Our experience during these disasters has indicated one significant point, and I think it is a point that has a bearing on the nature of the problem in connection with flood insurance, namely, that the demand for business loans far exceeds the demand for residential loans. In our most recent experience, namely, Hurricane Diane, 95 percent of the total amount of applications filed for disaster loans was for losses to businesses rather than losses to homes.

I have a chart up here which graphically demonstrates this problem. You will note the bar on the left sets forth the applications for loans in terms of dollars. The gray bar at the top indicates the amount that has been sought by homeowners for losses to homes and residences as a result of this flood.

Senator BUSH. Mr. Chairman, may I ask the witness this: That is in dollars. Of course, the home loans would all be fairly small. Mr. BARNES. In terms of numbers, the right-hand bar shows it numerically.

Senator BUSH. I see. That brings out the point I had.
Mr. BARNES. The number of applications.

Senator BUSH. I see.

In other words, even the number of applications for homes is only 21 percent? Mr. BARNES. Yes, sir. Senator BUSH. Yes.

And the dollar volume is 4.6 percent.

Mr. BARNES. Now, that same figure holds true in each of the disasters that we have studied with minor variations. I mean it runs from 75 percent to 95 percent in each of the disasters that we have examined. But it would not necessarily hold true in a tornado, for instance, as Udall, Kans., where it was the entire city which was what was wiped

out.

This, of course, results chiefly from the fact that industries have historically located along rivers and streams and, therefore, have sustained the principal losses.

Furthermore, it will be observed from our own knowledge of the situation that for the most part housing in areas subject to flood is marginal and is frequently not rebuilt or is converted to industrial property after a flood or is not the type of property on which the owner seeks a loan.

There were a number of cases, for instance, in New England where the property was entirely rental property and the owner did not seek a loan but decided to convert his property to industrial uses, and the loss of the tenants was in household fixtures and things of that sort. In administering the disaster loan program, we have tried to adhere to humanitarian principles. We seek to help those who have no other source of funds, those who are genuinely in distress, and in considering their applications we are ever mindful that our purpose is to give help whenever we can.

In making these loans we try to give as much help as we can and give it speedily, but they are loans, not grants, and under the law it is expected that they shall be repaid.

The Reconstruction Finance Corporation transferred to us some $14,722,000 in disaster loans for administration and liquidation following the liquidation of RFC. In the year and 2 months we have been administering the RFC loans, the total amount outstanding has been reduced by some $3,284,000. At the time of the transfer there

were 307 loans delinquent over 60 days involving principal amounts of some $1,461,347, and a total delinquency of $394,031.

As of August 31 this year, the principal amount involved in delinquencies and, accordingly, the potential loss of worthless accounts had been reduced on the RFC loans to $913,573, and total delinquencies to $294,535, or a reduction of 25.3 percent in delinquencies during the period that we have been administering these loans.

Senator LEHMAN. Mr. Barnes, may I go back one step?

Mr. BARNES. Yes, sir.

Senator LEHMAN. You testified that both numerically and in dollar value the applications which you have received are much less in the case of homes than in the case of business properties.

Mr. BARNES. That is right.

Senator LEHMAN. You have given some explanation of that. But I wondered whether there isn't another explanation which seems in my opinion to be more realistic, possibly more potent, than that which you have given.

Mr. BARNES. There is another explanation?

Senator LEHMAN. May I just develop it, please?

Mr. BARNES. Surely.

Senator LEHMAN. In the case of business properties, assuming that the business concern is solvent, they can afford to ask for a loan with the expectation that they are going to be in a position to pay it back. In the meantime, whatever losses that they have suffered may be charged off in their income taxes or corporation taxes.

That is not the case in home loans. A man may have owned a little home that cost him $10,000. He has taken out a $7,000 mortgage. And that house is wiped out. He is left with the mortgage, as I outlined before.

When he makes another loan which would permit him to rebuild or erect a new house costing $10,000, he will also have to take a mortgage on that house, so that the total indebtedness of that man will be twice $7,000 or $14,000. Don't hold me to exact figures because I am just using general terms.

Mr. BARNES. Yes.

Senator LEHMAN. Unless a man in the low-income group or middleclass-income group has other means, it is going to be mighty hard for him to pay the service charges or to repay those loans.

We had Commissioner Mason of the Housing and Home Finance Agency in here yesterday, and he testified that his organization, his agency, would accept applications for the rebuilding of destroyed homes or the construction of new homes to replace those that had been destroyed. We asked him how many applications he had received, and he said he had received just three.

I think the reason for it is that these men of low incomes just cannot afford to borrow a second amount, double the borrowing, in order to erect another little home. And we have encouraged them, the Government has encouraged the building or acquisition of little homes. I think that is another reason in addition to those which you have already outlined which explains why there have been relatively so few applications for loans received by your agency.

Mr. BARNES. Well, sir, we work with this problem in many other disaster areas besides this one up there, and it is my observation that

there are other contributing factors. If the income of the homeowner is sufficiently high, he usually has his own banking and housing loan connection and may not need any assistance from a Government agency.

But I think further the Red Cross and their activities, which I intend to get into at the conclusion of my testimony, have contributed materially to this and prevent the situation that you described from becoming too acute, because they are capable and have in this instance up there done an outstanding job of making grants, and they alleviate the problem of a man who already has a mortgage on his property.

I have examples of exactly what has been done in those situations. I intend to testify truthfully. It is my observation, however, that the problem does not relate as much to housing usually because of the very marginal condition of the housing that is subject to constant flooding. People prefer not to live there. And while there is distress, it is not the distress that is remedies by a loan program, and I meant to draw the conclusion that it is not likely that it would be alleviated by an insurance program. I can develop that as I go along.

Senator LEHMAN. How is a man going to build a house-a little man?

Mr. BARNES. The point there is that if you are going to fix premium rates at all realistically, you will, of course, have them graduated according to the area where there is the greatest hazard. That is true of all true insurance plans. And if it is a voluntary program—and I assume it is that you are considering then that means the area that is subject to constant flooding is the one that is going to bear the highest rates, and, as applied to homeowners, that will be the most marginal of home property and the kind least likely to pay the higher premium

rate.

That was the conclusion, and I think it is inescapable from the figures that have happened in past disasters. Whether you will conclude that after you have actually visited the areas I do not know, but I think that is what is likely to result in the fixing of any premium rate under any true actuarial basis and if you keep it as a voluntary program.

Senator BUSH. Mr. Chairman, may I ask a question here?

Senator LEHMAN. Surely.

Senator BUSH. Don't you feel, Mr. Barnes, that the small percentage of applications from homeowners vis-a-vis the business applications is in part due in our area to the job which the American National Red Cross has done in restoring homeowners to homes or occupants to homes?

Mr. BARNES. Yes.

Senator BUSH. Don't you feel that has been a substantial factor? My observation there, Mr. Chairman, is that this has such a great bearing on this whole subject that I wonder if it would not be advisable to call the American Red Cross to appear before this committee.

Mr. EDELSTEIN. They are scheduled to appear in Hartford.
Senator BUSH. That is fine.

Just to finish this observation, in the town of Waterbury, Conn. alone, I think it will be testified to that the Red Cross will have distributed there pretty nearly $12 million. Most of that has gone to

homeowners for replacing their furniture or rebuilding their homes or buying new homes.

There is one case on the record there to show you how far they can go of a widow and one child who were completely washed out. The Red Cross gave that one family alone $16,000 for a new home, new furniture, and new clothing for the two people, the mother and daughter. So that is just one indication, Senator, of the extent to which they have gone and are in a position to go in such matters.

I shall offer a little later today some statistics as of today as to the number of cases which the Red Cross has handled. In our State they have handled over 6,000 cases, and a great many of these have to do with restoring people to homes or restoring homes which are partially destroyed.

I have no doubt from what I have actually seen on the ground up there that the activity of the Red Cross, which has been magnificent, has a lot to do with the fact that people are not borrowing, because they are getting these grants-in-aid. The Red Cross is not making loans but grants-in-aid, outright gifts, as a result of the generosity of people all over this country and all over the world indeed, because they have been getting flood-disaster gifts for the Red Cross from all over the world.

Senator LEHMAN. I do not entirely follow your reasoning. Are you against Federal flood insurance?

Senator BUSH. No. I think the Senator

Senator LEHMAN. I gathered from your remarks you did not think it was necessary.

Senator BUSH. You opened the discussion by questioning the small number of home applications, and I was speaking apropos of the question which you yourself raised. I do not think anything I said. would indicate any adverse view toward flood insurance. On the contrary, I am seeking for a flood-insurance bill that will help us in this situation just as hard as the Senator is.

Senator LEHMAN. May I ask you, Mr. Barnes, what steps you took to acquaint homeowners with their application rights for loans from the Small Business Administration? I know that the businesses, of course, are acquainted with their rights, and they would undoubtedly take advantage of it, as it is within their province. But to what extent did the Small Business Administration acquaint the homeowners with this privilege?

Mr. BARNES. I was going to cover part of that in the rest of my statement, but, very briefly summarizing it, and I may touch on it again, we opened I think some 19 offices-as high as 23 at one timethroughout the entire area. We had excellent cooperation from the local press and radio. They put stories from day to day in practically every paper in the entire flooded area.

We sent out a press release I think to some 700 papers and radio stations in the area defining exactly what the loan program was as applied to businesses and what it was as applied to homes.

In addition, we worked with the Red Cross, which immediately catalogs every loss in each area and sets them up as cases and has interviews with the people. Each of the Red Cross workers in their manual has an exact definition of our loan program, and there are constant referrals from the Red Cross to the Small Business Administration or from our offices to the Red Cross.

I think it would not be possible for a victim of a disaster, a homeowner, to have failed to have full information about his rights to file an application and the terms and criteria under which it is granted. Senator LEHMAN. Proceed.

Mr. BARNES. I mentioned the repayment figures to indicate that although these loans are made very quickly and the credit data is assembled promptly with the help of local citizens the people are really very honest. I mean the loss factor is relatively small considering this type of a program. In the 2 years that we have been making our own loans, as of October 27 this year we have approved some 2,596 individual disaster loans totaling some $27,240,314.

We are very proud that our number of delinquencies is very small. The last figure I have is that only 50 were delinquent more than 60 days, or less than 5 percent delinquency factor.

After a disaster loan is made, our agency has a continuous responsibility until the loan is repaid. Collections must be made at regular, preestablished intervals, and we also make certain that the loan funds. are used for the purpose for which they were authorized.

As a result of the Northeast floods alone, we approved 1,300 loans totaling more than $16,500,000, and about 450 loan applications totaling more than $16,500,000 are now in process.

I have some later figures which I will give you in a few minutes. Let me sketch briefly how the disaster-loan program works. When a disaster strikes, our regional office in the area is alerted at once to communicate with State and local officials to acquaint them with our service. In Washington we coordinate our work with the National Red Cross and with the Federal Civil Defense Administration. We work closely with and cooperate with the governors, city and county officials, and with civic groups such as chambers of commerce and business organizations.

We establish temporary loan offices in the disaster area whenever possible. Within a few days after the Northeast floods we had opened 19 temporary offices. We had them open by Tuesday, as a matter of fact, following the floods on Thursday night. Although it takes a few days to get all the materials and supplies in, we were interviewing victims of the disaster by Tuesday of the next week.

In charge of these offices were loan officers from our agency assisted by clerical help loaned to us by State and local officials and civic groups. The office space and much office equipment was made available to us at no cost to the Federal Government.

To expedite our service, we authorized these temporary offices to make loans on their own authority up to $20,000, and the regional offices to make disaster loans up to $50,000. Only the larger loans are approved in Washington. A simplified, short-loan application form is used on disaster home loans up to $2,000.

The cooperation of the Nation's bankers has been most helpful to Last year we asked the American Bankers Association if banks would assist us in processing applications for disaster loans, and the association was most cooperative. Bankers from nearby banks were actually loaned to us to fill out staffing requirements in the area, and their salaries were paid by their own banks.

The cooperative program thus established was of immeasurable assistance during this flood in New England. In that disaster the local banks assigned 78 credit men to us for reassignment to our various