Senator MURDOCK. I do not think there is any tendency of the Government going into that business except as bankers have made it necessary through the RFC. But I do feel that where the Government goes into the program and is willing to cooperate with the banking fraternity in providing necessary housing, that certainly it would be unfair not to put a maximum ceiling on the interest rate. I do not know whether 32 percent is too low, but there must be a maximum.

Mr. SCHWULST. Îf you want to put a maximum on it I repeat what I have said: In a free economy it does not mean anything. But if you put it in, put it high enough so that when you get these changes of relative supply and demand of money you will have some chance to work.

My personal opinion is this: That at the present time these section 207 loans could be sold at 32 percent. I know that our bank has been doing some of that. We put out one loan at 3.047 percent. A competitor was willing to loan money on that basis. The fact that you stipulated 4 percent interest did not affect the loan.

Senator MURDOCK. Bankers under our system are so much in control of the volume of money in circulation, and every dime of our money that comes into circulation comes of necessity through the debt route. You people are in absolute control of the money that is loaned. Now, if you are put in the position, as you are, to absolutely control the volume of loans and at the same time have no maximum ceiling on interest, it seems to me to be an untenable situation for the borrower. Mr. SCHWULST. I would differ with you when you say banks have absolute control over money.

Senator MURDOCK. I mean under normal conditions. We did get in the position during the war where something had to be done, and as a result we created whatever money and credit was necessary to finance the war. But in normal times, you have absolute say as to what money you will loan. And, of course, having that control placed in you, you absolutely control the volume of money that ultimately goes into circulation.

Mr. SCHWULST. If you were a depositor in my bank I imagine you would want me to exercise control with respect to your money.

Senator MURDOCK. Yes, I would; but I would not want you to exercise it as you did in the early thirties and in 1929.

Mr. SCHWULST. There were mistakes made by a lot of people at that time.

Senator MURDOCK. Yes; and I do not hold them against you, but hope it won't be a habit, or that it won't be repeated.

Mr. SCHWULST. I certainly hope not. I also infer from what you say that you think banks somehow or other are seeking to control this situation. I think that is not so. But that may not be a proper inference drawn from what you have said.

Senator MURDOCK. I certainly do not accuse the banks of any such policy.

Mr. SCHWULST. We do not have any such control. These banks are competing with each other and with a great many other lending institutions.

Senator MURDOCK. But we may come to a time in the future where the situation is not very competitive. You are in control of the loans that you make, except as I have stated on Government borrowing.

Mr. SCHWULST. We certainly have the right to say whether we will or will not make a loan, and I hope we will not give up that right. After all, we are responsible for the money left with us.

Senator MURDOCK. And I want you to properly discharge that responsibility. But I cannot get away from the idea that where the Government comes into the picture as an insurance agency in the housing of the Nation, that then we must so far as possible prohibit an exorbitant interest rate. Whether 32 percent is high enough I do not know, but I hope to learn about that during the progress of these hearings.

Mr. SCHWULST. In regard to that I can only repeat what I have said, that I think it is entirely ineffective. Your stipulation of an interest rate in this law if you are going to promote that phase of the economy represented by private lending agencies by having them compete with each other in the lending of money, the rate measuring the value of credit-and it would be a low rate certainly in this economy because you have Government backing in the form of insurance-the rate will be determined by the amount of money available for lending and the amount of such loans as are available for invest

ment.

In my humble opinion no matter what rate you might stipulate in the law, it will be ineffective. Nevertheless, if you feel that some rate should be stipulated in the law, then my suggestion to you is that you put it at least high enough so that the interplay of economic forces I have mentioned will not bring the rate in the open market for that type of credit up to a point which is beyond the ceiling you have specified, and thereby make the law completely ineffective.

As an example, you have 5 percent stipulated in section 203, and yet loans are being sold all over the country with a contract rate of 41⁄2 percent, and on a yield basis even lower than that. Your 5 percent law does not have any effect on that. The open market fixes the rate. Now, Mr. Chairman, may I proceed? I am practically through. Senator BANKHEAD. If you want to complete your statement this morning you better hurry. We want to recess in a few minutes. Mr. SCHWULST. I now come to Title V. Direct Private Investment in Housing for Families of Moderate Incomes: This title adds a new title VII to the National Housing Act, and it would provide, under certain terms and conditions, a guaranteed yield on a direct investment in housing by individuals and groups, corporations, and other legal entities. We are opposed to this title because it involves the extension of the principle of Government guaranty into a new field, the field of direct investment ownership. We believe that with the changes we have proposed in section 207 of the National Housing Act the Government will have gone as far as is necessary or desirable in facilitating the provision of rental housing for tenants in the low and moderate rental groups.

Title VI. Land Assembly for Participation by Private Enterprise in Development or Redevelopment Programs: This title provides for the absorption by the Federal Government of the larger part of loss incurred in the acquisition of high-cost land by local Government bodies for resale at its economic value to purchasers for the purpose of erecting housing projects thereon. We recognize the probability that the only practical method of making available for housing pur

poses high-cost land in urban communities is through the spreading over taxpayers generally (that is, absorption by Government) of the loss represented by the difference between what must be paid for the land and what the land is actually worth on an economic basis for hous ing purposes. We are aware of the fact, however, that several States and cities are working out methods of taking care of these losses locally without calling upon the Federal Government to absorb any part of them. It seems to us to be proper that the States and cities should be the ones to determine whether land should be assembled and losses therefrom incurred for housing purposes and that their desire that the need be met should stand up under the test of their willingness to contribute substantially to the cost of meeting that need.

Tile VI relating to this matter is, in our opinion, defective on several counts. In the first place it would seem to be capable of considerable simplification in its drafting. In the second place it is not restricted to development or redevelopment of slum and substandard areas. We believe it should be so limited. And, thirdly, we believe that the title is not sufficiently clear as to the money value (and the amount thereof) of the local contribution to the cost of land assembly. We would sug gest that the title be redrafted in such a way as to require the local community concerned to shoulder not less than one-half of the net loss involved in the land assembly projects in which it is interested and in which the Fsderal Government is asked to participate.

Title IX. Disposition of Permanent War Housing and Other Federally Owned Housing With Preference to Servicemen and Veterans: We are in favor of this title and support the principle that in the disposition of war housing veterans should be given preference. Thank you very much, gentlemen of the committee.

Senator BANKHEAD (presiding). Gentlemen of the committee, we will have an executive session at 2:15 this afternoon to consider the nomination of Maple T. Harl, of Colorado, to be a member of the Board of Directors of the Federal Deposit Insurance Corporation for the unexpired term of 6 years, September 1, 1945, vice Leo T. Crowley. At the conclusion of the executive session the committee will resume the hearings on this bill, at 2:30 p.m.

(Thereupon, at 12: 10 p.m., Wednesday, December 5, 1945, the committee recessed until 2: 30 p. m. of the same day.)

AFTERNOON SESSION

The committee reconvened at 2:30 p. m., pursuant to recess, Senator Robert F. Wagner (chairman) presiding.

Present: Senators Murdock, Mitchell, Carville, Buck, Ellender, and Capper.

The CHAIRMAN. The committee will come to order. Mr. Needham. Mr. NEEDHAM. Yes, Senator.

The CHAIRMAN. It was not possible to give you any more time, but I understand you have some testimony on behalf of the American Bankers Association which you would like to have included in the record.

Mr. NEEDHAM. We would be very glad to do that. We will have two more statements, which were prepared, and which we had hoped to present to your committee, but in view of the shortness of the time. we are waiving that privilege.

The CHAIRMAN. You will place them in the record?

Mr. NEEDHAM. Yes, sir; in the next day or two.

(The following statements were later received for the record:)

STATEMENT OF PHILIP A. BENSON, PRESIDENT OF THE DIME SAVINGS BANK, BROOKLYN, N. Y.

(Delivered to the United States Senate Committee on Banking and Currency, Wednesday, December 5, 1945, with respect to Senate bill 1592, the General Housing Act of 1945. Mr. Benson, a past president of the American Bankers Association, is a member of the Subcommittee on Mortgage Financing and Urban Housing of its Federal Legislative Committee)

My name is Philip A. Benson. I am president of the Dime Savings Bank in Brooklyn, N. Y. Our bank is a mutual savings institution with 250,000 depositors who are actually the owners of the bank. It is one of the largest home mortgage lending institutions in the east. I am a past president of the American Bankers Association and a past president of the National Association of Mutual Savings Banks and I appear here today on behalf of both of these associations.

My comments on certain provisions of S. 1592 are as follows:

TITLE I. NATIONAL HOUSING AGENCY

Title I of the act establishes an agency and instrumentality of the United States to be known as the "National Housing Agency" and which will consist of three units which now exist as three agencies under the supervision of the National Housing Administrator.

The operations and purposes of these three agencies are diverse in functions, purposes and operations. The Federal Home Loan Bank Administration is concerned with the large number of savings and loan associations which are functioning actively and directly in local home financing, also with the Federal Savings and Loan Insurance Corporation which insures the share accounts of its member savings and loan associations, and with the Home Owners' Loan Corporation which is now in liquidation. The Federal Housing Administration is an agency engaged in the insurance of mortgage loans made by approved mortgagees and certain other unsecured loans. The United States Housing Authority is concerned with the creation of rental housing for tenants in the low-income groups.

Because there is great dissimilarity among these three agencies we feel that each can perform its functions more efficiently if each of them was permitted to revert to the status it held prior to the issuance of Executive Order 9070. They should not permanently be combined with one head.

We realize, however, that H. R. 4129 has passed the House and the Senate and is now in conference and that it gives the President general reorganization powers and that this bill may have some effect upon the three agencies herein mentioned.

TITLE II. RESEARCH, MARKET ANALYSIS, AND LOCAL PLANNING

While recognizing the great importance of research, market analysis, and local planning our associations are not in favor of the provisions of title II. We take the position that the office of the National Housing Administrator should be abolished and it necessarily follows that title II should not be enacted.

The associations are of the opinion that each of the several constituent agencies, because of the peculiarities of the business they undertake and the purposes they serve, should conduct the research pertinent to its own field. The Federal Housing Administration, prior to the creation of the National Housing Agency, had developed a very competent research division and it appears that the other two constituent agencies had research facilities adequate to their needs.

The associations believe strongly that much attention must be given to the study of methods of home financing and particularly to all aspects of the cost of constructing homes. Insofar as the three constituent agencies may have common interests in this field, there is no reason why they could not cooperate with each other in research projects even though they are not under a common administrator.

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TITLE X. PERIODIC INVENTORY OF HOUSING NEEDS AND PROGRAMS

Since our associations are not in favor of the continuance of the National Housing Agency on a permanent basis it follows that we advise against the enactment of title X.

Research projects conducted by the several agencies may produce all the information contemplated by this title and, if not, the Government can easily find other ways of securing and making available information sought to be obtained under the provisions of this title.

TITLE IV. PRIVATELY FINANCED HOUSING FOR FAMILIES OF LOWER INCOME

We recognize that it is desirable and in the public interest that houses be produced for families of low income costing about $5,000 or even less. We are of the opinion that this will not be accomplished by the provisions of this bill. Section 402 of the bill would increase to 95 percent the insurance on loans to home owners, and 85 percent on loans to builders, when the amount of the loan does not exceed $5,000, and which provides that mortgages may run for 32 years and bear interest at no more than 4 percent. There is little, if any, need for a 95-percent mortgage. If these low-cost homes can be produced there are plenty of people eager to buy them and who will pay down at least 10 percent in cash. There cannot be much doubt that for some time to come it will be difficult to build enough houses to supply the demand of people who can pay 10 percent or more in cash. In other words, we have a large demand for houses and great difficulty supplying it and the market does not need stimulation of 95-percent mortgages.

The provision for the 95-percent mortgage does not help the veteran for on houses costing $5,000 or even more we can lend him 100 percent.

Thirty-two years is too long a term for mortgages of this type for monthly payments reduce the mortgage too slowly, probably hardly enough to keep up with depreciation. Computations indicate that only 8.62 percent of the mortgage would be paid off in its first 5 years of the term.

The provision for 85-percent loans to builders is unwise. Eighty-five percent will often come near to paying back to the builder his entire cost. If the market price of houses turns downward some builders will be inclined to abandon the houses on which they borrowed 85 percent. Builders should have sufficient capital investment in their houses so that they will protect it. We, therefore, disapprove of this provision of the bill.

Our associations believe that it is unwise to stipulate that the interest rate on loans of this type should not exceed 4 percent per annum. We think it would be better if the same provisions regarding interest rates apply to these loans as apply to all other loans described in section 203 of the National Housing Act.

Section 403 would result in taking away practically all risk from the mortgagee. We do not think this is sound or that it is in harmony with the principles of mortgage insurance. Furthermore, it is not necessary to grant such an inducement to mortgagees for there will be no difficulty in marketing loans without the inducement.

With respect to sections 404 and 405 we favor amendment to section 207 of the National Housing Act so that mortgagees on rental property may be insured up to 90 percent (instead of 80 percent) of value. We do not favor 95 percent loans under section 207 even if the property is owned by a nonprofit corporation, and such loans should not be made at a rate of interest of 31⁄2 percent or lower. Section 406 of the bill is especially objectionable. It authorizes the Federal National Mortgage Association to make real estate loans insured under this section. This holds out an implied threat to private lending institutions and it means that if economic factors which determine a current interest rate on mortgage loans in the open market do not justify a rate of 3% percent, this Government agency will make the loan. The effect of this will be to put the Government in direct competition with private enterprise and our associations are opposed to any such action.

TITLE VII. AID TO LOCALITIES FOR LOW-RENT HOUSING

Our associations are not opposed to public housing in principle for we recog nize that government must subsidize to some extent the cost of providing decent and safe housing for citizens in the low-income groups. We believe, however,