The second change that we would suggest would be in connection with an amendment to section 207 (c) (2) of the National Housing Act. That is covered in this section of the bill, section 315, and that is written out at length on page 30 of the bill. The change we suggest is as follows:

We would suggest that the wording of the amendment to section 207 (c) (2) beginning with line 10 on page 30 of the bill be changed to read as follows:

(2) Not to exceed 90 per centum of the amount which the Administrator estimates will be the value of the property or project when the proposed improvements are completed, including the land; the proposed physical improvements; utilities within the boundaries of the property or project; architects' fees; taxes and interest accruing during construction; and other miscellaneous charges incident to construction and approved by the Administrator: Provided, That, except with respect to a mortgage executed by a mortgagor coming within the provisions of paragraph numbered (b) (1) of this section, such mortage shall not exceed 80 per centum of the amount which the Administrator estimates will be the value of the property or project when the proposed improvements are completed and such mortgage shall not exceed the amount which the Adminstrator estimates will be the cost of the completed physical improvements, exclusive of public utilities, streets and organization expenses; and

The only change we are suggesting there is that where you have a State or municipal body or a limited dividend corporation, or a redevelopment corporation of the kind which I have been describing, which are restricted by or regulated by State or Federal authority, that the FHA be permitted to insure a loan made by such a lending agency up to 90 percent of the FHA Commissioner's appraisal of the property, and that the restriction that the loan may not in any event exceed the value of the improvements, be eliminated, so that the Commissioner could make a full 90 percent loan on his determination of what the value of that property is.

Senator MURDOCK. That would be a combination of the value of the improvements

Mr. SCHWULST. And the land.

Senator MURDOCK. And the land.

Mr. SCHWULST. That is important in the larger urban centers, where your land costs are relatively high. If you limit the loan, or the amount of the insured loan, to the cost of the improvements alone, you are going to restrict greatly the usefulness of this provision in helping in the clearing of slums and blighted areas and the providing of new housing.

Now if you liberalize this provision and make it possible to loan 90 percent on the basis of the total value of the completed project, if you restrict that to this type of bodies, State regulated and State supervised, or federally regulated or supervised, you will not be encouraging the speculator. You will be dealing with responsible lenders, and they will certainly have that 10 percent equity in there, and there will not be any guesswork about it.

We are engaged right now on a very important housing project in New York, in one of the blighted areas of the city. The Bowery Savings Bank and six other savings banks are interested in that. Now that project is going to cost-we have not the final estimates on itbut it is probably going to cost between 82 and 92 million dollars. It is going to accommodate some 1,500 or 1,600 families, at very modest rentals, from $12.50 to $13.50 per room per month.

Now in order for us to go forward with that project, I have the agreement between the city of New York and the seven banks here, which is about to be signed-that contract is contingent upon our being able to set this thing up in such a way that it will be an economically sound project from the Federal Housing Commissioner's standpoint, because we shall be dependent, in order to have this go through, upon getting an FHA loan on this project.

And in that connection I shall have something further to say when I come to a discussion of the limit on the amount per room which the FHA may grant. I will refer to this project and to several others.

If you gentlemen of the committee can see your way clear to approve the suggestion we have made, which is a change in section 207 (c) (2) as it appears in this bill, we think

Senator MURDOCK. And that involves only an increase from 80 to 90 percent as to the insured loan limit, does it not?

Mr. SCHWULST. Yes, sir; but restricting it to the type of lender I have described for properties which may be under either Federal or State supervision.

Senator MURDOCK. The 80 percent insured loan limit as contained in the bill now does not include the value of the land, does it?

Mr. SCHWULST. Well, it is 80 percent of the Commissioner's estimate of total value. But unless you have this type of lender I have been talking about the Commissioner is not permitted to insure a loan in excess of his finding of the value of the physical improvements.

Senator MITCHELL. You are now suggesting an expansion of the insured loan limit to 90 percent for what groups?

Mr. SCHWULST. This 90 percent loan would be only for this type of lender-Federal or State instrumentalities, municipal corporate instrumentalities of one or more States. I am now calling your attention to section 207 (b) (1), limited dividend corporations, and we would add this:

Redevelopment corporations and housing corporations organized for the purpose of clearing slum or blighted areas, or for the purpose of rental housing and restricted by Federal or State laws or regulations of State banking insurance departments as to rents, charges, capital structures, rate of return, or methods of operation.

Senator MITCHELL. Do you know how many States now have those controls?

Mr. SCHWULST. I know that New York has them, and I understand that Indiana either has or is about to pass such a law. Dr. Ernest Fisher, who has been advising with us, tells me that about eight States have thus far enacted such laws. I know that the New York law has been studied and understudied by a number of other States, and it seems that there may be others coming along that will enact such laws.

Senator BANKHEAD. You have something in that suggested amendment about rental housing. Will you read that again?

Mr. SCHWULST. About rental housing?

Senator BANKHEAD. Yes.

Mr. SCHWULST. Do you mean in the provision I suggested?

Senator BANKHEAD. Yes; as a part of that suggested amendment. Mr. SCHWULST. May I read that entire section again?

Senator BANKHEAD. I want to know whether it excepts all houses for rental purposes.

Mr. SCHWULST. This is all for rental purposes.

Senator BANKHEAD. Would that be confined to municipal or slum. clearance houses?

Mr. SCHWULST. Not necessarily.

Senator BANKHEAD. Your language would look to me as though it covered all housing.

Mr. SCHWULST. Your section 207 at the present time is not confined to slum clearance.

Senator BANKHEAD. What is the purpose of putting that provision in that section, that houses that are rented or are to be rented?

Mr. SCHWULST. Because under section 207 the only type of housing that could figure into this phase of the bill would have to be rental housing. We are proposing to change only in a minor particular what is already in the act, by simply making addition to it in the sentence that redevelopment corporations and housing corporations organized for the purpose of clearing slum or blighted areas, or for the purpose of rental housing and restricted by Federal or State laws or regulations of State banking or insurance departments as to rents, charges, capital structures, rate of return, or methods of operation. Senator BANKHEAD. Now, for the purpose of rental housing, that is confined to slums, is it not?

Mr. SCHWULST. Not entirely.

Senator BANKHEAD. You could take that out of the slum provision. and make it wide and broad, to cover everything, could you not? Mr. SCHWULST. Section 207 now applies to rental housing anywhere, whether in slum areas or not. It is urban housing.

Senator BANKHEAD. And you are changing the percentage from 80 to 90.

Mr. SCHWULST. Yes. But this would be rental housing which would be restricted by Federal or State law or regulation of State or Federal regulatory bodies. It is not throwing it open to rental housing in general.

Senator BANKHEAD. That depends, of course, on the restrictions or reservations that might be made by different States, and they would not be uniform.

Mr. SCHWULST. Those regulations must run as to rents, charges, capital structures, rate of return, or methods of operation.

Senator BANKHEAD. I think I now understand what you are proposing.

Mr. SCHWULST. Well, that is the suggestion that we would like to offer for the consideration of the committee.

Senator BANKHEAD. You may proceed.

Mr. SCHWULST. We think further that if you make this change it will not be necessary to retain in the bill section 404, which is an amplification of the authority of the Housing Commissioner to insure loans under this same section 207.

We believe that the modification we have suggested will for all practical purposes accomplish what is intended to be accomplished by section 404, and without being as liberal to the lender as section 404, because section 404 provides for 90-percent loans under section 207, and then 95-percent loans under certain circumstances for rental housing, and would practically amount to 100 percent guaranty of the mortgagee's investment.

We do not think that is sound. We do not think it necessary to guarantee 100 percent of the mortgagee's investment. We think the suggestion we have made, while being less liberal for the mortgagee, is sounder and leaves in the hands of the Commissioner the controls he now has and ought to have, and will accomplish everything that is necessary.

We believe further that if you would agree to this suggested change that title V could be eliminated entirely. I can see very little use to you of title V in 1 or 2 months.

The final change we would suggest to be made in this section 207 would be in subsection (c) (3) contained in line 1 on page 31 of the bill, and there we would suggest that you raise the amount from $1,500 per room to $1,800 per room.

Our reason for making that suggestion is this: That land costs. and construction costs vary widely in the urban sections of this country, as between any two. And the suggestion we make is that you put this ceiling high enough so that those variations can be recognized when an application comes before the Commissioner for consideration. This would merely be permissive for the Commissioner to go up to the ceiling limit, but he would still be under the injunction to satisfy himself that any proposed project was economically sound. I am afraid that if this ceiling is not raised to $1,800 we shall find it very difficult to make use of FHA insurance in connection with housing projects in New York City and in the other large urban centers where land and construction costs are likely to be relatively high and where the need of housing projects with low and moderate rentals is so pressing.

I have referred to a project about which we are almost ready to sign with the city of New York. We will not be able to carry through that project on the basis of present cost if we are restricted to an 80-percent insured loan, and a loan that does not exceed $1,500 per room. This contract depends on the commitments, and I am telling you as a factual proposition that in New York City if we were to attempt to go ahead at this time we could not do it if the Commissioner were limited to $1,500 per room. He won't have to go to $1,800 per room on this project, but will have to go considerably over $1,500 per room. Senator BANKHEAD. Is it a slum clearance project?

Mr. SCHWULST. Yes. As I say, we want to go ahead with this project, but we cannot do it unless the Commissioner is given a little more latitude in which to operate. And, you understand, he will have to find and will find before he will approve the commitment to insure this loan, that it is an economically sound project. And so it is that we respectfully submit to you gentlemen of the committee that you should raise that limit from $1,500 a room to $1,800 a room.

Now, gentlemen of the committee, I have taken too much of your time, but if I may I will push along.

Senator MURDOCK. Am I to understand that your objection to section 304 is that it provides an interest rate of 312 percent?

Mr. SCHWULST. That does have something to do with my objection, but I would have the same objection if you stipulated an interest rate of 4 percent. I might even have the same objection if 4 percent or 5 percent were stipulated, because I do not believe a stipulation of interest rate in the law is a desirable thing in a free economy.

I think that you should permit the interest rate to seek its level in the free interplay between lenders and borrowers. Furthermore, I think that unless the Government is going to step in and control the banking structure of the country, take command of credit, that such a stipulation has very little if any effect in any event, because the interest rate is determined by the relationship betwen the supply of money and the demand for that money. Therefore, if the Government

Senator MURDOCK. I would agree with you if there were something in the provision that compelled a banker to loan his money. But the banker is sitting back in this position as I see it under the proposition that you suggest: That when there is a terrific demand for money and he can make loans at his own rate of interest, then he lends money. But when demand for money drops down and the interest rate is not high enough to suit him, he does not have to lend the money.

Mr. SCHWULST. Well, I do not happen to agree with that because I happen to know that we are beating the bushes for loans. We want to get them. Furthermore, in our bank the interest rate has come down from 6 percent on the standard mortgage loan, say 10 or 11 years ago, to where it is now at 4 percent, and we are making some loans at 312 percent, and even as low as 34 percent.

do

Senator MURDOCK. Where the Government insures your mortgage you not think it should have some say in the way of protecting the the Government is willing to insure your mortgage under the program, do you think it should have some say in the way of protecting the home owner against an exorbitant interest rate?

Mr. SCHWULST. What I am trying to say is this: That unless the Government is willing to go out and lend this money on its own credit, what it may say won't have any effect in a free market. It would just mean this: That if the interplay of demand and supply for funds in a free market is such as to command a higher interest rate for money than the maximum you have stipulated in the law, there won't be any money to loan.

The proof of that is this: I believe that in the National Housing Act there is a limit stipulated in regard to title II loans, one-family home loans, and I believe it is 5 percent. My recollection is vague, but I believe it is 5 percent, or perhaps 52 percent. But those loans are being readily made a 412 percent all over the country.

Prior to the war our own bank, and Mr. Benson's bank, the gentleman sitting right behind me, were making those loans in New York at 42 and 4 percent. That is a competitive factor in the market. The fact that the Government said those loans might bear 512 percent does not mean that we are going to hold out. Mr. Benson's bank competes with me for this money. We put out money at what the market was willing to pay, which was considerably less than 5 percent. That is the point I am trying to make.

But I do say this: If the Congress should feel that some maximum should be stipulated in the act, put it high enough so that there will be room for the factors of economic interplay to exert their influence. Do not put it so low that the first time there is a scarcity of loanable. funds the market won't loan money at the rate stipulated. It then means that you have something that is futile.

On the other hand, if the Government wishes to go directly into the lending business, the Government can lend money at whatever rate they can get the money.