to launch into a program of hazard insurance which is completely contrary to all of the basic principles involved in any type of insurance program.

Gentlemen, I am a citizen, a property owner, a small-business man, and first, last, and always, a taxpayer. We agents are unalterably opposed to the entry of the Federal Government into any business which is now being successfully conducted in the public interest. We do not want the FHA to get into our business. We are satisfied that the FHA, through whatever field forces it may now employ or might later employ, cannot possibly perform the services necessary to all-round insurance protection. A great part of that protection is the service which we render as agents, to our clients and to our companies as their local representatives. All of us hope we will never see the day when FHA will have to call upon its reserves to any great extent to bolster property values and to save the investment made by the lenders of the public's money in real-estate mortgages. But, most of all, we should not like to see any of the FHA reserves poured down the bottomless pit of uninsured catastrophe losses caused by the unpredictable elements.

As matters now stand, you are making a certainty out of an uncertainty by buying insurance from healthy, well-regulated, private insurance companies through the facilities of our offices, with moneys which were collected for that purpose. We are compensated by commission received for our services. We pay taxes upon our income. The insurance company pays taxes on its premium writings. The municipalities, the States, and the Federal Government count upon and expect that tax income. Thousands of people are employed in the insurance industry. That is the kind of a system that gave this country its solid economy. It is our belief that any venture into selfinsurance by any branch of the Government-when private facilities are wholly adequate will serve to weaken the economy, and successful or not, will serve to induce additional ventures of a similar nature. Historically, free, competitive insurance underwriting has played a major role in the many steps to our present high standard of living by guaranteeing risk capital, large and small, private and governmental.

We are proud of the part the insurance agent has played in this free, competitive system. We ask no special favor. Only your understanding and consideration, to prevent Government competition in a field so well served by our industry.

Gentlemen, strike out section 10 of the Housing Act of 1957 and permit the Federal Housing Administration to continue to do a fine, sensible, and necessary job.

Mr. BROWN. We are very glad to have your splendid statement, Mr. White.

Are there any questions?

Mr. MUMMA. I have a question.

Mr. BROWN. Mr. Mumma.

Mr. MUMMA. Isn't it true that the insurance companies make more money on their investments than they do on their underwriting? Mr. WHITE. Indeed, it is, sir.

Mr. MUMMA. In other words, if it weren't for their investments, they couldn't maintain their rates?

Mr. WHITE. That is right.

Mr. MUMMA. That is all.

Mr. MULTER. In other words, you take the money from the premiums and lend it out on mortgages so the people can buy more insur

ance.

Mr. WHITE. That just about describes it, Mr. Multer.

Mr. BROWN. You may be excused. Thank you.

Our next witness is Mr. Harry Held, connected with the National Associaton of Mutual Savings Banks.

Come around, Mr. Held.

STATEMENT OF HARRY HELD, VICE PRESIDENT OF THE BOWERY SAVINGS BANK, NEW YORK CITY, APPEARING AS CHAIRMAN OF THE COMMITTEE ON MORTGAGE INVESTMENTS OF THE NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS

Mr. HELD. Mr. Chairman, members of the committee, my name is Harry Held and I am a vice president of the Bowery Savings Bank in New York City, N. Y. I am appearing as chairman of the committee on mortgage investments of the National Association of Mutual Savings Banks. Our organization represents the mutual savings banks of the Nation, which are institutions operated solely for the benefit of their depositors.

They are 527 in number, operating in 17 States, primarily located in the New England States, New York, New Jersey, Pennsylvania, and Maryland. They have a total deposit liability of over $28.4 billion and have assets of $317 billion. They are traditionally known as depositories for small savers. They have 21,233,000 deposit accounts. The mortgage investments of mutual savings banks, amounting to well in excess of $17 billion or 55.6 percent of their assets, are comprised of loans made in every State in the country, Puerto Rico, and Alaska. During the year 1955, mortgage holdings of mutual savings banks increased $2.450 billion, or 19 percent above the former record gain of $2.052 billion in 1954.

Our committee on mortgage investments has studied the provisions of H. R. 10157 and the administration bill, H. R. 9537.

With reference to H. R. 10157, we should like to make the following comments:

We recommended the continuance of the FHA title I home improvement program as provided in section 101 of H. R. 10157 as far as the 2-year extension, the increase in the maximum loan amounts to $3,500 and $15,000, and the increase in the maximum loan term to 5 years are concerned.

We recommend against the adoption of the sliding interest-rate scale, that is, a 5-percent discount on loans below $1,000 with a 4-percent discount on the balance above $1,000. These title I loans are really personal loans and it is our feeling that a maximum 4-percent discount on the portion over $1,000 would serve to defeat the purpose of title I. The present rate—that is, a 5-percent discount-is a maximum and is subject to competitive factors. The actual rate of many title I loans seeks its own level below the 5-percent discount.

As to the provisions for the liberalization of FHA section 207, rental-housing insurance, we believe that the increased loan ceilings to $2,250 per room and $2,700 per room in elevator-type structures

would give realistic recognition to present-day cost factors. In supporting these new maxima, we look to FHA to minimize the excessive use of these mortgage limits by application of their standards of value and of economic soundness. We are opposed to the provision in section 103 of the bill for the increase of loan-to-value ratio to the 90percent figure. In our opinion, 90-percent loans are not compatible with a sound rental-housing program. Experience has indicated that a 90-percent loan is in effect one in which the sponsor usually has a no-cash equity position when the project is completed. Under such circumstances the promotion of such projects is generally speculative in nature, rather than being conservative from an investment standpoint. Some evidence of the dangers inherent in the high-percentage rental loans was indicated in the section 608 investigations. As section 207 represents the permanent rental-housing section of the National Housing Act, we believe it should only be made available on a sound and conservative basis.

We do not support the provision under section 104 of H. R. 10157 amending FHA section 213, which would permit a cooperative sponsor to obtain a commitment for a loan up to 85 percent of replacement cost and to proceed with construction before the cooperative has been formed. We have had some experience in the financing of cooperative enterprises, and we believe that this is a field in which caution should be exercised against excessive speculation. We are impressed with the suggestion FHA Commissioner Mason made before this committee that, if Congress desires a method such as this to be employed in initiating cooperative projects, it be handled under FHA section 207 applying the 207 tests of value and of economic soundness with conversion to the liberal terms of section 213 upon sale to a valid cooperative. We also oppose the provision in the bill to permit a higher per room maximum up to an additional $1,000 in this program. As Commissioner Mason pointed out before this committee, the cooperative program was designed to help middle-income families. This increased per room provision would be conducive to the building of projects with fewer rooms per unit and would tend to produce luxury housing under the section 213 program. We do not believe Congress would look with favor upon such result.

We support the increase of $3 billion in the FHA insurance authorization for the coming fiscal year on the assumption that FHA's activities will continue to require such authority.

The proposal in section 106 of the bill to permit a profit and risk allowance of 10 percent for sponsors of urban renewal projects under section 220 would, in our opinion, tend to induce builder-sponsors to request this maximum in every application. In addition, such a flat provision would, to a great extent, weaken the FHA Commissioner's ability to negotiate this factor downward with relation to type and location of property involved.

Section 107 of H. R. 10157 deals with relocation housing insurance under section 221. Here again the maximum permissible loan would be increased to $8,600 and $9,600 in high-cost areas, as compared to the present ceilings of $7,600 and $8,600, respectively. We believe that the increases in these maximum insurable amounts may more nearly reflect cost elements than do the present limitations, but we are opposed to the provision in this section which would eliminate the downpayment and which would increase the maturity of these

loans from 30 years to 35 or 40 years. The no-downpayment loan and the stretching of the maturity terms, when used to any great extent, can be inflationary factors. While a multifamily project might warrant a loan of 35 to 40 years, we question the soundness of making loans in excess of 25 or 30 years on single-family dwellings. The proposed amendment in section 108 of the bill making the cost certification incontestable after the Commissioner's approval should serve to remove a major deterrent to participation of responsible development sponsors, and we support this provision.

Section 201 of H. R. 10157 would make certain amendments in the operations of the Federal National Mortgage Association. The proposal to permit advance commitments under the secondary market operations is unsound in our opinion. This proposal in effect would give FNMA permission to issue standby commitments at prices sufficiently below the prices offered by the Association for immediate purchase. Extensive use of such standby commitment authority could have serious inflationary effects in the same manner as excessive warehousing of commitments of mortgages in the private market would have. The mere inclusion of an advance commitment provision, even on a restricted basis, becomes an invitation to use the FNMA facility without attempting to secure financing through normal sources. are also opposed to this proposal for advance commitments due to the fact that extreme difficulty would be encountered in setting the prices for such commitments. If the costs for the commitments were too high; great pressure would be brought to bear on FNMA to bring the prices down. If costs were too low, there would be no incentive for seekers of mortgage credit to go anywhere but to FNMA for their commitments.

We completely endorse the statement of Mr. Baughman, President of FNMA, in his recent testimony before this committee, when he said:

The principal objections have been that such a procedure tends to draw FNMA nearer to the originating or primary market and away from its basic purpose of providing supplementary assistance to the general secondary mortgage market, and that it tends to place FNMA more nearly in direct competition with mortgage investors.

We are also opposed to the provision in section 201 of the bill to reduce the stock purchase requirement to no more than 2 percent. In our opinion, the 3-percent stock ownership provision is a fair and equitable one, but we would have no objection to some degree of elasticity being introduced into this requirement such as discretion of the Association to adjust the stock purchase requirement with a maximum of 3 percent and a minimum of 2 percent.

We are strongly opposed to the provision in section 201 which would require FNMA to pay par for special assistance mortgages until June 30, 1957. This is a direct threat to the private lenders of mortgage funds. As Mr. Baughman said in his recent testimony before this committee, if FNMA is to pay a par price

virtually all of the mortgages eligible would be offered to FNMA and would be purchased by it, so long as its funds lasted.

The private mortgage market would be seriously damaged by any such policy and, as Mr. Baughman pointed out, such a support program would be very costly to the United States Government and would aggravate FNMA's management and liquidating functions by the addition of new large blocks of mortgages.

It follows that the proposal to increase advance commitment funds for special assistance operations by an additional $200 million is not necessary if we do not increase the advance commitment authority.

The proposal for a $50 million revolving fund to support FHA section 203 (i) loans is not needed. Here again we agree with Mr. Baughman that the interest rate (412 percent) on these loans with the added one-half percent service fee obviates any necessity for a support

program.

Section 202 of H. R. 10157 proposes a new secondary market program for GI loans by permitting the Secretary of the Treasury to invest up to 10 percent of the reserves of the national life-insurance fund by purchasing VA-guaranteed loans where discounts on GI loans are heaviest. This program reputedly could supply nearly $550 million for this purpose. Under this proposal, FNMA would act as the trustee's agent to purchase and service the loans. Here again, we see another large effort to increase the Government's participation in and the Government's investment in direct home mortgages.

As private investors in this field, we are opposed to this program. We agree with the President of FNMA that the GI loan purchases under these provisions would be at prices higher than the applicable market prices and hence would seriously curtail the growth of the private secondary market in mortgages which is increasingly helpful in spreading mortgage funds throughout the country. This compulsory action would increase the national debt and would put the Secretary of the Treasury as trustee of the insurance fund in the equivocal position of investing these trust funds in assets for no other purpose except as an attempt to stabilize a VA mortgage discount market on a purely regional basis. Such action would not only be unwarranted, but might well be considered in violation of the trustee's duty to the policyholders.

Sections 301-304, inclusive, of the bill propose a new loan program for housing the elderly, financed by direct Government loans to nonprofit corporations. We are opposed to the enactment of this legislation because it would probably result in driving private enterprise completely from this field. Instead, we favor the enactment of the privately financed FHA mortgage program for elderly persons as provided in H. R. 9537. The latter provisions would amend existing FHA section 203 to permit a third party to provide the downpayment where the mortgagor is to be an elderly person, and the third party could also be a cosigner of the mortgage note. The H. R. 9537 provisions would also amend section 207, the rental housing insurance, in those cases where at least 25 percent of the units are designed for the elderly. Here the maximum amount of the mortgage would be 90 percent of value. In cases of FHA section 207 where the project is designed and held entirely for elderly persons by a nonprofit organization, the mortgage could be 90 percent of replacement cost instead of 90 percent of value. We believe that these provisions are much more desirable than the direct lending proposed by H. R. 10157.

Generally speaking, we are in favor of the proposals in section 801 of H. R. 10157. These provisions would extend the life of and liberalize the provisions of title VIII, the military housing program. We would like to comment that FHA should be given more control over the quantity and quality of housing to be insured at military installations. We believe it is rather shortsighted not to take full advantage