles on their way to Individual beneficiaries, USOA added to Its *'
regulations a prohibition against discrimination In programs nhere the
benefits passed directly to Individuals. A Citizens Advisory OMmlttee
on Civil Rights was established. ' Guidelines for the collection and evalua-'
tlon of data on minority group participation In USOA programs were Issued
as were guidelines on the Integration of previously segregated office^'
facilities. By m1d-1965» USDA had dispatched teams of Investigators to '"^ ""^
determine how widespread were the problems revealed by the CIvIT Rights'
Commission. Almost Immediately, It seemed, segregated offices began to
disappear, employment of minorities increased and minority program partici-
pation expanded.
These changes continued on their own momentum through 1967. In 1968,
the death of flartin Luther King, the Poor Peoples Campaign encampment In ^^
Washington, a hearing on rural problems In Alabama by the U.S. Coi||J|S^n -
on Civil Rights and an Internal Commission report on the USOA structure for
civil rights enforcement provided additional pressure on the civil rights
program In USOA. When added to a 1969 letter. fy*om the Attomcty General to
the Secretary of Agriculture urging more effort In the civil rights area,
these forces resulted In a USDA policy statement by Secretary Clifford Hardin
covering agency compliance programs, training, evaluation ,' employment oppor-
tunltles and program reviews. This eventually resulted In the development
of stronger program for the collection and evaluation of nrlnorlty program
;•>«,<• • . :. .- .. ••, I ' •» fi*. •• ,•..-•
participation data, targetting program benefits, outreach and. In November
■ • r> T./r t >f ^ . . .
1971, the establishment of a separate and substantially enlarged Office of
•.>■''■".&• '- -. . . . •
Equal Opportunity to coordinate civil rights matters In USOA.
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266
In 1973. the USDA regulations Msre anended to prohibit dlscHalnatlon
bated on sex or religion In direct assistance prograas. In 1974» a Task
Force Mas established to Improve the delivery of prograa services to
American Indians. In 197S» a division was created In the Office of Equal
Opportunity to promote minority business enterprise esslstancein USM
procurement programs* .In 1976» a civil rights Impact assessment end review
procedure was established to survty the civil rights Implications of certain
types of policy actions before decisions on them ere finalized*
Despite tha apparent soundness of organization and management
mechanisms, the civil rights program In USDA Is only marginally effective.
This conclusion Is supported by looking at the record In areas like
emp1o/nent» access to participation In decisionmaking and distribution
of program benefits.
Minority Beplojmwit
Minorities constitute approximately 20 percent of the Federal
government workforce and hevedboeso since 1970. In the Department
of Agriculture* minorities constitute only 10.8 percent of ell permanent,
full time emploiyees. In 1970, theiy accounted for 8.4 percent. The
Department of Agriculture's minority employment percentage Is the lowest
of any major Federal department or agency except fbr the National Aero*
nautlcs and Space Administration.
Part of the failure to achieve a higher minority employment ratio can
be attributed to the fact that the Department's agencies and programs are
highly decentralized. The Department has over 15.000 offices throughout
the country, maiof of them In local county seats. This decentralization
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267
leads to low toUl minority employment. Table I shows selected States, the
1970 minority rural population of working age and the proportion of minority
USOA employment In 1975. Each of the States listed had over 10 percent
minority rural population age 21-65» yet only two of the States had over
10 percent USOA minority employment. Generally speaking, the USOA minority
employmient rate was half or less than that of the working age rural minority
population.
Table 1. USOA Employment In Selected States, 1975
States
Pet. Rural :
Pet. USOA
: : Minority 21-65 • :
minority; -
Alabama
18.9
4.4
Arizona
^ • . . .34.0
7.5
Arkansas
12.6
5.9
California
17.3
9.8
Colorado
lO.S
5.6
norlda
.13.7
7.1 .
Georgia
17.9
5.8
Louisiana
24.6
8.9
Mississippi
31.5
5.1
New Nexico
60.7
20.7
North Carolina
19.8
7.2
Texas
20.7
10.8
Virqinia
17.7
8.5
Certain USOA agencies have poor minority employment records and thus
tend to pull down the Department *^s average. Three of the largest agencies-
Forest Service (6.1 percent). Soil Conservation (6.8 percent) and Farmers
Home Administration (8.8 percent)— account for half of the employees in
USOA yet all had less than 10 percent inlnorlty employees In 1975. Other
agencies, like Food and Nutrition Service (23.7 percent) and Animal and
Plan Health Inspection Service (14.5 percent), had fairly large rates
of minority employment.
Many agencies have only apparently satisfactory employment records
because there are many minorities employed at the clerical levels. Close
94-^11 0'78 ' IB
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268
exMlmtlon shows that there are few ninorltfes at the professtonal levels.
For exanple. in 1975 the Imedlate Office of the Secretary ^hed only one
Minority in*ofess1ona1 and no Hispanic e^iloyees whetsoever. In the Office
of General Counsel 9 only 5 of 189 professionals ware Minority end there were
no minority hires at any level during the year. In the Econoalc R as e e r ch
Service only one of the 57 professionals hired during the yeer was MlnoHty.
In the iHirlculturel Research Service only one of the 78 proftaslonals hired
during the year was Minority* None of the professlonels In the FiarMors
Cooperative Service was a Minority person.
BiployHent of non-Federal sMi^loyees In federally-assisted egrlculturel
progrsMS Is also a concern. In the Agricultural Stabilization and Conser-
vation Service* Minorities accounted for only 3.2 percent of More than
8*600 county level employees In 1975. In the Cooperative Extension Service*
minorities accounted for only 7.2 percent of more than 17*000 tounty and
State level employees.
Another coMponent of the poor minority USDA employment picture Is
the underrepresentatlon of minorities In certain occupational and skill
classifications. For example* only 1.0 percent of all USDA fdresters*
2.7 percent of all USDA eng1neers*5.5 percent of USOA commodity grading
specialists and 6.5 percent of all USDA soil conservationists ere mlnoHty
group persons.
Even where minorities are employed* they are usually fbund at the
lower civil service grades. In 1975 only 29 of the 1*391 USDA employees
In the four highest grades (6S-15 thru 6S-18) were minority persons— 2.1
percent. Similarly* none of the 164 foresters* none of the 65 soil con-
servationists and only 2 of the 289 engineers In the four highest grades
of their occupational ladders were minority group persons.
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209
8
Stm another factor In the minority employment picture Is the failure
to hire available minorities or to aggressively pursue minority recruitment.
For example, although minorities comprise 6.0 percent of USOA professional
cnployees, only 33 of 847 professionals hired In 1975'yere minority per-
sons— 3.9 percent. Although minorities comprise 9.3 percent of USOA
adnlnlstratlve/technlcal employees, only 84 of l,31T''aidm1n1strat1ve/techn1cal
cnployees hired In 1975 were minority persons— 6.4 percent. With such negative
replacement rates* a decrease In overall minority employment Mould be expected
and did In fact occur In 1975 as overall minority employment dropped from 11.1.
percent to 10.8 percent.
At the current rate of progress established between 1970-1976, It will
be 20 years— 1997r-bef ore USOA achieves the minority employment percentage
that the rest of the Federal government has had since 1970. CTearly, one
area where agricultural policy might be Influenced more favorably tOMinI
minorities In rural areas is in equal employment opportunity'. '
Participation In Decisionmaking ' -^
A key measure of the extent to which minorities have achieved access
to declstonnaking in agricultural programs Is the proportion of minorities
serving ron advisory boards and committees. While some of these committees
are reletlvely unimportant from the standpoint of actually Influencing
agricultural policy, others provide significant Input Into the decision-
making process.
In the former category are a group of public advisory committees
established at the national level. Although many of these committees are*
being terminated under the new Administration, minorities have never tot^le'd
more than 6.8 percent of the members and women have neyer totaled more than
7.5 percent of the members. At the end of 1975, minorities accounted for
Digitized by VjOOQ IC
270
5.0 percent of the MMbers while Momen accounted for 4.9 percent of the
nenbers. The percentages have since Increased sonewhat due to a reduction
In nonmlnorlty nenbers. The nunber of Minority iwRibers renalns the saw.
A mre Inportant element In the declslonanklng process are the
committees and boards at the local level that have been established to
provide grass roots Input Into agricultural policy* Thousands of persons
serve on these groups. Ulth few exceptions » minorities are underrepre-
sented. Table 2 shows Just how bad.
Table 2> Minority Persons on Agriculture
Soards and COnmlttees 1975
Group
Percent
: mnoHtv
REA-Ass sted Electric Cooperatives
Boards of Directors
ASCS County Commfttees
SCS District Soil and Mater Conservation
Boards
FmHA tounty Committees
Extension Councils and Conmittees
1.9
1.2
1.7
UNK
As can be seen, minorities comprised less than 2 percent of the members of
REA cooperatives boards of directors^ ASCS county committees and soil and
water conservation district boards. *
In 1975 USDA adopted a policy that minorities and women would be
represented on committees In reasonable proportion to the degree they are
affected by the work of the committee. This was Interpreted to apply only
to the national public advisory committees and not the local boards and
committees, many of whose members are determined by election. Thus, another
area where agricultural policy might be Influenced more favorably toward
minorities In rural areas Is In membership on agricultural boards and
committees.
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271
10
Hinorlty Partlclwtlon In USDA Programs
The real test of discrlalnatlon In agricultural policy Is whether
minorities are participating In USOA programs to the degree one would expect
In a nondiscriminatory environment. When the U.S. Coomlsslon on Civil Rights
reported on equal opportunity In farm programs In early 196S, it was stated
that mifiorltles were denied access to participation In many programs and
segregated and otherwise discriminated against In many others. Judged by
a test of equitable participation In some agricultural programs today. It
appears as If equal opportunity In agricultural programs has yet to be
realized for many rural minorities.
Rural Housing
Although minorities occupy less than ten percent of all rural housing
units » they account for over 30 percent of all substandard nonmetropolftan
housing units In areas serviced by the Fanners Home Administration. For
Blacks* the figures are 6.1 percent of the housing units and 25.0 percent
of the substandard housing. With such measures of need among rural minori-
ties, you might think that they would comprise a primary target group for
Federal housing policy In rural areas. Yet, as shown by Figure 1, FinHA
rural housing loans to Blacks are decreasing dramatically.. In 1965» when
the FmHA rural housing loan program was comparatively small. Blacks received
9.3 percent of the loans (1,430). By 1971, when the program reached new
loan highs. Blacks received 19.4 percent of the loans made (21,573). By
1976, however, the proportion of loans to Blacks had dropped down almost
to Its 1965 level -9. 5 percent (10,823).
Decreasing population does not appear to be the reason for this
decline. Black rural households actually Increased between 1969 and
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272
It
Figurt I. FknHA Rural Housing Lows 1965-1976
90,000 .
60,000 .
30,000 .
1976
1974 by 150,000. Tht rtasons apptar to be econonlc. In 1969, the practi-
cal loner Incone Unit for FMIA rural housing borrowers was approxiMately
$3,000. By 1974, this Unit had Hsen to approximately $5,000. Whereas
the effective Incoaie Halt denied loans to approxlaately 24.7 percent of
rural white households and 36.2 percent of the rural Black households In
1969, by 1974 the efftetlve Incoiie llnft applied to approxiMately the
saae proportion of rural white households— 24.7 percent — but was excluding
50.3 percent of the rural Black households. 1/ These facts clearly suggest
1/ MMorendia, Ronald Bird, Leader, Housing Progran Area, Econoalc
Research Service to Percy R. Luncy, Chief, Progran Planning and
Evaluatlpn Division, Office of Equal Opportunity, USDA (Narch 15,
1977). •>
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273
12
the need f6r an altered goveriMental policy that will Include a greater
nunber of lower Inane persons In the rural housing loan program.
Farw Ownership
Paralleling the rapid and continuing decline of Black and other
Minority Hm operators has been a similar decrease In Farmers Home Admini-
stration loans to minorities for farm ownership purposes. As shotei' In
Figure 2.» loans to Blacks In 1966 totaled BIO or 5.7 percent of all loans.
By 1976* theri were only 166 farm ownership loans to Blacks or 1.5 percent ^
of the total loans made. It Is apparent that the Federal government Is
doing very little to preserve the opportunity to farm fbr'rural Blacks.
Figure 2 . RnHA Farm Oimershlp
Loans to Blacks 1965-1976
1965
1976
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274
13
Loans to othtr nlnorltlos havt been tqually Ion such that In 1976
only 277 of the 11*140 fam ounershlp loans Mda— 2.5 parcant-Hii^ to
Minority borroMors.
Son Cofigervatlon Cooiwrators
Tht Soil Consoryatlon Strvico Is the agency of the DepartMnt of /Hprl-
culture through uhlch technical ^assl stance to landonners and operators fpr .
soil and water conservitlon purposes has been given since the Mid 19S0's,
Prior to the Civil Rights Act of 1964, technical assistance In the loll anil
Mater conservation prograas— like other USOA progr«si$-^Mas provided In a
dlscrlnlnatory Manner. In 1966* In the South* 51 percent of the Mhltf
operating units Mere SCS cooperators. Miong Black operating unlts^ only
28 percent Mere cooperators. Ten years later* In 197$* the percentage of
eligible Black operating units that Mere SCS cooperators had Increased to
40 percent Mhlle the percentage of eligible Mhlte operating units that
Mere SCS cooperators had Increased to 59 percent .2/ The disparity In
the rates of participation fOr Black and White operating units had been
only slightly reduced over the ten year period. An even gr;iater disparity
In rates of pertlclpatlon Is found aiaong Anerlcan Indian pp^^tlng units.
In 1975* In 13 States surveyed, 60 percent of the Uhlte operating finlts
but only 35 percent of the Anerlcan Indian operating units Mere SCS
cooperators.
Despite the disparity In rates of participation In SCS prograite* It
appears that the rates of technical assistance provided to those Mho do
participate are ymry close and In sosie instances actually favor the
Minority cooperetors.
2/ In the course of exsMlnlng the p«rt1c(pat1on data^ the USOA civil
rights staff has determlntd that the highest rates of Black parti-
cipation occur in the four States where a minority conservationist
has been assigned to the state staff to concentrate on technical
assistance Matters for loM-lncome fanners.
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275
i»
4*H Clubs
At tht ill* of tht passagt of the Civil MqhU Act of 1M, nlnorliy
partltlpatlbh In the ifouth-orlentod 4-H club progran of the Extension "^
Service was generally segregated and Halted only to those counties having ^'■
Minority agents. 4-H club enrol laent— Black and White alike— dropped *
significantly In States like Arkansas. Mississippi and North Carolina in
response to pressure to Intiigrate services. A ig69^ study shOMsd that lii '
Nisslislppi, Black 4-H club enrollaent was definitely related to whether
a Black extension igent was assigned In the County, iy 1975» segregation
In 4-H Club activities had been reduced but one out of ^Ive clubs In
Integreted envlronaents were still segregated.
Fawlly F6od Prograws
tn' contrast to other USOA programs where Minority participation
appears disproportionate with nonslnorlty participation When nlMiit^s
of eligibility are conpared» the fanlly food assistance progran admini-
stered by the Food and Nutrition Service Is one In which minority
participation compares favorably with eligibility. Mhereas minorities
constitilted 42.9 percent of all persons In poverty In 1975» In the same
year tW constituted 51.7 percent of all persons participating -In the
family fb6d assistance program. >
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276
Policy ImpllMtlons
The data as Mill as the history related above Make It apparent that
Minorities do not participate In or benefit froM Many agricultural pro-
graMS to the extent one Mould expect In a nondlscrlMlnatory situation.
The saMo applies for participation In declslonMakIng boards and eoniltteei
and for USOA oMployMent. It Is hard» therefore* to escape the conclusion
that dIscrlMl nation still exists In agricultural prograMS and policies.
Several factors May account for this— a history of discrtninatlon
against Minorities* the conservative Influence of Major constituency Interest
groups (agribusiness* land grant systcM and related or^anlzitlons)* the role
of Congressional conmlttees and the Inertia of an old line bureaucracy. All
of these factors have Joined to create the conditions which rural Minorities
suffer under today.
Another factor In this situation Is the character of leadership
given to the civil rights enforceMont effort In the Federal governHent.
In the 12 year period since the passage of the Civil Rights Act of 1964*
enforcoMont of Federal nondlscrlMl nation law and policy In USOA has been
characterized by a failure of leadership sMong some top USDA officials and
adMlnlstrators. Most recently, from 1972-1976* the USDA civil Hghts
enforcoMont program suffered from outright attempts to cIrcuHvent
enforcement action against programs found to be out of compliance* from
permitting the USDA civil rights office to go without a permanent director
for more than two years during the period, from discouraging staff 1n1-
.tlatlves to Improve existing civil rights mechanisms and from an open
attempt to abolish the USOA civil rights office. Such actions clearly
communicated to agency officials the low priority accorded civil rights
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277
16
natters in USM and thty responded accordingly. The results of such policies
and leadership attitudes are reflected In the minority participation data cited
earlier. The 1^>11cat1ons of this situation are that Minorities will continue
to experience discrimination In agriculture) programs unless current directions
are reversed.
It Is significant to note that USM progress In civil rights since 1964
nearly always has been the result of external pressures. .The strudture of
decisionmaking In the Department» with Its heavy reliance upon the Uhlte
House* Southern-dominated Congressional committees » the conservative lean*
Ings of the agribusiness-land grant-farm organization combination of Interest
groups and the Inertia of Its own bureaucracy has usually worked to defeat
liberalizing moves favoring advancement of civil rights except for brief
periods following the embarrassment of public pressure through lawsuits or
through medla-augmentid protests or Inquiries. In terms of jnder standing
the barriers to effective civil rights enforcement In agriculture programs
and In tenns of dealing with the policy Implications of these events. It Is
Important to note that many of the same barriers and the same problems that
existed In 1964 remain today.
If conditions are to be changed with a view toward correcting for the
effects of past and current discrimination and providing equitable treat-
ment for rural minorities, the following actions should be taken:
1. It must be made clear» through personal example and leadership
by top USDA officials, that civil rights Is a departmental
mission and that civil rights will be fully Incorporated In all
USDA policy planning and program management matters.
2. As a sign of change, there must be a significant increase of
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278
17
Minorities and iranen In USOA aiip1o>Mtnt» particularly In
nanagtiiitnt positions.
3. Persistant discrimination mist be Imedlately rooted.out using
the ranedles available under the law.
4. In order to correct for the effects of past diKrInlnatlon
cQRMltted b^ USOA* conpensatory actions designed to achieve
equal opportunity should be laplesiented In all phases of USOA
operations.
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279
HAC
liKDRMATION
■g AiUMMiOouMtt toa. • mm L mtmf^JtM • autti eoe • niihii^tnn. ag ■oowt • cap w»e640
AppOTdbc Q
rWIA AND MZMOIOTIBS
An OvMnrUir of Nlnority P«rtiolp«tion
in thm Snral Bousiiig Loan Progrm
of tho Paxaors Bono Ateinistrntion
1971-1976
Juno 1977
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280
INTRODUCTION
In 1976 the Housing Assistance Council issued Housing of
Minorities in RuyaJ Aterica . This analysis of loans to ninbrities
under the Faxiners Home Administration (FniHA) Section 502 and-
504 housing loan programs concluded that minorities had not
received a share of loans equal to their share of substandard
housing in FmHA areas.
..Subsequent research led HAC to conclude that the low level
of participation by minorities in FidHh rural housing loan programs
is th^ result of the failure of FmHA to work aggressively to
recruit jd.nority borrowers eligible under existing programs,
to activate programs such as rural rent supplement designed to
serve lower income families (a high percentage of whom would
be minority) , and/or to design new programs capable of pro-
viding equal opportunity for participation in the housing loan
programs to minority borrowers.
The attached Information presents .. highlights of our .
research. It includes data on the basic trends in minority
loan activity since 1971. In addition it looks at FMHA
mlpority loan targets and the pattern of failure to achiev^. .
these targets. Finally, it looks at the slo«» increase In FMHA
minority staff since 1971 and the failure to signific«mtly
involve minorities in decision making at all levels of the
work of the agency. The Appendices to this Information
present the base data on housing characteristics and FinHA
housing loan activity for minorities in FmHA served areas.
The Farmers Home Administration has a heavy responsibility,
if it is to seek to improve the housing conditions of rural
minority households. The US Department of Agriculture,
using substandard housing as a criteria, has determined that
there are 779,850 eligible minority households within areas
served by FmHA. FmHA loan approvals in 1976 effected only
1.8% of this eligible population. This problem is further
complicated by the fact that substantial proportions of these
jninority households are living in poverty and will require
very deep subsidies if their housing is to be improved.
r.The pace of improvement of conditions for rural minorities
is much too slow. The rural housing loan programs of the
/Farmers Home Administration can do much to step up the pace
of that improvement. Fifty years is too long to take to.
eliminate, substandcurd housing. nnHA must determine, and
oolllm1^licate to all its personnel, that minority participation
in the housing loan program is to be given high priority, and
• that tarigetQ are set to be achieved not ignored.. The provision
of equal opportunity must involve more th£m the placement of
an equal opportimity poster in the county office.
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In 1969 the Secretary of the Depariownt of Agriculture
Issued nemorandum 1662 - thie USDA Policy on Civil Rights. The
meinorandmn began:
"It is inoperative that we renew and strengthen our efforts
to insure equal access and opportunity in all aspects of our
programs without regard .to race, color, or national origin to
the full extent of the law."
Hora specifically the meaorandum called for (1) the
eetablishiiMnt of a data collection system in order to measure
accurately the participation of tninorltlea In UBBh programs
(2) the adjustment and or creation of programs In order to
overcome econoiaic and social barriers to equal partioipation
(3> the developnient of goals for levels of minority partioi^
pation and (4) e tho though program for the recruituent of
minority cnployees. ^
LDMi ACriVlTY DgCLJNB
A review of the RnHA Rural Bousing Loan program statistics
on participation of minorities reveals that FmKA has failed to
work aggressively to insure equal access and opportunity in all
aspects of its programii To the contrary, during this period
loans to blacks h«tve d^cliri'^d by almost SO* - declining from
21,573 loans in 1971 to only 10,B23 loard in 1976.
Graph Z shows how loans to blacks dropped frosi 19% of all
loans SMide in 1971 to only 9% of all loans made in 1976.
One possible eTTpImiation for this might be that these years
saw a large increase in loans to other minorities. This In fact
i& not the case While it it; trr^s that during these years Spanish
Surname r Indian and other non-black minority borrowers did receive
more loans, these increases did rot anotint to a significant in-
crease in the ehare of all loans received by these groups- The
share of loans to Spanish Surnaras borrowers actually declined by
•1% over the period while Indians increased their share by *12%^
Loans to Indians still represent less than one half of one per-
cent of all loans made under the rural housing loan program. In
1976, loans to Spanish Surnam^i and Indian families increassd
by 478 loans over the 1975 l^vel, However.it should be noted
that these loans represented only 41^ of all loans made in 1976 •
Another possible explanation might be that the entire period
was one of decline for all groups* It is true that the 1971^76
period Was one of considerable variation in loan approval levels
including a period during 1974 when loan approval activity was
completely halted* FOr all groups housing loan activity in 1976
was up by 2% over 1971, Loans to whites were 11% above the 1971
level. However over this p^lod the position of minority
borrowers especially blacks was c^oclined in relation to t^eir
White counterparts. Graph 2 shows that in 1971 for^ mmdh loan
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282
cmra 1
*
Share of FUHA Rural Bousing Loans
To Blacks During FX 1971-1976
\<\
n
I""
15
oroent of I3
11 Loans
12
II
10
9
«
7
mi
im*
nt3
ni**
1975
m-
502 and 504 only
Source t Distribtttlon of Loana Made by Six gPgc^^ig^
Types by Race or Ethnic Group Fiscal Yeara 1971-1976
Report Code 891.
AdBinistratiop.
Finance 0»ioe» Fanners Boom
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-3-
GRAPII 2
Ccnipurison of FmllA Rural
Housing Loans to D lacks and
Whites During Fiscal Years 1971-76
1971
1972
1973
1974
1975
1976
Dlackfl
fOiitCfl
O
ooooc
o
o o o o /
o
o o o o ©
1:4.5
1:4
lt4.8
o
ooooood
1:6.5
O
OOOOOOOOQ
1x8.4
O
OOOOOOGOOO
1:10
* Includes 502 and 504 programs only
Source : Dist r ibution of Loans Made by Six Specified
Types by Race or Ethnic Group Fiscal Years 1971"'1976
Report Code 891. Finance Office, Farmers Home
Administration.
94-911 0-78- IB
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mndo to a black householct nearly 5 loans were made to white
households. By 1976 the ratio of black loans to white loans
had jumped to 1 to 10.
It could also be assumed that nifiorities ' participation in
FrallA programs declined biiL that these housing needs wore being
mot by various HUD eponscired progroms such as Section 8 and
Section 202. It should bo noted that HUD non-inetro production
has declined from 78,000 units in 1971 to only 14 000 in 1975 -
em 82% drop. Racial participation dnta i^ not available for
IIUD programs but since the entire llUD non-metro effort in 1975
was 1g59 than the number of PiiiiHA loans to minority borrowers
it is hard to imagine that the needs of rural ninorities are
being met adeg^iately by llUD programs. •
The most plausible explanation would seem to involve the
combination of the rapid escalation of housing costs due to
inflation and the rise of income limits for "low-income"
families under the FmHA housing loan, program. Between 1&71
and 1975 the average slxe of an initial 502 loan rose by 54%
from $13,000 to $20 000 To add to this problem in 1976 FtaHA
decided to shift upward its definition of "low- in come** from
$8,500 to $10,000. Tlie average family income of borrowers
has risen by 35% in 5 years to $8,741. Since the ability to
repay is the key factor in loan approvals it is obvious that
lower income families are placed at a disadvantage In the
competition for loar.s. Appendix A shows that a high percentage
of rural minority families living in substandard housing have
very low incomes. Given present trends their chances of re^
ceiving an TmHA housing loan would seem to be sliin* This
situation is reflected in the decline of black applications
from 18% of all applications in 1971 to 11% of all in 197$ -
Most individual states reflect the national trend. Per
excimple in Alabama the ratio of black loanfi to white in 1971 -
was 3 to 4. It is now 1 black to 3 every three loans to whites.
In New Mexico in 1971 Spanish Surname borrowers were 611 of all
loans in 1975 their share was down to 531 And in Worth
Carolina while the relative share for blacks vias declining by
one-half during this period, the share for American Indians
declined by two-thirds.
Only six states with substantial minority population
(Minnesota, Mont«ma, Oklahoma, South Dakota, Washington and
West Virginia) varied from this trend and w^re lending minorities
a larger share of loans in 1976 than in 1971.
TARGETS
In 1976 rwiA set for itself a goal of 22,506 loans to .
minority borrowers. The goal represented a 48% increase over
the 1975'Vxodi^ction level of 15,116 loans. In 1976 FirtKA failed
to reach '6veA its 1975 appro^dls level and mad^ only. M>747
loans to thinorities, or 61% of its goal. It means that poten-^
tlally 7,759 minority families did not receive needed kelp*
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-5-
PerfoEmAnce varied great fy« with several states acshieving nore
than 100% of their target. However of this group only California,
Hgw Mexico, and Lousland am statea with eubstantlal minority
population. Florida and Texai^ had tha weaXest perfonnance
anong the Btates vrlth large mitiority populationia achieving only
42% and 49% of their targets respectively,
Ifher. reviewing the reoords of individual states in achieving
their roinority loan target it is difficult to discern a systematic
method for determining targets. The racial and ethnic broakdown
of Bubstandard housing ought to he a factor but it does not
appear to play a very strong role* For exairtple in Georgia blacks
occupy ^4) of all Buhstandard housing Iti rural creae of the fitate
served by FmKA. The target for loans to blacks was 42t Of All
loane. Similarly, Spanish Surnanie familieB occupy B4% all Bub-
Btantial housing in FMlA areas of Hew Mexico but the loan target
sets their share at 25%, Past performance la another factor
that ought to be a part of the target setting process. However
it is difficult to understand why thare was in Alabama for 1976
a 48% tncreaoe iti the minority loam target in face of a three
year record of declining loan approval levels- In 1976 minority
loans in Alabama were up by 20%. However if the 1976 performance
io viewed solely from the perspective of achievement of its
minority loan target the performance appeara rather dismal.
Failure to meet the previous year's target does not seem to have
a bearing on the setting of new targets. In Florida, 1975 per-
formance was 28 lo ma short of the target* The 1976 target was
set B loans above unmet 75 target level. 197& performance
failed to achieve even 1/2 of the 1975 level. The point here
is not that new targets should be set at the level of past
performance but that without a Gystem of accountability and/or
enforcement the procej^s of target setting beocoMS merely a
bureaucratic paper exercise and net an instrument for inpKOving
the participation of minorities in the rural housing loans
program.
la ttORITY EMPLO Y W^^T
VWRA reports that as of March 31, 1977 it has 535 minority
employees or 7.S% of all FifiHA personnel. Only 3*1% of all
Minority staff at FrtHA has a civil service rating above GS 12 «
coidpared to 4.8i of all other staff 27% of all minority staff
is located in either the national office or the Finance Office
in et- Louie, while only Bl of non-minority staff are located
in these offices. 66% of all minority staff in these two
offices are wcsnen* The largest numbers of women employed by
FaHA are at GS level 5 and below. That is the grade" level of
clerical staff. Minority eoaqployment in FinHA has grown only 2%
since 1970 Perhaps the exist critical position within F^oaHA is
that of county supervisor- It is the county supervisor who
makes the final decision on the approval o; rejection of S02
and 504 hoaelng loan applications. Minority county s\ipervisors
nuBber 108 or 6.21 of all (1716) county aupsrvieore^ Minorities
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however make up 11.3% o^iall (1194) assistant county supervisors.
Few minority persons are einployed as specialists «- loan chiefs,
engineers, district directors etc. - only 3.9% - of all such
staff. Job categories of minority staff at the county and
state level Is not avalalable.
In no state does the percentage of minority sjtaf f seem to
reflect the percentage of minorities occupying substandard
housing, or the level of loan activity among minorities. For
exanqple, Mississippi, has the third Icurgest nundber of minority
employees - 25. However this' Is only 7.7% of all FmHA employees
In that state inhere minorities received 47.6% of all loans be-
tween 1971-75. Of those states with large minority rural
population, the states the with best percentage of minority
employees aret ArlBona-19.5%, Callfomla-24.5% and New NeKlco-
25.8%. The states In the southeast with high percentages of
black rural households average 7.6%. More Indians are employed
In Oklahoma than any other state ! (8) ^ Zn two states (South
Dakota and Minnesota) %rlth substantial Indian population, no.
Indians are enqployed.
SOPRCBS
1. Distribution of Loans Made by Six Specified jgypea by Race
or Bthnlc Group . Fiscal Years 1971-197i» Report Code 891,
Finance Office, Farmers Hone Administration.
2. Racial Program Participation by Fiscal Years . Report CSode
833, Finance Office, Farmers Home Administration.
3. Bqual Employment Opportunity Data . Farmers Home ^Am4t*4»*^r'M^
tion7irorm riMA'20d-67fi71-1578.
4. FaBh Targets for Fiscal Years 19*74, 1975, 1976 - Rural
Housing Loans .
5. Participation by Bthnlc Groups in the Farmers Home Admin-
istration Rural Housing Loan Program , Fiscal Year 1976. Krogram
Planning and Bvaluation Division, Office of Bqual Opportunity,
USDA, April 1977.
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287
APrCNUIX A
VARM'iKS IIOME ASMINI&TKATICMI RUKAL HOUSING PXOGRAM
UINORITY rAKTICIPATlON HATA FOR: UNITED STATES
MAIN HOUSING CIIARACTERISTICS
Households in FnHA Aroas « •..•.. 20.414.325
Minority Households 2.324.117
Minoritx Households/All fiousoholds 11/3
Sobstradord Units in PallA Areas S.0S7.110
Mbstmdard Ninorit/ Units 840.220
Minority 8bstd/All Sbstd 27t
Minority Poor in Sbstd Units 482. >S5
Minority Poor in Sbstd/All Poor in Sbstd / »t
Minority Not Poor in Sbstd Units 301.337
Minority Not Poor in Sbstd Units/All Not Poor in Sbstd Uteits... 23t
FnliA HOUSING LOAN ACTIVITY
mr 1976
i TRANSITION
1^ 1*74
Tfl^JS
OOARTHR
HlnoTitjf Stuff.
Ott!
481
535
Winuritjr Ktuff/
«.4
7,4
7.5
HlnoTity Loftiis
Ift.SSt
15.1 W
11,749
All l^ans
17.2
14.0
11. i
|34[J»Z54 '
$Z4«,4M
1321*525
IS.O
13.1
n
"fcollar* l*ct Sub s tan Jar tT
HoustrJioliI . ,
$tS6,ft5
1195.71
1312. 6«
mncvrlty h02 Lonns
*15»513
114, 074
«17,1S7
Niqarily SO 2/
^^VL5i&Z
10. s
n.f
11.1
Av9rji£a Hitiority
^07 Loan Si it
li«,n4
$17,503
tll,S27
Uinorlty &N Lonni
1,D41
1 .1102
lA9t
Minority 504/
4S.f)
46.4
45*5 ^
Average Minority
£04 Loan SiK«
tt.7»2
11. m.
^ 12. MS
'^Tin-tr*] iTinorlty
Annlicntifjnit
57,fri8
<<>»*ST ,
• 42,885
Mlhurity Afi;>l^t«tiorL5/
All AriplUsition*
17.t
l%,0
• ISA
tt^tio or Applications to
44.1
37. s
• M.4
Hif^oriiy r^onn Tar£Ot>i
*tt NA
1$.S83
32,521
AcM prcd
HA
77*1
«£.i
FT 1076 Only
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Appendix B
; FAnMBRS HOME ADMINISTl^TION RimAL HOUSING PKOGKAN
BLACK PARTICIPATION DATA FOR: UNITED STATliS
WAIK tlDUSING GtlAHAcrrURTHTlCS
Households in FirilA Aroos ^7 20»414,32S
Minority Households , 1,747,535
Minority Ilousoholds/All Households 8.5
Substondard Units in F»HA Areas S,0«7,110
Substandard Minority Units , , ^ 769,541
Minority Sbstd/All Sbstd : 24»9
Minority Poor in Sbstd Units 457,773
Minority Poor in Sbstd/All Poor in Sbstd , 35. S
Minority Not Poor in Sbstd Units 271,938
Minority Not Poor in Sbstd Units/All Not Poor in Sbstd Units... 20.9
F»HA HOUSING LOAN ACTIVITY
jnr_ljj4
_KY 13/:^
FY 1976
( TRANSITION
QtWtRTEft
>:inorlty Staff
414
' 377
404
Minority St Jiff/
A)i .stacr
l».0
! S.7
5,6
Minority Loans
13,019
11,670
13,810
— «iht>Tity~Loans/
All Lanns
IS.*
11,3
9.S
Hinority Housing "
Dollnrs fm thousands!
il9l!.923
tni.112
1229.031
Hinarity Jlousinu
Dollyrs/All liolUrR
n:?
9.f
8,1
]}iollar& Per Substandard
Household
i25B.S6
l?^4.06
1297.69
Minority SOZ Losn*
12.278
10.B02
12.S32
Minority 502/
All ^fl^
13.?
10.7
8.B
AvoTtft Minority
|16.niJ
n7.2Z3
(11,033
Minority S04 Loan;
811
868
1278
Minority S&4/
. All 50^ '
34.2
37.9
36, S
Avortigc Minority
504 Lo£L]i Siio
n.flw 1
|1,76S
, i2,m
AplftlLCrt lions
n,7U
31^261* .
* 33,3Sf>
Minority Applicntions/
All ApDliCfltlons
14. Z
11,7
* 12.0
Ratio oE ApplicfttioHfr tu
44.0
37,3
* 41.3
Minority Litnfi Tnrfots
i« KA
lS,29fi
17,157
Fcrcffnt 61 T«ti;6t
AcK loved
NA
na
«a.4 '
VS T«>76 Only
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API»liNDIX C
I'AKMin^S HOME ADMINISTRATION RURAL HOUSING PROGRAM
SPANISH SURNAME PARTICIPATION DATA FOR: UNITliD STATBS
MAIN HOUSING giARACTERISTICS
Households in P»11A Areas . . . . .\ ao.414.32S
Ninoritx Households ^ S«i.3S»
Minority Households /A 11 Households 1.9
Substandard Units in P»!!A Areas ^.087 » 110
Substandard Minority Units. 74.564
Minority Sbstd/All Sbstd 2.4
Minority Poor in Sbstd Units 45.049
Minority Poor in Sbstd/All Poor in Sbstd 3.6
Minority Mot Poor in Sbstd Units 29.515
Minority Hot Poor in Sbstd Units/All Not Poor in Sbstd Units... 2.2
PS^ HOUSING LOAN ACTIVITY
PY X976
« TRANSITION
FT 1^74
¥f 1D75
OOARTlItt
NitiDTlty Staff
193
63
70
Minoriiy Staff/
2,7
.*
.9
Minoritjr Usjn
t.%t%
3tl0l
3jai
Minority to nn;/
All Louns
2,7
t.-t
2,7
—Hinorl\>- Housing
Dollars {'in UiaitAcfindi)
|S9,247
t*«,7il
|74,37S
Hinorliy Nouaiits
DellATA/An IXOllBTS
2*7
2.5
2.6
DelltTA Tcr Substandard
|S2«.S&
1 S654.1L
1997,46
Minority SO* Loim*
2,379
1.627
5,696
Minority 502/
All sol
I.S
1.6
2,6
Av<^^S£9 Minority
n#,3*0
111,427
n>.*76
Minority SO 4 Loans
lU
174
215
Minority S04/
All SO*
. 7.1
7,6
6*2 ^
Averagct Winorlty
&04 Loan Slic
tl,A«B
12,143
t 1,409
Aenl 1 ciitit>ni
1,779
7.452 ,
* 7,436
HinoHi/ Afipllcaiions/
AU ADpUtMtlons
1.7
2.7
* . 1'^
Ratio of ApiilicatiouB to
Loani Mmlo _
4*. 3
37.5 .
■ *?.7
Minority Loan TitfctJ
• • NA
3,490
4,?26
Poiienl *1 Tiitipr
AcKi«Vfld
NA
•0,2
92.7
'^f 1976 Only
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APPBNDIX D
rAIttinilS HONE ADMINISTRATION RUIiAL HOUSING PROGRAM
INDIAN .PAimCIPATlON DATA FOR: UNITED STATES
MAIN HOUSING CHARACTERISTICS
Households in FjpHA Areas v r 20.414,352
Minority Houscliolds , ,' j
Minority . Households/All Households ^s
Substandard Units in FinllA Areas a.nav.nn
Substandard Minority Units. , . , , 45^^^^^
Minority Sbstd/All Sbstd • . . • . i 1,^
Minority Poor in Sbstd Urits ,..i...,. ha
Minority Poor in Sbstd/All Poor in Sbstd jJA
MiDority Not Poor in Sbstd Units .': : i HA
-Minority Not Poor in Sbstd Units/All Not Poor in Sbst4 Units... HA
FbJIa' HOUSING LOAN ACTIVITY
FY 1974
FY: 1975
W 1975
% TRANSITION
QUARTER
Minority Staff
26
23
32
Minority Sta^tie/
•5
.3
.4
Minority Loans
441
427
6SS
Minority Loans/
' All Loans
.4
.4
.4
Nihdrity Houainc
Dollars (in thousands)
$6,778
$6,980
$11,191
Minority Housing
Dollars/All Dollars
.4-
.3
.3
Dollars For Substandard
Household
$147
$152
$243
Minority SO 2 Loans
430
412
606
Minority 502/
All 502
.4
.4
•*
Avorago Minority
$15,7il
$16,887
$18,310
Minority S04 Loans
11 .
IS
25
Minority 504/
.4
.6
.7
Avorago Minority
504 Loan Site
$1,458
$1,282 .
.. .$2,320 .
18iH2l*¥iS5'"y
1,298
1.144 -: ■•
'* 1.594
Minority Applications/
All Anolications
.6
.9
* .6
SSi? aJdS'*^*'^^"'*'*"* ^^^
55,9
37.3
• 39.7
Minority Loan TarROts
** NA
662
780
■ I'oMcmt Of Tiirgdt
Achiovod
NA
64.5
61.1
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Senator Morgan. Thank you very much. We will make your state-
ment, the full statement that you submitted to the committee, a part
of the record.
I read it last night and found it very interesting. I appreciate, also,
the interesting way in which you presented your testimony this morn-
ing along with the charts. It is sort of a welcome respite for some
of us who have to sit and listen to long statements read in monotone
day after day.
With regard to the subsidy program that you have outlined, have
you by any chance prepared statutory language that you might sug-
gest to it?
Mr. Wilson. We have not at this time, but I am sure upon your
invitation, we might be more than happy to do so.
Senator Morgan. I might add I thmk that question was prompted
by staff. [Laughter.]
The subsidy program that you proposed calls for a lot of moving
expenses to a family when their subsidized housing is moved at a
profit, if I understand your testimony and your statement correctly.
How do you give — how do you justify giving a subsidy for moving
expenses in such a case when the house is being sold for a profit?
Mr. WnEiSON. I didn't understand that there were moving expenses
allowed. I will stand corrected by staff. I think all we were referring
to is that the family is allowed an equity position when the house is
sold and that the equity position would then allow the family, as I
would interpret it, to provide some kind of downpayment for the
purchase of another piece of property. I am not aware, Mr. Chairman,
that we spoke of moving expenses specifically.
The only accrual to the family that I am aware of is an equity
position. This equity position is shared with the Federal Government.
Senator Morgan. I thought we read it that way. We will go back.
You have testified, or at least in your prepared testimony that $14
billion in tax subsidy went to private rental housing and middle-
income homeowners last year through special depreciation rules and
tax deductions. You say that this should justify the kind of subsidy
program that you spelled out so well in your statement.
Are you recommending that the Congress do away with these
depreciation rules and tax deductions or are you just usin^ this as
a means of saying that after all a lot of other people are being sub-
sidized, too?
Mr. Wilson. I think the latter, Mr. Chairman. I think our feeling
is, as I concludued in my remarks, that it is time that some low-income
families be allowed to participate in the American dream and in the
American movement of upward mobility.
Senator Morgan. I think that is a prood point to make, because so
many people who are critical of subsidized housing, and so on, do
fail to remember that most of them are subsidized bv deducting inter-
est and depreciation, and so forth. That is something we prefer to
overlook at times.
In your testimony, you also brought out that for every $100 million
in loans, we will j>rovide 4080 housing units at an annual subsidy
cost of about $8 million before deducting whatever might be recap-
tured to sell those units for profit, if I understood you correctly.
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292
Can you recommend to us a figure that we might use as a goal, either
a short run or long run, in terms of how many such subsidized units
we should need to build ?
Mr. Wilson. As Kick points out to me, I think those numbers were
proposals related to a possible demonstration type program. To meet
the need to house all 6 million of the families cited, who are in need,
would be an astronomical number.
Senator Morgan. Let me move on hurriedly and briefly to the ap-
peals procedure. I, for one, recognize the need for some kind of ap-
peals procedure, because I have seen too often applicants denied, and
the only recourse they had really was to go back to the county super-
visor who had already turned them down in the first place.
It takes a pretty good man to reevaluate an application and admit
he made a mistake earlier. So, I recognize the need for some kind of
orderly appeals procedure, but I am a little bit leery of the one that
we have spelled out in the bill.
I am afraid it is going to cause an administrative burden that
Farmers Home may not be able to carry out at this time, when they are
so understaffed already.
Can you envision how the new procedure would work? How do you
envision it?
Mr. Wilson. Well, I am not sure how the new procedure would
work. I share your concern that it would be an administrative bur-
den, perhaps, to the Farmers Home Administration.
However, being a person who has worked with individual families
trying to get loans through the Farmers Home Administration, and
\ watching the pain that they go through when they are before this
agency of last resort, and are turned down, I would feel that any ad-
ministrative discomfort is certainly justified in terms of assisting
families. The procedure is a due process procedure, and as I under-
stand it, the due process procedure has a number of im^portant in-
gredients that I think are missing from the current mystical appeals
procedure that Farmers Home currently has. First, you need to know
specifically why you are being turned down.
That's part of a due process procedure.
Mr. Chairman, I have dealt with crying women and distraugjht men
who come to our office directly from the Farmers Home Administra-
tion, having been turned down, and they really have no idea why they
are being refused.
Something like insufficient income might be cited. They don't know
what is insufficient— insufficient for what? They don't know what in-
sufficient might mean. .
They are told verbally, and not in writing, why they are bemg
turned down. They relate the reason to us and we say they can't turn
you down for that.
Some statement in writing needs to be made as to why specifically
they are being turned down.
As part of a due process procedure, I guess, also there needs to be
a way of presenting the applicant's side of the situation, so there really
has to be some kind of impartial hearing arranged. I don't know at
which level the hearing might be on, but what must happen is that the
family get some idea of why they are turned down. Presently the
Farmers Home Administration effectively closes off the presentation
of the tenant's or the applicant's viewpoint.
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There really needs to be some method for presenting the applicant's
side at a hearing and then finally, again, I think under a due process
proceeding, the decision has to finally be made on the basis of the in-
formation presented and on the basis of the original denial and not for
the applicant to find, 3 months down the road, that all of the reasons
and all of the rules for the game have now been changed. In fact, this
is what happens and it is wrong and must be changed.
A very simple example is, the application is filed, the verification
of employment is in, the applicant is turned down. They go through a
3-month period of trying to get reversal at which time they finally get
the decision reversed. The Farmers Home Administration, because a
month has passed, gets a new verification of employment, based on the
new verification of employment, turns around and refuses the appli-
cant again.
The procedure, you know, starts once more.
Senator Morgan. Well, I think maybe the availability of an appeals
procedure would obviate the need for it many times.
I am not sure on your last example I would agree, if down the road
3 months a man doesn't have adequate employment, aren't you asking
for trouble if you go ahead then ?
Mr. WiLSOx. I guess my sense, Mr. Chairman, would be that with
an adequate appeals procedure, one would hope the appeal could take
place in a timely enough time period that the necessity for the new
verification of employment, and so forth, would not be necessary.
Under the current procedure, though, the harassment is such that
the applicant is never sure what he will get months down the road.
Senator Morgan. I agree with you on that point
Do you think the research facility ought to stay in Farmers Home
where we mandated it in the last bill or do you think it would be ade-
quately protected after Secretary Bergland and Mr. Cavanaugh leave
office if we just left it in the Department of Agriculture?
Mr. Wilson. I think my feeling would be that there needs to be some
kind of — I don't know what the right word to use is — ^but there needs
to be some kind of research mechanism that can stand on its own re-
gardless of who the administering individual officials are.
I think that is crucial. To add to that, I went to the Northeast Center
for Research at Cornell University, on rural housing. About five of us
were there to talk about rural housing problems. We discovered that
basically very little is known about the rural housing problem and
concerns in the United States.
We were mainly concerned with the Northeast, but we had re-
searchers there from all over. We couldn't find out anything. All they
kept saying was : "We don't know ; we don't have numbers."
So, there is a vital need for some kind of research facility to con-
cern itself with rural housing issues and problems.
Senator Morgan. I agree with you. I hope we can keep it where it is,
although we may be put in a position where we might have to consider
changes.
To go back to a question I asked Mr. Cavanaugh earlier, where the
family moves from town out into the country, and I believe we say
under present law, he is not eligible for rental assistance, even though
open country is defined as being in the Farmers' Home service area.
Do you tmderstand the logic or reasoning for this position?
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Mr. Wilson. No; I don't understand the logic of that position. I
think it works a tremendous undue hardship on families and, in fact,
forces again the development of housing in more urbanized areas. My
feeling is that the Farmers Home Administration is a rural housing
agency and it ought to provide its housing in the rural areas of our
country, not in growth centers or other highly urbanized areas.
Senator Morgan. One other thing: I understand that most rental
programs, units, have only one bedroom and seldom, if ever, more than
two. Do you agree that that is proper ?
Mr. Wilson. No ; I don't agree that it is proper, but I think that it is,
in fact, the case. I know our own experience in Massachusetts is that
the overwhelming numbers of rural rental projects have been pri-
marily for the elderly. This is certainly not to slight the need that is
there, but this is just that they are easier to produce.
In addition to that, Mr. Chairman, HAC did a review of units where
section 8 and Farmers Home have been combined, and out of 2,700
units that we surveyed, 2,500 of those units were units provided for the
elderly or — Rick indicates just for the elderly. So, I think overwhelm-
ingly, this is the case and this should not be.
Senator Morgan. Gentlemen, thank you very much. We look for-
ward to woiking with you, Mr. Wilson, in your new position, the
staff, I am sure, will be talking with you from time to time.
I would like to carry on the colloquy with you about your testimony,
but unfortunately time won't permit.
Thank you very much.
Mr. Wilson. Thank you very much, Mr. Chairman.
Senator Morgan. Mr. Reno and Mr. Cobb, if you gentlemen will
come up, we will wind up the morning's session.
STATEMENT OF LEE P. KENO, EXECUTIVE COMMITTEE MEMBER,
NATIONAL RURAL HOUSING COALITION; AND WILLIAM J. COBB,
ATTORNEY, GEORGIA LEGAL SERVICES PROGRAM
Senator Morgan. Mr. Reno, we have your statement and also yours,
Mr. Cobb. We will make the statements part of the record.
Frankly, we would prefer that you just talk with us. We will leave
it to you. I know sometimes you come prepared to make a statement
and it's difficult to do, otherwise.
Mr. Reno. Thank you, Mr. Chairman.
I am Lee Reno. I would be pleased to have my statement entered into
the record and summarize some of the points in it.
[The complete statement follows :]
Testimony op Lee P. Reno, National Rubal Housing Ck>ALinoN
Mr. Chairman, members of the subcommittee, my name is Lee Reno and I am
a member of the Board of Directors of the National Rural Housing Coalition.
We are grateful for the invitation to testify on S. 1150 today and are pleased to
offer our observaitions. The Coalition is a nonprofit organization, supported by
dues and contributions from its membership and is vitally concerned with the
provision of decent housing for low income people in rural America. That con-
cern has led many of us who are members of the Coalition to concentrate our at-
tention on the operation and programs of the Farmers Home Administnition.
S. 1150 is an especially important bill because its passage will mi in the gaps
tliat now exist and give FmHA all of the legal authority it would need to go out
MDd Id a fair manner and relatively short period of time meet much of the hous-
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ing need for lower income people in rural areas. To accomplish that, of course
there is going to have to be ample appropriations for the programs and a major
increase in the staffing of that beleaguered agency.
While the Coalition supports all of the provisions of the bill we will limit our
testimony today to just one section, section 7, dealing with procedures for hear-
ings and appeals. With me is William Cobb, an attorney with the Georgia Legal
Services Program in Douglasville, Ga. Mr. Cobb has been gathering evidence over
the past several months which will demonstrate the great need for the procedures
mandated in section 7, and he will testify in much greater detail than I.
I would simply like to point out to the subcommittee that section 7 only
requires that FmHA promulgate regulations which call for the fair treatment
of persons and organizations denied assistance under Title V of the Housing
Act of 1^9. This fair treatment is the same required of a number of other
agencies within our Federal and State governments for such programs as old
age assistance, unemployment compensation, medicare, workmens compensation
and public housing.
Section 7 would require that when an applicant for assistance under one
of the FmHA programs is denied such assistance that he or she (or it in the
case of an organization) be given adequate notice of the reasons for such denial
and notice that the applicant has the right to a fair hearing to resolve any
factual disputes which may have caused the denial and a right to have such
denial ultimately reviewed by the Administrator of FmHA. This concept is
not only not a new idea to the rest of the government it is not a new idea to
the FmHA.
In 1972 the Civil Rights Oversight Subcommittee of the House of Representa-
tives Committee on the Judiciary issues a unanimous report recommending
that FmHA adopt regulations essentially the same as those proposed in this
bill. Instead the agency, adopted regulations which permit an informal meeting
between the denied aplicant and the FmHA County Supervisor (the person
who refused to approve the application) to see if it is possible to resolve the
dispute and if not then the applicant is informed that an appeal can be effected
by writing to the State Director and subsequently to the FmHA Administrator.
It is not difficult to see that there is ample opportunity for abuse under the
current FmHA regulations. Only the most flagrant errors are likely to be reversed
and only then when put in writing and brought to the attention of the State
Director and the Administrator. Furthermore, the facts of the matter have not
been developed in any manner that would permit a reviewing official to fairly
assess the action taken by the County Supervisor. Thus the decision which is
finally made is made on an inadequate record of what actually is at issue.
While the main purpose of this amendment is to assure that an applicant
for housing assistance will be treated fairly by the Federal government, it will
provide benefits to the agency as well. For example, a large number of hearings
in a particular county office might indicate a misunderstanding of program
regulations by the county supervisor and provide a method of correcting the
misunderstanding. In other words, an inordinate number of appeals from one
office would focus attention on any possible mismanagement.
Almost as an aside, I'd like to draw the Subcommittee's attention to a recent
decision from the United States District Court for the Northern District of
Mississippi, United States v. White. In that case, Judge Kadey found that
FmHA had wrongfully foreclosed on the mortgage of a family and ordered the
government to reconsider its actions. The court ordered that only after the
FmHA had fairly considered providing interest credits and granting morato-
rium on loan payments pursuant to the authority granted to it, and if the
assistance was to be denied, only after a hearing similar to that provided in
this bill had been granted and reviewed could the FmHA proceed with foreclosure.
What this indicates to me is that the word is out from both the Judiciary
branch and the Legislative branch of government that it is time for the FmHA
to implement some procedures that permit a fair hearing and review when an
application for assistance has been denied. What section 7 of S. 1150 does is
insure that it be done.
Thank you.
Mr. Reno. I am a member of the board of directors of the National
Rural Housing Coalition and we are very grateful for the opportunity
to come up and testify on this bill.
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We are also pleased to see that the subcommittee is holding these
hearings. It was many years that we looked forward to the creation of
a subcommittee on rural housing. We were active in attempting to get
It created and are very pleased to see it holding; hearings.
S. 1150 to us is a very, very important bill m that it fills in the gaps
that do exist in the current authority of the Farmers Home Admin-
istration. I think by filling in the gaps, Farmers Home will be able to
go out — if it has adequate appropriations, and if it has an adequate
mcrease in staff — and serve much of the need that currently exists and
has been talked about today in these hearings.
We would like to limit our testimony this morning, though, to sec-
tion 7 of the bill which deals with the appeals procedures and fair
hearing of agency decisions.
We want to limit it to that particular aspect of the bill because we
see that provision as being very important — it cuts across all the assis-
tance programs. It's the first time that we would start to look at the
assistance programs comprehensively and provide uniform review pro-
cedures for all of them.
With me is Bill Cobb, who is an attorney with the legal services
program in Georgia. For the past several months, he has been docu-
menting the need for this kind of an appeals procdeure. I would simply
like to point out to the subcommittee that the provisions in section 7
are not new ideas — it's been before Cong^'ess before. For example, it
was recommended by the Civil Rights Oversight Committee back in
1972 — at least the procedures that were essentially the same as this.
The other agencies within the Government have similar procedures:
agencies administering social security, unemployment compensation,
medicare, workmen's compensation, and public housing programs.
I would emphasize here that perhaps the Farmers Home prosrrams
track more closely these direct assistance programs than they do the
housing programs that are administered by HUD.
The programs administered by the Farmers' Home Administration
are direct loans. The application goes to a Federal employee. The Fed-
eral employee not only receives the application, but verifies the infor-
mation on it by interviewing the applicant, by corresponding with em-
ployers, and doing a credit check. He approves the construction plans
and approves for construction contract. He soes out and approves the
site, inspects the site and actually makes an inspection of the construc-
tion as it is taking place. Then he services the loan over its life.
If the family should get into trouble, and come back and seek further
assistance, he is the person that would have to review that application
for further assistance.
As you pointed out earlier today, Mr. Chairman, it takes some kind
of a superperson to be able to reverse himself when he makes a mis-
take or has found himself to make a mistake. I think for that reason
alone, the kinds of procedures that section 7 calls for are very impor-
tant and should be enacted in this legislation. I also share your concern
that we are not always going to have an administrator like the one
we have now. I think for that reason we should have this enacted into
Under existing law, it simply depends upon the Administrator's will
to effect regulations. We don't know the kinds of procedures that he
is likely to come up with, although I am convinced that they will be
sound ones.
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Finally, I would like to point out to the committee that the judicial
branch of Government has i-ecently looked at the appeals procedures
of Farmers Home and found them lacking, at least in the way they
have been applied in one particular case. In the northern district of
Mississippi, the U.S. district court there, in the case of Urdted States v.
White ordered Farmers Home to provide, if it were going to deny
moratorium assistance or interest credit assistance to a particular
family who had been foreclosed on, a due process hearing and appeals
essentially the same as this bill calls for.
It seems to me that what all this says is that the legislative branch
has spoken on the subject. The judicial branch has spoken on the sub-
ject. Indeed, Farmers Home itself has indicated it is not satisfied with
its performance in the past.
It seems to me that what section 7 does is it simply says, "let's get on
with it" and "this is the manner that we should do it."
I think Mr. Cobb can speak specifically in terms of the kinds of
problems the families are running into out there.
Mr. Morgan. Thank you very much.
Mr. Cobb, I had the chance to thumb through your statement I see
you have some attachments that should be of interest in that they ap-
parently are specific illustrations. We will be ^lad to hear from you.
We appreciatevour coming up from Greorgia this morning.
Mr. Cobb. Tnank you very much. Senator. I appreciate the oppor-
tunity this morning to bring to the committee some examples of what
in my experience is going on out in the field. I have been working with
low-income clients for the last 4 years in rural Greorgia and am very
pleased to have this opportunity to bring some of these things to your
attention.
I do want to restrict mj comments primarily to the appeals proce-
dure in section 7. 1 think m order to highlight the importance of these
procedures, I would like to spend just a very brief moment on section 6,
which deals with moratoriums. This is a provision which was author-
ized by the statute but laid dormant for nearly 25 years before it was
finally implemented by the Farmers Home Administration. It was in-
tended to provide a means whereby persons coming into temporary
financial hardship would be able to avoid foreclosure. Farmers Home
Administration, however, has taken an extremely restrictive view of
when moratorium relief is appropriate to these borrowers.
In Greorgia, for instance, there are approximately 26,000 rural hous-
ing loans outstanding. Since the moratorium provision was imple-
mented in 1974, moratoriums have actuallv been granted in only 134
cases. During that same period of time, there were 800 foreclosures.
Let me give you a couple of examples, and these are extracted from
the attachments to my written statement.
Consider the case of Clara Moore in Jenkinsburg, Ga. During 1976
and 1976, she and her family incurred unexpected medical bills in the
neighborhood of $1,800. She also suffered temporary unemployment
for the same reason. These things led to a default in making her mort-
gage payments. The medical bills were finally paid off. She returned
to work and had an income of approximately $140 a month. But mora-
torium relief was never suggested for her by the Farmers Home Ad-
ministration and, in fact, foreclosure was instituted.
Another example is that of Richard Ellison in Eatonton, Ga., who
during 1975 and 1976 suffered a series of part-lv\£w^ \a.^<^^^ «x?A.^'*^-
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time work which caused his mortgage to go into default. Ara^in there
was no suggestion ever made that moratorium relief might oe appro-
priate to Mr. Ellison. He finally returned to work, and went with his
employer to the county supervisor to see if reinstatement plans could
be worked out. It could not. He later returned with his wife for the
same purpose and was told by the county supervisor that they wanted
the house, not the money.
Now these two situations, unexpected medical bills and layoffs and
temporary unemployment, are typical of the sorts of problems that
borrowers — ^particularly low-income borrowers — face. Tne lack of any
procedure for testing the appropriateness of denying or granting mora-
torium relief has caused problems with people hke the Moores and the
Ellisons that we believe should not happen.
I think there are two main reasons why this situation exists. One of
them is addressed very directly by section 6 of S. 1160. It is that Farm-
ers Home has erected a sort of Catch-22 for getting moratorium re-
lief. They provide that you can get moratorium relief only if you a^ply
for it in writing, but they take the position that they are not required
to notify borrowers that the provision exists. In fact, in practice they
do not notify them.
Senator Morgan. If you can find out about the availability of it your-
self, you might be all right. That was my experience.
Mr. Cobb. That is exactly what happens.
Section 6 deals directly with that by requiring not only that mora-
torium relief be considered, but that notice of its availability be given
to a borrower prior to the foreclosure.
The other problem. Senator, is one of attitude which has grown up,
I believe, because of the historical development of the Farmers Home
Administration, which began predominantly as a farming and agri-
culturally oriented program and only more recently has gotten mto
housing and homeownership programs which are unrelated to farm-
ing and agriculture.
The Farmers Home personnel are trained and have expertise in
agricultural matters, but they have not been given training so that
they can become sensitive to the kinds of problems which low-income
borrowers frequently face ; problems like the Moore's and the Ellison's.
As a consequence, we fiiid that rural home borrowers — who are
poor by definition, are of marginal financial stability, poorly educated
and unfamiliar with investments like mortgages — find themselves
floating without an understanding on the part of the Farmers Home
Administration as to why these problems might exist and why they
mififht, in fact, be temporary and need not result in foreclosure.
The result is that it is relatively easy for these people to find them-
selves in a temporary default situation, to need a lot more cotmseling
than is available, and yet not get it. Yet this is precisely what these
rural housing programs were developed for. It was a recognition on
the part of Congress that if the American dream of housinsr was to
be made any sort of reality to persons in this income bracket, the finan-
cial, educational and other realities of these borrowers would have to
be taken into account.
My experience is that has not been the case. Let me give you an ad-
ditional example of how this insensitivitv can arise, a&rain from the
attachments. It is the case of Ronald and Ginger Moore in Adairsville,
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Ga., who had been making payments on their Farmers Home mort-
gage for about 7 years. They were unable to pay their 1976 property
taxes to the county government in the amount of about $86. Because
of this. Farmers Elome accelerated their loan. The tax delinquency had
not even reached the point where it was serious enough for the county
tax collector to take any legal action. The Farmers Home Adminis-
tration, in the first place, was inaccessible. It took them weeks to get
through. In the end their position was "if you don't pay the taxes in 6
days, we will foreclose."
The letter which Mrs. Moore wrote to me is included in the attach-
ments. I would refer particularly to the quotation which is extracted
on page 7 of my written statement, expressing her extreme frustra-
tion in having to deal with this sort of situation.
This points up what I believe is a great need in Farmers Home
Administration. I am going to very briefly accept your earlier invita-
tion to go astray from the particular provisions of S. 1150.
The problem is that there is nowhere in the statute or the regula-
tions any clear policy directive that Farmers Home Administration
should administer these programs in a manner which is calculated to
avoid foreclosure if that is at all possible. All too often we find that
there is a pay-up or get-out situation.
I have suggested on page 3 of my written statement some language
which might be included either in the legislation or in the committee
report which would make it clear that Congress intends these pro-
grams, particularly on behalf of low-income borrowers, to be ad-
minstered in a way which exhausts every reasonable alternative to
foreclosure before taking these people's homes away.
Now, the appeals process in section 7, 1 think, will go a long way
toward remedying this sort of attitude.
The present procedures are totally inadequate. There is no for-
mality to speak of at all. There are no rights to have or cross-examine
witnesses on behalf of or against the borrower. There is no require-
ment that any written reason be given for the decision made. There is
no requirement that decisions be made on the record. There is no
impartial tribunal and no right to counsel.
Again, I have given a couple of specific examples of how this lack
of any procedure can operate to the detriment of borrowers. There was
Mr. Williams, who fell into default and had a conference with his
district director and a representative in which he tried to explore
whether or not there was an alternative to foreclosure. He asked about
f orebearance. He asked about whether there would be the possibility of
missing payments for a while until he could catch up. Belief was
denied. When the district director was questioned later, his explana-
tion was that moratorium relief had not been asked for by name.
This kind of arbitrary action is one which I think can be largely
circumvented by the administrative appeals procedures which are in
S. 1150.
Another situation was one in which a borrower, upon appearing
for a conference with his county super\nsor, was told at first that his
attomev would not be allowed to be present during the conference.
When that hurdle was finally overcome, the relief sought — ^moratorium
and interest credit — was denied, because the county supervisor said
that he had heard that there was an outstanding judgment against this
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borrower in another county. The borrower was unprei)ared to meet
that allegation. It was untrue, but he couldn't disprove it at the time.
The relief was denied.
My experience is that, while this is not a universal sort of treatment
by the Farmers Home Administration, it is not atypical. The kinds of
procedures which are in the statute would go a long way to remedying
this sort of problem.
I would like to address your concern about all these procedures in
S. 1150. Is it really necessary to achieve this purpose? My feeling is
that it really is. .
On the one hand, I think that having such procedures available
will have a deterrent effect which may be even greater t^aa their
remedial effect. In other words, if a county supervisor, whose dis-
cretion is now virtually unfettered in these decisions, knows that he
will have to account for and justify the decisions he makes, he's going
to be a lot more careful about the rigor with whi(^h he examines the
appropriateness of various kinds of relief or applications.
In addition, it should assure more objective consideration. In
Georgia, we find an extreme disparity from place to place in the State
as to what sort of circumstances would justifjr moratorium relief. We
have examined the files of every case in Georgia in which moratorium
relief was granted and a substantial number, during the same period,
in which foreclosure took place. There are countless mstances in which
there seems to be no difference in the circumstances which in onje case
will result in relief and in another case will result in foreclosure. I
think that the appeals process will help to assure more evenhanded
approaches being used.
Now, the impartial tribunal, as you mentioned before, is obviously
a critical element here. The right to counsel. I believe, is also a critical
element. You must constantly keep in mind that these borrowers are
poorly educated and are often at a loss to understand exactly what is
happening to them. Having a representative, whether it be a lawyer
or another representative, to help explain their case is of critical
importance.
The idea of having written reasons and decis'ons based on the record
is also critical. As Mr. Wilson pointed out, oftentimes these borrowers
have no idea why this action is being taken asninst them. They go into
these conferences with no idea of what sorts of proof will be persuasive
to the county supervisor or the other decisionma ker.
Obviously, too, the right to have access to the records wh^ch are
being used to make the decision, and to confront or cross-examine any
witness that misrht be used against them, in part of the fundamental
due-process rights that are accorded.
I would like to echo what Mr. Keno said about this not being a
particularly novel or radical idea. It is a procedure which is followed
in many governmental agencies. It's had a very salutary effect. I think
regardless of what sorts of procedures the administration is able to
come UP with, the provisions in S. 1150 really represent the bare mini-
mum if we are soinsc to be serious about tryinsr to assure fundamental
fairness in these decisionmaking processes and an opportunity for the
borrower to adequately present his or her side of the story.
This will save a lot of homes. I am now convinced, after my work
in Georgia, that procedures like this will keep a lot of people in their
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homes who would otherwise lose them. I would emphatically urge
that this be passed and sent on for full approval as soon as possible.
I would be glad to try to respond to any questions you mignt have.
Senator Morgan. Mr. Cobb, I think you have done such an adequate
job and a good job that I am not sure I have any questions. I appreci-
ate the manner in which you presented it, and especially the
illustrations.
I found throughout my career that a few good illustrations can serve
to emphasize the need or point much better than anything else you can
present, any other way.
Thank you, a^in very, very much. We will stand adjourned until
tomorrow mommg.
Mr. Cobb. Thank you, Mr. Chairman.
Mr. Keno. Thank you.
[Whereupon, at 12 :46 p.m., the hearing was adjourned, to reconvene
at 10 a.m. on Wednesday, October 5, 1977.]
[Material received for the record from Mr. Cobb follows :]
Testimont op William J. Cobb in Support of S. 1150
I am grateful for the opportunity to offer testimony in support of S. 1150, which
contains amendments to the National Housing Act of 1949 which are sorely
needed and long overdue. This statement is directed primarily at the provisions
of S. 1150 which deal with moratorium relief and appeals procedures.
I am a Senior Staff Attorney with Georgia Legal Services Programs, a Legal
Services Ck>rporation funded organization providing legal representation in civil
matters to very low income persons in Georgia outside the Atlanta metropolitan
area. My interest in and knowledge of the problems which this statement ad-
dresses stems from my representation of clients in a class action lawsuit against
the Farmers Home Administration in Georgia. {Williams, et oJ. v. Butz, et oJ.,
Civil Action No. CV176-153, S.D. Ga., filed August 3, 1976). The suit was pre-
cipitated by clients' complaints that foreclosures were being initiated against
them pursuant to defaults which were due to circumstances beyond their control,
when moratorium relief would likely have made foreclosure avoidable. Discovery
undertaken in this litigation has confirmed that foreclosure avoidance procedures
and policies, and the decision-making process itself, are grossly inadequate to
prevent unwarranted foreclosures. S. 1150 promises to go a long way toward cur-
ing these inadequacies.
An overall and pervasive problem is the attitude of the Farmers Home per-
sonnel toward borrowers in the low income homeownership (Section 502) and
home improvement (Section 504) programs. These housing programs are a
relatively recent addition to the traditional Farmers Home activties, which
have focused predominately on farming problems. Most of the approximately
26,000 outstanding rural housing loans in Georgia have no connection with farm-
ing or agriculture. The problems faced by these borrowers are thus not ones which
can be addressed by agricultural exi)ertise. Yet little has been done to train
FmHA field personnel regarding the special problems which routinely confront
these borrowers. The consequence is a lack of sensitivity on the part of these
oflBcials both as to the uncontrollable nature of cricumstances which may cause
defaults, and as to the often temporary nature of these circumstances, which may
make reinstatement feasible. Although by no means universal, the attitude faced
by delinquent borrowers all too often is "pay up or get out."
This attitudinal defect is facilitated by the absence of any clear policy state-
ment either in the statute or the regulations issued pursuant to it. These housing
programs are a last resort to persons who, precisely because of the marginal fi-
nancial stability which both makes them eligible and may cause temporary de-
faults, are unable to obtain such housing in the private market. The legislation
should surely be administered in a manner which refiects this reality. In par-
ticular, there should be a strong presumption a&rainst foreclosure, and in favor of
exporing all alternatives which might result in reinstatement.
I respectfully and emphatically urge that a policy statement such as the follow-
ing be induded in the committee report or in the legislation itself :
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Foreclosure or other forced liquidation of the indebtednesfi is a last resort
and shall be undertaken only following a determination, in accordance with
the procedures set out herein, that neither moratorium relief, interest credit
nor interest cancellation, refinancing, nor any other authorized servicing and
counseling measures can reasonably be expected to result in reinstatement.
Perhaps the most tangible result of this lack of clear policy is FmHA's ex-
tremely restrictive view of when moratorium relief is appropriate. Since mora-
torium relief was implemented in 1974 — ^after lying dormant in the statute for
nearly 25 years — ^it has been actually provided to only 134 of the 26,000 rural
housing borrowers in Georgia. By contrast, there were 800 foreclosures during
the same period.
One reason for the poor record of providing moratorium relief is a procedural
"Catch 22" erected by FmHA. Moratorium relief can be granted only upon
written application. FmHA, however, takes the position that borrowers need not
be notified of the availability of such relief. In actual practice, FmHA in Georgia
does not notify borrowers of the possibility of moratorium relief. Gonsequentty,
this relief is granted only when the county supervisor independently decides to
do so. Section 6 of S. 1150 would remove this procedural barrier by requiring not
only that moratorium relief be considered prior to foreclosure, but also that
borrowers be given prior notice of the availability of such relief. This is an ex-
tremely important provision which must be enacted if the moratorium authority
is to be implemented in good faith.
The other main reason for inadequate use of moratoriums is the absence of any
meaningful procedures through which a borrower can test the propriety of a
decision not to grant this relief. At present, the decision is made at the virtually
uncontrolled discretion of the county supervisor. While a meeting with the
District Director is possible, such meetings are meaningless to the borrower
because there is no written reason for the initial denial, no formality whatsoever
in the conduct of the meeting, and no assurance that the District Director will
make his decision based only on the evidence adduced at the meeting. Of course,
in the absence of any right to produce and cross-examine witnesses, of any
forewarning of the sorts of proof which will be persuasive, or of notice as to the
eligibility criteria for this relief, the "record" is utterly inadequate to protect
the borrowers* interests.
The problem is far from theoretical. Two examples will serve to illustrate the
impact of having no procedural protections such as those provided by Section 7 of
S. 1150. (1) Lucious Williams attended a meeting with his District Director to
try to find an alternative to foreclosure. Mr. Williams' representative repeatedly
inquired about the possibility of some forebearance in order to enable Mr. Wil-
liams to recover from temporary financial problems and avoid foreclosure. No
relief was granted, and when questioned later, the District Director explained
that moratorium relief had not been requested by name. A lawsuit was neces-
sary to stop the foreclosure of Mr. Williams* home. (2) A borrower who has
asked to remain unnamed attended a similar meeting^ with his County Super-
visor. He was represented by Michael Sloman, then a legal services attorney.
The County Supervisor first asserted that it was not his custom to allow attorneys
to be present at such meetings. After overcoming that hurdle, Mr. Sloman
advocated the propriety of granting moratorium and interest credit relief to his
client. The County Supervisor said that he had heard that the borrower had an
outstanding judgment against him in another county, and denied relief on
that ground. The accusation was untrue, but the borrower was not prepared to
prove it at the meeting.
Section 7 of S. 1150 is also vital in order to help insure some degree of even
handedeness in the granting of moratorium and other relief. Having examined
the files of all borrowers who have been granted moratorium relief, and a large
number of files of borrowers who have been foreclosed upon, it is clear that
there is no predictability regarding whether a given set of circumstances will
result in foreclosure or moratorium relief. There are numerous instances in
which apparently similar circumstances have lead to moratorium for some
borrowers and foreclosure for others.
In addition, the existence of the Section 7 protections should ensure a more
rigorous assessment of the propriety of granting or denying relief in the first
instance. At present there is virtually no deterrent to the very cnsual considera-
tion which is too often given to relief measures. County Snpervisor*s decisions
are superficially reviewed, if at all. and usually the District Director has available
only sudi information as the County Supervisor provides him. The initial decision
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is rarely reversed. An appeal to an impartial tribunal which makes its decision
on the basis of the evidence will protect borrowers against arbitrary decisions.
The appeal right is especially important in the approximately 24 States which,
like Georgia, provide no Judicial forum in which to defend against a foreclosure
claimed to be improper.
Again, this problem is quite real. Narrative descriptions of the plight of several
illustrative borrowers are appended to this statement. By way of example, con-
sider the following: (1) Mr. and Mrs. Walden had been making mortgage pay-
ments for 7 years. On June 16, 1977, FmHA accelerated their loan for the sole
reason that the Waldens had as yet not been able to i>ay a property tax of
$86.72. After weeks of vain attempts to contact the County Supervisor, they were
finally told that the house would be sold at the foreclosure sale if the taxes
were not paid in 6 days. The tax delinquency was not even considered serious
enough by the County tax collector to warrant issuance of a /I fa, Mrs. Walden
writes:
"We have never been harassed by [other creditors] the way we are by the
FHA. There are not many people that can say they have not ever been in a fi-
nancial strain. Initead of trying to help people through it, or working something
out, the FHA takes everything they have. [The County Supervisor] has never
tried to work things out with people. My opinion is, he has no knowledge of what
he is supposed to be doing. . . . And my opinion is shared by many people."
(2) Mr. and Mrs. Moore incurred unexpected medical bills in 1975 and 1976
in the amount of $1,840. The medical problems caused Mrs. Moore to miss a
month of work, and because of the impact of energy shortages, Mr. Moore's
work was only part time ; in fact, he was laid off completely for 3 months. Now,
their son's medical expenses are largely covered by medicaid, and their total
net income, having resumed work, is $840 per month. FmHA foreclosed. (8)
Mr. and Mrs. Ellison suffered part-time work and lay-offs during much of 1975
and 1976. This and Mrs. Ellison's temporary illness caused them to default
Upon resuming full time employment, Mr Ellison and his employer went to the
County Supervisor to arrange reinstatement, which was refused. Mr. and Mrs.
Ellison later attempted again to arrange some relief. They were told that FmHA
"wanted the house, not part of the money."
While not all FmHA borrowers are treated as badly as these in the foregoing
examples, such treatment is far too common. The examples are certainly not
anomalous. If the I^HA rural housing programs are to have any hope of ful-
filling their purpose as the last resort for adequate housing for low income per*
sons, the programs must be administered in a way that recognizes the bor-
rowers' financial position. It is this financial position, after all, which qualifies
borrowers to participate in these programs in the first place. S. 1150 will signifi-
cantly promote the sort of administration which these borrowers deserve. I
strong^ urge passage of S. 1150.
July 15, 1977.
Deab Mb. Cobb: I am writing this letter in reference to WilUamB v. Buiz,
Civil Action No. CU-176^158.
On June 16, we received an Acceleration Notice from the Farmers Home Ad-
ministration. It was a shock to my husband and myself, as we were not delin-
quent with our monthly imyments. We tried unsuccessfully to get in touch with
Joiner Smith, Bartow County office, Cartersville, 6a. After several weeks, we
finally managed to talk to him. We were told our home would be taken away
from us within 6 days if the 1976 taxes were not paid.
We have paid seven years on our home, which could be sold for $22,000 now
(we could clear $10,000). Our home was going to be taken away from us because
we owed $86.72 for the 1976 taxes. We received a notice from the tax office a
couple of dayzr- ago stating if the taxes were paid by Aug. 10, there would be no
ft fa added to it. The County's letter was not ugly or even demanding. It was
merely a third notice. We owed the County $86.72, not the Farmers Home Admin-
istration. Therefore, I don't think the FHA should have the right to take our home
because we owed 1 year's tax.
I had always had the impression that the FHA was set up to help people. We
have had several small loans (car loan) with different banks. We have never
been harrassed by them the way we are by the FHA. There are not many people
than can ray they have not ever been in a financial strain. Instead of trying to
help people through it, or working something out, the FHA takes everything
they have.
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Joiner Smith, Bartow County office, Cartersville, Ga., has never tried to work
things out with people. My opinion is, he has knowledge of what he is sup-
posed to be doing. He is crazy (period). And my opinion is shared by many
people.
In conclusion, we have paid our ld76 taxes. I hope that it will stop the fore-
closure. But even if it does, it will be on our record, and stand against our
credit. If there is anything I can say or do to help the WiUiama v. Butz case,
I will be glad to do so. I know of others that are willing to help also. Our address :
Ronald D. and Ginger Waldon, Route 4, Adairville, Ga. 30103, Phone No. 404—
773-7335.
Thank you,
GiNGEB Waldon.
FmHA Interview
July 6, 1977.
Lucious Jones,
Eatontoti^ Ga.,
Putnam County,
Mr. and Mrs. Jones have not made a payment on their house in about a year
and a half. When asked how they got so far behind on their payments, Mrs.
Jones responded that they had both been "out of work a lot." They have been
laid off periodically and neither had worked full time. Mr. Jones worked at a
Trucking Company and Mrs. Jones at Walton Clothes. The wife generally worked
more hours than her husband. In addition to the periods of lay-offs, Mrs. Jones
was hospitalized with an ulcer in February, 1975.
In November, 1975, the Jones owed approximately $1,300 on their mortgage.
Originally their payments had been $67.71 per month, but in November, 1975,
they were up to $94 per month. The couple gave FmHA a check for $500 in
November 1975 and asked if they could pay a little each week to catch up. They
made another $100 payment. Then they were out of work again, so they couldn't
make additional payments. Though FmHA had agreed to give them time to
catch up, Mrs. Jones said "they went ahead and foreclosed."
In January 1976, the couple went to talk to Mr. Phillips at FmHA. He said
that the "sale" was already in the paper. He said that if they couldn't come up
with the balance by February 2, 1976, they would foreclose. Balance at that time
was $1,100. The couple was unable to come up with the balance.
Mr. Phillips proposed a plan that would allow them to lease the house for 4
months. (January-April 1976) at $60 per month to give them time to catch up
on their back payments. Once they caught up they could get their house back.
She gave him $60 and he gave her the lease. The following Friday, Mr. Phillips
contacted the Jones again and said FmHA would not let him go through with the
lease. He returned their $60 but did not ask for the lease. Client does not have
the lease now, she thinks she burned it.
There was a "For Sale" sign posted in their front yard last year, but after
contact had been made with Legal Services, the sign was taken down with no
word to the Jones.
Mr. and Mrs. Jones have one child and they are both working regularly now.
The wife makes $3.01 per hour for 38 hours/ week and the husband makes $3.40
per hour for 40 hours/week. Mr. Jones was off work some this year with a back
condition. But they think they will be able to meet monthly payments again and
catch upon back payments now that they are both back to work full-time.
July 12, 1977.
Clara Moobe,
Jenkinshurg, Oa,,
Butts County.
The Moores got behind on their mortgage payments due to extra medical bills.
Their son suffers from seizures and has been at the Georgia Rehabilitation Center
in Warm Springs for the past 2 weeks. Previously, they had to pay all the medical
bills, but now he is on SSI and medicaid covers his medical expenses. Also, during
the period in which they got l)ehind on their mortgage payments, one daughter
got pregnant in 1975 ($700 bill for delivery and $480 due to an infection that de-
veloped after the baby was born) and another daughter had a baby in 1976
($500 medical bill) . Mrs. Moore was in the hospital in July 1976 and missed work
^ora month. Her medical bill was $160. Meanwhile, Mr. Moore was only working
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part-time due to the energy crisis. He was out of work completely for 8 months
in the winter of 1976.
Mrs. Moore can't remember when she last made a payment but she says *'its
been quite a while". She does not know how many back payments she owes.
Payments are $109 per month.
Mrs. Moore says the '^Notice of Foreclosure" on their house ran in the Jackson
newspaper for 4 weeks. She can't remember exactly when this was but states that
Mr. Fears (a private, local attorney) has a copy of the newspaper. The paper
gave the date, time and place of the sale. But when the Moores went to the auction
at the Butts County Courthouse on the specified date to buy the house back, there
was no one there. Attorney Fears found out, 2 weeks later, from Glen Staples,
FmHA, that the house had been auctioned oft in Henry County. Mrs. Moore does
not know whether or not someone in Henry County bought the house.
Mrs. Mooie feels that they will be able to catch up on their payments now
that she and her husband are back to work full-time. Their income :
Wife gross income $240 every 2 weeks.
Take home pay $160 every 2 weeks.
Husband gross income $170/week.
Take home pay $130/week.
Both daughters and their children live with the Moores. Other debts: loan
$750 ; also monthly utility bills : $80 Ught ; $45 gas ; and $23 phone.
State of GmoaaiA,
County of Bibb, 88:
Appeared before me, an authorized oflBcial of the above State and County,
JBBBY O. MORRIS, SR., who swore :
1.
During the year 1974, I assumed a loan to purchase a house through the
Farmers Home Administration.
2.
Since the date of the loan I have made monthly payments of $100, with the
exception of several payments of $106 to cover some insurance.
3.
I am a resident of Adrian, Ga. My former wife is employed, and makes wages of
approximately $580 monthly. She and our two children live with me in the house
mentioned above. I am physically disabled, and since December 1, 1976 I have
been to the Veterans' Administration Hospital in Atlanta, Ga., three times for
outpatient care. During 1976, I was at the Veterans' Administration Hospital in
Dublin, Ga., for 52 c<msecutive days as an inimtient.
When I originally arranged my loan from Farmers Home, I was notified by
officials of Farmers Home that I would be issued payment cards, and that every
payment I made had to be accompanied by the payment card corresponding to
the installment it represents. I have been so advised several times since then.
I used up my last payment card on or about April 16, 1977, when I made my
most recent payment Although payments of $106 were also due on May 16 and
June 16, 1977, I had no payment cards with which to pay these installments.
Farmers Home Administration has not issued me any more payment cards to
date.
6.
On or about January 1, 1976, and January 1, 1977, I was delivered statements
of account from the Farmers Home Administration. Duplicates of these state-
ments are attached hereto as Appendix A.
Several things about these statements are totally incomprehenaiblft ta \afe,'^"w^
unable to understand why the "Original Amo\mt ot l^^Afc^' wiYJofc v^»X5saseB^.^»N»^
306
December 31, 1975, says $14,944, while that on the statement dated December 81,
1976, says $14,900.
8.
I am further unable to understand why a charge of $441.37 is indicated on the
statement dated December 31, 19*6, as having accrued on January 1, 1946. Farm-
ers Home has never given me any explanation of this charge. No one that I was
able to contact at the office of my County Supervisor was able to give me any
explanation, either as to the difference in the "Original Amount of Note" figures,
or as to the $441.37 charge.
9.
My house is plagued with structural defects and irregularities, including gaps
in the panelling large enough for me to put my hand through. I have apprised
Mr. Ralph Fry, my County Supervisor, of the persistent refusal by Adrian
Housing Corp., the contractor, to do anything to correct these defects. Mr. Fry
has given me no assistance whatever.
10.
On or about June 1, 1977, I was delivered a letter from the Farmers Home
Administration accelerating all the payments on my account A duplicate of that
letter is attached hereto as Appendix B.
11.
From March 29, 1977, the approximate date I was last at the office of the
County Supervisor, until on or about June 1, 1977, neither the Farmers Home
Administration nor any of its officials, communicated with me, either orally or
in writing, at any time. Specifically, neither Mr. Fry, my County Supervisor,
nor anyone acting for him, even tried to determine the cause for my failure to
pay the installment which came due on May 16, 1977.
12.
While I have no legal education, it is my understanding that the letter from
Farmers Home dated June 1, 1977, states that unless I tender Farmers Home
the entire accelerated balance on my house, which I believe to be approximately
$14,000 at the present, I will lose my house.
Jerbt G. Morris, Sr.
Sworn to and subscribed before me this 21 day of June, 1977.
Notary Puhlic, Cheorgid, State at Large,
My commission expires :
FmHA Interview Statement op Richard Ellison, Eatonton, Putnam County,
Ga., July 6, 1977
At the time of the interview, the Ellisons are approximately 2 years behind
on their monthly mortgage payments of $92. When asked how they got so far
behind, Mrs. Ellison explained that she and her husband had both been out of
work. Mrs. Ellison had been ill in the summer of 1975 — ^in the hospital for a
week. She was off work 4 months — 3 of those months due to a strike. She then
went back to work — ^but only part time. Mrs. Ellison was laid off January 10,
1977, and has not worked since. She has, however, a new job lined up at a nurs-
ing home in Eatonton. She is supposed to start there on Monday, July 11, 1977.
Mr. Ellison was out of work for almost a year (1976). It is not certain whether
Mr. Ellison was "fired'* or laid-off ^ But he and his wife were both out of work
for most of 1976.
When asked how they learned of the foreclosure, Mrs. Ellison responded that
a neighbor, whose lionse was also beins: foreclosed, contacted them when she saw
their house "for sale" in the local newspaper, Eatonton Messenger. FmHA has
not x)ersonally contacted client before nor since the newspaper publication.
1 The Interviewer did not go into details.
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Mr. Ellison and his employer (he now has a regular job at J. D. Hormon Lum-
ber Company) went to ''reason with the man/' referring to Mr. Gopeland at
FmHA. Mr. Gopeland would not accept their late payments. Mrs. Ellison noted
that their neighbor went to FmHA and they did accept her late paym^its. Mr.
and Mrs. Ellison then w^it to visit Mr. Gopeland and he said that "he wanted
the house, not part of the money." They asked fbr extra time to come up with
the money, but he said ''that was the best he could do."
The Ellisons think they will be able to meet their monthly payments when
they are both back at work full-time. The husband is working full-time now and
the wife is to start on Monday. They have three children to support (one in
high school and two in training school) : no other unusual expenses.
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RURAL HOUSING ACT OF 1977
WEDNESDAY, OCTOBEB 5, 1977
U.S. Senate,
COMMITTEB ON BANKING, HOUSINO AND UrBAN AfFAIRS,
SifBCOMMnTEE ON RuRAL HOUSING,
Washington^ B.C.
The subcommittee met at 10 a.m. in room 6226 of the Dirksen Senate
Office Building, Senator Robert Morgan (chairman of the subcom-
mittee) presiding.
OFENINO STATEMENT OF SEKATOB MOBGAN
Senator Morgan. We will call the second day of our hearings to
order.
This is the second of 3 days of hearings on S. 1150, as well as on the
rural housing problems in general.
As you may know, we have asked the witnesses to feel free to stray
afield from this particular bill, and to talk about any of the problems
in rural housing that you think might be of interest to the committee.
I might also mention that instead of trying to crowd everything
into 1 day's hearing, as yesterday, I decided to stretch it out over 3
days. Others may & able to comprehend more in 1 day, but I can't
take but so much in 1 day.
Yesterday we heard from Senator Hathaway, who is one of the
sponsors of the bill, and we heard from the Farmers Home Adminis-
tration Administrator, Mr. Cavanaueh. We heard also from the
Housing Assistance Council, and from the Rural Housing Coalition.
As I recall, we had four or five witnesses yesterday.
Today we shall have the National Association of Home Builders,
the Manufactured Housing Institute, and the American Bankers
Association.
As I indicated vesterday, many of the provisions of S. 1150 were
included in my bill S. 1359, and have become a part of the new Hous-
ing: and Community Development Act. Some of the provisions were
changes in the guaranteed loan prosrram, which we hope will attract
private lendins: institutions into this market.
The American Bankers Association may be telling us something
about that this morning.
We had expected to hear also from the savinsrs and loan industry,
but unfortunately they couldn't be here. I hope that this is an indication
that the industry is fully satisfied with the way in which the program
has been structured. I certainly hope it is no indication of a feeling
of despair or hopelessness about it in any way.
(309)
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In any event, we will be keeping a close eye on that part of the
program. ^
Tliis morning we are delighted to have Mr. Vondal S. Gravlee, who is
the vice president and treasurer of the National Association of Home
Builders, and Mr. Walter Benning, president of the Manufactured
Housing Institute. Mr. Sinclair, we hope, will arrive shortly, represent-
ing the American Bankers Association.
Mr. Gravlee, we are delighted to have you, and we will be pleased
to hear from you now.
STATEMENT OF VONDAL S. OBAVLEE, VICE FBESIDENT ANB
TREASURER, NATIONAL ASSOCIATION OF HOME BUILDERS,
ACCOMFANIED B7 J. DENIS O'TOOLE, LEGISLATIVE COUNSEL
[The statement read by Mr. Gravlee follows :]
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18TH AND M flTREETS. N.W^ WASHINGTON. D.C 20006
TELEX 8B-20QO TELEPHONE 002) 4S2-O20O
STATEAAENT OF
THE NATIONAL ASSOCIATION OF HOME BUILDERS
before
SUBCOMMITTEE ON RURAL HOUSING
COMMITTEE ON BANKING. HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
on
RURAL HOUSING ACT OF 1977
OCTOBER 5. 1977
Mr. Chairman and Members of the Subcommittee:
My name is Vondal S. Gravlee, and I am a home builder from
Birmingham, Alabama. I am testifying today on behalf of the more
than 90, 000 members of the National Association of Home Builders,
the trade association of the nation's home building industry, of which
I am Vice President- Treasurer and Co- Chairman of the Committee on
Federal Governmental Affairs. Accompanying me today is J. Denis
O'Toole, NAHB's Legislative Counsel.
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We appreciate the opportunity to again present the views of the
home building industry on the rural housing programs authorized by the
Housing Act of 1949 and also comment on the changes proposed in this
basic legislation by S. 1150, the "Rural Housing Act of 1977".
On April 29th. NAHB last appeared before this Subcommittee to
testify in support of Senator Morgan's bill S. 1359. We, therefore, are
pleased that the provisions of that bill, along with selected provisions of
S. 1150, are incorporated into the Housing and Community Development
Act of 1977. It is imperative that, as a matter of fundamental equity, the
residents of small towns and rural areas of our country be included in our
national strategy for improving the quality of life of our communities and
assuring the availability of decent housing for all.
A major factor in the home building industry's ability to meet
rural housing needs is the availability of the various housing programs
administered by the VA, HUD, and FmHA. One obstacle that has retarded
mortgage insurance activity by HUD-FHA in rural areas has been the un-
reasonably low mortgage limit of $16, 200 on the Section 203(1) program.
This problem is corrected by the new Housing and Community Development
Act which raises the loan limit for Section 203 (i) to $45, 000.
Indisputably, though, it is the Farmers Home Administration
Section 502 homeownership and the Section 515 rural rental program that
are the programs most utilized by home builders in serving the market
need of low-and moderate-income families for decent, modest-priced
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housing. It is NAHB's policy that these two programs, because of their
direct loan feature and their focus on knr-and moderate-income fomilies
should remain as the cornerstone for the housing effort of FmHA.
This, however, is not to suggest that we do not see a need for
some limited expansion in FmHA's housing services program. Specifically,
two groups • families with very low incomes and families of moderate
means - are not being adequately serviced l^ our rural housing programs.
In order to meet the housing needs of the elderly and very low in-
come rural families, NAHB has repeatedly supported the implementation
of the provision of the 1974 Housing and Community Development Act
authorizing a rent supplement program for the tenants of Sectioa 515
projects. We understand that the Housing and Community Development
Act of 1977 incorporated the provisUm of S. 1150 and mandates the imple-
mentation of the rural rent subsidty program. This program should be an
excellent ac^Junct to the Section 8 program in rural areas.
A second proposal contained in S. 1150 is to assist lower income
families to purchase decent, modest-priced housing by means of a deep sub-
sidy assistance program. Under tliis proposal, the Government would pay
the difference between 15% of the famUy's gross annual income and the
family's monthly housing cost, including principal and interest, property
taxes, insurance, utility cost, and maintenance. While NAHB does not have
specific policy on Section 14 of S. 1150, we are in sympathy with the spon-
sors' concern abo^t the decreasing ability of many families to afford
homeownership.
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Havoc has been played on our national housing goals l>y inflation,
which has alarmingly pushed up the costs of energy, taxes, land, con-
struction, and mortgage interest rates. Perhaps it is now necessary to
recognize that the reduction of interest on a family's mortgage payment
provided under the Section 502 program is insufficient to allow all rural
families desirous of homeownership the opportunity. For these families,
it may be necessary to expand the amount of Federal assistance to include
a family's monthly cost. However, we would recommend that before opting
for such an expensive program, the Section 515 rural rental assistance and
the Section 8 assistance program be concentrated on meeting the housing
needs of those very low income families.
The other income group which is in need of a Federal mortgage loan
guarantee, but not direct subsidy assistance, is rural families with middle
incomes. To have vibrant rural communities, there must be an adequate
housing stock available to all price levels as a prerequisite for inducing
present rural residents to continue to reside there; and secondly, this
housing must be there for a rural community to attract business and in-
dustrial development. Many average rural families have incomes that are
too high to qualify under the requirements of the Section 502 loan program,
but they cannot afford to pruchase a new home because mortgage loans are
available only with a 25% or 30% downpayment for a term of 15 or 20 years.
These families will be inmieasurably assisted by the guaranteed loan pro-
gram authorized by the Housing and Community Development Act. We
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expect that this program will do for rural residents what the FHA 203(b)
mortgage insurance program has done for urban home buyers, namely,
permit lower downpayments and provide longer mortgage terms.
One of our major concerns about S. 1150 is that we are afraid all
its provisions cumtilatively will result in overburdening the limited financial
and staff resources of FmHA. A persistent problem with FmHA has been
its lack of staff to adequately process its current volume of loan applications.
(Please see Attachment A. ) Since there are only a limited amount of Federal
dollars available for housing and community development programs, we think
that it is unwise to push FmHA into being a full service agency for rural
programs equivalent to HUD. A program of rural housing research seems
to us to be somethkig that could better be handled through greater coordina-
tion between FmHA and HUD, where a substantial amount of Federal assistance
has already been committed for research and policy development. Another
area of potential cooperation should be in the technologioal aspects of home
construction as in standards for construction defects compensation and
energy conservation standards. Builders pruchase their building products
from national manufacturers using industry-wide standards. Given this
market condition, does it really make sense that two Federal agencies
should have different standards on such basic items as thermal performance
standards o^ construction defects? FmHA's staff has not increased in
proportion to its loan volume, and it would seem that absent a significant
increase in FmHA's personnel levels that greater cooperation with HUD
should be encouraged.
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One other new proposal in S. 1150 which we find a need for is a
change in the site loan program to make limited profit developers eligible.
The present law restricts such loans to non-profit borrowers. A major
component of the rise in housing costs has been increased land costs.
Site preparation and development of lots suitable for home building
is a costly process, even in rural areas. These expenses must be "front-
ended" by the builder, and generally without the benefit. of obtaining con-
struction financing. Because of the nature of the rural builder's operation,
most financial institutions are reluctant to make a site development loan
and will do so only at high interest rates. By excluding private developers
from eligibility for the site development loan program, FmHA is really
harming the consumer's interest by hampering the builder's ability to pro-
vide the infastructure for a subdivision, which contemporary building
requirements dictate.
In conclusion, we thank you for the opportunity to be here. We
will be happy to respond to any questions 3rou might have.
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Attachment A
NAHB RESOLUTION
October 3. 1977
San Antonio, Texas
THE RURAL HOUSING AND DEVELOPMENT COMMITTEE
INCREASE IN FARMERS HOME ADMINISTRATION PERSONNEL
WHEREAS, the Department of Agriculture has decided because of
an employment ceiling imposed by the Office of Management and Budget
not to fill the additional 300 of the Farmers Home Administration positions
provided in the Agriculture Appropriations Act of 1978; and
WHEREASf FmHA is at present understaffed and lacking necessary
appraisers, construction inspectors, underwriters, and debt management
personnel to administer adequately its growing housing programs;
NOW. THEREFORE, BE IT RESOLVED that NAHB urge the Office
of Management and Budget to raise the employment ceiling in the Farmers
Home Administration, and
BE IT FURTHER RESOLVED that NAHB urg^ the Secretary of
Agriculture to begin filling immediately the 300 new positions in the
Farmers Home Administration as authorized by the Agriculture Appro-
priations Act of 1978.
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318
Senator Morgan. Thank you very much, Mr. Gravlee. We appreciate
your remarks this morning.
As I read your statement and as I listened to it this morning, you
seem to endorse the changes that we have already made in the guarantee
loan program in the earlier bill that you alluded to, which has now
been incorporated into the new Housing and Community Development
Act.
Do I understand you correctly ?
Mr. Gravlee. Yes.
Senator Morgan. Do you think that the lending institutions in your
area will be interested in working with this ?
Mr. Gravlee. Yes; this should increase interest. It would be some-
what like, I think, the 203 (b) program of FHA.
Senator Morgan. You also seem to suggest in your statement that
rather than broaden the range of Farmers Home programs, we should
look to HUD, which has far greater resources.
Of course we also recognize the strain that existing programs have
been putting on the resources of Farmers Home Administration. But
I think also that we recognize that HUD's record of concern for rural
problems is not exactly outstanding.
Would you a^<?ree that rural housing needs are better served as a
rule by Farmers Home than by HUD in the past ?
Mr. Gravlee. Yes, sir, they are certainly better served by Farmers
Home.
Senator Morgan. You mentioned earlier when we were talking that
when you started out building, a good percentage of your product was
mortgaged through FHA, and now a smaller percent of it is FHA.
To what do you attribute that ?
Mr. Gravlee. Well, it is the processing delays that have a great deal
to do with it. It is almost impossible, frankly, for the builders to get a
commitment, the timespan is so great. They just get lost in their own
bureaucracy, I guess is the correct answer. Senator.
Senator Morgan. Mr. Gravlee, I heard this down in Atlanta when
we had some hearings there, and I heard it in Salt Lake City, and I
heard it in Raleigh when we had hearings there.
For my own enlightenment, can you sort of describe for me the
difference between what it was like years ago, when I was practicing
law, and you used to begin construction on a home, and the process that
you have to go through now ?
Or do you build any FHA homes now ?
Mr. Gravlee. No, sir, I gave up on it. But I can tell you some of
the problems, I think.
Senator Morgan. I wish you would, because exactly what you said
is what I have heard all across the Nation, that many builders have
just given up on FHA.
Mr. Gravlee. I started as a builder 28 years ago. My first houses
were FHA. Back in those days all you had to do was file for an ap-
praisal and then you went through an inspection. The problems didn't
seem to be as great as we have now.
You file for an appraisal today and you can wait for months in some
cases just to get an appniisal on the house. Then you go through so
many changes in specifications, standards, particularly.
Now in the urban areas, where you have recognized building authori-
ties and land development agencies, you almost have to duplicate the
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319
same things for FHA or HUD, and sometimes you have a feeling that
they are simply trying to over-review each other.
I think FHA could speed up its process considerably in those areas
where there are such agencies. For example, in my area — Birming-
ham — ^they use the southern building code, and we have a good
inspection department in the city of Birmingham. Also we have a good
engineering department that checks on the development of the land.
There is no need for FHA to duplicate or to try to second guess what
these agencies have done.
Senator Morgan. Have you noticed any changes or any tendency to
change in the last few months in this ?
Mr. Gravlee. I have not noticed any change. In discussions with
FHA, with an Assistant Secretary and the Under Secretary, I know
they hope to change some of these things.
Senator Moroax. Back when you were building FHA, from your
knowledge, and from the position you now occupy, has FHA really
ever involved led itself in rural housing ?
Mr. Gravlee. I was not involved in rural housing. But I don't think
they were that involved. One of the big problems was the $16,200
limit. It is just unrealistic. I don't know what you can build for $16,200
now.
Senator Morgan. I believe you mention in your statement that you
thought the increase in the Housing and Community Development
Act will help.
Mr. Gravi^e. Yes, sir, I think it will. It increases it to $45,000. In
my opinion the bill that has just passed, and I understand it is going
up to the President today or tomorrow for signature, is probably one
of the best housing bills we have had in many years.
But the bill, for lack of a better term, I will say will be worthless if
they don't correct the processing problem.
Senator Morgan. You mentioned to me earlier that you knew one of
the Under Secretaries who deal with FHA. Do you have some hope
from what you know about him that he might change some of tne
processes?
Mr. Gravlee. Yes, sir, I do. Both the Assistant Secretary and the
FHA Commissioner have building experience. I am sure they have
experienced these frustrations in trying to process through FHA and
in conversations with them, I know that it is their intent and hope to
get the housing percentage of the market back up on FHA to where it
used to be. Now it is probably in the area of 5 to 6 percent. That is a
pretty large agency not to produce any more housing than that.
Senator Morgan. At one time it was 25 percent.
Mr. Gravlee. Twenty-five or thirty percent, I believe.
Senator Morgan. The things you told me, as I mentioned earlier, I
have heard all across the country, and I am at an absolute loss to un-
derstand why a department would sit idly by and see the use of FHA
dwindle and not realize there is something seriously wrong.
You mentioned research, Mr. Gravlee. Is the National Association
of Home Builders carrying on any kind of research in the area of
rural housing at the present time ?
Mr. Gra^tlee. We nave a research foundation that is constantly do-
ing different studies.
Incidentally, they have just completed a project on single family
housing. It was presented to our board of diwctet^ Yct'S^'aBsv Ws^rsk^js^
320
at their meeting which just concluded yesterday. They made one of the
best studies as far as insulation requirements, and energy requirements.
Thermal regulations, should be checked very t^arefuUy with the energy
standards, and the requirements that will be established by HUD and
the new Department of Energy.
It is just not insulation, but increasing, for example, in the ceilings
of a home from R-19 to R-30, using an R factor that is higher may
solve the problem. They have gone into these formulas. Their study
and recommendations actually use a recapture factor as far as the
homeowners is concerned, of a 7-year period to recapture the cost of the
consideration a 10-percent factor for inflationary impact on the utili-
ties for each year. They have taken into consideration the 9-percent
interest rate. And then they are using a 7-year period of recapture.
They go into different aspects of the types of equipment to use, the
efficiency rating of equipment that is used.
And to my surprise, frankly, the study — I know the utility company
in Birmingham, and I will use Alabama because I am more familiar
with it, was advocating an R-30 factor, where we now use an R-19
factor in the ceilings.
It develops that the R-19 is sufficient with the exception of where
they use direct electric heat, better known as strip heat.
Senator Morgan. Tell me what is required to make it an R-30 from
an Rr-19.
Mr. Gravlee. I sometimes think somebody just got some figures out
of the air for that.
Senator Morgan. I am glad to hear somebody else has that feeling,
because I am never quite sure I understand it myself.
Mr. Gravlee. This is a real good study, and it is something that our
association spent over $100,000 in their budget to do. I think we have
a good job. I think it will be effective. I sure hope that we can get the
agencies to work with us on it and listen very carefully to what we
said. Because we have qualified people in our research foundation
They have ffood backup material for this study.
Senator Morgan. Let me capitalize on your experience as a builder
for a moment, and ask you about recapturing the cost of energy-saving
devices and so forth.
You have to remember that we have to shift gears quite often here,
I am here today, and this afternoon I may be in Armed Forces, or
somewhere else, and sometimes it is hard to keep all of these things in
mind.
But on at least three or four committees we are talking about energy-
saving techniques. What kind of energy-saving materials and tech-
niques would you use to be able to recapture the cost of them in 7 years
by savings on your energy bill ?
Mr. Gravlee. As I said, they are using factoids that will recapture
this cost in 7 yearsL, which we think are reasonable expenditures. We
all recognize there is a shortage of energy, and it is a serious problem.
On the other hand, we also have to recognize, speaking of insulation,
the problem of production. Right now the plants are virtually produc-
ing at 100-percent production.
We met 2 or 3 weeks ago here in Washington with some of the
larger producers of insulation. And it came out in the meeting, with a
limited exception for some strikes they were at 100-percent
production, . '
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321
At 100-percent production they can not meet the requirements as
they now stand. So how in the world can we increase the requirements
when we can't even meet the ones we now have with production ?
Senator Morgan. How many insulation manufacturers are there in
the country, to your knowledge ?
Mr. Gravlee. I can't answer that, but there are probably only four
or five major insulation manufacturers.
Mr. O'TooLE. There are three major companies that produce the
fiberglass insulation.
Senator Morgan. Say that again ?
Mr. O'TooLE. One problem is when you use the term "insulation,"
Senator, typically we are talking about fiberglass type. In that area,
there are only three major manufacturers.
However by the term "insulation" you can take newspaper and put
it in the wall, and that is insulation. So when you start talking about
insulation in a broad way, there are many companies involved, such as
companies that make styrofoam^ plastics, and rock wool. So there are
a lot of companies. But the principal one, fiberglass, there are just three
major manufacturers.
Senator Morgan. Only three. Well, that points up something I
alluded to yesterday, and that concerns me, and all of the industry. I
can't help but believe one of the reasons for the spiraling cost§ is the
small number of building materials manufacturers, not only in insula-
tion, but in lumber, roofing, door locks, what-have-you.
Now let me go back. You can increase the insulation — are you now
decreasing the window space in homes ?
Mr. Gravlee. We are looking at it very closely. I think that is one
of the actions we will see. However, it depends on the heat index and
the cooling index, in various areas of the country. We are using a
number of cities. They take the combination of these factors, then they
'work their answers from there.
I am not an engineer, so I have to try to explain it in laymen's terms.
Senator Morgan. That is the only way I can understand it anyway.
Mr. Gravlee. But I was surprised in many cases at the answers they
came up with. Single glazing, for example, in windows was sufficient
in many areas. To my surprise, storm doors, for example, did not have
very much of an impact. The main impact as far as doors were con-
cerned is to be sure the doors are well-constructed, and well-installed
to keep from heat loss or heat gain, whichever the case may be.
One of the factors you might be interested in, which the manufac-
turers brought out in their meeting with us. Assume they have their
board of directors approval for a new billion dollar plant. After that
board approves expenditures for the construction of this plant, they
lose anywhere from 6 months to 2 years with EPA, trying to get the
approval of the environmental impact statement. Now we are running
into EPA problems about everywhere we turn around.
Another problem they mentioned was that — this ties back to EPA
also — one of the companies mentioned the fact that the energy source
for the plant was coke, and the coke had been obtained up until a few
months, or niaybe 1 or 2 years ago, I don't know the timetable, from a
plant in Ohio. But this plant was required to shutdown and now they
are importing this coke from Japan. I assume they are taking our coal
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322
which we ship over to Japan, making coke out of it, and shipping it
back to us, which has to have an impact on our balance of payments.
Senator Morgan. And the costs we have to pay.
Mr. Gravlee. And the additional costs, right.
Senator Morgan. Well, we could go on for a long time in this area,
because I am very interested. But I guess we probably need to stick
a little more to the rural end of it.
You mention on site development you thought that perhaps some
site loan program ought to be opened up to limited profit developers.
What do you mean by limited profit development?
Mr. Gravlee. I think we were speaking of limited dividends, were
we not?
Mr. O'TooLE. Right. We are talking about 6 percent as used in the
HUD programs.
Senator Morgan. I am sorry ?
Mr. O'TooLE. It is a technical term used in conjunction with HUD
programs. For instance, the 221(d) (4) program or the 236 program
have to have limited dividend sponsors. And the return you can nave
is limited to 6 or 8 percent. It is 6 percent right now.
Senator Morgan. Six percent at the present time.
Mr. O'TooLE. That is correct.
Senator Morgan. Mr. Gravlee, we appreciate very much your com-
ing, and we are interested in your remarks about deep subsidy. We wiU
pull all of this material together, and sometimes before we come back
in January, I hope we will be ready to go forward with our bill.
In the meantime, if you or the home builders have other materials or
matters that you would like to submit to this committee, that you think
would enhance the bill and make it a better bill and enhance the pro-
gram, please feel free to submit it to us.
Mr. Gravlee. Thank you, Senator.
[The following information was received from the National Associa-
tion of Home Builders :]
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323
CALCULATED INDICES
AND SOME GUIDELINES
FOR 33 CITIES
OCTOBEIil977
note::
-indices calculated
using local energy
COSTS.
-GUIDELINES SHOIVN
5ASED ON NATIONAL
AVEI2A(5E BUYER. COST
FOR EACH E.C.TCCHNIQUE.
NAMB FALL bOARD
MEETING-SAN ANTONIO.TX.
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367
NAHB
THERMAL PERFORMANCE
GUIDELINES
for One and
Two Family Dwellings
The National Association of Home Builders
15th and M Streets. N.W.
Washington. D.C. 20005
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35S
INTRODUCTION
The members of HAHB, recognizing the importance
of energy conservation in buildings, have in the past
years developed and applied construction practices
and utilized materials that have contributed greatly to
increased energy efficiency in the homes and struc-
tures they have built. NAHB has pledged to continue
to incorporate into all newly constructed homes,
apartments and commercial buildings the energy effi-
cient techniques necessary to alleviate rapidly in-
creasing heating and cooling costs.
In dealing with building codes and building com-
ponents, NAHB has maintained a policy based on
performance rather than specification standards. As
part of its ongoing service to its memt}ers and as part
of its share in helping reduce energy consumption in
this country, these "NAHB" Themial Performance
Guidelines for One and Two Family Dwellings" have
been developed.
These Guidelines wiN assure coat effectl\« thermal
performance whHe maintaining freedom of choice in
design and selection of energy consennng tech-
niques. They provide builders with a design proce-
dure that can be used to develop a balanced package
of energy consennng techniques. White these Guide-
lines are based on a 7-year time-to-recoup-invest-
ment. the basic procedure may be used with other
time periods and economic assumptions.
In addition to the energy conserving techniques
for which energy indices are shown in the Guidelines,
a number of other important techniques which do not
lend themselves to an energy index determination are
listed in the Appendix.
PROCEDURE
These Guidelines are predicated on the use of an
"Energy Index" (E.I.) concept. The Energy Index is
the sum of a "Heating Index" (H.I.) and a modified
"Cooling Index (C.I.). Each quantifies the effect on
annual energy savings for the heating season (using
H.I.) and the cooling season (using C.I.) and equates
the aggregate savings over a prescribed time period,
to initial buyer cost of the given Energy Conserving
Technique (ECT).
The procedure utilizes Present Worth Factors. It
relates an annual increasing cost of energy to a cor-
responding mortgage rate such that the sum of the
savings over an assigned time period equals or ex-
ceeds initial cost.
The H.I. and C.I. are defined in the Appendix. They
take into account the severity of the winter and sum-
mer climates, the cost of a unit of energy and the
heating and cooling seasonal efficiencies of the sys-
tem(s). H.I. and C.I. breakpoints between incremental
levels of each ECT have been calculated on the basis
of total energy savings for each increase in thermal
protection, versus the national average buyer cost of
that same increment. The user of this procedure is
strongly encouraged to calculate breakpoints on a
local basis, using local buyer cost and energy cost
information. The method utilized in these Guidelines
is shown in the Appendix.
SpBcHic assumptions for these Guidelines indude:
• a time-to-recoup-investment of seven years.
• an annual increase in energy cost of 10% in cur-
rent dollars.
• a mortgage rate of 9%.
• the use of average national costs for each ECT
shown in the Guidelines bar graphs.
• a Present Worth Factor (PWF) of 7.26 (See Appen-
dix for equations employed and a table of repre-
sentative PWF's.) This Present Worth Factor is
based on certain simplifying assumptions*.
Using the Appendix equations, any combination of
energy cost increase, mortgage rate, term period and
buyer cost may be combined to calculate indices
appropriate to local conditions.
National Guidelines for 19 ECT's are as follows:
* To make
assumptions have been made. They do not materially effect ttie
results. Salvage value is not included. This is tMcause for most
depreciating residential items, like mechanical/electrical equip-
ment or devices, that value is essentially zero. For most other
ECTs. the salvage value is greater at the end of the period of
analysis than its first cost due to the home's appreciation in
value (within reasonable time limits). Thus, use of salvage value
for such ECTs vrauW justify an unlimited added first coat ex-
penditure. Operating and maintenance ootts are ignored be-
cause they are zero for most ECTs. except lor machanicai/elac-
trical equipment and devices. The added cost of insurance is
ignored because it is relatively minor. The effect of added real
estate taxes, due to the increased first cost of the added ECT
and the effect of the income tax in reducing itw added cost of
mortgage interest for that added first cost, are omitted because
they are minor and tend to offset each other althou(0i they are
rwt necessarily equal.
Digitized by
Google
359
HAW THDIMAL PBUFOMIAIICe QUIDELIIIE8
FOR 0MB AND TWO FAMLY DllfEIJJIIQ8
BUILOINQ
SECTION
ENERGY INDEX
R-VAUSOF
ATTIC DUCT
INSULATION'*'
R-VALUE OF
RIQIDDEOK
INSULATION'
El - HI ♦-0.7CI.
2 Applies to )pen bMin coAstruction For jiat or sloped 4*i)ings wHh sjrpsuffl b
insul«tton «r graph abo e. Approximai » deck irtsuiai on lhickn«*s< • are s"^
R-VALUE OF
FRMIIEWALL
INSULATION
4- SHSATHfNOO'
R-VALUE OF
MASONRY WAU
INSULATION '*>
2 insulalion R-3 baaed on aluminum foil becked gypeum board on 1" furring. R-11 I
between 2" x 3" framing members set-out 1" clear of masonry For brick veneer
above for frame walls
walls, uae guideline* shown
Instalted
R-Valtieof
InauMion
Dud Wrap
FlexIMaDuct
'MSIS
R-4
1%-
lV*--1Vfc-
1"
R.6
2-
-
1%-
R-< or Greater
Mulliple Layer
-
-
R-Value ol
Rigid Deck
Extruded
RigidOlaaa
Fiber Board
R-10.0
2-
Hk"
2^'
R-12.S
2%-
1H-
R-15.0
3-
2\k'
9Vk'
R-17.5
3%-
2%-
4-
R-20.0
4"
s-
4%-
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360
NAHB THERMAL PERFORMANCE QUIDEUNE8
FOR ONE AND TWO FAMILY DWELUNG8
STORM
DOORS'"
R-VALUE OF
FLOOR
INSULATION
OVER OPEN
SPACES'"
■l. E.I. srH.I.
2. Addition o
respective f.
C.I. not cons» lered)
storm doors < > solid doors |nd insulated doors requires
ndices of at h ast 9500 and M390
1 E I. = H.I. 4- C.I.
2. Applies to cantilevered fftwrs and floor^ of living areai over garage^ and carports
RVALUE OF
FLOOR INSULATION
OVER UNVENTED
CRAWL SPACES"
R-VALUE OF
VENTED CRAWL
SPACE DUCT
INSULATION'"
' 1 c I _ H I
■ 1. E.I. = H.I. (C.I. not cons Jered)
2. Applies to floors over ve ited crawl spaces with fixed permanently ofcen wall louvflh.
* 1. E.I. = H.I. + C.I.
2 Applies to vented crawl spaces witft floor insulation above. Insulation R-value shown refers to thermal resistance
as installed, including compression. See Note C below.
Installed
R-Value of
Insulation
*^
mate Out of Pac
uge
Duct Wrap
Flexible Duct
Rectangular
Duct Board
R-4
m-
m--m-
r
R-6
2"
-
i%-
R-8 or Greater
Multiple Layer
-
-
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361
R-VALUE OF
PERIMETER WALL
INSULATION-
UNVEr4TE0
CRAWL SPACES'"
R-VALUE OF
DUCT INSULATION-
UNVENTEO CRAWL
SPACES wrm
WALL INSULATION
R-VALUE OF
FLOOR INSULATION
OVER UNVENTEO
CRAWL SPACES'"
R-VALUE OF
DUCT INSULATION-
UNVENTED CRAWL
SPACES WITH
FLOOR INSULATION <"
1 El = HI. 4-2 C.I.
2. Applies to ducts in unvenled spaces
resistance as installed, including
R-Value of
PertiMter
Insulation
ExtrudwJ
'sssssr
Expandwl
R-6.0
R-7.5
R-10.0
1-
IVi"
r
m-
2"
2%-
instalM
R-VkliMof
Inawlalion
*^
mat* Out of Pad
jtetion TMcimMi
kago
Duct Wrap
FlMibtaDuet
dSTSSK
fM
1%-
iH--m-
r
M
ar
—
i*k-
R-eorQfMtar
MuMptoLayar
- -
-
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NAHB THERMAL PERFORMANCE QUIDELMES
FOR ONE AND TWO FAMILY DWELUNQ8
BUILDING
SECTION
ENERGY INDEX
2000 3000
R-3 BASEMENT
WALL INSULATION
TO 24- BELOW
EXTERIOR GRADE '»
Grade to Top of Foundation Lon Than 24*
Orado to Top of Foundation — 24- to 48-
1. E.I. = H.I.
2. Insulation
grade.
[C.I. not const lered)
^3 tMsed on iluminum toil backed gypsurji t>oard on 1"
iradf to Top of Foundation Qret ter Than 48'
furring Instalidd to about 24'
R-3 BASEMENT
WALL INSULATION
T0BA8EMENT
FLOOR'"
R-11 BASEMENT
WALL INSULATION
TO BASEM "
FLOOR ">
R-VALUE OF
DUCT INSULATION
IN UNINSULATED
BASEMENTS <»
I Irade to Top c f Foundation Ireater Than ' 8"
QradaloTopof
ropof
aThana4-
urnng instalie I to top of t>as iment floor.
Topof '
M Than 24*
I.E.I. = H.I.
2. Insulation
Interior
C.I. not consi< ered)
^-11 based of blanket lnsul|ition between ^'
top of
to Top of Fdundation Qra« ter Than 48"
framir g menitwrs sc -out 1" clear >f wall m
E.I. = H.I. -I- 2.0 C.I.
2. Applies to ducts in basements with no wall insulation or lloor insulation above. Insulation R-value shown n
to thermal resistance as installed. Including compression. See Note F below.
InilBiied
In*
IIMie Qui □' PlI
«J4e
PvCi Wrap
Fle%mt tl<^t
RB>CE4l>flulv
Duct Boerd
n~i
ilfl.-
1W^ -tVt'
r
R4
?■
-
itt**
R ft Ct ijtmmfvr
MuiNliln L^Ttr
-
-
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DISCUSSION
OF
NATIONAL
GUIDEUNES
Since E.I. breakpoints vary widely from each ECT, it is
suggested that the user examine each bar graph
appropriate to the construction to estimate how cloeely
each current or proposed ECT matches the Guideline
shown. Selection of an ECT some distance to the right of
the ECT indicated by the local E.I.. indicates a significantly
greater time-to-recoup-investment than 7 yeare. Similarly,
selection of an ECT some distance to the left corresponds
to a significantly lesser time period than 7 yeare.
Selection of each ECT as close to the local E.I. as prac-
tical, will result in a balanced package of ECTs with rea-
sonably equal paytkick periods. Where local acceptable
practice deviates sut)stantially from the Guideline for a
specific ECT, an overall balance may be obtained by
adjusting one or more other ECTs either up or down in
thermal value to compensate for the deviatk>n.
The QuktoMnM w*r« d w toptd m ttw raquMt of ttw NAH6 Energy
CommiilM, by ttw NAHB ftotewch Foundtfion, Inc., wi0i Sm ooop-
efilion ol the NAHB Technical Sefvicet. in the public inlereet to tU
bulldef* end coneumen. Adherence or non-adherence to Steae Ouide-
Hnee K. til couree. entirety vohjniafy aa a matter of the indivlduai dla-
cretion of both members and non-members of NAHB. They are pre-
or proceaees. NAHB and the NAHB Reaeareh Foundation. Inc. assume
no liability to any patent o«vner nor do they aaaume any obligalion
whatever to parties «»ho adhere, or do not adhere to theee GuideHnes.
They provide builder* with a deaign procedure that can be uaed to
develop a balanced package of energy conserving techniques. WhHe
theee Guidelines are baaed on a 7 year Mme-lo-recoup-investment, the
besic procedure may be uaed with other time periods and economic
aasuniptions.
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364
TECHNICAL TERMS
APPENDIX
The technical terms necessary to determine local
heating and cooling indices are as follows.
HEATINQ DEGREE DAYS
The number of Heating Degree Days in a day is the
average of the high and low temperature of that day
subtracted from 65° F. For example, if the high for the
day is 60° F and the low is 30° F, there are 20 Degree
Days in that day, i.e., 65 - (60 + 30) = 20.
2
Degree days for the year are the sum of the daily
degree days and are used as a measure of energy
consumption for space heating. Degree days for 150
cities are shown In this Appendix.
HEATINQ COST PER 100,000 BTU
— Natural gas. $7100,000 Btu = $/Therm.
— Fuel oil, $/ 100,000 Btu = $/ Gallon X 100,000
Btu value/gallon
— Electricity, $/ 100.000 Btu = $/Kwh X 29.3
Accurate determination of local energy costs is ex-
tremely important in determining local heating and
cooling indices.
SEASONAL HEATING EFFICIENCY
The seasonal efficiency of a heating system will vary
depending on fuel type, equipment type, distribution
system and geographical location. The ASHRAE 1976
System Handbook cites effective seasonal efficien-
cies of from 0.50 to 0.78 for natural gas and 0.44 to
0.69 for fuel oil, with a 40% furnace oversizing. For
direct electric heating systems corresponding effi-
ciencies of from 0.77 to 1 .20 are shown with a 10%
equipment oversizing. The higher values apply to
cold climates while the lower values apply to mild
climates. Winter performance of heat pump systems
will vary even more widely. In the absence of specific
local information, it is suggested that the following
seasonal efficiencies be used:
Natural Gas 0.60
Fuel Oil 0.50
Direct Electric 1.00
Heat Pump See local power supplier
The importance of using reliable local data for
heating cost/ 100,000 Btu. and seasonal heating effi-
ciencies cannot be overemphasized.
SUMMER COOUNQ HOURS
The summer cooling hours represent the number of
equivalent full load operating hours per year that the
air conditioning equipment operates. The number of
hours in the entire cooling season is greater than the
summer cooling hours shown because of intermittent
operation of the air conditioning equipment under
partial load. Cooling hours for 150 cities are shown in
this Appendix.
ENERGY EFFICIENCY RATIO (EER)
The energy efficient ratio of air conditioning equip-
ment is the Btuh output divided by the watt input
(Btuh/watt). The higher the EER, the more efficient
the equipment and, under identical conditions, the
lower the electrical consumption for air conditioning.
DEFINITION OF HEATINQ AND
COOUNQ INDICES
HEATING INDEX (HI)
The heating index is defined as:
HI = ( Degree Days) ($/ 100,000 Btu)
Seasonal Heating Efficiency
COOLING INDEX (CI)
The cooling index is defined as:
CI = (Summer Cooling Hou rs) ($/Kwh) (100 )
EER
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367
mortgage rate, the Present Worth Factor would be
11. 65 arKi the above value of 6097 would be reduced
by the ratk) of 7.81 /11 .66. or 4087;
Whenever HI + (1 .22) CI equals or exceeds 1?^.
(6097) = 4087. the investment is justified ^ '^'
under those specific economic terms. '
Some available references on engineering eco-
nomics are ^own in the Bibliography.
PRESENT WORTH
FACTORS ANDTIME-TO-
RECXDUP-INVESTMENT
A Present Worth Factor equivalent to a 7-year period
for time-to-recoup-investment has been used for
determining Energy Index breakpoints.
The Present Worth Factor is calculated using the
equation for present value, modified to provide for
different rates of price increases for energy and for
mortgage or alternate investment interest rates, wt>en
S = $1.00.
P - Present value or added cost of EGT.
S = Operating cost savings in the first year.
attributable to the added EOT.
n = The period of years of analysis or
time-to-recoup-investment.
a = l±-*
1 +i
f - The estimated annual percentage rate of
price increase for the fuel (or energy) used,
expressed as a decimal.
I - The percentage interest rate on the mortgage
or loan expressed as a decimal.
Energy breakpoints for payback periods other than
7 years may be calculated by determining the Present
Worth Factor (P) as follows:
P-S. a(a«- 1) A8sumef=12%.i = 9%.
a - 1 n = 6 years. S = $1 .00
1 + i
P = $6.61
: 1.0275
This new value for the Present Worth Factor is then
used in the Heating and Cooling Index equations.
The time-to-recoup-investment for an EOT can be
determined by the following equation:
log
k}ga
ADDITIONAL
ENERGY CXDNSERVING
TECHNIQUES
INnLTRATION
The importance of reducing air infiltratton cannot be
overstressed. The anxnint of glass area and the
quality of windows and doors greatly influences the
amount of air infiltration. Poorly fitted windows and
doors, not weatherstripped, can negate much of the
bertefit derived from extra insulation and other energy
conserving technkjues.
Minimize the use of exhaust fans in cold climates
and consider using those that close tight.
Consider:
• Sill sealer between the top of the foundation and
the band joist or sill plate.
• Sill sealer or caulking between the bottom exterior
wall plate and fkx)r sheathing or slab.
• A 1 X 4 for the bottom wall plate rather than a 2 x 4
as shown in the Research Foundation's Manual of
Lumber and Plywood Saving Techniques (See
Bibliography, page 20).
• Caulking cracks around doors, windows and other
openings or penetrations of the walls and at
comers.
• Higher grades of caulking, they are more cost
effective since labor remains constant. Latex,
acrylic, butyl rubber and chloro-sulfonated poly-
ethylene caulks are intern)ediate performance
types while high performance categories include
polysulfkto, polyurethane and silicone.
• Nailing sheathing tightly to the framing.
• Replacement of wall sheathing damaged during
constructk)n.
• Ductless kitchen and bathroom fans.
INSULATION APPUCATION
Careful attention to the proper installation of insula-
tion reduces heat loss and heat gain. Proper installa-
tion includes making sure that:
• When eave vents are used, there is clearance at
the outside plate between the top of the insulation
and the underside of the roof sheathing.
• lnsulatk>n blankets butt snugly where they meet.
• Separate pieces of blanket are applied and snugly
butted at framing offsets.
• Blankets are adequately stapled to eliminate gaps
between the insulation and framing members.
• Areas between rough framing and door and win-
dow heads, jambs and sills are filled with insula-
tion.
• Insulation is placed behind electric boxes and on
the outside of exterior wall piping.
• Band joists are insulated to the level shown for
frame walls.
• Rips and tears in vapor barriers are repaired.
(Vapor barriers in ceilings, walls and floors should
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366
portion of the country htving a high percantago of
homes equipped with central air conditioning systems.
AREA
— the square footage of the themwl improvement.
A convenient area for calculation purposes is 1000
square feet for opaque building sections, 100 square
feet for windows, actual area for patio and opaque
doors and 1 00 linear feet for duct systems and perim-
eter slab edges.
The Energy Index (El) necessary to justify a given
thermal improvement is found as follows:
For homes with heating and no air conditioning:
El = (Buyer cost of ECT) (100.000)
(Heating) (Present Worth Factor)
(Change in Heat Loss/»F) (Area) (24)
For homes with air conditioning and no heating:
El = (Buyer cost of ECT) (100.000)
(Cooling) (Present Worth Factor)
(Change in Heat Qain/Sq. Ft.) (Area)
For homes with heating and air conditioning (see
example below):
El = HH- (r) (CI), where:
HI = Heating Index
CI = Cooling Index
r = An adjustment factor to account for radiation
and other effects on various building sections.
Suggested adjustment factors for each tech-
nique shown are noted directly under the
appropriate bar graph in the Guidelines. A
precise adjustment factor for any improve-
ment may be found by calculating the local
heating index and cooling index required to
justify the improvement, and dividing the
heating figure by the cooling figure as shown
in the example at right.
AN EXAMPLE OF HOW
TO DETERMINE
LOCAL El BREAKPOINTS
Calculate the Energy Index breakpoint for R-38 versus
R-30 ceiling insulation using loose fill at a buyer coat
of $80.00 per thousand square feet. Using methods
shown in the 1972 ASHRAE Handbook of Fundamen-
tals a reduction of 0.007 In U-value has been calcu-
lated. A seven year period (n), with a 12% increase
in annual energy cost (f) and a 9% mortgage (i) is
considered appropriate. Assuming heating only, the
Energy Index breakpoint is:
El (Heating
Index) = ( Buyer cost of ECT ) (100.000)
Breakpoint (Present Worth Factor)
(Change in Heat Loss/<'F) (Area) (24)
HI = (80.00) (100.000) = 6097
(7.81) (0.007) (1000) (24)
Similarly, the corresponding reduction in heat gain
has been calculated to be 0.205 Btu per square foot.
Assuming air conditioning only, the Energy Index
breakpoint is:
El (Cooling
Index) = (Buyer cost of ECT) (100.000)
Breakpoint (Present Worth Factor)
(Change in Heat Qain/Sq. R.) (Area)
CI = (80.00) (100,000) = 4997
(7.81) (0.205) (1000)
Either breakpoint equally justifies tt>e investment.
When both heating and cooling are consklered the
indices may be combined utilizing an adjustment
factor (r) as follows:
El = HH- (r) (CI)
'=^
6097
"4997
= 122
In this example, whenever HI + (1 .22) CI equals or
exceeds 6097, the initial investment under the eco-
nomic terms assumed above is in order. Thus:
With HI ■•= 4500 and CI = 1500.
El = 4500 + (1.22) (1500)= 6330 (Investment
justified)
With HI =1500 and CI = 3000.
El =1500 + (1.22) (3000) =5160 (Investment
not justified)
Analyses of a similar nature may be made on a
local basis for any level of thermal improvement for
opaque building sections, windows, doors and duct
systems.
It may be noted that if a 1 2% annual increase in
energy and a 1 year term were utilized at the same 1 1
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367
(11.66)
mortgaga rate, tha Prasant Worth Factor wouM ba
11.65 and thaabovavakja of 6097 would ba raducad
by Ifia ratio of 7.81 /1 1.66. or 4067.
Whanavar HI + (1 .22) CI aquala or axcaads ^^^
(6097) = 4067. tha invaatmartt is juatifiad
undar thoaa Bpacific aconotnic tarma.
Soma availaUa rafararicas on anginaaring aco-
nomics are shown in tha Bibliography.
PRESENT WORTH
FACTORS ANDTIME-TO-
RECOUP-INVESTMENT
A Prasant Worth Factor aquivalant to a 7-yaar pariod
for tima-to-racoup-invastmant has baan uaad for
determining Energy Index breakpoints.
The Present Worth Factor Is calculated using the
equation for present value, modified to provide for
different rates of price increases for energy and for
mortgage or alternate invaatmant mtaraat rates, whan
S = $1.00.
P - Present value or added cost of EOT.
S = Operating cost savings in tha first year,
attributable to the added EOT.
n - Tha period of years of analysis or
tima-to-recoup-invastment.
a = t±-*
1 + i
f - Tha aatimated annual percentage rate of
price increase for the fuel (or er>ergy) used.
expressed as a decimal.
i - Tha percentage interest rate on tha mortgage
or loan expressed as a decimal.
Energy breakpoints for payback parkxls other than
7 years may be calculated by determining the PreserM
worth Factor (P) as follows:
= s.5i5izgj
■ 1
1.0275
A8sumef=12%.i = 9%.
n = 6 years, S= $1.00
a = l±i =
1+1
P = $6.61
This new vakja for the Present Worth Factor is than
uaed in tha Heating and Cooling Index aquations.
Tha time-to-recoup-investmant for an ECT can be
determined by the following equation:
tog
toga
ADDITIONAL
ENERGY CONSERVING
TECHNIQUES
mPILTRATION
The importance of reducing air infiltratton cannot ba
overstressad. The amount of glass area and the
quality of windows and doors greatly infiuancas the
amount of air infiltration. Poorly fitted windows and
doors, not weatherstripped. can negate much of tha
banafit derived from extra insulation and other energy
conserving techniques.
Minimize the use of exhaust fans in cold climates
and consider using those that close tight.
Conskter:
• SiH sealer between the top of tha foundation and
tha band joist or sill plate.
• Sill sealer or caulking between tha bottom exterior
wall plate and floor shaathing or slab.
• A 1 X 4 for the bottom wall plate rather than a 2 x 4
aa shown in the Research Foundatton's Manual of
Lumber and Pfy¥fOod Saving Techniques (See
Bibitography. page 20).
• Caulking cracks around doors, windows and other
openings or penetrations of the walls and at
comars.
• Higher grades of caulking, they are more coat
effective since labor remains cortstent. Latex,
acrylic, butyl rubber and chtoro-suffonatad poly-
ethylene caulks are intarmadiate performance
types while high performance categories inckJde
polysulfide, polyurethana and silicone.
• Nailing sheathing tightly to the framing.
• Replacement of wall sheathing damaged during
construction.
• Ductless kitchen and bathroom fans.
INSULATION APPLICATION
Careful attention to the proper instellation of insula-
tion reduces heat toss and heat gain. Proper instella-
tion includes making sure that:
• When eave vente are used, ttwre is clearance at
the outatoe plate between the top of the insutetion
and the underside of the roof loathing.
• Inautatton blankets butt snugly where they meet.
• Separate pieces of blanket are applied and snugly
butted at framing offsets.
• Btenkete are adequately stepled to eliminate gaps
between the insulation and framing members.
• Areas between rough framing and door and win-
dow heads, jambs and sills are filled with insula-
tion.
• Insulation is placed behind electric boxes and on
the outside of exterior wall piping.
• Band joists are insulated to the tevel shown for
frame walls.
• Rips and tears in vapor barrierrs are repaired.
(Vapor barriers in ceilings, walls and floors should
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368
face the heated In winter side of the home.)
Additional information on application, loose fill
insulation and other relevant insulation facts may be
found in the Insulation Manual — Homes/ Apartments.
(See Bibliography, page 20).
MECHANICAL/ELECTRICAL EQUIPMEHT
AND APPUANCE8
Clock Tlwi iiimtMl
The installation of a clock thermostat to reduce
temperatures at night can result m significant energy
savings which vary by type of heating system and
geographic location.
Temperature setback is usually not recommended
in most climates when a heat pump is used.
Water Heator
The water heater is usually the second largest
. energy user in the home. Locate it as near as pos-
sible to the point of greatest use. Investigate the avail-
ability of more energy efficient water heaters. Make
sure that the temperature setting is as low as prac-
ticable (120°F to 125°F). Suggest that it be left at
that setting.
Applianc* and Machanlcal/Elactiical Equlpmant
Mechanical equipment should be properly sized.
Oversizing costs more, uses more energy, is less
efficient and produces lower comfort levels. When
selecting appliances and mechanical/electrical
equipment, consider the comparative energy effi-
ciency of each. The energy efficiency ratio (EER) is
a commonly used efficiency rating method for air
conditioning. The higher the EER. the greater the
energy savings.
When using electric heat, consider using the heat
pump The seasonal performance factor (SPF) for a
heat pump is greater than electric resistance heat
and therefore results in lower operating costs in most
areas of the country. In areas of both hot and cold
climate extremes, consult the local power company
for advice on the merits of heat pump use.
Several newer mechanical/electrical devices to
conserve energy are becoming available. These in-
clude: automatic stack dampers which close the flue
when the furnace is off; intermittent ignition devices
for gas furnaces and ranges; heat exchangers to cap-
ture waste heat from air conditioners to heat water;
and solar water heating or space-heating systems in
areas where they are justifiable.
Duct Syttams
Avoid running ducts through non-conditioned
spaces. If this is not possible, then insulate the ducts
in accordance with the Guidelines. Avoid undersizing
duct work. Use of more efficient fittings and minimiz-
ing turns increases system efficiency. To reduce duct
leakage, keep duct runs short and insure that all joints
are properly taped. Tape joints in metal ducts even if
they are to be covered with insulation. As the thermal
efficiency of the envelope improves, simpler, lower
cost duct systems become possible.
CONSTRUCTION TECHNIQUES
Extra supervision to assure that the top of founda-
tion or slab is square and level wilt reduce air infiltra-
tion and save labor framing and trim time. Construc-
tion practices to minimize air infiltration will require
the same kind of supervision and attention to details
to cracks and spaces around wires, pipes and ducts
that are necessary to attain good acoustical per-
formance.
Framing
Eliminating unnecessary framing members in
floors, ceilings and exterior walls will help reduce
heat toss and heat gain. Twenty-four inch on center
framing, 2-stud corners, drywall back-up clips at
partition intersections, and the use of plywood box
headers filled with insulation are examples of methods
that will reduce heat flow through framing members.
For details of other lumber saving techniques. .see the
NAHB Manual of Lumber and Plywood Techniques
(See Bibliography, page 20).
DESIGN
Energy use can be reduced by lowering the ratio of
exterior wall area to floor area. H, T, and L shaped
homes have higher ratios of exterior wall area to floor
area than rectangular homes with the same floor
area. Reducing the ceiling height from 8' to TB"
consen/es energy.
When possible, orienting homes with the ridge
running more east to west, rattier than north to south,
is advantageous. Shading south facing glass with the
proper overhang reduces heat gain in summer and
allows solar gain in winter. Minimize glass areas on
east and west walls. Where feasible in cold climates,
put attached garages or carports on the north, north-
east or northwest. In hot climates put attached ga-
rages or carports on the east or west side when
feasible. In hot climates, tinted or reflective east/west
glass can significantly reduce heat gain.
Fireplaces improperly designed and constructed
result in significant heat loss. Tight fitting dampers
reduce heat loss wtien the fireplace is not in use as
do glass doors. Where practical, supplying outside
air to the firebox will reduce heat loss from the home
and improve performance. Also, consider devices for
heat recovery and recirculation of air for conven-
tional fireplaces. The new generation of prefabricated
fireplaces includes dampers, glass doors, outside air
ducts to the firebox and hot air circulation systems.
AtHc Ventilation
Adequate natural ventilation of the attic space is
important to reduce summer air temperatures. It also
serves to allow moisture vapor to escape and thereby
minimize the chance for wintertime condensation.
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DEGREE DAYS AND
CX)OLING HOURS FQR 150 CITIES
(Ascending order of Zip Code)
Haatir^
Coohng
Haalrng
CoolFna
D»era«
DwawJ
AnfiLial
t©c«tfon _
Dayi
Hour*
Localiort
Dayi
Hours
San Juan. PR
630
tB20
1600
Spr»ngitflld. MA
5840
KO
Atlanta. GA
29m
1320
Boaion MA
5«30
m!}
ColuFTibys, OA
£380
1540 i
PfOvidpflCfl, HI
SiSO
60Q
jacicsoi>¥ii>e, Fi
1230
2040
Manchgaiar. fiH
7100
610
TaffahassBfl, FL
1520
1720
Potiiana, ME
rs7o
390
Or^Bn(Jo, FL
720
2340
S20
Miamj. f L
200
3»0
HartltKd. CT
6170
630
Tampa. FL
700
2420
U9* Hawfi, CT
5^0
730
Fon MyflfS, FL
430
3180
Newark NJ
4300
ft40
2710
1430
SumFT>it. NJ
5010
790
3190
1290
Atlantic Ciiy. NJ
49S0
630
MDrHgonwry. AL
2250
1610
Trarton. MJ
4«eo
770
Modtlff.AL
1620
i«eo
Wh»l« flaina. NV
5800
ftso
Naahvitte, TN
3610
1310
Ne* tork NV
4P0O
650
Ghana nooaa. TN
33B0
1220
flivsrtiead, MY
&620
770
KrioKviHe. TN
3filO
1210
Afbanv. NY
edoo
600
MeFfifthis. TN'
32^0
1430
^meuie. NY
6720
630
Qi«envilki. MS
2m
1«00
7340
460
JacJtBon, MS
2200
1620
Buffalo. NV
^60
610
LOUiSVllM. KV
4610
1150
RpchfTsier. NY
6760
S90
Padi>cah, KV
3650
1250
f i[i!4tiiirgh, PA
5950
720
CMensbofD, KY
42O0
1130
harnsDurg. PA
5£60
aoo
CoJurntui, OH
5670
flSO
Scraritofi, PA
et60
630
Toie<*o. OH
0430
eso
PhiiadelpniB. PA
4980
920
Qavatand. OH
€200
740
4930
mo
Dncinnati. OH
4ft1fl
970
WBStihn9lo<i. DC
4240
^080
Da^an. OH
5620
940
Baltimore. MD
4660
970
liKjianapori^. IN
5830
670
Cum^T^aod. MD
SOTO
T30
South Band. (N
6460
720
SBr»iburv, MD
4220
970
Fon Wayne, In
6220
730
flchmond, VA
3910
1090
y«M Rock. AR
3170
1440
Norfolk. VA
3440
1150
3d40
1320
Rosncka, VA
4TS0
9ao
OkkaKoma City. OK
3700
1£40
Chflfieiton, WV
4S10
1010
Tuiu OK
3730
1310
Qfi^ansbora. NC
aeiD
1090
DalJas. tx
2320
1120
Rahe^h. NC
3440
itBO
Tajiarhana, TX
^30
1520
Cnarlcitfl, NC
32O0
1250
Wichita Facta. TX
2900
1570
Columbia. SC
Z&2(3
1480
H&uStOfl TX
1410
2060
CharfflBton.SC
2Qm
1530
San Anionio, TX
1560
iaao
Au(^i8ta, GA
24O0
1450
Cdrpus ChrttU, TX
930
2530
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Heating
Degree
Cooling
Annual
Heating
Degree
CooUng
Annuiir
Location
Days
Hours
Locatkjn
Days
Hours
McAllen. TX
600
2810
Sioux Falls. SD
7840
730
Amarillo. TX
4140
1130
Fargo. ND
9250
560
El Paso. TX
2680
1620
Bismarck. ND
8960
550
Denver. CO
6150
750
Billings. MT
7150
580
Boulder, CO
5540
700
Helena. MT
8180
500
Pueblo. CO
5480
870
Butte. MT
9730
530
Grand Junction. CO
5660
970
Evanston. IL
6640
700
Cheyenne. WY
7370
510
So. Sub. Chicago. IL
6160
790
Pocatello. 10
7030
640
Rockford. IL
6640
690
. Idaho Falls. ID
7890
480
Peoria. IL
6070
820
Boise. ID
5830
680
Springfield. IL
5530
1010
Salt Lake City. UT
5990
820
Carbondale. IL
4060
1210
Phoenix. AZ
1680
2010
Saint Louis. MO
4800
1140
Tucson. AZ
1700
1790
Kansas City. MO
4750
1180
Flagstaff. AZ
7290
540
Wichita. KS
4640
1090
Albuquerque. NM
4350
1120
Omaha. NE
6290
860
Santa Fe. NM
6120
720
Grand Island. NE
6440
820
Las Vegas. NV
2610
1760
New Orleans. LA
1400
2090
Reno.NV
6150
700
Baton Rouge. LA
1610
1900
1960
530
Shreveport. LA
2160
1640
San Diego. CA
1500
620
San Francisco. CA
3040
180
San Bernardino. CA
1890
1450
San Jose. CA
2410
400
Santa Ana. CA
1670
660
Sacramento, CA
2700
850
Bakersfield. CA
2150
1420
Portland. OR
4700
340
Fresno. CA
2610
1180
Pendleton. OR
5190
620
Evansville. IN
4500
1160
Seattle. WA
5190
200
DetroH. Ml
6290
710
Yakima. WA
5950
580
Flint. Ml
7200
580
Spokane. WA
6770
490
Grand Rapids. Ml
6890
640
Anchorage. AK
10660
40
Traverse City. Ml
7700
530
Fairbanks. AK
14290
190
Des Moines. lA
6610
810
Mason City. lA
7790
660
Sioux City. lA
6960
800
Cedar Rapids, lA
6600
750
Milwaukee. Wl
7470
570
Madison. Wl
7720
640
Green Bay. Wl
8100
470
Eau Claire. Wl
7970
510
8250
640
Duluth. MN
9890
310
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WORKSHEET TO DETERMINE LOCAL ENERGY INDICES (Els)
LOCAL HEATING INDEX (HI):
Line1. Determine local winter degree days = —
Line 2. Multiply Line 1 X dollar cost of heating energy per 100,000 btu
(see Appendix, page 10 ) X $.
Line 3. = Line 1 X Line 2 =
Line 4. Estimate seasonal efficiency of heating system
(see discussion, page 9 ) = —
Une5. = LOCAL HEATING INDEX (HI) = g^ = =
LOCAL COOLING MOEX (O):
Lines. Determine local summer cooling hours = —
Line 7. Multiply Line 6 X dollar cost per Kwh for air conditioning X $.
UneS. Multiply Line 7 X 100 X
Line 9. = Line 6 X Line 7 X Line 8 =
Line 10. Estimate seasonal EER of equipment =
Line 11. = LOCAL COOLING INDEX (CI) = ^^^ = =
100
ADJUSTMENT FACTOR (r):
Adjustment factors for each ECT are shown as Note 1 . directly under each bar graph in the
Guidelines. More precise adjustment factors for the ECT's shown in the Guidelines or for any
other proposed ECT may be determined by following the procedure shown in the "WORKSHEET
TO DETERMINE A LOCAL ENERGY INDEX (El) BREAKPOINT FOR AN ENERGY COI^ERVINQ
TECHNIQUE (ECT)" in the Appendix.
LOCAL ENERGY INDICES (El's) = HI + (r) CI:
CEILINGS
FRAME WALLS
FLOORS OVER OPEN SPACES
MASONRY WALLS
RIGID ROOF DECKS
WINDOWS AND PATIO DOORS
DUCTS IN
(Note: r varies)
STOfiM DOORS
PERIMETER SLAB EDGES
FLOORS OVER CRAWL SPACES
BASEMENT OR CRAWL WALLS
OTHER (describe)
= HI ONLY .
.+ ( 1.2 )-
. + ( 1.0 ).
.+ (0.7 ).
.+ ( 0.6 ).
.+ ( )-
.+ (-
(DATE) .
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372
SAMPLE
WORKSHEET TO DETERMINE LOCAL ENERGY INDICES (Els)
Utilizing Appendix Example, page 10
LOCAL HEATING INDEX (HI):
Line 1. Determine local winter degree days
Line 2. Multiply Line 1 X dollar cost of heating energy per 100.000 btu
(see Appendix, page 10 ) X $_
Line 3. = Line 1 X Line 2 = IS07,SO
Line 4. Estimate seasonal efficiency of heating system
(see discussion, page 9 )
= 6030
O.SlS
O^M
Line 5.
= LOCAL HEATING INDEX (HI) = 1=!^ = ISOT-SO
Line 4 Q^ ^Q
SiStZ
900
LOCAL COOLING INDEX (CI):
Line 6. Determine local summer cooling hours = —
Line 7. Multiply Line 6 X dollar cost per Kwh for air conditioning X $
Lines. Multiply Line 7 X 100 X
Line 9. = Line 6 X Line 7 X Line 8 =
Line 10. Estimate seasonal EER of air conditioning equipment = _
Line 9 _ 4^500 = h^3
0,0S
100
^SOO
JLO_
Line 11. = LOCAL COOLING INDEX (CI) =
Line 10
-Tq-
ADJUSTMENT FACTOR (r):
Adjustment factors for each ECT are shown as Note 1. directly under each bar graph in the
Guidelines. More precise adjustment factors for the ECT's shown' in the Guidelines or for any
other proposed ECT may be determined by following the procedure shown in the "WORKSHEET
TO DETERMINE A LOCAL ENERGY INDEX (El) BREAKPOINT FOR AN ENERGY CONSERVING
TECHNIQUE (ECT)" in the Appendix.
LOCAL ENERGY INDICES (El's) = HH- (r) CI:
CEIUNGS
FRAME WALLS
FLOORS OVER OPEN SPACES
MASONRY WALLS
RIGID ROOF DECKS
WINDOWS AND PATlODpORS
} = ■
as/A
:ts/A
+ ( 1.2 )
+ ( 1.0 )
6^ = »t¥-
bH-^ = 3ISS
(DATE)
+ ( 0.7 )
= 35/A + ( 0.6 )
DUCTS IN AtTJ^.. = OS/A j^ ^ J.o )
(Note: r varies)
STORM DOORS
PERIMETER SLAB EDGES
FLOORS OVER CRAWL SPACES
BASEMENT OR CRAWL WALLS
OTHER (describe)
= +( ).
io/ijir
(,93 = 37y/
= HI ONLY .
diS/A
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373
WORKSHEET TO DETERMINE A LOCAL
ENERGY INDEX (El) BREAKPOINT FOR
AN ENERGY CONSERVING TECHNIQUE (EOT)
DMOvibc bCTs
HEATING INDEX (HI) BREAKPOINT:
Line 1 . Establish buyer/owner cost of a given area (or length for slab edge
perimeter or duct insulation) of the ECT „ = $_
Line 2. Multiply Line 1 X lOO.OCX) X KW.OCX)
Lines. Multiply Line 1 XUne2 =
Line 4. Select appropriate Present Worth Factor (PWF) =
Line 5. Multiply Line 4 by change in heat k>8s/°F (see discussion.
page 10 ) per unit area or length X
Line 6. Multiply by area or length used in Line 1 X
Line?. Multiply X 24 X 24
Une8. Lines X LineBX Llne7 =
Line 9. HI BREAKPOINT = ^^P^ = =
Lined
COOLING INDEX (CI) BREAKPOINT:
Line 10. Enter Line 3 from above =
Line 11. Enter PWF; Line 4 above =
Line 12. Multiply Line 11 by change in heat gain (see discussion,
page 10 ) per unit length or area X
Line 13. Multiply X area or length from Line 6 above X
Line 14. Line 11 X Une 12 X Line 13 =
Line 15. CI BREAKPOINT = ^|^^ = =
ADJUSTMENT FACTOR (r):
Line 16. Adjustment Factor (r) = ^^j^ = =
Line 17. ENERGY INDEX (El) BREAKPOINT = HI or (r) (CI) =
Line 18. LOCAL El = locaThI "^ ^ (r) (LCKj^L CI) ^ =
IF UNE 18 IS GREATER THAN LINE 17. THE ECT IS JUSTIFIED
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374
SAMPLE
WORKSHEET TO DETERMINE A LOCAL
ENERGY INDEX (El) BREAKPOINT FOR
AN ENERGY CONSERVING TECHNIQUE (EOT)
Utilizing Appendix Example, page 11
)ECT:
ung
k O0S€ Ff// /0Sit/S^i^
HEATING INDEX (HI) BREAKPOINT:
Line 1 . Establish buyer/owner cost of a given area (or length for slab edge ^^ A/i/ki^C
perimeter or duct insulation) of the ECT = $ AU^ViZ/rTCir
Line 2. Multiply Line 1 X 1(X).(XX) X JiQOSXIQ
Line 3. Multiply Line 1 X Line 2 = ^0QQ*WO
Line 4. Select appropriate Present Worth Factor (PWF) = ^£
Line 5. Multiply Line 4 by change in heat loss/^F (see discussion, /)/)7
page 10 ) per unit area or length X O'OOf
Lines. Multiply by area or length used in Line 1 X iQOQ ^-^
Line?. Multiply X 24 X 24
Lines. Lines X Line 6 X Line? = I^IA . 0^
Une9. HI RRPA..PniMT = i^ = /, 000, OOP = ^0^7
COOLING INDEX (CI) BREAKPOINT:
Line 10. Enter Line 3 from above = JsOOP'OOO
Linen. Enter PWF; Line 4 above = "7' ^
Line 12. Multiply Line 1 1 by change in heat gain (see discussion, O/k-
page 10 ) per unit length or area y O, UOo
Line 13. Multiply X area or length from Line 6 above X fOOO S.^-
Line 14. Linen X Line 12 X Line 13 = J 60/. 05
Line 15. CI RRpa^poimt = jj^gj^ = lOOO^OOO = ¥997
Line 14 /eO/.OS
ADJUSTMENT FACTOR (r):
Line 16. Adjustment Factor (r) = "-'"Q^ = ^097 = i^
L,ne15 ^^^7
Line 17. ENERGY INDEX (El) BREAKPOINT = HI or (r) (CI) = 0^7/
Line IS LOCAL El = "^^00 + ( /-^^ ) ( /SOO ) _ ^330
Line 10. LUV.AL ti LQ^.^^ ^, + ^^j (LOCAL CI) ~ yy
IF LINE 18 IS GREATER THAN LINE 17. THE ECT IS JUSTIFIED /^/f/77
DATE
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375
BIBUOGFWHY
■ASHRAE Handbook of Fundamentals — 1972
,ASHRAE Handbook — 1976 Systama
Available from American Society of Heating. RefriQerating and Air
Conditioning Engineers
345 East 47 Street
NewYork.N.Y. 10017
C. W. Qriffin
' Energy Conservatton in Buildings: Tecnniques for Economical Design
Construction Specifications Institute
Washington. DC. 1974
Eugene L. Grant. W. Grant Ireson, Richard S. Leavenworth
Principles of Engineering Economy
Ronald Press Co.
New York. N.Y. 1976
Insulation Manual — Home/ Apartments
Available from NAHB Research Foundation. Inc.
P.O. Box 1627
Rockville. Maryland 20850
$4.00 (members $3.00)
Manual of Lumber and Plywood Saving Techniques
Available from NAHB Research Foundation, Inc.
P.O. Box 1627
Rockville. Maryland 20850
$3.50
20
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376
Senator Morgan. Mr. Benning.
STATEMENT OF WALTER L. BENNINO, PRESIDENT, MANUFAC-
TURED HOUSING INSTITUTE; ACCOMPANIED BY R. JOSH LANIER,
DIRECTOR OF PUBLIC AFFAIRS; AND RAYMOND J. WEATHERLY,
DIRECTOR OF LEGISLATIVE AFFAIRS
Senator Morgan. For the record, Mr. Benning is president of the
Manufactured Housing Institute. We have your prepared statement,
Mr. Benning, that you submitted earlier for which we are grateful to
you. We are delighted to have you this morning, we welcome you. I
wonder for the record if you would identify those who are accompany-
ing you this morning.
Mr. Benning. To my right is R. Josh Lanier, our director of public
affaii^ at the institute. To my left is Mr. Ray Weatherly, director of
legislative affairs for the institute.
Mr. Chairman, members of the subcommittee : My name is Walter L.
Benning. I am president of the Manufactured Housing Institute. The
institute is the primary trade association representing the manufac-
turers and suppliers of mobile and modular housing, which last year
produced 25 percent of all single family dwellings and 76 percent of
those sold for less than $30,000, and 94 percent of those sold for less
than $20,000. The institute represents, in essence and in fact, afford-
able housing.
Quickly stated, Mr. Chairman, it is affordable housing that is the
real issue here today. It is clearly the thrust of the legislation now
before you and, I am sure, the overall concern of this subcommittee
that affordable housing be available to rural Americans.
The manufactured housing industry shares in that concern. Our in-
dustry produces such affordable housing, and predominately serves
communities outside of urban markets. The industry is uniquely able
to respond to the needs that have been discussed throughout these hear-
ings, and should play a significant role in your efforts to make afford-
able housing available.
Mr. Chairman, I believe the facts in this issue speak for themselves,
so I intend to keep my remarks brief and speak directly to several
areas of the act, that our industry fully supports and hopes will war-
rant your most careful consideration.
Section 4(b) of the act calls for research, technical studies and
demonstrations relating to the mission and programs of the Farmers
Home Administration. This section also directs the Secretary to seek
to promote the construction of housing in rural areas, giving particular
attention to several factors, one of which is economies in materials and
construction methods.
Mr. Chairman, this provision in the act is absolutely necessary if
the intent of act is to ever be achieved. The costs of site-built home con-
struction have risen exorbitantly in the last few years, and there is
no end in sight. It is no revelation for me to tell you that the clear
majority of American families, especially those in rural areas, have
simply been priced out of the housing market. This is pointedly true
for the first-time buyer, who has no equity or ability to trade up, and
who accounts for half of all home buyers in a given year.
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377
According to a special budget paper developed by the Human Re-
sources Division of the Congressional Budget Office, the costs of me-
dian new site-built homes rose almost twice as fast as did the income
of the first-time buyer last year. Even the costs for existing site-built
homes rose li^ times as fast as did their incomes.
This leaping and bounding of construction costs ahead of the in-
comes of American families has gone on unabated and without any
significant counteraction. The type of research called for in section
4(b) of this act, however, should point the way for lowering these
housing costs and making homes available to these families that will
otherwise never own a decent home of their own.
This research should bring this about because construction tech-
niques that substantially lower the cost of a home are available and
in effect today.
The industry I represent before you this morning employs those tech-
niques and produces homes that sell for less than half the price of
the median new site-built homes today.
I have brought with me this morning, Mr. Chairman, blowups of
an article that appeared in Better Homes and Gardens magazine that
show what is available in the affordable housing market.
These are homes our manufacturers built on an assembly line, under
extremely controlled conditions, to either a local building code or to the
only, and very strict, national building code imposed and supervised
by the Department of Housing and Urban Development.
As you can see, these are not the old stereotype of the mobile home
that most agency officials in our Government continue to believe is the
only product we can produce. These are top quality homes, ranging
in size from 1,300 to over 2,000 square feet, complete with the most
modern appliances and fixtures and sell, depending on the model and
area of the country, from $15,000 up to $30,000.
Senator Morgan. Mr. Benning, if I could interrupt you there, and
stop and take a look at these.
I am interested in this because I am afraid too many of us have the
stereotype impression that manufactured homes are what we some-
times used to call trailers.
Mr. Bennixg. That is right. Senator. We stopped being the trailer
people several years ago, but the image is still hanging around.
Senator Morgan. I think that is true. How is this home constructed,
and put on the market ?
Mr. Benning. That home is constructed in two sections. The home
is split at the center line, constructed in two half sections, built on a
steel frame, it will have an undercarriage under both halves, with a
set of axles, dollies, and wheels, and is then transported to the site.
The site has been prepared with a foundation or a basement. The
units themselves are then joined together, spliced together. The roof-
ing section is completed down the center, and the side or front and
rear of the home, again, that one section is put together, the carpeting
is completed, and the home is sealed.
That takes approximately 4 to 6 days, depending upon the size of
the home and the site.
Senator Morgan. What is the largest size home that you can build ?
Mr. Benning. There is really no limit as to the size we can build,
Digitized by VjOOQ IC
378
Mr. Chairman. We call this home a two-section home. It is two sec-
tions. This is 20 feet. So we have two 10-foot sections.
A lot of the industry is producing a 28-foot wide home, which is two
14-foot sections. Many people are now going into what we call three-
sectional homes, and even four-sectional homes.
I believe about 5 months ago one was sold in Arizona for $180,000.
Liberace, the entertainer, just purchased one for $75,000. But when
we look at a home like this, you know it is not a mobile home, yet
we must call them mobile homes, because some people back in the
dark ages said if you deliver them to the site on wheels, they are
mobile homes.
The only mobility to a "mobile home" is a cheap expedient of trans-
portation. Less than 2 percent of mobile homes, so-called mobile
homes, are ever moved a second time.
Senator Morgan. Less than 2 percent. Tell me about the building
materials in this home. I know it is on a steel foundation.
Mr. Benning. The materials in a mobile or manufactured home
are the exact materials that site builders of today use.
Senator Morgan. They use 2 by 4's and studs ?
Mr. Benning. Yes, 2 by 4s', 2 by 6's, and 2 by 2's. Johns Manville
roofing, Owens Illinois fiberglass, American Standard plumbing fix-
tures, et cetera.
Senator Morgan. What about the flammability ? Are they fireproof?
Mr. Benning. The last fire study completed by the State of Cali-
fprnia shows that there is less incidence of fire in a manufactured
or mobile home than there is in a conventional or site-built home.
That is again going back to the old image of 10, 15 or 20 years ago,
of the older trailers.
Senator Morgan. That is what I was going to say. The image in nay
State is that they are very dangerous, but it goes back to the single
unit trailer home.
Mr. Benning. Yes, sir.
Senator Morgan. I am very sorry to have interrupted you, but I
thought it would be worthwhile to take a look at these, because I
must confess that I sometimes had the impression in my own mind
that a manufactured home was the old type trailer home.
Mr. Benning. Thank you, sir. I will contmue.
When the research is carried out, as called for in the act, this is
what will be found. These homes are permanent, safe, durable, decent,
attractive, and affordable. They have been and are now available, but
have either been overlooked or punitively held back by regulations, or
lack of implementing regulations, because they are manufactured
homes. The Farmers Home Administration, for instance, has been
authorized for 8 years to utilize these homes in its housing programs.
Nothing has been implemented to date, and I am afraid that when
such regulations are implemented, they will be in the same condescend-
ing attitude that because these homes are built in a factory, they must
not really be homes. Not only is this attitude uneducated and errone-
ous, but the opportunity to make housing available to those who need
it most will be lost.
I pointed out earlier, Mr. Chairman, that the research called for
in section 4(b) is absolutely necessary if the intent of the act is to be
fully carried out. If this research is done with any degree of serious-
Digitized by VjOOQ IC
379
ness, it will indeed lead to what I have just discussed with you. But
more important, it will carry over into most all of the other provisions
contained in this act.
It will show how this technology can benefit housing for elderly
and handicapped families. It will give new light to the provisions
for insured and guaranteed housing loans. It will show how the Sec-
retary can achieve more housing under the provisions for homeowner-
ship subsidies for low and moderate income persons.
If there is a simple and brief message I want to leave with you this
morning, Mr. Chairman, it is that this act embodies an approach to
housing in rural America that is unique in that it calls for tnose who
would implement it to look beyond long-established building practices
for ways to help more Americans find affordable housing.
The Manufactured Housing Institute strongly endorses this ap-
proach and wants to underscore the necessity oi it. To do otherwise is
to follow an old course that goes only around in circles and penalizes
those who have been pimished enough by the ever-rising cost
of housing.
Thank you, Mr. Chairman.
Senator Morgan. Wlien were mobile homes made eligible under
Farmers Home Administration ? Was it 1975 ?
Mr. Lanier. It was, I believe, in the last act, and I am not sure when
that was, I don't have my materials with me.
We can get that and supply it for you. It was also recently that the
House of Representatives made some additional funds available for
rural housing programs, in which manufactured housing was discussed,
but not a line item put into the act. There was a specific item for mobile
home parks; I think some $10 million, as I remember it, was included.
Momentarily we are expecting Farmers Home to produce regula-
tions on how to include manufactured housing in its housing program.
It has not been released as yet. We have been expecting it for several
years.
Senator Morgan. I was going to say that the fact it has been avail-
able for 3 years and Farmers Hoipe hasn't made use of it all, with a
serious shortage of houses, I find that incredible.
Is there a dialog now between the Institute and the Farmers Home
going on ? ^Vhat is the status of it ?
Mr. Lanier. We understand it is goin§ to be out shortly, Mr. Chair-
man. We have not had an extensive dialog with Farmers Home. I
understand there have been several staff changes in the last 6 to 9
months in particular.
I think the problem — I cannot speak for Farmers Home — ^has been
how do you deal with this entity of manufactured housing. Each
agency has somewhat of a different position on it. The VA has a way
of financing it, the number of years, and making provisions for manu-
factured homes. The Department of Housing and Urban Development
has another one. So I don't know that they have totally ignored the
industry, although I think that has been the net effect.
I think what has happened is they are grappling with how you deal
with it, as have a number of other agencies.
I think it is because w:hat you see here has not jumped the gap from
the old mobile homes— 12 years, $12,000, 12 percent interest— how we
make that part of the housing program.
94-911—77 25
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380
Senator Morgan. I was going to say I think mavbe the industry
itself hasn't done as good as selling job as they might have.
Mr. Lanier. We haven't, unfortunately.
Senator Morgan. Of course it is hard to change an image that has
been built up over a long period of time. While my own impression has
been changing gradually for a number of years, simply because Cham-
pion Homes is m my coimty, and we have had an opportunity to see
it progress and watch some of their develg)ments.
But I think the image is still there. What kind of research are you
doing?
An interesting thing to me is, with the exception of manufactured
housing, in my opimon there have been very f^w changes in the
methods and tne ways of constructing homes in the last 50 or even
100 years, except to put a little more insulation in themj use wallboard
or paneling rather than plastering. But as far as gomg out on the
job and constructing the framework and so forth, the time involved in
it, the labor involved in it, the way it is done hasn't changed in my
lifetime.
Mr. Benning. Senator, Professor Burnhart of MIT completed a
study approximately a year ago on a grant from HUD.
One of his major remarks in this study was that the day the conven-
tional sitebuilder can get together with the manufactured housing
industry, and utilize some of the technigues that have been developed
by this industry, the costs of housing will then start coming down.
Senator Morgan. What was his study? Is this related to
construction ?
Mr. Benning. Yes: it was construction.
Mr. Lanier. Mr. Chairman, it related to the overall housing crisis,
it is eight volumes long, very extensive commissioned by HUD, and as
yet to be published or released.
We would encourage the committee to seek copies. We would love to
see some additional copies made available.
Senator Morgan. Why hasn't it been released, do you know?
Mr. Lanier. I have no idea. It has been done almost a year. We have
a Xeroxed copy of one section, but the total eight-volume study has
never been published.
Senator Morgan. I was just saying to the staff that an engineering
friend of mine from Ealeigh came up to see me a couple of weeks ago,
and he is not a fly-by-night engineer, he graduated from Nortili Car-
olina State University in 1960, and he developed a greenhouse busi-
ness, construction of greenhouses.
He developed a method and he didn't just sell them and ship them
out to Iowa or California and dump them on the site. He went out and
put them up himself. It is now a multimillion-dollar business.
As is so the custom these days, if a business is successful, they are
usually swallowed up by the giants, they make such attractive offers,
the people can]t turn them down.
He was telling me that he was designing a home for himself, and
being an engineer, he was trying to incorporate all of the new scientific
methods and techniques that he could. And he became interested and
he designed a home and then built it inside of a huge warehouse, using,
among many other things, many new energy-saving techniques, 2 by
6 s, rather than 2 by 4's, and the methods of putting it together.
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381
Then he took it down, and went down to the comer square in
Kaleigh, where laborers hang around every morning. If you want a
laborer for that day, you go by and pick him up. Just to test his'
method and technique, he went by and picked up two laborers, and
they put it up and took it down m 1 day. He has calculated he can-'
build a home with 25 percent more quality at 20 percent less cost than
a conventional builder. He then went to some of the conventional
builders in the area, and to the real estate developers, and he con-
cluded that if he passed on these particular techniques, they still
wouldn't benefit the home buyer; they would just make more profit
for those in tJie industry.
We are goin^ into it. I am very interested, because he is not a quack^
or a fly-by-nimt person, he is a man who has established himself.
The'more Ilook into flbis, the less I find about new innovations and
new techniques in conventional home building. I think if the con-
ventional homes are ever to be affordable, we have jgot to look either to
your industry or to new techniques in the conventional industry.
Mr. Lanier. Mr. Chairman, could I follow up on that just a second ?
Senator Morgan. Yes.
Mr. Lanier. I know just what you are sajring. I would like to give
you a "for instance" here. This home vou see spread out on the posters
'shows the interior, the layout, as well as the exterior of the home. I
donH; remember the exact square footage of that house, but it is around
1,800 square feet. It is landscaped and in a development.
Now our industry is doing something similar to what you just
described. We are building it in the factory, under controlled .
conditions.
That house could sell in Fairfax County — and we have one of the
fastest rising housing cost areas in the country here — in Fairfax
County in a development as a piece of real estate for roughly $30,000
to $35,000, with land included.
That house has 1,800 square feet. It is an attractive home. It is not
a no-frills home — ^you don't have to come in and finish it, close out the
basement or put walls up, or anything else. It is a complete home, car-
peted, with modem appliances.
That is selling for roughly $20,000 or $30,000. So the technology can
be. utilized, it is there. There are certain stumbling blocks in between
getting it from the State it is in now to being mass produced, putting
it up in subdivisions, and making that price of house available. My
point is that the technology is available today.
Senator Morgan. We appreciate that very much. Do you have
smaller copies of this article?
Mr. Bennino. Yes, sir, we will send you a copy of the magazine,
"Better Homes and Gardens.*'
Senator Morgan. I might have seen it at the time, but I don't recall
it.
Apparently we have learned that it was in 1974, when mobile homes
were made eligible for FmHA programs.
Mr. Lanier. Exactlv 3 years ago.
Senator Morgan. Would you comment on the durability of this
home, or the life cvcle of it?
Mr. Benntng. That home is constructed with the same materials as
the home that you live in, Mr. Chairman, and I live in. The roofing
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material is produced by the same people that site-builders buy from.
The siding is U.S. Steel, Alcoa, Kaiser, the same type of siding that is
used in the conventional or site-built houses.
So what would detract or lessen the life expectancy or durability of
a manufactured house versus a conventionally site-Duilt house?
Senator Morgan. I think we had the impression or the image that
the same materials are not used. For instance, the reason I asked about
2 by 4's,.I have been out to a factory where they were using 2 by 2's.
Mr. Bennino. Oh, no longer.
Senator Moroax. This was before I came here, so that is at least 4
years ago.
Mr. Benxing. Mr. Chairman, what the U.S. Congress did in the
Housing Act of 1974 was mandated HUD to promula/^e some regula-
tions and HUD developed a Mobile Home Construction and Safety
Standard, which came into effect June 15, 1976.
Since that time every home, prior to its manufacture, the designs
must be approved by rfUD or HlTD's agent, and the home is inspected
at least twice during its production in the factory. And it bears, prior
to leaving the factory, a seal placed on it by the HUD agent.
We appreciate what Congress did for us on this, because we build
the only home in America today that is approved by the Federal
Government.
Senator Morgax. Well, maybe you ought to let that be known more.
Mr. Bexxixg. We are trying hard, sir.
Mr. Laxier. The seal is on every home, Mr. Chairman.
Senator Morgax. If they don't understand what the seal means,
what is behind it, it doesn't help much.
But thank you very much tor your testimony. It has been very in-
teresting. We do want to pursue further when time permits.
Mr. Bexxixg. Thank you.
Senator Morgax. Good morning, Mr. Sinclair. We have stretched
our hearing into three days rather than 1 or 2, so we are operating
more at a leisurely pace this morning.
You are Mr. Sinclair, the Executive Vice President of the Salem
National Bank, and member of the Government Belations Council of
the ABA.
STATEMENT OF GERALD SINCLAER, EXECUTIVE VICE PRESIDEHT,
SALEM NATIONAL BANE, SALEM, ILLINOIS AND MEMBER OF
THE GOVERNMENT RELATIONS COUNCIL, AMERICAN BANKERS
ASSOCIATION
Mr. Sinclair. Mr. Chairman, as j^ou stated, I am Gerald Sinclair,
Executive Vice President of the Salem National Bank and Trust
Company, Salem, Illinois. I also serve as a member of the Grovem-
ment Relations Council of the American Bankers Association, whose
views on S. 1150, the Rural Housing Act of 1977, I am presenting
here today.
I am happy to say that our Association, whose membership con-
sists of 92 percent of the Nation's more than 14,000 full service banks,
very much supports the intentions of the sponsors of S. 1150.
We do, however, wish to offer some suggestions which I hope will
be helpful to the subcommittee.
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Two-thirds of America's full service banks are in communities of less
than 25,000 people. In fact, half are in towns with fewer than 5,000
residents. And nearly 60 percent of the community banks responding
to a 1972 American Bankers Association survey listed agriculture as
the single most important source of income for their communities.
Community banks, therefore, are deeply interested in rural housing
programs and the Farmers Home Administration.
Senator Morgan. Would you describe to me what a full service bank
is?
Mr. Sinclair. A full ser\nce bank is one that serves the full com-
munity — individuals, families, business, agriculture and government —
with checking, savings, a variety of loans, and other financial services.
Senator Morgan. But you are not talking about the savings banks
we have in the Northeast and other parts of the country ?
Mr. Sinclair. No ; I am talking about commercial banks.
Senator Morgan. All right. I thought I understood it.
Mr. Sinclair. In addition, housing has been and will continue to be
an economic activity in which banking participates significantly. Al-
though commercial banks, unlike some specialized institutions, must
serve a wide variety of communities' other financial needs, we believe
our housing support record is one of which we can be proud.
For even if we figure conservatively, full service banks have at least
$246.7 billion invested in housing loans.
In my testimony is a chart that shows a breakdown of the various
investments in housing.
Banks' Investment in Housing
First quarter 1977
Residental mortgage loans $96. 2
Mobile home loans 8. 7
Home improvement loans 6. 1
Residential construction loans 9. 1
Residential land loans 3. 7
Federal housing agencies obligations 18.7
Municipal securities supporting housing 77.2
Loans to other housing lenders 27.0
Total 246. 7
This compilation does not cover an indeterminable amount of loans
to contractors, building suppliers, and other businesses engaged in
housing construction, servicmg and supply.
So you can see there is probably several billion dollars more there.
Therefore, we continue to support Congress' 1972 authorization of
a national rural development thrust utilizing FmHA, but minimizing
its role by placing the primary opportunity and responsibility for
action in the hands of local institutions and people. This subcommittee
also is to be commended for maintaining a continuing interest in rural
America through its regular views of such programs.
Since many of the provisions of S. 1150 are covered by the Housing
and Redevelopment Act approved by a House and Senate conference
on September 16, we will confine our remarks to those remaining pro-
visions of S. 1150 where we believe we have both some expertise and a
genuine interest.
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Section 2 of S. 1150 would allow and encourage FmHA rural hous-
'ing programs to better serve the elderly and handicapped. ABA sup-
ports such a provision as helping to ensure that all Americans are
decently housed. This is one area in which FmHA participation is to
be encouraged.
Section 3 of the measure would require FmHA to establish an escrow
system for payment of taxes, insurance and other expenses. We have
:iio objection to this provision. While we believe that most purchasers
prefer the more equal and regular payment schedule which an escrow
^system allows, we also feel the individual whose income is subject to
greater seasonal variations, such as that of many farmers and rural
•citizens, should be allowed a payment schedule more suited to such
:Jieeds.
A FmHA in-house research capacity would be authorized by section
4 of S. 1150, which also allows adequate funding for extensive research.
It is this section which we sincerely hope will produce the needed re-
sponse to the many questions which now surround the subject of rural
housing. The ABA supports any reasonable plans to study housing
needs m rural communities, since we suspect that much of the testi-
mony this subcommittee has and will hear concerning S. 1150 indicates
that insufficient information is currently available on the subject.
! We would be especially interested in studies in such areas as: (1)
the adequacy of existing rural housing and its potential for rehabilita-
tion ; (2) current and future rural housing and financing needs as well
as total resources available to meet those needs; (3) development and
utilization of materials and methods for construction, rehabilitation
and energy conservation, to reduce both initial and maintenance costs.
We suggest a rapid advance of this study capability, which should
lay the groundwork for more efficient administration and equitable
allocation of FmHA resources.
Section 12 provides for the use of FmHA funds to assure their
maximum availability and use during peak construction periods. In
introducing this bill. Senator Humphrey stated that this provision is
jan effort to prevent the arbitrary imposition of monthly allocation
formulas which hamper effective use of housing funds. While we cer-
'tainly agree that funds should be available on an as needed basis,
rather than under a monthly allocation formula, we do not believe the
language during peak construction periods accomplishes this purpose.
Rather, peak construction periods most often indicate a greater
availability rather than needs for funds. We suggest rewording of
the section to assure their maximum availability, particularly during
period of additional motgage credit need.
It is to section 14, homeowner subsidies for low and moderate income
persons, and its ramifications that we devote the balance of our
remarks.
' Let me preface our comments on this section, however, by stressing
that the ABA is not opposed to the concept of providing home owner-
ship subsidies, particularly to the lower income segments of our popu-
lation. In fact, ABA has, in testimony on like prpposals, often endQrsed
the subsidy concept as a far superior method of aiding housing than
^credit allocation schemes.
■ At the same time, many community bankers are sincerely concerned
about what they see as FmHA's inability to handle current loan
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volumes. Therefore, we too must question whether the FmHA is the
proper agency through which to channel yet another housing program.
Presently, the FmHA is administering 21 different types of loan
programs. It is highly imlikely that the limited staff in each coimty
could handle another one.
Additionally, we understand that there may be recommendations
from the administration for personnel cuts within FmHA. We uree
that a high priority be assigned to ensuring that the FmHA has the
resources and authority needed for the effective imj)lementation of its
pro-ams. To this end, FmHA should look to additional training and
staffing with the objective of responsive and consistent administration
of its existing programs. Perhaps then other programs can be
considered.
But we want to stress again that we should not forget the original
purpose for the establishment of the FmHA— administration and
supervision of margiual loans. While conceding tJiat limited govern-
ment involvement serves a useful purpose in meeting social needs and
in providing assistance for the disadvantaged and temporarily eco-
nomically marginal borrowers, we reaffirm our position that the best
housing programs are those which are primarily funded and run by
private enterprise. We are certain the resources are available within
the financial community to meet almost all housing and farm needs.
To illustrate this, let me point out that as of June 1976, insured
commercial banks held approximately $28.6 billion in farm credit.
The bulk of this debt is held by small local banks, which also are
obligated to meet the community's other financial needs. $20.2 billion,
or 70 percent of the bank farm debt, is held by institutions under $50
million in size.
We endorse the intent of section 14's provision for repayment of
Federal subsidies when the dwelling is later sold at a profit. We feel
such a provision makes it clear that while Government is willing to help
when help is really needed, the citizen has an obligation to repay that
aid when financially able. Such a provision shomd also make funds
available to more people at less cost to the taxpayer.
From the practical side, we suspect the repayment program will be
very difficult to administer. For example, it would not be unusual for
15 or 20 years to lapse between the time an individual receives such a
subsidy and the time the dwelling is sold. In figuring profit on such a
sale, are improvements deductible? What about any allowance for
inflation?
As for the need for an additional subsidy, we believe the structure
of FmHA's present system of providing low income housing is reason-
ably satisfactory. This provides for 100 percent housing loans at 8
percent interest and a term of 33 years for families with a gross annual
income of $16,000. My county agent tells me this covers approximately
90 percent of the wa^ earners in my county, and I believe our county
is of average proportion on a national basis.
The 8-percent rate already represents a subsidy, since the market
rate is approximately 9 percent. If a family makes less than $10,000
under existing legislation, it is entitled to an interest subsidy which
reduces the rate down to as low as 1 percent.
The biggest problem, as I am sure you have already heard, in housing
is not interest rates, funds availability, or Government programs, but
the cost of shelter. According to a recent Congressional JBudget Office
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issue paper, from 1970 to 1975 annual housing costs per family in
existing housing rose 63 percent, from $2,648 to $3,371. The median
sales price of a home rose, in the same period, from $23,400 to $39,300,
67.9 percent. And the trend continues to be sharply upward. Yet as the
table below illustrates, the mortgage interest rate rose the least of any
housing cost component; 6.6 percent, which is far less than even the
inflation rate for that period.
At the same time, heat, and utilities rose almost 73 percent, and
property taxes over 104 percent. The biggest rise, though, was a 117.7
percent jump in the cost of home maintenance and repairs.
You will see a chart there that comes from the Congressional Budget
Office.
[Chart follows :]
CHANGES IN COMPONENTS OF OVERALL HOMEOWNERSHIP COSTS-MEDIAN-PRICE NEW HOMES, 1970-75
Total
Monthly
Interest
Maintenance
Heat
monthly
mortgage
rate
Property and
and
cost
payment
(percent)
Insurance
raxes repairs
utilities
1970 $217 $141 8.45 $5.65 $31.76 $12.15 $26.74
1971 230 143 7.74 10.09 37.89 13.20 26.27
1972 256 154 7.60 6.50 47.45 15.88 31.87
1973 305 187 7.95 7.84 50.63 20.82 38.54
1974 370 224 8.92 13.12 62,80 24.00 45.35
1975 396 248 9.01 10.68 64.98 26.45 46.21
Change (percent) 1970-75 82~4 75. 9 6. 6 89?0 iSTe UtTt 72T8
Source: Congressional Budget Office.
Mr. Sinclair. With respect to increasing costs, the county FmHA
office in Salem, 111., presently has a ceiling on housing loans of about
$32,000. That office is receiving fewer and fewer applicants because a
barely adequate house built with union labor cannot be completed for
this figure.
That office, therefore, is considering raising the maximum to $35,000
in the near future. But even assuming a gross annual income of $16,500
and an adjusted family-of-four income (according to the FmHA
formula) of $15,000, payments on a $35,000 house, plus taxes and in-
surance, would be about one-fourth of the family's gross income, and
closer to 30 percent of the family's net (post-tax) income.
So the family would have to be making the maximum to fit into
this category.
None of these figures include maintenance or upkeep. As the $16,500
gross income drops, the percentage of income to be spent on housing
increases. Yet, most financial advisers recommend that a family not
obligate more than about one- fourth of its income for total housing
costs.
This committee, then, might wish to consider raising the present
$10,000 income figure to make more rural citizens eligible for the
interest subsidy. While S. 1150 does not take into consideration mainte-
nance and upkeep, some simple adjustments in existing programs may
better serve the public.
In closing, we again wish to commend the sponsors of S. 1150 for
their very well-intentioned proposal. The ABA is also grateful to
this subcommittee for the opportunity to express its views. It is our
hope that what will emerge is le^lation that will stress incentive for
private enterprise to cooperate with Government in providing decent,
a^ordahle housing for rural America.
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The ABA looks forward to working witli you, Mr. Chairman, and
other members of this subcommittee as you seek ways to improve
housing conditions in rural America.
Senator Morgan. Thank you, Mr. Sinclair. As you well know and
have alluded to it this morning, we have reconstructed the guarantee
loan program in the hopes that it would attract more private lenders
into the rural market.
I wonder if you are aware of it and if you think it will have any
greater impact )
Mr. Sinclair. I certainly think it will. I can give you the benefit
of my personal experience.
A few months ago, because of the tremendous increase in housing
in our community, I looked at the Farmers Home Administration
guarantee program. And we decided not to start the program, because
the rate was too low relative to the rates we paid on time certificates.
And the term, we felt, was too long to hold this paper in our portfolio.
Furthermore, we looked to see if we could sell the paper on the
secondary market, and we found there the rate was too low to make
the paper marketable. So the proposal, I suggest, with the negotiable
rate, will give us an opportunity to take a fresh look at this program,
and I am sure we will be looking at it.
I might also tell you ABA recognizes the housing problem in rural
America. We recently had a series of seminars throughout the United
States to try to educate bankers on the use of the secondary market,
so they can invest bank funds in rural housing and still have a market
to sell this paper if they need liquidity, or if they want to reinvest in
more housing.
So we are really trying to move on this. We think the negotiatable
rate will help.
Senator Morgan. That is encouraging. I hope that that is an idea of
the results we will have from it.
You pointed out that half of the country's full-service banks are in
towns with populations of less than 5,000, which was interesting to me.
I didn't realize that. And these banks, of course, are actively promot-
ing the good of the communities.
Of the overall amount that is invested in housing loans, which you
mentioned, do you have a further breakdown as to what income levels
are being served, and what kinds of housing we are talking about?
Mr. Sinclair. I don't think anyone has done any research along
those lines, but we can certainly see if such figures exist and if so, send
them to you and the subcommittee.
Senator Morgan. You are from Salem, 111. How big is Salem?
Mr. Sinclair. A town of about 7,000 now; we were fortimate to
get a new factory in our town.
Senator Morgan. You are getting to be entirely too big. My home-
town is 1,250. The population was 1,200 when I graduated from high
school, and it is growing so fast, I am going to have to move out of
town.
What kind of rural housing are you talking about in Salem ?
Mr. Sinclair. Well, frankly, we have tried to cooperate very much
with the Farmers Home Administration. They have been a real asset.
We have had quite a bit of growth, and the available funds in the
S. & L.'s and the banks both have been stressed.
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In addition, as you probablv know, a family that comes in with no
downpayment or very little aownpayment, who is not elijpble for a
bank loan, it is not a good idea to invest depositor's money in lOflHper-
ceht loan, so very frankly we refer many people to the Farmers Home
Administration. They have done an excellent job with their limited
staff. But of course the cost of housing, as I mentioned, is increasingly
a problem. The average guy that makes $15,000 or $16,000 is hard
pressed to build an adequate home that his payments will fit.
Senator Morgan. We were talking, Mr. Sinclair, about the state-
ment in which vou said you had no objection to the escrow system that
was provided lor in the bill. I think it is in the bill, but anyway it is
already law now. You said at the end those with several variations
in income should be allowed a payment schedule more suited to such
needs.
Mr. Sinclair. I think we were referring to the escrow account pay-
ments. We thought there should be a little more flexibility to the
farmer, or the person who has a seasonal income.
Senator Morgan. So he could pay a little more in the fall of the year ?
Mr. Sinclair. That's right, rather than being forced to pay into the
escrow all year on an even payment schedule.
Senator Morgan. In other words, that is the kind of proposal you had
in mind ?
Mr. Sinclair. Yes. As to the subsidy, I think our question is one of
administration. I frankly have some misgivings and some thoughts on
how a bank or a S. i& L . would handle the repayment, trying to explain
that to somebody who doesn't quite understand the program 15 years
after they bougnt a house, have been paying on it, and they come to
pay it off, and all of a sudden we tell them "You owe x thousand dollars
more, because you have to pay back the subsidy."
I would really have to be careful to explam that. I think our ques-
tion is on the administration of such a program, more than the concept.
Senator Morgan. You talk also about the repayment of subsidies
and you indicate there would be some difficulty m 20 years from now
deciding how much, with inflation and so on, how much it would be.
I rather suspect about 20 vears from now somebody will come up
with an amendment to a bill forgiving all efforts to recapture any
profits.
But I wonder if you wanted to elaborate on the practicality of this
part of the proposal any more than you already have.
Mr. Sinclair. I think it would be difficult to administer. Like I said,
we really don't object to the concept, but the average person, when you
try to explain that program to him, I think it might be pretty hard for
him to understand.
Senator Morgan. It is interesting to hear you say that, because I
think the possibility of recapturing it, if the home is sold for a profit,
is one of the key parts of the program, yet I think you are exactly right,
it would be hard to administer.
As I said, I am sure in a few years from now an amendment will be
attached to some bill forgiving that. But that is something to consider.
You indicate your support for expanded research capacity on rural
housing, and you spell out some of the areas you believe deserve close
scrutiny, including current and future rural housing and financing
needs, as well as total resources available to meet those needs.
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IViiat kind of research capacity in this area already exists in the^
private sector that you are aware of? Does the ABA have any ohgoing^
research in this area with regard to the role banks can play?
I believe you said you had seminars, had been doing some work{
on it.
Mr. Sinclair. Yes, ABA has embarked on a program to try to edu-;
cate particularly small bankers on the type of forms and the type of'
appraisals and documentation that is necessary to make a real estate
loan that is marketable.
And we think that this will encourage banks to get involved in^
rural housing.
As you know, the banks need to stay fairly liquid to serve the needs
of the community, and tiiat is part of banldng. So when you buy a '
33-year Farmers Home Administration loan, you are tying that money ^
up for a long time. But if it can be sold on the market, then you have
got a little more liquid asset I think with some more education, yott'
will see more banks getting involved in this.
Senator Morgan. I think it is conmiendable that you are doing what*
you are doing.
You talk about the fact that the Agency, Farmers Home Adminis-
tration, has 21 other programs to administer, and you question or not
they have the manpower to even administer those well. '
I think we all question that. I wonder if you have any thoughts,
about any other agency that might administer the deep subsidy pro-
gram, such as whether or not you think it might fit in HtlD, or some
place in Agriculture ? Have you given any thought to that ?
Mr. Sinclair. I am afraid I would have to agree with your previous-
statement, that the Farmers Home Administration is probably a little
more responsive and serves the needs of rural housing better than any
other agency that I have observed, at least down our way.
I think the programs they have, they can be administered with ade-'
quate staff. I certainly question cutting back on that stuff.
In our own office, we nave three people and it is amazing the amount
of work they turn out. I am sometimes not sure how they get it air
done. But tney certainly couldn't afford. a cut-back in staff in that'
office, I know that.
But I think Farmers Home Administration is a good agency to,
carry out these programs. I question expansion right now.
Senator Morgan. Into other areas, until we can do what we are doing
well?
Mr. Sinclair. Right.
Senator Morgan. We said earlier today that we welcomed any stray-
ing off from the main subject, that is the bill before us, into any kind
of discussion that might help us in rural housing and rural develop-
ment.
You also mentioned, as I recall, the desirability of the private sector
getting more involved.
I wonder if from your experiences as a small town banker, you have
any thoughts as to what we in the Congress can do to be more respon-
sive to these needs ?
Mr. Sinclair. Well, I think you are doing a good job with programs
like this, where you are setting up guarantees that allow us to go a
little longer, with a little less down payment.
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I think this is the type of programs that are needed to encourage
housing.
I think the private lender can do a better job than a Government
Urgency. We are there on the scene, we know the people, we know the
builders, and I think any program that lets the private sector do it with
some type of guarantee or subsidy is preferable to direct Government
involvement.
Senator Morgan. Well, there is no question in my mind about that.
You mentioned another subject that is very dear to me, one we have
talked about earlier, the increase in building costs.
These trends are alarming. Of course my own opinion might be in
sharp contrast with some of the ABA philosophy. I am satisfied that
one of the big reasons for the alarming increase is just simply the
monopolies that exist in the building material business. You can have a
little more money available for home building, let housing starts in-
crease a little bit, and my building supply people in North Carolina
tell me that one plywood panel will increase in price this week, the next
one the next week, and, as I mentioned earlier, the number of com-
panies you can buy from is so limited. Do you have any thoughts about
what is causing it to go uj) ?
Mr. Sinclair. I certainly think your research section of this bill
provides the funds to research the problems ; that would be an ideal
place to start.
Senator Morgan. It is at least one good reason for it.
Mr. Sinclair. Certainly.
Senator Morgan. I wouldn't say it was all due to that, but certainly
part of it is.
Going back to what another witness was saying, I think one thing is
there haven't been any new innovations in methods of building.
Unless you have something further to offer, Mr. Sinclair, we will
conclude.
I do want to thank you for coming and the staff is going to be
working on this project for the next few weeks, and if you have
anything further or the ABA has anything further, we would be
delighted to have it.
Mr. Sinclair. Thank you, Mr. Chairman.
[Thereupon, at 11 :85 a.m. the hearing was recessed, to reconvene at
10 a.m. the following day.]
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RURAL HOUSING ACT OF 1977
THUBSBAT, OCTOBBB 6, 1977
U.S. Senate,
OOMMTITEE ON BANKING, HOUSING, AND URBAN AfFAIRS,
Subcommittee on Kural Housing,
Washington^ D.C.
The subcommittee met at 10 a.m. in room 6202 of the Dirksea
Senate Office Building, Senator Eobert Morgan (chairman of tho
subcommittee) presiding.
Present : Senators Morgan and Sparkman.
STATEMENT OF SENATOB MOBOAN
Senator Morgan. We will call our meeting to order this mm^ning.
This is the third day of the subcommittees hearings on rural hous-
ing. We have heard some very fine witnesses in the last 2 days, and we
have built a pretty good record that we think we can use to come up
with some meaningful legislation.
Today we have some mighty fine witnesses and very important
witnesses inasmuch as at least one of them is from North Cfarolina
and inasmuch as he's from North Carolina I think we ought to Start
off with him this morning.
But before I do that, I would like to say that the bill we are
considering, S. 1150, was introduced by Senator Hubert Humphrey
who probably has done as much for the rural areas of America as any
human being living, and I know as one from the rural areas of North
Carolina that his work in the U.S. Senate and while he was the
Vice President of the United States meant as much to the rural
people of my State, as I'm sure it did in the Nation, as any man who
ever served in the Senate.
Most of his bill or a good part of his bill that was introduced as
S. 1150 we incorporated in an earlier bill which is about to become
law, and I believe that was S. 1359, and the conference committee
report was adopted last Friday or Saturday, I believe, and it should
be law some time within the next day or two.
There are some provisions of his bill that are left and we will
consider those.
Senator Humphrey has submitted a statement inasmuch as he was
unable to be here today, but he wanted us to know that he is still
very much interested in the problem and profirrams that he advocated.
So I'm going to ask that a copy of Senator Humphrey's statement be
inserted in the record as fully and completely as if he were here and
delivered it himself in person.
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We are all indebted to Senator Humphrey. He has great insight and
great wisdom and great compassion. He told me one day that some
people criticized him for promising too much or expecting too much
of tlie American people and he said, of course, he did. He said, "The
Lord in the Sermon on the Mount demanded more than we could
deliver, but He knew if He didn't go as hig;li we woruldn't reach that
high." Senator Humphrey has always set high goals.
[Statement of Senator Humphrey follows as though read:]
STATEMENT OF HVBEET H. HTTMFHBET, U.S. SENATOE FROM THE
STATE OF MINNESOTA
Senator Humphrey. I welcome this opportunity to state iny Vie\^s
on S. 1150, the Rural Housing Act of 1977. 1 want to congratulate Sen-
ator Proxmire, Senator Sparkman, and the rest of the Banking Com-
rmittee for the initiative taken by establishing the Rural Housing Sub-
• committee. This is a tremendously important step forward m our
Nation's efforts to handle the complex problems which must be faced
in order to eliminate bad housing conditions in rural America.
Certainly a special note of thanks is due to the able chairman of
the subcommittee, Senator Morgan, for assuming this significant but
difficult responsibility. You and Senator Garn have already held field
•hearings which I trust have assisted in documenting the variety of
-problems in small communities. Further, in 1976, even before the crea-
'tion of a Rural Housing Subcommittee, Senator Morgan conducted
< extremely important hearings into rural housing problems which pro-
vided much of the impetus for S. 1150. Finally, Mr. Chairman, on
^behalf of many rural citizens whose appreciation has not been heard,
i'l wish to pay tribute to a man who has done more to solve rural hous-
ing problems than any other single elected official. I speak, of course,
of Senator John Sparkman, the driving force behind most housing
legislation in our country over the past 25 years. ^
Mr. Chairman, together with 17 of my colleagues on March 17, 1977,
-I introduced S. 1150, the Rural Housing Act of 1977. This legislation
5 was mandated by the special and critical housing and commimity'de-
' velopment needs of rural America. Few will argue with the statistics
^and the outrage that we feel : Despite having less than 30 percent of
'the Nation's population, rural areas suffer almost 50 percent of the
poverty and a staggering 60 percent of the substandard housing. More
than 2.6 million households in rural America live in housing which is
'Unhealthy, unsafe or overcrowded. When rent overburdens (payment
of more than 25 percent of adjusted income for housing) are added,
ithe figures rise bv 1.13 million. Meanwhile, 18 million rural citizens
•drink contaminated water. We cannot and should not accept these con-
:'ditions as natural or normal. Just as with unemployment, we can no
longer remain inured to this situation and callous to such fundam^rttal
.needs.
^ Who are these rural housing people in bad housing? They are Over-
.whelmingly poor; some 95^ percent or so. They are elderly, some 29
•percent. They are minorities, in numbers disproportionate to their
[population. We are talking about black families, Indian Americans,
and our Nation's farmworkers, especially the migrants. AH have c*On-
tiniied to struggle for decency in silence because they are hidden from
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view. The smaller the community, the larger the problem of substand-
ard housing. They are largely unorganized locally, certainly have no
Washington lobbies, and 3ie communities in which poor people live
are often incapable of commanding resources even when concerned.
In recent years housing problems have multiplied for all Americans
because of inflation, rising construction costs and zooming energy
costs. However, none have suffered worse than the Nation's rural poor,
especially the elderly who often pav between 60 to 75 percent of their
miniscule incomes for the chance of decent housing. Examples of util-
ities bein^ cut off and people freezing were all too common last year.
Clearly, Mr. Chairman, we have a critical and deep seated problem.
Candidly there is little reason for us to be smug about housing in our
country so long as these conditions persist.
To meet the special problems of rural areas^ which include popula-
tion dispersal, lack of credit opportunities, limited institutional de-
velopment, and extraordinarily high levels of poverty. Congress has
developed a special kind of agency, the Farmers Home Administra-
tion. The FmHA is the closest thing to a one stop resource center for
farmers and other rural people, small communities and small busi-
nesses, with over 30 separate programs involving farming, housing,
community facilities, and economic development.
The FmHA is ideally structured to provide direct service to rural
areas from over 1,762 county offices, and is, in addition, self financing
to meet the rural credit vacuum. Despite yeoman's service, however, it
has become clear that FmHA's present authority is not sufficient either
to meet the housing needs of a significant group of rural people — ^the
poor— or to provide adequate water and sewer facilities for small,
lower income towns.
Mr. Chairman, it was to meet the challenge of old problems and new
conditions that my colleagues and I introduced S. 1150.
Several provisions of S. 1150 as introduced in March 1977 have been
incorporated into the Housing and Community Development Act of
1977 (H.E. 6655), either totally or in revised form. These include pro-
visions to extend FmHA progj-ams to handicapped people (section 2) ,
permit congregate housing for handicapped and elderly (section 9),
adopt a revised compensation for defect program (section 5) , formialize
the percentage of loans for low-income people (section 11), establish
guidelines for the guaranteed loan program (section 13), initiate a
rural housing research program (section 4), and, finally, mandate
the use of the rural rental assistance program (section 15) . '^
. We, of course, are pleased that both Houses have moved as expedi-
tiously as they have on these issues. The FmHA programs will serve
more rural people better as a result of their action. However, let me
caution that the job is far from over.
S. 1150 not only provides new authority in several major areas of
concern, but also proposes technical changes to correct shortcomings
in the current law.
The deep subsidy homeownership proyision is clearly the most sig-
nificant and far reaching provision in the bill.
The changes proposed for the water and sewer program are essen-
tial i f FmHA is to successfully continue its expansion.
The proposed apijeals procedures would protect the rights of ap-
plicants and beneficiaries, as would the creation of an assistant sec-
retary f ofr equal opportunity.
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Other major provisions in the bill would deal with FmHA's re>
sponse to the energy crisis and to complex land title problems. What
follows, then, is a description of each of these major provisions of S.
1150, which remain for your consideration.
HOMEOWNERSHIP FOR LOW- AND MODERATE-INCOME PEOPLE (SECTION 14)
Homeownership in rural areas is a tradition. Over 74 percent of
rural people now own their own homes. For almost a generation now,,
the FmHA has been the major resource of financing for homeowner-
ship for rural low- and moderate-income people under its section 602
program. However, rising construction and energy costs — without the
same inflation in incomes — ^have all but eliminated homeownership
for most low-income people, and they are beginning to cut out a num-
ber of moderate-income families. In fiscal year 1976, the average house
financed by the FmHA cost $21,700, and few families under $7,000
annual adjusted income could even qualify.
The traditional FmHA response to the problem in the past has
been to raise the dollar level of what was defined as low-income. This
was a tragic evasion of responsibility. The problem is not solved by
serving higher income people but by seeking mechanisms to serve
those the legislation mandated. The homeownership concept for rural
areas makes eminent sense — for all people, not just the wealthy.
S. 1150 would provide a homeownership option for those unable to
use the regular FmHA programs, by making available the same type
of subsidy mechanism currently being used under the HUD section 8
rental program. Certainly, if we can assist private owners to develop
equity in rental properties, we can do the same for low-income bor-
rowers. However, at the same time, to make clear that this is a housing
program and no more, a recapture provision has been included to pre-
vent windfall profits in the sale of any such assisted housing, while
enabling the buyer to accumulate modest amounts of equity.
WATER AND SEWER PROGRAM (SECTION 20)
Decent water and sewer facilities remain an elusive goal for too
many rural communities. However, without such basic facilities, it is
impossible to provide adequate housing, let alone permit any economic
development to occur. Today some 33,000 communities in our country
are without adequate water facilities; over 44,000 communities lack
adequate sewage facilities. Virtually all of the communities lacking^
adequate water and sewage facilities are in rural areas.
The FmHA administers a program of loans and grants to rural
communities to install new or repair existing water and sewer systems.
In view of the tremendous need and the critical nature of the fa-
cilities for health and safety, the present limitation of $300 million
yearlv in grant funds is unfortunate. S. 1150 raises the grant level to
$1 billion yearly over the next 3 years. In addition, the current law
limits the grant to 50 percent of development costs. This would change
to a 75 percent grant which equals what EPA programs provide (pri-
marily to urban communities). The FmHA water and sewer grant
program is far smperior to those conducted by other agencies because
it is administered by local offices, covers many types of development
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costs needed by small towns, and concentrates its efforts in the smaller
communities where the most serious problems exi^. Unfortunately,
the present 50 percent limit for grants precludes the program from
serving the poorest communities, without the risk of bankruptmg the
town.
APPEALS PROCEDURE (SECTION 7)
At the present time, the FmHA is the Federal Government's largest
direct lender. In the 1976 fiscal year (plus the 3.month transition
period) , it made 245,436 loans and grants totaling over $7 billion, b or
every loan the FmHA makes, one is rejected. Clearly, much discretion
is given to the agency's personnel on all levels. The possibility for
abuses obviously exists and in fact, they have been well documented.
The programs which Congress enacts are for the benefit of the public
and not the agencies. Sometimes this distinction becomes blurred in
the eyes of those who administer the program. At the present time,
only the 502 homeownership program offers a series of paper appeals,
but starting with the very official who rejected the application in the
first place. Other serious shortcomings exist in this limited process.
It is interesting to note that builders and contractors who are
threatened with disbarment from FmHA programs are provided with
a significant procedure, to which they are rightfully entitled. Surely
the same rights should extend universally to all users of the FmHA
programs. This is what we have proposed in S. 1150. As you will note,
Ave have outlined a very detailed process for the protection of users
of the FmHA prograins. This is done purposely because it is too im-
portant to be left to the whims of charging administrators. The
FmHA is the lender of last resort for most applicants; since there is
no other recourse, special consideration should be given to their rights.
Equivalent appeals procedures are in effect elsewhere within TJSDA,
for the food stamp program. HEW offers appeals to adverse decisions
on welfare, and HUD also has developed a process to protect the right
of appeal. Yet FmHA has nothing to protect its applicants.
ASSISTANT SECRETARY FOR EQUAL OPPORTUNrTY (SECTION 19)
As noted, FmHA is the lender of last resort for most of the users of
its programs, and minorities make up a significant part of its service
population. Yet minorities are receiving a disproportionately smaller
share of the housing program resources than their proportion of the
rural poverty population would demand. Attention to this problem by
the UbDA in the past has been minimal. This should not be surpris-
ing, considering that equal opportunity and civil rights are presently
handled by an office hidden under the Assistant Secretary for Adminis-
tration in USD A. Establishing an Assistant Secretary for Equal Op-
portunity may not guarantee the aggressive implementation of civil
rights legislation that is needed, but it is a good place to start. At a
minimiuri, an Assistant Secretary for Equal Opportunity within
USDA would show the concern of Congress on this important matter.
ENERGY CONSERVATION (SECTION 21)
There are no easy answers to the enemy crisis for low and moderate
income people. This is just as true for rural as for urban areas. While
94-911—77 26
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396
no one is opposed to saving energy, th^ increased cost for accomplish-
ing this should not be used to preclude another group of rural people
from being beijeficiares of tiie FmHA programs.
• At the same time, it is also clear that many alternate lower costs
forms of providing heating and cooling for rural housing are excluded
from use by the present mmimum property standards. The energy con-
servation provisions in S. 1150 represent an attempt to offer some flex-
ibility in the current rules for dealing with a most serious problem.
REMOTE TTFUB CLAIMS (SECTION 18)
Finally, S. 1150 would allow FmHA to more effectively serve
families in the many areas of the country where remote title claims
presently prevent FmHA from lending. Under the current regulations,
clear titles must be available before any loan may be made by the
FmHA. In a number of cases, it is virtually impossible for clear titles
to be produced without expenditure of extensive amounts of time and
effort; however, even with enough time and money, many such claims
often cannot be cleared. The families who own sucn land generally are
those most in need of FmHA services and cannot affora to clear the
title or pay private title insurance.
These situations include the Southwest where title clouds involve
Spanish land grants; recent action by Indians in Maine to restore land
to tribal ownership ; the effiects of the Alaska-Native Land Claims Set-
tlement Act; and old mine leaseholds in heavy mining areas.
The effect of S. 1150 would be to permit the FmHA to make loans on
land with remote title claims with the Federal Government making
good on any future claim only if a court rendered an adverse decision
in. this matter. Clearly, a careful judgment of the remoteness of the
claim would have to be made. In most of the situations described, this
should pose few problems. The alternative would be to deny to many
people the benefits of the FmHA, people who are in acute need of
FmHA services.
CONCLUSION
Mr. Chairman, I have attempted to describe in brief detail those
provisions of S. 1150 which are of the most significance. At the same
time, I urge that the remaining provisions also be considered for ac-
tion when the bill receives further attention by the committee.
I would like to conclude this statement by emphasizing that S. 1150
is by no means the total answer to the housing and community develop-
ment needs of rural areas. However, it is a serious attempt to recognize
the new conditions which exist today and to provide the most effective
agency available, the FmHA, with the authority needed to improve its
capacity.
Mr. Chairman, this year the Congress i)assed a comprehensive agri-
culture bill which we expect will assist in the stabilization of rural
America. Over the years, we have updated rural development legjisla-
tion. It is time now to complete that cycle and pass S. 1150 so that the
housing and community development needs of rural America may be
dealt with properly.
I appreciate the opportunity to make this statement on behalf of
S. 1150. 1 urge early action.
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Senator Moroax. We will start off our hearing this morning by
hearing from one of my neighbors in North Carolina, Earl Thompson,
who is chairman of the Chatham County Board of Commissioners, a
county which adjoins me and which was named for the Earl of Q^at-
ham a long time ago. He's representing the National Association of
Counties. .
Earl, we will be glad to hear from you and brinff anybody with you
up to tiie table you would like. Earl, if you woulclidentify those that
are with you for the record this morning.
STATEMENT OF EABL S. THOMPSON, CHAIBMAN, CHATHAM
COTJNTT BOABD OF CM)MMISSIONERS; ACCOMPANIED BY BOBEBT
McNICHOLS, COUNTY ADMINISTBATOB, PULASKI COTJNTY, AND
ELLIOTT ALMAN, LEGISLATIVE BEPBESENTATIVE, NACO
Mr. Thompson. This is Mr. Alman from NACo, and this is Robert
McNichols from Pulaski County, Va.
Senator Morgan. And I believe you're going to have to pull the
microphone a little closer to you.
Mr. Thompson. Mr. Chairman, and distinguished members of the
Subcommittee on Rural Housing, we are most pleased for this op-
portunity to testify before you today on Senate bill 1160, a bill affecting
rural housing ana the water and waste disposal program, vital areas
for county officials. We are testifying on behalf of the National Asso-
<?iation of Counties.
I am Earl D. Thompson, chairman of the Chatham County^ N.C.,
Board of Commissioners. Testifying with me is Robert McNichols,
county administrator for Pulaski County, Va. Mr. McNichols
serves on the community development steeriuj^ committee of the Na-
tional Association of Counties. That committee is responsible for
establishing rural development policy for the national organization.
Accompanying us is Elliott Alman, legislative representative from
NACo.
I would like to thank your subcommittee for conducting these hear-
ings on this bill which addresses a most critical issue for rural county
officials. We are honored to be able to appear before you today ind
present our views.
Mr. Chairman, county officials are extremely concerned about the
dual issues of housing and water and waste disposal. These problems
are real to us, both as county officials and as rural citizens. As county
officials we have an obligation to insure that the residents of our com-
munity may secure adequate housing and receive quality water. We
are the pjeople on the line when it comes to providing the "Decent, Safe,
and Sanitary Housing" pledged by Congress in the 1949 Housing Act.
As citizens we must all compete for a limited supply of housmg at
ever-increasing costs, and we too seek the highest quality water and
satisfactory waste disposal for our families, ifi I am sure you are well
aware, two-thirds of our Nation's substandard housing is located in
rural America. Nearly one and a half times as many rural families re-
side in substandard housing than do urban dwellers.
Water and waste disposal are absolutely essential to growth «(nd
development. Yet, as of September 1, 1977, there was a waiting list of
3^839 applications seeking over $1.9 billion in water and waste disposal
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grants and loans from the Farmers Home Administration. At terms, I
might add, that are grossly discriminatory when compared to the as-
sistance available to urban areas.
Mr. Chairman, those are the realities that affect iis not just txwiay
as we appear before your subcommittee, but each and every day of
our lives.
Another reality is that we, speaking for our Nation's rural counties,
cannot solve this problem alone. The dedicated employees of the
Farmers Home Administration, who have labored under the burden
of inadequate funding and staffing, have done a commendable job. But
we cannot deceive ourselves. If rural communities are to prosper and
if rural America is to receive its fair share of Federal assistance, then
much more needs to be done.
Mr. Chairman, the National Association of Counties strongly urges
a revitalized program to increase the production of housing in rural
areas, and to make such housing available to all our citizens. We there-
fore strongly endorse those provisions of Senate bill 1150 designed to
accelerate the production and availability of rural housing.
Section 3 of the bill mandates the Secretary to provide for escrow
accounts for taxes, insurance, and other expenses. This will provide
rural people using Farmers Home Administration assistance with the
option of the same benefits and service enjoyed by other homeowners^
It will eliminate the need for large, once a year payments, effectively
reducing a significant cause of default.
Section 8 of the act provides increased authorizations for the varied
rural housing programs. This section is an important first step in rec-
ognizing the level of need existing in our rural areas. In addition, the
programs would be better able to serve and secure the needs of the
handicapped and very low-income individuals.
The homeownership subsidy for low and moderate income persons,
section 14 of the bill, provides a new mechanism to stimulate rural
housing. This ncAv section of the bill would incorporate the philosophy
of the section 8 rental program, where maintenance and utility are in-
cluded in the costs. This program will require users to pay 15 percent
of their income toward home costs and provide a major incentive for
both the agency and the buyer.
There is a recapture provision under section H which could stimu*
late homeowner improvements to the property while guaranteeing re-
payment of some funds to the Government. If carefully developed, a
recapture provision could employ a formula whereby both home-
owners and the Farmers Home Administration would share in the
profit accruing from appreciation of the housing. Mr. Chairman, we
believe this provision promises an innovative approach that will help
rural citizens secure adequate housing.
We would like to suggest an incentive which involves energy con-
servation. The Agency could set a fixed monthly utility and mainte-
nance allowance for each area. Should a family exceed this figure, it
would have to pay the extra amount because it wasted energy. On the
other hand, should the utility and maintenance use fall below the estab-
lished amount, the family would benefit by having the savings.
We would also recommend employment of a "replacement reserve,'*
where the Agency would take a small amount of the homeowners pay-
ment each month, thereby establishing a fund to pay for the large, but
unfortunately, unexpected expenses that every homeowner must face.
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Adopting a replacement reserve would avoid one of the tremendous
problems that has plagued some of the other homeowner programs.
I would also like to make a number of additional points. First, hous-
ing does not exist alone. It involves every segment of the community.
It IS not only impacted by other conditions in the county, but it, itself,
can make a positive impact on the economic health of a county. By
stimulating housing we are stimulating jobs and industries for our
citizens. 'W e are also making our counties more attractive for invest-
ment and economic development.
Housing should be accessible to all segments of our community. Pro-
visions in this and other housing legislation enable us to serve those in
the lowest bracket to the moderate income. However, I would urge
that your subcommittee give due consideration to the needs of those
people whose income exceeds the $16,000 ceiling. Many families achieve
this income level by having the husband and wife both work. More-
over, I submit to you that even in rural America individuals with
these income levels often cannot afford housing with its continual rise
in costs and at the prevailing interest rates.
Mr. Chairman, we in North Carolina are extremely fortunate to
have benefited from the dedicated and diligent efforts of the employees
of the Farmers Home Administration, both at the State and local
levels. North Carolina led the Nation last year in the number of single
housing loans, Tennessee was second, the only two States exceeding
$100 million in loans. Actually, North Carolina exceeded by some $10
million the amount of its obligation, spending those funds unused by
other States.
Chatham County, one of 100 counties in North Carolina, encom-
passes 707 square miles, is 84.1 percent rural, has a resident population
of 30,000, of which 20.2 percent are at or below the poverty level, with
32.7 percent of the housing in Chatham County adjudged substandard.
Over the past 2 years the Farmers Home Administration rural hous-
ing program has provided the following assistance to Chatham
County. 61 section 502 loans exceeding $1 million ; 24 section 604 loans
and grants exceeding $44,000 and one section 615 loan exceeding
$600,000. With this aid from Farmers Home Administration, the sup-
port and assistance of allied or adjunct agencies and other local re-
sources, we are making progress in providing for our elderly, disabled,
handicapped and poor as well as the low and moderate income citizens.
The county's housing authority, through the use of HUD, commu-
nity development block grants has assisted with repairs to 25 rental
units and repair to 69 owner occupied homes. The county's community
action agency has assisted with rehabilitation to 74 rental or owner
occupied dwellings and completed weatherization to an additional
39 units. The coimty's council on aging has undertaken a rehabilita-
tion and weatherization program for the elderly using exclusively work ,
crews provided under the Comprehensive Employment and Training
Act, CETA, completing 65 work orders to date. Also of value as a local
resource has been the Triangle Housing Development Corp., a re-
gional nonprofit entity which provides technical assistance, estimates
and contractor referral for areawide housing rehabilitation efforts.
However. Mr. Chairman, there is still a great need for the new pro-
grams and increased authorization addressed in Senate bill 1150 and
on behalf of Chatham County, the State of North Carolina and NACo,
I request the subcommittee's support of this legislation.^
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400
Mr. Chairman, I would, with your permission, like to briefly relate
an incident concerning one of our citizens that I believe truly illustrates
the impact this legislation can have on rural housing in America,
Jn the fall of 1975 an 83-year-old widow, living in a log cabin, asked
our council on aging to help in having a bathroom installed. This
extremely poor but determined woman had in earlier years built her
own chimney, built and installed her own windows, chmked and pan-
eled the cabin. Her need for indoor plumbing became acute because of
arthritis and stomach problems. The council on aging immediately
started the process of determining eligibility and seeking financial
assistance. A section 504 loan application was prepared and submitted
to Farmers Home Administration. She was found qualified with one
exception : Her social security and SSI was insufficient to pay back the
1 percent interest loan in the required period of time. In the early
spring of 1977 with the Farmers Home Administration empowered to
combine grant moneys with 504 loans, the stalled situation moved for-
ward. A cost estimation from Triangle Housing Development Corp.^
of $3,000 for the bathroom addition, assuming the use of CETA work
crews, was secured. Farmers Home Administration awarded a $2,500
grant and a $500 loan package and work began in April 1977. Because
the client qualified for the council on aging's weatherization grant
program, the work crew additionally underpinned the entire cabin
with cinder blocks, patched the leaky roof, receilinged the living room,
thereby allowing insulation of the attic and installed storm windows
and doors. Money for weatherization materials came from two grants;
one from the county's council on aging and one from the county's
community action agency. After almost 2 years, this truly multire-
sourced project had not only added a much needed bathroom but pro-
vided a much sturdier, energy efficient, and healthy home environment.
Mr. Chairman, I would like to thank you and the subcommittee for
your time and consideration. I now turn to Robert McMchols, county
administrator from Pulaski County, Va., who will comment further
on the Rural Housing Act of 1977.
Mr. McNiCHOLs. Mr. Chairman, I would like to direct my comments
to a number of key points. While our organization strongly endorses
the expansion of the housing provisions, we would like to direct your
attention to the need to expand Farmers Home Administration staffing.
[Complete statement follows :]
Statement op Earl D. Thompson, Chaibman op the Chatham County, N.O.
BoABD OP Commissioners, and Robert McNichols, County Administrator,
Pulaski County, Va., on Behalp op the National Association op Counties
Mr. Chairman, and distinguished members of the Subcommittee on Rural
Housing, we are most pleased for this opportunity to testify before you today
on S. 1150, a bill affecting rural housing and the water and waste disposal pro-
gram. We are testil^ng on behalf of the National Association of Counties^
(NAOo).
iThe National Association of Counties Is the only national organization representing
county government In the United States. Throng its membership, urban, snbarban and
rural counties join together to build eflPectlve, responsive county government.
The ^als of the organization are to :
Improve county government
■Serve as the national spokesman for county government ;
Adt as a liaison between the nation's counties and other levels of government;
Achieve public understanding of the role of counties in the federal system.
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401
I am Barl D. Thompson, Chairman of the Chatham County, N.C. Board of
Commissioners. Testi^sdng with me is Robert McNichols, connty administrator
from Pulaski County, Va. Mr. McNichols serves on the community development
steering committee of the national association of counties. That committee is
responsible for establishing rural development policy for the national organisa-
tion. Accompanying us is Elliott Alman, legislative representative for NACo.
I would like to thank your subcommittee for conducting these hearings on
this bill which addresses these most critical issues for rural county officials. We
are honored to be able to appear before you today and present bur views.
Mr, Chairman, county officials are extremely concerned about the dual issues of
housing and water and waste disposaL These problems are real to us, both as
county officials, and as rural citizens. As county officials we have an obligation
to insure that the residents of our community may secure adequate housing and
receive quality water.
We are the people on the line when it comes to providing the "decent, safe, and
sanitary housing" pledged by Ccmgress in the 1949 Housing Act.
As citizens, we too must c(mipete for a limited supply of housing at ever in-
creasing costs, and we too seek the highest quality water and satisfactory waste
disposal for our families.
As you know, two-thirds of our nation's substandard housing is located in rural
America nearly one and half times as many rural families reside In substand-
ard housing than do urban dwellers.
Water and waste disposal are absolutely essential to community growth and
economic development As of September 1, 1977, there was a waiting list of 3,839
applications seeking over $1.9 billion in water and waste disposal grants and
loans from Farmers Home Administration. At terms, I might add, that are
grossly discriminatory when compared to the assistance available to urban areas.
Mr. Chairman, those are the realities that affect us not just today as we appear
before your subcommittee, but each and every day of our lives.
Another reality is that we, speaking for our nations' rural counties, cannot
solve these problems and meet these needs alone. The dedicated employees of the
Farmers Home Administration, who have labored under the burden of inadequate
funding and staffing, have done a commendable Job. But we cannot deceive our-
selves. If rural communities are to prosper and if rural America is to receive its
fair share of federal assistance, then much more needs to be done.
Housing
Mr. Chairman, the National Association of Counties strcmgly urges a revitalized
program to increase the production of housing in rural areas and to make such
housing available to all our citizens. We therefore strongly endorse those pro-
visions of S. 1150 designed to accelerate the production and availability of good
housing to the reiddents of rural America.
Section S of the bill provides much needed Increases in authorizations for the
rural housing programs. This section is an Important first step in recognizing the
level of need existing in our rural areas. However, money alone will not solve the
problem.
Section 3, of the bill mandates the secretary to provide for escrow accounts for
taxes, insurance and other expenses. This will provide rural people using FmHA
assistance with the option of the same benefits and service enjoyed by other
homeowners. It will eliminate the need for large, once a year payments and will
thereby effectively reduce a significant cause of default. We also welcome changes
making the programs better able to serve the needs of the handicapped and very
low income individuals.
The homeowner subsidy for low and moderate Income persons, section 14 of the
bill, provides a new mechanism that promises to stimulate rural housing. The bill
would incorporate much of the philosophy of the section 8 rental program, where
maintenance and utility are Included in the costs. The program would require
users to pay 15% of their income toward home costs.
A major incentive for both the agency and the buyer Is provided by a "recap-
ture provision". This impetus could stimulate homeowner improvements to the
property. While guaranteeing repayment of funds to the Government. If care-
fully developed, the recapture provision could employ a formula whereby both
homeowner and ithe Farmers Hcnne Administration would share in the profit ac-
cruing from appreciation of the housing. Mr. Chairman, we welcome this pro^
vision as an innovative approach that will help rural citizens secure adequate
housing.
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We also urge that the agency take the initiative concerning energy conserva-
tion. A fixed monthly utility and maintenance allowance should be determined
for each area. Should a family exceed this figure, it would pay the extra amount,
because it wasted energy. On the other hand, should the utility and maintenance
use fall below the established amount, the family would benefit by enjoying the
savings.
We recommend employment of a "replacement reserve." The agency should
take a small amount of the homeowners payment each month, thereby establish-
ing a fund to pay for the large, but unfortunately unexpected, expenses that
every homeowner must face. Adopting a replacement reserve would av(4d one of
the tremendous problems that has leagued some of the other homeowners
programs.
I would like to make a number of additional points. First, housing involves
every segment of the community. It is not only impacted by other conditicms in
the community, but housing production can make a positive impact on the eco-
nomic health of a county. By stimulating housing we are stimulating industries
and jobs for our citizens. We are making our communities more attractive for
investment and economic development, and improving our overall standard of liv-
ing for rural people.
Housing should be accessible for all segments of our community. The wealthy
have no problem. Provisions in this and other housing legislation will enable us
to better serve those in the lowest income bracket. I would urge that due consid-
eration be afforded to the needs of those with moderate incomes and those whose
income exceeds the $15,600 ceiling. Many families achieve this income level only
by having the husband and wife both work. Moreover, I submit to you that even
ill rural America, individuals with these income levels often cannot afford hous-
ing at current costs and interest rates.
Mr. Chairman. I would like to thank you for your time and consideration. I
would now like to turn to Robert McNichols, county administrator from Pulaski
County, Virginia, who will comment further on the Rural Housing Act of 1977
Mr. Chairman, I would like to direct my comments to a number of key points.
While our organization strongly endorses the expansion of the houslnar provisions,
we would direct your attention to the need to expand FmHA staffing.
Over the past 5 years, this agency has operated at staff levels significantly
below the level needed. It is a tribute to the hard work and dedication of the
agency that they have been able to administer their program responsibilities.
I testified before committees of both houses of Congress last spring urging funds
to hire more staff. I'm happy to say that Congress provided these funds. I am
most dismayed, however, to learn that OMB may not permit the full level of
increases.
This is contrary to the intent of Congress and a breach of faith to the people of
rural America. How can the Federal Government continue to publicly pledge its
commitment to rural America, while at the same time the agency responsible for
accomplishing that pledge is denied the staff to do it. How can we expect FmHA
to administer the increased funds for community facility, housing, and economic
development programs provided by Congress while across town their staffing
needs are denied.
I submit to you that it cannot be done. The Farmers Home Administration
must be permitted to increase staff so it can meet the needs of rural people.
Mr. Chairman, I urge that you call those administration officials from OMB
to appear before you and explain their decisions on FmHA staffing.
I would also like to comment upon section 20 of S. 1150, providing changes in
the water and sewer grants. This program is of great interest to county officials
and is the keystone of the Rural Development Act of 1972. I understand juris-
diction is shared with another committee, but, if I may, I'd like to note a number
of points.
This year Congress has provided increased funding for water and waste dis-
posal grants and loans. This will stimulate housing and eeoncnnic expansion.
Absent adequate facilities, it is virtually impossible to attract new industry and
housing and provide the jobs our citizens need. This is especially true in light of
the necessary and stringent state and federal environmental controls.
County officials therefore welcome the fact that this bill proposes to change the
program. However, we do not support the entire provision as included in the bill
and recommend the following:
1. Authorizations should be increased to $1 billion. Attached is the waiting list,
as of September 1, 1977, for the program. Over 3,839 applications are pending
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for $1.9 billion in grants and loans. By attaining the proposed increase over a
3-year period, the agency will be able to adequately accommodate the expanded
function.
2. Grants to rural counties should cover a flat 75 percent of project cost. This
will simplify the administration of the program and make it more comparable to
the EPA and HUD programs serving urban areas.
3. Related to the above is the so called 1 percent rule. In short, the rule should
be dropped. It is our interpretation that previous administrations attempted im-
poundment, recissions, deferrals, and the one percent rule in order to limit the
program.
Mr. Chairman, impoundments, recission and deferrals all failed because the
Congress challenged and defeated them. The one percent rule is an administrative
provision and continues. We implore you to direct that it be abandoned by
FmHA in its r^ulations, and that it be excised from this bill.
In point of background, the rule limits funding by tieing the grant level to
median income of the communit.v. This is encompassed by the second sentence of
section 20, varying grants from 25 percent-75 percent. This is not present in the
urban water and sewer programs, and it ignores the intent of the rural develop-
ment act to stimulate development.
While the existing law permits grants up to 50 percent, the one percent rule
limited the average grant in fiscal year 1975 to only 25 percent, and in fiscal year
1976 to only 21 percent.
Where impoundments failed, the 1 percent rule took its place in fiscal year
1975, over $100 million in grants went unspent and were carried over. The reason
for this is that the rule forced poor rural communities to use disproportionate
loan levels rather than grants. Once the loans were exhausted, the grants could
not be used. Poor rural areas were not only given less assistance than urban
areas, but it was more costly because it was predominantly loans.
How were the poor who live in thousands of communities which did not get
assistance helped by this policy. How were the poor who were forced to pay
more for water, helped by this policy. They were not. It is a cruel hoax that the
1 percent rule, and its variation included in this bill, vrill help anyone.
County officials believe that providing 75 percent grants to rural communities is
simple, approaches equity with urban programs, and better serves the needs of
the poor.
In summary, the National Association of Counties :
(1) Strongly supports the housing proposals and increased authorizations
noted in S. 1150 and recommends provisions for recapture of fluids, replacement
reserve, and energy conservation in the section 14 home ownership program,
(2) Recommends increasing authorizations for water and sewer grants to
$1 billion over 3 years,
(3) Recommends water and waste disposal grants cover a flat 75 percent of
project cost
(4) Recommends deletion from bill of section 20 language varying grants from
25 percent to 75 percent and recommends abandonment of the one percent rule,
<5) Urges the Congress to insure that Farmers Home Administration is able
to hire the additional staff provided by Congress.
Thank you, and we will be happy to answer any questions you may have.
RURAL DEVELOPMENT ACT, WATER AND WASTE DISPOSAL GRANTS AND LOANS, WAITING LIST AS OF
SEPT. 1, 1977
Number of
States Grants Loans Total applicants
Alabama 9,266,600 26,048,800 35,315,400 126
Alaska 47,000 47,000 2
Arizona. 157,400 7,498,800 7,656,200 10
Arkansas 7, 577, 700 24, 007, 360 31, 585, 060 149
CaUfornia __ 38,449,591 81,999,144 120,448,735 269
Colorado. „. 13, 775, 400 20, 168, 200 33, 943, 600 93
Connecticut _ 171,250 171,250 1
Delaware _ 2,689,300 2,689,300 5
Florida _ 9, 647, 439 79, 185, 616 88, 833, 055 65
Georgia __ _ 20,999,400 24,849,900 45,848,300 128
Hawaii 550,000 550,000 1,100,000 2
Idaho 1, 780, 600 5, 482, 700 7, 263, 300 29
Illinois 29,127,926 53,758,667 82,886,326 215
Indiana 5,688,500 40,768,400 46,456,900 72
Iowa 8, 063, 850 97, 237, 180 105, 301, 030 242
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RURAL DEVELOPMENT ACT, WATER AND WASTE DISPOSAL GRANTS AND LOANS, WAITING LIST AS OF
SEPT. 1, 1977-Continuod
States Grants Loans Total
Kansas 11.847,617 24,607,141 36,454,758 140
Kentucky 28,170,921 52,776,655 80,947,576 166
Uuisiana 9, 553, 198 34, 307, 936 43, 861, 134 120
Maine 3,748,000 13,533,800 17,281.800 37
Maryland 101,300 17,671,500 17,772,800 40
Massachusetts 1,556,000 1,556,000 3
Midiisan 1,413,260 51,307,102 52,720,362 46
Minnesota 3,450,989 13.329,700 16,782.689 64
Mississippi 7, 665, 400 25, 959, 300 33, 624, 700 193
Missouri. IL 587^ 640 32, 667, 195 44, 254, 835 185
Montana 2f,5()6,000 3,723,500 6,229,500 25
Nebraska _
Nevada 131,499 3.266,390 3,397,889 6
New Mexico 2,327,383 4,277,900 6,605,283 43
New Hampshire 2,380,000 3.810,000 6,190,000 11
New Jersey 67.885,200 67.885,200 45
New York 2,933,000 69,087,365 72,007,723 85
North Carolina 26,074,723 26,074,723 35
North Dakota 2,804,800 32,440,100 35,244.900 47
Ohio _ 18,347,100 32,422,300 50,769,400 107
Oklahoma 5,235,950 15,280,930 20,516,880 122
Oregon 4,882,412 4,941,472 9.823,884 68
Pennsylvania 33,530,604 120,668,585 154,199,189 156
Rhode Island _ —
South Carolina 2,477,836 26,034,827 28,511,663 40
South Dakota 9,458,000 20,434,500 29,892,500 32
Tennessee 15,520,569 51,644,607 67,165,176 227
Texas 4,342,300 44,254,022 48,596,322 122
Utah _ 1,004,000 2,882,672 3,886,672 27
Vermont 1,093,000 1,250,000 2,343,000 4
Virginia 22,041,300 46,902,650 68,943,950 109
Washington 2,953,800 7.398,800 10,352,600 37
West Virginia 26,138,165 40,583,364 66,721,529 82
Wisconsin 6,908,457 9,000,358 15,908,815 93
Wyoming 4,767,350 4,271,450 9,938,800 35
Puerto Rico 736,000 15,653,000 16,389,000 17
Total 395,197,056 1,531,324,661 1,926,521,717 3,839
Mr. ^rcXiCHOLs. Mr. Chairman, I would like to make one note about
additional staff. We in rural American do not care for inflationary
spirals or for the other problems that are faced by the Congress as
far as the economy is concerned, but Farmers Home Administration
has attempted to operate in the last 5 years that I have had knowledge
of with inadequate staff in rural communities. There is just not a suffi-
cient number of people out there to take care of the rural needs in
providing the housing, paperwork, and paperwork on community
development.
In Pulaski County, as I'm sure in Chatham County, we have pro-
vided CETA workers who are assigned to the coimty government to
the Farmers Home Administration. If the county were to take the em-
ployees a\yay from the Farmers Home Administration their program
would basically fold in rural America. It would seem to me it's rather
obvious to the administration that if counties must provide staffing
for Farmers Home Administration then there in fact is a need for that
staff.
Thank you, Mr. Chairman.
Senator Morgan. Thank you very much, and thank you both for a
very comprehensive and constructive statement. You have brought to
our attention a number of new points, but also a number that have
already been made. Almost everybody who has testified so far has
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raised the question about inadequate staffing of Farmers Home Ad-
ministration across the country and almost everybody who's been
familiar with their operation has been complimentary of the work
that those who are there are doing.
So we appreciate you bringing these matters to our attention and
your recommendations of the NACo Association and when we get
through building our record and when we sit down to examine our
record and come out with a bill I hope you will see a good many of
your recommendations incorporated in it. Thank you very much.
Mr. Henry Schechter, who's the director of the Department of
Urban Affairs for the AFI^CIO, we are delighted to have you with
us this morning and we are very appreciative of the interest that the
AFIr-CIO has taken in the area oi housing and we appreciate you
taking the time to come up and give us the benefit of your thinking as
we try to put together Senator Humphrey's bill. That I think is go-
ing to be a great help to all of us.
STATEHENT OF HENBT B. SCHECHTEB, DIBECTOB, DEFABTMENT
OF UBBAN AFFAIBS, AFL-CIO
Mr. SciiECHTER. Thank you, Mr. Chairman.
I appreciate this opportunity to present before you the views of the
AFL-CIO on the Rural Housing Act of 1977, S. 1150.
[Complete statement follows:]
Statement bt Henby B. Soheoteb, Dibectob Department of Urban Affairs,
AFIr-CIO
The AFL-CIO has had a long standing poUcy of supporting Federal programs
to provide low income families with decent housing that they can afford. That
concern extends to aU areas of the country, urban and rural.
There is also a particular concern for the housing needs of affiliated union
members, who reside in rural as weU as urban areas. A 1&75 fiurvey of AFL-CIO
members' housing showed that close to 30 percent resided in cities of less than
50,000 population, or in suburbs of such cities, and another 15 perc^it lived in
smaUer, rural areas.
The Rural Housing Act of 1977, S. 1150, would provide a number of additional
useful tools to meet the housing needs of rural residents. Senator Humphrey
and his co-sponsors are to be commended for such a comprehensive rural housing
bill. With changes that I will recommend to strengthen some of the major pro-
visions, the AFLr-<:JIO supports the enactment S. 1150.
Before dealing with the provisions of the bill, I would like to observe that the
Farmers Home Administration housing programs have had a relatively low
failure rate. This reflects the individual, face-to-face credit approval of loan
applicants in FmHA county offices. If this procedure is to be continued as the
program grows, FmHA must be permitted to hire the additional stuff authorized
by the Congress, and OMB should not be permitted to prevent that.
I will not discuss many provisions of S. 1150 which have been incorporated
In the Housing and Community Development Act of 1977, which has been passed
by the Senate and the House, and iSbme of the other technical provisions, and
will focus largely upon the proposed new homeownership subsidy programs.
EVIDENCE OF RURAL HOUSING NEEDS
The 1975 Annual Housing Survey, conducted by the Commerce Departnobent for
the Housing and Urban Development Department, provides some indications of
housing conditions in rural and in urban areas. As general background,, it should
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be noted that abont 52 million households occupied units were in urban areas and
22 million were in rural areas in 1975.
With regard to affordability, many households in both urban and rural areas
experience difficulty. The 1975 Annual Housing Survey shows that about 30
percent of rural households in renter occupied units spend a quarter or more
of income for gross rent. In urban areas the percentage of renters with such
an affordabiUty problem was 44 percent. In owner-occupied units with mortgages,
about one-fifth of rural and also of urban owners had monthly housing costs
of one-fourth or more of income.
In absolute numbers, the 1975 Annual Survey shows that 1.2 million rural
households living in units with a mortgage spend over a fourth of their income
on monthly housing costs. The survey also shows that 1.1 million rural house-
holds in rental units spend more than one-fourth of income on rent.
Perhaps more significant are a number of other differences between the urban
and rural housing inventories. The general lack of sufficient decent housing in
rural areas is indicated by the fact that about 6 percent of the rural occupied units
lacked some or all plumbing in 1975; the comparable percentage for urban
occupied units was 1^4 percent.
The economic infeasibility of having multifamily rental units at reasonable
rents in many of the sparsely populated rural areas is reflected by the following
data : while 38 percent of the urban units were renter-occupied, only 20 percent
of the rural units were renter-occupied. Furthermore, while 3 out of 4 url>an
rental units were in multifamily structures (of 2 or more units), less than 1 out
of 4 rural rental units were in such structures. Except where there is an unusual
surplus of older 1-faniily units for sale, in most rural areas low-income families
can only be served by subsidized homeowner ship units.
SUBSIDIZED LOW-INOOME HOMBOWNERSHIP
In view of the sparse population distribution and prevailing housing conditions
in rural areas, a deep subsidy homeownership program is needed to assist the
large number of badly housed poor rural households. The present section 502
interest credit program does not adequately serve this lower income group.
The Agriculture Department's Economic Research Service, in a recently pub-
lished study (25 Years of Housing Progress in Rural America), has calculated
that, despite progress in improving rural housing conditions between 1950 and
1975, many of the rural poor still occupy the worst sort of housing. The lowest
income group of nonmetro households, those with incomes below $4,500, accord-
ing to the study, occupied over 1 million substandard housing units in 1975. About
56 percent of the total of 1.9 million non-metro substandard housing units in
1975 were occupied by households with incomes below about $4,500 a year.
Looked at in another way, one in flve units occupied by the under $4,500 in-
come families in rural areas was substandard in 1975. In contrast, for all income
groups, fewer than one in ten occupied units in non-metro areas was substandard.
While over half the substandard non-metro housing units are occupied by the
lowest income people, the Section 502 homeownership program for low income
families does not adequately serve this group. In the first six months of fiscal
year 1977 through March 81, 1977, less than 20 percent of the 26,118 Section 502
interest credit loans for low income borrowers served households with incomes
below $6,000. The average adjusted income of section 502 low income borrowers
who received interest credit loans was $7,691 in the period ending in March.
A program intended to meet the very low income need would be authorized by
Section 14 of S. 1150. In order that the program should be a sound homeowner-
ship program and be acceptable in the context of established assisted home-
ownership programs, however, certain modifications would be appropriate.
Section 14 would provide that persons who could not otherwise afford to repay
an interest credit Section 502 loan, could receive a subsidy equal to the differ-
ence between 15 percent of gross annual income and the sum of payments for
mortgage principal and interest, taxes, insurance, utilities and maintenance. Un-
der the Section 502 interest credit loan provisions a loan recipient must pay at
least 20 percent of adjusted income toward principal, interest, taxes and
Insurance.
The estimated comparable required minimum payments under Section 14 and
for a 502 interest-credit loan by a family of two adults with 3 children ^ith a
$6,000 annual income would be as follows :
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Annual gross income..
Adjusted income
15 percent of gross income
20 percent of adjusted income..
Monthly payment
Estimated utilities bill(roonth)
Estimated maintenaiice (month)
Total housing expenses 75 115
Under sac. 14
502 interett
craditloan
$6,000
$6,000
900 ..
960
75
None
None
10
1 Derived by standard deduction of 5 percent of gross income and $300 per child.
The main difference, which would cause a family with a Section 14 loan to pay
only 65 percent as much as a comparable family with a 502 interest credit loan
would be an added subsidy payment to cover utilities and maintenance.
Maintenance expenditures could vary greatly depending upon how much the
homeowner chooses to do himself. If a homeowner knew that aU maintenance
could be covered by subsidy, there would be little incentive for the own^ to
do the usual homeowner self-repair maintenance work himself. The biU does
provide that, if and when the house is sold at a prc^t all maintenance expendi-
tures would be recaptured by the Government, except that the recapture should
not prevent the borrower from having the resources needed to relocate. Given the
course of inflation in house prices, it is unlikely that there could be a recapture
of **profits" that would still leave sufficient sales proceeds to permit the owner
to relocate to a comparable house. The far-off prospect of vague recapture prob-
ably would not discourage paying for maintenance. There would be widespread
resentment by other homeowners who do their own maintenance work. There
would also be great difficulty in defining and monitoring maintenance to preclude
capital improvements through better quality of parts replacement. For all of
these reasons, it is very questionable if all maintenance could practically or
should be covered by subsidy. A reasonable allowance might be established to
cover the type of maintenance that is usually done under contract.
Utility exi)enditures are also variable, depending upon the frequency of uses,
such as television and washing machines. There would be no incentive for energy
conservation if all utilities were paid with subsidy. Utility costs are more readily
definable than maintenance costs, although there would be a need to adjust for
fuel purchased by homeowners, instead of having it supplied by a utility com-
pany. In order to afford reasonable relief from high utility costs, herefore, there
might be a fixed dollar amount allowance for utilities. Such allowances would
have to be established on an area or regional basis to reflect differences in rates.
Even with limited maintenance and utility subsidy allowances however, there
would still be inequity between the 502 interest credit borrower and the Section 14
borrower of roughly comparable income. To overcome this problem ; there could
be provisions for a graduated homeowner payment schedule, permitting the Sec-
tion 14 provisions to be applicable for income of up to a given amount, (for ex-
ample, $5,000) and the present 502 interest credit provisions to be applicable to
the balance of the income.
The latter observation touches upon the question of income eligibility for a
Section 14 loan. The statute would leave that to the discretion of the Secretary
of Agriculture. The Section 14 program is needed because the Section 502 pro-
-am does not reach the lower income families among those with incomes up to
$10,000 who are eligible.
The rationale for adoption of a minimum housing expense payment equal to
15 percent of gross income is the Section 8 rental housing assistance program ad-
ministered by HUD, and also used in conjunction with Section 515 Farmers Home
Administration rental housing projects. The Section 8 statute permits the Secre-
tary of HUD to require occupant payments equal to between 15 percent and 25
percent of income, depending upon size of family and other factors. Thus, in
Harnett County, N.C., the Section 8 income limit for a very low income 4-person
family is $4,700 and $6,200 for an 8-person family. The 4-person family would
have to pay 25 percent of income and the 8-person family 15 percent of income,
if all but two persons in each family were minors. Furthermore, HUD estab-
lishes income limits for eligibility for Section 8 projects in every county in the
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country- Blnce Section 14 is supposed to provide benefits comparable to tbose
provided by Section 8, it would be appropriate to make Section 8 income limits
and housing expense-to-income ratios applicaUe to Section 14. It would aTOid
duplication of effort and differences between two Federal programs.
DEFBOT COMPENSATION
Many of the provisions of S. 1150 have been incorporated in the Housing and
Community Development Act of 1977, passed by the Senate and House and re-
ported out by a Senate-House Conference Committee on September 26th. In some
instances, however, S. 1150 is preferred because it goes further in providing
needed assistance to rural homebuyers. Such is the case with the provision for
compensation for defects. Section 5 of S. 1150 would make the Farmers Home
Administration responsible for defects for 3 years, versus 18 months in the
Senate- and House-passed bills, and it would be applicable to existing homes,
as well as new construction.
OTHEB CONSUMER PEOTECTION PROVISIONS
Especially noteworthy are several other Sections of S. 1150, not in the House-
and Senate-passed bills, which would provide consumer protection. Thus, Section
3 makes mandatory the setting up of escrow accounts for payments of taxes, in-
surance and other expenses. Section 6 provides that before a foreclosure proceed-
ing can be initiated, the borrower must be advised of Section 505 provisions
on the availability of a moratorium on payments. Section 7 provides' for a
mandatory appeals procedure for applicants who have been denied loans under
Farmers Home Administration programs. All of these provisions would protect
the interests of borrowers and loan applicants.
REMOTE LAND TITLES
Section 18 of the bill would authorize Farmers Home Administration to make
loans where private insurance companies will not provide title insurance solely
because there has been an unclear land title for many decades, going back to
Spanish land grants in some instances. It is desirable that such land should be
made useable as resid.ential building sites, but it would be adviseable that the
Secretary be required to find that the outstanding claim or encumbrance on the
title is so remote that there is little chance that it can be legally exercised. Such
precaution is advised in order to preclude the use of land with potentially viable
title claims and encumbrances for which the Secretary would become liable for
payment under the provisions of Section 18.
RURAL HOUSING RESEARCH
Section 4 of S. 1150 provides for the establishment of a research capacity
and authorizes $10 million to fund this activity. It is recommended that, as part
of this function, Farmers Home Administration be required to publish monthly
figures on new construction home starts and existing home purchases financed
with FmHA loans, with separate component figures for low income and moderate
income loans, and annual data on the financial characteristics of the home pur-
chases and on the characteristics of households being served by the program.
ENERGY CONSERVATION
Section 21 mandates the incorporation of techniques, design features and ma-
terials for energy conservation in Farmers Home housing. The Secretary is di-
rected to take long term energy savings into account in determining eligibility
under sections 502, 514, 515, and 516 and shall not deny assistance as a result of
Increased construction cost due to energy conservation devices or techniques
included In the structure. The bill encourages the inclusion of "locally available
space heating systems'' such as stoves, fireplaces, heat pumps and solar and wind
devices in housing assisted under the Act.
It is urged that the Secretary be directed, in drawing up the stendards to
Implement these provisions (as provided in the new section 529 (c)), to balance
as much as possible the need for energy conservation against the increased cost
so that this does not result in lower income persons being priced out of the
programs.
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AX7THQBIZATION8
The various program authorizations provided for in S. 1150 are generally
modest relative to the needs to be met and deserve ai^roval. Some of the larger
authorizations would be the increased authorizations for sewer and water grants.
They are greatly needed in order to create buildable sites for homes that will
provide healthy living conditions.
• Senator Morgan. Thank you, Mr. Schechter, for a very thoughtful
presentation and one that I'm sure we will find helpful.
Many of your recommendations we have previously heard in some
very good testimony yesterday and the day before. We are going to
vary our routine a little bit this morning. Bather than my carrying
the burden of all the questions I'm going to yield to staff members
who have had an opportunity to study not only your presentation but
also others that have been made. So rather than Mr. Locklin handing
me questions to ask you, I'm going to ask Mr. Locklin to ask you the
questions.
Mr. Locklin. Thank you, Mr. Chairman.
Mr. Schechter, just to ditto what the chairman has said about your
statement, I thought it was most thoughtful and very helpful to the
subcommittee.
I was interested in what you said about 50 percent of the AFL-CIO
membership or close to 60 percent of it lives in the areas of the country
that might be served by Farmers Home Administration programs.
Mr. ScHEGHTER. A good part of them. Certainly 15 percent in the
smaller rural areas and 30 percent live in areas with population that
are less than 50,000.
Mr. Locklin. That might qualify under those programs ?
Mr. Schechter. Yes.
Mr. Locklin. Do you have any breakdown of those members in
terms of their income level ?
Mr. Schechter. I would have to check that. If we have it, I would
be ^lad to submit it for the record.
[The following table was received from Mr. Schechter :]
MIDIAN INCOMES! OF AFL-CIO MEMBER, OWNER AND RENTER HOUSEHOLDS BY LOCATION OF RESIDENCE, 1975
Median incomes of households
Owner-
Locttion or residence occupants Renters
Central city of 50.000 or more _ $15, 000 J12, 000
Suburb of city of 50,000 or more 17, 000 12, 000
City of less than 50.000 14, 200 12, 000
Suburb of city of less than 50,000 14,400 12,000
Rural area 14,000 11,700
Location not reported - 14,000 13,000
1 Includes incomes of all workers in households.
Mr. LocKUN. It would be interesting to know which programs they
would most likely qualify for.
Mr. Schechter. The survey we made was a sample survey and when
you start cross tabulating, some of the data may not stand up, so I
would have to check, but if we have it I would be glad to submit it.
Mr. Locklin. I rather think a large part of them would probably
fall in the above moderate category and in doing so would quali:ty
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under the guaranteed loan program which Senator Morgan has re-
structured in his bill that's now part of the Housing and Community
Development Act limiting the guaranteed program to above moderate
income and making the interest rate negotiable and making it possi-
ble for private lending institutions to make these loans at low down-
payments and for long term, and I would rather think that most of
your membership would be eligible for that kind of assistance, and I
wondered what you thought of that program and whether you think
it's going to work.
Mr. ScHECiiTER. I think it could be helpful to people who are pres-
ently living in areas that are some distance from the urban work cen-
ter — we found that many of our younger members commute great dis-
tances. Some of them rent houses or own houses and may be commuting
as much as li^ hours to get to work and the added capability for them
to buy homes I think would be very helpful.
Mr. LocKLiN. A lot of the recommendations you made regarding the
deep subsidy program parallel suggestions that have been made by
others. I'm thinking of the proposal that wa,s made to us earlier in the
week by the Housing Assistance Council. Are you familiar with that
proposal ?
Mr. ScHECHTER. I was f amilar with some discussions they were hav-
ing earlier and I read their release. I believe they were also recommwid-
ing a sort of combined program, such as 502 with graduated payments,
and that's along the Imes that I recommended. I think tnat would
work out.
Mr. LocKLiN. They had what they called a monthly utility and main-
tenance allowance which would provide an incentive for energy sav-
ings. It would provide a reserve tor maintenance which you suggested
in your statement, and I noticed the National Association of Counties
this morning made recommendations very similar to that.
Mr. ScHECHTER. Ycs. I do believe there have to be allowances, pi-ob-
ably varied by area because of differences in utility costs. I must say,
in all candor, to supplement my statement, I really don't think the re-
capture provision would have too much meaning because I presume
that in order to allow a person to relocate, the owner's sale proceeds
allowance would be for a comparable house and a comparable hou>se
would usually cost just about what he can get for selling the house hfe
lives in. So I'm all for relief of the burden on low income people for
high utility costs and, where necessary, maintenance cost which can't
be done by the owner, but I think we ought to face up to the that
this is a subsidy cost which we will be paying.
Mr. LocKLiN. Would you agree that built into this recapture pro-
A^sion ought to be some means whereby regardless of the amount of
the subsidy or the amount of the profit that's made on the sale of the
house that the homebuyer should have some equity out of that in terms
of giving him more pride in his ownership of his house ?
Sir. ScHECHTER. I would rccommcud that we fashion the program
more like present homeownership programs are fashioned, because this
business of recapture is such a vague and probably unrealizable objec-
tive, and since there would be income checks periodically I presume,
people would go off subsidy as income rises. I think the recordkeeping
and the hassle that would be involved would probably be worth more
than the funds that the Government would recapture.
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Mr. LocKLix. Would it also be your feeling that if you did away
with recapture and allowed the homeowner to build up an equity in
the house with the hope in the future he mi^ht sell it and make some
money that this would give him more pride m his ownership ?
Mr. ScHECiiTER. I do think he would feel a lot more pride of owner-
ship, yes.
Mr. LocKLix. Just one further question. It's kind of like an irresisti-
ble force meeting the inunovable object, this business of adding pro-
grams to the Farmers Home Administration and not having the staff
and even when Congress provides for the staff the 0MB vetoes it.
On this appeals procedure, Senator Morgan pointed out earlier in the
week that the appeals procedure that's called for in S. 1150 will un-
doubtedly provide an additional administrative burden for the Farm-
ers Home Administration.
Could you help us out in trying to structure some kind of an appeals
procedure that would provide the equity that needs to be provided
for these people who are turned down and yet would not add to the ad-
ministrative burden to the extent that S. 1150 would?
Mr. ScHECHTER. Well, I think once there was some experience and
the Farmers Home Administration began to issue regulations and di-
rections to its field officers, based on the precedents that are established
in the early appeals procedure cases, there would be many fewer turn-
downs for the same reasons. In other words, I think the burden would
be reduced, something like case law, where precedents are establishd
and then people know what can be done and what cannot be done.
Mr. LocKLix. Of course, the Congress — if there are fewer turn-
downs, I guess there would be more approvals and that's more loans
that have to be serviced, which also adds to the staffing burden of the
Farmers Home Administration.
Mr. ScHECirTER. Well, if the objective of the program is to serve
people, the more approvals we gety the more the objective of the goal
has been implemented.
Mr. LocKLiN. I guess the only answer to it is just keep fighting with
0MB and try to get that staff we need.
Mr. ScHECHTER. Well, even before we had an appeals procedure I
think as the program grows there's a drastic need tor more staff. Now
I'm convinced that the fact that Farmers Home Administration has
offices throughout the country, and does really do the cerdit imder-
writing across the table in its own offices, is one of the reasons that the
program has fared as well as it has fared. It has not had the types of
scandals that were heard of in other programs where the Government
agent really does not face the borrower : he simply looks at a piece of
paper whidi may have been falsified.
So I would hope that this model of a thorough program can be
maintained and that means more staff as the program volume grows.
Mr. LocKLiN. Thank you.
That's all I have, Mr. Chairman.
Senator Morgan. Mr. Schechter, thank you very much and I want
to commend the AFL-CIO for the interest it's taken. You are not only
interested in the areas in which your members live but also in the
p eopl e all over rural America, and I think it's commendable.
While you were talking I flipped back over to look at the list of
witnesses who testified during tnese hearings and almost all of them
94-911—77 27
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have been from either public interest groups or groups such as yours,
and I think you are to be commended for the good work you have done.
Mr. ScHECHTER. THauk you, Senator.
Senator Morgan. Let's take about a 2-minute break.
[Recess.]
Senator Morgan. Gentlemen, let's begin again.
Mr. Murray, from the National Rural Electric Cooperatives As-
sociation, we are delighted to have you. If you can just help us provide
a home for every person in rural America like you have provided
electricity for them in the last 30 or 40 years, we will be all right.
Mr. Murray. Well, we would certainly like to do that, Mr. Chairman.
Senator Morgan. I might mention before you begin, if Senator
Sparkman is able to get out of the hearings in time on the Panama
Canal and come down here for a few minutes, he may relieve me dur-
ing the course of your testimony so I can go over and meet with a group
of rural people from my home. So if you see us shifting you'll know
what's happening.
STATEMENT OF WHIIAM E. MURRAY, lEGISIATIVE REPRESEHTA.
TIVE FOR RURAL AREA DEVELOPMENT, NATIONAL RURAL
ELECTRIC COOPERATIVES ASSOCIATION
Mr. Murrat. Thank you, Mr. Chairman.
[Complete statement follows :]
Statement of Xatioxai. Rural Electric Cooperative Association
Mr. Chairman and members of the subcommittee, my name is WiUiam B.
^Iiirray. I am Legislative Specialist for rural area development of the National
Rural Electric Cooperative Association, the national service organization of
nearly 1,000 rural electric systems which provide electricity to approximately
25-million rural people in 2,000 of the nation's 3,100 counties.
NRECA has for many years played an active role in rural housing legislation.
In 1969, the membership directed NRECA to launch a National Rural Housing
Campaign focused on expanding the capability of the Farmers Home Administra-
tion to substantially expand its rural housing loan program, which at that time
had a ceiling of approximately $500-million a year, or then about 50,000 loans.
Though the law did not specially impose such a ceiling, this maximum was a
reality due to restrictions in the Rural Housing Insurance Fund.
An NRECA survey in 1969 revealed that 1.7-million families of the 5-million on
the lines of rural electric systems in 46 states, lived in substandard housing. This
was a major reason underlying the NRECA membership interest in housing. There
are still thousands of rural electric members in need of better housing as well as
newcomers to rural areas who must rely on FmHA for housing finance since it is
the principal source of housing credit in rural America for low and moderate
income families.
In respect to the provisions of S. 1150, we support most of them since they
apparently will fill in several major gaps in FmHA's ability to serve the housing
needs of very low-income, the handicapped, as well as giving borrowers more
assurance that their rights will be protected. The provision increasing the au-
thorization for water and sewer grants is particularly timely and needed.
However, in respect to the requirements that guaranteed loans be processed
only by the State offices of FmHA "or such other regional oflSces as may be
designated." we believe that this could restrict the flexibility of FmHA to work
with the private lending institutions upon which it will depend to originate such
loans. We urge that the pro\ision be deleted.
While few would argue with the priorities of FmHA rural housing; namely»
low and moderate income families, the program has also had the mission since its
inception to provide housing credit to all rural people who were unable to obtain
credit elsewhere with the agreement that if a private lender at a later date de-
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<dded to supply the credit, the FmHA borrower would repay FmHA and assume
the private loan.
Beginning with the Xixon Administration, FmHA restricted its loans to low
and moderate income families. Previously, it made loans to above-moderate
families who met the "credit elsewhere" test and agreed to "graduate" to private
credit should it become available.
As a result of this restriction, a great many rural families, particularly where
both wife and husband were employed, could not get housing credit because
financing was arbitrarily prohibited to them by FmHA, and commercial lender^
would not make the loans. We are not talking about rich people. In these days of
inflation, modest paying Jobs held by a man and his wife, exceed the $15,!300
cut-off.- This represented a serious void in rural home financing which Gongresfl
intended to be filled when it gave FmHA authority to make guaranteed loans iu
the Rural Development Act of 1972.
As you will recall, Mr. Chairman, we strongly supported limiting guaranteed
loans to above-moderate income families. The bill reported out of this committee
last summer directed FmHA to limit guarantee loans to above-moderate income
families.
The restriction on processing of guaranteed loans to state offices could very well
make it more difficult to implement the guaranteed program which Congress has
sought to have implemented ever since it gave the agency the authority five years
ago. It could discourage both local lenders and borrowers if they were forced to
travel great distances to state offices. At the very least, it seems to us, Congress
should want to wait until some experience has been gained in operating this new
program before imposing such a regulation.
While, as we have stated, we are in support of most of the provisions of S. 1150,
we would point out that authorization of these additional responsibilities do not
insure delivery of their benefits. The deep subsidy home ownership program,
which is a principal feature of S. 1150, would on paper give FmHA the capability
of financing decent houisng to most rural people from the very lowest income to
as high up on the income scale as the "credit elsewhere'* test would permit.
Unfortunately, the potential which this Senate housing subcommittee and its
counterpart in the House built into the FmHA program by virtue of the rural
housing legislation of 1969 and subsequent years has never come close to being
realized, notwithstanding the expansion of FmHA housing.
The figures for the past eight years, compared to those that preceded, do appear
impressive, but compared to the need for rural housing they are modest indeed.
In regard to providing new housing stock, FmHA has probably not averaged as
much as 90,000 units a year since 1C68, when a housing goal of 26-million units
was written into the housing legislation for the ensuing decade. Subtracting the
abandoned and destroyed housing reduces even that figure considerably.
In regard to subsidized housing for low-income, FmHA has achieved a better
record, but it is far short of the goal. A very large proportion of FmHA financing
has been for existing dwellings, which, of course, has not added to the housing
stock in rural areas. For example, 48,000 of the 113,000,502 loans last year wei«
for existing houses. Units subsidized, both individual and rental came to about
95,000. This is expected to increase to about 110,000 this year.
In testimony before the Senate Subcommittee on Rural Development and the
House Subcommittee on Conservation and Credit in January 1976, Gordon
Cavanaugh, then executive director of the Housing Assistance Council, testified
that FmHA had only achieved about "50 percent of the goals set for them in the
Second Annual Report on National Housing Goals and only 36 percent of
the subsidized targets." This was for the period 1969-1975.
Mr. Cavanaugh added : **The current goal ascribed by that report to FmHA
is 180,000 subsidized units per year, yet in no year has FmHA exceeded 100,000
subsidized units." He stated that if the goals were to be met for subsidized
units, FmHA would have to have $5.5 billion loan authorization annu>al];r
through 1980 and considerably more employees.
If rural substandard housing is to be replaced with new or rehabilitated
units, Mr* Cavanaugh testified, it would take 37 years based on the rate -of
production of FmHA from 1969 to 1975. He commented that he did not believe
that when Congress in 1949 legislated the promise of a decent home for every
American, it intended that the realizatoin of the goal would be observed in the
21st century.
We are encouraged that the gentleman who made those observations about the
■serious shortfall in FmHA housing production is now in a position to do some-
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thing about it. Despite our high regard for the new administrator of FmHA and
his abilities, we doubt very much that the agency will be given the funding or the
manpower which it would have to have to do the job. Congress has been willing,
but the 0MB has not.
There is, of course, more to rural housing than represented by the need for
subsidized units, which the HAC study sets at 180,000 annually through 19«0.
According to the estimates of housing needs by HUD and a study made by the
AFL-CIO for the period 1975-80, between 2.2 million and 2.5 million units would
have to be produced annually during the five-year period. If one-third of the
need is in rural areas, which is an assumption based on the fact that a third of
the people live in rural America, then between 750,000 and 850,000 units must be
forthcoming annually. Subtracting the 180,000 subsidized unit target of FmHA,
the total non-subsidized comes to either 580,000 or 670,000 units. We are not
suggesting that financing of these units constitutes FmHA's responsibility or
target. We would suggest, however, that it would be helpful for FmHA to have
a better idea about it than it does now. Assuming FmHA were to finance the
same number of non-subsidized units as it has been averaging in the past few
years, about 50,000, this total combined ith the 180,000 subsidized target would
give FmHA an annual housing goal of 230,000 units. But it is likely that the
demand for non-subsidized financing is considerably higher since there are
hundreds of thousands of families in the moderate-income range who are
potential FmHA borrowers, as well as large numbers in the above-moderate
range who could qualify for guaranteed loans if funding and manpower were
available.
Certainly the fact that hundreds of thousands of rural people are having to
live in mobile homes is an indication that neither FmHA credit, FHA credit or
private credit is available to them for a conventional home.
It seems to us that the time has come to recognize that FmHA cannot handle
any more responsibilities under the present circumstances which include a
shortage of personnel, greatly expanded programs in both rural development
and farming. The desire of Congress to provide additional programs and benefits
in the housing field are to be applauded, but as we observed earlier, the prospects
that FmHA will be able to deliver are slim. It has more than it can manage now.
Overall, FmHA is doing a good job in subsidized housing and perhaps can
expand in this area to come closer to achieving the goals suggested by Mr.
Cavanaugh in his testimony 20 months Ago. But in the area of non-subsidized
housing, particularly for the middle-income families who also need and want
decent housing, it is doubtful that it can do very much.
This would suggest Congress may have to provide alternatives if the goal of
every American having a decent home of the 1049 legislation, as well as the
intention of Title V of that same legislation, and of Sec. 119 of the Rural
Development Act, are to be realized.
The Rural Housing Act of 1977 might be the appropriate vehicle for the Senate
Banking Committee, which has jurisdiction over all housing, to develop alter-
natives that would help fill the gaps that an overloaded FmHA cannot.
As mentioned, one of the gaps which Congress has been trying to fill is for
those families whose incomes exceed the $15,600 limit. At the suggestion of
FmHA. Congress directed in conference language that FmHA could not guarantee
loans to families with incomes of over $20,000. Moreover, the appropriations bill
limited guaranteeing authority to $900 million, which represents a very modest
program, perhaps 30,000 homes. On the other hand this subcommittee's parent
committee and its counterpart in the House have never put an income ceiling
on FHA or VA borrowers, and, in addition, they raised the maximum FHA mort-
gage from $45,000 to $60,000. VA, we understand, has no ceiling on the amount
of a mortgage it can guarantee.
An alternative that this subcommittee might wish to consider is giving FHA
the same authority it gave to FmHA earlier this year ; namely, the authority to
guarantee loans with negotiated interest rates in rural areas. This might sub-
stantially supplement FmHA's efforts to make housing credit to rural areas. The
negotiated rate was requested by the USDA and private lenders and Congress
approved. Its purpose is to do away with points which lenders require which
represent hidden interest. Since both Congress and the Administration have ap-
proved higher interest rates as a means of encouraging private lending institu-
tions to make more rural loans, it would seem logical that the same authority
would be permitted FHA for loans it g^uarantees in rural areas.
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It distresses us, and we are sure Congress and the Administration, that
interest rates are so high, but that it is an unfortunate reality that families must
accept if they desire to purchase a home these days.
Besides developing alternatires to FmHA's capabilities to serve rural housing
needs — and other areas beside the above-moderate guaranteed area should be
studied— the Rural Housing Act might also be the appropriate occasion for re-
vising and streamlining and updating the entire Title V which has been added
to and patched over the last 27 years so that presently it is slightly anachronistic
and cumbersome.
For example, it forces FmHA to have to do some eye-blinking and beiding
that it should not have to. We cite the case of its weatherization program under
which the agency authorizes utilities including rural electric cooperatives to
process loans for insulation and storm windows and doors. Since there is nothing
in Title V which specifically permits FmHA to make weatherization loans, it
must rely on its Section 502 housing loan authority, which undoubtedly is legal,
but nevertheless cumbersome and a trifle far-fetched. The borrower has to sign
a piece of paper which warrants that he cannot get credit elsewhere, even
though these are relatively small loans. Moreover, he has to swear that as a
result of installing the insulation, his home will provide "decent, safe, and
sanitary living conditions." FmHA*s weatherization program would be better
served if specific language were included in Title V to more accurately detail
the authority and eliminate the necessity for borrowers to have to tell fibs.
In summary, Mr. Chairman, we support most of the provisions in the proposed
legislation, particularly the increased authorization for water and sewer grants.
We believe, however, that more important is the whole question of recognizing
FmHA cannot be expected to do more than a modest measure of the task which
Congress has assigned it in housing until and unless it has much more funding
and a very sizeable increase in manpower, which we do not think it will get.
Therefore, there appears to be the need for developing alternatives to supple-
ment FmHA's efforts and we would hope that this legislation would be expanded
to include them.
Thank you.
Mr. MuKPHY. Congi-ess has been trying to expand the manpower
over there, and 0MB and the administration have never agreed. There-
fore, there appears to be the need for developing alternatives to sup-
plement Farmers Home's efforts so that more of the people in the
rural areas who need housing will be able to get it, and we would hope
that this vehicle, this Rural Housing Act of 1977, would be used for
this purpose and you would expand it to include whatever alternatives
ai-e necessary to help Farmers Home do the job which we would like
to see it do. Thank you very much.
Senator Sparkman. Thank you, Mr. Murray. You have a very in-
teresting and a very helpful statement. You make some good sugges-
tions, and I'd like to see many, if not all, of them carried out.
Senator Morgan, I will turn this back over to you. I'm due to be
somewhere else.
Senator Morgan. Following our previous procedure, Everett Eng-
strom has had time and took time overnight to study your statement
and was good enough to outline it for me so I could follow the par-
ticular points, and now he has some questions that he would like to dis-
cuss with you for the purposes of trying to fill in. So with your per-
mission, we will do that.
Mr. Engstrom. Thank you, Mr. Chairman. I thought, Mr. Chair-
man, since this happened so rarely, we might point out that Mr.
Murray actually did comply with the committee's request to supply
his testimony 48 hours in advance, and that's not something we nnd
frequently.
Senator Morgan. I'm glad he mentioned that, Mr. Murray. We do
appreciate it because so many governmental officials fail to do it, and
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unless we have had an opportunity to look at it before you get here,
1'ust the mere reading and listening to it is not very helpful. I'm glad
Sverett brought that to my attention.
Mr. Engstrom. I thought if you might permit me a quick personal
observation, I have never had a chance personally to work in a rural
part of the United States, but I did have an opportunity to live and
work in rural Africa for a year, and you only have to live without
plumbing and without electricity, and without potable water, for a
while to really get an appreciation for what those kind of facilities
do mean to people's lives. Certainly over these last 3 days of hearings
it's been a kind of a shock for me to hear some of the statistics cited
about the lack of basic facilities in many parts of the rural United
States.
We were talking during the recess about the degree to which Mr.
Murray feels that the Farmers Home Administration has diverged
from its original mission to supply credit not just to very low-income
people but also to supply credit to people of higher incomes who
simply can't get credit elsewhere. As he pointed out in his statement
that divergence from original policy began with the Nixon administra-
tion.
I wonder if you want to comment a little more on that, on what you
think might be the need to get back to that original mission or at least
not to lose sight of that.
Mr. Murray. Well, I don't want to be misunderstood. I think that
basically the people who are to benefit from Farmers Home would
certainly be of modest income, and that's a relative term, but there
isn't anything I can find that says it has to be limited. If a person is
making $20,000 or $25,000, a family, and usually the man and wife are
working, I don't think anybody would assume that they were tremen-
dously affluent, but they too need housing, and I think Farmers Home
was set up to help them with this sort of thing.
But I think it's time to take a real look at Farmers Home, and per-
haps subsidized housing is all they can do. I think in a way it's un-
fortunate we just continue to think, well, rural housing is taken care
of because we have Farmers Home. It is true that this committee gave
Farmers Home all of the authority it needed to finance any number
of houses, particularly starting with the 1969 legislation when it took
the ceiling off Farmers Home and built into it the potential for financ-
ing any number of houses. At that time it could finance above moderate
and still can, but it's rather curious and ironic in the 1972 Rural De-
velopment Act, Congress, seeing that Farmers Home was not making
these loans to people who were above the moderate-income cutoff
which was then about $10,000 or $12,000, said we'd better start a
guarantee program for them, because the other FHA is not serving
that area, the private institutions are not serving it, so the only agency
that is working out there to some extent is Farmers Home. So let us
fill in that void.
I think a couple years ago you heard testimony from somebody rep-
resenting the UMW saying that there were going to be 125,000 new
jobs in West Virginia over a number of years, and those people — ^they
were miners — ^they were making more than $15,600, so they could not
qualify. There is a tremendous gap to fill.
Now, maybe if you take another look at Farmers Home, you may
say the subsidized housing and the housing for the low income is as
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much as it can do, but to go on under the assumption that Farmers
Home can do more and then the Farmers Home not t6 be able to
deliver, makes it hard on the agency and makes it hard on everybody
else and doesn't face up to the reality that we are not providing the
financing for other people in rural areas and we are not meeting the
housing needs and the goals which Congress established in the 1968
legislation.
We had hoped Farmers Home would do at least 300,000 or 400,000
housing units a year, but it has never been able to do it. Then the Rural
Development Act of 1972 came along and you gave them a big business
in the industrial loan company. It also has an emergency loan pro-
gram. Also, 2,200 counties have been designated as disaster counties,
and the Farmers Home personnel have to take care of that. So it has
a plateful that's heaped too high. It's just not realistic, it seems to me,
to expect it to do a great deal more, but you still have this problem of
what do you do about housing.
Mr. Engstrom. I think you make a very good point. Given this al-
ready heaping plateful of jobs for Farmers Home, and that combined
with the difficulty of fighting with 0MB over increased staff, that we
h^ve to look for alternatives. The ones you specifically mention are
that we might follow the example of the Veterans' Administration and
increase the amount of the mortgage that Farmers Home can allow.
Mr. Murray. I don't represent myself as an expert on housing fi-
nancing, but I do hear that the VA has a very successful program in
which no prior approval is needed by a lending institution to make a
YA guaranteed loan, and I believe they are doing something like
300,000 units a year. So that suggests to me that Farmers Home might
be able to develop new ways of doing things. Certainly I think it's
FmHA's intention to work more closely with the savings and loans and
the banks. That would have been one of the motives it had in asking
the House subcommittee to eliminate the graduation so that these loans
that the private institutions make are more salable in the secondary
market. Doesn't that also suggest that Farmers Home might use this
kind of assistance as VA has ?
Mr. Engstrom. Along that line, we have heard testimony the last
"2 days of the need to promote more cooperation between the various
governmental lending agencies and the private sector, and I thought
one strong point you made was that the provision in S. 1150 that would
require guaranteed loans to be processed only through the State offices
of Farmers Home, could restrict the flexibility of working with the
private sector. I wonder if you want to comment a bit more. You men-
tioned distance as a problem, but are there other problems also ?
Mr. Murray. That sort of strikes me as a provision when it was put
in there to discourage guaranteed loans because there is a difference
of opinion among those who are interested in the Farmers Home hous-
ing. We support the whole thing but others feel that the Farmers
Home should be restricted mainly to the low income and, of coui*se,
that's where the priority should be, but then you ask the question.
How about the thousands of other people? Are you going to make
them all go to mobile homes ? And I imagine there are more mobile
homes being bought in rural America each year than there are Farm-
ers Home loans by far.
Farmers Home is a very modest program and it doesn't need to be.
It doesn't cost the government any money. At 81/^ percent interest rate
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Farmers Home is making money on its loans. Surely it can borrow
money cheaper than 814 percent. So if they made enough loans it could
pay off the entire deficit.
Mr. Engsrtom. On this matter of mobile homes, yesterday we heard
a very impressive presentation from the Manufacturers Housing In-
stitute which brought along some pictures of what a contemporary
mobile home can look like. That's not to say that the kind of mobile
homes they discussed yesterday are the kind that most people are liv-
ing in in rural areas, but I wonder if we might be mistaken in con-
tinuing to think that conventional housing as we have thought of it
is a r^istic or even perhaps a desirable goal for all people in rural
areas. I wonder if we aren't, by overlooking mobile homes and other
forms of manufactured housmg, perhaps overlooking a possible
solution.
Mr. Murray. I'm not suggesting that I'm opposed to mobile homes.
It's kind of interesting that they are making them look like conven-
tional homes and I think maybe that's one of the objections people
have is mobile homes look like mobile homes, and if you make them
look like a conventional home they are probably better homes than
the stick built. So we wouldn't object to that, but we are having awful
problems with people moving into our areas and who will buy an older
mobile home and find out that the electricity bill is $175 a month for
heating 750 square feet. We have been trying for years to get them well
insulated. There's no reason you couldn't insulate them properly so
that the fuel costs for heating and cooling would be very reasonable and
I think it's just about a year ago since standards have been implemented
by HUD. That doesn't take care of the thousands that are already out
there.
Senator Morgan. You think those new standards ought to help for
those that are being built?
Mr. Murray. We are trying to get standards much higher than
HUD would approve. Farmers Home issued standards in March and
there have been so many objections to it that the agency withdrew
them and hasn't reissued there yet.
^ Mr. Engstrom. I have just one final question. You mentioned that
title 5 of the Housing Act of 1949 is anachronistic and cumbersome,
and I'm sure it's not the only law that falls into that category, but you
particularly point to the weatherization loan programs as an example
of forcing people into a little charade that bends the law a bit because
of the present requirements. Are there other examples that come to
mind that you might want to point out to the subcommittee that build
a case for more thorough revamping of title V ?
Mr. Murray. It's hard for me to recall offhand, but I have grone
through that act a number of times and it does in many cases talk of
farm programs. So when they amended it it's very hard to follow and
it talks an awf ul^ lot about farm buildings and other things when it
means today housing for nonf arm people.
Senator Morgan. Thank you very much, Mr. Murray. I think your
testimony has been and will be helpful as we try to get this bill on
the floor.
Mr. Murray. Thank you very much, Mr. Chairman.
Senator Morgax. Mr. Herman. Mr. Kim Herman will be sitting in
this morning for Clay Cochran. He's Associate Director for Housing
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419
and Communify Development of Rural America, Inc., and we are de-
lighted to have you with us. For the record would you identify your
associate?
STATEMENT OF SIH HEBHAN, ASSOCIATE DIRECTOR FOE HOUSING
AND COMMUNITY DEVELOPMENT FOR RURAL AMERICA, INC.;
ACCOMPANIED BT BOB RAPOZA, REGIONAL PROJECT DIRECTOR,
RURAL AMERICA, INC.
Mr. Herman. I have with me Bob Rapoza, who is on our staff
as a regional project director.
For the record, my name is Kim Herman and I'm testifying on be-
half of Clay Cochran, executive director of Kural America.
[Complete statement follows :]
Statement of Clay L. Cochban, Executive Dibectoe, Rural Amebica
Mr. Cbairman. My name is Clay L. Cochran and I am the Executive Director
of Rural America, a non-profit research and education organization located in
Washington, D.C. Formerly, Rural Housing AlUance, most of the board and
staff members of Rural America have been associated with agency both in our
continuing goal of improving housing opportunities for low income people and in
our new role as the advocate for small town and rural people. Thank you for
inviting me to testify at these important hearings.
WORKING WITH FBIENDS
At the outset, we are greatly encouraged by the new leadership at the Depart-
ment of Agriculture ; Secretary Bob Bergland, Assistant Secretary for Rural De-
velopment Alex Mecure and FmHA Administrator, Gordon Cavanaugh. Secretary
Bergland, as a Congressman and Legislator built a fine record on service on be-
half of rural people. Assistant Secretary Mecure, as the director of self-help
housing associations and migrant farmworker groups has an established record
of concern for rural people in New Mexico. Administrator Cavanaugh, as Exec-
utive Director of the Housing Assistance Council, has been a leading advocate
for improved housing opportunities for rural people for several years.
WHAT IS NEEDED
In preparing this statement, I reviewed the Housing and Community Develop-
ment Act of 1974. While this act was the product of a difficult time and did
in fact evidence some recognition of rural housing problems, I believe that we
saw it as a first step in progression that would move much faster than it has. The
bill that I am testifying on today continues the effort to provide rural people with
adequate housing and community facilities.
Before I get into that, I'd like to repeat an old recommendation : "FmHA needs
more staff."
FmHA staff cannot carry out the responsibilities necessary in a satisfactory
manner with its present staff.
We were hopeful of receiving 1,000 new positions in the fiscal year 1978 budget ;
we are grateful for any assistance including the 300 position expansion in the
administrative budget.
There have been rumblings from the White House, the Office of Management
and Budget, about not using the authority for the positions.
According to the National Rural Housing Coalition, 0MB has lowered the
personnel ceilings by 825 for the Department of Agriculture, and we are uneasy
about the impact of that ceiling on FmHA's capacity to function.
The National Rural Housing Coalition estimated that FmHA needs 2,000
additional positions to adequately provide rural communities with the housing
and community development resources so badly needed. While we are no where
close to meeting this figure, 300 additional positions will enable FmHA to start
to reduce the backlog of loan and grant applications presently on file in county
offices throughout the country.
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FrnHA is the housing ag:ency for the rural poor. A withholding of the 300
positions would seriously delay or eliminate the opportunity for many rural peo-
ple to obtain decent housing, clean water. Beyond this, FmHA housing and
community facility programs create jobs. Assistant Secretary Mecure estimates
that for every $20,000 in mortgage money loaned by FmHA one job is created.
S-1160
We see S-1150 as a continuation of the evolutionarj^ process of providing rural
people with better housing and community facilities. Perhaps more than any-
other section of the 74 Act, the rent supplement program is a piece of unfinished
business.
The history is a sordid one. The Department of Housing and Urban Develop-
ment received it's authority for rent supplements in 1967. FmHA received au-
thorization in 1974. The past administration refused to carry out the law. Suit
was brought against the government. The courts ruled the act must be carried
out. While it is taking an incredible amount of time to make the program op-
erational, we are confident that rural people will have access to the programs
before Christmas.
It may be of some interest to the members of the committee the depth of the
need for rent supplements. Our staff, in conjunction with the Wisconsin Depart-
ment of Local Affairs and Development, recently did a study of FmHA financed
rental units. We found some shocking statistics. Over 91 percent of the residents
paid more than 25 percent of adjusted income for their rental units ; 38 percent
paid more than 50 percent of the adjusted income. The rent supplement program
is badly needed.
We accept Secretary Bergland's ruling that he will implement the program.
Nonetheless, we recommend more specific language on rent supplement which
appears in section 15 of S-1150. We want to insure the continuation of this
program for rural people, in case Secretary Bergland migrates.
We are greatly concerned about the cost of housing programs to the tax-
payer. We want to provide people housing with a minimal burden on the tax-
payer. Section 8 appears to be the most expensive program ever enacted, not
because of the great number of people it serves — ^but because of the enormous
opportunity for profit it gives the private sector.*
We have contended for nearly a decade that homeownership is preferable to
tenancy and that the Federal Government should always be willing to subsidize
ownership not just as much but more, than landlordism.
ENERGY CONSERVATION AND FMHA
We continue to be greatly troubled about the grim effect the energy crisis is
having on low income people. Everywhere we turn, the farmworker, the elderly
or other low income rural people are being turned out of their homes or being-
forced to forgo other necessities in order to pay utility bills. Even when they can
pav taxes, insurance and mortgage charges, energy costs have caused many
people to lose their homes.
One of our delegate agencies, the National Council on Agricultural Life and
Labor, has found some shocking facts about the housing in Delmarva Pennisula.
In the late sixties FmHA built several subdivisions of all electric homes in
the Eastern Shores of Maryland and Virginia and Sussex County, Delaware. The
borrowers were never given instruction as to how to operate the electric system
to maximize the eflSciency of the units. The insulation, while meeting the mini-
mum property standards was not sufllcient for all electric homes. The families
were not given a choice as to what kind of heating system they wanted. As a
result, heating bills of $15O-$200 a month were not uncommon in this area. This
is in sharp contrast to mortgage costs of between $100-125 per month.
The results of this sorry tale are not surprising. At present over 70 FmHA
financed houses are vacant in Sussex County alone. Moreover, none of the
families were informed of their rights under the Section 505 moratorium pro-
vision of the FmHA law. We'll return to that later.
We were pleased by the action that FmHA took in March." (Issuing new ther-
mal performance standards for comment.) FmHA took an aggressive stance
1 The cost of housing subsidies, Congressional Research Servicp. 1976.
aMai'rh 21. 1977. Planning and Performing Development Work, Thermal InsnlatioD
Standards. FmHA.
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421
on the Issue of energy conservation. This action will hopefully bring an end to
the disgraceful situation cited above.
T^e feel that the performance standards are good. We estimate that a home-
owner using the increased insulation, depending upon location, will save from
18-54 percent of utility costs in a given year.
We would like to strengthen FmHA's hand as it moves to finalize these stand-
ards. We strongly recommend to the committee that FmHA be given statutory
responsibility for witholding mortgage money for new housing — single or multi-
family — which does not incorporate energy conservation into its plans, (Section
21)
Beyond this, no one should be denied FmHA assistance as a result of the in-
creased costs due to energy conservation construction.
Also, section 21 calls for the incluson of (spaceheaters) wood burning stoves
and the like in loans made by FmHA. We have found that rural people are quite
willing to close off rooms in their homes to save energy. In the past FmHA has
been an unwitting partner in making it impossible for people to conserve.
We hope that your action, along with the new posture USDA has taken On
energy conservation, will enable rural people to have homes they can afford.
URBAN STANDARDS FOB BT7BAL PEOPLE
To return to Sussex County for one moment : part of the reason for the sorry
state of the FmHA program in that area is that Minimum Property Standards
were HUD's. They were imposed by Mr. Nixon when he was attempting to merge
FmHA under HUD. We continue to maintain that HUD should not set standards
for rural people.
Last year I told the committee of the case in Alabama where we opposed the
paying and guttering of a street about 100 yards long, at a price of about $600 per
family — ^very poor families, the nearest hard surface road to that street was
4 miles. FmHA has taken an important first step in the process of establishing
it*s own MPS. We urge them to persist in this effort.
COMMUNITY FACILITIES — THE UNMET NEED
Mr. Chairman, I am aware that this committee does not have authority over
the FmHA Community Facilities Program. Please permit me to briefly comment
on that program.
According to the 1970 census, 91 percent of the U.S. households which were
without running water were in rural America. Under the broader FmHA defini-
tion, this figure is expanded to 95 percent The Soil Conservation Service Esti-
mates that 5.5 million rural people Uve in housing without running water.'
The National Demonstration Water Project has done a great deal of research
in this area.
**Two counties of Conecuh and Monroe, located in Southeastern Alabama, have
a combined rural population of 28,000 people. Drinking water can only be ob-
tained from deep wells — those from 350 to 400 feet deep — although even this is
not clear or pure. Because of the cost of drilling wells, more than 35 percent of
all rural residents do not have running water in their homes, and rely on hauling
water from neighoring wells. Since many of the residents in this area are low
income — 60 percent are below the poverty level — the cost of a community water
system is prohibitive." *
In Alabama, 70 percent of the dwellings occupied by black rural people lack
complete plumbing.
Table 2 indicates that the percentage of units with inadequate plumbing occu-
pied by whites ranges from 31 percent in Kentucky to 3 percent in Massachu-
setts; for rural blacks the figures range from 72 percent in Mississippi to 1
percent in Hawaii. Moreover, 11 states have more than 50 percent of the units
occupied by blacks with inadequate plumbing.
"The all black community of AUport, Arkansas . . . Has a population of 338
people. 50 percent of the residents are low income. The town has neither a public
water or sewer system.
Residents rely on cisterns, hauling water and shallow wells for water supplies
and on septic tanks and privies for sewerage and toilet facilities. Since many of
8 In "Drinking? Water Supplies In Rural America**, National Demonstration Water
Project; Domestic Water Use from Non Central Systems; National Water Assessment
Projec t. S oil Conservation Service. Special Projects Division, 1975.
* NDWP — Drinking Water Supplies in Rural America, An Interim Report.
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the residents are low income, and since the community is small, it will be diffi-
cult for the citizens to develop any kind of community water sewer system." '
Naturally, the level of income has a good deal to do with incidence of inade-
quate plumbing and poor housing. In rural America households with incomes
of less than $4,000 per year made up only 80 percent of the housing rural popula-
tion, yet they occupy 61 percent of the housing without complete plumbing.
NDWP has supplied us with a ranking of states by number of units without
complete plumbing. (Table 3) Highest in actual numbers lacking complete plumb-
ing was North Carolina with 207,000 rural households. Kentucky, Virginia, Texas,
Tennessee, Alabama, Georgia, Mississippi, Missouri, South Carolina, Pennsylvania,
*nd Ohio all have 100,000 households or more without adequate plumbing. West
Virginia, Arkansas and liOuieiana have just under 100,000 each. Table 4 shows
Inadequate plumbing by state, Kentucky leads the nation with 38.2 percent of the
units ; 39 states have at least 10 percent of their units with inadequate plumbing.
We ask that the committee support an expansion of the maximum grant on
water-sewer packages from 50 to 75 percent.
These are grim figures for the richest nation on earth which boasts of its
affluence and preaches about "underdeveloped nations."
Following are some suggestions for your consideration :
1. We urge this committee to support the expansion of the community facilities
grant program from 50 percent to 75 percent because :
2. The cost, based on FmHA funding of fiscal year 1976 projects, would increase
expenditure by only 19 percent. (Table 5).
3. An increase in maximum grant amoimt, when coupled with revised FmHA
procedures for targeting the neediest communities, will make the communities
facilities program more responsive to low income people. Accordingly to NDWP,
over 50 percent of the increase in grant size would serve communities with Incomes
of under 6,000. Over 90 percent of the increase would go to communities with in-
comes under 9,000. (Table 5).
We are coming to realize that for many isolated and poor rural communities,
a central water-sewer system is neither practical nor sensible. In recognition of
this we recommend the institution of a special 504 grant program for the delivery
of these necessary services to low income people.
This program, to be operated by FmHA on a demonstration basis, should target
one county in each state. The county should be chosen on the basis of greatest
need for water and sewer services.
These needs should be met by a combination of loans and grants ; loans as under
section 504 and grants which are currently available only to the elderly. The
minimum needs of each family would be met: potable water in reasonable
abundance and waste disposal facilities including, as a minimum, a well-con-
structed pit toilet In short, nothing fancy and no waiting until kingdom come
for tiled bathrooms. . . . The goal should be to show what needs to be done and
what can be done at what cost.
This program should be carried out with the maximum of assistance and co-
operation from a variety of agencies including state and local health departments,
and local nonprofit groups. Let me make clear that leadership on this program
should come from the federal agencies, namely FmHA with its financing resources
and the Community Services Administration which, despite it's mission to serve
low income people has 900 counties, most of which are rural and without com-
munity action agencies.
Section 7 — Appeals Procedure. — FmHA borrowers have never had the right to
due process in their complaints against the agency. The notion of an agency
investigating itself has never been a sound one. We feel that as advocates for
rural people, the rights of the FmHA borrower must be protected.
Section 3 — Escrow Accounts, — In past years we have spoken on behalf of estab-
lishment of escrow accounts for FmHA section 502 borrowers. People who receive
FHA or conventional loans have the opportunity to set up escrow accounts for
taxes and insurance. We ask nothing more than that rural people, using FmHA,
have the same rights. We fully support the section. Volunteerism has not
worked — ^make it mandatory.
BNDWP.
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Section 4 Rural Housing Research. — Over the years several groups have fought
long and hard to secure a research arm for FmHA. We have had some success in
getting laws passed ; we have failed miserably in getting appropriations to carry
out research at FmHA.
FmHA has a loan and grant program in the billions of dollars. Over 60 percent
of the poor housing in this country is in rural areas. Yet FmHA has no research
capacity ; not even one man with a slide rule.
The Department of Housing and Urban Development has a 55 million dollar
research budget. If budgets were to be allocated on the basis of housing need,
FmHA should receive 33 million. Realistically, we don't expect that.
We would however, in supporting section 4 of S. 1150, like to put forward the
proposal that the Congress make an appropriation for housing research every
year and that the money be split between FmHA and HUD.
We feel this is equitable and hope you agree.
Section 16 Self-Help Site Acquisition. — Over the years Housing Assistance
Council and Rural America — Formerly Rural Housing Alliance — have lent sev-
eral thousand dollars to self-help agencies to acquire land for housing. This need
was there because :
1. The 523 self-help loan program administered by FmHA was cumbersome and
nearly impossible to get money out of ;
2. FmHA has the authority to make option money part of a FA grant at the
present. We feel this is nearly useless because money will utimately be needed to
purchase the land.
In 1974, the Senate approved the inclusion of site acquisition money. Unfor-
tunately, this was defeated on the House side and the option authority was
substituted.
This section would give self-help groups the purchase nioney they so desper-
ately need ; we urge your support.
Section 10. — Assistant Secretary for Equal Opportunity. — In July, Rural Amer-
ica staff testified at hearings before the Subcommittee on Civil and Constitutional
Rights of the House of Representatives. At that time, they went into some detail
to catalogue the various civil opportunity abuses present within the agency we ar^
most familiar with FmHA. At the hearings we recommended the following :
1. The Civil Rights Division of the Justice Department should review all FmiH^
and USDA civil rights complaints for two years to insure compliance wltli the
civil rights act of 1904.
2. That GAO investigate all FmHA and USDA civil rights complaints to
determine compliance with all agency rules and regulations.
3. That the Committee establish a timetable for release of investigative reportis
•concerning civil rights complaints.
The office of Equal Opportunity within USDA has been shunted from office
to office like an unwanted child. We have a strong commitment from Secretary
Bergland to improve USDA*s performance in this area«
None the less, we feel it imperative that a position of high visibility be
established so that the department's reputation and commitment to equal op-
portunity might be strengthened.
Section 10 Farm Labor Housing. — We believe in public responsibility. It is
therefore our inclination to support the concept of public bodies receiving priority
for the farm labor housing loan/grant program. At the same time we have seen
this program used by grower controlled public bodies to further the profits of
agribusiness.
We believe, therefore, that in instances where a public body has proved to
have adequate representation of the people it proposes to serve, it should receive
priority for the program. Otherwise, priority should be given to any other entity
evidencing participation in its decision-making process by prospective residents
(farmworkers). We urge that this section be amended to reflect this position.
Table 1.^ — Increase in Fuel and Utility Cost
1976=100
1976 181.7 1971 114 6
1973 125.6 1966 99.1
1 "Consumer Primer's of HUD" Office of Consumer Affairs, HUD 1976.
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TABLE 2.— HOUSING UNITS IN RURAL AREAS WITHOUT COMPLETE PLUMBING (1970X1 BY NUMBERS.
PERCENTAGE AND RACE
State
White households without
complete plumbing
Number
Percent*
Black households without
complete plumbing
Number
Percent *
Other minority households
without complete plumbing
Number
Percent *
Alabama 66,117 15
Alaslia 4,315 10
Arizona 5,843 5
Arkansas 52,513 16
California 17,496 2
Colorado 11,680 6
Connecticut 5,761 2
Delaware 2,799 6
Horida 24,747 4
Georgia 57,087 11
Hawaii 2,539 14
Idaho 6,049 5
Illinois 58,497 7
Indiana 57,000 8
Iowa 36,493 7
Kansas 20,592 6
Kentucky 160,021 31
Louisiana 25,518 8
Maine 30,621 15
Maryland 20,i94 7
Massachusetts 10,205 3
Michigan 47,279 6
Minnesota 51,189 11
Mississippi 35,912 15
Missouri. 80,494 14
Montana.. 9, 119 7
Nebraska 14,217 6
Nevada 1,657 4
New Hampshire 8,438 6
New Jersey . 7,247 6
New Mexico 13,974 14
New York ^ 42,398 4
North Caro«nav.^.*-_-.u : 95. S40 12
North Dakota 14, iiZ 13
Ohie.. 87,428 10
raUahoma 29»fi35 8
Oregim.. .............. 9,472 3
Rannsylvania 91»942 7
Rhode Islaali WIJQ 5
SdutttCarolItja:.-....... 31,203 9
South Dakota... 15.557 12
Tennessw 117,482 21
Texas 91,3U 10
UtaH: :..-. 2.^ 4
Venhent ..— 7,099 7
Virginia 91,950 9
Washington 9,926 3
West Virginia...-..-.-.- 78,814 22
Wisconsin... 46,958 9
Wyoming-. 3,191 5
Total 1,814,219 70
67,874
36
537
34,148
974
45
67
3,339
32,938
77,420
3
13
2,228
379
9,315
57,940
27
14,341
121
1,267
31
89,012
5,139
17
25
24
12
2,022
125
1.380
91,893
12
2,155
5,681
47
1,965
35
76.404
12
22,960
48,213
9
54,648
101
4,196
43
12
70
4
23
64
9
10
4
16
46
63
1
7
34
22
13
16
51
53
7
47
5
13
16
72
49
18
21
7
6
47
14
13
60
18
24
42
12
20
5
57
54
7
7
62
11
42
10
8
98
5,979
10,709
71
3,281
684
3
26
83
61
3.564
335
81
76
37
64
144
104
209
54
9
156
271
129
119
1.226
58
417
15
t03
8.005
1,457
3,521
962
118
4,001,
515'
97
3
68
1,902
212
16
: 207
976
88
201
277
15.0
66.0
65.0
10.0
15.0
37.0
.4
6.0
4.0
10.0
11.0
18.0
7.0
8.0
6.0
5.0
25.0
8.0
34.0
6.0
.8
5.0
11.0
14.0
12.0
25.0
5.0
28.0
7.0
7.0
64.0
34.0
40.0
40.0
9.0
24.0
16.0
6.0
; 1.0
9.0
,35.0
37.0
21.0
29.0
6.0
18.0
17.0
19.0
7.0
25.0
709.711
28
52,079
2.0
» U.S. census, compiled by National Demonstration Water project
* Percentage of white households.
s Perpentage of black households.
« Percentage of other households.
Note: The totals of these 3 categories will not exactly equal the State totals provided on the previous table. The State
tabulations are based upon actual census enumerations, while the above data is based upon a 15 percent sample of housing-
in the United States, which, as noted, did not include housing occupied for only a part of the year, and which would also
involve some statistical error. Nonetheless, this data does provide a means of comparing the problem of inadequate plemb-
ing for different racial groups.
Source: Kampe, 1975.
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425
'Total rural houHng units witlumt complete plumbinff, rakking of
States, 1970'
Number of units
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
North Carolina.
207, 410
Kentucky 192, 579
Virginia 167, 045
Texas 158, 668
Tennessee 156, 559
Alabama 141, 596
Georgia 136, 699
Mississippi 135,012
Missouri 112,459
Soutli CaroUna 111, 093
Pennsylvania 108, 521
Ohio 102, 923
West Virginia 99, 014
Arkansas 94,713
Louisiana 87, 886
Michigan 76,213
Illinois 70,490
Wisconsin 66,965
Minnesota 66,108
Indiana 65,821
New York 57,267
Florida 51,794i
Oklahoma 47, 541
Iowa 44,074
Maine 39,021
26. Maryland 38, 507
27. CaUfomia 36,233
28. Kansas 29,913
29. New Mexico 26^640
30. South Dakota 25,196
31. North Dakota 23,400
32. Nebraska 21,654
33. CJolorado 19,928
34. Washington 18, 887
35. Arizona 18, 699
36. Montana 15,140
37. Alaska 14, 010
38. Oregon 12,245
39. New Hampshire 11,921
40. Vermont 10,717
41. Massachusetts 10,190
42. New Jersey—^ 9,946
43. Idaho 8, 940
44. Delaware 7,641
45. Connecticut 5,949
46. Hawaii . 5,810
47. Wyoming 4,959
48. Utah 4,489
49. Nevada i2,030
50. Rhode Island 2; 077
^>Source: NatiODal Demonstration Water project. 1070 census.
Table ^.—By percentage of wUts toithout complete plumbing by Mta^
Peremt
26. Delaware * 18.0
27. Ohio — ^ 12.9
28. Colorado U. 9
29. IlUnois — ^ .- 11.4
30. Indiana 11.2
81. Florida — 10. 9
31. Kansas .10.9
31. Iowa 1 - ^ 10.9
31. Wyoming .^ 10. 9
35. Nebraska 10.7
35. New Hampshire ^ 10.7
37. Vermont -^^ 10.5
38. Pennsylvania 10.8
39. Michigan 10.
40. Idaho - 8. 2
41. Nevada ■, 7. 7
42. Utah ._: 7.8
43. New York ^-« 6.9
44. Rhode Island.^ ■. . 6. 1
45. Washington 5.8
46. CaUfomia -^ - 5.6
47. Oregon .. 5.3
48. New Jersey ^ 3.9
49. Massachusetts 3. 8
50. Connecticut 2.9^
Source: 1970 "Census of Housing, Plumbinsr Facilities, and Estimates of Dilapidated
Housing. Compiled by the National Demonstration Water Project.
1.
2.
3.
4.
5.
6.
7.
7.
7.
10.
11.
12.
13.
14.
15.
16.
16.
18.
19.
20.
21.
22.
23.
24.
25.
Kentucky 88. 2
Mississippi 35.8
Alaska 31. 3
AlabanuL ,- 31.
Vlifgiiria 30. 7
Tennessee 29. 3
Arkansas 28. 3
New Mexico 28. 3
West Virginia 28. 3
South Carolina 26. 7
Georgia 24.
North Carolina 23. 4
Louisiana 23.3
Maine 23.
Missouri 21. 5
North Dakota 20. 1
South Dakota 20. 1
Texas 18.8
Minnesota 16.3
Arizona 15. 9
HawaU 15. 7
Oklahoma 16. 6
Maryland 14.
Wisconsin 13. 9
Montana 13.5
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$1.7
11
2.3
2.8
20
3.0
4.0
U
13.8
17.4
139
36.5
44.3
98
26.7
30.7
80
29.2
11.2
35.7
41
12.2
15
4.3
4.6
9
8.2
.6
.0
8.7
3
.8
1
426
TABLE 5.-C0ST OF INCREASE \H MAXIMUM GRANTS AND HUM8ERS GRANTS TO WATER PROJECTS
GRANT LIMITATION
[Dollar amounts in millions]!
number of
Median income projects 50 percent 75 percent
$1,000 to Jl, 999
'2.i)00tO$2,999 _ -
3, 000 to $3, 999
"1,000 to $4. 999 - -
1, 000 to $5, 999
1,000 to $6, 999
$7, 080 to $7, 999
$8,O00toJ8.999_
$9, 000 to S 999 _
$10, 000 to $10,999 _ -
$11, 000 to $11, 999 _
Over $12, 000
Total „ - 488 137.4 162.9
1 The figures shown on this table are the result of the interaction between the "1-percent" rule and the various limits
on the grant Amount, both current and proposed. For reference purposes, FmHA actually granteed $115,100,000 to these
projects, and would have granteed $126,500,000 , if full funding had occured. The difference between the fuH funding figure
and the amount shown under the 50 percent column above represents the effect of the similar community rule.
Source: National Demonstration Water project.
TABLE 6.— MAXIMUM GRANT AT 50 PERCENT, COMMUNITIES BENEFITING FROM RULE CHANGES AT 75 PERCENT
Number of Change to 75
Median income projects percent Ihmit ^
tJ,O00 tD SI.9M _
$2,000 to $2,999 , _.._
13,000 to $3,999 _
|J,0O0 to $4,999 ..^
15.000 to 15.999 _ -
56,000 to $6,999 _
$7,000 to S7J99 _ ........
ts.ooo to %s,m -- — — ■ -
,i9,000toJ9,999 _._ :..
$10,000 to $10,999 -
jn,oooiosu,s*9 . .:
Over $12,000 __^ .....
; Total.. .., ..: 488 272
1 The numbers in this column are a subset of those in the previous column and indicate those communities which would
teceive edditionel funds if the limit were raised from 75 to 90 percent
Source: Compifed by the National Demonstration Water project.
Senator Morgan. Thank you very much. Mr. Wall has some
questions.
• 'Mr. Wai^. First of all, by way of perhaps a brid^ between Mr.
Murray's testimony and yours, I would like to pick up on really the
Jast sentence in Mr. Murray's testimony, if you have a copy before
you, in part he says there's need for developing alternatives to supple-
ment Farmers Home's efforts and we would hope that this legislation
would be expanded to include them.
I think that this is something that you talked about in your testimony
as well, the need for additional people is agreed. I don't think there's
anybody liere who would question it. However, we have now seen two
successive administrations with different political philosophies take
the same position or a similar position on this issue.
It would seem that alternatives have to be investigated, indeed staff
such as we are responsible for looking around and trying to find and
trying perhaps to even develop new ideas but an association such as
yours with the connections, with the people who are involved in it and
7
3
11
8
20
13
64
49
139
87
98
48
80
39
41
14
15
7
9
3
3
1
1
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on the recipient end largely as well as Mr. Murray and his associates
are in a unique position of sort of being on the sidelines and watchinff
the whole process work. It would really be advantageous if you could
give us your thoughts either now or later, and Mr. Murray as well,
as to how this mi^t be accomplished, what other shortcuts might be
provided, what alternatives might be investigated.
Mr. Herman. There are a number of things that I could comment on
briefly. Any major comment would probably have to be made later for
the record.
Let me just say that as an agency and as a public interest group,
Rural America — formerly Rural Housing Alliance — has always been
concerned that Farmers Home Admmistration programs not be di-
verted from the purpose of serving the lowest income people as a lender
of the last resort, as stated in the 1949 act, and we are concerned with
what has happend in recent years, that the agency has — and I say
the agency in general — has had a tendency to "cream" among borrowers
and get away irom the lowest income people.
So perhaps we feel slightly diflFerent from Mr. Murray in that we
would continue to be concerned that the lowest income people be served
with these programs and that higher income people or middle income
people that are existing in the rural areas should nave the opportunity
to be served through other programs, but we want to make sure that
Farmers Home Adininistration continues to meet low income needs.
Mr. Wall. I might add one comment perhaps in clarification of the
question, and that is what I have in mind is any suggestions you might
have as to how all the Farmers Home responsibilities can be met with
the staff that they have, recognizing the difficulties they have. I'm not
suggesting that there be a redirection or a change in that sense, but
recognizing we have a problem with limitations in terms of what people
can do.
Mr. Herman. Bob just mentioned a couple things we have talked
about in terms of reorganization ideas and streamlining ideas. We
think that there can be some streamlining in terms of their operation
which would basically remove some of the larger loans from the county
supervisor where he cannot deal with the plans, the specifications, of
a hospital for example. That would be put forward to the district
level or State level and the county supervisor, who's in the unique posi-
tion of representing the Federal agency in the local county, would be
able to deal with those programs where he has direct contact with the
borrower. That would be one suggestion.
Also, just one other area. Farmers Home has been reluctant in the
past to enter into gratuitous service contracts with other agencies, be
they State or Federal, for clerical assistance and we think this would
be very helpful.
Just a comment on the question of having the guaranteed loan pro-
grams centered in the State office. I find it interesting that when I was
working in rural Mississippi in the housing program, the comment
I often heard from the builders in that area was that they would prefer
(the area HUD office and the State office of Farmers Home Administra-
tion were centered in the same citv m the State capital of Jackson)
they preferred to work with the HUD area office in the State capital
on loans because they could deal with the same people down there no
matter where they were dealing in the Sfate and the loan processing
was much faster for them. In the case of Mississippi FmHA they had
94-911—77 2S
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to deal with about 67 county offices around the State, each one having
a different view of how the regulations were implemented. It made it
much easier for them to deal with one HUD office and I think with
the FmHA guaranteed loan program centering it in the State offices
probably is a much more acceptable provision.
Mr. Wall. The question lies in my mind, and perhaps will remain
there forever, but the question comes to me what about the possibility
of the involvement of the private sector in some of these areas not
necessarily for a comment now but we would like thoughts that you
might have on that.
Mr. Herman. We are not against the private sector being involved
because we would like to see more credit for more rural areas.
Mr. Wall. The point was made by the previous witness with regard
to VA and the success they have had and, of course, VA in terms of
their relations with recipients and private enterprise. Might there be
a way that perhaps not the deep subsidy program but perhaps some
of the moderate subsidy program support might be handled that way ?
Mr. Herman. Yes. 1 think for the middle income rural resident
there should be some alternatives. Again, I would just say that our own
concern has alwavs been for the lowest income people.
Mr. Wall. I think you could perhaps better heh) them or help them
a great deal by taking some of the load off the staff people. That might
be the best and qui(ikest benefit.
Mr. Herman. It's possible,
Mr. Wall. To move on to another area, I'm not in any way trying
to top the previous staff member who was asking questions, but I spent
the first 32 years of my life in a rural area and I have a great deal of
empathy and understanding, and all of my family really still live in
rural areas. It seems to me that running perhaps unconsciously through
your testimony is one theme and I'd like to pick up on several phrases
^roughout it and see if you agree.
On page ,5, "The borrowers were never given instruction as to how
to operate the electric system to maximize the efficiency of the units."
On page 6, "We have found that rural people are quite willing to" —
save energy.
Page 7, a couple comments. "We continue to maintain that HUD
should not set standards for rural people."
And then the situation followed about the paving and guttering of
the street that was only 100 yards long and 4 miles from an asphalt
or concrete street, and then going on to page 10, "We are coming to
realize that for many isolated and poor rural communities, a central
water-gewer system is neither practical or sensible." " The minimum
needs of each family would be met," by this suggestion you have. "The
goal should be to show what needs to be done and what can be done
at what cost."
A last comment on page 13, "Otherwise, priority should be given to
any other entity evidencing participation in its decisionmaking process
by prospective residents."
The one thought that comes to me is that all of these things tie to-
gether. This may be a correct analysis or may not be, you're really
saying that more than any other program, a program such as this in
order to deal with the problems of rural areas has to be flexible, has to
be able to permit innovation and has to permit adjustment to varying
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conditions, and it seems to me at least as an observation that that's
probably the strongest point as a philosophical kind of thing that
you're saying here.
Mr. Herman. We have always felt that the Farmers Home Admin-
istration, in terms of its flexibility, its ability to recognize local needs,
trying to come up with different programs in different localities, that
the fact that it has 1700 and some local offices where the person repre-
senting Farmers Home Administration represents the Federal Govern-
ment and is right there among the people, this local representation,
one of the best and strongest parts of the program. We have consist-
ently been opposed to any effort to integrate Farmers Home Admin-
istration into the HUD program or into any of the other programs
that have an urban bias, and what we would rather see is a strengthen-
ing of a unique program that provides credit to rural residents and
recognizes the differences between a rural life and how to improve that
rural life and urban bias which is held almost throughout the agencies
of the Federal Government. Philosophically this is exactly where we
are and we would like to see this program strengthened. To quote the
Executive Director, we have taken as many potshots at Farmers Home
Administration, from time to time, as anybody else, on the basis that
we know the program very well and we would like to see it improved.
We believe it's a good program and when we take potshots at the
agency it's in the interest of improving the program and improving
services to rural people. But when other people take potshots at the
program we get a little upset because it's lite, "I can kick my dog
around but don't you kick my dog around." We think it's a good pro-
gram and we think it has a liiral interest and understands the needs
of rural people and we would like to see it improved and strengthened.
We think S. 1150 and many of the provisions in it will do that and
we would like to thank this committee for your interest in this.
Mr. Wall. Subcommittee Chairman Morgan and Senator Gam, the
ranking minority member^ have jointly conducted hearings in Salt
Lake City and in Raleigh and this is the one thing that at least I as
a participant in each case was able to come away with, thiat the
strength of the program is the strength of the people who are abfe to
utilize the written word, the statutes and the regulations, and xnake
them fit their local conditions.
This is the line that at least in Senator Gam's office we're having
to walk in attempting tp keep as much flexibility in the law as possible
but keep a watchful eye out for those who are trying to gore the
Government in one way or another. We recognize it's a difficult line to
walk and, on the other hand, we recognize we do have the obligation
to try to bring those two sides together.
The last comment you mentioned, splitting the research funds be-
tween HUD and Farmers Home Administration, what kind of per-
centage suggestion might you have here ?
Mr. Herman. It should be on the basis of need and since two-thirds
of the housing is in the rural areas we think Fanners Home should
have two-thirds of the resources to overcome the problem. We may not
get that. We would be happy to see any reasonable amount to start
research m Farmers Home Administration, $5 million or $10 million,
to get the thmg rolling, but we always feel that if vou look at the
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problem in terms of need and the resources ought to be allocated in
that manner.,
Mr. Wall. Thank you.
Senator Morgan. Thank you, gentlemen. I think your testimony and
your dialog has been very helpful and will be very helpful as we pro-
ceed, and we welcome any additional suggestions.
Mr. Herman. Thank you for the opportunity.
Senator Morgan. We'll hear from the Council of State Community
Affairs Agencies, Mr. Marinich. We are delighted to have you. We're
sorry it's so late.
I take it the Council of State Community Affairs Agencies is made
up of agencies such as the North Carolina Department of Natural
and Economic Resources, I believe we call it, and other agencies where
you have the responsibility for planning community action and so
forth.
Mr. Marinich. That's correct, Mr. Chairman. The North Carolina
agency has now been reorganized into the Department of Natural
Eesources and Community Development specifically for the purpose
of emphasizing the State agency's interest and commitment to im-
proving rural housing and community development.
Senator Morgan. There's so much reorganization going on in the
Government I can hardly keep up with the new names.
Mr. Marinich. Howard Lee, secretary of the North Carolina de-
partment asked me to extend his greetings to you but could not attend
because of a previous commitment.
STATEMENT OF JOSEPH S. MARINICH, EXECUTIVE DIRECTOR,
COUNCIL OF STATE COMMUNITY AFFAIRS AGENCIES
Mr. Chairman and distinguished members of the Subcommittee on Rural
Housing, my name is Joseph S. Marinich, and I am Executive Director of the
Council of State Community Affairs Agencies (COSCAA). I appreciate the
Invitation, and opportunity to present some observations on how S-1150 can aid
in meeting rural housing and community development needs. COSCAA is the
national organization representing the state executive branch agencies responsi-
ble for a variety of local assistance functions in housing, community develop-
ment, economic development, planning, training, and technical assistance. These
agencies are commonly called "Departments of Community' Affairs" or "DC As :"
almost all states now have a cabinet-level department or major agency responsl-
able for these local assistance functions.
Our perspective on rural housing issues is based on knowledge gained through
the various services that states provide in housing planning, prosrramming, out-
reach and financial assistance as well as In the related areas of rural develop-
ment which S-1150 addresses.
In my comments I will draw on my discussions with various state oflSdals
about provisions of S-1150. Since I was not able to contact ofl^cials in all states
at this time, I hope to provide additional observations in further submissions to
you and the Committee staff. I should note that I am aware of the testimony by
state officials presented to the Subcommittee in your hearings earlier this year
in Raleigh and Salt Lake City. In addition to addressing certain provisions of
the bill. I wish to comment on the role that states can play in Farmers Home
Administration programs to Insure more effective delivery of federal resources.
State officials have l)ecome quite concerned that spiraHng housing costs are
placing the purchase of adequate housing out of reach for many households and
is severely impairing the opportunities for low- and moderate-income citizens
to own thlr own homes. These cost pressures have undoubtedly had an Impact,
together with other factors, on the tendency over the past live years for higher
proportlcms of FmllA loans to be made to upper moderate income families than
to those with lower incomes. Since these pressures are going to continue, it Is
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necessary that some means be provided by which low-income families can
achieve the traditional American goal of home ownership and decent housing.
Section 14 of S-1150 provides this opportunity. A significant attribute of this
provision is its inclusion of utihtiejs costs in the formula for determining the
amount of subsidy. The experiences of last winter provide evidence that utility
bills can be a significant burden on low-income residents in their attempt to
budget housing costs.
The authorizations and funding approaches for water and sewer grants called
for in Section 20 are desperately needed. The basic need for the improvement
of rural water and waste systems is fairiy well known. What is not common
knowledge is that the current FmHA programs in this area are not adequately
structured to service the needs of the most needy families and communities.
Section 20's provision for grants of up to 75 percent will help to remedy this
problem. Presently, the limitation of 50 percent maximum grants either forces
communities to charge higher users fees than many low-income residents can
afford or eliminates the community from developing a system at all. It should be
noted that EPA's wastewater treatment graut program provides for a 75 percent
Federal contribution; therefore, this provision would put FmHA In step with
this comparable federal effort. In addition, the FmHA program should build in a
state role in the determination of priority projects as is done in the EPA program.
The adoption in the Housing and Community Development Act of 1977 of
provisions to initiate a FmHA research program is a positive step, and should be
followed by the provisions in Section 4 of S. 1150 which would target specific
objectives for FmHA-based research activities. For too long, rural housing and
rural development research concerns have taken a back seat in the USDA to
other interests of the Department. This provision provides an opportunity for
specific research and demonstration efforts dealing with the complex issues of
policies, programs and delivery systems that must be faced in the implementation
of successful rural housing programs. With regard to the level of research fund-
ing, it should be noted that the $10 million requested is only one-sixth of the
amount utilized by HUD for research and demonstration efforts.
In addition to the research areas noted in the bill, this program could examine
such issues as the use of alternative building materials and construction methods
including "basic home" approaches, rehabilitation approaches, the use of inno-
vative technologies in the design of rural water and sewer treatment facilities,
and innovative delivery systems such as those currently being devised by four
states in a special joint HUD-USD A demonstration project.
The proposals for increases in the authorizations for various technical assist-
ance programs are timely and perceptive of a significant need. It is becoming
increasingly recognized that extensive technical assistance and training are
necessary for adequate implementation of federal community assistance pro-
grams such as those in FmHA. For example, the Economic Development Admin-
istration has an on-going technical assistance program and HUD is now starting
a program to specifically undergird the implementation of the Community De-
velopment Block Grant Program. It is our strong recommendation that any
FmHA technical assistance efforts be linked with state agency efforts since states
have significant experience in the area of technical assistance. For example, in
a recent survey, we found that the DCAs across the country have 1,400 staff
responsible for technical assistance and training. These staff provide direct
services and also work with non-profit organizations, universities, local govern-
ment associations, and others in delivering a variety of technical services.
Correlative with the technical assistance need is the need for adequate coun-
seling and advisory services for prospective and actual clients of FmHA pro-
grams. This need will be heightened as FmHA attempts to re-direct its programs
in general to low-income families and if the Section 14 subsidy program is estab-
lished. Adequate counseling is needed to mitigate problems of mortgage payment
defaults and other aspects of home ownership such as adequate maintenance.
Although it is not addressed in S. 1150, the Subcommittee should give special
attention to the problems of staflBng in the FmHA field oflBces. The problems here
are not just those of sheer numbers of staff, but also those of appropriate tech-
nical expertise among the FmHA staff responsible for processing and other as-
pects of the FmHA programs. State ofilcials frequently report frustrations in try-
ing to work with some state, district, and county office staff who are not suf-
ficiently knowledgeable about the requirements, procedures, etc of the Tarious
FmHA housing and development programs. Many states have taken action to
undergird the FmHA staffing function through the assignment of state staff to
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work with FmHA office for loan processing, construction inspection and other
functions.
For example, the Texas Department of Community Affairs has a Rural Hous-
ing Coordinator Training Program in which local citizens are trained by the
State in FmHA program procedures, and are then asigned to their home areas
to work with local FmHA offices in locating and processing potential FmHA
clients. Also, the New Jersey Department of Community Affairs has assigned
staff on a temporary basis to help process a backlog of FmHA applications for
mortgage assistance ; in a recent period, this asistance enbaled processing of
$8.8 million in loans for rural families in New Jersey.
The bottom line is that without such state agency staff assistance, FmHA
personnel needs would be an even greater problem. In effect, state governments
have been subsidizing the FmHA operation through in-kind staff assistance.
As an introduction to addressing some issues concerning the state roles in
FmHA programs, I would like to cite several other examples of state program
efforts pertinent to this Bill :
ALASKA DEPARTMENT OF COMMUNITY AND BE6I0NAL AFFAIRS
Rural Development Assistance Program, — ^Rural Development Assistance in
Alaska involved 225 rural communities, ranging in population from 25 people
to about 2,400, over a geograi^ic area twice the size of Texas. In the process
of rural economic development, management training is coincided with the
awarding of grants from state and federal funds to meet housing, community
development and economic development needs.
COLORADO DEPARTMENT OF LOCAL AFFAIRS
Urhan and Rural Grant Program, — This program has been used to establish
ninety local projects in which about 2,370 housing units have ben rehabilitated
or constructed to date ; the State grant investment of $4.7 million has resulted
in private and federal cash investments of about $13 million.
FLORIDA DEPARTMENT OF COMMUNITY AFFAIRS
Revolving RuT<al Housing Land Acquisition and Site Developm^ent Assistance
Trust Fund. — This Trust Fund makes loans in rural areas to finance housing
Sites for persons of low- or moderate-income and provides a ready supply of ap-
proved building sites to rural home builders at an affordable cost.
In an attempt to improve the delivery of rural housing and development re-
sources to hard-to-reach rural low-income residents, FmHA joined with HUD
earlier this year to select four states to undertake demonstration projects in
housing and community development. The States of California, Colorado, Illi-
nois and West Virginia were selected from the 30 states that competed for the
demonstration funds. Basically, these states have devised delivery systems in
which the disparate resources available from federal, state, and local govern-
ments and private sources will be packaged for coordinated implementation in
targetted areas of the States.
This involves linkages among the State's Housing Finance Agency, any special
state housing and community development programs, the HUD programs, pri-
vate non-profit organizations, and FmHA. Under a competitively awarded evalu-
ation contract with HUD and USDA, our organization will be monitoring the
progress of these four States with a specific objective of assisting HUD and
USDA in transferring the successful approaches to other States.
The fact that a large number of states had an interest in this demonstration,
and are in fact carrying out their own initiatives in this area underscores the
need for the establishment of formal and substantive linkages between USDA/
FmHA and the state governments.
Historically, USDA has operated its programs independently of state and
local governments through an extensive field network. We feel that this field
network is now out of tune with the significant expansion of state and local
governments capability to plan for and implement housing and development
programs. For instance, FmHA has no systematic method for allocating its re-
sources based on carefully documented need as opposed to historical expendi-
ture levels. Determinations of who gets assistance has been left up to the county,
district and state offices. Yet, states and localities have developed allocation
Digitized by VjOOQ IC
433
mechanisms which should be used by FmHA to target assistance more effectively.
We believe that this should be changed through the linkage of FmHA alloca-
tion with the planning and priority setting activities of state and local govern-
ments. Such linkage could then draw upon the various policies and plans that
states have devised, such as those developed through the HUD requirements for
Housing Assistance Plans and land use planning, as well as state priority setting
efforts undertaken independent of federal programs. Linkage of FmHA pro-
grams with state policies and programs for resource allocations and development
activities will lead to more effective use of scarce federal, state, and local
resources.
In addition to housing, an area of joint federalnstate interest that obviously
could be dealt with in better working relationships is that of water and sewer
programs, since over one-half of the States have their own grant and/or loan
programs to aid rural areas in developing such essential community facilities.
Although the FmHA Administrator has encouraged FmHA officials to work
more closely with governmental and non-profit entities, an ad hoc working re-
lationship is not sufficient in all states. This is an issue area which I believe
the Subcommittee should give serious attention to as it proceeds with S-1150
and other rural housing and development legislation. More direct working rela-
tionships with the States can lead to better packaging and coordinating of re-
sources and to better targeting of resources to the areas and people experienc-
ing the greatest need.
Thank you for this opportunity to express our views to you.
Mr. LocKLiN. Thank you, Mr. Marinich. Senator Morgan wanted
me to ask you what exactly are they doing in those four States with
the demonstration projects.
Mr. Marinich. I would like to get you a written report summarizing
what they are doing. But briefly, they are linking their State legal
authorities, through tlieir housing finance agencies, to private financial
resources and to local leadei^ship and are utilizing their ability at the
State level to give technical and advisory assistance in packaging rural
housing resources. Both of those State efforts involve an outreach
function in which the States have built in a working relationship with
local community organizations which are providing assistance. They
are also bringing in citizen groups to assist Farmers Home in locat-
ing people who are elijsfible for Farmers Home assistance and bringing
them through the applications process.
The State demonstration efforts are also directed to helping the
private sector get involved in providing the rural housing resources
to complement Farmers Home resources. Many of the States have
found that one problem with the private sector being involved in rural
housing is that they see a very complicated process that they have to
work through. So, technical and advisory assistance is helpful to them
in working through the process.
Another problem with the private sector getting involved in rural
housing is that many developers feel they need a large package of
housing, up to 100 units, before it's feasible for them to undertake an
effort. States, however, have been able to package programs such that
they might he providing six units in this county or eight units in the
neighboring county or what have you, but it's with one developer who
then has a package of a size that he feels is economically feasible.
Again, I can get you additional details of what the State demon-
stration projects are directed to but overall, they entail a combina-
tion of resources effort, an outreach effort to bring: more people into
the process than traditional mechanisms have provided, and an effort
to establish an intergovernmental as well as a public-private relation-
ship in utHization of the Farmers Home programs.
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Senator Morgan. Thank you very much. Your statement, along with
those that have been offered this morning and all of them during these
three days of hearings have shown an in-depth perception of the prob-
lems ana represent a great deal of work and I appreciate them and
the committee and I'm sure the staff will make use of them as we go
further into this area. And for the record, I want to thank all of the
staff for doing such a good job in this case.
Mr. Marinich. Mr. Chairman, I would like to commend you as well
for your diligence in dealing with these issues of rural housing and
for flie thoroughness of these nearings.
Senator Morgan. Thank you very muchl The staff has very kindly
gone through the statements before we have had the hearings and they
have given me a brief resume of what each witness was expected to
testify about which has given me some areas to watch for.
For me it's been one of the most enlightening series of hearings we
have had. We are going to leave the record open for another week, a
week from today, so any additional statements can be filed that any-
body would like to submit.
With that, we stand adjourned.
[Whereupon, at 1 :05 p.m., the hearing was adjourned.]
[Additional comments received for the record follow :]
United States League of Savings Associations
Washington, D.O., Octoher 14, 1977.
Hon. Robert Morgan,
Chairman^ Subcommittee on Rural HouHng, Committee on Banking^ Housing and
Urban Affairs, Washington, D,C.
Dear Chairman Morgan : The United States League of Savings Associations ^
would like to take this opportunity to comment on the "Rural Housing Act of
1977" (S. 1150) introduced earlier this year by Senator Humphrey and others.
Many of the provisions of S. 1150 of greatest interest to the savings and loan
business have now been accomplished in the Housing and Community Develop-
ment Act of 1977 recently signed by President Carter. The U.S. League applauds
the work of you, Senator Morgan, and your colleagues on the full Committee in
developing and improving the rural housing portions of that legislation.
Our interest in the remaining portions of S. 1150 is somewhat narrower than
that of many of the witnesses appearing at these hearings since the investment
powers of savings and loan associations restrict them primarily to the home
finance aspects of the proposal. We will, therefore, address those portions of the
legislation that bear directly on matters in which savings and loans can be ex-
pected to offer significant assistance or support.
Historically, there has been modest savings and loan business involvement in
Farmers Home Administration (FmHA) housing programs. The presence of a
direct government lender with preferential borrowing rates in rural communities
where private sector institutions have resources available to meet public cedit
needs lead to less than cordial relationships unless extra efforts are made to
divide the mix of private and public credit.
In an effbrt to assist our member institutions to understand better the FmHA
and its housing programs, the U.S. League recently commissioned a study by the
Center for Real Estate and Urban Economics of the College of Business Ad-
ministration at the University of South Carolina. Dr. Arthur E. Warner, the au-
thor, spent nearly a year analyzing FmHA and savings and loan data and his
1 The United States League of Savings Associations (formerly the United States Savings
and Iy>an Leajnie) has a membership of 4,400 savings and loan associations, representing
over 98 percent of the assets of the savings and loan business. Leagne membership includes
all tvpes of associations — ^Federal and state-chartered, insured and uninsured, stock and
mutual. The principal offlcers are : John Hardin, president. Rock Hill, S.C. ; Stuart Davis,
vice president. Beverly HUls. Calif. ; Lloyd Bowles, legislative chairman, Dallas, Tex. :
Norman Strunk, executive vice president, Chicago, 111. ; Arthur Edgeworth, director —
Washington Operations : and Glen Troop, legislative director. League neadquartera are at
111 E. Wacker Drive. Chicago. 111. 60801; and the Washington Office is located at 170»
New York Avenne NW., Washington, D.C. 2006 ; Telephone : (202) 785-9150.
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conclusions are most interesting— -partictilarly in riew of the fact that both
S. 1150 and the 1977 Housing Act contain provisions directly influenced by his
analysis.
A copy of the complete monograph is attached ; however, its principal conclu-
sion is worth noting here. Succinctly stated, ''decent, safe and sanitary housing"
the goal of the ''Housing Act of 1949" has not been met, and in all likelihood
cannot be met by the FmHA functioning alone in rural America. Statistically, it
would appear the FmHA is, in fact, losing ground. The monograph also points
out that sources of private credit have not appreciably asserted themselves to
help close the rural credit gap. Thus, much remains to be done if rural housing
needs are to be adequately met by either the public or private sectors.
Given this background, we were encouraged when the FmHA decided in late
1975 to develop its guaranteed rural housing program, as authorized in the "Ru-
ral Development Act of 1972." The concept itself implies a partnership— since
the private institution shares the risk of loss on the loan, while retaining under-
writing responsibility. Numerous meetings between U.S. League representatives
and FmHA officials in 1976 produced a more workable set of program regulations.
To our surprise, a series of nationwide League-sponsored seminars early this
year in which FmHA personnel participated, were greeted with twice the at^
tendance we had anticipated.
To date, the guaranteed rural home loan program has not been a startling suc-
cess if numbers of loan on the books are the only criteria. Rigidities in the 1972
statute and FmHA rules have presented one set of problems. Other problems are
created by the statutes and rules governing investments by Federally- and State-
chartered savings associations. A different climate is expected, however, when the
1977 Housing Act is fully imidemented. That legislation authorizes the use of an
interest rate negotiated between lender and borrower, rather than the often out-
dated administered fixed rate which may require the use of "p(^nts" to produce
a market yield attractive to lenders. Additionally, the secondary mortgage market
should be more readily available for these loans because the general "graduation"
requirement applicable to other FmHA housing loans is eliminated for the guaran-
teed loan program.
Almost as important as these provisions are the comments of the Conference
Managers regarding the guaranteed program. If the FmHA translates these com-
ments into regulation they could have the fastest loan processing time of any
major Federal housing loan program — ^a critical factor in these days when con-
ventional loan private mortgage insurance companies can deliver approval to
potential borrowers so much faster than on Government-backed mortgage. Also,
the use of variable local income limits, based on current income survey data al-
ready accumulated by the Dei)artment of Housing and Urban Development, will
help identify those applicants who are capable of carrying loans from private
creditors and assure that those truly in need are served by the FmHA.
It is important that the fundamental housing role of the FmHA should re-
main that of "lender of last resort," while the private sector can assist that
agency in providing adequate credit to a broader segment of the population of
rural America. The U.S. League is concerned that the FmHA staff is threatened
with additional cuts in personnel. In the event such staff cuts become a reality
it will be even more important for the guaranteed home loan program to operate
quickly and smoothly with minimum administrative oversight and consequent
delay. The fact that the principal users of this home loan program are super-
vised lenders bearing a 10 percent risk of loss will contribute to sound under-
writing and careful loan processing and servicing.
Turning now to those provisions in S. 1150 affecting the guaranteed housing
loan program that are not included in the 1977 Housing Act, the U.S. League be-
lieves that these provisions are not only unnecessary — they could hamper pro-
gram operation.
Section 13(c) would appear to subject the guaranteed program to implementa-
tion only on the Secretary's determination that adequate credit resources are not
available, a judgment that would doubtless deny this program to some localities
while making it available to others. There seems little need for such a provision,
particularly if its effect might produce an uneven application of the program in
rural areas.
Section 13(d) would place loan processing at FmHA state or regional office
levels, rather than in local county offices (or better yet, in savings and loan of-
fices). The effect of this provision would be to undo precisely what the FmHA
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436
hopes the new guaranteed program will accomplish — simplified operational clear-
ance for private lender participation.
We would note, as well, that the separation of program operations required by
Section 13(b) has been administratively accomplished within the past six months.
As to income limits, we would make these observations : the guaranteed home
loan program began its life as a moderate-income program because, we have been
advised, it was felt Congress would want the FmHA to direct its efforts to that
income strata. In the 1977 Housing Act Ck)ngress redefined its intent by directing
the program to "above-moderate*' income borrowers and instructing the FmHA
to develop a flexible ceiling for moderate-income borrowers based on geographic
data. That flexible ceiling will be the above-moderate Income floor. Therefore, it is
important that the FmHA develop this data quickly and accurately and implement
it as soon as possible if the guaranteed home loan program is to become readily
available to borrowers.
Additionally, in the 1977 Act, the Congress adopted an income ceiling of
$20,000 for the above-moderate income borrower desiring a FmHA guaranteed
home loan. Although no other unsubsidized Federal housing program has a
similar income ceiling, this poses no apparent difficulty in those rural counties
that have modest median income levels. However, it would have been preferable
to provide the some flexibility in this ceiling as in the moderate-income segment
of the program. The median income of many rural counties is presently such that
very little increase could squeeze the number of x>otential "above-moderate"
guaranteed loan borrowers to a very small number. i
Implementation difficulties are inherent in any new program, and the guaran-
teed home loan program should be no exertion. However, if the past is any
indication, the FmHA will do its best to anticipate problems and avoid them
where possible. Therefore, in the event problems requiring Congressional attention
do arise, the U.S. League is confldent that both parties will jointly seek any legi-
slative solution.
Thank you for this opportunity to express our views.
Sincerely,
Lee B. Holmes,
Staff Vice President.
Abthub B. Edobwobth,
Director, Washington Operations.
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