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the great American public has been looking forward for a long period of time.

When we say that private enterprise has not fulfilled its full responsibility, we are speaking of facts, and those facts are on record before the Senate committees. It is well known that private enterprise in the thirties preferred to build for sale, and it overbuilt housing for sale far in excess of effective demand. The families who would otherwise have attempted home ownership, but who had gone through foreclosure and eviction in the depression, preferred renting. This was particularly true in the middle and moderate income groups where the need was the greatest. However, they were not able to attain home ownership, because they felt they were not equipped to meet the financial burden. We had a great deal of sale housing going begging at the time a large portion of our population was ill housed.

We are not saying the answer is to build more rental housing. We say the answer to that is to perfect the system of home financing by easing the terms of acquisition and thus equip the industry for the provision of private housing in such a way as to really enable it to serve the families of moderate income. The best way to do it is through the amendments of title III and IV, of S. 1592.

Senator MURDOCK. Is there any answer or any remedy to the situation that was spoken of by Mr. Bates, overappraisal through overinsurance, which, of course, eliminates entirely any risk on the part of the lending agency, and the placing of the entire risk, whatever it is, on the Federal Government, or is that just a result of this type of enterprise?

Mr. SHISHKIN. I should like to give a full and fair answer to this. Senator, so there will not be any implication that would cast a shadow on the principles of FHA. That is not in any way intended.

Before I answer that, if I may, I should like to point out that the American Federation of Labor has always consistently supported the basic principle involved in the FHA system. We endorsed the National Housing Act, which established the FHA, which was introduced and enacted under the leadership of Senator Wagner in 1933. Senator RADCLIFFE. Do you feel that its general operations have been unsatisfactory?

Mr. SHISHKIN. We believe that in its operations generally, Senator, the Federal Housing Administration has, over a period of years, tended to forget the specific purpose and congressional intent which was written in the congressional debate when the law was enacted. And that was to serve the home owner.

It became a service organization to the lender. It became a banker's insurer. And all of its reactions are normal, they are healthy to the extent they are the reactions of an insurance organization.

Mr. Foley appeared here and made some statements in criticising this legislation. Some of the statements he made, labor and the general public consider shocking as coming from a public official. They were shocking. He told this committee he had consulted everyone he knew with respect to the position he had taken in opposition to the provisions of this legislation. But we know Mr. Foley has consulted only the realtors, the builders, the lenders and bankers, and has not consulted the workers and the public and the citizens, whom the lenders, the bankers and the FHA are supposed to serve.

So we do not feel that the FHA has been close enough, either to the public, which it must serve, or to the intent that Congress wrote into the act itself, of having the Federal Housing Administration, as a public agency, serve primarily in public interest, rather than any special interests that may come in close and constant touch with such an agency in the course of its operations.

Senator MURDOCK. Is it not your opinion that whenever any public agency backs away from the primary purpose of a housing bill, that the whole thing comes down of its own weight?

Mr. SHISHKIN. I agree with that, Senator.

Senator RADCLIFFE. Well, of course I am not in position to speak with respect to all sections of the country. I have, however, followed the FHA in some sections very closely, and I have not reached the conclusions which you have just expressed. You may be right, and I may be wrong. But I have felt that the FHA has operated very effectively, certainly, in many respects. And I do not yet see how they accomplished this over-appraisal of 110 and 115 percent. That would be a gross violation of the most rudimentary administrative functions.

Senator MURDOCK. I think the same.

Senator RADCLIFFE. I do not see how that can be done, unless it is simply a deliberate and absolutely outrageous violation of administrative discretion.

Mr. SHISHKIN. In answer to the previous question, Senator Radcliffe, I want to point out, in all fairness to the FHA-and we want to be very clear on that particular point-that, as a matter of common knowledge, there have been many over-appraisals over a long period of time, and there also have been under-appraisals, particularly in recent months. What has been happening recently is also a matter of common knowledge. As property values became more and more inflated, the FHA was increasingly reluctant to underwrite them. So, at the most critical time, the FHA is forcing the home buyer outside the FHA insurance system. Mr. Foley's agency has itself been guilty of the very practice against which he has been pleading. But on the whole record of FHA operations, over-appraisals have been prevalent. Appraisals can be made to fit any policy. An appraisal is a matter of judgment. Certainly there has been a situation of that kind.

But here is the essential point with regard to that. The FHA system started in 1933. The FHA has developed since 1933, through 1945, over a period of a rising market. The FHA system is a system of Government insurance of mortgage loans. It has never had a test of a declining market. And some day the FHA will face that test. Now we have long urged, and we are gratified to see in this legislation, a provision for lapsed payments. It is a simple, elementary provision that every schoolboy can understand.

Let me take the condition as it stands today. A family is in a house. It cannot meet the payments after 3 months. There may be leniency shown, but after 3 months the family is likely to be thrown out, even though they have lived in the house 10 years. If the house is lost, it is a financial burden to the Government.

Senator RADCLIFFE. Would you leave some discretion there, or have a sweeping provision? There are, you know, a few people in this world who can pay bills, and will not. Of course everyone is in

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accord with what you have in mind, and that is to protect those who cannot pay. But some people will not pay bills.

Mr. SHISHKIN. That is right, Senator. I was coming to that. Senator RADCLIFFE. Is there to be any discretion in regard to a matter of that kind?

Mr. SHISHKIN. I was coming to that. This proposal provides simply that the failure to pay will not cause them to be thrown out of the house. The Government will take over those payments for the period of the emergency, and that period alone. The amortization period is extended to the extent of the emergency. So in the end, the lender gets all of his money, the Federal Government does not lose a cent, there is no foreclosure, and there is no loss of the home.

May I tell this committee something which I think it will be particularly interested in? Only a few weeks ago, I happened to be flying up to New York in a plane with Mr. Jesse Jones, who once appeared before this committee as a witness, and a critical witness, on title VI of this legislation. I discussed this lapsed payments proposal with him. I do not know of any prominent figure in the country who believes more strongly than Jesse Jones in sound investment in which the public interest and money is safeguarded. I think everyone will agree with me.

Mr. Jones thought this to be a sound and extremely important proposal. He felt that the Government should assume the short term risk of emergency unemployment and prevent mass evictions in the adverse period of the business cycle, which is part of the economy of private enterprise, and by doing so reduce the long term risk of wholesale foreclosure to the entire FHA insurance fund. He expressed the opinion that this is the most important provision of all, and that lapsed payments provision may in time become the savior of the FHA and save it from ultimate collapse.

Senator RADCLIFFE. Of course the lender always looks at it from a purely business standpoint, that it should not be for a longer period than the value continues to exist in the property.

Mr. SHISHKIN. But what is the alternative, Senator? The alternative we faced in 1932, when the HOLC came in on an emergency basis and relieved evictions and foreclosures. It did just the same thing. It invested three billion dollars in order to provide an equivalent of lapsed payments. I should like to point out that even after the depression, with the difficult, long and delayed recovery we have had, the HOLC, out of a three-billion-dollar investment, has lost less than 10 percent of that money. So you see this thing is not a real burden on the Government's finances.

Senator RADCLIFFE. Very frequently those mortgages were shaded down. The HOLC did not always lend the full amount of the indebtedness. They did loan a certain amount, but they did not pick up the entire indebtedness.

Mr. SHISHKIN. Certainly not. But in that case the Government did pick up a major portion of the debt, assuming a much greater risk than it ever would under the lapsed payment proposed.

Senator RADCLIFFE. There was some initial loss there. I should say that if the HOLC gets through with a loss of 20 percent in the end-of course they have had a favorable market-they will be doing quite well. But it has been on the whole a very helpful expedient. It did save a lot of people-there is no question about that.

Could I break in on another matter, when you are ready?
Mr. SHISHKIN. Certainly.

Senator RADCLIFFE. When they get back, you think there will be extremely important. I do not know what the answer is. Maybe there is not any real answer. You said 6,000,000 people have left the country, and only two and a half million people are going back. That means three and a half million people living in the cities who demand homes.

Mr. SHISHKIN. Some of them are ex-servicemen, who are not back from overseas yet.

Senator RADCLIFFE. When they get back, you think there will be three and a half million people living in the cities who are not going back to the farm. Of course we do not want to tell a man that he has to live one certain place, but it is a little unreasonable for a man to leave a good home in the country-I have known of hundreds of such instances-and go to the city, where there are no houses, and say to the Government, "Yes; I have a perfectly good home, but I demand that you furnish me a home in the city."

That is a little bit unreasonable. And yet I must say that I do not know the answer. You cannot tell people where to live. But this mass movement and this insistence on the part of people who go to the city that they must be provided with homes, is quite unreasonable in the aggregate.

Mr. SHISHKIN. Perhaps, Senator. There has been little discussion before this committee on the provisions for improved rural housing, which will help to relieve that problem. Actually, the deterioration of our homes in rural areas has been greater and is less visible, because they do not have metropolitan newspapers. But rural housing has deteriorated even more than urban housing, and the lack of facilities there is just incredible.

Senator RADCLIFFE. That is true, of course, in many cases. On the other hand, many farm homes are perfectly comfortable, and the reason they leave them is not because the houses are not comfortable. It is because they are gregarious. They want to live in the city. And that tendency is going on all over the country today at a rapid rate. Of course that is accentuating and intensifying your urban housing problem tremendously.

Mr. SHISHKIN. If in addition to this, Senator Radcliffe, the Congress in its wisdom would assure the kind of parity that the farmer really needs, not a price parity, but an income parity for the farmer which would maintain that equality of income standard and we could have a generally uniform income standard, at least a minimum standard in the cities and on the farms, then the economic magnet of attraction, the magnet of economic necessity which forces farm people to go to the city to find employment, would be counterbalanced. Senator RADCLIFFE. That is a colossal undertaking.

Mr. SHISHKIN. May I just point out in connection with Senator Radcliffe's question, Mr. Chairman, that we feel very strongly that the lapsed-payment provision must be mandatory, that it should be specifically written into the law as it now stands. The suggestion that it should be left to the discretion of the lender is worse than writing nothing in the law at all, because it would be a false promise. It is perfectly patent that any permissive provision of this sort, any

discretionary provision, would not yield any kind of a lapsed-payment guarantee.

Senator RADCLIFFE. That does not give any protection against a man who deliberately shirks his obligations.

Mr. SHISHKIN. No, Senator; the administrative problem of protecting the Government against such abuse is no greater than in any other provision now on the statute books, which is designed to give people economic security and enable them to meet conditions of emergency. There is discretion in the present provision: there must be a finding that a real emergency exists. If a man is unemployed and sick, and at that time he has to be thrown out of his house, that is the time when real economic assistance must be rendered to him.

Senator RADCLIFFE. I agree with you in a great majority of the cases that that may be true, but I still think that the man who just deliberately falls down on his obligations should not be relieved. It is not in accordance with our way of doing things. If a man borrows money and can pay it back, he is supposed to pay it back-unless he goes into bankruptcy.

Mr. SHISHKIN. We agree with you. That provision should be operative only in the case of real emergency. And it would be a very easy administrative matter.

Senator RADCLIFFE. But you said you want it to be mandatory. Senator MURDOCK. Under certain conditions. Those conditions must exist, or it is not applicable.

Senator RADCLIFFE. Then the administrator would have to find the facts as to certain conditions.

Senator MURDOCK. Yes; and if they exist there is discretion. Mr. SHISHKIN. I think we are in agreement, Senator Radcliffe. Senator RADCLIFFE. If there is discretion; yes.

Mr. SHISHKIN. In connection with the builder's warranty, let me say this: I know this committee is very much concerned with writing the kind of law that will be truly operative. It was said here by the FHA Commissioner that his sole opposition to the warranty is that it would drive builders and consumers out of FHA insurance.

Now that is an amazing statement. We have the experience all through industry in which a warranty is given on a car, a fountain pen, a vacuum cleaner, and a multitude of other products. If people knew the FHA system means a good home, a soundly inspected home, a house on which they cannot go wrong, a house which really gives them a standard of construction-and such standards are being written into this law-the public will not risk buying any other kind of house. They will buy only FHA houses.

Senator MITCHELL. The Commissioner said the public would not understand that.

Mr. SHISHKIN. The public generally know very little about what goes in a house, and they are very scary of being sold a bill of goods by a real-estate man. And when they complain, they usually have a valid complaint. As to the experience of the FHA, we do not have to go very far for an example. Even on a large-scale project such as Colonial Village, across the river, with all the fanfare of publicity that was given to that project, within a year, after the first winter and summer, in a number of units, the ceilings buckled, the floors began to bulge, cracks appeared, and the buyers of these newly bought

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