normal life of a loan will not last more than 8 years-but, putting it over a 10-year period, it means an annual cost of one and a half tenths of 1 percent.

The servicing: Correspondent gets a half of 1 percent a year; the home office servicing cost is another half of 1 percent; and you arrive at a total cost of 1.15 percent a year.

The above cost, deducted from a 4 percent gross VA interest rate, will leave a net yield of 2.85. When you consider that high grade bonds may, even today be bought in quantity and they yield 3 percent or over, the disadvantage of the 4-percent loan is apparent. This disadvantage can best be illustrated by comparing a $5,000,000 investment in bonds, which is one transaction and where you have but two entries a year, with an equivalent $5,000,000 investment in 501 VA mortgages. Using an average loan of $7,500—and that is higha $5,000,000 investment in VA loans would mean the acquisition of 666 individual mortgages, with the consequent appraisals, and so forth, of that many separate parcels of real estate and, because collections are made monthly, 7,992 bookkeeping entries a year in comparison with a $5,000,000 purchase of bonds where there are two bookkeeping entries.

To justify this work the net yield on mortgages should be higher than on high-grade corporate bonds. Because of the low interest yield on a VA mortgage the VA program under section 501 would have failed by this time if it had not been for the market supplied by "Fannie Mae."

To prove this point I shall give the volume of VA loans purchases by "Fannie Mae" this year.

I am starting now with January and carrying through until the latest figures that are available as of the end of June. In January "Fannie Mae" purchased $19,700,000, in February, $22,550,000; in March, $30,000,000 in April, $40,652,000; in May, $64,269,000; and in June, $116,000,000. Now these figures should be compared with the total loans closed by the Veterans' Administration and I will give them again by the same months: January, "Fannie Mae" purchased $9,700,000, VA closed $101,000,000, so approximately 20 percent of the VA loans in January went to "Fannie Mae." In February, "Fannie Mae" purchased $22,000,000, and VA closed $96,000,000 and so at that moment "Fannie Mae" is up to 221⁄2 percent of the total. In March, "Fannie Mae" purchased $30,000,000 and VA closed $81,000,000. At that point over 30 percent of the total went to "Fannie Mae." In April, "Fannie Mae" purchased $40,642,000, the VA closed $85,000,000 and you are up to close to 50 percent. In May, "Fannie Mae" purchased $64,000,000, with VA closing $105,000,000 and you are up to 65 percent, approximately. Heavens know what it was in June when "Fannie Mae" purchased $116,000,000. My guess is that is pretty close to the total amount that VA did that particular month. If the section 505 (a) mortgages insured by the VA, which are largely of a good private market because the FHA insured mortgage portion carries a 41⁄2 percent rate of interest, are deducted from the above totals, we believe it is a fair statement to say that practically all VA 501 mortgages are currently finding "Fannie Mae" the only outlet. It is the opinion of Mortgage Bankers Association that the original theory of "Fannie Mae" which was that the act as a secondary market should be retained.

This theory of operation can be illustrated by "Fannie Mae" and RFC Mortgage Company. From the start of operations to January 31, 1949, "Fannie Mae" and the RFC Mortgage Company acquired 149,450 FHA insured mortgages. For a total volume of 695,000,000, that is. Of this number on January 31, 1949, they retained only 31,250 mortgages, for a total volume of 213,000,000. In other words, the rest of them had either been sold off privately or had been paid off. The VA loan purchase program by "Fannie Mae" has been in existence for almost a year, and to date no 501 VA mortgage has been sold by "Fannie Mae" to a private investor. In other words, "Fannie Mae" is not, as far as 501 VA mortgages are concerned, acting as a secondary market, but acting as the sole market for these loans and the reason being because the interest rate is so low that it is unattractive to the large pools of funds available for the purchase of these loans.

I recall this committee's attention to the fact that in May and June 1949, "Fannie Mae" purchased $180,000,000 of veterans mortgages, veteran VA mortgages, for an average of $90,000,000 per month. The Congress already has authorized "Fannie Mae" to purchase an additional $500,000,000 of mortgages, and the bill now being considered adds another $500,000,000. It is our opinion that these funds will not last a year. These advances are being made in a period when the Government is already resorting to deficit financing. It is our opinion that an increase in the VA interest rate to 4/2 percent would (a) reestablish "Fannie Mae" in its original position, namely that of a true secondary market, and (b) would eliminate the necessity for Government providing untold millions of dollars to support an unsound interest rate and thus add to an already unbalanced budget. We ask this committee to seriously consider increasing the interest rate on VA 501 mortgages to 41⁄2 percent. For the same reasons we believe it would be a very serious mistake to abolish 505 (a) loans, as this section proposes, since it is the 505 (a) loan which is at present providing the only healthy private market for the VA loan program.

(e) Title III, sections 301 to 310 provide direct loans to cooperatives, at the going Government bond rate plus one-half percent up to 60 years to amortize the loans. The Mortgage Bankers Association opposes this proposal as it does the proposals that FHA-financed cooperatives be liberalized, and for the same reasons. It is our opinion that this title of the bill would (a) encourage unsound projects and (b) completely discourage any private ownership of rental property for middle income tenants.

(f) Title V, section 501, 504, authorizes $300,000,000 for direct loans to educational institutions. We oppose this title because (a) it is again direct lending by the Government, and (b) if loans or grants to colleges are necessary, it should be considered as a part of the aid to education bills that are now receiving congressional consideration. This subject is not one for a housing bill. It might, however, be noted in passing that the total interest charges on a loan extending over 40 years at 2% percent will be much larger than such charges on a loan at 41⁄2 percent interest with only a 20-year term.

If you have any questions I would be very glad to answer them. Mr. MULTER. I have one question for you, sir. I think I understood you to say that cooperatives have not been successful? Mr. CLARK. That is correct.

Mr. MULTER. Can you furnish us with some statistics to back up that statement?

Mr. CLARK. I think, as a matter of fact, there is a Government statistic on that subject put out by the Department of Commerce. I cannot quote it to you right now, but I can give it to you.

Mr. MULTER. I do not want it at the moment. I did not think you would be prepared with it now, but if you will prepare a statement indicating statistically the cooperatives that have not been successful, listing them as to where they are and if you know why, or any indication of why they have not been successful, it would be helpful. Mr. CLARK. I would be glad to do that.

Mr. MULTER. That is all.

The CHAIRMAN. Do you have any questions?

Mr. BUCHANAN. No, sir.

The CHAIRMAN. You do not believe in liberalizing the cut-off date for the Federal National Mortgage Association?

Mr. CLARK. No, sir. As a matter of fact, Mr. Spence, my own opinion is that if the interest rate on VA loans were put at the proper spot "Fannie Mae" would practically cease to exist. The only reason it is doing such a magnificent business at the moment is because there is no other place for them to go. I think it ought to be made as tough as it can be made and give private money a chance to operate with a 41⁄2 percent rate.

The CHAIRMAN. If there are no other questions, you may stand aside. I do not see any reason for us to continue longer this afternoon. We will adjourn until tomorrow morning at 10 o'clock.

Mr. BUCHANAN. Do these other men want to file their statements or testify orally?

The CHAIRMAN. Do you want to testify orally? You have the privilege of filing your statements if you desire.

Mr. MORGAN. We will wait until tomorrow morning.

Mr. BUCHANAN. This other gentleman may want to file his state

ment.

The CHAIRMAN. We will hear you if you desire to be heard, but you will have the privilege of filing your statements and putting them in the record.

Mr. BUCHANAN. Here is a gentleman here that would like to file a statement. You are not scheduled to testify, of course. He is from Congressman Green's district in Philadelphia, Pa. You can file your statement.

Mr. MULTER. Do you have a prepared statement?

Mr. SHEEHAN. I have one.

The CHAIRMAN. We are not going to continue the hearings any longer this afternoon. If you desire to file a statement, you may do so. Mr. SHEEHAN. All right.

STATEMENT OF STANLEY J. SHEEHAN, ON BEHALF OF PENNYPACK WOODS HOME OWNERSHIP ASSOCIATION

Mr. SHEEHAN. Mr. Chairman, H. R. 5631 vitally affects Pennypack Woods, a permanent war housing project in the northeast section of Philadelphia. The Pennypack Woods Home Ownership Association, an organization composed of the 1,000 residents of Pennypack Woods, 70 percent of whom are veterans of World War II, wishes to place

itself in support of this bill. We feel that its provisions will be a long step in the direction of providing homes for the middle-income group that have been excluded from previous housing legislation.

However, we wish to direct the attention of the committee specifically to title II of the bill, which has to do with the disposition of war and veteran housing already in existence. In order for us to make clear our position, it becomes necessary for the committee to fully appreciate the background concerning a few of the projects that will be disposed of under this title. We refer to the eight projects that were included under the "Westbrook plan" some years ago. Just what the "Westbrook plan" is, and how that plan has been applied to the residents of eight projects throughout the country, are described in the brief and attached letters that we are submitting to the committee for their perusal.

We call to your attention that the Westbrook plan had for its purpose the providing of home ownership to people throughout the country who had always aspired to home ownership, but were never quite able to make it. It brought within their reach the dream that they had long cherished, by providing a method of financing that would come within their reach; a plan whereby homes could be purchased over a period of 45 years, at an interest rate of 3 percent, with no initial down payment. To date the Government has entered into agreements with five of these projects under those terms. Three projects, namely, Pennypack Woods in Philadelphia, Audubon Park and Bellmawr Park, both in New Jersey, still remain unsold. The residents of these projects have been negotiating in good faith with the Government for well over 7 years. We, the residents of Pennypack Woods, have consistently endeavored to purchase our project under the terms which were promised us upon occupancy, in 1942. To date we have not been able to consummate the sale, although we are still actively engaged in negotiations with the Housing & Home Finance Agency. We are now awaiting a decision resulting from our latest negotiations on June 9, 1949.

However, from the press releases, based on recent statements by Mr. Foley, it would seem that if title II of the bill under consideration becomes legislation, the 7 years of negotiations between ourselves and representatives of the Government would go for naught.

We feel that special consideration should be given in this title to the three "Westbrook plan" projects still remaining unsold, if the promises made by representatives of the Government to the residents of these communities are to be kept. It must be remembered that the residents of these projects, for a period of 6 to 8 years have, first of all, in good faith, moved in, and actively carried on negotiations with the Government. Insofar as mutual home ownership in Pennypack is concerned, our people are anxious to consummate the purchase of Pennypack. That does not mean that our anxiety extends to the point where we are willing to conclude it on any terms. It is imperative to remember that the moral obligations coming out of our negotiations with the Government, and promises made, never be lost sight of. It is important that we remember the genesis of Pennypack. What happened? How did Pennypack come about? How did the people get there? Did they of their own volition look for the "Promised Land," and did they find sanctuary in Pennypack? Or, were they invited to come there, and were certain promises explicitly held out?

As we have pointed out, Pennypack was one of eight projects originally built by the Government. These projects were built not merely as real-estate ventures, not merely as commercial transactions for the enrichment of the Government. These projects had a social philosophy behind them. I do not think we ought to be ashamed of frankly avowing that doctrine. The rationale behind these projects was the fact that people wanted to own their own homes, but people in many instances could not afford to own their own homes, and that the Government was going to help them fulfill this lifetime ambition. It might well be asked why it has taken so long for Pennypack, Audubon, and Bellmawr to consummate a sale with representatives of the Government. The files of the Agency will very clearly show that it has not been the responsibility or the fault of the residents of these projects; that they have repeatedly engaged in negotiations sincerely trying to reach a conclusion. However, there have been several stumbling blocks placed in our path, chief of which was the hearings held by the Banking and Currency Committee under the Eightieth Congress. Although these hearings never resulted in actual legislation, it did cause the Administrator of the Housing and Home Finance Agency to publish a regulation-Public Regulation No. 1that endeavored to do away with the original idea of the "Westbrook plan." Our negotiations for the past 2 years have been concerned with that regulation alone. Once again, the viewpoint of the people of Pennypack Woods and of the other projects is very clearly pointed out in our brief.

Public Regulation No. 1 had the effect of changing legislation already on the books, even though it was only based, in the words of Mr. Foley, on what he supposed to be "the intent of Congress." We have been saying to Mr. Foley for the past 9 months that the philosophy of the Eightieth Congress was very thoroughly repudiated by the American people in the last national election. It is our opinion that representatives of the Government have not been seriously attempting to conclude an agreement with us, simply because the philosophy of the present housing administration is diametrically opposed to the hopes that were enunciated by President Roosevelt, and are being carried on in the present administration. This constitutes a breach of good faith.

If title II of the legislation now under consideration is enacted into law, or if by resolution of the committee that title becomes in effect the same as law, then not only will the hopes and aspirations of the residents of the three projects be destroyed, but also mass evictions will result, affecting veterans because of their inability to meet the terms and conditions this title will impose on them.

It must be remembered that when the promises we refer to were made to us in Pennypack, we were not veterans-we were war workers-we later became veterans. While 70 percent of us were away becoming veterans, it appears the Housing Agency was working to deprive us of the homes to which we looked forward with all our hearts to return.

We feel sure that the members of this committee will recognize the moral obligations that exist on the part of the Government toward the residents of "Westbrook plan" projects, and that you will want to see those mobligations fulfilled. Therefore, we ask that the three remain

"ook plan" projects be exempted for the provi

sions of th