cate about $83 million private capital at that time as against $1 billion in debentures. Until such time as the association accumulates additional capital and surplus it will have to curtail operations. We suggest eliminating the 10 times limit or, at least, amending it to 12 times, pending actual experience. (h) The $12,500 limit on eligible loans will continue to discourage construction of 3- and 4-bedroom houses in many areas, although the market requires such larger homes. It should be eliminated. To make these changes, the wording of the bill before you should be amended as is set forth in schedule B at the end of this statement. Mortgage finance is the lifeblood of building. Title III is by far the most important part of this bill. It is vital to our $12 billion industry and to the welfare of the entire economy that the revised FHMA work well, fairly, and soundly. With it and the other suggestions I have made, we believe we can do much to solve the Nation's housing problem and, at the same time, expand the industry to a gross volume of approximately $18 billion. The CHAIRMAN. Without objection, the schedule accompanying the statement will be inserted. (The information referred to is as follows:) SCHEDULE A-SUGGESTED AMENDMENTS TO TITLES I AND II OF H. R. 7839 Suggested amendment No. 1: 1. Section 104, page 3, commencing at line 22, strike the colon and the proviso that follows and insert a period. 2. Section 105, page 4, line 10, strike the colon and the proviso that follows and insert a period. 3. Section 115, page 11, line 18, strike the colon and the proviso that follows and insert a period. 4. Section 120, page 14, line 7, strike the colon and the proviso that follows down to and including the word "amount" in line 15. 5. Section 123, page 19, line 18, strike the colon and the proviso that follows down to and including the word "amount" in line 25. 6. Section 123, page 21, line 19, strike everything after the word "exceed" down to and including the word "exceed" in line 25. Suggested amendment No. 2: Amend section 104 by (1) inserting at page 3, line 18, following the figures "$8,000," the following: "And provided further, That closing costs and prepaid mortgage expenses paid in cash at the time of closing shall be included in ‘appraised value' for the purpose of determining the maximum permissible mortgage under this section," and (2) striking the figures "$8,000" at page 3, lines 16 and 18 and substituting the figures “$10,000” in both places. Section 125, page 19, lines 15 and 18 should be correspondingly amended. Suggested amendment No. 3: Amend section 104, page 3, by inserting, following the word "principally" at line 12, the following: “(Whether or not it may be intended to be rented temporarily for school or other community purpose)". Suggested amendment No. 4: Section 103, commencing at page 2, line 23, insert the following: "The Commissioner shall establish under section 203 of the National Housing Act, as amended, special standards appropriate to properties with respect to which the mortgage does not exceed $6,000 and may permit a service charge with respect to such mortgages." Suggested amendment No. 5: Amend section 123, page 25, line 5 by (1) striking the word "relocating" and inserting in lieu thereof the following: "Meeting the needs of low income families that are not and cannot be met from the existing supply of all other private financing and to provide preference to," and (2) striking the words "to be so displaced" at page 25, line 15, and (3) commencing at line 21, striking the words "the relocation of families to be so displaced and who would be" and inserting in lieu thereof "low income families." Suggested amendment No. 6: Amend section 123, page 26, line 18, by striking the figures "$7,000" and inserting in lieu thereof the words and figures: "7,600 (except that such amount may be not in excess of $8,600 in any area in which the Commissioner shall determine such higher figure to be necessary, by reason of cost levels in such area, to attain the purposes of this section)". Suggested amendment No. 7: Section 201, page 42, commencing at line 18 through page 43, line 18, strike numbered clause (5). SCHEDULE B-SUGGESTED AMENDMENTS TO TITLE III OF H. R. 7839 Suggested amendment No. 1: Amend section 301 (a) by inserting at the end thereof (page 45, line 7) a comma, and the following: "and to assist in providing an adequate and stabilized market for the financing of homes in the volume, in areas, of the kinds, and at the prices that the market for homes from time to time may require." Suggested amendment No. 2: Amend section 303 (a) by inserting at the end of such subsection (page 48, line 6) the following: "At such time as the capital stock held by the Secretary of the Treasury has been fully retired the then balance of the general surplus account and of the reserves of the Association shall be paid to the Secretary of the Treasury." Suggested amendment No. 3: Amend section 303 (b) (page 48, commencing at line 7) so that the first sentence thereof reads as follows: "The Association shall accumulate funds for its capital surplus account from private sources by requiring each mortgage seller to make payments of nonrefundable capital contributions equal to not more than 2 percent of the unpaid principal amount of mortgages involved in purchases between such seller and the Association." Suggested amendment No. 4: Amend section 303 (c) by inserting following the sentence which ends at page 49, line 10, the following: "Such certificates shall be entitled to cumulative dividends at the same rate as determined by the Secretary of the Treasury under subsection (a) of this section with respect to capital stock held by him, but no dividends shall be paid upon such certificates if dividend payments on the capital stock held by the Secretary of the Treasury are at the time in arrears." Suggested amendment No. 5: Amend section 304 (a) (p. 52), (i) by striking the words "of such quality, type, and class as to meet generally the purchase standards imposed by private institutional mortgage investors" and substituting in lieu thereof the words "inherently sound and of a type and general class which will assist in constituting a prudent base for the issuance of debentures to private investors"; and (ii), commencing at line 14, strike the words "at or below the market price for the particular class involved, as determined by the Association" and substitute in lieu thereof the following: "at a reasonable price level, as determined by the Association, taking into consideration the market price for the particular class of mortgage involved, the reasonably foreseeable market for mortgages of the same general class, and current yields on, and reasonably foreseeable price trends of, long-term Government bonds and other forms of long-term investment”. Suggested amendment No. 6: Delete all of section 303 (g) (p. 51, line 16 to and including p. 52, line 3). Suggested amendment No. 7: Amend section 304 (d) by inserting at page 56, line 1, following the word "Association", the words "(including mortgages purchased out of the portfolio of the Association which is subject to management and liquidation under sec. 306 hereof)”. Suggested amendment No. 8: Amend section 304 (b) commencing at page 53, line 12, by striking all following the word "but" through and including the word "and" at line 16. Suggested amendment No. 9: Amend section 302 (b) commencing at page 47, line 3, by striking everything following the word "instrumentality". TABLE I.-Proportion of consumer expenditures for selected goods and services TABLE II.-Percentage servicing charges of disposable income (by years) Source: Estimates based on data from U. S. Department of Commerce, HHFA, and other sources. 1.4 1.3 1.4 1.3 1.4 1.4 6.0 7.1 8.3 8.9 10.0 10.4 .5 .6 7 .8 .8 .9 5.5 6.5 Urban and rural nonfarm units reported as delapidated, or 1 Based on 1950 census adjusted for census estimates of underreporting. 2 Using standards explained in HHFA study, How Big? New census data indicates this figure may be too low. 9,925 9, 200 9, 925 19, 125 1,900 As this rate has not been maintained thus far, the average for the rest of the decade should be raised to 2,000, of which 1.1 to 1.5 should be new and 0.9 to 0.4 should be rehabilitated. SUPPORT TO THE ECONOMY REPRESENTED BY RESIDENTIAL CONSTRUCTION Recessions tend to start and to be aggravated by declines in private investment, rather than by declines in personal expenditures. In constant prices, gross private investment declined by over 90 percent from 1929 to 1932, while personal consumption expenditures declined 17 percent. Though residential construction dropped in large part because of the collapse of the mortgage system-which cannot occur again-it nevertheless held up much better than investment as a whole. It represented 17.7 percent of total private investment in 1929, and reportedly 55.6 percent in 1932. It was reported as being three times the support to the investment segment in 1932 (when it was needed) as in 1929. New census data just coming out indicate that there may have been a good deal of residential construction going on outside of permit areas, and that actually residential construction may have accounted for two-thirds of all private investment in 1932. Residential construction represented 21.2 percent of private investment in 1953. If it is given a chance to return to its earlier place in the consumer budget, if bigger and better houses can again be financed, housing would represent nearly 25 percent of all private investment, and during a recession could be maintained at high levels (due to the backlog of unsatisfied demand for bigger and for better housing). This would prevent investment as a whole from declining far. This would help prevent a recession from snowballing, and make it possible to work out of difficulties in a short period. If the value of new houses built were to be as large in relation to disposable income as they were 20 or 30 years ago, they would be 25 percent greater on the average than they are now. With the major decline in interest rate that has occurred, this would still leave the servicing cost of the capital far less in relation to income than it was 20 or 30 years ago. But it would increase private investment in housing by 25 percent and bring residential construction from 21.2 percent to 25.2 percent of all investment-assuming no change in other investment. But there would have to be changes in other investment, because this expansion in housebuilding would require more investment elsewhere to produce the larger amounts of material and equipment required. In the year 1954, for instance, this could cause an anticipated decline in capital formation to become an increase in capital formation. This would be accomplished by increasing the limits of the 95 percent loan from $8,000 to about $16,000. Year: TABLE IV.-Relation of investment in new housing to gross private 1929. 1930 1931. 1932. 1933. 1934. 1935. 1936 1937. 1938. 1939. 1940. 1941. 18.6 SIZE MORTGAGES IN THE TWENTIES' The former Division of Building and Housing, established by former President Hoover in the Department of Commerce, made studies of mortgage financing methods in use during the 1920's. One of the financing studies made by this Division of the Department of Commerce was an elaborate analysis of financing practices in a representative major city-Cleveland, Ohio. Assessements which were an 80 percent of market, could be used as a basis for relating mortgages to the value of properties mortgaged. A sample of 2,231 mortgaged properties was selected, and the size mortgage placed on each property was related to the corrected assessment, or true value, of the property. The following table shows the result. TABLE VI.-Percentage distribution of the ratio of total mortgages to corrected assessment value, by mortgagor (mass builder or owner builder) The ratio varied year by year. Higher mortgages were made early in the decade than were made after 1926, but even as late as 1928, when construction had dropped sharply, only 32 percent of the mortgages studied were for less than 80 percent of the estimated property value. Another sample of 5,292 cases was used to secure information on the frequency of the use of second mortgages. It gave the following result: The practice of placing second and third mortgages declined after 1923, but at the end of the decade over 40 percent of homes being financed with mortgages still used junior liens. TABLE VII.-Family income data relocation survey of the Gratiot Redevelopment Area, Detroit, Mich. Group A: Families eligible for permanent low-rent public housing only. Group B: Families eligible for veterans' housing only. Group C: Families eligible for both permanent low-rent public housing and veterans' housing. Group D: Families ineligible for either. |