Mr. MONRONEY. So if you have the double standard, you limit the choice of the veteran to take the financing through the agency that he prefers?

Mr. KING. Yes, sir.

Mr. MONRONEY. I am getting a lot of criticism, however, of the Veterans' Administration's inspection and certification and construction standards, by people that I am inclined to feel know what they are talking about, and that the plans submitted to Veterans' Administration are not being fully carried out, and also that Veterans' Administration does not have the inspection facilities to actually determine whether these houses are being built according to specification and according to minimum standards.

I am just wondering, if we do tighten this up, how much more personnel will be required of the Veterans' Administration to actually be able to know whether these houses that are being sold to veterans are not skimped or jerry-built, for which we are furnishing a hundred. percent secondary market.

Mr. KING. The additional personnel which would be required by the Veterans' Administration would be very little, Mr. Congressman, for the reason that the Veterans' Administration has undertaken to handle its appraisal and inspection service primarily through fee personnel. It maintains a salaried staff only for the purpose of spot checking and reviewing the work in the field.

I think I am familiar with, and very, very lately, have become familiar with, what the Congressman has in mind. I have a man in Oklahoma right now, who was sent there last week, to see what is behind the assertions. There was a hiatus there which permitted laxity. I think the explanation lies simply in the fact that the Federal Housing Administration field inspector, whose certification the Veterans' Administration is taking, did not have at hand necessarily the same plans and specifications that the Veterans' Administration based its appraisal on initially. I think that can be cured.

That was made possible only because of our anxiety to save the veteran an extra inspection fee, and not that we were not able to make that inspection. We were trying to save the veteran $10.

I am sure that if we have collaboration between the field offices of the Federal Housing Administration and the Veterans' Administration, that that little loophole could not be used in a manner which would be detrimental to the veteran.

Mr. MONRONEY. Along that same line, it seems to me that you are seeing developed here, as a result of Federal Housing Administration testimony, and things we get from the field, bureaucratic jealousy between two agencies involved in trying to solve the same problem.

Now, it has been customary for large-scale contractors to get commitments from Federal Housing Administration on the construction plans, say, for 10 or 15 houses. Then, after those houses are built, if the veteran wants to take the financing through the Veterans' Administration, they have been able to take these and put them through the Veterans' Administration. But now I understand that the Federal Housing Administration, through our local office in Oklahoma City and other places, that they will no longer do that; that if they gave a commitment during the construction period, they must then be financed and only financed through Federal Housing Administration and not the Veterans' Administration.

I think it is up to this committee to coordinate this program so that we do not have that division of business. I can see where the Federal Housing Administration should be reimbursed, perhaps, for the service that they render during the construction period, but that if the veteran wants to take that loan through the Veterans' Administration, he should have the right to do so. Let the builder, then, reimburse whatever cost the Federal Housing Administration has expended on the work done.

Mr. KING. I can see the Congressman is thoroughly familiar with that situation. I do not think there is anything which the Veterans' Administration can do about it under the present law, unless the Federal Housing Administration were willing to let us compensate them.

Mr. MONRONEY. That would eliminate a certain overhead. In other words, the difference between the Federal Housing Administration program-the advantage to the builder-is that they can go out and schedule and get mass-production economy, by getting a commitment on perhaps a whole block of houses.

You do not have a similar program under the Veterans' Administration for that purpose. You cannot get interim financing, as I understand it, for these large-scale projects that are built and then sold on a turnkey, completed basis to the veteran.

Mr. KING. You are entirely correct, Mr. Congressman. Veterans' Administration can give the service to the builder, but it cannot give the commitment. We can give the commitment only at the point. where the builder has sold to a particular veteran.

Mr. MONRONEY. Yes, but Federal Housing Administration can give a commitment on 50 or 100 houses. Then, when those houses are completed, and they sell the houses to veterans, or to nonveterans, then they get their Federal Housing Administration insurance. So they are protected and in that way we are getting large-scale building and, I think, getting some economies in construction through the mass. production process.

Mr. KING. Yes, sir.

Mr. MONRONEY. I think our problem is either, one, we must let. Federal Housing Administration continue interim financing both for Federal Housing Administration or Veterans' Administration, or we have got to duplicate that set-up with the Veterans' Administration so that the builders will be protected under that basis.

One thing that is rather important is that we are doing away with the two-package loan, so that it will probably go either VA or FHA and not a combination of the two. So it is going to make this situation, which is becoming increasingly difficult now, a great deal worse when they have got to choose between one or the other type of financing.

Mr. KING. Yes, sir. I might note, Mr. Monroney, that in Oklahoma, over the last 3 months, the incidence of this combination loan in our program has fallen from 93 percent down to 29 percent. So I am sure the situation as it faces FHA is fairly acute in Oklahoma. Mr. BROWN. Are there any other questions?

Mr. MULTER. Mr. King, how large a staff do you have in the Veterans' Administration for veterans' home loans?

Mr. KING. I believe, under the present budget, Mr. Congressman, that nationally we have just less than 2,000 people for this program;

94397-49- -6

and I include home, farm, and business loans. Perhaps it is a little over 2,000; 2,100 perhaps. We just do not know exactly where we are with the budget at the present moment, but it is around 2,000 people, Mr. Multer.

Mr. MULTER. Would there be any objection to all of that work being concentrated in the Federal Housing Administration and that you simply make the loans upon the certification of the Federal Housing Administration, taking their appraisal and certification?

Mr. KING. I believe the Veterans' Administration has been fairly positive in its expressions, in the past, to the effect that it did not think that that would work.

Mr. MULTER. Why should it not work?

Mr. KING. You are leading me through the threshhold of a rather large subject, Mr. Congressman, but, firstly, it is very difficult for the same agency to both serve the citizenry and serve a class of the citizenry. Their interests conflict, and the conflict between those interests crops up continuously; and one manifestation of it is what Congressman Monroney brought out here this morning. You cannot both serve God and mammon, if I may quote the Scripture.

Mr. MULTER. I know the Scripture you refer to, but I do not see the analogy.

Mr. KING. Because, Mr. Congressman, the Federal Housing Administration is set up to serve the citizenry without regard to whether or not any particular class of those citizens are entitled, under an existing program of the Congress, to a special preference.

The GI loan program, correctly viewed in perspective, is nothing more than an attempt of Congress to give preference, in the way of consumer credit, to a particular class of citizens.

Mr. MULTER. You do not mean to imply that that preference is to be granted regardless of the type of loan, regardless of whether or not the property, if we are dealing with a property loan, is appraised properly to warrant the loan? You see, one of the biggest complaints we have been getting is that veterans all over the country are being "gypped" and loans are being made so that they move into houses which collapse around their ears. That may be a slight exaggeration, but some of the stuff that has been sold to the veterans throughout the country was not fit to live in-and yet they got their loans. You are not doing the veteran any favor when you are giving him that kind of a loan. You are giving him a preference, but that is not the preference that Congress intended that he should get. We want him to get loans on property that is going to stand up. That is why I think this can be concentrated in a real-estate agency rather than in an agency with identical lending powers. If I were running a bank I would want real-estate experts to appraise my real-estate loans, not solely for the purpose of filling my books with mortgages but to give me good mortgages; and I would want people who know commercial credits to pass on my commercial loans.

Mr. KING. Mr. Congressman, I am fairly well aware of the popular concept that a great many jerry-built houses were built under the GI loan program. However, I would be very interested in seeing some statistical implementation of that assertion.

I think you will find, Mr. Congressman, if you look at the statisticsand I believe that under some of the functions of the Office of the Housing Expediter those complaints have been gone into and they

have statistics which, incidentally, I have not seen-that they do not bear out that popular conception. I think you will find that the complaints as to jerry-built houses stem primarily from the necessity facing builders, over the years through 1946 to 1948, of using whatever materials they could get their hands on, particularly green lumber. I think short-cuts were abundant, born of the necessity of doing with what they could get, and that those short-cuts obtained under any program that was undertaken to support residential construction over that period of time.

I would be very interested to find any accurately delineated report of a statistical nature that corroborated this popular assertion that these were GI homes financed under the GI program that were jerrybuilt.

Mr. MULTER. Let us leave that aside for the moment and let us look at this just from the viewpoint of economy of government. Why should there not be one agency appraising and certifying as to the value of the property against which you are going to make a loan? Mr. KING. I mentioned one factor that I think is very significant in that regard. The second one is this, Mr. Congressman: That is, the Congress has seen fit to set up different laws with utterly divergent objectives, and where you have divergent objectives it is very often a practical necessity to have them administered other than through a single head.

Mr. MULTER. Let us take that a moment. Where is the divergence of objectives? The main objective is housing.

Mr. KING. The divergent objectives here, in their primary aspect, are that under the National Housing Act law the Congress has prescribed that the Government commit itself, by mortgage-loan insurance, to a percentage of the mortgage value of the home. There is no control whatsoever placed upon the price of that home.

Under the GI loan program, apparently motivated by a desire to protect the veteran, the Congress prescribed that no purchase or construction could be financed unless the particular house had a purchase price or a construction cost not greater than the reasonable value of that unit. Thus Congress has put a price control, in effect, upon the unit financed with a GI loan. It is different than the popular concept of price control in that it does not preclude the builder from selling at his price, but he cannot sell to a veteran, under this program, if his price exceeds what the Veterans' Administration says the reasonable value of the property should be.

So you have divergent objectives, and it apparently was thought, by those who considered this in the past, that the fact of divergent objectives argued for a divergence of control.

Mr. MULTER. I do not agree with your conclusion. I see neither divergence of objective nor the need for divergence of control. Mr. KING. May I bring out one more point, Mr. Congressman? Mr. MULTER. Surely.

Mr. KING. I would not leave the thought here that were the Federal Housing Administration to absorb this program, which is apparently what you are bringing forth here, that you would save costs or any considerable element of administrative costs. The Veterans' Administration is running a very considerable part of the administrative costs of this program through the expedient of using fee personnel, and the veteran is billed for the cost of those fees. We do not pay them our

selves, except where we use fee personnel for a spot check appraisal or something of the kind.

Mr. BUCHANAN. Who makes your inspections in the field?

Mr. KING. Our inspections are made entirely through fee personnel subject to salaried personnel review.

Mr. BUCHANAN. Comprised of what type of people? Real-estate operators?

Mr. KING. The inspector is required to be, and in the main is, an individual who has building or architectural experience.

Mr. BUCHANAN. Someone connected with the industry?

Mr. KING. Yes, sir. Someone familiar with the factors which govern the industry in that community.

Mr. BUCHANAN. Not with the idea of inspection and supervision toward seeing to it that the veteran gets a fair exchange, but toward seeing to it that the building operation goes ahead on schedule. The question is whether the statistical data bears out the popular contentions. I disagree with you about that and I am going to check into that with the Housing Expediter's office.

Mr. KING. I would be thankful if you did.

Mr. BUCHANAN. In my area, I can say to you that substantially that is not the truth. It is through the VA program of inspection where all the complaints in my congressional district have arisen, and very few through the FHA program.

Mr. KING. May I make a little note on that point, Mr. Congressman? The Congress, over the objection of the Veterans' Administration, in the fall of 1945 tried to put this loan guarantee program on an automatic basis, and for a year or a year and a half from that point-thus carrying through 1946 and most of 1947-the Veterans' Administration, in keeping with the intent of Congress, had to accept the certification of the lender as to the adequacy of that building.

A great many of these lenders were just not equipped by experience to discharge that function properly. So the Veterans' Administration had to take that away from them and the Veterans' Administration undertook its own certification.

Another misconception here, Mr. Congressman, is that the Veterans' Administration inspects all properties which are financed under the program. The control of the Veterans' Administration

Mr. BUCHANAN. But a physical inspection is made by someone in the industry on a fee basis; is that right?

Mr. KING. There are two avenues through which small homes can be financed through the Veterans' Administration program. One is where the Veterans' Administration-I am speaking of the current operation, which has obtained over the last year or more where the Veterans' Administration appraises from blueprints and fixes a value on that property if constructed in accordance with those specifications. When it does that, it inspects. And I have in mind only one instance in which, where the VA has inspected, there has been a material complaint eventuate.

The other type is where the Veterans' Administration, having appraised from blueprints, accepts the FHA inspection and takes its completion certificate, its Form 2051, as evidence of the fact that the property has been properly built.

Where the Veterans' Administration does not appraise-and, incidentally, the Veterans' Administration will not appraise from plans