Mr. ANDRUS. I can't speak from personal experience on it, Mr. Betts. I understand not, and I understand the reason primarily is the rate of interest. However, I have no expression from the American Bankers Association on the point.

Mr. BETTS. That is all, Mr. Chairman.

Mr. O'HARA. Mr. Chairman.

The CHAIRMAN. Mr. O'Hara.

Mr. O'HARA. Mr. Andrus, I am interested in the second paragraph of your statement. I understand from that, the member banks of your association hold some $77 billion of the savings of the American people.

Mr. ANDRUS. That is correct, sir.

Mr. O'HARA. And of that amount, some $312 billion are invested in residential estate properties.

Mr. ANDRUS. Well, plus their own capital.

Mr. O'HARA. And breaking that down, about $18 billion are in guaranteed mortgages.

Mr. ANDRUS. Yes, sir.

Mr. O'HARA. Leaving $13 billion, or about one-sixth of the entire savings of the American people held by the banks invested in residential mortgages that are not guaranteed; is that right?

Mr. ANDRUS. That is right.

Mr. O'HARA. Now, in the event that a deflation should come, not on the scale of the twenties but along that general pattern, what would be the effect on the banks and on the security of the savings of the American people?

Mr. ANDRUS. We feel that the impact would not be as pronounced as we might have thought in the past by reason of the definite program of amortization which is followed, and the necessity for the borrower to keep his taxes up to date.

Mr. O'HARA. It is your view that that would act as a very helpful cushion?

Mr. ANDRUS. Very definitely; yes, sir.

Mr. O'HARA. You are concerned, I judge from your statement, that there should not be overbuilding?

Mr. ANDRUS. That is right.

Mr. O'HARA. Do you see any signs of that now?

Mr. ANDRUS. May I speak as an individual?

Mr. O'HARA. Certainly.

Mr. ANDRUS. There does seem to be evidence that in the existing housing field there is some softness by reason, perhaps, of the fact that there has been very extensive new construction.

Mr. O'HARA. Thank you, sir.

I wanted to bring out the fact that one-sixth of the savings of the American people are in these mortgages that are not guaranteed. Mr. ANDRUS. Yes, sir; and the banks do feel that responsibility. Mr. O'HARA. And I am glad you emphasized that.

Thank you, sir.

Mr. BROWN (presiding). Are there any other questions?

Mr. KILBURN. Mr. Chairman.

Mr. BROWN. Mr. Kilburn.

Mr. KILBURN. Do the American Bankers Association take any position on public housing?

Mr. ANDRUS. Not for a definite statement, Mr. Kilburn. Of course, there is a great deal of thought given to it, but there isn't such unanimity of opinion throughout the membership of 14,000 banks, that they feel that they are prepared to make a positive statement.

Mr. KILBURN. Of course, I am very much against public housing myself, and I hoped that the association would take a position on it. Mr. ANDRUS. The association, I think, has been very characteristically disposed to keep all business in private enterprise hands. I think that is a perfectly fair statement.

Mr. KILBURN. That is all.

Mr. BROWN. Are there any other questions of this witness?
Thank you, Mr. Andrus, you may be excused.

Mr. ANDRUS. Thank you, gentlemen.

Mr. BROWN. The clerk will call the next witness.

The CLERK. Mr. Joseph B. Haverstick, president of the National Association of Home Builders, accompanied by Mr. George S. Goodyear, of the National Association of Home Builders.

Mr. BROWN. Come around, gentlemen.

You may proceed, Mr. Haverstick.

STATEMENT OF JOSEPH B. HAVERSTICK, PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS; ACCOMPANIED BY GEORGE S. GOODYEAR, FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. HAVERSTICK. Mr. Chairman and members of the committee, my name is Joseph B. Haverstick. I am an active home builder from Dayton, Ohio, and appear here today as president of the National Association of Home Builders. I have with me George S. Goodyear, our first vice president and chairman of our division of governmental affairs, who is a builder from Charlotte, N. C., and Herbert S. Colton, our general counsel.

As you know, the National Association of Home Builders is the trade association for the home-building industry. Its membership now is almost 37,000, grouped in approximately 250 affiliated local and State associations.

Before discussing the specific provisions of the legislation now before you, I would like to report to you the disturbing situation in which homebuilding now finds itself. New starts for April fell to a seasonally adjusted annual rate of 1,110,000, which is substantially below 1955. This in itself would be no cause for concern, as we have always felt that production would settle at a level somewhat under that of last year.

However, the clear indications are that the trend is still sharply downward. Unless there is some immediate improvement in the financing picture, the outlook for the remainder of the year is not hopeful. From practically all sections of the Nation our members report that construction loans are becoming more difficult to obtain each day. They report that permanent mortgage loans have for some time been almost as scarce as in "the mortgage drought" of 1953 and in the past 30 days have become even more scarce.

Coupled with the well-recognized increasing costs of land, labor, community facilities, and materials, this decreasing supply of mortgage money is not only causing total production to fall, but the homebuilding industry is being forced to abandon the low downpayment, low monthly carrying charge pattern of mortgage financing which has been a basic factor in development of mass production home building in the past 20 years. If the present trend continues, the average home buyer will progressively be deprived of the opportunity to acquire a suitable home at terms within his ability to pay.

Since 1940, as a direct result of the low downpayment, low monthly carrying charges, low interest rate amortized loan, the greatest socialeconomic revolution in recent industrial history has occurred. In the 15 years since 1940, the number of American homeowners has doubled, with a tremendous beneficial effect on our economy and on our society. Mass production of homes, at modest prices, suitable for the average citizen, depends on mass financing. But today mortgages to fit the needs of the family of modest income and small savings-however good credit risks they may be--are challenged as "excessive credit" and "speculative." Some even say that home mortgage credit should be available only at high prices and at sharply restricted terms; that we should go back some 25 years; that mortgages should be lower and homes larger and more costly.

If a philosophy of scarcity is to prevail again-scarcity in the flow of mortgage funds and scarcity in home production-there can be only one result-a sharp cutback in home building and an increasing concentration on the comparatively high price ranges. In short, this would mean a return to conditions which prevailed decades ago. Then mortgage credit was available only on terms that made it difficult, if not impossible, for the great majority of Americans to aspire to homes of their own. It eventually resulted in foreclosure of vast numbers of those who had acquired homes on stringent and insupportable mortgage terms.

A few days ago we sampled the opinion of a representative group of the membership on the current state of the mortgage market. Seventy percent replied that the supply both of construction and permanent loans was seriously tight; significantly, many also said that a further tightening had occurred in the last 30 days.

We can see no signs of these conditions correcting themselves automatically. As a matter of fact, the time lag between any corrective action and its effectiveness in the housing market is still largely unappreciated.

This is clearly illustrated by the experience of the industry over the past year. In April 1955, this association in response to a request from Senator Sparkman for comment on the outlook for home building, pointed out that the high volume of starts in the first few months of 1955 was the direct result of the easy money conditions of the previous year; that the mortgage market was already sharply reversing itself; and that housing starts had started to recede from their peak. We pointed out further that the demand for homes was clearly sustainable at a good level, although perhaps some 10 to 15 percent under its then record rate. We warned that governmental actions, then under consideration to restrict mortgage lending, on the theory that it was necessary to prevent a runaway boom in mortgage credit, would

come at a time when the credit boom had passed its peak and the trend was downward.

Nevertheless, in addition to governmental steps to tighten general credit (which inevitably have an exaggerated impact on home mortgages) certain measures were taken to curb mortgage credit. Thus in July 1955 the down payments on FHA and VA financed homes were increased; loan maturities were shortened (although later this was relaxed); construction lending and warehousing were seriously impaired both by the general curtailment of credit and by the attitude of those in control of the central banking system upon which the commercial bankers necessarily depend.

Parenthetically, in 1955, contrary to some assertions, less reliance was placed in the commercial banking system than at any time in the previous 5 years, with the exception of 1953-in 1950, $1 of every $3 used in the capital market came from the commercial banking system whereas only $1 of every $16 was so derived in 1955, the year of greatest demand for capital funds by the home building industry.

As a result of all this there has been engendered a financial atmosphere not favorable to home building. This comes at a time when some predictions of a lull in demand have been confounded by a continuing good market for new homes as a part of the dynamic improvement in living conditions of the American people. It comes only 3 or 4 years before the time when, in the nearly unanimous opinion of economists, a vast expansion of home building will be necessary to care for tremendous upsurge in family formation which will occur as the war-born generation of the early 1940's reaches marriageable age.

We do not believe, of course, that the lack of mortgage money can be wholly solved by any single legislative or governmental step or series of steps. Fundamentally, the situation is the result of the tremendous demand throughout the national economy for credit of all kinds. This is a problem with which the Federal Reserve System and others must grapple. It is our job when we appear before you to speak for the housing industry and to suggest to you, if we can, how the disadvantages from which it suffers can be overcome without producing an unsound result elsewhere in the economy.

We want again to emphasize, as we have for the past year, that residential mortgage credit by its very nature is the first to feel the pinch of credit restriction.

The following quotation from an editorial in Business Week magazine for May 5, 1956, is pertinent:

It is not simply a matter of increasing interest rates, although the general level of interest charges has been raised to the highest point in 23 years. It is a question of the actual availability of money. Day after day business enterprises are turned away as they seek to obtain credit to carry out their plans.

The credit squeeze strikes most directly at smaller business. The giants like General Motors and General Electric will get the money for their capital expansion programs, but the smaller enterprises are already having to lay aside or cut their capital expansion plans.

Home building is not only small business; it requires long-term credit. The uneven impact of restriction hits mortgage lending even more than other types of long-term credit and short-term credit.

While our financing troubles cannot, in our opinion, be completely overcome until such time as the demand for and the supply of credit in the entire economy are brought into better balance, there are some

steps which we believe essential if mortgage financing is to attain something approaching parity with other forms of investment in bidding for capital.

Only certain specialized types of investors are willing to invest in mortgages. The narrowness of this specialized field and its sensitivity to changes in the money market make vitally necessary an adequate central mortgage facility. Without such a facility, we do not believe a relatively stable supply of mortgage money for residential construction can ever be achieved.

As this committee is undoubtedly aware, Mr. Goodyear presented our detailed testimony on this subject to your Subcommittee on Housing a month or two ago. Without taking your time now, I would like to place in the record a summary of our suggestions contained in a letter dated February 21, 1956, addressed by Mr. Goodyear to Congressman Rains. A copy is attached as exhibit A of this statement.

I would like to pause a moment here and say that we have had an opportunity to review the report of the subcommittee that came out over this past weekend, and from what we see of it we are very much pleased and think the subcommittee did a very fine job.

H. R. 10157 goes a considerable distance toward accomplishing the general objectives at which our suggestions were aimed. Its amendments to FNMA would reduce somewhat the very high cost now involved in doing business with that agency which, we contend, has acted as a severe depressant on the mortgage market. Further, it would permit greater flexibility in the prices at which FNMA buys and thereby allows more effective use of FNMA in helping to stabilize the market.

It is not clear, however, whether these amendments would be sufficient to persuade FNMA that it is authorized to extend its maximum influence toward stemming the fall of mortgage prices. We feel that FNMA's basic purpose should be to exert a maximum effect toward mortgage market stabilization and that this should be made crystal clear to overcome its present feeling that under its present legislation it must operate solely as a profitmaking institution.

We appreciate the sympathetic consideration given to our ideas in the report of the Federal National Mortgage Association issued this week by the Special Subcommittee on Housing. While we naturally are anxious for further improvements in a FNMA, we understand the subcommittee's feeling that there should be further consideration and study before FNMA's basic stock purchase and investment structure is revamped or a rediscount or lending function instituted. We urge that the committee continue its consideration of these important matters. We shall be glad to cooperate with you in any such study.

To return now to the bills before you, I shall not attempt to cover them in complete detail but, with your permission, shall merely present to you the position of the home-building industry on certain features which we believe particularly important.

I. MILITARY HOUSING

There is, of course, no question that there may be a need for more housing for military installations. However, in our opinion, this